Exhibit 10.2


    EXCHANGE
      AGREEMENT
by
      and
      among
LSB
      INDUSTRIES, INC.
(the
      “Company”)

and


    PAUL
      DENBY REVOCABLE TRUST, U/A/D 10/12/93
THE
      PAUL
      J. DENBY IRA
DENBY
      ENTERPRISES, INC.

TRACY
      DENBY

(the
      “Holders”)

and

PAUL
      J. DENBY

     

    
      October
        __, 2006



    
      
        
           

        

      

      
        
        

        
          

        

      

       

    


    EXCHANGE
      AGREEMENT

     

    This
      EXCHANGE AGREEMENT (the “Agreement”)
      is
      dated this October __, 2006, by and among LSB INDUSTRIES, INC., a Delaware
      corporation (the “Company”),
      and
      PAUL J. DENBY, TRUSTEE OF THE PAUL DENBY REVOCABLE TRUST, U.A.D. 10/12/93 (the
      “Trust”),
      THE
      PAUL J. DENBY IRA (the “IRA”),
      DENBY
      ENTERPRISES, INC. (“DEI”),
      and
      TRACY DENBY, an individual (“T.
      Denby”)
      (each
      of Trust, IRA, DEI and T. Denby are individually a “Holder”
and
      collectively, the “Holders”),
      and
      PAUL J. DENBY, an individual (“Denby”).

     

    W
      I T
      N E S S E T H:

     

    WHEREAS,
      there are currently 623,550 shares of the Company’s $3.25 Convertible
      Exchangeable Class C Preferred Stock, Series 2 (the “Series
      2 Preferred”)
      issued
      and outstanding as of the date of this Agreement;

     

    WHEREAS,
      the Series 2 Preferred is registered with the Securities and Exchange Commission
      under the Form S-2 Registration Statement No. 33-61640, effective May 19, 1993
      (the “Registration
      Statement”);

     

    WHEREAS,
      the preferences and relative, participating, optional and other rights of the
      Series 2 Preferred are governed by the Company’s Certificate of Designations
      filed with the Secretary of State of the State of Delaware on May 21,
      1993;

     

    WHEREAS,
      Denby and T. Denby, husband and wife, beneficially own an aggregate of 41,000
      shares of Series 2 Preferred and such shares are owned of record by the Holders
      in the amounts set forth below:


    
      
        	
                
Record
                  Owner

              	
                Shares
                  of
Series
                  2 Preferred

              	 
	
                Paul
                  Denby Revocable Trust, U.A.D. 10/12/93

              	
                25,000

              	 
	
                Paul
                  J. Denby IRA

              	
                11,000

              	 
	
                Denby
                  Enterprises, Inc.

              	
                4,000

              	 
	
                Tracy
                  Denby

              	
                   1,000

              	 
	
                Total

              	
                41,000

              	 


      

    

     

    WHEREAS,
      as of the date of this Agreement, the amount of accrued and unpaid dividends
      on
      each share of Series 2 Preferred is $23.2625, and the aggregate amount of
      accrued and unpaid dividends on the Series 2 Preferred held by the Holders
      is
      $953,762.50;

     

    WHEREAS,
      the Holders desire to exchange the Series 2 Preferred for shares of the
      Company’s common stock, par value $.10 per share, at an exchange rate of 7.4
      shares of common stock for each share of Series 2 Preferred, and the Company
      desires to issue shares of its common stock in exchange for the Series 2
      Preferred held by the Holders, all on the terms and conditions set forth in
      this
      Agreement;

     

    WHEREAS,
      each of the Holders shall waive and relinquish any and all rights that the
      Holders may have in and to the accrued and unpaid dividends on the Series 2
      Preferred beneficially owned or held by the Holders; and

     

    WHEREAS,
      the reliance upon the representations made by the Holders in this Agreement,
      the
      transactions contemplated by this Agreement are such that the offer and exchange
      of securities by the Company under this Agreement will be exempt from
      registration under applicable United States securities laws because this is
      an
      exchange offer pursuant to Section 3(a)(9) of the Securities Act of 1933, as
      amended (the “Securities
      Act”)
      and it
      is a private placement intended to be a non-public offering pursuant to Section
      4(2) of the Securities Act and/or Regulation D promulgated under the Securities
      Act.

