NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement ("Option Agreement")
made the 18th day of December, 1997, between LSB Industries, Inc.,
a Delaware corporation, hereinafter called the "Company", and
Daniel L. Ellis, hereinafter called "Optionee";
W I T N E S S E T H:
In consideration of the mutual covenants and conditions, the
parties agree as follows:
1. Recitations. The Company is presently employing the
Optionee as its employee at a Subsidiary (as defined below) of the
Company and considers it desirable and in its best interest that
Optionee be given an inducement to acquire an initial or additional
proprietary interest in the Company as an added incentive to
advance the interest of the of the Company in the form of this
option to purchase certain shares of the Company's common stock,
par value $.10 per share ("Common Stock"). The Board of Directors
of the Company has adopted and granted this option on this 18th day
of December, 1997.
2. Obligations. This Option Agreement shall not impose upon
the Company or any Subsidiary of the Company any obligation to
retain Optionee as an employee at his present salary or position or
to employ Optionee in any other position with or for the Company or
any Subsidiary of the Company. If Optionee shall leave the employ
of the Company for any reason, the option granted herein shall
immediately terminate, except as otherwise expressly provided in
Section 4 hereof.
3. Grant of Option and Option Price. Subject to the terms
and conditions hereof, the Company hereby grants to Optionee as of
the close of business on this the 18th day of December, 1997, the
right, privilege and option to purchase 25,000 shares of the
Company's common stock, par value $.10, at an option price of
$4.125 a share (the "Exercise Price), such Exercise Price being one
hundred percent (100%) of the Fair Market Value of the Common Stock
as determined at the close of the business on the 18th day of
December, 1997. Such option is hereinafter referred to as the
"Option" and the shares of Common Stock purchasable upon the
exercise of the Option are hereinafter sometimes referred to as the
"Option Shares"..
4. Time of Exercise of Option.
(a) As an Employee. If this option has not been
terminated pursuant to Section 6 hereof, subject to the terms
and conditions contained herein, the option herein granted may
be exercised by Optionee as hereinafter provided. Subject to
the terms and conditions contained herein, during the first
two (2) years that the option granted herein is outstanding it
may not be exercised by the Optionee with respect to any of
the shares covered hereby; at any time after two (2) years of
continuous employment by the Optionee as an employee for and
on behalf of the Company or a Subsidiary of the Company from
the date of this Option Agreement, it may be exercised by the
Optionee as to not more than an additional thirty percent
(30%) of the total number of shares set forth in Section 3
hereof; at any time after three (3) years of continuous
employment by the Optionee as an employee for and on behalf of
the Company or a Subsidiary of the Company from the date of
this Option Agreement, it may be exercised by the Optionee as
to an additional thirty percent (30%) of the total number of
shares set forth in Section 3 hereof; and at any time after
four (4) years of continuous employment by the Optionee as an
employee for and on behalf of the Company or a Subsidiary of
the Company from the date of this Option Agreement, it may be
exercised by the Optionee, in whole or in part, as to the
remaining shares. The right to exercise the option granted
herein shall be cumulative.
(b) As a Former Employee. The Option granted herein may
not be exercised after the Optionee is no longer an employee
of the Company or any Subsidiary; except that if the Optionee
ceases to be an employee on account of physical or mental
disability as defined in Section 22(e)(3) of the Internal
Revenue Code ("Former Employee"), he may exercise the Option
within twelve (12) months after the date on which he ceased to
be an employee, for the number of Option Shares for which he
could have exercised at the time he ceased to be an employee.
In no event may the Option be exercised after the expiration
of ten (10) years from the Date of Grant.
(c) In Case of Death. If the Optionee dies prior to the
termination of this Option, the Option may be exercised within
one (1) year after the death of the Optionee by the personal
representative of this estate, or by a person who acquired the
right to exercise the Option by bequest, inheritance, or by
reason of the death of the Optionee, provided that:
(1) the Optionee died while an employee of the Company or a
Subsidiary; or
(2) the Optionee ceased to be an employee of the Company or
a Subsidiary on account of physical or mental disability
and died within three (3) months after the date on which
he ceased to be such employee.
The Option may be exercised only as to the number of shares
for which the Optionee could have exercised at the time the
Optionee died. In no event may the Option be exercised after
the expiration of ten (10) years from the Date of Grant.
(d) Acceleration and Continuous Employment. The Board
of Directors of the Company shall have the sole and absolute
discretion to accelerate the time when Optionee will become
entitled to exercise this option pursuant to the terms hereof.
