UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period _________to__________
Commission file number 1-7677
LSB INDUSTRIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 73-1015226
(State of Incorporation) (I.R.S.Employer
identification No.)
16 South Pennsylvania Avenue
Oklahoma City, Oklahoma 73107
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(405) 235-4546
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock, Par Value $.10 Over-the-CounterBulletin Board*
$3.25 Convertible Exchangeable
Class C Preferred Stock, Series 2 Over-the-Counter Bulletin Board*
Securities Registered Pursuant to Section 12(g) of the Act:
Preferred Share Purchase Rights*
* Delisted from the New York Stock Exchange on July 6, 1999.
(Facing Sheet Continued)
Indicate by check mark whether the Registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for the
shorter period that the Registrant has had to file the reports),
and (2) has been subject to the filing requirements for the past
90 days. YES X NO _____.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __________.
As of April 7, 2000, the aggregate market value of the
7,656,337 shares of voting stock of the Registrant held by
non-affiliates of the Company equaled approximately $5,497,250
based on the closing sales price for the Company's common stock
as reported for that date on the Over-the-Counter Bulletin Board.
That amount does not include (1) the 1,462 shares of Convertible
Non-Cumulative Preferred Stock (the "Non-Cumulative Preferred
Stock") held by non-affiliates of the Company, (2) the 20,000
shares of Series B 12% Convertible, Cumulative Preferred Stock
(the "Series B Preferred Stock"), and (3) the 915,000 shares of
$3.25 Convertible Exchangeable Class C Preferred Stock, Series 2,
excluding 5,000 shares held in treasury (the "Series 2 Preferred
Stock"). An active trading market does not exist for the shares
of Non-Cumulative Preferred Stock or the Series B Preferred
Stock. The shares of Series 2 Preferred Stock do not have voting
rights except under limited circumstances.
As of April 7, 2000, the Registrant had 11,877,411 shares of
common stock outstanding (excluding 3,285,957 shares of common
stock held as treasury stock).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has
caused the undersigned, duly-authorized, to sign this Amendment
No. 1 to the report on its behalf of this 28th day of April,
2000.
LSB INDUSTRIES, INC.
By:
/s/ Jack E. Golsen
Jack E. Golsen
Chairman of the Board and
President
(Principal Executive Officer)
By:
/s/ Tony M. Shelby
Tony M. Shelby
Senior Vice President of Finance
(Principal Financial Officer)
By:
/s/ Jim D. Jones
Jim D. Jones
Vice President, Controller and
Treasurer (Principal Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the undersigned have signed this report on
behalf of the Company, in the capacities and on the dates
indicated.
Dated: April 28, 2000 By:
/s/ Jack E. Golsen
Jack E. Golsen, Director
Dated: April 28, 2000 By:
/s/ Tony M. Shelby
Tony M. Shelby, Director
Dated: April 28, 2000 By:
/s/ David R. Goss
David R. Goss, Director
Dated: April 28, 2000 By:
/s/ Barry H.Golsen
Barry H. Golsen, Director
Dated: April 28, 2000 By:
/s/ Robert C. Brown
Robert C. Brown, Director
Dated: April 28, 2000 By:
/s/ Bernard G. Ille
Bernard G. Ille, Director
Dated: April 28, 2000 By:
/s/ Jerome D. Shaffer
Jerome D. Shaffer, Director
Dated: April 28, 2000 By:
/s/ Raymond B. Ackerman
Raymond B. Ackerman, Director
Dated: April 28, 2000 By:
/s/ Horace Rhodes
Horace Rhodes, Director.
Dated: April 28, 2000 By:
/s/ Gerald G. Gagner
Gerald J. Gagner, Director
Dated: April 28, 2000 By:
/s/ Donald W. Munson
Donald W. Munson, Director
Dated: April 28, 2000 By:
/s/ Charles A. Burtch
Charles A. Burtch, Director
PART III
Item 10. Directors and Executive Officers of the Company
Directors. Certificate of Incorporation and By-laws of the
Company provide for the division of the Board of Directors into
three (3) classes, each class consisting as nearly as possible of
one-third of the whole. The term of office of one class of
directors expires each year, with each class of directors elected
for a term of three (3) years and until the shareholders elect
their qualified successors.
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 public disclosure was made. In
addition, if the stockholder proposes to nominate any person, the
stockholder's written notice to the Company must provide all
information relating to such person that the stockholder desires
to nominate that is required to be disclosed in solicitation of
proxies pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.
The following table sets forth the name, principal
occupation, age, year in which the individual first became a
director, and year in which the director's term will expire for
each nominee for election as a director at the Annual Meeting and
all other directors whose term will continue after the Annual
Meeting. Certain information with respect to the executive
officers of the Company is set forth under Item 4A of Part I
hereof.
Name and First Became
Principal Occupation A Director Term Expires Age
Raymond B. Ackerman (1) 1993 2002 77
Chairman Emeritus of Ackerman
McQueen, Inc.
