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 July 20, 2000
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, July 20, 2000,
at 11:30 a.m. (CST), for the purpose of considering and acting upon the
following matters:
(1) The election of 4 nominees to the Board of Directors;
(2) The approval of the selection of independent auditors;
(3) Any other business which properly may come before the meeting or any
adjournment of the meeting.
The Board of Directors has fixed the close of business on June 1, 2000, 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 1999 Annual Report to Stockholders with the
enclosed proxy soliciting material.
By order of the Board of Directors
David M. Shear
Secretary
Oklahoma City, Oklahoma
June 21, 2000
LSB INDUSTRIES, INC.
16 South Pennsylvania
Post Office Box 754
Oklahoma City, OK 73101
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 20, 2000
SOLICITATION OF PROXIES
Solicitation. This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of LSB Industries, Inc. (the "Company")
of proxies to be voted at the Annual Meeting of Stockholders (the "Annual
Meeting") to take place on Thursday, July 20, 2000, at 11:30 a.m. at the
Company's financial center located at 4000 Northwest 39th Expressway, Oklahoma
City, Oklahoma 73112, and at any adjournment thereof. 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
$4,000.00, 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 June
25, 2000.
Stockholder Proposals. In order for the Company to include a stockholder
proposal in the proxy materials for the Company's 2001 Annual Meeting of
Stockholders, a stockholder must deliver the proposal in writing to the
Secretary of the Company no later than February 21, 2001.
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
June 1, 2000 (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) 11,900,779 shares of Common Stock (excluding
3,262,589 shares held in treasury); (b) 1,461.50 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 voting
Common Stock and voting Preferred Stock beneficially owned as of the close of
business on June 1, 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 June 1, 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 4,347,668 (3)(5)(6) 33.7%
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) 123,000 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 106,000 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 81,000 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 81,000 shares which he has the right to acquire
within the next sixty (60) days under the Company's stock option plans, and
8,000 shares that he has the right to acquire within sixty (60) days under a
non-qualified stock option, 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 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 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 the
number and percentage of shares of Company Common Stock and voting Preferred
Stock owned by the directors, nominees for director, the named executive
officers listed on pages 14 and 15, and all directors and executive officers as
a group, as of June 1, 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 June 1, 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 (1) 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 2,545,518 (6) 20.3%
Voting Preferred 16,000 (6) 74.2%
Jack E. Golsen Common 3,401,520 (7) 26.8%
Voting Preferred 20,000 (7) 92.7%
David R. Goss Common 273,625 (8) 2.3%
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%
Amounts of Shares
Name of Title of Beneficially Percent of
Beneficial Owner Class Owned Class
Tony M. Shelby Common 284,879 (13) 2.4%
Directors and Common 5,485,934 (14) 40.8%
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.
These shares include 6,000 shares which 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 70,101 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 92,000 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 over which Mr. Ille shares voting and dispositive
power.
(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 over which Dr. Shaffer shares voting and dispositive
power.
(13) Mr. Shelby has the sole voting and dispositive power over these
shares, which include 92,000 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 841,000 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.
ELECTION OF DIRECTORS
General. The Board of Directors has nominated for election to the Board of
Directors four (4) nominees. The nominees, Barry Golsen, David R. Goss, Jerome
Shaffer, M.D., and Gerald J. Gagner are presently serving as directors of the
Company. Messrs. Golsen, Goss, and Shaffer are to be elected in the class whose
term expires in 2003 and until their successors are duly elected, while Mr.
Gagner is to be elected in the class whose term expires in 2001 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. Barry Golsen, David R. Goss, Jerome Shaffer,
M.D., 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 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 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.
Nominees:
Barry H. Golsen, 49 years old, first became a director in 1981. His term will
expire in 2003. Mr. Golsen, J.D., 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.
David R. Goss, 59 years old, first became a director in 1971. His term will
expire in 2003. Mr. Goss, a certified public accountant, is 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.
Gerald J. Gagner, 64 years old, first became a director in 1997. His term will
expire in 2001. 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 a engineering degrees from the University of Utah and the
University of Pennsylvania.
Jerome D. Shaffer, M.D., 83 years old, first became a director in 1969. His
term will expire in 2003. Dr. Shaffer, a director of the Company since its
inception, is currently a private investor through JDS Consulting. He
practiced medicine for many years until his retirement in 1987. Dr. Shaffer
received his Bachelor's and Master's degrees from Penn State College and his
medical degree from Jefferson Medical College.
