OMB APPROVALOMB Number: 3235-0059Expires: January 31, 2008Estimated average burdenhours per response . . . . . 14UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549SCHEDULE 14AProxy Statement Pursuant to Section 14(a) of the SecuritiesExchange Act of 1934 (Amendment No. )Filed by the Registrant xFiled by a Party other than the Registrant oCheck the appropriate box:o Preliminary Proxy Statemento Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))x Definitive Proxy Statemento Definitive Additional Materialso Soliciting Material Pursuant to 240.14a-12LSB INDUSTRIES, INC.(Name of Registrant as Specified In Its Charter)(Name of Person(s) Filing Proxy Statement, if other than the Registrant)Payment of Filing Fee (Check the appropriate box):
and state how it was determined):4) Proposed maximum aggregate value of transaction:5) Total fee paid:Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a SEC 1913(05-05) currently valid OMB control number.o Fee paid previously with preliminary materials.o Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.1) Amount Previously Paid:2) Form, Schedule or Registration Statement No.:3) Filing Party:4) Date Filed:
LSB
INDUSTRIES, INC.
16
South Pennsylvania Avenue
Post
Office Box 754
Oklahoma
City, OK 73101
FAX:
(405) 235-5067
Notice
of Annual Meeting of Stockholders
To
Be Held July 6, 2006
To
the
Stockholders of
LSB
Industries, Inc.
The
Annual Meeting of the Stockholders of LSB Industries, Inc. (the "Company")
will
take place at the Company's offices located at 16 S. Pennsylvania Avenue,
Oklahoma City, Oklahoma, on Thursday, July 6, 2006, at 11:30 a.m. (CDT), for
the
purpose of considering and acting upon the following matters:
| (1) |
The
election of 4 nominees to the Board of
Directors;
|
| (2) |
The
ratification of the appointment of the independent registered public
accounting firm; and
|
| (3) |
Any
other business which properly may come before the meeting or any
adjournment of the meeting.
|
The
Board
of Directors has fixed the close of business on May 15, 2006, as the record
date
for the determination of holders of the common stock and voting preferred stock
of the Company entitled to receive notice of, and to vote at, the Annual
Meeting.
To
ensure
the presence of a quorum at the Annual Meeting, please sign and promptly return
the enclosed Proxy Card in the accompanying self-addressed envelope, which
requires no postage if mailed in the United States.
The
Company is distributing its 2005 Annual Report to Stockholders with the enclosed
proxy soliciting material.
By
order
of the Board of Directors
David
M.
Shear
Secretary
Oklahoma
City, Oklahoma
June
7,
2006
LSB
INDUSTRIES, INC.
16
South Pennsylvania Avenue
Post
Office Box 754
Oklahoma
City, OK 73101
PROXY
STATEMENT FOR
ANNUAL
MEETING OF STOCKHOLDERS
To
Be Held July 6, 2006
SOLICITATION
OF PROXIES
Solicitation
This
Proxy Statement is furnished in connection with the solicitation by the Board
of
Directors of LSB Industries, Inc. (the "Company") of proxies to be voted at
the
Annual Meeting of Stockholders (the "Annual Meeting") to take place on Thursday,
July 6, 2006, at 11:30 a.m. at the Company's offices located at 16 South
Pennsylvania Avenue, Oklahoma City, Oklahoma and at any adjournment thereof.
This Proxy Statement and the Proxy Card are being first sent to the stockholders
of the Company on or about June 7, 2006.
The
Company may use the services of its directors, officers, and employees to
solicit proxies personally, by mail, the internet, or telephone, without
additional compensation therefore. The Company will bear all of the costs of
preparing, printing, assembling, and mailing this Proxy Statement and the Proxy
Card and all of the costs of the solicitation of the proxies. The Company will
also reimburse any bank, broker-dealer, or other custodian, nominee, or
fiduciary for its reasonable expenses incurred in completing the mailing of
proxy materials to the beneficial owners of the Company's Common Stock and
voting Preferred Stock.
Revocation
of Proxy
Any
stockholder giving his or her proxy may revoke it at any time before its
exercise by (a) notifying the Secretary of the Company, by facsimile or in
writing, (b) returning a later-dated proxy card, or (c) attending the Annual
Meeting and voting in person.
Stockholder
Proposals
In order
to be considered for inclusion in the proxy materials for the Company's 2007
Annual Meeting of Stockholders, any proposal of a stockholder intended to be
presented at such meeting must be delivered in writing to the Secretary of
the
Company no later than February 7, 2007.
STOCKHOLDERS
ENTITLED TO VOTE
Record
Date and Voting Securities
Only the
record holders of shares of the Common Stock and voting Preferred Stock of
the
Company, as of the close of business on May 15, 2006 (the "Record Date"), will
have the right to receive notice of, and to vote at, the Annual Meeting. As
of
the close of business on the Record Date, the Company had the following shares
of Common Stock and voting Preferred Stock issued and outstanding: (a)
13,780,856 shares of Common Stock (excluding 3,324,889 shares held in treasury);
(b) 809 shares of Convertible Noncumulative Preferred Stock; (c) 20,000 shares
of Series B 12% Cumulative Convertible Preferred Stock (“Series B Preferred”);
and (d) 1,000,000 shares of Series D 6% Cumulative Convertible Preferred Stock
("Series D Preferred"). Each stockholder of record, as of the Record Date,
will
have one vote for each share of Common Stock and voting Preferred Stock of
the
Company (except each share of Series D Preferred will have .875 of one vote)
that the stockholder owned as of the Record Date.
All
shares of Common Stock and voting Preferred Stock will vote together as a single
class on all matters coming before the Annual Meeting, and a majority of all
of
the outstanding shares of Common Stock and voting Preferred Stock of the
Company, represented as a single class, entitled to notice of, and to vote
at,
the Annual Meeting, represented in person or by proxy, will constitute a quorum
for the meeting.
1
Votes
will be tabulated by an inspector of election appointed by the Company's Board
of Directors. Pursuant to the General Corporation Law of the State of Delaware,
only votes cast "For" a matter constitute affirmative votes, except proxies
in
which the stockholder fails to make a specification as to whether he votes
"For", "Against", "Abstains" or "Withholds" as to a particular matter shall
be
considered as a vote "For" that matter. Votes in which the stockholder specifies
that he is "Withholding" or "Abstaining" from voting are counted for quorum
purposes, but will not be counted as votes cast on such matter. Broker non-votes
are counted for quorum purposes, but are not considered as votes "For" a
particular matter.
There
were no stockholder proposals submitted for the Annual Meeting. The Board of
Directors does not intend to bring any matter before the Annual Meeting other
than matters specifically referred to in the notice of the Annual Meeting,
nor
does the Board of Directors know of any other matter that anyone else proposes
to present for action at the Annual Meeting. However, if any other matter is
properly brought before the Annual Meeting, the persons named in the
accompanying proxy or their duly constituted substitutes acting at the Annual
Meeting will be deemed authorized to vote or otherwise act thereon in accordance
with their judgment on such matter.
PROPOSAL
1
ELECTION
OF DIRECTORS
General
The
Board of Directors has nominated Robert C. Brown, M.D., Barry H. Golsen, David
R. Goss, and John A. Shelley to serve a three-year term expiring in 2009. Each
of the nominees is presently serving as a director of the Company.
If
any of
the nominees become unable or unwilling to serve for good cause (an event which
the Board of Directors does not anticipate), the person or persons named in
the
Proxy Card as the proxies will vote for the election of the person or persons
recommended by a majority of the independent directors then serving on the
Board
of Directors. The proxies cannot be voted for a greater number of persons than
the number of nominees.
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 their successors are duly elected and qualified. Messrs. Brown,
Golsen, Goss and Shelley are in the class whose term is expiring as of the
Annual Meeting.
The
Company's By-laws provide that the Board of Directors, by resolution from time
to time, may fix the number of directors that shall constitute the whole Board
of Directors. The By-laws presently provide that the number of directors may
consist of not less than three nor more than thirteen. The Board of Directors
currently consists of thirteen members.
