<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LSB INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
LSB INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
LSB INDUSTRIES, INC.
16 South Pennsylvania Avenue
Post Office Box 754
Oklahoma City, OK 73101
FAX: (405) 235-5067
Notice of Annual Meeting of Stockholders
To Be Held June 24, 1999
To the Stockholders of
LSB Industries, Inc.
The Annual Meeting of the Stockholders of LSB Industries, Inc. (the
"Company") will take place at the Company's financial center located at 4000
Northwest 39th Expressway, Oklahoma City, Oklahoma, on Thursday, June 24, 1999,
at 11:30 a.m. (CST), for the purpose of considering and acting upon the
following matters:
(1) The election of 5 nominees to the Board of Directors;
(2) The approval of the selection of independent auditors;
(3) To approve the Company's 1998 Employee Stock Option and Incentive
Plan;
(4) To approve the Company's Outside Directors Stock Purchase Plan;
(5) Any other business which properly may come before the meeting or any
adjournment of the meeting.
The Board of Directors has fixed the close of business on May 14, 1999, as
the record date for the determination of holders of the common stock and voting
preferred stock of the Company entitled to receive notice of, and to vote at,
the Annual Meeting.
To ensure the presence of a quorum at the Annual Meeting, please sign and
promptly return the enclosed Proxy Card in the accompanying self-addressed
envelope, which requires no postage if mailed in the United States.
The Company is distributing its 1998 Annual Report to Stockholders with the
enclosed proxy soliciting material.
By order of the Board of Directors
David M. Shear
Secretary
Oklahoma City, Oklahoma
May 24, 1999
<PAGE>
LSB INDUSTRIES, INC.
16 South Pennsylvania
Post Office Box 754
Oklahoma City, OK 73101
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 24, 1999
SOLICITATION OF PROXIES
Solicitation. This Proxy Statement is solicited on behalf of the Board of
- -------------
Directors of LSB Industries, Inc. (the "Company") and is hereby furnished to the
stockholders of the Company to solicit their proxies for use at the Annual
Meeting of Stockholders to take place on Thursday, June 24, 1999, at 11:30 a.m.
at the Company's financial center located at 4000 Northwest 39th Expressway,
Oklahoma City, Oklahoma 73112 (the "Annual Meeting"). The Company may use the
services of its directors, officers, and employees to solicit proxies personally
or by telephone, without additional compensation therefore. The Company will
bear all of the costs of preparing, printing, assembling, and mailing this Proxy
Statement and the Proxy Card and all of the costs of the solicitation of the
proxies. The Company has also retained the services of Corporate Investor
Communications, Inc., to aid in the solicitation of proxies for a fee of $4,000,
plus reasonable out-of-pocket expenses incurred by them.
Reimbursement of Expenses. The Company will reimburse any bank, broker-dealer,
- --------------------------
or other custodian, nominee, or fiduciary for its reasonable expenses incurred
in completing the mailing of proxy materials to the beneficial owners of the
Company's Stock and voting Preferred Stock.
Revocation of Proxy. Any stockholder giving his or her proxy may revoke it at
- --------------------
any time before its exercise by notifying the Secretary of the Company, by
facsimile or in writing.
Mailing of Proxy Statement and Proxy Card. This Proxy Statement and the Proxy
- ------------------------------------------
Card are being first sent to the stockholders of the Company on or about May 24,
1999.
Stockholder Proposals. In order for the Company to include a stockholder
- ----------------------
proposal in the proxy materials for the Company's 2000 Annual Meeting of
Stockholders, a stockholder must deliver the proposal in writing to the
Secretary of the Company no later than January 23, 2000.
1
<PAGE>
SECURITIES AND PRINCIPAL HOLDERS
Record Date and Voting Securities. Only the record holders of shares of the
- ----------------------------------
Common Stock and Preferred Stock of the Company as of the close of business on
May 14, 1999 (the "Record Date"), will have the right to receive notice of, and
to vote at, the Annual Meeting. As of the close of business on the Record Date,
the Company had the following shares of Common Stock and voting Preferred Stock
issued and outstanding; (a) 11,835,386 shares of Common Stock (excluding
3,273,290 shares held in treasury); (b) 1,462.5 shares of Convertible
Noncumulative Preferred Stock; and (c) 20,000 shares of Series B 12% Cumulative
Convertible Preferred Stock. Each stockholder of record, as of the Record Date,
will have one vote for each share of Common Stock and voting Preferred Stock of
the Company (or one-half of one vote for each fractional one-half share of the
Convertible Noncumulative Preferred Stock) that the stockholder owned as of the
Record Date. All shares of Common Stock and voting Preferred Stock will vote
together as a single class on all matters coming before the Annual Meeting, and
a majority of all of the outstanding shares of Common Stock and voting Preferred
Stock of the Company, represented as a single class, entitled to notice of, and
to vote at, the Annual Meeting, represented in person or by proxy, will
constitute a quorum for the meeting.
Pursuant to the General Corporation Law of the State of Delaware, only
votes cast "For" a matter constitute affirmative votes, except proxies in which
the stockholder fails to make a specification as to whether he votes "For",
"Against", "Abstains" or "Withholds" as to a particular matter shall be
considered as a vote "For" that matter. Votes will be tabulated by an inspector
of election appointed by the Company's Board of Directors. Votes in which the
stockholder specifies that he is "Withholding" or "Abstaining" from voting are
counted for quorum purposes. Abstentions and broker non-votes are not
considered as votes "For" a particular matter.
Security Ownership of Certain Beneficial Owners. The following table shows the
- ------------------------------------------------
total number and percentage of the outstanding shares of the Company's Common
Stock and voting Preferred Stock beneficially owned as of the close of business
on the Record Date, with respect to each person (including any "group" as used
in Section 13(d)(3) of the Securities Act of 1934, as amended) that the Company
knows to have beneficial ownership of more than five percent (5%) of the
Company's Common Stock and voting Preferred Stock. A person is deemed to be the
beneficial owner of shares of Common Stock of the Company which he or she could
acquire within sixty (60) days of the Record Date.
Because of the requirements of the Securities and Exchange Commission as to
the method of determining the amount of shares an
2
<PAGE>
individual or entity may beneficially own, the amounts shown below for an
individual or entity may include shares also considered beneficially owned by
others.
<TABLE>
<CAPTION>
Amounts
Name and Address Title of Shares Percent
of of Beneficially of
Beneficial Owner Class Owned(1) Class
- ---------------- ------- ------------ -------
<S> <C> <C> <C>
Jack E. Golsen and Common 4,027,568 (3)(5)(6) 31.4%
members of his family (2) Voting Preferred 20,000 (4)(6) 92.7%
Riverside Capital
Advisors, Inc. (7) Common 1,467,397 (7) 11.0%
Ryback Management
Corporation Common 1,835,063 (8) 13.4%
Dimensional Fund
Advisors, Inc. Common 717,100 (9) 6.0%
Wynnefield Partners Small
Cap Value, L.P. and
Nelson Obus(10) Common 975,000 (10) 8.2%
</TABLE>
________________________
(1) The Company based the information, with respect to beneficial
ownership, on information furnished by the above-named individuals or entities
or contained in filings made with the Securities and Exchange Commission or the
Company's records.
(2) Includes Jack E. Golsen and the following members of his family:
wife, Sylvia H. Golsen; son, Barry H. Golsen (a Director, Vice Chairman of the
Board of Directors, and President of the Climate Control Business of the
Company); son, Steven J. Golsen (Executive officer of several subsidiaries of
the Company); and daughter, Linda F. Rappaport. The address of Jack E. Golsen,
Sylvia H. Golsen, Barry H. Golsen, and Linda F. Rappaport is 16 South
Pennsylvania Avenue, Oklahoma City, Oklahoma 73107; and Steven J. Golsen's
address is 7300 SW 44th Street, Oklahoma City, Oklahoma 73179.
(3) Includes (a) the following shares over which Jack E. Golsen ("J.
Golsen") has the sole voting and dispositive power: (i) 109,028 shares that he
owns of record, (ii) 165,000 shares that he has the right to acquire within
sixty (60) days under a non-qualified stock option, (iii) 4,000 shares that he
has the right to acquire upon conversion of a promissory note, (iv) 133,333
shares that he has the right to acquire upon the conversion of 4,000 shares of
the Company's Series B 12% Cumulative Convertible Preferred Stock (the "Series B
Preferred") owned of record by him,
3
<PAGE>
(v) 10,000 shares owned of record by the MG Trust, of which he is the sole
trustee, and (vi) 40,000 shares that he has the right to acquire within the next
sixty (60) days under the Company's stock option plans; (b) 1,052,250 shares
owned of record by Sylvia H. Golsen, over which she and her husband, J. Golsen
share voting and dispositive power; (c) 246,616 shares over which Barry H.
Golsen ("B. Golsen") has the sole voting and dispositive power, 533 shares owned
of record by B. Golsen's wife, over which he shares the voting and dispositive
power, and 43,500 shares that he has the right to acquire within the next sixty
(60) days under the Company's stock option plans; (d) 206,987 shares over which
Steven J. Golsen ("S. Golsen") has the sole voting and dispositive power and
35,500 shares that he has the right to acquire within the next sixty (60) days
under the Company's stock option plans; (e) 222,460 shares held in trust for the
grandchildren of J. Golsen and Sylvia H. Golsen of which B. Golsen, S. Golsen
and Linda F. Rappaport ("L. Rappaport") jointly or individually are trustees;
(f) 82,552 shares owned of record by L. Rappaport, over which L. Rappaport has
the sole voting and dispositive power; (g) 1,042,699 shares owned of record by
SBL Corporation ("SBL"), 39,177 shares that SBL has the right to acquire upon
conversion of 9,050 shares of the Company's non-voting $3.25 Convertible
Exchangeable Class C Preferred Stock, Series 2 (the "Series 2 Preferred"), and
400,000 shares that SBL has the right to acquire upon conversion of 12,000
shares of Series B Preferred owned of record by SBL, and (h) 60,600 shares owned
of record by Golsen Petroleum Corporation ("GPC"), which is a wholly-owned
subsidiary of SBL, and 133,333 shares that GPC has the right to acquire upon
conversion of 4,000 shares of Series B Preferred owned of record by GPC. SBL is
wholly-owned by Sylvia H. Golsen (40% owner), B. Golsen (20% owner), S. Golsen
(20% owner), and L. Rappaport (20% owner) and, as a result, SBL, J. Golsen,
Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the voting and
dispositive power of the shares beneficially owned by SBL. SBL's address is 16
South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107.
(4) Includes: (a) 4,000 shares of Series B Preferred owned of record by
J. Golsen, over which he has the sole voting and dispositive power; (b) 12,000
shares of Series B Preferred owned of record by SBL; and (c) 4,000 shares owned
of record by SBL's wholly-owned subsidiary, GPC, over which SBL, J. Golsen,
Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the voting and
dispositive power.
(5) Does not include 124,350 shares of Common Stock that L. Rappaport's
husband owns of record and 35,500 shares which he has the right to acquire
within the next sixty (60) days under the Company's stock option plans, all of
which L. Rappaport disclaims beneficial ownership. Does not include 234,520
shares of Common Stock owned of record by certain trusts for the benefit of B.
Golsen, S. Golsen, and L. Rappaport over which B. Golsen, S. Golsen and L.
Rappaport have no voting or dispositive power. Heidi Brown
4
<PAGE>
Shear, an officer of the Company and the niece of J. Golsen, is the Trustee of
each of these trusts.
(6) J. Golsen disclaims beneficial ownership of the shares that B. Golsen,
S. Golsen, and L. Rappaport each have the sole voting and investment power over
as noted in footnote (3) above. B. Golsen, S. Golsen, and L. Rappaport disclaim
beneficial ownership of the shares that J. Golsen has the sole voting and
investment power over as noted in footnotes (3) and (4) and the shares owned of
record by Sylvia H. Golsen. Sylvia H. Golsen disclaims beneficial ownership of
the shares that J. Golsen has the sole voting and dispositive power over as
noted in footnotes (3) and (4) above.
(7) Riverside Capital Advisors, Inc. ("Riverside") advised the Company
that it owns 341,255 shares of Series 2 Preferred that is convertible into
1,467,397 shares of Common Stock. Riverside further advised the Company that it
has voting and dispositive power over such shares as a result of Riverside
having full discretionary investment authority over customers' accounts to which
it provides investment services. The address of Riverside is 1650 Southeast
17th Street Causeway, Fort Lauderdale, Florida 33316.
(8) Ryback Management Corporation ("Ryback") is the Investment Company
Advisor for Lindner Dividend Fund, a registered investment company, which owns
423,900 shares of Series 2 Preferred that is convertible into 1,835,063 shares
of Common Stock. Ryback has sole voting and dispositive power over these
shares. The address of Ryback is 7711 Corondelet Avenue, Suite 700, St. Louis,
Missouri 63105.
(9) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of 717,100 shares of
the Company's Common Stock, all of which shares are held in portfolios of DFA
Investment Dimensions Group Inc., a registered open-end investment company, or
in series of the DFA Investment Trust Company, a Delaware business trust, or the
DFA Group Trust and DFA Participation Group Trust, investment vehicles for
qualified employee benefit plans, all of which Dimensional Fund Advisors Inc.
serves as investment manager. Dimensional disclaims beneficial ownership of all
such shares. The address of Dimensional is 1299 Ocean Avenue, 11/th/ Floor,
Santa Monica, California 90401.
(10) Wynnefield Partners Small Cap Value, L.P. ("Wynnefield"), together
with Wynnefield Partners Small Cap Value, L.P. I ("Wynnefield I"), Channel
Partnership II, L.P.("Channel"), Wynnefield Value Offshore Fund, Ltd.
("Wynnefield Offshore"), and Nelson Obus, an individual ("Obus") (collectively,
the Wynnefield Group"), filed a joint group Schedule 13D. The Schedule 13D
states that Wynnefield has sole voting and dispositive power over 458,720
shares; Wynnefield I has sole voting and dispositive power over
5
<PAGE>
308,180 shares; Channel has sole voting and dispositive power over 24,000
shares; Wynnefield Offshore has sole voting and dispositive power over 164,100
shares, and Obus has sole voting and dispositive power over 20,000 shares.
However, Obus has advised the Company that he possesses voting control over the
975,000 shares officially owned by the Wynnefield Group. The address of
Wynnefield and Obus is One Penn Plaza, Suite 4720, New York, New York 10119.
Security Ownership of Management. The following table sets forth
---------------------------------
information obtained from the directors and nominees to be elected as a director
of the Company and the directors, nominees and executive officers of the Company
as a group as to their beneficial ownership of the Company's Common Stock and
voting Preferred Stock as of the Record Date.
Because of the requirements of the Securities and Exchange Commission as to
the method of determining the amount of shares an individual or entity may own
beneficially, the amount shown below for an individual may include shares also
considered beneficially owned by others. Any shares of stock which a person
does not own, but which he or she has the right to acquire within sixty (60)
days of the Record Date, are deemed to be outstanding for the purpose of
computing the percentage of outstanding stock of the class owned by such person
but are not deemed to be outstanding for the purpose of computing the percentage
of the class owned by any other person.
Amounts of
Shares
Name of Title of Beneficially Percent of
Beneficial Owner Class Owned Class
- ------------------------- ---------------- ------------- ----------
Raymond B. Ackerman Common 27,000 (2) *
Robert C. Brown, M.D. Common 233,329 (3) 2.0%
Charles A. Burtch Common - -
Gerald J. Gagner Common 16,000 (4) *
Barry H. Golsen Common 2,188,918 (5) 17.6%
Voting Preferred 16,000 (5) 74.2%
Jack E. Golsen Common 3,189,420 (6) 25.0%
Voting Preferred 20,000 (6) 92.7%
David R. Goss Common 228,125 (7) 1.9%
Bernard G. Ille Common 115,000 (8) 1.0%
Donald W. Munson Common 16,432 (9) *
Horace G. Rhodes Common 20,000 (10) *
6
<PAGE>
Amounts of
Shares
Name of Title of Beneficially Percent of
Beneficial Owner Class Owned Class
- ---------------- -------- ------------- ----------
Jerome D. Shaffer, M.D. Common 129,363 (11) 1.1%
Tony M. Shelby Common 239,379 (12) 2.0%
Directors and Common 4,915,934 (13) 37.4%
Executive Officers Voting Preferred 20,000 92.7%
as a group number
(13 persons)
__________________________________
* Less than 1%.
(1) The Company based the information, with respect to beneficial
ownership, on information furnished by each director or officer, contained in
filings made with the Securities and Exchange Commission, or contained in the
Company's records.
(2) Mr. Ackerman has sole voting and dispositive power over these shares.
2,000 of these shares are held in a trust for which Mr. Ackerman is both the
settlor and the trustee and in which he has the vested interest in both the
corpus and income. The remaining 25,000 shares of Common Stock included herein
are shares that Mr. Ackerman may acquire pursuant to currently exercisable non-
qualified stock options granted to him by the Company.
(3) The amount shown includes 25,000 shares of Common Stock that Dr. Brown
may acquire pursuant to currently exercisable non-qualified stock options
granted to him by the Company. The shares, with respect to which Dr. Brown
shares the voting and dispositive power, consists of 122,516 shares owned by Dr.
Brown's wife, 15,000 shares held jointly by Dr. Brown and his wife, 50,727
shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned by Dr.
Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc. Employee Profit
Sharing Plan, of which Dr. Brown serves as the trustee. The amount shown does
not include 57,190 shares directly owned by the children of Dr. Brown, all of
which Dr. Brown disclaims beneficial ownership.
(4) Mr. Gagner has sole voting and dispositive power over these shares,
which include 15,000 shares that may be acquired by Mr. Gagner pursuant to
currently exercisable non-qualified stock options granted to him by the Company.
(5) See footnotes (3), (4), and (6) of the table under "Security Ownership
of Certain Beneficial Owners" of this item for a description of the amount and
nature of the shares beneficially owned by B. Golsen, including shares he has
the right to acquire within sixty (60) days.