The Board of Directors shall decide, in its sole and absolute
discretion, to what extent leaves of absence for government or
military service, illness, temporary disability or other
reasons, shall not interrupt continuous employment as an
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employee for and on behalf of the Company or a Subsidiary of
the Company, which decision shall be binding for the purpose
of this Option Agreement.
5. Method of Exercise and Payment of Exercise Price.
(a) Subject to the terms and conditions hereof, the
option granted under this Option Agreement may be exercised by
written notice directed to the Company at its principal place
of business setting forth the exact number of shares under
this option that the Optionee is purchasing, which may not
exceed the number of shares that the Optionee is eligible to
purchase under this Option Agreement at the time of such
purchase, and enclosing with such written notice a certified
or cashier's check or cash, or the equivalent thereof
acceptable to the Company, in payment of the full option price
for the number of shares specified in such written notice and
shall comply with such other reasonable requirements as the
Board of Directors of the Company may establish. Subject to
the terms and conditions of this Option Agreement, the Company
shall make delivery of such shares within a reasonable period
of time after the giving of such notice; provided that if any
law or regulation requires the Company to take any action with
respect to the shares specified in such notice before the
issuance thereof, then the date of delivery of such shares
shall be extended for the period necessary to take such
action.
(b) The Optionee understands that, on the exercise of
this operation (or at the time a sale of the stock acquired by
such exercise at a profit would no longer subject Optionee to
suit under Section 16(b) of the Securities Exchange Act of
1934, as amended) the excess of the fair market value of the
common stock over it option price is taxable remuneration to
him subject to federal income tax withholding by the Company.
To facilitate withholding by the Company, if required,
Optionee hereby agrees that the exercisability of this option
is conditional on Optionee agreeing to such arrangements and
taking such actions as the Company determines are appropriate
to insure that the amount required to be withheld will be
available for payment in money by the Company as required
withholding.
6. Termination of Option. This Option Agreement and the
option granted herein, to the extent not theretofore exercised,
shall immediately terminate and become null and void upon the
earlier of the following to occur:
(a) At such time as the Option is no longer exercisable
pursuant to the terms of Section 4 hereof; or
(b) Termination of the Optionee for any reason
whatsoever, with or without cause, as an employee for Climate
Master, Inc., or another Subsidiary of the Company; or
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(c) On the tenth anniversary of the date of this
Agreement; or
(d) Upon the Optionee's surrender to the Company for
cancellation of this Agreement and the Option granted herein.
7. Restrictions.
(a) The Option will not be transferrable otherwise than
by will or the laws of descent and distribution, and the
Option may be exercised, during the lifetime of the Optionee,
only by Optionee. More particularly (but without limiting the
generality of the foregoing), the Option may not be assigned,
transferred (except as provided above), pledged, or
hypothecated in any way, will not be assignable by operation
of law and will not be subject to execution, attachment, or
similar process. Any attempted assignment, transfer, pledge,
hypothecation, or other disposition of the Option contrary to
the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option, will be null
and void and without effect.
(b) Optionee shall have no right as a stockholder with
respect to any shares covered by this Option Agreement until
the date of issuance of a stock certificate to him for such
shares. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such
stock certificate is issued.
8. Stock Dividends, Reorganizations. If and to the extent
that the number of issued shares of common stock of the Company
shall be increased or reduced resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any
other increase or decrease in the number of such shares of common
stock of the Company effected without receipt of consideration by
the Company, the number of shares of common stock subject to this
option and the option price therefor shall be proportionately
adjusted.
If the Company is reorganized or consolidated or merged
with another corporation, in which the Company is the non-surviving
corporation, Optionee shall be entitled to receive options covering
shares of such reorganized, consolidated or merged company in the
same proportion as optioned under this Option Agreement to Optionee
prior to such reorganization, consolidation or merger, at an
equivalent price, and subject to the same terms and conditions as
contained herein. For purposes of the preceding sentence, the
excess of the aggregate fair market value of the shares subject to
this option immediately after the reorganization, consolidation or
merger over the aggregate option price of such shares shall not be
more than the excess of the aggregate fair market value of all
shares subject to this option immediately before such
reorganization, consolidation or merger over the aggregate option
price of such shares, and the new option or assumption of this
option shall not give Optionee additional benefits which he did not
have under this option.
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To the extent that the foregoing adjustments and
determinations relate to the shares of common stock of the Company
and/or fair market values of such shares, such adjustments and
determinations shall be made by the Board of Directors, whose
determination in that respect shall be final, binding and
conclusive.