The
terms
of the Company's $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 holders
of at least 10% of the shares of Series 2 Preferred, call a special meeting
of
the Series 2 Preferred holders for the purpose of electing such two additional
directors; (c) the Series 2 Preferred holders have the exclusive right to vote
for and elect such two additional directors; and (d) the term of office of
such
directors 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. In
2002,
the holders of the Series 2 Preferred
2
elected
Grant J. Donovan and Dr. N. Allen Ford to serve as directors pursuant to the
terms of the Series 2 Preferred. 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.
Approval
of each nominee for election to the Board of Directors will require the
affirmative vote of a plurality of the votes cast by the holders of the voting
securities of the Company, voting together as one class.
The
following sets forth certain information regarding the nominees and all other
directors whose term will continue after the Annual Meeting.
Nominees:
|
Robert
C. Brown, M.D.,
age 75. Dr. Brown first became a director in 1969. His term will
expire as
of this annual meeting. Dr. Brown has practiced medicine for many
years
and is Vice President and Treasurer of Plaza Medical Group, P.C.
and
President and Chief Executive Officer of ClaimLogic L.L.C. Dr. Brown
is a
graduate of Tufts University and received his medical degree from
Tufts
University after which he spent two years in the United States Navy
as a
doctor and over three years at the Mayo Clinic.
|
|
Barry
H. Golsen, J.D.,
age 55. Mr. Golsen first became a director in 1981. His term will
expire
as of this annual meeting. Mr. Golsen was elected President of the
Company
in 2004. Mr. Golsen has served as our Vice Chairman of the Board
of
Directors since August 1994, and has been the President of our Climate
Control Business for more than five years. Mr. Golsen has both his
undergraduate and law degrees from the University of
Oklahoma.
|
|
David
R. Goss,
age 65. Mr. Goss first became a director in 1971. His term will expire
as
of this annual meeting. Mr. Goss, a certified public accountant,
is our
Executive Vice President of Operations and has served in substantially
the
same capacity for more than five years. Mr. Goss is a graduate of
Rutgers
University.
|
|
John
A. Shelley,
age 55. Mr. Shelley first became a director in 2005. His term will
expire
as of this annual meeting. Mr. Shelley is the President and Chief
Executive Officer of The Bank of Union ("Bank of Union") located
in
Oklahoma. He has held this position since 1997. Prior to 1997, Mr.
Shelley
held various senior level positions in financial institutions in
Oklahoma
including the position of President of Equity Bank for Savings, N.A.,
a
savings and loan that was previously owned by the Company. Mr. Shelley
is
a graduate of the University of
Oklahoma.
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF
THE FOUR NOMINEES AS DIRECTORS OF THE COMPANY
Continuing
Directors:
|
Raymond
B. Ackerman,
age 83. Mr. Ackerman first became a director in 1993. His term will
expire
in 2008. 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.
He
currently serves as Chairman Emeritus of the firm. He retired as
a Rear
Admiral in the United States Naval Reserve. He is a graduate of Oklahoma
City University, and in 1996, was awarded an honorary doctorate from
the
school. He was elected to the Oklahoma Commerce and Industry Hall
of Honor
in 1993.
|
|
Charles
A. Burtch,
age 70. Mr. Burtch first became a director in 1999. His term will
expire
in 2007. 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.
He retired in 1998 and has since been engaged as a private investor.
Mr.
Burtch is a graduate of Arizona State University.
|
|
3
|
|
Jack
E. Golsen,
age 77. Mr. Golsen first became a director in 1969. His term will
expire
in 2007. Mr. Golsen, founder of the Company, is our Chairman of the
Board
of Directors and Chief Executive Officer and has served in that capacity
since our inception in 1969. Mr. Golsen served as our President from
1969
until 2004. During 1996, he was inducted into the Oklahoma Commerce
and
Industry Hall of Honor as one of Oklahoma's leading industrialists.
Mr.
Golsen has a Bachelor of Science degree from the University of New
Mexico
in biochemistry.
|
|
Bernard
G. Ille, age
79. Mr. Ille first became a director in 1971. His term will expire
in
2008. Mr. Ille served as President and Chief Executive Officer of
United
Founders Life from 1966 to 1988. He served as President and Chief
Executive Officer of First Life Assurance Company from 1988, until
it was
acquired by another company in 1994. During his tenure as President
of
these two companies, he served as Chairman of the Oklahoma Guaranty
Association for ten years and was President of the Oklahoma Association
of
Life Insurance Companies for two terms. He is a director of Landmark
Land
Company, Inc., which was the parent company of First Life. He 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.
|
|
Horace
G. Rhodes,
age 78. Mr. Rhodes first became a director in 1996. His term will
expire
in 2007. Mr. Rhodes is the Chairman of the law firm of Kerr, Irvine,
Rhodes & Ables and has served in such capacity and has practiced law
for many years. From 1972 until 2001, he served as Executive Vice
President and General Counsel for the Association of Oklahoma Life
Insurance Companies and since 1982 served as Executive Vice President
and
General Counsel for the Oklahoma Life and Health Insurance Guaranty
Association. Mr. Rhodes received his undergraduate and law degrees
from
the University of Oklahoma.
|
|
Tony
M. Shelby, age
64. Mr. Shelby first became a director in 1971. His term will expire
in
2008. Mr. Shelby, a certified public accountant, is our Executive
Vice
President of Finance and Chief Financial Officer, a position he has
held
for more than five years. Prior to becoming our Executive Vice President
of Finance and Chief Financial Officer, he 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 LLP. Mr. Shelby
is a graduate of Oklahoma City University.
|
|
Donald
W. Munson, age
73. Mr. Munson first became a director in 1997. His term will expire
in
2008. From 1988, until his retirement in 1992, Mr. Munson served
as
President and Chief Operating Officer of Lennox Industries. Prior
to 1998,
he served as Executive Vice President of Lennox Industries' Division
Operations, President of Lennox Canada and Managing Director of Lennox
Industries' European Operations. Prior to joining Lennox Industries,
Mr.
Munson served in various capacities with the Howden Group, a company
located in Scotland, and The Trane Company, including serving as
the
managing director of various companies within the Howden Group and
Vice
President Europe for The Trane Company. He is currently a consultant.
Mr.
Munson is a resident of England. He has degrees in mechanical engineering
and business administration from the University of
Minnesota.
|
Continuing
Directors elected by the holders of Series 2 Preferred:
|
Grant
J. Donovan,
age 49. Mr. Donovan first became a director in 2002. Mr. Donovan
is
President and founder of Galehead, Inc., a company specializing in
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.
|
|
|
4
|
|
|
Dr.
N. Allen Ford,
age 63. Dr. Ford first became a director in 2002. Dr. Ford joined
the
University of Kansas in 1976 where his 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.
He received his Ph.D. in Accounting from the University of
Arkansas.
|
|
Board
Independence
The
Board of Directors has determined that each of Messrs. Ackerman, Burtch,
Donovan, Ford, Ille, Munson and Rhodes is an "independent director" in
accordance with the current listing standards of the American Stock Exchange
(the "AMEX"). In
connection with the Board's determination as to whether John A. Shelley is
independent, the Board considered, in addition to any transactions between
the
Company and Mr. Shelley discussed under "Certain Relationships and Related
Transactions", that the Bank of Union, of which Mr. Shelley is President and
Chief Executive Officer, has substantial outstanding loans to Jack E. Golsen,
members of his immediate family, and/or entities in which Mr. Golsen and his
immediate family own or control (the "Golsen Group") and the Golsen Group’s
pledge of shares of LSB common stock, among other things, to secure these
loans.
Certain
Committees and Meetings of the Board of Directors
The
Board of Directors of the Company held ten meetings in 2005. During 2005, no
director attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings held by
all
committees of the Board of Directors on which he served, except for Messrs.
Donovan, Ford and Munson who attended 64%, 73% and 73%, respectively, of such
meetings.
The
Company has an Executive Compensation and Option Committee and an Audit
Committee. The Company does not have a nominating committee.
