-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D/ty0RGmyi28apFr0ErFYN1jWoga9x2XjMD6Zw9r/ygj4RdbnTjQcnUaycM0x220 LpjBT+S9uO+RkDSZDNl8Mg== 0000950129-98-002117.txt : 19980515 0000950129-98-002117.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950129-98-002117 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC /TX/ CENTRAL INDEX KEY: 0000795662 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760185186 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10059 FILM NUMBER: 98621008 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST, SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: 1200 SMITH ST SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC /TX/ DATE OF NAME CHANGE: 19961218 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS HOLDINGS INC DATE OF NAME CHANGE: 19960828 FORMER COMPANY: FORMER CONFORMED NAME: STERLING CHEMICALS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICAL INC CENTRAL INDEX KEY: 0001014669 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 760502785 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-04343-01 FILM NUMBER: 98621009 BUSINESS ADDRESS: STREET 1: 1200 SMITH STREET STREET 2: SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: C/O STERLING GROUP INC STREET 2: EIGHT GREENWAY PLAZA, SUITE 702 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: STX CHEMICALS CORP DATE OF NAME CHANGE: 19960516 10-Q 1 STERLING CHEMICALS HOLDINGS, INC. 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-10059 STERLING CHEMICALS HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 SMITH STREET, SUITE 1900 (713) 650-3700 HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE COMMISSION FILE NUMBER 333-04343-01 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0502785 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 SMITH STREET, SUITE 1900 (713) 650-3700 HOUSTON, TEXAS 77002-4312 (REGISTRANT'S TELEPHONE NUMBER, (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Sterling Chemicals, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with the reduced disclosure format provided for by General Instruction H(2) of Form 10-Q. ---------- Indicate by check mark whether each of the registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of April 30, 1998, Sterling Chemicals Holdings, Inc. had 12,395,330 shares of common stock outstanding. As of April 30, 1998, all outstanding equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals Holdings, Inc. ================================================================================ 2 This combined Form 10-Q is separately filed by Holdings and Chemicals (each as defined herein). Information contained herein relating to Chemicals is filed by Holdings and separately by Chemicals on its own behalf. Certain capitalized terms used in this Form 10-Q are defined in the Notes to Condensed Consolidated Financial Statements, included herein. PART I.--FINANCIAL INFORMATION ITEM 1.--FINANCIAL STATEMENTS 2 3 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
MARCH 31, SEPTEMBER 30, 1998 1997 ---------- ------------- ASSETS Current assets: Cash and cash equivalents ................................... $ 8,841 $ 7,958 Accounts receivable ......................................... 133,575 167,248 Inventories ................................................. 100,270 87,870 Prepaid expenses ............................................ 9,235 10,956 Deferred income taxes ....................................... 10,691 10,005 ---------- ---------- Total current assets .................................... 262,612 284,037 Property, plant and equipment, net .............................. 474,231 492,036 Other assets .................................................... 96,347 102,898 ---------- ---------- Total assets ............................................. $ 833,190 $ 878,971 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable ............................................ $ 68,334 $ 80,658 Accrued liabilities ......................................... 79,123 77,565 Current portion of long-term debt ........................... 5,634 5,710 ---------- ---------- Total current liabilities ............................... 153,091 163,933 Long-term debt .................................................. 884,784 876,281 Deferred income taxes ........................................... 24,895 36,038 Deferred credits and other liabilities .......................... 70,677 73,336 Common stock held by ESOP ....................................... 5,938 7,688 Less: unearned compensation ..................................... (3,530) (5,570) Redeemable preferred stock ...................................... 17,013 15,793 Commitments and contingencies Stockholders' equity (deficiency in assets): Common stock, $.01 par value, 20,000,000 shares authorized, 11,942,000 shares issued and 11,740,000 outstanding at March 31, 1998; and 11,942,000 shares issued and 11,714,000 shares outstanding at September 30, 1997 ........................ 120 120 Additional paid-in capital ................................... (541,929) (542,485) Retained earnings ............................................ 250,039 277,691 Pension adjustment ........................................... (31) (31) Accumulated translation adjustment ........................... (25,321) (21,093) Deferred compensation ........................................ (136) -- ---------- ---------- (317,258) (285,798) Treasury stock, at cost, 202,000 shares at March 31, 1998 and 228,000 shares at September 30, 1997 ............. (2,420) (2,730) ---------- ---------- Total stockholders' equity (deficiency in assets) ....... (319,678) (288,528) ---------- ---------- Total liabilities and stockholders' equity (deficiency in assets) ............................ $ 833,190 $ 878,971 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 4 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- Revenues ................................................... $ 204,504 $ 239,763 $ 434,740 $ 426,689 Cost of goods sold ......................................... 