-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGvtGftEdmQ+EpLKN6OF8mA9hn3CZHOhMPdtdqxq7F9OhkNiqSYkre1FRFg9Y19X oYUcj6Sxdtzj8UvDG4yUbg== 0000899243-96-001596.txt : 19970401 0000899243-96-001596.hdr.sgml : 19970401 ACCESSION NUMBER: 0000899243-96-001596 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961218 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS INC /TX/ CENTRAL INDEX KEY: 0000795662 STANDARD INDUSTRIAL CLASSIFICATION: 2860 IRS NUMBER: 760502875 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10059 FILM NUMBER: 96682867 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST, SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: 1200 SMITH ST SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC /TX/ DATE OF NAME CHANGE: 19961218 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC DATE OF NAME CHANGE: 19960828 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STX CHEMICALS CORP CENTRAL INDEX KEY: 0001014669 STANDARD INDUSTRIAL CLASSIFICATION: 2860 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-04343-01 FILM NUMBER: 96682868 BUSINESS ADDRESS: STREET 1: C/O STERLING GROUP INC STREET 2: EIGHT GREENWAY PLAZA, SUITE 702 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7138778257 MAIL ADDRESS: STREET 1: C/O STERLING GROUP INC STREET 2: EIGHT GREENWAY PLAZA, SUITE 702 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: STX CHEMICALS CORP DATE OF NAME CHANGE: 19960516 10-K 1 FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ----------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1996 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 1-10059 STERLING CHEMICALS HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER, OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE COMMISSION FILE NUMBER 333-04343-01 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0502785 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1200 SMITH STREET, SUITE 1900 HOUSTON, TEXAS 77002-4312 (713) 650-3700 (ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER, OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE STERLING CHEMICALS, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A) AND (B) OF FORM 10-K, AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT PROVIDED FOR BY GENERAL INSTRUCTION J(2) OF FORM 10-K ------------------- Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 each of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. __ As of December 13, 1996, Sterling Chemicals Holdings, Inc. had 11,140,837 shares of common stock outstanding. As of such date, the aggregate market value of such common stock held by nonaffiliates, based upon the last sales price of these shares as reported on the OTC Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc., was approximately $128 million. As of December 13, 1996, all outstanding equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals Holdings, Inc. Portions of the definitive Proxy Statement relating to the 1997 Annual Meeting of Stockholders of Sterling Chemicals Holdings, Inc. are incorporated by reference in Part III of this Form 10-K. ================================================================================ TABLE OF CONTENTS PAGE ---- PART I Item 1. Business.............................................. 1 Item 2. Properties............................................ 15 Item 3. Legal Proceedings..................................... 16 Item 4. Submission of Matters to Vote of Security Holders..... 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................................... 19 Item 6. Selected Financial Data of the Company................ 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 22 Item 8. Financial Statements and Supplementary Data........... 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 66 PART III Item 10. Directors and Executive Officers of the Registrant.... 67 Item 11. Executive Compensation................................ 67 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................ 67 Item 13. Certain Relationships and Related Transactions........ 67 PART IV Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K............................... 68 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Form 10-K, including without limitation the statements under "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the cyclicality of the Company's industry, current and future industry conditions and the potential effects of such matters on the Company's business strategy, results of operations and financial position, are forward-looking statements. Although the Company believes that the expectations reflected in the forward- looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from expectations ("Cautionary Statements") are stated herein conjunction with the forward-looking statements or are included elsewhere in this Form 10-K. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Known Events, Trends, Uncertainties and Risk Factors". All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. i PART I This combined Form 10-K is separately filed by Sterling Chemicals Holdings, Inc. ("Holdings") and Sterling Chemicals, Inc. ("Chemicals"). Information contained herein relating to Chemicals is filed by Holdings and separately by Chemicals on its own behalf. Unless otherwise indicated, Holdings and its subsidiaries, including Chemicals, are collectively referred to as the "Company". ITEM 1. BUSINESS The Company was organized as a Delaware corporation in 1986 and has its principal executive offices in Houston, Texas. In connection with the Company's August 1996 merger with STX Acquisition Corp. (the "Merger"), the Company recapitalized and reorganized into a holding company whose only material asset is the capital stock of Chemicals, its wholly owned operating subsidiary. Through Chemicals and its subsidiaries, the Company manufactures seven commodity petrochemicals at its Texas City, Texas plant (the "Texas City Plant"). Additionally, the Company manufactures chemicals for use primarily in the pulp and paper industry at four plants in Canada and is currently constructing a fifth plant in Valdosta, Georgia. At its Texas City Plant, the Company produces styrene, acrylonitrile, acetic acid, plasticizers, methanol, tertiary butylamine ("TBA") and sodium cyanide. The Company generally sells its petrochemical products to customers for use in the manufacture of other chemicals and products, which in turn are used in the production of a wide array of consumer goods and industrial products. Sodium chlorate is produced at the four plants in Canada and by the end of 1996 will be produced at the plant in Valdosta, Georgia as well. Sodium chlorite is produced at one of the Canadian locations. The Company licenses, engineers and oversees construction of large-scale chlorine dioxide generators for the pulp and paper industry as part of the pulp chemical business. These generators convert sodium chlorate into chlorine dioxide at pulp mills. The Company's business strategy is to capitalize on its market position to take advantage of periods of tight supply and high prices and margins for its primary products, which historically have occurred on a cyclical basis, and to expand its production capacity to capture future growth opportunities in the petrochemical and pulp chemical industries. Key elements of this strategy are to: (i) maintain a competitive cost position in petrochemicals by investing in new technology and equipment; (ii) pursue low cost expansions in petrochemicals, such as its recent 30% expansion of acetic acid capacity and construction of a 150 million gallon per year methanol unit; (iii) pursue growth opportunities in pulp chemicals through the construction of additional capacity; (iv) continue to build strong industry partnerships in petrochemicals through securing long-term supply contracts with key customers; and (v) implement a focused acquisition strategy, targeting chemical businesses and assets which will strengthen the Company's existing market positions, provide upstream or downstream integration or produce complementary chemical products. The cyclicality of the markets for the Company's primary products, however, also subjects the Company to periods of overcapacity accompanied by lower prices and profit margins for such products. In addition, the instruments governing the debt incurred by the Company to finance the Merger limit the Company's ability to incur additional debt to finance acquisitions and other expenditures. These and other factors may limit the Company's ability to successfully implement its business strategy. RECENT DEVELOPMENTS In fiscal 1995, the Company initiated a three-year, $200 million capital spending program which is approximately 75% complete. The program includes modernization of the Company's Texas City Plant, construction of a methanol unit at the Texas City Plant, a substantial expansion of the Company's acetic acid capacity, construction of a sodium chlorate plant at Valdosta, Georgia, debottlenecking projects to add incremental capacity at the Company's existing sodium chlorate facilities and various other projects. The plant modernization effort at the Texas City Plant includes a significant capital commitment for replacing the older control technology in the styrene, acrylonitrile and acetic acid units with state-of-the-art distributive control systems, which should result in increased efficiencies and stronger operating fundamentals. In August 1996, the Company completed construction of a world-scale, 150 million gallon per year methanol unit at the Texas City Plant as part of its capital program. During the demonstration period, problems in the unit's 1 reformer burners developed. The burners were replaced in October 1996 and the methanol unit achieved full production in late October 1996. Capital investment in the unit and production capacity are shared by the Company and BP Chemicals Inc. ("BP"). Approximately 50% of the methanol production is used as a raw material in the Company's acetic acid unit, replacing methanol that was previously purchased from third parties. The remaining methanol production is available for the merchant market and for BP's worldwide acetic acid business. The unit was constructed at significantly less than normal replacement cost because available equipment already at the Company's Texas City Plant was refurbished and used in the project. During fiscal 1996, the Company and BP expanded the acetic acid unit's capacity to nearly 800 million pounds annually, an increase of approximately 30% or 200 million pounds. BP continues to market all of the Company's acetic acid production. In a project related to the expanded acetic acid capacity, Praxair Hydrogen Supply, Inc. ("Praxair") completed in June 1996 a new partial oxidation unit at the Company's Texas City Plant. The unit supplies carbon monoxide and hydrogen under a long-term contract to the Company for use in the production of acetic acid and plasticizers. The unit is owned by Praxair, but constructed on land owned by the Company and leased to Praxair. The Company is currently constructing a 110,000 ton per year sodium chlorate plant in Valdosta, Georgia. The new facility, which will cost approximately $55 million, will increase the Company's total annual sodium chlorate capacity by more than 30% to nearly 460,000 tons. Valdosta, Georgia was selected because of its proximity to existing customers which are currently being supplied from the Company's Canadian plants, and its proximity to reliable, competitively priced electricity, the most important variable in sodium chlorate production costs. The new facility is intended to meet the growing market demand from the pulp and paper industry in the Southeastern U.S. and is expected to be on stream by January 1, 1997. SALES AND MARKETING The Company primarily sells its petrochemical products pursuant to multi- year contracts and spot transactions in both the domestic and export markets through its commercial organization and sales force. This long-term, high volume focus allows the Company to maintain relatively low selling, general and administrative expenses related to the marketing of its petrochemical products. The Company competes on the basis of product price, quality and deliverability. Prices for the Company's commodity chemicals are determined by market factors that are largely beyond the Company's control, and, except with respect to a number of its multi-year contracts, the Company generally sells its products at prevailing market prices. Some of the Company's multi-year contracts for its petrochemical products are structured as conversion agreements, pursuant to which the customer furnishes raw materials that the Company processes. In exchange, the Company receives a fee typically designed to cover its fixed and variable costs of production and to generally provide an element of profit dependent on the existing market conditions for the product. These conversion agreements allow the Company to maintain lower levels of working capital and, in some cases, to gain access to certain improvements in manufacturing process technology. The Company believes its conversion agreements help insulate the Company to some extent from the effects of declining markets and changes in raw material prices while allowing it to share in the benefits of favorable market conditions for most of the products sold under these arrangements. The balance of the Company's products are sold by its direct sales force, which concentrates on the styrene, acrylonitrile, and pulp chemical markets. The Company sells sodium chlorate primarily in Canada and the U.S. generally under one to five-year supply contracts, most of which provide for minimum and maximum volumes or a percentage of requirements at market prices. In addition, most sales contracts contain certain "meet or release" pricing clauses and some contain restrictions on the amount of future price increases. Certain contracts are evergreen and require advance notice before termination. 2 CONTRACTS The Company's key multi-year contracts and conversion agreements, which collectively accounted for 30% of the Company's fiscal 1996 revenues are described below: Styrene-Bayer The Company and Bayer Corporation ("Bayer"), a subsidiary of Bayer AG, are currently operating under a conversion agreement effective through December 21, 2000. Under this agreement, the Company provides Bayer, subject to specified minimum and maximum quantities, a major portion of Bayer's styrene requirements for its manufacture of styrene-containing polymers. The agreement permits Bayer to terminate its obligations upon twelve months' notice to the Company should Bayer sell its business that uses styrene or assign the agreement (subject to the Company's consent) to a third-party purchaser of the business. During fiscal 1996, the Company delivered approximately 10% of its styrene production pursuant to this agreement. Styrene-BP Chemicals Effective April 1, 1994, the Company and BP entered into a styrene sales and purchase agreement. The term of the agreement initially expires in December 1996. The Company and BP are currently negotiating an extension of this agreement. Although the likelihood and terms of any extension are impossible to predict, at this time management has no reason to believe that the agreement will not be extended. During fiscal 1996, the Company delivered approximately 10% of its styrene production to BP pursuant to this agreement. Acrylonitrile-Monsanto The Company and Monsanto Company ("Monsanto") entered into a multi-year conversion agreement effective January 1, 1994, which superseded a prior agreement that had been in place since 1986. The initial term of this agreement will expire at the end of 1998, at which time the agreement will convert to an "evergreen" contract with successive two-year terms if not terminated. During fiscal 1996, the Company delivered approximately 25% of its acrylonitrile production to Monsanto pursuant to this agreement. Acrylonitrile-BP Chemicals In 1988, the Company entered into a long-term conversion agreement with BP, under which BP contributed the majority of the capital expenditures required for starting the third acrylonitrile reactor train at the Texas City Plant and has the option to take up to approximately one-sixth of the Company's total acrylonitrile capacity. BP furnishes the necessary raw materials and pays the Company a conversion fee for the amount of acrylonitrile it takes. During fiscal 1996, the Company delivered approximately 15% of its acrylonitrile production to BP pursuant to this agreement. The acrylonitrile reactor in which BP invested capital incorporates certain BP technological improvements under a separate license agreement. The Company has the right to incorporate these and any future improvements into its other existing acrylonitrile reactors. BP has a first security interest in the third reactor and related equipment and in the first acrylonitrile produced in the three reactor units to the extent of the acrylonitrile which BP is entitled to purchase under the production agreement. These rights are only to be exercised upon an event of default by the Company. Acetic Acid-BP Chemicals An agreement with BP that has been in effect since August 1986 currently gives BP the exclusive right to purchase all of the Company's acetic acid production until August 2016. In exchange for that exclusive right, BP is obligated to make certain unconditional monthly payments to the Company until August 2006. BP reimburses the Company for operating costs. In addition, the Company is entitled to receive annually a portion of the profits earned by BP from the sale of acetic acid produced by the Company. 3 Methanol-BP Chemicals In fiscal 1996, the Company entered into a long-term production and sales agreement with BP, under which BP contributed a significant portion of the capital expenditures required for the reconstruction and capacity increase of the Company's idle methanol production facility and obtained the right to receive a substantial portion of the Company's methanol production. During fiscal 1996, the Company delivered a substantial portion of its methanol production to BP pursuant to this agreement. The initial term of this agreement expires July 31, 2016. The output of the methanol facility is marketed by BP to the Company's acetic acid unit, the merchant market and BP's worldwide acetic acid business. Plasticizers-BASF A product sales agreement has been in effect with BASF Corporation ("BASF") since August 1, 1986, pursuant to which the Company sells all of its plasticizers production to BASF. The agreement expires at the end of 1999. BASF provides certain raw materials to the Company and markets the plasticizers produced by the Company. BASF pays fees to the Company on a formula basis designed to reimburse the Company's direct and allocated costs. In addition, the Company is entitled to a share of profits earned by BASF attributable to the plasticizers supplied by the Company. BASF retains title to and has a security interest in the raw materials furnished by it and in the finished inventory of plasticizers produced by the Company for delivery to BASF. No individual customer of the Company's petrochemical or pulp chemical business accounted for more than 10% of the Company's revenues in fiscal 1996. For information regarding the Company's export sales and domestic and foreign operations, see Note 8 of Item 8, ''Notes to Consolidated Financial Statements'' which is hereby incorporated by reference. PRODUCTS At its Texas City Plant, the Company manufactures seven commodity petrochemicals which are used in the manufacture of other goods or in other chemical processes. At its four Canadian plants, and by the end of 1996 at its Valdosta, Georgia plant, the Company manufactures chemicals used primarily in the bleaching of kraft pulp for paper manufacturing. The Company also is a supplier of patented and proprietary technology for chlorine dioxide generators used by certain mills in the kraft pulp bleaching process. 4 PRODUCT SUMMARY The Company's principal products and their primary end uses and raw materials are set forth below.
INTERMEDIATE PRIMARY END COMPANY PRODUCT PRODUCTS PRODUCTS RAW MATERIALS - - --------------- -------------- ------------- ---------------- Petrochemicals Styrene Polystyrene Building Ethylene and ABS/SAN resins products, boat Benzene Styrene and automotive butadiene components, latex disposable cups Polyester and trays, resins packaging and containers, housewares, tires, audio and video cassettes, luggage, children's toys, paper coating, appliance parts and carpet backing Acrylonitrile Acrylic fibers Apparel, Ammonia, Air ABS/SAN resins furnishings, and Propylene upholstery, household appliances, carpets; plastics for automotive parts using ABS and SAN polymers Acetic Acid Vinyl acetate Adhesives, Methanol and monomer cigarette Carbon Monoxide filters and surface coatings Methanol Acetic acid Adhesives, Natural Gas MTBE cigarette Formaldehyde filters and surface coatings; gasoline oxygenate and octane enhancer; plywood adhesives Plasticizers Polyvinyl Flexible Alpha-Olefins, chloride (PVC) plastics such as Carbon shower curtains Monoxide, and liners, Hydrogen, floor coverings, Orthoxylene and cable Air insulation, upholstery and plastic molding TBA NA Pesticides, Isobutylene and solvents, the pharmaceuticals acrylonitrile and synthetic by-product rubber Hydrogen Cyanide ("HCN") Sodium Cyanide NA Electroplating Sodium and precious Hydroxide and metals recovery by-product HCN Pulp Chemicals Sodium Chlorate Chlorine Bleaching agent Salt, Water and dioxide for pulp Electricity production; Downstream products include high quality office and coated papers Sodium Chlorite Chlorine Antimicrobial Sodium Chlorate dioxide agent for and municipal water Hydrochloric treatment, Acid disinfectant for fresh produce Chlorine Dioxide NA Chlorine dioxide NA Generators for use in the bleaching of pulp
PETROCHEMICALS Styrene. The Company manufactures styrene from ethylene and benzene. Styrene is principally used in the manufacture of intermediate products such as polystyrene, acrylonitrile butadiene styrene ("ABS") resins, synthetic rubbers, SBLatex, unsaturated polyester resins and styrene acrylonitrile resins ("SAN"). These intermediate products are used to produce various consumer products, including building products, boat and automotive components, disposable cups and trays, packaging and containers, housewares, tires, audio and video cassettes, luggage, children's toys, paper coating, appliance parts and carpet backing. 5 The Company is the third largest North American producer of styrene. The Company's styrene unit is one of the largest in the world and has an annual rated production capacity of 1.7 billion pounds, following a recent debottlenecking, which represents approximately 12% of total North American capacity. The Company sold approximately 20% of its styrene sales volumes pursuant to long-term conversion contracts during fiscal 1996. Approximately 40% of the Company's styrene sales volumes were exported in fiscal 1996, principally to the Far East, either directly or pursuant to arrangements with large international trading companies. Acrylonitrile. The Company manufactures acrylonitrile by propylene ammoxidation. Acrylonitrile is used primarily in the manufacture of intermediate products such as acrylic fiber and ABS resins. The principal end uses for acrylonitrile include apparel, furnishings, upholstery, household appliances, carpets, and plastics for automotive parts. The Company is the second largest global producer of acrylonitrile. The Company's acrylonitrile unit has an annual rated production capacity of 740 million pounds, which represents approximately 21% of total North American capacity. The Company sold approximately 40% of its acrylonitrile sales volumes pursuant to long-term conversion agreements during fiscal 1996. Approximately 60% of the Company's acrylonitrile production in fiscal 1996 was exported, principally to the Far East, either directly or pursuant to arrangements with large international trading companies. Hydrogen cyanide is a by-product of acrylonitrile manufacturing and is used by the Company as a raw material for the production of TBA and sodium cyanide and is also burned as fuel. Acetic Acid. The Company produces acetic acid from carbon monoxide and methanol. Acetic acid is primarily used in the manufacture of intermediate products such as vinyl acetate monomer. These intermediate products are used to produce various consumer products, including pharmaceuticals, adhesives, glue, cigarette filters, and surface coatings. The Company is the third largest North American producer of acetic acid. Following a 200 million pound capacity expansion completed in June 1996, the Company's acetic acid unit has an annual rated production capacity of nearly 800 million pounds, which represents approximately 17% of total North American capacity. All of the Company's production is sold to BP pursuant to a long-term contract through 2016. Methanol. In August 1996, the Company completed construction of a world- scale, 150 million gallon per year methanol unit at the Texas City Plant as part of its capital program. During the demonstration period, problems in the unit's reformer burners developed. The burners were replaced in October 1996 and the methanol unit attained full production in late October 1996. Capital investment in the unit and production capacity are shared by the Company and BP. Approximately 50% of the methanol production is used as a raw material in the Company's acetic acid unit, replacing methanol that was previously purchased from third parties. The remaining methanol is available for the merchant market and for BP's worldwide acetic acid business. The methanol unit was constructed at significantly less than normal replacement cost because available equipment already at the Company's Texas City Plant was refurbished and used in the project. In a project related to the expanded acetic acid capacity, Praxair has constructed a new partial oxidation unit at the Company's Texas City Plant that will supply carbon monoxide and hydrogen to the Company for use in the production of acetic acid and plasticizers. The partial oxidation unit began production in June 1996. The Company's synthesis gas reformer, which was previously being used to provide feedstock to the acetic acid and plasticizers units at the Texas City Plant, is currently being used in the methanol unit. Plasticizers. The Company manufactures plasticizers employing a series of processes using alpha-olefins and orthoxylene as the primary raw materials. Major end-uses for plasticizers include flexible plastics used in shower curtains and liners, floor coverings, cable insulation, upholstery and plastic molding. The Company has an agreement with BASF pursuant to which the Company sells all of its plasticizers production to BASF through 1999. The Company's plasticizers capacity is 280 million pounds per year. 6 TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in an acid catalyst reaction. The Company uses a portion of its by-product hydrogen cyanide from acrylonitrile production in this process. Major end uses for TBA include pesticides, solvents and synthetic rubber. The Company sells all of its TBA production to Flexsys America L.P. ("Flexsys") pursuant to a long-term conversion agreement. The Company's capacity for TBA is currently 21 million pounds per year. Sodium Cyanide. At the Texas City Plant, the Company operates a sodium cyanide unit which is owned by E.I. DuPont de Nemours and Company ("DuPont"). The Company and DuPont have an agreement whereby the Company receives a fee for operating the facility. The facility uses, as a raw material, hydrogen cyanide by-product generated by the Company's acrylonitrile manufacturing process. The capacity of this unit is 100 million pounds per year. PULP CHEMICALS Sodium Chlorate. Sodium chlorate is used primarily in the production of chlorine dioxide which is used chiefly by pulp and paper manufacturers as a bleaching chemical in the pulp manufacturing process. Bleached pulp is used to make uncoated paper for commercial printing and for office copiers and printers, and coated paper for magazines, catalogues, promotional printed products, packing, tissue and other products. Sodium chlorate is also used as a raw material to produce sodium chlorite. Sodium chlorate is manufactured by passing an electric current through an undivided cell containing a solution of sodium chloride (salt). Electric power costs typically represent approximately 65% of the variable cost of production of sodium chlorate. Electric power is purchased by each of the Company's facilities pursuant to contracts with local electric utilities. Consequently, the rates charged by local electric utilities are an important competitive factor among sodium chlorate producers. The Company's electrical power costs are believed to be competitive with other producers in the areas in which it operates. Upon completion of the Valdosta, Georgia plant, the Company will become the second largest producer of sodium chlorate in North America. The Company's four Canadian sodium chlorate plants have an aggregate annual rated production capacity of 350,000 tons. The Valdosta plant will increase the Company's total annual capacity by 30% to nearly 460,000 tons, representing approximately 22% of North American sodium chlorate capacity. Valdosta, Georgia was selected because of its proximity to existing customers currently being supplied from the Company's Canadian plants and its proximity to reliable, competitively priced electricity. The new facility is intended to meet the growing market demand from the pulp and paper industry in the Southeastern U.S. Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the Company is the largest worldwide supplier of patented technology for the generators which certain pulp mills use to convert sodium chlorate into chlorine dioxide. Each mill that uses chlorine dioxide requires at least one generator. The Company receives revenue when a generator is sold to a mill and also receives royalties from the mill after start-up, generally over the next ten-year period, based on the amount of chlorine dioxide produced by the generator. The Company has supplied approximately two-thirds of all existing modern pulp mill generators worldwide. The research and development group of ERCO works to develop new and more efficient generators. When pulp mills move to higher levels of substitution of chlorine dioxide for elemental chlorine, they are usually required to upgrade generator capacity or purchase new generator technology. Mills may also convert to a newer generator to take advantage of efficiency advances and technological improvements. Each upgrade or conversion results in a licensing agreement which generally provides for payment of an additional ten-year royalty. The Company has a representative office in Beijing, China. This office focuses on the development of opportunities for future sales and licensing of chlorine dioxide generators. The first generator in China to convert sodium chlorate to chlorine dioxide was sold by ERCO and commenced operation in fiscal 1994, and since then several more generators have been sold by ERCO for use in China. 7 Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham, Quebec facility. Sodium chlorite is a specialty product used primarily to produce chlorine dioxide for water treatment and as a disinfectant for fresh produce. The Company has a rated annual capacity of approximately 3,500 tons, which represents approximately 40% of total North American capacity. RAW MATERIALS FOR PRODUCTS AND ENERGY RESOURCES For each of the Company's products, the combined cost of raw materials and utilities is far greater than all other production costs combined. Thus, an adequate supply of these materials at reasonable prices is critical to the success of the Company's business. With the exception of methanol, the Company does not currently produce any of its major raw materials, benzene, ethylene, propylene, ammonia or natural gas at the Texas City Plant, or electricity at its pulp chemical facilities. Moreover some of the Company's competitors are integrated and produce their own raw materials. Although the Company believes that it will continue to be able to secure adequate supplies of its raw materials at acceptable prices to meet its requirements, there can be no assurance that it will be able to do so. PETROCHEMICALS Styrene. Styrene is a clear liquid that the Company manufactures from ethylene and benzene. The Company's conversion agreements require that other parties furnish the Company with the ethylene and/or benzene necessary to fulfill its conversion obligations. Approximately 20% of the Company's fiscal 1996 benzene and ethylene requirements were furnished by customers pursuant to conversion arrangements. The Company purchases benzene and ethylene for use in the remainder of its production of styrene for sale to others. Benzene and ethylene are both commodity petrochemicals and the price for each can fluctuate widely due to significant changes in the availability of these products, such as major capacity additions or significant plant operating problems, and due to variations in the economy and commodity chemical markets in general. The Company has multi-year arrangements with several ethylene suppliers that provide for its estimated requirements for purchased ethylene at generally prevailing and competitive market prices. Acrylonitrile. The Company produces acrylonitrile by reacting propylene and ammonia over a solid-fluidized catalyst at low pressure. The Company's conversion agreements require that other parties furnish to the Company the propylene and/or ammonia necessary to fulfill its conversion obligations. Approximately 40% of the Company's fiscal 1996 propylene and ammonia requirements were furnished by customers pursuant to conversion arrangements. The Company purchases propylene and ammonia for use in the remainder of its production of acrylonitrile for sale to others. Propylene and ammonia are both commodity petrochemicals and the price for each can fluctuate widely due to significant changes in the availability of these products such as major capacity additions or significant plant operating problems, and due to variations in the economy and commodity chemical markets in general. If various customers for whom the Company now manufactures acrylonitrile under conversion arrangements were to cease furnishing their own raw materials and seek only to purchase acrylonitrile from the Company, the Company's requirements for purchased propylene and ammonia could significantly increase. The Company believes that both ammonia and propylene will, for the foreseeable future, remain in adequate supply to meet demand. Hydrogen cyanide is a by-product of the acrylonitrile manufacturing process and is used by the Company as a raw material for the production of TBA and sodium cyanide and is also burned as fuel. Acetic Acid. Acetic acid is manufactured by the Company primarily from carbon monoxide and methanol. The acetic acid unit's methanol needs will be supplied by the Company's methanol unit. In a project related to the expanded acetic acid capacity, Praxair constructed a partial oxidation unit at the Company's Texas City Plant in fiscal 1996 that supplies carbon monoxide to the Company for production of acetic acid. Methanol. The Company produces methanol by steam reforming of natural gas to form synthesis gas. The synthesis gas is then converted to methanol under elevated pressures in the presence of a catalyst. The Company 8 obtains its natural gas under various supply contracts and believes that adequate supplies will be available for the Company's needs in the foreseeable future. Plasticizers. The Company manufactures plasticizers using a series of processes. Primary raw materials are alpha-olefins and orthoxylene, which are supplied by BASF under its long-term contract with the Company which expires at the end of 1999. The Company believes that adequate supplies of raw materials will be available for the Company's needs in the foreseeable future. TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in an acid catalyst reaction. The Company uses a portion of its by-product hydrogen cyanide in this process. Flexsys supplies the isobutylene, sulfuric acid and caustic soda under its long-term conversion agreement with the Company. The Company believes that supplies of these raw materials will remain adequate for its needs in the foreseeable future. Sodium Cyanide. Sodium cyanide is manufactured from the Company's by- product hydrogen cyanide and caustic soda. DuPont supplies the caustic soda for sodium cyanide under its long-term contract with the Company. PULP CHEMICALS Sodium Chlorate. Sodium chlorate is manufactured by passing an electric current through an undivided cell containing a solution of sodium chloride (salt). Electric power costs typically represent approximately 65% of the variable cost of production of sodium chlorate. Electric power is purchased by each of the Company's facilities pursuant to contracts with local electric utilities. Consequently, the rates charged by local electric utilities are an important competitive factor among sodium chlorate producers. On average, the Company's electrical power costs are believed to be competitive with other producers in the areas in which it operates. The Company also purchases sodium chloride for use in the manufacture of sodium chlorate. Sodium chloride is purchased under requirements contracts with major suppliers. The Company believes that sodium chloride will be available for its needs for the foreseeable future. TECHNOLOGY AND LICENSING Petrochemicals In 1986, Monsanto granted the Company a nonexclusive, irrevocable and perpetual right and license to use Monsanto's technology and other technology Monsanto acquired through third-party licenses in effect at the time of the acquisition of the Texas City Plant. These licenses are used in the production of styrene, acrylonitrile, methanol, TBA, acetic acid, and plasticizers. During fiscal 1991, BP Chemicals Ltd. ("BPCL") purchased the acetic acid technology from Monsanto (subject to the above licenses). BPCL has granted to the Company a nonexclusive, perpetual, royalty-free license (except in the case of a breach of the related production agreement) to use BPCL's acrylonitrile technology at the Texas City Plant as part of the acrylonitrile expansion project. The Company and BPCL have agreed to cross- license any technology or improvements relating to the manufacture of acrylonitrile at the Texas City Plant. The Company believes that the manufacturing processes that the Company utilizes at the Texas City Plant are cost effective and competitive. Although the Company does not engage in alternative process research with respect to its U.S. operations, it does monitor new technology developments and when the Company believes it is necessary, it will seek to obtain licenses for process improvements. Pulp Chemicals The Company produces sodium chlorate using state-of-the-art metal cell technology. The principal technology business of the Company is the design, sale and technical service of custom-built patented chlorine dioxide 9 generators. The ERCO engineering group is involved in the technical support of the Company's sales and marketing group through joint calling efforts which define the scope of a project as well as producing technical schedules and cost estimates. The Company performs detailed design of chlorine dioxide generators which are then fabricated by contractors. Plant installation, instrumentation testing and generator start-up are supervised by a joint engineering/technical service team of the Company. Prior to 1996, the Company was involved in a number of patent disputes with Akzo Nobel regarding chlorine dioxide technology. In 1996, the parties reached a settlement of such disputes that allows licensees of both the Company and Akzo Nobel to operate their chlorine dioxide generators within the broadest range of operating conditions, subject to cross licensing and payment of royalties. The Company's pulp chemical research and development activities are carried out at its Toronto, Ontario laboratories. Activities include the development of new or improved chlorine dioxide generation processes and research in new technologies focusing on electrochemical and membrane technology related to chlorine dioxide, including improvement of quality and reduction of quantity of pulp mill effluents and treatment of municipal water supplies. COMPETITION AND INDUSTRY CONDITIONS GENERAL The industry in which the Company operates is highly competitive. Many of the Company's competitors, particularly in the petrochemical industry, are larger and have substantially greater financial resources than the Company. Among the Company's competitors are some of the world's largest chemical companies that have their own raw material resources. In addition, a significant portion of the Company's business is based upon widely available technology. The entrance of new competitors into the industry and the addition by existing competitors of new capacity may reduce the Company's ability to maintain profit margins or its ability to preserve its market share, or both. Such developments could have a negative impact on the Company's ability to obtain higher profit margins, even during periods of increased demand for the Company's products. The Company's primary domestic competitors by product are set forth below: Styrene Dow Chemical Company, ARCO Chemical Company, Amoco Chemical Company (a subsidiary of Amoco Corporation), Chevron Chemical Company (a subsidiary of Chevron Corporation), Cos-Mar (a joint venture of General Electric Company and FINA Inc.), and Huntsman Chemical Corporation Acrylonitrile BP Chemicals Inc., Cytec Industries Inc., E.I. DuPont de Nemours and Company, and Monsanto Company Acetic Acid Hoechst Celanese Corporation, Eastman Chemical Company, and Millennium Chemicals Plasticizers Exxon Corporation, Aristech Chemicals, and Eastman Chemical Company TBA BASF Corporation and Nitto Chemical Industry Co., Ltd. Sodium Chlorate Akzo Nobel N.V., CXY Chemicals Ltd., and Kerr-McGee Corporation Sodium Chlorite Vulcan Chemicals (a subsidiary of Vulcan Materials Co.) Historically, petrochemical industry profitability has been affected by vigorous price competition, which may intensify due to, among other things, new domestic and foreign industry capacity. The Company's businesses are subject to changes in the world economy, including changes in currency exchange rates. In general, weak economic conditions either in the United States or in the world tend to reduce demand and put pressure on margins. Operations outside the United States are subject to the economic and political risks inherent in the countries in which they operate. Additionally, the export and domestic markets can be affected significantly by import laws and 10 regulations. During fiscal 1996, the Company's export sales were approximately 34% of total revenues. It is not possible to predict accurately how changes in raw material costs, market conditions, or other factors will affect petrochemical industry margins in the future. PETROCHEMICALS Styrene. According to Chemical Marketing Associates, Inc. ("CMAI"), the total North American capacity for styrene is currently 14.4 billion pounds per year. The Company's rated capacity of 1.7 billion pounds per year represents approximately 12% of the North American capacity. From 1991 to 1993, styrene's profitability was depressed because of both industry overcapacity and global recessionary pressures. By the spring of 1994, however, demand growth resulting from economic expansion had absorbed much of the excess capacity. As a result, styrene prices and margins increased substantially in fiscal 1994 and through most of fiscal 1995, and average industry utilization rates exceeded rated capacity by the third quarter of fiscal 1995. Shortly thereafter, styrene prices started decreasing as demand weakened as a result of a general slowdown in the worldwide economic growth rate, prompting customers to begin utilizing their available inventories and decreasing purchases of additional product. The weakening market conditions were accelerated in the fourth quarter of fiscal 1995 by significantly decreased purchases of styrene and styrene derivatives by China, primarily as a result of changes in China's enforcement of economic and tax policies and monetary constraints that negatively affected its imports. China accounts for a significant portion of global purchases of styrene and styrene derivatives. Average styrene prices declined by over 41% from fiscal 1995 to fiscal 1996, primarily as a result of weaker market conditions in the Far East. According to CMAI, the North American styrene industry operated at approximately a 98% utilization rate in fiscal 1995, and approximately 93% in fiscal 1996. Certain styrene producers have announced plans to add significant production capacity over the next several years, particularly in the Far East. Current global production capacity for styrene is estimated to be approximately 40 billion pounds and the Company believes that approximately 7.2 billion pounds of capacity will be added by competitors in the next two fiscal years, including an estimated 3.5 billion pounds in fiscal 1997 and 3.7 billion pounds in fiscal 1998. The Company expects that prices for styrene will continue at current depressed levels until global demand for styrene increases sufficiently to absorb such additional production capacity. Acrylonitrile. The acrylonitrile market exhibits characteristics in capacity utilization, selling prices and profit margins similar to those of styrene. Moreover, as a result of the Company's high percentage of export acrylonitrile sales, demand for the Company's acrylonitrile is most significantly influenced by export customers, particularly those that supply acrylic fiber to China. In recent years, the acrylic fiber market has been subject to volatility because of fluctuations in demand from the Chinese market. During most of fiscal 1995, strong demand for acrylic fiber and ABS resins, particularly in China, increased demand for acrylonitrile. However, the Company believes that acrylonitrile demand began to weaken in the third quarter of fiscal 1995 for the same reasons that caused the deterioration in the styrene market. Demand for acrylonitrile from export customers decreased significantly in the fourth quarter of fiscal 1995 as a result of these developments, although export prices and margins did not decrease significantly until the first quarter of fiscal 1996. Average acrylonitrile sales prices declined 29% from fiscal 1995 to fiscal 1996 as a result of weaker market conditions in the Far East. According to CMAI, the North American acrylonitrile industry operated at approximately a 97% utilization rate in fiscal 1995 and approximately 93% in fiscal 1996. The Company believes that during fiscal years 1997 and 1998, global industry capacity will increase by approximately 940 million pounds or 9%. As a result of the increased global industry capacity in fiscal years 1997 and 1998, industry utilization rates may decline and price competition may increase during this period. Acetic Acid. According to CMAI, the total domestic capacity for acetic acid production is approximately 4.9 billion pounds per year, with the Company's current rated capacity of approximately 800 million pounds per year representing approximately 16% of the total domestic capacity. 11 Methanol. The Company completed construction of a world-scale, 150 million gallon per year methanol unit at the Texas City Plant in August 1996. Capital investment in the unit and production capacity is shared by the Company and BP. Approximately 50% of the methanol production is used as a raw material in the Company's acetic acid unit. The remaining methanol production is available for the merchant market and for BP's worldwide acetic acid business. Plasticizers. The Company's capacity for plasticizers is 280 million pounds per year. The Company has an agreement with BASF pursuant to which the Company will sell all of its plasticizers production to BASF through 1999. TBA. The Company operates a TBA production unit with a capacity of 21 million pounds per year. The Company believes that currently there are only three TBA production units in the world: those operated by the Company (21 million pounds capacity), Nitto Chemical Industries Co., Ltd. (3.3 million pounds capacity), and BASF (13 million pounds capacity). Sodium Cyanide. The Company operates a sodium cyanide unit at its Texas City Plant which is owned by DuPont. The capacity of this unit is 100 million pounds per year. PULP CHEMICALS Sodium Chlorate. Historically, sodium chlorate has experienced cycles in capacity utilization, selling prices and profit margins. From 1990 to 1994, the industry had been operating well below rated capacity, resulting in declining product prices, due to significant capacity expansion during the period from 1990 to 1992. Since the mid-1980s, however, North American demand for sodium chlorate has grown at an average annual rate of 10% as pulp mills have accelerated substitution of chlorine dioxide, sodium chlorate's primary derivative, for elemental chlorine in bleaching applications. Chlorine dioxide is a powerful and highly selective oxidizing agent suitable for pulp bleaching. It has the ability to substantially reduce hazardous substances, including dioxins and furans, in bleach plant effluent, as well as produce high-brightness pulp with little or no damage to the cellulose fiber. Substitution of chlorine dioxide for elemental chlorine is driven primarily by environmental concerns. Through the end of 1995, approximately 80% to 85% of Canadian bleach plant capacity and approximately 60% to 65% of U.S. bleach plant capacity has been converted to chlorine dioxide. The Environmental Protection Agency ("EPA") has published draft regulations known as "Cluster Rules" which, if enacted, are likely to mandate the elimination of elemental chlorine usage in bleaching applications, resulting in increased substitution of chlorine dioxide for elemental chlorine by the North American pulp and paper industry. For information regarding capacity utilization and revenues for each of the Company's principal products, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations". ENVIRONMENTAL AND SAFETY MATTERS The Company's operations involve the handling, production, transportation, and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause or when new or revised environmental laws or requirements are implemented. New laws or permit requirements and conditions may affect the Company's operations, products, or waste disposal. Past or future operations may result in claims, regulatory action, or liabilities. Expenditures could be required to upgrade wastewater collection, pretreatment or disposal systems, or other matters. Some risk of environmental costs and liabilities is inherent in particular operations and products of the Company, as it is with other companies engaged in similar businesses. 12 The Company conducts environmental management programs to maintain compliance with applicable environmental laws. As part of these programs, the Company conducts or commissions reviews of its environmental performance and addresses issues identified. The Company routinely conducts inspection and surveillance programs to detect and respond to any leaks or spills of regulated hazardous substances and to correct any identified regulatory deficiency. To reduce the risk of offsite consequences from any unanticipated event, the Company acquired a greenbelt buffer zone adjacent to the Texas City Plant in 1991. The Company also participates in a regional air monitoring network to monitor ambient air quality in the Texas City community. These programs are part of the Company's commitment to Responsible Care initiatives of the Chemical Manufacturers Association and Canadian Chemical Producers Association. During fiscal 1996, the Company was recognized as a 33/50 Environmental Champion by the EPA for surpassing the emission reduction goals of the 33/50 program at the Texas City Plant faster than the EPA's timetable. The voluntary 33/50 program targeted 17 high priority chemicals included in the EPA's Toxic Release Inventory. Six of the 17 chemicals are present at the Company's Texas City Plant. The goal of the program was a 33% reduction in air emissions of these compounds by 1992, compared to 1987 levels, and a 50% reduction by 1995. For the 1995 reporting year, the final year of the 33/50 program, the Company achieved a 71% reduction in the targeted chemicals, including a 95% reduction in hydrogen cyanide emissions by converting this by-product into sodium cyanide, an 83% reduction in benzene emissions primarily by constructing a major wastewater treatment facility, a 66% reduction in toluene and orthoxylene, and a 13% reduction in chromium and nickel compounds. In addition to these improvements, the Company has recently completed an extensive review of the overall environmental condition at its Texas City Plant and has initiated a groundwater monitoring program. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations, or products. Changing and increasingly strict environmental laws and regulations might affect the manufacture, handling, processing, distribution or use of chemical products and the release, treatment, storage or disposal of wastes by the Company. Accordingly, the Company could be required from time to time to make expenditures to upgrade its wastewater collection, pretreatment, or disposal systems at the Texas City Plant. Production of chemical products involves the use, storage, transportation, and disposal of materials that may be classified as hazardous or toxic under applicable laws. The Company believes that its procedures for the use, storage, transportation, and disposal of these materials are consistent with industry standards and applicable laws and that it takes precautions to protect its employees and others from harmful exposure to such materials. However, there can be no assurance that past or future operations will not result in exposure or injury or to claims of injury by employees or the public due to the use, storage, transportation, or disposal of these materials. Under the Assets Purchase Agreement for the Company's acquisition of the Texas City Plant from Monsanto, Monsanto agreed to be liable and to indemnify the Company for certain environmental liabilities. The contractual indemnity expires upon certain changes of control of the Company. Monsanto has taken the position that the Merger constitutes such a change of control. Accordingly, any future claims the Company may have against Monsanto may necessarily be based upon statutory laws or common law principles, although there can be no assurance that the Company would prevail against Monsanto with respect to any such claim. Based on information currently available, the Company believes the loss of the contractual indemnity will not have a material adverse effect on its financial condition. In connection with the Company's purchase of the pulp chemical business in 1992, the seller, Tenneco Canada, Inc. ("Tenneco"), contractually retained liability for costs, damages, fines, penalties and other losses under claims by third parties (including employees and authorities) arising from the ownership or operation of the facilities and businesses prior to the acquisition. The Company is also indemnified against the breach of environmental remediation covenants. These covenants oblige the indemnifying party to do specific remedial work (including decommissioning the old section of the Vancouver facility, which is underway) at the facilities within set time periods, and to do any investigation, monitoring or remedial work required by present or future legislation governing environmental conditions predating the acquisition. The indemnity also protects the Company against losses arising from the remediation of pre-acquisition environmental conditions or from pre-acquisition violations of environmental laws. With the exception of any third-party claims, the losses against which the Company is 13 indemnified do not include consequential damages or lost profits. The Tenneco obligations have been assigned to Albright & Wilson UK Ltd. ("Albright & Wilson") as a result of the sale by Tenneco of certain assets to Albright & Wilson. Groundwater data obtained in the course of the acquisition of the pulp chemical business indicated elevated concentrations of certain chemicals in the soil and groundwater at the four Canadian sites. The Company conducted a focused baseline sampling of groundwater conditions beneath its Canadian facilities in connection with Tenneco's indemnification of the Company for preclosing conditions which confirmed the previous data. The Company from time to time has encountered elevated concentrations of chemicals in soils or groundwater at its Canadian plants which it has addressed or is addressing. During the course of the acquisition of the pulp chemical facilities by the Company, air emissions sources were reviewed, and any available dustfall and vegetation stress studies were considered. This review indicated emission excursion episodes at specific locations in the scrubber systems at the Thunder Bay, Buckingham, and Vancouver facilities. The conditions at Thunder Bay and Vancouver have been addressed and satisfactorily resolved and the conditions at Buckingham are being addressed. The Company believes that it is otherwise in compliance in all material respects with permit requirements under applicable provincial law for operating emissions sources. The Company's pulp chemical business is sensitive to potential environmental regulation. The EPA has published draft regulations which, if enacted, would support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of AOX (chlorine derivatives) in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine containing compounds, regulations restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine containing compounds could have a material adverse effect on the Company's financial condition and results of operations. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes that a ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. In the event such a regulation was implemented, the Company would seek to sell its products to customers in other markets. The Company is not aware of any other laws or regulations currently in place in North America which would restrict the use of the product. Emissions into the air from the Texas City Plant are subject to certain permit requirements and self-implementing emission limitations and standards under state and federal law. The Texas City Plant is located in an area that is classified by the EPA as not having attained the ambient air quality standards for ozone, which is controlled by direct regulation of volatile organic compounds ("VOCs") and nitrogen oxide ("NOx"). Additional requirements were issued in fiscal 1994 and modified in fiscal 1996 by the Texas Natural Resource Conservation Commission in order to achieve ambient air quality standards for ozone. These measures may substantially increase the Company's NOx control costs in the future, although the cost and full impact, if any, cannot be determined at this time. Additionally, the Clean Air Act Amendments of 1990 authorize new federal permit requirements and provisions governing toxic and criteria air contaminants. The Company has incurred and will incur additional costs to comply with this law and with requirements issued by the State of Texas to control VOCs and NOx, as will all other similarly situated organic chemical manufacturing facilities. The Company believes that it is in compliance in all material respects with applicable environmental law. However, there can be no assurance that past practices or future operations will not result in material claims or regulatory action or require material environmental expenditures. 14 EMPLOYEES As of September 30, 1996, the Company had approximately 1,200 employees, including approximately 300 at its facilities in Canada. Approximately 60% of the employees at the Company's manufacturing facilities are covered by union agreements. The primary union agreement is with the Texas City, Texas Metal Trades Council, AFL-CIO, of Galveston County, Texas, and covers all hourly employees at the Texas City Plant. The Company signed a new labor agreement in May 1996 which is subject to renegotiation in April 1999. The new agreement increases the flexibility of work rules which the Company believes will increase the overall efficiency of the Texas City Plant. Employees at the Vancouver plant are represented by the Pulp, Paper and Woodworkers Union. The Vancouver agreement was renegotiated in November 1994 and is subject to further renegotiation in November 1997. Employees at the Buckingham plant are represented by either the Energy and Chemicals Workers Union or an office and professional workers union. Both Buckingham agreements were negotiated in November 1994 and are subject to renegotiation in November 1997. The Company believes its relationship with its employees is good. INSURANCE The Company currently maintains $500 million of coverage for property damage to its Texas City Plant and resulting business interruption. Although the Company carries such insurance, it has only one styrene manufacturing facility and one acrylonitrile manufacturing facility; thus, a significant interruption in the operation of either facility could have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company maintains $338 million of combined coverage for property damage and resulting business interruption for its pulp chemical operations. The Company also maintains other insurance coverages for various risks associated with its business. There is no assurance that the Company will not incur losses beyond the limits of, or outside the coverage of, its insurance. From time to time various types of insurance for companies in the chemical industry have been very expensive or, in some cases, unavailable. There is no assurance that in the future the Company will be able to maintain its existing coverage or that the premiums will not increase substantially. ITEM 2. PROPERTIES The principal executive offices of the Company are located in Houston, Texas, and are subleased through Citicorp, N.A. The Company's Texas City Plant is located approximately 45 miles south of Houston in Texas City, Texas, on a 290-acre site on Galveston Bay near many other chemical manufacturing complexes and refineries. The Company has facilities to load its products in trucks, railcars, barges and ocean-going tankers for shipment to customers. The site offers room for future expansion and includes a greenbelt around the northern edge of the plant site. The Company's Texas City Plant comprises seven basic operating units which can be divided into three groups based on the chemistry involved. One group of operating units involves synthesis gas chemistry (carbon monoxide and hydrogen), and its facilities include the acetic acid unit, three plasticizer units (oxo-alcohol, phthalic anhydride and linear phthalate esters), and the methanol unit. Carbon monoxide and hydrogen are utilized as feedstocks in the oxo-alcohol manufacturing process and carbon monoxide and methanol are utilized as feedstocks to produce acetic acid. As described in Item 1 under the caption "Recent Developments," a new partial oxidation unit was constructed by Praxair at the Texas City Plant to supply carbon monoxide and hydrogen to the Company. The synthesis gas reformer is now used in the methanol unit. A second group of operating units involves acrylonitrile and hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit, the TBA unit, and the sodium cyanide unit. Ammonia and propylene are used as feedstocks in the acrylonitrile process and hydrogen cyanide, a by- product of that process, is used as a feedstock for the other units in this second group and is also burned as fuel. The third operating group is based on ethylene and benzene chemistry and its facilities comprise the ethylbenzene and styrene units. Although the styrene unit is independent of the rest of the Texas City Plant from a feedstock and by-product standpoint, it is the cornerstone of the Texas City Plant's energy balance as it uses large quantities of by-product steam generated by the acrylonitrile and phthalic anhydride units, thus reducing the demands on the 15 Company's steam generating facility. In this way, the Texas City Plant's utilities system links the three operating groups together in an effort to minimize utility costs. This integration results in cost efficiencies without significantly compromising the operating flexibility of the individual product units. The Company owns or leases all of the real property which comprise its Texas City Plant and all of the facilities and equipment located there, other than the sodium cyanide unit which is owned by DuPont, a cogeneration facility owned by a joint venture between the Company and Praxair Energy Resources, Inc., and the new partial oxidation unit constructed at the site by Praxair. Following the expiration of its ten-year lease with BP on July 31, 1996, legal title to the acetic acid unit reverted to the Company. The Company also owns storage facilities, approximately 200 rail cars and an acetic acid barge. In addition, the Company subleases approximately 20,000 square feet of office space in Houston, Texas for its corporate headquarters and leases several storage facilities in the U.S. and Korea. The Company's pulp chemical business includes four manufacturing plants in Canada and one in Valdosta, Georgia, currently nearing completion. The Buckingham, Quebec and Vancouver, British Columbia sites are approximately 20 acres each and are owned by the Company. The Thunder Bay, Ontario and Grande Prairie, Alberta sites are leased by the Company. The new plant is being constructed in conjunction with, and will be leased from, the Valdosta- Lowndes County Industrial Authority. The Company also leases approximately 325 rail cars. Headquarters for the Canadian operations is located in Toronto in an approximately 50,000 square foot single story office building owned by the Company. The building is situated on 6.56 acres owned by the Company and serves as the headquarters for the pulp chemical business and its respective laboratories. The Company believes that these properties and equipment are sufficient to conduct the Company's business. See Item 1. "Business" for other information required by this item. ITEM 3. LEGAL PROCEEDINGS The information set forth under the caption "Legal Proceedings" in Note 7 of the "Notes to Consolidated Financial Statements" is incorporated herein by this reference. The cause numbers, the styles of the cases, the courts in which the cases are pending and certain other information with respect to the matters described in Note 7 are set forth below. HUNTSMAN LAWSUIT: Sterling Chemicals, Inc. v. Huntsman Chemical Corporation, Huntsman Styrene Corporation and Huntsman Corporation; Cause No. 95-005256; In the 61st Judicial District Court of Harris County, Texas. ALLEMAND LAWSUIT: George Allemand and Willa Allemand v. Sterling Chemicals, Inc., Olin Corporation, Goodyear Tire & Rubber Co., Inc. Marine Fueling Service, Inc.; le Manufacturier de Granford, Triplex Inc. and Shrieve Chemical Company, Cause No. A-152,286; In the 58th Judicial District Court of Jefferson County, Texas. AMMONIA RELEASE LAWSUITS: 1. Otis Pointer Jr., individually and on behalf of all others similarly situated, v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 94CV0514; In the 56th Judicial District Court of Galveston County, Texas ("Pointer"). 2. Holly Benefiel, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV0246; In the 56th Judicial District Court of Galveston County, Texas. 3. Lilly Gordon, et al. v. Sterling Chemicals, Inc.; Cause No. 95-36592; In the 281st Judicial District Court of Harris County, Texas ("Gordon"). 4. Versell Allums, et al. v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 95CV1017; In the 10th Judicial District Court of Galveston County, Texas. 5. Maurice Benson, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1265; In the 56th Judicial District Court of Galveston County, Texas. 16 6. Rodney Curry, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1263; In the 122nd Judicial District Court of Galveston County, Texas. 7. Jayson Rhodes, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1266; In the 10th Judicial District Court of Galveston County, Texas. 8. Darrell Vick, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1262; In the 122nd Judicial District Court of Galveston County, Texas. 9. Nathaniel Barron, et al. v. Sterling Chemicals, Inc. and Paul Saunders; Cause No. 96CV0103; In the 10th Judicial District Court of Galveston County, Texas. 10. Melton Avie, et al. v. Sterling Chemicals, Inc., BP America, Inc., BP Chemicals America, Inc., n/k/a BP Chemicals, Inc., Allen Bolen, and Paul Saunders; Cause No. 96CV0377; In the 56th Judicial District Court of Galveston County, Texas. 11. Feliciana Cantu, et al. v. Sterling Chemicals, Inc.; Cause No. 664459; In the County Civil Court at Law No. 4 of Harris County, Texas. 12. Lee Arvie, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0431; In the 56th Judicial District Court of Galveston County, Texas. 13. Edwin Laday v. Sterling Chemicals, Inc.; Cause No. 96CV0430; In the 212th Judicial District Court of Galveston County, Texas. 14. Earl Rivas and Rosie Rivas v. Sterling Chemicals, Inc., Sterling Chemical Company, Sterling Chemical Company, Inc., B.P. Chemicals, Inc., B.P. Chemicals America, Inc., Paul Saunders, and Allan Bolen; Cause No. 96CV0438; In the 10th Judicial District Court of Galveston County, Texas. 15. Bertha L. Anderson, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0440; In the 122nd Judicial District Court of Galveston County, Texas. 16. Carl Terry, et al. v. Sterling Chemicals, Inc. and Paul Saunders; Cause No. 96CV0436; In the 212th Judicial District Court of Galveston County, Texas. 17. Phyllis Cormier, et al. v. Sterling Chemicals, Inc.; Cause No. 96- 023195; In the 269th Judicial District Court of Harris County, Texas. 18. Nita Moore, et al. v. Sterling Chemicals, Inc.; Cause No. 96-22420; In the 270th Judicial District Court of Harris County, Texas. 19. Mattie Moses, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0458; In the 56th Judicial District Court of Galveston County, Texas. 20. Prince Ella Green and James Green v. Sterling Chemicals, Inc.; Cause No. 96CV0454; In the 212th Judicial District Court of Galveston County, Texas. 21. Jacqueline Lynch, et al. v. Sterling Chemicals, Inc.; Cause No. 43353; In the County Court at Law No. 2 of Galveston County, Texas. 22. Gloria Cotton, et al. v. Sterling Chemicals, Inc.; Cause No. 96CV0446; In the 122nd Judicial District Court of Galveston County, Texas. 23. Phyllis Joiner, et al. v. Sterling Chemicals, Inc.; Cause No. 56189; In the Justice of the Precinct No. 1, Galveston County, Texas. 24. Timothy McClurkin, Sr. v. Sterling Chemicals, Inc.; Cause No. 96CV0451; In the 56th Judicial District Court of Galveston County, Texas. 25. Allen E. Kitchens v. Sterling Chemicals, Inc., et al.; Cause No. 43,352; In the Galveston County Court, Galveston County, Texas. 26. Patricia A. Glover v. Sterling Chemicals, Inc., Paul Saunders, Allen Bolen, et al.; Cause No. 96CV0459; In the 212th Judicial District Court of Galveston County, Texas. 27. Wayne R. Lee v. Sterling Chemicals, Inc.; Cause No. 96CV0467; In the 10th Judicial District Court of Galveston County, Texas. The following ammonia lawsuits against the Company have been dismissed by voluntary non-suit, however, the plaintiffs in these lawsuits have maintained their claims against the Company by filing Pleas-in-Intervention in either Pointer or Gordon referenced above: 1. Bobbie J. Adams, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0764; In the 56th Judicial District Court of Galveston County, Texas. 2. Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0947; In the 56th Judicial District Court of Galveston County, Texas. 17 3. Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV1147; In the 212th Judicial District Court of Galveston County, Texas 4. Richard Gayton, individually and as next friend of Ruben Gayton, et al. v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 95-43771; In the 55th Judicial District Court of Harris County, Texas. 5. Connie Alaniz and Emilio Alaniz, et al. v. Sterling Chemicals, Inc., Paul Saunders and Terry Bellard; Cause No. 95CV1011; In the 10th Judicial District Court of Galveston County, Texas. 6. Anita R. Afriyie, et al. v. Sterling Chemicals, Inc., Paul Saunders and Terry Bellard; Cause No. 95CV0997; In the 122nd Judicial District Court of Galveston County, Texas. 7. Beverly D. Mitchell, et al. v. Sterling Chemicals, Inc., et al.; Cause No. 94CV1312 in the 56th Judicial District Court of Galveston County, Texas. The following ammonia lawsuit was settled in August 1996: Guadalupe Trevino v. Sterling Chemicals, Inc.; Cause No. 42634; In the Probate and County Court of Galveston County, Texas. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 20, 1996, a Special Meeting of the Company's stockholders was held for the purpose of approving an Amended and Restated Agreement and Plan of Merger, dated April 24, 1996, pursuant to which, among other things, STX Acquisition Corp. would be merged with and into the Company, the Company would become a holding company through the transfer of its assets to an operating subsidiary, and the existing stockholders of the Company could elect to either retain their shares of stock (subject to certain limitations) or receive $12.00 cash per share. The results of the stockholders vote on the Merger were as follows: 40,618,219 votes for, 1,812,182 votes against or withheld, 226,727 abstentions, and 13,032,863 shares not voting. Accordingly, the Merger was approved and was consummated on August 21, 1996. 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for Holdings' common stock, par value $.01 per share ("Common Stock"), although the Common Stock is traded on the OTC Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. under the symbol "STXX". Prior to the Merger, the Common Stock was listed on the New York Stock Exchange ("NYSE") under the symbol "STX". The following table sets forth the price range of the Common Stock during the fiscal years ended September 30, 1996 and September 30, 1995. Information for the fourth quarter of fiscal 1996 reflects high and low sales prices on the NYSE for the period of July 1 through August 21, and high and low sales price information as reported on the OTC Electronic Bulletin Board for the period of August 22 through September 30.
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- -------- --------- 1996 High $ 9 1/4 $13 $13 1/8 $12 1/2 Low $ 7 1/2 $ 8 $11 1/8 $10 7/8 1995 High $13 7/8 $14 $13 $12 7/8 Low $ 9 3/4 $10 7/8 $10 1/4 $ 8 1/4
As of September 30, 1996, there were approximately 280 record holders of Common Stock. Holdings has not paid dividends on the Common Stock in any of the last three fiscal years and does not anticipate paying dividends in the foreseeable future. Any future determination as to the payment of dividends will be made at the discretion of the Board of Directors of Holdings and will depend upon the Company's operating results, financial condition, capital requirements, general business conditions and such other factors that the Board of Directors deems relevant. In addition, the payment of dividends on the Common Stock is restricted by the terms of the indenture governing the 13 1/2% Senior Secured Discount Notes Due 2008 ("Discount Notes"), and indirectly restricted by the terms of the Chemicals Credit Facility and the indenture governing the 11 3/4% Senior Subordinated Notes Due 2006 ("Subordinated Notes") which restrict the ability of Chemicals to transfer funds to Holdings. 19 ITEM 6. SELECTED FINANCIAL DATA OF THE COMPANY The following table sets forth selected financial data with respect to the Company's consolidated financial condition and consolidated results of operations and should be read in conjunction with the Company's Consolidated Financial Statements and related notes in Item 8 of this Form 10-K.
Year Ended September 30, ------------------------------------------------------------ 1996/(2)/ 1995 1994 1993 1992 ---- ---- ---- ---- ---- OPERATING DATA: (In Thousands Except Per Share Data) Revenues $ 790,465 $1,030,198 $700,840 $518,821 $430,529 Gross profit 111,426 271,618 93,924 40,919 27,882 Net income (loss) 31,604 150,049 19,132 (5,420) (5,890) Net cash provided by (used in) 63,601 191,838 75,249 48,114 (3,752) operating activities Net cash used in investing activities (95,957) (53,962) (9,737) (12,175) (20,424) Net cash provided by (used in) 7,190 (109,017) (64,874) (37,057) 23,752 financing activities EBITDA/(1)/ 121,200 281,480 108,600 52,477 40,967 PER SHARE DATA: Net income (loss) per share 0.62 2.70 0.34 (0.10) (0.11) Cash dividends - - - 0.06 0.245 BALANCE SHEET DATA: Working capital $ 76,933 $ 74,620 $ 20,809 $ 30,952 $ 56,787 Total assets 689,684 609,939 580,925 546,754 608,470 Long-term debt (excluding current 714,632 103,581 192,621 263,894 300,220 maturities) Shareholders' equity (deficiency in (272,439) 239,318 89,734 70,336 87,343 assets)
__________ /(1)/EBITDA (Earnings before interest, taxes, depreciation, amortization, stock appreciation rights ("SARs"), and certain merger-related expenses) is presented to further enhance understanding of the Company's results of operations and cash flows. It is not intended as an alternative measure of performance to net income. With certain adjustments, EBITDA is the basis for payments to employees under the Company's profit sharing plans. /(2)/See Note 1 of Notes to Consolidated Financial Statements for a discussion of merger activities and related financing. 20 SELECTED FINANCIAL DATA FOR CHEMICALS The following table sets forth selected financial data with respect to Chemical's consolidated financial condition and consolidated results of operations and should be read in conjunction with Chemical's Consolidated Financial Statements and related notes in Item 8 of this Form 10-K.
Period from May 14, 1996 (Date of Inception) to September 30, 1996/1/ -------------------------------- (Dollars in Thousands) OPERATING DATA: Revenues $ 83,410 Gross profit 363 Net income 174 BALANCE SHEET DATA: Working capital $ 77,299 Total assets 685,451 Long-term debt (excluding 619,875 current maturities) Stockholders' equity (184,302) (deficiency in assets)
/1/See Note 1 of Notes to Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities, other than those related to merger activities. 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Holdings is a holding company whose only material asset is Chemicals. Holdings' only material liability is its obligation to repay the Discount Notes issued in connection with the Merger. Chemicals and its subsidiaries own substantially all of the consolidated operating assets and are obligated for substantially all liabilities of the Company other than the Discount Notes. The Merger that occurred on August 21, 1996 and related financings were accounted for as a recapitalization, with no change in the basis of the assets and liabilities of Chemicals. Other than the additional interest expense associated with the Discount Notes, the results of operations for the Company are the same as those for Chemicals. Accordingly, the discussion that follows is applicable to both entities, except as specifically noted. A separate discussion of the results of operations for Chemicals for the period ended September 30, 1996, would not, in the opinion of the Company, provide any additional meaningful information. The primary markets in which the Company competes, especially styrene and acrylonitrile, are cyclical and are sensitive to changes in the balance between supply and demand, the price of raw materials, and the level of general worldwide economic activity. Historically, these markets have experienced alternating periods of tight supply and rising prices and profit margins, followed by periods of large capacity additions resulting in overcapacity and declining prices and margins. Large global capacity additions of styrene and acrylonitrile are projected to be completed during fiscal years 1997 and 1998. For styrene, approximately 7.2 billion pounds of new capacity is expected, and for acrylonitrile, approximately 940 million pounds of new capacity is expected. The Company believes that these announced global capacity additions in styrene and acrylonitrile will result in overcapacity for these markets in fiscal years 1997 and 1998. The resulting impact on prices and margins began to negatively affect the Company's results in the last half of fiscal 1996. Demand growth is generally driven by new applications and the substitution of petrochemical- based plastics and fibers for materials, such as metals, paper, glass, wood, and cotton. Demand from the Far East, particularly China, tends to have a disproportionate impact on the global markets for styrene and acrylonitrile due to both volume and volatility of the region's demand. Although direct sales to China were approximately only 1% of total revenues in fiscal 1996, much of the Company's Far Eastern petrochemical product demand is ultimately driven by Chinese demand for downstream products. In fiscal 1996, the Company's export sales to the Far East and total export sales were approximately 22% and 34%, respectively, of its total sales. The Company primarily sells its petrochemical products pursuant to multi- year contracts and high volume spot transactions in both the domestic and export markets. This long-term, high volume focus allows the Company to maintain relatively low selling, general and administrative expenses relating to product marketing. Prices for the Company's commodity chemicals are determined by global market factors, including changes in the cost of raw materials, that are largely beyond the Company's control, and, except with respect to certain of its multi-year contracts, the Company generally sells its products at prevailing market prices. During the past five years, the Company's results of operations have varied significantly from year to year primarily as a result of cyclical changes in the markets for its primary products. The Company has attempted to stabilize these fluctuations by manufacturing two product groups, petrochemicals and pulp chemicals, which have historically been subject to different market dynamics, including timing differences in their respective cyclical upturns and downturns. Despite this diversification, however, prolonged or severe softness in the market for any of its principal products, particularly styrene and acrylonitrile, will adversely affect the Company. Although earnings from styrene and acrylonitrile are expected to be significantly impacted by the global petrochemical capacity increases in fiscal years 1997 and 1998, this impact should be partially offset by the pulp chemical business which is expected to benefit from growing demand for generators and sodium chlorate and the 30% increase in the Company's sodium chlorate capacity as a result of completion of the Valdosta, Georgia plant. There can be no assurance, however, that such favorable results in the pulp chemical business will be realized. In addition, the Company markets substantial volumes of petrochemicals (approximately 50%, 54% and 51% of total sales volumes in fiscal years 1996, 1995, and 1994, respectively) and generates substantial revenues 22 (approximately 36%, 30%, and 32% of total revenues in fiscal years 1996, 1995, and 1994, respectively) under conversion agreements. Under these agreements, the customer furnishes raw materials which the Company processes in exchange for a fee designed to cover its fixed and variable costs of production. The conversion agreements allow the Company to maintain lower levels of working capital and, in some cases, to gain access to certain improvements in manufacturing process technology. The Company believes that its conversion agreements help insulate the Company to some extent from the effects of declining markets and increases in raw material prices while allowing it to share in the benefits of favorable market conditions for most of the products sold under these arrangements. In fiscal 1995, the Company began a three-year, $200 million capacity expansion and modernization program. Approximately 75% of the capital expenditures were completed by the end of fiscal 1996, and the balance will be completed in future periods. Through this program, the Company has expanded its total annual petrochemical production capacity including capacity additions of 200 million pounds of styrene, 200 million pounds of acetic acid, and 150 million gallons of methanol. In addition, the Company will increase its sodium chlorate production capacity by 30% or 110,000 tons upon completion of the Valdosta, Georgia plant. Future capital expenditures are expected to be funded from operating cash flow and borrowings under its revolving credit facility. Notwithstanding the anticipated weakness in the styrene and acrylonitrile markets, the Company believes that cash flow from operations, together with funds available under its revolving credit facility will be adequate to make the required payments of principal and interest due in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES On August 21, 1996, in connection with the Merger, the Company completed debt and equity transactions resulting in a recapitalization of the Company (collectively, the "Transaction"). The following table sets forth the sources and uses of funds to effect the Transaction, which was accounted for as a recapitalization with no impact on the historical basis of the assets and liabilities of the Company. See Notes 1 and 4 of Notes to Consolidated Financial Statements for further information on the Transaction and the terms of the debt instruments, including definitions of certain terms.
Sources of Funds Dollars in Millions ---------------- ------------------- Revolving credit facility $ 6.4 Term loans 350.0 ESOP term loan 6.5 Subordinated notes 275.0 Discount notes and warrants 100.0 Equity private placement 70.7 Cash from operations 10.3 ------ Total $818.9 ====== Uses of Funds ------------- Purchase of common stock $608.3 Purchase of other equity interests 14.6 Repayment of outstanding debt 142.7 Chemicals ESOP loan 6.5 Transaction expenses and fees 46.8 ------ $818.9 ======
As a result of the Transaction, the Company is highly leveraged with significantly increased cash requirements for debt service. At September 30, 1996, long-term debt (including current maturities) was $726 million and deficiency in assets was $(272) million as a result of recapitalization accounting. 23 The Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes, should it need to do so, will be affected by cash requirements for debt service. The Credit Agreement and the indentures governing the Subordinated Notes and the Discount Notes (collectively, the "Indentures") contain numerous financial and operating covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions and refinance existing indebtedness. The Company's ability to comply with the terms of these various debt agreements (including its ability to comply with such covenants) and to meet its debt service obligations will depend on the future performance of the Company. As a result of weaker than expected market conditions for styrene and acrylonitrile during the first quarter of fiscal 1997 and costs that were expensed related to the Merger in the fourth quarter of fiscal 1996, the Company may not be in compliance with its leverage ratio covenant under the Credit Agreement as of the end of the first quarter of fiscal 1997. If needed, the Company intends to obtain a waiver to correct any such noncompliance. The Company expects to be in compliance with all the other coverage ratios under the Credit Agreement as of December 31, 1996, but there can be no assurance in this regard nor can there be any assurance that the requisite waiver will be obtained with respect to the leverage ratio covenant. The Credit Agreement also requires that certain amounts of Excess Cash Flow (as defined) be used to prepay amounts outstanding under the Term Loans. The first such mandatory prepayment is not required to be made until January 1998. The Company intends to meet its liquidity needs for operating activities and capital expenditures (other than acquisitions) through internally generated funds and, to the extent necessary, borrowings under the revolving credit facility. The Company believes that such sources of funds will be sufficient to permit the Company to meet its liquidity needs during fiscal 1997. The Credit Agreement and the indenture for the Subordinated Notes contain provisions which restrict the payment of advances, loans and dividends from Chemicals to Holdings. The most restrictive of those covenants limits such payments during fiscal 1997 to approximately $1.6 million plus any amounts due to Holdings from Chemicals under the intercompany tax sharing agreement. Such restriction is not expected to limit Holdings' ability to meet its obligations in fiscal 1997. Working Capital. Working capital at September 30, 1996 was $77 million, an increase of $2 million from September 30, 1995. This increase was the result of the following changes:
Current Assets Current Liabilities -------------- ------------------- (In Millions) (In Millions) Cash and cash equivalents $(25) Accounts payable $ 5 Inventories (14) Accrued liabilities 2 Accounts receivable 21 Current portion long-term debt 6 Other 7 ---- --- $(11) $13
( ) - Decrease in assets, increase in liabilities. Cash Flow. Net cash provided from operations was $64 million for fiscal 1996, a decrease of $128 million compared to fiscal 1995. This decrease primarily resulted from decreased earnings during fiscal 1996. Net cash flow used in investing activities was $96 million in fiscal 1996 compared to $54 million in fiscal 1995. The increase was primarily due to additional expenditures made as a part of the Company's three-year capital spending program. Net cash flow provided by financing activities was $7 million in fiscal 1996 compared to net cash flow used of $109 million in fiscal 1995. In fiscal 1995, net cash flow used in financing activities primarily resulted from utilizing cash flow from operations to reduce long-term debt. Capital Expenditures. In fiscal 1995, the Company initiated its three- year, $200 million capital spending program. As of September 30, 1996, the Company has spent approximately 75% of the capital program. Capital 24 expenditures for fiscal 1996 were $96 million compared to $54 million in fiscal 1995. The fiscal 1996 capital expenditures were primarily for the expansion of the acetic acid unit, construction of the methanol unit, and construction of the Valdosta, Georgia sodium chlorate plant. The fiscal 1995 capital expenditures were primarily for plant instrumentation modernization and process improvements, the acetic acid expansion, and construction of the methanol unit and the new sodium chlorate plant. The acetic acid expansion was completed in June 1996, the methanol unit was completed in August 1996, and the Valdosta plant is expected to be on stream by January 1, 1997. Capital expenditures are expected to be approximately $33 million in fiscal 1997, with about $18 million dedicated to the petrochemical business and $15 million dedicated to the pulp chemical business. Capital expenditures for the petrochemical business will be primarily for process modernization in styrene and acrylonitrile and routine safety, environmental and replacement capital. Capital expenditures for the pulp chemical business will be primarily for completion of the Georgia sodium chlorate plant. The Company's capital expenditures for environmentally-related prevention, containment and process improvements were $2 million and $3 million for fiscal years 1996 and 1995, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1997. During both fiscal years, the Company did not incur any other infrequent or non-recurring material environmental expenditures which were required under existing environmental regulations. See "Certain Known Events, Trends and Uncertainties - Environmental and Safety Matters." The Company routinely incurs expenses associated with hazardous substance management and pollution prevention in ongoing operations. These operating expenses include items such as depreciation on its waste treatment facilities, outside waste management, fuel, electricity and salaries. The amounts of these operating expenses were approximately $47 million and $45 million for fiscal years 1996 and 1995, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1997. The Company considers these types of environmental expenditures normal operating expenses and includes them in cost of goods sold. Acquisitions. A part of the Company's business strategy is to implement a focused acquisition strategy, targeting chemical businesses and assets which would strengthen the Company's existing market positions, provide upstream or downstream integration or produce complementary chemical products. As previously discussed, the Company's ability to consummate acquisitions may be limited by restrictions in its debt agreements, results of operations and industry conditions. Though there can be no assurance, the Company currently believes that, if such acquisition opportunities arise, it will be able to obtain the necessary approval from its existing lenders and obtain additional financing, as necessary, to consummate such acquisitions. Foreign Exchange. The Company enters into forward foreign exchange contracts to reduce risk due to Canadian dollar exchange rate movements. The Company does not engage in currency speculation. The forward foreign exchange contracts have varying maturities with none exceeding 18 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. The Company had a notional amount of approximately $30 million and $26 million of forward foreign exchange contracts outstanding to buy Canadian dollars at September 30, 1996 and 1995, respectively. The deferred gain on these forward foreign exchange contracts at September 30, 1996 and 1995 was immaterial. ACCOUNTING CHANGES The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. Under SFAS No. 123, companies are permitted to either adopt this new standard and record expenses for stock options and other stock-based employee compensation plans based on their fair value at date of grant, or continue to apply its current accounting policy under Accounting Principles Board ("APB") Opinion No. 25 and increase its footnote disclosure. The Company will continue to apply APB Opinion No. 25, and in fiscal 1997 will increase its footnote disclosure to include the pro- forma impact on net income and earnings per share of the application of the fair value based method of accounting. 25 The Company will adopt SFAS No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal 1997. Issued in March 1995, SFAS No. 121 sets forth guidance on how to measure an impairment of long-lived assets and when to recognize such an impairment. The adoption of the new standard is not expected to have a material impact on the Company's financial position or results from operations. CERTAIN KNOWN EVENTS, TRENDS, UNCERTAINTIES AND RISK FACTORS Petrochemical Raw Material Prices and Availability. For each of the Company's petrochemical products, the cost of raw materials and utilities is far greater than all other costs of production combined. Therefore, an adequate supply of raw materials at reasonable prices is critical to the success of the Company's business. The Company does not produce any of its major raw materials (benzene, ethylene, propylene, ammonia, and natural gas), although a methanol unit was completed in August 1996 as described above. This unit supplies the methanol required in acetic acid production. These materials are all commodity petrochemicals and the price for each can fluctuate widely for a variety of reasons, including changes in the availability of these products because of major capacity additions or significant plant operating problems. Although no assurances can be given, the Company believes that it will continue to secure adequate supplies of all its raw materials at acceptable prices. Cyclical Markets for Products; Capacity Increases on Key Petrochemical Products. The prices of the Company's petrochemical and pulp chemical products have been cyclical and sensitive to overall supply relative to demand and the level of general business activity. Large global capacity additions of styrene and acrylonitrile are projected to be completed in fiscal years 1997 and 1998. For styrene, approximately 7.2 billion pounds of new capacity is expected, and for acrylonitrile, approximately 940 million pounds of new capacity is expected. The Company believes that these announced global capacity additions in styrene and acrylonitrile will result in overcapacity for these markets in fiscal years 1997 and 1998. The resulting impact on prices and margins began to negatively affect the Company's results of operations negatively in the last half of fiscal 1996. Environmental and Safety Matters. The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. At its Texas City Plant, the Company has reduced emissions of targeted chemicals 71% from 1987 levels under the EPA's voluntary 33/50 program. These reductions included a 95% reduction in hydrogen cyanide emissions and an 83% reduction in benzene emissions. Additionally, the Company will initiate appropriate actions or preventive projects necessary to insure that the facility continues to operate in a safe and environmentally responsible manner. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations or products. The Company's sodium chlorate market is sensitive to potential environmental regulation. In general, environmental regulations support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) or chlorine derivatives in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine-containing compounds, regulations restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine- containing compounds could have a material adverse effect on the Company's financial condition and results of operations. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes 26 that the ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. The Company is not aware of any other laws or regulations existing in North America which would restrict the use of the product. Legal Proceedings. The information under "Legal Proceedings" in Note 7 of the "Notes to Consolidated Financial Statements" herein is incorporated by reference. High Financial Leverage. As a result of the Merger, the Company had consolidated indebtedness of $726 million and deficiency in assets of $(272) million at September 30, 1996. The Company's high degree of leverage could have important consequences, including the following: (i) the ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, if needed, may be restricted; (ii) a substantial portion of cash flow from operations will be dedicated to cover cash interest requirements, thereby limiting the funds available for operations and any future business opportunities; and (iii) the degree of leverage may make the Company more vulnerable to a downturn in its businesses or the economy generally. Substantial Restrictions and Covenants. The Company's debt instruments contain numerous financial and operating covenants, including, but not limited to, restrictions on the Company's ability to incur indebtedness, pay dividends, create liens, sell assets, engage in certain mergers and acquisitions and refinance existing indebtedness. These covenants may limit the Company's ability to pursue its planned acquisition strategy. In the event of a change of control, the Company will be required, subject to certain conditions, to offer to purchase all outstanding Discount Notes and Subordinated Notes, respectively, at a price equal to 101% of the Accreted Value with respect to the Discount Notes, and 101% of the principal amount, with respect to the Subordinated Notes, plus accrued interest. The ability of the Company to comply with such covenants and other terms of its debt instruments and to satisfy its other debt obligations will depend on the future performance of the Company. Highly Competitive Industry. The industry in which the Company operates is highly competitive. Many of the Company's competitors, particularly in the petrochemical industry, are larger and have substantially greater financial resources than the Company. Among the Company's competitors are some of the world's largest chemical companies that have their own raw material resources. In addition, a significant portion of the Company's business is based upon widely available technology. The entrance of new competitors into the industry and the addition by existing competitors of new capacity may reduce the Company's ability to maintain profit margins or its ability to preserve its market share, or both. Such developments could have a negative impact on the Company's ability to obtain higher profit margins, even during periods of increased demand for the Company's products. Dependence on Texas City Plant. All of the Company's petrochemicals, including all of its styrene and acrylonitrile, are produced at the Texas City Plant. Significant unscheduled downtime at the Texas City Plant due to equipment breakdowns, interruptions in the supply of raw materials, power failures, natural forces or any other cause, including the normal hazards associated with the production of petrochemicals, could materially adversely affect the Company. Although the Company maintains insurance, including business interruption insurance, that it considers to be adequate under the circumstances, there can be no assurance that a significant interruption in the operation of the Texas City Plant would not have a material adverse effect on the Company's financial condition and results of operations. Ability to Complete Acquisitions. A significant element of the Company's business strategy is to pursue strategic acquisitions that either expand or complement the Company's products. The financing for such acquisitions will likely affect the Company's capitalization. There can be no assurance that the Company will be able to identify and make acquisitions on terms favorable to it or that the Company will be able to obtain financing for such acquisitions on terms the Company finds acceptable. In addition, the Indentures and the Credit Agreement substantially limit the Company's ability to incur additional debt to finance such acquisitions. Long-Term Contracts and Significant Customers. The Company sells substantial portions of its styrene and acrylonitrile production under long- term contracts, and sells all of its acetic acid and plasticizers production under long-term contracts with single customers. These contracts are intended to provide some stability if demand for or prices of these products decline significantly, but also limit the Company's ability to take full advantage of attractive market 27 conditions during periods of higher prices for these products. During fiscal 1996, a significant portion of the Company's production from the Texas City Plant was dedicated to multi-year contracts with Monsanto, Bayer, BP, and BASF. Under certain market conditions, the loss of one or more of these customers or a material reduction in the amount of product purchased by one or more of them could have a material adverse effect on the Company. Foreign Operations, Country Risks and Exchange Rate Fluctuations. Approximately 20% of the Company's fiscal 1996 revenues were derived from its Canadian-based pulp chemical business and approximately 34% were derived from export sales. International operations and exports to foreign markets are subject to a number of special risks, including currency exchange rate fluctuations, trade barriers, exchange controls, national and regional labor strikes, political risks and risks of increases in duties, taxes and governmental royalties, as well as changes in laws and policies governing operations of foreign-based companies. In addition, earnings of foreign subsidiaries and intercompany payments are subject to foreign income tax rules that may reduce cash flow available to meet required debt service and other obligations of the Company. Since the Company derives most of its pulp chemical revenues from production and sales by subsidiaries within Canada, the Company has organized its subsidiary structure and its operations in part based on certain assumptions about various Canadian tax laws, currency exchange and capital repatriation laws and other relevant laws. While the Company believes that such assumptions are correct, there can be no assurance that Canadian taxing or other authorities will reach the same conclusion. If such assumptions are incorrect, or if Canada were to change or modify such laws or the current interpretation thereof, the Company may suffer adverse tax and financial consequences. A portion of the Company's expenses and sales are denominated in Canadian dollars, and accordingly, the Company's revenues, cash flows and earnings may be affected by fluctuations in the exchange rate between the United States dollar and the Canadian dollar, which may also have adverse tax consequences. In addition, because a portion of the Company's sales, cost of goods sold and other expenses are denominated in Canadian dollars, the Company has a translation exposure to fluctuations in the Canadian dollar against the U.S. dollar. These currency fluctuations could have a material impact on the Company as increases in the value of the Canadian dollar have the effect of increasing the U.S. dollar equivalent of cost of goods sold and other expenses with respect to the Company's Canadian production facilities. The Company enters into forward foreign exchange contracts to hedge such exposure for periods consistent with its committed exposure, but does not engage in currency speculation. 28 RESULTS OF OPERATIONS The following table sets forth revenues, gross profit and operating income for the Company's primary product groups for the years ended September 30, 1996, 1995, and 1994.