The
Company's Executive Compensation and Option Committee sets the compensation
of
all officers of the Company. The members of the Executive Compensation and
Option Committee are the following non-employee directors: Mr. Ille and Mr.
Rhodes. During 2005, the Executive Compensation and Option Committee had two
meetings.
The
Company's Audit Committee assists the Board of Directors in monitoring the
integrity of the financial statements of the Company, the independent registered
public accounting firm's qualifications and independence, the performance of
the
Company's internal audit function and independent registered public accounting
firm, and the Company's compliance with legal and regulatory requirements.
In
carrying out these purposes, the Audit Committee, among other
things:
| · |
appoints,
evaluates, and approves the compensation of, the Company's independent
registered public accounting firm;
|
| · |
pre-approves
all auditing services and permitted non-audit services; annually
considers
the qualifications and independence of the independent registered
public
accounting firm;
|
| · |
reviews
recommendations of independent registered public accounting firm
concerning the Company's accounting principles, internal controls
and
accounting procedures and
practices;
|
| · |
reviews
and approves the scope of the annual
audit;
|
| · |
reviews
and discusses with the independent registered public accounting firm
the
audited financial statements;
|
| · |
performs
such other duties as set forth in the Audit Committee
Charter
|
| · |
reviews
and discusses with the independent registered public accounting firm
the
unaudited quarterly financial statements.
|
5
The
members of the Audit Committee are Messrs. Ille, Burtch, Rhodes, and Ackerman.
The Board has determined that each member of the Audit Committee is independent,
as defined in the current listing standards of the AMEX and Section 10A-3 of
the
Securities Act of 1933, as amended. During 2005, the Audit Committee had seven
meetings. The Audit Committee operates under a written charter.
Nominations
of Directors The
Board
of Directors does not have a standing nominating committee. The Board believes
that the Company is best served by having all of its independent directors
serve
in the capacity of a nominating committee. Accordingly, each director nominee
must be selected or recommended for the Board's nomination by a majority of
the
independent directors of the Board. Upon recommendation by a majority of the
independent directors, all of the Company's directors participate in the
consideration of director nominees. In considering candidates for directorship,
the independent directors consider the entirety of each candidate's credentials,
but do not have any specific minimum qualifications that must be met by a
candidate in order to be recommended as a nominee.
In
March
2002, the holders of the Company's Series 2 Preferred elected Dr. N. Allen
Ford
and Mr. Grant Donovan to serve as members of the Company's Board of Directors
pursuant to the terms of the Series 2 Preferred.
The
By-laws of the Company 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. In accordance with our By-laws, the Board of Directors will
consider director nominations submitted by a stockholder if the stockholder
gives written notice of the proposed nomination 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
days' notice or prior disclosure of the date of such meeting is given to the
stockholders, then written notice by the stockholder must be received by the
Secretary of the Company not later than the close of business on the 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 is required to be disclosed
in solicitation of proxies pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
Communication
with the Board of Directors and Directors Attendance at Annual
Meetings
The
Company's Board of Directors believes that it is important for the Company
to
have a process whereby its stockholders may send communications to the Board.
Accordingly, stockholders who wish to communicate with the Board of Directors
or
a particular director may do so by sending a letter to David Shear, Senior
Vice
President, General Counsel and Secretary at 16 S. Pennsylvania Avenue, Oklahoma
City, OK 73107. The mailing envelope must contain a clear notation indicating
that the enclosed letter is a "Stockholder-Board Communication" or
"Stockholder-Director Communication." All such letters must identify the author
as a stockholder and clearly state whether the intended recipients are all
members of the Board of Directors or only certain specified individual
directors. Mr. Shear will make copies of all such letters and circulate them
to
the appropriate director or directors. Although the Company does not currently
have a policy with respect to the attendance of its directors at the Annual
Meeting, the Company encourages each of its directors to attend whenever
possible. A majority of the directors attended the Company's 2005 Annual Meeting
of Stockholders.
Code
of Ethics
The
Chief Executive Officer, the Chief Financial Officer, the Principal Accounting
Officer and the controller of the Company, and each of our subsidiaries, or
persons performing similar functions, are subject to our Code of Ethics.
6
We
and
all our subsidiary companies have adopted a Statement of Policy Concerning
Business Conduct applicable to our employees. This policy was amended in May
2005. Our Amended Statement of Policy Concerning Business Conduct and the Code
of Ethics is available on our website at http://www.lsb-okc.com. We will post
any amendments to these documents, as well as any waivers that are required
to
be disclosed pursuant to the rules of either the Securities and Exchange
Commission or the AMEX, on our website.
Compensation
of Directors
In 2005,
we compensated our non-employee directors for their services as directors on
our
Board. Certain non-employee directors also served on the Board of Directors
of
our subsidiary, ThermaClime, without additional compensation. Our non-employee
directors also received compensation for each meeting of the Board of Directors
attended during 2005. The aggregate compensation paid in 2005 to our Directors
for Board-related services was $218,660.
Mr.
Ackerman received additional compensation for his services on the Audit and
Public Relations and Marketing Committees. Dr. Brown received additional
compensation for his services on the Benefits and Programs Committee and as
a
medical director for the Company's employee medical plan. Mr. Burtch received
additional compensation for his services on the Audit Committee. Mr. Ille
received additional compensation for his services on the Audit, Public Relations
and Marketing, and Executive Compensation and Option Committees. Mr. Munson
received additional compensation for consulting services in connection with
developing our European business. Mr. Rhodes received additional compensation
for his services on the Audit and Executive Compensation and Option Committees.
In
2005,
the non-employee directors of the Company were eligible to receive options
to
purchase the Company's Common Stock under the Outside Directors Stock Purchase
Plan. The Company did not grant options under this plan during 2005.
The
following table shows the compensation of our non-employee directors during
2005:
|
|
|
Committee
and Consulting Services
|
Director
Services |
|||
|
Mr.
Ackerman
|
$
|
20,000
|
$
|
12,500
|
|
Dr.
Brown
|
$
|
20,000
|
$
|
12,500
|
|
Mr.
Burtch
|
$
|
20,000
|
$
|
12,000
|
|
Mr.
Donovan
|
$
|
-
|
$
|
12,500
|
|
Dr.
Ford
|
$
|
-
|
$
|
12,000
|
|
Mr.
Ille
|
$
|
20,000
|
$
|
12,000
|
|
Mr.
Munson
|
$
|
15,160
|
$
|
11,500
|
|
Mr.
Rhodes
|
$
|
20,000
|
$
|
12,500
|
|
Mr.
Shelley
|
$
|
-
|
$
|
6,000
|
Audit
Committee Report Management
has the primary responsibility for the financial statements and the reporting
process, including the system of internal control; the Audit Committee oversees
the Company's financial reporting process on behalf of the Board of Directors.
In fulfilling its oversight responsibilities, the Audit Committee reviewed
the
audited financial statements in the Annual Report with management, including
a
discussion of the quality, not just the acceptability, of the accounting
principles; the reasonableness of significant judgments; and the clarity of
disclosures in the financial statements.
The
Committee reviewed with the independent registered public accounting firm,
who
are responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the
Company's
7
accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted auditing standards (including Statement
on
Auditing Standards No. 61). In addition, the Committee has discussed with the
independent registered public accounting firm the auditors' independence from
management and the Company, and has received and reviewed the written
disclosures and the letter from the independent registered public accounting
firm required by the Independence Standards Board (including Independence
Standards Board Standard No. 1), and considered the compatibility of nonaudit
services with the auditors' independence.
The
Committee discussed with the Company's internal auditors and independent
registered public accounting firm the overall scope and plans for their
respective audits. The Committee meets with the internal auditors and
independent registered public accounting firm, with and without management
present, to discuss the results of their examinations, their evaluations of
the
Company's internal control, and the overall quality of the Company's financial
reporting. The Committee held seven meetings during 2005.