7
<PAGE>
(6) See footnotes (3), (4), and (6) of the table under "Security Ownership
of Certain Beneficial Owners" of this item for a description of the amount and
nature of the shares beneficially owned by J. Golsen, including the shares he
has the right to acquire within sixty (60) days.
(7) The amount shown includes 46,500 shares that Mr. Goss has the right to
acquire within sixty (60) days pursuant to options granted under the Company's
stock option plans. Mr. Goss has the sole voting and dispositive power over
these shares. The amount does not include 2,429 shares directly owned by the
children of Mr. Goss, all of which Mr. Goss disclaims beneficial ownership.
(8) The amount includes (i) 25,000 shares that Mr. Ille may purchase
pursuant to currently exercisable non-qualified stock options, over which Mr.
Ille has the sole voting and dispositive power, and (ii) 90,000 shares owned of
record by Mr. Ille's wife. Mr. Ille disclaims beneficial ownership of the 90,000
shares owned by Mr. Ille's wife.
(9) This amount includes (i) 432 shares of Common Stock that Mr. Munson
has the right to acquire upon conversion of 100 shares of non-voting Series 2
Preferred that he beneficially owns, and (ii) 15,000 shares that Mr. Munson may
purchase pursuant to currently exercisable non-qualified stock options, over
which Mr. Munson has the sole voting and dispositive power.
(10) Mr. Rhodes has sole voting and dispositive power over these shares,
which include 15,000 shares that may be acquired by Mr. Rhodes pursuant to
currently exercisable non-qualified stock options granted to him by the Company.
(11) Dr. Shaffer has the sole voting and dispositive power over these
shares, which include 25,000 shares that Dr. Shaffer may purchase pursuant to
currently exercisable non-qualified stock options and 4,329 shares that Dr.
Shaffer has the right to acquire upon conversion of 1,000 shares of Series 2
Preferred owned by Dr. Shaffer. This amount also includes 10,000 shares owned
by Dr. Shaffer's wife.
(12) Mr. Shelby has the sole voting and dispositive power over these
shares, which include 46,500 shares that Mr. Shelby has the right to acquire
within sixty (60) days pursuant to options granted under the Company's stock
option plans and 15,151 shares that Mr. Shelby has the right to acquire upon
conversion of 3,500 shares of Series 2 Preferred owned by Mr. Shelby.
(13) The amount shown includes 571,100 shares of Common Stock that
executive officers, directors, or entities controlled by executive officers and
directors of the Company have the right to acquire within sixty (60) days.
8
<PAGE>
ELECTION OF DIRECTORS
General. The Board of Directors has nominated for election to the Board of
- --------
Directors five (5) nominees. The nominees, Raymond B. Ackerman, Bernard G.
Ille, Donald W. Munson, Tony M. Shelby and Gerald J. Gagner are presently
serving as directors of the Company. Messrs. Ackerman, Ille, Munson and Shelby
are to be elected in the class whose term expires in 2002 and until their
successors are duly elected, while Mr. Gagner is to be elected in the class
whose term expires in 2000 and until his successor is duly elected. If any of
the nominees become unable or unwilling to accept the election or to serve as a
director (an event which the Board of Directors does not anticipate), the person
or persons named in the proxy as the proxies will vote for the election of the
person or persons recommended by the Board of Directors. The proxies cannot be
voted for a greater number of persons than the number of nominees named above.
The Certificate of Incorporation and By-laws of the Company provide for the
division of the Board of Directors into three (3) classes, each class consisting
as nearly as possible of one-third of the whole. The term of office of one
class of directors expires each year, with each class of directors elected for a
term of three (3) years and until the shareholders elect their qualified
successors. Raymond B. Ackerman, Bernard G. Ille, Donald W. Munson, Tony M.
Shelby and Gerald J. Gagner are presently serving as directors of the Company in
the class whose term is expiring as of the Annual Meeting.
The Company's By-laws provide that the Board of Directors, by resolution
from time to time, may fix the number of directors that shall constitute the
whole Board of Directors. The By-laws presently provide that the number of
directors may consist of not less than three (3) nor more than twelve (12). The
Board of Directors currently has set the number of directors at twelve (12).
The By-laws of the Company further provide that only persons nominated by
or at the direction of: (i) the Board of Directors of the Company, or (ii) any
stockholder of the Company entitled to vote for the election of the directors
that complies with certain notice procedures, shall be eligible for election as
a director of the Company. Any stockholder desiring to nominate any person as a
director of the Company must give written notice to the Secretary of the Company
at the Company's principal executive office not less than fifty (50) days prior
to the date of the meeting of stockholders to elect directors; except, if less
than sixty (60) days' notice or prior disclosure of the date of such meeting is
given to the stockholders, then written notice by the stockholder must be
received by the Secretary of the Company not later than the close of business on
the tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such
9
<PAGE>
public disclosure was made. In addition, if the stockholder proposes to nominate
any person, the stockholder's written notice to the Company must provide all
information relating to such person that the stockholder desires to nominate
that is required to be disclosed in solicitation of proxies pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
The following table sets forth the name, principal occupation, business
experience, age, year in which the individual first became a director, and year
in which the director's term will expire for each nominee for election as a
director at the Annual Meeting and all other directors whose term will continue
after the Annual Meeting.
<TABLE>
<CAPTION>
First
Became Term Principal Occupation
Name and Age a Director Expires and Other Information
- ------------ ---------- ------- ---------------------
<S> <C> <C> <C>
Nominees:
- --------
Raymond B. 1993 2002 From 1972 until his retirement in 1992, Mr. Ackerman served as Chairman of
Ackerman, the Board and President of Ackerman, McQueen, Inc., the largest
Age 76 public relations firm in Oklahoma. Mr. Ackerman currently serves as Chairman
Emeritus of Ackerman, McQueen, Inc. Mr. Ackerman retired as a Rear Admiral
from the United States Naval Reserves. Mr. Ackerman is a graduate of Oklahoma
City University, and in 1996, he was awarded an honorary doctorate from
Oklahoma City University.
Gerald J. Gagner, 1997 2000 Mr. Gagner, a resident of New Hope, Pennsylvania, served as President, Chief
Age 63 Executive Officer and director of USPCI, Inc., a New York Stock Exchange
Company involved in the waste management industry, from 1984 until 1988, when
USPCI was acquired by Union Pacific Corporation. From 1988 to the present, Mr.
Gagner has been engaged as a private investor. Mr. Gagner has served, and is
presently serving, as President and a director of Dragerton Investments, Inc.,
which developed and sold one of the world's largest industrial waste landfills,
and is presently general
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
partner of New West Investors, L.P., which has investments principally in the
financial service industry. Mr. Gagner is also a director of Automation
Robotics, A.G., a German corporation. Mr. Gagner has an engineering degree from
the University of Utah.
Bernard G. Ille, 1971 2002 Mr. Ille served as President and Chief Executive Officer of First Life
Age 72 Assurance Company from May, 1988, until it was acquired by another company in
March, 1994. For more than five (5) years prior to joining First Life, Mr. Ille
served as President of United Founders Life Insurance Company. Mr. Ille is a
director of Landmark Land Company, Inc., which was the parent company of First
Life. Mr. Ille is currently president of BML Consultants, serving as assistant
receiver for Mid-Continent Life Insurance Co. He is a graduate of the
University of Oklahoma.
Donald W. Munson, 1997 2002 Mr. Munson is a resident of England. From January, 1988, until his retirement
Age 66 in August, 1992, Mr. Munson served as President and Chief Operating Officer of
Lennox Industries. Prior to his election as President and Chief Operating
Officer of Lennox Industries, Mr. Munson served as Executive Vice President of
Lennox Industries' Canadian operation and Managing Director of Lennox
Industries' European operations. Prior to joining Lennox Industries, Mr. Munson
served in various capacities with the Howden Group, a company located in the
United Kingdom, and The Trane Company, including serving as the managing
director of various companies within the Howden Group and Vice President-Europe
for The Trane Company. Mr. Munson is currently a consultant and international
distributor for the Ducane Company, a manufacturer of certain types of
residential air conditioning, air furnaces and other
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
equipment, and is serving as a member of the Board of Directors of Multi-
Clima, a French manufacturer of air-conditioning-heating equipment, which the
Company has an option to acquire. Mr. Munson has degrees in engineering and
business administration from the University of Minnesota.
Tony M. Shelby, 1971 2002 Mr. Shelby, a certified public accountant, is Senior Vice President and Chief
Age 57 Financial Officer of the Company, a position he has held for a period in excess
of five (5) years. Prior to becoming Senior Vice President and Chief Financial
Officer of the Company, Mr. Shelby served as Chief Financial Officer of a
subsidiary of the Company and was with the accounting firm of Arthur Young &
Co., a predecessor to Ernst & Young. Mr. Shelby is a graduate of Oklahoma City
University.
Other Directors:
- ----------------
Robert C. Brown, 1969 2001 Dr. Brown has practiced medicine for many years and is Vice President and
M.D., Treasurer of Plaza Medical Group, P.C. Dr. Brown is a graduate of Tufts
Age 68 University and received his medical degree from Tufts University.
Charles A. Burtch 1999/(1)/ 2001 Mr. Burtch recently retired from his position as Executive Vice-President and
Age 64 West Division Manager of BankAmerica, where he managed BankAmerica's asset-
based lending division for the western third of the United States. Mr. Burtch
served in managerial positions at BankAmerica or its predecessors for 20 years,
and prior to that time was the Regional Credit Manager for Commercial Credit
Corporation's asset-based lending division in Dallas, Texas. Mr. Burtch is
currently a private investor and serves the Texas Department on Aging as an
"ombudsman". He is a graduate of Arizona State University. Mr. Burtch is a
resident of Horseshoe Bay, Texas.
</TABLE>
12
<PAGE>
Barry H. Golsen, 1981 2000 Mr. Golsen, J.D., has served as
Age 48 Vice Chairman of the Board of
the Company since August, 1994,
and for more than five (5)
years has been the President of
the Company's Climate Control
Business. Mr. Golsen has both
his undergraduate and law
degrees from the University of
Oklahoma.
Jack E. Golsen, 1969 2001 Mr. Golsen, founder of the
Age 70 Company, is Chairman of the
Board and President of the
Company and has served in that
capacity since the inception of
the Company in 1969. During
1996, Mr. Golsen was inducted
into the Oklahoma Commerce and
Industry Hall of Honor as one
of Oklahoma's leading
industrialists. Mr. Golsen has
a degree from the University of
New Mexico in Biochemistry.
David R. Goss, 1971 2000 Mr. Goss, a certified public
Age 58 accountant, is Senior Vice
President-Operations of the
Company and has served in
substantially the same
capacity for the past five (5)
years. Mr. Goss is a graduate
of Rutgers University.
Horace G. Rhodes, 1996 2001 Mr. Rhodes is the managing
Age 71 partner of the law firm of
Kerr, Irvine, Rhodes & Ables
and has served in such capacity
and has practiced law for a
period in excess of five (5)
years. Since 1972, Mr. Rhodes
has served as Executive Vice
President and General Counsel
for the Association of Oklahoma
Life Insurance Companies and
since 1982 has served as
Executive Vice President and
General Counsel for the
Oklahoma Life and Health
Insurance Guaranty Association.
Mr. Rhodes received his
undergraduate and law degrees
from the University of
Oklahoma.
Jerome D. Shaffer, 1969 2000 Dr. Shaffer, a director of the
M.D., Company since its inception, is
Age 82 currently a private investor.
He practiced medicine for many
years until his retirement in
1987.
13
<PAGE>
Dr. Shaffer is a graduate
of Penn State University and
received his medical degree
from Jefferson Medical College.
________________
(1) Mr. Burtch was elected as a director by the Board of Directors on May
13, 1999, to fill a newly created directorship. He was elected as a director in
the class whose term expires in 2001.
Approval of each nominee for election to the Board of Directors will
require the affirmative vote of a plurality of the votes cast by the holders of
the voting securities of the Company, voting together as one class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE FIVE (5)
NOMINEES AS DIRECTORS OF THE COMPANY.
Family Relationships. Jack E. Golsen is the father of Barry H. Golsen and the
- ---------------------
brother-in-law of Robert C. Brown, M.D. Robert C. Brown, M.D. is the uncle of
Barry H. Golsen.
Certain Committees and Meetings of the Board of Directors. The Company has an
- ----------------------------------------------------------
Executive Salary Review Committee and an Audit Committee. The Company does not
have a nominating committee. The Board of Directors nominates the nominees for
election as directors of the Company.
The Company's Executive Salary Review Committee has the authority to set
the compensation of all officers of the Company. The present members of the
Executive Salary Review Committee are Robert C. Brown, M.D., Bernard G. Ille,
and Jerome D. Shaffer, M.D. During 1998, the Executive Salary Review Committee
had one (1) meeting.
The Audit Committee's functions include: (a) recommending a public
accounting firm for appointment by the Board of Directors for the purpose of
conducting the annual audit of the Company; (b) reviewing the recommendations of
the auditors regarding internal controls and procedures; (c) reviewing from time
to time the Company's general policies and procedures with respect to auditing,
accounting, and the application of financial resources; (d) reviewing all other
matters and making special inquiries and investigations referred to it by the
Board of Directors; and (e) making other recommendations to the Board of
Directors as the Committee may deem appropriate. During 1998, the members of the
Audit Committee were Bernard G. Ille (Chairman), Jerome D. Shaffer, M.D., Robert
C. Brown, M.D. and Horace G. Rhodes. In the first quarter of 1999, Dr. Brown
resigned from the Audit Committee. The Audit Committee held three (3) meetings
during 1998.
14
<PAGE>
The Board of Directors of the Company held six (6) meetings in 1998. During
1998, no incumbent director attended fewer than seventy-five percent (75%) of
the aggregate of the total number of meetings of the Board of Directors and the
total number of meetings held by all committees of the Board of Directors on
which he served.
Section 16(a) Beneficial Ownership Reporting Compliance. Based solely on a
- --------------------------------------------------------
review of copies of the Forms 3, 4 and 5 and amendments thereto furnished to the
Company with respect to 1998, or written representations that no such reports
were required to be filed with the Securities and Exchange Commission, the
Company believes that during 1998 all directors and officers of the Company and
beneficial owners of more than ten percent (10%) of any class of equity
securities of the Company registered pursuant to Section 12 of the Exchange Act
filed their required Forms 3, 4, or 5, as required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, on a timely basis, except that
Messrs. Ackerman, Ille, Munson, Shaffer, Brown and Rhodes each filed one Form 5
inadvertently late to report one grant by the Company of certain non-qualified
stock options to each individual.
Certain Relationships and Related Transactions. A subsidiary of the Company,
- -----------------------------------------------
Hercules Energy Mfg. Corporation ("Hercules"), leases land and a building in
Oklahoma City, Oklahoma from Mac Venture, Ltd. ("Mac Venture"), a limited
partnership. GPC (a wholly owned subsidiary of SBL) serves as the general
partner of Mac Venture. The limited partners of Mac Venture include GPC and the
three children of Jack E. Golsen. See "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" above for a discussion of the
stock ownership of SBL. The warehouse and shop space leased by Hercules from Mac
Venture consists of a total of 30,000 square feet. Since March 26, 1982,
Hercules has leased this property from Mac Venture. During 1998, Hercules paid
Mac Venture total rentals of $90,000 under a triple net lease. On January 1,
1999, Hercules extended the lease for a period of one year at a monthly rental
of $3,750 per month under a triple net lease.
Northwest Internal Medicine Associates ("Northwest"), a division of Plaza
Medical Group., P.C., has an agreement with the Company to perform medical
examinations of the management and supervisory personnel of the Company and its
subsidiaries. Under such agreement, Northwest is paid $4,000 a month to perform
all such examinations. Dr. Robert C. Brown (a director of the Company) is Vice
President and Treasurer of Plaza Medical Group., P.C.
In 1983, LSB Chemical Corp. ("LSB Chemical"), a subsidiary of the Company,
acquired all of the outstanding stock of El Dorado Chemical Company ("EDC") from
its then four stockholders ("Ex-Stockholders"). A substantial portion of the
purchase price consisted of an earnout based primarily on the annual after-tax
earnings of EDC for a ten-year period. During 1989, two of the Ex-
15
<PAGE>
Stockholders received LSB Chemical promissory notes for a portion of their
earnout, in lieu of cash, totaling approximately $896,000, payable $496,000 in
January 1990, and $400,000 in May, 1994. LSB Chemical agreed to a buyout of the
balance of the earnout from the four Ex-Stockholders for an aggregate purchase
amount of $1,231,000. LSB Chemical purchased for cash the earnout from two of
the Ex-Stockholders and issued multi-year promissory notes totaling $676,000 to
the other two Ex-Stockholders. Jack E. Golsen guaranteed LSB Chemical's payment
obligation under the promissory notes. The unpaid balance of these notes at
March 31, 1999, was $400,000.
On October 17, 1997, Prime Financial Corporation ("Prime"), a subsidiary of
the Company, borrowed from SBL, a corporation wholly owned by the spouse and
children of Jack E. Golsen, Chairman of the Board and President of the Company,
the principal amount of $3,000,000 (the "Prime Loan") on an unsecured basis and
payable on demand, with interest payable monthly in arrears at a variable
interest rate equal to the Wall Street Journal Prime Rate plus 2% per annum. The
purpose of the loan was to assist the Company by providing additional liquidity.
The Company has guaranteed the Prime Loan. During 1998, SBL and the Company
agreed that SBL would continue the Prime Loan on an unsecured basis, payable on
demand and at an annual rate of interest of 10 3/4%. During 1998 and through May
14, 1999, $400,000 in principal and $373,000 in interest were paid on this Prime
Loan, and as of May 14, 1999, the unpaid principal balance on the Prime Loan was
$2,600,000. In April, 1999, at the request of Prime and the Company, SBL agreed
to modify the demand note to make such a term note with a maturity date no
earlier than April 16, 2000. This modification would involve a principal
reduction of $300,000 and possibly the provision of security for the remaining
balance.
The Company is evaluating the possible spin-off of its Automotive Business.
