Document:

CF Sales Agreement

ANHYDROUS AMMONIA SALES AGREEMENT

THIS AGREEMENT is entered into and made effective December 9, 2002, between KOCH NITROGEN COMPANY, a Nebraska corporation, with principal offices at 4111 East 37th Street North, Wichita, Kansas 67220 (herein called "Koch") and EL DORADO CHEMICAL COMPANY, an Oklahoma corporation, with principal offices at 16 S. Pennsylvania, Oklahoma City, Oklahoma 73107 (herein called "Buyer");

WITNESSETH: 

WHEREAS, the parties entered into previous agreements dated effective June 30, 2001 and January 4, 2002, ("the Previous Agreements") and it is their intent to terminate the Previous Agreements (except as specifically set forth herein) and replace them with this agreement ("this Agreement"); and

WHEREAS, as specified in this Agreement, Buyer and Koch desire to enter into an anhydrous ammonia sales agreement under which Koch agrees to supply to Buyer and Buyer agrees to purchase from Koch 100% of its anhydrous ammonia Product Requirements, as set forth herein; and

WHEREAS, as specified in this Agreement, Koch shall charge Buyer a price for, and Buyer shall pay the same for, each ton of Product upon the pricing formulas set out in this Agreement; and

WHEREAS, as specified in this Agreement, Buyer shall be responsible for all Taxes related to such quantities of anhydrous ammonia and for all transportation charges beyond the Delivery Point hereunder; and

WHEREAS, the parties desire to state their agreements in writing.

NOW THEREFORE, in consideration of the mutual promises herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

I.DEFINITIONS

Whenever used in this Agreement, the following terms shall have the following respective meanings:

* INFORMATION IN THIS DOCUMENT HAS BEEN
OMITTED FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.  THE
OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.

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A.  "Actual Additional Costs" shall mean the actual additional delivery costs (additional transportation costs, additional terminal fees and the like, and not additional costs for Product itself) incurred by Koch to deliver Product from either i) the Koch Terminal or ii) an alternative injection point on the Ammonia Pipeline to the Delivery Point.

B.  "Affiliate" shall mean any corporation or other business enterprise which directly or indirectly controls, is controlled by, or is under common control with a party hereunder; and for the purpose of this definition "control" shall mean the ability to directly or indirectly vote fifty percent (50%) or more of the shares or other securities at the time entitled to vote for the election of directors.

C.  "Agreement" shall mean this Anhydrous Ammonia Sales Agreement between Koch and Buyer.

D.  "Ammonia Pipeline" shall mean the ammonia pipeline owned by Kaneb Pipeline Operating Partnership, LP.

E.  "Ammonia Pipeline Transportation Charge" shall mean the Ammonia Pipeline Transportation Charge as referenced in Article VI, Section C.

F.  "Buyer Facility" shall mean Buyer's chemical production facility
located at El Dorado, Arkansas.

G.  *** [Redacted text] shall mean the *** [Redacted text] per metric ton of the weekly price range for Ammonia published in Fertilizer Week America for the week Product is delivered to Buyer.  For example, if Product is delivered to Buyer by the Ammonia Pipeline during the week from Monday, October 28, 2002 to Monday, November 4, 2002, the *** [Redacted text] published in the Friday, November 1, 2002 issue of Fertilizer Week America shall apply.  In the event Fertilizer Week America is not published for one of the weeks during the Month, the price for such week shall be the previous week's price published in Fertilizer Week America.

H.  "Contract Price" shall mean the Contract Price as referenced in Article VI, Section B hereof.

I.  "Delivery Point" shall mean (i) for pipeline deliveries, the discharge
side of the Ammonia Pipeline's Product meter located at Buyer's Facility, or
(ii) for rail or truck deliveries, the point at Buyer's Facility where the truck
or rail cars come to rest, or (iii) another delivery point along the Ammonia
Pipeline, provided Buyer gives Koch at least forty-five (45) days written notice
prior to the date it wishes to begin delivery at such alternate delivery point.

*** INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM THIS
PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY
THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED INFORMATION HAS BEEN FILED
SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR
PURPOSES OF SUCH REQUEST.

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J.  
"Effective Date" shall mean November 1, 2002.

K.  *** [Redacted text] shall mean the *** [Redacted text] per short ton of the weekly price range for Ammonia published in Fertilizer Week America for the week Product is delivered to Buyer.  For example, if Product is delivered to Buyer by the Ammonia Pipeline during the week from Monday, October 28, 2002 to Monday, November 4, 2002, the *** [Redacted text] published in the Friday, November 1, 2002 issue of Fertilizer Week America shall apply.  In the event Fertilizer Week America is not published for one of the weeks during the Month, the price for such week shall be the previous week's price published in Fertilizer Week America.

L.  "Koch Facility" shall mean Koch's anhydrous ammonia production facility at Sterlington, Louisiana.  The Koch Facility has two (2) ammonia production units, each capable of producing ammonia independently of the other.

M."Koch Terminal" shall mean Koch's anhydrous ammonia terminal at Taft, Louisiana capable of receiving ammonia by vessels, loading and shipping ammonia in a barge, and reinjecting ammonia into the Ammonia Pipeline.

N.   "Month" shall mean a calendar month.

O."Monthly Average Price" shall be defined as the average of the Prices stated in the weekly provisional invoices dated during the Month.

P.    "Price" shall mean the Price as referenced in Article VI, Section A hereof.

Q."Product" shall mean commercial anhydrous ammonia having the following specifications:

  
    Ammonia (NH3) Content:         99.5% minimum, by weight %

Water:                         0.2% minimum to 0.5% maximum, by weight %

  

Oil:                           5 ppm
maximum, by weight

R.  "Product Requirements" shall mean total Product purchased by Buyer for Buyer's account for further processing at Buyer's Facility.  Currently Buyer's annual Product Requirements at Buyer's Facility are approximately 210,000 short tons annually, exclusive of any tolling arrangements by Buyer with existing unaffiliated third parties.  Commencing on January 1, 2003, Product Requirements shall not include

*** INDICATES INFORMATION IN THIS DOCUMENT
WHICH HAS BEEN OMITTED FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE
COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. 
THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.

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 approximately 45,000 short tons of Product annually, which amount is intended to equal fifty percent (50%) of the Product used at Buyer's Facility for production of finished product for Orica USA Inc.  The 45,000 short tons referenced above shall be excluded from the Product Requirements during the Term of this Agreement, unless Buyer requests and Koch elects, at Koch's sole option, to include this quantity in the Product Requirements during the remaining Term of this Agreement.  Product Requirements shall also not include Product supplied to Buyer's Facility which shall be produced by Buyer or an Affiliate of Buyer and physically delivered to Buyer's Facility; provided, Buyer has given Koch sixty (60) days written notification.

S. "Revised Contract Price" shall mean the Revised Contract Price as referenced in Article VI, Section D hereof.

T."Taxes" shall mean the definition set forth in Article IX, Section A hereof.

U.   "Total Credit Exposure" shall mean the sum of the i) outstanding invoice(s) for Product delivered from Koch to Buyer, ii) the estimated invoice for Product delivered to Buyer but not yet invoiced by Koch, and iii) the estimated invoice amount for Product that shall be delivered from Koch to Buyer until the payment due date of the oldest outstanding invoice.

