Management Agreement, Dated November 21, 1997

EXHIBIT 10.5


MANAGEMENT AGREEMENT
--------------------


THIS MANAGEMENT AGREEMENT ("Agreement") made this 21st day of November, 1997, between LSB INDUSTRIES, INC., an Oklahoma corporation ("LSB"), and CLIMACHEM, INC., an Oklahoma corporation ("ClimaChem").


W I T N E S S E T H:
-------------------


WHEREAS, LSB owns 100% of the issued and outstanding shares of capital stock of ClimaChem, and ClimaChem owns, directly or through one or more intermediaries, 100% of all of the issued and outstanding shares of capital stock of the wholly owned subsidiaries of ClimaChem listed on Schedule 1 attached hereto (the "ClimaChem Subsidiaries");


WHEREAS, LSB has historically provided to its subsidiaries various management services and has participated in the management of the ClimaChem Subsidiaries;


WHEREAS, ClimaChem desires that LSB provide management services to ClimaChem and the ClimaChem Subsidiaries subject to the terms and conditions set forth herein; and


WHEREAS, LSB desires to provide management services to ClimaChem and the ClimaChem Subsidiaries subject to the terms and conditions set forth herein; and


NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, the parties hereto agree as follows:


1. Management Services. Subject to the terms of this Agreement, LSB will
------------------- provide to ClimaChem and the ClimaChem Subsidiaries, on a nonexclusive basis, managerial oversight and guidance concerning the broad policies, strategic decisions and operations of ClimaChem and the ClimaChem Subsidiaries and the rendering of such further managerial assistance as deemed reasonably necessary by LSB ("Management Services") which is not covered by the Services Agreement (as defined below).


2. Managerial Personnel. To provide the Management Services described in
-------------------- Section 1 hereof, LSB shall provide the services of its officers, directors, employees and agents that are not covered by the Services Agreement for the performance of such Management Services described herein.


3. Services Agreement. Notwithstanding anything herein to the contrary, this
------------------ Agreement shall not limit or restrict the terms and provisions of that certain Services Agreement ("Services


Agreement"), dated November 21, 1997, entered into by and between LSB and ClimaChem.


4. Nonexclusivity. LSB agrees that it shall, for the term of this Agreement,
-------------- devote as much time, attention, energy and resources to the business of ClimaChem and the ClimaChem Subsidiaries as shall be reasonably necessary to perform its designated duties as described herein. However, it is acknowledged and understood by the parties hereto that LSB has been and is engaged in activities other than providing of management services for ClimaChem and the ClimaChem Subsidiaries hereunder, some of which activities may be in competition ("Competing Activities") with the activities of ClimaChem and/or any of the ClimaChem Subsidiaries. Further, it is acknowledged and understood by the parties hereto that LSB intends to continue to engage in such Competing Activities and may, from time to time, choose to engage in additional activities which may be in direct or indirect competition with the activities of ClimaChem and nothing contained herein shall prohibit LSB from engaging in such Competing Activities.


5. Payment for Management Services. The Company is to pay to LSB a Management
------------------------------- Fee each calendar year during the term of this Agreement in an amount not to exceed $1,800,000, subject to adjustment pursuant to Section 5.6 hereof ("Annual Management Fee Cap"), with such Annual Management Fee payable on a quarterly basis as follows:


5.1 First Quarter Management Fee. If at the end of the first quarter of
---------------------------- such calendar year (March 31), ClimaChem has a Consolidated EBITDA (as defined below) for the three- month period ended March 31 of such year of $6,500,000 or more, ClimaChem shall pay LSB the first quarter management fee ("First Quarter Management Fee") equal to the lesser of (i) $450,000 ("First Quarter Management Fee Cap") or (ii) an amount equal to the difference between the amount of the Consolidated EBITDA (as defined below) for ClimaChem for the first three month period ended March 31 of such year and $6,500,000.