     

    NOW,
      THEREFORE, in consideration of the terms and conditions contained herein, the
      Company and the Holders hereby agree as follows:

     

    1.  Exchange.
      Subject
      to and upon the terms and conditions set forth in this Agreement, each Holder
      agrees to surrender to the Company (the “Exchange”)
      all of
      the outstanding shares of Series 2 Preferred beneficially owned by the Holders
      for 7.4 shares of the Company’s newly issued common stock per each share of
      Series 2 Preferred beneficially owned by the Holders. The aggregate number
      of
      shares of common stock to be issued in exchange for all of the Series 2
      Preferred shares beneficially owned by the Holders is 303,400 (the “Exchange
      Shares”). 

     

    
      	1.1  	
              Delivery.
                Each Holder will promptly deliver, or cause to be delivered, to the
                Company the certificate or certificates representing the shares of
                Series
                2 Preferred beneficially owned or held by the Holder. Each such
                certificate shall be duly endorsed in blank by the Holder or the
                Holder’s
                nominee, as applicable, with the signature endorsed by Medallion
                guaranty.
                Promptly after receipt of the duly endorsed certificate or certificates,
                the Company will deliver or cause to be delivered to the Holder at
                the
                address set forth on the signature page of this Agreement (or at
                such
                other address provided to the Company in writing), a certificate
                or
                certificates representing the Exchange Shares issued in the name
                of the
                Holder, in such denominations as Holder requests in
                writing.

            


    

     

    
      	1.2  	
              Waiver.
                In consideration of the Exchange, each Holder hereby waives, releases,
                acquits and forever discharges the Company, and all of its respective
                subsidiaries, affiliates, agents, employees, officers, and directors,
                as
                well as their respective heirs, successors, legal and personal
                representatives, and assigns of any and all of them, from and against
                any
                and all claims, liabilities, losses, damages, cause or causes of
                action of
                any kind or character whatsoever, whether liquidated, unliquidated
                or
                disputed, asserted or assertable, known or unknown, in contract or
                in
                tort, at law or in equity, which the Holder might now or hereafter
                having
                arising out of or in connection with or relating to the Series 2
                Preferred, including all rights to any and all amounts of accrued
                and
                unpaid dividends on or in connection with the Series 2
                Preferred.

            


    

     

    
      	1.3  	
              SEC
                Reports.
                The Company is a reporting company under the Exchange Act of 1934,
                as
                amended (the “Exchange
                Act”)
                and has filed with the United States Securities and Exchange Commission
                (the “SEC”)
                all reports required to be filed by the Company under Section 13
                or 15(d)
                of the Exchange Act (the “SEC
                Reports”).
                Each Holder has had the opportunity to review, and has reviewed,
                all such
                reports and information which the Holder deemed material to an investment
                decision regarding the Exchange and the investment in the Exchange
                Shares.

            


    

     

    
      	1.4  	
              Section
                3(a)(9) and Rule 144.
                Assuming the accuracy of the representations and warranties of each
                Holder
                set forth in section 3 of this Agreement, the Company acknowledges
                and
                agrees that, either:

            


    

     

    
      	1.4.1  	
              Section
                3(a)(9).
                The Exchange qualifies as an exchange under Section 3(a)(9) of the
                Securities Act, and, in accordance with Section 3(a)(9) and the applicable
                interpretative letters of the staff of the SEC, the Exchange Shares
                issued
                to the Holder (or the Nominee) will assume the same character of
                the
                Series 2 Preferred surrendered to the Company. As such, the Exchange
                Shares will be unrestricted and may be issued without restrictive
                legend;
                or

            


    

     

    
      	1.4.2  	
              Rule
                144.
                For purposes of Rule 144 of the Securities Act, the holding period
                of the
                Series 2 Preferred and the Exchange Shares may be tacked back to
                the date
                the Holder acquired and paid for in full the Series 2 Preferred.
                In
                reliance on the Holder’s representations and warranties set forth in
                Section 3 of this Agreement, the Company will cause certificates
                evidencing the Exchange Shares to be issued without any restrictive
                legends.

