-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VC2X1fQHMaEb63WLjKcP5z720cGmQbvIgKJvn5mIvqAMDLQWYNsqyuUadZnWaGU5 FOR6vXWmo2llqPFICIdWAg== 0000950129-94-000845.txt : 19941227 0000950129-94-000845.hdr.sgml : 19941227 ACCESSION NUMBER: 0000950129-94-000845 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941221 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS INC CENTRAL INDEX KEY: 0000795662 STANDARD INDUSTRIAL CLASSIFICATION: 2860 IRS NUMBER: 760185186 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: 94565670 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 10-K 1 YEAR ENDED 09/30/94 1 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10059 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 SMITH STREET SUITE 1900 77002-4312 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-3700 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - - --------------------------------------------- --------------------------------------------- Common Stock, par value $.01 per share New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (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 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. /X/. ---- As of December 5, 1994, the number of shares of common stock outstanding was 55,673,991. As of such date, the aggregate market value of common stock held by nonaffiliates, based upon the closing price of these shares on the New York Stock Exchange, was approximately $430 million. DOCUMENTS INCORPORATED BY REFERENCE: (1) Portions of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1994 (Part II Items 5-8 & Part IV Item 14 (a) 1) (2) Portions of the Company's definitive Proxy Statement dated December 19, 1994 (Part III Items 10-12). - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business..................................................................... 1 Item 2. Properties................................................................... 12 Item 3. Legal Proceedings............................................................ 13 Item 4. Submission of Matters to Vote of Security Holders............................ 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 15 Item 6. Selected Financial Data...................................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 15 Operations................................................................... Item 8. Financial Statements and Supplementary Data.................................. 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 15 Disclosure................................................................... PART III Item 10. Directors and Executive Officers of the Registrant........................... 15 Item 11. Executive Compensation....................................................... 15 Item 12. Security Ownership of Certain Beneficial Owners and Management............... 15 Item 13. Certain Relationships and Related Transactions............................... 15 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 16
i 3 PART I ITEM 1. BUSINESS Sterling Chemicals, Inc. (the "Company") was organized as a Delaware corporation in 1986. At its Texas City, Texas plant ("Texas City Plant") it manufactures seven commodity petrochemicals: styrene, acrylonitrile, acetic acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide. In August 1992 the Company acquired four plants in Canada which manufacture sodium chlorate, a chemical used primarily in the pulp and paper industry, and one of which manufactures sodium chlorite. The Company also licenses, engineers and oversees construction of large scale generators for the pulp and paper industry to convert sodium chlorate into chlorine dioxide. Unless otherwise indicated herein, the "Company" refers to the Company and its subsidiaries collectively. SALES, MARKETING AND COMPETITION The Company sells its products pursuant to long and short-term contracts and through its direct sales force. During fiscal 1994 a significant portion of the Company's production from the Texas City Plant was dedicated to long-term contracts with Monsanto Company ("Monsanto"), subsidiaries of British Petroleum Company plc, BASF Corporation ("BASF") and E.I. du Pont de Nemours and Company ("Dupont"). Although management of the Company does not anticipate the loss of any of these customers, under certain market conditions, the loss of or a material reduction in the amount of product purchased by these customers could have a material adverse effect on the Company. The balance of the Company's products are sold pursuant to short-term contracts and spot transactions by its direct sales force, which concentrates on the styrene, acrylonitrile, pulp chemicals and lactic acid markets. Sales to BP Chemicals Inc. ("BPC") and Mitsubishi International Corporation ("Mitsubishi") each accounted for 10% or more of the Company's revenue during the fiscal year ended September 30, 1994. Some of the Company's long-term contracts for its petrochemical products are structured as conversion agreements, pursuant to which the customer furnishes raw materials which 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 in amount on the then existing market conditions. These long-term contracts allow the Company to lower working capital requirements, maintain relatively low selling, general and administrative expenses related to the marketing of products and gain access to certain improvements in manufacturing process technology. The Company believes its long-term contracts help insulate the Company to some extent from the effects of declining markets while allowing it to share the benefits of favorable market conditions for most of the products sold under these arrangements. During fiscal 1994, the Company experienced a significant increase in direct sales versus conversion sales of styrene. The change resulted from the expiration in late fiscal 1993 of a conversion agreement that had been in effect since 1986 for approximately one-third of the Company's annual styrene production. During fiscal 1994, the Company successfully replaced all of the volumes from the expired conversion agreement with domestic and export sales arrangements and spot sales. In the current tight market for styrene, the sales arrangements were more profitable than the expired conversion agreement would have been and the shift from that long-term conversion agreement to more spot sales allowed the Company to take advantage of the greater price volatility in the spot market. In down cycles, however, long-term arrangements may provide more stability and conversions may continue to help insulate the Company from changes in raw materials prices. The Company competes primarily on the basis of product price, service, reliability and quality. 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 long-term contracts, the Company generally sells its products at prevailing market prices. In managing its production schedules and product inventories, the Company emphasizes the importance of its ability to deliver products to its customers on time and within specifications. In its effort to ensure that its products are of consistently high quality, the Company uses a statistical quality control program. 1 4 The industries in which the Company operates are highly competitive. Many of the Company's competitors, particularly in the petrochemical industry, are larger and have greater financial resources than the Company. Among the Company's competitors are some of the world's largest chemical companies and major integrated petroleum companies, some of which have their own raw material resources. The Company has both domestic and foreign competitors and sells its products in both domestic and foreign markets. The Company sells large percentages of its styrene and acrylonitrile production in the export market, which has historically been more volatile than the domestic market. Revenues and demographics of export sales from domestic operations are summarized below:
YEAR ENDED SEPTEMBER 30, ---------------------------------- 1994 1993 1992 -------- -------- -------- Export revenues (in thousands)..................... $324,930 $158,804 $183,241 Percentage of total revenues....................... 46% 31% 43% Export revenues (as a percent of total exports) by geographical area: Asia............................................. 80% 61% 62% Europe........................................... 16% 39% 37% Other............................................ 4% -- 1%
For additional information regarding the Company's domestic and foreign operations, see Item 8, "Note 8 of Notes to Consolidated Financial Statements." 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, the Company manufactures chemicals used primarily in the bleaching of kraft pulp for paper manufacture. 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. Petrochemicals Styrene. The Company manufactures styrene from ethylene and benzene using Monsanto/Lummus technology. Styrene is principally used in the manufacture of intermediate products such as polystyrene, latex, acrylonitrile butadiene styrene ("ABS") resins, synthetic rubbers and unsaturated polystyrene resins. 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. Effective April 1, 1994 the Company and BP Chemicals Ltd. entered into a sales and purchase agreement for approximately 15% of the Company's production of styrene, subject to specified minimum and maximum yearly requirements. The term of the agreement initially expires in December 1996 but extends on a year-to-year basis thereafter unless terminated by either party by giving at least twelve month's prior written notice. The Company and Monsanto are operating under a conversion agreement and a sales agreement, each effective through December 31, 1995. The Company is negotiating with Monsanto with respect to the renewal of these agreements. Although there can be no assurances, the Company anticipates that these agreements will be renewed on substantially similar terms. Under these agreements the Company provides Monsanto, subject to a specified minimum and maximum, a major portion of Monsanto's styrene requirements for its manufacture of styrene-containing polymers. Under the conversion agreement, Monsanto delivers ethylene and benzene to the Company and pays the Company a fee generally designed to recover the Company's conversion costs and to provide the Company an element of profit dependent on the then existing market conditions. Alternatively, under the sales agreement, Monsanto may purchase all or a portion of its styrene requirements described above from the Company at market price, subject to certain prior notice requirements. The agreements permit Monsanto to terminate all or part of its obligations upon twelve months' notice to the 2 5 Company should Monsanto sell or discontinue all or part of its business that uses styrene. During fiscal years 1994, 1993 and 1992, the Company delivered to Monsanto a significant portion of the Company's styrene production each year. Effective September 1992, the Company and Mitsubishi entered into a sales agreement which has an original term expiring in August 1995. The contract renews automatically on an annual basis unless terminated by either party with three months' prior notice. This agreement is for approximately 10% of the Company's production of styrene, subject to specified minimum and maximum yearly requirements. The balance of the Company's styrene production is sold pursuant to other contractual arrangements and by the Company's sales organization in the export and domestic markets. According to industry publications, the total domestic capacity for styrene is currently 11.6 billion pounds per year. The Company's rated capacity* of 1.5 billion pounds per year accounts for approximately 13% of the domestic capacity. The Company's major domestic competitors in the manufacture of styrene are Dow Chemical Company, Arco Chemical Company, Amoco Chemicals Company, Chevron Chemical Company, COS-MAR (a joint venture of General Electric Company and Fina) and Huntsman Chemical Corporation. The commodity chemical markets in which the Company competes are cyclical, volatile and sensitive to changes in supply and demand, which are in turn affected by general economic conditions. Tight market conditions for products that result in strong profit margins, such as those now existing for styrene, have historically caused significant new capacity additions. These typically lead to overcapacity and declining prices and profit margins until market growth can absorb the new capacity. The relative strength or weakness of the global economy can influence the rate of market growth. Beginning in 1991, styrene's profitability became depressed because of both overcapacity and recessionary pressures in parts of the world. By the spring of 1994, however, market growth resulting from economic expansion had absorbed much of the excess capacity. As a result, the Company's styrene volumes began increasing late in the first fiscal quarter and by the third fiscal quarter prices and margins were increasing as well. Generally, all of the Company's products benefited in 1994 from the recovery under way in the global commodity chemical markets. While fiscal 1994 began with weak demand for both styrene and acrylonitrile, by the end of fiscal 1994 both products were experiencing higher prices, margins and sales volumes. Acrylonitrile. The Company manufactures acrylonitrile from propylene and ammonia using BPC technology. Acrylonitrile is principally used in the manufacture of intermediate products such as acrylic fibers and ABS resins. These intermediate products are used to produce various consumer products, including apparel, carpets, furnishings, upholstery, household appliances, and plastics for automotive parts. Approximately 80% of the Company's acrylonitrile production was exported in fiscal 1994, primarily through large international trading companies or in connection with a conversion agreement with BPC. In 1988, the Company entered into a long-term conversion agreement with BPC, under which BPC contributed the majority of the capital expenditures required to start the third acrylonitrile reactor train at the Texas City Plant and BPC has the option to take up to approximately one-sixth of the Company's total acrylonitrile capacity. BPC furnishes the necessary raw materials and pays the Company a conversion fee for the amount of acrylonitrile it takes. During fiscal 1994, the Company delivered approximately 9% of its acrylonitrile production to BPC pursuant to this agreement, while in fiscal 1993 and 1992, the quantity was immaterial. This agreement has an initial term of ten years, with BPC having the option to extend the agreement for two additional five-year terms. The third reactor incorporates certain BPC technological improvements under a separate license agreement from BPC. During the term of the agreement, the Company has the right to incorporate these and any future improvements into its other existing acrylonitrile facilities. BPC has a first security interest in and lien on the third reactor and related equipment and in the first acrylonitrile produced in the reactor units and the proceeds generated from the sales thereof to the extent of the acrylonitrile which - - --------------- * "Rated capacity" or "capacity" is calculated by estimating the number of days in a year that a production unit is expected to operate and multiplying that number by an amount equal to the production unit's optimal daily output. 3 6 BPC is entitled to purchase under the production agreement. These rights may only be exercised upon an event of default by the Company. The Company and Monsanto entered into a long-term conversion agreement effective January 1, 1994, which supersedes and contains essentially the same terms as a prior agreement that had been in place since 1986. This agreement will expire at the end of 1998. Under this agreement, Monsanto pays the Company a fee generally designed to cover fixed and variable costs and to provide an element of profit, dependent on the then existing market conditions, with respect to acrylonitrile delivered. The agreement permits Monsanto to terminate all or part of its obligation upon six months' notice to the Company should Monsanto sell or discontinue all or part of its business using acrylonitrile. During fiscal years 1994, 1993 and 1992, the Company delivered a substantial amount of its acrylonitrile production to Monsanto. The balance of the Company's acrylonitrile production is sold by its sales force and certain international agents. During fiscal 1993, the Company opened an office in Beijing, China. During fiscal 1994, the Company made its first direct sales of acrylonitrile into China and anticipates increased marketing opportunities in this region. According to industry publications, the total domestic capacity for acrylonitrile production is approximately three billion pounds per year with the Company's rated capacity of approximately 700 million pounds accounting for approximately 25% of the total. Other major domestic producers of acrylonitrile are Cytec Industries (formerly American Cyanamid Co.), Dupont, BPC and Monsanto. Acetic Acid. The Company produces acetic acid from carbon monoxide (produced on-site from carbon dioxide and natural gas) and methanol using a technology owned and licensed to the Company by BPC. Acetic acid is principally 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 has had an agreement in effect since August 1986 with BPC giving BPC the exclusive right to purchase all of the Company's acetic acid production until August 1996. In exchange for that exclusive right, BPC is obligated to make unconditional payments to the Company through August 1, 1996 sufficient to repay the Company's project loan related to the acetic acid unit. This project loan will be discharged pursuant to its terms on August 1, 1996. BPC provides methanol and reimburses the Company on the basis of a formula designed to provide the Company with full cost recovery. In addition, the Company is entitled to receive annually a portion of the profits earned by BPC from the sale of acetic acid produced by the Company. The acetic acid unit is subject to certain security arrangements (taking the form of a sale-leaseback transaction) which provide that until August 1996, under certain limited circumstances generally under the Company's control, BPC could take physical possession of and operate the acetic acid unit. In August of 1996, the Company will reacquire title to the acetic acid unit. In August 1994 the Company and BPC amended and restated the 1986 agreement to extend the production provisions (but not the security arrangements) to August 2016. In connection with this extension, the Company and BPC modified the profit sharing provisions of the 1986 agreement and terminated BPC's conditional right to further extensions of the Agreement. The Company has reached agreement with BPC to expand acetic acid capacity from about 600 million pounds to nearly 800 million pounds annually. This expansion is expected to be completed in fiscal 1996 and should make acetic acid the Company's second largest volume product. According to industry publications, the total domestic capacity for acetic acid production is approximately 3.8 billion pounds per year, with the Company's current rated capacity of about 600 million pounds representing approximately 16% of the total domestic capacity. The Company's major domestic competitors are Hoechst Celanese Corporation, Eastman Chemical Products, Inc. and Hanson plc (formerly Quantum Chemicals). Plasticizers. The Company manufactures plasticizers employing a series of processes using alpha-olefins and orthoxylene as the primary raw materials. Plasticizers are used to make various products, including 4 7 flexible plastics such as shower curtains and liners, floor coverings, cable insulation, upholstery and plastic molding. The Company has a product sales agreement with BASF that extends through the end of the decade but renews automatically for six years unless either party delivers a termination notice to the other on or prior to December 31, 1997. Pursuant to the agreement, the Company sells all of its plasticizer production to BASF. BASF provides certain raw materials to the Company and markets the plasticizers and 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. The Company's current rated capacity for the production of plasticizers is approximately 280 million pounds per year. The other major domestic producers of plasticizers are Exxon Chemical Americas, Aristech Chemicals and Eastman Chemical Products, Inc. Lactic Acid. The Company markets synthetic lactic acid to food processing and pharmaceutical companies in both the domestic and export markets through its sales personnel. The Company is the sole domestic producer of synthetic lactic acid, the highest purity lactic acid available. The Company uses hydrogen cyanide, a by-product of its acrylonitrile process, acetaldehyde and hydrogen chloride as raw materials. Primary uses for lactic acid are as a food additive and preservative and in pharmaceuticals. Major competition for the Company in lactic acid is from competitors who manufacture primarily fermentation grade lactic acid. Management believes that the quality of synthetic lactic acid generally is preferred over the quality of fermentation grade lactic acid, particularly in certain time and heat exposure applications. TBA. The Company manufactures TBA by adding part of the Company's by-product hydrogen cyanide to isobutylene in an acid catalyst reaction. TBA is used to make various products, including pesticides, solvents, pharmaceuticals and synthetic rubber. The Company sells all of its TBA production to Monsanto pursuant to a long-term contract that expires on December 31, 1996. The Company believes that there are currently only three TBA production units in the world: the Company's TBA unit (21 million pounds rated capacity), Nitto Chemical Industries Co., Ltd (3.3 million pounds rated capacity) and BASF (13 million pounds rated capacity). Sodium Cyanide. The Company operates a sodium cyanide facility owned by Dupont which was constructed in 1989 on land owned by the Company at the Texas City Plant. The facility has an annual rated capacity of 100 million pounds and utilizes as a raw material hydrogen cyanide, a by-product of the Company's acrylonitrile process. The Company and Dupont have an agreement whereby the Company receives a fee for operating the facility for up to 30 years. The Company is compensated by Dupont for the raw material value of the hydrogen cyanide as well as for the Company's allocated and incremental out-of-pocket costs for operating the facility. Either party may terminate this agreement by giving 36 months' written notice. Termination by the Company prior to the 15th anniversary of the agreement (May 2003) would require various remedies to be made by the Company to Dupont, including penalties and cost of removal of the facility from the Company's plant site. Termination by Dupont would require Dupont to pay for the cost of removal of the facility. Assignability of the agreement is limited, and if the Company assigns the agreement under certain circumstances, it must deliver to Dupont a lease for the land on which the facility is situated and permit Dupont to operate the facility. Dupont also may operate the sodium cyanide facility in the event of certain defaults. Pulp Chemicals On August 21, 1992 Sterling Canada, Inc. ("Sterling Canada"), a wholly-owned subsidiary of the Company, and Sterling Pulp Chemicals, Ltd., a wholly-owned subsidiary of Sterling Canada ("Sterling Pulp"), purchased substantially all of the assets of the pulp chemicals business of Albright & Wilson Americas, a division of Tenneco Canada, Inc., a wholly owned subsidiary of Tenneco Inc. ("Tenneco Canada") for approximately $202 million. All four of the Canadian plants acquired produce sodium chlorate, 5 8 and one also produces sodium chlorite. In addition to the manufacturing facilities, the Company acquired from Tenneco Canada an operating unit that is one of the largest worldwide suppliers of patented technology for the large-scale generators used by certain kraft pulp mills to convert sodium chlorate into chlorine dioxide. The purchased assets also include systems for the design, installation, sale and servicing of such generators for use by kraft pulp mills and the licensing and construction of sodium chlorate plants. Sodium Chlorate. Sodium chlorate is used in the production of chlorine dioxide and is sold primarily to paper manufacturers for use as a bleaching chemical for kraft pulp manufacturing. Kraft pulp is a strong paper or paperboard made from wood chips. Bleached kraft pulp is used to make uncoated paper for commercial printing and for office copiers and printers and coated paper for magazines, catalogues and promotional printed products. Chlorine dioxide also is used to bleach paperboard for packing, tissue and other products and as a raw material to produce sodium chlorite. Other uses for sodium chlorate include a raw material for rocket propellants and as a cotton defoliant. The Company markets sodium chlorate primarily in Canada and the U.S. heightened environmental concerns and new regulations limiting dioxins and furans in pulp mill effluent have resulted in growth in the sodium chlorate industry as pulp mills have begun to substitute chlorine dioxide for elemental chlorine. Chlorine dioxide is an environmentally preferred substitute for elemental chlorine in the bleaching of kraft pulp. Chlorine dioxide is a powerful and highly selective oxidizing agent suitable for pulp bleaching with the ability to produce high-brightness pulp with little or no damage to the cellulose fiber. There are currently efforts in some jurisdictions to ban all chlorine and chlorine-containing products, including chlorine dioxide, from the pulp bleaching process. See "--Environmental and Safety Matters." The Company is one of the three largest producers of sodium chlorate in North America. Its rated capacity of 320,000 metric tons accounts for approximately 20% of North American capacity. The Company's major North American competitors in the manufacture of sodium chlorate are Akzo Nobel (formerly Eka Nobel), Occidental Petroleum, Canadian Occidental and Kerr-McGee. The Company sells sodium chlorate generally under one to five year contracts, most of which provide for minimum and maximum volumes at market prices. In addition, most of these contracts contain certain "meet or release" pricing clauses. Certain contracts are evergreen and require advance notice before termination. Chlorine Dioxide Generators. Through its ERCO Systems Group, the Company is one of the largest worldwide suppliers 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. More importantly, however, the Company also receives royalties from the mills generally over the next ten-year period based on the amount of chlorine dioxide produced. The Company was awarded ten new generator contracts during fiscal 1994, while eight of the generators sold in prior years commenced operation in fiscal 1994. The research and development group of Sterling Pulp works to develop new and more efficient generators. When pulp mills move to higher chlorine substitution levels, they usually upgrade generator capacity which frequently requires 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. Selection by the mills of the type of generator and the supplier of sodium chlorate is completely independent. The Company's pulp chemicals business historically has supplied approximately two-thirds of all large scale pulp mill generators worldwide. The Company's major competitor is Akzo Nobel. Outside of North America, Akzo Nobel operates under the name Cell Chem. During fiscal 1993, the Company opened a small representative office in Beijing, China. This office is expected to develop opportunities for future sales of sodium chlorate and chlorine dioxide generators and/or for the licensing and construction of sodium chlorate plants in that region. The first generator in China to convert sodium chlorate to chlorine dioxide was sold by ERCO and commenced operation in fiscal 1994. Several more generators are under construction in China by ERCO. Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham, Quebec facility. That facility's capacity is approximately 3,000 metric tons per year. Sodium chlorite is a specialty product used 6 9 primarily for water treatment and as a disinfectant for fresh produce. North American capacity for sodium chlorite is approximately 13,000 metric tons with one other North American producer, Vulcan Chemicals. For information regarding the production capacities, operating rates and revenues generated by each of the Company's principal products, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations." AVAILABILITY OF RAW MATERIALS FOR PRODUCTS 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. The Company does not produce any of its major raw materials, benzene, ethylene, propylene and ammonia at the Texas City Plant, and electricity at its pulp chemical facilities. Moreover, some of the Company's competitors are integrated and produce their own raw materials. Although management believes that the Company will continue to be able to secure adequate supplies of its raw materials to meet its requirements at acceptable prices, 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 to the Company the ethylene and/or benzene necessary to fulfill its conversion obligations. In recent years, approximately one-third of the Company's ethylene has been furnished by customers pursuant to conversion arrangements. The Company nevertheless must purchase large volumes of ethylene and benzene for use in most of its production of styrene for sale to others. There is currently a high demand for ethylene and its price has risen significantly recently. The Company has arrangements with several ethylene suppliers that provide for its estimated requirements for purchased ethylene at generally prevailing and competitive market prices. If any of these suppliers were to experience significant operating problems, the Company would be forced to seek alternative sources at prices that could be unfavorable for the Company. Moreover, if various customers for whom the Company now manufactures styrene under conversion arrangements were to cease furnishing their own raw materials and seek only to purchase styrene from the Company, the Company's requirements for purchased ethylene and benzene could correspondingly increase. Acrylonitrile. The Company produces acrylonitrile by reacting propylene and ammonia over a solid-fluidized catalyst at low pressure. Similar to styrene, the Company sells a significant portion of its acrylonitrile pursuant to conversion agreements but must purchase large volumes of propylene and ammonia for use in most of its production of acrylonitrile for sale to others. 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 increase. Although currently the demand for propylene is high and the price of propylene has risen significantly recently, 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 manufacture of acrylonitrile and is used by the Company as a raw material for the production of lactic acid, TBA and sodium cyanide and any excess is burned as fuel. Acetic Acid. Acetic acid is manufactured by the Company primarily from carbon monoxide (produced on-site from carbon dioxide and natural gas) and methanol. At present, the Company's methanol is supplied by BPC under its long-term contract with the Company. The Company believes that methanol will be available for its needs for the foreseeable future. Carbon dioxide and natural gas are purchased under requirements contracts with major suppliers and are available in adequate supply. 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. Management believes that adequate supplies of raw materials will be available for the Company's needs in the foreseeable future. 7 10 Lactic Acid. Lactic acid is manufactured from the Company's hydrogen cyanide, a by-product of its acrylonitrile process, and two other raw materials, acetaldehyde and hydrogen chloride, which are readily available from commercial suppliers. 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. Monsanto supplies the isobutylene, sulfuric acid and caustic soda under its long-term contract with the Company, and management 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 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. There are various technologies available for production of sodium chlorate. The Company's current technology was developed internally prior to the acquisition and is metal cell technology utilizing titanium anodes, piping and reactors. Electric power is purchased by each of the Company's pulp chemical facilities pursuant to contracts with local electric utilities. Electric power costs typically represent approximately 70% of the variable cost of production of sodium chlorate. 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 (salt) 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 connection with the Company's purchase of the Texas City Plant in 1986, Monsanto assigned to the Company certain third party technology licenses that granted the Company a nonexclusive, irrevocable and perpetual right and license to use Monsanto's technology at the Texas City Plant in effect at the time of the acquisition for the purpose of (i) continuing the production of the chemicals which were then produced at the Texas City Plant and (ii) modifying, operating and maintaining the synthesis gas production unit to produce carbon monoxide, blend gas and hydrogen for internal plant use. During fiscal 1991, BPC purchased the technology and the license related to the acetic acid unit from Monsanto. Under this license, the Company is not obligated to make any royalty payments to BPC. The Company believes that these licenses are material to the operation of the Texas City Plant. The right and license granted by Monsanto with respect to styrene does not require the Company to make royalty payments unless the styrene capacity or production level exceeds 1.5 billion pounds per year. In the event that Monsanto grants to another a similar license with respect to styrene offering more favorable royalty rates, Monsanto must offer the Company the more favorable rates. BPC has granted to the Company a perpetual, royalty free license to use BPC's acrylonitrile technology at the Company's Texas City Plant as part of the acrylonitrile expansion project. The Company and BPC have agreed to cross-license any technology or improvements relating to the manufacture of acrylonitrile in the Company's facility. During the term of the sodium cyanide contract, Dupont has the option to provide to the Company any improvements in its sodium cyanide technology without cost to the Company. Management 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 management believes it is appropriate, the Company seeks to obtain licenses for process improvements. 8 11 PULP CHEMICALS Along with the sodium chlorate manufacturing facilities, the Company also acquired from Tenneco Canada an operating unit that is one of the largest worldwide suppliers of patented technology for the generators used by certain pulp mills to convert sodium chlorate into chlorine dioxide. The purchased assets also included chlorine dioxide generation technology and systems for the design, installation, sale and servicing of such technology for use by kraft pulp mills. The principal business of this unit is the design, sale and technical service of custom-built patented chlorine dioxide generators. Sterling Pulp's engineering group is involved in the technical support of its company's sales and marketing group through joint calling efforts and defines the scope of a project and produces technical schedules and cost estimates. The Company subcontracts the detailed design and construction of the chlorine dioxide generators. Plant and instrumentation testing and generator start-up are handled by a joint engineering/technical service team of the Company. The Company is involved in a number of patent disputes with Akzo Nobel. See Item 3, "Legal Proceedings." The Company's pulp chemicals 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 chorine dioxide, its by-products and pulp mill effluent. ENVIRONMENTAL AND SAFETY MATTERS The Company's operations are subject to extensive regulation relating to environmental emissions or discharges, process controls, waste management, worker and community health and safety and chemical products. Operating permits or approvals are or may be required for the Company's production operations and waste disposal practices, and these permits are subject to revocation or modification for cause and to renewal upon expiration. Governmental authorities have the power to enforce compliance with these regulations and permits, and violators are subject to mandatory orders, fines, injunctions or imprisonment of individuals. In the U.S., third parties may also have the right to sue to enjoin certain actions or to enforce compliance. Management believes that the environmental management programs that the Company has implemented to maintain compliance with applicable environmental laws are exemplary for the chemical industry generally. As part of its ongoing environmental oversight efforts, the Company conducts or commissions reviews of its environmental performance and addresses issues identified in those reviews. 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 off-site consequences from any unanticipated event, the Company acquired a greenbelt buffer zone adjacent to the Texas City Plant in 1991. The Company also initiated and continues its participation in a regional air monitoring network to monitor ambient air quality in the Texas City community. This model five-year program is a cooperative effort as part of the Company's commitment to the Chemical Manufacturers Association and Canadian Chemical Producers Association Responsible Care initiatives. The Company was a Regional Finalist in EPA's Administrator Awards for 1992 in recognition of "excellence in effort and significant contributions to environmental improvement through pollution prevention." In 1993 and 1994, the Company received a Certificate of Nomination from the EPA in recognition of the efficient operation, maintenance and management of its deep-well disposal facility. In 1994 the Company's Commitment to Safety was also rewarded. The Company became the first facility in Texas City, Texas to be accepted into the Merit Program of the U.S. Occupational Safety and Health Administration ("OSHA"), part of OSHA's Voluntary Protection Program. 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. For example, at both the state and federal level, the trend towards regulation of discharges on a sectoral, geographic or multimedia basis may directly or indirectly affect producers of specific chemicals. Such actions may be expected to exert pressure on companies in the commodity chemical industry to enhance their wastewater recycling and on-site treatment systems to reflect the government's evolving 9 12 views. 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. There can be no assurance that material costs and liabilities will not be incurred. Production of chemical products involves the use, storage, transportation and disposal of materials that may be classified as hazardous or toxic under applicable laws. Management believes that the Company's 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. In connection with the Company's purchase of the Texas City Plant from Monsanto, Monsanto contractually retained liability for any pre-closing violations, for pre-closing deposits or emissions, including costs for cleanups (defined as remediation work mandated by a governmental agency to clean up, contain or remove hazardous substances) and third party claims as a result thereof and for related legal fees, costs and expenses. These obligations terminate under a variety of circumstances, including an assignment of the acquisition agreement without Monsanto's consent. The obligations also terminate if either of Mr. Gordon A. Cain or Mr. J. Virgil Waggoner, the Company's Chairman and President, respectively, cease to have active management responsibility for the Company or cease to own at least 2.5% of the outstanding voting stock of the Company, except due to death or disability. The Company has the right, until August 1, 1996, to designate, subject to Monsanto's reasonable approval, a replacement for either of these individuals who might die or become disabled on or before such date. After that date, the Monsanto indemnity obligations expire, if, for any reason, either of the two named individuals no longer have such management responsibility or ownership. These obligations may also terminate (as to the facilities as a whole or any operating unit) on the purchase or assumption of operating responsibility by a third party for the entire facility or unit. Under certain circumstances, however, BPC's assumption of operating control of the acetic acid unit under the BPC agreement would not terminate Monsanto's obligations. The indemnity obligations would also terminate or be limited in the event of other occurrences such as the release by the Company of securely-contained deposits or the operation of the deep injection wells in excess of certain contractual limitations. The expansion of the acrylonitrile facilities has caused the injection wells to be operated outside of those contractual operating conditions, although within applicable state operating permit conditions. This may jeopardize Monsanto's contractual indemnity with respect to the injection wells. The Company's management is unable to determine the impact, if any, of such loss of indemnity for the injection wells or the potential expiration of the indemnity upon a change in ownership or management, as described above, after August 1, 1996. In connection with the Company's purchase of the pulp chemicals business, Tenneco Canada contractually retained liability for costs, damages, fines, penalties and other losses arising from claims by third parties (including employees and authorities) arising from the ownership or operation of the facilities and businesses prior to the acquisition. Tenneco Canada's indemnification obligations are guaranteed by Albright & Wilson Ltd., subject to certain net-worth conditions. The Company is also indemnified against the breach of Tenneco Canada's environmental remediation covenants. These covenants oblige Tenneco Canada 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 in connection with environmental conditions predating the acquisition. Tenneco Canada has, in addition, indemnified the Company against losses arising from the remediation of preacquisition environmental conditions or from preacquisition violations of environmental laws. With the exception of any third party claims, the losses against which the Company is indemnified do not include consequential damages or lost profits. Environmental regulations may also affect certain of the Company's markets. For example, there are currently efforts by certain environmental groups to ban all chlorine and chlorine-containing products, including chlorine dioxide, from the pulp bleaching process. The Canadian province of British Columbia has passed legislation that would effectively ban the discharge of effluents containing certain byproducts that result from the use of chlorine or chlorine-containing bleaching agents by the year 2002. In light of recent scientific 10 13 research, however, the Environment Ministry of British Columbia has expressed willingness to reconsider its ban on effluent discharges containing chlorine-bleaching products. Any significant ban on all chlorine products could have a material adverse effect on the Company's financial condition and results of operations. The pulp and paper portions of the chemical industry are opposing such proposals and legislation. The Company believes British Columbia will face both scientific reasons and economic pressures to change its legislation. The Company and most of its customers believe that bleaching methods that substitute chlorine dioxide for elemental chlorine achieve all reasonable pollution reduction targets for air and water emissions, and that a conversion to totally chlorine-free bleaching will yield no measurable environmental or public health benefits. The cost to industry of switching to alternative bleaching methods would be significant and important qualities of pulp and paper such as strength, durability, brightness, absorbency and softness would be diminished. Based on current scientific research, the Company believes that higher levels of chlorine dioxide substitution for elemental chlorine may be the preferred solution and the current technical debate could actually benefit the Company. The ultimate resolution of this issue may not be known for several years. Long-term joint research efforts between the University of Toronto and the Company have had a significant role in the widespread adoption of chlorine dioxide as a substitute for elemental chlorine in the pulp bleaching process. Among other activities, the University of Toronto is conducting research into the characterization of organochlorine compounds found in pulp and paper products and mill effluents. This research should be valuable in directing the Company's activity to help its chlorine dioxide pulp bleaching technologies meet customer and environmental demands. The Company was also one of the leading founders of an industry association to commission scientific research into the environmental effects of the production and use of chlorine dioxide. The association will continue to focus on supporting the pulp and paper industry in regulatory and legislative matters through sound science. 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. The Company has completed a focused baseline sampling of groundwater conditions beneath its Canadian facilities in connection with Tenneco Canada's indemnification of the Company for preclosing conditions which confirmed the previous data. 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. Tenneco Canada continues to work with the provincial governments to address these issues. The Company from time to time has encountered elevated concentrations of chemicals in soils or groundwater at its plants which it has or is addressing. Emissions into the air from the Company's Texas City Plant are subject to certain permit requirements and self-implementing emission limitations and standards under state and federal law. The Company's 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 1992 and modified in fiscal 1994 by the Texas Natural Resource Conservation Commission ("TNRCC") in order to achieve ambient air quality standards for ozone. These measures may substantially increase the Company's VOCs and NOx control costs in the future, although the cost and full impact, if any, cannot be determined at this time. See also Item 3. "Legal Proceedings". Additionally, the Clean Air Act Amendments of 1990 contain new federal permit requirements and provisions governing toxic air emissions. The Company expects that it will incur additional compliance costs as a result of this law as well as requirements issued by the State of Texas to control VOCs and NOx, as will all other organic chemical manufacturing facilities similarly situated. The cost and full impact cannot be determined at this time. The Company has voluntarily committed to achieve, by 1995, a 65% reduction in emissions of six of the chemicals targeted in the EPA's "33/50 Plan," which called for voluntary emissions reductions. The Company met this commitment in reporting year 1991, four years ahead of schedule. In addition, by 1993 further emission reductions had resulted in a 83% voluntary decrease in the emissions of these targeted compounds. 11 14 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. Management believes that the issues disclosed by the review have been or are being addressed and that the Company is otherwise in compliance in all material respects with permit requirements under applicable provincial law for operating emissions sources. Management believes that the Company's solid and hazardous waste management practices are in compliance in all material respects with permit and other requirements under applicable environmental law. However, there can be no assurance that past practices will not result in claims or regulatory action. See also Item 3. "Legal Proceedings." EMPLOYEES As of September 30, 1993, just over 1,200 persons were employed by the Company 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 except security guards at the Texas City Plant. The union agreements for the security guards are with the Associated Guards of the United States. These agreements were last negotiated in May 1993 and are again subject to renegotiation in May 1996. Employees at the Buckingham and Vancouver plants are represented by the Energy and Chemicals Workers Union and the Pulp Paper and Woodworkers Union, respectively. The Buckingham agreement, which was last negotiated in December 1992, expires in November 1994 and negotiations are underway. The Vancouver agreement was renegotiated in November 1994 and is subject to renegotiation in November 1997. The Company enjoys a good relationship with its employees. INSURANCE The Company maintains $75 million in excess liability coverage. In addition, it 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 affect on the Company's financial condition and operations. The Company maintains $364 million of combined coverage for property damage and resulting business interruption for its pulp chemical operations. The Company also maintains other insurance covering risks associated with its business. From time to time various types of insurance for companies in the chemicals 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. In addition, a catastrophic event at the Company's facilities could result in liabilities to the Company in excess of its insurance coverages. ITEM 2. PROPERTIES 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 drums, containers, trucks, railcars, barges and ocean-going tankers for shipment to customers. The 290-acre site offers room for future expansion and includes a greenbelt around 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 synthesis gas complex, the acetic acid unit and three plasticizer units (oxo-alcohol, phthalic anhydride and linear phthalate esters). Carbon monoxide and hydrogen are utilized as feedstocks in the oxo-alcohol manufacturing process, and carbon monoxide is a feedstock to produce acetic acid. A second group of operating units involves acrylonitrile and hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit, the lactic acid unit, the TBA unit and the 12 15 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 facility from a feedstock and by-product standpoint, it is the cornerstone of the Company'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 Company's steam generating facility. In this way, the Company'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, plant and equipment which comprise its Texas City Plant, other than the sodium cyanide unit owned by Dupont, the acetic acid unit and related facilities which it operates under a sale leaseback arrangement with BPC that expires in August of 1996 and a cogeneration facility owned by a joint venture with a subsidiary of Praxair, Inc. The Company also owns storage facilities, approximately 200 rail cars and an acetic acid barge. In addition, the Company leases 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 Asia. The Company's pulp chemical operations include four manufacturing plants. The Company purchased 20 acres out of a total of 104 acres (owned by Tenneco Canada) at the Buckingham, Quebec site. The facility is essentially a stand-alone operation and is physically separate from the other facilities at the site. The Vancouver, British Columbia site covers 20 acres owned by the Company. The Thunder Bay, Ontario and Grande Prairie, Alberta sites are leased by the Company. The Company also leases approximately 200 rail cars. Headquarters for the Canadian operations is located in Toronto in a single story office building owned by the Company which contains approximately 50,000 square feet. 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. Management 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 Company is subject to claims and legal actions that arise in the ordinary course of its business. There is no litigation pending or threatened against the Company that management believes will have a material adverse effect on the financial position or results of operations of the Company. On May 9, 1991, a lawsuit styled Moranda Allen, et al. v. Sterling Chemicals, Inc., et al., Cause No. 91-019786; In the 127th Judicial District Court of Harris County, Texas, was filed against the Company and several other petrochemical companies operating in the Texas City area. The plaintiffs in the lawsuit assert personal injury and property damage claims arising from alleged chemical releases. The plaintiffs seek an unspecified amount of damages in excess of $50,000. Although the court dismissed a number of the plaintiffs for failure to comply with discovery, over 300 plaintiffs remain in the action. The Company is vigorously defending the lawsuit. On April 27, 1994, approximately 1,000 plaintiffs sued the Company and 18 other corporate defendants in the Texas City area in a lawsuit styled Angela Smith, et al. v. Amoco Chemical Company, et al.; Cause No. B-0148-927; In the 60th Judicial District Court of Jefferson County, Texas. The plaintiffs seek an unspecified amount of damages in excess of $50,000 for claimed personal injury and property damages arising from alleged chemical releases. Discovery is proceeding and the Company is vigorously defending this lawsuit. On May 8, 1994, an ammonia release occurred at the Texas City Plant facility while a reactor in the acrylonitrile unit was being restarted after a shutdown for routine maintenance. The Company estimates that approximately 3,000 pounds of ammonia were emitted into the atmosphere. As of November 15, 1994, approximately 9,000 individuals had filed claims directly with the Company alleging personal injury and/or property damage as a result of exposure to the ammonia. The Company and its insurance carrier are in the 13 16 process of evaluating the merits of these claims. Approximately 2,000 of these claims have been settled and 3,000 have been denied by the Company. As of December 15, 1994, five lawsuits involving approximately 1,100 plaintiffs had been filed against the Company seeking unspecified damages for personal injuries and property damage as a result of the release. Otis Pointer, et al. v. Sterling Chemicals, Inc., et al.; Cause No. 94-CV-0514; In the 56th Judicial District Court of Galveston County, Texas; Bobbie J. Adams, et al. v. Sterling Chemicals, Inc.; Cause No. 94-CV-0764; In the 56th Judicial District Court of Galveston County, Texas; Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No. 94-CV-0947; In the 56th Judicial District Court of Galveston County, Texas; and Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94-CV-1147; In the 212th Judicial District Court of Galveston County, Texas; Beverly O. Mitchell, et al. v. Sterling Chemical, Inc., et al.; Cause No. 94-CV-1312; In the 202nd Judicial District Court of Galveston County, Texas. The Company anticipates that additional claims and litigation against the Company asserting similar claims will ensue. The Company believes that its general liability insurance coverage is sufficient to cover anticipated costs and expenses and has accrued its deductible under this coverage. The Company intends to vigorously defend these claims and litigation. The Company's primary competitor in the supply of patented technology for generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel (formerly Eka Nobel) and its affiliates. The Company is engaged with Akzo Nobel in numerous patent disputes throughout the world in which the Company and Akzo Nobel are challenging certain patents of the other and attempting to restrict the other's operating range. If either party is successful in these disputes, the other party may have to make adjustments and modifications in its commercial operations or obtain a license from the prevailing party. The Company s management believes that any potential costs for such adjustments or modifications would not be material. The Company believes it is entitled to certain indemnities from Tenneco Canada with respect to the technology acquired from Tenneco Canada. In October 1993, the Company and the Internal Revenue Service ("IRS") agreed upon a basis for settlement of the adjustments proposed as a result of the IRS' examination of the Company's federal income tax returns for fiscal years 1987 through 1990. This settlement will result in a tax refund of approximately $3,800,000 plus interest. The settlement also requires adjustments to the fiscal year 1991 and 1992 federal income tax returns which will result in additional taxes owed of approximately $1,400,000 plus interest. In addition, the Company s deferred tax liability for future years will increase by approximately $4,000,000. During fiscal year 1992, the Company accrued $2,000,000 in anticipation of this settlement. These adjustments resulted in a reduction of $429,000 in tax expense during fiscal 1994. On August 6, 1993, the Company received a Notice of Violation ("NOV") from the TNRCC alleging that NOx emissions from one of its Waste Oxidation Boilers ("WOB-A") exceeded a federal new source performance standard that the TNRCC contends is applicable. The Company has challenged the applicability of this federal standard in its timely response to the NOV. WOB-A operates under a permit issued by the TNRCC, which contains a NOx emission limit which is less stringent than the NOx limit set in the federal standard which the permit incorporates by reference. In February 1993, the Company filed a petition with the EPA seeking relief from the more stringent federal standard. In August 1994, EPA notified the Company that after reviewing extensive technical data provided by the Company regarding the operation of WOB-A and the NOx content of the fuel stream used to fire that boiler, EPA has determined that WOB-A was being (and had always been) operated in compliance with the federal NOx standard. The Company believes that all compliance issues associated with NOx emissions from WOB-A have been resolved, and is awaiting TNRCC's concurrence that EPA's finding resolves all enforcement issues with respect to WOB-A. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1994. 14 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information on pages 21, 29, 30 and page 38 of the Company's 1994 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 6. SELECTED FINANCIAL DATA The information on pages 38 and 39 of the Company's 1994 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 18 to 23 of the Company's 1994 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The information on pages 24 to 39 of the Company's 1994 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning directors of the Company beginning on page 2 and the information beginning on page 15 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareholders is incorporated herein by reference in response to this item. ITEM 11. EXECUTIVE COMPENSATION The information concerning Executive Compensation beginning on page 5 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareholders 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 2 and beginning on page 13 of the Proxy Statement for the Company's 1995 Annual Meeting of Shareholders is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 15 18 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 ---- Report of Management....................................................... * Report of Independent Accountants.......................................... * Sterling Chemicals, Inc. Consolidated Balance Sheet as of September 30, 1994 and 1993............................................................ * Sterling Chemicals, Inc. Consolidated Statements of Operations for the fiscal years ended September 30, 1994, 1993 and 1992..................... * Sterling Chemicals, Inc. Consolidated Statement of Changes in Stockholders' Equity for the fiscal years ended September 30, 1994, 1993 and 1992...... * Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for the fiscal years ended September 30, 1994, 1993 and 1992..................... * Notes to Consolidated Financial Statements................................. * 2. Consolidated Financial Statement Schedules Report of Independent Accountants.......................................... S-1 Schedule V -- Property, Plant and Equipment for the fiscal years ended September 30, 1994, 1993 and 1992........................... S-2 Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the fiscal years ended September 30, 1994, 1993 and 1992........................... S-3 Schedule X -- Supplementary Income Statement Information for the fiscal years ended September 30, 1994, 1993 and 1992............... S-4
All other 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. 3. Exhibits Except as otherwise noted under "Description of Exhibit," each exhibit is incorporated by reference to the exhibit of the same number filed with the Company's Registration Statement of Form S-1 (Registration No. 33-24020).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 2.1 Purchase Agreement dated as of August 20, 1992 between Tenneco Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and Sterling Canada, Inc. as Buyers (Purchase Agreement)incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K dated as of September 3, 1992. 3.1 Restated Certificate of Incorporation of the Company. **3.2 Amended By-laws of the Company. 4.2 Form of Registration Rights Agreements dated as of July 30, 1986 among the Company and the holders of Common Stock listed on the signature page thereto. 10.1 Asset 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.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 10.2 Third Amended and Restated Credit Agreement dated as of August 20, 1992 among the Company, the Banks, The Chase Manhattan Bank (National Association) ("Chase"), and The Bank of Nova Scotia, as Agent incorporated by reference from Exhibit 10.2(F) to the Company's Current Report on Form 8-K dated September 2, 1992. 10.3 Amendment No. 1 dated as of August 20, 1992 among the Company, the Banks and The Bank of Nova Scotia as Agent incorporated by reference from exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.3(A) Amendment No. 2 dated as of June 30, 1993 among the Company, the Banks and The Bank of Nova Scotia, as Agent. **10.3(B) Amendment No. 3 dated as of April 29, 1994 among the Company, the Banks and The Bank of Nova Scotia, as Agent. 10.4 Third Amended and Restated Security Agreement dated as of August 20, 1992, among the Company, the Banks and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.5 First Amendment to Credit Agreement dated as of August 20, 1992 among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial institutions and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.5(A) Second Amendment to Credit Agreement dated as of March 31, 1993 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain financial institutions and The Bank of Nova Scotia, as Agent. **10.5(B) Third Amendment to Credit Agreement dated as of September 30, 1994 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain financial institutions and The Bank of Nova Scotia, as Agent. 10.6 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Salaried Employees' Pension Plan 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. **10.6(a) Supplement to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan Restated as of January 1, 1994. **10.6(b) First and Second Amendments to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan dated April 27, 1994 and September 23, 1994, respectively. 10.8 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Hourly Paid Employees' Pension Plan 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. **10.8(a) Supplement to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan restated as of January 1, 1994. **10.8(b) First Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan dated April 27, 1994. 10.10 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. **10.10(a) Supplements to Sterling Chemicals, Inc. Savings and Investment Plan for Hourly Paid Employees and Salaried Employees.
17 20
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- **10.10(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. 10.12 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. **10.12(a) First Amendment to the Sterling Chemicals, Inc. Amended and Restated Employees' Stock Ownership Plan dated April 27, 1994. 10.15 Sterling Chemicals, Inc. Pension Benefit Equalization Plan incorporated by reference from exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.16 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan. +10.17 Styrene Monomer Sales Contract dated as of August 1, 1991, between the Company and Monsanto Company incorporated by reference from exhibit 10.12(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. +10.18 Styrene Monomer Exchange Contract dated as of August 1, 1991, between the Company and Monsanto Company incorporated by reference from exhibit 10.13(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. ++10.19 Acrylonitrile Exchange Contract dated January 1, 1994, between the Company and Monsanto Company. ++10.21 Amended and Restated Lease and Production Agreement dated August 8, 1994, between BP Chemicals Americas Inc. and the Company. +10.22 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. ++10.22(a) Amendment No. 3 to Product Sales Agreement as of January 1,1994 between BASF Corporation and the Company. +10.25 Production Agreement dated April 15, 1988 between BP Chemicals Americas Inc. and the Company and First and Second Amendment thereto. +10.26 Agreement dated May 2, 1988, between E.I. du Pont de Nemours and Company and the Company. 10.27 License Agreement dated April 15, 1988, between BP Chemicals Americas Inc. and the Company. +10.28 Sales Agreement dated September 1992, between the Company and Mitsubishi International Corporation incorporated by reference from exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.29 License Agreement dated August 1, 1988, between the Monsanto Company and the Company. **10.30 Form of Indemnity Agreement executed between the Company and each of its officers and directors. 10.31 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. 10.32 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.
18 21
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 10.33 Agreement dated January 30, 1987 among J. Virgil Waggoner, Gordon A. Cain and the Company regarding capital stock of the Company. 10.35 Article of Agreement between the Company, its successors and assigns and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas May 1, 1992 to May 1, 1995 incorporated. 10.36 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 10.37 Sterling Chemicals, Inc. Deferred Compensation Plan. +10.38 Buckingham Transition and Services Agreement dated as of August 21, 1992 between Tenneco Canada Inc. and Sterling Pulp Chemicals, Ltd. incorporated by reference from exhibit 10.36 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.39 Processing Agreement dated as of August 21, 1992 between ERCO Industries, Inc. and Sterling Canada, Inc. 10.40 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 Indemnitees 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. 10.41 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 Indemnitees under 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. 10.42 Replacement Subordinated Promissory Note dated August 20, 1992 in the original principal amount of $44,268,114.43 from Sterling Canada, Inc. to Tenneco Credit Corporation incorporated by reference from exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.43 Subordinated Note Guaranty dated as of August 20, 1992 by the Company in favor of Tenneco Canada Inc. incorporated by reference from exhibit 10.41 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.44 Credit Agreement dated as of August 12, 1992 among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial institutions and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.42 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.45 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. 10.46 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.
19 22
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- ++10.48 Sales and Purchase Agreement dated April 1, 1994 between BP Chemicals Ltd. and the Company. ++10.49 Contract for Sale and Purchase of Ethylene dated October 28, 1988 between Phillips 66 Company and the Company. **10.50 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 **13.1 Sterling Chemicals, Inc. Annual Report to Shareholders for the fiscal year ended September 30, 1994. **27 Financial Data Schedule
- - --------------- * Incorporated herein by reference to the appropriate portions of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1994. ** Filed herewith. + Confidential treatment has been requested with respect to positions 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. No reports on Form 8-K were filed during the quarter ended September 30, 1994. 20 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STERLING CHEMICALS, INC. (Registrant) By: /s/ J. VIRGIL WAGGONER (J. Virgil Waggoner) President and Chief Executive Officer Date: December 5, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE - - ----------------------------------------------- ------------------------- ------------------ /s/ GORDON A. CAIN Chairman of the Board of December 5, 1994 (Gordon A. Cain) Directors /s/ J. VIRGIL WAGGONER President and Director December 5, 1994 (J. Virgil Waggoner) (principal executive officer) /s/ JIM P. WISE Vice President -- Finance December 5, 1994 (Jim P. Wise) (principal financial officer) /s/ PAUL G. VANDERHOVEN (Paul G. Vanderhoven) Controller (principal December 5, 1994 accounting officer) /s/ JAMES J. KERLEY (James J. Kerley) Director December 5, 1994 /s/ RAYMOND R. KNOWLAND (Raymond R. Knowland) Director December 5, 1994 /s/ WILLIAM A. McMINN (William A. McMinn) Director December 5, 1994 /s/ FRANK J. PIZZITOLA (Frank J. Pizzitola) Director December 5, 1994 /s/ GILBERT M. A. PORTAL (Gilbert M. A. Portal) Director December 5, 1994
21 24 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Sterling Chemicals, Inc. has been incorporated by reference in this Form 10-K from page 37 of the 1994 Annual Report to Shareholders of Sterling Chemicals, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the table of contents on page 16 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND L.L.P. November 11, 1994 Houston, Texas S-1 25 SCHEDULE V STERLING CHEMICALS, INC. PROPERTY, PLANT AND EQUIPMENT FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS)
- - ---------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------- BALANCE AT BALANCE BEGINNING AT END OF PERIOD ADDITIONS RETIREMENTS TRANSFERS OTHER OF PERIOD - - ---------------------------------------------------------------------------------------------------------------- Year ended September 30, 1992 Land............................ $ 4,226 $ 5,015 $ -- $ -- $ -- $ 9,241 Buildings....................... 13,021 11,406 -- 690 -- 25,117 Machinery and Equipment......... 259,964 106,462 (236) 29,198 -- 395,388 Construction in Progress........ 30,667 14,946 -- (29,888) -- 15,725 ---------- --------- --------- --------- ------- --------- Total................... $ 307,878 $ 137,829 $ (236) $ -- $ -- $ 445,471 ========== ========= ========= ========= ======= ========= Year ended September 30, 1993 Land............................ $ 9,241 $ -- $ -- $ -- $ (330) $ 8,911 Buildings....................... 25,117 -- -- 37 (857) 24,297 Machinery and Equipment......... 395,388 291 (2,363) 8,839 (8,179) 393,976 Construction in Progress........ 15,725 11,427 -- (8,876) 1,933 20,209 ---------- --------- --------- --------- ------- --------- Total................... $ 445,471 $ 11,718 $ (2,363) $ -- $(7,433) $ 447,393 ========== ========= ========= ========= ======= ========= Year ended September 30, 1994 Land............................ $ 8,911 $ -- $ -- $ 2,892 $ (32) $ 11,771 Buildings....................... 24,297 -- (1) 721 (73) 24,944 Machinery and Equipment......... 393,976 129 (1,267) 14,710 (688) 406,860 Construction in Progress........ 20,209 12,258 -- (18,323) (12) 14,132 ---------- --------- --------- --------- ------- --------- Total................... $ 447,393 $ 12,387 $ (1,268) $ -- $ (805) $ 457,707 ========== ========= ========= ========= ======= =========
S-2 26 SCHEDULE VI STERLING CHEMICALS, INC. ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS)
- - ------------------------------------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------------------------------------ ADDITIONS BALANCE AT CHARGED BALANCE BEGINNING TO AT END OF PERIOD EXPENSE RETIREMENTS OTHER OF PERIOD - - ------------------------------------------------------------------------------------------------------------ Year Ended September 30, 1992 Buildings.................................. $ 3,338 $ 878 $ -- $ -- $ 4,216 Machinery and Equipment.................... 73,962 23,573 (95) -- 97,440 --------- -------- -------- ----- --------- Total................................. $ 77,300 $24,451 $ (95) $ -- $ 101,656 ========= ======== ======== ===== ========= Year Ended September 30, 1993 Buildings.................................. $ 4,216 $ 1,294 $ -- $ (21) $ 5,489 Machinery and Equipment.................... 97,440 31,615 (1,091) (375) 127,589 --------- -------- -------- ----- --------- Total................................. $ 101,656 $32,909 $(1,091) $(396) $ 133,078 ========= ======== ======== ===== ========= Year Ended September 30, 1994 Buildings.................................. $ 5,489 $ 1,388 $ -- $ (36) $ 6,841 Machinery and Equipment.................... 127,589 32,944 (771) (22) 159,740 --------- -------- -------- ----- --------- Total................................. $ 133,078 $34,332 $ (771) $ (58) $ 166,581 ========= ======== ======== ===== =========
S-3 27 SCHEDULE X STERLING CHEMICALS, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992 (DOLLARS IN THOUSANDS)
- - ----------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ------------------------------- 1994 1993 1992 - - ----------------------------------------------------------------------------------------------- Maintenance and Repairs....................................... $57,726 $53,061 $49,630 Depreciation and Amortization of Intangible Assets............ 6,134 6,038 773 Property Taxes(1)............................................. 8,877 9,396 7,769
- - --------------- (1) Taxes, other than property taxes, payroll and income taxes, do not exceed 1% of total revenues. S-4 28 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 2.1 Purchase Agreement dated as of August 20, 1992 between Tenneco Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and Sterling Canada, Inc. as Buyers (Purchase Agreement)incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K dated as of September 3, 1992. 3.1 Restated Certificate of Incorporation of the Company. **3.2 Amended By-laws of the Company. 4.2 Form of Registration Rights Agreements dated as of July 30, 1986 among the Company and the holders of Common Stock listed on the signature page thereto. 10.1 Asset 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 Third Amended and Restated Credit Agreement dated as of August 20, 1992 among the Company, the Banks, The Chase Manhattan Bank (National Association) ("Chase"), and The Bank of Nova Scotia, as Agent incorporated by reference from Exhibit 10.2(F) to the Company's Current Report on Form 8-K dated September 2, 1992. 10.3 Amendment No. 1 dated as of August 20, 1992 among the Company, the Banks and The Bank of Nova Scotia as Agent incorporated by reference from exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.3(A) Amendment No. 2 dated as of June 30, 1993 among the Company, the Banks and The Bank of Nova Scotia, as Agent. **10.3(B) Amendment No. 3 dated as of April 29, 1994 among the Company, the Banks and The Bank of Nova Scotia, as Agent. 10.4 Third Amended and Restated Security Agreement dated as of August 20, 1992, among the Company, the Banks and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.5 First Amendment to Credit Agreement dated as of August 20, 1992 among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial institutions and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.5(A) Second Amendment to Credit Agreement dated as of March 31, 1993 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain financial institutions and The Bank of Nova Scotia, as Agent. **10.5(B) Third Amendment to Credit Agreement dated as of September 30, 1994 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain financial institutions and The Bank of Nova Scotia, as Agent.
29
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 10.6 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Salaried Employees' Pension Plan 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. **10.6(a) Supplement to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan Restated as of January 1, 1994. **10.6(b) First and Second Amendments to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan dated April 27, 1994 and September 23, 1994, respectively. 10.8 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Hourly Paid Employees' Pension Plan 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. **10.8(a) Supplement to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan restated as of January 1, 1994. **10.8(b) First Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan dated April 27, 1994. 10.10 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. **10.10(a) Supplements to Sterling Chemicals, Inc. Savings and Investment Plan for Hourly Paid Employees and Salaried Employees. **10.10(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. 10.12 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. **10.12(a) First Amendment to the Sterling Chemicals, Inc. Amended and Restated Employees' Stock Ownership Plan dated April 27, 1994. 10.15 Sterling Chemicals, Inc. Pension Benefit Equalization Plan incorporated by reference from exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.16 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan. +10.17 Styrene Monomer Sales Contract dated as of August 1, 1991, between the Company and Monsanto Company incorporated by reference from exhibit 10.12(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. +10.18 Styrene Monomer Exchange Contract dated as of August 1, 1991, between the Company and Monsanto Company incorporated by reference from exhibit 10.13(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. ++10.19 Acrylonitrile Exchange Contract dated January 1, 1994, between the Company and Monsanto Company. ++10.21 Amended and Restated Lease and Production Agreement dated August 8, 1994, between BP Chemicals Americas Inc. and the Company. +10.22 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. ++10.22(a) Amendment No. 3 to Product Sales Agreement as of January 1,1994 between BASF Corporation and the Company.
30
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- +10.25 Production Agreement dated April 15, 1988 between BP Chemicals Americas Inc. and the Company and First and Second Amendment thereto. +10.26 Agreement dated May 2, 1988, between E.I. du Pont de Nemours and Company and the Company. 10.27 License Agreement dated April 15, 1988, between BP Chemicals Americas Inc. and the Company. +10.28 Sales Agreement dated September 1992, between the Company and Mitsubishi International Corporation incorporated by reference from exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.29 License Agreement dated August 1, 1988, between the Monsanto Company and the Company. **10.30 Form of Indemnity Agreement executed between the Company and each of its officers and directors. 10.31 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. 10.32 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. 10.33 Agreement dated January 30, 1987 among J. Virgil Waggoner, Gordon A. Cain and the Company regarding capital stock of the Company. 10.35 Article of Agreement between the Company, its successors and assigns and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas May 1, 1992 to May 1, 1995 incorporated. 10.36 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 10.37 Sterling Chemicals, Inc. Deferred Compensation Plan. +10.38 Buckingham Transition and Services Agreement dated as of August 21, 1992 between Tenneco Canada Inc. and Sterling Pulp Chemicals, Ltd. incorporated by reference from exhibit 10.36 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.39 Processing Agreement dated as of August 21, 1992 between ERCO Industries, Inc. and Sterling Canada, Inc. 10.40 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 Indemnitees 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. 10.41 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 Indemnitees under 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.