Other Directors:
Raymond B. Ackerman, 77 years old, first became a director in 1993. His term
will expire in 2002. From 1952 until his retirement in 1992, Mr. Ackerman
served as Chairman of the Board and President of Ackerman, McQueen, Inc., the
largest advertising and public relations firm headquartered in Oklahoma. He
currently serves as Chairman Emeritus of the company. Mr. Ackerman is a Rear
Admiral (Ret.) in the United States Naval Reserve. Mr. Ackerman is a graduate
of Oklahoma City University, and in 1996, was awarded an honorary doctorate
from the school. He was elected to the Oklahoma Hall of Fame in 1993.
Robert C. Brown, M.D., 69 years old, first became a director in 1969. His term
will expire in 2001. 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.
Charles A. Burtch, 65 years old, first became a director in 1999. His term will
expire in 2001. 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.
Jack E. Golsen, 71 years old, first became a director in 1969. His term will
expire in 2001. 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.
Bernard G. Ille, 73 years old, first became a director in 1971. His term will
expire in 2002. 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 the University
of Oklahoma.
Donald W. Munson, 67 years old, first became a director in 1997. His term will
expire in 2002. 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 Scotland, 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 an
international distributor for the Ducane Company, 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.
Horace G. Rhodes, 72 years old, first became a director in 1996. His term will
expire in 2001. Mr. Rhodes is the Chairman of the law firm of Kerr, Irvine,
Rhodes & Ables P.C. 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.
Tony M. Shelby, 58 years old, first became a director in 1971. His term will
expire in 2002. 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.
________________
Approval of each nominee for election to the Board of Directors will
require the affirmative vote of a plurality of the votes cast by the holders of
the voting securities of the Company, voting together as one class.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FOUR (4) NOMINEES AS DIRECTORS OF THE COMPANY.
Family Relationships. Jack E. Golsen is the father of Barry H. Golsen and the
brother-in-law of Robert C. Brown, M.D. Robert C. Brown, M.D. is the uncle of
Barry H. Golsen.
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 1999, 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 1999, the members of
the Audit Committee were Bernard G. Ille (Chairman), Jerome D. Shaffer, M.D.,
Robert C. Brown, M.D., Charles A. Burtch and Horace G. Rhodes. In the first
quarter of 1999, Dr. Brown resigned from the Audit Committee and rejoined in
January, 2000. The Audit Committee held three (3) meetings during 1999.
The Board of Directors of the Company held seven (7) meetings in
1999. During 1999, 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 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 Mr.
Ackerman filed one Form 5 to report one grant of Company stock in lieu of
director's fees.
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.
On January 1, 2000, Hercules continued the lease on a month-to-month basis at
the same lease amount per month.
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. In 1999, Northwest was paid $4,000 per month to perform all such
examinations. As of January 1, 2000, Northwest is paid $2,000 a month on a
month-to-month basis 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 and certain of its
affiliates borrowed the $3,000,000 from a bank (collectively, "SBL Borrowings"),
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, and for other reasons, effective
April 21, 2000, a subsidiary of the Company guaranteed on a limited basis the
obligations of SBL and its affiliates relating to the unpaid principal amount
due to the bank in connection with the SBL Borrowings, and, in order to secure
its obligations under the guarantees pledged to the bank 1,973,461 shares of
the Company's Common Stock that it holds as treasury stock. Under the limited
guaranty, the Company's subsidiary's liability is limited to the value, from
time to time, of the Common Stock of the Company pledged to secure obligations
under its guarantees to the bank relating to the SBL Borrowings. As of
April 15, 2000, the outstanding principal balance due to the bank from SBL as
a result of such loan was $1,950,000.
EXECUTIVE COMPENSATION
AND OTHER INFORMATION
Executive Compensation. The following table shows the aggregate cash
compensation which the Company and its subsidiaries paid or accrued to the Chief
Executive Officer and each of the other four (4) most highly-paid executive
officers of the Company (which includes the Vice Chairman of the Board who also
serves as President of the Company's Climate Control Business). The table
includes cash distributed for services rendered during 1999, plus any cash
distributed during 1999 for services rendered in a prior year, less any amount
relating to those services previously included in the cash compensation table
for a prior year.
Summary Compensation Table
Long-term
Compen-
sation
Annual Compensation Awards
<TABLE>
Other All
Annual Securities Other
Compen- Underlying Compen-
Name and Salary Bonus sation Stock sation
Position Year ($) ($)(1) ($)(2) Options ($)
<S> <C> <C> <C> <C> <C> <C>
Jack E. Golsen, 1999 477,400 - - 265,000 -
Chairman of the 1998 477,400 - - - -
Board, President 1997 470,450 - - - -
and Chief
Executive Officer
Barry H. Golsen, 1999 226,600 100,000 - 155,000 -
Vice Chairman of 1998 226,600 - - - -
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 - - - -
</TABLE>
(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, except for a compensation adjustment paid in 2000 to Barry Golsen
due to the 1999 stand-alone profitability and performance of the Climate Control
Businesses which report to him.
