Stockholders' Equity

12 Months Ended

Dec. 31, 2011

13. Stockholders’ Equity

Approval of Stock Incentive Plan in 2008 — During 2008, our board of directors adopted our 2008 Incentive Stock Plan (the “2008 Plan”), which plan was approved by our shareholders at our annual meeting of shareholders held on June 5, 2008. The number of shares of our common stock available for issuance under the 2008 Plan is 1,000,000 shares, subject to adjustment. Under the 2008 Plan, awards may be made to any employee, officer or director of the Company and its affiliated companies. An award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any affiliate (as defined in the 2008 Plan), subject to certain conditions. The 2008 Plan is being administered by the compensation and stock option committee (the “Committee”) of our board of directors.

Our board of directors or the Committee may amend the 2008 Plan, except that if any applicable statute, rule or regulation requires shareholder approval with respect to any amendment of the 2008 Plan, then to the extent so required, shareholder approval will be obtained. Shareholder approval will also be obtained for any amendment that would increase the number of shares stated as available for issuance under the 2008 Plan. Unless sooner terminated by our board of directors, the 2008 Plan expires on June 5, 2018.

The following may be granted by the Committee under the 2008 Plan:

Stock Options — The Committee may grant either incentive stock options or non-qualified stock options. The Committee sets option exercise prices and terms, except that the exercise price of a stock option may be no less than 100% of the fair market value, as defined in the 2008 Plan, of the shares on the date of grant. At the time of grant, the Committee will have sole discretion in determining when stock options are exercisable and when they expire, except that the term of a stock option cannot exceed 10 years.

Stock Appreciation Rights (“SARs”) — The Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2008 Plan or on a stand-alone basis. SARs are the right to receive payment per share of the SAR exercised in stock or in cash equal to the excess of the share’s fair market value, as defined in the 2008 Plan, on the date of exercise over its fair market value on the date the SAR was granted. Exercise of an SAR issued in tandem with stock options will result in the reduction of the number of shares underlying the related stock option to the extent of the SAR exercise.

Stock Awards, Restricted Stock, Restricted Stock Units, and Other Awards - The Committee may grant awards of restricted stock, restricted stock units, and other stock and cash-based awards, which may include the payment of stock in lieu of cash (including cash payable under other incentive or bonus programs) or the payment of cash (which may or may not be based on the price of our common stock).

Stock-Based Compensation — During 2011, the Committee approved the grants under the 2008 Plan of 249,000 shares of qualified stock options (the “2011 Qualified Options”) to certain employees and our board of directors (with the recipient abstaining) approved the grant of 5,000 shares of non-qualified stock options (“2011 Non-Qualified Options”) to one of our outside directors. During 2010 and 2009, the Committee did not grant any awards under the 2008 Plan. The exercise price of the 2011 Qualified and Non-Qualified Options was equal to the market value of our common stock at the date of grant. The 2011 Qualified and Non-Qualified Options vest at the end of each one-year period at the rate of 16.5% per year for the first five years and the remaining unvested options will vest at the end of the sixth year. Pursuant to the terms of the 2011 Non-Qualified Options, if a termination event occurs, as defined, the non-vested 2011 Non-Qualified Options will become fully vested and exercisable for a period of one year from the date of the termination event. Excluding the non-qualified stock options relating to a termination event, the 2011 Qualified and Non-Qualified Options expire in 2021. The fair value for the 2011 Qualified and Non-Qualified Options was estimated, using an option pricing model, as of the date of the grant, which date was also the service inception date.

The fair value for the 2011 Qualified and Non-Qualified Options was estimated using a Black-Scholes-Merton option pricing model with the following assumptions:

•

risk-free interest rate based on an U.S. Treasury zero-coupon issue with a term approximating the estimated expected life as of the grant date;

•

a dividend yield based on historical data;

•

volatility factors of the expected market price of our common stock based on historical volatility of our common stock primarily over approximately six years from the date of grant; and

•

a weighted-average expected life of the options based on the historical exercise behavior of these employees and outside director, if applicable.

