UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended: December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission File Number: 1-7677
LSB INDUSTRIES, INC.
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Delaware |
73-1015226 |
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(State of Incorporation) |
(I.R.S. Employer |
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16 South Pennsylvania Avenue |
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(Address of Principal Executive Offices |
(Zip Code) |
Registrant's Telephone Number, Including Area Code: (405) 235-4546
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Preferred Share Purchase Rights, $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 and
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Name of Each Exchange |
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Common Stock, Par Value $.10 |
Over-the-Counter Bulletin Board |
(Facing Sheet Continued)
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for the shorter period that the Registrant has had to file the reports), and (2) has been subject to the filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES ___ No X
The aggregate market value of the Registrant's voting common equity held by non-affiliates of the Registrant, based on the last average bid and asked price of the common stock on June 28, 2002, as reported on the Over-the-Counter Bulletin Board, was approximately $23.3 million. For purposes of this computation, shares of the Registrant's common stock beneficially owned by each officer and director and Jayhawk Capital Management, L.L.C. and its affiliates are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors and such other beneficial owners of our common stock are, in fact, affiliates of the Registrant. In addition, this computation does not include the 1,204 shares of voting Convertible Non-Cumulative Preferred Stock (the "Non-Cumulative Preferred Stock") held by non-affiliates of the Company. An active trading market does not exist for the shares of Non-Cumulative Preferred Stock.
As of March 31, 2003, the Registrant had 12,420,688 shares of common stock outstanding (excluding 3,272,426 shares of common stock held as treasury stock).
Explanatory Note
This Form 10-K/A is being filed as Amendment No. 1 to the
Form 10-K of LSB Industries, Inc., filed with the Securities and Exchange
Commission on April 2, 2003, for the purpose of providing the information
required under Part III, Items 10, 11, 12, and 13, and to correct and update the
list of exhibits set forth in Part IV, Item 15. As required by the rules of the
Securities and Exchange Commission, this Amendment No. 1 also includes currently
dated exhibits 99.1 and 99.2.
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PART III
Item 10. Directors and Executive Officers of the Company
Directors The Certificate of Incorporation and By-laws of the Company provide for the division of the Board of Directors into three classes, each class consisting as nearly as possible of one-third of the whole. The term of office of one class of directors expires each year, with each class of directors elected for a term of three years and until the shareholders elect their qualified successors.
The Company's By-laws provide that the Board of Directors, by resolution from time to time, may fix the number of directors that shall constitute the whole Board of Directors. The By-laws presently provide that the number of directors may consist of not less than 3 nor more than 12. As of the date of this report, the Board of Directors currently has set the number of directors at 12.
The By-laws of the Company further provide that only persons nominated by or at the direction of: (a) the Board of Directors of the Company, or (b) any stockholder of the Company entitled to vote for the election of the directors that complies with certain notice procedures, shall be eligible for election as a director of the Company. Any stockholder desiring to nominate any person as a director of the Company must give written notice to the Secretary of the Company at the Company's principal executive office not less than 50 days prior to the date of the meeting of stockholders to elect directors; except, if less than 60 day's notice or prior disclosure of the date of such meeting is given to the stockholders, then written notice by the stockholder must be received by the Secretary of the Company not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. In addition, if the stockholder proposes to nominate any person, the stockholder's written notice to the Company must provide all information relating to such person that the stockholder desires to nominate that is required to be disclosed in solicitation of proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.
The terms of the $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 ("Series 2 Preferred") provide that whenever dividends on the Series 2 Preferred are in arrears and unpaid in an amount equal to at least six quarterly dividends: (a) the number of members of the Board of Directors of the Company shall be increased by two effective as of the time of election of such directors; (b) the Company shall, upon the written request of the record holder of 10% of the shares of Series 2 Preferred, call a special meeting of the Preferred Stockholders for the purpose of electing such two additional directors; and (c) the Preferred Stockholders have the exclusive right to vote for and elect such two additional directors.
At the request of Jayhawk Capital Management, L.L.C., a special meeting of the holders of the Series 2 Preferred was held on March 11, 2002 for the purpose of electing the two additional directors to the Company's Board of Directors. At this special meeting, the holders of the Company's Series 2 Preferred elected two new members of the Company's Board of Directors, Dr. Allen Ford and Mr. Grant Donovan, as permitted pursuant to the terms of the Series 2 Preferred. The election of Dr. Ford and Mr. Donovan increased the number of directors from 10 to 12.
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The following table sets forth the name, principal occupation, age, year in which the individual first became a director, and year in which the director's term will expire.
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Barry H. Golsen (1) |
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David R. Goss (2) |
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Robert C. Brown, M.D. (3) |
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Charles A. Burtch (4) |
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Jack E. Golsen (5) |
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Horace G. Rhodes (6) |
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Raymond B. Ackerman (7) |
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Bernard G. Ille (8) |
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Donald W. Munson (9) |
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Tony M. Shelby (10) |
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Grant J. Donovan (11) |
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Dr. N. Allen Ford (12) |
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(1 |
) |
Mr. Golsen, L.L.B., has served as Vice Chairman of the Board of the Company since August 1994, and for more than five (5) years has been the President of the Company's Climate Control Business. Mr. Golsen has both his undergraduate and law degrees from the University of Oklahoma. |
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(2 |
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Mr. Goss, a certified public accountant, is Senior Vice President - Operations of the Company and has served in substantially the same capacity for more than five years. Mr. Goss is a graduate of Rutgers University. |
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(3 |
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Dr. Brown has practiced medicine for many years and is Vice President and Treasurer of Plaza Medical Group, P.C. Dr. Brown is a graduate of Tufts University and received his medical degree from Tufts University. |
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(4 |
) |
Mr. Burtch was formerly Executive Vice-President and West Division Manager of BankAmerica, where he managed BankAmerica's asset-based lending division for the western third of the United States. Mr. Burtch retired in 1998 and has since been engaged as a private investor. He is a graduate of Arizona State University. |
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(5 |
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Mr. Golsen, founder of the Company, is Chairman of the Board and President of the Company and has served in that capacity since the inception of the Company in 1969. During 1996, Mr. Golsen was inducted into the Oklahoma Commerce and Industry Hall of Honor as one of Oklahoma's leading industrialists. Mr. Golsen has a degree from the University of New Mexico in Biochemistry. |
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(6 |
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Mr. Rhodes is the Chairman of the law firm of Kerr, Irvine, Rhodes & Ables and has served in such or similar capacity and has practiced law for more than five years. From 1972 until 2001, Mr. Rhodes served as Executive Vice President and General Counsel for the Association of Oklahoma Life Insurance Companies and since 1982 has served as Executive Vice President and General Counsel for the Oklahoma Life and Health Insurance Guaranty Association. Mr. Rhodes received his undergraduate and law degrees from the University of Oklahoma. |
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(7 |
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From 1972 until his retirement in 1992, Mr. Ackerman served as Chairman of the Board and President of Ackerman, McQueen, Inc., the largest advertising and public relations firm headquartered in Oklahoma. Mr. Ackerman currently serves as Chairman Emeritus of Ackerman, McQueen, Inc. Mr. Ackerman retired as a Rear Admiral from the United States Naval Reserves. Mr. Ackerman is a graduate of Oklahoma City University, and in 1996, he was awarded an honorary doctorate from Oklahoma City University. He was elected to the Oklahoma Hall of Fame in 1993. |
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(8 |
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Mr. Ille served as President and Chief Executive Officer of First Life Assurance Company from May 1988, until it was acquired by another company in March 1994. For more than five years prior to joining First Life, Mr. Ille served as President of United Founders Life Insurance Company. Mr. Ille is a director of Landmark Land Company, Inc., which was parent company of First Life. Mr. Ille is also a director for Quail Creek Bank, N.A. Mr. Ille is currently President of BML Consultants and a private investor. He is a graduate of the University of Oklahoma. |
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(9 |
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From January 1988, until his retirement in August 1992, Mr. Munson served as President and Chief Operating Officer of Lennox Industries. Prior to his election as President and Chief Operating Officer of Lennox Industries, Mr. Munson served as Executive Vice President of Lennox Industries' Division Operations, President of Lennox Canada and Managing Director of Lennox Industries' European Operations. Prior to joining Lennox Industries, Mr. Munson served in various capacities with the Howden Group, a company located in England, and The Trane Company, including serving as the managing director of various companies within the Howden Group and Vice President Europe for The Trane Company. Mr. Munson is currently a consultant and international distributor for the Ducane Company, an equipment manufacturer, and is serving as a member of the Board of Directors of Multi Clima SA, a French manufacturer of air conditioning - heating equipment, which a subsidiary of the Company has an option to acquire. Mr. Munson is a resident of England. Mr. Munson has degrees in mechanical engineering and business administration from the University of Minnesota. |
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(10 |
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Mr. Shelby, a certified public accountant, is Senior Vice President and Chief Financial Officer of the Company, a position he has held for more than five years. Prior to becoming Senior Vice President and Chief Financial Officer of the Company, Mr. Shelby served as Chief Financial Officer of a subsidiary of the Company and was with the accounting firm of Arthur Young & Co., a predecessor to Ernst & Young, L.L.P. Mr. Shelby is a graduate of Oklahoma City University. |
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(11 |
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Mr. Donovan, is President and founder of Galehead, Inc. a company specializing on the collections of accounts receivable in the international maritime trade business. Prior to forming Galehead, Inc., Mr. Donovan was a partner in a real estate development firm specializing in revitalizing functionally obsolete industrial buildings. Mr. Donovan received his MBA from Stanford University and his undergraduate degree in Civil Engineering from the University of Vermont. He currently is on the board of directors of EngenderHealth, a 50 year old international aid organization focused on improving women's healthcare. |
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(12 |
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Dr. Ford joined the University of Kansas in 1976. He received his Ph.D. in Accounting from the University of Arkansas. Dr. Ford's teaching and research duties focus mainly on taxation. At the University of Kansas, Professor Ford has won several teaching awards and is the Larry D. Horner/KPMG Peat Marwick Distinguished Professor of Accounting. Dr. Ford teaches the following courses in taxation: individual, corporate, partnership, S corporation, gift and estate tax. He is active in professional organizations such as the American Taxation Association and the American Accounting Association. |
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(13 |
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Mr. Donovan's and Dr. Ford's service as directors began March 11, 2002 upon their election by the holders of the Series 2 Preferred. The terms of the Series 2 Preferred provide that (a) the right of the holders of the Series 2 Preferred to vote for such two additional directors shall terminate, subject to re-vesting in the event of a subsequent similar arrearage, when all cumulative and unpaid dividends on the Series 2 Preferred have been declared and set apart for payment; and (b) pursuant to the terms of the Series 2 Preferred, the term of office will terminate immediately upon the termination of the right of the Series 2 Preferred holders to vote for such two additional directors, subject to the requirements of Delaware law. The Series 2 Preferred holders have the right to remove without cause at any time and replace either of the two directors that the Series 2 Preferred holders have elected. |
Family Relationships Jack E. Golsen is the father of Barry H. Golsen and the brother-in-law of Robert C. Brown, M.D. Robert C. Brown, M.D. is the uncle of Barry H. Golsen.