II.TERM

Except as may otherwise be provided herein, this Agreement shall continue and remain in full force and effect for a term commencing on the Effective Date and ending December 31, 2004 (hereafter "Term").  However, in the event Koch permanently shuts down the Koch Facility at any time during the Term, Koch shall have the option to terminate this Agreement during the period of January 1, 2004 to December 31, 2004; provided, i) Koch has furnished Buyer with a minimum of four (4) months written notification that either the Koch Facility has been or will be shut down and ii) Koch and Buyer can not agree on a Revised Contract Price as stipulated in Article VI, Section D.

III.QUANTITY TO BE SUPPLIED

A.  

Quantity.  During the Term, Buyer shall purchase from Koch one hundred percent (100%) of its Product Requirements for Buyer's Facility.  Product shall be delivered and invoiced on a short ton basis.

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B.  
Subsequent Tolling Arrangements.  In the event Buyer concludes i) a tolling arrangement with an unaffiliated third party, other than with Orica USA, after the execution of this Agreement or ii) an existing sales agreement is converted to a tolling arrangement, other than with Orica USA, then Buyer's Product Requirements shall be reduced by an amount equal to the amount of Product actually used pursuant to the unaffiliated third party tolling arrangement(s) at Buyer's Facility.  However, if the unaffiliated third party desires Buyer to provide Product at Buyer's Facility to be tolled for such unaffiliated third party, Koch shall supply to Buyer the third party's Product quantity requirements at Buyer's Facility for Buyer's account for the same Term and on the same terms and conditions as contained in this Agreement if such is acceptable to the unaffiliated third party.  If an unaffiliated third party desires Buyer to provide Product at Buyer's Facility, and such Product requirement is for a period less than the Term, or on other than the same terms and conditions herein provided, or on a spot basis, Koch shall have the option, but not the obligation, to supply Buyer such third party's Product requirement at Buyer's Facility for Buyer's account, if such is acceptable to the unaffiliated third party.

C.  

Buyer's intention is to consume the Product delivered to Buyer's Facility for production purposes and it is not the intention of Buyer to purchase Product from Koch for resale or exchange purposes with an unaffiliated third party.

D.  
Measurement.  The quantity of Product delivered hereunder to Buyer by the Ammonia Pipeline shall be governed by the weights and measures taken by meters owned by the Ammonia Pipeline at the Delivery Point pursuant to the Ammonia Pipeline tariff in effect on the date of delivery.  For truck or rail deliveries, the quantity of Product delivered to Buyer shall be governed by the weights and measures taken as the trucks or rail cars are loaded at the Koch Facility or at an alternative third party supply source.  The foregoing measurements of said quantities shall be final and conclusive, unless proven to be in error.

E.  Potential Monetization of Ammonia.
  As has been discussed between the parties, Buyer may at some future date offer to sell chemical production assets owned by Buyer, or an affiliate of Buyer, to a third party which would relocate these assets offshore and for which Buyer may be tendered ammonia produced offshore as partial or full payment for the sales thereof.   In such event, Buyer shall inform Koch that such an offer is being discussed and Koch shall have the option, but not the obligation, to assist or consult with

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Buyer regarding the provision of such ammonia produced offshore.  If such a transaction is pursued, Buyer shall provide Koch the right of first refusal, to exclusively assist the Buyer in both i) assessing the fair market value of the offshore ammonia received in exchange for the assets and ii) monetizing the fair market value of the ammonia for Buyer.  At Koch's option, the monetization of the ammonia may be in the form of i) an agreed cash payment to Buyer by Koch based on Koch purchasing the ammonia from Buyer, ii) an agreed exchange differential where Koch receives the offshore ammonia and delivers back Product to Buyer at Buyer's Facility, or iii) an agreed alternative option between the parties at the time.  During the term of this Agreement, Koch shall make reasonable commercial efforts to provide Buyer a fair market value for the offshore ammonia based on the market prices and market conditions at the time and taking into account the expenses Koch may incur in either marketing the ammonia to a third party or delivering the ammonia to Koch's Terminal.  In the event the parties can not agree on a fair market value for the offshore ammonia, Koch shall not be obligated to monetize the ammonia for Buyer.  If Koch does not monetize the ammonia for Buyer, but Buyer has an alternative option to import the ammonia through a third party for delivery to Buyer's Facility, then Koch shall allow Buyer to defer purchasing up to thirty-four (34) percent of Buyer's Product Requirements on an annual basis during the Term of this Agreement; provided, i) Buyer has given Koch one (1) month written notification prior to the expected delivery date of the ammonia and ii) Koch shall have the option of either x) extending the Term of this Agreement another year in which Buyer shall purchase the deferred quantity during the period of January 1, 2005 to December 31, 2005 or y) releasing Buyer from purchasing the deferred quantity.

IV.QUALITY

All Product delivered hereunder shall conform to the specifications set forth in Article I, Section Q.  All claims by Buyer that any Product delivered hereunder does not conform to the specifications set forth in said Article I, Section Q, shall be made in writing and sent within thirty (30) days after Koch's delivery of such Product to the Delivery Point.  Failure to give written notice of such claim within the specified time shall constitute a waiver of and bar to such claim, and Buyer shall be precluded from relying on defects which are not stated in such notice as a basis for rejection or assertion of a breach.
   
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V.WARRANTIES

A.Koch makes no warranty of any kind, express or implied, except that Product sold hereunder shall conform to the specifications set forth in Article I, Section Q and that Koch shall convey good title thereto, free from any lien or security interest.
  KOCH ASSUMES NO OTHER LIABILITY WITH RESPECT TO PRODUCT AND MAKES NO OTHER WARRANTY WHETHER OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE, EXPRESSED OR IMPLIED, WITH RESPECT THERETO.

B.Neither party shall be liable, under any circumstances, for any special, indirect, incidental, consequential (including but not limited to, loss of profits or any similar damages) or punitive or exemplary damages arising out of this Agreement, except for third party personal injuries and property damage which are deemed by applicable law to be consequential damages.  In no event shall the amount of any claim by Buyer, whether for failure to meet the specifications, for non-delivery, or for any other reason, be greater than the actual replacement costs of the Product for the particular shipment.  In this regard, Buyer's sole and exclusive remedy for any breach of this Agreement by Koch shall be, at Koch's option, replacement of any nonconforming product at the Delivery Point or payment not to exceed the replacement price of the Product.  Koch shall use commercially reasonable efforts to obtain and deliver replacement Product.

VI.PRICE 

A.#9; Price.  For each short ton of Product sold to Buyer hereunder, Koch shall charge, and Buyer shall pay to Koch the following  Price:

  
    Price per short ton = *** [Redacted text]

  

*** [Redacted text]

B.

Contract Price.  The Contract Price per short ton shall be determined as follows:
  
    Contract Price per short ton *** [Redacted text]

  

*** INDICATES
INFORMATION IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM THIS PUBLIC FILING
PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE
SECURITIES AND EXCHANGE COMMISSION.  THE OMITTED INFORMATION HAS BEEN FILED
SEPARATELY WITH THE SECRETARY FO THE SECURITIES AND EXCHANGE COMMISSION FOR
PURPOSES OF SUCH REQUEST.

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where,

  
*** [Redacted text]  

*** [Redacted text]  

  

C. 
Ammonia Pipeline Transportation Charge.  The Ammonia Pipeline Transportation Charge per short ton shall be based on Koch's actual Ammonia Pipeline transportation cost from the point of injection into the Ammonia Pipeline to the Ammonia Pipeline Delivery Point at Buyer's Facility.  The actual cost is currently $6.73 per short ton from both the Koch Facility and the Koch Terminal to the Delivery Point.  Koch shall pay Buyer any rebates or refunds that Koch receives from the Ammonia Pipeline related to such shipments on such Ammonia Pipeline.

