FORM 10-K
                               UNITED STATES

                    SECURITIES AND EXCHANGE COMMISSION
                          WASHINGTON, D.C. 20549

(Mark One)

 /X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

            For the fiscal year ended:  December 31, 1994

                                    or

 / /        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

            For the transition period from __________ to __________

                      Commission File Number:  1-7677

                        LSB INDUSTRIES, INC.               
          (Exact Name of Registrant as Specified in its Charter)

        Delaware                                 73-1015226   
- ---------------------------                -------------------
 (State of Incorporation)                      (I.R.S. Employer
                                              Identification No.)
    16 South Pennsylvania Avenue
       Oklahoma City, Oklahoma                           73107  
- ----------------------------------------              --------
(Address of Principal Executive Offices)              (Zip Code)

Registrant's Telephone Number, Including Area Code:

                              (405) 235-4546
                                --------------

Securities Registered Pursuant to Section 12(b) of the Act:

                                           Name of Each Exchange
       Title of Each Class                  On Which Registered   
- --------------------------------          ----------------------
Common Stock, Par Value $.10              New York Stock Exchange
Preferred Share Purchase Rights           New York Stock Exchange 
















                         (Facing Sheet Continued)

Securities Registered Pursuant to Section 12(g) of the Act:
$3.25 Convertible Exchangeable Class C Preferred Stock, Series 2.


     Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for the shorter period that the Registrant has had
to file the reports), and (2) has been subject to the filing requirements for
the past 90 days.  YES   X    NO _____.

      Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. 

      As of March 31, 1995, the aggregate market value of the 9,423,861 shares
of voting stock of the Registrant held by non-affiliates of the Company
equaled approximately $57,721,149 based on the closing sales price for the
Company's common stock as reported for that date.  That amount does not
include (1) the  1,588 shares of Convertible Non-Cumulative Preferred Stock
(the "Non-Cumulative Preferred Stock") held by non-affiliates of the Company,
(2) the 20,000 shares of Series B 12% Convertible, Cumulative Preferred Stock
(the "Series B Preferred Stock"), and (3) the 915,000 shares of $3.25 
Convertible Exchangeable Class C Preferred Stock, Series 2, excluding 5,000
shares held in treasury (the "Series 2 Preferred Stock").  An active trading
market does not exist for the shares of Non-Cumulative Preferred Stock or the
Series B Preferred Stock .  The shares of Series 2 Preferred Stock do not have
voting rights except under limited circumstances. 

      As of March 31, 1995, the Registrant had  13,044,922 shares of common
stock  outstanding (excluding 1,575,594 shares of common stock held as
treasury stock).

 




























                     FORM 10-K OF LSB INDUSTRIES, INC.

                             TABLE OF CONTENTS

                                  PART I
                                                                        Page

Item  1.    Business

                  General                                                1 
                  Segment Information and Foreign                          
                    and Domestic Operations and Export Sales             1 
                  Chemical Business                                      1 
                  Environmental Control Business                         3 
                  Automotive Products Business                           5 
                  Industrial Products Business                           6 
                  Employees                                              8 
                  Research and Development                               8 
                  Environmental Compliance                               8 

Item 2.     Properties

                  Chemical Business                                      9 
                  Environmental Control Business                        11 
                  Automotive Products Business                          11 
                  Industrial Products Business                          11 

Item 3.     Legal Proceedings                                           12 

Item 4.     Submission of Matters to a Vote of
              Security Holders                                          13 

Item 4A.    Executive Officers of the Company                           13 


                                  PART II


Item 5.     Market for Company's Common Equity
                and Related Stockholder Matters

                  Market Information                                    14 
                  Stockholders                                          15 
                  Dividends                                             15 

Item 6.     Selected Financial Data                                     17 

Item 7.     Management's Discussion and Analysis
              of Financial Condition and Results of Operations

                  Overview                                              19 
                  Results of Operations                                 19 
                  Liquidity and Capital Resources                       22 
      
Item 8.     Financial Statements and Supplementary Data                 28 

Item 9.     Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure                    28 




                                 PART III


Item 10.    Directors and Executive Officers of the Company             28 

Item 11.    Executive Compensation                                      30 

Item 12.    Security Ownership of Certain Beneficial Owners and Management37 

Item 13.    Certain Relationships and Related Transactions              41 


                                  PART IV


Item 14.    Exhibits, Financial Statement Schedules,
              and Reports on Form 8-K                                   43 













































                                  PART I
                                  ------
Item 1.     BUSINESS
- -------     --------

General
- -------
      
      LSB Industries, Inc. (the "Company") was formed in 1968 as an Oklahoma
corporation, and in 1977 became a Delaware corporation.  The Company is a
diversified holding company which is engaged, through its subsidiaries, in (i)
the manufacture and sale of chemical products for the explosives, agricultural
and industrial acids markets (the "Chemical Business"), (ii) the manufacture
and sale of a broad range of air handling and heat pump products for use in
commercial and residential air conditioning systems (the "Environmental
Control Business"), and (iii) the manufacture or purchase and sale of certain
automotive and industrial products, including automotive bearings and other
automotive replacement parts (the "Automotive Products Business") and the
manufacture, purchase and sale of machine tools (the "Industrial Products
Business").  In May, 1994, the Company sold its Financial Services Business,
which was comprised of Equity Bank for Savings F.A. ("Equity Bank") and
subsidiaries of Equity Bank.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 3 of Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K for a
brief discussion as to the terms of sale by the Company of its Financial
Services Business.

Segment Information and Foreign and Domestic Operations and Export Sales
- ------------------------------------------------------------------------

      Schedules of the amounts of sales, operating profit and loss, and
identifiable assets attributable to each of the Company's lines of business
and of the amount of export sales of the Company in the aggregate and by major
geographic area for each of the Company's last three fiscal years appear in
Note 15 of the Notes to Consolidated Financial Statements included elsewhere
in this report.

      A discussion of any risks attendant as a result of a foreign operation
or the importing of products from foreign countries appears below in the
discussion of each of the Company's business segments.

Chemical Business
- -----------------

      General:
      -------

      The Chemical Business manufactures and sells the following types of
chemical products to the mining, agricultural and other industries:  sulfuric
acid, concentrated nitric acid, prilled ammonium nitrate fertilizer and
ammonium nitrate-based blasting products.  In addition, the Chemical Business
markets emulsions that it purchases from others for resale to the mining
industry. 

      In addition to its existing facilities, the Company is in the process of
constructing a plant in Wilmington, N.C. to allow the Company to produce a
mixed acid product for sale.  The Company expects this plant to become
operational during the third quarter of 1995.

      For 1994, approximately 30% of the sales of the Chemical Business
consisted of sales of fertilizer and related chemical products for
agricultural purposes, which represented approximately 16% of the Company's
1994 consolidated sales, and 49% consisted of sales of ammonium nitrate and
other chemical-based blasting products for the mining industry, which
represented approximately 26% of the Company's 1994 consolidated sales.  The
Chemical Business accounted for approximately 54% and 49% of the Company's
1994 and 1993 consolidated sales, respectively.

      Seasonality:
      -----------

      The Company believes that the only seasonal products of the Chemical
Business are fertilizer and related chemical products sold to the agricultural
industry.  The selling seasons for those products generally occur during the
spring and fall planting seasons, i.e., from February through May and from
September through November, which causes the Company to build up inventory
prior thereto.  In addition, sales to the agricultural markets depend upon
weather conditions and other circumstances beyond the control of the Company.

      Raw Materials:
      -------------

      Ammonia represents an essential component in the production of most of
the products of the Chemical Business, and the price of those products
generally fluctuates with the price of ammonia.  The Company has a contract
with a supplier of ammonia pursuant to which the supplier has agreed to supply
the ammonia requirements of the Chemical Business on terms the Company
considers favorable.  

      Substantial world-wide per ton price increases for ammonia were incurred
during 1994 by most, if not all, users of ammonia that are not also
manufacturers of ammonia.  During 1994, the Company's Chemical Business was
not able to recover a substantial portion of these cost increases by way of
price increases on its products due to market conditions.  As a result, such
inability to increase prices for the Chemical Business' products had a
substantial negative impact on the Company's 1994 earnings.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
a discussion of such negative impact.  Beginning in the latter part of 1994
and through the first few months of 1995, the Company's Chemical Business has
been able to increase its sales prices to cover a substantial portion of the
price increases relating to the cost of ammonia that were incurred during
1994.  However, the Company is not able to predict, at this time, what the
effect of continuing ammonia price increases during 1995, if any, will have on
the Company and the Company's earnings.  

      The Company believes that it could obtain ammonia from other sources in
the event of a termination of the above referenced contract, but such may not
be obtainable on as favorable terms as presently available to the Chemical
Business under its present agreement.  

      Marketing and Distribution:
      --------------------------

      The Chemical Business sells and markets its products to wholesalers and
directly through its own sales force using thirty-three distribution centers. 
See "Properties".  The Chemical Business sells low density prilled ammonium
nitrate-based explosives primarily to the surface coal mining industry through
nine company-owned distribution centers most of which are located in close
proximity to the customers' surface mines in the coal producing states of
Kentucky, Indiana, Missouri and Illinois, and through four company-owned 
distribution centers in Australia located in the proximity of the mines.  In
addition, sales of explosives are made on a wholesale basis to independent
wholesalers and other explosives companies.  

      The Chemical Business sells high density prilled ammonium nitrate for
use in agricultural markets in geographical areas within a freight-logical
distance from its El Dorado, Arkansas, manufacturing plant, primarily Texas,
Oklahoma, Arkansas and Louisiana.  The products are sold through 20
distribution centers, with 15 centers located in Northern and Eastern Texas,
two centers located in Missouri and three centers located in Tennessee.  The
Chemical Business also sells its agricultural products directly to wholesale
customers.  

      The Chemical Business sells its industrial acids, consisting primarily
of high grade concentrated nitric acid and sulfuric acid, primarily to the
food, paper, chemical and electronics industries.  Concentrated nitric acid is
a special grade of nitric acid used in the manufacture of pharmaceutical,
explosives, and other chemical products.  

      Patents:
      -------

      The Company believes that the Chemical Business does not depend upon any
patent or license; however, the Chemical Business does own certain patents
that it considers important in connection with the manufacture of certain
blasting agents and high explosives.  These patents expire through 1997. 

      Regulatory Matters:
      ------------------
      
      Each of the Chemical Business' blasting product distribution centers are
licensed by the Bureau of Alcohol, Tobacco and Firearms in order to
manufacture and distribute blasting products.  The Chemical Business also must
comply with substantial governmental regulations dealing with environmental
matters.  See "PROPERTIES - Chemical Business" for a discussion as to an
environmental issue regarding the Company's El Dorado, Arkansas, manufacturing
facility.

      Competition:
      -----------

      The Chemical Business competes with other chemical companies, in its
markets, many of whom have greater financial resources than the Company.  The
Company believes that the Chemical Business is competitive as to price,
service, warranty and product performance.  The Company believes that the
Chemical Business' contract with its supplier of ammonia, which the Company
believes allows the Chemical Business to purchase ammonia at a favorable price
compared to the world market price of ammonia, allows the Chemical Business
the ability to favorably compete with its competitors as to price.  The
Company believes that the Chemical Business is a leader in the Texas ammonium
nitrate market and one of the leading producers of concentrated nitric acid in
the United States for third party sales.

Environmental Control Business
- ------------------------------

      General:
      -------

      The  Company's Environmental Control Business manufactures and sells a
broad range of fan coil, air handling, air conditioning, heating, heat pump
and dehumidification products targeted to both new building construction and
renovation, as well as industrial application.  The fan coil products consist
of in-room terminal air distribution equipment utilizing air forced over a fin
tube heat exchanger which, when connected to centralized equipment
manufactured by other companies, creates a centralized air conditioning and
heating system that permits individual room temperature control.  The heat
pump products manufactured by the Environmental Control Business consist of
heat-recovery, water-to-air heat pumps that include a self-contained
refrigeration circuit and blower, which allow the unit to heat or cool the
space it serves when supplied with recirculating water at mild temperatures. 
The Environmental Control Business accounted for approximately 29% and 30% of
the Company's 1994 and 1993 consolidated sales, respectively, with fan coil
products accounting for approximately 16% and heat pump products accounting
for approximately 13%, respectively, of the Company's 1994 consolidated sales. 

      Production and Backlog:
      ----------------------

      Most of the Environmental Control Business' production of the above-
described products occurs on a specific order basis.  The Company manufactures
the units in many sizes, as required by the purchaser, to fit the space and
capacity requirements of hotels, motels, schools, hospitals, apartment
buildings, office buildings and other commercial or residential structures. 
As of December 31, 1994, the backlog of confirmed orders for the Environmental
Control Business was approximately $24.2 million, as compared to approximately
$17 million as of December 31, 1993.  A customer generally has the right to
cancel an order prior to the order being released to production.  Past
experience indicates that customers generally do not cancel orders after the
Company receives them.  As of December 31, 1994, the Company had released
approximately $21.4 million of backlog orders in the Environmental Control
Business to production, all of which are expected to be filled by December 31,
1995.

      Distribution:
      ------------

      The Environmental Control Business sells its products to mechanical
contractors, original equipment manufacturers and distributors.  The Company's
sales to mechanical contractors primarily occur through independent
manufacturer's representatives, who also represent complimentary product lines
not manufactured by the Company.  Original equipment manufacturers generally
consist of other air conditioning and heating equipment manufacturers who
resell under their own brand name the products purchased from the
Environmental Control Business as a separate item in competition with the
Company or as part of a package with other air conditioning-heating equipment
products to form a total air conditioning system which they then sell to
mechanical contractors or end-users for commercial application.  Sales to
original equipment manufacturers accounted for approximately 36% of the sales
of the Environmental Control Business in 1994 and approximately 10% of the
Company's 1994 consolidated sales.

      Construction Industry:
      ---------------------

      Historically, the Environmental Control Business has depended primarily
on the commercial construction industry, including new construction and the
remodeling and renovation of older buildings, however, this Business' recent
growth has been in the residential area.

      Raw Materials:
      -------------

      Numerous domestic and foreign sources exist for the materials used by
the Environmental Control Business, which materials include aluminum, copper,
steel, electric motors and compressors.  The Company does not expect to have
any difficulties in obtaining any necessary materials for the Environmental
Control Business.
      


      Competition:
      -----------

      The Environmental Control Business competes with approximately eight
companies, several of whom are also customers of the Company.  Some of the
competitors have greater financial resources than the Company.  The Company
believes that the Environmental Control Business manufactures a broader line
of fan coil and water source heat pump products than any other manufacturer in
the United States, and, that it is competitive as to price, service, warranty
and product performance.

Automotive Products Business
- ----------------------------

      General:
      -------

      The Automotive Products Business is primarily engaged in the manufacture
and sale of a line of anti-friction bearings, which includes straight-thrust
and radial-thrust ball bearings, angular contact ball bearings, and certain
other automotive replacement parts.  These products are used in automobiles,
trucks, trailers, tractors, farm and industrial machinery, and other 
equipment.  The Automotive Products Business accounted for approximately 13%
and 12% of the Company's 1994 and 1993 sales, respectively.  In 1994, the
Automotive Products Business manufactured approximately 47% of the products it
sold and approximately 49% in 1993, and purchased the balance of its products
from other sources, including foreign sources.

      Distribution and Market:
      -----------------------

      The automotive, truck and agricultural equipment replacement markets
serve as the principal markets for the Automotive Products Business.  This
business sells its products domestically and for export, principally through
independent manufacturers' representatives who also sell other automotive
products.  Those manufacturers' representatives sell to retailers (including
major chain stores), wholesalers, distributors and jobbers.  The Automotive
Products Business also sells its products directly to original equipment
manufacturers and certain major chain stores.

      Inventory:
      ---------

      The Company generally produces or purchases the products sold by the
Automotive Products Business in quantities based on a general sales forecast,
rather than on specific orders from customers.  The Company fills most orders
for the automotive replacement market from inventory.  The Company generally
produces or purchases bearings for original equipment manufacturers after
receiving an order from the manufacturer.

      Raw Materials:
      -------------

      The principal materials that the Automotive Products Business needs to
produce its products consist of high alloy steel tubing, steel bars, flat
strip coil steel and bearing components produced to specifications.  The
Company acquires those materials from a variety of domestic and foreign
suppliers at competitive prices.  The Company does not anticipate having any
difficulty in obtaining those materials in the near future.



      Competition:
      -----------
      
      The Automotive Products Business engages in a highly competitive
business.  Competitors include other domestic and foreign bearing
manufacturers, which sell in the original equipment and replacement markets. 
Many of those manufacturers have greater financial resources than the Company.

Industrial Products Business
- ----------------------------

      General:
      -------

      The Industrial Products Business manufactures, purchases and markets a
proprietary line of machine tools.  The current line of machine tools
distributed by the Industrial Products Business includes milling, drilling,
turning, fabricating and grinding machines.  The Industrial Products Business
purchases most of the machine tools marketed by it  from foreign companies,
which manufacture the machine tools to the Company's specifications.  This
Business manufactures CNC bed mills and electrical control panels for machine
tools. 

      Distribution and Market:
      -----------------------

      The Industrial Products Business distributes its machine tools in the
United States, Mexico, Canada and certain other foreign markets and
distributes its industrial supplies principally in Oklahoma.  The Industrial
Products Business sells and distributes its products through its own sales
personnel, who call directly on end users.  The Industrial Products Business
also sells its machine tools through independent machine tool dealers
throughout the United States and Canada, who purchase the machine tools for
resale to end users.  The principal markets for machine tools, other than
independent machine tool dealers, consist of manufacturing and metal working
companies, maintenance facilities, utilities and schools.

      Customer:
      --------

      The Industrial Products Business does not depend on any single customer,
or a few customers, the loss of any one or more of which would have a material
adverse effect on the Industrial Products Business.  A significant increase in
the revenues of the Industrial Products Business occurred during 1992 and 1993
as a result of an agreement with a foreign company ("Buyer"), dated July 6,
1992, to supply the Buyer with equipment, technology and technical services to
manufacture certain types of automotive bearing products.  The Company has
shipped to the Buyer all machinery and equipment and the tooling and designs
required under the agreement.  The agreement provides for a total contract
amount of approximately $56.0 million, with $12.0 million of the contract
amount to be retained by the Buyer as the Company's subsidiary's equity
participation in the Buyer.  The Company's subsidiary exchanged its rights to
the equity interest in the Buyer with a foreign nonaffiliated company
("Purchaser of the Interest") for $12 million in notes.  The Company has been
advised that the Buyer has agreed to repurchase from the Purchaser of the
Interest up to $6 million of such equity interest over a six-year period, with
payment to the Purchaser of the Interest to be either in cash or bearing
products.  The notes issued to the subsidiary for its rights to the equity
interest in the Buyer will only be payable when, as and if the Purchaser of
the Interest collects from the Buyer for such equity interest, and the method
of payment to the subsidiary will be either cash or bearing products, in the
same manner as received by the Purchaser of the Interest from the Buyer.  Due
to the Company's inability to determine what payments, if any, it will receive
on such notes, the Company will continue to carry such notes at a nominal
amount.The balance of approximately $44.0 million has been or will be paid to
the Company's subsidiary as follows: (i) approximately $13.9 million was paid
through December 31, 1994, and (ii) the balance of approximately $30.1 million
payable in equal quarterly installments over a ten (10) year period, plus
interest.  Under the agreement, the Company's subsidiary will use its best
efforts to purchase approximately $14.5 million of bearing products from the
Buyer each year over a period of ten (10) years; provided, however, that the
Company's subsidiary is not required to purchase more product from the Buyer
in any one (1) year than the amount of tapered bearings the Company's
subsidiary is able to sell in its market.  However, the Company's subsidiary
has negotiated a preliminary oral agreement in principle which, if completed,
would change the method of payment of the balance due and the subsidiary's
obligation to buy products from the Buyer as discussed below.  The Company
will recognize revenues and profits on the sale of equipment and technology
over the term of the agreement as they are realized.  The revenue and profits
realized during the delivery and installation period have been recognized on a
percentage of completion basis.  During the years ended December 31, 1994 and
1993, the Company recorded sales of approximately $1.8 million and $7.5
million, respectively, in connection with the agreement.  The percentage of
completion is determined by relating the productive costs incurred to date to
the total productive costs estimated to complete the performance under the
contract for delivery and installation.  The Company presently meets all of
its obligations under the contract which generally coincides with the payout
term.  

      In March 1995, the subsidiary negotiated a preliminary oral agreement in
principle with a syndication of foreign lenders whereby the lenders will
acquire, without recourse to the Company, as such subsidiary, approximately
$24.0 million of the unpaid contract amount billable by the Company.  Under
the oral agreement, the Company expects to receive approximately $4.0 million
at closing, net of fees, and a commitment from the Buyer to provide
approximately $16.0 million of bearing products.  Upon completion of the oral
agreement with the foreign lenders, the Company and the Buyer will amend their
agreement to exchange the then remaining unpaid contract amount from the Buyer
(approximately $5.0 million) for an amendment to the Buyer's commitment to
provide additional bearing products approximating $5.0 million, thereby making
the Buyer's commitment to provide bearing products to the Company
approximately $21.0 million.  The Company is to receive such bearing products
when and if the Buyer repays the debt discussed above which the foreign
lenders will acquire.  The commitment of the Buyer to provide the Company
$21.0 million in bearing products, at no additional cost, is to be further
increased to include interest at 7 1/2% per annum until such commitment has
been fulfilled by the delivery of bearing products to the Company, which
delivery is not expected to begin prior to the year 2000.  In connection with
this agreement, the Company would also amend its purchase commitment from a
best efforts arrangement to a firm commitment to purchase approximately $6.0
million of bearing products over each of the next five years, at predetermined
prices, not in excess of market prices, subject to the Buyer's ability to
deliver product to the Company and the product meeting quality standards.  The
agreement in principle is subject to, among other things, finalization of
definitive agreements.  There is no assurnace that the agreement in principle
will be finalized.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS" and Note 6 of
Notes to Consolidated Financial Statements for further discussion of this
agreement.

      Foreign Risk:
      ------------

      By purchasing a majority of the machine tools from foreign
manufacturers, the Industrial Products Business must bear certain import
duties and international economic risks, such as currency fluctuations and
exchange controls, and other risks from political upheavals and changes in
United States or other countries' trade policies.  Most of the current
contracts for the purchase of foreign-made machine tools provide for payment
in United States dollars.  Circumstances beyond the control of the Company
could eliminate or seriously curtail the supply of machine tools from any one
or all of the foreign countries involved.

      Competition:
      -----------

      The Industrial Products Business competes with manufacturers and other
distributors of machine tools many of whom have greater financial resources
than the Company.  The Company's machine tool business generally is
competitive as to price, warranty and service, and maintains personnel to
install and service machine tools.

Employees
- ---------

      As of December 31, 1994, the Company employed 1,446 persons.  As of that
date, (a) the Environmental Control Business employed 550 persons, (none of
which is represented by a union),(b) the Automotive Products Business employed
255 persons, with 91 represented by unions under an agreement that expired in
August, 1990, and, (c) the Chemical Business employed 447 persons, with 113
represented by unions under agreements expiring in August, 1995.   

      The union contract within the Automotive Product Business expired on
August 1, 1990, and the employees within that business have continued to work
without a contract.  The employees did not strike in 1990 when their contract
expired, and, as of the date of this report, there are no indications that the
employees are considering striking.  There are no pending negotiations in
connection with the expired union contract.  The Company does not believe such
employees will strike within the foreseeable future, but there are no
assurances to that effect.

Research and Development
- ------------------------

      The Company incurred approximately $606,000 in 1994, $788,000 in 1993,
and $684,000 in 1992 on research and development relating to the development
of new products or the improvement of existing products.  All expenditures for
research and development related to the development of new products and
improvements are sponsored by the Company.

Environmental Compliance
- ------------------------

      The Company does not anticipate, based on facts presently known to the
Company, that it will be required during 1995 to incur any material capital
expenditures for environmental control facilities relating to its industrial
businesses.  However, a subsidiary of the Company in its Automotive Products
Business has been notified that it is a potentially responsible party as a
result of having been a generator of waste disposed of at the Mosley site (as
defined in the first paragraph of Item 3 of this report).  In addition, a
subsidiary of the Company in its Chemical Business has been notified that its
chemical manufacturing facility located in El Dorado, Arkansas, has been
placed into the Environmental Protection Agency's data based tracking system
and that there has occurred certain releases of contaminates at it's El
Dorado, Arkansas facility, and, as a result of such releases, the Chemical
Business will be required to perform certain activities to remediate the
contamination at the facility.  See Item 2 "PROPERTIES - Chemical Business"
and Item 3 "LEGAL PROCEEDINGS" for a discussion of the environmental issues at
the El Dorado, Arkansas facility.  While the Company is, at this time, unable
to determine the ultimate cost of remediation as a result of  contamination of
the site in El Dorado, Arkansas, the Company has included a provision for
environmental costs of $450,000 in its results of operations for 1994.  While
there are no assurances, based on the information presently available to the
Company, the Company does not believe that the Mosley Site, as discussed in
Item 3 "LEGAL PROCEEDINGS", or the El Dorado, Arkansas facility being placed
in the Environmental Protection Agency's data based tracking system or any
response to contamination at such El Dorado, Arkansas facility due to any
release of contamination of such facility or the assessment of any penalty as
a result thereof, should have a material adverse effect on the Company.

Item 2.  PROPERTIES
- -------------------

Chemical Business
- -----------------

      The Chemical Business primarily conducts manufacturing operations (i) on
150 acres of a 1400 acre tract of land located in El Dorado, Arkansas (the
"Site") and (ii) on 10 acres of land in a facility of approximately 60,000
square feet located in Hallowell, Kansas ("Kansas facility"). 

      As of December 31, 1994, the manufacturing facility at the Site was
being utilized to the extent of approximately 88%, based on the continuous
operation of those facilities.  As of December 31, 1994, manufacturing
operations at the Kansas facility were being utilized to the extent of
approximately 80% based on two 8 hour shifts per day and a 5 day week.
        
      In addition, the Chemical Business distributes its products through 33
agricultural and blasting distribution centers.  The Chemical Business
currently operates 20 agricultural distribution centers, with 15 of the
centers located in Texas ( 12 of which the Company owns and 3 of which it
leases); 2 centers located in Missouri (1 of which the Company owns and 1 of
which it leases); and 3 centers located in Tennessee (all of which the Company
owns).  The Chemical Business currently operates 9 domestic explosives 
distribution centers located in Bonne Terre, Missouri (owned); Central City,
Owensboro, Combs, and Pilgrim, Kentucky (leased); Midland, Indiana (leased);
Rawlins, Wyoming (leased); Carlsbad, New Mexico (leased); and Pryor, Oklahoma
(leased).  The Chemical Business also has  explosives distribution centers in
Australia located at: Peaks Down; Kalgoorlie; Karratha; and, Hunter Valley
(all leased).

      The Chemical Business also operates its business from buildings located
on an approximate four acre site on the perimeter of the JayHawk Industrial
site in southeastern Kansas, and a research and testing facility comprising of
a one square mile tract of land including buildings and equipment thereon also
located in southeastern Kansas which it owns.

      All facilities owned by the Chemical Business are subject to mortgages.

      During November, 1993, the Company's Chemical Business acquired assets
for an additional concentrated nitric acid plant and related assets ("Plant
and Assets") for approximately $1.9 million.  During 1994 and early 1995 the
Chemical Business spent approximately $15.1 million to install such Plant and
Assets at its manufacturing plant facility located in El Dorado, Arkansas. 
The plant is scheduled to be operational in May, 1995.  As a result of such
expansion and the present utilization of the Chemical Business' manufacturing
facilities, the Company believes that it's present manufacturing facilities
are suitable for it's current operations.   

      Since the 1940's, the Site has been a manufacturing facility for
ammonium nitrate compounds, and until 1969, was a manufacturing facility for
ammonia.  In 1955, the Site was acquired by Monsanto Company ("Monsanto"), and
in June, 1983, Monsanto sold the Site to El Dorado Chemical Company ("EDC"). 
EDC was acquired by the Company in 1984.  Under the agreement with Monsanto,
Monsanto agreed to indemnify EDC for any claim which is suffered, incurred or
arises due solely out of Monsanto's disposal of chemicals or chemical
byproducts prior to acquisition of the Site by EDC from Monsanto or the use by
Monsanto of any substance prior to the date EDC acquired the Site from
Monsanto which is subsequently determined to be deleterious or dangerous to
the public's health, safety or welfare.  Under the agreement with Monsanto,
the indemnification is not assignable to a party to which EDC transfers the
Site without the prior written consent of Monsanto, except to any company of
which 100% of the voting stock is owned or controlled, directly or indirectly,
by EDC.  Although EDC has operated the Site since its acquisition from
Monsanto in 1983, in 1988, EDC transferred ownership of the Site to the
Company, which in turn transferred title to another subsidiary.  All of the
outstanding stock of EDC is directly and wholly owned by the Company. 
Although no consent was obtained from Monsanto to assign the Monsanto
indemnification when EDC transferred ownership of the Site to its affiliated
company, if such a consent was required under the agreement with Monsanto, the
Company believes that the Monsanto indemnification remains applicable to EDC. 

      In 1993, the Company's Chemical Business was advised that the Site had
been placed in the Environmental Protection Agency's ("EPA") data-based
tracking system (the "System").  The System maintains an inventory of sites in
the United States where it is known or suspected that a release of hazardous
waste has occurred.  Notwithstanding inclusion in the System, EPA's
regulations recognize that such does not represent a determination of
liability or a finding that any response action will be necessary.  Over
12,000 sites in the United States are presently listed in the System.  If a
site is placed in the System, EPA regulations require that the government or
its agent perform a preliminary assessment of the site.  If the preliminary
assessment determines that there has been a release, or that there is
suspected to have occurred a release at the site of certain types of
contamination, the EPA will perform a site investigation.  Pursuant to such
regulations, the State of Arkansas, on behalf of the EPA, performed such
preliminary assessment.  The preliminary assessment report prepared by the
State of Arkansas, dated September 30, 1992, stated in part, that a release of
certain types of contaminants is suspected to have occurred at the Site.  It
is anticipated that the EPA will, at some future date, perform a site
inspection at the Site.  Such inspections usually involve the gathering of
additional data including environmental sampling of the Site.  After
conducting the site inspection, the regulations provide that the EPA may
determine that:  (i) the Site does not warrant further involvement in the
evaluation process, or (ii) that further study of the Site is warranted to
determine what appropriate action is to be taken in response to a release, if
any, of contaminants at the Site or whether such release, if any, justifies
the Site being placed on the National Priorities List.  Being placed in the
System will generally be the first step in the EPA's determination as to
whether a site will be placed on the National Priorities List.  After the EPA
completes its site inspection and evaluates other information, the EPA will
then assess the Site using the Hazard Ranking System to ascertain whether the
Site poses a sufficient risk to human health or the environment to be proposed
for the National Priorities List.  There are approximately 1,200 sites in the
United States presently listed on the National Priorities List.  The Company
has been advised that there have occurred certain releases of contaminants at
the Site.  However, the Company does not believe that such releases should
warrant the Site being placed on the National Priorities List, but there are
no assurances to that effect.  See Item 1 "BUSINESS - Environmental
Compliance" and Item 3 "LEGAL PROCEEDINGS".  

Environmental Control Business
- ------------------------------

      The Environmental Control Business conducts its fan coil manufacturing
operations in various facilities, including two adjacent facilities located in
Oklahoma City, Oklahoma, consisting of approximately 240,000 square feet owned
by the Company.  As of December 31, 1994, the Environmental Control Business
was using the productive capacity of the above-referenced facilities to the
extent of approximately 93%, based on one, eight-hour shift per day and a
five-day week.

      The Environmental Control Business manufactures most of its heat pump
products in a leased 230,000 square foot facility in Oklahoma City, Oklahoma. 
The lease carries a five year term beginning March 1, 1988, with options to
renew for five additional five year periods, and currently provides for the
payment of rent in the amount of $52,389 per month.  The Company also has an
option to acquire the facility at any time in return for the assumption of the
then outstanding balance of the lessor's mortgage.  As of December 31, 1994,
the productive capacity of this manufacturing operation was being utilized to
the extent of approximately 71%, based on one, eight-hour shift per day and a
five-day week.

      The Environmental Control Business owns a 60,000 square foot facility in
Juarez, Mexico, which it leases to a third party tenant.  The Environmental
Control Business also leases sales offices in Los Angeles and Chicago.

      All of the properties utilized by the Environmental Control Business are
considered by Company management to be suitable and adequate to meet the
current needs of that business.

Automotive Products Business
- ----------------------------

      The Automotive Products Business conducts its operations in plant
facilities principally located in Oklahoma City, Oklahoma which are considered
by Company management to be suitable and adequate to meet its needs.  One of
the manufacturing facilities occupies a building owned by the Company, subject
to mortgages, totaling approximately 178,000 square feet.  The Automotive
Products Business also uses additional manufacturing facilities located in
Oklahoma City, Oklahoma, owned and leased by the Company totalling
approximately 102,000 square feet.  During 1994, the Automotive Products
Business under-utilized the productive capacity of its facilities.  

      In December 1993, International Bearings, Inc. ("IBI") of Memphis,
Tennessee, was acquired as a wholly owned subsidiary of the Company operating
as a separate entity within the Automotive Products Division.  IBI is a
warehouse unit operating from a Company owned warehouse of approximately
45,000 square feet in an industrial park section of Memphis, TN.

Industrial Products Business
- ----------------------------

      The Company owns several buildings, some of which are subject to
mortgages, totaling approximately 691,000 square feet located in Oklahoma
City, Oklahoma,  Tulsa, Oklahoma, and Middletown, New York, which the
Industrial Products Business uses for showrooms, offices, warehouse and
manufacturing facilities.  The Company also owns real property located near or
adjacent to the above-referenced buildings, which the Industrial Products
Business uses for parking and storage.

      The Industrial Products Business also leases a facility from an entity
owned by the immediate family of the Company's President, which facility
occupies approximately seven acres in Oklahoma City, Oklahoma, with buildings
having approximately 44,000 square feet.  The Industrial Products Business
also leases an office in Europe to coordinate its European activities.

      All of the properties utilized by the Industrial Products Business are
considered by Company management to be suitable and adequate to meet the needs
of the Industrial Products Business.  

Item 3.  LEGAL PROCEEDINGS
- --------------------------

      In December 1987, the United States Environmental Protection Agency
("EPA") notified L&S Bearing Company ("L&S") of potential responsibility for
releases of hazardous substances at the Mosley Road Landfill in Oklahoma ("the
Mosley Site").  The recipients of such notification were:  a) generators of
industrial waste allegedly sent to the Mosley Site (including L&S), and b) the
current owner/operator of the Mosley Site, Waste Management of Oklahoma
("WMO") (collectively, "PRPs").  Between February 20, and August 24, 1976, the
Mosley Site was authorized to accept industrial hazardous waste.  During this
time, a number of industrial waste shipments allegedly were transported from
L&S to the Mosley Site.  In February 1990, EPA added the Mosley Site to the
National Priorities List.  WMO and the U.S. Air Force conducted the remedial
investigation ("RI") and feasibility study ("FS").  It is too early to
evaluate the probability of a favorable or unfavorable outcome of the matter
for L&S.  However, it is the PRP Group's position that WMO as the Mosley Site
owner and operator should be responsible for at least half of total liability
at the Mosley Site, and that 75% to 80% of the remaining liability, if
allocated on a volumetric basis, should be assignable to the U.S. Air Force. 
The Company is unable at this time to estimate the amount of liability, if
any, since the estimated costs of clean-up of the Mosley Site are continuing
to change and the percentage of the total waste which were alleged to have
been contributed to the Mosley Site by L&S has not yet been determined.  If an
action is brought against the Company in this matter, the Company intends to
vigorously defend itself and assert the above position.  Although there are no
assurances to this effect, the Company is exploring whether  it has insurance
coverage for this claim.  Insurance coverage, however, is not considered since
it is not known whether insurance coverage will be provided in connection with
this matter.  The Company does not believe that the ultimate outcome of this
matter will have a material adverse effect on the Company's financial position
or results of operations.  

      In April, 1989, a subsidiary of the Company, International Environmental
Corporation ("IEC"), was named as a third party defendant in a lawsuit brought
by Economy Mechanical Industries of Illinois, Inc. ("Economy"), in an action
pending in the Circuit Court of Cook County, Illinois, in connection with a
project in Chicago, Illinois.  Economy had purchased fan coil units for the
project from IEC and the units were built in accordance with Economy's
specifications.  This litigation initially resulted from disputes between the
owner of the project and the general contractor, and in connection therewith,
the owner withheld payment from the general contractor.  The general
contractor and a number of subcontractors (including Economy) filed mechanics
liens against the property.  The general contractor filed this action to
foreclose on its lien and the owner has asserted numerous claims against the
general contractor and certain subcontractors (including Economy) in the total
amount of $20,610,599.  One of the counterclaims made by the owner relates to
the fan coil system manufactured by IEC.  As a result Economy brought a third
party action against IEC alleging that if the fan coil system is defective,
such was the responsibility of IEC and in breach of IEC's implied and express
warranties.  IEC has denied that the fan coils are defective and contends that
any failures, if any, were caused by improper installation or other causes
beyond IEC's control.  IEC has filed fourth party complaints against certain
of its suppliers.  A settlement in principle has recently been reached subject
to documentation.  This settlement in principle would require two of IEC's
insurance carriers to fund IEC's portion of the settlement in the sum of
$868,000 and reimburse IEC approximately $330,000 for previously paid attorney
fees and expenses.  One of these policies has a $250,000 loss limitation on
IEC's retro-premium calculations under the policy.  The retro-premiums under
this policy will total less than the $330,000 reimbursement payment IEC is
expecting to receive under the other policy.  This settlement in principle is
subject to documentation and will require payments to the building owners by
other parties to the suit; therefore, no assurances can currently be made
concerning the final resolution of this litigation.  Notwithstanding the
settlement in principle, the Company does not believe this matter will have a
material adverse effect on the financial condition or results of operations of
the Company. 

      In addition to the Chemical Business' El Dorado, Arkansas facility being
placed in the System (see Item 2 "PROPERTIES" for a discussion thereof),
recent investigations have identified possible contamination associated with
the on-site solid waste landfill at such facility in El Dorado, Arkansas.  The
contamination includes possible landfilling of sludges containing chromium and
lead, and possible groundwater contamination.  An investigation of the
chromium sludge generation and landfilling was completed, as well as
confirmation of the groundwater sampling data.  Preliminary results indicated
the presence of hazardous quantities of lead and chromium in the landfill,
which were reported to EPA through the National Response Center and to the
Arkansas Department of Pollution Control and Ecology ("ADPC&E").  A
preliminary remedial plan was also submitted by the Chemical Business to
ADPC&E.  ADPC&E conducted a multi-media inspection of the facility, including
the landfill, and collected groundwater samples.  An inspection report
identified a few deficiencies in recordkeeping which have been corrected, and
allegations of improper management of the chromium sludge and another waste
stream which had been managed in the wastewater treatment system.  On March
29, 1995, ADPC&E forwarded to the Chemical Business a proposed Consent
Administrative Order ("CAO") to resolve all compliance issues identified in
the multi-media inspection.  The significant items in the CAO are that the CAO
provides for closure of the landfill as a solid waste unit,  performance of
ground water monitoring for the entire site, and payment of a civil penalty of
$25,000.  While the Company is at this time unable to determine the ultimate
cost of compliance with the CAO, the Company has determined the subsidiary's
cost to be at least $450,000; therefore, the Company has included a provision
for environmental costs of $450,000 in the results of operations.  Based on
information presently available, the Company does not believe, as of the date
of this report, that compliance with the CAO, should have a material adverse
effect on the Company, the Company's subsidiary or the Company's financial
condition; however, there are no assurances to that effect.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------

      Not applicable.


Item 4A.  EXECUTIVE OFFICERS OF THE COMPANY
- -------------------------------------------

      Identification of Executive Officers.  The following table identifies
the executive officers of the Company.

                           Position and             Served as
                           Offices With             an Officer
Name                Age    the Company                 From   
- ----               ----   -------------           -----------
Jack E. Golsen      66     Board Chairman           December, 1968
                           and President
                           
Barry H. Golsen     44     Board Vice Chairman      August, 1981
                           and President of the
                           Environmental 
                           Control Business

David R. Goss       54     Senior Vice              March, 1969
                           President of
                           Operations and
                           Director

Tony M. Shelby      53     Senior Vice              March, 1969
                           President - Chief
                           Financial Officer,
                           and Director

Jim D. Jones        53     Vice President -         April, 1977
                           Treasurer and
                           Corporate Controller

David M. Shear      35     Vice President and       March, 1990
                           General Counsel

- --------------------------------------------------------------

      The Company's officers serve one-year terms, renewable on an annual
basis by the Board of Directors.   All of the individuals listed above have
served in substantially the same capacity with the Company and/or its
subsidiaries for the last five years.  

      Family Relationships.  The only family relationship that exists among
the executive officers of the Company is that Jack E. Golsen is the father of
Barry H. Golsen.

                                   PART II
                                  ---------

Item 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------      --------------------------------------------------------------
            MATTERS
            -------

Market Information
- ------------------

      The Company's Common Stock trades on the New York Stock Exchange, Inc.
("NYSE").  Prior to August, 1994, the Company's Common Stock traded on the
American Stock Exchange, Inc. ("AMEX"). The following table shows, for the
periods indicated, the high and low closing sales prices for the Company's
Common Stock.
                                    Fiscal Year Ended
                                      December 31,         
                               ----------------------------
                              1994                     1993
                              ----                     ----
        Quarter     High        Low         High      Low
        -------     ----        ---         ----      ---
        First       10          8 1/4       11 1/8   6 3/4
        Second       9 1/4      7           12       9    
        Third        7 3/4      5 1/4       12 3/8   10   
        Fourth       7 3/4      5 3/8       11 3/8   8 1/8

Stockholders  
- ------------

  As of March 31, 1995, the Company had  1463 record holders of its Common
Stock.

Dividends  
- ---------

  Holders of the Company's Common Stock are entitled to receive dividends
only when, as and if declared by the Board of Directors.  No dividends may be
paid on the Company's Common Stock until all required dividends are paid on
the outstanding shares of the Company's preferred stock, or declared and
amounts set apart for the current period, and, if cumulative, prior periods. 
The Company has issued and outstanding as of December 31, 1994, 915,000 shares
of $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 ("Series 2
Preferred"), 1,597 shares of a series of Convertible Non Cumulative Preferred
Stock ("Non Cumulative Preferred Stock") and 20,000 shares of Series B 12%
Convertible, Cumulative Preferred Stock ("Series B Preferred").  Each share of
preferred stock is entitled to receive an annual dividend, if, as and when
declared by the Board of Directors, payable as follows: (i) Series 2 Preferred
at the rate of $3.25 a share payable quarterly in arrears on June 15,
September 15, December 15, and March 15, which dividend is cumulative, (ii)
Non Cumulative Preferred Stock at the rate of $10 a share payable April 1, and
(iii) Series B Preferred at the rate of $12.00 a share payable January 1,
which dividend is cumulative.  The Company did not pay cash dividends on its
Common Stock for many years.  During the first part of 1993, the Company's
Board of Directors approved the adoption of a policy as to the payment of cash
dividends on its outstanding Common Stock pursuant to which an annual cash
dividend of $.06 per share will be declared by the Board of Directors and paid
on the Company's outstanding shares of Common Stock payable at $.03 per share
semiannually, subject to change or termination by the Board of Directors at
any time.  The Company paid a cash dividend of $.03 a share on its outstanding
Common Stock on July 1, 1994, and January 1, 1995; however, there are no
assurances that this policy will not be terminated or changed by the Board of
Directors.  See Notes 9,10 and 11 of Notes to Consolidated Financial
Statements.

  Under the terms of a loan agreement between the Company and its lender,
the Company may, so long as no event of default has occurred and is continuing
under the loan agreement, make currently scheduled dividends and pay dividends
on its outstanding preferred stock and pay annual dividends on its Common
Stock equal to $.06 per share.

  Under the terms of a term loan agreement between El Dorado Chemical
Company ("EDC"), EDC's wholly owned subsidiary, Slurry Explosive Corporation
("SEC") and certain lenders, EDC cannot transfer funds to the Company in the
form of cash dividends or other advances, except (i) for the amount of taxes
that EDC would be required to pay if it was not consolidated with the Company
and (ii) an amount equal to twenty-five percent (25%) of EDC's cumulative
adjusted net income (as reduced by cumulative net losses), as defined, any
time EDC has a Total Capitalization Ratio, as defined, greater than .65:1 and
after EDC has a Total Capitalization Ratio of .65:1 or less, 50% of EDC's
cumulative adjusted net income (as reduced by cumulative net losses).  See
Note 7 of Notes to Consolidated Financial Statements and "Management's
Discussion and Analysis".

  The Company is a holding company and, accordingly, its ability to pay
dividends on its preferred stock and its common stock is dependent in large
part on its ability to obtain funds from its subsidiaries.  The ability of EDC
and SEC to pay dividends to the Company, to fund the payment of dividends by
the Company or for other purposes, is restricted by certain agreements to
which they are parties.

  On February 17, 1989, the Company's Board of Directors declared a
dividend to its stockholders of record on February 27, 1989, of one preferred
stock purchase right on each of the Company's outstanding shares of common
stock.  The rights expire on February 27, 1999.  The Company issued the
rights, among other reasons, in order to assure that all of the Company's
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against partial tender abusive tactics to
gain control of the Company.  The rights will become exercisable only if a
person or group acquires beneficial ownership of 30% or more of the Company's
common stock or announces a tender or exchange offer the consummation of which
would result in the ownership by a person or group of 30% or more of the
common stock, except any acquisition by Jack E. Golsen, Chairman of the Board
and President of the Company, and certain other related persons or entities.  

  Each right (other than the rights, owned by the acquiring person or
members of a group that causes the rights to become exercisable, which became
void) will entitle the stockholder to buy one one-hundredth of a share of a
new series of participating preferred stock at an exercise price of $14.00 per
share.  Each one one-hundredth of a share of the new preferred stock
purchasable upon the exercise of a right has economic terms designed to
approximate the value of one share of the Company's common stock.  If another
person or group acquires the Company in a merger or other business combination
transaction, each right will entitle its holder (other than rights owned by
that person or group, which become void) to purchase at the right's then
current exercise price, a number of the acquiring company's common shares
which at the time of such transaction would have a market value two times the
exercise price of the right.  In addition, if a person or group (with certain
exceptions) acquires 30% or more of the Company's outstanding common stock,
each right will entitle its holder, (other than the rights owned by the
acquiring person or members of the group that results in the rights becoming
exercisable, which become void), to purchase at the right's then current
exercise price, a number of shares of the Company's common stock having a
market value of twice the right's exercise price in lieu of the new preferred
stock.

  Following the acquisition by a person or group of beneficial ownership
of 30% or more of the Company's outstanding common stock (with certain
exceptions) and prior to an acquisition of 50% or more of the Company's common
stock by the person or group, the Board of Directors may exchange the rights
(other than rights owned by the acquiring person or members of the group that
results in the rights becoming exercisable, which become void), in whole or in
part, for shares of the Company's common stock.  That exchange would occur at
an exchange ratio of one share of common stock, or one one-hundredth of a
share of the new series of participating preferred stock, per right.

  Prior to the acquisition by a person or group of beneficial ownership of
30% or more of the Company's common stock (with certain exceptions) the
Company may redeem the rights for one cent per right at the option of the
Company's Board of Directors.  The Company's Board of Directors also has the
authority to reduce the 30% thresholds to not less than 10%.