Executive Officers Certain information with respect to the executive officers of the Company is set forth under Item 4A of Part I hereof.
Section 16(a) Beneficial Ownership Reporting Compliance Based solely on a review of copies of the Forms 3, 4 and 5 and amendments thereto furnished to the Company with respect to 2002, or written representations that no such reports were required to be filed with the Securities and Exchange Commission, the Company believes that during 2002 all directors and officers of the Company and beneficial owners of more than 10% of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act filed their required Forms 3, 4, or 5, as required by Section 16(a) of the Securities Exchange Act of 1934, as amended, on a timely basis, except (a) Jayhawk Investments, L.P. filed one late Form 5 to report two transactions during 2002 and one late Form 5 to report 8 transactions during 2001, and (b) Jayhawk Institutional Partners, L.P. filed one late Form 5 to report 11 transactions during 2002.
Item 11. Executive Compensation.
The following table shows the aggregate cash compensation which the Company and its subsidiaries paid or accrued to the Chief Executive Officer and each of the other four most highly-paid executive officers of the Company (which includes the Vice Chairman of the Board who also serves as President of the Company's Climate Control Business). The table includes cash distributed for services rendered during 2002, plus any cash distributed during 2002 for services rendered in a prior year, less any amount relating to those services previously included in the cash compensation table for a prior year.
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Summary Compensation Table
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Long-term |
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Securities |
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Jack E. Golsen, |
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Barry H. Golsen |
2002 |
326,600 |
85,000 |
- |
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David R. Goss, |
2002 |
190,500 |
75,000 |
- |
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Tony M. Shelby |
2002 |
190,500 |
85,000 |
- |
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David M. Shear, |
2002 |
165,000 |
50,000 |
- |
(1) Bonuses are for services rendered for the prior fiscal year.
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Certain Option Grants in 2002 There were no individual grants of stock options made to any of the named executive officers in the above Summary Compensation table during 2002.
Aggregated Option Exercises in 2002
and Fiscal Year End Option Values
The following table sets forth information concerning the number and value of unexercised options held by each of the named executive officers during 2002 and the year-end value of unexercised options.
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Name |
Exercisable/Unexercisable |
Exercisable/Unexercisable |
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Jack E. Golsen |
- |
- |
185,500 / 79,500 |
$ |
279,781 / $119,906 |
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Barry H. Golsen |
- |
- |
112,500 / 62,500 |
$ |
159,583 / $ 68,955 |
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David R. Goss |
(3) |
$ |
2,200 |
158,000 / 42,000 |
$ |
108 710 / $ 47,340 |
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Tony M. Shelby |
(4) |
$ |
2,200 |
158,000 / 42,000 |
$ |
108,710 / $ 47,340 |
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David M. Shear |
(5) |
$ |
2,318 |
137,000 / 42,000 |
$ |
108,710 / $ 47,340 |
(1) The stock options granted under the Company's stock option plans become exercisable 20% after one year from date of grant, an additional 20% after two years, an additional 30% after three years, and the remaining 30% after four years.
(2) The values are based on the difference between the price of the Company's Common Stock on the Over-the-Counter Bulletin Board at the close of trading on December 31, 2002 of $2.80 per share and the exercise price of such option. The actual value realized by a named executive officer on the exercise of these options depends on the market value of the Company's Common Stock on the date of exercise.
(3) Mr. Goss exercised his right to purchase shares of the Company's common stock under the Company's stock option plans by acquiring 8,000 shares at an aggregate purchase price of $25,000. These 8,000 shares were acquired at an option price per share of $3.125 under the incentive stock options ("ISO") granted to Mr. Goss on June 1, 1992. As consideration for the acquisition of such shares, Mr. Goss transferred to the Company 7,353 shares of the Company's common stock owned by him, having a value of $3.40 on May 31, 2002, the date of such exercise, for an aggregate fair market value of $25,000.
(4) Mr. Shelby exercised his right to purchase shares of the Company's common stock under the Company's stock option plans by acquiring 8,000 shares at an aggregate purchase price of $25,000. These 8,000 shares were acquired at an option price per share of $3.125 under the ISO granted to Mr. Shelby on June 1, 1992. As consideration for the acquisition of such shares, Mr. Shelby transferred to the Company 7,353 shares of the Company's common stock owned by him, having a value of $3.40 on May 31, 2002, the date of such exercise, for an aggregate fair market value of $25,000.
-8-
(5) Mr. Shear exercised his right to purchase shares of the Company's common stock under the Company's stock option plans by acquiring 7,600 shares at an aggregate price of $23,750. These 7,600 shares were acquired at an exercised price per share of $3.125 under the ISO granted to Mr. Shear on June 1, 1992. As consideration for the acquisition of such shares, Mr. Shear's spouse, Heidi Brown Shear, transferred to the Company as a bona fide gift to her spouse 6,846 shares of the Company's common stock owned by her, having a value of $3.43 per share on May 29, 2002, the day the 6,846 shares were delivered, for an aggregate fair market value of $23,482. Mr. Shear paid an additional $268 to the Company.
Other Plans The Board of Directors has adopted an LSB Industries,
Inc., Employee Savings Plan (the "401(k) Plan") for the employees (including
executive officers) of the Company and its subsidiaries, excluding certain (but
not all) employees covered under union agreements. The 401(k) Plan is an
employee contribution plan, and the Company and its subsidiaries make no
contributions (with limited matching exceptions at two certain locations) to the
401(k) Plan. The amount that an employee may contribute to the 401(k) Plan
equals a certain percentage of the employee's compensation, with the percentage
based on the employee's income and certain other criteria as required under
Section 401(k) of the Internal Revenue Code. The Company or subsidiary deducts
the amounts contributed to the 401(k) Plan from the employee's compensation each
pay period, in accordance with the employee's instructions, and pays the amount
into the 401(k) Plan for the employee's benefit. The Summary Compensation Table
set forth above includes any amount contributed and deferred during the 2002,
2001, and 2000 fiscal years pursuant to the 401(k) Plan by the named executive
officers of the Company.
The Company has a death benefit plan for certain key
employees which is in the process of being revised. Under the existing plan, the
designated beneficiary of an employee covered by the plan will receive a monthly
benefit for a period of 10 years if the employee dies while in the employment of
the Company or a wholly-owned subsidiary of the Company. The agreement with each
employee provides, in addition to being subject to other terms and conditions
set forth in the agreement, that the Company may terminate the agreement as to
any employee at anytime prior to the employee's death. The Company has purchased
life insurance on the life of each employee covered under the plan to provide,
in large part, a source of funds for the Company's obligations under the plan.
The Company also will fund a portion of the benefits by investing the proceeds
of such insurance policy received by the Company upon the employee's death. The
Company is the owner and sole beneficiary of the insurance policy, with the
proceeds payable to the Company upon the death of the employee. The following
table sets forth the amounts of annual benefits payable to the designated
beneficiary or beneficiaries of the executive officers named in the Summary
Compensation Table set forth above under the above-described death benefits
plan.
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Amount of Annual Payment |
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Jack E. Golsen |
$ |
175,000 |
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Barry H. Golsen |
$ |
30,000 |
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David R. Goss |
$ |
35,000 |
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Tony M. Shelby |
$ |
35,000 |
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David M. Shear |
$ |
N/A |
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In addition to the above-described plans, during 1991 the Company entered into a non-qualified arrangement with certain key employees of the Company and its subsidiaries to provide compensation to such individuals in the event that they are employed by the Company or a subsidiary of the Company at age 65. This arrangement is also in the process of being revised. Under the plan, the employee will be eligible to receive for the life of such employee, a designated benefit as set forth in the plan. In addition, if prior to attaining the age 65 the employee dies while in the employment of the Company or a subsidiary of the Company, the designated beneficiary of the employee will receive a monthly benefit for a period of 10 years. The agreement with each employee provides, in addition to being subject to other terms and conditions set forth in the agreement, that the Company may terminate the agreement as to any employee at any time prior to the employee's death. The Company has purchased insurance on the life of each employee covered under the plan where the Company is the owner and sole beneficiary of the insurance policy, with the proceeds payable to the Company to provide a source of funds for the Company's obligations under the plan. The Company may also fund a portion of the benefits by investing the proceeds of such insurance policies. Under the terms of the plan, if the employee becomes disabled while in the employment of the Company or a wholly-owned subsidiary of the Company, the employee may request the Company to cash-in any life insurance on the life of such employee purchased to fund the Company's obligations under the plan. Jack E. Golsen does not participate in the plan. The following table sets forth the amounts of annual benefits payable to the executive officers named in the Summary Compensation Table set forth above under such retirement plan.
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Amount of Annual Payment |
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Barry H. Golsen |
$ |
17,480 |
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David R. Goss |
$ |
17,403 |
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Tony M. Shelby |
$ |
15,605 |
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David M. Shear |
$ |
17,822 |
The two plans set forth above are in the process of being revised into a single program which would provide a combined benefit. The details of the revised program which will replace the death benefit plan and the non-qualified arrangement described above are being finalized. The revised plan may be materially altered prior to such finalization. It provides for a non-qualified arrangement with certain key employees of the Company and its subsidiaries to provide compensation to such individuals in the event that they are employed by the Company or a subsidiary of the Company at age 65 (and participate in the plan for 10 years). Under the plan the employee will be eligible to receive a designated benefit as set forth in the plan for 10 years. In addition, if prior to attaining age 65 the employee dies while in the employment of the Company or a subsidiary of the Company, the designated beneficiary of the employee will receive a monthly benefit for a period of 10 years. The agreement with each employee provides, in addition to being subject to other terms and conditions set forth in the agreement, that the Company may terminate the agreement as to any employee at any time prior to the employee's death. The Company has purchased insurance on the life of each employee covered under the plan where the Company is the owner and sole beneficiary of the insurance policy, with the proceeds payable to the Company to provide a source of funds for the Company's obligations under the plan. The Company may also fund a portion of the benefits by investing the proceeds of such insurance policies. Under the terms of the plan, if the employee becomes disabled while in the employment of the Company or a wholly-owned
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subsidiary of the Company, the employee may request the Company to cash-in any life insurance on the life of such employee purchased to fund the Company's obligations under the plan. Jack E. Golsen participates only in the death benefit aspect of the plan. The following table sets forth the amounts of annual benefits payable to the beneficiaries of the employee or to the executive officers named in the Summary Compensation Table set forth above under such retirement plan.