Gerald G. Gagner (2) 1997 2000 64
President of Dragerton
Investments
Bernard G. Ille (3) 1971 2002 73
Investments
Donald W. Munson (4) 1997 2002 67
Consultant
Tony M. Shelby (5) 1971 2002 58
Senior Vice President of
Finance and Chief
Financial Officer of the
Company
Barry H. Golsen (6) 1981 2000 49
Vice Chairman of the
Board of Directors of
the Company and President
of the Climate Control
Business of the Company
David R. Goss (7) 1971 2000 59
Senior Vice President of
Operations of the Company
Jerome D. Shaffer, M.D. (8) 1969 2000 83
Investments
Robert C. Brown, M.D. (9) 1969 2001 69
President of Northwest
Internal Medicine
Associates, Inc.
Jack E. Golsen (10) 1969 2001 71
President, Chief Executive
Officer and Chairman of
the Board of Directors of
the Company
Horace G. Rhodes (11) 1996 2001 72
President/Managing Partner,
Kerr, Irvine, Rhodes
and Ables
Charles A. Burtch (12) 1999 2001 65
Investments
(1) From 1972 until his retirement in 1992, Mr. Ackerman served
as Chairman of the Board and President of Ackerman, McQueen,
Inc., the largest public relations firm in Oklahoma. Mr.
Ackerman currently serves as Chairman Emeritus of Ackerman,
McQueen, Inc. Mr. Ackerman retired as a Rear Admiral from
the United States Naval Reserves. Mr. Ackerman is a
graduate of Oklahoma City University, and in 1996, he was
awarded an honorary doctorate from Oklahoma City,
University.
(2) Mr. Gagner, a resident of New Hope, Pennsylvania, served as
President, Chief Executive Officer and director of USPCI,
Inc., a New York Stock Exchange company involved in the
waste management industry, from 1984 until 1988, when USPCI
was acquired by Union Pacific Corporation. From 1988 to the
present, Mr. Gagner has been engaged as a private investor.
Mr. Gagner has served, and is presently serving, as
President and a director of Dragerton Investments, Inc.,
which developed and sold one of the world's largest
industrial waste landfills, and is presently general partner
of New West Investors, L.P., which has investments
principally in the financial service industry. Mr. Gagner
is also a director of Automation Robotics, A.G., a German
corporation. Mr. Gagner is also a director of the Ziegler
Companies, Inc. Mr. Gagner has an engineering degree from
the University of Utah.
(3) Mr. Ille served as President and Chief Executive Officer of
First Life Assurance Company from May, 1988, until it was
acquired by another company in March, 1994. For more than
five (5) years prior to joining First Life, Mr. Ille served
as President of United Founders Life Insurance Company. Mr.
Ille is a director of Landmark Land Company, Inc., which was
parent company of First Life. Mr. Ille is also a director
for Quail Creek Bank, N.A. Mr. Ille is currently a private
investor. He is a graduate of University of Oklahoma.
(4) Mr. Munson is a resident of England. From January, 1988,
until his retirement in August, 1992, Mr. Munson served as
President and Chief Operating Officer of Lennox Industries.
Prior to his election as President and Chief Operating
Officer of Lennox Industries, Mr. Munson served as Executive
Vice President of Lennox Industries' Division Operations,
President of Lennox Canada and Managing Director of Lennox
Industries' European Operations. Prior to joining Lennox
Industries, Mr. Munson served in various capacities with the
Howden Group, a company located in England, and The Trane
Company, including serving as the managing director of
various companies within the Howden Group and Vice President
Europe for The Trane Company. Mr. Munson is currently a
consultant and international distributor for the Ducane
Company, a manufacturer of certain types of residential air
conditioning, air furnaces and other equipment, and is
serving as a member of the Board of Directors of Multi Clima
SA, a French manufacturer of air conditioning - heating
equipment, which the Company has an option to acquire. Mr.
Munson has degrees in mechanical engineering and business
administration from the University of Minnesota.
(5) Mr. Shelby, a certified public accountant, is Senior Vice
President and Chief Financial Officer of the Company, a
position he has held for a period in excess of five (5)
years. Prior to becoming Senior Vice President and Chief
Financial Officer of the Company, Mr. Shelby served as Chief
Financial Officer of a subsidiary of the Company and was
with the accounting firm of Arthur Young & Co., a
predecessor to Ernst & Young, L.L.P. Mr. Shelby is a
graduate of Oklahoma City University.
(6) Mr. Golsen, L.L.B., has served as Vice Chairman of the Board
of the Company since August, 1994, and for more than five
(5) years has been the President of the Company's
Environmental Control Business. Mr. Golsen has both his
undergraduate and law degrees from the University of
Oklahoma.
(7) Mr. Goss, a certified public accountant, is a Senior Vice
President - Operations of the Company and has served in
substantially the same capacity for a period in excess of
five (5) years. Mr. Goss is a graduate of Rutgers
University.
(8) Dr. Shaffer, a director of the Company since its inception,
is currently a private investor. He practiced medicine for
many years until his retirement in 1987. Dr. Shaffer is a
graduate of Penn State University and received his medical
degree from Jefferson Medical College.
(9) Dr. Brown has practiced medicine for many years and is Vice
President and Treasurer of Plaza Medical Group, P.C. Dr.
Brown is a graduate of Tufts University and received his
medical degree from Tufts University.