Item 6. SELECTED FINANCIAL DATA - ------- ----------------------- Years ended December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (Dollars in Thousands, except per share data) Selected Statement of Operations Data: Net sales $245,025 $232,616 $198,373 $177,035 $196,577 ======== ======== ======== ======== ======== Total Revenues $249,969 $237,529 $200,217 $180,238 $198,931 ======== ======== ======== ======== ======== Interest expense $ 6,949 $ 7,507 $ 9,225 $ 10,776 $ 11,126 ======== ======== ======== ======== ======== Income (loss) from continuing operations before extraordinary items $ 983 $ 11,235 $ 6,985 $ (3,190) $ 2,919 ======== ======== ======== ======== ======== Net income (loss) $ 24,467 $ 12,399 $ 9,255 $ (1,147) $ (9,121) ======== ======== ======== ======== ======== Net income (loss) applicable to common stock $ 21,232 $ 10,357 $ 7,428 $ (3,090) $(11,107) ======== ======== ======== ======== ======== Primary earnings (loss) per common share: Income (loss) from continuing operations before extraordinary items $ (.16) $ .69 $ .66 $ (.81) $ .17 ======== ======== ======== ======== ======== Net income (loss) $ 1.54 $ .77 $ .94 $ (.48) $ (2.02) ======== ======== ======== ======== ======== Item 6. SELECTED FINANCIAL DATA (Continued) - ------- ----------------------------------- Years ended December 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- (Dollars in Thousands, except per share data) Selected Balance Sheet Data: Total Assets $221,281 $196,038 $166,999 $158,383 $192,754 ======== ======== ======== ======== ======== Long-term debt, including current portion $ 91,681 $ 90,395 $ 51,332 $ 56,807 $ 57,796 ======== ======== ======== ======== ======== Redeemable preferred stock $ 152 $ 155 $ 163 $ 179 $ 186 ======== ======== ======== ======== ======== Non-redeemable preferred stock, common stock, and other stockholders' equity, net $ 90,599 $ 74,871 $ 18,339 $ 10,352 $ 13,481 ======== ======== ======== ======== ======== Selected other Data: Cash dividends declared per common share $ .06 $ .06 $ - $ - $ - ======== ======== ======== ======== ========
Information for years 1993 and prior has been restated to reflect the results and sale of Equity Bank in 1994 as a discontinued operation - See Note 3 of Notes to Consolidated Financial Statements. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------ --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with a review of the Company's December 31, 1994 Consolidated Financial Statements, Item 6 "SELECTED FINANCIAL DATA" and Item 1 "BUSINESS" included elsewhere in this report. Overview - -------- The Company is a diversified holding company which is engaged, through its subsidiaries, in the Chemical Business, the Environmental Control Business, the Automotive Products Business and the Industrial Products Business . The Chemical Business accounted for approximately 43% of the Company's assets at December 31, 1994. The Chemical Businessand the Environmental Control Business accounted for approximately 54% and 29%, respectively, of the Company's sales for the year ended December 31, 1994. Operating profit of the Company increased from $22.9 million in 1992, to $26.2 million in 1993, then decreased to $10.7 million in 1994. As a result of significantly lower operating profit, the Company's net income from continuing operations was approximately $1.0 million in 1994, as compared to $11.2 million in 1993 and $7.0 million in 1992. As previously discussed in this report, in 1994 the Company sold Equity Bank for Savings F.A. ("Equity Bank"), which comprised the Company's Financial Services Business. See "Liquidity and Capital Resources" of this Management's Discussion and Analysis,and Note 3 of Notes to Consolidated Financial Statements for further discussion of the sale of Equity Bank. Results of Operations - --------------------- Comparison of 1994 with 1993 Revenues Total revenues for the years ended December 31, 1994 and 1993 were $250.0 million and $237.5 million, respectively (an increase of $12.5 million). Sales increased $12.4 million. Net Sales Consolidated net sales for 1994 were $245.0 million, compared to $232.6 million for 1993, an increase of $12.4 million or 5.3%. This increase in sales resulted principally from: (i) increased sales in the Chemical Business of $16.6 million, primarily due to favorable weather conditions for seasonal fertilizer sales, the higher price of ammonia being partially passed through to customers and inclusion of Total Energy Systems, Limited ("TES") for a full year in 1994 compared to only five months in 1993; (ii) increased sales in the Automotive Products Business of $3.8 million due to an expanded customer base in 1994 and the acquisition of International Bearings, Inc., in December 1993; and (iii) decreased sales in the Industrial Products Business of $8.5 million, primarily due to decreased sales to a foreign customer (see Note 6 of Notes to Consolidated Financial Statements and discussion under the "Liquidity and Capital Resources" section of this report). Gross Profit Gross profit was 21.7% of sales for 1994, compared to 25.0% of sales for 1993. The decline in gross profit percentage was due primarily to higher cost of the primary raw material (ammonia) in the Chemical Business. During 1994 the average cost of ammonia was approximately 46.4% higher than the average cost of ammonia during 1993. The Chemical Business was not able to pass on to its customers a substantial amount of the higher ammonia cost in the form of price increases in 1994. Additionally, gross profit was reduced in 1994 by $1.3 million due to cost overruns associated with a sale to a foreign customer in the Industrial Products Business being accounted for on the percentage of completion method. Other factors which affected the gross profit percentage were improved gross profit after recovery from the effects of a strike in 1992 at the fan coil manufacturing plant of the Environmental Control Business that were still being experienced in 1993; and, decreased sales to the foreign customer mentioned above which carried a high gross profit percentage in 1993. Selling, General and Administrative Expense Selling, general and administrative ("SG&A") expenses as a percent of net sales were 20.1% in 1994 and 18.7% in 1993. This increase in SG&A as a percent of sales was primarily due to: (i) decreased sales to a foreign customer in the Industrial Products Business with no corresponding reduction in SG&A costs; (ii) increased insurance costs in the Industrial Products Business resulting from settlement of certain claims; (iii) loss reserves placed on loans to potential acquisition candidates in the Automotive Products and Environmental Control Businesses; and (iv) low provision for bad debt expenses in 1993 in the Environmental Control Business compared to the provision in 1994. These factors were offset in part by a decrease in legal costs resulting from settlement of the customs matter in the second quarter of 1993 and settlement of a dispute with one of the Company's insurers in the first quarter of 1994, in addition to sales increases due to higher ammonia prices in the Chemical Business with no corresponding increase in SG&A costs. Interest Expense Interest expense for the Company was approximately $6.9 million during 1994, compared to approximately $7.5 million during 1993. The decrease primarily resulted from the capitalization of approximately $.5 million in 1994 related to the purchase and construction of the Nitric Acid Plant in El Dorado, Arkansas as discussed in Item 2 "PROPERTIES - Chemical Business". Write-off of Costs Associated with Abandoned Acquisition Prospects Results of operation for 1994 include approximately $1.2 million in costs expended in pursuit of acquisition prospects which the Company chose to abandon. Subsequent to year end, a decision was made to discontinue the evaluation to manufacture fertilizer in Indonesia and to charge-off a loan made in connection with a potential acquisition of 80% of a specialty chemical manufacturer of iodine derivatives. Income From Continuing Operations Before Taxes The Company had income from continuing operations before income taxes of $.3 million in 1994 compared to $12.0 million in 1993. The decreased profitability of $11.7 million was primarily due to lower gross profit of approximately $6.5 million realized on sales in the Chemical Business due to unrecovered ammonia price increases in 1994 that the Chemical Business was unable to pass on as price increases during 1994 and decreased profit of $6.2 million from the foreign sales contract as discussed in Note 6 of Notes to Consolidated Financial Statements. Also contributing to this decline is the $.5 million provision for the environmental matter discussed in Note 12 of Notes to Consolidated Financial Statements and $1.2 million in costs associated with abandoned acquisition prospects, as discussed above. Provision For Income Taxes As a result of the Company's net operating loss carryforward for income tax purposes as discussed elsewhere herein and in Note 8 of Notes to Consolidated Financial Statements, the Company's provisions for income taxes for 1994 and 1993 are for current state income taxes and federal alternative minimum taxes. In 1994, the Company recognized a provision for alternative minimum taxes associated with its discontinued Financial Services Business of $1.3 million with an offsetting benefit to continuing operations as a result of utilization of the Company's alternative minimum tax net operating loss carryforward not otherwise available to the Financial Services Business. Income From Discontinued Operations Income from discontinued operations reflects the results of operations of the Financial Services Business as discussed in Note 3 of Notes to Consolidated Financial Statements. Income from discontinued operations, net of expenses, was $.6 million in 1994 compared to $1.2 million in 1993. Gain From Disposal of Discontinued Operations As more fully discussed in "Liquidity and Capital Resources - Sale of Equity Bank" of this Management's Discussion and Analysis and in Note 3 of Notes to Consolidated Financial Statements, the Company realized a gain of $24.2 million before income taxes from the sale on May 25, 1994 of its wholly- owned subsidiary Equity Bank, which gain is included in the Company's results of operations for 1994. Comparison of 1993 with 1992 Revenues Total revenues for the years ended December 31, 1993 and 1992 were $237.5 millon and $200.2 million, respectively (an increase of $37.3 million). Other income included in total revenues was $4.9 million in 1993, compared to $1.8 million for 1992. This increase resulted primarily from higher proceeds on real estate sold in 1993 than in 1992. Net Sales Consolidated net sales for the year 1993 were $232.6 million, compared to $198.4 for the year 1992, an increase of $34.2 million or 17.2%. This increase in sales resulted principally from: (i) increased sales in the Chemical Business of $8.9 million, primarily due to the acquisition ofTES in July, 1993, sales by Slurry Explosive Corporation ("Slurry") to an expanded customer base for twelve months in 1993 compared to only eleven months in 1992, and sales of Universal Tech Corporation ("UTC"), which was acquired in September, 1992, offset by reduced sales by El Dorado Chemical Company due to the effects of coal mine strikes in the eastern United States; (ii) increased sales in the Environmental Control Business of $14.6 million, primarily due to an expanded customer base in 1993 and the effects in 1992 of a strike at the fan coil manufacturing plant of this business; (iii) increased sales in the Automotive Products Business of $8.5 million due to an expanded customer base in 1993; and (iv) increased sales in the Industrial Products Business of $2.2 million, primarily due to increased sales to a foreign customer (see Note 6 of Notes to Consolidated Financial Statements and discussion under the "Liquidity and Capital Resources" section of this Management's Discussion and Analysis). Gross Profit Gross profit was 25.0% of sales for 1993, compared to 26.2% of sales for 1992. The decline in the gross profit percentage was due primarily to (i) lower efficiency in the heat pump manufacturing plant of the Environmental Control Business as a result of period costs associated with start up of production requirements related to an agreement entered into with a major United States air conditioning company; (ii) a shift in sales mix in the Industrial Products Business to lower margin items; and (iii) higher cost of the primary raw material (ammonia) in the Chemical Business. During 1993 the average cost of ammonia was approximately 12.2% higher than the average cost of ammonia during 1992. This higher cost was not fully passed on to customers in the form of price increases. These factors were offset in part by gross profits recognized on the foreign sales contract (See Note 6 of Notes to Consolidated Financial Statements) of $5.3 million in 1993, compared to only $3.6 million in 1992, and the effects in 1992 of a strike at the fan coil manufacturing plant of the Environmental Control Business. Selling, General and Administrative Expense Selling, general and administrative expense as a percent of net sales was 18.7% in both 1993 and 1992. Interest Expense Interest expense for the Company was approximately $7.5 million during 1993 compared to approximately $9.2 million during 1992. The decrease primarily resulted from lower interest rates and lower average balances of borrowed funds. Income From Continuing Operations Before Taxes The Company had income from continuing operations before income taxes of $12.0 million in 1993, compared to $7.4 million in 1992. The improved profitability of $4.6 million, after the one time charge to expense of $1.8 million for settlement of a dispute with Customs, was due to higher sales in the Chemical, Environmental Control, and Automotive Products businesses, and an increase of $1.7 million in estimated earnings on the foreign sales contract. Provision For Income Taxes As a result of the Company's net operating loss carryforward for income tax purposes as discussed elsewhere herein and in Note 8 of Notes to Consolidated Financial Statements, the Company's provisions for income taxes for 1993 and 1992 are for current state income taxes and federal alternative minimum taxes. Income From Discontinued Operations Income from discontinued operations reflects the results of operations of the Financial Services Business as discussed in Note 3 of Notes to Consolidated Financial Statements. Income from discontinued operations, net of expenses, was $1.2 million in 1993 compared to $2.3 million in 1992. Liquidity and Capital Resources - ------------------------------- The Company is a diversified holding Company and its liquidity is dependent, in large part, on the operations of its subsidiaries and credit agreements with lenders. Sale of Equity Bank - On May 25, 1994, pursuant to a Stock Purchase Agreement dated as of February 9, 1994 (the "Acquisition Agreement") , the Company sold to Fourth Financial Corporation ("Fourth Financial") Equity Bank for Savings, F.A., ("Equity Bank"), which constituted the Financial Services Business of the Company. Pursuant to the Acquisition Agreement, Fourth Financial acquired all of the outstanding shares of capital stock of Equity Bank. Under the Acquisition Agreement, the Company acquired from Equity Bank prior to the completion of the sale of Equity Bank certain subsidiaries of Equity Bank ("Retained Corporations") that owned the assets contributed by the Company to Equity Bank at the time of the acquisition of Equity Bank by the Company for Equity Bank's carrying values of such Retained Corporations. At the time of the acquisition of the Retained Corporations, Equity Bank's carrying value of the Retained Corporations was approximately $67.4 million. At the time of the closing of the sale of Equity Bank, a subsidiary of the Company acquired the Equity Tower Loan and other real estate owned by Equity Bank that had been acquired by Equity Bank through foreclosure ("OREO"), which are collectively referred to as the "Retained Assets". The Retained Assets were acquired for an amount equal to Equity Bank's carrying value of the Retained Assets at time of closing of the sale of Equity Bank, which was approximately $17.5 million. In addition, the Company acquired (i) certain loans owned by Equity Bank at book value or $1.00 in the case of loans that had been charged off ("Other Loans") and (ii) certain other loans at Equity Bank's net carrying value of $3.1 million. The Purchase Price paid by Fourth Financial for Equity Bank was approximately $91.1 million. Of the approximately $91.1 million, the Company used approximately $67.4 million to repay certain indebtedness the Company incurred to finance the purchase from Equity Bank of the Retained Corporations. In addition, the Company used approximately $17.5 million to purchase the Retained Assets. The Company was further required under the Acquisition Agreement to purchase from Equity Bank at the closing of the proposed sale the outstanding amount of the Company's trade receivables previously sold by the Company and certain of its subsidiaries to Equity Bank (the "Receivables") (approximately $6.9 million). The Company used cash and approximately $3.0 million of borrowings from a line of credit provided by Fourth Financial through its Bank IV subsidiary which line of credit was replaced by the $65 million line of credit facility discussed elsewhere in this Liquidity and Capital Resources section, to purchase the balance of such Receivables and $3.1 million of net loans (as discussed above) from Equity Bank. The Company has subsequently obtained seven year term financing to replace the temporary financing of approximately $2.7 million of the loans it purchased from Equity Bank. The sale of Equity Bank pursuant to the Acquisition Agreement resulted in a pre-tax gain for financial reporting purposes for the Company of approximately $24.2 million, based upon the Purchase Price of approximately $91.1 million. The Company's tax basis in Equity Bank was higher than its basis for financial reporting purposes. Consequently, the income tax effect of the sale of Equity Bank is limited to a charge for alternative minimum tax. Sources of funds - As a result of the sale of Equity Bank, the capitalization of the Company improved considerably. Stockholders' equity is approximately $91 million at December 31, 1994. In December 1994, the Company and certain of its subsidiaries finalized a new working capital line of credit. This line of credit consolidates substantially all of the Company's working capital requirements into one comprehensive funding source. This working capital line of credit is evidenced by six separate loan agreements ("Agreements") with an unrelated lender ("Lender") collateralized by receivables, inventory and proprietary rights of the Company and the subsidiaries that are parties to the Agreements. The Agreements provide for revolving credit facilities ("Revolver") for total direct borrowings up to $65 million, including the issuance of letters of credit. The Revolver provides for advances at varying percentages of eligible inventory and trade receivables and bears interest at the Lender's prime lending rate plus one- half percent (.50%). The rate in effect at December 31, 1994 was 9.00%. The initial term of the Agreements is through December 31, 1997, and is renewable thereafter for successive thirteen month terms. The Lender or the Company may terminate the Agreements at the end of the initial term or at the end of any renewal term without penalty, except that the Company may terminate the Agreements after the second anniversary of the Agreements without penalty. At December 31, 1994, the available borrowings, based on eligible collateral, approximated $9.2 million. Borrowings under the Revolver outstanding at December 31, 1994, were $44.4 million. The Agreements require the Company to maintain certain financial ratios and contain other financial covenants, including tangible net worth requirements and capital expenditure limitations. The annual interest on the outstanding debt under the Revolver at December 31, 1994 at the rate then in effect would be approximately $4 million. In addition to the Agreements discussed above, the Company has the following term loans in place: (1) The Company's wholly-owned subsidiaries, El Dorado Chemical Company and Slurry Explosive Corporation ("Chemical"), which substantially comprise the Company's Chemical Business, are parties to a loan agreement ("Loan Agreement") with two institutional lenders ("Lenders"). This Loan Agreement, as amended, provides for a seven year term loan of $28.5 million ("Term Loan"). The balance of the Term Loan at December 31, 1994 was $15.8 million. Annual principal payments on the Term Loan are $5.1 million in 1995, $5.2 million in 1996 and a final payment of $5.5 million on March 31, 1997. The Loan Agreement also provides for a revolving credit facility which provides for a maximum available credit line of approximately $5.6 million at December 31, 1994. The availability under this facility reduces by $1.8 million annually in 1995 and 1996 with the remainder due in March 1997. Annual interest at the agreed to interest rates, if calculated on the aggregate $21.4 million outstanding balance at December 31, 1994 would be approximately $2.6 million. The Term Loan is secured by substantially all of the assets not otherwise pledged under the credit facility previously discussedand capital stock of Chemical. The Loan Agreement requires Chemical to maintain certain financial ratios and contains other financial covenants, including tangible net worth requirements and capital expenditures limitations. As of the date of this report, Chemical is in compliance with all financial covenants. Under the terms of the Loan Agreement, Chemical cannot transfer funds to the Company in the form of cash dividends or other advances, except for (i) the amount of taxes that Chemical would be required to pay if it was not consolidated with the Company; (ii) an amount equal to fifty percent (50%) of Chemical's cumulative adjusted net income as long as Chemical's Total Capitalization Ratio, as defined, is .65:1 or below. (2) The Company's wholly-owned subsidiary, DSN Corporation ("DSN") is a party to several loan agreements with a financing company (the "Financing Company") for two (2) projects which DSN will complete during 1995. These loan agreements are for a construction loan (the "Construction Loan") which provides for $12.5 million to be used to construct, equip, reerect and refurbish a nitric acid plant (the "DSN Plant") being placed into service by the Chemical Business at it's El Dorado Arkansas facility and a loan for approximately $1.1 million to finance the construction of a mixed acid plant in North Carolina (the "Mixed Acid Loan"). The Construction Loan will be repaid upon the earlier of completion of construction and acceptance of the DSN Plant as capable of production or March 31, 1995, with proceeds of a permanent loan ("DSN Permanent Loan"). The DSN Permanent Loan will have a repayment schedule of eighty-four (84) equal consecutive monthly installments of principal and interest, payable in arrears. The interest rate per annum will fix for the entire loan term at the rate per annum for a five year United States Treasury Security ("Treasury Rate") as determined at the close of business on the third business day prior to the making of the DSN Permanent Loan plus 2.70%. As of March 24, 1995, the Treasury Rate was 6.91%, resulting in an interest rate of 9.61%. The Mixed Acid Loan will be repaid under the same terms as the Construction Loan. Upon the earlier of completion of construction of the referenced mixed acid plant or August 1, 1995, the Mixed Acid Loan will have a repayment schedule of eighty-four (84) equal consecutive monthly installments of principal and interest, payable in arrears. The rate of interest on the Mixed Acid Loan will be the Treasury Rate, as defined above, plus 2.70%. Foreign Subsidiary Financing - On March 7, 1995 the Company guaranteed a revolving credit facility (the "Facility") entered into between its wholly- owned Australian subsidiary Total Energy Systems Ltd. ("TES") and Bank of New Zealand. The Facility is intended to assist TES in meeting its working capital and trade finance requirements. The Facility allows for borrowings up to an aggregate of approximately $3.7 million based on specific percentages of qualified eligible assets. Such debt is secured by substantially all the assets of TES, plus an unlimited guarantee and indemnity from the Company. The interest rate on this debt is the Bank of New Zealand Corporate Base Lending Rate plus 0.5% (11.5% at March 7, 1995). The Facility is subject to renewal at the discretion of Bank of New Zealand based upon annual review. The next annual review is due on March 31, 1996. Cash Flows - Net cash provided by operating activities of continuing operations in 1994, after adjustment for net non-cash expenses of $9.3 million, was $6.7 million. This cash increase consisted of the following changes in assets and liabilities: (i) decreases in accounts receivable of $3.9 million, (ii) inventory increases of $13.7 million, (iii) increases in supplies and prepaid items of $0.9 million, and (iv) increases in accounts payable and accrued liabilities of $7.1 million. The decrease in accounts receivable was due primarily to the collection of a 1993 receivable in 1994 for a large insurance settlement in the Industrial Products Business, in addition to collections on certain long outstanding accounts in the Industrial Products Business. The increase in inventory was due primarily to (i) increases in the Automotive Products Business for the build-up of inventory levels at a new subsidiary acquired in December 1993, (ii) higher than normal purchases from certain foreign vendors by the Automotive Products Business in advance of anticipated cost increases (iii) build up of heat pump inventory in the Environmental Control Business in anticipation of sales increases in 1995, (iv) increases in raw material (ammonia) costs in the Chemical Business and (v) build up in inventory at the Chemical Business' Australian subsidiary, which was acquired in 1993, due to expansion of that operation. The increase in supplies and prepaid items resulted primarily from increases in supplies, security deposits, and prepaid costs in the Chemical Business. The increase in accounts payable and accrued liabilities was due primarily to the increases in inventory levels as described above. Investing activities during 1994 included (i) capital expenditures of $15.6 million, due primarily to the Chemical Business' construction of a new nitric acid production facility, in addition to normal expenditures in the Chemical Business and expenditures in the Environmental Control Business to improve the manufacturing processes of that business; (ii) sales of real estate and equipment which generated proceeds of $4.4 million; (iii) a purchase in connection with the sale of Equity Bank of certain loans for $3.1 million; (iv) principal payments on notes receivable; and (v) an increase in other assets of $5.6 million, due primarily to loans made in connection with certain pending acquisitions, investment in equity securities, and deferred costs of certain long term projects. Cash flows provided by financing activities included net borrowings of $56.5 million, offset by repurchases of accounts receivable from Equity Bank of $33.6 million, dividends paid of $4.0 million, and treasury stock purchases of $5.0 million. In summary, during 1994, recurring cash requirements for required debt service payments, dividends on Company stocks and purchases of treasury stock exceeded cash provided from operations by approximately $11.0 million. In addition, the Company spent approximately $3.0 million for capital improvements, primarily in the Environmental Control Business and Chemical Business, to improve manufacturing capabilities and $11.0 million in connection with the DSN Plant being constructed by the Chemical Business. The Company also spent approximately $3.6 million for prospective acquisition related activities. The expenditures noted above exceeded cash provided from operations by approximately $28.6 million. Of this excess, $13.4 million was funded by borrowings against the Company's revolving credit facilities, $12.8 million was borrowed from DSN's lender and the balance of $2.4 million was funded through other financings, principally real estate financing. Future cash requirements include working capital requirements for anticipated sales increases in all Businesses, and funding for future capital expenditures, primarily in the Chemical Business and the Environmental Control Business. Funding for the higher accounts receivable resulting from anticipated sales increases will be provided by the revolving credit facilities previously discussed. Inventory requirements for the higher anticipated sales activity should be met by scheduled reductions in the inventories of the Environmental Control and Automotive Products Businesses, both of which increased their inventories in 1994 beyond required levels. In 1995, the Company has incurred another $4.0 million to complete installation of the new plant, which is expected to begin full production by May, 1995. The Company also has planned capital expenditures for the Environmental Control Business to acquire certain machinery and equipment for approximately $3.0 million in 1995. Management believes that cash flows from operations, the Company's revolving credit facilities, and other sources will be adequate to meet its presently anticipated capital expenditure, working capital, debt service and dividend requirements. The Company currently has no material commitment for capital expenditures, other than those related to Chemical's completion of an additional concentrated nitric acid plant and a mixed acid plant as discussed above. During 1994, the Company declared and paid the following aggregate dividends: (1) $12.00 per share on each of the outstanding shares of its Series B 12% Cumulative Convertible Preferred Stock; (2) $3.25 per share on each outstanding share of its $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2; (3) $10.00 per share on each outstanding share of its Convertible Noncumulative Preferred Stock; and (4) $.06 per share on its outstanding shares of Common Stock. The Company expects to continue the payment of such dividends in the future in accordance with the policy adopted by the Board of Directors and the terms inherent to the Company's various preferred stocks. Foreign Sales Contract - A subsidiary of the Company entered into an agreement with a foreign company ("Buyer") to supply the Buyer with equipment, technology and technical services to manufacture certain types of automotive bearing products. The agreement provides for a total contract amount of approximately $56.0 million, with $12.0 million of the contract amount to be retained by the Buyer as the Company's subsidiary's equity participation in the Buyer, which represented a minority interest. During 1993, the Company's subsidiary exchanged its equity participation in the Buyer for $12.0 million in notes. Through December 31, 1994, the Company's subsidiary has received $13.9 million from the buyer under the agreement. During 1993, the Company and the foreign customer agreed to a revised payment schedule which deferred the beginning of payments under the contract from June 30, 1993 to one $791,000 principal payment on November 1, 1993 and then principal payments of $791,000 due March 31, 1994 and quarterly, thereafter, until the contract is paid in full. The customer made the quarterly payments due November 1, 1993 and March 31, 1994. The quarterly payments due subsequent to March 31, 1994 have not been received. See Item 1 "BUSINESS - Industrial Products Business" and Note 6 of Notes to Consolidated Financial Statements. Potential Business Acquisitions - During 1994 the Company, through a subsidiary, loaned $2.1 million to a French manufacturer of HVAC equipment. Under the loan agreement, the Company has the option to exchange its rights under the loan for 80% of the borrower's outstanding common stock. The Company obtained a security interest in the stock of the french manufacturer to secure its $2.1 million loan. At this time the decision has not been made to exercise such option and the $2.1 million loan net of a $650,000 reserve is carried on the books as a note receivable in other assets. The Company is presently negotiating a stock option agreement to acquire eighty percent (80%) of the stock of a specialty sales organization to enhance the marketing of the Company's air conditioning products. The Company anticipates that the stock option will have a four (4) year term, and a total option granting price of $1.0 million payable in installments during the first year of the stock option, with annual $100,000 payments for yearly extensions of the stock option thereafter for up to three (3) years. Upon exercise of the stock option by the Company, or upon the occurrence of certain performance criteria which would give the grantors of the stock option the right to accelerate the date on which the Company must elect whether to exercise, the Company shall issue promissory notes for the exercise price of the subject shares. The total exercise price of the subject shares is $4.0 million, less the amounts paid for the granting and any extensions of the stock option. The Company expects to obtain the stock option in 1995, however, there are no assurances that such stock option will be obtained or that it will ultimately be exercised. A subsidiary of the Company has indicated a willingness to invest approximately $2.8 million to purchase a fifty percent (50%) equity interest in an energy conservation joint venture (the "Project"). The purchase is contingent on, among other things, the developer closing financing for the Project. The Project was awarded a $17.9 million performance contract to retrofit residential housing units at a U.S. Army base. The contract calls for installation of energy-efficient equipment (including air conditioning and heating equipment), which will reduce utility consumption. For the installation and management, the Project will receive an average of seventy- seven percent(77%) of all energy and maintenance savings during the twenty (20) year contract term. The Company anticipates that the developer will obtain financing and the Company will invest in the Project, however, there are no assurances that such will happen. The Company believes it will be able to finance the cash requirements associated with the stock option agreement and the Project from existing cash reserves and cashflow from Company operations in the event the Company consumates either of the two prospects discussed in the two preceeding paragraphs. Additionally, the Company is performing due diligence on some other small companies that might result in acquisitions in 1995 or later. Any such acquisitions consummated will require additional financing which the Company believes can be obtained. Settlement of Litigation - In 1994, the Company settled its litigation with one of it's insurers for $3.6 million, which was paid to the Company on March 11, 1994. Such amounts were accrued in the fourth quarter of 1993 to the extent that costs and expenses had been previously incurred. Availability of Company's Loss Carryovers - The Company anticipates that its cash flow in future years will benefit to some extent from its ability to use net operating loss ("NOL") carryovers from prior periods to reduce the federal income tax payments which it would otherwise be required to make with respect to income generated in such future years. As of December 31, 1994, the Company had available NOL carryovers of approximately $42.9 million, based on its federal income tax returns as filed with the Internal Revenue Service for taxable years through 1993, and on the Company's estimates for 1994. These NOL carryovers will expire beginning in the year 1999. The amount of these carryovers has not been audited or approved by the Internal Revenue Service and, accordingly, no assurance can be given that such carryovers will not be reduced as a result of audits in the future. In addition, the ability of the Company to utilize these carryovers in the future will be subject to a variety of limitations applicable to corporate taxpayers generally under both the Internal Revenue Code of 1986, as amended, and the Treasury Regulations. These include, in particular, limitations imposed by Code Section 382 and the consolidated return regulations. Contingencies - As discussed in Item 3 and in Note 12 of Notes to Consolidated Financial Statements, the Company has several contingencies that could impact its liquidity in the event that the Company is unsuccessful in defending against the claimants. Although management does not anticipate that these claims will result in substantial adverse impacts on its liquidity, it is not possible to determine the outcome. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ ------------------------------------------- The Company has included the financial statements and supplementary financial information required by this item immediately following Part IV of this report and hereby incorporates by reference the relevant portions of those statements and information into this Item 8. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------ ----------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- No disagreements between the Company and its accountants have occurred within the 24-month period prior to the date of the Company's most recent financial statements. PART III --------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - ------- ----------------------------------------------- Directors. The Company's Certificate of Incorporation and Bylaws provide for the division of the Board of Directors into three classes, each class consisting (as nearly as possible) of one-third of the whole. The terms of office of one class of directors expires each year, with each class of directors being elected for a term of three years and until the shareholders or directors have elected or appointed their qualified successors. The Company's bylaws presently provide that the number of directors may consist of not less than three nor more than nine, and the Board of Directors presently has set the number of directors at nine. The following table sets forth the name, principal occupation, age, year in which the individual first became director, and year in which the director's term will expire. Name and First Became Term Principal Occupation a Director Expires Age - -------------------- ------------- ------- --- Raymond B. Ackerman (1) 1993 1996 72 Chairman Emeritus of Ackerman McQueen, Inc. Robert C. Brown, M.D. (2) 1969 1995 64 President of Northwest Internal Medicine Associates, Inc. Barry H. Golsen (3) 1981 1997 44 Vice Chairman of the Board of Directors of the Company and President of the Environmental Control Business of the Company Jack E. Golsen (4) 1969 1995 66 President and Chairman of the Board of Directors of the Company David R. Goss (5) 1971 1997 54 Senior Vice President - Operations of the Company Bernard G. Ille (6) 1971 1996 68 Investments Jerome D. Shaffer, M.D. (7) 1969 1997 78 Investments Tony M. Shelby (8) 1971 1996 53 Senior Vice President - Finance of the Company C.L. Thurman (9) 1969 1995 76 Investments - ---------------------------------- (1) Mr. Ackerman retired in 1992 from Ackerman McQueen, Inc.. Prior to his retirement, he served for more than five years as President of Ackerman McQueen, Inc., which is a public relations and advertising firm, located in Oklahoma. (2) Dr. Brown has practiced medicine in Oklahoma City, Oklahoma for the past five years. (3) For the past five years, Barry H. Golsen has served as the President of the Company's Environmental Control Business. Mr. Golsen was elected Vice Chairman of the Board of Directors on August 18, 1994. (4) Mr. Golsen has served in the same capacity with the Company for the past five years. (5) Mr. Goss, a certified public accountant, has served in substantially the same capacity with the Company for the past five years. (6) Mr. Ille served as President and Chief Executive Officer of First Life Assurance Company ("First Life") from May, 1988, to March 31, 1994, when he retired from that position. In 1991, First Life was placed in conservatorship under the Oklahoma Department of Insurance and was sold on March 31, 1994. For more than five (5) years prior to that time, Mr. Ille also served as President of United Founders Life Insurance Company. Mr. Ille also serves as a director of Landmark Land Company Inc. ("Landmark") and served as a director of Landmark's wholly-owned savings and loan subsidiary. Such savings and loan subsidiary was placed in receivership in 1991 by the Federal Deposit Insurance Corporation while Mr. Ille served as a director. First Life was a subsidiary of Landmark until such was placed in conservatorship. (7) Dr. Shaffer retired from the practice of medicine in 1987. Prior to that time, Dr. Shaffer practiced medicine in Oklahoma City, Oklahoma, for more than five years. (8) Mr. Shelby, a certified public accountant, has served in substantially the same capacity with the Company during the past five years. (9) Prior to his retirement in September of 1987, from the Company, Mr. Thurman served as President of the industrial supply operations of the Company's Industrial Products Business for more than five years. Family Relationships. Jack E. Golsen is the father of Barry H. Golsen; Jack E. Golsen and Robert C. Brown, M.D., are brothers-in-law; and Robert C. Brown, M.D. is the uncle of Barry H. Golsen. Compliance with section 16(a) of the Exchange Act. Based solely on a review of copies of the Forms 3, 4 and 5 and amendments thereto furnished to the Company with respect to 1994, or written representations that no such reports were required to be filed with the Securities and Exchange Commission, the Company believes that during 1994 all directors and officers of the Company and beneficial owners of more than ten percent (10%) of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act filed their required Forms 3, 4, or 5, as required by Section 16(a) of the Exchange Act on a timely basis, except that Clifford L. Thurman filed two late Forms 4 relating to four transactions and Bernard G. Ille filed one late Form 4 relating to one transaction. Item 11. EXECUTIVE COMPENSATION - ------- ---------------------- The following table shows the aggregate cash compensation which the Company and its subsidiaries paid or accrued to the Chief Executive Officer and each of the other four (4) most highly-paid executive officers of the Company (which includes the President of the Company's Environmental Control Business, who also serves as Vice Chairman of the Board of Directors of the Company and who performs key policy making functions for the Company). The table includes cash distributed for services rendered during 1994, plus any cash distributed during 1994 for services rendered in a prior year, less any amount relating to those services previously included in the cash compensation table for a prior year. Summary Compensation Table --------------------------- Long-term Compen- sation Annual Compensation Awards ---------------------------- ------- Other All Annual Securities Other Compen- Underlying Compen- Name and Salary Bonus sation Stock sation Position Year ($) ($) ($)(2) Options ($)(3) - ------------ ---- ------ ----- ------ ------- ------ Jack E. Golsen 1994 429,423 150,000 - 165,000(4) 100,000 Chairman of the 1993 379,615 100,000 - - - Board, President 1992 359,395 160,000(1) - 50,000 - and Chief Executive Officer Barry H. Golsen 1994 176,769 90,000 - - 100,000 Vice Chairman of 1993 165,000 60,000 - - - the Board of 1992 168,671 100,000(1) - 10,000 - Directors and President of the Environmental Control Business David R. Goss 1994 146,708 90,000 - - 100,000 Senior Vice 1993 142,000 60,000 - - - President - 1992 145,099 100,000(1) - 10,000 - Operations Tony M. Shelby 1994 146,708 90,000 - - 100,000 Senior Vice 1993 142,000 60,000 - - - President/Chief 1992 144,975 100,000(1) - 10,000 - Financial Officer David M. Shear 1994 128,827 40,000 - - - Vice President/ 1993 111,846 30,000 - - - General Counsel 1992 98,032 20,000 - 25,000 - - ----------------------------- (1) Includes the following amounts paid in 1992 as bonuses for 1991: Jack E. Golsen - $60,000; Barry H. Golsen - $40,000; David R. Goss - $40,000; and Tony M. Shelby - $40,000. (2) Does not include perquisites and other personal benefits, securities or property for the named executive officer in any year if the aggregate amount of such compensation for such year does not exceed the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the named executive officer for such year. (3) In 1994, the Company paid to Messrs. J. Golsen, B. Golsen, Goss and Shelby an additional bonus of $100,000 each for their services as members of the Board of Directors of Equity Bank during the six years that the Company owned that financial business. (4) On June 1, 1989, the Company originally granted a nonqualified stock option to purchase 165,000 shares of the Company's Common Stock at an exercise price of $2.625 per share (the "NQSO"), which on the date of grant was the fair market value of the Company's Common Stock. Prior to the NQSO's expiration date of June 1, 1994, the Company granted an extension of the option period of the NQSO for an additional five (5) year period, beginning on June 1, 1994, and terminating on June 1, 1999 (the "Extended NQSO"). The Extended NQSO vests and becomes exercisable at twenty percent (20%) per year on June 1, 1995, 1996, and 1997, and the remaining forty percent (40%) becomes exercisable June 1, 1998. The exercise price of the Extended NQSO is $2.625 per share, the same as the original NQSO. The Extended NQSO shall become immediately exercisable in full upon the death of the optionee or a change in control of the Company, and the Board of Directors of the Company may, at its option, accelerate such vesting at any time. Option Grants in 1994 --------------------- The following table sets forth information relating to individual grants of stock options made to each of the named executive officers in the above Summary Compensation Table during the last fiscal year: Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term(2) --------------------------------- ----------------------------- % of Total Options Granted Exer- Options Emp- cise Expir- Granted loyees Price ration Name (#)(1) in 1994 ($/sh) Date 0%($) 5%($) 10%($) - -------------- ------ ------- ------ -------- ------- --------- --------- Jack E. Golsen 165,000 67.6% 2.625 6/01/99 948,651 1,210,743 1,527,812 - -------------------------- (1) On June 1, 1989, the Company originally granted a nonqualified stock option to purchase 165,000 shares of the Company's Common Stock at an exercise price of $2.625 per share (the "NQSO"), which on the date of grant was the fair market value of the Company's Common Stock. Prior to the NQSO's expiration date of June 1, 1994, the Company granted an extension of the option period of the NQSO for an additional five (5) year period, beginning on June 1, 1994, and terminating on June 1, 1999 (the "Extended NQSO"). The Extended NQSO vests and becomes exercisable at twenty percent (20%) per year on June 1, 1995, 1996, and 1997, and the remaining forty percent (40%) becomes exercisable June 1, 1998. The exercise price of the Extended NQSO is $2.625 per share, the same as the original NQSO. The Extended NQSO shall become immediately exercisable in full upon the death of the optionee or a change in control of the Company, and the Board of Directors of the Company may, at its option, accelerate such vesting at any time. (2) The potential realizable value of each grant of options assumes that the market price of the Company's Common Stock appreciates in value from the date of grant to the end of the option term at the annualized rates shown above each column. The actual value that the optionee may realize, if any, will depend on the amount by which the market price of the Company's Common Stock at the time of exercise exceeds the exercise price of the option. There is no assurance that the optionee will receive the amounts estimated in this table. The fair market value of a share of the Company's Common Stock was $8.375 on the date that the NQSO was extended as discussed in footnote (1) above, and $6.125 on March 31, 1995. Thus, the realizable value of the Extended NQSO on March 31, 1995, was $577,401, which is the difference between the exercise price of the Extended NQSO and the market value of the Company's Common Stock on March 31, 1995. Aggregated Option Exercises in 1994 and Fiscal Year End Option Values --------------------------------- The following table sets forth information concerning each exercise of stock options by each of the named executive officers during the last fiscal year and the year-end value of unexercised options: Number of Value Securities of Unexercised Underlying In-the-Money Unexercised Options at Options at FY End FY End (#)(3) ($) (3) (4) -------------- ------------ Shares Acquired Value on Exercise Realized Exercisable/ Exercisable Name (#)(1) ($) (2) Unexercisable Unexercisable - -------------- ----------- --------- ------------- ------------ Jack E. Golsen - $ - 10,000/ $ 28,120/ 195,000 (5) 682,485 Barry H. Golsen - - 14,000/ 62,468/ 6,000 16,872 David R. Goss - - 5,000/ 20,875/ 6,000 18,750 Tony M. Shelby - - 5,000/ 20,875/ 6,000 18,750 David M. Shear - - 8,000/ 30,250/ 15,000 46,875 - -------------------------------- (1) Each number represents the number of shares received by the named individual upon exercise. (2) The values set forth in the columns below are between the market value of the Company's common stock on the date the particular option was exercised and the exercise price of such option. (3) The options granted under the Company's Plans become exercisable 20% after one year from date of grant, an additional 20% after two years, an additional 30% after three years, and the remaining 30% after four years. (4) The values are based on the difference between the price of the Company's common stock on the New York Exchange at the close of trading on December 31, 1994 of $6.25 per share and the exercise price of such option. The actual value realized by a named executive on the exercise of these options depends on the market value of the Company's common stock on the date of exercise. (5) The amount shown includes 165,000 non-qualified stock options which vest and are exercisable 20% on June 1, 1995, June 1, 1996 and June 1, 1997 with the remaining 40% exercisable June 1, 1988. Other Plans. The Board of Directors has adopted an LSB Industries, Inc. Employee Savings Plan (the "401(k) Plan") for the employees (including executive officers) of the Company and its subsidiaries, excluding certain (but not all) employees covered under union agreements. The 401(k) Plan is an employee contribution plan, and the Company and its subsidiaries make no contributions to the 401(k) Plan. The amount that an employee may contribute to the 401(k) Plan equals a certain percentage of the employee's compensation, with the percentage based on the employee's income and certain other criteria as required under Section 401(k) of the Internal Revenue Code. The Company or subsidiary deducts the amounts contributed to the 401(k) Plan from the employee's compensation each pay period, in accordance with the employee's instructions, and pays the amount into the 401(k) Plan for the employee's benefit. The Summary Compensation Table set forth above includes any amount contributed and deferred during the 1994 fiscal year pursuant to the 401(k) Plan by the named executive officers of the Company. The Company has a death benefit plan for certain key employees. Under the plan, the designated beneficiary of an employee covered by the plan will receive a monthly benefit for a period of ten (10) years if the employee dies while in the employment of the Company or a wholly-owned subsidiary of the Company. The agreement with each employee provides, in addition to being subject to other terms and conditions set forth in the agreement, that the Company may terminate the agreement as to any employee at anytime prior to the employee's death. The Company has purchased life insurance on the life of each employee covered under the plan to provide, in large part, a source of funds for the Company's obligations under the Plan. The Company also will fund a portion of the benefits by investing the proceeds of a policy received by the Company upon the employee's death. The Company is the owner and sole beneficiary of the insurance policy, with the proceeds payable to the Company upon the death of the employee. The following table sets forth the amounts of annual benefits payable to the designated beneficiary or beneficiaries of the executive officers named in the Summary Compensation Table set forth above under the above-described death benefits plan. Amount of Name of Individual Annual Payment ------------------ -------------- Jack E. Golsen $175,000 Barry H. Golsen $ 30,000 David R. Goss $ 35,000 Tony M. Shelby $ 35,000 David M. Shear $ 0 In addition to the above-described plans, during 1991 the Company entered into a non-qualified arrangement with certain key employees of the Company and its subsidiaries to provide compensation to such individuals in the event that they are employed by the Company or a subsidiary of the Company at age 65. Under the plan, the employee will be eligible to receive for the life of such employee, a designated benefit as set forth in the plan. In addition, if prior to attaining the age 65 the employee dies while in the employment of the Company or a subsidiary of the Company, the designated beneficiary of the employee will receive a monthly benefit for a period of ten (10) years. The agreement with each employee provides, in addition to being subject to other terms and conditions set forth in the agreement, that the Company may terminate the agreement as to any employee at any time prior to the employee's death. The Company has purchased insurance on the life of each employee covered under the plan where the Company is the owner and sole beneficiary of the insurance policy, with the proceeds payable to the Company to provide a source of funds for the Company's obligations under the plan. The Company may also fund a portion of the benefits by investing the proceeds of such insurance policies. Under the terms of the plan, if the employee becomes disabled while in the employment of the company or a wholly-owned subsidiary of the Company, the employee may request the Company to cash-in any life insurance on the life of such employee purchased to fund the Company's obligations under the plan. Jack E. Golsen does not participate in the plan. The following table sets forth the amounts of annual benefits payable to the executive officers named in the Summary Compensation Table set forth above under such retirement plan. Amount of Name of Individual Annual Payment ----------------- -------------- Barry H. Golsen $17,480 David R. Goss $17,403 Tony M. Shelby $15,605 David M. Shear $17,822 Compensation of Directors. In 1994, the Company compensated each non- management director of the Company for his services in the amount of $4,500. The non-management directors of the Company also received $500 for every meeting of the Board of Directors attended during 1994. Each member of the Audit Committee, consisting of Messrs. Ille, Brown and Shaffer, also received an additional $20,000 for their services in 1994. In addition, the Company paid C.L. Thurman $20,000 as compensation for his services as Chairperson of the Special Projects Committee of the Board of Directors for 1994. Also, as further discussed in Item 11 "EXECUTIVE COMPENSATION - Summary Compensation Table", the Company paid to Messrs. J. Golsen, B. Golsen, Goss and Shelby an additional one-time bonus of $100,000 for their services as members of the Board of Directors of Equity Bank during the six years that the Company owned that financial business. Messrs. J. Golsen, B. Golsen, Goss and Shelby are members of the Company's Board of Directors, as well as, employees of the Company. In September 1993, the Company adopted the 1993 Non-Employee Director Stock Option Plan (the "Outside Director Plan"). The Outside Director Plan authorizes the grant of non-qualified stock options to each member of the Company's Board of Directors who is not an officer or employee of the Company or its subsidiaries. The maximum shares for which options may be issued under the Outside Director Plan will be 150,000 shares (subject to adjustment as provided in the Outside Director Plan). The Company shall automatically grant to each outside director an option to acquire 5,000 shares of the Company's common stock on April 30 following the end of each of the Company's fiscal years in which the Company realizes net income of $9.2 million or more for such fiscal year. The exercise price for an option granted under the Outside Director Plan shall be the fair market value of the shares of common stock at the time the option is granted. Each option granted under the Outside Director Plan, to the extent not exercised, shall terminate upon the earlier of the termination of the outside director as a member of the Company's Board of Directors or the fifth anniversary of the date such option was granted. On April 30, 1994, options to acquire 5000 shares of Common Stock were granted under this plan to Messrs. Ille, Brown, Shaffer, Thurman and Ackerman, at a per share exercise price of $9.00. As a result of the Company's financial performance for 1994, the Company will be granting options under the Outside Director Plan for the purchase of 5,000 shares of Common Stock to each of Messrs. Ille, Brown, Shaffer, Thurman, and Ackerman. Termination of Employment and Change in Control Arrangements. In 1989 and 1991, the Company entered into severance agreements with Jack E. Golsen, Barry H. Golsen, Tony M. Shelby, David R. Goss, David M. Shear and certain other officers of the Company and subsidiaries of the Company. Each severance agreement provides (among other things) that if, within twenty-four (24) months after the occurrence of a change in control (as defined) of the Company, the Company terminates the officer's employment other than for cause (as defined) or the officer terminates his employment for good reason (as defined) the Company must pay the officer an amount equal to 2.9 times the officer's base amount (as defined). The phrase "base amount" means the average annual gross compensation paid by the Company to the officer and includable in the officer's gross income during the period consisting of the most recent five (5) year period immediately preceding the change in control. If the officer has been employed by the Company for less than 5 years, the base amount is calculated with respect to the most recent number of taxable years ending before the change in control that the officer worked for the Company. The severance agreements provide that a "change in control" means a change in control of the Company of a nature that would require the filing of a Form 8-K with the Securities and Exchange Commission and, in any event, would mean when: (1) any individual, firm, corporation, entity or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) becomes the beneficial owner, directly or indirectly, of thirty percent (30%) or more of the combined voting power of the Company's outstanding voting securities having the right to vote for the election of directors, except acquisitions by: (a) any person, firm, corporation, entity or group which, as of the date of the severance agreement, has that ownership, or (b) Jack E. Golsen, his wife; his children and the spouses of his children; his estate; executor or administrator of any estate, guardian or custodian for Jack E. Golsen, his wife, his children, or the spouses of his children, any corporation, trust, partnership or other entity of which Jack E. Golsen, his wife, children, or the spouses of his children own at least eighty percent (80%) of the outstanding beneficial voting or equity interests, directly or indirectly, either by any one or more of the above-described persons, entities or estates; and certain affiliates and associates of any of the above- described persons, entities or estates; (2) individuals who, as of the date of the severance agreement, constitute the Board of Directors of the Company (the "Incumbent Board") and who cease for any reason to constitute a majority of the Board of Directors except that any person becoming a director subsequent to the date of the severance agreement, whose election or nomination for election is approved by a majority of the Incumbent Board (with certain limited exceptions), will constitute a member of the Incumbent Board; or (3) the sale by the Company of all or substantially all of its assets. The termination of an officer's employment with the Company "for cause" means termination because of: (a) the mental or physical disability from performing the officer's duties for a period of one hundred twenty (120) consecutive days or one hundred eighty days (even though not consecutive) within a three hundred sixty (360) day period; (b) the conviction of a felony; (c) the embezzlement by the officer of Company assets resulting in substantial personal enrichment of the officer at the expense of the Company; or (d) the willful failure (when not mentally or physically disabled) to follow a direct written order from the Company's Board of Directors within the reasonable scope of the officer's duties performed during the sixty (60) day period prior to the change of control. The termination of an officer's employment with the Company for "good reason" means termination because of (a) the assignment to the officer of duties inconsistent with the officer's position, authority, duties or responsibilities during the sixty (60) day period immediately preceding the change in control of the Company or any other action which results in the diminishment of those duties, position, authority, or responsibilities; (b) the relocation of the officer; (c) any purported termination by the Company of the officer's employment with the Company otherwise than as permitted by the severance agreement; or (d) in the event of a change in control of the Company, the failure of the successor or parent company to agree, in form and substance satisfactory to the officer, to assume (as to a successor) or guarantee (as to a parent) the severance agreement as if no change in control had occurred. Each severance agreement runs until the earlier of: (a) three years after the date of the severance agreement, or (b) the officer's normal retirement date from the Company. However, beginning on the first anniversary of the severance agreement and on each anniversary thereafter, the term of the severance agreement automatically extends for an additional one-year period, unless the Company gives notice otherwise at least sixty (60) days prior to the anniversary date. Effective June 1, 1994, the Company extended until June 1, 1999, the option period of a nonqualified stock option previously granted to Jack E. Golsen for the purchase of 165,000 shares of the Company's Common Stock at an exercise price of $2.625 per share (the "Extended NQSO"). The Extended NQSO vests and becomes exercisable at twenty percent (20%) per year on June 1, 1995, 1996, and 1997, and the remaining forty percent (40%) becomes exercisable on June 1, 1998. The terms of the Extended NQSO provide, in part, that the Extended NQSO shall become immediately exercisable upon a change in control of the Company. A "change in control" for purposes of the Extended NQSO, shall be deemed to have occurred upon any of the following events: (i) consummation of any of the following transactions: any merger, recapitalization, or other business combination of the Company pursuant to which the Company is the non-surviving corporation, unless the majority of the holders of Common Stock immediately prior to such transaction will own at least fifty percent (50%) of the total voting power of the then outstanding securities of the surviving corporation immediately after such transaction; (ii) a transaction in which any person, corporation, or other entity (A) shall purchase any Common Stock pursuant to a tender offer or exchange offer, without the prior consent of the Board of Directors or (B) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing fifty percent (50%) or more of the total voting power of the then outstanding securities of the Company; or (iii) if, during any period of two (2) consecutive years, individuals who, at the beginning of such period, constituted the entire Board of Directors and any new director whose election by the Board of Directors, or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election by the stockholders was previously approved, cease for any reason to constitute a majority thereof. Compensation Committee Interlocks and Insider Participation. The Company's Executive Salary Review Committee has the authority to set the compensation of all officers of the Company, except the President, which the Board of Directors sets. This Committee generally considers and approves the recommendations of the President. The members of the Executive Salary Review Committee are the following non-management directors: Robert C. Brown, M.D., Jerome D. Shaffer, M.D., and Bernard G. Ille. During 1994, the Executive Salary Review Committee had one meeting. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - ------- -------------------------------------------------------------- Security Ownership of Certain Beneficial Owners. The following table shows the total number and percentage of the outstanding shares of the Company's voting common stock and voting preferred stock beneficially owned as of March 31, 1995, with respect to each person (including any "group" as used in Section 13(d)(3) of the Securities Act of 1934, as amended) that the Company knows to have beneficial ownership of more than five percent (5%) of the Company's voting common stock and voting preferred stock. A person is deemed to be the beneficial owner of voting shares of Common Stock of the Company which he or she could acquire within sixty (60) days of April 1, 1995 such as upon the exercise of options. Because of the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may beneficially own, the amounts shown below for an individual or entity may include shares also considered beneficially owned by others. Amounts Name and Address Title of Shares Percent of of Beneficially of Beneficial Owner Class Owned(1) Class - ---------------- ------- ------------ ------- Jack E. Golsen and Common 3,783,735 (3)(5)(6) 27.2% members of his family(2) Voting Preferred 20,000 (4)(6) 92.3% Riverside Capital Advisors, Inc. Common 901,373 (7) 6.7% - ------------------------------ (1) The Company based the information with respect to beneficial ownership on information furnished by the above-named individuals or entities or contained in filings made with the Securities and Exchange Commission or the Company's records. (2) Includes Jack E. Golsen and the following members of his family: wife, Sylvia H. Golsen; son, Barry H. Golsen (a Director, Vice Chairman of the Board of Directors and President of the Environmental Control Business of the Company); son, Steven J. Golsen (Executive officer of several subsidiaries of the Company), and daughter, Linda F. Rappaport. The address of Jack E. Golsen, Sylvia H. Golsen and Linda F. Rappaport is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107; Barry H. Golsen's address is 5000 S.W. Seventh Street, Oklahoma City, Oklahoma 73125; and Steven J. Golsen's address is 7300 S.W. 44th Street, Oklahoma City, Oklahoma 73179. (3) Includes (a) the following shares that Jack E. Golsen ("J. Golsen") has the sole voting and investment power: (i) 89,028 shares that he owns of record, (ii) 33,000 shares that he has the right to acquire within sixty (60) days under a non-qualified stock option, (iii) 4,000 shares that he has the right to acquire upon conversion of a promissory note, (iv) 133,333 shares that he has the right to acquire upon the conversion of 4,000 shares of the Company's Series B 12% Cumulative Convertible Preferred Stock (the "Series B Preferred") owned of record by him, and (v) 25,000 shares that he has the right to acquire within the next sixty (60) days under the Company's stock option plans; (b) 1,168,984 shares owned of record by Sylvia H. Golsen, in which she and her husband, J. Golsen share voting and investment power; (c) 235,526 shares that Barry H. Golsen ("B Golsen") has the sole voting and investment power, 533 shares that he shares the voting and investment power with his wife that are owned of record by his wife, and 17,000 shares that he has the right to acquire within the next sixty (60) days under the Company's stock option plans; (d) 195,897 shares that Steven J. Golsen ("S. Golsen") has the sole voting and investment power and 17,000 shares that he has the right to acquire within the next sixty (60) days under the Company's stock option plans; (e) 163,460 shares held in trust for the grandchildren of Jack E. and Sylvia H. Golsen of which B. Golsen, S. Golsen and Linda F. Rappaport jointly or individually are trustees; (f) 82,552 shares owned of record by Linda F. Rappaport, which Mrs. Rappaport has the sole voting an investment power, and (g) 1,041,799 shares owned of record by Golsen Petroleum Corporation ("GPC") and 533,333 shares that GPC has the right to acquire upon conversion of 16,000 shares of Series B Preferred owned of record by GPC. GPC is wholly-owned by J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and Linda F. Rappaport, with each owning twenty percent (20%) of the outstanding stock of GPC, and as a result, GPC, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen, and Linda F. Rappaport share the voting and investment power of the shares beneficially owned by GPC. GPC's address is 16 South Pennsylvania Avenue, Oklahoma City, Oklahoma 73107. (4) Includes: (a) 4,000 shares of Series B Preferred owned of record by J. Golsen, which he has the sole voting and investment power; and (b) 16,000 shares of Series B Preferred owned of record by GPC, in which GPC, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and Linda F. Rappaport share the voting and investment power. (5) Does not include 112,360 shares of Common stock that Linda F. Rappaport's husband owns of record and 17,000 shares which he has the right to acquire within the next sixty (60) days under the Company's stock option plans, all of which Linda F. Rappaport disclaims beneficial ownership. (6) J. Golsen disclaims beneficial ownership of the shares that B. Golsen, S. Golsen and Linda F. Rappaport each have the sole voting and investment power over as noted in footnote (3) above. B. Golsen, S. Golsen and Linda F. Rappaport disclaim beneficial ownership of the shares that J. Golsen has the sole voting and investment power over as noted in footnotes (3) and (4) and the shares owned of record by Sylvia H. Golsen. Sylvia H. Golsen disclaims beneficial ownership of the shares that J. Golsen has the sole voting and investment power over as noted in footnotes (3) and (4) above. (7) Riverside Capital Advisors was deemed to beneficially own these shares as a result of having full discretionary investment authority over 13 customers accounts to which it provides investment services. This amount includes 90,850 shares of Common Stock that may be acquired upon conversion of the Company's $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 ("Series 2 Preferred") and 103,422 shares of Common Stock held by affiliates of Riverside Capital Advisors who share control of investment decisions made by Riverside Capital Advisors. Security Ownership of Management. The following table sets forth information obtained from the directors of the Company and the directors and executive officers of the Company as a group as to their beneficial ownership of the Company's voting common stock and voting preferred stock as of March 31, 1995. Because of the requirements of the Securities and Exchange Commission as to the method of determining the amount of shares an individual or entity may own beneficially, the amount shown below for an individual may include shares also considered beneficially owned by others. Any shares of stock which a person does not own, but which he or she has the right to acquire within sixty (60) days of April 1, 1995 are deemed to be outstanding for the purpose of computing the percentage of outstanding stock of the class owned by such person but are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person. Amounts of Shares Name of Title of Beneficially Percent of Beneficial Owner Class Owned Class - ---------------- ------- ------------ ---------- Raymond B. Ackerman Common 5,680 (2) * Robert C. Brown, M.D. Common 233,329 (3) 1.8% Barry H. Golsen Common 1,909,921 (4) 14.6% Voting Preferred 16,000 (4) 74.0% Jack E. Golsen Common 3,071,767 (5) 23.4% Voting Preferred 20,000 (5) 92.5% David R. Goss Common 196,585 (6) 1.5% Bernard G. Ille Common 115,000 (7) * Jerome D. Shaffer,M.D. Common 140,374 (8) 1.1% Tony M. Shelby Common 204,728 (9) 1.6% C.L. Thurman Common 20,333 (10) * Directors and Common 4,487,750 (11) 34.2% Executive Officers Voting Preferred 20,000 (11) 92.5% as a group(11 persons) - ---------------------------- * Less than 1%. (1) The Company based the information with respect to beneficial ownership on information furnished by each director or officer, contained in filings made with the Securities and Exchange Commission, or contained in the Company records. (2) Mr. Ackerman has sole voting and investment power of 680 of these shares, which shares are held in a trust in which Mr. Ackerman is both the settlor and the trustee and in which he has the vested interest in both the corpus and income. The remaining 5000 shares of common stock listed here are shares that Mr. Ackerman may acquire pursuant to currently exercisable non- qualified stock options granted to him by the Company. (3) The amount shown includes 45,000 shares of common stock that Dr. Brown may acquire pursuant to currently exercisable non-qualified stock options granted to him by the Company. The shares with respect to which Dr. Brown shares the voting and investment power consist of 117,516 shares owned by Dr. Brown's wife, 50,727 shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned by Dr. Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc. Employee Profit Sharing Plan, of which Dr. Brown serves as the trustee. The amount shown does not include 57,190 shares directly owned by the children of Dr. Brown, all of which Dr. Brown disclaims beneficial ownership. (4) See footnotes (3), (4), and (6) of the table under "Security Ownership of Certain Beneficial Owners and Management" of this Item for a description of the amount and nature of the shares beneficially owned by B. Golsen, including 17,000 shares B. Golsen has the right to acquire within sixty (60) days. (5) See footnotes (3), (4), and (6) of the table under "Security Ownership of Certain Beneficial Owners and Management" of this Item for a description of the amount and nature of the shares beneficially owned by J. Golsen, including the 33,000 shares J. Golsen has the right to acquire within sixty (60) days pursuant to non-qualified stock options and 25,000 shares J. Golsen has the right to acquire within sixty (60) days pursuant to options granted under the Company's Incentive Stock Option Plans ("ISOs"). (6) The amount shown includes 8,000 shares that Mr. Goss has the right to acquire within sixty (60) days pursuant to options granted under the Company's ISOs, over which Mr. Goss has the sole voting and investment power. Mr. Goss shares voting and investment power over 2,429 shares owned by Mr. Goss's wife, individually and/or as custodian for Mr. Goss's children and has sole voting and investment power over the balance of the shares. (7) The amount includes 45,000 shares that Mr. Ille may purchase pursuant to currently exercisable non-qualified stock options, over which Mr. Ille has the sole voting and investment power. Mr. Ille disclaims beneficial ownership of 70,000 shares owned by Mr. Ille's wife. (8) Dr. Shaffer has the sole voting and investment power over these shares, which include 45,000 shares that Dr. Shaffer may purchase pursuant to currently exercisable non-qualified stock options. (9) Mr. Shelby has the sole voting and investment power over these shares, which include 8,000 shares that Mr. Shelby has the right to acquire within sixty (60) days pursuant to options granted under the Company's ISOs. (10) Mr. Thurman has the sole voting and investment power over these shares, which include 5000 shares that Mr. Thurman may purchase pursuant to currently exercisable non-qualified stock options.. (11) The amount shown includes 256,500 shares of common stock that officers and directors, or entities controlled by officers and directors of the Company, have the right to acquire within sixty (60) days. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - ------- ---------------------------------------------- A subsidiary of the Company, Hercules Energy Mfg. Corporation ("Hercules"), leases land and a building in Oklahoma City, Oklahoma from Mac Venture, Ltd. ("Mac Venture"), a limited partnership. GPC serves as the general partner of Mac Venture. The limited partners of Mac Venture include GPC and the three children of Jack E. Golsen. See "Security Ownership of Certain Beneficial Owners and Management", above, for a discussion of the stock ownership of GPC. The land leased by Hercules from Mac Venture consists of a total of 341,000 square feet, with 44,000 square feet in the building. Hercules leases the property from Mac Venture for $7,500 per month under a triple net lease which began as of January 1, 1982, and expires on December 31, 1998. Also, at January 1, 1991, GPC owed Hercules approximately $62,000 for purchases of oilfield equipment in prior years. Beginning in 1991, the balance of $62,000 was payable at the rate of $1,000 per month, and in September 1994, GPC paid this debt in full. Northwest Internal Medicine Associates, ("Northwest") a division of Plaza Medical Group., P.C., has an agreement with the Company to perform medical examinations of the management and supervisory personnel of the Company and its subsidiaries. Under such agreement, Northwest is paid $4,000 a month to perform all such examinations. Dr. Robert C. Brown (a director of the Company) is a co-owner of Plaza Medical Group., P.C. In 1983, LSB Chemical Corp. ("LSB Chemical"), a subsidiary of the Company, acquired all of the outstanding stock of El Dorado Chemical Company ("EDC") from its then four stockholders ("Ex-Stockholders"). A substantial portion of the purchase price consisted of an earnout based primarily on the annual after-tax earnings of EDC for a ten-year period. During 1989, two of the Ex-Stockholders received LSB Chemical promissory notes for a portion of their earnout, in lieu of cash, totaling approximately $896,000, payable $496,000 in January, 1990, and $400,000 in May, 1994. LSB Chemical agreed to a buyout of the balance of the earnout from the four Ex-Stockholders for an aggregate purchase amount of $1,231,000. LSB Chemical purchased for cash the earnout from two of the Ex-Stockholders and issued multi-year promissory notes totaling $676,000 to the other two Ex-Stockholders. Jack E. Golsen guaranteed LSB Chemical's payment obligation under the promissory notes, which is $400,000 at March 31, 1995. In December 1993, the Company's Board of Directors authorized the Company to loan funds to certain executive officers of the Company and certain subsidiaries who incurred unanticipated alternative minimum tax liability as a result of the exercise of the Company's incentive stock options during 1993. Pursuant to such authorization, the Company made loans to the following executive officers of the Company in the following amounts for the purpose of assisting in the payment of alternative minimum tax liability arising from the exercise of the Company's incentive stock options: Jack E. Golsen - $290,000; Barry H Golsen - $270,000; David R. Goss - $461,000; Tony M. Shelby - $400,000; David M. Shear - $56,500; Jim D. Jones - $185,000; and Michael Tepper - $66,427. Each loan was payable on demand at an annual interest rate equal to New York Prime plus 1% and was secured by shares of the Company's Common Stock acquired by the respective executive officers upon the exercise of such options. The Company also made loans for the same purposes and on the same terms as described above to Steven J. Golsen, President of one of the Company's subsidiaries, in the amount of $270,000 and Claude L. Rappaport, President of one of the Company's subsidiaries, in the amount of $270,000. Steven J. Golsen and Claude L. Rappaport are also the son and son-in-law, respectively, of Jack E. Golsen, the President and Chairman of the Board of the Company. On or before September 26, 1994, Jack E. Golsen, Barry H. Golsen, David M. Shear, and Michael D. Tepper each paid their respective loans in full by tendering cash payment to the Company in an amount equal to the outstanding principal and accrued interest owing under their respective loans. The funds used to satisfy such loans were acquired by Jack E. Golsen, Barry H. Golsen, David M. Shear and Michael D. Tepper uopon the sale in open market transactions to Lazard Freres & Company ("Lazard") of the following number of shares of the Company's Common Stock owned by them at the following sales prices: Sylvia H. Golsen, wife of Jack E. Golsen, - 92,000 shares at $6.25 per share; Barry H. Golsen - 29,000 shares at $6.25 per share; David M. Shear and Heidi Brown, his wife, - 9,900 shares at $6.125 per share, and Michael D. Tepper - 11,000 shares at $6.125 per share. Steven J. Golsen, son of Jack E. Golsen, and Claude L. Rappaport, Son-in-law of Jack E. Golsen, also paid their respective loans in full by tendering cash payment to the Company in the amount equal to the outstanding principal and accrued interest owing under their respective loans. The funds used to satisfy such loans were acquired by Steven J. Golsen and Claude L. Rappaport upon the sale in open market transactions to Lazard of the following number of shares of the Company's Common Stock owned by them at the follwoing sales prices: Steven J. Golsen - 30,000 shares at $6.25 per share, and Claude L. Rappaport - 31,000 shares at $6.25 per share. Pursuant to an understanding between the Company and Lazard, immediately following the open market sales of (i) an aggregate 202,900 shares by Sylvia H. Golsen, Michael D. Tepper, Barry H. Golsen, David M. Shear, Heidi Brown, Steven J. Golsen, and Claude L. Rappaport, described above; (ii) 20,000 shares by Golsen Petroleum Corporation ("GPC") at a sales price of $6.25 per share, and (iii) 25,000 shares by Robert C. Brown, M. D. at a sales price of $6.25 per share, the Company purchased such shares of its Common Stock from Lazard Freres & Company at purchase prices of $6.25 per share as to 227,000 shares and $6.125 as to 20,900 shares, which purchase prices equaled the fair market value of the Common Stock on the dates of such purchases. The shares acquired by the Company upon such purchase constitute treasury shares of the Company. GPC is wholly owned by Sylvia H. Golsen, Steven J. Golsen, Barry H. Golsen, and the daughter of Jack E. Golsen. On or before October 4, 1994, Messrs. Shelby, Jones, and Goss paid their respective loans in full by (i) tendering cash payment to the Company as payment of a portion of such loans, and (ii) transferring to the Company the number of shares of Common Stock owned by each of them equal to the remaining outstanding principal and accrued interest owing under such loans, based on the fair market value of $5.75 per share of Common Stock on the date of transfer. The number of shares of Common Stock transferred to the Company by Messrs. Shelby, Jones, and Goss, as described above, was 60,654, 21,458 and 72,892, respectively. In 1994, during the period that the Company was negotiating a new working capital line of credit, GPC advanced the Company $175,000 and the MG Revocable Trust advanced the Company $247,000. Each advance was made on a unsecured basis at a rate of interest equal to the base rate of a local bank approximating prime plus 1-3/4% per annum. The Settlor of the MG Revocable Trust is the mother of Jack E. Golsen. These advances and all accrued interest were repaid in full prior to the closing of the new working capital line of credit in December, 1994. PART IV ------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------- ---------------------------------------------------------------- (a)(1) Financial Statements. The following consolidated financial statements of the Company appear immediately following this Part IV: Pages --------------- Report of Independent Auditors F-1 Consolidated Balance Sheets at December 31, 1994 and 1993 F-2 to F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1994 F-4 Consolidated Statements of Non-redeemable Preferred Stock, Common Stock and Other Stockholders' Equity for each of the three years in the period ended December 31, 1994 F-5 to F-6 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1994 F-7 to F-8 Notes to Consolidated Financial Statements F-9 to F-31 Quarterly Financial Data (Unaudited) F-32 (a)(2) Financial Statement Schedule. The Company has included the following schedule in this report: Pages ---------------- II - Valuation and Qualifying Accounts F-33 The Company has omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in the Company's Consolidated Financial Statements, including the notes to those statements. (a)(3) Exhibits. The Company has filed the following exhibits with this report: 2.1. Stock Purchase Agreement dated as of February 9, 1994, between Fourth Financial Corporation, the Company and Prime Financial Corporation ("Stock Purchase Agreement"), which the Company hereby incorporates by reference from Exhibit A to the Company's Proxy Statement, dated March 22, 1994 and filed with the Commission on March 23, 1994. Schedules and exhibits to the Stock Purchase Agreement are listed in the Stock Purchase Agreement and copies of such documents so listed will be furnished supplementally to the Commission upon request. 2.2. Stock Purchase Agreement and Stock Pledge Agreement between Dr. Hauri AG, a Swiss Corpoation, and LSB Chemical Corp. 3.1. Restated Certificate of Incorporation, and the Certificate of Designation dated February 17, 1989, which the Company hereby incorporates by reference from Exhibit 3.01 to the Company's Form 10-K for fiscal year ended December 31, 1989. 3.2. Bylaws, as amended, which the Company hereby incorporates by reference from Exhibit 3.02 to the Company's form 10-K for fiscal year ended December 31, 1990. 4.1. Specimen Certificate for the Company's Non-cumulative Preferred Stock, having a par value of $100 per share, which the Company hereby incorporates by reference from Exhibit 4.1 to the Company's Form 10-Q for the quarter ended June 30, 1983. 4.2. Specimen Certificate for the Company's Series B Preferred Stock, having a par value of $100 per share, which the Company hereby incorporates by reference from Exhibit 4.27 to the Company's Registration Statement No. 33-9848. 4.3. Specimen Certificate for the Company's Series 2 Preferred, which the Company hereby incorporates by reference from Exhibit 4.5 to the Company's Registration Statement No. 33-61640. 4.4. Specimen Certificate for the Company's Common Stock, which the Company incorporates by reference from Exhibit 4.4 to the Company's Registration Statement No. 33-61640. 4.5. Rights Agreement, dated as of February 17, 1989, between the Company and The Liberty National Bank and Trust Company of Oklahoma City, which the Company hereby incorporates by reference from Exhibit 2.1 to the Company's Form 8-A Registration Statement dated February 22, 1989. 4.6. Amended and Restated Secured Credit Agreement, dated as of January 21, 1992, between El Dorado Chemical Company ("EDC"), Slurry Explosive Corporation ("Slurry"), Household Commercial Financial Services, Inc. ("Household"), Connecticut Mutual Life Insurance Company ("CML") and CM Life Insurance Company which the Company hereby incorporates by reference from Exhibit 4.15 to the Company's Form 10K for the year ended December 31,1991. The agreement contains a list of schedules and exhibits omitted from the filed copy and the Company agrees to furnish supplementally a copy of any of the omitted schedules or exhibits to the Commission upon request. 4.7. First Amendment to the Amended and Restated Secured Credit Agreement, dated December 9, 1992, between El Dorado Chemical Company, Slurry Explosive Corporation, Household Commercial Financial Services Inc., Connecticut Mutual Insurance Company and C.M. Life Insurance Company, which the Company hereby incorporates by reference from Exhibit 4.22 to the Company's Registration Statement No. 33-55608. 4.8. Consent Agreement, dated December 9, 1992, between El Dorado Chemical Company and Household Commercial Financial Services, Inc., which the Company hereby incorporates by reference from Exhibit 4.23 to the Company's Registration Statement No. 33-55608. 4.9. Amendment Agreement, dated as of March 30, 1994, among El Dorado Chemical Company, Slurry Explosive Corporation, Household Commercial Financial Services, Inc., and Prime Financial Corporation, which the Company hereby incorporates by reference from Exhibit 4.23 to the Company's Form 10-K for the fiscal year ended December 31, 1993. 4.10. Amendment dated September 29, 1994 to the Amended and Restated Secured Credit Agreement and the Second Amended and Restated Working Capital Agreement, both dated as of January 21, 1992 among El Dorado Chemical Company, Slurry Explosive Corporation, Connecticut Mutual Life Insurance Company, C.M. Life Insurance Company Mutual and Household Commercial Financial Services, Inc., which the Company hereby incorporates by reference from Exhibit 4.05 to the Company's Form 10-Q for the fiscal quarter ended September 30, 1994. 4.11. Second Amendment Agreement dated as of October 31, 1994 among El Dorado Chemical Company, Slurry Explosive Corporation, Household Commercial Financial Services, Inc., Connecticut Mutual Life Insurance Company Mutual and C.M. Life Insurance Company Mutual, which the Company hereby incorporates by reference from Exhibit 4.06 to the Company's Form 10-Q for the fiscal quarter ended September 30, 1994. 4.12. Loan and Security Agreement, dated December 12, 1994, between the Company and BankAmerica Business Credit, Inc.. The Loan and Security Agreement contains a list of schedules and exhibits omitted from the filed exhibit and the Compnay agrees to furnish supplementally a copy of any of the omitted schedules and exhibits to the Commission upon request. 4.13. Loan and Security Agreement dated December 12, 1994, between El Dorado Chemical Company and Slurry Explosive Corporation, as borrowers, and BankAmerica Business Credit, Inc., as lender. The Loan and Security Agreement contains a list of schedules and exhibits omitted from the filed exhibit and the Company agrees to furnish supplementally a copy of any of the omitted schedules and exhibits to the Commission upon request. Substantially identical Loan and Security Agreements, dated December 12, 1994, have been entered into by each of L&S Bearing Co., International Environmental Corporation, Climate Master, Inc., and Summit Machine Tool Manufacturing, Corp. with BankAmerica Business Credit, Inc. and are hereby omitted and such will be provided to the Commission upon the Commission's request. 10.1. Form of Death Benefit Plan Agreement between the Company and the employees covered under the plan, which the Company hereby incorporates by reference from Exhibit 10(c)(1) to the Company's Form 10-K for the year ended December 31, 1980. 10.2. The Company's 1981 Incentive Stock Option Plan, as amended, and 1986 Incentive Stock Option Plan, which the Company hereby incorporates by reference from Exhibits 10.1 and 10.2 to the Company's Registration Statement No. 33-8302. 10.3. Form of Incentive Stock Option Agreement between the Company and employees as to the Company's 1981 Incentive Stock Option Plan, which the Company hereby incorporates by reference from Exhibit 10.10 to the Company's Form 10-K for the fiscal year ended December 31, 1984. 10.4. Form of Incentive Stock Option Agreement between the Company and employees as to the Company's 1986 Incentive Stock Option Plan, which the Company hereby incorporates by reference from Exhibit 10.6 to the Company's Registration Statement No. 33-9848. 10.5. The 1987 Amendments to the Company's 1981 Incentive Stock Option Plan and 1986 Incentive Stock Option Plan, which the Company hereby incorporates by reference from Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended December 31, 1986. 10.6. The Company's 1993 Stock Option and Incentive Plan which the Company hereby incorporates by reference from Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended December 31, 1993. 10.7. The Company's 1993 Non-employee Director Stock Option Plan which the Company hereby incorporates by reference from Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended December 31, 1993. 10.8. Union Contracts, dated August 1, 1992, between EDC and the Oil, Chemical and Atomic Workers, United Steel Workers of America, United Mine Workers and the International Association of Machinists and Aerospace Workers, which the Company hereby incorporates by reference from Exhibit 10.6 to the Company's Form 10-K for the fiscal year ended December 31, 1992. 10.9. Lease Agreement, dated March 26, 1982, between Mac Venture, Ltd. and Hercules Energy Mfg. Corporation, which the Company hereby incorporates by reference from Exhibit 10.32 to the Company's Form 10-K for the fiscal year ended December 31, 1981. 10.10. Agreement for Purchase and Sale of Anhydrous Ammonia, dated as of January 1, 1994, between El Dorado Chemical Company and Farmland Industries, Inc. 10.11. Non-qualified Stock Option Agreement, dated April 26, 1990, between the Company and Robert C. Brown, M.D., which the Company hereby incorporates by reference from Exhibit 10.10 to the Company's Form 10-K for the fiscal year ended December 31, 1990. The Company entered into substantially identical agreements with Bernard G. Ille, Jerome Shaffer and C.L. Thurman, and the Company will provide copies thereof to the Commission upon request. 10.12. Non-qualified Stock Option Agreement, dated November 19, 1987, between the Company and C.L. Thurman, which the Company hereby incorporates by reference from Exhibit 10.25 to the Company's Form 10-K for the fiscal year ended December 31, 1987. The Company entered into substantially identical agreements with Jerome D. Shaffer, Bernard G. Ille, and Robert C. Brown and the Company will provide copies thereof to the Commission upon request. 10.13. Lease Agreement dated November 12, 1987, between Climate Master, Inc. and West Point Company and amendments thereto, which the Company hereby incorporates by reference from Exhibits 10.32, 10.36, and 10.37, to the Company's Form 10-K for fiscal year ended December 31, 1988. 10.14. Severance Agreement, dated January 17, 1989, between the Company and Jack E. Golsen, which the Company hereby incorporates by reference from Exhibit 10.48 to the Company's Form 10-K for fiscal year ended December 31, 1988. The Company also entered into identical agreements with Tony M. Shelby, David R. Goss, Michael Tepper, and Barry H. Golsen and the Company will provide copies thereof to the Commission upon request. 10.15. Third Amendment to Lease Agreement, dated as of December 31, 1987, between Mac Venture, Ltd. and Hercules Energy Mfg. Corporation, which the Company hereby incorporates by reference from Exhibit 10.49 to the Company's Form 10-K for fiscal year ended December 31, 1988. 10.16. Option to Purchase Real Estate, dated January 4, 1989, between Northwest Financial Corporation and Northwest Tower Limited Partnership, which the Company hereby incorporates by reference from Exhibit 10.50 to the Company's Form 10-K for fiscal year ended December 31, 1988. 10.17. Technical License, Technology Assistance, Engineering and Manufacturing Plant sales Agreement between L&S Automotive Products Company, Inc. and ZVL-ZKL A.S., dated July 6, 1992, as amended by Addendums, which the Company hereby incorporates by reference from Exhibit 28.1 to the Company's Form 10-Q for the quarter ended September 30, 1992. 10.18. Letter, dated November 9, 1992, amending the agreement between L&S Automotive Products Co. and ZVL-ZKL A.S., which the Company hereby incorporates by reference from Exhibit 28.2 to the Company's Registration Statement No. 33-55608. 10.19. Supply Agreement, dated November 4, 1992, between Climate Master, Inc. and Carrier Corporation, which the Company hereby incorporates by reference from Exhibit 28.3 to the Company's Registration Statement No. 33-55608. 10.20. Right of First Refusal, dated November 4, 1992, between the Company, Climate Master, Inc. and Carrier Corporation, which the Company hereby incorporates by reference from Exhibit 28.4 to the Company's Registration Statement No. 33-55608. 10.21. Fixed Assets Purchase Parts Purchase and Asset Consignment Agreement, dated November 4, 1992, between Climate Master, Inc. and Carrier Corporation, which the Company hereby incorporates by reference from Exhibit 28.5 to the Company's Registration Statement No. 33-55608. 10.22. Processing Agreement, dated January 1, 1994, between Monsanto Company and El Dorado Chemical Company. 10.23. Non-Qualified Stock Option Agreement, dated June 1, 1992, between the Company and Robert C. Brown, M.D. which the Company hereby incorporates by reference from Exhibit 10.38 to the Company's Form 10-K for fiscal year ended December 31, 1992. The Company entered into substantially identical agreements with Bernard G. Ille, Jerome D. Shaffer and C.L.Thurman, and the Company will provide copies thereof to the Commission upon request. 10.24. Loan and Security Agreement dated October 31, 1994 between DSN Corporation and the CIT Group which the Company hereby incorporates by reference from Exhibit 10.1 to the Company's Form 10-Q for the fiscal quarter ended September 30, 1994. 10.25. Loan and Security Agreement dated April 5, 1995 between DSN Corporation and the CIT Group. 11.1. Statement re: Computation of Per Share Earnings 22.1. Subsidiaries of the Company 23.1. Consent of Independent Auditors 27.1. Financial Data Schedule (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the fourth quarter of 1994. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-authorized, to sign this report on its behalf of this 13th day of April, 1995. LSB INDUSTRIES, INC. By: /S/ Jack E. Golsen ---------------------------------- Jack E. Golsen Chairman of the Board and President (Principal Executive Officer) By: /s/ Tony M. Shelby ---------------------------------- Tony M. Shelby Senior Vice President of Finance (Principal Financial Officer) By: /s/Jim D. Jones --------------------------------- Jim D. Jones Vice President, Controller and Treasurer (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the undersigned have signed this report on behalf of the Company, in the capacities and on the dates indicated. Dated: April 13, 1995 By: /s/Jack E. Golsen -------------------------------- Jack E. Golsen, Director Dated: April 13, 1995 By:/s/ Tony M. Shelby -------------------------------- Tony M. Shelby, Director Dated: April 13, 1995 By:/s/ David R. Goss -------------------------------- David R. Goss, Director Dated: April 13, 1995 By:/s/Barry H. Golsen -------------------------------- Barry H. Golsen, Director Dated: April 13, 1995 By:/s/ C.L. Thurman -------------------------------- C. L. Thurman, Director Dated: April 13, 1995 By:/s/Robert C. Brown -------------------------------- Robert C. Brown, Director Dated: April 13, 1995 By:/s/Bernard G. Ille -------------------------------- Bernard G. Ille, Director Dated: April 13, 1995 By:/s/Jerome D. Shaffer -------------------------------- Jerome D. Shaffer, Director Dated: April 13, 1995 By:/s/Raymond B. Ackerman -------------------------------- Raymond B. Ackerman, Director Report of Independent Auditors The Board of Directors and Stockholders LSB Industries, Inc. We have audited the accompanying consolidated balance sheets of LSB Industries, Inc. as of December 31, 1994 and 1993, and the related consolidated statements of operations, non-redeemable preferred stock, common stock and other stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LSB Industries, Inc. at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Oklahoma City, Oklahoma March 21, 1995 F-1 LSB Industries, Inc. Consolidated Balance Sheets (Note 1)
DECEMBER 31, 1994 1993 -------------------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 2,610 $ 2,781 Trade accounts receivable, less allowance for doubtful accounts of $2,000,000 ($2,583,000 in 1993) 42,720 49,533 Inventories (Notes 4 and 7): Finished goods 33,926 24,197 Work in process 9,796 9,643 Raw materials 15,611 11,801 -------------------- Total inventory 59,333 45,641 Supplies and prepaid items 6,386 5,459 -------------------- Total current assets 111,049 103,414 Property, plant and equipment, at cost (Notes 5 and 7) 133,359 113,795 Accumulated depreciation (59,675) (53,269) -------------------- Property, plant and equipment, net 73,684 60,526 Loans receivable, secured by real estate (Note 3) 17,243 13,968 Other assets, net of allowance for doubtful accounts of $1,150,000 in 1994 (none in 1993) 19,305 18,130 -------------------- $221,281 $196,038 ====================
F-2
DECEMBER 31, 1994 1993 ------------------- (In Thousands) LIABILITIES, PREFERRED AND COMMON STOCKS AND OTHER STOCKHOLDERS' EQUITY Current liabilities: Drafts payable $ 1,291 $ 1,220 Accounts payable 29,496 22,645 Accrued liabilities 8,062 6,752 Current portion of long-term debt (Note 7) 9,716 9,763 ------------------- Total current liabilities 48,565 40,380 Long-term debt (Note 7) 81,965 20,508 Net liabilities of Financial Services Business sold in 1994 (Note 3) -- 60,124 Commitments and contingencies (Notes 3, 6 and 12) Redeemable, noncumulative, convertible preferred stock, $100 par value; 1,597 shares issued and outstanding (1,637 in 1993) (Note 10) 152 155 Non-redeemable preferred stock, common stock and other stockholders' equity (Notes 7, 9 and 11): Series B 12% cumulative, convertible preferred stock, $100 par value; 20,000 shares issued and outstanding 2,000 2,000 Series 2 $3.25 convertible, exchangeable Class C preferred stock, $50 stated value; 920,000 shares issued 46,000 46,000 Common stock, $.10 par value; 75,000,000 shares authorized, 14,620,156 shares issued (14,514,056 in 1993) 1,462 1,451 Capital in excess of par value 37,369 37,120 Retained earnings (deficit) 12,883 (7,541) ------------------- 99,714 79,030 Less treasury stock, at cost: Series 2 preferred, 5,000 shares (none in 1993) 200 -- Common stock, 1,559,590 shares (840,085 in 1993) 8,915 4,159 ------------------- Total non-redeemable preferred stock, common stock and other stockholders' equity 90,599 74,871 ------------------- $221,281 $196,038 ===================
See accompanying notes. F-3 LSB Industries, Inc. Consolidated Statements of Operations (Note 1)
YEAR ENDED DECEMBER 31, 1994 1993 1992 ----------------------------------------- (In Thousands, Except Per Share Amounts) Revenues: Net sales $245,025 $232,616 $198,373 Other income 4,944 4,913 1,844 --------------------------------------- 249,969 237,529 200,217 Costs and expenses: Cost of sales 191,916 174,504 146,391 Selling, general and administrative 49,221 43,474 37,153 Interest 6,949 7,507 9,225 Provision for environmental matter 450 -- -- Costs of abandoned acquisitions 1,150 -- -- --------------------------------------- 249,686 225,485 192,769 --------------------------------------- Income from continuing operations before provision (benefit) for income taxes 283 12,044 7,448 Provision (benefit) for income taxes (700) 809 463 --------------------------------------- Income from continuing operations 983 11,235 6,985 Discontinued operations: Income from discontinued operations 584 1,228 2,323 Gain on disposal of discontinued operations 24,200 -- -- Provision for income taxes related to discontinued operations (1,300) (64) (53) --------------------------------------- 23,484 1,164 2,270 --------------------------------------- Net income $ 24,467 $ 12,399 $ 9,255 ======================================= Net income applicable to common stock $ 21,232 $ 10,357 $ 7,428 ======================================= Earnings per common share: Primary: Income (loss) from continuing operations $ (0.16) $ 0.69 $ 0.66 ======================================= Net income $ 1.54 $ 0.77 $ 0.94 ======================================= Fully diluted: Income (loss) from continuing operations $ (0.16) $ 0.63 $ 0.50 ======================================= Net income $ 1.46 $ 0.71 $ 0.66 =======================================
See accompanying notes. F-4 LSB Industries, Inc. Consolidated Statements of Non-redeemable Preferred Stock, Common Stock and Other Stockholders' Equity
COMMON STOCK NON- RETAINED -------------------- REDEEMABLE CAPITAL IN EARNINGS TREASURY TREASURY PAR PREFERRED EXCESS OF (ACCUMULATED STOCK -- STOCK -- SHARES VALUE STOCK PAR VALUE DEFICIT) COMMON PREFERRED TOTAL -------------------------------------------------------------------------------------------------- (In Thousands) Balance at December 31, 1991 5,825 $583 $ 19,206 $17,853 $(24,655) $(2,635) $ -- $10,352 Net income -- -- -- -- 9,255 -- -- 9,255 Conversion of 158 shares of redeemable preferred stock to common stock 6 1 -- 15 -- -- -- 16 Conversion of 92,468 shares of Series 1 Class C preferred stock to common stock 705 70 (1,849) 1,779 -- -- -- -- Exercise of stock options: Cash 450 45 -- 642 -- -- -- 687 Stock tendered and added to treasury at market value 1,112 111 -- 1,689 -- (1,800) -- -- Dividends declared: Series 1 Class C preferred stock ($2.20 per share) -- -- -- -- (1,568) -- -- (1,568) Series B 12% preferred stock ($12.00 per share) -- -- -- -- (240) -- -- (240) Redeemable preferred stock ($10.00 per share) -- -- -- -- (19) -- -- (19) Purchase of treasury stock -- -- -- -- -- (144) -- (144) -------------------------------------------------------------------------------------------------- Balance at December 31, 1992 8,098 810 17,357 21,978 (17,227) (4,579) -- 18,339 Net income -- -- -- -- 12,399 -- -- 12,399 Conversion of 85 shares of redeemable preferred stock to common stock 3 -- -- 5 -- -- -- 5 Conversion of 657,390 shares of Series 1 preferred to common stock 5,008 501 (13,148) 12,647 -- -- -- -- Redemption of Series 1 preferred -- -- (115) (8) -- -- -- (123) Retirement of Series 1 preferred held in treasury -- -- (2,094) 214 -- 1,880 -- -- Sale of common stock 263 26 -- 1,914 -- -- -- 1,940 Sale of Series 2 preferred -- -- 46,000 (2,129) -- -- -- 43,871 Exercise of stock options: Cash received 640 64 -- 1,501 -- -- -- 1,565 Stock tendered and added to treasury at market value 502 50 -- 998 -- (1,048) -- --
(Continued on following page) F-5 LSB Industries, Inc. Consolidated Statements of Non-redeemable Preferred Stock, Common Stock and Other Stockholders' Equity (continued)
COMMON STOCK NON- RETAINED ----------------- REDEEMABLE CAPITAL IN EARNINGS TREASURY TREASURY PAR PREFERRED EXCESS OF (ACCUMULATED STOCK -- STOCK -- SHARES VALUE STOCK PAR VALUE DEFICIT) COMMON PREFERRED TOTAL ------------------------------------------------------------------------------------------------- (In Thousands) Dividends declared: Series B 12% preferred stock ($12.00 per share) -- $ -- $ -- $ -- $ (240) $ -- $ -- $ (240) Redeemable preferred stock ($10.00 per share) -- -- -- -- (16) -- -- (16) Common stock ($.06 per share) -- -- -- -- (797) -- -- (797) Series 2 preferred stock ($1.80 per share) -- -- -- -- (1,660) -- -- (1,660) Purchase of treasury stock -- -- -- -- -- (412) -- (412) ------------------------------------------------------------------------------------------------ Balance at December 31, 1993 14,514 1,451 48,000 37,120 (7,541) (4,159) -- 74,871 Net income -- -- -- -- 24,467 -- -- 24,467 Conversion of 40 shares of redeemable preferred stock to common stock 1 -- -- 1 -- -- -- 1 Exercise of stock options: Cash received 105 11 -- 248 -- -- -- 259 Dividends declared: Series B 12% preferred stock ($12.00 per share) -- -- -- -- (240) -- -- (240) Redeemable preferred stock ($10.00 per share) -- -- -- -- (16) -- -- (16) Common stock ($.06 per share) -- -- -- -- (808) -- -- (808) Series 2 preferred stock ($3.25 per share) -- -- -- -- (2,979) -- -- (2,979) Purchase of treasury stock -- -- -- -- -- (4,756) (200) (4,956) ------------------------------------------------------------------------------------------------- Balance at December 31, 1994 14,620 $1,462 $48,000 $37,369 $12,883 $(8,915) $(200) $90,599 =================================================================================================
See accompanying notes. F-6 LSB Industries, Inc. Consolidated Statements of Cash Flows (Note 1)
YEAR ENDED DECEMBER 31, 1994 1993 1992 ---------------------------------- (In Thousands) CASH FLOWS FROM CONTINUING OPERATIONS Income from continuing operations $ 983 $ 11,235 $ 6,985 Adjustments to reconcile income from continuing operations to net cash provided (used) by continuing operations: Depreciation, depletion and amortization: Property, plant and equipment 6,998 5,870 5,971 Other 1,077 959 1,071 Provision for possible losses: Trade accounts receivable 1,468 439 972 Notes receivable 650 -- -- Environmental matter 450 -- -- Gain of sales of assets (1,303) (1,587) (61) Cash provided (used) by changes in assets and liabilities: Trade accounts receivable 3,923 (13,523) 3,084 Inventories (13,692) 2,737 (7,130) Supplies and prepaid items (927) (1,282) 415 Accounts payable 6,209 (718) (277) Accrued liabilities 850 (867) 1,439 Billings in excess of costs and estimated earnings -- (4,858) 4,858 ---------------------------------- Net cash provided (used) by continuing operations 6,686 (1,595) 17,327 CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS Capital expenditures (15,647) (9,397) (4,628) Purchase of loans receivable (3,068) -- -- Principal payments on notes receivable 388 -- -- Proceeds from sales of equipment and real estate properties 4,399 6,735 1,164 Other assets (5,566) (1,882) (968) Cash acquired in connection with acquisitions -- 1,228 55 Payments for acquisitions -- (1,747) (140) ---------------------------------- Net cash used by investing activities (19,494) (5,063) (4,517)
(Continued on following page) F-7 LSB Industries, Inc. Consolidated Statements of Cash Flows (Note 1) (continued)
YEAR ENDED DECEMBER 31, 1994 1993 1992 -------------------------------- (In Thousands) CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS Payments on long-term and other debt $ (7,635) $(17,828) $ (6,948) Long-term and other borrowings 17,124 -- 851 Net change in revolving debt facilities 47,004 (4,950) (1,108) Net change in receivables previously financed by discontinued operations (33,570) 1,218 (7,065) Net change in drafts payable 71 (3,329) 918 Dividends paid: Preferred stocks (3,235) (1,916) (1,827) Common stock (808) (797) -- Purchase of treasury stock: Preferred stock (200) -- -- Common stock (4,756) (302) (144) Net proceeds from issuance of common and preferred stock 259 47,141 687 -------------------------------- Net cash provided (used) by financing activities of continuing operations 14,254 19,237 (14,636) -------------------------------- Net increase (decrease) in cash from continuing operations 1,446 12,579 (1,826) Net change in cash from discontinued operations (1,617) (10,913) 1,723 -------------------------------- Net increase (decrease) in cash and cash equivalents from all activities (171) 1,666 (103) Cash and cash equivalents at beginning of year 2,781 1,115 1,218 -------------------------------- Cash and cash equivalents at end of year $ 2,610 $ 2,781 $ 1,115 ================================
See accompanying notes. F-8 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of LSB Industries, Inc. (the "Company") and its subsidiaries. The accounts of its financial services subsidiary, Equity Bank for Savings, F.A. ("Equity Bank"), which was sold on May 25, 1994 have been reclassified as discontinued operations at December 31, 1993. Additionally, the consolidated statements of operations for the years ended December 31, 1993 and 1992 have been restated to present the operation of Equity Bank as income from discontinued operations. See Note 3 for the assets and liabilities of the Company's financial services subsidiary classified as discontinued at December 31, 1993. 2. ACCOUNTING POLICIES STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash, overnight funds and interest bearing deposits with original maturities when purchased by the Company of 90 days or less. Supplemental cash flow information includes:
1994 1993 1992 --------------------------- (In Thousands) Cash payments for interest and income taxes: Interest on long-term debt and other $7,440 $7,159 $8,911 Income taxes (1992 is net refunds received) 832 861 (155) Noncash financing and investing activities: Exercise of stock options-stock tendered and added to treasury shares at market value -- 1,048 1,800 Long-term debt issued for property, plant and equipment 4,884 1,500 -- Patents purchased by reduction of note receivable -- -- 2,344
F-9 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Accounting Policies (continued) LOANS RECEIVABLE Loans receivable are stated at unpaid principal balances, less any allowance for loan losses (none in 1994 or 1993). Management's periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of the underlying collateral, and current economic conditions. INVENTORIES Purchased machinery and equipment are carried at specific cost plus duty, freight and other charges, not in excess of net realizable value. All other inventory is priced at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) basis, except for certain heat pump products with a value of $9,007,000 at December 31, 1994 ($7,191,000 at December 31, 1993), which are priced at the lower of cost or market, with cost being determined using the last-in, first-out (LIFO) basis. The difference between the LIFO basis and current cost is $681,000 at December 31, 1994 ($571,000 at December 31, 1993). DEPRECIATION For financial reporting purposes, depreciation, depletion and amortization is primarily computed using the straight-line method over the estimated useful lives of the assets. CAPITALIZATION OF INTEREST Interest costs aggregating $491,000 related to the construction of a new nitric acid plant were capitalized in 1994 (none in 1993 or 1992). At such time as the assets are placed in service, capitalized costs will be amortized over the related plant's estimated useful life. EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED The excess of purchase price over net assets acquired totals $4,776,000 at December 31, 1994, is included in other assets and is being amortized by the straight-line method over periods of 10 to 22 years. The carrying value of the excess of purchase price over net assets acquired is reviewed if the facts and circumstances suggest that it may be impaired. F-10 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Accounting Policies (continued) RESEARCH AND DEVELOPMENT COSTS Costs incurred in connection with product research and development are expensed as incurred. Such costs amounted to $606,000 in 1994, $788,000 in 1993 and $684,000 in 1992. ADVERTISING COSTS Costs incurred in connection with advertising and promotion of the Company's products are expensed as incurred. Such costs amounted to $1,321,000 in 1994, $1,310,000 in 1993 and $898,000 in 1992. INCOME TAXES The Company provides income taxes for the difference in the tax and financial reporting bases of assets and liabilities in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." NET INCOME (LOSS) APPLICABLE TO COMMON STOCK Net income (loss) applicable to common stock is computed by adjusting net income or loss by the amount of preferred stock dividends, including unpaid dividends, if cumulative. EARNINGS PER SHARE Primary earnings per common share are based upon the weighted average number of common shares and dilutive common equivalent shares outstanding during each year after giving appropriate effect to preferred stock dividends. Fully diluted earnings per share are based on the weighted average number of common shares and dilutive common equivalent shares outstanding and the assumed conversion of dilutive convertible securities outstanding after appropriate adjustment for interest and related income tax effects on convertible notes payable, as applicable. Average common shares outstanding used in computing earnings per share are as follows:
1994 1993 1992 ------------------------------------ Primary 13,831,128 13,401,194 8,188,492 Fully diluted 15,155,461 15,397,886 14,413,179
F-11 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. DISCONTINUED OPERATIONS--FINANCIAL SERVICES On May 25, 1994, pursuant to a Stock Purchase Agreement, dated as of February 9, 1994 (the "Acquisition Agreement"), the Company sold for $91.1 million its wholly-owned subsidiary, Equity Bank, which constituted the Financial Services Business of the Company, to Fourth Financial Corporation (the "Purchaser"). The Purchaser acquired all of the outstanding shares of capital stock of Equity Bank. All regulatory and shareholder approvals necessary to complete the sale of Equity Bank were obtained prior to the closing of this transaction. Equity Bank's revenues for the period from January 1, 1994 to May 25, 1994 and the years ended December 31, 1993 and 1992 were $16.5 million, $41.8 million and $46.9 million, respectively. The assets and liabilities of the Company's Financial Services subsidiary, classified as discontinued at December 31, 1993, are as follows:
DECEMBER 31, 1993 ----------------- (In Thousands) ASSETS Cash and cash equivalents $ 8,906 Loans and mortgage-backed securities, 359,303 net Other securities 7,806 Property and equipment, net 5,144 Excess of purchase price over net 17,041 assets acquired, net Other assets 3,273 -------- 401,473 LIABILITIES Deposits 332,511 Securities sold under agreement to 38,721 repurchase Federal Home Loan Bank advances 87,650 Accrued liabilities 2,715 -------- 461,597 -------- Net liabilities $ 60,124 ========
Under the Acquisition Agreement and using the proceeds from the sale of Equity Bank, the Company acquired from Equity Bank, prior to closing, certain subsidiaries of Equity Bank ("Retained Corporations") that own the real and personal property and other assets contributed F-12 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Discontinued Operations--Financial Services (continued) by the Company to Equity Bank at the time of the acquisition of the predecessor of Equity Bank by the Company for Equity Bank's carrying value of the assets contributed of approximately $67.4 million, which approximated fair value. The carrying value of the assets in the consolidated financial statements of the Company continues to be historical cost. At the time of closing of the sale of Equity Bank, the Company also acquired: (A) the loan and mortgage on and an option to purchase Equity Tower located in Oklahoma City, Oklahoma ("Equity Tower Loan"), for an amount equal to Equity Bank's carrying value of approximately $13.9 million; (B) other real estate owned by Equity Bank that was acquired by Equity Bank through foreclosure for an amount equal to Equity Bank's carrying value of approximately $3.6 million (the Equity Tower Loan and other real estate owned are collectively called the "Retained Assets"); and (C) certain other loans for $3.1 million previously owned by Equity Bank. In addition, the Company acquired the outstanding accounts receivable sold to Equity Bank by the Company and its subsidiaries under various purchase agreements, dated March 8, 1988 (the "Receivables") for $6.9 million, which approximated fair value. Under the Acquisition Agreement, the Company made certain representations and warranties. The Company also agreed under the Acquisition Agreement to indemnify the Purchaser and its wholly-owned subsidiary, Bank IV Oklahoma, National Association ("Bank IV"), against, among other things, (i) losses that may be sustained by them due to breach of any representations or warranties made by the Company in the Acquisition Agreement or failure by the Company to fulfill any agreement made by the Company in the Acquisition Agreement, provided losses by Fourth and Bank IV exceed $1 million in the aggregate, net of income tax effect, and such liability by the Company shall not exceed $25 million. The Company has further agreed to indemnify the Purchaser and Bank IV against certain liabilities which are not subject to the $1 million deductible and the $25 million maximum liability, including, but not limited to, environmental matters relating to the real estate contributed to Equity Bank at the time that the Company acquired Equity Bank. The representations and warranties made by the Company under the Agreement survive the closing of the sale of Equity Bank for a period of two (2) years, except certain tax-related representations and warranties which have a three (3) year survival period. In addition, there are no time limits (other than as provided by law) in connection with the indemnifications provided by the Company relating to certain environmental matters, a certain pending lawsuit, and a certain "frozen" 401(k) Plan. F-13 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INVENTORIES Inventories at December 31, 1994 and 1993 consist of:
FINISHED (OR PURCHASED) WORK-IN- RAW GOODS PROCESS MATERIALS TOTAL ----------------------------------------------- (In Thousands) 1994: Air handling units $ 2,461 $2,004 $ 8,737 $ 13,202 Machinery and industrial supplies 7,603 -- -- 7,603 Automotive products 15,029 3,814 1,148 19,991 Chemical products 8,833 3,978 5,726 18,537 ----------------------------------------------- Total $33,926 $9,796 $ 15,611 $ 59,333 =============================================== 1993 total $24,197 $9,643 $ 11,801 $ 45,641 ===============================================
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consist of:
DECEMBER 31, 1994 1993 ------------------- (In Thousands) Land and improvements $ 4,409 $ 4,387 Buildings and improvements 20,342 19,576 Machinery, equipment and automotive 99,507 81,476 Furniture, fixtures and store equipment 5,760 4,951 Producing oil and gas properties 3,341 3,405 ------------------- 133,359 113,795 Less accumulated depreciation, depletion and amortization 59,675 53,269 ------------------- $ 73,684 $ 60,526 ===================
F-14 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. FOREIGN SALES CONTRACT In 1992, a subsidiary of the Company signed an agreement to supply a foreign customer with equipment, technology and technical assistance to manufacture certain types of automotive products. Payments scheduled under the contract totaled $44 million, $15.5 million of which has been billed (in accordance with the payment schedule) with $13.9 million collected by the Company as of December 31, 1994. In March 1995, the subsidiary has negotiated a preliminary oral agreement in principle with the customer to revise the contract payment terms and the commitment by the subsidiary to purchase bearing products from the customer. Under the proposed revision, the subsidiary expects to receive approximately $4 million cash upon completion of the revision and $21 million in bearing products, after the subsidiary satisfies its revised purchase commitment and after the customer repays it debt associated with the contract and its revision, which receipt is not expected prior to the year 2000. In connection with this revision, the Company would amend its purchase commitment from a best efforts arrangement to a firm commitment to purchase approximately $6 million of bearing products over each of the next five years, at pre-determined prices, not in excess of market prices, subject to the customer's ability to deliver product to the Company meeting defined quality standards. Revenues, costs and profits related to the contract are being recognized in two separate phases. The first phase involves the purchase, modification, development and delivery of the machinery, tooling, designs and other technical information and services. Sales recognized during this phase have been limited to actual cash collections and approximately $1.6 million originally expected to have been received in 1994 which is included in other assets in the accompanying consolidated balance sheet at December 31, 1994. Contract revenues related to bearing products to be received under the $21 million delivery commitment discussed above, will be deferred until such products are received. F-15 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. LONG-TERM DEBT Long-term debt is detailed as follows:
December 31, 1994 1993 ----------------- (In Thousands) Secured revolving credit facility with interest at a base rate of a certain bank plus a specified percentage (9.0% aggregate rate at December 31, 1994) (A) $44,379 $ -- Secured loans of a subsidiary with interest payable quarterly at rates indicated (B): 10.415% to 12.72% term loans 15,833 20,583 Revolving credit facility at a base rate of a certain bank plus a specified percentage (10.75% at December 31, 1994) 5,556 2,100 Secured construction loan with interest payable monthly at the "LIBOR rate" plus 3.1% (9.225% at December 31, 1994) (C) 12,750 -- Secured revolving loans with interest payable monthly at the prime rate of a bank affiliated with the lender plus a specified percentage -- 470 Other with interest at a rate of 7.5% to 13.0% 13,163 7,118 ----------------- 91,681 30,271 Less current portion of long-term debt 9,716 9,763 ----------------- Long-term debt due after one year $81,965 $20,508 =================
(A) In December 1994, the Company, certain subsidiaries of the Company and a bank entered into a series of six asset-based revolving credit facilities aggregating $65 million. The agreement provides for an initial term of three years; however, the agreement will automatically renew for successive 13- month terms, unless terminated by either party. The revolving loans are available based on varying percentages of eligible accounts receivable and inventory. At December 31, 1994, available borrowings aggregated $9.2 million on which the Company pays a commitment fee of .5%. The agreement provides for loans at the reference rate as defined (which approximates the national prime rate) plus .5%, or the Eurodollar rate plus 2.875%, with interest due monthly. The agreement also provides for the issuance of letters of credit of up to $11 million, subject to certain restrictions. The agreement is secured by substantially all of the Company's receivables, inventory, proprietary rights, and proceeds thereof. The agreement contains financial covenants, including limitations on dividends, investments and capital expenditures, and requires F-16 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Long-Term Debt (continued) maintenance of tangible net worth (escalating from $86 million in 1994 to $98 million in 1996), and debt ratios whereby the "borrowing groups'" debt (excluding the borrowings under this agreement) shall not exceed 85% of the Company's adjusted tangible net worth (as defined). (B) This agreement between a subsidiary of the Company and two institutional lenders provides for two series of term loans and a revolving credit facility which provides a maximum available credit line of approximately $5.6 million as of December 31, 1994. The availability under the revolving credit facility reduces by $1.8 million in each 1995 and 1996 with the remainder due in March 1997. Annual principal payments of the term loans are $5.1 million in 1995 and escalate each year to a final payment of $5.5 million on March 31, 1997. The agreement is secured by substantially all of the subsidiaries' assets, not otherwise pledged. It requires the Company to maintain certain financial ratios and contains other financial covenants, including working capital, fixed charge coverage and tangible net worth requirements and capital expenditure limitations. During 1994, the subsidiary obtained a waiver from the lender as it relates to the fixed charge coverage ratio, reducing the required minimum through November 1995. The subsidiary expects to be able to comply with the original covenant by such date. Payments to the parent company are limited to (i) the amount of income taxes that the subsidiary would pay if the subsidiary filed separate income tax returns, (ii) management and other fees required for reimbursement of reasonable costs and expenses, consistent with past practices and (iii) other payments to the parent company up to 25% or 50% of the cumulative net income of the subsidiary, depending on the total capitalization ratio, as defined, of the Company. As a result of the various restrictions under the agreement, the subsidiary is permitted to transfer approximately $272,000 of net assets to the parent company as of December 31, 1994. (C) This agreement between a subsidiary of the Company and an institutional lender provides for a construction loan in the aggregate amount of $12.75 million of which the proceeds are to be used in the construction of a nitric acid plant. Interest during the construction period accrues at a rate equal to the LIBOR rate plus 3.10%. Upon completion of the plant, the loan converts to a term loan requiring 84 equal monthly payments of principal bearing interest, with interest equal to a fixed rate of the treasury rate plus 2.7%. This agreement is secured by the plant, equipment and machinery, and proprietary rights associated with the plant. F-17 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Long-Term Debt (continued) Maturities of long-term debt for each of the five years after December 31, 1994 are: 1995-$9,716,000; 1996-$10,184,000; 1997-$54,938,000; 1998-$3,409,000; 1999- $3,581,000 and thereafter-$9,853,000. Subsequent to December 31, 1994, the Company obtained waivers from two lenders relating to certain debt covenants. Although there can be no assurances, the Company expects to meet such covenants in future periods. 8. INCOME TAXES The provision (benefit) for income taxes from continuing operations consists of the following for the year indicated:
1994 1993 1992 ----------------------- (In Thousands) Current: Federal $(1,150) $142 $ 51 State 450 667 412 ------------------------ $ (700) $809 $463 ========================
The approximate tax effects of each type of temporary difference and carryforward that are used in computing deferred tax assets and liabilities and the valuation allowance related to deferred tax assets at December 31, 1994 and 1993 are as follows:
1994 1993 ----------------- (In Thousands) DEFERRED TAX ASSETS Allowances for doubtful accounts not deductible for tax purposes $ 982 $ 1,027 Partnership losses not deductible for tax purposes 2,294 2,294 Capitalization of certain costs as inventory for tax purposes 2,102 1,667 Net operating loss carryforward 16,734 15,409 Investment tax and alternative minimum tax credit carryforwards 1,466 1,292 Other 1,226 1,090 ----------------- Total deferred tax assets 24,804 22,779 Less valuation allowance 14,717 13,559 ----------------- Net deferred tax assets $10,087 $ 9,220 =================
F-18 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Income Taxes (continued)
1994 1993 ----------------- (In Thousands) DEFERRED TAX LIABILITIES Accelerated depreciation used for tax purposes $ 7,751 $ 6,977 Inventory basis difference resulting from a business combination 2,139 2,139 Other 197 104 ----------------- Total deferred tax liabilities $10,087 $ 9,220 =================
The Company is able to realize deferred tax assets up to an amount equal to the future reversals of existing taxable temporary differences. The majority of the taxable temporary differences will turn around in the loss carryforward period as the differences are depreciated or amortized. Other differences will turn around as the assets are disposed in the normal course of business or by tax planning strategies which management considers prudent and feasible. The differences between the amount of the provision for income taxes and the amount which would result from the application of the federal statutory rate to "Income from continuing operations before provision (benefit) for income taxes" for each of the three years in the period ended December 31, 1994 are detailed below:
1994 1993 1992 ----------------------------- (In Thousands) Provision for income taxes at federal statutory rate $ 96 $ 4,215 $ 2,532 Changes in the valuation allowance related to deferred tax assets (291) (4,770) (2,458) State income taxes, net of federal benefit 297 259 92 Amortization of excess of purchase price over net assets acquired 139 191 153 Settlement of dispute with governmental agency -- 618 -- Utilization of regular and/or alternative minimum tax net operating loss carryforward (1,300) -- (309) Alternative minimum tax 150 142 51 Other 209 154 402 ----------------------------- Provision (benefit) for income taxes $ (700) $ 809 $ 463 =============================
At December 31, 1994, the Company has net operating loss ("NOL") carryforwards for tax purposes of approximately $42.9 million. Such amounts expire beginning in 1999. The Company also has investment tax credit carryforwards of approximately $630,000 which expire beginning in 1995. F-19 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY STOCK OPTIONS In November 1981, the Company adopted the 1981 Incentive Stock Option Plan, in March 1986, the Company adopted the 1986 Incentive Stock Option Plan and, in September 1993, the Company adopted the 1993 Stock Option and Incentive Plan. Under these plans, the Company is authorized to grant options to purchase up to 3,700,000 shares of the Company's common stock to key employees of the Company and its subsidiaries. These options become exercisable 20% after one year from date of grant, 40% after two years, 70% after three years, 100% after four years and lapse at the end of ten years. The exercise price of options to be granted under this plan is equal to the fair market value of the Company's common stock at the date of grant. For participants who own 10% or more of the Company's common stock at the date of grant, the option price is 110% of the fair market value at the date of grant and the options lapse after five years from the date of grant. Activity in the Company's stock option plans during each of the three years in the period ended December 31, 1994 is as follows:
1994 1993 1992 ------------------------------------ Outstanding options at beginning of year 556,664 1,340,300 2,501,700 Granted 54,000 14,000 280,000 Exercised (29,500) (791,636) (1,411,400) Surrendered, forfeited or expired -- (6,000) (30,000) ------------------------------------ Outstanding options at end of year 581,164 556,664 1,340,300 ==================================== At end of year: Prices of outstanding options $ 1.13 $ 1.13 $ 1.13 to to to $ 9.00 $ 9.00 $ 3.44 Average option price per share $ 2.84 $ 2.44 $ 2.10 Options exercisable 356,940 280,640 852,566 Options available for future grants 872,300 926,300 84,300
F-20 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Stockholders' Equity (continued) The Company's Board of Directors approved the grant of non-qualified stock options to the Company's outside directors, President and a key employee of one of the Company's subsidiaries, as detailed below. The option price was based on the market value of the Company's common stock at the date of grant and these options are exercisable at any time after the date of grant and expire five years from such date. During 1994, three of the Company's Directors exercised options to purchase 75,000 shares of the Company's stock at $2.63 per share. During 1993, one of the Company's directors exercised options to purchase 65,000 shares of the Company's stock at an average price of $2.26 per share. During 1992, three of the Company's directors exercised options to purchase 150,000 shares of the Company's stock at $1.25 per share and an option to purchase 50,000 shares at $1.25 per share expired.
NUMBER OF SHARES SUBJECT TO OPTIONS DATE GRANTED OPTION PRICE OUTSTANDING AT OR EXTENDED PER SHARE DECEMBER 31, 1994 - ---------------------------------------------------- April 1990 $1.375 100,000 June 1992 $3.125 45,000 June 1994 (A) $2.625 165,000
(A) In June 1994, the Board of Directors extended the expiration date on the grant of options for 165,000 shares to the Company's President for an additional five years. The option price and terms of the option were unchanged except that, in consideration of the extension of time to exercise, the President agreed to a revised vesting schedule for exercise of 20% of the option shares in each of the years 1995, 1996 and 1997 and 40% of the option shares in 1998. In September 1993, the Company adopted the 1993 Nonemployee Director Stock Option Plan (the "Outside Director Plan"). The Outside Director Plan authorizes the grant of nonqualified stock options to each member of the Company's Board of Directors who is not an officer or employee of the Company or its subsidiaries. The maximum number of shares of common stock of the Company that may be issued under the Outside Director Plan is 150,000 shares (subject to adjustment as provided in the Outside Director Plan). F-21 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Stockholders' Equity (continued) The Company shall automatically grant to each outside director an option to acquire 5,000 shares of the Company's common stock on April 30 following the end of each of the Company's fiscal years in which the Company realizes net income of $9.2 million or more for such fiscal year. The exercise price for an option granted under this plan shall be the fair market value of the shares of common stock at the time the option is granted. Each option granted under this plan to the extent not exercised shall terminate upon the earlier of the termination as a member of the Company's Board of Directors or the fifth anniversary of the date such option was granted. During 1994, there were 25,000 options granted at $9.00 per share under the Outside Director Plan. PREFERRED SHARE PURCHASE RIGHTS In February 1989, the Company's Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (the "Preferred Right") for each outstanding share of the Company's common stock. The Preferred Rights are designed to ensure that all of the Company's stockholders receive fair and equal treatment in the event of a proposed takeover or abusive tender offer. The Preferred Rights are generally exercisable when a person or group, other than the Company's Chairman and his affiliates, acquire beneficial ownership of 30% or more of the Company's common stock (such a person or group will be referred to as the "Acquirer"). Each Preferred Right (excluding Preferred Rights owned by the Acquirer) entitles stockholders to buy one one-hundredth (1/100) of a share of a new series of participating preferred stock at an exercise price of $14. Following the acquisition by the Acquirer of beneficial ownership of 30% or more of the Company's common stock, and prior to the acquisition of 50% or more of the Company's common stock by the Acquirer, the Company's Board of Directors may exchange all or a portion of the Preferred Rights (other than Preferred Rights owned by the Acquirer) for the Company's common stock at the rate of one share of common stock per Preferred Right. Following acquisition by the Acquirer of 30% or more of the Company's common stock, each Preferred Right (other than the Preferred Rights owned by the Acquirer) will entitle its holder to purchase a number of the Company's common shares having a market value of two times the Preferred Right's exercise price. If the Company is acquired, each Preferred Right (other than the Preferred Rights owned by the Acquirer) will entitle its holder to purchase a number of the Acquirer's common shares having a market value at the time of two times the Preferred Right's exercise price. Prior to the acquisition by the Acquirer of beneficial ownership of 30% or more of the Company's stock, the Company's Board of Directors may redeem the Preferred Rights for $.01 per Preferred Right. F-22 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. REDEEMABLE PREFERRED STOCK Each share of the noncumulative redeemable preferred stock, $100 par value, is convertible into 40 shares of the Company's common stock at any time at the option of the holder; entitles the holder to one vote and is redeemable at par. The redeemable preferred stock provides for a noncumulative annual dividend of 10%, payable when and as declared. Dividend payments were current at December 31, 1994 and 1993. 11. NON-REDEEMABLE PREFERRED STOCK The 20,000 shares of Series B cumulative, convertible preferred stock, $100 par value, are convertible, in whole or in part, into 666,666 shares of the Company's common stock (33.3333 shares of common stock for each share of preferred stock) at any time at the option of the holder and entitles the holder to one vote per share. The Series B preferred stock provides for annual cumulative dividends of 12% from date of issue, payable when and as declared. Dividend payments were current at December 31, 1994 and 1993. On May 27, 1993, the Company completed a public offering of $46 million of a new series of Class C preferred stock, designated as a $3.25 convertible exchangeable Class C preferred stock, Series 2, no par value ("Series 2 Preferred"). The Series 2 Preferred has a liquidation preference of $50.00 per share plus accrued and unpaid dividends and is convertible at the option of the holder at any time, unless previously redeemed, into common stock of the Company at an initial conversion price of $11.55 per share (equivalent to a conversion rate of approximately 4.3 shares of common stock for each share of Series 2 Preferred), subject to adjustment under certain conditions. Upon the mailing of notice of certain corporate actions, holders will have special conversion rights for a 45-day period. The Series 2 Preferred is not redeemable prior to June 15, 1996. The Series 2 Preferred will be redeemable at the option of the Company, in whole or in part, at $52.28 per share if redeemed on or after June 15, 1996, and thereafter at prices decreasing ratably annually to $50.00 per share on or after June 15, 2003, plus accrued and unpaid dividends to the redemption date. Dividends on the Series 2 Preferred are cumulative and are payable quarterly in arrears. Dividend payments were current at December 31, 1994 and 1993. The Series 2 Preferred also is exchangeable in whole, but not in part, at the option of the Company on any dividend payment date beginning June 15, 1996, for the Company's 6.50% Convertible Subordinated Debentures due 2018 (the "Debentures") at the rate of $50.00 principal amount of Debentures for each share of Series 2 Preferred. Interest on the Debentures, if issued, will be payable semiannually in arrears. The Debentures will, if issued, contain conversion and optional redemption provisions similar to those of the Series 2 Preferred and will be subject to a F-23 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Non-redeemable Preferred Stock (continued) mandatory annual sinking fund redemption of five percent of the amount of Debentures initially issued, commencing June 15, 2003 (or the June 15 following their issuance, if later). At December 31, 1994, the Company is authorized to issue an additional 248,403 shares of $100 par value preferred stock and an additional 5,000,000 shares of no par value preferred stock. Upon issuance, the Board of Directors of the Company is to determine the specific terms and conditions of such preferred stock. 12. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases certain property, plant and equipment. Future minimum payments on operating leases with initial or remaining terms of one year or more at December 31, 1994 are as follows:
(In Thousands) 1995 $1,143 1996 763 1997 373 1998 253 1999 23 After 1999 35 ------ $2,590 ======
Rent expense under all operating lease agreements, including month-to-month leases, was $3,149,000 in 1994, $2,595,000 in 1993 and $2,934,000 in 1992. Renewal options are available under certain of the lease agreements for various periods at approximately the existing annual rental amounts. Rent expense paid to related parties was $90,000 in 1994 and $120,000 in 1993 and 1992. A subsidiary of the Company has an operating lease agreement for specified quantities of precious metals used in the subsidiary's production process. The lease, which expires in March 1995, requires, among other things, (i) rentals generally based on a percentage (5.75%) of the leased metals' market values, (ii) the subsidiary to provide to the lessor a letter of credit equal to at least 35% of the leased metals' market value (approximately $500,000 at December 31, 1994) and (iii) the subsidiary to purchase the leased metals at market value at the end of the lease term, if not renewed, or return to the lessor the quantities of metals subject to the lease. F-24 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Commitments and Contingencies (continued) During 1993, the Company's Chemical Business acquired an additional nitric acid plant for approximately $1.9 million. The Chemical Business is in the process of moving such plant from Illinois and installing the plant in Arkansas. The Company anticipates the total expenditures to move and install the plant will be approximately $16.5 million, of which $12.5 million had been incurred at December 31, 1994. LEGAL MATTERS Following is a summary of certain legal actions involving the Company: A. In 1987, the U.S. Government notified one of the Company's subsidiaries, along with numerous other companies, of potential responsibility for clean-up of a waste disposal site in Oklahoma. No legal action has yet been filed. The amount of the Company's cost associated with the clean-up of the site is unknown due to continuing changes in (i) the estimated total cost of clean-up of the site and (ii) the percentage of the total waste which was alleged to have been contributed to the site by the Company, accordingly, no provision for any liability which may result has been made in the accompanying financial statements. The subsidiary's insurance carriers have been notified of this matter; however, the amount of possible coverage, if any, is not yet determinable. B. As a result of a preliminary environmental assessment report prepared by the State of Arkansas, the primary manufacturing facility of the Company's Chemical Business has been placed in the Environmental Protection Agency's ("EPA") tracking system of sites which are known or suspected to be a site of a release of hazardous waste. Inclusion in the EPA's tracking system does not represent a determination of liability or a finding that any response action is necessary. As a result of being placed in the System, the State of Arkansas performed a preliminary assessment and advised the Company that the site has had certain releases of contaminants. On July 18, 1994, the Company received a report from the State of Arkansas which contained findings of violations of certain environmental laws and requested the Company to conduct further investigations to better determine the compliance status of and releases of contaminants at the Company. The Company has been advised that the State of Arkansas is currently preparing an administrative consent agreement to outline specific activities necessary to bring the Site into compliance and to remediate identified releases. While the Company is at this time unable to determine the ultimate cost of compliance with the expected administrative consent agreement, the Company has determined the subsidiary's cost to be at least $450,000; therefore, the Company has included a provision for environmental costs of $450,000 in the 1994 results of operations. Based on information presently available, the Company does not believe that compliance with the administrative consent agreement, or the assessment of penalties, or F-25 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Commitments and Contingencies (continued) the facility being placed in the System, should have a material adverse effect on the Company or the Company's financial condition. C. A subsidiary of the Company was named in April 1989 as a third party defendant in a lawsuit alleging defects in fan coil units installed in a commercial building. The amount of damages sought by the owner against the general contractor and the subsidiary's customer are substantial. The subsidiary's customer alleges that to the extent defects exist in the fan coil units, it is entitled to recovery from the subsidiary. The Company's subsidiary generally denies their customer's allegations and that any failures in the fan coil units were a result of improper design by the customer, improper installation or other causes beyond the subsidiary's control. The subsidiary has in turn filed claims against the suppliers of certain materials used to manufacture the fan coil units to the extent any failures in the fan coil units were caused by such materials. Discovery in these proceedings and settlement discussions are continuing. The Company does not believe resolution of the matter will have a material adverse effect on the Company or the Company's financial condition. The Company, including its subsidiaries, is a party to various other claims, legal actions, and complaints arising in the ordinary course of business. In the opinion of management after consultation with counsel, all claims, legal actions (including those described above) and complaints are adequately covered by insurance, or if not so covered, are without merit or are of such kind, or involve such amounts that unfavorable disposition would not have a material effect on the financial position or results of operations of the Company. OTHER During 1993 the Company settled an outstanding dispute with the U.S. Customs Service. Pursuant to the terms of the settlement agreement, the Company made a payment of $1.8 million. In 1989 and 1991, the Company entered into severance agreements with certain of its executive officers that become effective after the occurrence of a change in control, as defined, if the Company terminates the officer's employment or if the officer terminates employment with the Company for good reason, as defined. These agreements require the Company to pay the executive officers an amount equal to 2.9 times their average annual base compensation, as defined, upon such termination. In 1994, the Company guaranteed approximately $2 million of debt of a start-up aviation company in exchange for a 20% ownership interest, to which no value has been assigned as of December 31, 1994. This debt requires interest only payments until September 1996 at which time the outstanding principal and interest are due in full. F-26 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution pension plan of which participation is available to substantially all full-time employees. The Company does not contribute to this plan, although it does pay for all costs associated with administering the plan, none of which are significant. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following discussion of fair values is not indicative of the overall fair value of the Company's balance sheet since the provisions of the SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," do not apply to all assets, including intangibles. The following methods and assumptions were used by the Company in estimating its fair value of financial instruments: CASH AND CASH EQUIVALENTS: Carrying value approximates fair value. LOANS: For variable-rate loans with no significant change in credit risk since loan origination, fair values approximate carrying amounts. Fair values for fixed-rate loans are estimated using discounted cash flow analyses, using interest rates which would currently be offered for loans with similar terms to borrowers of similar credit quality and for the same remaining maturities. As of December 31, 1994 and 1993, carrying values of loans receivable approximated their estimated fair value. INVESTMENT IN EQUITY SECURITIES: Fair values of investments in equity securities of closely-held companies have not been determined as estimation of such values are not practicable (carrying cost of $802,190). BORROWED FUNDS: Fair values for fixed rate borrowings are estimated using a discounted cash flow analysis that applies interest rates currently being offered on borrowings of similar amounts and terms to those currently outstanding. Carrying values for variable rate borrowings approximate their fair value. The estimated fair value of the Company's long-term debt is $92.6 million and $31.8 million compared to the Company's carrying value of $91.7 million and $30.3 million at December 31, 1994 and 1993, respectively. As of December 31, 1994, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximated their estimated fair value. F-27 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. SEGMENT INFORMATION The Company and its subsidiaries operate principally in four industries. CHEMICAL This segment manufactures and sells chemical products for mining, agricultural, electronic, paper and other industries. Sales to customers of this segment, which primarily include coal mining companies throughout the United States and farmers in Texas, Missouri and Tennessee, are generally unsecured. ENVIRONMENTAL CONTROL This business segment manufactures and sells a variety of air handling and heat pump products for use in commercial and residential air conditioning and heating systems. Sales to customers of this segment, which primarily include original equipment manufacturers, contractors and independent sales representatives located throughout the world, are generally secured by a mechanic's lien, except for sales to original equipment manufacturers, which are generally unsecured. INDUSTRIAL PRODUCTS This segment manufactures and purchases machine tools and purchases industrial supplies for sale to machine tool dealers and end users throughout the world. Sales of industrial supplies are generally unsecured, whereas the Company generally retains a security interest in machine tools sold until payment is received. AUTOMOTIVE PRODUCTS This segment manufactures and sells, generally on an unsecured basis, anti- friction bearings and other products for automotive applications to wholesalers, retailers and original equipment manufacturers located throughout the world. Credit is extended to customers based on an evaluation of the customer's financial condition and other factors. Credit losses are provided for in the financial statements based on historical experience and periodic assessment of outstanding accounts receivable, particularly those accounts which are past due. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer bases, and their dispersion across many different industries and geographic areas. F-28 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Segment Information (continued) Information about the Company's operations in different industry segments for each of the three years in the period ended December 31, 1994 is detailed below.
1994 1993 1992 --------------------------------- (In Thousands) Sales: Chemical $131,576 $114,952 $106,031 Environmental Control 69,914 69,437 54,812 Industrial Products 11,222 19,714 17,539 Automotive Products 32,313 28,513 19,991 --------------------------------- $245,025 $232,616 $198,373 ================================= Gross profit: Chemical $ 25,700 $ 27,557 $ 26,572 Environmental Control 17,651 15,651 13,839 Industrial Products 1,316 5,160 4,904 Automotive Products 8,442 9,744 6,667 --------------------------------- $ 53,109 $ 58,112 $ 51,982 ================================= Operating profit (loss): Chemical $ 12,809 $ 17,632 $ 18,427 Environmental Control 3,512 3,900 3,269 Industrial Products (4,155) 2,120 257 Automotive Products (1,462) 2,528 954 --------------------------------- 10,704 26,180 22,907 General corporate expenses, net (3,472) (6,629) (6,234) Interest expense (6,949) (7,507) (9,225) --------------------------------- Income before provision for income taxes $ 283 $ 12,044 $ 7,448 =================================
F-29 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Segment Information (continued)
1994 1993 1992 --------------------------------- (In Thousands) Depreciation, depletion and amortization of property, plant and equipment: Chemical $ 4,044 $ 3,696 $ 3,566 ================================= Environmental Control $ 1,427 $ 1,015 $ 965 ================================= Industrial Products $ 117 $ 118 $ 141 ================================= Automotive Products $ 785 $ 502 $ 620 ================================= Additions to property, plant and equipment: Chemical $ 15,532 $ 9,036 $ 3,916 ================================= Environmental Control $ 3,722 $ 1,584 $ 400 ================================= Industrial Products $ 74 $ 560 $ 471 ================================= Automotive Products $ 1,203 $ 1,875 $ 769 ================================= Identifiable assets: Chemical $ 94,972 $ 77,943 $ 67,175 Environmental Control 40,660 38,389 33,708 Industrial Products 18,423 22,688 20,902 Automotive Products 38,369 31,650 24,257 --------------------------------- 192,424 170,670 146,042 Corporate assets 28,857 25,368 20,957 --------------------------------- Total assets $221,281 $196,038 $166,999 =================================
F-30 LSB INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Segment Information (continued) Revenues by industry segment include revenues from unaffiliated customers, as reported in the consolidated financial statements. Intersegment revenues, which are accounted for at transfer prices ranging from the cost of producing or acquiring the product or service to normal prices to unaffiliated customers, are not significant. Gross profit by industry segment represents net sales less cost of sales. Gross profit of the Industrial Products and the Automotive Products segments reflects the results recognized on the long-term contract discussed in Note 6. Such results are divided equally between the two segments. Operating profit by industry segment represents revenues less operating expenses. In computing operating profit, none of the following items have been added or deducted: general corporate expenses, income taxes or interest expense. Operating profit of the Industrial Products and the Automotive Products segments reflects the results recognized on the long-term contract discussed in Note 6. Such results are divided equally between the two segments. Identifiable assets by industry segment are those assets used in the operations in each industry. Corporate assets are those principally owned by the parent company or by subsidiaries not involved in the four identified industries. Revenues from unaffiliated customers include direct foreign export sales as follows:
GEOGRAPHIC AREA 1994 1993 1992 --------------- --------------------------- (In Thousands) Mexico and Central and South America $ 6,976 $ 6,419 $ 4,075 Canada 11,649 11,850 8,123 Slovakia 1,783 7,488 6,203 Other 16,195 11,100 4,767 --------------------------- $36,603 $36,857 $23,168 ===========================
F-31 LSB Industries, Inc. Supplementary Financial Data Quarterly Financial Data (Unaudited) (In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------------------------------------------------- (Restated) 1994 Total revenues $64,352 $69,744 $60,139 $55,734 ================================================== Gross profit on net sales $14,358 $15,230 $12,235 $11,286 ================================================== Income (loss) from continuing operations $ 1,858 $ 2,817 $ (913) $(2,773) ================================================== Net income (loss) $ 2,204 $27,255 $ (913) $(4,079) ================================================== Net income (loss) applicable to common stock $ 1,380 $26,447 $(1,718) $(4,877) ================================================== Primary earnings (loss) per common share: Continuing operations $ .07 $ .14 $ (.13) $ (.27) ================================================== Net income $ .10 $ 1.84 $ (.13) $ (.37) ================================================== 1993 Total revenues $53,393 $69,416 $58,674 $56,046 ================================================== Gross profit on net sales $13,286 $18,067 $13,454 $13,305 ================================================== Income (loss) from continuing operations $ 2,155 $ 5,614 $ 1,869 $ 1,597 ================================================== Net income $ 2,657 $ 5,758 $ 2,424 $ 1,560 ================================================== Net income applicable to common stock $ 2,580 $ 5,408 $ 1,616 $ 753 ================================================== Primary earnings per common share: Continuing operations $ .20 $ .37 $ .07 $ .05 ================================================== Net income $ .25 $ .38 $ .11 $ .05 ==================================================
Net income in the fourth quarter of 1993 was increased approximately $3.5 million for additions to fixed assets resulting from capitalizable expenditures previously being expensed and the collection of an insurance settlement relating to the foreign project inventory. F-32 LSB Industries, Inc. Schedule II -- Valuation and Qualifying Accounts Years ended December 31, 1994, 1993 and 1992 (Dollars in Thousands)
ADDITIONS DEDUCTIONS CHARGED WRITE- BALANCE AT TO COSTS OFFS/ BALANCE BEGINNING AND COSTS AT END DESCRIPTION OF YEAR EXPENSES INCURRED OF YEAR - ------------------------------------------------------------------------------------------ Allowance for doubtful accounts (1): 1994 $2,583 $2,118 $1,551 $3,150 =================================================== 1993 $3,082 $ 439 $ 938 $2,583 =================================================== 1992 $3,354 $ 972 $1,244 $3,082 =================================================== Product warranty liability: 1994 $ 653 $ 667 $ 631 $ 689 =================================================== 1993 $ 613 $ 427 $ 387 $ 653 =================================================== 1992 $ 649 $ 547 $ 583 $ 613 ===================================================
(1) Deducted in the balance sheet from the related assets to which the reserve applies. Other valuation and qualifying accounts are detailed in the Company's notes to consolidated financial statements. F-33
                          STOCK PLEDGE AGREEMENT


      THIS STOCK PLEDGE AGREEMENT (the "Agreement") is executed as of the 2nd
day of August, 1994, by Dr. Hauri AG, a corporation formed under the laws of
Switzerland (the "Pledgor"), in favor of LSB Chemical Corp., an Oklahoma
corporation (the "Pledgee"). 

      WHEREAS, Compagnie Financiere du Tararois, an SARL formed under the laws
of the Republic of France (the "Borrower"), of which all of the issued and
outstanding capital stock is owned by Pledgor, has executed and delivered to
Pledgee that certain Secured Promissory Note (the "Note") of even date
herewith in the aggregate principal amount of seven million five hundred
thousand French Francs (FRF 7,500,000); 

      WHEREAS, Pledgor, as the sole shareholder of Borrower, will materially
benefit from the loan to Borrower represented by the Note; and 

      WHEREAS, Pledgor and Pledgee desire to have Pledgor grant to Pledgee a
security interest in the Collateral (as hereinafter defined) as security for
Borrower's performance of the terms and conditions of the Note, together with
Pledgor's performance of certain obligations set forth herein;

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

      Section 1. Grant of Security Interest. 

      (a) Upon the terms hereof, for value received, Pledgor hereby delivers,
      and grants to, Pledgee, a security interest in five thousand (5,000)
      shares of common stock, FRF 100 par value per share, of Borrower which
      represents all of the issued and outstanding capital stock of Borrower.
      Pledgor shall, simultaneously with the execution of this Agreement,
      deliver in pledge to Pledgee the stock certificates, registered in the
      name of Pledgor, representing all of the Pledged Shares, together with
      appropriate stock powers duly endorsed in blank.

      (b) The term "Pledged Shares" as used herein shall also mean and
      include, without limitation, any cash or stock dividend and/or
      distribution or exchange of stock in connection with any reorganization,
      recapitalization, reclassification, or increase or reduction of capital,
      to which Pledgor shall become entitled for any reason whatsoever as an
      addition to, in substitution for, or in exchange for any of the
      aforesaid Shares. 

      (c) If Pledgor shall at any time become entitled to receive, or shall
      receive, any stock certificate (including, without limitation, any
      certificate representing a stock dividend or distribution in connection
      with any reclassification, increase or reduction of capital) or option,
      whether as an addition to, in substitution of, or in exchange for, any
      of the Pledged Shares, or otherwise, Pledgor agrees to accept the same
      as Pledgee's agent and to deliver promptly the same in pledge to
      Pledgee, in the exact form received, with appropriate stock powers
      relating thereto duly endorsed in blank, and such other documents as
      Pledgee shall request in order to perfect Pledgee's security interest
      therein.

      (d) At any time and from time to time after an Event of Default (as
      hereinafter defined), Pledgee may cause all or any part of the
      Collateral (as hereinafter defined) to be transferred to or registered
      in its name or in the name of its nominee. 

      (e) All properties in which Pledgee is herein granted a security
      interest are hereinafter collectively referred to as the "Collateral."

      Section 2. Obligations. This Agreement is made, and the security
interests created hereby are granted to Pledgee, to secure the following
Obligations (so called herein): 

      (a) Payment of the indebtedness evidenced by, and performance and
      discharge of each and every covenant, condition, and agreement contained
      in the Note, and any and all modifications, extensions, or renewals
      thereof, whether hereafter evidenced by the Note or otherwise;

      (b) The due and punctual payment of any costs and expenses incurred in
      connection with the realization of the Collateral for which this
      Agreement provides; and 

      (c) Performance and discharge of each and every obligation, covenant,
      and agreement of Pledgor herein contained. 

      Section 3. Substituted Collateral. In the event that Pledgor, with the
prior written consent of Pledgee (such consent being hereby required),
substitutes other collateral acceptable to Pledgee in place and stead of all
or any of the Collateral pursuant to the terms and provisions hereof, upon the
delivery of such substituted collateral in pledge to Pledgee pursuant to a
security agreement or other instrument reasonably acceptable to Pledgee,
Pledgee will reassign and deliver to Pledgor the Collateral for which
substitution is being effected.

      Section 4. Additional Collateral. Pledgor hereby agrees and acknowledges
that Borrower, of which Pledgor is the sole shareholder, has entered into an
agreement to acquire a majority of the outstanding capital stock of Beutot
S.A. ("Beutot"). As additional security for the Obligations hereunder, Pledgor
hereby covenants and agrees that following the consummation of Borrower's
acquisition of a controlling interest in Beutot, Pledgor shall cause the
Borrower to have Beutot execute and deliver to Borrower a security agreement
substantially in the form attached hereto as Exhibit "A" hereto, granting to
Borrower, among other things, a security interest in the Collateral (as
therein defined) as security for any loans or other extensions of credit made
by the Borrower to Beutot.

      Section 5. Representations and Warranties of Pledgor.