If the spin-off is accomplished, it will take the form of a dividend to the
holders of the Company's Common Stock. In order to declare and pay a dividend
upon shares of capital stock, the Delaware General Corporation Law ("Delaware
Law") requires that such either be declared and paid (1) out of "surplus", as
defined under the Delaware Law, or (2) in case there is no "surplus", out of net
profits of the Company for the fiscal year in which the dividend is declared or
the preceding fiscal year. The Company is presently reviewing with its
investment banker as to whether it has sufficient "surplus" to accomplish the
spin-off of the Automotive Business to its holders of its Common Stock after the
capital contribution by the Company to the Automotive Business as discussed
above. The Company does not believe that it will be able to pay such dividend
out of net profits. If the Company's investment banker is unable to opine that
the Company has sufficient "surplus" to accomplish the spin-off, under Delaware
Law the Company could reduce its "capital" (as defined under Delaware Law)
represented by issued shares of its capital stock without par
16
<PAGE>
value and transfer the amount of such reduction to "surplus", as long as the
assets of the Company remaining after such reduction shall be sufficient to pay
the Company's debts for which payment has not otherwise been provided. The terms
of the Company's Series B 12% Cumulative Convertible Preferred Stock ("Series B
Preferred") provides, in part, that "In the event of any voluntary or
involuntary liquidation, dissolution or winding up of LSB, or any reduction in
its capital resulting in any distribution of assets to its stockholders, the
holders of the Series B Preferred Stock shall be entitled to receive in cash out
of assets of LSB, whether from capital or from earnings available for
distribution to the stockholders, before any amount shall be paid to the holder
of Common Stock of LSB the sum of One Hundred & No/100 Dollars ($100) (the par
value of the Series B Preferred Stock) per share, plus an amount equal to all
accumulated and unpaid cash dividends thereon to the date fixed for payment of
such distributive amount". Counsel to the Company has advised the Company that a
transfer from "capital" to "surplus" to distribute the stock of the Automotive
Business to the holders of the Company's Common Stock would trigger a payment of
$100 per outstanding share of Series B Preferred. There are currently
outstanding 20,000 shares of Series B Preferred, all of which are owned by Jack
E. Golsen or members of his immediate family and/or entities wholly owned by
members of Mr. Golsen's immediate family. Mr. Golsen has advised the Company
that if the Company is required to transfer from "capital" to "surplus" an
amount necessary to complete the spin-off and such triggers the payment under
the Series B Preferred, he would not require the Company to pay such in cash but
would be willing to receive such amount in a form other than cash, with the form
to be determined based on negotiations with independent members of the Company's
Board of Directors. During 1998, a total of $240,000 in dividends were paid on
the Series B Preferred.
EXECUTIVE COMPENSATION
AND OTHER INFORMATION
Executive Compensation. The following table shows the aggregate cash
- -----------------------
compensation which the Company and its subsidiaries paid or accrued to the Chief
Executive Officer and each of the other four (4) most highly-paid executive
officers of the Company (which includes the Vice Chairman of the Board who also
serves as President of the Company's Climate Control Business). The table
includes cash distributed for services rendered during 1998, plus any cash
distributed during 1998 for services rendered in a prior year, less any amount
relating to those services previously included in the cash compensation table
for a prior year.
17
<PAGE>
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long-term
Compen-
sation
Annual Compensation Awards
--------------------------------------- ------
Other All
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Stock sation
Position Year ($) ($)(1) ($)(2) Options ($)
- ------------ ---- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Jack E. Golsen, 1998 477,400 - - - -
Chairman of the 1997 470,450 - - - -
Board, President 1996 469,125 - - 100,000 -
and Chief
Executive Officer
Barry H. Golsen, 1998 226,600 - - - -
Vice Chairman of 1997 223,300 - - - -
the Board of 1996 209,125 - - 105,000 -
Directors and
President of the
Climate Control Business
David R. Goss, 1998 190,500 - - - -
Senior Vice 1997 187,750 - - - -
President - 1996 173,300 - - 85,000 -
Operations
Tony M. Shelby, 1998 190,500 - - - -
Senior Vice 1997 187,750 - - - -
President/Chief 1996 173,425 - - 85,000 -
Financial Officer
David M. Shear, 1998 165,000 - - - -
Vice President/ 1997 162,500 - - - -
General Counsel 1996 151,300 - - 64,000 -
</TABLE>
__________________________________
(1) Bonuses are for services rendered for the prior fiscal year. No
bonuses were paid to the above-named executive officers for 1996, 1997 or 1998.
(2) Does not include perquisites and other personal benefits,
securities or property for the named executive officer in any year if the
aggregate amount of such compensation for such year does not exceed the lesser
of either $50,000 or 10% of the total of annual salary and bonus reported for
the named executive officer for such year.
18
<PAGE>
Option Grants in 1998. There were no grants of stock options made to the named
- ----------------------
executive officers in 1998.
Aggregated Option Exercises in 1998 and Fiscal Year End Option Values. The
- ----------------------------------------------------------------------
following table sets forth the information concerning each exercise of stock
options by each of the named executive officers during the last fiscal year and
the year-end value of unexercised options:
<TABLE>
<CAPTION>
Number of Value
Securities of Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year End
FY End (#)(2) ($) (2) (3)
------------- ----------------
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
- -------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Jack E. Golsen - - 205,000/(4) 113,438/
60,000 -
Barry H. Golsen - - 42,000/ - /
63,000 -
David R. Goss - - 45,000/ 7,313/
51,000 -
Tony M. Shelby - - 45,000/ 7,313/
51,000 -
David M. Shear - - 48,600/ 9,563/
38,400 -
</TABLE>
________________________________________________
(1) The named executive officer did not exercise any Company stock options
in 1998.
(2) The incentive stock options granted under the Company's stock option
plans become exercisable 20% after one year from date of grant, an additional
20% after two years, an additional 30% after three years, and the remaining 30%
after four years.
(3) The values are based on the difference between the price of the
Company's Common Stock on the New York Stock Exchange at the close of trading on
December 31, 1998 of $3.3125 per share and the exercise price of such option.
The actual value realized by a named executive officer on the exercise of these
options depends on the market value of the Company's Common Stock on the date of
exercise.
(4) The amounts shown include a non-qualified stock option covering 165,000
shares of Common Stock which is currently exercisable.
19
<PAGE>
Other Plans. The Board of Directors has adopted the LSB Industries, Inc.,
------------
Employee Savings Plan (the "401(k) Plan") for the employees (including executive
officers) of the Company and its subsidiaries, excluding certain (but not all)
employees covered under union agreements. The 401(k) Plan is an employee
contribution plan, and the Company and its subsidiaries make no contributions to
the 401(k) Plan. The amount that an employee may contribute to the 401(k) Plan
equals a certain percentage of the employee's compensation, with the percentage
based on the employee's income and certain other criteria as required under
Section 401(k) of the Internal Revenue Code. The Company or subsidiary deducts
the amounts contributed to the 401(k) Plan from the employee's compensation each
pay period, in accordance with the employee's instructions, and pays the amount
into the 401(k) Plan for the employee's benefit. The Summary Compensation Table
set forth above includes any amount contributed and deferred during the 1996,
1997, and 1998 fiscal years pursuant to the 401(k) Plan by the named executive
officers of the Company.
The Company has a death benefit plan for certain key employees. Under the
plan, the designated beneficiary of an employee covered by the plan will receive
a monthly benefit for a period of ten (10) years if the employee dies while in
the employment of the Company or a wholly-owned subsidiary of the Company. The
agreement with each employee provides, in addition to being subject to other
terms and conditions set forth in the agreement, that the Company may terminate
the agreement as to any employee at any time prior to the employee's death. The
Company has purchased life insurance on the life of each employee covered under
the plan to provide, in large part, a source of funds for the Company's
obligations under the Plan. The Company also will fund a portion of the benefits
by investing the proceeds of such insurance policy received by the Company upon
the employee's death. The Company is the owner and sole beneficiary of the
insurance policy, with the proceeds payable to the Company upon the death of the
employee. The following table sets forth the amounts of annual benefits payable
to the designated beneficiary or beneficiaries of the executive officers named
in the Summary Compensation Table set forth above under the above-described
death benefits plan.
Amount of
Name of Individual Annual Payment
------------------ --------------
Jack E. Golsen $175,000
Barry H. Golsen $ 30,000
David R. Goss $ 35,000
Tony M. Shelby $ 35,000
David M. Shear $ N/A
In addition to the above-described plans, during 1991 the Company
entered into a non-qualified arrangement with certain key employees of the
Company and its subsidiaries to provide
20
<PAGE>
compensation to such individuals in the event that they are employed by the
Company or a subsidiary of the Company at age 65. Under the plan, the employee
will be eligible to receive for the life of such employee, a designated benefit
as set forth in the plan. In addition, if prior to attaining the age 65 the
employee dies while in the employment of the Company or a subsidiary of the
Company, the designated beneficiary of the employee will receive a monthly
benefit for a period of ten (10) years. The agreement with each employee
provides, in addition to being subject to other terms and conditions set forth
in the agreement, that the Company may terminate the agreement as to any
employee at any time prior to the employee's death. The Company has purchased
insurance on the life of each employee covered under the plan where the Company
is the owner and sole beneficiary of the insurance policy, with the proceeds
payable to the Company to provide a source of funds for the Company's
obligations under the plan. The Company may also fund a portion of the benefits
by investing the proceeds of such insurance policies. Under the terms of the
plan, if the employee becomes disabled while in the employment of the Company or
a wholly-owned subsidiary of the Company, the employee may request the Company
to cash-in any life insurance on the life of such employee purchased to fund the
Company's obligations under the plan. Jack E. Golsen does not participate in the
plan. The following table sets forth the amounts of annual benefits payable to
the executive officers named in the Summary Compensation Table set forth above
under such retirement plan.
Amount of
Name of Individual Annual Payment
------------------ --------------
Barry H. Golsen $17,480
David R. Goss $17,403
Tony M. Shelby $15,605
David M. Shear $17,822
Compensation of Directors. For 1998, the Company compensated each non-
--------------------------
management director of the Company for his services in the amount of $4,500. The
non-management directors of the Company also received $500 for every meeting of
the Board of Directors attended during 1998. Each member of the Audit Committee,
consisting of Messrs. Rhodes, Ille, Brown (who resigned as a member of the Audit
Committee during the first quarter of 1999), and Shaffer, received an additional
$20,000 for his services in 1998. Each member of the Public Relations and
Marketing Committee, consisting of Messrs. Ackerman and Ille, received an
additional $20,000 for his services in 1998. During 1997, the Board of Directors
established a special committee of the Board of Directors for European business
development (the "European Operations Committee") and elected Barry H. Golsen
and Donald W. Munson as members of that committee. During 1998, Mr. Munson was
paid approximately $42,600 for his services on the European Operations
Committee.
21
<PAGE>
In September, 1993, the Company adopted the 1993 Non-Employee Director
Stock Option Plan (the "Outside Director Plan"). The Outside Director Plan
authorizes the grant of non-qualified stock options to each member of the
Company's Board of Directors who is not an officer or employee of the Company or
its subsidiaries. The maximum shares for which options may be issued under the
Outside Director Plan will be 150,000 shares (subject to adjustment as provided
in the Outside Director Plan). The Company shall automatically grant to each
outside director an option to acquire 5,000 shares of the Company's Common Stock
on April 30 following the end of each of the Company's fiscal years in which the
Company realizes net income of $9.2 million or more for such fiscal year. The
exercise price for an option granted under the Outside Director Plan shall be
the fair market value of the shares of Common Stock at the time the option is
granted. Each option granted under the Outside Director Plan, to the extent not
exercised, shall terminate upon the earlier of the termination of the outside
director as a member of the Company's Board of Directors or the fifth
anniversary of the date such option was granted. On April 30, 1995, options to
acquire 5,000 shares of Common Stock were granted under this plan to each of
Messrs. Ille, Brown, Shaffer, and Ackerman, at a per share exercise price of
$5.375. The Company did not grant options under the Outside Director Plan in
April, 1996, 1997, and 1998.
During April, 1998, each of the outside directors of the Company (Messrs.
Ackerman, Brown, Gagner, Ille, Munson, Rhodes and Shaffer) was granted a non-
qualified stock option for the purchase of up to 15,000 shares of Common Stock
at an exercise price of $4.1875 per share, which was the closing price for the
Company's Common Stock as quoted on the New York Stock Exchange as of the date
of grant. These non-qualified options terminate at the earlier of (i) five
years from the date of grant or (ii) upon an optionee ceasing to be a director
of the Company and are exercisable, in whole or in part, at anytime after six
months from the date of grant prior to termination of the options.
The Company is proposing a new Outside Directors Stock Purchase Plan, which
would, if approved, allow the Company to (i) grant certain non-qualified options
to its non-employee directors, and (ii) pay, at the option of the non-employee
directors, the non-employee directors' fees for serving as directors of the
Company in cash or in the Company's Common Stock or a combination of both. See
"Adoption of the Outside Directors Stock Purchase Plan" for a discussion and
description of such Outside Directors Stock Purchase Plan which is attached as
Exhibit "C" to this proxy statement.
Employment Contracts and Termination of Employment and Change in Control
------------------------------------------------------------------------
Arrangements.
- -------------
(a) Termination of Employment and Change in Control Agreements.
- --- -----------------------------------------------------------
The Company has entered into severance agreements with Jack E. Golsen,
Barry H. Golsen, Tony M. Shelby, David R. Goss, David
22
<PAGE>
M. Shear, and certain other officers of the Company and subsidiaries of the
Company.
Each severance agreement provides (among other things) that if, within
twenty-four (24) months after the occurrence of a change in control (as
defined) of the Company, the Company terminates the officer's employment
other than for cause (as defined), or the officer terminates his employment
for good reason (as defined), the Company must pay the officer an amount
equal to 2.9 times the officer's base amount (as defined). The phrase
"base amount" means the average annual gross compensation paid by the
Company to the officer and includable in the officer's gross income during
the period consisting of the most recent five (5) year period immediately
preceding the change in control. If the officer has been employed by the
Company for less than 5 years, the base amount is calculated with respect
to the most recent number of taxable years ending before the change in
control that the officer worked for the Company.
The severance agreements provide that a "change in control" means a change
in control of the Company of a nature that would require the filing of a
Form 8-K with the Securities and Exchange Commission and, in any event,
would mean when: (1) any individual, firm, corporation, entity, or group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) becomes the beneficial owner, directly or indirectly, of thirty
percent (30%) or more of the combined voting power of the Company's
outstanding voting securities having the right to vote for the election of
directors, except acquisitions by: (a) any person, firm, corporation,
entity, or group which, as of the date of the severance agreement, has that
ownership, or (b) Jack E. Golsen, his wife; his children and the spouses of
his children; his estate; executor or administrator of any estate, guardian
or custodian for Jack E. Golsen, his wife, his children, or the spouses of
his children, any corporation, trust, partnership, or other entity of which
Jack E. Golsen, his wife, children, or the spouses of his children own at
least eighty percent (80%) of the outstanding beneficial voting or equity
interests, directly or indirectly, either by any one or more of the above-
described persons, entities, or estates; and certain affiliates and
associates of any of the above-described persons, entities, or estates; (2)
individuals who, as of the date of the severance agreement, constitute the
Board of Directors of the Company (the "Incumbent Board") and who cease for
any reason to constitute a majority of the Board of Directors except that
any person becoming a director subsequent to the date of the severance
agreement, whose election or nomination for election is approved by a
majority of the Incumbent Board (with certain limited exceptions), will
constitute a member of the Incumbent
23
<PAGE>
Board; or (3) the sale by the Company of all or substantially all of its
assets.
Except for the severance agreement with Jack E. Golsen, the termination of
an officer's employment with the Company "for cause" means termination
because of: (a) the mental or physical disability from performing the
officer's duties for a period of one hundred twenty (120) consecutive days
or one hundred eighty days (even though not consecutive) within a three
hundred sixty (360) day period; (b) the conviction of a felony; (c) the
embezzlement by the officer of Company assets resulting in substantial
personal enrichment of the officer at the expense of the Company; or (d)
the willful failure (when not mentally or physically disabled) to follow a
direct written order from the Company's Board of Directors within the
reasonable scope of the officer's duties performed during the sixty (60)
day period prior to the change in control. The definition of "Cause"
contained in the severance agreement with Jack E. Golsen means termination
because of: (a) the conviction of Mr. Golsen of a felony involving moral
turpitude after all appeals have been completed; or (b) if due to Mr.
Golsen's serious, willful, gross misconduct or willful, gross neglect of
his duties has resulted in material damages to the Company and its
subsidiaries, taken as a whole, provided that (i) no action or failure to
act by Mr. Golsen will constitute a reason for termination if he believed,
in good faith, that such action or failure to act was in the Company's or
its subsidiaries' best interest, and (ii) failure of Mr. Golsen to perform
his duties hereunder due to disability shall not be considered willful,
gross misconduct or willful, gross negligence of his duties for any
purpose.
The termination of an officer's employment with the Company for "good
reason" means termination because of (a) the assignment to the officer of
duties inconsistent with the officer's position, authority, duties, or
responsibilities during the sixty (60) day period immediately preceding the
change in control of the Company or any other action which results in the
diminishment of those duties, position, authority, or responsibilities; (b)
the relocation of the officer; (c) any purported termination by the Company
of the officer's employment with the Company otherwise than as permitted by
the severance agreement; or (d) in the event of a change in control of the
Company, the failure of the successor or parent company to agree, in form
and substance satisfactory to the officer, to assume (as to a successor) or
guarantee (as to a parent) the severance agreement as if no change in
control had occurred.
Except for the severance agreement with Jack E. Golsen, each severance
agreement runs until the earlier of: (a) three years after the date of the
severance agreement, or (b) the
24
<PAGE>
officer's normal retirement date from the Company; however, beginning on
the first anniversary of the severance agreement and on each annual
anniversary thereafter, the term of the severance agreement automatically
extends for an additional one-year period, unless the Company gives notice
otherwise at least sixty (60) days prior to the anniversary date. The
severance agreement with Jack E. Golsen is effective for a period of three
(3) years from the date of the severance agreement; except that, commencing
on the date one (1) year after the date of such severance agreement and on
each annual anniversary thereafter, the term of such severance agreement
shall be automatically extended so as to terminate three (3) years from
such renewal date, unless the Company gives notices otherwise at least one
(1) year prior to the renewal date.