(10) Mr. Golsen, founder of the Company, is Chairman of the Board
and President of the Company and has served in that capacity
since the inception of the Company in 1969. During 1996,
Mr. Golsen was inducted into the Oklahoma Commerce and
Industry Hall of Honor as one of Oklahoma's leading
industrialists. Mr. Golsen has a degree from the University
of New Mexico in Biochemistry.
(11) Mr. Rhodes is the managing partner of the law firm of Kerr,
Irvine, Rhodes & Ables and has served in such capacity and
has practiced law for a period in excess of five (5) years.
Since 1972, Mr. Rhodes has served as Executive Vice
President and General Counsel for the Association of
Oklahoma Life Insurance Companies and since 1982 has served
as Executive Vice President and General Counsel for the
Oklahoma Life and Health Insurance Guaranty Association.
Mr. Rhodes received his undergraduate and law degrees from
the University of Oklahoma.
(12) Mr. Burtch was formerly Executive Vice-President and West
Division Manager of BankAmerica, where he managed BankAmerica's
asset-based lending division for the western third of the United
States. Mr. Burtch worked in the finance field for more than
thirty-five (35) years. He is a graduate of Arizona State
University.
Family Relationships. Jack E. Golsen is the father of Barry
H. Golsen and the brother-in-law of Robert C. Brown, M.D. Robert
C. Brown, M.D. is the uncle of Barry H. Golsen.
Section 16(a) Beneficial Ownership Reporting Compliance.
Based solely on a review of copies of the Forms 3, 4 and 5 and
amendments thereto furnished to the Company with respect to 1999,
or written representations that no such reports were required to
be filed with the Securities and Exchange Commission, the Company
believes that during 1999 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 Messrs.
Ackerman filed one Form 4 inadvertently late to report one grant
of Company stock in lieu of director's fees.
Item 11. Executive Compensation.
The following table shows the aggregate cash compensation
which the Company and its subsidiaries paid or accrued to the
Chief Executive Officer and each of the other four (4) most
highly-paid executive officers of the Company (which includes the
Vice Chairman of the Board who also serves as President of the
Company's Climate Control Business). The table includes cash
distributed for services rendered during 1999, plus any cash
distributed during 1999 for services rendered in a prior year,
less any amount relating to those services previously included in
the cash compensation table for a prior year.
Summary Compensation Table
Long-term
Compen-
sation
Annual Compensation Awards
Other All
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Stock sation
Position Year ($) ($)(1) ($)(2) Options ($)
Jack E. Golsen, 1999 477,400 - - 265,000 -
Chairman of 1998 477,400 - - - -
the Board, 1997 470,450 - - - -
President and
Chief Executive Officer
Barry H. Golsen,1999 226,600 - - 155,000 -
Vice Chairman 1998 226,600 - - - -
of the Board of 1997 223,300 - - - -
Directors and
President of the
Climate Control Business
David R. Goss, 1999 190,500 - - 100,000 -
Senior Vice 1998 190,500 - - - -
President - 1997 187,750 - - - -
Operations
Tony M. Shelby, 1999 190,500 - - 100,000 -
Senior Vice 1998 190,500 - - - -
President/Chief 1997 187,750 - - - -
Financial Officer
David M. Shear, 1999 165,000 - - 100,000 -
Vice President/ 1998 165,000 - - - -
General Counsel 1997 162,500 - - - -
(1) Bonuses are for services rendered for the prior fiscal
year. No bonuses were paid to the above-named executive officers
for 1997, 1998, or 1999 performance are to be paid to the above-
named executive officers.
(2) Does not include perquisites and other personal
benefits, securities or property for the named executive officer
in any year if the aggregate amount of such compensation for such
year does not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer
for such year.
Option Grants in 1999. The following table sets forth information
relating to individual grants of stock options made to each of the named
executive officers in the above Summary Compensation Table during the last
fiscal year.
Individual Grants
Name Number of % of Exercise Expirati Potential
Shares of Total Price on Date Realizable Value
Common Options ($/sh) at Assumed
Stock Granted Annual Rates of
underlying Employe Stock Price
Options es in Appreciation for
Granted 1999 Option Term (2)
(#) (1) 5% ($) 10%
Jack E. 265,000 15.3 1.375 7-7-04 58,393 169,106
Golsen
Barry H. 155,000 9.0 1.375 7-7-04 34,155 98,911
Golsen
David R. 100,000 5.8 1.25 7-7-09 78,612 199,218
Goss
Tony M. 100,000 5.8 1.25 7-7-09 78,612 199,218
Shelby
David M. 100,000 5.8 1.25 7-7-09 78,612 199,218
Shear
(1) The Company has adopted a 1981 Incentive Stock Option Plan (the 1981
plan), a 1986 Incentive Stock Option Plan (the 1986 plan), a 1993
Incentive Stock Option Plan (the 1993 plan), and a 1998 Incentive
Stock Option Plan (the 1998 plan). The 1981 plan, the 1986 plan, the
1993 plan, and the 1998 plan are collectively designated as the Plans.