D.  

Revised Contract Price.  In the event i) Koch permanently shuts down the Koch Facility as stipulated in Article II or ii) a Force Majeure event occurs as stipulated in Article X, Section A, it may be necessary for Koch to make a price adjustment to the Contract Price to cover the Actual Additional Costs incurred by Koch to deliver Product to Buyer during the remaining Term of this Agreement stipulated in (i) above or during the period of the Force Majeure event stipulated in  (ii) above.  The Revised Contract Price per short ton shall be determined as follows:

Revised Contract Price per short ton = Contract Price per short ton + Actual Additional Costs.

Koch shall provide Buyer written notification of the Actual Additional Costs to be incurred and the basis for these costs.  Koch and Buyer shall make reasonable commercial efforts to reach an agreement on the Revised Contract Price within thirty (30) days of the Revised Contract Price notification by Koch.

D.1.In the event Koch and Buyer cannot agree on the Revised Contract Price in the event Koch permanently shuts down the Koch Facility, then Koch shall have the option to either i) exercise its right of first refusal during a ten (10) day period after the end of the thirty (30) days to sell Product to Buyer on the same terms and conditions as those which a third party may offer to Buyer or ii) terminate this

***INDICATES INFORMATION IN THIS DOCUMENT WHICH HAS BEEN
OMITTED FROM THIS PUBLIC FILING PURSUANT TO A REQUEST BY THE COMPANY FOR
CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION.  THE
OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.

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Agreement as set out in Article II.  If Koch elects to terminate this Agreement, then Koch shall provide no less than ten (10) days written notice to Buyer, and Buyer shall have the option of accepting the Revised Contract Price or allowing Koch to terminate this Agreement during such ten (10) day notice period.  If Koch does not exercise its right of first refusal above, then Buyer shall have the right to terminate this Agreement.

D.2.In the event Koch and Buyer can not agree on the Revised Contract Price in the event of a Force Majeure event, then Article X, Section A shall apply.

E.  

Pricing Index.  If either Koch or Buyer believes the *** [Redacted text] used to determine the Contract Price is inaccurate due to a fundamental change in the structure or inactivity of the pricing index, and this condition has persisted on a continual basis for at least sixty (60) days, the concerned party may provide written notification to the other party of its concern along with a proposed alternative pricing index.  The parties shall negotiate in good faith to agree upon an alternative pricing index within thirty (30) days from the date of notification, but neither party shall be obligated to reach mutual agreement.  During the interim period of negotiation, the Contract Price shall continue to be determined per this Agreement.  In the event the parties cannot agree on an alternative pricing index after the thirty (30) day period, then during the remaining Term of this Agreement the Contract Price in Article VI, Section B shall be determined as follows:

        
*** [Redacted text] Price per short ton *** [Redacted text]

F.  
Market Publication and Prices.  In the event that either i) the Fertilizer Week America publication is no longer published or ii) the *** [Redacted text] or *** [Redacted text] published in Fertilizer Week America are no longer published, or iii) the *** [Redacted text] is not indicative of the price for Product imported into the *** [Redacted text] area, then the parties shall either agree on x) a substitute publication, y) a substitute price index, or z) an alternative pricing mechanism, whichever shall be required to correct the case above, within thirty (30) days of such event.  During the interim period, the parties shall agree on an alternative pricing mechanism or a fixed price.

VII.PAYMENT TERMS 

A.  

Koch shall provide Buyer with payment
terms on open credit subject to the terms below provided Buyer's Total Credit
Exposure does not exceed the established credit line within the range ***
[Redacted text]. Koch shall evaluate Buyer on a quarterly basis to determine the
credit line within the range stated above

*** INDICATES INFORMATION
IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM THIS PUBLIC FILING PURSUANT TO A
REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE
COMMISSION.  THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUEST.

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along with the payment
terms for the following contract quarter. Based on the established credit line
for the quarter, payment terms shall not exceed *** [Redacted text] from the
payment due date as set forth in Section B below. If it appears to Koch that
Buyer's Total Credit Exposure shall exceed the established credit line for the
contract quarter, Koch shall immediately notify and request Buyer to make a
prepayment for future shipments, within twenty-four (24) hours of the
notification if necessary in order to keep the Total Credit Exposure at or below
the established credit line. The prepayment shall only be applied towards future
shipments not yet invoiced.

B.Koch may from time to time change the credit line or demand different terms of payment whenever Koch within its good faith discretion deems itself insecure because the prospect for Buyer's payment or performance reasonably appears to Koch to be impaired.  In any such event, and upon written notice specifying the change in terms of payment, Koch may suspend further deliveries pending agreement of Buyer to the revised payment terms. If Koch changes payment terms to restrict or reduce the credit line available to Buyer, for reasons other than stated in Section A above; then, notwithstanding anything to the contrary, Buyer may terminate this Agreement by no less than ten (10) days notice to Koch.

C.Koch shall prepare and fax to Buyer a weekly provisional invoice by Wednesday of every week during the Month in an amount equal to the (i) Price per short ton based on the previous Friday's market prices multiplied by the (ii) short tons delivered to Buyer during the period from the previous Monday through Sunday based on the meter reading at the Delivery Point provided by Buyer to Koch on every Monday.      Buyer's payment by wire transfer to Koch's account, at Buyer's sole cost and expense, shall be due net twenty-one (21) days, based on the credit line established in Section A above, from the Monday during the week the invoice is prepared and faxed to Buyer.  If the payment due date is a Saturday, Sunday, or holiday where banks are authorized to be closed, Buyer shall make the wire transfer payment on the next business day following such due date.  Buyer agrees to accept as originals facsimile copies of invoices from Koch.

    D.At the end of each Month, Koch shall prepare and fax to Buyer a
reconciliation of the weekly provisional invoices for the Month with the amount
due by Buyer to Koch or the credit by Koch to Buyer for the Month. The
reconciliation will be based on preparing a final monthly invoice based on all
the weekly

*** INDICATES INFORMATION
IN THIS DOCUMENT WHICH HAS BEEN OMITTED FROM THIS PUBLIC FILING PURSUANT TO A
REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE
COMMISSION.  THE OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE
SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH
REQUESTS.

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provisional invoices
during the Month that have an invoice date during said Month. The final monthly
invoice shall be based on an amount equal to the (i) Monthly Average Price per
short ton multiplied by the (ii) sum of short tons delivered or taken as stated
in the weekly provisional invoices during the Month that have an invoice date
during said Month. The final monthly invoice will be compared to the sum of the
weekly provisional invoices for the designated time period, and any difference
will be either debited or credited on the next weekly provisional invoice. 

VIII.DELIVERY

A.Buyer shall notify Koch no later than the 1st calendar day of the Month immediately prior to the Month of delivery of Product in short tons that Buyer wishes to receive for such Month of delivery.  Buyer shall promptly notify Koch in writing of any known or anticipated changes that will not permit Buyer to receive the monthly quantity.

B.Title and Risk of Loss.  Koch shall deliver the Product hereunder to Buyer at the Delivery Point, title and risk of loss shall pass to Buyer at the Delivery Point, and upon the passing of said title to Buyer, Buyer shall be deemed to have exclusive ownership and control of said Product and shall be responsible for any injuries or damages caused thereby.