In
reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K
for
the year ended December 31, 2005 for filing with the Securities and Exchange
Commission. The Committee appointed Ernst & Young LLP as the Company's
independent registered public accounting firm for 2006.
Members
of the Committee:
Bernard
G. Ille (Chairman)
Horace
G.
Rhodes
Charles
A. Burtch
Raymond
B. Ackerman
Notwithstanding
anything to the contrary set forth in the Company's filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
that might incorporate by reference previous or future filings, including this
Proxy Statement, in whole or in part, the foregoing report of the Audit
Committee and any statements regarding the independence of the Audit Committee
members shall not be incorporated by reference into any such
filings.
Fees
Paid to Independent Registered Public Accounting Firm
Audit
Fees
The
aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal years ended December 31, 2005 and 2004, for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for those
fiscal years, and for review of documents filed with the Securities and Exchange
Commission for those fiscal years were approximately $734,500 and $613,500,
respectively.
Audit-Related
Fees
Ernst
& Young LLP billed the Company $231,300 and $139,800 during 2005 and 2004,
respectively, for audit-related services, which included benefit plan audit
and
accounting consultations which included assistance with the Securities Exchange
Commission (“SEC”) comment letters and related restatements during
2005.
Tax
Fees
Ernst
& Young LLP billed $112,943 and $101,209 during 2005 and 2004, respectively,
for tax services to the Company, and included tax return review and preparation
and tax consultations and planning.
All
Other
Fees
The
Company did not engage its accountants to provide any other services for the
8
fiscal
years ended December 31, 2005 and 2004.
Engagement
of the Independent Registered Public Accounting Firm
The
Audit
Committee is responsible for approving all engagements with Ernst & Young
LLP to perform audit or non-audit services for us prior to us engaging Ernst
& Young LLP to provide those services. All of the services under the
headings Audit Related, Tax Services, and All Other Fees were approved by the
Audit Committee in accordance with paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X of the Exchange Act. The Audit Committee of the Company's Board
of Directors has considered whether Ernst & Young LLP's provision of the
services described above for the fiscal years ended December 31, 2005 and 2004
is compatible with maintaining its independence.
Audit
Committee's Pre-Approval Policies and Procedures All
audit
and non-audit services that may be provided by our principal accountant, Ernst
& Young LLP, to the Company require pre-approval by the Audit Committee.
Further, Ernst & Young LLP shall not provide those services to the Company
specifically prohibited by the Securities and Exchange Commission, including
bookkeeping or other services related to the accounting records or financial
statements of the audit client; financial information systems design and
implementation; appraisal or valuation services, fairness opinion, or
contribution-in-kind reports; actuarial services; internal audit outsourcing
services; management functions; human resources; broker-dealer, investment
adviser, or investment banking services; legal services and expert services
unrelated to the audit; and any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible.
Security
Ownership of Certain Beneficial Owners
The
following table sets forth certain information as of the Record Date, regarding
the ownership of our voting Common Stock and voting Preferred Stock by (a)
each
person (including any "group" as used in Section 13(d)(3) of the Securities
Act
of 1934, as amended) that we know to be beneficial owner of more than 5% of
our
voting Common Stock and voting Preferred Stock. A person is deemed to be the
beneficial owner of shares of the Company which he or she could acquire within
60 days of the Record Date.
|
Name
and Address
of
Beneficial
Owner
|
Title
of
Class
|
Amounts
of
Shares
Beneficially
owned
(1)
|
Percent
of
Class+
|
|
Jack
E. Golsen and
members
of his family (2)
|
Common
Voting
Preferred
|
4,845,288
1,020,000
|
(3
(4
|
)
)
|
(5
(6
|
)
)
|
(6)
|
31.8
99.9
|
%
%
|
|||
|
Kent
C. McCarthy & affiliates (7)
|
Common
|
2,798,086
|
(7
|
)
|
18.1
|
%
|
||||||
|
Paul
J. Denby (8)
|
Common
|
1,147,818
|
(8
|
)
|
8.2
|
%
|
||||||
|
James
W. Sight (9)
|
Common
|
875,521
|
(9
|
)
|
6.3
|
%
|
+
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 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 the
Record Date are deemed to be outstanding for the purpose of computing the
percentage of outstanding stock of the class owned by such person but are not
deemed to be outstanding for the purpose of computing the percentage of the
class owned by any other person.
(1)
We
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.
9
(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, President of the Company and its Climate Control Business); son,
Steven J. Golsen (Executive officer of several subsidiaries of the Company);
daughter, Linda F. Rappaport; and SBL Corporation (“SBL”) and its wholly owned
subsidiary, Golsen Petroleum Corporation (“GPC”). All of the outstanding shares
of SBL are beneficially owned by the members of the Golsen family. The address
of Jack E. Golsen, Sylvia H. Golsen, Barry H. Golsen, Linda F. Rappaport; and
SBL is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107; and Steven
J. Golsen's address is 7300 SW 44th Street, Oklahoma City, Oklahoma 73179.
See
"Certain Relationships and Related Transactions."
(3)
Includes (a) the following shares over which Jack E. Golsen ("J. Golsen") has
the sole voting and dispositive power: (i) 25,000 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 Preferred owned of record
by a trust, of which he is the sole trustee, (iv) 119,929 shares owned of record
by a trust, of which he is the sole trustee, and (v) 176,500 shares that he
has
the right to acquire within the next 60 days under the Company's stock option
plans; (b) 838,747 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) 302,889 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 75,000 shares
that he has the right to acquire within the next 60 days under the Company's
stock option plans; (d) 240,165 shares over which Steven J. Golsen ("S. Golsen")
has the sole voting and dispositive power and 55,000 shares that he has the
right to acquire within the next 60 days under the Company's stock option plans;
(e) 178,606 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 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) 1,527,099 shares owned of record by 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 GPC, 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.
(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 70,200 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 256,120 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.
10
(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)
Jayhawk Institutional Partners, L.P. (“Jayhawk Institutional”), Kent C.
McCarthy, Jayhawk Capital Management Company, LLC (“Jayhawk Capital”), and
Jayhawk Investments, L.P. (“Jayhawk Investments”) (collectively, the “Jayhawk
Parties”) as a group beneficially own 2,798,086 shares of our common stock,
which includes 1,124,700 shares of common stock, 1,435,886 shares of common
stock receivable upon conversion of 331,690 shares of Series 2 Preferred,
112,500 shares of common stock that may be acquired upon exercise of warrants,
and 125,000 shares of common stock that may be acquired upon conversion of
$1
million principal amount of the 7% Convertible Senior Subordinated Debentures
due 2011 (the “2006 Debentures”). The common stock beneficially owned by the
Jayhawk Parties includes (a) 1,933,147 shares of common stock that Jayhawk
Institutional owns or has the right to acquire, including (i) 953,700 shares
of
common stock, (ii) 741,947 shares of common stock receivable upon the conversion
of 171,390 shares of Series 2 Preferred, (iii) 112,500 shares of common stock
receivable upon the exercise of warrants, and (iv) 125,000 shares of common
stock receivable upon the conversion of $1 million principal amount of the
2006
Debentures, (b) 590,909 shares of common stock receivable by Jayhawk Investments
upon conversion of 136,500 shares of Series 2 Preferred, and (c) 274,030 shares
Mr. McCarthy personally owns or has the right to acquire, including 171,000
shares of common stock owned directly and 103,030 shares of common stock
receivable upon the conversion of 23,800 shares of Series 2 Preferred. The
foregoing beneficial ownership is based on a conversion rate of 125 shares
per
$1,000 principal amount of the 2006 Debentures. Such beneficial ownership is
subject to change based upon the terms of the 2006 Debentures, which provide
that (a) at any time prior to September 1, 2006 and on or after March 1, 2009,
the conversion rate is 125 shares per $1,000 principal amount of the 2006
Debentures, and (b) during the period from September 1, 2006 to February 28,
2009, the conversion rate declines every six months, starting at 141.25 shares
and ending at 129.23 shares per $1,000 principal amount of the 2006 Debentures.