The Plans provide that the Company may grant options under the Plans
to key salaried employees of the Company. The option price for all
options granted under the Plans cannot equal less than 100% (or 110%
for persons possessing more than 10% of the voting stock of the
Company) of the market value of the Company's Common Stock on the date
of the grant. The Company could grant options under the 1981 Plan
until November 30, 1991, until April 10, 1996 under the 1986 Plan, and
can grant options until August 5, 2003 under the 1993 Plan, and until
August 13, 2008 under the 1998 Plan. The holder of an option granted
under the Plans may not exercise the option after ten (10) years from
the date of grant of the option (or five (5) years for persons
possessing more than 10% of the voting stock of the Company). The
options become exercisable approximately 20% after one year from the
date of the grant, an additional 20% after two years, an additional
30% after three years, and the remaining 30% after four years.
(2) The potential realizable value of each grant of options assumes that
the market price of the Company's Common Stock appreciates in value
from the date of grant to the end of the option term at the annualized
rates shown above each column. The actual value that an executive may
realize, if any, will depend on the amount by which the market price
of the Company's Common Stock at the time of exercise exceeds the
exercise price of the option. As of April 7, 2000, the closing price
of a share of the Company's Common Stock as quoted on the Over-the-
Counter Bulletin Board was $.718. There is no assurance that any
executive will receive the amounts estimated in this table.
Aggregated Option Exercises in 1999
and Fiscal Year End Option Values.
The following table sets forth information concerning each
exercise of stock options by each of the named executive officers
during the last fiscal year and the year-end value of unexercised
options:
Number of Value
Securities of Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year End
FY End (#)(2) ($) (2)(3)
Shares
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
Jack E. Golsen - - 70,000/ -/
295,000 (4) 8,215
Barry H. Golsen - - 73,500/ -/
185,000 (5) 4,805
David R. Goss - - 70,500/ 93/
124,000 (6) 15,600
Tony M. Shelby - - 70,500/ 93/
124,000 (6) 15,600
David M. Shear - - 67,800/ 93/
118,000 (6) 15,600
(1) The named executive officer did not exercise any
Company stock options in 1999.
(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 Over-the-Counter
Bulletin Board at the close of trading on December 31, 1999 of
$1.406 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 176,500 shares of Common Stock which is currently
unexercisable.
(5) The amounts shown include a non-qualified stock option
covering 55,000 shares of Common Stock which is currently
unexercisable.
(6) The amounts shown include a non-qualified stock option
covering 35,000 shares of Common Stock which is currently
unexercisable.
Other Plans. The Board of Directors has adopted an LSB
Industries, Inc., Employee Savings Plan (the "401(k) Plan") for
the employees (including executive officers) of the Company and
its subsidiaries, excluding certain (but not all) employees
covered under union agreements. The 401(k) Plan is an employee
contribution plan, and the Company and its subsidiaries make no
contributions to the 401(k) Plan. The amount that an employee
may contribute to the 401(k) Plan equals a certain percentage of
the employee's compensation, with the percentage based on the
employee's income and certain other criteria as required under
Section 401(k) of the Internal Revenue Code. The Company or
subsidiary deducts the amounts contributed to the 401(k) Plan
from the employee's compensation each pay period, in accordance
with the employee's instructions, and pays the amount into the
401(k) Plan for the employee's benefit. The Summary Compensation
Table set forth above includes any amount contributed and
deferred during the 1997, 1998, and 1999 fiscal years pursuant to
the 401(k) Plan by the named executive officers of the Company.
The Company has a death benefit plan for certain key
employees. Under the plan, the designated beneficiary of an
employee covered by the plan will receive a monthly benefit for a
period of ten (10) years if the employee dies while in the
employment of the Company or a wholly-owned subsidiary of the
Company. The agreement with each employee provides, in addition
to being subject to other terms and conditions set forth in the
agreement, that the Company may terminate the agreement as to any
employee at anytime prior to the employee's death. The Company
has purchased life insurance on the life of each employee covered
under the plan to provide, in large part, a source of funds for
the Company's obligations under the Plan. The Company also will
fund a portion of the benefits by investing the proceeds of such
insurance policy received by the Company upon the employee's
death. The Company is the owner and sole beneficiary of the
insurance policy, with the proceeds payable to the Company upon
the death of the employee. The following table sets forth the
amounts of annual benefits payable to the designated beneficiary
or beneficiaries of the executive officers named in the Summary
Compensation Table set forth above under the above-described
death benefits plan.
Amount of
Name of Individual Annual Payment
Jack E. Golsen $175,000
Barry H. Golsen $ 30,000
David R. Goss $ 35,000
Tony M. Shelby $ 35,000
David M. Shear $ N/A
In addition to the above-described plans, during 1991 the
Company entered into a non-qualified arrangement with certain key
employees of the Company and its subsidiaries to provide
compensation to such individuals in the event that they are
employed by the Company or a subsidiary of the Company at age 65.