      (a) Pledgor represents and warrants to Pledgee and agrees that it owns
      and at all times will own, except with respect to one (1) disclosed
      potential sale of Pledged Shares, the Collateral from time to time
      pledged hereunder, free and clear of any mortgage, pledge, lien, charge
      or undisclosed encumbrance, except for the lien created hereby or any
      other lien created against the Collateral in favor of Pledgee, and that
      this Agreement constitutes and at all times will constitute a first,
      prior and valid security interest in the Collateral pledged hereunder,
      enforceable in accordance with its terms. Pledgor, at its expense, will
      warrant and defend the title to the Collateral against the claims of all
      third parties, except for claims, if any, known to Pledgee at the date
      hereof but not disclosed to Pledgor at or prior to the date hereof, and
      will execute and deliver all such further instruments, and take all such
      further action as from time to time may be requested by Pledgee,
      reasonably necessary in order to better assure and confirm the rights of
      Pledgee to all or any part of the Collateral, to maintain the lien or
      security interest created by this Agreement thereon as a valid and
      perfected security interest, to facilitate the carrying out of this
      Agreement, and to secure the rights and remedies of Pledgee.

      (b) Pledgor further warrants and represents that it has full power and
      lawful authority to sell, transfer and assign the Collateral to Pledgee
      and to grant Pledgee a first, prior and valid security interest therein
      as herein provided, and the execution and delivery and the performance
      hereof are not in contravention of any indenture, agreement or
      undertaking to which Pledgor is a party or by which Pledgor is bound. 

      Section 6. Voting and Other Rights.

      (a) So long as no Event of Default (as hereinafter defined) shall have
      occurred and be continuing, Pledgor may exercise all voting and other
      rights in respect of the Collateral, providing that Pledgor shall not
      exercise any of such rights in a manner which would be inconsistent with
      the terms of this Agreement, or any other agreement, document or
      instrument executed and delivered pursuant hereto, or which would
      otherwise have the effect of impairing the value of the Collateral.

      (b) Upon the occurrence of an Event of Default, all voting rights of
      Pledgor shall cease and Pledgee shall, without notice, have the sole and
      exclusive right to exercise all voting and other rights with respect to
      the Collateral as if it were the absolute owner thereof. In order to
      facilitate Pledgee's exercise of such voting and other rights, Pledgor
      shall, if necessary, upon the written request of Pledgee, from time to
      time execute and deliver to Pledgee appropriate proxies.

      (c) So long as no Event of Default shall have occurred and be
      continuing, all cash dividends and other cash distributions attributable
      to the Pledged Shares shall belong to Pledgor. 

      Section 7. Events of Default. The happening of any one of the following
events (hereinafter called "Events of Default") shall constitute a default
hereunder:

      (a) failure to meet or perform any of the Obligations; 

      (b) the breach of any representation or warranty made in this Agreement,
      the Note, or that certain Stock Purchase Option. dated of even date
      herewith (the "Option"), by and between Pledgor and Pledgee; or in any
      certificate or instrument or agreement furnished by Borrower or Pledgor
      pursuant to this Agreement or the Note.

      (c) failure to duly observe or perform any covenant, condition or
      agreement of Borrower or Pledgor, as applicable, pursuant to the terms
      of this Agreement, the Note or the Option, as applicable; or

      (d) the filing of a petition of bankruptcy or for receivership, whether
      voluntary or involuntary, an assignment for the benefit of creditors,
      the consenting to or suffering of an appointment of a receiver or
      trustee for any substantial part of the assets that is not vacated
      within 30 days, or the consenting to or suffering of an attachment or
      execution upon any substantial part of the assets of Borrower or
      Pledgor, that is not released or satisfied within 30 days on behalf of
      Borrower or Pledgor, as applicable. 

      Section 8. Remedies. If an Event of Default shall have occurred, all
Obligations shall become immediately due and payable, and Pledgee shall be
entitled to all rights and remedies available to it under the law of the State
of Oklahoma or otherwise available to him. If any notification of intended
disposition of any of the Collateral is required by law, such notification, if
mailed, shall be deemed reasonably and properly given if mailed at least five
(5) business days before such disposition (unless a longer notice period is
required by law), postage prepaid, addressed to Pledgor, at the address shown
below. Any proceeds of any disposition of Collateral shall be applied by
Pledgee first to the payment of costs and expenses incurred in connection with
the Collateral, including reasonable attorneys' fees and legal expenses, then
toward the payment of the Obligations, and any balance of such proceeds shall
be paid by Pledgee to Pledgor. All rights and remedies of Pledgee expressed
hereunder are in addition to all other rights and remedies possessed by him,
including those under any other agreement or instrument relating to any of the
Obligations or security therefor. No action of Pledgee permitted hereunder
shall impair or affect the rights of Pledgee in and to the Collateral.

      Section 9. No Waiver. 

      (a) No delay or failure to exercise, on the part of Pledgee, any right,
      power, or privilege hereunder or under any other agreement (or under any
      other instrument contemplated hereby or thereby) shall constitute a
      waiver thereof, nor shall any single or partial exercise of any other
      right, power, or privilege hereunder or thereunder preclude any other or
      further exercise thereof or the exercise of any other right, power or
      privilege. The remedies herein provided are cumulative and are not
      exclusive of each other or any other remedies provided by law or
      otherwise available to Pledgee.

      (b) Nothing in this Agreement shall be deemed a waiver or prohibition of
      Pledgee's right of counterclaim, offset or lien, or a waiver or release
      of any collateral security, guaranty, or (except to the extent expressly
      provided herein) other right or power now or hereafter held or
      enforceable by or available to Pledgee.

      Section 10. Attorney-in-Fact. Pledgor hereby constitutes and appoints
Pledgee, the attorney-in-fact of Pledgor for the purposes of carrying out the
provisions of this Agreement and taking any action and executing any
instrument which Pledgee may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an
interest. 

      Section 11. Termination. This Agreement shall terminate upon the payment
and performance in full of all the Obligations and delivery of the Collateral
by Pledgee as hereinabove provided. 

      Section 12. Notices. All notices, written directions and other
communications hereunder shall be in writing and shall be delivered in person
or sent by registered or certified mail, return receipt requested, postage and
fees prepaid, first class mail: 

      To Pledgee:

          LSB Chemical Corp.
          16 S. Pennsylvania
          Oklahoma City, OK
          U.S.A. 73107
          Attention: Mr. Barry Golsen

      To Pledgor:

          Dr. Hauri AG
          Hebelweg 1
          5001 Aarau/Switzerland
          Attention: Managing Director or President

Any party hereto may change the address designated for mailing by written
notice to the other party. Notices shall be deemed to be given when delivered
in person, or if placed in the mail as aforesaid, then five (5) days
thereafter. 

      Section 13. Miscellaneous.

      (a) Neither this Agreement nor any provision hereof may be amended,
      modified, waived, discharged or terminated orally nor may any of the
      Collateral be released other than as provided in this Agreement, except
      by an instrument in writing duly signed by or on behalf of all of the
      parties hereto. 

      (b) The Section headings used herein are for convenience of reference
      only and shall not define or limit the provisions of this Agreement. 

      (c) This Agreement shall be governed by and construed in accordance with
      the laws of the State of Oklahoma, exclusive of its laws with respect to
      conflict of laws. Wherever possible each such 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 shall
      be prohibited by or invalid under such law, such provision shall be
      ineffective to the extent of such prohibition or invalidity, without
      invalidating any other provision of this Agreement. Pledgor agrees that
      any suit, action or proceeding with respect to this Agreement or the
      pledge of the Collateral, any amendments or replacements hereof or
      thereof may be brought in the state courts of, or the federal courts in,
      the State of Oklahoma, and Pledgor hereby irrevocably consents and
      submits to the jurisdiction of such courts for the purpose of any such
      suit, action or proceeding. 

      (d) This Agreement may not be assigned by Pledgor without the prior
      written consent of Pledgee. Subject to the preceding sentence, this
      Agreement and the terms, covenants and conditions hereof, shall be
      binding upon and inure to the benefit of the parties hereto and their
      respective successors and assigns. 

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written. 

                                          LSB CHEMICAL CORP.


                                          By: /s/ Barry H. Golsen
                                       ________________________
                                          Its:  VP
                                       ________________________

                                          DR. HAURI AG

                                          By: 
                                       ________________________
                                          Its:  
                                       ________________________





beutot\pledge




                           STOCK PURCHASE OPTION


      This Stock Purchase Option Agreement (the "Agreement"), dated as of June
15, 1994, by and between Dr. Hauri AG, a corporation formed under the laws of
Switzerland (the "Grantor"), and LSB Chemical Corp., an Oklahoma corporation
(the "Grantee"), sets forth the terms pursuant to which the Grantor grants to
the Grantee an option to purchase (the "Option"), within the option period set
forth herein, up to 100% of the issued and outstanding common stock, FF 100
par value per share (the "Covered Shares"), of Compagnie Financiere du
Tararois, an SARL formed under the laws of the Republic of France (the
"Company"). In consideration of the payment by the Grantee to the Grantor of
US$10 and of the premises and the mutual and dependent promises hereinafter
set forth. the parties hereto agree as follows: 

1.    Option to Purchase Covered Shares. Subject to the terms and conditions
of this Agreement, the Grantor hereby grants to the Grantee the Option to
purchase the Covered Shares. Such Option shall be exercisable by the Grantee,
in whole or in part, at any time during the period beginning upon the earlier
of (i) June 15, 1995, or (ii) the occurrence of a Triggering Event (as herein
defined), and ending on June 15, 1999 (the "Exercise Period"). The term
Triggering Event as used herein shall mean any one or more of the following: 

            (a)   The occurrence of a default as defined in Section 7 of that
      certain Pledge Agreement, dated of even date herewith, pursuant to which
      the Grantor has granted to the Grantee a pledge of, and security
      interest in, the Covered Shares as security for the payment of the
      obligations therein set forth; and

            (b)   The transfer of ownership of twenty-five (25%) percent or
      more of the outstanding voting equity of the Grantor without the prior
      consent of the Grantee; the loss by the Grantor of its legal status as a
      corporation; or the loss by Grantor of its legal right or corporate
      power to perform its obligations under this Option. 

      2.    Purchase Price. The aggregate purchase price for the Covered
Shares shall be equal to FRF 750,000 (the "Purchase Price"), unless otherwise
agreed to by the parties. 

      3.    Payment of Purchase Price. The entire Purchase Price shall be
payable at the Closing (as herein defined) by certified or bank cashier's
check, made payable to the Grantor, forgiveness of indebtedness, or in such
other manner as shall be mutually agreed upon by the parties hereto. 

      4.    Notice of Exercise; Closing. The Grantee may exercise the Option
at any time during the Exercise Period by providing notice to of its intention
to do so to the Grantor. The Closing (so called herein) of the sale and
purchase of the Covered Shares shall occur at the time and place and in the
manner specified by Grantee. At Closing, the Grantor shall deliver to the
Grantee, or its authorized representative, a certificate representing the
Covered Shares, which shall be registered in the name of the Grantee, or its
nominee, against payment therefor by the Grantee in the amount of the Purchase
Price.

      5.    Representations and Warranties of the Grantor. The Grantor hereby
represents and warrants to the Grantee that: 

      (a)   The Company is a corporation duly incorporated, validly existing
      and is in good standing under the laws of the Republic of France. 

      (b)   The capital stock of the Company consists of five thousand (5,000)
      shares of common stock, FRF 100 par value per share, of which the
      Covered Shares represent one hundred percent (100%) of the issued and
      outstanding shares. The Covered Shares have been duly authorized and are
      validly issued, fully paid and non-assessable; and the Grantor is the
      lawful owner of record and beneficially of the Covered Shares, free and
      clear of all security interests, liens, undisclosed encumbrances, claims
      and equities of every kind other than the liens and security interests
      created hereunder.

      (c)   This Agreement has been duly authorized by all necessary corporate
      action of the Grantor, has been duly executed and delivered by the
      Grantor, and is a legal, valid and binding obligation of the Grantor
      enforceable in accordance with its terms. Delivery of the Covered Shares
      at the Closing in accordance with this Agreement will vest good title to
      the Covered Shares in the Grantee, free and clear of all security
      interests, liens, encumbrances, claims and equities of every kind. 

      (d)   The Company has not been actively engaged in any business activity
      prior to the date of this Agreement and has no liabilities of any kind,
      whether contingent or otherwise.

      6.    Conditions of Closing. Upon the exercise of the option, the
obligation of the Grantee to purchase and pay for the Covered Shares shall be
subject, at the option of the Grantee, to the following conditions: 

      (a)   The representations and warranties of the Grantor set forth in
      Section 5 shall have been true when made and shall be true at the
      Closing as if made again on such date, except that the representations
      made in subparagraph (d) of Section 5 shall be modified but only to the
      extent necessary to give effect to the acquisition by the Company of a
      majority of the capital stock of Beutot SA ("Beutot") contemplated by
      that certain Stock Purchase Agreement (so called herein), dated
      ________________, pursuant to which the Company shall acquire the
      capital stock of Beutot;

      (b)   Neither the Company nor any of its subsidiaries shall have entered
      into any undisclosed material transaction, contract or agreement, of a
      type requiring the approval of its or their shareholders or boards or
      directors, as applicable, except (i) the acquisition of Beutot pursuant
      to the Stock Purchase Agreement and (ii) transactions entered in the
      ordinary course of business; and 

      (c)   The Company shall not have amended its Certificate of
      Incorporation or Bylaws, or other documents performing similar function
      under the laws of France, except for the amendment to the Company's
      Certificate of Incorporation or similar document required by Section 8
      hereof.

      7.    Covenants of the Company. The Grantor hereby covenants and agrees
with the Grantee as follows:

      (a)   The Grantor, as the sole shareholder of the Company, shall cause
      the Company to include in its Certificate of Incorporation (or similar
      establishment document) a provision to restrict the Company's corporate
      powers in such a fashion as to prohibit the Company from engaging in any
      line of business other than the acquisition of Beutot and the HVAC
      business generally. 

      (b)   Except as set forth in subparagraph (a) of this Section 7, the
      Grantor shall cause the Company not to undertake, and, as the sole
      shareholder of the Company, the Grantor shall not approve, (i) any
      amendment to the Certificate of Incorporation or Bylaws or similar
      establishment documents of the Company; (ii) any agreement or
      understanding to acquire, or be acquired by, any other entity or
      business enterprise, whether by merger, consolidation, purchase or sale
      of assets, or purchase or sale of stock, other than the acquisition of
      Beutot pursuant to the Stock Purchase Agreement; (iii) the issuance of
      any authorized but unissued shares of the capital stock of the Company
      or any series thereof; (iv) the incurrence of any material indebtedness
      or liability; or (v) any other undisclosed action that might have a
      material adverse affect on financial condition, results of operations,
      or the nature of the business currently engaged in by the Company (and
      upon its acquisition, Beutot).

      8.    Communications. All communications provided for herein shall be
deemed sufficiently given if in writing and either personally delivered, or
sent by certified or registered mail, postage prepaid, addressed to the party
at the address set forth below, or at such other address as the party may
subsequently designate: 

      (a)   LSB Chemical Corp.
            16 S. Pennsylvania
            Oklahoma City, OR 73107
            Attention:  Barry Golsen

      (b)   Dr. Hauri AG
            Hebelweg 1
            5001 Aarau/Switzerland
            Attention: Managing Director or President

      9.    Survival of Representations, Warranties and  Covenants. All
representations, warranties, covenants and agreements of the Grantor and the
Grantee contained in this Agreement shall survive the delivery of the Covered
Shares to the Grantee and shall continue to have full force and effect
thereafter. 

      10.   No Assignment; Successors. Neither party may assign this Agreement
without the written consent of the other except that the Grantee may, without
such consent, assign all of its rights and obligations hereunder to any other
company that controls, is controlled by or is under common control with the
Grantee. 

      11.   Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions hereof shall remain in full force and effect and shall in no way
be affected, impaired or invalidated. 

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

      16.   Governing Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Oklahoma, exclusive of its laws
with respect to conflicts of laws.

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

                                    GRANTEE:

                                    LSB CHEMICAL CORP.

                                    By: /s/ Barry H. Golsen VP
                                        _____________________________
                                    Printed Name
                                    Its:_____________________________

                                    GRANTOR:

                                    Dr. HAURI AG


                                    By: _____________________________
                                    Its:_____________________________


BEUTOT\STK.OPT





















IHS:\K-M\LSB\10K\EXH-SPA.WP5
                                                               Exhibit 4.12





                                                                           








                       LOAN AND SECURITY AGREEMENT
                                    
                             by and between
                                    
                    BANKAMERICA BUSINESS CREDIT, INC.
                                as Lender
                                    
                                   and
                                    
                          LSB INDUSTRIES, INC.
                               as Borrower
                                    
                                    
                        Dated:  December 12, 1994
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                     
                             TABLE OF CONTENTS


SECTION

      Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . .-i-
      Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1


      1.    DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .  1
       1.1  As used herein:. . . . . . . . . . . . . . . . . . . . . . .  1
             Account . . . . . . . . . . . . . . . . . . . . . . . . . .  1
             Account Debtor. . . . . . . . . . . . . . . . . . . . . . .  1
             Account Loans . . . . . . . . . . . . . . . . . . . . . . .  1
             Acquisition . . . . . . . . . . . . . . . . . . . . . . . .  2
             Adjusted Tangible Assets. . . . . . . . . . . . . . . . . .  2
             Adjusted Tangible Net Worth . . . . . . . . . . . . . . . .  2
             Affiliate . . . . . . . . . . . . . . . . . . . . . . . . .  2
             Aggregate LSB Gross Availability. . . . . . . . . . . . . .  2
             Availability. . . . . . . . . . . . . . . . . . . . . . . .  2
             Availability Reductions . . . . . . . . . . . . . . . . . .  3
             Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
             Borrower Subsidiaries . . . . . . . . . . . . . . . . . . .  3
             Business Day. . . . . . . . . . . . . . . . . . . . . . . .  3
             Capital Expenditures. . . . . . . . . . . . . . . . . . . .  3
             Capital Lease . . . . . . . . . . . . . . . . . . . . . . .  3
             Closing Date. . . . . . . . . . . . . . . . . . . . . . . .  3
             Code. . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Collateral. . . . . . . . . . . . . . . . . . . . . . . . .  4
             Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Distribution. . . . . . . . . . . . . . . . . . . . . . . .  4
             Dollars . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Eligible Accounts . . . . . . . . . . . . . . . . . . . . .  4
             Eligible Inventory. . . . . . . . . . . . . . . . . . . . .  7
             Environmental Compliance Reserve. . . . . . . . . . . . . .  7
             Environmental Laws. . . . . . . . . . . . . . . . . . . . .  8
             Equipment . . . . . . . . . . . . . . . . . . . . . . . . .  8
             ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
             Eurocurrency Liabilities. . . . . . . . . . . . . . . . . .  8
             Eurodollar Business Day . . . . . . . . . . . . . . . . . .  8
             Eurodollar Base Rate. . . . . . . . . . . . . . . . . . . .  8
             Eurodollar Interest Payment Date. . . . . . . . . . . . . .  9
             Eurodollar Interest Rate Determination Date . . . . . . . .  9
             Eurodollar Rate . . . . . . . . . . . . . . . . . . . . . .  9
             Eurodollar Rate Loan. . . . . . . . . . . . . . . . . . . .  9
             Eurodollar Rate Reserve Percentage. . . . . . . . . . . . .  9
             Event . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
             Event of Default. . . . . . . . . . . . . . . . . . . . . .  9
             Facility Fee. . . . . . . . . . . . . . . . . . . . . . . .  9
             Financial Statements. . . . . . . . . . . . . . . . . . . .  9
             Fiscal Quarter. . . . . . . . . . . . . . . . . . . . . . .  9
             Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . .  9
             GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
             Gross Availability Reductions . . . . . . . . . . . . . . . 10
             Gross LSB Accounts Availability . . . . . . . . . . . . . . 10
             Guarantor Subsidiaries. . . . . . . . . . . . . . . . . . . 10
             Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 10
             Industrial Division Guarantor Subsidiaries. . . . . . . . . 10
             Intercompany Accounts . . . . . . . . . . . . . . . . . . . 10
             Interest Period . . . . . . . . . . . . . . . . . . . . . . 10
             Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 10
             Inventory Loans . . . . . . . . . . . . . . . . . . . . . . 11
             IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Latest Forecasts. . . . . . . . . . . . . . . . . . . . . . 11
             Letter of Credit. . . . . . . . . . . . . . . . . . . . . . 11
             Letter of Credit Agreement. . . . . . . . . . . . . . . . . 11
             Letter of Credit Fee. . . . . . . . . . . . . . . . . . . . 11
             Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Loan Documents. . . . . . . . . . . . . . . . . . . . . . . 11
             LSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             LSB Borrowing Group . . . . . . . . . . . . . . . . . . . . 11
             LSB Consolidated Group. . . . . . . . . . . . . . . . . . . 11
             LSB Eligible Accounts . . . . . . . . . . . . . . . . . . . 12
             LSB-Related Loan Agreements . . . . . . . . . . . . . . . . 12
             Maximum Inventory Advance Amount. . . . . . . . . . . . . . 12
             Maximum Revolving Credit Line . . . . . . . . . . . . . . . 12
             Minimum Borrowing Commitment. . . . . . . . . . . . . . . . 12
             Multi-employer Plan . . . . . . . . . . . . . . . . . . . . 12
             Obligations . . . . . . . . . . . . . . . . . . . . . . . . 12
             Participating Lender. . . . . . . . . . . . . . . . . . . . 12
             Patent and Trademark Assignments. . . . . . . . . . . . . . 12
             Payment Account . . . . . . . . . . . . . . . . . . . . . . 13
             PBGC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
             Pension Plan. . . . . . . . . . . . . . . . . . . . . . . . 13
             Permitted Debt. . . . . . . . . . . . . . . . . . . . . . . 13
             Permitted Liens . . . . . . . . . . . . . . . . . . . . . . 13
             Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
             Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
             Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 14
             Property. . . . . . . . . . . . . . . . . . . . . . . . . . 14
             Proprietary Rights. . . . . . . . . . . . . . . . . . . . . 14
             Public Authority. . . . . . . . . . . . . . . . . . . . . . 15
             Real Property . . . . . . . . . . . . . . . . . . . . . . . 15
             Receivables . . . . . . . . . . . . . . . . . . . . . . . . 15
             Reference Rate. . . . . . . . . . . . . . . . . . . . . . . 15
             Reference Rate Loan . . . . . . . . . . . . . . . . . . . . 16
             Reference Rate Margin . . . . . . . . . . . . . . . . . . . 16
             Related Company . . . . . . . . . . . . . . . . . . . . . . 16
             Reportable Event. . . . . . . . . . . . . . . . . . . . . . 16
             Restricted Investment . . . . . . . . . . . . . . . . . . . 16
             Reversions. . . . . . . . . . . . . . . . . . . . . . . . . 16
             Revolver Facility . . . . . . . . . . . . . . . . . . . . . 16
             Revolving Loans . . . . . . . . . . . . . . . . . . . . . . 16
             Security Interest . . . . . . . . . . . . . . . . . . . . . 16
             Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 17
             Subsidiary" or "Subsidiaries. . . . . . . . . . . . . . . . 17
             Subsidiary Guaranties . . . . . . . . . . . . . . . . . . . 17
             Termination Event . . . . . . . . . . . . . . . . . . . . . 17
             UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
       1.2  Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 17
       1.3  Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . 17
       1.4  Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 17

 2.   LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . 18
       2.1  Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . 18
       2.2  Availability Determination . . . . . . . . . . . . . . . . . 18
       2.3  Letters of Credit. . . . . . . . . . . . . . . . . . . . . . 18

 3.   INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . 19
       3.1  Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 19
       3.2  Eurodollar Borrowings: Conversion or Continuation. . . . . . 20
       3.3  Special Provisions Governing Eurodollar Rate Loans . . . . . 21
       3.4  Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . 24
       3.5  Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 26
       3.6  Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . 26
       3.7  Unused Line Fee. . . . . . . . . . . . . . . . . . . . . . . 26

 4.   PAYMENTS AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . 26
       4.1  Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . 26
       4.2  Place and Form of Payments: Extension of Time. . . . . . . . 27
       4.3  Apportionment, Application and Reversal of Payments. . . . . 27
       4.4  INDEMNITY FOR RETURNED PAYMENTS. . . . . . . . . . . . . . . 27

 5.   LENDER'S BOOKS AND RECORDS:  MONTHLY STATEMENTS. . . . . . . . . . 28

 6.   COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
       6.1  Grant of Security Interest . . . . . . . . . . . . . . . . . 28
       6.2  Perfection and Protection of Security Interest . . . . . . . 29
       6.3  Location of Collateral . . . . . . . . . . . . . . . . . . . 29
       6.4  Title to, Liens on, and Sale and Use of Collateral . . . . . 30
       6.5  Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . 30
       6.6  Access and Examination . . . . . . . . . . . . . . . . . . . 30
       6.7  Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 30
       6.8  Collateral Reporting . . . . . . . . . . . . . . . . . . . . 31
       6.9  Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 32
       6.10 Collection of Accounts . . . . . . . . . . . . . . . . . . . 33
       6.11 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 33
       6.12 Documents and Instruments. . . . . . . . . . . . . . . . . . 34
       6.13 Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . 34
       6.14 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . 34
       6.15 Lender's Rights, Duties, and Liabilities . . . . . . . . . . 35
       6.16 Release of Collateral and Borrower . . . . . . . . . . . . . 35

 7.   BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES. . . . . . . . . 36
       7.1  Books and Records. . . . . . . . . . . . . . . . . . . . . . 36
       7.2  Financial Information. . . . . . . . . . . . . . . . . . . . 36
       7.3  Notices to Lender. . . . . . . . . . . . . . . . . . . . . . 38

 8.   GENERAL WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . 39
       8.1  Authorization, Validity, and Enforceability of this
            Agreement and the Loan Documents . . . . . . . . . . . . . . 39
       8.2  Validity and Priority of Security Interest . . . . . . . . . 39
       8.3  Organization and Qualification . . . . . . . . . . . . . . . 40
       8.4  Corporate Name; Prior Transactions . . . . . . . . . . . . . 40
       8.5  Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . 40
       8.6  Financial Statements and Projections . . . . . . . . . . . . 40
       8.7  Capitalization . . . . . . . . . . . . . . . . . . . . . . . 41
       8.8  Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 41
       8.9  Title to Property. . . . . . . . . . . . . . . . . . . . . . 41
       8.10 Real Property; Leases. . . . . . . . . . . . . . . . . . . . 41
       8.11 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . 41
       8.12 Trade Names and Terms of Sale. . . . . . . . . . . . . . . . 41
       8.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 41
       8.14 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . 42
       8.15 Environmental Laws . . . . . . . . . . . . . . . . . . . . . 42
       8.16 No Violation of Law. . . . . . . . . . . . . . . . . . . . . 43
       8.17 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 43
       8.18 Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
       8.19 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
       8.20 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 44
       8.21 Private Offerings. . . . . . . . . . . . . . . . . . . . . . 44
       8.22 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . 44
       8.23 No Material Adverse Change . . . . . . . . . . . . . . . . . 44
       8.24 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

 9.   AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 45
       9.1  Taxes and Other Obligations. . . . . . . . . . . . . . . . . 45
       9.2  Corporate Existence and Good Standing. . . . . . . . . . . . 45
       9.3  Maintenance of Property and Insurance. . . . . . . . . . . . 45
       9.4  Environmental Laws . . . . . . . . . . . . . . . . . . . . . 45
       9.5  Mergers, Consolidations, Acquisitions, or Sales. . . . . . . 46
       9.6  Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . 46
       9.7  Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
       9.8  Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . 46
       9.9  Transactions with Affiliates . . . . . . . . . . . . . . . . 46
       9.10 Plans and Compensation . . . . . . . . . . . . . . . . . . . 47
       9.11 Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . 47
       9.12 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
       9.13 New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 47
       9.14 Distributions and Restricted Investments . . . . . . . . . . 47
       9.15 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 48
       9.16 Adjusted Tangible Net Worth. . . . . . . . . . . . . . . . . 48
       9.17 Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 49
       9.18 Further Assurances . . . . . . . . . . . . . . . . . . . . . 49

 10.  CLOSING; CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . 49
       10.1 Representations and Warranties; Covenants; Events. . . . . . 49
       10.2 Delivery of Documents. . . . . . . . . . . . . . . . . . . . 49
       10.3 Aggregate LSB Gross Availability . . . . . . . . . . . . . . 49
       10.4 Termination of Liens . . . . . . . . . . . . . . . . . . . . 49
       10.5 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 50
       10.6 Required Approvals . . . . . . . . . . . . . . . . . . . . . 50
       10.7 No Material Adverse Change . . . . . . . . . . . . . . . . . 50
       10.8 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 50
       10.9 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . 50
       10.10      September 30, 1994 Quarterly Financial Statements. . . 50
       10.11      Repurchase of Accounts from Prime. . . . . . . . . . . 50
       10.12      Conditions Precedent to Each Loan. . . . . . . . . . . 50

 11.  DEFAULT; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . 51
       11.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . 51
       11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 53

 12.  TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 54

 13.  MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
       13.1 Cumulative Remedies; No Prior Recourse to Collateral . . . . 55
       13.2 No Implied Waivers . . . . . . . . . . . . . . . . . . . . . 55
       13.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . 55
       13.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 56
       13.5 Consent to Jurisdiction and Venue; Service of Process;
            Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . 56
       13.6 Survival of Representations and Warranties . . . . . . . . . 57
       13.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 57
       13.8 Other Security and Guaranties. . . . . . . . . . . . . . . . 58
       13.9 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 58
       13.10      Notices. . . . . . . . . . . . . . . . . . . . . . . . 59
       13.11      Waiver of Notices. . . . . . . . . . . . . . . . . . . 60
       13.12      Binding Effect; Assignment; Disclosure . . . . . . . . 60
       13.13      Modification . . . . . . . . . . . . . . . . . . . . . 60
       13.14      Counterparts . . . . . . . . . . . . . . . . . . . . . 60
       13.15      Captions . . . . . . . . . . . . . . . . . . . . . . . 60
       13.16      Right of Set-Off . . . . . . . . . . . . . . . . . . . 60
       13.17      Participating Lender's Security Interests. . . . . . . 61
       13.18      WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . 61


                        LOAN AND SECURITY AGREEMENT


      This LOAN AND SECURITY AGREEMENT is dated December 12, 1994, and is
entered into by and between BANKAMERICA BUSINESS CREDIT, INC., a Delaware
corporation, with offices at Two North Lake Avenue, Suite 400, Pasadena,
California 91101 (the "Lender"), and LSB INDUSTRIES, INC., a Delaware
corporation, with offices at 16 South Pennsylvania, Oklahoma City, Oklahoma 
73107 (the "Borrower" or "LSB"). 

                            W I T N E S S E T H

      WHEREAS, the Borrower has requested the Lender to make available to the
Borrower a revolving line of credit for loans and letters of credit in an
amount not to exceed the Maximum Credit Facility as defined herein, which
extensions of credit the Borrower will use (i) in part to repay certain of
Borrower's obligations, and (ii) for Borrower's working capital needs and
general business purposes; and

      WHEREAS, of even date herewith, Lender has entered into five (5) related
loan transactions with certain other Subsidiaries of LSB (which, along with
Borrower, are referred to as the "Borrower Subsidiaries"); and

      WHEREAS, Lender has agreed to make loans and letters of credit available
to Borrower based on certain assets of the Borrower and thirteen (13) of
Borrower's other Subsidiaries (the "Guarantor Subsidiaries"), which is secured
by guaranties of the Guarantor Subsidiaries, and Borrower has represented to
Lender that Borrower will, in turn, make such loans and letters of credit
available to the Guarantor Subsidiaries; and

      WHEREAS, the aggregate amount of all loans to be made by Lender to the
Borrower Subsidiaries will not exceed Sixty-Five Million and No/100 Dollars
($65,000,000); 

      NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows: 

      1.    DEFINITIONS.

            1.1   As used herein:

            "Account" means the Borrower's or any Guarantor Subsidiary's right
      to payment for a sale or lease and delivery of goods or rendition of
      services.

            "Account Debtor" means each Person obligated to the Borrower or
      any Guarantor Subsidiary on an Account.

            "Account Loans" means Loans based on Eligible Accounts.

            "Acquisition" means the investment in or purchase of a
      corporation, association, business, entity, partnership or limited
      liability company by any of the LSB Borrowing Group by means of the
      purchase of stock, assets, memberships, partnership interests or
      otherwise.

            "Adjusted Tangible Assets" means all of the assets of the LSB
      Consolidated Group, on a consolidated basis, except: (a) goodwill; (b)
      unamortized debt discount and expense; (c) assets constituting
      Intercompany Accounts; and (d) fixed assets to the extent of any
      write-up in the book value thereof resulting from a revaluation
      effective after the Closing Date.

            "Adjusted Tangible Net Worth" means, at any date: (a) the book
      value (after deducting related depreciation, obsolescence, amortization,
      valuation, and other proper reserves as determined in accordance with
      GAAP) at which the Adjusted Tangible Assets would be shown on a
      consolidated balance sheet of the LSB Consolidated Group at such date
      prepared in accordance with GAAP less (b) the amount at which the LSB
      Consolidated Group's liabilities would be shown on such balance sheet
      prepared in accordance with GAAP.

            "Affiliate" means:  a Person who, directly or indirectly,
      controls, is controlled by or is under common control with LSB.  The
      term "control" (including the terms "controlled by" and "under common
      control with") means the possession, directly or indirectly, of the
      power to direct or cause the direction of the management and policies of
      the Person in question.

            "Aggregate LSB Gross Availability" means the sum of the amounts
      calculated as "Availability" under all of the LSB-Related Loan
      Agreements without taking into account the Gross Availability
      Reductions.

            "Availability" means at any time the lesser of:

            A.    The Maximum Revolving Credit Line; or 

            B.    The sum of:

                  (1)   eighty-five percent (85%) of the value of Eligible
                        Accounts other than Eligible Accounts of the
                        Industrial Division Guarantor Subsidiaries, plus
                        eighty percent (80%) of the Eligible Accounts of the
                        Industrial Division Guarantor Subsidiaries ("Accounts
                        Availability"), plus

                  (2)   the lesser of (a) the Maximum Inventory Advance Amount
                        or (b) sixty percent (60%) of the value of Eligible
                        Inventory; less

                  (3)   the Availability Reductions; or

            C.    Six Million Dollars ($6,000,000) less the Availability
                  Reductions.

            "Availability Reductions" means the following amounts which reduce
      Availability:

                  (i)    the unpaid balance of outstanding Revolving Loans at
            such time; 

                  (ii)   one hundred percent (100%) of the aggregate undrawn
            face amount of all outstanding Letters of Credit at such time and
            the aggregate outstanding amount of all acceptances at such time
            which the Lender has, or has caused to be, issued or obtained for
            Borrower's account;

                  (iii) reserves for accrued interest on the Revolving Loans
            which is past due;

                  (iv)  the Environmental Compliance Reserve (Note:  There is
            no Environmental Compliance Reserve as of the Closing Date); and

                  (v)   all other reasonable reserves which the Lender in its
            reasonable discretion deems necessary or desirable to maintain
            with respect to Borrower's account, including, without limitation,
            any amounts which the Lender could reasonably be obligated to pay
            within a six-month period for the account of Borrower.

            "Bank" means Bank of America National Trust and Savings
      Association in San Francisco, California.

            "Borrower Subsidiaries" means LSB, L&S Bearing Co., El Dorado
      Chemical Company, Slurry Explosive Corporation, Climate Master, Inc.,
      International Environmental Corporation and Summit Machine Tool
      Manufacturing Corp.

            "Business Day" means any day that is not a Saturday, Sunday, or
      day on which banks in Los Angeles, California are required or permitted
      to close.

            "Capital Expenditures" means all costs incurred, whether payable
      in the Fiscal Year incurred or thereafter, (including financing costs
      required to be capitalized under GAAP) for purchases made during a
      Fiscal Year for any fixed asset or improvement, or replacement,
      substitution, or addition thereto, which has a useful life of more than
      one year, including, without limitation, those costs arising in
      connection with the direct or indirect acquisition of such assets by way
      of increased product or service charges or offset items or in connection
      with Capital Leases.

            "Capital Lease" means any lease of Property that, in accordance
      with GAAP, should be reflected as a liability on a Person's balance
      sheet.

            "Closing Date" means the date of this Agreement, being the date
      first above written.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Collateral" has the meaning given to such term in Section 6.1.

            "Debt" means all liabilities, obligations and indebtedness of the
      Borrower to any Person, of any kind or nature, now or hereafter owing,
      arising, due or payable, howsoever evidenced, created, incurred,
      acquired or owing, as would be shown on the balance sheet of the
      Borrower prepared in accordance with GAAP.

            "Distribution" means, in respect of any corporation: (a) the
      payment or making of any dividend or other distribution of Property in
      respect of capital stock of such corporation, other than distributions
      in capital stock; and (b) the redemption or other acquisition of any
      capital stock of such corporation

            "Dollars" and "$" means lawful money of the United States of
      America.

            "Eligible Accounts" means all Accounts of Borrower and each
      Guarantor Subsidiary which are not ineligible.  Accounts shall be
      ineligible as the basis for Revolving Loans based on the following
      criteria.  Eligible Accounts shall not include any Account:

                  (i)   where such Account is "Past Due".  For the purposes of
            this provision, "Past Due" means:  (a) where the Account has terms
            of payment of less than ninety-one (91) days from the invoice
            date, the payment thereof is more than 90 days past due; and (b)
            where the Account has terms of payment of ninety-one to three
            hundred sixty (91 to 360) days from the Invoice Date, the payment
            thereof is more than 30 days past due; notwithstanding the
            foregoing all advances to Borrower and the other Borrower
            Subsidiaries with respect to "eligible accounts" under the LSB-
            Related Loan Agreements that have terms of payment of more than
            one hundred eighty (180) days (the "180-Day Accounts") shall not
            exceed in the aggregate at any time the lesser of (i) $1,500,000
            or (ii) five percent (5%) of the Gross LSB Accounts Availability
            (without taking into account the 180-Day Accounts);

                  (ii)  where, with respect to such Account, any of the
            representations, warranties, covenants and agreements contained in
            Sections 6.9 and 8.2 of this Agreement are not or have ceased to
            be complete and correct or have been breached;

                  (iii) where such Account represents a progress billing or as
            to which the Borrower or a Guarantor Subsidiary has extended the
            time for payment after issuance of the invoice relating to such
            Account.  For the purpose hereof, "progress billing" means any
            invoice for goods sold or leased or services rendered under a
            contract or agreement pursuant to which the Account Debtor's
            obligation to pay such invoice is expressly conditioned upon the
            completion by Borrower or the applicable Guarantor Subsidiary of
            any further performance under the contract or agreement, provided,
            however, that performance required under a warranty claim or
            provision shall not make such Account a "progress billing";

                  (iv)  where Borrower or a Guarantor Subsidiary has become
            aware that any one or more of the following events has occurred
            with respect to an Account Debtor on such Account: death or
            judicial declaration of incompetency of an Account Debtor who is
            an individual; the filing by or against the Account Debtor of a
            request or petition for liquidation, reorganization, arrangement,
            adjustment of debts, adjudication as a bankrupt, winding-up, or
            other relief under the bankruptcy, insolvency, or similar laws of
            the United States, any state or territory thereof, or any foreign
            jurisdiction, now or hereafter in effect; the making of any
            general assignment by the Account Debtor for the benefit of
            creditors; the appointment of a receiver or trustee for the
            Account Debtor or for any of the assets of the Account Debtor; the
            institution by or against the Account Debtor of any other type of
            insolvency proceeding (under the bankruptcy laws of the United
            States or otherwise) or of any formal or informal proceeding for
            the dissolution or liquidation of, or winding up of affairs of,
            the Account Debtor; the sale, assignment, or transfer of all or
            any material part of the assets of the Account Debtor; or the
            cessation of the business of the Account Debtor as a going
            concern;

                  (v)   where an Account is not a valid, legally enforceable
            obligation of the Account Debtor thereunder or is subject to
            offset, counterclaim or other defenses on the part of such Account
            Debtor denying liability thereunder in whole or in part (provided,
            however, that claims under or relating to any warranty issues or
            claims by an Account Debtor as a result of the Borrower or a
            Guarantor Subsidiary purchasing products or supplies or having
            received services from such Account Debtor shall not render an
            Account ineligible);

                  (vi)  where the Borrower or a Guarantor Subsidiary does not
            have good and marketable title to such Account, free and clear of
            all Liens, other than Liens arising under this Agreement and the
            documents delivered in connection herewith; 

                  (vii) which is owed by an Account Debtor which: (i) does not
            maintain its chief executive office in the United States or
            territory thereof or Canada; or (ii) is not organized under the
            laws of the United States or any state or territory thereof or
            Canada; or (iii) is the government of any foreign country or any
            state, province, municipality or other political subdivision
            thereof (all of the foregoing being referred to as "Foreign
            Accounts"); except that, to the extent that such Foreign Accounts
            are secured or payable by letters of credit or bank guarantees
            reasonably acceptable to Lender, such Foreign Accounts shall be
            considered Eligible Accounts.  Notwithstanding the foregoing,
            Lender has agreed that Foreign Accounts, if they otherwise meet
            all eligibility requirements, will be Eligible Accounts even
            though such Foreign Accounts are not secured or payable by letters
            of credit or bank guaranties reasonably acceptable to Lender up to
            an amount not to exceed at any one time more than five percent
            (5%) of the Gross LSB Accounts Availability (without taking into
            account such Foreign Accounts);

                  (viii)      which is owed by an Account Debtor which is an
            Affiliate;

                  (ix)  which is owed by the government of the United States
            of America, or any department, agency, or other instrumentality
            thereof, unless the Federal Assignment of Claims Act of 1940, as
            amended, or any other steps necessary to perfect the Lender's
            Security Interest therein, have been complied with to the Lender's
            reasonable satisfaction with respect to such Account;

                  (x)  which is owed by any state or municipality, or any
            department, agency, or other instrumentality thereof, and as to
            which the Lender's Security Interest therein is not or cannot be
            perfected;

                  (xi)  which arises out of a sale to an Account Debtor on a
            bill and hold, guaranteed sale, sale and return, sale on approval,
            consignment, or other repurchase or return basis;

                  (xii) which is evidenced by a promissory note or other
            instrument (unless such note or instrument is part of chattel
            paper in which Lender has a first priority perfected Security
            Interest) or by chattel paper (unless Lender has a first priority
            perfected Security Interest therein);

                  (xiii)      where the goods giving rise to such Account have
            not been shipped and delivered to and accepted by the Account
            Debtor (provided, however, that where the Account Debtor has
            agreed in writing to accept billings for such goods, with a copy
            of such writing being provided to Lender, then such Account shall
            be an Eligible Account if it otherwise qualifies) or the services
            giving rise to such Account have not been performed by the
            Borrower or a Guarantor Subsidiary and accepted by the Account
            Debtor; or

                  (xiv) if Lender believes in its reasonable credit judgment
            that the prospect of collection of such Account is impaired; or

                  (xv)  which Account is owing from an Account Debtor in which
            fifty percent (50%) or more of the Accounts owing from whom are
            Past Due as set forth in subsection (i) of this definition of
            Eligible Accounts; or

                  (xvi) as to which either the perfection, enforceability, or
            validity of the Security Interest in such Account, or the Lender's
            right or ability to obtain direct payment to the Lender of the
            Proceeds of such Account, is governed by any federal, state, or
            local statutory requirements other than those of the UCC; or

                  (xvii)      with respect to which the Account Debtor is
            located in the states of New Jersey, Minnesota, West Virginia or
            any other state requiring the filing of a Business Activity Report
            or similar document in order to bring suit or otherwise enforce
            its remedies against such Account Debtor in the courts or through
            any judicial process of such state, unless Borrower or the
            Guarantor Subsidiary that owns such Account has qualified to do
            business in New Jersey, Minnesota, West Virginia or such other
            states, or has filed a Notice of Business Activities Report with
            the applicable Division of Taxation, the Department of Revenue, or
            with such other state offices, as appropriate, for the then
            current year.

            "Eligible Inventory" means Inventory valued at the lower of cost
      or market on a "first in-first out" ("FIFO") basis that constitutes raw
      materials (including raw materials stored or held by the Borrower or any
      Guarantor Subsidiary in the work-in-progress area and fifty percent
      (50%) of Inventory classified as components) and first quality finished
      goods and that (a) is not obsolete or unmerchantable, and (b) upon which
      the Lender has a first priority perfected Security Interest, and (c) the
      Lender otherwise deems eligible as the basis for Revolving Loans based
      on such other credit and collateral considerations as the Lender may
      from time to time establish in its reasonable discretion.  Without
      intending to limit the Lender's discretion to establish other reasonable
      criteria of eligibility, no work-in-progress (except as otherwise
      provided above), service or spare parts, packaging, used parts, shipping
      materials, supplies, containers, defective Inventory, Inventory
      consisting of machines being rebuilt, Inventory acquired in trade in
      connection with the sale of other Inventory, slow-moving Inventory,
      Inventory in transit (except for Inventory in transit owned by Borrower
      or any Guarantor Subsidiary, covered by insurance, and in which Lender
      has a Security Interest), fifty percent (50%) of Inventory classified as
      components, or Inventory delivered to Borrower on consignment shall
      constitute Eligible Inventory.  Except for Inventory in transit in which
      Lender has a perfected Security Interest, Eligible Inventory shall not
      include Inventory stored at locations other than those locations either
      owned by the Borrower or a Guarantor Subsidiary or locations for which a
      landlord's waiver acceptable to Lender or a consignment agreement (with
      appropriate UCC filings) has been signed by the owner of such location
      and delivered to Lender.  In addition, the amount of all finished goods
      reserves (excluding reserves for "last-in-first-out" valuation) shown on
      the books of Borrower or any of the Guarantor Subsidiaries shall be
      deducted from the value of the Eligible Inventory as used in computing
      Availability, except to the extent that any such reserve has already
      been taken into account in connection with any of the above criteria.

            "Environmental Compliance Reserve" means all reserves which the
      Lender from time to time establishes for amounts that are liabilities
      required to be paid by the Borrower or any Guarantor Subsidiary within
      180 days in order to correct any violation by the Borrower or such
      Guarantor Subsidiary or the operations or Property of Borrower or any
      Guarantor Subsidiary with respect to Environmental Laws.

            "Environmental Laws" means all federal, state and local laws,
      rules, regulations, ordinances, and consent decrees relating to
      hazardous substances, and environmental matters applicable to the
      business and facilities of Borrower or any Guarantor Subsidiary (whether
      or not owned by it).  Such laws and regulations include but are not
      limited to the Resource Conservation and Recovery Act, 42 U.S.C. section
      6901 et seq., as amended; the Comprehensive Environmental Response,
      Compensation and Liability Act, 42 U.S.C. section 9601 et seq., as
      amended: the Toxic Substances Control Act, 15 U.S.C. section 2601 et
      seq., as amended; the Clean Water Act, 33 U.S.C. section 466 et seq., as
      amended; the Clean Air Act, 42 U.S.C. section 7401 et seq., as amended;
      state and federal superlien and environmental cleanup programs; and U.S.
      Department of Transportation regulations.

            "Equipment" means, with respect to the Borrower and each Guarantor
      Subsidiary, all of the now owned and hereafter acquired machinery,
      equipment, furniture, furnishings, fixtures, and other tangible personal
      property (except Inventory), including, without limitation, data
      processing hardware and software, motor vehicles, aircraft, dies, tools,
      jigs, and office equipment, as well as all of such types of property
      which are leased and all of the rights and interests with respect
      thereto under such leases (including, without limitation, options to
      purchase); together with all present and future additions and accessions
      thereto, replacements therefor, component and auxiliary parts and
      supplies used or to be used in connection therewith, and all substitutes
      for any of the foregoing, and all manuals, drawings, instructions,
      warranties and rights with respect thereto wherever any of the foregoing
      is located.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
      as amended.

            "Eurocurrency Liabilities" has the meaning assigned to that term
      in Regulation D of the Board of Governors of the Federal Reserve System,
      as in effect from time to time.

            "Eurodollar Business Day" means any Business Day in which
      commercial banks are open for international business (including dealings
      in dollar deposits) in London, England and Los Angeles, California.

            "Eurodollar Base Rate" means, for any Interest Period, an interest
      rate determined by the Lender to be the rate per annum at which deposits
      in Dollars are offered to Bank in the London interbank market at 11:00
      a.m. (London time) two (2) Business Days before the first day of such
      Interest Period for delivery on the first day of such Interest Period in
      an amount substantially equal to the Eurodollar Rate Loans requested for
      such Interest Period and for a period equal to such Interest Period.

            "Eurodollar Interest Payment Date" means the first day of each
      month during any Interest Period and the last day of such Interest
      Period.

            "Eurodollar Interest Rate Determination Date" means each date of
      calculating the Eurodollar Rate for purposes of determining the interest
      rate with respect to an Interest Period.  The Eurodollar Interest Rate
      Determination Date for any Eurodollar Rate Loan shall be the second
      Business Day prior to the first day of the related Interest Period for
      such Eurodollar Rate Loan.

        "Eurodollar Rate" means, for any Interest Period, a per annum
        interest rate equal to the quotient of (a) the Eurodollar Base Rate for
        such Interest Period, divided by (b) one hundred percent (100%) minus
        the Eurodollar Rate Reserve Percentage for such Interest Period.

        "Eurodollar Rate Loan" means a Revolving Loan during any period in
        which it bears interest at the rate provided in Section 3.1(a)(ii), as
        such amount may be adjusted pursuant to Section 3.1(b).

        "Eurodollar Rate Reserve Percentage" for any Interest Period means
        the reserve percentage applicable during such Interest Period (or if
        more than one such percentage shall be so applicable, the daily average
        of such percentages for those days in such Interest Period during which
        any such percentage shall be so applicable) under regulations issued
        from time to time by the Board of Governors of the Federal Reserve
        System (or any successor) for determining the maximum reserve
        requirement (including, without limitation, any emergency, supplemental
        or other marginal reserve requirement) for Bank with respect to
        liabilities or assets consisting of or including Eurocurrency
        Liabilities having a term equal to such Interest Period.

        "Event" means any event or condition which, with notice, the
        passage of time, the happening of any other condition or event, or any
        combination thereof, would constitute an Event of Default.

        "Event of Default" has the meaning given to such term in Section
        11.1.

        "Facility Fee" has the meaning given to such term in Section 3.5.

        "Financial Statements" means, according to the context in which it
        is used, the financial statements attached hereto as Exhibit G-1, and
        the Latest Forecasts attached hereto as Exhibit G-2, and any other
        financial statements required to be given by the Borrower to the Lender
        under this Agreement.

        "Fiscal Quarter" means any three-month period ending March 31,
        June 30, September 30 or December 31.

        "Fiscal Year" means LSB's fiscal year for financial accounting
        purposes.  The current Fiscal Year of LSB will end on December 31, 1994.

        "GAAP" means at any particular time generally accepted accounting
        principles as in effect at such time.

        "Gross Availability Reductions" means the sum of all "Availability
        Reductions" under the LSB-Related Loan Agreements.

        "Gross LSB Accounts Availability" means the sum of the amounts
        calculated as "Accounts Availability" under all of the LSB-Related Loan
        Agreements less any Reserves established with respect to any of the LSB
        Eligible Accounts in accordance with the LSB-Related Loan Agreements. 

        "Guarantor Subsidiaries" means Universal Tech Corporation, LSB
        Chemical Corp., L&S Automotive Products, Co. (f/k/a LSB Bearing Corp.),
        International Bearing, Inc., LSB Extrusion Co., Rotex Corporation,
        Tribonetics Corporation, Summit Machine Tool Systems, Inc., Hercules
        Energy Manufacturing Corporation, Morey Machinery Manufacturing
        Corporation, CHP Corporation, Koax Corp., and APR Corporation. 
        Individually the Guarantor Subsidiaries shall be referred to as
        "Guarantor Subsidiary").

        "Guaranty" by any Person means all obligations of such Person
        which in any manner directly or indirectly guarantee the payment or
        performance of any indebtedness or other obligation of any other Person
        (the "guaranteed obligations"), or assure or in effect assure the holder
        of the guaranteed obligations against the loss in respect thereof,
        including, without limitation, any such obligations incurred through an
        agreement, (a) to purchase the guaranteed obligations or any Property
        constituting security therefor or (b) to advance or supply funds for the
        purchase or payment of the guaranteed obligations or to maintain a
        working capital or other balance sheet condition.

        "Industrial Division Guarantor Subsidiaries" means Summit Machine
        Tool Systems, Inc., Hercules Energy Manufacturing Corporation, and Morey
        Machinery Manufacturing Corporation.

        "Intercompany Accounts" means all assets and liabilities, however
        arising, which are due to the Borrower from, which are due from the
        Borrower to, or which otherwise arise from any transaction by the
        Borrower with, any Affiliate.

        "Interest Period" means, with respect to each Eurodollar Rate Loan
        the 90-day interest period applicable to such Eurodollar Rate Loan as
        determined pursuant to Section 3.3(b).

        "Inventory" means all of the Borrower's and each Guarantor
        Subsidiary's now owned and hereafter acquired inventory, wherever
        located, to be held for sale or lease, all raw materials,
        work-in-process, finished goods, returned and repossessed goods, and
        materials and supplies of any kind, nature or description which are or
        might be used in connection with the manufacture, packing, shipping,
        advertising, selling or finishing of such inventory, and all documents
        of title or other documents representing them.

        "Inventory Loans" means Loans based on Eligible Inventory.

        "IRS" means the Internal Revenue Service or any successor agency.

        "Latest Forecasts" means, (a) on the Closing Date and thereafter
        until the Lender receives new forecasts pursuant to Section 8.6, the
        forecasts of the Borrower's monthly financial condition, results of
        operations, and cash flows through the year ending December 31, 1996,
        attached hereto as Exhibit G-2; and (b) thereafter, the forecasts most
        recently received by the Lender pursuant to Section 7.2.

        "Letter of Credit" has the meaning specified in Section 2.3.

        "Letter of Credit Agreement" has the meaning specified in Section
        2.3.

        "Letter of Credit Fee" means the commissions charged under the
        Letter of Credit Agreement on the Outstanding Amount of each Letter of
        Credit.

        "Lien" means: any interest in Property securing an obligation owed
        to, or a claim by, a Person other than the owner of the Property,
        whether such interest is based on the common law, statute, or contract,
        and including without limitation, a security interest, charge, claim, or
        lien arising from a mortgage, deed of trust, encumbrance, pledge,
        hypothecation, assignment, deposit arrangement, agreement, or
        conditional sale, or a lease, consignment or bailment for security
        purposes.

        "Loans" means, collectively, all loans and advances by the Lender
        to or on behalf of the Borrower provided for in Article 2.

        "Loan Documents" means this Agreement, the Letter of Credit
        Agreement, the Patent and Trademark Assignments, the Subsidiary
        Guaranties, the Collateral Assignment of Notes and Liens, and all other
        agreements, instruments, and documents heretofore, now or hereafter
        evidencing, securing, guaranteeing or otherwise relating to the
        Obligations, the Collateral, the Security Interest, or any other aspect
        of the transactions contemplated by this Agreement, as the same may
        hereafter be amended, modified, restated and/or extended.

        "LSB" means LSB Industries, Inc., a Delaware corporation, the
        Borrower under this Agreement.

        "LSB Borrowing Group" means the Borrower Subsidiaries and the
        Guarantor Subsidiaries.

        "LSB Consolidated Group" means LSB and all of its Subsidiaries,
        including, but not limited to, the LSB Borrowing Group.

        "LSB Eligible Accounts" means the then existing "Eligible
        Accounts" of all of the Borrower Subsidiaries and the Guarantor
        Subsidiaries under the LSB-Related Loan Agreements.

        "LSB-Related Loan Agreements" means all of the following loan
        agreements:  (i) this Agreement; (ii) the Loan and Security Agreement
        dated of even date herewith between Lender and L & S Bearing Co.; (iii)
        the Loan and Security Agreement dated of even date herewith between
        Lender, El Dorado Chemical Company and Slurry Explosive Corporation;
        (iv) the Loan and Security Agreement dated of even date herewith between
        Lender and Climate Master, Inc.; (v) the Loan and Security Agreement
        dated of even date herewith between Lender and International
        Environmental Corporation; and (vi) the Loan and Security Agreement
        dated of even date herewith between Lender and Summit Machine Tool
        Manufacturing Corp.

        "Maximum Inventory Advance Amount" means, $32,500,000 less all
        then outstanding loans, advances, and outstanding Letters of Credit
        based on the Eligible Inventory of the LSB Borrowing Group under the
        LSB-Related Loan Agreements.

        "Maximum Revolving Credit Line" means Sixty-Five Million Dollars
        ($65,000,000) less the Gross Availability Reductions.

        "Minimum Borrowing Commitment" means Five Million Dollars
        ($5,000,000). 

        "Multi-employer Plan" means a Plan which is described in Section
        3(37) of ERISA.

        "Obligations" means all present and future loans, advances,
        liabilities, obligations, covenants, duties and Debts owing by the
        Borrower to the Lender, arising under this Agreement or any other Loan
        Document, whether or not evidenced by any note, or other instrument or
        document, whether arising from an extension of credit, opening of a
        letter of credit, acceptance, loan, guaranty, indemnification or
        otherwise, whether direct or indirect, absolute or contingent, due or to
        become due, primary or secondary, as principal or guarantor, and
        including, without limitation, all interest, charges, expenses, fees,
        attorneys' fees, filing fees and any other sums chargeable to the
        Borrower hereunder or under another Loan Document.  "Obligations"
        includes, without limitation, all debts, liabilities, and obligations
        now or hereafter owing from Borrower to Lender under or in connection
        with the Letters of Credit and the Letter of Credit Agreement.

        "Participating Lender" means any Person who shall have been
        granted the right by the Lender to participate in the Loans and who
        shall have entered into a participation agreement in form and substance
        satisfactory to the Lender.

        "Patent and Trademark Assignments" means the Patent Security
        Agreement and the Trademark and Trade Names Security Agreement dated as
        of the date hereof, executed and delivered by the Borrower to the Lender
        to evidence and perfect the Lender's Security Interest in the Borrower's
        present and future patents, trademarks, trade names and related licenses
        and rights.

        "Payment Account" means each blocked bank account, established
        pursuant to Section 6.10, to which Proceeds of Accounts and other
        Collateral are deposited or credited, and which is maintained in the
        name of the Borrower on terms acceptable to the Lender.

        "PBGC" means the Pension Benefit Guaranty Corporation or any
        Person succeeding to the functions thereof.

        "Pension Plan" means any employee benefit plan, including a
        Multiemployer Plan, which is subject to Title IV of ERISA, where either
        (a) the Plan is maintained by the Borrower or any Related Company; or
        (b) Borrower or any Related Company contributes or is required to
        contribute to it; or (c) Borrower or any Related Company has incurred or
        may incur liability, including contingent liability, under Title IV of
        ERISA, either to it, or to the PBGC with respect to it.

        "Permitted Debt" means:  (i) the Obligations; (ii) Debt set forth
        in the most recent Financial Statements delivered to the Lender, or the
        notes thereto; (iii) Debt incurred since the date of such Financial
        Statements to finance Capital Expenditures permitted hereby; (iv) Debt
        issued or assumed by Borrower in connection with an Acquisition
        permitted under Section 9.14 hereof; (v) Debt resulting from a judgment
        having been rendered against the Borrower that is being appealed by the
        Borrower in good faith and in a timely manner, for which an adequate
        reserve has been recorded on Borrower's books, and which is not fully
        covered by insurance; (vi) Subordinated Debt; (vii) Debt resulting from
        the refinancing of any other Permitted Debt as long as (a) such Debt
        does not exceed the amount of the refinanced Debt, and (b) such Debt
        does not result in payment acceleration of the refinanced Debt; (viii)
        Debt resulting from trade payables and other obligations arising in the
        ordinary course of business, (ix) other Debt not otherwise permitted by
        this definition in an amount not to exceed $5,000,000 at any one time,
        and (x) Debt of the Borrower to a member of the LSB Borrowing Group or
        to an Affiliate in accordance with Section 9.9 hereof.  Notwithstanding
        the foregoing, Permitted Debt described in subsection (ix) of this
        definition, when combined with Permitted Debt allowed under subsection
        (ix) of the definition of Permitted Debt under all of the other LSB-
        Related Loan Agreements, shall not exceed $5,000,000 at any one time.

        "Permitted Liens" means: (a) Liens for taxes not yet payable or
        Liens for taxes being contested in good faith and by proper proceedings
        diligently pursued, provided that a reserve or other appropriate
        provision, if any, as shall be required by GAAP shall have been made
        therefor on the applicable Financial Statements, and further provided
        that, with respect to the Collateral, a stay of enforcement of any such
        Lien is in effect; (b) Liens in favor of the Lender; (c) reservations,
        exceptions, encroachments, easements, rights of way, covenants,
        conditions, restrictions, leases and other similar title exceptions or
        encumbrances affecting the Real Property; (d) Liens or deposits under
        workmen's compensation, unemployment insurance, social security and
        other similar laws, (e) Liens relating to obligations with respect to
        surety, appeal bonds, performance bonds, bids, tenders and other
        obligations of a like nature, (f) Liens existing as of the Closing Date
        and granted after the date hereof in connection with the Equipment, Real
        Property or other fixed assets, provided that such Liens attach only to
        such Property and the proceeds thereof, and so long as the indebtedness
        secured thereby does not exceed 100% of the fair market value of such
        Property at the time of acquisition; (g) Liens on goods consigned to the
        Borrower or a Guarantor Subsidiary or not owned by Borrower or a
        Guarantor Subsidiary so long as such Lien attaches only to such goods
        and so long as Lender has been given notice of such Lien, (h) mechanic,
        materialmen and other like Liens arising in the ordinary course of
        business securing obligations which are not overdue or are being
        contested in good faith by appropriate proceedings and adequately
        reserved against, (i) statutory Liens in favor of landlords, (j) Liens
        against any life insurance policy or the cash surrender value thereof
        which relate to borrowings incurred to finance the premiums made under
        such policy; (k) Liens not to exceed $1,000,000 at any one time in
        amounts secured, which are junior in priority to the Security Interest
        and which arise or are placed inadvertently against the assets of
        Borrower or any Guarantor Subsidiary and are removed within ten (10)
        days from receipt of notice by the Borrower or such Guarantor Subsidiary
        of such Lien; and (l) Liens reflected on Exhibit A hereto.  
        "Person" means any individual, sole proprietorship, partnership,
        joint venture, trust, unincorporated organization, association,
        corporation, Public Authority, or any other entity.

        "Plan" means, individually and collectively, all Pension Plans,
        all additional employee benefit plans as defined in Section 3(3) of
        ERISA, and all other plans, programs, agreements, arrangements, and
        methods of contribution or compensation providing any material
        remuneration or benefits, other than the cash payment of wages or
        salary, to any current or former employee(s) of the Borrower.

        "Proceeds" means all products and proceeds of any Collateral, and
        all proceeds of such proceeds and products, including, without
        limitation, all cash and credit balances, all payments under any
        indemnity, warranty, or guaranty payable with respect to any Collateral,
        all proceeds of fire or other insurance, and all money and other
        Property obtained as a result of any claims against third parties or any
        legal action or proceeding with respect to Collateral.

        "Property" means any interest in any kind of property or asset,
        whether real, personal or mixed, or tangible or intangible.

        "Proprietary Rights" means all of the Borrower's and each
        Guarantor Subsidiary's now owned and hereafter arising or acquired:
        licenses, franchises, permits, patents, patent rights, copyrights, works
        which are the subject matter of copyrights, trademarks, trade names,
        trade styles, patent and trademark applications and licenses and rights
        thereunder, including without limitation those patents, trademarks and
        copyrights set forth on Exhibit B hereto, and all other rights under any
        of the foregoing, all extensions, renewals, reissues, divisions,
        continuations, and continuations-in-part of any of the foregoing, and
        all rights to sue for past, present, and future infringement of any of
        the foregoing; inventions, trade secrets, formulae, processes,
        compounds, drawings, designs, blueprints, surveys, reports, manuals, and
        operating standards, goodwill, customer and other lists in whatever form
        maintained, and trade secret rights, copyright rights, right in works of
        authorship, and contract rights relating to computer software programs,
        in whatever form created or maintained. 

        "Public Authority" means the government of any country or
        sovereign state, or of any state, province, municipality, or other
        political subdivision thereof, or any department, agency, public
        corporation or other instrumentality of any of the foregoing.

        "Real Property" means all of Borrower's and Guarantor
        Subsidiaries' rights, title, and interest in real property now owned or
        hereafter acquired by Borrower or the Guarantor Subsidiaries, including,
        without limitation, the real property more particularly described in
        Exhibit H attached hereto, including all rights and easements in
        connection therewith and all buildings and improvements now or hereafter
        constructed thereon.

        "Receivables" means all of the Borrower's and each Guarantor
        Subsidiary's now owned or hereafter arising or acquired:  Accounts
        (whether or not earned by performance), including Accounts owed to the
        Borrower by any of its Subsidiaries or Affiliates (but excluding
        Accounts arising solely from the sale of Equipment, Real Property or
        other fixed assets), together with all interest, late charges,
        penalties, collection fees, and other sums which shall be due and
        payable in connection with any Account; proceeds of any letters of
        credit naming the Borrower or any Guarantor Subsidiary as beneficiary
        except such letters of credit as are issued solely in connection with
        the purchase or sale of Equipment, Real Property or other fixed assets;
        contract rights, chattel paper, instruments, documents, general
        intangibles (including, without limitation, choses in action, causes of
        action, tax refunds, tax refund claims, Reversions and other amounts
        payable to the Borrower or to a Guarantor Subsidiary from or with
        respect to any Plan, rights and claims against shippers and carriers,
        rights to indemnification and business interruption insurance), and all
        forms of obligations owing to Borrower (including, without limitation,
        obligations owing to the Borrower by its Subsidiaries and Affiliates);
        guarantees and other security for any of the foregoing; and rights of
        stoppage in transit, replevin, and reclamation; and other rights or
        remedies of an unpaid vendor, lienor, or secured party.

        "Reference Rate" means the per annum rate of interest publicly
        announced from time to time by the Bank at its San Francisco, California
        main office as its reference rate.  It is a rate set by Bank based upon
        various factors including Bank's costs and desired return, general
        economic conditions, and other factors, and is used as a reference point
        for pricing some loans; however, Bank may price loans at, above or below
        the Reference Rate.  Any change in the Reference Rate shall take effect
        on the day specified in the public announcement of such change.

        "Reference Rate Loan" means a Revolving Loan during any period in
        which it bears interest at the rate provided in Section 3.1(a)(i).

        "Reference Rate Margin" has the meaning specified in Section
        3.1(a)(i).

        "Related Company" means any member of any controlled group of
        corporations including, or under common control with, Borrower (as
        defined in Section 414(b) or (c) of the Code or Section 4001(a)(14) of
        ERISA).

        "Reportable Event" means, with respect to a Pension Plan, a
        reportable event described in Section 4043 of ERISA or the regulations
        thereunder, a withdrawal from a Plan described in Section 4063 of ERISA,
        or a cessation of operations described in Section 4062(e) of ERISA.

        "Restricted Investment" means any acquisition of Property by the
        Borrower in exchange for cash or other Property, whether in the form of
        an acquisition of stock, indebtedness or other obligation, or by loan,
        advance, capital contribution, or otherwise, except the following: (a)
        Property to be used in the business of Borrower or any of the Guarantor
        Subsidiaries; (b) assets arising from the sale or lease of goods or
        rendition of services in the ordinary course of business of the Borrower
        or any of the Guarantor Subsidiaries; (c) direct obligations of the
        United States of America, or any agency thereof, or obligations
        guaranteed by the United States of America, provided that such
        obligations mature within one year from the date of acquisition thereof;
        (d) certificates of deposit maturing within one year from the date of
        acquisition, bankers acceptances, Eurodollar bank deposits, or overnight
        bank deposits, in each case issued by, created by, or with a bank or
        trust company organized under the laws of the United States or any state
        thereof having capital and surplus aggregating at least $100,000,000;
        and (e) commercial paper given the highest rating by a national credit
        rating agency and maturing not more than 270 days from the date of
        creation thereof.

        "Reversions" means any funds which may become due to the Borrower
        in connection with the termination of any Plan.

        "Revolver Facility" means the credit facility hereunder consisting
        of the provision for Revolving Loans and Letters of Credit.

        "Revolving Loans" has the meaning specified in Section 2.1.

        "Security Interest" means collectively the Liens granted by
        Borrower and the Guarantor Subsidiaries to the Lender in the Collateral
        pursuant to this Agreement or the other Loan Documents.

        "Subordinated Debt" shall mean Debt that is unsecured and is
        subordinated to the payment of the Obligations.

        "Subsidiary" or "Subsidiaries" means any present or future
        corporation or corporations of which LSB owns, directly or indirectly,
        more than 50% of the voting stock. 

        "Subsidiary Guaranties" means the continuous guaranties of the
        Obligations made by the Guarantor Subsidiaries in favor of the Lender
        and delivered to the Lender pursuant to Section 10.2.

        "Termination Event" means:  (a) a Reportable Event (other than a
        Reportable Event described in Section 4043 of ERISA which is not subject
        to the provision for 30-day notice to the PBGC under applicable
        regulations); or (b) the withdrawal of the Borrower or any Related
        Company from a Pension Plan during a plan year in which it was a
        "substantial employer" as defined in Section 4001(a)(2) of ERISA with
        respect to such Pension Plan; or (c) the filing of a notice of intent to
        terminate a Pension Plan or the treatment of a Pension Plan amendment as
        a termination under Section 4041 of ERISA; or (d) the institution of
        proceedings by the PBGC to terminate or have a trustee appointed to
        administer a Pension Plan; or (e) any other event or condition which
        might constitute grounds under Section 4042 of ERISA for the termination
        of, or the appointment of a trustee to administer, any Pension Plan, or
        (f) the partial or complete withdrawal of Borrower or any Related
        Company from a Multi-employer Plan, or (g) the withdrawal of Borrower
        from any state workers' compensation system.

        "UCC" means the Uniform Commercial Code (or any successor statute)
        of the State of Oklahoma or of any other state the laws of which are
        required by Section 9-103 thereof to be applied in connection with the
        issue of perfection of security interests.

        1.2  Accounting Terms.  Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.

        1.3      Other Terms.  All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein. 
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.

        1.4      Exhibits.  All references in this Agreement to Exhibits are,
unless otherwise specified, references to exhibits attached hereto, and all
such exhibits are hereby deemed incorporated herein by this reference.

        2.       LOANS AND LETTERS OF CREDIT.

        2.1      Revolving Loans.  The Lender shall, subject to the terms and
conditions set forth in this Agreement, and upon the Borrower's request from
time to time, make revolving loans (the "Revolving Loans") to the Borrower up
to the limits of the Availability.  The Lender, in its discretion, may elect
to exceed the limits of the Availability on one or more occasions, but if it
does so, the Lender shall not be deemed thereby to have changed the limits of
the Availability or to be obligated to exceed the limits of the Availability
on any other occasion.  If the unpaid balance of the Revolving Loans exceeds
the Availability (with Availability for this purpose determined as if the
amount of the Revolving Loans were zero), then the Lender may refuse to make
or otherwise restrict Revolving Loans on such terms as the Lender determines
until such excess has been eliminated.  The Borrower may request Revolving
Loans either orally or in writing, provided, however, that each such request
with respect to Reference Rate Loans shall be made no later than 1:00 p.m.
(Los Angeles, California time).  Each oral request for a Revolving Loan shall
be conclusively presumed to be made by a person authorized by the Borrower to
do so and the crediting of a Revolving Loan to the Borrower's deposit account,
or transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay such Revolving Loan.  The
Lender will charge all Revolving Loans and other Obligations to a loan account
of the Borrower maintained with the Lender.  All fees, commissions, costs,
expenses, and other charges due from the Borrower pursuant to the Loan Docu-
ments, and all payments made and out-of-pocket expenses incurred by Lender and
authorized to be charged to the Borrower pursuant to the Loan Documents, will
be charged as Revolving Loans to the Borrower's loan account as of the date
due from the Borrower or the date paid or incurred by the Lender, as the case
may be.

        2.2      Availability Determination.  Availability will be determined
by the Lender in accordance with the terms of this Agreement, each day on the
basis of such relevant information as the Lender deems appropriate to
consider, including the collateral summary reports and such other information
regarding the Accounts and the Inventory as the Lender shall obtain from the
Borrower.

        2.3      Letters of Credit.  The Lender will, subject to the terms
and conditions of this Agreement and the Letter of Credit Agreement as
hereafter defined, and upon the Borrower's request from time to time, cause
merchandise letters of credit (the "Merchandise L/C's") or standby letters of
credit (the "Standby L/C's") to be issued for the Borrower's account (the
Merchandise L/C's and the Standby L/C's being referred to collectively as the
"Letters of Credit").  The Lender will not cause to be opened any Letter of
Credit if:  (a) the maximum face amount of the requested Letter of Credit,
plus the aggregate undrawn face amount of all outstanding Letters of Credit
under this Agreement and the other LSB-Related Loan Agreements, would exceed
Eleven Million and No/100 Dollars ($11,000,000); or (b) the maximum face
amount of the requested Letter of Credit, and all commissions, fees, and
charges due from Borrower to Lender in connection with the opening thereof,
would cause the Availability to be exceeded at such time.  In addition, with
respect to any Merchandise L/C, the requested term of such Letter of Credit
may not exceed 180 days, and no Merchandise L/C may by its terms be scheduled
to be outstanding on the Termination Date.  Standby L/C's may have terms that
extend beyond the Termination Date but upon termination of this Agreement, all
Letters of Credit must be either terminated with the consent of the
beneficiary thereof, replaced with a letter of credit provided by a financial
institution acceptable to Lender, collateralized by cash or cash equivalent,
or otherwise satisfied in a manner acceptable to Lender.  The Letters of
Credit shall be governed by a Letter of Credit Financing Agreement - 
Supplement to Loan and Security Agreement between the Lender and the Borrower
("Letter of Credit Agreement"), in the form attached hereto as Exhibit "O" and
made a part hereof, in addition to the terms and conditions hereof.  All
payments made and expenses incurred by the Lender pursuant to or in connection
with the Letters of Credit and the Letter of Credit Agreement will be charged
to the Borrower's loan account as Revolving Loans.

        3.       INTEREST AND OTHER CHARGES

        3.1      Interest.

        (a)      Interest Rates.  All amounts charged as Revolving Loans
shall bear interest on the unpaid principal amount thereof from the date made
until paid in full in cash at the Applicable Interest Rate as described in
Sections 3.1(a)(i) and (ii) but not to exceed the maximum rate permitted by
applicable law.  Subject to the provisions of Section 3.2, any of the
Revolving Loans may be converted into, or continued as, Reference Rate Loans
or Eurodollar Rate Loans in the manner provided in Section 3.2.  If at any
time Revolving Loans are outstanding with respect to which notice has not been
delivered to Lender in accordance with the terms of this Agreement specifying
the basis for determining the interest rate applicable thereto, then those
Revolving Loans shall be Reference Rate Loans and shall bear interest at a
rate determined by reference to the Reference Rate until notice to the
contrary has been given to the Lender and such notice has become effective. 
Except as otherwise provided herein, the amounts charged as Revolving Loans
shall bear interest at the following rates (the "Applicable Interest Rate"):

        (i)       For all amounts charged as Revolving Loans other than
        Eurodollar Rate Loans, including all Revolving Loans which are Reference
        Rate Loans, then at a fluctuating per annum rate equal to one-half
        percent (1/2%) per annum (the "Reference Rate Margin") plus the
        Reference Rate; and

        (ii)     If the Revolving Loans are Eurodollar Rate Loans, then
        at a per annum rate equal to: two and seven-eighths percent (2.875%) per
        annum (the "Eurodollar Margin") plus the Eurodollar Rate determined for
        the applicable Interest Period.

        Each change in the Reference Rate shall be reflected in the interest
        rate described in (i) above as of the effective date of such change. 
        All interest charges shall be computed on the basis of a year of three
        hundred sixty (360) days and actual days elapsed.  Except as otherwise
        provided herein, (1) interest accrued on each Eurodollar Rate Loan shall
        be payable in arrears on each Eurodollar Interest Payment Date
        applicable to such Eurodollar Rate Loan and upon payment thereof in
        full, and (2) interest accrued on the Reference Rate Loans will be
        payable in arrears on the first day of each month hereafter.

        (b)      Default Rate.  If any Event of Default occurs, then, while
any such Event of Default is continuing, all Loans shall bear interest at an
increased rate of interest equal to the Applicable Interest Rate thereto plus
two percent (2.0%) per annum, and the Letter of Credit Fee shall be increased
to three percent (3%) per annum.

        3.2      Eurodollar Borrowings: Conversion or Continuation.

        (a)      Subject to the provisions of Section 3.3, the Borrower shall
have the option:  (i) to request the Lender to make a Revolving Loan as a
Eurodollar Rate Loan; (ii) to convert all or any part of the outstanding
Revolving Loans from Reference Rate Loans to Eurodollar Rate Loans, (iii) to
convert all or any part of the outstanding Revolving Loans from Eurodollar
Rate Loans to Reference Rate Loans on the expiration of the Interest Period
applicable thereto; (iv) upon the expiration of any Interest Period applicable
to any outstanding Eurodollar Rate Loan, to continue all or any portion of
such Eurodollar Rate Loan as a Eurodollar Rate Loan; provided, however, that
no outstanding Loans may be converted into or continued as, Eurodollar Rate
Loans when any Event or Event of Default has occurred and is continuing.

        (b)      Whenever the Borrower elects to borrow, convert into or
continue Eurodollar Rate Loans under this Section 3.2, the Borrower shall
notify the Lender in writing or telephonically no later than 11:00 a.m. (Los
Angeles, California time) two (2) Business Days in advance of the requested
borrowing/conversion/continuation date.  The Borrower shall specify (1) the
borrowing/conversion/continuation date (which shall be a Business Day), (2)
the amount and type of the Revolving Loans to be borrowed/converted/continued,
and (3) the nature of the requested borrowing/ conversion/continuation.  In
the event that the Borrower should fail to timely notify the Lender to
continue to convert any existing Eurodollar Rate Loan, such Loan shall, on the
last day of the Interest Period with respect to such Revolving Loan, convert
to a Reference Rate Loan.

        (c)      The officer of the Borrower authorized by the Borrower to
request Revolving Loans on behalf of the Borrower shall also be authorized to
request a conversion/continuation on behalf of the Borrower.  The Lender shall
be entitled to rely on such officer's authority until the Lender is notified
to the contrary in writing.  The Lender shall have no duty to verify the 
authenticity of the signature appearing on any written notification or request
and, with respect to an oral notification or request, the Lender shall have no
duty to verify the identity of any individual representing himself as one of
the officers authorized to make such notification or request on behalf of the
Borrower.  The Lender shall incur no liability to the Borrower in acting upon
any telephonic notice or request referred to in this Section 3.2, which the
Lender believes in good faith to have been given by an officer authorized to
do so on behalf of the Borrower, or for otherwise acting in good faith under
this Section 3.2 and, upon lending/conversion/continuation by the Lender in
accordance with this Agreement pursuant to any such telephonic notice, the
Borrower shall have effected the borrowing/conversion/continuation of the
applicable Loans hereunder.

        (d)      Any written or telephonic notice of conversion to, or
borrowing or continuation of, Revolving Loans made pursuant to this Section
3.2 shall be irrevocable and the Borrower shall be bound to borrow, convert or
continue in accordance therewith.

        3.3      Special Provisions Governing Eurodollar Rate Loans. 
Notwithstanding any other provisions to the contrary contained in this
Agreement, the following provisions shall govern with respect to Eurodollar
Rate Loans as to the matters covered:

        (a)      Amount of Eurodollar Rate Loans.  Each election of,
continuation of, or conversion to a Eurodollar Rate Loan, shall be in a
minimum amount of Five Million Dollars ($5,000,000) and in integral multiples
of One Million Dollars ($1,000,000) in excess of that amount.

        (b)      Determination of Interest Period.  The Interest Period for
each Eurodollar Rate Loan shall be for a three (3) month period.  The
determination of Interest Periods shall be subject to the following
provisions:

        (i)      In the case of immediately successive Interest
        Periods, each successive Interest Period shall commence on the day on
        which the next preceding Interest Period expires.

        (ii)     If any Interest Period would otherwise expire on a day
        which is not a Business Day, the Interest Period shall be extended to
        expire on the next succeeding Business Day; provided, however, that if
        the next succeeding Business Day occurs in the following calendar month,
        then such Interest Period shall expire on the immediately preceding
        Business Day.

        (iii)    The Borrower may not select an Interest Period
        for any Eurodollar Rate Loan, which Interest Period expires later than
        the Stated Termination Date.

        (iv)      There shall be not more than two (2) Interest Periods
        in effect at any one time, and no more than two (2) Interest Periods may
        begin during any calendar month.

        (v)       If an Interest Period starts on a date for which no
        numerical correspondent exists in the month in which such Interest
        Period ends, such Interest Period will end on the last Business Day of
        such month.

        (c)      Determination of Interest Rate.  As soon as practicable
after 11:00 a.m. (Los Angeles, California time) on the Eurodollar Interest
Rate Determination Date, the Lender shall determine (which determination
shall, absent manifest error, be presumptively correct) the Interest Rate for
the Eurodollar Rate Loans for which an Interest Rate is then being determined
and shall promptly give notice thereof (in writing or by telephone confirmed
in writing) to the Borrower.

        (d)      Substituted Rate of Borrowing.  In the event that on any
Eurodollar Interest Rate Determination Date the Lender shall have determined
(which determination shall, absent manifest error, be presumptively correct
and binding upon all parties) that:

        (i)      by reason of any changes arising after the date of
        this Agreement affecting the interbank Eurodollar market or affecting
        the position of Bank or Lender in such market, adequate and fair means
        do not exist for ascertaining the applicable interest rates by reference
        to which the Eurodollar Rate then being determined is to be fixed; or

        (ii)     by reason of (1) any change after the date of this
        Agreement in any applicable law or governmental rule, regulation or
        order (or any interpretation thereof and including the introduction of
        any new law or governmental rule, regulation or order) or (2) any other
        circumstances affecting Bank or Lender or the interbank Eurodollar
        market or the position of Bank or Lender in such market (such as, for
        example, but not limited to, official reserve requirements required by
        Regulation D of the Board of Governors of the Federal Reserve System to
        the extent not given effect in the Eurodollar Rate), the Eurodollar Rate
        shall not represent the effective pricing to Lender for Dollar deposits
        of comparable amounts for the relevant period; 

then, and in any such event, the right of the Borrower to request application
of the Eurodollar Rate to some or all of the Loans shall be suspended until
the Lender shall notify the Borrower that the circumstances causing such
suspension no longer exist, and such Loans shall be Reference Rate Loans.

        (e)      Illegality.  In the event that on any date Lender shall have
reasonably determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties) that the making of,
conversion into, or the continuation of, Lender's Eurodollar Rate Loans has
become unlawful as the result of compliance by Lender or Bank in good faith
with any law, governmental rule, regulation or order (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, Lender shall promptly give notice (by
telephone confirmed in writing) to the Borrower of such determination.  In
such case and except as provided in Section 3.3(f), the obligation of Lender
to make or maintain any Eurodollar Rate Loans during any such period shall be
terminated at the earlier of the termination of the Interest Period then in
effect or when required by law, and the Borrower shall, no later than the
earlier of the termination of the Interest Period in effect at the time any
such determination pursuant to this Section 3.3(e) is made, or when required
by law, repay the Eurodollar Rate Loans, together with all interest accrued
thereon.

        (f)      Options of the Borrower.  In lieu of prepaying the
Eurodollar Rate Loans as required by Section 3.3(e), the Borrower may exercise
either of the following options:

        (i)      Upon written notice to the Lender, the Borrower may
        release Lender from its obligations to make or maintain Loans as
        Eurodollar Rate Loans and in such event, the Borrower shall, at the end
        of the then current Interest Period (or at such earlier time as
        prepayment is otherwise required), convert all of the Eurodollar Rate
        Loans into Reference Rate Loans in the manner contemplated by Section
        3.2, but without satisfying the advance notice requirements therein; or

        (ii)     The Borrower may, by giving notice (by telephone
        confirmed immediately by telecopy) to Lender require Lender to continue
        to maintain its outstanding Reference Rate Loans as Reference Rate
        Loans, but without satisfying the advance notice requirements set forth
        in such Section 3.2.

        (g)      Compensation.  In addition to such amounts as are required
to be paid by the Borrower pursuant to the other Sections of this Article 3,
the Borrower agrees to compensate the Lender for all expenses and liabilities,
including, without limitation, any loss or expense incurred by Lender by
reason of the liquidation or reemployment of deposits or other funds acquired
by Lender to fund or maintain the Lender's Eurodollar Rate Loans to the
Borrower, which Lender sustains (i) if due to the fault of the Borrower a
funding of any Eurodollar Rate Loans does not occur on a date specified
therefor by Borrower in a telephonic or written request for borrowing or
conversion/continuation, or a successive Interest Period does not commence
after notice therefor is given pursuant to Section 3.2, (ii) if any voluntary
or mandatory prepayment of any Eurodollar Rate Loans occurs for any reason on
a date which is not the last scheduled day of an Interest Period, or (iii) as
a consequence of any other failure by the Borrower to repay Eurodollar Rate
Loans when required by the terms of this Agreement.

        (h)      Quotation of Eurodollar Rate.  Anything herein to the
contrary notwithstanding, if on any Eurodollar Interest Rate Determination
Date no Eurodollar Rate is available by reason of the failure of Bank to be
offered quotations in accordance with the definition of "Eurodollar Base
Rate," the Lender shall give the Borrower prompt notice thereof and (i) any
Eurodollar Rate Loan requested to be made at the Eurodollar Rate to be
determined on any Eurodollar Interest Rate Determination Date shall be made as
a Reference Rate Revolving Loan, and (ii) any notice given by the Borrower to
convert any Loans into or to continue any Loans as Eurodollar Rate Loans at
the Eurodollar Rate to be determined on any such Eurodollar Interest Rate
Determination Date shall be ineffective.

        (i)      Eurodollar Rate Taxes.  The Borrower agrees that it will
pay, prior to the date on which penalties attach thereto, all present and
future income, stamp and other taxes, levies, or costs and charges whatsoever
imposed, assessed, levied or collected on or from the Lender on or in respect
of the Borrower's Loans from the Lender solely as a result of the interest
rate being determined by reference to the Eurodollar Rate and/or the
provisions of this Agreement relating to the Eurodollar Rate and/or the
recording, registration, notarization or other formalization of any of the
foregoing and/or any payments of principal, interest or other amounts made on
or in respect of the Loans from the Lender when the interest rate is
determined by reference to the Eurodollar Rate (all such taxes, levies, cost
and charges being herein collectively called "Eurodollar Rate Taxes");
provided, however, that Eurodollar Rate Taxes shall not include taxes imposed
on or measured by the overall net income of the Lender by the United States of
America or any political subdivision or taxing authority thereof or therein,
or taxes on or measured by the overall net income by any foreign branch or
subsidiary of the Lender by any foreign country or subdivision thereof in
which that branch or subsidiary is doing business.  Promptly after the date on
which payment of any such Eurodollar Rate Tax is due pursuant to applicable
law, the Borrower will, at the request of the Lender, furnish to the Lender
evidence, in form and substance satisfactory to the Lender, that the Borrower
has met its obligation under this Section 3.3(i), an addition, the Borrower
will indemnify the Lender against, and reimburse Lender on demand for, any
Eurodollar Rate Taxes for which the Lender is or may be liable by reason of
the making or maintenance of any Eurodollar Rate Loans hereunder, as
determined by the Lender in its discretion exercised in good faith and
pursuant to standards of commercial reasonableness.  The Lender shall provide
Borrower with appropriate receipts for any payments or reimbursements made by
Borrower pursuant to this Section 3.3(i).

        (j)      Booking of Eurodollar Rate Loans.  The Lender may make,
carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of
its branch offices or the office of any of its Affiliates.

        (k)      Increased Costs.  If, due to either (i) the introduction of
or any change (other than any change by way of imposition or increase of
reserve requirements included in the Eurodollar Reserve Percentage) in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Public Authority (whether
or not having the force of law), there shall be any increase in the cost to
the Lender of agreeing to make or making, funding or maintaining Eurodollar
Rate Loans, then the Borrower agrees that it shall, from time to time, upon
demand by the Lender in writing to the Borrower, within sixty (60) days from
the date of such increased cost, pay to the Lender additional amounts
sufficient to compensate the Lender for such increased cost relating to the
outstanding Eurodollar Rate Loans made to the Borrower.  A certificate as to
the amount of such increased cost and the method of determination thereof,
submitted to the Borrower by the Lender, shall be rebuttably presumptive
evidence of the correctness of such amount.  Notwithstanding the above, the
Lender shall promptly advise Borrower of any increased costs covered by this
paragraph (k) of which Lender is aware that have been made or which are
proposed to be made which may require the Borrower to be required to pay the
increased cost under this paragraph (k) prior to or at the time that Borrower
requests additional Eurodollar Rate Loans.

                 3.4      Maximum Interest Rate.

        (a)      Notwithstanding the foregoing provisions of Sections 3.1
through 3.3 regarding the rates of interest applicable to the Loans, if at any
time the amount of such interest computed on the basis of the Applicable
Interest Rate would exceed the amount of such interest computed upon the basis
of the maximum rate of interest permitted by applicable state or federal law
in effect from time to time hereafter, after taking into account, to the
extent required by applicable law, any and all fees, payments, charges and
calculations provided for in this Agreement or in any other agreement between
Borrower and Lender (the "Maximum Legal Rate"), the interest payable under
this Agreement shall be computed upon the basis of the Maximum Legal Rate, but
any subsequent reduction in the Reference Rate or the Eurodollar Rate shall
not reduce such interest thereafter payable hereunder below the amount
computed on the basis of the Maximum Legal Rate until the aggregate amount of
such interest accrued and payable under this Agreement equals the total amount
of interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Interest Rate.

        (b)      No agreements, conditions, provisions or stipulations
contained in this Agreement or any other instrument, document or agreement
between the Borrower and the Lender or default of the Borrower, or the
exercise by the Lender of the right to accelerate the payment of the maturity
of principal and interest, or to exercise any option whatsoever contained in
this Agreement or any other agreement between the Borrower and the Lender, or
the arising of any contingency whatsoever, shall entitle the Lender to
collect, in any event, interest exceeding the Maximum Legal Rate and in no
event shall the Borrower be obligated to pay interest exceeding such Maximum
Legal Rate and all agreements, conditions or stipulations, if any, which may
in any event or contingency whatsoever operate to bind, obligate or compel the
Borrower to pay a rate of interest exceeding the Maximum Legal Rate, shall be
without binding force or effect, at law or in equity, to the extent only of
the excess of interest over such Maximum Legal Rate.  In the event any
interest is charged in excess of the Maximum Legal Rate ("Excess"), the
Borrower acknowledges and stipulates that any such charge shall be the result
of an accidental and bona fide error, and such Excess shall be, first, applied
to reduce the principal then unpaid hereunder; second, applied to reduce the
Obligations; and third, returned to the Borrower, it being the intention of
the parties hereto not to enter at any time into a usurious or otherwise
illegal relationship.  The Borrower recognizes that, with fluctuations in the
Applicable Interest Rate and the Maximum Legal Rate, such an unintentional
result could inadvertently occur.  By the execution of this Agreement, the
Borrower covenants that (i) the credit or return of any Excess shall
constitute the acceptance by the Borrower of such Excess, and (ii) the
Borrower shall not seek or pursue any other remedy, legal or equitable,
against Lender, based in whole or in part upon the charging or receiving of
any interest in excess of the maximum authorized by applicable law.  For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by Lender, all interest at any time contracted for,
charged or received by the Lender in connection with this Agreement shall be
amortized, prorated, allocated and spread in equal parts during the entire
term of this Agreement.

        (c)      The provisions of Section 3.4 shall be deemed to be
incorporated into every document or communication relating to the Obligations
which sets forth or prescribes any account, right or claim or alleged account,
right or claim of the Lender with respect to the Borrower (or any other
obligor in respect of Obligations), whether or not any provision of Section
3.4 is referred to therein.  All such documents and communications and all
figures set forth therein shall, for the sole purpose of computing the extent
of the liabilities and obligations of the Borrower (or other obligor) asserted
by the Lender thereunder, be automatically recomputed by any Borrower or
obligor, and by any court considering the same, to give effect to the
adjustments or credits required by Section 3.4.

        (d)      If the applicable state or federal law is amended in the
future to allow a greater rate of interest to be charged under this Agreement
or any other Loan Documents than is presently allowed by applicable state or
federal law, then the limitation of interest under Section 3.4 shall be
increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to the Lender
by reason thereof shall be payable upon demand.

        3.5      Facility Fee.  The Borrower will pay the Lender a facility
fee in the amount of $28,850 on the Closing Date.  The Lender and the Borrower
agree that the Facility Fee shall be financed by the Lender as a Reference
Rate Revolving Loan.

        3.6      Capital Adequacy.  If as a result of any regulatory change
directly or indirectly affecting Lender or any of Lender's affiliated
companies there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, minimum capital, capital ratio, or similar
requirement against or with respect to or measured by reference to loans made
or to be made to Borrower hereunder, or to Letters of Credit issued on behalf
of Borrower pursuant to the Letter of Credit Agreement, and the result shall
be to increase the cost to Lender or to any of Lender's affiliated companies
of making or maintaining any Revolving Loan or Letter of Credit hereunder, or
reduce any amount receivable in respect of any such Revolving Loan and which
increase in cost, or reduction in amount receivable, shall be the result of
Lender's or Lender's affiliated company's reasonable allocation among all
affected customers of the aggregate of such increases or reductions resulting
from such event, then, within ten (10) days after receipt by Borrower of a
certificate from Lender containing the information described in this Section
3.6 which shall be delivered to Borrower, Borrower agrees from time to time to
pay Lender such additional amounts as shall be sufficient to compensate Lender
or any of Lender's affiliated companies for such increased costs or reductions
in amounts which Lender determines in Lender's reasonable discretion are
material.  Notwithstanding the foregoing, all such amounts shall be subject to
the provisions of Section 3.4.  The certificate requesting compensation under
this Section 3.6 shall identify the regulatory change which has occurred, the
requirements which have been imposed, modified or deemed applicable, the
amount of such additional cost or reduction in the amount receivable and the
way in which such amount has been calculated.

