<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Lone Star Technologies, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
Notice is hereby given that the Annual Meeting of Shareholders of
Lone Star Technologies, Inc. ("Lone Star"), a Delaware corporation, will be
held on the 11th day of May, 1999, at 9:00 a.m., local time, in the Addison
Room, Hotel Inter-Continental Dallas, 15201 Dallas Parkway, Dallas, Texas,
for the following purposes:
(1) To elect one member to the Board of Directors of Lone Star;
(2) To vote upon approval of amendments to the 1985 Long-Term
Incentive Plan of Lone Star; and
(3) To transact any other business as may properly come before the
meeting or any adjournment thereof.
The close of business on March 22, 1999 is the record date for the
determination of shareholders entitled to notice of and to vote at the meeting
or any adjournment thereof. A complete list of the shareholders entitled to vote
at the meeting will be available for examination by any shareholder at the
office of the Secretary of Lone Star, 14681 Midway Road, Suite 200, Dallas,
Texas 75244 (telephone: 972/386-3981) during the ten-day period preceding the
meeting.
We hope that you will be represented at the meeting by signing the
enclosed proxy card and returning it in the accompanying envelope as promptly as
possible, whether or not you expect to be present in person. Your vote is
important - as is the vote of every shareholder - and the Lone Star Board of
Directors appreciates the cooperation of shareholders in returning proxies to
vote at the meeting.
By order of the Board of Directors,
Robert F. Spears
Secretary
Dallas, Texas
March 23, 1999
<PAGE>
LONE STAR TECHNOLOGIES, INC.
14681 Midway Road, Suite 200
P.O. Box 803546
Dallas, Texas 75380-3546
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Lone Star for use at the Annual Meeting of Shareholders to be held on May 11,
1999, or at any adjournment thereof. Any shareholder giving a proxy may revoke
it prior to the voting of the proxy on any matter (without affecting, however,
any vote already cast on any other matters) by:
(a) notifying Lone Star of such revocation in writing prior to or at
the Annual Meeting,
(b) delivering to Lone Star a duly executed proxy relating to the
same shares dated subsequent to the date of the original proxy, or
(c) voting the same shares in person at the Annual Meeting.
The principal executive offices of Lone Star are located at 14681 Midway Road,
Suite 200, Dallas, Texas 75244 (telephone: 972/386-3981). This Proxy Statement
and the enclosed proxy were mailed to shareholders on or about March 23, 1999.
All shares represented by unrevoked proxies will be voted at the meeting or any
adjournment thereof as specified by the persons giving such proxies. If no
contrary specification is made, the shares represented by proxies will be voted
FOR the election as a director of the nominee named herein and FOR approval of
the amendments to the 1985 Long-Term Incentive Plan described herein.
OUTSTANDING SHARES AND VOTING RIGHTS
As of March 22, 1999, the record date for the determination of shareholders
entitled to vote at the Annual Meeting, there were 22,501,373 outstanding shares
of Lone Star Common Stock. This is the only class of stock of Lone Star
outstanding, and each share of Common Stock is entitled to one vote on all
matters properly coming before the Annual Meeting.
ELECTION OF DIRECTORS
The Certificate of Incorporation and By-Laws of Lone Star provide for a Board of
Directors comprised of three classes of directors, as nearly equal in number as
possible, with each class of directors to be elected for three-year terms.
Therefore, the nominees for election to the class of directors whose terms are
expiring at an Annual Meeting are elected for a term expiring at the Annual
Meeting of Shareholders held in the third year following the year of their
election. If the total number of directors is increased or decreased, however,
the Board of Directors may adjust the number of directors in one or more
classes, and that adjustment may result in a director being elected or reelected
to a term shorter than three years. If any director is appointed by the Board of
Directors between Annual Meetings to succeed a director who has resigned, died
or been removed,
2
<PAGE>
the shareholders at the next Annual Meeting following the appointment will
vote to elect a director to complete the unexpired term or to serve a full
three-year term if the unexpired term ends at that Annual Meeting. Directors
are elected by plurality vote.
John P. Harbin, who had served as a director of Lone Star since 1987, retired
from the Board on December 31, 1998. See "Executive Compensation - Retirement of
John P. Harbin" in this Proxy Statement.
After the retirement of Mr. Harbin, the Board reduced the number of directors
from seven to six. In connection with that reduction, the Board adjusted the
number of directors in two of the three classes of directors by moving Dean P.
Guerin from one class to another. Therefore, at the 1999 Annual Meeting,
shareholders will be asked by Lone Star to reelect Mr. Guerin to the Board of
Directors for a term expiring at the 2000 Annual Meeting. The recent experience
of the nominee is summarized below in the first table.
Each proxy solicited hereby which is given prior to the voting at the Annual
Meeting and is not revoked will be voted FOR the election of the nominee named
in the following table, unless a contrary specification is made in the proxy. If
for any reason the nominee should become unavailable for election, then, unless
a contrary specification is made in the proxy, votes will be cast pursuant to
authority granted by the proxy for a substitute nominee designated by the Board
of Directors, or, in the absence of a designation by the Board of Directors, for
a substitute nominee designated by any of the persons authorized by the proxy to
vote as proxies. The Board of Directors is not aware that the nominee will be
unwilling or unable to serve.
The following tables set forth, for the nominee for director and for the
directors whose current terms extend beyond the 1999 Annual Meeting, the
principal occupation or employment for each during at least the past five years,
the year in which each joined the Board of Directors, the year in which their
current terms on this Board expire and other business directorships held. One of
the directors, Mr. Mercer, was recommended for nomination to the Board before
his election in 1995 by Alpine Capital, L.P. and the other shareholders
reporting share ownership information with Alpine in footnote (2) to the table
under the heading "Principal Shareholders" in this Proxy Statement.
The Board of Directors recommends that shareholders vote FOR the election of the
nominee named in the table.
NOMINEE FOR DIRECTOR
<TABLE>
<CAPTION>
Name (Age) Business Experience and Other Information Year First Elected
- ---------- ----------------------------------------- -----------------
<S> <C> <C>
DEAN P. GUERIN (77) 1989
Investments since 1994. Chairman of General Aluminum Corp. (manufacturer
of aluminum and vinyl doors and windows) since June 1998; Chairman and
Chief Executive Officer, Berry Barnett Food Distribution Company, Inc.
(wholesale food distribution company) from 1990 to 1994; retired as
Chairman of the Board of Eppler, Guerin and Turner, Inc. (investment
banking firm) in 1986. Director: Trinity Industries, Inc. and General
Aluminum Corp. His current term expires in 1999. (1,2)
3
<PAGE>
CONTINUING DIRECTORS
CHARLES L. BLACKBURN (71) 1991
Retired from Maxus Energy Corporation in 1995; Chairman, President and
Chief Executive Officer of Maxus Energy Corporation (oil and gas
producer) from 1987 to 1995. Director: Maxus Energy Corporation. His
current term expires in 2001. (1,2)
JAMES E. MCCORMICK (71) 1991
Retired from Oryx Energy Company in 1992; President and Chief Operating
Officer of Oryx Energy Company (formerly Sun Exploration and Production
Company, oil and gas exploration and production company) from 1988 to
1992. Director: BJ Services Co., Snyder Oil Corporation, TESCO Corporation
and Dallas National Bank. His current term expires in 2001. (1,2)
THOMAS M. MERCER, JR. (55) 1995
Partner since 1995 of Ceres Capital Partners and owner since 1993 of The
Mercer Financial Company (financial advisory and investment banking
services); President of the employee benefits division of Pre-Paid Legal
Services, Inc. during part of 1993 and 1994. His current term expires in
2001. (1,2)
RHYS J. BEST (52) 1997
Chairman of the Board, President and Chief Executive Officer of Lone
Star since January 1999; President and Chief Executive Officer of Lone
Star from July 1998 to December 1998; President and Chief Operating
Officer of Lone Star from 1997 to June 1998; President and Chief
Executive Officer of Lone Star Steel Company ("Steel"), a subsidiary of
Lone Star, from 1989 to 1997. His current term expires in 2000.
FREDERICK B. HEGI, JR. (55) 1985
General Partner, Wingate Partners, L.P. and Wingate Management Co., L.P.
(private investments) since 1987; Principal, Wingate Management Co. II,
L.P. (private investments) since 1994; President, Valley View Capital
Corporation (private investments) since 1982; Chairman, United
Stationers, Inc. (wholesale office products) since 1996. Director:
United Stationers, Inc. and Loomis, Fargo & Co. His current term expires
in 2000. (1,2)
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
During 1998, there were six meetings of the Board of Directors and four meetings
of Board committees. All of the directors attended more than 80 percent of the
meetings of the Board of Directors and committees of the Board on which they
served.
COMPENSATION OF DIRECTORS. Each director of Lone Star who is not an officer of
Lone Star or any of its subsidiaries receives an annual retainer of $25,000,
plus expenses incurred in connection with attendance at meetings of the Board of
Directors or any committee of the Board of Directors of which he is a member. In
addition to the annual retainer, each director receives attendance fees of
$1,000 for each meeting of the Board of Directors and $1,000 for each committee
meeting attended whether or not there was a Board meeting that same day. Each
director may elect to receive his
4
<PAGE>
retainer and meeting fees in cash or Lone Star shares, or he may defer
receipt under a phantom stock arrangement. A director who is an officer and
employee of Lone Star receives no compensation for serving as a director of
Lone Star.
Following each of the Annual Meetings in 1993, 1995 and 1997, each director then
in office who was not an employee of Lone Star or its subsidiaries
("non-executive director") received a stock option for 25,000 shares of Common
Stock of Lone Star and following the Annual Meeting in 1998 and each Annual
Meeting after that, each non-executive director receives a stock option for
12,500 shares of Common Stock, all under the terms of the 1985 Long-Term
Incentive Plan of Lone Star (subject to an overall limitation of 750,000 shares
that may be issued for such options) with an exercise price at the fair market
value of the Common Stock on the date the options are granted. The non-executive
directors held options as of February 28, 1999 covering the following number of
shares of Common Stock: Mr. Blackburn, 75,000 shares; Mr. Guerin, 81,250 shares;
Mr. Hegi, 112,500 shares; Mr. McCormick, 56,250 shares; and Mr. Mercer, 62,500
shares. Lone Star's shareholders are voting on the approval of amendments to the
Plan at the 1999 Annual Meeting that will increase the number of shares that may
be issued for non-executive directors' options from 750,000 to 1,000,000 and
will give the Compensation Committee the discretion to grant to a new
non-executive director upon his or her election a stock option for up to 12,500
shares. See "Amendments to 1985 Long-Term Incentive Plan" in this Proxy
Statement.