(b) Employment Agreement. In March 1996, the Company entered into an
- --- ---------------------
employment agreement with Jack E. Golsen. The employment agreement
requires the Company to employ Jack E. Golsen as an executive officer of
the Company for an initial term of three (3) years and provides for two (2)
automatic renewals of three (3) years each unless terminated by either
party by the giving of written notice at least one (1) year prior to the
end of the initial or first renewal period, whichever is applicable. Under
the terms of such employment agreement, Mr. Golsen shall be paid (i) an
annual base salary at his 1995 base rate, as adjusted from time to time by
the Compensation Committee, but such shall never be adjusted to an amount
less than Mr. Golsen's 1995 base salary, (ii) an annual bonus in an amount
as determined by the Compensation Committee, and (iii) receive from the
Company certain other fringe benefits. The employment agreement provides
that Mr. Golsen's employment may not be terminated, except (i) upon
conviction of a felony involving moral turpitude after all appeals have
been exhausted, (ii) Mr. Golsen's serious, willful, gross misconduct or
willful, gross negligence of duties resulting in material damage to the
Company and its subsidiaries, taken as a whole, unless Mr. Golsen believed,
in good faith, that such action or failure to act was in the Company's or
its subsidiaries' best interest, and (iii) Mr. Golsen's death; provided,
however, no such termination under (i) or (ii) above may occur unless and
until the Company has delivered to Mr. Golsen a resolution duly adopted by
an affirmative vote of three-fourths of the entire membership of the Board
of Directors at a meeting called for such purpose after reasonable notice
given to Mr. Golsen finding, in good faith, that Mr. Golsen violated (i) or
(ii) above. If Mr. Golsen's employment is terminated in breach of this
Agreement, then he shall, in addition to his other rights and remedies,
receive and the Company shall pay to Mr. Golsen (i) in a lump sum cash
payment, on the date of termination, a sum equal to the amount of Mr.
Golsen's annual base salary at the time of such termination and the amount
of the last bonus paid to Mr.
25
<PAGE>
Golsen prior to such termination times (a) the number of years remaining
under the employment agreement or (b) four (4) if such termination occurs
during the last twelve (12) months of the initial period or the first
renewal period, and (ii) provide to Mr. Golsen all of the fringe benefits
that the Company was obligated to provide during his employment under the
employment agreement for the remainder of the term of the employment
agreement, or, if terminated at any time during the last twelve (12) months
of the initial period or first renewal period, then during the remainder of
the term and the next renewal period.
If there is a change in control (as defined in the severance agreement
between Mr. Golsen and the Company) and within twenty-four (24) months
after such change in control Mr. Golsen is terminated, other than for Cause
(as defined in the severance agreement), then in such event, the severance
agreement between Mr. Golsen and the Company shall be controlling.
In the event Mr. Golsen becomes disabled and is not able to perform his
duties under the employment agreement as a result thereof for a period of
twelve (12) consecutive months within any two (2) year period, the Company
shall pay Mr. Golsen his full salary for the remainder of the term of the
employment agreement and thereafter sixty percent (60%) of such salary
until Mr. Golsen's death.
Compensation Committee Interlocks and Insider Participation. The Company's
------------------------------------------------------------
Executive Salary Review Committee has the authority to set the compensation of
all officers of the Company. As to all officers of the Company, other than the
President, this Committee generally considers and approves the recommendations
of the President. The members of the Executive Salary Review Committee are the
following non-management directors: Robert C. Brown, M.D., Jerome D. Shaffer,
M.D., and Bernard G. Ille. During 1998, the Executive Salary Review Committee
had one meeting.
See "Compensation of Directors" for information concerning compensation
paid and options granted to non-employee directors of the Company during 1998
for services as a director to the Company.
Report of Executive Salary Review Committee. The following report by the
--------------------------------------------
Executive Salary Review Committee required by the rules of the Securities and
Exchange Commission to be included in this Proxy Statement shall not be
considered incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934 (collectively, the "Acts"), except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed to be soliciting material or to be filed under
such Acts.
26
<PAGE>
General. The Executive Salary Review Committee ("Committee") is presently
comprised of three (3) directors of the Company, who are not current or former
employees of the Company. See "Compensation Committee Interlocks and Insider
Participation." The Committee is responsible for reviewing and approving the
compensation paid to executive officers of the Company.
Compensation Policy for Executive Officers. Although the Committee has not
established specific quantitative compensation policies for executive officers
of the Company, including the President-Chief Executive Officer, the Committee
reviews each executive officer's performance on behalf of the Company during the
last preceding year in establishing the executive officer's bonus for such year,
if any, and any increase or decreases to such executive officers' compensation
for the next year. The guiding principle of the Committee is based on the
following objectives: (i) to attract and retain qualified executives in a highly
competitive environment who will play significant roles in achieving the
Company's goals; (ii) to reward executives for strategic management and the
long-term enhancement of shareholder value; (iii) to create a performance-
oriented environment that rewards performance with respect to financial and
operational goals of the Company; and, (iv) motivate executives to protect the
interests of the Company in all situations. The key elements of the Company's
executive compensation program have consisted of a base salary, bonus and stock
options.
As to the compensation (salary and bonus) paid or payable to executive
officers, other than the President-Chief Executive Officer, the President-Chief
Executive Officer makes a recommendation to the Committee. The Committee
considers such recommendations. The President-Chief Executive Officer's
recommendation with respect to base salary and the Committee's approval or
disapproval of such recommendation is primarily based on the objectives set
forth above. With respect to bonus compensation, such recommendation by the
President - Chief Executive Officer and approval is closely tied to the
individual's performance and the Company's financial performance.
Jack E. Golsen has been President and Chief Executive Officer of the
Company since its formation in 1969. In setting Mr. Golsen's salary and bonus,
the Committee takes into account shareholder value, which he helped create, and
the fact that Mr. Golsen initiated and continues to spearhead the strategy of
expanding and diversifying the Company through internal growth, acquisitions,
redeployment of assets and personnel and development of international markets.
Due to losses sustained by the Company in 1996, 1997 and 1998, increases in Mr.
Golsen's annual salary for 1996, 1997 and 1998 were nominal. In March, 1996,
the Company entered into an employment agreement with Mr. Golsen, which
employment agreement set Mr. Golsen's salary at his 1995 base rate, as adjusted
from time to time by the Committee. See "Executive
27
<PAGE>
Compensation and Other Information - Employment Contracts and Termination of
Employment and Change in Control Arrangements".
Bonuses, if any, are paid to executive officers in arrears for performance
during the previous fiscal year. Due to the Company's performance in 1996, 1997
and 1998, no bonuses were paid or will be paid, for 1996, 1997 or 1998
performance to the executive officers of the Company, including Jack E. Golsen.
The Committee considers the payment of bonuses to be consistent with the goals
set forth above.
The Company has had a practice of granting stock options to the President-
Chief Executive Officer and other executive officers of the Company. This
practice is founded on the belief that stock options offer executive officers a
valuable incentive to achieve increased profitability of the Company in order to
enhance shareholder value. There are no specific factors used to determine the
number of options granted or to the timing of such grants; however, certain
criteria are considered such as length of service, level of responsibility, and
the achievement of the Company's earnings objective.
Members of the Committee:
-------------------------
Bernard G. Ille, Chairman
Robert C. Brown, M.D.
Jerome D. Shaffer, M.D.
Five Year Total Shareholder Return Graph. The following table compares the
-----------------------------------------
yearly percentage change in the cumulative total shareholder return assuming
reinvestment of dividends, if any, of (i) the Company, (ii) a composite index
("Peer Group") comprised of a peer group of entities from two distinct
industries which represent the Company's two primary lines of business (Chemical
and Climate Control), and (iii) the New York Stock Exchange Market Value Index
("Broad Market"). The table set forth below covers the period from year-end
1993 through year-end 1998.
28
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
LSB INDUSTRIES, INC. 100 64.68 45.82 47.69 43.66 35.80
PEER GROUP 100 99.02 117.99 130.61 144.83 142.66
BROAD MARKET 100 98.06 127.15 153.16 201.50 239.77
</TABLE>
Assumes $100 invested at year-end 1993 in the Company, the Peer Group, and the
Broad Market.
The Peer Group was developed for the Company by Media General Financial
Services and is comprised of certain companies that have Standard Industrial
Classification ("SIC") codes which the Company believes correspond to the
Company's primary lines of business. The companies which comprise the Peer
Group are listed on Exhibit "A" to this Proxy Statement. The Peer Group is
comprised of (a) chemical companies having SIC codes 112 (agricultural
chemicals) and 113 (specialty chemicals); and (b) climate control companies
having SIC code 634 (general building materials), and is provided for comparison
to the Company's two primary lines of business, Chemical and Climate Control.
The Broad Market line is provided as a result of the Company's Common Stock
being listed on the New York Stock Exchange. The Company has been advised that
the cumulative total return of each component company in the Peer Group has been
weighted according to the respective company's stock market capitalization. In
light of the Company's unique industry
29
<PAGE>
diversification, the Company believes that the Peer Group is appropriate for
comparison to the Company.
The above Five-Year Total Shareholder Return Graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934 (collectively, the "Acts"), except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed to be soliciting material or to be filed under
such Acts.
SELECTION OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
RATIFICATION OF THE REAPPOINTMENT OF ERNST & YOUNG LLP.
The Board of Directors, based on the recommendation of the Audit Committee,
has recommended, subject to ratification by the shareholders, the firm of Ernst
& Young LLP, certified public accountants, ("Ernst & Young") as the Company's
auditors for 1999, subject to the approval and ratification by the stockholders.
Ernst & Young (or its predecessor, Arthur Young & Company) has served as the
Company's auditors for a period in excess of five (5) years, including the
fiscal year most recently completed.
In line with past practices, it is expected that one or more
representatives of Ernst & Young will attend the Annual Meeting and will be
available to respond to appropriate questions or make a statement should they
desire to do so.
ADOPTION OF THE COMPANY'S 1998 EMPLOYEE STOCK OPTION AND INCENTIVE PLAN
General. The Board of Directors of the Company, subject to approval by the
-------
shareholders, adopted the LSB Industries, Inc. 1998 Employee Stock Option and
Incentive Plan (the "Employee Plan"). The Board of Directors believes that
adoption and approval of the Employee Plan will serve to attract and retain key
personnel, consultants and independent contractors, and to enhance their
interests in the Company's continued success by providing such persons long-term
performance-based equity interests in the Company. Such equity interests will
more closely align the financial interests of such key personnel, consultants
and independent contractors with the stockholders and create significant
incentives for increasing stockholder value. The
30
<PAGE>
Company's Board of Directors unanimously recommends that the stockholders
approve the Employee Plan.
Principal features of the Employee Plan, as adopted by the Board of
Directors, are summarized below, but such summary is qualified in its entirety
by reference to the terms of the Employee Plan, as set forth in Exhibit "B" to
this Proxy Statement.
Employee Plan. The Employee Plan authorizes the grant of Incentive Stock
-------------
Options, Nonqualified Stock Options and Stock Appreciation Rights (as each is
defined in the Employee Plan) to eligible participants. The maximum number of
shares of Common Stock of the Company that may be issued under the Employee Plan
will be 1,000,000 shares (subject to adjustment as provided in the Employee
Plan). As of the Record Date, the fair market value of a share of Common Stock
of the Company is $2.00 based on the closing price of such stock on the New York
Stock Exchange on such date and, as a result, the aggregate fair market value of
the 1,000,000 shares of Common Stock that may be granted under the Employee Plan
was $2,000,000 as of the Record Date. Shares of Common Stock subject to awards
that are canceled or terminated without delivery of shares of Common Stock will
again be available for awards under the Employee Plan. The shares of Common
Stock to be delivered under the Employee Plan will be made available from the
authorized and unissued shares of the Company or from treasury shares, or a
combination of both.
Administration. The Employee Plan will be administered by the Stock Option
--------------
Committee of the Board of Directors (the "Committee"). The Committee will have
full power and authority under the Employee Plan to select the recipients of
awards; to determine the type or types of awards to be granted, and, subject to
the terms of the Employee Plan, the terms and conditions of awards to be
granted; to determine the number of shares of Common Stock to be covered by
awards; and to establish such rules and regulations as it shall deem appropriate
for the proper administration of the Employee Plan. The Employee Plan
authorizes the Committee to issue Incentive Stock Options, Nonqualified Stock
Options and Stock Appreciation Rights (as each is defined in the Employee Plan)
as well as tandem combinations. Any Stock Option (as defined in the Employee
Plan) may be granted separately or in combination with Stock Appreciation
Rights. Stock Appreciation Rights granted in tandem with Stock Options may be
granted such that the exercise of one Stock Appreciation Right in the
combination results in the surrender of corresponding rights to the related
Stock Option in the combination.
Eligibility. Officers and other employees of the Company, who the
-----------
Committee believes have made a significant contribution to the Company,
including any full-time salaried officer or employee who is a member of the
Board of Directors, and consultants or independent contractors of the Company
and its present and future
31
<PAGE>
subsidiaries who are not members of the Committee are eligible to participate in
the Plan, subject to the approval of the Committee. As of the date of this Proxy
Statement, it is expected that approximately 150 persons are eligible to
participate in the Employee Plan, excluding consultants and independent
contractors.
Exercise Price. The exercise price will be as recommended by the
--------------
Committee, but not less than one hundred percent (100%) of the fair Market Value
(as defined in the Employee Plan) of the shares of Common Stock subject to the
award the date the award is granted (one hundred ten percent (110%) in the case
of Incentive Stock Options granted to beneficial owners of more than ten percent
(10%) of the outstanding Common Stock of the Company). Common Stock purchased
upon the exercise of an Incentive Stock Option or a Nonqualified Stock Option
must be paid in full at the time of exercise either (i) in cash or (ii) by
surrender to the Company at the fair market value of shares of Common Stock of
the Company owned by the Holder (as defined in the Employee Plan) or (iii) by
any combination of cash and surrendered stock, as the Holder may elect.
Terms of Options. No Stock Option shall be exercisable after the
----------------
expiration of ten (10) years from the date the Stock Option is granted (or five
(5) years in the case of beneficial owners of more than ten percent (10%) of the
outstanding Common Stock of the Company in the case of Incentive Stock Options).
No Stock Options may be granted under the Employee Plan more than ten (10) years
after the Employee Plan is adopted. Notwithstanding the foregoing, in the event
of a Change of Control (as defined in the Employee Plan) each outstanding Stock
Option and Stock Appreciation Right will become immediately exercisable in full
notwithstanding the vesting or exercise provisions contained in the award
agreement.
Amendment or Termination. The Board of Directors may amend or terminate
------------------------
the Employee Plan at any time (except as otherwise provided in the Employee
Plan); provided, however, that to the extent stockholder approval of amendments
to the Employee Plan is required to exempt transactions pursuant to the Employee
Plan from the operation of Section 16(b) of the Exchange Act, the Board of
Directors may not amend the Employee Plan without approval by the stockholders
of the Company.
Adjustments. Subject to any required action by the stockholders of the
-----------
Company, the number of shares of Common Stock for which Stock Options may
thereafter be granted and the number of shares of Common Stock then subject to
Stock Options previously granted, and the price per share payable upon exercise
of such Stock Options and the number of shares and Stock Appreciation Right
price relating to Stock Appreciation Rights shall be proportionately adjusted
for any increase or decrease in the number
32
<PAGE>
of issued shares of Common Stock of the Company resulting from a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
shares of Common Stock effected without receipt of consideration by the Company.
Such adjustments shall be made by the Committee whose determination in that
respect shall be final, binding and conclusive, provided that each Incentive
Stock Option granted pursuant to the Employee Plan shall not be adjusted in a
manner that causes the Incentive Stock Option to fail to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code, as amended (the
"Code").
Federal Tax Consequences. The Company believes that under present Federal
------------------------
tax laws the following are the Federal income tax consequences generally arising
with respect to awards granted under the Employee Plan. The grant of Incentive
Stock Options, Nonqualified Stock Options or Stock Appreciation Rights will
create no tax consequences for the participant or the Company. The participant
will have no taxable income upon exercising an Incentive Stock Option (except
that the alternative minimum tax may apply), and the Company will receive no
deduction at that time.
Upon exercising a Nonqualified Stock Option, a participant will recognize
ordinary income equal to the difference between the exercise price and the fair
market value of the shares acquired on the date of exercise. Upon exercising a
Stock Appreciation Right, a participant will recognize ordinary income equal to
the cash or the fair market value of the stock received on the date of exercise.
In each case, the Company generally will be entitled to a deduction for the
amount recognized as ordinary income by the participant, and withholding tax is
required on such income.
The treatment to a participant of a disposition of shares acquired upon the
exercise of a Stock Option or Stock Appreciation Right depends on how long the
shares have been held and on whether such shares are acquired by exercising an
Incentive Stock Option or another award. Generally, there will be no tax
consequences to the Company in connection with a disposition of shares acquired
under a Stock Option except that the Company will be entitled to a deduction
(and the employee will recognize ordinary income) if shares acquired under an
Incentive Stock Option are disposed of before being held for at least one year
or before the expiration of two years following the date the related Incentive
Stock Option was granted.
Special rules may apply if the exercise price for an award is paid in
shares of Common Stock previously owned by the participant rather than in cash.
The above-described tax consequences are based upon present federal income
tax laws, and thus are subject to change when laws change. The foregoing
provides only a very general description of
33
<PAGE>
the application of Federal income tax laws to awards under the Employee Plan.
The summary does not address the effects of foreign, state and local tax laws.
Because of the complexities of the tax laws, participants under the Employee
Plan are strongly urged to consult a tax advisor regarding these matters.
The affirmative vote of a majority of the Common Stock and voting Preferred
Stock, voting together as a single class, present in person or represented by
proxy at the Annual Meeting is required for the adoption of the Employee Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE 1998 EMPLOYEE STOCK OPTION AND INCENTIVE PLAN.