        3.7      Unused Line Fee.  For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the "Unused Line Fee") in
an amount equal to one-half percent (.50%) per annum, multiplied by the amount
by which (a) the Minimum Borrowing Commitment then in effect exceeds (b) the
average closing daily unpaid balance of all Loans and all issued but undrawn
Letters of Credit during such month, with the unpaid balance calculated for
this purpose by applying payments immediately upon receipt.  Such a fee, if
any, shall be calculated on the basis of a year of three hundred sixty (360)
days and actual days elapsed, and shall be payable to the Lender on the first
day of each month prior to the termination of this Agreement commencing
January 1, 1995 and on the termination of this Agreement, with respect to the
prior month or portion thereof.

        4.       PAYMENTS AND PREPAYMENTS.

        4.1      Revolving Loans.  The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement.  In addition, the Borrower
shall pay to the Lender, on demand, the amount by which the unpaid principal
balance of the Revolving Loans at any time exceeds the Availability at such
time (with Availability for this purpose determined as if the amount of the
Revolving Loans were zero).

        4.2      Place and Form of Payments: Extension of Time.  All payments
of principal, interest, and other sums due to the Lender shall be made at the
Lender's address set forth in Section 13.10.  Except for Proceeds received
directly by the Lender, all such payments shall be made in immediately
available funds.  If any payment of principal, interest, or other sum to be
made hereunder becomes due and payable on a day other than a Business Day, the
due date of such payment shall be extended to the next succeeding Business Day
and interest thereon shall be payable at the applicable interest rate during
such extension.

        4.3      Apportionment, Application and Reversal of Payments.  Except
as otherwise expressly provided hereunder, the Lender shall determine in its
discretion the order and manner in which proceeds and other payments that the
Lender receives are applied to the Revolving Loans, interest thereon, and the
other Obligations, and the Borrower hereby irrevocably waives the right to
direct the application of any payment or proceeds; provided, however, unless
so directed by the Borrower, the Lender shall not apply any such payments
which it receives to any Eurodollar Rate Loan, except:  (a) on the expiration
date of the Interest Period applicable to any such Eurodollar Rate Loan; or
(b) in the event, and only to the extent, that there are not outstanding
Reference Rate Loans.  Following an Event of Default that is continuing, the
Lender shall have the continuing and exclusive right to apply and reverse and
reapply any and all such proceeds and payments to any portion of the
Obligations subject to the terms of this Section 4.3 and the Borrower's right
to direct prepayments of Eurodollar Rate Loans.

        4.4      INDEMNITY FOR RETURNED PAYMENTS.  IF AFTER RECEIPT OF ANY
PAYMENT OF, OR PROCEEDS APPLIED TO THE PAYMENT OF, ALL OR ANY PART OF THE
OBLIGATIONS, THE LENDER IS FOR ANY REASON REQUIRED TO SURRENDER SUCH PAYMENT
OR PROCEEDS TO ANY PERSON, BECAUSE SUCH PAYMENT OR PROCEEDS IS INVALIDATED,
DECLARED FRAUDULENT, SET ASIDE, DETERMINED TO BE VOID OR VOIDABLE AS A
PREFERENCE, OR A DIVERSION OF TRUST FUNDS, OR FOR ANY OTHER REASON, THEN:  THE
OBLIGATIONS OR PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND
CONTINUE AND THIS AGREEMENT SHALL CONTINUE IN FULL FORCE AS IF SUCH PAYMENT OR
PROCEEDS HAD NOT BEEN RECEIVED BY THE LENDER AND THE BORROWER SHALL BE LIABLE
TO PAY TO THE LENDER, AND HEREBY DOES INDEMNIFY THE LENDER AND HOLD THE LENDER
HARMLESS FOR THE AMOUNT OF SUCH PAYMENT OR PROCEEDS SURRENDERED.  The
provisions of this Section 4.4 shall be and remain effective notwithstanding
any contrary action which may have been taken by the Lender in reliance upon
such payment or Proceeds, and any such contrary action so taken shall be
without prejudice to the Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment or Proceeds having become
final and irrevocable.  The provisions of this Section 4.4 shall survive the
termination of this Agreement.

        5.       LENDER'S BOOKS AND RECORDS:  MONTHLY STATEMENTS.  The  Borrower
agrees that the Lender's books and records showing the Obligations and the
transactions pursuant to this Agreement and the other Loan Documents shall be
admissible in any action or proceeding arising therefrom irrespective of
whether any Obligation is also evidenced by a promissory note or other
instrument, and shall constitute presumptive proof thereof until such time as
Borrower has reviewed the monthly statement as hereinafter provided.  The
Lender will provide to the Borrower a monthly statement of Loans, payments,
and other transactions pursuant to this Agreement.  Such statement shall be
deemed correct, accurate, and binding on the Borrower and as an account stated
and shall constitute prima facie proof thereof (except for reversals and
reapplications of payments made as provided in Section 4.3 and corrections of
errors discovered by the Lender), unless the Borrower notifies the Lender in
writing to the contrary within thirty (30) days after such statement is
rendered.  In the event a timely written notice of objections is given by the
Borrower, only the items to which exception is expressly made will be
considered to be disputed by the Borrower.

        6.       COLLATERAL.

        6.1      Grant of Security Interest.

        (a)      As security for the Obligations, the Borrower and each
Guarantor Subsidiary hereby grants to the Lender a continuing security
interest in, lien on, and assignment of: (i) all Receivables, Inventory,
Proprietary Rights, and Proceeds, wherever located and whether now existing or
hereafter arising or acquired; (ii) all moneys, securities and other property
and the Proceeds thereof, now or hereafter held or received by, or in transit
to, the Lender from or for the Borrower, whether for safekeeping, pledge,
custody, transmission, collection or otherwise, including, without limitation,
all of the Borrower's deposit accounts, credits and balances with the Lender
and all claims of the Borrower against the Lender at any time existing; (iii)
all of Borrower's deposit accounts containing Collateral with any financial
institutions with which Borrower maintains deposits; and (iv) all books,
records and other Property relating to or referring to any of the foregoing,
including, without limitation, all books, records, ledger cards, data
processing records, computer software and other property and general
intangibles at any time evidencing or relating to the Receivables, Inventory,
Proprietary Rights, Proceeds, and other property referred to above (all of the
foregoing, together with all other property in which Lender may at any time be
granted a Lien, being herein collectively referred to as the "Collateral"). 
The Lender shall have all of the rights of a secured party with respect to the
Collateral under the UCC and other applicable laws.

        (b)      All Obligations shall constitute a single loan secured by
the Collateral.  The Lender may, in its sole discretion, (i) exchange, waive,
or release any of the Collateral, (ii) after the occurrence of an Event of
Default that is continuing, apply Collateral and direct the order or manner of
sale thereof as the Lender may determine, and (iii) after the occurrence of an
Event of Default that is continuing, settle, compromise, collect, or otherwise
liquidate any Collateral in any manner, all without affecting the Obligations
or the Lender's right to take any other action with respect to any other
Collateral.

        6.2      Perfection and Protection of Security Interest.  The
Borrower and each Guarantor Subsidiary shall, at its expense, perform all
steps requested by the Lender at any time to perfect, maintain, protect, and
enforce the Security Interest in the Collateral including, without limitation:
(a) executing and recording of the Patent and Trademark Assignments and
executing and filing financing or continuation statements, and amendments
thereof, relating to the Collateral in form and substance satisfactory to the
Lender; (b) delivering to the Lender, upon Lender's request therefor, the
originals of all instruments, documents, and chattel paper, and all other
Collateral of which the Lender determines it should have physical possession
in order to perfect and protect the Security Interest therein, duly endorsed
or assigned to the Lender without restriction; (c) delivering to the Lender
warehouse receipts covering any portion of the Collateral located in
warehouses and for which warehouse receipts are issued; (d) after an Event of
Default that is continuing, causing notations to be placed on the Borrower's
and each Guarantor Subsidiary's books of account to disclose the Security
Interest; (e) delivering to the Lender, upon Lender's request therefor, all
letters of credit on which the Borrower or any Guarantor Subsidiary is a named
beneficiary; (f) after an Event of Default that is continuing transferring
Inventory to warehouses designated by the Lender; and (g) taking such other
steps as are deemed necessary by the Lender to maintain the Security Interest. 
The Lender may file, without the Borrower's signature or that of any Guarantor
Subsidiary, one or more financing statements disclosing the Security Interest. 
The Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.  If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of the agents or processors of
Borrower or any Guarantor Subsidiary, then the Borrower shall notify the
Lender thereof and shall notify such Person of the Security Interest in such
Collateral and, upon the Lender's request following an Event of Default that
is continuing, instruct such Person to hold all such Collateral for the
Lender's account subject to the Lender's instructions.  If at any time any
Collateral is located on any premises that are not owned by the Borrower or a
Guarantor Subsidiary, then the Borrower shall obtain written waivers, in form
and substance reasonably satisfactory to the Lender, of all present and future
Liens to which the owner or lessor of such premises may be entitled to assert
against the Collateral.  From time to time, the Borrower shall, upon Lender's
request, cause to be executed and delivered confirmatory written instruments
pledging to the Lender the Collateral, but the Borrower's failure to do so
shall not affect or limit the Security Interest.  So long as this Agreement is
in effect and until all Obligations have been fully satisfied, the Security
Interest shall continue in full force and effect in all Collateral (whether or
not deemed eligible for the purpose of calculating the Availability or as the
basis for any advance, loan, or other financial accommodation).  Upon
termination of this Agreement and payment of all Obligations, the Lender shall
release all Security Interests held by the Lender.

        6.3      Location of Collateral.  The Borrower represents and
warrants to the Lender that: (a) Exhibit D hereto is a correct and complete
List of the Borrower's chief executive office, the location of its books and
records as well as the books and records of the Guarantor Subsidiaries, the
locations of the Collateral, and the locations of all of its other places of
business; and (b) Exhibit H correctly identifies any of such facilities and
locations that are not owned by the Borrower or the Guarantor Subsidiaries and
sets forth the names of the owners and lessors of, and, to the best of the
Borrower's knowledge, the holders of any mortgages on such facilities and
locations.  Except for Inventory that is consigned by a Borrower or a
Guarantor Subsidiary to a customer or warehouse, the Borrower agrees that it
will not maintain, nor will it allow any Guarantor Subsidiary to maintain, any
Collateral at any location other than those listed on Exhibit D, and it will
not otherwise change or add to any of such locations, unless it gives the
Lender at least thirty (30) days prior written notice and executes or has
executed, such financing statements and other documents that the Lender
requests in connection therewith.

        6.4      Title to, Liens on, and Sale and Use of Collateral.  The
Borrower represents and warrants to the Lender that: (a) all Collateral is and
will continue to be owned by the Borrower or a Guarantor Subsidiary free and
clear of all Liens whatsoever, except for the Security Interest and other
Permitted Liens; (b) the Security Interest will not be subject to any prior
Lien except the Permitted Liens; (c) the Borrower and each Guarantor
Subsidiary will use, store, and maintain the Collateral with all reasonable
care and will use the Collateral for lawful purposes only; and (d) neither the
Borrower nor the Guarantor Subsidiaries will, without the Lender's prior
written approval, sell, or dispose of or permit the sale or disposition of any
Collateral, except for (i) sales of Inventory in the ordinary course of
business, and (ii) as otherwise provided or allowed by this Agreement or any
of the other Loan Documents.  The inclusion of Proceeds in the Collateral
shall not be deemed the Lender's consent to any sale or other disposition of
the Collateral except as expressly permitted herein.

        6.5      Appraisals.  Following the occurrence of an Event of Default
that is continuing, the Borrower shall, at the request of the Lender, provide
the Lender, at the Borrower's expense, with appraisals or updates thereof of
any or all of the Collateral from an appraiser satisfactory to the Lender.

        6.6      Access and Examination.  The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect the
Borrower's records, files, and books of account and those of each Guarantor
Subsidiary, as well as the Collateral and may discuss the Borrower's affairs
with the Borrower's officers and management.  The Borrower will deliver to the
Lender any instrument necessary for the Lender to obtain records from any
service bureau maintaining records for the Borrower or any Guarantor
Subsidiary.  The Lender may, at any time when an Event of Default exists and
at the Borrower's expense, make copies of all of the Borrower's books and
records, or require the Borrower to deliver such copies to the Lender.  After
the occurrence of an Event of Default that is continuing, the Lender may,
without expense to the Lender, use such of the Borrower's personnel, supplies,
and premises as well as those of the Guarantor Subsidiaries as may be
reasonably necessary for maintaining or enforcing the Security Interest. 
Lender shall have the right, at any time, in Lender's name or in the name of a
nominee of the Lender, to verify the validity, amount or any other matter
relating to the Accounts, by mail, telephone, or otherwise.

        6.7      Insurance.  The Borrower shall insure the Collateral and
Equipment against loss or damage by fire with extended coverage, theft,
burglary, pilferage, loss in transit, and such other hazards as the Lender
shall specify, in amounts, under policies and by insurers acceptable to the
Lender.  Borrower shall also maintain flood insurance, in the event of a
designation of the area in which any Real Property is located as "flood prone"
or a "flood risk area," as defined by the Flood Disaster Protection Act of
1973, in an amount to be reasonably determined by Lender, and shall comply
with the additional requirements of the National Flood Insurance Program as
set forth therein.  The Borrower shall cause the Lender to be named in each
such policy as secured party of the Inventory that constitutes part of the
Collateral and loss payee or additional insured, in a manner acceptable to the
Lender, as to the Collateral.  Each policy of insurance shall contain a clause
or endorsement requiring the insurer to give not less than thirty (30) days
prior written notice to the Lender in the event of cancellation of the policy
for any reason whatsoever and a clause or endorsement stating that the
interest of the Lender shall not be impaired or invalidated by any act or
neglect of the Borrower or the owner of any premises where Collateral is
located nor by the use of such premises for purposes more hazardous than are
permitted by such policy.  All premiums for such insurance shall be paid by
the Borrower when due, and certificates of insurance and, if requested,
photocopies of the policies shall be delivered to the Lender.  If the Borrower
fails to procure such insurance or to pay the premiums therefor when due, the
Lender may (but shall not be required to) do so and charge the costs thereof
to the Borrower's loan account.  After becoming aware of any loss, damage or
destruction to Collateral, the Borrower shall promptly notify the Lender of
any such loss, damage, or destruction that exceeds $200,000, whether or not
covered by insurance.  The Lender is hereby authorized to collect all
insurance proceeds directly following the occurrence of an Event of Default
that is continuing.  After deducting from such proceeds the expenses, if any,
incurred by Lender in the collection or handling thereof, if an Event of
Default has occurred and is continuing, the Lender may apply such proceeds to
the reduction of the Obligations, in such order as Lender determines, or at
the Lender's option may permit or require the Borrower to use such money, or
any part thereof, to replace, repair, restore or rebuild the Collateral in a
diligent and expeditious manner with materials and workmanship of
substantially the same quality as existed before the loss, damage or
destruction.  If no Event of Default has occurred and is continuing, Lender
hereby authorizes Borrower to collect all such insurance proceeds and to use
such money, or any part thereof, to replace, repair, restore or rebuild the
Collateral in a diligent and expeditious manner with materials and workmanship
of substantially the same quality as existed before the loss, damage or
destruction.

        6.8      Collateral Reporting.  The Borrower will provide the Lender
with the following documents at the following times in form satisfactory to
the Lender:  (a) on a daily basis, a schedule of Accounts created since the
last such schedule, a schedule of remittance advices, credit memos and reports
and a schedule of collections of Accounts since the last such schedule; (b) no
later than fifteen (15) days after the last day of each month, monthly summary
and detailed agings of Accounts aged by due date and by invoice date; (c) no
later than twenty (20) days after the last day each month, monthly
reconciliations of Accounts balances per the aging to the general ledger
accounts receivable balance and to the financial statements provided to Lender
under Section 7.2(c); (d) no later than twenty (20) days after the last day
each month, monthly Inventory reports by category and by location; (e) no
later than twenty (20) days after the last day each month, monthly
reconciliations of the detailed Inventory reports to the general ledger and to
the financial statements provided to Lender under Section 7.2(c); (f) upon
request, copies of invoices, credit memos, shipping and delivery documents,
purchase orders; (g) such other reports as to the Collateral as the Lender
shall request from time to time; and (h) certificates of an officer of the
Borrower certifying as to the foregoing.  If any of the Borrower's records or
reports of the Collateral are prepared by an accounting service or other
agent, the Borrower hereby authorizes such service or agent to deliver such
records, reports, and related documents to the Lender.

        6.9      Accounts.  (a) The Borrower hereby represents and warrants
to the Lender that: (i) each existing Account represents, and each future
Account will represent, a bona fide sale or lease and delivery of goods by the
Borrower or a Guarantor Subsidiary, or rendition of services by the Borrower
or a Guarantor Subsidiary, in the ordinary course of business; (ii) each
existing Account is, and each future Account will be, for a liquidated amount
payable by the Account Debtor thereon on the terms set forth in the invoice
therefor or in the schedule thereof delivered to the Lender, without offset,
deduction, defense, or counterclaim (other than claims relating to warranty
issues); (iii) no payment will be received with respect to any Account, and no
credit, discount, or extension, or agreement therefor will be granted to any
Account, except as reported to or otherwise agreed to by the Lender in
accordance with this Agreement; (iv) each copy of an invoice requested by and
delivered to the Lender by the Borrower will be a genuine copy of the original
invoice sent to the Account Debtor named therein; and (v) all goods described
in each invoice will have been delivered to the Account Debtor and all
services described in each invoice will have been performed, except where the
Account Debtor has previously agreed in writing to accept billings for such
goods.

        (b)      The Borrower shall not re-date or allow any Guarantor
Subsidiary to re-date any invoice or sale or make sales on extended dating
beyond that customary in the business of the applicable Borrower or a
Guarantor Subsidiary or extend or modify any Account which alters its
eligibility status, or, with respect to ineligible Accounts, which are
inconsistent with prudent business practice and industry standards.  If the
Borrower becomes aware of any matter adversely affecting any Account in an
amount in excess of $100,000, including information regarding the Account
Debtor's creditworthiness, the Borrower will promptly so advise the Lender.

        (c)      The Borrower shall not accept or allow any Guarantor
Subsidiary to accept any note or other instrument (except a check or other
instrument for the immediate payment of money) with respect to any Eligible
Account without the Lender's written consent.  If the Lender consents to the
acceptance of any such instrument, it shall be considered as evidence of the
Account and not payment thereof and the Borrower will upon Lender's request,
promptly deliver such instrument to the Lender appropriately endorsed. 
Regardless of the form of presentment, demand, notice of dishonor, protest,
and notice of protest with respect thereto, the Borrower or the appropriate
Guarantor Subsidiary will remain liable thereon until such instrument is paid
in full.

        (d)      The Borrower shall notify the Lender promptly of all
disputes and claims with an Account Debtor relating to an Eligible Account
that exceeds $100,000 and when no Event of Default exists hereunder, may
settle or adjust them at no expense to the Lender, but no discount, credit or
allowance in excess of $100,000 shall be granted to any Account Debtor without
the Lender's consent, except for discounts, credits and allowances made or
given in the ordinary course of the business of the applicable Borrower or
Guarantor Subsidiary.  The Borrower shall send the Lender a copy of each
credit memorandum in excess of $100,000 as soon as issued.  The Lender may, at
all times when an Event of Default exists hereunder, settle or adjust disputes
and claims directly with Account Debtors for amounts and upon terms which the
Lender considers advisable and, in all cases, the Lender will credit the
Borrower's loan account with only the net amounts received by the Lender in
payment of any Accounts.

        6.10     Collection of Accounts.  (a) Until the occurrence of an
Event of Default that is continuing, the Borrower and each Guarantor
Subsidiary shall collect all Accounts, shall receive all payments relating to
Accounts, and shall  promptly deposit all such collections into a Payment
Account established for the account of the Borrower and the Guarantor
Subsidiaries at a bank acceptable to the Borrower and the Lender.  All
collections relating to Accounts received in any such Payment Account or
directly by the Borrower or any Guarantor Subsidiary or the Lender, and all
funds in any Payment Account or other account to which such collections are
deposited, shall be the sole property of the Lender and subject to the
Lender's sole control.  After the occurrence of an Event of Default that is
continuing, the Lender may, at any time, notify obligors that the Accounts
have been assigned to the Lender and of the Security Interest therein, and may
collect them directly and charge the collection costs and expenses to the
Borrower's loan account.  After the occurrence of an Event of Default that is
continuing, the Borrower, at Lender's request, shall execute and deliver to
the Lender such documents as the Lender shall require to grant the Lender
access to any post office box in which collections of Accounts are received.

        (a)      If sales of Inventory are made for cash, the Borrower and
each Guarantor Subsidiary shall immediately deliver to the Lender the
identical checks, cash, or other forms of payment which the Borrower or such
Guarantor Subsidiary receives.

        (b)      All payments received by the Lender on account of Accounts
or as Proceeds of other Collateral will be the Lender's sole property and will
be credited to the Borrower's loan account (conditional upon final collection)
after allowing one (1) Business Day for collection.

        (c)      In the event the Borrower repays all of the Obligations upon
the termination of this Agreement, other than through the Lender's receipt of
payments on account of Accounts or Proceeds of other Collateral, such payment
will be credited (conditional upon final collection) to the Borrower's loan
account one (1) Business Day after the Lender's receipt thereof.

        6.11     Inventory.  The Borrower and each Guarantor Subsidiary
represents and warrants to the Lender that all of the Inventory is and will be
held for sale or lease, or to be furnished in connection with the rendition of
services, in the ordinary course of business, and is and will be fit for such
purposes.  The Borrower and each Guarantor Subsidiary will cause the Inventory
to be kept in good and marketable condition, at its own expense.  The Borrower
agrees that all Inventory produced by the Borrower or any Guarantor Subsidiary
in the United States will be produced in accordance with the Federal Fair
Labor Standards Act of 1938.  The Borrower will conduct a physical count of
the Inventory at least once per Fiscal Year, except as otherwise agreed to
between the Lender and the Borrower, and will, upon request of the Lender,
supply the Lender with a copy of such count accompanied by a report of the
value of such Inventory (valued at the lower or cost, on a first-in, first-out
basis, or market value).  Neither the Borrower nor any Guarantor Subsidiary
will, without the Lender's written consent, allow any Inventory to be sold on
a bill and hold basis (except as provided in subsection (xiii) of the
definition of Eligible Accounts set forth in this Agreement), guaranteed sale,
sale and return, sale on approval, consignment, or other repurchase or return
basis.

        6.12     Documents and Instruments.  The Borrower and each Guarantor
Subsidiary represents and warrants to the Lender that:  (a) all Documents and
Instruments describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine and (b) all goods evidenced by such Documents and Instruments were, at
the time of their sale, owned by the Borrower or such Guarantor Subsidiary
free and clear of all Liens other than Permitted Liens.

        6.13     Right to Cure.  The Lender may in its sole discretion pay
any amount or do any act required of the Borrower or any Guarantor Subsidiary
hereunder in order to preserve, protect, maintain or enforce the Obligations,
the Collateral or the Security Interest, and which the Borrower or such
Guarantor Subsidiary fails to pay or  do, including, without limitation,
payment of any judgment against the Borrower or such Guarantor Subsidiary, any
insurance premium, any warehouse charge, processing charge, any landlord's
claim, and any other Lien upon the Collateral.  All payments that the Lender
makes under this Section 6.13 and all out-of-pocket costs and expenses that
the Lender pays or incurs in connection with any action, taken by it hereunder
shall be charged to the Borrower's loan account; provided that Lender will
make a good faith effort to notify the Borrower and provide the Borrower with
a written, itemized invoice covering such charge.  Any payment made or other
action taken by the Lender under this Section 6.13 shall be without prejudice
to any right Lender may have to assert an Event of Default hereunder and to
proceed accordingly.

        6.14     Power of Attorney.  The Borrower and each Guarantor
Subsidiary appoints the Lender and the Lender's designees as the Borrower's or
such Guarantor Subsidiary's attorney, with power: (a) to endorse the
Borrower's or such Guarantor Subsidiary's name on any checks, notes,
acceptances, money orders, or other forms of payment or security that come
into the Lender's possession; (b) to sign the Borrower's or such Guarantor
Subsidiary's name on any invoice, bill of lading, or other document of title
relating to any Collateral, on drafts against customers, on assignments of
Accounts, on notices of assignment, financing statements and other public
records and on verifications of Accounts to Account Debtors; (c) to notify the
post office authorities, when an Event of Default exists, to change the
address for delivery of the Borrower's or such Guarantor Subsidiary's mail to
an address designated by the Lender and to receive, open and dispose of all
mail addressed to the Borrower or such Guarantor Subsidiary; (d) to send
requests for verification of Accounts to Account Debtors; and (e) to do all
things necessary to carry out this Agreement.  The Borrower and each Guarantor
Subsidiary ratifies and approves all acts of such attorney.  Neither the
Lender nor the attorney will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law.  This power, being coupled with
an interest, is irrevocable until this Agreement has been terminated and the
Obligations have been fully satisfied.

        6.15     Lender's Rights, Duties, and Liabilities.  The Borrower and
each Guarantor Subsidiary assumes all responsibility and liability arising
from or relating to the use, sale or other disposition of the Collateral. 
Neither the Lender nor any of its officers, directors, employees, and agents
shall be liable or responsible in any way for the safekeeping of any of the
Collateral, or for any act or failure to act with respect to the Collateral,
or for any loss or damage thereto, or for any diminution in the value thereof,
or for any act of default by any warehouseman, carrier, forwarding agency or,
other person whomsoever, all of which shall be at the Borrower's sole risk. 
The Obligations shall not be affected by any failure of the Lender to take any
steps to perfect the Security Interest or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release the Borrower
from any of the Obligations.  After the occurrence of an Event of Default that
has not been cured or otherwise waived by Lender, the Lender may (but shall
not be required to), without notice to or consent from the Borrower or any
Guarantor Subsidiary, sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash or
credit, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take other action with respect to the
Collateral, any security therefor, any agreement relating  thereto, any
insurance applicable thereto, or any Person liable directly or indirectly in
connection with any of the foregoing, without discharging or otherwise
affecting the liability of the Borrower for the Obligations.

        6.16     Release of Collateral and Borrower.

        (a)      If the Borrower or any Guarantor Subsidiary sells or
otherwise finances an Account that does not qualify as an Eligible Account,
and the proceeds from the sale or financing of such Account is received or is
to be received by the Borrower or such Guarantor Subsidiary, then the Lender's
Security Interest in such Account shall be automatically terminated and the
Lender shall immediately release its Security Interest in and to such Account.

        (b)      If LSB sells any Borrower Subsidiary or Guarantor Subsidiary
or any Borrower Subsidiary or Guarantor Subsidiary sells all or substantially
all of its assets, then such Borrower Subsidiary shall be allowed to prepay,
without penalty or prepayment premium, all of the outstanding Revolving Loans
applicable to such Borrower Subsidiary or Guarantor Subsidiary, plus the
accrued interest relating to such Revolving Loans, and upon payment of such
Revolving Loans, the Lender shall release and terminate its Security Interest
as to the Collateral of such Borrower Subsidiary or Guarantor Subsidiary and
release such Borrower Subsidiary or Guarantor Subsidiary from any further
liability and responsibility under the Loan Documents.

        (c)      Upon payment in full of all Obligations, Lender shall
immediately release its Security Interest in and to all of the Collateral.

        7.       BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.

        7.1      Books and Records.  The Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with
GAAP.  The Borrower shall, by means of appropriate entries, reflect in such
accounts and in all Financial Statements proper liabilities and reserves for
all taxes and proper provision for depreciation and amortization of Property
and bad debts, all in accordance with GAAP.  The Borrower shall maintain at
all times books and records pertaining to the Collateral in such detail, form,
and scope as the Lender shall reasonably require, including without limitation
records of:  (a) all payments received and all credits and extensions granted
with respect to the Accounts; (b) the return, repossession, stoppage in
transit, loss, damage, or destruction of any Inventory; and (c) all other
dealings affecting the Collateral.

        7.2      Financial Information.  The Borrower shall promptly furnish
to the Lender all such financial information as the Lender shall reasonably
request, and notify its auditors and accountants that the Lender is authorized
to obtain such information directly from them.  Without limiting the
foregoing, Borrower will furnish to the Lender, in such detail as the Lender
shall request, the following:

        (a)      As soon as available, but in any event not later than ninety
(90) days after the close of each Fiscal Year, audited consolidated and
unaudited consolidating balance sheet, statement of income and expense,
retained earnings, and statement of cash flows and stockholders' equity for
the LSB Consolidated Group for such Fiscal Year, and the accompanying notes
thereto, setting forth in each case in comparative form figures for the
previous Fiscal Year, all in reasonable detail, fairly presenting the
financial position and the results of operations of the LSB Consolidated Group
as at the date thereof and for the Fiscal Year then ended, and prepared in
accordance with GAAP.  The audited statements shall be examined in accordance
with generally accepted auditing standards by, and accompanied by a report
thereon unqualified as to scope of, independent certified public accountants
selected by LSB and reasonably satisfactory to the Lender.  

        (b)      As soon as available, but in any event not later than forty-
five (45) days after the close of each Fiscal Quarter other than the fourth
quarter of a Fiscal Year, unaudited consolidated and consolidating balance
sheets of the LSB Borrowing Group as at the end of such quarter, and
consolidated and consolidating unaudited statements of income and expense and
consolidated statements of cash flows for the LSB Borrowing Group for such
quarter and for the period from the beginning of the Fiscal Year to the end of
such quarter, together with a report of Capital Expenditures for such Fiscal
Quarter, all in reasonable detail, fairly presenting the financial position
and results of operation of the LSB Borrowing Group as at the date thereof and
for such periods, prepared in accordance with GAAP consistent with the audited
Financial Statements required pursuant to Section 7.2(a).  Such statements
shall be certified to be correct by the chief financial officer or an
executive officer of LSB, subject to normal year-end adjustments.

        (c)      As soon as available, but in any event not later than thirty
(30) days after the end of each month, unaudited consolidated balance sheets
of the LSB Borrowing Group as at the end of such month, and consolidated and
consolidating unaudited statements of income and expenses for the LSB
Borrowing Group for such month and for the period from the beginning of the
Fiscal Year to the end of such month, all in reasonable detail (although not
as detailed as the reports required under Sections 7.2(a) and 7.2(b), fairly
presenting the financial position and results of operation of the LSB
Borrowing Group as at the date thereof and for such periods, and prepared in
accordance with GAAP consistent with the audited Financial Statements required
pursuant to Section 7.2(a).  Such statements shall be certified to be correct
by the chief financial officer, treasurer or chief accounting officer of LSB,
subject to normal year end adjustments.

        (d)      With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a certificate of the independent certified public
accountants that examined such statements to the effect that they have
reviewed and are familiar with the Loan Documents and that, in examining such
Financial Statements, they did not become aware of any fact or condition which
then constituted an Event of Default, except for those, if any, described in
reasonable detail in such certificate.

        (e)      With each of the annual audited and quarterly unaudited
Financial Statements delivered pursuant to Sections 7.2(a) and 7.2(b), a
certificate of the chief financial officer, treasurer or chief accounting
officer of the Borrower (i) setting forth in reasonable detail the calcu-
lations required to establish that the LSB Borrowing Group was in compliance
with the covenants set forth in Sections 9.16 and 9.17 hereof as of the end of
the Fiscal Year and most recent Fiscal Quarter covered in such Financial
Statements; and, (ii) stating that, except as explained in reasonable detail
in such certificate, (A) nothing has come to the attention of such officer
that would lead such officer to believe that all of the representations,
warranties and covenants of the Borrower contained in this Agreement and the
other Loan Documents are not correct and complete as of the date of such
certificate and (B) no Event of Default then exists or existed during the
period covered by such Financial Statements.  If such certificate discloses
that a representation or warranty is not correct or complete, or that a
covenant has not been complied with, or that an Event of Default existed or
exists, such certificate shall set forth what action the Borrower has taken or
proposes to take with respect thereto.

        (f)      No sooner than ninety (90) days and no less than thirty (30)
days prior to the beginning of each Fiscal Year, projected consolidated and
consolidating balance sheets, statements of income and expense, and statements
of cash flow for the Borrower and Subsidiaries as at the end of and for each
Fiscal Quarter of such Fiscal Year.

        (g)      Promptly upon their becoming available, copies of each proxy
statement, financial statement and report which LSB sends to its stockholders
or files with the Securities and Exchange Commission.

        (h)      Promptly after filing with the PBGC and the IRS a copy of
each annual report or other filing filed with respect to each Plan of the
Borrower or any Related Company.

        (i)      Such additional, reasonable information as the Lender may
from time to time reasonably request regarding the financial and business
affairs of the Borrower or the Subsidiaries.

        7.3      Notices to Lender.  The Borrower shall notify the Lender in
writing of the following matters at the following times:

        (a)      Within two Business Days after becoming aware of the
existence of any Event of Default.

        (b)      Within two Business Days after becoming aware that the
holder of any Debt in excess of $1,000,000 has given notice or taken any
action with respect to a claimed default.

        (c)      Within five Business Days after a responsible officer of LSB
becomes aware of any change which LSB deems to be a material adverse change in
the Borrower's Property, business, operations, or condition (financial or
otherwise).

        (d)      Within five Business Days after a responsbile officer of LSB
becomes aware of any pending or threatened action, proceeding, or counterclaim
by any Person, or any pending or threatened investigation by a Public
Authority, which, in the opinion of such officer, would materially and
adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property,
business, operations, or condition (financial or otherwise).

        (e)      Within two Business Days after becoming aware of any pending
or threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the Borrower.

        (f)      Within five Business Days after a responsible officer of LSB
becomes aware of any violation of any law, statute, regulation, or ordinance
of a Public Authority applicable to Borrower, which, in the opinion of such
officer, would materially and adversely affect the Collateral, the repayment
of the Obligations, the Lender's rights under the Loan Documents, or the
Borrower's Property, business, operations, or condition (financial or
otherwise).

        (g)      Within five Business Days after a responsible officer of LSB
becomes aware of any violation or any investigation of a violation by the
Borrower of Environmental Laws which, in the opinion of such officer, would
materially and adversely affect the Borrower's Property, Collateral, business,
operation or condition (financial or otherwise).

        (h)      Within five Business Days after a responsible officer of LSB
becomes aware of any Termination Event, accompanied by any materials required
to be filed with the PBGC with respect thereto; immediately after the
Borrower's receipt of any notice concerning the imposition of any withdrawal
liability under Section 4042 of ERISA with respect to a Plan; immediately upon
the establishment of any Pension Plan not existing at the Closing Date or the
commencement of contributions by the Borrower to any Pension Plan to which the
Borrower was not contributing at the Closing Date; and immediately upon
becoming aware of any other event or condition regarding a Plan or the
Borrower's or a Related Company's compliance with ERISA, which, in the opinion
of such officer, would materially and adversely affect the Borrower's
Property, business, operation or condition (financial or otherwise).

        (i)      Thirty (30) days prior to the Borrower changing its name.

Each notice given under this Section 7.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.

        8.       GENERAL WARRANTIES AND REPRESENTATIONS.

        The Borrower continuously warrants and represents to the Lender,
at all times during the term of this Agreement and until all Obligations have
been satisfied, that, except as hereafter disclosed to and accepted by the
Lender in writing in the exercise of its reasonable discretion:

        8.1      Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents.  The Borrower has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest.  The
Borrower has taken all necessary corporate action to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents.  No
consent, approval, or authorization of, or filing with, any Public Authority,
and no consent of, any other Person, is required in connection with the
Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents, except for (a) those already duly obtained, (b) those
required to perfect the Lender's Security Interest, and (c) the compliance
with any of the conditions precedent set forth in Sections 10.4 and 10.11
hereof.  This Agreement and the other Loan Documents have been duly executed
and delivered by the Borrower and constitute the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its
terms without defense, setoff, or counterclaim.  The Borrower's execution,
delivery, and performance of this Agreement and the other Loan Documents do
not and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any
Lien upon the Property of the Borrower (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
material mortgage, lease, agreement, or instrument to which the Borrower is a
party or which is binding upon it, (b) any judgment, law, statute, rule or
governmental regulation applicable to the Borrower, or (c) the Certificate or
Articles of Incorporation or By-Laws of the Borrower.

        8.2      Validity and Priority of Security Interest.  The provisions
of this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made
or taken such Liens will constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral, except for
Permitted Liens, securing all the Obligations and enforceable against the
Borrower and all third parties after payment of the obligations due Congress
under the Congress Loan Agreement and Household under the Household Working
Capital Agreement and termination of all of the Agreements for Purchase of
Receivables between Borrower and Prime upon payment of the obligations due
Bank IV by Prime under the Prime Loan Agreement.

        8.3      Organization and Qualification.  Borrower is duly
incorporated and organized and validly existing in good standing under the
laws of the State of Delaware; (ii) is qualified to do business as a foreign
corporation and is in good standing in each state where, because of the nature
of its activities or properties, such qualification is required, except where
the failure to so qualify would not have a material adverse effect on the
Borrower; and (iii) has all requisite corporate power and authority to conduct
its business and to own its Property.

        8.4      Corporate Name; Prior Transactions.  The Borrower has not,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, except as set forth on
Exhibit E.

        8.5      Subsidiaries and Affiliates.  Exhibit F is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates, which list may be amended by
Borrower from time to time as LSB adds new or additional Subsidiaries or
Affiliates.  Each Subsidiary is (a) duly incorporated and organized and
validly existing in good standing under the laws of its state of incorporation
set forth on Exhibit F and (b) qualified to do business as a foreign
corporation and in good standing in the states set forth opposite its name on
Exhibit F, which are the only states in which such qualification is necessary
in order for it to own or lease its Property and conduct its business, except
where the failure to so qualify would not have a material adverse effect on
the LSB Borrowing Group taken as a whole.

                 8.6      Financial Statements and Projections.

        (a)      LSB has delivered to the Lender the audited consolidated
balance sheet and related statements of income, retained earnings, statements
of cash flows, and changes in stockholders' equity for LSB, as of December 31,
1993 and for the Fiscal Year then ended, accompanied by the report thereon of
LSB's independent certified public accountants.  LSB has also delivered to the
Lender the unaudited consolidated balance sheets and related statements of
income and cash flows for LSB, as at September 30, 1994 and for the nine
months and three months then ended.  Such financial statements are attached
hereto as Exhibit G-1.  All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly the Borrower's
financial position as at the dates thereof and its results of operations for
the periods then ended.

        (b)      The Latest Forecasts, attached hereto as Exhibit G-2,
represent the Borrower's best estimate of the Borrower's future financial
performance for the periods set forth therein.  The Latest Forecasts have been
or will be prepared on the basis of certain assumptions, which the Borrower
believes are fair and reasonable in light of current and reasonably
foreseeable business conditions; provided, however, that although such
forecasts represent the Borrower's best estimate, the Borrower makes no
representation that it will achieve such forecasts.

        8.7      Capitalization.  LSB's authorized capital stock consists of
(i) 75,000,000 shares of Common Stock, par value $.10 per share; (ii) 250,000
shares of Preferred Stock, par value $100 per share; and (iii) 5,000,000
shares of Class C Preferred Stock, no par value.  

        8.8      Solvency.  The Borrower is solvent prior to and after giving
effect to the making of the Revolving Loans, and after taking into account
Intercompany Accounts.  

        8.9      Title to Property.  Except for Permitted Liens, and except
for Property which the Borrower leases, the Borrower has, to its knowledge,
good and marketable title in fee simple to the real property listed in Exhibit
H and good, indefeasible, and merchantable title to all of its other Property
free of all Liens except Permitted Liens.

        8.10     Real Property; Leases.  Exhibit H hereto is a correct and
complete list of all real property owned by the Borrower, and all leases and
subleases of real property by the Borrower as lessee or sublessee where
Collateral is located.  Each of such leases and subleases is valid and
enforceable in accordance with its terms and is in full force and effect and
no material default by any party to any such lease or sublease exists.

        8.11     Proprietary Rights.  Exhibit B hereto is a correct and
complete list of all of the Proprietary Rights owned by Borrower.  None of the
Proprietary Rights is subject to any licensing agreement or similar
arrangement except as set forth on Exhibit B.  To the Borrower's knowledge,
none of the Proprietary Rights infringes on or conflicts with any other
Person's Property.  The Proprietary Rights described on Exhibit B constitute
all of the Property of such type necessary to the current and anticipated
future conduct of the Borrower's business.

        8.12     Trade Names and Terms of Sale.  All trade names or styles
under which the Borrower or any Guarantor Subsidiary will sell Inventory or
create Accounts, or to which instruments in payment of Accounts may be made
payable, are listed on Exhibit I hereto.  The terms of sale on which such
sales of Inventory will be made are set forth on Exhibit I.

        8.13     Litigation.  Except as set forth on Exhibit J or as
described in the reports filed by LSB prior to the Closing Date with the
Securities and Exchange Commission, there is no pending or, to the Borrower's
knowledge, threatened suit, proceeding, or counterclaim by any Person, or
investigation by any Public Authority, or any basis for any of the foregoing,
which would have a material adverse effect on the LSB Borrowing Group, taken
as a whole, or (ii) involve damages or a claim for damages in excess of
$1,000,000 and not fully covered by insurance.

        8.14     Labor Disputes.  Except as set forth on Exhibit K or as
described in reports filed by LSB prior to the Closing Date with the
Securities and Exchange Commission: (a) there is no collective bargaining
agreement or other labor contract covering employees of the Borrower or any
Guarantor Subsidiary; (b) no such collective bargaining agreement or other
labor contract is scheduled to expire during the term of this Agreement; (c)
no union or other labor organization is seeking to organize, or to be
recognized as, a collective bargaining unit of employees of the Borrower or
any Guarantor Subsidiary; and (d) there is no pending or, to the Borrower's
knowledge, threatened strike, work stoppage, material unfair labor practice
claims, or other material labor dispute which would have a material adverse
effect on the LSB Borrowing Group, taken as a whole.

        8.15     Environmental Laws.  Except as disclosed on Exhibit M
hereto, and as hereafter disclosed by Borrower to Lender in writing, and to
the Borrower's knowledge:

        (a)      All environmental permits, certificates, licenses,
approvals, registrations and authorizations ("Permits") required under all
Environmental Laws in connection with the business of the Borrower and each
Guarantor Subsidiary have been obtained, unless the failure to obtain such
Permits would not have a material adverse effect on the LSB Borrowing Group,
taken as a whole;

        (b)      No notice, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or threatened by any governmental entity with respect to any
generation, treatment, storage, recycling, transportation or disposal of any
hazardous or toxic waste (including petroleum products and radioactive
materials) generated or used ("Hazardous Substances") by the Borrower or any
Guarantor Subsidiary, which would have a material adverse effect on the LSB
Borrowing Group, taken as a whole; 

        (c)      Neither Borrower nor any Guarantor Subsidiary has received
any request for information that is likely to lead to a claim, any notice of
claim, demand or other notification that the Borrower or any Guarantor
Subsidiary is or may be potentially responsible with respect to any clean up
of any threatened or actual release of any Hazardous Substance; 

        (d)      There are no underground storage tanks, active or abandoned,
at any property now owned, operated or leased by the Borrower or any Guarantor
Subsidiary.

        (e)      Neither Borrower nor any Guarantor Subsidiary has knowingly
transported any Hazardous Substances to any location which is listed on the
National Priority List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), which is the
subject of any federal or state enforcement actions which may lead to claims
against Borrower or any Guarantor Subsidiary for clean up costs, remedial
work, damages to natural resources  or for personal injury claims, including,
but not limited to, claims under CERCLA which would have a material adverse
effect on the LSB Borrowing Group, taken as a whole.

        (f)      No written notification of a release of Hazardous Substance
has been filed by or on behalf of the Borrower or any Guarantor Subsidiary or
in relation to any Property now owned, operated or leased by the Borrower or
any Guarantor Subsidiary or previously owned, operated or leased by the
Borrower or any Guarantor Subsidiary at the time such property was so owned,
operated or leased.  No such Property is listed or proposed for listing on the
National Priority List promulgated pursuant to CERCLA, or on any similar state
list of sites requiring investigation or clean up.

        (g)      There are no environmental Liens on any material properties
owned or leased by the Borrower or any Guarantor Subsidiary and no
governmental actions have been taken or are in process or pending which could
subject any of such Properties to such Liens.

        (h)      The Borrower shall promptly forward a copy to Lender of any
environmental written inspections, investigations or studies prepared by or to
be prepared by the Borrower or any Guarantor Subsidiary relating to Properties
now owned, operated or leased by the Borrower or any Guarantor Subsidiary;
provided, however, that Borrower makes no representation or warranty with
respect to environmental inspections, investigations, studies, audits, tests,
reviews or other analyses conducted by or on behalf of Lender.

        8.16     No Violation of Law.  Except as disclosed in Exhibit J or in
reports filed by LSB prior to the Closing Date with the Securities and
Exchange Commission, to the Borrower's knowledge, neither the Borrower nor any
Guarantor Subsidiary is in violation of any law, statute, regulation,
ordinance, judgment, order, or decree applicable to it which violation would
have a material adverse effect on the LSB Borrowing Group, taken as a whole.

        8.17     No Default.      Neither the Borrower nor any Guarantor
Subsidiary is in default with respect to any note, loan agreement, mortgage,
lease, or other agreement to which the Borrower or any Guarantor Subsidiary is
a party or bound, where the amount owed by Borrower or any Guarantor
Subsidiary under such note, loan agreement, mortgage, lease, or other
agreement exceeds $750,000.

        8.18     Plans.  Each Plan has been maintained at all times in
compliance, in all material respects, with its provisions and applicable law,
including, without limitation, compliance with the applicable provisions of
ERISA and the Code.  All Pension Plans are listed on Exhibit L, and those, if
any, which are a Multi-employer Plan are designated as such, and a copy of
each such Pension Plan which has been requested in writing by Lender has been
furnished to Lender.  Except as set forth on Exhibit L, no Pension Plan has
incurred any accumulated funding deficiency, as defined in Section 302(a)(2)
of ERISA and Section 412(a) of the Code, whether or not waived, which would
have a material adverse effect on the LSB Borrowing Group, taken as a whole. 
Except as set forth on Exhibit L, each Pension Plan, which is intended to be a
qualified Pension Plan under Section 401(a) of the Code, as currently in
effect has received a favorable determination letter from the Internal Revenue
Service finding that the current form of the Plan is qualified under Section
401(a) of the Code and the trust related thereto is exempt from federal income
tax under Section 501(a) of the Code.  The Borrower has not incurred any
liability to the PBGC other than the payment of premiums, and there are no
premium payments which have become due, are unpaid, and the non-payment of
which would have a material adverse effect on the LSB Borrowing Group. 
Neither LSB nor any of its Subsidiaries, nor any fiduciary of or trustee to
any Plan has breached any of the responsibilities, obligations or duties
imposed on it under the terms of the Plan or by ERISA with respect to any Plan
the breach of which would have a material adverse effect on the LSB Borrowing. 
LSB has established reserves on its books to provide for the benefits earned
and other liabilities accrued under each such Plan in amounts sufficient to
substantially provide for such benefits and liabilities which have not been
funded through the trust, if any, established for such Plan.

        8.19     Taxes.  The Borrower and each Guarantor Subsidiary has filed
all tax returns and other reports which it was required by law to file on or
prior to the date hereof and has paid all taxes, assessments, fees, and other
governmental charges, and penalties and interest, if any, against it or its
Property, income, or franchise, that are due and payable, except such Taxes
which are being contested in good faith and for which appropriate reserves
have been established in connection therewith, or for which an extension as to
the date of filing has been authorized.

        8.20     Use of Proceeds.  None of the transactions contemplated in
this Agreement (including, without limitation, the use of certain proceeds
from such loans) will violate or result in the violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"), 12 C.F.R., Chapter II.  Borrower does not own or intend to carry or
purchase any "margin stock" within the meaning of said Regulation G.  None of
the proceeds of the loans will be used, directly or indirectly, to purchase or
carry (or refinance any borrowing, the proceeds of which were used to purchase
or carry) any "security" within the meaning of the Securities Exchange Act of
1934, as amended.

        8.21     Private Offerings.  Borrower has not, directly or
indirectly, offered the Revolving Loans for sale to, or solicited offers to
buy part thereof from, or otherwise approached or negotiated with respect
thereto with, any prospective purchaser other than Lender.  Borrower hereby
agrees that neither it nor anyone acting on its behalf has offered or will
offer the Revolving Loan or any part thereof or any similar securities for
issue or sale to or solicit any offer to acquire any of the same from anyone
so as to bring the issuance thereof within the provisions of Section 5 of the
Securities Act of 1933, as amended.

        8.22     Broker's Fees.  Borrower represents and warrants to Lender
that, with respect to the financing transaction herein contemplated, no Person
is entitled to any brokerage fee or other commission as a result of acts by
the Borrower and Borrower agrees to indemnify and hold Lender harmless against
any and all such claims if such claim is due to the acts of the Borrower.

        8.23     No Material Adverse Change.  No material adverse change has
occurred in the Property, business, operations, or conditions (financial or
otherwise) of the LSB Borrowing Group, taken as a whole, since the date of the
Financial Statements delivered to the Lender, except as otherwise disclosed in
that Special Report to LSB Shareholders dated September 15, 1994 and in the
reports filed by LSB with the Securities and Exchange Commission, if any.

        8.24     Debt.  After giving effect to the making of each Revolving
Loan, the Borrower has no Debt except Permitted Debt. 

        9.       AFFIRMATIVE AND NEGATIVE COVENANTS.  The Borrower and, where
applicable, each Guarantor Subsidiary covenants that, so long as any of the
Obligations remain outstanding or this Agreement is in effect:

        9.1      Taxes and Other Obligations.  The Borrower and each
Guarantor Subsidiary, no later than ten days after such payments become due,
shall:  (a) file when due (including extensions) all tax returns and other
reports which it is required to file, pay when due all taxes, fees,
assessments and other governmental charges against it or upon its Property,
income, and franchises, make all required withholding and other tax deposits,
and establish adequate reserves for the payment of all such items, and shall
provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay all Debt owed by it within normal
business terms and consistent with past practices; provided, however, that
neither the Borrower nor any Guarantor Subsidiary need pay any tax, fee,
assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.

        9.2      Corporate Existence and Good Standing.  The Borrower and
each Guarantor Subsidiary shall maintain its corporate existence and its
qualification and good standing in all states necessary to conduct its
business and own its Property, except where the failure to so qualify would
not have a material adverse effect on the Borrower or such Guarantor
Subsidiary, and shall obtain and maintain all licenses, permits, franchises
and governmental authorizations necessary to conduct its business and own its
Property.

        9.3      Maintenance of Property and Insurance.  The Borrower and
each Guarantor Subsidiary shall:  (a) maintain all of its Property necessary
and material in its business in good operating condition and repair, ordinary
wear and tear excepted, provided, however, that Borrower shall have a period
of ten (10) days after learning that repair is necessary within which to
repair any Property which has not been so maintained before an Event of
Default shall be deemed to have occurred; and (b) in addition to the insurance
required by Section 6.7, maintain with financially sound and reputable
insurers such other insurance with respect to its Property and business
against casualties and contingencies of such types (including, without
limitation, business interruption, public liability, product liability, and
larceny, embezzlement or other criminal misappropriation), and in such amounts
as is customary for Persons of established reputation engaged in the same or a
similar business and similarly situated, naming the Lender, at its request, as
additional insured under each such policy as to the Collateral.

        9.4      Environmental Laws.  Except as disclosed to Lender in
writing prior to the Closing Date in connection with Section 8.15, the
Borrower and each Guarantor Subsidiary will use all reasonable efforts to
conduct its business in substantial compliance with all Environmental Laws
applicable to it, including, without limitation, those relating to the
generation, handling, use, storage, and disposal of hazardous and toxic wastes
and substances.  The Borrower shall take prompt and appropriate action to
respond to any noncompliance with Environmental Laws and shall regularly
report to the Lender on such response.  Without limiting the generality of the
foregoing, whenever there is potential noncompliance with any Environmental
Laws, the Borrower shall, at the Lender's request and the Borrower's expense: 
(a) cause an independent environmental engineer acceptable to the Lender to
conduct such tests of the site where the Borrower's or any Guarantor
Subsidiary's noncompliance or alleged noncompliance with Environmental Laws
has occurred and prepare and deliver to the Lender a report setting forth the
results of such tests, a proposed plan for responding to any environmental
problems described therein, and an estimate of the costs thereof; and (b)
provide to the Lender a Supplemental report of such engineer whenever the
scope of the environmental problems, or the Borrower's response thereto or the
estimated costs thereof, shall materially change.

        9.5      Mergers, Consolidations, Acquisitions, or Sales.  Neither
the Borrower nor any Guarantor Subsidiary shall enter into any transaction of
merger, reorganization, or consolidation in which Borrower or, in the case of
the Guarantor Subsidiaries, another Guarantor Subsidiary, is not the survivor
or transfer, sell, assign, lease, or otherwise dispose of all or substantially
all of its Property, or wind up, liquidate or dissolve, or agree to do any of
the foregoing, except (i)  sales of Inventory in the ordinary course of its
business, or (ii) after thirty (30) days prior written notice to Lender,
mergers or consolidations of the Borrower into any of the Borrower
Subsidiaries or a merger of a Borrower Subsidiary or Guarantor Subsidiary into
the Borrower or the sale of all or substantially all of the assets of the
Borrower to any of the Borrower Subsidiaries or the sale of all or
substantially all of the assets of a Borrower Subsidiary or Guarantor
Subsidiary to the Borrower. 

        9.6      Guaranties.  Borrower shall not make, issue, or become
liable on any secured Guaranty, except Guaranties in favor of the Lender and
endorsements of instruments for deposit.

        9.7      Debt.  Borrower shall not incur or maintain any Debt other
than Permitted Debt. 

        9.8      Prepayment.  The Borrower shall not voluntarily prepay any
Debt, except the Obligations in accordance with the terms of this Agreement.

        9.9      Transactions with Affiliates.  Except (a) as set forth
below, (b) as set forth in Section 9.14 hereof, or (c) as otherwise provided
in this Agreement, the Borrower shall not sell, transfer, distribute, or pay
any money or Property to any Affiliate, or lend or advance money or Property
to any Affiliate, or invest in (by capital contribution or otherwise) or
purchase or repurchase any stock or indebtedness, or any Property, of any
Affiliate, or become liable on any secured Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate, except nothing contained
herein shall limit or restrict the Borrower from (i) performing any agreements
entered into with an Affiliate prior to the date hereof, or (ii) engaging in
other transactions with Affiliates in the normal course of business, in
amounts and upon terms disclosed to the Lender, and which are no less
favorable to the Borrower than would be obtainable in a comparable arm's
length transaction with a third party who is not an Affiliate.  Subject to
applicable law, Borrower and other members of the LSB Borrowing Group may
borrow any amounts from each other and repay such amounts on terms agreed to
between them without any limitations.

        9.10     Plans and Compensation.  The Borrower shall not take any
action, or shall fail to take any action, that will cause or be reasonably
expected to cause any representation or warranty contained in Section 8.18
(other than the listing of Pension Plans on Exhibit L), if made on and again
as of any date on or after the date of this Agreement, to not be true and,
without limitation and without excusing such violation, if such a prohibited
action or inaction occurs or fails to occur, Borrower shall notify Lender in
writing of the nature of the resulting consequences or expected consequences,
and a description of the action Borrower or any Subsidiary is taking or
proposing to take with respect thereto and, when  known, any action taken by
the Internal Revenue Service of the Department of Labor, or the PBGC, with
respect thereto.

        9.11     Reserved.  

        9.12     Liens.  The Borrower shall not create, incur, assume, or
permit to exist any Lien on any Property now owned or hereafter acquired by
the Borrower or any Guarantor Subsidiary, except Permitted Liens.

        9.13     New Subsidiaries.  The Borrower shall not, directly or
indirectly, organize or acquire any new subsidiary which would have any
interest in the Collateral.

        9.14     Distributions and Restricted Investments.  Borrower shall
not (a) directly or indirectly declare or make, or incur any liability to
make, any Distribution, or (b) make any Restricted Investments, except:  (i)
Borrower may make and receive Distributions and Restricted Investments by the
other members of the LSB Borrowing Group; (ii) so long as no Event of Default
has occurred and is continuing, currently scheduled Dividends by LSB and per-
formance of all of the terms, provisions and conditions by LSB, relating to or
in connection with or arising out of any and all series of LSB's preferred
stock issued and outstanding as of the date hereof and the payments of an
annual cash dividend on its Common Stock in an amount equal to $.06 a share
payable on a semi-annual basis; (iii) Borrower may make Restricted Investments
to any of its Subsidiaries other than the members of the LSB Borrowing Group,
provided, however, that the sum of all such Restricted Investments from
Borrower and all other members of the LSB Borrowing Group shall not exceed
$200,000 in the aggregate per annum; (iv) Borrower may make Restricted
Investments in Affiliates outstanding as of the date hereof; (v) Borrower may
make other Restricted Investments consituting Acquisitions not otherwise
permitted above in this Section as long as such Restricted Investments when
aggregated with all other Restricted Investments for the same Acquisition from
all members of the LSB Borrowing Group do not exceed $2,000,000 in cash
investments and issued and/or assumed interest-bearing debt per Acquisition
and $10,000,000 in cash investments and issued and/or assumed interest-bearing
debt in the aggregate for all such Acquisitions per annum; provided, however,
that interest-bearing debt of the acquired company which Lender in its sole
and absolute discretion agrees to refinance as a working capital facility
shall not be included in the $2,000,000 and the $10,000,000 limitations; and
further provided that nothing in this subsection (v) shall be construed to
imply Lender's willingness in advance to provide any such refinancing; and
(vi) Borrower may purchase up to $2,500,000 in the aggregate of its treasury
stock from the Closing Date through December 31, 1996 in accordance with the
following schedule:  (x) up to $500,000 of treasury stock may be purchased
from the Closing Date through March 31, 1995, (y) up to $1,500,000 of treasury
stock may be purchased from the Closing Date through December 31, 1995, and
(z) up to $2,500,000 of treasury stock may be purchased from the Closing Date
through December 31, 1996.

        9.15     Capital Expenditures.  Borrower shall not make or incur any
Capital Expenditure if, after giving effect thereto, the aggregate amount of
all Capital Expenditures by the LSB Borrowing Group during the following
periods would exceed the following amounts:  Fiscal Year ending December 31,
1994:  $20,000,000; Fiscal Year ending December 31, 1995:  $6,000,000, and
each Fiscal Year thereafter; provided, however, that if the aggregate amount
of Capital Expenditures made or incurred by the LSB Borrowing Group during the
Fiscal Year ending December 31, 1994 (the "1994 Actual Capital Expenditures")
is less than $20,000,000, then the $6,000,000 amount available during the
Fiscal Year ending December 31, 1995 shall be increased by the difference
between $20,000,000 and the 1994 Actual Capital Expenditures.

        9.16     Adjusted Tangible Net Worth.  Adjusted Tangible Net Worth
(without taking into account any purchases of treasury stock) will not be less
than the following amounts at the end of each of the Fiscal Quarters during
the following Fiscal Years:

Fiscal Quarters in the
Following Fiscal Years  1st Quarter   2nd Quarter   3rd Quarter    4th Quarter

Fiscal Year Ending
December 31, 1994                                                  $ 86,000,000

Fiscal Year Ending
December 31, 1995    $ 85,000,0001   $ 88,000,0001  $ 90,000,0001  $ 92,000,0001

Fiscal Year Ending
December 31, 1996    $ 92,000,0001   $ 94,000,0001  $ 96,000,0001  $ 98,000,0001

Each Fiscal Quarter during each Fiscal Year ending thereafter:    $ 98,000,0001

          9.17    Debt Ratio.  The ratio of Debt of the LSB Borrowing Group
(excluding all loans to any Borrower Subsidiary from the Lender) to Adjusted
Tangible Net Worth will not be greater than the ratio of 0.85 to 1.0.

            9.18  Further Assurances.  The Borrower shall execute and deliver,
or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender
may, from time to time, reasonably request to carry out the terms and
conditions of this Agreement and the other Loan Documents.

      10.   CLOSING; CONDITIONS TO CLOSING.  The Lender will not be obligated
to make any Loans or issue any Letters of Credit at the Closing unless the
following conditions precedent have been satisfied as reasonably determined by
the Lender:

            10.1  Representations and Warranties; Covenants; Events.  The
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents shall be correct and complete as of the Closing Date; the
Borrower shall have performed and complied with all covenants, agreements, and
conditions contained herein and in the other Loan Documents which are required
to have been performed or complied with on or before the Closing Date; and
there shall exist no Event of Default on the Closing Date.

            10.2  Delivery of Documents.  The Borrower shall have delivered,
or cause to be delivered, to the Lender the documents listed on Exhibit N
hereto and such other documents, instruments and agreements as the Lender
shall request in connection herewith, duly executed by all parties thereto
other than the Lender, and in form and substance satisfactory to the Lender
and its counsel.

            10.3  Aggregate LSB Gross Availability.  After taking into account
the Revolving Loans made to and the Letters of Credit issued to or for the
benefit of the Borrower Subsidiaries under the LSB-Related Loan Agreements on
the Closing Date, there shall be remaining Aggregate LSB Gross Availability of
at least ten percent (10%) of the Aggregate LSB Gross Availability calculated
prior to the making of such Revolving Loans and the issuance of such Letters
of Credit.

            10.4  Termination of Liens.  The Lender shall have received such
duly executed UCC-3 Termination Statements and other instruments, in form and
substance satisfactory to the Lender, as shall be necessary to terminate and
satisfy all Liens on the Property of the Borrower and its Subsidiaries except
Permitted Liens, including, but not limited to, (a) payment of the obligations
due (i) Congress Financial Corporation ("Congress") under the Loan Agreement,
dated March 29, 1994, as amended ("Congress Loan Agreement"), and (ii)
Household Commercial Financial Services, Inc. ("Household") under the Second
Amended and Restated Working Capital Loan Agreement, dated as of January 21,
1992, between Household, El Dorado Chemical and Slurry, as amended ("Household
Working Capital Agreement"), which Congress Loan Agreement and Household
Working Capital Agreement will be paid in full upon the closing of the LSB-
Related Loan Agreements using proceeds from Loans made on the Closing Date,
and (b) termination of all of the Agreements for Purchase of Receivables
between the Borrower and Prime Financial Corporation ("Prime"), which
termination will require payment by Prime of the obligations due Bank IV
Oklahoma, N.A. ("Bank IV") under the Loan Agreement, dated March 30, 1994, as
amended, between Prime and Bank IV ("Prime Loan Agreement") at the closing of
the LSB-Related Loan Agreements using proceeds from Loans made on the Closing
Date.

            10.5  Facility Fee.  The Borrower shall have paid in full the
Facility Fee.

            10.6  Required Approvals.  The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender reasonably determines is required in connection with
the transactions contemplated by this Agreement.

            10.7  No Material Adverse Change.  Except as disclosed in that
Special Report to LSB Shareholders dated September 15, 1994, there shall have
occurred no material adverse change in the Borrower's and the Subsidiaries'
business or financial condition or in the Collateral taken as a whole, since
September 30, 1994, and the Lender shall have received a certificate of
Borrower's chief executive officer to such effect.

            10.8  Proceedings.  All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents
contemplated in connection herewith, shall be satisfactory in form and
substance to the Lender and its counsel.

            10.9  Legal Opinions.  The Lender shall have received from counsel
to the Borrower such legal opinions as the Lender may reasonably require with
respect to the Loan Documents.

            10.10 September 30, 1994 Quarterly Financial Statements.  The
Lender shall have received LSB's and the Subsidiaries' consolidated September
30, 1994, unaudited quarterly financial statements.

            10.11 Repurchase of Accounts from Prime.  The Borrower and each
member of the LSB Borrowing Group shall have repurchased from Prime under
terms and conditions acceptable to Lender all of the outstanding Accounts
previously sold by Borrower and the other members of the LSB Borrowing Group
which will be owned by members of the LSB Borrowing Group as of the Closing
Date and will serve as Collateral under the LSB-Related Loan Agreements using
proceeds from the Loan made on the Closing Date.  Borrower and the other
members of the LSB Borrowing Group shall own such Accounts free and clear of
all liens, claims and encumbrances, and Prime and each of its secured lenders
shall have released all of its security interests in such Accounts.  The
documents evidencing such repurchase shall be in form and substance
satisfactory to Lender and its counsel.

            10.12 Conditions Precedent to Each Loan.  The obligation of the
Lender to make each Revolving Loan or to provide for the issuance of any
Letter of Credit after the Closing and after the initial Revolving Loans on
the Closing Date are made, shall be subject to the further conditions
precedent that on the date of any such extension of credit, the following
statements shall be true, and the acceptance by the Borrower of any extension
of credit shall be deemed to be a statement to the effect set forth in clauses
(i) and (ii), with the same effect as the delivery to the Lender of a
certificate signed by the chief executive officer and chief financial officer
of the Borrower, dated the date of such extension of credit, stating that: 

                  (i)   The representations and warranties contained in this
      Agreement and the other Loan Documents are correct in all material
      respects on and as of the date of such extension of credit as though
      made on and as of such date, except to the extent the Lender has been
      notified by the Borrower that any representation or warranty is no
      longer correct and the reason therefor and the Lender has explicitly
      accepted in writing such disclosure in the exercise of its reasonable
      discretion; and 

                  (ii)  No Event has occurred and is continuing, or would
      result from such extension of credit, which constitutes an Event of
      Default.

      11.   DEFAULT; REMEDIES.

            11.1  Events of Default.  It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:

            (a)   any failure to make payment of principal, interest, fees or
premium on any of the Obligations when due;

            (b)   any representation or warranty made by the Borrower or any
Guarantor Subsidiary in this Agreement, any of the other Loan Documents, any
Financial Statement, or any certificate furnished by the Borrower at any time
to the Lender shall prove to be untrue in any material respect as of the date
when made or furnished;

            (c)   default shall occur in the observance or performance of any
of the covenants and agreements contained in this Agreement, or in any of the
other Loan Documents, or if any such agreement or document shall terminate
(other than in accordance with its terms or the terms hereof or with the
written consent of the Lender) or become void or unenforceable without the
written consent of the Lender other than as a direct result of any conduct
solely on the part of the Lender;

            (d)   any default by Borrower under any material agreement or
instrument (other than an agreement or instrument evidencing the lending of
money), which default would have a material adverse effect on the LSB
Borrowing Group, taken as a whole, and such default continues for thirty (30)
days after such breach first occurs; provided, however, that such grace period
shall not apply, and an Event of Default shall exist, promptly upon such
breach, if such breach may not, in Lender's reasonable determination, be cured
by Borrower during such thirty (30) day grace period;

            (e)   any default by Borrower in any payment of principal of or
interest on any indebtedness (other than the Obligations) for borrowed money
where the then outstanding amount exceeds $500,000 beyond any period of grace
provided with respect thereto or in the performance of any other agreement,
term or condition contained in any agreement under which any such obligation
is created if (i) the effect of such default is to cause or permit the holder
or holders of such obligation to cause, such obligation to become due prior to
its stated maturity, and (ii) the effect of such default would have a material
adverse effect on the Borrower.  

            (f)   Borrower shall make a general assignment for benefit of
creditors; or any proceeding shall be instituted by Borrower seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or seeking entry of an order for relief or
the appointment of a receiver, trustee or other similar official for it or for
any substantial part of its property or Borrower shall take any corporate
action to authorize any of the actions set forth above in this Subsection
11.1(f).

            (g)   an involuntary petition shall be filed or an action or
proceeding otherwise commenced against the Borrower seeking reorganization,
arrangement or readjustment of the Borrower's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency act or law, state or federal, now or hereafter existing and
remain undismissed or unvacated for a period of sixty (60) days;

            (h)   a receiver, assignee, liquidator, trustee or similar officer
for the Borrower or any Subsidiary or for all or substantially all of its
Property shall be appointed involuntarily; 

            (i)   the Borrower shall file a certificate of dissolution under
applicable state law or shall be liquidated, dissolved or wound-up or shall
commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof, except if one Borrower merges or consolidates with
another Borrower;

            (j)   any guaranty of the Obligations shall be terminated, revoked
or declared void or invalid other than by an action undertaken by Lender;

            (k)   one or more final judgments for the payment of money
aggregating in excess of $1,000,000 (not covered by insurance) shall be
rendered against any members of the LSB Borrowing Group, and LSB or such other
member of the LSB Borrowing Group shall fail to discharge the same within
thirty (30) days from the date of notice of entry thereof or to appeal
therefrom or reach a negotiated settlement in connection therewith;

            (l)   any loss, theft, damage or destruction of any item or items
of Collateral occurs which:  (i) materially and adversely affects the
operation of the Borrower's and the Guarantor Subsidiaries' business taken as
a whole; or (ii) is material in amount and is not adequately covered by
insurance;

            (m)   any event or condition shall occur, or exist with respect to
a Plan that would, in the Lender's reasonable judgment, subject the Borrower
or any Subsidiary to any tax, penalty or other liabilities under the terms of
the Plan, under ERISA or under the Code which in the aggregate are material in
relation to the business, operations, Property or financial or other condition
of the LSB Borrowing Group taken as a whole;

            (n)   there occurs after the date hereof an Ownership Change (as
defined below) in LSB.  For purposes of this Agreement, an "Ownership Change"
in LSB is deemed to have occurred if any Person (except Jack E. Golsen,
members of his Immediate Family [as defined below] and any entity controlled
by Jack E. Golsen or members of his Immediate Family), together with such
Person's affiliates and associates, is or becomes the beneficial owner,
directly or indirectly, of more than fifty percent (50%) of the outstanding
Common Stock of LSB.  The term "Immediate Family" of any Person means the
spouse, siblings, children, mothers and mothers-in-law, fathers and fathers-
in-law, sons and daughters-in-law, daughters and sons-in-law, nieces, nephews,
brothers and sisters-in-law, sisters and brothers-in-law; and

            (o)   an event of default exists under any of the other LSB-
Related Loan Agreements.

            11.2  Remedies.

            (a)   If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following at any
time or times and in any order: (i) reduce the amount of or refuse to make
Revolving Loans and restrict or refuse to arrange for Letters of Credit; (ii)
terminate this Agreement; (iii) declare any or all Obligations to be
immediately due and payable (provided however that upon the occurrence of any
Event of Default described in Sections 11.1(f), 11.1(g), or 11.1(h), all
Obligations shall automatically become immediately due and payable); and (iv)
pursue its other rights and remedies under the Loan Documents and applicable
law.  The foregoing shall not be construed to limit the Lender's discretion to
take the actions described in clause (i) of this subparagraph (a) at any other
time.

            (b)   If an Event of Default exists: (i) the Lender shall have, in
addition to all other rights, the rights and remedies of a secured party under
the UCC; (ii) the Lender may, at any time, take possession of the Collateral
and keep it on the Borrower's or any Guarantor Subsidiary's premises, at no
cost to the Lender, or remove any part of it to such other place or places as
the Lender may desire, or, the Borrower shall, upon the Lender's demand, at
the Borrower's cost, assemble the Collateral and make it available to the
Lender at a place reasonably convenient to the Lender; and (iii) the Lender
may sell and deliver any Collateral at public or private sales, for cash, upon
credit or otherwise, at such prices and upon such terms as the Lender deems
advisable, in its sole discretion, and may, if the Lender deems it reasonable,
postpone or adjourn any sale of the Collateral by an announcement at the time
and place of sale or of such postponed or adjourned sale without giving a new
notice of sale.  Without in any way requiring notice to be given in the
following manner, the Borrower and each Guarantor Subsidiary agrees that any
notice by the Lender of sale, disposition or other intended action hereunder
or in connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to the Borrower and such Guarantor Subsidiary if
such notice is mailed by registered or certified mail, return receipt
requested, postage prepaid, or is delivered personally against receipt, at
least five (5) days prior to such action to the Borrower's address specified
in or pursuant to Section 13.10.  If any Collateral is sold on terms other
than payment in full at the time of sale, no credit shall be given against the
Obligations until the Lender receives payment, and if the buyer defaults in
payment, the Lender may resell the Collateral without further notice to the
Borrower or any Guarantor Subsidiary.  In the event the Lender seeks to take
possession of all or any portion of the Collateral by judicial process, the
Borrower and each Guarantor Subsidiary irrevocably waives: (a) the posting of
any bond, surety or security with respect thereto which might otherwise be
required; (b) any demand for possession prior to the commencement of any suit
or action to recover the Collateral; and (c) any requirement that the Lender
retain possession and not dispose of any Collateral until after trial or final
judgment.  The Borrower and each Guarantor Subsidiary agrees that the Lender
has no obligation to preserve rights to the Collateral or marshal any
Collateral for the benefit of any Person.  Following the occurrence of an
Event of Default that is continuing, the Lender is hereby granted a license or
other right to use, without charge, the Borrower's and each Guarantor
Subsidiary's labels, patents, copyrights, name, trade secrets, trade names,
trademarks, and advertising matter or any similar property, in completing
production of, advertising or selling any Collateral, and the Borrower's and
each Guarantor Subsidiary's rights under all licenses and all franchise
agreements shall inure to the Lender's benefit, as long as such does not
violate in any manner such other loan agreements that may be in place at such
time.  The proceeds of sale shall be applied first to all expenses of sale,
including attorneys' fees, and second, in whatever order the Lender elects, to
all Obligations.  The Lender will return any excess to the Borrower and the
Borrower shall remain liable for any deficiency. 

            (c)   If an Event of Default occurs and is continuing, the
Borrower and each Guarantor Subsidiary hereby waives: (i) all rights to notice
and hearing prior to the exercise by the Lender of the Lender's rights to
repossess the Collateral without judicial process or to replevy, attach or
levy upon the Collateral without notice or hearing, and (ii) all rights of
set-off and counterclaim against Lender.

            (d)   If the Lender terminates this Agreement upon an Event of
Default that has not been cured or otherwise waived to Lender's satisfaction,
the Borrower shall pay the Lender, immediately upon termination, an early
termination penalty equal to the early termination fee that would have been
payable under Article 12 if this Agreement had been terminated on that date
pursuant to the Borrower's election.

      12.   TERM AND TERMINATION.  The initial term of this Agreement shall be
three (3) years from the Closing Date (the "Termination Date").  This
Agreement shall automatically be renewed thereafter for successive thirteen
(13) month terms, unless this Agreement is terminated as provided below.  The
Lender and the Borrower shall each have the right to terminate this Agreement,
without premium or penalty, at the end of the initial term or at the end of
any renewal term by giving the other written notice not less than sixty (60)
days prior to the end of such term by registered or certified mail.  The
Borrower may also terminate this Agreement at any time during its initial term
or any renewal periods if:  (a) it gives the Lender sixty (60) days prior
written notice of termination by registered or certified mail; (b) it pays and
performs all Obligations on or prior to the effective date of termination; and
(c) except as otherwise provided herein, it pays the Lender, on or prior to
the effective date of termination, (i) two percent (2%) of the average daily
balance of the Loans and Letters of Credit outstanding under the Revolver
Facility for the preceding one hundred eighty day (180) day period (or from
the Closing Date up to and including the date of termination if less than one
hundred eighty (180) days from the Closing Date) if such termination is made
on or prior to the first anniversary of the Closing Date; and (ii) one percent
(1%) of the average daily balance of the Loans and Letters of Credit
outstanding under the Revolver Facility for the preceding one hundred eighty
(180) day period if such termination is made after the first anniversary but
on or prior to the second anniversary of the Closing Date; provided, however,
that prior to an Event of Default that is continuing, the Borrower may prepay
at any time all outstanding Obligations due hereunder without penalty or
premium as provided in clause (c) above if (i) Lender under any condition or
for any reason changes the advance rates relating to Eligible Accounts or
Eligible Inventory from that set forth in the definition of Availability
contained herein, provided further that nothing contained in this clause shall
be construed as allowing the Lender to make any such change, or (ii) a public
offering by LSB of its securities (equity or debt) is consummated and the
proceeds thereof are used to prepay the Obligations after the date hereof. 
The Lender may also terminate this Agreement without notice upon an Event of
Default that has not been cured or otherwise waived to Lender's satisfaction. 
Upon the effective date of termination of this Agreement for any reason
whatsoever, all Obligations shall become immediately due and payable. 
Notwithstanding the termination of this Agreement, until all Obligations are
paid and performed in full, the Lender shall retain all its rights and
remedies hereunder (including, without limitation, in all then existing and
after-arising Collateral).

      13.   MISCELLANEOUS.

            13.1  Cumulative Remedies; No Prior Recourse to Collateral.  The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law.  The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order.  The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative.  The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral.

            13.2  No Implied Waivers.  No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies.  No single or
partial waiver by the Lender of any provision of this Agreement, or any other
Loan Document, or of breach or default hereunder or thereunder, or of any
right or remedy which the Lender may have, shall operate as a waiver of any
other provision, breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion.  No waiver by the
Lender shall affect its rights to require strict performance of this
Agreement.

            13.3  Severability.  If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be effective only to
such extent, without invalidating the remainder of this Agreement.

            13.4  Governing Law.  THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF OKLAHOMA AND SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE EXCEPT THAT NO DOCTRINE OF CHOICE OF
LAW SHALL BE USED TO APPLY THE LAWS OF ANY OTHER STATE OR JURISDICTION.

            13.5  Consent to Jurisdiction and Venue; Service of Process;
Arbitration.

            (a)   The Borrower agrees that, in addition to any other courts
that may have jurisdiction under applicable laws, any action or proceeding to
enforce or arising out of this Agreement or any of the other Loan Documents
may be commenced in the appropriate court of the State of Oklahoma for
Oklahoma County, or in the United States District Court for the Western
District of Oklahoma, and each Borrower consents and submits in advance to
such jurisdiction and agrees that venue will be proper in such courts on any
such matter.  Borrower hereby waives personal service of process and agrees
that a summons and complaint commencing an action or proceeding in any such
court shall be properly served and shall confer personal jurisdiction if
served by registered or certified mail to the Borrower.  Should the Borrower
fail to appear or answer any summons, complaint, process or papers so served
within thirty (30) days after the mailing or other service thereof, it shall
be deemed in default and an order or judgment may be entered against it as
demanded or prayed for in such summons, complaint, process or papers.  The
choice of forum set forth in this section shall not be deemed to preclude the
enforcement of any judgment obtained in such forum, or the taking of any
action under this Agreement to enforce the same, in any appropriate
jurisdiction.

            (b)   NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE
CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES, INCLUDING BUT
NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT
THE REQUEST OF EITHER PARTY HERETO BE DETERMINED BY ARBITRATION.  The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA").  The arbitration shall be conducted within
Oklahoma County, Oklahoma.  The arbitrator(s) shall give effect to statutes of
limitation in determining any claim.  Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s).  Judgment upon
the arbitration award may be entered in any court having jurisdiction.  The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.

            (c)   No provision of subparagraph (a) shall limit the right of
either party to this Agreement to exercise self-help remedies such as setoff,
foreclosure against or sale of any Collateral, or obtaining provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any proceeding after the occurrence of an Event of
Default.  The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference.

            13.6  Survival of Representations and Warranties.  All of the
Borrower's representations and warranties of the Borrower and each Guarantor
Subsidiary contained in this Agreement shall survive the execution, delivery,
and acceptance thereof by the parties, notwithstanding any investigation by
the Lender or its agents, but after the Closing Date it is recognized that
such representations and warranties may be amended from time to time during
the term of this Agreement by written agreement between the Borrower to the
Lender due to changes in circumstances.

            13.7  Indemnification.  BORROWER HEREBY INDEMNIFIES , DEFENDS AND
HOLDS LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL,
HARMLESS FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES,
DEFICIENCIES, JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST ANY OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
ARISING OUT OF OR BY REASON OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR
PROCEEDINGS (WHETHER BASED ON ANY FEDERAL, STATE OR LOCAL LAWS OR OTHER
STATUTES OR REGULATIONS, INCLUDING, WITHOUT LIMITATION, SECURITIES,
ENVIRONMENTAL, OR COMMERCIAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT
EQUITABLE CAUSE, OR ON CONTRACT OR OTHERWISE) COMMENCED OR THREATENED, WHICH
ARISE OUT OF OR ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION,
EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING RELATED
TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT,
EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT
LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES
OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING, EXCEPT THAT THIS INDEMNIFICATION SHALL NOT
APPLY TO ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES, JUDGMENTS, PENALTIES OR
EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE LENDER, AND ITS
DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, OR COUNSEL IF SUCH IS DUE TO AND
ARISES FROM OR IN CONNECTION WITH THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF ANY OF THEM OR THE INTENTIONAL AND WRONGFUL BREACH OF THIS AGREEMENT BY
LENDER.  Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against Borrower, or by
Borrower or any other party against Lender, which in Lender's sole discretion
makes it advisable for Lender to seek counsel for protection and preservation
of its liens and security assets, or to defend its own interest, such
reasonable expenses and counsel fees shall be allowed to Lender.  To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section 13.7 may be unenforceable because it is violative of any law or
public policy, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified matters incurred by Lender.  The foregoing
indemnity shall survive the payment of the Obligations and the termination of
this Agreement.  All of the foregoing costs and expenses shall be part of the
Obligations and secured by the Collateral.

            13.8  Other Security and Guaranties.  The Lender may, without,
notice or demand and without affecting the Borrower's obligations hereunder,
from time to time:  (a) take from any Person and hold collateral (other than
the Collateral) for the payment of all or any part of the Obligations and
exchange, enforce or release such collateral or any part thereof; and (b)
accept and hold any endorsement or guaranty of payment of all or any part of
the Obligations and release any such endorser or guarantor, or any Person who
has given any Lien in any other collateral as security for the repayment of
all or any part of the Obligations, or any other Person in any way obligated
to pay all or any part of the Obligations.

            13.9  Fees and Expenses.  The Borrower shall pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection
with the negotiation, preparation, consummation, administration, enforcement,
and termination of this Agreement and the other Loan Documents, including,
without limitation:  (a) attorneys' and paralegals' fees and disbursements of
counsel to the Lender; (b) costs and expenses (including attorneys' and
paralegals' fees and disbursements) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with the Loan Documents and the
transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) fees and other charges for recording and
filing financing statements and continuations, and other actions to perfect,
protect, and continue the Security Interest; (e) sums paid or incurred to pay
any amount or take any action required of the Borrower under the Loan
Documents that the Borrower was obligated to pay or take under the Loan
Documents but failed to pay or take; (f) the expenses of $500 per Lender's
auditor per audit day plus actual costs of appraisals, inspections, and
verifications of the Collateral, including, without limitation, travel,
lodging, and meals, for inspections of the Collateral and the Borrower's
operations by the Lender's agents up to three times per year and whenever an
Event of Default exists; (g) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
Payment Accounts and lock boxes; (h) all amounts that the Borrower is required
to pay under the Letter of Credit Agreement; (i) costs and expenses of
preserving and protecting the Collateral; and (j) costs and expenses
(including attorneys' and paralegals' fees and disbursements and including,
without limitation, a reasonable estimate of the allocable cost of in-house
counsel and staff) paid or incurred to obtain payment of the Obligations,
enforce the Security Interest, sell or otherwise realize upon the Collateral,
and otherwise enforce the provisions of the Loan Documents, or to defend any
claims made or threatened against the Lender arising out of the transactions
contemplated hereby (including without limitation, preparations for and
consultations concerning any such matters).  The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrower.  All of the foregoing costs and
expenses shall be charged to the Borrower's loan account as Revolving Loans.

            13.10 Notices.  All notices, demands and requests that either
party is required or elects to give to the other shall be in writing, shall be
delivered personally against receipt, or sent by recognized overnight courier
service, or mailed by registered or certified mail, return receipt requested,
postage prepaid, and shall be addressed to the party to be notified as
follows:

      If to the Lender: BankAmerica Business Credit, Inc.
                        Two North Lake Avenue, Suite 400
                        Pasadena, California  91101
                        Attn:  Mr. Charles Burtch
                                Executive Vice President

      with a copy to:   Bank of America - Business Credit Legal Dept.
                        10124 Old Grove Road
                        San Diego, California  92131
                        Attn:  Thomas G. Montgomery, Esq.
                                Assistant General Counsel

      and with a copy to:     Jenkens & Gilchrist, A Professional Corporation
                        1445 Ross Avenue, Suite 3200
                        Dallas, Texas  75201
                        Attn:  Linda D. Sartin, Esq.

      If to the Borrower:     LSB Industries, Inc.
                        Post Office Box 754
                        Oklahoma City, Oklahoma  73101
                        Attn:  Mr. Jack E. Golsen
                              President

      with a copy to:   LSB Industries, Inc.
                        Post Office Box 754
                        Oklahoma City, Oklahoma  73101
                        Attn:  Mr. Tony M. Shelby
                              Senior Vice President

      with a copy to:   LSB Industries, Inc.
                        Post Office Box 754
                        Oklahoma City, Oklahoma  73101
                        Attn:  David M. Shear, Esq.
                              General Counsel

      and with a copy to:     Hastie and Steinhorn
                        3000 Oklahoma Tower
                        210 Park Avenue
                        Oklahoma City, Oklahoma  73102
                        Attn: Irwin H. Steinhorn, Esq.

or to such other address as each party may designate for itself by like
notice.  Any such notice, demand, or request shall be deemed given when
received if personally delivered or sent by overnight courier, or when
deposited in the United States mails, postage paid, if sent by registered or
certified mail.

            13.11 Waiver of Notices.  Unless otherwise expressly provided
herein, the Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, notice of intent to accelerate and
notice of acceleration, as well as any and all other notices to which it might
otherwise be entitled.  No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any further notice or
demand in the same, similar or other circumstances.

            13.12 Binding Effect; Assignment; Disclosure.  The provisions of
this Agreement shall be binding upon and inure to the benefit of the
respective representatives, successors and assigns of the parties hereto: 
provided, however, that no interest herein may be assigned by the Borrower
without the prior written consent of the Lender.  The rights and benefits of
the Lender hereunder shall, if the Lender so agrees, inure to any party
acquiring any interest in the Obligations or any part thereof.  The Borrower
agrees that the Lender may use the Borrower's name in advertising and
promotional materials and in conjunction therewith disclose the general terms
of this Agreement.

            13.13 Modification.  THIS AGREEMENT IS INTENDED BY THE BORROWER
AND THE LENDER TO BE THE FINAL, COMPLETE, AND EXCLUSIVE EXPRESSION OF THE
AGREEMENT BETWEEN THEM.  THIS AGREEMENT SUPERSEDES ANY AND ALL PRIOR ORAL OR
WRITTEN AGREEMENTS RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE, OR AMENDMENT OF ANY
PROVISION OF THIS AGREEMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT
SIGNED BY THE BORROWER AND A DULY AUTHORIZED OFFICER OF THE LENDER.

            13.14 Counterparts.  This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.

            13.15 Captions.  The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.

            13.16 Right of Set-Off.  Whenever an Event of Default exists the
Lender is hereby authorized at any time and from time to time, to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by Lender or any affiliate of the Lender and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrower against any and all of the
Obligations, whether or not then due and payable.  Lender agrees promptly to
notify Borrower after any such set-off and application made by Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.

            13.17 Participating Lender's Security Interests.  If a
Participating Lender shall at any time with the Borrower's knowledge
participate with the Lender in the Loans, the Borrower hereby grants to such
Participating Lender, and the Lender and such Participating Lender shall have
and are hereby given, a continuing lien on and security interest in any money,
securities and other property of the Borrower in the custody or possession of
the Participating Lender, including, the right of set-off, to the extent of
the Participating Lender's participation in the Obligations, and such
Participating Lender shall be deemed to have the, same right of set-off, to
the extent of the Participating Lender's participation in the Obligations
under this Agreement, as it would have if it were a direct lender.

            13.18 WAIVER OF JURY TRIAL.  LENDER AND BORROWER ACKNOWLEDGE AND
AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES, AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT GROWING OUT OF ANY
SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT JURY.  TRIAL BY A JUDGE SITTING WITHOUT A JURY WILL FURTHER
RESULT IN THE AVOIDANCE OF DELAYS, A STREAMLINING OF THE PROCEEDINGS INVOLVED
AND, AS A RESULT, WILL MINIMIZE THE EXPENSE OF ANY SUCH LAWSUIT FOR THE
BENEFIT OF BORROWER AND LENDER.  BORROWER HEREBY WAIVES TRIAL BY JURY, RIGHTS
OF SET-OFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS (EXCEPT FOR COMPULSORY
COUNTERCLAIMS) IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN THE BORROWER, AND THE LENDER.  BORROWER HEREBY CONFIRMS THAT THE
FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.

      IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

                              "BORROWER":

                              LSB INDUSTRIES, INC.


                              By:                                          
                                    Jack E. Golsen
                                    President

                              "LENDER":

                              BANKAMERICA BUSINESS CREDIT, INC.


                              By:                                          
                                    Joyce White
                                    Senior Vice President



                        ACKNOWLEDGED AND AGREED TO:

      Each of the following "Guarantor Subsidiaries" hereby grants to the
Lender a Security Interest in and to the Collateral owned by such Guarantor
Subsidiary pursuant to Section 6.1 hereof and has executed this Agreement
solely to acknowledge its agreement to comply with and be bound by all those
particular warranties, representations, covenants and agreements set forth
herein that are expressly applicable to the Guarantor Subsidiaries by the
terms of this Agreement.

                              UNIVERSAL TECH CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              LSB CHEMICAL CORP.


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              L&S AUTOMOTIVE PRODUCTS, CO.
                              (formerly known as LSB Bearing Corp.)


                              By:                                          
                                    Tony M. Shelby    
                                    Vice President

                              INTERNATIONAL BEARING, INC.


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              LSB EXTRUSION CO.


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              ROTEX CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              TRIBONETICS CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              SUMMIT MACHINE TOOL SYSTEMS, INC.


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              HERCULES ENERGY MANUFACTURING
                                    CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              MOREY MACHINERY MANUFACTURING
                                    CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              CHP CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              KOAX CORP.