5.2 Second Quarter Management Fee. If at the end of the second quarter of
----------------------------- such calendar year (June 30), ClimaChem has a Consolidated EBITDA for the six months ended June 30 of such year of $13,000,000 or more, ClimaChem shall pay LSB the second quarter management fee ("Second Quarter Management Fee") equal to the lesser of (i) $900,000 ("Second Quarter Management Fee Cap") less the amount paid to LSB, if any, by ClimaChem as the First Quarter Management Fee during such year or (ii) an amount equal to the


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difference between the amount of the Consolidated EBITDA of ClimaChem for the six months ended June 30 of such year and $13,000,000.


5.3 Third Quarter Management Fee. If at the end of the third quarter of
---------------------------- such calendar year (September 30), ClimaChem has a Consolidated EBITDA for the nine months ended September 30 of such year of $19,500,000 or more, ClimaChem shall pay LSB the third quarter management fee ("Third Quarter Management Fee") equal to the lesser of (i) $1,350,000 ("Third Quarter Management Fee Cap") less the amount paid to LSB, if any, by ClimaChem as the First Quarter Management Fee and Second Quarter Management Fee during such year or (ii) an amount equal to the difference between the amount of the Consolidated EBITDA of ClimaChem for the nine months ended September 30 of such year and $19,500,000.


5.4 Fourth Quarter Management Fee. If at the end of such calendar year,
----------------------------- ClimaChem has a Consolidated EBITDA for the year ended December 31 of $26,000,000 or more, ClimaChem shall pay LSB the fourth quarter management fee ("Fourth Quarter Management Fee") equal to the lesser of (i) $1,800,000 ("Fourth Quarter Management Fee Cap") less the amount paid to LSB, if any, by ClimaChem as the First Quarter Management Fee, Second Quarter Management Fee and Third Quarter Management Fee during such year or (ii) an amount equal to the difference between the amount of the Consolidated EBITDA of ClimaChem for the twelve months ended December 31 of such year and $26,000,000.


5.5 Management Fee Refund. If ClimaChem's Consolidated EBITDA for the
--------------------- twelve-month period ended December 31 is less than the sum of $26,000,000, then, within 90 days after December 31 of the year in question, LSB shall reimburse ClimaChem an amount equal to the amount of the First Quarter Management Fee, Second Quarter Management Fee, and Third Quarter Management Fee, if any, paid to LSB by ClimaChem during the year in question. If ClimaChem's Consolidated EBITDA for the twelve-month period ended December 31 in question equals or exceeds $26,000,000 but is less than $26,000,000 plus the amount, if any, paid by ClimaChem to LSB as the First Quarter Management Fee, Second Quarter Management Fee and Third Quarter Management Fee during such twelve-month period ended December 31, then, within 90 days after December 31 of such year, LSB shall reimburse ClimaChem the difference between $26,000,000 plus the amount, if any, paid by ClimaChem to LSB as the First Quarter Management Fee, Second Quarter Management Fee, and Third Quarter Management Fee during such twelve- month period in question and the amount of ClimaChem's Consolidated EBITDA for such twelve-month period ended December 31.


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5.6 Management Fee Adjustment. Effective the first day of each calendar
------------------------- year, the Annual Management Fee Cap, the First Quarter Management Fee Cap, Second Quarter Management Fee Cap, Third Quarter Management Fee Cap, and Fourth Quarter Management Fee Cap (collectively, Management Fee Caps") shall be increased so that the amount of the Management Fee Caps, as adjusted, as applicable, bears the same ratio to the amount of the Management Fee Caps, as applicable, on the first day of the immediately preceding calendar year (or to the initial Management Fee Caps, as applicable, in the case of the first adjustment) as the Official Consumer Price Index published by the Bureau of Labor Statistics, United States Department of Labor (1982-1984=100) for All Urban Consumers, ("CPI"), in effect on the first day of the calendar year in which the adjustment is made bears to the CPI on the first day of the calendar year immediately preceding, except that no reductions to the Management Fee Caps will be made pursuant to this Section 5.6 or any other section hereof.


5.7 Person. For the purposes of this Section 5 "Person" shall be defined
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