ADOPTION OF THE OUTSIDE DIRECTORS STOCK PURCHASE PLAN
General. The Board of Directors, subject to approval by the stockholders,
-------
adopted the Outside Directors Stock Purchase Plan (the "Outside Director Plan").
The Board of Directors believes that adoption and approval of the Outside
Director Plan will serve to attract and retain qualified members of the Board of
Directors who are not employees of the Company (the "Eligible Directors") and to
enhance the Eligible Directors' interests in the Company's continued success by
providing such members long-term performance-based equity interests in the
Company. Such equity interests will more closely align the financial interests
of such members with the stockholders and create significant incentives for
increasing stockholder value. The Company's Board of Directors unanimously
recommends that stockholders approve the Outside Director Plan.
Principal features of the Outside Director Plan, as adopted by the Board of
Directors, are summarized below, but such summary is qualified in its entirety
by reference to the terms of the Outside Director Plan, as set forth in Exhibit
"C" to this Proxy Statement.
Outside Director Plan. The Outside Director Plan authorizes the grant of
---------------------
nonqualified stock options to each Eligible Director. The Outside Director Plan
also provides that each Eligible Director may elect to receive all or any
portion of the fee payable to each Eligible Director for services rendered as a
director of the Company in shares of the Company's Common Stock. To receive
Common Stock in lieu of fees, the Eligible Director must so elect each calendar
quarter. The maximum number of shares of Common Stock of the Company that may
be issued under the Outside Director Plan will be 400,000 shares in the
aggregate (subject to adjustment as provided in the Outside Director Plan). As
of the Record Date, the fair market value of a share of Common Stock of the
Company is $2.00 based on the closing price of such stock on the New York Stock
Exchange on such date and, as a result, the aggregate fair market value of the
400,000 shares of Common Stock that may be granted under the Outside Director
Plan was $800,000 as of the
34
<PAGE>
Record Date. Shares of Common Stock subject to awards that are canceled or
terminated without the delivery of shares of Common Stock will again be
available for awards under the Outside Director Plan. The shares of Common Stock
to be delivered under the Outside Director Plan will be made available from the
authorized and unissued shares of the Company or from treasury shares, or a
combination of both.
Administration. The Outside Director Plan will be administered by the
--------------
Board of Directors. Officers and employees of the Company will perform
administration functions as well, but will have no power or authority to select
the recipients of awards or to determine the timing, amount or price of awards
granted under the Outside Director Plan.
Eligibility. Eligible Directors are the members of the Company's Board of
-----------
Directors who are not officers or employees of the Company or its subsidiaries.
As of the date of this Proxy Statement, eight (8) persons are eligible to
participate in the Outside Director Plan. If new or additional non-employee
directors are added to the Company's Board of Directors, they will be eligible
to participate in the Outside Director Plan.
Exercise Price. The price of stock received as fees and the exercise price
--------------
of options granted under the Outside Director Plan will be one hundred percent
(100%) of the fair market value (as defined in the Outside Director Plan) of the
shares of Common Stock at the time the fees are due or the option is granted.
Stock purchased upon the exercise of an option granted under the Outside
Director Plan must be paid in full at the time of exercise either (i) in cash or
(ii) by surrender to the Company at the fair market value of shares of Common
Stock of the Company owned by the Eligible Director or (iii) a combination of
cash and surrender stock, as the Eligible Director may elect.
Terms of Options. No option shall be exercisable after the earlier of (i)
----------------
the termination of the term of the option as set forth in the option agreement,
(ii) the expiration of the three-year period measured from the date of the
Eligible Director's cessation of service as a member of the Board of Directors,
and (iii) the expiration of ten years from the date the option was granted.
Unless otherwise specified in the option agreement, an option may not be
exercised for six months from the date of grant. Notwithstanding the foregoing,
in the event of a Change of Control (as defined in the Outside Director Plan)
each outstanding option will become exercisable in full prior to the effective
date of the Change of Control notwithstanding the vesting provisions contained
in the option agreement. Options granted under the Outside Director Plan may be
assigned by the participant during the participant's lifetime to members of the
participant's immediate family or to a trust established exclusively for such
family members.
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<PAGE>
Amendment or Termination. The Board of Directors may amend or terminate
------------------------
the Outside Director Plan at any time (except as otherwise provided in the
Outside Director Plan); provided, however, that to the extent stockholder
approval of amendments to the Outside Director Plan is required to exempt
transactions pursuant to the Outside Director Plan from the operation of Section
16(b) of the Exchange Act, the Board of Directors may not amend the Outside
Director Plan without approval by vote of a majority of the shares of common
stock represented at a meeting of stockholders called for that purpose. Unless
earlier terminated by the Board of Directors, the Outside Director Plan will
terminate when no shares remain available for issuance, and the Company has no
further rights or obligations with respect to any option granted under the
Outside Director Plan.
Adjustments. Subject to any required action by the stockholders of the
-----------
Company, the number of shares of Common Stock for which options may thereafter
be granted and the number of shares of Common Stock then subject to options
previously granted shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a subdivision or consolidation of shares of Common Stock or the payment of
a stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company. Such adjustments shall be made by the Board of
Directors whose determination in that respect shall be final, binding and
conclusive.
Federal Tax Consequences. The Company believes that under present Federal
------------------------
tax laws the following are the Federal income tax consequences generally arising
with respect to awards granted under the Outside Director Plan. The grant of
Nonqualified Stock Options will create no tax consequences for the participant
or the Company. Upon exercising a Nonqualified Stock Option, a participant will
recognize ordinary income equal to the difference between the exercised price
and the fair market value of the shares acquired on the date of exercise. The
Company generally will be entitled to a deduction for the amount recognized as
ordinary income by the participant, and tax withholding is required on such
income. Any increase in the value of the Common Stock subsequent to the
exercise of the Nonqualified Stock Option will be capital gain to the
participant subject to capital gain tax rates based upon the participant's
holding period for the Common Stock.
Special rules may apply if the exercise price for an option is paid in
shares of Common Stock previously owned by the optionee rather than in cash.
The fair market value of the shares of Common Stock issued to an Eligible
Director who elects to receive all, or a portion of, the Eligible Director's fee
will generally be includible as
36
<PAGE>
ordinary income to the Eligible Director. In addition, the value of the Common
Stock received upon such election will constitute earnings from self-employment
in respect of which an Eligible Director will be required to make FICA and/or
Medicare contributions. The Company will be entitled to a deduction for federal
income tax purposes at the same time and in the same amount as the Eligible
Director is considered to have realized ordinary income.
The above-described tax consequences are based upon present federal income
tax laws, and thus are subject to change when laws change. The foregoing
provides only a very general description of the application of Federal income
tax laws to awards under the Outside Director Plan. This summary does not
address the affects of foreign, state and local tax laws. Because of the
complexities of the tax laws, participants under the Outside Director Plan are
strongly urged to consult a tax advisor regarding these matters.
The affirmative vote of a majority of the Common stock and voting Preferred
Stock, voting as a single class, present in person or represented by proxy at
the Annual Meeting is required for the adoption of the Outside Directors Stock
Purchase Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE OUTSIDE DIRECTORS STOCK PURCHASE PLAN.
OTHER MATTERS
The Board of Directors knows of no other matters which may come before the
Annual Meeting. If any other business properly comes before the meeting, the
persons named in the proxy will vote with respect to that matter in accordance
with their best judgment.
Pursuant to the By-laws of the Company, only such business shall be
conducted at the Annual Meeting as shall have been brought before the meeting
(i) by or at the direction of the Board of Directors of the Company, or (ii) by
any stockholder of the Company who is entitled to vote at the Annual Meeting and
who complies with the following notice requirements. No business may be
properly brought before the Annual Meeting by a stockholder unless the
stockholder gives written notice to the Secretary of the Company of the business
to be presented at the Annual Meeting not less than fifty (50) days prior to the
date of the Annual Meeting (or in the event that less than sixty (60) days
notice, or public disclosure of the date of the Annual Meeting, is given or made
to stockholders, written notice by the stockholder must be received by the
Secretary of the Company not later than the close of business on the tenth
(10th) day following the day on which notice of the date of the meeting was
mailed or public disclosure was made). The
37
<PAGE>
written notice must set forth: (i) a brief description of the business desired
to be presented before the Annual Meeting and reasons for conducting such
business at the meeting; (ii) the name and address, as they appear on the
Company's books, of the stockholder proposing such business, (iii) the class and
number of shares of the Company's voting stock beneficially owned by such
stockholder, and (iv) any material interest of such stockholder in such
business.
LSB INDUSTRIES, INC.
BY ORDER OF
THE BOARD OF DIRECTORS
DATE: May 24, 1999
David M. Shear
Secretary
38
<PAGE>
Exhibit "A"
AAON INC INTERNAT SPECIALTY PRODS
ACETO CORP JANNOCK LTD
AGRIUM INC JILIN CHEMICAL INDUSTRL
ALCIDE CORP JOHNS MANVILLE CORP
AMCOL INTERNATIONAL CORP KEVCO INC
AMERICAN BUILDINGS CO KMG CHEMICALS INC
AMERICAN PACIFIC CORP KYZEN CORP CL A
AMERICAN STANDARD COS LANCER CORP
AMERICAN VANGUARD CORP LAWTER INTERNAT INC
ARMSTRONG WORLD INDUSTRIES LESCO INC
BALCHEM CORP LILLY INDUSTRIES INC A
BERGER HOLDINGS INC LTD LSB INDUSTRIES INC
BRADY CORPORATION CL A LUBRIZOL CORP
BUSH BOAKE ALLEN INC MACDERMID INC
BUTLER MANUFACTURING CO MACE SECURITY INTERNAT
CABOT CORP MARK SOLUTIONS INC
CAMBREX CORP MARTIN INDUSTRIES INC
CARBO CERAMICS INC MARTIN MARIETTA MATERIAL
CERADYNE INC MESTEK INC
CFC INTERNATIONAL INC METHANEX CORPORATION
CHEMFIRST INC MILLER BUILDING SYS INC
CONTINENTAL MATERIALS CP MINERALS TECHNOLOGIES
CORIMON SA ADS MINING SERVICES INTERNAT
CROMPTON & KNOWLES CORP MISSISSIPPI CHEMICAL CP
CYANOTECH CORP MONTEDISON SPA ADR ORD
CYTEC INDUSTRIES INC MORTON INTERNAT INC
DAL-TILE INTERNAT INC NALCO CHEMICAL CO
DANAHER CORP NCH CORP
DETREX CORPORATION NCI BUILDING SYSTEMS INC
DREW INDUSTRIES INC NORTHERN TECHNOLOGY
ECO SOIL SYSTEMS INC OIL-DRI CORP OF AMERICA
ELCOR CORP OM GROUP INC
EPL TECHNOLOGIES INC OWENS-CORNING FIBERGLAS
ETHYL CORP PACER TECHNOLOGY
FERRO CORP PENFORD CORP
FLAMEMASTER CORP PHOSPHATE RESOURCE PTNRS
GREAT LAKES CHEMICAL CP POLYDEX PHARMACEUTICALS
GRIFFON CORP QUAKER CHEMCIAL CORP
H.B. FULLER CO ROBERTSON-CECO CORP
HAUSER INC (CO) RONSON CORP
HIGH PLAINS CORP RPM INC
IMC GLOBAL INC SCOTSMAN INDUSTRIES INC
INTERNACIONAL DE CERAMIC SCOTTS CO CL A
INTERNAT ALUMINUM CORP SHERWIN-WILLIAMS CO
INTERNAT FLAVORS & FRAG SOCIEDAD QUIMICA CHILE
39
<PAGE>
SPECIALTY CHEMICAL RSCS
SYBRON CHEMCIAL INC
SYNTHETECH INC
TECUMSEH PRODUCTS CL A
TECUMSEH PRODUCTS CL B
TEMTEX INDUSTRIES INC
TERRA NITROGEN CO LP
THERMACELL TECHNOLOGIES
THERMO POWER CORP
TRAMFORD INTERNAT LTD
U.S. HOME & GARDEN INC
U.S. LIME & MINERALS INC.
UNITED DOMINION IND
USA BIOMASS CORPORATION
USG CORP
VALHI INC
VALSPAR CORP
VERDANT BRANDS INC
VULCAN MATERIALS CO
WD-40 CO
WITCO CORP
YORK INTERNAT CORP
40
<PAGE>
Exhibit "B"
LSB INDUSTRIES, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
The Board of Directors of LSB Industries, Inc., a Delaware corporation (the
"Company"), has adopted this 1998 Stock Option and Incentive Plan (the "Plan"),
effective the 13th day of August, 1998, as follows:
1. Purpose. This Plan permits selected officers and employees, prospective
-------
employees, consultants and independent contractors of the Company or any
Subsidiary who bear a large measure of responsibility for the success of the
Company to acquire and retain a proprietary interest in the Company and to
participate in the future of the Company as shareholders. The purpose of this
Plan is to advance the interests of the Company and its shareholders by enabling
the Company and the subsidiaries to offer to its employee-directors, officers,
employees, consultants and independent contractors, long-term performance-based
stock and/or other equity interests in the Company, thereby enhancing its
ability to attract, retain and reward such individuals, and by providing an
incentive for employee-directors, officers, employees to render outstanding
service to the Company and to the Company's shareholders.
2. Definitions. For purposes of the Plan, the following terms shall be
-----------
defined as set forth herein:
2.1 "Act" means the Securities Act of 1933, as amended from time to time,
or any successor statute or statutes thereto.
2.2 "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an award under the Plan.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Change of Control" means a change of control of the Company pursuant
to Section 8.2 hereof.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute or statutes thereto.
2.6 "Committee" means the Stock Option Committee of the Board or any other
committee of the Board which the Board may designate. In all events,
the Committee
41
<PAGE>
shall consist only of non-employee directors of the Company.
2.7 "Common Stock" means the Common Stock of the Company, par value $.10
per share.
2.8 "Disability" means disability as determined under the procedures
established by the Committee for purposes of the Plan.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor statute or statutes thereto.
2.10 "Fair Market Value", unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, means, as
of any given date:
2.10.1 the closing price of the Common Stock on the last preceding
day on which the Common Stock was traded, as reported on a
national securities exchange; and,
2.10.2 if the fair market value of the Common Stock cannot be
determined pursuant to clause (i) hereof, such price as the
Committee shall determine.
2.11 "Formula Price Per Share" means the highest gross price (before
brokerage commissions, soliciting dealers' fees and similar charges)
paid for any share of Common Stock at any time during the ninety (90)
day period immediately prior to the Change of Control (whether by way
of exchange, conversion, distribution, liquidation or otherwise) paid
or to be paid for any share of Common Stock in connection with a
Change of Control. If the consideration paid or to be paid in any
transaction that results in a Change of Control consists, in whole or
in part, of consideration, other than cash, the Board shall take such
action, as in its judgment it deems appropriate, to establish the cash
value of such consideration, but such valuation shall not be less than
the value, if any, attributed to such consideration by any other party
to such transaction that results in a Change of Control.
2.12 "Holder" means an eligible employee-director, officer, employee,
consultant or independent contractor of the Company or a Subsidiary
who has received an award under the Plan.
42
<PAGE>
2.13 "Incentive Stock Option" or "ISO" means any Stock Option intended to
be and designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
2.14 "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
2.15 "SAR Value" means the excess of the Fair Market Value of one share of
Common Stock over the exercise price per share specified in a related
Stock Option in the case of a Stock Appreciation Right granted in
tandem with a Stock Option and the Stock Appreciation Right price per
share in the case of a Stock Appreciation Right awarded on a free-
standing basis multiplied by the number of shares in respect of which
the Stock Appreciation Right shall be exercised, on the date of
exercise.
2.16 "Section 16(b) Holder" means such officer or director or ten percent
(10%) beneficial owner of Common Stock subject to Section 16(b) of
the Exchange Act.
2.17 "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 7 hereof, to recover an amount equal to the SAR
Value.
2.18 "Stock Option" means any Incentive Stock Option or Non-Qualified
Stock Option to purchase shares of Common Stock which is awarded
pursuant to this Plan.
2.19 "Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code.
3. Administration.
--------------
3.1 Board; Committee. The Board shall create a committee consisting of
----------------
three members of the Board. The Board may also appoint one member of
the Board as an alternate member of the Committee. Upon such
appointment, the Committee shall have all the powers, privileges and
duties set forth herein. The Board may, from time to time, appoint
members of any such Committee in substitution for, or in addition to,
members previously appointed, may fill vacancies in the Committee and
may discharge the Committee. The Committee shall select one of its
members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall
constitute a quorum and all determinations shall be made by a
majority of such
43
<PAGE>
quorum. Any determination reduced to writing and signed by a majority
of the members of the Committee, shall be fully effective and a valid
act of the Committee as if it had been made by a majority vote at a
meeting duly called and held. The membership of the Committee shall
at all times be constituted so as to not adversely affect the
compliance of the Plan with the requirements of Rule 16b-3 under the
Exchange Act, to the extent it is applicable, or with the
requirements of any other applicable law, rule or regulation.
3.2 Power and Authority. The Committee shall have full power and
-------------------
authority to do all things necessary or appropriate to administer
this Plan according to its terms and provisions (excluding the power
to appoint members of the Committee and to terminate, modify, or
amend the Plan, except as otherwise authorized by the Board),
including, but not limited to the full power and authority (subject
to the express provisions of this Plan):
3.2.1 to award Stock Options and Stock Appreciation Rights, pursuant
to the terms of this Plan, to eligible individuals described
under Section 5 hereof;
3.2.2 to select the eligible individuals to whom Stock Options or
Stock Appreciation Rights, or any combination thereof, if any,
may from time to time be awarded hereunder;
3.2.3 to determine the Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, or any combination
thereof, if any, to be awarded hereunder to one or more
eligible employees or persons;
3.2.4 to determine the number of shares to be covered by each award
granted hereunder;
3.2.5 to determine the terms and conditions not inconsistent with
the terms of the Plan, of any award hereunder (including, but
not limited to, share price, any restrictions or limitations,
and any vesting, exchange, surrender, cancellation,
acceleration, termination, exercise or forfeiture provisions,
as the Committee shall determine);
3.2.6 to determine any specified performance goals or such other
factors or criteria which need to be
44
<PAGE>
attained for the vesting of an award granted hereunder;
3.2.7 to determine the terms and conditions under which awards
hereunder are to operate on a tandem basis and/or in
conjunction with or apart from other equity awarded under this
Plan and cash awards made by the Company or any Subsidiary
outside of this Plan;
3.2.8 to determine the extent and circumstances under which Common
Stock and other amounts payable with respect to an award
hereunder shall be deferred, which may be either automatic or
at the election of the Holder; and
3.2.9 to substitute (i) new Stock Options for previously granted
Stock Options, which previously granted Stock Options have
higher option exercise prices and/or contain other less
favorable terms, and (ii) new awards of any other type for
previously granted awards of the same or other type, which
previously granted awards are upon less favorable terms.