Year Ended September 30, 1996 1995 1994 ------ ------ ------ (Dollars in millions) REVENUES: Petrochemicals..... $ 633 $ 886 $ 578 Pulp Chemicals..... 157 144 123 ----- ------ ----- $ 790 $1,030 $ 701 ===== ====== ===== GROSS PROFIT: Petrochemicals..... $ 53 $ 225 $ 58 Pulp Chemicals..... 58 47 36 ----- ------ ----- $ 111 $ 272 $ 94 ===== ====== ===== OPERATING INCOME: Petrochemicals..... $ 31 $ 212 $ 37 Pulp Chemicals..... 36 31 11 ----- ------ ----- $ 67 $ 243 $ 48 ===== ====== =====
COMPARISON OF FISCAL 1996 TO FISCAL 1995 Revenues. Revenues for fiscal 1996 were $790 million compared to revenues of $1.03 billion for fiscal 1995, a decrease of 23%. The decrease in revenues resulted primarily from lower average sales prices for styrene and acrylonitrile and lower acrylonitrile and acetic acid sales volumes, which was partially offset by increased revenues in the pulp chemical business as a result of higher average sodium chlorate sales prices. Petrochemicals. For fiscal 1996, the Company's revenues from its petrochemical business decreased 29% to $633 million when compared to fiscal 1995 primarily as a result of decreases in styrene and acrylonitrile average sales prices and lower acrylonitrile and acetic acid sales volumes. Styrene. Styrene revenues for fiscal 1996 decreased due to average sales prices decreasing by approximately 41% primarily as a result of weaker market conditions in the Far East. Fiscal 1996 sales volumes increased by approximately 18% over fiscal 1995 when two planned shutdowns for scheduled maintenance restricted production. The second planned shutdown also included modernization of the styrene unit's control instrumentation with state-of- the-art distributive control systems. The modernization project completed in fiscal 1995 increased the Company's annual styrene production capacity to 1.7 billion pounds. The prices of styrene's major raw materials, benzene and ethylene, were substantially lower during fiscal 1996 compared to fiscal 1995. Benzene prices were approximately 17% lower while ethylene prices were approximately 25% lower. These decreases offset some of the decrease in selling prices discussed above, but styrene margins still declined substantially. Acrylonitrile. Acrylonitrile revenues for fiscal 1996 decreased as a result of a decline of approximately 29% in average sales prices and approximately 11% in sales volumes. Reduced imports of acrylonitrile derivatives by the Far East market (primarily acrylic fiber and ABS resins) resulted in lower acrylonitrile average sales prices and sales volumes. The Company's acrylonitrile unit operated at a reduced rate in 1996 due to an extended shutdown for most of March 1996 for scheduled maintenance and installation of the first phase of state-of-the-art distributive control systems. A second phase of distributive controls was installed in October 1996. The new distributive control 29 systems are expected to result in increased efficiencies and stronger operating fundamentals in the future. The prices of propylene and ammonia, which are the major raw materials used to make acrylonitrile, were approximately 23% and 22% lower, respectively, in fiscal 1996 than in fiscal 1995. These decreases helped to offset some of the lower average selling prices discussed above, but margins still declined substantially. Acetic Acid. Acetic acid revenues in fiscal 1996 decreased primarily as a result of a 19% decrease in sales volumes related to a shutdown of the acetic acid unit to expand the unit by nearly 200 million pounds annually and for installation of new distributive control systems. The expansion of the acetic acid unit and the related construction of the partial oxidation unit by Praxair at the Texas City Plant were completed in June 1996. The partial oxidation unit supplies raw materials to the Company's acetic acid unit. Other Petrochemical Products. Revenues during fiscal 1996 from the Company's other petrochemical products (excluding lactic acid revenues) increased approximately 30% primarily as a result of increases in revenues from plasticizers. The Company ceased production of lactic acid in May 1996. In the second and third quarters of fiscal 1996, the Company wrote off the remaining net book value of the lactic acid unit assets and expensed other related costs resulting in a $3.7 million charge against earnings before taxes. Pulp Chemicals. Revenues from the Company's pulp chemical business for fiscal 1996 increased by approximately 9% to $157 million compared to fiscal 1995 primarily as a result of an increase in sodium chlorate average sales prices of approximately 8%, partially offset by an approximately 2% decrease in sales volumes. Sodium chlorate experienced higher sales prices as a result of improved demand due to increased chlorine dioxide utilization in pulp bleaching. Royalty revenues in fiscal 1996 from installed generator technology were $19 million, the same as fiscal 1995. In addition, the Company received ten generator contracts including all eight contracts that were awarded in North America during fiscal 1996. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for fiscal 1996 totaled $40 million, compared to $29 million in fiscal 1995. This increase was related to an increase in SAR expense which was paid as a part of the Merger. Income from Operations. Income from operations for fiscal 1996 was $67 million (including merger-related expenses of $3.6 million), consisting of $31 million from petrochemical operations and $36 million from pulp chemical operations. This amount represented an approximately 72% decrease from fiscal 1995, primarily as a result of weakness in the markets for styrene and acrylonitrile discussed above, which resulted in significantly lower margins during fiscal 1996 compared to the 1995 fiscal year. This weakness was partially offset by higher operating income from the pulp chemical business and other petrochemical products. In addition, the Company incurred approximately $2 million in start-up expenses during fiscal 1996 in connection with construction of the methanol unit. Other Expenses. Other expenses in fiscal 1996 consist of the $3.7 million pre-tax charge against earnings related to the write-off of the Company's lactic acid unit assets. Interest and Debt Related Expenses. Interest expense for fiscal 1996 decreased $1 million compared to fiscal 1995 primarily due to lower outstanding debt for most of fiscal 1996. The Company's average interest rate per annum increased to 10% on September 30, 1996 from 7% on September 30, 1995 primarily due to the financing in August 1996 related to the Transaction. Provision for Income Taxes. Provision for income taxes for fiscal 1996 was $17 million, with an effective tax rate of 34%, compared to $75 million, with an effective tax rate of 33% for fiscal 1995. The decrease in the provision was primarily the result of the significant decrease in the Company's pre-tax income to $50 million for fiscal 1996 from $228 million in fiscal 1995. Extraordinary Item. The extraordinary item of $1.9 million relates to the loss on early extinguishment of debt of $3.0 million (net of taxes of $1.1 million) resulting from the Transaction. 30 Net Income. Due to the factors described above, net income for fiscal 1996 was $32 million compared to $150 million for fiscal 1995. COMPARISON OF FISCAL 1995 TO FISCAL 1994 Revenues. The Company's revenues for fiscal 1995 were $1.03 billion, an increase of $329 million from fiscal 1994. Fiscal 1995 revenues were the highest in Company history, achieved primarily through higher sales prices and volumes for styrene and acrylonitrile due to improving conditions in the commodity chemical markets in 1994 and 1995. The Company's pulp chemical business also experienced record revenues in fiscal 1995 primarily due to increased sales prices and volumes of sodium chlorate. Petrochemicals. The financial performance of the Company's petrochemical business was significantly better during fiscal 1995 than in fiscal 1994. Petrochemical revenues increased 53% to $886 million from fiscal 1994, primarily as a result of increased average styrene and acrylonitrile sales prices and higher acrylonitrile sales volumes. Styrene. Styrene revenues increased in fiscal 1995 compared to fiscal 1994 primarily because of a 64% increase in average sales prices. The styrene unit operated at a slightly higher rate than in fiscal 1994, in spite of two planned shutdowns for maintenance and catalyst replacement during fiscal 1995 compared to no shutdowns in the prior year. The second planned shutdown, which occurred in the fourth quarter of fiscal 1995, also included modernization of the styrene unit's control instrumentation with state-of- the-art distributive control systems. The average prices for styrene's primary raw materials, benzene and ethylene, increased approximately 5% and 40%, respectively, in fiscal 1995 compared to fiscal 1994. However, the Company was able to increase styrene selling prices and thereby margins through most of the fiscal year until the dramatic fall in prices and margins in the fourth quarter of fiscal 1995. Acrylonitrile. Acrylonitrile revenues for fiscal 1995 increased primarily due to an increase of approximately 70% in average sales prices, peaking at unprecedented levels in the third quarter of fiscal 1995, and an increase of approximately 11% in sales volumes. Acrylonitrile revenues from export sales constituted approximately 93% of the Company's total acrylonitrile revenues and approximately 81% of its acrylonitrile production for fiscal 1995. Almost all of the Company's domestic acrylonitrile revenues are from conversion agreements. Average export acrylonitrile prices and margins were significantly higher in fiscal 1995 than in fiscal 1994 as a result of the strong demand during most of the year. The average prices of acrylonitrile's primary raw materials, propylene and ammonia, increased substantially in fiscal 1995 compared to fiscal 1994. Average propylene prices were approximately 70% higher and average ammonia prices increased by approximately 35%. However, the Company was able to substantially improve margins for acrylonitrile during most of the year due to increases in acrylonitrile sales prices, until the downturn in the fourth quarter that negatively affected sales prices and margins. Acetic Acid. Acetic acid revenues for fiscal 1995 increased approximately 24% from fiscal 1994. The increase in revenues was related to an increase in passed through raw material costs, specifically methanol, during the period. Other Petrochemical Products. Revenues in fiscal 1995 from plasticizers, lactic acid, TBA and sodium cyanide decreased approximately 3% compared to fiscal 1994. The decline was primarily attributable to lower lactic acid revenues. Pulp Chemicals. Revenues from the Company's pulp chemical business increased by approximately 17% to $144 million in fiscal 1995. The increase in revenues resulted primarily from (i) an approximately 14% increase in sodium chlorate sales volumes, due to the substitution of chlorine dioxide for elemental chlorine in the bleaching process, and (ii) an approximately 11% increase in average selling prices. Royalty revenues from installed generator technology increased by approximately 15% to $19 million in fiscal 1995 as a result of higher customer operating rates and additional installed capacity. Sales of generator technology were approximately the same in fiscal 1995 as the previous year. 31 The increased sodium chlorate sales volumes in fiscal 1995 resulted in increased capacity utilization, which contributed to lower per unit cost and increased margins. Selling, General and Administrative Expenses. The Company's SG&A expenses in fiscal 1995 were $29 million compared to $46 million in fiscal 1994. A $25 million decrease in the expense related to the SAR program, resulting from an approximately 50% decrease in the number of SARs outstanding and a decrease in the Company's stock price at the end of fiscal 1995 compared to the end of fiscal 1994, was partially offset by a $4 million increase in employee profit sharing, which was directly related to the Company's improved earnings in fiscal 1995. Income from Operations. Income from operations for fiscal 1995 was $243 million, consisting of $212 million from petrochemical operations and $31 million from pulp chemical operations. This amount represented an approximately 406% increase from fiscal 1994. The increase was primarily the result of strength in the markets for styrene and acrylonitrile discussed above, which resulted in significantly higher margins and volumes during fiscal 1995 compared to fiscal 1994. Interest and Debt Related Expenses. Interest expense decreased $7.5 million in fiscal 1995 primarily due to the Company's repayment of $105 million of debt during the year. The Company's average interest rates decreased to 7% per annum on September 30, 1995 from 8% per annum on September 30, 1994 primarily due to the refinancing in April 1995. Provision for Income Taxes. Provision for income taxes for fiscal 1995 was $75 million, with an effective tax rate of 33%, compared to $9 million, with an effective tax rate of 32% for fiscal 1994. The increase was primarily due to the significant increase in the Company's pre-tax income of $228 million for fiscal 1995 from $28 million in fiscal 1994, which was largely the result of higher earnings from the petrochemical business. Net Income. Due to the factors described above, net income for fiscal 1995 was $150 million compared to $19 million for fiscal 1994. 32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30, -------------------------------- 1996 1995 1994 -------- ----------- --------- Revenues.................................................... $790,465 $1,030,198 $700,840 Cost of goods sold.......................................... 679,039 758,580 606,916 -------- ---------- -------- Gross profit................................................ 111,426 271,618 93,924 Selling, general and administrative expenses................ 40,305 28,856 46,150 Merger related expenses..................................... 3,633 -- -- Write-off of assets......................................... 3,706 -- -- Interest and debt related expenses, net of interest income.. 13,380 14,604 22,126 Gain on sale of assets...................................... -- -- (2,606) -------- ---------- -------- Income before taxes and extraordinary item.................. 50,402 228,158 28,254 Provision for income taxes.................................. 16,898 75,005 9,122 -------- ---------- -------- Income before extraordinary item............................ 33,504 153,153 19,132 Extraordinary item, loss on early extinguishment of debt, net of tax (Note 3)........................................ 1,900 3,104 -- -------- ---------- -------- Net income.................................................. $ 31,604 $ 150,049 $ 19,132 ======== ========== ======== Per share data: Income before extraordinary item............................ $ .66 $ 2.76 $ .34 Extraordinary item.......................................... .04 .06 -- -------- ---------- -------- Net income per share........................................ $ .62 $ 2.70 $ .34 ======== ========== ========
The accompanying notes are an integral part of the consolidated financial statements. 33 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
SEPTEMBER 30, --------------------- 1996 1995 ---------- --------- ASSETS Current assets: Cash and cash equivalents............................................................ $ 5,609 $ 30,882 Accounts receivable.................................................................. 133,399 112,102 Inventories.......................................................................... 53,720 67,867 Prepaid expenses..................................................................... 9,076 3,878 Deferred income tax benefit.......................................................... 7,214 5,622 --------- -------- Total current assets................................................................. 209,018 220,351 Property, plant and equipment, net..................................................... 365,765 309,084 Other assets........................................................................... 114,901 80,504 --------- -------- Total assets......................................................................... $ 689,684 $609,939 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable..................................................................... $ 66,562 $ 72,016 Accrued liabilities.................................................................. 53,898 55,858 Current portion of long-term debt.................................................... 11,625 17,857 --------- -------- Total current liabilities............................................................ 132,085 145,731 Long-term debt......................................................................... 714,632 103,581 Deferred income tax liability.......................................................... 46,933 40,297 Deferred credits and other liabilities................................................. 68,473 81,012 Common stock held by ESOP.............................................................. 6,500 -- Less: unearned compensation........................................................... (6,500) -- Commitments and contingencies (Note 7) Stockholders' equity (Deficiency in assets): Common stock, $.01 par value, 150,000 shares authorized, 10,599 shares issued and outstanding at September 30, 1996; 60,327 shares issued, 55,674 shares outstanding at September 30, 1995............................................................... 106 603 Additional paid-in capital........................................................... (560,077) 33,269 Retained earnings.................................................................... 306,656 275,052 Pension adjustment................................................................... -- (1,556) Accumulated translation adjustment................................................... (19,124) (17,307) Deferred compensation................................................................ -- (129) --------- -------- (272,439) 289,932 Treasury stock, at cost, 4,653 shares at September 30, 1995.......................... -- (50,614) --------- -------- Total stockholders' equity (deficiency in assets).................................... (272,439) 239,318 --------- -------- Total liabilities and stockholders' equity (deficiency in assets).................... $ 689,684 $609,939 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 34 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) (AMOUNTS IN THOUSANDS)
COMMON STOCK ADDITIONAL ACCUMULATED ----------------------- PAID-IN RETAINED PENSION TRANSLATION SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT ----------- -------- ----------- -------- ------------ ------------ Balance, September 30, 1993..... 60,325 $ 603 $ 34,708 $105,871 $(1,297) $(16,184) Net income...................... -- -- -- 19,132 -- -- Translation adjustment.......... -- -- -- -- -- (1,138) Common stock issued............. 2 -- 6 -- -- -- Treasury stock transactions..... -- -- (1,482) -- -- -- Amortization of deferred compensation................... -- -- -- -- -- -- Pension adjustment.............. -- -- -- -- 347 -- ------- ----- --------- -------- ----------- ----------- Balance, September 30, 1994..... 60,327 603 33,232 125,003 (950) (17,322) Net income...................... -- -- -- 150,049 -- -- Translation adjustment.......... -- -- -- -- -- 15 Treasury stock transactions..... -- -- 37 -- -- -- Amortization of deferred compensation................... -- -- -- -- -- -- Pension adjustment.............. -- -- -- -- (606) -- ------- ----- --------- -------- ----------- ----------- Balance, September 30, 1995..... 60,327 603 33,269 275,052 (1,556) (17,307) Net income...................... -- -- -- 31,604 -- -- Redemption of common stock...... (50,690) (507) (616,892) -- -- -- Common stock issued in Transaction................... 5,349 54 64,084 -- -- -- Employee stock purchase......... 250 2 3,000 -- -- -- Stock warrants.................. -- -- 6,900 -- -- -- Translation adjustment.......... -- -- -- -- -- (1,817) Treasury stock transactions..... (4,637) (46) (50,438) -- -- -- Amortization of deferred compensation.................. -- -- -- -- -- -- Pension adjustment.............. -- -- -- -- 1,556 -- ------- ----- --------- -------- ----------- ----------- Balance, September 30, 1996..... 10,599 $ 106 $(560,077) $306,656 $ -- $(19,124) ======= ===== ========= ======== =========== =========== DEFERRED TREASURY COMPENSATION STOCK ------------- --------- Balance, September 30, 1993..... $ (164) $ (53,201) Net income...................... -- -- Translation adjustment.......... -- -- Common stock issued............. -- -- Treasury stock transactions..... -- 2,437 Amortization of deferred compensation................... 96 -- Pension adjustment.............. -- -- ------- --------- Balance, September 30, 1994..... (68) (50,764) Net income...................... -- -- Translation adjustment.......... -- -- Treasury stock transactions..... -- 150 Amortization of deferred compensation................... (61) -- Pension adjustment.............. -- -- ------- --------- Balance, September 30, 1995..... (129) (50,614) Net income...................... -- -- Redemption of common stock...... -- -- Common stock issued in Transaction................... -- -- Employee stock purchase......... -- -- Stock warrants.................. -- -- Translation adjustment.......... -- -- Treasury stock transactions..... -- 50,614 Amortization of deferred compensation.................. 129 -- Pension adjustment.............. -- -- ------- --------- Balance, September 30, 1996..... $ -- $ -- ======= =========
The accompanying notes are an integral part of the consolidated financial statements. 35 STERLING CHEMICALS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, ------------------------------------ 1996 1995 1994 ---------- ------------ ---------- Cash flows from operating activities: Cash received from customers.......................................... $ 874,253 $1,159,192 $ 709,026 Miscellaneous cash receipts........................................... 17,758 14,007 10,618 Cash paid to suppliers and employees.................................. (804,414) (893,324) (614,856) Interest paid......................................................... (9,492) (14,811) (20,443) Interest received..................................................... 1,114 2,540 60 Income taxes paid..................................................... (15,618) (75,766) (9,156) --------- ---------- --------- Net cash provided by operating activities............................... 63,601 191,838 75,249 Cash flows from investing activities: Capital expenditures.................................................. (95,957) (53,962) (12,343) Proceeds from sale of assets.......................................... - - 2,606 --------- ---------- --------- Net cash used in investing activities................................... (95,957) (53,962) (9,737) Cash flows from financing activities: Proceeds from long-term debt.......................................... 800,350 217,000 - Repayment of long-term debt........................................... (196,285) (322,282) (65,517) Redemption of common stock............................................ (616,160) - - Purchase of other equity interests.................................... (14,587) - - Issuance of common stock.............................................. 64,040 - - Sale of warrants...................................................... 6,900 - - Debt issuance costs................................................... (33,070) - - Other merger fees..................................................... (3,709) - - Other................................................................. (289) (3,735) 643 --------- ---------- --------- Net cash provided by (used in) financing activities..................... 7,190 (109,017) (64,874) Effect of U.S./Canadian exchange rate on cash........................... (107) 10 23 --------- ---------- --------- Net increase (decrease) in cash and cash equivalents.................... (25,273) 28,869 661 Cash and cash equivalents - beginning of year........................... 30,882 2,013 1,352 --------- ---------- --------- Cash and cash equivalents - end of year................................. $ 5,609 $ 30,882 $ 2,013 ========= ========== ========= Reconciliation of net income to cash provided by operating activities: Net income.............................................................. $ 31,604 $ 150,049 $ 19,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 42,702 43,033 40,953 Loss (gain) on disposal/write off of assets........................... 3,706 - (2,606) Extraordinary item.................................................... 1,900 3,104 - Deferred tax expense (benefit)........................................ 4,172 4,280 (4,817) Accrued compensation including SARs................................... 8,984 (2,638) 21,941 Merger related expenses............................................... 3,633 - - Discount notes amortization........................................... 1,656 - - Other................................................................. (3,766) 1,058 1,426 Change in assets/liabilities: Accounts receivable................................................... (18,297) 22,540 (52,304) Inventories........................................................... 14,147 1,921 (9,493) Prepaid expenses...................................................... (5,173) (1,183) 2,649 Other assets.......................................................... (8,900) (4,075) (1,437) Accounts payable...................................................... (5,454) (4,117) 34,083 Accrued liabilities................................................... (7,018) (21,447) 17,604 Other liabilities..................................................... (295) (687) 8,118 --------- ---------- --------- Net cash provided by operating activities............................... $ 63,601 $ 191,838 $ 75,249 ========= ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 36 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
MAY 14, 1996 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996/1/ ------------------------- Revenues...................................... $83,410 Cost of goods sold............................ 83,047 ------- Gross profit.................................. 363 Selling, general and administrative expenses.. 3,426 Interest and debt related expenses............ 1,615 Interest income from parent................... (5,236) ------- Income before taxes........................... 558 Provision for income taxes.................... 384 ------- Net Income.................................... $ 174 =======
/ 1/See Note 1 of Notes to Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities, other than those related to merger activities. The accompanying notes are an integral part of the consolidated financial statements. 37 STERLING CHEMICALS, INC. CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS Current assets: Cash and cash equivalents.......................................... $ 5,581 Accounts receivable................................................ 135,635 Inventories........................................................ 53,720 Prepaid expenses................................................... 9,076 Deferred income tax benefit........................................ 7,214 --------- Total current assets............................................... 211,226 Property, plant and equipment, net................................... 365,765 Other assets......................................................... 108,460 --------- Total assets....................................................... $ 685,451 ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable................................................... $ 66,562 Accrued liabilities................................................ 55,740 Current portion of long-term debt.................................. 11,625 --------- Total current liabilities.......................................... 133,927 Long-term debt....................................................... 619,875 Deferred income tax liability........................................ 47,478 Deferred credits and other liabilities............................... 68,473 Commitments and contingencies (Note 7) Stockholders' equity (deficiency in assets): Common stock, $.01 par value....................................... - Additional paid-in capital......................................... (165,352) Retained earnings.................................................. 174 Accumulated translation adjustment................................. (19,124) --------- Total stockholders' equity (deficiency in assets).................. (184,302) --------- Total liabilities and stockholders' equity (deficiency in assets).. $ 685,451 =========
The accompanying notes are an integral part of the consolidated financial statements. 38 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) (DOLLARS IN THOUSANDS)
ADDITIONAL ACCUMULATED COMMON STOCK PAID-IN RETAINED PENSION TRANSLATION -------------- SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT ------ ------ ----------- -------- ----------- ------------ Balance, May 14,1996 - $ - $ - $ - $ - $ - Common stock issued.......... 1 - 1 - - - Capital transfer, net........ - - (165,353) - (1,556) (20,194) Net income................... - - - 174 - - Pension adjustment........... - - - - 1,556 - Translation adjustment....... - - - - - 1,070 ------ ------ --------- -------- ---------- -------- Balance, September 30, 1996.. 1 $ - $(165,352) $ 174 $ - $(19,124) ====== ====== ========= ======== ========== ========
39 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
MAY 14, 1996 (DATE OF INCEPTION) TO SEPTEMBER 30, 1996/1/ ------------------------- Cash flows from operating activities: Cash received from customers............................... $ 102,900 Miscellaneous cash receipts................................ 1,749 Cash paid to suppliers and employees....................... (92,800) Interest paid.............................................. (3,129) Interest received.......................................... 474 Income taxes paid.......................................... (4,950) --------- Net cash provided by operating activities.................... 4,244 Cash flows from investing activities: Capital expenditures....................................... (6,398) --------- Net cash used in investing activities........................ (6,398) Cash flows from financing activities: Proceeds from long-term debt............................... 637,900 Debt issuance costs........................................ (27,939) Distribution from parent................................... (609,961) Repayment of long-term debt................................ (6,400) Distribution to parent..................................... 14,165 --------- Net cash provided by financing activities.................... 7,765 Effect of U.S./Canadian exchange rate on cash................ (30) --------- Net increase in cash and cash equivalents.................... 5,581 Cash and cash equivalents - beginning of period.............. - --------- Cash and cash equivalents - end of year...................... $ 5,581 ========= Reconciliation of Net Income to Cash Provided by Operating Activities Net income................................................... $ 174 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 4,801 Deferred tax expense....................................... 1,457 Other...................................................... (511) Change in assets/liabilities: Accounts receivable........................................ 164 Inventories................................................ (468) Prepaid expenses........................................... (2,428) Other assets............................................... 784 Accounts payable........................................... 7,025 Accrued liabilities........................................ (4,460) Other liabilities.......................................... (2,294) --------- Net cash provided by operating activities.................... $ 4,244 =========
/1/See Note 1 of Notes to Consolidated Financial Statements for a discussion of merger activities and related financing. Prior to August 21, 1996, Chemicals had no operating activities, other than those related to merger activities. The accompanying notes are an integral part of the consolidated financial statements. 40 STERLING CHEMICALS HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. MERGER ACTIVITIES Sterling Chemicals, Inc. (prior to the Merger, "Sterling") and STX Acquisition Corp. ("STX Acquisition"), a Delaware Corporation formed in April 1996 by an investor group led by The Sterling Group, Inc. ("TSG") and the Unicorn Group L.L.C. ("Unicorn"), entered into an Amended and Restated Agreement and Plan of Merger dated April 24, 1996 (the "Merger Agreement"). On August 20, 1996, the Merger Agreement was approved by a majority of the shares outstanding, and on August 21, 1996, STX Acquisition merged with and into Sterling, changing its name to Sterling Chemicals Holdings, Inc. ("Holdings"), and continuing as the surviving corporation (the "Merger"). In connection with the Merger, Holdings transferred all of its operating assets and liabilities (excluding the Discount Notes) to a wholly owned subsidiary, STX Chemicals Corp., which at the time of the Merger, changed its name to Sterling Chemicals, Inc. and continued as the surviving company (after the Merger, "Chemicals"). Holdings has no direct subsidiaries other than Chemicals. As used in these notes, the term "Company" refers to Sterling and its subsidiaries prior to the consummation of the Merger and, following the Merger, to Holdings and its subsidiaries, including Chemicals. Each share of the Company's common stock outstanding immediately prior to the Merger was converted (at the election of the holder thereof) into either $12.00 cash or the right to retain shares of the Company's common stock ("Rollover Shares"), with the aggregate number of Rollover Shares limited to 5.0 million. As a result of the Merger, on August 21, 1996, the former STX Acquisition stockholders held approximately 5.3 million shares (49%), stockholders with Rollover Shares held approximately 5.0 million shares (46%) and the Company's newly formed ESOP held approximately 542,000 shares (5%) of the Company's outstanding common stock. The Merger was financed by the proceeds of bank term loans of $356.5 million, including an ESOP term loan of $6.5 million, amounts drawn against a revolving credit facility of $6.4 million, an offering of $275.0 million Subordinated Notes, an offering of $191.8 million (initial proceeds of $100 million) representing 191,751 Units, with each unit consisting of one Discount Note and one Warrant to purchase three shares of Holding's common stock for $0.01 per share beginning in August 1997, equity raised by STX Acquisition of approximately $70.7 million, and cash on hand of $10.3 million. These proceeds were used to redeem Sterling's common stock other than Rollover Shares ($608.3 million), purchase other equity interests - primarily stock appreciation rights ("SARs") ($14.6 million), repay debt outstanding prior to the Merger ($142.7 million), loan monies to the new ESOP ($6.5 million) and pay fees and expenses ($46.8 million). The Company has accounted for the Merger and related financing as a series of debt and equity transactions representing a recapitalization. Accordingly, the historical basis of the Company's assets and liabilities have not been impacted by the Merger and related financing. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company operates petrochemical facilities in Texas City, Texas, and pulp chemical facilities throughout Canada. Construction of a new sodium chlorate plant is nearing completion in Valdosta, Georgia. The significant accounting policies of the Company are described below. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's 41 investment in a cogeneration joint venture of a 50% equity interest is accounted for under the equity method with the Company's share of earnings from the joint venture recorded as a reduction of cost of goods sold. The consolidated financial statements include the accounts of all wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's investment in a cogeneration joint venture of a 50% equity interest is accounted for under the equity method with the Company's share of earnings from the joint venture recorded as a reduction of cost of goods sold. CASH EQUIVALENTS The Company considers all investments purchased with a remaining maturity of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market; cost is determined on the first-in, first-out ("FIFO") basis except for stores and supplies, which are valued at average cost. The Company enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by the Company are included in inventory. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are recorded at cost. Major renewals and improvements which extend the useful lives of the equipment are capitalized. Major planned maintenance expenses are accrued for during the periods prior to the maintenance, while routine repair and maintenance expenses are charged to operations as incurred. Disposals are removed at carrying cost less accumulated depreciation with any resulting gain or loss reflected in operations. Depreciation is provided using the straight-line method over estimated useful lives ranging from 5 to 25 years with the predominant life of the plant and equipment being 15 years. The Company capitalizes interest costs which are incurred as part of the cost of constructing major facilities and equipment. The amount of interest capitalized for the fiscal years 1996, 1995 and 1994 was $4.1 million, $1.0 million and $145,000, respectively. PATENTS AND ROYALTIES The cost of patents is amortized on a straight-line basis over their estimated useful lives which approximates ten years. The Company capitalized the value of the chlorine dioxide generator technology acquired in fiscal 1992 based on the net present value of all estimated remaining royalty payments associated with the technology. The resulting intangible amount is included in other assets and is amortized over an average life for these royalty payments of ten years. DEBT ISSUE COSTS Debt issue costs relating to long-term debt are amortized using the effective interest method and are included in other assets. 42 INCOME TAXES Deferred income taxes are recorded to reflect the tax effect of the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted rates. REVENUE RECOGNITION The Company generates revenues through sales in the open market, raw material conversion agreements and long-term supply contracts. In addition, the Company has entered into shared profit arrangements with respect to certain petrochemical products. The Company recognizes revenue from sales in the open market, raw material conversion agreements, and long-term supply contracts as the products are shipped. Revenues from shared profit arrangements are estimated and accrued monthly. Deferred credits are amortized over the life of the contract which gave rise to them. The Company also generates revenues from the construction and sale of chlorine dioxide generators which are recognized using the percentage of completion method. The Company also receives prepaid royalties which are recognized over a period which is typically ten years. FOREIGN EXCHANGE Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at year-end exchange rates and revenues and expenses are translated at the average monthly exchange rates. Translation adjustments are reported as a separate component of stockholders' equity while transaction gains and losses are included in operations when incurred. The Company's Canadian subsidiaries enter into forward foreign exchange contracts to minimize the short-term impact of Canadian dollar fluctuations on certain of its Canadian dollar denominated commitments. Gains or losses on these contracts are deferred and are included in operations in the same period in which the related transactions are settled. EARNINGS PER SHARE Income per share for fiscal years 1996, 1995 and 1994 has been computed using a weighted average shares outstanding of 50,700,000, 55,674,000, and 55,606,000, respectively. The weighted average shares outstanding used in the computation of earnings per share are net of the shares held by the ESOP that are not allocated to the employees. ENVIRONMENTAL COSTS Environmental costs are expensed unless the expenditures extend the economic useful life of the assets. Costs that extend the economic life of the assets are capitalized and depreciated over the remaining life of such assets. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In preparing disclosures about the fair value of financial instruments, the Company has assumed that the carrying amount approximates fair value for cash and cash equivalents, receivables, short-term borrowings, accounts payable and certain accrued expenses because of the short maturities of those instruments. The fair values of long-term debt instruments are estimated based upon quoted market values (if applicable), or on the current interest rates available to the Company for debt with similar terms and remaining maturities. Considerable judgment is required in developing these estimates and, accordingly, no assurance can be given that the estimated values presented herein are indicative of the amounts that would be realized in a free market exchange. 43 ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from these estimates. RECLASSIFICATION Certain amounts reported in the financial statements for the prior periods have been reclassified to conform with the current financial statement presentation with no effect on net income or stockholders' equity. 3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
SEPTEMBER 30, --------------------- 1996 1995 ---------- --------- (Dollars in Thousands) Inventories: Finished products...................... $ 31,868 $ 44,802 Raw materials.......................... 9,499 16,506 --------- --------- Inventories at FIFO cost................. 41,367 61,308 --------- --------- Inventories under exchange agreements.. 722 (4,783) Stores and supplies.................... 11,631 11,342 --------- --------- $ 53,720 $ 67,867 ========= ========= Property, plant and equipment: Land................................... $ 11,720 $ 11,775 Buildings.............................. 27,448 26,955 Plant and equipment.................... 468,647 422,479 Construction in progress............... 85,490 49,782 Less: accumulated depreciation........ (227,540) (201,907) --------- --------- $ 365,765 $ 309,084 ========= ========= Other assets: Patents and technology, net............ $ 34,902 $ 40,971 Estimated insurance recoveries......... 15,600 10,315 Intangible pension asset............... -- 3,733 Deferred catalyst...................... 8,288 4,357 Debt issue costs....................... 34,025 3,370 Other.................................. 22,086 17,758 --------- --------- $ 114,901 $ 80,504 ========= ========= Accrued liabilities: Repairs................................ $ 11,417 $ 9,021 Income taxes........................... 1,190 2,250 Interest............................... 3,869 574 Estimated contract adjustments......... -- 1,536 Property taxes......................... 6,772 6,179 Litigation contingency................. -- 6,000 Accrued compensation................... 5,646 10,019 Other.................................. 25,004 20,279 --------- --------- $ 53,898 $ 55,858 ========= ========= Deferred credits and other liabilities: Deferred revenue....................... $ 17,720 $ 21,969 Accrued postretirement benefits........ 27,143 24,722 Additional minimum pension liability... -- 6,127 Accrued compensation................... -- 2,922 Litigation contingency................. 16,000 10,315 Other.................................. 7,610 14,957 --------- --------- $ 68,473 $ 81,012 ========= =========
44 4. LONG-TERM DEBT: Long-term debt consisted of the following:
SEPTEMBER 30, ------------------- 1996 1995 -------- -------- (Dollars in Thousands) Revolving credit facilities................... $ -- $ 902 Term loans.................................... 350,000 120,536 ESOP term loan................................ 6,500 -- Subordinated notes............................ 275,000 -- Discount notes................................ 94,757 -- -------- -------- Total debt outstanding...................... 726,257 121,438 ======== ======== Less: Current maturities.......................... (11,625) (17,857) -------- -------- Total long-term debt.......................... $714,632 $103,581 ======== ========
TERM LOANS, REVOLVER AND ESOP LOANS In connection with the Merger financing, Chemicals entered into a credit agreement (the "Credit Agreement") with Texas Commerce Bank National Association, as agent bank for a syndicate of lenders, and Credit Suisse and Chase Securities, Inc. as co-arrangers. Funding under the Credit Agreement occurred August 21, 1996, upon the consummation of the Merger. The Credit Agreement provides for facilities consisting of a six and one-half year revolving credit facility providing for up to $100 million (subject to a monthly borrowing base calculation) in revolving loans (the "Revolver"), a term loan facility consisting of a six and one-half year $200 million Tranche A term loan and an eight-year $150 million Tranche B term loan (the "Term Loans"), and a four-year $6.5 million ESOP Term Loan (the "ESOP Loan"). The Term Loans, the ESOP Loan and the Revolver borrowings bear interest, at Chemicals' option, at an annual rate of either the Eurodollar Rate or the Base Rate plus an Applicable Margin ranging from 0% to 3%, depending upon the Company's leverage ratio. The Base Rate is equal to the greater of the Prime Rate as announced from time to time by the agent bank, the Federal Funds Rate plus 1/2%, or the Base CD Rate plus 1%. The Credit Agreement also requires Chemicals to pay a commitment fee in the amounts of 3/8% or 1/2% of the unused commitment under the Revolver depending on the Company's leverage ratio (as defined in the Credit Agreement). The Credit Agreement requires the principal amount of the Term Loans to be amortized in quarterly installments beginning with the fiscal quarter ending December 31, 1996, plus additional mandatory prepayments based upon consolidated Excess Cash Flow (as defined in the Credit Agreement). The ESOP Loan will be amortized in 16 equal quarterly installments of $406,250 during its four-year term. Advances under the Revolver will be subject to a borrowing base consisting of 85% of eligible accounts receivable and 65% of eligible inventory with an inventory cap of 50% of the borrowing base. Chemicals' obligations under the Credit Agreement are secured by a first priority lien on the capital stock of Chemicals' domestic subsidiaries, 65% of the capital stock of its foreign subsidiaries and substantially all of the domestic assets of Chemicals, including without limitation, accounts receivable, inventory, intangibles and fixed assets and assignments of certain material leases, licenses, and contracts. In addition, the Credit Agreement is secured by a pledge by Holdings of all of the capital stock of Chemicals. The Credit Agreement contains numerous financial and operating covenants, including, but not limited to, restrictions on Chemicals' ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions, and refinance existing indebtedness. The Credit Agreement also requires Chemicals to satisfy certain financial covenants and tests. As a result of weaker than expected market conditions in styrene and acrylonitrile during the first quarter of fiscal 1997 and costs that were expensed related to the Merger in the fourth quarter of fiscal 1996, the Company may not be in compliance with its leverage ratio under the Credit Agreement as of the end of the first quarter of fiscal 1997. The Company intends to obtain a waiver to correct any noncompliance. 45 The Company expects to be in compliance with all other coverage ratios under the Credit Agreement as of December 31, 1996, but there can be no assurance in this regard nor can there be any assurance that the requisite waiver will be obtained with respect to the leverage ratio covenant. In addition, the Credit Agreement includes various circumstances that will constitute, upon occurrence and subject in certain cases to notice and grace periods, an event of default thereunder. At September 30, 1996, Chemicals had indebtedness of $350 million under the Term Loans and $6.5 million under the ESOP Loan. Additionally, the Company had $470,000 in letters of credit under the Revolver, thereby reducing the available commitment to $99.5 million. Available credit under the Revolver for loans and letters of credit is subject to a monthly borrowing base and at September 30, 1996, the borrowing base did not limit such available credit. At September 30, 1995, indebtedness under former credit agreements dated April 1995 totaled $120.5 million in term loans and $902,000 drawn against a $150 million revolving credit facility and a Cdn $20 million revolving credit facility. All amounts outstanding under these agreements were repaid in the current year as part of the Merger financing and such agreements were terminated and replaced with the new Credit Agreement upon consummation of the Merger financing. Interest under the former credit agreements was based on the Base Rate (the greater of the Prime Rate or the Federal Funds Rate plus 1/2%) or the Eurodollar Rate (the Eurodollar Interbank Rate plus a margin ranging from 0.65% to 1 1/4%). The variable rate on the term loan under the former credit agreements was fixed at approximately 7% per annum with an interest swap agreement. On September 28, 1995, Chemicals entered into a seven-year credit agreement (the "Chlorate Plant Credit Agreement") to finance the construction of the Georgia sodium chlorate plant. The borrowing margins under the Chlorate Plant Credit Agreement were similar to those contained in the former credit agreements. During fiscal 1996, Chemicals borrowed $39 million under this agreement to finance the construction of the Georgia sodium chlorate plant. The entire amount was repaid as a part of the Merger financing. In connection with arranging the Credit Agreement, the Company incurred fees of approximately $16 million which are being amortized over the term of the loans under the effective interest method. Unamortized debt issue costs related to the retired loans of approximately $3 million, before tax effect of $1.1 million, were expensed in August 1996 and recorded as an extraordinary loss from early extinguishment of debt. DISCOUNT NOTES AND SUBORDINATED NOTES As part of the Merger financing, Chemicals also issued $275 million in aggregate principal amount of senior subordinated notes (the "Subordinated Notes") maturing on August 15, 2006 and Holdings issued $191.8 million ($100 million initial proceeds) representing 191,751 Units, with each Unit consisting of one 13 1/2% senior subordinated discount note due 2008 (the "Discount Notes") and one warrant to purchase three shares of Holding's common stock for $.01 per share (the "Warrants"). The Subordinated Notes bear interest at the annual rate of 11 3/4%, payable semi-annually on February 15 and August 15 of each year commencing February 15, 1997. The Discount Notes will accrete interest until August 15, 2001, with no interest payable in cash until February 15, 2002 at an annual rate of 13 1/2%. Commencing in 2002, interest will be payable semi-annually on February 15 and August 15 of each year until maturity. The Subordinated Notes may not be redeemed by Chemicals prior to August 15, 2001, and from thereon through August 15, 2004, the Subordinated Notes may be redeemed at a premium varying between 105.875% to 101.958%. Subsequent to August 15, 2004, Chemicals may redeem the Subordinated Notes at their face value plus accrued interest. Prior to August 15, 1999, Chemicals may redeem in the aggregate up to 35% of the original principal amount of the Subordinated Notes with the proceeds of one or more public equity offerings following which there is a public market. Such redemptions may be made at a redemption price of 111 3/4% of the face value plus accrued interest to the redemption date. After such redemption, at least $178.8 million aggregate principal amount of the Subordinated Notes must remain outstanding. 46 The Discount Notes may not be redeemed by Holdings prior to August 15, 2001, and from thereon through August 15, 2006, the Discount Notes may be redeemed at a premium varying between 106.75% to 101.35%. Subsequent to August 15, 2006, the Company may redeem the Discount Notes at their Accreted Value (as defined in the indenture) plus accrued interest. Prior to August 15, 1999, Holdings may redeem in the aggregate up to 35% of the Accreted Value of the Discount Notes with the proceeds of one or more public equity offerings following which there is a public market. Such redemptions may be made at a redemption price of 113 1/2% of the face value plus accrued interest to the redemption date. After such redemption, at least $124.6 million aggregate principal amount of the Discount Notes must remain outstanding. The indentures for both Subordinated Notes and Discount Notes contain numerous financial and operating covenants, including, but not limited to, restrictions on Chemicals' or Holdings' ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions, and refinance existing indebtedness. In addition, the indentures includes various circumstances that will constitute, upon occurrence and subject in certain cases to notice and grace periods, an event of default thereunder. The Credit Agreement and the indenture for the Subordinated Notes contain provisions which restrict the payment of advances, loans and dividends from Chemicals to Holdings. The most restrictive of the covenants limits such payments during fiscal 1997 to approximately $1.6 million, plus any amounts due to Holdings from Chemicals under the intercompany tax sharing agreement. As of September 30, 1996, Chemicals had a deficiency in net assets of $184.3 million. DEBT MATURITIES The estimated remaining principal payments on the outstanding Term Loans, Revolver, and ESOP Loan are as follows: YEAR ENDING PRINCIPAL SEPTEMBER 30, PAYMENTS ------------- --------- (Dollars in Thousands) 1997...................................... $ 11,625 1998...................................... 26,625 1999...................................... 26,625 2000...................................... 31,625 2001...................................... 40,000 Thereafter................................ 220,000 -------- Total Term Loans, Revolver and ESOP Loan.. $356,500 ======== 5. INCOME TAXES: A reconciliation of federal statutory income taxes to the Company's effective tax provision (benefit) before extraordinary item follows:
YEAR ENDED SEPTEMBER 30, --------------------------- 1996 1995 1994 -------- -------- ------- (Dollars in Thousands) Provision for federal income tax at the statutory rate.. $17,641 $79,855 $9,772 Foreign sales corporation............................... (700) (7,991) -- State and foreign income taxes.......................... 1,529 2,862 90 Estimated income tax settlement and other............... (1,572) 279 (740) ------- ------- ------ Effective tax provision................................. $16,898 $75,005 $9,122 ======= ======= ======
47 The provision (benefit) for income taxes is composed of the following:
YEAR ENDED SEPTEMBER 30, --------------------------- 1996 1995 1994 -------- ------- -------- (Dollars in Thousands) From operations: Current federal.... $12,084 $67,393 $18,618 Deferred federal... (3,249) 1,075 (7,809) Deferred foreign... 7,421 3,489 (1,687) Current state...... 642 2,947 -- Deferred state..... 101 -- ------- ------- ------- Total tax provision.. $16,898 $75,005 $ 9,122 ======= ======= =======
The components of the Company's deferred income tax assets and liabilities are summarized below:
SEPTEMBER 30, ---------------------- 1996 1995 ---------- ---------- (Dollars in Thousands) Assets: Accrued liabilities......................... $10,348 $10,475 Accrued postretirement cost................. 9,544 8,719 Tax loss and credit carryforward and other.. 5,817 7,470 ------- ------- Total deferred tax assets................... 25,709 26,664 ------- ------- Less: current deferred income tax benefit.. 7,214 5,622 ------- ------- Noncurrent deferred tax assets.............. $18,495 $21,042 ======= ======= Liabilities: Property, plant and equipment............... $61,304 $57,466 Accrued pension cost........................ 2,525 2,471 Other....................................... 1,599 1,402 ------- ------- Total deferred tax liabilities.............. $65,428 $61,339 ------- ------- Net deferred tax liability.................. $46,933 $40,297 ======= =======
The Company has approximately Cdn. $13.2 million in Canadian tax loss carryforwards which will expire from 1999 through 2001 and approximately Cdn. $15.1 million in Canadian tax credit carryforwards which will expire from 2000 through 2004. 6. EMPLOYEE BENEFITS: The Company has established the following benefit plans: RETIREMENT BENEFIT PLANS The Company has non-contributory pension plans in the United States and employer and employee contributory plans in Canada which cover all salaried and wage employees. The benefits under these plans are based primarily on years of service and employees' pay near retirement. For those Company employees who were employed by the Company as of September 30, 1986 and were previously employed by Monsanto, the Company recognizes their Monsanto pension years of service for purposes of determining benefits under the Company's plans. For those Company employees who were employed by the Company on August 21, 1992 and were previously employed by Tenneco Inc., the Company recognizes their Tenneco Inc. pension years of service for purposes of determining benefits under the Company's plans. The Company's funding policy is consistent with the funding requirements of federal law and regulations. Plan assets consist principally of common stocks and government and corporate securities. 48 The Company has recorded its additional minimum liability in accordance with Statement of Financial Accounting Standards No. 87 "Employers' Accounting for Pensions." In recognizing the additional pension liability at September 30, 1995, the Company recorded a liability of $6.1 million, an intangible asset of $3.7 million, which is included with other assets, and a reduction of stockholders' equity of $1.6 million, net of deferred tax of $838,000. There were no additional pension liabilities to recognize at September 30, 1996. The components of pension expense for the years ended September 30, 1996, 1995 and 1994 were as follows:
1996 1995 1994 -------- -------- ------- (Dollars in Thousands) Service cost (for benefits earned during the period)....................... $ 3,664 $ 3,288 $ 3,386 Interest cost on projected benefit obligation.............................. 5,044 4,471 3,891 Actual return on plan assets and contributions............................. (6,001) (5,825) 617 Deferral of asset gain (loss).............................................. 1,050 1,909 (3,997) Net amortization of unrecognized amounts................................... 926 871 848 ------- -------- ------- Pension expense............................................................ $ 4,683 $ 4,714 $ 4,745 ======= ======== =======
Assumptions used in determining the projected benefit obligation and pension cost for the periods were as follows:
FISCAL YEAR ----------------------------------- 1996 1995 1994 ------- -------- ------- Discount rates............................................................. 7.75% 7.5% 8.0% Rates of increase in salary compensation level............................. 5.5% 5.5% 5.5% Expected long-term rate of return on assets................................ 9.0% 9.0% 9.0%
The funded status of the Company's pension plans for which assets exceed accumulated benefits and plans for which accumulated benefits exceed assets as of the actuarial valuation dates of August 31, 1996 and 1995 were as follows:
1996 1995 ------------------------- ------------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- (Dollars in Thousands) Actuarial present value of benefits based on service to date and present pay levels: Vested benefit obligation.................................................. $52,053 $ 525 $ 26,222 $21,743 Non-vested benefit obligation.............................................. 2,064 2 1,029 1,293 Accumulated benefit obligation............................................. 54,117 527 27,251 23,036 Plan assets at fair value.................................................. 65,443 -- 33,540 21,134 Plan assets in excess of (less than) accumulated benefit obligation........................................................ 11,326 (527) 6,289 (1,902) Additional amounts related to projected salary increases................................................................. 16,568 177 16,431 658 Plan assets less than total projected benefit obligation................................................................ (5,242) (704) (10,142) (2,560) Unrecognized net (gain) loss resulting from plan experience and changes in actuarial assumptions........................... 3,688 (107) 5,995 2,579 Unrecognized prior service cost............................................ 3,376 -- 2 3,689 Unrecognized transition obligation......................................... 2,486 7 2,716 156 Prepaid (accrued) pension cost before additional minimum liability......................................................... 4,308 (804) (1,429) 3,864 Additional minimum liability............................................... -- -- -- (6,127) Total prepaid (accrued) pension obligation................................. $ 4,308 $ (804) $ (1,429) $(2,263)
49 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company provides certain health care benefits and life insurance benefits for retired employees. Substantially all of the Company's employees become eligible for these benefits at normal retirement age. The Company accrues the cost of these benefits during the period in which the employee renders the necessary service. Health care benefits are provided to employees who retire from the Company with ten or more years of service except for Canadian employees covered by collective bargaining agreements. All of the Company's employees are eligible for postretirement life insurance. Postretirement health care benefits for U.S. employees are provided for under a contributory, comprehensive plan while all other plans are non-contributory. Benefit provisions for most hourly and some salaried employees are subject to collective bargaining. In general, the plans stipulate that retiree health care benefits are paid as covered expenses are incurred. For U.S. employees, postretirement medical plan deductibles are assumed to increase at the rate of the long-term consumer price index. The components of postretirement benefits cost other than pensions for the years ended September 30, 1996, 1995 and 1994 were as follows:
1996 1995 1994 ------ ------- ------- (Dollars in Thousands) Service cost (for benefits earned during the period).. $1,155 $1,084 $1,064 Interest cost on projected benefit obligation......... 1,985 1,835 1,688 Amortization of plan amendments....................... 243 29 29 ------ ------ ------ $3,383 $2,948 $2,781 ====== ====== ======
Actuarial assumptions used to determine fiscal years 1996, 1995 and 1994 costs and benefit obligations for postretirement benefit plans other than pensions include an average discount rate of 7.5% and an average rate of future increases in benefit compensation of 5.5%. The assumed composite rate of future increases in per capita cost of health care benefits (health care cost trend rate) was 7.8% for fiscal 1996, exclusive of demographic changes, decreasing gradually to 5.5% by the year 2028. These trend rates reflect current cost performance and the Company's expectation that future rates will decline. Increasing the health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation by $1.5 million and would increase annual aggregate service and interest costs by $187,000. The following sets forth the plan's funded status reconciled with amounts reported in the Company's consolidated balance sheet at September 30, 1996 and 1995. Accumulated postretirement benefit obligation (APBO):
1996 1995 ----------- ----------- (Dollars in Thousands) Retirees.................................. $ 7,896 $ 7,315 Fully eligible active plan participants... 8,301 7,690 Other active plan participants............ 12,906 11,956 ------- ------- Total APBO.............................. 29,103 26,961 Plan assets at fair value................. -- -- Unrecognized loss......................... (1,737) (1,987) Unrecognized prior service cost........... (223) (252) ------- ------- Accrued postretirement benefit liability.. $27,143 $24,722 ======= =======
POSTEMPLOYMENT BENEFITS During the first quarter of fiscal 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. The Company implemented the provisions of SFAS 112 in fiscal 1995 and the effect of adoption on the Company's financial position and results of operations was not material. 50 EMPLOYEE STOCK PURCHASE PLAN 250,000 SHARES In fiscal 1996, the Company established the 1996 Employee Stock Purchase Plan. This plan authorized up to 250,000 shares of common stock to be issued to key employees and management at an issue price of $12 per share. This plan became effective as of September 19, 1996 and terminated on September 30, 1996. All authorized shares were issued by the end of fiscal 1996. EMPLOYEE STOCK OWNERSHIP TRUST The original Employee Stock Ownership Trust ("old ESOT") was formed to invest primarily in the Company's common stock and includes only participants contributing to the Company's Savings and Investment Plan (the "Savings Plan"). The Company's contribution to the old ESOT was 60% of the participant's Savings Plan contributions to the extent that such participant's contributions did not exceed 7.5% of the employee's eligible earnings. The Company's contributions were subject to a 20% per year vesting schedule commencing after one year of service. The Company's contributions to the old ESOT for the years ended September 30, 1996, 1995 and 1994 were $1.7 million per year. An application for determination has been filed with the Internal Revenue Service to terminate the old ESOT and distribute assets to participants. In connection with the Merger, a new Employee Stock Ownership Trust ("new ESOT") was established which will cover substantially all employees. The new ESOT primarily invests in shares of Holdings' common stock and has borrowed $6.5 million from Chemicals pursuant to the Chemicals ESOP Loan to purchase approximately 542,000 shares of Holdings' common stock. As more fully described in Note 4, the ESOP Loan is payable in 16 quarterly installments during the period beginning December 31, 1996 and ending September 30, 2000. The shares of Holdings' common stock purchased by the ESOT has been pledged as security for the ESOP Loan and such shares will be released and allocated to the ESOT participants' account as the ESOP Loan is discharged. Until the ESOP Loan is paid in full, contributions to the ESOT will be used to pay the outstanding principal and interest on the ESOP Loan. Allocations will be made annually to participants. SAVINGS AND INVESTMENT PLAN The Savings Plan covers substantially all employees, including executive officers. The Savings Plan is qualified under Section 401(k) of the Internal Revenue Code (the "Code"). Each participant has the option to defer taxation of a portion of his or her earnings by directing the Company to contribute a percentage of such earnings to the Savings Plan. A participant may direct up to a maximum of 15% of eligible earnings to the Savings Plan, subject to certain limitations set forth in the Code for "highly compensated" participants, as defined in Section 414(q) of the Code. A participant's contributions become distributable upon the termination of his or her employment. PROFIT SHARING PLANS The Company is currently planning the establishment of new profit sharing plans for the benefit of salaried and hourly employees meeting certain eligibility requirements. Under the Company's previous profit sharing plans, expense for the years ended September 30, 1996, 1995 and 1994 was $2.8 million, $13.0 million and $3.8 million, respectively. 51 OMNIBUS STOCK AND INCENTIVE PLAN The Company had an Omnibus Stock and Incentive Plan ("Omnibus Plan"), under which the Company could grant to key employees incentive and nonincentive stock options, stock appreciation rights, restricted stock, performance units and performance shares. The terms and amounts of the awards were determined by the Compensation Committee of the Board of Directors. Upon a change of control of the Company, all awards granted under the plan were to become fully vested and all performance based awards were to be paid at the higher of performance goals or actual performance to date. 3,000,000 shares of the Company's stock were reserved under the plan when it was established. At September 30, 1995, 263,000 shares had been issued. In fiscal 1993, the Company granted SARs to certain key employees and directors. Total expense (benefit) is determined based on 3.6 million SARs granted, the vesting period (five years beginning September 1992) and the appreciation of the Company's stock price above $4 per share, which was the fair market value of the Company's common stock on the date of grant of the SARs. In October 1994, the Company amended the SAR program by modifying the vesting periods and limiting the amount of appreciation for each SAR during each vesting period, thereby limiting the Company's aggregate future expenses. The Company recorded expense (benefit) for the years ended September 30, 1996, 1995 and 1994 of 8.5 million, $(2.8) million and $21.8 million, respectively, and paid $8.3 million in October 1994, $5.8 million in September 1995 and $13.8 million in August 1996 pursuant to the SARs, as amended. The expense (benefit) for the SARs is included in selling, general and administrative expenses in the Company's income statement. In fiscal 1995, the Company granted 82,500 stock options to certain officers of the Company with an exercise price of $13.50 per share. The options were exercisable from the third through the tenth anniversary of the date of the grant. All existing stock options were terminated in connection with the Merger. Upon consummation of the Merger, the Omnibus Plan was terminated. However, the Company is expected to establish a new stock option plan. 7. COMMITMENTS AND CONTINGENCIES: PRODUCT CONTRACTS The Company has certain long-term agreements which provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, TBA and sodium cyanide, each to one customer. The Company also has various sales and conversion agreements which dedicate significant portions of the Company's production of styrene monomer and acrylonitrile to various customers. These agreements generally provide for cost recovery plus an agreed margin or element of profit based upon market price. LEASE COMMITMENTS The Company has entered into various long-term noncancellable operating leases. Future minimum lease commitments at September 30, 1996 are as follows: fiscal 1997 -- $2.5 million; fiscal 1998 -- $2.4 million; fiscal 1999 -- $2.2 million; fiscal 2000 -- $2.1 million; fiscal 2001 -- $1.3 million; and $4.9 million thereafter. Rent expense for fiscal years 1996, 1995 and 1994 was not material. ENVIRONMENTAL AND SAFETY MATTERS The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. 52 New laws or permit requirements and conditions may affect the Company's operations, products or waste disposal. Past or future operations may result in claims or liabilities. Expenditures could be required to upgrade wastewater collection, pretreatment or disposal systems or other matters. The Company routinely incurs expenses associated with hazardous substance management and pollution prevention in ongoing operations. These operating expenses include items such as depreciation on its waste treatment facilities, outside waste management, fuel, electricity and salaries. The amounts of these operating expenses were approximately $47 million and $45 million for fiscal years 1996 and 1995, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1997. The Company considers these types of environmental expenditures normal operating expenses and includes them in cost of goods sold. At its Texas City Plant, the Company has reduced emissions of targeted chemicals 71% from 1987 levels under the EPA's voluntary 33/50 program. These reductions included a 95% reduction in hydrogen cyanide emissions and an 83% reduction in benzene emissions. Additionally, the Company will initiate appropriate actions or preventive projects necessary to insure that the facility continues to operate in a safe and environmentally responsible manner. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations or products. The Company's sodium chlorate market is sensitive to potential environmental regulations. In general, environmental regulations support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) or chlorine derivatives in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine-containing compounds, regulations restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine- containing compounds could have a material adverse effect on the Company's financial condition and results of operations. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes that the ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. The Company is not aware of any other laws or regulations currently in place which would restrict the use of the product. LEGAL PROCEEDINGS PETROCHEMICALS HUNTSMAN LAWSUIT: On January 30, 1995, the Company filed a lawsuit against Huntsman Chemical Corporation and certain affiliates seeking a declaratory judgment in connection with an alleged agreement arising from discussions, previously suspended by the Company, relating to possible future capacity rights for a significant portion of the Company's styrene monomer unit at its Texas City Plant. In the lawsuit, the Company requested a judicial determination that, among other things, there was no enforceable agreement between the Company and any of the defendants. In response, the defendants filed a counterclaim demanding a jury trial and asserting that a contractual agreement existed, that the Company breached the alleged agreement, and that as a result the defendants incurred an unspecified amount of "massive damages". Subsequently, the Company filed a motion for summary judgment. On November 30, 1995, the trial court granted the Company's motion for summary judgment establishing that as a matter of law, no enforceable contract or agreement ever existed between the Company and the defendants. The court's order of summary judgment also moots the defendants' counterclaim against the Company for damages resulting from breach of the alleged contract. The defendants have appealed from that judgment. The Company 53 and the defendants have filed their principal briefs before the Court of Appeals, but oral argument has not been set and the Court of Appeals has not rendered any decision. The Company believes a loss with respect to this matter is not probable and is unable to quantify a reasonably possible loss estimate (as defined in Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies") at this time. ALLEMAND LAWSUIT: On June 19, 1995, a lawsuit was filed against the Company and several other corporate defendants asserting personal injury and mental anguish resulting from an incident occurring on June 16, 1995 in which a hose being used to unload a barge of sulfuric acid at the Company's Texas City Plant ruptured, spraying sulfuric acid on an employee of Marine Fueling Service, Inc. ("Marine Fueling"). The plaintiffs' claims against the Company in this lawsuit have been settled. The Company, however, remains a defendant in the lawsuit by virtue of a maritime law cross-claim asserted by Marine Fueling against the Company and the other defendants in the lawsuit for recovery of a portion of the settlement money Marine Fueling previously paid to the plaintiffs. The amount sought in Marine Fueling's claim against the Company is not a material amount. AMMONIA RELEASE LAWSUITS: On May 8, 1994, an ammonia release occurred at the Company's Texas City Plant while a reactor in the acrylonitrile unit was being restarted after a shutdown for routine maintenance. A total of 52 lawsuits and interventions, involving approximately five thousand five hundred plaintiffs, have been filed against the Company seeking an unspecified amount of money for alleged damages from the ammonia release. Many of these lawsuits were filed in April and early May 1996, presumably in anticipation of the expiration of the two-year statute of limitations applicable to this release. Approximately two thousand six hundred of the plaintiffs agreed to submit their damage claims to binding arbitration. Each of the plaintiffs who agreed to participate in the arbitration waived any right of recovery for punitive or exemplary damages. Pursuant to the agreement to arbitrate, a two-week evidentiary proceeding was conducted in July 1996 before a three judge panel which will make a determination of the amount of damages. Currently, the Company anticipates that the results of this arbitration will be rendered in early February 1997. The Company continues to vigorously defend the claims of the approximately two thousand nine hundred plaintiffs who did not participate in the July 1996 arbitration. OTHER LAWSUITS. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. LITIGATION CONTINGENCY In accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" and Financial Accounting Standards Board Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts", the Company has made estimates of the reasonably possible range of liability with regard to its outstanding litigation for which it may incur liability. These estimates are based on the Company's judgments using currently available information as well as consultation with the Company's insurance carriers and outside legal counsel. A number of the claims in these litigation matters are covered by the Company's insurance policies or by third-party indemnification of the Company. The Company therefore has also made estimates of its probable recoveries under insurance policies or from third-party indemnitors based on its understanding of its insurance policies and indemnifications, discussions with its insurers and indemnitors and consultation with outside legal counsel, in addition to the Company's judgments. Based on the foregoing as of September 30, 1996, the Company has accrued approximately $16.0 million as its estimate of aggregate contingent liability for these matters, and has also recorded aggregate receivables from its insurers and third-party indemnitors of approximately $15.6 million. In addition, the Company estimates that at present, the reasonably possible range of loss is from $0 to $44.8 million. The Company believes that it is insured or indemnified for this additional reasonably possible loss, except for a portion which is not material. 54 While the Company has based its estimates on its evaluation of available information to date and the other matters described above, much of the litigation remains in the discovery stage and it is impossible to predict with certainty the ultimate outcome. The Company will adjust its estimates as necessary as additional information is developed and evaluated. However, the Company believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The timing of probable insurance and indemnity recoveries, and payment of liabilities, if any, is not expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. 55 8. SEGMENT AND GEOGRAPHIC INFORMATION: Sales to individual customers constituting 10% or more of total revenues and sales by geographic region were as follows (there were no sales to individual customers constituting 10% or more of total revenues in fiscal 1996):
YEAR ENDED SEPTEMBER 30, --------------------------------- 1996 1995 1994 --------- ----------- --------- (Dollars in Thousands) Major Customers: British Petroleum plc and subsidiaries.......................................... * $ 169,944 $103,637 Mitsubishi International Corporation............................................ * $ 129,812 $ 69,920 Export Sales: Export revenues................................................................. $267,153 $ 534,067 $324,930 Percentage of total revenues.................................................... 34% 52% 46% Export revenues (as a percent of total exports) by geographical area: Asia........................................................................... 66% 64% 80% Europe......................................................................... 34% 36% 16% Other.......................................................................... - - 4%
*DOES NOT COMPRISE 10% OF TOTAL REVENUE FOR 1996 AND, THEREFORE, NOT REPORTED.