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Maximum Salary |
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Jack E. Golsen |
$ |
120,050 | $ | - | |||
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Barry H. Golsen |
$ |
97,213 | $ | 97,213 | |||
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David R. Goss |
$ |
60,363 | $ | 60,363 | |||
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Tony M. Shelby |
$ |
72,888 | $ | 72,888 | |||
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David M. Shear |
$ |
37,500 | $ | 37,500 |
(1) If employee attains age 65 and completes 10 years
participation in the plan.
(2) Employees who reach age 65 prior to 10 years participation in the plan will
receive a reduced benefit depending on years of participation.
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Company, the Company
terminates the officer's employment other than for cause (as defined), or the
officer terminates his employment for good reason (as defined), the Company must
pay the officer an amount equal to 2.9 times the officer's base amount (as
defined). The phrase "base amount" means the average annual gross compensation
paid by the Company to the officer and includable in the officer's gross income during the period consisting of the most recent five year period immediately preceding the change in control. If the officer has been employed by the Company for less than five years, the base amount is calculated with respect to the most recent number of taxable years ending before the change in control that the officer worked for the Company.
The severance agreements provide that a "change in control" means a change in control of the Company of a nature that would require the filing of a Form 8-K with the Securities and Exchange Commission and, in any event, would mean when: (a) any individual, firm, corporation, entity, or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as mended) becomes the beneficial owner, directly or indirectly, of 30% or more of the combined voting power of the Company's outstanding voting securities having the right to vote for the election of directors, except acquisitions by (i) any person, firm, corporation, entity, or group which, as of the date of the severance agreement, has that ownership, or (ii) Jack E. Golsen, his wife; his children and the spouses of his children; his estate; executor or administrator of any estate, guardian or custodian for Jack E. Golsen, his wife, his children, or the spouses of his children, any corporation, trust, partnership, or other entity of which Jack E. Golsen, his wife, children, or the spouses of his children own at least 80% of the outstanding beneficial voting or equity interests, directly or indirectly, either by any one or more of the above-described persons, entities, or estates; and certain affiliates and associates of any of the above-described persons, entities, or estates; (b) individuals who, as of the date of the severance agreement, constitute the Board of Directors of the Company (the "Incumbent Board") and who cease for any reason to constitute a majority of the Board of Directors except that any person becoming a director subsequent to the date of the severance agreement, whose election or nomination for election is approved by a majority of the Incumbent Board (with certain limited exceptions), will constitute a member of the Incumbent Board; or (c) the sale by the Company of all or substantially all of its assets.
Except for the severance agreement with Jack E. Golsen, the termination of an officer's employment with the Company "for cause" means termination because of: (a) the mental or physical disability from performing the officer's duties for a period of 120 consecutive days or one hundred eighty days (even though not consecutive) within a 360 day period; (b) the conviction of a felony; (c) the embezzlement by the officer of Company assets resulting in substantial personal enrichment of the officer at the expense of the Company; or (d) the willful failure (when not mentally or physically disabled) to follow a direct written order from the Company's Board of Directors within the reasonable scope of the officer's duties performed during the 60 day period prior to the change in control. The definition of "Cause" contained in the severance agreement with Jack E. Golsen means termination because of: (a) the conviction of Mr. Golsen of a felony involving moral turpitude after all appeals have been completed; or (b) if due to Mr. Golsen's serious, willful, gross misconduct or willful, gross neglect of his duties has resulted in material damages to the Company and its subsidiaries, taken as a whole, provided that (i) no action or failure to act by Mr. Golsen will constitute a reason for termination if he believed, in
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good faith, that such action
or failure to act was in the Company's or its subsidiaries' best interest, and
(ii) failure of Mr. Golsen to perform his duties hereunder due to disability shall not be considered willful, gross misconduct or willful, gross negligence of his duties for any purpose.
The termination of an officer's employment with the Company for "good reason" means termination because of (a) the assignment to the officer of duties inconsistent with the officer's position, authority, duties, or responsibilities during the 60 day period immediately preceding the change in control of the Company or any other action which results in the diminishment of those duties, position, authority, or responsibilities; (b) the relocation of the officer; (c) any purported termination by the Company of the officer's employment with the Company otherwise than as permitted by the severance agreement; or (d) in the event of a change in control of the Company, the failure of the successor or parent company to agree, in form and substance satisfactory to the officer, to assume (as to a successor) or guarantee (as to a parent) the severance agreement as of no change in control had occurred.
Except for the severance agreement with Jack E. Golsen, each severance agreement runs until the earlier of: (a) three years after the date of the severance agreement, or (b) the officer's normal retirement date from the Company; however, beginning on the first anniversary of the severance agreement and on each annual anniversary thereafter, the term of the severance agreement automatically extends for an additional one-year period, unless the Company gives notice otherwise at least 60 days prior to the anniversary date. The severance agreement with Jack E. Golsen is effective for a period of three years from the date of the severance agreement; except that, commencing on
the date one year after the date of such severance agreement and on each annual
anniversary thereafter, the term of such severance agreement shall be
automatically extended so as to terminate three years from such renewal date,
unless the Company gives notices otherwise at least one year prior to the
renewal date.
(b) Employment Agreement The Company has an employment
agreement with Jack E. Golsen, the Chairman of the Board and President of the
Company, which requires the Company to employ Mr. Golsen as an executive officer
of the Company. The current term of the employment agreement will expire March
21, 2005; however, pursuant to an amendment to the employment agreement approved
by the Board of Directors, the term will be automatically renewed for up to
three additional three-year periods. The employment agreement may be terminated
by either party by written notice at least one year prior to the expiration of
the then current term. Under the terms of such employment agreement, Mr. Golsen
shall be paid (a) an annual base salary at his 1995 base rate, as adjusted from
time to time by the Compensation Committee, but such shall never be adjusted to
an amount less than Mr. Golsen's 1995 base salary, (b) an annual bonus in an
amount as determined by the Compensation Committee, and (c) receive from the
Company certain other fringe benefits.
The employment agreement provides that Mr. Golsen's
employment may not be terminated, except (a) upon conviction of a felony
involving moral turpitude after all appeals have been exhausted, (b) Mr.
Golsen's serious, willful, gross misconduct or willful, gross negligence of
duties resulting in material damage to the Company and its subsidiaries, taken
as a whole, unless Mr. Golsen believed, in good faith, that such action or
failure to act was in the Company's or its subsidiaries' best interest, and (c)
Mr. Golsen's death. However, no such termination under (a) or (b) above may
occur unless and until the Company has delivered to Mr. Golsen a resolution duly
adopted by an
-13-
affirmative vote of three-fourths of the entire membership of
the Board of Directors at a meeting called for such purpose after reasonable
notice given to Mr. Golsen finding, in good faith, that Mr. Golsen violated (a) or (b)
above.
If Mr. Golsen's employment is terminated in breach of the employment agreement,
then he shall, in addition to his other rights and remedies, receive and the
Company shall pay to Mr. Golsen (a) in a lump sum cash payment, on the date of
termination, a sum equal to the amount of Mr. Golsen's annual base salary at the
time of such termination and the amount of the last bonus paid to Mr. Golsen
prior to such termination times the number of years remaining under the then
current term of the employment agreement and (b) provide to Mr. Golsen all of the fringe
benefits that the Company was obligated to provide during his employment under
the employment agreement for the remainder of the term of the employment
agreement.
If there is a change in control (as defined in the severance agreement between Mr. Golsen and the Company) and within 24 months after such change in control Mr. Golsen is terminated, other than for Cause (as defined in the severance agreement), then in such event, the severance agreement between Mr. Golsen and the Company shall be controlling.
In the event Mr. Golsen becomes disabled and is not able to perform his duties under the employment agreement as a result thereof for a period of 12 consecutive months within any two year period, the Company shall pay Mr. Golsen his full salary for the remainder of the term of the employment agreement and thereafter 60% of such salary until Mr. Golsen's death.
Compensation Committee Interlocks and Insider Participation The Company's Executive Salary Review Committee has the authority to set the compensation of all officers of the Company. This Committee generally considers and approves the recommendations of the President. The members of the Executive Salary Review Committee are the following non-employee directors: Robert C. Brown, M.D., and Bernard G. Ille. During 2002, the Executive Salary Review Committee had
3 meetings.
See "Compensation of Directors" for information concerning compensation paid to non-employee directors of the Company during 2002 for services as a director to the Company, and Item 13 "Certain Relationships and Related Transactions" for information concerning compensation paid to an affiliate of Mr. Brown.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth the information concerning the number of securities to be issued upon the exercise of outstanding stock options, the weighted-average exercise price and the number of securities remaining available under equity compensation plans approved and not approved by security holders at December 31, 2002.
-14-
|
Equity Compensation Plan Information |
|
|
|
|
Number of securities remaining available for future issuance under equity compensation
|
|
Equity compensation plans approved by security holders (1) |
|
|
|
|
||
|
Equity compensation plans not approved by security holders (2) |
|
|
|
|
||
|
Total |
2,772,600 |
$ |
2.34 |
851,300 |
(1) Stockholder Approved Plans. The Company's equity compensation plans which are approved by the Company's stockholders are the following:
1986 Incentive Stock Option Plan (the "1986 Plan"). As of December 31, 2002, 10,000 shares are issuable under outstanding options granted under the 1986 Plan and no additional shares are available for future issuance.
1993 Stock Option and Incentive Plan (the "1993 Plan"). As of December 31, 2002, 492,000 shares are issuable under outstanding options granted under the 1993 Plan and 355,800 additional shares are available for future issuance.
1998 Stock Option Plan (the "1998 Plan"). As of December 31, 2002, 922,600 shares are issuable under outstanding options granted under the 1998 Plan and 50,500 additional shares are available for future issuance.