Jayhawk Capital, as the investment advisor and manager of Jayhawk Institutional
and the investment advisor and general partner of Jayhawk Investments, is deemed
to beneficially own the securities held by Jayhawk Institutional and Jayhawk
Investments. Mr. McCarthy, as the manager and sole member of Jayhawk Capital,
has sole voting and dispositive power over our securities held by Jayhawk
Capital, Jayhawk Institutional and Jayhawk Investments. Mr. McCarthy disclaims
beneficial ownership of all such shares and the 2006 Debentures other than
his
personal holdings. Mr. McCarthy’s address is 8201 Mission Road, Suite 110,
Prairie Village, Kansas 66208. See “Certain Relationships and Related
Transactions.”
(8)
Paul
J. Denby advised the Company that he has voting and dispositive power over
1,147,818 shares of Common Stock (which includes 181,818 shares of Common Stock
receivable upon conversion of 42,000 shares of Series 2 Preferred). This number
of shares includes 49,329 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 875,521 shares of Common
Stock (which includes 153,368 shares of Common Stock receivable upon conversion
of 35,428 shares of Series 2 Preferred). Mr. Sight's address is 8500 College
Boulevard, Overland Park, Kansas 66210.
11
Security
Ownership of Management
The
following table sets forth certain 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 our voting Common Stock and voting Preferred
Stock as of the Record Date.
|
Name
of
Beneficial
Owner
|
Title
of Class
|
Amount
of Shares Beneficially Owned (1)
|
Percent
of Class+
|
|
Raymond
B. Ackerman
|
Common
|
21,000
|
(2)
|
*
|
||||
|
Robert
C. Brown, M.D.
|
Common
|
208,329
|
(3)
|
1.5
|
%
|
|||
|
Charles
A. Burtch
|
Common
|
15,000
|
(4)
|
*
|
||||
|
Grant
J. Donovan
|
Common
|
42,951
|
(5)
|
*
|
||||
|
Dr.
N. Allen Ford
|
Common
|
1,432
|
(6)
|
*
|
||||
|
Barry
H. Golsen
|
Common
Voting
Preferred
|
3,170,062
1,016,000
|
(7)
(7)
|
21.3
99.5
|
%
%
|
|||
|
Jack
E. Golsen
|
Common
Voting
Preferred
|
3,910,543
1,020,000
|
(8)
(8)
|
25.9
99.9
|
%
%
|
|||
|
David
R. Goss
|
Common
|
312,272
|
(9)
|
2.2
|
%
|
|||
|
Bernard
G. Ille
|
Common
|
45,000
|
(10)
|
|||||
|
Donald
W. Munson
|
Common
|
16,432
|
(11)
|
*
|
||||
|
Horace
G. Rhodes
|
Common
|
20,000
|
(12)
|
*
|
||||
|
David
M. Shear
|
Common
|
170,812
|
(13)
|
1.2
|
%
|
|||
|
Tony
M. Shelby
|
Common
|
356,029
|
(14)
|
2.5
|
%
|
|||
|
Directors
and Executive Officers as a group (14 persons)
|
Common
Voting
Preferred
|
5,902,765
1,020,000
|
(15)
|
36.8
99.9
|
%
%
|
*
Less
than 1%.
+
See
footnote + to the table under "Security Ownership of Certain Beneficial Owners."
(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. As of the Record Date, John A. Shelley did not beneficially own any
of
our voting Common Stock or voting Preferred Stock.
(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 15,000 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 15,000 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, 50,727
shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned by
Dr.
Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc. Employee Profit
Sharing Plan, of which Dr. Brown serves as the trustee. The amount shown does
not include shares owned directly, or through trusts, by the children of Dr.
Brown and the son-in-law of Dr. Brown, David M. Shear, all of which Dr. Brown
disclaims beneficial ownership.
12
(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)
The
amount includes (a) 42,451 shares of common stock, including 30,251 shares
that
Mr. Donovan has the right to acquire upon conversion of 6,988 shares of Series
2
Preferred, over which Mr. Donovan has the sole voting and dispositive power,
and
(b) 500 shares owned of record by Mr. Donovan's wife, voting and dispositive
power of which are shared by Mr. Donovan and his wife.
(6)
The
amount includes (a) 1,000 shares of common stock which Dr. Ford has sole voting
and dispositive power, and (b) 432 shares that Dr. Ford’s wife has the right to
acquire upon conversion of 100 shares of Series 2 Preferred over which voting
and dispositive power are shared by Dr. Ford and his wife.
(7)
See
footnotes (3), (4), and (6) of the table under "Security Ownership of Certain
Beneficial Owners" for a description of the amount and nature of the shares
beneficially owned by B. Golsen.
(8)
See
footnotes (3), (4), and (6) of the table under "Security Ownership of Certain
Beneficial Owners" for a description of the amount and nature of the shares
beneficially owned by J. Golsen.
(9)
Mr.
Goss has the sole voting and dispositive power over these shares, which include
200,000 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) 15,000 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) 30,000 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) 15,000 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
15,000 shares that may be acquired by Mr. Rhodes pursuant to currently
exercisable non-qualified stock options granted to him by the
Company.
(13)
Mr.
Shear has the sole voting and dispositive power over these shares, which include
160,544 shares that Mr. Shear has the right to acquire within 60 days pursuant
to options granted under the Company's stock option plans. This amount does
not
include, and Mr. Shear disclaims beneficial ownership of, the shares
beneficially owned by Mr. Shear's wife, who is the Vice President and Managing
Counsel of the Company, which consist of 13,146 shares over which she has the
sole voting and dispositive power, 22,760 shares that she has the right to
acquire within 60 days pursuant to options granted under the Company's stock
option plans, and 281,708 shares, the beneficial ownership of which is
disclaimed by her, that are held by trusts of which she is the
trustee.
(14)
Mr.
Shelby has the sole voting and dispositive power over these shares, which
include 200,000 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.
(15)
The
amount shown includes 1,081,044 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.
13
Section
16(a) Beneficial Ownership Reporting
Based
solely on a review of copies of the Forms 3, 4 and 5 and amendments thereto
furnished to the Company with respect to 2005, or written representations that
no such reports were required to be filed with the Securities and Exchange
Commission, the Company believes that during 2005 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
Exchange Act of 1934, as amended, on a timely basis, except for Kent McCarthy
and his affiliates inadvertently filed one late Form 5 to report one
transaction; Dr. Ford inadvertently filed one late Form 5 to report one
transaction; and Mr. Goss filed an amended Form 4 to report two gifts.
Certain
Relationships and Related Transactions
Northwest
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.
Prime
and John A. Shelley In
August
1996, Prime Financial Corporation, a subsidiary of the Company, made a loan
to
John A. Shelley (elected a director of the Company during the 2005 Annual
Meeting) in the principal sum of $50,000, bearing an annual rate of interest
of
9%, payable on demand. The loan was evidenced by a demand promissory note and
was made as part of his severance package as President of Equity Bank when
the
Company sold Equity Bank. The note was fully reserved by the Company. The
Company has never demanded repayment of the principal or any accrued interest
under the note. The Company wrote off the note in 2005 prior to the 2005 Annual
Meeting.
Jayhawk
Parties
During
March 2006, the Jayhawk Parties beneficially owned approximately 17.4% of our
common stock (which includes shares that may be issued upon conversion of
outstanding preferred stock and exercise of an outstanding warrant), purchased
$1 million principal amount of our 2006 debentures from us in connection with
our private placement of $18 million of the 2006 Debentures.
During
April 2006, $1.036 million of the net proceeds from the 2006 Debentures were
used to purchase from certain of the Jayhawk Parties approximately $1 million
principal amount of our subsidiary’s 10-3/4% Senior Unsecured Notes, plus
accrued and unpaid interest due thereon.
Effective
March 25, 2003, the Company completed a private placement to Jayhawk
Institutional of 450,000 shares of its common stock and a five-year warrant
to
purchase up to 112,500 share of its 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 Institutional to the Company for the shares of
common stock and the warrant was $1,570,500. Jayhawk has certain registration
rights.