31
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ----------- ----------------------------------------------------------------- 10.42 Replacement Subordinated Promissory Note dated August 20, 1992 in the original principal amount of $44,268,114.43 from Sterling Canada, Inc. to Tenneco Credit Corporation incorporated by reference from exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.43 Subordinated Note Guaranty dated as of August 20, 1992 by the Company in favor of Tenneco Canada Inc. incorporated by reference from exhibit 10.41 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.44 Credit Agreement dated as of August 12, 1992 among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial institutions and The Bank of Nova Scotia, as Agent incorporated by reference from exhibit 10.42 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.45 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. 10.46 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. ++10.48 Sales and Purchase Agreement dated April 1, 1994 between BP Chemicals Ltd. and the Company. ++10.49 Contract for Sale and Purchase of Ethylene dated October 28, 1988 between Phillips 66 Company and the Company. **10.50 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 **13.1 Sterling Chemicals, Inc. Annual Report to Shareholders for the fiscal year ended September 30, 1994. **27 Financial Data Schedule
- - --------------- * Incorporated herein by reference to the appropriate portions of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1994. ** Filed herewith. + Confidential treatment has been requested with respect to positions of this Exhibit, and such request has been granted. ++ Filed herewith and confidential treatment has been requested with respect to portions of this Exhibit. EX-3.2 2 AMENDED BY-LAWS 1 EXHIBIT 3.2 STERLING CHEMICALS, INC. * * * * * A M E N D E D B Y - L A W S as of October 28, 1992 and July 27, 1994 * * * * * ARTICLE I OFFICES Section 1. The initial registered office shall be the Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801, and the name of the initial registered agent of the Corporation at such address shall be The Corporation Trust Company. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. 2 Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. 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 ten 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 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 at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chairman of the board or president and shall be called by the president or secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may -2- 3 be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any questions brought before such meeting, unless the question is one upon which by express provision of the statutes, the certificate of incorporation or these by-laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be seven (7). The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. A majority of the directors may elect from its members a chairman who shall preside at all meetings of the Board of Directors. The chairman, if any, shall hold this office until the next regular meeting of the directors or until his successor shall have been elected and qualified. -3- 4 Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. -4- 5 Section 7. Special meetings of the board may be called by the chairman of the board or president on two (2) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board a majority of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. 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. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the board consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board. Section 10. Members of the Board of Directors, or any committee designated by the board, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. COMPENSATION OF DIRECTORS Section 11. Unless otherwise restricted by the certificate of incorporation or these by-laws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. -5- 6 REMOVAL OF DIRECTORS Section 12. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, 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 deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the Board of Directors and shall be a president, a vice-president, a secretary and a treasurer. The Board of Directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. -6- 7 Section 4. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 7. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. VICE-PRESIDENT Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice- president (or in the event there be more than one vice- president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECRETARY AND ASSISTANT SECRETARY Section 9. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings -7- 8 of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. TREASURER AND ASSISTANT TREASURER Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the Board of Directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer -8- 9 or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on the certificate may be facsimile. 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, it 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. -9- 10 LOST CERTIFICATES Section 3. The Board of Directors 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 upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its 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 it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. 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, assignation or authority to transfer, and subject to applicable federal and state securities laws and contractual obligations, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled 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, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting 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. -10- 11 REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. -11- 12 FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. (a) Right to Indemnification. The corporation shall, to the fullest extent authorized by the D.G.C.L. (as defined below), indemnify any person (an "indemnitee") made or threatened to be made a party to, or otherwise involved in, any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that the indemnitee is or was a director, officer or employee of the corporation or is or was serving at the request of the corporation as a director, officer or employee of another corporation, a partnership, joint venture, trust, employee benefit plan or other enterprise (each being referred to as an "Other Enterprise"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity for the benefit of the corporation or any such Other Enterprise while serving as a director, officer or employee, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer or employee and shall inure to the benefit of the indemnitee's heirs, executors, administrators, legal representatives and assigns; provided, however, that, except with respect to proceedings (i) to enforce rights to indemnification or advancement of expenses, or (ii) authorized by the Board of Directors of the corporation, the corporation shall not indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee. For purposes of this Section 7, the term "D.G.C.L." shall mean the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior thereto). -12- 13 (b) Right to Advancement of Expenses. The corporation shall, to the fullest extent authorized by the D.G.C.L., pay the expenses of the indemnitee incurred in defending any proceeding referred to in paragraph (a) in advance of its final disposition (an "advancement of expenses"); provided, however, that if required under the D.G.C.L., an advancement of expenses shall be made only upon delivery to the corporation of an undertaking (an "undertaking"), by or on behalf of such indemnitee, in a form which complies with D.G.C.L., to repay any amounts so advanced to the extent it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a "final adjudication") that such indemnitee is not entitled to be indemnified for such amounts under this Section or otherwise; and provided further, that if such an undertaking is not required by the D.G.C.L., the corporation shall make advancements of expenses without any undertaking, commitment to repay or other terms unless the Board of Directors requires, as a condition to any such advancement of expenses, such terms and conditions, including an undertaking or commitment to repay, as it deems appropriate. In the event of a suit by the corporation to recover an advancement of expenses, the indemnitee shall repay any amounts so advanced only to the extent it shall be ultimately determined by a final adjudication that such indemnitee is not entitled to be indemnified therefor under this Section or otherwise. (c) Right of Indemnitee to Bright Suit; Other Matters. The indemnitee may make a written claim ("Claim") against the corporation for indemnification (after indemnitee's liability for which indemnification is sought has been established) or advancement of expenses under paragraph (a) or (b) of this Section. If the amount claimed in the Claim is not paid in full by the corporation within ninety days after a proper Claim has been received by the corporation, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the Claim. If successful in whole or in part in any such suit, the indemnitee shall be entitled to be paid the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses, or by the corporation to recover an advancement of expenses, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the corporation. A determination by the corporation (including its Board of Directors, independent legal counsel or stockholders) that the indemnitee is not entitled to indemnification under this Section or otherwise, the failure by the corporation to make a determination as to whether the indemnitee is entitled to indemnification under this Section or otherwise, or the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not create any presumption in any such suit that the indemnitee is not entitled to indemnification under this Section or otherwise. In any suit against the corporation to enforce a right to indemnification under paragraph (a) of this Section, the indemnitee shall be entitled to indemnification except to the extent it is ultimately determined by final adjudication that -13- 14 indemnitee is not entitled to be indemnified under this Section or otherwise. (d) Non-Exclusivity of Rights. The rights to indemnification and to advancement of expenses conferred in this Section shall not be exclusive of any other rights which any person may have or hereafter acquire under any statute, the corporation's certification of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (e) Insurance. The corporation may maintain insurance, at its expense, to protect itself and any director, officer or employee of the corporation or any Other Enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the D.G.C.L. (f) Serving at the Request of the Corporation. A person shall be deemed to have served or to be serving as a director, officer or employee of an Other Enterprise "at the request of the corporation" for purposes of this Section only if (i) such person has a written agreement with the corporation acknowledging that such person is entitled to indemnification with respect to such service, (ii) such request is made in writing by the corporation specifically referencing such person's rights to indemnification from the corporation, (iii) such request is reflected in resolutions duly adopted by the Board of Directors specifically referencing such person's right to indemnification from the corporation, or (iv) such request is made verbally or in writing by the Board of Directors or the President or any Vice President of the corporation. (g) Indemnity Agreements. The corporation may enter into indemnity agreements with any person containing such terms and provisions as may be approved by the Board of Directors, including, without limitation, provisions permitting, to the extent permitted by law, binding arbitration of the question of whether such person has met applicable standards of conduct under the D.G.C.L. in order to be entitled to indemnification from the corporation or in order to determine whether such person has met such standards of conduct in order to defend any action by the corporation seeking recovery of any advancement of expenses. To the extent the terms of any such indemnity agreement conflict with the terms of this Section 7, the terms of such indemnity agreement shall, to the extent permitted by applicable law, control. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such -14- 15 power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws shall be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. -15- EX-10.3B 3 AM#3 12/29/94 BANK OF NS 1 EXHIBIT 10.3(B) AMENDMENT NO. 3 This Amendment No. 3 dated as of April 29, 1994 ("Agreement"), is among Sterling Chemicals, Inc., a Delaware corporation ("Sterling"), the financial institutions which are parties to the Credit Agreement referred to below ("Banks"), and The Bank of Nova Scotia, as agent for the Banks ("Agent"). INTRODUCTION The parties hereto have entered into that certain Third Amended and Restated Credit Agreement dated as of August 20, 1992, as amended by Amendment No. 1 dated as of August 20, 1992, and Amendment No. 2 dated as of June 30, 1993 (as amended, the "Credit Agreement"), and desire to further amend the Credit Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants, conditions, and provisions hereinafter set forth, the parties hereto agree as follows: SECTION 1. Definitions; References. Each initially capitalized term used herein shall have the meaning assigned to such term in the Credit Agreement, as amended hereby, unless otherwise specifically defined herein. SECTION 2. Amendments of Certain Provisions of the Credit Agreement. The Credit Agreement is hereby amended as follows: 2.1. To provide for changes to the leverage ratio under the Credit Agreement, Section 9.10 of the Credit Agreement is amended in its entirety to read as follows: 9.10. Leverage Ratio. Sterling will not permit the Leverage Ratio of Sterling and its Restricted Subsidiaries to exceed the following respective amounts at any time during the following respective periods: Periods Ratio ------- ----- From May 1, 1994 through June 30, 1994 1.60 to 1.00 2 From July 1, 1994 through December 31, 1994 1.50 to 1.00 From January 1, 1995 through March 31, 1995 1.40 to 1.00. From April 1, 1995 through September 30, 1995 1.30 to 1.00 From October 1, 1995 through December 31, 1995 1.20 to 1.00 From January 1, 1996 and thereafter 1.10 to 1.00. 2.2. To provide for adjustments to the Tangible Net Worth requirements in the Credit Agreement, the definition of "Tangible Net Worth" in Section 1.01 of the Credit Agreement and Section 9.11 of the Credit Agreement are replaced in their entirety to read, respectively, as follows: "Tangible Net Worth" shall mean the consolidated net worth of Sterling and its Restricted Subsidiaries after subtracting therefrom the good will of Sterling and its Restricted Subsidiaries. 9.11. Tangible Net Worth. Sterling will not permit the Tangible Net Worth of Sterling and its Restricted Subsidiaries to be less than $76,000,000 plus (a) 100% of the monthly net income of Sterling and its Restricted Subsidiaries since April 30, 1994 (without reduction for any monthly net losses), less (b) dividends (in cash, property or obligations) on, or other payments or distributions on account of, common stock made by Sterling in accordance with this Agreement since April 30, 1994. 2.3. To provide for adjustments to the Cash Flow ratio requirements of the Credit Agreement, Section 9.13 of the Credit Agreement is amended in its entirety to read as follows: 9.13. Cash Flow. Sterling will not permit the ratio, calculated as at the end of each fiscal quarter of Sterling, of (a) (i) the Cash Flow of Sterling and its Restricted Subsidiaries for the four fiscal quarters then ended (such period of four fiscal quarters being hereinafter referred to -2- 3 as the "Calculation Period") plus (ii) Canadian Distributions received by Sterling and its Restricted Subsidiaries during the Calculation Period less (iii) any Restricted Payments (excluding dividends declared by Sterling before the Effective Date) made by Sterling during the Calculation Period plus (iv) all non-cash charges to the net income of Sterling and its Restricted Subsidiaries during the Calculation Period associated with employee stock appreciation rights and post-retirement benefits (less all payments actually made in connection with such employee stock appreciation rights and post- retirement benefits) to (b) (i) the aggregate amount of all payments of principal of Indebtedness of Sterling and its Restricted Subsidiaries (other than Indebtedness hereunder) scheduled to be made during the Calculation Period plus (ii) the aggregate amount of reductions of Commitments hereunder pursuant to clause (i) of Section 2.03(a) hereof (as adjusted from time to time pursuant to Section 2.03(a)(iii) during the Calculation Period plus (iii) the aggregate amount of interest paid during the Calculation Period on Indebtedness of Sterling and its Restricted Subsidiaries plus (iv) the Capital Expenditures of Sterling and its Restricted Subsidiaries (other than Reimbursable Capital Expenditures and Designated Capital Expenditures) for the Calculation Period plus (v) income taxes paid during the Calculation Period by Sterling and its Restricted Subsidiaries less any income tax refunds received during the Calculation Period by Sterling and its Restricted Subsidiaries, to be less than 1.10 to 1.00. 2.4. To provide for adjustments to the definition of Available Cash in the Credit Agreement, the definition of "Available Cash" in Section 1.01 of the Credit Agreement is amended in its entirety to read as follows: "Available Cash" shall mean, for any Person and any period, the sum of the following amounts (calculated without duplication): (a) EBDIT for such period, plus (b) interest income for such period, including the net amount received pursuant to any Interest Swap Agreement during such period (to the extent not included in determining EBDIT), minus (c) Capital Expenditures (other than Reimbursable Capital Expenditures and Designated Capital Expenditures) for such period funded from -3- 4 other than the cash proceeds from any insurance policy, minus (d) income taxes paid during such period less any income tax refunds received during such period, minus (e) all interest on Indebtedness paid during such period, including the net amount paid pursuant to any Interest Swap Agreement during such period, plus (iv) all non-cash charges to the net income during such period associated with employee stock appreciation rights and post-retirement benefits (less all payments actually made in connection with such employee stock appreciation rights and post-retirement benefits). SECTION 3. Effectiveness. This Agreement shall become effective as of the date hereof when the Agent shall have received counterparts hereof duly executed by Sterling, the Agent, and the Majority Banks (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of execution of a counterpart hereof by such party). This Agreement shall be deemed part of and is hereby incorporated in the Credit Agreement. SECTION 4. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute one and the same instrument. Each of the parties hereto may execute this Agreement by signing any such counterpart. Any party delivering an executed counterpart of its signature page of this Agreement by telecopy shall thereafter also promptly deliver a manually executed counterpart, but the failure to deliver such manually executed counterpart shall not affect the validity, enforceability and binding effect of this Agreement. SECTION 5. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. -4- 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first set forth above. STERLING CHEMICALS, INC. By:____________________________ Name:__________________________ Title:_________________________ THE BANK OF NOVA SCOTIA, in its individual capacity and as Agent By:____________________________ Name:__________________________ Title:_________________________ ABN AMRO BANK N.V. By:____________________________ Name:__________________________ Title:_________________________ By:____________________________ Name:__________________________ Title:_________________________ BANK OF SCOTLAND By:____________________________ Name:__________________________ Title:_________________________ -5- 6 CITICORP USA, INC. By:____________________________ Name:__________________________ Title:_________________________ BANQUE PARIBAS HOUSTON AGENCY By:____________________________ Name:__________________________ Title:_________________________ By:____________________________ Name:__________________________ Title:_________________________ TEXAS COMMERCE BANK, NATIONAL ASSOCIATION By:____________________________ Name:__________________________ Title:_________________________ NATIONAL BANK OF CANADA, NEW YORK BRANCH By:____________________________ Name:__________________________ Title:_________________________ By:____________________________ Name:__________________________ Title:_________________________ -6- EX-10.5B 4 3RD AMEND. TO CREDIT AGREEMENT 1 EXHIBIT 10.5(B) THIRD AMENDMENT TO CREDIT AGREEMENT This Third Amendment to Credit Agreement dated as of September 30, 1994 ("Agreement"), is among Sterling Canada, Inc., a Delaware corporation, Sterling Pulp Chemicals, Ltd., an Ontario corporation, the financial institutions which are parties to the Credit Agreement referred to below, and The Bank of Nova Scotia, as agent for the Banks. INTRODUCTION The parties hereto have entered into that certain Credit Agreement dated as of August 12, 1992, as amended by First Amendment to Credit Agreement dated as of August 20, 1992, and the Second Amendment to Credit Agreement dated as of March 31, 1993 (as so amended, the "Credit Agreement"), and desire to further amend the Credit Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants, conditions, and provisions hereinafter set forth, the parties hereto agree as follows: SECTION 1. Definitions; References. Each initially capitalized term used herein shall have the meaning assigned to such term in the Credit Agreement, as amended hereby, unless otherwise specifically defined herein. SECTION 2. Amendments of Certain Provisions of the Credit Agreement. The Credit Agreement is hereby amended as follows: 2.1. Section 1.1. In Section 1.1: (a) The definition of "Designated Canadian Investments" is amended in its entirety to read as follows: "Designated Canadian Investments" means, on any date, (a) capital contributions made by Sterling Chemicals, Inc. to the U.S. Borrower, (b) purchases of stock of the U.S. Borrower by Sterling Chemicals, Inc., or (c) loans and advances made by Sterling Chemicals, Inc. to either Borrower at any time and from time to time not in excess of, in the case of loans or advances, $4,000,000 in the aggregate principal amount outstanding on such date provided either Borrower shall have given notice to the Agent prior to the effectuation of each relevant capital contribution, stock purchase, loan or advance of the fact that such Investment constitutes a Designated Canadian Investment; and, provided, 2 further, however, such loans or advances shall not bear interest at a rate higher than the lowest interest rate then available to Sterling Chemicals, Inc. from the Sterling Chemicals Lenders. (b) The definition of "Relevant Principal Payments" is amended by deleting "(other than Indebtedness hereunder)". 2.2. Section 3.1. (a) Paragraph (f) is amended in its entirety to read as follows: (f) [intentionally deleted]; and (b) Paragraph (k) of Section 3.1 is amended by substituting "Borrowers" for "Canadian Borrower" in the first line. 2.3. Section 7.2.2. Paragraphs (g) and (h) of Section 7.2.2 are amended in their entirety to read as follows: (g) Indebtedness of the Canadian Borrower or the U.S. Borrower to Sterling Chemicals, Inc. in an aggregate amount at any time outstanding not to exceed $4,000,000; and Indebtedness of the Canadian Borrower to the U.S. Borrower or of the U.S. Borrower to the Canadian Borrower; and (h) unsecured Contingent Liabilities arising on account of stock appreciation rights granted to not more than 25 key employees of the Canadian Borrower from time to time pursuant to employee compensation plans for Canadian employees; provided that cash payments made in respect thereof may not exceed (i) for such stock appreciation rights exercisable for fiscal year 1994 and payable in October 1994, $4,200,000 (provided that the first $4,000,000 paid on any such obligations must be funded by Sterling Chemicals, Inc.); (ii) for such stock appreciation rights exercisable fiscal year 1995 and payable in September 1995, $4,200,000 (provided that any payments on such obligations must be funded by Sterling Chemicals, Inc.); and (iii) in each fiscal year thereafter, the positive difference, if any, between (A) Restricted Payments permitted to be made during such fiscal year and (B) Restricted Payments actually made during such fiscal year. In calculating Restricted Payments permitted to be made or made during a fiscal year, payments made to Sterling Chemicals, Inc. of Designated Canadian Investments (other than Designated Canadian Investments originally advanced or contributed by Sterling Chemicals, Inc., for the purpose of funding payments on obligations under stock appreciation rights permitted underSection 7.2.2(h)) and -2- 3 payments on the Subordinated Debt with proceeds of Designated Canadian Investments shall not be used in such calculation; and 2.4. Section 7.2.6. In Section 7.2.6: (a) In paragraph (a), "provided the proceeds of any such sale or issuance are applied to the payment of the Obligations pursuant to clause (f) or (k) of Section 3.1, as applicable" is deleted. (b) The second proviso in Section 7.2.6 in the paragraph following paragraph (c) (such second proviso beginning with the words "provided that so long as no Default exists . . . ") is amended in its entirety to read as follows: provided that so long as no Default exists and is continuing or would result therefrom, (i) either Borrower may also make principal and interest payments to Sterling Chemicals, Inc. on loans or advances constituting Designated Canadian Investments (other than principal and interest payments on loans or advances representing Designated Canadian Investments originally advanced by Sterling Chemicals, Inc., for the purpose of funding payments on obligations under stock appreciation rights permitted under Section 7.2.2(h), which can only be repaid in accordance with the immediately preceding proviso at the beginning of this paragraph), (ii) the U.S. Borrower may also redeem shares of its stock purchased as a Designated Canadian Investment and pay dividends on its stock in an amount not to exceed the amount of Designated Canadian Investments made as capital contributions (other than redemptions and dividends which represent the repayment of Designated Canadian Investments originally contributed by Sterling Chemicals, Inc., for the purpose of funding payments on obligations under stock appreciation rights permitted under Section 7.2.2(h), which can only be repaid in accordance with the immediately preceding proviso at the beginning of this paragraph), and (iii) either Borrower may also use the proceeds of Designated Canadian Investments to make payments on the Subordinated Debt; 2.5. Section 7.2.9. In Section 7.2.9, the proviso to Section 7.2.9 is amended by adding the following: , and provided further that when determining the Leverage Ratio of the U.S. Borrower under this Section 7.2.9, the U.S. Borrower's -3- 4 Tangible Net Worth shall be increased by the amount of the balance sheet liability of the U.S. Borrower reflecting obligations under stock appreciation rights permitted under Section 7.2.2(h). 2.6. Section 7.2.15. In Section 7.2.15, the proviso to Section 7.2.15 is amended by adding the following: , and provided further that when determining the Tangible Net Worth of the U.S. Borrower under this Section 7.2.15, the U.S. Borrower's Tangible Net Worth shall be increased by the amount of the balance sheet liability of the U.S. Borrower reflecting obligations under stock appreciation rights permitted under Section 7.2.2(h). 2.7. Section 7.2.16. In Section 7.2.16, the following new clause (z) is added after clause (y): plus(z) all Designated Canadian Investments made by Sterling Chemicals, Inc. in or to either Borrower during such Calculation Periodless any distributions or other payments made in respect of Designated Canadian Investments to Sterling Chemicals, Inc. by the Borrowers during such Calculation Periodless any payments made by either Borrower during such Calculation Period on obligations under stock appreciation rights permitted underSection 7.2.2(h). 2.8. Section 7.2.17. In Section 7.2.17, the definition of "Available Cash" is amended by adding the following new clause (vii): , plus (vii) all Designated Canadian Investments made by Sterling Chemicals, Inc. in or to either Borrower during such periodless any distributions or other payments made in respect of Designated Canadian Investments to Sterling Chemicals, Inc. by the Borrowers during such period less any payments made by either Borrower during such Calculation Period on obligations under stock appreciation rights permitted underSection 7.2.2(h). 2.9. Section 8.1.3. In Section 8.1.3, "U.S. Borrower" is substituted for "Canadian Borrower" in the sixth line. SECTION 3. Effectiveness. This Agreement shall become effective as of the date hereof when the Agent shall have received counterparts hereof duly executed by the Borrowers, the Agent, and the Required Lenders (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of -4- 5 execution of a counterpart hereof by such party). This Agreement shall be deemed part of and is hereby incorporated in the Credit Agreement. SECTION 4. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute one and the same instrument. Each of the parties hereto may execute this Agreement by signing any such counterpart. Any party delivering an executed counterpart of its signature page of this Agreement by telecopy shall thereafter also promptly deliver a manually executed counterpart, but the failure to deliver such manually executed counterpart shall not affect the validity, enforceability and binding effect of this Agreement. SECTION 5. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first set forth above. STERLING CANADA, INC. By:____________________________________ Name:____________________________ Title:___________________________ STERLING PULP CHEMICALS, LTD. By:____________________________________ Name:____________________________ Title:___________________________ -5- 6 THE BANK OF NOVA SCOTIA, in its individual capacity and as Agent U.S. Office: By:____________________________________ Name:____________________________ Title:___________________________ Canadian Office: By:____________________________________ Name:____________________________ Title:___________________________ BANQUE INDOSUEZ By:_____________________________________ Name:_________________________ Title:________________________ By:____________________________________ Name:____________________________ Title:___________________________ -6- EX-10.6A 5 SUPP TO SC SALARIED EMPLOYEES PENSION 1 EXHIBIT 10.6(a) SUPPLEMENT TO STERLING CHEMICALS, INC. SALARIED EMPLOYEES' PENSION PLAN FOR ALL SALARIED EMPLOYEES OF STERLING CHEMICALS, INC. AND PARTICIPATING SUBSIDIARIES Restated as of January 1, 1994 Purpose: This Supplement to the Plan modifies the provisions of the Plan as applied to covered employees. Unless otherwise expressly qualified by the context of this Supplement, terms used in this Supplement shall have the same meanings given to those terms in the Plan. Eligibility: The Plan shall continue to apply in accordance with its terms to the salaried employees of the Corporation and participating subsidiaries on and after the Effective Date. As used in this Supplement, the term "covered employee" means a salaried employee actively employed on the Effective Date or who accrues Benefit Service on or after the Effective Date with an Employer, but unless otherwise provided, excluding any such employee who on the Effective Date has been on a leave of absence in excess of twelve consecutive months and who does not return to active employment with an Employer, and who is a member of a group of employees identified in the heading of this supplement to which the Plan is extended or continues to be extended. Monthly Retirement Income: The Monthly Retirement Income payable to a covered employee hereunder pursuant to Section 4.1 through 4.3 will be equal to the greatest of his applicable amount: 1. Standard Amount: The Standard Amount shall be applicable to a Prior Employer participant employed by the Monsanto Company prior to April 1, 1986, and shall be the Monthly Retirement Income determined by multiplying 1.4% times Average Monthly Earnings times Years of 2 Benefit Service times the Vested Percentage set forth in Section 2.2 of the Plan. For purposes of this computation, Years of Benefit Service shall include full and partial years of Benefit Service as such service is determined under Sections 17.3 and 17.4 of the Plan. 2. Alternate Amount: The Alternate Amount shall be applicable to a Prior Employer participant employed by the Monsanto Company on or after April 1, 1986, or any other participant employed by the Employer on or after the Effective Date and shall be the Monthly Retirement Income of 1.2% times Average Monthly Earnings times Years of Benefit Service times the Vested Percentage set forth in Section 2.2 of the Plan. 3. Minimum Amount: The Minimum Amount shall be determined in accordance with Section 4.3 of the Plan and the Minimum Retirement Income Factor defined below. The Minimum Amount shall be the Minimum Retirement Income Factor times Years of Benefit Service times the Vested Percentage set forth in Section 2.2 of the Plan. Notwithstanding the foregoing, a participant who retires between January 1, 1991 and March 1, 1991 has the option to retire under the terms of this Plan or under the terms of the Plan in effect on December 31, 1990. Minimum Retirement Income Factor: The "Minimum Retirement Income Factor" applicable with respect to a covered employee whose Retirement Date or Employment Termination Date occurs on or after the Effective Date shall be determined in accordance with the following table:
Retirement Date or Employment Retirement Termination Date Occurring: Income Factor ----------------------------- ------------- Before January 1, 1991 $30.00 On or after January 1, 1991 $35.00
-2- 3 Special Early Income Retirement Supplement Factor: The "Special Early Retirement Income Supplement Factor" shall be $4.00 per calendar month. Early Retirement - Combo Factor: The "Combo Factor," i.e., (number of years of Vesting Service plus age) for purposes of subsection 4.5 shall be 80 if the participant reached 80 on or before December 31, 1993. Otherwise,the number of years of Vesting Service plus age for purposes of Section 4.5 shall be 85. Average Monthly Earnings: As used in this Supplement, the "Average Monthly Earnings" of a participant shall be the greater of (i) the average of his monthly earnings during the 36 months immediately prior to his Retirement Date or Employment Termination Date, whichever first occurs, or (ii) the average monthly earnings received during the highest three of the five calendar years immediately prior to the year of the participant's Retirement Date or Employment Termination Date, whichever first occurs, except that: (a) if he has no earnings during one or more of such final 36 months, then his Average Monthly Earnings shall be the average of his monthly earnings during the final 36 months in which he had earnings; (b) if his base salary has been reduced because of a decline in his physical or mental capacity to continue his former assignment, or because he was transferred to a position of reduced responsibilities or his assignment was abolished or its responsibilities curtailed, his Average Monthly Earnings shall be computed as if his base salary had not been reduced; and (c) if he received disability income from any employee welfare benefit plan maintained by his Employer or in which his Employer participates, then his average monthly earnings for the computation periods for determination of Average Monthly Earnings shall be computed: (i) on the assumption that for each month of such computation periods during which month he received disability income under such plan he had monthly earnings equal to his base salary for the month -3- 4 immediately preceding the month in which his disability income commenced under such plan and any employee welfare benefit plan maintained by his Employer or in which his Employer participates; and (ii) with respect to the balance of such computation periods, if any, by applying the actual monthly earnings received in each of such months. The Average Monthly Earnings of a participant shall include all compensation paid to him by any Employer, any Affiliate Company and any Affiliate Unit, including shift differential pay, overtime pay, holiday pay, fire brigade pay, military summer encampment pay, sick leave pay, including Incentive Pay (as defined below), including any deferred compensation pursuant to a salary reduction agreement under Code Sections 401 or 125, but excluding strike time and other bonuses, amounts paid under any incentive plans in the future, commissions, amounts paid by his Employer for insurance or other welfare plans or benefits, and pay in lieu of vacations. Overtime pay will be considered as having been earned in the month in which it is paid. The Average Monthly Earnings of a participant who was not a regular full-time employee of the Employer or Employers during said computation period shall be determined as provided above, except that for purposes of such determination his actual monthly earnings during any period of said computation period when he was not in a regular full-time employee status shall be increased to an amount of monthly earnings equal to that amount he would have received during such period as a regular full-time employee based upon the standard work week at such location during such period. The above provisions shall be subject to special provisions for the Average Monthly Earnings set forth in the Benefit Service provisions of this Plan. 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 for purposes of determining Average Monthly Earnings 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 -4- 5 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. 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. Incentive Pay: "Incentive Pay" means the additional compensation (other than any award made to participants under the Employer incentive plan) which may be paid on an annual or more frequent basis to one or more participants and which is computed under a formula directly reflecting the performance of such participant or group of participants. It does not mean any distributions made to participants from the Incentive Plan or Profit Sharing Plan. -5- EX-10.6B 6 1ST & 2ND AM TO SC SALARIED 1 EXHIBIT 10.6(b) FIRST AMENDMENT TO THE STERLING CHEMICALS, INC. SALARIED EMPLOYEES' PENSION PLAN (Restated as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective January 1, 1994, Section 4.9 is hereby added to read as follows: 4.9 Section 401(a)(17) Participants. 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 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. 2 2. Effective January 1, 1994, Section 8.4.E. is hereby amended in its entirety to read as follows: E. Compensation: For purposes of determining compliance with the limitations of Code Section 415, for Plan Years beginning on or after January 1, 1989, 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 any member of the Extended Group 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: (a) 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 a participant to a simplified employee pension plan to the extent such contributions are deductible under Code 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); (b) 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; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) other amounts which receive special tax benefits, or contributions made by any -2- 3 member of the Extended Group (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 Section, amounts included as Compensation are those actually paid or made available to a participant within the Limitation Year. 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. 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 -3- 4 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. 3. Effective January 1, 1994, Section 8.5.C. is hereby amended in its entirety to read as follows: C. Limitation on Compensation: For Plan Years beginning on or after January 1, 1994, a participant's annual Compensation taken into account under this Section 8.5 for purposes of computing benefits under this Plan shall not be in excess of the limitation under Code Section 401(a)(17). IN WITNESS WHEREOF, the Employer has executed this First Amendment to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993) on this ___ day of ____________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -4- 5 SECOND AMENDMENT TO THE STERLING CHEMICALS, INC. SALARIED EMPLOYEES' PENSION PLAN (Restated as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective October 1, 1994, Section 9.13 is hereby added to read as follows: 9.13 Limitation of Benefits upon Termination. (a) Benefits distributed to any of the twenty-five (25) most highly compensated employees (as defined in Code Section 414(q) and the regulations thereunder) and highly compensated former employees with the greatest compensation in the current or prior year are restricted such that the monthly payments are no greater than an amount equal to the monthly payment that would be made on behalf of such individual under a straight line annuity that is the actuarial equivalent of the sum of the individual's accrued benefit, the individual's other benefits under the Plan (other than a social security supplement within the meaning of Treasury Regulation 1.411(a)-7(c)(4)(ii)), and the amount the individual is entitled to receive under a social security supplement. However, the limitation of this Section shall not apply if: (i) after payment of the benefit to an individual described above, the value of Plan assets equals or exceeds 110 percent of the 6 value of current liabilities, as defined in Code Section 412(l)(7); (ii) the value of the benefits for an individual described above is less than one percent of the value of current liabilities before distribution; or (iii) the value of the benefits payable under the Plan to an individual described above does not exceed $3,500. (b) For purposes of this Section, benefit includes any periodic income, any withdrawal values payable to a living participant, and any death benefits not provided for by insurance on the individual's life. (c) An individual's otherwise restricted benefit may be distributed in full to the affected individual if, prior to receipt of the restricted amount, the individual enters into a written agreement with the Committee to secure repayment to the Plan of the restricted amount. The restricted amount is the excess of the amounts distributed to the individual (accumulated with reasonable interest) over the amounts that could have been distributed to the individual under the straight life annuity described above (accumulated with reasonable interest). The individual may secure repayment of the restricted amount upon distribution by: (i) entering into an agreement for promptly depositing in escrow with an acceptable depositary, property having a fair market value equal to at least 125 percent of the restricted amount; (ii) providing a bank letter of credit in an amount equal to at least 100 percent of the restricted amount; or (iii) posting a bond equal to at least 100 percent of the restricted amount. The bond must be furnished by an insurance company, bonding company or other surety for federal bonds. -2- 7 (d) The escrow arrangement may permit an individual to withdraw from escrow amounts in excess of 125 percent of the restricted amount. If the market value of the property in an escrow account falls below 110 percent of the remaining restricted amount, the individual must deposit additional property to bring the value of the property held by the depositary up to 125 percent of the restricted amount. The escrow arrangement may provide that the individual has the right to receive any income from the property placed in escrow, subject to the individual's obligation to deposit additional property, as set forth in the preceding sentence. (e) A surety or bank may release any liability on a bond or letter of credit in excess of 100 percent of the restricted amount. (f) If the Committee certifies to the depositary, surety or bank that the individual (or the individual's estate) is no longer obligated to repay any restricted amount, a depositary may deliver to the individual any property held under an escrow arrangement, and a surety or bank may release any liability on an individual's bond or letter of credit. (g) Notwithstanding the foregoing, with respect to Plan Years beginning prior to January 1, 1994, compliance with the Plan and Treasury Regulations then in effect shall be deemed compliance with this Section. 2. Effective October 1, 1994, Section 15.7 is hereby added to read as follows: 15.7 Limitation of Benefits on Plan Termination. In the event of Plan termination, the benefit of any highly compensated employee (as defined in Code Section 414(q) and the regulations thereunder) or any highly compensated former employee shall be limited to a benefit that is nondiscriminatory under Code Section 401(a)(4). -3- 8 IN WITNESS WHEREOF, the Employer has executed this Second Amendment to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993) on this ___ day of ____________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -4- EX-10.8A 7 SUPP TO SC HOURLY PAID EMPLOYEES 1 EXHIBIT 10.8 (a) SUPPLEMENT TO STERLING CHEMICALS, INC. HOURLY PAID EMPLOYEES' PENSION PLAN FOR HOURLY PAID EMPLOYEES OF STERLING CHEMICALS, INC. AT Texas City Plant, Texas City, Texas - Texas City Metal Trades Council Restated as of January 1, 1994 Purpose: This Supplement to the Plan modifies the provisions of the Plan (exclusive of any other Supplement thereto) as applied to covered employees. Unless otherwise expressly qualified by the context of this Supplement, terms used in this Supplement shall have the same meanings given to those terms in the Plan. Effective Date: Except to the extent modified by the Union Pension Agreement, the Effective Date of the Plan for the group of employees covered by this Supplement is August 1, 1986, provided there is timely and appropriate ratification and acceptance. Eligibility: Subject to subparagraph (b) of Section 2 of the Plan, the Plan shall continue to apply, in accordance with its terms, to the hourly paid employees of the Corporation employed at the above locations on and after the Effective Date and through December 31, 1996. As used in this Supplement, the term "covered employee" means an hourly paid employee actively employed on the Effective Date or who accrues Benefit Service on or after the Effective Date with an employer, excluding any such employee who on the Effective Date has been on a leave of absence in excess of twelve consecutive months and who does not return to active employment with an Employer, and who is a member of a group of employees identified in the heading of this Supplement to which the Plan is extended or continues to be extended. 2 Retirement Income Factor: The "Retirement Income Factor" applicable with respect to a covered employee whose Retirement Date or Employment Termination Date occurs on or after May 1, 1993 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 or greater $48
The Final Average Pay of a covered employee shall be the greater of the Final Average Pay in the following two computation periods: -- the 36 whole months immediately prior to the covered employee's Retirement Date or Employment Termination Date, whichever occurs first, or -- 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. The Final Average Pay of a covered employee for each computation period shall be the sum of (a), (b) and (c): (a) Average annual base pay. Average annual base pay shall be calculated by (1) determining the covered employee's regular base straight-time rate, exclusive of any premiums, for the last day of each month during the applicable -2- 3 computation period; (2) averaging the above regular base straight-time rates; and (3) multiplying the average by 2,080. (b) 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 (a) 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. (c) Average annual shift premium pay. Average annual shift premium pay shall be calculated by (1) determining the covered employee's total shift premium paid for regularly scheduled hours during the applicable computation period; and (2) 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. Computation of a covered employee's Final Average Pay shall be subject to the following: (1) 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. (2) 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 (a)(1) above shall be calculated based upon his regular base straight- -3- 4 time rate on his last day worked, exclusive of any premiums. (3) 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 (a)(1) 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. 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 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. 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. -4- 5 Early Retirement: The number of years of Vesting Service plus age for purposes of Section 4.4 shall be 80 if the covered employee reached 80 on or before December 31, 1993. Otherwise, the number of years of Vesting Service plus age for purposes of Section 4.4 shall be 85. Pension Board: Certain powers and authority otherwise exercised by the Plan Committee in accordance with subsection 1.3 and in accordance with Section 12 of the Plan shall be exercised by a Pension Board as may be provided in the collective bargaining agreement between the Corporation and the representatives of the covered employees. -5- EX-10.8B 8 1ST AMEND TO SC HOURLY PAID EMPLOYEES 1 EXHIBIT 10.8(b) FIRST AMENDMENT TO THE STERLING CHEMICALS, INC. HOURLY PAID EMPLOYEES' PENSION PLAN (Restated as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective January 1, 1994, Section 4.7 is hereby added to read as follows: 4.7 Section 401(a)(17) Participants. 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 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. 2 2. Effective January 1, 1994, Section 8.4(e) is hereby amended in its entirety to read as follows: (e) Compensation. For purposes of determining compliance with the limitations of Code Section 415, for Plan Years beginning on or after January 1, 1989, 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 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 -2- 3 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. 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. 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 -3- 4 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. 3. Effective January 1, 1994, Section 8.5(c) is hereby amended in its entirety to read as follows: (c) Limitation on Compensation. 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). IN WITNESS WHEREOF, the Employer has executed this First Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of October 1, 1993) on this ___ day of ____________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -4- EX-10.10A 9 SUPP TO SC SAVINGS & INV PLAN 1 EXHIBIT 10.10(a) SUPPLEMENT TO STERLING CHEMICALS, INC. SAVINGS AND INVESTMENT PLAN FOR HOURLY PAID EMPLOYEES OF STERLING CHEMICALS, INC. AT Texas City Plant, Texas City, Texas - Texas City, Texas Metal Trades Council Restated as of January 1, 1994 Purpose: This Supplement to the Plan modifies the provisions of the Plan as applied to covered employees. Unless otherwise expressly qualified by the context of this Supplement, terms used in this Supplement shall have the same meanings given to those terms in the Plan. Effective Date: The Effective Date of this Supplement for the hourly-paid employees of the Employers listed above is April 1, 1991. Eligibility: The Plan shall continue to apply, in accordance with its terms, to the hourly-paid employees of the Corporation employed at the above locations on and after the Effective Date and through the term specified in the Savings and Investment Plan Agreement with the above Union dated January 1, 1991. As used in this Supplement, the term "covered employee" means an hourly-paid employee of the Corporation who is employed at such locations on or after the Effective Date. After-tax Savings Participants may elect under Sections 6.1 and 6.2 of the Plan to direct up to 11 1/2 percent of their Eligible Earnings as After-tax Matched Savings and After-tax Supplemental Savings. The first 7 1/2 percent of their savings based upon their Eligible Matched Earnings shall be considered After-tax Matched Savings. The remainder of their savings shall be considered After-tax Supplemental Savings. 2 Pre-tax Contributions Participants may elect under Sections 5.2 and 5.3 of the Plan to direct up to 11 1/2 percent of their Eligible Earnings as Pre-tax Matched Contributions and Pre-tax Supplemental Contributions. The first 7 1/2 percent of their contributions based upon their Eligible Matched Earnings shall be considered Pre-tax Matched Contributions, provided, however, that if the sum of Pre-tax Matched Contributions plus After-tax Matched Savings exceeds 7 1/2 percent of Eligible Matched Earnings, Pre-tax Matched Contributions shall be reduced until such sum equals 7 1/2 percent of Eligible Matched Earnings. All remaining contributions shall be considered Pre- tax Supplemental Contributions. Eligible Earnings Subject to the limitations of Section 5.5 of the Plan, a covered employee's Eligible Earnings for any period means cash compensation for services rendered to the Employers, including amounts that would have been paid to the employee absent the execution of an Earnings Reduction Agreement, but only to the extent that such earnings do not exceed his straight time pay plus overtime plus shift differential, exclusive of all other forms of premium pay. For Plan Years beginning on or after January 1, 1994, Eligible Earnings in excess of the "OBRA '93 Annual Compensation Limit" (as defined in Section 5.5 of the Plan) shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 401(a)(17)(B). Eligible Matched Earnings: Subject to the limitations of Section 5.5 of the Plan, a covered employee's Eligible Matched Earnings for any period means cash compensation for services rendered to the Employers, including amounts that would have been paid to the employee absent the execution of an Earnings Reduction Agreement, but only to the extent that such earnings do not exceed his straight time pay, exclusive of all forms of premium pay. Employer Matching Contributions: With respect to covered employees who participate in the Plan, the Employer's Matching Contribution shall be made in the form of an ESOP contribution as set forth in Section 4.2 and shall be in an amount equal to 60 percent of the aggregate After-tax Matched Savings and Pre-tax Matched Contributions of such covered employees minus ESOP forfeitures. -2- 3 SUPPLEMENT TO STERLING CHEMICALS, INC. SAVINGS AND INVESTMENT PLAN FOR SALARIED EMPLOYEES OF STERLING CHEMICALS, INC. AND PARTICIPATING SUBSIDIARIES Restated as of January 1, 1994 Purpose: This Supplement to the Plan modifies the provisions of the Plan as applied to covered employees. Unless otherwise expressly qualified by the context of this Supplement, terms used in this Supplement shall have the same meanings given to those terms in the Plan. Effective Date: The Effective Date of this Supplement for the salaried employees of the Employers listed above is April 1, 1991. Eligibility: The Plan shall continue to apply, in accordance with its terms, to the salaried employees of the Employer listed above on and after the Effective Date. As used in this Supplement, the term "covered employee" means a salaried employee who is employed by the listed Employer on or after the Effective Date. After-tax Savings Participants may elect under Sections 6.1 and 6.2 of the Plan to direct up to 11 1/2 percent of their Eligible Earnings as After-tax Matched Savings and After-tax Supplemental Savings. The first 7 1/2 percent of their savings based upon their Eligible Matched Earnings shall be considered After-tax Matched Savings. The remainder of their savings shall be considered After-tax Supplemental Savings. Pre-tax Contributions Participants may elect under Sections 5.2 and 5.3 of the Plan to direct up to 11 1/2 percent of their Eligible Earnings as Pre-tax Matched Contributions and Pre-tax Supplemental Contributions. 4 The first 7 1/2 percent of their contributions based upon their Eligible Matched Earnings shall be considered Pre-tax Matched Contributions, provided, however, that if the sum of Pre-tax Matched Contributions plus After-tax Matched Savings exceeds 7 1/2 percent of Eligible Matched Earnings, Pre-tax Matched Contributions shall be reduced until such sum equals 7 1/2 percent of Eligible Matched Earnings. All remaining contributions shall be considered Pre-tax Supplemental Contributions. Eligible Earnings Subject to the limitations of Section 5.5 of the Plan, a covered employee's Eligible Earnings for any period means cash compensation for services rendered to the Employers, including amounts that would have been paid to the employee absent the execution of an Earnings Reduction Agreement. For Plan Years beginning on or after January 1, 1994, Eligible Earnings in excess of the "OBRA '93 Annual Compensation Limit" (as defined in Section 5.5 of the Plan) shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 401(a)(17)(B). Eligible Matched Earnings: Subject to the limitations of Section 5.5 of the Plan, a covered employee's Eligible Matched Earnings for any period means cash compensation for services rendered to the Employers, including amounts that would have been paid to the employee absent the execution of an Earnings Reduction Agreement. Employer Matching Contributions: With respect to covered employees who participate in the Plan, the Employer's Matching Contribution shall be made in the form of an ESOP contribution as set forth in Section 4.2 and shall be in an amount equal to 60 percent of the aggregate After-tax Matched Savings and Pre-tax Matched Contributions of such covered employees minus ESOP forfeitures. -2- EX-10.10B 10 1ST & 2ND AMEND TO SC SAVINGS & INV. PLAN 1 EXHIBIT 10.10(b) FIRST AMENDMENT TO THE STERLING CHEMICALS, INC. AMENDED AND RESTATED SAVINGS AND INVESTMENT PLAN (Effective as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 16.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective January 1, 1994, Section 4.3(d)(i) is hereby amended in its entirety to read as follows: (i) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer Matching Contributions made pursuant to Section 4.2, After-tax Savings made pursuant to Sections 6.1 and 6.2, Excess Contributions recharacterized as After-tax Savings pursuant to Section 5.10(a) and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the limitation under Code Section 401(a)(17) to "414(s) Compensation," Family Members shall include only the affected employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. 2. Effective January 1, 1994, Section 5.5 is hereby amended in its entirety to read as follows: 5.5 Eligible Earnings. With respect to any period, a participant's "Eligible Earnings" shall be as defined in the applicable Supplement hereto, but shall in any event 2 be limited to the cash compensation for services rendered to the Employers as an employee during that period, including any amounts that would have been paid the employee absent the execution of an Earnings Reduction Agreement. 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 annual Eligible Earnings 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 Eligible Earnings 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. If Eligible Earnings for any prior Determination Period is taken into account in determining a participant's benefits accruing in the current Plan Year, the Eligible Earnings 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. 3. Effective January 1, 1994, Section 5.9(c)(i) is hereby amended in its entirety to read as follows: (i) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be the greater of: (1) the ratio determined by aggregating Pre-tax Contributions and "414(s) Compensation" of all eligible Family Members who are Highly Compensated Participants -2- 3 without regard to family aggregation; and (2) the ratio determined by aggregating Pre-tax Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the limitation under Code Section 401(a)(17) to "414(s) Compensation," Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. 4. Effective April 1, 1994, Section 5.10(c) is hereby added to read as follows: 5.10 Adjustment to Actual Deferral Percentage Tests. (c) If during a Plan Year the projected aggregate amount of Pre-tax Contributions to be allocated to all Highly Compensated Participants under this Plan would, by virtue of the tests set forth in Section 5.9(a), cause the Plan to fail such tests, then the Administrator may automatically reduce proportionately or in the order provided in Section 5.10(a) each affected Highly Compensated Participant's Pre-tax Contributions as set forth in such Highly Compensated Participant's Earnings Reduction Agreement pursuant to Section 5.2 or 5.3 by an amount necessary to satisfy one of the tests set forth in Section 5.9(a), as determined by the Administrator in its sole discretion. Unless an affected Highly Compensated Participant elects otherwise, any Pre-Tax Contributions reduced pursuant to this paragraph shall be treated as After-Tax Contributions. 5. Effective January 1, 1994, Section 7.1(d) is hereby amended in its entirety to read as follows: (d) For purposes of applying the limitations of Code Section 415, "415 Compensation" shall include the participant's wages, salaries, fees for professional service and other amounts 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 -3- 4 premiums, tips and bonuses and in the case of a participant who is an Employee within the meaning of Code Section 401(c)(1) and the regulations thereunder, the participant's earned income (as described in Code Section 401(c)(2) and the regulations thereunder)) paid during the "limitation 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 deductible by the Employee under Code Section 219(a), (C) any distributions from a plan of deferred compensation regardless of whether such amounts are includable in the gross income of the Employee when distributed except that any amounts received by an Employee pursuant to an unfunded non-qualified plan to the extent such amounts are includable in the gross income of the Employee; (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 which 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). "414(s) Compensation" with respect to any participant means such participant's Pre-tax Contributions attributable to Deferred Compensation recharacterized as After-tax Savings pursuant to Section 5.10(a) plus "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" -4- 5 with respect to any participant shall include "414(s) Compensation" for the entire twelve month period ending on the last day of such Plan Year. For purposes of this Section, the determination of "414(s) Compensation" 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. 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 annual "414(s) Compensation" of each employee taken into account under the Plan shall not exceed the "OBRA '93 Annual Compensation Limit" as set forth in Section 5.5. In applying this limitation, the family group of a Highly Compensated Participant 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 "415 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. IN WITNESS WHEREOF, the Employer has executed this First Amendment to the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as of October 1, 1993) on this ____ day of ______________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -5- 6 SECOND AMENDMENT TO THE STERLING CHEMICALS, INC. AMENDED AND RESTATED SAVINGS AND INVESTMENT PLAN (Effective as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 16.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective October 1, 1994, Section 11.1 is hereby amended in its entirety to read as follows: 11.1 Withdrawals by Participants with Five or More Years of Participation. Twice each Plan Year a participant who has at least five years of participation in this Plan, by writing filed with the Plan Committee, may elect to withdraw up to all of the balance of his Participant Rollover Account (to the extent not previously withdrawn and not more than the balance credited to such Account). A participant may also elect to withdraw up to all of the following amounts (to the extent not previously withdrawn and not more than the balance credited to his respective Accounts), in the following order: (a) all of the savings previously made to his After-tax Supplemental Savings Account and all earnings credited to such Account; and (b) all of the savings previously made to his After-tax Matched Savings Account and all earnings credited to such Account. The minimum withdrawal shall be $500 or the balance available, if less. Notwithstanding anything in this Section 11.1 to the contrary, any withdrawals during the Plan Year pursuant to Section 11.2 shall be considered to be withdrawals under this Section 11.1 for purposes of the requirement that withdrawals be made no more than twice each Plan Year. Notwithstanding the foregoing, for the period beginning October 1, 1994 and ending December 31, 1994, each participant shall be entitled to make one (1) withdrawal under 7 this Section 11.1 in addition to the number of withdrawals such participant would otherwise be entitled to make under this Section 11.1. Beginning January 1, 1995, withdrawals under this Section 11.1 may be made no more than twice each calendar year. 2. Effective October 1, 1994, Section 11.2 is hereby amended in its entirety to read as follows: 11.2 Withdrawals by Participants with Less than Five Years of Participation. Twice each Plan Year a participant who has less than five years of participation in this Plan, by writing filed with the Plan Committee, may elect to withdraw up to all of the balance then in his Participant Rollover Account and all earnings credited to such Account (to the extent not previously withdrawn and not more than the balance credited to such Account). A participant may also elect to withdraw up to the following amounts (to the extent not previously withdrawn and not more than the balance credited to his respective Accounts), in the following order: (a) all of the savings previously made to his After-tax Supplemental Savings Account and all earnings credited to such Account; (b) all of the savings previously made to his After-tax Matched Savings Account and all earnings credited to such Account (excluding After-tax Matched Savings made and all earnings credited to such Account during the current month and the immediately preceding twenty-three months); and (c) all After-tax Matched Savings made and all earnings credited to such Account during the current month and the immediately preceding twenty-three months. If a participant makes a withdrawal under subsection (c) of this Section 11.2, the Employers may not make any Employer Matching Contributions under the Plan on behalf of the participant for a three-month period commencing as soon as practicable after the date of the withdrawal. The minimum withdrawal shall be $500 or the balance available, if less. Notwithstanding the foregoing, for the period beginning October 1, 1994 and ending December 31, 1994, each participant shall be entitled to make one (1) withdrawal under this Section 11.2 in addition to the number of withdrawals such participant would otherwise be entitled to make under this Section 11.2. -2- 8 Beginning January 1, 1995, withdrawals under this Section 11.2 may be made no more than twice each calendar year. 3. Effective October 1, 1994, Section 11.5 is hereby amended in its entirety to read as follows: 11.5 Charging and Allocations of Withdrawals and Periodic Distributions. All Withdrawals and Periodic Distributions under Sections 11.1 through 11.4 shall be charged to the proper account of the participant and allocated as directed by the participant to his interests in the Investment Funds set forth in Section 9.2. IN WITNESS WHEREOF, the Employer has executed this Second Amendment to the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as of October 1, 1993) on this ____ day of ______________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -3- EX-10.12A 11 1ST AMEND. TO SC ESOP DATED 12/27/94 1 EXHIBIT 10.12(a) FIRST AMENDMENT TO THE STERLING CHEMICALS, INC. AMENDED AND RESTATED EMPLOYEE STOCK OWNERSHIP PLAN (Effective as of October 1, 1993) W I T N E S S E T H: WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan (Effective as of October 1, 1993) (the "Plan"); and WHEREAS, the Employer, pursuant to Section 14.1 of the Plan, has the right to amend the Plan from time to time subject to certain limitations. NOW, THEREFORE, in order to make various revisions desired by the Employer, the Plan is hereby amended in the following manner: 1. Effective January 1, 1994, Section 4.7(d)(i) is hereby amended in its entirety to read as follows: (i) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be determined by aggregating Employer contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the limitation under Code Section 401(a)(17) to "414(s) Compensation," Family Members shall include only the affected employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. 2. Effective January 1, 1994, Section 7.1(d) is hereby amended in its entirety to read as follows: (d) For purposes of applying the limitations of Code Section 415, "415 Compensation" shall include the participant's wages, salaries, fees for professional service and other amounts for personal services actually rendered in the course of employment with an Employer maintaining the Plan 2 (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses and in the case of a participant who is an Employee within the meaning of Code Section 401(c)(1) and the regulations thereunder, the participant's earned income (as described in Code Section 401(c)(2) and the regulations thereunder)) paid during the "limitation 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 deductible by the Employee under Code Section 219(a), (C) any distributions from a plan of deferred compensation regardless of whether such amounts are includable in the gross income of the Employee when distributed except that any amounts received by an Employee pursuant to an unfunded non-qualified plan to the extent such amounts are includable in the gross income of the Employee; (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 which 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). "414(s) Compensation" with respect to any participant means such participant's Pre-tax Contributions attributable to Deferred Compensation -2- 3 recharacterized as After-tax Savings pursuant to Section 5.10(a) of the Savings and Investment Plan plus "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any participant shall include "414(s) Compensation" for the entire twelve month period ending on the last day of such Plan Year. For purposes of this Section, the determination of "414(s) Compensation" 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. 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 annual "414(s) 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 "414(s) 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. If "414(s) Compensation" for any prior Determination Period is taken into account in determining a participant's benefits accruing in the current Plan Year, the "414(s) Compensation" for that prior Determination Period is subject to -3- 4 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. In applying this limitation, the family group of a Highly Compensated Participant 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 "415 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. IN WITNESS WHEREOF, the Employer has executed this First Amendment to the Sterling Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan (Effective as of October 1, 1993) on this ____ day of ______________, 1994. STERLING CHEMICALS, INC. Attest: By:____________________________ _________________________ "Employer" -4- EX-10.19 12 ACRYLONITRILE EXCHANGE CONTRACT DATED 01/01/94 1 EXHIBIT 10.19 **OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST** ACRYLONITRILE EXCHANGE CONTRACT THIS CONTRACT, made as of January 1, 1994 by and between Sterling Chemicals, Inc., a Delaware corporation ("Sterling") having a plant at Texas City, Texas (the "Plant"), and Monsanto Company, a Delaware corporation ("Monsanto"). W I T N E S S E T H : WHEREAS, Sterling desires to exchange Acrylonitrile with Monsanto and Monsanto desires to exchange Ammonia and Propylene with Sterling, on the terms and conditions herein after specified, including the Terms and Conditions set forth in Attachment 1 hereto, which is incorporated herein by reference: NOW THEREFORE, in consideration of the following mutual covenants, Sterling and Monsanto agree: 1. GOODS. Sterling shall deliver Acrylonitrile meeting the specifications set forth in Exhibit A hereto, which is incorporated herein by reference (as used with reference to Sterling's delivery obligation, herein called the "Goods") to Monsanto in exchange for Ammonia and Propylene meeting the specifications set forth, respectively, in Exhibits B and C hereto, which are incorporated herein by reference ( as used with reference to Monsanto's delivery obligation, herein called the "Goods") to be delivered by Monsanto to Sterling, together with the differential to be paid by Monsanto to Sterling as hereafter provided in Section 4. 2. PERIOD. The period of this Contract shall be January 1, 1994 through December 31, 1998. 3. QUANTITY. Subject to all the terms and conditions hereof, the Goods to be delivered hereunder by Sterling shall be Monsanto's annual purchase requirement for such Goods in excess of Monsanto's own production of Acrylonitrile, which excess is estimated to be between * * * * and * * * * per calendar year, subject to the General Terms and Conditions set forth in Attachment 1 hereto. For each 1 pound of Goods to be delivered by Sterling to Monsanto during each calendar quarter of the Contract Period, Monsanto shall deliver to Sterling either * * * * pounds of Ammonia and * * * * of Propylene, or Sterling's actual ratio of the usage of Ammonia and Propylene in the production of each one pound of the Goods during such calendar quarter, whichever is less. Promptly after the close of each calendar quarter, but not later than thirty (30) days thereafter, Sterling shall compute such actual ratio of usage for such quarter, and Monsanto will be appropriately and equitably debited or 2 credited for deliveries of Ammonia or Propylene to correct for any over or under deliveries which may have occurred during such quarter. 4. (a) DIFFERENTIAL. For the first calendar quarter immediately following the effective date of this Contract, in addition to the Goods to be exchanged by Monsanto for each 1 pound of the Goods delivered each month by Sterling in conformance with the terms hereof, Monsanto shall pay Sterling a differential fee of * * * *, subject to the General Terms and Conditions set forth on Attachment 1. Within thirty (30) days following the end of each calendar quarter * * * * of such * * * * per pound fee shall be adjusted up or down as follows: * * * * shall be adjusted by the same percentage change as shall have occurred in the average costs per KWH for electric power at the Plant between the second calendar quarter of 1993 and such average costs for the calendar quarter just ended; * * * * shall be adjusted by the same percentage change as shall have occurred in the average hourly labor costs for workers employed at the Plant between the second calendar quarter of 1993 and such average costs for the calendar quarter just ended; and * * * * shall be adjusted by the same percentage change as shall have occurred in the Industrial Commodity Index (less fuel and related power) contained in the Department of Labor, Bureau of Labor Statistics, Product Price Index, between the first calendar quarter of 1994 and such Index for the calendar quarter just ended; less a negative * * * * (i.e., a steam credit against the preceding adjustments) which negative amount (steam credit) shall be adjusted by the same percentage change as shall have occurred in the average cost per million BTUs for natural gas used at the Plant between $2.30 per million BTUs and the average cost per million BTUs for such gas for the calendar quarter just ended. Any change in the * * * * fee required shall be made retroactively effective to the first day of the calendar quarter in which the computation is made, with appropriate debits or credits issued between the parties for shipments made during such quarter prior to the making of the adjustment calculations. For all proceeding calendar quarters after the first calender quarter of this Contract, the estimated conversion fee will be taken as the final conversion fee for the previous quarter. (b) For each one (1) pound of Goods delivered by Sterling in excess of * * * * in a calendar year, Monsanto will pay Sterling a revised Differential equal to one-half of the Differential defined in Section 4(a) above plus one-half of "Sterling's volume weighted average $/lb. margin" on all Acrylonitrile export shipments (meeting or exceeding Sterling's standard sales specifications) during the calendar year in question. "Sterling's average $/lb. margin" shall be defined as Sterling's average per pound sales price in $/lb. for Acrylonitrile exported (meeting or exceeding Sterling's standard sales specifications) during the calendar year in question (adjusted to F.O.B. Sterling's Texas City Plant and adjusted for any Temporary voluntary or Competitive Allowances or other price adjustments extended to customers by Sterling) reduced by Sterling's average per pound cost in $/lb. of Ammonia and contained Propylene used during such calendar year. Such revised Differential shall begin when * * * * is exceeded and shall be estimated 2 3 by Sterling; provided that premium grade Acrylonitrile sold by Sterling at a premium price shall not be included in the calculation of "Sterling's average $/lb. margin." Promptly after the close of any calendar year in which such revised Differential is payable, Sterling shall compute such actual revised Differential and shall debit or credit Monsanto for any under or over payment." 5. SPECIFICATIONS. The specifications attached hereto shall not be changed without the mutual agreement of both parties. It is understood, however, that if at any time during the Contract period general market conditions change so that Monsanto can no longer make products acceptable to its customers from Goods meeting the attached specifications, Monsanto shall notify Sterling promptly and if the parties are unable, after attempting to do so in good faith, to reach agreement on revised specifications for the Goods, Monsanto may, by and effective upon notice to Sterling suspend its obligations to obtain from Sterling hereunder so much of the Goods as to which such conditions prevail, without liability, until such time as Monsanto and Sterling either reach agreement on revised specifications for the Goods, or Sterling otherwise modifies the Goods so that Monsanto is able to make products therefrom acceptable under then current general market conditions, and during any such suspension period, Monsanto may obtain its requirements for so much of the Goods as require revised specifications from others who can meet such revised specifications. Any such suspension period shall not operate to extend the Contract Period. 6. DELIVERIES. The FOB point where title and risk of loss shall pass to Sterling from Monsanto on the Goods to be delivered by Monsanto shall be (a) in the case of delivery by pipeline, when the Goods are delivered to the first flange of Sterling's receiving pipelines at the Plant; and (b) in the case of delivery by tankcar or barge, when the carrier tenders delivery of the tankcar or barge to Sterling at the Plant. The FOB point where title and risk of loss shall pass to Monsanto from Sterling on the Goods to be delivered by Sterling shall be when the Goods have been loaded aboard the delivering tankcar, barge or ship and possession of the conveyance is in the carrier. The method of delivery shall be by pipeline for Propylene; by barge for Ammonia; and by barges or ships furnished or arranged for by Monsanto, or by tankcars furnished by Sterling, for Acrylonitrile, all as Monsanto may specify from time to time. 7. SPECIAL TERMINATION ASSIGNMENT RIGHTS. Monsanto may terminate its quantity obligation with respect to so much of the quantity of Goods to be purchased [exchanged] hereunder as is consumed directly or indirectly by any business of Monsanto which Monsanto elects to sell to any third party or which Monsanto elects to discontinue, by giving Sterling at least one hundred eighty (180) days prior notice of the quantity to be terminated. IN the event of the sale of any Goods consuming business and not withstanding the prohibition against assignment contained in Section 12 of the "General Terms and Conditions", Monsanto may assign this Contract with the consent of Sterling (which consent 3 4 will not be unreasonably withheld) to any one or more third parties which purchase a business of Monsanto which consumes, directly or indirectly, a quantity of the Goods covered hereby to the extent of the quantity so consumed, provided at least thirty (30) days prior notice is given to Sterling of any such assignment. Sterling shall be deemed to have approved any such assignment unless it has raised objections to such assignment within the thirty (30) day period. In all cases involving the sale by Monsanto of any Goods consuming business, Monsanto agrees to use all reasonable efforts to assign the relevant quantities to the purchaser provided Sterling has not objected to such assignment within the thirty (30) day notice period referenced above. In the event, however, that Monsanto (i) is unable to assign the relevant quantities to the purchaser or (ii) Sterling does not consent to the assignment, Monsanto may nevertheless terminate its obligations with respect to any such quantity in accordance with the one hundred eighty day notice provision set forth above. 5. FAVORED NATIONS. Sterling shall promptly notify Monsanto of any conversion or exchange during the contract Period by Sterling of Acrylonitrile functionally equivalent to the Goods covered hereby for use or consumption within the United States at a delivered cost to the third party involved (adjusted to a net price FOB Sterling's Plant) which is lower than the delivered cost to Monsanto at Sterling's Plant, Texas City, then applicable to the Goods hereunder, and Monsanto shall thereupon be entitled to exchange hereunder a quantity of the Goods at such lower delivered cost (adjusted to a net price FOB Sterling's Plant) equal to the quantity of Acrylonitrile so disposed of to such third party. 9. GOODS AND RECORDS. If Monsanto so requests, Sterling shall make available to an independent certified public accounting firm, mutually acceptable to Monsanto and Sterling and paid for by Monsanto such of Sterling books and records as shall be necessary to permit such accountants to verify the propriety and correctness of any matter relevant to Sterling's performance of this Contract or one or more of the provisions hereof, provided, however, that such accountant shall report to Monsanto only his conclusion concerning the correctness and accuracy of Sterling's calculations and whether there has been a correct application of the Contract provisions or, if not, what such firm considers to be the correct calculations and/or application of the contract. Such firm shall agree to keep confidential the information of Sterling to which it has access pursuant to such agreement as Sterling may reasonably require, and shall not otherwise divulge any of the data of Sterling which it has inspected or reviewed without the consent of Sterling. 10. WATERBORNE DELIVERY & MEASUREMENT (a) Monsanto shall give reasonable prior notice of vessel arrival and permitted laytime applicable to the vessel. After Sterling accepts a vessel 4 5 nominated by Monsanto, Sterling shall provide a safe berth at all times for any such vessel placed for loading/unloading by Monsanto. (b) Vessels shall be handled with all reasonable expediency and any delay beyond permitted laytime of which Sterling has been advised by Monsanto for the type of equipment used shall be paid for by Sterling. Sterling accepts that, from January 1, 1993 and for all further shipments of product from Texas City, Texas, to Monsanto, the permitted laytime will be 1,500 barrels per hour plus three (3) free hours of time for every barge loaded during one trip of the unit tow. (c) Sterling shall inspect all barges and vessels to ensure cleanliness so as not to affect purity of the Goods to be loaded. (d) Inspection of the quantity and quality of Goods being loaded upon or unloaded from barge(s) at the loading or unloading point shall be performed by a licensed inspector of petroleum products, who shall be mutually agreed upon by the parties, and the cost for such service shall be shared equally by Monsanto and Sterling. The determination of the quantity of Goods delivered hereunder shall be determined by taking the opening and closing inventory of Sterling's properly calibrated still shore tank before and after each shipment, unless such quantity determination is proven to be in error. For invoicing purposes volume shall be corrected to 60 Fahrenheit in accordance with applicable ASTM tables. Inspection of quality of the Goods shall be made on representative samples of the Goods taken from loading flange of Monsanto's barge or ship at loading point by a licensed inspector of petroleum products. In the event that a disagreement should arise as to quantity or quality, an inspection will be made by such mutually agreed upon licensed inspector of petroleum products and the results of such inspection shall govern, the cost to be borne by the party proven to be in error. 