RETIREMENT POLICY FOR DIRECTORS
After the 1998 Annual Shareholders Meeting, the Board of Directors adopted a
retirement policy for directors: "A person is not eligible for election as a
director if he or she is seventy years of age or older at the time of the
election; provided, however, that this provision shall not prevent the
re-election at the 1999 Annual Shareholders Meeting of the director whose term
of office expires at that meeting." Pursuant to that policy, Messrs. Blackburn
and McCormick will not be nominated for re-election at the 2001 Annual Meeting.
Mr. Guerin, whose term expires at the 1999 Annual Meeting, has been nominated
for reelection. Due to an adjustment in the classes of directors, Mr. Guerin is
a nominee for reelection to the class with a term expiring at the 2000 Annual
Meeting.
EXECUTIVE OFFICERS
All executive officers of Lone Star are elected annually by and serve at the
pleasure of the Board of Directors, or in the case of Mr. Dunn, at the pleasure
of the Board of Directors of Steel which he serves as Chief Executive Officer.
John P. Harbin retired as an officer and director of Lone Star during 1998. See
"Executive Compensation - Retirement of John P. Harbin" in this Proxy Statement.
The following sets forth information concerning the current executive officers
of Lone Star. Information regarding Mr. Best, the Chief Executive Officer of
Lone Star, is provided above in the Directors' listing.
5
<PAGE>
Name(Age) Business Experience and Other Information
- --------- -----------------------------------------
W. BYRON DUNN (45)
President and Chief Executive Officer of Steel since 1997 and Executive
Vice President - Sales and Marketing of Steel from 1991 to 1997.
ROBERT F. SPEARS (55)
Vice President, General Counsel and Secretary of Lone Star since 1996;
General Counsel of Financial Industries Corporation (life insurance
holding company), Austin, Texas, from 1991 to 1996.
CHARLES J. KESZLER (36)
Vice President-Finance and Treasurer of Lone Star since 1996; Director of
Taxes and Pension Investments of Steel from 1994 to 1996.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows beneficial ownership of shares of Common Stock of Lone
Star by each director of Lone Star, each executive officer of Lone Star named in
the Summary Compensation Table in this Proxy Statement and all directors and
executive officers of Lone Star as a group at February 28, 1999. Each beneficial
owner has sole voting power and sole investment power as to the shares listed
opposite his name.
<TABLE>
<CAPTION>
Name of Director,
Executive Officer or Group Number of Shares(1) Percent of Class(2)
- -------------------------- ------------------- -------------------
<S> <C> <C>
Rhys J. Best 124,418 *
Charles L. Blackburn 37,500 *
Dean P. Guerin 44,750 *
John P. Harbin 217,600 *
Frederick B. Hegi, Jr. 77,865 *
James E. McCormick 21,750 *
Thomas M. Mercer, Jr. 27,500 *
W. Byron Dunn 49,006 *
Charles J. Keszler 20,750 *
Robert F. Spears 7,500 *
All directors and
executive officers as a group (10) 628,639(3) 2.73
</TABLE>
- --------
*Less than 1%.
(1) Includes 108,750 shares for Mr. Best, 37,500 shares for Mr. Blackburn,
43,750 shares for Mr. Guerin, 152,500 shares for Mr. Harbin, 75,000
shares for Mr. Hegi, 18,750 shares for Mr. McCormick, 25,000 shares for
Mr. Mercer, 42,500 shares for Mr. Dunn, 18,750 shares for Mr. Keszler
and 7,500 shares for Mr. Spears which may be acquired within 60 days of
February 28, 1999 pursuant to options granted by Lone Star under its
1985 Long-Term Incentive Plan.
(2) Percentages are calculated on 23,031,373 shares, the number that would
have been outstanding if the stock options described in the prior
footnote had been exercised.
(3) Includes a total of 530,000 shares which may be acquired within 60
days of February 28, 1999 pursuant to options held by all directors
and executive officers as a group.
6
<PAGE>
Additional share ownership information regarding principal shareholders of Lone
Star who are neither executive officers nor directors is shown in the table
under the heading "Principal Shareholders" in this Proxy Statement.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of each
person who served as the chief executive officer of Lone Star during 1998 or was
serving as an executive officer of Lone Star at the end of 1998 and received
salary and bonus exceeding $100,000 during 1998 (the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Comp Awards
Options (# of shares All Other
Name and Principal Position(1) Year Salary($)(2) Bonus($)(3) of Lone Star Common Stock) Compensation($)(4)
- ------------------------------ ---- ------------ ----------- -------------------------- ------------------
<S> <C> <C> <C> <C> <C>
John P. Harbin 1998 393,750 250,000 - 3,022,898
Chairman of the Board, 1997 400,000 250,000 75,000 -
Lone Star 1996 375,000 50,000 15,000 -
Rhys J. Best 1998 320,000 225,000 40,000 4,800
President & Chief Executive 1997 300,000 200,000 50,000 4,800
Officer, Lone Star 1996 287,500 15,000 15,000 4,500
W. Byron Dunn 1998 235,000 175,000 30,000 4,800
President and Chief 1997 211,876 100,000 20,000 4,800
Executive Officer, Steel 1996 183,756 12,500 10,000 4,500
Charles J. Keszler 1998 150,000 50,000 15,000 4,800
Vice President - Finance 1997 125,000 15,000 15,000 4,238
and Treasurer, Lone Star 1996 95,583 - 10,000 2,867
Robert F. Spears 1998 167,500 50,000 15,000 -
Vice President, General 1997 155,000 10,000 15,000 -
Counsel and Secretary, 1996 70,710 - - -
Lone Star
</TABLE>
(1) Mr. Harbin served as Chairman of the Board, President and Chief
Executive Officer of Lone Star during 1996 and the first seven months
of 1997, Chairman of the Board and Chief Executive Officer of Lone Star
from August 1, 1997 to June 30, 1998 and Chairman of the Board of Lone
Star during the last six months of 1998. Mr. Best served as President
and Chief Executive Officer of Steel during 1996 and the first seven
months of 1997 and President and Chief Operating Officer of Lone Star
from August 1, 1997 to June 30, 1998 and has served as President and
Chief Executive Officer of Lone Star since July 1, 1998. Mr. Best
became Chairman of the Board of Lone Star on January 1, 1999. Mr. Dunn
served as Executive Vice President - Sales and Marketing of Steel
during 1996 and the first seven months of 1997 and has served as
President and Chief Executive Officer of Steel since August 1, 1997.
Mr. Keszler served as Director of Taxes and Pension Investments of
Steel during the first two months of 1996 and has served as Vice
President - Finance and Treasurer of Lone Star since March 1, 1996. Mr.
Spears was not employed by Lone Star or any of its subsidiaries during
the first six months of 1996. He has served as Vice President, General
Counsel and Secretary of Lone Star since July 10, 1996.
(2) At Mr. Harbin's request, his salary for the last three months of 1998
was reduced by 50%.
(3) Each bonus was paid in the year indicated in the table but related to the
previous year's performance.
(4) The compensation shown in the last column for Mr. Harbin represents
the compensation that he will be paid during the five years following his
retirement and $22,898 he received upon his retirement as a director of
Lone Star on December 31, 1998 under a director's deferred compensation
agreement. See "Retirement of John P. Harbin" below. For Messrs. Best,
Dunn and Keszler, the compensation listed in the last column represents
company contributions to a 401(k) plan.
7
<PAGE>
RETIREMENT OF JOHN P. HARBIN
John P. Harbin joined the Board of Directors of Lone Star in 1987 and became
Chairman, President and Chief Executive Officer of Lone Star in 1989, when its
steel company subsidiary was in bankruptcy. Lone Star reported a net loss of
$191.4 million in 1989. During the last five calendar years of Mr. Harbin's
tenure as Chief Executive Officer (1993 - 1997), Lone Star reported net earnings
(loss) of ($7.2 million), $1.2 million, $9.6 million, $24.9 million and $53.7
million, respectively.
During his employment with Lone Star, Mr. Harbin served without any retirement
or other customary employee benefits. During 1997 and early 1998, he had
discussions with Lone Star's non-executive directors regarding his plans for
retirement and management succession, and those directors considered and
discussed at meetings of the Board and the Compensation Committee Mr. Harbin's
plans to retire, who would succeed him, what compensation would be paid to him
after his retirement and what services he might continue to provide to Lone Star
after he retired. Mr. Harbin and the Compensation Committee agreed that he would
retire as Chief Executive Officer on June 30, 1998 and as Chairman and a
director on December 31, 1998.
At a meeting on April 15, 1998, the Compensation Committee decided that Lone
Star would pay Mr. Harbin additional compensation during the five years after
his retirement and that Lone Star should retain him to continue to provide
services during the period Lone Star pays him the additional compensation and
pay his office expenses during that period. Mr. Harbin entered into an agreement
dated July 23, 1998 (the "Agreement") with Lone Star, which provides that Lone
Star will pay him $1 million on January 2, 1999 and $2 million in 60 equal
monthly installments, beginning on January 31, 1999 and ending on December 31,
2003. If Mr. Harbin dies before the end of the five-year term of the Agreement,
his estate would receive the payments over the remaining term. If a "change in
control" of Lone Star, as defined in the 1985 Long-Term Incentive Plan of Lone
Star, as amended, occurs before the end of the Agreement's term, all remaining
payments would be immediately paid by Lone Star to Mr. Harbin or his estate. No
interest is payable with respect to any amount. Lone Star also agreed to pay Mr.
Harbin's office expenses during the Agreement's term in an amount not exceeding
$25,000 annually.
Mr. Harbin agrees to consult with Lone Star, as requested, during the term of
the Agreement with regard to Lone Star's business and operations. His services
are to include advice and consultation and the performance of such other
services as requested by Lone Star relating to the maintenance and furtherance
of satisfactory relationships between Lone Star and its existing and prospective
customers and others having business relationships with Lone Star, representing
Lone Star with trade groups and other organizations and, generally, the business
and affairs of Lone Star.
The Agreement provides that the obligation of Lone Star to pay the additional
compensation is absolute and will not be affected by Mr. Harbin's inability to
perform services or by any offset, defense or claim that Lone Star may have
against him or others. The Agreement also states that Lone Star and Mr. Harbin
recognize that those payments are in consideration of the valuable services that
he has rendered and continues to render as an officer of Lone Star and that
while the value to Lone Star of his consulting services may be considerable,
those payments are not conditioned on his providing consulting services.