YEAR ENDED SEPTEMBER 30, -------------------------------- 1996 1995 1994 -------- ---------- -------- (Dollars in Thousands) Geographic Segment Information: Revenues: United States................................................................. $633,754 $ 886,247 $578,295 Canada........................................................................ 156,711 143,951 122,545 -------- ---------- -------- Total........................................................................... $790,465 $1,030,198 $700,840 Income before taxes and extraordinary item: United States................................................................. $ 27,540 $ 210,320 $ 27,106 Canada........................................................................ 22,862 17,838 1,148 -------- ---------- -------- Total........................................................................... $ 50,402 $ 228,158 $ 28,254 Net Income: United States................................................................. $ 18,330 $ 140,382 $ 17,979 Canada........................................................................ 13,274 9,667 1,153 -------- ---------- -------- Total........................................................................... $ 31,604 $ 150,049 $ 19,132 Assets: United States................................................................. $457,273 $ 405,324 $376,594 Canada........................................................................ 232,411 204,615 204,331 -------- ---------- -------- Total........................................................................... $689,684 $ 609,939 $580,925 Selling, general and administrative expenses: United States................................................................. $ 14,570 $ 14,535 $ 10,232 Canada........................................................................ 17,195 17,088 14,075 SARs.......................................................................... 8,540 (2,767) 21,843 -------- ---------- -------- Total........................................................................... $ 40,305 $ 28,856 $ 46,150
56 9. FINANCIAL INSTRUMENTS FOREIGN EXCHANGE The Company enters into forward foreign exchange contracts to hedge Canadian dollar currency transactions on a continuing basis for periods consistent with its committed exposures. The forward foreign exchange contracts have varying maturities with none exceeding 18 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. The Company enters into forward foreign exchange contracts to reduce risk due to Canadian dollar exchange rate movements. The Company does not engage in currency speculation. The Company had a notional amount of approximately $30 million and $26 million of forward foreign exchange contracts outstanding to buy Canadian dollars at September 30, 1996 and 1995, respectively. The deferred gain on these forward foreign exchange contracts at September 30, 1996 and 1995 was immaterial. CONCENTRATION OF CREDIT RISK The Company sells its products primarily to companies involved in the petrochemical and pulp and paper manufacturing industries. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. However, letters of credit are required by the Company on many of its export sales. The Company's credit losses have been minimal. The Company maintains cash deposits with major banks which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that any possible loss is minimal. INVESTMENTS It is the policy of the Company to invest its excess cash in investment instruments or securities whose value is not subject to market fluctuations such as certificates of deposit, repurchase agreements, or Eurodollar deposits with domestic or foreign banks or other financial institutions. Other permitted investments include commercial paper of major U.S. corporations with ratings of A1 by Standard & Poor's Ratings Group or P1 by Moody's Investor Services, Inc., loan participation of major U.S. corporations with a short term credit rating of A1/P1 and direct obligations of the U.S. Government or its agencies. In addition, not more than $5 million will be invested with any single bank, financial institution, or U.S. corporation. FAIR VALUE OF FINANCIAL INSTRUMENTS At September 30, 1996, the fair market value of all of the Company's financial instruments approximated the book value, except as stated below. Book Value Fair Value ---------- ---------- (Dollars in Thousands) Discount Notes $ 94,757 $121,302 Subordinated Notes 275,000 289,273 The fair values of the Discount Notes and the Subordinated Notes are based on quoted market prices. 57 10. RELATED PARTY TRANSACTIONS In connection with the Merger, the Company paid TSG and Unicorn one-time transaction fees of approximately $8.4 million and $4.4 million, respectively. Investment banking fees of approximately $3.3 million were paid to Lazard Freres & Company ("Lazard"). A member of the former Board of Directors is a Limited Managing Director of Lazard. However, the Board member agreed not to receive any compensation from Lazard related to the Merger. Also in connection with the Merger, CS First Boston Corporation served as managing underwriter for the Public Offering and provided certain financial advisory services to STX Acquisition and Chemicals, for which such firm received underwriting discounts and commissions and financial advisory fees totaling approximately $20 million. John L. Garcia, a director and stockholder of the Company, is a Managing Director of CS First Boston Corporation. Koch Capital Services, Inc. formerly known as Koch Equities, Inc., a subsidiary of Koch Industries, Inc. ("Koch Industries") owns approximately 9% of the outstanding capital stock of Holdings. The Company and affiliates of Koch Industries have ongoing commercial relationships, including, from time to time, supply of raw materials or sales of petrochemicals. For fiscal 1996, sales to and purchases from Koch Industries and its affiliates represented less than 1% of the Company's revenues. 58 STERLING CHEMICALS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Except as modified below, the Notes to the Company's Consolidated Financial Statements are incorporated herein by reference insofar as they relate to Chemicals. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH FLOWS On August 21, 1996, Holdings transferred all of its operating assets and liabilities (net $422.8 million) to Chemicals. At the same time, Chemicals transferred $610 million in cash to Holdings. INCOME TAXES Chemicals is included in the consolidated Federal tax return filed by its parent, Holdings. A tax sharing agreement between Holdings and Chemicals defines the computation of Chemicals' obligations to Holdings. Chemicals' provision for income taxes is computed as if Chemicals and its subsidiaries file their annual tax return on a separate company basis. Deferred income taxes are recorded to reflect the tax effect of the temporary differences between the financial reporting basis and the tax basis of Chemicals' assets and liabilities at enacted rates. EARNINGS PER SHARE All issued and outstanding shares of Chemicals are held by Holdings, and accordingly, earnings per share are not computed. 2. INCOME TAXES A reconciliation of federal statutory income taxes to Chemicals' effective tax provision (benefit) before extraordinary item follows:
PERIOD FROM MAY 14, 1996 ------------------------- TO SEPTEMBER 30, 1996 ------------------------- (Dollars in Thousands) Provision for federal income tax at the statutory rate.................. $ 195 Foreign sales corporation............................................... (116) State and foreign income taxes.......................................... 115 Other................................................................... 190 ------- Effective tax provision................................................. $ 384 =======
The provision (benefit) for income taxes is composed of the following:
PERIOD FROM MAY 14, 1996 ------------------------- TO SEPTEMBER 30, 1996 ------------------------- (Dollars in Thousands) From operations: Current federal........................................................ $(1,001) Deferred federal....................................................... 1,457 Deferred foreign....................................................... 90 Current state.......................................................... (162) ------- Total tax provision.................................................... $ 384 =======
59 The components of Chemicals' deferred income tax assets and liabilities are summarized below:
SEPTEMBER 30, 1996 ---------------------- (Dollars in Thousands) Assets: Accrued liabilities......................... $ 9,803 Accrued postretirement cost................. 9,544 Tax loss and credit carryforward and other.. 5,817 ------- Total deferred tax assets................... 25,164 ------- Less: current deferred income tax benefit.. 7,214 ------- Noncurrent deferred tax assets.............. $17,950 ======= Liabilities: Property, plant and equipment............... $61,304 Accrued pension cost........................ 2,525 Other....................................... 1,599 ------- Total deferred tax liabilities.............. $65,428 ------- Net deferred tax liability.................. $47,478 =======
Chemicals has approximately Cdn. $13.2 million in Canadian tax loss carryforwards which will expire from 1999 through 2001 and approximately Cdn. $15.1 million in Canadian tax credit carryforwards which will expire from 2000 through 2004. 60 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have audited the consolidated balance sheet of Sterling Chemicals Holdings, Inc. and subsidiaries as of September 30, 1996, and the related consolidated statements of operations, changes in stockholders' equity (deficiency in assets) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sterling Chemicals Holdings, Inc. and subsidiaries as of September 30, 1996 and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP December 6, 1996 Houston, Texas 61 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholder of Sterling Chemicals, Inc. We have audited the consolidated balance sheet of Sterling Chemicals, Inc. and subsidiaries as of September 30, 1996, and the related consolidated statements of operations, changes in stockholders' equity (deficiency in assets) and cash flows for the period from May 14, 1996 (date of incorporation) to September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sterling Chemicals, Inc. and subsidiaries as of September 30, 1996 and the consolidated results of their operations and their cash flows for the period from May 14, 1996 (date of incorporation) to September 30, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP December 6, 1996 Houston, Texas 62 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have audited the consolidated balance sheet of Sterling Chemicals Holdings, Inc. (formerly Sterling Chemicals, Inc.) and subsidiaries as of September 30, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of two years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sterling Chemicals Holdings, Inc. and subsidiaries as of September 30, 1995 and the consolidated results of their operations and their cash flows for each of the two years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. October 25, 1995 Houston, Texas 63 REPORT OF MANAGEMENT Management is responsible for the preparation and content of the financial statements and other information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. The financial statements reflect management's judgments and estimates as to the effects of events and transactions that are accounted for or disclosed. Management maintains accounting systems which are supported by internal accounting controls that provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the benefits. Internal audits have been conducted to test compliance with internal controls. Results of audit efforts and actions are communicated to appropriate members of management and to the Audit Committee of the Board of Directors. Deloitte & Touche LLP and Coopers & Lybrand LLP performed a separate independent audit of the Company's financial statements for fiscal years 1996 and 1995, respectively, for the purpose of determining that the statements are presented fairly and in accordance with generally accepted accounting principles. The independent auditors are appointed by the Board of Directors and meet regularly with the Audit Committee of the Board. The Audit Committee of the Board of Directors is composed solely of outside directors. The Audit Committee meets periodically with the Company's senior officers and independent accountants to review the adequacy and reliability of the Company's accounting, financial reporting and internal controls. Robert W. Roten President and Chief Executive Officer Jim P. Wise Vice President - Finance and Chief Financial Officer December 6, 1996 64 STERLING CHEMICALS HOLDINGS, INC. SUPPLEMENTAL FINANCIAL INFORMATION (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL FIRST SECOND THIRD FOURTH YEAR QUARTER QUARTER QUARTER QUARTER --------- -------- -------- -------- --------- Revenues 1996 $191,542 $190,879 $218,371 $189,673 1995 240,622 303,954 298,491 187,131 Gross Profit 1996 29,395 29,398 33,250 19,383 1995 48,354 93,530 103,504 26,230 Income (loss) before extraordinary item 1996 12,787 6,427 16,420 (2,130) 1995 22,259 56,077 59,767 15,050 Net income (loss) 1996 12,787 6,427 16,420 (4,030) 1995 22,259 56,077 56,663 15,050 Per Share Data: Income (loss) before extraordinary item 1996 $ .23 $ .12 $ .29 $ (.06) 1995 .40 1.01 1.08 .27 Net income (loss) 1996 .23 .12 .29 (.11) 1995 .40 1.01 1.02 .27 Cash dividends per common share 1996 -- -- -- -- 1995 -- -- -- -- Price range of common stock 1996 High 9 1/4 13 13 1/8 12 1/2 1996 Low 7 1/2 8 11 1/8 10 7/8 1995 High 13 7/8 14 13 12 7/8 1995 Low 9 3/4 10 7/8 10 1/4 8 1/4
There is no established public trading market for the Holdings' Common Stock, although the Common Stock is traded on the OTC Electronic Bulletin Board under the symbol "STXX". Prior to the Merger, the Common Stock was listed on the New York Stock Exchange ("NYSE") under the symbol "STX". The table above sets forth the price range of the Common Stock during the fiscal years ended September 30, 1996 and September 30, 1995. Information for the fourth quarter of fiscal 1996 reflects high and low sales prices on the NYSE for the period of July 1 through August 21, and high and low sales price information as reported on the OTC Electronic Bulletin Board maintained by the National Association of Securities Dealers, Inc. ("NASD") for the period of August 22 through September 30. As of September 30, 1996, there were approximately 280 record holders of the Common Stock. Holdings has not paid dividends on the Common Stock in any of the last three fiscal years and does not anticipate paying dividends in the foreseeable future. Any future determination as to the payment of dividends will be made at the discretion of the Board of Directors of Holdings and will depend upon the Company's operating results, financial condition, capital requirements, general business conditions and such other factors that the Board of Directors deems relevant. In addition, the payment of dividends on the Common Stock is restricted by the terms of the indenture governing the Discount Notes and indirectly restricted by the terms of the Chemicals Credit 65 Agreement and the indenture governing the Subordinated Notes which restrict the ability of Chemicals to transfer funds to Holdings. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Termination of Coopers & Lybrand L.L.P. On October 25, 1995, the Audit Committee of the Board of Directors of the Company recommended and the Board of Directors of the Company approved the engagement of the firm of Arthur Andersen LLP ("Andersen") as its independent auditors for the year ending September 30, 1996, to replace the firm of Coopers & Lybrand L.L.P. ("Coopers"). The termination by the Company of the engagement of Coopers was effective upon the completion of the audit for the year ended September 30, 1995, and the filing of the Company's Annual Report on Form 10-K for such year. The appointment of Andersen as the Company's independent auditors for the fiscal year ending September 30, 1996 was ratified by the stockholders at the 1996 Annual Meeting of Stockholders. During the two previous fiscal years and the subsequent period through December 18, 1995, the date of filing of the Company's Annual Report on Form 10-K, there were no disagreements with Coopers on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their report to the subject matter of the disagreement. During the two previous fiscal years and the subsequent period through December 18, 1995, the date of filing of the Company's Annual Report on Form 10-K, the Company was not advised by Coopers of any of the reportable events listed in Item 304(a)(1)(v)(A) through (D) of SEC Regulation S-K and during such period of the Company did not consult with Andersen regarding any matter referenced under Item 304(a)(2) of the SEC Regulation S-K. The audit reports of Coopers on the consolidated financial statements of the Company as of and for the fiscal years ended September 30, 1995 and 1994, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except for an explanatory paragraph noting that the Company changed its method of accounting for income taxes effective October 1, 1993. The Company requested that Coopers furnish a letter addressed to the SEC stating whether Coopers agreed with the above statements. A copy of the Coopers letter to the SEC stating that such firm agreement with the above statements, dated December 18, 1995, was filed as Exhibit 16 to the Company's Form 8-K, dated December 18, 1995. Resignation of Arthur Andersen LLP. On August 21, 1996, Andersen resigned effective immediately in connection with the Merger. The Company engaged Deloitte & Touche LLP ("Deloitte") as its independent auditors for the fiscal year ended September 30, 1996. Deloitte served as independent auditors of STX Acquisition prior to the Merger. Andersen did not perform an audit of the Company's financial statements for any period. During the period of the engagement of Andersen, there were no disagreements with Andersen on any matter of accounting principles or practices or financial statement disclosure. The Company has not been advised by Andersen of any of the reportable events listed in Item 304(a)(1)(v)(A) through (D) of Regulation S-K. The Company requested that Andersen furnish a letter, addressed to the SEC, stating whether Andersen agreed with the above statements. A copy of the letter of Andersen to the SEC stating that such firm agreed with the above statements, dated August 28, 1996, was filed as Exhibit 16.1 to the Company's Form 8-K, dated August 21, 1996. 66 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information beginning on page 4 and the information beginning on page 18 of the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated herein by reference in response to this item. ITEM 11. EXECUTIVE COMPENSATION The information beginning on page 7 of the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information beginning on page 16 of the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information beginning on page 12 of the Proxy Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated herein by reference in response to this item. 67 PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Consolidated Financial Statements
PAGE OF THIS 10-K --------- Sterling Chemicals Holdings, Inc. Consolidated Statements of Operations for the fiscal years ended September 30, 1996, 1995 and 1994............ 33 Sterling Chemicals Holdings, Inc. Consolidated Balance Sheet as of September 30, 1996 and 1995.... 34 Sterling Chemicals Holdings, Inc. Consolidated Statement of Changes in Stockholders' Equity (Deficiency in Assets) for the fiscal years ended September 30, 1996, 1995 and 1994.................. 35 Sterling Chemicals Holdings, Inc. Consolidated Statement of Cash Flows for the fiscal years ended September 30, 1996, 1995 and 1994.................. 36 Sterling Chemicals, Inc. Consolidated Statement of Operations for the period from May 14, 1996 to September 30, 1996................................. 37 Sterling Chemicals, Inc. Consolidated Balance Sheet as of September 30, 1996........................... 38 Sterling Chemicals, Inc. Consolidated Statement of Changes in Stockholders' Equity (Deficiency in Assets) for the period from May 14, 1996 to September 30, 1996................................. 39 Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for the period from May 14, 1996 to September 30, 1996................................. 40 Notes to Consolidated Financial Statements........... 41 Reports of Independent Accountants................... 61 Report of Management................................. 64
2. All schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and, therefore, have been omitted. 68 3. Exhibits The following exhibits are filed as part of this Form 10-K: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 --Amended and Restated Agreement and Plan of Merger between STX Acquisition Corp. and Sterling Chemicals, Inc. dated as of April 24, 1996, incorporated by reference from the Company's Current Report on Form 8-K dated April 24, 1996 as amended by Form 8-K/A. **3.1 --Restated Certificate of Incorporation of Sterling Chemicals Holdings, Inc. **3.2 --Certificate of Incorporation of Sterling Chemicals, Inc., as amended. **3.3 --Restated Bylaws of Sterling Chemicals Holdings, Inc. 3.4 --Bylaws of Sterling Chemicals, Inc., incorporated by reference from Exhibit 3.4 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.1 --Form of Warrant Agreement, incorporated by reference from Exhibit 4.4 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.2 --Form of Indenture governing the 13 1/2% Senior Secured Discount Notes Due 2008 of the Company, incorporated by reference from Exhibit 4.5 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.3 --Form of Indenture governing the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling Chemicals, Inc. (formerly known as STX Chemicals Corp.), incorporated by reference from Exhibit 4.7 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.4 --Credit Agreement among Sterling Chemicals, Inc. (formerly known as STX Chemicals Corp.), Texas Commerce Bank as Agent, Credit Suisse and Chase Securities, Inc. as co-arrangers and the lenders named therein, incorporated by reference from Exhibit (a) to the Company's Schedule 13E-3, Commission File No. 5-40034. 4.5 --Stockholders Agreement, incorporated by reference from Exhibit 4.10 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.6 --Registration Rights Agreement, incorporated by reference from Exhibit 4.11 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.7 --Voting Agreement, incorporated by reference from Exhibit 4.12 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.8 --Tag-Along Agreement, incorporated by reference from Exhibit 4.13 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.9 --Intercreditor Agreement, incorporated by reference from Exhibit 4.14 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). 4.10 --Security Agreement (Pledge) between STX Acquisition Corp. and Texas Commerce Bank, incorporated by reference from Exhibit 4.15 to the Registration Statement on Form S-1 of STX Acquisition Corp. and STX Chemicals Corp. (Registration No. 333-04343). +10.1 --Assets Purchase Agreement dated August 1, 1986, between Monsanto Company and the Company, incorporated by reference from Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.2 --Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993), incorporated by reference from Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.2(a)--Supplement to the Sterling Chemicals, Inc. Salaried Employee's Pension Plan (Restated as of January 1, 1994), incorporated by reference from Exhibit 10.6(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 69 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.2(b)--First and Second Amendments to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan dated April 27, 1994 and September 23, 1994, respectively, incorporated by reference from Exhibit 10.6(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.3 --Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of October 1, 1993), incorporated by reference from Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.3(a)--Supplement to the Sterling Chemicals, Inc. Hourly Paid Employee's Pension Plan (Restated as of January 1, 1994), incorporated by reference from Exhibit 10.8(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.3(b)--First Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan dated April 27, 1994, incorporated by reference from Exhibit 10.8(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. **10.3(c)--Sterling Chemicals, Inc. Amended and Restated Hourly Paid Employees' Pension Plan (Effective as of May 1, 1996). 10.4 --Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan, incorporated by reference from Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.4(a)--Supplements to the Sterling Chemicals, Inc. Savings and Investment Plan for Hourly Paid Employees and Salaried Employees, incorporated by reference from Exhibit 10.10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.4(b)--First and Second Amendments to the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan dated April 27, 1994 and October 26, 1994, respectively, incorporated by reference from Exhibit 10.10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.5 --Sterling Chemicals, Inc. Pension Benefit Equalization Plan, incorporated by reference from Exhibit 10.10 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). **10.6 --Sterling Chemicals Employee Stock Ownership Plan (ESOP). 10.7 --Sterling Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan, incorporated by reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.7(a)--First Amendment to the Sterling Chemicals, Inc. Amended and Restated Employees' Stock Ownership Plan dated April 27, 1994, incorporated by reference from Exhibit 10.12(a) to the Company's Annual Report on Form 10-K for the for the fiscal year ended September 30, 1994. +10.8 --Styrene Monomer Conversion Contract dated November 3, 1995, between Monsanto Company (subsequently assigned to Bayer Corporation, a subsidiary of Bayer AG) and the Company, incorporated by reference from Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. +10.9 --Acrylonitrile Exchange Contract dated January 1, 1994, between the Company and Monsanto Company, incorporated by reference from Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. +10.10 --Production Agreement dated April 15, 1988 between BP Chemicals Americas Inc. and the Company and First and Second Amendment thereto, incorporated by reference from Exhibit 10.21 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). +10.11 --Agreement dated May 2, 1988, between E.I. du Pont de Nemours and Company and the Company, incorporated by reference from Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). 10.12 --License Agreement dated April 15, 1988, between BP Chemicals Americas Inc. and the Company, incorporated by reference from Exhibit 10.23 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). +10.13 --Product Sales Agreement dated August 1, 1986, between BASF Corporation and the Company, incorporated by reference from Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 70 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- +10.13(a)--Amendment No. 3 to Product Sales Agreement as of January 1,1994, between BASF Corporation and the Company, incorporated by reference from Exhibit 10.22(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.14 --License Agreement dated August 1, 1986, between Monsanto Company and the Company, incorporated by reference from Exhibit 10.25 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). +10.15 --Amended Lease and Production Agreement dated August 8, 1994, between BP Chemicals Americas Inc. and the Company, incorporated by reference from Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.16 --Form of Indemnity Agreement executed between the Company and each of its officers and directors prior to the Merger, incorporated by reference from Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. **10.17 --Form of Indemnity Agreement executed between the Company and each of its officers and directors. 10.18 --Amended and Restated Sterling Chemicals, Inc. Hourly Employees' Profit Sharing Plan, incorporated by reference from Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.19 --Amended and Restated Sterling Chemicals, Inc. Salaried Employee's Profit Sharing Plan, incorporated by reference from Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.20 --Sterling Chemicals, Inc. Amended and Restated Supplemental Employee Retirement Plan, incorporated by reference from Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1989 (Commission File Number 1-10059). 10.21 --Sterling Chemicals, Inc. Deferred Compensation Plan, incorporated by reference from Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1989 (Commission File Number 1-10059). **10.22 --Articles of Agreement between the Company, its successors and assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas, May 1, 1996 to May 1, 1999. 10.23 --Conditional Performance Guaranty dated as of August 20, 1992, by Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals, Ltd., Sterling Canada, Inc. and the Indemnities identified in Section 10.2 of the Purchase Agreement, incorporated by reference from Exhibit 10.38 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.24 --Performance Guaranty dated as of August 20, 1992, by the Company in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright & Wilson Americas, Inc. and the Indemnities identified in Section 10.3 of the Purchase Agreement, incorporated by reference from Exhibit 10.39 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.25 --Lease dated March 1, 1990, between Procter & Gamble, Inc. and Tenneco Canada Inc., as amended by a Lease Modification Agreement dated August 9, 1991, and Consent and Assignment Agreement dated as of August 21, 1992, among 982174 Ontario Limited, Sterling Pulp Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and The Bank of Nova Scotia, incorporated by reference from Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.26 --Lease dated July 1, 1977 between Canadian National Railway Company and ERCO Industries Limited, and Consent and Assignment Agreement dated as of August 21, 1992, among Tenneco Canada Inc., Sterling Pulp Chemicals, Ltd., Canadian National Railway Company and The Bank of Nova Scotia, incorporated by reference from Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. +10.27 --Sales and Purchase Agreement dated April 1, 1994, between BP Chemicals Ltd. and the Company, incorporated by reference from Exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. +10.28 --Contract for Sale and Purchase of Ethylene dated October 28, 1988, between Phillips 66 Company and the Company, incorporated by reference from Exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 71 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.29 --Agreement between Sterling Pulp Chemicals Ltd. North Vancouver British Columbia and Pulp, Paper and Woodworkers of Canada Local 5 British Columbia effective December 1, 1994 to November 30, 1997, incorporated by reference from Exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.30 --Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec and the Energy and Chemicals Workers Union effective November 30, 1994 to November 30, 1997, incorporated by reference from Exhibit 10.53 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. 10.31 --Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec, and the Office and Professional Employees International Union effective June 25, 1995 to November 14, 1997, incorporated by reference from Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. +10.32 --Product Supply Agreement dated May 15, 1995, between Praxair Hydrogen Supply, Inc. and the Company, incorporated by reference from Exhibit 10.55 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. ++10.33 --Methanol Production Agreement between BP Chemicals Inc. and the Company dated September 26, 1996. **10.34 --Consulting Agreement dated April 23, 1996, among The Sterling Group, Inc. STX Acquisition Corp. and STX Chemicals Corp. **21.1 --Subsidiaries of Sterling Chemicals Holdings, Inc. **27.1 --Financial Data Schedule - Sterling Chemicals Holdings, Inc. **27.2 --Financial Data Schedule - Sterling Chemicals, Inc. - - ------------- ** Filed herewith. + Confidential treatment has been requested with respect to portions of this Exhibit, and such request has been granted. ++ Filed herewith and confidential treatment has been requested with respect to portions of this Exhibit. (b) Reports on Form 8-K. On August 28, 1996, the Company filed a Current Report on Form 8-K reporting under Items 1, 2, 4, and 5 of such Form. 72 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANTS HAVE DULY CAUSED THIS REPORT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. (Registrants) By /s/ ROBERT W. ROTEN ------------------------------------- (Robert W. Roten) President and Chief Executive Officer DATE: DECEMBER 18, 1996 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF EACH OF THE REGISTRANTS AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ FRANK P. DIASSI Chairman of the Board of December 18, 1996 - - ------------------------------------------ Directors (Frank P. Diassi) /s/ ROBERT W. ROTEN President, Chief Executive December 18, 1996 - - ------------------------------------------ Officer and Director (Robert W. Roten) (principal executive officer) /s/ JIM P. WISE Vice President--Finance and December 18, 1996 - - ------------------------------------------ Chief Financial Officer (Jim P. Wise) (principal financial officer) /s/ PAUL G. VANDERHOVEN Controller December 18, 1996 - - ------------------------------------------ (principal accounting officer) (Paul G. Vanderhoven) /s/ J. VIRGIL WAGGONER Vice Chairman of the Board of December 18, 1996 - - ------------------------------------------ Directors J. Virgil Waggoner) /s/ FRANK J. HEVRDEJS Director December 18, 1996 - - ------------------------------------------ (Frank J. Hevrdejs) /s/ T. HUNTER NELSON Director December 18, 1996 - - ------------------------------------------ (T. Hunter Nelson) /s/ JOHN L. GARCIA Director December 18, 1996 - - ------------------------------------------ (John L. Garcia) Director December 18, 1996 - - ------------------------------------------ (Allan R. Dragone) /s/ GEORGE B. GREGORY Director December 18, 1996 - - ------------------------------------------ (George B. Gregory) /s/ ROBERT B. CALHOUN Director December 18, 1996 - - ------------------------------------------ (Robert B. Calhoun)
73 CORPORATE INFORMATION ANNUAL MEETING STOCK LISTING Date: January 22, 1997 OTC Electronic Bulletin Board Time: 9:00 a.m. Ticker Symbol - STXX Place: Texas Commerce Center Auditorium 601 Travis Houston, Texas 77002 LEGAL COUNSEL STOCK TRANSFER AGENT Andrews & Kurth L.L.P. AND REGISTRAR 600 Travis, Suite 4200 Society National Bank Houston, Texas 77002 c/o KeyCorp Shareholder Services, Inc. (713) 220-4200 700 Louisiana, Suite 2620 Houston, Texas 77002-2729 INDEPENDENT CORPORATE HEADQUARTERS ACCOUNTANTS Sterling Chemicals Holdings, Inc. Deloitte & Touche LLP 1200 Smith, Suite 1900 333 Clay, Suite 2300 Houston, Texas 77002-4312 Houston, Texas 77002 (713) 650-3700 (713) 756-2000 EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 [State of Delaware Secretary of State Division of Corporations Filed 09:50 AM 08/21/1996 960243742-2090990] CERTIFICATE OF MERGER MERGING STX ACQUISITION CORP. INTO STERLING CHEMICALS, INC. (Pursuant to Section 251 of the General Corporation Law of the State of Delaware) STERLING CHEMICALS INC., a Delaware corporation ("Sterling"), hereby certifies that: 1. STX Acquisition Corp., a Delaware corporation ("Acquisition"), and Sterling are the constituent corporations to the merger of Acquisition with and into Sterling (the "Merger"). 2. An Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") in connection with the Merger has been approved, adopted, certified, executed and acknowledged by each of Acquisition and Sterling in accordance with the provisions of Section 251 of the General Corporation Law of the State of Delaware. 3. Sterling shall be the surviving corporation of the Merger (in such capacity, the "Surviving Corporation"). 4. As set forth in Section 2.05(a) of the Merger Agreement, upon the filing of this Certificate of Merger, the Certificate of Incorporation of the Surviving Corporation shall be amended to read in its entirety as set forth in Exhibit A attached hereto and incorporated herein by reference. 5. The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation, 1200 Smith Street, Suite 1900, Houston, Texas 77002-4312. 6. A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of Acquisition or Sterling. IN WITNESS WHEREOF, the Surviving Corporation has executed this Certificate of Merger this 21 day of August, 1996. STERLING CHEMICALS, INC. By: /s/ J. Virgil Waggoner --------------------------------- J. Virgil Waggoner, President EXHIBIT A RESTATED CERTIFICATE OF INCORPORATION OF STERLING CHEMICALS HOLDINGS, INC. --------------------------------- (Attached) RESTATED CERTIFICATE OF INCORPORATION OF STERLING CHEMICALS HOLDINGS, INC. ARTICLE I Name, Registration and Purpose ------------------------------ Section 1.01. Name. The name of the Corporation is "Sterling Chemicals Holdings, Inc.". Section 1.02. Registered Office and Registered Agent. The registered office of the Corporation in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. Section 1.03. Purpose. The purpose for which the Corporation is organized is to engage in any lawful acts and activities for which corporations may be organized under the General Corporation Law of the State of Delaware ("DGCL"), and the Corporation shall have the power to perform all lawful acts and activities. ARTICLE II Capitalization -------------- Section 2.01. Authorized Capital. (a) The total number of shares of stock that the Corporation shall have the authority to issue is 22,000,000 shares of capital stock, consisting of (i) 2,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), and (ii) 20,000,000 shares of common stock, par value $0.01 per share (the "Common Stock"). (b) Subject to the provisions of this Certificate of Incorporation and the Preferred Stock Designation (as defined below) creating any series of Preferred Stock, the Corporation may issue shares of its capital stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors of the Corporation (the "Board of Directors"), which is expressly authorized to fix the same in its absolute discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares. (c) The right to cumulate votes for the election of directors as provided in Section 214 of the DGCL shall not be granted and is hereby expressly denied. Section 2.02. Preferred Stock. (a) The Preferred Stock may be issued from time to time in one or more series. Authority is hereby expressly granted to and vested in the Board of Directors to authorize from time to time the issuance of Preferred Stock in one or more series. With respect to each series of Preferred Stock authorized by it, the Board of Directors shall be authorized to establish by resolution or resolutions, and by filing a certificate pursuant to the applicable law of the State of Delaware (a "Preferred Stock Designation"), the following to the fullest extent now or hereafter permitted by the DGCL: (i) the designation of such series; (ii) the number of shares to constitute such series; (iii) whether such series is to have voting rights (full, special or limited) or is to be without voting rights; (iv) if such series is to have voting rights, whether or not such series is to be entitled to vote as a separate class either alone or together with the holders of the Common Stock or one or more other series of Preferred Stock; (v) the preferences and relative, participating, optional, conversion or other special rights (if any) of such series and the qualifications, limitations or restrictions (if any) with respect to such series; (vi) the redemption rights and price(s), if any, of such series, and whether or not the shares of such series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking funds or funds are to be established, the periodic amount thereof and the terms and provisions relative to the operation thereof; (vii) the dividend rights and preferences (if any) of such series, including, without limitation, (A) the rates of dividends payable thereon, (B) the conditions upon which and the time when such dividends are payable, (C) whether or not such dividends shall be cumulative or noncumulative and, if cumulative, the date or dates from which such dividends shall accumulate and (D) whether or not the payment of such dividends shall be preferred to the payment of dividends payable on the Common Stock or any other series of Preferred Stock; (viii) the preferences (if any), and the amounts thereof, which the holders of such series shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding-up of, or upon any distribution of the assets of, the Corporation; -2- (ix) whether or not the shares of such series, at the option of the Corporation or the holders thereof or upon the happening of any specified event, shall be convertible into or exchangeable for (A) shares of Common Stock, (B) shares of any other series of Preferred Stock or (C) any other stock or securities of the Corporation; (x) if such series is to be convertible or exchangeable, the price or prices or ratio or ratios or rate or rates at which such conversion or exchange may be made and the terms and conditions (if any) upon which such price or prices or ratio or ratios or rate or rates may be adjusted; and (xi) such other rights, powers and preferences with respect to such series as may to the Board of Directors seem advisable. Any series of Preferred Stock may vary from any other series of Preferred Stock in any or all of the foregoing respects and in any other manner. (b) The Board of Directors may, with respect to any existing series of Preferred Stock but subject to the Preferred Stock Designation creating such series, (i) increase the number of shares of Preferred Stock designated for such series by a resolution adding to such series authorized and unissued shares of Preferred Stock not designated for any other series or (ii) decrease the number of shares of Preferred Stock designated for such series by a resolution subtracting from such series shares of Preferred Stock designated for such series (but not below the number of shares of such series then outstanding), and the shares so subtracted shall become authorized, unissued and undesignated shares of Preferred Stock. (c) No vote of the holders of the Common Stock or the Preferred Stock shall, unless otherwise expressly provided in a Preferred Stock Designation, be a prerequisite to the issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation. Shares of any series of Preferred Stock that have been authorized for issuance pursuant to this Certificate of Incorporation and that have been issued and reacquired in any manner by the Corporation (including upon conversion or exchange thereof) shall be restored to the status of authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors and a Preferred Stock Designation as set forth above. Section 2.03. Common Stock. (a) The holders of shares of the Common Stock shall be entitled to vote upon all matters submitted to a vote of the common stockholders of the Corporation and shall be entitled to one vote for each share of the Common Stock held. (b) Subject to the prior rights and preferences (if any) applicable to shares of Preferred Stock of any series, the holders of shares of the Common Stock shall be entitled to receive such dividends (payable in cash, stock or otherwise) as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Corporation legally available therefor. -3- (c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the preferential or other rights (if any) of the holders of shares of the Preferred Stock in respect thereof, the holders of shares of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them. For purposes of this paragraph (c), a liquidation, dissolution or winding-up of the Corporation shall not be deemed to be occasioned by or to include (i) any consolidation or merger of the Corporation with or into another corporation or other entity or (ii) a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation. Section 2.04. Stock Options, Warrants, etc. Unless otherwise expressly prohibited in a Preferred Stock Designation creating any series of Preferred Stock, the Corporation shall have authority to create and issue warrants, rights and options entitling the holders thereof to purchase from the Corporation shares of the Corporation's capital stock of any class or series or other securities of the Corporation for such consideration and to such persons, firms or corporations as the Board of Directors, in its sole discretion, may determine, setting aside from the authorized but unissued stock of the Corporation the requisite number of shares for issuance upon the exercise of such warrants, rights or options. Such warrants, rights and options shall be evidenced by one or more instruments approved by the Board of Directors. The Board of Directors shall be empowered to set the exercise price, duration, time for exercise and other terms of such warrants, rights or options; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. ARTICLE III Directors --------- Section 3.01. Number and Term. The number of directors of the Corporation shall from time to time be fixed exclusively by the Board of Directors in accordance with, and subject to the limitations set forth in, the bylaws of the Corporation (the "Bylaws"); provided, however, that the Board of Directors shall at all times consist of a minimum of three and a maximum of fifteen members, subject, however, to increases above fifteen members as may required in order to permit the holders of any series of Preferred Stock to exercise their right (if any) to elect additional directors under specified circumstances. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Anything in this Certificate of Incorporation or the Bylaws to the contrary notwithstanding, each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Section 3.02. Nomination and Election. (a) Nominations of persons for election or reelection to the Board of Directors may be made by or at the direction of the Board of Directors. The Bylaws may set forth procedures for the nomination of persons for election or reelection to the Board of Directors and only persons who are nominated in accordance with such procedures (if any) -4- shall be eligible for election or reelection as directors of the Corporation; provided, however, that such procedures shall not infringe upon (i) the right of the Board of Directors to nominate persons for election or reelection to the Board of Directors or (ii) the rights of the holders of any series of Preferred Stock, voting separately by class or series, to elect additional directors under specified circumstances. (b) Each director shall be elected in accordance with this Certificate of Incorporation, the Bylaws and applicable law. Election of directors by the Corporation's stockholders need not be by written ballot unless the Bylaws so provide. Section 3.03. Removal. No director may be removed except by the affirmative vote of the holders of not less than a majority in voting power of all the outstanding shares of capital stock of the Corporation entitled to vote generally in an election of directors, voting together as a single class. The Board of Directors may not remove any director, and no recommendation by the Board of Directors that a director be removed may be made to the Corporation's stockholders unless such recommendation is set forth in a resolution adopted by the affirmative vote of not less than two-thirds of the whole Board of Directors. Section 3.04. Vacancies. (a) In case any vacancy shall occur on the Board of Directors because of death, resignation or removal, such vacancy may be filled only by a majority (or such higher percentage as may be specified in the Bylaws) of the directors remaining in office (though less than a quorum), and the director so appointed shall serve for the unexpired term of his predecessor or until his successor is elected and qualified or until his earlier death, resignation or removal. If there are no directors then in office, an election of directors may be held in the manner provided by applicable law. (b) Any newly-created directorship resulting from any increase in the number of directors may be filled only by a majority (or such higher percentage as may be specified in the Bylaws) of the directors then in office (though less than a quorum). Each director so appointed shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. (c) Except as expressly provided in this Certificate of Incorporation or as otherwise provided by applicable law, stockholders of the Corporation shall not have the right to fill vacancies or newly-created directorships on the Board of Directors. Section 3.05. Subject to Rights of Holders of Preferred Stock. Notwithstanding the foregoing provisions of this Article III, if the Preferred Stock Designation creating any series of Preferred Stock entitles the holders of such Preferred Stock, voting separately by class or series, to elect additional directors under specified circumstances, then all provisions of such Preferred Stock Designation relating to the nomination, election, term of office, removal, filling of vacancies and other features of such directorships shall, as to such directorships, govern and control over any conflicting provisions of this Article III. -5- Section 3.06. Limitation of Access of Stockholders to Books and Records. In furtherance of, and not in limitation of, the powers conferred by law, the Board of Directors is expressly authorized and empowered to determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to inspection of stockholders and, except as so determined or as expressly provided in this Certificate of Incorporation or in any Preferred Stock Designation, no stockholder shall have any right to inspect any account, book or document of the Corporation other than such rights as may be conferred by applicable law. Section 3.07. Limitation of Personal Liability. (a) No person who is or was a director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. (b) If the DGCL is hereafter amended to authorize corporate action further limiting or eliminating the personal liability of directors, then the personal liability of the directors to the Corporation or its stockholders shall be limited or eliminated to the full extent permitted by the DGCL, as so amended from time to time. ARTICLE IV Amendment of Bylaws ------------------- The Board of Directors is expressly authorized and empowered to adopt, alter, amend or repeal the Bylaws. Stockholders of the Corporation shall have the power to alter, amend, expand or repeal the Bylaws but only by the affirmative vote of the holders of not less than 66-2/3% in voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors, voting together as a single class. ARTICLE V Actions and Meetings of Stockholders -------------------------------------- Section 5.01. No Action by Written Consent. No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders. Stockholders of the Corporation may not act by written consent in lieu of a meeting. Section 5.02. Meetings. (a) Meetings of the stockholders of the Corporation (whether annual or special) may only be called by the Board of Directors or such officer or officers of the Corporation as the Board of Directors may from to time authorize to call meetings of the stockholders of the Corporation. Stockholders of the Corporation shall not be entitled to call any -6- meeting of stockholders or to require the Board of Directors or any officer or officers of the Corporation to call a meeting of stockholders except as otherwise expressly provided by law or in the Preferred Stock Designation creating any series of Preferred Stock. (b) Stockholders of the Corporation shall have the right to propose business for consideration at any meeting of stockholders but only as may be expressly provided in, and then only in compliance with, the Bylaws. (c) Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice or waivers of notice of such meeting. The person presiding at a meeting of stockholders may determine whether business has been properly brought before the meeting and, if the facts so warrant, such person may refuse to transact any business at such meeting which has not been properly brought before such meeting. Section 5.03. Appoint and Remove Officers, etc. The stockholders of the Corporation shall have no right or power to appoint or remove officers of the Corporation nor to abrogate the power of the Board of Directors to elect and remove officers of the Corporation. Except as provided in Section 3.03, the stockholders of the Corporation shall have no power to appoint or remove directors as members of committees of the Board of Directors nor to abrogate the power of the Board of Directors to establish one or more such committees or the power of any such committee to exercise the powers and authority of the Board of Directors. ARTICLE VI Indemnification of Directors and Officers ----------------------------------------- The Corporation shall (i) indemnify, to the fullest extent permitted by applicable law, each person who is or was a director or officer of the Corporation and each person who, at the request of the Board of Directors of the Corporation or an officer of the Corporation, is or was a director or officer of another corporation, partnership, joint venture, trust or other enterprise, and (ii) may indemnify each employee and agent of the Corporation and all other persons whom the Corporation is authorized to indemnify under the provisions of the DGCL. Without limiting the generality or effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article VI. ARTICLE VII Election to be Governed by Section 203 of the DGCL -------------------------------------------------- The Corporation hereby elects to be governed by Section 203 of the DGCL; provided, however, that the provisions of this Article VII shall not apply to restrict a business combination between the Corporation and an interested stockholder (as defined in Section 203 of the DGCL) of -7- the Corporation if either (i) such business combination was approved by the Board of Directors prior to the time that such stockholder became an interested stockholder or (ii) such stockholder became an interested stockholder as a result of, and at or prior to the effective time of, a transaction which was approved by the Board of Directors prior to the time that such stockholder became an interested stockholder. ARTICLE VIII Amendment of Certificate of Incorporation ----------------------------------------- The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation or a Preferred Stock Designation, in the manner now or hereafter prescribed by applicable law, and all rights, preferences and privileges conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation are granted subject to this reservation. Notwithstanding the foregoing or any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser or no vote, the provisions of this Article VIII and of Articles III, IV and V may not be repealed or amended in any respect, and no provision inconsistent with any such provision or imposing cumulative voting in the election of directors may be added to this Certificate of Incorporation, unless such action is approved by the affirmative vote of the holders of not less than 66-2/3% in voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally at an election of directors, voting together as a single class; provided, however, that any amendment or repeal of Section 3.07 or Article VI of this Certificate of Incorporation shall not adversely affect any right or protection existing thereunder in respect of any act or omission occurring prior to such amendment or repeal and, provided further, that no Preferred Stock Designation shall be amended after the issuance of any shares of the series of Preferred Stock created thereby, except in accordance with the terms of such Preferred Stock Designation and the requirements of applicable law. ARTICLE IX Voting Requirements Not Exclusive --------------------------------- The voting requirements contained in this Certificate of Incorporation shall be in addition to the voting requirements imposed by law or by the Preferred Stock Designation creating any series of Preferred Stock. -8- EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 CERTIFICATE OF INCORPORATION OF STX CHEMICALS CORP. The undersigned natural person, acting as an incorporator of a corporation under the General Corporation Law of the State of Delaware, hereby adopts the following Certificate of Incorporation for such corporation: ARTICLE I NAME ---- The name of the corporation is "STX Chemicals Corp." (the "Corporation"). ARTICLE II REGISTERED OFFICE AND AGENT --------------------------- The street address of the initial registered office of the Corporation is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name of its initial registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSE ------- The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV SHARES ------ The aggregate number of shares which the Corporation has authority to issue is 1,000 shares, par value $0.01 per share. The shares are designated as common stock and have identical rights and privileges in every respect. ARTICLE V INCORPORATOR ------------ The name and address of the incorporator is: Thomas M. Hart III c/o Andrews & Kurth L.L.P. 4200 Texas Commerce Tower 600 Travis Houston, Texas 77002 ARTICLE VI INITIAL DIRECTORS ----------------- The number of directors constituting the initial Board of Directors is one and the name and address of the person who is to serve as director until his successor is duly elected and qualified is: Frank J. Hevrdejs Eight Greenway Plaza, Suite 702 Houston, Texas 77046 ARTICLE VII LIMITATION OF PERSONAL LIABILITY OF DIRECTORS --------------------------------------------- No director (including any advisory director) of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derived an improper personal benefit. ARTICLE VIII INDEMNITY --------- Section 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, -2- whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. Section 3. To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Any indemnification under Sections 1 and 2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a director, officer, -3- employee, or agent of the Corporation shall be able to contest any determination that the director, officer, employee, or agent has not met the applicable standard of conduct set forth in Sections 1 and 2 by petitioning a court of appropriate jurisdiction. Section 5. Expenses incurred by an officer or director in defending or settling a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses incurred by other employees and agents shall be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 6. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders, or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 7. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VIII. Section 8. For purposes of this Article VIII, references to the "Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, or agents, so that any person who is or was a director, officer, employee, or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the Corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 9. For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee, or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries -4- of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. Section 10. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE IX BYLAWS ------ The Bylaws of the Corporation may be amended or repealed, or new Bylaws may be adopted (i) by the Board of Directors of the Corporation at any duly held meeting or pursuant to a written consent in lieu of such meeting or (ii) by the holders of a majority of the shares represented at any duly held meeting of stockholders, provided that notice of such proposed action shall have been contained in the notice of any such meeting, or pursuant to a written consent signed by the holders of a majority of the outstanding shares entitled to vote thereon. The undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly I have hereunto set my hand this the 10th day of May, 1996. /s/ Thomas M. Hart III ---------------------- Thomas M. Hart III -5- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF STX CHEMICALS CORP. STX Chemicals Corp., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that: 1. In lieu of a meeting and vote of directors, the Board of Directors of the Corporation, by unanimous written consent filed with the minutes of proceedings of the Board of Directors of the Corporation in accordance with the provisions of Section 141(f) of the General Corporation Law of the State of Delaware (the "DGCL"), adopted resolutions approving and declaring advisable the amendment of Article I of the Certificate of Incorporation of the Corporation to read in its entirety as follows: ARTICLE I Name ---- The name of the corporation is "Sterling Chemicals, Inc." (the "Corporation"). 2. In lieu of a meeting and vote of stockholders, the required percentage of shares of stock have given written consent to said amendment, in accordance with the provisions of Section 228 of the DGCL, and said written consent has been filed with the Corporation. 3. Said amendment was duly adopted in accordance with the provisions of Sections 141, 228 and 242 of the General Corporation Law of the State of Delaware. In Witness Whereof, the Corporation has caused this certificate to be signed this 21 day of August, 1996. STX Chemicals Corp. By: /s/ T. Hunter Nelson -------------------------------- T. Hunter Nelson, Vice President EX-3.3 4 EXHIBIT 3.3 EXHIBIT 3.3 RESTATED BYLAWS OF STERLING CHEMICALS HOLDINGS, INC. [As amended through, and effective on, October 23, 1996] PREAMBLE These Bylaws are subject to, and governed by, the General Corporation Law of the State of Delaware ("DGCL") and the Certificate of Incorporation of the Corporation, as amended (the "Certificate of Incorporation", such term to include the resolutions of the Board of Directors of the Corporation creating any series of preferred stock, par value $0.01 per share, of the Corporation). In the event of a direct conflict between the provisions of these Bylaws and the mandatory provisions of the DGCL or the provisions of the Certificate of Incorporation, such provisions of the DGCL or the Certificate of Incorporation, as the case may be, will be controlling. ARTICLE I Offices and Records ------------------- Section 1.01. Registered Office and Agent. The registered office and registered agent of the Corporation shall be as designated from time to time by the appropriate filing by the Corporation in the office of the Secretary of State of the State of Delaware. Section 1.02. Other Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine or the business of the Corporation may require. Section 1.03. Books and Records. The books and records of the Corporation may be kept at the Corporation's principal executive office in Houston, Texas or at such other locations outside the State of Delaware as may from time to time be designated by the Board of Directors. ARTICLE II Meetings of Stockholders ------------------------ Section 2.01. Annual Meetings. An annual meeting of the Corporation's stockholders (the "Stockholders") shall be held each calendar year for the purposes of (i) electing directors as provided in Section 3.02 and (ii) transacting such other business as may properly be brought before the meeting. Each annual meeting shall be held on such date (no later than 13 months after the date of the last annual meeting of Stockholders) and at such time as shall be designated by the Board of Directors and stated in the notice or waivers of notice of such meeting. Section 2.02. Special Meetings. (a) Special meetings of the Stockholders, for any purpose or purposes, may be called at any time by the Chairman of the Board (if any) or the Chief Executive Officer and shall be called by the Secretary at the written request, or by resolution adopted by the affirmative vote, of a majority of the total number of directors which the Corporation would have if there were no vacancies (the "Whole Board"), which request or resolution shall fix the date, time and place, and state the purpose or purposes, of the proposed meeting. Except as provided by applicable law, these Bylaws, the Certificate of Incorporation or the Voting Agreement (defined below), Stockholders shall not be entitled to call a special meeting of Stockholders or to require the Board of Directors or any officer to call such a meeting. Business transacted at any special meeting of Stockholders shall be limited to the purposes stated in the notice or waivers of notice of such meeting. (b) As used in these Bylaws, "Voting Agreement" means that certain Voting Agreement, dated as of August 12, 1996, among the Corporation and certain stockholders of the Corporation, as amended and/or restated from time to time. Section 2.03. Place of Meetings. The Board of Directors may designate the place of meeting (either within or without the State of Delaware) for any meeting of Stockholders. If no designation is made by the Board of Directors, the place of meeting shall be held at the principal executive office of the Corporation. Section 2.04. Notice of Meetings. (a) Written notice of each meeting of Stockholders shall be given to each Stockholder of record entitled to vote thereat, which notice shall (i) state the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called and (ii) be given not less than 10 nor more than 60 days before the date of the meeting. (b) Each notice of a meeting of Stockholders shall be given as provided in Section 9.01, except that if no address appears on the Corporation's books or stock transfer records with respect to any Stockholder, notice to such Stockholder shall be deemed to have been given if sent by first-class mail or telecommunication to the Corporation's principal executive office or if -2- published at least once in a newspaper of general circulation in the county where such principal executive office is located. (c) If any notice addressed to a Stockholder at the address of such Stockholder appearing on the books of a Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the Stockholder at such address, all further notices to such Stockholder at such address shall be deemed to have been duly given without further mailing if the same shall be available to such Stockholder upon written demand of such Stockholder at the principal executive office of the Corporation for a period of one year from the date of the giving of such notice. (d) Any previously scheduled meeting of the Stockholders may be postponed by resolution of the Board of Directors upon Public Announcement of such postponement prior to the time previously scheduled for such meeting. As used in these Bylaws, "Public Announcement" means the disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act (as defined in Section 2.13(f)). Section 2.05. Voting List. At least 10 days before each meeting of Stockholders, the Secretary or other officer or agent of the Corporation who has charge of the Corporation's stock ledger shall prepare a complete list of the Stockholders entitled to vote at such meeting, arranged in alphabetical order and showing, with respect to each Stockholder, his address and the number of shares registered in his name. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice or waivers of notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept open at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. The stock ledger of the Corporation shall be the only evidence as to who are the Stockholders entitled to examine any list required by this Section 2.05 or to vote at any meeting of Stockholders. Section 2.06. Quorum and Adjournment. The holders of a majority of the voting power of the outstanding shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), present in person or by proxy, shall constitute a quorum at any meeting of Stockholders, except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws. If a quorum is present at any meeting of Stockholders, such quorum shall not be broken by the withdrawal of enough Stockholders to leave less than a quorum and the remaining Stockholders may continue to transact business until adjournment. If a quorum shall not be present at any meeting of Stockholders, the holders of a majority of the voting stock represented at such meeting or, if no Stockholder entitled to vote is present at such meeting, any officer of the Corporation may adjourn such meeting from time to time until a quorum shall be present. Notwithstanding anything in these Bylaws to the contrary, the chairman -3- of any meeting of Stockholders shall have the right, acting in his sole discretion, to adjourn such meeting from time to time. Section 2.07. Adjourned Meetings. When a meeting of Stockholders is adjourned to another time or place, unless otherwise provided by these Bylaws, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, if an adjournment is for more than 30 days or if after an adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder entitled to vote thereat. At any adjourned meeting at which a quorum shall be present in person or by proxy, the Stockholders entitled to vote thereat may transact any business which might have been transacted at the meeting as originally noticed. Section 2.08. Voting. (a) Election of directors at all meetings of Stockholders at which directors are to be elected shall be by written ballot and, except as otherwise provided in the Certificate of Incorporation, a plurality of the votes cast thereat shall elect. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, all matters other than the election of directors submitted to the Stockholders at any meeting shall be decided by a majority of the votes cast with respect thereto. Except as otherwise provided in the Certificate of Incorporation or by applicable law, (i) no Stockholder shall have any right of cumulative voting and (ii) each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of Stockholders. (b) Shares standing in the name of another corporation (whether domestic or foreign) may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, the absence of such provision, as the board of directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares standing in the name of a receiver may be voted by such receiver. A Stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the Corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee (or his proxy) may represent the stock and vote thereon. (c) If shares or other securities having voting power stand of record in the name of two or more persons (whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise) or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: -4- (i) if only one votes, his act binds all; (ii) if more than one votes, the act of the majority so voting binds all; and (iii) if more than one votes but the vote is evenly split on any particular matter, each fraction may vote the securities in question proportionately or any person voting the shares or a beneficiary (if any) may apply to the Delaware Court of Chancery or such other court as may have jurisdiction to appoint an additional person to act with the person so voting the shares, which shall then be voted as determined by a majority such persons and the person so appointed by the court. If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of the paragraph (c) shall be a majority or even-split in interest. Section 2.09. Proxies. (a) At any meeting of Stockholders, each Stockholder having the right to vote thereat may be represented and vote either in person or by proxy executed in writing by such Stockholder or by his duly authorized attorney-in-fact. Each such proxy shall be filed with the Secretary of the Corporation at or before the beginning of each meeting at which such proxy is to be voted. Unless otherwise provided therein, no proxy shall be valid after three years from the date of its execution. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power or unless otherwise made irrevocable by applicable law. (b) A proxy shall be deemed signed if the Stockholder's name is placed on the proxy (whether by manual signature, telegraphic transmission or otherwise) by the Stockholder or his attorney-in-fact. In the event any proxy shall designate two or more persons to act as proxies, a majority of such persons present at the meeting (or, if only one shall be present, then that one) shall have and may exercise all the powers conferred by the proxy upon all the persons so designated unless the proxy shall otherwise provide. (c) Except as otherwise provided by applicable law, by the Certificate of Incorporation or by these Bylaws, the Board of Directors may, in advance of any meeting of Stockholders, prescribe additional regulations concerning the manner of execution and filing of proxies (and the validation of same) which may be voted at such meeting. Section 2.10. Record Date. (a) For the purpose of determining the Stockholders entitled to notice of or to vote at any meeting of Stockholders (or any adjournment thereof), the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors or be more than 60 nor less than 10 days prior to the date of such meeting. If no record date is fixed, the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of Stockholders of record entitled to notice of or to vote at a meeting -5- of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) For the purpose of determining the Stockholders entitled to consent to any corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors or be more than 10 days after the date on which the resolution fixing the record date is adopted by the Board of Directors. If no record date is fixed, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (c) For the purpose of determining the Stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors or be more than 60 days prior to any other action. If no record date is fixed, the record date for determining Stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. Section 2.11. Conduct of Meetings; Agenda. (a) Meetings of the Stockholders shall be presided over by the officer of the Corporation whose duties under these Bylaws require him to do so; provided, however, if no such officer of the Corporation shall be present at any meeting of Stockholders, such meeting shall be presided over by a chairman to be chosen by a majority of the Stockholders entitled to vote at the meeting who are present in person or by proxy. At each meeting of Stockholders, the officer of the Corporation whose duties under these Bylaws require him to do so shall act as secretary of the meeting; provided, however, if no such officer of the Corporation shall be present at any meeting of Stockholders, the chairman of such meeting shall appoint a secretary. The order of business at each meeting of Stockholders shall be as determined by the chairman of the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him in order. (b) The Board of Directors may, in advance of any meeting of Stockholders, adopt an agenda for such meeting, adherence to which the chairman of the meeting may enforce. Section 2.12. Inspectors of Election; Opening and Closing of Polls. (a) Before any meeting of Stockholders, the Board of Directors may, and if required by law shall, appoint one or more persons to act as inspectors of election at such meeting or any adjournment thereof. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and if required by law shall, appoint a substitute inspector. If no inspectors are appointed by the Board of Directors, the chairman of the meeting may, and if required by law shall, appoint one or more inspectors at the meeting. Notwithstanding the foregoing, inspectors shall be appointed consistent with the mandatory provisions of Section 231 of the DGCL. -6- (b) Inspectors may include individuals who serve the Corporation in other capacities (including as officers, employees, agents or representatives); provided, however, that no director or candidate for the office of director shall act as an inspector. Inspectors need not be Stockholders. (c) The inspectors shall (i) determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum and the validity and effect of proxies and (ii) receive votes or ballots, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes and ballots, determine the results and do such acts as are proper to conduct the election or vote with fairness to all Stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. The inspectors shall have such other duties as may be prescribed by Section 231 of the DGCL. (d) The chairman of the meeting may, and if required by the DGCL shall, fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at the meeting. Section 2.13. Procedures for Bringing Business before Meetings. (a) At any annual meeting of Stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (iii) properly brought before the meeting by a Stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a Stockholder, the Stockholder must have given timely notice thereof in writing to the Secretary except as otherwise provided in the Voting Agreement. To be timely, a Stockholder's notice must be delivered to the Secretary at the principal executive office of the Corporation not less than 120 days nor more than 150 days prior to the first anniversary of the previous year's annual meeting of Stockholders; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting of Stockholders has been changed by more than 30 calendar days from such anniversary date, the notice must be so delivered to the Secretary not earlier than the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which Public Announcement of the date of such annual meeting is first made. Any annual meeting of Stockholders which is adjourned and will reconvene within 30 days after the meeting date as originally noticed shall, for purposes of any Stockholder's notice contemplated by this paragraph (a), be deemed to be a continuation of the original meeting, and no business may be brought before such adjourned meeting by any Stockholder unless timely notice of such business was given to the Secretary for the meeting as originally noticed. (b) Each notice given by a Stockholder as contemplated by paragraph (a) above shall set forth, as to each matter the Stockholder proposes to bring before the annual meeting, (i) the -7- nature of the proposed business with reasonable particularity, including the exact text of any proposal to be presented for adoption and any supporting statement, which proposal and supporting statement shall not in the aggregate exceed 500 words, and his reasons for conducting such business at the annual meeting, (ii) any material interest of the Stockholder in such business, (iii) the name, principal occupation and record address of the Stockholder, (iv) the class and number of shares of the Corporation which are held of record or beneficially owned by the Stockholder, (v) the dates upon which the Stockholder acquired such shares of stock and documentary support for any claims of beneficial ownership and (vi) such other matters as may be required by the Certificate of Incorporation. (c) The foregoing right of a Stockholder to propose business for consideration at an annual meeting of Stockholders shall be subject to such conditions, restrictions and limitations as may be imposed by the Certificate of Incorporation. (d) At any special meeting of Stockholders, only such business shall be conducted as shall have been specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Nothing in this Section 2.13 shall entitle any Stockholder to propose business for consideration at any special meeting of Stockholders. (e) The chairman of any meeting of Stockholders shall determine whether business has been properly brought before the meeting and, if the facts so warrant, may refuse to transact any business at such meeting which has not been properly brought before the meeting. (f) Notwithstanding any other provision of these Bylaws, the Corporation shall be under no obligation to include any Stockholder proposal in its proxy statement or otherwise present any such proposal to Stockholders at a meeting of Stockholders if the Board of Directors reasonably believes that the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, and the Corporation shall not be required to include in its proxy statement to Stockholders any Stockholder proposal not required to be included in its proxy statement to Stockholders in accordance with the Exchange Act and such rules or regulations. (g) Nothing in this Section 2.13 shall be deemed to affect (i) any rights of Stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 of the Exchange Act or (ii) any rights under the Voting Agreement relating to the nomination of any person for election or re-election as a director of the Corporation. (h) Reference is made to Section 3.03 for procedures relating to the nomination of any person for election or reelection as a director of the Corporation. Section 2.14. Action without Meeting. Except as otherwise provided in the Voting Agreement, no action shall be taken by Stockholders other than at a meeting of Stockholders. Except as otherwise provided in the Voting Agreement, Stockholders may not act by written consent in lieu of a meeting. -8- ARTICLE III Board of Directors -- Powers, Number, ------------------------------------- Nominations, Resignations, Removal, Vacancies and Compensation -------------------------------------------------------------- Section 3.01. Management. The business and property of the Corporation shall be managed by and under the direction of the Board of Directors. In addition to the powers and authorities expressly conferred upon the Board of Directors by these Bylaws, the Board of Directors may exercise all the powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the Stockholders. Section 3.02. Number, Qualification and Term of Office. (a) The number of directors shall be fixed from time to time exclusively pursuant to resolution adopted by a majority of the Whole Board, but shall consist of not less than three nor more than 15 directors, subject, however, to increases above 15 members as may be required by the Certificate of Incorporation in order to permit the holders of any series of preferred stock of the Corporation to elect directors under specified circumstances. In no event shall the number of directors be less, at any time, than the minimum number then required by the Voting Agreement. (b) The directors need not be Stockholders nor residents of the State of Delaware. Each director must have attained 21 years of age. (c) Except as otherwise provided in the Voting Agreement and in Section 3.06, directors shall be elected only at annual meetings of Stockholders and at any special meeting of Stockholders where to the business to be transacted at such special meeting, as set forth in the official notice of such meeting, includes the election of directors. Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Whole Board shall have the effect of shortening the term of any incumbent director. Section 3.03. Nominations. (a) Notwithstanding anything in these Bylaws to the contrary, except as otherwise provided in the Voting Agreement, only persons who are nominated in accordance with the procedures hereinafter set forth in this Section 3.03 shall be eligible for election as directors of the Corporation. (b) Except as otherwise provided in the Voting Agreement, nominations of persons for election to the Board of Directors at a meeting of Stockholders may be made only (i) by or at the direction of the Board of Directors or (ii) by any Stockholder entitled to vote for the election of directors at the meeting who satisfies the eligibility requirements (if any) set forth in the Certificate of Incorporation and who complies with the notice procedures set forth in this Section 3.03 and in the Certificate of Incorporation; provided, however, Stockholders may not nominate persons for election to the Board of Directors at any special meeting of Stockholders -9- unless the business to be transacted at such special meeting, as set forth in the official notice of such meeting, includes the election of directors. Except as otherwise provided in the Voting Agreement, nominations by Stockholders shall be made pursuant to timely notice in writing to the Secretary. A Stockholder's notice given in the context of an annual meeting of Stockholders shall not be timely unless it is delivered to the Secretary at the principal executive office of the Corporation not earlier than the 150th day and not later than the 120th day prior to the first anniversary of the previous year's annual meeting of Stockholders; provided, however, that if no annual meeting was held in the previous year or the date of the annual meeting of Stockholders has been changed by more than 30 calendar days from such anniversary date, the notice must be so delivered to the Secretary not earlier than the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which Public Announcement of the date of such annual meeting is first made. A Stockholder's notice given in the context of a special meeting of Stockholders shall not be timely unless it is delivered to the Secretary at the principal executive office of the Corporation not earlier than the 150th day prior to such special meeting and not later than the close of business on the later of the 120th day prior to such special meeting or the 10th day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such special meeting. Any meeting of Stockholders which is adjourned and will reconvene within 30 days after the meeting date as originally noticed shall, for purposes of any notice contemplated by this paragraph (b), be deemed to be a continuation of the original meeting and no nominations by a Stockholder of persons to be elected directors of the Corporation may be made at any such reconvened meeting other than pursuant to a notice that was timely for the meeting on the date originally noticed. (c) Each notice given by a Stockholder as contemplated by paragraph (b) above shall set forth the following information, in addition to any other information or matters required by the Certificate of Incorporation: (i) as to each person whom the Stockholder proposes to nominate for election or re-election as a director, (A) the exact name of such person, (B) such person's age, principal occupation, business address and telephone number and residence address and telephone number, (C) the number of shares (if any) of each class of stock of the Corporation owned directly or indirectly by such person and (D) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act or any successor regulation thereto (including such person's notarized written acceptance of such nomination, consent to being named in the proxy statement as a nominee and statement of intention to serve as a director if elected); (ii) as to the Stockholder giving the notice, (A) his name and address, as they appear on the Corporation's books, (B) his principal occupation, business address and telephone number and residence address and telephone number, (C) the class and number of shares of the Corporation which are held of record or beneficially owned by him and (D) the dates -10- upon which he acquired such shares of stock and documentary support for any claims of beneficial ownership; and (iii) a description of all agreements, arrangements or understandings between the Stockholder giving the notice and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such Stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a Stockholder's notice of nomination which pertains to the nominee. (d) The foregoing right of a Stockholder to nominate a person for election or reelection to the Board of Directors shall be subject to such conditions, restrictions and limitations as may be imposed by the Certificate of Incorporation. (e) The chairman of a meeting of Stockholders shall have the power and duty to determine whether a nomination was made in accordance with the procedures set forth in this Section 3.03 and, if any nomination is not in compliance with this Section 3.03, to declare that such defective nomination shall be disregarded. (f) Nothing in this Section 3.03 shall be deemed to affect (i) any nomination rights conferred by the Voting Agreement or (ii) any rights of Stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 of the Exchange Act. Section 3.04. Resignations. Any director may resign at any time by giving written notice to the Board of Directors or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective. Section 3.05. Removal. No director may be removed except by the affirmative vote of the holders of not less than a majority of the voting power of all outstanding Voting Stock, voting together as a single class. The Board of Directors may not remove any director, and no recommendation by the Board of Directors that a director be removed may be made to the Stockholders unless such recommendation is set forth in a resolution adopted by the affirmative vote of not less than 66-2/3% of the Whole Board. Nothing in this Section 3.05 shall be deemed to affect any removal rights conferred by the Voting Agreement. Section 3.06. Vacancies. (a) In case any vacancy shall occur on the Board of Directors because of death, resignation or removal, such vacancy may be filled by a majority of the directors remaining in office (though less than a quorum), and the director so appointed shall serve until his successor is elected and qualified or until his earlier death, resignation or removal. If there are no directors then in office, an election of directors may be held in the manner provided by applicable law. -11- (b) Any newly-created directorship resulting from any increase in the number of directors constituting the Whole Board may be filled by a majority of the directors then in office (though less than a quorum). Each director so appointed shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. (c) Except as expressly provided in these Bylaws, the Certificate of Incorporation or the Voting Agreement or as otherwise provided by law, Stockholders shall not have any right to fill vacancies on the Board of Directors, including newly-created directorships. (d) If, as a result of a disaster or emergency (as determined in good faith by the then remaining directors), it becomes impossible to ascertain whether or not vacancies exist on the Board of Directors and a person is or persons are elected by the directors, who in good faith believe themselves to be a majority of the remaining directors, to fill a vacancy or vacancies that such remaining directors in good faith believe exists, then the acts of such person or persons who are so elected as directors shall be valid and binding upon the Corporation and the Stockholders, although it may subsequently develop that at the time of the election (i) there was in fact no vacancy or vacancies existing on the Board of Directors or (ii) the directors who so elected such person or persons did not in fact constitute a majority of the remaining directors. Section 3.07. Subject to Rights of Holders of Preferred Stock. Notwithstanding the foregoing provisions of this Article III, if the resolutions of the Board of Directors creating any series of preferred stock of the Corporation entitle the holders of such preferred stock, voting separately by series, to elect additional directors under specified circumstances, then all provisions of such resolutions relating to the nomination, election, term of office, removal, filling of vacancies and other features of such directorships shall, as to such directorships, govern and control over any conflicting provisions of this Article III. Section 3.08. Subject to Rights of Certain Stockholders under Voting Agreement. In case any provision of this Article III conflicts with the provisions of the Voting Agreement relating to the nomination, election, term of office, removal, filling of vacancies and other features of the Designees (as defined in the Voting Agreement), such provisions of the Voting Agreement shall govern and be controlling. Section 3.09. Compensation. The Board of Directors shall have the authority to fix, and from time to time to change, the compensation of directors. Each director shall be entitled to reimbursement from the Corporation for his reasonable expenses incurred in attending meetings of the Board of Directors (or any committee thereof) and meetings of the Stockholders. Nothing contained in these Bylaws shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. -12- ARTICLE IV Board of Directors -- Meetings and Actions ------------------------------------------ Section 4.01. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place (within or without the State of Delaware) as shall from time to time be determined by the Board of Directors. Except as otherwise provided by applicable law, any business may be transacted at any regular meeting of the Board of Directors. Section 4.02. Special Meetings. Special meetings of the Board of Directors shall be called by the Secretary at the request of the Chairman of the Board (if any) or the Chief Executive Officer on not less than 24 hours' notice to each director, specifying the time, place (within or without the State of Delaware) and purpose of the meeting. Special meetings shall be called by the Secretary on like notice at the written request of any two directors, which request shall state the purpose of the meeting. Section 4.03. Quorum; Voting. (a) At all meetings of the Board of Directors, a majority of the Whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time (without notice other than announcement at the meeting) until a quorum shall be present. A meeting of the Board of Directors at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors; provided, however, that no action of the remaining directors shall constitute the act of the Board of Directors unless the action is approved by at least a majority of the required quorum for the meeting or such greater number of directors as shall be required by applicable law, by the Certificate of Incorporation or by these Bylaws. (b) The act of a majority of the directors present at any meeting of the Board of Directors at which there is a quorum shall be the act of the Board of Directors unless by express provision of law, the Certificate of Incorporation or these Bylaws a different vote is required, in which case such express provision shall govern and control. Section 4.04. Conduct of Meetings; Presiding Officer and Secretary. (a) At meetings of the Board of Directors, business shall be transacted in such order as shall be determined by the chairman of the meeting unless the Board of Directors shall otherwise determine the order of business. The Board of Directors shall keep regular minutes of its proceedings which shall be placed in the minute book of the Corporation. (b) At each meeting of the Board of Directors, the Chairman of the Board shall preside and the Secretary shall act as secretary of the meeting. Section 4.05. Action without Meeting. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all directors consent thereto in -13- writing. All such written consents shall be filed with the minutes of proceedings of the Board of Directors. Section 4.06. Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. ARTICLE V Committees of the Board of Directors ------------------------------------ Section 5.01. Executive Committee. (a) The Board of Directors may, by resolution adopted by the affirmative vote of the Whole Board, designate an Executive Committee which, during the intervals between meetings of the Board of Directors and subject to Section 5.10, shall have and may exercise, in such manner as it shall deem to be in the best interests of the Corporation, all of the powers of the Board of Directors in the management or direction of the business and affairs of the Corporation, except as reserved to the Board of Directors or as delegated by the Board of Directors to another committee of the Board of Directors or as may be prohibited by law. The Executive Committee shall consist of not less than two directors, the exact number to be determined from time to time by the affirmative vote of the Whole Board. None of the members of the Executive Committee need be an officer of the Corporation. (b) Meetings of the Executive Committee may be called at any time by the Chairman of the Board (if any) or the Chief Executive Officer on not less than one day's notice to each member given verbally or in writing, which notice shall specify the time, place (within or without the State of Delaware) and purpose of the meeting. Section 5.02. Other Committees. The Board of Directors may, by resolution adopted by a majority of the Whole Board, establish additional standing or special committees of the Board of Directors, each of which shall consist of one or more directors (the exact number to be determined from time to time by the Board of Directors) and, subject to Section 5.10, shall have such powers and functions as may be delegated to it by the Board of Directors. No member of any such additional committee need be an officer of the Corporation. Section 5.03. Term. Each member of a committee of the Board of Directors shall serve as such until the earliest of (i) his death, (ii) the expiration of his term as a director, (iii) his resignation as a member of such committee or as a director and (iv) his removal as a member of such committee or as a director. Section 5.04. Committee Changes; Removal. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of and to abolish any committee -14- of the Board of Directors; provided, however, that no such action shall be taken in respect of the Executive Committee unless approved by a majority of the Whole Board. Section 5.05. Alternate Members. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If no alternate members have been so appointed or each such alternate committee member is absent or disqualified, the committee member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Section 5.06. Rules and Procedures. (a) The Board of Directors may designate one member of each committee as chairman of such committee; provided, however, that, except as provided in the following sentence, no person shall be designated as chairman of the Executive Committee unless approved by a majority of the Whole Board. If the Board of Directors fails to designate a chairman for any committee, the members thereof shall designate a chairman. (b) Each committee shall adopt its own rules (not inconsistent with the Certificate of Incorporation or these Bylaws or, with any specific direction as to the conduct of its affairs, as shall have been given by the Board of Directors) governing the time, place and method of holding its meetings and the conduct of its proceedings and shall meet as provided by such rules. (c) If a committee is comprised of an odd number of members, a quorum shall consist of a majority of that number. If a committee is comprised of an even number of members, a quorum shall consist of one-half of that number. If a committee is comprised of two members, a quorum shall consist of both members. (d) Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when requested. (e) Unless otherwise provided by these Bylaws or by the rules adopted by any committee, notice of the time and place of each meeting of such committee shall be given to each member of such committee as provided in these Bylaws with respect to notices of special meetings of the Board of Directors. Section 5.07. Action without Meeting. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting if all members of such committee consent thereto in writing. All such written consents shall be filed with the minutes of proceedings of such committee. Section 5.08. Telephonic Meetings. Members of any committee of the Board of Directors may participate in a meeting of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting -15- can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 5.09. Resignations. Any committee member may resign at any time by giving written notice to the Board of Directors or the Secretary. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein. Acceptance of such resignation shall not be necessary to make it effective. Section 5.10. Limitations on Authority. Unless otherwise provided in the Certificate of Incorporation, no committee of the Board of Directors shall have the power or authority to (i) authorize an amendment to the Certificate of Incorporation, (ii) adopt an agreement of merger or consolidation, recommend to the Stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iii) recommend to the Stockholders a dissolution of the Corporation or a revocation of a dissolution, (iv) amend these Bylaws, (v) declare a dividend or other distribution on, or authorize the issuance, purchase or redemption of, securities of the Corporation, (vi) elect any officer of the Corporation or (vii) approve any material transaction between the Corporation and one or more of its directors, officers or employees or between the Corporation and any corporation, partnership, association or other organization in which one or more of its directors, officers or employees are directors or officers or have a financial interest; provided, however, that the Executive Committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of preferred stock adopted by the Board of Directors as provided in the Certificate of Incorporation, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the decrease or increase of the shares of any such series. For purposes of the foregoing clause (vii), a transaction shall be deemed material if it involves consideration or other obligation in excess of $1,000,000. ARTICLE VI Officers -------- Section 6.01. Number; Titles; Qualification; Term of Office. (a) The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary and a Treasurer. The Board of Directors from time to time may also elect such other officers (including, without limitation, a Chairman of the Board and one or more Vice Presidents) as the Board of Directors deems appropriate or necessary. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his earlier death, resignation or removal. Any two or more offices may be held by the same person, but no officer shall execute any instrument in more than one capacity if such instrument is required by law or any act of the Corporation to be executed or countersigned by two or more officers. None of the officers need be a Stockholder -16- or a resident of the State of Delaware. No officer (other than the Chairman of the Board, if any) need be a director. (b) The Board of Directors may, by resolution adopted by the affirmative vote of a majority of the Whole Board, designate a director as Vice Chairman of the Board and fix his duties as such. However, no such Vice Chairman of the Board shall be considered an officer of the Corporation, the officers of the Corporation being limited to those officers elected by the Board of Directors in accordance with paragraph (a) above. The designation of any director as Vice Chairman of the Board may be rescinded by a majority of the Whole Board at any time, in which event such person shall automatically cease to be Vice Chairman of the Board. (c) The Board of Directors may delegate to the Chairman of the Board (if any) and/or the Chief Executive Officer the power to appoint one or more employees of the Corporation as divisional or departmental vice presidents and fix their duties as such appointees. However, no such divisional or departmental vice presidents shall be considered an officer of the Corporation, the officers of the Corporation being limited to those officers elected by the Board of Directors in accordance with paragraph (a) above. Section 6.02. Election. At the first meeting of the Board of Directors after each annual meeting of Stockholders at which a quorum shall be present, the Board of Directors shall elect the officers of the Corporation. Section 6.03 Removal. Any officer may be removed, either with or without cause, by the Board of Directors; provided, however, that (i) the Chairman of the Board (if any) and the Chief Executive Officer may be removed only by the affirmative vote of a majority of the Whole Board and (ii) the removal of any officer shall be without prejudice to the contract rights, if any, of such officer. Election or appointment of an officer shall not of itself create contract rights. Section 6.04. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board (if any) or the Chief Executive Officer. Any such resignation shall take effect on receipt of such notice or at any later time specified therein. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any such resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Section 6.05. Vacancies. If a vacancy shall occur in any office because of death, resignation, removal, disqualification or any other cause, the Board of Directors may elect or appoint a successor to fill such vacancy for the remainder of the term. Section 6.06. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors or pursuant to its direction, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. -17- Section 6.07. Chairman of the Board. The Chairman of the Board (if any) shall (i) act in a general executive capacity for the purpose of suggesting strategic actions and plans with respect to the business of the Corporation and its subsidiaries and for the purpose of assisting the Chief Executive Officer in the administration and operation of the Corporation's business and the general supervision of its policies and affairs and (ii) have and perform such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. The Chairman of the Board, if present, shall preside at all meetings of the Board of Directors and of the Stockholders. The Chairman of the Board shall have the power to sign all certificates, contracts and other instruments of the Corporation which may be authorized by the Board of Directors. During the time of any vacancy in the office of Chief Executive Officer or in the event of the absence or disability of the Chief Executive Officer, the Chairman of the Board shall have the duties and powers of the Chief Executive Officer unless otherwise determined by the Board of Directors. In no event shall any third party having dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.07 for the exercise by the Chairman of the Board of the powers of the Chief Executive Officer. Section 6.08. Chief Executive Officer. (a) The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the supervision, direction and control of the Board of Directors, shall have general supervision, direction and control of the business and officers of the Corporation with all such powers as may be reasonably incident to such responsibilities. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. (b) During the time of any vacancy in the office of Chairman of the Board or in the event of the absence or disability of the Chairman of the Board, the Chief Executive Officer shall have the duties and powers of the Chairman of the Board unless otherwise determined by the Board of Directors. During the time of any vacancy in the office of President or in the event of the absence or disability of the President, the Chief Executive Officer shall have the duties and powers of the President unless otherwise determined by the Board of Directors. In no event shall any third party having any dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.08 for the exercise by the Chief Executive Officer of the powers the Chairman of the Board or the President. Section 6.09. President. (a) The President shall be the chief operating officer of the Corporation and, subject to the supervision, direction and control of the Chief Executive Officer and the Board of Directors, shall manage the day-to-day operations of the Corporation. He shall have the general powers and duties of management usually vested in the chief operating officer of a corporation and such other powers and duties as may be assigned to him by the Board of Directors, the Chief Executive Officer or these Bylaws. (b) During the time of any vacancy in the offices of the Chairman of the Board and Chief Executive Officer or in the event of the absence or disability of the Chairman of the Board and the Chief Executive Officer, the President shall have the duties and powers of the Chief -18- Executive Officer unless otherwise determined by the Board of Directors. In no event shall any third party having any dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.09 for the exercise by the President of the powers the Chief Executive Officer. Section 6.10. Vice Presidents. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the President, shall perform all the duties of the President as chief operating officer of the Corporation, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President as chief operating officer of the Corporation. In no event shall any third party having dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.10 for the exercise by any Vice President of the powers of the President as chief operating officer of the Corporation. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer or the President. Section 6.11. Treasurer. The Treasurer shall (i) have custody of the Corporation's funds and securities, (ii) keep full and accurate account of receipts and disbursements, (iii) deposit all monies and valuable effects in the name and to the credit of the Corporation in such depository or depositories as may be designated by the Board of Directors and (iv) perform such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer. Section 6.12. Assistant Treasurers. Each Assistant Treasurer shall have such powers and duties as may be assigned to him by the Board of Directors, the Chief Executive Officer or the President. In case of the absence or disability of the Treasurer, the Assistant Treasurer designated by the President (or, in the absence of such designation, the Treasurer) shall perform the duties and exercise the powers of the Treasurer during the period of such absence or disability. In no event shall any third party having dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.12 for the exercise by any Assistant Treasurer of the powers of the Treasurer under these Bylaws. Section 6.13. Secretary. (a) The Secretary shall keep or cause to be kept, at the principal office of the Corporation or such other place as the Board of Directors may order, a book of minutes of all meetings and actions of the Board of Directors, committees of the Board of Directors and Stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at meetings of the Board of Directors and committees thereof, the number of shares present or represented at Stockholders' meetings and the proceedings thereof. (b) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation or at the office of the Corporation's transfer agent or registrar, a share register, or a duplicate share register, showing the names of all Stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. -19- (c) The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and of the Board of Directors required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board (if any), the Chief Executive Officer, the President or these Bylaws. (d) The Secretary may affix the seal of the Corporation, if one be adopted, to contracts of the Corporation. Section 6.14. Assistant Secretaries. Each Assistant Secretary shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board (if any), the Chief Executive Officer or the President. In case of the absence or disability of the Secretary, the Assistant Secretary designated by the President (or, in the absence of such designation, the Secretary) shall perform the duties and exercise the powers of the Secretary during the period of such absence or disability. In no event shall any third party having dealings with the Corporation be bound to inquire as to any facts required by the terms of this Section 6.14 for the exercise by any Assistant Secretary of the powers of the Secretary under these Bylaws. ARTICLE VII Stock ----- Section 7.01. Certificates. Certificates for shares of stock of the Corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed (i) by the Chairman of the Board (if any), the President or a Vice President and (ii) by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. Section 7.02. Signatures on Certificates. Any or all of the signatures on the certificates may be a facsimile and the seal of the Corporation (or a facsimile thereof), if one has been adopted, may be affixed thereto. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 7.03. Legends. The Board of Directors shall have the power and authority to provide that certificates representing shares of stock of the Corporation bear such legends and statements (including, without limitation, statements relating to the powers, designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the shares represented by such certificates) as the Board of Directors deems appropriate in connection with the requirements of federal or state securities laws or other applicable laws. -20- Section 7.04. Lost, Stolen or Destroyed Certificates. The Board of Directors, the Secretary and the Treasurer each may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, in each case upon the making of an affidavit of that fact by the owner of such certificate, or his legal representative. When authorizing such issue of a new certificate or certificates, the Board of Directors, the Secretary or the Treasurer, as the case may be, may, in its or his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as the Board of Directors, the Secretary or the Treasurer, as the case may be, shall require and/or to furnish the Corporation a bond in such form and substance and with such surety as the Board of Directors, the Secretary or the Treasurer, as the case may be, may direct as indemnity against any claim, or expense resulting from any claim, that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 7.05. Transfers of Shares. Shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives. Upon surrender to the Corporation, or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation or its transfer agent shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon the Corporation's books. Section 7.06. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share of stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as expressly provided by the laws of the State of Delaware. Section 7.07. Regulations. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of stock of the Corporation. The Board of Directors may (i) appoint and remove transfer agents and registrars of transfers and (ii) require all stock certificates to bear the signature of any such transfer agent and/or any such registrar of transfers. Section 7.08. Stock Options, Warrants, etc. Unless otherwise expressly prohibited in the resolutions of the Board of Directors creating any class or series of preferred stock of the Corporation, the Board of Directors shall have the power and authority to create and issue (whether or not in connection with the issue and sale of any stock or other securities of the Corporation) warrants, rights or options entitling the holders thereof to purchase from the Corporation any shares of capital stock of the Corporation of any class or series or any other securities of the Corporation for such consideration and to such persons, firms or corporations as the Board of Directors, in its sole discretion, may determine, setting aside from the authorized -21- but unissued stock of the Corporation the requisite number of shares for issuance upon the exercise of such warrants, rights or options. Such warrants, rights and options shall be evidenced by one or more instruments approved by the Board of Directors. The Board of Directors shall be empowered to set the exercise price, duration, time for exercise and other terms of such warrants, rights and operations; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof. ARTICLE VIII Indemnification --------------- Section 8.01. Third Party Actions. The Corporation (i) shall, to the maximum extent permitted from time to time under the laws of the State of Delaware, indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation or any of its direct or indirect subsidiaries as a director, officer or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (ii) may, to the maximum extent permitted from time to time under the laws of the State of Delaware, indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was an employee or agent of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation or any of its direct or indirect subsidiaries as an employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including counsel fees), judgments, fines and amounts paid or owed in settlement actually and reasonably incurred by such person or rendered or levied against such person in connection with such action, suit or proceeding; provided, however, that no indemnification shall be made to any person under this Section 8.01 unless such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, in itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his conduct was unlawful. Any person seeking indemnification under this Section 8.1 shall be deemed to have met the standard of conduct required for such indemnification unless the contrary is established. Section 8.02. Actions By or in the Right of the Corporation. The Corporation (i) shall, to the maximum extent permitted from time to time under the laws of the State of -22- Delaware, indemnify every person who is or was a party or who is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation or any of its direct or indirect subsidiaries as a director, officer or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (ii) may, to the maximum extent permitted from time to time under the laws of the State of Delaware, indemnify every person who is or was a party or who is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was an employee or agent of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation or any of its direct or indirect subsidiaries as an employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including counsel fees) actually and reasonably incurred by such person in connection with the defense or settlement or such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made to any person under this Section 8.02 with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification. Section 8.03 Certain Limitations. Unless otherwise determined by the affirmative vote of a majority of the Whole Board, no indemnification shall be made to any person under Section 8.01 or 8.02: (i) for amounts actually paid to such person pursuant to one or more policies of directors and officers liability insurance maintained by the Corporation or pursuant to a trust fund, letter of credit or other security or funding arrangement provided by the Corporation; provided, however, that if it should subsequently be determined that such person is not entitled to retain any such amount, this clause (i) shall no longer apply to such amount; (ii) in respect of remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that payment of such remuneration was in violation of applicable law; (iii) on account of such person's conduct which is finally adjudged to constitute willful misconduct or to have been knowingly fraudulent, deliberately dishonest or from which such person derives an improper personal benefit; or (iv) on account of any suit in which final judgment is rendered against such person for an accounting of profits made from the sale or purchase by such person of securities of the Corporation pursuant to the provisions of Section 16(b) of the Exchange Act. -23- Section 8.04. Expenses. Expenses, including counsel fees and court costs, actually and reasonably incurred by a director or officer of the Corporation or any of its direct or indirect subsidiaries in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses incurred by other employees and agents of the Corporation and other persons eligible for indemnification under this Article VIII may be paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 8.05. Non-exclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any provision of law, the Certificate of Incorporation, the certificate of incorporation or bylaws or other governing documents of any direct or indirect subsidiary of the Corporation, under any agreement, vote of stockholders or disinterested directors or under any policy or policies of insurance maintained by the Corporation on behalf of any person or otherwise, both as to action in his official capacity and as to action in another capacity while holding any of the positions or having any of the relationships referred to in this Article VIII. Section 8.06. Enforceability. The provisions of this Article VIII (i) are for the benefit of, and may be enforced directly by, each director or officer of the Corporation the same as if set forth in their entirety in a written instrument executed and delivered by the Corporation and such director or officer and (ii) constitute a continuing offer to all present and future directors and officers of the Corporation. The Corporation, by its adoption of these Bylaws, (A) acknowledges and agrees that each present and future director and officer of the Corporation has relied upon and will continue to rely upon the provisions of this Article VIII in becoming, and serving as, a director or officer of the Corporation or, if requested by the Corporation, a director, officer or fiduciary or the like of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, (B) waives reliance upon, and all notices of acceptance of, such provisions by such directors and officers and (C) acknowledges and agrees that no present or future director or officer of the Corporation shall be prejudiced in his right to enforce directly the provisions of this Article VIII in accordance with their terms by any act or failure to act on the part of the Corporation. Section 8.07. Survival. The provisions of this Article VIII shall continue as to any person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, executors, administrators, heirs, legatees and devisees of any person entitled to indemnification under this Article VIII. Section 8.08. Amendment. No amendment, modification or repeal of this Article VIII or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future director or officer of the Corporation to be indemnified by the Corporation, nor the obligation of the Corporation to indemnify any such director or officer, under and in -24- accordance with the provisions of this Article VIII as in effect immediately prior to such amendment, modification or repeal with respect to claims arising, in whole or in part, from a state of facts extant on the date of, or relating to matters occurring prior to, such amendment, modification or repeal, regardless of when such claims may arise or be asserted. Section 8.09. Definitions. For purposes of this Article VIII, (i) reference to any person shall include the estate, executors, administrators, heirs, legatees and devisees of such person, (ii) "employee benefit plan" and "fiduciary" shall be deemed to include, but not be limited to, the meaning set forth, respectively, in sections 3(3) and 21(A) of the Employee Retirement Income Security Act of 1974, as amended, (iii) references to the judgments, fines and amounts paid or owed in settlement or rendered or levied shall be deemed to encompass and include excise taxes required to be paid pursuant to applicable law in respect of any transaction involving an employee benefit plan and (iv) references to the Corporation shall be deemed to include any predecessor corporation or entity and any constituent corporation or entity absorbed in a merger, consolidation or other reorganization of or by the Corporation which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents and fiduciaries so that any person who was a director, officer, employee, agent or fiduciary of such predecessor or constituent corporation or entity, or served at the request of such predecessor or constituent corporation or entity as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the Corporation as such person would have with respect to such predecessor or constituent corporation or entity if its separate existence had continued. ARTICLE IX Notices and Waivers ------------------- Section 9.01. Methods of Giving Notices. Whenever, by applicable law, the Certificate of Incorporation or these Bylaws, notice is required to be given to any Stockholder, any director or any member of a committee of the Board of Directors and no provision is made as to how such notice shall be given, personal notice shall not be required and such notice may be given (i) in writing, by mail, postage prepaid, addressed to such Stockholder, director or committee member at his address as it appears on the books or (in the case of a Stockholder) the stock transfer records of the Corporation or (ii) by any other method permitted by law (including, but not limited to, overnight courier service, telegram, telex or telecopier). Any notice required or permitted to be given by mail shall be deemed to be delivered and given at the time when the same is deposited in the United States mail as aforesaid. Any notice required or permitted to be given by overnight courier service shall be deemed to be delivered and given one business day after delivery to such service with all charges prepaid and addressed as aforesaid. Any notice required or permitted to be given by telegram, telex or telecopy shall be deemed to be delivered and given at the time transmitted with all charges prepaid and addressed as aforesaid. -25- Section 9.02. Waiver of Notice. Whenever any notice is required to be given to any Stockholder, director or member of a committee of the Board of Directors by applicable law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Attendance of a Stockholder (whether in person or by proxy), director or committee member at a meeting shall constitute a waiver of notice of such meeting, except where such person attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE X Miscellaneous Provisions ------------------------ Section 10.01. Dividends. Subject to applicable law and the provisions of the Certificate of Incorporation, dividends may be declared by the Board of Directors at any meeting and may be paid in cash, in property or in shares of the Corporation's capital stock. Any such declaration shall be at the discretion of the Board of Directors. A director shall be fully protected in relying in good faith upon the books of account of the Corporation or statements prepared by any of its officers as to the value and amount of the assets, liabilities or net profits of the Corporation or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared. Section 10.02. Reserves. There may be created by the Board of Directors, out of funds of the Corporation legally available therefor, such reserve or reserves as the Board of Directors from time to time, in its absolute discretion, considers proper to provide for contingencies, to equalize dividends or to repair or maintain any property of the Corporation, or for such other purpose as the Board of Directors shall consider beneficial to the Corporation, and the Board of Directors may thereafter modify or abolish any such reserve in its absolute discretion. Section 10.03. Checks. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation shall be signed by such officer or officers or by such employees or agents of the Corporation as may be designated from time to time by the Board of Directors. Section 10.04. Corporate Contracts and Instruments. Subject always to the specific directions of the Board of Directors, the Chairman of the Board (if any), the Chief Executive Officer, the President, any Vice President, the Secretary or the Treasurer may enter into contracts and execute instruments in the name and on behalf of the Corporation. The Board of Directors and, subject to the specific directions of the Board of Directors, the Chairman of the Board (if any), the Chief Executive Officer or the President may authorize one or more officers, employees or agents of the Corporation to enter into any contract or execute any instrument in the name of -26- and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 10.05. Limitation of Access of Stockholders to Books and Records. Subject to applicable law, the Board of Directors is expressly authorized and empowered to determine from time to time whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to inspection of Stockholders. Except as so determined or as expressly provided in the Certificate of Incorporation, no Stockholder shall have any right to inspect any account, book or document of the Corporation other than such rights as may be conferred by applicable law. Section 10.06. Attestation. With respect to any deed, deed of trust, mortgage or other instrument executed by the Corporation through its duly authorized officer or officers, the attestation to such execution by the Secretary or an Assistant Secretary of the Corporation shall not be necessary to constitute such deed, deed of trust, mortgage or other instrument a valid and binding obligation of the Corporation unless the resolutions, if any, of the Board of Directors authorizing such execution expressly state that such attestation is necessary. Section 10.07. Fiscal Year. The fiscal year of the Corporation shall be October 1 through September 30, unless otherwise fixed by the Board of Directors. Section 10.08. Seal. The seal of the Corporation shall be such as from time to time may be approved by the Board of Directors. Section 10.09. Invalid Provisions. If any part of these Bylaws shall be invalid or inoperative for any reason, the remaining parts, so far as is possible and reasonable, shall remain valid and operative. Section 10.10. Headings. The headings used in these Bylaws have been inserted for administrative convenience only and shall not limit or otherwise affect any of the provisions of these Bylaws. Section 10.11. References/Gender/Number. Whenever in these Bylaws the singular number is used, the same shall include the plural where appropriate. Words of any gender used in these Bylaws shall include the other gender where appropriate. In these Bylaws, unless a contrary intention appears, all references to Articles and Sections shall be deemed to be references to the Articles and Sections of these Bylaws. Section 10.12. Amendments. These Bylaws may be altered, amended or repealed or new bylaws may be adopted by the affirmative vote of a majority of the Whole Board; provided, however, that no such action shall be taken at any special meeting of the Board of Directors unless notice of such action is contained in the notice of such special meeting; and, provided further, that Section 5.01 may not be altered or amended except by the affirmative vote of the Whole Board. These Bylaws may not be altered, amended or rescinded, nor may new bylaws -27- be adopted, by the Stockholders except by the affirmative vote of the holders of not less than 66-2/3% of the voting power of all outstanding Voting Stock, voting together as a single class. Each alteration, amendment or repeal of these Bylaws shall be subject in all respects to Section 8.07. -28- EX-10.3C 5 EXHIBIT 10.3C EXHIBIT 10.3(C) STERLING CHEMICALS, INC. AMENDED AND RESTATED HOURLY PAID EMPLOYEES' PENSION PLAN (Effective as of May 1, 1996) TABLE OF CONTENTS Page Section 1 Introduction..........................2 1.1 Purpose....................................................2 1.2 Plan Administration........................................2 1.3 Fund Management, Trust Agreement...........................2 1.4 Effective Date.............................................2 1.5 Plan Year..................................................2 1.6 Employers..................................................2 1.7 Use of Terms...............................................3 Section 2 Eligibility for Participation and Vesting..........4 2.1 Participation..............................................4 2.2 Vesting....................................................4 Section 3 Retirement Dates, Employment Termination Date........5 3.1 Normal Retirement Date.....................................5 3.2 Late Retirement Date.......................................5 3.3 Early Retirement Date......................................5 3.4 Disability Termination Date................................5 3.5 Retirement Date............................................5 3.6 Employment Termination Date................................5 3.7 Employment with Subsidiaries Not Participating in Plan.....5 Section 4 Normal, Early, and Late Retirement Benefits.........6 4.1 Normal Retirement..........................................6 4.2 Regular Benefits - Normal Retirement.......................6 4.3 Early Retirement - Deferred Payment........................6 4.4 Early Retirement - Early Payment...........................6 4.5 Late Retirement............................................6 4.6 Participants with Prior Monsanto Company Service...........6 4.7 Section 401(a)(17) Participants............................7 i Section 5 Disability Provisions....................9 5.1 Disability Provisions Effective Date.......................9 5.2 Long-Term Disability.......................................9 5.3 Retirement Options While on Long-Term Disability...........9 Section 6 Termination Before Retirement...............10 6.1 Vested Termination - Deferred Payment.....................10 6.2 Vested Termination - Early Payment........................10 6.3 Termination Prior to Vesting..............................10 Section 7 Death Benefits.......................11 7.1 Death During Employment...................................11 7.2 Death After Termination of Employment.....................11 Section 8 Benefit Limitations and Top-Heavy Rules..........12 8.1 Single Defined Benefit Plan...............................12 8.2 Two or More Defined Benefit Plans.........................14 8.3 Defined Contribution Plan and Defined Benefit Plan........14 8.4 Definitions...............................................16 8.5 Top-Heavy Rules...........................................18 Section 9 Payment of Retirement Income and Other Benefits.....................26 9.1 Normal Form of Benefits Payment...........................26 9.2 Optional Forms of Monthly Benefits........................27 9.3 Election and Discontinuance of Options....................28 9.4 Spouse's Retirement Income Benefit........................30 9.5 Surviving Spouse Benefit..................................32 9.6 Special Payment Limitations...............................34 9.7 Payment of Small Amounts..................................35 9.8 Designation of Beneficiaries..............................36 9.9 Salaried Employees Transferred to Hourly Basis............36 9.10 Payment of Distribution Directly to Eligible Retirement Plan......................................................37 9.11 Definitions...............................................37 ii Section 10 Reemployment.........................39 10.1 Reinstatement of Participation............................39 10.2 Determination of Benefits.................................39 Section 11 Employer Contributions...................40 11.1 Employer Contributions....................................40 11.2 Application of Forfeitures................................40 Section 12 The Plan Committee.....................41 12.1 Membership................................................41 12.2 Plan Committee's General Powers, Rights and Duties........41 12.3 Manner of Action..........................................41 12.4 Information Required by Plan Committee....................42 12.5 Plan Committee Decision Final.............................42 12.6 Review of Benefit Determinations..........................42 12.7 Uniform Rules.............................................42 12.8 Payment of Expenses.......................................42 Section 13 Relating to the Employers.................44 13.1 Action by Employers.......................................44 13.2 Additional Employers......................................44 13.3 Restrictions as to Reversion of Trust Assets to Employers.44 Section 14 General Provisions.....................45 14.1 Notices...................................................45 14.2 Waiver of Notice..........................................45 14.3 Absence of Guaranty.......................................45 14.4 Employment Rights.........................................45 14.5 Interests Not Transferable................................45 14.6 Facility of Payment.......................................45 14.7 Gender and Number.........................................46 14.8 Evidence..................................................46 14.9 Controlling State Law.....................................46 14.10 Severability..............................................46 iii Section 15 Amendment, Termination or Plan Merger............47 15.1 Amendment.................................................47 15.2 Approvals for Establishment of Plan.......................47 15.3 Internal Revenue Service Approval.........................47 15.4 Termination...............................................48 15.5 Plan Merger or Consolidation..............................48 15.6 Notice of Amendment, Termination or Plan Merger...........48 15.7 Nonforfeitability on "Termination" or "Partial Termination".............................................48 Section 16 Allocation and Distribution on Termination.........49 Section 17 Definitions........................51 17.1 Vesting Service...........................................51 17.2 Benefit Service...........................................54 17.3 Benefit Service...........................................54 17.4 Hours of Service..........................................57 17.5 Break In Service..........................................59 17.6 Standard Work Week........................................59 17.7 Layoff....................................................59 17.8 Retirement Income Factor..................................59 17.9 Subsidiary................................................59 17.10 Subsidiary................................................59 17.11 Qualified Actuary.........................................59 17.12 Actuarial Equivalent......................................59 17.13 Code......................................................60 17.14 Final Average Pay.........................................60 17.15 ERISA.....................................................62 EXHIBIT "A" Retirement Income Factor iv STERLING CHEMICALS, INC. AMENDED AND RESTATED HOURLY PAID EMPLOYEES' PENSION PLAN (Effective as of May 1, 1996) W I T N E S S E T H: - - - - - - - - - - WHEREAS, effective August 1, 1986 Sterling Chemicals, Inc. (the "Corporation") established the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (the "Plan") in recognition of the contribution the employees have made to the operation of the Corporation; WHEREAS, effective January 1, 1991, the Corporation amended the Plan to incorporate amendments required by the Tax Reform Act of 1986, to make certain additional changes required by subsequent legislation and Regulations, and to make other changes desired by the Corporation; WHEREAS, effective October 1, 1993 the Corporation amended and restated the Plan to make certain changes desired by the Corporation; WHEREAS, in Section 15.1 of the Plan, the Corporation reserved the right to amend the Plan at any time. NOW, THEREFORE, effective May 1, 1996, the Corporation hereby amends the Plan to incorporate certain changes desired by the Corporation, which Plan shall read as follows: STERLING CHEMICALS, INC. AMENDED AND RESTATED HOURLY PAID EMPLOYEES' PENSION PLAN (Effective as of May 1, 1996) Section 1 --------- Introduction ------------ 1.1 Purpose. The Plan is maintained by the Corporation to provide retirement benefits for eligible employees of the Corporation and of its subsidiaries which adopt the Plan. 1.2 Plan Administration. The Plan is administered by a committee known as the Employee Benefits Plans Committee (the "Plan Committee" or "Committee") appointed by the Corporation. The Plan Committee shall constitute the Named Fiduciary under the Plan for the purpose of administering and managing the Plan. 1.3 Fund Management, Trust Agreement. The Plan Committee is appointed by and derives its authority from the Corporation, and shall constitute the Named Fiduciary under the Plan with the power and authority on its own behalf or through its agents to manage and control the assets of the Trust Fund including, in addition to the powers and authority specifically granted to the Committee by the Trust Agreement, all powers and all authority necessary or appropriate to the discharge of its duties as such Named Fiduciary. The funds contributed under the Plan are held and invested by one or more corporate trustees (the "Trustee") appointed by the Committee or by such Trustee selected by the Committee. The Trustee acts in accordance with one or more trust agreements (the "Trust Agreement") which may, but need not, provide for the appointment of investment managers to make investments of the Trust Fund, and which implement and form a part of this Plan. As of the date the "Trust Fund" means the total assets of any kind including Qualifying Employer Securities, but only to the extent that immediately after such investment or reinvestment, the aggregate fair market value of all such Qualifying Securities held under this Plan does not exceed 10% of the total assets of the combined Trust Fund held by the Trustee. Copies of the Plan and the Trust Agreement are on file at the principal office of the Corporation where they may be examined by any participant. Notwithstanding the foregoing, certain powers and authority otherwise exercised by the Plan Committee in accordance with this Section and in accordance with Section 12 shall be exercised by a Pension Board as may be provided in the collective bargaining agreement between the Corporation and the representatives of the participants. 1.4 Effective Date. The "Effective Date" of the Plan is August 1, 1986. 1.5 Plan Year. The Plan is administered on the basis of a plan year (the "Plan Year") which coincides with the Corporation Fiscal Year, except for the first Plan Year which commenced on August 1. 1.6 Employers. With approval of the Corporation, any subsidiary of the Corporation may adopt this Plan in accordance with the provisions of Section 13.2. The Corporation and its 2 subsidiaries which adopt the Plan are referred to below collectively as the "Employers" and individually as an "Employer". 1.7 Use of Terms. Certain terms, as used in this Plan, are defined in Section 17 or elsewhere in this Plan and when so used shall have the meanings so assigned to them. 3 Section 2 --------- Eligibility for Participation and Vesting ----------------------------------------- 2.1 Participation. Each employee of an Employer on the Effective Date who was a participant of the Monsanto Company Hourly Paid Employees' Pension Plan and was employed by the Monsanto Company ("Prior Employer") immediately prior to the Effective Date shall be immediately eligible to participate in the Plan. Upon meeting the above participation requirements, such employee shall be considered a Prior Employer Participant. Thereafter each employee of an Employer will become a participant in the Plan on any date as of which he becomes a member of a group of employees to which the Plan has been and continues to be extended by his Employer or by agreement. For all purposes of this Plan, Leased Employees (as defined in Section 414(n)(2) of the Code) shall not be considered employees of the Corporation or the Employers. 2.2 Vesting. A participant shall be fully vested and have a Vested Percentage of 100% in this Plan on his Normal Retirement Date or on any date as of which he has completed at least five years of Vesting Service with the Employers and the Subsidiaries as defined in Section 17.1. The computation of a participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Section. In the event that the Plan is amended to change or modify any vesting schedule, a participant with a least three (3) Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a participant fails to make such election, then such participant shall be subject to the new vesting schedule. The participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (a) the adoption date of the amendment, (b) the effective date of the amendment, or (c) the date the participant receives written notice of the amendment from the Employer or Plan Committee. 4 Section 3 --------- Retirement Dates, Employment Termination Date --------------------------------------------- 3.1 Normal Retirement Date. A participant's "Normal Retirement Date" will be the first day of the month next following the later of the month in which he attains age 65 years or the month in which he attains 5 years of Vesting Service. A participant's "Normal Retirement Age" shall be his age on his Normal Retirement Date. 3.2 Late Retirement Date. A participant's "Late Retirement Date" will be the first day of the month next following the month in which a participant fails to complete 40 or more Hours of Service with the Employers after his Normal Retirement Date. However, if a participant shall subsequently complete 40 or more Hours of Service in a calendar month, the participant shall be treated as a re-employed participant in accordance with Section 10 as of the first day of such month. A participant who works beyond his Normal Retirement Date shall continue to accrue Benefit Service until his Late Retirement Date. 3.3 Early Retirement Date. A participant's "Early Retirement Date" will be the first day of the month next following the month in which he retires from the employ of all the Employers before his Normal Retirement Date but after he has both attained age 55 years and is vested pursuant to Section 2.2. 3.4 Disability Termination Date. A participant's "Disability Termination Date" will be the last day worked for any Employer before his Normal Retirement Date because of Long-Term Disability, as determined pursuant to Section 5 hereof. If a participant has accrued 5 years of Vesting Service as determined pursuant to Section 17.1(a)(vii) hereof as of the later of age 55 or the date as of which he is deemed to qualify for Long-Term Disability, his Monthly Retirement Income shall be payable hereunder at age 65 or when benefits are no longer available under the Hourly Disability Plan, if later. 3.5 Retirement Date. A participant's "Retirement Date" will be that one of the dates described in Sections 3.1, 3.2, and 3.3 as of which he retires from the employ of all the Employers. 3.6 Employment Termination Date. A participant's "Employment Termination Date" will be the date on which his employment with all of the Employers terminates before he qualifies for retirement on a Retirement Date. 3.7 Employment with Subsidiaries Not Participating in Plan. For the purpose of determining a participant's Retirement Date or Employment Termination Date, references in the Plan to his retirement or termination from the employ of all of the Employers shall mean his retirement or termination from the employment of all Employers and all subsidiaries, including those which have not adopted the Plan. 5 Section 4 --------- Normal, Early, and Late Retirement Benefits ------------------------------------------- 4.1 Normal Retirement. Subject to the conditions and limitations of the Plan, a participant retiring on his Normal Retirement Date will be entitled to a Monthly Retirement Income for life commencing at his Normal Retirement Date in an amount equal to his Regular Benefits determined in accordance with Section 4.2. 4.2 Regular Benefits - Normal Retirement. The "Regular Benefits" for any participant who retires on his Normal Retirement Date on or after the Effective Date will be a monthly amount equal to the amount determined by multiplying the sum of his Years of Benefit Service times the "Retirement Income Factor" set forth in Exhibit "A" determined with respect to such participant times the Vested Percentage set forth in Section 2.2 of the Plan. In establishing the liabilities under the Plan and contributions thereto, the enrolled actuary will use such methods and assumptions under Section 411(b) of the Code as will reasonably reflect the cost of the benefits under the Plan. 4.3 Early Retirement - Deferred Payment. Subject to the conditions and limitations of the Plan, if a participant retires on an Early Retirement Date and elects to defer his Monthly Retirement Income until his Normal Retirement Date, he will be entitled to a Monthly Retirement Income for life commencing at his Normal Retirement Date. Such Monthly Retirement Income shall be computed in accordance with Sections 4.1 and 4.2 (as in effect as of his Early Retirement Date) based upon his Benefit Service determined as of his Early Retirement Date. 4.4 Early Retirement - Early Payment. In lieu of the Monthly Retirement Income payable under Section 4.3 commencing on his Normal Retirement Date, a participant who retires on an Early Retirement Date and does not elect to defer his Monthly Retirement Income in accordance with Section 4.3 will be entitled to a Monthly Retirement Income commencing on his Early Retirement Date or, if he so elects, on the first day of any month thereafter before his Normal Retirement Date. The Monthly Retirement Income which is payable to a participant in accordance with the preceding sentence will be computed by determining the amount of Monthly Retirement Income which the participant would have been entitled to receive under Section 4.3 commencing at his Normal Retirement Date and reducing such amount by one-fourth of one percent for each complete calendar month by which the date his Monthly Retirement Income payments commence precedes his Normal Retirement Date, except that the reduction provided for above shall not apply if the sum of his age and Years of Vesting Service as of his Early Retirement Date equals or exceeds 80. 4.5 Late Retirement. Subject to the terms and conditions of the Plan, a participant who retires on a Late Retirement Date will be entitled to a Monthly Retirement Income for life commencing at his Late Retirement Date in an amount equal to his Regular Benefits determined in accordance with Section 4.2. 4.6 Participants with Prior Monsanto Company Service. For a Prior Employer Participant, the amount of his Monthly Retirement Income will be reduced by an amount equal to 6 the monthly amount of benefits payable under the Monsanto Company Hourly Paid Employees' Pension Plan and the Monsanto Company Salaried Employees' Pension Plan as of the Effective Date calculated as a single life annuity as if such Prior Employer Participant commenced retirement benefits from the Monsanto Company on the date of his retirement or employment termination from the Employer. 4.7 Section 401(a)(17) Participants. The accrued benefit of any participant with at least one Hour of Service in a Plan Year beginning after December 31, 1988 shall be equal to the greater of (a) the participant's Frozen Accrued Benefit, or (b) the participant's accrued benefit calculated above based on the Regular Benefit formula provided in the Supplement. "Frozen Accrued Benefit" means a participant's accrued benefit under the Plan determined as of the latest Fresh-Start Date as if the participant terminated employment with the Employer on that date and without regard to any amendment to the Plan adopted after that date, other than amendments recognized as effective as of or before that date under Code Section 401(b) or Regulation Section 1.401(a)(4)-11(g). If, as of the latest Fresh-Start Date, the amount of a participant's Frozen Accrued Benefit was limited by the application of Code Section 415, the participant's Frozen Accrued Benefit will be increased for years after the latest Fresh-Start Date to the extent permitted under Code Section 415(d)(1). If: (a) the Plan's normal form of benefit in effect on the latest Fresh-Start Date is not the same as the normal form under the Plan after the latest Fresh- Start Date and/or (b) the Normal Retirement Age for any participant on that date was greater than the Normal Retirement Age for that participant under the Plan after the latest Fresh-Start Date, the stated Frozen Accrued Benefit will be expressed as an actuarially equivalent benefit in the normal form under the Plan after the latest Fresh-Start Date, commencing at the participant's Normal Retirement Age under the Plan in effect after the latest Fresh-Start Date. "Fresh-Start Date" means the last day of the Plan Year preceding a Plan Year for which any amendment of the Plan that directly or indirectly affects the amount of a participant's benefit determined under the current benefit formula, is made effective. Notwithstanding any other provision in the Plan, each "Section 401(a)(17) Participant's" accrued benefit under this Plan will be the greater of: (a) the participant's accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Regulation 1.401(a)(4)-13, or (b) the participant's accrued benefit determined with respect to the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the participant's total years of service taken into account under the Plan for purposes of benefit accruals. A "Section 401(a)(17) Participant" means a participant whose current accrued benefit as of a date on or after the first day of the first Plan Year beginning on or after January 1, 1994, is based 7 on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994 that exceeded $150,000. 8 Section 5 --------- Disability Provisions --------------------- 5.1 Disability Provisions Effective Date. The provisions of the Plan relating to disability shall apply exclusively to participants who have completed at least two and one-half years of Benefit Service by their Disability Termination Date, whose last full day of active employment prior to disability is on or after the Effective Date of this Plan, and who qualify for benefits under the Hourly Disability Plan. The disability entitlements of participants whose last full day of active employment is prior to the Effective Date of this Plan or who are actively at work after the Effective Date but do not qualify for participation in the Hourly Disability Plan, shall be governed by the eligibility provisions of the Predecessor Plans and the benefit formula in effect at the time they first qualify for Long-Term Disability. 5.2 Long-Term Disability. After the Effective Date of the Plan and subject to Section 5.1 above, determination of Long-Term Disability will be based on the procedures and provisions of the Hourly Disability Plan. 5.3 Retirement Options While on Long-Term Disability. Retirement options described in Sections 9.1 and 9.2 of this Plan shall not be available to a participant who is on Long-Term Disability and receiving payments from the Hourly Disability Plan. When such a participant ceases receiving benefits under the Hourly Disability Plan at or after age 65 and provided that he is otherwise eligible for benefits hereunder, all options described in Sections 9.1 and 9.2 of this Plan shall be available. 9 Section 6 --------- Termination Before Retirement ----------------------------- 6.1 Vested Termination - Deferred Payment. Subject to the conditions and limitations of the Plan, if a participant's employment with all of the Employers and all of the subsidiaries terminates for a reason other than retirement under the Plan or his death, but after he is vested pursuant to Section 2.2, the participant shall be eligible to receive a Monthly Vested Termination Benefit commencing at his Normal Retirement Date. Such monthly benefit shall be computed in accordance with Sections 4.1 and 4.2 (as in effect as of his Employment Termination Date) based upon his Benefit Service determined as of his Employment Termination Date. 6.2 Vested Termination - Early Payment. In lieu of the Monthly Vested Termination Benefit otherwise payable under Section 6.1 commencing at his Normal Retirement Date, a participant may elect to receive a reduced Monthly Vested Termination Benefit commencing on the first day of the calendar month next following the month in which he attains age 55 years or on the first day of any month thereafter before his Normal Retirement Date. The Monthly Vested Termination Benefit payable to a participant in accordance with the preceding sentence will be computed by determining the amount of Monthly Vested Termination Benefit to which the participant would have been entitled under Section 6.1 above commencing at his Normal Retirement Date and reducing such amount by one-fourth of one percent for each complete calendar month by which the date his Monthly Vested Termination Benefits commence precedes his Normal Retirement Date. 6.3 Termination Prior to Vesting. If a participant's employment with all of the Employers and subsidiaries terminates for a reason other than Retirement under the Plan or his death, and prior to his becoming vested pursuant to Section 2.2, no benefits shall be payable to him under the Plan attributable to his employment with the Employers. 10 Section 7 --------- Death Benefits -------------- 7.1 Death During Employment. Except as provided below, if a participant's death occurs while he is employed by an Employer, no benefits attributable to his employment with the Employers shall be payable under the Plan; provided, however, that if the Spouse's Retirement Income Benefit or the Surviving Spouse Benefit as defined in Section 9.4 and 9.5 were in effect with respect to such a participant at the time of his death, the only benefits payable under the Plan attributable to his employment shall be those provided under those Benefits. If the participant dies prior to the date benefits under this Plan commence, any remaining portion of the participant's interest which is not payable to a Beneficiary designated by the participant will be distributed within five years after such participant's death. 7.2 Death After Termination of Employment. Except as provided in paragraphs (a) through (d) below, if a participant's death occurs after his employment by the Employers has terminated, no benefits attributable to his employment with the Employers shall be payable under the Plan. However: (a) In the case of a participant who was receiving or eligible to receive a Monthly Retirement Income in accordance with paragraph 9.1(a) and with respect to whom no election in accordance with paragraph 9.1(b) or Section 9.2 was in effect at the time of his death, the benefits payable under the Plan shall be those provided under Section 9.1(a), if any. (b) In the case of a participant who had elected an option under Section 9.2 and the option was in effect at the time of his death, the benefits payable under the Plan shall be those provided under the option. (c) In the case of a participant who dies after being declared on Long-Term Disability while receiving benefits from the Hourly Disability Plan, after completing 10 or more years of Vesting Service pursuant to Section 17.1(a)(viii), and before his Normal Retirement Date, his Eligible Surviving Spouse shall receive only the 50% Survivor benefit provided for under Section 9.4, based upon the participant's Benefit Service pursuant to Section 17.3(a)(vii) to the date of death. (d) In the case of a participant eligible to receive a Monthly Vested Termination Benefit, the death benefit, if any, shall be determined in accordance with Section 9.5. 11 Section 8 --------- Benefit Limitations and Top-Heavy Rules --------------------------------------- Notwithstanding any provision of this Plan to the contrary, the total Annual Benefit received by an Employee shall be subject to the following limitations: 8.1 Single Defined Benefit Plan. The normal retirement benefit of any participant under this Plan or any other defined benefit plans maintained by the Employers or any subsidiary of the Corporation ("Related Pension Plans") cannot exceed the lesser of $90,000 (increased annually for Limitation Years beginning after December 31, 1987 in accordance with Section 415(d) of the Code to reflect cost-of-living adjustments) or one hundred percent (100%) of such participant's Average Compensation. For purposes of determining whether a participant's benefits exceed these limitations, the following rules shall apply: (a) Adjustment If Benefit Not Single Life Annuity. If the normal form of benefit is other than a single life annuity, such form must be adjusted actuarially to the equivalent of a single life annuity. This single life annuity cannot exceed the maximum dollar or percent limitations outlined above. No adjustment is required for the following: qualified joint and survivor annuity benefits, preretirement disability benefits, preretirement death benefits and post-retirement medical benefits. (b) Adjustment If Benefit Commences Before Social Security Retirement Age. If benefit distributions begin before the participant's Social Security Retirement Age, but on or after age 62, the $90,000 limitation shall be reduced by: (1) in the case of a participant whose Social Security Retirement Age is 65, 5/9 of 1% for each month by which benefits commence before the month in which the participant attains age 65, or (2) in the case of a participant whose Social Security Retirement Age is greater than 65, 5/9 of 1% for each of the first 36 months and 5/12 of 1% for each additional month (up to 24) by which benefits commence before the month in which the participant attains his Social Security Retirement Age. If benefit distributions begin before age 62, the $90,000 limitation shall be the actuarial equivalent of the participant's limitation for benefits commencing at age 62, reduced for each month by which benefits commence before the month in which the participant attains age 62. In order to determine actuarial equivalence for this purpose, the interest rate assumption shall be as set forth in Section 8.1(e). (c) Adjustment If Benefit Commences After Social Security Retirement Age. If benefit distributions begin after the participant's Social Security Retirement Age, the $90,000 limitation shall be increased so that it is the actuarial equivalent of the $90,000 limitation at the participant's Social Security Retirement Age. The increased maximum benefit may not exceed 100% of the participant's highest three year average Compensation. (d) Social Security Retirement Age Defined. "Social Security Retirement Age" as used herein shall mean the age used as the retirement age under Section 216(1) of the Social Security Act, except that such Section shall be applied without regard to the age 12 increase factor and as if the early retirement age under Section 216(1)(2) of such Act were sixty-two (62). (e) Interest Assumption. The interest rate used for adjusting the maximum limitations above shall be: (i) For benefits commencing before Social Security Retirement Age and for forms of benefit other than straight life annuity, the greater of: A. 5%, or B. the rate used to determine actuarial equivalence for other purposes of this Plan. (ii) For benefits commencing after Social Security Retirement Age, the lesser of: A. 5%, or B. the rate used to determine actuarial equivalence for other purposes of this Plan. (f) Reduction For Service Less Than 10 Years. In the case of a participant who has less than ten (10) years of participation in a Related Pension Plan, the benefits shall not exceed the limit set forth in Section 8.1 above multiplied by a fraction, the numerator of which is the number of years (or part thereof) of participation in a Related Pension Plan, and the denominator of which is ten (10). (g) Adjustment For Small Benefits. In the case of a participant whose Annual Benefit is not in excess of $10,000, the benefits payable with respect to such participant under this Plan shall be deemed not to exceed the limitation of this Section if: (i) The Annual Benefits payable with respect to such participant under this Plan and all other Related Pension Plans do not exceed $10,000 for the Plan Year or for any prior Plan Year, and (ii) The Employer has not at any time maintained a defined contribution plan in which the participant participated. (h) Protected Accrued Benefit. Notwithstanding anything in this Section 8 to the contrary, the maximum annual benefit for any participant in a Related Pension Plan in existence on July 1, 1982 shall not be less than the protected current accrued benefit, payable annually, as provided for under question T-3 of Internal Revenue Service Notice 83-10, 1983-1 C.B. 536. In the case of an individual who was a participant in one or more Related Pension Plans as of the first day of the first Limitation Year beginning after December 31, 13 1986, the application of the limitation of this Section 8 shall not cause the maximum permissible amount for such individual under all such Related Pension Plans to be less than the individual's current accrued benefit. The preceding sentence applies only if such Related Pension Plans met the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. 8.2 Two or More Defined Benefit Plans. If the Employers or any subsidiary of the Corporation maintain one or more Related Pension Plans in addition to this Plan, the sum of the normal retirement benefits of all plans will be treated as a single benefit for the purposes of applying the limitations in Section 8.1. If these benefits exceed, in the aggregate, the limitations in Section 8.1, the normal retirement benefit under this Plan shall be reduced (but not below zero) until the sum of the benefits of the remaining plans satisfy the limitations. 8.3 Defined Contribution Plan and Defined Benefit Plan. (a) General Rule. If the Employer or any subsidiary of the Corporation maintains (or has ever maintained) one or more defined contribution plans and one or more Related Pension Plans, the sum of the "defined contribution plan fraction" and the "defined benefit plan fraction," as defined below, cannot exceed 1.0 for any Limitation Year. For purposes of this paragraph, employee contributions to a qualified defined benefit plan are treated as a separate defined contribution plan. For purposes of this paragraph, all defined contribution plans of an Employer are to be treated as one defined contribution plan and all defined benefit plans of an Employer are to be treated as one defined benefit plan, whether or not such plans have been terminated. If the sum of the defined contribution plan fraction and defined benefit plan fraction exceeds 1.0, the Annual Benefit of the defined benefit plans will be reduced so that the sum of the fractions will not exceed 1.0. In no event will the Annual Benefit be decreased below the amount of the accrued benefit to date. If additional reductions are required for the sum of the fractions to equal 1.0, the reductions will then be made to the Annual Additions of the defined contribution plans. (b) Defined Contribution Plan Fraction. (i) General Rule: The defined contribution plan fraction for any Limitation Year is 1 divided by 2, where: 1 is the sum of the actual Annual Additions to the participant's account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior Limitation Years (including the annual additions attributable to the participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual 14 medical accounts, as defined in Code Section 415(l)(2), maintained by the Employer); and 2 is the sum of maximum aggregate amounts for the current and all prior Limitation Years of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any Limitation Year is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the participant's Compensation for such year. (ii) If the participant was a participant as of the first day of the First Limitation Year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last Limitation Year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plans made after May 5, 1986, but using the Code Section 415 limitation applicable to the first Limitation Year beginning on or after January 1, 1987. (c) Defined Benefit Plan Fraction. (i) General Rule. The defined benefit plan fraction for any year is 1 divided by 2, where: 1 is the projected Annual Benefit of the participant under the Plan (determined as of the close of the Limitation Year), and 2 is the lesser of (1) 1.25 times the dollar limitation (adjusted, if necessary) for such year, or (2) 1.4 times one hundred percent (100%) of the participant's Average Compensation for the high three (3) years (adjusted, if necessary). (ii) Notwithstanding the above, if the participant was a participant as of the first day of the first Limitation Year beginning after December 31, 1986, in one or more Related Pension Plans which were in existence on May 6, 1986, the 15 denominator of this fraction will not be less than one hundred twenty-five percent (125%) of the sum of the Annual Benefits under such plans which the participant had accrued as of the close of the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plans after May 5, 1986. The preceding sentence applies only if the Related Pension Plans individually and in the aggregate satisfied the requirements of Code Section 415 as in effect for all Limitation Years beginning before January 1, 1987. 8.4 Definitions. (a) Employer. The Corporation and any other Employer that adopts this Plan. In the case of a group of employers which constitutes a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)) or which constitutes trades and businesses (whether or not incorporated) which are under common control (as defined in Code Section 414(c) as modified by Code Section 415(h)) or an affiliated service group (as defined in Code Section 414(m)), all such employers shall be considered a single Employer for purposes of applying the limitations of this Section. (b) Excess Amount. The excess of the participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount. (c) Limitation Year. A twelve (12) consecutive month period ending on September 30. (d) Maximum Permissible Amount. For a Limitation Year, the Maximum Permissible Amount with respect to any participant shall be the lesser of: (i) $30,000 (increased annually for Limitation Years beginning after December 31, 1987 in accordance with Section 415(d) of the Code to reflect cost-of-living adjustments), or (ii) 25% of the participant's Compensation for the Limitation Year. (e) Compensation. For purposes of determining compliance with the limitations of Code Section 415, Compensation shall mean a participant's earned income, wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the Plan, including, but not limited to, commissions paid to salesmen, compensation for services based on a percentage of profits, commissions on insurance premiums, tips and bonuses, and excluding the following: (i) Employer contributions to a plan of deferred compensation to the extent contributions are not included in gross income of the participant for the taxable year in which contributed, or on behalf of an participant to a simplified employee pension plan to the extent such contributions are deductible under Code 16 Section 210(b)(2), and any distributions from a plan of deferred compensation whether or not includable in the gross income of the participant when distributed (however, any amounts received by a participant pursuant to an unfunded nonqualified plan may be considered as Compensation in the year such amounts are included in the gross income of the participant); (ii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by a participant becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iii) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (iv) other amounts which receive special tax benefits, or contributions made by an Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described under Code Section 403(b) (whether or not the contributions are excludable from the gross income of the participant). For purposes of applying the limitations in this Article, amounts included as Compensation are those actually paid or made available to a participant within the Limitation Year. For Limitation Years beginning after December 31, 1988, Compensation shall be limited to $200,000 (unless adjusted in the same manner as permitted under Code Section 415(d)). Notwithstanding anything to the contrary in the definition, Compensation shall include any and all items which may be includable in Compensation under Section 415(c)(3) of the Code. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the Compensation of each participant taken into account under the Plan shall not exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined ("Determination Period") beginning in such calendar year. If a Determination Period consists of fewer than 12 months, the "OBRA '93 Annual Compensation Limit" will be multiplied by a fraction, the numerator of which is the number of months in the Determination Period, and the denominator of which is 12. In applying this limitation, the family group of a highly compensated employee (as defined in Code Section 414(q)) who is subject to the family member aggregation rules of Code Section 414(q)(6) because such participant is either a "five-percent owner" of the Employer or one of the ten (10) highly compensated employees paid the greatest Compensation during the year, shall be treated as a single participant, except that for this purpose family members shall include only the affected participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted "OBRA '93 Annual Compensation Limit" is exceeded, then the limitation shall be prorated 17 among the affected family members in proportion to each such family member's Compensation prior to the application of this limitation, or the limitation shall be adjusted in accordance with any other method permitted by regulation. Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit" set forth in this Section. If Compensation for any prior Determination Period is taken into account in determining a participant's benefits accruing in the current Plan Year, the Compensation for that prior Determination Period is subject to the "OBRA '93 Annual Compensation Limit" in effect for that prior Determination Period. For this purpose, for Determination Periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the "OBRA '93 Annual Compensation Limit" is $150,000. (f) Average Compensation. The average Compensation during a participant's high three (3) years of service, which period is the three (3) consecutive calendar years (or, the actual number of consecutive years of employment for those participants who are employed for less than three (3) consecutive years with the Employer) during which the participant had the greatest aggregate Compensation from the Employer. (g) Annual Benefit. A benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which participants do not contribute and under which no rollover contributions are made. (h) Annual Additions. With respect to each Limitation Year, the total of the employer contributions, participant contributions, forfeitures, and amounts described in Code Sections 415(1) and 419A(d)(2) which are allocated on behalf of a participant. 8.5 Top-Heavy Rules. For any Plan Year for which this Plan is a Top-Heavy Plan, as defined in Section 8.5(g), any other provisions of this Plan to the contrary notwithstanding, this Plan shall be subject to the provisions of this Section 8.5. (a) Vesting Provisions. Each participant who has completed an "Hour of Service" (as defined in Section 17.4 hereof) after the Plan becomes top heavy and while the Plan is top heavy and who has completed the Service specified in the following table shall be vested in his accrued benefit under this Plan at least as rapidly as is provided in the following schedule; except that the vesting provision set forth in Section 2.2 shall be used at any time in which it provides for more rapid vesting: 18 Years of Service Vested Percentage ---------------- ----------------- Less than 2 years 0% 2 but less than 3 years 20% 3 but less than 4 years 40% 4 but less than 5 years 60% 5 but less than 6 years 80% 6 years or more 100% If an account becomes vested by reason of the application of the preceding schedule, it may not thereafter be forfeited by reason of reemployment after retirement pursuant to a suspension of benefits provision, by reason of withdrawal of any mandatory employee contributions to which employer contributions were keyed, or for any other reason. If the Plan subsequently ceases to be top-heavy, the preceding schedule shall continue to apply with respect to any participant who had at least three (3) years of service (as defined in Treasury Regulation Section 1.411(a)-8T(b)(3)) as of the close of the last year that the Plan was top-heavy, except that each participant whose non-forfeitable percentage of his accrued benefit derived from employer contributions is determined under such amended schedule, and who has completed at least three (3) years of service with the employer, may elect, during the election period, to have the non-forfeitable percentage of his accrued benefit derived from employer contributions determined without regard to such amendment if his non-forfeitable percentage under the Plan as amended is, at any time, less than such percentage determined without regard to such amendment. For all other participants, the non- forfeitable percentage of their accrued benefit prior to the date the Plan ceased to be top-heavy shall not be reduced, but future increases in the non-forfeitable percentage shall be made only in accordance with Section 2.2. (b) Minimum Benefit Provisions. Each participant who is a Non-Key Employee, as defined in Section 8.5(g), shall be entitled to an accrued benefit in the form of a single-life annuity (with no ancillary benefits) beginning at his normal retirement date, that shall not be less than his average annual participant's Compensation, within the meaning of Code Section 415, for years in the Testing Period multiplied by the lesser of: (a) two percent (2%) multiplied by the number of years of Top-Heavy Service or (b) twenty percent (20%). A Non-Key Employee may not fail to receive a minimum benefit because of a failure to receive a specified amount of Compensation or a failure to make mandatory employee or elective contributions. "Testing Period' means, with respect to a participant, the period of consecutive years of Top-Heavy Service, not exceeding five (5), during which the participant had the greatest aggregate compensation, within the meaning of Code Section 415, from the Corporation. "Top-Heavy Service" means his Service credited under Section 17.4. Top-Heavy Service shall not include any Service before July 1, 1984 or any Service that begins after the close of the last Plan Year in which the Plan was a Top-Heavy Plan. Years before and after such excluded periods shall be considered consecutive for purposes of determining the Testing Period. 19 (c) Limitation on Compensation. A participant's annual Compensation taken into account under this Section 8.5 and for purposes of computing benefits under this Plan shall not be in excess of Two Hundred Thousand Dollars ($200,000). Such amount shall be adjusted automatically for each Plan Year to the amount prescribed by the Secretary of the Treasury or his delegate pursuant to regulations for the calendar year in which such Plan Year commences. For Plan Years beginning on or after January 1, 1994, a participant's annual Compensation taken into account under this Section 8.5 and for purposes of computing benefits under this Plan shall not be in excess of the limitation under Code Section 401(a)(17) . (d) Limitation on Benefits. In the event that the Corporation, other Employer or an Affiliate (hereinafter in this Section collectively referred to as a "Considered Company") also maintains a defined contribution plan providing contributions on behalf of participants in this Plan, one of the two following provisions shall apply: (i) If for a Plan Year this would not be a Top-Heavy Plan if "90 percent" were substituted for "60 percent" in Section 8.5(g), then the percentages used in Section 8.5(b) are changed to be the lesser of (i) three percent (3%) multiplied by the number of years of Top-Heavy Service or (ii) the lesser of thirty percent (30%) or twenty percent (20%) plus one percent (1%) for each year the Plan is taken into account under this subsection (i). (ii) If for a Plan Year this Plan would continue to be a Top-Heavy Plan if "90 percent" were substituted for "60 percent" in Section 8.5(g), then the denominator of both the defined contribution plan fraction and the defined benefit plan fraction shall be calculated as set forth in Section 8.3, for the limitation year ending in such Plan Year by substituting "one (1.0)" for "one and twenty-five hundredths (1.25)" in each place such figure appears. This subsection (ii) will not apply for such Plan Year with respect to any individual for whom there are no (i) Corporation contributions, forfeitures or voluntary non-deductible contributions allocated to such individual or (ii) accruals for such individual under the defined benefit plan. Furthermore, the limitation rules set forth in Code Section 415(e)(6)(B)(i) shall be applied by substituting "Forty-one Thousand Five Hundred Dollars ($41,500)' for "Fifty-One Thousand Eight Hundred Seventy-Five Dollars ($51,875)" where it appears therein. (e) Coordination With Other Plans. In the event that another defined contribution or defined benefit plan maintained by a Considered Company provides contributions or benefits on behalf of participants in this Plan, such other plan shall be treated as a part of this Plan pursuant to applicable principles prescribed by U.S. Treasury Regulations or applicable IRS rulings (such as Revenue Ruling 81-202 or any successor ruling) to determine whether this Plan satisfies the requirements of Sections 8.5(a), 8.5(b) and 8.5(c) and to avoid inappro priate omissions or inappropriate duplication of minimum contributions. Such determination shall be made upon the advice of counsel by the Committee. In the event a participant is covered by a defined benefit plan which is top-heavy pursuant to Section 416 of the Code, 20 a comparability analysis (as prescribed by Revenue Ruling 81-202 or any successor ruling) shall be performed in order to establish that the plans are providing benefits at least equal to the defined benefit minimum. (f) Distributions to Certain Key Employees. Notwithstanding any other provision of this Plan to the contrary, the entire interest in this Plan of each participant who is a five percent (5%) owner (as described in Section (416)(i)(A) of the Code determined with respect to the Plan Year ending in the calendar year in which such individual attains age 70 1/2), shall be distributed to such participant not later than the first day of April following the calendar year in which such individual attains age 70 1/2. (g) Determination of Top-Heavy Status. The Plan shall be a Top-Heavy Plan for any Plan Year if, as of the Determination Date, the present value of the cumulative accrued benefits under the Plan determined as of the Valuation Date for participants (including former participants) who are Key Employees exceeds sixty percent (60%) of the present value of the cumulative accrued benefits under the Plan for all participants (including former participants) or, if this Plan is required to be in an Aggregation Group, any such Plan Year in which such Group is a Top-Heavy Group. In determining Top-Heavy status, if an individual has not performed one (1) Hour of Service for a Considered Company at any time during the five-year period ending on the Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account. The accrued benefit of any employee (other than a Key Employee) shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Aggregation Group or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). For purposes of this Section, the capitalized words have the following meanings: (i) "Aggregation Group" means the group of plans, if any, that includes both the group of plans that is required to be aggregated and the group of plans that is permitted to be aggregated. The group of plans that is required to be aggregated (the "required aggregation group") includes: A. Each plan of a Considered Company in which a Key Employee is a member, including collectively bargained plans, and B. Each other plan, including collectively bargained plans, of a Considered Company which enables a plan in which a Key Employee is a member to meet the requirements of either Code Section 401(a)(4) or 410. The group of plans that is permitted to be aggregated (the "permissive aggregation group") includes the required aggregation group and any plan that is not part of the required aggregation group that the Committee certifies as constituting a plan within 21 the permissive aggregation group. Such plans may be added to the permissive aggregation group only if, after the addition, the aggregation group as a whole continues to meet the requirements of both Code Sections 401(a)(4) and 410. (ii) "Determination Date" means for any Plan Year the last day of the immediately preceding Plan Year or in the case of the first Plan Year of the Plan, Determination Date means the last day of such Plan Year. (iii) "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year or any of the preceding four (4) Plan Years, has been included in one of the following categories: A. an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual Compensation greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year; B. one of the ten Employees having annual Compensation from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer; C. a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer, or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers; or D. a "one percent owner" of the Employer having an annual Compensation from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer, or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining 22 percentage ownership hereunder, Employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate Employers. However, in determining whether an individual has Compensation of more than $150,000, Compensation from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of Compensation shall be based only on Compensation which is actually paid and shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. (iv) A "Non-Key Employee" means any employee (and any beneficiary of an employee) who is not a Key Employee. (v) "Top-Heavy Group" means the Aggregation Group, if as of the applicable Determination Date, the sum of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in the Aggregation Group plus the aggregate of the accounts of Key Employees under all defined contribution plans included in the Aggregation Group exceeds sixty percent (60%) of the sum of the present value of the cumulative accrued benefits for all employees, excluding former Key Employees as provided in paragraph (i) below, under all such defined benefit plans plus the aggregate accounts for all employees, excluding former Key Employees as provided in paragraph (i) below, under all such defined contribution plans. In determining Top-Heavy status, if an individual has not performed one (1) Hour of Service for a Considered Company at any time during the five-year period ending on the Determination Date, any accrued benefit for such individual and the aggregate accounts of such individual shall not be taken into account. If the Aggregation Group that is a Top-Heavy Group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as Top-Heavy Plans. If the Aggregation Group is not a Top Heavy Group, no plan within such group will be a Top-Heavy Plan. In determining whether this Plan constitutes a Top Heavy Plan, the Committee (or its agent) will make the following adjustments in connection therewith: (vi) When more than one plan is aggregated, the Committee shall determine separately for each plan as of each plan's Determination Date the present value of the accrued benefits (for this purpose using the actuarial assumptions set forth in the applicable plan, and if such assumptions are not set forth in the applicable plan, using the assumptions set forth in this Plan) or account balance. The results shall then be aggregated by adding the results of each plan as of the Determination Dates for such plans that fall within the same calendar year. 23 (vii) In determining the present value of the cumulative accrued benefit (for this purpose using the actuarial assumptions set forth in Section 17.12 hereof) or the amount of the account of any employee, such present value or account will include the amount in dollar value of the aggregate distributions made to such employee under the applicable plan during the five-year period ending on the Determination Date unless reflected in the value of the accrued benefit or account balance as of the most recent Valuation Date. The amounts will include distributions to employees which represented the entire amount credited to their accounts under the applicable plan. (viii) Further, in making such determination, such present value or such account shall not include any rollover contribution (or similar transfer) initiated by the employee and made after December 31, 1983 to an applicable plan. A. If the rollover contribution (or similar transfer) is initiated by the employee and made to or from a plan maintained by a Considered Company, the plan providing the distribution shall include such distribution in the present value or such account; the plan accepting the distribution shall not include such distribution in the present value or such account unless the plan accepted it before December 31, 1983. B. If the rollover contribution (or similar transfer) is not initiated by the employee or made from a plan maintained by a Considered Company, the plan accepting the distribution shall include such distribution, in the present value or such account, whether the plan accepted the distribution before or after December 31, 1983; the plan making the distribution shall not include the distribution in the present value or such account. (ix) Further, in making such determination, in any case where an individual is a Non-Key Employee with respect to an applicable plan but was a Key Employee with respect to such plan for any prior Plan Year, any accrued benefit and any account of such employee shall be altogether disregarded. For this purpose, to the extent that a Key Employee is deemed to be a Key Employee if he or she met the definition of Key Employee within any of the four (4) preceding Plan Years, this provision shall apply following the end of such period of time. (x) "Valuation Date" means for purposes for determining the present value of an accrued benefit as of the Determination Date the date determined as of the most recent valuation date which is within a twelve- month period ending on the Determination Date. For the first plan year of a plan, the accrued benefit for a current employee shall be determined either as if the individual (i) terminated service as of the Determination Date or (ii) terminated service as of the Valuation Date, but taking into account the estimated accrued benefit as of the Determination Date. The Valuation Date shall be determined in accordance with the principles set forth in Q.&A.T-25 of Treasury Regulations Section 1.416-1. 24 (xi) For purposes of this Article, "Compensation" shall have the meaning given to it in Section 8.4(e) of the Plan. 25 Section 9 --------- Payment of Retirement Income ---------------------------- and Other Benefits ------------------ 9.1 Normal Form of Benefits Payment. Except as otherwise specifically provided, payment of a participant's Monthly Retirement Income or Monthly Vested Termination Benefit in accordance with Sections 4 or 6 shall be made to him as follows: (a) A participant who has a spouse on the date as of which such payments commence and who has not made an election in accordance with paragraphs (b) and (c) below or Section 9.2 shall receive payments in the form of a joint and survivor annuity and such payments shall be actuarially equivalent to the amount of Monthly Retirement Income or Monthly Vested Termination Benefit otherwise payable to the participant in accordance with Sections 4 or 6 on a life annuity basis. Such joint and survivor annuity shall provide for a reduced Monthly Retirement Income or Monthly Vested Termination Benefit continuing during the participant's lifetime, and upon the participant's death, payment of one-half of such reduced Monthly Retirement Income or reduced Monthly Vested Termination Benefit shall be made to such spouse if he or she is then living. The joint and survivor form of benefit payments described in this paragraph (a) will commence to be paid to the participant, if then living, as of his Retirement Date, or in the case of a Vested Terminated Participant, on the date as of which his Monthly Vested Termination Benefits commence. The monthly payments to which a participant's spouse is entitled under this paragraph (a) shall commence as of the first day of the month following the month in which the participant dies and the last such payment shall be made as of the first day of the month in which the spouse dies. (b) A participant who has one or more Hours of Service and who is entitled to payment of a Monthly Retirement Income or a Monthly Vested Termination Benefit and who has a spouse on the date as of which such benefit payments commence shall receive payments in the form of a joint and survivor annuity pursuant to paragraph (a) above unless such spouse has consented to an election to waive the joint and survivor annuity pursuant to Section 9.3 below. (c) A participant who does not qualify for a joint and survivor annuity under paragraphs (a) and (b) above, or a participant who prior to the date as of which his payments commence elects in accordance with Section 9.3 not to receive a Monthly Retirement Income or a Monthly Vested Termination Benefit in the form of a joint and survivor annuity, shall receive a Monthly Retirement Income or a Monthly Vested Termination Benefit in accordance with Sections 4 or 6, whichever applies, on a single life annuity basis as described in Section 4.1. (d) The joint and survivor annuity and any pre-retirement survivor annuity requirements under this Plan will apply to benefits in which the participant was vested immediately prior to his or her death. A joint and survivor annuity shall be provided to an unmarried participant unless elected otherwise within 90 days ending on the annuity starting 26 date. The joint and survivor annuity for an unmarried participant shall be an annuity for the participant's life. A joint and survivor annuity shall also be provided for a participant who does not die prior to the annuity starting date. The annuity starting date shall be defined as the first day of the first period for which an amount is payable as an annuity or in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitles the recipient to such benefit. A former participant who is entitled to a Monthly Vested Termination Benefit shall only be entitled to a benefit payable under this Section 9.1 and shall not be entitled to elect any of the options described in the remainder of this Section 9. Each such former participant shall in all cases commence such payment no later than the first day of the month following the month in which he attains age 65. 9.2 Optional Forms of Monthly Benefits. In lieu of the normal forms and amounts of Monthly Retirement Incomes specified in Section 9.1 and subject to the provisions of Sections 9.1(b) and 9.3, a participant may elect a Monthly Retirement Income of an actuarially equivalent value in one of the following optional forms: (a) A Ten-Year Certain and Continuous Option providing the participant with an amount of Monthly Retirement Income until his death with the provision that if the participant dies before 120 monthly payments are made there shall be a continuing payment of the same amount to a beneficiary or beneficiaries designated by him for the balance of such 120 payments. (b) A Contingent Annuitant Option providing the participant with an amount of Monthly Retirement Income until his death, with the provision that a payment of the same monthly amount or 75 percent, 50 percent or 25 percent of that monthly amount (as the par ticipant elects) will be made to his surviving contingent annuitant (designated by the participant) for life. (c) A Reversionary Contingent Annuitant Option with the participant's spouse as the contingent annuitant providing the participant with a reduced amount of Monthly Retirement Income with the provision that if the participant predeceases his spouse, payment of the same monthly amount or 75 percent, 50 percent or 25 percent of that monthly amount (as the participant elects) shall be made to his surviving spouse for life and if the participant's spouse predeceases the participant, the participant's Monthly Retirement Income shall revert to a single life annuity basis commencing with the first day of the month next following the month in which such spouse dies. (d) A Level Income Option providing a participant who retires early pursuant to Section 4.4 with an increased amount of retirement income up to age 62 or age 65 if he retires prior to age 62, or up to age 65 if he retires after age 62, at which time the amount of his retirement income shall be decreased commencing with the first day of the month following the month in which he attains either age 62 or 65. The amount of decrease at age 62 or age 65, whichever is applicable, shall be equal to the amount of his Old Age Insurance 27 benefit under the Social Security Act as estimated by the Plan Committee, to which the participant will then be entitled. (e) A Level Income Option in conjunction with one of the optional forms of payment described in paragraphs (a), (b) or (c) above, providing the participant with an amount of Monthly Retirement Income determined in accordance with paragraph (d) above except that the monthly amount otherwise payable to the participant during his life under paragraph (d) will be further reduced at the time of his retirement to provide for a continuation of monthly payments, commencing with the first day of the month next following the month in which the participant dies, in accordance with paragraphs (a), (b) or (c) above (as the participant elects). (f) Other Optional forms may be elected by a participant with the approval of the Plan Committee and in accordance with the rules adopted by the Plan Committee for this purpose. (g) Notwithstanding the provisions of paragraphs (b), (c), (e) and (f) above, the options reflected in said paragraphs shall not be available unless the actuarial value of the amounts paid to the participant shall be more than 50 percent of the actuarial value of the total payments to be made to the participant and to his beneficiaries; provided, however, that this limitation shall not be applicable where all the following conditions are satisfied: (i) The beneficiary is the participant's spouse; (ii) The distribution is in the form of periodic payments starting with the participant's retirement; and (iii) Each payment made to the spouse can be no greater than each payment made to the participant. 9.3 Election and Discontinuance of Options. An election by a Participant of an optional form of Monthly Retirement Income specified in Section 9.2 shall be subject to the following: (a) An election of an option must be in writing signed and dated by the Participant, and filed with the Plan Committee. (b) Unless otherwise provided in this Section 9.3, a Participant's benefits under the Plan shall commence on his Retirement Date, which shall be the effective date of such option. (c) Any election to waive the joint and survivor annuity under Section 9.1(b) above and to elect benefits payable under Sections 9.1(c) or 9.2 above shall not be effective unless: 28 (i) the spouse of the participant consents in writing to such election and acknowledges the effect of such election on forms provided by and filed with the Plan Committee and witnessed by a plan representative or a notary public; or (ii) it is established that there is no spouse, the spouse cannot be located, or under such other circumstances as may be provided by regulations prescribed by the Code. The election must be filed during the period described in paragraph (d) below for married participants and may be changed or revoked in writing by the participant at any time during such period. The number of revocations shall not be limited. The election may be revoked but not changed by the participant without consent of the participant's spouse in accordance with this paragraph. Any consent by a spouse pursuant to this paragraph shall be irrevocable and shall be effective only with respect to such spouse. Notwithstanding anything in this Section 9.3 to the contrary, an election to waive the joint and survivor annuity under Section 9.1(b) above shall not be required where the participant elects a 50 percent, a 75 percent, or 100 percent Contingent Annuitant Option in accordance with Section 9.2(b) with his spouse as the surviving contingent annuitant. (d) A Participant may elect an option under Sections 9.1 and 9.2 at any time prior to his Retirement Date. In all events a married participant must make the election to waive the joint and survivor annuity pursuant to paragraph (c) above within the 90-day period ending on the participant's "annuity starting date." For purposes of this Section, the "annuity starting date" means the first day of the first period for which an amount is paid as an annuity, or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the participant to such benefit. Within a reasonable period of time before the "annuity starting date," the married participant shall be provided with a written notification, in nontechnical terms, of the terms and conditions of the joint and survivor annuity and the effect of electing not to receive it, including the financial effect upon the participant's annuity in terms of dollars per annuity payment, the participant's right to make, and the effect of, an election under paragraph (c) to waive the joint and survivor annuity form of benefit, and the rights of the participant's spouse and the right to make, and the effect of, a revocation of an election under paragraph (c). If a married Participant does not elect a benefit payment form other than the joint and survivor annuity during this 90 day period, he shall be deemed to have elected the joint and survivor annuity. If the married Participant does not elect out of another benefit payment form back into the joint and survivor annuity during this 90 day period, he shall be deemed to have elected to receive the other benefit payment form. If a married Participant elects out of a benefit payment form other than the joint and survivor, he may only elect into a joint and 29 survivor benefit in which case he may thereafter, within the election period, only change his election in the manner set forth in paragraph (c) to a single life annuity. An unmarried individual may also elect out of a benefit payment form other than a single life annuity during such 90 day period ending on the participant's "annuity starting date." In lieu of his prior election he may elect only the single life annuity provided in Section 9.1(c) and he may thereafter not elect any other payment form. (e) A Participant who has elected an option may revoke or change it at any time prior to the effective date of the option by written election filed with the Plan Committee. A revocation or change of an option may be made without the consent of any person the Participant had designated in the option; provided, however, that any revised election shall be subject to the requirement of paragraph (c) above. A Participant may revoke an election of one of the options set forth in Sections 9.1 and 9.2 on or after the effective date of the option only with the approval of the Plan Committee. (f) If a Participant who had elected an optional form of monthly benefit under Sections 9.1(c) and 9.2 dies before the effective date of the option, the option elected will be cancelled automatically and no benefits will be paid to any person under the option except as provided in Sections and 9.4 and 9.5. (g) If a Participant elects a Ten Year Certain and Continuous Option under Section 9.2(a) or in conjunction with Sections 9.2(d) or 9.2(e) and the person designated by him under the option dies after the effective date of the option with the Participant still then living, the option shall remain in effect and the Participant may designate another person or persons to receive any benefits payable under the option after his death. (h) If the Participant elects a Contingent Annuitant Option under Section 9.2(b) or in conjunction with Sections 9.2(d) or 9.2(e) and the person designated by him dies before the effective date of the option, the option elected will be cancelled automatically and the Participant's Monthly Retirement Income will be paid to him under the normal form unless a new election can be and is made for the Participant. (i) If a Participant elects a Contingent Annuitant Option under Section 9.2(b) or in conjunction with one of the optional forms of payment described in Sections 9.2(d) or 9.2(e) and the person designated by him dies after the effective date of the option, payments under the option then being made to the Participant shall continue for the remainder of the Participant's life. 9.4 Spouse's Retirement Income Benefit. A Spouse's Retirement Income Benefit in an amount determined below will be payable with respect to the "Eligible Surviving Spouse" (as defined below) of a Participant who: 30 (a) dies after completion of 5 or more years of Vesting Service and before his Normal Retirement Date (or, if applicable, his Late Retirement Date) while employed by an Employer and after attaining age 50, or (b) dies after completion of 20 or more years of Vesting Service while employed by an Employer, or (c) dies after his Disability Termination Date while receiving benefits from the Hourly Disability Plan, after completing 10 or more years of Vesting Service pursuant to Section 17.1(a)(viii), and before his Normal Retirement Date. A Participant's "Eligible Surviving Spouse" means the person to whom the Participant was married on the date of his death. The Spouse's Retirement Income Benefit shall be a monthly amount payable for life to the Participant's Eligible Surviving Spouse and shall be equal to fifty percent (50%) of the Monthly Retirement Income that would have been payable to the Participant in accordance with Section 9.1(a) if the Participant had retired on the date of his death and had commenced to receive benefits on the first day of the month next following the month in which his death occurred and based upon his Benefit Service as of the date of his death. Such Benefit shall commence on the first day of the month following the month in which the Participant's death occurred. This Section shall also be applicable to any Participant, as defined in Section 2, who works beyond his Normal Retirement Date and who dies prior to his Late Retirement Date. A Spouse's Retirement Income Benefit will also be paid to an Eligible Surviving Spouse of any Participant who dies on or after his Normal Retirement Age or his Early Retirement Date and prior to commencement of receipt of benefits hereunder, if his Eligible Surviving Spouse would be otherwise deprived of a benefit hereunder of at least a monthly amount, or the equivalent thereof, equal to the Spouse's Retirement Income Benefit. If the Eligible Surviving Spouse takes under this Section, all other optional forms of benefits and other Beneficiaries and/or contingent annuitants shall be revoked. A vested participant may elect with the consent of his or her Eligible Surviving Spouse not to take the Spouse's Retirement Income Benefit and may also revoke an election not to take the Spouse's Retirement Income Benefit or choose again to take such benefit at any time or any number of times within the applicable election period. The election period shall be from the first day of the Plan year in which the participant attains age 35 until the participant's death. If a vested participant dies before the annuity starting date, the Eligible Surviving Spouse must be able to receive the Spouse's Retirement Income Benefit no later than the date at which the participant would have reached the Plan's earliest retirement age. 31 9.5 Surviving Spouse Benefit. (a) Subject to the provisions of this Section 9.5, a Surviving Spouse Benefit in an amount determined below will be payable with respect to a participant's Eligible Surviving Spouse as defined in Section 9.4 with respect to a participant who dies after completion of 5 or more years of Vesting Service and before commencement of his Monthly Retirement Income or his Monthly Vested Termination Benefit. The amount of the Surviving Spouse Benefit shall be equal to: (i) in the case of a participant who dies after the first day on which the participant would have attained his Early Retirement Date, the amount that would have been paid to the Eligible Surviving Spouse had the participant retired on the day preceding his date of death and had then immediately commenced receiving benefits pursuant to Section 9.1(a) in the form of a joint and survivor annuity; (ii) in the case of a participant who dies on or before the first day on which the participant would have attained his Early Retirement Date, the amount that would have been paid to the Eligible Surviving Spouse pursuant to Section 9.1(a) in the form of a joint and survivor annuity had the participant: (A) separated from service on the date of his death (if an active employee); (B) survived to the first day on which he would have attained his Early Retirement Date; and (C) died on the day after the first day on which he would have attained his Early Retirement Date. A Surviving Spouse Benefit shall be payable to the Eligible Surviving Spouse on the first day of the month next following the month in which the participant would have first attained his Early Retirement Date. (b) The Plan shall fully subsidize the costs of the Surviving Spouse Benefit in the case of a participant who satisfies the provisions of paragraph (a) and who dies while in the employ of the Company or an Employer. In the case of a participant who satisfies the provisions of paragraph (a) and who is no longer in the employ of the Employer immediately prior to the commencement of Monthly Vested Termination Benefits, the Monthly Vested Termination Benefit of such participant shall be reduced for each complete twelve month period in which such participant had not elected to waive the Surviving Spouse Benefit as provided in paragraph (c) beginning with the first day of the month in which the participant separates from service in the following manner: one-tenth of one percent for each complete twelve month period until age 45, two-tenths of one percent for each complete twelve month period beginning with the first day of the month in which the participant attains age 45 until age 55, and five-tenths of one percent for each complete twelve month period beginning with 32 the first day of the month in which the participant attains age 55 until commencement of payment of benefits. Such reduction shall only apply for each complete twelve month period in which no election to waive the Surviving Spouse Benefit is in effect under paragraph (c). (c) Participants who are entitled to a Monthly Vested Termination Benefit payable under Sections 6.1 and 6.2 may elect to waive the Surviving Spouse Benefit as provided in this paragraph (c). With regard to the election, the Plan Committee shall provide each participant within the applicable period, with respect to each participant (and consistent with regulations), a written explanation of the Surviving Spouse Benefit. For purposes of this paragraph, the term "applicable period" means, with respect to a participant, whichever of the following periods ends last: (i) the period beginning with the first day of the Plan Year in which the participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the participant attains age 35; (ii) a reasonable period after the individual becomes a participant; (iii) a reasonable period ending after the Plan no longer fully subsidizes the cost of the Surviving Spouse Benefit with respect to the participant; (iv) a reasonable period ending after Code Section 401(a)(11) applies to the participant; or (v) a reasonable period after separation from service in the case of a participant who separates before attaining age 35. For this purpose, the Plan Committee must provide the explanation beginning one year before the separation from service and ending one year after such separation. If such a participant thereafter returns to employment with the Employer, the applicable period for such participant shall be redetermined. For purposes of applying this Section, a reasonable period ending after the enumerated events described in paragraphs (ii), (iii) and (iv) is the end of the two year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. Such election to waive the Spouse's Survivor Annuity must be made on forms provided by and filed with the Plan Committee and shall not be effective unless: (i) the Eligible Surviving Spouse of the participant consents to and acknowledges the effect of such election on forms provided by the Plan Committee and witnessed by a plan representative or a notary public; or 33 (ii) it is established that there is no spouse, the spouse cannot be located, or under such other circumstances as may be provided by regulations prescribed by the Code. Such election may be filed at any time beginning with the Employment Termination Date and ending with the date of the participant's death and may be changed or revoked in writing by the participant at any time until the date of the participant's death. The election may be revoked but not changed by the participant without the consent of the participant's spouse in accordance with this paragraph. Any consent by a spouse pursuant to this paragraph shall be irrevocable and shall be effective only with respect to such spouse. As soon as practicable after the Employment Termination Date, the participant shall be provided with a written notification, in nontechnical terms, of the terms and conditions of the Surviving Spouse Benefit and the effect of electing not to receive it, including the financial effect upon the participant's annuity, the participant's right to make, and the effect of an election to waive the Surviving Spouse Benefit, the rights of the participant's spouse, and the effect of a revocation of an election. The Monthly Vested Termination Benefit payable to a participant who elects to waive the Surviving Spouse Benefit shall not be reduced as provided by paragraph (b) above for the period covered by such election. (d) An Eligible Surviving Spouse who is entitled to payment of benefits under Section 9.4 shall not be entitled to payment of benefits under this Section 9.5. (e) The provisions of this Section 9.5 shall apply to any participant who has at least one Hour of Service who dies before the commencement of benefits. 9.6 Special Payment Limitations. (a) Unless an election by a participant to defer payment is approved by the Plan Committee, payment of benefits under the Plan to a participant shall commence not later than the 60th day after the latest of the end of the calendar year in which: (i) The participant attains age 65 years; (ii) The tenth anniversary of the year in which the participant commenced participation in the Plan occurs; or (iii) The participant terminates his employment with all the Employers. (b) Notwithstanding anything in this Section 9 to the contrary, in no event shall payment of benefits under the Plan to a participant commence later than the date the participant attains age 70 1/2 or if later, in the case of a participant who is not a Key Employee in a Top Heavy Plan as described in Section 8.5, the date he retires. 34 (c) A participant who commences to receive benefits, notwithstanding anything in paragraphs (a) and (b) to the contrary, the entire interest of a participant under the Plan must be distributed: (i) not later than the Required Beginning Date; or (ii) commencing not later than the Required Beginning Date, in accordance with applicable regulations under the Code, over the life of such participant or over the lives of such participant and a designated beneficiary. The Required Beginning Date shall mean April 1 of the calendar year following the later of: (i) the calendar year in which the participant attains age 70 1/2; or (ii) in the case of a participant who is not a 5-percent owner (as defined in Section 416 of the Code), the calendar year in which the participant retires under the Plan. If a participant dies before his entire interest under the Plan has been distributed to him, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used as of the date of his death. (d) Payment of a participant's Monthly Retirement Income or Monthly Vested Termination Benefit has not commenced prior to the date of the participant's death and payments are to be made to the Eligible Surviving Spouse as provided in Sections 9.4 and 9.5, amounts payable shall be distributed to the Eligible Surviving Spouse (in accordance with regulations under the Code) over the life of the spouse. (e) A distribution under this Plan shall not be made to a participant without his consent when the Accrued Benefit under this Plan is in excess of $3,500. An Accrued Benefit is immediately distributable if any part of the benefit may be distributed to the participant before the later of normal retirement age or age 62. This provision does not apply after the death of the participant. 9.7 Payment of Small Amounts. If upon his retirement or other termination of employment the lump sum actuarially equivalent value of the portion of a participant's or Eligible Surviving Spouse's monthly benefits attributable to Employer Contributions does not exceed $3,500, the Plan Committee, in its discretion, may direct that a lump sum payment equal to the lump sum actuarially equivalent value of such monthly benefits be paid to the participant or Eligible Surviving Spouse. The lump sum actuarial equivalent value of the participant's accrued benefits shall be determined as of the date of the distribution and by using an interest rate not greater than the interest rate which would be used by the Pension Benefit Guaranty Corporation at the beginning of the Plan Year for determining lump sum distributions on plan termination. A partial or total distribution may not be made after the annuity starting date regardless of the present value of the nonforfeitable 35 accrued benefit without appropriate Eligible Surviving Spouse's consent, if such benefit exceeds $3,500. A participant who is re-employed by the employer after a termination of employment may repay any benefit he has received under the Plan before the earlier of five years after the first date on which the participant is subsequently re-employed by the Employer or the close of the first period of five consecutive one-year breaks in service commencing after the participant's withdrawal of benefits. 9.8 Designation of Beneficiaries. Subject to the provisions of Section 9.1(b), each participant may, from time to time and in accordance with rules established by the Plan Committee, designate any Beneficiary or Beneficiaries (who may be designated concurrently, contingently or successively) to whom any death benefits payable on behalf of such participant are to be distributed (other than any portion of a survivor's annuity payable to the participant's spouse under Sections 9.1(a), 9.4 or 9.5 or any death benefits payable to the participant's spouse or any other person pursuant to an option in effect at the time of his death pursuant to Section 9.2). A beneficiary designation will be effective only when it is signed, dated and filed with the Plan Committee while the participant is still alive and will cancel all Beneficiary forms previously signed and filed by the participant. Subject to the provisions of Section 9.1(b), a participant's Beneficiary designation in effect under a Predecessor Plan immediately before the Effective Date shall be deemed a valid Beneficiary designation filed with the Plan Committee under this Plan unless and until the participant revokes such Beneficiary designation or makes a new Beneficiary designation under this Plan. The term "Beneficiary" as used in the Plan means the person or persons, trust(s), estate(s), or other entity(ies) to whom a deceased participant's benefits are payable under this Section. No deferral of commencement of benefits elected under this Section shall be permitted unless the present value of the benefits payable to the participant at the end of the deferral period pursuant to the payment option elected by the participant shall be more than 50% of the present value of benefits payable to the participant and his beneficiaries, subject to the qualifications established in Section 9.2(b) of the Plan. If a participant elects to defer payment of benefits as permitted in this Section, such election shall be filed in writing with the Committee no earlier than 90 days prior to age 65 and no later than 60 days prior to such age and must be accompanied by an election of a payment option pursuant to which benefits shall be payable to the participant and his beneficiaries at the end of such deferral period. Such payment option shall, when accepted by the Committee, be irrevocable. Provided, however, that no election under this paragraph shall be accepted for consideration from any participant unless and until the Committee adopts rules permitting and implementing such deferral elections. Such rules shall specify, with such particularity as the Committee in its discretion deems appropriate, the nature and terms of deferral elections available to participants together with any election or approval procedure deemed appropriate by the Committee which is consistent with this paragraph. 9.9 Salaried Employees Transferred to Hourly Basis. The benefits payable to a participant who was a salaried employee prior to the date his participation under this Plan commenced and who is otherwise entitled to a benefit under a salaried pension plan maintained by 36 the Corporation or its subsidiaries (the "Salaried Plan") with respect to his participation in this Plan and his participation in the Salaried Plan shall be the greater of: (a) The Monthly Retirement Income or Monthly Vested Termination Benefit under this Plan which is attributable to Regular Benefits computed on the basis of all Benefit Service accrued under the Salaried Plan and this Plan; or (b) The sum of: (i) The Monthly Retirement Income or Monthly Vested Termination Benefit which is attributable to Regular Benefits under this Plan computed on the basis of his Benefit Service solely attributable to his service with the Corporation and its Subsidiaries on and after the date his participation in this Plan commenced; and (ii) His Basic Benefits under the Salaried Plan determined on the basis of his Benefit Service accrued under the Salaried Plan prior to the date his participation in this Plan commenced which Basic Benefits shall be computed on the basis of the provisions of the Salaried Plan as in effect on the date he ceased to be a salaried employee actively participating thereunder and based upon his final or annual highest compensation during his status as either a salaried or hourly employee. There shall be no duplication of Benefits for the same period of time, and if paragraph (a) above is applicable, the benefits payable hereunder shall be reduced by the benefits payable under the Salaried Plan. A participant subject to this Section 9.9 must retire under both the Salaried Plan and this Plan at the same time, must elect the same form of pension payments, must name the same beneficiaries and must make all other elections in the same manner under both the Salaried Plan and this Plan. If such participant qualified as a Prior Employer Participant under the Salaried Plan, he shall be considered a Prior Employer Participant under this Plan to the same extent as under the Salaried Plan. 9.10 Payment of Distribution Directly to Eligible Retirement Plan. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 9.11 Definitions. (a) Eligible Rollover Distribution. An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) 37 of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) Eligible Retirement Plan. An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (c) Distributee. A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (d) Direct Rollover. A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 38 Section 10 ---------- Reemployment ------------ 10.1 Reinstatement of Participation. If a former participant is reemployed by an Employer or if a participant who is receiving or is entitled to receive a Monthly Retirement Income or Monthly Vested Termination Benefit is reemployed by an Employer or a Subsidiary (referred to below as a "rehired employee") and meets the eligibility requirements described in Section 2 (except Section 2(b)) on or after the date of his reemployment, he shall become an active participant on the first date he meets such requirements. 10.2 Determination of Benefits. If a rehired employee is reinstated in accordance with Section 10.1, no benefits shall be payable to him under the Plan after his reinstatement and during the period of his reemployment. Benefits payable to a retired employee after his period of reemployment ends shall be determined in accordance with the provisions of the Plan as in effect as of the date his reemployment ends, but if the Benefit Service to which he was entitled at the time of his initial termination of employment for the purpose of computing the amount of any benefit payable to him under the Plan has been added to his Benefit Service earned for that purpose after his reemployment pursuant to Section 17.3, such benefits shall be reduced by the actuarial equivalent value of any benefits previously paid to him under the Plan. 39 Section 11 ---------- Employer Contributions ---------------------- 11.1 Employer Contributions. The Employers will contribute to the Plan from time to time such amounts as shall be determined by the "Qualified Actuary" (as defined in Section 17.11) at least sufficient to meet the normal costs for the Plan and to amortize the past service liability of the Plan over the amortization period required by applicable funding requirements imposed by federal law. In no event shall the Employer Contributions for any year exceed the amount which is deductible by the Employers for tax purposes for that year. Nothing in this Section 11.1 shall be deemed to prevent the Employers from making contributions to the Trust Fund in an amount which is greater than the amount which is required to be contributed in accordance with this Section 11.1. No participant will be required or permitted to make any contributions to this Plan. 11.2 Application of Forfeitures. Benefits that would have been payable to a participant if his employment with the Employers had not terminated before he was eligible to receive a Monthly Retirement Income or a Monthly Vested Termination Benefit and any benefits that would have been payable to such participant or to any other person but for the participant's death shall not be applied to increase the benefits of any other participants or of any other person entitled to benefits under the Plan. 40 Section 12 ---------- The Plan Committee ------------------ 12.1 Membership. The Plan Committee shall consist of three or more members appointed by the Corporation. 12.2 Plan Committee's General Powers, Rights and Duties. The Plan Committee, which is established by and derives its authority from the Corporation, is (except as otherwise provided in this Plan), as respects the rights and obligations of all parties with an interest in this Plan, given the powers, rights and duties specifically stated elsewhere in the Plan, the Trust Agreement or any other document, and in addition is given the following powers, rights and duties: (a) To determine all questions concerning administration and management arising under the Plan, including the power to determine the rights or eligibility of employees or participants and any other persons, and the amounts of their benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions. (b) To adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and Trust Agreement. (c) To enforce the Plan in accordance with the terms of the Plan and the Trust Agreement and in accordance with the rules and regulations adopted by the Plan Committee as above. (d) To direct the Trustee as respects payments or distributions from the Trust Fund in accordance with the provisions of the Plan. (e) To furnish the Employers with such information as may be required by them for tax or other purposes as respects the Plan. (f) To employ or designate agents, attorneys, accountants, actuaries or other persons (who also may be employed by any Employers, the Fund Committee or the Trustee), and to allocate or delegate to them such powers, rights and duties as the Plan Committee may consider necessary or advisable to properly carry out the administration of the Plan, provided that such allocation or delegation and the acceptance thereof by such agents, attorneys, accountants, actuaries or other persons, shall be in writing. 12.3 Manner of Action. During any period in which two or more Plan Committee members are acting, the following provisions apply where the context admits: (a) The Plan Committee members may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. 