Except as hereinabove expressly provided in this Section
8, the Optionee shall have no rights by reason of any subdivision
or consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase or decrease in the number
of share of stock of any class or by reason of any dissolution,
liquidation, merger, consolidation or reorganization or spin-off of
assets or stock of another corporation, and any issue by the
Company of share of stock of any class, or securities convertible
into shares of stock of any class, shall not affect and no
adjustment by reason thereof shall be made with respect to the
number or price of shares subject to this option.
The grant of this option shall not affect in any way the
right of power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or
assets.
9. Compliance with Law and Approval of Regulatory Bodies.
Notwithstanding anything in this Option Agreement to the contrary,
no shares will be issued, or, in the case of treasury shares
transferred, upon exercise of the option granted hereunder, except
in compliance with all applicable Federal and State laws, rules and
regulations (including, but not limited to the Federal and State
securities laws, rules and regulations) and in compliance with
rules of stock exchanges on which the Company's shares of common
stock may be listed. Notwithstanding anything in this Option
Agreement to the contrary, no shares will be issued, or, in the
case of treasury shares transferred, upon exercise of the option
granted hereunder, until the Company has obtain such consent or
approval from any and all regulatory bodies, Federal or State, and
such stock exchanges having jurisdiction over such matters as the
Board of Directors of the Company may deem advisable.
10. Binding Effect and Amendments. This Agreement shall be
binding upon the heirs, executors, administrators and successors of
the parties hereto. This Agreement may not be amended except in
writing signed by all of the parties hereto.
11. Interpretation, Other Restrictions and Legends.
(a) The Board of Directors of the Company shall construe
and interpret the terms and provisions of this Option
Agreement, which construction and interpretation, shall be
binding and conclusive upon all parties hereto. This Option
Agreement shall be construed pursuant to the laws of the State
of Delaware.
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(b) The Optionee represents and warrants that if he
acquires any of the shares under this Option Agreement he will
acquire such shares for his own account and for the purpose of
investment and not with a view to the sale or distribution
thereof, except for sales pursuant to an effective
registration statement under the Securities Act of 1933 (the
"Act") or pursuant to an exemption from registration under the
Act. The Optionee understands that the shares of common stock
covered by this Option Agreement have not as of the date
hereof and may not at the time that such are purchased be
registered under the Act (the Company being under no
obligation to effect such registration) and that such shares
must be held indefinitely unless a subsequent disposition
thereof is registered under the Act or is exempt from
registration. The Optionee further understands that the
exemption from registration afforded by Rule 144 under the Act
depends upon the satisfaction of various conditions and that,
if applicable, Rule 144 affords the basis for sale of such
shares only in limited amounts.
(c) The Optionee represents, covenants, and agrees that
he will not sell or otherwise dispose of the shares acquired
under this Option Agreement in the absence of (i) an effective
registration statement under the Act, (ii) an opinion
acceptable in form and substance to the Company from
Optionee's counsel satisfactory to the Company, or an opinion
of counsel to the Company, to the effect that no registration
is required for such disposition, or (iii) a "no-action"
letter from the staff of the Securities & Exchange Commission
("SEC") to the effect that such a disposition takes place
without registration.
(d) The certificates representing shares covered by this
Option Agreement shall upon issuance thereof have stamped or
imprinted thereon or affixed thereto a legend to the following
effect:
"The registered holder hereof has acquired the
shares represented by this certificate for
investment and not for resale in connection
with a distribution thereof. Accordingly,
such shares have not been registered under the
Securities Act of 1933 and may not be sold,
transferred or otherwise disposed of except
pursuant to a currently effective registration
statement under said Act or otherwise in a
transaction exempt from the provisions of
Section 5 of said Act."
12. Definitions. For the purposes of this Option Agreement:
(a) The term "Subsidiary" or "Subsidiary Corporation"
means any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if each of
the corporations other than the last corporation in the
unbroken chain own stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of
stock in one or the other corporations in such chain.
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(b) The term "employee" means a person who has
contracted to perform work or services for another and to
perform such work or services not less than forty (40) hours
each week of the year.
IN WITNESS WHEREOF, the parties hereunto have caused this
Agreement to be executed the day and year first above written.
LSB INDUSTRIES, INC.
By: /s/ Jack E. Golsen
___________________________
Jack E. Golsen, President
ATTEST:
/s/ Heidi Brown
_______________________________
Asst. Secretary
[SEAL]
"OPTIONEE"
/s/ Daniel L. Ellis
______________________________
Daniel L. Ellis
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