8
<PAGE>
The Agreement was filed as an exhibit to Lone Star's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998, and the foregoing description
of the Agreement is qualified in its entirety by reference to the Agreement.
Mr. Harbin elected to have the payment of his 1988 directors' fees deferred
until his retirement under a phantom stock arrangement. He was credited with
2,261.5 units in lieu of receiving $33,000 of directors' fees in cash in 1988.
In accordance with the terms of Mr. Harbin's deferred compensation agreement, he
received a payment of $22,898 from Lone Star upon his retirement as a director
of Lone Star on December 31, 1998, which is the result of multiplying the number
of his units by the closing price per share of Lone Star Common Stock on the New
York Stock Exchange on that date.
CHANGE IN CONTROL ARRANGEMENTS
Lone Star's and Steel's Boards of Directors adopted in 1997 an Employment
Retention Policy that provides that each officer or key employee designated by
Lone Star's Board or Compensation Committee will receive a lump sum payment if
his or her employment is involuntarily terminated without "cause" or is
voluntarily terminated for "good reason" within two years after a "change in
control" of the employer. The lump sum payment for each officer or key employee
is an amount, as determined by Lone Star's Board or Compensation Committee, that
does not exceed 24 times the officer's average monthly compensation or 12 times
the key employee's average monthly compensation. The average monthly
compensation is based on the individual's salary and bonus for the 12 months
prior to termination or, if higher, the 12 months prior to the change in
control. As of February 28, 1999, the lump sum amount for each of seven officers
of Lone Star and Steel (including four of the five named executive officers) was
24 times his average monthly compensation, and the lump sum amount for each of
five other officers of Steel was 12 times his average monthly compensation.
Generally, a "change in control" of Steel would occur if Lone Star sells Steel's
stock or assets or if there is a "change in control" of Lone Star. A "change in
control" of Lone Star is defined, in general, as (i) a change in control
required to be reported under Regulation 14A of the Securities Exchange Act of
1934, (ii) more than 50 percent of Lone Star's stock becomes beneficially owned
by an entity, person or group, (iii) a majority of the Board ceases to be made
up of "qualified directors" during any 24 month period, (iv) any merger,
consolidation or sale of assets of Lone Star in which Lone Star's shareholders
do not continue to own more than 50 percent of the voting stock of the surviving
entity or (v) the approval by Lone Star's shareholders of Lone Star's
liquidation or dissolution. A "qualified director" is any individual who was a
director of Lone Star at the beginning of the 24 month period or was nominated
for election or was elected to the Board during that period by two-thirds of the
"qualified directors" still in office.
Certain officers and employees of Lone Star and Steel, including the named
executive officers, and the directors of Lone Star have stock options granted
under the 1985 Long-Term Incentive Plan. Stock options, which ordinarily are not
fully exercisable until four years after grant, may vest (become fully
exercisable) after a "change in control" (as defined in the Plan) of Lone Star
occurs. The definition of "change in control" of Lone Star in the Plan is the
same as the definition in the Employment Retention Policy, and the Plan provides
that options become fully exercisable if an
9
<PAGE>
optionee's employment is involuntarily terminated without "cause" or is
voluntarily terminated for "good reason" within two years after a "change in
control" of Lone Star occurs.
OPTIONS
The following table shows the options that were granted under the 1985 Long-Term
Incentive Plan in 1998 to the named executive officers. Each option has an
exercise price equal to the fair market value of Lone Star's Common Stock on the
date of grant, has a ten year term and is exercisable as follows: 25 percent on
and after the first anniversary of the grant, and an additional 25 percent on
and after each of the next three anniversaries. The rates of stock appreciation
presented in this table for the shares under options are not predictions of
future stock prices.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock % of Total Annual Rates of
Underlying Options Granted Stock Price Appreciation
Options to Employees Exercise Expiration for Option Terms
Name Granted (#) in 1998 Price ($/sh) Date 5% ($) 10% ($)
- ---- ----------- ------- ------------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Rhys J. Best 40,000 20.51 31.28 2/19/2008 786,874 1,994,090
W. Byron Dunn 30,000 15.38 31.28 2/19/2008 590,155 1,495,568
Charles J. Keszler 15,000 7.69 31.28 2/19/2008 295,078 747,784
Robert F. Spears 15,000 7.69 31.28 2/19/2008 295,078 747,784
</TABLE>
The following table reflects exercises of options by the named executive
officers during 1998 and unexercised options held by them at the end of 1998.
AGGREGATED OPTION EXERCISES IN 1998
AND 12/31/98 OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Value of
Underlying In-The-Money
Shares Options at 12/31/98 Options at 12/31/98
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized($) Unexercisable(#) Unexercisable($)*
- ---- -------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
John P. Harbin - - 152,500 / - 235,938 / -
Rhys J. Best - - 80,000 / 87,500 292,813 / 8,125
W. Byron Dunn - - 26,250 / 51,250 78,438 / 4,063
Charles J. Keszler - - 8,750 / 31,250 - / -
Robert F. Spears 3,750 45,016 - / 26,250 - / -
</TABLE>
*The value is calculated based on the excess, if any, of $10.125 (the closing
price of a share of Lone Star Common Stock on the New York Stock Exchange on
December 31, 1998) over the relevant exercise price.
No options were repriced in 1998.
10
<PAGE>
COMPENSATION COMMITTEE REPORT
Lone Star is engaged in business as a manufacturer and supplier of oilfield and
other industrial metal products through Steel, Lone Star's principal operating
company. Steel conducts business throughout the world, and its management is
faced continually with many challenges. The Compensation Committee believes that
successful compensation programs for executive officers and other key employees
must be geared to attract and retain quality personnel by providing rewards for
exemplary individual performance and must foster enhancement of shareholder
value. To reach these objectives, Lone Star's executive compensation program
consists of current salary, bonus opportunity and a longer term incentive.
ANNUAL COMPENSATION
It is the Compensation Committee's practice to review and approve salaries and
bonus awards for executive officers annually. The Committee receives from the
chief executive officer compensation recommendations for the other executive
officers of Lone Star. The Committee may request additional information and
analysis and ultimately determines in its discretion whether to approve
recommended changes. These determinations, which do not include the chief
executive officer's salary, are made by the Committee based on its own analysis
and judgment and the recommendations of the chief executive officer.
The chief executive officer's salary is separately considered by the Committee.
Mr. Harbin was the chief executive officer during the first six months of 1998.
At the February 1998 meeting of the Committee, his annual salary was increased
by $50,000 to $450,000, effective January 1, 1998. In determining his salary,
the Committee considered the businesses in which Lone Star engages, including
the highly competitive nature of the steel and oil and gas industries, the
experience he brings to the position and his contributions to the performance of
Lone Star and Steel.
In 1998, the salary changes from the previous year for the other named executive
officers were the following increases: $30,000 per year in Mr. Best's salary to
$330,000 as of May 1, 1998; $25,000 per year in Mr. Keszler's salary to $150,000
as of January 1, 1998; and $15,000 per year in Mr. Spears' salary to $175,000 as
of July 1, 1998.
Annual bonus awards are evaluated by the Committee after the end of each fiscal
year. As discussed below, the Committee's decisions on bonuses are largely
subjective and do not entail precise assigning of relative weight to any
particular factor. The salary and bonus of each executive officer of Lone Star
that exceeded $100,000 during 1998, including the chief executive officer, are
shown in the Summary Compensation Table in this Proxy Statement.
LONG TERM COMPENSATION - STOCK OPTIONS
Long term incentive compensation, rather than reflecting a single year's
results, is intended to reward performance over the long term. It has been Lone
Star's practice to structure this long term incentive compensation in the form
of options for its Common Stock granted under the 1985 Long-Term Incentive Plan.
These options have an exercise price equal to the fair market value of the
Common Stock on the date of grant and become exercisable in annual cumulative
installments of 25
11
<PAGE>
percent each, so that the option is not fully exercisable for four years. The
options can become exercisable sooner upon the optionee's death or
"retirement" (as defined in the Plan) or if an optionee's employment is
involuntarily terminated without "cause" or is voluntarily terminated for
"good reason" within two years after a "change in control" of Lone Star
occurs. Unexercised options terminate six months after the optionee's
"retirement," six months after the optionee's termination of employment after
a "change in control," nine months after the optionee's death or three months
after any other cessation of employment. The shareholders of Lone Star are
voting on the approval of amendments to the Plan at the 1999 Annual Meeting
that will increase the period of time during which an optionee or his or her
estate can exercise options after "retirement," death or termination of
employment after a "change in control". See "Amendments to 1985 Long-Term
Incentive Plan" in this Proxy Statement.
The Committee administers the 1985 Long-Term Incentive Plan and is responsible
for awarding stock options to employees under the Plan, including executive
officers. Options create a strong link between executive compensation and
shareholder return and enable executives to develop a meaningful ownership
interest in Lone Star. The gradual vesting of the options over a four-year
period and the executive's ability to benefit from increases in Common Stock
values provide the executive a continuing incentive to achieve results
beneficial to the shareholders and also align the executive's long term
interests with those of the shareholders.
When options are granted to executive officers, the Committee evaluates the
individual's performance currently and relative to the future needs of Lone Star
and its operating units and considers the chief executive officer's
recommendations. The size of awards is based in part on historical practices and
the Committee's subjective evaluation, as discussed further below. The Lone Star
chief executive officer's option awards are made on a similar basis.
Options granted in 1998 to each executive officer of Lone Star who received
salary and bonus exceeding $100,000 during 1998 are shown in the Option Grants
Table included elsewhere in the Proxy Statement.
ADDITIONAL COMPENSATION OF JOHN P. HARBIN
During 1997 and early 1998, Mr. Harbin had discussions with the members of the
Committee regarding his plans for retirement and management succession. Those
plans, what compensation would be paid to Mr. Harbin after his retirement and
what services he might continue to provide to Lone Star after he retired were
discussed at meetings of the Board and the Committee. The Committee considered
the accomplishments of Lone Star and its subsidiaries under Mr. Harbin's
leadership and the benefits that have been received from his extraordinary
services. The Committee also recognized that he was employed by Lone Star when
Steel was in bankruptcy and has served Lone Star without any retirement or other
customary employee benefits. The advantages to Lone Star of Mr. Harbin's
continuing to provide services to Lone Star's Board and management after his
retirement were also discussed. The Committee considered his good health and
vitality, excellent reputation and valuable relationships in the oil and gas
industry and broad business experience and wise judgment that Lone Star could
continue to benefit from. At a meeting held on April 15, 1998, the Committee
decided that Lone Star would pay Mr. Harbin additional compensation during the
five years after his retirement and that Lone Star should retain him to continue
to provide services
12
<PAGE>
during that period. See "Executive Compensation - Retirement of John P.