11. PIPELINE MEASUREMENTS. On all deliveries hereunder the quantity delivered shall be measured by meters. The following provisions (a) through (j) shall apply as to determination of quantity: (a) Sterling shall operate and maintain at no expense to Monsanto, the Goods (Propylene) custody transfer meter station located at or near the West Gate parking lot at the Plant. Such meter station shall be equipped with facilities necessary to determine accurately the quantity of Goods delivered by Monsanto hereunder and such measurement station shall be operated and maintained by Sterling in accordance with good industry practice. The primary measuring device shall be a recording turbine meter, or such other primary measure device as may be mutually agreed upon by the parties and shall be equipped with such provers, recorder and equipment as 5 6 appropriate and shall be installed and operated, all in accordance with appropriate American Petroleum Institute (API) standards including Chapter 5 Section 3 of API Manual of Petroleum Measurement Standards (A part of API-2534). (b) Monsanto, or its representative, may, at its option, install a check meter or meters at or near the FOB point for checking Sterling's measurement. Said meter shall be so installed as to not interfere with the operation of Sterling's metering facilities. The calibrating and adjusting of Monsanto's meters and the changing of charts and reading of charts on Monsanto's meters shall be done only by Monsanto, or its representative. Monsanto, or its representative, shall have access at all reasonable times to its equipment and shall make all repairs to said equipment at no expense to Sterling. Sterling shall have access at reasonable times to Monsanto's charts, records and calculations on written request to Monsanto. (c) Monsanto, or its representative, upon prior notice to Sterling and at Sterling's option accompanied by a Sterling employee or representative, shall have access at all reasonable times to the meters and equipment used in determining the quantity and quality of the Goods delivered hereunder, including all instruments used by Sterling or its designated representative, but the reading, metering and testing thereof and the changing of charts shall be done only by the agents or representatives of Sterling and only upon notice to Monsanto. Upon written request of Monsanto, Sterling shall submit to Monsanto records, charts and calculations from Sterling subject to return by Monsanto within 45 days after receipt thereof. (d) At least once a month, and on a date as near the first of the month as practicable, Sterling shall at the joint expense of Sterling and Monsanto, prove and test or cause to be proved and tested the meters and instruments, in the presence of Monsanto, or Monsanto's representative, and the parties hereto shall jointly observe any adjustments which are made, should same be necessary. Sterling shall give Monsanto at least three days' prior notice of the date and time all such tests and proving are to be conducted so that Monsanto may conveniently have its representative present. (e) Sterling shall, upon notice to Monsanto, cause the custody transfer meters to be read for billing purposes on a monthly basis, as close to the date of proving as possible. 6 7 Monsanto shall have the right to be present for such reading and a certified copy of such reading shall be supplied to Monsanto. (f) Monsanto, at its expense, shall have the right to request that the meter be inspected and checked for calibration by an independent qualified third party at any time between normal Sterling recalibration intervals; if, as a result of such inspection, the meter is determined to be inaccurate by 1/2 percent or more, the cost of said inspection and subsequent recalibrations shall be borne by Sterling. (g) Following any test, any metering equipment found to be inaccurate to any degree shall be adjusted immediately to measure accurately, or, if applicable, an appropriate correction factor shall be agreed upon. If upon any calibration any metering equipment is found to be inaccurate by 1/2 percent or more, registration from said metering equipment and any payments based upon such registration shall be corrected at the rate of such inaccuracy for any period of inaccuracy which is definitely known or agreed upon, but in the case the period is not definitely known or agreed upon, then for a period extending back one-half of the time elapsed since the previous test, not exceeding however, 15 days. (h) If for any reason any meter is out of service, out of repair, or is found registering inaccurately and the error is not determinable by ordinary test, so that the quantity of Goods delivered through such meter cannot be ascertained or computed from the readings thereof, the quantity of Goods so delivered during the period same is out of service, out of repair, or is found to be so registering inaccurately shall be estimated and agreed upon by the parties hereto upon the basis of the best available data, using the first of the following methods which is feasible: (i) By using the registration of any check measuring equipment of Monsanto and/or Monsanto's representative, if installed and registering accurately. (ii) By correcting the error if the percentage of error is ascertainable by calibration, special test, or mathematical calculation; or (iii) By such other method as shall be mutually agreed upon by the parties hereto. 7 8 (i) If the parties are unable to agree on quantities delivered as a result of a meter inaccuracy determined pursuant to Section 11 (g) above, or if there is disagreement as to whether the Goods meet the relevant specifications attached hereto, either party may, on ten days' written notice to the other party, submit such question to such independent third party as may be mutually agreed, and the decision of such third party shall be binding on the parties. Costs of such determination shall be borne equally by each party. 12. NOMINATION/FORECAST. Monsanto shall at least thirty (30) days prior to the beginning of each calendar quarter give Sterling a nomination of Monsanto's deliveries of the Goods and requests for delivery of the Goods, each at the respective points of delivery for in the Contract. These quarterly volume nominations regarding Acrylonitrile offtake will be made in 5 million pound ranges with the minimum nomination being 30 million pounds and the maximum being 50 million pounds. All pounds delivered to Monsanto during the quarter will be invoiced according to the fee schedule above in Section 4. If, however, Monsanto's conversion with Sterling is greater than the 30 million pound per quarter minimum and Monsanto has given Sterling the required notification regarding this volume need or Sterling has agreed to a change of the volume nomination, then the Fixed Component for the additional volume, (pounds above 30 million per quarter) will be adjusted from the $0.03 per pound set forth in Section 4. The fee for the first 10 million pounds taken above the 30 million pound minimum per quarter (pounds between 30 and 40 million) will be based on a Fixed Component fee of $0.0275 per pound and the next 10 million pounds taken (between 40 and 50 million) per quarter will have a Fixed Component fee of $0.0250 per pound. MONSANTO COMPANY STERLING CHEMICALS, INC. BY: _________________________ BY: ________________________ TITLE _________________________ TITLE ______________________ 8 9 ATTACHMENT 1 MONSANTO COMPANY AND STERLING CHEMICALS, INC. General Terms and Conditions If, and to the extent that, the transaction governed by the following Terms and Conditions is a sale and purchase transaction the phrase "shipping party" shall mean "Seller", and the phrase "receiving party" shall mean "Buyer", unless the context requires otherwise. In the event of a conflict between these "General Terms and Conditions" and the specific terms and conditions in the Contract to which they are attached, such specific terms and conditions shall govern. 1. EXCUSE OF PERFORMANCE (a) Shipments and deliveries may be suspended by either party in the event of: Act of God, declared or undeclared war, acts of the public enemy, riot, fire, explosion, accident, flood, sabotage, blockades, embargoes, insurrections, epidemics, landslides, lightening, earthquakes, storms, hurricanes, washouts, civil disturbances, arrests; lack of adequate fuel, power, raw materials, labor, containers or transportation facilities; compliance with federal, state, local, municipal, civil and military governmental and governmental agency requests, laws, regulations, orders, actions, requisitions, restraints or directives; breakage, failures, disruptions, and necessary maintenance of machinery or apparatus; national defense requirements or any other event, whether or not of the class of kind enumerated herein, beyond the reasonable control of such party; or in the event of labor trouble, strike, slowdowns, lockout or injunction (provided that neither party shall be required to settle a labor dispute against its own best judgment); which event hinders, limits or makes impracticable the performance of this Contract or the manufacture, consumption, sale, exchange, shipment, receipt, use or obtaining of the Goods or any raw material, or any product manufactured or processed therefrom or therewith. (b) If either party determines that its ability to obtain or supply the total demand for the Goods which it is supplying pursuant to this Contract, or obtain any or a sufficient quantity of any material used directly or indirectly in the manufacture of the Goods, is hindered, limited or made impracticable by any event referred to in Section 1(a) such party shall allocate its available supply of the Goods or such 9 10 material (without obligation to acquire other supplies of any such Goods or material) among itself and its other contract customers and the other party to this Contract on a fair and equitable basis without liability for any failure of performance which may result therefrom, except, if the transaction covered hereby is an exchange, for any liability for imbalances stated in this Contract. (c) Shipments suspended or not made by reason of this section shall be canceled without liability except, if the transaction covered hereby is an exchange for any liability for imbalances arising out of such cancellation, but this Contract shall otherwise remain unaffected. (d) The affected party shall invoke this Section 1 by promptly notifying the other party in writing of the nature of this event on which it relies and the estimated extent and duration of the suspension. During the continuance of any such event the affected party shall not be obligated to purchase Goods from another source to fulfill its obligations hereunder. If the event relied upon is one which prevents the affected party from obtaining raw materials, the affected party agrees to give the other party the option for the duration of the inability of the affected party to obtain such raw materials, to convert the Contract into an exchange agreement under which the other party shall be entitled to obtain from the affected party a quantity of the Goods up to the quantity to which such other party is otherwise entitled (not to exceed the maximum quantity) and which can be produced on a stoichiometric basis from the quantities of the raw materials in short supply which such other party can arrange to be delivered to the affected party, and the affected party shall supply any other required raw materials. If the other party exercises such option, such other party shall, in addition to the raw material to be delivered to the affected party, and the affected party shall supply any other required raw materials. If the other party exercises such option, such other party shall, in addition to the raw material to be delivered by such other party pay the affected party per unit of the Goods delivered under the exchange a differential equal to the sales price per unit of the Goods otherwise then applicable under the contract less the then prevailing market value of the stoichiometric amount of the raw material delivered by the other party and contained in the unit of Goods delivered by the affected party under the exchange. During any such exchange period, the provisions hereunder applicable to exchanges shall apply. In such event, the affected party will, in addition to deliveries otherwise due the other party, deliver to the other party an amount of Goods equivalent to the quantity which may be made from the raw materials supplied by the other party, but the aggregate amount of Goods from either source shall not exceed the 10 11 total amount of Goods to which such other party was otherwise entitled before such option was exercised. 2. SHIPMENTS. Receiving party shall provide shipping party with reasonable advance notice of its desired schedule for shipment of Goods. If the transaction covered hereby is an exchange, orders for shipments of Goods shall be at a monthly rate as uniform as reasonably practicable, unless otherwise provided in this Contract. If the transaction covered hereby is a sales, the Seller shall not make any shipments under this Contract until released in accordance with separate purchase orders or releases issued by Buyer's using locations and Seller shall not be required to ship more than thirty percent (30%) of Seller's maximum annual quantity obligation in any quarter without Seller's prior consent. 3. LOADING AND UNLOADING. Shipping party agrees to load, and receiving party agrees to unload, carriers or transports furnished by the other party within, as applicable, any free time specified by tariffs on file with the applicable regulatory bodies or as otherwise specified by the carrier and to pay any charges resulting from its failure in this regard, provided either such party, as applicable, has been advised, prior to commencement of unloading, or loading, as the case may be, of carrier's permitted free time. A party shall not be excused from its obligations to pay such charges by the provisions of Section 1 if the event relied upon occurs after the carriers or transports have been accepted for loading or unloading, as the case may be. 4. IMBALANCES. This Section 4 shall have application only if the transaction covered hereby is an exchange. both parties shall endeavor, insofar as practicable, to keep the exchange in balance in accordance with the provisions of this Contract. Unless otherwise provided in this Contract, an over-delivering party shall not be required to make any further shipments hereunder if the Goods shipped pursuant to this Contract are not in balance until such imbalance is eliminated or reduced, by the shipment of Goods to the over-delivering party, to a level acceptable to the over-delivering party, even if the imbalance results from an event described in Section 1 hereof. If such imbalance does result from an event described in Section 1, the over-delivery party may, in lieu of awaiting for the imbalance to be brought into balance, require that any over-deliveries be returned or that the over- deliveries be paid for by the under-delivering party at such price as may be agreed upon. Such action by the over-delivering party shall not limit any rights or remedies of the over-delivering party. A party shall not be entitled to refuse to make shipments due to such an 11 12 imbalance if such imbalance has resulted from its failure to accept and receive Goods in accordance with the provisions of this Contract. Any such reduction or elimination of such an imbalance shall occur within thirty (30) days following a request from the over-delivering party that such imbalance be reduced or eliminated. Upon the termination or expiration of this Contract, the over-delivering party shall be entitled to receive, within sixty (60) days following the date of such expiration or termination, the quantity of Goods required to bring the exchange in balance and payment of any differential due to it. An imbalance may be eliminated by a cash payment to the over-delivering party, rather than by the shipment of Goods, if (i) any imbalance is less than one full load in accordance with the method of shipment provided for in this Contract or (ii) the obligation of the party making such payment to ship the Goods required to eliminate an imbalance has been suspended pursuant to Section 1 hereof. such cash payment, which shall be in addition to any payment due for any differential, shall be based upon the market price for the Goods, as determined by the over-delivering party, at the time such payment is made, or at the time such payment becomes due, whichever amount is greater. all provisions of this Contract shall be deemed applicable to deliveries made subsequent to the expiration or termination of this Contract for the purpose of eliminating an imbalance. 5. LIMITED WARRANTY and CHANGES IN SPECIFICATION. Subject to Section 6 and unless otherwise expressly provided herein, the shipping party warrants; (i) title to the Goods shipped and (ii) that the Goods shipped, shall conform to the shipping party's standard specifications (or to the attached specifications, if any). Subject to the preceding sentence and except as otherwise expressly provided herein, SHIPPING PARTY MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE GOODS, whether used alone or in combination with any other material. Shipping party shall not make any change in raw materials or methods of manufacturing employed in producing the Goods without the prior approval of receiving party, unless any such change will have no affect on the continued suitability of the Goods to receiving party even though such Goods would continue to meet specifications. 6. LIMITATION OF LIABILITY. (a) Within fifteen (15) days after actual receipt by the receiving party at its consuming location of each shipment of the Goods, the receiving party shall examine such Goods for any damage, defect or shortage. all claims for any cause whatsoever (whether such cause be based in Contract negligence, 12 13 strict liability, other tort or otherwise) shall be deemed waived unless made in writing and received by the shipping party within thirty (30) days after such actual receipt of the Goods by the receiving party in respect to which such claim is made, provided that s to any such cause not reasonably discoverable within such thirty (30) day period (including that discoverable only in processing, further manufacture, other use or resale), any claim shall be made in writing and received by the shipping party within ninety (90) days after such actual receipt by the receiving party of the Goods in respect to which such claim is made, or within thirty (30) days after the receiving party learns of the facts giving rise to such claim, whichever shall first occur. Any claim for non- delivery of such Goods shall be deemed waived unless made in writing and received by the party alleged to have failed to deliver such Goods within ninety (90) days following the expiration or termination of this Contract. Failure of a party to receive written notice of any claim within the applicable time period shall be deemed an absolute and unconditional waiver by the other party of such claim irrespective of whether the facts giving rise to such claim shall have then been discovered or whether processing, further manufacture, other use or resale of the Goods shall have then taken place. (b) THE RECEIVING PARTY'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND THE SHIPPING PARTY'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED THE THEN PREVAILING CONTRACT MARKET PRICE, IF THE TRANSACTION IS AN EXCHANGE, OR THE THEN PREVAILING CONTRACT PRICE, IF THE TRANSACTION IS A SALE, FOR THE QUANTITY OF GOODS IN RESPECT TO WHICH SUCH CAUSE ARISES, OR, AT SHIPPING PARTY'S OPTION, THE REPAIR OR REPLACEMENT OF SUCH GOODS, AND IN NO EVENT SHALL THE SHIPPING PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE. The shipping party shall not be liable for, and the receiving party assumes liability for, all personal injury and property damage connected with the transportation, possession, processing, further manufacture, other use or resale of the Goods by or on behalf of the receiving party or its customers, whether the Goods are used alone or in combination with any other material or are resold by receiving party. transportation charges for the return of the Goods shall not be paid unless authorized in advance by the party initially shipping the Goods. 13 14 (c) If the shipping party furnishes technical or other advice to the receiving party, whether or not at the request of the receiving party, with respect to processing, further manufacture, other use or resale of the Goods, the shipping party shall not be liable for, and the receiving party assumes all risk of, such advice and the results thereof. 7. TITLE AND RISK OF LOSS. Unless otherwise provided in this Contract, title to and risk of loss of Goods shall pass to the receiving party and delivery by the shipping party shall take place (a) in the case of delivery by pipeline, immediately after the Goods pass the last flange on the shipping party's property, (b) in the case of delivery into tankcars, upon delivery of the loaded tankcars by the shipping party to the carrier outside shipping party's property (c) in the case of delivery into tanktrucks or other trucks, immediately after such trucks leave the shipping party's property, and (d) in the case of delivery into barges or ship tankers immediately after the Goods pass the last flange in the shipping party's loading line. 8. PATENTS. Subject to Section 6 and unless otherwise expressly provided herein, the shipping party warrants that the Goods supplied pursuant to this Contract, except for those made for the receiving party according to the receiving party's specifications; provided, however, Monsanto (as Buyer or receiving party) shall not assert against Sterling (as Seller or shipping party) any claim for infringement based on Sterling's use of the technical Information as defined in and licensed to Sterling under the License Agreement, (Exhibit 2.1(a) to the Asset Purchase Agreement between Monsanto and Sterling) dated the date hereof, in the operation of Sterling's plant to produce the Goods in accordance with procedures employed in such plant by Monsanto as of the date of the License Agreement. This warranty is given upon condition that the receiving party promptly notify the shipping party of any claim or suit involving the receiving party in which such infringement is alleged and that, if the shipping party is affected, the receiving party permit the shipping party to control completely the defense or compromise of any such allegation of infringement. the shipping party does not warrant that the use of the Goods or any material made therefrom, whether the Goods are used alone or in combination with any other material, will not infringe a patent. The shipping party reserves the right to terminate the shipping party's warranty under this Section 8 at any time with respect to any undelivered Goods. In the event of such termination, the receiving party may thereafter refuse acceptance of such undelivered Goods and the receiving party may, within forty-five (45) days following such termination, terminate this Contract upon not less than thirty (30) days' written notice to the other party. 14 15 9. FREIGHT AND TAXES. Any new tax or any increase in an existing tax or governmental charge, paid by the shipping party, hereafter becoming effective imposed upon the sale, exchange or delivery of the Goods, such as sales tax, use tax, retailer's occupational tax, but excluding taxes based on production or income such as value added, gross receipts or franchise taxes, may, if the transaction covered hereby is a sale, be added to and included as a part of the price herein specified, provided that shipping party invoices such new charges within 90 days following the effective date of their imposition; and, if the transaction covered hereby is an exchange, and, if the effect of such new or increased tax or charge is to increase the cost to the shipping party of exchanging or delivering the Goods or procuring materials used therein, shipping party may notify the receiving party thereof, in writing, requesting an adjustment to the differential as a result of such factors. If the parties are unable to agree upon a satisfactory revision to such differential within forty-five (45) days following receipt of such notice, the shipping party may terminate this Contract upon thirty (30) days' written notice to the other party. Shipping party shall be entitled initially to assert that any Superfund tax (or tax of similar purpose or effect) or any increase in any such tax, should become a part of the differential to be paid, if the transaction covered hereby is an exchange, or should be added to the price for the Goods, if the transaction covered hereby is a sale, and to include the amount thereof in its invoices for the relevant Goods; provided however, that the shipping party shall not be entitled to continue to collect any such tax, or increase therein, unless such tax, or increase therein, is generally then being taken into account and being included in the differential, or added to the price, as the case may be, by other sellers or exchangers of the Goods covered hereby, and if such other sellers or exchangers are not generally collecting such tax, or increase therein, shipping party shall no longer attempt to collect any such tax, or increase therein, hereunder and there shall be a prompt refund of any amounts theretofore collected therefore from the receiving party. Except as otherwise expressly provided in the special terms and conditions which are applicable to this Contract, freight from the point of passage of title provided for in Section 7 for the Goods shall be for the account of receiving party. 10. WEIGHTS. Unless otherwise specifically provided for herein, the shipping party's weights or measurements shall govern unless proven in error. 11. COMPLIANCE WITH CERTAIN LAWS. Subject to Section 6 and unless otherwise expressly provided herein, the Goods shall be 15 16 produced in compliance with the requirements of the Fair Labor Standards Act of 1938, as amended, and Executive Order 11246. 12. ASSIGNMENT. Subject to the special terms and conditions applicable to this Contract and except as provided in the Asset Purchase Agreement of even date herewith between the parties, neither party shall (by operation of law or otherwise) assign its rights or delegate its performance hereunder without the prior written consent of the other party, and any attempted assignment or delegation without such consent shall be void. To the extent assignment is permitted hereunder this Contract shall be binding on any permitted assignee. 13. MONTHLY REPORTS. If the transaction covered hereby is an exchange, each party shall, within thirty (30) days following the end of each month, provide the other party with a report stating the quantities delivered and received during the month and the calendar year pursuant to this Contract, as well as the exchange balances for such periods. the parties shall promptly attempt to reconcile any discrepancies apparent from such reports. 14. MEET COMPETITION. (a) If the transaction covered hereby is a sale and if from time to time Monsanto can purchase Goods of functionally equivalent quality at a lower delivered cost than the delivered cost of the Goods then in effect hereunder and in an amount equal to at least Monsanto's annual purchase obligation hereunder for the then remaining balance of the Contract period, and Monsanto gives Sterling written notice thereof, Monsanto may purchase such Goods, unless within fifteen (15) days of receipt by Sterling of said notice Sterling shall meet such lower delivered cost for an equal quantity of Goods thereafter sold hereunder. (b) If the transaction covered hereby is an exchange and if from time to time Monsanto can obtain, by exchange or conversion, Goods of functionally equivalent quality at a lower delivered cost than the delivered cost of the Goods then in effect hereunder, and in an amount equal to at least Monsanto's annual exchange obligation hereunder, for the then remaining balance of the contract period, and Monsanto gives Sterling written notice thereof, Monsanto may obtain such Goods by exchange or conversion, unless within fifteen (15) days of receipt by Sterling of said notice, Sterling shall meet such lower delivered cost for an equal quantity of Goods thereafter exchanged hereunder. (c) In either event, any quantity so obtained by Monsanto from another source shall be deducted from Monsanto's annual obligation hereunder, but the contract otherwise shall remain unaffected. 16 17 15. MISCELLANEOUS. (a) Governing Law. The validity, interpretation and performance of this Contract and any dispute connected herewith shall be governed and construed in accordance with the laws of the state of Texas. Buyer (Sterling) has consented to service of process in the State of Missouri. (b) Set Off. Monsanto (or Buyer, as the case may be, and for purposes of this section 15 (b) herein called "Monsanto") may retain from any moneys due or sums payable to Seller (or Exchanger or sterling, as the case may be, herein called "Sterling") under this Contract and set off any such moneys or sums against any moneys, sums or claims owing by or due from Monsanto to third parties, which Sterling is not contesting in good faith and which result in any manner from Sterling's deficient performance or failure to perform under any agreements assigned to Sterling pursuant to the assets Purchase agreement between Monsanto and sterling. (c) Notices. Any notice required or permitted to be given under this Contract shall be deemed sufficient if (i) in writing and (ii) served either by (a) depositing the same in the United States mail, property addressed as provided below, postage prepaid, registered or certified mail, and with return receipt requested, (b) delivering the same in person, or (c) sending a prepaid telegram of the same, confirmed by notice deposited in the mail in the manner provided in this Section 15(c). Unless otherwise provided in this Contract, any notice deposited in the mail in the manner provided in this Section 15(c) shall be effective upon the expiration of three days after the date on which it is so deposited, and any notice given in any other manner shall be effective only if and when it is received by the addressee. for the purposes of notice hereunder, the addresses of the parties hereto shall be as follows: BUYER: Monsanto Company 800 N. Lindbergh St. Louis, Missouri 63167 Attn: Director, Purchasing Monsanto Chemical Co. SELLER: Sterling Chemicals, Inc. 1200 Smith, Suite 1900 Houston, Texas 77002 Attn: Vice President, Commercial 17 18 Any party hereto may change its address for the purpose of notice hereunder by giving written notice of such change of address to the other party as specified in this Section 15(c) (d) Entire and Only Agreement. This Contract and all other related documents and instruments executed and delivered pursuant hereto constitute the entire and only understanding and agreement among the parties hereto with respect to the subject matter hereof and supersede all prior negotiations, understandings and agreements among such parties relating to the same subject matter. (e) Amendments. No alterations, modifications, amendments or changes of this Contract or any other related document or instrument executed and delivered pursuant hereto shall be effective or binding on any party hereto, unless the same shall be in writing and executed by all of the parties hereto. (f) Severability. If a court of competent jurisdiction declares that any provision of this Contract or any other related document or instrument executed and delivered pursuant hereto is illegal, invalid or unenforceable, then such provision shall be modified automatically to the extent necessary to make such provision fully enforceable. If such court does not modify any such provision as contemplated herein, but instead declares it to be wholly illegal, invalid or unenforceable, then such provision shall be severed from this Contract or such other document or instrument, and such declaration shall in no way affect the legality, validity and enforceability of the other provisions of this Contract or such other document or instrument to which such declaration does not relate. In such event, this Contract or such other document or instrument shall be construed as if it did not contain the particular provision held to be illegal, invalid or unenforceable, the rights and obligations of the parties hereto shall be construed and enforced accordingly, and this Contract otherwise shall remain in full force and effect. (g) Captions. The captions contained in this Contract are for the purpose of reference only and shall not affect in any way the meaning, interpretation or scope of this Contract. (h) Waivers. Any failure of any party hereto to comply with any of its obligations, agreements or conditions as set forth herein may be expressly waived in writing by the other party. No such waiver shall operate as a waiver of any other obligation, agreement or condition and the failure to enforce any provision hereof shall not 18 19 operate as a waiver of such provision or of any other provisions hereof. (i) Multiple Counterparts. This Contract may be executed by the parties hereto in multiple counterparts, each of which shall be deemed to be an original for all purposes, and all of which together shall constitute one and the same instrument. (j) Invoices. Shipping party shall invoice receiving party for any differential due with respect to deliveries hereunder, or, if the transaction is a sale, for the purchase price due with respect to deliveries hereunder, and such invoices shall be paid net thirty (30) days from date of invoice. 7/27/94 19 EX-10.21 13 LEASE & PRODUCTION AGREEMENT BP CHEMICALS AMERICA 1 EXHIBIT 10.21 *OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN SEPARATELY FILED WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST** =============================================================================== AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT between BP CHEMICALS INC. and STERLING CHEMICALS, INC. August 8, 1994 ================================================================================ 2 AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT TABLE OF CONTENTS
PAGE Introductory 1 Article 1 Definitions 2 Article 2 Lease 13 Article 3 Initial and Additional Terms 22 Article 4 Sale and Purchase of Acetic Acid 25 Article 5 Delivery, Shipment and Storage Instructions 26 Article 6 Changes in Specifications 28 Article 7 Purchase Price and Payment 29 Article 8 Deliveries and Shipments 34 Article 9 Testing 36 Article 10 Measurement 38 Article 11 Storage of Acetic Acid by Company 40 Article 12 Operation of the Unit and Related Matters 41 Article 13 Shut-Downs of the Unit 42 Article 14 Insurance 46 Article 15 Access to the Unit 47 Article 16 Methanol Supply 48 Article 17 Special Expenditure 50 Article 18 Capital Expenditures 51 Article 19 Personnel 54 Article 20 Representations and Warranties of the Company 54 Article 21 Representations and Warranties of BP 56 Article 22 Participation in Negotiations 57 Article 23 Access to Information 57 Article 24 Semiannual Meetings 58 Article 25 Financial Assurances 59 Article 26 Arbitration 59 Article 27 Confidentiality and Intellectual Property 61 Article 28 Defaults; Failures; Remedies 63 Article 29 Notice of Certain Events 64 Article 30 Survival 65 Article 31 Indemnification 66 Article 32 Additional Rights and Liabilities 69 Article 33 Force Majeure 71 Article 34 Assignments 73 Article 35 General 74 Testimonium 79 Signatures 79
-i- 3 AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT EXHIBITS Cost of Sales A Fixed Cost Fee and Formula B Methanol Specification C Acetic Acid Specifications D Legal Description of the Land of the Unit E Variable Cost Component Formula F Insurance G Sample Profit Calculations After 2006 H Blend Gas Credit I -ii- 4 AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF GALVESTON ) THIS AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT executed this 8th day of August, 1994, and effective as of the Effective Date, is by and between BP CHEMICALS INC., an Ohio corporation and successor in interest to BP Chemicals Americas Inc., and STERLING CHEMICALS, INC., a Delaware corporation. W I T N E S S E T H : WHEREAS, the Company acquired on August 1, 1986 a petrochemical plant located in Texas City, Texas which contains facilities for the production of acetic acid; and WHEREAS, the Company executed and delivered to BP a special warranty deed with vendor's lien effective August 1, 1986 whereby the Company conveyed to BP fee simple determinable title in and to the Unit, which fee interest ceases, determines and reverts to the Company on August 1, 1996; and WHEREAS, on August 1, 1986 the Company leased the Unit from BP for the production of acetic acid pursuant to this Agreement; and WHEREAS, BP leased the Unit to the Company provided that the Company agreed to give BP during an Initial Term of ten (10) years commencing on August 1, 1986 the exclusive right to purchase all acetic acid produced by the Company in the Unit, except as otherwise permitted by this Agreement; and WHEREAS, the Company gave BP an option to extend such Initial Term for up to two further periods (not exceeding in the aggregate a period of ten [10] years) during which BP shall have the exclusive right to purchase all acetic acid produced by the Company in the Unit in consideration of the payment of an extension fee; and 5 WHEREAS, the Agreement has heretofore been amended on October 9, 1986, November 17, 1988, December 12, 1988, December 13, 1988, and September 8, 1993, but the Agreement has not been restated to reflect the terms of such amendments; and WHEREAS, the parties hereto wish to (a) restate the Agreement to reflect all prior amendments, and (b) amend the Agreement to make provision for the terms and conditions under which, in lieu of BP exercising its right to extend the Initial Term for up to two further periods not exceeding in the aggregate a period of ten (10) years, (i) the production agreement portion of this Agreement shall be extended through July 31, 2016, composed of two ten (10) year terms and (ii) BP will be granted the exclusive right to purchase acetic acid during the period from August 1, 1996 through July 31, 2016; 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 that the Agreement is hereby amended and restated in its entirety 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: Acetic Acid: Acetic acid produced in the Unit and meeting the Specifications in effect from time to time pursuant to this Agreement. Acetic Acid Measuring Equipment: Shore tanks located on the Unit for measuring deliveries of Acetic Acid to be loaded into barges or ships, and scales located at the Plant for measuring deliveries of Acetic Acid to be loaded into trucks and rail cars. Acetic Acid Plant Assets: As defined in Section 18.8 hereof. Additional Rail Cars: As defined in Section 8.2 hereof. After Acquired Assets: As defined in Section 3.1 hereof. -2- 6 Agreement: This Amended and Restated Lease and Production Agreement, as the same may be further amended from time to time pursuant to the provisions hereof. Arbitration Notice: As defined in Section 26.1 hereof. Assignment of Contract Rights: That certain Consent to Assignment dated August 1, 1986 among the Company, BP and Monsanto whereby, subject to and in accordance with the terms and conditions thereof, the Company assigned to BP the Company's rights against Monsanto under the Purchase Agreement with respect to the Unit, BP assumed the Company's obligations to Monsanto under the Purchase Agreement with respect to the Unit, and Monsanto consented thereto. Bank: Bank of Nova Scotia, as successor to The Chase Manhattan Bank (National Association) and agent for the Lenders (as that term is defined in that certain Agreement and Guaranty dated August 1, 1986 among BP, BP North America Inc., a Delaware corporation, and The Chase Manhattan Bank (National Association), constituting a guaranty of the Note) and its successors, any such successor to be a commercial bank or trust company which has an office in New York, New York and which has a combined capital and surplus of at least TWO HUNDRED FIFTY MILLION AND NO/100 DOLLARS ($250,000,000.00) U.S. Barge: That certain barge, identified as M-25, Official No. 527030, for so long as such barge remains in service during the Initial Term and the First and Second Additional Terms. Blend Gas: A mixed carbon monoxide/hydrogen stream plus a pure hydrogen stream. Blend Gas Credit: A credit calculated in the manner set forth in Exhibit I attached hereto. BP: BP Chemicals Inc., an Ohio corporation, and its successors and permitted assigns hereunder. BPCL: BP Chemicals Ltd., a company registered in England and Wales, and an affiliate of BP. BP Event of Default: During the Initial Term and the First and Second Additional Terms hereof, (i) the failure by BP to perform any of its financial obligations hereunder which failure shall continue for a period of thirty (30) days after the same is due hereunder, (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) -3- 7 days after receipt of written notice thereof by BP from the Company, (iii) the inaccuracy in any material respect of any representation or warranty made by BP in this Agreement, and/or (iv) the default by BP in payment of the Note which default results in the acceleration by the holder thereof of the maturity of the Note AND BP thereafter fails or refuses to pay the amount demanded in such acceleration notice for a period of thirty (30) days after receipt of such notice by BP from such holder; provided, however, that with respect to an event described in (i), (ii) or (iv) 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. 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 or New York, New York are obligated by law to close. Capital Expenditures: Expenditures incurred to acquire any asset for use on the Unit, or to add to or improve any asset on the Unit so that (i) the cost of operations on the Unit is reduced, (ii) the capacity of the Unit is increased, (iii) the efficiency of the Unit is improved, (iv) operational safety of the Unit is improved, and/or (v) product quality of the Unit is improved. Also, any expenditures incurred in replacing or improving the Barge or the Rail Cars or in purchasing the Additional Rail Cars. Capital Project: A project which requires Capital Expenditures. Claim: As defined in Section 31.3 hereof. Company: Sterling Chemicals, Inc., a Delaware corporation, and its successors and permitted assigns hereunder. Company Event of Default: During the Initial Term and the First and Second Additional Terms hereof, (i) 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 provided that if the Company has performed any such obligation, covenant or agreement prior to the expiration of such thirty (30) day period, such failure to -4- 8 perform shall not constitute a Company Event of Default, (ii) the inaccuracy in any material respect of any representation or warranty made by the Company in this Agreement, and/or (iii) the failure by the Company to deliver to BP the quantity of Acetic Acid as required by the Delivery, Shipment and Storage Instructions for two (2) consecutive Months unless such failure to deliver is otherwise excused hereunder. Company Taxes: Subject to the provisions of Section 35.2(b), 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, ad valorem and real property taxes 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 Acetic Acid produced, sold or delivered under this Agreement which (i) are measured by the volume in pounds, value or sales price of, or are otherwise based on producing, purchasing, handling, marketing or resale factors respecting, Acetic Acid and (ii) are imposed upon and paid by or for the account of the Company. 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 Initial Term and, if applicable, the First and Second Additional Terms. 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 Initial Term or, if applicable, the First and Second Additional Terms, shall each be considered to be a Contract Year, provided that in each such period the Minimum Annual Contract Quantity and the Maximum Annual Contract Quantity shall be prorated. Conversion Ratio: * * * * of Methanol per pound of Acetic Acid as the same may be changed from time to time by written agreement between BP and the Company. On at least a quarterly basis the Conversion Ratio shall be adjusted to reflect actual usage in the manner provided by Section 16.2. -5- 9 Cost of Sales: The reasonable direct out-of-pocket expenses incurred by BP in connection with the sale of Acetic Acid or Unit Product including, but not limited to, the expenses listed in Exhibit A attached hereto, but in any event excluding, prior to August 1, 1996, allocations of corporate overhead and general and administrative expenses (unless such allocations are specifically listed in Exhibit A attached hereto). After August 1, 1996, reasonable allocations of BP's direct marketing support costs may be included. DB III: A debottlenecking project for the purpose of increasing Acetic Acid production capacity to 780,000,000 pounds per year. Damages: Any and all damages, cash payments, expenses, obligations, claims, liabilities, fines, penalties, clean-up or remedial costs, shut-down costs, repairs or reconstruction costs, costs of investigation, attorneys' fees, court costs, and operating, extraordinary or business interruption losses including (i) except as otherwise provided herein, any such matters arising from Spills or Releases Requiring Response Action, and (ii) unless otherwise specifically disclaimed herein, consequential, incidental and indirect damages. 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. Declaration of BP Default: As defined in Section 28.2 hereof. Declaration of Company Default: As provided in Section 28.1 hereof. Deed: That certain Special Warranty Deed with vendor's lien dated as of August 1, 1986 from the Company, as grantor, to BP, as grantee, conveying a fee simple determinable in the Unit to BP. Deed of Trust: That certain Deed of Trust and Security Agreement dated as of August 1, 1986 from BP, as grantor, to J. David Heaney, as Trustee, or any duly appointed successor trustee, for the use and benefit of the Company, as beneficiary, the lien of which encumbers the property conveyed to BP by the Deed. -6- 10 Delivery, Shipment and Storage Instructions: As defined in Section 5.1 hereof. Effective Date: The Purchase Closing Date. Estimated Delivery, Shipment and Storage Instructions: As defined in Section 5.1 hereof. First Additional Term: As defined in Section 3.1(a) hereof. First Extension Fee: As defined in Section 3.1(c) hereof. Fixed Cost Fee. As of January 1, 1994 * * * * Initial Term: As defined in Section 3.1(a) hereof. Interest Rate Letter Agreement: That certain Interest Rate Letter Agreement dated as of August 1, 1986 executed by BP North America Inc. to the Company and The Chase Manhattan Bank (National Association), wherein it guarantees payment to the Bank of certain sums in the event of prepayment of the Note by BP. Lease Term: As defined in Section 2.1 hereof. Lease Event of Default: As defined in Section 2.12 hereof. Major Capital Item: As defined in Section 7.6(c) hereof. Maximum Annual Contract Quantity: For any Contract Year consisting of twelve (12) months, 600,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from -7- 11 time to time by written agreement between BP and the Company). For any Contract Year consisting of less than twelve (12) Months, the product obtained by multiplying the number of Months and any portion of a Month in such Contract Year by 50,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). Maximum Monthly Contract Quantity: In any Month during which there is no Scheduled Shutdown, 55,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). In any Month during which there is a Scheduled Shutdown, the parties shall meet to agree the Maximum Monthly Contract Quantity applicable for that Month. Maximum Quarterly Contract Quantity: In any Quarter during which there is no Scheduled Shutdown, 165,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). In any Quarter during which there is a Scheduled Shutdown, the parties shall meet to agree the Maximum Quarterly Contract Quantity applicable for that Quarter. Methanol: Methanol meeting the specification set forth on Exhibit C attached hereto. Methanol Measuring Equipment: Shore tanks located at the Plant for measuring deliveries of Methanol. Minimum Annual Contract Quantity: For any Contract Year consisting of twelve (12) Months, 430,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). For any Contract Year consisting of less than twelve (12) Months, the product obtained by multiplying the number of Months and any portion of a Month in such Contract Year by 36,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). Minor Capital Item: As defined in Section 7.6(c) hereof. -8- 12 Minimum Quarterly Contract Quantity: For any Quarter during which there is no Scheduled Shutdown, 110,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid is increased or decreased from time to time by written agreement between BP and the Company). Monsanto: Monsanto Company, a Delaware corporation. Month: The period beginning at 7:00 a.m. on the first day of a calendar month and ending at 7:00 a.m. on the first day of the next succeeding calendar month. Note: That certain Promissory Note dated August 1, 1986 in the original principal amount of * * * * executed by BP, as maker, payable to the order of the Company, as payee, and bearing interest as provided therein, constituting the purchase price of the Unit. Permitted Exceptions: Those certain exceptions to title affecting the Unit as expressly set forth in the Deed. Plant: The petrochemical plant located in Texas City, Texas, acquired by the Company from Monsanto pursuant to the Purchase Agreement. Point of Delivery: As defined in Section 8.1 hereof. Profit: The gross sales revenue received by BP arising from sales of Acetic Acid and Unit Product during any Contract Year, less (i) freight (if any) incurred in shipping such Acetic Acid, (ii) any unrecovered accumulated losses with respect to such sales in prior Contract Years, (iii) during the Initial Term, the sum of * * * * a sum equal to the portion of the First Extension Fee payable during such Contract Year, (iv) the Fixed Cost Fee paid during such Contract Year, the Variable Cost Fee paid during such Contract Year, any Special Billings paid or reimbursed to the Company during such Contract Year, and other expenses paid or reimbursed to the Company hereunder during such Contract Year (including -9- 13 Capital Expenditures (excluding Major Capital Expenditures after August 1, 2006), Special Expenditures and insurance reimbursements or other insurance payments, if any), and (v) Cost of Sales per Exhibit A during such Contract Year. Provided, however, that from January 1, 1988, until termination of the American Acetyls Joint Venture between BP and Union Carbide Corporation, the gross sales revenue arising from sales of Unit Product included in this venture will be determined from BP's share of American Acetyls Profit, to the extent that such share derives from Acetic Acid produced by the Unit. The gross sales revenue for sales of Acetic Acid contributed to American Acetyls shall be determined as BP's share of the American Acetyls Profit, plus credit received for incurred Variable and Fixed Costs as recognized by the American Acetyls Contract Formulas and accounting procedures. Effective July 1, 1991 an annual amount of ONE MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($1,200,000.00) U.S., to compensate BPCL for technology development costs allocated to the Unit, will be paid by the Company to BPCL. This expense will be included in the calculation of Profit. This amount will be escalated beginning with the first month of beneficial operation of the DB III expansion, using the "ICI" defined in the Fixed Cost Fee and Formula. Except as otherwise specifically set forth above, Profit shall be determined in accordance with generally accepted accounting principles of the United States of America consistently applied. Purchase Agreement: The Asset Purchase Agreement dated August 1, 1986 between Monsanto and the Company. Purchase Closing Date: The date the closing occurred under the Purchase Agreement. Quarter: During any Contract Year which is a calendar year, the period beginning at 7:00 a.m. on the first day of the Months of January, April, July and October and ending at 7:00 a.m. 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 at 7:00 a.m. on -10- 14 the first day of such period and ending at 7:00 a.m. on the morning of the first day of the next succeeding January, April, July or October, as the case may be. Rail Cars: Those certain sixty (60) railroad tank cars made available by the Company to BP pursuant to Section 8.2 hereof for so long as such cars remain in service during the Initial Term and the First and Second Additional Terms. Right: The exclusive right to purchase all Acetic Acid or Unit Product produced by the Company in the Unit. Scheduled Shutdown: A period during which the Unit is shut down for the purpose of a Capital Project or to install equipment acquired by a Special Expenditure or such maintenance as has been agreed by the parties hereto in a Semiannual Meeting. Second Additional Term: As defined in Section 3.1(a) hereof. Semiannual 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. Special Billings: Charges by the Company to BP for incremental costs of operating the Unit, agreed upon by the Company and BP, which result from operating conditions believed by the Company and BP to be temporary in nature and for which the Company and BP do not wish to adjust the Fixed Cost Fee or the Variable Cost Fee. The parties shall agree on the manner of invoicing, and the timing and method of payment of, any Special Billings. Special Expenditure: Any expenditure incurred to acquire and install any significant item of equipment for use on the Unit not otherwise defined as Capital Expenditure or reimbursed by BP to the Company as part of the Fixed Cost Fee. Specifications: The acetic acid specifications, attached hereto as Exhibit D, as the same may be changed from time to time by written agreement between BP and the Company. Spills or Releases Requiring Response Action: Any emission, discharge, release or threatened release of pollutants, contaminants, or hazardous substances or toxic materials or wastes into or upon -11- 15 ambient air, surface water, ground water or land, or subsurface strata or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, or hazardous substances or toxic materials or wastes, as any of the same relate to or affect or arise in connection with the operation of the Unit, the Barges, the Rail Cars or Additional Rail Cars, or the production, delivery, storage, shipment, sale, resale or use, disposal or transportation of Acetic Acid, Unit Product, or feedstocks, raw materials, wastes or other materials used in or resulting from the production of Acetic Acid or Unit Product. Surplus Payment: As defined in Section 7.6(b) hereof. Third Party Action: As defined in Section 31.3 hereof. Unit: Those certain tracts of real property situated in Texas City, Galveston County, Texas, as more particularly described on Exhibit E attached hereto and made a part hereof by reference for all purposes as if copied herein in full, together with all buildings, improvements and fixtures located and to be located thereon, generally known or referred to as the Plant's acetic acid complex, including, but not limited to the syn-gas unit, the acetic acid plant, buildings, storage tanks and all replacements, substitutions, deletions, additions or other changes thereto from time to time as permitted by this Agreement. Unit of Measurement: As defined in Section 10.1 hereof. Unit Product: Any acetic acid produced in the Unit which does not meet the Specifications in effect from time to time pursuant to this Agreement. Variable Cost Component: As of January 1, 1994, * * * * * * subject to monthly adjustment in accordance with the formula set forth on Exhibit F attached hereto. The utilities component of the Variable Cost Component will be reviewed by the parties during the first seven (7) months of 1996, 2001, 2006 and 2011 and modifications thereto agreed upon prior to July 31 of each such year, with the revised formula being applied during the following five (5) year period. In addition, either party may request that any aspect of the Variable Cost Component be reviewed at any time if any -12- 16 event has occurred which causes such party to believe that the Variable Cost Component formula must be adjusted in order to permit full recovery of all costs or savings resulting from the event. The other party shall cooperate in the review of all such requests. Variable Cost Fee: The product obtained by multiplying the amount of Acetic Acid taken by BP during any Month by the sum of (i) the Variable Cost Component, plus (ii) the product obtained by multiplying the Conversion Ratio by the Methanol price for the Month in question. ARTICLE 2 LEASE 2.1 The term of the lease of the Unit from BP to the Company shall be for a period of ten (10) years commencing on August 1, 1986 unless earlier terminated as provided herein (the "Lease Term"). 2.2 For and in consideration of the Company's giving BP during the Lease Term the Right and for and in further consideration of the covenants and agreements agreed by the Company to be kept and performed hereunder, BP leases unto the Company, and the Company leases from BP, the Unit. TO HAVE AND TO HOLD the same unto the Company for the Lease Term. 2.3 The Unit shall be used by the Company for the production and sale of Acetic Acid or Unit Product pursuant to this Agreement. 2.4 Title to the Unit, including all replacements, substitutions, deletions, additions or other changes thereto from time to time permitted by this Agreement, shall be and remain in BP during the Lease Term. 2.5 BP does not consent, and has not by the execution and delivery of this Agreement consented, to the imposition, voluntarily or involuntarily, by the Company or any other person or entity of any lien, security interest or other encumbrance upon the Company's interest in the Unit or any portion thereof, other than (i) liens in favor of mechanics and materialmen for which invoices are not yet due and payable or which the Company is contesting in good faith in appropriate proceedings diligently pursued, -13- 17 and (ii) the lien and security interest of Bank in the Company's leasehold estate in the Unit provided that such lien and security interest of Bank, together with all rights and remedies of Bank under the instruments creating or establishing such lien and security interest, shall be and remain in all respects whatsoever subject to the obligations, covenants and agreements of the Company under this Agreement (provided that Bank assumes no obligations hereunder until it shall have exercised its rights and remedies under such instruments creating or establishing such lien and security interest of Bank) and junior, inferior and subordinate to all of the rights of BP under this Agreement. The Company shall not impose or permit to be imposed, voluntarily or involuntarily, any such lien, security interest or other encumbrance without the prior written consent of BP; provided, however, that any such lien, security interest or other encumbrance to which BP is requested to consent shall by its express terms provide that (i) any person or entity claiming by, through or under any instrument creating any such lien, security interest or other encumbrance shall by virtue thereof acquire no greater interest in the Unit than the Company then had under this Agreement, and (ii) the indebtedness, obligations and liabilities secured thereby, together with all rights and remedies of any such person or entity claiming by, through or under any such instrument, shall be and remain in all respects whatsoever subject to the obligations, covenants and agreements of the Company under this Agreement and junior, inferior and subordinate to all of the rights of BP under this Agreement. 2.6 During the Lease Term, the Company shall timely pay all taxes and other governmental charges levied or presently existing upon or now or hereafter assessed against the Unit and, subject to the provisions of Section 35.2 hereof, all taxes levied or presently existing upon or now or hereafter assessed against the use and possession of the Unit by the Company. BP shall, within five (5) days of receipt, present to the Company copies of all tax bills and statements received by BP, and the Company shall furnish to BP copies of all receipts for payment of such tax bills and statements within thirty (30) days after such taxes and other governmental charges would have been delinquent unless such taxes are being contested by the Company in good faith in appropriate proceedings diligently pursued. BP may, -14- 18 at any time that the payment of any item of such taxes or other governmental charges which the Company is obligated to pay under the provisions of this Section 2.6 remains delinquent, give written notice to the Company of said delinquency, specifying the same, and if the Company continues to fail to pay such item of taxes or other governmental charges and fails to contest the same in good faith in appropriate proceedings diligently pursued, then at any time after ten (10) days of receipt by the Company of such written notice, BP may pay the items specified in such notice and the Company covenants to reimburse and pay BP on demand any amount so paid or expended in the payment of the items specified in such notice, subject to the provisions of Section 35.2 hereof. 2.7 BP warrants and represents that (i) the Unit is owned by BP, free and clear of all liens, security interests and encumbrances other than the vendor's lien retained in the Deed, the lien of the Deed of Trust and the Permitted Exceptions, and that BP has the legal right to own and lease the Unit to the Company for the Lease Term, (ii) the Company shall, and may peacefully have, hold and enjoy the Unit without interference by BP, so long as a Lease Event of Default has not occurred, and (iii) BP will not take any action which may interfere with the Company's right of possession of the Unit hereunder so long as a Lease Event of Default has not occurred. 2.8 Subject to the provisions of Article 7 hereof, during the Lease Term, the Company agrees to pay any and all expenses of operation of the Unit, including, but not limited to, all charges and expenses for electricity, water, gas and other utility services furnished to the Unit, it being the sense and intention of this Article 2 that the Right shall be, except as otherwise provided herein, net to BP, without diminution by reason of any expenses of use and operation of the Unit. 2.9 The Company shall keep the Unit in good repair and condition, and at the end or other expiration of the Lease Term deliver up the Unit in good condition, ordinary wear and tear excepted, unless the Unit shall have been damaged or destroyed by fire or other casualty and the Company shall not have been required hereunder to repair or restore the Unit. The Company shall have all risk of loss of the Unit during the Lease Term. Subject to Section 13.4 hereof, in the event that the Unit shall have -15- 19 been damaged or destroyed by fire or other casualty, the Company shall repair the same as soon as practicable and to the extent that insurance proceeds, if any, are deficient, the Company will make up the difference from its own funds. To the extent required hereunder, the Company shall comply with the requirements of governmental authorities having jurisdiction now in force or which may hereafter be in force pertaining to the operation of the Unit and the production of Acetic Acid or Unit Product and shall faithfully observe in the use and operation of the Unit applicable laws and regulations now in force or which may hereafter be in force. Each party hereto agrees to deliver to the other party hereto, within five (5) days of receipt, a copy of any notice or correspondence received from any such governmental authority pertaining to the use and operation of the Unit. 2.10 The Company agrees to maintain at all times during the Lease Term insurance in the amounts and having the coverages and issued by the insurers as required pursuant to Article 14 hereof. All insurance policies required by this Section 2.10 shall be obtained by the Company at its sole expense, subject to the provisions of Section 14.2 hereof, and said insurance policies shall provide for at least thirty (30) days' notice to BP before cancellation. Copies of certificates of insurance shall be promptly delivered to BP by the Company. All said insurance policies shall name both BP and the Company as insureds, as their respective interests may appear; provided, however, that it is agreed and understood by the parties hereto that Bank shall not be named as an insured on said policies with respect to the properties comprising the Unit. If the Company shall fail and neglect to make any payment on premiums and charges for any of said insurance policies when due, BP may make any such payment. 2.11 Each party hereto agrees to promptly furnish the other party with any condemnation notice or notice of intent to take received by such party during the Lease Term. If the Unit or substantially all of the Unit shall be taken in condemnation proceedings, this Agreement shall terminate as of the taking, and BP's share of the condemnation award, together with any separate award to the Company, shall be apportioned and paid in the following order of priority: -16- 20 (a) There shall be first paid any and all reasonable expenses, charges and fees, including reasonable attorneys' fees, in collecting the condemnation awards; (b) BP and the Company shall then be required to apply and pay the proceeds of the then remaining balance of the condemnation awards as follows: (i) if the Note has not been prepaid, to the payment of the outstanding principal balance of and all accrued but unpaid interest on the Note and all sums then owing under the Interest Rate Letter Agreement, or (ii) if the Note has been prepaid, to the payment to BP of an amount equal to the sum of (A) what the outstanding principal balance of and all accrued but unpaid interest on the Note would have been as of the date of the condemnation award had the Note been paid according to its terms but not prepaid prior to such date, and (B) the amount which would have been owing under the Interest Rate Letter Agreement as of the date of the condemnation award had the Note not been prepaid prior to such date; and (c) The proceeds of the then remaining balance of the condemnation awards, if any, shall thereafter be paid to the Company. If less than all or substantially all of the Unit shall be taken in condemnation proceedings, the Company and BP shall mutually determine, within a reasonable time after such taking, whether the remaining portion of the Unit can be economically and feasibly used by the Company for the production and sale of Acetic Acid or Unit Product pursuant to this Agreement and how BP's share of the condemnation award, together with any separate award to the Company, should be apportioned and paid. If the parties fail to resolve the matter within twenty (20) Business Days after the Company's receipt from the condemning authority of a notice of intent to take, either party may refer the matter to arbitration under Article 26 hereof by Arbitration Notice to the other party within ten (10) Business Days after the expiration of such twenty (20) Business Day period. If it is determined either by mutual agreement or arbitration that such remaining portion of the Unit cannot be economically and/or feasibly used by the Company for the production and sale of such Acetic Acid and Unit Product, or if the parties fail to -17- 21 resolve the matter but neither party refers the matter to arbitration within such ten (10) Business Day period, this Agreement may be terminated by either party hereto upon thirty (30) Days' prior written notice to the other party, and BP's share of the condemnation award, together with any separate award to the Company, shall be apportioned and paid in the order of priority set forth above in this Section 2.11. If it is determined either by mutual agreement or arbitration that such remaining portion of the Unit can be economically and feasibly used by the Company for the production and sale of such Acetic Acid and Unit Product, (i) this Agreement shall not terminate but shall continue in full force and effect as to the remaining portion of the Unit, (ii) the Company shall commence and proceed with reasonable diligence to repair or reconstruct the Unit so as to enable the Company to comply with its obligations hereunder, and (iii) the parties shall mutually determine the changes which will result to one or more of the Variable Cost Component, the Fixed Cost Fee, the Maximum Quarterly Contract Quantity and the Specifications as a result of such partial taking of the Unit. BP's share of the condemnation award, together with any separate award to the Company, shall thereupon be apportioned and paid in the following order of priority: (a) There shall be first paid any and all reasonable expenses, charges and fees, including reasonable attorneys' fees, in collecting the condemnation awards; (b) The proceeds of the awards shall next be used as a fund for the restoration and repair of the Unit to a condition so as to enable the Company to comply with its obligations hereunder (said proceeds to be held by BP and the Company jointly and paid out from time to time to persons furnishing labor or materials or both approved and verified by BP and the Company); (c) BP and the Company shall then be required to apply and pay the proceeds of the then remaining balance of the condemnation awards as follows: (i) if the Note has not been prepaid, to the payment of the outstanding principal balance of and all accrued but unpaid interest on the Note and all sums then owing under the Interest Rate Letter Agreement, or (ii) if the Note -18- 22 has been prepaid, to the payment to BP of an amount equal to the sum of (A) what the outstanding principal balance of and all accrued but unpaid interest on the Note would have been as of the date of the condemnation award had the Note been paid according to its terms but not prepaid prior to such date, and (B) the amount which would have been owing under the Interest Rate Letter Agreement as of the date of the condemnation award had the Note not been prepaid prior to such date; and (d) The proceeds of the then remaining balance of the condemnation awards, if any, shall thereafter be paid to the Company. 2.12 The following events ("Lease Events of Default") shall be deemed to be events of default by the Company under this Article 2: (a) The sale by the Company of any Acetic Acid or Unit Product to any person or entity other than BP, except as a result of the exercise by the Company of its rights and remedy pursuant to the provisions of Section 28.4 hereof or as otherwise provided herein; (b) The refusal of the Company to sell to BP any Acetic Acid or Unit Product that has been produced in the Unit but not yet sold by the Company and which is capable of being sold and delivered, except as a result of the exercise by the Company of its rights and remedy pursuant to the provisions of Section 28.4 hereof; (c) The refusal of the Company to permit employees of BP to have access to the Plant and the Unit pursuant to the provisions of Section 28.3 hereof, unless the Company is prohibited or restrained from permitting employees of BP to have such access by an order, injunction or other ruling of a governmental authority having jurisdiction; or (d) The Company shall (i) make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian or receiver of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency or readjustment of debt law of -19- 23 any jurisdiction; or any such petition or application shall be filed or any such proceedings shall be commenced against the Company and the Company shall indicate approval thereof, consent thereto or acquiescence therein, or an order shall be entered appointing a trustee, custodian or receiver of all or any substantial part of the business, estate or assets of the Company or approving the petition or application in any such proceeding, and such order shall remain in effect for more than ninety (90) days, AND (ii) as a result thereof, any such trustee, custodian or receiver shall take any action having any of the effects set forth in Section 2.12(a), (b), or (c) hereof. 2.13 Upon the occurrence of any Lease Event of Default, BP shall have the right, at BP's election, to terminate this Agreement, in which event the Company shall surrender the Unit to BP within thirty (30) days after receipt of written notice from BP that a Lease Event of Default has occurred, and if the Company fails so to do, BP may, without prejudice to any other remedy which it may have for possession, enter upon and take possession of the Unit and expel or remove the Company and any other person or entity who may be occupying the Unit or any part thereof, without being liable for prosecution or any claim of damages therefor; and the Company agrees to pay to BP on demand any reasonable costs and expenses incurred by BP in expelling or removing the Company and entering upon and taking possession of the Unit (including, but not limited to reasonable attorneys' fees), and all necessary costs and expenses incurred by BP in repairing any damages to or destruction of the Unit arising as a result of or caused by the gross negligence or willful misconduct of the Company, its agents or employees. Failure by BP to enforce the remedy herein provided upon any Lease Event of Default shall not be deemed or construed to constitute a waiver of such default or of any other violations or breach of any of the terms, provisions and covenants herein contained. No waiver by BP of any breach by the Company of any of the Company's obligations, agreements or covenants hereunder shall be a waiver of any subsequent breach or of any other obligation, agreement or covenant, nor shall any forbearance by BP to seek such remedy for any breach by the Company be a waiver by BP of its rights and remedy with -20- 24 respect to such subsequent breach. The foregoing remedy of BP to terminate this Agreement and to enter upon and take possession of the Unit shall be exclusive of any other remedy provided at law or in equity; provided, however, that nothing contained in this Agreement shall prohibit BP from (i) securing injunctive relief or any other relief or remedy necessary to enforce its right of entry upon and possession of the Unit, or (ii) seeking and recovering Damages and/or holdover rentals from the Company in the event that the Company holds over in the Unit after the termination of the Lease Term pursuant to the provisions of this Section 2.13, or in the event BP's remedy pursuant to the provisions of this Section 2.13 is deemed or construed to be illegal, invalid or unenforceable for any reason whatsoever. 2.14 The Company shall permit BP and its agents to enter into and upon the Unit at all reasonable times and upon reasonable notice for the purpose of inspecting the same provided that such inspection is not inconsistent with the Company's use and operation of the Unit and further provided that BP complies with all reasonable rules and regulations of the Company pertaining thereto. 2.15 Any holding over by the Company of the Unit or any portion thereof after the termination of the Lease Term pursuant to the provisions of Section 2.13 hereof shall operate and be construed as a tenancy from day-to-day * * * *, and the Company agrees to surrender the Unit upon such termination of the Lease Term immediately upon demand therefor by BP. In the event that a court having jurisdiction, after the expiration of all appeals, determines that such termination of the Lease Term by BP was wrongful, the Company shall not be liable to BP pursuant to the provisions of this Section 2.15. 2.16 BP and the Company have executed as of August 1, 1986 a memorandum of lease, in form and substance satisfactory to BP and the Company, setting forth the basic terms of this Article 2, which memorandum has been recorded at the expense of the Company in the Deed Records of Galveston County, Texas. -21- 25 2.17 In the event that BP enforces its rights and exercises its remedy pursuant to the provisions of Section 2.13 hereof by terminating this Agreement and entering upon and taking possession of the Unit, then this Agreement shall no longer be of any force and effect; provided, however, that subject to and in accordance with the terms and conditions of Article 3 hereof, BP may at its option, for and in consideration of the First Extension Fee and other good and valuable consideration to be paid by BP to the Company, reinstate this Agreement for the First and Second Additional Terms, as described in Section 3.2 hereof, whereupon the respective rights, duties, privileges and obligations of the parties hereto shall recommence as of the first day of the First Additional Term; it being the intent of the parties hereto that the occurrence of a Lease Event of Default and the subsequent enforcement and exercise by BP of its rights and remedy pursuant to the provisions of Section 2.13 hereof shall not operate to deprive or deny BP of the extension of this Agreement beyond the Initial Term hereof for the First and Second Additional Terms subject to and in accordance with the terms and conditions of Article 3 hereof. 2.18 BP shall not execute and deliver to Monsanto the certificate contemplated by the Assignment of Contract Rights until and unless one or more Lease Events of Default have occurred; provided, however, that BP shall have the right but not the obligation to execute and deliver to Monsanto such certificate if one or more Lease Events of Default have occurred and shall do so only in the event that BP intends to exercise its rights and remedy pursuant to the provisions of Section 2.13 hereof. ARTICLE 3 INITIAL AND ADDITIONAL TERMS 3.1(a) The term of the sale and purchase of Acetic Acid pursuant to this Agreement, during which time BP shall have the Right, shall be for a period of thirty (30) years commencing on August 1, 1986 and continuing through July 31, 2016, unless earlier terminated as provided herein. The first ten -22- 26 (10) year period, commencing on August 1, 1986 and continuing through July 31, 1996, is herein referred to as the "Initial Term". The second ten (10) year period, commencing on August 1, 1996 and continuing through July 31, 2006, is herein referred to as the "First Additional Term". The third ten (10) year period, commencing on August 1, 2006 and continuing through July 31, 2016, is herein referred to as the "Second Additional Term". (b) On July 31, 1996, Article II of this Agreement will terminate and the Unit, as constituted on August 1, 1986 and including all improvements thereto made by the Company and unreimbursed by BP subsequent to August 1, 1986, shall be and remain the sole property of the Company. BP agrees to execute and deliver to the Company such instruments, in recordable form, as the Company may reasonably request at the termination of the lease portion of this Agreement to confirm the reversion of record title to the Unit and all personal property used as part of the Unit to the Company. BP agrees that it has no ownership interest in the Unit or any improvements to the Unit made since August 1, 1986, other than that portion of any Capital Expenditure, Capital Project or Special Expenditure paid for either directly or through reimbursement by BP (the "After Acquired Assets"). (c) As consideration for the grant by the Company to BP of the Right for the First Additional Term, BP shall pay to the Company an aggregate amount (the "First Extension Fee") equal to 120 (the number of Months in the First Additional Term) multiplied by the monthly payment set forth below. The First Extension Fee shall be payable in * * * * each, in immediately available funds by wire transfer to the Company's account at Bank or at such other account or place of payment as may be designated by the Company in writing to BP. The first monthly installment shall be due and payable on the first Business Day of the first Month of the First Additional Term and each of the remaining monthly payments shall be due and payable on the first Business Day of each Month thereafter. As consideration for the grant by the Company to BP of the Right for the Second Additional Term, BP shall not be -23- 27 required to pay to the Company any extension fee, but the share of Profit payable to the Company shall be increased in accordance with Section 7.6(b), and paid in accordance with Section 7.6(c), of this Agreement. 3.2 In the event of any breach or failure to perform hereunder during the First or Second Additional Term by BP or the Company, which breach or failure continues for a period of thirty (30) Days after written notice thereof, the other party hereto 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. Unless earlier terminated in accordance with the provisions hereof, or unless the parties agree to another extension hereof prior to January 1, 2016, this Agreement will terminate on July 31, 2016. Upon termination of this Agreement, BP agrees to sell to the Company and the Company agrees to purchase from BP, all of BP's right, title and interest in and to the After Acquired Assets for an amount equal to BP's undepreciated book basis in the After Acquired Assets, plus ten (10) percent, and BP will receive no further payments at the termination of the Agreement. For purposes of calculating the purchase price of the After Acquired Assets, BP's undepreciated book basis will be calculated utilizing a ten (10) year life and straight line depreciation. BP agrees to execute and deliver to the Company such instruments, in recordable form, as the Company shall reasonably require at the termination of this Agreement to transfer record title to the After Acquired Assets to the Company. In the event that a project or projects similar in scope and effect to DB III are agreed and implemented by the parties during the First or Second Additional Term, it is the intent of the parties to negotiate an extension of the Agreement over the estimated useful life of such project or projects. -24- 28 ARTICLE 4 SALE AND PURCHASE OF ACETIC ACID 4.1 On the terms and subject to the conditions of this Agreement, commencing on August 1, 1986 BP hereby agrees to receive and purchase and pay for and the Company agrees to sell and deliver to BP Acetic Acid in such amounts as requested by BP in the manner provided herein subject at all times to the limitations imposed in Section 4.5 hereof. 4.2 BP and the Company agree that Acetic Acid delivered to the applicable Point of Delivery hereunder shall be made available to BP under as uniform conditions and rates as possible. Accordingly, BP shall take deliveries of, and the Company shall deliver, Acetic Acid in a manner commensurate with good operating practices and in accordance with proper maintenance, operating and distribution procedures and at as uniform rates of delivery as possible throughout each Quarter during the Initial Term and the First and Second Additional Terms. 4.3 BP and the Company each agree to give the other reasonable notice of such party's desire at any time materially to increase or decrease the quantity of Acetic Acid deliverable at any particular time hereunder. If either party fails to meet the requirements of the Delivery, Shipment and Storage Instructions, such party shall notify the other party of the reasons for such failure and the estimated time such failure may continue. 4.4 BP agrees, subject to the terms, provisions and limitations hereof to purchase hereunder each Quarter a quantity of Acetic Acid in excess of the Minimum Quarterly Contract Quantity provided that BP at its option may purchase and take in any Quarter a quantity of Acetic Acid less than the Minimum Quarterly Contract Quantity, if BP pays: (a) The additional costs incurred by the Company in the operation of the Unit during that Quarter; and (b) In the event that BP shall have taken a quantity of Acetic Acid in an amount less than seventy percent (70%) of the Maximum Quarterly Contract Quantity, a further sum equal -25- 29 to the additional costs incurred by the Company in the operation of the Plant (other than the additional costs described or referred to in Section 4.4(a) hereof) during that Quarter calculated in the manner provided in Article 7 hereof provided that if the quantity of Acetic Acid taken by BP is in an amount greater than fifty percent (50%) of the Maximum Quarterly Quantity such further sum shall not exceed TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) U.S. 4.5 The Company shall not be obligated to deliver to BP hereunder during any Month of any Contract Year a quantity of Acetic Acid in excess of the Maximum Monthly Contract Quantity. The Company shall not be required to expand, upgrade or, except as otherwise expressly required herein, rebuild the Unit or any other Plant facilities or to purchase acetic acid from other sources in order to perform its obligations to BP pursuant to the provisions of this Agreement. Subject to the foregoing, the Company agrees to use all reasonable endeavors to meet any request by BP in any Month for Acetic Acid in amounts in excess of the Maximum Monthly Contract Quantity. ARTICLE 5 DELIVERY, SHIPMENT AND STORAGE INSTRUCTIONS 5.1 On or before fourteen (14) Days prior to the end of each Quarter during each Contract Year, BP shall provide notice to the Company (orally, in writing or in other mutually agreeable form) setting forth BP's estimated delivery, shipment and storage instructions of Acetic Acid for the coming Quarter (the "Estimated Delivery, Shipment and Storage Instructions") which shall include estimated dates, quality requirements and volumes of deliveries, shipments and storage requirements of Acetic Acid for such Quarter. At least five (5) Business Days prior to the first Day of each Month, BP shall provide notice in similar form to the Company setting forth BP's requested dates, quality requirements and volumes of deliveries and shipping and its storage requirements of Acetic Acid for the coming Month (the "Delivery, Shipment and Storage Instructions"). The requested volumes shall comply with Article 4 hereof. The Company shall be entitled to rely on the Estimated Delivery, Shipment and Storage -26- 30 Instructions and the same shall be deemed to be the Delivery, Shipment and Storage Instructions unless actual Delivery, Shipment and Storage Instructions are received by the Company. 5.2 The Company will comply with the Delivery, Shipment and Storage Instructions. If the Company fails to comply with the Delivery, Shipment and Storage Instructions, then the Company shall pay all demurrage and other expenses incurred by BP as a result thereof; provided, however, that if the Company's failure to comply with the Delivery, Shipment and Storage Instructions is a result of the actions or omissions of BP, then the Company shall have no liability for such failure and BP shall pay all expenses incurred by the Company in connection therewith. Nothing contained in this Agreement is intended to authorize or require, or shall be deemed or construed as authorizing or requiring, the Company to violate any laws or governmental regulations. 5.3 In addition to the Estimated Delivery, Shipment and Storage Instructions and the Delivery, Shipment and Storage Instructions, BP may deliver to the Company from time to time additional shipping instructions for the Acetic Acid. All such instructions with respect to any particular shipment shall be given as early as is practicable prior to the requested shipment date. The Company shall use its best efforts to deliver Acetic Acid at the times specified in such instructions. If such shipping instructions cause the Company to incur unusual expenses in order to deliver Acetic Acid for such shipment, BP shall reimburse the Company therefor upon receipt of invoice therefor. 5.4 To the extent required hereunder, the Company shall comply with the requirements of governmental authorities having jurisdiction now in force or which may hereafter be in force pertaining to the operation of the Unit and the production of Acetic Acid or Unit Product and shall faithfully observe in the use and operation of the Unit applicable laws and regulations now in force or which may hereafter be in force. -27- 31 ARTICLE 6 CHANGES IN SPECIFICATIONS 6.1 The Company shall produce Acetic Acid in accordance with established procedures and methods of manufacture. 6.2 Prior to making any change in raw materials or in procedures and methods of manufacture employed in producing Acetic Acid hereunder which the Company has, or should have, reason to believe may make such Acetic Acid unsuitable to any of BP's customers, the Company will notify BP of the Company's intent to make any such change. If the Company fails to notify BP of the Company's intent to make any such change, or if the Company notifies BP of the Company's intent to make any such change and BP does not consent to such change, and the Company thereafter makes such change, the Company shall indemnify and hold BP harmless pursuant to the provisions of Article 31 hereof from Damages which BP may suffer or incur by reason of such change. If the Company notifies BP of the Company's intent to make any such change and BP consents to such change, BP shall indemnify and hold the Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of such change. 