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              APR CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                        EXHIBITS TO LOAN AGREEMENT




      EXHIBIT A         -     Permitted Liens

      EXHIBIT B         -     Proprietary Rights

      EXHIBIT C         -     Guarantor Subsidiaries

      EXHIBIT D         -     List of Borrower's Locations

      EXHIBIT E         -     Corporate History

      EXHIBIT F         -     Subsidiaries and Affiliates

      EXHIBIT G-1       -     Financial Statements

      EXHIBIT G-2       -     Pro Forma Financial Statements

      EXHIBIT H         -     Real Property Descriptions:  Premises

      EXHIBIT I         -     Trade Names, Trade Styles, Terms of Sale

      EXHIBIT J         -     Pending Litigation

      EXHIBIT K         -     Labor Matters

      EXHIBIT L         -     ERISA Matters

      EXHIBIT M         -     Schedule of Environmental Matters

      EXHIBIT N         -     Closing Documents

      EXHIBIT O         -     Letter of Credit Financing Agreement -
                              Supplement to Loan and Security Agreement

      EXHIBIT P         -     Notice of Borrowing












sec\10k\tk94x412.wpe
                                                              Exhibit  4.13


                       LOAN AND SECURITY AGREEMENT
                                    
                              by and among
                                    
                    BANKAMERICA BUSINESS CREDIT, INC.
                                as Lender
                                    
                                   and
                                    
                       EL DORADO CHEMICAL COMPANY
                                   and
                      SLURRY EXPLOSIVES CORPORATION
                              as Borrowers
                                    
                                    
                        Dated:  December 12, 1994
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    

                             TABLE OF CONTENTS


SECTION

      Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . .-i-
      Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1


      1.    DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .  1
       1.1  As used herein:. . . . . . . . . . . . . . . . . . . . . . .  1
             Account . . . . . . . . . . . . . . . . . . . . . . . . . .  1
             Account Debtor. . . . . . . . . . . . . . . . . . . . . . .  2
             Acquisition . . . . . . . . . . . . . . . . . . . . . . . .  2
             Adjusted Tangible Assets. . . . . . . . . . . . . . . . . .  2
             Adjusted Tangible Net Worth . . . . . . . . . . . . . . . .  2
             Affiliate . . . . . . . . . . . . . . . . . . . . . . . . .  2
             Aggregate LSB Gross Availability. . . . . . . . . . . . . .  2
             Applicable Interest Rate. . . . . . . . . . . . . . . . . .  2
             Availability. . . . . . . . . . . . . . . . . . . . . . . .  2
             Availability Reductions . . . . . . . . . . . . . . . . . .  3
             Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
             Borrower Subsidiaries . . . . . . . . . . . . . . . . . . .  3
             Business Day. . . . . . . . . . . . . . . . . . . . . . . .  3
             Capital Expenditures. . . . . . . . . . . . . . . . . . . .  3
             Capital Lease . . . . . . . . . . . . . . . . . . . . . . .  4
             Closing Date. . . . . . . . . . . . . . . . . . . . . . . .  4
             Code. . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Collateral. . . . . . . . . . . . . . . . . . . . . . . . .  4
             Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Distribution. . . . . . . . . . . . . . . . . . . . . . . .  4
             Documents . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Dollars . . . . . . . . . . . . . . . . . . . . . . . . . .  4
             Eligible Accounts . . . . . . . . . . . . . . . . . . . . .  4
             Eligible Inventory. . . . . . . . . . . . . . . . . . . . .  7
             Environmental Compliance Reserve. . . . . . . . . . . . . .  8
             Environmental Laws. . . . . . . . . . . . . . . . . . . . .  8
             Equipment . . . . . . . . . . . . . . . . . . . . . . . . .  8
             ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
             Eurocurrency Liabilities. . . . . . . . . . . . . . . . . .  8
             Eurodollar Business Day . . . . . . . . . . . . . . . . . .  8
             Eurodollar Base Rate. . . . . . . . . . . . . . . . . . . .  9
             Eurodollar Interest Payment Date. . . . . . . . . . . . . .  9
             Eurodollar Interest Rate Determination Date . . . . . . . .  9
             Eurodollar Rate . . . . . . . . . . . . . . . . . . . . . .  9
             Eurodollar Rate Loan. . . . . . . . . . . . . . . . . . . .  9
             Eurodollar Rate Reserve Percentage. . . . . . . . . . . . .  9
             Event . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
             Event of Default. . . . . . . . . . . . . . . . . . . . . .  9
             Facility Fee. . . . . . . . . . . . . . . . . . . . . . . . 10
             Financial Statements. . . . . . . . . . . . . . . . . . . . 10
             Fiscal Quarter. . . . . . . . . . . . . . . . . . . . . . . 10
             Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 10
             GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
             Gross Availability Reductions . . . . . . . . . . . . . . . 10
             Gross LSB Accounts Availability . . . . . . . . . . . . . . 10
             Guarantor Subsidiaries. . . . . . . . . . . . . . . . . . . 10
             Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . 10
             HCFS Loan Agreement . . . . . . . . . . . . . . . . . . . . 10
             Instruments . . . . . . . . . . . . . . . . . . . . . . . . 11
             Intercompany Accounts . . . . . . . . . . . . . . . . . . . 11
             Interest Period . . . . . . . . . . . . . . . . . . . . . . 11
             Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Inventory Loans . . . . . . . . . . . . . . . . . . . . . . 11
             IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Latest Forecasts. . . . . . . . . . . . . . . . . . . . . . 11
             Letter of Credit. . . . . . . . . . . . . . . . . . . . . . 11
             Letter of Credit Agreement. . . . . . . . . . . . . . . . . 11
             Letter of Credit Fee. . . . . . . . . . . . . . . . . . . . 11
             Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
             Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
             Loan Documents. . . . . . . . . . . . . . . . . . . . . . . 12
             LSB . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
             LSB Borrowing Group . . . . . . . . . . . . . . . . . . . . 12
             LSB Consolidated Group. . . . . . . . . . . . . . . . . . . 12
             LSB Eligible Accounts . . . . . . . . . . . . . . . . . . . 12
             LSB-Related Loan Agreements . . . . . . . . . . . . . . . . 12
             Maximum Inventory Advance Amount. . . . . . . . . . . . . . 12
             Maximum Revolving Credit Line . . . . . . . . . . . . . . . 12
             Minimum Borrowing Commitment. . . . . . . . . . . . . . . . 12
             Multi-employer Plan . . . . . . . . . . . . . . . . . . . . 12
             Obligations . . . . . . . . . . . . . . . . . . . . . . . . 13
             Participating Lender. . . . . . . . . . . . . . . . . . . . 13
             Patent and Trademark Assignments. . . . . . . . . . . . . . 13
             Payment Account . . . . . . . . . . . . . . . . . . . . . . 13
             PBGC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
             Pension Plan. . . . . . . . . . . . . . . . . . . . . . . . 13
             Permitted Debt. . . . . . . . . . . . . . . . . . . . . . . 13
             Permitted Liens . . . . . . . . . . . . . . . . . . . . . . 14
             Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
             Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
             Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 15
             Property. . . . . . . . . . . . . . . . . . . . . . . . . . 15
             Proprietary Rights. . . . . . . . . . . . . . . . . . . . . 15
             Public Authority. . . . . . . . . . . . . . . . . . . . . . 15
             Real Property . . . . . . . . . . . . . . . . . . . . . . . 15
             Receivables . . . . . . . . . . . . . . . . . . . . . . . . 16
             Reference Rate. . . . . . . . . . . . . . . . . . . . . . . 16
             Reference Rate Loan . . . . . . . . . . . . . . . . . . . . 16
             Reference Rate Margin . . . . . . . . . . . . . . . . . . . 16
             Related Company . . . . . . . . . . . . . . . . . . . . . . 16
             Reportable Event. . . . . . . . . . . . . . . . . . . . . . 16
             Restricted Investment . . . . . . . . . . . . . . . . . . . 17
             Reversions. . . . . . . . . . . . . . . . . . . . . . . . . 17
             Revolver Facility . . . . . . . . . . . . . . . . . . . . . 17
             Revolving Loans . . . . . . . . . . . . . . . . . . . . . . 17
             Security Interest . . . . . . . . . . . . . . . . . . . . . 17
             Subordinated Debt . . . . . . . . . . . . . . . . . . . . . 17
             Subsidiary" or "Subsidiaries. . . . . . . . . . . . . . . . 17
             Subsidiary Guaranties . . . . . . . . . . . . . . . . . . . 17
             Termination Event . . . . . . . . . . . . . . . . . . . . . 17
             UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
       1.2  Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 18
       1.3  Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . 18
       1.4  Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 18

 2.   LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . 18
       2.1  Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . 18
       2.2  Availability Determination . . . . . . . . . . . . . . . . . 19
       2.3  Letters of Credit. . . . . . . . . . . . . . . . . . . . . . 19

 3.   INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . 20
       3.1  Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 20
       3.2  Eurodollar Borrowings: Conversion or Continuation. . . . . . 20
       3.3  Special Provisions Governing Eurodollar Rate Loans . . . . . 21
       3.4  Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . 25
       3.5  Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 27
       3.6  Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . 27
       3.7  Unused Line Fee. . . . . . . . . . . . . . . . . . . . . . . 27

 4.   PAYMENTS AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . 28
       4.1  Revolving Loans. . . . . . . . . . . . . . . . . . . . . . . 28
       4.2  Place and Form of Payments: Extension of Time. . . . . . . . 28
       4.3  Apportionment, Application and Reversal of Payments. . . . . 28
       4.4  INDEMNITY FOR RETURNED PAYMENTS. . . . . . . . . . . . . . . 28

 5.   LENDER'S BOOKS AND RECORDS:  MONTHLY STATEMENTS. . . . . . . . . . 29

 6.   COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
       6.1  Grant of Security Interest . . . . . . . . . . . . . . . . . 29
       6.2  Perfection and Protection of Security Interest . . . . . . . 30
       6.3  Location of Collateral . . . . . . . . . . . . . . . . . . . 31
       6.4  Title to, Liens on, and Sale and Use of Collateral . . . . . 31
       6.5  Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . 31
       6.6  Access and Examination . . . . . . . . . . . . . . . . . . . 31
       6.7  Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 32
       6.8  Collateral Reporting . . . . . . . . . . . . . . . . . . . . 33
       6.9  Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 33
       6.10 Collection of Accounts . . . . . . . . . . . . . . . . . . . 34
       6.11 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . 35
       6.12 Documents and Instruments. . . . . . . . . . . . . . . . . . 35
       6.13 Right to Cure. . . . . . . . . . . . . . . . . . . . . . . . 35
       6.14 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . 36
       6.15 Lender's Rights, Duties, and Liabilities . . . . . . . . . . 36
       6.16 Release of Collateral and the Borrowers. . . . . . . . . . . 36

 7.   BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES. . . . . . . . . 37
       7.1  Books and Records. . . . . . . . . . . . . . . . . . . . . . 37
       7.2  Financial Information. . . . . . . . . . . . . . . . . . . . 37
       7.3  Notices to Lender. . . . . . . . . . . . . . . . . . . . . . 39

 8.   GENERAL WARRANTIES AND REPRESENTATIONS . . . . . . . . . . . . . . 40
       8.1  Authorization, Validity, and Enforceability of this
            Agreement and the Loan Documents . . . . . . . . . . . . . . 41
       8.2  Validity and Priority of Security Interest . . . . . . . . . 41
       8.3  Organization and Qualification . . . . . . . . . . . . . . . 41
       8.4  Corporate Name; Prior Transactions . . . . . . . . . . . . . 42
       8.5  Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . 42
       8.6  Financial Statements and Projections . . . . . . . . . . . . 42
       8.7  Capitalization . . . . . . . . . . . . . . . . . . . . . . . 42
       8.8  Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 43
       8.9  Title to Property. . . . . . . . . . . . . . . . . . . . . . 43
       8.10 Real Property; Leases. . . . . . . . . . . . . . . . . . . . 43
       8.11 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . 43
       8.12 Trade Names and Terms of Sale. . . . . . . . . . . . . . . . 43
       8.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 43
       8.14 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . 43
       8.15 Environmental Laws . . . . . . . . . . . . . . . . . . . . . 44
       8.16 No Violation of Law. . . . . . . . . . . . . . . . . . . . . 45
       8.17 No Default . . . . . . . . . . . . . . . . . . . . . . . . . 45
       8.18 Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
       8.19 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
       8.20 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 46
       8.21 Private Offerings. . . . . . . . . . . . . . . . . . . . . . 46
       8.22 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . 46
       8.23 No Material Adverse Change . . . . . . . . . . . . . . . . . 46
       8.24 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

 9.   AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . . 47
       9.1  Taxes and Other Obligations. . . . . . . . . . . . . . . . . 47
       9.2  Corporate Existence and Good Standing. . . . . . . . . . . . 47
       9.3  Maintenance of Property and Insurance. . . . . . . . . . . . 47
       9.4  Environmental Laws . . . . . . . . . . . . . . . . . . . . . 47
       9.5  Mergers, Consolidations, Acquisitions, or Sales. . . . . . . 48
       9.6  Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . 48
       9.7  Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
       9.8  Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . 48
       9.9  Transactions with Affiliates . . . . . . . . . . . . . . . . 48
       9.10 Plans and Compensation . . . . . . . . . . . . . . . . . . . 49
       9.11 Business Conducted . . . . . . . . . . . . . . . . . . . . . 49
       9.12 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
       9.13 New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 49
       9.14 Distributions and Restricted Investments . . . . . . . . . . 49
       9.15 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 50
       9.16 Adjusted Tangible Net Worth. . . . . . . . . . . . . . . . . 50
       9.17 Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 50
       9.18 Compliance with  . . . . . . . . . . . . . . . . . . . . . . 51
       9.19 Further Assurances . . . . . . . . . . . . . . . . . . . . . 51

 10.  CLOSING; CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . 51
       10.1 Representations and Warranties; Covenants; Events. . . . . . 51
       10.2 Delivery of Documents. . . . . . . . . . . . . . . . . . . . 51
       10.3 Aggregate LSB Gross Availability . . . . . . . . . . . . . . 51
       10.4 Termination of Liens . . . . . . . . . . . . . . . . . . . . 51
       10.5 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 52
       10.6 Required Approvals . . . . . . . . . . . . . . . . . . . . . 52
       10.7 No Material Adverse Change . . . . . . . . . . . . . . . . . 52
       10.8 Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 52
       10.9 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . 52
       10.10      September 30, 1994 Quarterly Financial Statements. . . 52
       10.11      Repurchase of Accounts from Prime. . . . . . . . . . . 52
       10.12      Conditions Precedent to Each Loan. . . . . . . . . . . 53

 11.  DEFAULT; REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . 53
       11.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . 53
       11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 55

 12.  TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 57

 13.  MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
       13.1 Cumulative Remedies; No Prior Recourse to Collateral . . . . 58
       13.2 No Implied Waivers . . . . . . . . . . . . . . . . . . . . . 58
       13.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . 58
       13.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 58
       13.5 Consent to Jurisdiction and Venue; Service of Process;
            Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . 58
       13.6 Survival of Representations and Warranties . . . . . . . . . 59
       13.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 59
       13.8 Other Security and Guaranties. . . . . . . . . . . . . . . . 60
       13.9 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 61
       13.10      Notices. . . . . . . . . . . . . . . . . . . . . . . . 61
       13.11      Waiver of Notices. . . . . . . . . . . . . . . . . . . 63
       13.12      Binding Effect; Assignment; Disclosure . . . . . . . . 63
       13.13      Modification . . . . . . . . . . . . . . . . . . . . . 63
       13.14      Counterparts . . . . . . . . . . . . . . . . . . . . . 63
       13.15      Captions . . . . . . . . . . . . . . . . . . . . . . . 63
       13.16      Right of Set-Off . . . . . . . . . . . . . . . . . . . 63
       13.17      Participating Lender's Security Interests. . . . . . . 64
       13.18      WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . 64



                        LOAN AND SECURITY AGREEMENT


      This LOAN AND SECURITY AGREEMENT (this "Agreement") is dated December
12, 1994, and is entered into by and among BANKAMERICA BUSINESS CREDIT INC., a
Delaware corporation, with offices at Two North Lake Avenue, Suite 400,
Pasadena, California 91101 (the "Lender"), and EL DORADO CHEMICAL COMPANY, an
Oklahoma corporation, with offices at 16 Pennsylvania Avenue, Oklahoma City,
Oklahoma  73107 ("EDC"), and SLURRY EXPLOSIVES CORPORATION, an Oklahoma
corporation, with offices at 5700 N. Portland, Oklahoma City, Oklahoma  73112
("Slurry", and together with EDC, referred to individually herein as a
"Borrower" and collectively as the "Borrowers").

                            W I T N E S S E T H

      WHEREAS, the Borrowers have requested the Lender to make available to
the Borrowers a revolving line of credit for loans and letters of credit in an
amount not to exceed the Maximum Credit Facility as defined herein, which
extensions of credit the Borrower will use (i) in part to repay certain of
Borrowers' obligations, and (ii) for Borrowers' working capital needs and
general business purposes; and

      WHEREAS, Slurry is a wholly-owned subsidiary of EDC, and Slurry will
receive direct and indirect benefit from the transactions contemplated by this
Agreement; and

      WHEREAS, of even date herewith, Lender has entered into five (5) related
loan transactions with LSB Industries, Inc., a Delaware corporation ("LSB"),
the corporation which owns 100% of the stock of LSB Chemical Corp. which, in
turn, owns 100% of the stock of EDC, and with certain other "Borrower
Subsidiaries" as defined herein; and

      WHEREAS, the aggregate amount of all loans to be made by Lender to the
Borrower Subsidiaries will not exceed Sixty-Five Million and No/100 Dollars
($65,000,000); 

      NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt of which is hereby acknowledged, each of the Borrowers and the Lender
hereby agree as follows: 

      1.    DEFINITIONS.

            1.1   As used herein:

            "Account" means either Borrower's right to payment for a sale or
      lease and delivery of goods or rendition of services.

            "Account Debtor" means each Person obligated to either Borrower on
      an Account.

            "Acquisition" means the investment in or purchase of a
      corporation, association, business, entity, partnership or limited
      liability company by either of the Borrowers by means of the purchase of
      stock, assets, memberships, partnership interests or otherwise.

            "Adjusted Tangible Assets" means all of the assets of the LSB
      Consolidated Group, on a consolidated basis, except: (a) goodwill; (b)
      unamortized debt discount and expense; (c) assets constituting
      Intercompany Accounts; and (d) fixed assets to the extent of any
      write-up in the book value thereof resulting from a revaluation
      effective after the Closing Date.

            "Adjusted Tangible Net Worth" means, at any date: (a) the book
      value (after deducting related depreciation, obsolescence, amortization,
      valuation, and other proper reserves as determined in accordance with
      GAAP) at which the Adjusted Tangible Assets would be shown on a
      consolidated balance sheet of the LSB Consolidated Group at such date
      prepared in accordance with GAAP less (b) the amount at which the LSB
      Consolidated Group's liabilities would be shown on such balance sheet
      prepared in accordance with GAAP.

            "Affiliate" means:  a Person who, directly or indirectly,
      controls, is controlled by or is under common control with LSB.  The
      term "control" (including the terms "controlled by" and "under common
      control with") means the possession, directly or indirectly, of the
      power to direct or cause the direction of the management and policies of
      the Person in question.

            "Aggregate LSB Gross Availability" means the sum of the amounts
      calculated as "Availability" under all of the LSB-Related Loan
      Agreements without taking into account the Gross Availability
      Reductions. 

            "Applicable Interest Rate" has the meaning given such term in
      Section 3.1(a).

            "Availability" means at any time the lesser of:

            A.    The Maximum Revolving Credit Line, or 

            B.    The sum of:

                  (1)   eighty-five percent (85%) of the value of Eligible
                        Accounts ("Accounts Availability"), plus

                  (2)   the lesser of (a) the Maximum Inventory Advance Amount
                        or (b) sixty percent (60%) of the value of Eligible
                        Inventory; less

                  (3)   the Availability Reductions.

            "Availability Reductions" means the following amounts which reduce
      Availability:

                  (i)    the unpaid balance of outstanding Revolving Loans at
            such time; 

                  (ii)   one hundred percent (100%) of the aggregate undrawn
            face amount of all outstanding Letters of Credit at such time and
            the aggregate outstanding amount of all acceptances at such time
            which the Lender has, or has caused to be, issued or obtained for
            either Borrower's account;

                  (iii) reserves for accrued interest on the Revolving Loans
            which is past due;

                  (iv)  the Environmental Compliance Reserve (Note:  There is
            no Environmental Compliance Reserve as of the Closing Date); and

                  (v)   all other reasonable reserves which the Lender in its
            reasonable discretion deems necessary or desirable to maintain
            with respect to either Borrower's account, including, without
            limitation, any amounts which the Lender could reasonably be
            obligated to pay within a six-month period for the account of
            either Borrower.

            "Bank" means Bank of America National Trust and Savings
      Association in San Francisco, California.

            "Borrower Subsidiaries" means LSB, Borrowers, L&S Bearing Co.,
      Climate Master, Inc., International Environmental Corporation and Summit
      Machine Tool Manufacturing Corp.

            "Business Day" means any day that is not a Saturday, Sunday, or
      day on which banks in Los Angeles, California are required or permitted
      to close.

            "Capital Expenditures" means all costs incurred, whether payable
      in the Fiscal Year incurred or thereafter, (including financing costs
      required to be capitalized under GAAP) for purchases made during a
      Fiscal Year for any fixed asset or improvement, or replacement,
      substitution, or addition thereto, which has a useful life of more than
      one year, including, without limitation, those costs arising in
      connection with the direct or indirect acquisition of such assets by way
      of increased product or service charges or offset items or in connection
      with Capital Leases.

            "Capital Lease" means any lease of Property that, in accordance
      with GAAP, should be reflected as a liability on a Person's balance
      sheet.

            "Closing Date" means the date of this Agreement, being the date
      first above written.

            "Code" means the Internal Revenue Code of 1986, as amended.

            "Collateral" has the meaning given to such term in Section 6.1.

            "Debt" means all liabilities, obligations and indebtedness of
      either Borrower to any Person, of any kind or nature, now or hereafter
      owing, arising, due or payable, howsoever evidenced, created, incurred,
      acquired or owing, as would be shown on the balance sheet of either such
      Borrower prepared in accordance with GAAP.

            "Distribution" means, in respect of any corporation: (a) the
      payment or making of any dividend or other distribution of Property in
      respect of capital stock of such corporation, other than distributions
      in capital stock; and (b) the redemption or other acquisition of any
      capital stock of such corporation

            "Documents" means all "documents" (as defined in the UCC) or other
      receipts covering, evidencing or representing goods now owned or
      hereafter acquired by either Borrower.

            "Dollars" and "$" means lawful money of the United States of
      America.

            "Eligible Accounts" means all Accounts of either Borrower which
      are not ineligible.  Accounts shall be ineligible as the basis for
      Revolving Loans based on the following criteria.  Eligible Accounts
      shall not include any Account:

                  (i)   where such Account is "Past Due".  For the purposes of
            this provision, "Past Due" means:  (a) where the Account has terms
            of payment of less than ninety-one (91) days from the invoice
            date, the payment thereof is more than 90 days past due; and (b)
            where the Account has terms of payment of ninety-one to three
            hundred sixty (91 to 360) days from the Invoice Date, the payment
            thereof is more than 30 days past due; notwithstanding the
            foregoing all advances to either Borrower and the other Borrower
            Subsidiaries with respect to "eligible accounts" under the LSB-
            Related Loan Agreements that have terms of payment of more than
            one hundred eighty (180) days (the "180-Day Accounts") shall not
            exceed in the aggregate at any time the lesser of (i) $1,500,000
            or (ii) five percent (5%) of the Gross LSB Accounts Availability
            (without taking into account the 180-Day Accounts);

                  (ii)  where, with respect to such Account, any of the
            representations, warranties, covenants and agreements contained in
            Sections 6.9 and 8.2 of this Agreement are not or have ceased to
            be complete and correct or have been breached;

                  (iii) where such Account represents a progress billing or as
            to which either Borrower has extended the time for payment after
            issuance of the invoice relating to such Account.  For the purpose
            hereof, "progress billing" means any invoice for goods sold or
            leased or services rendered under a contract or agreement pursuant
            to which the Account Debtor's obligation to pay such invoice is
            expressly conditioned upon such Borrower's completion of any
            further performance under the contract or agreement, provided,
            however, that performance required under a warranty claim or
            provision shall not make such Account a "progress billing";

                  (iv)  where either Borrower has become aware that any one or
            more of the following events has occurred with respect to an
            Account Debtor on such Account: death or judicial declaration of
            incompetency of an Account Debtor who is an individual; the filing
            by or against the Account Debtor of a request or petition for
            liquidation, reorganization, arrangement, adjustment of debts,
            adjudication as a bankrupt, winding-up, or other relief under the
            bankruptcy, insolvency, or similar laws of the United States, any
            state or territory thereof, or any foreign jurisdiction, now or
            hereafter in effect; the making of any general assignment by the
            Account Debtor for the benefit of creditors; the appointment of a
            receiver or trustee for the Account Debtor or for any of the
            assets of the Account Debtor; the institution by or against the
            Account Debtor of any other type of insolvency proceeding (under
            the bankruptcy laws of the United States or otherwise) or of any
            formal or informal proceeding for the dissolution or liquidation
            of, or winding up of affairs of, the Account Debtor; the sale,
            assignment, or transfer of all or any material part of the assets
            of the Account Debtor; or the cessation of the business of the
            Account Debtor as a going concern;

                  (v)   where an Account is not a valid, legally enforceable
            obligation of the Account Debtor thereunder or is subject to
            offset, counterclaim or other defenses on the part of such Account
            Debtor denying liability thereunder in whole or in part (provided,
            however, that claims under or relating to any warranty issues or
            claims by an Account Debtor as a result of either Borrower
            purchasing products or supplies or having received services from
            such Account Debtor shall not render an Account ineligible);

                  (vi)  where either Borrower does not have good and
            marketable title to such Account, free and clear of all Liens,
            other than Liens arising under this Agreement and the documents
            delivered in connection herewith; 

                  (vii) which is owed by an Account Debtor which: (i) does not
            maintain its chief executive office in the United States or
            territory thereof or Canada; or (ii) is not organized under the
            laws of the United States or any state or territory thereof or
            Canada; or (iii) is the government of any foreign country or any
            state, province, municipality or other political subdivision
            thereof (all of the foregoing being referred to as "Foreign
            Accounts"); except that, to the extent that such Foreign Accounts
            are secured or payable by letters of credit or bank guarantees
            reasonably acceptable to Lender, such Foreign Accounts shall be
            considered Eligible Accounts.  Notwithstanding the foregoing,
            Lender has agreed that Foreign Accounts, if they otherwise meet
            all eligibility requirements, will be Eligible Accounts even
            though such Foreign Accounts are not secured or payable by letters
            of credit or bank guaranties reasonably acceptable to Lender up to
            an amount not to exceed at any one time more than five percent
            (5%) of the Gross LSB Accounts Availability (without taking into
            account such Foreign Accounts);

                  (viii)      which is owed by an Account Debtor which is an
            Affiliate;

                  (ix)  which is owed by the government of the United States
            of America, or any department, agency, or other instrumentality
            thereof, unless the Federal Assignment of Claims Act of 1940, as
            amended, or any other steps necessary to perfect the Lender's
            Security Interest therein, have been complied with to the Lender's
            reasonable satisfaction with respect to such Account;

                  (x)  which is owed by any state or municipality, or any
            department, agency, or other instrumentality thereof, and as to
            which the Lender's Security Interest therein is not or cannot be
            perfected;

                  (xi)  which arises out of a sale to an Account Debtor on a
            bill and hold, guaranteed sale, sale and return, sale on approval,
            consignment, or other repurchase or return basis;

                  (xii) which is evidenced by a promissory note or other
            instrument (unless such note or instrument is part of chattel
            paper in which Lender has a first priority perfected Security
            Interest) or by chattel paper (unless Lender has a first priority
            perfected Security Interest therein);

                  (xiii)      where the goods giving rise to such Account have
            not been shipped and delivered to and accepted by the Account
            Debtor (except where the Account Debtor has agreed in writing to
            accept billings for such goods, with a copy of such writing being
            provided to Lender, then such Account shall be an Eligible Account
            if it otherwise qualifies) or the services giving rise to such
            Account have not been performed by the applicable Borrower and
            accepted by the Account Debtor; or

                  (xiv) if Lender believes in its reasonable credit judgment
            that the prospect of collection of such Account is impaired; or

                  (xv)  which Account is owing from an Account Debtor in which
            fifty percent (50%) or more of the Accounts owing from whom are
            Past Due as set forth in subsection (i) of this definition of
            Eligible Accounts; or

                  (xvi) as to which either the perfection, enforceability, or
            validity of the Security Interest in such Account, or the Lender's
            right or ability to obtain direct payment to the Lender of the
            Proceeds of such Account, is governed by any federal, state, or
            local statutory requirements other than those of the UCC; or

                  (xvii)      with respect to which the Account Debtor is
            located in the states of New Jersey, Minnesota, West Virginia or
            any other state requiring the filing of a Business Activity Report
            or similar document in order to bring suit or otherwise enforce
            its remedies against such Account Debtor in the courts or through
            any judicial process of such state, unless the appropriate
            Borrower has qualified to do business in New Jersey, Minnesota,
            West Virginia or such other states, or has filed a Notice of
            Business Activities Report with the applicable Division of
            Taxation, the Department of Revenue, or with such other state
            offices, as appropriate, for the then current year.

            "Eligible Inventory" means Inventory of either Borrower valued at
      the lower of cost or market on a "first in-first out" ("FIFO") basis
      that constitutes raw materials (including raw materials stored or held
      by a Borrower in the work-in-progress area and fifty percent (50%) of
      Inventory classified as components) and first quality finished goods and
      that (a) is not obsolete or unmerchantable, and (b) upon which the
      Lender has a first priority perfected Security Interest, and (c) the
      Lender otherwise deems eligible as the basis for Revolving Loans based
      on such other credit and collateral considerations as the Lender may
      from time to time establish in its reasonable discretion.  Without
      intending to limit the Lender's discretion to establish other reasonable
      criteria of eligibility, no work-in-progress (except as otherwise
      provided above), service or spare parts, packaging, used parts, shipping
      materials, supplies, containers, defective Inventory, Inventory
      consisting of machines being rebuilt, Inventory acquired in trade in
      connection with the sale of other Inventory, slow-moving Inventory,
      Inventory in transit (except for Inventory in transit owned by a
      Borrower, covered by insurance, and in which Lender has a Security
      Interest), fifty percent (50%) of Inventory classified as components,
      Olin acid inventory, Inventory consisting of Ireco exchange items or
      Inventory delivered to either Borrower on consignment shall constitute
      Eligible Inventory.  Except for Inventory in transit in which Lender has
      a perfected Security Interest, Eligible Inventory shall not include
      Inventory stored at locations other than those locations either owned by
      either Borrower or locations for which a landlord's waiver acceptable to
      Lender or a consignment agreement (with appropriate UCC filings) has
      been signed by the owner of such location and delivered to Lender.  In
      addition, the amount of all finished goods reserves (excluding reserves
      for "last-in-first-out" valuation) shown on the books of a Borrower
      shall be deducted from the value of the Eligible Inventory as used in
      computing Availability, except to the extent that any such reserve has
      already been taken into account in connection with any of the above
      criteria.

            "Environmental Compliance Reserve" means all reserves which the
      Lender from time to time establishes for amounts that are liabilities
      required to be paid by either Borrower within 180 days in order to
      correct any violation by such Borrower or such Borrower's operations or
      Property of Environmental Laws.

            "Environmental Laws" means all federal, state and local laws,
      rules, regulations, ordinances, and consent decrees relating to
      hazardous substances, and environmental matters applicable to the
      Borrowers', or either of their, business and facilities (whether or not
      owned by it).  Such laws and regulations include but are not limited to
      the Resource Conservation and Recovery Act, 42 U.S.C. section 6901 et 
      seq., as amended; the Comprehensive Environmental Response, Compensation 
      and Liability Act, 42 U.S.C. section 9601 et seq., as amended: the Toxic
      Substances Control Act, 15 U.S.C. section 2601 et seq., as amended; the 
      Clean Water Act, 33 U.S.C. section 466 et seq., as amended; the Clean 
      Air Act, 42 U.S.C. section 7401 et seq., as amended; state and federal 
      superlien and environmental cleanup programs; and U.S. Department of 
      Transportation regulations.

            "Equipment" means all of either Borrower's now owned and hereafter
      acquired machinery, equipment, furniture, furnishings, fixtures, and
      other tangible personal property (except Inventory), including, without
      limitation, data processing hardware and software, motor vehicles,
      aircraft, dies, tools, jigs, and office equipment, as well as all of
      such types of property leased by either such Borrower and all of such
      Borrower's rights and interests with respect thereto under such leases
      (including, without limitation, options to purchase); together with all
      present and future additions and accessions thereto, replacements
      therefor, component and auxiliary parts and supplies used or to be used
      in connection therewith, and all substitutes for any of the foregoing,
      and all manuals, drawings, instructions, warranties and rights with
      respect thereto wherever any of the foregoing is located.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
      as amended.

            "Eurocurrency Liabilities" has the meaning assigned to that term
      in Regulation D of the Board of Governors of the Federal Reserve System,
      as in effect from time to time.

            "Eurodollar Business Day" means any Business Day in which
      commercial banks are open for international business (including dealings
      in dollar deposits) in London, England and Los Angeles, California.


            "Eurodollar Base Rate" means, for any Interest Period, an interest
      rate determined by the Lender to be the rate per annum at which deposits
      in Dollars are offered to Bank in the London interbank market at 11:00
      a.m. (London time) two (2) Business Days before the first day of such
      Interest Period for delivery on the first day of such Interest Period in
      an amount substantially equal to the Eurodollar Rate Loans requested for
      such Interest Period and for a period equal to such Interest Period.

            "Eurodollar Interest Payment Date" means the first day of each
      month during any Interest Period and the last day of such Interest
      Period.

            "Eurodollar Interest Rate Determination Date" means each date of
      calculating the Eurodollar Rate for purposes of determining the interest
      rate with respect to an Interest Period.  The Eurodollar Interest Rate
      Determination Date for any Eurodollar Rate Loan shall be the second
      Business Day prior to the first day of the related Interest Period for
      such Eurodollar Rate Loan.

            "Eurodollar Rate" means, for any Interest Period, a per annum
      interest rate equal to the quotient of (a) the Eurodollar Base Rate for
      such Interest Period, divided by (b) one hundred percent (100%) minus
      the Eurodollar Rate Reserve Percentage for such Interest Period.

            "Eurodollar Rate Loan" means a Revolving Loan during any period in
      which it bears interest at the rate provided in Section 3.1(a)(ii), as
      such amount may be adjusted pursuant to Section 3.1(b).

            "Eurodollar Rate Reserve Percentage" for any Interest Period means
      the reserve percentage applicable during such Interest Period (or if
      more than one such percentage shall be so applicable, the daily average
      of such percentages for those days in such Interest Period during which
      any such percentage shall be so applicable) under regulations issued
      from time to time by the Board of Governors of the Federal Reserve
      System (or any successor) for determining the maximum reserve
      requirement (including, without limitation, any emergency, supplemental
      or other marginal reserve requirement) for Bank with respect to
      liabilities or assets consisting of or including Eurocurrency
      Liabilities having a term equal to such Interest Period.

            "Event" means any event or condition which, with notice, the
      passage of time, the happening of any other condition or event, or any
      combination thereof, would constitute an Event of Default.

            "Event of Default" has the meaning given to such term in Section
      11.1.

            "Facility Fee" has the meaning given to such term in Section 3.5.

            "Financial Statements" means, according to the context in which it
      is used, the financial statements attached hereto as Exhibit G-1, and
      the Latest Forecasts attached hereto as Exhibit G-2, and any other
      financial statements required to be given by the Borrowers, or either of
      them, or LSB to the Lender under this Agreement.

            "Fiscal Quarter" means any three-month period ending March 31,
      June 30, September 30 or December 31.

            "Fiscal Year" means LSB's fiscal year for financial accounting
      purposes.  The current Fiscal Year of LSB will end on December 31, 1994.

            "GAAP" means at any particular time generally accepted accounting
      principles as in effect at such time.

            "Gross Availability Reductions" means the sum of all "Availability
      Reductions" under the LSB-Related Loan Agreements.

            "Gross LSB Accounts Availability" means the sum of the amounts
      calculated as "Accounts Availability" under all of the LSB-Related Loan
      Agreements less any Reserves established with respect to any of the LSB
      Eligible Accounts in accordance with the LSB-Related Loan Agreements. 

            "Guarantor Subsidiaries" means Universal Tech Corporation, LSB
      Chemical Corp., L&S Automotive Products, Co. (f/k/a LSB Bearing Corp.),
      International Bearing, Inc., LSB Extrusion Co., Rotex Corporation,
      Tribonetics Corporation, Summit Machine Tool Systems, Inc., Hercules
      Energy Manufacturing Corporation, Morey Machinery Manufacturing
      Corporation, CHP Corporation, Koax Corp., and APR Corporation.

            "Guaranty" by any Person means all obligations of such Person
      which in any manner directly or indirectly guarantee the payment or
      performance of any indebtedness or other obligation of any other Person
      (the "guaranteed obligations"), or assure or in effect assure the holder
      of the guaranteed obligations against the loss in respect thereof,
      including, without limitation, any such obligations incurred through an
      agreement, (a) to purchase the guaranteed obligations or any Property
      constituting security therefor or (b) to advance or supply funds for the
      purchase or payment of the guaranteed obligations or to maintain a
      working capital or other balance sheet condition.

            "HCFS Loan Agreement" shall mean the Amended and Restated Secured
      Credit Agreement dated as of January 21, 1992 by and among Borrowers,
      Household Commercial Financial Services, Inc., Connecticut Mutual Life
      Insurance Company and C. M. Life Insurance Company, and any other
      lenders from time to time parties to in the HCFS Loan Agreement.

            "Instruments" means all "instruments", "chattel paper" or "letters
      of credit" (each as defined in the UCC) including, but not limited to,
      promissory notes, drafts, bills of exchange and trade acceptances, now
      owned or hereafter acquired by either Borrower.

            "Intercompany Accounts" means all assets and liabilities, however
      arising, which are due to either Borrower from, which are due from
      either Borrower to, or which otherwise arise from any transaction by
      either Borrower with, any Affiliate.

            "Interest Period" means, with respect to each Eurodollar Rate Loan
      the 90-day interest period applicable to such Eurodollar Rate Loan as
      determined pursuant to Section 3.3(b).

            "Inventory" means all of each Borrower's now owned and hereafter
      acquired inventory, wherever located, to be held for sale or lease, all
      raw materials, work-in-process, finished goods, returned and repossessed
      goods, and materials and supplies of any kind, nature or description
      which are or might be used in connection with the manufacture, packing,
      shipping, advertising, selling or finishing of such inventory, and all
      documents of title or other documents representing them.

            "Inventory Loans" means Loans based on Eligible Inventory.

            "IRS" means the Internal Revenue Service or any successor agency.

            "Latest Forecasts" means, (a) on the Closing Date and thereafter
      until the Lender receives new forecasts pursuant to Section 8.6, the
      forecasts which include EDC's and Slurry's monthly financial condition,
      results of operations, and cash flows through the year ending December
      31, 1996, attached hereto as Exhibit G-2; and (b) thereafter, the
      forecasts most recently received by the Lender pursuant to Section 7.2.

            "Letter of Credit" has the meaning specified in Section 2.3.

            "Letter of Credit Agreement" has the meaning specified in Section
      2.3.

            "Letter of Credit Fee" means the commissions charged under the
      Letter of Credit Agreement on the Outstanding Amount of each Letter of
      Credit.

            "Lien" means: any interest in Property securing an obligation owed
      to, or a claim by, a Person other than the owner of the Property,
      whether such interest is based on the common law, statute, or contract,
      and including without limitation, a security interest, charge, claim, or
      lien arising from a mortgage, deed of trust, encumbrance, pledge,
      hypothecation, assignment, deposit arrangement, agreement, or
      conditional sale, or a lease, consignment or bailment for security
      purposes.

            "Loans" means, collectively, all loans and advances provided for
      in Article 2.

            "Loan Documents" means this Agreement, the Letter of Credit
      Agreement, the Patent and Trademark Assignments, the Subsidiary
      Guaranties, and all other agreements, instruments, and documents
      heretofore, now or hereafter evidencing, securing guaranteeing or
      otherwise relating to the Obligations, the Collateral, the Security
      Interest, or any other aspect of the transactions contemplated by this
      Agreement, as the same may hereafter be amended, modified, restated
      and/or extended.

            "LSB" has the meaning given in the recitals to this Agreement.

            "LSB Borrowing Group" means the Borrower Subsidiaries and the
      Guarantor Subsidiaries.

            "LSB Consolidated Group" means LSB and all of its Subsidiaries,
      including, but not limited to, the LSB Borrowing Group.

            "LSB Eligible Accounts" means the then existing "Eligible
      Accounts" of all of the Borrower Subsidiaries and the Guarantor
      Subsidiaries under the LSB-Related Loan Agreements.

            "LSB-Related Loan Agreements" means all of the following loan
      agreements:  (i) this Agreement; (ii) the Loan and Security Agreement
      dated of even date herewith between Lender and LSB; (iii) the Loan and
      Security Agreement dated of even date herewith between Lender and L & S
      Bearing Co.; (iv) the Loan and Security Agreement dated of even date
      herewith between Lender and Climate Master, Inc.; (v) the Loan and
      Security Agreement dated of even date herewith between Lender and
      International Environmental Corporation; and (vi) the Loan and Security
      Agreement dated of even date herewith between Lender and Summit Machine
      Tool Manufacturing Corp.

            "Maximum Inventory Advance Amount" means $32,500,000 less all then
      outstanding loans, advances, and outstanding Letters of Credit based on
      Eligible Inventory of the LSB Borrowing Group under the LSB-Related Loan
      Agreements.

            "Maximum Revolving Credit Line" means Sixty Five Million Dollars
      ($65,000,000) less the Gross Availability Reductions.

            "Minimum Borrowing Commitment" means Thirty Million Dollars
      ($30,000,000).

            "Multi-employer Plan" means a Plan which is described in Section
      3(37) of ERISA.

            "Obligations" means all present and future loans, advances,
      liabilities, obligations, covenants, duties and Debts owing by the
      Borrowers, or either of them, to the Lender, arising under this
      Agreement or any other Loan Document, whether or not evidenced by any
      note, or other instrument or document, whether arising from an extension
      of credit, opening of a letter of credit, acceptance, loan, guaranty,
      indemnification or otherwise, whether direct or indirect, absolute or
      contingent, due or to become due, primary or secondary, as principal or
      guarantor, and including, without limitation, all interest, charges,
      expenses, fees, attorneys' fees, filing fees and any other sums
      chargeable to the Borrowers, or either of them, hereunder or under
      another Loan Document.  "Obligations" includes, without limitation, all
      debts, liabilities, and obligations now or hereafter owing from the
      Borrowers, or either of them, to Lender under or in connection with the
      Letters of Credit and the Letter of Credit Agreement.

            "Participating Lender" means any Person who shall have been
      granted the right by the Lender to participate in the Loans and who
      shall have entered into a participation agreement in form and substance
      satisfactory to the Lender.

            "Patent and Trademark Assignments" means the Patent Security
      Agreement and the Trademark and Trade Names Security Agreement dated as
      of the date hereof, executed and delivered by either Borrower, to the
      Lender to evidence and perfect the Lender's Security Interest in the
      Borrowers' present and future patents, trademarks, trade names and
      related licenses and rights.

            "Payment Account" means each blocked bank account, established
      pursuant to Section 6.10, to which Proceeds of Accounts and other
      Collateral are deposited or credited, and which is maintained in the
      name of the Borrowers, or either of them, on terms acceptable to the
      Lender.

            "PBGC" means the Pension Benefit Guaranty Corporation or any
      Person succeeding to the functions thereof.

            "Pension Plan" means any employee benefit plan, including a Multi-
      employer Plan, which is subject to Title IV of ERISA, where either (a)
      the Plan is maintained by the Borrowers, or either of them, or any
      Related Company; or (b) the Borrowers, or either of them, or any Related
      Company contributes or is required to contribute to it; or (c) the
      Borrowers, or either of them, or any Related Company has incurred or may
      incur liability, including contingent liability, under Title IV of
      ERISA, either to it, or to the PBGC with respect to it.

            "Permitted Debt" means:  (i) the Obligations; (ii) Debt set forth
      in the most recent Financial Statements delivered to the Lender, or the
      notes thereto; (iii) Debt incurred since the date of such Financial
      Statements to finance Capital Expenditures permitted hereby; (iv) Debt
      issued or assumed by either Borrower in connection with an Acquisition
      permitted under Section 9.14 hereof; (v) Debt resulting from a judgment
      having been rendered against either Borrower that is being appealed by
      such Borrower in good faith and in a timely manner, for which an
      adequate reserve has been recorded on such Borrower's books, and which
      is not fully covered by insurance; (vi) Subordinated Debt; (vii) Debt
      resulting from the refinancing of any other Permitted Debt as long as
      (a) such Debt does not exceed the amount of the refinanced Debt, and (b)
      such Debt does not result in payment acceleration of the refinanced
      Debt; (viii) Debt resulting from trade payables and other obligations
      arising in the ordinary course of business; (ix) other Debt not
      otherwise permitted by this definition in an amount not to exceed
      $5,000,000 at any one time; (x) Debt of either Borrower to a member of
      the LSB Borrowing Group or to an Affiliate in accordance with Section
      9.9 hereof; and (xi) Debt of either of the Borrowers under the HCFS Loan
      Agreement or any other loan documents referred to or entered into in
      connection with the HCFS Loan Agreement.  Notwithstanding the foregoing,
      Permitted Debt described in subsection (ix) of this definition, when
      combined with Permitted Debt allowed under subsection (ix) of the
      definition of Permitted Debt under all of the other LSB-Related Loan
      Agreements, shall not exceed $5,000,000 at any one time.

            "Permitted Liens" means: (a) Liens for taxes not yet payable or
      Liens for taxes being contested in good faith and by proper proceedings
      diligently pursued, provided that a reserve or other appropriate
      provision, if any, as shall be required by GAAP shall have been made
      therefor on the applicable Financial Statements, and further provided
      that, with respect to the Collateral, a stay of enforcement of any such
      Lien is in effect; (b) Liens in favor of the Lender; (c) reservations,
      exceptions, encroachments, easements, rights of way, covenants,
      conditions, restrictions, leases and other similar title exceptions or
      encumbrances affecting the Real Property; (d) Liens or deposits under
      workmen's compensation, unemployment insurance, social security and
      other similar laws, (e) Liens relating to obligations with respect to
      surety, appeal bonds, performance bonds, bids, tenders and other
      obligations of a like nature, (f) Liens existing as of the Closing Date
      and granted after the date hereof in connection with either Borrower's
      Equipment, Real Property or other fixed assets, provided that such Liens
      attach only to such Property and the proceeds thereof, and so long as
      the indebtedness secured thereby does not exceed 100% of the fair market
      value of such Property at the time of acquisition; (g) Liens on goods
      consigned to either Borrower or not owned by either Borrower so long as
      such Lien attaches only to such goods and so long as Lender has been
      given notice of such Lien, (h) mechanic, materialmen and other like
      Liens arising in the ordinary course of business securing obligations
      which are not overdue or are being contested in good faith by
      appropriate proceedings and adequately reserved against, (i) statutory
      Liens in favor of landlords, (j) Liens against any life insurance policy
      or the cash surrender value thereof which relate to borrowings incurred
      to finance the premiums made under such policy; (k) Liens not to exceed
      $1,000,000 at any one time in amounts secured, which are junior in
      priority to the Security Interest and which arise or are placed
      inadvertently against either Borrower's assets and are removed within
      ten (10) days from receipt of notice by either such Borrower of such
      Lien; and (l) Liens reflected on Exhibit A hereto.  

            "Person" means any individual, sole proprietorship, partnership,
      joint venture, trust, unincorporated organization, association,
      corporation, Public Authority, or any other entity.

            "Plan" means, individually and collectively, all Pension Plans,
      all additional employee benefit plans as defined in Section 3(3) of
      ERISA, and all other plans, programs, agreements, arrangements, and
      methods of contribution or compensation providing any material
      remuneration or benefits, other than the cash payment of wages or
      salary, to any current or former employee(s) of either Borrower.

            "Proceeds" means all products and proceeds of any Collateral, and
      all proceeds of such proceeds and products, including, without
      limitation, all cash and credit balances, all payments under any
      indemnity, warranty, or guaranty payable with respect to any Collateral,
      all proceeds of fire or other insurance, and all money and other
      Property obtained as a result of any claims against third parties or any
      legal action or proceeding with respect to Collateral.

            "Property" means any interest in any kind of property or asset,
      whether real, personal or mixed, or tangible or intangible.

            "Proprietary Rights" means all of either Borrower's now owned and
      hereafter arising or acquired: licenses, franchises, permits, patents,
      patent rights, copyrights, works which are the subject matter of
      copyrights, trademarks, trade names, trade styles, patent and trademark
      applications and licenses and rights thereunder, including without
      limitation those patents, trademarks and copyrights set forth on Exhibit
      B hereto, and all other rights under any of the foregoing, all
      extensions, renewals, reissues, divisions, continuations, and
      continuations-in-part of any of the foregoing, and all rights to sue for
      past, present, and future infringement of any of the foregoing;
      inventions, trade secrets, formulae, processes, compounds, drawings,
      designs, blueprints, surveys, reports, manuals, and operating standards,
      goodwill, customer and other lists in whatever form maintained, and
      trade secret rights, copyright rights, right in works of authorship, and
      contract rights relating to computer software programs, in whatever form
      created or maintained. 

            "Public Authority" means the government of any country or
      sovereign state, or of any state, province, municipality, or other
      political subdivision thereof, or any department, agency, public
      corporation or other instrumentality of any of the foregoing.

            "Real Property" means all of either Borrower's rights, title, and
      interest in real property now owned or hereafter acquired by such
      Borrower, including, without limitation, the real property more
      particularly described in Exhibit H attached hereto, including all
      rights and easements in connection therewith and all buildings and
      improvements now or hereafter constructed thereon.

            "Receivables" means all of either Borrower's now owned or
      hereafter arising or acquired:  Accounts (whether or not earned by
      performance), including Accounts owed to such Borrower by any of its
      Subsidiaries or Affiliates (but excluding Accounts arising solely from
      the sale of Equipment, Real Property or other fixed assets), together
      with all interest, late charges, penalties, collection fees, and other
      sums which shall be due and payable in connection with any Account;
      proceeds of any letters of credit naming such Borrower as beneficiary
      except such letters of credit as are issued solely in connection with
      the purchase or sale of Equipment, Real Property or other fixed assets;
      contract rights, chattel paper, instruments, documents, general
      intangibles (including, without limitation, causes in action, causes of
      action, tax refunds, tax refund claims, Reversions and other amounts
      payable to such Borrower or to a Guarantor Subsidiary from or with
      respect to any Plan, rights and claims against shippers and carriers,
      rights to indemnification and business interruption insurance), and all
      forms of obligations owing to such Borrower (including, without
      limitation, obligations owing to such Borrower by its Subsidiaries and
      Affiliates); guarantees and other security for any of the foregoing; and
      rights of stoppage in transit, replevin, and reclamation; and other
      rights or remedies of an unpaid vendor, lienor, or secured party.

            "Reference Rate" means the per annum rate of interest publicly
      announced from time to time by the Bank at its San Francisco, California
      main office as its reference rate.  It is a rate set by Bank based upon
      various factors including Bank's costs and desired return, general
      economic conditions, and other factors, and is used as a reference point
      for pricing some loans; however, Bank may price loans at, above or below
      the Reference Rate.  Any change in the Reference Rate shall take effect
      on the day specified in the public announcement of such change.

            "Reference Rate Loan" means a Revolving Loan during any period in
      which it bears interest at the rate provided in Section 3.1(a)(i).

            "Reference Rate Margin" has the meaning specified in Section
      3.1(a)(i).

            "Related Company" means any member of any controlled group of
      corporations including, or under common control with, the Borrowers, or
      either of them (as defined in Section 414(b) or (c) of the Code or
      Section 4001(a)(14) of ERISA).

            "Reportable Event" means, with respect to a Pension Plan, a
      reportable event described in Section 4043 of ERISA or the regulations
      thereunder, a withdrawal from a Plan described in Section 4063 of ERISA,
      or a cessation of operations described in Section 4062(e) of ERISA.

            "Restricted Investment" means any acquisition of Property by
      either Borrower in exchange for cash or other Property, whether in the
      form of an acquisition of stock, indebtedness or other obligation, or by
      loan, advance, capital contribution, or otherwise, except the following:
      (a) Property to be used in the business of such Borrower; (b) assets
      arising from the sale or lease of goods or rendition of services in the
      ordinary course of business of such Borrower; (c) direct obligations of
      the United States of America, or any agency thereof, or obligations
      guaranteed by the United States of America, provided that such
      obligations mature within one year from the date of acquisition thereof;
      (d) certificates of deposit maturing within one year from the date of
      acquisition, bankers acceptances, Eurodollar bank deposits, or overnight
      bank deposits, in each case issued by, created by, or with a bank or
      trust company organized under the laws of the United States or any state
      thereof having capital and surplus aggregating at least $100,000,000;
      and (e) commercial paper given the highest rating by a national credit
      rating agency and maturing not more than 270 days from the date of
      creation thereof.

            "Reversions" means any funds which may become due to the
      Borrowers, or either of them, in connection with the termination of any
      Plan.

            "Revolver Facility" means the credit facility hereunder consisting
      of the provision for Revolving Loans and Letters of Credit.

            "Revolving Loans" has the meaning specified in Section 2.1.

            "Security Interest" means collectively the Liens granted to the
      Lender in the Collateral pursuant to this Agreement or the other Loan
      Documents.

            "Subordinated Debt" shall mean Debt that is unsecured and is
      subordinated to the payment of the Obligations.

            "Subsidiary" or "Subsidiaries" means any present or future
      corporation or corporations of which LSB owns, directly or indirectly,
      more than 50% of the voting stock. 

            "Subsidiary Guaranties" means the continuous guaranties of the
      Obligations made by the Guarantor Subsidiaries in favor of the Lender
      and delivered to the Lender pursuant to Section 10.2.

            "Termination Event" means:  (a) a Reportable Event (other than a
      Reportable Event described in Section 4043 of ERISA which is not subject
      to the provision for 30-day notice to the PBGC under applicable
      regulations); or (b) the withdrawal of the Borrowers, or either of them,
      or any Related Company from a Pension Plan during a plan year in which
      it was a "substantial employer" as defined in Section 4001(a)(2) of
      ERISA with respect to such Pension Plan; or (c) the filing of a notice
      of intent to terminate a Pension Plan or the treatment of a Pension Plan
      amendment as a termination under Section 4041 of ERISA; or (d) the
      institution of proceedings by the PBGC to terminate or have a trustee
      appointed to administer a Pension Plan; or (e) any other event or
      condition which might constitute grounds under Section 4042 of ERISA for
      the termination of, or the appointment of a trustee to administer, any
      Pension Plan, or (f) the partial or complete withdrawal of the
      Borrowers, or either of them, or any Related Company from a Multi-
      employer Plan, or (g) the withdrawal of the Borrowers, or either of
      them, from any state workers' compensation system.

            "UCC" means the Uniform Commercial Code (or any successor statute)
      of the State of Oklahoma or of any other state the laws of which are
      required by Section 9-103 thereof to be applied in connection with the
      issue of perfection of security interests.

            1.2  Accounting Terms.  Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.

            1.3   Other Terms.  All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein. 
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.

            1.4   Exhibits.  All references in this Agreement to Exhibits are,
unless otherwise specified, references to exhibits attached hereto, and all
such exhibits are hereby deemed incorporated herein by this reference.

      2.    LOANS AND LETTERS OF CREDIT.

            2.1   Revolving Loans.  The Lender shall, subject to the terms and
conditions set forth in this Agreement, and upon a Borrower's request from
time to time, make revolving loans (the "Revolving Loans") to EDC and Slurry
up to the limits of the Availability.  The Lender, in its discretion, may
elect to exceed the limits of the Availability on one or more occasions, but
if it does so, the Lender shall not be deemed thereby to have changed the
limits of the Availability, or to be obligated to exceed the limits of the
Availability on any other occasion.  If the unpaid balance of the Revolving
Loans exceeds the Availability (with the Availability for this purpose
determined as if the amount of the Revolving Loans were zero), then the Lender
may refuse to make or otherwise restrict Revolving Loans on such terms as the
Lender determines until such excess has been eliminated.  Either Borrower may
request Revolving Loans either orally or in writing, provided, however, that
each such request with respect to Reference Rate Loans shall be made no later
than 1:00 p.m. (Los Angeles, California time).  Each oral request by either
Borrower for a Revolving Loan shall be conclusively presumed to be made by a
person authorized by such Borrower to do so and the crediting of a Revolving
Loan to the Borrowers' deposit account, or transmittal to such Person as
either Borrower shall direct, shall conclusively establish the joint and
several obligation of the Borrowers to repay such Revolving Loan.  The Lender
will charge all Revolving Loans and other Obligations to a loan account of the
Borrowers maintained with the Lender.  All fees, commissions, costs, expenses,
and other charges due from the Borrowers, or either of them, pursuant to the
Loan Documents, and all payments made and out-of-pocket expenses incurred by
Lender and authorized to be charged to the Borrowers, or either of them,
pursuant to the Loan Documents, will be charged as Revolving Loans to the
Borrowers' loan account as of the date due from the Borrowers or the date paid
or incurred by the Lender, as the case may be.

            2.2   Availability Determination.  Availability will be determined
by the Lender in accordance with the terms of this Agreement, each day on the
basis of such relevant information as the Lender deems appropriate to
consider, including the collateral summary reports and such other information
regarding the Accounts and the Inventory as the Lender shall obtain from the
Borrowers.

            2.3   Letters of Credit.  The Lender will, subject to the terms
and conditions of this Agreement and the Letter of Credit Agreement, and upon
either Borrower's request from time to time, cause merchandise letters of
credit (the "Merchandise L/C's") or standby letters of credit (the "Standby
L/C's") to be issued for such Borrower's account (the Merchandise L/C's and
the Standby L/C's being referred to collectively as the "Letters of Credit"). 
The Lender will not cause to be opened any Letter of Credit if:  (a) the
maximum face amount of the requested Letter of Credit, plus the aggregate
undrawn face amount of all outstanding Letters of Credit under this Agreement
and the other LSB-Related Loan Agreements, would exceed Eleven Million and
No/100 Dollars ($11,000,000); or (b) the maximum face amount of the requested
Letter of Credit, and all commissions, fees, and charges due from Borrowers to
Lender in connection with the opening thereof, would cause the Availability to
be exceeded at such time.  In addition, with respect to any Merchandise L/C,
the requested term of such Letter of Credit may not exceed 180 days, and no
Merchandise L/C may by its terms be scheduled to be outstanding on the
Termination Date.  Standby L/C's may have terms that extend beyond the
Termination Date but upon termination of this Agreement, all Letters of Credit
must be either terminated with the consent of the beneficiary thereof,
replaced with a letter of credit provided by a financial institution
acceptable to Lender, collateralized by cash or cash equivalent, or otherwise
satisfied in a manner acceptable to Lender.  The Letters of Credit shall be
governed by a Letter of Credit Financing Agreement -  Supplement to Loan and
Security Agreement among the Lender and the Borrowers ("Letter of Credit
Agreement"), in the form attached hereto as Exhibit "O" and made a part
hereof, in addition to the terms and conditions hereof.  All payments made and
expenses incurred by the Lender pursuant to or in connection with the Letters
of Credit and the Letter of Credit Agreement will be charged to the Borrowers'
loan account as Revolving Loans.

      3.    INTEREST AND OTHER CHARGES

            3.1   Interest.

            (a)   Interest Rates.  All amounts charged as Revolving Loans
shall bear interest on the unpaid principal amount thereof from the date made
until paid in full in cash at the Applicable Interest Rate as described in
Sections 3.1(a)(i) and (ii) but not to exceed the maximum rate permitted by
applicable law.  Subject to the provisions of Section 3.2, any of the
Revolving Loans may be converted into, or continued as, Reference Rate Loans
or Eurodollar Rate Loans in the manner provided in Section 3.2.  If at any
time Revolving Loans are outstanding with respect to which notice has not been
delivered to Lender in accordance with the terms of this Agreement specifying
the basis for determining the interest rate applicable thereto, then those
Revolving Loans shall be Reference Rate Loans and shall bear interest at a
rate determined by reference to the Reference Rate until notice to the
contrary has been given to the Lender and such notice has become effective. 
Except as otherwise provided herein, the amounts charged as Revolving Loans
shall bear interest at the following rates (the "Applicable Interest Rate"):

                  (i)    For all amounts charged as Revolving Loans other than
      Eurodollar Rate Loans, including all Revolving Loans which are Reference
      Rate Loans, then at a fluctuating per annum rate equal to one-half
      percent (1/2%) per annum (the "Reference Rate Margin") plus the
      Reference Rate; and

                  (ii)  If the Revolving Loans are Eurodollar Rate Loans, then
      at a per annum rate equal to: two and seven-eighths percent (2.875%) per
      annum (the "Eurodollar Margin") plus the Eurodollar Rate determined for
      the applicable Interest Period.

      Each change in the Reference Rate shall be reflected in the interest
      rate described in (i) above as of the effective date of such change. 
      All interest charges shall be computed on the basis of a year of three
      hundred sixty (360) days and actual days elapsed.  Except as otherwise
      provided herein, (1) interest accrued on each Eurodollar Rate Loan shall
      be payable in arrears on each Eurodollar Interest Payment Date
      applicable to such Eurodollar Rate Loan and upon payment thereof in
      full, and (2) interest accrued on the Reference Rate Loans will be
      payable in arrears on the first day of each month hereafter.

            (b)   Default Rate.  If any Event of Default occurs, then, while
any such Event of Default is continuing, all Loans shall bear interest at an
increased rate of interest equal to the Applicable Interest Rate thereto plus
two percent (2.0%) per annum, and the Letter of Credit Fee shall be increased
to three percent (3%) per annum.

            3.2   Eurodollar Borrowings: Conversion or Continuation.

            (a)   Subject to the provisions of Section 3.3, the Borrowers
shall have the option:  (i) to request the Lender to make a Revolving Loan as
a Eurodollar Rate Loan; (ii) to convert all or any part of the outstanding
Revolving Loans from Reference Rate Loans to Eurodollar Rate Loans, (iii) to
convert all or any part of the outstanding Revolving Loans from Eurodollar
Rate Loans to Reference Rate Loans on the expiration of the Interest Period
applicable thereto; (iv) upon the expiration of any Interest Period applicable
to any outstanding Eurodollar Rate Loan, to continue all or any portion of
such Eurodollar Rate Loan as a Eurodollar Rate Loan; provided, however, that
no outstanding Loans may be converted into or continued as, Eurodollar Rate
Loans when any Event or Event of Default has occurred and is continuing.

            (b)   Whenever a Borrower elects to borrow, convert into or
continue Eurodollar Rate Loans under this Section 3.2, such Borrower shall
notify the Lender in writing or telephonically no later than 11:00 a.m. (Los
Angeles, California time) two (2) Business Days in advance of the requested
borrowing/conversion/continuation date.  Each Borrower shall specify (1) the
borrowing/conversion/continuation date (which shall be a Business Day), (2)
the amount and type of the Revolving Loans to be borrowed/converted/continued,
and (3) the nature of the requested borrowing/conversion/continuation.  In the
event that a Borrower should fail to timely notify the Lender to continue to
convert any existing Eurodollar Rate Loan, such Loan shall, on the last day of
the Interest Period with respect to such Revolving Loan, convert to a
Reference Rate Loan.

            (c)   The officer of each Borrower authorized by such Borrower to
request Revolving Loans on behalf of such Borrower shall also be authorized to
request a conversion/continuation on behalf of such Borrower.  The Lender
shall be entitled to rely on such officer's authority until the Lender is
notified to the contrary in writing.  The Lender shall have no duty to verify
the authenticity of the signature appearing on any written notification or
request and, with respect to an oral notification or request, the Lender shall
have no duty to verify the identity of any individual representing himself as
one of the officers authorized to make such notification or request on behalf
of either Borrower.  The Lender shall incur no liability to the Borrowers, or
either of them, in acting upon any telephonic notice or request referred to in
this Section 3.2, which the Lender believes in good faith to have been given
by an officer authorized to do so on behalf of the Borrowers, or either of
them, or for otherwise acting in good faith under this Section 3.2 and, upon
lending/conversion/continuation by the Lender in accordance with this
Agreement pursuant to any such telephonic notice, each Borrower shall have
effected the borrowing/conversion/continuation of the applicable Loans
hereunder.

            (d)   Any written or telephonic notice of conversion to, or
borrowing or continuation of, Revolving Loans made pursuant to this Section
3.2 shall be irrevocable and the Borrowers shall be bound to borrow, convert
or continue in accordance therewith.

            3.3   Special Provisions Governing Eurodollar Rate Loans. 
Notwithstanding any other provisions to the contrary contained in this
Agreement, the following provisions shall govern with respect to Eurodollar
Rate Loans as to the matters covered:

            (a)   Amount of Eurodollar Rate Loans.  Each election of,
continuation of, or conversion to a Eurodollar Rate Loan, shall be in a
minimum amount of Five Million Dollars ($5,000,000) and in integral multiples
of One Million Dollars ($1,000,000) in excess of that amount.

            (b)   Determination of Interest Period.  The Interest Period for
each Eurodollar Rate Loan shall be for a three (3) month period.  The
determination of Interest Periods shall be subject to the following
provisions:

                  (i)   In the case of immediately successive Interest
      Periods, each successive Interest Period shall commence on the day on
      which the next preceding Interest Period expires.

                  (ii)  If any Interest Period would otherwise expire on a day
      which is not a Business Day, the Interest Period shall be extended to
      expire on the next succeeding Business Day; provided, however, that if
      the next succeeding Business Day occurs in the following calendar month,
      then such Interest Period shall expire on the immediately preceding
      Business Day.

                  (iii)       Neither Borrower may select an Interest Period
      for any Eurodollar Rate Loan, which Interest Period expires later than
      the Stated Termination Date.

                  (iv)   There shall be not more than two (2) Interest Periods
      in effect at any one time, and no more than two (2) Interest Periods may
      begin during any calendar month.

                  (v)    If an Interest Period starts on a date for which no
      numerical correspondent exists in the month in which such Interest
      Period ends, such Interest Period will end on the last Business Day of
      such month.

            (c)   Determination of Interest Rate.  As soon as practicable
after 11:00 a.m. (Los Angeles, California time) on the Eurodollar Interest
Rate Determination Date, the Lender shall determine (which determination
shall, absent manifest error, be presumptively correct) the Interest Rate for
the Eurodollar Rate Loans for which an Interest Rate is then being determined
and shall promptly give notice thereof (in writing or by telephone confirmed
in writing) to appropriate Borrower.

            (d)   Substituted Rate of Borrowing.  In the event that on any
Eurodollar Interest Rate Determination Date the Lender shall have determined
(which determination shall, absent manifest error, be presumptively correct
and binding upon all parties) that:

                  (i)   by reason of any changes arising after the date of
      this Agreement affecting the interbank Eurodollar market or affecting
      the position of Bank or Lender in such market, adequate and fair means
      do not exist for ascertaining the applicable interest rates by reference
      to which the Eurodollar Rate then being determined is to be fixed; or

                  (ii)  by reason of (1) any change after the date of this
      Agreement in any applicable law or governmental rule, regulation or
      order (or any interpretation thereof and including the introduction of
      any new law or governmental rule, regulation or order) or (2) any other
      circumstances affecting Bank or Lender or the interbank Eurodollar
      market or the position of Bank or Lender in such market (such as, for
      example, but not limited to, official reserve requirements required by
      Regulation D of the Board of Governors of the Federal Reserve System to
      the extent not given effect in the Eurodollar Rate), the Eurodollar Rate
      shall not represent the effective pricing to Lender for Dollar deposits
      of comparable amounts for the relevant period; 

then, and in any such event, the right of the Borrowers, or either of them, to
request application of the Eurodollar Rate to some or all of the Loans shall
be suspended until the Lender shall notify the Borrowers that the
circumstances causing such suspension no longer exist, and such Loans shall be
Reference Rate Loans.

            (e)   Illegality.  In the event that on any date Lender shall have
reasonably determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties) that the making of,
conversion into, or the continuation of, Lender's Eurodollar Rate Loans has
become unlawful as the result of compliance by Lender or Bank in good faith
with any law, governmental rule, regulation or order (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, Lender shall promptly give notice (by
telephone confirmed in writing) to the Borrowers of such determination.  In
such case and except as provided in Section 3.3(f), the obligation of Lender
to make or maintain any Eurodollar Rate Loans during any such period shall be
terminated at the earlier of the termination of the Interest Period then in
effect or when required by law, and the appropriate Borrower shall, no later
than the earlier of the termination of the Interest Period in effect at the
time any such determination pursuant to this Section 3.3(e) is made, or when
required by law, repay the Eurodollar Rate Loans, together with all interest
accrued thereon.

            (f)   Options of the Borrowers.  In lieu of prepaying the
Eurodollar Rate Loans as required by Section 3.3(e), either Borrower may
exercise either of the following options:

                  (i)   Upon written notice to the Lender, either Borrower may
      release Lender from its obligations to make or maintain Loans as
      Eurodollar Rate Loans and in such event, such Borrower shall, at the end
      of the then current Interest Period (or at such earlier time as
      prepayment is otherwise required), convert all of the Eurodollar Rate
      Loans into Reference Rate Loans in the manner contemplated by Section
      3.2, but without satisfying the advance notice requirements therein; or

                  (ii)  Either Borrower may, by giving notice (by telephone
      confirmed immediately by telecopy) to Lender require Lender to continue
      to maintain its outstanding Reference Rate Loans as Reference Rate
      Loans, but without satisfying the advance notice requirements set forth
      in such Section 3.2.

            (g)   Compensation.  In addition to such amounts as are required
to be paid by a Borrower pursuant to the other Sections of this Article 3,
each Borrower, jointly and severally, agrees to compensate the Lender for all
expenses and liabilities, including, without limitation, any loss or expense
incurred by Lender by reason of the liquidation or reemployment of deposits or
other funds acquired by Lender to fund or maintain the Lender's Eurodollar
Rate Loans to the Borrowers, or either of them, which Lender sustains (i) if
due to the fault of the Borrowers, or either of them, a funding of any
Eurodollar Rate Loans does not occur on a date specified therefor by either
Borrower in a telephonic or written request for borrowing or
conversion/continuation, or a successive Interest Period does not commence
after notice therefor is given pursuant to Section 3.2, (ii) if any voluntary
or mandatory prepayment of any Eurodollar Rate Loans occurs for any reason on
a date which is not the last scheduled day of an Interest Period, or (iii) as
a consequence of any other failure by either Borrower to repay Eurodollar Rate
Loans when required by the terms of this Agreement.

            (h)   Quotation of Eurodollar Rate.  Anything herein to the
contrary notwithstanding, if on any Eurodollar Interest Rate Determination
Date no Eurodollar Rate is available by reason of the failure of Bank to be
offered quotations in accordance with the definition of "Eurodollar Base
Rate," the Lender shall give the Borrowers prompt notice thereof and (i) any
Eurodollar Rate Loan requested to be made at the Eurodollar Rate to be
determined on any Eurodollar Interest Rate Determination Date shall be made as
a Reference Rate Revolving Loan, and (ii) any notice given by the Borrowers,
or either of them, to convert any Loans into or to continue any Loans as
Eurodollar Rate Loans at the Eurodollar Rate to be determined on any such
Eurodollar Interest Rate Determination Date shall be ineffective.

            (i)   Eurodollar Rate Taxes.  The Borrowers, jointly and severally
agree to pay, prior to the date on which penalties attach thereto, all present
and future income, stamp and other taxes, levies, or costs and charges
whatsoever imposed, assessed, levied or collected on or from the Lender on or
in respect of the Borrowers' Loans from the Lender solely as a result of the
interest rate being determined by reference to the Eurodollar Rate and/or the
provisions of this Agreement relating to the Eurodollar Rate and/or the
recording, registration, notarization or other formalization of any of the
foregoing and/or any payments of principal, interest or other amounts made on
or in respect of the Loans from the Lender when the interest rate is
determined by reference to the Eurodollar Rate (all such taxes, levies, cost
and charges being herein collectively called "Eurodollar Rate Taxes");
provided, however, that Eurodollar Rate Taxes shall not include taxes imposed
on or measured by the overall net income of the Lender by the United States of
America or any political subdivision or taxing authority thereof or therein,
or taxes on or measured by the overall net income by any foreign branch or
subsidiary of the Lender by any foreign country or subdivision thereof in
which that branch or subsidiary is doing business.  Promptly after the date on
which payment of any such Eurodollar Rate Tax is due pursuant to applicable
law, the Borrowers will, at the request of the Lender, furnish to the Lender
evidence, in form and substance satisfactory to the Lender, that the Borrowers
have met their obligation under this Section 3.3(i), an addition, each
Borrower will, jointly and severally, indemnify the Lender against, and
reimburse Lender on demand for, any Eurodollar Rate Taxes for which the Lender
is or may be liable by reason of the making or maintenance of any Eurodollar
Rate Loans hereunder, as determined by the Lender in its discretion exercised
in good faith and pursuant to standards of commercial reasonableness.  The
Lender shall provide the Borrowers with appropriate receipts for any payments
or reimbursements made by the Borrowers pursuant to this Section 3.3(i).

            (j)   Booking of Eurodollar Rate Loans.  The Lender may make,
carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of
its branch offices or the office of any of its Affiliates.

            (k)   Increased Costs.  If, due to either (i) the introduction of
or any change (other than any change by way of imposition or increase of
reserve requirements included in the Eurodollar Reserve Percentage) in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Public Authority (whether
or not having the force of law), there shall be any increase in the cost to
the Lender of agreeing to make or making, funding or maintaining Eurodollar
Rate Loans, then each Borrower agrees that it shall, from time to time, upon
demand by the Lender in writing to the Borrowers, within sixty (60) days from
the date of such increased cost, pay to the Lender additional amounts
sufficient to compensate the Lender for such increased cost relating to the
outstanding Eurodollar Rate Loans made to the Borrowers, or either of them.  A
certificate as to the amount of such increased cost and the method of
determination thereof, submitted to the Borrowers by the Lender, shall be
rebuttably presumptive evidence of the correctness of such amount. 
Notwithstanding the above, the Lender shall promptly advise the Borrowers of
any increased costs covered by this paragraph (k) of which Lender is aware
that have been made or which are proposed to be made which may require the
Borrowers to be required to pay the increased cost under this paragraph (k)
prior to or at the time that either Borrower requests additional Eurodollar
Rate Loans.

            3.4   Maximum Interest Rate.

            (a)   Notwithstanding the foregoing provisions of Sections 3.1
through 3.3 regarding the rates of interest applicable to the Loans, if at any
time the amount of such interest computed on the basis of the Applicable
Interest Rate would exceed the amount of such interest computed upon the basis
of the maximum rate of interest permitted by applicable state or federal law
in effect from time to time hereafter, after taking into account, to the
extent required by applicable law, any and all fees, payments, charges and
calculations provided for in this Agreement or in any other agreement among
the Borrowers, or either of them, and Lender (the "Maximum Legal Rate"), the
interest payable under this Agreement shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Reference Rate or the
Eurodollar Rate shall not reduce such interest thereafter payable hereunder
below the amount computed on the basis of the Maximum Legal Rate until the
aggregate amount of such interest accrued and payable under this Agreement
equals the total amount of interest which would have accrued if such interest
had been at all times computed solely on the basis of the Applicable Interest
Rate.

            (b)   No agreements, conditions, provisions or stipulations
contained in this Agreement or any other instrument, document or agreement
among the Borrowers, or either of them, and the Lender or default of the
Borrowers, or the exercise by the Lender of the right to accelerate the
payment of the maturity of principal and interest, or to exercise any option
whatsoever contained in this Agreement or any other agreement among the
Borrowers, or either of them, and the Lender, or the arising of any
contingency whatsoever, shall entitle the Lender to collect, in any event,
interest exceeding the Maximum Legal Rate and in no event shall the Borrowers,
or either of them, be obligated to pay interest exceeding such Maximum Legal
Rate and all agreements, conditions or stipulations, if any, which may in any
event or contingency whatsoever operate to bind, obligate or compel the
Borrowers, or either of them, to pay a rate of interest exceeding the Maximum
Legal Rate, shall be without binding force or effect, at law or in equity, to
the extent only of the excess of interest over such Maximum Legal Rate.  In
the event any interest is charged in excess of the Maximum Legal Rate
("Excess"), each Borrower acknowledges and stipulates that any such charge
shall be the result of an accidental and bona fide error, and such Excess
shall be, first, applied to reduce the principal then unpaid hereunder;
second, applied to reduce the Obligations; and third, returned to the
Borrowers, it being the intention of the parties hereto not to enter at any
time into a usurious or otherwise illegal relationship.  Each Borrower
recognizes that, with fluctuations in the Applicable Interest Rate and the
Maximum Legal Rate, such an unintentional result could inadvertently occur. 
By the execution of this Agreement, each Borrower covenants that (i) the
credit or return of any Excess shall constitute the acceptance by such
Borrower of such Excess, and (ii) neither Borrower shall seek or pursue any
other remedy, legal or equitable, against Lender, based in whole or in part
upon the charging or receiving of any interest in excess of the maximum
authorized by applicable law.  For the purpose of determining whether or not
any Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received by the Lender in
connection with this Agreement shall be amortized, prorated, allocated and
spread in equal parts during the entire term of this Agreement.

            (c)   The provisions of Section 3.4 shall be deemed to be
incorporated into every document or communication relating to the Obligations
which sets forth or prescribes any account, right or claim or alleged account,
right or claim of the Lender with respect to the Borrowers, or either of them
(or any other obligor in respect of Obligations), whether or not any provision
of Section 3.4 is referred to therein.  All such documents and communications
and all figures set forth therein shall, for the sole purpose of computing the
extent of the liabilities and obligations of the Borrowers, or either of them
(or other obligor) asserted by the Lender thereunder, be automatically
recomputed by any Borrower or obligor, and by any court considering the same,
to give effect to the adjustments or credits required by Section 3.4.

            (d)   If the applicable state or federal law is amended in the
future to allow a greater rate of interest to be charged under this Agreement
or any other Loan Documents than is presently allowed by applicable state or
federal law, then the limitation of interest under Section 3.4 shall be
increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to the Lender
by reason thereof shall be payable upon demand.

            3.5   Facility Fee.  The Borrowers jointly and severally promise
to pay the Lender a facility fee in the amount of $175,000 on the Closing
Date.  The Lender and the each Borrower agree that the Facility Fee shall be
financed by the Lender as a Reference Rate Revolving Loan.

            3.6   Capital Adequacy.  If as a result of any regulatory change
directly or indirectly affecting Lender or any of Lender's affiliated
companies there shall be imposed, modified or deemed applicable any tax,
reserve, special deposit, minimum capital, capital ratio, or similar
requirement against or with respect to or measured by reference to loans made
or to be made to the Borrowers, or either of them, hereunder, or to Letters of
Credit issued on behalf of the Borrowers, or either of them, pursuant to the
Letter of Credit Agreement, and the result shall be to increase the cost to
Lender or to any of Lender's affiliated companies of making or maintaining any
Revolving Loan or Letter of Credit hereunder, or reduce any amount receivable
in respect of any such Revolving Loan and which increase in cost, or reduction
in amount receivable, shall be the result of Lender's or Lender's affiliated
company's reasonable allocation among all affected customers of the aggregate
of such increases or reductions resulting from such event, then, within ten
(10) days after receipt by Borrowers of a certificate from Lender containing
the information described in this Section 3.6 which shall be delivered to
Borrowers, each Borrower agrees from time to time to pay Lender such
additional amounts as shall be sufficient to compensate Lender or any of
Lender's affiliated companies for such increased costs or reductions in
amounts which Lender determines in Lender's reasonable discretion are
material.  Notwithstanding the foregoing, all such amounts shall be subject to
the provisions of Section 3.4.  The certificate requesting compensation under
this Section 3.6 shall identify the regulatory change which has occurred, the
requirements which have been imposed, modified or deemed applicable, the
amount of such additional cost or reduction in the amount receivable and the
way in which such amount has been calculated.

            3.7   Unused Line Fee.  For every month during the term of this
Agreement, the Borrowers shall pay the Lender a fee (the "Unused Line Fee") in
an amount equal to one-half percent (.50%) per annum, multiplied by the amount
by which (a) the Minimum Borrowing Commitment then in effect exceeds (b) the
average closing daily unpaid balance of all Loans and all issued but undrawn
Letters of Credit during such month, with the unpaid balance calculated for
this purpose by applying payments immediately upon receipt.  Such a fee, if
any, shall be calculated on the basis of a year of three hundred sixty (360)
days and actual days elapsed, and shall be payable to the Lender on the first
day of each month prior to the termination of this Agreement commencing
January 1, 1995 and on the termination of this Agreement, with respect to the
prior month or portion thereof.

      4.    PAYMENTS AND PREPAYMENTS.

            4.1   Revolving Loans.  The Borrowers jointly and severally
promise to repay the outstanding principal balance of the Revolving Loans,
plus all accrued but unpaid interest thereon, upon the termination of this
Agreement.  In addition, the Borrowers jointly and severally promise to pay to
the Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (with
Availability for this purpose determined as if the amount of the Revolving
Loans were zero).

            4.2   Place and Form of Payments: Extension of Time.  All payments
of principal, interest, and other sums due to the Lender shall be made at the
Lender's address set forth in Section 13.10.  Except for Proceeds received
directly by the Lender, all such payments shall be made in immediately
available funds.  If any payment of principal, interest, or other sum to be
made hereunder becomes due and payable on a day other than a Business Day, the
due date of such payment shall be extended to the next succeeding Business Day
and interest thereon shall be payable at the applicable interest rate during
such extension.

            4.3   Apportionment, Application and Reversal of Payments.  Except
as otherwise expressly provided hereunder, the Lender shall determine in its
discretion the order and manner in which proceeds and other payments that the
Lender receives are applied to the Revolving Loans, interest thereon, and the
other Obligations, and each Borrower hereby irrevocably waives the right to
direct the application of any payment or proceeds; provided, however, unless
so directed by the Borrowers, the Lender shall not apply any such payments
which it receives to any Eurodollar Rate Loan, except:  (a) on the expiration
date of the Interest Period applicable to any such Eurodollar Rate Loan; or
(b) in the event, and only to the extent, that there are not outstanding
Reference Rate Loans.  Following an Event of Default that is continuing, the
Lender shall have the continuing and exclusive right to apply and reverse and
reapply any and all such proceeds and payments to any portion of the
Obligations subject to the terms of this Section 4.3 and each Borrower's right
to direct prepayments of Eurodollar Rate Loans.

            4.4   INDEMNITY FOR RETURNED PAYMENTS.  IF AFTER RECEIPT OF ANY
PAYMENT OF, OR PROCEEDS APPLIED TO THE PAYMENT OF, ALL OR ANY PART OF THE
OBLIGATIONS, THE LENDER IS FOR ANY REASON REQUIRED TO SURRENDER SUCH PAYMENT
OR PROCEEDS TO ANY PERSON, BECAUSE SUCH PAYMENT OR PROCEEDS IS INVALIDATED,
DECLARED FRAUDULENT, SET ASIDE, DETERMINED TO BE VOID OR VOIDABLE AS A
PREFERENCE, OR A DIVERSION OF TRUST FUNDS, OR FOR ANY OTHER REASON, THEN:  THE
OBLIGATIONS OR PART THEREOF INTENDED TO BE SATISFIED SHALL BE REVIVED AND
CONTINUE AND THIS AGREEMENT SHALL CONTINUE IN FULL FORCE AS IF SUCH PAYMENT OR
PROCEEDS HAD NOT BEEN RECEIVED BY THE LENDER AND EACH BORROWER SHALL BE
JOINTLY AND SEVERALLY LIABLE TO PAY TO THE LENDER, AND HEREBY DOES INDEMNIFY
THE LENDER AND HOLD THE LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT OR
PROCEEDS SURRENDERED.  The provisions of this Section 4.4 shall be and remain
effective notwithstanding any contrary action which may have been taken by the
Lender in reliance upon such payment or Proceeds, and any such contrary action
so taken shall be without prejudice to the Lender's rights under this
Agreement and shall be deemed to have been conditioned upon such payment or
Proceeds having become final and irrevocable.  The provisions of this Section
4.4 shall survive the termination of this Agreement.

      5.    LENDER'S BOOKS AND RECORDS:  MONTHLY STATEMENTS.  Each Borrower
agrees that the Lender's books and records showing the Obligations and the
transactions pursuant to this Agreement and the other Loan Documents shall be
admissible in any action or proceeding arising therefrom irrespective of
whether any Obligation is also evidenced by a promissory note or other
instrument, and shall constitute presumptive proof thereof until such time as
such Borrower has reviewed the monthly statement as hereinafter provided.  The
Lender will provide to the Borrowers a monthly statement of Loans, payments,
and other transactions pursuant to this Agreement.  Such statement shall be
deemed correct, accurate, and binding on each Borrower and as an account
stated and shall constitute prima facie proof thereof (except for reversals
and reapplications of payments made as provided in Section 4.3 and corrections
of errors discovered by the Lender), unless such Borrower notifies the Lender
in writing to the contrary within thirty (30) days after such statement is
rendered.  In the event a timely written notice of objections is given by the
applicable Borrower, only the items to which exception is expressly made will
be considered to be disputed by such Borrower.

      6.    COLLATERAL.

            6.1   Grant of Security Interest.

            (a)   As security for the Obligations, each Borrower hereby grants
to the Lender a continuing security interest in, lien on, and assignment of:
(i) all Receivables and Inventory, wherever located and whether now existing
or hereafter arising or acquired; (ii) all Documents and Instruments
representing such Receivables; (iii) all guaranties, collateral, liens on, or
security interests in, letters of credit, and other rights, agreements, and
property securing or relating to payment of Receivables; (iv) all books,
records, ledger cards, data processing records, computer software, and other
property at any time evidencing or relating to any of the foregoing; (v) all
monies, securities, and other property now or hereafter held, or received by,
or in transit to, Lender from or for Borrowers, or either of them, and all of
each Borrower's deposit accounts containing proceeds of any of the foregoing,
and all credits, and balances with Lender existing at any time; and (vi) all
Proceeds and products of all of the foregoing in any form, including, without
limitation, amounts payable under any policies of insurance insuring the
foregoing against loss or damage, and all increases and profits received from
all of the foregoing (all of the foregoing, together with all other property
in which Lender may at any time be granted a Lien, being herein collectively
referred to as the "Collateral").  The Lender shall have all of the rights of
a secured party with respect to the Collateral under the UCC and other
applicable laws.

            (b)   All Obligations shall constitute a single loan secured by
the Collateral.  The Lender may, in its sole discretion, (i) exchange, waive,
or release any of the Collateral, (ii) after the occurrence of an Event of
Default that is continuing, apply Collateral and direct the order or manner of
sale thereof as the Lender may determine, and (iii) after the occurrence of an
Event of Default that is continuing, settle, compromise, collect, or otherwise
liquidate any Collateral in any manner, all without affecting the Obligations
or the Lender's right to take any other action with respect to any other
Collateral.

            6.2   Perfection and Protection of Security Interest.  Each
Borrower shall, or shall cause the other Borrower to, at its expense, perform
all steps requested by the Lender at any time to perfect, maintain, protect,
and enforce the Security Interest in the Collateral including, without
limitation: (a) executing and recording of the Patent and Trademark
Assignments and executing and filing financing or continuation statements, and
amendments thereof, relating to the Collateral in form and substance
satisfactory to the Lender; (b) delivering to the Lender, upon Lender's
request therefor, the originals of all instruments, documents, and chattel
paper, and all other Collateral of which the Lender determines it should have
physical possession in order to perfect and protect the Security Interest
therein, duly endorsed or assigned to the Lender without restriction; (c)
delivering to the Lender warehouse receipts covering any portion of the
Collateral located in warehouses and for which warehouse receipts are issued;
(d) after an Event of Default that is continuing, placing notations on each
such Borrower's books of account to disclose the Security Interest; (e)
delivering to the Lender, upon Lender's request therefor, all letters of
credit on which such Borrower is a named beneficiary; (f) after an Event of
Default transferring Inventory to warehouses designated by the Lender; and (g)
taking such other steps as are deemed necessary by the Lender to maintain the
Security Interest.  The Lender may file, without either Borrower's signature,
one or more financing statements disclosing the Security Interest.  Each
Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.  If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of either Borrower's agents or
processors, then such Borrower shall notify the Lender thereof and shall
notify such Person of the Security Interest in such Collateral and, upon the
Lender's request following an Event of Default that is continuing, instruct
such Person to hold all such Collateral for the Lender's account subject to
the Lender's instructions.  If at any time any Collateral is located on any
premises that are not owned by the Borrowers, then the Borrowers shall obtain
written waivers, in form and substance reasonably satisfactory to the Lender,
of all present and future Liens to which the owner or lessor of such premises
may be entitled to assert against the Collateral.  From time to time, the
Borrowers shall, upon Lender's request, execute and deliver confirmatory
written instruments pledging to the Lender the Collateral, but either
Borrower's failure to do so shall not affect or limit the Security Interest. 
So long as this Agreement is in effect and until all Obligations have been
fully satisfied, the Security Interest shall continue in full force and effect
in all Collateral (whether or not deemed eligible for the purpose of
calculating the Availability or as the basis for any advance, loan, or other
financial accommodation).  Upon termination of this Agreement and payment of
all Obligations, the Lender shall release all Security Interests held by the
Lender.

            6.3   Location of Collateral.  Each Borrower represents and
warrants to the Lender that: (a) Exhibit D hereto is a correct and complete
List of such Borrower's chief executive office, the location of its books and
records, the locations of the Collateral, and the locations of all of its
other places of business; and (b) Exhibit H correctly identifies any of such
facilities and locations that are not owned by such Borrower and sets forth
the names of the owners and lessors of, and, to the best of such Borrower's
knowledge, the holders of any mortgages on such facilities and locations. 
Except for Inventory that is consigned by a Borrower to a customer or
warehouse, each Borrower agrees that it will not maintain any Collateral at
any location other than those listed on Exhibit D, and it will not otherwise
change or add to any of such locations, unless it gives the Lender at least
thirty (30) days prior written notice and executes such financing statements
and other documents that the Lender requests in connection therewith.

            6.4   Title to, Liens on, and Sale and Use of Collateral.  Each
Borrower represents and warrants to the Lender that: (a) all Collateral is and
will continue to be owned by such Borrower free and clear of all Liens
whatsoever, except for the Security Interest and other Permitted Liens; (b)
the Security Interest will not be subject to any prior Lien except the Per-
mitted Liens; (c) such Borrower will use, store, and maintain the Collateral
with all reasonable care and will use the Collateral for lawful purposes only;
and (d) such Borrower will not, without the Lender's prior written approval,
sell, or dispose of or permit the sale or disposition of any Collateral,
except for (i) sales of Inventory in the ordinary course of business, and (ii)
as otherwise provided or allowed by this Agreement or any of the other Loan
Documents.  The inclusion of Proceeds in the Collateral shall not be deemed
the Lender's consent to any sale or other disposition of the Collateral except
as expressly permitted herein.

            6.5   Appraisals.  Following the occurrence of an Event of Default
that is continuing, each Borrower shall, at the request of the Lender, provide
the Lender, at each such Borrower's expense, with appraisals or updates
thereof of any or all of the Collateral from an appraiser satisfactory to the
Lender.

            6.6   Access and Examination.  The Lender may at all reasonable
times have access to, examine, audit, make extracts from and inspect each
Borrower's records, files, and books of account and the Collateral and may
discuss each Borrower's affairs with each such Borrower's officers and
management.  Each Borrower will deliver to the Lender any instrument necessary
for the Lender to obtain records from any service bureau maintaining records
for such Borrower.  The Lender may, at any time when an Event of Default
exists and at the Borrowers' expense, make copies of all of the Borrowers'
books and records, or require each Borrower to deliver such copies to the
Lender.  After the occurrence of an Event of Default that is continuing, the
Lender may, without expense to the Lender, use such of each Borrower's
personnel, supplies, and premises as may be reasonably necessary for
maintaining or enforcing the Security Interest.  Lender shall have the right,
at any time, in Lender's name or in the name of a nominee of the Lender, to
verify the validity, amount or any other matter relating to the Accounts, by
mail, telephone, or otherwise.

            6.7   Insurance.  The Borrowers shall insure the Collateral and
its Equipment against loss or damage by fire with extended coverage, theft,
burglary, pilferage, loss in transit, and such other hazards as the Lender
shall specify, in amounts, under policies and by insurers acceptable to the
Lender.  The Borrowers shall also maintain flood insurance, in the event of a
designation of the area in which any Real Property is located as "flood prone"
or a "flood risk area," as defined by the Flood Disaster Protection Act of
1973, in an amount to be reasonably determined by Lender, and shall comply
with the additional requirements of the National Flood Insurance Program as
set forth therein.  The Borrowers shall cause the Lender to be named in each
such policy as secured party of the Inventory that constitutes part of the
Collateral and loss payee or additional insured, in a manner acceptable to the
Lender, as to the Collateral.  Each policy of insurance shall contain a clause
or endorsement requiring the insurer to give not less than thirty (30) days
prior written notice to the Lender in the event of cancellation of the policy
for any reason whatsoever and a clause or endorsement stating that the
interest of the Lender shall not be impaired or invalidated by any act or
neglect of the Borrowers, or either of them, or the owner of any premises
where Collateral is located nor by the use of such premises for purposes more
hazardous than are permitted by such policy.  All premiums for such insurance
shall be paid by the Borrowers when due, and certificates of insurance and, if
requested, photocopies of the policies shall be delivered to the Lender.  If
either Borrower fails to procure such insurance or to pay the premiums
therefor when due, the Lender may (but shall not be required to) do so and
charge the costs thereof to the Borrowers' loan account.  After becoming aware
of any loss, damage or destruction to Collateral, the Borrowers shall promptly
notify the Lender of any such loss, damage, or destruction that exceeds
$200,000, whether or not covered by insurance.  The Lender is hereby
authorized to collect all insurance proceeds directly following the occurrence
of an Event of Default that is continuing.  After deducting from such proceeds
the expenses, if any, incurred by Lender in the collection or handling
thereof, if an Event of Default has occurred and is continuing, the Lender may
apply such proceeds to the reduction of the Obligations, in such order as
Lender determines, or at the Lender's option may permit or require the
Borrowers, or either of them, to use such money, or any part thereof, to
replace, repair, restore or rebuild the Collateral in a diligent and
expeditious manner with materials and workmanship of substantially the same
quality as existed before the loss, damage or destruction.  If no Event of
Default has occurred and is continuing, Lender hereby authorizes the Borrowers
to collect all such insurance proceeds and to use such money, or any part
thereof, to replace, repair, restore or rebuild the Collateral in a diligent
and expeditious manner with materials and workmanship of substantially the
same quality as existed before the loss, damage or destruction.

            6.8   Collateral Reporting.  Each Borrower will provide the Lender
with the following documents at the following times in form satisfactory to
the Lender:  (a) on a daily basis, a schedule of Accounts created since the
last such schedule, a schedule of remittance advices, credit memos and reports
and a schedule of collections of Accounts since the last such schedule; (b) no
later than fifteen (15) days after the last day of each month, monthly summary
and detailed agings of Accounts aged by due date and by invoice date; (c) no
later than twenty (20) days after the last day of each month, monthly
reconciliations of Accounts balances per the aging to the general ledger
accounts receivable balance and to the financial statements provided to Lender
under Section 7.2(c); (d) no later than twenty (20) days after the last day of
each month, monthly Inventory reports by category and by location; (e) no
later than twenty (20) days after the last day of each month, monthly
reconciliations of the detailed Inventory reports to the general ledger and to
the financial statements provided to Lender under Section 7.2(c); (f) upon
request, copies of invoices, credit memos, shipping and delivery documents,
purchase orders; (g) such other reports as to the Collateral as the Lender
shall request from time to time; and (h) certificates of an officer of each
Borrower certifying as to the foregoing.  If any of either Borrower's records
or reports of the Collateral are prepared by an accounting service or other
agent, such Borrower hereby authorizes such service or agent to deliver such
records, reports, and related documents to the Lender.

            6.9   Accounts.  (a) Each Borrower hereby represents and warrants
to the Lender that: (i) each existing Account represents, and each future
Account will represent, a bona fide sale or lease and delivery of goods by
such Borrower, or rendition of services by such Borrower, in the ordinary
course of such Borrower's business; (ii) each existing Account is, and each
future Account will be, for a liquidated amount payable by the Account Debtor
thereon on the terms set forth in the invoice therefor or in the schedule
thereof delivered to the Lender, without offset, deduction, defense, or
counterclaim (other than claims relating to warranty issues); (iii) no payment
will be received with respect to any Account, and no credit, discount, or
extension, or agreement therefor will be granted to any Account, except as
reported to or otherwise agreed to by the Lender in accordance with this
Agreement; (iv) each copy of an invoice requested by and delivered to the
Lender by such Borrower will be a genuine copy of the original invoice sent to
the Account Debtor named therein; and (v) all goods described in each invoice
will have been delivered to the Account Debtor and all services of such
Borrower described in each invoice will have been performed, except where the
Account Debtor has previously agreed in writing to accept billings for such
goods.

            (b)   Neither Borrower shall re-date any invoice or sale or make
sales on extended dating beyond that customary in such Borrower's business or
extend or modify any Account which alters its eligibility status, or, with
respect to ineligible Accounts, which are inconsistent with prudent business
practice and industry standards.  If either Borrower becomes aware of any
matter adversely affecting any Account in an amount in excess of $100,000,
including information regarding the Account Debtor's creditworthiness, such
Borrower will promptly so advise the Lender.