(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 $50,000 or 10% of the total of annual salary and bonus reported for the
named executive officer for such year.
Option Grants in 1999. The following table sets forth information
relating to individual grants of stock options made to each of the named
executive officers in the above Summary Compensation Table during the last
fiscal year.
Individual Grants
<TABLE> Number of % of Exercise Expiration Potential
Shares of Total Price Date Realizable Value at
Common Stock Options ($/sh) Assumed Annual
underlying Granted Rates of Stock
Options Employees Price Appreciation
Granted (#) in 1999 for Option Term (2)
5% ($) 10%
<S> <C> <C> <C> <C> <C> <C>
Jack E. Golsen 265,000 15.3 1.375 7-7-04 58,393 169,106
Barry H. Golsen 155,000 9.0 1.375 7-7-04 34,155 98,911
David R. Goss 100,000 5.8 1.25 7-7-09 78,612 199,218
Tony M. Shelby 100,000 5.8 1.25 7-7-09 78,612 199,218
David M. Shear 100,000 5.8 1.25 7-7-09 78,612 199,218
</TABLE>
(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. Mr. Burtch
will be paid $16,000 for serving on the Audit Committee during part of 1999.
As members of the Public Relations and Marketing Committee, Mr. Ille received
an additional $20,000 for his services in 1999, and Mr. Ackerman received an
additional $15,000 and 4,000 shares of the Company's common stock 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 "Certain
Relationships and Related Transactions" for additional Compensation paid to
Dr. Brown.
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.
Report of Executive Salary Review Committee. The following report by the
Executive Salary Review Committee required by the rules of the Securities and
Exchange Commission to be included in this Proxy Statement shall not be
considered incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934 (collectively, the "Acts"), except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed to be soliciting material or to be
filed under such Acts.
General. The Executive Salary Review Committee ("Committee") is presently
comprised of three (3) directors of the Company, who are not current or former
employees of the Company. See "Certain Committees and Meetings of the Board of
Directors." 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 compensation, the
Committee takes into account the fact that Mr. Golsen continues the strategy of
expanding and diversifying the Company through internal growth, acquisitions,
redeployment of assets and personnel, the complexity of issues required to be
dealt with, and development of international markets. Due to losses sustained
by the Company in 1997, 1998, and 1999, increases in Mr. Golsen's annual salary
for 1997, 1998, and 1999 were nominal. In March, 1996, the Company entered
into an employment agreement with Mr. Golsen, which employment agreement set
Mr. Golsen's salary at his 1995 base rate, as adjusted from time to time by
the Committee. See "Executive Compensation and Other Information -
Employment Contracts and Termination of Employment and Change in Control
Arrangements".
Bonuses, if any, are paid to executive officers in arrears for performance
during the previous fiscal year. The Committee considers the payment of
bonuses to be consistent with the goals set forth above. Due to the Company's
performance in 1997, 1998, and 1999, no bonuses were paid for 1997, 1998, or
1999 performance to the executive officers of the Company, including Jack E.
Golsen, except for a compensation adjustment paid in 2000 to Barry Golsen
due to the 1999 stand-alone profitability and performance of the Climate
Control Businesses which report to him (see Summary Compensation Table
contained in this Proxy Statement).
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 1994 through year-end 1999.
<TABLE>
FISCAL YEAR ENDING
12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
<S> <C> <C> <C> <C> <C> <C>
LSB INDUSTRIES, INC 100.00 70.84 74.22 68.45 56.30 23.97
PEER GROUP 100.00 119.10 129.06 142.12 146.57 143.65
BROAD MARKET 100.00 129.66 156.20 205.49 244.52 267.75
</TABLE>
Assumes $100 invested at year-end 1994 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 until July, 1999. The
Company has been advised that the cumulative total return of each component
company in the Peer Group has been weighted according to the respective
company's stock market capitalization. In light of the Company's unique
industry diversification, the Company believes that the Peer Group is
appropriate for comparison to the Company.
The above Five-Year Total Shareholder Return Graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934 (collectively, the "Acts"), except to the
extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed to be soliciting material or to
be filed under such Acts.
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 2000, 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.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters which may come before the Annual Meeting. If any other business
properly comes before the meeting, the persons named in the proxy will vote
with respect to that matter in accordance with their best judgment.