C.Shipper of Record.  Koch shall be the shipper of record for delivery of Product on the Ammonia Pipeline to Buyer at Buyer's Facility.

IX.TAXES

A.All present and future taxes, including, but not limited to, the Superfund Tax, (referred to herein as "Taxes") relating to the Product delivered hereunder, including all new taxes or increases in existing taxes including excise taxes (but excluding Koch's net income, excess profits, or corporate franchise taxes) imposed by any governmental authority upon the manufacture, use, sale, or delivery of the Product, shall be for Buyer's account, unless Buyer delivers to Koch current exemption certificates evidencing Buyer's exemption from paying such Taxes.

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B.  Buyer agrees to indemnify and hold harmless Koch and its successors and assigns from and against any and all excise taxes (but not including net income, excess profits, or corporate franchise taxes), inclusive of any penalty and interest, assessed at a future date against Koch by any governmental authority upon the manufacture, use, sale, or delivery of the Product Requirements.

X.   FORCE MAJEURE

A.  

Neither Koch, nor Buyer, shall be liable for any failure or delay in performance under this Agreement, except for the obligation to make money payments due hereunder for Product already purchased, due to a Force Majeure event.  "Force Majeure," as used herein shall mean any event which may be due in whole or in part to any contingency, delay, failure, cause or other occurrence of any nature beyond a party's reasonable control, whether it is presently occurring or occurs in the future, which (i) physically prevents Koch from producing, transporting, or delivering the Product to Buyer's Facility in Koch's normal course and/or then intended course of business (including either the Koch Facility or the Koch Terminal, or both) or (ii) which physically prevents Buyer from receiving or using Product at Buyer's Facility.  Nothing herein shall require Koch to start or restart either one or both units at the Koch Facility or to purchase Product from a third party in order to remove a Force Majeure event then occurring, but Koch shall have the option to do so in Koch's sole discretion.  Further, in the event of a Force Majeure event should Koch elect not to furnish substitute Product from either the Koch Facility or from a third party, Koch shall have the right to offer to Buyer substitute Product at the Revised Contract Price for Product set forth in Article VI, Section D, and on the terms and conditions, herein contained.  In the event Koch and  Buyer can not agree on the Revised Contract Price, then Buyer may obtain its Product Requirements from a supplier other than Koch, provided that Koch shall have the right of first refusal during a ten (10) period after the thirty (30) days referenced in Article VI, Section D to sell substitute Product to Buyer on the same terms and conditions as those which a third party may offer to Buyer.

B.Notwithstanding any other provision of this Agreement, if the Ammonia Pipeline transportation service is interrupted or curtailed by a Force Majeure event, preventing or delaying Koch from making all or a portion of the required deliveries of Product hereunder, Koch shall use commercially reasonable efforts to

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arrange rail or trucking transportation service from Koch's Facility or a third party supply source to Buyer's Facility.  Ammonia pipeline allocation shall not constitute a Force Majeure event; provided, that a mechanical breakdown of the Ammonia Pipeline may constitute a Force Majeure event.  Buyer shall be responsible for and reimburse Koch for all rail and/or trucking transportation costs incurred by Koch for deliveries of Product hereunder, including without limitation demurrage charges, which exceed the contemplated delivery of Product by the Ammonia Pipeline at Buyer's Facility.  However, if Buyer is forced to pay a trucking and/or rail transportation rate that is higher than the Ammonia Pipeline Transportation Charge and the increased transportation rate makes it uneconomical for Buyer to operate Buyer's Facility, then Buyer shall have the right to suspend its performance hereunder by providing Koch with ten (10) days prior written notice.   However, Buyer shall not be allowed to suspend its performance hereunder if Koch, in its sole discretion, elects to pay the difference between the Ammonia Pipeline Transportation Charge and the trucking and/or rail transportation charges to the Delivery Point.  If it remains uneconomical for Buyer to operate Buyer's Facility for sixty (60) consecutive days from the date Buyer gives Koch notice solely because of the interruption or curtailment of Ammonia Pipeline Product deliveries hereunder and Koch elects not to pay the transportation differential, then Buyer shall have the right to terminate this Agreement by providing Koch with written notice within five (5) days after the end of the sixty (60) day period.

C.The term "Force Majeure" shall not include (i) an event caused by a party's sole or contributory negligence; (ii) Koch's ability to sell, or Buyer's ability to purchase from a third party, Product at a price more advantageous than the Price; (iii) Buyer's loss of markets for products produced at Buyer's Facility; (iv) shutdown of Koch's Terminal, Koch's Facility, or Buyer's Facility for reasons other than a Force Majeure event and (v) routine or scheduled maintenance at Koch's Facility, Koch's Terminal or Buyer's Facility.

D.If a Force Majeure event occurs, the declaring party may exercise its right under this Article by giving timely notice thereof to the other party setting forth with reasonable particularity the nature of the Force Majeure event.  The declaring party shall use reasonable efforts to remedy the situation as quickly as possible and shall only be excused from performance hereunder during the duration and only to the extent

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of the Force Majeure event.  The declaring party shall give the other party prompt notice of when the Force Majeure event ends.  If Koch's deliveries of Product to Buyer are impeded due to a Force Majeure event, or an Ammonia Pipeline allocation event, Koch shall have the right to apportion deliveries among its present and future customers (including regular customers not then under contract) and Koch's own requirements on a reasonable basis.  In the event of a Force Majeure event, neither Koch nor Buyer shall be obligated to take any action which would result in increasing such party's performance costs under this Agreement beyond the costs which it would have incurred in the absence of such Force Majeure event.

E.If, at any time during this Agreement's term, any regulatory or governmental body adopts, issues, or publishes any action, rule, or order which directly or indirectly materially and adversely affects the rights or obligations of Koch or Buyer under this Agreement or (each of the events described in hereafter referred to as "Adverse Action"), the affected party shall notify the other party in writing of the Adverse Action and the parties shall enter into negotiations to modify this Agreement.  If negotiations regarding the Adverse Action do not result in Koch and Buyer agreeing on the terms of a modification to this Agreement within sixty (60) days from the delivery of notice by the affected party to the other party, the affected party shall have the right, but not the obligation, to suspend its performance hereunder from the end of the sixty (60) day period until such time, if any, as the parties reach agreement on such a modification to this Agreement.  In the event such Adverse Action continues for a period of one hundred twenty (120) days after the affected party notifies the other party of the same and the parties have not reached agreement on such modification to this Agreement, either party may, but is not required to, terminate this Agreement upon thirty (30) days written notice delivered to the other party within one hundred eighty (180) days from the first notification of the Adverse Action.  Upon termination, all obligations by either party shall cease, except rights and obligations accrued to the effective date of the termination.  In the event of an Adverse Action, upon written request, the affected party shall provide the other party with data or information reasonably necessary for the affected party to determine that such Adverse Action exists, subject to the confidentiality obligations of Article XVI of this Agreement.

XI.REMEDIES FOR PAYMENT BREACH

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A.If Buyer is late in making any payment due to Koch under Article VII hereof, Koch may at its sole discretion by twenty-four (24) hours notice to Buyer of such late payment and of Buyer's opportunity to cure, and upon Buyer's failure to cure during such notice period, elect one or more of the following courses of action:

        1.Cease to make any further deliveries hereunder until Buyer has made the late payment and has taken

           steps to assure Koch that there shall be no such delinquencies in the future;

        2.Refuse to make any further deliveries hereunder except upon cash payments before delivery;

        3.Stop delivery of goods in the possession of a carrier or other bailee as provided by law;

        4.Resell any Product concerned without further notice to Buyer and without affecting or abating Buyer's

           other obligations under this Agreement; or

        5.Set off any obligations Koch may have to Buyer against the payments due Koch hereunder.