3.3 Interpretation of Plan.
----------------------
3.3.1 Subject to Sections 3.2 and 9 hereof, the Committee shall have
the authority at its discretion to adopt, alter and repeal
such general and special administrative rules, regulations,
and practices governing the Plan as it shall, from time to
time, deem advisable, to construe and interpret the terms and
provisions of this Plan and any award issued under this Plan
(and to determine the form and substance of all Agreements
relating thereto), and to otherwise supervise the
administration of this Plan.
3.3.2 Anything in this Plan to the contrary notwithstanding, no term
of this Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or
authority granted under this Plan be so exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without
the consent of the Holder(s) affected, to disqualify any
Incentive Stock Option under Section 422 of the Code.
45
<PAGE>
3.3.3 Subject to Sections 3.2 and 9 hereof, all decisions made by
the Committee pursuant to the provisions of this Plan shall be
made in the Committee's sole discretion and shall be final and
binding upon all persons granted options pursuant to the Plan.
4. Shares Subject to Plan.
----------------------
4.1 Number of Shares. The aggregate number of shares of Common Stock
----------------
reserved and available for distribution under this Plan shall be
1,000,000 shares. If any shares of Common Stock that are subject to a
Stock Option or Stock Appreciation Right cease to be subject to such
Stock Option or Stock Appreciation Right, or any such award otherwise
terminates without a payment being made to the Holder in the form of
Common Stock, such shares shall again be available for distribution
in connection with future grants and awards under this Plan. The
number of shares available for distribution under this Plan shall be
reduced by the number of shares of Common Stock issued under this
Plan upon the exercise of a Stock Option.
4.2 Character of Shares. The Company may elect to satisfy its obligations
-------------------
to a Holder exercising a Stock Option entirely by issuing authorized
and unissued shares of Common Stock to such Holder, entirely by
transferring treasury shares to such Holder, or in part by the issue
of authorized and unissued shares and the balance by the transfer of
treasury shares.
5. Eligibility.
-----------
5.1 General. Awards under this Plan may be made to: (i) officers and
-------
other employees of the Company or any Subsidiary who are at the time
of the grant of an award under this Plan regularly employed by the
Company or any Subsidiary, including any full time salaried officer
or employee who is a member of the Board (except as provided in the
last sentence under Section 3.1); and, (ii) consultants or
independent contractors whom the Board believes have contributed or
will contribute to the success of the Company.
5.2 Multiple Awards. The Committee shall from time to time designate such
---------------
employees, consultants or independent contractors to whom options are
to be granted, and the number of shares to be subject to each option.
The Committee may at any time grant one
46
<PAGE>
or more Stock Options or Stock Appreciation Rights or a combination
thereof to an individual to whom a Stock Option or Stock Appreciation
Right has previously been granted under this or any other stock
option plan of the Company, whether or not such previously granted
Stock Option or Stock Appreciation Right has been fully exercised.
5.3 Ineligibility for Awards. No person designated by the Board to serve
------------------------
on the Committee, effective at such future time so that he qualifies
as a "disinterested person" within the meaning of Rule 16b-3(c) of
the Exchange Act, shall be eligible to receive any awards under the
Plan during the period from the date such designation is made to the
date such designation becomes effective. Notwithstanding Section 5.1
hereof, no member of the Committee, while serving as such, shall be
eligible to receive an award under the Plan.
6. Stock Options.
-------------
6.1 Grant and Exercise. Stock Options granted under the Plan may be of
------------------
two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock
Options. Only full-time salaried officers or employees may be granted
Incentive Stock Options. Any individual eligible to participate under
this Plan may be granted Non-Qualified Stock Options. Any Stock
Option granted under the Plan shall contain such terms, not
inconsistent with this Plan, as the Committee may from time to time
approve. The Committee shall have the authority to grant to any
eligible individual Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options and, in each case, may be
granted alone, in tandem with, or without, or in addition to Stock
Appreciation Rights. To the extent that any Stock Option (or portion
thereof) does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option. Unless granted in
substitution for another outstanding award, Stock Options shall be
granted for no consideration other than services to the Company or a
Subsidiary.
6.2 Exercise Price.
--------------
6.2.1 Less Than 10% Shareholder. The exercise price in any option
-------------------------
granted under this Plan to an individual who, at the time the
Stock Option is granted, does not own stock possessing more
than ten percent (10%) of the total combined
47
<PAGE>
voting power of all classes of stock of the Company or of any
Subsidiary (computed in accordance with the provisions
applicable to Section 422(b)(6) of the Code) (a "less than 10%
Shareholder") shall be not less than the Fair Market Value of
the shares of Common Stock subject to the Stock Option at the
time the Stock Option is granted, determined by the Committee
in accordance with the applicable regulations and rulings of
the Commissioner of the Internal Revenue Service in effect at
the time the Stock Option is granted.
6.2.2 10% Shareholder. The exercise price in any option granted
---------------
under the Plan to an individual who is not a less than ten
percent (10%) Shareholder (a "10% Shareholder") shall be not
less than one hundred ten percent (110%) of the Fair Market
Value of the shares of Common Stock subject to the Stock
Option at the time the Stock Option is granted, determined in
accordance with the applicable regulations and rulings of the
Commissioner of the Internal Revenue Service in effect at the
time the Stock Option is granted.
6.3 Option Term. The term of each Stock Option shall be fixed by the
-----------
Board, but no Stock Option shall be exercisable more than ten (10)
years (five (5) years, in the case of an Incentive Stock Option
granted to a 10% Shareholder) after the date on which the Stock
Option is granted.
6.4 Exercise of Non-Qualified Stock Options. Non-Qualified Stock Options
---------------------------------------
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee; provided,
however, that no Non-Qualified Stock Option granted under this Plan
may be exercised until after the expiration of six (6) months from
the date the Stock Option is granted. If the Committee provides, in
its discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time at or after the time of grant in whole or in
part, based upon such factors as the Committee shall determine;
provided that the Committee cannot waive the requirement that the
Stock Option may not be exercised until after the expiration of six
(6) months from the date the Stock Option is granted.
48
<PAGE>
6.5 Exercise of Incentive Stock Options.
-----------------------------------
6.5.1 By an Employee. No Incentive Stock Option granted under this
--------------
Plan shall be exercisable after the expiration of ten (10)
years from the date such ISO is granted, except that no ISO
granted to a person who is not a less than 10% Shareholder
shall be exercisable after the expiration of five (5) years
from the date such option is granted. Employment by a
Subsidiary shall be employment by the Company. Unless such
requirements are waived by the Committee, the employee, while
still in the employment of the Company, may exercise the
options as follows:
6.5.1.1 at any time after one (1) year of
continuous employment from the date such
ISO is granted, as to twenty percent (20%)
of the shares subject to the option;
6.5.5.2 at any time after two (2) years of such
continuous employment from the date such
ISO is granted, as to an additional twenty
percent (20%) of the shares subject to the
option;
6.5.5.3 at any time after three (3) years of such
continuous employment from the date such
ISO is granted, as to an additional thirty
percent (30%) of the shares subject to the
option; and
6.5.5.4 at any time after four (4) years of such
continuous employment from the date such
ISO is granted, as to all of the shares
remaining subject to the option.
The Committee may decide in each case to what extent
leaves of absence for government or military service,
illness, temporary disability, or other reasons,
49
<PAGE>
shall not interrupt continuous employment.
6.5.6 Termination of Employment. Except as otherwise expressly
-------------------------
provided in Sections 6.5.3 and 6.5.4 of this Plan or in the
Agreement, no Stock Option may be exercised at any time unless
the Holder thereof is then an employee of the Company or a
Subsidiary.
6.5.7 By a Former Employee. No person may exercise an ISO after he
--------------------
is no longer an employee of the Company or any Subsidiary;
except that if an employee ceases to be an employee on account
of physical or mental disability as defined in Section
22(e)(3) of the Code ("Former Employee"), he may exercise the
ISO within twelve (12) months after the date on which he
ceased to be an employee, for the number of shares for which
he could have exercised at the time he ceased to be an
employee. No ISO granted under this Plan shall in any event be
exercised by such Former Employee after the expiration of ten
(10) years from the date such ISO is granted, except that no
ISO granted to a person who is a 10% Shareholder may be
exercisable after the expiration of five (5) years from the
date such ISO is granted.
6.5.8 In Case of Death. If any employee or Former Employee who was
----------------
granted an ISO dies prior to the termination of such ISO, such
ISO may be exercised within twelve (12) months after the death
of the employee or Former Employee by his estate, or by a
person who acquired the right to exercise such ISO by bequest
or inheritance, or by reason of the death of such employee or
Former Employee, provided that:
6.5.8.1 such employee died while an employee of the
Company or a Subsidiary; or
6.5.8.2 such Former Employee had ceased to be an
employee of the Company or a Subsidiary on
account of physical or mental disability
and died within three (3) months after the
date on which he ceased to be such
employee.
50
<PAGE>
Such ISO may be exercised only as to the number of
shares for which he could have exercised at the time the
employee or Former Employee died. No ISO granted under
this Plan shall in any event be exercised in case of
death of an employee or Former Employee after the
expiration of ten (10) years from the date such ISO is
granted, except that no ISO granted to a 10% Shareholder
shall be exercisable after the expiration of five (5)
years from the date such ISO is granted.
6.5.9 The Committee may, in its discretion, waive the installment
exercise provisions at any time at or after the time of grant,
in whole or in part, based on such factors as the Committee
shall determine; provided that at all times no ISO may be
exercised until the expiration of six (6) months from the date
that the Stock Option was granted.
6.6 Termination of Options. A Stock Option granted under this Plan shall
----------------------
be considered terminated, in whole or in part, to the extent that it
can no longer be exercised for shares originally subject to it,
provided that a Stock Option granted shall be considered terminated
at an earlier date upon surrender for cancellation by the Holder to
whom such Stock Option was granted.
6.7 Notice of Exercise and Payment. Subject to any installment, exercise
------------------------------
and waiting period provisions that are applicable in a particular
case, Stock Options granted under this Plan may be exercised, in
whole or in part, at any time during the term of the Stock Option, by
giving written notice of such exercise to the Company identifying the
Stock Option being exercised and specifying the number of shares then
being purchased. Such notice shall be accompanied by payment in full
of the exercise price, which shall be in cash or, unless otherwise
provided in the Agreement, in whole shares of Common Stock which are
already owned by the Holder of the Stock Option or, unless otherwise
provided in the Agreement, partly in cash and partly in such Common
Stock. Cash payments shall be made by wire transfer, certified check
or bank check or personal check, in each case payable to the order of
the Company; provided, however, that the Company shall not be
required to deliver certificates for shares of Common Stock with
respect to which a Stock Option is
51
<PAGE>
exercised until the Company has confirmed the receipt of good and
valuable funds in payment of the purchase price thereof. Payments in
the form of Common Stock (which shall be valued at the Fair Market
Value of a share of Common Stock on the date of exercise) shall be
made by delivery of stock certificates in negotiable form which are
effective to transfer good and valid title thereto to the Company,
free of any liens or encumbrances, with signature guaranteed by a
bank or investment banking firm.
6.8 Issuance of Shares. As soon as practicable after its receipt of such
------------------
notice and payment, the Company shall cause one or more certificates
for the shares so purchased to be delivered to the Holder or his or
her estate, as the case may be. No Holder or estate shall have any of
the rights of a shareholder with reference to shares of Common Stock
subject to a Stock Option until after the Stock Option has been
exercised in accordance with Section 6.7 and certificates
representing the shares of Common Stock so purchased by the Holder
pursuant to the Stock Option have been delivered to the Holder or
estate.
6.9 Partial Exercise. A Stock Option granted under this Plan may be
----------------
exercised as to any part of the shares for which it could be
exercised. Such a partial exercise of a Stock Option shall not
affect the right to exercise the Stock Option from time to time in
accordance with this Plan as to the remaining shares of Common Stock
subject to the Stock Option.
6.10 $100,000 Per Year Limitation. To the extent that the aggregate Fair
----------------------------
Market Value of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Holder during any
calendar year (under all of the Company's plans) exceeds $100,000,
such excess Stock Options shall be treated as Non-Qualified Stock
Options for purposes of Section 422 of the Code.
6.11 Buyout and Settlement Provisions. The Committee may at any time
--------------------------------
offer to buy out for cash or otherwise settle a Stock Option
previously granted, based upon such terms and conditions as the
Committee shall establish and communicate to the Holder at the time
that such offer is made, including a settlement for exchange of a
different award under the Plan for the surrender of the Stock Option.
52
<PAGE>
7. Stock Appreciation Rights.
-------------------------
7.1 Grant and Exercise. Stock Appreciation Rights may be granted in
------------------
tandem with ("Tandem Stock Appreciation Right") or in conjunction
with all or part of any Stock Option granted under this Plan or may
be granted on a free-standing basis. In the case of a Non-Qualified
Stock Option, a Tandem Stock Appreciation Right may be granted either
at or after the time of the grant of such Non-Qualified Stock Option.
In the case of an Incentive Stock Option, a Tandem Stock Appreciation
Right may be granted only at the time of the grant of such Incentive
Stock Option. Unless granted in substitution for another outstanding
award, Stock Appreciation Rights shall be granted for no
consideration other than services to the Company or a Subsidiary.
7.2 Termination. A Tandem Stock Appreciation Right shall terminate and
-----------
shall no longer be exercisable upon the termination or exercise of
the related Stock Option, except that, unless otherwise determined by
the Board, a Tandem Stock Appreciation Right granted with respect to
less than the full number of shares covered by a related Stock Option
shall not be reduced until after the number of shares remaining under
the related Stock Option equals the number of shares covered by the
Tandem Stock Appreciation Right.
7.3 Method of Exercise. A Tandem Stock Appreciation Right may be
------------------
exercised by a Holder, in accordance with Section 7.4 hereof, by
surrendering the applicable portion of the related Stock Option.
Upon such exercise and surrender, the Holder shall be entitled to
receive such amount in the form of payment determined in the manner
prescribed in Section 7.5 hereof. Stock Options which have been so
surrendered, in whole or in part, shall no longer be exercisable to
the extent Tandem Stock Appreciation Rights have been exercised.
7.4 Exercisability. Tandem Stock Appreciation Rights shall be exercisable
--------------
only at such time or times and to the extent that the Stock Options
to which they relate shall be exercisable in accordance with the
provisions of Section 6 hereof and this Section 7, and may be subject
to such additional limitations on exercisability as shall be
determined by the Committee and set forth in the Agreement. Other
Stock Appreciation Rights shall be exercisable at such time or times
and subject to such terms and
53
<PAGE>
conditions as shall be determined by the Committee and set forth in
the Agreement. Notwithstanding anything to the contrary contained
herein (including the provisions of Section 8.1 hereof), any Stock
Appreciation Right granted to a Section 16(b) Holder to be settled
wholly or partially in cash (i) shall not be exercisable during the
first six (6) months of the term of such Stock Appreciation Right,
except that this special limitation shall not apply in the event of
death or disability of such Holder prior to the expiration of the six
(6) month period, and (ii) shall only be exercisable during the
period beginning on the third business day following the date of
release for publication of the Company of quarterly or annual summary
statements of sales and earnings and ending on the twelfth (12)
business day following such date.
7.5 Receipt of SAR Value. Upon the exercise of a Stock Appreciation
--------------------
Right, a Holder shall be entitled to receive up to, but not more
than, an amount in cash and/or shares of Common Stock equal to the
SAR Value with the Committee having the right to determine the form
of payment.
7.6 Shares Affected Under Plan. Upon the exercise of a Tandem Stock
--------------------------
Appreciation Right, the Stock Option or part thereof to which such
Tandem Stock Appreciation Right is related shall be deemed to have
been exercised for the purpose of the limitation set forth in Section
4.1 hereof on the number of shares of Common Stock to be issued under
the Plan, but only to the extent of the number of shares, if any,
issued under the Tandem Stock Appreciation Right at the time of
exercise based upon the SAR Value.
7.7 Limited Stock Appreciation Rights. The Committee may grant "Limited
---------------------------------
Stock Appreciation Rights", i.e., Stock Appreciation Rights that
become exercisable upon the occurrence of one or more of the events
which trigger a Change of Control as defined in Section 8.2 hereof,
and shall be settled in an amount equal to the Formula Price Per
Share, subject to such other terms and conditions as the Committee
may specify; provided, however, if any Limited Stock Appreciation
Right is granted to a Section 16(b) Holder such Limited Stock
Appreciation Right (i) shall only be exercisable within sixty (60)
days after the event triggering the Change of Control; and (ii) may
not be exercised during the first six (6) months after the date of
grant of such Limited Stock Appreciation Right (except in the event
of death or
54
<PAGE>
disability of such Holder prior to the expiration of the six (6)
month period); and (iii) shall only be exercisable in the event that
the date of the Change of Control was outside the control of such
Holder; and (iv) shall only be settled in cash in an amount equal to
the Formula Price Per Share.