Designer
Rugs
One of
our manufacturing facilities sustained substantial water damage in its office
area resulting from the improper installation by an unrelated third-party
vendor. As a result of the water damage, it became necessary to replace all
of
the carpet in the office area of the facility. During the first quarter of
2006,
we purchased replacement carpet from a company (“Designer Rugs”) owned by Linda
F. Rappaport, the daughter of Jack E. Golsen, our Chairman and Chief Executive
Officer, and sister of Barry H. Golsen, our President. We paid approximately
$159,000 to Designer Rugs for the new carpet, removal of the damaged carpeting
and installation of the new carpet. We believe that insurance will reimburse
us
for the cost of the carpet and installation except for a deductible amount
of
$25,000.
Family
Relationships
Jack E.
Golsen is the father of Barry H. Golsen and the brother-in-law of Robert C.
Brown, M.D. Robert C. Brown, M.D. is the uncle of Barry H. Golsen. David M.
Shear is the nephew by marriage to Jack E. Golsen and son-in-law of Robert
C.
Brown, M.D.
14
EXECUTIVE
COMPENSATION
AND
OTHER INFORMATION
Executive
Compensation
The
following table shows the aggregate compensation which we and our subsidiaries
paid or accrued to our Chief Executive Officer and each of our other four most
highly-paid executive officers (which includes our Vice Chairman of the Board
of
Directors who also serves as President of the Company and its Climate Control
Business) (together, the “named executive officers”).
Summary
Compensation Table
|
Annual
Compensation
|
|
Name
and Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
(2)
|
All
Other
Compensation ($) |
|
Jack
E. Golsen,
Chairman
of the Board of Directors and Chief Executive Officer
|
2005
2004
2003
|
477,400
495,762
477,400
|
-
-
-
|
112,365
61,133
23,000
|
(3)
(3)
(3)
|
||||
|
Barry
H. Golsen,
Vice
Chairman of the Board of Directors, President, and President of the
Climate Control Business
|
2005
2004
2003
|
411,600
339,162
326,600
|
35,000
85,000
85,000
|
-
-
-
|
|||||
|
David
R. Goss,
Executive
Vice President of Operations
|
2005
2004
2003
|
260,500
239,366
209,577
|
-
30,000
-
|
-
-
-
|
|||||
|
Tony
M. Shelby,
Executive
Vice President of Finance and Chief Financial Officer
|
2005
2004
2003
|
240,000
249,231
214,108
|
35,000
30,000
-
|
-
-
-
|
|||||
|
David
M. Shear,
Senior
Vice President and General Counsel
|
2005
2004
2003
|
212,558
212,885
184,077
|
30,000
30,000
-
|
-
-
-
|
(1)
We
pay the executive officers on a bi-weekly basis. For 2004, there were 27
bi-weekly payments compared to 26 in 2005 and 2003.
(2)
Bonuses are paid for services rendered as determined by the Executive
Compensation and Option Committee.
(3)
For
2004 and 2003, amounts relate to life insurance premiums paid by the Company
under a $3 million split dollar endorsement life insurance policy purchased
in
1996 by the Company on the life of Mr. Golsen (the "Split Dollar Policy").
The
Split Dollar Policy was replaced in 2005. Mr. Golsen has no obligation to repay
the Company any amounts paid by the Company under the Split Dollar Policy.
In
2005, the Company purchased and now owns three whole life insurance policies
on
Mr. Golsen's life, totaling $7 million in death benefits. Pursuant to a Death
Benefit Agreement between us and Mr. Golsen, $2.5 million of these death
benefits are payable to Mr. Golsen’s family or designated beneficiary. For 2005,
the amount relates to Mr. Golsen’s prorata share of the life insurance premiums
for these new policies based on the amount of proceeds to be paid to Mr.
Golsen’s family or designated beneficiary in relation to the total amount of
proceeds to be received by the Company. See "Other Plans" for a description
of
the Death Benefit Agreement.
Option
Grants in 2005
The
Company did not grant stock options to any of the named executive officers
during 2005.
15
Aggregated
Option Exercises in 2005 and Year-End Option Values
The
following table sets forth information concerning the number and year-end value
of stock options held by each of the named executive officers during 2005.
|
Name |
Shares
Acquired on Exercise
|
Value
Realized
|
Number
of Securities Underlying Unexercised Options at FY End
(1)
Exercisable/Unexercisable
|
Value
of Unexercised
In-the-Money
Options at Fiscal Year End
(1)
(2) Exercisable/Unexercisable
|
|
Jack
E. Golsen
|
-
|
-
|
176,500
/ -
|
$
|
864,850
/ $ -
|
|||||
|
Barry
H. Golsen
|
-
|
-
|
75,000
/ -
|
$
|
335,538
/ $ -
|
|||||
|
David
R. Goss
|
-
|
-
|
200,000
/ -
|
$
|
709,675
/ $ -
|
|||||
|
Tony
M. Shelby
|
-
|
-
|
200,000
/ -
|
$
|
709,675
/ $ -
|
|||||
|
David
M. Shear
|
-
|
-
|
164,544
/ -
|
$
|
597,066
/ $ -
|
(1)
The
stock options granted under the Company's stock option plans became 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 (a) the price of the Company's Common
Stock on the AMEX at the close of trading on December 30, 2005 of $6.15 per
share and (b) the exercise price of the 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.
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 employees covered under union agreements and
certain other employees. The 401(k) Plan is funded by employee contributions,
and the Company and its subsidiaries make no contributions to the 401(k) Plan
(with limited matching exceptions at three subsidiary locations). 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 salary and bonus set forth in the Summary
Compensation Table above includes any amounts contributed during the 2005,
2004,
and 2003 fiscal years pursuant to the 401(k) Plan by the named executive
officers of the Company.
On
May
12, 2005, the Company entered into a certain death benefit agreement (“2005
Agreement”) with Jack E. Golsen. This agreement replaced certain existing
benefits that were payable to Mr. Golsen under a split dollar insurance policy
purchased by the Company on Mr. Golsen's life in 1996 and a second policy
purchased in 2002, each of which were replaced in 2005. The 2005 Agreement
provides that, upon Mr. Golsen's death, the Company will pay to Mr. Golsen's
family or designated beneficiary $2.5 million to be funded from the net proceeds
received by the Company under certain life insurance policies on Mr. Golsen's
life that have been purchased and are owned by the Company. The life insurance
policies owned by the Company provide a stated death benefit of $7 million.
The
Company is obligated to keep in existence no less than $2.5 million of the
stated death benefit.
During
1981, the Company entered into individual death benefit agreements (the "1981
Agreements") with certain key employees. Under the 1981 Agreements, the
designated beneficiary of an employee will receive a monthly benefit for a
period
16
of
ten
years if the employee dies while in the employment of the Company or a
wholly-owned subsidiary of the Company. The 1981 Agreements provide 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 1981 Agreements to provide a source of funds for
the
Company's obligations under the 1981 Agreements. The Company is the owner and
sole beneficiary of each of the insurance policies and the proceeds are 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
under the 1981 Agreements.
|
Name
of Individual
|
Amount
of Annual Payment
|
|
Jack
E. Golsen
|
$
|
175,000
|
||
|
Barry
H. Golsen
|
$
|
30,000
|
||
|
David
R. Goss
|
$
|
35,000
|
||
|
Tony
M. Shelby
|
$
|
35,000
|
||
|
David
M. Shear
|
$
|
N/A
|
During
1992, 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 (the "1992 Agreements"). Under the 1992 Agreements,
the
employee is eligible to receive a designated benefit (“Benefit”) as set forth in
the 1992 Agreements. 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 (“Death Benefit”) for
a period of ten years. The 1992 Agreements provide that the Company may
terminate the agreement as to any employee at any time and for any reason prior
to the death of the employee. The Company has purchased insurance on the life
of
each employee covered under the 1992 Agreements where the Company is the owner
and sole beneficiary of the insurance policy, and the proceeds are payable
to
the Company to provide a source of funds for the Company's obligations under
the
1992 Agreements. Under the terms of the 1992 Agreements, if the employee becomes
incapacitated prior to retirement or prior to reaching age 65, 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 1992 Agreements. Jack
E.