41 (b) An action or a decision of a majority of the members of the Plan Committee as to a matter shall be as effective as if taken or made by all members of the Plan Committee. (c) A Plan Committee member by writing may delegate any or all of his rights, powers, duties and discretions to any other Plan Committee member, with the consent of the latter. (d) If, because of the number qualified to act, there is an even division of opinion among the Plan Committee members as to a matter, a disinterested party selected by the Plan Committee shall decide the matter and such party's decision shall control. (e) Except as otherwise provided by law, no member of the Plan Committee shall be liable or responsible for an act or omission of the other Plan Committee members in which the former has not concurred. (f) The certificate of the Secretary of the Plan Committee or of a majority of the Plan Committee members that the Plan Committee has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. 12.4 Information Required by Plan Committee. The Employers shall furnish the Plan Committee with such data and information as the Plan Committee may deem necessary or desirable in order to administer the Plan. The records of the Employers as to an employee's or participant's period or periods of employment, termination of employment and the reason therefor, leave of absence, reemployment and the reason therefor, and earnings will be conclusive on all persons unless determined to the Plan Committee's satisfaction to be incorrect. Participants and other persons entitled to benefits under the Plan also shall furnish the Plan Committee with such evidence, data or information as the Plan Committee considers necessary or desirable to administer the Plan. 12.5 Plan Committee Decision Final. Subject to applicable law and the provisions of Section 12.6, any interpretation of the provisions of the Plan and any decision on any matter within the discretion of the Plan Committee made by the Plan Committee in good faith shall be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the Plan Committee shall make such adjustment on account thereof as it considers equitable and practicable. 12.6 Review of Benefit Determinations. The Plan Committee will provide notice in writing to any participant, Beneficiary or other person whose claim for benefits under the Plan is denied and the Plan Committee shall afford such participant, Beneficiary or other person a full and fair review of its decision, if so requested. 12.7 Uniform Rules. The Plan Committee shall administer the Plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all participants similarly situated. 12.8 Payment of Expenses. All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the 42 functioning of the Plan Committee, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. 43 Section 13 ---------- Relating to the Employers ------------------------- 13.1 Action by Employers. Any action required or permitted of an Employer under the Plan shall be by resolution of its Board of Directors, by a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or by resolution of such committee. 13.2 Additional Employers. Any subsidiary that is not an Employer may adopt the Plan and become an Employer under the Plan and a party to the Trust Agreement: (a) By filing with the Plan Committee, the Fund Committee and the Trustee a certified copy of a resolution of the Board of Directors of the subsidiary providing for its adoption of the Plan; and (b) By filing with the Plan Committee, the Fund Committee and the Trustee a certified copy of a resolution of the Board of Directors of the Corporation consenting to the adoption of the Plan by such subsidiary. 13.3 Restrictions as to Reversion of Trust Assets to Employers. Except as to contributions and premiums paid as a result of actuarial error, the Employer shall have no right, title or interest in the assets of the Trust Fund, nor will any part of the assets of the Trust Fund at any time revert or be repaid to an Employer, unless the Internal Revenue Service initially determines that the Plan, as applied to any Employer that had not maintained a Predecessor Plan, does not meet the requirements of a "qualified plan" under the Code, or unless all fixed and contingent liabilities or obligations to or on account of persons entitled to benefits under the Plan shall have been paid or provided for in full and assets remain in the Trust Fund. Notwithstanding the foregoing, contributions may, at the Plan Committee's option, revert back to the Employer if such contributions were made pursuant to their tax deductibility by the Employer and such contributions were subsequently found not to be deductible. All reversions pursuant to this Section 13.3 shall be limited in amount, circumstances and timing to the provisions of Section 403(c) of the Act, and no such reversion shall be allowed if, solely on account of such reversion, the Plan would cease to be a qualified plan pursuant to Section 401(a) of the Code. 44 Section 14 ---------- General Provisions ------------------ 14.1 Notices. Each person entitled to benefits under the Plan must file in writing with the Plan Committee such person's post office address and each change of post office address. Any communication, statement or notice addressed to any such person at the last post office address filed with the Plan Committee will be binding upon such person for all purposes of the Plan, and none of the Plan Committee, the Employers or the Trustee shall be obligated to search for or ascertain the whereabouts of any such person. Any notice or document required to be given to or filed with the Plan Committee shall be considered as given or filed if delivered or mailed by registered mail, postage prepaid, to Employee Benefits Plans Committee in care of Sterling Chemicals, Inc., P.O. Box 1311, 201 Bay Street, Texas City, Texas 77590. 14.2 Waiver of Notice. Any notice required under this Plan may be waived by the person entitled to notice. 14.3 Absence of Guaranty. Neither the Plan Committee nor any Employer in any way guarantees the Trust Fund or any other fund from loss or depreciation, nor guarantees any payment to any person. The liability of the Employers, the Trustee or the Plan Committee to make any payment under the Plan will be limited to the assets held by the Trustee which are available for that purpose. 14.4 Employment Rights. The Plan does not constitute a contract of employment, and participation in the Plan will not give any participant the right to be retained in the employ of the Employers, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued and vested under the terms of the Plan. 14.5 Interests Not Transferable. Except as may be required by the tax withholding provisions of the Code, Section 401(a)(13)(B) of the Code dealing with Qualified Domestic Relations Orders, or of a state's income tax act, and except (to the extent permitted by law) as to any debt owing to the Trustee, the interests of any person under this Plan, under the Trust Agreement are not subject to the claims of their creditors and may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered. 14.6 Facility of Payment. When a person entitled to benefits under the Plan is under a legal disability, or, in the Plan Committee's opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the Plan Committee may direct that all or part of the benefits to which such person otherwise would be entitled shall be made to such person's legal representative, or to a relative or friend of such person for such person's benefit, or the Plan Committee may direct the application of such benefits for the benefit of such person. If the Plan Committee receives proper authorization by a participant or any other person entitled to benefits under the Plan, and unless and until the Plan Committee is notified or becomes aware that such authorization no longer is in effect, the Plan Committee may direct that periodic deposits of the benefits which otherwise would be payable directly to the participant shall be made into a savings or checking account established in his name at a bank or other financial institution. Any payment made in accordance with the 45 provisions of this Section 14.6 shall be a full and complete discharge of any liability for such payment under the Plan. 14.7 Gender and Number. Where the context admits, words denoting the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular. 14.8 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. 14.9 Controlling State Law. To the extent not superseded by the laws of the United States, the laws of Texas shall be controlling in all matters relating to the Plan. 14.10 Severability. In case any provisions of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provisions had never been set forth in the Plan. 46 Section 15 ---------- Amendment, Termination or Plan Merger ------------------------------------- 15.1 Amendment. While the Employers expect and intend to continue the Plan, the Corporation reserves the right to amend or modify, retroactively or prospectively, the Plan from time to time, subject to the following: (a) No such amendment or modification, except as may be required by the Internal Revenue Service for the purpose of meeting the conditions for qualification or for tax deduction under Sections 401 through 415 and Section 501 of the Code or any applicable regulations or court decisions thereunder, or as may be required by ERISA or any other state or federal law shall alter the operation of the Plan as it applies to employees with whom or with whose representatives a written agreement respecting such Plan has been made in contravention of the provisions of any such agreement pertaining to retirement income benefits, during the term of any such agreement. (b) Except as provided in Section 13.3, under no condition shall any amendment result in the return or repayment to any Employer of any part of the Trust Fund or the income therefrom, or result in the distribution of the Trust Fund for the benefit of anyone other than employees and former employees of the Employers and any other persons entitled to benefits under the Plan. 15.2 Approvals for Establishment of Plan. The Plan as established herein is contingent upon obtaining the approval of the Corporation's Board of Directors, and if the approvals of the Internal Revenue Service of this Plan as provided in Section 15.3 are not obtained, this Plan shall no longer be effective. 15.3 Internal Revenue Service Approval. This Plan is contingent upon, and subject to obtaining and maintaining such approvals of the Internal Revenue Service as may be necessary to establish: (a) That the Plan meets the requirements of Sections 401, 410, 411, 415 and other applicable provisions of the Code, as amended, and regulations thereunder, as now in effect or hereafter amended or adopted; (b) That any Trust established under the Plan is entitled to exemption from federal income tax under Section 501(a) and other applicable provisions of the Code and regulations thereunder; and (c) That any contributions made by the Employers under the Plan shall be deductible for federal income tax purposes under Section 404 and other applicable provisions of the Code and regulations thereunder. Any modification or amendment of the Plan may be made retroactively, if necessary or appropriate, to qualify or maintain the Plan as a plan and trust or trusts meeting the requirements of 47 Sections 401, 404, 410, 411, 415 and 501 or other applicable provisions of the Code and regulations thereunder. 15.4 Termination. The Plan will terminate as to all Employers on any date specified by the Corporation if 30 days' advance written notice of the termination is given to the Plan Committee, the Trustee and the other Employers. The Plan shall terminate as to an individual Employer on the first to occur of the following: (a) The date it is terminated by the Board of Directors of that Employer. (b) The date the Employer completely discontinues its contributions under the Plan. (c) The date that Employer is judicially declared bankrupt or insolvent. (d) The dissolution, merger, consolidation or reorganization of that Employer, or the sale by that Employer of all or substantially all of its assets, except that: (i) In any such event arrangements may be made with the consent of the Corporation whereby the Plan may be continued by any successor to that Employer or any purchaser of all or substantially all of its assets, in which case the successor or purchaser may be substituted for that Employer under the Plan and the Trust Agreement; and (ii) If any Employer is merged, dissolved or in any way reorganized into, or consolidated with, any other Employer, the Plan as applied to the former Employer will automatically continue in effect without a termination thereof. 15.5 Plan Merger or Consolidation. In no event shall there be any merger or consolidation of the Plan with, or transfer of assets or liabilities to, any other Plan unless each participant in the Plan would (if the Plan then terminated) receive a benefit immediately after the merger, con solidation, or transfer which is equal to or greater than the benefit the participant would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). 15.6 Notice of Amendment, Termination or Plan Merger. Affected participants will be notified of any termination, plan merger, consolidation or substantial amendment within a reasonable time. 15.7 Nonforfeitability on "Termination" or "Partial Termination". On a "Termination" or "Partial Termination" of the Plan, as such terms are defined or determined pursuant to the applicable provisions of the Code and regulations thereunder, the rights of all affected participants to benefits accrued to the date of such Termination or Partial Termination, to the extent funded as of such date, shall be nonforfeitable. 48 Section 16 ---------- Allocation and Distribution on Termination ------------------------------------------ On termination of the Plan as respects any Employer, the Plan Committee will direct the allocation and distribution of Plan assets allocable to participants employed by that Employer and to retired or terminated participants and other persons entitled to benefits under the Plan to the extent of their benefits attributable to employment with that Employer. After payment of any expenses of administration and liquidation allocable to such Plan assets, such Plan assets remaining shall be allocated and distributed to such participants and other persons in the following manner and order to the extent of the sufficiency of such Plan assets: (a) First, to each participant or other person, the portion of a participant's Monthly Retirement Income, or Monthly Vested Termination Benefits (including benefits vested by virtue of the termination of the Plan in accordance with Section 15.7) to which the participant or such other person is entitled which is attributable to any participant's contributions. (b) Next, to the following persons: (i) To each person who was receiving a benefit under the Plan as of the beginning of the three-year period ending on the date of termination of the Plan, the full extent of such person's benefit, determined in accordance with the terms of the Plan in effect during the five-year period ending on such date under which such person's benefit would be the least, properly adjusted for any allocation of assets with respect to such benefit under paragraph (a) above; and (ii) To each participant who was eligible for retirement at the beginning of the three-year period ending on the date of termination, to the full extent of such person's benefit, determined in accordance with the terms of the Plan in effect during the five-year period ending on such date under which such participant's benefit would be the least, properly adjusted for any allocation of assets with respect to such benefit under paragraph (a) above. (c) Next, to each person who was entitled to a benefit under the Plan as of the date of termination of the Plan, the portion of such benefit which constitutes a "basic benefit" under Title IV of ERISA (determined without regard to Sections 4022(b)(5) and (b)(6) thereof), properly adjusted for any allocation of assets with respect to such benefit made under paragraphs (a) or (b) above. (d) Next, to each person who was entitled to a benefit under the Plan as of the date of termination of the Plan, such person's nonforfeitable benefit, properly adjusted for any allocation of assets with respect to such benefit made under paragraphs (a), (b) or (c) above. 49 (e) Finally, to each person who was a participant in the Plan on the date of termination of the Plan, such person's benefit under the Plan accrued up to that date, properly adjusted for any allocation of assets with respect to such benefit made under paragraphs (a), (b), (c), or (d) above. In making such allocations, the benefits contemplated under paragraph (a) above shall be completely provided for before any allocations are made under paragraphs (b), (c), (d) and (e), and the allocations provided for in paragraph (b) above shall be completely provided for before making any allocations under paragraphs (c), (d) and (e) and so forth. In the event that the assets available for allocation under either paragraphs (a), (b) or (c) above are not sufficient to satisfy in full the benefits of all persons described in any such paragraph, the assets shall be allocated pro rata among such persons on the basis of the present value (as of the date of termination of the Plan) of their respective benefits described in such paragraph. In the event that the assets available for allocation under paragraph (d) above are not sufficient to satisfy in full the benefits of persons described in that paragraph, except as provided in the following sentence, the assets shall be allocated to each such person on the basis of such person's benefit determined in accordance with the terms of the Plan in effect at the beginning of the five-year period ending on the date of termination of the Plan, properly adjusted for any allocation of assets with respect to such person's benefit made under paragraphs (a), (b) or (c). If the assets available for allocation under paragraph (d) above are sufficient to satisfy the benefits described in the preceding sentence, then the benefits of persons described in that paragraph shall be determined on the basis of the Plan as amended by the most recent Plan amendment effective during such five-year period under which the assets available for allocation are sufficient to satisfy in full the benefits of such persons, and any assets remaining to be allocated under such paragraph shall be allocated on the basis of the Plan as amended by the next succeeding Plan amendment effective during such period. In the event that there are not sufficient assets to make the allocation under paragraph (e) above, the allocation otherwise to be made under that paragraph shall be proportionately reduced. Distribution may be made in cash, property or annuity or partly in each, provided property is distributed at its fair market value as of the date of distribution as determined by the Trustee. If the Plan Committee so determines, and with the consent of the Corporation, the benefits distributable under this Section 16 to any participant who continues in the employ of an Employer may be retained in the Trust Fund until the participant's employment with the Employers is terminated. Notwithstanding anything herein to the contrary, distributions due to termination of the Plan shall be made in a manner consistent with Section 9. 50 Section 17 ---------- Definitions ----------- 17.1 Vesting Service. A participant's "Vesting Service" means the total of his years of service and fractional years of service determined in accordance with the following rules: (a) Service with the Employers and the Subsidiaries will be treated as Vesting Service as follows: (i) Effective January 1, 1996, a participant will be credited with one year of Vesting Service for each calendar year during which he completes at least 1,000 "Hours of Service" (as defined in Section 17.4) with the Employers and the Subsidiaries. A participant who completes at least 1,000 Hours of Service in both (i) the period beginning October 1, 1995 and ending September 30, 1996 and (ii) the calendar year beginning January 1, 1996, shall be credited with two (2) years of Vesting Service. (ii) If a participant completes less than 1,000 Hours of Service in any calendar year, he shall be entitled to a fractional portion of a year of Vesting Service for such calendar year which fraction shall be determined by dividing the number of such participant's Hours of Service during such calendar year by the number of Hours of Service (not less than 1,000 hours) which are included in the participant's Standard Work Year (as defined in Section 17.6). (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, a participant who is a Qualified Disabled Terminated Employee will be credited with one year of Vesting Service and fractions thereof, respectively, for each calendar year during which he is deemed to be on Long-Term Disability. (iv) Notwithstanding the provisions of paragraph (i) and (ii) above, a participant's Vesting Service for Plan Years ending prior to the Effective Date shall in no event be less than his Credited Service as a Prior Employer participant under the Monsanto Company Hourly Paid Employees' Pension Plan and the Monsanto Company Salaried Employees' Pension Plan. (v) If a participant who has previously completed 5 years of Vesting Service incurs a one-year "Break in Service" (as defined in Section 17.5) and is subsequently reemployed by an Employer, his years of Vesting Service before such Break in Service shall not be taken into account in determining his Vesting Service after such Break in Service unless: A. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries; or 51 B. His Break in Service was a result of a layoff and he is subsequently reemployed by an Employer or a Subsidiary following such layoff; or C. His Break in Service was a result of Long-Term Disability and he is reemployed by an Employer or a Subsidiary upon the cessation of his Long-Term Disability. (vi) If a participant who has not yet completed 5 years of Vesting Service incurs a one-year Break in Service and is subsequently reemployed by an Employer, his years of Vesting Service before such Break in Service shall not be taken into account in determining his Vesting Service after such Break in Service unless: A. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries and the number of consecutive Breaks in Service prior to such reemployment is less than the aggregate number of his years of Vesting Service prior to such Break in Service; or B. He subsequently completes 10 years of Vesting Service with the Employers and the Subsidiaries; or C. His Break in Service was a result of a layoff and he is subsequently reemployed by an Employer or a Subsidiary within the three-year period following the commencement of such layoff; or D. His Break in Service was a result of his Long-Term Disability and he is reemployed by an Employer or a Subsidiary upon the cessation of his Long-Term Disability; or E. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries and the number of consecutive Breaks in Service prior to such reemployment is less than the greater of: (1) five consecutive one-year Breaks in Service; or (2) the aggregate number of years of Vesting Service before such Break in Service. Solely for the purpose of determining whether any one-year Break in Service under this paragraph (vi) has occurred, Hours of Service will be credited pursuant to the normal method of crediting Hours of Service under this Plan not to exceed 501 Hours of Service as a result of any period of absence of employment due to: a. the pregnancy of the participant; 52 b. the birth of a child of a participant; c. the placement of a child with the participant in connection with the adoption of such child by such participant; or d. the care of such child by the participant immediately following such birth or placement. The Hours of Service to be credited under this paragraph (vi)(E) shall only be credited in the year in which the absence from work begins, if a participant would be prevented from incurring a one-year Break in Service solely because the period of absence is treated as Hours of Service or, in any other case, in the immediately following year. No credit for such enumerated absences will be given pursuant to this paragraph (vi)(E) unless the participant furnishes to the Plan Committee such timely information as the Committee may reasonably require to establish that the absence and the length of absence was due to an enumerated reason. (vii) Notwithstanding the provisions of paragraphs (i) and (ii) above, during the period that a participant is deemed to be on disability Leave of Absence, as such term is defined in the Hourly Disability Plan, he will be credited with Hours of Service for Vesting Service purposes pursuant to the terms of Section 17.4 hereof. (viii) Notwithstanding the provisions of paragraphs (i) and (ii) above, a participant who is deemed to be on Long-Term Disability under the provisions of the Hourly Disability Plan and who has 30 or more months of Benefit Service at his Disability Termination Date, shall be credited with Hours of Service for Vesting Service purposes pursuant to the terms of Section 17.4 hereof until the date payments cease under the Hourly Disability Plan. (b) The termination of a participant's employment with one Employer will not interrupt the continuity of his employment if, concurrently with or immediately after such termination, he or she is employed by one or more other Employers. (c) If and to the extent the Corporation so provides, the last continuous period of a participant's service with a Predecessor Company (as defined below) will be considered as service with the Employers if such participant becomes employed by one or more of the Employers. For purposes of this paragraph, a "Predecessor Company" means any co rporation or other entity the stock, assets or business of which is acquired by an Employer, whether by merger, consolidation, purchase of assets or otherwise, and any predecessor thereto designated by the Corporation. (d) For purposes of this Section 17.1, if a participant had a prior period or periods of service with a Subsidiary that has not adopted the plan, such period or periods of service with the Subsidiary will be considered as service with the Employer. 53 (e) A period of concurrent service with two or more Employers under the Plan or Subsidiaries that have not adopted the Plan will be considered as employment with only one of them during that period. (f) For purposes of this Section 17.1, if a participant was formerly a Leased Employee (as defined in Section 414(n) of the Code), a prior period or periods of service with an Employer or a Subsidiary while in the status of a Leased Employee, shall be considered as service with an Employer. (g) A participant's Vesting Service shall include all Credited Service credited to the participant under the terms of the Employer Plans by reason of his transfer from salaried employee status to hourly paid employee status. (h) Solely for the purpose of computing Vesting Service, a participant who is or was a "Part-Time Employee" will be credited with the number of Hours of Service equal to that of a regular full time employee at the participant's location of employment for each calendar month during which he furnished employment service to an Employer or a Subsidiary while employed in the status of a Part-Time Employee. (i) The Vesting Credited Service accrued by a Prior Employer Participant under the Monsanto Company Salaried Employees' Pension Plan and the Monsanto Company Hourly Paid Employees' Pension Plan shall be considered as Vesting Service under this Plan. (j) A participant who is granted a Corporation-approved leave-of- absence to conduct business on behalf of the local union of which the participant is a member will continue to accrue Vesting Service during the term of the Corporation-approved leave-of-absence. 17.2 Benefit Service. A participant's "Benefit Service" means his "Benefit Service" (as defined in Section 17.3). For purposes of Section 4.2 a participant's years of Benefit Service shall only include such years to the extent that they are attributable to employment by an Employer and as a Prior Employer Participant. For the purposes of this Section 17.2 and Section 4.2, a predecessor employer shall be considered to be an Employer to the extent the Corporation so provides. 17.3 Benefit Service. A participant's "Benefit Service" means the total of his years of service and fractional years of service after the Plan's Effective Date determined in accordance with the following rules: (a) Service with the Employers and the Subsidiaries on and after the Plan's Effective Date will be treated as Benefit Service as follows: (i) Effective January 1, 1997, a participant will be credited with one year of Benefit Service for any calendar year in which the participant completes the number of Hours of Service (not less than 1,000 hours) which are included in the participant's Standard Work Year (as defined in Section 17.6). 54 (ii) In determining a participant's years of Benefit Service for any calendar year in which the participant completes at least 1,000 Hours of Service but less than the number of Hours of Service set forth in paragraph (i) above, the participant will be entitled to a fractional part of a year of Benefit Service determined by dividing the number of Hours of Service actually completed by such participant by the number of Hours of Service (not less than 1,000 Hours) which are included in the participant's Standard Work Year. (iii) If a participant completes less than 1,000 Hours of Service in any calendar year, he shall be entitled to a fractional portion a year of Benefit Service for such year, which fraction shall be determined by dividing the number of such participant's Hours of Service during such calendar year by the amount determined in paragraph (i) above. (iv) For the period beginning October 1, 1996 and ending December 31, 1996, a participant will be credited with a fractional part of a year of Benefit Service determined by dividing (A) the number of Hours of Service actually completed by such participant during such period by (B) the number of Hours of Service (not less than 1,000 hours) which are included in the participant's Standard Work Year. (v) If a participant who has previously completed 5 years of Vesting Service (as defined in Section 17.1) incurs a one-year "Break in Service" (as defined in Section 17.6) and is subsequently reemployed by an Employer, his Benefit Service before such Break in Service shall not be taken into account in determining his Benefit Service after such Break in Service unless: A. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries; or B. His Break in Service was a result of a layoff and he or she is subsequently reemployed by an Employer or a Subsidiary following such layoff; or C. His Break in Service was a result of Long-Term Disability and he is reemployed by an Employer or a Subsidiary upon the cessation of his Long-Term Disability. (vi) If a participant who has not yet completed 5 years of Vesting Service incurs a one-year Break in Service and is subsequently reemployed by an Employer, his Benefit Service before such Break in Service shall not be taken into account in determining his Benefit Service after such Break in Service unless: A. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries and the number of consecutive Breaks in 55 Service prior to such reemployment is less than the aggregate number of his years of Vesting Service prior to such Break in Service; or B. He subsequently completes 10 years of Vesting Service with the Employers and the Subsidiaries; or C. His Break in Service was a result of a layoff and he is subsequently reemployed by an Employer or a Subsidiary within the three-year period following the commencement of such layoff; or D. His Break in Service was a result of Long-Term Disability and he is reemployed by an Employer or a Subsidiary upon the cessation of his Long-Term Disability; or E. He subsequently completes a year of Vesting Service with the Employers and the Subsidiaries and the number of consecutive Breaks in Service prior to such reemployment is less than the greater of: (1) five consecutive one-year Breaks in Service; or (2) the aggregate number of years of Vesting Service before such Breaks in Service (vii) Notwithstanding the provisions of paragraphs (i) and (ii) above, during the period that such a participant is deemed to be on disability Leave of Absence, as such term is defined in the Hourly Disability Plan, he will be credited with Hours of Service for Benefit Service purposes pursuant to the terms of Section 17.4 hereof. (viii) Notwithstanding the provisions of paragraphs (i) and (ii) above, a participant, who is deemed to be on Long-Term Disability under the provisions of the Hourly Disability Plan and who has 30 or more months of Benefit Service at his Disability Termination Date, shall be credited with Hours of Service for Benefit Service purposes pursuant to the terms of Section 17.4 hereof until the date payments cease under the Hourly Disability Plan with his benefit hereunder based upon the Retirement Income Factor in effect on the date he is deemed Totally and Permanently Disabled. (b) The termination of a participant's employment with one Employer will not interrupt the continuity of his employment if, concurrently with or immediately after such termination, he is employed by one or more other Employers. (c) If and to the extent the Corporation so provides, the last continuous period of a participant's service with a Predecessor Company (as defined below) will be considered as service with the Employers if such participant becomes employed by one or more of the 56 Employers. For purposes of this paragraph, a "Predecessor Company" means any corporation or other entity the stock, assets or business of which is acquired by an Employer, whether by merger, consolidation, purchase of assets or otherwise, and any predecessor thereto designated by the Corporation. (d) A period of concurrent service with two or more Employers under the Plan or Subsidiaries that have not adopted the Plan will be considered as employment with only one of them during that period. (e) A participant who is granted a Corporation-approved leave-of- absence to conduct business on behalf of the local union of which the participant is a member will continue to accrue Benefit Service during the term of the Corporation-approved leave-of-absence. 17.4 Hours of Service. An "Hour of Service" means an hour for which an employee is directly or indirectly compensated by the Employers or by a Subsidiary in the case of service with such Subsidiary, for the performance of duties for the Employers or such Subsidiary (including hours for which an employee has been awarded backpay by the Employers or such Subsidiary or by any governmental agency or judicial body to the extent such hours are not otherwise treated as Hours of Service). Notwithstanding the preceding sentence, the following special rules shall apply: (a) To the extent not otherwise treated as Hours of Service the following shall constitute Hours of Service: (i) Overtime clock hours; (ii) Hours of service required to be taken into account to satisfy federal military service laws or regulations or to satisfy any other federal laws; (iii) Hours of absence from active work because of regular paid vacations or holidays; (iv) Hours of absence from active work because of occupational illness or disability not yet determined to constitute Long-Term Disability; (v) Hours of absence from active work during the first 12 months of an absence due to non-occupational illness or disability not yet determined to constitute Long-Term Disability or due to a layoff; (vi) Hours during an authorized leave of absence or during such shorter period as may be specified by the Plan Committee. (b) For purposes of Section 17.5, Hours of Service shall also include hours, not otherwise treated as Hours of Service, for which a Participant is directly or indirectly 57 compensated by the Employers or the Subsidiaries, or entitled to compensation from the Employers or Subsidiaries, for absences due to sickness, disability or similar reason. (c) The number of Hours of Service which are awarded under this Section during a Participant's absence from work and during which he performs no duties for his Employer, whether or not he receives direct or indirect compensation from an Employer during such absence, shall be the number of Hours of Service during his Standard Work Week and/or Standard Work Year during which he would have ordinarily performed duties for his Employer if he had reported for work instead of being absent. No more than eight Hours of Service shall be awarded for any day of absence; no more than 1,000 Hours of Service shall be awarded under this Section for purposes of Section 17.1 in any year; and no more than 2,080 Hours of Service shall be awarded under this Section for purposes of Section 17.3 in any year. All Hours of Service awarded a Participant under this Section for periods of absence from work shall be included in the year in which such absence occurred. (d) In addition to the periods specified in paragraphs (a)(iv) and (v) for any period of absence which qualifies as a "Leave of Absence" as such term is defined in the Hourly Disability Plan, Hours of Service will be credited for the period during which the participant is entitled to "Minimum Disability Income" under the Hourly Disability Plan if the participant either returns to the employment of an Employer or Subsidiary at the end of such period of absence or is determined to be on Long-Term Disability under the terms of the Hourly Disability Plan in which case Hours of Service during such period of absence shall be determined as indicated in paragraph (c) above and credited for the period provided in Sections 17.1(a)(vii) and 17.3(a)(vii). (e) Once it is determined that an employee should be credited with an Hour of Service, such Hour of Service shall be credited to the computation period or periods in which the duties are performed or are deemed to have been performed or to which the payment pertains; provided, however, that except as may be otherwise provided in this Section 17.4 for certain specified types of absences, no more than 501 Hours of Service shall be credited during any absence from employment and during which no services are rendered notwithstanding the fact that the employee may have been deemed to have performed service during such period or for which payments are due and the number of hours which will be credited during such absences shall be credited according to the number of hours which are scheduled in the Participant's Standard Work Week. (f) Effective May 1, 1996, in determining the Hours of Service of any employee who is compensated by the Employers or the Subsidiaries on a basis not dependent on the number of hours worked by such employee, the Plan Committee may credit such employee with 95 Hours of Service for each semi- monthly payroll period in which such employee is directly or indirectly compensated by the Employers or Subsidiaries for the performance of duties for the Employers and the Subsidiaries, or may utilize such other method of estimating the Hours of Service of such employee during such period as may be authorized under the applicable regulations. 58 17.5 Break In Service. Effective January 1, 1996, a one-year "Break in Service" means a calendar year in which a participant completes not more than 500 Hours of Service, except where such calendar year is the year in which the participant either: (a) First commenced employment with an Employer and continuously accrued Hours of Service from the date of hire to the end of such calendar year; or (b) Terminated all further employment with Employers following an unbroken, continuous accrual of Hours of Service from January 1 of such year to the date of such termination. 17.6 Standard Work Week. With respect to any regular, full-time employee covered under the Plan, his "Standard Work Week" shall mean 40 Hours of Service and the "Standard Work Year" shall mean 2,080 Hours of Service. With respect to employees who are not regular, full-time employees, the "Standard Work Week" shall mean the average number of hours which are regularly scheduled to be worked each week by the employee, and the "Standard Work Year" for such employees shall mean the number of hours in the employee's Standard Work Week multiplied by 52. 17.7 Layoff. "Layoff" shall mean layoff of the participant from employment with an Employer. 17.8 Retirement Income Factor. The "Retirement Income Factor" applicable with respect to any participant in accordance with Section 4.2 is the dollar amount set forth in Exhibit "A" determined with respect to such participant. 17.9 Subsidiary. A "Subsidiary" is any subsidiary or affiliate of the Corporation, 80 percent of the stock of which is controlled by the Corporation by application of Sections 414(b) and 1563(a) of the Code. 17.10 Subsidiary. A "subsidiary" is any subsidiary or affiliate of the Corporation not described in Section 17.9 which would be so described if the figure 51 were replaced for the figure 80 in Section 17.9. 17.11 Qualified Actuary. "Qualified Actuary" means either an independent individual actuary who is a member of the Society of Actuaries, or a firm of independent actuaries, one of whose members is a member of the Society of Actuaries and who is enrolled with the Joint Board for the Enrollment of Actuaries, and is selected by the Plan Committee. 17.12 Actuarial Equivalent. Except to the extent expressly provided to the contrary by ERISA, a benefit shall be actuarially equivalent to any other benefit if the actuarial reserve required to provide the same is equal to the actuarial reserve required to provide such other benefit, computed on the basis of the actuarial rates, tables and procedures last adopted by the Plan Committee for this purpose. No adjustment in a determination of an actuarially equivalent value or amount shall be 59 made if such tables, rates and procedures are changed by the Plan Committee subsequent to such determination. Actuarially equivalent amounts or values will be determined on the basis of the following actuarial rates and tables: (a) The assumed mortality rates will be based on the 1971 Towers, Perrin, Forster and Crosby Forecast Mortality Table using a one-year age setback for the participant and a five-year age setback for the beneficiary or spouse. (b) In order to determine the equivalent value of optional benefits, the assumed annual rate of return will be 7%. 17.13 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any comparable future legislation that amends, supplements or supersedes said Internal Revenue Code. 17.14 Final Average Pay. (a) "Final Average Pay" shall be the greater of the Final Average Pay in the following two computation periods: (i) the 36 whole months immediately prior to the covered employee's Retirement Date or Employment Termination Date, whichever occurs first, or (ii) the three of the last five calendar years which produced the highest Final Average Pay immediately prior to the year of the covered employee's Retirement Date or Employment Termination Date, whichever occurs first. (b) The Final Average Pay of a covered employee for each computation period shall be the sum of (i), (ii) and (iii): (i) Average annual base pay. Average annual base pay shall be calculated by (A) determining the covered employee's regular base straight-time rate, exclusive of any premiums, for the last day of each month during the applicable computation period; (B) averaging the above regular base straight-time rates; and (C) multiplying the average by 2,080. (ii) Average annual straight-time overtime base pay. Average annual straight-time overtime base pay shall be calculated by multiplying the covered employee's average regular base straight-time rate, exclusive of any premiums, as determined in (i) above, by the average annual number of overtime hours worked by all covered employees during the applicable computation period at the location at which the covered employee is employed. For purposes of this calculation, overtime hours shall be considered worked in the month in which the straight-time overtime base pay is actually paid. 60 (iii) Average annual shift premium pay. Average annual shift premium pay shall be calculated by (A) determining the covered employee's total shift premium paid for regularly scheduled hours during the applicable computation period; and (B) dividing by three. For purposes of this calculation, shift premium shall be considered attributable to hours worked in the month in which the shift premium pay is actually paid. (c) Computation of a covered employee's Final Average Pay shall be subject to the following: (i) For purposes of calculating Final Average Pay during the final 36 months computation period, if the covered employee has no earnings during one or more of his final 36 months, his Final Average Pay shall be based upon his average annual base pay, average annual straight- time overtime base pay, and average annual shift premium pay during the final 36 months in which he had base pay. (ii) For any month in which a covered employee receives only accident and sickness pay or disability income from any employee welfare benefit plan maintained by his Employer or in which his Employer participates, his regular base straight-time rate for purposes of paragraph (b)(i)(A) above shall be calculated based upon his regular base straight-time rate on his last day worked, exclusive of any premiums. (iii) If a covered employee voluntarily bid to or was involuntarily placed in a different job which resulted in a reduction in his regular base straight-time rate during the applicable computation period and the covered employee's regular base straight- time rate for each month thereafter during the applicable computation period for purposes of paragraph (b)(i)(A) above shall be the greater of the regular base straight-time rate on the last day of the month prior to such reduction or the regular base straight-time rate in any subsequent month during the applicable computation period. (d) In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the compensation of each participant taken into account under the Plan for purposes of determining Final Average Pay shall not exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined ("Determination Period") beginning in such calendar year. If a Determination Period consists of fewer than 12 months, the "OBRA '93 Annual Compensation Limit" will be multiplied by a fraction, the numerator of which is the number of months in the Determination Period, and the denominator of which is 12. 61 If compensation for any prior Determination Period is taken into account in determining a participant's benefits accruing in the current Plan Year, the compensation for that prior Determination Period is subject to the "OBRA '93 Annual Compensation Limit" in effect for that prior Determination Period. For this purpose, for Determination Periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the "OBRA '93 Annual Compensation Limit" is $150,000. 17.15 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. IN WITNESS WHEREOF, the Corporation has executed this Amended and Restated Hourly Paid Employees' Pension Plan this 19th day of Aug., 1996. STERLING CHEMICALS, INC. ATTEST: By: /s/ Robert O. McAlister /s/ F. Maxwell Evans ---------------------------------- __________________________ Name: Robert O. McAlister Title: V.P.H.R. & Admin. 62 EXHIBIT "A" Retirement Income Factor The "Retirement Income Factor" applicable with respect to a participant shall be determined based on Final Average Pay in accordance with the following table: Final Average Pay: Retirement Income Factor: ----------------- ------------------------ Less than $35,500 $35 $35,500 - $36,499 $36 $36,500 - $37,499 $37 $37,500 - $38,499 $38 $38,500 - $39,499 $39 $39,500 - $40,499 $40 $40,500 - $41,499 $41 $41,500 - $42,499 $42 $42,500 - $43,499 $43 $43,500 - $44,499 $44 $44,500 - $45,499 $45 $45,500 - $46,499 $46 $46,500 - $47,499 $47 $47,500 - $48,499 $48 $48,500 - $49,499 $49 $49,500 - $50,499 $50 $50,500 - $51,499 $51 $51,500 - $52,499 $52 $52,500 - $53,499 $53 $53,500 - $54,499 $54 $54,500 and greater $55 EX-10.6 6 EXHIBIT 10.6 EXHIBIT 10.6 STERLING CHEMICALS ESOP TABLE OF CONTENTS Section Page - - ------- ---- ARTICLE I DEFINITIONS.................................I-1 ARTICLE II ADMINISTRATION.............................II-1 2.1 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY........II-1 2.2 ALLOCATION AND DELEGATION OF RESPONSIBILITIES................II-1 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR...................II-2 2.4 RECORDS AND REPORTS..................II-3 2.5 AUDIT................................II-3 2.6 APPOINTMENT OF ADVISORS..............II-4 2.7 INFORMATION FROM EMPLOYER............II-4 2.8 PAYMENT OF EXPENSES..................II-4 2.9 ACTIONS BY ADMINISTRATOR.............II-4 2.10 CLAIMS PROCEDURE.....................II-5 2.11 CLAIMS REVIEW PROCEDURE..............II-5 ARTICLE III ELIGIBILITY...............................III-1 3.1 CONDITIONS OF ELIGIBILITY...........III-1 3.2 EFFECT OF PARTICIPATION UPON THE ACCEPTANCE OF ANY BENEFITS UNDER THIS PLAN................III-1 3.3 DETERMINATION OF ELIGIBILITY........III-1 3.4 TERMINATION OF ELIGIBILITY..........III-1 3.5 OMISSION OF ELIGIBLE EMPLOYEE.......III-1 3.6 INCLUSION OF INELIGIBLE EMPLOYEE....III-1 ARTICLE IV CONTRIBUTION AND ALLOCATION................IV-1 4.1 EMPLOYER'S CONTRIBUTION..............IV-1 4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION....................IV-1 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS........IV-1 4.4 MAXIMUM ANNUAL ADDITIONS.............IV-5 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.......................IV-9 4.6 DIRECTED DIVERSIFICATION............IV-10 4.7 SUSPENSE ACCOUNT....................IV-11 -i- ARTICLE V FUNDING AND INVESTMENT POLICY...............V-1 5.1 INVESTMENT POLICY.....................V-1 5.2 APPLICATION OF CASH...................V-1 5.3 TRANSACTIONS INVOLVING COMPANY STOCK..V-1 5.4 LOANS TO THE TRUST....................V-2 ARTICLE VI VALUATIONS.................................VI-1 6.1 VALUATION OF THE TRUST FUND..........VI-1 6.2 METHOD OF VALUATION..................VI-1 ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS.......................VII-1 7.1 BENEFITS UPON RETIREMENT............VII-1 7.2 BENEFITS UPON DEATH.................VII-1 7.3 BENEFITS UPON DISABILITY............VII-2 7.4 BENEFITS UPON TERMINATION...........VII-2 7.5 DISTRIBUTION OF BENEFITS............VII-5 7.6 HOW PLAN BENEFITS WILL BE DISTRIBUTED....................VII-7 7.7 DISTRIBUTION FOR MINOR BENEFICIARY..VII-9 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN............VII-9 7.9 RIGHT OF FIRST REFUSAL..............VII-9 7.10 STOCK CERTIFICATE LEGEND...........VII-10 7.11 PUT OPTION.........................VII-10 7.12 NONTERMINABLE PROTECTIONS AND RIGHTS........................VII-12 7.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS.................VII-12 7.14 PAYMENT OF DISTRIBUTION DIRECTLY TO ELIGIBLE RETIREMENT PLAN......VII-13 7.15 30-DAY WAIVER......................VII-14 ARTICLE VIII TRUSTEE..................................VIII-1 8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE.......................VIII-1 8.2 VOTING COMPANY STOCK...............VIII-1 ARTICLE IX AMENDMENT, TERMINATIONS, AND MERGERS.......IX-1 9.1 AMENDMENT............................IX-1 9.2 TERMINATION..........................IX-1 9.3 MERGER OR CONSOLIDATION..............IX-2 -ii- ARTICLE X MISCELLANEOUS.............................. X-1 10.1 PARTICIPANT'S RIGHTS..................X-1 10.2 ALIENATION............................X-1 10.3 CONSTRUCTION OF PLAN..................X-1 10.4 GENDER AND NUMBER.....................X-1 10.5 LEGAL ACTION..........................X-2 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS............................X-2 10.7 BONDING...............................X-2 10.8 RECEIPT AND RELEASE FOR PAYMENTS......X-3 10.9 ACTION BY THE EMPLOYER................X-3 10.10 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY...................X-3 10.11 HEADINGS..............................X-3 10.12 APPROVAL BY INTERNAL REVENUE SERVICE..X-3 10.13 UNIFORMITY............................X-4 10.14 SECURITIES AND EXCHANGE COMMISSION APPROVAL.........................X-4 10.15 INDEMNIFICATION.......................X-4 10.16 CONTROLLING LAW.......................X-4 ARTICLE XI PARTICIPATING EMPLOYERS....................XI-1 11.1 ADOPTION BY OTHER EMPLOYERS..........XI-1 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS.......................XI-1 11.3 DESIGNATION OF AGENT.................XI-2 11.4 EMPLOYEE TRANSFERS...................XI-2 11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION....................XI-2 11.6 AMENDMENT............................XI-2 11.7 DISCONTINUANCE OF PARTICIPATION......XI-2 11.8 ADMINISTRATOR'S AUTHORITY............XI-3 11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE...................XI-3 ARTICLE XII TOP-HEAVY STATUS..........................XII-1 12.1 ARTICLE CONTROLS....................XII-1 12.2 DEFINITIONS.........................XII-1 12.3 TOP-HEAVY STATUS....................XII-2 12.4 TERMINATION OF TOP-HEAVY STATUS.....XII-3 12.5 EFFECT OF ARTICLE...................XII-3 -iii- STERLING CHEMICALS ESOP W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company desires to recognize the contributions employees of the Employers will make to the successful operation of its parent corporation and to reward such contributions by means of an employee stock ownership plan for those employees who qualify as Participants hereunder; and WHEREAS, contributions to the Plan will be made by the Employers and such contributions made to the Plan's trust will be invested primarily in Company Stock; NOW, THEREFORE, as of the Effective Date the Company hereby establishes this ESOP for the exclusive benefit of its Participants and their Beneficiaries under the following terms: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the person designated by the Chief Executive Officer of the Company pursuant to Section to administer the Plan or, in the absence of any such designation, the Company. 1.3 "Affiliated Employer" means the Employer and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which include the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1.4 "Anniversary Date" means the last day of each Plan Year. 1.5 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 7.2 and 7.6. 1.6 "Benefit Commencement Date" means with respect to each Participant or Beneficiary, the first date on which all events have occurred which entitle such Participant or Beneficiary to such benefits. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Company" means STX Chemicals Corp., to be renamed Sterling Chemicals, Inc. on the Effective Date (or its successor). 1.9 "Company Stock" means common stock issued by STX Acquisition Corp., to be renamed Sterling Chemicals Holding, Inc. ("Holdco"), (or by an Employer) which is readily tradeable on an established securities market. If there is no common stock which meets the foregoing requirement, the term "Company Stock" means common stock issued by Holdco (or by an Employer) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of Holdco (or of an Employer) having the greatest voting power, and (B) that class of stock of the Employer (or of any other such corporation) having the greatest dividend rights. Preferred Stock shall be deemed to be "Company Stock" if such stock is convertible at any time into stock which constitutes "Company Stock" hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. I-1 1.10 "Company Stock Account" means the account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust Fund or contributed to the Trust Fund. 1.11 "Compensation" with respect to any Participant means such Participant's base Compensation (before any Employee elective salary reductions pursuant to a Section 125 or 401(k) plan of the Employers) paid from the Employers for that portion of the Plan Year during which he is an Eligible Employee and a Participant in the Plan and shall not include any other forms of compensation, including, without limitation, severance pay, overtime or profit sharing amounts. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual Compensation of each Employee taken into account under the Plan shall not exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation is determined ("Determination Period") beginning in such calendar year. If a Determination Period consists of fewer than 12 months, the "OBRA '93 Annual Compensation Limit" will be multiplied by a fraction, the numerator of which is the number of months in the Determination Period, and the denominator of which is 12. Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit" set forth in this Section. 1.12 "Current Obligations" means Trust obligations arising from extension of credit to the Trust and payable in cash within one year from the date an Employer Contribution is due. 1.13 "Effective Date" means date of the closing of the acquisition of "old" Sterling Chemicals, Inc. by STX Acquisition Corp. 1.14 "Eligible Employee" means any Employee of an Employer who (1) is not (i) a Leased Employee or (ii) a nonresident alien and (2) has satisfied the provisions of Section 3.1; provided, however, Employees whose employment is governed by the terms of a collective bargaining agreement between employee representatives (within the meaning of Code Section 7701(a)(46)) and the Employer will not be eligible to participate in this Plan unless such agreement expressly provides for such coverage in this Plan. 1.15 "Employee" means any person who is a common law employee of the Employer or an Affiliated Employer. Employee shall also include Leased Employees, except when they are not required to be treated as employees for Plan purposes by the Code. 1.16 "Employer" means the Company and any Participating Employer (as defined in Section 11.1) which shall adopt this Plan, and any successor which shall maintain this Plan. I-2 1.17 "Employer Contributions" means the Employer's contributions to the Plan pursuant to Section 4.1(a). 1.18 "ESOP" means an employee stock ownership plan that meets the requirements of Code Section 4975(e)(7) and Regulations 54.4975-11. This Plan is intended to be an ESOP. 1.19 "Exempt Loan" means a loan made to the Plan by a disqualified person or a loan to the Plan which is guaranteed by a disqualified person and which satisfies the requirements of Section 2550.408b-3 of the Department of Labor Regulations, Section 54.4975-7(b) of the Treasury regulations and Section 5.4 hereof. 1.20 "Family Member" means an individual described in Code Section 414(q)(6)(B). 1.21 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan. 1.22 "Forfeiture" means that portion of a Participant's Account that is not Vested in accordance with the provisions of Section 7.4, on account of the Participant's termination of employment before full vesting. 1.23 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. For purposes of Section 1.29, a "Former Participant" shall be treated as a Highly Compensated Participant if such "Former Participant" was a Highly Compensated Participant when he separated from service with the Employer or was a Highly Compensated Participant at any time after attaining age 55. 1.24 "415 Compensation" means compensation as defined in Section 4.4(e). 1.25 "Highly Compensated Employee" means any Employee or former Employee who is a highly compensated employee as defined in Code Section 414(q) and the Regulations thereunder. Generally, any Employee or former Employee is considered a Highly Compensated Employee if such Employee or former Employee performed services for the Employer during the "determination year" and is one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.29(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000. In determining whether an individual has "415 I-3 Compensation" of more than $75,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the top-paid group of Employees for the Plan Year. An Employee is in the top-paid group of Employees for any Plan Year if such Employee is in the group consisting of the top 20% of the Employees when ranked on the basis of "415 Compensation" paid during the Plan Year. In determining whether an individual has "415 Compensation" of more than $50,000, "415 Compensation" from each employer required to be aggregated under Code Section 414(b), (c), (m) and (o) shall be taken into account. (d) Employees who during the "look-back year" were officers as defined in Section 1.29(a) and received "415 Compensation" during the "look-back year" from the Employer greater than 50% of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10% of all employees. For the purpose of determining the number of officers, the following Employees shall be excluded: (1) Employees with less than six months of service; (2) Employees who normally work less than 17 1/2 hours per week; (3) Employees who normally work less than six months during a year; and (4) Employees who have not yet attained age 21. However, such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50% of the Code Section 415(b)(1)(A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year." The "look-back year" shall be the calendar year ending with or within the Plan Year for which testing is being performed, and the "determination year" (if applicable) shall be the period of time, if any, that extends beyond the "look- back year" and ends on the last day of the Plan Year for which testing is being performed (the "lag period"). If the "lag period" is less than twelve months I-4 long, the threshold amounts specified in (b), (c), and (d) above shall be prorated based upon the number of months in the "lag period." For purposes of this Section, the determination of "415 Compensation" shall be based only on "415 Compensation" which is actually paid and shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3) or 402(g) and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins. In determining who is a Highly Compensated Employee, Employees who are non- resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans 1.26 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.27 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer or an Affiliated Employer for the performance of duties during the applicable computation period; (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer or an Affiliated Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty, or leave of absence) during the applicable computation period; and (3) each hour for which back pay is awarded or agreed to by the Employer or Affiliated Employer without regard to mitigation of damages. An Employee shall be credited with 95 Hours of Service for each semimonthly period the Employee is credited with at least one Hour of Service. Notwithstanding the above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's I-5 compensation, or unemployment compensation or disability insurance laws; (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee; and (iv) Hours of Service recognized by "old" Sterling Chemicals, Inc. for purposes of its qualified ESOP immediately prior to the Effective Date shall be recognized under this Plan. For purposes of this Section, a payment shall be deemed to be made by or due from the Employer or Affiliated Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer or Affiliated Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. An Hour of Service must be counted for the purpose of determining a Year of Service, a 1-Year Break in Service, and employment commencement date (or reemployment commencement date). The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.28 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.29 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or Former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year or any of the preceding four Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50% of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year; (b) one of the ten Employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer; (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer, or, in the case of an unincorpo rated business, any person who owns more than 5% of the capital or profits interest in the I-6 Employer. In determining percentage ownership hereunder, Employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers; or (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 1% of the outstanding stock of the Employer or stock possessing more than 1% of the total combined voting power of all stock of the Employer, or, in the case of an unincorporated business, any person who owns more than 1% of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate Employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be based only on "415 Compensation" which is actually paid and shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or 457, and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.30 "Leased Employee" means any person who would be within the meaning of Code Section 414(n)(2) unless such Leased Employee is covered by a plan described in Code Section 414(n)(5) and such Leased Employee does not constitute more than 20% of the recipient's nonhighly compensated work force. 1.31 "Non-Highly Compensated Employee" means any Employee or former Employee who is not a Highly Compensated Employee nor a Family Member. 1.32 "Non-Highly Compensated Participant" means any Participant or Former Participant who is neither a Highly Compensated Participant nor a Family Member. 1.33 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.34 "Normal Retirement Age" means the later of the Participant's 65th birthday or the fifth anniversary of the date his participation in the Plan commenced. 1.35 "1-Year Break in Service" means the applicable computation period of 12 consecutive months during which an Employee fails to complete more than 500 Hours of Service. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours I-7 of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." An Employee shall not be deemed to have incurred a 1-Year Break in Service if he completes an Hour of Service within 12 months following the last day of the month during which his employment terminated. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer or Affiliated Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employees from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. 1.36 "Other Investments Account" means the account of a Participant which is credited with his share of the net gain (or loss) of the Plan, Forfeitures and Employer Contributions and which is not invested in Company Stock. 1.37 "Participant" means any Eligible Employee who participates in the Plan pursuant to Section 3.1. 1.38 "Participant's Accounts" means the accounts established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from Employer Contributions, which shall include the Company Stock Account and the Other Investment Account. 1.39 "Plan" means this instrument, including all amendments thereto. 1.40 "Plan Year" means the calendar year, which shall also be the limitation year for purposes of Code Section 415; provided, however, the initial Plan Year shall be a short year beginning on the Effective Date. 1.41 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.42 "Retirement" means a Participant's ceasing to be an Employee (i) on or after reaching his Normal Retirement Age or (ii) in connection with his retirement under a defined benefit plan of the Employer that is qualified under Code Section 401(a). I-8 1.43 "Top Heavy Plan" means a plan described in Article XII. 1.44 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.45 "Total and Permanent Disability" means, as determined by the Administrator, a Participant's complete inability to substantially perform each of the material duties of any gainful occupation for which the Participant is reasonably qualified by reason of his education, training or experience, which condition is reasonably expected to continue for an extended period of time. 1.46 "Trust" means the trust established under the Trust Agreement to hold and invest contributions made under the Plan and from which the Plan benefits will be distributed. 1.47 "Trust Agreement" means the agreement entered into between the Company and the Trustee establishing a trust to hold and invest contributions made under the Plan and from which benefits will be distributed. 1.48 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.49 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.50 "Unallocated Company Stock Suspense Account" means an account containing Company Stock acquired with the proceeds of an Exempt Loan and which has not been released from such account and allocated to the Participants' Company Stock Accounts. 1.51 "Valuation Date" means the last day of each Plan Year and any other date(s) established by the Administrator. 1.52 "Vested" means the portion of a Participant's Account that is nonforfeitable. 1.53 "Year of Service" means the computation period of 12 consecutive months, herein set forth, during which an Employee has at least 1,000 Hours of Service. (a) For purposes of determining an Employee's eligibility to participate in the Plan, the computation period shall be the 12 consecutive month period beginning on the date the Employee first performs an Hour of Service for an Affiliated Employer; however, succeeding eligibility periods after the initial eligibility period shall be the Plan Year, and an Employee who is credited with 1,000 or more Hours of Service in both the initial eligibility period and the first Plan Year beginning prior to the anniversary of the Employee's initial period shall be credited with two Years of Service for eligibility purposes, and I-9 (b) For purposes of determining an Employee's vested percentage under Section 7.4, the computation period shall be the Plan Year. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). (c) Years of Service recognized under the "old" Sterling Chemicals, Inc.'s ESOP immediately prior to the Effective Date shall be recognized under this Plan. I-10 ARTICLE II ADMINISTRATION 2.1 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY (a) The Chief Executive Officer of the Company ("CEO") may appoint one or more persons to be the Administrator. Any person, including, but not limited to, the Employees, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Company. An Administrator may resign by delivering his written resignation to the Company or be removed by the CEO by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the CEO if no date is specified. (b) The CEO, upon the resignation or removal of an appointed Administrator, may designate in writing a successor to this position. If the CEO does not appoint an Administrator, the Company will function as the Administrator. (c) The CEO shall be empowered to appoint and remove an appointed Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (d) The CEO shall periodically review the performance of the Administrator or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the CEO or by a qualified person specifically designated by the CEO, through day-to-day conduct and evaluation, or through any other appropriate method. (e) The Administrator will furnish Plan Fiduciaries and Participants with notices and information statements when voting rights must be exercised pursuant to Section 8.2. 2.2 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the CEO may designate the responsibilities of each Administrator as may be specified by the CEO and accepted in writing by each Administrator. In the event that no such delegation is made by the CEO, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the CEO and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the CEO or the Administrators file with the Trustee a written revocation of such designation. II-1 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any contract to be purchased from any insurer, and to designate the insurer from which such contract shall be purchased; (g) to compute and certify to the Employer from time to time the sums of money necessary or desirable to be contributed to the Trust Fund; (h) to establish a "funding policy and method", i.e., it shall consult with the Employer, and it shall determine whether the Plan has a short range need for liquidity (e.g., to pay benefits) or whether liquidity is a long range goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. Such "funding II-2 policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act; (i) to establish and communicate to Participants a procedure and method to insure that each Participant will vote Company Stock allocated to such Participant's Company Stock Account pursuant to Section 8.2; and (j) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.4 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.5 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall appoint an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether each of the following statements, schedules or lists, or any others that are required by Section 103 of the Act or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly and in conformity with generally accepted accounting principles applied consistently: (1) statement of the assets and liabilities of the Plan; (2) statement of changes in net assets available to the Plan; (3) statement of receipts and disbursements, a schedule of all assets held for investment purposes, a schedule of all loans or fixed income obligations in default at the close of the Plan Year; (4) a list of all leases in default or uncollectible during the Plan Year; (5) the most recent annual statement of assets and liabilities of any bank common or collective trust fund in which Plan assets are invested or such information regarding separate accounts or trusts with a bank or insurance company as the Administrator deems necessary; and II-3 (6) a schedule of each transaction or series of transactions involving an amount in excess of 5% of Plan assets. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Section 103 of the Act is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Section 103(b) of the Act within 120 days after the end of the Plan Year or such other date as may be prescribed under regulations of the Secretary of Labor. 2.6 APPOINTMENT OF ADVISORS The Administrator may appoint counsel, specialists, advisors, and other persons as the Administrator deems necessary or desirable in connection with the administration of this Plan. 2.7 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Service, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.8 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless voluntarily paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, the Trustee and other specialists and their agents, and other costs of administering the Plan and/or the Trust. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. Any administration expense paid to the Trust Fund as a reimbursement shall not be considered an Employer contribution. 2.9 ACTIONS BY ADMINISTRATOR The Administrator shall hold meetings upon such notice and at such time and places as it may from time to time determine. Notice to a member shall not be required if waived in writing by that member. A majority of the members of the Administrator duly appointed shall constitute a quorum II-4 for the transaction of business. All resolutions or other actions taken by the Administrator at any meeting where a quorum is present shall be by vote of a majority of those present at such meeting and entitled to vote. Resolutions may be adopted or other action taken without a meeting upon written consent signed by all of the Administrators. 2.10 CLAIMS PROCEDURE Claims for benefits under the Plan must be filed with the Administrator in writing. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.11 CLAIMS REVIEW PROCEDURE Any Employee, Former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.10 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.10. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. II-5 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Each Employee who is an Eligible Employee on the Effective Date shall automatically participate in the Plan commencing on the Effective Date. All other Employees shall automatically become Participants as of the date they become an Eligible Employee. 3.2 EFFECT OF PARTICIPATION UPON THE ACCEPTANCE OF ANY BENEFITS UNDER THIS PLAN An Eligible Employee shall automatically be bound by the terms and conditions of the Plan and all amendments hereto. 3.3 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review as provided for in Section 2.8 and 2.9. 3.4 TERMINATION OF ELIGIBILITY In the event a Participant shall go from a classification of an Eligible Employee to a noneligible Employee, such Former Participant shall continue to vest in his interest in the Plan for each Year of Service completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings/losses of the Trust Fund. 3.5 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a III-1 contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made. III-2 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 EMPLOYER'S CONTRIBUTION (a) For each Plan Year, the Employer shall contribute to the Plan such amount as may be determined by the Company's Board of Directors or its delegatees, but, subject to (b) below, such amount as is necessary to meet the Plan's Current Obligations. (b) The Employer Contribution for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. (c) However, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds the amount which is deductible under Code Section 404. 4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION Employer Contributions will be paid in cash and/or in Company Stock as the Company's Board of Directors or its delegatees may from time to time determine. Company Stock will be valued at its then fair market value. Notwithstanding the above, to the extent that the Plan has Current Obligations, the Employer Contribution will be paid to the Plan in cash. The Employer Contribution with respect to a Plan Year will be paid to the Plan at such times as may be required to meet any obligations under an Exempt Loan, and in all events on or before the date required to make such contribution a deduction on the Employer's federal income tax return for the year. 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Valuation Date all amounts allocated to each such Participant as set forth herein. However, the Administrator may separately account for that portion of each Participant's Account attributable to Top Heavy Plan Years. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer Contribution for each Plan Year. As soon as reasonably practicable after the date of receipt by the Administrator for such information, the Administrator shall, with respect to the Employer Contribution pursuant to 4.1(a), allocate such Employer Contribution to each eligible Participant's Account in the same proportion that each such Participant's Compensation for the Plan Year bears to the total Compensation of all eligible Participants for such Plan Year. IV-1 A Participant who is not an Employee on the last day of the Plan Year shall not be an "eligible Participant", i.e., eligible to share in the Employer Contribution or Forfeitures for that year, unless required pursuant to Section 4.3(i) or 4.3(n). (c) Stock dividends on Company Stock held in a Participant's Company Stock Account shall be credited to his Company Stock Account when paid. Cash dividends on Company Stock held in his Company Stock Account shall be used to repay an Exempt Loan, if one exists at such time, and, if no Exempt Loan exists, may, in the sole discretion of the Administrator, be credited to his Participants Other Investments Account or distributed to the Participant. Company Stock acquired by the Plan with the proceeds of an Exempt Loan shall only be allocated to each Participant's Company Stock Account upon release from the Unallocated Company Stock Suspense Account as provided in Section 4.3(g) herein. Company Stock acquired with the proceeds of an Exempt Loan shall be an asset of the Trust Fund and maintained in the Unallocated Company Stock Suspense Account. Company Stock received by the Trust during a Plan Year with respect to a contribution by the Employer for the preceding Plan Year shall be allocated to the accounts of Participants as of the Anniversary Date of such preceding Plan Year. (d) As of each Anniversary Date or, if applicable, as of an earlier Valuation Date, before allocation of Employer Contributions and Forfeitures for such Plan Year, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's Other Investment Accounts (other than each Participant's Company Stock Account) bear to the total of all Participants' and Former Participants' Other Investment Accounts (other than Participants' Company Stock Accounts) as of such date. Earnings or losses include the increase (or decrease) in the fair market value of assets of the Trust Fund (other than Company Stock in the Participants' Company Stock Accounts) since the preceding Anniversary Date (or applicable Valuation Date). Earnings or losses do not include the interest paid under any installment contract for the purchase of Company Stock by the Trust Fund or on any Exempt Loan used by the Trust Fund to purchase Company Stock, nor does it include income received by the Trust Fund with respect to Company Stock acquired with the proceeds of an Exempt Loan to the extent such income is used to repay the loan; all income received by the Trust Fund from Company Stock acquired with the proceeds of an Exempt Loan shall be used to repay such loan. (e) The Administrator shall establish accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Section. Should the Administrator determine that the strict application of its accounting procedures shall not result in an equitable and nondiscriminatory allocation IV-2 among the Participants' Accounts, it may modify its procedures for the purpose of achieving an equitable and nondiscriminatory allocation in accordance with the general concepts of the Plan and the provisions of this Section, provided, however, that such adjustments to achieve equity shall not reduce the Vested portion of a Participant's Account. (f) Separate accounts shall be maintained for all inactive Participants who have a Vested interest in the Plan. Such separate accounts shall not require a segregation of the Plan assets and no Participant shall acquire any right to or interest in any specific asset of the Trust as a result of the allocations provided for in the Plan. All allocations shall be made as of the Anniversary Date referred to in this Section. (g) All Company Stock acquired by the Plan with the proceeds of an Exempt Loan must be added to and maintained in the Unallocated Company Stock Suspense Account. For each Plan Year during the duration of the loan, the number of shares of Company Stock released shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal paid for the Plan Year and the denominator of which is the sum of the numerator plus the principal to be paid for all future Plan Years (or, if the requirements of Treas. Reg. Section 54.4975-7(b)(8)(ii) are not met, then "principal and interest" shall be substituted for "principal" in determining the fraction). As of each Anniversary Date, the Plan must consistently allocate to each Participant's Account pursuant to Section 4.3(b), shares and fractional shares of Company Stock representing each Participant's interest in the shares withdrawn from the Unallocated Company Stock Suspense Account; provided, however, to the extent any cash dividends on allocated shares of Company Stock have been applied to repay the loan that year, the number of shares released shall first be allocated to the accounts of those Participants equal in amount to the cash dividends diverted from such accounts for repayment of the Exempt Loan. Income earned with respect to Company Stock in the Unallocated Company Stock Suspense Account shall be used to repay the Exempt Loan or used to purchase such Company Stock. Any income which is not so used must be allocated as income of the Plan. (h) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any. The remaining Forfeitures, if any, shall be allocated among the Participants' Accounts of those Participants who are entitled to receive an Employer Contribution for such Plan Year in the same proportion that each such eligible Participant's Compensation for the year bears to the total Compensation of all eligible Participants for the year. In the event the allocation of Forfeitures provided herein shall cause the "annual addition" (as defined in Section 4.4) to any Participant's Account to exceed the amount allowable by the Code, the excess shall be reallocated in accordance with Section 4.5. IV-3 (i) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer Contributions and Forfeitures allocated to the Participant's Account for each Non-Key Employee shall be equal to at least 3% of such Non-Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this plan in a Required Aggregation Group). However, if (i) the sum of the Employer Contributions and Forfeitures allocated to the Participant's Account of each Key Employee for such Top Heavy Plan Year is less than 3% of each Key Employee's "415 Compensation" and (ii) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Sections 401(a)(4) or 410, the sum of the Employer Contributions and Forfeitures allocated to the Participant's Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Account of any Key Employee. Except, however, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group. (j) For purposes of the minimum allocations set forth above the percentage allocated to the Participant's Account of any Key Employee shall be equal to the ratio of the sum of the Employer Contributions and Forfeitures allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (k) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; (2) declined to make mandatory contributions (if required) or elective deferrals to the Plan; and (3) been excluded from participation because of their level of Compensation. (l) In lieu of the above, in any Plan Year in which a Non-Key Employee is a Participant in both this Plan and a defined benefit pension plan included in a Required Aggregation Group which is top heavy, the Employer shall not be required to provide such Non-Key Employee with both the full separate defined benefit plan minimum benefit and the full separate defined contribution plan minimum allocation. Therefore, for any Plan Year when the Plan is a Top Heavy Plan, Non- Key Employees who are participating in this Plan and a defined benefit plan maintained by the Employer shall receive a minimum monthly accrued benefit in the defined benefit plan equal to the product of (1) 1/12th of "415 Compensation" averaged over a five consecutive "limitation years" (or actual "limitation years" if less) which produce the highest average and (2) the lesser of (i) 2% multiplied by Years of Service when the plan is top heavy or (ii) 20%. IV-4 (m) For the purposes of this Section, "415 Compensation" shall be as defined in Section 4.4(e), and shall be limited to $150,000 in all Plan Years (unless adjusted in such manner as permitted under Code Section 401(a)(17). (n) Notwithstanding anything herein to the contrary, Participants terminating for reasons of death, Total and Permanent Disability or Retirement shall share in the allocations of Employer Contributions and Forfeitures provided for in this Section for such Plan Year of termination regardless of whether they are employed by an Affiliated Employer at the end of the Plan Year. (o) If a Former Participant is reemployed after five consecutive 1-Year Breaks in Service, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre- break service; and (2) one account representing his status in the Plan attributable to post-break service. 4.4 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b)(1)(A)) or (2) 25% of the Participant's "415 Compensation" for such "limitation year". (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer Contributions, (2) Employee contributions, (3) Forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition", or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the IV-5 following are not Employee contributions for the purposes of Section 4.4(b)(2): (1) rollover contributions (as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) If no more than one-third of the Employer Contributions to this Plan for a Plan Year which are deductible under Code Section 404(a)(9) are allocated to Highly Compensated Employees, the limitations of paragraph (a) shall not apply to: (1) Forfeitures of Company Stock which were acquired with the proceeds of an Exempt Loan, or (2) Employer Contributions to this Plan which are deductible under Code Section 404(a)(9)(B) and charged against the Participant's accounts. (e) For purposes of applying the limitations of Code Section 415, "415 Compensation" shall include the Participant's wages, salaries, fees for professional services, and other amounts received for personal services actually rendered in the course of employment with an Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in Regulation 1.62-2(c)) for a Plan Year. "415 Compensation" shall exclude (1)(A) contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code Section 415 limitations to the Plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed, (B) Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, (C) any distributions from a plan of deferred compensation; (2) amounts realized from the exercise of a non-qualified stock option or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option; and (4) other amounts that receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee). "415 Compensation" shall be IV-6 limited to $150,000 (unless adjusted in the same manner as permitted under Code Section 415(d)). (f) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (g) The dollar limitation under Code Section 415(b)(1)(A) stated in paragraph (a)(1) above shall be adjusted annually as provided in Code Section 415(d) pursuant to the Regulations. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to "limitation years" ending with or within that calendar year. (h) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (i) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (j) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered to be a single Employer. (k) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. IV-7 (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (l) If an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. (m) The defined benefit plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the "limitation year" under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" beginning before January 1, 1987. (n) The defined contribution plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the annual additions to the Participant's Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior "limitation years" (including the annual additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(l)(2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior "limitation years" of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any "limitation year" is IV-8 the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the Participant's Compensation for such year. If the Employee was a Participant as of the end of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last "limitation year" beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first "limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (o) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100 percent shall be substituted for 125 percent in paragraph (l) and (m) unless the extra minimum allocation is being provided pursuant to Section 4.3(i). However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100 percent shall be substituted for 125 percent in any event. (p) If the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any "limitation year" for any Participant in this Plan, the Administrator shall limit, to the extent necessary, the "annual additions" to such Participant's accounts for such "limitation year." If, after limiting the "annual additions" to such Participant's accounts for the "limitation year," the sum of the defined benefit plan fraction and the defined contribution plan fraction still exceed 1.0, the Administrator shall then adjust the numerator of the defined benefit plan fraction so that the sum of both fractions shall not exceed 1.0 in any "limitation year" for such Participant. (q) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of the allocation of Forfeitures, a reasonable error in estimating a Participant's Compensation or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would IV-9 cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) hold any "excess amount" remaining after the return of any voluntary Employee contributions in a "Section 415 suspense account" (2) allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such "limitation year" or (3) reduce Employer Contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year". Notwithstanding the foregoing, if the Company maintains another defined contribution plan, the annual addition excess amount shall be "cured" under such other plan first. (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 415. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year". The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. (d) The Plan may not distribute "excess amounts" to Participants or Former Participants. 4.6 DIRECTED DIVERSIFICATION (a) Each "Qualified Participant" may elect within 90 days after the close of each Plan Year during the "Qualified Election Period" to direct the Administrator in writing to transfer in cash (such election must be accompanied by an appropriate reinvestment direction) 25 percent of the Participant's Company Stock Account (to the extent such portion exceeds the amount to which a prior election under this subparagraph applies) to the Employer's qualified 401(k) plan, provided that such plan offers at least three investment options, other than a Company stock fund, that qualify for diversification purposes under Section 401(a)(28) of the Code. In the case of the election year in which the Qualified Participant can make his last election, the preceding sentence shall be applied by substituting "50 percent" for "25 percent". If the "Qualified Participant" elects to direct the Administrator to transfer and reinvest his Company Stock Account, such direction shall be effective no later than 180 days after the close of the Plan Year to which such direction applies. In lieu of so directing the Administrator, the "Qualified Participant" may elect a distribution of the portion of his Company Stock Account covered by the election within IV-10 90 days after the last day of the period during which the election can be made. Any such distribution of Company Stock shall be subject to Section 7.11. (b) For the purposes of this Section the following definitions shall apply: (1) "Qualified Participant" means any Participant or Former Participant who has completed 10 Years of Service as a Participant in this Plan (or the Employer's predecessor ESOP terminated in 1996) and has attained age 55. (2) "Qualified Election Period" means the five Plan Year period beginning with the Plan Year after the Plan Year in which the Participant attains age 55 (or, if later, beginning with the Plan Year after the first Plan Year in which the Participant first became a "Qualified Participant"). 4.7 SUSPENSE ACCOUNT All Employer Contributions, Forfeitures and net income (or net loss) of the Trust Fund shall be held in a suspense account until allocated to the applicable Participants' Accounts. IV-11 ARTICLE V FUNDING AND INVESTMENT POLICY 5.1 INVESTMENT POLICY (a) The Plan is designed to invest primarily in Company Stock. (b) With due regard to subparagraph (a) above, the Administrator may direct the Trustee to invest funds under the Plan in other property as described in the Trust Agreement or direct the Trustee to hold such funds in cash or cash equivalents. (c) The Plan may not obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder. (d) The Plan may not obligate itself to acquire Company Stock under a put option binding upon the Plan. However, at the time a put option is exercised, the Plan may be given an option to assume the rights and obligations of the Employer under a put option binding upon the Employer. (e) All purchases or sales of Company Stock and the price of such purchases or sales shall be made as the Administrator instructs the Trustee. All purchases of Company Stock shall be made at a price which, in the judgment of the Administrator, does not exceed the fair market value thereof. All sales of Company Stock shall be made at a price which, in the judgment of the Administrator, is not less than the fair market value thereof. The valuation rules set forth in Article VI shall be applicable. 5.2 APPLICATION OF CASH Employer Contributions received by the Trust Fund in cash shall first be applied to pay any required obligations under an Exempt Loan. 5.3 TRANSACTIONS INVOLVING COMPANY STOCK (a) No portion of the Trust Fund attributable to (or allocable in lieu of) Company Stock acquired by the Plan in a sale to which Code Section 1042 applies may accrue or be allocated directly or indirectly under any plan maintained by the Employer meeting the requirements of Code Section 401(a): (1) during the "Nonallocation Period", for the benefit of; V-1 (i) any taxpayer who makes an election under Code Section 1042(a) with respect to Company Stock, (ii) any individual who is related to the taxpayer or the decedent (within the meaning of Code Section 267(b)), or (2) for the benefit of any other person who owns (after application of Code Section 318(a)) more than 25 percent of; (i) any class of outstanding stock of the Employer which issued such Company Stock, or (ii) the total value of any class of outstanding stock of the Employer. (b) Except, however, subparagraph (a)(1)(ii) above shall not apply to lineal descendants of the taxpayer, provided that, the aggregate amount allocated to the benefit of all such lineal descendants during the "Nonallocation Period" does not exceed more than five percent of the Company Stock (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 applied. (c) A person shall be treated as failing to meet the stock ownership limitation under paragraph (a)(2) above if such person fails such limitation: (1) at any time during the one year period ending on the date of sale of Company Stock to the Plan, or (2) on the date as of which Company Stock is allocated to Participants in the Plan. (d) For purposes of this Section, "Nonallocation Period" means the 10 year period beginning on the later of: (1) the date of the sale of the Company Stock, or (2) the date of the Plan allocation attributable to the final payment of the Exempt Loan incurred in connection with such sale. 5.4 LOANS TO THE TRUST (a) The Plan may, but only upon the direction of the Administrator, borrow money for any lawful purpose, provided, the proceeds of an Exempt Loan are used within a reasonable time after receipt only for any or all of the following purposes: V-2 (1) To acquire Company Stock. (2) To repay such loan. (3) To repay a prior Exempt Loan. (b) All loans to the Trust which are made or guaranteed by a disqualified person must satisfy all requirements applicable to Exempt Loans including but not limited to the following: (1) The loan must be at a reasonable rate of interest; (2) Any collateral pledged to the creditor by the Plan shall consist only of the Company Stock purchased with the borrower funds; (3) Under the terms of the loan, any pledge of Company Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Section 4.3(g); (4) Under the terms of the loan, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer Contributions (other than contributions of Company Stock) that are made to meet the ESOP's obligations under the Exempt Loan and earnings attributable to such collateral and the investment of such contributions; (5) The loan must be for a specific term and may not be payable at the demand of any person, except in the cause of a default. (6) In the event of default upon an Exempt Loan, the value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount of default. If the lender is a disqualified person, an Exempt Loan shall provide for a transfer of Trust Funds upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan; and (7) Exempt Loan payments during a Plan Year must not exceed an amount equal to: (A) the sum, over all Plan Years, of all Employer Contributions made by the Employer to the Plan with respect to such Exempt Loan and earnings on such Employer Contributions, less (B) the sum of the Exempt Loan payments in all preceding Plan Years. A separate accounting shall be maintained for such Employer Contributions and earnings until the Exempt Loan is repaid. (c) The term "disqualified person" means a person who is a Fiduciary, a person providing services to the Plan, an Employer, any of whose Employees are covered by the V-3 Plan, an employee organization any of whose members are covered by the Plan, an owner, direct or indirect, of 50% or more of the total combined voting power of all classes of voting stock, or an officer, director, 10% or more shareholder, or a Highly Compensated Employee. V-4 ARTICLE VI VALUATIONS 6.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Valuation Date to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date prior to taking into consideration any contribution to be allocated for that Plan Year. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. The Administrator shall have the duty of determining the fair market value of Company Stock and, notwithstanding the foregoing, the fair market value of Company Stock shall be determined only as of each Anniversary Date unless the Administrator expressly directs that it be valued as of any other Valuation Date. 6.2 METHOD OF VALUATION Valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a Plan and a disqualified person, value must be determined as of the date of the transaction. For all other Plan purposes, value must be determined as of the most recent Valuation Date under the Plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between the Plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to the transaction will be deemed to be a good faith determination of value. Company Stock not readily tradeable on an established securities market shall be valued by an independent appraiser appointed by the Administrator meeting requirements similar to the requirements of the Regulations prescribed under Code Section 170(a)(1). VI-1 ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS 7.1 BENEFITS UPON RETIREMENT A Participant who terminates his employment due to his Retirement shall be distributed a benefit in accordance with Section 7.5 equal in value to the Vested balance in the Participant's Accounts as of his Benefit Commencement Date, such balance to be determined as of the Valuation Date immediately preceding the Participant's Benefit Commencement Date. In addition, such Participant shall be entitled to receive any benefit allocated to such Participant pursuant to Section 4.3(n) as of the Anniversary Date for the Plan Year of his Retirement. 7.2 BENEFITS UPON DEATH (a) Upon the death of a Participant before his termination of his employment, the Participant's Beneficiary shall be distributed a benefit in accordance with Section equal in value to the Vested balance in the Participant's Accounts as of the Benefit Commencement Date, such Vested balance to be determined as of the Valuation Date immediately preceding such Benefit Commencement Date. In addition, such Beneficiary shall be entitled to receive any benefit allocated to such Participant pursuant to Section 4.3(n) as of the Anniversary Date for the Plan Year of the Participant's death. (b) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (c) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse; provided, however, the Participant may designate a Beneficiary other than his spouse only if: (1) the spouse has waived her right to be the Participant's Beneficiary, or (2) the Participant has no spouse, or (3) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form provided by the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any such change or revocation unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to VII-1 relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. In the event of a divorce, such divorce shall automatically rescind any designation of such former spouse as the Participant's Beneficiary under the Plan except to the extent provided otherwise in a qualified domestic relations order. (d) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 7.3 BENEFITS UPON DISABILITY In the event a Participant's employment is terminated due to a Total and Permanent Disability, such Participant shall be distributed a benefit in accordance with Section 7.5 equal in value to the Vested balance in the Participant's Accounts as of his Benefit Commencement Date, such balance to be determined as of the Valuation Date immediately preceding his Benefit Commencement Date. In addition, the Participant shall be entitled to receive any benefit allocated to such Participant pursuant to Section 4.3(n) as of the Anniversary Date for the Plan Year of his termination. 7.4 BENEFITS UPON TERMINATION (a) Each Participant whose employment is terminated for any reason other than Total and Permanent Disability, Retirement, or death shall be distributed a benefit in accordance with Section 7.5 equal in value to the sum of his Vested interest in the balance of his Participant's Accounts as of his Benefit Commencement Date, such balance to be determined as of the Valuation Date immediately preceding his Benefit Commencement Date. (b) For purposes of this Section, a Participant's Vested interest in Participant's Accounts shall be determined by such Participant's Years of Service (for Vesting purposes) in accordance with the following schedule: VII-2 Years of Service Vested Interest ---------------- --------------- Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 years or more 100% If a portion of a Participant's Account is forfeited, Company Stock allocated to the Participant's Company Stock Account must be forfeited only after the Participant's Other Investments Account has been depleted. If interest in more than one class of Company Stock has been allocated to a Participant's Account, the Participant must be treated as forfeiting the same proportion of each such class. (c) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Article. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with a least three Years of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (d) Paragraph (b) above not withstanding, a Participant shall have a 100% Vested interest in his Participant's Accounts upon attainment of his Normal Retirement Age as an Employee. (e) (1) If any Former Participant shall be reemployed by the Employer before a 1-Year Break in Service occurs, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. (2) If any Former Participant shall be reemployed by the Employer before five consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before VII-3 the earlier of five years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five consecutive 1-Year Breaks in Service commencing after the distribution. In the event the Former Participant does repay the full amount distributed to him, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Anniversary Date or other Valuation Date preceding his termination. (3) If any Former Participant is reemployed after a 1-Year Break in Service has occurred, Years of Service shall include Years of Service prior to his 1-Year Break in Service subject to the following rules: (i) If a Former Participant has a 1-Year Break in Service, his pre-break and post-break service shall be used for computing Years of Service for eligibility and for vesting purposes only after he has been employed for one Year of Service following the date of his reemployment with the Employer; (ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer Contributions shall lose credits otherwise allowable under (i) above if his consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five or (B) the aggregate number of his pre-break Years of Service; (iii) After five consecutive 1-Year Breaks in Service, a Former Participant's Vested account balance attributable to pre- break service shall not be increased as a result of post-break service; (iv) If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes one Year of Service for eligibility purposes following his reemployment with the Employer, he shall participate in the Plan retroactively from his date of reemployment; (v) If a Former Participant who has not had his Years of Service before a 1-Year Break in Service disregarded pursuant to (ii) above completes one Year of Service for eligibility purposes following his reemployment with the Employer (a 1-Year Break in Service previously occurred, but employment had not terminated), he shall participate in the Plan retroactively from his reemployment commencement date. VII-4 7.5 DISTRIBUTION OF BENEFITS (a) Payment of a Participant's benefit hereunder shall be made or begin as soon as administratively feasible after the Participant's or Beneficiary's Benefit Commencement Date. (b) If elected by the Participant (or his Beneficiary), the Administrator shall direct the Trustee to distribute to the Participant (or his Beneficiary) any amount to which he is entitled under the Plan in one lump-sum payment. If no election is made, payment shall be made as provided in paragraph (c) below. (c) Subject to Sections 7.5(b) and (d), this Plan shall distribute to a Participant (or his Beneficiary) his Vested account in substantially equal (with respect to the Company Stock Account, in terms of number of shares of Company Stock) annual installments over a five year period. In the case of a Participant with an account balance in the Plan in excess of $500,000, the five year period shall be extended one additional year (but not more than five additional years) for each $100,000 or fraction thereof by which such balance exceeds $500,000. The dollar limits shall be adjusted at the same time and in the same manner as provided in Code Section 415(d). Distribution of the Participant's Account shall be made or begin, subject to the consent requirement to paragraph (d) below if applicable, not later than one year after the close of the Plan Year (i) in which the Participant separates from service on account of retirement on or after his Normal Retirement Age, Total and Permanent Disability or death, or (ii) which is the fifth Plan Year following the Plan Year in which the Participant otherwise separates from service. (d) Any distribution to a Participant who has a Vested benefit which exceeds, or at the time of any prior distribution exceeded, $3,500 shall require such Participant's consent if such distribution commences prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the commencement of payment of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 7.5(h). (2) Subject to Section 7.15, notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. (3) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days VII-5 before the first day on which all events have occurred which entitle the Participant to such benefit. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. If the value of a Participant's Vested benefit does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a lump sum without regard to the Participant's election. (e) Notwithstanding anything herein to the contrary, cash dividends on shares of Company Stock allocated to Participants' Accounts may be paid to Participants or their Beneficiaries, as determined in the sole discretion of the Administrator, within 90 days after the close of the Plan Year in which the dividend is paid. (f) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to make a distribution or to commence a series of payments on or before a Valuation Date, the distribution or series of payments may be made or begun on such date or as soon thereafter as is practicable, but in no event later than 180 days after the Anniversary Date. Except, however, the payment of benefits shall begin not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: (1) the date on which the Participant attains the Normal Retirement Age specified herein, (2) the 10th anniversary of the year in which the Participant commenced participation in the Plan, or (3) the date the Participant terminates his service with the Employer. (g) Any part of a Participant's benefit which is retained in the Plan after the Valuation Date on which his participation ends will continue to be treated as a Company Stock Account or as an Other Investments Account as provided in Article IV. However, neither account will be credited with any further Employer Contributions or Forfeitures. (h) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder (including Regulation Section 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: VII-6 (1) A Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five percent owner" at any time during the five Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding sentence and must be made over a period certain measured by the life expectancy of the Participant (or the life expectancies of the Participant and his designated Beneficiary) in accordance with Regulations. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. (i) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse may not be redetermined. 7.6 HOW PLAN BENEFITS WILL BE DISTRIBUTED (a) Distribution of a Participant's benefit from his Company Stock Account shall be made in whole shares of Company Stock (with any fractional share paid in cash) or in cash, whichever is elected by the Participant or his Beneficiary. (b) Any balance in a Participant's Other Investments Account will be distributed solely in cash. (c) The Trustee will make distribution from the Trust only on instructions from the Administrator. (d) Notwithstanding anything contained herein to the contrary, if the Employer's charter or by-laws restrict ownership of substantially all shares of Company Stock to Employees and the Trust Fund, as described in Code Section 409(h)(2), the Administrator, in his sole discretion, may distribute a Participant's Account entirely in cash or distribute entirely in Company Stock subject to a requirement that such Company Stock may be resold to the Employer pursuant to Section 7.11. VII-7 (e) Except as otherwise provided in Section 7.12, Company Stock distributed by the Trustee may be restricted as to sale or transfer by the by-laws or articles of incorporation of the Employer, provided restrictions are applicable to all Company Stock of the same class. If a Participant is required to offer the sale of his Company Stock to the Employer before offering to sell his Company Stock to a third party, in no event may the Employer pay a price less than that offered to the distributee by another potential buyer making a bona fide offer and in no event shall the Trustee pay a price less than the fair market value of the Company Stock. (f) Except as otherwise provided in this Article, a Participant is not entitled to any payment, withdrawal or distribution under the Plan during his participation. If any such partial distribution is made, the Participant's benefit when computed will be reduced by the amount of any such advance. (g) If Company Stock acquired with the proceeds of an Exempt Loan (described in Section 5.4 hereof) is available for distribution and consists of more than one class, a Participant or his Beneficiary must receive substantially the same proportion of each such class. (h) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined, pursuant to Regulations, that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 7.