Under the plan, the employee will be eligible to receive for the
life of such employee, a designated benefit as set forth in the
plan. In addition, if prior to attaining the age 65 the employee
dies while in the employment of the Company or a subsidiary of
the Company, the designated beneficiary of the employee will
receive a monthly benefit for a period of ten (10) years. The
agreement with each employee provides, in addition to being
subject to other terms and conditions set forth in the agreement,
that the Company may terminate the agreement as to any employee
at any time prior to the employee's death. The Company has
purchased insurance on the life of each employee covered under
the plan where the Company is the owner and sole beneficiary of
the insurance policy, with the proceeds payable to the Company to
provide a source of funds for the Company's obligations under the
plan. The Company may also fund a portion of the benefits by
investing the proceeds of such insurance policies. Under the
terms of the plan, if the employee becomes disabled while in the
employment of the Company or a wholly-owned subsidiary of the
Company, the employee may request the Company to cash-in any life
insurance on the life of such employee purchased to fund the
Company's obligations under the plan. Jack E. Golsen does not
participate in the plan. The following table sets forth the
amounts of annual benefits payable to the executive officers
named in the Summary Compensation Table set forth above under
such retirement plan.
Amount of
Name of Individual Annual Payment
Barry H. Golsen $17,480
David R. Goss $17,403
Tony M. Shelby $15,605
David M. Shear $17,822
Compensation of Directors. In 1999, the Company compensated
seven non-management directors in the amount of $4,500 each and
one non-management director in the amount of approximately $2,900
for their services. The non-management directors of the Company
also received $500 for every meeting of the Board of Directors
attended during 1999. The following members of the Audit
Committee, consisting of Messrs. Rhodes, Ille, Brown, and
Shaffer, received an additional $20,000 each for their services
in 1999. Each member of the Public Relations and Marketing
Committee, consisting of Messrs. Ille and Ackerman, received an
additional $20,000 and $15,000 and 4,000 shares of the Company's
common stock, respectively, for his services in 1999. During
1997, the Board of Directors established a special committee of
the Board of Directors for European business development (the
"European Operations Committee") and elected Mr. Munson as a
member of that committee. During 1999, Mr. Munson was paid
approximately $42,100 for his services on the European
Operations Committee.
In September, 1993, the Company adopted the 1993 Non-
Employee Director Stock Option Plan (the "Outside Director
Plan"). The Outside Director Plan authorizes the grant of non-
qualified stock options to each member of the Company's Board of
Directors who is not an officer or employee of the Company or its
subsidiaries. The maximum shares for which options may be issued
under the Outside Director Plan will be 150,000 shares (subject
to adjustment as provided in the Outside Director Plan). The
Company shall automatically grant to each outside director an
option to acquire 5,000 shares of the Company's Common Stock on
April 30 following the end of each of the Company's fiscal years
in which the Company realizes net income of $9.2 million or more
for such fiscal year. The exercise price for an option granted
under the Outside Director Plan shall be the fair market value of
the shares of Common Stock at the time the option is granted.
Each option granted under the Outside Director Plan, to the
extent not exercised, shall terminate upon the earlier of the
termination of the outside director as a member of the Company's
Board of Directors or the fifth anniversary of the date such
option was granted. The Company did not grant options under the
Outside Director Plan in April, 1997, 1998, and 1999.
During July, 1999, each of the outside directors of the
Company (Messrs. Ackerman, Brown, Burtch, 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 $1.25 per share, which was the closing price
for the Company's Common Stock as quoted on the Over-the-Counter
Bulletin Board as of the date of grant. These non-qualified
options terminate at the earlier of (i) five years from the date
of grant or (ii) upon an optionee ceasing to be a director of the
Company and are exercisable, in whole or in part, at anytime
after six months from the date of grant prior to termination of
the options.
Employment Contracts and Termination of Employment and
Change in Control Arrangements.
a) Termination of Employment and Change in Control Agreements.
The Company has entered into severance agreements with Jack
E. Golsen, Barry H. Golsen, Tony M. Shelby, David R. Goss,
David M. Shear, and certain other officers of the Company
and subsidiaries of the Company.
Each severance agreement provides (among other things) that
if, within twenty-four (24) months after the occurrence of a
change in control (as defined) of the Company, the Company
terminates the officer's employment other than for cause (as
defined), or the officer terminates his employment for good
reason (as defined), the Company must pay the officer an
amount equal to 2.9 times the officer's base amount (as
defined). The phrase "base amount" means the average annual
gross compensation paid by the Company to the officer and
includable in the officer's gross income during the period
consisting of the most recent five (5) year period
immediately preceding the change in control. If the officer
has been employed by the Company for less than 5 years, the
base amount is calculated with respect to the most recent
number of taxable years ending before the change in control
that the officer worked for the Company.
The severance agreements provide that a "change in control"
means a change in control of the Company of a nature that
would require the filing of a Form 8-K with the Securities
and Exchange Commission and, in any event, would mean when:
(1) any individual, firm, corporation, entity, or group (as
defined in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) becomes the beneficial owner, directly
or indirectly, of thirty percent (30%) or more of the
combined voting power of the Company's outstanding voting
securities having the right to vote for the election of
directors, except acquisitions by: (a) any person, firm,
corporation, entity, or group which, as of the date of the
severance agreement, has that ownership, or (b) Jack E.