Golsen does not participate in the 1992 Agreements. The following table sets
forth the amounts of annual benefits payable to the executive officers named
in
the Summary Compensation Table under the 1992 Agreements.
|
Name
of Individual
|
Amount
of Annual
Benefit
|
Amount
of Annual Death Benefit
|
|
Barry
H. Golsen
|
$
|
17,480
|
$
|
11,596
|
||||
|
David
R. Goss (1)
|
$
|
17,403
|
$
|
-
|
||||
|
Tony
M. Shelby
|
$
|
15,605
|
$
|
16,486
|
||||
|
David
M. Shear
|
$
|
17,822
|
$
|
7,957
|
(1)
During 2005, Mr. Goss reached the age of 65. As a result, Mr. Goss is receiving
a monthly benefit of $1,450 which began in December 2005.
Employment
Contracts and Termination of Employment and Change in Control
Arrangements
(a)
Termination of Employment and Change in Control
Agreements
We have
entered into severance agreements with each of Jack E. Golsen, Barry H. Golsen,
Tony M. Shelby, David R. Goss, David M. Shear, and certain other
officers.
Each
severance agreement provides (among other things) that if, within 24 months
after the occurrence of a change in control (as defined) of the Company, the
Company terminates the officer's employment other than for cause (as defined),
or the officer terminates his employment for good reason (as defined), the
Company
17
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
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 amended) 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 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
18
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 We
have
an employment agreement with Jack E. Golsen, the Chairman of the Board and
Chief
Executive Officer 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, 2008; 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 (a) shall be paid an annual
base salary at his 1995 base rate, as adjusted from time to time by the
Executive Compensation and Option Committee, but such shall never be adjusted
to
an amount less than Mr. Golsen's 1995 base salary, (b) shall be paid an annual
bonus in an amount as determined by the Executive Compensation and Option
Committee, and (c) shall receive from the Company certain other fringe benefits.
The employment agreement was amended in 2005 to reflect the termination of
a
split dollar life insurance policy on Mr. Golsen's life and the new Death
Benefit Agreement, as discussed above under “Other Plans.”
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 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.
19
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
Our
Executive Compensation and Option Committee has the authority to set the
compensation of all our officers. This Committee generally considers and
approves the recommendations of the Chief Executive Officer. The Chief Executive
Officer does not make a recommendation regarding his own salary. The members
of
the Executive Compensation and Option Committee are the following non-employee
directors: Bernard G. Ille and Horace G. Rhodes. Neither Mr. Ille nor Mr. Rhodes
is, or ever has been, an officer or employee of the Company or any of its
subsidiaries. During 2005, the Executive Compensation and Option Committee
had
two meetings.
See
"Compensation of Directors" for information concerning compensation paid to
each
non-employee director of the Company during 2005 for services as a director
to
the Company.
Report
of Executive Compensation and Option Committee
General The
Executive Compensation and Option Committee ("Committee") is presently comprised
of Bernard G. Ille and Horace G. Rhodes, neither of whom is a current or former
employee of the Company. The Committee is responsible for reviewing and
approving the compensation paid to executive officers of the Company.
Compensation
Policy for Executive Officers Although
the Committee has not established specific quantitative compensation policies
for executive officers of the Company, including the Chief Executive Officer,
the Committee reviews each executive officer's performance on behalf of the
Company. The guiding principle of the Committee is based on the following
objectives: (a) to attract and retain qualified executives in a highly
competitive environment who will play significant roles in achieving the
Company's goals; (b) to reward executives for strategic management and the
long-term enhancement of stockholder value; (c) to create a performance-oriented
environment that rewards performance with respect to financial and operational
goals of the Company; and, (d) to motivate executives to protect the interests
of the Company in all situations. The key elements of the Company's executive
compensation program have consisted of a base salary, bonus and stock
options.
As
to the
compensation (base salary and bonus) paid or payable to executive officers,
other than the Chief Executive Officer, the Chief Executive Officer makes a
recommendation to the Committee. The Committee considers such recommendations.
The Chief Executive Officer's recommendation with respect to base salary and
bonus and the Committee's approval or disapproval of such recommendation is
primarily based on the objectives set forth above.
The
Committee considers the payment of bonuses to be consistent with the objectives
set forth above. As a result, bonuses were paid in 2005, 2004 and 2003. See
"Executive Compensation."
Jack
E.
Golsen has been Chief Executive Officer of the Company since its formation
in
1969. In March 1996, the Company entered into an employment agreement with
Mr.
Golsen, which sets Mr. Golsen's salary at his 1995 base rate, as adjusted from
time to time by the Committee. In determining any adjustments to Mr. Golsen's
compensation, the Committee takes into account the fact that Mr. Golsen
continues the strategy of developing the Company through internal growth,
acquisitions, redeployment of assets and personnel, the complexity of issues
20
required
to be dealt with, and development of international markets. There were no
increases in Mr. Golsen's annual salary for 2003, 2004 or 2005.
Since
1996, the Company has owned a $3 million split dollar endorsement life insurance
policy on the life of Jack E. Golsen in order to provide a death benefit for
Mr.
Golsen's family. In 2002, the Company purchased an additional $2 million life
insurance policy. The proceeds of those policies were to fund a $2.5 million
death benefit to Mr. Golsen's family. In March 2005, the Committee determined
that due, in part, to certain ambiguities with, and the implementation of,
Sarbanes Oxley Act of 2002, the Company should replace the split dollar policy
and the additional policy on Mr. Golsen's life. As a result, the Committee
recommended and the Board of Directors approved the termination of the existing
policies and the purchase of three new whole life insurance policies on Mr.
Golsen's life, having an aggregate stated death benefit of $7 million. In
connection with the purchase of the new policies, the Committee recommended
and
the Board of Directors approved a Death Benefit Agreement between the Company
and Mr. Golsen. The agreement provides for the payment of $2.5 million to Mr.
Golsen's family or designated beneficiary upon the Company's receipt of $2.5
million of insurance proceeds under the new policies. The amount payable under
the Death Benefit Agreement to Mr. Golsen's family or designated beneficiary
is
the same amount that would have been payable under the prior two
policies.
The
Company utilizes the granting of stock options to compensate executive officers
of the Company. This practice is founded on the belief that stock options offer
executive officers a valuable incentive to achieve increased profitability
of
the Company in order to enhance stockholder value. There are no specific factors
used to determine the number of options granted or to the timing of such grants;
however, certain criteria are considered such as length of service, level of
responsibility, and the achievement of the Company's earnings objectives. No
stock options were granted to the Chief Executive Officer and other named
executive officers of the Company during 2005.
Members
of the Committee:
*
Horace
G. Rhodes, Chairman
*
Bernard
G. Ille
The
foregoing report of the Executive Compensation and Option Committee shall not
be
considered incorporated by reference by any general statement incorporating
by
reference this Proxy Statement into any filing under the Securities Act of
1933
or the Securities Exchange Act of 1934 (collectively, the "Acts"), except to
the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed to be soliciting material or to be filed
under
such Acts.
Performance
Graph
The
following table compares the yearly percentage change in the cumulative total
stockholder return of (a) the Company, (b) a composite index ("Peer Group")
comprised of a peer group of entities from two distinct industries which
represent the Company's two primary lines of business (Climate Control and
Chemical), and (c) the American Stock Exchange Market Value Index ("AMEX MVI").
The table set forth below covers the period from year-end 2000 through year-end
2005.
21
FISCAL
YEAR ENDING
|
12/29/2000
|
12/31/2001
|
12/31/2002
|
12/31/2003
|
12/31/2004
|
12/30/2005
|
|
LSB
Industries, Inc.
|
100.00
|
106.67
|
114.87
|
261.74
|
326.15
|
252.31
|
||||||
|
PEER
GROUP
|
100.00
|
113.50
|
107.43
|
162.70
|
246.79
|
239.69
|
||||||
|
AMEX
MVI
|
100.00
|
95.39
|
91.58
|
124.66
|
142.75
|
157.43
|
Assumes
$100 invested at year-end 2000 in the Company, the Peer Group, and the AMEX
MVI,
and the investment of dividends, if any.