Outside Directors Stock Option Plan (the "Outside Directors Plan"), as of December 31, 2002, 105,000 shares are issuable under outstanding options granted under the Outside Directors Plan and 295,000 additional shares are available for future issuance. The Outside Directors Plan authorizes the Company to grant options to purchase common stock to each member of our Board of Directors who is not an officer or employee of the Company or its subsidiaries. These options become fully exercisable after six months and one day from the date of grant and lapse at the end of ten years. The exercise price of options granted under the Outside Directors Plan is equal to the market value of our common stock at the date of grant.
1993 Non-Employee Directors Stock Option Plan (the "1993 Directors Plan"). As of December 31, 2002, no shares have been granted under the 1993 Directors Plan and 150,000 shares are available for future issuance. The 1993 Directors Plan authorizes the grant of nonqualified stock options to each member of our Board of Directors who is not an officer or employee of the Company or its subsidiaries. Options granted to non-employee Directors of the Company become fully exercisable after six months from the date of grant. Pursuant to the terms of the 1993 Directors Plan, each outside director receives an option to acquire 5,000 shares of our common stock on April 30 following
-15-
the end of each year in which the Company realizes net income of $9.2 million or more for such year. The exercise price for these options is the fair market value of the shares of common stock at the time of grant. Each option granted under this plan expires upon the earlier of the termination as a member of our Board of Directors or the fifth anniversary of the date such option was granted.
The 1986 Plan, 1993 Plan, and 1998 Plan each authorize the Company to grant options to purchase common stock to our employees. All outstanding options granted to employees under these plans have a term of 10 years and become exercisable as to 20% of the underlying shares after one year from date of grant, 40% after two years, 70% after three years, and 100% after four years. The exercise price of outstanding options granted under these plans is equal to the market value of the Company's common stock at the date of grant. However, with respect to participants who own 10% or more of our common stock at the date of grant, the options have a term of five years, and the exercise price is 110% of the market value at the date of grant.
(2) Non-Stockholder Approval Plans.
From time to time, our Board of Directors has approved the grants of certain
nonqualified stock options as the Board has determined to be in the best
interest of the Company to compensate directors, officers, or employees for
service to the Company. Unless otherwise indicated below, (a) the price of each
such option is equal to the market value of our common stock at the date of
grant, (b) the options become exercisable as to 20% of the underlying shares
after one year from the date of grant, 40% after two years, 70% after three
years, and 100% after four years, and (c) each option expires 10 years from the
grant date. The Company's equity compensation plans which have not been approved
by the stockholders are the following:
Effective December 1, 2002, the Company granted nonqualified options to purchase up to an aggregate 112,000 shares of common stock to former employees of two former subsidiaries. These options were part of the employees' severance compensation arising from the sale of the former subsidiaries' assets. Each recipient of a grant received options for the same number of shares and having the same exercise price as under the recipient's vested incentive stock options which expired upon the sale. Each nonqualified option was exercisable as of the date of grant and has a term of 10 years from the original date of grant. Of the 112,000 shares issuable under the options, 4,000 shares have an exercise price of $9.00 per share and expired March 19, 2003, 34,000 have an exercise price of $4.188 per share and expire from August 18, 2004 through April 22, 2008, 34,000 have an exercise price of $2.37 per share and expire November 21, 2011, and 40,000 have an exercise price of $1.25 and expire July 8, 2009.
-16-
On November 29, 2001, the Company granted to employees of the Company nonqualified stock options to acquire 102,500 shares of common stock at an exercise price of $2.73 in consideration of services to the Company.
On July 20, 2000, the Company granted nonqualified options to a former employee of the Company to acquire 185,000 shares of common stock in consideration of services to the Company. The following are the exercise prices per share for these options: 5,000 shares at $5.362; 80,000 shares at $4.538; 60,000 shares at $1.375;
and 40,000 shares at $1.25. These options were for the same number of shares and the same exercise prices as under the stock options held by the former employee prior to leaving the Company. These options were fully vested at the date of grant and expire, as to 100,000 shares, nine years from the date of grant and as to the remaining 85,000 shares, seven years from the date of grant.
On April 22, 1998, the Company granted to certain employees
and to each member of our Board of Directors who was not an officer or employee
of the Company or its subsidiaries nonqualified stock options to acquire shares of common stock at an exercise price of $4.1875 per share in consideration of services to the Company.
As of December 31, 2002, 229,000 shares are issuable
under outstanding options under these agreements.
Security Ownership of Certain Beneficial Owners The following table shows the total number and percentage of the outstanding shares of the Company's voting Common Stock and voting Preferred Stock beneficially owned as of the close of business on April 14, 2003, with respect to each person (including any "group" as used in Section 13(d)(3) of the Securities Act of 1934, as amended) that the Company knows to have beneficial ownership of more than 5% of the Company's voting Common Stock and voting Preferred Stock. A person is deemed to be the beneficial owner of voting shares of Common Stock of the Company which he or she could acquire within 60 days of April 14, 2003.
Because of the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may beneficially own, the amounts shown below for an individual or entity may include shares also considered beneficially owned by others.
-17-
|
|
|
Amounts |
|
|
Jack E. Golsen and |
Common |
4,798,990 |
(3 |
) |
(5 |
) |
(6 |
) |
34.5 |
% |
||
|
Kent C. McCarthy & |
Common |
2,762,081 |
(7 |
) |
19.8 |
% |
||||||
|
Paul J. Denby |
Common |
900,556 |
(8 |
) |
7.1 |
% |
||||||
|
James W. Sight |
Common |
805,938 |
(9 |
) |
6.4 |
% |
||||||
(1) The Company based the information with respect to beneficial ownership on information furnished by the above-named individuals or entities or contained in filings made with the Securities and Exchange Commission or the Company's records.
(2) Includes Jack E. Golsen and the following members of his family: wife, Sylvia H. Golsen; son, Barry H. Golsen (a Director, Vice Chairman of the Board of Directors, and President of the Climate Control Business of the Company); son, Steven J. Golsen (Executive officer of several subsidiaries of the Company); and daughter, Linda F. Rappaport. The address of Jack E. Golsen, Sylvia H. Golsen, Barry H. Golsen, and Linda F. Rappaport is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107; and Steven J. Golsen's address is 7300 SW 44th Street, Oklahoma City, Oklahoma 73179.
(3) Includes (a) the following shares over which Jack E. Golsen ("J. Golsen") has the sole voting and dispositive power: (i) 40,000 shares that he owns of record, (ii) 4,000 shares that he has the right to acquire upon conversion of a promissory note, (iii) 133,333 shares that he has the right to acquire upon the conversion of 4,000 shares of the Company's Series B 12% Cumulative Convertible Preferred Stock (the "Series B Preferred") owned of record by a trust, of which he is the sole trustee, (iv) 22,090 shares owned of record by the MG Trust, of which he is the sole trustee, (v) 69,029 shares owned of record by a trust, of which he is the sole trustee, and (vi) 185,500 shares that he has the right to acquire within the next 60 days under the Company's stock option plans; (b) 643,290 shares owned of record by Sylvia H. Golsen, and 284,915 shares owned of record by a trust, of which Sylvia H. Golsen is the sole trustee, over which she and her husband, J. Golsen share voting and dispositive power; (c) 246,616 shares over which Barry H. ("B. Golsen") has the sole voting and dispositive power, 533 shares owned of record by B. Golsen's wife, over which he shares the voting and dispositive power, and 112,500 shares that he has the right to acquire within the next 60 days under the Company's stock option plans; (d) 206,987 shares over which Steven J. Golsen ("S. Golsen") has the sole voting and dispositive power and 74,000 shares that he has the right to acquire within the next 60 days under the Company's stock option plans; (e) 271,511 shares held in trust for the grandchildren and great grandchild of J. Golsen and Sylvia H. Golsen of which B. Golsen, S. Golsen and Linda F. Rappaport ("L. Rappaport") jointly
-18-
share voting and dispositive power; (f) 82,552 shares owned of record by L. Rappaport over which she has sole voting and dispositive power; (g) 1,336,199 shares owned of record by SBL Corporation ("SBL"), 39,177 shares that SBL has the right to acquire upon conversion of 9,050 shares of the Company's non-voting $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 (the "Series 2 Preferred"), 400,000 shares that SBL has the right to acquire upon conversion of 12,000 shares of Series B Preferred owned of record by SBL, and 250,000 shares that SBL has to right to acquire upon conversion of 1,000,000 shares of the Company's Series D 6% cumulative, convertible Class C preferred stock ("Series D Preferred") owned of record by SBL and (h) 88,100 shares owned of record by Golsen Petroleum Corporation ("GPC"), which is a wholly-owned subsidiary of SBL, 133,333 shares that GPC has the right to acquire upon conversion of 4,000 shares of Series B Preferred owned of record by GPC and 175,325 shares that GPC has the right to acquire upon conversion of 40,500 shares of Series 2 Preferred owned of record by GPC. SBL is wholly-owned by Sylvia H. Golsen (40% owner), B. Golsen (20% owner), S. Golsen (20% owner), and L. Rappaport (20% owner) and, as a result, SBL, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the voting and dispositive power of the shares beneficially owned by SBL. SBL's address is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107.
(4) Includes: (a) 4,000 shares of Series B Preferred owned of record by a trust, of which J. Golsen is the sole trustee, over which he has the sole voting and dispositive power; (b) 12,000 shares of Series B Preferred owned of record by SBL; (c) 4,000 shares Series B Preferred owned of record by SBL's wholly-owned subsidiary, GPC, over which SBL, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen, and L. Rappaport share the voting and dispositive power and (d) 1,000,000 shares of Series D Preferred owned of record by SBL.
(5) Does not include 176,850 shares of Common Stock that L. Rappaport's husband owns of record and 185,000 shares which he has the right to acquire within the next 60 days under the Company's stock option plans, all of which L. Rappaport disclaims beneficial ownership. Does not include 255,520 shares of Common Stock owned of record by certain trusts for the benefit of B. Golsen, S. Golsen, and L. Rappaport over which B. Golsen, S. Golsen and L. Rappaport have no voting or dispositive power. Heidi Brown Shear, an officer of the Company and the niece of J. Golsen, is the Trustee of each of these trusts.