            


    

     

    2.  Representations
      and Warranties of the Company.
      The
      Company represents and warrants to the Holders that:

     

    
      	2.1  	
              Organization
                and Qualification.
                The Company is duly organized, validly existing and in good standing
                under
                the laws of the State of Delaware.

            


    

     

    
      	2.2  	
              Authorization;
                Enforcement; Validity.
                The Company has the requisite power and authority to enter into and
                perform the transactions contemplated by this
                Agreement.

            


    

     

    
      	2.3  	
              Issuance
                of Exchange Shares.
                The issuance of the Exchange Shares is duly authorized and, upon
                issuance
                in accordance with the terms hereof, the Exchange Shares shall be
                validly
                issued, fully paid and nonassessable shares of the common stock of
                the
                Company. Assuming the accuracy of each of the representations and
                warranties of each of the Holder contained in Section 3 of this Agreement,
                the issuance by the Company of the Exchange Shares in accordance
                with the
                terms of this Agreement is exempt from registration under the Securities
                Act.

            


    

     

    
      	2.4  	
              No
                Conflicts.
                The execution, delivery and performance of this Agreement by the
                Company
                and the consummation by the Company of the transactions contemplated
                hereby (including, without limitation, the issuance of the Exchange
                Shares) will not result in a violation of the certificate of incorporation
                or bylaws of the Company.

            


    

     

    
      	2.5  	
              Acknowledgment
                Regarding the Exchange.
                The Company acknowledges and agrees that each Holder is acting solely
                in
                the capacity of an arm’s length purchaser with respect to this Agreement
                and the transactions contemplated hereby. The Company further acknowledges
                that each Holder is not acting as a financial advisor or fiduciary
                of the
                Company (or in any similar capacity) with respect to this Agreement
                and
                the transactions contemplated hereby, and any advice given by the
                Holder
                or any of its representatives or agents in connection with this Agreement
                is merely incidental to the
                Exchange.

            


    

     

    
      	2.6  	
              No
                Commission.
                Each Holder has not paid or given, and has not agreed to pay or give,
                directly or indirectly, any commission or other remuneration for
                soliciting the Exchange. Each Holder agrees and acknowledges that
                the
                Exchange Shares are being issued exclusively for the exchange of
                the
                Series 2 Preferred.

            


    

     

    
      	2.7  	
              No
                General Solicitation.
                Each Holder initially solicited the Company in connection with the
                Exchange. Neither the Company, nor any of its affiliates, nor any
                person
                acting on its or their behalf, has engaged in any form of general
                solicitation or general advertising (within the meaning of Regulation
                D)
                in connection with the Exchange.

            


    

     

    3.  Representations
      and Warranties of the Holders.
      Each
      Holder represents and warrants to the Company that:

     

    
      	3.1  	
              No
                Public Sale or Distribution.
                Each Holder is acquiring the Exchange Shares in the ordinary course
                of
                business for its own account and not with a view towards, or for
                resale in
                connection with, the public sale or distribution thereof; provided,
                however,
                that by making the representations herein, the Holder does not agree
                to
                hold any of the Exchange Shares for any minimum or other specific
                term and
                reserves the right to dispose of the Exchange Shares at any time
                in
                accordance with or pursuant to a registration statement or an exemption
                from the registration requirements of the Securities Act and applicable
                state securities laws. Each Holder does not presently have any agreement
                or understanding, directly or indirectly, with any person to distribute,
                or transfer any interest or grant participation rights in, any of
                the
                Series 2 Preferred or the Exchange
                Shares.

            


    

     

    
      	3.2  	
              Accredited
                Investor and Affiliate Status.
                Each Holder is an “accredited investor” as that term is defined in Rule
                501 of Regulation D under the 1933 Act. Each Holder is not, and has
                not
                been, for a period of at least three months prior to the date of
                this
                Agreement (a) an officer or director of the Company, (b) an “affiliate” of
                the Company (as defined in Rule 144) (an “Affiliate”)
                or (c) a “beneficial owner” of more than 10% of the common stock (as
                defined for purposes of Rule 13d-3 of the Exchange
                Act).

