FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended June 30, 1998
____________________________
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The transition period from to
_____________ _____________
Commission file number 1-7677
______________________
LSB INDUSTRIES, INC.
____________________________________________________
Exact name of Registrant as specified in its charter
DELAWARE 73-1015226
______________________________ ___________________
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
16 South Pennsylvania, Oklahoma City, Oklahoma 73107
_______________________________________________________
Address of principal executive offices (Zip Code)
(405) 235-4546
__________________________________________________
Registrant's telephone number, including area code
None
__________________________________________________
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
_____ _____
The number of shares outstanding of the Registrant's voting Common
Stock, as of July 31, 1998 was 12,191,786 shares excluding
2,914,190 shares held as treasury stock.
<PAGE>
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PART I
FINANCIAL INFORMATION
Company or group of companies for which report is filed: LSB
Industries, Inc. and all of its wholly-owned subsidiaries.
The accompanying condensed consolidated balance sheet of LSB
Industries, Inc. at June 30, 1998, the condensed consolidated
statements of operations for the six month and three month periods
ended June 30, 1998 and 1997 and the consolidated statements of
cash flows for the six month periods ended June 30, 1998 and 1997
have been subjected to a review, in accordance with standards
established by the American Institute of Certified Public
Accountants, by Ernst & Young LLP, independent auditors, whose
report with respect thereto appears elsewhere in this Form 10-Q.
The financial statements mentioned above are unaudited and reflect
all adjustments, consisting only of adjustments of a normal
recurring nature, which are, in the opinion of management,
necessary for a fair presentation of the interim periods. The
results of operations for the six months and three months ended
June 30, 1998 are not necessarily indicative of the results to be
expected for the full year. The condensed consolidated balance
sheet at December 31, 1997, was derived from audited financial
statements as of that date.
1
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<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1998 is unaudited)
(Dollars in thousands)
June 30, December 31,
ASSETS 1998 1997
__________________________________ ___________ __________
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,502 $ 4,934
Trade accounts receivable, net of allowance 56,154 52,191
Inventories:
Finished goods 31,784 36,429
Work in process 8,311 8,582
Raw materials 23,767 23,189
___________ __________
Total inventory 63,862 68,200
Supplies and prepaid items 8,775 7,595
___________ __________
Total current assets 134,293 132,920
Property, plant and equipment, net (Note 4) 99,866 118,331
Investments and other assets, net of allowance 18,930 19,402
___________ __________
$ 253,089 $ 270,653
=========== ==========
</TABLE>
(Continued on following page)
2
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<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information at June 30, 1998 is unaudited)
(Dollars in thousands)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
____________________________________ ___________ __________
<S> <C> <C>
Current liabilities:
Drafts payable $ 963 $ 737
Accounts payable 25,451 28,137
Accrued liabilities 16,445 16,196
Current portion of long-term debt 12,609 15,874
___________ __________
Total current liabilities 55,468 60,944
Long-term debt (Notes 4 and 6) 146,204 165,067
Contingencies (Note 5)
Redeemable, noncumulative convertible
preferred stock, $100 par value; 1,539 shares
issued and outstanding (1,539 in 1997) 146 146
Stockholders' equity (Note 3):
Series B 12% cumulative, convertible
preferred stock, $100 par value;
20,000 shares issued and outstanding 2,000 2,000
Series 2 $3.25 convertible, exchangeable
Class C preferred stock, $50 stated
value; 920,000 shares issued 46,000 46,000
Common stock, $.10 par value; 75,000,000
shares authorized, 15,105,616 shares
issued (15,042,356 in 1997) 1,511 1,504
Capital in excess of par value 38,321 38,257
Accumulated other comprehensive loss (1,609) (1,003)
Accumulated deficit (20,821) (29,773)
___________ __________
65,402 56,985
Less treasury stock, at cost:
Series 2 Preferred, 5,000 shares 200 200
Common stock, 2,679,590 shares
(2,293,390 in 1997) 13,931 12,289
___________ __________
Total stockholders' equity 51,271 44,496
___________ __________
$ 253,089 $ 270,653
=========== ===========
</TABLE>
(See accompanying notes)
3
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<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
(Dollars in thousands, except per share amounts)
1998 1997
__________ __________
<S> <C> <C>
Revenues:
Net sales $ 165,469 $ 162,502
Other income 1,325 3,801
Gain on sale of the Tower (Note 4) 12,993 -
__________ __________
179,787 166,303
Costs and expenses:
Cost of sales 129,173 132,199
Selling, general and administrative 30,816 31,554
Interest 8,839 6,396
__________ __________
168,828 170,149
__________ __________
Income (loss) before provision for
income taxes 10,959 (3,846)
Provision for income taxes 260 125
__________ __________
Net income (loss) $ 10,699 $ (3,971)
========== ==========
Net income (loss) applicable to
common stock (Note 2) $ 9,077 $ (5,593)
========== ==========
Weighted average common shares
outstanding (Note 2):
Basic 12,661,182 12,940,755
Diluted 15,125,465 12,940,755
Income (loss) per common share (Note 2):
Basic $ .72 $ (.43)
========== ===========
Diluted $ .65 $ (.43)
========== ===========
</TABLE>
(See accompanying notes)
4
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<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, 1998 and 1997
(dollars in thousands, except per share amounts)
1998 1997
___________ ___________
<S> <C> <C>
Revenues:
Net sales $ 87,433 $ 89,268
Other income 213 2,171
___________ ___________
87,646 91,439
Costs and expenses:
Cost of sales 67,054 69,887
Selling, general and administrative 15,210 16,682
Interest 3,981 3,340
___________ ___________
86,245 89,909
___________ ___________
Income before provision (credit) for
income taxes 1,401 1,530
Provision (credit) for income taxes (20) 63
___________ ___________
Net income $ 1,421 $ 1,467
=========== ===========
Net income applicable to
common stock (Note 2) $ 618 $ 648
=========== ===========
Weighted average common shares
outstanding (Note 2):
Basic 12,576,185 12,906,687
Diluted 12,711,735 13,161,676
Income per common share (Note 2):
Basic $ .05 $ .05
=========== ==========
Diluted $ .05 $ .05
=========== ==========
</TABLE>
(See accompanying notes)
5
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<PAGE>
<TABLE>
<CAPTION>
LSB INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
(Dollars in thousands, except per share amounts)
1998 1997
___________ __________
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 10,699 $ (3,971)
Adjustments to reconcile net income (loss)
to cash flows provided (used) by operations:
Depreciation, depletion and amortization:
Property, plant and equipment 6,021 5,141
Other 677 567
Provision for possible losses
on receivables and other assets 1,071 1,066
Loss (gain) on sale of assets (12,993) 9
Recapture of prior period provisions for
loss on loans receivable secured by real estate - (1,383)
Cash provided (used) by changes in assets
and liabilities:
Trade accounts receivable (4,359) (5,834)
Inventories 3,786 4,540
Supplies and prepaid items (1,580) (716)
Accounts payable (2,598) (6,081)
Accrued liabilities 544 853
___________ _________
Net cash provided (used) by operations 1,268 (7,515)
Cash flows from investing activities:
Capital expenditures (3,837) (5,701)
Principal payments on notes receivable 40 203
Proceeds from sales of equipment and
real estate properties 63 360
Proceeds from sale of the Tower (Note 4) 29,266 -
Increase in other assets (1,269) (2,994)
___________ __________
Net cash provided (used) in investing activities 24,263 (8,132)
Cash flows from financing activities:
Payments on long-term debt (18,581) (23,042)
Long-term and other borrowings - 53,864
Net change in revolving debt (3,290) (13,655)
Net change in drafts payable 226 (17)
Dividends paid (Note 3):
Preferred Stocks (1,622) (1,622)
Common Stock (125) (389)
Purchases of treasury stock (Note 3) (1,642) (535)
Net proceeds from issuance of common stock 71 190
___________ __________
Net cash provided (used) by financing activities (24,963) 14,796
___________ __________
Net increase (decrease) in cash 568 (851)
Cash and cash equivalents at beginning of period 4,934 1,620
_________ __________
Cash and cash equivalents at end of period $ 5,502 $ 769
========= ==========
</TABLE>
(See accompanying notes)
6
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LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Note 1: Income Taxes At December 31, 1997, the Company had
regular-tax net operating loss ("NOL") carryforwards for tax
purposes of approximately $65 million (approximately $18 million
alternative minimum tax NOLs). Certain amounts of regular-tax NOL
expire beginning in 1999.
The Company's provision for income taxes for the six months ended
June 30, 1998 of $260,000 is for current state income taxes and
federal alternative minimum tax.
Note 2: Earnings Per Share In 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings Per Share.
Statement 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share exclude
any dilutive effect of options, warrants and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings
per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
Net income or loss applicable to common stock is computed by
adjusting net income or loss by the amount of preferred stock
dividends. Basic income or loss per common share is based upon the
weighted average number of common shares outstanding during each
period after giving appropriate effect to preferred stock
dividends. Diluted income or loss per share is based on the
weighted average number of common shares and dilutive common
equivalent shares outstanding and the assumed conversion of
dilutive convertible securities outstanding, if any, after
appropriate adjustment for interest, net of related income tax
effects on convertible notes payable, as applicable.
7
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<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Note 2: Earnings Per Share (continued) The following table sets forth the
computation of basic and diluted earnings per share: (dollars in thousands,
except per share amounts)
Six Months
ended June 30,
1998 1997
__________ __________
<S> <C> <C>
Numerator:
Net income (loss) $ 10,699 $ (3,971)
Preferred stock dividends (1,622) (1,622)
__________ __________
Numerator for 1998 and 1997 basic
and 1997 diluted earnings per
share - income (loss) available
to common stockholders $ 9,077 $ (5,593)
Preferred stock dividends on preferred
stock assumed to be converted in
the first quarter of 1998 818 -
__________ ____________
Numerator for 1998 diluted earnings
per share $ 9,895 $ (5,593)
========== ============
Denominator:
Denominator for basic earnings per
share - weighted-average shares 12,661,182 12,940,755
Effect of dilutive securities:
Employee stock options 128,920 -
Convertible preferred stock 2,331,363 -
Convertible note payable 4,000 -
___________ ____________
Dilutive potential common shares 2,464,283 -
___________ ____________
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions 15,125,465 12,940,755
=========== ===========
Basic earnings per share $ .72 $ (.43)
=========== ============
Diluted earnings per share $ .65 $ (.43)
=========== ============
Three Months
ended June 30,
1998 1997
___________ ____________
<S> <C> <C>
$ 1,421 $ 1,467
(803) (819)
_________ __________
$ 618 $ 648
- -
_________ ___________
$ 618 $ 648
========= ===========
12,576,185 12,906,687
131,550 250,989
- -
4,000 4,000
__________ __________
135,550 254,989
---------- ----------
12,711,735 13,161,676
========== ==========
$ .05 $ .05
========== ==========
$ .05 $ .05
========== ==========
</TABLE>
8
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LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Note 3: Stockholders' Equity The table below provides detail of activity in
the stockholders' equity accounts for the six months ended June 30, 1998:
Common Stock Non- Capital
__________________ redeemable in excess
Par Preferred of par
Shares Value Stock Value
_______ ________ _________ ________
(In thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1997 15,042 $ 1,504 $ 48,000 $ 38,257
Net income
Foreign currency
translation adjustment
Comprehensive income (Note 8)
Exercise of stock options 64 7 64
Dividends declared:
Common Stock ($.01 per share)
Series B 12% preferred
stock ($6.00 per share)
Series 2 preferred
stock ($1.62 per share)
Redeemable preferred
stock ($10.00 per share)
Purchase of treasury stock
________ _________ ________ ________
Balance at June 30, 1998 15,106(1) $ 1,511 $ 48,000 $ 38,321
======= ========= ======= =======
<FN>
(1) Includes 2,680 shares of the Company's Common Stock held in treasury.
Excluding the 2,680 shares held in treasury, the outstanding shares of
the Company's Common Stock at June 30, 1998 were 12,426.
</FN>
<PAGE>
Accumulated Retained
Other Com- Earnings Treasury
prehensive (Accumu- Treasury Stock
Income lated Stock- Prefer-
(Loss) deficit) Common red Total
__________ _________ _________ _________ ________
<S> <C> <C> <C> <C> <C>
$ (1,003) $(29,773) $(12,289) $ (200) $44,496
10,699 10,699
(606) (606)
-------
10,093
71
(125) (125)
(120) (120)
(1,487) (1,487)
(15) (15)
(1,642)
(1,642)
________ _________ ________ ________
________
$(1,609) $(20,821) $(13,931) $ (200) $51,271
======== ========= ========= ========= =======
</TABLE>
9
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LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Note 4: Sale of the Tower In March 1998, a subsidiary of the
Company closed the sale of the Tower office building. The Company
realized net proceeds of approximately $29.3 million from the sale
($1.0 million of which is held in escrow until September 1998,
pending expiration of representations and warranties associated
with the sale). Proceeds from the sale were used to retire the
outstanding indebtedness of approximately $12.6 million in March
1998, for which this property served as collateral. Approximately
$15.5 million of the remaining proceeds were used to reduce
indebtedness outstanding under the Company's Revolving Credit
Facility. The Company recognized a gain on the sale of the
property of approximately $13 million in the first quarter of 1998.
Note 5: Commitments and Contingencies
_____________________________
Nitric Acid Project
___________________
In June 1997, two wholly owned subsidiaries of the Company, El
Dorado Chemical Company ("EDC"), and El Dorado Nitrogen Company
("EDNC"), entered into a series of agreements with Bayer
Corporation ("Bayer") (collectively, the "Bayer Agreement"). Under
the Bayer Agreement, EDNC will act as an agent to construct, and
upon completion of construction, will operate a nitric acid plant
(the "EDNC Baytown Plant") at Bayer's Baytown, Texas chemical
facility. EDC has guaranteed the performance of EDNC's obligations
under the Bayer Agreement. Under the terms of the Bayer Agreement,
EDNC is to lease the EDNC Baytown Plant pursuant to a leveraged
lease from an unrelated third party with an initial lease term of
ten years from the date on which the EDNC Baytown Plant becomes
fully operational. Upon expiration of the initial ten-year term
from the date the EDNC Baytown Plant becomes operational, the Bayer
Agreement may be renewed for up to six renewal terms of five years
each; however, prior to each renewal period, either party to the
Bayer Agreement may opt against renewal. It is anticipated that
construction of the EDNC Baytown Plant will cost approximately $65
million and will be completed in the first quarter of 1999.
Construction financing of the EDNC Baytown Plant is being provided
by an unaffiliated lender. Neither the Company nor EDC has
guaranteed any of the lending obligations for the EDNC Baytown
Plant. In connection with the leveraged lease, the Company entered
into an interest rate forward agreement to fix the effective rate
of interest implicit in such lease. As of June 30, 1998, the fair
value of such agreement represented a liability of $5.0 million for
which the Company has posted margin and letters of credit totaling
$5.0 million. Bayer has agreed to reimburse the Company for 50% of
the ultimate cost of the hedging contract associated with the
interest rate forward agreement.
10
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LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Debt Guarantee
______________
The Company has guaranteed approximately $2.6 million of
indebtedness of a start-up aviation company, Kestrel Aircraft
Company, in exchange for an ownership interest, to which no value
has been assigned as of June 30, 1998. The Company has made
investments in and advances to the aviation company totaling
$999,000 as of June 30, 1998 and is accruing losses of the aviation
company based on its ownership percentage (40.7% as of June 30,
1998). The Company has recorded losses of $3,078,000 ($769,000
during the first six months of 1998) related to the debt guarantee
and advances. The debt guarantee relates to a $2 million term note
and up to $600,000 of a $2 million revolving credit facility. The
$2 million term note requires interest only payments through
September 1998; thereafter, it requires monthly principal payments
of $11,111 plus interest beginning in October 1998 until it matures
on August 8, 1999, at which time all outstanding principal and
unpaid interest are due. In the event of default of this note, the
Company is required to assume payments on the note with the term
extended until August 2004. The $2 million revolving credit
facility, on which a subsidiary of the Company has guaranteed up to
$600,000 of indebtedness, has an outstanding balance of
$2.0 million at June 30, 1998. At June 30, 1998 principal and
interest payments on such notes were current.
Legal Matters
_____________
Following is a summary of certain legal actions involving the
Company:
A. In 1987, the U.S. Environmental Protection Agency ("EPA")
notified one of the Company's subsidiaries, along with
numerous other companies, of potential responsibility for
clean-up of a waste disposal site in Oklahoma. In 1990, the
EPA added the site to the National Priorities List. Following
the remedial investigation and feasibility study, in 1992 the
Regional Administrator of the EPA signed the Record of
Decision ("ROD") for the site. The ROD detailed EPA's
selected remedial action for the site and estimated the cost
of the remedy at $3.6 million. In 1992, the Company made
settlement proposals which would have entailed a collective
payment by such subsidiaries of the Company of $47,000. The
site owner rejected this offer and proposed a counteroffer of
$245,000 plus a reopener for costs over $12.5 million. The
EPA rejected the Company's offer, allocating 60% of the
cleanup costs to the potentially responsible parties and 40%
to the site operator. The EPA estimated the total cleanup
costs at $10.1 million as of February 1993. The site owner
11
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LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
rejected all settlements with the EPA, after which the EPA
issued an order to the site owner to conduct the remedial
design/remedial action approved for the site. In August 1997,
the site owner issued an "invitation to settle" to various
parties, alleging the total cleanup costs at the site may
exceed $22 million.
No legal action has yet been filed. The amount of the
Company's cost associated with the clean-up of the site is
unknown due to continuing changes in the estimated total cost
of clean-up of the site and the percentage of the total waste
which was alleged to have been contributed to the site by the
Company. As of June 30, 1998, the Company has accrued an
amount based on a preliminary settlement proposal by the
alleged potential responsible parties; however, there is no
assurance such proposal will be accepted. The amount accrued
is not material to the Company's financial position or results
of operations. This estimate is subject to material change in
the near term as additional information is obtained.
B. A subsidiary of the Company submitted to the State of Arkansas
a "Groundwater Monitoring Work Plan" which was approved by the
State of Arkansas. Pursuant to the Groundwater Monitoring Work
Plan, the subsidiary has performed phase I and II groundwater
investigations, and submitted a risk assessment report to the
State of Arkansas. The risk assessment report is currently
being reviewed by the State of Arkansas. The State of
Arkansas has indicated that additional groundwater monitoring
may be required to better define the extent of groundwater
contamination before a decision is made on a risk based
remedy.
On February 12, 1996, the subsidiary entered into a Consent
Administrative Agreement ("Administrative Agreement") with the
state of Arkansas to resolve certain compliance issues
associated with nitric acid concentrators. Pursuant to the
Administrative Agreement, the subsidiary installed additional
pollution control equipment to address the compliance issues.
The subsidiary was assessed $50,000 in civil penalties
associated with the Administrative Agreement. In the summer of
1996 and then on January 28, 1997, the subsidiary executed
amendments to the Administrative Agreement ("Amended
Agreements"). The Amended Agreements imposed a $150,000 civil
penalty, which penalty has been paid. Since the 1997
amendment, the Chemical Business has been assessed stipulated
penalties of approximately $67,000 by the Arkansas Department
of Pollution Control and Ecology ("ADPC&E") for violations of
certain provisions of the 1997 Amendment. The Chemical
Business believes that the El Dorado Plant has made progress
12
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
in controlling certain off-site emissions; however, such off-
site emissions have occurred and continue to occur from time
to time, which could result in the assessment of additional
penalties against the Chemical Business by the ADPC&E for
violation of the 1997 Amendment.