Harbin" in this Proxy Statement for a description of the agreement between
Lone Star and Mr. Harbin that was authorized and approved by the Committee
and the Board of Directors.
* * * * *
To assist in making its decisions on compensation matters, the Committee members
communicate with the executive officers regularly at Board meetings, receive
operating information frequently throughout the year and are given the chief
executive officer's recommendations regarding compensation for other executive
officers.
The Committee's decisions are not based on a formulistic approach assigning
relative weights of various factors or quantitative comparisons with specific
competitors or competitor groups or other mathematical methods. All decisions
are made with the objective of retaining and compensating those officers who
have demonstrated to the satisfaction of the Committee the capacity to
contribute to the financial and competitive performance of Lone Star, thereby
furthering the main objective of the compensation program -- increasing
shareholder value.
The foregoing report is submitted by the Compensation Committee, the members of
which are:
Dean P. Guerin, Chairman*
Charles L. Blackburn
Frederick B. Hegi, Jr.
James E. McCormick
Thomas M. Mercer, Jr.
*Mr. Guerin presided as Chairman of the two meetings of the Committee held in
1998, one in February and the other in April. Mr. Blackburn was elected Chairman
of the Committee in May, 1998.
13
<PAGE>
PERFORMANCE CHART
The following graph compares the yearly percentage change for the five-year
period from January 1, 1994 to January 1, 1999 in the cumulative total returns
on Lone Star's Common Stock, the S&P 500 Composite Stock Index and the S&P Oil
Well Equipment & Services Index. The value of each investment was equal to $100
on January 1, 1994:
CUMULATIVE TOTAL RETURN COMPARISON
FIVE-YEAR INDEX (1/1/94 = 100)
[GRAPH]
[The graph that appears here in the paper copy presents the data set forth below
in the table.]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lone Star Common Stock $100.00 $88.89 $139.68 $215.87 $360.32 $128.57
S&P 500 Index $100.00 $98.64 $132.33 $159.15 $208.50 $264.17
S&P Oil Equipment Index $100.00 $88.57 $117.60 $163.67 $248.81 $128.14
</TABLE>
14
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 28, 1999, the number of shares of
Lone Star Common Stock beneficially owned by each person known by Lone Star to
own beneficially more than five percent of its outstanding Common Stock.
Percentages are based on 22,501,373 shares of Common Stock of Lone Star which
were issued and outstanding on that date. The information below and elsewhere in
the Proxy Statement reporting share ownership of Lone Star is believed to be
current based upon information made available to Lone Star prior to the date of
this Proxy Statement.
<TABLE>
<CAPTION>
Name and Address Amount of Percent of Outstanding
of Beneficial Holder Beneficial Ownership Common Stock
- -------------------- -------------------- ------------
<S> <C> <C>
Alpine Capital, L.P. 8,909,872(1)(2) 39.597%
201 Main Street, Suite 3100
Fort Worth, TX 76102
Keystone, Inc. 2,233,100(2)(3) 9.924%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
</TABLE>
(1) Alpine Capital, L.P. reports that it has sole voting and dispositive
power as to these shares.
(2) A Schedule 13D, reporting that these shares were acquired for
investment purposes, was filed with the Securities and Exchange
Commission jointly by Alpine Capital, L.P., Robert W. Bruce, III,
Algenpar, Inc., J. Taylor Crandall, Keystone, Inc., The Anne T. and
Robert M. Bass Foundation, Anne T. Bass, and Robert M. Bass. The
Foundation is reported to have sole voting and dispositive power as to
an additional 100,000 shares of Common Stock, with respect to which
Anne T. Bass and Robert M. Bass are reported to have shared voting and
dispositive power. The filing states that Mr. Crandall and Mr. Bruce
have shared voting and dispositive power as to the Foundation's shares
and, along with Algenpar, Inc., have shared voting and dispositive
power as to Alpine Capital, L.P.'s shares as well, which together
total 9,009,872 shares and represent approximately 40.041 percent of
the outstanding Common Stock.
(3) Keystone, Inc. and Robert M. Bass are reported to have sole voting and
dispositive power as to these shares.
AMENDMENTS TO 1985 LONG-TERM INCENTIVE PLAN
CURRENT PLAN
The 1985 Long-Term Incentive Plan (the "Plan") is a stock based incentive plan
which authorizes the issuance of Lone Star Common Stock and certain cash
payments under awards to key salaried employees (including officers and
directors who are employees) of Lone Star and its subsidiaries for (a) stock
options designed to meet the requirements of Section 422 of the Internal Revenue
Code ("incentive stock options"), (b) stock options which do not meet those
requirements ("non-qualified stock options"), (c) stock appreciation rights,
either separately or in tandem with the award of stock options, (d) restricted
stock grants, (e) performance unit grants and (f) stock in payment of incentive
compensation earned under Lone Star's bonus program. The Plan also provides for
awards of stock options to non-executive directors of Lone Star (directors of
Lone Star who are not employees of Lone Star or of a subsidiary). Subsequent to
April 9, 1995, the tenth anniversary of the inception of the Plan, incentive
stock options cannot be granted pursuant to the Plan. The aggregate number of
shares that may be issued under the Plan cannot exceed 2,700,000 shares of
Common Stock. See "Proposed Amendments" for a description of the amendment to
the Plan that will increase the aggregate number of shares that may be issued
under the Plan to 3,700,000.
15
<PAGE>
As of February 28, 1999, options to purchase an aggregate of 1,408,750 shares
of Common Stock were outstanding under the Plan and 264,775 shares were
available for future grant. The market value of all shares of Common Stock
subject to outstanding options under the Plan was $18,313,750 (based on the
closing price of Common Stock on the New York Stock Exchange on February 26,
1999). The current executive officers of Lone Star held options as of
February 28, 1999 covering the following number of shares of Common Stock:
Rhys J. Best, 267,500; W. Byron Dunn, 127,500; Charles J. Keszler, 70,000;
and Robert F. Spears, 56,250. The non-executive directors of Lone Star held
options as of that date covering the following number of shares of Common
Stock: Charles L. Blackburn, 75,000; Dean P. Guerin, 81,250; Frederick B.
Hegi, Jr., 112,500; James E. McCormick, 56,250; and Thomas M. Mercer, Jr.,
62,500.
The following summary briefly describes the principal features of the current
Plan, before giving effect to the amendments that are being voted on by the
shareholders at the Annual Meeting and are described below under "Proposed
Amendments."
The Plan provides that the Board of Directors may establish a committee (the
"Committee") consisting of not less than two nor more than ten members of the
Board of Directors who are "outside directors" as defined under Section 162(m)
of the Internal Revenue Code to administer the Plan and grant awards thereunder.
Currently, the Plan is administered by the Compensation Committee, which is
composed of five directors, Messrs. Blackburn, Guerin, Hegi, McCormick and
Mercer.
The Committee determines those key salaried employees (including officers) of
Lone Star and its subsidiaries who are to be granted awards under the Plan and
the number of shares to be optioned to such participants. The Plan has an annual
limit of 100,000 on the number of shares with respect to which options and stock
appreciation rights can be granted to any individual. See "Proposed Amendments"
for a description of the amendment to the Plan that will increase the annual
limit to 200,000 shares. Non-executive directors of Lone Star participate in the
Plan, but only with respect to the award of stock options.
Following each of the Annual Meetings in 1993, 1995 and 1997, each non-executive
director then in office received a stock option for 25,000 shares of Common
Stock of Lone Star and following the Annual Meeting in 1998 and each Annual
Meeting after that, each non-executive director receives a stock option for
12,500 shares of Common Stock, all under the terms of the Plan (subject to an
overall limitation of 750,000 shares that may be issued for such options) with
an exercise price at the fair market value of the Common Stock on the date the
options are granted. See "Proposed Amendments" for a description of the
amendments to the Plan that will increase the number of shares that may be
issued for non-executive directors' options from 750,000 to 1,000,000 and will
give the Compensation Committee the authority to grant, in its discretion, to a
new non-executive director upon his or her election a stock option for up to
12,500 shares.
The per share price at which shares of Common Stock may be purchased under an
employee's option is determined by the Committee at the time such option is
granted and may not be less than the per share fair market value of the Common
Stock on the date of grant.
16
<PAGE>
No option is exercisable until at least one year from the date of grant. The
Committee may at the time of granting any option to an employee add additional
restrictions as it may deem advisable as to the time such option or any part
thereof may become exercisable. All options that have been granted to employees
under the Plan to date have, and all options granted to non-executive directors
since 1993 are required by the Plan to have, an exercise price equal to the fair
market value of the Common Stock on the date of grant and a four-year vesting
schedule consisting of cumulative installments of 25 percent each on and after
each anniversary date following the date of grant.
The right to exercise any option terminates on the earliest of the following
dates (subject to the special rules governing a "change in control"):
(1) Ten years after the date the option is granted;
(2) Three months after the date the optionee shall cease to be a
director of Lone Star or an employee of Lone Star or a
subsidiary of Lone Star, unless such cessation of directorship
or employment is by reason of the optionee's "retirement" or
death or unless death occurs within such three months;
(3) Six months after the date of the optionee's "retirement",
unless the optionee dies during that six-month period; or
(4) Nine months after the date of the optionee's death.
Options will vest (become fully exercisable) upon the "retirement" of the holder
of the options. "Retirement" is defined as retirement from employment with Lone
Star or a subsidiary or cessation of service as a director of Lone Star (i) at
or after age 55 but prior to age 65 and with the approval of the Committee or
(ii) at or after age 65. In determining whether to approve the "retirement" of
an optionee prior to age 65, the Committee may consider any information provided
by the optionee, including whether the optionee intends to work for a competitor
of Lone Star and its subsidiaries. The option holder will have six months after
"retirement" (but not beyond the option's original term) to exercise his or her
options. If the optionee's employment or directorship ceases for any reason
other than the optionee's "retirement" or death, his or her option will not
vest, and the optionee will have three months after the date his or her
employment ceases (but not beyond the option's original term) to exercise the
option to the extent it was exercisable on the date of such cessation. If the
optionee dies (i) while employed by Lone Star or a subsidiary, (ii) while a
director, (iii) within three months after cessation of such employment or
directorship for any reason other than "retirement" or death or (iv) within six
months after "retirement", the option he or she holds will vest, and the option
may be exercised within nine months after the optionee's death by the optionee's
estate or heirs (but not beyond the option's original term). See "Proposed
Amendments" for a description of the amendments to the Plan that will increase
the period of time during which an optionee or his or her estate can exercise
options after "retirement" or death.