If Buyer has not remedied late payments to the reasonable satisfaction of Koch within ten (10) days after receipt of written notice from Koch, Koch may at its option by notice to Buyer terminate this Agreement (without discharging any claim for breach).  The election by Koch of any of the courses of action hereto shall in no way limit any other remedies available to Koch under this Agreement or otherwise at law or in equity.

B.If either party:

        1.Voluntarily petitions under or otherwise seeks the benefit of any bankruptcy, reorganization,

           arrangement or insolvency law; or

        2.Makes a general assignment for the benefit of creditors; or

        3.Is adjudicated bankrupt or becomes insolvent; or

        4.Allows a receiver or trustee of the business to be appointed; or

        5.Fails to perform any part of this Agreement (other than provided for in Section A of this Article) and

           upon written notice of such failure by the other party fails to remedy the same within thirty (30) days

           of such notice, or in the event such failure cannot reasonably be cured within thirty (30) days, does

           not initiate and pursue reasonable corrective action within said period of time, then, in

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           any of said events, this Agreement may be terminated forthwith by written notice at the option of the

           other party with such other party retaining all its other rights and remedies at law or in equity.

XII.RIGHTS NOT WAIVED

The waiver by either party hereto of any breach of this Agreement by the other party hereto shall not be deemed to be a waiver of any successive or other breach of this Agreement.  Each and every right, power and remedy may be excused from time to time and so often and in such order as may be deemed expedient by the party, and the exercise of any such right, power or remedy shall not be deemed a waiver of the right to exercise at the same time or thereafter, any other right, power or remedy.

XIII.NOTICES

Any notices, requests or other communications required or permitted by any provision of this Agreement shall be in writing and shall be deemed delivered if delivered by hand, facsimile, national overnight courier service, or mailed by U.S. Postal Service, postage prepaid, by registered or certified mail, and if to Koch, addressed to:

        Koch Nitrogen Company

        4111 East 37th Street North

        P.O. Box 2256

        Wichita, KS 67201

        Attention:  President

        Secretary,

        Koch Nitrogen Company

        c/o Legal Department

        4111 East 37th Street North

        P.O. Box 2256

        Wichita, KS 67201

        
or, if to Buyer, addressed to:

       

El Dorado Chemical Company

        16 S. Pennsylvania

        Oklahoma City, OK  73107

        Attn:  President

        El Dorado Chemical Company

        16 S. Pennsylvania

        Oklahoma City, OK  73107

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        Attn:  General Counsel

Any party may change the address to which notices are to be given by mailing written notice thereof to the other party as provided above.

XIV.ASSIGNMENT

Notwithstanding any prior provision, neither party shall assign or delegate, or permit by assignment or delegation, by operation of law or otherwise any of its rights and obligations under this Agreement to any third party without first obtaining the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, delayed or denied.   Notwithstanding the foregoing, either party shall be allowed to assign this Agreement to an Affiliate upon providing written notice to the other party, provided no such transfer shall operate to relieve the transferor party of its obligations hereunder. Any assignment or delegation, or attempted assignment or delegation, in violation of this Article XIV shall be null and void, shall be considered a material breach of this Agreement and shall permit the other party in addition to any other rights which it may hereunder or at law or in equity to terminate this Agreement and exercise any remedies available to the non-breaching party hereunder or at law or in equity.

XV.ENTIRE AGREEMENT; AMENDMENT

This Agreement constitutes the final and complete Agreement between the parties relative to the transactions contemplated hereby and supersedes any and all prior or contemporaneous agreements, understandings, correspondence or other agreements relating to the subject matter hereof.  This Agreement may be amended only by a written document signed by duly authorized representatives or employees of each of the parties hereto.  Any printed terms or conditions contained in any printed forms used in placing or acknowledging orders hereunder, or otherwise used in any way in connection with the sale and purchase provided for in this Agreement, shall not have the effect of modifying or amending this Agreement in any respect unless specifically identified and accepted in writing by a duly authorized representative of both parties.

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XVI.CONFIDENTIALITY

If an Adverse Action, as defined in Section E of Article X, results in a party's suspension of its performance hereunder, the affected party may, as provided for in said Section, provide the other party with certain information  ("Adverse Action Information").  Koch and Buyer may also, in connection with their respective performance of this Agreement, communicate information, give notices and exchange documents ("Contract Related Information").  The receiving party shall maintain in confidence the Adverse Action Information and the Contract Related Information, and such information shall be disclosed to no one other than (i) the receiving party's officers, directors, agents and other personnel who need to know the same in connection with this Agreement, and such officers, directors, agents and other personnel shall be advised of and bound by the confidential nature of such information or (ii) when disclosure is required by law or pursuant to a court or administrative order.  For disclosures required under sub-item (ii), the disclosing party shall immediately notify the other party of the required disclosure so that the other party may seek an appropriate protective order or other remedy and use reasonable efforts to limit the scope of the disclosure so required.  If a protective order or other remedy is not obtained, the disclosing party shall only furnish such portion or portions of the Confidential Information, as it is legally required to furnish.    Koch and Buyer shall take all proper precautions to prevent such information from being acquired by any unauthorized person, firm, company or other entity.  In this regard, Koch and Buyer acknowledge specifically, but without limitation, that both injunctive relief and monetary damages, alone or in combination, are appropriate remedies for any breach of this Article XVI by Koch or Buyer or any person, firm, company or other entity obtaining such information through the recipient thereof.  The confidentiality obligations hereunder shall continue for a period of seven (7) years after the termination of this Agreement.  Koch shall have no obligation to provide, and Buyer shall have no right to obtain, information regarding Koch's Product supply costs.

XVII.ARTICLE HEADINGS

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Article headings are for the convenience of the parties and are not considered parts of the Agreement, it being stipulated that any headings in conflict with the substantive provisions of the Agreement shall have no force and effect.

XVIII.GOVERNING LAW

This Agreement shall be governed exclusively by the laws of the State of Kansas both with respect to interpretation and performance without giving effect to any provision which would direct application of the laws of another jurisdiction.  Koch and Buyer agree that venue and jurisdiction of any action or cause of action arising hereunder shall be exclusively in the United States District Court for the District of Colorado.  If the Colorado court, sua sponte, would dismiss for lack of jurisdiction, then the venue and jurisdiction of any action or cause of action arising hereunder shall be exclusively in the United States District Court for the District of Kansas.

XIX.  SEVERABILITY

The provisions of this Agreement are severable and, if any provisions are determined to be void or unenforceable in whole or in part, the remaining provisions shall remain unaffected and shall be binding and enforceable in accordance with the terms hereof.

XX. AUTHORITY

A.Buyer warrants and represents that it is a corporation duly organized and validly existing and in good standing under the laws of the State of Oklahoma and has all requisite power and authority to lawfully carry on its business as now being conducted and specifically, that it has all requisite power and authority to make, execute, deliver and perform this Agreement.   The signatory below signing for Buyer has been duly authorized by his principal to bind his principal to the terms and conditions of this Agreement.

B.Koch warrants and represents that it is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nebraska
and has all requisite power and authority to lawfully carry on its business as
now being conducted and specifically, that it has all requisite power and
authority to 

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make, execute, deliver and perform this
Agreement. The signatory below signing for Koch has been duly authorized by his
principal to bind his principal to the terms and conditions of this Agreement.