Pursuant to the By-laws of the Company, only such business shall be
conducted at the Annual Meeting as shall have been brought before the meeting
(i) by or at the direction of the Board of Directors of the Company, or (ii) by
any stockholder of the Company who is entitled to vote at the Annual Meeting
and who complies with the following notice requirements. No business may be
properly brought before the Annual Meeting by a stockholder unless the
stockholder gives written notice to the Secretary of the Company of the
business to be presented at the Annual Meeting not less than fifty (50) days
prior to the date of the Annual Meeting (or in the event that less than
sixty (60) days notice, or public disclosure of the date of the Annual Meeting,
is given or made to stockholders, written notice by the stockholder must be
received by the Secretary of the Company not later than the close of business
on the tenth (10th) day following the day on which notice of the date of the
meeting was mailed or public disclosure was made). The written notice must set
forth: (i) a brief description of the business desired to be presented before
the Annual Meeting and reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Company's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the Company's voting stock beneficially owned by such stockholder,
and (iv) any material interest of such stockholder in such business.
A copy of the Company's Form 10-K, as filed with the Securities and
Exchange Commission, is available upon request. Requests should be made to the
director, corporate communications, at the corporate offices in Oklahoma City.
LSB INDUSTRIES, INC.
BY ORDER OF
THE BOARD OF DIRECTORS
DATE: June 21, 2000
David M. Shear
Secretary
Exhibit "A"
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AGRIUM INC
ALCIDE CORP
AMCOL INTERNATIONAL CORP
AMERICAN PACIFIC CORP
AMERICAN STANDARD COS
AMERICAN VANGUARD CORP
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BALCHEM CORP
BERGER HOLDINGS INC LTD
BRADY CORPORATION CL A
BUSH BOAKE ALLEN INC
BUTLER MANUFACTURING CO
CABOT CORP
CALGON CARBON CORP
CAMBREX CORP
CARBO CERAMICS INC
CERADYNE INC
CFC INTERNATIONAL INC
CHEMFIRST INC
COLONIAL COMMERCIAL CORP
CONTINENTAL MATERIALS CP
COPENE PETRO DO NORDEST
CORIMON SA ADS
CROMPTON CORPORATION
CYANOTECH CORP
CYTEC INDUSTRIES INC
DAL-TILE INTERNAT INC
DANAHER CORP
DETREX CORPORATION
DREW INDUSTRIES INC
ECO SOIL SYSTEMS INC
ELCOR CORP
EPL TECHNOLOGIES INC
ETHYL CORP
FERRO CORP
FLAMEMASTER CORP
GREAT LAKES CHEMICAL CP
GRIFFON CORP
H.B. FULLER CO
HAUSER INC (CO)
HIGH PLAINS CORP
HUSSMANN INTERNATL INC
IMC GLOBAL INC
INTERNACIONAL DE CERAMIC
INTERNAT ALUMINUM CORP
INTERNAT FLAVORS & FRAG
INTERNAT SPECIALTY PRODS
JILIN CHEMICAL INDUSTRL
JOHNS MANVILLE CORP
KEVCO INC
KMG CHEMICALS INC
LANCER CORP
LESCO INC
LILLY INDUSTRIES INC A
LUBRIZOL CORP
MACDERMID INC
MACE SECURITY INTERNAT
MARK SOLUTIONS INC
MARTIN INDUSTRIES INC
MARTIN MARIETTA MATERIAL
MESTEK INC
METHANEX CORPORATION
MILLER BUILDING SYS INC
MINERALS TECHNOLOGIES
MINING SERVICES INTERNAT
MISSISSIPPI CHEMICAL CP
MONTEDISON SPA ADR ORD
NCH CORP
NCI BUILDING SYSTEMS INC
NORTHERN TECHNOLOGY
NOVA CHEMICALS
OIL-DRI CORP OF AMERICA
OM GROUP INC
OWENS-CORNING FIBERGLAS
PACER TECHNOLOGY
PENFORD CORP
PHOSPHATE RESOURCE PTNRS
POLYDEX PHARMACEUTICALS
PROLONG INTERNAT CORP
PUBLICARD INC
QUAKER CHEMICAL CORP
RHODIA ADS
ROBERTSON-CECO CORP
RONSON CORP
RPM INC
SCOTTS CO CL A
SHERWIN-WILLIAMS CO
SOCIEDAD QUIMICA CHILE
SPECIALTY CHEMICAL RSCS
SURMODICS INC
SYBRON CHEMCIAL INC
SYNTHETECH INC
TAT TECHNOL LTD
TECUMSEH PRODUCTS CL A
TECUMSEH PRODUCTS CL B
TEMTEX INDUSTRIES INC
TERRA NITROGEN CO LP
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
W.R. GRACE & CO
WD-40 CO
YORK INTERNAT CORP