During May 1997, approximately 2,300 gallons of caustic
material spilled when a valve in a storage vessel failed,
which was released to a storm water drain, and according to
ADPC&E records, resulted in a minor fish kill in a drainage
ditch near EDC's El Dorado, Arkansas, facility ("El Dorado
Facility"). ADPC&E has proposed a Consent Administrative
Agreement ("CAA") to resolve the event. The proposed CAA is
currently being drafted by ADPC&E, and EDC has been advised
that it will include a civil penalty in the amount of $183,700
which includes $42,000 that has already been paid by funding
an environmental project in the community, and $125,000 which
will be paid in the form of environmental improvements at the
El Dorado Plant. EDC has also been advised that the draft of
the proposed CAA will, in addition, require the Chemical
Business to undertake certain additional compliance measures
and equipment improvements related to the El Dorado Plant's
wastewater treatment system.
C. In 1996, a lawsuit was filed against the Company's Chemical
Business by a group of residents of El Dorado, Arkansas,
asserting a citizens' suit against the Chemical Business as a
result of certain alleged violations of the Clean Air Act, the
Clean Water Act, the Chemical Business' air and water permits
and certain other environmental laws, rules and regulations.
The citizens' suit requested the court to order the Chemical
Business to cure such alleged violations, if any, plus
penalties as provided under the applicable statutes. During
the first quarter of 1998 the Company's Chemical Business
entered into a Consent Decree in settlement of the citizen
suit. The Consent Decree was approved by the court during the
second quarter of 1998. Under the terms of the Consent
Decree, the Company's Chemical Business has agreed to, among
other things, (i) the granting of an injunctive relief
requiring its El Dorado Facility to (a) comply with certain
discharge, monitoring and reporting requirements of its waste
water discharge permit, the emission limitations of its air
permit and the notification requirements under certain
sections of certain environmental laws and the statutory
penalties for failure to comply with such notification
requirements, and (b) perform air and water tests to determine
if the El Dorado Facility is meeting certain compliance levels
and, if the tests do not meet the required compliance levels,
to make the necessary corrections thereto so that such
13
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
compliance levels are met, (ii) limitations relating to the El
Dorado Facility's use of its older concentrated nitric acid
plant, (iii) to provide the plaintiffs with copies of certain
documents forwarded to, or received by, appropriate
environmental regulatory agencies by the El Dorado Facility
and summaries of certain test results at the El Dorado
Facility, (iv) pay to the U.S. Treasury $50,000 as a penalty,
and (v) pay certain stipulated penalties under certain
conditions in the event the El Dorado Facility fails to comply
with the terms of the Consent Decree. The $50,000 penalty has
been paid by the Company's Chemical Business to the U.S.
Treasury.
In July 1996, several of the same individuals who are
plaintiffs in the citizens' suit referenced above filed a
toxic tort lawsuit against the Company's Chemical Business
alleging that they suffered certain injuries and damages as a
result of alleged releases of toxic substances from the
Chemical Business' El Dorado, Arkansas manufacturing facility.
In October 1996, another toxic tort lawsuit was filed against
the Company's Chemical Business. This subsequent action
asserted similar damage theories as the previously discussed
toxic tort lawsuit, except this action attempted to have a
class certified to represent substantially all allegedly
affected persons. The plaintiffs sued for an unspecified
amount of actual and punitive damages.
The Company and the Chemical Business maintain an
Environmental Impairment Insurance Policy ("EIL Insurance")
that provides coverage to the Company and the Chemical
Business for certain discharges, dispersals, releases, or
escapes of certain contaminants and pollutants into or upon
land, the atmosphere or any water course or body of water from
the Site, which has caused bodily injury, property damage or
contamination to others or to other property not on the Site.
The EIL Insurance provides limits of liability for each loss
up to $10.0 million and a similar $10.0 million limit for all
losses due to bodily injury or property damage, except $5.0
million for all remediaton expenses, with the maximum limit of
liability for all claims under the EIL Insurance not to exceed
$10.0 million for each loss or remediaton expense and $10.0
million for all losses and remediaton expenses. The EIL
Insurance also provides a retention of the first $500,000 per
loss or remediaton expense that is to be paid by the Company.
The Company's Chemical Business has spent approximately $1.2
million in legal, expert and other costs in connection with
the toxic tort and citizen lawsuits described above. The
Company has been reimbursed under its EIL Insurance
approximately $405,000 of the $1.2 million. The EIL Insurance
14
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
carrier has assumed responsibility for all subsequent legal,
expert and other costs of defense and is paying such legal,
expert and other costs on an on-going basis.
During the second quarter of 1998, the Company's Chemical
Business settled the property damage claims, and proceeded
with an agreement to settle the personal injury claims,
asserted in the class action toxic tort lawsuit. The Company
also completed a settlement of the other toxic tort lawsuit.
The court approved the settlement of the class action claims
relating to alleged property damage. Settlement of the
personal injury claims by the individual claimants that were
asserted in the class action lawsuit does not require court
approval and is in the process of being completed. Settlement
of the class action toxic tort lawsuit and settlement of the
other toxic tort lawsuit require cash payments to the
plaintiffs. Substantially all of such cash settlement
payments are to be or were funded directly by the Company's
EIL Insurance carrier.
The amount of the settlements of the toxic tort cases as
discussed above paid by the EIL Insurance and the amount paid
under the EIL Insurance for legal and other expenses relating
to the defense of the toxic tort cases and the citizen suit
case reduce the coverage amount available under the EIL
Insurance.
D. A civil cause of action has been filed against the Company's
Chemical Business and five (5) other unrelated commercial
explosives manufacturers alleging that the defendants
allegedly violated certain federal and state antitrust laws in
connection with alleged price fixing of certain explosive
products. The plaintiffs are suing for an unspecified amount
of damages, which, pursuant to statute, plaintiffs are
requesting be trebled, together with costs. Based on the
information presently available to the Company, the Company
does not believe that the Chemical Business conspired with any
party, including but not limited to, the five (5) other
defendants, to fix prices in connection with the sale of
commercial explosives. Discovery has only recently commenced
in this matter. The Chemical Business intends to vigorously
defend itself in this matter.
The Company's Chemical Business has been added as a defendant
in a separate lawsuit pending in Missouri. This lawsuit
alleges a national conspiracy, as well as a regional
conspiracy, directed against explosive customers in Missouri
and seeks unspecified damages. The Company's Chemical Business
has been included in this lawsuit because it sold products to
15
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
customers in Missouri during a time in which other defendants
have admitted to participating in an antitrust conspiracy, and
because it has been sued in the preceding described lawsuit.
Based on the information presently available to the Company,
the Company does not believe that the Chemical Business
conspired with any party, to fix prices in connection with the
sale of commercial explosives. The Chemical Business intends
to vigorously defend itself in this matter.
During the third quarter of 1997, a subsidiary of the Company
was served with a lawsuit in which approximately 27 plaintiffs
have sued approximately 13 defendants, including a subsidiary
of the Company alleging personal injury and property damage
for undifferentiated compensatory and punitive damages of
approximately $7,000,000. Specifically, the plaintiffs assert
blast damage claims, nuisance (road dust from coal trucks) and
personal injury claims (exposure to toxic materials in
blasting materials) on behalf of residents living near the
Heartland Coal Company ("Heartland") strip mine in Lincoln
County, West Virginia. Heartland employed the subsidiary to
provide blasting materials and personnel to load and shoot
holes drilled by employees of Heartland. Down hole blasting
services were provided by the subsidiary at Heartland's
premises from approximately August 1991, until approximately
August 1994. Subsequent to August 1994, the subsidiary
supplied blasting materials to the reclamation contractor at
Heartland's mine. In connection with the subsidiary's
activities at Heartland, the subsidiary has entered into a
contractual indemnity to Heartland to indemnify Heartland
under certain conditions for acts or actions taken by the
subsidiary for which the subsidiary failed to take, and
Heartland is alleging that the subsidiary is liable thereunder
for Heartland's defense costs and any losses to or damages
sustained by, the plaintiffs in this lawsuit. Discovery has
only recently begun in this matter, and the Company intends to
vigorously defend itself in this matter. Based on limited
information available, the subsidiary's counsel believes that
the exposure, if any, to the subsidiary related to this
litigation is in the $100,000 range.
The Company, including its subsidiaries, is a party to various
other claims, legal actions, and complaints arising in the ordinary
course of business. In the opinion of management after consultation
with counsel, all claims, legal actions (including those described
above) and complaints are adequately covered by insurance, or if
not so covered, are without merit or are of such kind, or involve
such amounts that unfavorable disposition is not presently expected
16
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
to have a material effect on the financial position of the Company,
but could have a material impact on the results of operations for
a particular quarter or year, if resolved unfavorably.
Note 6: Long-Term Debt In November 1997, the Company's wholly
owned subsidiary, ClimaChem, Inc. ("CCI") completed the sale of
$105 million principal amount of 10 3/4% Senior Notes due 2007 (the
"Old Notes"). In April 1998, CCI exchanged all of the outstanding
Old Notes for registered 10 3/4% Series B Senior Notes due 2007
("New Notes"). The form and terms of the New Notes are the same as
the Old Notes (which they replaced), except for certain limited
exceptions. The New Notes evidence the same debt as the Old Notes
(which they replaced). Interest on the Old Notes until replaced by
the New Notes and interest on the New Notes are payable semiannually in
arrears on June 1 and December 1 of each year, and the principal is
payable in the year 2007. The New Notes are senior unsecured
obligations of CCI and rank pari passu in right of payment to all
existing senior unsecured indebtedness of CCI and its subsidiaries.
The New Notes are effectively subordinated to all existing and
future senior secured indebtedness of CCI.
Except as described below, the New Notes are not redeemable at
CCI's option prior to December 1, 2002. After December 1, 2002,
the New Notes will be subject to redemption at the option of CCI, in
whole or in part, at the redemption prices set forth in the
Indenture, plus accrued and unpaid interest thereon, plus
liquidated damages, if any, to the applicable redemption date. In
addition, until December 1, 2000, up to $35 million in aggregate
principal amount of the New Notes is redeemable, at the option of CCI,
at a price of 110.75% of the principal amount of the New Notes,
together with accrued and unpaid interest, if any, thereon, plus
liquidated damages; provided, however, that at least $65 million in
aggregate principal amount of the New Notes remain outstanding
following such redemption.
In the event of a change of control of the Company or CCI, holders
of the New Notes will have the right to require CCI to repurchase
the New Notes, in whole or in part, at a redemption price of 101%
of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon, plus liquidated damages, if any, to the date of
repurchase.
CCI owns substantially all of the companies comprising the
Company's Chemical and Climate Control Businesses. CCI is a holding
company with no assets or operations other than its investments in
its subsidiaries, and each of its subsidiaries is wholly owned,
directly or indirectly, by CCI. CCI's payment obligations under
the New Notes are fully, unconditionally and joint and severally
17
<PAGE>
LSB INDUSTRIES, INC.
NOTES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
guaranteed by all of the existing subsidiaries of CCI, except for
El Dorado Nitrogen Company ("EDNC"). The assets, equity, and
earnings of EDNC are currently inconsequential to CCI. Separate
financial statements and other disclosures concerning the
guarantors are not presented herein because management has
determined they are not material to investors. Summarized
consolidated balance sheet information of CCI and its subsidiaries
as of December 31, 1997 and June 30, 1998 and the results of
operations for the six month and three month periods ended June 30,
1998 and June 30, 1997, are detailed below.
18
<PAGE>
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Note 6: (continued)
____________________
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
____________________________
(In thousands)
(unaudited)
<S> <C> <C>
Balance sheet data:
Current assets $ 90,904 $ 88,442
Property, plant and equipment 81,974 84,329
Notes receivable from LSB and affiliates 13,443 13,443
Other assets 9,058 14,661
___________ ___________
Total assets $ 195,379 $ 200,875
=========== ===========
Current liabilities $ 35,801 $ 38,004
Long-term debt 122,092 126,346
Other 9,236 9,236
Stockholder's equity 28,250 27,289
___________ ___________
Total liabilities and stockholder's equity $ 195,379 $ 200,875
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
________________________________________________
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Operations Data:
Total revenues $ 137,327 $ 138,336 $ 73,900 $ 76,041
Costs and expenses:
Costs of sales 107,439 111,663 57,028 58,811
Selling, general
and administrative 20,348 18,718 10,569 9,688
Interest 6,273 4,255 2,960 2,218
__________ __________ __________ __________
134,060 134,636 70,557 70,697
__________ __________ __________ __________
Income before provision
for income taxes 3,267 3,700 3,343 5,344
Income tax provision 1,700 1,501 1,730 2,212
__________ __________ __________ __________
Net income $ 1,567 $ 2,199 $ 1,613 $ 3,132
========== ========== ========== ==========
</TABLE>
19
<PAGE>
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Note 7: Changes in Accounting Effective January 1, 1998, the
Company changed its method of accounting for the costs of computer
software developed for internal use to capitalize costs incurred
after the preliminary project stage as outlined in Statement of
Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). These costs
capitalized will be amortized over their estimated useful life.
Prior to 1998, these costs were expensed as incurred. The effect
of this change on net income for the first and second quarters of
1998 was not material.
In the second quarter of 1998, the Accounting Standards Executive
Committee of the Securities and Exchange Commission released
Statement of Position 98-5 "Reporting on the Costs of Start-up
Activities" ("SOP 98-5"). SOP 98-5 requires that the costs of
start-up activities, including organization costs, be expensed as
incurred. As of June 30, 1998, the Company has approximately
$328,000 of capitalized costs on its balance sheet classified as
other assets that will have to be written-off as a cumulative
effect of change in accounting pursuant to SOP 98-5 upon adoption.
SOP 98-5 is effective for fiscal years ending after December 15, 1998.
The Company expects to adopt SOP 98-5 no later than the first
quarter of 1999.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is required to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company has
not yet determined when this new Statement will be adopted. The
Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value
of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of statement 131 will
be on the earnings and financial position of the Company.
20
LSB INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Six Months Ended June 30, 1998 and 1997
Note 8: Comprehensive Income Effective January 1, 1998, the
Company adopted Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). The provisions of SFAS 130
require the Company to classify items of other comprehensive income
in the financial statements and display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance
sheet. The Company has also made similar reclassifications for all
prior periods for comparative purposes. Other comprehensive losses
for the six month and three month periods ended June 30, 1997, were
approximately $550,000 and $593,000 respectively. After
consideration of the other comprehensive loss items, the
comprehensive loss for the six month period ended June 30, 1997 was
approximately $4,521,000 and the comprehensive income for the three
month period ended June 30, 1997 was approximately $874,000. Other
comprehensive losses for the six month and three month periods
ended June 30, 1998, were approximately $606,000 and $616,000
respectively. After consideration of the other comprehensive loss
items, the comprehensive income for the six month and three month
periods ended June 30, 1998 were $10,093,000 and $805,000
respectively.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") should be
read in conjunction with a review of the Company's June 30, 1998
Condensed Consolidated Financial Statements.
Certain statements contained in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" may
be deemed forward-looking statements. See "Special Note Regarding
Forward-Looking Statements".
OVERVIEW
General
_______
The Company is pursuing a strategy of focusing on its more
profitable businesses and concentrating on businesses and product
lines in niche markets where the Company has established or
believes it can establish a position as a market leader. In
addition, the Company is seeking to improve its liquidity and
profits through liquidation of selected assets that are on its
balance sheet and on which it is not realizing an acceptable return
and does not reasonably expect to do so. In this connection, the
Company has come to the conclusion that its Automotive and
Industrial Products Businesses are non-core to the Company and the
Company is exploring various alternatives to maximize shareholder
value from these assets.
On August 5, 1998, the Company announced its intent, subject
to satisfactory completion of certain conditions, to spin-off the
Automotive Products Business ("Automotive") to its shareholders as
a dividend. The shares in Automotive would be distributed to LSB
shareholders on a pro-rata basis, with the exact number of shares
of Automotive to be issued in connection with the spin-off to be
determined. The spin-off of Automotive is subject to, among other
things, receipt from the Internal Revenue Service of confirmation
of tax-free treatment, certain Securities and Exchange Commission
filings, arrangement for lines of credit for Automotive, and LSB
Board of Directors' approval. There are no assurances that the
Company will spin-off Automotive.
Information about the Company's operations in different
industry segments for the six months and three months ended June
30, 1998 and 1997 is detailed below.
22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Three Months
1998 1997 1998 1997
_________ _________ _________ _________
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Sales:
Chemical $ 77,523 $ 90,196 $ 44,098 $ 49,597
Climate Control 59,257 47,822 29,321 26,199
Automotive Products 21,198 17,037 10,708 9,045
Industrial Products 7,491 7,447 3,306 4,427
________ ________ ________ _________
$165,469 $162,502 $ 87,433 $ 89,268
Gross profit (1):
Chemical $ 12,309 $ 12,783 $ 7,717 $ 9,399
Climate Control 17,321 13,683 8,985 7,675
Automotive Products 4,966 2,226 2,826 1,117
Industrial Products 1,700 1,611 851 1,190
________ ________ ________ _________
$ 36,296 $ 30,303 $ 20,379 $ 19,381
Operating profit (loss) (2):
Chemical $ 5,611 $ 4,734 $ 4,460 $ 5,379
Climate Control 6,312 4,391 3,500 2,840
Automotive Products 71 (2,889) 478 (1,663)
Industrial Products (518) (710) (214) (45)
________ ________ ________ _________
11,476 5,526 8,224 6,511
General corporate expenses
and other (4,671) (2,976) (2,842) (1,641)
Interest expense (8,839) (6,396) (3,981) (3,340)
Gain on sale of the Tower 12,993 - - -
________ ________ ________ _________
Income (loss) before
provision (credit) for
income taxes $ 10,959 $ (3,846) $ 1,401 $ 1,530
<FN>
(1) Gross profit by industry segment represents net sales less cost of
sales.
(2) Operating profit (loss) by industry segment represents revenues less
operating expenses before deducting general corporate expenses, interest
expense and income taxes and, in 1998, before gain on sale of the Tower.
</FN>
</TABLE>
Chemical Business
_________________
Beginning in 1994, the results of operations of the Chemical
Business have been adversely impacted by the high cost of anhydrous
ammonia. From its most recent cyclical low in 1986 through 1993,
the average Gulf Coast price (the "Spot Price") of anhydrous
ammonia was approximately $100 per ton. During 1994 and in each of
the years since, a tightness in supply developed which resulted in
an increase in the Spot Price of anhydrous ammonia to an average of
approximately $195 per ton. The Company believes that the
tightness in supply of anhydrous ammonia that emerged in 1994 was
a result of increased industrial usage as the U.S. economy grew, a
net consolidation of the domestic capacity and a disruption in
supply coming from the former Soviet Union. Although prices for
anhydrous ammonia vary considerably from month to month, the annual
23
<PAGE>
average price has remained high for each of the last three years.
The Company currently purchases approximately 220,000 tons of
anhydrous ammonia per year under two contracts, both effective as
of January 1, 1997. The Company's purchase price of anhydrous
ammonia under these contracts can be higher or lower than the Spot
Price of anhydrous ammonia. The higher prices have been partially
passed on to customers; however, the Chemical Business has not been
able to offset the entire cost increase with price increases for
its products resulting in lower gross profit margins during each of
the periods since the increase. The Company believes there is
approximately 2 million tons of additional annual capacity being
constructed in the western hemisphere scheduled for completion in
1998 and 1999. The Company believes this additional capacity may
contribute to a decline in the future market price of anhydrous
ammonia.
During July 1997, a subsidiary of the Company entered into an
agreement with Bayer Corporation ("Bayer") whereby the Company's
subsidiaries would act as agent to construct a nitric acid plant
located within Bayer's Baytown, Texas chemical plant complex. This
plant, when constructed, will be operated by the Company's
subsidiary and will supply nitric acid for Bayer's polyurethane
units under a long-term supply contract. Management estimates
that, after the initial startup phase of operations at the plant,
at full production capacity based on terms of the Bayer Agreement
and based on current market conditions, the plant should generate
approximately $50 million in annual gross revenues. It is
anticipated that the construction of the nitric acid plant at
Bayer's facility in Baytown, Texas, will cost approximately $65
million and construction is scheduled to be completed in the first
quarter of 1999. The Company's subsidiary is to lease the nitric
acid plant pursuant to a leverage lease from an unrelated third
party for an initial term of ten (10) years from the date that the
plant becomes fully operational, and the construction financing of
this plant is being provided by an unaffiliated lender.