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. However, in the event that the Participant's spouse (determined as of the date of the Participant's death) is his Beneficiary, then in lieu of the preceding rules, distributions must be made over a period not extending beyond the life expectancy of the spouse and must commence on or before the later of (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this section shall apply as if the spouse was the Participant. (i) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse may not be redetermined. VII-8 7.7 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the expiration of five years after it shall become payable, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 7.9 RIGHT OF FIRST REFUSAL (a) If any Participant or Former Participant, his Beneficiary or any other person to whom shares of Company Stock are distributed from the Plan (the "Selling Participant") shall, at any time, desire to sell some or all of such shares (the "Offered Shares") to a third party (the "Third Party"), the Selling Participant shall give written notice of such desire to the Administrator and the Employer, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of 14 days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such 14 day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party. (b) If the Trust Fund and the Employer do not exercise their right of first refusal within the required 14 day period provided above, the Selling Participant shall have the right, at any time following the expiration of such 14 day period, to dispose of the Offered Shares to the third Party' provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above. VII-9 (c) The closing pursuant to the exercise of the right of first refusal under Section 7.9(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than 10 days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof, to the Selling Participant. (d) Except as provided in this Paragraph (d), no Company Stock acquired with the proceeds of an Exempt Loan complying with the requirements of Section hereof shall be subject to a right of first refusal. Company Stock, which is acquired with the proceeds of an Exempt Loan, which is distributed to a Participant or Beneficiary shall be subject to the right of first refusal, provided for in Paragraph (a) of this Section only so long as the Company Stock is not publicly traded. The term "publicly traded" refers to a securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that is quoted on a system sponsored by a national securities association registered under Section 15A(b) of the Securities Exchange Act (15 U.S.C. 780). In addition, in the case of Company Stock which was acquired with the proceeds of a loan described in Section 5.4, the selling price and other terms under the right must not be less favorable to the seller than the greater of the value of the security determined under Regulation 54.4975- 11(d)(5), or the purchase price and other terms offered by a buyer (other than the Employer or the Trust Fund), making a good faith offer to purchase the security. The right of first refusal must lapse no later than 14 days after the security holder gives notice to the holder of the right that an offer by a third party to purchase the security has been made. The right of first refusal shall comply with the provisions of Paragraphs (a), (b) and (c) of this Section, except to the extent those provisions may conflict with the provisions of this paragraph. 7.10 STOCK CERTIFICATE LEGEND Certificates for shares distributed pursuant to the Plan shall contain the following legend: "The shares represented by this certificate are transferable only upon compliance with the terms of the STERLING CHEMICALS ESOP, a copy of said Plan being on file in the office of the Company." 7.11 PUT OPTION (a) If Company Stock which was not acquired with the proceeds of an Exempt Loan is distributed to a Participant and such Company Stock is not readily tradeable on an established securities market, a Participant has a right to require the Employer to repurchase the Company Stock distributed to such Participant under a fair valuation formula. Such Stock shall be subject to the provisions of Section 7.11(c). VII-10 (b) Company Stock which is acquired with the proceeds of an Exempt Loan and which is not publicly traded when distributed, or if it is subject to a trading limitation when distributed, must be subject to a put option. For purposes of this paragraph, a "trading limitation" on a Company Stock is a restriction under any Federal or State securities law or any regulation thereunder, or an agreement (not prohibited by Section 7.12) affecting the Company Stock which would make the Company Stock not as freely tradeable as stock not subject to such restriction. (c) The put option must be exercisable only by a Participant, by the Participant's donees, or by a person (including an estate or its distributee) to whom the Company Stock passes by reason of a Participant's death. (Under this paragraph, Participant means a Participant or Former Participant and the Beneficiaries of the Participant or Former Participant under the Plan.) The put option must permit a Participant to put the Company Stock to the Employer. Under no circumstances may the put option bind the Plan. However, it shall grant the Plan an option to assume the rights and obligations of the Employer at the time that the put option is exercised. If it is known at the time a loan is made that Federal or state law will be violated by the Employer's honoring such put option, the put option must permit the Company Stock to be put, in a manner consistent with such law, to a third party (e.g., an affiliate of the Employer or a shareholder other than the Plan) that has substantial net worth at the time the loan is made and whose net worth is reasonably expected to remain substantial. The put option shall commence as of the day following the date the Company Stock is distributed to the Former Participant and end 60 days thereafter and if not exercised within such 60-day period, an additional 60-day option shall commence on the first day of the fifth month of the Plan Year next following the date the stock was distributed to the Former Participant (or such other 60-day period as provided in regulations promulgated by the Secretary of the Treasury). However, in the case of Company Stock that is publicly traded without restrictions when distributed but ceases to be so traded within either of the 60-day periods described herein after distribution, the Employer must notify each holder of such Company Stock in writing on or before the tenth day after the date the Company Stock ceases to be so traded that for the remainder of the applicable 60-day period the Company Stock is subject to the put option. The number of days between the tenth day and the date on which notice is actually given, if later than the tenth day, must be added to the duration of the put option. The notice must inform distributees of the terms of the put options that they are to hold. The terms must satisfy the requirements of this paragraph. The put option is exercised by the holder notifying the Employer in writing that the put option is being exercised; the notice shall state the name and address of the holder and the number of shares to be sold. The period during which a put option is exercisable does not include any time when a distributee is unable to exercise it because the party bound by the put option is prohibited from honoring it by applicable Federal or state law. The price at which a put option must be exercisable is the value of the Company Stock determined in VII-11 accordance with Section 6.12. Payment under the put option involving a "Total Distribution" shall be paid in substantially equal monthly, quarterly, semiannual or annual installments over a period certain beginning not later than 30 days after the exercise of the put option and not extending beyond 5 years. The deferral of payment is reasonable if adequate security and a reasonable interest rate on the unpaid amounts are provided. The amount to be paid under the put option involving installment distributions must be paid not later than 30 days after the exercise of the put option. Payment under a put option must not be restricted by the provisions of a loan or any other arrangement, including the terms of the employer's articles of incorporation, unless so required by applicable state law. For purposes of this Section, "Total Distribution" means a distribution to a Participant or Former Participant within one taxable year of the entire Vested Participant's Account. (d) An arrangement involving the Plan that creates a put option must not provide for the issuance of put options other than as provided under this Section. The Plan (and the Trust Fund) must not otherwise obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder. 7.12 NONTERMINABLE PROTECTIONS AND RIGHTS No Company Stock, except as provided in Section 7.9(d) and Section 7.11(b), acquired with the proceeds of a loan described in Section 5.4 hereof may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from the Trust Fund, whether or not the Plan is then an ESOP. The protections and rights granted in this Section are nonterminable, and such protections and rights shall continue to exist under the terms of this Plan so long as any Company Stock acquired with the proceeds of a loan described in Section 5.4 hereof is held by the Trust Fund or by a Participant or other person for whose benefit such protections and rights have been created, and neither the repayment of such loan nor the failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a termination of said protections and rights. 7.13 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS All rights and benefits, including elections, provided to a Participant in this plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). VII-12 7.14 PAYMENT OF DISTRIBUTION DIRECTLY TO ELIGIBLE RETIREMENT PLAN (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) For purposes of this Section the following definitions shall apply: (1) "Eligible Rollover Distribution": An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) "Eligible Retirement Plan": An Eligible Retirement Plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (3) "Distributee": A Distributee includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (4) "Direct Rollover": A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. VII-13 7.15 30-DAY WAIVER If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Regulations is given, provided that: (1) the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. VII-14 ARTICLE VIII TRUSTEE 8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE The Trustee shall have the following categories of responsibilities: (a) With respect to Company Stock, the Company Stock Account, or an Exempt Loan, except as directed solely by the Administrator, (1) the Trustee shall not sell, acquire or dispose of Company Stock or (2) enter into any Exempt Loan. Upon direction of the Administrator, up to 100% of the Trust Fund may be invested in Company Stock. (b) With respect to the Other Investments Account, the Trustee shall invest such Participant's Accounts as directed by the Participant in the funds then made available under the Trust for such directions. (c) At the direction of the Administrator, the Trustee shall pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries. (d) The Trustee shall maintain records of receipts and disbursements, and furnish to the Employer and/or Administrator for each Plan Year a written annual report according to Section 3.2 of this Trust Agreement. (e) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 8.2 VOTING COMPANY STOCK The Trustee shall vote all Company Stock held by it as part of the Plan as sets at such time and in such manner as the Administrator shall direct. Provided, however, that if any agreement entered into by the Trustee, upon the direction of the Administrator, provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. If the Administrator fails or refuses to give the Trustee timely instructions as to how to vote any Company Stock held by the Trustee and which the Administrator otherwise has the right to vote, the Trustee shall not vote such Company Stock, except as otherwise required by the Act, and shall consider the Administrator's failure or refusal to give timely instructions as an exercise of the Administrator's rights and a directive to the Trustee not to vote said Company Stock. The Trustee shall not vote Company Stock VIII-1 when a Participant or Beneficiary, pursuant to this Section, fails to exercise a right to vote Company Stock. Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled, in lieu of the Administrator, to direct the Trustee as to the manner in which the Company Stock allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled, in lieu of the Administrator, to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term "registration-type class of securities" means" (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such Section 12. The Trustee shall notify each Participant or Beneficiary of each tender or exchange offer and utilize its best efforts to distribute or cause to be distributed to such Participant or Beneficiary in a timely manner all information received by the Trustee as a recordholder of shares of Company Stock in connection with any such tender or exchange offer. Each Participant or Beneficiary shall have the right from time to time with respect to the shares of Company stock allocated to his account, to instruct the Trustee in writing as to the manner in which to respond to any tender or exchange offer which shall be pending or which may be made in the future for all shares of Company Stock or any portion thereof. A Participant's or Beneficiary's instructions shall remain in force until superseded in writing by the Participant or Beneficiary. The Trustee shall tender or exchange such shares of Company Stock as and to the extent so instructed. Unless and until shares of Company Stock are tendered or exchanged, the individual instructions received by the Trustee from Participant or Beneficiaries shall be held in strict confidence by the Trustee and shall not be divulged or released to any person, including, but not limited to officers or Employees of the Employer, or of any other Participating Employer; provided, however, that the Trustee shall advise the Employer, at any time upon request, of the total number of shares not subject to instructions to tender or exchange. The Trustee shall not make recommendations to Participants or Beneficiaries on whether to instruct the Trustee to tender or exchange. The Trustee shall not vote, sell, convey or transfer any allocated shares of Company Stock for which no directions are timely received from Participants or Beneficiaries pursuant to the immediately preceding paragraph, and shares of Company Stock held by the Trustee which are not allocated to Participants' Company Stock Accounts shall be voted by the Trustee only in the manner directed by the Administrator. VIII-2 ARTICLE IX AMENDMENT, TERMINATIONS, AND MERGERS 9.1 AMENDMENT The Company shall have the right at any time to amend the Plan by action of its Board of Directors. In addition, the Chief Executive Officer of the Company shall have the authority to amend the Plan, provided such amendment does not materially increase the Company's obligations hereunder or are of a ministerial or technical compliance nature. However, no such amendment shall authorize or permit any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to purposes other than for the exclusive benefit of the Participants or their Beneficiaries or estates; no such amendment shall cause any reduction in the amount credited to the account of any Participant or cause or permit any portion of the Trust Fund to revert to or become the property of the Employer; and no such amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may be made without the Trustee's and Administrator's written consent. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are as part of the Plan and the amendment affects the duties of the Trustee hereunder. In addition, no such amendment shall have the effect of terminating the protections and rights set forth in Section , unless such termination shall then be permitted under the applicable provisions of the Code and Regulations; such a termination is currently expressly prohibited by Regulation 54.4975- 11(a)(3)(ii). For the purposes of this Section, a Plan amendment which has the effect of (1) eliminating or reducing an early retirement benefit or a retirement-type subsidy, (2) eliminating an optional form of benefit (as provided in Regulations) or (3) restricting, directly or indirectly, the benefit provided to any Participant prior to the amendment shall be treated as reducing the amount credited to the account of a Participant except that an amendment described in clause (2) above (other than an amendment having an effect described in clause (1) above) shall not be treated as reducing the amount credited to the account of a Participant to the extent so provided in Regulations. Any Plan amendment which modifies distribution options in a nondiscriminatory manner shall not be treated as reducing the amount credited to the account of a Participant. 9.2 TERMINATION The Board of Directors of the Company shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any termination (full or partial) or complete discontinuance of contributions, all amounts credited to the affected Participants' Accounts shall become 100% Vested and shall not thereafter be subject to forfeiture and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. Upon such termination of the Plan, the Employer, by written notice to the Trustee and Administrator, may direct either: IX-1 (a) complete distribution of the assets in the Trust Fund to the Participants in a manner consistent with the requirements of Sections 7.5 and 7.6; or (b) continuation of the Trust created by this agreement and the distribution of benefits at such time and in such manner as though the Plan had not been terminated. 9.3 MERGER OR CONSOLIDATION This Plan may be merged or consolidated with, or its assets and/or liabilities maybe transferred to any other Plan and Trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation. IX-2 ARTICLE X MISCELLANEOUS 10.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 10.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall be in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order", (i) a Former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan and (ii) the Plan may include distribution prior to the Participant's attainment of his "earliest retirement age." 10.3 CONSTRUCTION OF PLAN This Plan shall be construed and enforced according to the Act and the laws of the State of Delaware, other than its laws respecting choice of law, to the extent not preempted by the Act. 10.4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, X-1 and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 10.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power or revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Section 403(c)(2)(A) of the Act, the Employer may demand repayment of such excessive contribution at any time within one year following the time of payment and the Trustees shall return such amount to the Employer within the one year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 10.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Section 412(a)(2) of the Act), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. X-2 10.8 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 10.9 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 10.10 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are the Company and the Administrator. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan. In general, the Company shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the sole authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan, including the acquisition, holding and/or disposition of Company Stock and the entering into any Exempt Loans. The Administrator shall also have the sole responsibility of management of the assets of the Other Investments Account held under the Trust, except those assets in such accounts, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. 10.11 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 10.12 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the X-3 Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.6 and 4.3(d), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 10.13 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. 10.14 SECURITIES AND EXCHANGE COMMISSION APPROVAL The Company may request an interpretative letter from the Securities and Exchange Commission stating that the transfer of Company Stock contemplated hereunder does not involve transactions requiring a registration of such Company Stock under the Securities Act of 1933. In the event that a favorable interpretative letter is not obtained, the Employer reserves the right to amend the Plan and Trust retroactively to their Effective Dates in order to obtain a favorable interpretative letter or to terminate the Plan. 10.15 INDEMNIFICATION Neither the Employer, any of its officers or directors, nor the Administrator shall be personally liable for any action or inaction with respect to any duty or responsibility imposed upon such person by the terms of the Plan, unless such action or inaction is judicially determined to be a breach of that person's fiduciary responsibility with respect to the Plan under any applicable law. The Employer may indemnify or purchase insurance to underwrite indemnity for the Administrator and/or the Employer's board of directors against any personal liability or expense except for their own gross negligence. 10.16 CONTROLLING LAW All legal questions pertaining to the Plan, all construction and all Regulations shall be determined in accordance with the laws of the State of Delaware and the United States. All contributions shall be deemed to have been made under such laws. Notwithstanding anything in this X-4 Agreement to the contrary, the effective dates provided for herein for the application of any Code Section to this Plan shall be extended in accordance with any act of Congress or any effective Regulation, Ruling or other measure of like import. X-5 ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ADOPTION BY OTHER EMPLOYERS Notwithstanding anything herein to the contrary, with the consent of the Company and Trustee, any other Affiliated Employer may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee, unless directed otherwise by the Administrator, shall commingle and hold as one Trust Fund all contributions made by Participating Employers. (c) The transfer of any Participant from or to an Employer participating in this Plan, whether he be an Employee of the Employer or a Participating Employer, shall not affect such Participant's rights under the Plan, and all amounts credited to such Participant's Account as well as his accumulated service time with the transferor or predecessor, and his length of participation in the Plan, shall continue to his credit. (d) All rights and values forfeited by termination of employment shall inure only to the benefit of the Employee-Participants of the Participating Employer by which the forfeiting Participant was employed, except if the Forfeiture is for an Employee whose Employer is a member of an affiliated or controlled group, then said Forfeiture shall be allocated, based on Compensation to all Participant Accounts of Participating Employers who are members of the affiliated or controlled group. Should an Employee of one ("First") Employer be transferred to an associated ("Second") Employer (the Employer, an affiliate or subsidiary), such transfer shall not cause his Account balance (generated while an Employee of "First" Employer) in any manner or by any amount to be forfeited. Such Employee's Participant Account balance for all purposes of the Plan, including length of service, shall be considered as though he had always been employed by the "Second" Employer and as such had received contributions, forfeitures, earnings of losses, and appre ciation or depreciation in value of assets totaling amount so transferred. (e) Any expenses of the Trust which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. XI-1 11.3 DESIGNATION OF AGENT Each Participating Employer shall be deemed to be a part of this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 11.4 EMPLOYEE TRANSFERS It is anticipated that an Employee may be transferred between Participating Employers, and in the event of any such transfer, the Employee involved shall carry with him his accumulated service and eligibility. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION Any contribution or Forfeiture subject to allocation during each Plan Year shall be allocated among all Participants of all Participating Employers in accordance with the provisions of this Plan. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Administrator will notify the Trustee thereof. Notwithstanding anything herein seemingly to the contrary, the Plan shall constitute a "single" Plan as to all Participating Employers and not a separate plan as to any such Participating Employer. 11.6 AMENDMENT Each amendment of this Plan shall be binding on each and every Participating Employer and on the Trustee, unless its consent is necessary in accordance with the terms of this Plan. 11.7 DISCONTINUANCE OF PARTICIPATION Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Trust Fund assets allocable to the Participants of such Participating Employer or to such new Trustee as shall have been designated by such Participating Employer, in XI-2 the event that it has established a separate pension plan for its Employees. If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted for purposes other than for the exclusive benefit of the Employees of such Participating Employer. 11.8 ADMINISTRATOR'S AUTHORITY The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. 11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE If any Participating Employer is prevented in whole or in part from making a contribution to the Trust Fund which it would otherwise have made under the Plan by reason of having no current or accumulated earnings or profits, or because such earnings or profits are less than the contribution which it would otherwise have made, then, pursuant to Code Section 404(a)(3)(B), so much of the contribution which such Participating Employer was so prevented from making may be made, for the benefit of the participating employees of such Participating Employer, by the other Participating Employers who are members of the same affiliated group within the meaning of Code Section 1504 to the extent of their current or accumulated earnings or profits, except that such contribution by each such other Participating Employer shall be limited to the proportion of its total current and accumulated earnings or profits remaining after adjustment for its contribution to the Plan made without regard to this paragraph which the total prevented contribution bears to the total current and accumulated earnings or profits of all the Participating Employers remaining after adjustment for all contributions made to the Plan without regard to this paragraph. XI-3 ARTICLE XII TOP-HEAVY STATUS 12.1 ARTICLE CONTROLS Any Plan provisions to the contrary notwithstanding, the provisions of this Article shall control to the extent required to cause the Plan to comply with the requirements imposed under Code Section 416. 12.2 DEFINITIONS For purposes of this Article, the following terms and phrases shall have these respective meanings: (a) Account Balance: As of any Valuation Date, the aggregate amount credited to an individual's account or accounts under a qualified defined contribution plan maintained by the Employer or an Affiliated Employer (excluding employee contributions which were deductible within the meaning of section 219 of the Code and rollover or transfer contributions made after December 31, 1983 by or on behalf of such individual to such plan from another qualified plan sponsored by an entity other than the Employer or an Affiliated Employer), increased by (1) the aggregate distributions made to such individual from such plan during a five-year period ending on the Determination Date and (2) the amount of any contributions due as of the Determination Date immediately following such Valuation Date. (b) Accrued Benefit: As of any Valuation Date, the present value (computed on the basis of the Assumptions) of the cumulative accrued benefit (excluding the portion thereof which is attributable to employee contributions which were deductible pursuant to section 219 of the Code, to rollover or transfer contributions made after December 31, 1983 by or on behalf of such individual to such plan from another qualified plan sponsored by an entity other than the Employer or an Affiliated Employer, to proportional subsidies or to ancillary benefits) of an individual under a qualified defined benefit plan maintained by the Employer or an Affiliated Employer increased by (1) the aggregate distributions made to such individual from such plan during a five-year period ending on the Determination Date and (2) the estimated benefit accrued by such individual between such Valuation Date and the Determination Date immediately following such Valuation Date. Solely for the purpose of determining top- heavy status, the Accrued Benefit of an individual shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all qualified defined benefit plans maintained by the Employer or an Affiliated Employer, or (2) if there is no such method, as if such benefit accrued not more rapidly than under the slowest accrual rate permitted under section 411(b)(1)(C) of the Code. (c) Aggregation Group: The group of qualified plans maintained by the Employer and each Affiliated Employer consisting of (1) each plan in which a Key XII-1 Employee participates and each other plan which enables a plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code, or (2) each plan in which a Key Employee participates, each other plan which enables a plan in which a Key Employee participates to meet the requirements of sections 401(a)(4) or 410 of the Code and any other plan which the Employer elects to include as a part of such group; provided, however, that the Employer may not elect to include a plan in such group if its inclusion would cause the group to fail to meet the requirements of sections 401(a)(4) or 410 of the Code. (d) Assumptions: The interest rate and mortality assumptions specified for top-heavy status determination purposes in any defined benefit plan included in the Aggregation Group including the Plan. (e) Determination Date: For the first Plan Year of any plan, the last day of such Plan Year and for each subsequent Plan Year of such plan, the last day of the preceding Plan Year. (f) Key Employee: A "key employee" as defined in section 416(i) of the Code and the Treasury Regulations thereunder. (g) Plan Year: With respect to any plan, the annual accounting period used by such plan for annual reporting purposes. (h) Remuneration: Compensation within the meaning of section 415(c)(3) of the Code, as limited by section 401(a)(17) of the Code for Plan Years beginning after December 31, 1988. (i) Valuation Date: With respect to any Plan Year of any defined contribution plan, the most recent date within the twelve-month period ending on a Determination Date as of which the trust fund established under such plan was valued and the net income (or loss) thereof allocated to participants' accounts. With respect to any Plan Year of any defined benefit plan, the most recent date within a twelve-month period ending on a Determination Date as of which the plan assets were valued for purposes of computing plan costs for purposes of the requirements imposed under section 412 of the Code. 12.3 TOP-HEAVY STATUS (a) The Plan shall be deemed to be top-heavy for a Plan Year, if, as of the Determination Date for such Plan Year, (1) the sum of Account Balances of Participants who are Key Employees exceeds 60% of the sum of Account Balances of all Participants unless an Aggregation Group including the Plan is not top-heavy or (2) an Aggregation Group including the Plan is top-heavy. An Aggregation Group shall be deemed to be top-heavy as of a Determination Date if the sum (computed in accordance with section 416(g)(2)(B) of XII-2 the Code and the Treasury Regulations promulgated thereunder) of (1) the Account Balances of Key Employees under all defined contribution plans included in the Aggregation Group and (2) the Accrued Benefits of Key Employees under all defined benefit plans included in the Aggregation Group exceeds 60% of the sum of the Account Balances and the Accrued Benefits of all individuals under such plans. Notwithstanding the foregoing, the Account Balances and Accrued Benefits of individuals who are not Key Employees in any Plan Year but who were Key Employees in any prior Plan Year shall not be considered in determining the top-heavy status of the Plan for such Plan Year. Further, notwithstanding the foregoing, the Account Balances and Accrued Benefits of individuals who have not performed services for the Employer at any time during the five-year period ending on the applicable Determination Date shall not be considered. 12.4 TERMINATION OF TOP-HEAVY STATUS If the Plan has been deemed to be top-heavy for one or more Plan Years and thereafter ceases to be top-heavy, the provisions of this Article shall cease to apply to the Plan effective as of the Determination Date on which it is determined to no longer be top-heavy. 12.5 EFFECT OF ARTICLE Notwithstanding anything contained herein to the contrary, the provisions of this Article shall automatically become inoperative and of no effect to the extent not required by the Code or the Act. IN WITNESS WHEREOF, this Plan has been executed this August 21, 1996, effective for all purposes as of the Effective Date. STX CHEMICALS CORP. (to be renamed Sterling Chemicals, Inc.) By: /s/ Hunter Nelson ----------------- Name: Hunter Nelson Title: Vice President XII-3 EX-10.17 7 EXHIBIT 10.17 EXHIBIT 10.17 INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT ("Agreement") is made as of October 23, 1996, by and between Sterling Chemicals Holdings, Inc., a Delaware corporation (the "Company"), and ____________________ ("Indemnitee"). WHEREAS, the Certificate of Incorporation and Bylaws of the Company provide for the indemnification of directors, officers and employees of the Company and its direct and indirect subsidiaries to the maximum extent permitted from time to time under applicable law and, along with the Delaware General Corporation Law, contemplate that the Company may enter into agreements with respect to such indemnification; and WHEREAS, the Board of Directors of the Company has concluded that it is reasonable, prudent and in the best interests of the Company's stockholders for the Company to contractually obligate itself to indemnify certain of its Authorized Representatives (defined below) so that they will serve or continue to serve with greater certainty that they will be adequately protected; and WHEREAS, the Board of Directors of the Company has authorized the Company, acting through the Chairman of the Board or the President, to enter into an Indemnity Agreement with (i) each director of the Company and its direct and indirect subsidiaries, (ii) each officer of the Company and its direct and indirect subsidiaries, and (iii) any employee of the Company or its direct and indirect subsidiaries as may be determined by the Chairman of the Board or the President to be appropriate; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. Definitions. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following respective meanings: "Authorized Representative" means (i) a director, officer, employee, agent or fiduciary of the Company or any Subsidiary and (ii) a person serving at the request of the Company or any Subsidiary as a director, officer, employee, fiduciary or other representative of another Enterprise. "Enterprise" means any corporation, partnership, limited liability company, association, joint venture, trust, employee benefit plan or other entity. -1- "Expenses" means all expenses, including (without limitation) reasonable fees and expenses of counsel. "Liabilities" means all liabilities, including (without limitation) the amounts of any judgments, fines, penalties, excise taxes and amounts paid in settlement. "Proceeding" means any threatened, pending or completed claim, action (including any action by or in the right of the Company), suit or proceeding (whether formal or informal, or civil, criminal, administrative, legislative, arbitrative or investigative) in respect of which Indemnitee is, was or at any time becomes, or is threatened to be made, a party, witness, subject or target, by reason of the fact that Indemnitee is or was an Authorized Representative or a prospective Authorized Representative. "Subsidiary" means, at any time, (i) any corporation of which at least a majority of the outstanding voting stock is owned by the Company at such time, directly or indirectly through subsidiaries, and (ii) any other Enterprise in which the Company, directly or indirectly, owns more than a 50% equity interest at such time. 2. Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision; (iv) unless the context indicates otherwise, reference to any Section means such Section hereof; and (v) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term. (b) The Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Agreement shall be interpreted or construed against any party solely because that party or its legal representative drafted such provision. -2- (d) In the event of any ambiguity, vagueness or other similar matter involving the interpretation or meaning of this Agreement, this Agreement shall be liberally construed so as to provide to Indemnitee the full benefits contemplated hereby. (e) If the indemnification to which Indemnitee is entitled as respects any aspect of any claim varies between two or more provisions of this Agreement, that provision providing the most comprehensive indemnification shall apply. 3. Limitation on Personal Liability. To the fullest extent permitted by applicable law, Indemnitee shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director of the Company, provided that the foregoing shall not eliminate or limit the liability of Indemnitee (i) for any breach of Indemnitee's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law relating to unlawful dividend payments and unlawful stock purchases or redemptions, or (iv) for any transaction from which Indemnitee derived an improper personal benefit. 4. Indemnity. (a) Subject to the following provisions of this Agreement, the Company shall hold harmless and indemnify Indemnitee against all Expenses and Liabilities actually incurred by Indemnitee in connection with any Proceeding; provided, however, that no indemnity shall be paid by the Company pursuant to this Agreement: (i) for amounts actually paid to Indemnitee pursuant to one or more policies of directors and officers liability insurance maintained by the Company or pursuant to a trust fund, letter of credit or other security or funding arrangement provided by the Company; provided, however, that if it should subsequently be determined that Indemnitee is not entitled to retain any such amount, this clause (i) shall no longer apply to such amount; (ii) in respect of remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that payment of such remuneration was in violation of applicable law; (iii) on account of Indemnitee's conduct which is finally adjudged to constitute willful misconduct or to have been knowingly fraudulent, deliberately dishonest or from which the Indemnitee derives an improper personal benefit; or (iv) on account of any suit in which final judgment is rendered against Indemnitee for an accounting of profits made from the sale or purchase by Indemnitee of securities of the -3- Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. (b) If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for only a portion (but not, however, for the total amount) of any Expenses or Liabilities actually incurred by Indemnitee in connection with any Proceeding, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses and Liabilities to which Indemnitee is entitled. If the indemnification provided for herein in respect of any Expenses or Liabilities actually incurred by Indemnitee in connection with any Proceeding is finally determined by a court of competent jurisdiction to be prohibited by applicable law, then the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount paid or payable by Indemnitee as a result of such Expenses and Liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and Indemnitee on the other hand from the events, circumstances, conditions, happenings, actions or transactions from which such Proceeding arose, (ii) the relative fault of the Company (including its other Authorized Representatives) on the one hand and of Indemnitee on the other hand in connection with the events, circumstances and happenings which resulted in such Expenses and Liabilities, such relative fault to be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the events, circumstances and/or happenings resulting in such Expenses and Liabilities, and (iii) any other relevant equitable considerations, it being agreed that it would not be just and equitable if such contribution were determined by pro rata or other method of allocation which does not take into account the foregoing equitable considerations. (c) The indemnification provided herein shall be applicable only to Proceedings commenced after the date hereof, regardless, however, of whether they arise from acts, omissions, facts or circumstances occurring before or after the date hereof. (d) The indemnification provided herein shall be applicable whether or not negligence of Indemnitee is alleged or proved, and regardless of whether such negligence be contributory or sole. (e) Amounts paid by the Company to Indemnitee under this Section 4 are subject to refund by Indemnitee as provided in Section 8. 5. Notification and Defense of Claims. (a) Promptly after the receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement of such Proceeding; provided, however, that the omission to so notify the Company will not relieve the Company (i) from any liability which it may have to Indemnitee under this Agreement unless, and then only to the extent that, such omission results in insufficient time being available to permit the Company or its counsel to effectively defend -4- against or make timely response to any loss, claim, damage, liability or expense resulting from such Proceeding or otherwise has a material adverse effect on the Company's ability to promptly deal with such loss, claim, damage, liability or expense or (ii) from any liability which it may have to Indemnitee otherwise than under this Agreement. (b) The following provisions shall apply with respect to any such Proceeding as to which Indemnitee notifies the Company of the commencement thereof: (i) The Company shall be entitled to participate therein at its own expense. (ii) Except as otherwise provided below, to the extent it may elect to do so, the Company (jointly with any other indemnifying party similarly notified) will be entitled to assume the defense thereof, with counsel of its own selection reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election so to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ separate counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (1) the employment of separate counsel by Indemnitee has been authorized by the Company; (2) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such Proceeding; or (3) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases the reasonable fees and expenses of Indemnitee's counsel shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (2) above. Nothing in this subparagraph (ii) shall affect the obligation of the Company to indemnify Indemnitee against Expenses and Liabilities paid in settlement for which it is otherwise obligated hereunder. (iii) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceedings or claims effected without its prior written consent. The Company shall not settle any Proceeding or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's prior written consent. Neither the Company nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement. 6. Advancement of Expenses, etc. If requested to do so by Indemnitee with respect to any Proceeding, the Company shall advance to or for the benefit of Indemnitee, prior to the final disposition of such Proceeding, the Expenses actually incurred by Indemnitee in investigating, defending or appealing such Proceeding. Any judgments, fines or amounts to be paid in settlement of any Proceeding shall also be advanced by the Company upon request by -5- Indemnitee. Advances made by the Company under this Section 6 are subject to refund by Indemnitee as provided in Section 8. 7. Right of Indemnitee to Bring Suit. (a) If a claim for indemnification or a claim for an advance under this Agreement is not paid in full by the Company within 30 days after receipt by the Company from Indemnitee of a written request or demand therefor, Indemnitee may bring suit against the Company to recover the unpaid amount of the claim. If, in any such action, Indemnitee makes a prima facie showing of entitlement to indemnification under this Agreement, the Company shall have the burden of proving that indemnification is not required under this Agreement. The only defense to any such action shall be that indemnification is not required by this Agreement. (b) In the event that any action is instituted by Indemnitee to enforce Indemnitee's rights or to collect monies due to Indemnitee under this Agreement and if Indemnitee is successful in such action, the Company shall reimburse Indemnitee for all Expenses incurred by Indemnitee with respect to such action. 8. Repayment Obligation of Indemnitee. If the Company advances or pays any amount to Indemnitee under Section 4, 6 or 7 and if it shall thereafter be finally adjudicated that Indemnitee was not entitled to be indemnified hereunder for all or any portion of such amount, Indemnitee shall promptly repay such amount or such portion thereof, as the case may be, to the Company. If the Company advances or pays any amount to Indemnitee under Section 4, 6 or 7 and if Indemnitee shall thereafter receive all or a portion of such amount under one or more policies of directors and officers liability insurance maintained by the Company or pursuant to a trust fund, letter of credit or other security or funding arrangement provided by the Company, Indemnitee shall promptly repay such amount or such portion thereof, as the case may be, to the Company. 9. Changes in Law. If any change after the date of this Agreement in any applicable law, statute or rule expands the power of the Company to indemnify Authorized Representatives, such change shall be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. If any change after the date of this Agreement in any applicable law, statute or rule narrows the right of the Company to indemnify an Authorized Representative, such change shall, to the fullest extent permitted by applicable law, leave this Agreement and the parties' rights and obligations hereunder unaffected. 10. Continuation of Indemnity. All agreements and obligations of the Company hereunder shall continue during the period Indemnitee is an Authorized Representative, and shall continue after Indemnitee has ceased to occupy such position or have such relationship so long as Indemnitee shall be subject to any possible Proceeding. -6- 11. Nonexclusivity. The indemnification and other rights provided by any provision of this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under (i) any statutory or common law, (ii) the Company's certificate of incorporation, (iii) the Company's bylaws, (iv) any other agreement or (v) any vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while occupying any of the positions or having any of the relationships referred to in this Agreement. Nothing in this Agreement shall in any manner affect, impair or compromise any indemnification Indemnitee has or may have by virtue of any agreement previously entered into between Indemnitee and the Company. 12. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable (i) the validity, legality or enforceability of the remaining provisions of this Agreement shall not be in any way affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Each provision of this Agreement is a separate and independent portion of this Agreement. 13. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties. No waiver of any of the provisions of this Agreement shall be binding unless executed in writing by the person making the waiver nor shall such waiver constitute a continuing waiver. 14. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be addressed (i) if to the Company, at its principal office address as shown on the signature page hereof or such other address as it may have designated by written notice to Indemnitee for purposes hereof, directed to the attention of the Secretary and (ii) if to Indemnitee, at Indemnitee's address as shown on the signature page hereof or to such other address as Indemnitee may have designated by written notice to the Company for purposes hereof. Each such notice or other communication shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) transmitted by facsimile transmission, at the time that receipt of such transmission is confirmed, or (c) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed. 15. Governing Law. This Agreement shall be deemed to be a contract made under, and shall be governed by and construed and enforced in accordance with, the internal laws of the State of Delaware without regard to principles of conflicts of law. 16. Heirs, Successors and Assigns. (a) This Agreement shall be binding upon, inure to the benefit of and be enforceable by (i) Indemnitee and Indemnitee's personal or legal representatives, executors, administrators, heirs, devisees and legatees and (ii) the Company and -7- its successors and assigns. This Agreement shall not inure to the benefit of any other person or Enterprise. (b) The Company agrees to require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used herein, the term "Company" shall include any successor to its business and/or assets as aforesaid which executes and delivers the assumption and agreement provided for in this Section 16 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. ENTERED into on the day and year first above written. THE COMPANY: ----------- STERLING CHEMICALS HOLDINGS, INC. By: ---------------------------------- Address: 1200 Smith Street Robert W. Roten Suite 1900 President and Chief Executive Officer Houston, Texas 77002 Attn: General Counsel INDEMNITEE: ---------- --------------------------------- Address: [home address] [name] -8- EX-10.22 8 EXHIBIT 10.22 EXHIBIT 10.22 ARTICLES OF AGREEMENT BETWEEN STERLING CHEMICALS, INC. ITS SUCCESSORS AND ASSIGNS AND TEXAS CITY, TEXAS METAL TRADES COUNCIL, AFL-CIO TEXAS CITY, TEXAS MAY 1, 1996 TO MAY 1, 1999 ARTICLES OF AGREEMENT TABLE OF CONTENTS
PAGE Article 1 - Union Security........................................... 2 Article 2 - Hours of Work............................................ 3 Article 3 - Overtime and Premium Time Regulations.................... 13 Article 4 - Vacation................................................. 10 Article 5 - Seniority................................................ 13 Article 6 - Work Outside of Regular Classification................... 20 Article 7 - Supervisors Doing Hourly Work............................ 21 Article 8 - Work Classifications -- Temporary Vacancies.............. 21 Article 9 - Staffing of New Units.................................... 21 Article 10 - Jurisdiction of Work..................................... 22 Article 11 - Leadmen.................................................. 23 Article 12 - Stewards................................................. 23 Article 13 - Contract Work -- Construction and Maintenance............ 24 Article 14 - Pay Day.................................................. 24 Article 15 - Payroll Disputes......................................... 24 Article 16 - Physical Examinations.................................... 25 Article 17 - Discriminations.......................................... 25 Article 18 - Union Representatives.................................... 25 Article 19 - Jurisdictional Disputes.................................. 26 Article 20 - Jury Service............................................. 26 Article 21 - Election Day Regulations................................. 27 Article 22 - Replacement of Clothing.................................. 28 Article 23 - Layoff Notice -- Separation Allowance.................... 28 Article 24 - Leave of Absence......................................... 30 Article 25 - Sanitation and Safety.................................... 31 Article 26 - Bulletin Boards.......................................... 33 Article 27 - Company Rules............................................ 33 Article 28 - Funeral Leave............................................ 33 Article 29 - Strikes and Lockouts..................................... 34 Article 30 - Grievance Procedure...................................... 35 Article 31 - Arbitration Procedure.................................... 38 Article 32 - Abrogation of Contract Articles.......................... 38 Article 33 - Non-occupational Accident and Sickness Plan.............. 39 Article 34 - Contract Period.......................................... 42 Exhibit A-1 - Forty (40) Hour Master Shift Schedule.................... 45 Exhibit AX-1 - Forty (40) Hour Master Shift Schedule.................... 46 Exhibit A-2 - Forty (40) Hour Master Shift Schedule Two (2) Shifts Only............................................. 47 Exhibit A-3B - Forty (40) Hour Master Shift Schedule.................... 48 Exhibit A-3 - Three (3) Shift Schedule................................. 49 Exhibit A-5 - Forty (40) Hour Weekend Day Schedule..................... 50
i Exhibit A-6 - Normal. Day Schedule..................................... 50 Exhibit A-7 - Special Straight Day Schedule............................ 51 Exhibit A-9 - Special Pilot Plant and TBA Unit Schedule................ 52 Exhibit A-10 - Three (3) Shift Schedule (All Employees Except Group 1).. 53 Exhibit A-11 - Two (2) Shift Schedule (All Employees Except Group 1).... 53 Exhibit A-20 - Special Pilot Plant Schedule............................. 54 Exhibit B - Wage Rates............................................ 55,56 Exhibit C-1 - Merit Progression Schedule & Laboratory Analyst Apprentice........................................... 57,58 Exhibit C-2 - Maintenance Apprentice Merit Progression Schedule........ 59 Exhibit C-3 - Instrument & Electrical Apprentice Merit Progression Schedule................................................ 59 Exhibit C-4 - Chemical Operator Apprentice Merit Progression Rate...... 60 Exhibit C-5 - Pumper-Gauger Apprentice Merit Progression Rate.......... 60 ii
ARTICLES OF AGREEMENT BETWEEN STERLING CHEMICALS, INC. ITS SUCCESSORS AND ASSIGNS AND THE TEXAS CITY, TEXAS METAL TRADES COUNCIL, AFL-CIO OF TEXAS CITY, TEXAS 1 This agreement is made between the Sterling Chemicals, Inc., its successors and assigns, authorized to do business in Texas, hereinafter referred to as the COMPANY, and the Texas City, Texas Metal Trades Council, AFL-CIO, of Galveston County, Texas, hereinafter referred to as the UNION. It is agreed by the following unions signatory to this Agreement that said Council is their authorized representative for the purpose of negotiating and administering this Agreement and for the purpose of modifying, amending, or waiving any of the provisions of this Agreement: Electrical Workers Local No. 527 Operating Engineers No. 347 Painters and Paperhangers No. 585 Bridge, Structural & Ornamental Iron Workers No. 135 International Association of Machinists No. 1446 Affiliated with District No. 37 Sheet Metal Workers No. 54 Teamsters Local No. 1111 Carpenters Local No. 973 Instrument Lodge No. 903 International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers No. 132 Heat & Frost Insulators and Asbestos Workers No. 111 Pipefitters Local No. 211 Operating Engineers No. 450 BASIC PRINCIPLES 2 The COMPANY and the UNION have a common and sympathetic interest in the progress of industry. Therefore, a working system and harmonious relations are necessary to improve the relationship between the COMPANY and the UNION, and the Public. Progress in industry demands a mutuality of confidence between the COMPANY and the UNION. All will benefit by a continuous peace and by adjusting any differences by rational, common-sense methods. The purpose of this Agreement is to establish harmonious relations for the advancement of the mutual interest of the parties without regard to race, sex, creed, color, age, or national origin in continuing and improving the manufacture and production of products at said Texas City plant. It is the understanding of the parties to this agreement that any reference in said agreement to the masculine gender is understood to also include those employees of the feminine gender. Now, 1 therefore, in consideration of the mutual promises and agreements herein contained, the parties hereto agree as follows: RECOGNITION 3 The COMPANY hereby recognizes the Texas City, Texas Metal Trades Council as the exclusive bargaining agency for all production and maintenance employees, but excluding supervisory, technical, clerical, plant protection and cafeteria employees and other conditions of employment. Supervisory employees, in the production and maintenance departments, are those who are above the classifications listed in Exhibit B, a part of this Contract. ARTICLE 1 UNION SECURITY SECTION 1 4 The COMPANY agrees to honor check-off cards signed by individual employees, on forms agreed to by the COMPANY and the UNION, which authorize the COMPANY to deduct from the employee's first pay check each month the regular monthly UNION dues of the employee, or initiation fees as may be authorized by the employee. 5 The COMPANY agrees to notify the UNION of all newly employed personnel covered by this Agreement. Such notice shall be in writing and shall state the name of the employee, their classification, their date of hire, their address and telephone number. SECTION 2 6 Check-off authorizations now in effect shall become irrevocable in accordance with the terms of Section 3 of this article unless written notice of revocation from the employee is received by the COMPANY within the fifteen (15) day period prior to the expiration date of this Agreement. A notice of this provision will be posted by the COMPANY and the UNION. SECTION 3 7 Check-off authorizations shall be irrevocable for the period of one (1) year, or until the termination of the Agreement, whichever occurs sooner. It is further agreed that this authorization shall be automatically renewed, and shall be irrevocable for successive periods of one (1) year each unless written notice by registered mail of revocation from the employee is received by the COMPANY not more than twenty (20) days nor less than ten (10) days prior to the expiration of each period of one (1) year. 2 8 Employees withdrawing from a signatory union may cancel their dues deduction authorization at any time by serving notice by letter to the COMPANY canceling such authorization along with letters of approval from the UNION and the signatory union to which the dues and initiation fees were to be forwarded. 9 Employees who, as a result of a change in job assignment, transfer from one signatory union to another signatory union, may cancel any prior dues deduction authorization by submitting to the COMPANY a new dues deduction authorization. Such new authorization must be transmitted through the signatory union or its designated representative. SECTION 4 10 Money deducted from pay checks as authorized herein for employees bargained for by the UNION will be forwarded to each individual union signatory to the Agreement. The UNION will furnish the COMPANY a list of signatory unions showing the address and the individual to whom the check should be forwarded and the regular monthly union dues of each Union. This check will be forwarded not later than the 20th of the month in which the money is deducted, along with a summary sheet in duplicate showing the name of each employee from whose pay check dues and initiation fees were deducted and the amount deducted. 11 In the event a signatory union ceases to be affiliated with UNION for any reason, and UNION officially notifies COMPANY of same, the authorization of employees for deductions of dues and initiation fees for such Union whose affiliation with UNION has ceased, shall be immediately and automatically revoked and any monies deducted from checks of said employees and held by the COMPANY will be refunded to the employee from whose check the deduction was made. SECTION 5 12 In the event applicable laws governing union security are liberalized to the extent that they allow a Maintenance of Membership clause, the COMPANY agrees to meet with the UNION at that time and agree on the terms of a Maintenance of Membership clause. ARTICLE 2 HOURS OF WORK SECTION 1 - ALL EMPLOYEES IN SENIORITY GROUPS 1, 2 AND 4 13 The period of time from 6:30 a.m. to 6:30 a.m. the following day shall constitute a payroll day for all employees in the seniority groups above. The period of time composed of seven (7) consecutive payroll days, extending from 6:30 a.m. Monday to 6:30 a.m. the following Monday, shall constitute a regular work week at this plant for all employees in the seniority groups above. 3 The hours of work shall be as follows: 14 (a) DAY WORKERS - Eight (8) consecutive hours of work per day, exclusive of a thirty (30) minute lunch period, shall constitute a day's work. Hours of work shall be from 6:30 a.m. to 11:00 a.m. and from 11:30 a.m. to 3:00 p.m. 15 (b) SHIFT WORKERS - Eight (8) consecutive hours of work per day shall constitute a day's work. Five (5) eight (8) hour shifts in any one work week shall constitute a week's work. Shifts shall be from 6:30 a.m. to 2:30 p.m., 2:30 p.m. to 10:30 p.m., and 10:30 p.m. to 6:30 a.m. Shift workers will be permitted sufficient time to eat during their shift without loss of pay for such period. 16 (c) X-1 SHIFT WORKERS - Eight (8) consecutive hours of work per day shall constitute a day's work. Five (5) eight (8) hours shifts in any one work week shall constitute a weeks' work. Shifts shall be from 10:30 p.m. to 6:30 a.m., 6:30 a.m. to 2:30 p.m., and 2:30 p.m. to 10:30 p.m. The payroll week for employees on the X-1 shift starts at 10:30 p.m., Sunday, and runs until 10:30 p.m. the following Sunday. The payroll day starts at 10:30 p.m. and runs until 10:30 p.m. of the following day. Shift workers are permitted sufficient time to eat during their shift without loss of pay for such period. SECTION 2 - ALL EMPLOYEES IN THE MAINTENANCE CRAFTS SENIORITY AND SENIORITY GROUP 3 17 The period of time from 7:00 a.m. to 7:00 a.m. the following day shall constitute a payroll day for all employees in the seniority groups above. 18 The period of time composed of seven (7) consecutive payroll days, extending from 7:00 a.m. Monday to 7:00 a.m. the following Monday, shall constitute a regular work week at this plant for all employees in the seniority groups above. The hours of work shall be as follows: 19 (a) DAY WORKERS - All Employees in the Maintenance Crafts Seniority and Seniority Group 3 - Eight (8) consecutive hours of work per day, exclusive of a thirty (30) minute lunch period, shall constitute a day's work. Hours of work shall be from 7:00 a.m. to 11:00 a.m. and from 11:30 a.m. to 3:30 p.m. 20 (b) SHIFT WORKERS - All Employees in the Maintenance Crafts Seniority and Seniority Group 3 - Eight (8) consecutive hours of work per day shall constitute a day's work. Five (5) eight (8) hour shifts in any one work week shall constitute a week's work. Shifts shall be from 7:00 a.m. to 3:00 p.m., 3:00 p.m. to 11:00 p.m., and 11:00 p.m. to 7:00 a.m. Shift workers will be permitted sufficient time to eat during their shift work without loss of pay for such period. 4 SECTION 3 21 Employees may be scheduled as shift workers if and when required in the operation of the plant, and when so working, shall be governed by the above conditions relating to a shift worker. 22 Straight day maintenance employees temporarily assigned to shift work, when being reassigned to straight days, will normally be reassigned at the beginning of the work week. 23 All work schedules presently in effect will be included in Exhibit A and attached hereto. Any changes in these schedules will be mutually agreed to by COMPANY and UNION. 24 The normal work week shall consist of forty (40) hours of work and the normal work day of eight (8) hours of work providing work is available. 25 Any new schedules mutually agreed to by the COMPANY and UNION shall be added to Exhibit A and made a part of this Agreement. 26 An employee may be excused without pay for a period up to two (2) hours at the beginning or end of the day shift, Monday through Friday (except holidays falling Monday through Friday) for the purpose of a doctor or dentist appointment. Such excuse will be granted if it is scheduled with enough advance notice so that proper relief can be scheduled and the absence does not impair plant operations. ARTICLE 3 OVERTIME AND PREMIUM TIME REGULATIONS SECTION 1 27 Time worked under any of the following classifications listed below will be paid for at the rate of one and one-half times the regular hourly rate. 28 (a) Time worked outside an employee's regular scheduled work shift within the twenty-four (24) hour period beginning with the time the employee starts to work or is scheduled to report for work, whichever is earlier. 29 (b) The excess hours over forty (40) which are worked in any work week. The time accumulated on the following categories is counted toward the forty (40) hours: 1. The first eight (8) hours worked in each work day. 2. The first eight (8) hours worked on the first shift of a new schedule when the employee's schedule has been changed without an advance notice of 5 forty-eight (48) hours of the time the employee is required to first report for work under the new schedule. 3. The first eight (8) hours worked on a new schedule when the employee's schedule is changed so that eight (8) hours' rest is not provided between the last shift on the old schedule and the first shift on the new schedule. 30 (c) Time worked on employee's scheduled day of rest unless such work resulted from a change in schedule of which the employee received forty-eight (48) hours advance notice. 31 (d) The first eight (8) hours worked on the first shift of a new schedule when employee's schedule is changed without notice forty-eight (48) hours in advance of the time the employee is required to first report for work under the new schedule. 32 (e) The first eight (8) hours worked on a new schedule when employee's schedule is changed so that eight (8) hours' rest is not provided between the last shift of the old schedule and the first shift on the new schedule. 33 (f) Day workers, when scheduled as shift workers, shall be paid at the rate of time and one-half for the first shift worked unless the employee has received forty-eight (48) hours' notice of such change in schedule. SECTION 2 34 (a) Two and one-half times will be paid for work performed on the following holidays: New Year's Day, President's Birthday, Good Friday, Monday after Easter, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Friday after Thanksgiving Day, Christmas Eve and Christmas Day. 35 FOR DAY WORKERS: If any of these holidays fall on a Sunday, the Monday immediately following shall be recognized as the holiday. If holidays fall on Saturday, they will be observed on the preceding Friday. The exception shall be Christmas Eve which shall be observed on the last working day before Christmas. 36 FOR SHIFT WORKERS: All holidays listed above will be recognized on the calendar day on which it falls. For the purpose of determining pay for an employee who works on a day observed as a holiday which falls on one of the employee's scheduled days of rest, "regular scheduled hours of work" for that day shall mean the same hours the employee was assigned to work on the last regularly scheduled day of work immediately prior to the holiday. Payment will be made according to (b) 1 below. 6 37 (b) Employees will be paid for the holidays listed above not worked an amount equivalent to eight (8) times the employee's straight-time hourly rate, subject to the following conditions: 1. Such pay shall be computed on the basis of payroll day and not calendar day. 2. To be eligible for such pay, an employee must report for work on their last regular scheduled working day immediately preceding the holiday and their first regular scheduled working day immediately following this holiday. For purposes of determining eligibility for holiday pay only under this section, employees absent either the day before, the day after, or both days, because of vacation, death in the immediate family, occupational injury or illness while under a doctor's care, jury duty or excused absence will be considered as having worked on such day or days and will be entitled to holiday pay provided they have complied with the other requirements of Article 3, Section 2. Immediate family will be interpreted to mean those members of the family covered under Article 28 - Funeral Leave. 3. An employee who is instructed to work on a holiday but fails to report will receive no pay for the holiday. 4. Payment for holidays not worked shall not apply to employees on approved leave of absence, off because of sickness or occupational injury (unless under a doctor's care and the holiday falls on an unpaid waiting period day), or layoff. 38 (c) When an employee works on both of their scheduled days of rest, they shall be paid twice their straight-time rate for work performed on the second scheduled day of rest. (d) An employee working greater than sixteen (16) consecutive hours for those on eight (8) hour shift schedules or eighteen (18) consecutive hours for those on twelve (12) hour shift schedules will be paid at double time for subsequent consecutive work hours up to the employee's next regularly scheduled shift, which will be paid at straight time. If the employee works additional consecutive hours, the beginning of each regularly scheduled shift will restart the counting of continuous hours. SECTION 3 39 In the event any hours worked fall within two or more classifications listed above, only one application can be made. 7 40 Employees shall not be laid off during regular working hours to deprive them of any time which they have gained by working overtime. Overtime worked shall be equally distributed among the employees within their own craft or department as nearly as is practicable. Where employees in a department so request, an overtime record shall be posted in the department. SECTION 4 - OVERTIME LUNCH ALLOWANCE 41 (a) An employee scheduled in with at least four (4) hours' notice or held over from their regular shift, with or without notice after working ten (10) continuous hours, will be furnished a lunch at the next lunch period or a lunch allowance of $8.00 (at the employee's option). For each successive four (4) hours worked thereafter, they will be given a lunch allowance. The meal allowance schedule is as follows: $8.00; effective 5/1/89. Where it is known an employee will work at least ten (10) hours, the lunch may be eaten at the lunch period prior to the time the lunch is actually earned. The granting of a meal allowance, except as provided in paragraph (c) below, will not negate the right of the employee to eat at, or as soon after the job permits, a normal meal period (see paragraph (b) below) when the meal period falls within the period of time for which the lunch allowance is being given. 42 (b) Any employee on an emergency call-in (one less than four (4) hours' notice) who works up to any of the following times shall be furnished with a lunch as soon after such time as possible: 6:30 a.m., 11:00 a.m., 5:30 p.m., or 1:00 a.m. 43 An employee on an emergency call-in (one less than four (4) hours' notice) before 8:00 p.m. that is required to work five (5) hours between the 5:30 p.m. and 1:00 a.m. meal periods will receive a lunch or lunch allowance at the COMPANY'S option. If the employee is to continue working after the end of the second shift, the employee has the option of a lunch or lunch allowance. This lunch or lunch allowance is in addition to the 1:00 a.m. meal period. 44 (c) When an employee who has been working overtime, either as a result of a holdover or because of a call-in, becomes entitled to a lunch within the meaning of this article and the COMPANY decides at such time to send the employee home because: (1) the employee has been relieved by another employee; or (2) the employee is no longer needed at the plant, the COMPANY shall have the option of furnishing such employee the lunch or giving the employee a lunch allowance in lieu of the lunch. 45 (d) Overtime lunches provided by the plant cafeteria will be ordered from the Overtime Meal Menu-Cafeteria. Meals on off-hours or weekend when plant cafeteria is closed will be ordered from a downtown restaurant on the standard 8 Overtime Meal Menu. The menu will be revised after consultation with the UNION to reduce cost. It is the COMPANY'S intent to provide wholesome and nutritionally balanced meals. SECTION 5 46 Shift differential shall be added to the earnings of the employees required to work during the hours indicated in the following schedule for each hour worked during such periods: 47 (a) All employees in Seniority Groups 1, 2 and 4. 1. Shift Workers: 6:30 a.m. to 2:30 p.m. No differential 2:30 p.m. to 10:30 p.m 50c differential 10:30 p.m. to 6:30 a.m $1.00 differential 2. Day Workers 6:30 a.m. to 3:00 p.m. No differential 3:00 p.m. to 10:30 p.m. 50c differential 10:30 p.m. to 6:30 a.m. $1.00 differential 48 (b) All employees in the Maintenance Crafts Seniority and Seniority Group 3. 1. Shift Workers: 7:00 a.m. to 3:00 p.m. No differential 3:00 p.m. to 11:00 p.m. 50c differential 11:00 p.m. to 7:00 a.m. $1.00 differential 2. Day Workers: 7:00 a.m. to 3:30 p.m. No differential 3:30 p.m. to 11:00 p.m. 50c differential 11:00 p.m. to 7:00 a.m. $1.00 differential SECTION 6 49 Employees who are called out or scheduled out and report to work at an assigned time outside their regularly scheduled shift will be paid a minimum of four (4) hours pay at the appropriate overtime rate for the work so performed. In the case of a call-in, the employee, after completing the work for which the employee is called, will be released unless other emergency work develops. Emergency work is defined for this purpose as work which would require another call-in if the employee did not perform it. If the employee fails to perform the other emergency work, the employee will be paid only for the time worked. Should a scheduled in require the employee to work into the employee's regularly scheduled shift, the hours worked outside the regular shift will be paid at the applicable overtime rate and the four (4) hour guarantee at 1 1/2 will not be paid unless worked. 9 SECTION 7 50 Employees who work less than two (2) hours past their regular shift shall not be required to punch out until their ride home is available. SECTION 8 51 When an employee has worked sixteen (16) continuous hours and up to or within the employee's regular shift, the employee will be allowed to go home and will be paid at the straight-time for the remaining hours of the employee's regular shift. ARTICLE 4 VACATION 52 (a) Based on a work week of five (5) working days or shifts, the vacation allowance shall be ten (10) working days, in which case vacation credits will be given at the rate of 5/6 of a day per month of service. Fractional credits shall be figured to the nearest full day. Vacation credits are not accumulative during the probationary period specified in Article 5, Section 2, but after such period the new employee's vacation credits shall be calculated from the date of employment. Vacation credits accumulated after April 1st of the current year shall not be taken until April 1st of the following year. 53 Each employee who completes five (5) or more years of continuous service will be granted three (3) weeks vacation per year. Such vacation may be taken at any time during the vacation year in which the employee reaches the fifth (5th) year of continuous service. After receiving a first vacation of three weeks, the employee will accrue one and one-fourth (1 1/4) days vacation per month of service or a maximum of fifteen (15) working days per year. 54 Each employee who completes ten (10) or more years of continuous service will be granted four (4) weeks of vacation per year. Such vacation may be taken at any time during the vacation year in which the employee reaches the tenth (10th) year of continuous service. After receiving a first vacation of four (4) weeks, the employee will accrue one and two-thirds (1-2/3) days vacation per month of service or a maximum of twenty (20) working days per year. 55 Each employee who completes twenty (20) or more years of continuous service will be granted five (5) weeks vacation per year. Such vacation may be taken at any time during the vacation year in which the employee reaches the twentieth (20th) year of continuous service. After receiving a first vacation of five weeks, the employee will accrue two and one-twelfth (2 1/12) days vacation per month of service or a maximum of twenty-five (25) working days per year. 10 56 Each employee who completes thirty (30) or more years of continuous service will be granted six (6) weeks of vacation per year. Such vacation may be taken at any time during the vacation year in which the employee reaches the thirtieth (30th) year of continuous service. After receiving a first vacation of six (6) weeks, the employee will accrue two and one-half (2 1/2) days vacation per month of service or a maximum of thirty (30) working days per year. 57 (b) The vacation pay for employees entitled to vacation is computed on the basis of rate of pay per hour at the time of vacation at straight- time. 58 (c) Vacation pay may be drawn in advance any time within the week just prior to said vacation if requested by the employee. 59 (d) Vacation period shall be from April 1 each year through March 31 of the next year. 60 (e) The employee with the greatest bargaining unit seniority within the group or craft, wherever possible, shall be allowed preference as to time of vacation. In the various operating departments, vacation preference will be granted on the basis of bargaining unit seniority within the department. When an employee elects to split their vacation, then they shall be allowed seniority preference only on one (1) portion of the split vacation until all employees have exercised their seniority preference. 61 (f) Prior to April 1st, employee shall designate their choices of dates for their vacations and a vacation schedule for the year will be made up in accordance with other provisions of this article. 62 An employee may place up to two (2) weeks (ten days) of their vacation in a vacation bank prior to April 1 with such days to be taken at any time during the vacation year when requested by the employee. Five (5) bank days may taken with one (1) hour's notice. Twenty-two (22) hours' notice for the other five (5) bank days will be required except in cases of emergencies. All normal requests for bank days must be made to the employee's supervisor. Emergency requests will be subject to approval by the department superintendent or designee. Bank days will be granted only when, in the judgment of the COMPANY, such days do not conflict or impair plant operations. Bank days will be taken in any combination of whole days without restriction by vacation splits. All bank days must be taken during the vacation year and shall not be cumulative. When, in the opinion of the COMPANY, it appears that vacation bank days are accumulating in a group, department or craft and will create a problem near the end of the vacation year, employees will be requested to schedule their remaining bank days in order not to conflict with or impair plant operations. 11 63 Vacation may be split into as many periods as the employee has weeks of vacation. In calculating vacation splits, the bank days will constitute one split. Employees with ten (10) or more years of service will be eligible for one (1) additional split. Vacation schedules established April 1st will not be altered after this date to give preference to the senior employee. Employees shall be permitted to begin or end their vacations on a regularly scheduled day off. 64 (g) Vacations shall be given employees on such dates or as near as may be practicable when, in the judgment of the COMPANY, such dates do not conflict with or impair plant operations. 65 (h) Vacation during any vacation period must be taken during the vacation period and shall not be cumulative. 1. For the purpose of taking extended vacation, employees with five (5) or more years of service will be permitted, one (1) time every five (5) years, to hold over one (1) week of vacation from one (1) vacation period and take it during the next vacation period in conjunction with the full vacation due that vacation period. Employees desiring to exercise this option will so advise the COMPANY during the vacation scheduling period in the year in which they desire to hold over the one (1) week. 2. Employees with ten (10) to nineteen (19) years of service have the option to holdover one (1) week of vacation from one (l) vacation period and take it during the next vacation period. Employees desiring to exercise this option must notify the COMPANY by February 1st prior to the end of the vacation year in which it was originally expected to be taken. This request does not increase the number of bank days. 66 (i) An employee who is "Combo 80" (minimum age 55 with 80 points) or who has at least 20 years of COMPANY service, may carry over from one vacation period to the next up to two weeks of vacation in full week increments. A maximum of six weeks may be carried over in this manner. 67 (j) Any employee leaving the service of the COMPANY entering State or Federal military service shall so notify the COMPANY, and shall be paid the vacation credits earned up to the time of induction. Such employee shall not be taken off the payroll until actually inducted in military service, State or Federal. 68 (k) In calculating time for vacation credits, no deductions shall be made for time lost due to sickness. No deductions shall be made for approved absences totaling one (1) month or less in any vacation year. Employees off on approved absences for more than one (1) month shall be paid only earned vacation credits. 12 69 (l) In case an employee is dismissed or leaves the COMPANY's service voluntarily, they will receive vacation pay to the extent of the credits accumulated at the time of their dismissal or voluntary separation. 70 (m) In case an employee resigns without notice or is discharged for cause, they will receive only pay for vacation earned during the previous year but not taken. Such employee will not be eligible to receive vacation accrued in the current vacation year up to the time of their removal from the payroll. 71 (n) When a holiday is observed on an employee's scheduled vacation day, they will have the option of an extra day vacation or an extra eight (8) hours' pay at their regular straight-time rate. 72 (o) When an employee transfers from one craft or group to another, the employee will carry with them their vacation as scheduled for that year. The transfer of this vacation schedule will not interfere with the rights of any other employee to their vacation as previously scheduled. ARTICLE 5 SENIORITY SECTION 1 - DEFINITIONS 73 (a) By the term "seniority" is meant the status of the employee's length of service as such. 74 (b) Four types of seniority shall be recognized: 1. GROUP SENIORITY. This shall consist of the seniority accumulated by an employee working in any of the groups listed below. 2. DEPARTMENT SENIORITY. For matters directly affecting any of the departments in Group 1, employees in their respective operating departments shall be listed on the Seniority List by order of Group 1 seniority within their respective department. 3. MAINTENANCE CRAFT SENIORITY. This shall consist of the seniority accumulated by an employee in the particular maintenance craft in which the employee is working. 4. BARGAINING UNIT SENIORITY. This shall consist of seniority accumulated by an employee in any of the groups or crafts listed below. 75 (c) For purposes of paragraph (b) above, group, department, and maintenance craft seniority shall cover the following: 13 1. GROUP SENIORITY GROUP 1 - All hourly employees in the following operating departments and any other which may be added and which are designated as operating departments by the COMPANY, Departments 13/14/15/16, 513, 19/25/27/29, 44/50, 48/56, 51, 53, and Power. GROUP 2 - All hourly employees of the Control Laboratory. GROUP 3 - All hourly employees of the Storeroom. GROUP 4 - All hourly employees of the Materials Handling Department. 2. DEPARTMENT SENIORITY For matters directly affecting departments in Group 1, employees in the various operating departments shall be listed on department seniority lists by Group 1 seniority within their respective departments. Any reference to departmental seniority in other sections of the contract will refer to the Group 1 seniority of employees within the department. 3. MAINTENANCE CRAFT SENIORITY - All hourly employees in each of the maintenance crafts. The maintenance crafts shall include, but shall not be limited to the following titles: Pipefitters Ironworkers Asbestos Workers Carpenters Boilermakers Instrument Men Painters Electrical Workers Laborers Operating Engineers Machinists Truck Drivers SECTION 2 - COMMENCEMENT 76 All new employees shall be required to work a trial or probationary period of one-hundred thirty-five (135) calendar days continuous service before the seniority rules outlined herein shall apply to them, and after such period, the new employee's seniority shall be retroactive to the date they were employed. SECTION 3 - SENIORITY LISTS 77 The COMPANY agrees to compile and furnish the UNION a seniority list quarterly, showing the seniority of each employee in bargaining unit, and the COMPANY further agrees that it will add names and the seniority status of all employees to said list after they have completed their probationary period and are considered permanent employees. 14 SECTION 4 - WHEN SENIORITY DOES NOT APPLY OR IS NOT AFFECTED 78 (a) Seniority privileges shall not apply to probationary employees. 79 (b) The Seniority of an employee shall not be affected when they are promoted to a supervisory classification unless they remain in that capacity for a period in excess of ninety (90) calendar days after which time they shall lose their seniority as a member of the bargaining unit. 80 (c) The seniority of an employee shall not be affected when they are promoted temporarily to a supervisory classification unless they remain in that capacity for a period in excess of ninety (90) working days in a calendar year, after which time they shall lose their seniority as a member of the bargaining unit. 81 (d) Employees, other than temporary employees, who are called into active military or naval service with any branch of the Federal government shall not lose their seniority rights or their status with the COMPANY. Such employees, however, shall file an application with the COMPANY for reinstatement, within ninety (90) days after they have received an Honorable Discharge from such service and if their physical and mental condition is satisfactory, such employee shall be reinstated to their former position or one to which their seniority entitles them, unless the COMPANY's circumstances have so changed as to make it impossible or unreasonable to do so. SECTION 5 - WHEN GROUP, DEPARTMENT, CRAFT AND BARGAINING UNIT SENIORITY IS LOST All seniority shall be lost by an employee under the following circumstances: 82 (a) When they are discharged by the COMPANY. 83 (b) When they quit the service of the COMPANY on their own volition. 84 (c) When they are laid off for a period exceeding thirty-six (36) months without being recalled. 85 (d) When an employee overstays their leave of absence without notifying the COMPANY and receiving an extension of time. SECTION 6 - WHEN GROUP, DEPARTMENT, CRAFT, AND BARGAINING UNIT SENIORITY IS NOT BROKEN 86 Seniority of the employee shall not be broken because of: (1) layoffs (except as provided in Section 5 (c) of this article); (2) authorized leaves of absence; (3) absences on account of sickness not exceeding a period of twenty-four (24) months; (4) any cessation of work 15 at the COMPANY's plant which is beyond the control of the employee not exceeding a period of thirty-six (36) months. SECTION 7 - CONSOLIDATION OF DEPARTMENTS 87 When two or more departments are consolidated, the employees of these departments may claim seniority in the consolidated department, it being understood, however, that no employee may claim a classification in the consolidated department higher than the one occupied in the department in which the employee was previously employed. SECTION 8 - PROMOTIONS 88 When a new vacancy or new job occurs in a department or craft, such vacancy or new job shall be filled from employees within that department or craft. When skill and ability are approximately equal, then the senior qualified employee shall fill the vacancy. If departmental seniority is equal, group seniority shall govern. 89 It is understood and agreed, however, that where skill and ability are questioned, a senior employee may request the opportunity to fill such vacancy or new job, in which event, the COMPANY agrees to consult with the UNION concerning the matter. If it is determined that the request has merit, the employee will be given a trial period of thirty (30) working days to prove to the satisfaction of the COMPANY their skill and ability in such position. The above privilege shall not be granted to craft apprentices. SECTION 9 - JOB BIDDING PROCEDURE 90 When a permanent vacancy must be filled from outside the group or craft in which the vacancy exists and no layoff exists for such group or craft, then the job will be posted and filled in accordance with the following procedure: 91 JOB POSTING - The job vacancy will be posted for seven (7) calendar days at each of the main gates and on departmental bulletin boards within the bargaining unit. 92 JOB BIDDING - Each employee who desires to bid for the posted job may do so by going to the Employment Office and signing a job bidding form within the seven (7) day period. 93 Any employee who knows that they will be absent from the plant (for reasons such as vacation, jury duty, etc.) may submit to the Employment Office a pre-bid indicating those jobs they desire should a vacancy be posted during their absence. The employee submitting a pre-bid will be considered for a vacancy only if their pre-bid is received prior to the seven (7) day period outlined in the job vacancy announcement. Each pre-bid shall be effective only for the duration of the individual's specific absence. 94 SELECTION - Posted vacancies will be filled by the qualified bidder with the greatest bargaining unit seniority. Successful bidders will be transferred to their new job within 16 120 calendar days following the date of notification of successful bid unless the COMPANY demonstrates, subject to the grievance and arbitration provisions of the contract, that to move said successful bidder would create a situation where the employee's job cannot be manned in a safe manner. 95 The successful bidder will enter the new job classification at the appropriate rate as indicated on the job vacancy announcement. 96 The provisions of Section 11 of this Article will apply to employees who are transferred from one group or craft to another in accordance with the job bidding procedure. 97 BIDDING RULES - Because of the extended period of training for apprentice plans and the expense involved in such extended training, no employee shall be allowed to transfer to a bona fide apprentice opening if the employee could not, prior to the eligibility for early retirement, complete a number of years that is equal to twice the number of years required for apprentice training. This rule will not apply to members of the class who are presently in a classification with a top rate lower than the top rate of the apprentice crafts or groups. Anyone hired into an apprentice classification must remain, after topping out, in that classification for a period equal to the training period before bidding to another classification. 98 If the COMPANY determines that the senior employee bidding on a posted job is not qualified, the employee may file a grievance contesting such determination at Step 3 of the grievance procedure, which may, if not satisfactorily resolved, be submitted to arbitration in accordance with the arbitration procedure as outlined in Article 31. Nothing contained herein shall interfere with the filling of the vacancy with another employee or with a new hire, pending settlement of a grievance. 99 Employees whose bids have been denied on the basis of qualifications will not be considered again for transfer to the same group or craft until they have shown proof that their qualifications now fit the requirements of the job. 100 A successful bidder will not be eligible for another transfer until they have reached the top rate of their classification and served an additional period of time equal to the time required to reach the top rate. 101 A successful bidder who refuses to accept a tendered transfer will not be reconsidered for any other transfer for a period of one (1) year after date of refusal. 102 An employee who has been returned to their last previous group or craft for inability to perform work of the new classification as provided in Section 11, Article 5 of the Articles of Agreement will not be considered for any further transfer for a period of one (1) year from the date of return to their last previous group or craft. 17 103 An employee shall be limited to one transfer to a group or craft having a lower top rate or one transfer to group or craft having an equal top rate. Subsequent lateral or downward transfer to another group or craft shall be approved only when in the best interest of the employee and by mutual agreement of COMPANY and UNION. 104 NO QUALIFIED BIDDERS - If none of the bidders are qualified for a posted job, or if there are no bidders, the COMPANY shall have the right to fill the job as it sees fit. SECTION 10 - TRANSFERS 105 When surplus Group 1 employees exist in one operating department and openings exist in another, transfers from the surplus department will be on a volunteer-by-seniority basis. Those employees with the most Group 1 seniority in the department being destaffed who wish to transfer out of the department to another operating department will be allowed to volunteer. If not enough employees volunteer to transfer, then the necessary number will be destaffed by moving the junior employee based on Group 1 seniority within the department being destaffed. In either case, the employee may be recalled to their original departments at the COMPANY's discretion for up to one year from the date of transfer. If employees are to recalled to their original departments, those transferred involuntarily will be recalled first, according to Group 1 seniority; those who transferred voluntarily will be recalled in inverse order of Group 1 seniority. 106 If an operating unit is shut down or temporarily under reduced operation resulting in an excess of employees in any group, the UNION and the COMPANY will meet and discuss a plan whereby these employees may be put to work so as to prevent layoff. Employees in these groups may be assigned as helpers to maintenance craftsmen, helpers in other groups, or as laborers. 107 Within Group 1, only those employees from the affected operating unit will be so re-assigned. In addition: (1) there shall be no loss of overtime incurred by the maintenance employees or other groups because of such assignment; (2) no operator will be assigned to help maintenance within their own operating department during a routine shutdown for repair unless they are currently assigned to maintenance as a result of a previous assignment; (3) no assignment to a group or craft shall cause the layoff or prevent the recall of an employee within that group or craft; (4) no such assignment shall be for less than five (5) days or more than eighty-nine (89) days unless the UNION and the COMPANY mutually agree to extend the time period. 108 No craftsman will perform the work of another craft except when a surplus exists in a particular craft. When a surplus in a craft or crafts exists, the COMPANY and UNION will meet, or otherwise discuss, a plan whereby the surplus craftsmen may be put to work so as to minimize the use of contractors, and/or prevent a layoff. 109 Surplus craftsmen will be assigned to other crafts and may work up to the level of their individual skill and ability, under the direction of a journeyman in the craft to which they 18 have been assigned. Assignments will be filled by volunteers or by conscript of the less senior craftsmen. Individuals so assigned may choose layoff from the plant rather than reassignment. Assignments will not affect vacation, benefits, or craft seniority position; or recall rights of laid off employees if work is expected to last more than ninety (90) days. No such assignment shall be for less than five (5) days, unless the craftsman is unexpectedly needed back in his regular craft. Assignments longer than eighty-nine (89) days may be made if the COMPANY and UNION agree. SECTION 11 - LAYOFFS 110 Layoffs in all groups and maintenance craft departments shall be in inverse order of group or craft seniority, depending on the need for employees in that particular group or craft, it being understood that in any group or craft the top classification will not be filled by an employee not having both skill and ability and group or craft seniority. 111 An employee transferred from one group or craft shall retain seniority in their former group or craft but will not be allowed to exercise their seniority, nor shall the COMPANY be allowed to transfer the employee back to their old group or craft unless the employee is being laid off for reduction in force or because their work performance has been such that the employee would be laid off for inability to perform the work. 112 Employees being laid off for reduction in force may exercise the retained seniority in their old group or craft to forestall layoff. 113 Except for Chief or Leadman classifications, an employee exercising retained seniority to return to their former group or craft after transfer shall return to the same job classification they formerly occupied. 114 An employee being laid off for inability to perform the work prior to reaching top pay in the classification in the group or craft to which they were transferred will be considered to have accumulated seniority in their old group or craft up to the time they were declared unable to perform such work and will be allowed to exercise that seniority in their old group or craft to forestall layoff. An employee transferring to a one rate job will be given a trial period of ninety (90) days and, if unable to perform the work, will be considered to have accrued seniority in their old group or craft during that period. They will be allowed to exercise such seniority in order to forestall layoff. 115 Discharge for cause or termination for any reason other than those referred to above will not be reason for the employee to exercise their seniority rights in the old group or craft. SECTION 12 - REHIRING 116 Rehiring shall be in inverse order of layoffs. Employees being recalled shall be notified by registered letter, return receipt requested, mailed to the last address on record in the COMPANY's files. If the COMPANY does not receive a reply to said letter from the 19 employee, within ten (10) days from the date of its delivery as shown on the return receipt, stating that they will return to work within ten (10) days from said delivery date; or, if they fail to so return to work although they have sent such a reply, the next eligible employee will be placed in the vacancy. 117 In special cases, an employee, when replying within ten (10) days to the COMPANY's notice requesting them to return to work, may be given an extension of time by the COMPANY beyond the ten (10) day limit specified above. Failure to so reply or failure to so report to work will abrogate all rehiring and seniority rights on the part of said employee. In case of an emergency, the COMPANY may temporarily fill any vacancy without waiting for any period of time to expire. After the emergency has expired, such vacancies will be filled according to the regular procedure. 118 Where the period of recall is in the best judgment of the COMPANY to be less than ninety (90) calendar days, the recalled employees may decline recall and not lose subsequent recall rights. SECTION 13 - GRIEVANCES 119 In all cases where the UNION or the employee claims that the principle of seniority has been violated, such grievance must be taken up within ten (10) days of the alleged violation and shall be handled according to the procedure set out in Article 30 hereof. In the event the employee grieved is not actively working on the day of such violation, the period of limitation shall begin on the day the employee returns to work. ARTICLE 6 WORK OUTSIDE OF REGULAR CLASSIFICATION 120 Employees who, at the request of the COMPANY, are temporarily required to do the work of classifications other than their own shall not suffer reduction in rate of pay because of such transfer; however, employees who, at the request of the COMPANY, are temporarily required to do work which pays a higher top rate will receive, for their full shift, pay based on the new top rate in the same proportion that their regular pay bears to the top rate of their regular job if they work two (2) or more hours on such advance status. 121 An employee working overtime in a higher classification will receive for all overtime hours worked pay based on the new top rate in the same proportion that their regular pay bears to the top rate of their regular job if they work two (2) or more hours on such advance status. 122 When an employee has worked in an upgraded position on a daily basis continuously for fifteen (15) work days or longer, they will receive pay and benefits based on the upgrade rate during the continuous period of service in the higher paying position in excess of fifteen (15) days. In computing the fifteen (15) day period of time required, absence 20 because of vacation, excused absence, sickness, jury duty, or funeral leave shall not break continuous service but shall not be accumulated as time worked in the upgraded position nor shall the employee receive pay and/or benefits of the higher rate during the period of absence. ARTICLE 7 SUPERVISORS DOING HOURLY WORK 123 Anyone employed by the COMPANY in the capacity of a foreman or supervisor will be permitted to perform work normally performed by the hourly employees in the plant for the following reasons only: 124 (a) When they are instructing or training employees. 125 (b) When difficulties arise in a department and it is necessary for the supervisor to act for the safety of equipment and personnel. 126 (c) When supervisory or technical personnel are studying or testing operations and equipment. 127 (d) When training technical personnel. 128 (e) When starting new or revised process and equipment. ARTICLE 8 WORK CLASSIFICATIONS - TEMPORARY VACANCIES 129 Wage rates for all classifications of work within the bargaining unit shall be mutually agreed to between the COMPANY and the UNION, set forth separately, and attached to this Agreement and marked "Exhibit B". 130 In the event there is a shortage of personnel on any one shift in the operating division due to temporary absence, and the vacancy is of a higher classification than that of part of the employees present, the vacancy shall be filled by temporarily reclassifying an employee on the same shift to the higher classification or, if this is not feasible, by holding over or obtaining another employee of the same classification in the same department from another shift. 131 If it becomes necessary to fill a temporary vacancy in the lowest classification in the operating division, the COMPANY may require an employee who has least department seniority in a department to temporarily transfer to the vacancy. This Article shall not prohibit the COMPANY, however, from temporarily transferring an employee who is not junior in department seniority if said employee is agreeable to the temporary transfer. 21 ARTICLE 9 STAFFING OF NEW UNITS 132 The COMPANY agrees to consult with the UNION in connection with the staffing of new units or consolidation of departments in the operating section. ARTICLE 10 JURISDICTION OF WORK 133 The COMPANY and the UNION recognize that work coming within the jurisdiction of a craft or a group shall be performed by members of said craft or group only, with the exception of running repairs which may be performed by operating personnel. Running repairs are generally defined as minor repairs or adjustments, requiring no new parts or material, which can be done while a unit, or part thereof, remains in operation. 134 In order to assure increased efficiency the UNION and COMPANY agree that Operators and Pumper Gaugers may be assigned to: (a) drive a pickup, or similar type vehicle, for the purpose of transporting their own manpower, materials and/or laboratory samples; (b) remove and reinstall obstructions such as guards, grating, floor plate and handrails, when necessary to execute their primary task; (c) utilize their special knowledge of contents and flows in installing signs to indicate content and flow direction of water, steam, product, etc.; (d) connect and disconnect tank cars and tank trucks as needed for the performance of their groups' work; (e) connect and disconnect equipment if hook-ups are available for the purposes of chemical cleaning, cleaning, vacuum, etc.; (f) remove and install manways, covers, inspection ports required for the inspection, decontamination and cleaning unless pneumatic tools (except 1/2 inch drive impact wrench for drums or solid or slurry handling equipment) and heavy equipment are required; (g) Operators may operate forklift trucks after proper training has taken place in the performance of their primary task; (h) decontaminate, clean, flush and dry containers such as tanks and tank cars but are not expected to enter vessels to accomplish these tasks; (i) hook-up, disconnect and relocate cylinders and loading/unloading hoses for tank cars and tank trucks. The COMPANY and UNION agree it is not efficient to perform the assignments as listed in this paragraph if said assignment would require (1) the call-out of an Operator or Pumper Gauger for the purpose to perform said task instead of a call-out of a maintenance employee, and (2) the performance of a task by operations or materials handling employees which has historically and normally been performed by maintenance utilizing power tools. 135 In cases of emergency endangering life or property, any employee may perform work outside of their classification while such an emergency exists. 136 Effective 7-1-96, Pumper Gaugers will work together with barge and ship personnel to hook-up and disconnect barges and ships. 22 ARTICLE 11 LEADMEN 137 The classification of leadmen in any of the mechanical crafts in the Maintenance Department shall be filled by appointment by the Maintenance Superintendent and subject to the provisions of Section 8, Article 5. 138 When four (4) or more employees of a craft are employed on any shift, a leadman shall be appointed from that craft. A leadman may have up to and including ten (10) employees in their group. 139 Additional leadmen shall be appointed from any craft having more than ten (10) employees employed in the ratio of at least one (1) to each additional ten (10) employees, or fraction thereof, employed. This shall apply by shift. 140 In crafts having less than four (4) employees employed, they shall work under the direction of the Superintendent of Maintenance or designee. 141 A leadman shall perform the work of the craft as long as the number of employees working under their direction does not exceed five (5). 142 The leadman shall pass onto the employees in their group the work instructions received from supervision. It shall be the leadman's duty to see that the work of the group is of workmanlike quality and that the work progresses at a satisfactory rate and in a safe and neat manner. ARTICLE 12 STEWARDS 143 The UNION may designate for each Department in Operations and each craft in Maintenance, a shop steward who shall call to the attention of the foreman or supervisor any questions of working conditions that may arise in their department or craft. 144 Discussion between the Shop Steward and Foreman and the Supervisor shall be at such time and place as not to interfere with work in the department or craft. 145 If the Shop Steward and Foreman or Supervisor are unable to agree, the matter will be referred to the Superintendent involved in accordance with procedure for handling grievances as set out in Article 30, it being agreed that the Shop Steward shall suffer no loss in pay for acting in that capacity. 146 Any employee called in for discussion which might result in disciplinary action or any entry to be made in their personnel file may be permitted to have a steward present. 23 ARTICLE 13 CONTRACT WORK - CONSTRUCTION AND MAINTENANCE 147 At no time shall maintenance employees do construction work not completed on any project originated by a contractor. The maintenance employees may be permitted to work on construction work within the boundary of the plant operations provided that no construction be done beyond the capacity of the equipment and personnel available at the plant. 148 The COMPANY shall, during the life of this Agreement, other things being equal, award contracts for the execution of construction work in this plant to contractors who pay the prevailing wage scale in the area and guarantee to their employees the prevailing working conditions. 149 The UNION will be informed of any maintenance work that is to be contracted out when maintenance employees are on the layoff list. 150 The COMPANY agrees to review annually with the UNION information showing by crafts the work contracted out and the number of employees employed to perform the work. 151 The COMPANY may contract out any maintenance, repair and/or renovation work provided permanent employees covered hereby are not terminated or laid off temporarily as a direct or indirect result of such work being contracted out; nor shall any work contracted prevent the recall of employees on the recall list. ARTICLE 14 PAY DAY 152 It is further agreed between the parties to this Agreement that pay checks shall be available to all employees weekly not later than 3:00 p.m., Thursday, the day designated as pay day. Not more than four (4) days' pay shall be withheld in any period. 153 Weekly paychecks may be directly deposited with the Texas Star Federal Credit Union if the individual bargaining unit employees sign a statement so indicating and holding the COMPANY harmless if the Credit Union has not credited their account by 3:00 p.m., Thursday. ARTICLE 15 PAYROLL DISPUTES 154 The COMPANY further agrees that if any questions arise concerning time credited or pay received by an employee, the time cards and other pertinent records will be made available for examination to the employee and the shop steward. In the event the difficulty cannot 24 be resolved at that time, then the same shall be considered a grievance and handled according to the regular grievance procedure. ARTICLE 16 PHYSICAL EXAMINATIONS 155 An applicant for employment, before being hired, must meet certain minimum standards of health and physical fitness. The physical examination will be given by a licensed physician employed by the COMPANY. 156 Periodic examinations of employees will be carried on with the principal idea of helping employees improve their own health condition and to enable COMPANY to guard the health of its employees. 157 Employees who become physically unfit, from other than occupational reasons, to do the work of their assigned classification, may be assigned other work until able, in the opinion of the doctor retained by the COMPANY, to resume the work of their designated classification. ARTICLE 17 DISCRIMINATIONS 158 No members of a signatory union shall be discriminated against, discharged or harassed on account of their activities or interest in their UNION while carrying out in good faith the terms of this Agreement. 159 Charges of such discriminations, discharges or harassments, if any, shall be handled according to the regular grievance procedure. 160 Whenever a supervisory employee places charges or letters of reprimand on an employee's record, a copy of such charges or letters of reprimand must be furnished to such employee. Any charges or letters of reprimand made against an employee may be referred by the employee to the grievance procedure for handling if the employee feels the charges or letters of reprimand are unfounded or not justified. 