6.3 If at any time, any Acetic Acid to be supplied to BP changes in chemical composition from that previously supplied to BP by the Company hereunder, or the procedures and methods of manufacture employed in producing Acetic Acid hereunder change so that in either event, such Acetic Acid is unsuitable to any of BP's customers, then (i) BP shall notify the Company of such unsuitability and may thereafter refuse to accept shipments of Acetic Acid hereunder, and (ii) the Company shall indemnify and hold BP harmless pursuant to the provisions of Article 31 hereof from Damages which BP may suffer or incur by reason of any such change or changes. If, notwithstanding the unsuitability of Acetic Acid to BP's customer, BP accepts such shipment of Acetic Acid, then (i) BP shall notify the Company of such acceptance notwithstanding such unsuitability, and (ii) BP shall indemnify and hold the -28- 32 Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of such unsuitable Acetic Acid. 6.4 If the product produced by the Company in the Unit fails to meet the Specifications, in whole or in part, and is delivered to BP as if it were Acetic Acid and BP is not notified of such failure in advance, the Company shall indemnify and hold BP harmless pursuant to the provisions of Article 31 hereof from Damages which BP may suffer or incur by reason of any such failure. If the Company notifies BP of such failure in advance, but BP accepts the product notwithstanding such failure, BP shall indemnify and hold the Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of such failure. 6.5 The Specifications shall not be changed unless agreed to in advance in writing by BP and the Company. ARTICLE 7 PURCHASE PRICE AND PAYMENT 7.1 The purchase price for all Acetic Acid delivered to BP hereunder during each Month of each Contract Year shall be the sum of the following: (a) The Fixed Cost Fee; (b) The Variable Cost Fee; (c) The Blend Gas Credit; and (d) Any Special Billings. 7.2 BP shall pay the purchase price therefor to the Company after receipt of invoice therefor in the following manner: (a) The estimated Fixed Cost Fee for each Month, which shall be the actual Fixed Cost Fee for the preceding quarter, and which shall be paid by BP on the fifteenth day of each Month (or if such Day is not a Business Day, then on the Business Day next occurring) during -29- 33 the Initial Term and the First and Second Additional Terms, commencing on the first such date occurring after the Effective Date; (b) The Variable Cost Fee for each Month, which shall be paid as provided in Section 7.3(a) hereof; and (c) The Blend Gas Credit, which shall be calculated in the manner provided by Exhibit I hereto and paid as provided in Section 7.3(b) hereof. 7.3 The Company shall, on or before the fifth Business Day of each Month, render to BP (a) an invoice for the preceding Month showing the quantity of Acetic Acid delivered, the Variable Cost Component, the Conversion Ratio, the Methanol price and the total amount of the Variable Cost Fee due, and 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); and (b) a credit memorandum for the preceding Month showing the calculation of the Blend Gas Credit in the manner provided by Exhibit I hereto. 7.4 As soon as is practicable after the end of each Quarter, the Company shall submit to BP an invoice showing: (a) An adjustment to the Fixed Cost Fee based on the difference between the Fixed Cost Fee paid by BP and referred to in Section 7.2(a) hereof and the actual Fixed Cost Fee due for that Quarter based on any adjustments to prices of components thereof; and (b) Any additional charges due to the Company as a result of the quantity of Acetic Acid taken by BP being below the Minimum Quarterly Contract Quantity and referred to in Section 4.4 hereof. The net sum due to the Company or any credit due to BP resulting from the items referred to in Section 7.4 (a) and (b) hereof shall be paid or credited, as the case may be, on or before the twelfth Day after receipt of the invoice (or if such Day is not a Business Day, on the Business Day next following). -30- 34 7.5 The Company and BP shall cooperate in investigating, evaluating and implementing mutually agreeable methods to reduce the Variable Cost Component, the Fixed Cost Fee and the Conversion Ratio; provided, however, that nothing contained in this Section 7.5 shall be construed to apply or pertain to any Capital Project. If any such method is implemented and results in a material reduction or increase in the costs of production of Acetic Acid hereunder from the amount of such costs which would have been incurred had such method not been implemented, the appropriate values of the components of the formula for the calculation of the Fixed Cost Fee and the Variable Cost Component referred to in Exhibits B and F , respectively, attached hereto, together with the Conversion Ratio and the Specifications, if appropriate, shall be adjusted so that BP takes the benefit, if a material reduction results, equal to two-thirds (2/3) of such reduction or bears the cost, if a material increase results, equal to two-thirds (2/3) of such increase. The Company shall thereafter invoice BP accordingly. 7.6 For the period of time from December 12, 1988 through the end of the First Additional Term: * * * * -31- 35 * * * * -32- 36 * * * * 7.7 If BP has reason to dispute the accuracy of any invoice submitted to it by the Company, other than invoices for the Fixed Cost Fee or the Variable Cost Fee, BP will pay that part of the invoice which is undisputed in accordance with the provisions of this Article 7 and, after such dispute has been -33- 37 resolved, BP will pay any balance due to the Company on or before the twelfth day after the receipt by BP of a replacement invoice submitted to it by the Company. If BP has reason to dispute the accuracy of any Fixed Cost Fee for any Month or any Variable Cost Fee for any Month, BP will pay an amount at least equal to the Fixed Cost Fee or the Variable Cost Fee, as the case may be, paid by BP to the Company for the preceding Month in accordance with the provisions of Sections 7.2 and 7.3 hereof and, after such dispute has been resolved, BP will pay any balance due to the Company or the Company will pay any balance due to BP, as the case may be, on or before the twelfth day after the receipt by BP of a replacement invoice submitted to it by the Company; provided, however, that in the event that any balance is due to BP, such replacement invoice be submitted to BP later than ten (10) days after such dispute has been resolved. 7.8 The Company shall maintain records and production data in accordance with usual and customary practices and standards in the acetyls industry in respect of all matters referred to in this Article 7. The Company shall provide BP access to such records and data pursuant to the provisions of Section 23.1 hereof. 7.9 The suspension of the obligations of the Company hereunder to produce and sell Acetic Acid by reason of a force majeure event shall not suspend BP's obligation to make the payments required hereunder; provided, however, that the occurrence of such force majeure event shall not of itself obligate or otherwise require BP to make any payments described in Section 4.4 hereof. ARTICLE 8 DELIVERIES AND SHIPMENTS 8.1 The Point of Delivery of any Acetic Acid shall be the point of transfer of custody of such Acetic Acid from the Company to BP, and shall mean (i) the first intake flange on the Barge or other inland water or marine vessel into which the Acetic Acid is loaded for shipment, and (ii) the perimeter boundary line of the Plant with respect to any Rail Car, Additional Rail Car, truck or other conveyance into which the Acetic Acid is loaded for shipment. Title and risk of loss shall pass to BP at such flange -34- 38 or perimeter boundary line, as the case may be (irrespective of whether the Company owns or has provided any Barge, Rail Car, Additional Rail Car or other conveyance into which the Acetic Acid is loaded). As between the Company and BP, except as otherwise provided in Section 8.2 hereof, the Company shall be in control and possession of the Acetic Acid sold and purchased hereunder and responsible for any damage or injury caused thereby until risk of loss with respect there to has passed to BP. In addition to its other obligations hereunder, BP shall be in control and possession of the Acetic Acid sold and purchased hereunder and responsible for any damage or injury caused thereby after risk of loss with respect thereto has passed to BP. 8.2 Subject to the terms and conditions of this Agreement and to normal and customary shipping practices, the Company shall make available to BP at all times hereunder the Barge and the Rail Cars for movement of the Acetic Acid, except when the Barge and/or the Rail Cars are being stored or used under instruction for BP, provided that the Estimated Delivery, Shipment and Storage Instructions, the Delivery, Shipment and Storage Instructions or any additional shipping instructions state (i) the number of Rail Cars required by BP and the date(s) on which the same are required, (ii) the date(s) on which the Barge is required, (iii) transfer, connection and dispatch instructions, and (iv) such other information as may be reasonably required by the Company. The Company shall bear the costs of regular maintenance and repair of the Barge and the Rail Cars and in-Plant loading and switching charges and other normal expenses with respect to the ownership and operation thereof. The Company shall not be required to pay any Capital Expenditures with respect to the Barge or the Rail Cars unless BP is obligated to reimburse the Company therefor as provided in Article 18 hereof. The use of the Barge or any Rail Car by BP shall not affect or alter the Point of Delivery hereunder or the time of the passing of title to or risk of loss with respect to the Acetic Acid. The Company shall have no liability for any loss, damage, injury or other event or occurrence involving the Barge or any Rail Car other than loss, damage or injuries resulting solely from the gross negligence or willful misconduct of the Company, its agents or employees. -35- 39 At such times as it becomes necessary to supplement the Rail Cars with additional rail cars ("Additional Rail Cars") for transporting Unit Product to customers, the costs of leasing the Additional Rail Cars shall be billed to BP on a monthly basis. Costs shall include lease fees, less mileage credits received by the Company for the use of the Additional Rail Cars. The utilization of the Rail Cars and the Additional Rail Cars will be reviewed at least annually to determine whether new cars are required or subleases should be sought for excess rail cars in the fleet. BP will make best efforts to use any excess Rail Cars or Additional Rail Cars within its system for other products, crediting the Profit with agreed sublease fees. 8.3 BP may from time to time request that the Company arrange the delivery and transportation of Acetic Acid in accordance with the Delivery, Shipment and Storage Instructions or any additional instructions referred to in Section 5.3 hereof and the Company may at its option comply with any such request of BP; provided, however, that the Company shall have no liability or other obligation with respect to its having arranged the delivery and transportation of any Acetic Acid pursuant to this Section 8.3. If the Company, in arranging for the delivery and transportation of Acetic Acid pursuant to this Section 8.3, earns or realizes discounts or other cost savings as a result of aggregating shipments or by reason of other economies of scale, such discounts and other cost savings shall be proportionately shared with BP on the basis on which such discounts and other cost savings were earned or realized by the Company. BP shall reimburse the Company for any additional costs incurred by the Company in the performance of any request of BP pursuant to the provisions of this Section 8.3. ARTICLE 9 TESTING 9.1 The Acetic Acid and Unit Product shall be tested prior to delivery to BP under the testing procedures and schedules being utilized by the Company at the Effective Date. Such procedures and schedules may be changed from time to time by the agreement of BP and the Company. The Company shall retain representative samples for sufficient time to allow delivery to and acceptance by BP's -36- 40 customers of such product. The Company shall provide BP access to such samples and all records maintained by the Company with respect there to pursuant to the provisions of Section 23.1 hereof. 9.2 Confirmatory tests of the quality of Acetic Acid shipments shall be performed at the time of delivery according to the procedures and schedules referred to in Section 9.1 hereof and where requested, in the presence of an independent surveyor, utilizing representative samples taken from the intake flange of the Barge, other inland water or marine vessel, any Rail Car, Additional Rail Car, truck or other conveyance, and from the tanks thereof where necessary, into which the Acetic Acid is loaded. The Company shall retain such samples for sufficient time to allow delivery to and acceptance by BP's customers of such product. 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 Section 23.1 hereof. 9.3 All product made pursuant to the provisions of Article 6 hereof when tested according to the agreed procedures and schedules shall be conclusively presumed to constitute Acetic Acid unless analysis of the sample retained pursuant to the provisions of Sections 9.1 or 9.2 hereof shows the product not to have been Acetic Acid. 9.4 BP shall have the right, at BP's expense, to have the Acetic Acid tested by independent third parties prior to shipment as Acetic Acid hereunder, so long as any such testing does not materially interfere with Unit or Plant operations, and the Company shall cooperate in any such test and shall have the right to be represented and to participate in any such test and to inspect any equipment used in determining the nature or quality of the Acetic Acid or Unit Product. After such independent test, unless BP delivers to the Company written notice prior to shipment of any such product that such product is not Acetic Acid for purposes hereof, all such product shall be conclusively presumed to meet the Specifications and constitute Acetic Acid. If such a notice is delivered to the Company with respect to any such product which has not been shipped at the time such notice is given, such product shall not constitute Acetic Acid hereunder, and BP shall have no obligation with respect to any such product; -37- 41 provided, however, that should the Company object in writing to such notice within five (5) Business Days after receipt thereof, the parties will meet within five (5) Business Days after delivery of such objection to resolve the question of whether such product is Acetic Acid hereunder. If the parties fail to resolve the matter within twenty (20) Business Days after the delivery of the original objection by the Company to BP, either party may refer the matter to arbitration under Article 26 hereof. 9.5 The Company agrees to be financially responsible for all product which is determined not to have constituted Acetic Acid hereunder at the Point of Delivery and, at the Company's option, such product shall be reprocessed by the Company in the Unit at its sole cost and expense or sold, transferred or otherwise disposed of on such terms as may be agreed between BP and the Company. 9.6 BP agrees to be financially responsible for all product which is determined to have constituted Acetic Acid hereunder at the Point of Delivery thereof. If the parties hereto agree, such product shall thereupon be reprocessed by the Company in the Unit at no cost or expense to the Company; provided, however, that the Company shall have no obligation to reprocess any such product. ARTICLE 10 MEASUREMENT 10.1 The Unit of Measurement of Acetic Acid shall be one pound (avoirdupois). All quantities given herein, unless otherwise expressly stated, are in terms of such Unit of Measurement. 10.2 The Company shall maintain and operate the Acetic Acid Measuring Equipment and the Methanol Measuring Equipment in accordance with customary practice in the industry and all applicable laws and regulations. BP may, at its option and expense, install measuring equipment for checking the Acetic Acid Measuring Equipment or the Methanol Measuring Equipment so long as such installation does not materially interfere with the operation of the Unit or the Plant. 10.3 BP shall have the right, at BP's expense, to monitor and check the measurement of Acetic Acid from the Unit into the tanks of the Barge, other inland water or marine vessels, any Rail Cars, Additional Rail Cars, trucks or other conveyances into which the Acetic Acid is loaded, in the presence -38- 42 of an independent surveyor. Any reports and certifications resulting from such monitoring and checking will be made available by BP to the Company on request. 10.4 The determination of the quantity of Acetic Acid deliveries hereunder for inland water and marine vessel transport shall be made by taking the opening and closing inventory of the Company's properly calibrated shore tank before and after each shipment. 10.5 The determination of the quantity of Acetic Acid deliveries hereunder for transport by rail car or tank truck shall be made by weighing the rail cars or tank trucks on certified scales before and after loading. The receiving party shall gauge or weigh the rail cars or tank trucks upon arrival and, if the amount gauged or weighed is different than the weight obtained prior to shipment by more than one percent (1%), the receiving party shall notify BP, and BP will in turn notify the Company, and the procedures set forth in Section 10.7 hereof shall apply. 10.6 Each party shall have the right to be present at the time any installing, reading, cleaning, changing, repairing, inspecting, testing or adjusting is done in connection with the other party's measuring equipment used in measuring deliveries hereunder. The records from such measuring equipment shall remain the property of the owner thereof, but, upon request, each party will submit to the other party its records, charts and weight tickets, together with calculations therefrom, subject to return within fifteen (15) days after receipt thereof. Such records, charts and weight tickets shall be kept on file for a period of not less than ninety (90) days. 10.7 If upon any test the measuring equipment is found to be inaccurate in the aggregate by one percent (1%) or more, any payment based upon such measurements shall be corrected at the rate of such inaccuracy for any period of inaccuracy which is definitely known or agreed upon, or if not known or agreed upon, then for a period extending back one-half (1/2) of the time elapsed since the last successful test. Following any test, any measuring equipment found to be inaccurate to any degree shall be adjusted as soon as practicable to measure accurately. If for any reason any measuring equipment is out of service or out of repair so that the quantity of Acetic Acid delivered cannot be ascertained or -39- 43 computed from the readings thereof, the quantity of Acetic Acid so delivered during the period the measuring equipment is out of service or out of repair shall be estimated and agreed upon by the parties upon the basis of the best available data, using the first of the following methods which is feasible: (a) By using the results of any check measuring equipment or other measuring device of BP, if installed and measuring accurately; (b) By using the ship's records of tank measurements where Acetic Acid has been loaded onto a ship; (c) By correcting the error if the percentage of error is ascertainable by test or mathematical calculation; or (d) By estimating the quantity of deliveries during preceding periods under similar conditions when the measuring equipment was measuring accurately. 10.8 Notwithstanding the foregoing, the Company's measurements shall be deemed to be accurate for purposes of all deliveries made hereunder unless as to any particular delivery, BP objects thereto in writing delivered to the Company within three (3) weeks after such delivery to BP's customer. ARTICLE 11 STORAGE OF ACETIC ACID BY COMPANY 11.1 The Unit presently contains three (3) bulk storage tanks (Nos. 5OT508-1, 5OT508-2 and 5OT508-3) with an aggregate storage capacity of approximately 30,000,000 pounds. The Company shall use such bulk storage tanks for the storage of Acetic Acid as designated by BP in the Estimated Delivery, Shipment and Storage Instructions and the Delivery, Shipment and Storage Instructions or as otherwise determined by the Company. Should any such bulk storage tank be taken out of service by the Company for repair service, the Company will, so long as the costs with respect thereto are subject to reimbursement under this Agreement or included in the Fixed Cost Fee, repair the same and place it back in service as soon as is practicable. -40- 44 ARTICLE 12 OPERATION OF UNIT AND RELATED MATTERS 12.1 The Company shall have the authority to, and does hereby agree to, operate the Unit subject to the terms and conditions of this Agreement. Unless otherwise provided herein, the Company shall operate the Unit in accordance with the Delivery, Shipment and Storage Instructions of BP provided that such operation (i) is not in violation of this Agreement, prudent operation and maintenance procedures, or applicable laws, (ii) does not have the effect of reducing the Variable Cost Component or the Fixed Cost Fee, and (iii) does not have the effect of altering the Specifications unless agreed between the Company and BP. 12.2 Notwithstanding any other provision of this Agreement to the contrary, the Company shall operate the Unit and perform its other obligations hereunder using the same standard of care as it would use in operating the Unit and performing such obligations for its own account, and the Company shall have no liability hereunder based on any higher standard of care. 12.3 In the event that for any reason maintenance, utilities or other services and resources at the Plant become limited, the Company agrees that it will in good faith allocate such maintenance, utilities, services and resources between the Unit and the other activities at the Plant on a fair and equitable basis having regard to the needs of BP hereunder and third parties under contracts for the sale by the Company of other chemicals produced in the Plant. 12.4 The Company covenants and agrees with BP that, during the Initial Term and the First and Second Additional Terms and so long as no BP Event of Default has occurred and is continuing, it will not sell, convey, otherwise dispose of or deal with any acetic acid other than pursuant to this Agreement. 12.5 Effective for the Company's fiscal year beginning October 1, 1991, the Company will prepare a detailed annual maintenance budget for the syngas and acetic acid plants which will cover the period October 1 to September 30 on an evergreen basis. This budget will be available for review by -41- 45 BP 45 days prior to each October 1 and will be agreed to by both parties by September 15 of each year. Once agreed, the budget amount will be incorporated into the Fixed Cost Fee (replacing the former Repairs, M&E and I&E lines) and will be deemed to act as a cap on the maintenance spending. As such, the budget represents an upper spending limit and any underspend will be credited to BP by December 31 of each year. If however, during the period October 1 - September 30 there is a need to undertake significant additional maintenance or, if certain scheduled items are found no longer to require attention, additions or deletions will be mutually agreed upon. The Company shall keep a record of maintenance spending and will report such spending to BP on a quarterly basis. Such reports will include, as a minimum requirement: any agreed changes to the original budget, actual spending compared to budget, and an annualized total forecast including agreed additions or deletions. BP shall have access to the Company's maintenance records necessary to verify the accuracy of all items charged against the maintenance budget to the extent and in the manner provided in Article 23 of this Agreement. ARTICLE 13 SHUT-DOWNS OF THE UNIT 13.1 The parties agree that the Unit will be shut down for such periods of time as are required to accomplish the Scheduled Shutdowns. During such shut-down, the Company shall not be required to produce Acetic Acid hereunder and it is the present intention of the parties to utilize the Unit's storage capacity to accumulate Acetic Acid for delivery during such Scheduled Shutdowns. Any such Scheduled Shutdown shall affect neither the obligations of BP to make all other payments due hereunder nor the other covenants and agreements of the parties hereunder. 13.2 Upon reasonable notice from BP, the Company shall temporarily cease the production of Acetic Acid at the times and for the periods so requested. In such event, in addition to all other payments required hereunder, BP shall reimburse the Company upon receipt of invoice therefor for any -42- 46 and all additional costs and expenses incurred in connection with such cessation or reduction, including, without limitation, increased costs of production of other products produced at the Plant resulting from such cessation or reduction as described in Section 4.4 hereof provided that the Company shall have a duty to reasonably mitigate any such additional costs and expenses. 13.3 In the event BP gives six (6) Months' prior written notice to the Company that, in its judgment, the Unit should be permanently shut down, (i) the Company shall proceed to shut down the Unit and BP shall pay all expenses of such shutdown, and (ii) the Company shall reduce the Fixed Costs as soon as is practicable. Notwithstanding such shut-down, BP shall remain obligated to pay the Fixed Cost Fee for a full six (6) Months after the date of such shut-down. Thereafter, BP shall have no further obligations hereunder to pay the Fixed Cost Fee; provided, however, that BP shall reimburse the Company for (i) all insurance, maintenance, security and other expenses thereafter incurred by the Company with respect to the Unit, provided that the Company has a duty to reasonably mitigate such expenses, and (ii) any and all additional expenses incurred by the Company in connection with such permanent shut-down including, but not limited to, increased costs of production of other products produced at the Plant (other than the Unit) provided that the Company shall have a duty to reasonably mitigate any such additional expenses. The Company shall not be required to operate the Unit or to maintain the Unit in a condition which is ready for production of Acetic Acid. Any such permanent shut-down shall affect neither the obligations of BP to make all other payments due hereunder nor the other covenants and agreements of the parties hereunder. 13.4 During the Initial Term hereof, in the event of a fire, explosion, flood, hurricane, windstorm or other casualty resulting in the loss of the Unit or a substantial part thereof or the inability for a period of more than three (3) Months of the Company to deliver Acetic Acid as required by BP, the Company and BP shall meet to agree whether or not the Unit should be repaired. If the proceeds of insurance are sufficient to pay all costs of such repair, the Unit will be repaired and the insurance proceeds will be applied to such repair, unless the parties mutually agree that the Unit shall not be -43- 47 repaired in which event the insurance proceeds shall be applied and paid in the following order of priority: (a) The insurance proceeds shall be first applied to the payment of (i) all of BP's remaining obligations to the Company hereunder, and (ii) if the Note has not been prepaid, the outstanding principal balance of and all accrued but unpaid interest on the Note and all sums then owing under the Interest Rate Letter Agreement, OR, if the Note has been prepaid, to the payment to BP of an amount equal to the sum of (A) what the outstanding principal balance of and all accrued but unpaid interest on the Note would have been as of the date of such casualty had the Note been paid according to its terms but not prepaid prior to such date, and (B) the amount which would have been owing under the Interest Rate Letter Agreement as of the date of such casualty had the Note not been prepaid prior to such date; and (b) Thereafter, the then remaining balance, if any, of the insurance proceeds shall be paid to the Company whereupon the parties' obligations under this Agreement shall be terminated provided that the covenants and obligations referred to in Articles 27 and 31 hereof shall survive such termination as set forth therein. If the proceeds of insurance are not sufficient to pay all costs of such repair, then: (a) If the parties mutually agree, the Unit shall be repaired and the excess of repair costs after all insurance proceeds have been applied and paid against repair costs shall be apportioned between the parties by mutual agreement; (b) If BP desires to repair the Unit, but the Company does not agree, the Unit shall be repaired and the excess of repair costs after all insurance proceeds have been applied and paid against repair costs shall be paid by BP; and (c) If BP does not desire to repair the Unit, regardless of the desires of the Company, the Unit shall not be repaired in which event the insurance proceeds shall be applied and paid in the following order of priority: -44- 48 (1) If the Company desires to repair the syn-gas unit, the insurance proceeds shall be first applied and paid against actual repair costs incurred by the Company in the construction or repair of a syn-gas unit having sufficient capacity to enable the Company to perform its obligations to produce syn-gas required in the production of other products produced at the Plant (other than the Unit); (2) Thereafter, the then remaining balance of the insurance proceeds shall be next applied to the payment of (i) all of BP's remaining obligations to the Company hereunder, and (ii) if the Note has not been prepaid, the outstanding principal balance of and all accrued but unpaid interest on the Note and all sums then owing under the Interest Rate Letter Agreement, OR, if the Note has been prepaid, to the payment to BP of an amount equal to the sum of (A) what the outstanding principal balance of and all accrued but unpaid interest on the Note would have been as of the date of such casualty had the Note been paid according to its terms but not prepaid prior to such date, and (B) the amount which would have been owing under the Interest Rate Letter Agreement as of the date of such casualty had the Note not been prepaid prior to such date; and (2) Thereafter, the then remaining balance, if any, of the insurance proceeds shall be paid to the Company whereupon the parties' obligations under this Agreement shall be terminated provided that the covenants and obligations referred to in Articles 27 and 31 hereof shall survive such termination as set forth therein. 13.5 During the First and Second Additional Terms, in the event of a fire, explosion, flood, hurricane, windstorm or other casualty resulting in the loss of the Unit or a substantial part thereof or the inability for a period of more than three (3) Months of the Company to deliver Acetic Acid as required by BP, the Company shall have the sole option whether or not to repair the Unit, irrespective of whether or not the proceeds of insurance are sufficient to pay all costs of such repair, and BP shall have no obligation or liability therefor. If the Company repairs the Unit, the parties' obligations under -45- 49 this Agreement shall continue. If the Company fails or refuses to commence within ninety (90) days thereafter and proceed with reasonable diligence to repair the Unit, the parties' obligations under this Agreement shall be terminated provided that the covenants and obligations referred to in Articles 27 and 31 hereof shall survive such termination as set forth therein. 13.6 The Company will prepare a detailed shutdown reserve ("SDR") budget for the syngas and acetic acid plants and a corresponding schedule for major shutdowns and update these on a regular basis. The period over which the shutdown reserve is accrued is agreed to be a nominal 24 months consistent with the expected major shutdown schedule. BP and the Company will review and agree on the SDR budget and corresponding major shutdown schedule by October 1 of each year. Once agreed, the amount for "Shutdown Reserve" in the Fixed Cost Formula shall be revised so that the sum of the monthly charges in current dollars during the interval between major shutdowns (nominally 24 months) will equal the unescalated budget total. The SDR budget will act as a cap on spending. As such, the budget represents an upper spending limit. If, however, during the period prior to the major shutdown, additions or deletions of major (non- routine) items to or from the budget cap may be mutually agreed upon. After completion of a major shutdown, total costs will be reconciled against the SDR charges. Any difference will then be used to recalculate the next SDR budget. In the event that there is a significant change to the major shutdown schedule, the parties may agree to modify SDR charges in the formula to reflect the expected interval between major shutdowns. BP shall have access to the Company's records necessary to verify the accuracy of charges made against the SDR budget to the extent and in the manner provided in Article 23 of this Agreement. ARTICLE 14 INSURANCE 14.1 As of the Effective Date, the Company will obtain the Insurance coverage described on Exhibit G attached here to in respect of the Unit and shall obtain adequate Insurance coverage for those parts of the Plant which serve the Unit. Subject to Section 13.4 hereof, in the event that such parts of the -46- 50 Plant are destroyed or damaged whether by the insured risks or not, the Company shall rebuild the same as soon as practicable and to the extent that the insurance proceeds are deficient will make up the difference from its own funds. It is the intent of both BP and the Company to eliminate BP as a named insured for general liability and business interruption coverage, subject to suitable cost savings and mutual agreement on commensurate changes to the Fixed Fee Formula. No action to drop coverage for BP shall be taken by the Company without prior approval by BP. 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 G 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 changes. If, as a result of such review, it is determined that the revised coverages do no provide equivalent value to the coverages required by Exhibit G, the parties shall agree to revise cost allocations to the Unit and revise the Fixed Cost Fee and Formula as appropriate. The Company and BP shall jointly review and compare current insurance coverages with those specified in Exhibit G, on an annual basis. 14.2 During the Initial Term and the First and Second Additional Terms, the Company shall maintain such insurance coverage, and all insurance premiums in respect of the insurance for the Unit which are not included in the Fixed Cost Fee shall be paid by BP on receipt by BP of an invoice. ARTICLE 15 ACCESS TO THE UNIT 15.1 The Company agrees that upon written request by BP, the Company shall provide to BP, at cost, reasonably suitable office accommodation at the Plant for a limited number of BP personnel. 15.2 Subject to the provisions of Section 15.3 hereof, BP acknowledges that the Company is required to permit representatives of technology licensees described or referred to in the Purchase Agreement and such additional licensees as may be requested by BP from time to time to visit the Unit -47- 51 and receive training in the operation thereof; provided, however, that BP shall indemnify and hold the Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of its admission of such representatives to the Unit. 15.3 The Company shall cause the representatives described or referred to in Section 15.2 hereof and any other third party to whom access to the Unit is given by the Company to sign a confidentiality agreement having terms no less onerous than apply to the parties hereto under Article 27 hereof. 15.4 The Company agrees to permit BP personnel, at the cost of BP, to have access to the Unit at reasonable times and on reasonable notice and consistent with the Company's contractual obligations under licenses or sub-licenses to which it is a party. BP shall indemnify and hold the Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of its admission of such BP personnel to the Unit. ARTICLE 16 METHANOL SUPPLY 16.1 BP shall provide Methanol meeting the specifications described in Exhibit C attached hereto in the volumes and at the times required by the Company to operate the Unit and produce Acetic Acid as required hereby. The Company agrees that it shall (i) provide adequate facilities to receive and store, on behalf of BP for use in the Unit, Methanol delivered by sea in up to 6,000 metric ton shipments and with a maximum storage capacity of no more than 4,000,000 gallons, (ii) maintain and utilize, on behalf of BP, the two (2) Methanol storage tanks (Nos. 50T530-1 and 50T530-2) available at the Plant (or substitute storage facilities designated by the Company) for the purpose of storing Methanol supplied by BP, and (iii) subject to the foregoing limitations store, on behalf of BP, any Methanol delivered by BP without charge. For the purpose of inventory control, the quantity of Methanol delivered by BP pursuant to this Section 16.1 shall initially be the amount declared on the bill of lading of the delivery -48- 52 vessel and shall be adjusted at the end of each Quarter to the amount actually received as measured by the Methanol Measuring Equipment. 16.2 The price payable by the Company for Methanol consumed shall be the price payable by BP from time to time to its major Methanol supplier together with the costs of delivery from the said supplier's terminal to the Company. The Company shall pay BP for the Methanol consumed during any Month contemporaneously with the payment by BP for the Acetic Acid delivered by the Company to BP during such Month. For any Month, Methanol consumption shall be equal to the amount of Methanol in the Methanol storage tanks on the first day of such month as determined by physically gauging the storage tanks, increased by deliveries of Methanol during such Month pursuant to Section 16.1 hereof, and reduced by the amount of Methanol in the Methanol storage tanks on the first day of the following Month as determined by physically gauging the storage tanks. Any difference between the price payable by BP to its major supplier and the cost to BP of Methanol supplied hereunder shall be deemed to be an expense for inclusion in the Costs of Sales hereunder. 16.3 The point of delivery of Methanol delivered pursuant to Section 16.1 hereof shall be the point of transfer of custody of such Methanol to the Company, which for purposes of this Agreement shall mean the last exit flange on the ship or other conveyance from which the Methanol is unloaded. Risk of loss shall pass from BP to the Company at such flange and the Company shall be in control and possession of Methanol delivered pursuant to Section 16.1 hereof and responsible for any damage or injury caused thereby after risk of loss with respect thereto has passed to it. As between the Company and BP, BP shall be deemed to be in control and possession of Methanol sold and purchased pursuant to Section 16.1 hereof and responsible for any damage or injury caused thereby until risk of loss with respect thereto has passed to the Company. 16.4 Title to all Methanol delivered to the Plant hereunder shall pass from BP to the Company upon the removal thereof from the Methanol Storage Facilities at the Plant for consumption in the Plant. -49- 53 ARTICLE 17 SPECIAL EXPENDITURE 17.1 The Company may approve any project requiring Special Expenditure and make any Special Expenditure, regardless of amount, in any Contract Year if such project and such Special Expenditure have been included in the Company's operating plan under this Agreement for such Contract Year and such plan was approved by BP prior to the payment of such Special Expenditure. Upon receipt of invoice therefor, BP will promptly reimburse the Company for a Special Expenditure incurred in accordance with this Section 17.1. 17.2 A project and Special Expenditure not contemplated by Section 17.1 hereof, and the manner of reimbursement or payment to the Company therefor, shall be agreed upon by the parties hereto. The Company may, where circumstances reasonably require, without the approval of BP, commence a project and Special Expenditure not contemplated by Section 17.1 hereof necessary, in the judgment of the Company, (i) to ensure that the Unit, the Barge, the Rail Cars, the Additional Rail Cars and the operation of any of the foregoing and the production, delivery, storage, shipment, sale, resale, use, disposal or transportation of Acetic Acid, Unit Product, feedstock, supplies and materials comply with applicable law and regulations, and (ii) to provide for the health, safety and welfare of the Company's employees on the Unit; provided, however, that the Company shall at the earliest practicable opportunity notify BP of such project and Special Expenditure, and thereupon the manner of reimbursement or payment shall be as follows: (a) All costs actually incurred by the Company with respect to such project and Special Expenditure prior to notifying BP of the commencement thereof shall be promptly reimbursed by BP to the Company upon receipt of invoice therefor; (b) If the parties hereto agree, the Company shall be paid for additional costs to be incurred by the Company with respect thereto as agreed by the parties hereto; -50- 54 (c) If the parties fail to agree, the Company shall at its option (i) cease such project and Special Expenditure, or (ii) continue such project and Special Expenditure at its own cost; provided, however, that the Company may refer the matter to arbitration under Article 26 hereof. ARTICLE 18 CAPITAL EXPENDITURES 18.1 During the Initial Term and the First Additional Term, all Capital Expenditures shall be paid by the Company but shall be reimbursed by BP upon receipt of an invoice, provided that the Company complies with the procedures described in this Article 18. During the Second Additional Term, all Minor Capital Items shall be paid by the Company but reimbursed by BP upon receipt of an invoice, provided that the Company complies with the procedures described in this Article 18. During the Second Additional Term, the cost of all Major Capital Items will be invoiced to BP in accordance with the Profit sharing ratios in effect during such period. Expenditures on Major Capital Items will have no effect on the definition of Profit, and such expenditures will be made for jointly approved projects without regard to the presence or absence of Profit or any accumulated Surplus Payment. 18.2 For any Contract Year 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. Such capital budget shall consist of an outline description of and an estimate of the Capital Expenditures for each identified job and a lump sum provision in respect of other possible developments. Such capital budget will be discussed at the October Quarterly 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. 18.3 When the Company desires to obtain a disbursement from BP for a Capital Project described in the capital budget, the Company shall furnish BP with the details of the proposed Capital Project including (i) the cost of such proposed Capital Project, (ii) the benefits of the proposed Capital Expenditure, and (iii) the changes which will result to one or more of the Variable Cost Component, the -51- 55 Fixed Cost Fee, the Maximum Quarterly Contract Quantity and the Specifications, for authorization and disbursement of funds in accordance with the procedures in Sections 18.4 through 18.6, inclusive, hereof. 18.4 Further proposed Capital Projects may be added to the capital budget described in Section 18.2 by the Company at any time during a Contract Year, provided that the approval of BP has first been obtained. 18.5 All Capital Projects may be committed to by the Company and expended by the Company only after the approval of the authorized BP representative who will, in respect of any Capital Project requiring Capital Expenditures of more than ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) U.S., submit the same to BP for approval. 18.6 The date that the changes in the Variable Cost Component, the Fixed Cost Fee, the Minimum Quarterly Contract Quantity and the Specifications will be effected will be the date of the completion of the Capital Project in question. The actual results arising from a Capital Project shall be determined by BP and the Company no later than six (6) Months after the said completion date. If BP and the Company agree that the actual results therefrom differ from those anticipated in Section 18.2 hereof, the items referred to above in Section 18.6 hereof shall be adjusted to take account of the actual results obtained. 18.7 BP shall designate in writing to the Company the name of the authorized BP representative for purposes of this Agreement which name may be changed from time to time by BP by written notice to the Company. 18.8 During the operation of the Agreement questions have arisen regarding the allocation of certain U.S. federal income tax deductions between the Company and BP. In order to clarify this situation and avoid confusion on this issue in the future, the parties have agreed and do hereby agree as follows: (a) At all times from and after August 1, 1986, the Company has been the beneficial owner of the Acetic Acid Plant Assets covered by the Production Agreement, being the following -52- 56 specific assets acquired by the Company from the Monsanto Company on August 1, 1986, and therefore the Company is entitled to all available depreciation and/or amortization deductions with respect thereto: All acetic acid process units, technology licenses, tank cars and all personal property more particularly described on Exhibit "B" of the Contract of Purchase and Sale of Real Estate and Personal Property entered into between the Company and BP, effective August 1, 1986, said Exhibit "B" being incorporated herein by reference for all purposes as if copied herein in full (the "Acetic Acid Plant Assets"). The parties hereby agree that BP is not and will not be entitled to any depreciation or amortization deductions with respect to the Acetic Acid Plant Assets. (b) BP will be entitled to any and all depreciation and amortization or expense deduction with respect to the After Acquired Assets, and the Company will be entitled to any and all depreciation and amortization or expense deductions with respect to that portion of any Capital Expenditure, Capital Project or Special Expenditure or any other expenditure unreimbursed by BP. (c) The payments required under the terms of the Note shall be currently deductible as rental expense by BP and recognized as income by the Company. (d) The Company and BP will not file claims for refund, or any other form of return with the United States Internal Revenue Service, or with any governmental unit of any state, based on depreciation and/or amortization deductions inconsistent with the agreement reflected in this Section 18.8. -53- 57 ARTICLE 19 PERSONNEL 19.1 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, bonding and all other employee, personnel-related and contracting matters. Any incentive schemes for employees on the Unit shall be made at the discretion and cost of the Company. ARTICLE 20 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to BP as follows: 20.1 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. 20.2 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. 20.3 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 -54- 58 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. 20.4 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. 20.5 No Warranties. EXCEPT FOR THE WARRANTY OF TITLE CONTAINED IN THE DEED, THE COMPANY HEREBY EXPRESSLY DISCLAIMS AND NEGATES (I) ANY REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, COMMON LAW, STATUTORY OR OTHERWISE) RELATING TO THE UNIT, THE BARGE, THE RAIL CARS, THE ADDITIONAL RAIL CARS, OR THE OPERATION OF ANY OF THE FOREGOING, OR ANY OTHER TANGIBLE PERSONAL PROPERTY AND FIXTURES INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR ENGINEERING, EXCEPT AS EXPRESSLY SET FORTH HEREIN, AND (ii) ANY IMPLIED REPRESENTATION OR WARRANTY RELATING TO ANY ACETIC ACID OR UNIT PRODUCT SOLD HEREUNDER, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR ENGINEERING. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE COMPANY HAS ASSIGNED AND TRANSFERRED THE UNIT, THE BARGE, THE RAIL CARS, THE ADDITIONAL RAIL CARS -55- 59 AND SUCH OTHER TANGIBLE PERSONAL PROPERTY AND FIXTURES TO BP ON AN "AS IS" BASIS. ARTICLE 21 REPRESENTATIONS AND WARRANTIES OF BP BP represents and warrants to the Company as follows: 21.1 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. 21.2 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 or similar laws relating to or affecting the enforcement of creditors' rights generally, and (ii) general principles of equity. 21.3 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, -56- 60 21.4 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 22 PARTICIPATION IN NEGOTIATIONS 22.1 Upon the expiration from time to time of the supply contracts pursuant to which natural gas and carbon dioxide are supplied to the Unit, at BP's request the Company shall permit BP to participate in the negotiations which the Company conducts relating to the supply of natural gas and carbon dioxide to the Unit. Except as otherwise provided herein, the Company may, without participation by BP, negotiate and shall have the right, without the approval of BP, to enter into all contracts relating to supplies, materials, feedstocks (except Methanol so long as BP has not defaulted in its contractual obligations with respect thereto), utilities, treatment, disposal and other services or materials or property required in the Company's opinion for the operation of the Unit, the Barge, the Rail Cars, the Additional Rail Cars, storage facilities and the performance of its obligations hereunder. ARTICLE 23 ACCESS TO INFORMATION 23.1 Upon written request by BP from time to time, the Company shall provide to BP, its attorneys, accountants and other representatives, subject to the receipt by the Company of confidentiality agreements no less onerous than apply to the parties hereto under Article 27 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 other than BPCL to which the Company is a party. BP shall thereupon have the right to make copies of and abstracts from such -57- 61 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 27 hereof. 23.2 The Company agrees to permit representatives of BP, at BP's expense, to have (i) access to the Unit at reasonable times and on reasonable notice to obtain information relating to the present or proposed operations of the Unit so long as such access does not materially disrupt the operation of the Unit, and (ii) access to the Plant at reasonable times and on reasonable notice to obtain information and audit the environmental status and condition of the Plant and the operations thereof so long as such access does not materially disrupt the operation of the Plant and BP pays all costs relating thereto. BP agrees to furnish the Company with copies of all information and audits obtained or prepared pursuant to the provisions of this Section 23.2. 23.3 The Company shall make its employees and other representatives available to BP at reasonable times on reasonable notice to discuss the present or proposed operations of the Unit so long as such availability does not materially disrupt the operation of the Unit or the Plant. BP shall reimburse the Company for all reasonable direct out-of-pocket costs incurred by the Company in making such employees or other representatives available, on receipt of an invoice therefor. 23.4 Upon written request by the Company from time to time, BP shall provide to the Company and its attorneys, accountants and other representatives approved by BP (such approval not to be unreasonably withheld), subject to the receipt by BP of confidentiality agreements no less onerous than apply to the parties here to under Article 27 hereof, at reasonable times and during normal business hours, access to BP's books, records and accounts relating to Profit, Cost of Sales, Methanol supplies, cost savings and the performance of BP's obligations under this Agreement. ARTICLE 24 SEMIANNUAL MEETINGS 24.1 At the Semiannual Meetings, the representatives of BP and the Company shall review such matters as may be determined as appropriate by the parties. -58- 62 24.2 By no later than September 30 of each Contract Year, the Company shall deliver to BP a proposed operating plan (including proposed Special Expenditure, Capital Projects and Capital Expenditures) for the Unit, the Barge, the Rail Cars, the Additional Rail Cars and the other equipment and property used in connection therewith, prepared by the Company in good faith and upon realistic assumptions, for the following Contract Year. At or after the October Semiannual Meeting in each Contract Year and in any event prior to the commencement of the next Contract Year, the parties shall formally agree on and adopt the operating 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. ARTICLE 25 FINANCIAL ASSURANCES 25.1 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 Requiring Response Action, the Company will use its best efforts to provide the same, and BP will reimburse the Company for all premiums or other costs incurred in connection with providing such financial assurances, upon receipt of invoice therefor. In the event the Company is unable to provide such financial assurances, BP will provide them. ARTICLE 26 ARBITRATION 26.1 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 -59- 63 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. 26.2 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) 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 26.1 hereof fail to appoint a neutral arbitrator as hereinabove contemplated within ten (10) 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. 26.3 The arbitration proceeding shall be conducted in the English language in Houston, Texas, in accordance with the 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 two (2) or three (3) 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. 26.4 The validity of the foregoing provisions of this Article 26 shall, to the fullest extent practicable, be governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. -60- 64 ARTICLE 27 CONFIDENTIALITY AND INTELLECTUAL PROPERTY 27.1 During the terms of this Agreement and thereafter, all information relating to the business, products, assets and finances of the Company or BP, including, but not limited to, financial statements and related books and records, minute books, personnel records, list of customers and potential customers, lists of suppliers and potential suppliers, price and cost data, computer programs, computer hardware, patents, patent applications, apparatus, equipment, drawings, reports, processes, methods and techniques of manufacture, know-how, trade secrets, specifications of materials, manuals, technical information and similar information and records shall be treated as proprietary to the Company or BP, as the case may be, and as confidential by BP or the Company, as the case may be, and shall not be disclosed by BP or the Company or their respective officers, employees, agents, affiliates or representatives to, or used for the benefit of, BP or the Company or any other person. At the termination of this Agreement, the obligations as to confidentiality herein shall continue for a period of five (5) years from the date of such termination. 27.2 Each and every invention and improvement, whether or not patentable, conceived, developed or made during the Initial Term and the First and Second Additional Terms by the Company, its agents or employees alone or in conjunction with BP or third parties, arising out of, in connection with or relating to the manufacture and production of Acetic Acid or Unit Product, the procedures and methods of such manufacture and production, or the operation of the Unit, or conceived, developed or made in the course of the Company's performance under this Agreement, (i) shall be and become the sole and exclusive property of BP and ipso facto the Company shall have a perpetual right and license to use such invention or improvement on the Unit which right and license shall be freely assignable to the Company's assignee for use on the Unit in the event the Company sells, transfers and assigns its interest in the Unit, (ii) shall be disclosed promptly by the Company to BP, and (iii) the Company shall, and shall -61- 65 cause its agents or employees, as the case may be, to immediately and without additional consideration or compensation assign, transfer and convey to BP all right, title and interest in and to such inventions and improvements, and in and to any and all applications for Letters Patent that may be filed thereon, and in and to all Letters Patent that may issue on such applications. The Company shall, and shall cause its agents and employees to, without additional consideration or compensation, execute and deliver to BP such other and further applications, assignments, instruments and documents which BP shall deem necessary, convenient or desirable in connection with any such invention, improvement, application or Letters Patent or in connection with any patent infringement, interference or other contest involving such invention, improvement, application or Letters Patent. Concurrently with the assignment, transfer and conveyance to BP of all such right, title and interest in and to each such invention or improvement, BP shall for no additional consideration or compensation grant to the Company a perpetual right and license to use such invention or improvement on the Unit; provided, however, that such invention or improvement shall be and remain at all times thereafter the sole and exclusive property of BP. 27.3 Each and every invention and improvement conceived, developed or made during the Initial Term and the First and Second Additional Terms by BP, its agents or employees alone or in conjunction with the Company or third parties, regardless of where such invention or improvement is conceived, developed or made, arising out of, in connection with or relating to the manufacture and production of acetic acid, the procedures and methods of such manufacture and production, or the operation of acetic acid plants generally, or conceived, developed or made in the course of BP's performance under this Agreement, shall be and remain the sole and exclusive property of BP. BP shall promptly grant to the Company for no additional consideration or compensation a perpetual right and license to use on the Unit any invention or improvement whenever developed that is installed, employed, used or otherwise becomes a part of the production of Acetic Acid on the Unit or a part of the operation of the Unit which right and license shall be freely assignable to the Company's assignee for use on the Unit in the event the Company sells, transfer and assigns its interest in the Unit; provided, however, that -62- 66 such invention or improvement shall be and remain at all times thereafter the sole and exclusive property of BP. ARTICLE 28 DEFAULTS; FAILURES; REMEDIES 28.1 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, except to the extent that the exercise by BP of its remedies pursuant to the provisions of Section 28.3 hereof otherwise prevents or restricts the Company with respect thereto. 28.2 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. 28.3 Forthwith upon a Declaration of Company Default, BP may, by written notice to the Company, require the Company to permit, and the Company shall permit at BP's risk, but at the Company's cost (subject to BP's duty to reasonably mitigate such cost), such employees of BP as BP may require to have access to the Unit and those parts of the Plant that serve the Unit for the purpose of seeking and implementing (including, if necessary, operating the Unit) a solution to the cause of the Company Event of Default or failure, and the Company shall cause its employees to comply with the requests and instructions of BP's said employees while present in the Plant or the Unit; provided, however, that BP shall indemnify and hold the Company harmless pursuant to the provisions of Article 31 hereof from Damages which the Company may suffer or incur by reason of permitting such employees of BP to have such access and provided further that BP shall not materially disrupt the Company's operations on other parts of the Plant. BP's access to the Unit and those parts of the Plant that serve the -63- 67 Unit shall continue until the Unit has operated so as to enable the Company to comply with its obligations hereunder for one (1) calendar month. BP shall thereupon withdraw its employees from the Unit and the Plant. After withdrawing such employees, BP shall not have any rights pursuant to the provisions of this Section 28.3 of access to the Plant or the Unit for a period of thirty (30) days beginning on the date of such withdrawal. Once BP has withdrawn its employees, (i) if the Company fails to operate the Unit during such thirty (30) day period following such withdrawal by BP in such a manner as to enable the Company to comply with its obligations under this Agreement, BP shall have the right to require the Company to permit BP's employees to have access to the Unit and those parts of the Plant which serve the Unit immediately upon the expiration of such thirty (30) day period, or (ii) if the Company operates the Unit throughout such thirty (30) day period following such withdrawal by BP in such a manner as to enable the Company to comply with its obligations under this Agreement, BP shall have no right to require the Company to permit BP's employees to have such access until a subsequent Declaration of Company Default, if any. 28.4 Forthwith upon a Declaration of BP Default, the Company may, by written notice to BP, cease all further sales of Acetic Acid to BP under this Agreement and sell Acetic Acid to third parties until such time as BP complies with its obligations hereunder. 28.5 Notwithstanding the provisions of this Article 28, during the Initial Term BP may enforce its rights and remedy under Section 2.13 hereof in the event of a Lease Event of Default. ARTICLE 29 NOTICE OF CERTAIN EVENTS 29.1 In the event that the Company has failed to make payment of any part of principal or interest on any of its indebtedness for borrowed money with an outstanding balance of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) U.S. or more when same shall have become due and payable and such failure has not been waived by the holder(s) of such Indebtedness, the Company agrees to give written notice thereof to BP within seven (7) days of such failure. In such event, the Company shall -64- 68 discuss with BP such failure to make any such payment and the effects thereof on the operations of the Company and afford BP a reasonable opportunity for a reasonable period of time under the existing circumstances to assist the Company in resolving any financial difficulties the Company might have. 29.2 In the event the Company enters serious negotiations with a third party with respect to the sale or transfer of the possibility of reverter in the Unit (whether directly or indirectly) or as part of the sale or exchange of all or substantially all of the assets of the Company, the sale or exchange of a majority or more of the outstanding voting securities of the Company in a transaction requiring approval by the Company, the merger or consolidation of the Company with or into another corporation or otherwise, the Company agrees to inform BP of such negotiations as soon as the Company is permitted to so inform BP by such third party or by applicable law. 29.3 In the event that the Company receives notice that the holders of a majority of the outstanding voting securities of the Company have entered serious negotiations to sell, exchange or otherwise transfer such voting securities in a transaction not requiring approval of the Company or its security holders as such, the Company agrees to inform BP of such negotiations as soon as the Company is permitted to so inform BP by such holders or by applicable law. ARTICLE 30 SURVIVAL 30.1 The representations, warranties, covenants and agreements contained in Articles 27 and 31 hereof, together with all indemnity and payment obligations of any party hereto owing to the other party on the date of termination hereof or arising thereafter based on events or occurrences prior to the termination of this Agreement shall survive such termination and for the period of the applicable statute of limitations (or, if there is no such statute, for the longest period permitted by law) with respect to such obligations. -65- 69 ARTICLE 31 INDEMNIFICATION 31.1 Except as otherwise provided herein, the Company, from and after the Effective Date, 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 the breach of, or the failure to perform or satisfy any of, the representations, warranties, covenants or agreements made by the Company in or under this Agreement, or any liability to any party whether incurred under statute or in tort arising directly or indirectly from the operations carried on by or on behalf of the Company at or in connection with the Plant or arising out of Spills or Releases Requiring Response Action (whether occurring before or after the termination of this Agreement), unless such Spills or Releases Requiring Response Action are attributable to the acts, omissions or default of BP. 31.2 Except as otherwise provided herein, BP, from and after the Effective Date, 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 the breach of, or the failure to perform or satisfy any of, the representations, warranties, covenants or agreements made by BP in or under this Agreement, or any liability to any party whether incurred under statute or in tort arising directly or indirectly from the actions of BP carried out at or in connection with the Plant excepting any Damages arising out of Spills or Releases Requiring Response Action occurring during the Initial Term or the First or Second Additional Terms unless such Spills or Releases Requiring Response Action are attributable to the acts, omissions or default of BP. 31.3 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 -66- 70 liability in respect of such Claim which it may have otherwise had, but shall not relieve such party from any liability it may have hereunder. For purposes of this Section 31.3, 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 31.3. Any notice pursuant to this Section 31.3 shall set forth all information respecting the Claim 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 31. 31.4 For purposes of this Article 31, 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 31 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 31. 31.5 Except as otherwise expressly provided herein, 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 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 Indemnifying Party to Indemnified Party within twenty (20) days from the date of mailing to Indemnified Party of notice by 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 Indemnifying Party or the Indemnified Party as may be appropriate. Except as otherwise expressly provided herein, such contest shall be conducted by attorneys -67- 71 employed by Indemnifying Party, but 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 Indemnified Party joins in any such contest, Indemnified Party shall have full authority to determine all action to be taken with respect thereto. If after notice as provided for herein, Indemnifying Party does not elect to contest any Third Party Action as provided in this Section 31.5, Indemnifying Party shall be bound by the result obtained with respect thereto by 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, Indemnifying Party may request Indemnified Party to agree in writing to the abandonment of such contest or the payment or compromise by Indemnifying Party of the asserted Third Party Action whereupon such action shall be taken unless Indemnified Party so determines that the contest should be continued, and so notifies Indemnifying Party in writing within fifteen (15) days of such request from Indemnifying Party. In the event that Indemnified Party determines that the contest should be continued, 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 Indemnifying Party made its request therefor to Indemnified Party, or (ii) such amount for which Indemnifying Party may be liable with respect to such Claim by reason of the provisions hereof. 31.6 If requested by Indemnifying Party, Indemnified Party agrees to cooperate with Indemnifying Party and its counsel in contesting any Third Party Action which Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against the third party taking the Third Party Action, or any crosscomplaint against any other person or entity not a party hereto, but Indemnifying Party will reimburse Indemnified Party for any expenses incurred by it in so cooperating. 31.7 Indemnified Party agrees to afford Indemnifying Party and its counsel the opportunity to be present at, and to participate in, conferences with all persons or entities, including governmental -68- 72 authorities, taking Third Party Action against Indemnified Party or conference with representatives of or counsel for such persons or entities. 31.8 Indemnifying Party shall pay to Indemnified Party, upon demand, the amount of any Damages to which Indemnified Party may become entitled by reason of the provisions of this Article 31. ARTICLE 32 ADDITIONAL RIGHTS AND LIABILITIES 32.1 Nothing contained in this Agreement shall require BP to reimburse the Company for any costs or expenses or to provide financial assurances if such costs or expenses are incurred or such financial assurances are required for reasons attributable to the failure by the Company to comply with its obligations under this Agreement. 32.2 Nothing contained in this Agreement shall require BP to reimburse the Company for any costs or expenses or to provide financial assurances if such costs or expenses are incurred or such financial assurances are required for reasons attributable to the default or breach by Monsanto of its obligations under the Purchase Agreement AND for which the Company has obtained or recovered from Monsanto reimbursement monies and/or financial assurances. In the event that BP in good faith believes that Monsanto has defaulted in or breached an obligation under the Purchase Agreement with respect to the Unit, BP shall thereupon notify the Company; provided, however, that such notice by BP shall not relieve or otherwise discharge BP from its payment obligations under this Agreement. (a) After receipt of such notice from BP, if the Company agrees that such default or breach has occurred, and the Company within a reasonable time commences and diligently pursues (including, but not limited to, the institution of legal proceedings, if necessary) its claim against Monsanto under the Purchase Agreement, BP shall continue to reimburse the Company for the costs and expenses or, to the extent required by Article 25 hereof, to provide financial assurances which costs, expenses or financial assurances are the subject of such claim against Monsanto until Monsanto's liability with respect thereto is finally determined. To the extent that -69- 73 the Company successfully recovers reimbursement monies and/or financial assurances from Monsanto for which BP has either theretofore paid or provided or would thereafter otherwise pay or provide, BP shall receive a credit or reimbursement from the Company and shall no longer have any obligation or liability therefor. (b) After receipt of such notice from BP, if the Company agrees that such default or breach has occurred, but does not within a reasonable time commence or diligently pursue (including, but not limited to, the institution of legal proceedings, if necessary) a claim against Monsanto under the Purchase Agreement, the parties hereto agree that BP shall no longer have any obligation or liability hereunder to reimburse the Company for the costs and expenses and/or to provide financial assurances incurred or required for reasons attributable to such default or breach of Monsanto, and BP shall receive a credit or reimbursement from the Company if BP shall have theretofore reimbursed the Company for any such costs and expenses and/or provided any such financial assurances. (c) After receipt of such notice from BP, if the Company disagrees that such default or breach has occurred, either party hereto may refer the matter to arbitration under Article 26 hereof. BP shall not be relieved or otherwise discharged from its payment obligations under this Agreement during the pendency of the arbitration proceedings. (1) If the arbitrators determine that Monsanto has not defaulted in or breached an obligation under the Purchase Agreement, then BP shall discharge its payment obligations under this Agreement with respect thereto. (2) If the arbitrators determine that Monsanto defaulted in or breached an obligation under the Purchase Agreement, then (i) after receipt of such notice from BP, if the Company agrees that such default or breach has occurred, and the Company within a reasonable time commences and diligently pursues (including, but not limited to, the institution of legal proceedings, if necessary) its claim against Monsanto under the -70- 74 Purchase Agreement, BP shall continue to reimburse the Company for the costs and expenses or, to the extent required by Article 25 hereof, to provide financial assurances which costs, expenses or financial assurances are the subject of such claim against Monsanto until Monsanto's liability with respect thereto is finally determined. To the extent that the Company successfully recovers reimbursement monies and/or financial assurances from Monsanto for which BP has either theretofore paid or provided or would thereafter otherwise pay or provide, BP shall receive a credit or reimbursement from the Company and shall no longer have any obligation or liability therefor; and (ii) after receipt of such notice from BP, if the Company agrees that such default or breach has occurred, but does not within a reasonable time commence or diligently pursue (including, but not limited to, the institution of legal proceedings, if necessary) a claim against Monsanto under the Purchase Agreement, the parties hereto agree that BP shall no longer have any obligation or liability hereunder to reimburse the Company for the costs and expenses and/or to provide financial assurances incurred or required for reasons attributable to such default or breach of Monsanto, and BP shall receive a credit or reimbursement from the Company if BP shall have theretofore reimbursed the Company for any such costs and expenses and/or provided any such financial assurances. ARTICLE 33 FORCE MAJEURE 33.1 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 or by telegraph 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 -71- 75 so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch. 33.2 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, breakage or accident to machinery, equipment, lines of pipe or property, freezing of wells, 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 Requiring Response Action 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 (i), in those instances where any party hereto is required to obtain servitudes, rights-of-way grants, permits or licenses (including permits relating to any Spill or Release Requiring Response Action) to enable such party to fulfil its obligations hereunder, the inability of such party to acquire, or delays on the part of such party in acquiring, at reasonable cost and after the exercise of reasonable diligence, such servitudes, rights-of-way grants, permits or licenses, and (ii), 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. 33.3 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. -72- 76 33.4 Notwithstanding the provisions of Section 33.2 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 by a reasonably prudent operator or in circumstances where a reasonably prudent operator would have standby equipment or spare parts. ARTICLE 34 ASSIGNMENTS 34.1 Except in a transaction pursuant to which all or substantially all of the assets of the Company are sold or exchanged or the Company merges or consolidates with or into another corporation, and in which the purchaser of the assets or the other party to the merger or consolidation is not a competitor of BP, the Company may not assign its rights hereunder except to the Bank, or sell, assign or transfer its leasehold estate in the Unit to any person, except as otherwise provided in Section 2.5 hereof, without the prior written consent of BP. A public offering of securities by the Company shall not be deemed an assignment hereunder. 34.2 BP may assign its rights or delegate its duties and obligations hereunder to any person without the consent of the Company provided that: (a) Such assignee be of sound financial condition and, in BP's good faith judgment, able timely to perform BP's obligations under this Agreement; and (b) Within ten (10) days after a request by the Company, BP executes a written guarantee of such assignee's timely performance of BP's obligations hereunder, containing the provisions usually and customarily contained in guarantees of financial performance in the United States. -73- 77 34.3 Notwithstanding any assignment of any of its rights or a delegation of any of its duties by BP under this Agreement, whether permitted hereby or otherwise, BP shall continue to be responsible for its obligations hereunder, and does hereby unconditionally and absolutely guarantee the timely payment of all sums due, and the timely performance of all obligations, by any assignee hereunder. On default by any such assignee, the Company or Bank may, at its option, proceed directly and at once against BP to enforce BP's obligations hereunder, and exercise all remedies available hereunder, without notice to such assignee or the necessity for proceeding or taking any action against such assignee. 34.4 Any attempted assignment or delegation by either party hereto not otherwise permitted hereby which is made without the prior written consent of the other party shall be ineffective and void for all purposes. ARTICLE 35 GENERAL 35.1 Noncompetition Agreement. The Company covenants and agrees with BP that, during the Initial Term and the First and Second Additional Terms, the Company will not produce or sell acetic acid other than pursuant to this Agreement; provided, that (i) the disposition of waste acid pursuant to mutually agreed procedures, and (ii) the transfer of acetic acid to the acrylonitrile production unit located at the Plant for the Company's internal use shall be permitted and shall not constitute violations of this Section 35.1. 35.2 Taxes. (a) Upon receipt of invoice therefor, BP shall remit to the Company all Company Taxes. (b) The parties recognize that, during the term of this Agreement, 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 -74- 78 tax systems presently in effect. In the event of such alteration, the parties agree to equitably adjust all formulas in this Agreement to reflect such changes. 35.3 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, first-class 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: (a) Company: Sterling Chemicals, Inc. 1200 Smith Street Houston, Texas 77002 Attention: President 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 and Copy To: BP America Inc. 200 Public Square Cleveland, Ohio 44114-2373 Attention: Mr. R.G. Raymond Corporate Counsel 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 35.3. 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 -75- 79 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. 35.4 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. 35.5 Heading. The headings and titles to the Articles 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. 35.6 Modifications and Waivers. No intermination, 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. 35.7 Entire Agreement. This Agreement, including the other 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. 35.8 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 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 -76- 80 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. 35.9 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. 35.10 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. 35.11 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. 35.12 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 relationship between the Company and BP. 35.13 No Transfer of Title. BP expressly does not by the terms of this Agreement sell, transfer or assign to the Company any title or interest in the Unit other than the leasehold interest described or referred to in Article 2 hereof. The Company expressly does not by the terms of this Agreement sell, transfer or assign to BP any title or interest in the portion of the Plant other than the Unit or any of the Company's other assets or properties other than Acetic Acid when and as provided herein. 35.14 Wire Transfer, Etc. 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 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 -77- 81 payment is specifically provided, payment shall be due ten (10) Business Days after receipt of invoice or other statement, and shall be made in the manner set forth above. 35.15 Development of the Unit. (a) The parties agree that the Company and BP will share any capacity expansion fee which may become due from BPCL to Monsanto as a result of DB III or any other future capacity expansions in accordance with their respective Profit sharing percentages hereunder at the time such fee shall become due. (b) The Company and BP agree that the title to the carbon monoxide, blend gas and hydrogen produced in the syn-gas unit shall at all times be and remain in the Company, notwithstanding the ownership of the syn-gas unit. (c) The Company and BP agree to cooperate in determining whether and by what methods the production capacity of the Unit should be increased. In making these determinations, the Company and BP agree as follows: (i) The costs of any such expansion shall be borne by BP. (ii) The Company at any time may enter into any arrangement with respect to the sale of any blend gas and hydrogen produced in the reformer and not required for Acetic Acid production. 35.16 As of the date of this Amended and Restated Lease and Production Agreement, the Company and BP agree, acknowledge and confirm (i) that there are no known disputes pending between them arising out of or relating to this Agreement which are unresolved and (ii) that the Agreement, as amended and restated hereby, remains in full force and effect on and as of the date hereof. -78- 82 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 President Endorsed By:__________________________________ G. R. Hunt Business General Manager, Acetyls BP Chemicals Ltd. STERLING CHEMICALS, INC., a Delaware corporation By:___________________________________ J. Virgil Waggoner President -79- 83 EXHIBIT A BP Cost of Sales ***CONFIDENTIAL TREATEMENT REQUESTED FOR THIS INFORMATION*** 84 EXHIBIT B Fixed Cost Fee and Formula *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** 85 ADDENDUM TO EXHIBIT B Fixed Cost Fee and Formula *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** 86 EXHIBIT C Methanol Specification 2 87 STERLING CHEMICALS, INC. Dept. No. ____________________________ Material Code: ____________________________ TEXAS CITY, TEXAS Sales Code: ____________________________ RAW MATERIALS SPECIFICATION Approval Date Product (Trade Name): Methanol Chief Chemist: _________________________ Mfg. Svc. Supt._________________________ Grade of Material: BP CHEMICALS Mgr. of Mfg. _________________________ AMERICAS Mfg. Supt. _________________________ TSD Supt. _________________________ Chemical Name: METHYL ALCOHOL Commercial _________________________ Marketing _________________________ Chemical Formula: CH3CH Issue Date: __________________________ Supersedes Spec Issued: __________________________ Review Date: __________________________ SPECIFICATIONS
TEXAS CITY PROPERTY SPECIFICATION METHOD NO. - - -------- ------------- ---------- Acetone, W/V % 0.003 MAX 602.390 Acidity (as acetic acid) Wt% 0.003 MAX 602.391 Appearance Clear and free of suspended matter 602.393 Carbonizable substances, Pt-Co 35 MAX TCOA-192 Color, Pt-Co 5 MAX 602.009 Distillation Range, #C @760 mm (1#C including 64.6#C + .1#C) 602.396 Hydrocarbon No turbidity with water 602.397 Iron (as soluble Fe), ppmn 0.15 MAX TCOA-47 Non-Volatile Matter, W/V % 0.001 MAX 602.399 Permanganate Time, min at 15.5#C 50 MIN 602.401 Methanol Content, Wt. % (1) 99.85 MIN Alkalinity (as NH3), Wt% 0.003 MAX 602.392 Water, Wt % 0.10 MAX TCOA-174 Ethanol, ______ 50 MAX 602.395 Specific Gravity @25/25 #C 0.7883-0.7893 602.404 Specific Gravity @20/20 #C 0.7920-0.7930 602.406 Chloride, _______ 1 MAX 602.406
(1) Defined as 100 - (% acetone + NVM + acidity + alkalinity + water + ethanol) 3 88 EXHIBIT D Acetic Acid Specifications -4- 89 STERLING CHEMICALS, INC. Dept. No. ______________________ Material Code: ______________________ TEXAS CITY, TEXAS Sales Code: ______________________ RAW MATERIALS SPECIFICATION Approval Date ______________________ Product (Trade Name): Acetic Acid Chief Chemist: ______________________ Mfg. Svc. Supt. ______________________ Grade of Material: MANUFACTURING Mgr. of Mfg. ______________________ Mfg. Supt. ______________________ TSD Supt. ______________________ Chemical Name: ETHANOIC ACID Commercial ______________________ Marketing ______________________ Chemical Formula: ________ Issue Date: __________________________ Supersedes Spec Issued: __________________________ Review Date: __________________________ SPECIFICATIONS
PROPERTY SPECIFICATION METHOD NO. - - -------- ------------- ---------- Appearance C&F TCOA174 602.509 Assay, Wt. % 99.85 MIN D1493, E302 602.500 Color, PtCo Color 10 MAX D1209, E302 602.009 Water, Wt. % 0.15 MAX E203, E302 602.551 Formic Acid, Wt. % 0.05 MAX E3546 602.506 Acetaldehyde, Wt. % 0.05 MAX D2191 602.507 Iron, ppm 1.0 MAX E394 602.512 Permanganate Time, Hour 2 MIN (3) 602.501 Freezing Point, #C 16.35 MIN D1493, F302 602.509 Total Halides, ppm 1.0 MAX (3) ------- T ' Mel, ppb 20 MAX (1) TOQA171 is 602.516 instrumental method using Technicon 602.517 Chloride, ppm 1.0 MAX (3) D512 602.502 Propionic Acid, ppm 250 MAX (2) 602.515 Methyl Acetate, ppm 20 MAX 602.520 Heavy Metal, as pb ppm 0.5 MAX (3) 602.504 Arsenic, ppm 0.2 MAX (3) 602.514 Sulfur, ppm 1.0 MAX (3) D3961 602.528 Sulfates, ppm 1.0 MAX (3) D516 602.503 Sulfurous, ppm 1.0 MAX (3) 602.506 Distillation Range #C 0.8#C MAX (3) 602.511 Initial Boiling Point, #C 117.5 MIN (3) 602.511 Dry Point, #C 118.3 MAX (3) 602.511 Specific Gravity (20#C/20#C) 1.0505 - 1.0520 (3) 602.510 NVM, ppm 10 MAX (3) 602.513