Golsen, his wife; his children and the spouses of his
children; his estate; executor or administrator of any
estate, guardian or custodian for Jack E. Golsen, his wife,
his children, or the spouses of his children, any
corporation, trust, partnership, or other entity of which
Jack E. Golsen, his wife, children, or the spouses of his
children own at least eighty percent (80%) of the
outstanding beneficial voting or equity interests, directly
or indirectly, either by any one or more of the above-
described persons, entities, or estates; and certain
affiliates and associates of any of the above-described
persons, entities, or estates; (2) individuals who, as of
the date of the severance agreement, constitute the Board of
Directors of the Company (the "Incumbent Board") and who
cease for any reason to constitute a majority of the Board
of Directors except that any person becoming a director
subsequent to the date of the severance agreement, whose
election or nomination for election is approved by a
majority of the Incumbent Board (with certain limited
exceptions), will constitute a member of the Incumbent
Board; or (3) the sale by the Company of all or
substantially all of its assets.
Except for the severance agreement with Jack E. Golsen, the
termination of an officer's employment with the Company "for
cause" means termination because of: (a) the mental or
physical disability from performing the officer's duties for
a period of one hundred twenty (120) consecutive days or one
hundred eighty days (even though not consecutive) within a
three hundred sixty (360) day period; (b) the conviction of
a felony; (c) the embezzlement by the officer of Company
assets resulting in substantial personal enrichment of the
officer at the expense of the Company; or (d) the willful
failure (when not mentally or physically disabled) to follow
a direct written order from the Company's Board of Directors
within the reasonable scope of the officer's duties
performed during the sixty (60) day period prior to the
change in control. The definition of "Cause" contained in
the severance agreement with Jack E. Golsen means
termination because of: (a) the conviction of Mr. Golsen of
a felony involving moral turpitude after all appeals have
been completed; or (b) if due to Mr. Golsen's serious,
willful, gross misconduct or willful, gross neglect of his
duties has resulted in material damages to the Company and
its subsidiaries, taken as a whole, provided that (i) no
action or failure to act by Mr. Golsen will constitute a
reason for termination if he believed, in good faith, that
such action or failure to act was in the Company's or its
subsidiaries' best interest, and (ii) failure of Mr. Golsen
to perform his duties hereunder due to disability shall not
be considered willful, gross misconduct or willful, gross
negligence of his duties for any purpose.
The termination of an officer's employment with the Company
for "good reason" means termination because of (a) the
assignment to the officer of duties inconsistent with the
officer's position, authority, duties, or responsibilities
during the sixty (60) day period immediately preceding the
change in control of the Company or any other action which
results in the diminishment of those duties, position,
authority, or responsibilities; (b) the relocation of the
officer; (c) any purported termination by the Company of the
officer's employment with the Company otherwise than as
permitted by the severance agreement; or (d) in the event of
a change in control of the Company, the failure of the
successor or parent company to agree, in form and substance
satisfactory to the officer, to assume (as to a successor)
or guarantee (as to a parent) the severance agreement as if
no change in control had occurred.
Except for the severance agreement with Jack E. Golsen, each
severance agreement runs until the earlier of: (a) three
years after the date of the severance agreement, or (b) the
officer's normal retirement date from the Company; however,
beginning on the first anniversary of the severance
agreement and on each annual anniversary thereafter, the
term of the severance agreement automatically extends for an
additional one-year period, unless the Company gives notice
otherwise at least sixty (60) days prior to the anniversary
date. The severance agreement with Jack E. Golsen is
effective for a period of three (3) years from the date of
the severance agreement; except that, commencing on the date
one (1) year after the date of such severance agreement and
on each annual anniversary thereafter, the term of such
severance agreement shall be automatically extended so as to
terminate three (3) years from such renewal date, unless the
Company gives notices otherwise at least one (1) year prior
to the renewal date.
(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. Golsen prior to such
termination times (a) the number of years remaining under
the employment agreement or (b) four (4) if such termination
occurs during the last twelve (12) months of the initial
period or the first renewal period, and (ii) provide to
Mr. Golsen all of the fringe benefits that the Company was
obligated to provide during his employment under the
employment agreement for the remainder of the term of the
employment agreement, or, if terminated at any time during
the last twelve (12) months of the initial period or first
renewal period, then during the remainder of the term and
the next renewal period.
If there is a change in control (as defined in the severance
agreement between Mr. Golsen and the Company) and within twenty-
four (24) months after such change in control Mr. Golsen is
terminated, other than for Cause (as defined in the severance
agreement), then in such event, the severance agreement between
Mr. Golsen and the Company shall be controlling.
In the event Mr. Golsen becomes disabled and is not able to
perform his duties under the employment agreement as a result
thereof for a period of twelve (12) consecutive months within any
two (2) year period, the Company shall pay Mr. Golsen his full
salary for the remainder of the term of the employment agreement
and thereafter sixty percent (60%) of such salary until Mr.
Golsen's death.
Compensation Committee Interlocks and Insider Participation.
The Company's Executive Salary Review Committee has the
authority to set the compensation of all officers of the Company.
This Committee generally considers and approves the
recommendations of the President. The members of the Executive
Salary Review Committee are the following non-management
directors: Robert C. Brown, M.D., Jerome D. Shaffer, M.D., and
Bernard G. Ille.