Absence on approved leave is not considered a cessation of employment.
17
<PAGE>
The Plan provides for the continuation of an option held by an employee if he
or she becomes a non-executive director and for the continuation of an option
held by a non-executive director if he or she becomes an employee.
A participant's options and other awards will fully vest if his or her
employment is involuntarily terminated without "cause" or is voluntarily
terminated for "good reason" within two years after a "change in control" of
Lone Star occurs, a non-executive director's options will fully vest if he or
she is removed or not reelected as a director of Lone Star without "cause"
within two years after a "change in control" of Lone Star occurs and the vesting
of a participant's options and other awards will accelerate under the Plan if
his or her employer ceases to be a subsidiary of Lone Star. A participant or
non-executive director referred to in the preceding sentence will have six
months after termination of his or her employment or directorship or the change
in control of a subsidiary (but not beyond the original term of the option) to
exercise his or her options. See "Proposed Amendments" for a description of the
amendment to the Plan that will increase the period of time during which an
optionee can exercise options after termination of employment or directorship
after a "change in control." All outstanding options and awards under the Plan
will vest if (i) Lone Star's shareholders vote on a merger or other transaction
in which they would not receive any voting common stock of Lone Star's successor
or (ii) a "change in control" of Lone Star occurs and it is the first step in an
attempt to acquire all of the stock or assets of Lone Star and the contemplated
second step is a merger or other transaction described in (i).
The Plan defines a "change in control" of Lone Star, in general, as (i) a change
in control required to be reported under Regulation 14A of the Securities
Exchange Act of 1934, (ii) more than 50 percent of Lone Star's stock becomes
beneficially owned by an entity, person or group, (iii) a majority of the Board
ceases to be made up of "qualified directors" during any 24 month period, (iv)
any merger, consolidation or sale of assets of Lone Star in which Lone Star's
shareholders do not continue to own more than 50 percent of the voting stock of
the surviving entity or (v) the approval by Lone Star's shareholders of Lone
Star's liquidation or dissolution. A "qualified director" is any individual who
was a director of Lone Star at the beginning of the 24 month period or was
nominated for election or was elected to the Board during that period by
two-thirds of the "qualified directors" still in office.
"Cause" for termination of a participant's employment means his or her illegal
conduct or gross misconduct that in either case is willful and results in
material damage to the employer's business or reputation or his or her willful
failure or refusal to perform his or her duties or obligations to the employer
or to comply in all material respects with the lawful directives of the
employer's Chief Executive Officer or Board of Directors, provided that the
employee has received written notice from the employer stating the nature of
such failure or refusal and has reasonable opportunity to correct the stated
deficiency.
"Cause" for termination of a non-executive's directorship means his or her
illegal conduct or gross misconduct that in either case is willful and results
in material damage to Lone Star's business or reputation or his or her willful
failure or refusal to perform his or her duties or obligations to Lone Star.
18
<PAGE>
"Good Reason" with respect to the voluntary termination of a participant's
employment means the occurrence, after a "change in control", of (i) any adverse
change in his or her status, position, authority or responsibilities, (ii) a
reduction of his or her compensation, or (iii) any material change in his or her
employment location.
The Committee may in its discretion grant to employees rights entitling the
grantee to receive cash or shares of Common Stock having a fair market value
equal to the appreciation in market value of a stated number of shares of Common
Stock from the date of grant to the date of exercise, or, in the case of rights
granted in tandem with or by reference to an option granted prior to the grant
of such rights, from the date of grant of such related option to the date of
exercise. The Committee may at the time of granting any stock appreciation right
add certain additional conditions and limitations to that right.
Stock appreciation rights may be granted in tandem with or by reference to a
related option (in which event the grantee may elect to exercise either the
option or the appreciation rights, but not both, as to any of the same shares
subject to the option and the rights) or appreciation rights may be granted
independently of any option. Appreciation rights granted in tandem with or by
reference to a related option are exercisable only to the extent that the
related option is exercisable and the fair market value of the Common Stock
exceeds the per share option price of such option.
Upon exercise of a stock appreciation right, the grantee is paid the excess of
the then fair market value of the number of shares of Common Stock to which the
appreciation right relates over the fair market value of such number of shares
at the date of grant of the appreciation right or of the related option, as the
case may be. Such excess will be paid in cash or in shares of Common Stock
having a fair market value equal to such excess, or in any combination thereof.
Termination of the right to exercise any stock appreciation right is the same as
described above with respect to options.
The Committee may in its discretion award to any employee shares of Common
Stock. Such awards may be contingent on the participant's continuing employment
for a period to be specified in the award, which may not be less than one nor
more than ten years from the date of award, and/or on any other contingencies,
additional terms and conditions as the Committee in its sole discretion may deem
appropriate.
The Committee may in its discretion grant to any employee awards consisting of
performance units which have a monetary value which may or may not be equivalent
to shares of Common Stock. The vesting of performance units are, and their value
may be, contingent on the achievement over a period of not less than two nor
more than ten years of such individual, corporate, division, subsidiary, group
or other objectives as are established by the Committee.
The Plan will terminate on April 9, 2005. Awards then outstanding will not be
affected by such termination.
Lone Star's Board of Directors may amend, supplement or suspend the Plan, but it
cannot (a) impair any awards already made or (b) without the approval of the
shareholders, (i) increase the number of
19
<PAGE>
shares of Common Stock which may be issued under the Plan, (ii) materially
modify the requirements as to eligibility for participation in the Plan,
(iii) materially increase the benefits accruing to participants or
non-executive directors under the Plan or (iv) provide for the grant of
options to purchase Common Stock at less than the fair market value per share
thereof on the date of grant. The provisions of the Plan which govern
non-executive directors' options cannot be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code and
the Employee Retirement Income Security Act of 1974.
For federal income tax purposes, the recipient of a non-qualified stock option
under the Plan will not realize income upon the grant of the option but will
realize ordinary income on the date the option is exercised in the amount of the
difference between the fair market value of the stock on the exercise date and
the exercise price. Subject to Section 162(m) of the Internal Revenue Code, the
amount of ordinary income realized by the optionee upon exercise of the option
will be deductible in computing the taxable income of Lone Star. The option
holder will have a basis in the stock acquired equal to the fair market value of
the stock at the date of exercise. Any gain or loss realized upon the subsequent
sale of stock acquired on the exercise of the option will be a short-term or
long-term capital gain or loss depending on the optionee's holding period. The
vesting of options may be accelerated pursuant to the terms of the Plan. That
acceleration may be determined to be, in whole or in part, a "parachute payment"
as defined by the Internal Revenue Code if it arises in connection with a change
in control of Lone Star, and, in that event, option holders will be subject to a
special excise tax of 20 percent on the "excess parachute payment" as defined by
the Code. In addition, Lone Star will not be allowed a deduction for any "excess
parachute payment". This brief description of the federal income tax treatment
of non-qualified stock options applies to the current Plan and the Plan as
amended by the proposed amendments described below. This summary does not
purport to be complete and reference is made to the applicable provisions of the
Code.
PROPOSED AMENDMENTS
On March 9, 1999, the Board of Directors adopted, subject to shareholder
approval at this Annual Meeting, amendments to the Plan that (1) increase the
number of shares that may be issued under the Plan by 1,000,000, (2) increase
the number of shares that may be issued under the Plan to non-executive
directors by 250,000, (3) increase the number of shares with respect to which
options and stock appreciation rights can be granted in a year to any individual
by 100,000, (4) give the Committee the authority to grant, in its discretion, to
a new non-executive director upon his or her election a stock option for up to
12,500 shares and (5) increase the period of time during which an optionee or
his or her estate can exercise options to 36 months after "retirement," death or
termination of employment after a "change in control".
As of February 28, 1999, only 264,775 shares were available for issuance under
the Plan, of which only 137,500 shares were available for issuance to
non-executive directors. The Board of Directors has determined that it is in the
best interests of Lone Star and its shareholders to authorize additional shares
for issuance under the Plan so that an adequate number of shares are available
for Plan purposes. Accordingly, the Board of Directors adopted, subject to
shareholder approval at this Annual Meeting, amendments to the Plan that
increase the number of shares that may be issued under the Plan from 2,700,000
to 3,700,000 and increase the number of shares that may be issued under the Plan
to non-executive directors from 750,000 to 1,000,000.
20
<PAGE>
The Plan currently has an annual limit of 100,000 shares with respect to
which options and stock appreciation rights can be granted to any individual.
The Board believes that the 100,000 share limit is too restrictive and has
increased it to 200,000 shares, subject to shareholder approval at this
Annual Meeting.
The Board believes that in order to attract new non-executive directors it may
need to offer them stock options at the time they are elected to the Board.
Therefore, the Board adopted, subject to shareholder approval at this Annual
Meeting, an amendment to the Plan that gives the Committee the authority to
grant, in its discretion, to a new non-executive director upon his or her
election a stock option for up to 12,500 shares.
The Plan currently provides that an option terminates six months after
"retirement" or termination of employment after a "change in control" and nine
months after death. The Board believes that these time periods are not adequate
and have increased them to 36 months, subject to shareholder approval at this
Annual Meeting.
These amendments to the Plan will be approved at the Annual Meeting if the
holders of a majority of shares of Common Stock present in person or by proxy
and entitled to vote at the meeting vote in favor of the amendments. The Board
of Directors recommends that shareholders vote FOR the approval of the
amendments.
OTHER MATTERS
The Annual Meeting has been called for the purposes set forth in the Notice of
Annual Meeting to which this Proxy Statement is appended. It is not anticipated
that matters other than the election of Directors and the approval of the
amendments to the Plan as described in the Notice and this Proxy Statement will
be brought before the meeting for action. If any other matters do properly come
before the meeting, it is intended that votes thereon will be cast for all
shares represented by unrevoked proxies solicited hereby which are received
prior to the voting thereon in accordance with the best judgment of any of the
persons authorized to vote as proxies.
ACCOUNTANTS
On the recommendation of its Audit Committee, the Board of Directors has
reappointed Arthur Andersen LLP as independent public accountants of Lone Star
and its subsidiaries for the fiscal year ending December 31, 1999. Arthur
Andersen LLP served as independent public accountants for Lone Star for the
preceding year. A representative of Arthur Andersen LLP will attend the Annual
Meeting, will have an opportunity to make a statement on behalf of Arthur
Andersen LLP, and will be available to respond to appropriate questions.