XXI. LEGAL COMPLIANCE.

Each party shall be subject to all applicable laws, rules, regulations and ordinances issued by any national, state, or local regulatory or governing body and may act in accordance therewith until such time as the same may be held invalid by final judgment in a court of competent jurisdiction, except to the extent inconsistent with, or prohibited by, United States Law.

XXII.  TERMINATION OF PREVIOUS AGREEMENT

Buyer and Koch agree that the Previous Agreement shall be terminated in its entirety on the Effective Date.

XXIII.   
MISCELLANEOUS

A.Situs.  The situs of this Agreement shall be Wichita, Kansas.

B.Additional Rules of  
Interpretation and Construction.

   1. No Construction Against Draftsman.  No implications or inferences shall be drawn from the deletion of or addition to the terms of previous drafts of this Agreement.  Koch and Buyer acknowledge that each has had the opportunity to participate in the preparation of this Agreement and, therefore, in the event of any ambiguity in, or controversy with respect to the meaning of, any term or provision contained in this Agreement, no presumption or inference shall be drawn against either Koch or Buyer in the interpretation of this Agreement by reason of the participation by either party or their attorneys in the preparation of this Agreement.

2.Gender. Words of any gender in this Agreement shall include the other gender, and words in the singular number shall include the plural, when the context requires.

3.Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which executed counterparts together shall constitute one agreement.

C.Binding Effect.  Without limitation of the foregoing, this Agreement shall inure to the benefit of and be

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binding upon Koch and Buyer, including their respective  successors and assigns.

D. Brokers.  Any Commissions, fees and expenses in connection with any broker or agent retained by Koch shall be the sole responsibility of Koch.  Any commissions, fees and expenses in connection with any broker or agent retained by Buyer shall be the sole responsibility of Buyer.

E. Independent Contractors.  Koch and Buyer are independent contractors only and are not partners, master/servant, principal/agent or involved herein as parties to any other similar legal relationship with respect to the transactions contemplated under this Agreement or otherwise; and no fiduciary relationship, nor any other relationship imposing vicarious liability shall exist between the parties under this Agreement or otherwise at law.

F. Survival of Terms and Conditions.  This Agreement, and all covenants, promises, agreements, conditions, warranties, representations and understandings contained herein, or contained in any modification, change or amendment of this Agreement pursuant to Article XV hereof, shall survive the termination or expiration of the term of this Agreement for purposes of enforcement of rights occurring prior to such termination or expiration.

G.  

Commercially Reasonable Efforts.   
Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated under this Agreement, including, without limitation, obtaining all necessary actions, waivers, consents and approvals from governmental entities or third parties and making all necessary or appropriate filings and taking all commercially reasonable steps necessary to obtain any approval or waiver from any governmental entities or other third parties.

-21-

IN WITNESS WHEREOF, the parties have executed this Agreement to be effective on the Effective Date by their respective officers thereunto duly authorized.

                                           

("Koch")            
KOCH NITROGEN COMPANY

                                                                 By:
_________________________

                                                                 Title:
 _________________

Attest:

______________________________________

Secretary/Assistant Secretary

                                            ("Buyer")9;9;
            EL DORADO CHEMICAL COMPANY

                                           

                                            By:
_________________________

                                                                  Title:
_______________________

Attest:

________________________________

Secretary/Assistant Secretary

-22-9

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT, dated as of March 25, 2003, among LSB INDUSTRIES, INC., a Delaware corporation (the "Company"), KENT C. McCARTHY, an individual ("McCarthy"), JAYHAWK CAPITAL MANAGEMENT, L.L.C., a Delaware limited liability company ("Jayhawk Capital"), JAYHAWK INVESTMENTS, L.P., a Delaware limited partnership ("Jayhawk Investments"), and JAYHAWK INSTITUTIONAL PARTNERS, L.P., a Delaware limited partnership ("Jayhawk Institutional").  McCarthy, Jayhawk Capital, Jayhawk Investments, and Jayhawk Institutional are collectively, the "Jayhawk Group".

WHEREAS, the general partner of Jayhawk Institutional is Jayhawk Capital, which is also the general partner of Jayhawk Investments, and McCarthy is the manager of Jayhawk Capital;

WHEREAS, pursuant to a Subscription Agreement (the "Subscription Agreement") and a Warrant Agreement (the "Warrant Agreement"), each dated as of the date hereof, between the Company and Jayhawk Institutional, the Company has agreed to issue to Jayhawk Institutional (a) 450,000 shares of the Company's Common Stock (as defined herein) and (b) warrants to purchase 112,500 shares of the Common Stock;

WHEREAS, as of the date hereof, in addition to the 450,000 shares to be issued to Jayhawk Investments under the Subscription Agreement and the warrants to purchase 112,500 shares of the Company's Common Stock, the Jayhawk Group beneficially owns 2,199,581 shares of the Common Stock, comprised of an aggregate of (a) 798,500 shares of the Common Stock, and (b) 1,401,081 shares of Common Stock receivable upon conversion of 323,650 shares of the Company's $3.25 Preferred (as defined herein); and

WHEREAS, to induce Jayhawk Investments to execute and deliver the Subscription Agreement, the Company has agreed to provide to the Jayhawk Group certain registration rights under the Securities Act (as defined herein), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Jayhawk Group hereby agree as follows:

1. 

Definitions.

1.1  "$3.25 Preferred" means the Company's $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2.

1.2  "Commission" means the Securities and Exchange Commission.

1.3  "Common Stock" means the common stock of the Company, par value $0.10 per share.

-1-

  1.4  "Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.

  

  1.5  "Initiating Holders" means the meaning specified in paragraph 2.1.

  

  1.6  "NASD" means the National Association of Securities Dealers.

  

  1.7  "Person" means an individual, a partnership, an association, a joint venture, a corporation, a limited liability company, a business, a trust, an unincorporated organization or a government or any department, agency or subdivision thereof.

  

  1.8  "Public Offering" means any offering of Common Stock to the public pursuant to an effective registration statement under the Securities Act.

  

  1.9  "Registrable Securities" means  (a) the 450,000 shares of Common Stock to be issued to Jayhawk Institutional pursuant to the Subscription Agreement, (b) all shares of Common Stock issued or issuable upon exercise of the Warrants, (c) all shares of Common Stock issuable upon conversion of the Company's $3.25 Preferred owned by the Jayhawk Group, (d) any other shares of Common Stock owned by the Jayhawk Group as of the date of this Agreement, (e) any securities issued or issuable with respect to any Common Stock referred to in (a) through (d) by way of stock dividend or stock split or in connection with a combination of shares or recapitalization.  As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities during such time as (w) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (x) they are eligible to be sold pursuant to Rule 144(k) (or any successor provision) under the Securities Act, (y) they are eligible to be sold pursuant to Rule 144 (or any successor provisions), without limitation on amount of securities sold, or (z) they shall have ceased to be outstanding.

  

  1.10 "Registration Expenses" means all expenses incident to the Company's performance of or compliance with paragraphs 2 and 3, including, without limitation, all registration, filing and NASD fees, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, but excluding underwriting discounts and commissions and transfer taxes, if any.

  

  1.11 "Securities Act" means the Securities Act of 1933, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.

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  1.12 "Warrants" means the warrants issued by the Company to Jayhawk Institutional on the date hereof pursuant to the Warrant Agreement, evidencing rights to purchase an aggregate of 112,500 shares (as adjusted) of Common Stock at an exercise price of $3.49 per share.