(6) J. Golsen disclaims beneficial ownership of the shares that B. Golsen, S. Golsen, and L. Rappaport each have the sole voting and investment power over as noted in footnote (3) above. B. Golsen, S. Golsen, and L. Rappaport disclaim beneficial ownership of the shares that J. Golsen has the sole voting and investment power over as noted in footnotes (3) and (4) and the shares owned of record by Sylvia H. Golsen. Sylvia H. Golsen disclaims beneficial ownership of the shares that J. Golsen has the sole voting and dispositive power over as noted in footnotes (3) and (4) above.
(7) Kent C. McCarthy, manager of Jayhawk Capital Management, L.L.C. ("Jayhawk"), a Delaware limited liability company and investment advisor, is deemed to beneficially own 2,762,081 shares of the Company's Common Stock (which includes 1,401,081 shares of Common Stock receivable upon conversion of 323,650 shares of Series 2 Preferred and 112,500 shares of Common Stock that may be acquired upon exercise of warrants exercisable within 60 days of March 27, 2003). This number of shares includes the shares Mr. McCarthy personally owns, as well as the shares he controls as manager
and sole member
-19-
of Jayhawk. As manager and sole member of Jayhawk, Mr. McCarthy has sole voting and dispositive power over the Common Stock beneficially owned by Jayhawk. Jayhawk
is deemed to have beneficial ownership of 2,458,050 shares of the Company's
Common Stock (which includes 1,298,050 shares of Common Stock receivable upon conversion of 299,850 shares of Series 2 Preferred and 112,500 shares of Common Stock that may be acquired upon exercise of warrants), all of which shares are held in portfolios of (a) Jayhawk Institutional Partners, L.P. ("Jayhawk Institutional"), a Delaware limited partnership, (1,850,692 shares of Common Stock which includes 690,692 shares of Common Stock receivable upon conversion of 159,550 shares of Series 2 Preferred and 112,500 shares of Common Stock that may be acquired upon exercise of warrants), (b) Jayhawk Investments, L.P. ("Jayhawk Investments"), a Delaware limited partnership, (370,562 shares of Common Stock receivable upon conversion of 85,600 shares of Series 2 Preferred), and (c) Lucky Henry, L.P., ("Lucky Henry"), a Delaware limited partnership. Jayhawk is the general partner and manager of Jayhawk Institutional, Jayhawk Investments, and Lucky Henry and, as such, has sole voting and dispositive power over these shares. Mr. McCarthy disclaims beneficial ownership of all such shares other than his personal holdings. Mr. McCarthy's address is 8201 Mission Road, Suite 110, Prairie Village, Kansas 66208. Information set forth in this footnote is based upon Amendment No. 2 to Schedule 13-D filed on March 27, 2003, by McCarthy, Jayhawk, Jayhawk Institutional, and Jayhawk Investments. See "Item 13. Certain Relationships and Related Transactions."
(8) Paul J. Denby advised the Company that he has voting and dispositive power over 900,556 shares of Common Stock (which includes 230,256 shares of Common Stock receivable upon conversion of 53,300 shares of Series 2 Preferred). This number of shares includes 23,776 shares beneficially owned by Mr. Denby's spouse over which Mr. Denby shares voting and dispositive power. Mr. Denby's address is 4613 Redwood Court, Irving, Texas 75038.
(9) James W. Sight has sole voting and dispositive power over 805,938 shares of Common Stock (which includes 173,785 shares of Common Stock receivable upon conversion of 40,228 shares of Series 2 Preferred). Mr. Sight's address is 8500 College Boulevard, Overland Park, Kansas 66210.
Security Ownership of Management The following table sets forth information obtained from the directors of the Company and the directors and executive officers of the Company as a group as to their beneficial ownership of the Company's voting Common Stock and voting Preferred Stock as of April 14, 2003.
Because of the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may own beneficially, the amount shown below for an individual may include shares also considered beneficially owned by others. Any shares of stock which a person does not own, but which he or she has the right to acquire within 60 days of April 14, 2003, are deemed to be outstanding for the purpose of computing the percentage of outstanding stock of the class owned by such person but are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person.
-20-
|
|
|
Amounts of |
|
|
Raymond B. Ackerman |
Common |
36,000 |
(2) |
* |
||||
|
Robert C. Brown, M.D. |
Common |
238,329 |
(3) |
1.9 |
% |
|||
|
Charles A. Burtch |
Common |
15,000 |
(4) |
* |
||||
|
Grant J. Donovan |
Common |
44,169 |
(5) |
* |
||||
|
Dr. N. Allen Ford |
Common |
432 |
(6) |
* |
||||
|
Barry H. Golsen |
Common |
3,046,294 |
(7) (7) |
22.5 |
% |
|||
|
Jack E. Golsen |
Common |
3,804,291 |
(8) (8) |
27.7 |
% |
|||
|
David R. Goss |
Common |
281,272 |
(9) |
2.2 |
% |
|||
|
Bernard G. Ille |
Common |
90,000 |
(10) |
* |
||||
|
Donald W. Munson |
Common |
31,432 |
(11) |
* |
||||
|
Horace G. Rhodes |
Common |
35,000 |
(12) |
* |
||||
|
Tony M. Shelby |
Common |
348,229 |
(13) |
2.8 |
% |
|||
|
Directors and Executive |
|
|
|
|
|
* Less than 1%.
(1) The Company based the information, with respect to beneficial ownership, on information furnished by each director or officer, contained in filings made with the Securities and Exchange Commission, or contained in the Company's records.
(2) This amount includes the following shares over which Mr. Ackerman shares voting and dispositive power: (a) 2,000 shares held by Mr. Ackerman's trust, and (b) 4,000 shares held by the trust of Mr. Ackerman's wife. The remaining 30,000 shares of Common Stock included herein are shares that Mr. Ackerman may acquire pursuant to currently exercisable non-qualified stock options granted to him by the Company.
(3) The amount shown includes 30,000 shares of Common Stock that Dr. Brown may acquire pursuant to currently exercisable non-qualified stock options granted to him by the Company. The shares, with respect to which Dr. Brown shares the voting and dispositive power, consists of 122,516 shares owned by Dr. Brown's wife, 15,000 shares held jointly by Dr. Brown and his wife, 50,727 shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned by Dr. Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc.
-21-
Employee Profit Sharing Plan, of which Dr. Brown serves as the trustee. The amount shown does not include 50,380 shares owned directly, or through trusts, by the children of Dr. Brown, all of which Dr. Brown disclaims beneficial ownership.
(4) Mr. Burtch has sole voting and dispositive power over these shares, which may be acquired by Mr. Burtch pursuant to currently exercisable non-qualified stock options granted to him by the Company.
(5) Mr. Donovan has sole voting and dispositive power over these shares, which include 13,000 shares of Common Stock and 31,169 shares of Common Stock that Mr. Donovan has the right to acquire upon conversion of 7,200 shares of Series 2 Preferred.
(6) Dr. Ford has sole voting and dispositive power over these 432 shares of Common Stock that Dr. Ford has the right to acquire upon conversion of 100 shares of Series 2 Preferred.
(7) See footnotes (3), (4), and (6) of the table under "Security Ownership of Certain Beneficial Owners" of this item for a description of the amount and nature of the shares beneficially owned by B. Golsen, including shares he has the right to acquire within 60 days.
(8) See footnotes (3), (4), and (6) of the table under "Security Ownership of Certain Beneficial Owners" of this item for a description of the amount and nature of the shares beneficially owned by J. Golsen, including the shares he has the right to acquire within 60 days.
(9) Mr. Goss has the sole voting and dispositive power over these shares, which include 158,000 shares that Mr. Goss has the right to acquire within 60 days pursuant to options granted under the Company's stock option plans.
(10) The amount includes (a) 30,000 shares that Mr. Ille may purchase pursuant to currently exercisable non-qualified stock options, over which Mr. Ille has the sole voting and dispositive power, and (b) 50,000 shares owned of record by Mr. Ille's wife, voting and dispositive power of which are shared by Mr. Ille and his wife.
(11) Mr. Munson has the sole voting and dispositive power over these shares, which include (a) 432 shares of Common Stock that Mr. Munson has the right to acquire upon conversion of 100 shares of Series 2 Preferred and (b) 30,000 shares that Mr. Munson may purchase pursuant to currently exercisable non-qualified stock options.
(12) Mr. Rhodes has sole voting and dispositive power over these shares, which include 30,000 shares that may be acquired by Mr. Rhodes pursuant to currently exercisable non-qualified stock options granted to him by the Company.
(13) Mr. Shelby has the sole voting and dispositive power over these shares, which include 158,000 shares that Mr. Shelby has the right to acquire within 60 days pursuant to options granted under the Company's stock option plans and 15,151 shares that Mr. Shelby has the right to acquire upon conversion of 3,500 shares of Series 2 Preferred.
-22-
(14) The amount shown includes 1,053,000 shares of Common Stock that executive officers, directors, or entities controlled by executive officers and directors of the Company have the right to acquire within 60 days.
Item 13. Certain Relationships and Related Transactions
A subsidiary of the Company, Hercules Energy Mfg. Corporation ("Hercules"), leased land and a building in Oklahoma City, Oklahoma from Mac Venture, Ltd. ("Mac Venture"), a limited partnership. GPC (a wholly owned subsidiary of SBL) serves as the general partner of Mac Venture. The limited partners of Mac Venture include GPC and the three children of Jack E. Golsen. See "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" above for a discussion of the stock ownership of SBL. The warehouse and shop space leased by Hercules from Mac Venture consists of a total of 30,000 square feet. Hercules leased the property from Mac Venture for $3,750 per month under a month-to-month triple net lease extension which ended in October 2002.
Northwest Internal Medicine Associates ("Northwest"), a division of Plaza Medical Group, P.C., has an agreement with the Company to perform medical examinations of the management and supervisory personnel of the Company and its subsidiaries. Under such agreement, Northwest is paid $2,000 a month to perform all such examinations. Dr. Robert C. Brown (a director of the Company) is Vice President and Treasurer of Plaza Medical Group, P.C.
In 1983, LSB Chemical Corp. ("LSB Chemical"), a subsidiary of the Company, acquired all of the outstanding stock of El Dorado Chemical Company ("EDC") from its then four stockholders ("Ex-Stockholders"). A substantial portion of the purchase price consisted of an earnout based primarily on the annual after-tax earnings of EDC for a ten-year period. During 1989, two of the Ex-Stockholders received LSB Chemical promissory notes for a portion of their earnout, in lieu of cash, totaling approximately $896,000, payable $496,000 in January 1990, and $400,000 in May, 1994. LSB Chemical agreed to a buyout of the balance of the earnout from the four Ex-Stockholders for an aggregate purchase amount of $1,231,000. LSB Chemical purchased for cash the earnout from two of the Ex-Stockholders and issued multi-year promissory notes totaling $676,000 to the other two Ex-Stockholders. Jack E. Golsen guaranteed LSB Chemical's payment obligation under the promissory notes. The unpaid balance of these notes at March 31, 2003, was $400,000.