COST AND METHOD OF PROXY SOLICITATION
The cost of this proxy solicitation will be paid by Lone Star. In addition, Lone
Star will reimburse brokers and other custodians, nominees, and fiduciaries for
their expenses in sending proxies and proxy materials to their principals.
Officers and other regular employees of Lone Star and, if necessary, its
subsidiaries may request by telephone, telegram, or in person the return of
proxies.
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Those officers and other regular employees of Lone Star or subsidiaries will
not receive additional compensation in connection with any solicitation of
proxies.
ANNUAL REPORT AND FORM 10-K
The Annual Report to Shareholders of Lone Star for the year ended December 31,
1998, including the Annual Report on Form 10-K for the same period (without
exhibits), has been mailed to shareholders of record as of March 22, 1999. A
COPY OF THE ANNUAL REPORT ON FORM 10-K HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND WILL BE FURNISHED (WITHOUT EXHIBITS) WITHOUT CHARGE TO
SHAREHOLDERS UPON WRITTEN REQUEST TO LONE STAR TECHNOLOGIES, INC., P. O. BOX
803546, DALLAS, TEXAS 75380-3546, ATTN: CHARLES J. KESZLER, CORPORATE RELATIONS.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals for consideration at the 2000 Annual Meeting of
Shareholders must be received no later than December 7, 1999, at Lone Star's
principal executive office, 14681 Midway Road, Suite 200, Dallas, Texas 75244,
directed to the attention of the Secretary.
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APPENDIX TO, NOT PART OF, THE PROXY STATEMENT
LONE STAR TECHNOLOGIES, INC. 1985 LONG-TERM INCENTIVE PLAN
(AS AMENDED BY THE BOARD OF DIRECTORS THROUGH MARCH 9, 1999)
SECTION 1. PURPOSE. The purpose of the Lone Star Technologies, Inc. 1985
Long-Term Incentive Plan ("Plan") is to attract and retain able and experienced
directors for Lone Star Technologies, Inc. ("Company") from outside the ranks of
the employees of the Company and its subsidiaries and to attract and retain key
salaried employees for the Company and its subsidiaries, to provide an incentive
for such directors and employees to exert maximum efforts for the Company's
success and to reward such efforts by enabling the directors and employees to
participate in such success through the ownership and performance of shares of
the Company's Common Stock ("Common Stock") and, in the case of employees, also
through monetary rewards.
SECTION 2. ADMINISTRATION. The Board of Directors of the Company ("Board of
Directors") may establish a Committee ("Committee") consisting of not less than
two nor more than ten members of the Board of Directors who are non-executive
directors (a person who is a director of the Company but not an employee of the
Company or any of its subsidiaries, is a "non-executive director" as that term
is used under the Plan), notwithstanding that non-executive directors are
eligible to participate under the Plan or have received options, to administer
the Plan and to award under the Plan to key salaried employees of the Company
and its subsidiaries options (along with options granted to non-executive
directors under the Plan, "Options"), stock appreciation rights, restricted
stock grants, and performance units grants (together with Options granted to
non-executive directors under the Plan, collectively referred to herein as
"awards", and individually as "award"). Each member of the Committee shall be an
"outside director" under Section 162(m) of the Internal Revenue Code of 1986, as
amended. The members of the Committee shall be appointed from time to time by
and serve at the pleasure of the Board of Directors. The Committee shall have
the power where consistent with the general purpose and intent of the Plan to
adopt rules and regulations and prescribe forms for use in connection with the
Plan. The Committee shall have the authority to interpret the Plan, and
determine all questions arising under the Plan and any agreement made pursuant
to the Plan. Any interpretation, decision, or determination made by the
Committee shall be conclusive. A majority of the Committee shall constitute a
quorum and an act of the majority of the members present at any meeting at which
a quorum is present shall be the act of the Committee. Any decision reduced to
writing and signed by a majority of the members of the Committee shall be fully
as effective as if it had been made by a majority vote at a duly held meeting.
In the absence of a Committee, all authority of the Committee under the Plan
shall be vested in and exercisable by the Board of Directors. Notwithstanding
the foregoing, the Committee shall have no power or authority under this section
of the Plan to alter or modify any explicit provisions in the Plan.
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SECTION 3. SHARES SUBJECT TO THE PLAN. The aggregate number of shares of stock
which may be issued under the Plan shall not exceed three million seven hundred
thousand (3,700,000) shares of Common Stock. Either authorized and unissued
shares or treasury shares may be delivered pursuant to the Plan. If any Option
or restricted stock grant lapses, is canceled, is forfeited or is otherwise
terminated, as to any shares, such shares shall again become available under the
Plan. If, however, any Option or portion thereof is surrendered in exchange for
shares issued pursuant to the exercise of a stock appreciation right or in
exchange for the retention of restricted stock granted in tandem with an Option,
any excess of the number of shares covered by the Option or portion thereof so
surrendered over the number of shares so issued or retained in exchange shall
not again be made available under the Plan.
SECTION 4. PARTICIPATION IN THE PLAN. The Committee shall determine from time
to time those key salaried employees (including officers and directors who are
employees) of the Company and its subsidiaries who are to be granted awards
hereunder (such individuals are referred to herein as "participants"). In making
its determination, the Committee may consider such factors as in its discretion
it considers appropriate. Participants may be granted more than one award.
Participation in the Plan by a participant or a non-executive director shall not
confer upon any participant or upon any non-executive director any right with
respect to continuation of such participant's employment by the Company or a
subsidiary, or seat on the Board of Directors, as the case may be, nor interfere
with the right of the Company or such subsidiary to terminate at any time
employment of any participant. An award shall not confer any rights as a
stockholder upon the holder thereof, except only as to shares actually issued
pursuant to the Plan.
SECTION 5. OPTIONS. The Committee shall determine from time to time those
participants who are to be granted Options and the number of shares to be
optioned to such participants. The aggregate number of shares with respect to
which Options and stock appreciation rights can be granted under Sections 5 and
9 of the Plan to any one individual during any calendar year shall not exceed
200,000, subject to adjustment pursuant to Section 14 hereof. Any Option to
participants may, in the discretion of the Committee and subject to the
limitation of this Section 5, be either an incentive stock Option or
non-qualified stock Option. An "incentive stock Option" shall mean a stock
Option meeting the requirements for an incentive stock Option under the
provisions of Section 422 (or any provision substituted therefor) of the
Internal Revenue Code of 1986, as amended (the "Code"), at the time of grant of
such Option, and notwithstanding any other provision of the Plan, an Option
intended to be an incentive stock Option must be granted by the tenth
anniversary date of the approval of the Plan by Northwest Industries, Inc. and
shall be subject to such additional or more restrictive terms and conditions as
the Committee shall determine may be necessary to meet such requirements or deem
reasonable and consistent with the purposes of incentive stock Options. The fair
market value of the shares of Common Stock for which a participant is granted an
incentive stock
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Option under the Plan prior to January 1, 1987 (determined on the date such
Option is granted) shall not exceed in any calendar year the excess of (i)
the sum of (a) $100,000 and (b) the unused limit carryover of such
participant to such calendar year over (ii) the fair market value of all
other shares for which the participant was granted incentive stock Options in
such calendar year (such fair market value to be determined as of the date
each such Option was granted) under all plans of the Company or any parent or
subsidiary of the Company. For purposes of this Section 5 the unused limit
carryover of a participant to any calendar year shall be the carryover
determined under the following sentence reduced by the amount of such
carryover which was used in prior calendar years, and for this purpose
Options granted to the participant in any calendar year shall be treated as
first reducing the $100,000 limitation and then as reducing the unused limit
carryovers to such year in the order of the calendar years in which the
carryover arose. The carryover shall be an amount determined for each
calendar year after 1980 equal to one-half of the excess of (x) $100,000 over
(y) the aggregate fair market value (determined as of the time the Option is
granted) of the shares for which the optionee was granted incentive stock
Options in such calendar year under all plans of the Company and any parent
or subsidiary corporation of the Company, and such carryover shall be a
carryover to each of the three succeeding calendar years. A "non-qualified
stock Option" shall mean a stock Option which is not an incentive stock
Option. The Options awarded to non-executive directors of the Company must be
non-qualified stock Options.
SECTION 6. OPTION PRICE. The per share price at which shares of Common Stock
may be purchased by a participant under an Option shall be determined by the
Committee at the time such Option is granted. The price at which shares of
Common Stock may be purchased under an Option granted to a participant shall not
be less than, and in the case of an Option granted to a non-executive director
shall be equal to, the per share fair market value of the Common Stock on the
date of grant of such Option. The fair market value shall mean the average of
the high and low prices per share of the Common Stock on the principal United
States securities exchange on which the Common Stock is listed or, if not so
listed, on the National Association of Securities Dealers Automated Quotations
System or any successor system then in use, on the date of grant or, if there
are no sales on such date, on the next succeeding day on which there are sales.
No shares shall be issued upon exercise of an Option until the Company receives
full payment therefor together with (a) payment in cash equal to the amount of
any state and federal taxes required to be withheld at the time of such issuance
or (b) if no such taxes are required to be withheld at the time of such
issuance, an agreement by the party exercising the Option to pay to the Company
the amount of state or federal taxes thereafter required to be withheld in
respect of such issuance. Payment of the Option price shall be (i) in cash, (ii)
in the discretion of the Committee by the transfer and delivery to the Company
of shares of Common Stock having a fair market value on the date of exercise of
such Option at least equal to the Option price or (iii) in the discretion of the
Committee, any combination of (i) and (ii).
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SECTION 7. EXERCISE OF OPTIONS. No Option shall be exercisable until at least
one year from the date of grant of such Option, and the Committee may at the
time of granting any Option to a participant add such additional restrictions as
it shall deem advisable as to the time within which such Option or any part
thereof may become exercisable. The right of a participant or a non-executive
director to exercise in whole or in part any Option shall not be affected by any
outstanding stock Option previously granted to that person, except that each
incentive stock Option granted to a participant under the Plan prior to January
1, 1987 (for the purposes of this Section 7 hereinafter referred to as the "new
incentive Option") shall not be exercisable while there is outstanding any new
incentive Option which was granted to such participant before the granting of
such later new incentive Option, to purchase stock in the Company (or any parent
or subsidiary of the Company or a predecessor of any such companies). For
purposes of the preceding sentence, an incentive stock Option shall be
considered to be outstanding until it (i) is exercised in full, (ii) expires by
reason of the exercise of a stock appreciation right associated with such
incentive stock Option, or (iii) lapses, whichever occurs first. In order to
exercise an Option, a participant or non-executive director shall give written
notice to the Secretary of the Company at the Company's main office in Dallas,
Texas.