            


    

     

    
      	3.3  	
              Reliance
                on Exemptions.
                Each Holder understands that the Exchange is being made in reliance
                on
                specific exemptions from the registration requirements of United
                States
                federal and state securities laws and that the Company is relying
                in part
                upon the truth and accuracy of, and each Holder’s compliance with, the
                representations, warranties, agreements, acknowledgments and
                understandings of the Holder set forth herein in order to determine
                the
                availability of such exemptions and the eligibility of each Holder
                to
                complete the Exchange and to acquire the Exchange
                Shares.

            


    

     

    
      	3.4  	
              Information.
                Each Holder has been furnished with all materials relating to the
                business, finances and operations of the Company and materials relating
                to
                the Exchange which have been requested by the Holder. Each Holder
                has been
                afforded the opportunity to ask questions of the Company. Neither
                such
                inquiries nor any other due diligence investigations conducted by
                the
                Holder or its representatives shall modify, amend or affect the Holder’s
                right to rely on the Company’s representations and warranties contained
                herein. Each Holder acknowledges that all of the documents filed
                by the
                Company with the SEC under Sections 13(a), 14(a) or 15(d) of the
                Exchange
                Act are available to the Holders, and each Holder has not relied
                on any
                statement of the Company not contained in such documents in connection
                with the Holder’s decision to enter into this Agreement and the
                Exchange.

            


    

     

    
      	3.5  	
              Risk.
                Each Holder understands that its investment in the Exchange Shares
                involves a high degree of risk. Each Holder is able to bear the risk
                of an
                investment in the Exchange Shares including, without limitation,
                the risk
                of total loss of its investment. Each Holder has sought such accounting,
                legal and tax advice as it has considered necessary to make an informed
                investment decision with respect to the Exchange. There is no assurance
                that the Exchange Shares will continue to be quoted, traded or listed
                for
                trading or quotation on the American Stock Exchange or on any other
                organized market or quotation
                system.

            


    

     

    
      	3.6  	
              No
                Governmental Review.
                Each Holder understands that no United States federal or state agency
                or
                any other government or governmental agency has passed on or made
                any
                recommendation or endorsement in connection with the Exchange or
                the
                fairness or suitability of the investment in the Exchange Shares
                nor have
                such authorities passed upon or endorsed the merits of the offering
                of the
                Exchange Shares.

            


    

     

    
      	3.7  	
              Organization;
                Authorization.
                Each Holder has the requisite organizational power and authority
                to enter
                into and perform its obligations under this
                Agreement.

            


    

     

    
      	3.8  	
              Validity;
                Enforcement.
                This Agreement has been duly and validly authorized, executed and
                delivered on behalf of each Holder and shall constitute the legal,
                valid
                and binding obligations of the Holder enforceable against each Holder
                in
                accordance with its terms.

            


    

     

    
      	3.9  	
              Ownership
                of Series 2 Preferred.
                Denby and/or T. Denby is the beneficial owner of the Series 2 Preferred
                held by the Holders. The Holder paid for the Series 2 Preferred in
                full,
                and has continuously held the Series 2 Preferred, more than two years
                prior to the date of this Agreement. The Holders, individually or
                through
                a nominee, owns the Series 2 Preferred outright and free and clear
                of any
                options, contracts, agreements, liens, security interests, or other
                encumbrances.

            


    

     

    
      	3.10  	
              Prior
                Investment Experience.
                Each Holder acknowledges that it has prior investment experience,
                including investment in non-listed and non-registered securities,
                or has
                employed the services of an investment advisor, attorney or accountant
                to
                read all of the documents furnished or made available by the Company
                to it
                and to evaluate the merits and risks of such an investment on its
                behalf,
                and that it recognizes the highly speculative nature of this
                investment.

            


    

     

    
      	3.11  	
              Tax
                Consequences.
                Each Holder acknowledges that the Company has made no representation
                regarding the potential or actual tax consequences for the Holder
                which
                will result from entering into the Agreement and from consummation
                of the
                Exchange. Each Holder acknowledges that it bears complete responsibility
                for obtaining adequate tax advice regarding the Agreement and the
                Exchange.