In addition, in May 1998, the Company entered into a letter of
intent with Bayer to purchase Bayer's concentrated nitric acid
production unit (the "Unit") located at Bayer's plant in West
Virginia. Under the terms of the letter of intent, the Company
would, if the purchase is completed, pay to Bayer $2.0 million at
closing and the balance payable over six years. If the purchase is
completed, the Company would grant to Bayer a purchase money
mortgage on the Unit and would lease from Bayer the land on which
the Unit is located for a nominal amount. The purchase is subject
to, among other things, completion by the Company of its due
diligence, completion of a final purchase agreement and approval by
the Board of Directors of both parties. Completion of this
transaction, if completed, is to occur on or before December 31,
1999.
The results of operation of the Chemical Business' Australian
subsidiary have been adversely affected due to the recent economic
developments in certain countries in Asia. These economic
24
<PAGE>
developments in Asia have had a negative impact on the mining
industry in Australia which the Company's Chemical Business
services. If these adverse economic conditions in Asia continue
for an extended period of time, such could have an adverse effect
on the Company's consolidated results of operations for 1998.
Climate Control
_______________
The Climate Control Business manufactures and sells a broad
range of hydronic fan coil, air handling, air conditioning,
heating, water source heat pump, and dehumidification products
targeted to both commercial and residential new building
construction and renovation.
The Climate Control Business focuses on product lines in the
specific niche markets of hydronic fan coils and water source heat
pumps and has established a significant market share in these
specific markets.
As indicated in the above table, the Climate Control Business
reported improved sales (an increase of 23.9%) and improved
operating profit for the first six months of 1998 as compared to
the first six months of 1997.
Automotive and Industrial Products Businesses
_____________________________________________
As indicated in the above table, during the six months ended
June 30, 1998 and 1997, respectively, the Automotive and Industrial
Products Businesses recorded combined sales of $28.7 million and
$24.5 million, respectively, and reported operating losses (as
defined above) of $.4 million and $3.6 million respectively. The
net investment in assets of these Businesses has decreased
consistently during the last three years and the Company expects to
realize further reductions in future periods. See "Overview -
General" for a discussion of the Company's intent to spin-off the
Automotive Business, subject to numerous conditions precedent.
RESULTS OF OPERATIONS
Six months ended June 30, 1998 vs. Six months ended June 30, 1997
_________________________________________________________________
Revenues
________
Total revenues for the six months ended June 30, 1998 and 1997
were $179.8 million and $166.3 million, respectively (an increase
of $13.5 million). Sales increased $3.0 million and other income
decreased $2.5 million. Additionally, in March 1998, a subsidiary
of the Company closed the sale of an Oklahoma City office building
("the Tower"). The Company recognized a pre-tax gain on the sale
of the Tower of approximately $13.0 million in the first quarter of
1998. The decrease in other income of $2.5 million was primarily
due to non-recurring matters related to the Tower.
25
<PAGE>
Net Sales
_________
Consolidated net sales included in total revenues for the six
months ended June 30, 1998 were $165.5 million, compared to $162.5
million for the first six months of 1997, an increase of $3.0
million. This increase in sales resulted principally from: (i)
increased sales in the Climate Control Business of $11.4 million,
primarily due to increased volume in both the heat pump and fan
coil product lines, and (ii) increased sales in the Automotive
Products Business of $4.2 million primarily due to improved volume
of units being shipped to original equipment manufacturers and new
customers, offset by (iii) decreased sales in the Chemical Business
of $12.7 million primarily due to lower sales volume in the U.S. of
agricultural and blasting products and decreased business volume of
its Australian subsidiary.
Gross Profit
____________
Gross profit was 21.9% for the first six months of 1998,
compared to 18.6% for the first six months of 1997. The increase
in the gross profit percentage was due primarily to (i) increased
absorption of costs due to higher production volumes and improved
experience with returns and allowances in the Automotive Products
Business, (ii) lower production costs in the Chemical Business due
to the effect of lower prices of anhydrous ammonia in 1998, and
(iii) lower unabsorbed overhead costs caused by excessive downtime
related to problems associated with mechanical failures at the
Chemical Business' primary manufacturing plant in the first half of
1997.
Selling, General and Administrative Expense
___________________________________________
Selling, general and administrative ("SG&A") expenses as a
percent of net sales were 18.6% and 19.4% in the six month periods
ended June 30, 1998 and 1997, respectively. This decrease is
primarily the result of (i) decreased SG&A expenses compounded by
an increase in sales volume in the Automotive Products Business,
(ii) increased sales volume in the Climate Control Business without
an equivalent corresponding increase in SG&A, (iii) decreased
professional fees related to environmental matters in the Chemical
Business, and (iv) decreased SG&A on the operations of the Tower
since it was sold in March of 1998 but was included for the full
six months in 1997.
Interest Expense
________________
Interest expense for the Company, before deducting capitalized
interest, was approximately $8.8 million during the six months
ended June 30, 1998 compared to approximately $7.5 million during
the six months ended June 30, 1997. During the first six months of
1997, $1.1 million of interest expense was capitalized in
connection with construction of the DSN Plant. The 1998 increase
26
<PAGE>
of $1.3 million before the effect of capitalization primarily
resulted from increased borrowings.
Income (Loss) Before Tax
________________________
The Company had income before income taxes of $11.0 million in
the first six months of 1998 compared to a loss before income taxes
of $3.8 million in the six months ended June 30, 1997. The
increased profitability of $14.8 million was primarily due to the
gain on the sale of the Tower and increased sales and gross profits
as previously discussed, partially offset by increased interest
expense.
Provision For Income Taxes
__________________________
As a result of the Company's net operating loss carryforward
for income tax purposes as discussed elsewhere herein and in Note
1 of Notes to Condensed Consolidated Financial Statements, the
Company's provisions for income taxes for the six months ended June
30, 1998 and the six months ended June 30, 1997 are for current
state income taxes and federal alternative minimum taxes.
Three months ended June 30, 1998 vs. Three months ended June 30,
1997.
________________________________________________________________
Revenues
________
Total revenues for the three months ended June 30, 1998 and
1997 were $87.6 million and $91.4 million, respectively (a decrease
of $3.8 million). Sales decreased $1.8 million and other income
decreased $2.0 million. The decrease in other income is primarily
due to non-recurring operations of the Tower after it was sold in
March 1998.
Net Sales
_________
Consolidated net sales included in total revenues for the
three months ended June 30, 1998 were $87.4 million, compared to
$89.3 million for the second quarter of 1997, a decrease of $1.9
million. This decrease in sales resulted principally from: (i)
decreased sales in the Chemical Business of $5.5 million primarily
due to lower sales in the U.S. of agricultural and blasting
products and decreased business volume of its Australian
subsidiary, and (ii) decreased sales in the Industrial Products
Business of $1.1 million due to decreased sales of machine tools,
offset by (iii) increased sales in the Climate Control Business of
$3.1 million due to increased sales in this Business' Heat Pump and
Fan Coil product lines, and (iv) increased sales in the Automotive
27
<PAGE>
Products Business of $1.7 million due to increased volume of units
shipped to original equipment manufacturers and new customers.
Gross Profit
____________
Gross profit was 23.3% for the second quarter of 1998,
compared to 21.7% for the second quarter of 1997. The increase in
the gross profit percentage was due primarily to (i) increased
absorption of costs due to higher production volumes in the
Automotive Products Business, and (ii) lower production costs in
the Chemical Business due to the effect of lower prices of
anhydrous ammonia in 1998, and (iii) lower unabsorbed overhead
costs caused by excessive downtime related to problems associated
with mechanical failures at the Chemical Business' primary
manufacturing plant in 1997.
Selling, General and Administrative Expense
___________________________________________
Selling, general and administrative ("SG&A") expenses as a
percent of net sales were 17.4% in the three month period ended
June 30, 1998, compared to 18.7% for the second quarter of 1997.
This decrease is primarily the result of (i) decreased SG&A
expenses compounded by an increase in sales volume in the
Automotive Products Business, (ii) increased sales volume in the
Climate Control Business without an equivalent corresponding
increase in SG&A, (iii) decreased professional fees related to
environmental matters in the Chemical Business, and (iv) decreased
SG&A on the operations of the Tower since it was sold in March of
1998.
Interest Expense
________________
Interest expense for the Company was $4.0 million during the
second quarter of 1998, compared to $3.7 million, before deducting
capitalized interest, during the second quarter of 1997. During
the second quarter of 1997, $.4 million of interest expense was
capitalized in connection with construction of the DSN Plant. The
increase of $.3 million before the effect of capitalization
primarily resulted from increased borrowings.
Income Before Taxes
___________________
The Company had income before income taxes of $1.4 million in
the second quarter of 1998 compared to income before income taxes
of $1.5 million in the three months ended June 30, 1997. The difference
is composed principally of a reduction in other income offset by a
reduction in SG&A.
28
<PAGE>
Liquidity and Capital Resources
_______________________________
Cash Flow From Operations
_________________________
Historically, the Company's primary cash needs have been for
operating expenses, working capital and capital expenditures. The
Company has financed its cash requirements primarily through
internally generated cash flow and borrowings under its revolving
credit facilities, and more recently, by issuance of senior
unsecured notes by a wholly owned subsidiary and the sale of the
Tower.
Net cash provided by operations for the six months ended June
30, 1998 was $1.3 million, after $6.7 million for noncash
depreciation and amortization, $1.1 million in provisions for
possible losses on accounts receivable, notes receivable and a loan
guarantee and the $13.0 million gain from the sale of the Tower and
including the following changes in assets and liabilities: (i)
accounts receivable increases of $4.4 million; (ii) inventory
decreases of $3.8 million; (iii) increases in supplies and prepaid
items of $1.6 million; and (iv) decreases in accounts payable and
accrued liabilities of $2.0 million. The increase in accounts
receivable is due to increased sales primarily in the Climate
Control and Automotive Products Businesses (see "Results of
Operations" for discussion of increase in sales) and seasonal sales
of agricultural products in the Chemical Business. The decrease in
inventory was due primarily to a decrease at the Chemical Business
due to seasonal sales of agricultural products and inventory
reductions in the Automotive and Industrial Products Businesses
resulting from liquidation of inventories. Inventory in the
Automotive and Industrial Products Businesses decreased from $29.4
million at December 31, 1997 to $27.3 million at June 30, 1998.
The increase in supplies and prepaid items resulted primarily from
an increase in manufacturing supplies in the Chemical Business.
The decrease in accounts payable and accrued liabilities is
primarily due to reduced seasonal inventory purchases in the
Chemical Business.
Cash Flow From Investing And Financing Activities
_________________________________________________
Cash provided by investing activities for the six months ended
June 30, 1998 included cash proceeds of $29.3 million received on
the sale of the Tower (see Note 4 of Notes to Condensed
Consolidated Financial Statements) offset by $3.8 million in
capital expenditures and $1.3 million used to increase other
assets. The capital expenditures took place primarily in the
Chemical and Climate Control Businesses to enhance production and
29
<PAGE>
product delivery capabilities. The increase in other assets
includes a $1.0 million escrow account relating to the sale of the
Tower.
Net cash used by financing activities included (i) payments on
long-term debt of $18.6 million, including the $12.6 million payoff
of the mortgage on the Tower, (ii) net decreases in revolving debt
of $3.3 million, after application of net proceeds of $15.5 million
from the sale of the Tower, (iii) increases in drafts payable of
$.2 million, (iv) dividends of $1.7 million, and (v) treasury stock
purchases of $1.6 million.
During the first six months of 1998, the Company declared and
paid dividends totaling $1,747,000, as follows: (i) $6.00 per
share on each of the outstanding shares of its Series B 12%
Cumulative Convertible Preferred Stock; (ii) $1.625 per share on
each outstanding share of its $3.25 Convertible Exchangeable Class
C Preferred Stock, Series 2; (iii) $.01 per share on each
outstanding share of its Common Stock; and (iv) $10.00 per share on
each outstanding share of its Convertible Noncumulative Preferred
Stock.
Source of Funds
_______________
The Company is a diversified holding Company and its liquidity
is dependent, in large part, on the operations of its subsidiaries
and credit agreements with lenders.
In October 1997, the Company organized a new wholly owned
subsidiary, ClimaChem, Inc. ("ClimaChem"). ClimaChem owns
substantially all of the Company's Chemical and Climate Control
Businesses. On November 26, 1997, ClimaChem issued senior
unsecured notes ("Old Notes") in the aggregate amount of $105
million pursuant to the terms of an indenture (the "Indenture"),
which Old Notes were exchanged for new registered notes in April
1998 ("New Notes"). The terms of the New Notes were the same as
the Old Notes, except for certain limited exceptions. The New
Notes evidence the same debt as the Old Notes (which they
replaced). The Old Notes and the New Notes are collectively called
the "Notes". The Notes are jointly and severally and fully and
unconditionally guaranteed on a senior basis by all, except for one
inconsequential subsidiary, of the existing and all of the future
subsidiaries of ClimaChem. One current subsidiary of ClimaChem,
which is currently inconsequential to ClimaChem, is not a guarantor
of the Notes. The Company is neither an issuer of, nor a guarantor
under, the Notes.
Interest on the Notes is payable semiannually on June 1 and
December 1 of each year, commencing June 1, 1998. The Notes will
30
<PAGE>
mature on December 1, 2007, unless earlier redeemed. The Notes are
redeemable at the option of the Company on December 1, 2002 at
105.375% of the principal amount declining to face amount at
December 1, 2005 and thereafter under the terms set forth in the
Indenture. The Notes are effectively subordinated to all secured
indebtedness of ClimaChem and its subsidiaries.
Under the terms of the Indenture, ClimaChem and its
subsidiaries cannot transfer funds to the Company in the form of
cash dividends or other distributions or advances, except for (i)
the amount of taxes that ClimaChem would be required to pay if they
were not consolidated with the Company and (ii) an amount not to
exceed fifty percent (50%) of ClimaChem's net income for the year
in question and (iii) the amount of direct and indirect costs and
expenses incurred by the Company on behalf of ClimaChem pursuant to
a certain services agreement and a certain management agreement to
which ClimaChem and the Company are parties.
The Company and certain of its subsidiaries are parties to a
working capital line of credit evidenced by four separate loan
agreements ("Revolving Credit Agreements") with an unrelated lender
("Lender") collateralized by receivables, inventory, and
proprietary rights of the Company and the subsidiaries that are
parties to the Revolving Credit Agreements and the stock of certain
of the subsidiaries that are borrowers under the Revolving Credit
Agreements. The Revolving Credit Agreements, as amended, provide
for revolving credit facilities ("Revolver") for total direct
borrowings up to $65.0 million, including the issuance of letters
of credit. The Revolver provides for advances at varying
percentages of eligible inventory and trade receivables. The
Revolving Credit Agreements, as amended, provide for interest at
the lender's prime rate plus 1.5% per annum or, at the Company's
option, on the Lender's LIBOR rate plus 3.875% per annum (which
rates are subject to increase or reduction based upon achieving
specified availability and adjusted tangible net worth levels). At
June 30, 1998 the effective interest rate was 10.0%. The term of
the Revolving Credit Agreements is through December 31, 2000, and
is renewable thereafter for successive thirteen month terms. At
June 30, 1998, the availability for additional borrowings, based on
eligible collateral, approximated $36.5 million. Borrowings under
the Revolver outstanding at June 30, 1998, were $16.0 million. The
Revolving Credit Agreements, as amended, require the Company to
maintain certain financial ratios and contain other financial
covenants, including tangible net worth requirements and capital
expenditure limitations. At June 30, 1998, the Company and
ClimaChem were not in compliance with certain of these financial
covenants. In August, 1998, the Company and ClimaChem obtained
waivers for such noncompliance and amendments to reset the
covenants to amounts the Company and ClimaChem expect to achieve in
31
<PAGE>
future periods. The annual interest on the outstanding debt under
the Revolver at June 30, 1998 at the rates then in effect would
approximate $1.6 million. The Revolving Credit Agreements also
require the payment of an annual facility fee of 0.5% of the unused
revolver.
In addition to the Revolving Credit Agreements discussed
above, as of June 30, 1998, the Company's wholly-owned subsidiary,
DSN Corporation ("DSN"), is a party to several loan agreements with
a financial company (the "Financing Company") for three projects.
At June 30, 1998, DSN had outstanding borrowings of $12.3 million
under these loans. The loans have repayment schedules of 84
consecutive monthly installments of principal and interest. The
interest rate on each of the loans is fixed and range from 8.2% to
8.9%. Annual interest, for the three notes as a whole, at June 30,
1998, at the agreed to interest rates would approximate $1.1
million. The loans are secured by the various DSN property and
equipment. The loan agreements require ClimaChem to maintain
certain financial ratios, including tangible net worth
requirements. At June 30, 1998, ClimaChem was not in compliance
with the tangible net worth covenant of these agreements. In
August 1998, ClimaChem obtained a waiver for such noncompliance
and a waiver through June 1999 to the extent that noncompliance
is caused by the Management Fee Agreement between LSB and ClimaChem.
The Company expects to be in compliance with these Agreements,
after consideration of the waiver, in future periods
The Company's Australian subsidiary has a revolving credit
working capital facility (the "TES Revolving Facility"). The TES
Revolving Facility is approximately AUS$10.5 million (approximately
US$6.4 million). The TES Revolving Facility allows for borrowings
based on specific percentages of qualified eligible assets. At June
30, 1998, based on the effective exchange rate, the availability
under the TES Revolving Facility was approximately US$6.4 million
(AUS$10.5 million), with approximately US$2.5 million (AUS$4.1
million approximately) being borrowed at June 30, 1998. Such debt
is secured by substantially all the assets of TES, plus an
unlimited guarantee and indemnity from LSB and certain subsidiaries
of TES. The interest rate on this debt is dependent upon the
borrowing option elected by TES and had a weighted average rate of
7.2% at June 30, 1998. TES is in technical noncompliance with a
certain financial covenant contained in the loan agreement
involving the TES Revolving Facility. However, this covenant was
not met at the time of closing of this loan and the Bank of New
Zealand, Australia has continued to extend credit under this
facility. The outstanding borrowing under the TES Revolving
Facility at June 30, 1998, has been classified as due within one
year in the accompanying condensed consolidated financial
statements.
32
<PAGE>
Future cash requirements include working capital requirements
for anticipated sales increases in all Businesses and funding for
future capital expenditures. Funding for the higher accounts
receivable resulting from anticipated sales increases will be
provided by cash flow generated by the Company and the revolving
credit facilities discussed elsewhere in this report. Inventory
requirements for the higher anticipated sales activity should be
met by scheduled reductions in the inventories of the Industrial
Products Business and in the inventories of the Automotive Products
Business. Currently the Company is limited to capital expenditures
of $6 million annually under the Revolving Credit Agreements
discussed above. The Company has requested an amendment to
increase permitted annual capital expenditures to $10.0 million.
If this amendment is approved, the Company has planned capital
expenditures of approximately $10.0 million in 1998, primarily in
the Chemical and Climate Control Businesses.
Management believes that cash flows from operations, the
Company's revolving credit facilities, and other sources will be
adequate to meet its presently anticipated capital expenditure,
working capital, debt service, and dividend requirements. The
Company currently has no material commitment for capital
expenditures, except as discussed under "Overview - Chemical
Business" of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the letter
of intent with Bayer Corporation to purchase a nitric acid unit.