SECTION 8. NON-EXECUTIVE DIRECTORS STOCK OPTIONS. Non-executive directors
shall not be eligible to participate in the Plan beyond the granting of
Options; further, not more than 1,000,000 shares of Common Stock may be
issued under Options awarded to non-executive directors. Only shares of
Common Stock issued upon exercise of Options which, when granted, were
granted to individuals who were at the time non-executive directors shall be
deemed "issued under Options awarded to non-executive directors". Shares
issued to non-executive directors under Options granted when they were
participants shall not count towards the 1,000,000 share limitation provided
in this Section. Outstanding Options in effect immediately prior to the
Company's annual shareholders meeting in 1993 to non-executive directors
shall remain in effect according to their terms and as the same may be
amended as contemplated under Section 18 hereof. Beginning with the year 1993,
and continuing with the years 1995 and 1997, and ending with the year 1997,
on the first business day after the Company's annual shareholders meeting
each such year, each non-executive director in office at such time shall
receive automatically, by virtue of this Plan, the award and grant of an
Option for 25,000 shares of Common Stock. Beginning with the year 1998, and
every year thereafter, on the first business day after the Company's annual
shareholders meeting each such year, each non-executive director in office at
such time shall receive automatically, by virtue of this Plan, the award and
grant of an Option for 12,500 shares of Common Stock. Whenever a new
non-executive director is elected, he or she may be granted Options, at the
discretion of the Committee, for any number of shares of Common Stock not to
exceed 12,500. All Options awarded to non-executive directors shall be
non-qualified stock Options, and each such Option granted pursuant to the
terms of the three foregoing sentences shall become exercisable for up to 25%
of the total number of shares of Common Stock into which the Option may be
exercised on and after the first anniversary of the date of the
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award, for up to 25% more (i.e. in total 50%) of those total shares on and
after the second anniversary, for up to 25% more (i.e. in total 75%) of those
total shares on and after the third anniversary and for up to 100% of those
total shares (i.e. all the shares into which the Option may be exercised) on
and after the fourth anniversary of the date of the Option award (each such
Option to the extent exercisable may be exercised in full or in part at any
time for the shares under the Option), at all times subject to the terms of
Section 10 regarding the continued right to exercise under certain
circumstances.
SECTION 9. STOCK APPRECIATION RIGHTS. The Committee may in its discretion
grant to any participant or participants rights entitling the grantee to
receive cash or shares of Common Stock having a fair market value equal to
the appreciation in market value of a stated number of shares of Common Stock
from the date of grant to the date of exercise, or, in the case of rights
granted in tandem with or by reference to an Option granted prior to the
grant of such rights, from the date of grant of such related Option to the
date of exercise. Stock appreciation rights may be granted in tandem with or
by reference to a related Option, in which event the grantee may elect to
exercise either the Option or the rights, but not both, as to any of the same
shares subject to the Option and the rights, or the rights may be granted
independently of any Option. Rights granted in tandem with or by reference to
a related Option shall be exercisable to the extent, and only the extent,
that the related Option is exercisable and the then fair market value of the
Common Stock exceeds the per share Option price of such Option. Rights
granted independently of an Option shall be exercisable in whole or in such
installments and at such times as may be determined by the Committee. No
stock appreciation right shall be exercisable prior to the expiration of one
year following the date the right is granted. The Committee may at the time
of granting any stock appreciation right add such additional conditions and
limitations to such stock appreciation right as it shall deem advisable,
including, but not limited to, the time within and extent to which such stock
appreciation right shall be exercisable and the maximum amount of
appreciation to be recognized with regard to such stock appreciation right.
Upon exercise of a stock appreciation right, the grantee shall be paid the
excess of the then fair market value of the number of shares of Common Stock
to which the right relates over the fair market value of such number of
shares at the date of grant of the right or of the related Option, as the
case may be. Such excess shall be paid in cash or in shares of Common Stock
having a fair market value equal to such excess, or in any such combination
thereof, as may be provided in the grant of such right (which may permit the
grantee to elect between cash and Common Stock or to elect a combination
thereof), or, if no such provision is made in the grant, as the Committee
shall determine upon exercise of the right. If the participant will receive
Common Stock upon the exercise of a stock appreciation right, then the
Company shall be entitled to settle its obligation, arising out of the
exercise of a stock appreciation right, to deliver any fractional shares in
any manner the Committee, in its discretion, shall deem appropriate,
including but not limited to, (a) the payment of cash in lieu of such
fractional share or (b) by rounding the number of shares to be delivered up
to the next full share and requiring a cash payment by the participant for
such additional fractional share. In order to exercise
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any stock appreciation right, a participant shall give written notice to the
Secretary of the Company at the Company's main office in Dallas, Texas.
SECTION 10. TERMINATION OF OPTIONS AND STOCK APPRECIATION RIGHTS, AND CHANGE OF
STATUS.
(a) A participant's right to exercise any Option or stock appreciation right
and right of a non-executive director to exercise any Option (Options and
stock appreciation rights collectively referred to in subparts (a) through
(d) only of this section as "Option") shall terminate on the earliest of the
following dates:
(1) Ten years after the date the Option is granted.
(2) Three months after the date the participant shall cease to be
employed by the Company or a subsidiary, or, if a non-executive
director, the non-executive director shall cease to be a director of
the Company, unless such cessation of employment or as a director is by
reason of the participant's or non-executive director's Retirement or
death or unless death occurs within such three months. "Retirement"
means retirement from employment with the Company or a subsidiary or
cessation of service as a director of the Company (i) at or after age
55 but prior to age 65 and with the approval of the Committee or (ii)
at or after age 65. Any participant who retires from employment at or
after age 55 but prior to age 65 shall inform the Committee in writing
as to whether such participant intends to be employed by, or otherwise
provide services to, any competitor of the Company or a subsidiary and
shall provide the Committee with any other information that it may
reasonably request. The Committee may consider the information provided
by the participant and any other available information in determining
whether to approve the participant's retirement. The determination of
the Committee as to an individual's Retirement prior to age 65 shall be
conclusive on all parties.
(3) 36 months after the date of a participant's or non-executive
director's Retirement, unless the participant or non-executive director
dies during that six-month period.
(4) 36 months after the date of a participant's or non-executive
director's death.
(b) If a participant's employment by the Company or a subsidiary or
directorship, in the case of a non-executive director, ceases for any reason
other than Retirement or death without the participant or non-executive director
having fully exercised the Option, the participant or non-executive director
shall be entitled within three months (or any later period applicable under
paragraph (c)) following the date of such cessation (but not more than ten years
from the date such Option was granted) to exercise the Option to the full
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extent such Option was exercisable on the date of such cessation. In the case
of a participant's or non-executive director's Retirement without the
participant or non-executive director having fully exercised the Option, the
Option shall become fully exercisable for up to 100% of the unexercised
shares under the Option, and the participant or non-executive director shall
be entitled within 36 months (or any later period applicable under paragraph
(c)) following the date of Retirement (but not more than ten years from the
date such Option was granted) to exercise the Option to the full extent such
Option is exercisable.
(c) If a participant or non-executive director dies while employed by the
Company or a subsidiary, or while a director in the case of a non-executive
director, or within three months after cessation of such employment or
directorship or within 36 months after Retirement, without having fully
exercised his Option, such Option shall become fully exercisable for up to 100%
of the unexercised shares under the Option, and the Option may be exercised
within 36 months following such participant's or non-executive director's death
(but not more than ten years from the date such Option was granted) by
participant's or non-executive director's estate or by a person who acquired the
right to exercise such Option by will or the laws of descent, to the full extent
such Option is exercisable.
(d) Absence of an employee on approved leave shall not be considered a
cessation of employment.
(e) Whenever, and each time that, a person ceases to be either an employee of
the Company or a subsidiary or a non-executive director of the Company, so long
as such person immediately changes status and becomes, without any interruption
in service, an employee of the Company or a subsidiary or a non-executive
director of the Company, as the case may be, so that the person's service
remains continuous and only the capacity as an employee or non-executive
director in which it is rendered changes, any Option theretofore granted to such
person, as to which the right of exercise has not expired by the passage of
time, shall remain in effect according to the terms of the Plan and any
agreement covering the Option, except that the Option, notwithstanding any other
terms in the Plan or in any Option agreement (other than provisions of any
incentive stock Options referred to at the end of this sentence), shall be
governed as to the termination of the right of exercise, after such a change in
status has occurred, under subparts (a) through (d) of this section in
accordance with the person's then, and when such person's continuous service
finally does end, the most recent status of such person as an employee or
non-executive director, as the case may be, subject to provisions in the
agreement relating to any Option which is an incentive stock Option limiting the
ability to exercise the Option as an incentive stock Option in such
circumstances.
SECTION 11. RESTRICTED STOCK GRANTS. The Committee may in its discretion grant
to any participant or participants shares of Common Stock. Such grants may be
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contingent on the grantee's continuing employment with the Company or its
subsidiaries for a period to be specified in the award, which shall not be less
than one or more than ten years from the date of award, and/or any such other
contingencies, additional terms and conditions as the Committee in its sole
discretion deems appropriate, including, but not by way of limitation,
restrictions on the sale or other disposition of such shares during the
restriction period. The Committee may in its sole discretion at the time of the
award or at any time thereafter provide for the early vesting of such award in
the event of termination of employment by retirement, death, incapacity, or
otherwise prior to the end of the restriction period. The holder of a restricted
stock award shall have the right to vote the restricted shares and to receive
dividends thereon, unless and until such shares are forfeited.
SECTION 12. PERFORMANCE UNITS GRANTS. The Committee may in its discretion
grant to any participant or participants awards consisting of units which
have a monetary value which may or may not be equivalent to shares of Common
Stock. The vesting of units shall be, and their value may be, contingent on
the achievement over a period of not less than two (2) or more than ten (10)
years of such individual, corporate, division, subsidiary, group or other
objectives as shall be established by the Committee. Such objectives shall be
established by the Committee prior to the beginning of the performance
period, but may be revised by the Committee from time to time during the
performance period, to take into account significant unforeseen events or
changes in circumstances. Except as may otherwise be determined by the
Committee at the time of the award or at any time thereafter, a performance
award shall terminate if the holder of the award does not remain continuously
in the employ of the Company and its subsidiaries at all times during the
applicable performance period. Following the end of the performance period,
the holder of a performance award shall be entitled to receive payment of an
amount, not exceeding the maximum value of the performance award established
by the Committee, based on the level of achievement of the objectives for the
performance period as determined by the Committee. Payment may be made in
cash, shares of Common Stock, or a combination thereof, as determined by the
Committee. Any payment to be made in Common Stock shall be based on the fair
market value of such stock on the payment date. Incentive compensation awards
earned under the Corporate Improvement Incentive Program of the Company as
adopted on October 9, 1990, may be paid in whole or in part in Common Stock
authorized under this Plan in accordance with the provisions of the two prior
sentences.