            


    

     

    
      	3.12  	
              No
                Registration, Review or Approval.
                Each Holder acknowledges, understands and agrees that the Exchange
                Shares
                are being offered and exchanged hereunder pursuant to (a) an exchange
                offer exemption under Section 3(a)(9) of the Securities Act and (b)
                (i) a
                private placement exemption to the registration provisions of the
                Securities Act pursuant to Section 4(2) of such Securities Act and/or
                Regulation D promulgated under the Securities Act) and (ii) a similar
                exemption to the registration provisions of applicable state securities
                laws.

            


    

     

    4.  Conditions
      Precedent to Obligations of the Company.
      The
      obligation of the Company to consummate the transactions contemplated by this
      Agreement is subject to the satisfaction of each of the following conditions,
      provided
      that
      these conditions are for the Company’s sole benefit and may be waived by the
      Company at any time in its sole discretion by providing each Holder with prior
      written notice thereof:

     

    
      	4.1  	
              Delivery.
                Each Holder shall have delivered to the Company all of the Series
                2
                Preferred beneficially owned by Denby or T. Denby and held by a Holder
                or
                a nominee.

            


    

     

    
      	4.2  	
              No
                Prohibition.
                No order of any court, arbitrator, or governmental or regulatory
                authority
                shall be in effect which purports to enjoin or restrain any of the
                transactions contemplated by this
                Agreement.

            


    

     

    
      	4.3  	
              Listing.
                If required, the Exchange Shares (a) shall be designated for quotation or
                listed on the American Stock Exchange and (b) shall not have been
                suspended, as of the date of this Agreement, by the SEC or the American
                Stock Exchange from trading on the American Stock
                Exchange.

            


    

     

    5.  Conditions
      Precedent to Obligations of the Holders.
      The
      obligation of the Holders to consummate the transactions contemplated by this
      Agreement is subject to the satisfaction of the condition that no order of
      any
      court, arbitrator, or governmental or regulatory authority shall be in effect
      which purports to enjoin or restrain any of the transactions contemplated by
      this Agreement. Such condition is for each Holder’s sole benefit and may be
      waived by the Holder at any time in its sole discretion by providing the Company
      with prior written notice thereof.

     

    6.  Governing
      Law; Jurisdiction; Jury Trial.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of
      Delaware , without giving effect to any choice of law or conflict of law
      provision or rule (whether of the State of Delaware or any other jurisdictions)
      that would cause the application of the laws of any jurisdictions other than
      the
      State of Delaware. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE,
      AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
      HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
      TRANSACTION CONTEMPLATED HEREBY.

     

    
      	6.1  	
              Counterparts.
                This Agreement may be executed in two or more identical counterparts,
                all
                of which shall be considered one and the same agreement and shall
                become
                effective when counterparts have been signed by each party and delivered
                to the other party; provided
                that a facsimile signature shall be considered due execution and
                shall be
                binding upon the signatory thereto with the same force and effect
                as if
                the signature were an original, not a facsimile
                signature.

            


    

     

    
      	6.2  	
              Headings.
                The headings of this Agreement are for convenience of reference and
                shall
                not form part of, or affect the interpretation of, this
                Agreement.

            


    

     

    
      	6.3  	
              Severability.
                If any provision of this Agreement shall be invalid or unenforceable
                in
                any jurisdiction, such invalidity or unenforceability shall not affect
                the
                validity or enforceability of the remainder of this Agreement in
                that
                jurisdiction or the validity or enforceability of any provision of
                this
                Agreement in any other
                jurisdiction.