In addition, the Company's subsidiary has agreed to act as agent to
construct a nitric acid plant as discussed under "Overview -
Chemical Business" of this "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Further, the
Company's Chemical Business may be required to incur additional
capital expenditures as discussed in Note 5 of Notes to Condensed
Consolidated Financial Statements regarding a "Groundwater
Monitoring Work Plan" and the draft of the proposed Consent
Administrative Agreement related to the Chemical Business'
wastewater treatment system. At the date of this report, the cost
of the expenditures for these environmental matters has not been
determined.
Joint Ventures and Options to Purchase
______________________________________
Prior to 1997, the Company, through a subsidiary, loaned $2.8
million to a French manufacturer of HVAC equipment whose product
line is compatible with that of the Company's Climate Control
Business in the USA. Under the loan agreement, the Company has the
option to exchange its rights under the loan for 100% of the
borrower's outstanding common stock. The Company obtained a
security interest in the stock of the French manufacturer to secure
its loan. During 1997 the Company advanced an additional $1
33
<PAGE>
million to the French manufacturer bringing the total of the loan
at December 31, 1997 to $3.8 million. As of June 30, 1998 the
balance of the loan remained $3.8 million. As of the date of this
report, the decision has not been made to exercise such option and
the $3.8 million loan, less a $1.5 million valuation reserve, is
carried on the books as a note receivable in other assets.
In 1995, a subsidiary of the Company invested approximately
$2.8 million to purchase a fifty percent (50%) limited partner
interest in an energy conservation joint venture (the "Project").
The Project had been awarded a contract to retrofit residential
housing units at a US Army base which it completed during 1996.
The completed contract was for installation of energy-efficient
equipment (including air conditioning and heating equipment), which
would reduce utility consumption. For the installation and
management, the Project will receive an average of seventy-seven
percent (77%) of all energy and maintenance savings during the
twenty (20) year contract term. The Project spent approximately
$17.5 million to retrofit the residential housing units at the US
Army base. The Project received a loan from a lender to finance
approximately $14.0 million of the cost of the Project. The
Company is not guaranteeing any of the lending obligations of the
Project.
During 1995, the Company executed a stock option agreement to
acquire eighty percent (80%) of the stock of a specialty sales
organization ("Optioned Company"), which owns the remaining fifty
percent (50%) equity interest in the Project discussed above, to
enhance the marketing of the Company's air conditioning products.
The stock option has a four (4) year term, and a total option
granting price of $1.0 million and annual $100,000 payments for
yearly extensions of the stock option thereafter for up to three
(3) years. Through the date of this report the Company has made
option payments aggregating $1.3 million and has loaned the
Optioned Company approximately $1.4 million. The Company has
recorded reserves of $1.1 million against the loans. Upon exercise
of the stock option by the Company, or upon the occurrence of
certain performance criteria which would give the grantors of the
stock option the right to accelerate the date on which the Company
must elect whether to exercise, the Company shall pay certain cash
and issue promissory notes for the balance of the exercise price of
the subject shares. The total exercise price of the subject shares
is $4.0 million, less the amounts paid for the granting and any
extensions of the stock option. As of the date of this report, no
decision to exercise this option has been reached by the Company.
34
<PAGE>
Debt Guarantee
______________
The Company and one of its subsidiaries have guaranteed
approximately $2.6 million of indebtedness of a startup aviation
company in exchange for an ownership interest. The debt guarantee
relates to two note instruments. One note for which the subsidiary
had guaranteed up to $600,000 had a balance of approximately $2.0
million as of June 30, 1998. The other note in the amount of $2.0
million requires monthly principal payments of $11,111 plus
interest beginning in October 1998 through August 8, 1999, at which
time all outstanding principal and accrued interest are due. In
the event of default of the $2.0 million note, the Company is
required to assume payments on the note with the term extended
until August 2004. Both notes are current as to principal and
interest as of June 30, 1998.
In the first six months of 1998, the aviation company made
capital calls on its shareholders. In contemplation of a sale of
the aviation company to an additional investor and pursuant to such
capital calls, the Company invested an additional $635,000 and
loaned an additional net amount of $33,000 to the aviation company
in exchange for additional stock. These transactions increased the
Company's ownership interest to approximately 40.7%. Prior to
funding, if any, by third parties, the Company may be requested to
make additional purchases of capital stock of the aviation company
and/or make additional advances.
Availability of Company's Loss Carry-overs
__________________________________________
The Company anticipates that its cash flow in future years
will benefit from its ability to use net operating loss ("NOL")
carry-overs from prior periods to reduce the federal income tax
payments which it would otherwise be required to make with respect
to income generated in such future years. Such benefit, if any is
dependent on the Company's ability to generate taxable income in
future periods, for which there is no assurance. Such benefit if
any, will be limited by the Company's reduced NOL for alternative
minimum tax purposes which is approximately $18 million at June 30,
1998. As of December 31, 1997, the Company had available NOL
carry-overs of approximately $65 million. These NOL carry-overs
will expire beginning in the year 1999. Due to its recent history
of reporting net losses, the Company has established a valuation
allowance on a portion of its NOLs and thus has not recognized the
full benefit of its NOLs in the accompanying Condensed Consolidated
Financial Statements.
35
<PAGE>
The amount of these carry-overs has not been audited or
approved by the Internal Revenue Service ("IRS") and, accordingly,
no assurance can be given that such carry-overs will not be reduced
as a result of audits in the future. In addition, the ability of
the Company to utilize these carry-overs in the future will be
subject to a variety of limitations applicable to corporate
taxpayers generally under both the Internal Revenue Code of 1986,
as amended, and the Treasury Regulations. These include, in
particular, limitations imposed by Code Section 382 and the
consolidated return regulations.
Contingencies
The Company has several contingencies that could impact its
liquidity in the event that the Company is unsuccessful in
defending against the claimants. Although management does not
anticipate that these claims will result in substantial adverse
impacts on its liquidity, it is not possible to determine the
outcome.
36
<PAGE>
<PAGE>
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained within this report may be deemed
"Forward-Looking Statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements in
this report other than statements of historical fact are Forward-
Looking Statements that are subject to known and unknown risks,
uncertainties and other factors which could cause actual results
and performance of the Company to differ materially from such
statements. The words "believe", "expect", "anticipate", "intend",
"will", and similar expressions identify Forward-Looking
Statements. Forward-Looking Statements contained herein relate to,
among other things, (i) establish a plan to dispose of non-core
assets, (ii) ability to complete the spin-off of the Automotive
Products Business, (iii) the EDNC Baytown Plant will cost
approximately $65 million, will be completed by the first quarter
of 1999 and, when the EDNC Baytown Plant is fully operational, the
annual sales volume from such plant will be approximately $50.0
million, (iv) ability to meet presently anticipated capital
expenditures, working capital, debt service and dividend
requirements,(v) amount to be spent in 1998 relating to compliance
with federal, state and local Environmental laws at the El Dorado
Facility, (vi) improve liquidity and profits through liquidation of
assets, (vii) anticipated financial performance, (viii) ability to
comply with the Company's general working capital requirements,
(ix) ability to be able to continue to borrow under the Company's
revolving line of credit, (x) ability to use NOL carry-overs from
prior years, (xi) contingencies should not have a material adverse
impact on the Company's liquidity, (xii) ability to be in compliance
with certain financial covenants contained in certain loan agreements,
and (xiii) ability to complete certain settlements. While the Company
believes the expectations reflected in such Forward-Looking Statements
are reasonable, it can give no assurance such expectations will prove
to have been correct. There are a variety of factors which could cause
future outcomes to differ materially from those described in this report,
including, but not limited to, (i) decline in general economic conditions,
both domestic and foreign, (ii) material reduction in revenues, (iii)
inability to collect in a timely manner a material amount of receivables,
(iv) increased competitive pressures, (v) costs cannot be reduced or cost
reduction projects are not completed on schedule, (vi) contracts are not
obtained or projects are not finalized within a reasonable period of time
or on schedule, (vii) inability to dispose of non-core businesses or
assets in a reasonable manner or on reasonable terms due to the inability
to dispose of such on prices or terms satisfactory to the Company or
37
<PAGE>
inability to spin-off such businesses due to legal impediments,
(viii) changes in federal, state and local laws and regulations,
especially environmental regulations, or in interpretation of such,
(ix) additional releases (particularly air emissions into the environment),
(x) potential increases in equipment, maintenance, operating or labor costs
not presently anticipated by the Company, (xi) inability to retain management
or to develop new management, (xii) the requirement to use internally
generated funds for purposes not presently anticipated, (xiii)
inability to become profitable, or if unable to become profitable,
the inability to secure additional liquidity in the form of
additional equity or debt, (xiv) the effect of additional
production capacity of anhydrous ammonia in the western hemisphere,
(xv) the cost for the purchase of anhydrous ammonia not reducing or
continuing to increase or the cost for natural gas increases, (xvi)
changes in operating strategy or development plans, (xvii)
inability to fund the expansion of the Company's businesses,
(xviii) adverse results in any of the Company's pending
litigation,(xix) inability to finalize the settlements of the
pending environmental litigation or the Company's insurance does
not cover a substantial portion of such settlements, (xx) NOL
carry-overs are limited or reduced as a result of future audits by
the IRS or being limited or reduced by limitations applicable to
corporate taxpayers, including, without limitation, limitations
imposed by code Section 382 and the consolidated return
limitations, and (xxi) other factors described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operation" contained in this report. Given these uncertainties,
all parties are cautioned not to place undue reliance on such
Forward-Looking Statements. The Company disclaims any obligation
to update any such factors or to publicly announce the result of
any revisions to any of the Forward-Looking Statements contained
herein to reflect future events or developments.
38
<PAGE>
<PAGE>
Independent Accountants' Review Report
Board of Directors
LSB Industries, Inc.
We have reviewed the accompanying condensed consolidated balance
sheet of LSB Industries, Inc. and subsidiaries as of June 30, 1998,
and the related condensed consolidated statements of operations for
the six month and three month periods ended June 30, 1998 and 1997
and the condensed consolidated statements of cash flows for the six
month periods ended June 30, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data, and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of
expressing an opinion regarding the financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of LSB
Industries, Inc. as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in
our report dated March 16, 1998, except for the fourth paragraph of
Note 5(A), as to which the date is April 8, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1997, is
fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 14, 1998
39
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
______ _________________
There are no additional material legal proceedings pending
against the Company and/or its subsidiaries not previously reported
by the Company in Item 3 of its Form 10-K for the fiscal period
ended December 31, 1997, which Item 3 is incorporated by reference
herein. The following settlements or material developments have
occurred regarding certain litigation reported in Item 3 of the
Company's Form 10-K for the year ended December 31, 1997:
Roy Carr, et. al v. El Dorado Chemical Company ("Carr Case");
Richard Detraz, et. al v. El Dorado Chemical Company ("Detraz
Case"); Roy A. Carr, Sr., et. al v. El Dorado Chemical Company
("Citizen Suit"), which are or were pending against El Dorado
Chemical Company ("EDC"), a subsidiary of the Company within the
Company's Chemical Business, in the United States District Court,
Western District of Arkansas. During the second quarter of 1998,
EDC (i) settled the Carr Case, (ii) obtained court approval of a
Consent Decree in settlement of the Citizen Suit, and (iii) settled
the Detraz Case.
Under the terms of the Consent Decree in settlement of the
Citizen Suit, which is subject to court approval, EDC has agreed
to, among other things, (i) the granting of injunctive relief
requiring its El Dorado, Arkansas facility("El Dorado Facility") to
(a) comply with certain discharge, monitoring and reporting
requirements of its waste water discharge permit, the emission
limitations of its air permit and the notification requirements
under certain sections of certain environmental laws and the
statutory penalties for failure to comply with such notification
requirements, (b) perform air and water tests to determine if the
El Dorado Facility is meeting certain compliance levels and, if the
tests do not meet the required compliance levels, to make the
necessary corrections so that such compliance levels can be met,
and (c) limitations relating to the El Dorado Facility's use of its
older concentrated nitric acid plant, (ii) provide the plaintiffs
with copies of certain documents forwarded to, or received by,
appropriate environmental regulatory agencies by the El Dorado
Facility and summaries of certain test results at the El Dorado
Facility, (iii) pay to the U.S. Treasury $50,000 as a penalty, and
(iv) pay certain stipulated penalties under certain conditions in
the event the El Dorado Facility fails to comply with the terms of
the Consent Decree. The $50,000 payment to the U.S. Treasury has
been made by the Company's Chemical Business.
40
<PAGE>
Under the Carr Case and Detraz Case settlements, certain cash
payments will be or are to be made to the plaintiffs as a result of
such settlements. Substantially all such cash settlement payments
made in the Carr Case and to be made in the Detraz Case have been
funded or are to be funded directly by the Company's EIL Insurance.
See Note 5 to Notes to Condensed Consolidated Financial Statements
and "Special Note Regarding Forward - Looking Statements."
Item 2. Changes in Securities and Use of Proceeds
______ _________________________________________
(a) In April 1998, ClimaChem, Inc. ("ClimaChem"), a subsidiary
of the Company, exchanged its $105 million in 10 3/4% Senior Notes
Due 2007 ("Old Notes") for $105 million of 10 3/4% Series B Senior
Notes Due 2007 ("New Notes") that were registered under the
Securities Act of 1933, as amended (the "Act"). The Old Notes were
sold by ClimaChem to Wasserstein Perella Securities, Inc., who
subsequently resold the Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Act. The form and terms of the New
Notes are the same as the form and terms of the Old Notes (which
they replaced), except the New Notes bear a Series B designation,
have been registered under the Act and, therefore, do not bear
legends restricting their transfer and do not contain certain
provisions relating to liquidated damages which were included in
the Old Notes in certain circumstances relating to the timing of
the exchange offer of the New Notes for the Old Notes. The New
Notes evidence the same debt as the Old Notes (which they replaced)
and were issued and entitled to the benefits of an Indenture, dated
November 26, 1997, between ClimaChem, the Guarantors (as defined in
the Indenture) and BankOne, N.A., as trustee governing the Old
Notes and the New Notes. See Note 6 of Notes to Condensed
Consolidated Financial Statements and "Management Discussion and
Analysis of Financial Condition and Results of Operations".
Item 3. Defaults Upon Senior Securities
______ _______________________________
Not applicable.
41
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
______ ___________________________________________________
<TABLE>
<CAPTION>
At the Company's 1998 Annual Meeting of Shareholders held on
June 25, 1998, the following nominees to the Board of Directors
were elected as directors of the Company:
Number of
Shares Number of
"Against" and Abstentions
Number of to "Withhold and Broker
Name Shares "For" Authority" Non-Votes
----- ----------- ----------- -----------
<S> <C> <C> <C>
Robert C. Brown, M.D. 11,861,713 123,973 0
Gerald J. Gagner 11,861,713 123,973 0
Jack E. Golsen 11,861,613 124,073 0
Horace G. Rhodes 11,861,613 124,073 0
</TABLE>
Messrs Brown, Golsen and Rhodes had been serving on the Board
of Directors at the time of the Annual Meeting and were reelected
for a term of three (3) years. Mr. Gagner had been serving as a
director of the Company at the time of the Annual Meeting and was
elected for a term of one (1) year. The following are the
directors whose terms of office continued after such Annual
Meeting: Raymond B. Ackerman, Barry H. Golsen, David R. Goss,
Bernard G. Ille, Donald J. Munson, Jerome D. Shaffer, M.D. and Tony
M. Shelby.
<TABLE>
<CAPTION>
At the Annual Meeting, Ernst & Young, LLP, Certified Public
Accountants, was appointed as independent auditors of the Company
for 1998, as follows:
Number of
Shares
"Against" Number of
and to Abstentions
Number of "Withhold and Broker
Shares "For" Authority" Non-Votes
----------- ---------- -----------
<S> <C> <C> <C>
11,930,073 52,191 3,422
</TABLE>
Item 5. Other Information
______ _________________
As set forth in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders, stockholder proposals submitted to
the Company pursuant to Rule 14a-B under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), for inclusion in the
Company's proxy materials for its 1999 Annual Meeting of
42
Stockholders must be received by the Company no later than January
26, 1999. Under the Company's Bylaws, as amended August 13, 1998,
any stockholder proposal submitted with respect to the Company's
1999 Annual Meeting of Stockholders which is received by the
Company after April 6, 1999 will not be considered to be properly
brought before the 1999 Annual Meeting of Stockholders. Under the
Company's Bylaws existing prior to August 13, 1998, any stockholder
proposal submitted with respect to the Company's 1999 Annual
Meeting of Stockholders which was received by the Company after the
date 50 days prior to the date of the Company's next annual meeting
of stockholders (or in event that less than 60 days notice or
public disclosure of the date of the Company's next annual meeting
of stockholders was given or made to stockholders, after the close
of business on the 10th day following the day on which notice of
the date of the meeting was first mailed or public disclosure was
made) would not be considered to be properly brought before the
next annual meeting of stockholders.
Item 6. Exhibits and Reports on Form 8-K
______ ________________________________
(A) Exhibits. The Company has included the following
exhibits in this report:
3(ii) Bylaws
4.1 Third Amendment to Amended and Restated Loan and Security
Agreement between the Company and BankAmerica Business Credit,
Inc. ("BABC"). Substantially identical amendments have been
entered into by each of L&S Bearing Co. and Summit Machine
Tool Manufacturing Corp. with BABC, and such are hereby
omitted
and will be provided upon the Commission's request.
4.2 Third Amendment to Amended and Restated Loan and Security
Agreement between BABC and Climate Master, Inc., International
Environmental Corporation, El Dorado Chemical Company and
Slurry Explosives Corporation.
15.1 Letter Re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule
(B) Reports of Form 8-K. The Company did not file any
reports on Form 8-K during the quarter ended June 30,
1998.
43
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Company has caused the undersigned, duly-
authorized, to sign this report on its behalf on this 14th day of
August 1998.
LSB INDUSTRIES, INC.
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)
44
<PAGE>
EXHIBIT INDEX
_____________
Exhibit Sequential
No. Description Page No.
_______ ___________ __________
3(ii) Bylaws 46
4.1 Third Amendment to Amended and Restated
Loan and Security Agreement between the
Company and BankAmerica Business Credit,
Inc. ("BABC"). Substantially identical
amendments have been entered into by
each of L&S Bearing Co. and Summit
Machine Tool Manufacturing Corp. with
BABC, and such are hereby omitted and
will be provided upon the Commission's
request. 86
4.2 Third Amendment to Amended and Restated
Loan and Security Agreement between BABC
and Climate Master, Inc., International
Environmental Corporation, El Dorado
Chemical Company and Slurry Explosives
Corporation. 95
15.1 Letter Re: Unaudited Interim Financial
Information 104
27.1 Financial Data Schedule 105
45
LSB INDUSTRIES, INC.
____________________
BY-LAWS
_______
ARTICLE I
_________
Offices
_______
Section 1. The principal office of the Corporation shall be
in Oklahoma City, County of Oklahoma, State of Oklahoma, and the
Corporation may also have offices at such other places as the Board
of Directors may from time to time appoint or at such other places
as the business of the Corporation requires.
ARTICLE II
__________
Seal
____
Section 1. The corporate seal shall be in such form as the
Board of Directors may from time to time prescribe. Said seal may
be used by causing it, or a facsimile thereof, to be impressed or
affixed or reproduced or otherwise.
ARTICLE III
___________
Shareholders
____________
Section 1. Place. All meetings of the shareholders shall be
held in Oklahoma City, Oklahoma, or at such other place as the
directors may designate.
Section 2. Annual Meeting. Annual meetings of shareholders
to elect directors and transact such other business as may properly
be presented to the meeting shall be held on the last Tuesday in
April of each year if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 10:00 a.m., or if the
annual meeting is not held on the above designated date, then the
directors shall cause the annual meeting to be held as soon
thereafter as is convenient.