(1) = Yearly Average - 10 ppb, (2) = Yearly Average - 200 ppm, (3) = Guaranteed Analyses - Checked Periodically -5- 90 EXHIBIT E Legal Description of the Land of the Unit Incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1 (Registration No. 33-24020). -6- 91 EXHIBIT F Variable Cost Component Formula *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** -7- 92 ADDENDUM TO EXHIBIT F *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** -8- 93 EXHIBIT G Insurance *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** -9- 94 EXHIBIT H *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** -10- 95 EXHIBIT I *** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION *** -11- EX-10.22A 14 AMEND #3 TO PRODUCT SALES AGREEMENT WITH BASF 1 EXHIBIT 10.22a to 10-K **OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.** AMENDMENT NO. 3 TO PRODUCT SALES AGREEMENT This Amendment No. 3 to Product Sales Agreement ("Amendment No. 3") is entered into on January 1, 1993, by and between BASF Corporation, a Delaware corporation with offices at 100 Cherry Hill Road, Parsippany, New Jersey, 07054 ("BASF") and Sterling Chemicals, Inc., a Delaware corporation with offices located at 1200 Smith Street, Suite 1900, Houston, Texas 77002 ("SC"). W I T N E S S E T H: WHEREAS, BASF and SC are parties to that certain Product Sales Agreement dated August 1, 1986 (the "Product Sales Agreement"); WHEREAS, BASF and SC desire to amend the Product Sales Agreement as set forth herein, such amendments to be effective as of the respective effective dates specified herein for each such amendment; WHEREAS, Section 8.6 of the Product Sales Agreement provides, among other things, that amendments to the Product Sales Agreement must be in writing and signed by BASF and SC in order to be effective; and NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, BASF and SC agree as set forth below. 1. Definitions. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms pursuant to the terms of the Product Sales Agreement. 2. Article I, Number 9 - Restatement. Effective as of January 1, 1993, Article I, Number 9 of the Product Sales Agreement is hereby amended and restated in its entirety as set forth below: "9. Capital Expenditures: Any expenditures with respect to the Unit which SC makes to replace capital equipment that has served its useful life or to install capital equipment and such expenditure is required and necessary to be made to permit SC to comply with its obligations under this Agreement." 3. Article I, Number 23 - Amendment and Restatement. Effective as of January 1, 1993 Article I, Number 23 of the Product Sales Agreement is hereby amended and restated in its entirety as set forth below: "23. Initial Term. The period from the Effective Date to 5:00 p.m. Houston, Texas time on December 31, 1999." 4. Article I, Number 39(a) - Restatement. Effective as of January 1, 1993, Article I, Number 39(a) of the Product Sales Agreement is hereby amended and restated in its entirety as set forth below: "39(a) - Return Capital shall mean any expenditure with respect to the Unit other than Capital Expenditures which SC made to improve, enhance or expand the Unit which produces some measurable benefit [to both parties hereunder]. Such benefit 2 may include, but is not limited to, yield increases, capacity increase or reduced costs." 5. Section 3.5 - Amendment and Restatement. Effective as of January 1, 1993, Section 3.5 is amended and restated in its entirety as set forth below: "3.5 Purchase Price and Payment. (a) The purchase price for all Agreement Product delivered to BASF hereunder during each Month during each Contract Year shall be the sum of the following: (i) The Fixed Cost Fee for such Month as described in Exhibit B. (ii) The Variable Cost Fee for such Month, as described in Exhibit C. (iii) The Insurance Cost Fee for such Month as described in Section 4.7 and Exhibit E. (iv) The Capital Expenditures and Return Capital for such Month as defined in Section 4.8. (v) The Incinerator Fee (if any) for such Month as defined in Section 3.5(e). (b) SC shall during each Month render to BASF an invoice showing the quantity of Agreement Product delivered during the preceding calendar Month, and the Variable Cost Fee, to be reimbursed to SC by BASF pursuant to the terms hereof, and all other fees, payments or reimbursements due to SC from BASF pursuant to the terms hereof for the preceding calendar Month and credits due BASF for excessive Raw Material or Ancillary Raw Material usage as provided in Section 4.12 within 30 Days after each semi-annual period and the total amount due and an invoice showing the Fixed Cost Fee, Insurance Cost Fee, Capital Expenditures and Return Capital for which payment is due. BASF shall pay each such invoice on or before * * * * after receipt thereof (or if such Day is not a Business Day, then on the Business day next occurring). (c) SC and BASF shall cooperate in investigating, evaluating, and implementing mutually agreeable methods to reduce the Variable Cost and the Fixed Cost. The parties will benefit from such reductions in proportion to their respective contribution. The pro rata adjustments will be negotiated in good faith on a case by case basis. (d) on or before March 31 of each Contract Year, commencing March 31, 1994, * * * * 3 * * * * * * (e) on or before the fifteenth of each Month, BASF shall pay to SC an Incinerator Fee calculated according to the following formula: ***** However, no days within any month shall be used in calculating ***** is produced at the Unit. Notwithstanding the aforementioned. ***** (f) Notwithstanding anything to the contrary contained herein, BASF may, if it shall so desire, in good faith contest the validity or amount of any fee, cost or other imposition and may defer the payment of any contested portion thereof during the pendency of such contest without defaulting under the Agreement. BASF shall give notice to SC of any deferral within a reasonable time. Should it be determined that any part of such contested portion is due and owing to SC, BASF shall pay such part to SC immediately upon such determination, * * * * * * . Payment of any fee, cost or other imposition shall not prejudice the right of BASF to dispute or question the correctness thereof." 6. Section 3.6 (d) and (e) - Restatement. Effective as of April 27, 1988, Sections 3.6 (d) and (e) of the Product Sales Agreement are hereby restated in its entirety as set forth below: " (d) SC shall make available to BASF pursuant to a "Car Service Contract" substantially in the same form as Appendix 1, attached hereto and hereby made a part hereof, those Rail Cars identified in EXHIBIT L hereof as "Owned Railcars", except for those Owned Railcars which BASF does not want made available to it, all of which are identified in Appendix 2, attached hereto and hereby made a part hereof. (e) At such time as may be requested in writing by BASF to SC, SC agrees, with the prior written consent or consents of the respective Rail Car owners, (i) to assign to BASF all of the leases relating to those Rail Cars identified in EXHIBIT L as "Leased Rail Cars", except for those Leased Rail Cars which BASF does not want assigned to it, all of which are identified in Appendix 3, attached hereto and 4 hereby made a part hereof, and to request permission from the respective owners of said Leased Rail Cars by means of a letter or letters substantially in the form set forth in Appendix 4, attached hereto and hereby made a part hereof." 7. Section 4.8 - Amendment and Restatement. Effective as of January 1, 1993, Section 4.8 of the Product Sales Agreement is hereby amended and restated in its entirety as set forth below: "4.8 Capital Expenditures and Return Capital (a) * * * * * * (b) * * * * * * (c) * * * * * * (i) * * * * * * 5 * * * * * * (d) * * * * * * (e) * * * * * * (f) * * * * * * 8. Section 7.2 - Amendment and Restatement. Effective as of the date of this Amendment No. 3, Section 7.2 of the Product Sales Agreement is hereby amended and restated in its entirety as follows: "7.2 Term. The term of this agreement shall be the Initial Term unless earlier terminated as provided herein. However, this Agreement shall be automatically renewed for a period of six (6) years (the "Additional Term") at the end of the Initial Term unless either party has delivered a Notice of Termination to the other on or prior to December 31, 1997." 9. Article VII - Amendment. Effective as of January 1, 1993 Article VII is amended to include new Section 7.15 stated in its entirety as set forth below: "7.15 Technical Advice 6 (a) BASF or its representatives shall advise SC regarding technical questions arising in connection with the operation of SC's phthalic anhydride plant in Texas City (the "PA Plant"), and shall be of assistance to SC in the event of disturbances of the PA plant. (b) The advice to be given by BASF pursuant to Section 7.15(a) hereof shall embrace BASF's technical knowledge and experience, to the extent that they are suitable for the operation of the PA Plant. However, BASF shall not be obliged to provide SC with technical knowledge and experience acquired by BASF during the term of the Agreement and which BASF, in its reasonable judgment, considers to be a considerable improvement and/or in respect of which BASF has filed a patent application. Notwithstanding anything to the contrary contained in this Section 7.15, BASF shall be under no obligation to provide technical advice which would require in-house work by BASF or its representatives, including, but not limited to, laboratory or pilot plant tests, unless BASF and SC agree on a mutually acceptable fee for such services. (c) All technical advice provided to SC shall be in writing. Furthermore, BASF shall be available to discuss important technical questions at a meeting between technical experts of BASF and SC, either in Ludwigshafen or in Texas City, by mutual agreement and at suitable intervals. In the event that BASF or its representatives' personnel are, by mutual agreement, assigned to SC, the reasonable travel and living expenses shall be borne by SC pursuant to Section 7.15(g) hereof. Assignments of BASF or its representatives shall not exceed 25 man-days in any contract year. (d) In the event that BASF develops and commercially manufactures new PA catalysts which can be used without the addition of SO2, BASF shall offer such catalysts to SC for evaluation and use in SC's PA Plant on terms and conditions to be agreed upon. (e) BASF shall render the services to be rendered hereunder in the best interest of SC and shall apply the same care in rendering such services as it is accustomed to apply in its own affairs. In the event that BASF fails to fulfill its obligation with such care, it shall be obligated to render the service concerned again free of charge. The foregoing obligation to render the service again shall be SC's exclusive remedy for BASF's breach of its obligation under this Section 7.15 and BASF shall incur no further liability whatsoever related to such matters. (f) In the event that engineering services of BASF are required in connection with SC's replacing obsolete equipment by more advanced equipment, BASF shall, at its sole option, provide such engineering services and SC shall pay for each engineering hour a certain amount agreed upon in a separate agreement relating to engineering services of BASF if BASF and SC cannot agree upon a lump-sum price for such services, in either case to be invoiced as Capital Expenditures. (g) For any technical expert to be assigned by BASF to SC, SC shall pay to BASF daily rates of DM 1, 195. - based upon collective agreements in the German Chemical Industry as in force for BASF Aktiengesellschaft on July 1, 1992. In the case of any amendments or changes of such collective agreement, the daily rates shall be adjusted proportionately from the effective date of such amendments or changes. Upon request, BASF shall provide a list of such rates to SC, together with written verification that such rates are currently in effect. 7 SC shall further pay all reasonable travel and living expenses of such personnel actually incurred during their absence from Ludwigshafen. (h) In accordance with Section 7.5 of this Agreement, each party undertakes to keep strictly secret and to withhold from third parties all technical information and know-how and all plans, drawings and other data furnished or disclosed by the other party under the Agreement (hereinafter referred to as "Technical Information"), except (i) such Technical Information as can be shown to have been of public knowledge prior to its disclosure to a third party or to the extent known to the other party prior to the furnishing or disclosure thereof to the disclosing party, to the extent that and for as long as such Technical Information shall not have become public knowledge or shall not have been disclosed from other sources having the bona fide right to make such disclosure, (ii) such Technical Information as may be required to be disclosed by law or legal process, or is developed by the receiving party independent of, and without reference to, the Technical Information. Each party undertakes, as far as is legally possible, to require its representatives or employees with access to said Technical Information to keep said Technical Information secret and confidential, both during and after the period of their employment by either party, to the same extent that and for so long as said party shall be obligated to do. The foregoing secrecy obligation shall terminate ten (10) years after disclosure of such Technical Information. (i) In addition, when operational needs arise, BASF shall advise SC on technical questions arising in connection with the operation of SC's OXO alcohol and Phthalate Esters plants in Texas city only to the extent that BASF shall have access to such plants and related information on a non-confidential basis. Timing of this advice can be pursued only after existing secrecy agreements are no longer binding. (j) There shall be no fee to SC for any such technical advice, assistance or information. " 10. Section 8.3 - Amendment and Restatement. Effective as of the date of this Amendment No. 3, Section 8.3 of the Product Sales Agreement is hereby amended and restated in its entirety as follows: "8.3 Notices. Any notice provided for by this Agreement and any others' 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, 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: SC: STERLING CHEMICALS, INC. 1200 Smith Street Suite 1900 Houston Texas 77002 Attention: V.P. - Commercial Copy to: Mr. John L. Bland Bracewell & Patterson 2900 South Tower Pennzoil Place 8 Houston, Texas 77002 BASF: Group Vice President Industrial Organics BASF CORPORATION 100 Cherry Hill Road Parsippany, New Jersey 07054 Copy to: General Counsel BASF CORPORATION 100 Cherry Hill Road Parsippany, New Jersey 107054 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 8.3. 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 other communication, shall be deemed to be the receipt of the notice, demand or other communication as of the date of such inability to deliver or the rejection or refusal to accept " 11. Exhibit B - Amendment and Restatement. Effective as of January 1, 1993, Exhibit B is hereby amended and restated in its entirety as follows: EXHIBIT B Fixed Cost Fee and Adjustment Calculation * * * * * * * * * * * * 9 * * * *
* * * * 12. Exhibit C - Amendment and Restatement. Effective as of January 1, 1988, Exhibit C is hereby amended and restated in its entirety as follows: "EXHIBIT C Variable Cost Fee Adjustment Calculation * * * * 10 * * * * * * TABLE 1 * * * * * * TABLE 2 * * * * * * 11 * * * * * * TABLE 3 * * * * * * TABLE 4 * * * * * * 12 * * * * * * TABLE 5 * * * * * * 13 * * * * TABLE 6 * * * * TABLE 7 * * * * 14 TABLE 8 * * * * * * TABLE 9 * * * * * * 15 12. Exhibit D - Amendment. Effective as of January 1, 1993, Exhibit D is hereby amended as follows: Sections 1.b.3. and 1.b.4. are deleted and replaced with "1.b.3. Insurance Cost Fee". 13. Exhibit F - Amendment. Effective as of the Effective Date, Exhibit F is hereby amended and restated in its entirety as follows: "EXHIBIT F * * * * * * 16 * * * * * * 14. Miscellaneous. 14.1 The Amendment No. 3 supersedes and replaces all prior amendments to the Product Sales Agreement. Except as specifically amended by this Amendment No. 3, the terms and provisions of the Product Sales Agreement shall remain unchanged and in full force and effect. 14.2 The section headings contained in the Amendment No. 3 are for reference only and shall not affect the interpretation of the terms and provisions of this Amendment No. 3. 14.3 This Amendment No. 3 contains the entire agreement of BASF and SC with respect to the matters addressed herein and supersedes and replaces any prior oral or written understandings between the parties with respect to such matters. 14.4 This Amendment No. 3 may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 14.5 Notwithstanding anything to the contrary contained herein, this Amendment No.3 shall have no force or effect and neither party shall have any liability to the other contractual or otherwise unless and until all of the following enumerated conditions are fulfilled, (a) A definitive agreement for the purchase of alpha-olefins for supply of Raw Materials to the Unit is negotiated with Ethyl Corporation (the "Definitive Agreement"); (b) The Definitive Agreement is approved by the management of BASF; and (c) The execution and delivery of the Definitive Agreement. Duly executed as of the date first appearing above. STERLING CHEMICALS, INC. 17 (SC) By: J. Virgil Waggoner Title: President & CEO BASF CORPORATION (BASF) By: Gilbert J. Muller Title: Business Director APPENDIX 1 CAR SERVICE CONTRACT THIS AGREEMENT, made and entered into as of the of of , 1993 by and between Sterling Chemicals, Inc., a Delaware corporation, ("SCI") and BASF Corporation, a Delaware corporation, ("BASF"). 1. Definitions (a) "ARR Rules": The rules adopted by the Association of American Railroads governing the condition of and repairs to railroad cars for the interchange of freight traffic, as currently in effect and as subsequently amended. (b) "car" or "cars": the car or cars described as Owned Rail Cars in Exhibit L of the Restated Product Sales Agreement, except for the cars listed on Schedule 1, attached hereto and hereby made a part hereof. (c) "claims": any and all liability, charge, cost, loss, damage, expense or demand (including for personal injury or death), including reasonable attorney's fees and court costs respecting the prosecution or defense thereof. (d) "cleaned of commodities": cleaned of all commodities and accumulations and deposits caused by commodities to the effect that there is no measurable amount of such commodities, accumulations and deposits remaining in the oar and the car is safe for human entry. (e) "private tracts or premises": tracks or premises having other than railroad ownership, except that tracks or premises belonging to a railroad and leased to others than railroads shall be considered private tracks or premises . (f) "unavoidable delay": any SCI delay due to strike lockout, act of God, inability to obtain labor or materials, act or failure to act of BASF, governmental action or restriction, enemy action, civil commotion, fire, casualty, or any other cause beyond the control of SCI whether or not of the class of causes heretofore enumerated. 2. Description of Cars-Service Charges. SCI shall furnish to BASF and BASF shall accept and use, on the terms and conditions hereinafter set forth, the car or cars for use of each of which BASF shall pay SCI the service charges of one (1) dollar per car per year. Service charges with respect to each car shall commence upon delivery of each car to BASF and shall continue in effect, subject to Article 6 hereof, until each such car is returned to SCI in accordance with Article 5 hereof. Service charges shall accrue annually, in advance, upon the first day of each year, and BASF shall be invoiced annually. Payments of all charges payable by BASF to SCI under this Agreement shall 18 be made, without deduction, to SCI at the address shown on the invoice within fifteen days following the date of invoice. Payments not made within thirty (30) days of invoice may, at SCI's option, bear interest at the rate of 1% over the prime rate of interest quoted by Citibank N.A. per month on the unpaid balance (or such lesser interest rate as may be consistent with the law of the state of BASF's domicile until the balance is paid. 3. Delivery/Acceptance of Cars. As of the date hereof, each car has been delivered to and accepted by BASF. 4. Inspection of Cars/Responsibility for Damage. (a) Cars loaded at sites other than SCI plants. BASF is responsible for having each car visually inspected prior to each loading to determine whether such car is suitable for receiving, transporting and discharging the commodity to be loaded therein. BASF shall indemnify and hold SCI harmless from all claims resulting from conditions which have or should have been determined from such inspection except for latent defects. BASF shall be responsible for any loss of or damage (including corrosion damage) to any commodity, or to any other car or part thereof caused by the commodity contained therein or incurred in the process of loading or unloading such commodity, or caused by the chemical environment in which the car is loaded, unloaded or stored, and BASF shall indemnify SCI from all claims resulting therefrom, unless such claims result directly from the negligent act or omission of SCI. (b) Cars loaded at SCI plants. SCI is responsible for having each car visually inspected prior to each loading to determine whether such car is suitable for receiving, transporting and discharging the commodity to be loaded therein. SCI shall indemnify and hold BASF harmless from all claims resulting from conditions which have or should have been determined from such inspection except for latent defects. SCI shall be responsible for any loss or damage (including corrosion damage) to any commodity, or to any car or part thereof caused by the commodity contained therein or incurred in the process of loading or unloading such commodity, or caused by the chemical environment in which the car is loaded, unloaded or stored, and SCI shall indemnify BASF from all claims resulting therefrom, unless such claims result directly from the negligent act or omission of BASF. (c) As between BASF and SCI, BASF shall be responsible for any and all risk of loss of damage to, or destruction of any car, or part thereof, occurring while such car is located upon private tracks or premises other than SCI's. 5. Return of Cars. Promptly upon the expiration or termination of this Agreement with respect to any car, BASF shall return such car to SCI in the same condition complete with all parts, equipment and accessories as when initially delivered to BASF, ordinary were and tear excepted, and cleaned of commodities; but nothing herein shall be construed as relieving SCI from its obligation to maintain the cars as provided in Article 6 of this Agreement. Each car shall be deemed returned to SCI hereunder when BASF shall release such car to a forwarding railroad within the boundaries of the United States (excluding Alaska and Hawaii) in accordance with instructions furnished to BASF by SCI either at the final unloading point or at such other point mutually agreed upon between SCI and BASF. BASF shall give SCI a minimum of thirty (30) days' advance notice, confirmed promptly in writing, of the return date of each car, including advice of the last contents of each such car. SCI shall give 19 BASF disposition instruction for each such car prior to the later of (a) the return date specified in BASF's notice, or (b) thirty (30) days following receipt by SCI of BASF's notice. Notwithstanding the foregoing, BASF shall immediately pay service charges per month equal to 1.5 times each car's average monthly mileage earnings for the previous twelve (12) month period for any car not returned to SCI within thirty (30) days pursuant to the terms hereof or for any returned car if BASF has not caused the car to be cleaned of commodities, unless mutually agreed to the contrary. 6. Maintenance/Modifications. (a) SCI shall have each car maintained in accordance with the ARR Rules and the rules and regulations of the U.S. Department of Transportation and of any other federal authorities having jurisdiction over tank car design, provided (except for normal running repairs performed by railroads) SCI has been advised or has actual knowledge of the need for necessary maintenance and subject to unavoidable delay. No maintenance, alterations or repairs to any car shall be made or authorized by BASF without SCI's prior written consent. Any maintenance, alteration, repair or replacement to any car or part thereof made by SCI shall be done to standards and with parts that are like kind and at least equal quality to items being repaired or replaced. If BASF has or obtains information indicating that any car requires maintenance, BASF shall promptly notify SCI. Upon request by SCI, BASF shall make any car needing maintenance available at a car repair location designated by SCI cleaned of commodities. If any car is in need of maintenance, modification or alteration determined by SCI to be uneconomical to perform or if any car is determined by a railroad to have been destroyed, SCI has the option to terminate this Agreement with respect to such car effective upon notification by SCI to BASF or to substitute another car meeting BASF's original specifications of approximately the same age, type and capacity under this Agreement within a period of time not to exceed sixty (60) days. SCI shall have the right to inspect and repair any car at anytime, but shall do so in a manner reasonably calculated to minimize disruption to BASF's transportation services. (b) If a physical alteration or modification to any car is required by the AAR or any government, agency, group or committee exercising authority over tank car design or operation, SCI may, at its option, perform such alterations or modifications and BASF shall pay SCI an amount equal to 50% of the cost of the modification or alteration, provided that, BASF shall not be obligated to share in the cost of any modification or alteration where the cost of the modification or alteration exceeds the then fair market value of the car. In the event BASF elects to not so participate, BASF shall surrender such car to SCI and such car shall be released from this Agreement as of the date of such surrender. Such change will be effective upon date of acceptance by a railroad of instructions to forward such car to BASF after such change has been completed. Should SCI elect to make the alterations or modifications as aforesaid, BASF shall, upon notice from SCI make the car available at a car repair location designated by SCI cleaned of commodities. 7. Lining. BASF shall pay the cost of the interior lining of any car and shall maintain and renew all car linings (both new and currently existing) whenever necessary during the term of this Agreement, including when necessitated by repair to other portions of the car. 20 8. Reports, Mileage and Charges. Payment of Expenses. (a) BASF shall furnish SCI promptly with complete reports of the movements of each of the cars, including dates loaded and shipped, commodity, destination, and full junction routing, SCI shall use its best efforts to collect mileage earnings as paid by the railroads for car movements during the term hereof. For purposes of mileage accounting all cars under all Car Service Contracts between SCI and BASF are to be combined into a single account for the term of this Agreement. (b) Such total mileage earnings each year will be credited against the total lining costs documented in 7. above and the ad valorem taxes described in 10. below, insurance and other costs of ownership and operation of the cars. Any excess of mileage earnings thus determined will then be used to offset the total maintenance in 6.(a) and 6.(b) above. If there is an excess of maintenance costs, ad valorem taxes, insurance and other costs of ownership and operation of the cars, over mileage earnings, then SCI will invoice BASF for such excess, providing an appropriate accounting. If there is an excess of mileage earnings over lining and maintenance costs, ad valorem taxes, insurance and other costs of ownership and operation of the cars, SCI shall retain such excess for its own account. (c) If the operation of any car during the term of this Agreement would result in charges being made against SCI by any railroad with respect to such car in accordance with the then prevailing tariffs or other applicable rules and regulations to which such railroad is a party, BASF shall pay SCI for such charges within the period specified by such tariffs, rules or regulations; and BASF shall use the cars upon each railroad over which the cars move in accordance with such railroad is a party. 9. Lettering of Cars. BASF shall place no lettering or marking of any kind upon the cars without SCI's prior written consent; except that for the purpose of evidencing the operation of the cars in BASF's service hereunder or for purposes of indicating the nature of the material carried in the cars, BASF shall be permitted to board, placard or stencil the cars as required or permitted by the AAR Rules or the rules or regulations of any federal authority having authority over the lettering of tank cars with letters no greater than two inches high (unless otherwise required by said authorities). Any lettering or marking done by BASF must be removed from the cars at BASF's expense upon termination of this Agreement. 10. Taxes. SCI is responsible for payment of all ad valorem property taxes levied upon the cars and for filing all necessary returns and reports for such taxes. BASF shall pay, or cause to be paid, or shall reimburse SCI for all other taxes, including but not limited to, sales, use, rental, gross income, and excise taxes (except net income taxes) as may be levied or assessed against SCI or BASF in connection with this Agreement, or arising out of any sale, lease, rental, use, operation, ownership, payment, shipment, or delivery of any cars. 11. Indemnification. BASF shall indemnify and save harmless SCI from and against all claims made against SCI or which SCI may incur arising out of BASF's failure to comply with the terms and conditions of this Agreement, unless and to the extent such claim results from SCI negligent act or omission, or is a claim for which a railroad(s) is responsible and has satisfied such responsibility. All indemnities contained in this Agreement shall survive the termination of this Agreement, howsoever the same shall occur. 21 12. Assignment/Subcontracting/Liens. The cars shall be used exclusively in the service of BASF, and BASF shall not furnish, assign or subcontract any car, or make any transfer or assignment of this Agreement, without SCI's prior written consent, except that BASF may furnish any car for single trips to its customers or to its suppliers in accordance with the provisions of demurrage tariffs lawfully in effect, and provided that BASF shall remain liable to SCI for the fulfillment of all obligations under this Agreement. This Agreement and the rights of BASF herein shall not be assignable or transferable by operation of law; and no title, leasehold, or property interest of any kind shall vest in BASF, or in BASF's successors or assigns, by reason of this Agreement, or by reason of the delivery of the cars to, or the use of the cars by, BASF its successors or assigns. Subject to the foregoing limitations on assignment and subcontracting, this Agreement is binding upon and shall inure to the benefit of the parties hereto and their successors and assigns. BASF shall not permit any encumbrance or lien arising out of acts or claims against BASF to be entered, levied, or to exist upon any car; and BASF shall have any such encumbrance or lien removed immediately after becoming aware of the existence thereof or upon written notice thereof from SCI. 13. Remedies. If BASF shall fail to perform any of its obligations under this Agreement, SCI may (a) with ten (10) days prior written notice terminate this Agreement with respect to any or all of the cars covered hereunder and thereafter take possession of any or all of such cars; or (b) upon ten (10) days prior written notice to BASF, change the term of this Agreement to a month-to-month term, subject to termination thereafter upon ten (10) days prior written notice from either party to the other; or (c) permit BASF to retain possession of any or all cars under this Agreement as the same may continue in force provided BASF shall, within five (5) days after written notice from SCI cure any and all defaults under this Agreement, and shall also, within said five (5) day period, provide to SCI adequate assurances (including collateral security) of future full performance of this Agreement, so that all amounts due hereunder shall promptly be paid by BASF to SCI when they shall become due, and that all covenants hereunder to be performed by BASF shall be promptly performed by it in the manner provided herein. BASF shall be liable to SCI for all charges hereunder and no termination nor modification of this Agreement shall affect or modify any rights, claims, or obligations hereunder which shall have accrued prior to such termination or modification, except as otherwise specifically provided by such termination or modification. Upon termination by SCI of this Agreement as permitted by this Article 13, BASF shall thereupon, without further act or deed by SCI be completely divested of any and all of BASF's rights and interests, if any, under this Agreement, and in and to any and all cars covered hereby. SCI shall thereupon be entitled to the immediate return of any and all such cars, cleaned of commodities, all at BASF's expense. In the event bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation or other similar proceeding is instituted by or against BASF, under the United States Bankruptcy Code or other law of the United States or any State, then, unless BASF, as debtor or debtor-in possession in any such bankruptcy or other proceeding or any Trustee acting therein, shall comply with the provisions of 22 Section 365 of the United States Bankruptcy Code (as now existing or hereafter amended), SCI shall be entitled to the immediate return of all cars covered hereby cleaned of commodities, by summary proceedings, or otherwise, with no liability by reason thereof. BASF hereby waives any rights now or hereafter conferred by statute or otherwise to object to or contest any such legal action or proceeding instituted by SCI to recover possession of the cars. The rights and remedies herein given to SCI in no way limit its rights and remedies at law or in equity. 14. Use of Cars. No cars shall be used to ship products other than Agreement Products (as defined in the Restated Product Sales Agreement executed as of August 1, 1986, as amended, between the parties). No car shall be utilized in unit train service, nor shall the average loaded mileage of all cars under this Agreement exceed eighteen thousand (18,000) miles during any calendar year during the term hereof, unless consented to in writing by SCI in advance of such use. The cars shall be used exclusively within the boundaries of the United States (excluding Alaska and Hawaii), Canada and Mexico. BASF is responsible for all taxes and duties and for complying with all governmental requirements arising out of any of the cars leaving, being outside of, or returning to the boundaries of the United States; and BASF shall defend and hold harmless SCI from any claim connected therewith. BASF shall comply with all AAR and governmental regulations respecting the use and operation of each of the cars during the term of this Agreement. 15. limitations of Obligations. SCI's obligations under this Agreement are limited to those expressly set forth herein. AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY SCI. IN NO EVENT SHALL SCI HAVE ANY LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES. 16. Subordination. This Agreement and all rights of BASF (and of any persons claiming or who may hereafter claim under or through BASF) under this Agreement, including any purchase option or options provided for herein are hereby made subject and subordinate to any leveraged lease, chattel mortgage, conditional sale or other financing agreement heretofore or hereafter established with respect to any of the cars including any equipment trust agreement and to all rights of a trustee under any such agreement. Any assignment, subcontract, or loan of cars made by BASF pursuant to Article 12 of this Agreement shall be expressly made subject to the above subordination. At the request of SCI the cars may be lettered or marked to identify the legal owner of the cars at no expense to BASF. If during the continuance of this Agreement, any such marking shall at any time be removed or become illegible in whole or in part, BASF shall immediately cause such marking to be restored or replaced at SCI's expense. 17. Miscellaneous. This Agreement, together with any and all exhibits attached hereto, constitutes the entire agreement between SCI and BASF. This Agreement may not be amended, altered, or changed except by written agreement signed by the parties hereto. No waiver of any provision of this Agreement or consent to any departure by BASF therefrom shall be effective unless the same shall be in writing signed by both parties and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. The headings that have been used herein are solely for convenience and shall not be construed in any event or manner as interpretive or limiting the interpretation of this Agreement. 23 The invalidity of any provision of this Agreement shall not affect the remainder hereof, which shall in such event be construed as if such invalid provision had not been inserted. In the event the AAR Rules conflict with any provision of this Agreement, the provision of this Agreement shall control. This Agreement shall be governed by and construed under the laws of the State of Texas. 18. Term. Unless otherwise terminated pursuant to this Agreement, this Agreement shall remain in full force and effect until the expiration of all Riders attached hereto. BASF's obligations to SCI under this Agreement, however, shall remain in full force and effect until the time all cars are returned to SCI Pursuant to Article 5 of this Agreement. 19. Notices. All notices hereunder shall be in writing and shall be deemed delivered when mailed, postage prepaid, as follows: To BASF: BASF Corporation 100 Cherry Hill Road Parsippany, New Jersey 07054 Attention: To SCI: Sterling Chemicals, Inc. 1200 Smith Street Suite 1900 Houston, Texas 77002 Attention: IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the day and year first above mentioned. STERLING CHEMICALS, INC. BY: J. Virgil Waggoner Title President & CEO DATE: 3/16/94 BASF CORPORATION BY: Gilbert J. Muller TITLE Business Director DATE: 2/7/94 SCHEDULE 1 OWNED RAIL CARS WHICH ARE NOT COVERED BY THE CAR SERVICE CONTRACT: CAR NUMBERS: STEX 26003 STEX 26010 STEX 26013 STEX 26015 STEX 26017 STEX 26018 STEX 26021 APPENDIX 2 24 OWNED RAIL CARS WHICH BASF DOES NOT WANT MADE AVAILABLE TO IT: CAR NUMBERS: STEX 26003 STEX 26010 STEX 26013 STEX 26015 STEX 26017 STEX 26018 STEX 26021 APPENDIX 3 LEASED RAIL CARS WHICH BASF DOES NOT WANT ASSIGNED TO IT: CAR NUMBERS: UTLX 76391 UTLX 76394 UTLX 76527 UTLX 76603 UTLX 76634 APPENDIX 4 (Date) (To be sent to the Lessors of those Rail Cars Leased by Sterling Chemicals, Inc.) Re: Assignment of Rail Car Leases by Sterling Chemicals, Inc. to BASF Corporation Gentlemen: This letter confirms our previous advice that Sterling Chemicals, Inc. ("Sterling") and BASF Corporation ("BASF") have entered into an amendment to a "Product Sales Agreement" which contemplates the use by BASF of those rail cars under those leases identified in the attachment to this letter. Accordingly, Sterling and BASF request that your firm consent to the assignment of said rail car leases under the following terms and conditions: 1. The assignment of said leases shall become effective as of ________, 1993. 2. BASF agrees to observe, keep and perform all of Sterling's duties and obligations under said lease agreements accruing after the date specified in numbered paragraph 1, above. 3. Your firm agrees to release Sterling of all duties and obligations under said lease agreements, effective as of the date specified in numbered paragraph 1, above, except for such of said duties and obligations which have accrued prior to said date. Please indicate your consent to the foregoing assignment by executing the enclosed three originals of this letter, retaining one for your files and returning one each to the following: Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 25 Houston, Texas 77002 Attention: and to BASF Corporation 100 Cherry Hill Road Parsippany, New Jersey 07054 Attention: Transportation Department Very truly yours, STERLING CHEMICALS, INC. By: J. Virgil Waggoner Title: President & CEO Date: 3/l6/94 BASF CORPORATION BY: Gilbert J. Muller Title: Business Director Date: 2/7/94 The undersigned hereby consents to the assignment by Sterling to BASF of said lease agreements on the terms and conditions hereinabove set forth. By: Title: Date: APPENDIX 5 1993 RETURN CAPITAL PROJECTS
project Title Fully Funded 50% Share 79P Marine Loadings 1 $286,000 $143,000 Incinerator Isolation Valve 2 $181,000 $90,500 1993 TOTAL $467,000 $233,500
1 Benefits to be shared through reduction in freight costs. 2 Benefits from reduction of Incinerator operating days to be shared through the Incinerator Fee. EX-10.30 15 FORM OF INDEMNITY AGREEMENT 1 EXHIBIT 10.30 INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT ("Agreement") made as of the 27th day of July, 1994, between Sterling Chemicals, Inc., a Delaware corporation ("Company"), and __________________________________ ("Indemnitee"). WHEREAS, the Company and the Indemnitee desire that the Indemnitee serve or continue to serve as a director, officer or employee of the Company or as a director, officer or employee of any Affiliate of the Company or, if serving at the request of the Company, as a director, officer or employee of any Other Enterprise; and WHEREAS, the Company desires and intends hereby to provide indemnification (including advancement of expenses) against any and all liabilities asserted against the Indemnitee to the fullest extent permitted by the D.G.C.L.; NOW, THEREFORE, WITNESSETH: THAT for and in consideration of the premises and the covenants contained herein, the Company and the Indemnitee do hereby covenant and agree as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following definitions apply herein: (a) "Affiliate of the Company" shall mean any corporation, partnership, joint venture, limited partnership, trust, association or other business entity directly or indirectly, at any time in the past, presently or in the future controlling, controlled by or under common control with the Company and any employee benefit plan or trust existing in the past, present or future, for the benefit of the Company or any other Affiliate of the Company. (b) "Company Change of Control" shall mean any change in the ownership of a majority of the capital stock of the Company or in the composition of a majority of the members of the board of directors of the Company. (c) "Control" including the correlative terms "controlling," "controlled by," and "under common control with," shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the 2 management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise). (d) "D.G.C.L." shall mean the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior thereto). (e) "Final adjudication" shall mean a final judicial decision from which there is no further right to appeal. (f) "Fines" shall include, without limitation, any penalties of any kind, and any excise taxes assessed on the Indemnitee with respect to any employee benefit plan. (g) "Other Enterprise" shall mean any corporation, partnership, joint venture, limited partnership, trust, employee benefit plan, association, civic, non-profit or charitable organization or other entity or organization, other than the Company or an Affiliate of the Company. (h) "Serving at the request of the Company" shall include any service at the request of the Company as an officer, director or employee of any Other Enterprise, which request shall be evidenced by (i) a written agreement with the Company acknowledging that the Indemnitee is entitled to indemnification with respect to such service, (ii) a written request by the Company specifically referencing the Indemnitee's rights to indemnification from the Company, (iii) resolutions duly adopted by the board of directors of the Company or (iv) a written or verbal request by the board of directors or the President or any Vice President of the Company. 2. TERMINATION OF PRIOR AGREEMENTS. This Agreement replaces and supersedes in their entireties any and all prior agreements between the Company and the Indemnitee, written or oral, with respect to the subject matter hereof and upon the execution and delivery of this Agreement, all such prior agreements shall be terminated and shall no longer have any force or effect. In the event of any conflict between the terms of this Agreement and the terms of the By-laws of the Company, the terms of this Agreement shall, to the extent permitted by applicable law, control. 3. INDEMNIFICATION. The Company shall indemnify the Indemnitee as follows: -2- 3 (a) The Company shall, to the fullest extent authorized by the D.G.C.L., indemnify the Indemnitee if the Indemnitee is or has been made a party to, is threatened to be made a party to, or otherwise has become or becomes involved in, any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that the Indemnitee is or was a director, officer or employee of the Company or any Affiliate of the Company, or is or was serving at the request of the Company as a director, officer or employee of any Other Enterprise, whether the basis of such Proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity for the benefit of the Company, any Affiliate of the Company or any such Other Enterprise while serving as a director, officer or employee, against expenses (including attorneys' fees), judgments, liabilities, losses, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in connection with such Proceeding; provided that: (i) the Indemnitee has met the applicable standard of conduct required by the D.G.C.L. in order to be entitled to indemnification with respect to such Proceeding; (ii) except as provided in paragraph (d) of Section 4 hereof with respect to Proceedings to enforce rights to indemnification or advancement of expenses, the Company shall indemnify the Indemnitee in connection with a Proceeding (or part thereof) initiated by the Indemnitee (or the Indemnitee's heirs, legal representatives or assigns) against the Company, any Affiliate of the Company or any such Other Enterprise only if such Proceeding was authorized by the board of directors of the Company; and (iii) in the event such Proceeding is brought by or in the right of the Company to procure a judgment in its favor, unless otherwise permitted by the D.G.C.L., no indemnification shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnification for such expenses and any judgments, liabilities, losses, fines and amounts paid in settlement which such court shall deem proper. (b) Any indemnification under paragraph (a) of this Section 3 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination in the manner required by the D.G.C.L. that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth -3- 4 in clause (i) of paragraph (a) of this Section 3. Such determination shall be made as required by the D.G.C.L. and, to the extent permitted by the D.G.C.L., pursuant to the procedures set forth in Section 4, including, to the extent permitted by applicable law, if demanded by the Indemnitee pursuant to Section 4, by the Neutral Arbitrator appointed pursuant thereto. (c) Expenses (including attorneys' fees) incurred by the Indemnitee in defending a Proceeding shall be paid by the Company in advance of the final disposition of any Proceeding (an "advancement of expenses") within 30 days after incurrence thereof if the Company has theretofore received a statement of request for advancement of expenses substantially in the form of Exhibit A attached hereto ("Undertaking"). (d) The right to indemnification and advancement of expenses provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under any statute, bylaw, insurance policy, agreement, vote of stockholders or disinterested directors, arbitration award, court order or otherwise, both as to action in the Indemnitee's capacity as an officer, director or employee and as to action in another capacity for the benefit of the Company, any Affiliate of the Company or any Other Enterprise as to which the Indemnitee is or was serving at the request of the Company while holding such office or position, and shall continue after the Indemnitee has ceased to be a director, officer or employee and shall inure to the benefit of the Indemnitee's heirs, executors, administrators, legal representatives and assigns. 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. The determination in a specific case required under paragraph (b) of Section 3 hereof shall be made (unless ordered by a court) in accordance with the following procedure: (a) At any time after the termination of a Proceeding with respect to which indemnification is sought by the Indemnitee by judgement, order, settlement, conviction, upon a plea of nolo contendere or its equivalent or otherwise, the Indemnitee shall submit to the board of directors of the Company a statement of request for indemnification substantially in the form of Exhibit B attached hereto ("Indemnification Statement"). (b) Submission of the Indemnification Statement to the board of directors of the Company shall create a rebuttable presumption that the Indemnitee is entitled to indemnification under this Agreement, and, if arbitration is not demanded in the Indemnification Statement, the board of directors of the Company, independent legal counsel, the stockholders or such other person, group or board as may be required under the D.G.C.L., as the case may be, shall within 120 days after submission of the Indemnification -4- 5 Statement specifically determine that the Indemnitee is so entitled, unless it or they shall possess sufficient evidence to rebut the presumption that the Indemnitee has met the applicable standard of conduct set forth in clause (i) of paragraph (a) of Section 3 hereof, which evidence shall be disclosed to the Indemnitee with particularity in a written statement denying indemnification ("Denial Statement") signed by all persons who participated in the determination and voted or opined that the Indemnitee is not entitled to indemnification. (c) If arbitration is demanded in the Indemnification Statement, the Company shall, within 90 days after receipt of the Indemnification Statement (the "Response Period"), deliver written notice ("Company Representative Notice") to the Indemnitee containing the name, mailing address and telephone number of the Company's designated representative for purposes of the arbitration. The representatives appointed by the Indemnitee and the Company, shall, within 30 days after delivery of the Company Representative Notice, appoint a neutral, independent third party arbitrator (the "Neutral Arbitrator") who shall, within 120 days of appointment, determine whether indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in clause (i) of paragraph (a) of Section 3 hereof, taking into account the rebuttable presumption referred to in paragraph (b) of this Section 4 and the applicable provisions of paragraph (d) of this Section 4 regarding the burden of proof and denial of certain presumptions. Should the Company fail to appoint a representative by a timely delivered Company Representative Notice, the representative designated by the Indemnitee in the Indemnification Statement shall, within 20 days after the expiration of the Response Period, appoint the Neutral Arbitrator. Should a Neutral Arbitrator not be appointed as required hereby within the time required hereby, then a Judge of the United States District Court for the Southern District of Texas, Houston Division, upon application of the Indemnitee or the Company, shall appoint a Neutral Arbitrator to fill such position with the same force and effect as though such Neutral Arbitrator had been appointed as hereinabove contemplated. The arbitration proceeding shall be conducted in the English language in Houston, Texas, in accordance with the Rules of the American Arbitration Association. A determination, award or other action shall be considered a valid action when made by the Neutral Arbitrator. The costs of arbitration (including 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) shall be borne by the Company if the Indemnitee prevails in whole or in part in the arbitration, and otherwise shall be borne by the Indemnitee. If such costs are to be borne by the Indemnitee, the Company shall not indemnify the Indemnitee for such costs, notwithstanding the -5- 6 provisions of Section 3. To the extent permitted by law, the arbitration award shall be final and conclusive as to whether indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in clause (i) of paragraph (a) of Section 3 hereof, and shall receive recognition, and judgment upon such award may be entered and enforced in any court of competent jurisdiction. (d) In the event the Company does not make any payment for indemnification or advancement of expenses to the Indemnitee within 30 days after the Company's obligation to so indemnify Indemnitee or to make such advancement of expenses to Indemnitee is established hereunder, or in the event the Company delivers a Denial Statement to Indemnitee pursuant to paragraph (b) of Section 4 hereof, the Indemnitee may make a written claim ("Claim") against the Company for indemnification or advancement of expenses, as the case may be. If the amount claimed in the Claim is not paid in full by the Company within 60 days after the Claim has been received by the Company, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the Claim. If successful in whole or in part in any such suit, or in a suit brought by the Company to recover an advancement of expenses, the Indemnitee shall be entitled to be paid the expense of prosecuting or defending such suit. In any arbitration pursuant to paragraph (c) of this Section 4 and in any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses, and in any suit by the Company to recover an advancement of expenses, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Agreement or otherwise shall be on the Company. No determination by the Company (including its board of directors, independent legal counsel or stockholders) that the Indemnitee has not met the applicable standard of conduct required under the D.G.C.L., and no failure by the Company to make a determination as to whether the Indemnitee has met such standard of conduct, shall create any presumption in any such arbitration or suit that the Indemnitee has not met such standard of conduct. In any suit against the Company to enforce a right to indemnification under Section 3, the Indemnitee shall be entitled to indemnification except to the extent that it is ultimately determined by final adjudication that such indemnification is not permitted under this Agreement or otherwise. In the event of a suit by the Company to recover an advancement of expenses, the Indemnitee shall repay amounts so advanced only to the extent it shall be ultimately determined by a final adjudication that the Indemnitee is not entitled to be indemnified therefor under this Agreement or otherwise. Notwithstanding the foregoing, any determination by the Neutral Arbitrator, if made pursuant to this Section 4, shall, to the extent permitted by law, be conclusive as to whether indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in clause (i) of -6- 7 paragraph (a) of Section 3 hereof. The termination of any 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 Indemnitee failed to meet the applicable standard of conduct under the D.G.C.L. 5. MERGER, CONSOLIDATION OR COMPANY CHANGE OF CONTROL. In the event that the Company shall be a constituent corporation in a consolidation or merger, whether the Company is the resulting or surviving corporation or is absorbed, or if there is a Company Change of Control, the Indemnitee shall stand in the same position under this Agreement with respect to the resulting, surviving or changed corporation as the Indemnitee would have with respect to the Company if its separate existence had continued or if there had been no Company Change of Control. 6. SEVERABILITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected. 7. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to its conflict of laws rules. The parties hereby irrevocably consent and agree that any legal action, suit or proceeding brought against either party hereto with respect to the obligations or liabilities of either party hereunder or any other matter under or arising out of or in connection with this Agreement shall be brought in the United States District Court for the Southern District of Texas, Houston Division or in the courts of the State of Texas located in Houston, Harris County, Texas and hereby irrevocably accept and submit to the exclusive jurisdiction of each of the aforesaid courts in personam, generally and unconditionally with respect to any such action, suit or proceeding for themselves and in respect of their properties, assets and revenues. The parties hereby irrevocably and unconditionally waive any objection which they, or either of them, may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Agreement brought in the United States District Court for the Southern District of Texas, Houston Division or the courts of the State of Texas located in Houston, Harris County, Texas. 8. MODIFICATION; SURVIVAL. This Agreement contains the entire agreement of the parties relating to the subject matter hereof. This Agreement may be modified only by an instrument in writing signed by both parties hereto. The provisions of this Agreement shall survive the termination of the Indemnitee's service as a director, officer or employee of the Company or any Affiliate of the Company or any Other Enterprise as to which the Indemnitee is -7- 8 or was serving at the request of the Company. The rights of the Indemnitee hereunder shall inure to the benefit of the Indemnitee's heirs, executors, administrators, legal representatives and assigns. 9. DEPOSIT OF FUNDS IN TRUST. In the event that the Company decides to voluntarily dissolve or to file a voluntary petition for relief under applicable bankruptcy, moratorium or similar laws, then not later than ten (10) days prior to such dissolution or filing, the Company shall deposit in trust for the exclusive benefit of the Indemnitee a cash amount equal to all amounts previously authorized to be paid to the Indemnitee hereunder, such amounts to be used to discharge the Company's obligations to the Indemnitee hereunder. Any amounts in such trust not required for such purpose shall be returned to the Company. This Section 9 shall not apply to dissolution of the Company in connection with a transaction as to which Section 5 hereof applies. 10. GENDER. Whenever the context requires, the gender of all words used herein shall include the masculine, feminine and neuter. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement and the Company has set its seal as of the date first above written. STERLING CHEMICALS, INC. Attest: _________________________ By:_________________________________ (Corporate Seal) J. VIRGIL WAGGONER President & Chief Executive Officer INDEMNITEE ____________________________________ -8- 9 EXHIBIT A STATEMENT OF UNDERTAKING I, ______________________, hereby agree as follows: 1. This Statement is submitted pursuant to the Indemnity Agreement dated ___________________, 19___ (the "Agreement"), between Sterling Chemicals, Inc., a Delaware corporation ("Company"), and the undersigned, in connection with that certain action, suit or proceeding described as follows (the "Proceeding") as to which I have been made or threatened to be made a party or am otherwise involved by reason of the fact that I am or was a director, officer or employee of the Company, an Affiliate of the Company (as defined in the Agreement) or an Other Enterprise (as defined in the Agreement) as to which I am or was serving at the request of the Company (as defined in the Agreement) as a director, officer or employee, the basis of the Proceeding being alleged action in my official capacity as a director, officer or employee or in another capacity for the benefit of the Company, any Affiliate of the Company or such Other Enterprise while serving as a director, officer or employee: ______________________________ ______________________________ ______________________________ ______________________________ 2. I am requesting advancement of certain actual expenses of defense which have reasonably been incurred or will be reasonably incurred by me or on my behalf in defending the Proceeding. 3. I hereby undertake to repay this advancement of expenses if it is ultimately determined by judicial decision from which there is no further right to appeal or by arbitration pursuant to the Agreement that I am not entitled to be indemnified by the Company. 4. The expenses for which advancement is requested are legal fees, court costs and other direct expenses related to the Proceeding. 5. The Company may engage legal counsel to represent me in the Proceeding on my behalf with or without my prior consent. Nevertheless, I reserve the right to engage separate legal counsel to represent me in the Proceeding at any time, provided that any obligation of the Company to advance expenses or indemnify me for the expenses of such separate legal counsel is expressly conditional upon the Company's prior written approval of the terms and conditions of the engagement of such separate legal counsel. 10 6. My agreements and undertakings herein shall be binding upon my heirs, executors, administrators, legal representatives and assigns. Dated this ________ day of _______________, 19____. ________________________________ Indemnitee ________________________________ (Print Name) ________________________________ (Title) -2- 11 EXHIBIT B STATEMENT OF REQUEST FOR INDEMNIFICATION I, ______________________, hereby certify as follows: 1. This Statement is submitted pursuant to the Indemnity Agreement dated __________________, 19__ (the "Agreement") between Sterling Chemicals, Inc., a Delaware corporation ("Company"), and the undersigned. 2. I am requesting indemnification against expenses (including attorneys' fees) and judgments, losses, liabilities, fines and amounts paid in settlement, all of which have been actually and reasonably incurred by me or on my behalf in connection with the action, suit or proceeding (the "Proceeding") described as follows to which I am a party or am threatened to be made a party or am otherwise involved by reason of the fact that I am or was a director, officer or employee of the Company or an Affiliate of the Company (as defined in the Agreement) or of an Other Enterprise (as defined in the Agreement) as to which I am or was serving at the request of the Company as a director, officer or employee, the basis of the Proceeding being alleged action in my official capacity as a director, officer or employee or in another capacity for the benefit of the Company, any Affiliate of the Company or any such Other Enterprise while serving as a director, officer or employee: _____________________________ _____________________________ _____________________________ _____________________________ 3. With respect to all matters related to the Proceeding, my actions met the applicable standards of conduct required under the D.G.C.L. (as defined in the Agreement) in order for me to be entitled to indemnification from the Company. 4. I am requesting indemnification against the following liabilities arising from the Proceeding: ______________________________ ______________________________ ______________________________ 5. I ____ am ____ am not demanding arbitration pursuant to Section 4 of the Agreement. 12 6. If I have indicated that I am demanding arbitration in paragraph 5 above, I hereby appoint the following person as my representative for such purpose: Name Address Telephone Number __________________________ _______________________ ________________ _______________________ 7. My agreements and certifications herein shall be binding upon my heirs, executors, administrators, legal representatives and assigns. Dated this _____ day of ____________, 19____. ________________________________ Name:__________________________ Title:____________________________ -2- EX-10.48 16 SALES & PURCHASE AGREEMENT DATED 04/01/94 1 EXHIBIT 10.48 **OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST** SALES AND PURCHASE AGREEMENT THIS AGREEMENT, made and entered into this 1st day of _________, 1994 by and between Sterling Chemicals, Inc., with offices at 1200 Smith Street, Suite 1900, Houston, Texas 77002 (hereinafter called SCI) and BP Chemicals Ltd., with offices at Belgrave House, 76 Buckingham Palace Road, London, SW1W OSU (hereinafter called BP). WITNESSETH: WHEREAS SCI has facilities for producing Styrene Monomer from Ethylene and Benzene at Texas City, Texas (hereinafter called Plant) and is willing to produce and sell Styrene Monomer to BP. WHEREAS BP is willing to purchase Styrene from SCI. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows: SECTION 1-DEFINITIONS For purpose of this Agreement, the following terms shall have the meanings assigned thereto: A. "Styrene" shall mean Styrene Monomer having the specifications as set forth in Exhibit A, attached and made part of this Agreement. B. "Contract Year" shall mean any such twelve (12) consecutive months commencing on April 1, 1994 or any anniversary thereof. C. "Quarter" shall mean three (3) consecutive months starting from any January, April, July, or October. D. Delivery shall mean CIF BP's unloading flange at Antwerp or Dunkirk storage tanks. SECTION 2-TERM OF AGREEMENT The term of this Agreement shall commence on April 1, 1994 and end on December 31, 1996, and shall be extended on a year-to-year basis thereafter unless terminated by either party giving the other a written notice of at least twelve (12) months prior to cancellation. 1 2 SECTION 3-QUANTITY Quantity of Styrene to be sold by SCI to BP during a Contract Year shall be a minimum of * * * * and a maximum of * * * * * * * * as mutually agreed to by SCI and BP. BP is required to purchase and SCI is required to sell a minimum of * * * * * * * * per Contract Year under this Agreement, volumes to be taken ratably on a month-to-month basis. SECTION 4-PRICE FORMULA BASE FORMULA: The price each month of Styrene delivered in accordance with Section 6 shall be determined pursuant to the following formula: PRICE: * * * * Where: * * * * * Where: * * * * * * * * * * Where: * * * * * * * * * * * * * * * 2 3 * * * * * * * * * * FLOOR PRICE: At no time will Price be less and * * * * * CEILING PRICE: At no time will * * * * * If the ceiling price falls below the Floor Price, then * * * * * * * * * *. SECTION 5-PAYMENT A. BP shall pay the price calculated pursuant to Section 4 covering the quantity of Styrene of each shipment. B. Payment of each shipment shall be made 50% in U.S. Dollars and 50% in Deutsche Marks by wire transfer within forty-five (45) days from the date of bill of lading. The exchange rate used will be the monthly average of the mean of the quotation for converting United States Dollars to Deutsche Marks of each working day as published in the Financial Times for the month of shipment. SECTION 6-SHIPMENT OF STYRENE A. The shipment of Styrene shall be made every month and evenly spread during the Contract Year and the quantity of each shipment shall be determined by mutual agreement between SCI and BP on the basis of BP's requirements. In no case should BP's monthly requirements exceed 10% of the annual contract volume without SCI's agreement. B. BP shall give SCI a notice of desired delivery date at least thirty (30) days prior to desired delivery date, and this notice shall include a firm quantity of Styrene. Within three (3) days after receipt of BP's notice, SCI shall indicate its acceptance of BP's order or offer alternate, most timely vessel in best effort to 3 4 meet BP's delivery date requested. All ships nominated by SCI must be acceptable to the BP Vetting System. SECTION 7-QUALITY SCI warrants that Styrene produced and supplied under this Agreement meets those specifications as set forth in Exhibit A. SECTION 8-INSPECTION The quality and quantity of Styrene for each shipment shall be determined in accordance with the inspection to be made at SCI's shore tanks by an independent surveyor mutually agreed to be SCI and BP and quality and quantity shall be accepted as conclusive of quality and quantity of loaded Styrene. The cost of such public inspector shall be shared equally by SCI and BP. SECTION 9-FORCE MAJEURE (A) Deliveries may be suspended by either party in the event of Act of God, war, riot, fire, explosion, accident, flood, sabotage; lack of adequate fuel, power, raw materials, labor, containers or transportation facilities; compliance with governmental requests, laws, regulations, order of action; breakage or failure of machinery or apparatus; national defense requirements or any other event, whether or not of the class or kind enumerated herein, beyond the reasonable control of such party; or in the event of labor trouble, strike, lockout or injunction (provided that neither party shall be required to settle a labor dispute against its own best judgement); which event makes impracticable the manufacture, transportation, acceptance or use of a shipment of the Styrene or of a material upon which the manufacture of the Styrene is dependent. Within five (5) days after the occurrance of any such event, the affected party shall give the other party written notice thereof. (B) If SCI determines that its ability to supply the total demand for the Styrene, or obtain any or sufficient quantity of any material used directly or indirectly in manufacture of the Styrene, is hindered, limited or made impracticable, SCI may allocate its available supply of the Styrene or such material (without obligation to acquire other supplies of any such Styrene or material) among itself and its customers on such basis as SCI determines to be equitable without liability for any failure of performance which may result therefrom. 4 5 (C) Deliveries suspended or not made by reason of this Section 9 shall be canceled without liability, but this Agreement shall otherwise remain unaffected. SECTION 10-DELIVERY AND RISK OF LOSS The point where risk of loss shall pass to BP on Styrene to be delivered by SCI shall be when the Styrene has passed the ship's rail at the port of shipment. SECTION 11-ASSIGNMENT Neither this Agreement nor any claim against either party arising directly or indirectly out of or in connection with this Agreement shall be assignable by either party or by operation of law without the prior written consent of the other, such consent not to be unreasonably withheld; provide, however, that no such consent shall be required in the event of assignment to any purchaser of all or substantially all of the business to which this Agreement relates. This Agreement shall endure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 12-GENERAL TERMS AND CONDITIONS The "Terms and Conditions" hereto attached as Exhibit "B" are herein incorporated by reference as if set forth in the body of this Agreement. If there is a conflict between the terms of this Agreement and the Terms and Conditions set forth in Exhibit "B", the terms of this Agreement shall control. SECTION 13-GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York 5 6 SECTION 14-NOTICE It shall be a sufficient giving of any notice, request or other communication in writing hereunder by a party to this Agreement to the other party if the party desiring to give such notice, request or other communication in writing shall cause the notice to be personally delivered or sent by telefax, registered mail or recognized overnight delivery service properly addressed to the address set forth below, or at such other address as the other party shall hereafter designate in writing. The date of giving of any such notice or other communication in writing shall be the date on which said copy was so delivered or sent properly addressed as aforesaid. BP Chemicals, Ltd. Sterling Chemicals, Inc. Belgrave House 1200 Smith Street 76 Buckingham Palace Road Suite 1900 London SW1W OSU Houston, Texas 77002-4312 United Kingdom Attn: Vice President Commercial Attn: Manager Fax: (713) 654-9551 General Petrochemicals Business Fax#: 071-581-6790 SECTION 15-NON WAIVER The failure of a party hereto at any time to exercise any of its rights or options under this Agreement, except rights and options specifically limited as to a date or time of exercise thereof, shall not be construed to be a waiver of such rights or options, or prevent such party from subsequently asserting or exercising such rights or options. SECTION 16-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 the remaining provisions 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. SECTION 17-MERGER This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges all prior discussions and negotiations and agreements between them whether written or oral, and neither of the parties shall be bound by any 6 7 decisions, agreement, covenants, definitions, warranties or representations with respect to the subject matter hereof, other than an expressly provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by both parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives as of the day and year first above written: STERLING CHEMICALS, INC. BP CHEMICALS LTD. Date:______________________ Date:____________________ By:________________________ By:______________________ Title:_____________________ Title:___________________ 7 8 EXHIBIT "A" STYRENE MONOMER SPECIFICATIONS
PROPERTY SPECIFICATION TEST METHOD - - -------- ------------- ----------- APPEARANCE Clear Liquid -- COLOR, APHA 15 MAXIMUM * ASTM D-1209 PURITY (Wt. %) 99.8 MINIMUM ASTM D-3962 POLYMER (ppm) 10 MAXIMUM ASTM D-2121 ALDEHYDES (Wt %) 0.02 MAXIMUM ASTM D-2119 PEROXIDES (Wt. %) 0.0004 MAXIMUM ASTM D-2340 SULFUR (ppm) 10 MAXIMUM ASTM D-3961 PHENYLACETYLENE (ppm) 150 MAXIMUM TBC INHIBITOR (ppm) 10 - 15 ASTM D-2120 TOTAL CHLORIDES (ppm) 20 MAXIMUM BENZENE (ppm) 1.0 MAXIMUM
* Color of 15 maximum based on ASTM D-1209 Hunter Method. 8 9 EXHIBIT "B" TERMS AND CONDITIONS Seller hereafter called "SCI", Buyer hereafter to be called "BP". 1. TECHNICAL ADVICE. Seller assumes no liability for any technical advice given or results obtained therefrom, all such advice being given and accepted at Buyer's risk. 2. BUYERS CREDIT. Seller reserves the right, among other remedies, either to terminate this contract or to suspend further deliveries under it in the event Buyer fails to pay for any one shipment when same becomes due. Should Buyer's financial responsibility become unsatisfactory to Seller, cash payments or satisfactory security may be required by Seller for future deliveries and for goods previously delivered. 3. SHIPMENTS. The quantity shipped in any contract month may be limited by Seller to either (a) the average of the monthly quantities purchased by Buyer for the preceding contract months or (b) die maximum quantity covered by this contract divided by the number of months in the period of this contract (provided, however, that if different quantities apply to different time periods within the period of this contract, Seller may limit shipments based upon the current maximum quantity for the applicable time period under this contract divided by the number of months in such time period). Any quantity not shipped as a result of any such limitation shall be deducted from the total quantity of this contract, Seller shall not be bound to tender delivery of any quantities for which Buyer has not given shipping instructions. 4. LIMITED WARRANTY. Subject to the limitations of Section 8 of the Agreement and unless otherwise provided herein, Seller warrants title and that all goods sold hereunder shall conform to Seller's standard specifications or to the attached specifications, if any. Subject to the preceding sentence and except as otherwise expressley provided herein, SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO MECHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE GOODS, whether used alone or in combination with any other material. 9 10 5. LIMITATION OF LIABILITY. (a) Within thirty (30) days after receipt of each shipment of the goods, Buyer shall examine such goods for any damage, defect or shortage. All claims for any cause whatsoever (whether such cause be based in contract, negligence, strict liability, other tort or otherwise) shall be deemed waived unless made in writing and received by Seller within sixty (60) days after Buyer's receipt of the goods, in respect to which such claim is made, or, if such claim is for non-delivery of such goods, within sixty (60) days after the date upon which such goods were to be delivered, provided that as to any such cause not reasonably discoverable within such sixty (60) day period (including that discoverable only in processing, further manufacture, other use or resale any claim shall be made in writing and received by Seller within one hundred eighty (180) days after Buyer's receipt of the goods, in respect to which such claim is made, or within thirty (30) days after Buyer learns of the facts giving rise to such claim, whichever shall first occur. Failure of Seller to receive written notice of any such claim within the applicable time period shall be deemed an absolute and unconditional waiver by Buyer of such claim, irrespective of whether the facts giving rise to such claim shall have then been discovered or of whether processing, further manufacture, other use or resale of the goods shall have then taken place. (b) BUYER'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND SELLER'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED THE "PRICE", AS DEFINED IN SECTION 4 OF THE AGREEMENT IN RESPECT TO WHICH SUCH CAUSE ARISES OR, AT SELLER'S OPTION, THE REPAIR OR REPLACEMENT OF SUCH GOODS AND IN NO EVENT SHALL SELLER BE LIABLE FOR PRICE INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE. Seller shall not be liable for, and Buyer assumes liability for, all personal injury and property damage connected with the handling, transportation, possession, processing, further manufacture, other use or resale of the goods, whether the goods are used alone or in combination with any other material. Transportation charges for the return of the goods shall not be paid unless authorized in advance by Seller. 6. PATENTS AND TRADEMARKS. Seller makes no representation or warranty of any kind, express or implied, that the use of such goods, or articles made therefrom, either alone or in conjunction with other material will not infringe any patent or trademark rights. Buyer shall promptly notify Seller of any claim or suit involving Buyer in which such infringement is alleged, and, if Seller is affected, Buyer shall permit Seller to control completely the defense or compromise of any such allegation of infringement. 10 11 7. FREIGHT AND TAXES. Any increase in freight rates paid by Seller on shipments covered by this contact and hereafter becoming effective and any tax or governmental charge or increase in same (excluding any franchise or income tax or other tax or charge based on income) (a) increasing the cost to Seller of procuring, producing, selling or delivering goods or of procuring materials used therein of (b) payable by Seller because of the production, sale or delivery of the goods, such as Sales Tax, Use Tax, Retailer's Occupational Tax, Gross Receipts Tax, Value Added Tax, may, at Seller's option, be added to the price herein specified. 8. PRICE REVISION. The order for the goods accepted hereby is accepted subject to delivery when available at Seller's price, point of delivery, service allowance, if any, and terms of payment in effect at date of shipment. If Seller desires to revise the price, point of delivery, service allowance or terms of payment for the goods hereunder but is restricted to any extent against so doing by reason of any governmental request, law, regulation, order or action, or if the price, point of delivery, service allowance or terms of payment in effect under this contract are altered by reason of governmental request, law, regulation, order or action, Seller shall have the right to (a) terminate this contract with respect to any goods not then delivered by written notice to buyer, (b) suspend deliveries for the duration of such restriction or alteration or (c) have apply to this contract (as of the effective date of such restriction or alteration) any price, point of delivery, service allowance or terms of payment governmentally acceptable. Any delivery suspended under this section shall be canceled without liability, but this contact shall otherwise remain unaffected. 11 EX-10.49 17 CONTRACT FOR SALE & PURCHASE OF ETHYLENE 10/28/88 1 EXHIBIT 10.49 ***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.*** CONTRACT FOR SALE AND PURCHASE OF ETHYLENE THIS CONTRACT, entered into as of this 28th day of October, 1988, by and between STERLING CHEMICALS, INC., a Delaware corporation with an operating office at Houston, Texas, hereinafter referred to as "BUYER", and PHILLIPS 66 COMPANY, a Delaware corporation with an operating office in Bartlesville, Oklahoma, hereinafter referred to as "SELLER"; W I T N E S S E T H: WHEREAS, SELLER has committed to build an olefins unit and related facilities (hereinafter collectively called the "olefins unit") near its Sweeny, Texas refinery and petrochemical complex and will produce ethylene, propylene and other products from said unit; and WHEREAS, the parties hereto desire for SELLER to sell and BUYER to purchase and/or pay for part of the ethylene produced at said olefins unit during the term hereof; NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: ARTICLE I SALE AND PURCHASE SELLER hereby sells and agrees to deliver and BUYER hereby purchases and agrees to receive, on the terms and conditions and at the price hereinafter stated, the volume of ethylene (plus or minus five percent (5%), at BUYER's option) during each and every contract year of the term hereof set out in Table 1 below. TABLE 1
CONTRACT YEAR QUANTITY - - ------------- -------- 1 through 8 * * * year
In the event BUYER shall at any time or from time to time fail to purchase at least ninety-five percent (95%) of the quantity of ethylene set out in said Table 1 at a time when SELLER is ready, willing and able to deliver same, BUYER shall nevertheless pay for such quantity of ethylene at the price established under either Article IV or Article XI below, as the case may be. The maximum quantity BUYER may purchase and take delivery of in any month, subject to the provision of Article XI below, is * * * of * * * * * * of the annual volume set out in Table 1 above. If, at any time during a contract year, for reasons other than force majeure under Article XI, BUYER's monthly purchases fall below a level which, in view of such monthly maximum purchase limitation, will not permit BUYER to fulfill its 2 purchase obligation for that contract year, BUYER shall nevertheless pay for a volume of ethylene, at a price determined under Article IV, during that month and succeeding months in that contract year at a rate which will result in payment by the end of that contract year for BUYER's purchase obligation for that contract year. Any such ethylene paid for but not delivered during the contract year in question shall be forfeited, except as otherwise provided for in Article XI. SELLER shall advise BUYER in writing of the date on which the olefins unit is deemed to be in start-up operation. SELLER shall use due diligence to achieve start-up operation as soon as reasonably practicable, but SELLER does not guarantee the particular date by which start-up operation will occur. From such date until SELLER notifies BUYER that the final facility completion test applicable to the olefins unit under SELLER's financing arrangements with its senior secured lenders (hereinafter the "Completion Test") has occurred shall be considered the start-up period. During such start-up period, SELLER shall have the obligation to sell and deliver ethylene to BUYER on a pro rata basis determined by applying the ratio that the annual obligation set out in Table 1 above bears to the design capacity of the olefins unit, to the total quantity of ethylene then being produced. SELLER's obligation to sell to BUYER during the start-up period is conditioned upon SELLER being satisfied, in its sole discretion, that the olefins unit has achieved reliable production status and inventory up to * * * * at SELLER's sole option, has been established. In no event shall SELLER make sales during the start-up period to non-contract customers. BUYER agrees to purchase such tendered ethylene during the start-up period and may elect within thirty (30) days following commencement of the first contract year, to have any quantities so purchased credited against its obligation to purchase ethylene hereunder during the first contract year. The Completion Test shall occur as soon as reasonably practicable and, in any event, within one year of the commencement of the start-up period. SELLER shall use due diligence to complete the olefins unit so as to achieve a capacity of 1.5 billion pounds of ethylene per year, but SELLER does not guarantee the particular capacity level which will actually be achieved. The primary term of this contract shall commence the first day of the month immediately succeeding the month of the Completion Test. If the Completion Test demonstrates an actual capacity less than 1.5 billion pounds of ethylene per year, there shall be a pro rata reduction in the annual quantity of ethylene to be purchased by BUYER during the primary term and any extensions thereof. In such event, the annual quantity to be purchased by BUYER, as set out in Table 1 above, during the primary term and any extensions thereof shall be determined in accordance with the following formula: 3 Revised Annual Contract Quantity = Annual Quantity in Table 1 Above X Demonstrated Capacity(Based on Final Completion Test) / Original Design Capacity Thereafter, if SELLER shall at any time during the term of this contract determine that the olefins unit has achieved a capacity greater than the demonstrated capacity set forth above, SELLER shall promptly notify BUYER and, BUYER shall have the option to increase its annual quantity to its pro rata portion of said new capacity, subject to a maximum of the quantity set out in Table 1 above. BUYER shall exercise its option by giving notice thereof to SELLER no later than thirty (30) days from the date of notification by SELLER. If BUYER exercises such option within the thirty (30) day period, the annual quantity to be purchased by BUYER during the remaining term of this contract, commencing the first day of the month immediately succeeding the month in which SELLER receives written notice from BUYER that it has elected to exercise such option, shall be increased to BUYER's pro rata share of the new capacity determined by the formula set out above. All such purchases shall be subject to the terms and provisions of this contract. ARTICLE II PERIOD OF CONTRACT Subject to the provisions of Article I, this contract shall be binding upon the parties upon and after execution hereof. It shall remain in full force and effect for a primary term of eight (8) years beginning upon the first day of the primary contract term established under Article I above (estimated to be January 1, 1991), and continuing thereafter unless and until terminated by either party by the giving of written notice of termination to the other party at least thirty-six (36) months in advance of the date of termination specified in such termination notice, which date of termination so specified shall be the last day of the primary term or the last day of any calendar month thereafter. ARTICLE III SPECIFICATIONS All of the ethylene to be sold and purchased hereunder shall meet the specifications therefor set forth in Exhibit "A" attached hereto and by this reference made a part hereof as fully as though set forth at length herein. ARTICLE IV PRICE It is the intent of the parties that this contract constitute a long-term relationship for the sale and purchase of ethylene, and therefore, it is to the mutual benefit of the parties that short-term pricing disputes be resolved 4 satisfactorily to permit accomplishment of this objective. It is the desire of both parties that the sale and purchase of ethylene hereunder be at a price established through monthly negotiations, subject to certain minimum price provisions as defined in subparagraph (5) below. The parties acknowledge that the marketplace for contract sales of ethylene by pipeline on the Texas Gulf Coast is represented by a range of prices nominated monthly by suppliers of ethylene to purchasers of ethylene. It is the intent of the parties that the price for ethylene hereunder reflect the average price generally nominated, with consideration given to the approximate quantity of ethylene represented by each nomination (hereinafter "average market price"), less a discount as more fully set forth in subparagraph (3) below. The procedure to be used to determine the actual selling price each month and to settle price disputes is set out below in this Article IV. (1) SELLER shall nominate a price no earlier than ten (10) days preceding the first day of each calendar month. BUYER and SELLER shall within ten (10) days after SELLER's nomination agree to a price meeting the criteria set forth above, which shall be the average market price for that month. The actual selling price for the month in question would be this average market price less the discount defined (3). (2) In the event the parties fail to reach agreement prior to the end of such period, the average market price for the month in question shall be calculated as follows: The difference between the Texas Gulf Coast delivered contract price (or if a range of prices is given, the arithmetic average of the range) for ethylene, as reported in the end of the month Monomers Market Report published by Chemical Marketing Associates, Inc., for the previous month and the month in question shall be added to or subtracted from, as the case may be, the previous month's average market price to arrive at the average market price for the month in question. In the event Monomer's Market Report ceases to be published, or the parties wish to discontinue its use, the parties shall mutually agree upon a replacement reference. The actual selling price for the month in question would be this calculated average market price less the discount defined in subparagraph (3). (3) At such time as the price is established under either (1) or (2) above, the minimum price, as hereafter defined in subparagraph (5), shall be calculated for the month in question. If the average market price is greater than the minimum price by * * * * or less, BUYER shall receive a discount from the average market price in (1) or (2) above, of * * * * of such difference. If the average market price is greater than the minimum price by more than * * * *, BUYER shall receive a discount from the average market price in (1) or (2) above, of * * * * of such difference for the first * * * * and a discount of 5 * * * * of such difference in excess of * * * * In lieu of accepting SELLER's price nomination and discount provided for in subparagraphs (1), (2) and (3) above, BUYER may within ten (10) days following such nomination, notify SELLER of a competitive offer as defined immediately below. In order to be considered hereunder, a competitive offer must be for a contract, either existing or offered, of at least one (1) year in duration, with a quantity of at least 100 million pounds per year, on a delivered basis to any of BUYER's plants or pipelines, and with comparable quality. In all cases, tolls feedstock and cost-related formulas shall be excluded, unless the formula establishes a minimum price in a market-related price contract. BUYER may submit any such competitive offer which is effective for a period of time, once for the entire period during which such offer continues in effect rather than repetitively each month during such period. SELLER shall thereupon have the options set out in subparagraphs (i), (ii) and (iii) below, except that SELLER may exercise any such option for the entire period of the offer's effectiveness or on a month-by-month basis. SELLER shall respond to any such offer presented by BUYER within five (5) days of BUYER's notification thereof, or within five (5) days after the first day of the month if it is a continuing offer, in one of the following ways at SELLER's sole option: (i) SELLER may agree to meet the competitive price, which would become the actual selling price for the month in question. ( ii) SELLER may propose an alternate price, which if mutually acceptable to BUYER and SELLER would become the actual selling price for the month in question. (iii) In the alternative, SELLER may decline to meet the competitive offer presented by BUYER, and in such event the actual selling price for the month in question shall be established as follows: The difference between the Texas Gulf Coast delivered contract price (or if a range of prices is given, the arithmetic average of the range) for ethylene, as reported in the end of the month Monomers Market Report published by Chemical Marketing Associates, Inc., for the previous month and the month in question shall then be added to or subtracted from, as the case may be, the previous month's actual selling price to arrive at the actual selling price for the month in question. In the event Monomer's Market Report ceases to be published, or the parties wish to discontinue its use, the parties shall mutually agree upon a replacement reference. (4) In the event BUYER and SELLER fail to agree on a price for deliveries hereunder under (1), (i) or (ii), and must rely on subparagraph (2) or (iii) or a combination thereof, for the immediately preceding two (2) consecutive 6 months, the actual selling price for the third month shall be determined as follows: The weighted average of SELLER's contract sales prices, and, BUYER's option, the weighted average of BUYER's contract purchase prices for the month in question, excluding the prices under this contract, shall be calculated. The prices included in each such calculation shall be only those from contracts of one (1) year or more duration for sale and purchase of at least 50 million pounds of ethylene per year between non-affiliated entities in the Texas Gulf Coast area, excluding any arrangement or side agreements affecting other products or product consideration such as barter or toll arrangements or cost related formulas. The actual selling price for the month in question shall then be the arithmetic average of the two prices calculated above. In the event BUYER has no purchases satisfying the conditions stated herein, or elects not to submit any such purchase prices for consideration, then the price shall be SELLER'S weighted average contract sales price meeting the conditions of this paragraph. In the next ensuing month, the actual selling price shall be calculated again in accordance with subparagraph (1), (2), (i) (ii) or (iii) above. In the event that the actual selling price for the month in question is determined by subparagraph (i), (ii), (iii), or (4), an average market price for the month in question shall be calculated for future reference as follows: If the difference between the average market price and the minimum price is * * * * or less; Average Market Price = (Actual Selling Price - * * * * / * * * * If the difference between the average market price and the minimum price is greater than * * * * Average Market Price = (Actual Selling Price - * * * * (Minimum Price) - * * * * / * * * * For the above calculation all prices are in dollars per pound. Both parties recognize that changes in market conditions from time to time can result in the need to change the timing of price nomination and response provided for above. The parties agree to meet at mutually agreeable intervals for the purpose of attempting to agree to revised timing of price nomination and response in order to permit accurate assessment of the average market price. (5) The pricing procedures set out above in this Article IV are at all times subject to a minimum price to be calculated each month as necessary using the following formula: 7 Minimum Price = (A) - (B) + (C) Where (A) is the cost of the feedstock for the month in question, (B) is the credit to be applied as a result of the sale of co-products from ethylene production, and (C) is a fee initially set at * * * *, all as more fully defined below. (A) Feedstock cost shall be calculated as set forth immediately below, expressed in dollars per pound of ethylene, and multiplied by the quantity of ethylene sold to BUYER during the month in question. Feedstock volumes required to produce the quantity of ethylene sold to BUYER for the month in question are determined as follows: Feedstocks Required Per Pound of Ethylene