The
Peer
Group was developed for the Company by Hemscott Group (formerly CoreData) and
is
comprised of all companies that have specified Hemscott Group General Index
Groups codes, which the Company believes correspond to the Company's primary
lines of business. The Peer Group is comprised of (a) climate control companies
having a Hemscott Group code 634 (general building materials) and (b) chemical
companies having a Hemscott Group codes 112 (agricultural chemicals) and 113
(specialty chemicals), and is provided for comparison to the Company's two
primary lines of business, Climate Control and Chemical. The companies which
comprise the Peer Group are listed on Exhibit "A" to this Proxy
Statement.
The
Company has been advised that the cumulative total return of each component
company in the Peer Group has been weighted according to the respective
company's stock market capitalization. The
AMEX
MVI line is provided because the Company believes that those companies listed
in
the AMEX MVI most closely resemble the size and composition of the Company.
In
light of the Company's unique industry diversification and current market
capitalization, the Company believes that the Peer Group and AMEX MVI are
appropriate for comparison to the Company. The above Performance Graph shall
not
be deemed incorporated by reference by any general statement incorporating
by
reference this Proxy Statement into any filing under the Securities Act of
1933
or the Securities Exchange Act of 1934 (collectively, the "Acts"), except to
the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed to be soliciting material or to be filed
under
such Acts.
22
PROPOSAL
2
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The
Audit
Committee has appointed the firm of Ernst & Young LLP, Independent
Registered Public Accounting Firm ("Ernst & Young"), as the Company's
auditors for 2006. Ernst & Young has served as the Company's auditors for
more than five years, including the fiscal year most recently completed. If
the
stockholders do not ratify the appointment of Ernst & Young, the Audit
Committee will reconsider the appointment.
In
line
with past practices, it is expected that one or more representatives of Ernst
& Young will attend the Annual Meeting and will be available to respond to
appropriate questions or make a statement should they desire to do
so.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP.
OTHER
MATTERS
As
of the
date of this Proxy Statement, the Board of Directors knows of no other matters
which may come before the Annual Meeting. If any other business properly comes
before the meeting, the persons named in the Proxy Card will vote with respect
to that matter in accordance with their best judgment.
Pursuant
to the By-laws of the Company, only such business shall be conducted at the
Annual Meeting as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors of the Company, or (b) by any stockholder
of
the Company who is entitled to vote at the Annual Meeting and who complies
with
the following notice requirements. No business may be properly brought before
the Annual Meeting by a stockholder unless the stockholder gives written notice
to the Secretary of the Company of the business to be presented at the Annual
Meeting not less than 50 days prior to the date of the Annual Meeting (or in the
event that less than 60 days notice, or public disclosure of the date of the
Annual Meeting, is given or made to stockholders, written notice by the
stockholder must be received by the Secretary of the Company not later than
the
close of business on the 10th day following the day on which notice of the
date
of the meeting was mailed or public disclosure was made). The written notice
must set forth: (a) a brief description of the business desired to be presented
before the Annual Meeting and reasons for conducting such business at the
meeting; (b) the name and address, as they appear on the Company's books, of
the
stockholder proposing such business; (c) the class and number of shares of
the
Company's voting stock beneficially owned by such stockholder; and (d) any
material interest of such stockholder in such business.
A
copy of
the Company's 2005 Annual Report accompanies this Proxy Statement, which Annual
Report includes the Company’s 2005 Form 10-K. Copies of exhibits to the
Form 10-K are available, but a reasonable fee per page will be charged to
the requesting stockholder. Stockholders may make requests in writing to
Director - Communications Department, c/o LSB Industries, Inc., 16 South
Pennsylvania Avenue, Post Office Box 754, Oklahoma City, OK 73101. Documents
filed by the Company pursuant to the Exchange Act may be reviewed and obtained
through the SEC's EDGAR system, which is publicly available through the SEC's
website, http://www.sec.gov.
LSB
INDUSTRIES, INC.
BY
ORDER
OF
THE
BOARD
OF DIRECTORS
David
M.
Shear
Secretary
June
7,
2006
Oklahoma
City, Oklahoma
23
Exhibit
"A"
|
AAON
INC
|
FLEXIBLE
SOLUTIONS INTL
|
OM
GROUP INC
|
||
|
ACETO
CORP
|
GRIFFON
CORP
|
OMNOVA
SOLUTIONS INC
|
||
|
ADA-ES
INC
|
H.B.
FULLER CO
|
PENFORD
CORP
|
||
|
AGRIUM
INC
|
IMPERIAL
INDUSTRIES INC
|
QUAKER
CHEMICAL CORP
|
||
|
AMCOL
INTERNATIONAL CORP
|
INNOSPEC
INC
|
RONSON
CORP
|
||
|
AMERICAN
STANDARD COS
|
INTERNAT
ALUMINUM CORP
|
RPM
INTERNATIONAL INC DE
|
||
|
AMERICAN
VANGUARD CORP
|
INTERNAT
FLAVORS & FRAG
|
SCOTTS
MIRACLE GROW CO
|
||
|
AMERON
INTERNAT CORP
|
ISONICS
CORPORATION
|
SENSIENT
TECHNOLOGIES CP
|
||
|
BALCHEM
CORP
|
KFX
INC
|
SHERWIN-WILLIAMS
CO
|
||
|
BRADY
CORPORATION CL A
|
KRONOS
WORLDWIDE INC
|
SIGMA-ALDRICH
CORP
|
||
|
BRASKEM
PFD CL A ADR
|
LAPOLLA
INDUSTRIES
|
SOCIEDAD
QUIMICA Y MINER
|
||
|
BUNGE
LTD
|
LESCO
INC
|
SURMODICS
INC
|
||
|
CABOT
CORP
|
LUBRIZOL
CORP
|
SYNGENTA
AD FOR NVS
|
||
|
CABOT
MICROELECTRONICS
|
LYONDELL
CHEMICAL CO
|
SYNTROLEUM
CORPORATION
|
||
|
CARBO
CERAMICS INC
|
MACDERMID
INC
|
TAT
TECHNOL LTD
|
||
|
CENTRAL
GARDEN&PET CL CM
|
MACE
SECURITY INTERNAT
|
TECUMSEH
PRODUCTS CL A
|
||
|
CFC
INTERNAT INC CL CM
|
MARTIN
MARIETTA MATERIAL
|
TECUMSEH
PRODUCTS CL B
|
||
|
CHEMTURA
CORPORATION
|
MESTEK
INC
|
TERRA
NITROGEN CO L.P.
|
||
|
CIBA
SPECIALTY CHEM HLDG
|
METHANEX
CORPORATION
|
TREX
CO INC
|
||
|
COMPASS
MINERALS INTL
|
MONSANTO
CO
|
U.S.
LIME & MINERALS INC
|
||
|
CONTINENTAL
MATERIALS CP
|
MOSAIC
CO
|
UAP
HOLDING CORP
|
||
|
CYANOTECH
CORPORATION
|
NCI
BUILDING SYSTEMS INC
|
USG
CORP
|
||
|
DREW
INDUSTRIES INC
|
NEVADA
CHEMICALS INC
|
VALSPAR
CORPORATION,THE
|
||
|
DYNAMOTIVE
ENERGY SYSTMS
|
NEWMARKET
CORP
|
VULCAN
MATERIALS CO
|
||
|
EDEN
BIOSCIENCE CORP
|
NORTHERN
TECHNOLOGY
|
W.R.
GRACE & CO
|
||
|
ELKCORP
|
OIL-DRI
CORP OF AMERICA
|
WD-40
CO
|
||
|
FERRO
CORP
|
WESTLAKE
CHEMICAL CORP
|
|||
24