            


    

     

    
      	6.4  	
              Entire
                Agreement; Amendments.
                This Agreement supersedes all other prior oral or written agreements
                between the Holders, the Company, their affiliates and persons acting
                on
                their behalf with respect to the matters discussed herein, and this
                Agreement and the instruments referenced herein contain the entire
                understanding of the parties with respect to the matters covered
                herein
                and therein and, except as specifically set forth herein or therein,
                neither the Company nor any Holders makes any representation, warranty,
                covenant or undertaking with respect to such matters. No provision
                of this
                Agreement may be amended other than by an instrument in writing signed
                by
                the Company and the Holders against whom the amendment may be enforced.
                No
                provision hereof may be waived other than by an instrument in writing
                signed by the party against whom enforcement is
                sought.

            


    

     

    
      	6.5  	
              Notices.
                Any notices, consents, waivers or other communications required or
                permitted to be given under the terms of this Agreement must be in
                writing
                and will be deemed to have been delivered: (a) upon receipt, when
                delivered personally; (b) upon receipt, when sent by facsimile (provided
                confirmation of transmission is mechanically or electronically generated
                and kept on file by the sending party); or (c) one calendar day (excluding
                Saturdays, Sundays, and national banking holidays) after deposit
                with an
                overnight courier service, in each case properly addressed to the
                party to
                receive the same. The addresses and facsimile numbers for such
                communications shall be:

            


    

     

    If
      to the
      Company:

     

    LSB
      Industries, Inc.

    16
      South
      Pennsylvania

    P.
      O. Box
      754

    Oklahoma
      City, OK 73101

    Telephone:
      (405) 235-4546

    Facsimile:
      (405) 236-1209

    Attention:
      Heidi Brown, Esq.

     

    If
      to the
      Holders, to Paul J. Denby at the address set forth on the books and records
      of
      the Company, or to such other address and/or facsimile number and/or to the
      attention of such other person as the recipient party has specified by written
      notice given to each other party five (5) days prior to the effectiveness of
      such change.

     

    
      	6.6  	
              Successors
                and Assigns.
                This Agreement shall be binding upon and inure to the benefit of
                the
                parties and their respective successors and assigns, including any
                purchasers of the Exchange Shares. Each Holder may assign some or
                all of
                its rights hereunder without the consent of the Company, in which
                event
                such assignee shall be deemed to be the Holder hereunder with respect
                to
                such assigned rights.

            


    

     

    
      	6.7  	
              No
                Third Party Beneficiaries.
                This Agreement is intended for the benefit of the parties hereto
                and their
                respective permitted successors and assigns, and is not for the benefit
                of, nor may any provision hereof be enforced by, any other
                person.

            


    

     

    
      	6.8  	
              Representations
                are Survival.
                The representations and warranties of the Company and each Holder
                contained in sections 2 and 3, respectively, will survive the closing
                of
                the transactions contemplated by this Agreement. Each Holder shall
                be
                responsible only for its own representations, warranties, agreements
                and
                covenants hereunder.

            


    

     

    
      	6.9  	
              Further
                Assurances.
                Each party shall do and perform, or cause to be done and performed,
                all
                such further acts and things, and shall execute and deliver all such
                other
                agreements, certificates, instruments and documents, as any other
                party
                may reasonably request in order to carry out the intent and accomplish
                the
                purposes of this Agreement and the consummation of the transactions
                contemplated hereby.

            


    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      and delivered by their duly authorized officers as of the date first above
      written.

     

    LSB
      INDUSTRIES, INC., a Delaware corporation


    By:
      ________________________________ 

    Jack
      E.
      Golsen, Chief Executive Officer

    


    (the
      “Company”)

    


    PAUL
      DENBY REVOCABLE TRUST, U.A.D. 10/12/93

     

    By:
      ______________________________

    Paul
      J.
      Denby, Trustee

    


    (the
      “Trust”)

    


    THE
      PAUL
      J. DENBY IRA

     

    By:
      _______________________________ 

    Name:
      _____________________________ 

    Title:
      _____________________________ 

    


    (the
      “IRA”)

    


    DENBY
      ENTERPRISES, INC.

    


    By:
      _______________________________ 

    Paul
      J.
      Denby, President

    


    (“DEI”)

    ________________________

    TRACY
      DENBY, an individual

    


    (“T.
      Denby”)

    


    (collectively,
      the “Holders”).

    ________________________


    PAUL
      J.
      DENBY, an individual

    


    (“Denby”)