            (c)   Neither Borrower shall accept any note or other instrument
(except a check or other instrument for the immediate payment of money) with
respect to any Eligible Account without the Lender's written consent.  If the
Lender consents to the acceptance of any such instrument, it shall be
considered as evidence of the Account and not payment thereof and either such
Borrower will, upon Lender's request, promptly deliver such instrument to the
Lender appropriately endorsed.  Regardless of the form of presentment, demand,
notice of dishonor, protest, and notice of protest with respect thereto,
either such Borrower will remain liable thereon until such instrument is paid
in full.

            (d)   Each Borrower shall notify the Lender promptly of all
disputes and claims with an Account Debtor relating to an Eligible Account
that exceeds $100,000 and when no Event of Default exists hereunder, may
settle or adjust them at no expense to the Lender, but no discount, credit or
allowance in excess of $100,000 shall be granted to any Account Debtor without
the Lender's consent, except for discounts, credits and allowances made or
given in the ordinary course of such Borrower's business.  Each Borrower shall
send the Lender a copy of each credit memorandum in excess of $100,000 as soon
as issued.  The Lender may, at all times when an Event of Default exists
hereunder, settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which the Lender considers advisable and, in all
cases, the Lender will credit the Borrowers' loan account with only the net
amounts received by the Lender in payment of any Accounts.

            6.10  Collection of Accounts.  (a) Until the occurrence of an
Event of Default that is continuing, each Borrower shall collect all Accounts,
shall receive all payments relating to Accounts, and shall  promptly deposit
all such collections into a Payment Account established for the account of
such Borrower at a bank acceptable to such Borrower and the Lender.  All
collections relating to Accounts received in any such Payment Account or
directly by either Borrower or the Lender, and all funds in any Payment
Account or other account to which such collections are deposited, shall be the
sole property of the Lender and subject to the Lender's sole control.  After
the occurrence of an Event of Default that is continuing, the Lender may, at
any time, notify obligors that the Accounts have been assigned to the Lender
and of the Security Interest therein, and may collect them directly and charge
the collection costs and expenses to the Borrowers' loan account.  After the
occurrence of an Event of Default that is continuing, each Borrower, at
Lender's request, shall execute and deliver to the Lender such documents as
the Lender shall require to grant the Lender access to any post office box in
which collections of Accounts are received.

            (a)   If sales of Inventory are made for cash, each Borrower shall
immediately deliver to the Lender the identical checks, cash, or other forms
of payment which such Borrower receives.

            (b)   All payments received by the Lender on account of Accounts
or as Proceeds of other Collateral will be the Lender's sole property and will
be credited to the Borrowers' loan account (conditional upon final collection)
after allowing one (1) Business Day for collection.

            (c)   In the event the Borrowers repay all of the Obligations upon
the termination of this Agreement, other than through the Lender's receipt of
payments on account of Accounts or Proceeds of other Collateral, such payment
will be credited (conditional upon final collection) to the Borrowers' loan
account one (1) Business Day after the Lender's receipt thereof.

            6.11  Inventory.  Each Borrower represents and warrants to the
Lender that all of the Inventory is and will be held for sale or lease, or to
be furnished in connection with the rendition of services, in the ordinary
course of each such Borrower's business, and is and will be fit for such
purposes.  Each Borrower will keep the Inventory in good and marketable
condition, at its own expense.  Each Borrower agrees that all Inventory
produced by such Borrower in the United States will be produced in accordance
with the Federal Fair Labor Standards Act of 1938.  Each Borrower will conduct
a physical count of the Inventory at least once per Fiscal Year, except as
otherwise agreed to between the Lender and such Borrower, and will, upon
request of the Lender, supply the Lender with a copy of such count accompanied
by a report of the value of such Inventory (valued at the lower or cost, on a
first-in, first-out basis, or market value).  Neither Borrower will, without
the Lender's written consent, sell any Inventory on a bill and hold basis
(except as provided in subsection (xiii) of the definition of Eligible
Accounts set forth in this Agreement), guaranteed sale, sale and return, sale
on approval, consignment, or other repurchase or return basis.

            6.12  Documents and Instruments.  Each Borrower represents and
warrants to the Lender that:  (a) all Documents and Instruments describing,
evidencing, or constituting Collateral, and all signatures and endorsements
thereon, are and will be complete, valid, and genuine and (b) all goods
evidenced by such Documents and Instruments were, at the time of their sale,
owned by such Borrower free and clear of all Liens other than Permitted Liens.

            6.13  Right to Cure.  The Lender may in its sole discretion pay
any amount or do any act required of the Borrowers, or either of them,
hereunder in order to preserve, protect, maintain or enforce the Obligations,
the Collateral or the Security Interest, and which the Borrowers, or either of
them, fail to pay or do, including, without limitation, payment of any
judgment against the Borrowers, or either of them, any insurance premium, any
warehouse charge, processing charge, any landlord's claim, and any other Lien
upon the Collateral.  All payments that the Lender makes under this Section
6.13 and all out-of-pocket costs and expenses that the Lender pays or incurs
in connection with any action, taken by it hereunder shall be charged to the
Borrowers, loan account; provided that Lender will make a good faith effort to
notify the Borrowers and provide the Borrowers with a written, itemized
invoice covering such charge.  Any payment made or other action taken by the
Lender under this Section 6.13 shall be without prejudice to any right Lender
may have to assert an Event of Default hereunder and to proceed accordingly.

            6.14  Power of Attorney.  Each Borrower appoints the Lender and
the Lender's designees as such Borrower's attorney, with power: (a) to endorse
such Borrower's name on any checks, notes, acceptances, money orders, or other
forms of payment or security that come into the Lender's possession; (b) to
sign such Borrower's name on any invoice, bill of lading, or other document of
title relating to any Collateral, on drafts against customers, on assignments
of Accounts, on notices of assignment, financing statements and other public
records and on verifications of Accounts to Account Debtors; (c) to notify the
post office authorities, when an Event of Default exists, to change the
address for delivery of such Borrower's mail to an address designated by the
Lender and to receive, open and dispose of all mail addressed to such
Borrower; (d) to send requests for verification of Accounts to Account
Debtors; and (e) to do all things necessary to carry out this Agreement.  Each
Borrower ratifies and approves all acts of such attorney.  Neither the Lender
nor the attorney will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law.  This power, being coupled with an
interest, is irrevocable until this Agreement has been terminated and the
Obligations have been fully satisfied.

            6.15  Lender's Rights, Duties, and Liabilities.  The Borrowers
jointly and severally assume all responsibility and liability arising from or
relating to the use, sale or other disposition of the Collateral.  Neither the
Lender nor any of its officers, directors, employees, and agents shall be
liable or responsible in any way for the safekeeping of any of the Collateral,
or for any act or failure to act with respect to the Collateral, or for any
loss or damage thereto, or for any diminution in the value thereof, or for any
act of default by any warehouseman, carrier, forwarding agency or, other
person whomsoever, all of which shall be at the Borrowers' sole risk.  The
Obligations shall not be affected by any failure of the Lender to take any
steps to perfect the Security Interest or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release the
Borrowers, or either of them, from any of the Obligations.  After the
occurrence of an Event of Default that has not been cured or otherwise waived
by Lender, the Lender may (but shall not be required to), without notice to or
consent from the Borrowers, or either of them, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of, compromise or
settle for cash or credit, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take other action with respect
to the Collateral, any security therefor, any agreement relating  thereto, any
insurance applicable thereto, or any Person liable directly or indirectly in
connection with any of the foregoing, without discharging or otherwise
affecting the liability of the Borrowers, or either of them, for the
Obligations.

            6.16  Release of Collateral and the Borrowers.

            (a)   If either Borrower sells or otherwise finances an Account
that does not qualify as an Eligible Account, and the proceeds from the sale
or financing of such Account is received or is to be received by either such
Borrower, then the Lender's Security Interest in such Account shall be
automatically terminated and the Lender shall immediately release its Security
Interest in and to such Account.

            (b)   If LSB Chemical Corp. (or successor parent corporation of
EDC) sells EDC, or EDC sells Slurry, or either Borrower sells all or
substantially all of its assets, then such Borrower shall be allowed to
prepay, without penalty or prepayment premium, all of the outstanding
Revolving Loans applicable to such Borrower, plus the accrued interest
relating to such Revolving Loans, and upon payment of such Revolving Loans,
the Lender shall release and terminate its Security Interest as to the
Collateral of such Borrower and release such Borrower from any further
liability and responsibility under the Loan Documents.

            (c)   Upon payment in full of all Obligations, Lender shall
immediately release its Security Interest in and to all of the Collateral.

      7.    BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.

            7.1   Books and Records.  Each Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with
GAAP.  Each Borrower shall, by means of appropriate entries, reflect in such
accounts and in all Financial Statements proper liabilities and reserves for
all taxes and proper provision for depreciation and amortization of Property
and bad debts, all in accordance with GAAP.  Each Borrower shall maintain at
all times books and records pertaining to the Collateral in such detail, form,
and scope as the Lender shall reasonably require, including without limitation
records of:  (a) all payments received and all credits and extensions granted
with respect to the Accounts; (b) the return, repossession, stoppage in
transit, loss, damage, or destruction of any Inventory; and (c) all other
dealings affecting the Collateral.

            7.2   Financial Information.  Each Borrower shall promptly furnish
to the Lender all such financial information as the Lender shall reasonably
request, and notify its auditors and accountants that the Lender is authorized
to obtain such information directly from them.  Without limiting the
foregoing, the Borrowers, or LSB, will furnish to the Lender, in such detail
as the Lender shall request, the following:

            (a)   As soon as available, but in any event not later than ninety
(90) days after the close of each Fiscal Year, audited consolidated and
unaudited consolidating balance sheet, statement of income and expense,
retained earnings, and statement of cash flows and stockholders' equity for
the LSB Consolidated Group and for Borrowers for such Fiscal Year, and the
accompanying notes thereto, setting forth in each case in comparative form
figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the LSB
Consolidated Group as at the date thereof and for the Fiscal Year then ended,
and prepared in accordance with GAAP.  The audited statements shall be
examined in accordance with generally accepted auditing standards by, and
accompanied by a report thereon unqualified as to scope of, independent
certified public accountants selected by LSB and reasonably satisfactory to
the Lender.  

            (b)   As soon as available, but in any event not later than forty-
five (45) days after the close of each Fiscal Quarter other than the fourth
quarter of a Fiscal Year, unaudited consolidated and consolidating balance
sheets of the LSB Borrowing Group as at the end of such quarter, and
consolidated and consolidating unaudited statements of income and expense and
consolidated statements of cash flows for the LSB Borrowing Group for such
quarter and for the period from the beginning of the Fiscal Year to the end of
such quarter, together with a report of Capital Expenditures for such Fiscal
Quarter, all in reasonable detail, fairly presenting the financial position
and results of operation of the LSB Borrowing Group as at the date thereof and
for such periods, prepared in accordance with GAAP consistent with the audited
Financial Statements required pursuant to Section 7.2(a).  Such statements
shall be certified to be correct by the chief financial officer or an
executive officer of LSB, subject to normal year-end adjustments.

            (c)   As soon as available, but in any event not later than thirty
(30) days after the end of each month, unaudited consolidated balance sheets
of the LSB Borrowing Group as at the end of such month, and consolidated and
consolidating unaudited statements of income and expenses for the LSB
Borrowing Group for such month and for the period from the beginning of the
Fiscal Year to the end of such month, all in reasonable detail (although not
as detailed as the reports required under Sections 7.2(a) and 7.2(b), fairly
presenting the financial position and results of operation of the LSB
Borrowing Group as at the date thereof and for such periods, and prepared in
accordance with GAAP consistent with the audited Financial Statements required
pursuant to Section 7.2(a).  Such statements shall be certified to be correct
by the chief financial officer, treasurer or chief accounting officer of LSB,
subject to normal year end adjustments.

            (d)   With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a certificate of the independent certified public
accountants that examined such statements to the effect that they have
reviewed and are familiar with the Loan Documents and that, in examining such
Financial Statements, they did not become aware of any fact or condition which
then constituted an Event of Default, except for those, if any, described in
reasonable detail in such certificate.

            (e)   With each of the annual audited and quarterly unaudited
Financial Statements delivered pursuant to Sections 7.2(a) and 7.2(b), a
certificate of the chief financial officer, treasurer or chief accounting
officer of each Borrower and LSB (i) setting forth in reasonable detail the
calculations required to establish that the LSB Borrowing Group and, with
respect to Section 9.17, the Borrowers, were in compliance with the covenants
set forth in Sections 9.16, 9.17 and 9.18 hereof as of the end of the Fiscal
Year and most recent Fiscal Quarter covered in such Financial Statements; and,
(ii) stating that, except as explained in reasonable detail in such
certificate, (A) nothing has come to the attention of such officer that would
lead such officer to believe that all of the representations, warranties and
covenants of the Borrowers contained in this Agreement and the other Loan
Documents are not correct and complete as of the date of such certificate and
(B) no Event of Default then exists or existed during the period covered by
such Financial Statements.  If such certificate discloses that a
representation or warranty is not correct or complete, or that a covenant has
not been complied with, or that an Event of Default existed or exists, such
certificate shall set forth what action the Borrowers have taken or proposes
to take with respect thereto.

            (f)   No sooner than ninety (90) days and no less than thirty (30)
days prior to the beginning of each Fiscal Year, projected consolidated and
consolidating balance sheets, statements of income and expense, and statements
of cash flow for each Borrower and Subsidiaries as at the end of and for each
Fiscal Quarter of such Fiscal Year.

            (g)   Promptly upon their becoming available, copies of each proxy
statement, financial statement and report which LSB or either Borrower sends
to its stockholders or files with the Securities and Exchange Commission.

            (h)   Promptly after filing with the PBGC and the IRS a copy of
each annual report or other filing filed with respect to each Plan of either
Borrower or any Related Company.

            (i)   Such additional, reasonable information as the Lender may
from time to time reasonably request regarding the financial and business
affairs of the Borrowers, or either of them, or the Subsidiaries.

            7.3   Notices to Lender.  Each Borrower shall notify the Lender in
writing of the following matters at the following times:

            (a)   Within two Business Days after becoming aware of the
existence of any Event of Default.

            (b)   Within two Business Days after becoming aware that the
holder of any Debt in excess of $1,000,000 has given notice or taken any
action with respect to a claimed default.

            (c)   Within five Business Days after a responsible officer of LSB
or either Borrower becomes aware of any change which LSB or either such
Borrower deems to be a material adverse change in the Borrowers', or either of
their, Property, business, operations, or condition (financial or otherwise).

            (d)   Within five Business Days after a responsible officer of LSB
or either Borrower becomes aware of any pending or threatened action,
proceeding, or counterclaim by any Person, or any pending or threatened
investigation by a Public Authority, which, in the opinion of such officer,
would materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrowers',
or either of their, Property, business, operations, or condition (financial or
otherwise).

            (e)   Within two Business Days after becoming aware of any pending
or threatened strike, work stoppage, material unfair labor practice claim, or
other material labor dispute affecting the either Borrower.

            (f)   Within five Business Days after a responsible officer of LSB
or either Borrower becomes aware of any violation of any law, statute,
regulation, or ordinance of a Public Authority applicable to the Borrowers, or
either of them, which, in the opinion of such officer, would materially and
adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrowers', or either of
their, Property, business, operations, or condition (financial or otherwise).

            (g)   Within five Business Days after a responsible officer of LSB
or either Borrower becomes aware of any violation or any investigation of a
violation by the Borrowers, or either of them, of Environmental Laws which, in
the opinion of such officer, would materially and adversely affect the
Borrowers', or either of their, Property, Collateral, business, operation or
condition (financial or otherwise).

            (h)   Within five Business Days after a responsible officer of LSB
or either Borrower becomes aware of any Termination Event, accompanied by any
materials required to be filed with the PBGC with respect thereto; immediately
after either Borrower's receipt of any notice concerning the imposition of any
withdrawal liability under Section 4042 of ERISA with respect to a Plan;
immediately upon the establishment of any Pension Plan not existing at the
Closing Date or the commencement of contributions by either Borrower to any
Pension Plan to which such Borrower was not contributing at the Closing Date;
and immediately upon becoming aware of any other event or condition regarding
a Plan or either Borrower's or a Related Company's compliance with ERISA,
which, in the opinion of such officer, would materially and adversely affect
the Borrowers', or either of their, Property, business, operation or condition
(financial or otherwise).

            (i)   Thirty (30) days prior to either Borrower changing its name.

Each notice given under this Section 7.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrowers
have taken or proposes to take with respect thereto.

      8.    GENERAL WARRANTIES AND REPRESENTATIONS.

            Each Borrower continuously warrants and represents to the Lender,
at all times during the term of this Agreement and until all Obligations have
been satisfied, that, except as hereafter disclosed to and accepted by the
Lender in writing in the exercise of its reasonable discretion:

            8.1   Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents.  Each Borrower has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest.  Each
Borrower has taken all necessary corporate action to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents.  No
consent, approval, or authorization of, or filing with, any Public Authority,
and no consent of, any other Person, is required in connection with such
Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents, except for (a) those already duly obtained, (b) those
required to perfect the Lender's Security Interest, and (c) the compliance
with any of the conditions precedent set forth in Sections 10.4 and 10.11
hereof.  This Agreement and the other Loan Documents have been duly executed
and delivered by each Borrower and constitute the legal, valid and binding
obligation of each Borrower, enforceable against each Borrower in accordance
with its terms without defense, setoff, or counterclaim.  Neither Borrower's
execution, delivery, and performance of this Agreement and the other Loan
Documents will conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any
Lien upon the Property of either Borrower (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
material mortgage, lease, agreement, or instrument to which either Borrower is
a party or which is binding upon it, (b) any judgment, law, statute, rule or
governmental regulation applicable to either Borrower, or (c) the Certificate
or Articles of Incorporation or By-Laws of either Borrower.

            8.2   Validity and Priority of Security Interest.  The provisions
of this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in the Lender's favor and when all proper filings,
recordings, and other actions necessary to perfect such Liens have been made
or taken such Liens will constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral, except for
Permitted Liens, securing all the Obligations and enforceable against the
Borrowers and all third parties after payment of the obligations due Congress
under the Congress Loan Agreement and Household under the Household Working
Capital Agreement and termination of all of the Agreements for Purchase of
Receivables between the Borrowers and Prime upon payment of the obligations
due Bank IV by Prime under the Prime Loan Agreement.

            8.3   Organization and Qualification.  Each Borrower is duly
incorporated and organized and validly existing in good standing under the
laws of the State of Oklahoma; (ii) is qualified to do business as a foreign
corporation and is in good standing in each state where, because of the nature
of its activities or properties, such qualification is required, except where
the failure to so qualify would not have a material adverse effect on such
Borrower; and (iii) has all requisite corporate power and authority to conduct
its business and to own its Property.

            8.4   Corporate Name; Prior Transactions.  Neither Borrower has,
during the past five years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, except as set forth on
Exhibit E.

            8.5   Subsidiaries and Affiliates.  Exhibit F is a correct and
complete list of the name and relationship to the Borrowers of each and all of
each Borrower's Subsidiaries and other Affiliates, which list may be amended
by Borrower from time to time as LSB adds new or additional Subsidiaries or
Affiliates.  Each Subsidiary is (a) duly incorporated and organized and
validly existing in good standing under the laws of its state of incorporation
set forth on Exhibit F and (b) qualified to do business as a foreign
corporation and in good standing in the states set forth opposite its name on
Exhibit F, which are the only states in which such qualification is necessary
in order for it to own or lease its Property and conduct its business, except
where the failure to so qualify would not have a material adverse effect on
the LSB Borrowing Group taken as a whole.

            8.6   Financial Statements and Projections.

            (a)   LSB has delivered to the Lender the audited consolidated
balance sheet and related statements of income, retained earnings, statements
of cash flows, and changes in stockholders' equity for LSB, as of December 31,
1993 and for the Fiscal Year then ended, accompanied by the report thereon of
LSB's independent certified public accountants.  LSB has also delivered to the
Lender the unaudited consolidated balance sheets and related statements of
income and cash flows for LSB, as at September 30, 1994 and for the nine
months and three months then ended.  Such financial statements are attached
hereto as Exhibit G-1.  All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly each Borrower's
financial position as at the dates thereof and its results of operations for
the periods then ended.

            (b)   The Latest Forecasts, attached hereto as Exhibit G-2,
represent the Borrowers' best estimate of the Borrowers' future financial
performance for the periods set forth therein.  The Latest Forecasts have been
or will be prepared on the basis of certain assumptions, which the Borrowers
believe are fair and reasonable in light of current and reasonably foreseeable
business conditions; provided, however, that although such forecasts represent
the Borrowers' best estimate, the Borrowers makes no representation that they
will achieve such forecasts.

            8.7   Capitalization.  LSB's authorized capital stock consists of
(i) 75,000,000 shares of Common Stock, par value $.10 per share; (ii) 250,000
shares of Preferred Stock, par value $100 per share; and (iii) 5,000,000
shares of Class C Preferred Stock, no par value.  EDC's authorized capital
stock consists of 25,000 shares of Common Stock, par value $1.00 per share. 
Slurry's authorized capital stock consists of 10,000 shares of Common Stock,
par value $1.00 per share.

            8.8   Solvency.  Each Borrower is solvent prior to and after
giving effect to the making of the Revolving Loans, and after taking into
account Intercompany Accounts.  If at any time either Borrower should become
insolvent, LSB shall have a period of up to ten (10) Business Days after LSB
learns of either such Borrower's insolvency within which to recapitalize such
Borrower in order to restore such Borrower to a solvent state.

            8.9   Title to Property.  Except for Permitted Liens, and except
for Property which either Borrower leases, each Borrower has, to its
knowledge, good and marketable title in fee simple to the real property listed
in Exhibit H and good, indefeasible, and merchantable title to all of its
other Property free of all Liens except Permitted Liens.

            8.10  Real Property; Leases.  Exhibit H hereto is a correct and
complete list of all real property owned by each Borrower, and all leases and
subleases of real property by each Borrower as lessee or sublessee where
Collateral is located.  Each of such leases and subleases is valid and
enforceable in accordance with its terms and is in full force and effect and
no material default by any party to any such lease or sublease exists.

            8.11  Proprietary Rights.  Exhibit B hereto is a correct and
complete list of all of the Proprietary Rights owned each Borrower.  None of
the Proprietary Rights is subject to any licensing agreement or similar
arrangement except as set forth on Exhibit B.  To each Borrower's knowledge,
none of the Proprietary Rights infringes on or conflicts with any other
Person's Property.  The Proprietary Rights described on Exhibit B constitute
all of the Property of such type necessary to the current and anticipated
future conduct of each Borrower's business.

            8.12  Trade Names and Terms of Sale.  All trade names or styles
under which either Borrower will sell Inventory or create Accounts, or to
which instruments in Payment of Accounts may be made payable, are listed on
Exhibit I hereto.  The terms of sale on which such sales of Inventory will be
made are set forth on Exhibit I.

            8.13  Litigation.  Except as set forth on Exhibit J or as
described in the reports filed by LSB prior to the Closing Date with the
Securities and Exchange Commission, there is no pending or, to each Borrower's
knowledge, threatened suit, proceeding, or counterclaim by any Person, or
investigation by any Public Authority, or any basis for any of the foregoing,
which would have a material adverse effect on the LSB Borrowing Group, taken
as a whole, or (ii) involve damages or a claim for damages in excess of
$1,000,000 and not fully covered by insurance.

            8.14  Labor Disputes.  Except as set forth on Exhibit K or as
described in reports filed by LSB prior to the Closing Date with the
Securities and Exchange Commission: (a) there is no collective bargaining
agreement or other labor contract covering employees of either Borrower; (b)
no such collective bargaining agreement or other labor contract is scheduled
to expire during the term of this Agreement; (c) no union or other labor
organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of either Borrower; and (d) there is no pending
or, to either Borrower's knowledge, threatened strike, work stoppage, material
unfair labor practice claims, or other material labor dispute which would have
a material adverse effect on the LSB Borrowing Group, taken as a whole.

            8.15  Environmental Laws.  Except as disclosed on Exhibit M
hereto, and as hereafter disclosed by the Borrowers to Lender in writing, and
to each Borrower's knowledge:

            (a)   All environmental permits, certificates, licenses,
approvals, registrations and authorizations ("Permits") required under all
Environmental Laws in connection with the business of the Borrowers have been
obtained, unless the failure to obtain such Permits would not have a material
adverse effect on the LSB Borrowing Group, taken as a whole;

            (b)   No notice, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or threatened by any governmental entity with respect to any
generation, treatment, storage, recycling, transportation or disposal of any
hazardous or toxic waste (including petroleum products and radioactive
materials) generated or used ("Hazardous Substances") by the Borrowers, which
would have a material adverse effect on the LSB Borrowing Group, taken as a
whole; 

            (c)   Neither Borrower has received any request for information
that is likely to lead to a claim, any notice of claim, demand or other
notification that either Borrower is or may be potentially responsible with
respect to any clean up of any threatened or actual release of any Hazardous
Substance; 

            (d)   There are no underground storage tanks, active or abandoned,
at any property now owned, operated or leased by either Borrower.

            (e)   Neither Borrower has knowingly transported any Hazardous
Substances to any location which is listed on the National Priority List under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), which is the subject of any federal or state
enforcement actions which may lead to claims against either Borrower for clean
up costs, remedial work, damages to natural resources  or for personal injury
claims, including, but not limited to, claims under CERCLA which would have a
material adverse effect on the LSB Borrowing Group, taken as a whole.

            (f)   No written notification of a release of Hazardous Substance
has been filed by or on behalf of either Borrower or in relation to any
Property now owned, operated or leased by either Borrower or previously owned,
operated or leased by either Borrower at the time such property was so owned,
operated or leased.  No such Property is listed or proposed for listing on the
National Priority List promulgated pursuant to CERCLA, or on any similar state
list of sites requiring investigation or clean up.

            (g)   There are no environmental Liens on any material properties
owned or leased by either Borrower and no governmental actions have been taken
or are in process or pending which could subject any of such Properties to
such Liens.

            (h)   Each Borrower shall promptly forward a copy to Lender of any
environmental written inspections, investigations or studies prepared by or to
be prepared by such Borrower relating to Properties now owned, operated or
leased by such Borrower; provided, however, that neither Borrower makes any
representation or warranty with respect to environmental inspections,
investigations, studies, audits, tests, reviews or other analyses conducted by
or on behalf of Lender.

            8.16  No Violation of Law.  Except as disclosed in Exhibit J or in
reports filed by LSB prior to the Closing Date with the Securities and
Exchange Commission, to each Borrower's knowledge, neither Borrower is in
violation of any law, statute, regulation, ordinance, judgment, order, or
decree applicable to it which violation would have a material adverse effect
on the LSB Borrowing Group, taken as a whole.

            8.17  No Default.  Neither Borrower is in default with respect to
any note, loan agreement, mortgage, lease, or other agreement to which such
Borrower is a party or bound, where the amount owed by such Borrower under
such note, loan agreement, mortgage, lease, or other agreement exceeds
$750,000.

            8.18  Plans.  Each Plan has been maintained at all times in
compliance, in all material respects, with its provisions and applicable law,
including, without limitation, compliance with the applicable provisions of
ERISA and the Code.  All Pension Plans are listed on Exhibit L, and those, if
any, which are a Multi-employer Plan are designated as such, and a copy of
each such Pension Plan which has been requested in writing by Lender has been
furnished to Lender.  Except as set forth on Exhibit L, no Pension Plan has
incurred any accumulated funding deficiency, as defined in Section 302(a)(2)
of ERISA and Section 412(a) of the Code, whether or not waived, which would
have a material adverse effect on the LSB Borrowing Group, taken as a whole. 
Except as set forth on Exhibit L, each Pension Plan, which is intended to be a
qualified Pension Plan under Section 401(a) of the Code, as currently in
effect has received a favorable determination letter from the Internal Revenue
Service finding that the current form of the Plan is qualified under Section
401(a) of the Code and the trust related thereto is exempt from federal income
tax under Section 501(a) of the Code.  Neither Borrower has incurred any
liability to the PBGC other than the payment of premiums, and there are no
premium payments which have become due, are unpaid, and the non-payment of
which would have a material adverse effect on the LSB Borrowing Group. 
Neither LSB nor any of its Subsidiaries, nor any fiduciary of or trustee to
any Plan has breached any of the responsibilities, obligations or duties
imposed on it under the terms of the Plan or by ERISA with respect to any Plan
the breach of which would have a material adverse effect on the LSB Borrowing. 
The Borrowers or LSB have established reserves on its books to provide for the
benefits earned and other liabilities accrued under each such Plan in amounts
sufficient to substantially provide for such benefits and liabilities which
have not been funded through the trust, if any, established for such Plan.

            8.19  Taxes.  Each Borrower has filed all tax returns and other
reports which it was required by law to file on or prior to the date hereof
and has paid all taxes, assessments, fees, and other governmental charges, and
penalties and interest, if any, against it or its Property, income, or
franchise, that are due and payable, except such Taxes which are being
contested in good faith and for which appropriate reserves have been
established in connection therewith, or for which an extension as to the date
of filing has been authorized.

            8.20  Use of Proceeds.  None of the transactions contemplated in
this Agreement (including, without limitation, the use of certain proceeds
from such loans) will violate or result in the violation of Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto, including, without limitation, Regulations G, T, U and X of
the Board of Governors of the Federal Reserve System ("Federal Reserve
Board"), 12 C.F.R., Chapter II.  Neither Borrower owns or intends to carry or
purchase any "margin stock" within the meaning of said Regulation G.  None of
the proceeds of the loans will be used, directly or indirectly, to purchase or
carry (or refinance any borrowing, the proceeds of which were used to purchase
or carry) any "security" within the meaning of the Securities Exchange Act of
1934, as amended.

            8.21  Private Offerings.  Neither Borrower has, directly or
indirectly, offered the Revolving Loans for sale to, or solicited offers to
buy part thereof from, or otherwise approached or negotiated with respect
thereto with, any prospective purchaser other than Lender.  Each Borrower
hereby agrees that neither it nor anyone acting on its behalf has offered or
will offer the Revolving Loan or any part thereof or any similar securities
for issue or sale to or solicit any offer to acquire any of the same from
anyone so as to bring the issuance thereof within the provisions of Section 5
of the Securities Act of 1933, as amended.

            8.22  Broker's Fees.  Each Borrower represents and warrants to
Lender that, with respect to the financing transaction herein contemplated, no
Person is entitled to any brokerage fee or other commission as a result of
acts by either Borrower and each Borrower agrees, jointly and severally, to
indemnify and hold Lender harmless against any and all such claims if such
claim is due to the acts of the Borrowers, or either of them.

            8.23  No Material Adverse Change.  No material adverse change has
occurred in the Property, business, operations, or conditions (financial or
otherwise) of the LSB Borrowing Group, taken as a whole, since the date of the
Financial Statements delivered to the Lender, except as otherwise disclosed in
that Special Report to LSB Shareholders dated September 15, 1994 and in the
reports filed by LSB with the Securities and Exchange Commission, if any.

            8.24  Debt.  After giving effect to the making of each Revolving
Loan, neither Borrower has Debt except Permitted Debt. 

      9.    AFFIRMATIVE AND NEGATIVE COVENANTS.  Each Borrower covenants that,
so long as any of the Obligations remain outstanding or this Agreement is in
effect:

            9.1   Taxes and Other Obligations.  Each Borrower, no later than
ten days after such payments become due, shall:  (a) file when due (including
extensions) all tax returns and other reports which it is required to file,
pay when due all taxes, fees, assessments and other governmental charges
against it or upon its Property, income, and franchises, make all required
withholding and other tax deposits, and establish adequate reserves for the
payment of all such items, and shall provide to the Lender, upon request,
satisfactory evidence of its timely compliance with the foregoing; and (b) pay
all Debt owed by it within normal business terms and consistent with past
practices; provided, however, that neither Borrower need pay any tax, fee,
assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.

            9.2   Corporate Existence and Good Standing.  Each Borrower shall
maintain its corporate existence and its qualification and good standing in
all states necessary to conduct its business and own its Property, except
where the failure to so qualify would not have a material adverse effect on
such Borrower, and shall obtain and maintain all licenses, permits, franchises
and governmental authorizations necessary to conduct its business and own its
Property.

            9.3   Maintenance of Property and Insurance.  Each Borrower shall: 
(a) maintain all of its Property necessary and material in its business in
good operating condition and repair, ordinary wear and tear excepted,
provided, however, that each Borrower shall have a period of ten (10) days
after learning that repair is necessary within which to repair any Property
which has not been so maintained before an Event of Default shall be deemed to
have occurred; and (b) in addition to the insurance required by Section 6.7,
maintain with financially sound and reputable insurers such other insurance
with respect to its Property and business against casualties and contingencies
of such types (including, without limitation, business interruption, public
liability, product liability, and larceny, embezzlement or other criminal
misappropriation), and in such amounts as is customary for Persons of
established reputation engaged in the same or a similar business and similarly
situated, naming the Lender, at its request, as additional insured under each
such policy as to the Collateral.

            9.4   Environmental Laws.  Except as disclosed to Lender in
writing prior to the Closing Date in connection with Section 8.15, each
Borrower will use all reasonable efforts to conduct its business in
substantial compliance with all Environmental Laws applicable to it,
including, without limitation, those relating to such Borrower's generation,
handling, use, storage, and disposal of hazardous and toxic wastes and
substances.  Each Borrower shall take prompt and appropriate action to respond
to any noncompliance with Environmental Laws and shall regularly report to the
Lender on such response.  Without limiting the generality of the foregoing,
whenever there is potential noncompliance with any Environmental Laws, each
Borrower shall, at the Lender's request and the Borrowers' expense:  (a) cause
an independent environmental engineer acceptable to the Lender to conduct such
tests of the site where either Borrower's noncompliance or alleged
noncompliance with Environmental Laws has occurred and prepare and deliver to
the Lender a report setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an
estimate of the costs thereof; and (b) provide to the Lender a Supplemental
report of such engineer whenever the scope of the environmental problems, or
either Borrower's response thereto or the estimated costs thereof, shall
materially change.

            9.5   Mergers, Consolidations, Acquisitions, or Sales.  Neither
Borrower shall enter into any transaction of merger, reorganization, or
consolidation in which the Borrower is not the survivor, or transfer, sell,
assign, lease, or otherwise dispose of all or substantially all of its
Property, or wind up, liquidate or dissolve, or agree to do any of the
foregoing, except (i)  sales of Inventory in the ordinary course of its
business, or (ii) after thirty (30) days prior written notice to Lender,
mergers or consolidations of such Borrower into any of the Borrower
Subsidiaries or a merger of a Borrower Subsidiary or Guarantor Subsidiary into
such Borrower or the sale of all or substantially all of the assets of such
Borrower to any of the Borrower Subsidiaries or the sale of all or
substantially all of the assets of a Borrower Subsidiary or Guarantor
Subsidiary to such Borrower. 

            9.6   Guaranties.  Neither Borrower shall make, issue, or become
liable on any secured Guaranty, except Guaranties in favor of the Lender and
endorsements of instruments for deposit.

            9.7   Debt.  Neither Borrower shall incur or maintain any Debt
other than Permitted Debt. 

            9.8   Prepayment.  Neither Borrower shall voluntarily prepay any
Debt, except the Obligations in accordance with the terms of this Agreement.

            9.9   Transactions with Affiliates.  Except (a) as set forth
below, (b) as set forth in Section 9.14 hereof, or (c) as otherwise provided
in this Agreement, neither Borrower shall sell, transfer, distribute, or pay
any money or Property to any Affiliate, or lend or advance money or Property
to any Affiliate, or invest in (by capital contribution or otherwise) or
purchase or repurchase any stock or indebtedness, or any Property, of any
Affiliate, or become liable on any secured Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate, except nothing contained
herein shall limit or restrict either Borrower from (i) performing any
agreements entered into with an Affiliate prior to the date hereof, or (ii)
engaging in other transactions with Affiliates in the normal course of
business, in amounts and upon terms disclosed to the Lender, and which are no
less favorable to such Borrower than would be obtainable in a comparable arm's
length transaction with a third party who is not an Affiliate.  Subject to
applicable law, each Borrower and other members of the LSB Borrowing Group may
borrow any amounts from each other and repay such amounts on terms agreed to
between them without any limitations.

            9.10  Plans and Compensation.  Neither Borrower shall take any
action, or shall fail to take any action, that will cause or be reasonably
expected to cause any representation or warranty contained in Section 8.18
(other than the listing of Pension Plans on Exhibit L), if made on and again
as of any date on or after the date of this Agreement, to not be true and,
without limitation and without excusing such violation, if such a prohibited
action or inaction occurs or fails to occur, such Borrower shall notify Lender
in writing of the nature of the resulting consequences or expected
consequences, and a description of the action such Borrower or any Subsidiary
is taking or proposing to take with respect thereto and, when  known, any
action taken by the Internal Revenue Service of the Department of Labor, or
the PBGC, with respect thereto.

            9.11  Business Conducted.  Neither Borrower shall engage, directly
or indirectly, in any line of business which materially differs from the
business in which such Borrower is engaged on the Closing Date, except with
respect to a different line of business resulting from an Acquisition as
permitted under Section 9.14.

            9.12  Liens.  Neither Borrower nor any of such Borrower's
Subsidiaries shall create, incur, assume, or permit to exist any Lien on any
Property now owned or hereafter acquired by any of them, except Permitted
Liens.

            9.13  New Subsidiaries.  Neither Borrower shall, directly or
indirectly, organize or acquire any new subsidiary which would have any
interest in the Collateral.

            9.14  Distributions and Restricted Investments.  Neither Borrower
shall (a) directly or indirectly declare or make, or incur any liability to
make, any Distribution, or (b) make any Restricted Investments, except:  (i)
each Borrower may make and receive Distributions and Restricted Investments by
the other members of the LSB Borrowing Group; (ii) so long as no Event of
Default has occurred and is continuing, currently scheduled Dividends by LSB
and performance of all of the terms, provisions and conditions by LSB,
relating to or in connection with or arising out of any and all series of
LSB's preferred stock issued and outstanding as of the date hereof and the
payments by LSB of an annual cash dividend on its Common Stock in an amount
equal to $.06 a share payable on a semi-annual basis; (iii) each Borrower may
make Restricted Investments to any Subsidiary of LSB other than the members of
the LSB Borrowing Group, provided, however, that the sum of all such
Restricted Investments from each such Borrower and all other members of the
LSB Borrowing Group shall not exceed $200,000 in the aggregate per annum; (iv)
each Borrower may make Restricted Investments in Affiliates outstanding as of
the date hereof; and (v) each Borrower may make other Restricted Investments
constituting Acquisitions not otherwise permitted above in this Section as
long as such Restricted Investments when aggregated with all other Restricted
Investments for the same Acquisition from all members of the LSB Borrowing
Group do not exceed $2,000,000 in cash investments and issued and/or assumed
interest-bearing debt per Acquisition and $10,000,000 in cash investments and
issued and/or assumed interest-bearing debt in the aggregate for all such
Acquisitions per annum; provided, however, that interest-bearing debt of the
acquired company which Lender in its sole and absolute discretion agrees to
refinance as a working capital facility shall not be included in the
$2,000,000 and the $10,000,000 limitations; and further provided that nothing
in this subsection (v) shall be construed to imply Lender's willingness in
advance to provide any such refinancing. 

            9.15  Capital Expenditures.  Neither Borrower shall make or incur
any Capital Expenditure if, after giving effect thereto, the aggregate amount
of all Capital Expenditures by the LSB Borrowing Group during the following
periods would exceed the following amounts:  Fiscal Year ending December 31,
1994:  $20,000,000; Fiscal Year ending December 31, 1995 and each Fiscal Year
thereafter:  $6,000,000; provided, however, that if the aggregate amount of
Capital Expenditures made or incurred by the LSB Borrowing Group during the
Fiscal Year ending December 31, 1994 (the "1994 Actual Capital Expenditures")
is less than $20,000,000, then the $6,000,000 amount available during the
Fiscal Year ending December 31, 1995 shall be increased by the difference
between $20,000,000 and the 1994 Actual Capital Expenditures.

            9.16  Adjusted Tangible Net Worth.  Adjusted Tangible Net Worth
(without taking into account any purchases of treasury stock) will not be less
than the following amounts at the end of each of the Fiscal Quarters during
the following Fiscal Years:

Fiscal Quarters in the
Following Fiscal Years  1st Quarter   2nd Quarter   3rd Quarter    4th Quarter

Fiscal Year Ending
December 31, 1994                                                  $ 86,000,000

Fiscal Year Ending
December 31, 1995     $ 85,000,0001  $ 88,000,0001  $ 90,000,0001  $ 92,000,0001

Fiscal Year Ending
December 31, 1996     $ 92,000,0001  $ 94,000,0001  $ 96,000,0001  $ 98,000,0001

Each Fiscal Quarter during each Fiscal Year ending thereafter:     $ 98,000,0001


1 (footnote) - This number is to be reduced by the amount of any purchase of 
  treasury stock by LSB pursuant to Section 9.14 of the Loan and Security 
  Agreement between LSB and the Lender and by the purchase of treasury stock 
  in the amount of $885,000 in October and November, 1994.



            9.17  Debt Ratio.  The ratio of Debt of the LSB Borrowing Group
(excluding all loans to any Borrower Subsidiary from the Lender) to Adjusted
Tangible Net Worth will not be greater than the ratio of 0.85 to 01.0.

            9.18  Compliance with Financial Covenants in Household Agreement. 
Borrowers will remain at all times in full compliance with the financial
covenants currently set forth in Sections 10.6, 10.7, 11.1, 11.2 and 11.4 of
the HCFS Loan Agreement as they exist as of the Closing Date and
notwithstanding any modifications or amendments hereafter agreed to by
Borrowers and Household Commercial Financial Services, Inc.

            9.19  Further Assurances.  Each Borrower shall execute and
deliver, or cause to be executed and delivered, to the Lender such documents
and agreements, and shall take or cause to be taken such actions, as the
Lender may, from time to time, reasonably request to carry out the terms and
conditions of this Agreement and the other Loan Documents.

      10.   CLOSING; CONDITIONS TO CLOSING.  The Lender will not be obligated
to make any Loans or issue any Letters of Credit at the Closing unless the
following conditions precedent have been satisfied as reasonably determined by
the Lender:

            10.1  Representations and Warranties; Covenants; Events.  Each
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents shall be correct and complete as of the Closing Date;
each Borrower shall have performed and complied with all covenants,
agreements, and conditions contained herein and in the other Loan Documents
which are required to have been performed or complied with on or before the
Closing Date; and there shall exist no Event of Default on the Closing Date.

            10.2  Delivery of Documents.  The Borrowers shall have delivered,
or cause to be delivered, to the Lender the documents listed on Exhibit N
hereto and such other documents, instruments and agreements as the Lender
shall request in connection herewith, duly executed by all parties thereto
other than the Lender, and in form and substance satisfactory to the Lender
and its counsel.

            10.3  Aggregate LSB Gross Availability.  After taking into account
the Revolving Loans made to and the Letters of Credit issued to or for the
benefit of the Borrower Subsidiaries under the LSB-Related Loan Agreements on
the Closing Date, there shall be remaining Aggregate LSB Gross Availability of
at least ten percent (10%) of the Aggregate LSB Gross Availability calculated
prior to the making of such Revolving Loans and the issuance of such Letters
of Credit.

            10.4  Termination of Liens.  The Lender shall have received such
duly executed UCC-3 Termination Statements and other instruments, in form and
substance satisfactory to the Lender, as shall be necessary to terminate and
satisfy all Liens on the Property of each Borrower and its Subsidiaries except
Permitted Liens, including, but not limited to, (a) payment of the obligations
due (i) Congress Financial Corporation ("Congress") under the Loan Agreement,
dated March 29, 1994, as amended ("Congress Loan Agreement"), and (ii)
Household Commercial Financial Services, Inc. ("Household") under the Second
Amended and Restated Working Capital Loan Agreement, dated as of January 21,
1992, between Household, El Dorado Chemical and Slurry, as amended ("Household
Working Capital Agreement"), which Congress Loan Agreement and Household
Working Capital Agreement will be paid in full upon the closing of the LSB-
Related Loan Agreements using proceeds from Loans made on the Closing Date,
and (b) termination of all of the Agreements for Purchase of Receivables
between each Borrower and Prime Financial Corporation ("Prime"), which
termination will require payment by Prime of the obligations due Bank IV
Oklahoma, N.A. ("Bank IV") under the Loan Agreement, dated March 30, 1994, as
amended, between Prime and Bank IV ("Prime Loan Agreement") at the closing of
the LSB-Related Loan Agreements using proceeds from Loans made on the Closing
Date.

            10.5  Facility Fee.  The Borrowers shall have paid in full the
Facility Fee.

            10.6  Required Approvals.  The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender reasonably determines is required in connection with
the transactions contemplated by this Agreement.

            10.7  No Material Adverse Change.  Except as disclosed in that
Special Report to LSB Shareholders dated September 15, 1994, there shall have
occurred no material adverse change in either Borrower's, LSB's, and the
Subsidiaries' business or financial condition or in the Collateral taken as a
whole, since September 30, 1994, and the Lender shall have received a
certificate of each Borrower's and LSB's chief executive officer to such
effect.

            10.8  Proceedings.  All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents
contemplated in connection herewith, shall be satisfactory in form and
substance to the Lender and its counsel.

            10.9  Legal Opinions.  The Lender shall have received from counsel
to the Borrowers such legal opinions as the Lender may reasonably require with
respect to the Loan Documents.

            10.10 September 30, 1994 Quarterly Financial Statements.  The
Lender shall have received LSB's and the Subsidiaries' consolidated September
30, 1994, unaudited quarterly financial statements.

            10.11 Repurchase of Accounts from Prime.  Each Borrower and each
member of the LSB Borrowing Group shall have repurchased from Prime under
terms and conditions acceptable to Lender all of the outstanding Accounts
previously sold by each Borrower and the other members of the LSB Borrowing
Group which will be owned by members of the LSB Borrowing Group as of the
Closing Date and will serve as Collateral under the LSB-Related Loan
Agreements using proceeds from the Loans made on the Closing Date.  Each
Borrower and the other members of the LSB Borrowing Group shall own such
Accounts free and clear of all liens, claims and encumbrances, and Prime and
each of its secured lenders shall have released all of its security interests
in such Accounts.  The documents evidencing such repurchase shall be in form
and substance satisfactory to Lender and its counsel.

            10.12 Conditions Precedent to Each Loan.  The obligation of the
Lender to make each Revolving Loan or to provide for the issuance of any
Letter of Credit after the Closing and after the initial Revolving Loans on
the Closing Date are made, shall be subject to the further conditions
precedent that on the date of any such extension of credit, the following
statements shall be true, and the acceptance by the Borrowers, or either of
them, of any extension of credit shall be deemed to be a statement to the
effect set forth in clauses (i) and (ii), with the same effect as the delivery
to the Lender of a certificate signed by the chief executive officer and chief
financial officer of each Borrower, dated the date of such extension of
credit, stating that: 

                  (i)   The representations and warranties contained in this
      Agreement and the other Loan Documents are correct in all material
      respects on and as of the date of such extension of credit as though
      made on and as of such date, except to the extent the Lender has been
      notified by the Borrowers that any representation or warranty is no
      longer correct and the reason therefor and the Lender has explicitly
      accepted in writing such disclosure in the exercise of its reasonable
      discretion; and 

                  (ii)  No Event has occurred and is continuing, or would
      result from such extension of credit, which constitutes an Event of
      Default.


      11.   DEFAULT; REMEDIES.

            11.1  Events of Default.  It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:

            (a)   any failure to make payment of principal, interest, fees or
premium on any of the Obligations when due;

            (b)   any representation or warranty made by the Borrowers or any
Guarantor Subsidiaries, or any of them, in this Agreement, any of the other
Loan Documents, any Financial Statement, or any certificate furnished by the
Borrowers, or any of them, or any Subsidiary at any time to the Lender shall
prove to be untrue in any material respect as of the date when made or
furnished;

            (c)   default shall occur in the observance or performance of any
of the covenants and agreements contained in this Agreement, or in any of the
other Loan Documents, or if any such agreement or document shall terminate
(other than in accordance with its terms or the terms hereof or with the
written consent of the Lender) or become void or unenforceable without the
written consent of the Lender other than as a direct result of any conduct
solely on the part of the Lender;

            (d)   any default by either Borrower under any material agreement
or instrument (other than an agreement or instrument evidencing the lending of
money), which default would have a material adverse effect on the LSB
Borrowing Group, taken as a whole, and such default continues for thirty (30)
days after such breach first occurs; provided, however, that such grace period
shall not apply, and an Event of Default shall exist, promptly upon such
breach, if such breach may not, in Lender's reasonable determination, be cured
by either such Borrower during such thirty (30) day grace period;

            (e)   any default by either Borrower in any payment of principal
of or interest on any indebtedness (other than the Obligations) for borrowed
money where the then outstanding amount exceeds $500,000 beyond any period of
grace provided with respect thereto or in the performance of any other
agreement, term or condition contained in any agreement under which any such
obligation is created if (i) the effect of such default is to cause or permit
the holder or holders of such obligation to cause, such obligation to become
due prior to its stated maturity, and (ii) the effect of such default would
have a material adverse effect on the Borrowers, or either of them.  

            (f)   either Borrower shall make a general assignment for benefit
of creditors; or any proceeding shall be instituted by either Borrower seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or seeking entry of an order for relief or
the appointment of a receiver, trustee or other similar official for it or for
any substantial part of its property or either Borrower shall take any
corporate action to authorize any of the actions set forth above in this
Subsection 11.1(f).

            (g)   an involuntary petition shall be filed or an action or
proceeding otherwise commenced against either Borrower seeking reorganization,
arrangement or readjustment of such Borrower's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy
or insolvency act or law, state or federal, now or hereafter existing and
remain undismissed or unvacated for a period of sixty (60) days;

            (h)   a receiver, assignee, liquidator, trustee or similar officer
for either Borrower or any Subsidiary or for all or substantially all of its
Property shall be appointed involuntarily; 

            (i)   either Borrower shall file a certificate of dissolution
under applicable state law or shall be liquidated, dissolved or wound-up or
shall commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof, except if one Borrower merges or consolidates with
another Borrower;

            (j)   any guaranty of the Obligations shall be terminated, revoked
or declared void or invalid other than by an action undertaken by Lender;

            (k)   one or more final judgments for the payment of money
aggregating in excess of $1,000,000 (not covered by insurance) shall be
rendered against any members of the LSB Borrowing Group, and LSB or such other
member of the LSB Borrowing Group shall fail to discharge the same within
thirty (30) days from the date of notice of entry thereof or to appeal
therefrom or reach a negotiated settlement in connection therewith;

            (l)   any loss, theft, damage or destruction of any item or items
of Collateral occurs which:  (i) materially and adversely affects the
operation of either business of the Borrowers, taken as a whole; or (ii) is
material in amount and is not adequately covered by insurance;

            (m)   LSB ceases to control either Borrower (the term control
having the meaning given to it in the definition of Affiliate herein);

            (n)   any event or condition shall occur, or exist with respect to
a Plan that would, in the Lender's reasonable judgment, subject either
Borrower or any Subsidiary to any tax, penalty or other liabilities under the
terms of the Plan, under ERISA or under the Code which in the aggregate are
material in relation to the business, operations, Property or financial or
other condition of the LSB Borrowing Group taken as a whole;

            (o)   there occurs after the date hereof an Ownership Change (as
defined below) in LSB.  For purposes of this Agreement, an "Ownership Change"
in LSB is deemed to have occurred if any Person (except Jack E. Golsen,
members of his Immediate Family [as defined below] and any entity controlled
by Jack E. Golsen or members of his Immediate Family), together with such
Person's affiliates and associates, is or becomes the beneficial owner,
directly or indirectly, of more than fifty percent (50%) of the outstanding
Common Stock of LSB.  The term "Immediate Family" of any Person means the
spouse, siblings, children, mothers and mothers-in-law, fathers and fathers-
in-law, sons and daughters-in-law, daughters and sons-in-law, nieces, nephews,
brothers and sisters-in-law, sisters and brothers -in-law; 

            (p)   an event of default exists under any of the other LSB-
Related Loan Agreements; and

            (q)   an event of default occurs under the HCFS Loan Agreement (as
defined in Section 9.18 of this Agreement).

            11.2  Remedies.

            (a)   If an Event of Default exists, the Lender may, without
notice to or demand on the Borrowers, or either of them, do one or more of the
following at any time or times and in any order: (i) reduce the amount of or
refuse to make Revolving Loans and restrict or refuse to arrange for Letters
of Credit; (ii) terminate this Agreement; (iii) declare any or all Obligations
to be immediately due and payable (provided however that upon the occurrence
of any Event of Default described in Sections 11.1(f), 11.1(g), or 11.1(h),
all Obligations shall automatically become immediately due and payable); and
(iv) pursue its other rights and remedies under the Loan Documents and
applicable law.  The foregoing shall not be construed to limit the Lender's
discretion to take the actions described in clause (i) of this subparagraph
(a) at any other time.

            (b)   If an Event of Default exists: (i) the Lender shall have, in
addition to all other rights, the rights and remedies of a secured party under
the UCC; (ii) the Lender may, at any time, take possession of the Collateral
and keep it on either Borrower's premises, at no cost to the Lender, or remove
any part of it to such other place or places as the Lender may desire, or, the
Borrowers shall, upon the Lender's demand, at the Borrowers' cost, assemble
the Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; and (iii) the Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn
any sale of the Collateral by an announcement at the time and place of sale or
of such postponed or adjourned sale without giving a new notice of sale. 
Without in any way requiring notice to be given in the following manner, each
Borrower agrees that any notice by the Lender of sale, disposition or other
intended action hereunder or in connection herewith, whether required by the
UCC or otherwise, shall constitute reasonable notice to the Borrowers if such
notice is mailed by registered or certified mail, return receipt requested,
postage prepaid, or is delivered personally against receipt, at least five (5)
days prior to such action to each Borrower's address specified in or pursuant
to Section 13.10.  If any Collateral is sold on terms other than payment in
full at the time of sale, no credit shall be given against the Obligations
until the Lender receives payment, and if the buyer defaults in payment, the
Lender may resell the Collateral without further notice to either Borrower. 
In the event the Lender seeks to take possession of all or any portion of the
Collateral by judicial process, each Borrower irrevocably waives: (a) the
posting of any bond, surety or security with respect thereto which might
otherwise be required; (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral; and (c) any requirement that
the Lender retain possession and not dispose of any Collateral until after
trial or final judgment.  Each Borrower agrees that the Lender has no
obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person.  Following the occurrence of an Event of Default
that is continuing, the Lender is hereby granted a license or other right to
use, without charge, each Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks, and advertising matter or any similar
property, in completing production of, advertising or selling any Collateral,
and each Borrower's rights under all licenses and all franchise agreements
shall inure to the Lender's benefit, as long as such does not violate in any
manner such other loan agreements that may be in place at such time.  The
proceeds of sale shall be applied first to all expenses of sale, including
attorneys' fees, and second, in whatever order the Lender elects, to all
Obligations.  The Lender will return any excess to the Borrowers and the
Borrowers shall remain liable for any deficiency. 

            (c)   If an Event of Default occurs and is continuing, each
Borrower hereby waives: (i) all rights to notice and hearing prior to the
exercise by the Lender of the Lender's rights to repossess the Collateral
without judicial process or to replevy, attach or levy upon the Collateral
without notice or hearing, and (ii) all rights of set-off and counterclaim
against Lender.

            (d)   If the Lender terminates this Agreement upon an Event of
Default that has not been cured or otherwise waived to Lender's satisfaction,
the Borrowers, jointly and severally, agree to pay the Lender, immediately
upon termination, an early termination penalty equal to the early termination
fee that would have been payable under Article 12 if this Agreement had been
terminated on that date pursuant to the Borrowers' election.

      12.   TERM AND TERMINATION.  The initial term of this Agreement shall be
three (3) years from the Closing Date (the "Termination Date").  This
Agreement shall automatically be renewed thereafter for successive thirteen
(13) month terms, unless this Agreement is terminated as provided below.  The
Lender and the Borrowers shall each have the right to terminate this
Agreement, without premium or penalty, at the end of the initial term or at
the end of any renewal term by giving the other written notice not less than
sixty (60) days prior to the end of such term by registered or certified mail. 
Each Borrower may also terminate this Agreement at any time during its initial
term or any renewal periods if:  (a) it gives the Lender sixty (60) days prior
written notice of termination by registered or certified mail; (b) it pays and
performs all Obligations on or prior to the effective date of termination; and
(c) except as otherwise provided herein, it pays the Lender, on or prior to
the effective date of termination, (i) two percent (2%) of the average daily
balance of the Loans and Letters of Credit outstanding under the Revolver
Facility for the preceding one hundred eighty day (180) day period (or from
the Closing Date up to and including the date of termination if less than one
hundred eighty (180) days from the Closing Date) if such termination is made
on or prior to the first anniversary of the Closing Date; and (ii) one percent
(1%) of the average daily balance of the Loans and Letters of Credit
outstanding under the Revolver Facility for the preceding one hundred eighty
(180) day period if such termination is made after the first anniversary but
on or prior to the second anniversary of the Closing Date; provided, however,
that prior to an Event of Default that is continuing, the Borrowers may prepay
at any time all outstanding Obligations due hereunder without penalty or
premium as provided in clause (c) above if (i) Lender under any condition or
for any reason changes the advance rates relating to Eligible Accounts or
Eligible Inventory from that set forth in the definition of Availability
contained herein, provided further that nothing contained in this clause shall
be construed as allowing the Lender to make any such change, or (ii) a public
offering by LSB of its securities (equity or debt) is consummated and the
proceeds thereof are used to prepay the Obligations after the date hereof. 
The Lender may also terminate this Agreement without notice upon an Event of
Default that has not been cured or otherwise waived to Lender's satisfaction. 
Upon the effective date of termination of this Agreement for any reason
whatsoever, all Obligations shall become immediately due and payable. 
Notwithstanding the termination of this Agreement, until all Obligations are
paid and performed in full, the Lender shall retain all its rights and
remedies hereunder (including, without limitation, in all then existing and
after-arising Collateral).

      13.   MISCELLANEOUS.

            13.1  Cumulative Remedies; No Prior Recourse to Collateral.  The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law.  The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order.  The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative.  The Lender may,
without limitation, proceed directly against the Borrowers, or either of them,
to collect the Obligations without any prior recourse to the Collateral.

            13.2  No Implied Waivers.  No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies.  No single or
partial waiver by the Lender of any provision of this Agreement, or any other
Loan Document, or of breach or default hereunder or thereunder, or of any
right or remedy which the Lender may have, shall operate as a waiver of any
other provision, breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion.  No waiver by the
Lender shall affect its rights to require strict performance of this
Agreement.

            13.3  Severability.  If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be effective only to
such extent, without invalidating the remainder of this Agreement.

            13.4  Governing Law.  THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
MADE IN THE STATE OF OKLAHOMA AND SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE EXCEPT THAT NO DOCTRINE OF CHOICE OF
LAW SHALL BE USED TO APPLY THE LAWS OF ANY OTHER STATE OR JURISDICTION.

            13.5  Consent to Jurisdiction and Venue; Service of Process;
Arbitration.

            (a)   Each Borrower agrees that, in addition to any other courts
that may have jurisdiction under applicable laws, any action or proceeding to
enforce or arising out of this Agreement or any of the other Loan Documents
may be commenced in the appropriate court of the State of Oklahoma for
Oklahoma County, or in the United States District Court for the Western
District of Oklahoma, and each Borrower consents and submits in advance to
such jurisdiction and agrees that venue will be proper in such courts on any
such matter.  Each Borrower hereby waives personal service of process and
agrees that a summons and complaint commencing an action or proceeding in any
such court shall be properly served and shall confer personal jurisdiction if
served by registered or certified mail to such Borrower.  Should either
Borrower fail to appear or answer any summons, complaint, process or papers so
served within thirty (30) days after the mailing or other service thereof, it
shall be deemed in default and an order or judgment may be entered against it
as demanded or prayed for in such summons, complaint, process or papers.  The
choice of forum set forth in this section shall not be deemed to preclude the
enforcement of any judgment obtained in such forum, or the taking of any
action under this Agreement to enforce the same, in any appropriate
jurisdiction.

            (b)   NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO THE
CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES, INCLUDING BUT
NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT
THE REQUEST OF EITHER PARTY HERETO BE DETERMINED BY ARBITRATION.  The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA").  The arbitration shall be conducted within
Oklahoma County, Oklahoma.  The arbitrator(s) shall give effect to statutes of
limitation in determining any claim.  Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrator(s).  Judgment upon
the arbitration award may be entered in any court having jurisdiction.  The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.

            (c)   No provision of subparagraph (a) shall limit the right of
either party to this Agreement to exercise self-help remedies such as setoff,
foreclosure against or sale of any Collateral, or obtaining provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any proceeding after the occurrence of an Event of
Default.  The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference.

            13.6  Survival of Representations and Warranties.  All of each
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents, but after the
Closing Date it is recognized that such representations and warranties may be
amended from time to time during the term of this Agreement by written
agreement among the Borrowers and the Lender due to changes in circumstances.

            13.7  Indemnification.  EACH BORROWER HEREBY INDEMNIFIES, DEFENDS
AND HOLDS LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL,
HARMLESS FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES,
DEFICIENCIES, JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST ANY OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL
ARISING OUT OF OR BY REASON OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR
PROCEEDINGS (WHETHER BASED ON ANY FEDERAL, STATE OR LOCAL LAWS OR OTHER
STATUTES OR REGULATIONS, INCLUDING, WITHOUT LIMITATION, SECURITIES,
ENVIRONMENTAL, OR COMMERCIAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT
EQUITABLE CAUSE, OR ON CONTRACT OR OTHERWISE) COMMENCED OR THREATENED, WHICH
ARISE OUT OF OR ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION,
EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING RELATED
TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT,
EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT
LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES
OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING, EXCEPT THAT THIS INDEMNIFICATION SHALL NOT
APPLY TO ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES, JUDGMENTS, PENALTIES OR
EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE LENDER, AND ITS
DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, OR COUNSEL IF SUCH IS DUE TO AND
ARISES FROM OR IN CONNECTION WITH THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT
OF ANY OF THEM OR THE INTENTIONAL AND WRONGFUL BREACH OF THIS AGREEMENT BY
LENDER.  Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against the Borrowers, or
either of them, or by the Borrowers, or either of them, or any other party
against Lender, which in Lender's sole discretion makes it advisable for
Lender to seek counsel for protection and preservation of its liens and
security assets, or to defend its own interest, such reasonable expenses and
counsel fees shall be allowed to Lender.  To the extent that the undertaking
to indemnify, pay and hold harmless set forth in this Section 13.7 may be
unenforceable because it is violative of any law or public policy, each
Borrower shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all
indemnified matters incurred by Lender.  The foregoing indemnity shall survive
the payment of the Obligations and the termination of this Agreement.  All of
the foregoing costs and expenses shall be part of the Obligations and secured
by the Collateral.

            13.8  Other Security and Guaranties.  The Lender may, without,
notice or demand and without affecting either Borrower's obligations
hereunder, from time to time:  (a) take from any Person and hold collateral
(other than the Collateral) for the payment of all or any part of the
Obligations and exchange, enforce or release such collateral or any part
thereof; and (b) accept and hold any endorsement or guaranty of payment of all
or any part of the Obligations and release any such endorser or guarantor, or
any Person who has given any Lien in any other collateral as security for the
repayment of all or any part of the Obligations, or any other Person in any
way obligated to pay all or any part of the Obligations.

            13.9  Fees and Expenses.  The Borrowers jointly and severally
agree to pay to the Lender on demand all costs and expenses that the Lender
pays or incurs in connection with the negotiation, preparation, consummation,
administration, enforcement, and termination of this Agreement and the other
Loan Documents, including, without limitation:  (a) attorneys' and paralegals'
fees and disbursements of counsel to the Lender; (b) costs and expenses
(including attorneys' and paralegals' fees and disbursements) for any
amendment, supplement, waiver, consent, or subsequent closing in connection
with the Loan Documents and the transactions contemplated thereby; (c) costs
and expenses of lien and title searches and title insurance; (d) fees and
other charges for recording and filing financing statements and continuations,
and other actions to perfect, protect, and continue the Security Interest; (e)
sums paid or incurred to pay any amount or take any action required of the
Borrowers, or either of them, under the Loan Documents that the Borrowers, or
either of them, was obligated to pay or take under the Loan Documents but
failed to pay or take; (f) the expenses of $500 per Lender's auditor per audit
day plus actual costs of appraisals, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals, for
inspections of the Collateral and the Borrowers' operations by the Lender's
agents up to three times per year and whenever an Event of Default exists; (g)
costs and expenses of forwarding loan proceeds, collecting checks and other
items of payment, and establishing and maintaining Payment Accounts and lock
boxes; (h) all amounts that the Borrowers, or either of them, are required to
pay under the Letter of Credit Agreement; (i) costs and expenses of preserving
and protecting the Collateral; and (j) costs and expenses (including
attorneys' and paralegals' fees and disbursements and including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel
and staff) paid or incurred to obtain payment of the Obligations, enforce the
Security Interest, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of the Loan Documents, or to defend any
claims made or threatened against the Lender arising out of the transactions
contemplated hereby (including without limitation, preparations for and
consultations concerning any such matters).  The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrowers.  All of the foregoing costs and
expenses shall be charged to the Borrowers' loan account as Revolving Loans.

            13.10 Notices.  All notices, demands and requests that either
party is required or elects to give to the other shall be in writing, shall be
delivered personally against receipt, or sent by recognized overnight courier
service, or mailed by registered or certified mail, return receipt requested,
postage prepaid, and shall be addressed to the party to be notified as
follows:

      If to the Lender: BankAmerica Business Credit, Inc.
                        Two North Lake Avenue, Suite 400
                        Pasadena, California  91101
                        Attn:  Mr. Charles Burtch
                                Executive Vice President

      with a copy to:   Bank of America - Business Credit Legal Dept.
                        10124 Old Grove Road
                        San Diego, California  92131
                        Attn:  Thomas G. Montgomery, Esq.
                                Assistant General Counsel

      and with a copy to:     Jenkens & Gilchrist, A Professional Corporation
                        1445 Ross Avenue, Suite 3200
                        Dallas, Texas  75201
                        Attn:  Linda D. Sartin, Esq.

                        and

      If to EDC:        El Dorado Chemical Company
                        16 Pennsylvania Avenue
                        Oklahoma City, Oklahoma  73107
                        Attn: Tony M. Shelby
                              Vice President

                        or

      if to Slurry:           Slurry Explosives Corporation
                        5700 N. Portland
                        Oklahoma City, Oklahoma  73112
                        Attn: Tony M. Shelby
                              Vice President

      with a copy to:   LSB Industries, Inc.
                        Post Office Box 754
                        Oklahoma City, Oklahoma  73101
                        Attn:  David M. Shear, Esq.
                              General Counsel

      and with a copy to:     Hastie and Steinhorn
                        3000 Oklahoma Tower
                        210 Park Avenue
                        Oklahoma City, Oklahoma  73102
                        Attn: Irwin H. Steinhorn, Esq.

or to such other address as each party may designate for itself by like
notice.  Any such notice, demand, or request shall be deemed given when
received if personally delivered or sent by overnight courier, or when
deposited in the United States mails, postage paid, if sent by registered or
certified mail.

            13.11 Waiver of Notices.  Unless otherwise expressly provided
herein, each Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, notice of intent to accelerate and
notice of acceleration, as well as any and all other notices to which it might
otherwise be entitled.  No notice to or demand on the Borrowers, or either of
them, which the Lender may elect to give shall entitle the Borrowers, or
either of them, to any further notice or demand in the same, similar or other
circumstances.

            13.12 Binding Effect; Assignment; Disclosure.  The provisions of
this Agreement shall be binding upon and inure to the benefit of the
respective representatives, successors and assigns of the parties hereto: 
provided, however, that no interest herein may be assigned by the Borrowers,
or either of them, without the prior written consent of the Lender.  The
rights and benefits of the Lender hereunder shall, if the Lender so agrees,
inure to any party acquiring any interest in the Obligations or any part
thereof.  Each Borrower agrees that the Lender may use such Borrower's name in
advertising and promotional materials and in conjunction therewith disclose
the general terms of this Agreement.

            13.13 Modification.  THIS AGREEMENT IS INTENDED BY THE BORROWERS
AND THE LENDER TO BE THE FINAL, COMPLETE, AND EXCLUSIVE EXPRESSION OF THE
AGREEMENT BETWEEN THEM.  THIS AGREEMENT SUPERSEDES ANY AND ALL PRIOR ORAL OR
WRITTEN AGREEMENTS RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.  NO MODIFICATION, RESCISSION, WAIVER, RELEASE, OR AMENDMENT OF ANY
PROVISION OF THIS AGREEMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT
SIGNED BY THE BORROWERS AND A DULY AUTHORIZED OFFICER OF THE LENDER.

            13.14 Counterparts.  This Agreement may be executed in any number
of counterparts, and by the Lender and each Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.

            13.15 Captions.  The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.

            13.16 Right of Set-Off.  Whenever an Event of Default exists the
Lender is hereby authorized at any time and from time to time, to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by Lender or any affiliate of the Lender and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrowers against any and all of the
Obligations, whether or not then due and payable.  Lender agrees promptly to
notify the Borrowers after any such set-off and application made by Lender,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.

            13.17 Participating Lender's Security Interests.  If a
Participating Lender shall at any time with the Borrowers' knowledge
participate with the Lender in the Loans, each Borrower hereby grants to such
Participating Lender, and the Lender and such Participating Lender shall have
and are hereby given, a continuing lien on and security interest in any money,
securities and other property of the such Borrower in the custody or
possession of the Participating Lender, including, the right of set-off, to
the extent of the Participating Lender's participation in the Obligations, and
such Participating Lender shall be deemed to have the, same right of set-off,
to the extent of the Participating Lender's participation in the Obligations
under this Agreement, as it would have if it were a direct lender.

            13.18 WAIVER OF JURY TRIAL.  LENDER AND EACH BORROWER ACKNOWLEDGE
AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES, AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT GROWING OUT OF ANY
SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT JURY.  TRIAL BY A JUDGE SITTING WITHOUT A JURY WILL FURTHER
RESULT IN THE AVOIDANCE OF DELAYS, A STREAMLINING OF THE PROCEEDINGS INVOLVED
AND, AS A RESULT, WILL MINIMIZE THE EXPENSE OF ANY SUCH LAWSUIT FOR THE
BENEFIT OF EACH BORROWER AND LENDER.  EACH BORROWER HEREBY WAIVES TRIAL BY
JURY, RIGHTS OF SET-OFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS (EXCEPT FOR
COMPULSORY COUNTERCLAIMS) IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
AMONG THE BORROWERS, OR EITHER OF THEM, AND THE LENDER.  EACH BORROWER HEREBY
CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.

      IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

                              "BORROWERS":

                              EL DORADO CHEMICAL COMPANY


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              SLURRY EXPLOSIVES CORPORATION


                              By:                                          
                                    Tony M. Shelby
                                    Vice President

                              "LENDER":

                              BANKAMERICA BUSINESS CREDIT, INC.


                              By:                                          
                                    Joyce White
                                    Senior Vice President

































                        EXHIBITS TO LOAN AGREEMENT




      EXHIBIT A         -     Permitted Liens

      EXHIBIT B         -     Proprietary Rights

      EXHIBIT C         -     Guarantor Subsidiaries

      EXHIBIT D         -     List of Borrower's Locations

      EXHIBIT E         -     Corporate History

      EXHIBIT F         -     Subsidiaries and Affiliates

      EXHIBIT G-1 -     Financial Statements

      EXHIBIT G-2 -     Pro Forma Financial Statements

      EXHIBIT H         -     Real Property Descriptions:  Premises

      EXHIBIT I         -     Trade Names, Trade Styles, Terms of Sale

      EXHIBIT J         -     Pending Litigation

      EXHIBIT K         -     Labor Matters

      EXHIBIT L         -     ERISA Matters

      EXHIBIT M         -     Schedule of Environmental Matters

      EXHIBIT N         -     Closing Documents

      EXHIBIT O         -     Letter of Credit Financing Agreement -
                              Supplement to Loan and Security Agreement

      EXHIBIT P         -     Notice of Borrowing


sec\10k\tk94x413.wpe
                                                              Exhibit 10.10

                                 AGREEMENT
                                    FOR
                  PURCHASE AND SALE OF ANHYDROUS AMMONIA


       
        THIS AGREEMENT is made this 1st day of January, 1994, by and between   
Farmland Industries, Inc. (hereinafter "Seller"), a Kansas corporation, with
its principal place of business in Kansas City, Missouri, and El Dorado
Chemical Company (hereinafter "Buyer"), an Oklahoma corporation, with its
principal place of business in El Dorado, Arkansas. 
                             WITNESSETH      
        WHEREAS, Seller represents that it has the right to sell  certain
quantities of anhydrous ammonia as hereinafter defined; and 
WHEREAS, Seller desires to sell and Buyer wishes to purchase the quantities of
anhydrous ammonia herein stipulated upon the conditions, covenants, and
agreements contained herein; 

        NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein, Seller and Buyer agree as follows: 

        1.  QUANTITY:   Seller shall sell, transfer, convey, and deliver to
Buyer, and Buyer shall purchase and accept from Seller, not less than thirty-
four thousand (34,000) tons, nor more than fifty-one thousand (51,000) tons of
anhydrous ammonia during each quarter for use at El Dorado Chemical Company, 
EL Dorado, Arkansas via the Gulf Central Pipeline or rail. All references
herein to quarters shall mean calendar quarters. Volumes are exclusive of any
tons supplied to El Dorado Chemical Company from customers of El Dorado
Chemical Company under tolling or conversion agreements. Seller shall not be
required to sell more than twenty-two thousand (22,000) tons in any one
calendar month. During the term of this Agreement, Seller shall make available
each quarter the amount of anhydrous ammonia forecasted by Buyer. In the event
Buyer does not take receipt of any amount made available in accordance with
Buyer's quarterly forecast, Seller shall have the right to invoice Buyer for,
and Buyer shall pay, within ten (10) days receipt of invoice, the full
purchase price the month the shortfall occurred for that quantity of Product
computed in accordance with the provisions of this Agreement. Any tons billed
in a period and not shipped in that period ("Shortfall Tons") will be shipped
and accepted no later than the end of the following quarter. The first Product
taken in the following quarter will be the Shortfall Tons from the previous
quarter. Notwithstanding the above, Buyer may take Shortfall Tons, if not
fully taken in the quarter following the forecast for such tons, at a time
such tons are reasonably available to Seller.  Any tons shipped at a later
date shall not reduce the minimum ton requirement for that quarter.  Buyer's
failure to forecast purchases does not relieve it from its quarterly purchase
obligations set forth in this paragraph. In the event Buyer fails to provide a
forecast, Buyer will be deemed to have forecasted the minimum thirty-four
thousand (34,000) ton per quarter.  Failure of the parties to forecast
quarterly tonnage shall not excuse Buyer from its obligation to pay for
minimum volume hereunder. 

        2. FORECAST OF BUYER'S PURCHASES:  During the term of this Agreement,
Buyer shall forecast quarterly by month, its purchases for each quarter of the
contract year. Buyer shall make this quarterly forecast and deliver it to
Seller on or before the 15th day of the month preceding the quarter. 

        3. TERM:  This Agreement shall commence at 12:01 a.m., Central Standard
Time, January 1, 1994, and shall continue until 11:59 p.m., Central Standard
Time, December 31, 1996, unless terminated earlier in accordance with the
provisions hereof and shall continue in effect thereafter for successive
periods of three (3) years each, subject to the right of either party to
terminate this Agreement effective December 31, 1996 or upon December 31 of
the last year of each renewal period thereafter upon no less than one hundred
eighty (180) days prior written notice. 

        5. VERIFICATION OF POLLOCK, LA NATURAL GAS PRICES:  Buyer shall have the
right, at any time during the term of this Agreement, to request Seller to
provide documentation to a mutually acceptable audit firm to verify that
excess charges for natural gas have not been made. 

        6.  DELIVERY/FREIGHT:

              (a) Pipeline - As shipper of record Seller shall invoice Buyer 
        for all actual Gulf Central Pipeline tariff charges plus a ten cents
        ($.10) per short ton meter fee for tons transported by pipeline to
        Buyer's El Dorado, Arkansas facility. Seller will credit Buyer for all
        shrink refunds allowed Seller by the Gulf Central Pipeline on tons
        transported to El Dorado during the term of the Agreement. 

              (b) Rail - Freight charges on rail shipments shall be invoiced to
        Buyer at either (a) the then current railroad tariff rate, or (b) a
        negotiated contract freight rate as agreed by the parties. Seller may
        invoice Buyer and Buyer shall pay Seller tank car demurrage at a daily
        rate of Fifty Dollars ($50) per car per day for each day commencing with
        the eighth day after constructive placement of the car at Buyer's
        destination. Such rail shipments shall be priced at the time of the
        order by Seller. 

        7. INVOICES AND PAYMENT: Seller shall deliver invoices to Buyer as soon
after the end of each calendar month as is reasonably possible. Buyer shall
make payment to Seller for each month's purchases, on or before the fifteenth
(15th) day of the following month. Payment shall be made by wire transfer to
such bank or banks as Seller shall designate. If at any time during the term
of this Agreement, Buyer becomes delinquent in payment or in Seller's
reasonable judgment there has occurred a material adverse change in the
financial condition of Buyer which could reasonably be expected to impair
Buyer's ability to carry out its financial obligations to Seller, Seller shall
have the sole and exclusive right to require the Buyer to open an irrevocable
letter of credit for the benefit of Farmland Industries, Inc., at a bank or
banks, acceptable to Farmland Industries, Inc. for an amount not to exceed the
result of multiplying twenty-two thousand (22,000) tons by the contract price
per ton of Product in the most recently completed calendar month. 

        8. DEFAULT AND NONPAYMENT: Default in payment, or failure to perform any
of the terms and conditions of this Agreement, shall constitute a default by
either party to this Agreement. In the event that either party (i) defaults in
making payment provided for herein when due or (ii) defaults in the
performance of any other material obligation provided for herein and, if such
default is susceptible of cure, fails to cure any such default of a material
obligation within 30 days of receipt of written notice from the non-defaulting
party thereof, the non-defaulting party shall have the right, by giving
written notice to the defaulting party, to immediately terminate this
Agreement. 

        On the occurrence of a default by either party, the nondefaulting party
shall have the option to terminate this Agreement without liability of any
kind as to future shipments; to alter credit terms provided to Buyer; to stop
any Product in transit; to treat any default as substantially impairing the
value of the whole Agreement, and hence a breach thereof. If Buyer does not
pay any invoice on its due date, then all outstanding invoices of Seller to
Buyer under this or any other agreement shall become immediately 
due and payable, and Seller may assess a finance charge of one and five-tenths
percent (1.5%) per month, or the maximum legal rate, if less, on remittances
not received by their due date. On the occurrence of a default by either
party, the defaulting party shall be liable to the non-defaulting party for
all costs, losses, and expenses incurred by such non-defaulting party by
reason thereof, including reasonable attorneys' fees.     

        9. PRODUCT SPECIFICATION:  "Product", where used in this 
Agreement, means anhydrous ammonia solution of commercial grade, having
ammonia (NH3) content of not less than ninety-nine and five tenths percent
(99.5%), having water content of not more than five-tenths percent (0.5%), and
having oil content of not more than five (5) parts per million. Anhydrous
ammonia tendered to any pipeline shall meet or exceed such pipeline's Product
quality specifications for anhydrous ammonia shipped therein. Seller shall be
nominated as shipper of record on those volumes of anhydrous ammonia sold
pursuant to this Agreement and shipped via Gulf Central Pipeline. 

        10. DETERMINATION OF WEIGHTS: "Ton", where used in this Agreement, means
two thousand pounds (2,000 lbs.) avoirdupois, as measured by Gulf Central
Pipeline meter tickets if delivery is made by pipeline, by bills of lading if
delivery is made by rail or truck. 

        11. MANUFACTURE AND DELIVERY: Seller specifically reserves the 
right to manufacture at, or exchange to, and to deliver from, any origin, all
of the anhydrous ammonia transferred to the location scheduled and agreed to
quarterly pursuant to this Agreement. 

        12. DISCLAIMER OF WARRANTIES: There are no warranties which 
extend beyond the description on the face hereof, and SELLER MAKES NO WARRANTY
OF ANY KIND, EXPRESS OR IMPLIED, WHETHER OF MERCHANTABILITY OR FITNESS FOR ANY
PURPOSE OR AGAINST INFRINGEMENT OR OTHERWISE. Buyer assumes all risk and
liability for the use of the Product purchased, whether used singly or in
combination with other substances and for loss, damage, or injury to persons,
or property of Buyer or others arising out of the use or possession of the
Product; Buyer agrees to indemnify Seller from loss (including costs of
defense) in connection with claims arising from use or possession of the
Product. 

        13. CLAIMS BY BUYER OR SELLER:  Notices by Seller or Buyer of claims as
to Product delivered, or for the nondelivery thereof, shall be made within
thirty (30) days after delivery, or the date fixed for delivery, as the case
may be, and failure to give such notice shall constitute a waiver by Seller or
Buyer of all claims in respect thereto. Buyer's sole claim for loss or damage
arising from nondelivery of Product hereunder shall be the difference between
the price for the Product specified in this Agreement and the average price of
such Product then charged by major suppliers of Product at the point of
shipment specified in this Agreement, duly adjusted for freight charges. In no
event shall any claims of any kind be greater than, nor shall Seller in any
event be liable for, any amount in excess of the purchase price of the Product
in respect of which a claim is made. SELLER SHALL NOT BE LIABLE FOR ANY
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING 
FROM SELLER'S PERFORMANCE OR BREACH OF THIS AGREEMENT AND/OR USE OR POSSESSION
OF THE PRODUCT, OR FOR LOSS OF PROFIT FROM RESALE OF PRODUCT. No suit or legal
proceeding arising upon this Agreement shall be maintainable against Seller or
Buyer unless commenced or made within one (1) year after passing of title to
Product, or delivery of or failure to delivery Product hereunder. 

        14. CONFLICTING TERMS:  Notwithstanding any provision therein to the
contrary, no term in Seller's or Buyer's purchase order, acknowledgment form
or other document which conflicts with the terms hereof or increases Seller's
or Buyer's obligations hereunder, shall be binding on either party unless
accepted in writing by both parties hereunder. 

        15. WAIVER:  Any waiver by Seller or Buyer of any term, provision, or
condition of this Agreement, or of any default hereunder in any one or more
instances shall not be deemed to be a further or continuing waiver of such
term, provision or condition, or of any subsequent default hereunder. 

        16. FORCE MAJEURE:  Neither party will be liable for failure to perform
or for delay in performing this Agreement where such failure or delay is
occasioned by acts of any government, compliance with law or government
regulations, acts of God, war, riots, insurrections, civil commotion or
disturbances, fire, flood, or accident or by any other cause or circumstances
whether of like or different character, beyond the control of the party
affected thereby, including a declaration of force majeure by El Dorado
Chemical Company. Failure to obtain a supply of Product by Seller from a third
party supplier shall not be an event of force majeure 
that can be exercised by Seller, herein referred to as "events for force
majeure". The party asserting that an event of force majeure has occurred
shall send the other party notice thereof by cable or telex no later than
three (3) days after the beginning of such claimed event setting forth a
description of the event of force majeure, an estimate of its effect upon the
party's ability to perform its obligations under this Agreement and the
duration thereof. The notice shall be supplemented by such other information
or documentation as the party receiving the notice may reasonably request. As
soon as possible after the cessation of any event of force majeure, the party
which asserted such event shall give the other party written notice of such
cessation. Whenever possible, each party shall give the other party notice of
any threatened or impending event of force majeure. If an event of force
majeure affecting Seller or Buyer performance by the party affected (the
"affected party") shall be excused during the continuation of the event of
force majeure and the other party shall send written notice to the affected
party whether the notifying party elects to (a) reduce the quantity of Product
specified in this Agreement by the amount which cannot be delivered or
received and/or (b) reschedule deliveries on a commercially reasonable basis
for delivery during the remainder of the applicable Contract Year. 

        "In the event of force majeure affecting Seller, Seller shall allocate
its available Product to Buyer in the same proportion as the quantity
delivered to Buyer's El Dorado, Arkansas facility hereunder during the twelve
(12) months preceding the event of force majeure is to the total quantity of
all Product sold or used by Seller during such twelve (12) month period."
(Provided, however, the total Product Buyer received shall not exceed the
quantities in Article 2.) In the event Seller has not given written notice of
cessation of force majeure, and such event of force majeure prevents
deliveries of Product for more than thirty (30) consecutive days, Buyer shall
have the right to terminate this Agreement. 

        17. CHANGE IN STATUS 
        Acquisition of Plant.  In the event that El Dorado Chemical Company or
affiliated company having a common parent acquires more than fifty percent
(50%) interest in and to a plant or company that produces or has the capacity
to produce anhydrous ammonia, Buyer may upon twelve (12) months written notice
to Seller, terminate this Contract and thereafter have no further
responsibility to accept or pay for any quantity of anhydrous ammonia
hereunder. 

        18. COMMISSION/BROKER FEES: Seller and Buyer represent that
they are dealing with each other, that neither is the agent of the other, and
that no broker or agent has been involved, either directly or indirectly, in
consummating this Agreement and the sale of anhydrous ammonia hereunder.
SELLER AGREES TO INDEMNIFY, PROTECT AND SAVE BUYER HARMLESS from the claims of
any person or entity for commissions or finder's fees or similar fees in
connection with the transaction set forth herein where the claimant alleges
that his or its contact with this transaction is traceable to Seller. BUYER
AGREES TO INDEMNIFY, PROTECT, AND SAVE SELLER HARMLESS from the entity for
commissions or finder's fees or similar fees in connection with the
transaction set forth herein where the claimant alleges that his or its
contact with this transaction is traceable to Buyer. 

        19. TAXES:  Any and all taxes of any type whatsoever levied, prior to
passage of title, against anhydrous ammonia transferred pursuant to this
Agreement shall be paid by Seller promptly as required by law.  Any and all
taxes of any type whatsoever levied against the anhydrous ammonia at or upon,
or subsequent to, passage of title shall be paid by Buyer promptly as required
by law. Title to and risk of loss of the Product shall pass to the Buyer as
the Product progressively passes into tank cars, and/or pipeline. 
Notwithstanding any provision to the contrary in this Agreement, with regard
to sales/purchases of Product pursuant to this Agreement Buyer shall pay any
and all taxes or charges that are due and owing under the federal Superfund
(Comprehensive Environmental Response, Compensation and Liability Act of 1986)
statutes, or regulations promulgated thereunder, as amended. Notwithstanding
any provision to the contrary in this Agreement with regard to sales/purchases
of Product pursuant to this Agreement, Buyer shall pay any and all taxes and
charges that may become in the future due and owing because of the future
enactment of any state law or regulation establishing a state tax or fee of
any kind whatsoever on the manufacturing and/or sale of anhydrous ammonia or
any constituent part thereof. All taxes hereunder are in addition to those
prices described herein. 

        20. NOTICES:  No notice, actual or constructive, shall be effective
against any party unless it is (1) in writing; (2) signed 
by the party giving the notice; and (3) sent by registered mail, postage
prepaid, or personally served on the party intended to receive said notice. 

        The address to be used on a mailed notice for each party shall be as
follows:

    To Seller:
              Farmland Industries, Inc.        (via mail/fax)
              P. O. Box 7305, Dept. 314
              Kansas City, Missouri 64116
              FAX 816/459-5913

              Farmland Industries, Inc.         (via delivery
              3315 N. Oak Trafficway                service)
              Kansas City, Missouri 64116

    To Buyer:

              El Dorado Chemical Company      (via mail/fax)
              P.O. Box 231
              El Dorado, Arkansas 71731
              FAX: 501/863-1426
              Attn: Kevin Brown
  
              El Dorado Chemical Co.       (via mail/fax)
              16 S. Pennsylvania
              Oklahoma City, OK 73007
              FAX: 405/235-5067
              Attn: James Wewers
                    David Shear


    
        21.  ALTERNATE DISPUTE RESOLUTION: In the event of any controversy
arising out of or relating to this Contract, or any breach thereof, the
parties agree to submit the dispute for resolution by Mini-trial, unless both
parties agree that such procedure is inappropriate for the matter in
controversy. Such Mini-trial shall be conducted in accordance with the Center
for Public Resources (CPR) Mini-trial Agreement for Business Disputes, a copy
of which is attached and may be initiated by either party by a written request
to the other party. 

        In the event the parties are unable to resolve the controversy through
the Mini-trial, the dispute shall be submitted to binding arbitration in
accordance with the rules of the Missouri Arbitration Act. V.A.M.S. 435 et.
seq. (or Uniform Arbitration Act). Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association. Alternate
strikes shall be made to the panel commencing with the party requesting the
arbitration until one name remains. Such individual shall be the arbitrator
for the controversy. The party requesting the arbitration shall notify the
arbitrator who shall hold a hearing(s) within 60 days of the notice. The
arbitrator shall render a decision within 20 days after the conclusion of the
hearing(s). Judgment upon the award rendered by the Arbitrator may be entered
in any Court having jurisdiction thereof. All fees for such arbitration will
be divided equally between the parties. 

        22.  MISCELLANEOUS: Buyer may offer to supply natural gas to Farmland
Industries for only their monthly quantity of anhydrous ammonia for delivery
at either Texas Gas or Truckline and/or LIG to be redelivered to Farmland,
(Pollock), Louisiana plant. Seller will then add the appropriate interstate
tariff rate as established by the transporting pipeline plus the procurement
cost of two cents ($ .02) per MMBTU previously listed in Paragraph 4(b)1 of
this Contract. Buyer must offer natural gas to Seller not less than fifteen
(15) days before the close of the current month for the upcoming month. Seller
must accept or reject this offer within ten (10) business days before the
close of the current month. This option to offer natural gas must be 
made to the Administrative Assistant to the Vice President of Purchasing,
Engineering, and Emerging Technologies. 

        This Agreement expresses the whole agreement of the parties. There are
no promises, conditions, or obligations, other than those enumerated herein.
This Agreement shall supersede all previous or contemporaneous communications,
representations, or agreement, verbal or written, between or among the
parties. No usage of trade or prior course of dealing or performance between
Buyer and Seller shall be deemed to modify the terms of this Agreement. 

        This Agreement shall not be assigned by either party without the prior
written consent of the other party except that either party may assign its
interest under this Agreement to a successor to all or any substantial portion
(more than 50%) of its business or assets, or to any parent, subsidiary, or
affiliated company having a common parent. Any purported assignment of this
Agreement or any part thereof, except as set forth above, shall be void. 

        This Agreement shall not be modified except in writing signed by the
party to be charged. 

        No termination of this Agreement shall affect the rights or obligations
theretofore accrued. 

        Headings are for reference only, and do not affect the meaning of any
paragraph. 

        Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which renders any provision hereof
prohibited or unenforceable in any respect.  Remedies herein reserved are
cumulative and in addition to any other or further remedies Seller or Buyer
may have at law or in equity. 

        This Agreement shall be governed in all respects, including, but not
limited to, interpretation and performance by the laws of the State of Kansas.

        No terms and conditions of this Agreement shall be binding on either
Seller or Buyer, until this Agreement is signed and attested by authorized
representatives of both Seller and Buyer. 

        IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written. 

FARMLAND INDUSTRIES, INC.            EL DORADO CHEMICAL COMPANY    
(Seller)                             (Buyer)

By:  ____________________            By:  _____________________               
Title: __________________            Title: ___________________

Date:  __________________            Date:  ___________________
                                                              Exhibit 10.22

                        CHEMICAL GROUP OF MONSANTO                         

Contract for Toll Manufacturing

Contract: #  T 1084A00

With:  El Dorado Chemical Company

Prepared by:

Chemical Group of Monsanto
800 North Lindbergh Boulevard
St. Louis, Mo.  63167

                       TABLE OF CONTENTS (05/16/94)

     TITLE                                       DATE       PAGES

Table of Contents     (this page)               05/16/94        1

Toll Processing Agreement                       01/01/94       10

Schedule A:  Material Specification             08/01/88        1

Schedule B:  Product Specification (Monsanto)   01/11/91        1
             Contractor Internal Specification  05/07/92        1

Schedule C:  Special Instructions               01/01/94        1

Schedule D:  Delivery Schedule                  01/01/94        1

Schedule E:  Service Fee                        01/01/94        2

Schedule F:  Invoicing and Inventories          01/01/94        1

Schedule G:  Representatives and Notices        01/01/94        1

Schedule H:  Monthly Invoice & Mat. Balance     08/01/88        1

Schedule I:  Material Safety Data Sheets        07/00/92        4

























MONSANTO                                               PROCESSING AGREEMENT
_________________________________________________________________


PROCESSING AGREEMENT dated January 1, 1994 between Monsanto Company, a
Delaware corporation with general offices at 800 North Lindbergh Boulevard,
St. Louis, Missouri 63167 ("Monsanto") and El Dorado Chemical Company, an
Oklahoma corporation with general offices at Old Smackover Highway 7B, El
Dorado, Arkansas 71730 ("Contractor").

        1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following defined meanings:

        (a) "Material" shall mean the material to be provided by Monsanto to
Contractor, as described in Schedule A hereof, which Material shall meet the
Material specifications attached hereto and made a part hereof.

        (b) "Product" shall mean the product described in Schedule B to be
produced by Contractor hereunder from the Material supplied by Monsanto, which
Product shall meet the Product specifications attached hereto and made a part
hereof.