Amount Feedstock * * * * 80% ethane/20% propane * * * * 100% propane
The price per gallon used to determine feedstock cost for the ethane component of the ethane/propane mixture and for propane, either as a component of a mixture or alone, during any month, is the average of the midpoint of the daily high and low spot prices for ethane in ethane/propane mix and for propane for that month as reported for Mont Belvieu, Texas, TET basis, by Oil Price Information Service (published by United Communications Group, 4550 Montgomery Avenue, Suite 700 N, Bethesda, Maryland 20014-3382). In the event this publication ceases to be published, or the parties wish to discontinue its use, the parties shall mutually agree upon a replacement reference. In making the foregoing calculations, it will be assumed that the feedstock used (as between ethane/propane mix and 100% propane), regardless of the feedstock actually run, is the one that results in the lowest minimum price (as defined above) for ethylene that month. (B) Co-product credit shall be calculated as set forth immediately below, expressed in dollars per pound of ethylene, and multiplied by the quantity of ethylene sold to BUYER during the month in question. The volumes of co-products used to calculate the credit are on the following standard yields: Co-Products Per Pound of Ethylene Co-Products Feedstock - - ----------- ------------------------------------- EO/20 Ethane/Propane 100% Propane Propylene, Polymer * * * * * * * * Grade (Lbs.) Butadiene Concentrate * * * * * * * * (gal.) Debutanized Aromatic * * * * * * * * Concentrate (gal.) 8 The price for each co-product shall be Phillips 66 Company's actual outside weighted average selling price of the individual products to non-affiliated purchasers in the Texas Gulf Coast area. (C) The final component is set initially at * * * * per pound, but * * * * will be adjusted up or down monthly based on the following factors: (i) * * * * of said * * * * will increase or decrease from the "Base Value" in the latest published final monthly figure for "Average Hourly Earnings" for the "Manufacturing" group, "Chemicals and Allied Products", as published in Table C-2 entitled "Gross Hours and Earnings of Production or Non-supervisory Workers", in the monthly booklet entitled "Employment and Earnings", issued by the Bureau of Labor Statistics, United States Department of Labor, available on the last day of the previous month. The "Base Value" referred to above is the final monthly figure for March, 1988, which is $12.52 per hour. Such increase or decrease shall be calculated as follows: Change = (Latest Figure for Average Hourly Earnings/$12.52) X * * * * - * * * * If said monthly figure shall cease to be published by the Bureau of Labor Statistics, the parties shall adopt by mutual agreement such other labor index in the chemical industry as most closely approximates the discontinued figure. (ii) * * * * of said * * * * will increase or decrease from the "Base Value" in the final monthly index for "Industrial Commodities" as published in the monthly booklet entitled "Producers Price Index" prepared by the Bureau of Labor Statistics, United States Department of Labor, for the latest previous month. The "Base Value" referred to above is 104.7, which is the final monthly index for March, 1988 (1982 equaling 100). Such increase or decrease shall be calculated as follows: Change = (Latest Figure for Industrial Commodities/104.7) X * * * * - * * * * If said monthly index shall cease to be published by the Bureau of Labor Statistics, the parties shall adopt by mutual agreement such other commodity index as most closely approximates the discontinued one; and if the Bureau of Labor Statistics changes the basis for reporting said monthly index from the present basis of 1982 prices equaling 100, this escalation factor shall be altered accordingly. 9 The minimum price formula, as defined in subparagraph (5) above, shall be calculated monthly no later than the 10th day after the end of the month in question. SELLER shall notify BUYER promptly in the event that the minimum price formula affects the actual selling price. Anytime the minimum price is in effect, SELLER shall account for the total dollar difference between the MINIMUM price and either the average market price or the actual selling price, as the case may be, as such prices are derived under the provisions of paragraphs (1), (2), (i), (ii), (iii), or (4) above. If, during the remaining term of this contract, the actual selling price once again exceeds the minimum price, BUYER shall receive as a credit against sums owing to SELLER in excess of the minimum price the amount accounted for as described above. If the actual selling price remains below the minimum price for the remaining term of this contract or BUYER is otherwise unable to fully utilize all such credits, BUYER's right to use such sums as credits shall expire upon expiration of this contract. ARTICLE V DELIVERY AND TITLE TRANSFER Deliveries of ethylene hereunder shall be made to BUYER at the point of delivery, which shall be the point of connection between SELLER's pipeline or pipelines arranged by SELLER and BUYER's plant at Texas City, Texas. Title and risk of loss shall pass from SELLER to BUYER at said point of delivery. BUYER shall have no responsibility or liability on account of anything which may be done, happen or arise with respect to ethylene before delivery, and SELLER shall have no responsibility or liability on account of anything which may be done, happen or arise with respect to ethylene after delivery. SELLER shall bear all costs of transporting the ethylene to said point of delivery, and BUYER shall bear all costs of transporting the ethylene from said point of delivery. Delivery shall be made at the pressure designated by BUYER but not exceeding 1950 pounds per square inch gauge at the point of delivery. SELLER shall install, maintain, and operate at said point of delivery a suitable meter and other facilities whereby the volume of ethylene delivered by SELLER to BUYER is measured and the temperature and pressure recorded, and BUYER shall grant to SELLER all necessary rights and easements for the installation, maintenance, operation and removal of said meter and facilities. BUYER, if it so elects and gives notice of such election to SELLER shall have the right to observe the periodic recalibration of said meter and facilities, such recalibration to be made at SELLER'S expense as often as necessary but no less frequently than once each month. BUYER may, at its option and at its sole cost and expense, install a check meter at said point of delivery; and in the event it does so, SELLER will furnish BUYER with information to permit BUYER to duplicate SELLER's meter. The volume of ethylene delivered by SELLER hereunder each day shall be determined by references to daily readings of SELLER's meter. For this 10 purpose, a day shall be construed to extend from 7:00 a.m. on one day to 7:00 a.m. on the next succeeding day, and correction factors and calculations from such meter readings for the purpose of determining the daily quantities of ethylene delivered hereunder shall conform with procedures mutually agreed upon by the parties. Such daily quantities shall be converted to pounds of ethylene in accordance with the method set forth in Exhibit "B" attached hereto and by this reference made a part hereof as fully as though herein set forth at length. In the event representatives of the parties hereto are unable to agree (1) on whether any ethylene delivered hereunder meets the specifications set forth in Article III hereof, or (2) on the measurements of any ethylene delivered hereunder for which provision is made in this Article V, or (3) on the determination of pounds of ethylene delivered hereunder in accordance with the methods prescribed in Exhibit "B", any and all such disputes shall be resolved either by Chas. Martin Inspectors of Petroleum, Inc., or E. W. Saybolt and Company, at the election of the party raising the question, or such other recognized referee as may be agreed upon by the parties. Submission to such referee shall occur within thirty (30) days after notice of a dispute is given by one party to the other. The decision of such referee with respect to such matters shall be final, conclusive, and binding on each of the parties hereto and the changes of such referee shall be borne equally by the parties. ARTICLE VI TAXES Any tax (except property, franchise, and income taxes), license fee, inspection fee, or other charge imposed by any governmental authority or other agency on or measured by gross receipts from ethylene herein sold, or on the production, manufacture, transportation, sale, use, delivery, or other handling of ethylene or any component thereof or on any feature thereof or of this contract existing at the time of any delivery hereunder shall be added to the price then in effect hereunder and shall be paid by BUYER to SELLER if such tax, fee, or charge is required to be or is paid by SELLER. Failure of SELLER to add any such tax, fee or charge to the invoice shall not relieve BUYER of liability therefor unless a time period of more than five (5) years has elapsed, but in no event shall BUYER be subject to payment of interest and penalties. ARTICLE VII INVOICING AND PAYMENT SELLER shall invoice BUYER for ethylene sold and purchased hereunder no more often than once during each calendar month for the preceding months' sales. Such invoices shall be dispatched promptly by SELLER telegraphically or otherwise, so as to be received by BUYER within three (3) days of the date of invoice based upon quantities actually delivered and the SELLER's best 11 estimate of the actual selling price. Such provisional price shall be adjusted in the next month's invoice based upon the actual selling price for the relevant month calculated in accordance with Article IV, and shall be shown as a charge or a credit, as the case may be, in the invoice reflecting the adjustment. Payment shall be made by BUYER to SELLER on or before the 15th day following the date of each invoice by telegraphic transfer or other means satisfactory to SELLER of immediately available funds to SELLER's account at such bank or depository as is designated in the invoice. Late payments for purchases shall be assessed a delinquency charge on a daily basis at the rate of one percent (1%) per month (30 days) on the unpaid balance. In no event shall the delinquency charge exceed the legal maximum. It is agreed that SELLER may decline to make deliveries of the ethylene sold under this contract except for cash payable upon delivery whenever SELLER shall have any reasonable doubt as to BUYER's financial responsibility and shall so advise BUYER, whereupon BUYER shall have the privilege of satisfying SELLER as to BUYER's financial responsibility. If SELLER is so satisfied, deliveries may be resumed hereunder on the terms provided in the first paragraph of this Article VII. SELLER may exercise its rights under this Article VII at any time and from time to time during the continuance of this contract. ARTICLE VIII CLAIMS No claim, other than willful or intentional breach of this contract, as to ethylene delivered (whether or not conforming to specifications) or for nondelivery of ethylene and whether or not based on negligence, shall be greater in amount than the purchase price of the ethylene in respect of which such claim is made; provided, however, that the limitations stated herein do not apply to deliveries that contain less than seventy-five (75%) ethylene. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES, WHETHER OR NOT CAUSED BY OR FROM THE NEGLIGENCE OF SUCH PARTY. BUYER shall notify SELLER within thirty (30) days of date of delivery of any claim, and failure of BUYER to make such claim within thirty (30) days shall operate as a waiver of any claim. ARTICLE. IX RECORDS To the extent that records of either party are to be used in the administration of this contract, the party whose records are to be used agrees to keep true and correct records pertaining to this contract and all transactions related thereto and to maintain s such records for a period of at least three (3) years after termination of this contract. On written request by either party and at such party's expense, such party may have a firm of 12 independent certified public accountants audit any and all such records of the other party at any time or from time to time for the purpose of confirming the accuracy of such records and the manner in which such records have been used in the administration of this contract; provided, however, that such accountants shall not disclose to the party requesting the audit any information obtained during such audit and shall only report to such party the results of the audit and whether same shows compliance with the terms of this contract, or as the case may be, the respects in which the terms of this contract have not been complied with. The right to audit such records shall expire three years after termination of this contract. ARTICLE X NOTICES Any notice, request or other communication provided for hereunder shall be deemed sufficient if given in writing, or by telegram or other electronic means, properly addressed with postage or other charges prepaid, and mailed or delivered to the party for which it is intended, as follows: BUYER: STERLING CHEMICALS INCORPORATED 333 Clay Street, Suite 3700 Houston, Texas 77002 SELLER: Phillips 66 Company Chemicals Division Adams Building Bartlesville, Oklahoma 74004 or at such other address as a party may designate which is communicated as herein provided. Any such notice, request or other communication mailed by registered or certified mail shall be deemed to have been given or delivered at the time of mailing; if otherwise mailed or delivered, or if electronic transmission is used, it shall be deemed given or delivered when received. ARTICLE XI FORCE MAJEURE No liability (except payment by BUYER for ethylene purchased hereunder, as more fully provided below) shall result to either party from delay in performance or nonperformance arising from any cause or causes reasonably beyond the control of the party affected, including but not limited to the following, which shall be deemed to be beyond the control of such party: Acts of God, fire, flood, war, accident, labor trouble (from whatever cause), shortage of or inability to obtain any goods deliverable hereunder or raw materials therefor from SELLER's existing or intended sources of supply, 13 shortage of or inability to obtain equipment or transportation, or compliance with any law, regulation, order, direction or request made by governmental authority or person purporting to act therefor. If, by reason of any such cause or causes, supplies of any goods deliverable hereunder or raw materials therefor are curtailed or cut off, SELLER's obligation hereunder during such curtailment or cessation may, at its option, be reduced to the extent necessary in the SELLER's judgment to apportion fairly among its contract customers and among the operations of SELLER (including those of SELLER's subsidiaries and affiliated companies) the goods or raw materials then in storage and such additional quantities as may be received in the ordinary course of SELLER's business; but SELLER shall not be required to increase its taking from any sources of supply or to purchase goods or raw materials therefor to replace the goods or raw materials so curtailed or cut off. SELLER's obligation to supply hereunder during all force majeure situations, except the inability to obtain raw materials, is based upon production solely from the olefins unit. SELLER's obligation to supply hereunder in the event of force majeure due to the inability to obtain raw materials shall be based upon a pro rata portion of production from all of Phillips 66 Company's olefins units. In the event a force majeure occurrence resulting from physical damage to or destruction of the olefins unit continues for one (1) year, BUYER shall, at anytime after the expiration of such one (l)-year period, have the option to cancel this contract upon thirty (30) days' written notice to SELLER. If within such thirty (30) day period, SELLER notifies BUYER in writing that it intends to repair, reconstruct or otherwise take such action as is necessary to return the olefins unit to operation with reasonable dispatch, then in such event BUYER's cancellation notice shall be void and of no further force and effect. Deficiencies in deliveries of ethylene hereunder by reason of any such cause or causes shall be canceled from the contract with no liability to either party therefor. Notwithstanding a declaration of force majeure by BUYER and subject to the provisions of Article IV above, BUYER shall nevertheless pay for a quantity of ethylene each month during the continuance of BUYER's force majeure condition sufficient to enable BUYER to fulfill its purchase obligation for that contract year by the end of such year. The price for such purchases shall be component (C) of the minimum price calculated under the provisions of Article IV above. During the continuance of BUYER's force majeure the Obligation of BUYER to pay such price for such quantity of ethylene shall be absolute and unconditional under any and all circumstances, except for force majeure by SELLER, shall not be subject to any reduction, limitation, impairment or termination whether by reason of any claim of any character whatsoever or otherwise, including, without limitation, any claim of waiver, release, surrender, alteration or compromise and shall not be subject to any defense, set-off, counterclaim, recoupment, rescission or termination whatsoever, whether by reason of any default, willful misconduct, negligence or otherwise either within or outside the control of BUYER or any Other reason except that the obligation of BUYER hereunder shall be deemed discharged to the extent of any payment by BUYER in respect of such quantity. If (1) no joint venture 14 company, as described in Article XIV below, is formed and no indebtedness pertaining directly and specifically to the olefins unit is obtained on or before the commencement of the of the start-up period, or (2) this contract is assigned under Article XIV below to the joint venture company described therein and subsequently SELLER purchases the interests of all other equity investors in said olefins unit, and all indebtedness pertaining directly and specifically to the olefins unit has been retired, then upon the occurrence of either (1) or (2) above, the provisions of this paragraph requiring BUYER to purchase ethylene notwithstanding its own force majeure declaration shall thenceforth be void and of no further force or effect. Notwithstanding the monthly maximum delivery limitation set out in Article I above, SELLER shall use its best efforts to deliver to BUYER over the remaining term of this contract all quantities sold but not delivered under the provisions of this Article XI. If such quantities are not entirely delivered prior to termination of this contract, BUYER shall have the option to extend the contract for period of time necessary to complete such deliveries. The rate at which such deliveries are made during such extended term shall be determined by SELLER, which shall in turn dictate the period of such extended term. Whenever ethylene sold but not delivered under the terms of this article is delivered, the actual selling price therefor shall be determined at the time of actual delivery under Article IV above, less the price already paid by BUYER (based on first-in-first-out accounting on such undelivered volumes). ARTICLE XII WAIVERS The right of either party to require strict performance by the other party of any or all obligations imposed upon such other party by this contract shall not in any way be affected by previous waiver, forbearance or course of dealing. ARTICLE XIII WARRANTIES SELLER warrants that all ethylene delivered hereunder will comply with the specifications set forth in Exhibit "A", that said ethylene will have been produced in compliance with of the Fair Labor Standards Act of 1938, as amended, and that SELLER will convey good title thereto. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES (WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED), INCLUDING WITHOUT LIMITATION WARRANTY OF MERCHANTABILITY IN OTHER RESPECTS THAN EXPRESSLY SET FORTH ABOVE AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. 15 ARTICLE XIV ASSIGNABILITY All of the terms, conditions, and provisions hereof shall extend to and be binding upon the respective parties hereto, their successors and assigns; provided, however, that neither party shall assign this contract or any interest herein without the prior written consent of the other party; except that either party may, without the consent of the other assign this contract or any interest herein to (1) a corporation with which such party merges or to which such party's assets used in the performance hereunder shall be sold and conveyed during the term hereof, or (2) one or more lenders to such party, or to a trustee, fiscal agent or fiduciary for such lenders, or to any third party that supplies a letter of credit, payment bond, performance bond, financial guarantee bond, business risk insurance or any other third party coverage insuring payment to such lenders, in any such case for security purposes; and with the further exception that (i) SELLER may, without the consent of BUYER, assign this contract to a joint venture company 50% of which would be owned directly or indirectly by SELLER, which joint venture company would be the owner of the ethylene production facility referred to herein and would be an independent entity with respect to production and inventory of ethylene, (ii) such joint venture company may, without the consent of BUYER, assign this contract to one or more lenders to such company, or to a trustee, fiscal agent or fiduciary for such lenders, or to any third party that supplies a letter of credit, payment bond, performance bond, financial guarantee bond, business risk insurance or any other third party coverage insuring payment to such lenders. BUYER agrees to execute and deliver a written consent to any of the assignments permitted herein. ARTICLE XV ENTIRETY OF AGREEMENT This instrument contains the entire agreement between the parties hereto regarding the sale, purchase and delivery of ethylene during the period provided herein; and all prior promises, agreements or warranties, written or verbal, shall be canceled and superseded hereby and shall be of no further force or effect unless embodied herein. No modifications of this contract shall be valid unless in writing and signed by both parties, and no modification shall be effected by the acknowledgment or acceptance of any purchase orders or printed forms containing different conditions ARTICLE XVI GOVERNMENTAL CONTROLS If any existing or future law or governmental decree, regulation, order or ruling, or interpretation thereof, shall in the opinion of SELLER prohibit 16 SELLER at any present or future time from charging and receiving payment of the minimum price as defined in Article IV above for ethylene delivered hereunder, SELLER may at its option terminate this contract by giving BUYER not less than thirty (30) days' prior written notice; provided, however, such notice of termination shall not be given until and unless such price prohibition becomes effective. In the event SELLER shall exercise a right of termination under the provisions of this Article XVI, SELLER agrees that it will not during the unexpired term of this contract sell, exchange or otherwise dispose of any portion of the ethylene which was subject to this contract to any third party (exclusive of purchase for consumption by affiliated companies) without first offering such ethylene to BUYER on terms and conditions at least as favorable to BUYER as those offered to such third party. Notwithstanding the foregoing it is the intention of the parties to make such reasonable adjustments under this contract as will accommodate any price limitations imposed by any governmental law or regulation without imposing undue economic hardship to either party. ARTICLE XVII APPLICABLE LAW The validity, interpretation and performance of this contract shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, this contract is executed in duplicate for each party by and through its respective officers duly authorized, as of the date first above written. PHILLIPS 66 COMPANY ATTEST: Diane F. Stewart By By Gary E. Southerland SELLER STERLING CHEMICALS INC. ATTEST: J. David Heaney By Secretary By J. Virgil Waggoner President BUYER EXHIBIT A 17 EXHIBIT A SPECIFICATIONS ETHYLENE
SPECIFICATION TEST METHOD * ------------- ----------- Ethylene, Min. Mol % 99.85 Gas Chromatography PPCo. 6605-AG-1 Inerts, max. mol % 0.150 Gas Chromatography PPCo. 6605-AG-1 Carbon Dioxide, max., ppm 10 Gas Chromatography PPCo. 6605-AG-1 Carbon Monoxide, max., ppm 5 Gas Chromatography PPCo. 6605-AG-1 Acetylenes, max., ppm 5 Gas Chromatography PPCo. 6605-AG-1 Sulfur, max., ppm 2 ASTM D-2784 Water, max., ppm 10 Karl Fischer PPCo. 5688-AK-3 Oxygen, max., ppm 5 Gas Chromatography PPCo. 6605-AG-1 Hydrogen, max., ppm 5 Gas Chromatography PPCo. 6605-AG-1
* Test methods shown below shall be used unless an equivalent test method can be mutually agreed upon. 18 * Test methods shown below shall be used unless an equivalent test method can be mutually agreed upon. EXHIBIT B METHOD OF CONVERSION OF VOLUMES OF ETHYLENE TO POUNDS OF ETHYLENE The pounds of ethylene delivered daily shall be determined in accordance with the method outlined in the booklet entitled "Phillips Chemical Company Ethylene Flow Measurement Manual as Revised January 1, 1985." The methods of gas flow measurement and the methods of gas volume computation outlined in the manual referred to above will be controlling; provided, however, that revisions in the aforesaid manual may be made at any time during the life of this contract upon agreement by both parties. EX-10.50 18 AGMT BETWEEN SPC LTD & PULP PAPER 1 EXHIBIT 10.50 ROGER THOMEY 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 2 TABLE OF CONTENTS
ARTICLE 1 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 RECOGNITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 MANAGEMENT FUNCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 UNION SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 TERMS OF AGREEMENT AND CHANGES IN AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 STRIKES AND LOCKOUTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7 HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 CALL TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 9 HOURS OF WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 10 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 11 ALLOWANCE FOR FAILURE TO PROVIDE WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 12 UNION NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 13 SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 14 SENIORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 15 GRIEVANCE PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 16 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 17 DAYS OFF AND SCHEDULE OF SHIFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 18 VACATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 19 TEMPORARY EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20 JOB CLASSIFICATIONS AND JOB RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 21 WAGE RATE ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 22 OVERTIME AND PREMIUM TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3 TABLE OF CONTENTS (CONT'D) 23 JURY DUTY PAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 24 BEREAVEMENT LEAVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 25 MAINTENANCE DEPARTMENT APPRENTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 26 SUSPENSION AND/OR DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 27 LEAVE OF ABSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 28 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 29 TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 30 TECHNOLOGICAL CHANGE AND TERMINATION PAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 31 CONTINUOUS 12-HOUR SHIFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 32 HEALTH AND WELFARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 33 PENSION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 EARLY RETIREMENT PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 34 BANKING OF OVERTIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 APPENDIX "A" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 APPENDIX "B" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 APPENDIX "C" BENEFITS OF HOURLY-PAID EMPLOYEES North Vancouver Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 APPENDIX "D" PRODUCTION SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Changes from previous contract (November 1994) are indicated by highlighting & bolding. 4 AGREEMENT BETWEEN STERLING PULP CHEMICALS LTD. NORTH VANCOUVER, B.C. (HEREINAFTER REFERRED TO AS "THE COMPANY") AND LOCAL 5 PULP, PAPER AND WOODWORKERS OF CANADA (HEREINAFTER REFERRED TO AS THE "UNION") Article 1 PURPOSE 1.01 The purpose of the Agreement is to provide for orderly collective bargaining, prompt disposition of grievances, wages, hours of work and other terms and working conditions to the extent and in the manner provided herein. Article 2 RECOGNITION 2.01 The Company recognizes the Union as the sole and exclusive bargaining agent for its employees employed in production and maintenance except those excluded by the Labour Relations Code of British Columbia (1993), foreman, those above the rank of foreman, sales staff, office and clerical staff test and quality control staff, laboratory technicians, draftsmen, security guards and those engaged in office janitor work. 2.02 The terms "employee" and "employees" when used in this agreement shall mean persons in the employ of the Company within the bargaining unit described herein above and covered by this Agreement. Gender: The use of "he", "his" and "him" refer to both the masculine and feminine genders. 2.03 The Company recognizes the Union's right to communicate with its members on the Company's property so that the Union, through its elected officials, may fairly represent the employees. Article 3 MANAGEMENT FUNCTIONS 3.01 All functions, powers, or authority which the Company has not specifically abridged, delegated or modified by this Agreement will be recognized by the Union as being retained by the Company. 1 5 Article 4 UNION SECURITY 4.01 Any employee who is now a member in good standing or who becomes or is reinstated as a member of the Union shall, as a condition of employment, maintain such membership in good standing throughout the term of this Agreement. Any new employee hired shall become a member of the Union thirty (30) days after his or her employment. In the event of a Local Union intending to suspend a member for non-maintenance of membership, the Company shall be notified by the local, in writing at least seven (7) days before suspension. 4.02 No employee shall be subject to any penalties against his application for membership or reinstatement, except as may be provided for in the Constitution of the Pulp, Paper and Woodworkers of Canada. 4.03 There shall be no discrimination against any employee or employees in any manner whatsoever because of race, colour, creed, nationality, Union membership, and non-Union membership. 4.04 In case a dispute arises as to whether or not an employee has failed to maintain his Union membership in good standing, the Union agrees to save harmless from and indemnify the Company for any liability that may arise from any acts of the Company taken under provisions of ARTICLE 4, as a result of its reliance on a representation of facts by the Union. 4.05 The Company will deduct a Union initiation fee and monthly Union dues in amounts authorized by individual employees and presented in writing to the Company. Any Union dues passed in compliance with Local 5 of the Pulp, Paper and Woodworkers of Canada by-laws shall be applied and deducted upon notification from the Secretary of Local 5 sent to the Company. Such deductions shall be remitted to the Local Secretary - Treasurer as soon as possible after the first pay period of each month and any adjustments will be made the following month. The Union shall advise the Company of the address of the Local Treasurer and of any changes in this address. Deductions of Union dues from an employee's pay shall be discontinued when written authorization furnished the Company by the employee is revoked, in writing by the employee. 4.06 There shall be no solicitation for membership, meetings, etc., during working hours and/or on Company premises except with the permission of the Company. 4.07 For the purpose of this Agreement, a member of the Union in good standing shall mean an employee who has paid or tendered an amount equivalent to the regular monthly Union dues and assessments. Article 5 TERMS OF AGREEMENT AND CHANGES IN AGREEMENT 5.01 This Agreement shall be in effect until the 30th of November, 1997 and shall continue thereafter from year to year unless during the four months immediately preceding the expiry date either party has given written notice to the other party that desires revision of this Agreement and its expiry date. 2 6 5.02 If notice of desire for changes has been given the parties shall, as soon as agreeable, meet for collective bargaining. If such negotiations cannot be completed prior to December 1st following the October 1st on which such notice was given, any changes in compensation to employees shall be retroactive to December 1st. Article 6 STRIKES AND LOCKOUTS 6.01 The Union and its members agree that it will not cause, authorize or sanction any strike or stoppage of any of the Company's operations or any Curtailment of work or restriction of or interference with production during the terms of this Agreement. 6.02 The Company agrees that it will not cause or sanction a lockout during the terms of this Agreement. Article 7 HOLIDAYS 7.01 Recognized Holidays (a) New Year's Day Canada Day Remembrance Day Good Friday 1st Monday In August Christmas Day Easter Monday Labour Day Boxing Day Victoria Day Thanksgiving Day
(b) In the event that Heritage Day is declared as a Statutory Holiday by the Federal Government it will be included in the above list of holidays. 7.02 The period of time recognized as a holiday is the twenty-four (24) hour period from 0001 hrs to 2400 hrs on the date recognized as the holiday. However for those employees working the 12 hour shift schedule, the holiday will commence at 1830 hours immediately preceding such 12:01am and will end twenty-four (24) hours later. (ie 1830 hours on the day of the holiday) . 7.03 The hours of commencing and ending specified above may be varied by mutual agreement of the Management and the Union Standing committee. The specified hours of commencing or ending will be adjusted to coincide with regular hours for changing shifts. 7.04 a) It is understood that day workers will not be required to work on a holiday except to meet the needs of the continued uninterrupted operation of the plant. b) Further, and with special reference to the Christmas holiday the parties recognized that shift workers will be held to absolute reasonable minimum and that only those activities required to maintain the necessary efficient operation of the plant shall be performed. 7.05 a) When any of the holidays listed in the Agreement falls on a Saturday or Sunday, shift workers should observe the holiday on the day which it falls. Day workers, scheduled Monday to Friday, will observe the holiday on such a day as will provide them with a long weekend. The determination of such day or days shall be determined by the Company consistent with operational requirements. 3 7 b) In the event a holiday falls on a day when a day worker would otherwise be scheduled off, then said employee will take the holiday on the Thursday before or the Tuesday following the holiday whichever is applicable and is mutually agreed. c) In the event the holiday falls on the day when a shift worker would otherwise be scheduled off, he has the option of banking the time and/or the money. d) For shift workers, holiday pay is calculated as 8 hours pay at straight time, and in the case of banking, 8 hours will be banked for each holiday that falls on a scheduled day off, and 12 hours for each holiday worked. 7.06 Overtime shall be paid for all work performed during holidays at the rates hereinafter specified. 7.07 In addition to any other compensation earned, all employees who are on the payroll of the Company on any of the forgoing recognized holidays will be granted eight (8) hours pay on the straight time rate of the employee's regular job, provided however, that: (a) Any new employee must have been on the payroll for not less than thirty (30) days just preceding the holiday and must have worked a minimum of eighty five (85) hours during that thirty (30) day qualifying period. b) The employees must have worked his scheduled work day before and his scheduled work day after the holiday unless failure to work was due to any of the following events. (1) When the employee is on his regular authorized vacation. (2) When the employee's absence is due to bonafide sickness or occupational or non-occupational accident provided however, that payment for such holiday is not being covered by W.C.B. or sick benefit insurance. Payment for such holiday will not be extended beyond the time limit of W.C.B. or sick benefit insurance. (3) When a trade in shifts agreed upon between employees, and approved in advance by Management, results in temporary change of the scheduled work day after the holiday, provided the employee works the shift agreed upon. (4) When the employee's absence is due to an approved leave of absence granted by the Company; provided however that such leave of absence does not exceed ten (10) days prior to or ten (10) days following such holiday. (5) When the employee's absence is due to Jury Duty, subpoenaed witness or bereavement leave as provided by this Agreement. (6) When the operation in which the employee is engaged is curtailed or discontinued by the decision of management and which curtailment of discontinuance changes or eliminates the employee's scheduled work day before, or his scheduled work day after, such holiday. 7.08 An employee whose work schedule conflicts with the normal observance of a specified holiday may elect to bank the holiday, and take the time off and pay thereof, provided the following conditions are met: (a) The holiday(s) and holiday(s) pay shall be taken at a time convenient to the employee and management consistent with the continued, economic and efficient operation of the plant. 4 8 It is understood that requests for time off received and granted thirty (30) days in advance will be honoured. (b) Employees must notify their supervisor in writing at least one week in advance of the holiday of his intent to bank that holiday. (c) It is also agreed and understood that the employee will take such banked holidays within one year of banking. If the employee does not arrange to take the holiday within the given delay, the Company will schedule time off at its own discretion in lieu thereof or alternatively, if mutually agreed, reimburse any banked holiday pay and forfeit the banked time. 7.09 Employees working temporarily at a higher job rate will be paid at the job rate for a statutory holiday providing they work at that higher job rate on both sides of said statutory holiday, otherwise they will be paid for the statutory holiday based on their regular job rate. If the employee is scheduled off on either side of the statutory holiday, then his last scheduled day on before, and his first scheduled day on after the statutory holiday, will satisfy this section. 7.10 In the event that an employee is called in, or is scheduled to work, on a recognized statutory holiday on a job paying a higher rate than his regular job, he will be paid for the statutory holiday at the higher rate of pay. Article 8 CALL TIME 8.01 Call time is an occasion when an employee, after leaving the premises, is called in to work before his next regularly scheduled reporting time. In such cases, the Company will pay an additional amount over and above pay for hours worked, equal to three (3) hours pay at the employee's straight time hourly rate, which shall be known as call time. Such call time shall not be payable when the employee, before leaving the premises, is notified to report for work before his next regularly scheduled reporting time. 8.02 When the hours worked on call time are extended to the employee's regularly scheduled starting time, overtime rates as called for by this section, shall cease at the employee's regularly scheduled starting time unless such call-in was of such duration as to give the employee a full shift prior to his regular starting time consistent with article 22.10. Article 9 HOURS OF WORK 9.01 Hours of work shall be scheduled by the Company in accordance with the requirements of the plant. 9.02 Employees shall be at their work place and ready to assume their duties at the commencement of their work day. 9.03 Shift workers will not leave their work place until 0630 HRS (or 1830 HRS) unless relieved by the employee assigned to the same position on the following shift. 5 9 9.04 Employees are expected to co-operate in the execution of necessary overtime work. The Company will make every effort to keep overtime to a minimum consistent with the continued efficient operation of the plant. 9.05 The normal hours of work shall be: a) For Day Workers - from 0700 Hrs. to 1200 Hrs. and from 1230 Hrs. to 1650 Hrs. A ten minute wash up period will be provided prior to lunch and at the completion of the work day. Labourers and Relief Brine Operators assigned to the Maintenance Department (for a period of a week or more), will be classified as Day Workers. b) For Shift Workers - from 0630 Hrs. to 1830 Hrs., and 1830 Hrs. to 0630 Hrs. - as per Article 31. c) For Labourers and Relief Brine Operators assigned to the Production Department - Two different workday formats are available: i) From 0630 Hrs. (or 0730 Hrs.) to 1600 Hrs. (or 1700 Hrs.), and 1600 Hrs. (or 1700 Hrs.) to 0130 Hrs. (or 0230 Hrs.). A one-half hour lunch break is included, with a ten minute wash up period prior to lunch and at the completion of the work day. ii) From 0630 Hrs. to 1830 Hrs., and 1830 Hrs. to 0630 Hrs. - similar to a shift worker. 9.06 The regular schedule of hours of work shall be: a) For Day Workers - 9 1/3 hours per day and 37 1/3 hours per week. The normal work week will be either Monday to Thursday, or Tuesday to Friday. b) For Shift Workers - 12 hours per day and 36 or 48 hours per week with compensating scheduled time off to average 37 1/3 hours/week - as per Article 31. Compensating time off for Shift Workers shall be covered by the Senior Relief Operators and taken in blocks of three (3) day shifts as outlined in the shift schedule in Appendix D. When ever the Senior Relief Operator is scheduled as a spare operator, he may be rescheduled to provide relief on dayshift or nightshift as required. c) For Labourers & Relief Brine Operators assigned to the Production Department - either: i) Four workdays of 9 hours per day, with compensation to allow averaging of 37 1/3 hours/week over a 9 week period, or ii) Three workdays of 12 hours per day, with compensation to allow averaging of 37 1/3 hours/week over a 9 week period. Labourers and Relief Brine Operators assigned to the Production Department will receive shift premiums (when working the evening shift(s) outlined in Article 9.05(c) as per Article 22.09, & statutory holiday compensation as per Article 7.05(c) & (d). 6 10 Every effort shall be made to schedule consecutive days off in each work week when ever possible. This article is for the purpose of providing a basis for calculating overtime and shall not be construed as a guarantee of hours of work. Article 10 DEFINITIONS 10.01 The words "shift workers" means employees assigned to a job on a regularly rotating shift schedule. All other employees are considered day workers. 10.02 The word "day" shall mean a calendar day and shall be a period of twenty-four (24) hours beginning at 0001 hours. However, in the case of the work schedule a shift worker working the 12 hour schedule, and only in such cases, the day shall deem to have commenced at 0630 HRS. 10.03 The word "week" means a period of seven (7) days beginning at 0001 hours Monday. However, in the case of the work schedule of a shift worker working the 12 hour schedule, and only in such cases, the week shall deem to have commenced at 0630 HRS Monday. 10.04 Further to Article 18: (a) The word "week", when used to define a length of vacation, and for the purposes of calculating vacation pay, shall mean 37 1/3 average working hours. (b) The word "day", when used to define a length of a vacation, shall mean 9 1/3 working hours. 10.05 Bargaining Unit Work It is the policy of the Company not to use non-bargaining unit personnel to do work normally performed by hourly paid employees. It is recognized by the parties that there may be exceptions to the above, such as: (a) in emergency situations (b) when no qualified hourly employee is available It is recognized by both parties, however, that for the practical and efficient operation of the plant, there are occasions when a supervisor must help. These occasions will be temporary in nature and will not result in the displacement or exclusion of hourly rated employees. Article 11 ALLOWANCE FOR FAILURE TO PROVIDE WORK 11.01 An employee who reports for work at his regularly scheduled time and who has not been notified by the Company not to report, shall receive not less than one half his regular shifts work at his regular straight time hourly rate, or pay in lieu thereof at the discretion of the Company. 7 11 11.02 A telephone call to the number on record in the employee's name in the plant personnel files will be considered as proof of notification. An employee who leaves no telephone number by which he can be contacted forfeits the right to the one half shift or pay in lieu thereof as mentioned in 11.01 above. Article 12 UNION NOTICES 12.01 The Company will provide the Union with a secured bulletin board in the plant for the purpose of posting official Union notices and papers. Notices will be posted and initialled by a member of the Union Standing Committee, or the authorized representative of the Bargaining Agent. Article 13 SAFETY 13.01 Employees and the Company are to comply with established Safety Rules as amended by the Joint Occupational Health and Safety Committee from time to time. Employees will not be expected to operate with unsafe equipment or under unsafe working conditions. Employees are expected to report immediately any unsafe equipment or condition to the Production or Maintenance Manager using where appropriate the Safety Work Order System. 13.02 The Union will appoint three of its members to serve on the Joint Occupational Health and Safety Committee preferably with representation from each Department. The Plant Manager will appoint three Company representatives. The Occupational Health and Safety Committee will meet monthly to develop and promote the safety program. It is agreed that the Committee will appoint a Chairman with the responsibility alternating between the Company and the Union. Where the Chairman is a Union employee, the Secretary shall be a Company representative and vice versa. 13.03 The Union undertakes to encourage its members to cooperate in the execution of the Plant Safety Program and Safety Education. 13.04 First Aid Attendants As of September 1st, 1994, the Occupational First Aid Regulations require that the First Aid Attendants only require a Level II certificate. First Aid Attendants currently holding a Level III equivalent certificate, (ie: an Industrial First Aid 'A' or 'B' certificate) and who desires to renew at that level may do so. All new candidates will only be given necessary training to acquire a Level II certificate. If a person lapses in renewing his First Aid certificate and then wants to renew, he will be treated as a new candidate. Wages during training and exams will be paid as for scheduled hours of work: - During the training period. - On the day before the exam. - On the exam or re-exam day. The company will pay for the tuition, books and exam. 8 12 The following hourly rate will be paid over and above an employee's regular rate for all employees holding a W.C.B. Industrial First Aid certificate: Level II or Level III will be paid the same rate. Effective December 1st, 1994 $0.60/Hr. Effective December 1st, 1995 $0.70/Hr. Article 14 SENIORITY 14.01 General Principles (a) The company recognizes the principles of seniority in the administration of promotions, demotions, transfers, layoffs and recalls. In the application of seniority, provided an employee has the necessary qualifications and ability to perform the work in accordance with job requirements, seniority shall prevail. Definitions (b) Plant seniority shall mean the length of continuous service in the employ of the signatory Company in the North Vancouver Bargaining Unit. (c) Departmental seniority shall mean the length of continuous service in a permanent position within the recognized departments. 14.02 Establishing Seniority (a) Plant seniority shall be established from the original date of hire, after completion of a probationary period. A probationary period consists of 40 working days and may be extended by mutual agreement between the company and the union. (b) During the probationary period defined in 14.02(a), a new employee will not have any seniority rights and shall be subject to transfer, demotion, promotion, layoff or discharge at the sole discretion of the Company without recourse to the grievance procedure of this Agreement. (c) The Company will appraise each probationary employee at the end of his first thirty (30) working days in his presence. A Shop Steward or Union Standing Committee Member shall be present if requested by the employee. Copy of the appraisal to be sent to the employee and the Union Standing Committee. (d) An employee who exercises his seniority to promote or bump into another job within the Bargaining Unit, shall be probationary in the new job for a period of two (2) weeks after training is completed. In such instance, the employee shall be formally appraised in his presence and within the stipulated probationary period. A Shop Steward or Union Standing Committee Member shall be present if requested by the employee. 9 13 14.03 Loss of Seniority (a) Plant or Departmental An employee shall cease to have Plant seniority or Departmental seniority if the employee: 1) Quits or resigns 2) Is discharged 3) Is laid off for a period exceeding recall provisions. 4) Is absent from work for three (3) consecutive days on which he is scheduled to work without notifying his immediate supervisor, giving satisfactory reasons. 5) When recalled to work, once notice by registered mail to the address on record with the company has been made, fails to indicate his intent to return to company service within three (3) days or fails to report to work within seven (7) days. 6) Is absent without cause, to the satisfaction of Management, beyond the time limit of a sick leave or an authorized leave of absence granted by the Company. However, Plant and Departmental seniority shall continue to accrue: i) If absent due to illness or injury provided the absence does not exceed the period provided for in the L.T.D. program, unless seniority would have otherwise been lost. ii) If absent due to industrial illness or accident at work (recognized by the Worker's Compensation Board) which occurs while working for the Company, unless seniority would have otherwise been lost. (b) Departmental Seniority An employee shall cease to have Departmental seniority in the Department from which he was displaced, if the employee is: 1) Laid off or demoted out of the Department, because of cutbacks, for a period exceeding the recall rights as set out in 14.05(a). 2) Permanently transferred to another Department for a period exceeding six (6) months. 3) Is demoted outside the recognized Departments either voluntarily or for inability to perform the work. If the cause for the demotion has been corrected the employees' previous Departmental seniority will be reinstated. 14.04 Layoffs In the event of departmental layoff resulting from cutbacks, employees affected will be re-classified to Relief Brine Operator or Labourer positions. Layoff from these positions will be on the basis of Plant seniority. (Refer to diagram in 14.06) 14.05 Recall Provisions (a) In the event of a layoff, recall rights shall be established according to: 10 14 1) An employee who is laid off with more than the probationary period, but less than one (1) year of continuous service, shall be entitled to recall rights according to his accumulated Plant seniority for six (6) months from the date of layoff. 2) An employee with one or more years of continuous service shall be entitled to recall rights according to his accumulated Plant seniority for twelve (12) months from the date of layoff, plus one (1) additional month for each year's service up to an additional six (6) months. (b) Departmental Recall Rights An employee shall have recall rights to the Department from which he was displaced as follows: 1) Less than one (1) year of Departmental seniority: - six (6) months recall rights from date of displacement. 2) One (1) or more years of Departmental seniority: - twelve (12) months recall rights plus one (1) month for each year of service up to a maximum of six (6) additional months. However, departmental recall rights shall decrease from the time of displacement and ultimately expire, unless the affected employee is permanently recalled to or promoted to his former position. In such instance the employee affected will be reinstated with his previous accumulated Departmental seniority. (c) Employees shall be recalled to the plant on the basis of Departmental or Plant seniority, subject to Article 14.01(a) depending on where the vacancy occurs. (d) Benefits All benefit plans shall immediately be reinstated upon the recall of an employee. (e) It shall be the duty of all employees to notify the Company promptly of any change in their address or phone number. If an employee fails to do this, the Company will not be responsible for failure to contact the employee. 14.06 Departmental Organization The parties recognize the following two departments for seniority purposes in matters of permanent promotions, demotions, layoffs, recalls and transfers: 1) Production Department 2) Maintenance Department 11 15 The lines of progression shall be as follows:
PRODUCTION DEPARTMENT MAINTENANCE DEPARTMENT - - --------------------- ---------------------- Senior Relief operator Tradesperson Crystal Operator Storesperson Cell Operator Maintenance Helper Brine Operator Relief Brine Operator Labourer
14.07 Promotions (a) Permanent promotions in established lines of progression will take place with Departmental seniority governing subject to Article 14.01(a). The positions outlined in Article 14.06 that are excluded from lines of progression shall be subject to posting provisions. (See Article 14.08) (b) It is understood that promotion to the position of Tradesman can only be done through the apprenticeship program as outlined in Article 25, or through the promotion of a qualified person. (c) In the event that an employee declines to exercise his Departmental seniority to step up to the next position in his Department, whether permanently or temporarily, to which he would otherwise have been entitled by virtue of Departmental seniority, ability and qualifications, he will no longer be able to exercise his Departmental seniority to obtain a job senior to the employee who bypassed him. A refusal to step up to the next position in the line of progression shall be recorded and a copy sent to the Union. (d) 4th Class Stationary Engineer's Certificate (Permanent 4th Class Certificate) 1) Upon permanent shutdown of the current boiler and temporary low pressure boiler, a permanent certificate is not a requirement for the purpose of promotion in the production department. It is understood and agreed that production department seniority as of the boiler(s) shutdown date prevails, in accordance with Article 14.07(c). 2) Present Brine Operators and Relief Brine Operators have the option to obtain their permanent 4th Class certificate as per Article 14.07(d)3 iv. Upon successful completion of a permanent 4th Class certificate the Brine Operator / Relief Brine Operator will receive the steam ticket rate when working as a Brine Operator. 12 16 3) Should the need arise in the future for a permanent 4th Class certificate because of physical plant changes, the following will apply: i) A permanent 4th Class certificate is required for the permanent positions of Cell Operator & Crystal Operator. The Relief & Temporary Crystal Operators will also require a permanent 4th Class certificate. ii) In order to assist an employee who is promoted to the position of temporary or permanent Cell Operator, he will be supported in his application for a temporary 4th Class certificate. He will be required to obtain a permanent 4th Class certificate within 12 months. This may be extended to 15 months if he has attempted and failed his exam in the first 12 months. This also applies to Relief, Temporary, or Permanent Crystal Operators. iii) If after the 15 months, or after 12 months if no attempt is made to write the exam, he shall be demoted to a position not requiring a permanent 4th Class certificate. iv) In order to assist a production employee to obtain a permanent 4th Class certificate (to study and write the necessary material and exam) he will be allowed paid time off to a maximum of 84 hours. This will also include employees who, prior to 1994, have previously been given the opportunity to write the exam for a permanent 4th Class certificate. 14.08 Postings Permanent vacancies in the following job classifications will be posted and shall be filled on the basis of Plant seniority subject to 14.01(a) and Article 14.07. (1) Brine Operator (2) Maintenance Helper (3) Storesperson (4) Tradesperson Notice of permanent vacancies within the scope of the agreement will be posted for twelve (12) days, on the bulletin boards. During this time, applications may be made to the Administration Manager. 14.09 Temporary Openings Temporary openings in the Production Department will be divided into two (2) categories, namely: Type "A" having a duration in excess of three (3) months, and will be applicable only in cases of extended leave of absence and long term sickness or disability. Type "B" having a duration of up to three (3) months to cover vacation relief, short term illness and short term absence. Type "A" openings will be filled in the same manner as that outlined in Article 14.06 for permanent openings. However, in the event that the circumstances which caused the opening, return to normal, then the temporary position will cease to exist. The accrual of Departmental seniority in such cases will be governed by Article 14.01. 13 17 Type "B" openings may be filled by employees in the lowest classification within the respective Department, out of line of Departmental seniority and subject to Article 14.01(a), to meet the continued and efficient operation of the Plant. The Company, in administering Type "A" openings, will estimate the expected duration of an opening without prejudice, from the information available. 14.10 Transfers (a) In the case of permanent transfer from one Department to another, Plant seniority shall govern subject to the provision of Article 14.01(a). 14.11 Demotions (a) Demotions resulting in bumping in the recognized Departments for whatever reason inclusive of layoffs, shall take place in reverse progression to that outlined in Article 14.06 with accumulated Departmental seniority governing subject to Article 14.01(a). It is understood that Maintenance employees in such instance shall exercise Departmental seniority to displace only those employees in the Maintenance Helper and Storesperson positions. (b) An employee who is demoted, within his Department, either voluntarily or for inability to perform the work shall not be entitled to exercise Departmental seniority to move up to a higher job classification. If the cause for the demotion has been corrected the employees' previous Departmental seniority will be reinstated. 14.12 Seniority Lists The company shall, within thirty (30) days of the date on which this Agreement is signed, furnish the Union with two (2) copies of a list showing the Plant and Departmental seniority of each employee then on the payroll and will thereafter revise such list each six (6) months. 14.13 Any employee promoted to a supervisory or staff position which removes him from the Bargaining Unit shall retain and accumulate his Plant and Departmental seniority within the Bargaining Unit for a period of up to twelve (12) months following this promotion. The employee will continue to pay the prescribed union dues while he maintains his seniority within the Bargaining Unit. If during this twelve (12) month period such employee is transferred back to the Bargaining Unit, he shall exercise his accumulated Plant and Departmental seniority in returning his to his former job. Any extension of the above shall be by mutual agreement and limited to two (2) month intervals. Article 15 GRIEVANCE PROCEDURE 15.01 A grievance is any difference of opinion or dispute with respect to the interpretation, application or alleged violation of this Agreement. A grievance must be presented in writing and may be taken up in the following manner. 14 18 15.02 Step No. One (1) An employee may submit a grievance alone or accompanied by his shop steward, or a member of the Union Standing Committee, to his supervisor who shall render his decision to the employee concerned within the next seven (7) calendar days. 15.03 Step No. Two (2) If a decision of the supervisor is not accepted, or if a decision is not rendered within the given delay, the griever, accompanied by the shop steward, or a member of the Union Standing Committee, may within a period of seven (7) days submit the grievance to the Department Head, who shall render this decision within seven (7) calendar days. 15.04 Step No. Three (3) If the decision of the Department Head is not accepted or if a decision is not rendered within the given delay the Union Standing Committee may within seven (7) calendar days submit the grievance to the Plant Manager who shall render his decision within seven (7) calendar days. At this meeting the Union Counsellor and/or an officer of the National Union may be present. 15.05 If the decision of the Plant Manager is not accepted or if the decision is not rendered by the Plant Manager within the given delay, the union may refer the grievance to arbitration. 15.06 Notice of reference to arbitration specifying the matter or matters to be arbitrated shall be given in writing to the other party within thirty (30) days after the rendering of the decision by the Plant Manager or within thirty (30) days after the expiry of the delay provided for in Article 15.04. 15.07 The Company or Union may submit a Policy Grievance which directly affects the interests of the party to the Collective Agreement and shall not be administered as an employee grievance. The Policy Grievance my be submitted within twenty-five (25) working days from the date of occurrence of the incident giving rise to the grievance. The recipient of the grievance shall render a decision in writing within thirty (30) working days of receipt of the grievance. The Policy Grievance shall be submitted at Step No. Three (3) of the Grievance Procedure. 15.08 In the event that either of the parties does not take a grievance to the next higher step within seven days after the rendering of a decision, or within seven days after expiry of the delay in which a decision could have been given, the grievance shall be deemed to have been withdrawn. 15.09 A grievance shall be presented as soon as practicable, but in no event later than seven (7) days after the occurrence causing the grievance. Any grievance not so presented shall be deemed to be abandoned and shall not be entitled to consideration thereafter. This limitation shall be extended to thirty (30) calendar days in instances where the grievor is on vacation, authorized absence or sick leave at the time the alleged violation occurred. 15.10 The parties hereby agree to exclude the operation of sub-section (1) of section 96 or the Labour Code of B.C. (1973) as provided for in sub-section (2) section 96, unless both parties so petition the registrar in writing to appoint an officer to handle a specific grievance. 15 19 15.11 When an agreement has been reached between the Company and the Union at any stage of the grievance procedure it shall be put in writing and it shall be final and binding on both parties. 15.12 Nothing in this agreement shall be construed to prevent any employee from presenting any complaints on his own behalf directly to the Company or to prevent the Company from making adjustments in respect of such individual complaints not inconsistent with the terms and provisions of this agreement. 15.13 The time limit between steps may be extended by mutual consent. Article 16 ARBITRATION 16.01 A grievance which has not been settled after being carried through the steps of the Grievance Procedure may be referred to Arbitration in accordance with the following procedure. 16.02 When notice is given in accordance with Article 15.06 the party giving the notice shall, at the same time, in writing, nominate an arbitrator. 16.03 Within seven (7) days thereafter the other party shall nominate an arbitrator and so advise the other party in writing within the said delay. 16.04 The two nominees shall endeavour to select a third person who shall act as chairman. 16.05 In all matters of procedure not covered by the provisions of this section, including alternating procedures for the selection of a third arbitrator the provisions of the Labour Relations Code of British Columbia (1993) shall apply. 16.06 The Arbitration Board shall have jurisdiction to interpret the provision of this Agreement in so far as shall be necessary to the determination of the grievance, but shall not have jurisdiction or authority to alter in any way, add to, subtract from or modify any of the terms hereof, nor make any decision inconsistent with the provisions of this agreement. 16.07 The decision of the Arbitration Board shall be final and binding upon the parties hereto and the employee or employees concerned. 16.08 Each of the parties shall bear equally the expense of the Chairman of the Arbitration Board. 16.09 The parties hereby request the Arbitration Board to render its decision as expeditiously as possible. 16.10 The award of the Arbitration Board shall not be made retroactive to a date prior to the date on which the grievance was submitted in writing as provided for in the Grievance Procedure. 16.11 The Company and the Union may be mutual agreement, elect a single arbitrator instead of a three-man arbitration board, and the powers of the single arbitrator shall be the same as those of the board of arbitration pursuant to this article. 16 20 Article 17 DAYS OFF AND SCHEDULE OF SHIFTS 17.01 The employer will normally designate consecutive regular days off for each regular employee. 17.02 When extensive changes to the schedule are necessary the Company will so notify the Union in advance whenever practical, and will welcome discussion with the Union Standing Committee. 17.03 Employees may change their day or days off by mutual agreement with the supervisor of the department concerned provided such change shall not involve additional cost to the company. 17.04 Employees will normally not be scheduled to work six (6) consecutive days in a two week period. The exception being that if the shift schedule is altered significantly as a result of layoff, plant shutdown, etc., this may not always be possible. (a) Relief Brine Operators/Labourers (assigned to the Production Department) shifts may be changed at anytime provided the employee is given 24 hour notice prior to shift change. Every effort will be made to give the employee as much notice as possible. This article will be subject to review by the members of the Union Standing Committee and the Company after both a six and a twelve month period after implementation and if there are problems with the application of the article then it is mutually agreed that the notification will revert back to the 48 hours which presently exists. Article 18 VACATIONS 18.01 It is hereby understood and agreed that in the application of the following provisions governing vacations and vacation pay, no employee shall be treated less favourably than is provided for under the "Annual Holidays Act". (R.S.B.C. 1980) SBC Chap 10 - #36. 18.02 The Vacation year shall be the twelve (12) months commencing on May 1st and ending the following April 30th. However, for the purposes of calculating vacation pay only May 1st shall be interpreted as being the end of the last pay period in April. 18.03 Management will co-operate in arranging vacation time to suit each employee. However, the scheduling of vacation time is to be decided by Management. Management will give consideration to requests for vacation dates on the basis of plant seniority, provided such requests are made before March 1st for the current year. However, it is understood that no employee can exercise seniority rights over less senior employees in the scheduling of more than two (2) weeks vacation during the period June 15th to September 15th. 18.04 Vacations are not cumulative and must be taken annually within the vacation year as defined in 18.02. However, the Company may extend the vacation year due to extenuating circumstances and as mutually agreed at the request of an employee. 18.05 No employee may continue to work and draw vacation pay in lieu of taking his vacation. 17 21 18.06 Vacation pay will be paid by direct deposit to an employee's account on a weekly basis as vacation is taken. The company may grant vacation pay in advance due to extenuating circumstances and as mutually agreed at the request of the employee. 18.07 Employees of the Company shall receive their vacation with pay entitlement exclusive of recognized holidays to which they are entitled under Article 7 of this Agreement. 18.08 When services of an employee are terminated for any reason, he shall receive vacation pay for the vacation earned but not taken, computed as 4% of his total earnings for the period during which vacation was earned. An employee who qualifies for vacation under 18.12 will be paid 6% of his total earnings on termination, those who qualify for vacations under 18.13 will be paid 8% of their total earnings on termination, and those who qualify for vacation under 18.14 will be paid 10% of their total earnings on termination, those who qualify for vacation under 18.15 will be paid 12% of total earnings on termination, and those who qualify under 18.16 will be paid 14% of total earnings on termination. 18.09 The following shall be considered as time worked (maximum 9 1/3 hours per day and 37 1/3 hours per week) for the purpose of qualifying for a vacation. (a) Time lost as a result of an accident as recognized by the Worker's Compensation Board. (b) Time, not exceeding one year, lost as a result of a non-occupational accident or illness, provided that the employee has completed the probationary period as outlined in Article 14.02, and that he returns to his employment. (c) Time spent on earned vacations. (d) Time spend on holidays as defined in Article 7 of this Agreement. (e) Time absent from work because of Jury Duty or as a subpoenaed witness. (f) Time absent from work because of a death in family. (g) Time absent from work on approved leaves of absence. 18.10 Employees employed by the Company on May 1st of any year and who have: (a) Less than twelve (12) months continuous service and do not qualify under 18.11 below will be granted one quarter ( 1/4) of a day's vacation with pay for each full week of work performed in the immediately preceding vacation period. No vacation of less than one (1) day, nor more than eight (8) days will be granted under this provision. Fractional entitlements will be rounded off to the nearest full day; eg: an employee with three and one-quarter (3 1/4) days vacation credit will be granted three (3) days vacation; whereas, an employee with three and one-half (3 1/2) or three and three quarters (3 3/4) days vacation credit will be granted four (4) days vacation. Pay for such vacations will be computed at four per cent (4%) of the employee's actual earnings during the vacation period in which the vacation was earned. 18.11 Employees on the payroll of the Company on May 1st who have 1400 hours continuous service have qualified for a first vacation and shall be granted two (2) weeks vacation with pay. Pay for such two-week vacation shall be four per cent (4%) of the employee's actual earnings during the vacation period in which the vacation was earned, OR two weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18 22 18.12 Employees on the payroll of the Company on May 1st who qualify for a second vacation shall be granted three (3) weeks vacation with pay. Pay for such three-week vacation shall be six per cent (6%) of the employee's actual earnings during the immediately preceding vacation period, OR three weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18.13 Employees on the payroll of the Company on May 1st who qualify for a 7th vacation shall be granted four (4) weeks vacation with pay. Pay for such four-week vacation shall be eight per cent (8%) of the employee's actual earnings during the immediately preceding vacation period, OR four weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18.14 Employees on the payroll of the Company on May 1st who qualify for a 17th vacation shall be granted five (5) weeks vacation with pay. Pay for such five-week vacation shall be ten per cent (10%) of the employee's actual earnings during the immediately preceding vacation period, OR five weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18.15 Employees on the payroll of the Company on May 1st who qualify for a 24th vacation shall be granted six (6) weeks vacation with pay. Pay for such six week vacation shall be twelve per cent (12%) of the employee's actual earnings during the immediately preceding vacation period, OR six weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18.16 Employees on the payroll of the Company on May 1st who qualify for a 30th vacation shall be granted seven (7) weeks vacation with pay. Pay for such seven week vacation shall be fourteen per cent (14%) of the employee's actual earnings during the immediately preceding vacation period, OR seven weeks base pay computed on the basis of the employee's regular job rate at the time he goes on vacation, whichever is greater. 18.17 For the purpose of calculating vacation pay, actual earnings shall not include profit sharing earnings. 18.18 After completing the necessary period of continuous service with the Company, an employee shall, in addition to the regular vacation to which he is entitled, become eligible to receive a Supplementary Vacation with pay as set forth below:
Year of Completed Continuous Service Supplementary Vacation - - ------------------------------------ ---------------------- After 5 years 1 week After 10 years 2 weeks After 15 years 2 weeks After 20 years 2 weeks After 25 years 2 weeks After 30 years 1 week
(a) The Supplementary Vacation must be taken within five (5) years of the employee's becoming eligible or before his becoming eligible for his next earning period of Supplementary Vacation as above, whichever comes first. (b) For the purpose of determining eligibility for Supplementary Vacation, an employee's service shall be calculated from the date of his joining the Company. 19 23 (c) The Supplementary Vacation may be taken in conjunction with the regular vacation to which the employee is entitled, subject to Article 18.03. (d) One week's Supplementary Vacation pay shall be equal to 37 1/3 hours at the straight time hourly rate of the employee's regular job. (e) At retirement or termination from the Company an employee who has qualified for Supplementary Vacation shall be entitled to that portion of Supplementary Vacation Pay proportionate to the number of years of service completed subsequent to his last five-year entitlement period. Article 19 TEMPORARY EMPLOYEES 19.01 A temporary employee shall be an employee who is hired to fill a temporary labour need, be it skilled or unskilled. 19.02 He shall be considered a temporary employee for up to one year. 19.03 The company will notify the Union when a temporary employee is being hired. 19.04 All articles, with the exception of Article 14, will apply to temporary employees. Article 20 JOB CLASSIFICATIONS AND JOB RATES 20.01 Job classification during the term of this Agreement shall be in accordance with Appendix "A" appended hereto. 20.02 Job rates as detailed in Appendix "A" will be made effective December 1, 1994 and will remain in effect until November 30, 1997. Article 21 WAGE RATE ADJUSTMENTS 21.01 Job rate shall be defined as the wage rate for any job classification as listed in Appendix "A", "Job Classifications and Job Rates" and excludes all premium pay, bonuses, shift differentials and allowances of any type or kind. 21.02 Should the Company introduce a change(s) that will affect job content during the term of the Agreement, the following procedure shall apply: (a) The Company shall notify the Union as far in advance of the change(s) as is practicable. (b) The Company shall describe the change(s) and provide an estimate of the effect on Union members' jobs. 20 24 (c) After an appropriate period from commissioning the change(s), up to SIXTY (60) DAYS, a new rate will be settled by discussion between the Company and Union Standing Committee. (d) The Company agrees that failure to resolve any differences there may be after discussions, may result in the Union filing a grievance, as herein provided, alleging that the new rate is incompatible with relevant internal and external comparisons. The company agrees that any change in the new rate that may result from grievance procedure, discussions, or from an arbitration decision will be made retroactive to the date on which the new rate was first applied or the date on which the job changed, whichever first occurs. 21.03 If an employee is temporarily transferred to a job paying a higher rate he shall be paid the higher rate. 21.04 It is understood that when an employee is being trained for a higher paying job he shall receive this regular job rate. Article 22 OVERTIME AND PREMIUM TIME 22.01 Overtime Overtime shall be either all authorized time worked in excess of nine and one third (9-1/3) hours in a twenty-four (24) consecutive hour period, starting when an employee reports for work; or, all hours worked in excess of thirty seven and one third (37-1/3) hours in any one week except in the case of those employees assigned to the 12-hour shifts when overtime shall be all hours worked in excess of 12 hours in a 24 consecutive hour period, starting when an employee reports for work, or all hours worked in excess of 36 or 48 hours per week depending on whether such 36 or 48 hours per week fall into the regular schedule of 3 days on and 3 days off. (a) In the event an employee is required to work overtime hours that run continuously from the end of this previous shift and extend past midnight when such employee is scheduled to report for work at 0700 hours (or 0630 HRS) following, then the employee will not actually be required to report for work until eight hours after completing the overtime and any straight time earnings lost as a result will be paid the employee affected. (b) In the event an employee is called in to work overtime hours that occur in, or extend into, the period between 2330 Hrs. and 0700 Hrs. (or 0630 Hrs) when such employee is scheduled to report for work at 0700 Hrs. (or 0630 Hrs), when the time worked in this period is one or more hours the employee will not be required to report for work for a period past 0700 Hrs. (or 0630 Hrs) equivalent to the hours worked during the 2330 Hrs. to 0700 Hrs. (or 0630 Hrs) period, straight time earnings lost as a result will be paid the employee affected. 22.02 In those weeks when a day worker works a scheduled 37 1/3 hour week, hours in excess of 37 1/3 hours shall be paid at overtime rates. 22.03 All authorized overtime shall be paid at double time. 21 25 22.04 For the purpose of avoiding pyramiding of overtime, hours compensated for at overtime or premium time rates shall not be counted further for any purpose in determining overtime liability under the same or any other provision. 22.05 Shift Premiums shall not be included when computing pay for overtime. Sunday Premiums shall not be included when computing pay for overtime. 22.06 Time exchanged between employees, hours worked as a result of shift change, shall be paid for at the regular straight time hourly rate of the employee scheduled to work at that time plus shift differential applicable to the time worked. Such changes must have the approval of the supervisor concerned. 22.07 Where an employee's shift schedule is changed with less than 48 hours notice then the employee will be paid overtime for the first shift worked (except as noted in 17.04(a)). 22.08 Sunday Premium A premium per hour shall be paid to all workers for work performed on Sunday which shall be known as "Sunday Premium".