At October 15, 2001, Prime Financial Corporation ("Prime"), a subsidiary of the
Company, had a note with an outstanding principal balance of $1,350,000 (the
"Prime Note") owed to SBL Corporation ("SBL"), a corporation wholly owned by the
spouse and children of Jack E. Golsen, Chairman of the Board and President of
the Company. The Prime Note was issued in connection with a loan from SBL to
Prime of funds borrowed by SBL from SBL's lender. In order to obtain the loan
from SBL, Prime was required to (a) issue to SBL's lender a limited guaranty of
the lender's loan to SBL, and (b) pledge to SBL's lender 1,973,461 shares of the
Company's common stock owned by Prime as security for the limited guaranty.
On October 18, 2001, the Company, Prime, and SBL entered into an agreement (the
"Agreement") whereby the Company issued to SBL 1,000,000 shares of a newly
created series of Series D Convertible Preferred Stock in the Company ("Series D
Preferred Stock"). In consideration of the issuance of the Series D Preferred
stock, SBL (a) reduced the principal amount of the Prime Note by $1,000,000, (b)
caused Prime's limited guaranty to be reduced to an amount
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not to exceed $350,000, and (c) caused the shares of LSB
common stock pledged by Prime to SBL's lender to be reduced by 1,000,000 shares.
In February 2003, SBL's lender terminated Prime's limited guaranty and released
all shares of LSB common stock pledged by Prime to secure the limited guaranty.
At March 31, 2003, $150,000 remains outstanding under the Prime Note which is
payable on demand.
Each share of Series D Preferred Stock issued to SBL has, among other things,
..875 votes and the right to vote as a class with the Company's common stock, a
liquidation preference of $1.00 per share, cumulative dividends at the rate of
6% per annum, and is convertible into LSB common stock on the basis of four
shares of Preferred Stock into one share of common stock. Dividends on the
Series D Preferred Stock issued to SBL will be paid only after accrued and
unpaid dividends are paid on the Company's Series 2 Preferred. At March 31,
2003, there was $7.6 million in accrued but unpaid dividends due on the Series 2
Preferred.
Effective March 25, 2003, the Company completed a private placement to Jayhawk Institutional Partners, L.P. ("Jayhawk Institutional") of 450,000 shares of the Company's common stock and a five year warrant to purchase up to 112,500 share of the Company's common stock at an exercise price of $3.49 per share, subject to anti-dilution adjustments under certain conditions. The total price paid by Jayhawk to the Company for the shares of common stock and the warrant was $1,570,500. The average closing price of the Company's common stock over the 30 day period prior to the transaction was $3.49. Jayhawk
has certain registration rights. See "Security Ownership of Certain Beneficial Owners" for a description of the beneficial ownership of our common stock by Kent C. McCarthy and affiliates, including Jayhawk Institutional.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
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Pages |
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Report of Independent Auditors |
F-1 |
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Consolidated Balance Sheets at December 31, 2002 and 2001 |
F-2 to F-3 |
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Consolidated Statements of Income for each of the three years in the period ended December 31, 2002 |
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Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended December 31, 2002 |
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Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2002 |
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Notes to Consolidated Financial Statements |
F-9 to F-63 |
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Quarterly Financial Data (Unaudited) |
F-64 to F-66 |
(a) (2) Financial Statement Schedule
The Company has included the following schedule in this report:
II - Valuation and Qualifying Accounts F-67 to F-68
* These financial statements are included in the original Form 10-K for the year
ended December 31, 2002, filed with the Securities and Exchange Commission on
April 2, 2003.
We have omitted all other schedules because the conditions requiring their
filing do not exist or because the required information appears in our
Consolidated Financial Statements, including the notes to those statements.
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(a)(3) Exhibits
2.1. Stock Purchase Agreement and Stock Pledge Agreement between Dr.
Hauri AG, a Swiss Corporation, and LSB Chemical Corp., which the Company hereby
incorporates by reference from Exhibit 2.2 to the Company's Form 10-K for fiscal
year ended December 31, 1994.
3.1. Restated Certificate of Incorporation, the Certificate of Designation dated
February 17, 1989, and certificate of Elimination dated April 30, 1993, which
the Company hereby incorporates by reference from Exhibit 4.1 to the Company's
Registration Statement, No. 33-61640; Certificate of Designation for the
Company's $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2,
which the Company hereby incorporates by reference from Exhibit 4.6 to the
Company's Registration Statement, No. 33-61640.
3.2. Bylaws, as amended, which the Company hereby incorporates by reference from
Exhibit 3(ii) to the Company's Form 10-Q for the quarter ended June 30, 1998.
3.3
Certificate of Designations of LSB Industries, Inc., relating to the issuance of
a new series of Class C Preferred Stock, which the Company hereby incorporates
by reference form Exhibit 10.3 to the Company's Form 10-Q for the fiscal quarter
ended September 30, 2001.
4.1. Specimen Certificate for the Company's Non-cumulative Preferred Stock,
having a par value of $100 per share, which the Company hereby incorporates by
reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter ended June
30, 1983.
4.2. Specimen Certificate for the Company's Series B Preferred Stock, having a
par value of $100 per share, which the Company hereby incorporates by reference
from Exhibit 4.27 to the Company's Registration Statement No. 33-9848.
4.3. Specimen Certificate for the Company's Series 2 Preferred, which the
Company hereby incorporates by reference from Exhibit 4.5 to the Company's
Registration Statement No. 33-61640.
4.4. Specimen Certificate for the Company's Common Stock, which the Company
incorporates by reference from Exhibit 4.4 to the Company's Registration
Statement No. 33-61640.
4.5. Renewed Rights Agreement, dated January 6, 1999, between the Company and
Bank One, N.A., which the Company hereby incorporates by reference from Exhibit
No. 1 to the Company's Form 8-A Registration Statement, dated January 27, 1999.
4.6. Indenture, dated as of November 26, 1997, by and among ClimaChem, Inc., the
Subsidiary Guarantors and Bank One, NA, as trustee, which the Company hereby
incorporates by reference from Exhibit 4.1 to the Company's Form 8-K, dated
November 26, 1997.
4.7. Form of 10 3/4% Series B Senior Notes due 2007 which the Company hereby
incorporates by reference from Exhibit 4.3 to the ClimaChem Registration
Statement, No. 333-44905.
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4.8. First Supplemental Indenture, dated February 8, 1999, by and among
ClimaChem, Inc., the Guarantors, and Bank One N.A., which the Company hereby
incorporates by reference from Exhibit 4.19 to the Company's Form 10-K for the
year ended December 31, 1998.
4.9. Second Amended and Restated Loan and Security Agreement
dated May 10, 1999, by and between Bank of America National Trust and Savings
Association and LSB Industries, Inc., Summit Machine Tool Manufacturing Corp.,
and Morey Machinery Manufacturing Corporation, which the Company hereby
incorporates by reference from Exhibit 4.2 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1999.
4.10. Specimen of Certificate of Series D 6% Cumulative, Convertible Class C
Preferred Stock which the Company hereby incorporates by reference from Exhibit
4.1 to the Company's Form 10-Q for the fiscal quarter ended September 30, 2001.
4.11. Second Amendment to Loan and Security Agreement, dated May 24, 2002, by
and among the Company, LSB, certain subsidiaries of the Company, Foothill
Capital Corporation ("Foothill") and Congress Financial Corporation (Southwest),
which the Company hereby incorporates by reference from Exhibit 4.1 to the
Company's Form 8-K, dated May 24, 2002. Omitted are exhibits and schedules
attached thereto. The Agreement contains a list of such exhibits and schedules,
which the Company agrees to file with the Commission supplementally upon the
Commission's request.
4.12. Securities Purchase Agreement, dated May 24, 2002 ("Agreement"), which the
Company hereby incorporates by reference from Exhibit 4.2 to the Company's Form
8-K, dated May 24, 2002. Omitted are exhibits and schedules attached thereto.
The Agreement contains a list of such exhibits and schedules, which the Company
agrees to file with the Commission supplementally upon the Commission's request.
4.13. Fifth Supplemental Indenture, dated May 24, 2002, among the Company, the
Guarantors, and Bank One, N.A, which the Company hereby incorporates by
reference from Exhibit 4.3 to the Company's Form 8-K, dated May 24, 2002.
4.14. Promissory Note, dated May 24, 2002, granted by the Company in favor of
one of the Lenders in the original principal amount of $7,786,927, which the
Company hereby incorporates by reference from Exhibit 4.4 to the Company's Form
8-K, dated May 24, 2002. Substantially similar Promissory Notes, dated May 24,
2002, were granted by the Company to each of the other Lenders in the original
principal amount indicated: (a) a Promissory Note granted in favor of one Lender
in the original principal amount of $3,478,410, (b) two Promissory Notes granted
in favor of a Lender in the original aggregate principal amount of $20,000,000,
(c) a Promissory Note granted in favor of a Lender in the original principal
amount of $3,734,663. Copies of these Promissory Notes will be provided to the
Commission upon request.
4.15. Letter, dated July 10, 2002, to document certain items not reflected in
the Securities Purchase Agreement which the Company hereby incorporates by
reference from Exhibit 4.5 to the Company's Form 10-Q for the fiscal quarter
ended June 30, 2002.
4.16. Third Amendment, dated as of November 18, 2002, to the Loan and Security
Agreement dated as of April 13, 2001, as amended by the First
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Amendment dated as of
August 3, 2001 and the second Amendment dated as of May 24, 2002, by and among
LSB Industries, Inc., ClimaChem, Inc., and certain subsidiaries of ClimaChem,
Congress Financial Corporation (Southwest) and Foothill Capital Corporation
which the Company hereby incorporates by
reference from Exhibit 4.1 to the Company's Form 10-Q for the
fiscal quarter ended September 30, 2002.
4.17. Second Amendment to Securities Purchase Agreement, dated February 28, 2003
by and among ClimaChem, Inc. and certain of its subsidiaries, the Purchasers and
Guggenheim Investment Management, LLC. which the Company hereby incorporates by
reference from Exhibit 4.17 to the Company's Form 10-K for the year ended
December 31, 2002.