SECTION 13. TRANSFERABILITY. Awards hereunder are not transferable
except by will or the laws of descent. Options and stock appreciation rights
may be exercised during the lifetime of the participant or non-executive
director only by the participant or non-executive director and after the
death of such person, only as provided in Section 10.
SECTION 14. EFFECT OF CERTAIN TRANSACTIONS. If a record date for a stock
split, stock dividend, reverse stock split, combination of stock,
recapitalization, reclassification, or similar event occurs with respect to
Common Stock, or if any other
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change occurs in the number or kind of shares of Common Stock which in the
opinion of the Board of Directors requires such an adjustment, the Board of
Directors shall adjust in an equitable manner the terms of each then
outstanding award hereunder and the maximum number of shares as to which
awards may be granted under the Plan. If the Company is merged with or into
or consolidated with one or more corporations, each then outstanding award
shall be equitably adjusted by the Board of Directors and assumed by the
surviving corporation.
SECTION 15. CHANGE IN CONTROL.
Notwithstanding any other provision in this Plan:
(a)(i) If a participant's employment by the Company or a subsidiary is
involuntarily terminated without Cause or is voluntarily terminated with Good
Reason within two years after the occurrence of a Change in Control of the
Company, or (ii) if a participant's employer ceases to be a subsidiary of the
Company and that participant does not immediately thereafter become an employee
of the Company or another subsidiary:
(A) each Option (including any stock appreciation rights) held by that
participant shall become fully exercisable for up to 100% of the
unexercised shares under the Option and that participant shall be
entitled within 36 months (or any later period applicable under
paragraph (c) of Section 10) following the date of the termination of
his employment or the date on which his employer ceases to be a
subsidiary (but not more than ten years from the date the Option was
granted) to exercise the Option to the full extent the Option is
exercisable;
(B) the restrictions applicable to any restricted stock awarded to
that participant shall lapse and such restricted stock shall become
fully vested and transferable to the full extent of the original grant;
and
(C) any performance units awarded to that participant shall be
considered to be earned and payable in full.
(b) If a non-executive director of the Company is removed from the Board of
Directors of the Company without Cause or he ceases to be a director of the
Company as a result of a failure to be reelected or to be nominated for
reelection without Cause, in either event within two years after a Change in
Control of the Company, each Option held by that non-executive director shall
become fully exercisable for up to 100% of the unexercised shares under the
Option and that non-executive director shall be entitled within 36 months (or
any later period applicable under paragraph (c) of Section 10) following the
date of the termination of his directorship (but not more than ten years from
the date the Option was granted) to exercise the Option to the full extent the
Option is exercisable.
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(c) (i) On the record date for the determination of shareholders of the
Company to vote on a merger, consolidation, sale of assets or other
transaction in which the Company's shareholders would not receive any voting
common stock of the proposed successor to the Company or (ii) upon the
occurrence of a Change in Control that is the first step in an attempt to
acquire all of the stock or assets of the Company and the contemplated second
step is a transaction described in clause (i):
(A) each outstanding Option shall become fully exercisable for up to
100% of the unexercised shares under the Option;
(B) the restrictions applicable to each outstanding share of restricted
stock shall lapse and such restricted stock shall become fully vested
and transferable to the full extent of the original grant; and
(C) each outstanding performance unit shall be considered to be earned
and payable in full.
(d) "Cause" for termination of a participant's employment means his illegal
conduct or gross misconduct that in either case is willful and results in
material damage to his employer's business or reputation or his willful failure
or refusal to perform his duties or obligations to his employer or to comply in
all material respects with the lawful directives of his employer's Chief
Executive Officer or Board of Directors, provided that the participant has
received written notice from his employer stating the nature of such failure or
refusal and has reasonable opportunity to correct the stated deficiency.
(e) "Cause" for termination of a non-executive director's directorship
means his illegal conduct or gross misconduct that in either case is willful
and results in material damage to the Company's business or reputation or his
willful failure or refusal to perform his duties or obligations to the
Company.
(f) "Change in Control" means with respect to the Company any of the
following:
(i) any event affecting the Company that would be required to be
reported by a reporting company as a change in control pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act");
(ii) any "person" (as that term is used in Section 13(d) of the
Exchange Act) becomes the "beneficial owner" (as defined by Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of either the then outstanding
shares of the Company's Common Stock or the combined voting power of
the Company's then outstanding securities;
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(iii) at any time during any twenty-four month period, the individuals
who were serving on the Board of Directors of the Company at the
beginning of that period or who were nominated for election or were
elected to that Board during that period by a vote of at least
two-thirds of such individuals still in office shall cease to
constitute a majority of that Board;
(iv) any merger or consolidation of the Company with any other
corporation or any sale of all or substantially all of the assets of
the Company, other than a merger, consolidation or sale that results in
the voting securities of the Company outstanding immediately prior
thereto continuing to represent more than 50% of the combined voting
power of the voting securities of the Company or the surviving entity
or any parent thereof outstanding immediately thereafter; or
(v) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
(g) "Good Reason" with respect to the voluntary termination of a
participant's employment means the occurrence, after a Change in Control, of
(i) any adverse change in his status, position, authority or
responsibilities, (ii) a reduction in his compensation, or (iii) any material
change in his employment location.
(h) This Section 15, as amended, shall apply to all Options, stock
appreciation rights, restricted stock and performance units awarded on or
after February 19, 1998 and shall also apply to each Option granted prior to
that date if the optionee elects to have this Section 15, as amended, apply
to his Options and gives written notice of that election to the Secretary of
the Company no later than July 31, 1998.
SECTION 16. AMENDMENT AND TERMINATION OF THE PLAN. The Plan shall terminate on
the twentieth anniversary of the date of approval of the Plan by Northwest
Industries, Inc., and no award shall be granted hereunder after such
termination. Termination of the Plan shall not affect any outstanding awards.
The Committee shall have the power where consistent with the general purpose and
intent of the Plan to modify the requirements of the Plan to conform with
applicable law or to meet special circumstances not anticipated or covered in
the Plan, and the Company, by its Board of Directors, reserves the right at any
time to modify, amend, supplement, or suspend the Plan, except neither the
Committee nor the Company may (a) impair any awards already made, or (b) without
the approval of the stockholders of the Company (other than of the stockholders
of stock not entitled to vote on the matter requiring approval), except as
contemplated by Section 14, (i) increase the number of shares of Common Stock
which may be issued under the Plan, (ii) materially modify the requirements as
to eligibility for participation in the Plan, (iii) materially increase the
benefits accruing to participants or non-executive directors under the Plan or
(iv) have the effect of providing for the grant of Options to purchase Common
Stock at less than the fair market value per share thereof on
11
<PAGE>
the applicable date of grant of the Options. Notwithstanding any other
provision of this Section 16, the provisions of the Plan applicable to
non-executive directors which govern (A) the number of shares of Common Stock
covered by each Option award to a non-executive director of the Company, (B)
the exercise price per share of Common Stock under each such Option, (C) when
and under what circumstances each such Option will be granted and (D) the
period within which each such Option may be exercised, shall not be amended,
except as contemplated by Section 14, more than once every six months, other
than to comport with changes in the Code or the rules promulgated thereunder,
and the Employee Retirement Income Security Act of 1974, as amended, or the
rules promulgated thereunder.
SECTION 17. DELIVERY OF SHARES. Each award hereunder is further subject to
the condition that if, at any time, the Board of Directors shall in its sole
discretion determine that the listing, registration, or qualification of the
shares of Common Stock covered by such award upon any securities exchange or
under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of or
in connection with the purchase or delivery of shares of Common Stock
thereunder, the delivery of all shares of Common Stock pursuant to exercise
of the Option or stock appreciation right may be withheld or may be made
subject to such conditions as the Committee may deem appropriate unless and
until such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board of Directors.
SECTION 18. EFFECTIVE DATE. The Plan shall become effective upon the
distribution of the Company's Common Stock to the shareholders of Northwest
Industries, Inc.
12
<PAGE>
PROXY LONE STAR TECHNOLOGIES, INC. PROXY
14681 Midway Road, Suite 200
Dallas, Texas 75244
Annual Meeting May 11, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy, when properly executed, will be voted in the manner directed
by the undersigned shareholder. IF NO DIRECTION IS MADE AS TO THE NOMINEE FOR
ELECTION, THIS PROXY WILL BE VOTED FOR THE NOMINEE NAMED. IF NO DIRECTION IS
MADE AS TO PROPOSAL 2, THIS PROXY WILL BE VOTED FOR PROPOSAL 2.
The undersigned, having received the notice and accompanying Proxy
Statement for said meeting, hereby appoints as Proxies Rhys J. Best, Robert
F. Spears and Charles J. Keszler, or any one of them, with power of
substitution in each, to vote at the annual meeting or any adjournments
thereof all the shares of Lone Star Technologies, Inc. which the undersigned
may be entitled to vote. The above Proxies are, and each of them is, hereby
instructed to vote as shown on the reverse side of this card.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
/X/ Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE LISTED AND
FOR PROPOSAL 2.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
WITHHOLD Nominee is:
AUTHORITY Dean P. Guerin,
FOR TO for a term.
NOMINEE VOTE expiring 2000.
1. Election
of Director / / / /
FOR AGAINST ABSTAIN
2. Proposal to approve amendments to the 1985 Long-Term / / / / / /
Incentive Plan of Lone Star Technologies, Inc.
3. In their discretion, upon other business as may properly come before
the meeting or any adjournment(s) thereof.
</TABLE>
SIGNATURE(S) DATE
------------------------------------- -------------------------
SIGNATURE(S) DATE
------------------------------------- -------------------------
(SIGNATURE IF HELD JOINTLY)
This proxy must be dated and signed EXACTLY as shown hereon. Executors,
administrators, trustees, etc., should give full title as such. If a
corporation, please sign full corporate name as duly authorized officer.