        (c) "Services" shall mean the services to be provided or performed by
Contractor pursuant to this Agreement at Contractor's Facilities with respect
to the Material and Product, including but not limited to the following: to
receive, handle and store, in suitable facilities free from contamination, the
Material required for the production of Product; to receive, order, handle and
store sufficient additional raw materials, if any, required for the production
of Product; to process the Material into Product; to sample and test the
Product for quality and to promptly deliver to Monsanto written reports on the
results of such sampling and testing, all according to the written
instructions of Monsanto and as may be set forth or referred to in Schedule C;
to keep records of each shipment of Product showing pertinent information
relating thereto including, without implied limitation, the loaded weight and
assay of Product and to provide one copy of each record to Monsanto; to load
and ship the Product to Monsanto's Plant (as hereinafter defined) at such
times as may be designated by Monsanto; dispose of all wastes and residues
generated in connection with the performance of services hereunder in a safe
and lawful manner; and to provide all operations, labor, supervision,
equipment, tools, machinery, facilities, supplies and materials (excepting the
Material) necessary or appropriate for Contractor's performance hereunder.

        (d) "Facility" shall mean Contractor's plant located near El Dorado,
Arkansas

        (e) "Plant" shall mean Monsanto's W. G. Krummrick Plant located at
Sauget, Illinois.

        2. TERM. The term of this Agreement shall commence on the date first
stated above and shall continue in full force and effect through December 31,
1998. However, either party may terminate this Agreement at any time upon
notice to the other party if performance of this Agreement or the sale or use
of the Product is held to be a violation of, in whole or in part, any
governmental laws, ordinances, orders, rules, regulations and actions of the
United States and of any state, county, township or municipal subdivision or
other municipal subdivision or other governmental agency that would materially
affect such party's performance under this Agreement. Sections 7, 8, 9, 10,
11, 12 and 14 shall survive any termination or expiration of this Agreement.
Further either party may terminate this Agreement immediately without
liability by providing written notice to the other party hereto if such other
party is in breach or default under any of its obligations under this
Agreement and said breach or default shall continue unremedied for thirty (30)
days after written notice thereof is received by such defaulting party.

        Monsanto may terminate this Agreement if Monsanto decides to process the
Material to Product itself, decides to terminate the product which is produced
from the Product or decides to sell the business of the product which is
produced from the Product. In the event of the sale of such business Monsanto
will exercise good faith efforts to assign this Agreement to such buyer if
Contractor so desires.

        3. CHANGE IN MATERIAL, PROCESS OR PROCEDURE. Prior to making any change
in raw material or methods of manufacture employed in producing Product
hereunder which Contractor knew, or should have known, would make such Product
unsuitable to Monsanto, Contractor shall notify Monsanto of Contractor's
intent to do so.

     If, at any time, any Product to be supplied to Monsanto does not meet
specifications set forth in Schedule B attached hereto, or the process or
procedure utilized by the Contractor for manufacture of such Product changes
materially without Monsanto's prior written consent so that, in either event,
such Product is unsuitable to Monsanto, Monsanto may notify Contractor of such
problem and thereafter suspend shipments hereunder. Monsanto agrees to work in
good faith with Contractor to attempt to resolve any such problem. However, if
no resolution satisfactory to both parties, is achieved within thirty (30)
days after the giving of such notice, Monsanto may terminate this Agreement,
without liability upon at least thirty (30) days' prior written notice.

        4. REQUIREMENTS, QUANTITY, CONVERSION RATIO AND INVENTORIES OF MATERIAL

        (a) Except as otherwise expressly provided in this Agreement, Contractor
agrees to perform Services and deliver all of Monsanto's requirements for the
Product to Monsanto in accordance with the requirements of this Agreement.

        (b) Except as otherwise expressly provided in this Agreement, Monsanto
agrees that during the term of this Agreement (i) the Contractor shall process
all of Monsanto's requirements for the Product pursuant to the terms hereof
and (ii) Monsanto shall purchase from the Contractor all of its requirements
for the Product. In the event Monsanto at any time is offered a lower
conversion fee for Product of equal quality in quantities greater than one
half of the total requirements by a reputable manufacturer and furnished
Contractor proof of same, Contractor shall supply Product at the lower
conversion fee or permit Monsanto to purchase such quantity elsewhere. If
Monsanto should purchase such quantity elsewhere, Contractor may give notice
of pricing revisions to Monsanto. If no agreement satisfactory to both
parties, is achieved within thirty (30) days after the giving of such notice,
either party may terminate this Agreement, without liability, upon at least
thirty (30) days' prior written notice.

        Monsanto shall be allowed to take up to six tank cars of Product from a
third party supplier in order to certify the quality of the Product. After
such certification of quality of Product from a third party in the event
Contractor is unable to supply Product to Monsanto from its Facility,
Contractor shall purchase at its expense certificated Product from the third
party and supply such Product to Monsanto at the Services Fee then stated in
the Agreement. This third party certification shall be accomplished by
December 31, 1994. A re-certification of the third party shall be completed by
December 31, 1996 using up to six tank cars of Product.

        (c) Contractor shall convert Material delivered to Contractor by
Monsanto hereunder into Product for Monsanto at the Facility at the following
Conversion Ratio ("Conversion Ratio"):

        For each ton of Material supplied by Monsanto to Contractor hereunder,
        Contractor shall produce and deliver to Monsanto 3.31 tons of Product
        (100% acid basis).


Monsanto estimates its requirements hereunder to be approximately 26,000 to
28,000 tons of Product (100% acid basis) per Contract Year to be taken in
approximately equal monthly installments. This volume is not to be considered
a guaranteed volume. For purposes of enabling Contractor to plan its
production Monsanto shall supply to Contractor estimated monthly Product
volumes per Schedule D.

Within thirty (30) days of termination or expiration of this Agreement, a
final Material balance shall be sent to Monsanto. Should balance show that
Monsanto is owed Material, Contractor will make provisions to tender Material
to Monsanto within sixty (60) days of termination or expiration of this
Agreement. Material will be tendered on the Gulf Central Pipeline System at an
injection point between Fortier, Louisiana and Sterlington, Louisiana.

In order for Contractor to comply with this Agreement, Monsanto recognizes
that Monsanto must supply Material to Contractor on an uninterrupted basis,
which Material is to be provided to Contractor by Monsanto at Monsanto's cost
and expense. Monsanto shall, at its expense and cost, delivery Material to
Contractor at a rate which is sufficient, through application of the
Conversion Ratio set forth in this Section 4(c) to produce the quantities of
Product required by Monsanto hereunder, and to maintain at the Facility such
appropriate amount of inventory of Material so that Contractor can comply with
the terms hereof. Monsanto shall maintain a minimum amount of inventory of
Material at the Facility of 500 tons at all times.

Notwithstanding anything herein to the contrary, the Contractor's obligations
under this Agreement to perform the Services hereunder and to deliver Product
to Monsanto are subject to and conditioned upon Monsanto having delivered to
Contractor Material in sufficient time and in a sufficient amount through
application of the Conversion Ratio set forth in this Section 4(c), for
Contractor to perform the Services and produce the quantities of Product
required to be produced by Contractor for and delivered to Monsanto hereunder.

        5. SERVICES FEE. As consideration for Contractor's delivery of Product
to Monsanto in accordance with this Agreement, Monsanto agrees to pay
Contractor a Services Fee as set forth in Schedule E attached hereto and made
a part hereof. The Services Fee shall constitute the total financial
obligation of Monsanto to Contractor as to the purchase price for the Product.

        6. DELIVERY; TITLE AND RISK OF LOSS.

        (a) Delivery of Material by Monsanto to Contractor hereunder shall be
made at the Facility in accordance with the terms of the Section called
"Delivery Schedule" set forth in Schedule D attached hereto and made a part
hereof, or otherwise as may be mutually agreed by the parties.

        (b) Title to and other incidents of ownership of:
        (i) The Material and the Product processed hereunder (all collectively
called "Monsanto's Material") shall be in Monsanto and shall remain the
property of Monsanto at all times, subject to Monsanto's compliance with the
terms of this Agreement;
        (ii) All other products, by-products, wastes and residues resulting from
the processing of the Material, shall pass to Contractor as they are generated
in the performance of Services hereunder and shall remain the property of the
Contractor.

        (c) Contractor shall be liable to Monsanto for all contamination, loss
or damage to Monsanto's Material after such is delivered to the Facility and
to the Product until such Product is delivered to Monsanto's Plant, unless
contamination is caused by reason of force majeure. In the event Contractor
shall be liable or responsible to Monsanto pursuant to this paragraph,
Contractor shall pay to Monsanto on demand, Monsanto's cost of the Material
and/or Product contaminated, lost or damaged, based on Monsanto's
manufacturing and other costs, plus freight expense, less net salvage value,
if any, received by Monsanto. Monsanto shall make a reasonable effort under
the then prevailing circumstances to dispose of the damaged Material and/or
Product at a fair and reasonable value indicating in advance to Contractor the
amount of net salvage value to be credited to Contractor.

        7. CONTRACTOR'S AND MONSANTO'S COVENANTS AND WARRANTIES

        (a) Contractor covenants with and warrants to Monsanto that:
        1. Contractor has the requisite experience, knowledge and expertise,
suitable facilities and qualified personnel and legal right to perform the
Services hereunder in a sound, safe, lawful and workmanlike manner;
        2. Contractor hereto recognizes the importance of maintaining a safe and
healthful workplace and knows and understands the potential health, safety
and/or environmental considerations associated with the Material and the
Product and the toxic nature of the Material and all other products, by-
products and residues resulting from or in any way referred to the processing
of the Material. Certain information as to the character of the Material and
certain recommended precautions for exposure to and handling of the Material
and Product have been provided to Contractor by Monsanto as described or
referred to in the Material Safety Data attached hereto as Schedule I.
Contractor shall advise and inform its employees, agents, representatives and
subcontractors of the nature of the Material and Product and the potential
hazards connected with it prior to such individuals' employment in connection
with the Product. Contractor hereto shall see that all appropriate safety and
handling precautions are followed and shall take all appropriate actions to
ensure a healthful workplace and the safety and well-being of persons,
property and the environment in the performance of their respective duties
hereunder. Each party hereto agrees to inform the other in writing of any
toxic or otherwise hazardous property relating to the Material or Product
which becomes known to Contractor or Monsanto subsequent to the date of this
Agreement.
        3. Contractor will perform Services in a sound, safe, lawful and
workmanlike manner, and that the Product produced and delivered by it
hereunder shall conform to the attached Product specifications;
        4. Contractor will own and dispose of all products, by-products, wastes
and residues resulting from the processing of the Material.
        (b) Each party hereto agrees to comply with all laws, ordinances,
orders, rules, regulations and actions of the United States and of any state,
county, township or municipal subdivision or other governmental agency which
may now or hereafter be applicable to this Agreement, including but not
limited to those pertaining to employee safety and health and environmental
protection and TSCA Section 8 (a) through Section 8 (e) and that it has
obtained and will maintain in effect all permits, licenses and other
documentation required now or hereafter in order to comply with such
governmental laws, ordinances, orders, rules, regulations and actions and
shall furnish copies of same to the other party upon its request.

        8. INVOICING AND INVENTORIES. Contractor shall invoice Monsanto for
Product delivered to Monsanto hereunder and Monsanto shall pay Contractor the
amounts covered by such invoices in accordance with the Section "INVOICING AND
INVENTORIES" in Schedule F attached hereto and made a part hereof.

        9. WARRANTIES.

        (a) Subject to subparagraphs (c) and (f) of this Section 9 Monsanto
warrants title and that the Material delivered to Contractor hereunder shall
meet the specifications set forth in Schedule A. Except as otherwise provided
in the preceding sentence and except as otherwise provided in this Agreement,
MONSANTO MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER
WITH RESPECT TO ANY MATERIAL DELIVERED UNDER THIS AGREEMENT, WHETHER OR NOT
SUCH MATERIAL MEETS SUCH SPECIFICATIONS and whether alone or in combination
with any other material.

        (b) Subject to subparagraphs (d) and (e) of this Section 9, Contractor
warrants that the Product delivered to Monsanto hereunder shall meet the
specifications set forth in Schedule B Except as otherwise provided in the
preceding sentence and except as otherwise provided in this Agreement,
CONTRACTOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND EXPRESS OR IMPLIED
AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE OR ANY OTHER MATTER WITH
RESPECT TO ANY PRODUCT DELIVERED UNDER THIS AGREEMENT WHETHER OR NOT SUCH
PRODUCT MEETS SUCH SPECIFICATIONS and whether used alone or in combination
with any other material.

        (c) Subject to Section 9(f) hereof, all claims by the Contractor for any
cause whatsoever (whether such cause be based in contract, negligence, strict
liability, other tort or otherwise) relating to breach by Monsanto of its
warranties contained in Section 9(a) hereof shall be deemed waived unless made
in writing and received by Monsanto within ninety (90) days after receipt of
the material in respect to which such claim is made, provided that as to any
such cause not reasonably discoverable within such ninety (90) day period
(including that discoverable only in processing, further manufacture or other
use) any claim shall be made in writing and received by Monsanto within one
hundred eighty (180) days after Contractor's receipt of the material in
respect to which such claim is made, or within sixty (60) days after
Contractor learns of the facts giving rise to such claim, whichever shall
first occur. Failure of Monsanto to receive written notice of any such claim
within the applicable time period shall be deemed an absolute and
unconditional waiver by Contractor of such claim.

        (d) Subject to Section 9(e) hereof, all claims by Monsanto for any cause
whatsoever (whether such cause be based in contract, negligence, strict
liability, other tort or otherwise) relating to breach by Contractor of its
warranties contained in Section 9(b) hereof or for late or failure to deliver
Product to Monsanto shall be deemed waived unless made in writing and received
by Contractor within ninety (90) days after Monsanto's receipt of the Product
in respect to which such claim is made, or if such claim is for non-delivery
of Product within ninety (90) days after the date upon which such Product was
to have been delivered provided that as to any such cause not reasonably
discoverable within such ninety (90) day period (includinq that discoverable
only in processing, further manufacture, other use or resale), any claim shall
be made in writing and received by Contractor within one hundred eighty (180)
days after Monsanto's receipt of the Product in respect to which such claim is
made, or within sixty (60) days after Monsanto learns of the facts giving rise
to such claim, whichever shall first occur. Failure of Contractor to receive
written notice of any such claim within the applicable period shall be deemed
an absolute and unconditional waiver by Monsanto of such claim.

        (e) Except for the extent covered by Section 11, Monsanto's exclusive
remedy, and Contractor's total liability, with respect to defective Product or
Services supplied or to be supplied under this Agreement (whether such cause
be based in contract negligence, strict liability, other tort or otherwise)
shall (i) if Monsanto's claim related solely to any loss or damage to
Materials supplied by it, not exceed the then current market value of the lost
or damaged Materials plus freight or, at Contractor's election, the
replacement thereof, or (ii) if Monsanto's claim relates to Products supplied
by Contractor, not exceed an amount equal to the sum of any Services Fee and
freight charges actually paid by Monsanto with respect to the Product as to
which the claim is made plus the then current market value of the Materials
supplied by Monsanto and used therein, or, at the election of Monsanto, the
replacement thereof with Product produced from Material supplied by and at the
sole expense of Contractor. In no event shall the Contractor be liable to
Monsanto for any indirect, incidental, consequential or punitive damages
however caused. Contractor shall not be liable for, and Monsanto assumes
liability for, all personal injury and property damage connected with the
handling, transportation, possession, or further processing of Product after
delivery to Monsanto hereunder, whether such Products are used alone or in
combination with any other material.

        (f) Contractor's exclusive remedy, and Monsanto's total liability, with
respect to all defective Material supplied or to be supplied hereunder by
Monsanto to Contractor (whether such cause by based in contract, negligence,
strict liability, other tort or otherwise) shall in no event exceed the then
current market value of the Material for which the claim is made, or at the
election of Monsanto, the replacement thereof with Material. In no event shall
Monsanto be liable to Contractor for any indirect incidental, consequential or
punitive damages resulting from such defective material. Monsanto shall not be
liable for, and Contractor assumes liability for, all personal injury and
property damage connected with the handling, possession, processing, further
manufacture of other use of such Material after delivery to Contractor
hereunder, whether such Material is used alone or in combination with any
other material.

        10. INDEMNIFICATION. Except as otherwise provided in this Section 10,
Contractor shall indemnify and hold harmless Monsanto, its present, past and
future employees and agents, from and against any and all claims, liabilities,
suits, and proceedings, judgments, orders, fines, penalties, damages, losses,
costs and expenses (including, without limitation, costs of defense, amounts
paid in settlement (provided such settlement is paid with the consent of
Contractor) and reasonable attorneys' fees and expenses) (all of the foregoing
herein collectively called "Liabilities, Proceedings, and Damages") arising
out of actions against Monsanto brought by an independent third party in
connection with (a) any of Monsanto's Material, or any part thereof, while in
the possession or custody of Contractor and resulting from Contractor's
negligence; (b) Contractor's negligence relating to any Services or any other
activities or operations of or by Contractor, its employees or agents under or
related to this Agreement; (c) any failure of Contractor or any of its
employees or agents to observe or comply with any of Contractor's duties or
obligations under this Agreement, including, without limiting the generality
of the foregoing, any failure to observe or comply with any applicable laws
ordinances, codes, orders, rules or regulations and including any failure to
properly dispose of wastes relating to this Agreement. The foregoing
obligations of Contractor shall include, but not be limited to, any and all
Liabilities, Proceedings and Damages arising due to the Contractor's
negligence resulting in (i) injury to or death of any person (including,
without limitation, employees or agents of Contractor or Monsanto), (ii)
damage to or loss or destruction of any property (including, without
limitation, property of Contractor or Monsanto, or their employees or agents),
and (iii) any contamination of, injury or damage to or adverse effect on
persons, animals, aquatic and wildlife, vegetation, waters or the environment.

        The foregoing indemnification shall apply regardless of the basis of
liability or legal principle involved (including, without limitation,
contract, warranty, negligence, strict liability, other tort, violation of law
or otherwise), but shall not apply to Liabilities, Proceedings and Damages to
the extent caused by (i) Monsanto's negligence or willful or criminal
misconduct or (ii) Monsanto's breach or default of any of the terms or
provisions or any of its duties or obligations under this Agreement.

        11.  INSURANCE.

        (a) Contractor shall not begin the performance under this Agreement
until:
        (i) It has obtained all the insurance hereinafter required; and
        (ii) It has furnished Monsanto with certificates of insurance
satisfactory to Monsanto evidencing such required insurance; and
        (iii) Copies of any provisions in Contractor's contract of insurance
excluding coverage for pollution have been provided to Monsanto.

        (b) Every contract of insurance providing the coverages required herein
shall provide that such coverage shall not be terminated or reduced without
the insurance carrier first giving Monsanto at least thirty (30) days' prior
written notice thereof, and Contractor shall make such arrangements as are
necessary to ensure that no termination, reduction or cancellation of the
insurance required herein becomes effective until thirty (30) days after
Monsanto receives such notice.

        (c) Contractor shall take out and maintain, at its expense, during the
term of this Agreement, and for a minimum of two (2) years following the
expiration or termination of this Agreement, at least the following insurance
in insurance companies satisfactory to Monsanto:

         COVERAGE                                LIMITS

(1) Worker's Compensation              Statutory
(2) Employers' Liability               $500,000 each occurrence
(3) Comprehensive General              $1,000,000 each occurrence
    Liability (Bodily Injury)
(4) Comprehensive General              $1,000,000 each occurrence
    Liability (Property Damage)
(5) Automobile Liability               $1,000,000 combined single
    (Bodily Injury and                 limit
    Property Damage)

        (d) The insurance certificates evidencing the required coverage shall
include a certification that the above-described insurance coverages include
coverage for Contractor's contractual liability under this Agreement.

        (e) Contractor shall secure from the company carrying Contractor's
Worker's Compensation insurance a waiver of subrogation in favor of Monsanto
and its employees and shall furnish to Monsanto a copy of said waiver.

        (f) Notwithstanding any other provision of this Agreement, Contractor's
general liability insurance shall (i) be provided on an "occurrence" form of
policy, (ii) name Monsanto as an additional insured, and (iii) include
coverage for all of Contractor's contractual liability under Section 10 with
limits not less than those set forth above. Additionally, the required
certificates shall indicate that such general liability insurance coverage
will be primary to any other valid and collectible insurance.

        (g) The insurance requirements set forth herein are minimum coverage
requirements and are not to be construed in any way as a limitation on
Contractor's liability under this Agreement.

        12. NOTIFICATION OF CITATIONS AND CLAIMS. Contractor agrees that it will
promptly notify Monsanto of any of the following which relates to or is
connected with any Services furnished pursuant to this Agreement: (i) any
warning, citation, indictment, claim, lawsuit, or proceeding issued or
instituted by any federal, state or local governmental entity or agency
against or upon Contractor, (ii) the revocation of any license or permit
issued to Contractor by any such entity or agency, or (iii) any other claim
(including, without limitation, claims for Workmen's Compensation) or lawsuit
against Contractor for personal injury, death or property damage.

        13. EXCUSE OF PERFORMANCE. The performance or observance by either party
of any obligations of such party under this Agreement may be suspended by it
in whole or in part in the event of any of the following which prevents such
performance or observance: Act of God, war, riot, fire, explosion, accident,
flood, sabotage, strike, lockout, injunctions, inability to obtain fuel,
power, raw materials, labor, containers or transportation facilities, breakage
or failure of machinery or apparatus, national defense requirements,
compliance with governmental laws, regulations, orders or action, or any other
cause (whether similar or dissimilar) beyond the reasonable control of such
party; provided however, that the party so prevented from complying with its
obligations hereunder shall immediately notify in writing the other party
thereof and such party so prevented shall exercise diligence in an endeavor to
remove or overcome the cause of such inability to comply and provided further
that neither party shall be required to settle a labor dispute against its own
best judgment. Deliveries suspended or not made by reason of this Section
shall be cancelled without liability, but this Agreement shall otherwise
remain unaffected. Nothing in this Section 13 shall excuse Monsanto from
paying contractor the Service Fee for Products delivered by Contractor to
Monsanto, or excuse Contractor from performance or observance of its
obligations under this Agreement by reason of its failure or inability to
observe or comply with Section 7 (b) of this Agreement.

        14.  SECRECY PROVISIONS. Contractor shall treat and maintain and cause
its employees and agents to treat and maintain as Monsanto's confidential
property and not use or disclose to others during the term of this Agreement
and for five (5) years thereafter except as is necessary to perform the work
hereunder any written information (including any technical information,
experience or data) supplied by Monsanto to Contractor and marked as
"confidential information" regarding Monsanto's products, plans, programs,
plants, processes, costs, equipment, operations or customers which may be
heretofore or hereafter to Contractor, its employees or agents in the
performance of this Agreement without in each instance securing the prior
written consent of Monsanto. Contractor shall also treat as confidential and
shall not use or disclose to others, information relating to the chemical
composition or specifications of the Material or Product or the quantity of
Material or Product delivered to it by Monsanto or Product produced by
Contractor.

        Upon the expiration or termination of this Agreement, or at any earlier
time at Monsanto's request, Contractor shall deliver to Monsanto all writings,
drawings, memoranda and other material, including all copies and extracts
thereof, delivered to Contractor by Monsanto prior to or during the term of
this Agreement, which contain or relate to said Monsanto confidential
information.

        The provisions of this Section 14 shall not apply to any information
referred to in this Section which Contractor establishes (i) has been
published and has become part of the public domain other than by acts or
omissions of Contractor, its employees or agents, (ii) has been furnished or
made known to Contractor by third parties (other than those acting directly or
indirectly for or on behalf of Monsanto) as a matter of legal right and
without restriction on disclosure or use, or (iii) was lawfully in
Contractor's possession prior to disclosure thereof by Monsanto to Contractor
and was not acquired by Contractor, its employees or agents directly or
indirectly from Monsanto. Further, notwith-standing anything herein to the
contrary, any disclosures required by law of such confidential information
shall not be deemed a breach of this Section 14.

        15. PATENT INFRINGEMENT. Contractor shall defend all suits and claims
for infringement of any patent rights relating to the Services and shall hold
Monsanto, its present, past and future employees and agents harmless from
loss, liability, costs and expenses on account thereof. Monsanto shall defend
all suits and claims for infringement of patent rights related to the
Materials and Product and shall hold Contractor, its present, past and future
employees and agents harmless for loss, liability, costs and expenses on
account thereof.

        16. TAXES. Unless otherwise specifically set forth in this Agreement,
Contractor shall pay all applicable sales, consumer, use, service, occupation,
privilege or other similar taxes required by law relating to the Services
(including interest and penalties, if any) without reimbursement by Monsanto.
Contractor shall also pay all federal income, excise and privilege taxes and
all state and local income taxes, if any, relating to the Services without
reimbursement by Monsanto. Any property tax assessable against the Product
shall be paid by Monsanto, and Monsanto shall pay all sales, consumer, use,
excise, service, occupation, privilege, income or other similar taxes required
by law (local, state or federal) relating to the Material or Product
(including interest and penalties, if any) without reimbursement by
Contractor.

        17. INDEPENDENT CONTRACTOR. Contractor is and shall always remain an
independent contractor in its performance of this Agreement. The provisions of
this Agreement shall not be construed as authorizing or reserving to Monsanto
any right to exercise any control or direction over the operations activities,
employees or agents of Contractor in connection with this Agreement, it being
understood and agreed that the entire control and direction of such operations
activities, employees or agents shall remain with Contractor as an independent
contractor. Neither party to this Agreement shall have any authority to employ
any person as an employee or agent for or on behalf of the other party to this
Agreement for any purpose, and neither party to this Agreement, nor any person
performing any duties or engaging in any work at the request of such party,
shall be deemed to be an employee or agent of the other party to this
Agreement.

        18. ASSIGNMENT. Neither party shall, whether by operation of law or
otherwise, assign or otherwise transfer any of its rights nor delegate the
performance of its obligations under this Agreement without the other party's
prior written consent and any attempted assignment, transfer or delegation
without such content shall be void and of no effect. Subject to the foregoing,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.

        19. NOTICE. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been sufficiently
given if delivered by hand or deposited in the United States mails, postage
prepaid, addressed as specified on Schedule G attached hereto and made a part
hereof or to such other address as may be specified from time to time in a
written notice given by such party. Both parties agree to acknowledge receipt
of any notice delivered in person.

        20. MISCELLANEOUS.

        (a) This Agreement constitutes the full understanding of the parties, a
complete allocation of risks between them and a complete and exclusive
statement of the terms and conditions of this Agreement with respect to the
subject matter hereof; and all prior agreements, negotiations, dealings and
understandings, whether written or oral, regarding the subject matter hereof,
are hereby superseded and merged into this Agreement. No conditions, usage of
trade, course of dealing or performance, understanding or agreement purporting
to modify, vary, explain or supplement the terms or conditions of this
Agreement shall be binding unless hereafter made in writing and signed by the
party to be bound, and this Agreement shall not be considered amended or
modified by a purchase order, acknowledgement or acceptance of purchase order
or shipping instruction forms containing terms or conditions at variance with
or in addition to those set forth in this Agreement. No waiver by either party
with respect to any breach or default or of any right or remedy and no course
of dealing or performance shall be deemed to constitute a continuing waiver of
any other breach or default or of any other right or remedy, unless such
waiver be expressed in writing signed by the party to be bound.

        (b) If Monsanto furnishes technical or other advice to Contractor,
whether or not at Contractor's request, Monsanto shall not be liable for, and
Contractor assumes all risk of, such advice and the results thereof, unless
such technical or other advice is given in bad faith or resulting from the
gross negligence of Monsanto. No inspection or review by Monsanto of the
Facility or Contractor's operations shall relieve Contractor of any of its
obligations under this Agreement.

        (c) As used in this Agreement, employees or agents of a party hereto
shall be deemed to include such party's past, present and future officers and
directors.

        (d) Section headings as to the contents of particular sections are for
convenience only and are in no way to be construed as part of this Agreement
or as a limitation of the scope of the particular sections to which they
refer.

        (e) The validity, interpretation and performance of this Agreement and
any dispute connected herewith shall be governed and construed in accordance
with the laws of the State of Missouri.

        (f) If any term or provision of this Agreement or any application
thereof shall be invalid or unenforceable, the remainder of this Agreement or
any other application of such term or provision shall not be affected thereby.

EL DORADO CHEMICAL COMPANY               MONSANTO COMPANY

BY /s/ James L. Wewers                   BY /s/ Gary J. Page
   ______________________                   _____________________

TITLE President                          TITLE Director, Trans-
                                               portation and
                                               Distribution
   ______________________                   _____________________
















ELDORADO.PA


                                                                 SCHEDULE A
                                                                 __________
                                                                   08/01/88


                                "MATERIAL"

                     ANHYDROUS AMMONIA SPECIFICATIONS
                     ________________________________


CHARACTERISTICS                      LIMITS               METHOD NO.
_______________                      ______                ______

Water                              0.25% min.             EDC-400
                                   0.50% max.

Oil                                5 ppm max.             EDC-410

% Anhydrous Ammonia                99.5% min.             Calculated by
    NH3                                                     difference

Iron                               1 ppm max.             EDC-420



                        EL DORADO CHEMICAL COMPANY
                               P.O. BOX 231
                      EL DORADO, ARKANSAS  71731-0231
                (501) 883-1400  FAX NUMBER: (501) 883-1428

                        PRODUCT SPECIFICATION SHEET
_________________________________________________________________
_________________________________________________________________

EFFECTIVE DATE:       07-May-92         PRODUCT NAME:  NITRIC ACID

ISSUE NUMBER:           12              PRODUCT CODE:  7000200

SUPERSEDES:             11              PRODUCT GRADE: CONCENTRATED
                                           98% (MONSANTO GRADE)
_________________________________________________________________
_________________________________________________________________
APPROVALS:

PLANT MANAGER:                       PRODUCTION MANAGER:

/s/ 6/8/92                           /s/ Marlyn Roberts 6-4-92
_________________________            _________________________
QUALITY CONTROL MANAGER:             MARKETING PRODUCT MGR:

/s/ Ken Lane  J T Carter             /s/ Ann T. O'Donnell 6/12/92
_________________________            _________________________
_________________________________________________________________
                        GENERAL PRODUCT DESCRIPTION

        A LIGHT YELLOW SOLUTION HAVING AN ODOR OF NITROGEN DIOXIDE
_________________________________________________________________
PRODUCT CHARACTERISTICS:
                                                           TEST
TEST                           SPECIFICATION   TYPICAL      METHOD
FREQUENCY     PROPERTY         LIMITS         VALUES       NO.
_________  ________________    ___________________________________


(R)        ASSAY (as %HNO3)     96.0% Max.     98.97%      EDC-141
(R)        SULFATE (as %H2804)  0.07% Max.     0.047%      EDC-130
(R)        IRON (as Fe)         7.3 ppm Max.   2.87 ppm    EDC-110
(R)        OXIDES OF NITROGEN                    0.04% (WINTER)
           (AS N203)           0.15% Max.        0.10% (SUMMER)
                                                            EDC-145
(A)        LEAD SALTS           0.10% Max.     5 ppm        EDC-143
(A)        ASH                  0.10% Max.     <0.01%       EDC-144
(A)        NITROBODIES            NIL           NIL         EDC-160
(A)        CHLORIDES (AS HC)    5.0 ppm Max.   2.0 ppm      EDC-140
(B)        ALUMINUM (AS A)      75.0 ppm Max.  12.5 ppm (WINTER) AA
(R)        TURBIDITY            (SEE NOTE: #1) CLEAR        VISUAL
 
   NOTE #1: CLEAR WITH NO VISIBLE RESIDUE

*  THE PRODUCT MEETS THE 0.15% N203 LIMIT AT THE TIME OF SHIPPING.
   DUE TO NORMAL BUILDUP, THE VALUE IS LIKELY TO BE HIGHER UPON
   DELIVERY DURING HOT WEATHER CONDITIONS.

   (R) ROUTINE ANALYSIS           (A) CHECKED AT INTERVALS

*  (B) THE ANALYSIS IS PERFORMED TWICE PER WEEK ON A BATCH BASIS
_________________________________________________________________



MONSANTO CHEMICAL COMPANY   MATERIAL NO.  DEPT.     Page  1  of  1
                                                        ___     ___
                            89119         221     Approvals - Date
                            ______________________________________

RAW MATERIAL SPECIFICATION FOR USE IN   ISSUE DATE  MGR
                                                      MANUFACTURING
                           NCB          01/11/91     /s/ W. Herman
                                                     4/1/91
_________________________________________________________________
PLANT                     REVISION NO.  REVIEW DATE SUPT.
                                                      MANUFACTURING
W.G. Krummrich Plant          1         02/01/94    /s/ J. D.
                                                        Garrison
                                                        3/12/91
_________________________________________________________________
MATERIAL (TRADE NAME)                        TOTAL QUALITY LEADER
Nitric Acid                               /s/T. M. Kreinbrook 3-19
_________________________________________________________________
MATERIAL (CHEMICAL NAME)                     PLANT PURCHASING AGENT
Nitric Acid                               /s/R. O. Cardwell 3/27/91
_________________________________________________________________
CHEMICAL FORMULA                             GROUP LEADER, R & D
                                          /s/E. D. Clemons 2/20/91
                         HNO3              ______________________
                                             OTHER:
_________________________________________________________________
SAMPLE FOR ANALYSIS                          MGR. PRODUCT SAFETY
1 x 8 Ounce GGS Bottle                    /s/J. E. Downes 4/2
_________________________________________________________________
APPROVED SUPPLIERS
El Dorado Chemical Company
_________________________________________________________________
_________________________________________________________________

Characteristics               Limits                 Method No.
____________________   ______________________   ___________________

                                             Typical
                                             _______
Appearance             Lt. yellow to                       10,201
                       red brown liquid

Color                  50 APHA, Max.         --            11,902
(Bleach 42 degree Be'
Acid Solution)

H2SO4                  0.07% Max.            0.06%         10,203

HC1                    5 ppm Max.            1 ppm         10,204

Foreign Odor           None                  None          10,207

Nitric Acid            97.5% Min.            98.5%         10,200
(HNO3)
Lead Salts             0.1% Max.             0.002%        --

Ash                    0.1% Max.             0.0007%       --

Iron                   15 ppm Max.           3 ppm         --

Oxides of              0.15% Max.            0.015%        --
Nitrogen
as N2O3

Supplier's certificate of analysis to be sent on day of shipment to Chief
Chemist, Monsanto Company, 500 Monsanto Ave., Sauget, IL  62206-1198.

                          (UNCONTROLLED DOCUMENT)
                          _______________________

NOTE: THIS SPECIFICATION IS THE PROPERTY OF MONSANTO COMPANY AND IS FOR
INTERNAL USE ONLY.  IT MAY NOT BE RELEASED WITHOUT WRITTEN APPROVAL.
_________________________________________________________________
_________________________________________________________________





                                                                 SCHEDULE C
                                                                 __________
                                                                   01/01/94


                           SPECIAL INSTRUCTIONS
                           ____________________
            (Sampling, Testing, Packaging, Labeling, Shipping)


     Contractor shall sample every shipment of Product manufactured under this
Agreement and test for acid concentration (% by weight), sulfate, oxides of
nitrogen, iron and aluminum.  Contractor shall retain for a period of two (2)
months the laboratory sample from each shipment sufficient in size to permit
at least one (1) complete reanalysis of specification properties.

     Packaging of Product is covered in Schedule D, entitled "Delivery
Schedule".

     Product shall be properly prepared and tendered for transportation in
accordance with the United States Department of Transportation Hazardous
Materials Regulations, including but not limited to (i) product
classification, (ii) containers, (iii) loading, (iv) placarding and (v)
shipping paper preparation.


ELDORADO.PA

                                                                 SCHEDULE D
                                                                   01/01/94

                        DELIVERY SCHEDULE

All shipments of Product from Contractor to Monsanto will be made F.O.B. the
Facility, and shipped freight collect. Product shall be shipped in aluminum
tank cars furnished and maintained by Contractor. At some future time
Contractor and Monsanto agree to consider Contractor contracting of freight
and reimbursement by Monsanto if advantageous rates can be achieved.

Monsanto shall supply to Contractor an estimated Product usage rate forecast
for each calendar month. This information shall be provided to Contractor no
later than five working days before the end of the prior calendar month. In
addition, Monsanto and the Contractor shall communicate verbally on an as -
needed basis, but not less than twice each week to review the status of
inbound Product shipments, released rail cars, and changes in previously
reported Product usage rates.

Further, Monsanto shall supply Contractor with a schedule of planned shutdowns
of the Plant as soon as the dates are available.

Contractor shall, in good faith, meet Monsanto's "rolling inventory" Product
requirement of l,000 tons (100% acid basis). Product requirement of 1,000 tons
(100% acid basis). Rolling inventory is the sum of Product shipped from the
Facility to Monsanto and Product in place at the Plant. Should Contractor or
Monsanto desire to exceed the 1,000 tons "rolling inventory" requirement, a
verbal agreement between both parties is necessary.

From time to time, the Contractor may be required to ship by tank truck. In
the event said tank truck shipment is caused by the Contractor's inability to
supply Product in tank cars, in the quantity as defined by Monsanto's usage
rate forecast, as specified in this Schedule D, Contractor shall pay the
difference in freight charges between tank truck and tank car.

In the event said tank truck shipment is caused by Monsanto's (i) change in
usage rate forecast, as specified in this Section D, or (ii) inadequate supply
of Material, Monsanto shall pay the freight charges for tank truck shipment.

In the event said tank truck shipment is caused by a third party, the payment
of the difference in freight charges between tank truck and tank car shall be
negotiated on a case by case basis. Any use of tank truck must be approved in
advance by the Monsanto Representative.

Contractor's weights of Product will govern unless proven to be in error. For
all shipments made by tank car, Contractor's weights will be those weights of
Product made by the Union Pacific Railroad Company on their scales.

Delivery of Material to Contractor hereon shall be made by the Gulf Central
Pipeline System with all costs for delivery to be born by Monsanto, or
otherwise as may be mutually agreed to by the parties. Measurements of
material by the Gulf Central Pipeline System metering point at the Facility
will govern as weights of Material.

If either receiving party should question the Material or Product weights, the
shipping party shall promptly supply the receiving party with adequate
substantiation thereof.  Empty Product tankcars are stick measured upon return
to Contractor. Heals greater than one inch will be credited to Monsanto. 

The above Delivery Schedule shall be reviewed on an annual basis with the
Monsanto Representative and Contractor's Customer Service XXXXXXXXX
Representative.

ELDORADO.PA

                                                                 SCHEDULE F
                                                                   01/01/94


                         INVOICES AND INVENTORIES


Contractor will use its best efforts to mail invoices for the Service Fee
relative to Product delivered to Monsanto hereunder within seven (7) days of
the date of shipment of such Product by Contractor from Facility. Terms of
payment shall be net cash due thirty (30) days from date of receipt of the
invoice.

      Product Service Fee invoices shall be sent to:

             The Chemical Group of Monsanto Company
             Arrangement Section
             Attn: T. Smith - F3ED
             800 North Lindbergh Blvd.
             St. Louis, Missouri 63167

Copies of Product Service Fee invoices will be sent to others within Monsanto
per written instructions from The Monsanto Representative.

Contractor recognizes that Monsanto needs to have an uninterrupted supply of
Product. Subject to the terms of this Agreement and Monsanto maintaining with
Contractor at the Facility an inventory of Material in accordance with the
terms of this Agreement, Contractor agrees to maintain an appropriate
inventory of Product of between 800 and 1,200 tons at the Facility.

Contractor shall send Monsanto a monthly summary report of all Product Service
Fee invoices and material balances. An example of this report is described in
Schedule H.

ELDORADO.PA

                                                                 SCHEDULE G
                                                                   01/01/94

                          REPRESENTATIVES AND NOTICES

The Monsanto Representative for this contract shall be Mr. Robert E. Howard
(Monsanto telephone number (314) 694-8054, mail code G5NA). The Monsanto
Representative shall answer any technical and commercial questions relating to
this contract.

Notices by either party shall be made in writing through a contract
representative. "Monsanto Contract Representative" shall mean:

              Mr. William F. Parker (F2WB)
              Manager - Toll Manufacture
              The Chemical Group of Monsanto Company
              800 North Lindbergh Blvd.
              St. Louis, Missouri  63167

              and whose telephone number is:
              (314) 694-7030


"Contractor Representative" shall mean:

              Ms. Anne T. O'Donnell
              Manager, Industrial Chemicals
              El Dorado Chemical Company
              P.O. Box 419082
              St. Louis, Missouri 63141-1782

              and whose telephone number is:
              (314) 991-2853


Both Monsanto and Contractor shall have the right to change such
representative at any time upon prior written notice to the other party.











ELDORADO.PA





29-Jun-88                                                          08/01/88
                                                      SCHEDULE H
                                                      __________

     EL DORADO CHEMICAL CO./MONSANTO CO.        MONTHLY PRODUCT INVOICES
     CONCENTRATED NITRIC ACID CONVERSION          AND MATERIAL BALANCE
                                                ________________________

     MAY 1988                                 ACID TONNAGE
                                  ______________________________________
SHIP   SHIPPER INVOICE  RAIL CAR  TONS AS   ASSAY   TONS ACID   EQUIV.
DATE   NUMBER  NUMBER   NUMBER    SHIPPED  PERCENT  100% BASIS  NH3 TONS 
04-May  41323   86462   MCPX 6017   95.65   99.46%     95.133    28.741
05-May  41324   86905   ECDX 6200  125.95   99.50%    125.320    37.861
09-May  41325   88186   ECDX 2352   54.25   99.05%     53.735    16.234
09-May  41326   87000   ECDX 2353   61.85   99.36%     61.454    18.566
09-May  41327   87001   ECDX 2359   61.70   98.84%     60.984    18.424
16-May  41328   88187   ECDX 6201  124.70   98.92%    123.353    37.267
17-May  41329   88188   ECDX 6202  123.45   98.97%    122.178    36.912
17-May  41330   87887   ECDX 6015   95.15   99.07%     94.265    28.479
18-May  41331   88189   ECDX 6207  123.10   98.90%    122.339    36.961
23-May  41332   88602   ECDX 2357   61.95   98.46%     60.996    18.428
23-May  41333   88603   ECDX 2358   60.80   99.06%     60.228    18.196
24-May  41334   88708   ECDX 6200  123.90   98.85%    122.475    37.002
26-May  42645   88855   ECDX 6007   94.60   98.86%     93.522    28.254
26-May  42646   88856   ECDX 6010   95.05   99.16%     94.252    28.475
27-May  42647   89024   GATX 27013  99.10   99.24%     98.347    29.712
27-May  42648   89165   ECDX 2350   59.20   98.74%     58.454    17.660
27-May  42649   89166   ECDX 2352   60.35   98.55%     59.475    17.968
31-May  42650   89167   MONX 6204  120.75   98.93%    119.458    36.090
28-May  42651   89025   MCPX 6016   97.40   98.93%     96.358    29.111
   May  42652   89168   ECDX 6015   94.75   98.85%     93.660    28.296

                                             TOTALS: 1815.988   548.637

                   CONTRACT YEAR-TO-DATE BALANCE
                AUGUST 1987 THRU JULY 1988(TONS XH3)
             ____________________________________________

             BAL. DUE MONSANTO AT END
             OF PRIOR CONTRACT YEAR:              799.757

             YTD NH3 OWED TO MONSANTO:            912.866

             PLUS CURRENT MONTH DELIVERIES:       498.500
                                                __________
             MONSANTO TOTAL YTD:                 1411.366

             LESS CURRENT MONTH CONVERTED:        548.637
                                                __________
             BALANCE OWED TO MONSANTO THRU MAY:   862.729




SUBMITTED BY:  /s/A. T. O'Donnell     Date: 6/3/88
               __________________           _______________

YTD SHIPMENTS TO MONSANTO(TONS OF NITRIC):      22361.787


                                -25-


EL DORADO CHEMICAL COMPANY    MATERIAL SAFETY DATA     Page 1 of 4
_________________________________________________________________
                                           SCHEDULE I
                                    EL DORADO CHEMICAL COMPANY
El Dorado Chemical Company                 P.O. Box 231
Product Name                        EL DORADO, ARKANSAS 71731-0231
CONCENTRATED                        Plant Emergency Phone No.:
NITRIC ACID (98%)                         (501) 863-1400
                                      Chemtrec: 1-800-424-9300
_________________________________________________________________
PRODUCT IDENTIFICATION
_________________________________________________________________
Chemical Name:           Concentrated Nitric Acid

Synonyms:                Hydrogen Nitrate, Aqua Fortis, White
                            Fuming Nitric Acid

Chemical Formula:        HNO3

Concentration Range:     98 to 100%

CAS Reg. Number:         7697-37-2

DOT Proper Shipping      Nitric Acid (other than red fuming with
   Name:                    more than 70 percent nitric acid)

DOT/IMO Hazard Class:    8

DOT I.D. Number:         UN 2031

DOT Label(s)/Placard(s): CORROSIVE

DOT Emergency Response
   Guide Number:         Guide Number 44

Hazardous Substance(s)/
   RQ(s):                Yes - 1,000 lbs. (See Additional Comments)

U.S. Surface Freight
   Classification:       NITRIC ACID, 8, UN 2031, PG I, RQ
_________________________________________________________________
WARNING STATEMENTS
_________________________________________________________________
DANGER!
THIS PRODUCT IS A STRONG OXIDIZER!
LIQUID AND VAPOR CAUSE SEVERE BURNS
HARMFUL IF INHALED AND MAY CAUSE DELAYED LUNG INJURY
SPILLAGE MAY CAUSE FIRE OR LIBERATE DANGEROUS GAS
_________________________________________________________________
PRECAUTIONARY MEASURES
_________________________________________________________________
Do not breathe vapor.
Do not get in eyes, on skin, on clothing.
Keep container closed.
Use with adequate ventilation.
Wash hands and/or other exposed areas thoroughly after handling.
_________________________________________________________________
EMERGENCY AND FIRST AID PROCEDURES
_________________________________________________________________
IN CASE OF EYE OR SKIN CONTACT, immediately flush with plenty of water for at
least 15 minutes while removing contaminated clothing and shoes.  Call a
physician.  Wash clothing before reuse.

IF INHALED, remove to fresh air.  If not breathing give artificial
respiration, preferably mouth-to-mouth.  If breathing is difficult, give
oxygen.  Call a physician.

IF INGESTED, and the victim is conscious, give large amounts of water or
preferably milk.  Do not induce vomiting.  Transport the victim to a medical
facility immediately.

MATERIAL SAFETY DATA Concentrated Nitric Acid (98%)
                     ______________________________



EL DORADO CHEMICAL COMPANY    MATERIAL SAFETY DATA     Page 2 of 4
_________________________________________________________________
PROTECTION INFORMATION
_________________________________________________________________
Eye Protection:                 Wear chemical safety goggles and face shield
                                when there is potential for eye and/or facial
                                contact with the liquid.  Provide eye baths in
                                the immediate area of potential exposure.

Skin Protection:                Wear impervious PVC or Neoprene rubber gloves
                                and protective long-sleeved clothes when there 
                                is potential for skin contact with the liquid.
                                Wear impervious rubber boots, aprons and/or
                                suits as appropriate when splashing is likely.
                                Remove contaminated clothing promptly and
                                launder before reuse.  Provide a safety shower
                                in the immediate vicinity of potential
                                exposure.

Respiratory
  Protection:                   Wear an NIOSH approved full face respirator or
                                a positive pressure self-contained breathing
                                apparatus as appropriate for protection.  When
                                worn, chemical safety goggles are removed. 
                                Consult with respirator manufacturers to
                                determine the appropriate type of equipment for
                                a given application.

Ventilation:                    Provide sufficient ventilation to control
                                exposure levels below airborne exposure limits
                                of 0.2 ppm. Local exhaust ventilation is
                                preferred.
_________________________________________________________________
FIRE PROTECTION INFORMATION
_________________________________________________________________
Flash Point:                    Not Applicable; strong oxidizing agent

Ignition Temperature:           Not Applicable

Flammable Limits:               Not Applicable

Extinguishing Media:            In case of FIRE, soak with water.

Special Fire Fighting           Wear full acid protective clothing with
   Instructions:                self-contained breathing apparatus. Evac-
                                uate area and stay upwind.

Unusual Fire and                Powerful oxidizing agent. May cause
   Explosion Hazards:           explosion when in contact with oxidizable
                                materials such as H2S, nitrate, wood,
                                cellulose, or other organic material.
_________________________________________________________________
HEALTH HAZARD DATA
_________________________________________________________________
Acute Effects:                  Nitric acid is highly corrosive, suffocating,
                                and fuming.  The dilute acid can cause mild
                                irritation, harden skin epithelium without
                                destruction and cause chronic skin irritation. 
                                The concentrated acid severely burns and stains
                                the skin, destroys the tissues and burns the
                                eyes.

                                Inhalation of nitric acid vapors is injurious
                                to the lungs. Evidences of lung damage
                                following exposure characteristically appear
                                after a 4-30 hour delay. This, in the form of
                                lung edema, may be severe and sometimes fatal.

Chronic Effects:                Continued exposure to nitric acid fumes can
                                erode the teeth and is severely irritating and
                                corrosive to the mucous membranes of the
                                respiratory tract.

Ingestion:                      Ingestion of concentrated nitric acid causes
                                immediate pain and burning of the mouth,
                                throat, and stomach. Symptoms may range from
                                nausea, vomiting, circulatory collapse, to
                                death.

Carcinogenic Status:            None suspected.

Airbone
   Exposure Limits:             Product: CONCENTRATED NITRIC ACID (98%)--100%
                                by wt.

                                Exposure should be kept below these
                                limits:

                                Nitric Acid:
                                   OSHA PEL/TWA--2 ppm (8 hr)
                                   ACGIH TLV(X)/TWA--2 ppm (8 hr)
                                   STEL--4 ppm (15 min)
_________________________________________________________________

MATERIAL SAFETY DATA Concentrated Nitric Acid (98%)
                     ______________________________



EL DORADO CHEMICAL COMPANY    MATERIAL SAFETY DATA     Page 3 of 4
_________________________________________________________________
PHYSICAL DATA
_________________________________________________________________
Appearance and Odor:                    Colorless to light brown
                                        liquid with acrid odor.

Water Solubility:                       Miscible

Weight % HNO3:                          98.0 minimum

Specific gravity @ 60/60F:             1.5088

Bulk Density, lbs/gal (60F, 100F):    12.52, 12.80

Freezing Point, F(Approx.):            -42

Boiling Point, F(Approx.):             183

Viscosity, cp @ 20C(68F):             1.0

Vapor Density (Air=1):                  >1

pH:                                     <1

Vapor Pressure (mm Hg):                 51.0 @ 25C(77F)

Evaporation Rate (Butyl Acetate=1):     >1
_________________________________________________________________
REACTIVITY DATA:
_________________________________________________________________
Conditions to Avoid:            Avoid contact with organic refuse (wood,
                                alcohol, turpentine, charcoal, etc.)

Incompatibility:                Nitric acid is a strong oxidizer. Avoid contact
                                with organic materials, reducing agents,
                                alkali, and metallic powders. Corrodes most
                                metals.

Hazardous Decomposition         Oxides of nitrogen, a toxic gaseous
   Products:                    material, are produced.

Hazardous Polymerization:       Does not occur.
_________________________________________________________________
SPILL, LEAK & DISPOSAL INFORMATION
_________________________________________________________________
For a SPILL or LEAK, keep upwind of leak. Evacuate enclosed places until gas
has dispersed. Flush away spill by flooding with water applied quickly to
entire spill. Wear self-contained breathing apparatus if necessary to enter
spill area.

Avoid skin, eye and respiratory contact - See Protection Information.


Flush small leaks and spills with large quantities of water. Where possible,
contain and dilute large spills; then neutralize with limestone, soda ash, or
liquid caustic soda.

Caution: Neutralization can produce vigorous reactions, boiling, and fumes.
Remain upwind, evacuate downwind, if necessary. Dispose of any neutralization
sludges or heavily contaminated soils in an approved landfill.

NOTE: Cleaned-up material is an RCRA Hazardous Waste.  Comply with
      federal, state and local regulations for waste disposal.
_________________________________________________________________
REGULATORY INFORMATION
_________________________________________________________________
TOXIC SUBSTANCES CONTROL ACT (TSCA):

This substance is listed on the Toxic Substances Control Act inventory.

SUPPLIER NOTIFICATION REQUIREMENTS:

This product, concentrated nitric acid, is subject to the reporting
requirements of Section 313 of Title III of the Superfund Amendments and
Reauthorization Act (SARA) of 1986 and 40 CFR-Part 372.

HAZARD CATEGORIES, per 40 CFR-Part 370:
   HEALTH: Immediate (Acute), Delayed (Chronic)
   PHYSICAL: Reactivity, Oxidizer
_________________________________________________________________

MATERIAL SAFETY DATA Concentrated Nitric Acid (98%)
                     ______________________________




EL DORADO CHEMICAL COMPANY    MATERIAL SAFETY DATA     Page 4 of 4
_________________________________________________________________
ADDITIONAL COMMENTS:
_________________________________________________________________
Concentrated nitric acid is a designated "Hazardous Substance". Spills of 1000
pounds or greater must be reported to the E.P.A. Call the National Response
Center at 800-424-8802, or a regional office.
_________________________________________________________________
EFFECTIVE DATE: July, 1992             SUPERSEDES: September, 1991
_________________________________________________________________
FOR ADDITIONAL NON-EMERGENCY INFORMATION CONTACT: (314) 991-2853
                    El Dorado Chemical Company
                    P.O. Box 419082
                    St. Louis, Missouri 63141-1782
_________________________________________________________________
Although the information and recommendations set forth herein (hereinafter
"Information") are presented in good faith and believed to be correct as of
the date hereof. El Dorado Chemical Company makes no representations as to the
completeness or accuracy thereof. Information is supplied upon the condition
that the persons receiving same will make their own determination as to its
suitability for their purposes prior to use. In no event will El Dorado
Chemical Company be responsible for damages of any nature whatsoever
(resulting from the use or reliance upon Information. NO REPRESENTATIONS OR
WARRANTIES, EITHER EXPRESS OR IMPLIED, OR MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR OF ANY OTHER NATURE ARE MADE HEREUNDER WITH RESPECT TO
INFORMATION OR THE PRODUCT TO WHICH INFORMATION REFERS
_________________________________________________________________
_________________________________________________________________
TLV is a registered trademark of the American Conference of Governmental
Hygienists. (ACGIH)




MATERIAL SAFETY DATA Concentrated Nitric Acid (98%)
                     ______________________________
 




sec\10k\tk94xt22
                                                              Exhibit 10.25


                        LOAN AND SECURITY AGREEMENT

                                (DSN Plant)


                          Dated October 31, 1994


                                  between


                             DSN CORPORATION,

                                as Borrower


                                    and


                 THE CIT GROUP/EQUIPMENT FINANCING, INC.,

                                 as Lender


































                        LOAN AND SECURITY AGREEMENT
                                (DSN Plant)


        This LOAN AND SECURITY AGREEMENT (the "Agreement"), dated October 31,
1994, is made and entered into by and between DSN CORPORATION, an Oklahoma
corporation (the "Borrower"), and THE CIT GROUP/EQUIPMENT FINANCING, INC., a
New York corporation (the "Lender").

        NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and of any loans or other credit facilities now
or hereafter made to Borrower by Lender, the parties hereto covenant and agree
as follows:


                                 ARTICLE 1
                                DEFINITIONS

        The following capitalized terms have the following meanings when used
in this Agreement:

        "AFFILIATE" means any of LSB, EDC, LSBC, Prime Financial Corp., Total
Energy Systems, Ltd., Slurry Explosive Corporation, Universal Tech
Corporation, LSB Holdings, Inc., and any other Person controlling or
controlled by or under common control with LSB Industries, Inc. or any of
their Subsidiaries, successors or assigns.

        "ASSIGNMENT OF CONSTRUCTION CONTRACT, PLANS AND
SPECIFICATIONS" means the Assignment of Construction Contract Plans and
Specifications in form and substance satisfactory to the Lender, wherein the
Lender is assigned the Construction Contract and the Plans and Specifications
as security for the Obligations.

        "BONDING COMPANY" means American Bonding Company, the company issuing
payment and performance bond No. 9417875 in connection with the construction
of the DSN Plant.

        "BUSINESS DAY" means any day which is not a Saturday, Sunday or day
on which banks in New York are required or permitted to close.

        "CODE" means the Internal Revenue Code of 1986, as amended.

        "COLLATERAL" means:  (i) all personal property referred to in Section
3.1; (ii) all real property interests of Borrower in the DSN Plant Location,
the DSN Plant and the Ground Lease and the Ground Sublease; and (iii) all
other property and interests in property, real or personal, now owned or
leased or hereafter acquired or leased, which is hereafter pledged or assigned
to Lender as collateral security for payment of any of the Obligations.

        "CONSENT TO ENCUMBRANCE" means that certain Consent to Encumbrance of
Leasehold Estate and Landlord's Waiver of even date herewith executed by
Northwest Financial Corporation and Borrower in favor of Lender.

        "CONSTRUCTION CONSULTANT" means Brown & Root, Inc., and any
subsequent consultant, selected by Lender as Construction Consultant under
Section 2.2(c) hereof.

        "CONSTRUCTION CONTRACT" means, collectively, that certain
correspondence dated November 22, 1993 and November 24, 1993, between EDC and
Systems Contracting Corporation, which has been assigned to Borrower, together
with all other correspondence with Systems Contracting Corporation and all
other construction contracts and equipment purchase contracts related to the
construction of the DSN Plant.

        "CONSTRUCTION PERIOD" means the period commencing on the date hereof
and ending on the first to occur of:  (i) March 31, 1995 or (ii) the DSN Plant
Completion Date.

        "CONSULTING AGREEMENT" means the Consulting Agreement dated October
31, 1994 between EDC and DSN relating to the DSN Plant.

        "CONTRACTOR" means Systems Contracting Corporation and each other
Person who has entered into a Construction Contract with, or which has been
assigned to, Borrower.

        "CONTRACTORS' CONSENTS" means, collectively, the Contractor's Consent
and Certification executed by each Contractor in favor of Lender.

        "DEFAULT" means any Event of Default or event which, with notice or
passage of time or both, would constitute an Event of Default.

        "DISBURSEMENT SCHEDULE" means the disbursement schedule and budget
annexed to this Agreement as Exhibit "D", in form and substance acceptable to
Lender.

        "DISCLOSURE SCHEDULE" means the disclosure schedule annexed to this
Agreement as Exhibit "A".

        "DSN PLANT" means Borrower's direct strong nitric acid plant located
at the DSN Plant Location.


        "DSN PLANT EQUIPMENT LEASE" means that lease dated to be effective as
of the date hereof between Borrower as lessor and EDC as lessee with respect
to the DSN Plant and including
the Equipment relating thereto.

        "DSN PLANT COMPLETION DATE" means the date on which Lender reasonably
determines that all of the following have occurred:  (a) Borrower and EDC
shall have certified to Lender in writing that the DSN Plant has been fully
constructed and completed in substantial accordance with the Plans and
Specifications and is in operation, that the DSN Plant as completed complies
with applicable zoning, building and land use laws, and that the DSN Plant
Equipment Lease, the Ground Lease, the Ground Sublease and the Consulting
Agreement are in full force and effect; (b) the Construction Consultant shall
have confirmed to Lender that construction of the DSN Plant has been completed
in substantial accordance with the Plans and Specifications, and that direct
connection has been made to all pipelines, supply lines, and all water, gas,
sewer, telephone and electrical facilities necessary for the operation and use
of the DSN Plant, (c) a valid notice of completion has been filed for record
in the Office of the County Recorder for the County in which the DSN Plant is
located, (d) all inspections by any applicable governmental entities necessary
to permit the start-up of the DSN Plant have been completed and all necessary
certificates and approvals for occupation and operation of the DSN Plant have
been obtained, and (e) the period for filing mechanics' and materialmen's
liens has expired without any material liens having been filed or recorded or
lien waivers have been obtained from contractors which performed more than
$50,000 of work or provided more than $50,000 of materials, or, where
applicable, Lender's Title Policy has fully insured against mechanics' or
materialmen's liens.

        "DSN PLANT LOCATION" means the location of the DSN Plant at El
Dorado, Union County, Arkansas, more particularly described in Exhibit "C."

        "EDC" means El Dorado Chemical Company, an Oklahoma corporation.

        "ENVIRONMENTAL LAWS" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance, orders and consent
decrees relating to hazardous substances, discharges, releases or disposals of
pollutants, solid waste or hazardous materials, or any other environmental
matters applicable to the Borrower's business, the DSN Plant or the DSN Plant
Location.  Such laws and regulations include the Resource Conservation and
Recovery Act, 42 U.S.C. section 6901 et seq., as amended; the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. section 9601
et seq., as amended; the Toxic Substances Control Act, 15 U.S.C. section 2602
et seq., as amended; the Clean Water Act, 33 U.S.C. section 466 et seq., as
amended; the Clean Air Act, 42 U.S.C. section 7401 et seq., as amended; state
and federal superlien and environmental cleanup programs; and U.S. Department
of Transportation regulations.  The terms "hazardous substance" and "release"
shall have the meanings specified in the Federal Comprehensive Environmental
Responsibility Cleanup and Liability Act of 1980, as the definition of such
terms may be subsequently modified, supplemented or amended ("CERCLA") and the
terms "solid waste" and "disposal" shall have the meanings specified in the
Federal Resource Conservation and Recovery Act of 1976, as the definition of
such terms may be subsequently modified, supplemented or amended ("RCRA";
provided, however, that in the event either CERCLA or RCRA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment; and provided,
further, however, that to the extent a parcel of real property is situated in
a state or other jurisdiction in which the applicable laws may establish a
meaning for "hazardous substance," "release," "solid waste," or "disposal"
which is broader than that specified in either CERCLA or RCRA, such broader
meaning shall apply.

        "EQUIPMENT" means all now or hereafter acquired equipment (as that
term is defined in the UCC) now or hereafter located at the DSN Plant or
relating to the DSN Plant, including machinery, data processing hardware and
software, furniture, fixtures, trade fixtures, leasehold improvements, office
equipment, strong acid plant equipment, storage tanks, strong acid building
structure, compressor building, refrigeration facilities, piping, valves,
plant equipment, machinery, electronics, instrumentation, panels, control
systems and other tangible personal property and all accessions, accretions,
replacements and additions to Equipment, and all other component and auxiliary
parts used or to be used in connection with or attached to any of the same,
and all manuals, drawings, instructions, warranties and rights with respect
thereto wherever any of the foregoing is located.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

        "EVENT OF DEFAULT" means any event so described in Section 8.1.

        "FAIR MARKET VALUE" means the price that a knowledgeable buyer would
be willing to pay a knowledgeable seller, neither being under any duress to
buy or sell and both having reasonable knowledge of relevant facts, for the
machinery and equipment in place and in operation, taking advantage of all
leasehold and site improvements designed to facilitate its operation, with the
seller accurately and completely representing the existing condition and
operability of the machinery and equipment to the buyer.  Consideration is
given to each asset's contribution to the operating facility, or the
contribution of all the assets as a whole, whichever appropriately addresses
production capabilities of the plant.  It is assumed that all specially
designed and built machinery and equipment will continue to be utilized in the
manner for which it was originally intended.

        "FINANCIAL STATEMENT" means any financial statement given to the
Lender pursuant to Section 6.1.

        "FISCAL YEAR" means, as to any Person, such Person's fiscal year for
financial accounting purposes.  The Borrower's current Fiscal Year ends on
December 31, 1994.

        "FUNDING DATE" means the date on which the initial advance is made.

        "GAAP" means, as of any date of determination, generally accepted
accounting principles consistently applied during each interval and from
interval to interval.

        "GROUND LEASE" means the lease agreement dated as of October 31, 1994
between the Borrower and Northwest Financial Corporation pursuant to which
Northwest Financial Corporation granted Borrower the right to occupy the real
property associated with the DSN Plant and to construct, use, occupy and
sublease the DSN Plant at the DSN Plant Location.

        "GROUND SUBLEASE" means the sublease dated 
October 31, 1994 of the Ground Lease from DSN to EDC.

        "GUARANTOR" means any Person who has executed a Guaranty in favor of
the Lender with respect to the Obligations, including LSB and LSBC. 

        "GUARANTY" means each continuing guaranty executed and delivered by
LSB, LSBC and any other Guarantor in form and substance acceptable to Lender
guarantying the Obligations.

        "HAZARDOUS SUBSTANCE" means any substance, material or waste
(including petroleum and petroleum products) which is or becomes designated,
classified or regulated as being "toxic" or "hazardous" or a "pollutant," or
which is or becomes similarly designated, classified or regulated, under any
Environmental Laws.

        "INDEBTEDNESS" means, as to any Person, (a) all indebtedness of such
Person for borrowed money, (b) that portion of the obligations of such Person
under capital leases which is properly recorded as a liability on a balance
sheet of that Person prepared in accordance with GAAP, (c) any obligation of
such Person that is evidenced by a promissory note or other instrument
representing an extension of credit to such Person, whether or not for
borrowed money, or any obligation of such Person for the deferred purchase
price of property or services (other than trade or other accounts payable in
the ordinary course of business in accordance with terms customary to DSN or
its Affiliates), (d) any obligation of such Person that is secured by a Lien
on assets of such Person, whether or not that Person has assumed such
obligation or whether or not such obligation is non-recourse to the credit of
such Person, but only to the extent of the fair market value of the assets so
subject to the Lien, (e) obligations of such Person arising under acceptance
facilities or under facilities for the discount of accounts receivable of such
Person and (f) obligations of such Person for unreimbursed draws under letters
of credit issued for the account of such Person.

        "LATE CHARGE RATE" shall mean a rate per annum equal to the higher of
3% over the applicable interest rate set forth in Section 2.4 or 18%, but not
to exceed the highest rate permitted by applicable law.

        "LEASEHOLD MORTGAGE" means the leasehold mortgage, in form and
substance satisfactory to Lender, wherein Lender is granted a first priority
Lien in Borrower's right, title and interest in the DSN Plant Location, the
DSN Plant, the Ground Lease, and the Ground Sublease.

        "LIBOR RATE" means the rate of interest equal to the 30-day London
Interbank Offered Rate.  The Libor Rate shall be that which is reported and
published in The Wall Street Journal for the 15th day of each month (if the
15th day is not a day for which The Wall Street Journal reports the Libor
Rate, then on the first preceding day for which The Wall Street Journal
reports the Libor Rate), and shall become effective as of the first day of the
calendar month succeeding such determination and shall continue in effect to,
and including, the last day of such calendar month.  If The Wall Street
Journal ceases to be published, or ceases to publish the Libor Rate, then the
Libor Rate shall be that which is reported and published on the day specified
above in any similar publicly available source designated by Lender.

        "LIEN" means any mortgage, deed of trust, pledge, deed to secure
debt, hypothecation, assignment, encumbrance, lien (statutory or other),
security interest or other security agreement, including any conditional sale
or other title retention agreement.  "Lien" includes reservations, exceptions,
easements, leases and other restrictions and encumbrances affecting real
property.  For purposes hereof a Person shall be deemed to own property
acquired or held pursuant to a conditional sale or similar security
arrangement.

        "LOAN" shall have the meaning assigned in Section 2.1.

        "LOAN DOCUMENTS" means, collectively:

        a.    this Agreement
        b.    the Note
        c.    the DSN Plant Equipment Lease
        d.    the Assignment of the DSN Plant Equipment Lease
        e.    the acknowledgment and Consent to Assignment of the DSN Plant
              Equipment Lease
        f.    sufficient UCC-1 Financing Statements for filing in Arkansas
              and Oklahoma
        g.    the Leasehold Mortgage with Assignment to Leases and Rents
        h     the Guaranty (LSB)
        i.    the Guaranty (LSBC)
        j.    the Consent to Encumbrance
        k.    Request for Advance
        l.    the Assignment of Construction Contract, Plans and
              Specifications
        m.    the Tenant Subordination Agreement
        n.    the Contractors' Consents

and any other opinions, resolutions, certificates, documents or agreements of
any nature or type heretofore or hereafter executed or delivered by Borrower,
Affiliates or Guarantors to Lender pursuant to this Agreement or any Loan
Document in each case either as originally executed or as the same may from
time to time be supplemented, modified, amended, restated or extended.

        "LSB" means LSB Industries, Inc., a Delaware corporation.

        "LSBC" means LSB Chemical Corp., an Oklahoma corporation.

        "MIXED ACID PLANT LOAN" means that certain loan in the original
principal amount of approximately $1,075,200 to be made by Lender to Borrower
pursuant to the Mixed Acid Plant Loan Documents.

        "MIXED ACID PLANT LOAN DOCUMENTS" means that certain Loan and
Security Agreement (Mixed Acid Plant) which the parties intend to prepare and
execute between Lender and Borrower, and all other "Loan Documents" described
therein, relating to a loan by Lender to Borrower to finance the acquisition
and construction of a mixed acid plant in North Carolina.

        "NOTE" means the promissory note which evidences the Loan,
substantially in the form of Exhibit "B".

        "OBLIGATIONS" means and includes the aggregate of the unpaid
principal balance of the Loan and all accrued interest thereon, and all other
loans, indebtedness, debts, liabilities, obligations, interest, fees,
premiums, guarantees, amounts, indemnities, reimbursements, covenants and
duties owing by the Borrower to the Lender under any one or more of the Loan
Documents, of every kind and description (whether or not evidenced by any note
or other instrument and whether or not for the payment of money), direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising.  "Obligations" include:  (i) all interest, fees, charges or
other costs and payments that the Borrower is required to pay to the Lender
under or as a result of the Loan Documents or by law and (ii) all costs and
expenses described in Section 2.7 or otherwise required to be paid by the
Borrower to the Lender pursuant to any Loan Document.

        "PENSION PLAN" means any pension plan as defined in Section 3(2) of
ERISA which is a multi employer plan or a single employer plan as defined in
Section 4001 of ERISA and subject to Title IV of ERISA and which is:  (i) a
plan maintained by the Borrower, or any Subsidiary or any Related Company;
(ii) a plan to which the Borrower, or any Subsidiary or any Related Company
contributes or is required to contribute; (iii) a plan to which the Borrower,
or any Subsidiary or any Related Company was required to make contributions at
any time during the five calendar years preceding the date of this Agreement;
or (iv) any other plan with respect to which the Borrower, or any Subsidiary
or any Related Company has incurred or may incur liability, including
contingent liability, under Title IV of ERISA, either to such plan or to the
Pension Benefit Guaranty Corporation.

        "PERMITTED LIENS" means:  (i) Liens for taxes not yet payable or
being contested in good faith and by appropriate proceedings diligently
pursued, provided that the reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor; (ii) mechanics' and
similar liens incurred in the ordinary course of business or in the
construction of the DSN Plant, not to exceed, at any given time, an aggregate
of $150,000.00, securing non-overdue obligations or for which an adequate bond
has been posted; (iii) Liens in favor of the Lender; (iv) Liens described on
the Disclosure Schedule as such Disclosure Schedule is in effect on the date
hereof; and (v) all exceptions and Liens identified in the Title Policy.

        "PERSON" means any individual, trust, firm, partnership, corporation
or any other form of public, private or governmental entity or authority.

        "PLANS AND SPECIFICATIONS" means those Plans and Specifications
related to the construction of the DSN Plant, which Plans and Specifications
must be acceptable to Lender.

        "PROCEEDS" means all products and proceeds (as defined in the UCC) of
any Collateral, and all proceeds of any such proceeds, including all awards
for taking by eminent domain, all proceeds of fire or other insurance and all
proceeds obtained as a result of any legal action or proceeding with respect
to any Collateral.

        "RAIL CAR LOAN" means that certain loan in the original principal
amount of approximately $1,169,800, made by Lender to Borrower pursuant to
Rail Car Loan Documents.

        "RAIL CAR LOAN DOCUMENTS" means that certain Loan and Security
Agreement (Rail Car) which the parties intend to prepare and execute between
Lender and Borrower, and all other "Loan Documents" described therein,
relating to a loan by Lender to Borrower to acquire ten new nitric acid rail
cars.

        "RELATED COMPANY" means any member of any controlled group of
corporations (as defined in the Code) of which the Borrower is a party, or any
trade or business (whether or not incorporated) which together with the
Borrower would be treated as a single employer under Section 4001 of ERISA.

        "REPORTABLE EVENT" shall have the meaning assigned to that term in
Title IV of ERISA, including a reportable event described in Section 4043 of
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a creation of operations described in Section
4062(e) of ERISA.

        "REQUEST FOR ADVANCE" means a certificate executed and delivered by
Borrower in form acceptable to Lender which contains all of the information as
described in Section 2.2(b) hereof.

        "SECURITY INTEREST" collectively means the Liens created for the
benefit of the Lender pursuant to the Loan Documents.

        "SUBSIDIARY" means any present or future corporation of which more
than 50% of the outstanding stock having by its terms the ordinary voting
power to elect a majority of the board of directors, managers or trustees of
such corporation is at the time, directly or indirectly through one or more
intermediaries, owned or controlled by the Borrower and/or one or more of its
Subsidiaries, irrespective of whether or not, at the time, stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency.  If at any time, and only for so
long as, the Borrower has no Subsidiaries, provisions of this Agreement which
refer to Subsidiaries shall be of no force and effect insofar a they pertain
to Subsidiaries although they shall remain in full force and effect as to all
other Persons in question.

        "TENANT SUBORDINATION AGREEMENT" means that certain Subordination,
Nondisturbance, Estoppel and Attornment Agreement dated October 31, 1994,
executed by EDC and Borrower in favor of Lender.

        "TERM OUT PERIOD" has the meaning assigned to such term in Section
2.3(b) of this Agreement.

        "TITLE POLICY" means the policy of title insurance referred to in
Section 2.9 hereof.

        "TREASURY RATE" means the rate per annum equal to the yield to
maturity for the U.S. Treasury Security having a remaining term to maturity
closest to five (5) years as at (and shall be fixed as of) the close of
business on the third Business Day prior to the first day of the Term Out
Period, as such yield to maturity is reported on page 5 ("U.S. Treasury and
Money Markets") of the information ordinarily provided by Telerate Systems
Incorporated (provided that if Telerate Systems Incorporated ceases to report
such information, then such information shall be taken from any publicly
available source of similar data designated by Lender).

        "UCC" means the Uniform Commercial Code (or any successor statute) as
from time to time in effect in any applicable jurisdiction.


                                 ARTICLE 2
                                 THE LOAN

        Section 2.1  THE LOAN.  On the basis of the covenants, agreements and
representations of Borrower contained herein and subject to the terms and
conditions hereinafter set forth, Lender agrees to lend to Borrower and
Borrower agrees to borrow from Lender a sum not to exceed the principal amount
of TWELVE MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($12,750,000.00) (the "Loan"), the proceeds of which are to be disbursed by
Lender exclusively for the payment of the following costs and expenses as
hereinafter provided:  (i) costs and expenses incurred in connection with the
construction of the DSN Plant; (ii) other costs and expenses incidental to the
DSN Plant; and (iii) costs and expenses incurred in connection with the Loan
and Borrower's undertakings hereunder, which proceeds shall be disbursed in
accordance with the Disbursement Schedule and as follows:

              (a)   RECORDATION DISBURSEMENTS.  Upon recordation of the
  Leasehold Mortgage, provided that the title insurer has issued or
  irrevocably committed in writing to issue to Lender the Title Policy,
  Lender shall disburse to the Persons entitled thereto the amounts (if
  acceptable to Lender) necessary to pay all or portions of:  (i) out of
  pocket costs, charges, expenses and legal fees incurred by (A) Lender and
  payable by Borrower hereunder or (B) Borrower in connection with title
  charges and premiums, tax and lien service charges, recording fees, escrow
  fees, real property taxes and assessments, and insurance premiums payable
  in connection with the Loan; and (ii) other DSN Plant costs and expenses
  theretofore incurred by Borrower, all in accordance with the applicable
  provisions of the Disbursement Schedule.

              (b)   COURSE-OF-CONSTRUCTION DISBURSEMENTS.  Subsequent to
  recordation of the Leasehold Mortgage and subject to the provisions of this
  Agreement, including without limitation the provisions contained in Section
  2.2 hereof, Lender shall disburse to Borrower, or if reasonably deemed
  necessary by Lender, Lender shall disburse directly to such Persons as have
  actually supplied labor, materials or services in connection with or
  incidental to the construction of the DSN Plant, and subject to the
  applicable retention percentage set forth in the Construction Contract,
  such sums as are required to be used and which shall be used only for the
  payment of (i) the costs and expenses of any of Borrower's undertakings in
  this Agreement, the Note, the Leasehold Mortgage or any of the other Loan
  Documents, (ii) interest on borrowings under the Note, (iii) the costs and
  expenses of Lender which are payable by Borrower or reimbursable by
  Borrower as set forth herein, and (iv) the costs and expenses of the labor
  and materials used in constructing the DSN Plant and costs and expenses
  incidental thereto, with all disbursements under this Agreement to be made
  in accordance with the applicable provisions of the Disbursement Schedule.

        Section 2.2  DISBURSEMENT METHODS.

              (a)   Notwithstanding any other terms of this Agreement, the
  disbursements under the Loan shall be capped at $5,000,000 until such time
  as LSB and certain of its subsidiaries shall have in full force and effect,
  a new $75,000,000 revolving credit facility with BankAmerica Business
  Credit or affiliate thereof on terms and conditions reasonably acceptable
  to Lender.

              (b)   REQUEST FOR ADVANCE.  From time to time, but not more
  frequently than twice per month, Borrower shall furnish to Lender,
  separately with respect to each request for any disbursement of proceeds of
  the Loan, a Request for Advance duly signed and sworn to with all blanks
  appropriately filled in, setting forth such details concerning construction
  of the DSN Plant as Lender shall require, including (i) a detailed
  breakdown of the applicable percentages of completion and costs of the
  various phases of construction of the DSN Plant, showing the amounts
  expended to date for such construction and the amounts then due and unpaid,
  an itemized estimate of the amount necessary to complete construction of
  the DSN Plant in its entirety, and a certification by Borrower and Mr. Leo
  Hilinski or his designee that construction of the DSN Plant to the date of
  such certificate complies with the Plans and Specifications; (ii) a list of
  the names and addresses of all materials dealers, laborers and
  subcontractors to whom payments are due under such Request for Advance; and
  (iii) if required by Lender, receipted invoices or bills of sale and
  unconditional partial releases of lien (on forms approved by Lender) from
  each materials dealer, laborer and subcontractor who has done work or
  furnished materials for construction of the portion of the DSN Plant
  covered by each such Request for Advance acknowledging acceptance of such
  payment in satisfaction of Borrower's obligations.  A Request for Advance
  must be for an amount not less than $500,000.  Lender may disburse a part
  of the funds requested if it approves part but not all of the Request for
  Advance.

              (c)   CONSTRUCTION CONSULTANT.  Throughout the course of
  construction of the DSN Plant, Lender will employ, at Borrower's sole cost
  and expense, Construction Consultant or Consultants who shall review as
  agent for Lender all construction activities undertaken in regard to the
  DSN Plant, which Construction Consultant(s) shall certify or otherwise
  indicate to Lender that construction of the DSN Plant to the date of each
  Request for Advance and certificate of Borrower is as set forth in the
  Request for Advance and certificate submitted by Borrower, that such
  construction substantially complies with the Plans and Specifications and
  that the progress of construction is such that the construction of the DSN
  Plant will be completed within the Construction Period, with each such
  certificate and indication from such inspector or inspectors to be a
  further condition precedent to Lender's approval of Borrower's then
  submitted Request for Advance.  Lender may change Construction Consultants
  or modify the terms of its agreement with any Construction Consultant, if
  deemed reasonably necessary by Lender.

              (d)   DISBURSEMENTS; DEFICIENCIES.  The proceeds of the Loan
  disbursed under this Agreement shall be evidenced by the Note and shall be
  secured by the Borrower's interest in the DSN Plant Equipment Lease, the
  Ground Lease, the Ground Sublease and the other Collateral, and all such
  proceeds shall be disbursed, as aforesaid, directly to and to reimburse
  such Persons, or to Borrower to reimburse such Persons as have actually
  supplied labor, materials or services in connection with or incidental to
  construction of the DSN Plant, or to reimburse Borrower in the event
  Borrower shall have already paid such Persons.  In no event shall Lender be
  required to disburse any amount which, in Lender's reasonable opinion, will
  either (i) reduce the total undisbursed amount of the Loan below the amount
  necessary to pay for the balance of the work, labor and materials necessary
  fully to complete construction of the DSN Plant in accordance with the
  Plans and Specifications, or (ii) reduce the undisbursed amount of Loan
  proceeds allocated to the cost category described in any paragraph
  contained in the Disbursement Schedule below the amount which Lender
  reasonably deems sufficient to pay in full the costs to which such amount
  is allocated.  In the event any amount in a cost category of the
  Disbursement Schedule is deficient, and Borrower has not made alternative
  payment arrangements for the costs in question, then upon ten (10) days'
  written notice from Lender, Borrower shall furnish Lender with paid
  invoices, bills and receipts indicating that Borrower has paid, from
  Borrower's own funds, for the costs of completing the construction of the
  DSN Plant or the costs in the cost category in question, as the case may
  be, in a sufficient amount to make the undisbursed amount of the Loan or
  the undisbursed portion thereof under the cost category in question
  sufficient to pay for the entire balance of the costs of completing the
  construction of the DSN Plant or the entire balance of the costs in such
  cost category, but only if such work has been performed and materials have
  been provided.

              (e)   LIMITATIONS ON DISBURSEMENTS.  Disbursements of Loan
  proceeds shall be made by Lender only to defray costs actually incurred by
  Borrower and in accordance with the Disbursement Schedule.  Disbursements
  on account of the direct costs of constructing the DSN Plant shall be
  limited to the lesser of (i) the actual cost to Borrower of work and labor
  performed on the DSN Plant and materials incorporated into the DSN Plant or
  suitably stored at the DSN Plant Location or (ii) the actual value (as
  determined by Lender in its reasonable discretion) of said work and labor
  performed and materials stored; disbursements on account of indirect or
  "soft" costs relating to the construction of the DSN Plant, the Loan, the
  preparation of the Plans and Specifications, and all of the other
  transactions contemplated hereby shall be limited to the actual amounts of
  such costs as indicated by invoices, statements, vouchers, receipts or
  other written evidence satisfactory to Lender.

              (f)   CONTINUATION AND DATE-DOWN ENDORSEMENTS.  After
  recordation of the Leasehold Mortgage and as a condition precedent to each
  disbursement under the Loan after the initial advance, Borrower shall, at
  its own cost and expense, deliver or cause to be delivered to Lender from
  time to time such continuation and date-down endorsements to be attached to
  the Title Policy in form and substance satisfactory to Lender, as Lender
  deems necessary to insure the priority of the Leasehold Mortgage as a valid
  first priority lien on the DSN Plant Location and the DSN Plant as of the
  date of and including the amount covered by each such disbursement, and
  Borrower agrees to furnish to the title insurer such surveys and other
  information as are reasonably required by Lender or the title insurer to
  enable the title insurer to issue such endorsements to Lender.

              (g)   CHANGE ORDERS.  Borrower shall not permit any amendments
  or modifications of the Plans and Specifications, the Construction Contract
  or any subcontracts, or the performance of any work pursuant to such
  amendments or modifications, which individually exceed $250,000 or, when
  added to the cumulative amount of all net increases in the prices payable
  under the Construction Contract and all such subcontracts resulting from
  all such amendments and modifications theretofore permitted by Borrower,
  would result in a net increase in the total price payable under all such
  subcontracts in excess of $750,000.

              (h)   OTHER GENERAL CONDITIONS.  No Request for Advance will
  include (i) any amounts previously disbursed hereunder, (ii) any costs not
  approved, certified or verified as provided above, (iii) any costs for
  which payment reimbursement was previously requested by Borrower and for
  which proof of payment has been requested but not yet received by Lender,
  and/or (iv) any real estate taxes, mechanics' liens, security interests,
  claims or other charges against the Collateral, or any interest, fees or
  other costs which Borrower may have failed to pay in accordance with this
  Agreement or the other Loan Documents.  If Lender considers that its best
  interest and the best interest of the completion of the construction lies
  in accelerating the amounts to be advanced hereunder, it shall be entitled
  to do so, and no such advance shall be deemed to be a waiver of any
  condition contained herein.

        Section 2.3  REPAYMENT OF THE LOAN.  The Borrower promises to repay
the Loan as follows:

                    (a)   During the Construction Period, monthly interest
  payments on outstanding principal balance of the Loan at the applicable
  rate set forth in Section 2.4 shall be paid to Lender commencing December
  1, 1994 and on the first day of each month thereafter.

                    (b)   The principal balance outstanding under the Note,
  and all accrued and unpaid interest, and all other Obligations owing under
  any of the Loan Documents shall be due and payable in full on the date on
  which the Construction Period terminates; provided, however, that if the
  Construction Period ends on the DSN Plant Completion Date, then the Loan
  shall be converted to a term Loan and shall be extended for a period (the
  "Term Out Period") commencing on the day immediately succeeding the last
  day of the Construction Period and ending on the date which is eight-four
  (84) months after such date, subject to the following terms and conditions:

                     (i)        no uncured Default has occurred and is
            continuing, and no material adverse change in the business,
            financial condition or operations of Borrower, any Guarantor or
            EDC shall have occurred;
            
                    (ii)        any undisbursed Loan proceeds existing
            at the end of the Construction Period shall be cancelled, and
            Borrower shall have no further right to request or receive any
            further disbursements of Loan proceeds, provided, that this
            limitation shall not apply if Borrower demonstrates to Lender
            that additional conforming costs and expenses have been
            incurred in connection with the DSN Plant and Lender approves
            such additional costs and expenses for payment from such
            undisbursed Loan Proceeds prior to the commencement of the Term
            Out Period;
            
                    (iii)       Lender shall have determined, based
            upon an appraisal of the DSN Plant conducted at Borrower's sole
            expense by an independent appraiser selected by Lender, that
            the Fair Market Value of the DSN Plant and the Equipment equals
            or exceeds the outstanding principal balance of the Loan.  This
            shall be performed and completed not later than January 1,
            1995;
            
                    (iv)        LSB and certain of its subsidiaries
            shall have entered into a new $75,000,000 credit facility with
            BankAmerica Business Credit or affiliate thereof on terms and
            conditions reasonably acceptable to Lender;
            
                     (v)        commencing on the first day of the
            first month which begins not less than 31 days after the last
            day of the Construction Period and thereafter on the first day
            of each subsequent month, Borrower shall pay to Lender during
            the Term Out Period in eighty-four (84) consecutive, equal
            monthly payments of principal and interest, calculated by fully
            amortizing the outstanding principal balance of the Loan as of
            the commencement of the Term Out Period over an 84-month period
            at the applicable interest rate set forth in Section 2.4; and 
            
                    (vi)        the principal balance outstanding under
            the Note, and all accrued and unpaid interest not sooner paid
            when due under the Note, and all other Obligations of Borrower
            owing under any and all of the Loan Documents, shall due and
            payable in full on the last day of the Term Out Period.
            
                      (c)   In the event the Loan is not converted to a
    term Loan because Borrower has chosen to finance the DSN Plant with a
    lender other than Lender, not due to any default by Lender, then in
    addition to all other sums owing on the date on which the
    Construction Period ends, Borrower shall pay to Bank a termination
    fee equal to five percent (5%) of the outstanding principal balance
    of the Loan as of the date on which the Construction Period ends.
  
  The Borrower's obligation to pay all amounts payable hereunder is absolute
  and unconditional and shall not be affected by any circumstance of any
  character whatsoever, including (i) any setoff, counterclaim, recoupment,
  defense, abatement or reduction or any right which the Borrower may have
  against the Lender, the manufacturer or supplier of any of the Equipment or
  anyone else for any reason whatsoever; (ii) the invalidity, enforceability
  or disaffirmance of this Agreement or any other Loan Document related
  hereto; or (iii) the prohibition of or interference with the use or
  possession-by the Borrower of all or any part of the DSN Plant Location or
  the Equipment, for any reason whatsoever.
  
          Section 2.4  INTEREST CHARGES.  During the Construction Period,
  the outstanding principal balance of the Loan shall bear interest at a rate
  per annum equal to the Libor Rate plus 3.10%.  During the Term Out Period,
  the outstanding principal balance of the Loan shall bear interest at a per
  annum rate equal to the Treasury Rate plus 2.70%.  In each instance,
  interest shall be calculated on the basis of a 360-day year consisting of
  twelve 30-day months.
  
          Section 2.5  LATE CHARGE RATE.  In the event the Borrower fails
  to pay any amount hereunder when due, the amount due shall bear charges
  thereon calculated at the Late Charge Rate.  At any time when any Event of
  Default has occurred, irrespective of any cure periods, and continues for
  over ten (10) days, the Borrower will pay interest on the Loan at the Late
  Charge Rate.
  
          Section 2.6  MAXIMUM INTEREST.  In no event shall the interest
  charged with respect to the Obligations exceed the maximum amount permitted
  under applicable law.  Notwithstanding anything to the contrary herein or
  elsewhere, if at any time the rate of interest called for hereunder or
  under the Note or other Loan Document (the "Stated Rate") exceeds the
  highest rate of interest permissible under any applicable law (the "Maximum
  Lawful Rate"), then for so long as the Maximum Lawful Rate would be so
  exceeded, the rate of interest payable shall be equal to the Maximum Lawful
  Rate; provided, however, that if at any time thereafter the Stated Rate is
  less than the Maximum Lawful Rate, the Borrower shall, to the extent
  permitted by law, continue to pay interest at the Maximum Lawful Rate until
  such time as the total interest received by the Lender is equal to the
  total interest which the Lender would have received had the Stated Rate
  been (but for the operation of this provision) the interest rate payable. 
  Thereafter, the interest rate payable shall be the Stated Rate unless and
  until the Stated Rate again exceeds the Maximum Lawful Rate, in which event
  this provision shall again apply.
  
          Section 2.7  EXPENSES.  The Borrower agrees to pay on demand
  all reasonable out of pocket costs and expenses (including reasonable
  legal, appraisal, accounting, auditing and similar fees) incurred at any
  time, before or after the Obligations are paid in full, in connection with
  (i) the enforcement, attempted enforcement, amendment or termination of
  this Agreement or any of the other Loan Documents, the performance of any
  of the Borrower's duties under this Agreement and the other Loan Documents
  or any exercise by Lender of its rights and remedies under this Agreement
  or any other of the Loan Documents, including in connection with a
  reorganization or bankruptcy reorganization of the Borrower or any
  Affiliate; (ii) the filing or recordation of all documents or instruments
  relating to the Collateral; (iii) realizing upon or protecting any
  Collateral and enforcing and collecting any Obligations or guaranty
  thereof; and (iv) any Default or Event of Default.  The Borrower also
  agrees to reimburse the Lender, on the Funding Date, for its legal fees for
  outside counsel plus any appraisal fees, recording and search fees and
  related expenses, including travel and other out of pocket expenses of the
  Lender's agents and its counsel, incurred by it in connection with the
  preparation, negotiation, execution, closing and delivery of the Loan
  Documents.
  
          Section 2.8  PREPAYMENT.  No prepayment of the Loan shall be
  permitted during the Construction Period or prior to the date which is
  forty-two (42) months after the date on which the Term Out Period begins. 
  Thereafter, provided no Default has occurred and is continuing, the
  Borrower may prepay the Loan in whole, but not in part, on the first day of
  any month, upon at least thirty (30) Business Days' prior written notice to
  the Lender.  Such prepayment of the Loan shall be accompanied by the
  payment of all principal, all accrued but unpaid interest on the Loan to
  the date of prepayment and all outstanding and unpaid costs, fees and
  expenses.  In addition, the prepayment of the Loan shall be made with a
  prepayment fee in an amount equal to the greater of (a) two percent (2.0%)
  of the outstanding principal balance of the Loan being prepaid, or (b) the
  excess, if any, of (i) the present value of the principal and interest
  payments which would have been payable during the remainder of the Term Out
  Period in the absence of the prepayment, using a discount rate equal to one
  percent (1.0%) plus the yield to maturity, as of the Third Business Day
  prior to the date on which the prepayment is made, on U.S. Treasury
  Securities having a remaining term to maturity closest to the remaining
  average life of the Loan, as such yield to maturity is reported on page 5
  ("U.S. Treasury and Money Markets") of the information ordinarily provided
  by Telerate Systems Incorporated, over (ii) the principal amount being
  prepaid.
  
          Section 2.9  CONDITIONS OF LENDING.  The obligation of the
  Lender to make the initial and any subsequent advance under the Loan is
  subject to the prior satisfaction (or waiver in writing and signed by
  Lender in its sole discretion) of each of the following conditions
  precedent:
  
                (a)   REPRESENTATIONS AND WARRANTIES.  The
    representations and warranties made by the Borrower and the
    Guarantors in the Loan Documents and any certificate, document or
    financial or other written statement furnished at any time under or
    in connection herewith shall be true and correct in all material
    respects on and as of the date given and on and as of the date of the
    Funding Date as if made on and as of such date and otherwise in
    exactly the same language.
  
                (b)   COMPLIANCE.  The Borrower shall have complied and
    shall then be in compliance with all the terms, covenants and
    conditions of the Loan Documents.
  
                (c)   NO DEFAULT.  No Default shall have occurred and be
    continuing.
  
                (d)   NO MATERIAL ADVERSE CHANGE.  No material adverse
    change shall have occurred with respect to the business, financial
    condition or operations of the Borrower since the financial statement
    of LSB dated December 31, 1993 and the Lender shall have received a
    certificate from the Chief Executive Officer of the Borrower to that
    effect; and no material adverse change shall have occurred with
    respect to the business, financial condition or operations of EDC or
    any Guarantor, as may be determined by Lender in the exercise of its
    reasonable discretion.
  
                (e)   DELIVERY OF DOCUMENTS.  Each of the Loan Documents,
    the Ground Lease, the DSN Plant Equipment Lease and the Ground
    Sublease shall have been executed and delivered to the Lender in form
    and substance satisfactory to the Lender and shall be in full force
    and effect.
  
                (f)   NO CHANGE IN LAW.  No change in state or federal
    law shall have been enacted or proposed which would make the Loan
    unlawful to the Lender.
  