<PAGE>
-2-
Section 3. Quorum. The holders of record of a majority of
the stock issued and outstanding, and entitled to vote thereat,
present in person, or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the shareholders for
the transaction of business, except as otherwise provided by law,
by the Certificate of Incorporation or by these Bylaws, but in the
absence of a quorum the holders of record, present in person or
represented by proxy at such meeting shall have power to adjourn
the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of voting
stock shall be present. At such adjourned meeting at which the
requisite amount of voting stock shall be represented, any business
may be transacted which might have been transacted at the meeting
as originally notified.
Section 4. Voting; Proxies. Except as otherwise provided by
the laws of the State of Delaware or the Certificate of
Incorporation of the Corporation or these Bylaws:
(a) At every meeting of the shareholders every shareholder
having the right to vote shall be entitled to one vote
for each share of capital stock having voting rights held
by him.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to
corporate action in writing without a meeting may
authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy
provides for a longer period.
<PAGE>
-3-
(c) Each matter properly presented to any meeting shall be
decided by a majority of the votes cast on the matter.
(d) Election of directors and the vote on any other matter
presented to a meeting need not be by written ballots,
but written ballots may be used if ordered by the
chairman of the meeting or if so requested by any
stockholder present or represented by proxy at the
meeting entitled to vote in such election or on such
matter, as the case may be.
Section 5. Notice of Meeting. For each meeting of
stockholders written notice shall be given stating the place, date
and hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called and, if the list of
stockholders required by Section 6 is not to be at the place of
said meeting at least 10 days prior to the meeting, the place where
said list will be. Except as otherwise provided by Delaware law,
the written notice of any meeting shall be given not less than 10
nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation.
Section 6. List of Stockholders Entitled to Vote. At least
10 days before every meeting of stockholders a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder,
shall be prepared and shall be open to the examination of any
<PAGE>
-4-
stockholder for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is
to be held. Such list shall be produced and kept at the time and
place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 7. Special Meetings. A special meeting of
stockholders may be called at any time by the Board of Directors,
its Chairman, the Executive Committee or the President and shall be
called by any of them or by the Secretary upon receipt of a written
request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting
and signed by holders of record of a majority of the shares of
stock that would be entitled to be voted on such matter or matters
if the meeting was held on the day such request is received and the
record date for such meeting was the close of business on the
preceding day. Any such meeting shall be held at such time and at
such place, within or without the State of Delaware, as shall be
determined by the body or person calling such meeting and as shall
be stated in the notice of such meeting.
Section 8. Chairman and Secretary at Meeting. At each
meeting of stockholders, the Chairman of the Board of Directors or
in his absence, the President, or in his absence the person
designated in writing by the President, or if no person is so
designated, then a person designated by the Board of Directors
shall preside as Chairman of the meeting; if no person is so
<PAGE>
-5-
designated, then the meeting shall choose a Chairman by plurality
vote. The Secretary or in his absence a person designated by the
Chairman of the meeting shall act as Secretary of the meeting.
Section 9. Adjourned Meetings. A meeting of stockholders may
be adjourned to another time or place as provided in Sections 3 or
4(d) of this Article III. Unless the Board of Directors fixes a
new record date, stockholders of record for an adjourned meeting
shall be as originally determined for the meeting from which the
adjournment was taken. If the adjournment is for more than 30
days, or if after the adjournment, a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote. At the
adjourned meeting any business may be transacted that might have
been transacted at the meeting as originally called.
Section 10. Consent of Stockholders in Lieu of Meeting. Any
action that may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Notice
of the taking of such action shall be given promptly to each
stockholder that would have been entitled to vote thereon at a
meeting of stockholders and that did not consent thereto in
writing.
Section 11. Fixing of Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment thereof,
<PAGE>
-6-
or to express consent to corporate action in writing without a
meeting, or entitled receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action. If no record date
is fixed, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held; the record
date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed; and the record date for
determining shareholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
ARTICLE IV
__________
Directors
_________
Section 1. Number, Term, Qualifications and Vacancies. The
property, business and affairs of the Corporation shall be managed
by or under the direction of its Board of Directors.
<PAGE>
-7-
The number of directors that shall constitute the whole Board
of Directors may be fixed from time to time by resolution of the
Board of Directors and may consist of not less than three nor more
than fifteen members. The directors shall be divided into three
(3) classes. Each class shall consist, as nearly as possible, of
one-third of the whole number of the Board of Directors. The term
of office of those directors of the first class shall expire at the
annual meeting of the shareholders of the Corporation next ensuing;
the term of office of the directors of the second class shall
expire one year thereafter; and the term of office of the directors
of the third class shall expire two years thereafter. At each
annual election the successors to the class of directors whose
terms have expired in that year shall be elected to hold office for
a term of three (3) years. Each director elected shall hold office
until his successor is elected and qualified or until his earlier
resignation or removal. Directors and officers need not be
shareholders.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a
quorum, or by the sole remaining director. Each director chosen to
fill a vacancy or newly created directorship shall hold office
until the next election of the class for which such directors shall
have been chosen and until his successor is duly elected and
qualified or until his earlier resignation or removal.
Section 2. Offices and Books. The directors may have one or
more offices, and keep the books of the Corporation at the offices
of the Corporation in Oklahoma City, Oklahoma, or at such other
places as they may from time to time determine.
<PAGE>
-8-
Section 3. Resignation. Any director of the Corporation may
resign at any time by giving written notice of such resignation to
the Board of Directors, the Chairman of the Board of Directors, the
President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if
no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers; and, unless specified
therein, the acceptance of such resignation shall not be necessary
to make it effective. When one or more directors shall resign from
the Board of Directors, such vacancy may be filled by a majority of
the directors then in office, although less than a quorum, or by
the sole remaining director, and each director so chosen shall hold
office until the next election of the class for which such director
shall have been chosen and until his successor is duly elected and
qualified or until his earlier resignation or removal.
Section 4. Removal. Any one or more directors may be removed
only for cause by the vote or written consent of the holders of a
majority of the issued and outstanding shares of stock of the
Corporation entitled to vote for the election of directors.
Section 5. Regular and Annual Meetings; Notice. Regular
meetings of the Board of Directors shall be held at such time and
at such place, within or without the State of Delaware, as the
Board of Directors may from time to time prescribe. No notice need
be given of any regular meeting and a notice, if given, need not
specify the purposes thereof. A meeting of the Board of Directors
may be held without notice immediately after an annual meeting of
<PAGE>
-9-
stockholders at the same place as that at which such annual meeting
of shareholders was held.
Section 6. Special Meetings; Notice. A special meeting of
the Board of Directors may be called at any time by the Board of
Directors, its Chairman, the Executive Committee, the President or
any person acting in the place of the President and shall be called
by any one of them or by the Secretary upon receipt of a written
request to do so specifying the matter or matters, appropriate for
action at such a meeting, proposed to be presented at the meeting
and signed by at least two directors of the Corporation. Any such
meeting shall be held at such time and at such place, within or
without the State of Delaware, as shall be determined by the body
or person calling such meeting. Notice of such meeting stating the
time and place thereof shall be given (a) by deposit of the notice
in the United States mail, first class, postage prepaid, at least
three days before the day fixed for the meeting addressed to each
director at his address as it appears on the Corporation's records
or at such other address as the director may have furnished the
Corporation for that purpose, or (b) by delivery of the notice
similarly addressed for dispatch by telegraph, cable or radio or by
delivery of the notice by telephone or in person, in each case at
least two days before the time fixed for the meeting.
Section 5. Presiding Officer and Secretary at Meetings. Each
meeting of the Board of Directors shall be presided over by the
Chairman of the Board of Directors or in his absence by the
President or if neither is present by such member of the Board of
Directors as shall be chosen by the meeting. The Secretary, or in
<PAGE>
-10-
his absence an Assistant Secretary, shall act as secretary of the
meeting, or if no such officer is present, a secretary of the
meeting shall be designated by the person presiding over the
meeting.
Section 6. Quorum. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of
business, but in the absence of a quorum, a majority of those
present (or if only one be present, then that one) may adjourn the
meeting, without notice other than announcement at the meeting,
until such time as a quorum is present. Except as otherwise
required by the Certificate of Incorporation or these By-Laws, the
vote of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors.
Section 7. Meeting by Telephone. Members of the Board of
Directors or of any committee thereof may participate in meetings
of the Board of Directors or of such committee by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and such participation shall constitute presence in person
at such meeting.
Section 8. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required
or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or of such committee, as the case
may be, consent thereto in writing and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or
of such committee.
<PAGE>
-11-
Section 9. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee and one or
more other committees, each such committee to consist of two or
more directors as the Board of Directors may from time to time
determine. Any such committee, to the extent provided in such
resolution or resolutions, shall have and may exercise all the
powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation, including the power to
authorize the seal of the Corporation to be affixed to all papers
that may require it; but no such committee shall have such power or
authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation
or a revocation of a dissolution, or amending the By-Laws; and
unless the resolution shall expressly so provide, no such committee
shall have the power or authority to declare a dividend or to
authorize the issuance of stock. In the absence or
disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Each such committee other than the Executive Committee shall have
such name as may be determined from time to time by the Board of
Directors. Any committee of directors may be discharged or
discontinued at any time, with or without cause, by a majority vote
of the Board of Directors at any meeting at which there is a quorum
<PAGE>
-12-
present, likewise, any member of any committee of directors may be
removed from committee membership, with or without cause, by a
majority vote of the Board of Directors at any meeting at which
there is a quorum present.
Section 10. Compensation. Each director shall be entitled to
reimbursement of his reasonable expenses incurred in attending
meetings or otherwise in connection with his attention to the
affairs of the Corporation. Each director who is not a salaried
officer of the Corporation or of a subsidiary of the Corporation
shall, as such director and as a member of any committee, be
entitled to receive such amounts as may be fixed from time to time
by the Board of Directors, in the form either of fees for
attendance at meetings of the Board and of committees thereof, or
of payment at the rate of a fixed sum per month, or both.
Section 11. Additional Powers. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board
of Directors may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the
Certificate of Incorporation, as from time to time amended, or by
these By-Laws, as from time to time amended, directed or required
to be exercised or done by the shareholders.
ARTICLE V
_________
OFFICERS
________
Section 1. Designation. The Corporation shall have such
officers with such titles and duties as set forth in these By-Laws
or in any one or more resolutions of the Board of Directors adopted
on or after the effective date of these By-Laws which are not
<PAGE>
-13-
inconsistent with these By-Laws and as may be necessary to enable
the Corporation to sign instruments and stock certificates as
required by law.
Section 2. Election; Qualification. The officers of the
Corporation shall be a President, one or more Vice Presidents, a
Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. The Board of Directors may elect a Chairman of
the Board of Directors, a Controller, one or more Assistant
Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers, and such other officers as it may from time to time determine.
The Chairman of the Board of Directors, if any, shall be elected from among
the directors. Two or more offices may be held by the same person.
Section 3. Term of Office. Each officer shall hold office
from the time of his election and qualification to the time at
which his successor is elected and qualified, unless sooner he
shall die or resign or shall be removed pursuant to Section 5.
Section 4. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to
the Board of Directors, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the time
specified therein or, if no time be specified, upon receipt thereof
by the Board of Directors or one of the above-named officers; and,
unless specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 5. Removal. Any officer may be removed at any time,
with or without cause, by the vote of a majority of the whole Board
of Directors.
<PAGE>
-14-
Section 6. Vacancies. Any vacancy however caused in any
office of the Corporation may be filled by the Board of Directors.
Section 7. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time
determine.
Section 8. Chairman of the Board of Directors. The Chairman
of the Board of Directors, if such office be occupied, shall advise
and consult with the President concerning the business and affairs
of the Corporation and shall have such powers and duties as the By-
Laws or the Board of Directors may from time to time prescribe.
Section 9. President. The President shall be the chief
executive officer of the Corporation and shall have general charge
of the business and affairs of the Corporation and shall perform
all such other duties as are incident to the chief executive
officer, subject however to the right of the Board of Directors to
confer specified powers on officers of the Corporation. The
President shall be ex-officio a member of all committees of the
Board of Directors.
Section 10. Vice President. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice
President and as the Board of Directors or the President may from
time to time prescribe. During the absence of the President or his
inability to act, the Vice President, or if there shall be more than
one Vice President, then that one designated by the Board of
Directors, shall exercise the powers and shall perform the duties
of the President, subject to the direction of the Board of
Directors.
<PAGE>
-15-
Section 11. Secretary. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. He
shall be custodian of the corporate seal and shall affix it or
cause it to be affixed to such instruments as he deems necessary or
appropriate and attest the same and shall exercise the powers and
shall perform the duties incident to the office of Secretary, and
those that may otherwise from time to time be assigned to him
subject to the direction of the Board of Directors.
Section 12. Treasurer. The Treasurer shall be the chief
accounting officer of the Corporation and shall have care of all
funds and securities of the Corporation and shall exercise the
powers and shall perform the duties incident to the office of
Treasurer, subject to the direction of the Board of Directors.
Section 13. Other Officers. Each other officer of the
Corporation shall exercise the powers and shall perform the duties
incident to his office, subject to the direction of the Board of
Directors.
ARTICLE VI
__________
CAPITAL STOCK
_____________
Section 1. Stock Certificates. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or
certificates in such form as the Board of Directors may from time
to time prescribe. Each certificate shall be signed by, or in the
name of the Corporation by the Chairman of the Board of Directors,
or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of
the Corporation. If such certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee, or (b)
by a registrar other than the Corporation or its employee, any
other signature on the certificate may be facsimile. If any
<PAGE>
-16-
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar
at the date of issue.
Section 2. Transfer of Stock. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable
law and such rules and regulations as the Board of Directors shall
from time to time prescribe on or after the effective date of these
By-Laws.
Section 3. Holders of Record. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of
record of a share of its stock as the complete owner thereof
exclusively entitled to vote, to receive notifications and
otherwise entitled to all the rights and powers of a complete owner
thereof, notwithstanding notice to the contrary.
Section 4. Lost, Stolen, Destroyed, or Mutilated
Certificates. The Corporation may issue a new certificate of stock
to replace a certificate alleged to have been lost, stolen,
destroyed or mutilated upon such terms and conditions as the Board
of Directors may from time to time prescribe, and the Board of
Directors may, in its discretion, require the owner of the lost or
destroyed certificate or his legal representative, to give the
Corporation a bond, in such sum as it may direct, not exceeding
double the value of the stock, to indemnify the Corporation against
any claim that may be made against it on account of the alleged
loss of any such certificate.
Section 5. Transfer Agent and Registrar. The Board of
Directors may appoint one or more Transfer Agents and Registrars
<PAGE>
-17-
for the Common Stock and Preferred Stock of the Corporation. The
Transfer Agent shall be in charge of the issue, transfer, and
cancellation of shares of stock and shall maintain stock transfer
books, which shall include a record of the shareholders, giving the
names and addresses of all shareholders, and the number and class
of shares held by each; prepare voting lists for meetings of
shareholders; produce and keep open these lists at the meetings;
and perform such other duties as may be delegated by the Board of
Directors. Shareholders may give notice of changes of their
addresses to the Transfer Agent. The Registrar shall be in charge
of preventing the over-issue of shares, shall register all stock
certificates, and perform such other duties as may be delegated by
the Board of Directors.
ARTICLE VII
____________
CHECKS
______
Section 1. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to
time designate.
ARTICLE VIII
____________
FISCAL YEAR
___________
Section 1. The fiscal year shall begin the first day of
January in each year.
ARTICLE IX
__________
DIVIDENDS
__________
Section 1. Declaration. Dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of
Incorporation, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid
<PAGE>
-18-
in cash, in property, or in shares of the capital stock of the
Corporation.
Section 2. Reserve Fund. The Board of Directors may set
aside out of any funds of the Corporation available for dividends
a reserve or reserves for any proper purposes and in such sum or
sums as the directors from time to time, in their absolute
discretion, believe to be proper, and the Board of Directors may
abolish any such reserve.
ARTICLE X
_________
NOTICE
______
Section 6.1 Waiver of Notice. Whenever notice is required by
the Certificate of Incorporation, the By-Laws, or as otherwise
provided by law, a written waiver thereof, signed by the person
entitled to notice, shall be deemed equivalent to notice, whether
before or after the time required for such notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such
meeting except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified
in any written waiver of notice.
Section 2. Mailing of Notice. Whenever under the provisions
of these By-Laws notice is required to be given to any director,
officer or shareholder and such notice is not waived as provided in
Section 1 of this Article X, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail,
by depositing the same in the post office or letter box, in post-
paid sealed wrapper, addressed to such shareholder, officer or
<PAGE>
-19-
director at such address as appears on the books of the
Corporation, or, in default of other address, to such director,
officer or shareholder at the General Post Office in Oklahoma City,
Oklahoma, and such notice shall be deemed to be given at the time
when the same shall be thus mailed.
ARTICLE XI
__________
AMENDMENT OF BY-LAWS
____________________
Section 1. Amendment. These By-Laws may be made, altered, or
repealed at any meeting of stockholders or at any meeting of the
Board of Directors by a majority vote of the whole Board.
APPROVAL OF DIRECTORS
_____________________
The foregoing By-Laws, after being read section by section,
were adopted by the Directors of this Corporation on 28th January,
1977, at Oklahoma City, Oklahoma.
/s/ Jack E. Golsen /s/ Donald C. Edelson
______________________________ ______________________________
Jack E. Golsen Donald C. Edelson
/s/ David R. Goss /s/ Irwin H. Steinhorn
______________________________ ______________________________
David R. Goss Irwin H. Steinhorn
/s/ Tony M. Shelby /s/ Al Braver
______________________________ ______________________________
Tony M. Shelby Al Braver
/s/ Gerald G. Barton /s/ Robert C. Brown
______________________________ ______________________________
Gerald G. Barton Robert C. Brown, M.D.
/s/ Bernard G. Ille /s/ Jerome D. Shaffer
______________________________ ______________________________
Bernard G. Ille Jerome D. Shaffer, M.D.
/s/ C. L. Thurman
_________________________
C. L. Thurman
<PAGE>
<PAGE>
FIRST AMENDMENT TO
LSB INDUSTRIES, INC.'S
BY-LAWS
_______
The following amendments to LSB Industries, Inc.'s ("LSB") By-
Laws were approved and adopted by the Board of Directors of LSB at
their special meeting held on October 6, 1986:
1. Section 7. Special Meeting. of Article III of the By-Laws of
LSB is hereby amended, in its entirety, to read as follows:
"Section 7. Special Meetings.
________________
A special meeting of stockholders may be called at any time by
the Chairman or by a majority of the directors then in office, and
shall be called by the Chairman upon receipt of a written request
to do so specifying the matter or matters, appropriate for action
at such meeting, proposed to be presented at the meeting and signed
by holders of record of two-thirds of the shares of stock that
would be entitled to be voted on such matter or matters if the
meeting was held on the day such request is received and the record
date for such meeting was the close of business on the preceding
day. Any such meeting shall be held at such time and at such
place, within or without the State of Delaware, as shall be
determined by the body or person calling such meeting and as shall
be stated in the notice of such meeting."
2. Section 1. Number, Term, Qualifications and Vacancies. of
Article IV of the By-Laws of LSB is hereby amended, in its
entirety, to read as follows:
"Section 1. Number, Term, Qualifications and Vacancies.
__________________________________________
The property, business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors.
The number of directors that shall constitute the whole Board
of Directors may be fixed from time to time by resolution of the
Board of Directors and may consist of not less than three nor more
than fifteen members. The directors shall be divided into three
(3) classes. Each class shall consist, as nearly as possible, of
one-third of the whole number of the Board of Directors. The term
of office of those directors of the first class shall expire at the
annual meeting of the shareholders of the Corporation next ensuing;
the term of office of the directors of the second class shall
expire one year thereafter; and the term of office of the directors
of the third class shall expire two years thereafter. At each
<PAGE>
annual election the successors to the class of directors whose
terms have expired in that year shall be elected to hold office for
a term of three (3) years. Each director elected shall hold office
until his successor is elected and qualified or until his earlier
resignation or removal. Directors and officers need not be
shareholders.