8. Acceleration.
------------
8.1 Acceleration Upon Change of Control. Unless the award Agreement
-----------------------------------
provides otherwise or unless the Holder waives the application of
this Section 8.1 prior to a Change of Control (as hereinafter
defined), in the event of a Change of Control, each outstanding Stock
Option, Stock Appreciation Right and Limited Stock Appreciation Right
granted under the Plan shall immediately become exercisable in full
notwithstanding the vesting or exercise provisions contained in the
Agreement.
8.2 Change of Control Defined. A "Change of control" shall be deemed to
-------------------------
have occurred upon any of the following events:
8.2.1 The consummation of any of the following transactions: any
merger, reverse stock split, recapitalization or other
business combination of the Company, with or into another
corporation, or an acquisition of securities or assets by the
Company, pursuant to which the Company is not the continuing
or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other
property, other than a transaction in which the majority of
the holders of Common Stock immediately prior to such
transaction will own at least fifty percent (50%) of the total
voting power of the then-outstanding securities of the
surviving corporation immediately after such transaction; or
8.2.2 A transaction in which any person (as such term is defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company, or any
profit-sharing, employee ownership or other employee benefit
plan sponsored by the Company or any Subsidiary, or any
trustee of or fiduciary with respect to any such plan when
acting in such capacity, or any group comprised solely of such
entities): (i) shall purchase any Common Stock
55
<PAGE>
(or securities convertible into Common Stock) for cash,
securities or any other consideration pursuant to a tender
offer or exchange offer, without the prior consent of the
Board, or (ii) shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly (in one transaction or a series of
transactions), of securities of the Company representing fifty
percent (50%) or more of the total voting power of the then-
outstanding securities of the Company ordinarily (and apart
from the rights accruing under special circumstances) having
the right to vote in the election of directors (calculated as
provided in Rule 13d-3(d) in the case of rights to acquire the
Company's securities); or
8.2.3 If, during any period of two consecutive years, individuals
who at the beginning of such period constituted the entire
Board and any new director whose election by the Board, or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination for
election by the stockholders was previously so approved, cease
for any reason to constitute a majority thereof.
8.3 General Waiver by Board. The Committee may, after grant of an award,
-----------------------
accelerate the vesting of all or any part of any Stock Option, and/or
waive any limitations or restrictions, if any, for all or any part of
an award.
8.4 Acceleration Upon Termination of Employment. In the case of a Holder
-------------------------------------------
whose employment or affiliation with the Company or a Subsidiary is
involuntarily terminated for any reason (other than for cause), the
Committee may, at its option and in its sole discretion, accelerate
the vesting of all or any part of any award and/or waive, in whole or
in part, any or all of the remaining deferral limitations or
restrictions imposed hereunder or pursuant to the Agreement.
9. Amendments and Termination.
--------------------------
9.1 Amendments to Plan; Termination. The Board may at any time, and from
-------------------------------
time to time, amend any of the
56
<PAGE>
provisions of the Plan, and may at any time suspend or terminate the
Plan; provided, however, that no such amendment shall be effective
unless and until it has been duly approved by the stockholders of the
outstanding shares of Common Stock if (i) such amendment materially
increases the benefits accruing to participants under this Plan; (ii)
such amendment materially increases the number of securities which
may be issued under this Plan; (iii) such amendment materially
modifies the requirements as to eligibility for participation in this
Plan; or, (iv) the failure to obtain such approval would adversely
affect the compliance of the Plan with the requirements of Rule 16b-3
under the Exchange Act, or with the requirements of any other
applicable law, rule or regulation.
9.2 Amendments to Individual Awards. The Board may amend the terms of any
-------------------------------
award granted under the Plan; provided, however, that subject to
Section 11 hereof, no such amendment may be made by the Board which
in any material respect impairs the rights of the Holder without the
Holder's consent.
10. Term of Plan.
------------
10.1 Effective Date. The Plan shall be effective as of August 13, 1998
--------------
("Effective Date"), subject to the approval of the Plan by the
stockholders of the Company within one year after the Effective Date.
Any awards granted under the Plan prior to such approval shall be
effective when made (unless otherwise specified by the Committee at
the time of grant) but shall be conditioned upon, and subject to,
such approval of the Plan by the Company's stockholders and approval
of the Company's application to list the shares of the Company's
Common Stock covered by the Plan on the New York Stock Exchange (and
no awards shall vest or otherwise become free of restrictions prior
to such approvals).
10.2 Termination Date. No award shall be granted pursuant to the Plan on
----------------
or after the tenth (10th) anniversary of the Effective Date, but
awards granted prior to such tenth (10th) anniversary may extend
beyond that date. The Plan shall terminate at such time as no
further awards may be granted and all awards granted under the Plan
are no longer outstanding.
11. Adjustment Upon Change of Shares. Subject to any required action by the
--------------------------------
stockholders of the Company, the number of shares of Common Stock for which
Stock Options may
57
<PAGE>
thereafter be granted, and the number of shares of Common Stock then
subject to Stock Options previously granted, and the price per share
payable upon exercise of such Stock Option and the number of shares and
exercise price relating to Stock Appreciation Rights, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a subdivision
or consolidation of shares of Common Stock or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease
in the number of shares of Common Stock effected without receipt of
consideration by the Company.
11.1 If the Company is reorganized or consolidated or merged with another
corporation, in which the Company is the non-surviving corporation, a
Holder of an outstanding Stock Option and/or Stock Appreciation Right
granted under this Plan shall be entitled (subject to the provisions
of this Section 11) to receive options and/or stock appreciation
rights covering shares of such reorganized, consolidated or merged
corporation in the same proportion as granted to Holder prior to such
reorganization, consolidation or merger at an equivalent exercise
price, and subject to the same terms and conditions as this Plan. For
purposes of the preceding sentence, the excess of the aggregate Fair
Market Value of shares subject to the option immediately after the
reorganization, consolidation or merger over the aggregate exercise
price of such shares shall not be more than the excess of the
aggregate Fair Market Value of all shares of Common Stock subject to
the option or Stock Appreciation Right immediately before such
reorganization, consolidation or merger over the aggregate exercise
price of such shares of Common Stock, and the new stock option or
stock appreciation right or assumption of the old Stock Option or old
Stock Appreciation Right by any surviving corporation shall not give
the Holder additional benefits which he did not have under the old
Stock Option or Stock Appreciation Right.
11.2 To the extent that the foregoing adjustments relate to the shares of
Common Stock of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final,
binding and conclusive, provided that each Incentive Stock Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes the Incentive Stock Option to fail to continue to qualify as
an incentive stock option within the meaning of Section 422 of the
Code.
58
<PAGE>
11.3 Except as expressly provided in this Section 11, the Holder shall
have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or
any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger,
consolidation, reorganization or spin-off of assets or stock of
another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock
subject to the Stock Option or the number or price of Stock
Appreciation Rights granted under this Plan.
11.4 The grant of a Stock Option or Stock Appreciation Right pursuant to
this Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all or any
part of its business or assets.
12. General Provisions.
------------------
12.1 Investment Representations. The Committee may require each person
--------------------------
acquiring shares of Common Stock pursuant to an award under this Plan
to represent to and agree with the Company in writing that the Holder
is acquiring the shares for investment without a view to distribution
thereof.
12.1 Additional Incentive Arrangements. Nothing contained in this Plan
---------------------------------
shall prevent the Board from adopting such other or additional
incentive arrangements as it may deem desirable, including, but not
limited to, the granting of Stock Options and the awarding of stock
and cash otherwise than under this Plan; and such arrangements may be
either generally applicable or applicable only in specific cases.
12.2 No Right of Employment. Nothing contained in this Plan or in any
----------------------
award hereunder shall be deemed to confer upon any employee of the
Company or any Subsidiary any right to continued employment with the
Company or any Subsidiary, nor shall it interfere in any way with the
right of the Company or any Subsidiary to terminate the employment of
any of its employees at any time.
59
<PAGE>
12.3 Withholding Taxes. Not later than the date as of which an amount
-----------------
first becomes includible in the gross income of the Holder for
federal income tax purposes with respect to any award under the Plan,
the Holder shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any federal,
state and local taxes of any kind required by law to be withheld or
paid with respect to such amount. If permitted by the Board, tax
withholding or payment obligations may be settled with Common Stock,
including Common Stock that is part of the award that gives rise to
the withholding requirement. The obligations of the Company under
this Plan shall be conditional upon such payment or arrangements and
the Company shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to
the Holder from the Company.
12.4 Governing Law. This Plan and all awards made and actions taken
-------------
thereunder shall be governed by and construed in accordance with the
laws of the State of Delaware (without regard to choice of law
provisions).
12.5 Other Benefit Plans. Any award granted under this Plan shall not be
-------------------
deemed compensation for purposes of computing benefits under any
retirement plan of the Company or any Subsidiary and shall not affect
any benefits under any other benefit plan now or subsequently in
effect under which the availability or amount of benefits is related
to the level of compensation (unless required by specific reference
in any such other plan to awards under this Plan).
12.6 Employee Status. A leave of absence, unless otherwise determined by
---------------
the Board prior to the commencement thereof, shall not be considered
a termination of employment. Any awards granted under this Plan
shall not be affected by any change of employment, so long as the
Holder continues to be an employee of the Company or any Subsidiary.
12.7 Non-Transferability. Other than the transfer of a Stock Option or
-------------------
Stock Appreciation Right by will or by the laws of descent and
distribution, no award under this Plan may be alienated, sold,
assigned, hypothecated, pledged, exchanged, transferred, encumbered
or charged, and any attempt to alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber or charge the same shall be
void. No right or benefit hereunder shall in any manner be
60
<PAGE>
liable for or subject to the debts, contracts, liabilities or torts
of the person entitled to such benefit. Unless otherwise provided in
this Plan or the Agreement, any Stock Option or Stock Appreciation
Right granted under this Plan is only exercisable during the lifetime
of the Holder by the Holder or by his guardian or legal
representative.
12.8 Applicable Laws. The obligations of the Company with respect to all
---------------
awards under this Plan shall be subject to (i) all applicable laws,
rules and regulations, including, without limitation, the
requirements of all federal securities laws, rules and regulations
and state securities and blue sky laws, rules and regulations, and
such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of a registration
statement under the Act, and (ii) the rules and regulations of any
national securities exchange on which the Common Stock may be listed
or the NASDAQ National Market System if the Common Stock is
designated for quotation thereon.
12.9 Conflicts. If any of the terms or provisions of the Plan conflict
---------
with the requirements of Rule 16b-3 under the Exchange Act, or with
the requirements of any other applicable law, rule or regulation,
and/or with respect to Incentive Stock Options, Section 422 of the
Code, then such terms or provisions shall be deemed inoperative to
the extent they so conflict with the requirements of said Rule 16b-3,
and/or with respect to Incentive Stock Options, Section 422 of the
Code. With respect to Incentive Stock Options, if this Plan does not
contain any provision required to be included herein under Section
422 of the Code, such provision shall be deemed to be incorporated
herein with the same force and effect as if such provision had been
set out at length herein.
12.10 Written Agreements. Each award granted under this Plan shall be
------------------
confirmed by, and shall be subject to the terms of the Agreement
approved by the Committee and executed by the Company and the Holder.
The Committee may terminate any award made under this Plan if the
Agreement relating thereto is not executed and returned to the
Company within sixty (60) days after the Agreement has been delivered
to the Holder for his or her execution.
12.11 Indemnification of Committee. In addition to such other rights of
----------------------------
indemnification as they may have as directors or as members of the
Committee, the members
61
<PAGE>
of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any
award granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by
independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee
member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution
of any such action, suit or proceeding a Committee member shall in
writing offer the Company the opportunity, at its own expense, to
handle and defend the same.
12.12 Consideration for Common Stock. The Committee may not grant any
------------------------------
awards under this Plan pursuant to which the Company will be
required to issue any shares of Common Stock unless the Company will
receive consideration for the shares of Common Stock sufficient
under the laws of the State of Delaware so that such shares of
Common Stock will be, when issued, validly issued and fully paid and
nonassessable when issued.
12.13 Common Stock Certificates. All certificates for shares of Common
-------------------------
Stock delivered under this Plan shall be subject to such stop-
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of
the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed, any applicable federal or
state securities law and any applicable corporate law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
Notwithstanding anything to the contrary contained herein, whenever
certificates representing shares of Common Stock subject to an award
are required to be delivered pursuant to the terms of this Plan, the
Company may, in lieu of such delivery requirement, comply with the
provisions of Section 158 of the Delaware General Corporation Law.
62
<PAGE>
12.13 Unfunded Status of Plan. This Plan is intended to constitute an
-----------------------
"unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Holder by the Company,
nothing contained herein shall give any such Holder any rights that
are greater than those of a general creditor of the Company.
63
<PAGE>
Exhibit "C"
LSB INDUSTRIES, INC.
OUTSIDE DIRECTORS STOCK PURCHASE PLAN
May 13, 1999
64
<PAGE>
LSB INDUSTRIES, INC.
OUTSIDE DIRECTORS STOCK PURCHASE PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purpose............................................................. 1
2. Definitions......................................................... 1
2.1 "Board"........................................................ 1
2.2 "Company"...................................................... 1
2.3 "Fair Market Value"............................................ 1
2.4 "Director Fee"................................................. 1
2.5 "Eligible Director"............................................ 1
2.6 "Option"....................................................... 1
2.7 "Option Agreement"............................................. 1
2.8 "Permanent Disability"......................................... 1
2.9 "Plan Year".................................................... 2
2.10 "Shares"....................................................... 2
3. Participants........................................................ 2
4. Shares Subject to Plan.............................................. 2
4.1 Limitations.................................................... 2
4.2 Regrant........................................................ 2
4.3 Character of Shares............................................ 2
4.4 Board Determination............................................ 2
5. Grant of Options.................................................... 2
5.1 Exercise and Term of Options................................... 2
5.2 Notice of Exercise and Payment................................. 3
5.3 Issuance of Shares............................................. 3
5.4 Partial Exercise............................................... 3
5.5 Buyout and Settlement Provisions............................... 3
5.6 Limited Transferability of Options............................. 3
5.7 Termination of Board Service................................... 4
5.8 Death or Permanent Disability.................................. 4
5.8.1 Eligible Directors...................................... 4
5.8.2 Former Eligible Directors............................... 4
5.9 Cancellation and Regrant of Options..................... 5
6. Acceleration of Options............................................. 5
6.1 Acceleration Upon Change of Control............................ 5
6.2 Change of Control Defined...................................... 5
6.3 General Waiver by Board........................................ 6
7. Adjustment Upon Change of Shares.................................... 6
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
8. Compensation Shares................................................. 7
8.1 Number of Award Shares......................................... 7
8.2 Method of Electing............................................. 7
9. Amendments and Termination.......................................... 7
9.1 Amendments to Plan; Termination................................ 7
9.2 Amendments to Individual Awards................................ 8
10. Investment Intent................................................... 8
11. Share Certificates.................................................. 8
12. Stockholder Rights.................................................. 8
13. Effective Date, Stockholder Approval, and Plan Termination.......... 8
14. Relationship to Other Compensation Plans............................ 9
15. Plan Binding on Successors.......................................... 9
16. Headings............................................................ 9
17. Governing Law....................................................... 9
</TABLE>
66
<PAGE>
LSB INDUSTRIES, INC.
OUTSIDE DIRECTORS STOCK PURCHASE PLAN
-------------------------------------
1. Purpose. The purpose of this Outside Directors Stock Purchase Plan (the
-------
"Plan") is (a) to advance the interests of the Company and its stockholders
while providing a means to attract, retain and compensate non-employee directors
and (b) to enable non-employee directors to increase their proprietary interest
in the Company, thereby providing such persons additional incentives to achieve
the growth objectives of the Company.
2. Definitions. In addition to the terms defined in paragraph 1, the
-----------
following terms have the meanings set forth below:
2.1 "Board" means the Board of Directors of the Company.
2.2 "Company" means LSB Industries, Inc., a Delaware corporation.
2.3 "Fair Market Value" means, with respect to the Shares, the fair market
value of such Shares determined by such methods or procedures as may
be established from time to time by the Board. Unless otherwise
determined by the Board, "Fair Market Value" will mean the closing
price of a Share on the principal national securities exchange on
which the Shares are listed on the day on which such value is to be
determined, as reported in the composite quotations for securities
traded on such exchange provided by the National Association of
Securities Dealers or successor national quotation service. If no such
quotations are available for the day in question, "Fair Market Value"
shall be determined by reference to the appropriate prices on the next
preceding day for which such prices are reported.
2.4 "Director Fee" means fees payable to a director in cash for the
director's service on the Board and on committees of the Board during
any calendar year.
2.5 "Eligible Director" means any member of the Board who is not an
employee of the Company or its subsidiaries.
2.6 "Option" means any option to purchase Shares which is awarded pursuant
to the Plan and is not intended to be an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986
as amended.
2.7 "Option Agreement" means the written agreement between the Company and
the Eligible Director, consisting of
67
<PAGE>
one or more documents, setting forth the terms and conditions of an
option granted under this Plan.
2.8 "Permanent Disability" or "Permanently Disabled" means the inability
of the Eligible Director to perform the Eligible Director's usual
duties as a Board Member by reason of medically determined terminal,
physical or mental impairment expected to result in death or to be of
continuous duration of 12 months or more.
2.9 "Plan Year" means each calendar year during which this Plan is in
effect and, with respect to an Eligible Director's initial election or
appointment to the Board, the period commencing at the time of such
election or appointment and ending on the succeeding December 31.
2.10 "Shares" means the common stock, par value $.001 per share, of the
Company or, if the outstanding Shares are hereafter changed into or
exchanged for different stock or securities of the Company or some
other corporation, such other stock or securities.
3. Participants. Each Eligible Director may participate in the Plan.
------------
4. Shares Subject to Plan.
----------------------
4.1 Limitations. Subject to any adjustment pursuant to the provisions of
-----------
the Plan, the maximum number of Shares which may be issued and sold
hereunder will not exceed 400,000.
4.2 Regrant. If any shares that are subject to an Option cease to be
-------
subject to be subject to such Option, such Shares will again be
available for distribution in connection with future grants or
issuances under this Plan. The number of shares available for
distribution under this plan will be reduced by the number of shares
issued under this Plan upon exercise of an Option or upon issuance
pursuant to the election by an Eligible Director in accordance with
paragraph 9 of this Agreement.