                (g)   REVIEW OF REAL PROPERTY RECORDS.  Prior to the
    initial advance the Lender shall have reviewed and approved the real
    property records and encumbrances relating to the DSN Plant Location,
    including the Ground Lease and the Ground Sublease.
  
                (h)   LANDLORD/MORTGAGEE WAIVERS.  Prior to the initial
    advance the Borrower shall have provided to the Lender such
    Landlord/Mortgagee Waivers, in form, substance and number as may be
    reasonably required by the Lender.
  
                (i)   MORTGAGE AND TITLE INSURANCE.  Prior to the initial
    advance, the Lender shall have received the Leasehold Mortgage
    encumbering Borrower's interest under the Ground Lease and the Ground
    Sublease, in form and priority as may be acceptable to the Lender in
    its sole discretion, and the Leasehold Mortgage shall have been
    recorded and any recording fees and any Arkansas intangible recording
    tax shall have been paid in full.  The Lender shall also have
    received an ALTA lender's policy of title insurance, issued by a
    title insurer acceptable to Lender, in form, amount and with such
    priority and endorsements as the Lender may reasonably require,
    including:
  
           (i)        Coverage against mechanics' liens;
            
                    (ii)        An endorsement insuring the continuing
            priority of subsequent advances;
            
                    (iii)       A single tax parcel endorsement; and
            
                    (iv)        Proof that all real estate taxes for
            the Premises due and owing as of the Closing Date have been
            paid.
            
                (j)   OPINIONS OF COUNSEL.  Prior to the initial advance
    the Lender shall have received an opinion of legal counsel for
    Borrower, LSB, LSBC and EDC, in form and substance satisfactory to
    the Lender and its counsel, which opinion will include, among other
    things, opinions affirming the Borrower's authority to enter into
    this Agreement, the perfection and priority of the Security Interest,
    LSB's and LSBC's authority to enter into the Guaranties and EDC's
    authority to enter into the DSN Plant Equipment Lease and the Ground
    Lease, the Ground Sublease, and the enforceability of the Loan
    Documents.
  
                (k)   ENVIRONMENTAL COMPLIANCE.  Not later than ten (10)
    days prior to the initial advance, the Lender shall have received and
    found satisfactory an environmental report on the DSN Plant location
    in form acceptable to the Lender.  Subject to Borrower's
    environmental representations and warranties, Lender acknowledges
    that an acceptable report has been received by Lender.
  
                (l)   BOND.  The Bonding Company shall have named Lender
    as an additional insured.
  
                (m)   CONSULTANT'S CONSTRUCTION REPORT.  Lender shall
    have received a report from the Construction Consultant regarding
    such matters as Lender may reasonably request.
  
                (n)   PERMITS.  Lender and the Construction Consultant
    shall have received evidence that Borrower has obtained all necessary
    governmental approvals, permits and other approvals (or no impediment
    exists to them being timely obtained) for completion and operation of
    the DSN Plant and other improvements to be constructed pursuant to
    the Plans and Specifications, including building, site plan, and such
    other permits or approvals as are requested by Lender, and that all
    such permits and approvals are or are expected to be in full force
    and effect, with no appeal of the granting of any thereof having been
    made.
  
                (o)   CONTRACTOR'S CONSENTS.  Lender shall receive a
    complete copy of the fully executed Contractor's Consents, if any,
    which shall permit assignment thereof to Lender and its successors
    and assigns and shall recognize Lender as a permitted assignee of
    such Construction Contract.
  
                (p)   UCC SEARCHES.  Prior to the initial advance Lender
    shall have received UCC searches for Oklahoma and Arkansas reflecting
    Lender's first priority lien in the personal property Collateral.
  
                (q)   LOAN FEE AND EXPENSES.  The Borrower shall have
    paid in full the up front fee referenced in Section 2.12 hereof and,
    from the initial funding, the expenses referenced in Section 2.7
    hereof.
  
                (r)   CERTIFICATE OF GOOD STANDING AND TAX CLEARANCes. 
    Prior to the initial advance the Lender shall have received certified
    copies indicating the Borrower is in good standing under the laws of
    its state of incorporation and qualified to do business in the states
    where it does business and such tax clearance certificates as may be
    required by the Lender.
  
                (s)   PROCEEDINGS.  All proceedings and actions shall
    have been taken in connection with the transactions contemplated by
    this Agreement, and all documents contemplated in connection herewith
    shall be satisfactory in form and substance to the Lender and its
    counsel.
  
                (t)   EVIDENCE OF INSURANCE.  Prior to the initial
    advance the Lender shall receive evidence of all insurance required
    by the terms of this Agreement and the Loan Documents.
  
                (u)   TERMINATION OF LIENS.  Prior to the initial advance
    the Lender shall have received duly executed UCC termination
    statements and other instruments in form and substance satisfactory
    to the Lender, as shall be necessary to terminate and satisfy any
    Liens on the Collateral except for Permitted Liens.
  
                (v)   CERTIFICATE OF INCUMBENCY OF BORROWER.  Prior to
    the initial advance Lender shall have received a certificate of
    incumbency of Borrower signed by the Borrower's Secretary or
    Assistant Secretary, which certificate shall certify the names of the
    officers of the Borrower authorized to execute any Loan Documents and
    any other related documents on behalf of Borrower, together with the
    signatures of such officers, and Lender may conclusively rely on such
    certificate until receipt of a further certificate of the Secretary
    or Assistant Secretary of Borrower cancelling or amending the prior
    certificate and submitting the signatures of the officers named in
    such further certificate. 
  
                (w)   RESOLUTIONS OF BORROWER.  Prior to the initial
    advance Lender shall have received a certified copy of all corporate
    proceedings of Borrower evidencing that all action required to be
    taken in connection with the authorization, execution, delivery, and
    performance of this Agreement, the other Loan Documents, the Lease
    and the DSN Plant Equipment Lease, and the transactions contemplated
    hereby and thereby, has been duly taken.
  
                (x)   CERTIFICATE OF INCUMBENCY OF EACH GUARANTOR.  Prior
    to the initial advance Lender shall have received a certificate of
    incumbency of each Guarantor signed by such Guarantor's Secretary or
    Assistant Secretary, which certificate shall certify the names of the
    officers of such Guarantor authorized to execute the Guaranty and any
    other related documents on behalf of such Guarantor, together with
    the signatures of such officers, and Lender may conclusively rely on
    such certificate until receipt of a further certificate of the
    Secretary or Assistant Secretary of such Guarantor cancelling of
    amending the prior certificate and submitting the signatures of the
    officers named in such further certificate.
  
                (y)   RESOLUTIONS OF EACH GUARANTOR.  Prior to the
    initial advance Lender shall have received a certified copy of all
    corporate proceedings of each Guarantor evidencing that all action
    required to be taken in connection with the authorization, execution,
    delivery and performance of the Guaranty to be executed by such
    Guarantor, and the transactions contemplated thereby, has been duly
    taken.
  
                (z)   REFERENCES.  Prior to the initial advance Lender
    shall have received, reviewed and found satisfactory bank and
    customer references for EDC and each Guarantor.
  
                (aa)  $75,000,000 CREDIT FACILITY.  Prior to the initial
    advance, LSB and certain of its subsidiaries shall have received and
    accepted an executed commitment to lend, and shall be in the process
    of completing a new $75,000,000 credit facility with BankAmerica
    Business Credit or affiliate thereof on terms and conditions
    reasonably acceptable to Lender.
  
                (ab)  OTHER REQUIRED DOCUMENTATION.  Borrower shall
    execute and/or deliver such other documents, instruments, agreements
    or items as Lender may reasonably require.
  
          Section 2.10  PLACE AND FORM OF PAYMENTS.  Unless the Lender
  otherwise directs in writing, all payments and prepayments permitted or
  required by any Loan Document shall be made in immediately available funds
  and not later than the time necessary for good funds to be credited on the
  same day received at the Lender's account in accordance with the
  instructions annexed hereto as Rider 2.10 or to such other location as the
  Lender shall hereafter designate to the Borrower in writing.  Whenever any
  payment is stated to be due on a day other than a Business Day, such
  payment shall be made on the next succeeding Business Day, and such
  extension of time shall be included in the computation of interest or fees.
  
          Section 2.11  HOLD BACK.  Lender will hold back construction
  fund advances in an amount of $2,500,000 until such time as Lender shall
  have determined, based upon an appraisal of the DSN Plant performed at
  Borrower's sole cost and expense by an independent appraiser selected by
  Lender, that the Fair Market Value of the DSN Plant is at least equal to
  $12,750,000.
  
          Section 2.12  COMMITMENT FEE.  In consideration of the Lender's
  commitment to enter into this Agreement, the Mixed Acid Plant Loan
  Documents and the Rail Car Loan Documents, the Borrower acknowledges that
  the Lender has previously received a non-refundable fee in the amount of
  $124,950, paid in connection with the Lender's proposal and commitment.
  
  
                                  ARTICLE 3
                        SECURITY FOR THE OBLIGATIONS
  
          Section 3.1  GRANT OF SECURITY INTEREST.  As collateral
  security for the prompt and due payment and performance of the Obligations
  and all Indebtedness of Borrower to Lender under the Mixed Acid Plant Loan
  Documents and the Rail Car Loan Documents, the Borrower hereby assigns to
  the Lender and grants to the Lender a continuing lien on and security
  interest in all of the Borrower's right, title and interest in and to the
  following property, present or future, tangible or intangible, now owned or
  existing or hereafter acquired or arising:
  
                (a)   All documents, instruments, rentals and other
    rights to payment relating to the DSN Plant, the DSN Plant Equipment
    Lease, the Ground Lease, the Ground Sublease and the Consulting
    Agreement and all other agreements, contracts, chattel paper,
    contract rights, rights to payment and insurance policies and surety
    bonds relating thereto, and the Plans and Specifications and all
    Construction Contracts, and all proceeds of all of the foregoing;
  
                (b)   All general intangibles, trade secrets, computer
    programs, software, customer lists, trademarks, trade names, patents,
    licenses, copyrights, technology, processes, proprietary information,
    and insurance proceeds relating to the DSN Plant;
  
                (c)   All books and records, including books of account
    and ledgers of every kind and nature, all electronically recorded
    data relating to Borrower or the business thereof, all receptacles
    and containers for such records, and all files and correspondence
    relating to the DSN Plant;
  
                (d)   All Equipment, goods, including all inventory,
    machinery, tools, molds, dies, furniture, furnishings, fixtures,
    trade fixtures, motor vehicles and all other goods used in connection
    with or in the conduct of Borrower's business relating to the DSN
    Plant;
  
                (e)   All accessions, appurtenances, components, repairs,
    repair parts, spare parts, replacements, substitutions, additions,
    issue and/or improvements to or of or with respect to any of the
    foregoing;
  
                (f)   All rights, remedies, powers and/or privileges of
    Borrower with respect to any of the foregoing; and
  
                (g)   Any and all Proceeds and products of any of the
    foregoing, including all money, rentals, accounts, general
    intangibles, deposit accounts, documents, instruments, chattel paper,
    goods, insurance proceeds, and any other tangible or intangible
    property received upon the sale or disposition of any of the
    foregoing.
  
  Except in the ordinary or normal course of its operations in Section 7.6
  herein, Borrower has no right to dispose of or sell any of the
  above-described Collateral.
  
          Section 3.2  CONTINUING OBLIGATION.  Except with respect to
  those Permitted Liens and those liens which by law are accorded a first
  priority, the Borrower shall take all action necessary to grant the Lender
  a valid first priority lien on and security interest in all Collateral on
  the Funding Date, and to maintain at all times the validity,
  enforceability, perfection and first priority of the Security Interest. 
  Until the Obligations are fully paid and satisfied, the Borrower will at
  all times do, make, execute, deliver, record, register or file all such
  financing statements, fixture filings, deeds of trust, mortgages,
  assignments, certificates, charges, instruments, acts, pledges, assignments
  and transfers (or cause the same to be done) and will deliver to the Lender
  such instruments constituting or evidencing the Collateral, as the Lender
  may request, to assure, continue or establish the validity, enforceability,
  perfection and first priority (except for Permitted Liens) of the Security
  Interest.  To the extent permitted by applicable law, the Borrower hereby
  authorizes the Lender to:  (i) sign Borrower's name and on behalf of such
  Borrower to execute and file mortgages, deeds of trust, financing
  statements, and notices of lien necessary to protect or perfect the
  security interest granted herein in any or all of the Collateral and (ii)
  file a carbon, photocopy or other reproduction of this Agreement or any of
  the other Loan Documents as a financing statement in each case which the
  Lender, in its discretion, deems necessary or desirable to perfect or
  maintain the perfection of the Security Interest.
  
  
                                  ARTICLE 4
                      ADMINISTRATION OF THE COLLATERAL
  
          Section 4.1  THE EQUIPMENT.  The Borrower, at its own cost and
  expense, will keep, or cause EDC to keep, the Equipment in good operating
  condition and repair, except for normal wear and tear, and will not waste
  or destroy, or allow EDC to waste or destroy, such Equipment, or any part
  thereof, or be negligent in the care and use thereof and will make all
  necessary replacements thereof and repairs thereto.  The Borrower shall
  promptly inform the Lender of any material additions to such Equipment and
  of any material loss, damage, or destruction of such Equipment.  The
  Borrower will not permit any Equipment to become a fixture to any real
  property or an accession to any other personal property, unless the Lender
  has a first priority perfected Security Interest in such real or personal
  property or has been provided with such waivers or consents as the Lender
  may reasonably require.  The Borrower shall, promptly upon the Lender's
  request, deliver to Lender any and all evidence of ownership of such
  Equipment.
  
          Section 4.2  NO LENDER LIABILITY.  The Lender shall have no
  duty of care with respect to any Collateral unless and until it takes the
  same into its own possession or control.  The Lender shall be deemed to
  have satisfied its duty of due care with respect to Collateral in its
  custody and control if it accords to such Collateral treatment
  substantially equal to the treatment the Lender accords its own property,
  or if the Lender takes such action with respect to the Collateral as the
  Borrower requests in writing, but no failure to comply with any such
  request nor any omission to do any such act requested by the Borrower shall
  be presumptively deemed, from that failure or omission, an absence of
  reasonable care.  The Lender shall not be responsible or liable for any
  shortage, discrepancy, damage, loss or destruction of any part of the
  Collateral wherever the same may be located and regardless of the cause
  thereof, unless caused by the Lender's gross negligence or willful
  misconduct.  The Lender does not, by anything contained herein or in any
  other Loan Document or otherwise, assume any obligation of the Borrower
  under the Ground Lease, the Ground Sublease, or the DSN Plant Equipment
  Lease or any other contract or agreement assigned to Lender or in which
  Lender is granted a security interest, and the Lender shall not be
  responsible in any way for the performance by the Borrower of any of the
  terms and conditions thereof.
  
          Section 4.3  USE OF EQUIPMENT; IDENTIFICATION.
  
                (a)   The Borrower shall use the Equipment in a careful
    and proper manner, will comply with and conform to all governmental
    laws, rules and regulations relating thereto, and will cause the
    Equipment to be operated properly or in substantial accordance with
    the manufacturer's or supplier's instructions or manuals and only by
    competent and duly qualified personnel.
  
                (b)   The Borrower shall not move any of the Equipment
    from the DSN Plant Location without the prior written consent of CIT.
  
                (c)   Upon Lender's written request and at the Borrower's
    sole expense, the Borrower shall attach to each item of Equipment a
    notice satisfactory to Lender disclosing Lender's security interest
    in such item of Equipment.
  
  
                                  ARTICLE 5
                       REPRESENTATIONS AND WARRANTIES
  
          To induce the Lender to enter into this Agreement and to make
  the Loan, the Borrower represents and warrants to the Lender as set forth
  below.  The representations and warranties of the Borrower contained in
  this Article V and otherwise herein and in any other Loan Document shall
  remain operative and in full force and effect regardless of any
  investigation made by or on behalf of the Lender and shall survive the
  execution and delivery of this Agreement and the other Loan Documents and
  the making of the Loan.
  
          Section 5.1  ORGANIZATION AND QUALIFICATION.  The Borrower is
  duly incorporated and organized and is validly existing as a corporation in
  good standing under the laws of the State of Oklahoma, with all power
  (corporate or otherwise) to own or lease and operate the DSN Plant and its
  other properties and assets and to carry on its business in the manner in
  which such business is now conducted.  The Borrower is duly licensed and
  qualified to do business and is in good standing in the state of Arkansas
  and in every other state where failure to be so licensed or qualified and
  in good standing would have a material adverse effect on its business,
  properties or assets.
  
          Section 5.2  CONCERNING THE LOAN DOCUMENTS.  The Borrower has
  the power to authorize, execute and deliver the Loan Documents to which
  Borrower is a party, to incur and perform its Obligations hereunder and
  thereunder, and, as applicable, to grant the Security Interest.  The
  Borrower has duly taken all necessary corporate action to authorize the
  execution, delivery and performance of such Loan Documents, and no consent,
  approval or authorization of, or declaration or filing with, any
  governmental or other public body, or any other Person (including without
  limitation any stockholders, trustees or holders of Indebtedness of the
  Borrower), is required in connection with such authorization, execution,
  delivery and performance by the Borrower or the consummation of the
  transactions contemplated hereby or thereby.  Such Loan Documents have been
  duly authorized, executed and delivered by or on behalf of the Borrower,
  and constitute the legal, valid and binding Obligations of the Borrower and
  are enforceable against the Borrower in accordance with their respective
  terms. 
  
          Section 5.3  GUARANTIES.  Each Guarantor has the power to
  authorize, execute and deliver its Guaranty and to incur and perform its
  obligations under its Guaranty.  Each Guarantor has duly taken all
  necessary corporate action to authorize the execution, delivery and
  performance of its Guaranty, and no consent, approval or authorization of,
  or declaration or filing with, any governmental or other public body, or
  any other Person (including without limitation any stockholders, trustees
  or holders of Indebtedness of such Guarantor), is required in connection
  with such authorization, execution, delivery and performance by such
  Guarantor.  Each Guarantor's Guaranty has been duly authorized, executed
  and delivered by or on behalf of such Guarantor, and constitutes the legal
  valid and binding obligations of such Guarantor and is enforceable against
  such Guarantor in accordance with its terms.
  
          Section 5.4  EQUIPMENT.  All Equipment is in good operating
  order and condition and repair, except for ordinary wear and tear, is used
  or useful in the business of the Borrower and is readily moveable without
  harm or damage.  The invoices previously delivered to the Lender by the
  Borrower respecting the Equipment are genuine, true and accurate, and the
  descriptions and locations of the Equipment set forth in the Disclosure
  Schedule are true, complete and accurate.
  
          Section 5.5  THE DSN PLANT.  Construction of the DSN Plant is
  in full compliance with all requirements of the DSN Plant Equipment Lease
  and the Ground Lease; the description of the DSN Plant Location in Exhibit
  "C," and the description of the Ground Lease, the Ground Sublease and the
  DSN Plant Equipment Lease in Article 1 above is accurate and complete.  The
  Ground Lease, the Ground Sublease and the DSN Plant Equipment Lease are
  valid and enforceable in accordance with their respective terms and are in
  full force and effect.  Neither the Borrower nor any other party to the
  Ground Lease, the Ground Sublease or the DSN Plant Equipment Lease is in
  default of its obligations thereunder or has delivered or received any
  notice of default under the Lease or the Equipment Lease (as applicable)
  which default has not been waived or cured.
  
          Section 5.6   TITLE TO THE DSN PLANT AND EQUIPMENT; SECURITY
  INTEREST.  Except for the Security Interest and Permitted Liens and all
  items set forth in the Title Policy, under the Ground Lease and subject to
  the right of quiet enjoyment under the Ground Sublease and the DSN Plant
  Equipment Lease, the Borrower has good, and merchantable title to the DSN
  Plant and all Equipment and other Collateral, and neither the DSN Plant nor
  any of such Equipment nor any other Collateral is or will be subject to any
  Lien.   The provisions of the Loan Documents create legal, valid and
  enforceable security interests in and liens on the DSN Plant and all
  Equipment and other Collateral, and the Loan Documents and such UCC and
  real property filings create a perfected and continuing first priority
  security interest upon the DSN Plant and all the Equipment and other
  Collateral securing the Obligations, and are enforceable against the
  Borrower and all third parties.
  
          Section 5.7  FINANCIAL CONDITION.  The Borrower has furnished
  to the Lender LSB's consolidated and consolidating financial statements as
  of December 31, 1993, accompanied by the report of LSB's independent
  certified public accountants, which statements present fairly in all
  material respects the consolidated and consolidating financial position of
  LSB and its consolidated Affiliates as of the date thereof.  Such financial
  statements have been prepared in accordance with GAAP.  From the date of
  such financial statements to the date of the execution of this Agreement,
  there has not been any material adverse change from the financial condition
  reflected in such financial statements or in the Borrower's business or
  condition since the date thereof.  As of the date hereof, the Borrower has
  no direct or contingent material liabilities which are not provided for or
  reflected in such financial statements.
  
          Section 5.8  LITIGATION.  There are no actions, suits,
  proceedings or investigations pending or, to the knowledge of the Borrower,
  threatened against or affecting the Borrower or EDC as it may affect the
  Ground Lease, the Ground Sublease or the DSN Plant Equipment Lease, nor to
  the knowledge of Borrower is there any basis therefor on the date of this
  Agreement.
  
          Section 5.9  DISCLOSURE.  No representation or warranty made by
  the Borrower hereunder and no written information, exhibit, report,
  document or certificate furnished by or on behalf of the Borrower or any
  Affiliate to the Lender in connection with this Agreement, contained or
  will contain, as of its date or as of the Funding Date, any material mis-
  statement of fact or omits, as of its date, to state a material fact or any
  fact necessary to make the statements contained therein not misleading. 
  There is no fact known to the Borrower that materially adversely affects or
  that, insofar as the Borrower can now reasonably foresee, may materially
  adversely affect, the condition, financial or otherwise, operations,
  properties or prospects of the Borrower and Affiliates, or the ability of
  the Borrower to carry out its Obligations under any Loan Document.
  
          Section 5.10  TAX RETURNS AND PAYMENTS.  The Borrower has filed
  all federal, state and local tax returns and other reports which it was
  required by law to file on or prior to the date hereof and has paid all
  taxes, assessments, fees and other governmental charges and penalties and
  interest, if any, payable against it or its property, income or franchise,
  that are due and payable, and Borrower does not have any knowledge of any
  actual or proposed deficiency or additional assessment in connection
  therewith.  The charges, accruals and reserves on the books of Borrower in
  respect of federal, state and local taxes for all open years, and for the
  current fiscal year, make adequate provision for all unpaid tax liabilities
  for such periods.
  
          Section 5.11  COMPLIANCE WITH OTHER INSTRUMENTS.  Neither the
  Borrower nor EDC is in violation of any material term or provision of its
  certificate of incorporation or by-laws, or of any material mortgage,
  indenture, contract, agreement, instrument, or other undertaking to which
  the Borrower or EDC is a party or which purports to be binding on Borrower
  or EDC, or any of the assets of Borrower or EDC (including the Ground
  Lease, the Ground Sublease and the DSN Plant Equipment Lease), or, except
  as disclosed to Lender pursuant to Section 5.14 hereof, of any judgment,
  decree, order or any material statute, rule or governmental regulation
  applicable to it.  The execution, delivery and performance of this
  Agreement and the other Loan Documents do not and will not violate or
  otherwise conflict with any such term or provision or result in the
  creation of any security interest, lien, charge or encumbrance upon any of
  the Collateral, except the Security Interest.
  
          Section 5.12  PENSION PLANS.  The Borrower has not participated
  in any "prohibited transactions", as defined in Section 4975 of the
  Internal Revenue Code, that could subject the Borrower to any tax or
  penalty imposed by said Section 4975 (other than prohibited transactions
  that have been "corrected", as defined in said Section 4975).  Since the
  effective date of the Employee Retirement Income Security Act of 1974, as
  from time to time amended ("ERISA"), the Borrower has not incurred any
  "accumulated funding deficiency", as such term is defined in Section 302 of
  ERISA (other than any accumulated funding deficiency that has been
  "corrected", as defined in Section 4971(c)(2) of the Internal Revenue Code.
  
          Section 5.13  LABOR RELATIONS.  To the best knowledge of
  Borrower after due inquiry, Borrower and EDC are in material compliance
  with the Fair Labor Standards Act with respect to the DSN Plant.  To the
  best knowledge of Borrower after due inquiry, neither the Borrower nor EDC,
  with respect to the DSN Plant, is engaged in any unfair labor practice.  To
  the best knowledge of Borrower after due inquiry, there are:  (i) no unfair
  labor practice complaints pending or, to the best knowledge of the
  Borrower, threatened against the Borrower or EDC and no grievance or
  arbitration proceedings arising out of or under collective bargaining
  agreements are so pending or, to the best knowledge of the Borrower,
  threatened; (ii) no strikes, work stoppages or controversies pending or
  threatened between the Borrower or EDC and any of their employees (other
  than employee grievances arising in the ordinary course of business); and
  (iii) no union representation questions exist with respect to the employees
  of the Borrower or EDC and no union organizing activities taking place
  which would have a material adverse effect on the financial condition,
  results of operations or business of the Borrower or EDC; 
  
          Section 5.14  ENVIRONMENTAL LAWS.  Except as disclosed by
  Borrower to Lender by delivery to Lender of copies of documents publicly
  filed with the Securities and Exchange Commission, a report of the Arkansas
  Department of Pollution and Control and Ecology to EDC dated July 18, 1994,
  an environmental report of Woodward Clyde regarding the DSN Plant Location,
  and correspondence from Borrower and Affiliates regarding the DSN Plant
  Location (all collectively referred to as "Environmental Disclosure
  Documents"), to the best knowledge of Borrower after due inquiry, as of the
  date hereof (a) the operations of the Borrower or EDC (with respect to the
  DSN Plant) comply in all material respects with all applicable
  Environmental Laws; (b) none of the operations of the Borrower or EDC (with
  respect to the DSN Plant) is subject to any judicial or administrative
  proceeding alleging the violation of any Environmental Laws; (c) none of
  the operations of the Borrower or EDC (with respect to the DSN Plant) is
  the subject of federal or state investigation evaluating whether any
  remedial action is needed to respond to a release of any Hazardous
  Substance into the environment; (d) neither the Borrower nor EDC (with
  respect to the DSN Plant) has filed any notice under any federal or state
  law indicating past or present treatment, storage or disposal of a
  Hazardous Substance or reporting a spill or release of a Hazardous
  Substance into the environment; and (e) neither the Borrower nor EDC (with
  respect to the DSN Plant) has any known material contingent liability in
  connection with any release of any Hazardous Substance into the
  environment.  The materiality standard used in this Section 5.14 shall be
  exceeded if the facts giving rise to a breach or breaches of the
  representations or warranties contained herein might result in liability in
  excess of $1,000,000 in the aggregate.
  
          Section 5.15  TRADE NAMES.  Other than as disclosed on the
  Disclosure Schedule, the Borrower, during the past five years, has not used
  any corporate name other than its present corporate name (which is set
  forth in the introductory paragraph of this Agreement) and has not been
  known by or used any fictitious, trade or "doing business" name.
  
          Section 5.16  SUBSIDIARIES.  The Disclosure Schedule contains a
  correct and complete list of the name and relationship to the Borrower of
  each and all of the Borrower's Subsidiaries, if any, and the location of
  the chief executive office of each Subsidiary.
  
          Section 5.17  LOANS AND AFFILIATE PAYMENTS.  The Disclosure
  Schedule fully and completely sets forth all notes and Indebtedness
  together with the amount and schedule of any material payments owed by
  Borrower to officers, directors, stockholders and Affiliates of Borrower.
  
          Section 5.18  PERMITS, LICENSES.  Borrower possesses all
  material permits, franchises, contracts and licenses required and owns or
  has the right to use all trademarks, trade names, patents and fictitious
  name rights necessary to enable it to conduct the business in which it is
  engaged without conflict with the rights of others.
  
          Section 5.19  BROKER'S OR TRANSACTION FEES.  Borrower has no
  obligation to any Person for any finder's, broker's or investment banker's
  fee in connection with the transactions contemplated hereby.
  
          Section 5.20  TAXPAYER ID NO. AND CHIEF EXECUTIVE OFFICE. 
  Borrower's taxpayer identification number is 731456545.  Borrower's chief
  executive office is located at 16 South Penn, Oklahoma City, OK 73107, and
  Borrower's principal place of business is located in Oklahoma City.
  
          Section 5.21  NO DEFAULT.  No Default has occurred under this
  Agreement.
  
  
                                  ARTICLE 6
                            AFFIRMATIVE COVENANTS
  
          The Borrower covenants and agrees that, so long as all or any
  portion of the Obligations remain unpaid or unsatisfied, it will, at its
  own cost and expense:
  
          Section 6.1  FINANCIAL AND OTHER INFORMATION.  Promptly furnish
  to the Lender or its agents all such financial or other information as the
  Lender shall reasonably request, and, at the request of the Lender, notify
  its auditors and accountants that the Lender is authorized to obtain such
  information directly from them.  Without limitation of the foregoing, the
  Borrower will furnish to the Lender in such detail as the Lender shall
  request:
  
                (a)   Not later than 120 days after the close of each
    Fiscal Year of the Borrower, unaudited balance sheets of the Borrower
    as at the end of such Fiscal Year and related unaudited statements of
    income, expense and retained earnings and statements of cash flow of
    the Borrower for such year, setting forth in each case in comparative
    form figures for the previous Fiscal Year, all in reasonable detail,
    fairly presenting in all material respects the financial position of
    the Borrower and the results of operations of the Borrower for the
    Fiscal Year then ended, and prepared in accordance with GAAP.  Such
    statements shall be accompanied by a certificate of the chief
    financial officer or chief accounting officer of Borrower.
  
                (b)   Not later than 90 days after the close of each
    fiscal quarter of Borrower, unaudited balance sheets of the Borrower
    as at the end of such period, and unaudited statements of income and
    expense from the beginning of the Fiscal year to the end of each such
    period, for the Borrower, all in reasonable detail, fairly presenting
    in all material respects the financial position and results of
    operations of the Borrower, in each case, prepared in accordance with
    GAAP and consistent with the audited financial statements required
    pursuant to Section 6.1(e).  Such statements shall be accompanied by
    a certificate of the chief financial officer or accounting officer of
    Borrower stating that, based upon such examination or investigation
    as such officer shall have deemed necessary to enable him to render
    an informed opinion in respect thereof, to the best of his knowledge
    and belief the financial statements are materially correct and no
    Default exists under this Agreement and is continuing except for
    those, if any, described in such certificate in reasonable detail.
  
                (c)   Not later than 120 days after the close of each
    Fiscal Year of EDC, audited consolidated and unaudited consolidating
    balance sheets of EDC and its consolidated Subsidiaries as at the end
    of such Fiscal Year and related audited consolidated and unaudited
    consolidating audited statements of income, expense and retained
    earnings and statements of cash flow of EDC and its consolidated
    Subsidiaries for such year, all in reasonable detail, fairly
    presenting in all material respects the financial position of EDC and
    its consolidated Subsidiaries and the results of operations of EDC
    and its consolidated Subsidiaries for the Fiscal Year then ended, and
    prepared in accordance with GAAP.  Such statements required hereunder
    shall be examined and accompanied by a report of independent
    certified public accountants which shall not contain any
    qualifications or exceptions as to scope.
  
                (d)   Not later than 90 days after the close of each
    fiscal quarter of EDC, unaudited consolidated and consolidating
    balance sheets of EDC and its consolidated Subsidiaries as at the end
    of such period, and consolidated and consolidating statements of
    income and expense from the beginning of the Fiscal Year to the end
    of each such period, for EDC and its consolidated Subsidiaries, all
    in reasonable detail, fairly presenting in all material respects the
    consolidated and consolidating financial position and results of
    operations of EDC and its consolidated Subsidiaries, in each case,
    prepared in accordance with GAAP and consistent with the audited
    financial statements required pursuant to Section 6.1(c) above, and
    certified to be materially correct by the chief financial officer or
    the chief accounting officer of EDC.
  
                (e)   Not later than 120 days after the close of each
    Fiscal Year of LSB, LSB's 10K Report filed with the Securities and
    Exchange Commission, the audited consolidated and unaudited
    consolidating balance sheets of LSB and its consolidated Affiliates
    as at the end of such Fiscal Year and related audited consolidated
    and unaudited consolidating statements of income, expense and
    retained earnings and audited statements of cash flow of LSB and its
    consolidated Affiliates for such year, setting forth in each case in
    comparative form figures for the previous Fiscal Year, all in reason-
    able detail, fairly presenting the financial position of LSB and its
    consolidated Affiliates and the results of operations of LSB and its
    consolidated Affiliates for the Fiscal Year then ended, and prepared
    in accordance with GAAP.  Such statements required hereunder shall be
    examined and accompanied by a report of independent certified public
    accountants which shall not contain any qualifications as to scope;
    and such report shall also be accompanied by a certificate of such
    accountants stating that in the course of performing their
    examination such accountants did not become aware of the existence of
    any default under this Agreement, except for those, if any, described
    in such certificate in reasonable detail.  In addition, the chief
    financial officer or accounting officer of LSB shall provide a
    certificate which shall also include a statement by such officer that
    no breach, default or event of default has occurred and is continuing
    under any document to which LSB or any consolidated Affiliate is a
    party that evidences any Indebtedness of LSB or any such Affiliate
    which exceeds, individually or together with any related
    Indebtedness, $5,000,000, or if any such breach, default or event of
    default has occurred, explaining the nature of such breach, default
    or event of default and the status thereof.  Such certificate shall
    also include a statement from such officer that LSB is in compliance
    with all covenants contained in this Agreement relating to the
    financial condition of LSB, and such statement shall be accompanied
    by the calculations of such financial covenants.
  
                (f)   Not later than 90 days after the close of each
    fiscal quarter of LSB, LSB's 10Q Report filed with the Securities and
    Exchange Commission and the unaudited consolidated balance sheets of
    LSB and its consolidated Affiliates as at the end of such period, and
    unaudited consolidated statements of income and expense from the
    beginning of the Fiscal year to the end of each such period, for LSB
    and its consolidated Affiliates, all in reasonable detail, fairly
    presenting in all material respects the consolidated financial
    position and results of operations of LSB and Affiliates, in each
    case, prepared in accordance with GAAP and consistent with the
    audited financial statements required pursuant to Section 6.1(e)
    above.  Such statements shall be accompanied by a certificate of the
    chief financial officer or the chief accounting officer of LSB
    stating that, based upon such examination or investigation as such
    officer shall have deemed necessary to enable him to render an
    informed opinion in respect thereof, to the best of his knowledge and
    belief, such financial statements are materially correct and no
    Default under this Agreement exists and is continuing except for
    those, if any, described in such certificate in reasonable detail. 
    Such certificate shall also include a statement from such officer
    that LSB is in compliance with all financial covenants contained in
    this Agreement relating to the financial condition of LSB, and such
    statement shall be accompanied by the actual calculations of such
    financial covenants.
  
                (g)   Promptly after the Borrower or any Affiliate
    receives the same, copies of management letters provided to the
    Borrower by its independent certified public accountants;
  
                (h)   Promptly after their preparation, copies of any and
    all proxy statements, financial statements, and reports which the
    Borrower, or LSB or EDC sends to its shareholders or holders of its
    Indebtedness, and copies of any and all periodic special reports, as
    well as registration statements, filed by the Borrower, LSB or EDC
    with the Securities and Exchange Commission or similar State
    authority;
  
                (i)   Deliver to the Lender within 30 days of the end of
    each quarter, a compliance certificate signed by the Borrower's Chief
    Financial Officer or the Chief Accounting Officer certifying that the
    Borrower is in compliance with all of the terms and conditions of the
    Agreement and that no Default exists.
  
                (j)   Such additional information as the Lender may from
    time to time reasonably request regarding the financial and business
    affairs of the Borrower or any Subsidiary or Guarantor and which are
    kept in the ordinary course of business.
  
          Section 6.2  ACCESS.  At all reasonable times, and from time to
  time, permit the Lender or its agents to inspect the Collateral and to
  audit, examine and make extracts from or copies of any of its books,
  ledgers, reports, correspondence and other records.
  
          Section 6.3  TAXES.  Promptly pay and discharge all taxes,
  assessments and other governmental charges prior to the date on which same
  are past due, establish adequate reserves for the payment of such taxes,
  assessments and other governmental charges, make all required withholding
  and other tax deposits, and, upon request, provide the Lender with receipts
  or other proof that any or all of-such taxes, assessments or governmental
  charges have been paid in a timely fashion; provided, however, that nothing
  contained herein shall require the payment of any tax, assessment or other
  governmental charge so long as its validity is being contested in good
  faith and by appropriate proceedings diligently conducted.
  
          Section 6.4  MAINTENANCE OF PROPERTIES; INSURANCE.  At the
  Borrower's sole cost and expense, defend all Collateral against the claims
  or demands of all other parties; keep the Collateral in good operating
  condition and repair and in compliance with all laws (except normal wear
  and tear); and insure all Equipment, the DSN Plant and DSN Plant Location
  against risk, in coverage, form and amount satisfactory to the Lender with
  a carrier reasonably acceptable at all times to Lender with no greater
  deductible amount than $250,000 per occurrence.  Insurance on the
  Equipment, the DSN Plant and the DSN Plant Location shall be in an amount
  equal to the greater of the full replacement value thereof, or 100% of the
  outstanding balance of the Loan.  The Borrower shall also maintain (a)
  builder's all risk completed value hazard insurance covering 100% of the
  replacement cost of the DSN Plant and Equipment during the course of
  construction in the event of fire, lightning, windstorm, earthquake,
  vandalism, malicious mischief and all other risks normally covered by "all
  risk" policies in the area where the DSN Plant is located (including loss
  by flood if the DSN Plant is located in an area designated as subject to
  the danger of flood); (b) product liability insurance in an amount
  customary for the businesses conducted by the Borrower; and (c) general
  public liability insurance in an amount satisfactory to Lender, but in no
  event less than Fifteen Million Dollars ($15,000,000) per occurrence, for
  bodily injury and property damage.  The Borrower and EDC shall also
  maintain workers' compensation insurance in accordance with Borrower's and
  EDC's usual practices.  Each insurance policy shall be endorsed in favor of
  the Lender as additional loss payee in form and substance satisfactory to
  the Lender, and provide that any proceeds payable thereunder will be paid
  to the Borrower and the Lender as their interest may appear.  Each policy
  shall provide that if such insurance is cancelled for any reason
  whatsoever, or if any substantial change is made in the coverage which
  affects the Lender, or if such insurance is allowed to lapse for nonpayment
  of premium, such cancellation, change or lapse shall not be effective as to
  the Lender until 30 days after receipt by the Lender of written notice from
  the carrier thereof.  The Borrower hereby directs all insurers under such
  policies to pay all proceeds with respect to losses of Collateral to
  the Borrower and to Lender.  With respect to occurrences giving rise to
  insurance proceeds paid with respect to losses, the Lender shall, so long
  as no uncured Default exists, release such proceeds to the Borrower after
  receipt of evidence of satisfactory repair, replacement or reconstruction
  of the assets subject to such casualty.
  
          Section 6.5  BUSINESS.  Take all necessary steps to preserve
  its corporate existence and its right to conduct business in all state in
  which the nature of its business or the ownership of it property requires
  such qualification.
  
          Section 6.6  COMPLIANCE.  Use reasonable efforts to comply in
  all material respects with all applicable laws and duly observe all valid
  requirements of all applicable governmental authorities, including all
  statutes, rules and regulations relating to public and employee health and
  safety and social security and withholding taxes.  The Borrower may contest
  or dispute any taxes, assessments or impositions in good faith, so long as
  such contest or dispute does not result in the creation or incurring of any
  liens against the Lender's Collateral and the Borrower maintains adequate
  reserves as required under GAAP for the satisfaction of the disputed tax,
  assessment or imposition.
  
          Section 6.7  LITIGATION.  Except as disclosed in the
  Environmental Disclosure Documents referred to in Section 5.14, promptly
  notify the Lender in writing of any action, suit, proceeding, or
  counterclaim against, or of any investigation of, the Borrower, the DSN
  Plant Location or any of the Collateral, if:  (i) the outcome of such
  litigation, proceeding, counterclaim, or investigation would materially and
  adversely affect the Collateral or the finances or operations of Borrower
  or EDC; or (ii) such litigation, proceeding, counterclaim, or investigation
  questions the validity of this Agreement or any other Loan Document or any
  action taken or to be taken pursuant thereto.  Borrower shall furnish to
  the Lender such information regarding any such litigation, proceeding,
  counterclaim, or investigation as the Lender shall request.
  
          Section 6.8  ENVIRONMENTAL LAWS.
  
                (a)   Except as disclosed in the Environmental Disclosure
    Documents referred to in Section 5.14, give written notice to Lender
    immediately upon receipt of any notice that (i) the operations of the
    Borrower or EDC with respect to the DSN Plant are not in material
    compliance with requirements of applicable Environmental Laws; (ii)
    the Borrower or EDC with respect to the DSN Plant is subject to
    federal or state investigation evaluating whether any remedial action
    is needed to respond to the release of any Hazardous Substance into
    the environment which would have a material adverse effect on
    Borrower; or (iii) any properties or assets of the Borrower or EDC
    with respect to the DSN Plant are subject to an Environmental Lien. 
    As used herein, "Environmental Lien" means a lien in favor of any
    governmental entity for (A) any liability under any Environmental
    Laws, or (B) damages arising from or costs incurred by such
    governmental entity in response to a release of a Hazardous Substance
    into the environment.
  
                (b)   Except as disclosed in the Environmental Disclosure
    Documents referred to in Section 5.14, without limiting the
    generality of any of the Borrower's other covenants and agreements,
    the operations of the Borrower or EDC with respect to the DSN Plant
    shall at all times comply in all material respects with all
    applicable Environmental Laws.  The materiality standard used in this
    Section 6.8 shall be exceeded if the facts giving rise to a breach or
    breaches of the covenant herein is likely to result in liability in
    excess of $500,000 in the aggregate.
  
          Section 6.9  NOTICES.  Promptly notify the Lender in writing of
  any Default or of any default by any party under any Construction Contract,
  the Ground Lease, Ground Sublease, the DSN Plant Equipment Lease, the
  Consulting Agreement, or as required by Sections 6.7 and 6.8 of this
  Agreement.  The failure of the Borrower to promptly give the Lender such
  notice of any Default of which it is aware, shall, at the Lender's option,
  eliminate any cure period for such Default.
  
          Section 6.10  TANGIBLE NET WORTH.  LSB shall maintain at all
  times, on a consolidated basis, a minimum tangible net worth of $80,000,000
  after subtracting treasury stock and $92,800,000 before subtracting
  treasury stock.  Notwithstanding the foregoing, the tangible net worth
  after subtracting treasury stock shall not be less than $83,000,000 at 
  December 31, 1995 and $85,000,000 at December 31, 1996 and thereafter.  The
  term tangible net worth is defined as total stockholders' equity, after
  deducting any treasury stock, less all assets that are considered
  intangible assets under GAAP (including but not limited to goodwill,
  patents, trademarks, certain deferred charges (as approved by Lender) and
  customer lists).
  
          Section 6.11  CHANGE OF OWNERSHIP.  LSB shall at all times hold
  not less than one hundred percent (100%) of each class of stock of LSBC
  and, at all times, LSBC shall hold, directly or indirectly, one hundred
  percent (100%) of each class of stock of the Borrower. 
  
          Section 6.12  USE OF PROCEEDS.  Use the proceeds of the Loan
  for construction and equipment costs, fees and expenses in accordance with
  Article 2 hereof.
  
          Section 6.13  BOOKS.  Keep proper books of record and account
  in which full, true and correct entries in accordance with GAAP will be
  made of all dealings or transactions in relation to its business and
  activities.
  
  
                                  ARTICLE 7
                             NEGATIVE COVENANTS
  
          So long as all or any portion of the Obligations remains
  unpaid, the Borrower covenants and agrees that, without the Lender's prior
  written consent, which consent will not be unreasonably withheld, the
  Borrower shall not:
  
          Section 7.1  CORPORATE STRUCTURE.  Merge, reorganize or
  consolidate with or acquire any Person or make any investment in the
  securities of any Person.
  
          Section 7.2  DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS.  Declare or
  pay any dividends or other distributions upon any stock or make any
  distribution of the Borrower's property or assets or redeem, retire,
  purchase or otherwise acquire, directly or indirectly, the Borrower's
  stock.
  
          Section 7.3  LOANS, INVESTMENTS, AFFILIATE PAYMENTS, SALARIES. 
  Make any loans or other advances of money (other than compensation) to any
  Person; make any payments to any officers, directors, stockholders or
  Affiliates on any existing loans except as set forth on the Disclosure
  Schedule or pursuant to the Ground Lease or Administrative Services
  Agreement between Borrower and LSB, or payments to LSB for the Borrower's
  pro rata share of taxes with respect to the Borrower's business, or permit
  the annual compensation and all other direct and indirect remuneration to
  its officers to increase more than fifteen percent (15%) per year.
  
          Section 7.4  CHANGE IN BUSINESS, STRUCTURE OR BUSINESS
  LOCATION.  Make any material change in the capital structure or any of
  Borrower's business objectives, purposes and operations; engage, directly
  or indirectly, in any business other than ownership of the DSN Plant, the
  railcars acquired with the Rail Car Loan, the Mixed Acid Plant financed by
  the Mixed Acid Plant Loan, and all items related thereto; or change the
  location of its chief executive office without thirty days' prior written
  notice to Lender.
  
          Section 7.5  GUARANTIES.  Borrower shall not guaranty or
  otherwise, in any way, become liable with respect to the Indebtedness or
  liabilities of any Person.
  
          Section 7.6  SALE OF PROPERTY.  Offer to sell, convey, assign,
  transfer, exchange, lease (except pursuant to the DSN Plant Equipment
  Lease, the Ground Sublease or to the extent permitted in the Mixed Acid
  Plant Loan Documents or the Rail Car Loan Documents) or otherwise dispose
  of any Collateral, or, on an annual basis, any other real or personal
  property having a value in excess of $25,000, except sales of supplies,
  equipment and inventory in the ordinary course of the Borrower's business
  and trade-ins on new purchases, provided that Lender shall have a first
  priority perfected lien on any new purchases of property.
  
          Section 7.7  PREPAYMENT.  Borrower shall not prepay any
  Indebtedness, except the Obligations in accordance with this Agreement.
  
          Section 7.8  LIENS.  Create, incur, assume or suffer to exist
  any Lien upon any Collateral, the DSN Plant Equipment Lease or the Ground
  Lease, except Liens in favor of the Lender and Permitted Liens and the DSN
  Plant Equipment Lease, the Ground Sublease and the Consulting Agreement.
  
          Section 7.9  NEGATIVE PLEDGE ON LEASES.  Pledge, encumber,
  transfer or assign any of its right, title or interest in any of the real
  property Collateral relating to the DSN Plant Location.
  
          Section 7.10  PENSION PLANS.  To the knowledge of Borrower,
  with respect to all Pension Plans:  (a) incur any liability to the Pension
  Benefit Guaranty Corporation; (b) participate in any prohibited transaction
  involving any of such plans or any trust created thereunder which would
  subject the Borrower to a tax or penalty on prohibited transactions imposed
  under Code Section 4975 or ERISA; (c) fail to make any contribution which
  it is obligated to pay under the terms of such plan; (d) allow or suffer to
  exist any occurrence of a Reportable Event, or any other event or condition
  which presents a risk of termination by the Pension Benefit Guaranty
  Corporation of any such plan; or (e) incur any withdrawal liability with
  respect to any multiemployer Pension Plan which is not fully bonded.
  
          Section 7.11  BORROWER'S NAME.  Change Borrower's corporate
  name or use any trade name or style unless the Borrower shall first give
  the Lender thirty days prior written notice of the change in question.
  
          Section 7.12  CHANGES TO DSN PLANT DOCUMENTS.  Make any
  alterations, amendments or modifications of any provisions of (a) the DSN
  Plant Equipment Lease, (b) the Ground Lease, (c) the Ground Sublease, (d)
  the Consulting Agreement, or (e) the Administrative Services Agreement
  dated September 19, 1994 between LSB and the Borrower.
  
          Section 7.13  OTHER DEBTS.  Except for Permitted Liens,
  Borrower shall not have outstanding or incur any direct or contingent
  Indebtedness (other than those to Lender) or lease obligations (other than
  the Ground Lease, DSN Plant Equipment Lease and Ground Sublease) or to
  become liable for the Indebtedness of others without Lender's written
  consent.  This does not prohibit:
  
                (a)   Acquiring goods, supplies, services or merchandise
    on normal trade credit, or payroll obligations or obligations under
    the Administrative Services Agreement between LSB and Borrower;
  
                (b)   Endorsing negotiable instruments received in the
    usual course of business; 
  
                (c)   Debts, lines of credit and leases in existence on
    the date of this Agreement and disclosed to Lender on the Disclosure
    Schedule; or
  
                (d)   Taxes, Indebtedness associated with the
    construction of the DSN Plant and lawsuits.
  
          Section 7.14  TRANSACTIONS WITH AFFILIATES.  Not to enter
  transactions with any Affiliate on terms less favorable than those
  available to Borrower from persons or entitles not affiliated with Borrower
  except:
  
                (a)   taxes on consolidated tax returns;
  
                (b)   the DSN Plant Equipment Lease;
  
                (c)   the Ground Lease;
  
                (d)   the Ground Sublease;
  
                (e)   the Consulting Agreement; and 
  
                (f)   the Administrative Services Agreement.
  
  None of the agreements in this Section 7.14(b) through (f) may be amended
  or modified with Lender's prior written consent.
  
  
                                  ARTICLE 8
                                   DEFAULT
  
          Section 8.1  Events of Default.  The occurrence of any one or
  more of the following events for any reason whatsoever shall constitute an
  Event of Default:
  
                (a)   Any failure to pay any of the Obligations when due;
  
                (b)   Any representation or warranty made by the Borrower
    in any Loan Document or in any Financial Statement or other
    certificate furnished by the Borrower or any Affiliate at any time to
    the Lender shall prove to be untrue in any material respect as of the
    date on which made;
  
                (c)   Except with respect to cure periods as otherwise
    set forth herein or therein, default shall occur in the observance or
    performance of any of the other covenants and agreements contained in
    any Loan Document and Borrower has not cured such default within ten
    (10) days of Borrower's receipt of written notice identifying such
    failure, or if any such agreement, instrument or document shall
    terminate or become void or unenforceable without the written consent
    of Lender and Borrower refuses to execute valid and enforceable
    substitute documents;
  
                (d)   The DSN Plant Completion Date has not occurred
    prior to the end of the Construction Period;
  
                (e)   Any Event of Default under the Mixed Acid Plant
    Loan Documents, the Rail Car Loan Documents and Borrower has not
    cured such Event of Default within any cure period provided therein;
  
                (f)   Any default by the Borrower under any material
    agreement or instrument with any third party (other than an agreement
    or instrument evidencing the lending of money) if such default
    continues for thirty (30) days after such breach first occurs;
  
                (g)   Any default by the Borrower in any payment on any
    indebtedness or obligation owed to any trade creditor in excess of
    $100,000 in the aggregate beyond any period of grace provided with
    respect thereto and Borrower is not contesting same in good faith and
    diligently; 
  
                (h)   Any uncured default beyond any applicable grace
    period by LSB or any of its Subsidiaries under any agreement or
    instrument evidencing any loan, extension of credit or other
    Indebtedness of LSB or any of its Subsidiaries in an amount equal to
    or greater than $5,000,000;
  
                (i)   Any material part of the Collateral shall be
    nationalized, expropriated, condemned, seized or otherwise
    appropriated, or custody or control of such Collateral or of the
    Borrower shall be assumed by any public authority or any court of
    competent jurisdiction at the instance of any public authority;
  
                (j)   One or more judgments for the payment of money
    aggregating an excess of $1,000,000 (if not adequately covered by
    insurance) shall be rendered against the Borrower or EDC and there is
    a failure to pay or to bond and stay enforcement of such judgment and
    commence appropriate proceedings to appeal such judgment within the
    applicable appeal period or, after such appeal is filed, Borrower or
    EDC fails to diligently prosecute such appeal or such appeal is
    denied;
  
                (k)   The Borrower, EDC or any Guarantor shall:  (i) file
    a voluntary petition in bankruptcy or file a voluntary petition or an
    answer or otherwise commence any action or proceeding seeking
    reorganization, arrangement or for any other relief under the Federal
    Bankruptcy Code, as amended, or under any other bankruptcy or
    insolvency act or law, state or federal, now or hereafter existing,
    or consent to, approve of, or acquiesce in, any such petition, action
    or proceeding; (ii) apply for or acquiesce in the appointment of a
    receiver, assignee, liquidator, sequestrator, custodian, trustee or
    similar officer for it or for all or a substantial part of its
    property; (iii) make an assignment for the benefit of creditors; or
    (iv) admit in writing that is unable generally to pay its debts as
    they become due;
  
                (l)   An involuntary petition shall be filed or an action
    or proceeding otherwise commenced seeking reorganization, arrangement
    or readjustment of the Borrower's EDC's or any Guarantor's debt or
    for any other relief under the Federal Bankruptcy Code, as amended,
    or under any other bankruptcy or insolvency act or law, state or
    federal, now or hereafter existing; or a receiver, assignee,
    liquidator, sequestrator, custodian, trustee or similar officer for
    the Borrower or EDC or any Affiliate or any Guarantor or for all or a
    substantial part of their property shall be appointed involuntarily;
    or a warrant of attachment, execution or similar process shall be
    issued against any substantial part of the property of the Borrower,
    EDC or any Guarantor; and any of the foregoing remain undismissed or
    undischarged for a period of 60 days;
  
                (m)   The Borrower, EDC or any Guarantor shall file a
    certificate of dissolution under applicable state law or shall be
    liquidated, dissolved or wound-up or shall commence or have commenced
    against it any action or proceeding for dissolution, winding-up or
    liquidation, or shall take any corporate action in furtherance
    thereof without Lender's prior written consent;
  
                (n)   The Security Interest shall cease to be a valid and
    perfected first priority security interest in any material portion of
    the Collateral then in existence and Borrower refuses to or cannot
    promptly cure any deficiency and restore the Lender's valid and first
    perfected priority security interest;
  
                (o)   A material default shall occur in any Construction
    Contract, the Consulting Agreement, the DSN Plant Equipment Lease,
    the Ground Lease or the Ground Sublease and same are not being
    contested diligently and in good faith, or the DSN Plant Equipment
    Lease, the Lease, or the Ground Sublease shall expire or otherwise
    terminate or become unenforceable;
  
                (p)   any Guarantor revokes or terminates any guaranty
    relating to the Obligations or defaults under the terms of any such
    guaranty; or
  
          Section 8.2  RIGHTS UPON DEFAULT.  Upon the occurrence and
  during the continuance of any Event of Default:
  
                (a)   The Lender may declare all the Obligations not
    otherwise due to be forthwith due and payable, (provided that, in the
    case of the occurrence of any Event of Default described in Sections
    8.l(i) or (j), all the Obligations shall forthwith become due and
    payable without such declaration) whereupon the unpaid amount of the
    Obligations (including any applicable prepayment penalty) shall
    become immediately due and payable without presentment, demand,
    protest or notice of any kind, all of which are hereby expressly
    waived.  Upon such acceleration, Lender shall not be obligated to
    advance any further funds relating to the custodian of the DSN Plant.
  
                (b)   Notwithstanding the foregoing in Section 8.2(a) but
    subject to the provisions of Section 9.10, the effect of an event
    described in Section 8.1(a) as an occurrence of an Event of Default
    shall be after Lender gives notice of such payment Default to
    Borrower and Borrower shall not have paid such amount within three
    (3) days of such Notice.  The effect as an Event of Default of any
    other event described in Section 8.1 may be waived by Lender in
    writing.
  
                (c)   In addition to all other rights provided herein or
    at law, the Lender shall have all of the rights and remedies of a
    secured party under the UCC and all of the rights and remedies
    granted under each of the Loan Documents.  At any time when an Event
    of Default has occurred and is continuing, the Lender may enter any
    premises where the Collateral is located, take physical possession of
    the Collateral or any part thereof, and maintain such possession on
    the Borrower' premises or remove any or all of the Collateral to such
    other place or places as the Lender desires in its sole discretion. 
    If the Lender exercises its right to take possession of any
    Collateral upon the occurrence and during the continuance of any
    Event of Default, the Borrower, upon the Lender's demand, will
    assemble the Collateral and at the Lender's option, make it available
    to the Lender at the Borrower' premises at which it is located or
    deliver it to such place or places as the Lender directs.  The
    Borrower hereby waives to the full extent permitted by law all rights
    to notice and hearing prior to the Lender's exercise of its rights to
    take possession of the Collateral without judicial process or to
    replevy, claim and deliver, attach or levy upon the Collateral ex
    parte.  The Lender shall not be under any obligation to marshall any
    assets in favor of the Borrower or any other party or against or in
    payment of any or all of the Obligations.
  
                (d)   The Lender may sell and deliver any or all of the
    Collateral at public or private sale, for cash, upon credit or
    otherwise, at such prices and upon such terms as the Lender, in its
    sole discretion, deems advisable, all in accordance with the
    applicable provisions of the UCC including the standard of commercial
    reasonableness.
  
                (e)   The requirement of reasonable notice with respect
    to a disposition of the Collateral shall be met if such notice is
    mailed both by regular and certified mail, postage prepaid to the
    Borrower at the address as set forth herein at least ten days before
    the time of the event of which notice is being given.  Subject to the
    provisions of any applicable Loan Document or law governing the
    enforcement of liens or security interests, the Lender may be the
    purchaser at any public sale, and to the extent permitted by
    applicable law, at any private sale, free from any right of
    redemption, which the Borrower also waives.
  
                (f)   The Proceeds of any sale of any of the Collateral
    shall be applied first to all costs and expenses of sale, including
    attorneys' fees, and second to the payment (in whatever order the
    Lender elects) of all of the Obligations.  The Lender will return any
    excess Proceeds to the Borrower, subject to the claims of any other
    parties with an interest in the Collateral or the Proceeds, and the
    Borrower shall remain liable to the Lender for any deficiency.  If
    any Collateral is sold by the Lender upon credit or for future
    delivery, the Lender shall not be liable for the failure of the
    purchaser to pay for such Collateral, and in such event the Lender
    may resell the same.
  
                (g)   The Lender may exercise any right or remedy it may
    have at law or in equity with respect to the Obligations or the
    subject matter of this Agreement.  The rights and remedies provided
    for herein are cumulative and not exclusive of any other of such
    rights and remedies or any other rights or remedies provided by law.
  
                (h)   Upon any Default, and during any applicable cure
    period, Lender shall not be obligated to make any further advances or
    Loans to Borrower.
  
  
                                  ARTICLE 9
                                MISCELLANEOUS
  
          Section 9.1  SURVIVAL.  All agreements, representations and
  warranties contained in this Agreement or made in writing by or on behalf
  of the Borrower in connection with the transactions contemplated hereby
  shall survive the execution and delivery of this Agreement, notwithstanding
  any investigation at any time made by the Lender.
  
          Section 9.2  WAIVER OF NOTICES.  No notice to or demand on the
  Borrower which the Lender is not required hereunder or by law to give but
  nevertheless may elect to give shall entitle the Borrower to any other or
  further notice or demand in the same, similar or other circumstances.
  
          Section 9.3  ASSIGNMENT.  The provisions of this Agreement
  shall be binding upon and inure to the benefit of the respective successors
  and assigns of the parties hereto; provided, however, that no interest
  herein may be assigned by the Borrower without the prior written consent of
  the Lender.  The rights and benefits of the Lender hereunder shall, if the
  Lender so agrees, inure to any party acquiring any interest in the
  Obligations or any part thereof.  In the event of any such assignment by
  the Lender, the Borrower agrees that such assignment by the Lender shall be
  free from any set-off, counterclaim defense or other claim that any such
  Borrower may have against such assignee, without waiving any claim such
  Borrower may have against the Lender.  The terms "Lender" and "Borrower" as
  used herein shall include the respective successors and assigns of such
  parties.
  
          Section 9.4  COMPLETE AGREEMENT MODIFICATION.  This Agreement
  is intended by the Borrower and the Lender to be the final, complete and
  exclusive expression of the agreement between them and supersedes all prior
  agreements and understandings regarding the DSN Plant.  No modification,
  rescission, waiver, release or amendment of any provision of this Agreement
  shall be made, except by a written agreement signed by the Borrower and a
  duly authorized officer of the Lender.
  
          Section 9.5  APPLICABLE LAW.  This Agreement and the Loan
  Documents (except to the extent, if any, expressly provided to the contrary
  in any Loan Document) shall be governed by, construed, applied and enforced
  in accordance with the laws of the State of New York.
  
          Section 9.6  INDEMNIFICATION.
  
                (a)   If after receipt of any payment of all or any part
    of the Obligations, the Lender is for any reason compelled to
    surrender such payment to any person or entity, because such payment
    is determined to be void or voidable as a preference, impermissible
    setoff, or a diversion of trust funds, or for any other reason,
    Borrower's Obligations under the Note shall continue in full force
    and the Borrower shall indemnify and hold the Lender harmless for,
    the amount of such payment surrendered.  The provisions of this
    Section shall be and remain effective notwithstanding any contrary
    action which may have been taken by the Lender in reliance upon such
    payment, and any such contrary action so taken shall be without
    prejudice to the Lender's rights under this Section and shall be
    deemed to have been conditioned upon such payment having become final
    and irrevocable.  The provisions of this Section shall survive the
    termination of this Agreement.
  
                (b)   The Borrower hereby indemnifies and holds the
    Lender, and its directors, officers, agents, employees and counsel,
    harmless from and against any and all losses, liabilities, damages,
    injuries, costs, expenses and claims of any and every kind (except
    claims brought by the Borrower against the Lender for breach of this
    Agreement of the Loan Documents) including without limitation, court
    costs and attorneys' fees imposed on or incurred by or asserted
    against any of them, whether direct, indirect or consequential
    arising out of or by reason of any litigation, investigations,
    claims, or proceedings whether based on any federal, state or local
    laws or other statutes or regulations commenced or threatened, which
    arise out of or are in any way based upon the negotiation,
    preparation, execution, delivery, enforcement, performance or
    administration of this Agreement or any other Loan Document, or any
    undertaking or proceeding relating to any of the transactions
    contemplated hereby or by any act, omission to act, event or
    transaction related or attended thereto, except this indemnification
    shall not apply to any losses, liabilities, damages, injuries, costs,
    expenses and claims caused by the gross negligence or willful
    misconduct of Lender.
  
                (c)   The Borrower hereby indemnifies the Lender and
    agrees to hold the Lender harmless from and against any and all
    losses, liabilities, damages, injuries, costs, expenses and claims of
    any and every kind whatsoever (including, without limitation, court
    costs and attorneys' fees) which at any time or from time to time may
    be paid, incurred or suffered by, or asserted against the Lender for,
    with respect to, or as a direct result of the violation by the
    Borrower of the Environmental Laws or any laws or regulations
    relating to Hazardous Substance, treatment, storage, disposal,
    generation and transportation, air, water and noise pollution, soil
    or ground or water contamination, the handling, storage or release
    into the environment of Hazardous Substance, or with respect to, or
    as a direct or indirect result of the presence on or under, or the
    escape, seepage, leakage, spillage, discharge, emission or release
    from, properties utilized by the Borrower or EDC with respect to the
    DSN Plant in the conduct of their respective business into or upon
    any land, the atmosphere, or any watercourse, body of water or
    wetland, of any Hazardous Substance (including, without limitation,
    any losses, liabilities, damages, injuries, costs, expenses or claims
    asserted or arising under the Environmental Laws).
  
                (d)   Without limiting any of the foregoing, if, by
    reason of any suit or proceeding of any kind, nature or description
    against the Borrower, which, in the Lender's sole discretion makes it
    advisable for the Lender to seek counsel for protection and
    preservation of its Liens, security or assets or to defend its own
    interest, such reasonable expenses and counsel fees shall be allowed
    to the Lender.  The foregoing indemnity shall survive the payment of
    the Obligations and the termination of this Agreement.  All of the
    foregoing costs and expenses shall be part of the Obligations and
    secured by the Collateral.
  
          Section 9.7  STAMP OR OTHER TAX.  Should any stamp, excise,
  sales, use or other tax, including mortgage, conveyance, deed, intangible
  or recording taxes become payable in respect of this Agreement, or any
  other Loan Document, any Obligations, or any Collateral, or any
  modification hereof or thereof, the Borrower shall pay the same (including
  interest and penalties, if any) and shall hold the Lender harmless with
  respect thereto, except for income taxes of Lender as a result thereof.
  
          Section 9.8  CAPTIONS.  The captions of the various sections of
  this Agreement have been inserted only for purposes of convenience; such
  captions are not a part of this Agreement and shall not be deemed in any
  manner to modify, explain, enlarge or restrict any provision hereof.
  
          Section 9.9  NOTICES.  All notices or other communications
  which are required or permitted hereunder to be given to any party shall be
  in writing and shall be deemed sufficiently delivered if delivered
  personally or by registered or certified mail, return receipt requested, or
  by nationally recognized overnight delivery service, to the address set
  forth below or to such other address as each party may designate for itself
  by like notice.  Such notice or communication shall be deemed to have been
  given on the date delivered; or if refused, on the date refused; or if
  marked, on the date of actual receipt of such mailing as evidenced by the
  return receipt.
  
  
  If to the Lender:               The CIT Group/Equipment
                                    Financing, Inc.
                                  1211 Avenue of the Americas
                                  New York, New York  10036
                                  Attn:  Senior Vice President,     
                                          Credit
  
  
  If to the Borrower:             DSN Corporation
                                  16 South Pennsylvania Avenue
                                  Oklahoma City, Oklahoma 73107
                                  Attn:  President
  
  
  Any such notice, demand, or request shall be deemed given upon receipt,
  refusal of delivery or return for failure to be called for.
  
          Section 9.10  NO WAIVER, LENDER PERFORMANCE.  No course of
  dealing between the Borrower and the Lender and no delay or omission by the
  Lender in exercising any right or remedy hereunder or under any other Loan
  Document or with respect to any Obligations shall operate as a waiver
  thereof or of any other right or remedy, and no single or partial exercise
  thereof shall preclude any other or further exercise thereof or the
  exercise of any other right or remedy.  All rights and remedies of the
  Lender hereunder or under any other Loan Document shall be cumulative. 
  Upon the failure of the Borrower to perform any of its duties under this
  Agreement the Lender may, but shall not be obligated to, perform any or all
  such duties and the Borrower will upon demand reimburse the Lender for all
  reasonable costs, fees and expenses incurred in connection therewith.
  
          Section 9.11  EVIDENCE OF OBLIGATIONS; ADMISSIBILITY OF
  LENDER'S BOOKS AND RECORDS.  The Borrower agrees that the Lender's books
  and records showing the Obligations shall be admissible in any action or
  proceeding arising herefrom.
  
          Section 9.12  NO LIABILITY FOR BROKERS.  The Borrower covenant
  and agree that the Lender shall have no liability for, and the Borrower
  hereby indemnifies and holds the Lender harmless against, any brokerage fee
  or finder's fee or other commission, or claim therefor, arising in
  connection with the transactions contemplated by this Agreement.
  
          Section 9.13  FURTHER ASSURANCES.  The Borrower shall, at its
  expense, do, execute and delivery such further acts and documents as the
  Lender from time to time reasonably requires for the assuring and
  confirming to the Lender of the rights created or intended to be created
  hereunder, or for carrying out the intention or facilitating the
  performance of the terms of any Loan Document or for assuring the validity,
  perfection, priority or enforceability of any Lien under any Loan Document.
  
          Section 9.14  COUNTERPARTS.  This Agreement and the other Loan
  Documents may be executed by the parties hereto and thereto in any number
  of separate counterparts, each of which when so executed and delivered
  shall be an original, but all such counterparts shall together constitute
  but one and the same instrument.
  
          Section 9.15  NOTICE OF BREACH BY LENDER.  Borrower agrees to
  give the Lender notice of any action or inaction by Lender or any agent or
  attorney of the Lender in connection with this Agreement, any other Loan
  Document, or the Obligations of Borrower under this Agreement or any other
  Loan Document that may be actionable against Lender or any agent or
  attorney of Lender or a defense to payment of any Obligations of Borrower
  under this Agreement or any other Loan Document, for any reason, including
  commission of a tort or violation of any contractual duty or duty implied
  by law.  Borrower agrees, to the fullest extent that it may lawfully do so,
  that unless such notice is given promptly (and in any event within fifteen
  (15) days after Borrower has knowledge, or with the exercise of reasonable
  diligence could have had knowledge, of any such action or inaction),
  Borrower shall not assert, and Borrower shall be deemed to have waived, any
  claim or defense arising therefrom to the extent that the Lender could have
  mitigated such claim or defense after receipt of such notice.
  
          Section 9.16  Time.  Time is of the essence.
  
          Section 9.17  EXHIBITS.  Exhibits "A", "B", "C", "D" and "E"
  attached hereto are incorporated herein by this reference.
  
          Section 9.18  AUTHORIZATION TO DATE, COMPLETE BLANKS AND
  CORRECT ERRORS.  The Borrower hereby irrevocably authorizes Lender and
  Lender's agents, representatives and employees to date, complete any blank
  spaces contained in, and to correct any errors appearing in, this
  Agreement, the other Loan Documents or in any other document relating
  hereto or thereto.
  
          Section 9.19  NO ORAL AGREEMENTS; ENTIRE AGREEMENT.  ORAL
  AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM
  ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH
  DEBT, ARE NOT ENFORCEABLE.  TO PROTECT BORROWER AND LENDER FROM
  MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER AND
  LENDER COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT AND THE OTHER
  LOAN DOCUMENTS, WHICH AGREEMENT AND OTHER LOAN DOCUMENTS ARE A COMPLETE AND
  EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER AND LENDER, EXCEPT
  AS BORROWER AND LENDER MAY LATER AGREE IN WRITING TO MODIFY THEM.  THIS
  AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND
  UNDERSTANDING BETWEEN THE PARTIES HERETO AND SUPERSEDE ALL PRIOR AGREEMENTS
  AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF. 
  THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT WAS DRAFTED WITH THE JOINT
  PARTICIPATION OF THE RESPECTIVE PARTIES THERETO AND SHALL BE CONSTRUED
  NEITHER AGAINST NOR IN FAVOR OF ANY PARTY, BUT RATHER IN ACCORDANCE WITH
  THE FAIR MEANING THEREOF.
  
          Section 9.20  Venue and Jurisdiction.  THIS AGREEMENT AND ANY
  OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
  ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.  BORROWER
  HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT OR
  PROCEEDING ARISING OUT OF OR IN ANY WAY IN CONNECTION WITH THIS AGREEMENT
  MAY BE INSTITUTED OR BROUGHT IN THE COURTS OF THE STATE OF NEW YORK, IN THE
  COUNTY OF NEW YORK, OR THE UNITED STATES DISTRICT COURTS FOR THE SOUTHERN
  DISTRICT OF NEW YORK, AS LENDER MAY ELECT, AND BY EXECUTION AND DELIVERY OF
  THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR
  ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
  NONEXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND TO ALL PROCEEDINGS IN SUCH
  COURTS.  BORROWER IRREVOCABLY CONSENTS TO SERVICE OF ANY SUMMONS AND/OR
  LEGAL PROCESS BY REGISTERED OR CERTIFIED UNITED STATES AIR MAIL, POSTAGE
  PREPAID, TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 9.9 HEREOF, SUCH
  METHOD OF SERVICE TO CONSTITUTE, IN EVERY RESPECT, SUFFICIENT AND EFFECTIVE
  SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION OR PROCEEDING.  NOTHING IN THIS
  AGREEMENT SHALL AFFECT THE RIGHT TO SERVICE OF PROCESS OF PROCESS IN ANY
  OTHER MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF LENDER TO BRING
  ACTIONS, SUITS OR PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION. 
  BORROWER FURTHER AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY SUCH LEGAL
  ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY
  OTHER JURISDICTION, WITHIN OR OUTSIDE THE UNITED STATES OF AMERICA, BY SUIT
  ON THE JUDGMENT, A CERTIFIED OR EXEMPLIFIED COPY OF WHICH SHALL BE
  CONCLUSIVE EVIDENCE OF THE FACT AND THE AMOUNT OF LIABILITY.
  
          Section 9.21  Waiver of Trial by Jury.  THE PARTIES TO THIS
  AGREEMENT ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND
  DELAYS NOT OCCASIONED BY NONJURY TRIALS.  THE PARTIES TO THIS AGREEMENT
  AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL
  JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY.  IN VIEW OF THE FOREGOING,
  AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, EACH PARTY TO
  THIS AGREEMENT EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
  DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER
  INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
  HEREWITH, OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
  DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
  INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
  HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, WHETHER NOW
  EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
  OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
  DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT
  A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
  COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF
  THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
  JURY.
  
          IN WITNESS WHEREOF, the parties have entered into this
  Agreement on the date first above written.
  
  
  "Borrower"                            "Lender"
  
  DSN CORPORATION, an Oklahoma          THE CIT GROUP/EQUIPMENT FINANCING,
  corporation                           INC., a New York corporation
  
  
  
  By __________________________         By__________________________
     
     __________________________           __________________________
       (Printed Name & Title)               (Printed Name & Title)
  
  
  
  Agreed as to Article 6:
  
  LSB INDUSTRIES, INC., 
  a Delaware corporation 
  
  
  
  By __________________________
     
     __________________________
       [Printed Name & Title]
  
  
                                   EXHIBIT "A"
  
                             Disclosure Schedule
  
                                   EXHIBIT "B"
  
                               Promissory Note
  
                                   EXHIBIT "C"
  
                   Legal Description of DSN Plant Location
  
                                   EXHIBIT "D"
  
                            Disbursement Schedule
  
                               TABLE OF CONTENTS
  
                                                                       Page
  
  ARTICLE 1       DEFINITIONS. . . . . . . . . . . . . . . . . . . . . .  1
  
  ARTICLE 2       THE LOAN . . . . . . . . . . . . . . . . . . . . . . . 10
  
       Section 2.1      The Loan . . . . . . . . . . . . . . . . . . . . 10
       Section 2.2      Disbursement Methods . . . . . . . . . . . . . . 11
       Section 2.3      Repayment of the Loan. . . . . . . . . . . . . . 15
       Section 2.4      Interest Charges . . . . . . . . . . . . . . . . 16
       Section 2.5      Late Charge Rate . . . . . . . . . . . . . . . . 17
       Section 2.6      Maximum Interest . . . . . . . . . . . . . . . . 17
       Section 2.7      Expenses . . . . . . . . . . . . . . . . . . . . 17
       Section 2.8      Prepayment . . . . . . . . . . . . . . . . . . . 18
       Section 2.9      Conditions of Lending. . . . . . . . . . . . . . 18
       Section 2.10     Place and Form of Payments . . . . . . . . . . . 23
       Section 2.11     Hold Back. . . . . . . . . . . . . . . . . . . . 23
       Section 2.12     Commitment Fee . . . . . . . . . . . . . . . . . 23
  
  ARTICLE 3       SECURITY FOR THE OBLIGATIONS . . . . . . . . . . . . . 23
  
       Section 3.1      Grant of Security Interest . . . . . . . . . . . 23
       Section 3.2      Continuing Obligation. . . . . . . . . . . . . . 24
  
  ARTICLE 4       ADMINISTRATION OF THE COLLATERAL . . . . . . . . . . . 25
  
       Section 4.1      The Equipment. . . . . . . . . . . . . . . . . . 25
       Section 4.2      No Lender Liability. . . . . . . . . . . . . . . 25
       Section 4.3      Use of Equipment; Identification . . . . . . . . 26
  
  ARTICLE 5       REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 26
  
       Section 5.1      Organization and Qualification . . . . . . . . . 27
       Section 5.2      Concerning the Loan Documents. . . . . . . . . . 27
       Section 5.3      Guaranties . . . . . . . . . . . . . . . . . . . 27
       Section 5.4      Equipment. . . . . . . . . . . . . . . . . . . . 27
       Section 5.5      The DSN Plant. . . . . . . . . . . . . . . . . . 28
       Section 5.6      Title to the DSN Plant and Equipment;
                        Security Interest. . . . . . . . . . . . . . . 28
       Section 5.7      Financial Condition. . . . . . . . . . . . . . . 28
       Section 5.8      Litigation . . . . . . . . . . . . . . . . . . . 29
       Section 5.9      Disclosure . . . . . . . . . . . . . . . . . . . 29
       Section 5.10     Tax Returns and Payments . . . . . . . . . . . . 29
       Section 5.11     Compliance with Other Instruments. . . . . . . . 29
       Section 5.12     Pension Plans. . . . . . . . . . . . . . . . . . 30
       Section 5.13     Labor Relations. . . . . . . . . . . . . . . . . 30
       Section 5.14     Environmental Laws . . . . . . . . . . . . . . . 30
       Section 5.15     Trade Names. . . . . . . . . . . . . . . . . . . 31
       Section 5.16     Subsidiaries . . . . . . . . . . . . . . . . . . 31
       Section 5.17     Loans and Affiliate Payments . . . . . . . . . . 31
       Section 5.18     Permits, Licenses. . . . . . . . . . . . . . . . 31
       Section 5.19     Broker's or Transaction Fees . . . . . . . . . . 31
       Section 5.20     Taxpayer ID No. and Chief Executive Office . . . 32
       Section 5.21     No Default . . . . . . . . . . . . . . . . . . . 32
  
  ARTICLE 6       AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . 32
  
       Section 6.1      Financial and Other Information. . . . . . . . . 32
       Section 6.2      Access . . . . . . . . . . . . . . . . . . . . . 35
       Section 6.3      Taxes. . . . . . . . . . . . . . . . . . . . . . 35
       Section 6.4      Maintenance of Properties; Insurance . . . . . . 36
       Section 6.5      Business . . . . . . . . . . . . . . . . . . . . 37
       Section 6.6      Compliance . . . . . . . . . . . . . . . . . . . 37
       Section 6.7      Litigation . . . . . . . . . . . . . . . . . . . 37
       Section 6.8      Environmental Laws . . . . . . . . . . . . . . . 37
       Section 6.9      Notices. . . . . . . . . . . . . . . . . . . . . 38
       Section 6.10     Tangible Net Worth . . . . . . . . . . . . . . . 38
       Section 6.11     Change of Ownership. . . . . . . . . . . . . . . 38
       Section 6.12     Use of Proceeds. . . . . . . . . . . . . . . . . 38
       Section 6.13     Books. . . . . . . . . . . . . . . . . . . . . . 38
  
  ARTICLE 7       NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . 39
  
       Section 7.1      Corporate Structure. . . . . . . . . . . . . . . 39
       Section 7.2      Dividends, Distributions, Redemptions. . . . . . 39
       Section 7.3      Loans, Investments, Affiliate Payments,
                        Salaries . . . . . . . . . . . . . . . . . . . 39
       Section 7.4      Change in Business, Structure or Business
                        Location . . . . . . . . . . . . . . . . . . . 39
       Section 7.5      Guaranties . . . . . . . . . . . . . . . . . . . 39
       Section 7.6      Sale of Property . . . . . . . . . . . . . . . . 39
       Section 7.7      Prepayment . . . . . . . . . . . . . . . . . . . 40
       Section 7.8      Liens. . . . . . . . . . . . . . . . . . . . . . 40
       Section 7.9      Negative Pledge on Leases. . . . . . . . . . . . 40
       Section 7.10     Pension Plans. . . . . . . . . . . . . . . . . . 40
       Section 7.11     Borrower's Name. . . . . . . . . . . . . . . . . 40
       Section 7.12     Changes to DSN Plant Documents . . . . . . . . . 40
       Section 7.13     Other Debts. . . . . . . . . . . . . . . . . . . 40
       Section 7.14     Transactions with Affiliates . . . . . . . . . . 41
  
  ARTICLE 8       DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 41
  
       Section 8.1      Events of Default. . . . . . . . . . . . . . . . 41
       Section 8.2      Rights Upon Default. . . . . . . . . . . . . . . 44
  
  ARTICLE 9       MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 46
  
       Section 9.1      Survival . . . . . . . . . . . . . . . . . . . . 46
       Section 9.2      Waiver of Notices. . . . . . . . . . . . . . . . 46
       Section 9.3      Assignment . . . . . . . . . . . . . . . . . . . 46
       Section 9.4      Complete Agreement Modification. . . . . . . . . 46
       Section 9.5      Applicable Law . . . . . . . . . . . . . . . . . 47
       Section 9.6      Indemnification. . . . . . . . . . . . . . . . . 47
       Section 9.7      Stamp or other Tax . . . . . . . . . . . . . . . 48
       Section 9.8      Captions . . . . . . . . . . . . . . . . . . . . 48
       Section 9.9      Notices. . . . . . . . . . . . . . . . . . . . . 49
       Section 9.10     No Waiver, Lender Performance. . . . . . . . . . 49
       Section 9.11     Evidence of Obligations; Admissibility of
                        Lender's Books and Records . . . . . . . . . . 50
       Section 9.12     No Liability for Brokers . . . . . . . . . . . . 50
       Section 9.13     Further Assurances . . . . . . . . . . . . . . . 50
       Section 9.14     Counterparts.. . . . . . . . . . . . . . . . . . 50
       Section 9.15     Notice of Breach by Lender . . . . . . . . . . . 50
       Section 9.16     Time . . . . . . . . . . . . . . . . . . . . . . 50
       Section 9.17     Exhibits . . . . . . . . . . . . . . . . . . . . 50
       Section 9.18     Authorization to Date, Complete Blanks and
                        Correct Errors . . . . . . . . . . . . . . . . 51
       Section 9.19     No Oral Agreements; Entire Agreement . . . . . . 51
       Section 9.20     Venue and Jurisdiction . . . . . . . . . . . . . 51
       Section 9.21     Waiver of Trial by Jury. . . . . . . . . . . . . 52
  
  
  
  
  Exhibits
  
  A   -     Disclosure Statement
  
  B   -     Promissory Note
  
  C   -     Legal Description of DSN Plant Location
  
  D   -     Disbursement Schedule
  
  
  
  
  
  
  
  
  
  sec\10k\TK94xt25.wpe


        LSB INDUSTRIES, INC.                                      Exhibit 11.1
                                                                   Page 1 of 6
    PRIMARY EARNINGS PER SHARE COMPUTATION
1994 quarter ended ---------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- ------- Shares for primary earnings per share: Weighted average shares: Common shares outstanding from beginning of period 13,673,971 13,659,691 13,555,191 13,214,701 Common shares issued on conversion of redeemable preferred stock; calculated on weighted average basis 360 - 180 260 Common shares issued upon exercise of employee or director stock options; calculated on weighted average basis 6,833 24,846 2,549 283 Purchases of treasury stock; calculated on weighted average basis (20,000) (29,176) (102,599) (118,796) --------- --------- --------- --------- 13,661,164 13,655,361 13,455,321 13,096,448 Common Stock equivalents: Shares issuable upon exercise of options and warrants (including the weighted average for shares subject to options and warrants granted during the period) 934,807 877,794 - - Assumed repurchase of outstanding shares up to the 20% limitation (based on average market price for the period) (247,510) (238,754) - - Common shares issuable on conversion of redeemable preferred stock, excluding shares included above on actual conversion 65,120 64,760 - - --------- --------- --------- --------- 752,417 703,800 - - --------- --------- --------- --------- 14,413,581 14,359,161 14,054,914 13,096,448 ========== ========== ========== ========== Earnings (loss) for primary earnings (loss) per share: Net earnings (loss) $2,203,665 $27,254,968 $ (912,514) $(4,078,630) Dividends on cumulative convertible preferred stocks: Series B (76,145) (60,000) (60,000) (60,000) Series 2 Class C (747,500) (747,500) (745,469) (738,531) --------- --------- --------- --------- Earnings (loss) applicable to common stock $1,380,020 $26,447,468 $(1,717,983) $(4,877,161) ========= ========== ========= ========= Earnings (loss) per share $.10 $1.84 $(.12) $(.37) ==== ===== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1 Page 2 of 6 PRIMARY EARNINGS PER SHARE COMPUTATION Year ended December 31, 1994 ----------------- Net earnings applicable to common stock $21,232,344 ========== Weighted average number of common and common equivalent shares (average of four quarters above) 13,831,128 ========== Earnings per share $1.54 =====
LSB INDUSTRIES, INC. Exhibit 11.1 Page 3 of 6 FULLY DILUTED EARNINGS PER SHARE COMPUTATION 1994 quarter ended ---------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- ------- Shares for fully diluted earnings per share: Weighted average shares outstanding for primary earnings per share 13,661,164 13,655,361 13,455,320 13,096,448 Shares issuable upon exercise of options and warrants 934,807 877,794 - - Assumed repurchase of outstanding shares up to the 20% limitation (based on ending market price for the quarter if greater than the average) (247,510) (238,754) - - Common shares issuable on conversion of redeemable preferred stock, excluding shares included above on actual conversion 65,120 64,760 - - Common shares issuable upon conversion of convertible note payable 4,000 4,000 - - Common shares issuable upon conversion of convertible preferred stock, if dilutive, from date of issue: Series B 666,666 666,666 - - Series 2 - 3,956,000 - - ---------- ---------- ---------- ---------- 15,084,247 18,985,827 13,455,321 13,096,448 ========== ========== ========== ========== Earnings (loss) for fully diluted earnings (loss) per share: Net earnings (loss) $ 2,203,665 $27,254,968 $ (912,514)$(4,078,630) Interest on convertible note 180 180 - - Dividends on cumulative convertible preferred stocks: Series B - - (60,000) (60,000) Series 2 Class C (747,500) - (745,469) (738,531) --------- ---------- ---------- ---------- Earnings (loss) applicable to common Stock $1,456,345 $27,255,148 $(1,717,983)$(4,877,161) ========= ========== ========== ========== Earnings (loss) per share $.10 $1.44 $(.13) $(.37) ===== ===== ===== =====
Year ended December 31, 1994 ----------------- Net earnings applicable to common stock $22,116,349 ========== Weighted average number of common and common equivalent shares (average of four quarters above) 15,155,461 ========== Earnings per share $1.46 =====
LSB INDUSTRIES, INC. Exhibit 11.1 PRIMARY EARNINGS PER SHARE COMPUTATION page 4 of 6 1993 quarter ended ----------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 --------- --------- --------- --------- Shares for primary earnings per share: Weighted average shares: Common shares outstanding from beginning of period 7,393,674 12,706,305 12,894,505 13,314,904 Common shares issued on conversion of redeemable preferred stock; calculated on weighted average basis 1,070 100 80 450 Common shares issued on conversion of convertible preferred stock; calculated on weighted average basis 1,304,070 - - - Common shares issued upon exercise of employee or director stock options; calculated on weighted average basis 19,500 114,951 392,170 226,147 Purchases of treasury stock; calculated on weighted average basis - - (69,541) (25,050) Sale of stock; calculated on weighted average basis 5,843 - - - --------- ---------- --------- ---------- 8,724,157 12,821,356 13,217,214 13,516,450 Common Stock equivalents: Shares issuable upon exercise of options and warrants (including the weighted average for shares subject to options and warrants granted during the period) 2,069,776 1,940,325 1,475,106 1,118,493 Assumed repurchase of outstanding shares up to the 20% limitation (based on average market price for the period) (513,253) (446,403) (313,033) (272,252) Common shares issuable on conversion of redeemable preferred stock, excluding shares included above on actual conversion 67,810 66,640 66,460 65,930 --------- --------- --------- -------- 1,624,333 1,560,562 1,228,533 912,171 --------- --------- --------- ------- 10,348,490 14,381,918 14,445,747 14,428,621 ========== ========== ========== ========== Earnings for primary earnings per share: Net earnings $2,657,133 $5,758,100 $2,423,644 $1,560,567 Dividends on cumulative preferred preferred stock (77,220) (60,000) (60,000) (60,000) Dividends on convertible, exchange- able Class C preferred stock (6.5% (6.5% annually beginning June 16, 1993), $.18 per share on June 15,1993 0 (290,183) (747,500) (747,500) --------- --------- --------- -------- Earnings applicable to common stock $2,579,913 $5,407,917 $1,616,144 $ 753,067 ========= ========= ========= ======== Earnings per share $.25 $.38 $.11 $.05 ===== ===== ===== =====
LSB INDUSTRIES, INC. Exhibit 11.1 PRIMARY EARNINGS PER SHARE COMPUTATION Page 5 of 6 Year ended December 31, 1993 ----------------- Net earnings applicable to common stock $10,357,041 ========== Weighted average number of common and common equivalent shares (average of four quarter above) 13,401,194 ========== Earnings per share $.77 =====
LSB INDUSTRIES, INC. Exhibit 11.1 Page 6 of 6 FULLY DILUTED EARNINGS PER SHARE COMPUTATION 1993 quarter ended ------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 ---------- ---------- ---------- ------- Shares for fully diluted earnings per share: Weighted average shares outstanding for primary earnings per share 8,724,157 12,821,356 13,217,214 13,516,450 Shares issuable upon exercise of options and warrants 2,069,776 1,940,325 1,475,106 1,118,493 Assumed repurchase of outstanding shares up to the 20% limitation (based on ending market price for the quarter if greater than the average) (495,004) (408,527) (308,015) (272,252) Common shares issuable on conversion of redeemable preferred stock, excluding shares included above on actual conversion 67,810 66,640 66,460 65,930 Common shares issuable upon conversion of convertible note payable 4,000 4,000 4,000 4,000 Common shares issuable upon conversion of convertible preferred stock, if dilutive, from date of issue: Series B 666,666 666,666 666,666 666,666 Series 1, net of shares held in treasury 3,748,470 - - - Series 2 Class C - 1,494,489 - - ---------- ---------- ---------- ---------- 14,785,875 16,584,949 15,121,431 15,099,288 ========== ========== ========== ========== Earnings for fully diluted earnings per share: Net earnings $2,657,133 $5,758,100 $2,423,644 $1,560,567 Interest on convertible note 180 180 180 180 Dividends on cumulative preferred stocks - - (747,500) (747,500) --------- --------- --------- --------- Earnings applicable to common stock $2,657,313 $5,758,280 $1,676,324 $ 813,247 ========= ========= ========= ========= Earnings per share $.18 $.35 $.11 $.05 ===== ===== ====== =====
Year ended December 31, 1993 ----------------- Net earnings applicable to common stock $10,905,164 =========== Weighted average number of common and common equivalent shares (average of four quarters above) 15,397,886 ========== Earnings per share $.71 ====== sec/10k/tk94x11.wpe
                                                               Exhibit 22.1


                   SUBSIDIARIES OF LSB INDUSTRIES, INC.
                   ------------------------------------

Aerobit Industries, Limited, an Israeli corporation

APR Corporation, an Oklahoma corporation

CHP Corporation, an Oklahoma corporation

Climate Master, Inc., a Delaware corporation

Climate Mate, Inc., a Canadian corporation

Climatex, Inc., a Texas corporation

Clipmate Corporation, an Oklahoma corporation

DSN Corporation, an Oklahoma corporation

El Dorado Chemical Company, an Oklahoma corporation

The Environmental Group, Inc., an Oklahoma corporation

Equipos Climatec S.A. de C.V., a Mexican corporation

Explosives Equipment Corporation, an Oklahoma corporation

Morey Machinery Manufacturing Corporation, an Oklahoma corporation

Hercules Energy Mfg. Corporation, an Oklahoma corporation

International Bearings, Inc., an Oklahoma corporation

International Environmental Corporation, an Oklahoma corporation

Koax Corp., an Oklahoma corporation

L & S Automotive Products Co., an Oklahoma corporation

L & S Automotive Technologies, Inc., an Oklahoma corporation

L & S Bearing Co., an Oklahoma corporation

LSB Chemical Corp., an Oklahoma corporation

LSB Europa Limited, an Oklahoma corporation

LSB Extrusion Co., an Oklahoma corporation

LSB Financial Corp., an Oklahoma corporation

LSB Indonesia Corporation, an Oklahoma corporation

LSB International Corp., an Oklahoma corporation

LSB South America Corporation, an Oklahoma Corporation

LSB Nitrogen Corporation, an Oklahoma corporation

Northwest Capital Corporation, an Oklahoma corporation


             SUBSIDIARIES OF LSB INDUSTRIES, INC. (CONTINUED)
             ------------------------------------------------

Northwest Energy Enterprises, Inc., an Oklahoma corporation

Northwest Financial Corporation, an Oklahoma corporation

Prime Financial Corporation, an Oklahoma corporation

Rotex Corporation, an Oklahoma corporation

Saffron Corporation, an Oklahoma corporation

Slurry Australia Pty. Limited, an Australian corporation

Summit Machine Tool Inc. Corp., an Oklahoma corporation

Summit Machine Tool Manufacturing Corp., an Oklahoma corporation

Summit Machine Tool Systems, Inc., an Oklahoma corporation

Total Energy Systems, Limited, and Australian corporation

Tower IV Corporation, an Oklahoma corporation

Tower Land Development Corp., an Oklahoma corporation

Tribonetics Corporation, an Oklahoma corporation

Universal Tech Corporation, an Oklahoma corporation














sec\10k\tk94x22.wpe




                                                               Exhibit 23.1







                      Consent of Independent Auditors


We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-8302) pertaining to the 1981 and 1986 Incentive Stock Option
Plans of LSB Industries, Inc. and the Registration Statement (Form S-3, No.
33-69800) of LSB Industries, Inc. and in the related Prospectus of our report
dated March 21, 1995, with respect to the consolidated financial statements
and schedule of LSB Industries, Inc. included in the Annual Report (Form 10-K)
for the year ended December 31, 1994.








                                    ERNST & YOUNG LLP



Oklahoma City, Oklahoma
April 10, 1995
 

5 0000060714 LSB INDUSTRIES, INC. 1,000 YEAR DEC-31-1994 DEC-31-1994 2,610 0 42,720 2,000 59,333 111,049 133,359 59,675 221,281 48,565 81,965 1,462 152 48,000 41,147 221,281 245,025 249,969 191,916 191,916 49,221 450 6,949 283 (700) 983 584 22,900 0 24,467 1.54 1.46