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors shall be filled only
by a majority of the directors then in office, although less than
a quorum, or by the sole remaining director. Each director chosen
to fill a vacancy or newly created directorship shall hold office
until the next election of the class for which such directors shall
have been chosen and until his successor is duly elected and
qualified or until his earlier resignation or removal."
3. Section 3. Resignations. of Article IV of the By-Laws of LSB
is hereby amended, in its entirety, to read as follows:
"Section 3. Resignation.
___________
Any director of the Corporation may resign at any time by
giving written notice of such resignation to the Board of
Directors, the Chairman of the Board of Directors, the President or
the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if no time be specified,
upon receipt thereof by the Board of Directors, or one of the
above-named officers; and, unless specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
When one or more directors shall resign from the Board of
Directors, such vacancy shall be filled only by a majority of the
directors then in office, although less than a quorum, or by the
sole remaining director. Each director so chosen shall hold office
until the next election of the class for which such director shall
have been chosen and until his successor is duly elected and
qualified or until his earlier resignation or removal."
4. Section 4. Removal. of Article IV of the By-Laws of LSB is
hereby amended, in its entirety, to read as follows:
"Section 4. Removal.
_______
Any one or more directors may be removed only for cause by the
vote or written consent of the holders of a majority of the issued
and outstanding shares of stock of the Corporation entitled to vote
for the election of all directors. For purposes of this Article
IV, Section 4, cause for removal shall be deemed to exist only if
the Director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction or has been adjudged by
<PAGE>
a court of competent jurisdiction to be liable for intentional
misconduct or knowing violation of law in the performance of such
Director's duty to the Corporation and, in each case, such
adjudication is no longer subject to direct appeal."
5. Section 6. Special Meetings; Notice. of Article IV of the By-
Laws of LSB is hereby amended, in its entirety, to read as follows:
"Section 6. Special Meetings; Notice.
________________________
A special meeting of the Board of Directors may be called at
any time by the Chairman or a majority of the directors then in
office. Any such meeting shall be held at such time and at such
place, within or without the State of Delaware, as shall be
determined by the body or person calling such meeting. Notice of
such meeting stating the time and place thereof shall be given (a)
by deposit of the notice in the United States mail, first class,
postage prepaid, at least three days before the day fixed for the
meeting addressed to each director at his address as it appears on
the Corporation's records or at such other address as the director
may have furnished the Corporation for that purpose, or (b) by
delivery of the notice similarly addressed for dispatch by
telegraph, cable or radio or by delivery of the notice by telephone
or in person, in each case at least two days before the time fixed
for the meeting."
6. Section 1. Amendment. of Article XI of the By-Laws of LSB is
hereby amended, in its entirety, to read as follows:
"Section 1. Amendment.
_________
These By-Laws may be made, amended, altered, added to, revised
or repealed only by a vote of a majority of the directors then in
office or by a vote of the holders of two-thirds of the issued and
outstanding shares of stock of the Corporation entitled to vote for
the election of all directors."
<PAGE>
The By-Laws of LSB Industries, Inc., as amended and modified
by this First Amendment to LSB Industries, Inc.'s By-Laws, sets
forth the entire By-Laws of LSB. The amendments to LSB's By-Laws
as combined in this First Amendment to LSB Industries, Inc.'s By-
Laws are effective as of the 6th day of October, 1986, the date that
such amendments were approved by the Board of Directors of LSB.
Dated: October 6, 1986
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
______________________________
Jack E. Golsen
Chairman of the Board
and President
/s/ Irwin H. Steinhorn
______________________________
Irwin H. Steinhorn
Secretary
(Seal)
<PAGE>
<PAGE>
SECOND AMENDMENT
TO THE BY-LAWS
OF
LSB INDUSTRIES, INC.
____________________
Section 9. Executive and Other Committees. of ARTICLE IV of
LSB Industries, Inc.'s (the "Company") By-Laws has been duly and
validly amended by the Board of Directors of the Company, by a
written memorandum of action, dated November 7, 1986, executed by
all members of the Board of Directors pursuant to Section 141(f) of
the Delaware General Corporation Law, to read as follows:
"Section 9. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole
Board of Directors, designate an Executive Committee and one
or more other committees, each such committee to consist of
two or more directors as the Board of Directors may from time
to time determine. Any such committee, to the extent provided
in such resolution or resolutions, shall have and may exercise
all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have
the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to
the extent authorized in the resolution or resolutions
<PAGE>
providing for the issuance of shares of stock adopted by the
Board of Directors, fix the designations and any of the preferences
or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or
the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of
the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange
of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending the
By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare
a dividend or to authorize the issuance of stock. In the
absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such
absent or disqualified member. Each such committee other than
the Executive Committee shall have such name as may be
determined from time to time by the Board of Directors. Any
committee of directors may be discharged or discontinued at
<PAGE>
any time, with or without cause, by a majority vote of the
Board of Directors at any meeting at which there is a quorum
present, likewise, any member of any committee of directors
may be removed from committee membership, with or without
cause, by a majority vote of the Board of Directors at any
meeting at which there is a quorum present."
The By-Laws of LSB Industries, Inc., as amended and modified
by the First Amendment to LSB Industries, Inc.'s By-Laws, dated
October 6, 1986, and by this Second Amendment to the By-Laws of LSB
Industries, Inc., sets forth the entire By-Laws of LSB. The
amendment to the Company's By-Laws as set forth in this Second
Amendment to the LSB Industries, Inc.'s By-Laws is effective as of
the 7th day of November, 1986, the date of the Memorandum of Action
in which the members of the Board of Directors adopted and approved
such amendment.
Dated: November 7, 1986
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
______________________________
Jack E. Golsen
Chairman of the Board
and President
/s/ Irwin H. Steinhorn
______________________________
Irwin H. Steinhorn
Secretary
(Seal)
<PAGE>
<PAGE>
THIRD AMENDMENT
TO THE BY-LAWS
OF
LSB INDUSTRIES, INC.
____________________
Section 1. Number, Term, Qualification and Vacancies. of
ARTICLE IV and Section 1. Amendment of ARTICLE IX of LSB
Industries, Inc.'s (the "Company") By-Laws have been duly and
validly amended by the Board of Directors of the Company, by a
written memorandum of action, dated June 1, 1989, executed by all
members of the Board of Directors pursuant to Section 141(f) of the
Delaware General Corporation Law, to read as follows:
ARTICLE IV, Section 1. Number, Term, Qualification and Vacancies.
__________ _________ __________________________________________
The property, business and affairs of the Corporation
shall be managed by or under the direction of its Board of
Directors.
The number of directors that shall constitute the whole
Board of Directors may be fixed from time to time pursuant to
a resolution adopted by a vote of two-thirds of the entire
Board of Directors and may consist of no fewer than three nor
more than eight members. The directors shall be divided into
three classes. Each class shall consist, as nearly as
possible, of one-third of the whole number of the Board of
Directors. At each annual election of the successors to the
class of directors whose terms have expired in that year shall
be elected to hold office for a term of three years. Each
director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or
removal. Directors and officers need not be shareholders.
Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be
filled only by a majority of the directors then in office,
although less than a quorum, or by the sole remaining
director. Each director chosen to fill a vacancy or newly
created directorship shall hold office until the next election
<PAGE
of the class for which such directors shall have been chosen
and until his successor is duly elected and qualified or until
his earlier resignation or removal.
ARTICLE IX, Section 1. Amendment. These By-Laws may be
made, amended, altered, added to, revised or repealed only by
a vote of a majority of the directors then in office or by a
vote of the holders of two-thirds of the issued and
outstanding shares of stock of the Corporation entitled to
vote for the election of directors; provided, however, that
Article IV, Section 1 of these By-Laws and this Article IX,
Section 1, may be amended, altered, added to, revised or
repealed only by a vote of two-thirds of the entire Board of
Directors or by a vote of two-thirds of the issued and
outstanding shares of stock of the Corporation entitled to
vote for the election of directors.
The By-Laws of LSB Industries, Inc., as amended and modified
by the First Amendment to LSB Industries, Inc.'s By-Laws, dated
October 6, 1986, by the Second Amendment, dated June 1, 1989 to
the By-Laws of LSB Industries, Inc., and by this Third Amendment
to the By-Laws of LSB Industries, Inc., sets forth the entire By-
Laws of LSB. The amendment to the Company's By-Laws as set forth
in this Third Amendment to the LSB Industries, Inc.'s By-Laws is
effective as of the 1st day of June, 1989, the date of the
Memorandum of Action in which the members of the Board of Directors
adopted and approved such amendment.
Dated: June 1, 1989
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
______________________________
Jack E. Golsen, Chairman of
the Board and President
<PAGE
<PAGE>
AMENDMENT TO THE BY-LAWS
OF
LSB INDUSTRIES, INC.
____________________
The following Amendments to the By-laws of LSB Industries,
Inc. ("LSB"), were approved and adopted by the Board of Directors
of LSB at their meeting held April 26, 1990:
1. Section 10, Consent to Stockholders in Lieu of Meeting, of
ARTICLE III of the By-laws is hereby deleted in its entirety and in
lieu thereof a new Section 10 is substituted in place thereof,
which reads as follows:
Section 10. Consent of Stockholders in Lieu of Meeting.
__________________________________________
10.1 Action by Written Consent. Any action which is required to be
or may be taken at any annual or special meeting of stockholders of
the corporation may be taken without a meeting, without prior
notice and without a vote, if consents in writing, setting forth
the action so taken, shall have been signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or to take such action at a
meeting at which all shares entitled to vote thereon were present
and voted; provided however, that prompt notice of the taking of
the corporate action without a meeting and by less than unanimous
written consent shall be given to those stockholders who have not
consented in writing.
10.2 Determination of Record Date of Action by Written Consent. In
order to inform the corporation's stockholders and the investing
public in advance that a record date for action by consent will
occur and to comply with the procedures contained in the American
Stock Exchange (or such other exchange on which the corporation's
securities are listed for trading) policies and rules, the record
date for determining stockholders entitled to express consent to
corporate action in writing without a meeting is fixed by the Board
of Directors of the corporation pursuant to Section 213(a) of the
Delaware General Corporation Law as follows: The Board of
Directors shall set as the record date the 10th day after (i) any
stockholder of record seeking to have the stockholders authorize or
take corporate action by written consent without a meeting shall,
by written notice to the Secretary which may be given by telex or
telecopy, advise the corporation of the corporate action proposed
for which consents will be sought and request from the Board of
Directors a record date unless a later date is specified by such
stockholder, or (ii) the Board of Directors determines that the
corporation should seek corporate action by written consent, unless
a later record date is specified in the resolution of the Board of
Directors containing such determination. In the event that the
record date set as provided falls on a Saturday, Sunday or legal
holiday, the record date shall be the first day next following such
<PAGE>
date that is not a Saturday, Sunday or legal holiday. Any record
date determined pursuant to this Subsection 10.2 shall be announced
by a press release prior to the opening of trading on the American
Stock Exchange (or such other exchange on which the corporation's
securities are listed for trading) on the next trading day after a
request for a record date pursuant to clause (i) above is received
by the Secretary or a Board of Directors' determination pursuant to
clause (ii) above.
10.3 Duration and Revocation of Consents. In order that the
corporation's stockholders shall have an opportunity to receive and
consider the information germane to an informed judgment as to
whether to give a written consent and in accordance with the
procedures contained in the American Stock Exchange (or such other
exchange on which the corporation's securities are listed for
trading) policies and rules, the stockholders of the corporation
shall be given at least twenty (20) days from the record date to
give or revoke written consents. Consents to corporate action
shall be valid for a maximum of sixty (60) days after the record
date. Consents may be revoked by written notice (i) to the
corporation, (ii) to the stockholder or stockholders soliciting
consents or soliciting revocations in opposition to action by
consent proposed by the corporation (the "Soliciting
Stockholders"), or (iii) to a proxy solicitor or other agent
designated by the corporation of the Soliciting Stockholder(s).
10.4 Retention and Duties of Inspectors of Election. Within two
(2) business days after receipt of a request by a stockholder for
the setting of a record date or a determination by the Board of
Directors that the corporation should seek corporate action by
written consent, as the case may be, the Secretary of the
corporation shall engage nationally recognized independent
inspectors of elections for the purpose of performing a ministerial
review of the validity of the consents and revocations. The
inspectors shall review all consents and revocations, determine
whether the requisite number of valid and unrevoked consents has
been obtained to authorize or take the action specified in the
consents, and forthwith certify such determination for entry in the
records of the corporation kept for the purpose of recording the
proceedings of meetings of stockholders. The cost of retaining
inspectors of elections shall be borne by the party proposing the
action by consent.
10.5 Procedures for Counting and Challenging Consents. Consents
and revocations shall be delivered to the inspectors upon receipt
by the corporation, the Soliciting Stockholders or their proxy
solicitors or other designated agents. As soon as consents and
revocations are received, the inspectors shall review the consents
and revocations and shall maintain a count of the number of valid
and unrevoked consents. The inspectors shall keep such count
confidential and shall not reveal the count to the corporation, the
Soliciting Stockholders or their representatives. As soon as
2
<PAGE>
practicable after the earlier of (i) sixty (60) days after the
record date for the consents or (ii) a request therefore by the
corporation or the Soliciting Stockholders (whichever is soliciting
consents) made after expiration of the period for giving or
revoking consents under Subsection 10.3 above, notice of which
request shall be given to the party opposing the solicitation of
consents, which request shall state that the corporation or
Soliciting Stockholder(s) (as the case may be) in good faith
believe that it or they have received the requisite number of valid
and unrevoked consents to authorize or take the action specified in
the consents, the inspectors shall issue a preliminary report to
the corporation and the Soliciting Stockholders stating:
(i) The number of valid consents;
(ii) The number of valid revocations;
(iii) The number of valid and unrevoked consents;
(iv) The number of invalid consents;
(v) The number of invalid revocations;
(vi) Whether, based on their preliminary count, the requisite
number of valid and unrevoked consents has been obtained
to authorize or take the action specified in the
consents.
Unless the corporation and the Soliciting Stockholder(s) shall
agree to a shorter or longer period, the corporation and the
Soliciting Stockholder(s) shall have forty-eight (48) hours to
review the consents and revocations and to advise the inspectors
and the opposing party in writing as to whether they intend to
challenge the preliminary report of the inspectors. If no written
notice of an intention to challenge the preliminary report is
received within forty-eight (48) hours after the inspector's
issuance of the preliminary report, the inspectors shall issue to
the corporation and the Soliciting Stockholder(s) their final
report containing the information from the inspectors'
determination with respect to whether the requisite number of valid
and unrevoked consents was obtained to authorize and take the
action specified in the consents. If the corporation or the
Soliciting Stockholder(s) issue written notice of an intention to
challenge the inspectors' preliminary report within forty-eight
(48) hours after the issuance of that report, a challenge session
shall be scheduled by the inspectors as promptly as practicable.
A transcript of the challenge session shall be recorded by a
certified court reporter. Following completion of the challenge
session, the inspectors shall as promptly as practicable issue
their final report to the corporation and the Soliciting
Stockholder(s) containing the information included in the
preliminary report, plus all changes in the vote totals as a result
3
<PAGE>
of the challenges and a certification of whether the requisite
number of valid and unrevoked consents was obtained to authorize or
take the action specified in the consents.
10.6 Notice of Results. The corporation shall give prompt notice
to the stockholders of the results of any consent solicitation or
the taking of the corporate action without a meeting and by less
than unanimous written consent.
2. Article III of the By-laws is hereby amended by adding at the
end thereof new Sections 12 and 13, which shall read as follows:
Section 12. Business to be Conducted at the Annual or Special
Meeting of the Stockholders. At any annual meeting of the
stockholders, only such business shall be conducted as shall have
been brought before the meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the corporation
who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 12. For business
to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered or mailed to and received at the principal
executive offices of the corporation not less than fifty (50) days
prior to the date of the annual meeting; provided, however, that in
the event that less than sixty (60) days' notice or prior public
disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual
meeting, the following:
(i) A brief description of the business desired to be brought
before the annual meeting and the reasons for conducting
such business at the annual meeting;
(ii) The name and address, as they appear on the corporation's
books, of the stockholder proposing such business;
(iii) The class and number of shares of the corporation's
voting stock that are beneficially owned by such
stockholder; and
(iv) Any material interest of such stockholder in such
business.
Notwithstanding anything in these By-laws to the contrary, no
business shall be brought before or conducted at an annual meeting
4
<PAGE>
except in accordance with the provisions of this Section 12. The
Officer of the corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this
Section 12 and, if he should so determine, he shall so declare to
the meeting and any such business so determined to be not properly
brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting by
or at the direction of the Board of Directors.
Section 13. Election to the Board of Directors.
__________________________________
13.1 Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible for
election as Directors of the corporation. Nominations of persons
for election to the Board of Directors of the corporation may be
made at a meeting of stockholders at which Directors are to be
elected only:
(i) By or at the direction of the Board of Directors; or
(ii) By any stockholder of the corporation entitled to vote
for the election of Directors at the meeting who complies
with the notice procedures set forth in this Subsection
13.2 below.
13.2 Nominations of election as a Director of the corporation,
other than those made by or at the direction of the Board of
Directors, shall be made by timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice
shall be delivered or mailed to and received at the principal
executive offices of the corporation not less than fifty (50) days
prior to the date of the meeting; provided, however, that in the
event that less than sixty (60) days' notice or prior disclosure of
the date of the meeting is given or made to stockholders, notice by
the stockholder to be timely must be so received 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. Such stockholder's notice shall set forth:
(i) As to each person whom such stockholder proposes to
nominate for election or reelection as a Director, all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange
5
<PAGE>
Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); and
(ii) As to the stockholder giving the notice (x) the name and
address, as they appear on the corporation's books, of
such stockholder, and (y) the class and number of shares
of the corporation's voting capital stock that are
beneficially owned by such stockholder.
At the request of the Board of Directors any person nominated
by the Board of Directors for election as a Director shall furnish
to the Secretary of the corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to
the nominee. No person shall be eligible for election as a
Director of the corporation unless nominated in accordance with the
provisions of this Section 13. The Officer of the corporation or
other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance
with such provisions and, if he or she should so determine, he or
she shall so declare to the meeting and the defective nomination
shall be disregarded.
The By-laws of LSB Industries, Inc., as previously amended,
and further amended and modified by this Amendment to the By-laws
of LSB Industries, Inc.'s By-laws, sets forth the entire By-laws of
LSB. The amendments to LSB's By-laws as contained in this Fourth
Amendment to LSB Industries, Inc.'s By-laws are effective as of the
26th day of April, 1990, the date that such amendments were approved
by the Board of Directors of LSB.
Dated: June 15, 1990
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
___________________________________
Jack E. Golsen
Chairman of the Board
And President
(SEAL)
/s/ David M. Shear
___________________________________
David M. Shear,
Secretary
6
<PAGE>
<PAGE>
FIFTH AMENDMENT
TO THE BY-LAWS
OF
LSB INDUSTRIES, INC.
___________________
Section 1. Number, Term, Qualification and Vacancies of
ARTICLE IV and Section 1. Amendment of ARTICLE IV of LSB
Industries, Inc.'s (the "Company") By-Laws have been duly and
validly amended by the Board of Directors of the Company, by action
taken on November 11, 1993, by a majority of members of the Board
of Directors pursuant the Delaware General Corporation Law, to read
as follows:
ARTICLE IV, Section 1. Number, Term, Qualification and Vacancies.
__________ _________ __________________________________________
The property, business and affairs of the Corporation
shall be managed by or under the direction of its Board of
Directors.
The number of directors that shall constitute the whole
Board of Directors may be fixed from time to time pursuant to
a resolution adopted by a vote of two-thirds of the entire
Board of Directors and may consist of no fewer than three no
more than nine members. The directors shall be divided into
three classes. Each class shall consist, as nearly as
possible, of one-third of the whole number of the Board of
Directors. At each annual election of the successors that
year shall be elected to hold office for a term of three
years. Each director elected shall hold office until his
successor is elected and qualified or until his earlier
resignation or removal. Directors and officers need not be
shareholders.
Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be
filled only by a majority of the directors then in office,
although less than a quorum, or by the sole remaining
director. Each director chosen to fill a vacancy or newly
created directorship shall hold office until the next election
of the class for which such directors shall have been chosen
and until his successor is duly elected and qualified or until
his earlier resignation or removal.
<PAGE>
The By-Laws of LSB Industries, Inc., as amended and
modified by the First Amendment to LSB Industries, Inc.'s By-
Laws, dated October 6, 1986, by the Second Amendment to the
By-Laws dated November 2, 1986, by the Third Amendment to the
By-Laws dated June 1, 1989, by the Fourth Amendment to the By-
Laws dated June 15, 1990 and this Fifth Amendment to the By-
Laws of LSB Industries, Inc. dated November 11, 1993, sets
forth the entire By-Laws of LSB. The amendment to the
Company's By-Laws as set forth in this Fourth Amendment to the
LSB Industries, Inc.'s By-Laws is effective as of the 11th day
of November, 1993, the date of the meeting at which the
members of the Board of Directors adopted and approved such
amendment.
Dated: November 11, 1993.
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
___________________________
Jack E. Golsen, Chairman of
the Board and President
<PAGE>
<PAGE>
SIXTH AMENDMENT
TO THE BY-LAWS
OF
LSB INDUSTRIES, INC.
____________________
Section 1. Number, Term, Qualification and Vacancies of
ARTICLE IV and Section 1. Amendment of ARTICLE IV of LSB
Industries, Inc.'s (the "Company") By-Laws have been duly and
validly amended by the Board of Directors of the Company, by action
taken on May 8, 1997, by a majority of members of the Board of
Directors pursuant the Delaware General Corporation Law, to read as
follows:
ARTICLE IV, Section 1. Number, Term, Qualification and Vacancies.
__________ _________ __________________________________________
The property, business and affairs of the Corporation
shall be managed by or under the direction of its Board of
Directors.
The number of directors that shall constitute the whole
Board of Directors may be fixed from time to time pursuant to
a resolution adopted by a vote of two-thirds of the entire
Board of Directors and may consist of no fewer than three no
more than eleven members. The directors shall be divided into
three classes. Each class shall consist, as nearly as
possible, of one-third of the whole number of the Board of
Directors. At each annual election of the successors that
year shall be elected to hold office for a term of three
years. Each director elected shall hold office until his
successor is elected and qualified or until his earlier
resignation or removal. Directors and officers need not be
shareholders.
Vacancies and newly created directorships resulting from
any increase in the authorized number of directors shall be
filled only by a majority of the directors then in office,
although less than a quorum, or by the sole remaining
director. Each director chosen to fill a vacancy or newly
created directorship shall hold office until the next election
of the class for which such directors shall have been chosen
and until his successor is duly elected and qualified or until
his earlier resignation or removal.
The By-Laws of LSB Industries, Inc., dated January 28,
1997, as amended and modified by the First Amendment to LSB
Industries, Inc.'s By-Laws, dated October 6, 1986, by the
Second Amendment to the By-Laws, dated November 7, 1986, by
the Third Amendment to the By-Laws, dated June 1, 1989, by the
Fourth Amendment to the By-Laws, dated June 15, 1990, by the
<PAGE>
Fifth Amendment to the By-Laws, dated November 11, 1993 and
this Sixth Amendment to the By-Laws of LSB Industries, Inc.,
dated May 8, 1997, set forth the entire By-Laws of LSB
Industries, Inc. The amendment to the Company's By-Laws as
set forth in this Sixth Amendment to the By-Laws of LSB
Industries, Inc. is effective as of the 8th day of May, 1997,
the date of the meeting at which the members of the Board of
Directors adopted and approved such amendment.
Dated: May 8, 1997.
LSB INDUSTRIES, INC.
/s/ Jack E. Golsen
______________________________
Jack E. Golsen
Chairman of the Board
and President
/s/ David M. Shear
[S E A L] ______________________________
David M. Shear, Secretary
2
<PAGE>
<PAGE>
SEVENTH AMENDMENT TO THE BYLAWS
OF
LSB INDUSTRIES, INC.
The following amendment to the Bylaws of LSB Industries, Inc.
("LSB"), was approved and adopted by the Board of Directors of LSB
at their meeting held on August 13, 1998:
1. Article III of the Bylaws is hereby amended by
deleting Section 12, Business to be Conducted at
the Annual or Special Meeting of the Stockholders,
and in lieu thereof a new Section 12 is substituted
in place thereof, which reads as follows:
Section 12. Business to be Conducted at the
Annual or Special Meeting of the Stockholders;
Notice of Proposals. At any annual meeting of
the stockholders, only such business shall be
conducted as shall have been brought before
the meeting (i) by or at the direction of the
Board of Directors, or (ii) by any stockholder
of the corporation who is entitled to vote
with respect thereto and who complies with the
notice procedures set forth in this Section
12. For business to be properly brought
before the annual meeting by a stockholder,
the stockholder must have given timely notice
thereof in writing to the Secretary of the
corporation. A stockholder's notice will be
timely if delivered or mailed to and received
at the principal executive offices at the
corporation not less than 50 days before the
date on which the corporation first mailed its
proxy materials for the prior year's annual
meeting of stockholders. The stockholder's
notice to the Secretary shall set forth as to
each matter such stockholder proposes to bring
before the annual meeting, the following: (i)
a brief description of the business desired to
be brought before the annual meeting and the
reasons for conducting such business at the
annual meeting; (ii) the name and address, as
they appear on the corporation books, of the
stockholder proposing such business; (iii) the
class and number of shares of the
corporation's voting stock that are
beneficially owned by such stockholder; and
(iv) any material interest of such stockholder
and such business.
Notwithstanding anything in these Bylaws to
the contrary, no business shall be brought
before or conducted at the annual meeting
except in accordance with the provisions of
this Section 12. The officer of the
corporation or other person presiding over the
annual meeting shall, if the facts so warrant,
determine and declare to the meeting that
business was not properly brought before the
meeting in accordance with the provisions of
this Section 12 and, if he should so
<PAGE>
determine, he shall so declare to the meeting
and any such business so determined to be not
properly brought before the meeting shall not
be transacted.
At any special meeting of the stockholders,
only such business shall be conducted as shall
have been brought before the meeting by or at
the direction of the Board of Directors.
THIRD AMENDMENT
TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (the "Amendment") is dated as of August 14,
1998, and entered into by and between BANKAMERICA BUSINESS
CREDIT, INC. ("Lender") and LSB INDUSTRIES, INC. ("Borrower").
WHEREAS, Lender and Borrower have entered into that certain
Amended and Restated Loan and Security Agreement dated as of
November 21, 1997 as amended by that certain First Amendment to
Amended and Restated Loan and Security Agreement dated as of
March 12, 1998, and that certain Second Amendment to Amended and
Restated Loan and Security Agreement dated as of June 30, 1998
(as so amended, the "Agreement");
WHEREAS, two Events of Default have occurred under the
Agreement;
WHEREAS, the Borrower desires that the Lender waive the
Events of Default and amend the Agreement in certain respects;
and
WHEREAS, the Lender is willing to waive the Events of
Default and amend the Agreement subject to the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth in the Agreement and this Amendment, and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have
the same meanings as in the Agreement, as amended hereby.
-1-
<PAGE>
<PAGE>
ARTICLE II
Amendments
Section 2.01. Amendment to Section 3.1(a). Section 3.1(a)
is hereby amended to read as follows:
"3.1 Interest.
(a) Interest Rates. All amounts charged as Revolving
Loans shall bear interest on the unpaid principal amount thereof
from the date made until paid in full in cash at the Applicable
Interest Rate as described in Sections 3.1(a)(i) and (ii) but not
to exceed the maximum rate permitted by applicable law. Subject
to the provisions of Section 3.2, any of the Revolving Loans may
be converted into, or continued as, Reference Rate Loans or
Eurodollar Rate Loans in the manner provided in Section 3.2. If
at any time Revolving Loans are outstanding with respect to which
notice has not been delivered to Lender in accordance with the
terms of this Agreement specifying the basis for determining the
interest rate applicable thereto, then those Revolving Loans
shall be Reference Rate Loans and shall bear interest at a rate
determined by reference to the Reference Rate until notice to the
contrary has been given to the Lender and such notice has become
effective. Except as otherwise provided herein, the amounts
charged as Revolving Loans shall bear interest at the following
rates (the "Applicable Interest Rate"):
(i) For all amounts charged as Revolving Loans
other than Eurodollar Rate Loans, including all Revolving
Loans which are Reference Rate Loans, then at a fluctuating
per annum rate equal to one-half percent (.50%) per annum
(the "Reference Rate Margin") plus the Reference Rate; and
(ii) If the Revolving Loans are Eurodollar Rate
Loans, then at a per annum rate equal to two and seven-
eighths percent (2.875%) per annum (the "Eurodollar Margin")
plus the Eurodollar Rate determined for the applicable
Interest Period.
Each change in the Reference Rate shall be reflected in the
interest rate described in (i) above as of the effective date of
such change. All interest charges shall be computed on the basis
of a year of three hundred sixty (360) days and actual days
elapsed. Except as otherwise provided herein, (1) interest
accrued on each Eurodollar Rate Loan shall be payable in arrears
on each Eurodollar Interest Payment Date applicable to such
Eurodollar Rate Loan, and (2) interest accrued on the Reference
Rate Loans will be payable in arrears on the first day of each
month hereafter."
Section 2.02. Amendment to Section 9.16. Section 9.16 of
the Agreement is hereby amended to read in its entirety as
follows:
-2-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
"9.16 LSB Adjusted Tangible Net Worth. The LSB
Adjusted Tangible Net Worth increased by an amount equal to
the purchase price paid by Borrower for its treasury stock
for purchases from January 1, 1998 through termination of
this Agreement, which amount shall not exceed $6,000,000,
will not be less than the following amounts at the end of
each of the Fiscal Quarters during the following Fiscal
Years:
Fiscal Quarters in the
Following Fiscal Years 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Fiscal Year Ending
December 31, 1998 $ 43,900,000 $42,900,000
First Fiscal Quarter during
Fiscal Year Ending December 31,
1999 The LSB Adjusted Tangible Net Worth as
of December 31, 1998 less $4,500,000 and
less all Dividends actually paid by LSB
in cash from January 1, 1999 until the
date of calculation.
Second Fiscal Quarter during
Fiscal Year Ending December 31,
1999 The LSB Adjusted Tangible Net Worth as
of March 31, 1999 and less all Dividends
actually paid by LSB in cash from
January 1, 1999 until the date of
calculation.
Third Fiscal Quarter during
Fiscal Year Ending December 31,
1999 and each Fiscal Quarter during
each Fiscal Year ending thereafter: The LSB Adjusted
Tangible Net Worth as of June 30, 1999
plus fifty percent (50%) of the profits
for each fiscal quarter thereafter, if
any, and less all Dividends actually
paid by LSB in cash from January 1, 1999
until the date of calculation."
</TABLE>
Section 2.03. Amendment to Section 9.17. Section 9.17 of
the Agreement is hereby amended to read in its entirety as
follows:
<TABLE>
<CAPTION>
"9.17 LSB Debt Ratio. The ratio of Debt of the LSB
Consolidated Borrowing Group to the LSB Adjusted Tangible
Net Worth increased by an amount equal to the purchase price
paid by Borrower for its treasury stock for purchases from
January 1, 1998 through termination of this Agreement, which
amount shall not exceed $6,000,000, will not be greater than
the following ratios at the end of each of the Fiscal
Quarters during the following Fiscal Years:
Fiscal Quarters in the
Following Fiscal Years 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Fiscal Year Ending
December 31, 1998 3.75 to 1 3.75 to 1
Fiscal Year Ending
December 31, 1999 3.75 to 1 3.75 to 1 3.75 to 1 3.75 to 1
Each Fiscal Quarter during
each Fiscal Year ending thereafter: 3.75 to 1."
</TABLE>
-3-
<PAGE>
<PAGE>
ARTICLE III
Waivers
Section 3.01. Waiver of Events of Default.
(a) The Lender hereby waives the following Events of
Default: (i) the LSB Borrowing Group's Adjusted Tangible Net
Worth for the Fiscal Quarter ending June 30, 1998 was less than
$45,000,000, in breach of Section 9.16 of the Loan Agreement; and
(ii) the LSB Borrowing Group's Debt Ratio for the Fiscal Quarter
ending June 30, 1998 was greater than 3.70 to 1.0, in breach of
Section 9.17 of the Loan Agreement.
(b) The foregoing waiver is only applicable to and
shall only be effective to the extent described above. The
waiver is limited to the facts and circumstances referred to
herein and shall not operate as (i) a waiver of or consent to
non-compliance with any other section or provision of the Loan
Agreement, (ii) a waiver of any right, power, or remedy of the
Lender under the Loan Agreement (except as provided herein), or
(iii) a waiver of any other Event of Default or Event which may
exist under the Loan Agreement.
ARTICLE IV
Ratifications, Representations and Warranties
Section 4.01. Ratifications. The terms and provisions set
forth in this Amendment shall modify and supersede all inconsistent
terms and provisions set forth in the Agreement and, except as
expressly modified and superseded by this Amendment, the terms and
provisions of the Agreement, including, without limitation, all
financial covenants contained therein, are ratified and confirmed
and shall continue in full force and effect. Lender and Borrower
agree that the Agreement as amended hereby shall continue to be
legal, valid, binding and enforceable in accordance with its terms.
Section 4.02. Representations and Warranties. Borrower
hereby represents and warrants to Lender that the execution,
delivery and performance of this Amendment and all other loan,
amendment or security documents to which Borrower is or is to be a
party hereunder (hereinafter referred to collectively as the "Loan
Documents") executed and/or delivered in connection herewith, have
been authorized by all requisite corporate action on the part of
Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower.
ARTICLE V
Conditions Precedent
Section 5.01. Conditions. The effectiveness of this
Amendment is subject to the satisfaction of the following
conditions precedent (unless specifically waived in writing by the
Lender):
(a) Lender shall have received all of the following,
each dated (unless otherwise indicated) as of the date of this
Amendment, in form and substance satisfactory to Lender in its
sole discretion:
-4-
<PAGE>
(i) Company Certificate. A certificate executed by
the Secretary or Assistant Secretary of Borrower
certifying (A) that Borrower's Board of Directors has met
and adopted, approved, consented to and ratified the
resolutions attached thereto which authorize the
execution, delivery and performance by Borrower of the
Amendment and the Loan Documents, (B) the names of the
officers of Borrower authorized to sign this Amendment
and each of the Loan Documents to which Borrower is to be
a party hereunder, (C) the specimen signatures of such
officers, and (D) that neither the Articles of
Incorporation nor Bylaws of Borrower have been amended
since the date of the Agreement;
(ii) No Material Adverse Change. There shall have
occurred no material adverse change in the business,
operations, financial condition, profits or prospects of
Borrower, or in the Collateral since May 31, 1998, and
the Lender shall have received a certificate of
Borrower's chief executive officer to such effect;
(iii) Other Documents. Borrower shall have executed
and delivered such other documents and instruments as
well as required record searches as Lender may require.
(b) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all
documents, instruments and other legal matters incident
thereto shall be satisfactory to Lender and its legal counsel,
Jenkens & Gilchrist, a Professional Corporation.
ARTICLE VI
Miscellaneous
Section 6.01. Survival of Representations and Warranties.
All representations and warranties made in the Agreement or any
other document or documents relating thereto, including, without
limitation, any Loan Document furnished in connection with this
Amendment, shall survive the execution and delivery of this
Amendment and the other Loan Documents, and no investigation by
Lender or any closing shall affect the representations and
warranties or the right of Lender to rely thereon.
Section 6.02. Reference to Agreement. The Agreement, each of
the Loan Documents, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the
terms hereof or pursuant to the terms of the Agreement as amended
hereby, are hereby amended so that any reference therein to the
Agreement shall mean a reference to the Agreement as amended
hereby.
Section 6.03. Severability. Any provision of this Amendment
held by a court of competent jurisdiction to be invalid or
unenforceable shall not impair or invalidate the remainder of this
Amendment and the effect thereof shall be confined to the provision
so held to be invalid or unenforceable.
-5-
<PAGE>
Section 6.04. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER
LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE
BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF OKLAHOMA AND SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OKLAHOMA.
Section 6.05. Successors and Assigns. This Amendment is
binding upon and shall inure to the benefit of Lender and Borrower
and their respective successors and assigns; provided, however,
that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
Lender may assign any or all of its rights or obligations hereunder
without the prior consent of Borrower.
Section 6.06. Counterparts. This Amendment may be executed
in one or more counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together
shall constitute one and the same instrument.
Section 6.07. Effect of Waiver. No consent or waiver,
express or implied, by Lender to or of any breach of or deviation
from any covenant or condition of the Agreement or duty shall be
deemed a consent or waiver to or of any other breach of or
deviation from the same or any other covenant, condition or duty.
No failure on the part of Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right,
power, or privilege under this Amendment, the Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power, or privilege
under this Amendment, the Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of
any other right, power, or privilege. The rights and remedies
provided for in the Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by
law.
Section 6.08. Headings. The headings, captions and
arrangements used in this Amendment are for convenience only and
shall not affect the interpretation of this Amendment.
Section 6.09. Releases. As a material inducement to Lender
to enter into this Amendment, Borrower hereby represents and
warrants that there are no claims or offsets against, or defenses
or counterclaims to, the terms and provisions of and the other
obligations created or evidenced by the Agreement or the other Loan
Documents. Borrower hereby releases, acquits, and forever
discharges Lender, and its successors, assigns, and predecessors in
interest, their parents, subsidiaries and affiliated organizations,
and the officers, employees, attorneys, and agents of each of the
foregoing (all of whom are herein jointly and severally referred to
as the "Released Parties") from any and all liability, damages,
losses, obligations, costs, expenses, suits, claims, demands,
causes of action for damages or any other relief, whether or not
now known or suspected, of any kind, nature, or character, at law
or in equity, which Borrower now has or may have ever had against
any of the Released Parties, including, but not limited to, those
relating to (a) usury or penalties or damages therefor, (b)
allegations that a partnership existed between Borrower and the
Released Parties, (c) allegations of unconscionable acts, deceptive
trade practices, lack of good faith or fair dealing, lack of
commercial reasonableness or special relationships, such as
fiduciary, trust or confidential relationships, (d) allegations of
dominion, control, alter ego, instrumentality, fraud,
misrepresentation, duress, coercion, undue influence, interference
or negligence, (e) allegations of tortious interference with
present or prospective business relationships or of antitrust, or
-6-
<PAGE>
(f) slander, libel or damage to reputation, (hereinafter being
collectively referred to as the "Claims"), all of which Claims are
hereby waived.
Section 6.10. Expenses of Lender. Borrower agrees to pay on
demand (i) all costs and expenses reasonably incurred by Lender in
connection with the preparation, negotiation and execution of this
Amendment and the other Loan Documents executed pursuant hereto and
any and all subsequent amendments, modifications, and supplements
hereto or thereto, including, without limitation, the costs and
fees of Lender's legal counsel and the allocated cost of staff
counsel and (ii) all costs and expenses reasonably incurred by
Lender in connection with the enforcement or preservation of any
rights under the Agreement, this Amendment and/or other Loan
Documents, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of staff counsel.
Section 6.11. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BETWEEN LENDER AND BORROWER AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment
on the date first above written.
"BORROWER"
LSB INDUSTRIES, INC.