4.18. Fourth Amendment, dated as of March 3, 2003, to the Loan and Security
Agreement dated as of April 13, 2001, as amended by the First, Second, and Third
Amendments, by and among LSB Industries, Inc., ClimaChem, Inc., and certain
subsidiaries of ClimaChem, Inc., Congress Financial Corporation (Southwest) and
Foothill Capital Corporation which the Company hereby incorporates by reference
from Exhibit 4.18 to the Company's Form 10-K for the year ended December 31,
2002.
4.19 Letter, dated March 3, 2003, to document the consent to increase capital
expenditures, as defined in the Securities Purchase Agreement which the Company
hereby incorporates by reference from Exhibit 4.19 to the Company's Form 10-K
for the year ended December 31, 2002.
10.1. Form of Death Benefit Plan Agreement between the Company and the employees
covered under the plan, which the Company hereby incorporates by reference from
Exhibit 10(c) (1) to the Company's Form 10-K for the year ended December 31,
1980.
10.2. The Company's 1993 Stock Option and Incentive Plan which the Company
hereby incorporates by reference from Exhibit 10.6 to the Company's Form 10-K
for the fiscal year ended December 31, 1993.
10.3. The Company's 1993 Non-employee Director Stock Option Plan which the
Company hereby incorporates by reference from Exhibit 10.7 to the Company's Form
10-K for the fiscal year ended December 31, 1993.
10.4. Limited Partnership Agreement dated as of May 4, 1995, between the general
partner, and LSB Holdings, Inc., an Oklahoma Corporation, as limited partner
which the Company hereby incorporates by reference from Exhibit 10.11 to the
Company's Form 10-K for the fiscal year ended December 31, 1995.
10.5. Severance Agreement, dated January 17, 1989, between the Company and Jack
E. Golsen, which the Company hereby incorporates by reference from Exhibit 10.48
to the Company's Form 10-K for fiscal year ended December 31, 1988. The Company
also entered into identical agreements with Tony M. Shelby, David R. Goss, Barry
H. Golsen, David M. Shear, and Jim D. Jones and the Company will provide copies
thereof to the Commission upon request.
10.6. Employment Agreement and Amendment to Severance Agreement dated January
12, 1989 between the Company and Jack E. Golsen, dated March 21, 1996 which the
Company hereby incorporates by reference from Exhibit 10.15 to the Company's
Form 10-K for fiscal year ended December 31, 1995.
10.7. Omitted
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10.8. Baytown Nitric Acid Project and Supply Agreement dated
June 27, 1997, by and among El Dorado Nitrogen Company, El Dorado Chemical
Company and Bayer Corporation which the Company hereby incorporates by reference
from Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended June
30, 1997. CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS
THE SUBJECT OF COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10.9. First Amendment to Baytown Nitric Acid Project and Supply Agreement,
dated February 1, 1999, between El Dorado Nitrogen Company and Bayer
Corporation, which the Company hereby incorporates by reference from Exhibit
10.30 to the Company's Form 10-K for the year ended December 31, 1998.
CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
COMMISSION ORDER CF #7927, DATED JUNE 9, 1999, GRANTING A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
10.10. Service Agreement, dated June 27, 1997, between Bayer Corporation and
El Dorado Nitrogen Company which the Company hereby incorporates by reference
from Exhibit 10.3 to the Company's Form 10-Q for the fiscal quarter ended June
30, 1997. CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS
THE SUBJECT OF COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10.11. Ground Lease dated June 27, 1997, between Bayer Corporation and El
Dorado Nitrogen Company which the Company hereby incorporates by reference from
Exhibit 10.4 to the Company's Form 10-Q for the fiscal quarter ended June 30,
1997. CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE
SUBJECT OF COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10.12. Participation Agreement, dated as of June 27, 1997, among El Dorado
Nitrogen Company, Boatmen's Trust Company of Texas as Owner Trustee, Security
Pacific Leasing Corporation, as Owner Participant and a Construction Lender,
Wilmington Trust Company, Bayerische Landes Bank, New York Branch, as a
Construction Lender and the Note Purchaser, and Bank of America National Trust
and Savings Association, as Construction Loan Agent which the Company hereby
incorporates by reference from Exhibit 10.5 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1997. CERTAIN INFORMATION WITHIN THIS EXHIBIT
HAS BEEN OMITTED AS IT IS THE SUBJECT OF COMMISSION ORDER CF #5551, DATED
SEPTEMBER 25, 1997, GRANTING A REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE
FREEDOM OF INFORMATION ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
10.13. Lease Agreement, dated as of June 27, 1997, between Boatmen's Trust
Company of Texas as Owner Trustee and El Dorado Nitrogen Company which the
Company hereby incorporates by reference from Exhibit 10.6 to the Company's Form
10-Q for the fiscal quarter ended June 30, 1997.
10.14. Security Agreement and Collateral Assignment of Construction Documents,
dated as of June 27, 1997, made by El Dorado Nitrogen Company which the Company
hereby incorporates by reference from Exhibit 10.7 to the Company's Form 10-Q
for the fiscal quarter ended June 30, 1997.
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10.15. Security Agreement and Collateral Assignment of
Facility Documents, dated as of June 27, 1997, made by El Dorado Nitrogen
Company and consented to by Bayer Corporation which the Company hereby
incorporates by reference from Exhibit 10.8 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1997.
10.16. Non-Qualified Stock Option Agreement, dated April 22, 1998, between the
Company and Robert C. Brown, M.D. The Company entered into substantially
identical agreements with Bernard G. Ille, Raymond B. Ackerman, Horace G.
Rhodes, and Donald W. Munson. The Company will provide copies of these
agreements to the Commission upon request.
10.17. The Company's 1998 Stock Option and Incentive Plan, which the Company
hereby incorporates by reference from Exhibit 10.44 to the Company's Form 10-K
for the year ended December 31, 1998.
10.18. Letter Agreement, dated March 12, 1999, between Kestrel Aircraft Company
and LSB Industries, Inc., Prime Financial Corporation, Herman Meinders, Carlan
K. Yates, Larry H. Lemon, Co-Trustee Larry H. Lemon Living Trust, which the
Company hereby incorporates by reference from Exhibit 10.45 to the Company's
Form 10-K for the year ended December 31, 1998.
10.19. LSB Industries, Inc. 1998 Stock Option and Incentive Plan which the
Company hereby incorporates by reference from Exhibit "B" to the LSB Proxy
Statement, dated May 24, 1999, for Annual Meeting of Stockholders.
10.20. LSB Industries, Inc. Outside Directors Stock Option Plan which the
Company hereby incorporates by reference from Exhibit "C" to the LSB Proxy
Statement, dated May 24, 1999, for Annual Meeting of Stockholders.
10.21. First Amendment to Second Amended and Restated Loan and Security
Agreement, dated January 1, 2000, by and between Bank of America, N.A. and LSB
Industries, Inc., Summit Machine Tool Manufacturing Corp., and Morey Machinery
Manufacturing Corporation, which the Company hereby incorporates by reference
from Exhibit 10.3 to the Company's Form 8-K dated December 30, 1999.
10.22. Second Amendment to Second Amended and Restated Loan and Security
Agreement, dated March 1, 2000 by and between Bank of America, N.A. and LSB
Industries Inc., Summit Machine Tool Manufacturing Corp., and Morey Machinery
Manufacturing Corporation, which the Company hereby incorporates by reference
from Exhibit 10.3 to the Company's Form 8-K dated March 1, 2000.
10.23. Third Amendment to Second Amended and Restated Loan and Security
Agreement, dated March 31, 2000 by and between Bank of America, N.A. and LSB
Industries Inc., Summit Machine Tool Manufacturing Corp., and Morey Machinery
Manufacturing Corporation, which the Company hereby incorporates by reference
from Exhibit 10.14 to the Company's Form 10-Q for the fiscal quarter ended March
31, 2000.
10.24. Loan Agreement dated December 23, 1999 between Climate Craft, Inc. and
the City of Oklahoma City, which the Company hereby incorporates by reference
from Exhibit 10.49 to the Company's Amendment No. 2 to its 1999 Form 10-K.
10.25. Letter, dated April 1, 2000, executed by SBL
to Prime amending the Promissory Note, which the Company incorporates by
reference from Exhibit
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10.52 to the Company's Amendment No. 2 to its 1999 Form 10-K.
10.26. Fourth Amendment to Second Amended and Restated Loan and Security
Agreement dated October 10, 2000 by and between Bank of America, N.A. and LSB
Industries, Inc., Summit Machine Tool Manufacturing Corp., and Morey Machinery
Manufacturing Corporation, which the Company hereby incorporates by reference
from Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended
September 30, 2000.
10.27. Letter Agreement, dated August 23, 2000, between LSB Chemical Corp. and
Orica USA, Inc., which the Company hereby incorporates by reference from Exhibit
10.4 to the Company's Form 10-Q for the fiscal quarter ended September 30, 2000.
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10.35. Stock Purchase Agreement, dated September 30, 2001, by and between Summit
Machinery Company and SBL Corporation, which the Company hereby incorporates by
reference from Exhibit 10.1 to the Company' Form 10-Q for the fiscal quarter
ended September 30, 2001.
10.36. Agreement, dated October 18, 2001, by and between LSB Industries, Inc.,
Prime Financial Corporation, and SBL Corporation, which the Company hereby
incorporates by reference from Exhibit 10.2 to the Company's Form 10-Q for the
fiscal quarter ended September 30, 2001.
10.37. Omitted
10.38. Asset Purchase Agreement, dated October 22, 2001, between Orica USA, Inc.
and El Dorado Chemical Company and Northwest Financial Corporation, which the
Company hereby incorporates by reference from Exhibit 99.1 to the Company's Form
8-K dated December 28, 2001.
CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
A REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND
EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
10.39. AN Supply Agreement, dated November 1, 2001, between Orica USA,
Inc. and El Dorado Company, which the Company hereby incorporates by reference
from Exhibit 99.2 to the Company's Form 8-K dated December 28, 2001.
CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
A REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND
EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
10.40. Ammonium Nitrate Sales Agreement between Nelson Brothers, L.L.C.
and Cherokee Nitrogen Company, which the Company hereby incorporates by
reference from Exhibit 99.3 to the Company's Form 8-K dated December 28, 2001.
CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
A REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE FREEDOM OF INFORMATION ACT. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND
EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
10.41 Loan and Security Agreement, dated April 13, 2001 by and among LSB
Industries, Inc., ClimaChem and each of its Subsidiaries that are Signatories,
the Lenders that are Signatories and Foothill Capital Corporation, which the
Company hereby incorporates by reference from Exhibit 10.51 to ClimaChem, Inc.'s
amendment No. 1 to Form 10-K for the year ended December 31, 2000.
10.42. Agreement, dated August 4, 2001, between El Dorado Chemical Company and
Paper, Allied-Industrial, Chemical and Energy Workers International Union
AFL-C10 and its Local 5-434, which the Company hereby incorporates by reference
from Exhibit 10.65 to the Company's Form 10-K for the year ended December 31,
2001.
10.43. Agreement, dated October 16, 2001, between El Dorado Chemical Company and
International Association of Machinists and Aerospace Workers, AFL-C10 Local No.
224, which the Company hereby incorporates by reference from Exhibit 10.66 to
the Company's Form 10-K for the year ended December 31,
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2001.
10.44. First Amendment to Third Amended and Restated Loan and Security
Agreement, dated March 29, 2002, entered into by and between Bank of America,
N.A. and Summit Machine Tool Manufacturing Corp, which the Company hereby
incorporates by reference from Exhibit 10.67 to the Company's Form 10-K for the
year ended December 31, 2001.
10.45. Warrant, dated May 24, 2002, granted by the Company to a Lender for the
right to purchase up to 132,508 shares of the Company's common stock at an
exercise price of $0.10 per share, which the Company hereby incorporates by
reference from Exhibit 99.1 to the Company's Form 8-K, dated May 24, 2002. Four
substantially similar Warrants, dated May 24, 2002, for the purchase of an
aggregate additional 463,077 shares at an exercise price of $0.10 were issued.
Copies of these Warrants will be provided to the Commission upon request.
10.46. Intercreditor Agreement, which the Company hereby incorporates by
reference from Exhibit 99.2 to the Company's Form 8-K, dated May 24, 2002.
10.47. Asset Purchase Agreement, dated as of December 6, 2002, by and among
Energetic Systems Inc. LLC, UTeC Corporation, LLC, SEC Investment Corp. LLC,
DetaCorp Inc. LLC, Energetic Properties, LLC, Slurry Explosive Corporation,
Universal Tech Corporation, El Dorado Chemical Company, LSB Chemical Corp., LSB
Industries, Inc. and Slurry Explosive Manufacturing Corporation, LLC, which the
Company hereby incorporates by reference from Exhibit 2.1 to the Company's Form
8-K, dated December 12, 2002. The asset purchase agreement contains a brief list
identifying all schedules and exhibits to the asset purchase agreement. Such
schedules and exhibits are not filed herewith, and the Registrant agrees to
furnish supplementally a copy of the omitted schedules and exhibits to the
commission upon request.
10.48 Anhydrous Ammonia Sales Agreement, dated December 9, 2002, between
Koch Nitrogen Company and El Dorado Chemical Company which the Company hereby
incorporates by reference from Exhibit 10.48 to the Company's Form 10-K for the
year ended December 31, 2002. CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS
BEEN OMITTED AS IT IS THE SUBJECT OF A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FREEDOM OF
INFORMATION ACT. THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUEST.
10.49. Registration Rights Agreement, dated March 25, 2003, among LSB
Industries, Inc., Kent C. McCarthy, Jayhawk Capital management, L.L.C., Jayhawk
Investments, L.P. and Jayhawk Institutioal Partners, L.P. which the Company
hereby incorporates by reference from Exhibit 10.49 to the Company's Form 10-K
for the year ended December 31, 2002.
10.50. Subscription Agreement, dated March 25, 2003, by and between LSB
Industries, Inc. and Jayhawk Institutional Partners, L.P. which the Company
hereby incorporates by reference from Exhibit 10.50 to the Company's Form 10-K
for the year ended December 31, 2002.
10.51. Warrant Agreement, dated March 25, 2003, between LSB Industries, Inc. and
Jayhawk Institutional Partners, L.P. which the Company hereby incorporates by
reference from Exhibit 10.51 to the Company's Form 10-K for the year ended
December 31, 2002.
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10.52 First Amendment to Employment Agreement, dated April
29, 2003, between the Company and Jack E. Golsen.
10.53 Release, dated February 11, 2003, by Stillwater
National Bank and Trust Company in favor of Prime Financial Corporation.
10.54 Nonqualified Stock Option, dated December 1,
2002, between the Company and William Manion. The Company entered into
substantially identical nonqualified stock option agreements with three other
former employees for the purchase of 34,000 shares at an exercise price of $2.73
per share, expiring on November 21, 2011, 40,000 shares at an exercise price of
$1.25 per share, expiring on July 8, 2009, 31,000 shares at an exercise price of
$4.188 per share, expiring on August 18, 2004 through April 22, 2008 and 4,000
shares at an exercise price of $9.00 per share, expired on March 19, 2003,
copies of which will be provided to the Commission upon request.
10.55 Nonqualified Stock Option Agreement, dated
November 7, 2002, between the Company and John J. Bailey Jr.
10.56 Nonqualified Stock Option Agreement, dated
November 29, 2001, between the Company and Dan Ellis.
10.57 Nonqualified Stock Option Agreement, dated
July 20, 2000, between the Company and Claude Rappaport for the purchase of
80,000 shares of common stock. Substantially similar nonqualified stock option
agreements were entered into with Mr. Rappaport (40,000 shares at an exercise
price of $1.25 per share, expiring on July 20, 2009), (5,000 shares at an
exercise price of $5.362 per share, expiring on July 20, 2007), and (60,000
shares at an exercise price of $1.375 per share, expiring on July 20, 2009),
copies of which will be provided to the Commission upon request.
10.58 Nonqualified Stock Option Agreement, dated
July 8, 1999, between the Company and Jack E. Golsen. Substantially similar
nonqualified stock options were granted to Barry Golsen (55,000 shares), Stephen
J. Golsen (35,000 shares), David R. Goss (35,000 shares), Tony M. Shelby (35,000
shares), David M. Shear (35,000 shares) and five other employees (165,000
shares), copies of which will be provided to the Commission upon request.
10.59 Nonqualified Stock Option Agreement, dated
December 18, 1997, between the Company and Dan Ellis.
21.1 Subsidiaries of the Company which the Company hereby incorporates by
reference from Exhibit 21.1 to the Company's Form 10-K for the year ended
December 31, 2002.
23.1. Consent of Independent Auditors which the Company hereby incorporates by
reference from Exhibit 23.1 to the Company's Form 10-K for the year ended
December 31, 2002.
99.1 Certification of Jack E. Golsen, Chief Executive Officer, pursuant to 18
U.S.C. Section 1350. A signed original of this written statement required by
Section 906 has been provided to LSB Industries, Inc. and will be retained by
LSB Industries, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
99.2 Certification of Tony M. Shelby, Chief Financial Officer pursuant to 18
U.S.C. Section 1350. A signed original of this written statement required by
Section 906 has been provided to LSB Industries, Inc. and will be retained
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by LSB Industries, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
(b) REPORTS ON FORM 8-K. We filed the following report on Form 8-K during the
fourth quarter of 2002.
(i) Form 8-K, dated December 27, 2002. (date of earliest event: December 12,
2002). The item reported was Item 2, "Acquisition or Disposition of Assets",
discussing the sale of all of the operating assets of Slurry Explosive
Corporation and Universal Tech Corporation to four wholly owned subsidiaries of
Energetic Systems Inc., LLC pursuant to the terms of an Asset Purchase
Agreement, dated December 6, 2002.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-authorized, to sign this Amendment No.1 to the report on its behalf on this 29th day of April 2003.
| LSB INDUSTRIES, INC. |
| By: | ||
| /s/ Jack E. Golsen | ||
| Jack E.
Golsen Chairman of the Board and President (Principal Executive Officer) |
||
| By: | ||
| /s/ Tony M. Shelby | ||
| Tony M.
Shelby Senior Vice President of Finance (Principal Financial Officer) |
||
| By: | ||
| /s/ Jim D. Jones | ||
| Jim D. Jones Vice President, Controller and Treasurer (Principal Accounting Officer) |
||
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the undersigned have signed this report on behalf of the Company, in the capacities and on the dates indicated.
| Dated: April 29, 2003 | By: |
| /s/ Jack
E. Golsen Jack E. Golsen, Director |
| Dated: April 29, 2003 | By: |
| /s/ Tony
M. Shelby Tony M. Shelby, Director |
| Dated: April 29, 2003 | By: |
| /s/ David
R. Goss David R. Goss, Director |
| Dated: April 29, 2003 | By: |
| /s/ Barry
H. Golsen Barry H. Golsen, Director |
| Dated: April 29, 2003 | By: |
| /s/ Robert
C. Brown Robert C. Brown, Director |
| Dated: April 29, 2003 | By: |
| /s/
Bernard G. Ille Bernard G. Ille, Director |
| Dated: April 29, 2003 | By: |
| /s/
Raymond B. Ackerman Raymond B. Ackerman, Director |
| Dated: April 29, 2003 | By: |
| /s/ Horace
G. Rhodes Horace G. Rhodes, Director |
| Dated: April 29, 2003 | By: |
| /s/ Donald
W. Munson Donald W. Munson, Director |
| Dated: April 29, 2003 | By: |
| /s/
Charles A. Burtch Charles A. Burtch, Director |
| Dated: April 29, 2003 | By: |
| /s/
Grant J. Donovan, Director |
| Dated: April 29, 2003 | By: |
| /s/ Dr. N.
Allen Ford Dr. N. Allen Ford, Director |
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CERTIFICATION
I, Jack E. Golsen, President and Chief Executive Officer,
certify that:
1. I have reviewed this annual report on Form 10-K, as amended by this
Form 10K/A Amendment No. 1 of LSB Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ Jack E. Golsen
Jack E. Golsen
President
(Principal Executive Officer)
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CERTIFICATION
I, Tony M. Shelby, Senior Vice President and Chief Financial
Officer, certify that:
1. I have reviewed this annual report on Form 10-K, as amended by this
Form 10K/A Amendment No. 1 of LSB Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: April 29, 2003
/s/ Tony M. Shelby
Tony M. Shelby
Senior Vice President
(Principal Financial Officer)
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