The following table summarizes information about these granted stock options:


	2011			2010			2009

Weighted-average risk-free interest rate		1.21	%		N/A			N/A
Dividend yield		—			N/A			N/A
Weighted-average expected volatility		48.59	%		N/A			N/A
Total weighted-average expected forfeiture rate		2.97	%		N/A			N/A
Weighted-average expected life (years)		5.90			N/A			N/A
Total weighted-average remaining vesting period in years (1)		4.30			4.57			5.60
Total fair value of options granted	$	4,064,000			N/A			N/A
Stock-based compensation expense — Cost of sales (1)	$	60,000		$	42,000		$	44,000
Stock-based compensation expense — SG&A (1)	$	1,039,000		$	963,000		$	977,000
Income tax benefit (1)	$	(390,000	)	$	(402,000	)	$	(408,000	)


(1)		Information relates to stock options granted since 2006.

At December 31, 2011, the total stock-based compensation expense not yet recognized is $7,931,000 relating to non-vested stock options, which we will be amortizing (subject to adjustments for forfeitures) through the respective remaining vesting periods.

Qualified Stock Option Plans — At December 31, 2011, we have options outstanding under a 1998 Stock Option Plan (“1998 Plan”) and the 2008 Plan as discussed above. The 1998 Plan has expired, and accordingly, no additional options may be granted from these plans. Options granted prior to the expiration of this plan continue to remain valid thereafter in accordance with their terms. The exercise price of the outstanding options granted under the 1998 and 2008 Plans was equal to the market value of our common stock at the date of grant. The following information relates to our qualified stock option plans:


	December 31,
	2011
	2008 Plan		1998 Plan

Maximum number of securities for issuance		1,000,000		N/A
Number of awards available to be granted		344,370		N/A
Number of qualified options outstanding		505,330		11,000
Number of qualified options exercisable		78,065		11,000


	2011
				Weighted-Average
	Shares			Exercise Price
Outstanding at beginning of year		389,026		$	8.41
Granted		249,000		$	34.41
Exercised		(114,996	)	$	6.54
Cancelled, forfeited or expired		(6,700	)	$	9.69

Outstanding at end of year		516,330		$	21.34


Exercisable at end of year		89,065		$	8.85


	2011		2010		2009
Weighted-average fair value per option granted during year	$	16.00		N/A	$	N/A


Total intrinsic value of options exercised during the year	$	3,294,000	$	441,000	$	3,051,000


Total fair value of options vested during the year	$	208,000	$	214,000	$	220,000

The following table summarizes information about qualified stock options outstanding and exercisable at December 31, 2011:

Stock Options Outstanding

Weighted-

Average

Weighted-

Intrinsic

Remaining

Average

Value of

Shares

Contractual Life

Exercise

Shares

Exercise Prices

Outstanding

in Years

Price

Outstanding

$5.10

11,000

3.92

5.10

252,000

$7.86 — $8.17

48,375

6.95

7.87

976,000

$9.69 — $9.97

207,955

6.83

9.69

3,813,000

$29.99 — $34.50

249,000

9.90

34.41

—

$5.10 — $34.50

516,330

8.26

21.34

5,041,000

Stock Options Exercisable

Weighted-

Average

Weighted-

Intrinsic

Remaining

Average

Value of

Shares

Contractual Life

Exercise

Shares

Exercise Prices

Exercisable

in Years

Price

Exercisable

$5.10

11,000

3.92

5.10

252,000

$7.86 — $8.17

13,530

6.94

7.87

273,000

$9.69 — $9.97

64,535

6.83

9.69

1,184,000

$29.99 — $34.50

—

$5.10 — $34.50

89,065

6.49

8.85

1,709,000

Non-Qualified Stock Option Plans — Our board of directors approved the grants of non-qualified stock options to our outside directors, our Chief Financial Officer and certain key employees, including the grant of 450,000 shares of non-qualified stock options (the “2006 Options”) to certain Climate Control Business employees, which were subject to shareholders’ approval. The exercise price of the 2006 Options is $8.01 per share, which is based on the market value of our common stock at the date the board of directors granted the shares (June 19, 2006). The fair value for the 2006 Options was estimated, using an option pricing model, as of the date we received shareholders’ approval, which occurred during our 2007 annual shareholders’ meeting on June 14, 2007. For accounting purposes, the grant date and service inception date is June 14, 2007. Generally, the exercise prices of our non-qualified stock options are based on the market value of our common stock at the dates of grants.