Effective Premium ---------- ------- December 1st, 1994 $ 1.59 December 1st, 1995 $ 1.63 December 1st, 1996 $ 1.68
22.09 Shift Differentials (a) A differential of One Dollar and Forty Four cents ($1.44) per hour for all hours worked on scheduled evening night shifts between the hours of 1830 and 0630. (b) The shift premium increases from $1.44/hr. to $1.48/hr. in the second year (December 1, 1995). Shift premium increases from $1.48/hr. to $1.52/hr. in the third year (December 1, 1996). (c) An employee working on a regularly scheduled night shift shall continue to receive the shift differential for overtime worked beyond 0630 hrs. 22.10 In the event that an employee is called in and reports to work at least one full shift before his regular starting time he shall continue to receive overtime rates if he is asked to continue on into this regular shift. 22.11 A hot meal, value of $12.50 shall be provided for any employee called in to work four (4) hours or more on a scheduled day off or if less than 24 hours notice is given, or for two (2) hours or more if these overtime hours are continuous with his regular scheduled hours, and every four hours thereafter. In the latter case, depending on the urgency of the work involved, the meal may be taken prior to or during the overtime period provided the actual time worked is two (2) hours or more. When a maintenance employee is called in to work, he will receive the hot meal allowance after four (4) hours of work and every (4) hour hours thereafter, until the completion of the work. Meal vouchers will be included on the pay cheque and be a taxable benefit. 22 26 Article 23 JURY DUTY PAY 23.01 The Company will pay an employee called for Jury Duty or as a subpoenaed witness, the difference between the jury duty or witness pay and his straight time pay, provided he works his regular shift when not performing such jury or witness service. The employee will be required to furnish proof of performing such service and such duty pay received. Article 24 BEREAVEMENT LEAVE 24.01 In the event of a death of a member of an employee's immediate family, the employee will be allowed a reasonable time off. The Company will pay such employee his straight time pay for any of his scheduled working days lost immediately following the death, up to a maximum of three (3) days to attend the funeral. If the employee is unable to attend such funeral, he will be allowed one (1) day off for personal reasons for which he will be reimbursed, at this straight time rate for any wages lost during such absence. "Immediate Family" means Father, Mother, Child, Spouse, Brother, Sister, Father-In-Law, Mother-In-Law, Step-Father, Step-Mother, Step-Children, Grand Parents and Grand Children, Son-In-Law and Daughter-In-Law. Article 25 MAINTENANCE DEPARTMENT APPRENTICES 25.01 Appendix "B" attached hereto and entitled "Maintenance Apprenticeship" shall be part of this agreement. Article 26 SUSPENSION AND/OR DISCHARGE 26.01 When in the opinion of the Company disciplinary action involving suspension or discharge become necessary the Union shall be notified of that intent and the reasons therefore, prior to the action, if such prior notification is practicable. Further the Company welcomes pertinent discussion with the Union about the suspension or the discharge prior to that action when practicable. 26.02 In the event that an employee has been discharged and it is alleged that he has been unjustly dealt with the grievance procedure may be used. The grievance must be submitted to the Company in writing within seven (7) days of the discharge and in such cases steps one and two of the grievance procedure shall be omitted. 23 27 Article 27 LEAVE OF ABSENCE 27.01 The Company will consider granting a leave of absence to employees for personal reasons consistent with the continued and efficient operation of the plant, and provided there is a minimum of disruption to fellow employees. 27.02 The length of such leave of absence in any one year shall be: (a) Those employees with more than one year's service but less than five year's service - up to one week. (b) Those employee with more than five year's service - up to one month. However under extenuating circumstances, the Plant Manager may alter the above conditions at his sole discretion. 27.03 Such leave of absence shall be without remuneration. 27.04 A leave of absence must be applied for in writing. 27.05 It will be the responsibility of the employee to arrange with the Company for the payment, suspension, or other disposition, of the Company sponsored welfare plans at the time of applying for such leave of absence. 27.06 No employee will be granted a leave of absence to accept other employment. It is understood, however, that other employment does not include duties as elected union officers, elected political representative, (ie: M.L.A., M.P., Councillor, Mayor, etc), or other such assignments, for which remuneration may be paid. 27.07 The following specific exceptions will be made to the above were a leave of absence is granted by the Company to an employee in order that he may accept an elected Union or political office (as in 27.06 above). (a) It is agreed that an employee who is elected or appointed to Union office shall be granted sufficient leave in order to perform the duties of the position. The length of such leave of absence may be up to one year or for the elected term. (b) The employee will continue to accumulate seniority. 27.08 Parental leave as outlined in the Employment Standards Act. Article 28 COMMITTEES 28.01 The Company shall appoint a Company Standing Committee of three (3) individuals which shall represent the Company. 28.02 The Union shall select from its membership of employees at Sterling Pulp Chemical's North Vancouver plant a Union Standing Committee of three (3) which shall represent the Union for the purpose stated in this Agreement. 24 28 28.03 (a) The Company and Union Standing Committee shall meet quarterly to discuss items of mutual interest. The agenda for each meeting shall consist of the following items. i) Safety ii) Changes to the plant that will affect Union members. Where the change(s) is significant. Workers for the affected areas will be included to provide their input in subsequent discussions. iii) Other items. (b) Minutes of these meetings shall be distributed for signatures within one (1) week after the meeting. Article 29 TRAINING 29.01 The Company recognizes its responsibility to ensure that its employees are adequately trained to perform their jobs in a satisfactory manner. The Company will institute a training programme for all Production employees under the direction of the Production Manager or his appointee so that the opportunity will be given to each employee to perform his job satisfactorily and to satisfactorily perform the duties of the next higher job classification. The Union recognizes that it is to the mutual benefit of both parties to have an adequately trained workforce. Article 30 TECHNOLOGICAL CHANGE AND TERMINATION PAY 30.01 The Company will endeavour to give as much prior notice of technological change however, not less than 90 days before the date on which the technological change is to be effected. The notice of technological change shall be in writing and shall state: (a) Nature of the technological change. (b) Date of which technological change will be effected. (c) Approximate number and type of employees likely to be affected by the technological change. If the Company and Union are unable to resolve their differences regarding technological change, final and conclusive settlement, without work stoppage, shall be by arbitration or another method agreed to by the parties. 30.02 The Company agrees to pay termination pay to employees permanently laid off because of plant closure, automation, technological change, modernization or for economic reasons at the rate of pay of two (2) weeks pay per year of service. In the event of plant closure the Company agrees to negotiate with the Union the termination payout. The Company also agrees to cooperate with the Government to minimize the impact of plant closure. The terms of payout shall be defined as: (a) Initial payment conforming to provisions of the Employment Standards Act. (b) Remainder, if applicable, on expiry of recall rights. 25 29 (c) A laid off employee may request in writing payment of his termination pay after three (3) months on layoff providing the employee agrees in writing to waive his remaining recall rights. 30.03 When an employee is terminated as a direct result of plant closure, automation, and/or technological change, Management will assist the Union in communicating with Canada Manpower to advise them of the suitability of the employee for re-training and re-location in another job, and request that they use their facilities for this purpose. In the event of plant closure, the company will endeavor to give as much prior notice as possible, however, not less than 90 days. 30.04 The Company agrees to retrain those employees whose jobs cease to exist due to Modernization or Expansion, for other jobs within the plant. This excludes employees who are laid off or terminated and does not obligate the Company under the Maintenance Apprenticeship program. Article 31 CONTINUOUS 12-HOUR SHIFTS The parties hereto agree to the following terms and conditions relating to the continuous rotating shift schedule, as hereafter defined. 31.01 The work schedule considered herein will be applicable to The Job Classifications, currently on the existing continuous rotating shift schedule, in the Production Department. 31.02 The shift schedule is as per Appendix D. 31.03 Upon converting to a revised schedule and during the first week under it, no premiums will be paid to an employee for the sole reason of transferring from one standard work week to another standard work week. 31.04 Each employee's pay will be calculated on a weekly basis. However, if an employee wishes, the Company will hold back a fixed amount each week the employee works in excess of 36 hours, to be paid to the employee at the time he gets his "9 days off". It is clearly understood that this holdback of pay will not be flexible, and will only be paid to the employee when he takes his scheduled 9 days off. 31.05 Vacations will be allotted on a weekly basis and will be paid on a 37 1/3 hr. basis. Article 32 HEALTH AND WELFARE 32.01 Benefits of hourly-paid employees during the term of this Agreement shall be in accordance with appendix "C" appended hereto. For full details refer to the current Sterling Pulp Chemicals Plan Texts and Associated policies. For ease of reference, see the current Employees Benefits Program booklet. 26 30 32.02 U.I.C. Premium reduction will be applied to funding the benefits package. 32.03 For the purposes of Weekly Indemnity claims the waiting period will be "0" days for both illness and accidents and subsequently the claim will be paid on the first calendar day. This article will be subject to review by the members of the Union Standing Committee and Company after both a six and a twelve month period after implementation and if the general sickness or absence from work has increased then it is mutually agreed that the one day waiting period (as it presently exists) will be re instated. Article 33 PENSION PLAN 33.01 a) There shall be a Pension Plan for all employees with contributions made by the Company, to provide for the needs of the employees upon retirement. b) Pension benefits are increased from $38.50/month/year to $40.00/month/year December 1, 1995 and benefit increases to $41.00/month/year December 1, 1996. c) Spousal Pension - Effective December 1st, 1994 the spousal benefit is 60% for all years of service. LETTER OF UNDERSTANDING Credited service for future retirees is calculated from day one, provided the employee has satisfied the probation period (40 working days). All other terms as per Plan Text. 27 31 EARLY RETIREMENT PROVISION I Effective September 8, 1992, retirement at 60 years of age with 20 years of service with no reduction. Effective December 1st, 1994 the following reduction from age 60 to 55 with 20 years service apply (.41667%/month reduction to age 55)
Age Years of Service Reduction --- ---------------- --------- 65 20 0 % 64 20 0 % 63 20 0 % 62 20 0 % 61 20 0 % 60 20 0 % 59 20 5 % 58 20 10% 57 20 15% 56 20 20% 55 20 25%
II Age 55-64 minimum of 10 years service - 1/4 of 1% per month for each month of early retirement -/from 60 to 64 plus 1/2 of 1% per month prior to age of 60 (55-60)
Current age of 60 (55 to 60) Schedule 65 0% 64 3% 63 6% 62 9% 61 12% 60 15% 59 21% 58 27% 57 33% 56 39% 55 45%
III Age 55 to 64 - less than 10 years service - 1/2 of 1% per month for each month of early retirement prior to age 65.
Schedule 65 0% 64 6% 63 12% 62 18% 61 24% 60 30% 59 36% 58 42% 57 48% 56 54% 55 60%
28 32 Bridging: a) Effective December 1, 1988 a bridging formula of $15.00 per month per year service will be available to those retiring between age 63 and 65. A minimum of 10 years service is required for bridging. b) Bridging will be provided for John Hunt for 5 years of service at age 63 (effective February 1995). This will be done outside of the existing Pension Plan and is on a one time only basis. Article 34 BANKING OF OVERTIME This article will be reviewed in six (6) months and again in twelve (12) months to correct any administrative problems. 34.01 It is understood and agreed that the voluntary banking of overtime hours will involve no extra time or cost to the company, nor will it affect the smooth and efficient operation of the plant. 34.02 Time off in lieu of overtime will receive low priority and requires mutual agreement between supervisor and employee. 34.03 Overtime pay and/or hours may be banked. 34.04 Overtime hours may be banked to a maximum of thirty-six (36) hours at any one time. 34.05 Overtime pay may be banked with no maximum. Pay may be drawn out on any regular pay period. Balances in excess of 36 hours not withdrawn by September 30th of each year will be paid out in the following pay period. 34.06 Overtime pay may be taken when earned and hours banked. 29 33 APPENDIX "A" - JOB CLASSIFICATIONS AND RATES
CLASSIFICATION DEC.1/93 DEC.1/94 DEC.1/95 DEC.1/96 - - -------------- -------- -------- -------- -------- Tradesperson 24.66 25.28 25.91 26.69 Storesperson 21.26 21.79 22.33 23.00 Maintenance Helper 19.96 20.46 20.97 21.60 Senior Relief Operator 24.66 25.28 25.91 26.69 Crystal Operator 24.66 25.28 25.91 26.69 Cell Operator 24.56 25.17 25.80 26.57 Brine Operator (4TH Class Steam Ticket) 22.71 23.28 23.86 24.58 Brine Operator 22.28 22.84 23.41 24.11 Relief Brine Operator 19.96 20.46 20.97 21.60 Labourer 18.89 19.36 19.84 20.44
Wage increases: December 1/94 2 1/2 % OF Hourly Rate December 1/95 2 1/2 % OF Hourly Rate December 1/96 3 % of Hourly Rate
MULTI SKILLS / DUAL TRADES 1. Multi Skills is defined as a plant recognized provincial TQ Ticket (as defined below) plus in house training for instrumentation, Level "C" Provincial Welding certificate or a BCIT Pipefitting Certificate Program (or equivalent). 2. Dual Trades is defined as two plant recognized TQ qualifications (as defined below), a single plant recognized TQ ticket plus a Level "B" welding certificate or successful completion of a SAIT (or equivalent) correspondence course for instrumentation. 3. Based on the needs of the plant, multi skills training will be provided to personnel meeting the necessary qualifications. 4. Minimum qualifications is a provincial TQ ticket in at least one of the required trades: Electrician Instrument Mechanic Millwright Pipefitter Welder 5. Employee must be presently active in one of the above trades. 6. A selection board similar to Appendix "B" with a plant committee member representing the bargaining unit will determine who will receive the multi skills training. 7. Such training does not preclude the possibility of hiring from outside the present bargaining unit for a dual trades person if such a tradesperson were required or needed at the plant. 30 34 8. A $0.50/hr premium will be paid after successful completion of the training for the multi skilled position. 9. An additional $0.50/hr premium will be paid for the dual trades position as defined in Section 2. 31 35 LETTER OF UNDERSTANDING Based on the needs of the plant, the intent is to provide multi skills training to at least two tradespersons during the duration of this contract. /s/ DEAN R. KIBSEY /s/ ROGER K. THOMEY October 21st, 1994 32 36 APPENDIX "B" MAINTENANCE APPRENTICESHIP 1. PURPOSE To train Tradespersons of the highest calibre consistent with plant requirements. 2. SCOPE The program will embrace the Electrical, Instrument Mechanic, Millwright, Pipefitter and Welder trades and will be run in conjunction with the B.C. Department of Labour Apprenticeship Training Branch. Other trades may be added in the future as required. It is intended that there will be no more than one apprentice in each trade at any one time. *3. STERLING PULP CHEMICALS APPRENTICESHIP BOARD (Otherwise known as "The Board") The Board will be established consisting of the Plant Manager, (Chairman), the Maintenance Manager, a member of the personnel function, and a Tradesperson employee of the designated trade involved to made the final selection of apprentices. Said Board will also review the progress of the apprentice from time to time and will be empowered to take appropriate action. The tradesperson employee member of the board will be appointed by the Plant Manager after due consultation with the Union. 4. SELECTION OF CANDIDATES Candidates will be selected from interested employees, recent high school/technical school graduates, and graduates from accredited pre-apprenticeship training course. Psychological, I.Q. aptitude tests and other such aids may be used in assessing prospective candidates. Apprentices will be selected on the basis of ability, personality, and attitude. 5. JOB SECURITY Apprenticeship training under this program does not constitute guaranteed employment to a graduate. He retains and accumulates seniority while employed as an apprentice, as spelled out in the Union Contract, and as such is treated as any other employee on graduation. Over and above any provisions in the B.C. Department of Labour Apprenticeship program for the termination of unsuitable candidates, and apprentice will be on probation for the first year and the Company retains the right to terminate the apprentice if, in the opinion of the "Board", the candidate is in any way unsuitable. 6. PAY SCHEDULE The pay schedule for apprentices will be as follows: 1st 6 months - Labourer rate 2nd 6 months - Mech. "A" Rate less 7/8 spread (Labourer rate to Tradesperson rate) 3rd 6 months - Tradesperson Rate less 6/8 spread 4th 6 months - Tradesperson Rate less 5/8 spread 5th 6 months - Tradesperson Rate less 4/8 spread 6th 6 months - Tradesperson Rate less 3/8 spread 7th 6 months - Tradesperson Rate less 2/8 spread 8th 6 months - Tradesperson Rate less 1/8 spread On graduation - Tradesperson Rate
33 37 While an apprentice is in school the Company will make up his pay to his regular weekly pay less all government sponsored allowances available. Additional travelling and living expenses will not be paid. For the purpose of calculating the regular weekly pay for classroom training, the average weekly hours will be used, ie: 37 1/3 hours. 7. PROGRAM On the job training will be done under the direction of the Maintenance Manager through skilled Tradesperson. The apprentice will be expected to perform useful tasks relating to maintenance in general and to a large degree his selected trade in particulate. In no circumstances is an apprentice to be considered a helper. 8. TOOLS Apprentices will be expected to provide their own hand tools within a reasonable period of time. 9. Apprentices will be considered as part of the bargaining unit and will become Union members as provided for in the Sterling Pulp Chemicals Union Contract. They shall be subject to the rights, privileges and responsibilities of full Union membership except as herein specified. 34 38 APPENDIX "C" BENEFITS OF HOURLY-PAID EMPLOYEES NORTH VANCOUVER PLANT
WEEKLY LONG TERM INDEMNITY DISABILITY LIFE A D & D --------- ---------- ---- ------- ELIGIBILITY 3 MONTHS 3 MONTHS 3 MONTHS 3 MONTHS BENEFITS 75% 60% $85,000 $ 85,000 HOURS LOST BASIC MONTHLY WAGE DEC. 1/94 MAX. $2250 DEC 1/95 MAX. $2500 DEDUCTIBLE - - - - ELIMINATION 0-DAYS ACC. 26 WEEKS - - PERIOD 0 DAY ILL DURATION PERIOD 26 WEEKS 10 YEARS/OR TO - - AGE 65 AMOUNT OF - - 50% OF BENEFIT - RETIREMENT $85000 DECR. 5%/YR MIN 25% RETIREMENT - - - - CARRIER SPC SUNLIFE SUN LIFE SUN LIFE SPC PAYS 90% 90% 96% 96% EMPLOYEE PAYS 10% 10% FIRST $1000 OF FIRST $1000 OF COVERAGE COVERAGE TERMINATION DATE ACTIVE AS W.I. OTHER THAN DEATH OR DATE DEATH OR DATE EMPLOYMENT SICK, INJURY OR EMPLOYMENT EMPLOYMENT CEASES VACATION PAY TERMINATES TERMINATES VESTING - - - -
EXTENDED MEDICAL HEALTH SERVICE PLAN BENEFITS DENTAL PENSION ------------ -------- ------ ------- ELIGIBILITY 1 MONTH 1 MONTH 3 MONTHS PROBATION PERIOD/40 DAYS THEN DAY ONE. BENEFITS ALL MEDICAL, 80% OF 1ST $1000/YR 100% DIAGNOSTIC DECEMBER 1, 1993 SURGICAL AND 100% ABOVE PREVENTIVE/RESTORATIVE $38.50/MONTH/YEAR OBSTETRICAL $1000/YR 75% PROSTHETICS DECEMBER 1, 1995 MAX $100,000/ YR. 50% CROWNS, BRIDGES $40/MONTH/YEAR RENEWABLE EACH 50% ORTHODONTICS DECEMBER 1, 1996 YEAR - $2,500.00 $41/MONTH/YEAR LIFETIME LIMIT 60% SPOUSAL DEDUCTIBLE - $25/PERSON OR AMOUNTS IN EXCESS OF - FAMILY PER YEAR B.C. FEE GUIDE ELIMINATION - - - - PERIOD DURATION PERIOD - - - - AMOUNT OF - - - BENEFIT IN EFFECT AT RETIREMENT RETIREMENT X YEARS OF SERVICE RETIREMENT - - - AGE 65; 60/20 YEARS CARRIER M.S.P. M.S.A. BLUE CROSS STANDARD LIFE / MONTREAL TRUST SPC PAYS 100% 100% 90% - EMPLOYEE PAYS - - 10% - TERMINATION LAST DAY OF MONTH LAST DAY OF MONTH LAST DAY OF THE MONTH DEATH OR TERMINATION OF WHICH EMPLOYMENT WHICH EMPLOYMENT WHICH EMPLOYMENT EMPLOYMENT TERMINATES TERMINATES TERMINATES VESTING - - - AFTER 2 YEARS SERVICE IN PLAN
35 39 LETTER OF INTENT In cases where a sickness is in excess of two weeks and a doctor's certificate has been presented to the Company, the Company will pay the employee his lost time wages for the first day of disability up to a maximum of 12 or 9 hours straight time wage, only if it was a scheduled work day. LETTER OF INTENT Agreed to eliminate for the term of the agreement requirement for physician's statement for absences due to non-occupational sickness or accident up to one week. Physician's statement may be required at the discretion of the supervisor. LETTER OF UNDERSTANDING Supplementary Benefit Fund The company (Sterling Pulp Chemicals) agrees to allocate the following amounts of money to a trust fund to be set up by PPWC #5 for use as a supplementary benefit fund for current and past members of the local. Effective September 8, 1992 the company will contribute *$0.35/hour (contribution increased from $0.30/hr. to $0.35/hr. in year 1), to the fund. Utilization/application of this supplementary benefit shall be at the discretion of members of the local. The company will be kept informed as to application of the fund. This fund will not prejudice the Company reviewing the ad hoc increases to retirees. An additional $0.016/hr. will be added to the fund effective September 8, 1992 to allocate the surplus funding from supplemental vacation. This brings the contribution to *$0.366/hr. * Based on 37 1/3 Hrs/week. (For all employees.) LETTER OF UNDERSTANDING Pension Benefit Costs $1.00 increase in benefit rate costs $.12/hr. based on the new Solvency Deficiency funding scheduled for January 1, 1993. If there is a means of avoiding the reduced amortization period (increased cost) then the company agrees to put the surplus funds into other benefits upon discussion with the union. 36 40 UNION HAS PROPOSED THE FOLLOWING: The Company and the Union will agree in principle to discuss the L.T.D. funding mechanism with the objective of arriving at a mutually acceptable proposal which is acceptable to revenue Canada and which is a no-cost (no additional cost) item for both parties. 37 41 Appendix "D" Production Schedule Sterling Pulp Chemicals, Ltd. North Vancouver
Mon Tue Wed Thu Fri Sat Sun 8/29/94 8/30/94 8/31/94 9/1/94 9/2/94 9/3/94 9/4/94 Crystal A A A D D D B Operator B B B C C C A Cell H H H E E E E Operator F F F G G G H Brine K K K L L L J Operator J J J I I I K Spare VD Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 9/5/94 9/6/94 9/7/94 9/8/94 9/9/94 9/10/94 9/11/94 Crystal B B C C C VD VD Operator A A D D D B B Cell F F G G G H H Operator H H E E E F F Brine J J I I I K K Operator K K L L L J J Spare VD VD Sen. Op. DK DK
Mon Tue Wed Thu Fri Sat Sun 9/12/94 9/13/94 9/14/94 9/15/94 9/16/94 9/17/94 9/18/94 Crystal VD D D D DK DK DK Operator B C C C A A A Cell H E E E F F F Operator F G G G H H H Brine K L L L VD VD VD Operator J I I I K K K Spare Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 9/19/94 9/20/94 9/21/94 9/22/94 9/23/94 9/24/94 9/25/94 Crystal C C C A A A D Operator D D D B B B C Cell D D D VD VD VD E Operator E E E F F F G Brine I I I DK DK DK L Operator L L L J J J I Spare Sen. Op.
42
Mon Tue Wed Thu Fri Sat Sun 9/26/94 9/27/94 9/28/94 9/29/94 9/30/94 10/1/94 10/2/94 Crystal D D B B B C C Operator C C A A A D D Cell E E DK DK DK GD G Operator G G H H H E E Brine L L J J J I I Operator I I K K K L L Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/3/94 10/4/94 10/5/94 10/6/94 10/7/94 10/8/94 10/9/94 Crystal C A A A VD VD VD Operator D B B B C C C Cell G H H H E E E Operator E F F F G G G Brine I K K K L L L Operator L J J J I I I Spare Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 10/10/94 10/11/94 10/12/94 10/13/94 10/14/94 10/15/94 10/16/94 Crystal B B B VD VD VD A Operator A A A D D D B Cell F F F G G G H Operator H H H E E E F Brine J J J DK DK DK K Operator K K K L L L J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/17/94 10/18/94 10/19/94 10/20/94 10/21/94 10/22/94 10/23/94 Crystal A A D D D B B Operator B B C C C A A Cell H H DK DK DK F F Operator F F G G G H H Brine K K VD VD VD J J Operator J J I I I K K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/24/94 10/25/94 10/26/94 10/27/94 10/28/94 10/29/94 10/30/94 Crystal B C C C DK DK DK Operator A D D D B B B Cell F VD VD VD H H H
43 Operator H E E E F F F Brine J I I I K K K Operator K L L L J J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/31/94 11/1/94 11/2/94 11/3/94 11/4/94 11/5/94 11/6/94 Crystal D D D DK DK DK C Operator C C C A A A D Cell E E E F F F G Operator G G G H H H E Brine L L L VD VD VD I Operator I I I K K K L Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 11/7/94 11/8/94 11/9/94 11/10/94 11/11/94 11/12/94 11/13/94 Crystal C C A A A D D Operator D D B B B C C Cell G G VD VD VD E E Operator E E F F F G G Brine I I DK DK DK L L Operator L L J J J I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 11/14/94 11/15/94 11/16/94 11/17/94 11/18/94 11/19/94 11/20/94 Crystal D B B B C C C Operator C A A A D D D Cell E DK DK DK G G G Operator G H H H E E E Brine L J J J I I I Operator I K K K L L L Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 11/21/94 11/22/94 11/23/94 11/24/94 11/25/94 11/26/94 11/27/94 Crystal A A A VD VD VD B Operator B B B C C C A Cell H H H E E E F Operator F F F G G G H Brine K K K L L L J Operator J J J I I I K Spare Sen. Op. DK DK DK
44
Mon Tue Wed Thu Fri Sat Sun 11/28/94 11/29/94 11/30/94 12/1/94 12/2/94 12/3/94 12/4/94 Crystal B B DK DK DK A A Operator A A D D D B B Cell F F G G G H H Operator H H E E E F F Brine J J VD VD VD K K Operator K K L L L J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 12/5/94 12/6/94 12/7/94 12/8/94 12/9/94 12/10/94 12/11/94 Crystal A D D D B B B Operator B C C C A A A Cell H VD VD VD F F F Operator F G G G H H H Brine K DK DK DK J J J Operator J I I I K K K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 12/12/94 12/13/94 12/14/94 12/15/94 12/16/94 12/17/94 12/18/94 Crystal C C C A A A D Operator D D D B B B C Cell DK DK DK H H H E Operator E E E F F F G Brine I I I K K K L Operator L L L J J J I Spare VD VD VD Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 12/19/94 12/20/94 12/21/94 12/22/94 12/23/94 12/24/94 12/25/94 Crystal D D B B B C C Operator C C A A A D D Cell E E F F F G G Operator G G H H H E E Brine L L J J J I I Operator I I K K K L L Spare VD VD VD Sen. Op. DK DK
Mon Tue Wed Thu Fri Sat Sun 12/26/94 12/27/94 12/28/94 12/29/94 12/30/94 12/31/94 1/1/95 Crystal C VD VD VD D D D Operator D B B B C C C Cell G H H H E E E
45 Operator E F F F G G G Brine I K K K L L L Operator L J J J I I I Spare Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 1/2/95 1/3/95 1/4/95 1/5/95 1/6/95 1/7/95 1/8/95 Crystal DK DK DK C C C A Operator A A A D D D B Cell F F F G G G VD Operator H H H E E E F Brine VD VD VD I I I DK Operator K K K L L L J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 1/9/95 1/10/95 1/11/95 1/12/95 1/13/95 1/14/95 1/15/95 Crystal A A D D D B B Operator B B C C C A A Cell VD VD E E E DK DK Operator F F G G G H H Brine DK DK L L L J J Operator J J I I I K K Spare VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 1/16/95 1/17/95 1/18/95 1/19/95 1/20/95 1/21/95 1/22/95 Crystal B C C C A A A Operator A D D D B B B Cell DK G G G H H H Operator H E E E F F F Brine J I I I K K K Operator K L L L J J J Spare VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 1/23/95 1/24/95 1/25/95 1/26/95 1/27/95 1/28/95 1/29/95 Crystal VD VD VD B B B DK Operator C C C A A A D Cell E E E F F F G Operator G G G H H H E Brine L L L J J J VD Operator I I I K K K L Spare Sen. Op. DK DK DK
46
Mon Tue Wed Thu Fri Sat Sun 1/30/95 1/31/95 2/1/95 2/2/95 2/3/95 2/4/95 2/5/95 Crystal DK DK A A A D D Operator D D B B B C C Cell G G H H H VD VD Operator E E F F F G G Brine VD VD K K K DK DK Operator L L J J J I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 2/6/95 2/7/95 2/8/95 2/9/95 2/10/95 2/11/95 2/12/95 Crystal D B B B C C C Operator C A A A D D D Cell VD F F F DK DK DK Operator G H H H E E E Brine DK J J J I I I Operator I K K K L L L Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 2/13/95 2/14/95 2/15/95 2/16/95 2/17/95 2/18/95 2/19/95 Crystal VD VD VD D D D DK Operator B B B C C C A Cell H H H E E E F Operator F F F G G G H Brine K K K L L L VD Operator J J J I I I K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 2/20/95 2/21/95 2/22/95 2/23/95 2/24/95 2/25/95 2/26/95 Crystal DK DK C C C A A Operator A A D D D B B Cell F F G G G VD VD Operator H H E E E F F Brine VD VD I I I DK DK Operator K K L L L J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 2/27/95 2/28/95 3/1/95 3/2/95 3/3/95 3/4/95 3/5/95 Crystal A D D D B B B Operator B C C C A A A Cell VD E E E DK DK DK
47 Operator F G G G H H H Brine DK L L L J J J Operator J I I I K K K Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 3/6/95 3/7/95 3/8/95 3/9/95 3/10/95 3/11/95 3/12/95 Crystal C C C A A A VD Operator D D D B B B C Cell G G G H H H E Operator E E E F F F G Brine I I I K K K L Operator L L L J J J I Spare Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 3/13/95 3/14/95 3/15/95 3/16/95 3/17/95 3/18/95 3/19/95 Crystal VD VD B B B DK DK Operator C C A A A D D Cell E E F F F G G Operator G G H H H E E Brine L L J J J VD VD Operator I I K K K L L Spare Sen. Op. DK DK
Mon Tue Wed Thu Fri Sat Sun 3/20/95 3/21/95 3/22/95 3/23/95 3/24/95 3/25/95 3/26/95 Crystal DK A A A D D D Operator D B B B C C C Cell G H H H VD VD VD Operator E F F F G G G Brine VD K K K DK DK DK Operator L J J J I I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 3/27/95 3/28/95 3/29/95 3/30/95 3/31/95 4/1/95 4/2/95 Crystal B B B C C C A Operator A A A D D D B Cell F F F DK DK DK H Operator H H H E E E F Brine J J J I I I K Operator K K K L L L J Spare VD VD VD Sen. Op.
48
Mon Tue Wed Thu Fri Sat Sun 4/3/95 4/4/95 4/5/95 4/6/95 4/7/95 4/8/95 4/9/95 Crystal A A D D D B B Operator B B C C C A A Cell H H E E E F F Operator F F G G G H H Brine K K L L L J J Operator J J I I I K K Spare VD VD Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 4/10/95 4/11/95 1/12/95 4/13/95 4/14/95 4/15/95 4/16/95 Crystal B C C C VD VD VD Operator A D D D B B B Cell F G G G H H H Operator H E E E F F F Brine J I I I K K K Operator K L L L J J J Spare VD Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 4/17/95 4/18/95 4/19/95 4/20/95 4/21/95 4/22/95 4/23/95 Crystal D D D DK DK DK C Operator C C C A A A D Cell E E E F F F G Operator G G G H H H E Brine L L L VD VD VD I Operator I I I K K K L Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 4/24/95 4/25/95 4/26/95 4/27/95 4/28/95 4/29/95 4/30/95 Crystal C C A A A D D Operator D D B B B C C Cell G G VD VD VD E E Operator E E F F F G G Brine I I DK DK DK L L Operator L L J J J I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 5/1/95 5/2/95 5/3/95 5/4/95 5/5/95 5/6/95 5/7/95 Crystal D B B B C C C Operator C A A A D D D Cell E DK DK DK G G G
49 Operator G H H H E E E Brine L J J J I I I Operator I K K K L L L Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 5/8/95 5/9/95 5/10/95 5/11/95 5/12/95 5/13/95 5/14/95 Crystal A A A VD VD VD B Operator B B B C C C A Cell H H H E E E F Operator F F F G G G H Brine K K K L L L J Operator J J J I I I K Spare Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 5/15/95 5/16/95 5/17/95 5/18/95 5/19/95 5/20/95 5/21/95 Crystal B B VD VD VD A A Operator A A D D D B B Cell F F G G G H H Operator H H E E E F F Brine J J DK DK DK K K Operator K K L L L J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 5/22/95 5/23/95 5/24/95 5/25/95 5/26/95 5/27/95 5/28/95 Crystal A D D D B B B Operator B C C C A A A Cell H DK DK DK F F F Operator F G G G H H H Brine K VD VD VD J J J Operator J I I I K K K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 5/29/95 5/30/95 5/31/95 6/1/95 6/2/95 6/3/95 6/4/95 Crystal C C C DK DK DK D Operator D D D B B B C Cell VD VD VD H H H E Operator E E E F F F G Brine I I I K K K L Operator L L L J J J I Spare Sen. Op.
50
Mon Tue Wed Thu Fri Sat Sun 6/5/95 6/6/95 6/7/95 6/8/95 6/9/95 6/10/95 6/11/95 Crystal D D DK DK D C C Operator C C A A A D D Cell E E F F F G G Operator G G H H H E E Brine L L VD VD VD I I Operator I I K K K L L Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 6/12/95 6/13/95 6/14/95 6/15/95 6/16/95 6/17/95 6/18/95 Crystal C A A A D D D Operator D B B B C C C Cell G VD VD VD E E E Operator E F F F G G G Brine I DK DK DK L L L Operator L J J J I I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 6/19/95 6/20/95 6/21/95 6/22/95 6/23/95 6/24/95 6/25/95 Crystal B B B C C C A Operator A A A D D D B Cell DK DK DK G G G H Operator H H H E E E F Brine J J J I I I K Operator K K K L L L J Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 6/26/95 6/27/95 6/28/95 6/29/95 6/30/95 7/1/95 7/2/95 Crystal A A VD VD VD B B Operator B B C C C A A Cell H H E E E F F Operator F F G G G H H Brine K K L L L J J Operator J J I I I K K Spare Sen. Op. DK DK DK
Mon Tue Wed Thu Fri Sat Sun 7/3/95 7/4/95 7/5/95 7/6/95 7/7/95 7/8/95 7/9/95 Crystal B DK DK DK A A A Operator A D D D B B B Cell F G G G H H H
51 Operator H E E E F F F Brine J VD VD VD K K K Operator K L L L J J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 7/10/95 7/11/95 7/12/95 7/13/95 7/14/95 7/15/95 7/16/95 Crystal D D D B B B C Operator C C C A A A D Cell VD VD VD F F F DK Operator G G G H H H E Brine DK DK DK J J J I Operator I I I K K K L Spare VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 7/17/95 7/18/95 7/19/95 7/20/95 7/21/95 7/22/95 7/23/95 Crystal C C A A A D D Operator D D B B B C C Cell DK DK H H H E E Operator E E F F F G G Brine I I K K K L L Operator L L J J J I I Spare VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 7/24/95 7/25/95 7/26/95 7/27/95 7/28/95 7/29/95 7/30/95 Crystal D B B B C C C Operator C A A A D D D Cell E F F F G G G Operator G H H H E E E Brine L J J J I I I Operator I K K K L L L Spare VD VD VD Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 7/31/94 8/1/95 8/2/95 8/3/95 8/4/95 8/5/95 8/6/95 Crystal VD VD VD D D D DK Operator B B B C C C A Cell H H H E E E F Operator F F F G G G H Brine K K K L L L VD Operator J J J I I I K Spare Sen. Op. DK DK DK
52
Mon Tue Wed Thu Fri Sat Sun 8/7/95 8/8/95 8/9/95 8/10/95 8/11/95 8/12/95 8/13/95 Crystal DK DK C C C A A Operator A A D D D B B Cell F F G G G VD VD Operator H H E E E F F Brine VD VD I I I DK DK Operator K K L L L J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 8/14/95 8/15/95 8/16/95 8/17/95 8/18/95 8/19/95 8/20/95 Crystal A D D D B B B Operator B C C C A A A Cell VD E E E DK DK DK Operator F G G G H H H Brine DK L L L J J J Operator J I I I K K K Spare VD VD VD Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 8/21/95 8/22/95 8/23/95 8/24/95 8/25/95 8/26/95 8/27/95 Crystal C C C A A A VD Operator D D D B B B C Cell G G G H H H E Operator E E E F F F G Brine I I I K K K L Operator L L L J J J I Spare Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 8/28/95 8/29/95 8/30/95 8/31/95 9/1/95 9/2/95 9/3/95 Crystal VD VD B B B DK DK Operator C C A A A D D Cell E E F F F G G Operator G G H H H E E Brine L L J J J VD VD Operator I I K K K L L Spare Sen. Op. DK DK
Mon Tue Wed Thu Fri Sat Sun 9/4/95 9/5/95 9/6/95 9/7/95 9/8/95 9/9/95 9/10/95 Crystal DK A A A D D D Operator D B B B C C C Cell G H H H VD VD VD
53 Operator E F F F G G G Brine VD K K K DK DK DK Operator L J J J I I I Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 9/11/95 9/12/95 9/13/95 9/14/95 9/15/95 9/16/95 9/17/95 Crystal B B B C C C VD Operator A A A D D D B Cell F F F DK DK DK H Operator H H H E E E F Brine J J J I I I K Operator K K K I I I J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 9/18/95 9/19/95 9/20/95 9/21/95 9/22/95 9/23/95 9/24/95 Crystal VD VD D D D DK DK Operator B B C C C A A Cell H H E E E F F Operator F F G G G H H Brine K K L L L VD VD Operator J J I I I K K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 9/25/95 9/26/95 9/27/95 9/28/95 9/29/95 9/30/95 10/1/95 Crystal DK C C C A A A Operator A D D D B B B Cell F G G G VD VD VD Operator H E E E F F F Brine VD I I I DK DK DK Operator K L L L J J J Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/2/95 10/3/95 10/4/95 10/5/95 10/6/95 10/7/95 10/8/95 Crystal D D D B B B C Operator C C C A A A D Cell E E E DK DK DK G Operator G G G H H H E Brine L L L J J J I Operator I I I K K K L Spare VD VD VD Sen. Op.
54
Mon Tue Wed Thu Fri Sat Sun 10/9/95 10/10/95 10/11/95 10/12/95 10/13/95 10/14/95 10/15/95 Crystal C C A A A VD VD Operator D D B B B C C Cell G G H H H E E Operator E E F F F G G Brine I I K K K L L Operator L L J J J I I Spare Sen. Op. DK DK
Mon Tue Wed Thu Fri Sat Sun 10/16/95 10/17/95 10/18/95 10/19/95 10/20/95 10/21/95 10/22/95 Crystal VD B B B DK DK DK Operator C A A A D D D Cell E F F F G G G Operator G H H H E E E Brine L J J J VD VD VD Operator I K K K L L L Spare Sen. Op. DK
Mon Tue Wed Thu Fri Sat Sun 10/23/95 10/24/95 10/25/95 10/26/95 10/27/95 10/28/95 10/29/95 Crystal A A A D D D B Operator B B B C C C A Cell H H H VD VD VD F Operator F F F G G G H Brine K K K DK DK DK J Operator J J J I I I K Spare Sen. Op.
Mon Tue Wed Thu Fri Sat Sun 10/30/95 10/31/95 11/1/95 11/2/95 11/3/95 Crystal B B C C C Operator A A D D D Cell F F DK DK DK Operator H H E E E Brine J J I I I Operator K K L L L Spare VD VD VD Sen. Op.
A - Hall B - Chapman C - Wilson D - Kennedy E - Thompson F - Bruce 55 G - Penzer H - Hehn I - Vass J - Gatto K - Baxter L - Levesque VD - Donegan DK - Kibsey 56 IN WITNESS WHEREOF we, the undersigned, have as the accredited representatives of the respective parties to this Agreement hereunto set our signatures this 17th day of November 1994. FOR: STERLING PULP FOR: PULP, PAPER & WOODWORKERS CHEMICALS, LTD. OF CANADA, LOCAL 5 /s/ ROGER K. THOMEY /s/ GREGORY A. HALL R.K. THOMEY G.A. HALL PLANT MANAGER /s/ T.X. SZPYTMAN /s/ D. R. KIBSEY T.Z. SZPYTMAN, D.R. KIBSEY ENVIRONMENTAL & PROJECT CO-ORD. /s/ T. N. MILLER /s/ H. W. WEIR T.N. MILLER H.W. WEIR PRODUCTION MANAGER /s/ HOWARD T. CHAPMAN H.T. CHAPMAN 40 EX-13.1 19 ANNUAL REPORT 1 EXHIBIT 13.1 STERLING CHEMICALS 1994 ANNUAL REPORT (PHOTO) (LOGO) STERLING CHEMICALS 2 Cover: Below, Sterling's Texas City facility produces seven petrochemical products. Its styrene monomer facility is one of the largest in the world. Top, Sterling Pulp Chemicals operates four plants for the production of sodium chlorate, including a plant at Buckingham, Quebec, Canada. 3 CORPORATE PROFILE Sterling Chemicals, Inc. produces styrene monomer, acrylonitrile, acetic acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide at its petrochemical facility in Texas City, Texas. Sterling also produces sodium chlorate at four pulp chemical plants in Canada and sodium chlorite at one of the Canadian locations, and licenses, designs and manages the construction of large-scale generators to produce chlorine dioxide from sodium chlorate for the pulp and paper industry. Sterling is headquartered in Houston, Texas. Its stock is listed on the New York Stock Exchange and traded under the symbol STX. FINANCIAL HIGHLIGHTS (In Thousands Except Per Share Data)
- - ----------------------------------------------------------------------- 1994 1993 1992 1991 1990 - - ----------------------------------------------------------------------- Revenues $700,840 $518,821 $430,529 $542,664 $506,046 - - ----------------------------------------------------------------------- Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle $ 28,254 $ (6,968) $ 9,254 $ 54,502 $ 88,452 - - ----------------------------------------------------------------------- Income (Loss) Before Cumulative Effect of Change in Accounting Principle $ 19,132 $ (5,420) $ 4,538 $ 36,797 $ 59,083 - - ----------------------------------------------------------------------- Net Income (Loss) $ 19,132 $ (5,420) $(5,890) $ 36,797 $ 59,083 - - ----------------------------------------------------------------------- Net Income (Loss) Per Share $ .34 $ (.10) $ (.11) $ .67 $ 1.07 - - ----------------------------------------------------------------------- Net Cash Provided by (Used in) Operations $ 75,249 $ 48,114 $(3,752) $ 65,605 $ 85,384 - - -----------------------------------------------------------------------
4 Photo No. 1 Page 2 [Photo Description -- Above left, Gordon A. Cain Chairman of the Board. Above right, J. Virgil Waggoner President and Chief Executive Officer.] To Our Shareholders: We are pleased to report that the operating results for Sterling Chemicals improved each successive quarter in fiscal 1994, with our fourth quarter performance the best since the first quarter of fiscal 1991. Our improvement resulted principally from the recovery underway in the global market for commodity chemical products. During the past few years, the industry was in a cyclical trough primarily caused by excess capacity and recessionary pressures on demand. The most dramatic improvement was in our largest volume product, styrene monomer. The turnaround for styrene has been more rapid and pronounced than we anticipated a year ago. In addition, market conditions for acrylonitrile and our other petrochemical products strengthened during the year, and our pulp chemical business also improved. In fiscal 1994, Sterling's revenues were up 35% to $701 million compared to revenues of $519 million for fiscal 1993. Our net profit was $19.1 million for the year compared to a net loss of $5.4 million for fiscal 1993. Earnings per share were $.34 compared to a loss of $.10 per share for the previous fiscal year. During fiscal 1994, we upgraded our facilities, reduced outstanding debt about $66 million and continued our emphasis on our safety, environmental and quality processes. We were able to take advantage of improving market conditions during the year because of the operating reliability of our facilities. Continued emphasis by our employees on cost reduction also enhanced our performance. Petrochemical Business Sterling is one of the largest producers of styrene in the world and a major supplier to the merchant market. The cyclical nature of the styrene business is determined by changes in the supply/demand balance worldwide. During the past few years, styrene's profitability was depressed primarily because of overcapacity even though the worldwide market for styrene continued to grow each year. 2 5 The United States continues to experience economic growth with the U.S. automotive, housing and packaging markets being important contributors to the recent increase in demand for styrene. Europe's economy is recovering and most of the Asian countries are experiencing dramatic growth, as well. By the spring of 1994, increased demand for styrene had absorbed much of the excess capacity. In addition, some styrene plants experienced operating difficulties during the year, which further tightened the market. While some new capacity came on stream during 1994, the market quickly absorbed it. Most plants were operating near full capacity during the last half of our 1994 fiscal year and as a result, styrene prices and margins increased significantly during the period. We anticipate some incremental styrene capacity additions over the next few years but demand growth should absorb the capacity additions during that period. The market for acrylonitrile also strengthened during the fiscal year for several reasons. Acrylonitrile demand benefited from favorable economic conditions worldwide. In addition, poor cotton crops in parts of the world contributed to increased demand for all synthetic fibers, increasing sales for acrylic fibers, the largest derivatives of acrylonitrile. Although export prices steadily increased during the last half of the fiscal year, acrylonitrile's profitability did not significantly improve until the last quarter because of increasing prices for raw materials. We believe that favorable market conditions for acrylonitrile will continue during fiscal 1995. We are expanding our acetic acid capacity by more than 20% to nearly 800 million pounds per year. It is scheduled to come on stream in early fiscal 1996. This will make acetic acid Sterling's second largest volume product. BP Chemicals, our partner in the expansion, will market the additional production. This expansion phase is part of our on-going effort to optimize the opportunities for growth at our current facilities. Pulp Chemical Business The sodium chlorate market improved during the last half of the fiscal year as a result of increased substitution of environmentally-preferred chlorine dioxide, derived from sodium chlorate, for elemental chlorine in the pulp bleaching process. In addition, sodium chlorate demand increased because of greater use of elemental chlorine-free paper and the recovery occurring in the pulp and paper industry. At fiscal year end, our plants were operating near full capacity. In the last fiscal quarter, Sterling realized its first sodium chlorate price increase since acquiring the business in 1992. We expect pricing will continue to improve in fiscal 1995. The first generator in China to convert sodium chlorate to chlorine dioxide was sold by our ERCO Systems Group and began operation in fiscal 1994. Several more units are under construction in China by ERCO Systems. In total, eight new ERCO Systems generators started up during the year. These additions should increase sodium chlorate demand in general and add to our royalties in the future.The royalties from generator licensing also increased in fiscal 1994. We were awarded a total of ten new contracts during the year. We anticipate that as our pulp chemical business continues to grow, it will partially help offset the cyclical nature of the petrochemical business. In particular, royalties from generator licensing provide a relatively steady and increasing revenue stream. 3 6 The Environment, Safety and Quality We are committed to providing a safe and environmentally sound workplace for our employees and the communities in which we operate. Our goal is to have zero impact on the environment. Sterling is an active participant in the Responsible Care(rm) initiatives of the Chemical Manufacturers Association and the Canadian Chemical Producers Association. We achieved notable safety accomplishments during the year, including becoming the first facility in Texas City accepted into the Merit Program of the U.S. Occupational Safety and Health Administration. Our Deming-based quality effort has focused on continuous improvement of our products and services for our customers. In past years, most of our gains came from reducing variability in existing processes. Currently, we are involved in the next step of redefining the way we do business through Business Process Improvement. We expect to change or streamline many processes and systems to meet the needs of our customers more effectively. Our employees already have achieved significant successes through teamwork. We expect this effort to improve our productivity and competitiveness in the marketplace. Sterling People Our pulp chemical employees have become an integral part of our workforce team, which continues to perform with dedication and enthusiasm. We appreciate the strong support from our employees during the down cycle as we worked to reduce costs and improve product quality and service. Sterling employees have demonstrated that their extra effort does make a difference. The commitment of the entire employee family was rewarded during fiscal 1994 with participation in profit sharing for the first time in several years. Jim P. Wise joined Sterling as Vice President and Chief Financial Officer following the resignation of J. David Heaney. Mr. Wise brings extensive financial and operating experience to Sterling, including serving as chief financial officer for several New York Stock Exchange-listed companies. We appreciate Mr. Heaney's valuable contributions to Sterling's success. For the Future We are optimistic that market conditions for our major products will continue to improve during 1995. We believe that we are beginning to see the financial results that demonstrate the soundness of our management philosophy and strategic direction. We will continue to enhance our existing facilities and seek new opportunities to grow and diversify the Company through acquisitions, strategic alliances or partnerships. We will maintain our commitment to quality and safety and strive for excellence. Since the Company was founded in 1986, we have experienced both the excitement of strong markets and significant profitability and the struggles resulting from overcapacity and profit erosion. Sterling understands the commodity chemicals market. We are a low-cost manufacturer of each of our products, and we have shown that we can weather the tough times. We will continue to work diligently to enhance the value of your investment in Sterling. /s/ Gordon A. Cain Gordon A. Cain Chairman of the Board /s/ J. VIRGIL WAGGONER J. Virgil Waggoner President and Chief Executive Officer November 28, 1994 4 7 CORPORATE REVIEW Capital Expenditures In fiscal 1994, capital expenditures were approximately $12 million. Petrochemical operations spent approximately $8 million, primarily for various safety and environmental projects and for Sterling's initial contribution to the acetic acid expansion. Pulp chemicals spent about $4 million for office and plant improvements. Capital expenditures for fiscal 1995 are expected to increase significantly, with $36 million allocated to petrochemical operations and $4 million for pulp chemical operations. The capital investments include several plant instrumentation modernization projects at Texas City that should be completed over a two-year period. These projects will replace older technology with state-of-the-art control equipment that is expected to result in manufacturing cost improvements. Sterling also will take advantage of third-party participation in facility improvements by continuing the expansion phase of the acetic acid unit in conjunction with BP Chemicals, Inc. Pulp chemicals capital investment will be used primarily for cost savings and plant reliability improvements. Sterling Chemicals, Inc. Selected Financial and Operating Data(1) (In Thousands)
Petrochemical Pulp Chemical Operations Operations Fiscal Year Ended September 30, 1994 Sales and Other Revenues . . . . . . . . . . . . . . $ 578,295 $ 122,545 Earnings before Interest, Taxes, Depreciation and Amortization . . . . . . . . . . $ 62,341 $ 27,130 Depreciation and Amortization . . . . . . . . . . . . $ 26,327 $ 14,626 Interest Expense . . . . . . . . . . . . . . . . . . $ 9,757 $ 12,369 Net Cash Provided by Operations . . . . . . . . . . . $ 54,807 $ 20,442 Net Income . . . . . . . . . . . . . . . . . . . . . $ 17,979 $ 1,153 Capital Expenditures . . . . . . . . . . . . . . . . $ 7,875 $ 4,468 At September 30, 1994 Current Assets . . . . . . . . . . . . . . . . . . . $ 173,879 $ 38,937 Property, Plant and Equipment (Net) . . . . . . . . . $ 187,244 $ 103,882 Current Liabilities(2) . . . . . . . . . . . . . . . $ 148,355 $ 43,652 Long-Term Debt . . . . . . . . . . . . . . . . . . . $ 49,078 $ 137,708 Employees(3) . . . . . . . . . . . . . . . . . . . . 910 300
(1) Amounts do not include eliminating entries. (2) Current Liabilities includes current portion of long-term debt of $13,312 and $20,459 for Petrochemicals and Pulp Chemicals, respectively. (3) Employee counts exclude contract and temporary personnel. Employee Ownership and Profit Sharing Sterling employees, both directly and through the Company's Employee Stock Ownership Plan, own over 30% of the Company's common stock. All employees participate in a profit sharing program designed to reward their contribution to the success of Sterling. In August, employees received profit sharing for the third quarter of fiscal 1994. It was the first profit sharing distribution since fiscal 1991. An additional profit sharing distribution was made following the end of the fourth quarter of fiscal 1994, reflecting the strong results of the year. 5 8 OPERATING REVIEW Sterling Facilities Sterling's petrochemical facility is located on about 290 acres in Texas City, Texas. The facility is located on Galveston Bay, about 45 miles south of Houston. The site is accessible to raw materials and worldwide distribution facilities. A significant portion of the facility's steam and electrical needs is purchased from a cogeneration facility that is a joint venture between a Sterling subsidiary and a subsidiary of Praxair, Inc. Since 1986, significant improvements have been made at the Texas City facility to take advantage of underutilized assets and growth opportunities. Since that time, Sterling and others have made a significant investment in the manufacturing facilities resulting in process and quality improvement and additional production capacity. Pulp chemical operations that were acquired from Tenneco Inc. include four plants in Canada that manufacture sodium chlorate. The four plants are strategically located in Buckingham, Quebec; Vancouver, British Columbia; Thunder Bay, Ontario; and Grande Prairie, Alberta. The plants are near customer facilities and have dependable sources of low cost electricity. The Buckingham plant also includes a small sodium chlorite facility. The facilities also include business headquarters in Toronto, Ontario, for Sterling Pulp Chemicals and for ERCO Systems Group, which provides licensing, design and construction management of large-scale chlorine dioxide generators to convert sodium chlorate into chlorine dioxide at pulp mill sites. Petrochemical Products The Texas City facility produces styrene monomer, acrylonitrile, acetic acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide. Production is grouped into three main complexes based on the chemistry involved. PHOTO NO. 1, PAGE 6-7 [PHOTO DESCRIPTION -- CUSTOMER SATISFACTION IN ORDER HANDLING AND MATERIALS MANAGEMENT RECEIVED INTENSIVE REVIEW FROM STERLING. The Texas City facility is strategically located near supply sources and distribution facilities. A cross-functional team studied Sterling's order handling and materials management systems and recommended changes to improve efficiencies. Members of the team included, from left, Marilyn Decker, Luther D. Shotwell, Wynell A. Young, Dorothy Janecka, Ellen Rutherford, Richard Curtis, Jo Sweeney and Sidney Christopher.] 6 9 7 10 PHOTO NO. 1, PAGE 8 [PHOTO DESCRIPTION -- SAFETY PERFORMANCE BY STERLING AT TEXAS CITY RESULTED IN AN OUTSTANDING RECORD. A STEPS team (Sterling Teams to Enhance Plant Safety) coordinated the effort that earned the Company membership in OSHA's Merit Program, part of OSHA's Voluntary Protection Program, a partnership among labor, management and government. Members of the team included, standing, Debra Carlisle, David Douglass, Tom Hughes, Bruce Blankenship and Johnny Johnson; kneeling, Al Magliolo and Walter Treybig.] Sterling has a significant market share for each of the products it manufactures. The styrene unit is one of the world's largest, with a capacity of approximately 1.5 billion pounds annually. The Company's styrene capacity is approximately 13% of total domestic capacity. Styrene accounts for more than one-third of Sterling's total chemical production capacity. Sterling is the second largest domestic producer of acrylonitrile, with about 25% of domestic capacity. Total annual production capacity is in excess of 700 million pounds. Acetic acid capacity is scheduled to be expanded by early fiscal 1996 from about 600 million pounds to nearly 800 million pounds annually. Currently, Sterling has about 16% of domestic capacity for acetic acid. BP Chemicals is participating in the expansion and will market the product. Plasticizer capacity is about 280 million pounds annually. Annual capacity for lactic acid is 19 million pounds, and Sterling is the only domestic producer of synthetic lactic acid. Tertiary butylamine capacity is 21 million pounds annually, and Sterling is the only U.S. producer and one of three worldwide. Annual sodium cyanide capacity approaches 100 million pounds. Acrylonitrile production set an annual record in fiscal 1994, and styrene, acetic acid and plasticizers set monthly records for production. Equipment reliability and process improvements, combined with teamwork among the operations, maintenance and support personnel of each unit, enabled the units to meet customer demand for product. 8 11 Petrochemical Markets Styrene monomer, acrylonitrile and lactic acid are sold to customers under various long-term and short-term contractual arrangements and spot transactions, while the total capacity of other products manufactured by Sterling are committed to long-term arrangements. BP Chemicals markets Sterling's acetic acid production, while BASF markets all plasticizer production and Monsanto Company purchases the tertiary butylamine production. The sodium cyanide unit is owned by E. I. du Pont de Nemours and Company. Sterling provides hydrogen cyanide as a raw material and operates the unit, while Dupont markets the product. Although the global market for styrene has grown each year, capacity tends to be added in very large increments, creating periods of overcapacity that must be absorbed by additional market growth. Beginning in 1991, styrene was in an overcapacity situation which depressed profitability. During the second quarter of fiscal 1994, sales volumes increased significantly for Sterling and other producers primarily as a result of market growth. Increases in styrene prices and margins followed rapidly during the last half of fiscal 1994. Economic growth in the United States, the recovering economy in Europe and dramatic growth in most Asian countries are major factors driving global market growth. The strength of the U.S. automotive, housing and packaging markets contributed to the increased demand for styrene. The Company anticipates some incremental capacity additions over the next few years but demand growth should absorb the capacity additions during that period. Acrylonitrile demand also increased in fiscal 1994. By year-end most producers were operating at or near full capacity. Demand increased primarily because of favorable economic conditions worldwide. In addition, the effect of poor cotton crops in parts of the world contributed to increased demand for all synthetic fibers, including acrylic fibers. Acrylic fibers are the largest consuming derivatives of acrylonitrile. Although export prices for acrylonitrile increased steadily during the last half of fiscal 1994, profitability did not significantly improve until the last quarter because of increasing raw material costs. Other products manufactured by Sterling at Texas City also are experiencing overall increased demand because of improved economic conditions worldwide. Pulp Chemical Products Sterling Pulp Chemicals, Ltd. is the second largest supplier of sodium chlorate to the North American pulp and paper market, with about 20% of the market. Capacity of the four Canadian facilities is approximately 320,000 metric tons. At fiscal year end, production of sodium chlorate was near full capacity. Sodium chlorite also is produced in small quantities at the Buckingham facility. Sterling Pulp Chemicals supplies about 23% of the North American sodium chlorite market. 9 12 PHOTO NO. 1, PAGE 10-11 [PHOTO DESCRIPTION -- STERLING PULP CHEMICALS PRODUCES ABOUT 20% OF THE NORTH AMERICAN SODIUM CHLORATE SUPPLY. The Sterling Pulp Chemicals facility at Buckingham is the largest of the four plants. Projects have been initiated to meet growing market demand. Participating in a cross-functional team are, from left, Jacques Lanthier, Alex Megyeal, Alain Lahale, Ted Sale and Jean-Guy Desjariline.] 10 13 Through the ERCO Systems Group, Sterling Pulp Chemicals also supplies large-scale generators used to convert sodium chlorate into chlorine dioxide at the pulp mill site. Sterling believes that the ERCO Systems Group is the industry leader in providing complete design, construction management services and technical support. ERCO invented the first generator technology in 1954 and has supplied about two-thirds of the chlorine dioxide generators used worldwide. After a generator is installed at a mill site, royalties are received from the licensing of the generator technology based on operating rates, usually over a ten-year period, providing a steady, ongoing cash flow for the overall business. Pulp Chemical Markets Growth in the sodium chlorate market was attributable to increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process, increased demand for elemental chlorine-free paper and the recovery in the pulp and paper industry. During the last fiscal quarter, Sterling realized its first sodium chlorate price increase since the pulp chemicals business was acquired. Sterling was awarded ten new generator contracts during the year, and eight new Company generators commenced operation in fiscal 1994. The Company continues to be a leader in bringing new technology to the pulp and paper industry, developing systems to provide environmentally acceptable bleaching methods. Chlorine dioxide is rapidly becoming the predominant bleaching agent in the manufacture of pulp, the raw material from which most white paper products are manufactured. Using chlorine dioxide as the bleaching agent virtually eliminates dioxins and furans in pulp mill wastewater. In addition, substituting chlorine dioxide for elemental chlorine produces stronger, brighter pulp at a lower cost than alternate bleaching methods. In general, Sterling believes that current and proposed environmental regulations favor chlorine dioxide as the preferred substitute for elemental chlorine when all costs and benefits are considered. 11 14 Quality At Texas City, Sterling is making progress in achieving its long-range goal of Best-In-Class Performance in safety, environmental compliance, reliability and productivity. The driving force for these accomplishments is a strong foundation based upon solid relationships and mutual trust between the hourly employees and the plant management team. The records Texas City is achieving in safety, productivity and other areas demonstrate the progress being made. The Deming total quality management process has been an integral part of Sterling's operations since the Company was established. That philosophy has been extended to the pulp chemical operations and also forms the basis of Business Process Improvement that Sterling is using successfully. Sterling is utilizing a collaborative team environment to review systematically all of its business processes in order to remain a low-cost producer of quality products. One example of Business Process Improvement is in the area of order handling and materials management at Texas City. While customers rated Sterling very highly in customer satisfaction, opportunities for improvement in the process were identified. A cross-functional team representing various areas reviewed the entire process and suggested a number of changes that are being implemented. The results included fewer people involved in the process, improved service to customers, elimination of redundant work and lower costs. The Manufacturing Systems Team is leading the effort to become Best-In-Class in manufacturing and maintenance. This cross-functional team of five salaried and two union hourly members is developing recommendations that will become the basis for improvements in the way maintenance and operations work together. The two union hourly representatives were selected by the Plant Union Committee to work on this important cooperative effort. At Sterling Pulp Chemicals, Deming-based quality training has been implemented, and teams are improving both internal and external services. The quality process introduced by Sterling involves management leadership, customer focus, employee involvement and continuous process improvement. Customer feedback has been extremely positive. Safety Safety is of primary importance to the Company. The chemical industry is among the safest in the United States. The Texas City facility's recordable injury and lost-time injury rates are significantly better than the average rates of the U.S. chemical industry which, in turn, is significantly better than U.S. manufacturing as a whole. The Texas City facility recorded its second best year in safety performance in Company history. Sterling also set a new plant safety record at the Texas City facility during the year with 1,966,269 manhours worked without a lost-time injury. 12 15 Photo No. 1, Page 13 [Photo Description -- THE FIRST CHLORINE DIOXIDE GENERATOR TO BE STARTED UP IN CHINA WAS A STERLING PULP CHEMICALS PROJECT. A Sterling Pulp Chemicals team reviews a plant model as part of a design project. From left are Ibrahim Erel, Dennis Elwood, Alex Megyesi and Luc Gonzalez. The plant at Thunder Bay supplies sodium chlorate to pulp mill sites in Canada.] In recognition of Sterling's efforts, the Company earned membership in the Merit Program of the U.S. Occupational Safety and Health Administration (OSHA). The Merit Program is part of OSHA's Voluntary Protection Program, a partnership among labor, management and government working together toward workplace safety and health. The award is the second highest conferred by OSHA, and Sterling was the first facility in Texas City to receive this recognition. Companies apply for the program, then OSHA reviews all written programs, verifies the programs and conducts employee interviews as part of its audit of the safety and health programs. Several Sterling teams and community leaders participated in the approval inspection. In addition to the OSHA Merit Program, Sterling was recognized by the National Petroleum Refiners Association with the NPRA Award for Safety Achievement for 1,650,000 hours worked at Texas City without a lost workday case. This record was achieved during the period from March 27, 1993 to January 31, 1994. Leading the safety effort at Texas City is the STEPS team (Sterling Teams to Enhance Plant Safety). This team is composed of 11 standing committees, with five chaired by union hourly personnel and six chaired by salaried personnel, with the manager of safety/health/environmental and the plant manager as part of the team. 13 16 Sterling Pulp Chemicals also achieved new safety records. The Grande Prairie, Thunder Bay and Vancouver facilities maintained their records of no lost-time injuries. The Buckingham facility improved its accident and injury performance significantly for the second consecutive year, reducing its rate by two-thirds. The pulp chemical operations have achieved a safety record that is two-and-a-half times better than the average of the Canadian pulp and paper industry and equivalent to the Canadian chemical industry. Initiatives introduced in 1994 provide additional equipment, training and guidelines for the safety program. Environmental Programs Sterling is committed to sound environmental management. Since emissions reporting to the EPA initially was mandated in 1987, Sterling has reduced total emissions at the Texas City facility by more than half, while plant production has increased. As a participant in the EPA's 33/50 air emission reduction program, Sterling committed to a 65% reduction in 17 targeted air pollutants by 1995. The Company achieved an 83% reduction for calendar 1993, two years ahead of schedule. More than 95% of the Texas City facility's emissions are safely managed by deep well injection. Deep-well injection uses state-of-the-art technology to contain waste solutions permanently within the subterranean injection zone, similar to the way that oil and gas deposits are trapped for millions of years. Stringent federal and state regulations control the permitting, construction, operation and monitoring of deep wells. The primary component of Sterling's deep well stream is ammonium sulfate, a compound that when concentrated is used as a commercial fertilizer. Sterling believes that its deep well injection should be classified by the EPA as waste management rather than a release to the environment and is actively seeking that reclassification. The EPA has stated that Class I underground injection wells are safer than virtually all other waste disposal practices. Sterling has received an EPA award for its deep well operations. Sterling also is a charter member of the Clean Industries 2000 program sponsored by the Texas Natural Resource Conservation Commission. Charter members were required to have reduced the amount of hazardous waste generated since 1987 by 50%. One of Sterling's waste minimization projects was selected as a finalist for a Governor's Award for Environmental Excellence. 14 17 Photo No. 1, Page 14-15 [Photo Description -- STERLING'S TEXAS CITY FACILITY HAS SET PRODUCTION RECORDS WHILE ACHIEVING ENVIRONMENTAL SUCCESSES. A manufacturing systems team is studying improvements in operations and maintenance at Texas City. From left, members of the team include Mike Hennington, Roger Mears, Wayne Payton, Carlos Mata, Bob Grannon, Lloyd Johnson and, standing, Robert McLaren. A state-of-the-art water treatment system is among the many environmental improvements that have contributed to significant reductions in emissions.] 15 18 Sterling is an active participant in Responsible Care(rm), a major chemical industry initiative sponsored by the Chemical Manufacturers Association in the United States and by the Canadian Chemical Producers Association in Canada. Sterling and its workforce are committed to the Responsible Care principles and codes of management practice that all members have agreed to uphold. The six codes require members to promote methods of tracking progress toward reaching specific goals in the areas of process safety, community awareness and emergency response, distribution, process pollution prevention, employee health and safety and product stewardship. Sterling is making substantial progress in moving closer to achieving its goals. As part of the Responsible Care program, Sterling reports to the community on a regular basis. Sterling Pulp Chemicals is a leader in bringing new technology to the pulp and paper industry, developing systems to provide bleaching methods with environmental advantages. The Company also is a leader in the Alliance for Environmental Technology, an organization with the mission to research and promote practical, proven technologies that advance modern papermaking and to help achieve sound governmental policies and regulations. Sterling produces seven petrochemical products and two chemicals in its pulp chemical operations. These chemicals are used in a variety of processes, frequently as building blocks for finished consumer goods. STYRENE MONOMER is produced with ethylene and benzene as raw materials. Styrene is used in the production of foam products such as ice chests, residential sheathing, cups, egg cartons, insulation and protective packaging; for other applications such as housing for computers, telephones, videocassettes, small home appliances and automotive parts; and for tableware, luggage, packing, toys, textile products and synthetic rubber products. ACRYLONITRILE is produced using ammonia, air and propylene as raw materials. Acrylonitrile is used for acrylic fibers for apparel, rugs and blankets; in polymer products for casings for ice chests, hard luggage, calculators and computers; in automotive parts and synthetic rubber products. ACETIC ACID is produced using methanol and carbon monoxide as the raw materials. Acetic acid's largest use is in the production of vinyl acetate. It also is used in pharmaceuticals, pain relief medicine, latex products for adhesive and surface coatings, and certain synthetic fabric finishes. PLASTICIZERS are produced from olefins, carbon monoxide, hydrogen, orthoxylene and air. Plasticizers are used in producing flexible plastics for consumer products and building materials. TERTIARY BUTYLAMINE (TBA) is manufactured using by-product hydrogen cyanide from the acrylonitrile process and isobutylene as raw materials. TBA is used for silicone caulk, in tires and hoses and as a chemical intermediate. LACTIC ACID is produced using by-product hydrogen cyanide and acetaldehyde as its raw materials. It is used as a preservative for food products, for the manufacture of acrylic enamel, for silk finishing and in intravenous solutions. SODIUM CYANIDE utilizes by-product hydrogen cyanide and sodium hydroxide as its raw materials. It is used for electroplating and to enhance precious metals recovery. SODIUM CHLORATE is produced from water and salt in reaction with electrical current. Sodium chlorate then is used by pulp mills to produce chlorine dioxide, which is used to bleach pulp for production of high quality office papers, commercial printing papers, coated papers and tissue paper products. SODIUM CHLORITE is produced using sodium chlorate and hydrochloric acid as raw materials. Sodium chlorite is used as an antimicrobial agent for water treatment, as a disinfectant for fresh produce, for treatment of industrial wastewater and for oilfield microbe control. 16 19 STERLING CHEMICALS, INC. FINANCIAL INFORMATION 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's revenues and earnings improved each successive quarter in fiscal 1994, largely because of the improved performance of styrene, and fourth quarter earnings were the best since the first fiscal quarter of 1991. The Company reported earnings per share of $.34 in fiscal 1994 after two years of net losses. The Company anticipates that demand for styrene and acrylonitrile will remain strong in 1995 and that market conditions for its pulp chemical business will continue to improve. Beginning in 1991, styrene's profitability became depressed because of both overcapacity and recessionary pressures in parts of the world. By the spring of 1994, however, market growth resulting from economic expansion had absorbed much of the excess capacity. As a result, styrene volumes began increasing late in the first fiscal quarter and by the third fiscal quarter prices and margins were increasing as well. Generally, all of the Company's products benefited in 1994 from the recovery underway in the global commodity chemical markets. While fiscal 1994 began with weak demand for both styrene and acrylonitrile, by the end of fiscal 1994 both products were experiencing higher prices, margins and sales volumes. Sodium chlorate also experienced increased demand during fiscal 1994, and the Company realized its first price increase for that product since acquiring the business in 1992. RESULTS OF OPERATIONS Comparison of Fiscal 1994 to Fiscal 1993 Revenues for fiscal 1994 totaled $701 million, an increase of $182 million from fiscal 1993. This increase was primarily the result of increased sales volumes and sales prices for styrene. Also, approximately one-third of the Company's styrene was previously marketed under one of its conversion agreements that expired late in 1993. In fiscal 1994, this volume was successfully marketed under various sales agreements and spot sales. As a result, the Company had more direct styrene sales than conversion sales during fiscal 1994 than in fiscal 1993. Under a conversion arrangement, the customer furnishes raw materials which the Company processes. In a direct sales arrangement, the Company supplies the raw materials and sells the finished product at a price which includes the value of the raw materials. Because of this difference, the revenue recognized from a direct sale is significantly greater than the revenue recognized from an equivalent conversion sale, although the gross profit might be the same. Acrylonitrile and acetic acid also generated higher revenues in fiscal 1994 primarily due to higher sales volumes. The pulp chemical business contributed $123 million to the Company's revenues in fiscal 1994, an increase of $4 million over fiscal 1993. Fiscal 1994 net income increased by $25 million or $0.44 per share over fiscal 1993. The increase primarily resulted from the improvement in styrene margins and higher sales volumes for styrene. This improvement was partially offset by a substantial increase in selling, general and administrative expenses discussed below. STYRENE: Styrene revenues increased 99% to $287 million in fiscal 1994 compared to fiscal 1993 because of higher prices, increased sales volumes and the shift to more direct sales from conversion sales. Styrene's gross profit accounted for 36% of the Company's total gross profit in fiscal 1994 compared to a loss in fiscal 1993. The styrene unit operated at approximately 98% of its 1.5 billion pound capacity in fiscal 1994 compared to about 75% of capacity in fiscal 1993. In addition to increased demand, two planned shutdowns for maintenance and installation of new and improved catalyst during fiscal 1993, compared to none in 1994, contributed to the increase in operating rates. Styrene's improved performance primarily resulted from continuing market growth for styrene and its derivatives based on global economic growth. The U.S. economy and the economies of most Asian countries expanded during fiscal 1994 while Europe's economy began to recover. The strength of the U.S. automotive, housing and packaging markets also has contributed to the increased demand for styrene. By the spring of 1994, increased demand for styrene had absorbed much of the excess capacity. In addition, some competitors' styrene plants experienced operating difficulties during the year which further tightened the market. Most styrene plants were operating near full capacity during the last half of fiscal 1994. The Company anticipates some incremental capacity additions over the next few years but demand growth should absorb the capacity additions during that period. During fiscal 1994, the Company successfully replaced all of the volume from the expired conversion agreement with domestic and export sales arrangements and spot sales. In the current tight market for styrene, the sales arrangements were more profitable than the expired conversion arrangement and the shift from that long-term conversion arrangement to more spot sales allowed the Company to take advantage of the greater price volatility in the spot market. 