161 If an employee has gone a period of twenty-four (24) months without receiving a letter of warning or reprimand, no letters issued to the employee previously (except those which involved disciplinary suspension) will be used for the purpose of further disciplinary action. ARTICLE 18 UNION REPRESENTATIVES 162 When in the opinion of a Steward or Plant Committeeman, or the COMPANY, the counsel of a business representative of the Texas City, Texas Metal Trades Council, or 25 any of the organizations signatory to this Agreement, is advisable or necessary to aid in the resolving of a grievance that has arisen, such business representative shall be permitted to enter the premises of the COMPANY, subject to the regulations governing visitors to this plant. ARTICLE 19 JURISDICTIONAL DISPUTES 163 The UNION agrees that in the event a jurisdictional dispute arises between any of the unions signatory hereto, crafts or groups with reference to jurisdiction over work to be performed at this plant by employees of the COMPANY, the signatory unions involved in such dispute shall fully inform the COMPANY regarding their respective positions in the matter and meet with the COMPANY to discuss and attempt to settle the dispute, should the COMPANY so request. 164 If, after this discussion, the matter cannot be settled between the COMPANY and the signatory unions, it shall be settled by the UNION in accordance with its established procedure governing the settlement of jurisdictional disputes. 165 The UNION further agrees that such settlement shall be made without permitting the dispute to interfere in any way with the commencement, progress or prosecution of the work and without increasing the cost of the work to the COMPANY by reason of payment of wages to any employee for work not performed. 166 In the event the settlement arrived at by the UNION does not meet the above conditions as to the work and cost thereof, then it is agreed that the matter may again be referred to the UNION for further consideration. ARTICLE 20 JURY SERVICE 167 Employees kept away from work because of reporting for jury service or for service as a witness under court subpoena will be paid their regular straight-time hourly rate, exclusive of any overtime or other premium pay, subject to the following provisions: SECTION 1 - MORNING COURT APPEARANCE 168 (a) Employees working days are not required to report back for work if dismissed from court duty at or after 10:00 a.m. Employees dismissed before 10:00 a.m. are required to report for work and complete the work day. 169 (b) Employees on the 10:30 p.m. to 6:30 a.m. (or 11:00 p.m. to 7:00 a.m.) shift shall not be required to work the shift on the calendar day of their first day in court, nor any other 10:30 p.m. to 6:30 a.m. (11:00 p.m. to 7:00 a.m.) shift falling on a day they are scheduled to be in court. 26 170 Employees scheduled to work the 2:30 p.m. to 10:30 p.m. or 3:00 p.m. to 11:00 p.m. shift are not required to report for their shift if they are released from court after 10:00 a.m. 171 Employees scheduled to work the 10:30 p.m. to 6:30 a.m. (or 11:00 p.m. to 7:00 a.m.) shifts are not required to report for work on these shifts if dismissed from court duty at or after 11:00 a.m.. If released before noon, they are expected to work their scheduled shifts. SECTION 2 - AFTERNOON COURT APPEARANCE 172 (a) Employees working days are required to report for work at the beginning of their shift and will be released a reasonable period of time prior to their court appearance. 173 (b) Employees scheduled to work the 2:30 p.m. to 10:30 p.m. (or 3:00 p.m. to 11:00 p.m.) shift are not required to report for work prior to an appearance in court which begins after the start of their scheduled shift and before 6:30 p.m. Employees scheduled to work the 2:30 to 10:30 p.m. (or 3:00 p.m. to 11:00 p.m.) shift who serve three (3) or more hours in court or who are dismissed from court at or after 6:30 p.m. are not required to work the remainder of their scheduled shift on that payroll day. 174 (c) Employees scheduled to work the 10:30 p.m. to 6:30 a.m. (or 11:00 p.m to 7:00 a.m.) shift whose court appearance begins before 3:00 p.m. are not required to work their graveyard shift on that calendar day. Employees scheduled to work the 10:30 p.m. to 6:30 a.m. (or 11:00 p.m. to 7:00 a.m.) shift are not required to work the shift falling on the payroll day of an appearance in court if released from court at or after 3:00 p.m. SECTION 3 175 Employees are required to furnish proof from the court of such service, showing the date and time served and amount paid for their services. ARTICLE 21 ELECTION DAY REGULATIONS 176 It is further agreed that arrangements shall be made so that all employees working days or day shifts who are requested to work overtime, shall have sufficient time off to vote on election days covering City, State, and National elections, and such time off shall not be deducted from the employee's wage. 27 ARTICLE 22 REPLACEMENT OF CLOTHING 177 Any employee required to perform work which results in the damage to clothes or shoes by chemical or fire action, to such an extent they are no longer suitable for wear, shall be furnished with suitable clothing or be given a cash replacement allowance; reimbursement is to be at replacement cost less depreciation for normal wear. Replacement cost shall mean the cost to replace the clothing at the time it is ruined. 178 The COMPANY shall furnish coveralls to the Painters when required to sandblast or use the spray machine and to the Insulators when they are using spray guns for coating. All such clothing shall be returned, as directed by the COMPANY, at the completion of an assignment or shift, whichever is applicable. 179 All employees required to perform work which results in damage to clothes and shoes by chemical or fire action will be furnished proper protective clothing and equipment which is appropriate under the conditions prevailing. All such clothing and equipment shall be returned, as directed by the COMPANY, at the completion of an assignment or shift, whichever is applicable. 180 All hourly employees will be issued appropriate clothing (Fire Retardant Clothing (FRC) if required, cotton overalls, or lab coats). FRC will be made available for all employees working in areas where it is required. Cotton coveralls will be made available to employees working in areas where FRC is not required; however, employees not required to wear FRC may choose to wear their own clothes instead. Stores employees will work with their supervision to determine the appropriate method of issuing and distributing Company issued clothing. ARTICLE 23 LAYOFF NOTICE - SEPARATION ALLOWANCE 181 Whenever it is necessary to lay off an employee or employees because of lack of work due to curtailment of production, process changes, changing requirements of craft work, or any other reason beyond control of the COMPANY, such employee or employees shall be given ten (10) working days' notice of such layoff. The COMPANY shall have the option of paying for their time in lieu of notice. 182 In the event of a hurricane evacuation, acts of God or other situations beyond the reasonable and direct control of the COMPANY, the notice provisions of Article 23 will not apply. 183 If it is necessary to lay off employees because of any labor dispute preventing normal operations of the plant, three (3) calendar days' notice will be given. The COMPANY shall have the option of paying for this time in lieu of notice. 28 184 Hourly paid employees who are laid off as a result of economic curtailment, will be eligible for a separation allowance in keeping with the following provisions: SECTION 1 - MODE OF COMPENSATION 185 The Separation Allowance is computed on the basis of years of continuous service with the COMPANY. Continuous service for the purpose of this agreement is defined as time spent working for the COMPANY computed from the employee's last date of hire. The maximum allowance for any given period of layoff shall be as follows: ALLOWANCE SCHEDULE YEARS OF CONTINUOUS SERVICE MAXIMUM ALLOWANCE Less than 1 $ 500.00 1 through 4 1,000.00 5 through 9 2,000.00 10 through 14 3,000.00 15 through 19 4,000.00 20 and over 5,000.00 SECTION 2 - METHOD OF PAYMENT 186 The Separation Allowance will be paid in weekly installments of $300 until the maximum allowance, as specified above, is paid providing the employee continues to meet the eligibility requirements contained in the Eligibility Section (3) of this Article. 187 Should an employee be recalled to active employment before exhausting this maximum allowance, payments will cease as of the effective date of recall. Any remaining balance will be available for payment in the event the employee is subsequently laid off before meeting the full reinstatement requirement specified below. However, in the event the employee meets the requirements for full allowance reinstatement, the payments will not exceed those specified in (1) above. 188 Any employee who is recalled to regular active employment after exhausting the maximum allowance payments will be ineligible for further separation payments until they have completed 78 continuous weeks of active employment, at which time they will again become eligible for full benefits under (1) above. 189 All monies paid as Separation Allowance will be subject to applicable taxes and other required withholdings. 29 SECTION 3 - ELIGIBILITY 190 Separation Allowance is not payable to any employee who: 191 (a) Resigns or abandons employment for any reason. 192 (b) Becomes deceased. 193 (c) Elects normal or early retirement. 194 (d) Is discharged. 195 (e) Accepts a position in Sterling which is not within this bargaining unit. 196 (f) Is receiving either occupational or non-occupational disability benefits until said benefits are exhausted, and only then, provided the employee is still on layoff status. 197 (g) Receives total and permanent disability benefits. 198 (h) Is recalled from layoff. 199 The above Separation Allowance shall not be paid in the event that the lack of work is due to a labor dispute or to fire, flood, water, or power failure, or other act of God. ARTICLE 24 LEAVE OF ABSENCE 200 The COMPANY shall grant leave of absence, up to ninety (90) days length, for personal reasons upon request and explanation by the employee, provided that, in the opinion of the COMPANY, the reason for the request is worthy and such leave shall not be used, except with the permission of the COMPANY, for the purpose of accepting other employment and such leave shall not affect the seniority status of said employee and/or employees. 201 The COMPANY shall, upon at least ten (10) days notice given by the UNION, grant leaves of absence not to exceed thirty (30) days, to employees to attend UNION conventions or meetings, provided not more than a total of three (3) employees from the plant or one (1) employee from a department shall be away for that purpose at any one time. 202 The COMPANY shall, upon at least two (2) weeks notice given by the UNION, grant leaves of absence not to exceed one (1) year in length to a maximum of two (2) employees during any one period for purposes of accepting employment with a union signatory to 30 this Agreement. Employees on such leaves of absence will maintain their seniority status while on leave providing they maintain continuous service with said union. Such leaves of absence will be automatically extended on a year-by-year basis for the duration of the Agreement, upon receipt by the COMPANY, of a written request from the UNION at least two (2) weeks prior to the expiration of each one (1) year period. Employees desiring to return from such leaves will give the COMPANY at least two (2) weeks notice in writing, and upon return will be required to take a pre-employment physical as if they were new employees. 203 A pregnant employee who is not disabled, as defined in Article 33 of this Agreement, may request leave of absence without pay. Said request may cover periods prior to and/or following disability for pregnancy. These requests will normally be granted for periods not exceeding three (3) months after the term of pregnancy. 204 Employees elected or appointed to public office will be allowed an excused absence, without pay, providing their absences do not create a cost to the Company or impair normal operations. ARTICLE 25 SANITATION AND SAFETY SECTION 1 205 The COMPANY further agrees that it will furnish and maintain satisfactory toilet facilities, wash bowls, lockers, emergency showers, and satisfactory drinking fountains with running ice water in convenient places. SECTION 2 206 All toilet and wash rooms shall be kept in clean and sanitary condition, properly heated and ventilated, and suitable quarters with heat provided for all employees to change clothes. There shall be facilities for drying clothes. All staging, walks, ladders, and safety appliances shall be constructed by competent mechanics and kept in a safe manner. Proper lighting and ventilating shall be provided for all enclosed working places. The employer shall furnish suitable guards around welders for the protection of the employees' eyes. Prompt ambulance service and first aid to injured employees shall be provided for each shift. SECTION 3 207 The Plant Safety Engineer and the stewards in the various departments and crafts shall cooperate in the enforcement of all rules and practices in the furtherance of safe working conditions in this plant. 31 208 The present practice of holding safety meetings, which every employee in the plant may attend at intervals, will be continued as a means of promoting safety and educating the employees in safe practices. SECTION 4 209 Inspection of any job for safety purpose may be secured upon the request of any employee assigned to that job; such inspection to be made by the Plant Safety Engineer or Night Superintendent with the employee involved. If the result of this inspection indicates an unsafe condition, the job will be postponed until proper steps have been taken to remedy the condition unless, in the opinion of the supervisor, postponing the job creates a greater hazard. SECTION 5 210 When an employee accompanies an OSHA representative, while on COMPANY time during an in-plant investigation, said employee shall not suffer any loss of pay. SECTION 6 211 The COMPANY agrees to pay the initial cost of one pair of prescription safety glasses purchased through the Safety Department. Such glasses may be tinted or clear. Where the employee's prescription is from a licensed physician and states that the employee's eye condition makes it mandatory that they wear dark glasses during daylight hours, the COMPANY will agree to purchase for the employee an additional pair of shaded glasses. It is also understood that the COMPANY will pay the cost of new safety glasses when an employee's prescription is changed. 212 The Company will pay 100% for the initial eye exam from an approved provider. The Company will pay 75% for subsequent eye exams in two (2) year intervals from an approved provider. 213 Additionally, up to two (2) pair of non-prescription safety sunglasses will be provided each year from an approved list. 214 The Company payment toward frames for prescription safety glasses will be $25.00 effective May 1, 1996. SECTION 7 215 The COMPANY will make available to each employee represented by the Texas City, Texas Metal Trades Council, for their own use, two (2) pairs of approved chemical resistant safety shoes per contract year. The COMPANY will pay eighty-five percent (85%) of the cost of the approved shoes. Where the employee, in lieu of the above, wishes to purchase, for their own use, other chemical resistant safety shoes, they may do 32 so. However, the employee will pay the additional cost over eighty-five percent (85%) of the highest priced shoe on the approved list. Annually, the Business Manager of the Texas City, Texas Metal Trades Council and Company management will each appoint members to a committee which will meet to review the appropriateness of the approved shoe list. SECTION 8 216 An employee required to perform work in a slicker suit or fresh air mask will, when necessary, be given an opportunity to rest depending on the intensity of the work and the weather and the temperature conditions at the time. ARTICLE 26 BULLETIN BOARDS 217 It is further agreed that the COMPANY shall provide bulletin boards in locations to be agreed upon between the Plant/Union Committee and the COMPANY for the posting of UNION notices. The board shall be covered with glass and under lock, the key of which shall remain in the possession of a UNION representative. These boards shall be used for the display of the following notices: UNION meetings, UNION appointments, UNION elections, and UNION social affairs. Any and all other notices to be posted on said boards must first have the approval of the Plant Manager. It is agreed that no UNION matter of any kind shall be posted in and about the plant except on said boards. ARTICLE 27 COMPANY RULES 218 It is further agreed by both parties to this Agreement that fair treatment, good service, and due diligence in observance of the rules as promulgated by the COMPANY are essential to the maintenance of satisfactory working conditions and wages described in this Agreement and for efficient production provided that such rules as may be promulgated by the COMPANY shall not in any way conflict with the terms of this Agreement. ARTICLE 28 FUNERAL LEAVE 219 Employees with ninety (90) days of continuous service will be given a three (3) day leave of absence to attend the funeral of their spouse, child, parent, brother, sister, parent-in-law, brother-in-law, sister-in-law, son- in-law, daughter-in-law, grandparent, grandchild, stepchild, stepmother, stepfather, or spouse's grandparent. These shall be three (3) consecutive calendar days, one (1) of which must be the day of the funeral. Employees will be paid for any such days lost from work at their regular straight- time hourly rate, exclusive of any overtime or other premium pay, provided such are their regularly-scheduled work days. No employee shall receive funeral leave pay for any day that is not a regularly-scheduled work day nor for any day on which they are absent from work or on leave for any other purpose. 33 220 Upon the death of a relative of an employee or employee's spouse where said relative has been a long term resident of the employee's household immediately prior to death and/or confinement to a health facility, funeral leave provisions shall apply the same as that which applies to the death of a person defined above within the immediate family. 221 Upon return to work, employees shall complete and sign a COMPANY "Funeral Leave Pay" form and submit satisfactory proof of relationship to the deceased and of actual attendance at the funeral. 222 An employee will be excused without the loss of straight time earnings to serve as an active pallbearer on the day of the funeral of an employee or retired employee of the Texas City Plant. The request for the employee to serve must be from a member of the deceased employee's immediate family and no more than six (6) employees may be excused for such pallbearer service at any one funeral. Where the employee or employees to be excused would result in the impairment of plant operations, the COMPANY reserves the right to limit the number of employees absent. ARTICLE 29 STRIKES AND LOCKOUTS 223 All members of the UNION agree to conform to the rules and regulations of the COMPANY insofar as they do not violate the conditions of these Articles of Agreement. No member of the UNION employed by the COMPANY shall be discriminated against for upholding UNION principles not inconsistent with the terms of this Agreement. The COMPANY and the UNION desire that production shall continue without interruptions. The COMPANY and the UNION further agree that good employer/employee relations cannot exist unless there is a serious effort on the part of both the COMPANY and the UNION to settle in a peaceable manner all disputes that may arise. Therefore, as a means of promoting continued production and employment and improved employer/employee relationships, the COMPANY and the UNION agree that the grievance procedure and arbitration procedure provided in this Contract shall be used to peaceably settle without strike disputes that are covered by such grievance and arbitration procedure. 224 It is agreed that there will be no lockout by the COMPANY or strike or work stoppage by the UNION. 225 In the event of such strike or work stoppage, there shall be no liability on the part of the UNION, its officers or agents, if such strike or work stoppage was not authorized, encouraged or condoned by the UNION. 226 The UNION agrees to cooperate with the COMPANY and use means at its disposal to settle such strike or work stoppage and request such employees to return to work. 34 227 This provision shall no longer be binding on the COMPANY or the UNION if either party has served proper notice requesting changes or modifications of this Agreement in accordance with the terms of Article 34 and either party has given written notice that is discontinuing negotiations. ARTICLE 30 GRIEVANCE PROCEDURE 228 (a) The parties to this Agreement agree that any dispute, complaints, or grievance, except those pertaining to discharge, arising out of the interpretation or application of the terms of this Agreement, shall be settled promptly in accordance with the following procedure: 229 STEP 1 - Any employee or group of employees, either individually or with, or through, their steward, may discuss with the immediate supervisor any complaint or other matter which they feel requires clarification. The supervisor shall have five (5) days in which to render a verbal decision to said employee(s) and the steward involved, if any. Should the decision fail to bring about a satisfactory settlement in the matter, it may become a grievance and may be handled in accordance with Step 2. 230 It is understood that when a group of employees desire a clarification on a matter in which they are commonly involved, one employee in the group, with or without, or through the steward, if desired, shall be designated by the group to discuss the matter with the supervisor. Matters which do not affect the employees as a group in a common manner, or which may require individual adjustment, shall be presented on an individual basis. 231 STEP 2 - Within five (5) days of receipt of the verbal decision at Step 1, the employee or group of employees, either individually or through their steward, may file the grievance, on forms provided by the COMPANY, through the immediate supervisor to the general supervisor of the department involved. Within five (5) days of receipt of the grievance, the superintendent, the supervisor, and a representative of the Personnel Department shall meet with the employee and their steward for the purpose of discussing the grievance. The general supervisor shall have five (5) days in which to render a decision. If the decision brings about a satisfactory settlement of the matter, it shall be reduced to writing and shall be delivered to the employee, the steward and the UNION. If the decision fails to bring about a satisfactory settlement, it shall not be reduced to writing and may, within five (5) days, be appealed to Step 3 through the general supervisor. 232 STEP 3 - Within five (5) days of the appeal to Step 3, the general superintendent of the department involved, a representative of the Personnel Department, and such other representatives of management as the COMPANY may desire, shall meet with the employee, the steward involved, the appropriate Plant/Union 35 Committeeman and the Business Manager of the UNION or designee, for the purpose of discussion the grievance. Within five (5) days following such meeting, the COMPANY shall answer the grievance in writing and the answer shall be delivered to the employee, the steward involved, the Plant/Union Committeeman involved, and the UNION. 233 If the decision fails to bring about a satisfactory settlement of the matter, it may be appealed in writing to the Plant Manager or designee, within ten (10) days of the decision and will be handled in accordance with Step 4. 234 STEP 4 - A grievance appealed to Step 4 will be entered on the agenda of the next meeting of the Plant/Union and the Plant Management Committees if the appeal is received at least ten (10) days prior to its scheduled meeting. If received within the ten (10) day period prior to a meeting, it shall be placed on the agenda for the following meeting. 235 An employee having a grievance in regard to contractual supplemental sick pay benefits may file a grievance directly with the Supervisor, Labor Relations, who shall have five (5) days' time in which to investigate and answer the grievance. Should the answer fail to bring about a satisfactory settlement to the grievance, then the employee may, within five (5) days, appeal the grievance directly to Step 4 of the grievance procedure. 236 After discussion of the grievance by the Plant/Union and Plant Management Committees, it shall be answered, in writing, to the UNION within ten (10) days. If the grievance is settled at Step 4, the answer shall reflect the settlement. If the grievance has not been settled, then the COMPANY's answer shall state why the grievance is denied. 237 (b) It is understood and agreed that no complaint, dispute, or grievance shall be submitted to either the COMPANY or UNION after a lapse of ten (10) days from the time the incident causing the complaint, dispute, or grievance shall have occurred or become known to the employee. 238 (c) The COMPANY and the UNION recognize that is desirable and mutually beneficial to have regular monthly meetings for the purpose of discussing any grievances placed on the agenda for the respective meeting. For this purpose, the representatives of the UNION shall consist of a committee designated by the UNION and shall be called the Plant/Union Committee, of which there shall be sixteen (16) employee members. Employees in the probationary period of 36 employment shall not be eligible for membership on the Plant/Union Committee. The following groups of employees shall each be represented on the Plant/Union Committee by an employee of the group designated by the UNION: Machinists Pipefitters Asbestos Workers Boilermakers Ironworkers Carpenters Electrical Workers Instrumentmen Painters Operating Engineers Laborers Truck Drivers & Helpers, Stores Clerks, and Chief Stores Clerk Plant 1 production employees and Group 4 Plant 2 and Power production employees Plant 3 production employees Group 2 employees 239 (d) If an employee is discharged, the COMPANY, within three (3) days of the discharge, shall, on request of the employee provide the employee with a written statement of the reason or reasons for the action taken. If the UNION desires to protest the discharge, the UNION, instead of following the procedure set forth in Steps 1 and 2 of the Article, may, within ten (10) days after the discharge in question, file directly with the COMPANY, a written request for a hearing. Such hearing shall be held within two (2) days after receipt by the COMPANY of such written request. At such hearing, evidence may be presented on behalf of the one discharged and by the COMPANY. 240 If the evidence presented by the UNION to the COMPANY warrants the reinstatement of the discharged employee or employees, such reinstatement shall be to their former position without loss of seniority or vacation credits. All other terms of the reinstatement may be agreed upon between the COMPANY and the UNION at this time. If the COMPANY and the UNION cannot agree that the discharge was justified, the dispute may be referred to arbitration in accordance with the procedure set forth in (e) of this Article. 241 (e) If a grievance or discharge protest cannot be settled to the mutual satisfaction of the COMPANY and UNION in Steps 1 through 4 or as provided in (d) above, the UNION shall have forty-five (45) days during which to notify the COMPANY of their desire to arbitrate the dispute. 37 242 (f) All time limits noted in this Article are exclusive of Saturdays, Sundays and holidays. Extensions of time limits as set forth in this Article, may be requested by either the COMPANY or the UNION to take care of unusual cases. ARTICLE 31 ARBITRATION PROCEDURE 243 It is further agreed that if the COMPANY and the UNION cannot mutually settle any controversies, differences or disputes that arise regarding discharges or dismissals, or interpretations and application of this Agreement, the COMPANY or the UNION, upon the request of the opposite party to this Agreement to arbitrate such controversies, differences or disputes shall, in accordance with Step 4 of Article 30, meet and name one (1) representative each as arbitrators and within five (5) days after the appointment of said two (2) arbitrators, an attempt shall be made to mutually settle such controversies, differences or disputes by the two (2) arbitrators. In the event they cannot mutually settle the dispute within five (5) days from their appointment, the said two (2) arbitrators shall agree upon a third (3rd) arbitrator and the dispute shall be settled by a majority of said arbitrators, which decision shall be final and binding upon both parties to this Agreement. In the event the two (2) arbitrators cannot mutually agree on the third (3rd) arbitrator within ten (10) days, the Director of Federal Mediation and Conciliation Service for Region X shall be requested to submit a list of five (5) arbitrators. The UNION and the COMPANY will, within ten (10) days, eliminate from the list four (4) names by each, alternately eliminating one (1). The name remaining shall then become the third (3rd) arbitrator. 244 Grievances appealed to arbitration but not scheduled for hearing within 12 months of the appeal are considered to be dropped. 245 The COMPANY and the UNION shall bear the expenses of their respective arbitrators. All other expenses of the arbitration shall be borne by and divided equally between the UNION and the COMPANY. 246 The decision of the majority of the Arbitration Committee shall be rendered within sixty (60) days after the hearing and shall be final and binding upon the parties hereto. Such decision shall be within the scope and terms of this Agreement and shall not change any of its terms or conditions. The Arbitrators shall, in their decision, specify whether or not the decision is retroactive or the effective date thereof. ARTICLE 32 ABROGATION OF CONTRACT ARTICLES 247 Should any part hereof, or any provisions herein contained, be rendered or declared invalid by reason of any existing or subsequently enacted legislation or by a decree of a court of competent jurisdiction, such invalidation of such part or portion of this Agreement shall not invalidate the remaining portion hereof and they shall remain in full force and effect. 38 ARTICLE 33 NON-OCCUPATIONAL ACCIDENT AND SICKNESS PLAN SECTION 1 248 The Sick Benefit Plan is provided to aid employees in meeting their expenses while suffering from illness or from a non-occupational accident in accordance with the following schedule: PLANT MAXIMUM NUMBER SERVICE CREDIT OF WEEKS BENEFIT Six months to 1 year 12 weeks Over 1 year 26 weeks 249 Plant Service Credit shall mean employment with the COMPANY which is credited to the employee from the records of the COMPANY. 250 This credit shall start with the employee's hiring date with the COMPANY and shall be known as the anniversary date for the purposes of administering this plan. 251 Plant Service Credit shall in remain if effect for one-year absence on account of illness. It shall then be broken until the employee returns to work. Plant Service Credit shall not accumulate after one (1) month absence due to approved Leave of Absence. No credit shall be given for absence due to layoff or strikes. SECTION 2 252 Maximum Number of Weeks Benefits is determined by the employee's Service Credit, and all disability periods occurring within the Service Credit year will be totaled for the purpose of computing the Maximum Benefits allowed for that year. 253 Unused benefits during a Service Credit year may not be carried over to the next Service Credit Year. 254 An employee whose continuous absence due to an illness or injury extends from one (1) service year to another shall be entitled to a maximum of twenty-six (26) weeks benefits for that disability. An employee whose continuous absence exceeds such maximum benefits must return to work for a period of sixty (60) days for a related disability or one (1) day for an unrelated disability in order to receive further benefits to which they may be entitled. Total benefits will not exceed twenty-six (26) weeks in a service year. 39 SECTION 3 255 The Plan provides benefits based on a normal work week of forty (40) hours and a normal day of eight (8) hours. In case the number of hours in the normal work week or work day is changed, the benefits listed below will be changed in direct proportion to the change in the scheduled working hours. 256 The sick benefits provided for herein shall be less any amount or amounts of disability benefits which may be provided for through the State or Federal legislation or increased weekly benefits provided in the Group Insurance Plan. SECTION 4 257 The Plan will provide benefit payments based on the employee's base hourly rate, exclusive of all premium pay. Benefit payments will be made for an employee's disability extending beyond the waiting period for each scheduled work day up to the maximum number of weeks for which the employee is eligible according to the schedule in Section 1. The waiting period will be based on sick occurrences during the previous twelve (12) months. DAYS SICK OCCURRENCES WAITING PERIOD IN PREVIOUS 12 MONTHS 0 2 or less 1 3 1 4 2 5 or more 258 Should an employee become sick and leave the plant during the first four hours of their regularly scheduled hours of work, such day shall be counted as a part of the waiting period for the purposes of sick leave benefits. However, when an employee is off twenty-one (21) consecutive calendar days, they shall receive benefits for one (1) day's waiting period. 259 The COMPANY will provide sick leave benefits in an amount equal to 90% of an employee's base straight-time earnings for work days lost. 260 An employee with greater than one (1) year of COMPANY service who does not use any sick leave in a given service year will accumulate an extra week of sick leave for each year in which no sick leave is taken up to a maximum of ten (10) additional weeks of sick leave. 261 If an employee who has so accumulated a extra week(s) of sick leave should subsequently become ill or injured, the "accumulated" sick time will be used first. 40 262 If an employee uses all "accumulated" and all twenty-six (26) weeks of normal sick leave as provided in Section 1 and Section 2 of this article and continues on sick leave, the maximum number of subsequent sick benefit weeks at 65% of straight time earnings will be proportionately adjusted and reduced by one week for each week of "accumulated" sick leave paid at the higher level of compensation. 263 In order to implement this plan, any employee who does not use any sick leave during their service year in effect on May 1, 1989 will receive an extra week of sick leave. SECTION 5 264 (a) An employee must present evidence satisfactory to the COMPANY, showing that an absence is due to illness or accident within the meaning of this Plan on forms provided by the COMPANY. 265 (b) An employee's absence must be reported to the Human Resources Department by the third day of absence by the employee, the doctor, or a member of the family. Failure to comply will be considered an absence without leave. 266 (c) Employees must adopt such remedial measures as may be commensurate with their disability and permit such reasonable examinations and inquiries by the COMPANY's Medical Department representative as, in its judgment, may be necessary to ascertain the employee's condition. SECTION 6 Payments will not be made for: 267 (a) Any period of disability during which the employee is not under treatment by a licensed physician or a licensed chiropractor. 268 (b) Any disability caused directly or indirectly by war or riot. 269 (c) Any sickness or injury due to the employee's (1) willful intention to injure oneself or another; (2) venereal diseases; (3) intoxication or the use of drugs except when in an EAP approved treatment program for substance abuse. 270 (d) Any disability occurring while the employee is working for wages or profit. 271 (e) Any disability due to misconduct. 41 272 (f) Any disability when an employee is absent because of layoffs, strikes, or leave of absence or on vacation. Any employee who is injured or becomes sick during vacation and is unable to return to work at the end of the vacation shall qualify for benefits in accordance with the Plan. 273 (g) All benefits under this plan shall cease immediately when employment with the COMPANY is terminated for any reason. SECTION 7 274 The COMPANY reserves the right to withhold benefit payments to any employee who is guilty of submitting a false claim or of abuse of the privileges covered and may take disciplinary action including discharge. ARTICLE 34 CONTRACT PERIOD 275 This agreement shall become effective on the date of signing and shall remain in effect until 4:00 p.m. May 1, 1999, and the same shall automatically renew itself from year to year thereafter unless either party shall have given the other written notice of desired changes or termination at least sixty (60) days before the anniversary date. 276 The COMPANY and UNION also agree that any subsequent agreement reached within the duration of this Agreement will be in compliance with applicable Federal laws, regulations, guidelines and standards. 42 STERLING CHEMICALS, INC. - - -------------------------------------------------------------------------- Director of Manufacturing - - -------------------------------------------------------------------------- Human Resources Manager TEXAS CITY, TEXAS METAL TRADES COUNCIL, AFL-CIO - - -------------------------------------------------------------------------- President - - -------------------------------------------------------------------------- Business Manager ELECTRICAL WORKERS LOCAL NO. 527 By ------------------------------------------------------------------------ OPERATING ENGINEERS NO. 347 By ------------------------------------------------------------------------ PAINTERS & PAPERHANGERS NO. 585 By ------------------------------------------------------------------------ BRIDGE, STRUCTURAL & ORNAMENTAL IRON WORKERS NO. 135 By ------------------------------------------------------------------------ INTERNATIONAL ASSOCIATION OF MACHINISTS NO. 1446, AFFILIATED WITH DISTRICT NO. 37 By ------------------------------------------------------------------------ SHEET METAL WORKERS NO. 54 By ------------------------------------------------------------------------ 43 TEAMSTERS LOCAL NO. 1111 By ------------------------------------------------------------------------ CARPENTERS LOCAL NO. 973 By ------------------------------------------------------------------------ INSTRUMENT LODGE NO. 903 By ------------------------------------------------------------------------ INTERNATIONAL BROTHERHOOD OF BOILER MAKERS, IRON SHIP BUILDERS, BLACKSMITHS, FORGERS AND HELPERS NO. 132 By ------------------------------------------------------------------------ HEAT & FROST INSULATORS & ASBESTOS WORKERS NO. 111 By ------------------------------------------------------------------------ PIPEFITTERS LOCAL NO. 211 By ------------------------------------------------------------------------ OPERATING ENGINEERS NO. 450 By ------------------------------------------------------------------------ 44 *EXHIBIT A-1--FORTY HOUR MASTER SHIFT SCHEDULE ALL EMPLOYEES EXCEPT MAINTENANCE EMPLOYEES 277 MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS 1 xx11111 1xx2222 22xx333 333xx11 1111xx2 22222xx x33333x 2 11xx222 222xx33 3333xx1 11111xx x22222x xx33333 3xx1111 3 2222xx3 33333xx x11111x xx22222 2xx3333 33xx111 111xx22 4 x33333x xx11111 1xx2222 22xx333 333xx11 1111xx2 22222xx 5 3xx1111 11xx222 222xx33 3333xx1 11111xx x22222x xx33333 5-A 3xx1111 11xx111 112xx11 1113xx1 11111xx x11112x xx11113 6 111xx22 2222xx3 33333xx x11111x xx22222 2xx3333 33xx111 7 22222xx x33333x xx11111 1xx2222 22xx333 333xx11 1111xx2 8 xx33333 3xx1111 11xx222 222xx33 3333xx1 11111xx x22222x 9 33xx111 111xx22 2222xx3 33333xx x11111x xx22222 2xx3333 9-A 33xx111 111xx11 1122xx1 11133xx x11111x xx11122 2xx1113 10 1111xx2 22222xx x33333x xx11111 1xx2222 22x3333 333xx11 11 x22222x xx33333 3xx1111 11xx222 222xx33 3333xx1 11111xx 12 2xx3333 33xx111 111xx22 2222xx3 33333xx x11111x xx22222 13 333xx11 1111xx2 22222xx x33333x xx11111 1xx2222 22xx333 13-A 333xx11 1111xx1 11222xx x11333x xx11111 1xx1122 22xx113 14 11111xx x22222x xx33333 3xx1111 11xx222 222xx33 3333xx1 15 xx22222 2xx3333 33xx111 111xx22 2222xx3 33333xx x11111x 16 22xx333 333xx11 1111xx2 22222xx x33333x xx11111 1xx2222 17 3333xx1 11111xx x22222x xx33333 3xx1111 11xx222 222xx33 17-A 3333xx1 11111xx x12222x xx13333 3xx1111 11xx122 222xx13 18 x11111x xx22222 2xx3333 33xx111 111xx22 2222xx3 33333xx 19 1xx2222 22xx333 333xx11 1111xx2 22222xx x33333x xx11111 20 222xx33 3333xx1 11111xx x22222x xx33333 3xx1111 11xx222 21 33333xx x11111x xx22222 2xx3333 33xx111 111xx22 2222xx3 45 278 EXHIBIT A X-1 40 HOUR MASTER SHIFT SCHEDULE STERLING CHEMICALS X1 SHIFT SCHEDULE Hours of Shifts - - --------------- 1. 10:30-6:30 2. 6:30-2:30 "UO Shift--Shift Breaker Works Mon.-Fri. 3. 2:30-10:30 6:30-2:30 Sat. and Sun. Off .. Days Off I II III IV V VI VII VIII MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS A-1 33..222 222..11 11111.. ..33333 33..222 222..11 11111.. ..33333 A-2 33..222 22.2.11 11111.. ..33333 33..222 22.2.11 11111.. ..33333 A-3 33..222 2.22.11 11111.. ..33333 33..222 2.22.11 11111.. ..33333 A-4 33..222 .222.11 11111.. ..33333 33..222 .222.11 11111.. ..33333 A-5 33.2.22 222..11 11111.. ..33333 33.2.22 222..11 11111.. ..33333 B-1 ..33333 33..222 222..11 11111.. ..33333 33..222 222..11 11111.. B-2 ..33333 33..222 22.2.11 11111.. ..33333 33..222 22.2.11 11111.. B-3 ..33333 33..222 2.22.11 11111.. ..33333 33..222 2.22.11 11111.. B-4 ..33333 33..222 .222.11 11111.. ..33333 33..222 .222.11 11111.. B-5 ..33333 33.2.22 222..11 11111.. ..33333 33.2.22 222..11 11111.. C-1 11111.. ..33333 33..222 222..11 11111.. ..33333 33..222 222..11 C-2 11111.. ..33333 33..222 22.2.11 11111.. ..33333 33..222 22.2.11 C-3 11111.. ..33333 33..222 2.22.11 11111.. ..33333 33..222 2.22.11 C-4 11111.. ..33333 33..222 .222.11 11111.. ..33333 33..222 .222.11 C-5 11111.. ..33333 33.2.22 222..11 11111.. ..33333 33..222 222..11 D-1 222..11 11111.. ..33333 33..222 222..11 11111.. ..33333 33..222 D-2 22.2.11 11111.. ..33333 33..222 22.2.11 11111.. ..33333 33..222 D-3 2.22.11 11111.. ..33333 33..222 2.22.11 11111.. ..33333 33..222 D-4 .222.11 11111.. ..33333 33..222 .222.11 11111.. ..33333 33..222 D-5 222..11 11111.. ..33333 33.2.22 222..11 11111.. ..33333 33.2.22 UO 22222.. 22222.. 22222.. 22222.. 22222.. 22222.. 22222.. 22222.. SHIFT BEGINNING AT 10:30 PM IS CONSIDERED THE FIRST SHIFT OF THE FOLLOWING DAY (E.G.) THE SHIFT BEGINNING AT 10:30 PM FRIDAY IS THE FIRST SHIFT SATURDAY 46 EXHIBIT A-2 FORTY HOUR MASTER SHIFT SCHEDULE (TWO SHIFTS ONLY) 279 MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS 1xx2222 22xx111 111xx22 2222xx1 11111xx x22222x xx11111 222xx11 1111xx2 22222xx x11111x xx22222 2xx1111 11xx222 11111xx x22222x xx11111 1xx1222 22xx111 111xx22 2222xx1 x11111x xx22222 2xx1111 11xx222 222xx11 1111xx2 22222xx 1xx2222 22xx111 111xx22 2222xx1 11111xx x22222x xx11111 222xx11 1111xx2 22222xx x11111x xx22222 2xx1111 11xx222 1111xx2 22222xx x11111x xx22222 2xx1111 11xx222 222xx11 x22222x xx11111 1xx2222 22xx111 111xx22 2222xx1 11111xx 22xx111 111xx22 2222xx1 11111xx x22222x xx11111 1xx2222 47 EXHIBIT A-3B FORTY HOURS MASTER SHIFT SCHEDULE THREE SHIFT SCHEDULE ALL EMPLOYEES EXCEPT MAINTENANCE 280 M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S S 3 4 5 6 7 8 9 10111213141516 17181920212223 24252627282930 31 1 2 3 4 5 6 7 8 910111213 14151617181920 14151617181920 21222324252627 28293031 1 2 3 4 5 6 7 8 910 11121314151617 18192021222324 252627282930 1 23242526272829 3031 1 2 3 4 5 6 7 8 9101112 13141516171819 20212223242526 27282930 1 2 3 4 5 6 7 8 910 1 2 3 4 5 6 7 8 91011121314 15161718192021 22232425262728 293031 1 2 3 4 5 6 7 8 91011 12131415161718 10111213141516 17181920212223 24252627282930 31 1 2 3 4 5 6 7 8 910111213 14151617181920 21222324252627 19202122232425 262728293031 2 3 4 5 6 7 8 9101112131415 16171819202122 23242526272829 3031 1 2 3 4 5 272829 1 2 3 4 5 6 7 8 91011 12131415161718 19202122232425 262728293031 1 2 3 4 5 6 7 8 9101112131415 EXHIBIT A-30 1 A 2 2 2 2 2 x x x 1 1 1 1 1 x x 3 3 3 3 3 x x x 2 2 2 2 2 2 x x 1 1 1 1 1 x x 3 3 3 3 3 3 x x 2 2 2 2 B 3 3 3 x x 2 2 2 2 2 2 x x 1 1 1 1 1 x x 3 3 3 3 3 3 x x x 2 2 2 2 2 x x x 1 1 1 1 1 x x 3 3 3 3 3 3 C 1 x x 3 3 3 3 3 3 x x 2 2 2 2 2 2 x x 1 1 1 1 1 x x 3 3 3 3 3 3 x x 2 2 2 2 2 2 x x x 1 1 1 1 1 x 4 D x x 1 1 1 1 1 x x 3 3 3 3 3 3 x x 2 2 2 2 2 2 x x 3 3 3 1 1 x x 3 3 3 3 3 3 x x 2 2 2 2 2 2 x x 1 5 E 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x * * * * * * *
M T W T F S S M T W T F S S M T W T F S S 21222324252627 28 1 2 3 4 5 6 7 8 910111213 2 3 4 5 6 7 8 9101112131415 16171819202122 11121314151617 18192021222324 25262728293031 19202122232425 2627282930 1 2 3 4 5 6 7 8 9 282930 1 2 3 4 5 6 7 8 91011 12131415161718 6 7 8 9101112 13141516171819 20212223242526 16171819202122 23242526272829 30 1 2 3 4 5 6 EXHIBIT A-30 1 A 2 2 2 x x 1 1 1 1 1 x x 3 3 3 3 3 3 x x 2 2 B 3 x x 2 2 2 2 2 2 x x 1 1 1 1 1 x x 3 3 3 3 C x 3 3 3 3 3 x x x 2 2 2 2 2 2 x x 1 1 1 1 4 D 1 1 1 1 x x 3 3 3 3 3 3 x x x 2 2 2 2 2 x 5 E 1 1 1 1 1 x x 1 1 1 1 1 x x 1 1 1 1 1 x x * * *
EACH EMPLOYEE IS SCHEDULED OFF TWO DAYS IN EACH WORK WEEK THESE TWO DAYS NEED NOT BE CONSECUTIVE 48 EXHIBIT A-3 THREE SHIFT SCHEDULE 281 MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS 22222xx x11111x x33333x xx22222 2xx1111 1xx3333 33xx222 222xx11 111xx33 3333xx2 333xx22 2222xx1 1111xx3 33333xx x22222x xx11111 xx33333 3xx2222 22xx111 11xx333 1xx3333 33xx222 222xx11 111xx33 3333xx2 22222xx x11111x x33333x xx22222 2xx1111 xx11111 xx33333 3xx2222 22xx111 11xx333 333xx22 2222xx1 1111xx3 33333xx x22222x * * * * * * * * * * *No Day Coverage
49 282 EXHIBIT A-5 40 HR. MASTER SHIFT SCHEDULE MTWTFSS MTWTFSS MTWTFSS MTWTFSS 11111XX XX11111 11111XX 11111XX 11111XX 11111XX XX11111 11111XX 11111XX 11111XX 11111XX XX11111 XX11111 11111XX 11111XX 11111XX Monday-Friday, 7:00 a.m. to 3:30 p.m., no paid lunch. Saturday, Sunday and Holidays, 7:00 a.m. to 3:00 p.m., paid lunch 283 EXHIBIT A-6 NORMAL DAY SCHEDULE Monday through Friday 7:00 a.m. to 11:00 a.m. 11:30 a.m. to 3:30 p.m. May also be used for operators, pumper-gaugers, and analysts for training purposes other than direct on-the-job training 50 EXHIBIT A-7 SPECIAL STRAIGHT DAY SCHEDULE FOR PRODUCTION DEPARTMENT 284 MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS 11111xx x11111x xx11111 1xx1111 11xx111 111xx11 1111xx1 51 *EXHIBIT A-9 SPECIAL PILOT PLANT AND TBA UNIT SCHEDULE 285 MTWTFSS MTWTFSS MTWTFSS 11111xx 22222xx 33333xx 22222xx 33333xx 11111xx 33333xx 11111xx 22222xx *As per letter of 5/8/56 52 286 EXHIBIT A-10--THREE SHIFT SCHEDULE ALL EMPLOYEES EXCEPT GROUP 1 (will be used for start-ups, shutdowns, plant emergencies, and overhauls) MTWTFSS MTWTFSS MTWTFSS 11111xx 22222xx 33333xx 22222xx 33333xx 11111xx 33333xx 11111xx 22222xx 287 EXHIBIT A-11--TWO SHIFT SCHEDULE ALL EMPLOYEES EXCEPT GROUP 1 (will be used for start-ups, shutdowns, plant emergencies, and overhauls) MTWTFSS MTWTFSS 11111xx 22222xx 22222xx 11111xx 53 288 EXHIBIT A-20 *SPECIAL PILOT PLANT SCHEDULE MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS MTWTFSS (22) 11111xx x11111x x11111x x11222x xx22222 xx11111 11xx111 (23) xx22222 2xx1111 1xx2221 1xx1111 1xx1111 11xx122 22111xx *As per letter of 10/4/57 54 EXHIBIT B WAGE RATES
EFFECTIVE 6:30 -- 7:00 A.M MAY 1, 1996 ====================================================================== $.40 2.5% 3.0% 289 5-1-96 5-1-97 5-1-98 ====================================================================== - - ---------------------------------------------------------------------- PRODUCTION - - ---------------------------------------------------------------------- Chief Operator $22.44 $23.00 $23.69 - - ---------------------------------------------------------------------- Operator 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Chief Pumper Gauger 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Pumper Gauger 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Chief Laboratory Analyst 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Laboratory Analyst 21.27 21.80 22.45 - - ---------------------------------------------------------------------- - - ---------------------------------------------------------------------- POWER & UTILITY - - ---------------------------------------------------------------------- Shift Engineer 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Operator 21.27 21.80 22.45 - - ---------------------------------------------------------------------- - - ---------------------------------------------------------------------- STORES - - ---------------------------------------------------------------------- Chief Stores Clerk - - ---------------------------------------------------------------------- Entry 21.06 21.59 22.24 - - ---------------------------------------------------------------------- Max 21.77 22.31 22.98 - - ---------------------------------------------------------------------- Stores Clerk - - ---------------------------------------------------------------------- Entry 19.53 20.02 20.62 - - ---------------------------------------------------------------------- Max 20.53 21.04 21.67 - - ---------------------------------------------------------------------- - - ---------------------------------------------------------------------- MAINTENANCE - - ---------------------------------------------------------------------- Asbestos Worker Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Asbestos Worker 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Boilermaker Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Boilermaker 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Ironworker Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Ironworker 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Carpenter Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Carpenter 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Electrical Worker Leadman 22.58 23.14 23.83 - - ---------------------------------------------------------------------- Electrical Worker 21.31 21.84 22.50 - - ---------------------------------------------------------------------- Painter Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Painter 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Machinist Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Machinist 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Pipefitter Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Pipefitter 21.27 21.80 22.45 - - ---------------------------------------------------------------------- Operating Engineer Leadman 22.44 23.00 23.69 - - ---------------------------------------------------------------------- Operating Engineer 21.27 21.80 22.45 ====================================================================== 55
EXHIBIT B, Continued
EFFECTIVE 6:30 -- 7:00 A.M MAY 1, 1996 ====================================================================== $.40 2.5% 3.0% 289 5-1-96 5-1-97 5-1-98 ====================================================================== - - ---------------------------------------------------------------------- MAINTENANCE (CONT'D) - - ---------------------------------------------------------------------- Instrument Leadman 22.58 23.14 23.83 - - ---------------------------------------------------------------------- Instrumentman 21.31 21.84 22.50 - - ---------------------------------------------------------------------- Labor Leadman 21.10 21.63 22.28 - - ---------------------------------------------------------------------- Truck Dispatcher 21.31 21.84 22.50 - - ---------------------------------------------------------------------- Truck & Tractor Driver - - ---------------------------------------------------------------------- ENTRY 19.76 20.25 20.86 - - ---------------------------------------------------------------------- MAX 20.16 20.66 21.28 - - ---------------------------------------------------------------------- Truck Helper - - ---------------------------------------------------------------------- ENTRY 19.28 19.76 20.35 - - ---------------------------------------------------------------------- MAX 19.54 20.03 20.63 - - ---------------------------------------------------------------------- Laborer - - ---------------------------------------------------------------------- ENTRY* 17.84 18.29 18.84 - - ---------------------------------------------------------------------- MAX 19.28 19.76 20.35 - - ---------------------------------------------------------------------- Laborer Special 19.54 20.03 20.63 - - ---------------------------------------------------------------------- *Advance to Maximum after three months working in classification. ======================================================================
56 EXHIBIT C-1 MERIT PROGRESSION SCHEDULE
EFFECTIVE 6:30 -- 7:00 A.M MAY 1, 1996 ========================================================== $.40 2.5% 3.0% 290 5-1-96 5-1-97 5-1-98 ========================================================== Chief Stores Clerk $ 21.06 $ 21.59 $ 22.24 Hire - - ---------------------------------------------------------- 21.29 21.82 22.47 - - ---------------------------------------------------------- 21.51 22.05 22.71 - - ---------------------------------------------------------- 21.77 22.31 22.98 Top - - ---------------------------------------------------------- - - ---------------------------------------------------------- Stores Clerk 19.53 20.02 20.62 Hire - - ---------------------------------------------------------- 19.75 20.24 20.85 - - ---------------------------------------------------------- 19.93 20.43 21.04 - - ---------------------------------------------------------- 20.06 20.56 21.18 - - ---------------------------------------------------------- 20.18 20.68 21.30 - - ---------------------------------------------------------- 20.41 20.92 21.55 - - ---------------------------------------------------------- 20.53 21.04 21.67 Top - - ---------------------------------------------------------- - - ---------------------------------------------------------- Truck Driver 19.76 20.25 20.86 Hire - - ---------------------------------------------------------- 19.94 20.44 21.05 - - ---------------------------------------------------------- 20.16 20.66 21.28 Top - - ---------------------------------------------------------- - - ---------------------------------------------------------- Truck Helper 19.28 19.76 20.35 Hire - - ---------------------------------------------------------- 19.41 19.90 20.50 - - ---------------------------------------------------------- 19.54 20.03 20.63 Top ==========================================================
57 EXHIBIT C-1, (CONT'D.) LABORATORY ANALYST APPRENTICE MERIT PROGRESSION RATE
EFFECTIVE 2.5% 3.0% 290 MERIT PROGRESSION 5-1-96 5-1-97 5-1-98 ==================================================================================== Start $16.50 $16.91 $17.42 - - ------------------------------------------------------------------------------------ End of 6 Months 17.21 17.64 18.17 - - ------------------------------------------------------------------------------------ End of 12 Months 17.96 18.41 18.96 - - ------------------------------------------------------------------------------------ End of 18 Months 18.73 19.20 19.78 - - ------------------------------------------------------------------------------------ End of 24 Months 19.54 20.03 20.63 - - ------------------------------------------------------------------------------------ End of 30 Months 20.39 20.90 21.53 - - ------------------------------------------------------------------------------------ End of 36 Months Journeyman rate Journeyman rate Journeyman rate ====================================================================================
Effective May 1, 1996, all Apprentices hired after this date will be paid at the above Merit Progression Rates, subject to across the board increases occurring after May 1, 1996. Existing Apprentices will be "Grandfathered" under the old progression rates per a separate list. These grandfathered rates will not be reflected on the contract. **************** Merit increases are granted after the completion of three (3) months' service and are based on progress in job knowledge, ability and skill, attitude toward the job and safe practices. The increase is effective on the Monday of the week in which the anniversary date falls. When increases are not granted, an explanation is given the employee by supervision. - - -------------------------------------------------------------------------------- 58 EXHIBIT C-2 MAINTENANCE APPRENTICE MERIT PROGRESSION RATE ASBESTOS WORKER, BOILERMAKER, CARPENTER, IRONWORKER, MACHINIST, OPERATING ENGINEER, PAINTER, PIPEFITTER
MERIT EFFECTIVE 2.5% 3.0% 291 PROGRESSION 5-1-96 5-1-97 5-1-98 - - ---------------------------------------------------------------------------- Start $16.50 $16.91 $17.42 - - ---------------------------------------------------------------------------- End of 6 Months 17.03 17.46 17.98 - - ---------------------------------------------------------------------------- End of 12 Months 17.58 18.02 18.56 - - ---------------------------------------------------------------------------- End of 18 Months 18.15 18.60 19.16 - - ---------------------------------------------------------------------------- End of 24 Months 18.74 19.21 19.79 - - ---------------------------------------------------------------------------- End of 30 Months 19.34 19.82 20.41 - - ---------------------------------------------------------------------------- End of 36 Months 19.97 20.47 21.08 - - ---------------------------------------------------------------------------- End of 42 Months 20.61 21.13 21.76 - - ---------------------------------------------------------------------------- End of 48 Months Journeyman rate Journeyman rate Journeyman rate ============================================================================
Effective May 1, 1996, all Apprentices hired after this date will be paid at the above Merit Progression Rates, subject to across the board increases occurring after May 1, 1996. Existing Apprentices will be "Grandfathered" under the old progression rates per a separate list. These grandfathered rates will not be reflected on the contract. EXHIBIT C-3 INSTRUMENT & ELECTRICAL APPRENTICE MERIT PROGRESSION RATE
============================================================================ MERIT EFFECTIVE 2.5% 3.0% 292 PROGRESSION 5-1-96 5-1-97 5-1-98 - - ---------------------------------------------------------------------------- Start $16.50 $16.91 $17.42 - - ---------------------------------------------------------------------------- End of 6 Months 16.93 17.35 17.87 - - ---------------------------------------------------------------------------- End of 12 Months 17.37 17.80 18.33 - - ---------------------------------------------------------------------------- End of 18 Months 17.82 18.27 18.82 - - ---------------------------------------------------------------------------- End of 24 Months 18.28 18.74 19.30 - - ---------------------------------------------------------------------------- End of 30 Months 18.76 19.23 19.81 - - ---------------------------------------------------------------------------- End of 36 Months 19.25 19.73 20.32 - - ---------------------------------------------------------------------------- End of 42 Months 19.75 20.24 20.85 - - ---------------------------------------------------------------------------- End of 48 Months 20.26 20.77 21.39 - - ---------------------------------------------------------------------------- End of 54 Months 20.78 21.30 21.94 - - ---------------------------------------------------------------------------- End of 60 Months Journeyman rate Journeyman rate Journeyman rate ============================================================================
Effective May 1, 1996, all Apprentices hired after this date will be paid at the above Merit Progression Rates, subject to across the board increases occurring after May 1, 1996. Existing Apprentices will be "Grandfathered" under the old progression rates per a separate list. These grandfathered rates will not be reflected on the contract. 59 EXHIBIT C-4 CHEMICAL OPERATOR APPRENTICE MERIT PROGRESSION RATE
============================================================================ MERIT EFFECTIVE 2.5% 3.0% 293 PROGRESSION 5-1-96 5-1-97 5-1-98 ============================================================================ Start $16.50 $16.91 $17.42 - - ----------------------------------------------------------------------------- End of 6 Months 17.21 17.64 18.17 - - ----------------------------------------------------------------------------- End of 12 Months 17.96 18.41 18.96 - - ----------------------------------------------------------------------------- End of 18 Months 18.73 19.20 19.78 - - ----------------------------------------------------------------------------- End of 24 Months 19.54 20.03 20.63 - - ----------------------------------------------------------------------------- End of 30 Months 20.39 20.90 21.53 - - ----------------------------------------------------------------------------- End of 36 Months Journeyman rate Journeyman rate Journeyman rate =============================================================================
Effective May 1, 1996, all Apprentices hired after this date will be paid at the above Merit Progression Rates, subject to across the board increases occurring after May 1, 1996. Existing Apprentices will be "Grandfathered" under the old progression rates per a separate list. These grandfathered rates will not be reflected on the contract. EXHIBIT C-5 PUMPER GAUGER APPRENTICE MERIT PROGRESSION RATE
============================================================================= MERIT EFFECTIVE 2.5% 3.0% 294 PROGRESSION 5-1-96 5-1-97 5-1-98 ============================================================================= Start $ 16.50 $ 16.91 $ 17.42 - - ----------------------------------------------------------------------------- End of 6 Months 17.21 17.64 18.17 - - ----------------------------------------------------------------------------- End of 12 Months 17.96 18.41 18.96 - - ----------------------------------------------------------------------------- End of 18 Months 18.73 19.20 19.78 - - ----------------------------------------------------------------------------- End of 24 Months 19.54 20.03 20.63 - - ----------------------------------------------------------------------------- End of 30 Months 20.39 20.90 21.53 - - ----------------------------------------------------------------------------- End of 36 Months Journeyman rate Journeyman rate Journeyman rate =============================================================================
Effective May 1, 1996, all Apprentices hired after this date will be paid at the above Merit Progression Rates, subject to across the board increases occurring after May 1, 1996. Existing Apprentices will be "Grandfathered" under the old progression rates per a separate list. These grandfathered rates will not be reflected on the contract. 60 ARTICLES OF AGREEMENT INDEX SUBJECT PAGE PAR. NO. Abrogation of Contract Articles........ 38 247 Afternoon Court Appearances............ 27 172 thru 174 Bank Days.............................. 11 62 Bargaining Unit Defined................ 2 3 Basic Principles....................... 1 2 Bid Procedure.......................... 16 90 thru 104 Bulletin Boards........................ 33 217 Call-in Guarantee...................... 9 49 Clothing Replacement................... 28 177 thru 180 Company Rules.......................... 33 218 Continuous Service..................... 29 185 Contract Period........................ 42 275, 276 Contract Work.......................... 24 147 thru 151 Court Duty............................. 26 167 thru 175 Coveralls.............................. 28 178 Damage -- Clothing..................... 28 179 Death in Family........................ 33 219 thru 222 Discharge.............................. 37 239 thru 241 Discipline............................. 23 146 Dues Check-Off......................... 2 6 Dues Check-Off, Cancellation........... 3 11 Duration of Contract................... 42 275, 276 Election Day........................... 27 176 Emergency Work......................... 9 49 Expiration of Contract................. 42 275 Eyeglasses............................. 32 211 thru 214 Funeral Leave.......................... 33 219 thru 222 Grievance -- Discharge................. 37 239 thru 241 Grievance Procedure.................... 35 228 thru 242 Grievance -- Sick Pay.................. 36 235 Grievance -- Timeliness................ 36 237 Holiday Pay, Eligibility............... 6 34 thru 37 Holidays............................... 6 34 Hours of Work.......................... 3 13 thru 16 i INDEX SUBJECT PAGE PAR. NO. Invalidation of Contract............... 38 247 Jurisdiction........................... 22 133 thru 136 Jurisdiction Disputes.................. 26 163 thru 166 Jury Service........................... 26 167 thru 175 Labor Dispute -- Layoff................ 28 183 Layoff................................. 28 181 thru 199 Layoff Compensation.................... 29 184 thru 199 Layoff Notice.......................... 28 181 thru 183 Layoff, Rehiring....................... 19 116 thru 118 Leadmen................................ 23 137 thru 142 Leave of Absence....................... 30 200 thru 204 Leave of Absence --Duration............ 30 200 thru 202 Leave of Absence -- Maternity.......... 31 203 Leave of Absence -- Union Conventions.. 30 201 Leave of Absence -- Union Employment... 30 202 Lockouts............................... 34 224 Maternity Leave........................ 31 203 Military Leave of Absence.............. 12, 15 67, 81 Morning Court Appearance............... 26 168 thru 171 Overtime Distribution.................. 8 40 Overtime Meals......................... 8 41 thru 45 Overtime Premiums...................... 5 27 thru 33 Pay Day................................ 24 152, 153 Pay Rate............................... 55 thru 60 289 thru 294 Physical, Medical...................... 25 155 thru 157 Plant Rules............................ 33 218 Plant/Union -- Management Committee.... 36 234 Postings............................... 33 217 Pregnancy Leave........................ 31 203 Probation Period....................... 14 76 Progressions (Pay)..................... 57 thru 60 290 thru 294 Proof of Court Appearance.............. 27 175 Recognition of Union................... 2 3 Running Repairs........................ 22 133 Safety Glasses......................... 32 211 thru 214 Safety Inspections..................... 32 209 Safety Meetings........................ 32 208 ii INDEX SUBJECT PAGE PAR.NO. Safety Shoes........................... 32 215 Sanitation............................. 31 205, 206 Schedule-In............................ 9 49 Seniority.............................. 13 73 thru 89 Seniority -- Commences................. 14 76 Seniority -- Group, Craft, Department.. 13 74 thru 75 Seniority Lists........................ 14 77 Separation Allowance................... 29 185, 186 Eligibility........................... 30 190 thru 199 Limitations of Applicability.......... 28 181 thru 189 Method of Payment..................... 29 186 thru 189 Shift Differential..................... 9 46 thru 48 Shift Schedules........................ 3, 4, 45 thru 54 13 thru 16 277 thru 287 Sick Pay............................... 39 248 thru 274 Amount................................ 40 259 Duration of Benefits.................. 39 254 Eligibility and Proof................. 41 264-266 False Claim........................... 42 274 Non-Occupational...................... 39 248 Plant Service Credit.................. 39 248, 249 Waiting Period........................ 40 257 Signatory Unions....................... 1 1 Staffing New Units..................... 22 132 Stewards............................... 23 143 thru 146 Strikes................................ 34 223 thru 227 Supervisors Working.................... 21 123 thru 128 Surplus Employees...................... 18 105 thru 109 Transfers.............................. 13, 18 72, 105-111 Transfers, Temporary................... 18 106 Transportation, Overtime............... 10 50 Union Activities....................... 25 158 ,162 Union Committee........................ 36 238 Upgrading, Benefits.................... 20 122 Upgrading, Temporary................... 20 120 thru 122 Vacation............................... 10 52 thru 72 Vacation Splits........................ 12 63 Visits by Union Representatives........ 25 162 Wage Rates............................. 55 thru 60 289 thru 294 Work Schedules......................... 3, 45 thru 54 13 thru 16, 277 thru 288 iii LETTERS OF AGREEMENT BETWEEN STERLING CHEMICALS, INC. ITS SUCCESSORS AND ASSIGNS AND THE TEXAS CITY, TEXAS METAL TRADES COUNCIL AFL-CIO OF TEXAS CITY, TEXAS LETTERS OF AGREEMENT TABLE OF CONTENTS GENERAL SECTION PAGE I. Shift Preference......................... 1 II. Transportation........................... 1 III. Arbitration.............................. 1 IV. Premium, Pay Related Practices........... 1 V. Jury Pay................................. 4 VI. Pay Day.................................. 4 VII. Non-Occupational Sick Pay................ 4 VIII. Worker's Compensation.................... 5 IX. Physicals................................ 5 X. Vacation................................. 6 XI. Seniority................................ 7 XII. Jury Duty................................ 7 XIII. Elections................................ 7 XIV. Coveralls................................ 7 XV. Prescription Safety Glasses.............. 8 XVI. Funeral Leave............................ 9 XVII. Inspections.............................. 9 XVIII. Scheduling............................... 9 XIX. Bid Procedure............................ 9 XX. Food Service............................. 10 XXI. Work Gloves.............................. 10 XXII. Clip-on Glasses.......................... 11 XXIII. Pension and Insurance Steward............ 11 XXIV. Productivity Statement................... 11 MAINTENANCE SECTION I. Work Assignment.......................... 12 II. Shift Assignment......................... 17 III. Upgrade, Laborers........................ 18 IV. Leadman.................................. 19 V. Safety Glasses........................... 19 VI. Premium Pay.............................. 19 VII. Special Qualifications................... 19 VIII. Work Clothes............................. 20 IX. Layoff................................... 20 X. License Reimbursement.................... 20 XI. Training................................. 21 XII. Work Instructions........................ 21 XIII. Stores................................... 21 XIV. Instrument & Electrical Work Jurisdiction 22 XV. I&E Upgrades............................. 24 i MATERIALS HANDLING SECTION I. Work Assignments......................... 24 II. Work Clothes............................. 25 LABORATORY SECTION I. Training................................. 25 II. Work Assignment.......................... 25 OPERATIONS SECTION I. Shift Assignments........................ 25 II. Manufacturing Twelve Hour Shifts......... 26 III. Work Assignments......................... 26 IV. Lunch Delivery........................... 26 ii LETTERS OF AGREEMENT BETWEEN STERLING CHEMICALS, INC. ITS SUCCESSORS AND ASSIGNS AND THE TEXAS CITY, TEXAS METAL TRADES COUNCIL, AFL-CIO OF TEXAS CITY, TEXAS GENERAL SECTION I. SHIFT PREFERENCE 1 Straight-day employment shall be determined on the basis of seniority. New employees will be required to go on shift within not more than ninety (90) days after employment. II. TRANSPORTATION 2 The COMPANY will provide rides home for employees who are without transportation and are held over on overtime past their regular scheduled shift. III. ARBITRATION 3 The COMPANY will not, for the purposes of arbitration, use the "basic principle" clause in a jurisdictional dispute arbitration. 4 IV. PREMIUM PAY RELATED PRACTICES A. MAINTENANCE DEPARTMENT 1. 0700-1530 hours, Monday-Friday Normal Work Week 5 (a) After each craftsmen has had an opportunity to work overtime for the 3:00 p.m.-11:00 p.m. and/or graveyard shifts, the COMPANY may contract its overtime needs for that shift. 6 (b) For all overtime jobs that are turned in by 1430 hours but not filled by 1500 hours, the COMPANY may contract its overtime needs for that shift. Jobs that are turned in after 1430 hours will be filled by continuing to run the overtime list until the list has been run one complete time. After the list has been run one complete time, the COMPANY may contract its overtime needs for that shift. 1 7 (c) All overtime worked or refused will be charged by actual payroll hours. The Union and the Company agree that there has been some abuse of the overtime systems in the past; therefore, the Union and the Company agree to work together to identify, discuss, and correct any problems of abuse that may occur in the overtime system. 8 (d) On off hours, holidays, and weekends, employees will be allowed to change their overtime preference on the overtime list (okay to work or not work) only once per shift. 9 2. 1530-0659 hours, Monday-Friday Normal Work Week; Weekends and Holidays 0700-0659 hours. 10 (a) After each craftsman has had two (2) opportunities to work overtime on a shift, the COMPANY may contract its overtime needs for that shift. However, on a given job after each craftsman has had an opportunity to work that job the COMPANY may contract that job. 11 B. All straight-day employees scheduled to work the day shift Saturday or Sunday will be allowed to eat their meal on COMPANY paid time. 12 C. If, because of a shift change, an employee works seven (7) consecutive days within a work week without any scheduled days of rest, the sixth and seventh days shall be considered, for pay purposes, to be the first and second days of rest, respectively. 13 D. When an employee clocks out in accordance with normal procedure and is contacted for holdover overtime before exiting plant gate(s), the time worked will be paid at the applicable overtime rate and not treated as a call-in. 14 E. The COMPANY agrees that in scheduling overtime, no employee shall be bypassed in the assignment of overtime work solely to avoid payment of double time. 15 F. The COMPANY agrees that Article 3, Section 8, will be interpreted so as to include in the computation of the sixteen continuous hours, the thirty-minute unpaid lunch break during the day shift. 16 G. The COMPANY agrees that when an employee is held over for purposes of job continuity and completes the scheduled job they were held for, they will be allowed to go home, assuming no other emergency work arises that 2 would require a call-out. (Emergency as outlined in "Call-out" article and as clarified in subcommittee meeting.) 17 H. If an employee's shift change is canceled prior to working the first shift on a new schedule, no notice is required. Once the employee has worked on the new schedule, forty-eight (48) hours notice is required to change the schedule. 18 I. When the low person is not afforded overtime, in accordance with the overtime agreements, and the parties agree that there has been an error: 1. The employee will be allowed to make up the hours lost by working comparable hours. 2. The make-up time will be worked, within thirty (30) days of the decision that an error has been made, at a mutually agreeable time. Should the COMPANY and employee not be able to mutually agree, the employee shall make the time up on a shift which is the same as that on which the overtime would have been worked had there been no error. 3. Such employees working make-up time will not be assigned to work which would eliminate overtime for someone else; i.e., work that would be worked on an overtime basis if the employee working make-up time was not available. 19 In the administration of this procedure, errors created by the following will not be remedied by the above: 1. Any deliberate act by an employee with intent to cause an error in the administration of overtime distribution; or 2. Mechanical, electrical or system problems creating errors on down-time in the basic overtime recording data by computer. 20 J. Any employee who is forced out on overtime and worked up to or into their regular shift shall be excused from work on their regular shift without pay once the employee has performed work for a duration of eight (8) continuous hours if the employee so requests. 21 Should an employee be forced on overtime and said overtime lasts for three (3) or more hours and terminates six (6) or less hours prior to the start of their next regular shift, said employee shall be excused from working the next regular shift without pay if the employee so requests. 3 22 It is understood that an employee to be excused, as provided above, who works a job typically requiring continuous coverage must be relieved by some other employee prior to being released. V. JURY PAY 23 An employee who is to report for court duty in the afternoon shall be given a reasonable period of time to go home, change clothes, etc., eat and then drive to the courthouse for duty; or that an employee released from court duty before 10:00 a.m. shall be given reasonable time to go home, change clothes, eat and drive to the plant. VI. PAY DAY 24 Employees who are scheduled to begin working third shift on a Thursday will be extended the same pay check privileges as accorded an employee on off days with the understanding that should it create a problem with a normal payroll operation at any future date, we would change back to the present procedure. VII. NON-OCCUPATIONAL SICK PAY 25 A. Employees who experience an illness or injury which results in absence from work for a continuous period in excess of thirty (30) days will be furnished, upon request of the employee, a statement reflecting the period of the absence and the amount of sick pay received for the absence in excess of the thirty (30) day period. 26 B. Employees off sick and receiving sick benefits under Article 33, "Non-Occupational Accident and Sickness Plan" of the present contract at the time a work stoppage occurs will continue to be covered under Article 33 until certified able to return to work. Employees whose illness or injury occurs after a work stoppage begins will not receive benefits, as set forth in Article 33, until the settlement of the work stoppage. 27 C. The COMPANY agrees under Article 33, "Non-Occupational Accident and Sickness Plan" to waive the waiting period, as defined in Article 33, Section 4, when an employee is hospitalized and undergoes surgery or other medical treatment, for which hospitalization is a generally accepted requirement. The waiting period waiver will also apply when an employee receives surgery or medical treatment on an out-patient basis for a condition that has historically called for hospital confinement. Hospitalization for surgery or other medical treatment where the generally accepted practice in the area is out-patient care, does not qualify for a waiver of the waiting period under this paragraph. 4 28 D. An employee who has completed the probationary period but has less that six (6) month's service and otherwise qualified for non-occupational illness benefits on a holiday will be guaranteed up to eight (8) hours' pay. 29 E. The COMPANY agrees that when an employee becomes ill or is injured while on vacation and is certified as disabled by a licensed physician, they will be able to cancel subsequent full weeks of vacation beyond the week in which they become certified as disabled upon proper notification to the COMPANY. 30 F. The COMPANY agrees that if an employee is hospitalized while on vacation, the employees' vacation may be canceled and the employee placed on sick leave on the day of hospitalization. For purposes of this paragraph, the day is defined as the payroll day appropriate to the employees' regular work schedule. 31 G. The COMPANY agrees to make available a reasonable number of Physician's Certification (pink) forms upon request. VIII. WORKER'S COMPENSATION 32 The COMPANY will supplement weekly Workman's Compensation benefits up to 100% of base pay with no waiting period at time of incident or first illness for the employee's first year of disability but not after Workmen's Compensation payments to the employee have been ceased. Supplementary payments for all subsequent absences related to the specific industrial injury or illness will start after a one-day waiting period. The COMPANY agrees to guarantee that no lesser benefits will be instituted during the term of the contract. IX. PHYSICALS 33 The COMPANY agrees to continue notification and to send a copy of such individual test results to employees who fall outside the normal medical limits and to provide a copy to an employee who comes to First Aid and requests such information. 34 The COMPANY will provide assistance in scheduling appointments for those employees who request same to obtain non-mandatory x-rays as part of their periodic physical examinations. 5 35 When an employee is scheduled for a chest x-ray as part of their physical, the Company will provide for the x-ray to be read by a "B- Reader". For employees in the Insulator Craft, a second x-ray, read by a "B-Reader", will be provided at six (6) month intervals at the request of an insulator. X. VACATION 36 A. Whenever a summer hire is used, such summer hire shall work in a manner similar to any new hire. When possible, an additional employee shall be allowed off on vacation during the period the summer hire is used, after training, provided, in the opinion of the COMPANY, ample coverage by overtime is available. 37 B. Employees, operation or maintenance, in any new department facing start-up, shall be allowed to take vacation irrespective of previous plans or instructions so long as the vacations do not conflict with or impair plant start-up. 38 C. Back-to-back vacations from one vacation year to the next will be allowed under the following conditions: 1. The period of vacation must be for six or more weeks. 2. The employees who desire to schedule vacation in a continuous period beginning in one vacation year and ending in another vacation year must schedule such vacation prior to April 1 of the first vacation year. 3. If, on the basis of seniority, they will be allowed to schedule their vacation immediately prior to the end of the vacation year, then they shall be granted vacation preference for the continuous portion of the vacation which ends the next vacation year. 39 D. When a day of vacation falls on a holiday and the employee elects to take an extra day of vacation, they may elect to take it the last working day immediately prior to their scheduled vacation. 40 E. The COMPANY agrees that when an employee becomes ill or is injured while on vacation and is certified as disabled by a licensed physician, they will be able to cancel subsequent full weeks of vacation beyond the week in which they become certified as disabled upon proper notification to the COMPANY. 6 41 F. The COMPANY agrees that if an employee is hospitalized while on vacation, the employees' vacation may be canceled and the employee placed on sick leave on the day of hospitalization. For purposes of this paragraph, the day is defined as the payroll day appropriate to the employees' regular work schedule. XI. SENIORITY 42 A. When employees are hired into a group or craft on the same date, their order on the seniority lists shall be determined by "lot". 43 B. In a situation where departmental seniority is equal, the group seniority shall govern, and when group or craft seniority are equal, seniority on the first day worked in the bargaining unit shall govern. XII. JURY DUTY 44 A. In the event an employee is required to appear for jury duty on a scheduled day of work which is a holiday as set forth in Section 2 of Article 3, the employee will be paid unworked holiday and jury service pay if the employee meets the requirements for jury service pay as set forth in Article 20. 45 B. With regard to jury service, the COMPANY agrees to treat the documental release time the same for standby as for court appearances. XIII. ELECTIONS 46 An employee appointed as an election judge or observer or those elected as delegates to political conventions shall be granted: (a) vacation bank days if eligible; or (b) an excused absence. The request must be made in advance and must not conflict with or impair plant operation. XIV. COVERALLS 47 A. The COMPANY agrees to provide coveralls upon request when, in the judgment of the immediate supervisor, the job to be performed meets either of the following tests: 1. The work will result in irreparable damage to clothing. 2. The work will subject an employee's clothing to abnormal stains, soot, chemical contamination or irritants. 7 48 B. The COMPANY reserves the right to make coveralls mandatory on certain jobs. Should the supervisor and employee disagree on the need for coveralls in a certain job, the dispute will be resolved as defined in paragraph C. Any further disputes may be resolved by the grievance procedure. 49 C. The above agreement on coveralls issue is made with the understanding that if conditions change or improvements are made that alter the need or justification for coveralls, the COMPANY would no longer provide coveralls on that job. It is also understood that if a special need arises in which the craft feels coveralls should be provided, the COMPANY will review the job need to determine the merit of the request and issue coveralls if agreed. The Maintenance Supervisor, Shops/Crafts, will review with the craft steward. If not satisfied with the decision, it can be reviewed by steward, Maintenance Supervisor, Shops/Crafts, and the Maintenance Supervisor, Support, or designees. If not satisfactory, the job will proceed immediately and be carried to arbitration at a later date. XV. PRESCRIPTION SAFETY GLASSES 50 A. In cases where the employee needs prescription glasses and the COMPANY requires eye protection, the COMPANY will provide for the initial eye exam as deemed necessary by the Medical Department. The Company will pay 75% for subsequent eye exams in two (2) year intervals from an approved provider. The COMPANY will pay the cost of required glasses as currently administered. It is the intent that the initial eye examination, as well as subsequent examinations necessary to ensure proper visual acuity, be covered by this policy. 51 Employees who are not on COMPANY time may go to Personnel Benefits Section and pick up purchase orders for prescription safety glasses during the hours that Personnel Benefits is normally open. 52 B. Shaded safety glasses are to be issued where a licensed physician, usually defined as an ophthalmologist, specifies that an employee's eye condition requires shaded glass during daylight hours. Recommendations by opticians or optometrists are not to be treated as meeting the requirements of Article 25, Section 6 with regard to "licensed physician". 53 C. The COMPANY agrees to provide two (2) pair of prescription glasses for welders. At the time of ordering, two pair will be ordered. One pair will be provided the welder and the second pair will be kept in the Safety Department for issue to the welder when needed. At the time the first pair 8 is turned in and the second pair issued, a new pair will be ordered unless it is time for the employee's eyes to be checked. XVI. FUNERAL LEAVE 54 A. The COMPANY agrees that when a death in an employee's immediate family (as interpreted in Article 28) occurs while the employee is on vacation, the employee, with sufficient notice to the COMPANY and in accordance with Article 28, may stop their vacation and start their funeral leave. 55 B. An employee absent from their regular work schedule due to the imminent death of a relative (as defined under Article 28) may receive funeral leave provided such lost time occurs within the three-day period selected by the employee as funeral leave under the provisions of Article 28. 56 C. The COMPANY agrees to apply Article 28 to a second listed relative. XVII. INSPECTIONS 57 The COMPANY agreed to state that it has always been its intent to report the results of a safety inspection to the complaining employee and the COMPANY agrees to continue this practice. XVIII. SCHEDULING 58 In the event an employee is inadvertently scheduled for less than the normal work week, the employee will be allowed to make up the difference after reporting the discrepancy to supervision. The employee will be allowed to make up such difference only to the point where their earnings equal the straight time earnings for a normal work week. XIX. BID PROCEDURE 59 In the case of multiple job posting, those individuals wishing to bid will be given the opportunity to express the rank order of their preferences. A copy of this preference will be given to each multiple bidder. Once recorded, this preference ranking cannot be changed. In awarding jobs, the senior qualified bidder's preference will govern the selection process. The following criterion will be applied in selecting qualified candidates for Sterling Chemicals Apprenticeship programs. 60 A. Operator Apprentice requirements will include that all candidates hired on or after May 1, 1993, must have completed three (3) hours of college level 9 math and six (6) hours of college level science with a GPA of 2.5 or better (A = 4.0) prior to being considered. In addition to the above listed requirements, Operator Apprentice candidates must have completed a Junior College Basic Petrochemical Operators course prior to being considered. 61 B. Instrument/Electrical (combined) and Machinists Apprentice requirements will include that all candidates hired on or after May 1, 1993, must have completed six (6) hours of college level math and six (6) hours of college level science with a GPA of 2.5 or better (A = 4.0) prior to being considered. 62 C. The following criteria will be applied in selecting qualified candidates for Sterling Chemicals "Associate Operator" classification: The Associate Operator requirements will include that all Associate Operators hired on or after May 1, 1996, must have completed a State Educational Board Certified Associate Degree of Process Technology prior to being considered and the statistical requirements in Paragraph A. Their entry pay level will be at the end of eighteen (18) months Merit Pay Progression Schedule for Chemical Operator Apprentices. XX. FOOD SERVICE 63 A. Menu selections will be made by the COMPANY after consultation with the UNION. It is the COMPANY's intent to provide wholesome and nutritionally balanced meals. 64 B. The COMPANY agrees that an employee who is called to work the day shift with less than eight (8) hours' notice will be furnished a meal or meal ticket if the employee reports at the beginning of the day shift and an additional meal or meal ticket if they work up to 11:00 a.m.. The parties recognize that this does not apply to employees held over into the day shift. XXI. WORK GLOVES 65 The COMPANY will continue its present policy and practice of furnishing work gloves at COMPANY expense and expand it to include White Mule leather gloves or its equal for carpenters and the Truck Department. 10 XXII. CLIP ON GLASSES 66 Up to two pairs of clip-on glasses per year shall be furnished by the COMPANY to the Operating Engineers, Local 450 members only. Clip-on glasses may be purchased at cost by other employees at the Safety Supply section. XXIII. PENSION AND INSURANCE STEWARD 67 One person within the bargaining unit designated by the Business Manager of the UNION may be named to act in the capacity as the Council's Pension and Insurance Steward for hourly employees represented by the Texas City, Texas Metal Trades Council or retirees. Said designee shall be provided with a locked file cabinet in a suitable location within the plant in which to file records and information. All medical, SIP, DAP, pension and other benefit forms and associated correspondence presented or received by the COMPANY are confidential and private information and the COMPANY is required to treat it as such. Any confidential records and information sought by the UNION shall be obtained directly from the concerned employee or, with written permission by the employee, from the COMPANY'S benefit office. 68 The Pension and Insurance Steward shall be afforded reasonable use of the COMPANY'S telephone for transacting business as regards pension and insurance. The COMPANY and UNION agree that said designee shall, with ten (10) days' advance notice, be allowed leaves of absence necessary for attending national negotiations and/or meetings regarding pension and insurance, but said leaves shall be without pay. Said Steward shall be allowed, during their regular working hours, to consult with employees and/or COMPANY representatives and shall perform work of the job classification when not otherwise occupied. 69 Nothing in this agreement shall be construed as preventing any employee so represented from dealing directly with the COMPANY'S benefit personnel. XXIV. LETTER OF UNDERSTANDING - PRODUCTIVITY STATEMENT 70 The COMPANY and the Texas City Metal Trades Council agree that a profitable and highly competitive Texas City plant enhances the job security of all plant employees. Both parties recognize the necessity of making productivity improvements to ensure the future profitability and competitiveness of the plant. 71 While acknowledging their respective rights and obligations, the COMPANY and the Texas City Metal Trades Council further recognize that in today's rapidly changing business environment a cooperative versus a confrontational approach to labor relations matters is vital to the plant's success. Specifically, the parties have 11 endorsed the following principles to reinforce their emphasis on this productive collaboration. 72 A. A working environment that fosters increased effectiveness, efficiency and productivity of plant operations is a highly desirable goal all employees should contribute to achieving. 73 B. Timely, effective two-way communications are basic to productive plant operations. 74 C. As appropriate, problem solving groups, as well as participative concepts such as quality circles, may be facilitated. Productivity improvement plans, programs and results will be periodically reviewed with the Plant Union Committee. 75 The COMPANY and the UNION recognize that it is desirable and mutually beneficial to set up an annual meeting to review Work Practices vs. Best of Class in Industry. The purpose of these meetings would be to identify possible areas of improvement which could enhance the Company's competitiveness within the industry. 76 During such meetings, possible areas of improvement identified which would require modifying, amending, or waiving any of the provisions of this Labor Agreement shall be implemented only by mutual consent of both the COMPANY and the UNION. MAINTENANCE SECTION I. WORK ASSIGNMENT 77 A. One truck helper will be assigned to each stores route truck. 78 B. The COMPANY will use the truck dispatcher on overtime as a truck driver in order to equalize overtime in this group. 79 C. When spray or sandblasting machines are being used in the field, two painters will be used on the job. 80 D. Maintenance Planning tries to plan and schedule all maintenance work including overtime for Sterling employees. Occasionally, due to change in scope of work, demands from the production departments and shutdowns, it is necessary that overtime be worked on jobs which have previously been assigned to contract personnel. Within these limits, every effort is made to assign Sterling personnel on jobs requiring overtime. 12 81 E. Overtime maintenance work in the plant will normally be assigned to Sterling personnel with the following exceptions: 1. Where special skills, knowledge, tools and equipment or services are required. 2. When Sterling personnel are not available for all shifts on which the work must proceed. 3. Shutdown scheduling when advance planning requires assumptions on personnel availability. 4. When a job has been started by contractor personnel and a short time (4 hours or less) is required to completion. 82 F. Employees covered by this agreement will normally make all tie- ins between new project and existing equipment and may engage in any and all work involving maintenance, repair or replacement of equipment and may engage in any and all work involving maintenance, repair or replacement of equipment, alterations to improve the efficiency and capacity of equipment and rearrange or make additions to all existing COMPANY property within the capacity of the equipment and personnel available. 83 All blinding and preparations of a unit for maintenance, repair, or renovation work will normally be done by employees covered by this agreement. 84 The "rain-out" clause in the contractor's contract or straight time work on Saturday, Sunday, or holidays as may be provided under the contractor's contract, will not be used to avoid Sterling employee's overtime. 85 G. The following shift schedules are available in the Maintenance Department for staffing shutdown work, equipment repairs requiring continuous staffing, and unit start-ups lasting three days or more in duration: (a) Two (2) shifts of eight (8) hours each. (b) Two (2) shifts of ten (10) hours each. (c) Two (2) shifts of twelve (12) hours each. (d) Two (2) shifts of thirteen (13) hours each. 86 The shift will be continuous and start between 5:00 a.m. and 7:00 a.m. The twelve hour shift schedule will be worked as follows: 1. Work will be continued through the normal ten hour meal period. 13 2. Work will stop thirty minutes prior to the end of the twelve hour shift, and employees may clock out at that time. 3. Pay for the twelve hour shift will be on the basis of twelve hours worked. 4. The regular ten hour meal allowance will be paid. 87 H. If the shifts cannot be covered by volunteers which includes canvassing by the appropriate craft stewards, the vacancies will be filled by conscripting from the craft in inverse order of seniority. The COMPANY will be sympathetic to exempting conscripts who have health or significant personal problems as long as the UNION does not grieve the effect of these exemptions and efficient and effective operations can be maintained. If the conscripts can get volunteers to replace themselves after the shutdown staffing list is completed, they will be released. Otherwise, they will work for the duration of the shutdown. If the shutdown is scheduled to last longer than twenty-one (21) calendar days, the COMPANY will only take volunteers or conscripts up to 80% of the craft. The remaining 20% may be used to relieve those individuals after 21 calendar days who request relief. Relief requests will be honored on a seniority basis. The UNION understands that if the above is not practical then the COMPANY must utilize other staffing arrangements in order to have the work performed. 88 I. The COMPANY agrees that Sterling employees covered by this agreement, will not be expected to take instructions from a non- Sterling supervisor or foreman. 89 The COMPANY and the UNION agree that Sterling personnel and contractor personnel shall not be used in a composite manner without approval of the steward of the craft or group involved; it being understood, however, that practices as existed in the prior agreement may continue. 90 Additionally, the UNION and the COMPANY agree that unusual situations may occur that fall outside the scope of this procedure, and in these instances, these variances will be discussed and agreed to by the COMPANY and the stewards of the craft or crafts involved. 91 J. Anytime three or more trucks are being used, a dispatcher will be used. The dispatcher may or may not act as a truck driver at the discretion of the COMPANY, but on the day shift Monday through Friday (exclusive of holidays), a dispatcher shall not be required to drive a truck. When upgrading a truck driver to dispatcher, if skill and ability are approximately equal, the senior qualified truck driver shall be used. 14 92 K. A six-month rotation plan will be set up within the Boilermaker, Laborer, Ironworker and Insulator crafts. These craftsmen shall be rotated at six-month intervals between department and areas of the plant. 93 L. The following was agreed to in regard to the Truck Department: 1. A helper will be provided to work with the truck drivers on the Dempster-Dumpsters, one on each dumpster if both trucks are running. 2. Stores supervision will be instructed to use hotshot delivery trucks in a manner not to carry materials heavier than one person can reasonably handle. 94 M. The following assignments were reached in regard to porter assignments, labor leadman and labor upgrade: 1. The COMPANY agrees to eliminate porter assignments as preferred work. 2. Laborer assignments by the COMPANY will be made to allow opportunity for training and upgrading of the senior laborers. The above to be done in accordance with the provisions of Article 5, Section 8, Promotions. 95 N. Apprentices shall work under the direction of a leadman or journeyman and shall not be assigned an operating unit or area to work individually except during the last six months of the apprenticeship program unless by mutual agreement of the COMPANY and the UNION. O. Incidental/Common Work Skill 96 In order to expedite the job in an efficient manner the COMPANY and UNION agree that employees in a Maintenance Craft or Group 3 may be required to perform minor and/or incidental work, as specified below, while in the performance of the employee's primary job assignment. 1. Haul tools, equipment, materials and manpower needed to do the job in pickups, vans or similar sized vehicles. 2. Erect, adjust and/or dismantle one section of scaffolding. 15 3. Strip reusable and non-reusable non-asbestos insulation necessary to break flanges and/or junctions or to gain access to areas needed to execute primary tasks. 4. Pull back tracing to gain access to their primary task. 5. First flange, first union, first connection may be assigned to craft with primary task. Second flange, second union, second connection may be assigned if necessary to perform primary task. Obstructions of a minor nature may be removed and reinstalled by the craft with the primary task. 6. Utilize plug-in electrical, utility, process and/or product connections. 7. When testing is necessary, each craft may blind and tie on to the equipment being tested as long as the total connection is not rigid pipe. 8. Any employee may remove and reinstall obstructions that prevent them from executing their primary task such as guards, grating, floor plate and handrails. 9. Signs to define content and direction (water, steam, product, etc.) can be done by the employee involved. 10. Specialty vendors, and employees may connect or disconnect their equipment if hook-ups are available (chemical cleaning, cleaning, vacuum, etc.). 11. Operating engineers may do minor repairs, adjustments and lubrication to their rigs. 12. Painters may replace hoses and make minor repairs to their equipment, using normal hand tools. 13. Insulators may mix all materials they use. 14. All crafts may install clips and/or brackets on racks and/or vessels needed to support the equipment they install. 15. I&E craft may decouple, couple and set motors that do not require indicator alignment. 16 16. I&E craft may pull and repair solenoid valves, pressure, temperature, flow and limit switches or DCA if initially troubleshooting the system. 17. I&E craft may pull and install control valves, transmitters, analyzers and controllers (pneumatic and electronic. This includes disconnections and connecting hard wired terminations). 18. Stores clerks may deliver materials from stores to the field and may finish crating materials. 19. Stores clerks may operate forklift trucks after proper training has taken place. 20. I&E craft may replace, repair, and/or modify tubing of a minor nature damaged or discovered while performing the primary task. 97 P. Merge Labor "A" and Labor "B" classifications and delete all reference to separate classifications or subgroups in the labor agreement. The seniority and vacation list of Labor "A" and Labor "B" will be merged. A. Employees currently in "Labor Special" jobs would be grandfathered in their current assignment. B. The current Labor "B" employees working "nights" would be transferred to the "day" shift. C. All current Labor "B" employees (not "Labor Special") will be grandfathered in "Porter" jobs on days. If they volunteer to the other duties of the Labor Group they will forfeit their grandfather rights. II. SHIFT ASSIGNMENT 98 A. The volunteer shift assignment procedure for maintenance employees will be revised to provide (a) an employee will volunteer for a shift, by seniority, each four months; (b) if a shift is discontinued the employee who had volunteered for that shift may elect to either go to another shift or to come off shift; and (c) if a person whose shift is discontinued elects to come off shift the COMPANY may fill the position with the next senior person with a volunteer slip, or by conscript. 99 B. In the use of shifts for a specific craft in the Maintenance Department, at least as many people will be scheduled on the day shift as there are scheduled on the graveyard shift. 17 100 C. When a machinist is denied a preferred shift because their ability to do machine tool work is questioned and the UNION has reason to feel the employee has the necessary ability to perform the job, the COMPANY will meet with the UNION and discuss the employee's qualifications. If, after much discussion it is determined that a trial period is merited, the employee will be given a trial period not to exceed thirty (30) days to prove their ability to perform the work. 101 D. The following agreement was reached regarding shift preference within the maintenance crafts: 102 In those maintenance crafts having leadmen on shift work, the leadman having the least continuous service as a leadman shall be assigned the shift position or positions unless a more senior person volunteers. 103 The above is subject to special training and development needs as determined by the COMPANY. 104 E. The work load fluctuates for the maintenance shift personnel on the second and third shifts due to operational conditions, shipping schedules, weather conditions and other factors. Regular assigned maintenance shift personnel will be replaced when absent so long as the work load is expected to be of a normal nature. III. UPGRADE, LABORER 105 A. When a laborer is to be temporarily upgraded to truck helper, truck driver or stores where skill and ability are approximately equal, the senior qualified laborer, exclusive of laborers regularly assigned to work as porters, will be upgraded. 106 A laborer will not be used for purposes of defeating overtime in the truck or stores groups. 107 B. With regard to the laborers and truck driver crafts: 1. The COMPANY agrees to replace the regular labor leadman when one is absent from work. 108 C. With regard to a proposal by the UNION prohibiting the temporary transfer of laborers to the truck driver craft or the stores group, the COMPANY agrees to abide by the decision of a majority of the laborer craft. 18 109 D. For the laborer classification only, Article 6, Paragraph 120 will be interpreted as follows: Consecutive upgrades will be accumulated to count toward the 15-day period. When 15 days of consecutive upgrading have occurred, benefits will be paid at the rate of the job the laborer is holding at the time they qualify for the benefit. IV. LEADMAN 110 A. When the number of personnel regularly assigned to a shift requires a leadman under the provisions of Article 11, a regular leadman will be assigned to that shift. 111 B. The provisions of Article 11, Leadman Ratio, will apply to the laborer craft. The provisions of Article 11 shall not apply to the Stores and Truck Departments. 112 C. In the assignment of leadman to areas where the work is predominantly "leading" and not working with the tools of the craft, the Senior leadman with appropriate skill and ability will be selected. This agreement in no way supersedes Article 11 of the agreement or implies assignment to work areas by seniority. V. SAFETY GLASSES 113 The COMPANY agrees to provide one pair of colored prescription safety glasses for Operating Engineers required to operate hoisting equipment. The parties recognize that this is a unique requirement for that craft and that such provision is not intended to be the beginning of a colored safety glass program for other groups. VI. PREMIUM PAY 114 A. Separate overtime eligibility assignment lists will be maintained in the Truck Department for the driver and helper classifications. 115 B. Applying to all crafts, the COMPANY agrees that there shall be no bypassing on overtime on the second day of rest because of an upcoming regular schedule of work. VII. SPECIAL QUALIFICATIONS 116 Training on specialized equipment (Balancing Machine) will be provided to those in the Machinist craft. 19 VIII. WORK CLOTHES 117 A. The COMPANY and UNION agree to the following with regard to coveralls and wash-up time: 1. The COMPANY agrees to furnish coveralls and allows bath time to the insulators when removing and replacing glass wool blankets on the outer skin of boilers and the removal and replacing of glass wool blankets between the outer skin and the inner wall in boilers located within the plant. 2. The COMPANY agrees to furnish coveralls (no bath time) to all employees working on a unit which has had a fire of considerable magnitude. 3. The COMPANY agrees to furnish coveralls (no bath time) to the operating engineers when applying crater compound to the turntable on heavy rigs. 118 B. When stripping asbestos or applying asbestos blankets, coveralls will be furnished. Replacement of coveralls will be made as required by insulator foreman. 119 C. The COMPANY reserves the right to make coveralls mandatory on certain jobs. Should the supervisor and employee disagree on the need for coveralls on a certain job, the dispute will be resolved by the Maintenance Supervisor, Shops/Craft, and the Maintenance Supervisor, Support. Any further disputes may be resolved by the grievance procedure. IX. LAYOFF 120 The COMPANY agrees that contract janitors will not be employed if Sterling Laborers are on layoff or if such action will result in Sterling Laborers being temporarily laid off. X. LICENSE REIMBURSEMENT 121 Operating Engineers (Local 450), Truck Drivers and members of overhead distribution crews who, in order to perform their normal duties, are required by state law to possess either a commercial or chauffeur's license shall be reimbursed the cost of these licenses. 20 XI. TRAINING 122 A. The COMPANY agrees to work with the craft steward in determining special training needs for that craft. 123 B. In order to maintain a viable maintenance apprenticeship program, the COMPANY and the UNION agree that when personnel are to be added to a maintenance craft, the addition of apprentices shall be favored provided the situation at the time permits. XII. WORK INSTRUCTIONS 124 The COMPANY agrees that Sterling employees covered by this agreement will not be expected to take instructions from a non-Sterling supervisor or foreman. XIII. STORES 125 A. Work Assignments The COMPANY will rotate the stores clerks in the various work assignments in the storeroom. 126 B. Shift Assignments The four-month volunteer shift assignments will be applied in the Stores Department. Employees in the Warehouseman classification at the time the 1985 Agreement becomes effective, will not be required to be a part of the regular Stores Department four-month volunteer shift assignment program, as described above, in their new position of Stores Clerk. 127 C. Call-outs The call-out of stores clerks to dispense material from the storeroom will continue as is being done under present practices. 128 D. Shift Rotation The four-month voluntary shift rotation plan presently used in the Maintenance crafts shall be applied to the Stores Department. 21 XIV. INSTRUMENT AND ELECTRICAL WORK JURISDICTION 129 A. Each craft keeps union jurisdiction. 130 B. Jurisdiction becomes common for all maintenance work between Instrument and Electrical crafts. 1. A detailed training program would contain two sections. Class A training would provide basic safety training. After a craftsman completes Class A training, the individual would be able to assist the other craft. Class B training would begin after completion of Class A and would be designed to achieve a working knowledge in the second craft and make the individual an I&E qualified craftsman. After completion of Class B training, each employee successfully qualifying as an I&E craftsman would be awarded a suitable certificate signed by the plant manager and the business representatives of IBEW #527 and IAM Instrument Local #903. 2. Training would be conducted by an Electrician and an Instrumentman that would be jointly selected by the COMPANY and the UNION based on skill and ability. Instrumentmen would train Electricians and Electricians would train Instrumentmen. 131 C. 1. When analyzer overtime is needed the low man with analyzer skills will be called out. If the man is unsuccessful in making the repair and special skills are needed, the low man with those skills will be called out to assist him. 2. When power distribution overtime is needed, the two low men with power distribution skills will be called out. If additional manpower is needed, they will be called out as outlined in the I&E overtime procedure. 3. When conventional overtime is needed the low I&E craftsman will be called out. If the low man is unsuccessful in making the repair and special skills are needed, then the low man with those skills will be called out to assist him. 132 D. All existing chiefs/leadmen will be grandfathered. Employees of the analyzer, power distribution and I&E groups will work under the direction of their respective leadmen. Should two or more leadmen be working together in the same I&E conventional crew, the one with the most craft seniority shall direct the work. 22 133 E. Both Electrical and Instrument groups will maintain separate vacation lists and have approximately the same maximum ceiling percentage. 134 F. Should a layoff be necessary involving either the Instrument or Electrical craft, then the order of layoff shall be in reverse order of craft seniority for the combined crafts. (The employee of either craft having the least craft seniority shall be laid off first, etc.). 135 G. The ratio of employees between the Instrument and Electrical crafts will be maintained as it is on 5/1/85, for any new hires or transfers of new employees into the two crafts. New hires and/or transferees will have to agree to the I&E combination. There will be no mandatory replacement of employees to meet craft ratios if imbalance develops through attrition. 