See "Compensation of Directors" for information concerning
compensation paid and options granted to non-employee directors
of the Company during 1999 for services as a director to the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners. The
following table shows the total number and percentage of the
outstanding shares of the Company's voting Common Stock and
voting Preferred Stock beneficially owned as of the close of
business on April 7, 2000, with respect to each person (including
any "group" as used in Section 13(d)(3) of the Securities Act of
1934, as amended) that the Company knows to have beneficial
ownership of more than five percent (5%) of the Company's voting
Common Stock and voting Preferred Stock. A person is deemed to
be the beneficial owner of voting shares of Common Stock of the
Company which he or she could acquire within sixty (60) days of
April 29, 2000.
Because of the requirements of the Securities and Exchange
Commission as to the method of determining the amount of shares
an individual or entity may beneficially own, the amounts shown
below for an individual or entity may include shares also
considered beneficially owned by others.
Amounts
Name and Address Title of Shares Percent
of of Beneficially of
Beneficial Owner Class Owned(1) Class
Jack E. Golsen and Common 4,243,668 (3)(5)(6) 33.2%
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 686,000 (9) 5.8%
Jayhawk Capital
Management, LLC Common 1,016,300(10) 8.6%
______________________________________
(1) The Company based the information, with respect to
beneficial ownership, on information furnished by the above-named
individuals or entities or contained in filings made with the
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) 4,000 shares that
he has the right to acquire upon conversion of a promissory note,
(iii) 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, (iv) 10,000 shares owned of record by the
MG Trust, of which he is the sole trustee, and (v) 70,000 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 75,000 shares that he has the right to acquire within
the next sixty (60) days under the Company's stock option plans;
(d) 206,987 shares over which Steven J. Golsen ("S. Golsen") has
the sole voting and dispositive power and 61,000 shares that he
has the right to acquire within the next sixty (60) days under
the Company's stock option plans; (e) 222,460 shares held in
trust for the grandchildren of J. Golsen and Sylvia H. Golsen of
which B. Golsen, S. Golsen and Linda F. Rappaport ("L.
Rappaport") jointly or individually are trustees; (f) 82,552
shares owned of record by L. Rappaport, over which L. Rappaport
has the sole voting and dispositive power; (g) 1,336,799 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 61,000 shares which he has
the right to acquire within the next sixty (60) days under the
Company's stock option plans, all of which L. Rappaport disclaims
beneficial ownership. Does not include 219,520 shares of Common
Stock owned of record by certain trusts for the benefit of B.
Golsen, S. Golsen, and L. Rappaport over which B. Golsen, S.
Golsen and L. Rappaport have no voting or dispositive power.
Heidi Brown Shear, an officer of the Company and the niece of J.
Golsen, is the Trustee of each of these trusts.
(6) J. Golsen disclaims beneficial ownership of the shares
that B. Golsen, S. Golsen, and L. Rappaport each have the sole
voting and investment power over as noted in footnote (3) above.
B. Golsen, S. Golsen, and L. Rappaport disclaim beneficial
ownership of the shares that J. Golsen has the sole voting and
investment power over as noted in footnotes (3) and (4) and the
shares owned of record by Sylvia H. Golsen. Sylvia H. Golsen
disclaims beneficial ownership of the shares that J. Golsen has
the sole voting and dispositive power over as noted in footnotes
(3) and (4) above.
(7) Riverside Capital Advisors, Inc. ("Riverside") 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 686,100 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, 11th
Floor, Santa Monica, California 90401.
(10) Jayhawk Capital Management, L.L.C. ("Jayhawk"), an
investment advisor, has sole voting and dispositive power over
1,016,300 shares. The address of Jayhawk is 8201 Mission Road,
Suite 110, Prairie Village, Kansas 66208.
Security Ownership of Management. The following table sets
forth information obtained from the directors and nominees to be
elected as a director of the Company and the directors, nominees
and executive officers of the Company as a group as to their
beneficial ownership of the Company's voting Common Stock and
voting Preferred Stock as of April 7, 2000.
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 April 29, 2000, 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 46,000 (2) *
Robert C. Brown, M.D. Common 248,329 (3) 2.1%
Charles A. Burtch Common 15,000 (4) *
Gerald J. Gagner Common 33,000 (5) *
Barry H. Golsen Common 2,514,518 (6) 20.1%
Voting Preferred 16,000 (6) 74.2%
Jack E. Golsen Common 3,348,520 (7) 26.5%
Voting Preferred 20,000 (7) 92.7%
David R. Goss Common 253,625 (8) 2.1%
Bernard G. Ille Common 130,000 (9) 1.1%
Donald W. Munson Common 31,432 (10) *
Horace G. Rhodes Common 35,000 (11) *
Jerome D. Shaffer, M.D. Common 144,363 (12) 1.2%
Tony M. Shelby Common 264,879 (13) 2.2%
Directors and Common 5,321,934 (14) 40.1%
Executive Officers Voting Preferred 20,000 92.7%
as a group number
(14 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. 6,000 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 40,000 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 40,000 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. Burtch has sole voting and dispositive power over
these shares, which may be acquired by Mr. Burtch pursuant to
currently exercisable non-qualified stock options granted to him
by the Company.