By: /s/ Tony M. Shelby
_____________________________________
Tony M. Shelby, Vice President
"LENDER"
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Michael J. Jasaitis
____________________________________
Michael J. Jasaitis
Vice President
-7-
<PAGE>
<PAGE>
ACKNOWLEDGED AND AGREED TO:
Each of the following "LSB Guarantor Subsidiaries" hereby
acknowledges the execution of and consents to the terms and
conditions of that certain Third Amendment to Amended and Restated
Loan and Security Agreement dated as of August 14, 1998 between LSB
Industries, Inc., and BABC.
L&S AUTOMOTIVE PRODUCTS, CO.
INTERNATIONAL BEARINGS, INC.
LSB EXTRUSION CO.
ROTEX CORPORATION
TRIBONETICS CORPORATION
MOREY MACHINE TOOL MANUFACTURING
CORPORATION
By: /s/ Tony M. Shelby
__________________________________
Tony M. Shelby
Vice President acting on behalf of
each of the above.
-8-
<PAGE>
<PAGE>
CONSENTS AND REAFFIRMATIONS
Each of the undersigned hereby acknowledges the execution of,
and consents to, the terms and conditions of that certain Third
Amendment to Amended and Restated Loan and Security Agreement dated
as of August 14, 1998, between LSB Industries, Inc. and BankAmerica
Business Credit, Inc. ("Creditor") and reaffirms its obligations
under (i) that certain Continuing Guaranty with Security Agreement
(the "Guaranty") dated as of November 21, 1997, and (ii) that
certain Cross-Collateralization and Cross-Guaranty Agreement (the
"Cross-Collateralization Agreement") dated as of November 21, 1997, each made
by the undersigned in favor of the Creditor, and acknowledges and
agrees that the Guaranty and the Cross-Collateralization Agreement
remain in full force and effect and the Guaranty and the Cross-
Collateralization Agreement are hereby ratified and confirmed.
Dated as of August 14, 1998.
LSB INDUSTRIES, INC.
L&S BEARING CO.
SUMMIT MACHINE TOOL MANUFACTURING
CORP.
L&S AUTOMOTIVE PRODUCTS CO.
INTERNATIONAL BEARINGS, INC.
LSB EXTRUSION CO.
ROTEX CORPORATION
TRIBONETICS CORPORATION
MOREY MACHINERY MANUFACTURING
CORPORATION
By: /s/ Tony M. Shelby
_________________________________
Tony M. Shelby, Vice President
acting on behalf of each of the
above
-9-
<PAGE>
THIRD AMENDMENT
TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Amendment") is dated as of August 14, 1998, and
entered into by and between BANKAMERICA BUSINESS CREDIT, INC.
("Lender") and CLIMATE MASTER, INC. ("Climate Master"),
INTERNATIONAL ENVIRONMENTAL CORPORATION ("IEC"), EL DORADO CHEMICAL
COMPANY ("EDC") and SLURRY EXPLOSIVE CORPORATION ("Slurry")
(Climate, IEC, EDC, and Slurry being collectively referred to
herein as "Borrower").
WHEREAS, Lender and Borrower have entered into that certain
Amended and Restated Loan and Security Agreement dated as of
November 21, 1997 as amended by that certain First Amendment to
Amended and Restated Loan and Security Agreement dated as of March
12, 1998, and that certain Second Amendment to Amended and Restated
Loan and Security Agreement dated as of June 30, 1998 (as so
amended, the "Agreement");
WHEREAS, two Events of Default have occurred under the
Agreement;
WHEREAS, the Borrower desires that the Lender waive the Events
of Default and amend the Agreement in certain respects; and
WHEREAS, the Lender is willing to waive the Events of Default
and amend the Agreement subject to the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in the Agreement and this Amendment, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
ARTICLE I
__________
Definitions
___________
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have
the same meanings as in the Agreement, as amended hereby.
-1-
<PAGE>
<PAGE>
ARTICLE II
Amendments
Section 2.01 Amendment to Section 3.1 (a) Interest Rates.
Section 3.1 (a) of the Agreement is hereby amended in its entirety
to read as follows:
"3.1 Interest.
(a) Interest Rates. All amounts charged as Revolving
Loans shall bear interest on the unpaid principal amount thereof
from the date made until paid in full in cash at the Applicable
Interest Rate as described in Sections 3.1(a)(i) and (ii) but not
to exceed the maximum rate permitted by applicable law. Subject to
the provisions of Section 3.2, any of the Revolving Loans may be
converted into, or continued as, Reference Rate Loans or Eurodollar
Rate Loans in the manner provided in Section 3.2. If at any time
Revolving Loans are outstanding with respect to which notice has
not been delivered to Lender in accordance with the terms of this
Agreement specifying the basis for determining the interest rate
applicable thereto, then those Revolving Loans shall be Reference
Rate Loans and shall bear interest at a rate determined by
reference to the Reference Rate until notice to the contrary has
been given to the Lender and such notice has become effective.
Except as otherwise provided herein, the amounts charged as
Revolving Loans shall bear interest at the following rates (the
"Applicable Interest Rate"):
(i) For all amounts charged as Revolving Loans
other than Eurodollar Rate Loans, including all Revolving
Loans which are Reference Rate Loans, then at a fluctuating
per annum rate equal to one-half percent (.50%) per annum (the
"Reference Rate Margin") plus the Reference Rate; and
(ii) If the Revolving Loans are Eurodollar Rate
Loans, then at a per annum rate equal to: two and seven-
eighths percent (2.875%) per annum (the "Eurodollar Margin")
plus the Eurodollar Rate determined for the applicable
Interest Period.
Each change in the Reference Rate shall be reflected in the
interest rate described in (i) above as of the effective date of
such change. All interest charges shall be computed on the basis
of a year of three hundred sixty (360) days and actual days
elapsed. Except as otherwise provided herein, (1) interest accrued
on each Eurodollar Rate Loan shall be payable in arrears on each
Eurodollar Interest Payment Date applicable to such Eurodollar Rate
Loan, and (2) interest accrued on the Reference Rate Loans will be
payable in arrears on the first day of each month hereafter."
<PAGE>
Section 2.02. Amendment to Section 9.16. Section 9.16 of the
Agreement is hereby amended to read in its entirety as follows:
-2-
<PAGE>
<TABLE>
<CAPTION>
"9.16 CCI Adjusted Tangible Net Worth. The CCI
Adjusted Tangible Net Worth will not be less than the
following amounts at the end of each of the Fiscal Quarters
during the following Fiscal Years:
Fiscal Quarters in the
Following Fiscal Years 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Fiscal Year Ending
December 31, 1998 $23,000,000 $24,700,000
First Fiscal Quarter during
Fiscal Year Ending December 31,
1999 The CCI Adjusted Tangible Net Worth as of
December 31, 1998 less $1,500,000.
<PAGE>
Second Fiscal Quarter during
Fiscal Year Ending December 31,
1999 The CCI Adjusted Tangible Net Worth as of March
31, 1999.
Third Fiscal Quarter during
Fiscal Year Ending December 31,
1999 and each Fiscal Quarter during
each Fiscal Year ending thereafter:
The CCI Adjusted Tangible Net Worth
as of March 31, 1999 plus fifty percent (50%) of
CCI's profits for the prior fiscal quarter
without taking into account any losses."
</TABLE>
Section 2.03. Amendment to Section 9.17. Section 9.17 of the
Agreement is hereby amended to read in its entirety as follows:
<TABLE>
<CAPTION>
"9.17 Debt Ratio. The ratio of Debt of the CCI
Consolidated Group to the CCI Adjusted Tangible Net Worth will
not be greater than the following ratios at the end of each of
the Fiscal Quarters during the following Fiscal Years:
Fiscal Quarters in the
Following Fiscal Years 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Fiscal Year Ending
December 31, 1998 6.35:1 5.95:1
Fiscal Year Ending
December 31, 1999 and 5.95:1 5.95:1 5.95:1 5.95:1
Each Fiscal Quarter during each
Fiscal Year ending thereafter: 5.95:1"
</TABLE>
-3-
<PAGE>
ARTICLE III
Waivers
Section 3.01. Waiver of Events of Default.
(a) The Lender hereby waives the following Events of
Default: (i) the CCI Adjusted Tangible Net Worth for the Fiscal
Quarter ending June 30, 1998 was less than $21,500,000, in breach
of Section 9.16 of the Loan Agreement; and (ii) the CCI
Consolidated Group's Debt Ratio for the Fiscal Quarter ending June
30, 1998 was greater than 7.10 to 1.0, in breach of Section 9.17 of
the Loan Agreement.
(b) The foregoing waiver is only applicable to and shall
only be effective to the extent described above. The waiver is
limited to the facts and circumstances referred to herein and shall
not operate as (i) a waiver of or consent to non-compliance with
any other section or provision of the Loan Agreement, (ii) a waiver
of any right, power, or remedy of the Lender under the Loan
Agreement (except as provided herein), or (iii) a waiver of any
other Event of Default or Event which may exist under the Loan
Agreement.
ARTICLE IV
Ratifications, Representations and Warranties
Section 4.01. Ratifications. The terms and provisions set
forth in this Amendment shall modify and supersede all inconsistent
terms and provisions set forth in the Agreement and, except as
expressly modified and superseded by this Amendment, the terms and
provisions of the Agreement, including, without limitation, all
financial covenants contained therein, are ratified and confirmed
and shall continue in full force and effect. Lender and Borrower
agree that the Agreement as amended hereby shall continue to be
legal, valid, binding and enforceable in accordance with its terms.
Section 4.02. Representations and Warranties. Borrower
hereby represents and warrants to Lender that the execution,
delivery and performance of this Amendment and all other loan,
amendment or security documents to which Borrower is or is to be a
party hereunder (hereinafter referred to collectively as the "Loan
Documents") executed and/or delivered in connection herewith, have
been authorized by all requisite corporate action on the part of
Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower.
ARTICLE V
Conditions Precedent
Section 5.01. Conditions. The effectiveness of this
Amendment is subject to the satisfaction of the following
conditions precedent (unless specifically waived in writing by the
Lender):
(a) Lender shall have received all of the following,
each dated (unless otherwise indicated) as of the date of this
Amendment, in form and substance satisfactory to Lender in its
sole discretion:
-4-
<PAGE>
(i) Company Certificate. A certificate executed by
the Secretary or Assistant Secretary of Borrower
certifying (A) that Borrower's Board of Directors has met
and adopted, approved, consented to and ratified the
resolutions attached thereto which authorize the
execution, delivery and performance by Borrower of the
Amendment and the Loan Documents, (B) the names of the
officers of Borrower authorized to sign this Amendment
and each of the Loan Documents to which Borrower is to be
a party hereunder, (C) the specimen signatures of such
officers, and (D) that neither the Articles of
Incorporation nor Bylaws of Borrower have been amended
since the date of the Agreement;
(ii) No Material Adverse Change. There shall have
occurred no material adverse change in the business,
operations, financial condition, profits or prospects of
Borrower, or in the Collateral since May 31, 1998, and
the Lender shall have received a certificate of
Borrower's chief executive officer to such effect;
(iii) Other Documents. Borrower shall have executed
and delivered such other documents and instruments as
well as required record searches as Lender may require.
(b) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment and all
documents, instruments and other legal matters incident
thereto shall be satisfactory to Lender and its legal counsel,
Jenkens & Gilchrist, a Professional Corporation.
ARTICLE VI
Miscellaneous
Section 6.01. Survival of Representations and Warranties.
All representations and warranties made in the Agreement or any
other document or documents relating thereto, including, without
limitation, any Loan Document furnished in connection with this
Amendment, shall survive the execution and delivery of this
Amendment and the other Loan Documents, and no investigation by
Lender or any closing shall affect the representations and
warranties or the right of Lender to rely thereon.
Section 6.02. Reference to Agreement. The Agreement, each of
the Loan Documents, and any and all other agreements, documents or
instruments now or hereafter executed and delivered pursuant to the
terms hereof or pursuant to the terms of the Agreement as amended
hereby, are hereby amended so that any reference therein to the
Agreement shall mean a reference to the Agreement as amended
hereby.
Section 6.03. Severability. Any provision of this Amendment
held by a court of competent jurisdiction to be invalid or
unenforceable shall not impair or invalidate the remainder of this
Amendment and the effect thereof shall be confined to the provision
so held to be invalid or unenforceable.
-5-
<PAGE>
Section 6.04. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER
LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE
BEEN MADE AND TO BE PERFORMABLE IN THE STATE OF OKLAHOMA AND SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OKLAHOMA.
Section 6.05. Successors and Assigns. This Amendment is
binding upon and shall inure to the benefit of Lender and Borrower
and their respective successors and assigns; provided, however,
that Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
Lender may assign any or all of its rights or obligations hereunder
without the prior consent of Borrower.
Section 6.06. Counterparts. This Amendment may be executed
in one or more counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together
shall constitute one and the same instrument.
Section 6.07. Effect of Waiver. No consent or waiver,
express or implied, by Lender to or of any breach of or deviation
from any covenant or condition of the Agreement or duty shall be
deemed a consent or waiver to or of any other breach of or
deviation from the same or any other covenant, condition or duty.
No failure on the part of Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right,
power, or privilege under this Amendment, the Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power, or privilege
under this Amendment, the Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of
any other right, power, or privilege. The rights and remedies
provided for in the Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by
law.
Section 6.08. Headings. The headings, captions and
arrangements used in this Amendment are for convenience only and
shall not affect the interpretation of this Amendment.
Section 6.09. Releases. As a material inducement to Lender
to enter into this Amendment, Borrower hereby represents and
warrants that there are no claims or offsets against, or defenses
or counterclaims to, the terms and provisions of and the other
obligations created or evidenced by the Agreement or the other Loan
Documents. Borrower hereby releases, acquits, and forever
discharges Lender, and its successors, assigns, and predecessors in
interest, their parents, subsidiaries and affiliated organizations,
and the officers, employees, attorneys, and agents of each of the
foregoing (all of whom are herein jointly and severally referred to
as the "Released Parties") from any and all liability, damages,
losses, obligations, costs, expenses, suits, claims, demands,
causes of action for damages or any other relief, whether or not
now known or suspected, of any kind, nature, or character, at law
or in equity, which Borrower now has or may have ever had against
any of the Released Parties, including, but not limited to, those
relating to (a) usury or penalties or damages therefor, (b)
allegations that a partnership existed between Borrower and the
Released Parties, (c) allegations of unconscionable acts, deceptive
trade practices, lack of good faith or fair dealing, lack of
commercial reasonableness or special relationships, such as
fiduciary, trust or confidential relationships, (d) allegations of
dominion, control, alter ego, instrumentality, fraud,
misrepresentation, duress, coercion, undue influence, interference
or negligence, (e) allegations of tortious interference with
present or prospective business relationships or of antitrust, or
-6-
<PAGE>
(f) slander, libel or damage to reputation, (hereinafter being
collectively referred to as the "Claims"), all of which Claims are
hereby waived.
Section 6.10. Expenses of Lender. Borrower agrees to pay on
demand (i) all costs and expenses reasonably incurred by Lender in
connection with the preparation, negotiation and execution of this
Amendment and the other Loan Documents executed pursuant hereto and
any and all subsequent amendments, modifications, and supplements
hereto or thereto, including, without limitation, the costs and
fees of Lender's legal counsel and the allocated cost of staff
counsel and (ii) all costs and expenses reasonably incurred by
Lender in connection with the enforcement or preservation of any
rights under the Agreement, this Amendment and/or other Loan
Documents, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of staff counsel.
Section 6.11. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BETWEEN LENDER AND BORROWER AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment
on the date first above written.
"BORROWER":
CLIMATE MASTER, INC.
By:__________________________
Tony M. Shelby
Vice President
INTERNATIONAL ENVIRONMENTAL CORPORATION
By:__________________________
Tony M. Shelby
Vice President
EL DORADO CHEMICAL COMPANY
By: /s/ Tony M. Shelby
___________________________
Tony M. Shelby
Vice President
SLURRY EXPLOSIVE CORPORATION
By: /s/ Tony M. Shelby
___________________________
Tony M. Shelby
Vice President
"LENDER"
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Michael J. Jasaitis
___________________________________
Michael J. Jasaitis, Vice President
-7-
<PAGE>
<PAGE>
CONSENTS AND REAFFIRMATIONS
The undersigned hereby acknowledges the execution of, and
consents to, the terms and conditions of that certain Third
Amendment to Amended and Restated Loan and Security Agreement dated
as of August 14, 1998, between Climate Master, Inc., International
Environmental Corporation, El Dorado Chemical Corporation, Slurry
Explosive Corporation and BankAmerica Business Credit, Inc.
("Creditor") and reaffirms its obligations under that certain
Continuing Guaranty (the "Guaranty") dated as of November 21,
1997, made by the undersigned in favor of the Creditor, and
acknowledges and agrees that the Guaranty remains in full force
and effect and the Guaranty is hereby ratified and confirmed.
Dated as of August 14, 1998.
CLIMACHEM, INC.
By: /s/ Tony M. Shelby
________________________________
Tony M. Shelby, Vice President
-8-
<PAGE>
<PAGE>
CONSENTS AND REAFFIRMATIONS
Each of the undersigned hereby acknowledges the execution of,
and consents to, the terms and conditions of that certain Third
Amendment to Amended and Restated Loan and Security Agreement dated
as of August 14, 1998, between Climate Master, Inc., International
Environmental Corporation, El Dorado Chemical Corporation, Slurry
Explosive Corporation and BankAmerica Business Credit, Inc.
("Creditor") and each reaffirms its obligations under that certain
Continuing Guaranty with Security Agreement (the "Guaranty") dated
as of November 21, 1997, and acknowledges and agrees that such
Guaranty remains in full force and effect and each Guaranty is
hereby ratified and confirmed.
Dated as of August 14, 1998.
LSB INDUSTRIES, INC.
LSB CHEMICAL CORP.
L&S AUTOMOTIVE PRODUCTS CO.
L&S BEARING CO.
INTERNATIONAL BEARINGS, INC.
LSB EXTRUSION CO.
ROTEX CORPORATION
TRIBONETICS CORPORATION
SUMMIT MACHINE TOOL MANUFACTURING
CORP
MOREY MACHINERY MANUFACTURING
CORPORATION
CHP CORPORATION
KOAX CORP.
APR CORPORATION
CLIMATE MATE, INC.
THE ENVIRONMENTAL GROUP, INC.
UNIVERSAL TECH CORPORATION
By: /s/ Tony M. Shelby
_______________________________
Tony M. Shelby, Vice President
acting on behalf of each of the
above
Letter of Acknowledgment Re: Unaudited Financial Statements
The Board of Directors
LSB Industries, Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-8 No. 33-8302) pertaining to the 1981 and 1986
Incentive Stock Option Plans, the Registration Statement (Form S-8
No. 333-58225) pertaining to the 1993 Stock Option and Incentive
Plan and the Registration Statement (Form S-3 No. 33-69800) of LSB
Industries, Inc. and in the related Prospectuses of our report dated
August 14, 1998, relating to the unaudited condensed consolidated
interim financial statements of LSB Industries, Inc. which are
included in its Form 10-Q for the quarter ended June 30, 1998.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is
not a part of the registration statement prepared or certified by
accountants within the meaning of Section 7 or 11 of the Securities
Act of 1933.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 5,502
<SECURITIES> 0
<RECEIVABLES> 59,335
<ALLOWANCES> 3,182
<INVENTORY> 63,862
<CURRENT-ASSETS> 134,293
<PP&E> 191,468
<DEPRECIATION> 91,602
<TOTAL-ASSETS> 253,089
<CURRENT-LIABILITIES> 55,468
<BONDS> 146,204
146
48,000
<COMMON> 1,511
<OTHER-SE> 1,760
<TOTAL-LIABILITY-AND-EQUITY> 253,089
<SALES> 165,469
<TOTAL-REVENUES> 179,787
<CGS> 129,173
<TOTAL-COSTS> 159,989
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,839
<INCOME-PRETAX> 10,959
<INCOME-TAX> 260
<INCOME-CONTINUING> 10,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,699
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.65)
</TABLE>