136 H. Maintenance overtime practices will apply to the combined group, with the exception of the specific special overtime practices listed in this Letter of Agreement. 137 I. When a vacancy occurs in the Analyzer or Power Distribution Groups, the COMPANY and UNION will alternately select the I&E craftsmen for either group to fill the vacancy. I&E craftsmen who are selected will commit to continue their employment for a period equal to two (2) years of training and two (2) years of work after training. 138 J. The priority order for training employees on new equipment will be as follows: 1. employees who will be immediately responsible for the new equipment maintenance, 2. employees needed for check-out purposes, 3. employees who normally work overtime, 4. shift employees. Familiarization training will be given to other employees, if requested. 139 K. A formal and permanent comprehensive training program for analyzer training will be initiated. 140 L. The existing agreement for Electrical craft safety backup will apply to the new I&E group. 23 XV. I&E UPGRADES 141 The following procedure will be followed in upgrading journeymen in the Instrument and Electrical department or craft: 142 A. Permanent upgrades will be made in accordance with Article 5, Section 8, Promotions. 143 B. Temporary upgrades of four (4) days or less will be filled by upgrading the senior journeyman in the leadman's area. Under no circumstances will a more senior journeyman from another Leadman's area be transferred into the absent Leadman's area for the purpose of filling the position. In the event there is no journeyman in the Leadman's area, the senior qualified employee in the group (Analyzer, Power Distribution, or I&E Conventional) will be upgraded. 144 C. Temporary upgrades of more than four (4) days will be filled as follows: 1. Temporary upgrades in the Analyzer group will be filled by the senior qualified person in the Analyzer group; 2. Temporary upgrades in the Power Distribution group will be filled by the senior qualified person in the Power Distribution group; and 3. Temporary upgrades in the conventional Instrument and Electrical group will be filled by the senior qualified person in the conventional Instrument and Electrical group. MATERIALS HANDLING SECTION I. WORK ASSIGNMENTS 145 A chief pumper-gauger may have up to and including ten (10) pumper- gaugers in their group. 146 Should the Coast Guard suspend or cancel the tankerman's license of any Sterling pumper-gauger, said employee shall be assigned to other work within the classification. Should the COMPANY discharge or otherwise discipline a pumper-gauger for any alleged violation of Coast Guard regulation, said discharge or discipline shall, in accordance with Article 30 and 31, be subject to the grievance and arbitration procedures. 24 II. WORK CLOTHES 147 Distribution supervision will follow the coverall policy of the plant when pumper-gaugers are working acetic acid. The COMPANY agrees to provide coveralls for Esters job (steamerette and tankcar inspection). LABORATORY SECTION I. TRAINING 148 The COMPANY agrees to continue recognition of seniority for obtaining training on different jobs, unless it is the employee's primary job. II. WORK ASSIGNMENTS 149 Analysts in PPQ Lab shall be offered straight day and A-7 shifts by group seniority. 150 When destaffing occurs on the straight day or A-7 shifts, the analyst with the least group seniority will be moved. 151 These agreements apply only to lab facilities as presently organized by teams. 152 The Chief Laboratory Analyst will be not be expected to perform routine analytical work except under emergency or urgent conditions. The Chief Laboratory Analyst will be expected to perform selected screening samples. The Chief Laboratory Analyst will be expected to perform his normal Chief responsibilities on all shifts. The Chief Laboratory Analyst will be provided with training on the laboratory network operation and is expected to have a thorough working knowledge of its use in laboratory operations. One (1) chief will be assigned to each shift. The hourly rate of pay and other responsibilities (per paragraphs 157 and 158 of this section) for said Chief Analyst shall be equal to that of Chief Operator. OPERATING SECTION 153 I. SHIFT ASSIGNMENTS Straight-day jobs in Operating Departments will be filled by the senior qualified employee in the department, unless an agreement is reached, otherwise within the department. 25 154 II. In Manufacturing Departments, during shutdowns and/or start-ups of operations, a special twelve hour shift schedule may be established for periods of three days or more in duration in addition to current schedules provided in the Labor Agreement. 155 The shifts will be continuous and start between 5:00 a.m. and 7:00 a.m. III. WORK ASSIGNMENTS 156 The position of breaker on the X-1 shift is a straight day schedule. In filling this position the senior qualified employee will be given preference. 157 The chief operator will not be assigned routine duties during normal operations; however, chiefs will continue their existing practice of assisting operators as needed for effective, safe and efficient operations. 158 In units staffed with two (2) operators, one will be a working chief. 159 The COMPANY agrees to give Operators, Pumper-Gaugers and Lab employees all available information concerning duration of temporary jobs. Relief jobs will be offered to senior employees prior to each vacation year. An employee who accepts the relief job will serve in that job for one year. IV. LUNCH DELIVERY 160 The COMPANY agrees to establish a 12:00 midnight. meal delivery time for overtime meals for Groups 1, 2, and 4. 26 LETTERS OF AGREEMENT INDEX SUBJECT PAGE PAR. NO. Arbitration............................ 1 3 Benefits............................... 11 67 Bid Procedure.......................... 9 59 thru 62 Clip-on Glasses........................ 11 66 Clothing -- Maintenance................ 20 117 thru 119 Coveralls.............................. 7, 20, 25 47 thru 49 117 thru 119 147 Elections.............................. 7 46 Food Service........................... 10 63, 64 Funeral Leave.......................... 9 54 thru 56 Gloves................................. 10 65 Incidental Work........................ 15 96 I&E Work Jurisdiction.................. 22 129 thru 140 I&E Upgrades........................... 24 141 thru 144 Inspections............................ 9 57 Jury Duty.............................. 7 44, 45 Layoff -- Maintenance.................. 20 120 Leadman -- Maintenance................. 19 110 thru 112 License Reimbursement -- Maintenance... 20 121 Lunch Delivery -- Operations........... 26 160 Non-Occupational Sick Pay.............. 4 25 thru 31 Overtime Errors........................ 3 18 Pay Day................................ 4 24 Physicals.............................. 5 33 thru 35 Premium Pay Practices.................. 1 4 thru 22 Premium Pay Practices -- Maintenance... 1 5 thru 10 Prescription Safety Glasses............ 8 50 thru 53 Productivity Statement................. 11 70 thru 76 Safety Glasses -- Maintenance.......... 19 113 i LETTERS OF AGREEMENT INDEX SUBJECT PAGE PAR. NO. Scheduling............................. 9 58 Seniority.............................. 7 42, 43 Shift Assignment -- Maintenance........ 17 98 thru 104 Shift Assignment -- Operations......... 25 153 thru 155 Shift Preference....................... 1, 25 1, 153 thru 155 Shutdown Staffing -- Maintenance....... 13 85 Special Qualifications -- Maintenance.. 19 116 Stores................................. 21 125 thru 128 Training -- Laboratory................. 25 148 Training -- Maintenance................ 21 122, 123 Transportation......................... 1 2 Upgrade -- Maintenance................. 18 105 thru 109 Vacation............................... 6 36 thru 41 Work Assignment -- Operations.......... 25 153 thru 155 Work Assignment -- Laboratory.......... 25 148 thru 152 Work Assignment -- Maintenance......... 12 77 thru 97 Work Assignment -- Materials Handling.. 24 145 thru 146 Work Clothes -- Maintenance............ 20 117 thru 119 Worker's Compensation.................. 5 32 Work Gloves............................ 10 65 Work Instructions -- Maintenance....... 21 124 ii EX-10.33 9 EXHIBIT 10.33 EXHIBIT 10.33 ***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.*** METHANOL PRODUCTION AGREEMENT between BP CHEMICALS INC. and STERLING CHEMICALS, INC. September 26, 1996 METHANOL PRODUCTION AGREEMENT TABLE OF CONTENTS ----------------- PAGE ARTICLE 1 DEFINITIONS.................................... 2 ARTICLE 2 TERM...........................................11 ARTICLE 3 CONSTRUCTION PHASE.............................13 ARTICLE 4 OPERATIONS PHASE...............................13 ARTICLE 5 REIMBURSEMENT AND PAYMENT......................17 ARTICLE 6 CHANGES IN SPECIFICATIONS......................22 ARTICLE 7 PRODUCT OWNERSHIP; RISK OF LOSS................22 ARTICLE 8 TESTING........................................23 ARTICLE 9 OPERATION OF UNIT AND RELATED MATTERS..........24 ARTICLE 10 SHUTDOWNS OF THE UNIT..........................24 ARTICLE 11 INSURANCE......................................25 ARTICLE 12 OPERATING EXPENSES.............................26 ARTICLE 13 CAPITAL EXPENDITURES...........................27 ARTICLE 14 FUTURE EXPANSION EXPENDITURES..................28 ARTICLE 15 PERSONNEL......................................29 ARTICLE 16 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..30 ARTICLE 17 REPRESENTATIONS AND WARRANTIES OF BP...........31 ARTICLE 18 ACCESS.........................................32 ARTICLE 19 MEETINGS.......................................34 ARTICLE 20 TAXES..........................................35 -i- ARTICLE 21 FINANCIAL ASSURANCES...........................36 ARTICLE 22 ARBITRATION....................................36 ARTICLE 23 CONFIDENTIALITY AND INTELLECTUAL PROPERTY......37 ARTICLE 24 DEFAULTS; FAILURES; REMEDIES...................38 ARTICLE 25 INDEMNIFICATION................................38 ARTICLE 26 FORCE MAJEURE..................................42 ARTICLE 27 ASSIGNMENT.....................................44 ARTICLE 28 GENERAL........................................45 EXHIBITS -------- Exhibit A Methanol Specifications Exhibit B BP Contractual Commitments Exhibit C Summary of Insurance Coverage Exhibit D Company Marketing Costs Exhibit E BP Marketing Costs -ii- METHANOL PRODUCTION AGREEMENT THIS METHANOL PRODUCTION AGREEMENT executed this 26th day of September, 1996, and effective as of the Effective Date, is by and between BP CHEMICALS INC., an Ohio corporation, and STERLING CHEMICALS, INC., a Delaware corporation. W I T N E S E T H: WHEREAS, the Company owns an idle methanol production facility at its plant in Texas City, Texas that it desires to reconstruct through a combination of new construction and increase in capacity; and WHEREAS, BP is willing to share the actual costs of reconstructing and increasing the capacity of the Company's idle methanol production facility and operating it for a period of time thereafter in exchange for the right to receive a portion of the methanol produced from such facility, as set forth in this Agreement; and WHEREAS, the Company is willing to grant to BP the right to receive a portion of the methanol produced in exchange for BP sharing the actual costs of reconstructing, increasing the capacity and operating the Company's methanol production facility, as set forth in this Agreement; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained and the mutual benefits to be derived therefrom, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS ----------- Unless otherwise stated in this Agreement, the following terms shall have the meanings ascribed to them below, and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: Affiliate: Affiliate of a party shall mean a corporation, at least 50% of the voting securities of which is owned directly or indirectly by such party; a corporation which owns directly or indirectly at least 50% of the voting stock of such party; a corporation, at least 50% of the voting securities of which is owned directly by a corporation which owns directly or indirectly at least 50% of the voting stock of such party; or any other entity controlled, controlled by or under common control with such party. After-Acquired Assets: All improvements, replacements, substitutions, deletions, additions or other changes to the Unit made after the Effective Date attributable to any Construction Expenditures, Capital Expenditures, and Future Expansion Expenditures incurred after the Effective Date. Annual Stated Capacity: A volume of Methanol equal to *** of the daily capacity of the Unit demonstrated on the Construction Completion Date in accordance with the Engineering Agreement, multiplied by 365, as it may be adjusted from time to time in accordance with Section 14.2 hereof. Agreement: This Methanol Production Agreement and all Exhibits hereto, as the same may be amended from time to time pursuant to the provisions hereof. Arbitration Notice: As defined in Section 22.1 hereof. BP: BP Chemicals Inc., an Ohio corporation, and its successors and permitted assigns hereunder. BP Allocation: A volume of Methanol during each Contract Year equal to *** of the Methanol produced in the Unit during such Contract Year, subject to Section 5.5 hereof. -2- BP Capacity Factor: The greater of (i) the product obtained by multiplying *** by the then Annual Stated Capacity or (ii) the quotient obtained by dividing the difference between the Annual Stated Capacity and *** *** by two. For example, if the Annual Stated Capacity were 150 million gallons, then the BP Capacity Factor would be *** gallons, computed as follows: the greater of (i) *** x 150 million = *** million or (ii) (150 million - - - *** million) / 2 = *** million. BP Capacity Percentage: The greater of (i) *** or (ii) the quotient (expressed as a percentage) obtained by dividing the BP Capacity Factor by the Annual Stated Capacity, to the second decimal place. For example, if the Annual Stated Capacity were 150 million gallons and the BP Capacity Factor were *** million gallons, then the BP Capacity Percentage would be ***, computed as follows: *** million / 150 million = ***. BPCL: BP Chemicals Ltd., a company registered in England and Wales which is an Affiliate of BP, and its successors and permitted assigns. BP Contribution: The volume of Methanol contributed by BP to the Methanol Pool, during each Contract Year, which shall be equal to the BP Allocation. BP Event of Default: During the Term hereof, (i) the failure by BP to perform any of its financial obligations hereunder, which failure continues for a period of thirty (30) days after receipt of written notice thereof by BP from the Company, (ii) the failure by BP to perform any other covenants or agreements hereunder to a material extent, which failure continues for a period of thirty (30) days after receipt of written notice thereof by BP from the Company, and/or (iii) the inaccuracy in any material respect of any representation or warranty made by BP in this Agreement; provided, however, that with respect to an event described in (i) or (ii) above, if BP has performed any such obligation, covenant or agreement or made any such payment prior to the expiration of such thirty (30)-day period, such failure or default shall not constitute a BP Event of Default. -3- BP Marketing Costs: As defined in Section 5.1(b) hereof. Business Day: A day in the City of Houston, Harris County, Texas, that is neither a Saturday, Sunday or legal holiday nor a day on which banking institutions in Houston, Texas, are obligated by law to close. Capacity Percentages: The BP Capacity Percentage and the Company Capacity Percentage. Capital Expenditures: The actual expenditures incurred after the completion of the Construction Phase to acquire any asset for use on, or for the benefit of, the Unit, or to add to, modify, replace or improve any asset used on, or for the benefit of, the Unit, including but not limited to repair costs in excess of insurance proceeds as provided in Section 10.3 hereof. Capital Project: A project which requires Capital Expenditures. Claim: As defined in Section 25.3 hereof. Company: Sterling Chemicals, Inc., a Delaware corporation, and its successors and permitted assigns hereunder. Company Allocation: A volume of Methanol during each Contract Year equal to *** of the Methanol produced in the Unit during such Contract Year, subject to Section 5.5 hereof. Company Capacity Factor: The difference between the Annual Stated Capacity and the BP Capacity Factor. For example, if the Annual Stated Capacity were 150 million gallons and the BP Capacity Factor were ***, then the Company Capacity Factor would be ***, computed as follows: ***. Company Capacity Percentage: The difference between 100% and the BP Capacity Percentage. For example, if the BP Capacity Percentage were ***, the Company Capacity Percentage would be ***, computed as follows: ***. -4- Company Contribution: The volume of Methanol contributed by the Company to the Methanol Pool during each Contract Year, which shall be equal to the Company Allocation minus the Company Portion. Company Event of Default: During the Term hereof, (i) the failure of the Company to perform any of its financial obligations hereunder, which failure continues for a period of thirty (30) days after receipt of written notice thereof by the Company from BP, (ii) the failure by the Company to perform any of its obligations, covenants or agreements hereunder to a material extent, which failure continues for a period of thirty (30) days after receipt of written notice thereof by the Company from BP, and/or (iii) the inaccuracy in any material respect of any representation or warranty made by the Company in this Agreement; provided, however, that with respect to an event described in (i) or (ii) above, if the Company has performed any such obligation, covenant or agreement prior to the expiration of such thirty (30)-day period, such failure to perform shall not constitute a Company Event of Default. Company Marketing Costs: As defined in Section 5.1(b) hereof. Company Portion: That portion of the Company Allocation, as determined by the Company from time to time in its sole discretion upon notice to BP as provided in Section 19.2 hereof, not to exceed *** during each Contract Year, prorated for Contract Years of less than twelve months. Company Taxes: All taxes, if any, (other than capital stock, income or excess profit taxes, general franchise taxes imposed on corporations on account of their corporate existence or on their right to do business within the state as a foreign corporation, and similar taxes) licenses, fees or charges levied, assessed or made by any governmental authority on the act, right or privilege of production, transportation, handling, sale, resale or delivery of Methanol produced, transported, handled, sold, resold or delivered under this Agreement or raw materials for the production of Methanol which (i) are measured by the volume in gallons, value or sales price of, or are otherwise based on factors respecting the production, -5- purchase, transportation, handling, sale, resale or delivery of Methanol and (ii) are imposed upon and paid by or for the account of the Company. Construction Completion Date. The Day the Unit has demonstrated its ability to meet the capacity and efficiency targets in the Engineering Agreement. Construction Expenditures: During the Construction Phase, all actual costs, expenses, fees and other charges contemplated by the plant budget (including incentives payable to John Brown pursuant to the Engineering Agreement) attached as an exhibit to the Engineering Agreement, as it may be amended from time to time, and all other costs, expenses, fees and other charges necessary to commence commercial operation of the Unit. Construction Phase: During the Term, the period commencing on the Effective Date and continuing until the Construction Completion Date. Contract Year: A period of twelve (12) consecutive months beginning on the first Day of January next following the Effective Date, and beginning on the first Day of January of each subsequent year during the Term hereof. The period of time from the Effective Date until the first day of the January next following the Effective Date, and the period of time from the first day of January last occurring during the Term to the end of the Term shall each be considered to be a Contract Year. Damages: Except to the extent included as Operating Expenses in Articles 7, 11 and 21 of this Agreement, any and all damages, losses, payments, expenses, obligations, claims, liabilities, fines, penalties, clean-up or remedial costs, costs of investigation, attorneys' fees, court costs, but excluding all consequential, incidental and indirect damages and lost profits. Day: The 24-hour period commencing at 7:00 a.m. Houston, Texas, time on one calendar day and ending at 7:00 a.m. Houston, Texas, time on the following calendar day. The date of a Day shall be that of its beginning. -6- Declaration of BP Default: As defined in Section 24.2 hereof. Declaration of Company Default: As provided in Section 24.1 hereof. Delivery, Shipment and Storage Instructions: As defined in Section 4.12 hereof. Effective Date: August 1, 1994. Engineering Agreement: That certain Agreement for Design, Engineering, Procurement Support, Construction Management and Start-Up Services effective as of November 14, 1994 between the Company and John Brown, as it may be amended from time to time pursuant to the terms thereof. Estimated Delivery, Shipment and Storage Instructions: As defined in Section 4.12 hereof. Force Majeure: As defined in Section 26.2 hereof. Future Expansion Expenditures: All actual costs, expenses, fees and other charges, including but not limited to all Capital Expenditures, that are incurred by the Company after the Construction Completion Date to increase the capacity of the Unit to produce a volume of Methanol in excess of the Annual Stated Capacity. ICI Process: Technologies and know how of Imperial Chemical Industries PLC pursuant to the Company's existing license directed to the production of crude methanol from suitably purified and compressed gaseous mixtures containing hydrogen, carbon monoxide and carbon dioxide and to the production of refined methanol from crude methanol. Indemnifying Party: As defined in Section 25.4 hereof. Indemnified Party: As defined in Section 25.4 hereof. Insurance Coverages: As defined in Section 11.1 hereof. John Brown: John Brown, a Division of Trafalgar House, Inc., and its successor and assigns. Joint Account Revenue: The gross revenue received by BP arising from sales of Methanol from the Methanol Pool during any Month including any gains or losses from swaps or exchanges (including, -7- but not limited to, freight or duty saved), less any commissions, freight and other distribution costs incurred in delivering such Methanol and any costs incurred by BP in connection with the purchase of Methanol from third parties for the Methanol Pool from time to time. Lease and Production Agreement. That certain Amended and Restated Lease and Production Agreement dated August 8, 1994 between BP and the Company, as same may be amended from time to time pursuant to the terms thereof. Market Price: For any month, the price of methanol for such month as reported in the Transaction Index of the Methanol and Derivatives Pricing Table contained in the Methanol and Derivatives Monthly Business Report (published monthly by Petrochemical Consultants International), appropriately adjusted to reflect the FOB Gulf Coast price for methanol available to large volume users, or such other index or publication as BP and the Company may agree to utilize. Methanol: Methanol produced in the Unit and meeting the Specifications in effect from time to time pursuant to this Agreement and "methanol" (lower case) shall mean any methanol, regardless of whether it was produced in the Unit or meets the Specifications. The unit of measurement of Methanol shall be one United States gallon which may be converted to pounds using a factor of 6.63 pounds per gallon. All quantities given herein, unless otherwise expressly stated, are in terms of United States gallons. Methanol Plant Assets: The existing, idled methanol production facility at Texas City, Texas as of the Effective Date of which all or a portion will become part of the Unit in accordance with the terms of this Agreement. Methanol Pool: The volume of Methanol, consisting of the BP Contribution and the Company Contribution and other methanol meeting the Specifications obtained by BP by swaps, exchanges, purchases or otherwise for use in accordance with this Agreement, to be marketed by BP on behalf of the Company and BP as a single "pool", in accordance with the terms of this Agreement. -8- Month: The period beginning on the first Day of a calendar month and ending on the first Day of the next succeeding calendar month. Operating Expenses: As defined in Article 12 hereof. Operations Phase: During the Term, the period commencing on the Construction Completion Date and continuing until July 31, 2016, unless earlier terminated as provided herein. Plant: The Company's petrochemical plant located in Texas City, Texas. Quarter: During any Contract Year which is a calendar year, the period beginning on the first Day of the Months of January, April, July and October and ending on the first Day of the next succeeding April, July, October and January, respectively. During any Contract Year which is not a calendar year, Quarter shall mean a three (3) month period (or such lesser period prior to reaching the commencement of a calendar year as shall be applicable) commencing on the first Day of such period and ending the first Day of the next succeeding January, April, July or October, as the case may be. Reimbursable Expenditures: Construction Expenditures, Operating Expenses, Capital Expenditures and Future Expansion Expenditures, collectively. Scheduled Shutdown: After the Construction Completion Date, a period during which the Unit is shut down for the purpose of a Capital Project or such maintenance as has been agreed by the parties hereto in a Semi-annual Meeting or otherwise. Semi-annual Meetings: The meetings of representatives of the Company and BP to be held no later than four (4) weeks after the end of each March and September in each Contract Year during the Operations Phase. Specifications: The Methanol specifications, attached hereto as Exhibit A, as the same may be changed from time to time by written agreement between BP and the Company. -9- Spills or Releases: Any emission, discharge, release or threatened emission, discharge or release of products, pollutants, contaminants, hazardous substances, toxic materials or solid or hazardous wastes into or upon ambient air, surface water, ground water or land, or subsurface strata or otherwise relating to the production, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of products, pollutants, contaminants, hazardous substances, toxic materials or solid or hazardous wastes, as any of the same relate to or affect or arise at any time in connection with or as a result of operation of the Unit, or the manufacture, processing, distribution, production, delivery, storage, shipment, treatment, sale, resale or use, disposal or transportation of Methanol or feedstocks, raw materials, intermediate streams, wastes or other materials used in or resulting from the production of Methanol at the Unit. Term: As defined in Section 2.1 hereof. Third-Party Action: As defined in Section 25.3 hereof. Third Party Offer: As defined in Section 27.4 hereof. Unit: All real property at the Plant, together with all buildings, improvements and fixtures located and to be located thereon and equipment, piping and instrumentation relating thereto, which is used for the production, storage, shipment and delivery of Methanol, or which is used to support the production, storage, shipment and delivery of Methanol, in each case to the extent so used, and all improvements, replacements, substitutions, deletions, additions or other changes thereto from time to time. -10- ARTICLE 2 TERM ---- 2.1 The term of this Agreement shall commence upon the Effective Date and continue through July 31, 2016, unless earlier terminated as provided herein (herein referred to as the "Term"). 2.2 The Term shall be divided into two phases: the Construction Phase and the Operations Phase. 2.3(a) The parties hereto agree that at all times prior to and after the Effective Date (i) the Company has been and will be the beneficial owner of the Methanol Plant Assets, (ii) the Company is entitled to all available depreciation, amortization, expense, and/or casualty loss deductions with respect thereto, and (iii) BP is not and will not be entitled to the benefit of any depreciation, amortization, expense, and/or casualty loss deductions with respect to the Methanol Plant Assets. (b) As a result of the payment of BP's share of Construction Expenditures, Capital Expenditures, and Future Expansion Expenditures for the After-Acquired Assets, the parties hereto agree that BP will be entitled to any and all depreciation, amortization, expense, and/or casualty loss deductions with respect to that portion of any Construction Expenditures, Capital Expenditures, and Future Expansion Expenditures paid for directly or through reimbursement by BP for the After-Acquired Assets. (c) The parties hereto agree that the Company will be entitled to any and all depreciation, amortization, expense, and/or casualty loss deductions with respect to that portion of any Construction Expenditures, Capital Expenditures, and Future Expansion Expenditures for the After-Acquired Assets paid for by the Company and not reimbursed by BP. (d) The Company shall be responsible for preparing and maintaining all appropriate books and records of expenditures associated with the Company's responsibilities under this Agreement which would -11- allow the Company and BP to determine their respective share of depreciation, amortization, expense, or casualty loss deductions in accordance with this Agreement. 2.4 Upon the expiration of the Term on July 31, 2016, the Company agrees to pay to BP an amount equal to *** remaining undepreciated book basis in any portion of the Unit with respect to any Construction Expenditure, Capital Expenditure or Future Expansion Expenditure to the extent paid for either directly or through reimbursement by BP, and BP shall have no right to receive any further payments at the expiration of the Term. 2.5 Upon the termination of this Agreement by BP due to a Company Event of Default, the Company agrees to pay to BP an amount equal to *** of BP's remaining undepreciated book basis in any portion of the Unit with respect to any Construction Expenditure, Capital Expenditure or Future Expansion Expenditure to the extent paid for either directly or through reimbursement by BP, and BP, subject to Section 24.3 hereof, shall have no right to receive any further payments upon such termination of this Agreement. In the event of any other termination of this Agreement, the Company shall have all rights and remedies provided by Section 24.3 and shall have no obligation to pay BP any amounts in respect of its undepreciated book basis in any portion of the Unit with respect to any Construction Expenditure, Capital Expenditure or Future Expansion Expenditure to the extent paid for either directly or through reimbursement by BP. 2.6 For purposes of Sections 2.4 and 2.5, BP's undepreciated book basis will be calculated utilizing a ten (10) year life and straight line depreciation. BP agrees to execute and deliver such instruments as the Company may reasonably require at the expiration or termination of this Agreement to reflect the termination of BP's right to depreciation, amortization, expense, or casualty loss deductions with respect thereto. -12- ARTICLE 3 CONSTRUCTION PHASE ------------------ 3.1 The Company has entered into the Engineering Agreement pursuant to which the Unit will be reconstructed and its capacity increased. The Engineering Agreement has been approved by BP. During the Construction Phase, BP shall reimburse the Company in accordance with Article 5 below for *** of all Construction Expenditures, except the cost of the initial catalysts for the Unit which will be purchased initially by the Company and the expense reimbursed by BP at the rate of *** per month for 48 months beginning September 1, 1996, based on an initial catalyst cost of ***. 3.2 The Company and BP will establish a construction management team comprised of one representative of the Company and one representative of BP who will meet regularly during the Construction Phase to confer on the progress of the construction and consider any proposed changes, subject to any limitations of BP's and the Company's internal approval and control procedures. 3.3 The Company shall notify the BP representative in advance and allow BP an opportunity to observe the tests for efficiency and capacity to be performed pursuant to the Engineering Agreement upon introduction of chemicals into the Unit so that BP can monitor such tests. Upon successful completion of such tests, the Company will notify BP of the Day on which the Construction Completion Date occurred and the amount of the initial Annual Stated Capacity determined as a result of such tests. ARTICLE 4 OPERATIONS PHASE ---------------- 4.1 During the Operations Phase, BP shall reimburse the Company in accordance with Article 5 below for (a) *** of all Operating Expenses, subject to Section 5.5 below, (b) the BP Capacity Percentage of all Capital Expenditures approved by BP, and (c) *** of any Future Expansion Expenditures approved by BP. -13- 4.2 BP shall be entitled to receive, and agrees to take, the BP Allocation from the Company ratably on a monthly basis during the Operations Phase. All of the BP Allocation (referred to herein as the BP Contribution) shall be contributed by BP to the Methanol Pool to be marketed as provided in this Agreement. 4.3 The Company shall be entitled to receive, and agrees to take, the Company Allocation ratably on a monthly basis during the Operations Phase. From the Company Allocation, the Company shall have the sole and exclusive right to use, sell or otherwise dispose of the Company Portion subject to Section 19.2 hereof. The Company expects to resell the Company Portion to a third party or parties, and the parties hereto agree that BP shall have no right to any proceeds or benefits from resales by the Company of the Company Portion nor any obligation or liability with respect thereto. After deduction of the Company Portion, if any, from the Company Allocation, the entire remainder of the Company Allocation (referred to herein as the Company Contribution) shall be contributed by the Company to the Methanol Pool to be marketed by BP as provided in this Agreement. 4.4 Neither the Company nor BP shall have any right to take or receive Methanol from the Methanol Pool without paying Market Price therefor. All sales, swaps, exchanges and other transfers of Methanol from the Methanol Pool to the Company or BP shall be invoiced at Market Price, in accordance with Article 5 below. All sales, swaps, exchanges and other transfers from the Methanol Pool by BP to any Affiliate of BP or the Company shall be made on an arms length basis, on terms no less favorable to the Methanol Pool than the terms available from unaffiliated third parties and with each such Affiliate being treated as if it were an unaffiliated third party. Sales, swaps, exchanges and other transfers of Methanol from the Methanol Pool to persons other than the Company, BP or Affiliates of BP or the Company shall be invoiced in accordance with the prices negotiated with such persons. -14- 4.5 Pursuant to the Lease and Production Agreement, BP has the obligation to provide methanol for the Plant's acetic acid unit, which obligation shall remain in full force and effect in accordance with the terms of the Lease and Production Agreement notwithstanding the execution and delivery of this Agreement. BP agrees to purchase from the Methanol Pool, if available, all of its requirements of methanol to be supplied to the acetic acid unit of the Plant pursuant to the Lease and Production Agreement, subject to contractual commitments existing on the date of execution of this Agreement and listed on Exhibit B attached hereto. It is the intention of the parties that the operation of the Company's acetic acid unit pursuant to the Lease and Production Agreement and the Unit pursuant to this Agreement shall be conducted on an arms length basis in accordance with the terms of such agreements so that neither facility subsidizes the operation of the other. 4.6 The Company agrees to purchase from the Methanol Pool, if available, all of its requirements of methanol for the Plant (other than methanol for the acetic acid unit which will be provided by BP, as described above). 4.7 BP shall market from the Methanol Pool on behalf of BP and the Company and in accordance with the marketing strategy developed by the management team pursuant to Section 4.8 hereof, all the Methanol not purchased for the Plant, pursuant to Sections 4.5 and 4.6 hereof. BP agrees that it will not purchase Methanol from the Methanol Pool for its own account for resale, swap or exchange. BP further agrees that in the event that BP arranges any swaps or exchanges of Methanol from the Methanol Pool, or purchases of methanol for the Methanol Pool, any benefit, loss or cost resulting therefrom (for example, transportation savings) shall be included in the calculation of the Joint Account Revenue. The decision to purchase methanol for the Methanol Pool shall be jointly made by the Company and BP. 4.8 The Company and BP will establish a management team comprised of representatives from the Company and BP for the administration of the Methanol Pool having agreed powers and responsibilities -15- for developing marketing strategy, tactical plans and similar matters and coordinating the production of Methanol and marketing of the Methanol Pool. 4.9 Except as otherwise provided in Section 9.4 hereof, the Company will be responsible for the operation of the Unit, for obtaining and maintaining all related permits, for scheduling shipping and delivery, for loading any vessels in connection with sales from the Methanol Pool pursuant to BP's instructions, and for notifying BP of the actual amount of Methanol produced and shipped. 4.10 BP will be responsible for all sales, marketing, shipping and delivery of Methanol from the Methanol Pool, including receiving orders, advising the Company of orders, billing, collecting, accounting for the Joint Account Revenue, and disbursing the Joint Account Revenue in accordance with Section 5.3 below. In marketing Methanol from the Methanol Pool, BP will employ terms and conditions of sale reasonably acceptable to the management team including without limitation the liability limitations in Section 6.2 hereof. Any deviation from such terms and conditions will require the consent of both the Company and BP. 4.11 At least fourteen (14) Business Days prior to the end of each Quarter during the Operations Phase, the Company shall notify BP (orally, in writing or in other mutually agreeable form) of the estimated volume of Methanol, if any, comprising the Company Portion for the following Quarter. At least fourteen (14) Business Days prior to the first Day of each Month during the Operations Phase, the Company shall notify BP of the firm volume of Methanol, if any, comprising the Company Portion for the following Month. The aggregate amount of the Company Portion for a Contract Year will not exceed the amount of the Company Portion specified in the statement delivered to BP pursuant to Section 19.2 hereof. 4.12 On or before fourteen (14) Business Days prior to the end of each Quarter during the Operations Phase, BP shall provide notice to the Company (orally, in writing or in other mutually agreeable form) setting forth the estimated delivery, shipment and storage instructions of Methanol for the coming -16- Quarter (the "Estimated Delivery, Shipment and Storage Instructions"), which shall include estimated dates, volumes of deliveries, shipping and storage requirements of Methanol for such Quarter. At least five (5) Business Days prior to the first Day of each Month during the Operations Phase, BP shall provide notice in similar form to the Company setting forth the requested dates, volumes of deliveries, shipping and its storage requirements of Methanol for the coming Month (the "Delivery, Shipment and Storage Instructions"). The Company shall be entitled to rely on the Estimated Delivery, Shipment and Storage Instructions and the same shall be deemed to be the Delivery, Shipment and Storage Instructions unless or until actual Delivery, Shipment and Storage Instructions are received by the Company at least five (5) Business Days prior to the first Day of the coming month. ARTICLE 5 REIMBURSEMENT AND PAYMENT ------------------------- 5.1 (a) BP shall reimburse the Company for its applicable percentage of Reimbursable Expenditures. It is the intention of the parties that the Company receive from BP full recovery of all Reimbursable Expenses to the extent of BP's applicable percentage of the Reimbursable Expenses. The Company shall, on or before the fifth Business Day of each Month, render to BP an invoice with reasonable supporting detail for the preceding Month showing the amount and type of Reimbursable Expenditures actually incurred by the Company during the preceding Month and the total amount due. BP shall pay each such invoice on or before the tenth Day after receipt thereof (or if such Day is not a Business Day, on the Business Day next following). (b) BP acknowledges that the Company will incur costs in coordinating its production activities with BP's marketing activities and otherwise supporting BP's marketing efforts that will not constitute Reimbursable Expenses (other than corporate overheads or the cost of personnel associated with the Lease and Production Agreement), as that term is used in this Agreement, including but not limited to those set -17- forth in Exhibit D attached hereto ("Company Marketing Costs"). The Company acknowledges that BP will incur costs in performing its marketing obligations under this Agreement (other than corporate overheads or the cost of personnel associated with the Lease and Production Agreement) including but not limited to those set forth in Exhibit E attached hereto ("BP Marketing Costs"). The parties agree to (i) develop procedures to account for both the Company Marketing Costs and the BP Marketing Costs and (ii) cooperate to reduce these costs over time, subject to the requirements of the agreed marketing strategy and related production coordination and marketing support activities. If practicable, estimates of the BP Marketing Costs and the Company Marketing Costs for the next Contract Year shall be agreed at the fall Semi-annual Meeting. If the parties have agreed to such estimates, the monthly amount by which the estimated BP Marketing Costs exceed the estimated Company's Marketing Costs shall be deducted from the Joint Account Revenue monthly commencing the next Contract Year and reconciled to actual costs as the parties may determine necessary at the following fall Semi-annual Meeting by March 15 of the subsequent Contract Year as part of the reconciliation contemplated by Section 5.4. 5.2 Both the Company and BP shall pay to BP the Market Price for all Methanol sold or delivered to them from the Methanol Pool. BP shall, on or before the fifth Business Day of each month render to the Company and BP an invoice for the preceding Month showing the quantity of Methanol sold or delivered to each from the Methanol Pool, the Market Price payable for such Methanol and the total amount due from each. The Company and BP shall each pay the amount due from it pursuant to such invoice on or before the tenth Day after receipt therefor (or if such Day is not a Business Day, on the Business Day next following). 5.3 BP shall disburse all Joint Account Revenue to the Company and BP on a monthly basis. Disbursement shall be made for the Month two Months preceding the current Month. The disbursement of Joint Account Revenue shall be accompanied by a statement setting forth in reasonable detail the -18- calculation of such Joint Account Revenue and shall be made on or before the fifteenth Day of each Month (or if such Day is not a Business Day, then on the Business Day next occurring) during the Term commencing on the second such date occurring after the Construction Completion Date. For example, BP shall disburse any Joint Account Revenue for June by August 15 of a Contract Year. At its option, BP may combine the payments to the Company due under Sections 5.1 and 5.3 of this Agreement into a single payment. 5.4 For convenience during each Contract Year during the Operations Phase, Joint Account Revenue will be allocated equally to the Company and BP on a monthly basis (or in such other proportions as determined by the management team at the previous fall Semi-annual Meeting), subject to a year-end reconciliation by March 15 of the next Contract Year (or if such Day is not a Business Day, then on the Business Day next occurring). When the year-end reconciliation occurs, the Joint Account Revenue will be allocated in proportion to the percentage that the actual Company Contribution or the actual BP Contribution for each Month of such Contract Year, respectively, bears to the total volume of Methanol contributed to the Methanol Pool during each Month of such Contract Year, based on a monthly first-in first-out calculation. For example, when the year-end reconciliation occurs for a particular Month of a Contract Year, if Joint Account Revenue were $100,000 and the Company and BP contributed *** and ***, respectively, of the Methanol sold by the Methanol Pool during that Month, the Company would be entitled to *** of the total Joint Account Revenue (***) and BP would be entitled to *** of the total Joint Account Revenue (***) for such Month, notwithstanding the fact that the actual distribution during such Month was allocated equally. The year-end reconciliation shall be cumulative of all such adjustments for each Month during such Contract Year. BP shall include any adjustments required by the year-end reconciliation of Joint Account Revenue with the disbursement of Joint Account Revenue for February of the following Contract Year, accompanied by a statement setting forth in reasonable detail the -19- calculation of such reconciliation. If necessary, BP may submit an invoice to the Company for any amounts owed as a result of the year-end reconciliation, and the Company shall pay such invoice on or before the tenth Day after receipt thereof (or if such Day is not a Business Day, on the Business Day next following). If at any time during a Contract Year either party believes that the difference between the estimated and actual allocations of Joint Account Revenue to either the Company or BP exceeds ***, then either party may request a mid-year reconciliation to be conducted in the same manner as a year-end reconciliation. At the end of the Term, a mid-year reconciliation shall be conducted in the same manner as a year-end reconciliation. Any unsold volumes of Methanol remaining in the Methanol Pool at the end of a Contract Year shall be allocated between the Company and BP on the basis of their respective contributions for that Contract Year and added to the Company Contribution or the BP Contribution for the following Contract Year. Any Methanol remaining in the Methanol Pool after the end of the last Contract Year will be sold and BP shall allocate and distribute the Joint Account Revenue from such remaining Methanol as if it were a year-end reconciliation. 5.5 The parties have agreed that (a) if at the end of any Contract Year, annual production of Methanol during that Contract Year was 150 million gallons or less, then the Company Allocation will be *** and the BP Allocation will be *** and that Operating Expenses will be allocated *** to the Company and *** to BP and (b) if at the end of a Contract Year, annual production of Methanol exceeded 150 million gallons, such excess production and related Operating Expenses will be allocated equally between the Company and BP. Accordingly, if at the end of any Contract Year, annual production of Methanol from the Unit exceeded 150 million gallons, the Company shall, within 30 Days of the end of such Contract Year reallocate to BP (a) *** of all volumes produced in excess of 150 million gallons for -20- such Contract Year, and (b) *** of all Operating Expenses (calculated on an annualized basis) related to production in excess of 150 million gallons per year. The Company shall include any additional Operating Expenses due to such year-end reallocation with the invoice for expenses for January of the following year or submit a separate invoice for such Operating Expenses within 30 Days of the termination or expiration of this Agreement. BP shall pay such invoice on or before the tenth Day after receipt therefor (or if such Day is not a Business Day, on the Business Day next following). BP shall make a similar year-end reallocation of Joint Account Revenue, if necessary and include it with the statement of Joint Account Revenue for January of the following year, or submit a separate statement within 30 Days of the termination of expiration of this Agreement. The Company Portion shall not be affected by the reallocation of annual production or revenues in excess of 150 million gallons. 5.6 If either BP or the Company has reason in good faith to dispute the accuracy of any invoice or portion thereof submitted to it hereunder, it will pay that part of the invoice which is undisputed in accordance with the provisions of this Article 5 and, after such dispute has been resolved, pay any balance due to the Company or BP, as the case may be, on or before the tenth day after the receipt by it of a replacement invoice submitted to it by the Company or BP (or if such Day is not a Business Day, on the Business Day next following). 5.7 The Company and BP shall maintain sales, accounting, production, business and other records relating to this Agreement in accordance with usual and customary practices and standards in the methanol industry in respect of all matters referred to in this Article 5. Each shall provide the other access to such records and data pursuant to the provisions of Article 18 hereof. 5.8 The suspension of the production of Methanol in the Unit by reason of Force Majeure shall not suspend either party's obligation to make the payments required hereunder. -21- 5.9 Delay in submission of invoices by either party shall not constitute a waiver of any right to receive payment hereunder. ARTICLE 6 CHANGES IN SPECIFICATIONS ------------------------- 6.1 The Company shall employ the ICI Process in the production of Methanol. All methanol produced in the Unit and made available to the Methanol Pool will comply with the Specifications (unless otherwise mutually agreed) and shall be produced in accordance with established procedures and methods of manufacture. The Specifications shall not be changed unless agreed to in advance in writing by BP and the Company. 6.2 No claim of any kind with respect to the conformance of methanol to the Specifications, whether based on contract, warranty, negligence, indemnity, strict liability or otherwise, shall be greater than the price of the nonconforming methanol, and the Company's sole obligation with respect to any methanol which does not conform to the Specifications shall be the replacement of such methanol with conforming product. ARTICLE 7 PRODUCT OWNERSHIP; RISK OF LOSS ------------------------------- 7.1 At the time methanol is initially produced by the Company in the Unit, it shall be considered to be *** owned by the Company and *** owned by BP, subject to Section 5.5 hereof and the Company and BP shall share the risk of loss thereof as an Operating Expense. Methanol produced in the Unit shall be transferred by the Company by pipeline to the methanol storage tanks located at the Plant. While stored in such methanol storage tanks pending (a) transfers by pipeline to other units of the Plant as contemplated by Sections 4.5 and 4.6 hereof, (b) transfers pursuant to BP's authority to market volumes of Methanol in the Methanol Pool and/or (c) transfer by the Company -22- to a third party as contemplated by Section 4.3, the Company shall be responsible for storage of the Methanol and the Company and BP shall share the risk of loss thereof as an Operating Expense. ARTICLE 8 TESTING ------- 8.1 The methanol produced in the Unit shall be tested by the Company under the testing procedures and schedules established by the Company prior to the commencement of production, with the concurrence of BP. Such procedures and schedules may be changed from time to time by the agreement of BP and the Company. The Company shall maintain accurate records and data of any quality testing of methanol done by or for the Company and shall retain representative samples of such methanol for a reasonable period of time. The Company shall provide BP access to such samples and all records and data maintained by the Company with respect thereto pursuant to the provisions of Article 18 hereof. 8.2 Confirmatory tests of the quality of shipments from the Methanol Pool of methanol produced in the Unit shall be performed at the time of delivery to the carrier and when requested by BP, either conducted by or in the presence of an independent surveyor, utilizing representative samples taken from the intake flange of any barge or other inland water or marine vessel, and from the tanks thereof where necessary, into which such methanol is loaded. The Company shall retain such samples for sufficient time to allow delivery to and acceptance by BP's customers of such methanol. The Company shall provide BP access to such samples and certifications and all records maintained by the Company with respect thereto pursuant to the provisions of Article 18 hereof. 8.3 Subject to Section 6.2 hereof, methanol made pursuant to this Agreement shall be conclusively presumed as between the Company and BP to be in compliance with the Specifications unless, when tested according to the agreed procedures and schedules pursuant to the provisions of Sections 8.1 or 8.2 hereof, analysis shows the methanol tested not to have met the Specifications. -23- ARTICLE 9 OPERATION OF UNIT AND RELATED MATTERS ------------------------------------- 9.1 The Company shall operate the Unit from its acetic acid control room subject to the terms and conditions of this Agreement in a commercially reasonable manner provided that the Company shall comply in all material respects with applicable laws and regulations. The Company shall have the sole right to operate the Unit and determine operating procedure with respect thereto. 9.2 The parties acknowledge that their relationship under this Agreement is contractual and not fiduciary in nature, and no higher standard of care applies to either party. 9.3 The Company shall comply in all material respects with the requirements of governmental permits and authorities having jurisdiction now in force or which may hereafter be in force pertaining to the operation of the Unit and the production of Methanol. 9.4 The Company agrees to consult with BP regarding the terms of any arrangements regarding the supply of natural gas to the Unit. The terms of any such arrangements shall be subject to approval by BP, which approval may not be unreasonably delayed or withheld. ARTICLE 10 SHUTDOWNS OF THE UNIT --------------------- 10.1 The parties agree that the Unit will be shut down for such periods of time as are required to accomplish the Scheduled Shutdowns. During Scheduled Shutdowns, the Company will not produce Methanol hereunder and it is the present intention of the parties to utilize the methanol storage tanks located at the Plant and such other storage as necessary to accumulate Methanol for delivery during such Scheduled Shutdowns. No Scheduled Shutdown shall affect the obligations of the Company or BP to make the payments due hereunder, or to perform the other covenants and agreements of the parties hereunder. -24- 10.2 The Company shall notify BP as soon as possible in the event of an unscheduled shutdown of the Unit. No unscheduled shutdown shall affect the obligations of the Company or BP to make the payments due hereunder, or subject to the provisions of Article 26 hereof the other covenants and agreements of the parties hereunder. 10.3 In the event of any damage to or destruction of the Unit, the Company shall repair the Unit unless the parties agree otherwise. The Company and BP shall share the cost of any repair costs in excess of insurance proceeds in accordance with their respective Capacity Percentages, which costs shall be treated as approved Capital Expenditures. If the Company repairs the Unit, the parties' obligations under this Agreement shall continue. If the parties elect not to repair the Unit, this Agreement and the parties' obligations hereunder shall be terminated. 10.4 Expenses of materials and equipment purchased in anticipation of a Scheduled Shutdown and expenses of unscheduled shutdowns shall be considered Operating Expenses and invoiced and reimbursed as such expenses are incurred in the ordinary course. However, in the event of a Scheduled Shutdown with expenses estimated to exceed ***, BP shall also be invoiced in the Month preceding such Scheduled Shutdown for *** of the estimated shutdown cost (excluding expenses already reimbursed by BP), with adjustments to actual expenses to be made after completion of the Scheduled Shutdown, unless otherwise agreed. ARTICLE 11 INSURANCE --------- 11.1 As of the Effective Date, the Company will obtain and maintain throughout the Term, subject to Section 11.2 hereof, the insurance coverages described on Exhibit C attached hereto in respect of the Unit and those parts of the Plant that serve the Unit. Unless the parties hereto otherwise agree, BP shall be named an additional insured on the policies providing casualty and property damage (excluding -25- business interruption) and the general and excess liability portions of such coverages (collectively "Insurance Coverages"). The portions of premiums for and the cost of deductibles under Insurance Coverages attributable to the Unit shall be considered Operating Expenses. The Company shall allocate the portion of the premiums for and the cost of deductibles under Insurance Coverages attributable to other parts of the Plant that serve the Unit to the Company and BP on a commercially reasonable basis in accordance with its established practices for the rest of the Plant, which shall also be considered Operating Expenses. BP shall have no responsibility hereunder for the premium cost of, or the deductible expense associated with, business interruption insurance related to the Unit and those parts of the Plant that serve the Unit, and shall not be entitled to receive any of the proceeds paid under any such business interruption policy. 11.2 The Company shall advise BP whenever any insurance policy or area of coverage listed on the Summary of Insurance Coverage as set out in Exhibit C to this Agreement is renegotiated or otherwise changed. BP shall be advised prior to making any major changes in these coverages and shall be afforded a reasonable opportunity to review such proposed changes. ARTICLE 12 OPERATING EXPENSES ------------------ 12.1 "Operating Expenses" shall mean all actual costs, expenses, fees and other charges incurred by or on behalf of the Company after the Construction Phase in connection with the operation of the Unit during the Term to produce, store, ship and deliver methanol produced in the Unit, including but not limited to fixed and variable costs, factory indirect expense, plant overhead allocation, catalysts (other than the initial catalysts provided for in Section 3.1 hereof), Company Taxes, ad valorem and real estate taxes -26- relating to the Unit, insurance (pursuant to Section 11.1 hereof), maintenance, and temporary and/or permanent shutdown costs. 12.2 The cost of all catalysts (other than the initial catalysts provided for in Section 3.1 hereof) shall be included as an Operating Expense as incurred and not amortized. ARTICLE 13 CAPITAL EXPENDITURES -------------------- 13.1 During the Operations Phase, BP shall reimburse the Company in accordance with Article 5 above for the BP Capacity Percentage of all Capital Expenditures approved by BP; provided, however, that (a) BP will not unreasonably withhold its approval for Capital Expenditures needed (i) to meet the Company's normal operating procedures, (ii) to ensure that the Unit and its operation and the production, delivery, storage, shipment, sale, resale, use, disposal or transportation of Methanol, feedstock, supplies and materials comply with applicable law and regulations, or (iii) to provide for the health, safety and welfare of the Company's employees on the Unit; and (b) whenever practicable, the Company shall provide BP a reasonable opportunity to propose any cost-effective changes or alternative approaches to any such proposed Capital Expenditures. 13.2 For each Contract Year during the Operations Phase a capital budget shall be prepared by the Company and submitted for approval by BP no later than September 30 of the previous Contract Year, except in the case of the first partial year during the Operations Phase. Such capital budget shall consist of an outline description of and an estimate of the Capital Expenditures for each identified Capital Project and a lump sum provision in respect of other possible developments. Such capital budget will be discussed at the fall Semi- annual Meeting and approved in whole or in part by BP at or subsequent to that meeting, but in any event before the next succeeding January 1. -27- 13.3 Additional Capital Projects may be added to the capital budget described in Section 13.2 by the Company at any time during a Contract Year, provided that the approval of BP has first been obtained. 13.4 The Company may commence a Capital Project and incur Capital Expenditures not contemplated by Section 13.2 or 13.3 hereof without the prior approval of BP where the Company determines that circumstances reasonably require; provided, however, that the Company shall at the earliest practicable opportunity notify BP of such Capital Project and Capital Expenditure. If BP does not approve such Capital Expenditure, the Company shall at its option (i) cease such Capital Project and Capital Expenditure, or (ii) continue such project and Capital Expenditure at its own cost; provided, however, that the Company may refer the matter to arbitration under Article 22 hereof. 13.5 Capital Projects which individually or in the aggregate are expected to exceed *** in cost shall be analyzed by BP and the Company to determine whether and to what extent, if any, any portion of such Capital Project should be considered a Future Expansion Expenditure, and reimbursed by BP accordingly. In that case, only the incremental cost of the portion of the Capital Project that is determined to result in the expansion of the Unit will be considered a Future Expansion Expenditure, and the remainder of the cost of the Capital Project will be considered a Capital Expenditure for purposes of BP reimbursement. ARTICLE 14 FUTURE EXPANSION EXPENDITURES ----------------------------- 14.1 From time to time during the Operations Phase, the Company may make Future Expansion Expenditures. BP shall reimburse the Company in accordance with Article 5 above for *** of any Future Expansion Expenditure approved by BP. BP shall reimburse the Company for, and the Company may make, any Future Expansion Expenditure, regardless of amount, in any Contract Year during the -28- Operations Phase if such project and such Future Expansion Expenditure have been included in the Company's operating plan contemplated by this Agreement for such Contract Year and such plan was approved by BP prior to the payment of such Future Expansion Expenditure. In the event BP declines to approve any Future Expansion Expenditure, the Company may proceed with such expenditure without any reimbursement from BP therefor, and the Company shall be entitled to all the benefits resulting therefrom, including without limitation the sole right to any increased production. 14.2 The Annual Stated Capacity shall remain in effect notwithstanding Future Expansion Expenditures until such time as a new capacity test is performed and the Annual Stated Capacity is adjusted accordingly. A new capacity test may be requested by either the Company or BP at any time, but the Annual Stated Capacity will not be adjusted more frequently than once every twelve months, without the agreement of both the Company and BP. ARTICLE 15 PERSONNEL --------- 15.1 The Company shall at all times have sole authority with respect to all personnel matters involving the employees, consultants and third-party contractors at the Plant and the Unit, including, without limitation, salaries, benefits, compensation, indirect personnel costs, manpower needs, training, insurance, labor matters, working hours, job responsibilities, health and safety procedures, bonding and all other employee, personnel-related and contracting matters. -29- ARTICLE 16 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- The Company represents and warrants to BP as follows: 16.1 Organization, Good Standing and Corporate Power. The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified as a foreign corporation in the State of Texas, and has all requisite corporate power and authority to carry on its business as presently conducted, to enter into this Agreement and perform its obligations hereunder. 16.2 Authority Relative to Agreement. The execution, delivery and performance by the Company of this Agreement have been duly and effectively authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Company and is a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except insofar as enforcement may be limited by (i) bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors' rights generally, and (ii) general principles of equity. 16.3 No Conflict with Other Instruments or Proceeding. Neither the execution and delivery of this Agreement, nor the performance or compliance with the terms and conditions hereof conflict with, or will result in a breach by the Company of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any asset of the Company pursuant to any of the terms, conditions or provisions of (i) the Certificate of Incorporation or Bylaws of the Company, (ii) any mortgage, deed of trust, lease, contract, agreement or other instrument to which the Company is a party by which the Company may be bound or affected, or (iii) any writ, order, judgment, decree, statute, ordinance, regulation or any other restriction of any kind or character, to which the Company is subject, or by which the Company may be bound or affected. -30- 16.4 No Litigation or Proceeding. As of the date hereof, there are no actions, suits, investigations or proceedings pending or to the Company's knowledge threatened against the Company at law or in equity or before or by any federal, state, municipal or other governmental or non-governmental department, commission, board, bureau, agency or instrumentality seeking to enjoin, restrain or otherwise prevent the execution and delivery of this Agreement by the Company. 16.5 No Warranties. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 6.1 HEREOF, THE COMPANY HEREBY EXPRESSLY DISCLAIMS AND NEGATES ANY IMPLIED REPRESENTATION OR WARRANTY RELATING TO ANY METHANOL PRODUCED OR SOLD HEREUNDER, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 17 REPRESENTATIONS AND WARRANTIES OF BP ------------------------------------ BP represents and warrants to the Company as follows: 17.1 Organization. BP is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and is duly qualified to do business as a foreign corporation in the State of Texas and has all requisite corporate power and authority to carry on its business as currently conducted, to own and operate the properties owned by it and to enter into this Agreement and perform its obligations hereunder. 17.2 Authority Relative to Agreement. The execution, delivery and performance by BP of this Agreement have been duly and effectively authorized by all necessary corporate action. This Agreement has been duly executed by BP and is a legal, valid and binding obligation of BP enforceable in accordance with its terms, except insofar as enforcement may be limited by (i) bankruptcy, insolvency, reorganization -31- or similar laws relating to or affecting the enforcement of creditors' rights generally, and (ii) general principles of equity. 17.3 No Conflict with Other Instruments or Proceedings. Neither the execution and delivery of this Agreement, nor the performance or compliance with the terms and conditions hereof conflict with, or will result in a breach by BP of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any of its assets pursuant to any of the terms, conditions or provisions of (i) the Certificate of Incorporation or Bylaws of BP, (ii) any mortgage, deed of trust, lease, contract, agreement or other instrument to which BP is a party or by which BP may be bound or affected, or (iii) any writ, order, judgment, decree, statute, ordinance, regulation or any other restriction of any kind or character, to which BP is subject, or by which BP may be bound or affected, 17.4 No Litigation or Proceedings. As of the date hereof, there are no actions, suits, investigations or proceedings pending or to BP's knowledge threatened against or affecting BP at law or in equity or before or by any federal, state, municipal or other governmental or non-governmental department, commission, board, bureau, agency or instrumentality seeking to enjoin, restrain or otherwise prevent the execution and delivery of this Agreement by BP. ARTICLE 18 ACCESS ------ 18.1 Upon written request by BP from time to time, the Company shall provide to BP, its attorneys, accountants and other representatives, at BP's expense and subject to the receipt by the Company of confidentiality agreements no less onerous than apply to the parties hereto under Article 23 hereof, at reasonable times during normal business hours, access to the Company's books, records and accounts relating to the operation of the Unit and the performance of the Company's obligations under this Agreement, except as such access may be prohibited by licenses or sub-licenses from a third party to which -32- the Company is a party or by which the Company is bound. BP shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at BP's expense, which copies may be removed from the premises of the Company and retained by BP, subject to the confidentiality provisions of Article 23 hereof. 18.2 The Company agrees to permit representatives of BP, at BP's sole cost, expense, and risk to have access to the Unit, and to the Company's operating personnel, at reasonable times and on reasonable notice for the purpose of observing and asking questions about the present or proposed operations of the Unit (e.g.,in order to audit the environmental status and condition of the Unit) so long as such access (a) is consistent with the Company's contractual obligations under any licenses or sublicenses to which the Company is a party, and (b) does not materially disrupt the operation of the Unit, or the Company's other activities at the Plant. BP agrees to furnish the Company with copies of all information and audits obtained or prepared in connection with such access. 18.3 Upon written request by the Company from time to time, BP shall provide to the Company and its attorneys, accountants and other representatives, at the Company's expense and subject to the receipt by BP of confidentiality agreements no less onerous than apply to the parties here to under Article 23 hereof, at reasonable times and during normal business hours, access to BP's books, records and accounts relating to Joint Account Revenue, marketing of the Methanol Pool and the performance of BP's obligations under this Agreement. The Company shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at the Company's expense, which copies may be removed from the premises of BP and retained by the Company, subject to the confidentiality provisions of Article 23 hereof. BP shall make its employees and other representatives available to the Company at reasonable times on reasonable notice to discuss the present or proposed strategies relating to the marketing -33- of Methanol from the Methanol Pool so long as such availability does not materially disrupt the performance of BP's obligations hereunder. ARTICLE 19 MEETINGS -------- 19.1 At the Semi-annual Meetings, the representatives of BP and the Company on the management team shall review such matters as may be determined as appropriate by the parties. 19.2 By no later than September 30 of each Contract Year during the Operations Phase (with the exception of the first Contract Year during the Operations Phase, if the Construction Completion Date is after September 30, 1996), (a) the Company shall deliver to BP a statement specifying (i) the amount of the Company Portion for at least the next Contract Year, and (ii) a proposed operating plan including proposed Capital Projects and Capital Expenditures and Future Expansion Expenditures) for the Unit, and the other equipment and property used in connection therewith, and (b) BP shall deliver to the Company a proposed marketing plan for the Methanol Pool based on the proposed operating plan, including volume and revenue forecasts, customers and similar matters, in each case prepared in good faith and upon realistic assumptions, for the following Contract Year. At or after the fall Semi-annual Meeting and in any event prior to the commencement of the next Contract Year, the parties shall formally agree on and adopt the operating plan and the marketing plan for the following Contract Year. In the absence of such an agreement on or before the first day of the Contract Year to which such proposed operating plan would, if agreed, apply, the Company shall be entitled to operate, maintain, repair, renovate, remodel, change and make expenditures as may be reasonably necessary for the operation of the Unit and in a manner consistent with the pattern of expenditure in the preceding Contract Year but excluding any Capital Expenditures unless approved by BP pursuant to this Agreement. -34- 19.3 BP will notify the Company and secure its consent prior to entering into any marketing agreement that would restrict the Company's ability to dispose of the entire Company Portion for a time period beyond the expiration of the most recently approved operating plan. 19.4 Either the Company or BP may call additional meetings of the management team, as necessary. ARTICLE 20 TAXES ----- 20.1 The parties recognize that, during the Term, major changes may occur in the system of federal, state and local taxation at the location of the Unit, which may materially alter the existing federal, state and local property, energy, franchise, income and sales tax systems presently in effect. It is the parties' intent that neither party will receive a tax benefit unintended by the parties under this Agreement associated with any change in such tax systems. In that case, the parties agree to modify this Agreement in an equitable manner. 20.2 The parties agree to file all their respective federal, state, and local income tax returns in accordance with this Agreement and, in the event that any federal, state, and/or local taxing authority challenges either party's right to such depreciation, amortization, expense, and/or casualty loss deductions hereunder, the parties agree to cooperate with each other and to take all other reasonable and appropriate actions, to cause such taxing authority to accept such depreciation, amortization, expense, or casualty loss deductions as claimed. Unless otherwise agreed, each party shall be responsible for its own expenses in any such challenge. It is the parties' intent that neither party will receive a tax benefit unintended by the parties under this Agreement associated with any action by any taxing authority. In that case, the parties agree to modify this Agreement in an equitable manner. -35- 20.3 Any duty drawbacks, superfund drawbacks or similar payments with respect to the Methanol Pool will be included in the Joint Account Revenue. ARTICLE 21 FINANCIAL ASSURANCES -------------------- 21.1 In the event any federal, state or other governmental authority requires the Company to provide financial assurances in connection with the Unit, its operations or any Spills or Releases, the Company will use its best efforts to provide the same, and BP will reimburse the Company for *** incurred in connection with providing such financial assurances as a part of the Operating Expenses (subject to Section 5.5 hereof), upon receipt of invoice therefor. ARTICLE 22 ARBITRATION ----------- 22.1 All disputes, differences or questions arising out of or relating to this Agreement (including, without limitation, those as to the validity, interpretation, breach, violation or termination hereof) shall, at the written request of either party, be finally determined and settled pursuant to arbitration at Houston, Texas, by three (3) arbitrators, one (1) to be appointed by the Company, one (1) by BP, and a neutral arbitrator to be appointed by such two (2) party-appointed arbitrators. The neutral arbitrator shall be an attorney and shall act as chairman. Any such arbitration may be initiated by a party by written notice ("Arbitration Notice") to the other party specifying the subject of the requested arbitration and appointing such party's arbitrator for such arbitration. In the event that litigation has been initiated, the party's request for arbitration shall be made prior to the answer date of any litigation pending regarding such dispute, difference or question and failure to request arbitration by such date shall constitute a waiver of the right to arbitrate under this Agreement. -36- 22.2 Should (i) a party receiving an Arbitration Notice fail to appoint an arbitrator as hereinabove contemplated by written notice to the party giving the Arbitration Notice within ten (10) Business Days after the receipt of the Arbitration Notice, or (ii) the two (2) arbitrators appointed by or on behalf of the parties as contemplated in Section 22.1 hereof fail to appoint a neutral arbitrator as hereinabove contemplated within ten (10) Business Days after the date of the appointment of the last arbitrator appointed by or on behalf of the parties, then a Judge of the United States District Court for the Southern District of Texas, Houston Division, upon application of the Company or of BP, shall appoint an arbitrator to fill any such position with the same force and effect as though such arbitrator had been appointed as hereinabove contemplated. 22.3 The arbitration proceeding shall be conducted in the English language in Houston, Texas, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. A determination, award or other action shall be considered the valid action of the arbitrators if supported by the affirmative vote of a majority of the three (3) arbitrators. The costs of arbitration (exclusive of the expense of a party in obtaining and presenting evidence and attending the arbitration, and of the fees and expenses of legal counsel to such party, all of which shall be borne by such party) shall be shared equally by the Company and BP. The arbitration award shall be final and conclusive and shall receive recognition, and judgment upon such award may be entered and enforced in any court of competent jurisdiction. ARTICLE 23 CONFIDENTIALITY AND INTELLECTUAL PROPERTY ----------------------------------------- 23.1 The agreement of the Company and BP as to confidentiality and intellectual property matters related to this Agreement is set forth in a separate agreement among the Company, BP and -37- BPCL entitled "Methanol Technical Services and Intellectual Property Agreement" effective on the Effective Date. ARTICLE 24 DEFAULTS; FAILURES; REMEDIES ---------------------------- 24.1 If a Company Event of Default shall occur and be continuing, BP may, at its option, by written notice to the Company, declare the Company to be in default hereunder ("Declaration of Company Default"); provided, however, that a Declaration of Company Default shall not relieve or otherwise discharge the Company from the performance of its obligations under this Agreement. 24.2 If a BP Event of Default shall occur and be continuing, the Company may, at its option, by written notice to BP, declare BP to be in default hereunder ("Declaration of BP Default"); provided, however, that a Declaration of BP Default shall not relieve or otherwise discharge BP from the performance of its obligations under this Agreement. 24.3 Upon a Declaration of Company Default or a Declaration of BP Default, as the case may be, the non-defaulting party shall be entitled to pursue all rights and remedies provided at law or in equity for such breach or failure including, but not limited to, terminating this Agreement and seeking and recovering Damages therefor or the remedy of specific performance of this Agreement whether or not such remedy is otherwise normally available, subject to the right of either party to request arbitration pursuant to Article 22 hereof. ARTICLE 25 INDEMNIFICATION --------------- 25.1 From and after the Effective Date the Company shall indemnify and hold BP harmless from and against any and all Damages suffered or incurred by BP on account of or arising from or related to any liability to any third party whether incurred under statute, in tort or otherwise arising directly or indirectly -38- from: (a) the production of methanol in the Unit; (b) the handling and storage of methanol and raw materials used in the production of methanol at the Plant; (c) the loading of methanol for shipment from the Plant; and (d) Spills or Releases occurring before methanol passes the transport vessel's pipe flange for shipment from the Plant, except to the extent that such Spills or Releases are attributable to the acts, omissions or default of BP. 25.2 From and after the Effective Date BP shall indemnify and hold the Company harmless from and against any and all Damages suffered or incurred by the Company on account of or arising from or related to any liability to any third party whether incurred under statute, in tort or otherwise arising directly or indirectly from: (a) the marketing and sale of methanol; (b) the shipment and delivery of methanol; and (c) Spills or Releases Requiring occurring after methanol passes the transport vessel's pipe flange for shipment from the Plant, except to the extent that such Spills or Releases are attributable to the acts, omissions or default of the Company. 25.3 BP and the Company each agree that promptly after any of its officers becomes aware of the discovery of facts giving rise to a claim by it for indemnification hereunder ("Claim"), such party will provide notice thereof in writing to the other party. The failure of either party to so notify the other party of a Claim, where such failure results in insufficient time being available to permit the party receiving the notice or its counsel to defend against such Claim, shall relieve the other party from any liability in respect of such Claim. For purposes of this Section 25.3, receipt by a party of notice of any demand, assertion, claim, action or proceeding (judicial, administrative or otherwise) by or from any person or entity (other than the other party to this Agreement) or governmental authority ("Third-Party Action") which may give rise to a Claim on behalf of such party shall constitute the discovery of facts giving rise to a Claim by it and shall require prompt notice of the receipt of such matter as provided in the first sentence of this Section 25.3. Any notice pursuant to this Section 25.3 shall set forth all information respecting the Claim -39- and the Third-Party Action, if any, as such party shall then have and shall contain a statement to the effect that the party giving the notice is making a Claim pursuant to and formal demand for indemnification under this Article 25. 25.4 For purposes of this Article 25, the term "Indemnifying Party," as to a particular Claim or Third-Party Action shall mean the party having or which is held to have an obligation to indemnify the other party with respect to such Claim or Third-Party Action pursuant to this Article 25 and the term "Indemnified Party" as to a particular Claim or Third-Party Action shall mean the party having or which is held to have the right to be indemnified with respect to such Claim or Third-Party Action by the other party pursuant to this Article 25. 25.5 Except as otherwise expressly provided herein, the Indemnifying Party shall be entitled at its cost and expense to contest and defend by all appropriate legal proceedings any Third-Party Action with respect to which it is called upon to indemnify the Indemnified Party under the provisions of this Agreement; provided, however, that with respect to any Claim arising from the assertion of any Third-Party Action, notice of the intention so to contest shall be delivered by the Indemnifying Party to the Indemnified Party within twenty (20) days from the date of mailing by the Indemnified Party of notice to the Indemnifying Party of the assertion of the Third-Party Action. Any such contest with respect to a Third-Party Action may be conducted in the name and on behalf of the Indemnifying Party or the Indemnified Party as may be appropriate. Except as otherwise expressly provided herein, such contest shall be conducted by attorneys employed by the Indemnifying Party, but the Indemnified Party shall have the right to participate in such proceedings and to be represented by attorneys of its own choosing at its cost and expense. If the Indemnified Party joins in any such contest, the Indemnified Party shall have full authority to determine all action to be taken with respect thereto. If after notice as provided for herein, the Indemnifying Party does not elect to contest any Third- Party Action as provided in this Section 25.5, the -40- Indemnifying Party shall be bound by the result obtained with respect thereto by the Indemnified Party and the Indemnified Party may (but shall have no obligation to) contest any such Third-Party Action or settle or admit liability with respect thereto, all for the account of the Indemnifying Party. At any time after the commencement of defense of any such Third-Party Action, the Indemnifying Party may request the Indemnified Party to agree in writing to the abandonment of such contest or the payment or compromise by the Indemnifying Party of the asserted Third-Party Action whereupon such action shall be taken unless the Indemnified Party so determines that the contest should be continued, and so notifies the Indemnifying Party in writing within fifteen (15) days of such request from the Indemnifying Party. In the event that the Indemnified Party determines that the contest should be continued, the Indemnifying Party shall be liable with respect to such Third-Party Action only to the extent of the lesser of (i) the amount which the third party taking the Third-Party Action had agreed to accept in payment or compromise as of the time the Indemnifying Party made its request therefor to Indemnified Party, or (ii) such amount for which the Indemnifying Party may be liable with respect to such Claim by reason of the provisions hereof. 25.6 If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Third-Party Action which the Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against the third party taking the Third-Party Action, or any cross-complaint against any other person or entity not a party hereto, but the Indemnifying Party will reimburse the Indemnified Party for any expenses incurred by it in so cooperating. 25.7 The Indemnified Party agrees to afford the Indemnifying Party and its counsel the opportunity to be present at, and to participate in, conferences with all persons or entities, including governmental authorities, taking Third-Party Action against the Indemnified Party or conference with representatives of or counsel for such persons or entities. -41- 25.8 The Indemnifying Party shall pay to the Indemnified Party, upon demand, the amount of any Damages to which the Indemnified Party may become entitled by reason of the provisions of this Article 25; provided, however, that the amount of any such Damages shall be reduced to the extent of any insurance proceeds received by the Indemnified Party for such Damages. 25.9 Notwithstanding the foregoing and any other provision of this Agreement to the contrary, in the event any suit, claim or proceeding is brought by any third party against either BP or the Company or both based upon the alleged non-conformance of methanol with the then applicable Specifications, BP and the Company shall share equally all costs, expenses, including reasonable attorneys' fees, losses and damages incurred in defending and settling or otherwise resolving such suit, claim or proceeding. ARTICLE 26 FORCE MAJEURE ------------- 26.1 In the event of either party being rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement (other than any obligation to make payment of any amount when due and payable hereunder), it is agreed that on such party giving notice and reasonably full particulars of such Force Majeure in writing to the other party within a reasonable time after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch, unless the parties agree otherwise in accordance with Section 10.3 in connection with any damage to or destruction of the Unit. In the event of Force Majeure necessitating the allocation of Methanol, any output of Methanol from the Unit shall be allocated *** to BP and *** to the Company in accordance with Sections 4.2 and 4.3 above; provided, however in the event of Force Majeure that the Company Portion shall not exceed *** of such output. -42- 26.2 The term "Force Majeure," as employed herein, shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, embargoes, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, high water, washouts, arrests and restraints of government and people, civil disturbances, explosions, loss or interruption of feedstocks or utilities, breakage or accident to machinery, equipment, lines of pipe or property, freezing of machines, equipment, lines of pipe, or property, partial or entire failure of any machine, equipment, lines of pipe or other property, the occurrence of any Spill or Release and any regulatory, civil or criminal action with respect thereto and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension; such term shall likewise include in those instances where any party hereto is required to furnish materials and supplies or is required to secure permits or permissions from any governmental agency to enable such party to fulfill its obligations hereunder, the inability of such party to acquire, or delays on the party of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such materials and supplies, permits and permissions. 26.3 It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty, and that the above requirement that any Force Majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. 26.4 Notwithstanding the provisions of Section 26.1 hereof, the failure by either party to perform any of its obligations under this Agreement shall be deemed not to have been caused by circumstances reasonably outside its control if such failure results from breakage or accident to machinery, equipment, lines of pipe or other property or the partial or entire failure thereof or the necessity to make repairs or alterations thereto which result from normal wear and tear which could be reasonably anticipated -43- by a reasonably prudent operator or in circumstances where a reasonably prudent operator would have standby equipment or spare parts. ARTICLE 27 ASSIGNMENT ---------- 27.1 This Agreement shall inure to the benefit of and bind the respective successors and permitted assigns to the parties hereto. Except as expressly permitted hereby, neither party may assign this Agreement or its rights under this Agreement, including its rights to receive payments hereunder, to any other party without the consent of the other. 27.2 Either party may assign this Agreement and all of its rights and obligations hereunder to any Affiliate of such party. The Company may assign this Agreement and all of its rights and obligations hereunder as collateral to any third party providing financing to the Company. 27.3 It is agreed that (i) the sale, transfer or conveyance by BP or the Company of all or substantially all of its assets, or (ii) the merger, consolidation, reorganization or recapitalization of BP or the Company with any third party, or (iii) the change of control of BP or the Company, whether effected by stock purchase, statutory share exchange, or otherwise, shall not constitute an assignment of this Agreement by BP or the Company, but BP or the Company (as the case may be) shall, as a condition precedent to the closing of any sale, transfer or conveyance referred to in clause (i) above, require the purchaser or transferee to assume all rights and obligations of BP or the Company (as the case may be) under this Agreement. In the event that the Company sells or otherwise transfers or conveys all or substantially all of the assets constituting the Plant, such sale, transfer or conveyance shall not constitute an assignment of this Agreement by the Company, but the Company shall, as a condition precedent to the closing of such sale, transfer or conveyance, require the purchaser or transferee to assume all rights and obligations of the Company under this Agreement. -44- 27.4 In the event that the Company proposes to sell, transfer or convey all or substantially all of its interest in the Unit to a third party which is not acquiring control of the Company by merger or the purchase of all of the Company's stock or assets ("Third Party Offer"), the Company shall provide BP written notification setting forth the identity of such third party and the proposed terms of such Third Party Offer prior to entering into any agreement with such third party and afford BP an opportunity, within thirty (30) Days' receipt of such notification, to purchase the assets subject to the offer on the identical terms of such Third Party Offer if BP, in its sole discretion, elects to do so. In the event BP does not agree to purchase the assets on the identical terms of the Third Party Offer within such time period, or if BP fails to close in accordance with the terms of such offer, then the Company shall be free to sell, transfer or convey such interests in accordance with such Third Party Offer. 27.5 No assignment, transfer or conveyance of this Agreement by either party shall relieve the assigning party of any of its obligations, liabilities or duties hereunder, unless the other party hereto shall agree otherwise. Any assignment of this Agreement by either party, except assignments as collateral, shall be accompanied by the contemporaneous assumption by the assignee of all rights and obligations of assignor hereunder. ARTICLE 28 GENERAL ------- 28.1 Notices. Except as otherwise specifically provided, any notice provided for by this Agreement and any other notice, demand or communication which any party may wish to send to another shall be in writing and either delivered in person or sent by registered or certified United States mail, postage prepaid, return receipt requested, in a properly sealed envelope, and addressed to the party for which such notice, demand or communication is intended at such party's address as set forth below: -45- (a) Company: Sterling Chemicals, Inc. 1200 Smith Street Houston, Texas 77002 Attention: Vice President-Commercial Copy To: Sterling Chemicals, Inc. 1200 Smith Street Houston, Texas 77002 Attention: General Counsel (b) BP: BP Chemicals Inc. 4440 Warrensville Center Road Warrensville Heights, Ohio 44128-2837 Attention: Vice President Acetyls Copy To: BP Chemicals Inc. 1 Second Avenue South Texas City, Texas 77590 Attention: Product Manager Acetyls Any address or name specified above may be changed by a notice given by the addressee to the other parties in accordance with this Section 28.1. Any notice, demand or other communication shall be deemed given and effective as of the date of delivery in person or upon receipt as set forth on the return receipt. The inability to deliver because of changed address of which no notice was given, or the rejection or other refusal to accept any notice, demand or communication, shall be deemed to be the receipt of the notice, demand or communication as of the date of such inability to delivery or the rejection or refusal to accept. 28.2 Controlling Law. All questions concerning the validity, operation and interpretation of this Agreement and the performance of the obligations imposed upon the parties hereunder shall be governed by the laws of the State of Texas, without reference to principles of conflicts of law, and BP agrees that any legal or equitable action with respect thereto shall be brought exclusively in the federal or state courts in Harris County, Texas. BP hereby irrevocably submits to the jurisdiction of the United States District Court for the Southern District of Texas, Houston Division and any District Court of the State of Texas -46- in Harris County in any action, suit or proceeding brought against it and related to or in connection with this Agreement or the transactions contemplated hereby, and to the extent permitted by applicable law, BP hereby waives and agrees not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper, or that this Agreement or any document or any instrument referred to herein or the subject matter hereof may not be litigated in or by such court. 28.3 Heading. The headings and titles to the Articles and Sections of this Agreement are inserted for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision hereof. 28.4 Modifications and Waivers. Except as expressly provided herein to the contrary, no termination, cancellation, modification, amendment, deletion, addition or other change in this Agreement or any provision hereof, or waiver of any right or remedy herein provided, shall be effective for any purpose unless specifically set forth in writing signed by the party or parties to be bound thereby. The waiver of any right or remedy in respect of any occurrence or event on the occasion shall not be deemed a waiver of such right or remedy in respect of such occurrence or event on any other occasion. 28.5 Entire Agreement. This Agreement, including the other agreements and instruments herein provided for or referred to, supersedes all other agreements, oral or written, heretofore made with respect to the subject matter hereof and the transactions contemplated hereby, and contains the entire agreement of the parties. 28.6 Severability. Any provisions hereof prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall be ineffective as to such jurisdiction, without affecting any other provision of this Agreement, or shall be deemed to be severed or modified to conform with such law, and -47- the remaining provisions of this Agreement shall remain in force, provided that the purpose of this Agreement can be effected. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement is deemed to be a valid and binding agreement enforceable in accordance with its terms. 28.7 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all of such counterparts together shall constitute but one and the same instrument. 28.8 Binding on Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. 28.9 Public Statements. The parties hereto agree to consult with one another prior to issuing any public announcement or statement with respect to the transactions contemplated herein. 28.10 No Partnership or Agency. This Agreement shall not be construed to create a partnership, joint venture, association or other entity or business organization or to create a principal-agent or other fiduciary relationship or relationship of special trust and confidence between the Company and BP. 28.11 No Transfer of Title. The Company expressly does not by the terms of this Agreement sell, transfer or assign to BP any title or interest in the Methanol Plant Assets, or any of the Company's other assets or properties, and BP does not by the terms of this Agreement acquire any title or interest therein, except that the parties acknowledge BP's economic interest in the After-Acquired Assets as set forth in Section 2.3(b) of this Agreement. 28.12 Payments. All sums and amounts payable or to be payable pursuant to this Agreement shall be payable in immediately available funds and in coin or currency of the United States of America that, at the time of payment, is legal tender for the payment of public and private debts in the United States of America and shall be made by wire transfer of immediately available funds to such bank and/or account -48- in the continental United States for the account of the payee as from time to time the payee shall have directed to the payor in writing, or, if no such direction shall have been given, by check to the payee in the manner and at the address set forth above. Whenever in this Agreement BP is required to pay or reimburse the Company upon receipt of invoice or otherwise when no due date for payment is specifically provided, payment shall be due on the tenth Day after receipt of invoice or other statement (or if such Day is not a Business Day, on the Business Day next following), and shall be made in the manner set forth above. 28.13 Survival. The obligations of the parties hereunder shall survive the expiration of the Term or earlier termination of this Agreement, except as expressly set forth herein. 28.14 Memorandum of Agreement. The parties hereto agree to execute, at the request of either party, a short form memorandum of this Agreement in a form mutually agreeable and sufficient for purposes of recording the material terms and conditions of this Agreement as a matter of record in the appropriate recording office or offices in Texas. Upon the expiration of the Term or earlier termination of this Agreement, the parties hereto agree to execute, at the request of either party, a release of said memorandum acknowledging said expiration or termination in the appropriate form for recordation. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written, but effective as of the Effective Date. BP CHEMICALS INC., an Ohio corporation By: R.R. Mesel --------------------------------- Name: Robert R. Mesel --------------------------------- Title: President --------------------------------- -49- STERLING CHEMICALS, INC., a Delaware corporation By: Robert W. Roten ------------------------------ Name: Robert W. Roten ------------------------------ Title: President ------------------------------ -50- EXHIBIT A METHANOL SPECIFICATION
Acetone, wt % max .003 Acidity, (as acetic acid) wt. % max .003 Alkalinity (as NH3), Wt % max .003 Appearance Clear and free of suspended matter Carbonizable substances, max. (Pt-Co) 30 Color, max, (Pt-Co) 5 Distillation Range, at 760 mm hg Not more than 1 (degree) C to include 64.6 (degree) C Ethanol, ppm max 50 Hydrocarbons No cloudiness Methanol content, Wt. % min 99.85 Non-Volatile Matter, Wt./V% max .001 Odor Characteristic, non-residual Permanganate time, min at 15 (degree) C 50 Specific Gravity, @ 20/20(degree) C max .7928 Water, Wt. % max .1
EXHIBIT B BP CONTRACTUAL COMMITMENTS 1. *** 2. *** SUMMARY OF COVERAGES FOR STERLING CHEMICALS, INC. EXHIBIT C
BP as Insurance No. Type of Insurance Amounts or Limits Additional Insured Company Expiration - - --- ----------------- ----------------- ------------------ ---------- ---------- 1. Workers Compensation Statutory $1,000,000- No Reliance 7/1/97 Employers Liability 2. Automobile Liability $2,000,000 each occurrence No Reliance 7/1/97 3. Excess Liability $25,000,000 each occurrence Yes Primex, Ltd. 7/1/97 Excess to $1 Million SIR and aggregate 4. Excess Liability $100,000,000 each loss Yes XL. Insurance Group 7/1/97 Excess to Primex $100,000,000 aggregate 5. Terminal Operators $125,000,000 each occurrence Yes Lexington et. al. 7/1/97 including Stevedores & Wharfingers Legal Liability 6. Property Damage $500 million any occurrence, Yes CIGNA, Hartford 10/1/96 and Boiler & Machinery combined all risks. Starr Tech, Zurich, Includes: Flood; Earthquake et. al. Extra Expense; Service Interruption; Hazardous Cleanup; Debris Removal; Land Transit; Others.
EXHIBIT D COMPANY MARKETING COSTS *** EXHIBIT E *** EX-10.34 10 EXHIBIT 10.34 EXHIBIT 10.34 THE STERLING GROUP THE STERLING GROUP, INC. EIGHT GREENWAY PLAZA, SUITE 702 HOUSTON, TEXAS 77046 713-877-8257 FAX 713-877-1824 April 23, 1996 STX Acquisition Corp. c/o The Sterling Group, Inc. 8 Greenway Plaza, Suite 702 Houston, Texas 77046 Ladies and Gentlemen: This letter agreement will confirm the agreement between The Sterling Group, Inc. ("TSG") and STX Acquisition Corp. and STX Chemical Corp. and their respective present and future direct and indirect wholly-owned subsidiaries (collectively, the "Companies" and individually, a "Company"), in connection with STX Acquisition Corp.'s merger with Sterling Chemicals, Inc. (the "Merger"), as follows: 1. Services. TSG has provided or will provide consulting services to the Companies in connection with the organization of the Companies, structuring the Merger, the financing and refinancing thereof, arrangements for outside consulting services, advice with respect to employee benefit and compensation arrangements and other reasonable assistance when and as requested by the Companies. 2. Fee and Expenses. For its services in connection with the Merger, TSG will be entitled to receive from STX Acquisition Corp. and STX Chemical Corp. at the consummation of the Merger a fee in the amount of Eight Million Seventy Three Thousand Dollars ($8,073,000) and reimbursement of all expenses paid or incurred (including expenses of The Unicorn Group and any other consultant) by TSG in connection therewith. 3. Indemnification. The Companies, jointly and severally, agree to indemnify and hold harmless TSG, its consultants, each of their respective controlling persons and each director, officer, employee, principal, consultant, affiliate and agent thereof (each an "Indemnified Person") from and against any and all losses, claims, damages and liabilities, joint or several, to which any Indemnified Person may become subject relating to or arising out of, or in connection with, any advice or services provided under this Agreement or the transactions contemplated by this Agreement, the Merger (including, without limitation, the use of proceeds from the sale of securities and the financing of the Merger) or any related transaction (including without limitation, that certain letter agreement among TSG, Chase Securities Inc., Texas Commerce Bank National Association, and Credit Suisse dated April 23, 1996 and that certain letter agreement among TSG, CS First Boston, and The Unicorn Group dated October 9, 1995, and the transactions The Sterling Group, Inc. April 23, 1996 Page 2 contemplated thereby), and to reimburse each Indemnified Person, promptly upon demand, for expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, giving testimony or furnishing documents for, preparation for or defense of any pending or threatened loss, claim, damage or liability, or any litigation, proceeding or other action in respect thereof (collectively, "Actions"), including any amount paid in settlement of any litigation, proceeding or other action (commenced or threatened), to which the Companies shall have consented in writing (such consent not to be unreasonably withheld), whether or not any Indemnified Person is a party and whether or not liability resulted therefrom; provided, however, that the indemnity contained in this Agreement will not apply to any Indemnified Person with respect to losses, claims, damages, liabilities or related expenses that are found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted from the willful misconduct or gross negligence of such Indemnified Person. In addition, the Companies will not, without prior written consent of TSG, settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened Action in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Person is a party thereto) unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all liabilities arising out of such Action. Promptly after receipt by an Indemnified Person of written notice with respect to the commencement of any investigation, claim or other Action with respect to which such Indemnified Person may seek indemnification hereunder, such Indemnified Person shall notify the Companies in writing at the address set forth on the first page hereof of such Action; but the omission so to notify the Companies shall not relieve the Companies from any liability that the Companies may have hereunder to such Indemnified Person to the extent that such omission does not materially prejudice or materially adversely affect the Companies. The Indemnified Persons shall be entitled to retain separate counsel of their own choice; provided that the Companies shall not be responsible for the fees and expenses of more than one firm of attorneys (and local counsel, if appropriate) for all of the Indemnified Persons in any single Action, unless the Indemnified Persons shall have been advised that there may be one or more legal defenses available to any of them that may be different from or additional to those available to the others, in which event each such Indemnified Person shall be entitled to separate counsel at the expense of the Companies. If indemnification is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) for reason of public policy not to be available, the Companies and TSG agree to contribute to the losses, claims, damages, liabilities or expenses (or actions in respect thereof) for which such indemnification is held unavailable in such proportion as is appropriate to reflect the relative benefits to and fault of the Companies, on the one hand, and TSG, on the other hand, in connection with the matter giving rise to such losses, claims, damages, liabilities or expenses (or actions in respect thereof). Notwithstanding the foregoing, TSG shall not be obligated to contribute any amount hereunder that exceeds the fees and expenses received by TSG hereunder. No person found liable for a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who is not found liable for such fraudulent misrepresentation. The Sterling Group, Inc. April 23, 1996 Page 3 The Companies also agree, jointly and severally, that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Companies for or in connection with advice or services rendered or to be rendered by any Indemnified Person pursuant to this Agreement, the Merger, the financing thereof, the transactions contemplated thereby or any Indemnified Person's actions or inactions in connection with any such advice, services or transactions except for liabilities that are determined by a judgment of a court of competent jurisdiction (not subject to further appeal) to have resulted from such Indemnified Person's gross negligence or willful misconduct in connection with any such advice, actions, inactions or services. If any term, provision, covenant or restriction contained in this Section is held by a court of competent jurisdiction or other authority to be invalid, void, unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained in the Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The provisions contained in this Section 3 shall remain in full force and effect (i) whether or not any of the transactions contemplated hereby are consummated, (ii) regardless of the termination or completion of any Indemnified Person's services hereunder, (iii) notwithstanding the termination of this agreement and (iv) notwithstanding any investigation made by or on behalf of TSG or any Indemnified Person. 4. Future Services. The Companies also agree, jointly and severally, that if either of the Companies or any of their respective direct or indirect subsidiaries determines, within 24 months after the date hereof, to dispose of or acquire any assets or businesses, the Companies will, or will cause such entity to, retain TSG as a consultant with respect thereto, provided that TSG's fees with respect thereto are competitive and the Companies and TSG mutually agree on the terms of such retention. If, within 24 months after the date hereof, either of the Companies or any of their respective subsidiaries determines to offer securities for sale to the public or in a private placement or to raise any debt or equity financing, the Companies will, or will cause such entity to, retain TSG as a consultant with respect thereto, provided that TSG's fees with respect thereto are competitive and the Companies and TSG mutually agree on the terms of such retention. 5. Governing Law. This Agreement shall be governed by, and constructed in accordance with, the laws of the State of Texas, without giving effect to choice of law doctrines requiring the application of laws of any other jurisdiction. If the foregoing meets with your approval and correctly expresses our agreement, please sign and return the enclosed duplicate copy of this letter. Very truly yours, THE STERLING GROUP, INC. By: /s/ Hunter Nelson ----------------------------- Name: Hunter Nelson Title: Principal The Sterling Group, Inc. April 23, 1996 Page 4 ACKNOWLEDGED AND AGREED: STX ACQUISITION CORP. By: /s/ Hunter Nelson -------------------------- Name: Hunter Nelson Title: Vice President STX CHEMICAL CORP. By: /s/ Hunter Nelson -------------------------- Name: Hunter Nelson Title: Vice President EX-21.1 11 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF STERLING CHEMICALS HOLDINGS, INC. Owns 100% of: Sterling Chemicals, Inc., a Delaware corporation Owns 100% of: Sterling Chemicals International, Inc., a Delaware corporation Sterling Chemicals Energy, Inc., a Delaware corporation Sterling Chemicals Marketing, Inc., a Virgin Islands corporation Sterling Canada, Inc., a Delaware corporation Owns 100% of: Sterling Pulp Chemicals U.S., Inc., a Delaware corporation Sterling NRO, Ltd., an Ontario corporation Sterling Pulp Chemicals, Ltd., an Ontario corporation Owns 99% of: Sterling Pulp Industrial, L.L.C., a Delaware limited liability company (1) _______________ (1) The remaining 1% is owned by Sterling Canada, Inc. EX-27.1 12 EXHIBIT 27.1
5 0000795662 STERLING CHEMICALS HOLDINGS, INC. 1,000 12-MOS SEP-30-1996 OCT-01-1995 SEP-30-1996 5,609 0 133,399 0 53,720 209,018 593,305 (227,540) 689,684 132,085 714,632 0 0 106 (272,545) 689,684 790,465 790,465 679,039 679,039 47,644 0 13,380 50,402 16,898 33,504 0 1,900 0 31,604 .620 .620
EX-27.2 13 EXHIBIT 27.2
5 0001014669 STERLING CHEMICALS, INC. 1,000 12-MOS SEP-30-1996 MAY-14-1996 SEP-30-1996 5,581 0 135,635 0 53,720 211,226 593,305 (227,540) 685,451 133,927 619,875 0 0 0 (184,302) 685,451 83,410 83,410 83,047 83,047 3,426 0 (3,621) 558 384 174 0 0 0 174 0 0
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