2. Demand Registration.  As long as there are Registrable Securities outstanding, upon the written request of the holders of at least 50% of the outstanding Registrable Securities (the "Initiating Holders"), requesting that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all holders of outstanding Registrable Securities, and thereupon will use its reasonable efforts to effect the registration under the Securities Act of (a) the Registrable Securities which the Company has been so requested to register by such Initiating Holder or Holders for disposition in accordance with the intended method of disposition stated in such request, and (b) all other Registerable Securities the holders of which have made written requests to the Company for registration thereof within 20 Business Days after the giving of such written notice by the Company (which request shall specify the intended method of disposition thereof), all to the extent required to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities so to be registered.  Subject to paragraph 2.6, the Company may include in such registration other securities for sale for its own account or for the account of any other Person.

  2.1  

Number of Registrations.  The Company shall not be required to effect more than two registrations pursuant to this paragraph 2.

  

  2.2 
Registration Statement Form.  The Company may, if permitted by law, effect any registration requested under paragraph 2 by the filing of a registration statement on Form S-3 (or any successor or similar short form registration statement) or, if counsel for the Company deems that such a registration statement is not available for the registration of the Registrable Securities to which such registration relates under applicable law, on such other form as counsel for the Company may deem to be appropriate under the Securities Act.  If requested by the Initiating Holders, any registration statement filed pursuant to paragraph 2 will qualify as a "shelf" registration under Securities Act Rule 415 or any successor to such rule.

  

  2.3 
Expenses.  The Company will pay all Registration Expenses in connection with any registration effected pursuant to this paragraph 2.

  

  2.4 
Selection of Underwriters.  If, in the discretion of the holders of a majority (by number of shares) of the Registrable Securities, any offering pursuant to this paragraph 2 shall constitute an underwritten offering, the underwriter or underwriters thereof shall be selected, after consultation with the Company, by such holders and shall be acceptable to the Company, which shall not unreasonably withhold its acceptance of such underwriter or underwriters.

  -3-

  2.5
Effective Registration Statement.  A registration requested pursuant to this paragraph 2 will not be deemed to have been effected (a) unless it has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of the Initiating Holders shall be deemed to have been effected by the Company at the request of such Initiating Holders, or (b) if, after it has become effective, such registration is interfered with by any stop order, injunction or other court order (for any reason other than a misrepresentation or an omission by the Initiating Holders).

  

  2.6 
Priority in Requested Registrations.  If a requested registration pursuant to this paragraph 2 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each holder of Registrable Securities requesting registration) that in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering, the Company will include in any such registration to the extent of the number which the Company is so advised can be sold in such offering (a) first, Registrable Securities requested to be included in such registration by the Initiating Holders, pro rata among such holders on the basis of the number of shares of such securities requested to be included by such holders, (b) second, other Registrable Securities requested to be included in such registration, pro rata among the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders, and (c) third, other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities.

  

  2.7 
Delay at Company's Request.  With respect to any registration requested under this paragraph 2, the Company may postpone for not more than 120 days, on one occasion only with respect to each such request, the filing or effectiveness of a registration statement if the Company determines that such registration would be likely to have an adverse effect on any proposal or plan by the Company to engage in any acquisition of assets not in the ordinary course of business or any merger, consolidation, tender offer or similar transaction, or any other material event not in the ordinary course of business, provided that in case of such postponement the holders of Registrable Securities initiating the request for registration will be entitled to withdraw such request, and if so withdrawn such request will not count as one of the permitted requested registrations under this paragraph 2.  In any event, the Company will pay all Registration Expenses in connection with any registration initiated under this paragraph 2.

3. Incidental Registration.  Notwithstanding any limitation contained in paragraph 2, if the Company at any time proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or S-8 or any successor or similar forms), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities

-4-

for sale to the public under the Securities Act, it will each such time give prompt written notice to all holders of Registrable Securities of its intention to do so and of such holders' rights under this paragraph 3.

  3.1

Procedure.  Upon the written request of any such holder made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (a) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith) without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under paragraph 2 and (b) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities.  No registration effected under this paragraph 3 shall relieve the Company of its obligation to effect any registration statement upon request under paragraph 2.  The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this paragraph 3.

  

  3.2
Priority in Incidental Registrations.  If a registration pursuant to this paragraph 3 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration to the extent of the number which the Company is so advised can be sold in such offering securities determined as follows:

(a)if such registration as initially proposed by the Company was primarily a registration of its securities, (i) first, the securities proposed by the Company to be sold for its own account, and (ii) second, any Registrable
Securities requested to be included in such registration, and any other
securities the Company proposes to include in such registration statement, pro
rata among the holders thereof requesting such registration on the

-5-

 basis of the number
of shares of such securities requested to be included by such holders; and

(b)if such registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than holders of Registrable Securities, pursuant to demand registration rights, (i) first, such securities held by the holders initiating such registration, pro rata among the holders thereof, on the basis of the number of shares of such securities requested to be included by such holders, and (ii) second, any Registrable Securities requested to be included in such registration, pro rata among (A) the holders thereof requesting such registration on the basis of the number of shares of such securities requested to be included by such holders together with (B) any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities.

4.Registration Procedures.  If and whenever the Company is required to use its reasonable efforts to effect the registration of any Registrable Securities under the Securities Act as provided in paragraphs 2 or 3, the Company will:

  (a) prepare and file with the Commission the requisite registration statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) to effect such registration and use its reasonable efforts to cause such registration statement to become effective, provided that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities whose Registrable Securities are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel (such review to be limited to matters relating to the holders whose Registrable Securities are to be included in such registration and matters which might adversely affect such holders), and provided, further, that the Company may discontinue any registration of its securities which are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto;

  (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as (i) all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement, (ii) the securities included in the registration statement are no longer Registrable Securities or (iii) in the case of any registration

  -6-

  pursuant to paragraph 3, 90 days after such registration statement becomes effective, provided that if less than all the Registrable Securities are withdrawn from registration after the relevant period, the shares to be so withdrawn shall be allocated pro rata among the holders thereof on the basis of the respective numbers of Registrable Securities held by them included in such registration;

  

  (c) furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request;

  

  (d) use its reasonable efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each seller thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph 4(d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction;

  

  (e) notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made;

  -7-

  otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission;

  

  (g) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and

  

  (h) use its reasonable efforts to list all Registrable  Securities covered by such registration statement on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed.

  4.1

Seller Information.  The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing.

  4.2
Blackout.  Each holder of Registrable Securities agrees by the acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph 4(e), such holder will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph 4(e) and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice.  In the event the Company shall give any such notice, the periods referred to in paragraph 4(b) shall be extended by a number of days equal to the number of days during the period from and including the giving of notice pursuant to paragraph 4(e) and including the date when each seller of any Registrable Securities covered by such registration statement shall receive the copies of the supplemented or amended prospectus contemplated by paragraph 4(e).

5.

Underwritten Offerings.

  5.1

Demand Underwritten Offerings.  If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to the registration requested under paragraph 2, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to each such holder, the underwriters, and the Company and to contain such representations and warranties by the Company and such other terms as are customarily contained in agreements of this type, including, without limitation, indemnities to the effect and to the extent provided in paragraph 6.  The holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement.