4.3 Character of Shares. The Company may satisfy its obligations to an
-------------------
Eligible Director exercising an Option or electing to receive Shares
in payment of the Director Fee by issuing authorized and unissued
Shares, by transferring treasury shares, or in part by the issuance of
authorized and unissued Shares and the balance by the transfer of
treasury shares.
68
<PAGE>
4.4 Board Determination. The adjustments described in this paragraph 4 and
-------------------
the manner of application thereof will be determined solely by the
Board, and any such adjustment may provide for the elimination of
fractional share interests. The adjustments required under this
paragraph 4 will apply to any successor of successors of the Company
and will be made regardless of the number or type of successive events
requiring adjustments hereunder.
5. Grant of Options. The Board in authorized to grant Options which are
----------------
governed by the terms and conditions specified in this paragraph 5 to any
Eligible Director.
5.1 Exercise and Term of Options. Each Option will become exercisable at
----------------------------
such time or times, during such period, and for the number of Shares
as determined by the Board and set forth in the Option Agreement;
provided however, unless the Option Agreement otherwise provides, no
Option will be exercisable within the period ending six months and one
day after the date the Option is granted. Notwithstanding the
foregoing, each Option will have a maximum term of ten (10) years
measured from the date the Option is granted.
5.2 Notice of Exercise and Payment. Subject to any installment, exercise
------------------------------
and waiting period provisions that are applicable in a particular
case, Options granted under this Plan may be exercised, in whole or in
part, at any time during the term of the Option, by giving written
notice of such exercise to the Company identifying the Option being
exercised and specifying the number of shares then being purchased.
Such notice will be accompanied by payment in full of the exercise
price, which shall be in cash or, unless otherwise provided in the
Option Agreement, in whole Shares which are already owned by the
Eligible Director or, unless otherwise provided in the Option
Agreement, partly in cash and partly in such Shares. Cash payments
will be made by wire transfer, certified check or bank check or
personal check, in each case payable to the order of the Company;
provided, however, that the Company will not be required to deliver
certificates for Shares with respect to which an Option is exercised
until the Company has confirmed the receipt of good and valuable funds
in payment of the purchase price thereof. Payments in the form of
Shares (which will be valued at the Fair Market Value of a Share on
the date of exercise) will be made by delivery of stock certificates
in negotiable form which are effective to transfer good and valid
title thereto to the Company,
69
<PAGE>
free of any liens or encumbrances, with signature guaranteed by a bank
or investment banking firm.
5.3 Issuance of Shares. As soon as practicable after its receipt of notice
------------------
and payment pursuant to paragraph 5.2, the Company will cause one or
more certificates for the Shares so purchased to be delivered to the
Eligible Director or the party exercising the Option, as the case may
be.
5.4 Partial Exercise. An Option granted under this Plan may be exercised
----------------
as to any part of the Shares for which it could be exercised. Such a
partial exercise of an Option will not affect the right to exercise
the Option from time to time in accordance with this Plan as to the
remaining Shares subject to the Option.
5.5 Buyout and Settlement Provisions. The Board may at any time offer to
--------------------------------
buy out for cash or otherwise settle an Option previously granted,
based upon such terms and conditions as the Board may establish and
communicate to the Eligible Director at the time that such offer is
made, including a settlement for exchange of a new award under the
Plan for the surrender of the Option.
5.6 Limited Transferability of Options. Each Option granted under this
----------------------------------
Plan may, in connection with the Eligible Director's estate plan, be
assigned in whole or in part during the Eligible Director lifetime to
one or more members of the Eligible Director immediate family or to a
trust established exclusively for one or more such family members. The
assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the Option pursuant to the
assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the Option immediately prior to such
assignment and shall be set forth in such documents issued to the
assignee as the Board may deem appropriate. The Eligible Director may
also designate one or more persons as the beneficiary or beneficiaries
of the Eligible Director's outstanding Options under this Plan, and
those Options will, in accordance with such designation, automatically
be transferred to such beneficiary or beneficiaries upon the Eligible
Director's death while holding such Options. Such beneficiary or
beneficiaries will take the transferred Options subject to all the
terms and conditions of the Option Agreement including (without
limitation) the limited time period during which the Option may be
exercised following the Eligible Director's death.
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5.7 Termination of Board Service. If the Eligible Director ceases Board
----------------------------
service for any reason (other than death or Permanent Disability)
while holding one or more Options awarded under this Plan, then each
such Option will remain exercisable, for any or all of the shares for
which the Option is exercisable at the time of such cessation of Board
service, until the earlier of (a) the expiration of the term of the
Option as set forth in the Option Agreement (b) the expiration of the
three year period measured from the date of such cessation of Board
service, and (c) the expiration of ten years from the date such Option
was granted. However, each option held by the Eligible Director under
this Plan at the time of the Eligible Director's cessation of Board
service will immediately terminate and cease to remain outstanding
with respect to any and all Shares for which the Option is not
otherwise at that time exercisable.
5.8 Death or Permanent Disability.
-----------------------------
5.8.1 Eligible Directors. If the Eligible Director's service as a
------------------
Board member ceases by reason of death or Permanent Disability,
then each Option held by such Eligible Director under this Plan
will immediately become exercisable for all Shares at that time
subject to that Option, and the Option may be exercised for any
or all of those shares as fully-vested shares until the earlier
of (a) the expiration of the term of the Option as set forth in
the Option Agreement (b) the expiration of the three year
period measured from the date of such cessation of Board
service, and (c) the expiration of ten years from the date the
Option was granted.
5.8.2 Former Eligible Directors. If the Eligible Director dies after
-------------------------
cessation of Board service but while holding one or more
Options under this Plan, then each such Option may be
exercised, for any or all of the shares for which the Option is
exercisable at the time of the Eligible Director's cessation of
Board service (less any shares subsequently purchased by
Eligible Director prior to death), by the personal
representative of the Eligible Director's estate or by the
person or persons to whom the option is transferred pursuant to
the Eligible Director's will or in accordance with the laws of
descent and distribution or by the designated beneficiary or
beneficiaries of such Option. Such right of exercise will
lapse, and the Option shall
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terminate, upon the earlier of (a) the expiration of the term
of the Option as set forth in the Option Agreement, (b) the
three year period measured from the date of the Eligible
Director's cessation of Board service, or (c) the expiration of
ten years from the date such Option was granted.
5.9 Cancellation and Regrant of Options. The Board is authorized to
-----------------------------------
effect, at any time and from time to time, with the consent of the
affected Option holders, the cancellation of any or all outstanding
options under the Plan and to grant in substitution new Options
covering the same or different number of Shares but with an exercise
price per share based on the Fair Market Value per Share on the new
grant date.
6. Acceleration of Options.
-----------------------
6.1 Acceleration Upon Change of Control. Unless the Option Agreement
-----------------------------------
provides otherwise or unless the Eligible Director waives the
application of this paragraph 6.1 prior to a Change of Control (as
hereinafter defined), in the event of a Change of Control, each
outstanding Option granted under the Plan will become exercisable in
full immediately prior to the effective date of the Change of Control
notwithstanding the vesting provisions contained in the Option
Agreement and may be exercised for any or all of those Shares as
fully-vested Shares.
6.2 Change of Control Defined. A "Change of Control" shall be deemed to
-------------------------
have occurred upon any of the following events:
(a) The consummation of any of the following transactions: any
merger, reverse stock split, recapitalization or other business
combination of the Company, with or into another corporation,
or an acquisition of securities or assets by the Company,
pursuant to which the Company is not the continuing or
surviving corporation or pursuant to which Shares would be
converted into cash, securities or other property, other than a
transaction in which the majority of the holders of Shares
immediately prior to such transaction will own at least 50
percent of the total voting power of the then-outstanding
securities of the surviving corporation immediately after such
transaction; or
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(b) A transaction in which any person (as such term is defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company, or any
profit-sharing, employee ownership or other employee benefit
plan sponsored by the Company or any Subsidiary, or any trustee
of or fiduciary with respect to any such plan when acting in
such capacity, or any group comprised solely of such entities):
(i) purchases any Shares (or securities convertible into
Shares) for cash, securities or any other consideration
pursuant to a tender offer or exchange offer, without the prior
consent of the Board, or (ii) becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Exchange Act),
directly or indirectly (in one transaction or a series of
transactions), of securities of the Company representing 50
percent or more of the total voting power of the then-
outstanding securities of the Company ordinarily (and apart
from the rights accruing under special circumstances) having
the right to vote in the election of directors (calculated as
provided in Rule 13d-3(d) in the case of rights to acquire the
Company's securities); or
(c) If, during any period of two consecutive years, individuals who
at the beginning of such period constituted the entire Board
and any new director whose election by the Board, or nomination
for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period
or whose election or nomination for election by the
stockholders was previously so approved, cease for any reason
to constitute a majority thereof.
6.3 General Waiver by Board. The Committee may, after grant of an Option,
-----------------------
accelerate the vesting of all or any part of any Option, and/or waive
any limitations or restrictions, if any, for all or any part of an
Option.
7. Adjustment Upon Change of Shares. Subject to any required action by the
--------------------------------
stockholders of the Company, the number of Shares for which Options may
thereafter be granted, and the number of Shares then subject to Options
previously granted, and the price per share payable upon exercise of such
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or the payment of a stock dividend (but only on the Shares) or any
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<PAGE>
other increase or decrease in the number of Shares effected without receipt of
consideration by the Company. In addition, adjustments will be made pursuant to
the following:
(a) If the Company is reorganized or consolidated or merged with
another corporation, in which the Company is the non-surviving
corporation, an Eligible Director holding of an outstanding
Option granted under this Plan shall be entitled (subject to
the provisions of this paragraph 7) to receive Options covering
shares of such reorganized, consolidated or merged corporation
in the same proportion as granted to the Eligible Director
prior to such reorganization, consolidation or merger at an
equivalent exercise price, and subject to the same terms and
conditions as this Plan. For purposes of the preceding
sentence, the excess of the aggregate Fair Market Value of
Shares subject to the Option immediately after the
reorganization, consolidation or merger over the aggregate
exercise price of such shares shall not be more than the excess
of the aggregate Fair Market Value of all Shares subject to the
Option immediately before such reorganization, consolidation or
merger over the aggregate exercise price of such Shares, and
the new stock option or assumption of the old Option by any
surviving corporation shall not give the Eligible Director
additional benefits which the Eligible Director did not have
under the old Option.
(b) To the extent that the foregoing adjustments relate to the
Shares, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and
conclusive.
(c) Except as expressly provided in this paragraph 7, the Eligible
Director will have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase or decrease in the
number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, consolidation, reorganization
or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to the
Option.
(d) The grant of an Option pursuant to this Plan shall not affect
in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structure or to merge or to consolidate
or to dissolve, liquidate or
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<PAGE>
sell, or transfer all or any part of its business or assets.
8. Compensation Shares. For each quarter during the Plan Year, each Eligible
-------------------
Director may elect to apply all or any portion of the Director Fee payable
during that Plan Year to the acquisition of Shares under this Plan.
8.1 Number of Award Shares. If the Eligible Director elects to receive a
----------------------
portion of such Eligible Director's Director Fee in Shares: (a) the
Eligible Director will receive the number of Shares obtained by
dividing the amount of the Director Fee subject to the Eligible
Director's election by the Fair Market Value of a Share and (b) the
Eligible Director will receive the balance of the Director Fee in cash
or its equivalent. If the Eligible Director elects to receive 100% of
the Director Fee in Shares the Eligible Director will receive the
number of Shares obtained by dividing the applicable Director's Fee by
the Fair Market Value of a share. Fair Market Value as used in this
paragraph 8, shall be determined on the business day immediately
preceding the date that the Director Fee is due.
8.2 Method of Electing. The election of the Eligible Director described in
------------------
paragraph 8.1 must be in writing and filed with the Company's
Secretary prior to the first day of each calendar quarter during the
Plan Year. If an Eligible Director fails to make such election in a
timely manner, such Eligible Director will be deemed to have elected
not to receive any of the Director Fee payable to such Eligible
Director in Shares.
9. Amendments and Termination.
--------------------------
9.1 Amendments to Plan; Termination. The Board may at any time, and from
-------------------------------
time to time, amend or modify any of the provisions of the Plan, and
may at any time suspend or terminate the Plan. Notwithstanding the
foregoing sentence, any amendment to the Plan will not be effective
unless and until it has been duly approved by the stockholders of the
outstanding Shares if the failure to obtain such approval would
adversely affect the compliance of the Plan with the requirements of
Rule 16b-3 under the Exchange Act, or with the requirements of any
other applicable law, rule or regulation.
9.2 Amendments to Individual Awards. The Board may amend the terms of any
-------------------------------
Option granted under the Plan; pro-
75
<PAGE>
vided, however, that subject to paragraph 7 hereof, no such amendment
may be made by the Board which in any material respect impairs the
rights of the Eligible Director without the Eligible Director's
consent.
10. Investment Intent. The Board may require each Eligible Director receiving
-----------------
Shares or Options to represent to, and agree with, the Company in writing that
each Eligible Director is acquiring the Shares for investment without a view to
distribution, and may condition the issuance of Shares pursuant to the Share
Award on such other representation or agreement as may be necessary or advisable
solely to comply with the provisions of the Securities Act of 1933, as amended,
or any other federal, state or local securities laws.
11. Share Certificates. The Company will not be required to issue or deliver
------------------
any certificate for Shares purchased hereunder or any portion thereof unless, in
the opinion of the Company's counsel there has been compliance with all
applicable legal requirements. In addition, the Company will impose such
restrictions on Shares delivered to an Eligible Director under the Plan as it
may deem advisable in order to comply with the Securities Act of 1933, as
amended, the requirements of the New York Stock Exchange or any other stock
exchange or automated quotation system upon which the shares are then listed or
quoted, any state securities laws applicable to such, any transfer, any
provisions of the Company's Certificate of Incorporation or Bylaws, or any other
law, regulation, or binding contract to which the Company is a party.
12. Stockholder Rights. An Eligible Director will have no stockholder rights
------------------
(a) with respect to the Shares subject to an Option until such person has
exercised the Option, paid the exercise price, and become a holder of record of
the purchased Shares, or (b) with respect to Shares subject to such person's
election pursuant to paragraph 8.1, until the Director Fee is due and payable
and such person has become a holder of record of the purchased Shares.
13. Effective Date, Stockholder Approval, and Plan Termination. The Plan will
----------------------------------------------------------
become effective on its approval by the stockholders of the Company. Unless
earlier terminated by the Board, the Plan will remain in effect until such time
as no Shares remain available for delivery under the Plan, and the Company has
not further rights or obligations under the Plan with respect to Options under
the Plan.
14. Relationship to Other Compensation Plans. The adoption of the Plan will
----------------------------------------
neither affect any other stock option, incentive or other compensation plans in
effect for the Company or any of its subsidiaries, nor will the adoption of the
Plan preclude the Company from establishing any other forms of incentive or
other compensation plan for directors of the Company.
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<PAGE>
15. Plan Binding on Successors. The Plan will be binding upon the successors
--------------------------
and assigns of the Company.
16. Headings. Headings of paragraphs hereof are inserted for convenience and
--------
reference, and do not constitute a part of the Plan.
17. Governing Law. The Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
77
<PAGE>
LSB INDUSTRIES, INC. THIS PROXY IS
16 South Pennsylvania PROXY SOLICITED BY THE
Post Office Box 754 FOR THE ANNUAL MEETING BOARD OF DIRECTORS
Oklahoma City, Oklahoma 73101 OF SHAREHOLDERS LSB INDUSTRIES, INC.
The undersigned hereby appoints Jack E. Golsen and Tony M. Shelby, and
each of them, the undersigned's proxy, with full power of substitution, to
attend the annual meeting of the shareholders of LSB Industries, Inc. (the
"Company") on Thursday, June 24, 1999, at 11:30 a.m. Central Daylight Savings
Time, at the Company's financial center located at 4000 Northwest 39th
Expressway, Oklahoma City, Oklahoma 73112, and at any adjournment of that
meeting, and to vote the undersigned's shares of Common Stock, Convertible
Noncumulative Preferred Stock, and 12% Series B Cumulative Convertible Preferred
Stock, all of which vote as a single class, as designated below:
(1) Election of Directors
[_] For All Nominees Listed Below [_] Withhold Authority to vote for All
(Except as marked to the contrary Nominees Listed Below
below)
(Instruction: To withhold authority to vote for an individual nominee,
strike through the nominee's name below.)
<TABLE>
<CAPTION>
Ray B. Ackerman Gerald J. Gagner Bernard G. Ille Donald W. Munson Tony M. Shelby
<S> <C> <C> <C> <C>
</TABLE>
The Board of Directors unanimously recommends a vote "FOR" all nominees
(2) Approval and ratification of Selection of Independent Auditors.
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" this item.
(3) Approval of the Company's 1998 Employee Stock Option and Incentive Plan
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" this item.
(4) Approval of the Company's Outside Directors Stock Purchase Plan
[_] FOR [_] AGAINST [_] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" this item.
(5) Any other business which properly may come before the meeting or any
adjournment of the meeting.
The persons named above will vote the shares of stock represented by
this Proxy Card in accordance with the specifications made in items 1, 2, 3 and
4. If the undersigned makes no specification, the persons named above will vote
the shares "FOR" items 1, 2, 3 and 4.
Please sign exactly as your name appears below, date and return this
Proxy Card promptly, using the self-addressed, prepaid envelope enclosed for
your convenience. Please correct your address before returning this Proxy Card.
Persons signing in a fiduciary capacity should indicate that fact and give their
full title. If a corporation, please sign in the full corporate name by the
president or other authorized officer. If a partnership, please sign in the
partnership name by an authorized person. If joint tenants, both persons should
sign.
_________ _______________________________________
Date Name of Shareholder (Please Print)
_______________________________________
(New Address (Street, City, State)
_______________________________________
Signature and Title
_______________________________________
Signature and Title
_______________________________________
Signature and Title