18 21 During fiscal 1994, approximately 55% of the Company's styrene production representing approximately 62% of styrene revenue was sold in the export market, which is typically more volatile than the domestic market. While the prices for styrene's raw materials, benzene and ethylene, increased significantly during the second half of the fiscal year, their average prices for the year increased only slightly. ACRYLONITRILE: Acrylonitrile revenues for fiscal 1994 totaled $138 million, an increase of 11% from fiscal 1993. A 26% increase in sales volumes was partially offset by a 12% decrease in average sales prices in fiscal 1994 compared to fiscal 1993. The acrylonitrile unit operated at approximately 96% of capacity during fiscal 1994 compared to approximately two-thirds of capacity in fiscal 1993. Demand for acrylonitrile strengthened during fiscal 1994 for several reasons. Favorable economic conditions worldwide helped increase acrylonitrile demand. In addition, poor cotton crops in parts of the world contributed to increased demand for all synthetic fibers, including acrylic fibers, which are the largest derivatives of acrylonitrile. Although average sales prices were lower in fiscal 1994 than in 1993, export prices steadily increased during the last half of the fiscal year. Acrylonitrile's profitability did not significantly improve until the fourth fiscal quarter, however, because of increasing raw material costs. Demand for the Company's acrylonitrile is significantly influenced by demand from export customers, particularly those that supply acrylic fibers to China. In recent years, the acrylic fiber market has been subject to volatility because of the relatively unstable nature of the Chinese market. During 1994, China's strong demand for acrylic fibers increased demand for acrylonitrile. Demand in most other Asian countries also was strong. By the end of fiscal 1994, most acrylonitrile producers were operating at or near full capacity. In fiscal 1994, acrylonitrile's gross profit was significantly lower than fiscal 1993 and accounted for approximately 8% of the Company's gross profit compared to approximately 36% during fiscal 1993. Average export acrylonitrile prices and margins were lower in fiscal 1994 than fiscal 1993, and the average price of acrylonitrile's primary raw material, propylene, was slightly higher. Acrylonitrile prices and margins and propylene prices, however, increased significantly during the last half of fiscal 1994. Acrylonitrile's performance benefited from lower per unit fixed costs because of higher operating rates in fiscal 1994 compared to fiscal 1993. The improved profitability of styrene also contributed to acrylonitrile's lower percentage contribution to the Company's total gross profit. Export sales of acrylonitrile increased in 1994 and constituted the great majority of revenues in fiscal years 1994 and 1993. PULP CHEMICALS: Revenues from the Company's pulp chemical operations increased 3% to $123 million, primarily because of increased sales volumes of sodium chlorate and higher generator royalty revenue. The sodium chlorate market improved and sales volumes increased because of increased substitution of chlorine dioxide, derived from sodium chlorate, for elemental chlorine in the bleaching process, increased demand for elemental chlorine-free paper and the recovery underway in the pulp and paper industry. As a result, during the fourth quarter of fiscal 1994, the Company realized its first sodium chlorate price increase since acquiring the business in 1992. During fiscal 1993, the sluggish North American pulp and paper market resulted in lower demand for sodium chlorate. Royalty revenues also increased during fiscal 1994 because of higher generator operating rates and new start-ups. In total, eight new Company generators commenced operation in fiscal 1994, including the first such generator ever in China. The Company also was awarded ten new generator contracts in fiscal 1994. Revenues from sodium chlorate increased 5% from fiscal 1993 as higher sales volumes were partially offset by lower average sales prices. The increased sales volumes resulted in increased capacity utilization, which contributed to lower per unit cost and increased margins. A 3% decrease in the Company's average cost of electricity, the predominant cost in the manufacture of sodium chlorate, also contributed to lower costs. The Company's sodium chlorate facilities operated at approximately 86% of capacity in fiscal 1994, compared to 75% during fiscal 1993. Gross profit for the pulp chemical business increased by 6% in fiscal 1994 from 1993. Pulp chemicals accounted for 38% of the Company's total gross profit in fiscal 1994, down significantly from 1993. The percentage decrease, however, was solely attributable to the increase in profitability of the Company's petrochemical operations. ACETIC ACID: Acetic acid revenues increased by 20% in fiscal 1994 over fiscal 1993. During each year, the Company's acetic acid unit operated at approximately its capacity of about 600 million pounds. The Company and BP Chemicals, Inc. ("BPC"), a U.S. subsidiary of British Petroleum Company plc, have agreed to expand acetic acid capacity to nearly 800 million pounds annually. This expansion is scheduled to be completed in fiscal 1996. In August 1994, the Company and BPC amended the production agreement to extend BPC's exclusive right to purchase acetic acid produced by the Company through July 31, 2016. 19 22 OTHER PRODUCTS: The Company's other products performed well during fiscal 1994, with plasticizers showing significant improvement. In March 1994, the Company and BASF Corporation executed an amendment to the plasticizers sales agreement which covers all of the Company's production, extending it to December 31, 1999 under similar terms. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: The Company's selling, general and administrative expenses ("SG&A") increased solely because of expenses related to the stock appreciation rights ("SARs") program. The Company recognized expense of $21.8 million or $0.26 per share related to the SARs in fiscal 1994 because of the increase in the Company's stock price (see Notes 5 and 6 of "Notes to Consolidated Financial Statements"). Prior to this accrual, SG&A was $1.1 million lower in fiscal 1994 compared to 1993. There were no expenses associated with the SARs in fiscal 1993. ACCOUNTING CHANGES: The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective October 1, 1993. Under SFAS 109, deferred income taxes are provided for temporary differences in recognition of income and expenses for tax and financial reporting purposes. The adoption of this statement did not have an effect on the Company's financial position or results of operations. Upon adoption of SFAS 109, the Company's current deferred tax asset and deferred tax liability each increased by $1.6 million. Comparison of Fiscal 1993 to Fiscal 1992 Revenues for fiscal 1993 totaled $519 million, an increase of $88 million from fiscal 1992. This increase was a result of the first full year of operations of the Company's pulp chemical business, partially offset by a reduction in petrochemical revenues. The pulp chemical business contributed $119 million to the Company's revenues in fiscal 1993. The decrease in the Company's petrochemical revenues was primarily the result of lower sales volumes for styrene and acrylonitrile. Fiscal 1993 earnings before the cumulative effect of a change in accounting for postretirement benefits due to SFAS 106 decreased $9.9 million from fiscal 1992. The reduction in earnings before the cumulative effect of a change in accounting principle was primarily because of lower production rates for styrene and acrylonitrile that resulted in lower operating margins. STYRENE: Styrene revenues decreased 5% to $144 million in fiscal 1993 compared to fiscal 1992 primarily because of lower sales volumes. Styrene's gross profit was a significant loss in fiscal year 1993 compared to a slight loss in fiscal 1992. The styrene unit operated at approximately 75% of its 1.5 billion pound capacity in fiscal 1993 compared to about 85% of capacity in fiscal 1992. The production decline was primarily caused by worldwide overcapacity of styrene and the Company's two planned shutdowns during fiscal 1993 for maintenance and installation of new catalyst. The decrease in production resulted in lower operating margins. During both fiscal 1993 and 1992, approximately 27% of the Company's styrene production representing approximately 44% and 38%, respectively, of styrene revenues was sold in the export market. The average price for benzene decreased 16% while the average price for ethylene increased 3% from fiscal 1992 levels. When there is overcapacity, however, a decrease in the price of raw materials may be accompanied by a similar decrease in the market price of styrene. Thus, the decrease in the price of benzene did not improve styrene profit margins during fiscal 1993. ACRYLONITRILE: Acrylonitrile revenues for fiscal 1993 totaled $124 million, a decrease of $13 million from fiscal 1992. An 8% decrease in sales volumes accounted for this change. The acrylonitrile unit operated at approximately two-thirds of capacity during fiscal 1993 compared to approximately 90% in fiscal 1992. The decreased sales volumes and production rates for acrylonitrile resulted from weaker demand from export customers, particularly those shipping acrylic fibers to China. During both fiscal 1993 and 1992, approximately two-thirds of acrylonitrile production representing approximately 70% and 85%, respectively, of acrylonitrile revenues was sold in the export market. During fiscal 1993, acrylonitrile accounted for approximately 36% of the Company's gross profit compared to approximately 59% during fiscal 1992. Although gross profit declined, acrylonitrile's performance benefited somewhat from an approximately 10% decrease in the price of propylene in fiscal 1993 compared to fiscal 1992. PULP CHEMICALS: The pulp chemical business made a positive contribution to earnings during fiscal 1993 despite sodium chlorate's overcapacity situation and flat demand due to the sluggish pulp and paper market during the period. Approximately 89% of the Company's gross profit was attributable to the pulp chemical business during fiscal 1993, primarily as a result of the weak performance of the Company's petrochemical business. The majority of the Company's sodium chlorate is sold in North America. The sluggish pulp and paper market in North America during fiscal 1993 contributed to lower demand for sodium chlorate than was anticipated at the time of the acquisition in fiscal 1992. The pulp chemical business operated its sodium chlorate facilities at approximately 75% of capacity during fiscal 1993. The lower than anticipated demand was 20 23 partially offset by two factors. Sales of generators to pulp and paper mills to produce chlorine dioxide from sodium chlorate were strong during fiscal 1993, with the Company having the largest share of the market for the sale and licensing of new generators. In addition, the average price of electricity purchased by the Company's four sodium chlorate manufacturing facilities decreased beginning in the first quarter of fiscal 1993. Since electricity is the predominant raw material used in the manufacture of sodium chlorate, this decrease improved operating margins. ACETIC ACID: Acetic acid revenues were approximately the same in fiscal 1993 compared to fiscal 1992. During each year, the Company's acetic acid unit operated at approximately its capacity of nearly 600 million pounds. OTHER PRODUCTS: The Company's other products performed well during fiscal 1993, with plasticizers showing significant improvement. INTEREST EXPENSE: The increase in interest and debt related expenses was due to higher average borrowings in fiscal 1993 compared to fiscal 1992, primarily because of the purchase of the pulp chemical business late in fiscal 1992. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: The increase in selling, general and administrative expenses in fiscal 1993 when compared to fiscal 1992 was also a result of increased costs associated with a full year of operation of the pulp chemical business, compared to less than two months of operations in fiscal 1992. ACCOUNTING CHANGES: During the fourth quarter of fiscal 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"), effective as of October 1, 1991. Under this Statement, the Company is required to accrue the cost of postretirement benefits in its financial statements when the employee is eligible to receive such benefits. The Company previously recorded these expenses as they were paid. Accordingly, the cumulative effect of approximately $10.4 million, net of a deferred tax benefit of $5.4 million, was reflected in the results of operations for the first quarter of fiscal 1992. The Company, as required by SFAS 106, also accrues the annual expenses of these benefits. LIQUIDITY AND CAPITAL RESOURCES Management regularly assesses the liquidity and funding requirements of the Company's operations. Some of the factors important in the Company's liquidity are cash flow from operations including working capital management, capital spending, adequacy of bank lines of credit and availability of long-term capital on satisfactory terms. Management believes that funds generated from operations and borrowings under its existing bank lines will be sufficient to permit the Company to meet its liquidity needs. However, if necessary or appropriate, the Company may seek additional funds or refinance existing indebtedness through public offerings, private placements of securities or bank credit facilities. Working capital at September 30, 1994 was $19 million, a decrease of $12 million from September 30, 1993. This change primarily resulted from accruing the current portion of the Company's SAR liability. Accounts receivable increased by $53 million primarily because of significantly higher sales prices and volumes for styrene and acrylonitrile in the fourth quarter of fiscal 1994 than in the fourth quarter of fiscal 1993. Accounts payable increased by $35 million because of higher prices and volumes for styrene and acrylonitrile raw materials. In addition, accounts receivable and accounts payable were also higher because of increased direct styrene sales. Accrued liabilities increased by $37 million because of increases in accrued compensation, accrued repairs and income taxes payable. Net cash provided by operations was $75 million for fiscal 1994, an increase of $27 million or 56% compared to fiscal 1993. This increase resulted primarily from increased earnings during fiscal 1994. Most of the increased cash flow was used to reduce debt, which decreased by about $66 million during the year. The Company paid cash dividends on its common stock of approximately $3 million during fiscal 1993. On July 1, 1993, the Company's Board of Directors suspended the quarterly dividend and, consequently, no dividends were paid in fiscal 1994. For information concerning certain restrictions on the Company's ability to pay dividends, see "Note 3 of the Notes to Consolidated Financial Statements." The Company has a credit agreement with a syndicate of banks ("Credit Agreement"). The Credit Agreement provides a $16.1 million project loan related to the acetic acid unit ("Project Loan"), a $20.0 million term loan ("Term Loan") and an $80.0 million revolving credit facility ("Company Revolver"), the availability of which was reduced by $20.0 million in loans and $2.3 million in letters of credit at September 30, 1994. The Credit Agreement also allows $20.0 million of additional indebtedness from other lenders. 21 24 At September 30, 1994 the Company had $7.9 million of such additional indebtedness. The Term Loan matures January 1998 while the Company Revolver and Project Loan mature August 1996. The Company has a separate stand-alone credit agreement for the pulp chemical business. The Sterling Canada credit agreement provides a $113.1 million term loan ("Subsidiary Term Loan") and a Cdn. $20.0 million denominated revolving credit facility ("Canadian Revolver"), the availability of which was reduced by $5.0 million in loans and $0.7 million in letters of credit at September 30, 1994. The Subsidiary Term Loan matures August 1999 while the Subsidiary Revolver matures August 1997. The Sterling Canada credit agreement effectively restricted Sterling Canada's ability to pay dividends to 5% of Excess Cash Flow (as defined in the Sterling Canada credit agreement) for fiscal 1994 and effectively prohibits Sterling Canada from paying any dividends to the Company in fiscal 1995 and thereafter. Sterling Canada also is required to make a mandatory prepayment on the Subsidiary Term Loan of $2.3 million from Excess Cash Flow in December 1994. Obligations owed under the Sterling Canada credit agreement are not guaranteed by the Company. Sterling Canada also owes a $44.3 million subordinated note to Tenneco Credit Corporation ("Subordinated Note"). The Subordinated Note matures in December 1999 and is guaranteed by the Company. Sterling Canada is required to make a $0.3 million mandatory prepayment on the Subordinated Note from Excess Cash Flow (as defined in the Sterling Canada credit agreement) in December 1994. Capital expenditures were $12 million in each of fiscal 1994 and 1993. In fiscal 1994, capital expenditures were primarily for various plant modernization projects and environmental and safety matters. In fiscal 1995, because the Company anticipates an increase in cash flow, the Company expects capital expenditures to be approximately $40 million, with approximately $36 million dedicated to the petrochemical operations. Capital investment at the Texas City facility will include several plant instrumentation modernization projects that should be completed over a two-year period, in addition to the planned acetic acid expansion and various environmental, safety and process improvement projects. The Company expects to fund its fiscal 1995 capital expenditures from operating cash flow and its revolving credit facilities. The Company routinely incurs expenses associated with managing hazardous substances and pollution 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 $44 million and $46 million for fiscal years 1994 and 1993, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1995. The Company considers these types of environmental expenditures normal operating expenses and includes them in cost of goods sold. The Company's capital expenditures to limit or monitor hazardous substances or pollutants were $2 million and $6 million for fiscal years 1994 and 1993, respectively. During both fiscal years, the Company did not incur any material expenditures to remediate previously contaminated sites. The Company also did not incur any other infrequent or non-recurring material environmental expenditures which were required under existing environmental regulations in fiscal years 1994 or 1993. At present, the Company anticipates no such material expenditures during fiscal 1995. The Company estimates capital expenditures for environmental and safety matters will be approximately $11 million for fiscal 1995. During 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 is required to implement the provisions of SFAS 112 in fiscal 1995 and estimates the impact on the Company's results of operations in fiscal 1995 will not be material. 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 Company's forward foreign exchange contracts do not subject the Company to additional risk due to Canadian dollar exchange rate movements because gains and losses on these contracts offset losses and gains on the assets, liabilities and transactions being hedged. The Company does not engage in speculation. As of September 30, 1994, the Company had approximately $19.6 million of forward foreign exchange contracts outstanding to buy Canadian dollars. There were no forward foreign exchange contracts outstanding at September 30, 1993. The forward foreign exchange contracts generally have varying maturities with none exceeding 12 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. 22 25 CERTAIN KNOWN EVENTS, TRENDS AND UNCERTAINTIES Raw Material Prices and Availability For each of the Company's 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 and ammonia. There is currently a high demand for ethylene and propylene and the prices of each have recently risen significantly. The Company has several long-term arrangements with ethylene suppliers that provide for the majority of its estimated requirements for purchased ethylene. Although no assurances can be given, management believes that the Company will continue to be able to secure adequate supplies of all its raw materials at acceptable prices. 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 are required for the Company's operations. They are subject to periodic renewal and may be revoked or modified for cause. Increasingly strict new laws or permits might affect the Company's operations, products or waste disposal. Past or future operations may result in claims or liabilities. Also, expenditures could be required to upgrade wastewater collection, pretreatment or disposal systems or other matters. Although no assurances can be given, the Company does not anticipate any material environmental costs or liabilities associated with its operations or products. The Company's sodium chlorate market is sensitive to potential environmental regulation. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) in pulp mill effluent. In general, environmental regulations support substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process. As long as there is not an outright ban on these compounds, such regulation favors the use of chlorine dioxide, thus sodium chlorate. 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 industry is actively working to change this regulation on the basis that it is not supported by sound science and is becoming increasingly optimistic of success. There are no other laws or regulations currently in place which would be detrimental to the product. The Company believes that bleaching methods that substitute chlorine dioxide for elemental chlorine achieve all reasonable pollution reduction targets for air and water emissions, and it believes that a conversion to totally chlorine-free bleaching will yield no measurable environmental or public health benefits. The Company believes its position is supported by the EPA's selection of chlorine dioxide as the best available technology for pulp bleaching. Legal Proceedings The Company is subject to claims and legal actions that arise in the ordinary course of its business. The Company believes that the ultimate liability, if any, with respect to these claims and legal actions will not have a material adverse effect on the financial position or results of operations of the Company (see Note 7 of "Notes to the Consolidated Financial Statements"). In May 1994 approximately 3,000 pounds of ammonia were released into the atmosphere at the Company's Texas City facility while a reactor in the acrylonitrile unit was being restarted after a shutdown for routine maintenance. As of November 15, 1994, approximately 9,000 individuals have filed claims directly with the Company. About 2,000 of these claims have been settled and 3,000 have been denied by the Company and its insurance carrier. Four lawsuits have been filed against the Company and the Company anticipates that additional litigation will ensue. The Company believes that its general liability insurance coverage is sufficient to cover all costs and expenses and has accrued and reflected in expense its deductible under this coverage. The Company is a defendant, together with other chemical company defendants, in several lawsuits. In each case, a large number of plaintiffs have asserted unspecified damages for alleged personal injury and property damage arising from exposure to chemical releases. The Company believes there will be no material adverse effect from these lawsuits on the financial position or results of operations of the Company. 23 26 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (In Thousands Except Per Share Data)
Year Ended September 30, ------------------------------------------- 1994 1993 1992 -------- --------- ------------ Revenues . . . . . . . . . . . . . . . . . . . . . . . $700,840 $ 518,821 $ 430,529 Cost of goods sold . . . . . . . . . . . . . . . . . . 606,916 477,902 402,647 -------- --------- ------------ Gross profit . . . . . . . . . . . . . . . . . . . . 93,924 40,919 27,882 Selling, general and administrative expenses (Note 6) . 46,150 25,495 10,297 Interest and debt related expenses, net of interest income . . . . . . . . . . . . . . . . 22,126 22,392 8,331 Gain on sale of assets . . . . . . . . . . . . . . . . (2,606) -- -- -------- --------- ------------ Income (loss) before taxes and cumulative effect of change in accounting principle . . . . . . . . . . . . 28,254 (6,968) 9,254 Provision (benefit) for income taxes . . . . . . . . . 9,122 (1,548) 4,716 -------- --------- ------------ Income (loss) before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ 4,538 Cumulative effect of change in accounting for postretirement benefits other than pensions . . . -- -- (10,428) -------- --------- ------------ Net income (loss) . . . . . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ (5,890) ======== ========= ============ Per share data: Income (loss) before change in accounting principle . . $ 0.34 $ (0.10) $ 0.08 Change in accounting principle . . . . . . . . . . . . -- -- (0.19) -------- --------- ------------ Net income (loss) (primary and fully diluted) . . . . . $ 0.34 $ (0.10) $ (0.11) ======== ========= ============
The accompanying notes are an integral part of the consolidated financial statements. 24 27 STERLING CHEMICALS, INC. CONSOLIDATED BALANCE SHEET (In Thousands Except Per Share Data)
September 30, ----------------------------- 1994 1993 ----------- ------------ ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 2,013 $ 1,352 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 127,705 74,553 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 69,758 60,328 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 2,700 4,632 Deferred income tax benefit . . . . . . . . . . . . . . . . . . 9,332 3,856 ----------- ------------ Total current assets . . . . . . . . . . . . . . . . . . . . . . 211,508 144,721 Property, plant and equipment, net . . . . . . . . . . . . . . . . 291,126 314,315 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,456 80,669 ----------- ------------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 575,090 $ 539,705 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 76,857 $ 42,241 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 80,071 43,513 Current portion of long-term debt . . . . . . . . . . . . . . . . 33,771 28,015 ----------- ------------ Total current liabilities . . . . . . . . . . . . . . . . . . . 190,699 113,769 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 186,786 256,845 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 38,837 36,098 Deferred credits and other liabilities . . . . . . . . . . . . . . 69,034 62,657 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 150,000 shares authorized, 60,327 and 60,325 shares issued, 55,660 and 55,435 shares outstanding at September 30, 1994 and 1993, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 603 603 Additional paid-in capital . . . . . . . . . . . . . . . . . . . 33,232 34,708 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 125,003 105,871 Pension adjustment . . . . . . . . . . . . . . . . . . . . . . . (950) (1,297) Accumulated translation adjustment . . . . . . . . . . . . . . . (17,322) (16,184) Deferred compensation . . . . . . . . . . . . . . . . . . . . . (68) (164) ----------- ------------ 140,498 123,537 Treasury stock, at cost, 4,667 and 4,891 shares at September 30, 1994 and 1993, respectively . . . . . . . . . . . (50,764) (53,201) ----------- ------------ Total stockholders' equity . . . . . . . . . . . . . . . . . . . 89,734 70,336 ----------- ------------ Total liabilities and stockholders' equity . . . . . . . . . . . $ 575,090 $ 539,705 =========== ============
The accompanying notes are an integral part of the consolidated financial statements. 25 28 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands Except Per Share Data)
Common Stock Additional ------------------ Paid-In Retained Pension Translation Deferred Treasury Shares Amount Capital Earnings Adjustment Adjustment Compensation Stock ------- -------- --------- --------- ---------- ---------- ------------ -------- Balance, September 30, 1991 . . . 60,150 $ 602 $ 33,933 $ 133,985 $ (545) $ -- $ (647) $(55,136) Net loss . . . . . . . . . . . . -- -- -- (5,890) -- -- -- -- Translation adjustment . . . . . -- -- -- -- -- (6,610) -- -- Dividends paid: common stock $.245 per share . -- -- -- (13,492) -- -- -- -- Tax benefit from exercise of warrants . . . . . . . . . -- -- 1,638 -- -- -- -- -- Treasury stock transactions . . . -- -- (93) -- -- -- 444 (351) Amortization of deferred compensation . . . . -- -- -- -- -- -- (31) -- Pension adjustment . . . . . . . -- -- -- -- (464) -- -- -- ------ -------- -------- --------- -------- -------- -------- -------- Balance, September 30, 1992 . . . 60,150 $ 602 $ 35,478 $ 114,603 $ (1,009) $ (6,610) $ (234) $(55,487) Net loss . . . . . . . . . . . . -- -- -- (5,420) -- -- -- -- Translation adjustment . . . . . -- -- -- -- -- (9,574) -- -- Dividends paid: common stock $.06 per share . -- -- -- (3,312) -- -- -- -- Common stock issued . . . . . . . 175 1 700 -- -- -- -- -- Treasury stock transactions . . . -- -- (1,470) -- -- -- (135) 2,286 Amortization of deferred compensation . . . . -- -- -- -- -- -- 205 -- Pension adjustment . . . . . . . -- -- -- -- (288) -- -- -- ------ -------- -------- --------- -------- -------- -------- -------- Balance, September 30, 1993 . . . 60,325 $ 603 $ 34,708 $ 105,871 $ (1,297) $(16,184) $ (164) $(53,201) Net income . . . . . . . . . . . -- -- -- 19,132 -- -- -- -- Translation adjustment . . . . . -- -- -- -- -- (1,138) -- -- Common stock issued . . . . . . . 2 -- 6 -- -- -- -- -- Treasury stock transactions . . . -- -- (1,482) -- -- -- -- 2,437 Amortization of deferred compensation . . . . -- -- -- -- -- -- 96 -- Pension adjustment . . . . . . . -- -- -- -- 347 -- -- -- ------ -------- -------- --------- -------- -------- -------- -------- Balance, September 30, 1994 . . . 60,327 $ 603 $ 33,232 $ 125,003 $ (950) $(17,322) $ (68) $(50,764) ====== ======== ======== ========= ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 26 29 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (In Thousands Except Per Share Data)
Year Ended September 30, ------------------------------------------- 1994 1993 1992 --------- ------------ ---------- Cash flows from operating activities: Cash received from customers . . . . . . . . . . . $ 709,026 $ 558,088 $ 452,224 Miscellaneous cash receipts . . . . . . . . . . . 10,618 10,945 8,932 Cash paid to suppliers and employees . . . . . . . (614,856) (497,920) (453,734) Interest paid . . . . . . . . . . . . . . . . . . (20,443) (21,622) (6,273) Interest received . . . . . . . . . . . . . . . . 60 86 99 Income taxes paid . . . . . . . . . . . . . . . . (9,156) (1,463) (5,000) --------- ------------ ---------- Net cash provided by (used in) operating activities . 75,249 48,114 (3,752) Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . (12,343) (12,175) (15,953) Investment in joint venture . . . . . . . . . . . -- -- (3,971) Investment in other assets . . . . . . . . . . . . -- -- (500) Proceeds from sale of assets . . . . . . . . . . . 2,606 -- -- --------- ------------ ---------- Net cash used in investing activities . . . . . . . . (9,737) (12,175) (20,424) Cash flows from financing activities: Net changes in revolving bank debt . . . . . . . . (20,752) (7,403) 19,567 Payments on other long-term debt . . . . . . . . . (44,765) (26,246) (6,115) Proceeds from borrowings . . . . . . . . . . . . . -- -- 31,843 Payment of debt placement fees . . . . . . . . . . -- (299) (7,421) Dividends paid . . . . . . . . . . . . . . . . . . -- (3,312) (13,492) Other . . . . . . . . . . . . . . . . . . . . . . 643 203 (630) --------- ------------ ---------- Net cash provided by (used in) financing activities . (64,874) (37,057) 23,752 Effect of US/Canadian exchange rate on cash . . . . . 23 (155) 35 --------- ------------ ---------- Net increase (decrease) in cash and cash equivalents 661 (1,273) (389) Cash and cash equivalents -- beginning of year . . . 1,352 2,625 3,014 --------- ------------ ---------- Cash and cash equivalents -- end of year . . . . . . $ 2,013 $ 1,352 $ 2,625 ========= ============ ========== Reconciliation of Net Income (Loss) to Cash Provided by (Used In) Operating Activities Net income (loss) . . . . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ (5,890) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . 40,953 38,679 23,895 Loss (gain) on disposal of assets . . . . . . . . . (2,134) 804 144 Deferred tax expense (benefit) . . . . . . . . . . (4,817) 1,239 (890) Cumulative effect of change in accounting principle -- -- 10,428 Tax benefit from exercise of warrants . . . . . . . -- -- 1,638 Accrued compensation including SARs . . . . . . . . 21,941 205 (35) Treasury stock issued to ESOT . . . . . . . . . . 954 690 -- Change in assets/liabilities net of effects from acquisition: Accounts receivable . . . . . . . . . . . . . . . (52,304) (17,705) (16,499) Inventories . . . . . . . . . . . . . . . . . . . (9,493) 17,708 (17,425) Prepaid expenses . . . . . . . . . . . . . . . . . 2,649 2,430 (4,210) Other assets . . . . . . . . . . . . . . . . . . . (1,437) (4,411) 2,287 Accounts payable . . . . . . . . . . . . . . . . . 34,083 8,123 (4,052) Accrued liabilities . . . . . . . . . . . . . . . 17,604 6,332 1,932 Interest payable . . . . . . . . . . . . . . . . . (1,739) (1,311) 1,474 Taxes payable . . . . . . . . . . . . . . . . . . 13,257 1,207 (3,422) Other liabilities . . . . . . . . . . . . . . . . (3,400) (456) 6,873 --------- ------------ ---------- Cash provided by (used in) operating activities . . . $ 75,249 $ 48,114 $ (3,752) ========= ============ ==========
Supplemental schedule of non-cash investing and financing activities: In fiscal 1992, the Company incurred debt obligations of $208,306, net of $6,212 cash received, to finance the acquisition of the pulp chemicals business. The accompanying notes are an integral part of the consolidated financial statements. 27 30 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities in Texas City, Texas and pulp chemicals facilities throughout Canada. The significant accounting policies of the Company are described below. Principles of Consolidation The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's investment in a cogeneration joint venture is accounted for under the equity method. The Company's equity in earnings from the joint venture is recorded as a reduction of cost of goods sold. Cash Equivalents The Company considers all investments purchased with an original 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 chemical manufacturers 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, while 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 1994, 1993 and 1992 was $145, $291 and $931, respectively. Patents and Royalties The cost of patents is amortized on a straight-line basis over their useful lives which approximates ten years. The Company has capitalized the value of the chlorine dioxide generator technology based on the net present value of all estimated remaining royalty payments associated with the technology. The resulting intangible amount 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 over the scheduled maturity of the debt and are shown as a reduction of the related liability. Income taxes Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and the financial reporting amounts at each year-end (the liability method). Revenue Recognition The Company generates revenues through sales in the open market, raw material conversion agreements and long-term contracts. In certain cases, these arrangements include shared profits with its customers. The Company recognizes revenue from long-term contracts, sales in the open market and raw material conversion agreements as the products are shipped. Revenues from shared profit arrangements are estimated and accrued monthly. Revenues associated with the construction and sale of chlorine dioxide generators are recognized using the percentage of completion method. Deferred credits are amortized over the life of the contract which gave rise to them. 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. The Company enters into forward foreign exchange contracts to minimize the short-term impact of Canadian dollar fluctuations on specific Canadian dollar denominated commitments of its Canadian subsidiaries. Gains or losses on these contracts are deferred and are included in operations in the same period in which the hedged transactions are settled. Income (Loss) Per Share Income (loss) per share for fiscal years 1994, 1993 and 1992 has been computed using a weighted average shares outstanding of 55,606, 55,252 and 55,063, respectively. 28 31 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. 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 (loss) or stockholders' equity. 2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
September 30, ------------------------------ 1994 1993 ------------ ------------- Inventories: Finished products . . . . . . . . . . . . . $ 42,431 $ 27,024 Work in process . . . . . . . . . . . . . . 6,758 2,794 Raw materials . . . . . . . . . . . . . . . 21,761 16,598 ------------ ------------- Inventories at FIFO cost . . . . . . . . . 70,950 46,416 Inventories under exchange agreements . . . . . . . . . . . (12,350) 2,684 Stores and supplies . . . . . . . . . . . . 11,158 11,228 ------------ ------------- $ 69,758 $ 60,328 ============ ============= Property, plant and equipment: Land . . . . . . . . . . . . . . . . . . . . $ 11,771 $ 8,911 Buildings . . . . . . . . . . . . . . . . . 24,944 24,297 Plant and equipment . . . . . . . . . . . . 406,860 393,976 Construction in progress . . . . . . . . . . 14,132 20,209 Less accumulated depreciation . . . . . . . (166,581) (133,078) ------------ ------------- $ 291,126 $ 314,315 ============ ============= Other assets: Patents and technology, net . . . . . . . . $ 46,918 $ 52,945 Intangible pension asset . . . . . . . . . . 4,139 4,545 Deferred catalyst . . . . . . . . . . . . . 4,126 6,893 Other . . . . . . . . . . . . . . . . . . . 17,273 16,286 ------------ ------------- $ 72,456 $ 80,669 ============ ============= Accrued liabilities: Repairs . . . . . . . . . . . . . . . . . . $ 13,468 $ 7,763 Income taxes . . . . . . . . . . . . . . . . 13,257 5,100 Interest . . . . . . . . . . . . . . . . . . 576 734 Estimated contract adjustments . . . . . . . 9,684 5,115 Property taxes . . . . . . . . . . . . . . . 5,796 6,147 Accrued compensation . . . . . . . . . . . . 21,719 3,747 Other . . . . . . . . . . . . . . . . . . . 15,571 14,907 ------------ ------------- $ 80,071 $ 43,513 ============ ============= Deferred credits and other liabilities: Deferred revenue . . . . . . . . . . . . . . $ 27,513 $ 29,593 Accrued postretirement benefits . . . . . . 22,746 20,792 Additional minimum pension liability . . . . . . . . . . . . 5,601 6,505 Accrued compensation . . . . . . . . . . . . 9,030 -- Other . . . . . . . . . . . . . . . . . . . 4,144 5,767 ------------ ------------- $ 69,034 $ 62,657 ============ =============
3. LONG-TERM DEBT: Long-term debt consisted of the following:
September 30, ------------------------------ 1994 1993 ------------ ------------- Revolving credit facilities . . . . . . . . . . $ 32,940 $ 53,692 Term loan . . . . . . . . . . . . . . . . . . . 20,000 39,563 Subsidiary term loan . . . . . . . . . . . . . 113,050 130,900 Subordinated note . . . . . . . . . . . . . . . 44,268 44,268 Project loan . . . . . . . . . . . . . . . . . 16,134 23,486 ------------ ------------- Total debt outstanding . . . . . . . . . . . $ 226,392 $ 291,909 Less: Current maturities . . . . . . . . . . . . . (33,771) (28,015) Unamortized debt issue costs . . . . . . . . (5,835) (7,049) ------------ ------------- Total long-term debt . . . . . . . . . . . . $ 186,786 $ 256,845 ============ =============
The Company has a credit agreement with a syndicate of banks ("Credit Agreement"). The Credit Agreement provides for a revolving credit facility ("Company Revolver") of up to $80,000, the availability of which is reduced by loans ($20,000 at September 30, 1994) and letters of credit ($2,307 at September 30, 1994), provides for a project loan of $16,134 related to the acetic acid unit ("Project Loan") and a term loan ("Term Loan") of $20,000. The margin on borrowings under the Company Revolver and Term Loan is dependent on the outstanding indebtedness under the Company Revolver and Term Loan and cash flow. The Credit Agreement also allows for up to $20,000 of additional borrowings from other lenders ($7,940 in loans at September 30, 1994). The average effective interest rate on the additional borrowings at September 30, 1994 and 1993 (including all associated interest rate swaps) was 10.9% and 4.3%, respectively. The Term Loan matures in January 1998 and requires scheduled quarterly payments. The Term Loan bears interest, at the option of the Company, at LIBOR plus a margin of from 3/4% to 2 1/8%, the prime rate plus from zero to 1 1/8%, or the CD rate plus 1% to 2 3/8%. The effective interest rate on the Term Loan at September 30, 1994 and 1993 was 6.8% and 5.1%, respectively. The Company Revolver matures in August 1996 and bears interest, at the option of the Company, at LIBOR plus a margin of from 3/4% to 2 1/8%, the prime rate plus zero to 1 1/8%, or the CD rate plus 1% to 2 3/8%. The average effective interest rate on the Company Revolver at September 30, 1994 and 1993 (including all associated interest rate swaps) was 11.0% and 5.7%, respectively. The Company is required to pay a commitment fee of 1/2% of the unused Company Revolver commitment. 29 32 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Data) The Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on revolving bank debt. Beginning in February 1992, the Company has outstanding three-year interest rate swap agreements with commercial banks having a total equivalent principal amount of $40,000. The agreements effectively fix the Company's interest rate on $40,000 of revolving bank debt to 4.6% in year one (beginning February 1992), 6.3% in year two and 7.9% in year three, plus any applicable margin under the Company Revolver. The Company is exposed to interest rate risk in the event of nonperformance by the other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by such parties. The Term Loan and the Company Revolver are collateralized by substantially all of the inventories and accounts receivable of the Company, other than those of its pulp chemical operations, Sterling Canada, Inc. ("Sterling Canada") and Sterling Pulp Chemicals, Ltd., ("Sterling Pulp"), and all of the capital stock of Sterling Canada. The Project Loan is payable in 120 monthly installments commencing September 1, 1986. Interest accrues at LIBOR plus a 3/4% margin. In connection with the Project Loan, the Company entered into an interest rate swap agreement, effective September 30, 1986, which effectively fixes the Company's interest rate on its Project Loan to 9.03% per annum. The agreement has a equivalent principal amount equal to the outstanding principal amount of the Project Loan and matures at the time the Project Loan matures. In addition, the Project Loan continues to be collateralized by the Company's rights related to the acetic acid unit and a related note from BPC. The Company is exposed to interest rate risk in the event of nonperformance by the other party to the interest rate swap agreement. However, the Company does not anticipate nonperformance by such party. The Credit Agreement restricts the Company's ability to incur additional indebtedness and make dividend payments above specified amounts and contains a number of financial and other covenants which management believes are customary in lending transactions of this type. The Company also has a separate stand-alone credit agreement for Sterling Canada and an unsecured $44,268 subordinated note to the seller ("Subordinated Note"). The Sterling Canada credit agreement includes a $113,050 term loan to Sterling Canada ("Subsidiary Term Loan") and an additional Cdn. $20,000 denominated revolving credit line ("Canadian Revolver") the availability of which is reduced by loans ($5,000 at September 30, 1994) and letters of credit ($688 at September 30, 1994). The Subsidiary Term Loan matures in August 1999 and requires scheduled quarterly payments and additionally provides for mandatory prepayments of certain percentages of Sterling Canada's and Sterling Pulp's Excess Cash Flow (as defined in the Sterling Canada credit agreement). An Excess Cash Flow payment of $2,331 is due in December 1994. The Subsidiary Term Loan bears interest at the option of Sterling Canada at LIBOR plus 2 1/2%, the CD rate plus 2 3/4% or the higher of the base rate plus 1 1/2% or the Federal Reserve rate plus 2%. The effective interest rate at September 30, 1994 and 1993 was 7.5% and 5.7%, respectively. The Canadian Revolver allows Sterling Pulp to denominate borrowings in U.S. or Canadian dollars. Sterling Canada can only borrow in U.S. dollars. Depending on the currency in which the borrowing is denominated, borrowings bear interest at the base rate plus 1 1/2%, LIBOR plus 2 1/2%, the CD rate plus 2 3/4% or the prime rate plus 1 1/2%. The Canadian Revolver matures in August 1997. At September 30, 1994 and 1993, the average effective interest rate on the Canadian Revolver was 7.5% and 5.7%, respectively. Sterling Canada is required to pay a commitment fee of 1/2% of the unused commitment. The Sterling Canada credit agreement restricts the ability of both Sterling Canada and Sterling Pulp to incur additional indebtedness and make dividend payments above specified amounts and contains a number of financial and other covenants which management believes are customary in lending transactions of this type. The Sterling Canada credit agreement is collateralized by a first lien on the assets of Sterling Canada and Sterling Pulp. Obligations owed under the Sterling Canada credit agreement are not guaranteed by the Company. The Subordinated Note matures in December 1999 and provides for mandatory prepayments of certain percentages of Sterling Canada's Excess Cash Flow (as defined in the Sterling Canada credit agreement). An Excess Cash Flow payment of $278 is due in December 1994. 30 33 The Subordinated Note bears interest at the three month LIBOR plus the applicable margin on the Subsidiary Term Loan plus 1% and restricts the Company's ability to pay dividends and repurchase treasury stock. The Subordinated Note is uncollateralized; however, it is guaranteed by the Company. The interest rate of the Subordinated Note at September 30, 1994 and 1993 was 8.3% and 6.7%, respectively. Debt Maturities The estimated remaining principal payments on the outstanding debt are as follows:
Year ending Principal September 30, Payments ------------- ----------- 1995 . . . . . . . . . . . . . . . $ 33,771 1996 . . . . . . . . . . . . . . . 62,837 1997 . . . . . . . . . . . . . . . 34,800 1998 . . . . . . . . . . . . . . . 26,550 1999 . . . . . . . . . . . . . . . 24,444 2000 . . . . . . . . . . . . . . . 43,990 ----------- Total outstanding debt . . . . $ 226,392 ===========
4. INCOME TAXES: A reconciliation of federal statutory income taxes to the Company's effective tax provision (benefit) is as follows:
Year Ended September 30, ------------------------------------- 1994 1993 1992 ----------- -------- -------- Provision (benefit) for federal income tax at the statutory rate . . . . . . . . . . $ 9,772 $ (2,994) $ 3,146 Tax deductible ESOT dividends . . . . . . . . . . . . -- (132) (542) State and foreign income taxes . . . . . . . . . . . 90 877 702 Estimated income tax settlement and other . . . . . . . (740) 701 1,410 ----------- -------- -------- Effective tax provision (benefit) . . . . . . . . . . . . $ 9,122 $ (1,548) $ 4,716 =========== ======== ========
The provision (benefit) for income taxes is composed of the following:
Year Ended September 30, ------------------------------------- 1994 1993 1992 ----------- -------- -------- From operations: Current federal . . . . . . . . . $ 18,618 $ (2,849) $ 3,064 Deferred federal . . . . . . . . . (7,809) 148 1,652 Deferred foreign . . . . . . . . . (1,687) 1,153 -- ----------- -------- -------- Total tax provision (benefit) . . . . . . . . . . . . $ 9,122 $ (1,548) $ 4,716 =========== ======== ========
The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective October 1, 1993. Under SFAS 109, deferred income taxes are provided for temporary differences in recognition of income and expenses for tax and financial reporting purposes. The adoption of this statement did not have an effect on the Company's results of operations. Upon adoption of SFAS 109, the Company's current deferred tax asset and deferred tax liability each increased by approximately $1,600. The components of the deferred income taxes for 1993 and 1992 (a disclosure no longer required upon adoption of SFAS 109) are summarized below:
Year Ended September 30, ------------------------------ 1994 1993 ------------ ------------- Depreciation and amortization . . . . . . . . . $ 1,709 $ 3,167 Alternate minimum tax . . . . . . . . . . . . . (959) 309 Accrued expenses for book purposes . . . . . . . . . . . . . 484 (1,107) Pension expense . . . . . . . . . . . . . . . . (729) (117) Postretirement expense . . . . . . . . . . . . (667) (680) Effect of tax rate change . . . . . . . . . . . 500 -- Other . . . . . . . . . . . . . . . . . . . . . 963 80 ------------ ------------- Total deferred tax expense . . . . . . . . . . $ 1,301 $ 1,652 ============ =============
The components of the Company's deferred income tax assets and liabilities are summarized below:
1994 1993 ------------------------ ------------------------ Assets Liabilities Assets Liabilities --------- ----------- ---------- ----------- Property, plant and equipment . . . . . . . . . $ -- $ 60,756 $ - $ 55,512 Accrued liabilities . . . . . . . . . . . . . . 13,099 -- 5,968 -- Accrued pension cost . . . . . . . . . . . . . -- 1,165 628 -- Accrued postretirement cost . . . . . . . . . . 7,405 -- 6,811 -- Tax loss and credit carryforward . . . . . . . 11,389 -- 10,430 -- Other . . . . . . . . . . . . . . . . . . . . . 523 -- -- 567 --------- ----------- ---------- -------- Total deferred taxes . . . . . . . . . . . 32,416 61,921 23,837 56,079 Less current deferred taxes . . . . . . . . . . 9,332 -- 3,856 -- --------- ----------- ---------- -------- Noncurrent deferred taxes . . . . . . . . . . . $ 23,084 $ 61,921 $ 19,981 $ 6,079 ========= ========== ========== ========
The Company has approximately $29,000 in tax loss carryforwards which will expire from 1998 through 2001. 31 34 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Data) 5. 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 Tenneco Inc., the Company recognizes their Tenneco Inc. pension years 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. 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, 1994 and 1993, the Company recorded a liability of $5,601 and $6,505, an intangible asset of $4,139 and $4,545, which is included with other assets, and a reduction of stockholders' equity of $950 and $1,297, net of deferred tax of $512 and $666, respectively. The components of pension cost for the years ended September 30, 1994, 1993 and 1992 were as follows:
1994 1993 1992 --------- -------- ------- Service cost (for benefits earned during the period) . . . $ 3,386 $ 3,195 $ 2,530 Interest cost on projected benefit obligation . . . . . . . 3,891 3,499 2,535 Actual return on plan assets and contributions . . . . . . . 617 (2,940) (1,739) Deferral of asset gain (loss) . . . (3,997) 59 (151) Net amortization of unrecognized amounts . . . . . . 848 863 808 --------- -------- ------- $ 4,745 $ 4,676 $ 3,983 ========= ======== =======
Assumptions used in determining the projected benefit obligation and pension cost for the periods were as follows:
Fiscal Year ---------------------------------- 1994 1993 1992 ---- ---- ----- Discount rates . . . . . . . . . . 8.0% 7.5% 8.25% Rates of increase in salary compensation levels . . . . . . 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, 1994 and 1993 is as follows:
1994 1993 --------------------------- ------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- Actuarial present value of benefits based on service to date and present pay levels: Vested benefit obligation . . . . . $ 19,392 $ 17,776 $15,991 $ 16,718 Non-vested benefit obligation . . . 2,040 1,309 2,015 1,859 --------- -------- ------- --------- Accumulated benefit obligation. . . 21,432 19,085 18,006 18,577 Plan assets at fair value . . . . . 26,835 16,795 25,000 12,549 --------- -------- ------- --------- Plan assets in excess of (less than) accumulated benefit obligation . 5,403 (2,290) 6,994 (6,028) Additional amounts related to projected salary increases . . . 14,806 812 14,294 986 --------- -------- ------- --------- Plan assets less than total projected benefit obligation . . . . . . . (9,403) (3,102) (7,300) (7,014) Unrecognized net loss resulting from plan experience and changes in actuarial assumptions 4,935 1,871 2,863 2,766 Unrecognized prior service cost . . (49) 3,949 10 4,328 Unrecognized transition obligation 3,067 182 3,420 208 --------- -------- ------- --------- Prepaid (accrued) pension cost before additional minimum liability . . (1,450) 2,900 (1,007) 288 Additional minimum liability . . . -- (5,601) -- (6,505) --------- -------- ------- --------- Total accrued pension cost . . . . $ (1,450) $ (2,701) $(1,007) $ (6,217) ========= ======== ======= =========
32 35 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. Prior to fiscal 1992, the Company recognized the costs of providing these benefits as they were paid. Retiree health care expenses and life insurance premiums prior to fiscal 1992 were not material. During the fourth quarter of fiscal 1992 the Company adopted, effective October 1, 1991, Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") which requires the accrual of such costs during the period in which the employee renders the necessary service. The Company elected to fully recognize the obligation upon adoption. The cumulative effect of adopting the provisions of SFAS 106 was $10,428, net of a deferred tax benefit of $5,372. Health care benefits are provided to employees who retire from the Company with ten or more years of service except for Canadian employees subject to collective bargaining agreements. All of the Company's employees are eligible for postretirement life insurance. Postretirement health care benefits for U.S. employees are 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 plan stipulates 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. Approximately one hundred fifty six retirees and dependents are covered under these plans. The components of postretirement benefits cost other than pensions for the years ended September 30, 1994 and 1993 were as follows:
1994 1993 ---------- --------- Service cost (for benefits earned during the period) . . . . . . . $ 1,064 $ 932 Interest cost on projected benefit obligation . . . . . . . 1,688 1,531 Amortization of plan amendments . . 29 12 --------- -------- $ 2,781 $ 2,475 ========= ========
Actuarial assumptions used to determine fiscal year 1994 and 1993 costs and benefit obligations for postretirement benefits 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 rate of future increases in per capita cost of health care benefits ("health care cost trend rate") was 8.5% for fiscal year 1994, exclusive of demographic changes, decreasing gradually to 6% by the year 2026. These trend rates reflect current cost performance and management'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 $1,338 and would increase annual aggregate service and interest costs by $168. The following sets forth the plan's funded status reconciled with amounts reported in the Company's consolidated balance sheet at September 30, 1994 and 1993. Accumulated postretirement benefit obligation ("APBO"):
1994 1993 --------- --------- Retirees . . . . . . . . . . . . . $ 5,956 $ 4,756 Fully eligible active plan participants . . . . . . . . . . 7,234 6,568 Other active plan participants . . 11,752 10,168 --------- -------- Total APBO . . . . . . . . . . . 24,942 21,492 Plan assets at fair value . . . . . -- -- Unrecognized loss . . . . . . . . . (1,915) (386) Unrecognized prior service cost . . (281) (314) --------- -------- Accrued postretirement benefit liability . . . . . . . $ 22,746 $ 20,792 ========= ========
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 will implement the provisions of SFAS 112 in fiscal 1995 and management estimates the effect of initial adoption on the Company's financial position and results of operations will not be material. Employee Stock Ownership Trust The Employee Stock Ownership Trust ("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 ("SIP"). The Company's contribution to the ESOT is 60% of the participant's SIP contributions to the extent that such participant's contributions do not exceed 7.5% of the employee's eligible earnings. The contributions are subject to a 20% per year vesting schedule commencing after one year of service. The Company's contributions to the ESOT for the years ended September 30, 1994, 1993 and 1992 were $1,688, $1,649 and $1,598, respectively. 33 36 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Data) Profit Sharing Plans The Company provides profit sharing plans, as amended, for the benefit of salaried and hourly employees meeting certain eligibility requirements. These plans were amended and restated in fiscal 1993. The Company distributes quarterly, to eligible employees, a specified percentage of its earnings before interest, taxes, depreciation and amortization above a specified level. The amount of each eligible employee's quarterly cash distribution is related to a specified percentage of such employee's base salary or wages, with the percentage determined by the employee's position in the Company. Profit sharing expense for fiscal year 1994 was $3,815. There was no profit sharing expense during fiscal years 1993 or 1992. Omnibus Stock and Incentive Plan The Company has an Omnibus Stock and Incentive Plan, under which the Company may grant to key employees incentive and nonincentive stock options, stock appreciation rights, restricted stock, performance units and performance shares. The total number of shares of the Company's common stock reserved under the plan is 3,000. The terms and amounts of the awards are determined by the Compensation Committee of the Board of Directors. Upon a change of control of the Company, all awards granted under the plan become fully vested and all performance based awards will be paid at the higher of performance goals or actual performance to date. In fiscal year 1993, the Company granted stock appreciation rights ("SARs") to certain key employees and directors. Total expense is determined based on the number of SARs granted (3,632), 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 future expenses. The Company recorded expense of $21,800 in fiscal 1994 and paid out $8,297 in October 1994 pursuant to the SARs, as amended. There was no expense associated with the SARs for fiscal year 1993 as the market price of the Company's stock at September 30, 1993 was less than the price at the date of grant. The expense for the SARs is included in selling, general and administrative expenses in the Company's income statement. 6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Year Ended September 30, ---------------------------------------- 1994 1993 1992 --------- -------- -------- United States . . . . . . . . . . . $ 10,232 $ 10,422 $ 8,873 Canada . . . . . . . . . . . . . . 14,075 15,073 1,424 SARs . . . . . . . . . . . . . . . 21,843 -- -- --------- -------- ------- $ 46,150 $ 25,495 $10,297 ========= ======== =======
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. Lease Commitments The Company has entered into various long-term noncancellable operating leases. Future minimum lease commitments at September 30, 1994 are as follows: fiscal 1995 - $2,730; fiscal 1996 - $2,236; fiscal 1997 - $2,230; fiscal 1998 - $2,150; fiscal 1999 - $1,660; and $7,251 thereafter. Rent expense for fiscal years 1994, 1993 and 1992 was not material. Environmental Regulations The Company's operations are subject to extensive federal, state, provincial and local environmental regulations. The Company may incur significant expenditures in order to comply with environmental regulations. Legal Proceedings The Company is subject to claims and legal actions that arise in the ordinary course of its business. The Company believes that the ultimate liability, if any, with respect to these claims and legal actions will not have a material effect on the financial position or results of operations of the Company. In October 1993, the Company and the Internal Revenue Service ("IRS") agreed upon a basis for settlement of the adjustments proposed as a result of the IRS's examination of the Company's federal income tax returns for fiscal years 1987 through 1990. This settlement resulted in a slight reduction of tax expense during fiscal 1994. In May 1994, an ammonia release occurred at the Company's Texas City facility while a reactor in the acrylonitrile unit was being restarted after a shutdown for routine maintenance. The Company estimates that approximately three thousand pounds of ammonia were emitted into the atmosphere. 34 37 As of November 15, 1994, approximately nine thousand individuals have filed claims directly with the Company alleging personal injury and/or property damage as a result of exposure to the ammonia. The Company and its insurance carrier are in the process of evaluating these claims. Approximately two thousand of these claims have been settled and three thousand have been denied by the Company. As of November 15, 1994, four lawsuits involving approximately nine hundred sixty plaintiffs have been filed against the Company seeking unspecified damages for personal injuries and property damage as a result of the release. The Company anticipates that additional claims and litigation against the Company asserting similar claims will ensue. The Company believes that its general liability insurance coverage is sufficient to cover all costs and expenses and has accrued and reflected in expense its deductible under this coverage. Accordingly, the Company believes that final resolution of this matter will not have a material adverse effect on the financial position, liquidity or results of operations of the Company. The Company's primary competitor in the supply of patented technology for generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel (formerly Eka Nobel) and its affiliates. The Company is engaged with Akzo Nobel in numerous patent disputes throughout the world in which the Company and Akzo Nobel are challenging certain patents of the other and attempting to restrict the other's operating range. If either party is successful in these disputes, the other party may have to make adjustments and modifications in its commercial operations or obtain a license from the prevailing party. The Company's management believes that any potential costs for such adjustments or modifications would be immaterial. The Company believes it is entitled to certain indemnities from Tenneco Canada with respect to the acquired technology. On April 27, 1994, approximately one thousand plaintiffs sued the Company and eighteen other corporate defendants in the Texas City area. The plaintiffs seek an unspecified amount of damages for claimed personal injury and property damages arising from alleged chemical releases. Discovery is proceeding and the Company is vigorously defending this lawsuit. On May 9, 1991, a lawsuit was filed against the Company and several other petrochemical companies operating in the Texas City area. The plaintiffs in the lawsuit assert personal injury and property damage claims arising from alleged chemical releases. The plaintiffs seek an unspecified amount of damages. Although the court dismissed a number of the plaintiffs for failure to comply with discovery, over three hundred plaintiffs remain. The Company is vigorously defending the lawsuit. 8 SEGMENT AND GEOGRAPHIC INFORMATION: Sales to individual customers constituting 10% or more of total revenues (in any of the last three fiscal years) and sales by geographic region were as follows:
Year Ended September 30, ----------------------------------------------- 1994 1993 1992 ------------ ---------- ----------- Major Customers Customer A . . . . . . . . . . . . . . . $ 103,637 $ 54,497 $ 55,821 Customer B . . . . . . . . . . . . . . . $ 69,920 $ 60,186 $ 86,213 Export Sales Export revenues . . . . . . . . . . . . . $ 324,930 $ 158,804 $ 183,241 Percentage of total revenues . . . . . . . . . . . . 46% 31% 43% Export revenues (as a percent of total exports) by geographical area: Asia . . . . . . . . . . . . . . . . . . 80% 61% 62% Europe . . . . . . . . . . . . . . . . . 16% 39% 37% Other . . . . . . . . . . . . . . . . . . 4% -- 1%
Year Ended September 30, ------------------------------ 1994 1993 ----------- ------------ Geographic Segment Information Revenues United States . . . . . . . . . . . . . . . . . . . . . $ 578,295 $ 399,486 Canada . . . . . . . . . . . . . . . . . . . . . . . . . 122,545 119,335 ---------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . $ 700,840 $ 518,821 ---------- ----------- Income before taxes and cumulative effect of change in accounting principle United States . . . . . . . . . . . . . . . . . . . . . $ 27,106 $ (12,877) Canada . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 5,909 ---------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . $ 28,254 $ (6,968) ========== =========== Assets United States . . . . . . . . . . . . . . . . . . . . . $ 374,910 $ 328,746 Canada . . . . . . . . . . . . . . . . . . . . . . . . . 200,180 210,959 ---------- ----------- Total . . . . . . . . . . . . . . . . . . . . . . . . $ 575,090 $ 539,705 ========== ===========
35 38 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands Except Per Share Data) Concentration of Credit Risk The Company sells its products primarily to companies involved in the petrochemical and pulp manufacturing industries. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. 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. Management periodically assesses the financial condition of the institutions and believes that any possible loss is minimal. 9. FINANCIAL INSTRUMENTS: The Company enters into forward foreign exchange contracts to hedge Canadian dollar transactions on a continuing basis for periods consistent with its committed exposures. The Company's forward foreign exchange contracts are intended to reduce the Company's risk due to Canadian exchange rate movements because gains and losses on these contracts are intended to offset losses and gains on the assets, liabilities and transactions being hedged. The Company does not engage in speculation. As of September 30, 1994, the Company had approximately $19,639 of forward foreign exchange contracts outstanding to buy Canadian dollars. There were no forward foreign exchange contracts outstanding at September 30, 1993. The forward foreign exchange contracts generally have varying maturities with none exceeding 12 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. The fair value approximated the carrying value of financial instruments included in current assets, current liabilities and long- term debt, including any related swaps, at September 30, 1994. Unrealized gains related to forward foreign exchange contracts were not material. 10. RELATED PARTY TRANSACTIONS: The Company, through a wholly-owned subsidiary, is a partner in a joint venture which constructed and operates a cogeneration plant at the Texas City facility. During fiscal years 1994 and 1993, the Company purchased $16,546 and $16,646 of steam and electricity from the joint venture, respectively, and recorded earnings of $2,788 and $2,598, respectively. The Company's investment in the joint venture is not material. 36 39 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals, Inc. We have audited the consolidated balance sheet of Sterling Chemicals, Inc. as of September 30, 1994 and 1993 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended September 30, 1994. 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, Inc. as of September 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. As more fully discussed in Note 4 to the consolidated financial statements, effective October 1, 1993 the Company changed its method of accounting for income taxes. /s/ Coopers & Lybrand, L.L.P. COOPERS & LYBRAND L.L.P. November 11, 1994 Houston, Texas REPORT OF MANAGEMENT Management is responsible for the preparation and content of the financial statements included in this annual report and the information contained in other sections of 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 are conducted to test compliance with internal controls. Results of audit efforts and actions are communicated to appropriate Management and to the Audit Committee of the Board of Directors. Coopers & Lybrand L.L.P. performs a separate independent audit of the Company's financial statements for the purpose of determining that the statements are presented fairly and in accordance with generally accepted accounting principles. Coopers & Lybrand L.L.P. is appointed by the Board of Directors and meets regularly with the Audit Committee of the Board. The Audit Committee of the Board of Directors is composed solely of outside directors. The Committee meets periodically with the Company's senior officers, the Company's Manager of Internal Audit and independent accountants to review the adequacy and reliability of the Company's accounting, financial reporting and internal controls. /s/ J. Virgil Waggoner J. Virgil Waggoner President and Chief Executive Officer /s/ Jim P. Wise Jim P. Wise Vice President and Chief Financial Officer November 11, 1994 37 40 STERLING CHEMICALS, INC. SUPPLEMENTAL FINANCIAL INFORMATION (In Thousands Except Per Share Data) Quarterly Financial Data (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- ----------- ---------- Revenues . . . . . . . . . . . . . 1994 $ 130,560 $ 154,754 $ 204,668 $ 210,858 1993 $ 137,789 $ 113,045 $ 132,259 $ 135,728 Gross profit . . . . . . . . . . . 1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286 1993 $ 13,125 $ 8,619 $ 11,864 $ 7,311 Net income (loss) . . . . . . . . . 1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248 1993 $ 79 $ (2,586) $ (447) $ (2,466) Per Share Data: Net income (loss) . . . . . . . . . 1994 $ (.06) $ .03 $ .10 $ .27 1993 $ -- $ (.05) $ (.01) $ (.04) Cash dividends per common share . . 1994 $ -- $ -- $ -- $ -- 1993 $ .02 $ .02 $ .02 $ -- Price range of common stock (NYSE) 1994 High $ 4 1/2 $ 6 3/4 $ 10 $ 13 3/4 Low $ 3 3/8 $ 4 $ 5 1/2 $ 9 1993 High $ 4 1/4 $ 5 $ 4 1/2 $ 4 Low $ 3 1/2 $ 3 3/4 $ 3 3/8 $ 3 1/8
The common stock of the Company is traded on the New York Stock Exchange ("NYSE") under the ticker symbol "STX." There were approximately 15,000 shareholders of record and other beneficial owners as of September 30, 1994. For more information concerning the Company's ability and intention to pay future dividends see "Management's Discussion and Analysis of Financial Condition and Results of Operations." 38 41 STERLING CHEMICALS, INC. SUPPLEMENTAL FINANCIAL INFORMATION (In Thousands Except Per Share Data) Selected Financial Data
Year Ended September 30, ----------------------------------------------------------------------------------------------------------- Operating Data: 1994 1993 1992 1991 1990 1989 1988 1987 ---------- ---------- --------- --------- ----------- ---------- ----------- -------- Revenues . . . . . . $ 700,840 $ 518,821 $ 430,529 $ 542,664 $ 506,046 $ 580,797 $ 698,964 $413,192 Gross profit . . . . 93,924 40,919 27,882 70,257 106,403 172,608 334,990 118,956 EBITDA . . . . . . . 89,471 52,477 40,967 78,522 115,241 178,562 337,336 125,450 Net income (loss) . . 19,132 (5,420) (5,890) 36,797 59,083 103,898 213,079 47,381 Per share data: * Income (loss) . . 0.34 (0.10) (0.11) 0.67 1.07 1.77 3.55 .79 Cash dividends . . 0.00 0.06 0.245 0.65 1.00 .75 3.17 -- Balance Sheet Data: Working capital . . . $ 20,809 $ 30,952 $ 56,787 $ 28,623 $ 33,359 $ 35,566 $ 39,448 $ 28,585 Total assets . . . . 575,090 539,705 600,094 361,030 352,024 329,040 294,242 283,375 Long-term debt . . . 186,786 256,845 291,844 71,162 63,739 66,499 86,279 116,047 Stockholders' equity . . . . . . 89,734 70,336 87,343 112,192 108,240 110,372 90,562 52,360
* Per share data have been computed using the weighted average number of common shares outstanding during each period. 39 42 CORPORATE INFORMATION Form 10-K Copies of the Company's 1994 Form 10-K are available without charge upon written request to: Jim P. Wise Vice President - Finance and Chief Financial Officer Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 Annual Meeting Date: January 25, 1995 Time: 9:00 a.m. Place: Texas Commerce Center Auditorium 601 Travis Houston, Texas 77002 Legal Counsel Bracewell & Patterson, L.L.P. 2900 South Tower Pennzoil Place Houston, Texas 77002 713/223-2900 Independent Accountants Coopers & Lybrand L.L.P. 1100 Louisiana, Suite 4100 Houston, Texas 77002 713/757-5200 Stock Listing New York Stock Exchange Ticker Symbol STX Stock Transfer Agent and Registrar Society National Bank c/o KeyCorp Shareholder Services, Inc. 700 Louisiana, Suite 2620 Houston, Texas 77002-2729 Corporate Headquarters Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 713/650-3700 40 43 (Sterling Chemicals Logo) Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 713/650-3700 41 44 Board of Directors Photo No. 1, Page 41 [Photo Description -- Board of Director Seated, from left: J. Virgil Waggoner, Gordon A. Cain, Gilbert M. A. Portal. Standing, from left, F. Maxwell Evans, Secretary to the Board; Raymond R. Knowland; James J. Kerley; Frank J. Pizzitola; William A. McMinn.] Photo No. 2, Page 41 [Photo Description -- Officers Seated, from left: Robert W. Roten, J. Virgil Waggoner, Jim P. Wise. Standing, Stewart H. Yonts; Robert N. Bannon; F. Maxwell Evans, Richard K. Crump.] DIRECTORS AND OFFICERS Board of Directors Gordon A. Cain(2) Chairman of the Board of the Company J. Virgil Waggoner President and Chief Executive Officer of the Company James J. Kerley(1) Retired Vice Chairman, Emerson Electric Co. Raymond R. Knowland(1)(2) Industrial Consultant William A. McMinn(2) Chairman, Arcadian Corporation Frank J. Pizzitola(1)(2) Limited Partner, Lazard Freres & Co. Gilbert M. A. Portal(1)(2) Secretary General, European Petroleum Industry Association (1)Audit Committee (2)Compensation Committee Executive Officers J. Virgil Waggoner President and Chief Executive Officer Robert W. Roten Executive Vice President and Chief Operating Officer Jim P. Wise Vice President - Finance and Chief Financial Officer Richard K. Crump Vice President - Commercial Robert N. Bannon Vice President - Operations F. Maxwell Evans Corporate Secretary and General Counsel Stewart H. Yonts Treasurer 42 EX-27 20 FINANCIAL DATA SCHEDULE
5 1,000 YEAR SEP-30-1994 OCT-01-1993 SEP-30-1994 2,013 0 127,705 0 69,758 211,508 457,707 166,581 575,090 190,699 186,786 603 0 0 89,131 89,734 700,840 700,840 606,916 606,916 43,544 0 22,126 28,254 9,122 19,132 0 0 0 19,132 .34 .34
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