(5) Mr. Gagner has sole voting and dispositive power over
these shares, which include 30,000 shares that may be acquired by
Mr. Gagner pursuant to currently exercisable non-qualified stock
options granted to him by the Company.
(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 B. Golsen, including shares he has the
right to acquire within sixty (60) days.
(7) See footnotes (3), (4), and (6) of the table under
"Security Ownership of Certain Beneficial Owners" of this item
for a description of the amount and nature of the shares
beneficially owned by J. Golsen, including the shares he has the
right to acquire within sixty (60) days.
(8) The amount shown includes 72,000 shares that Mr. Goss
has the right to acquire within sixty (60) days pursuant to
options granted under the Company's stock option plans. Mr. Goss
has the sole voting and dispositive power over these shares.
(9) The amount includes (i) 40,000 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.
(10) 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) 30,000 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.
(11) Mr. Rhodes has sole voting and dispositive power over
these shares, which include 30,000 shares that may be acquired by
Mr. Rhodes pursuant to currently exercisable non-qualified stock
options granted to him by the Company.
(12) Dr. Shaffer has the sole voting and dispositive power
over these shares, which include 40,000 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.
(13) Mr. Shelby has the sole voting and dispositive power
over these shares, which include 72,000 shares that Mr. Shelby
has the right to acquire within sixty (60) days pursuant to
options granted under the Company's ISOs and 15,151 shares that
Mr. Shelby has the right to acquire upon conversion of 3,500
shares of Series 2 Preferred owned by Mr. Shelby.
(14) The amount shown includes 677,000 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.
Item 13. Certain Relationships and Related Transactions.
A subsidiary of the Company, Hercules Energy Mfg.
Corporation ("Hercules"), leased 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. Hercules leased the property from Mac Venture for $3,750
per month under a triple net lease extension which began as of
January 1, 1999, and expired on December 31, 1999.
Northwest Internal Medicine Associates ("Northwest"), a
division of Plaza Medical Group., P.C., has an agreement with the
Company to perform medical examinations of the management and
supervisory personnel of the Company and its subsidiaries. Under
such agreement, Northwest is paid $4,000 a month to perform all
such examinations. Dr. Robert C. Brown (a director of the
Company) is Vice President and Treasurer of Plaza Medical Group.,
P.C.
In 1983, LSB Chemical Corp. ("LSB Chemical"), a subsidiary
of the Company, acquired all of the outstanding stock of El
Dorado Chemical Company ("EDC") from its then four stockholders
("Ex-Stockholders"). A substantial portion of the purchase price
consisted of an earnout based primarily on the annual after-tax
earnings of EDC for a ten-year period. During 1989, two of the
Ex-Stockholders received LSB Chemical promissory notes for a
portion of their earnout, in lieu of cash, totaling approximately
$896,000, payable $496,000 in January 1990, and $400,000 in May,
1994. LSB Chemical agreed to a buyout of the balance of the
earnout from the four Ex-Stockholders for an aggregate purchase
amount of $1,231,000. LSB Chemical purchased for cash the
earnout from two of the Ex-Stockholders and issued multi-year
promissory notes totaling $676,000 to the other two Ex-
Stockholders. Jack E. Golsen guaranteed LSB Chemical's payment
obligation under the promissory notes. The unpaid balance of
these notes at March 31, 2000, was $400,000.
On October 17, 1997, Prime Financial Corporation ("Prime"),
a subsidiary of the Company, borrowed from SBL Corporation,
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 1999, $150,000 in principal
and $280,000 in interest was paid on this Prime Loan, and as
of March 31, 2000,the unpaid principal balance on the Prime Loan
was $1,950,000. In February 2000, the Company borrowed
approximately $500,000 under its key man life insurance policies, and
used such proceeds to reduce the principal amount due SBL. In
April, 2000, 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 1, 2001, unless the Company
receives cash proceeds in connection with either (i) the sale or
other disposition of KAC Acquisition Corp. and/or Kestrel
Aircraft, and/or (ii) the repayment of loans by Co-Energy
Group and affiliates, and/or the repayment of amounts in
connection with the stock option agreement with the
shareholders of Co-Energy Group, and/or (iii) some other source
that is not in the Company's projections for the year 2000.
From April 1, 2000 until no sooner than April 1, 2001, any demand
for repayment of principal under the Prime Loan shall not
exceed $1,000,000 from proceeds realized on item (ii) and
$950,000 from proceeds realized on items (i) and (iii)
discussed above.
In order to make the Prime Loan to Prime, SBL borrowed the $3,000,000
from a bank, and as part of the collateral pledged by SBL to the bank
in connection with such loan, SBL pledged, among other things, its
note from Prime. In order to obtain SBL's agreement as provided above,
effective April 21, 2000, a subsidiary of the Company pledged to the
bank approximately 2,000,000 shares of the Company's Common Stock that
it held as treasury stock pursuant to the terms of a non-recourse
guaranty to secure repayment of the loan by the bank to SBL. As of
April 15, 2000, the outstanding principal balance due to the bank
from SBL as a result of such loan was $2,000,000.