In addition to the 2008 Plan as discussed above, we have an Outside Directors Stock Option Plan (the “Outside Director Plan”). The Outside Director Plan authorizes the grant of non-qualified stock options to each member of our board of directors who is not an officer or employee of LSB or its subsidiaries. The maximum number of options that may be issued under the Outside Director Plan is 400,000 of which 280,000 were available for grant at December 31, 2011. At December 31, 2011, there were 41,525 options outstanding related to the 2008 Plan, of which 16,325 are exercisable, and no options outstanding related to the Outside Director Plan.

The following information relates to our non-qualified stock option plans:


	2011
				Weighted-Average
	Shares			Exercise Price
Outstanding at beginning of year		374,600		$	7.83
Granted		5,000		$	34.50
Exercised		(63,075	)	$	7.05
Surrendered, forfeited, or expired		—

Outstanding at end of year		316,525		$	8.41


Exercisable at end of year		66,325		$	7.97


	2011		2010		2009

Weighted-average fair value per option granted during year	$	16.25		N/A		N/A


Total intrinsic value of options exercised during the year	$	2,110,000	$	805,000	$	2,201,000


Total fair value of options vested during the year	$	730,000	$	721,000	$	721,000

The following tables summarize information about non-qualified stock options outstanding and exercisable at December 31, 2011:

Stock Options Outstanding

Weighted-

Average

Weighted-

Intrinsic

Remaining

Average

Value of

Shares

Contractual Life

Exercise

Shares

Exercise Prices

Outstanding

in Years

Price

Outstanding

$7.86

36,525

6.92

7.86

737,000

$8.01

275,000

4.75

8.01

5,505,000

$34.50

5,000

9.92

34.50

—

$7.86 — $34.50

316,525

5.08

8.41

6,242,000

Stock Options Exercisable

Weighted-

Average

Weighted-

Intrinsic

Remaining

Average

Value of

Shares

Contractual Life

Exercise

Shares

Exercise Prices

Exercisable

in Years

Price

Exercisable

$7.86

16,325

6.92

7.86

329,000

$8.01

50,000

4.75

8.01

1,001,000

$34.50

—

$7.86 — $34.50

66,325

5.28

7.97

1,330,000

Preferred Share Rights Plan — On January 5, 2009, a renewed shareholder rights plan became effective upon the expiration of our previous shareholder rights plan. The rights plan will impact a potential acquirer unless the acquirer negotiates with our board of directors and the board of directors approves the transaction. Pursuant to the renewed plan, one preferred share purchase right (a “Right”) is attached to each currently outstanding or subsequently issued share of our common stock. Prior to becoming exercisable, the Rights trade together with our common stock. In general, if a person or group acquires or announces a tender or exchange offer for 15% or more of our common stock (except for the Golsen Group and certain other limited excluded persons), then the Rights become exercisable. Each Right entitles the holder (other than the person or group that triggers the Rights being exercisable) to purchase from us one one-hundredth of a share of Series 4 Junior Participating Preferred Stock, no par value (the “Preferred Stock”), at an exercise price of $47.75 per one one-hundredth of a share, subject to adjustment. If a person or group acquires 15% or more of our common stock, each Right will entitle the holder (other than the person or group that triggered the Rights being exercisable) to purchase shares of our common stock (or, in certain circumstances, cash or other securities) having a market value of twice the exercise price of a Right at such time. Under certain circumstances, each Right will entitle the holder (other than the person or group that triggered the Rights being exercisable) to purchase the common stock of the acquirer having a market value of twice the exercise price of a Right at such time. In addition, under certain circumstances, our board of directors may exchange each Right (other than those held by the acquirer) for one share of our common stock, subject to adjustment. Our board of directors may redeem the Rights at a price of $0.01 per Right generally at any time before 10 days after the Rights become exercisable. Our board of directors may exchange all or part of the Rights (except to the person or group that triggered the Rights being exercisable) for our common stock at an exchange ratio of one common share per Right until the person triggering the Right becomes the beneficial owner of 50% or more of our common stock.

Other — During 2010 and 2009, we purchased 177,100 and 275,900 shares of treasury stock for the average price of $13.67 and $11.60 per share, respectively (none in 2011).

As of December 31, 2011, we have reserved 1.8 million shares of common stock issuable upon potential conversion of preferred stocks and stock options pursuant to their respective terms.