  -8-

  5.2 
Incidental Underwritten offerings.  If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by paragraph 3 and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of paragraph 3.2, use its reasonable efforts, if requested by any holder of Registrable Securities, to arrange for such underwriters to include the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters, except as may be otherwise permitted herein.  The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters.

  

  5.3 
Holdback Agreements.  Each holder of Registrable Securities agrees by acquisition of such Registrable Securities, if so required by the managing underwriter, not to effect any public sale or distribution of such securities during the seven days prior to and the 90 days after the closing of any underwritten registration pursuant to paragraph 2 or any underwritten registration pursuant to paragraph 2 has become effective, or, if the managing underwriter advises the Company in writing that, in its opinion, no such public sale or distribution should be effected for a specified period longer than 90 days after such underwritten registration in order to complete the sale and distribution of securities included in such registration and the Company gives notice to such holder of Registrable Securities of such advice, during a reasonable longer period after such underwritten registration, except as part of such underwritten registration, whether or not such holder participates in such registration.  The Company agrees not to effect any public sale or distribution of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to and the 90 days after the closing of any underwritten registration pursuant to paragraph 2 or any underwritten registration pursuant to paragraph 2 has become effective, except as part of such underwritten registration and except pursuant to registrations on Form S-4 or Form S-8 or any successor or similar forms thereto, or if the managing underwriter advises the Company in writing that in its opinion no such public sale or distribution should be effected for a specified period longer than 90 days after such underwritten registration in order to complete the sale and distribution of securities included in such registration, during a reasonable longer period after such underwritten registration, except as part of such underwritten registration.

6.

Indemnification.
  6.1 

Indemnification by the Company.  In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does, indemnify and hold harmless, in the case of any registration statement filed pursuant to paragraph 2 or 3, the seller of Registrable Securities covered by any such registration statement, its partners, directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls any such seller or any such underwriter within the meaning of the Securities Act (each a "Seller Indemnified Party"),

  -9-

  against any losses, claims, damages or liabilities, joint or several, to which such Seller Indemnified Party may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Seller Indemnified Party for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable in any such case to a Seller Indemnified Party to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with information furnished to the Company through an instrument duly executed by such Seller Indemnified Party specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, and, provided, further, that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus.
  

  

  6.2 
Indemnification by the Sellers.  The seller of any Registrable Securities in any registration statement filed pursuant to paragraph 2 or 3 will indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph 6.1) the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, and each Person who participates as an underwriter in the offering or sale of securities by the Company (each a "Company Indemnified Party" and together with each Seller Indemnified Party, an "Indemnified Party"), with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the

  -10-

  Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement provided that such seller's obligations hereunder shall be limited to an amount equal to the proceeds to such holder of the Registrable Securities sold pursuant to such registration statement.
  

  

  6.3 
Notices of Claims; Procedure.  Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to paragraph 6.1 or 6.2, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter (an "Indemnifying Party") of the commencement of such action, provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under paragraph 6.1 or 6.2, except to the extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment upon advice of counsel a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the Indemnifying Party shall be entitled to participate in and to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof.  No Indemnifying Party shall consent to entry of any judgment or enter into any settlement without the consent of the Indemnified Party, which consent will not be unreasonably withheld, that (a) imposes any liability or obligation (including, without limitation, any injunction) on the Indemnified Party or (b) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.  It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to any local counsel) for the indemnified parties.
  

  

  6.4 
Indemnification Payments.  The indemnification required by this paragraph 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred.

7.

Miscellaneous.

  7.1 

Remedies.
  Any Person having rights under any provision of this Agreement shall be
  entitled to enforce such rights specifically to recover damages caused by
  reason of any breach of any provision of this Agreement and to exercise all
  other

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  rights granted by law.
  The parties hereto agree and acknowledge that money damages may not be an
  adequate remedy for any breach of the provisions of this Agreement and that
  any party may in its sole discretion apply to any court of law or equity of
  competent jurisdiction (without posting any bond or other security) for
  specific performance and for other injunctive relief in order to enforce or
  prevent violation of the provisions of this Agreement.

  

  7.2 
Amendments and Waivers.  Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Registrable Securities; provided that no amendment or waiver which adversely affects any one holder of Registrable Securities (the "Affected Holder") vis-à-vis the other holders of Registrable Securities shall be effective without the approval in writing of the Affected Holder.

  

  7.3 
Notices.  Except as otherwise specified herein to the contrary, all notices, requests, demands and other communications required or desired to be given hereunder shall only be effective if given in writing, by hand or by fax, by certified or registered mail, return receipt requested, postage prepaid, or by U. S. Express Mail service, or by private overnight mail service (e.g., Federal Express).  Any such notice shall be deemed to have been given (a) on the business day actually received if given by hand or by fax, (b) on the business day immediately subsequent to mailing, if sent by U.S. Express Mail service or private overnight mail service, or (c) five business days following the mailing thereof, if mailed by certified or registered mail, postage prepaid, return receipt requested, and all such notices shall be sent to the following addresses (or to such other address or addresses as a party may have advised the other in the manner provided in this paragraph 7.3:

    If to the Company:                          LSB Industries, Inc.

                                                16 South Pennsylvania

                                                Oklahoma City, OK 73101

                                                Fax No. (405) 235-5067

                                                Attention: Mr. Jack E. Golsen, CEO

    With a copy to:                             Conner & Winters

                                                One Leadership Square

                                                211 North Robinson, Suite 1700

                                                Oklahoma City, OK  73102

                                                Attention:  Irwin H. Steinhorn, Esquire

    If to the Jayhawk Group:                    Jayhawk Institutional Partners, L.P.

                                                8201 Mission Road, Suite 110

                                                Prairie Village, KS 66208

                                                Fax No. (913) 642-8661

                                                Attention:  Kent C. McCarthy

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    With a required copy to:                    Gardner Carton & Douglas LLC

                                                191 N. Wacker Drive, Suite 3700

                                                Chicago, Illinois 60606

                                                Fax No.: (312) 569-3125

                                                Attention:  Charles R. Manzoni, Jr.

  7.4 Successors and Assigns.  All covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not.  In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities.

  7.5
Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

  7.6 
Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

  7.7
  Descriptive Headings.  The descriptive headings of this Agreement are for convenience only and shall not limit or otherwise affect the meaning of this Agreement.

  7.8 
Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

-13-

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written.

                                                                    LSB INDUSTRIES, INC.

                                                                    By
/s/ Jack E. Golsen          

                                                                           Jack E. Golsen,

                                                                           Chief Executive Officer

                                                                    (the "Company")

                                                                    JAYHAWK INSTITUTIONAL PARTNERS, L.P.

                                                                    By Jayhawk Capital Management, L.L.C.

                                                                          its general partner

                                                                            By
/s/ Kent C. McCarthy         

                                                                                     Kent C. McCarthy, its manager

                                                                    ("Jayhawk Institutional")

                                                                    JAYHAWK INVESTMENTS, L.P.

                                                                    By Jayhawk Capital Management, L.L.C.

                                                                          its general partner

                                                                            By
/s/ Kent C. McCarthy         
 

                                                                                     Kent C. McCarthy, its manager

                                                                    ("Jayhawk Investments")

-14-

                                                                    JAYHAWK CAPITAL MANAGEMENT, L.L.C.

                                                                    By

                                                                        Kent C. McCarthy, its manager

                                                                    ("Jayhawk Capital")

                                                                   
/s/ Kent C. McCarthy           

                                                                    KENT C. MCCARTHY, an individual

                                                                    ("McCarthy")

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