190,116 222,936 397,855 394,779 --------- --------- --------- --------- Gross profit ............................................... 14,388 16,827 36,885 31,910 Selling, general, and administrative expenses .............. 11,964 7,223 23,680 13,349 Other expense ............................................. 2,940 -- 2,940 -- Interest and debt related expenses, net of interest income ......................................... 24,970 20,850 50,273 39,474 --------- --------- --------- --------- Loss before income taxes ................................... (25,486) (11,246) (40,008) (20,913) Benefit for income taxes ................................... (9,198) (3,435) (13,575) (5,904) --------- --------- --------- --------- Net loss ................................................... (16,288) (7,811) (26,433) (15,009) Preferred stock dividend and accretion ..................... 591 162 1,219 162 --------- --------- --------- --------- Net loss attributable to common stockholders ............... $ (16,879) $ (7,973) $ (27,652) $ (15,171) ========= ========= ========= ========= Net loss per common share .................................. $ (1.37) $ (0.72) $ (2.28) $ (1.40) ========= ========= ========= ========= Weighted average shares outstanding ........................ 11,984 11,118 11,918 10,860 ========= ========= ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 5 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from customers ................................... $ 497,231 $ 441,473 Miscellaneous cash receipts (payments) ......................... (795) 9,368 Cash paid to suppliers and employees ........................... (449,306) (414,540) Interest paid .................................................. (39,861) (28,579) Interest received .............................................. 115 266 Income tax refunds received .................................... 6,864 1,433 ------------ ------------ Net cash provided by operating activities .......................... 14,248 9,421 ------------ ------------ Cash flows from investing activities: Capital expenditures ........................................... (13,303) (25,154) Purchase of assets-acrylic fibers business ..................... -- (88,200) Proceeds-sale of assets ........................................ -- 16 ------------ ------------ Net cash used in investing activities (13,303) (113,338) Cash flows from financing activities: Proceeds from long-term debt ................................... 48,562 146,900 Repayment of long-term debt .................................... (48,508) (50,072) Issuance of common stock ....................................... -- 12,339 Purchase of treasury stock ..................................... (99) (613) Other .......................................................... 74 (3,889) ------------ ------------ Net cash provided by financing activities .......................... 29 104,665 ------------ ------------ Effect of exchange rate on cash .................................... (91) (77) ------------ ------------ Net increase in cash and cash equivalents .......................... 883 671 Cash and cash equivalents--beginning of period ..................... 7,958 5,609 ------------ ------------ Cash and cash equivalents--end of period ........................... $ 8,841 $ 6,280 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 6 STERLING CHEMICALS HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
SIX MONTHS ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ Net loss ........................................................ $ (26,433) $ (15,009) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ............................... 28,014 22,973 Debt fee amortization ....................................... 2,198 2,191 Loss on disposal of assets .................................. 256 7 Deferred tax (benefits) expense ............................. (10,496) 3,124 Unearned compensation ....................................... 923 1,067 Discount note amortization .................................. 8,118 7,507 Change in: Accounts receivable ......................................... 26,968 (30,299) Inventories ................................................. (12,658) 1,201 Prepaid expenses ............................................ 4,210 (6,241) Other assets ................................................ 598 (7,317) Accounts payable ............................................ (8,740) 6,999 Accrued liabilities ......................................... 1,067 7,149 Interest payable ............................................ 3,378 6,783 Taxes payable ............................................... (3,089) (1,234) Other liabilities ........................................... (66) 10,520 ------------ ------------ Net cash provided by operating activities ....................... $ 14,248 $ 9,421 ============ ============
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 7 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
MARCH 31, SEPTEMBER 30, 1998 1997 --------- ------------- ASSETS Current assets: Cash and cash equivalents ............................................. $ 8,793 $ 7,958 Accounts receivable ................................................... 135,038 167,898 Inventories ........................................................... 100,270 87,870 Prepaid expenses ...................................................... 7,610 10,031 Deferred income tax benefit ........................................... 10,691 10,005 ---------- ---------- Total current assets ............................................... 262,402 283,762 Property, plant and equipment, net ........................................ 474,231 492,036 Other assets .............................................................. 92,842 99,519 ---------- ---------- Total assets .................................................... $ 829,475 $ 875,317 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) Current liabilities: Accounts payable ...................................................... $ 68,334 $ 80,658 Accrued liabilities ................................................... 79,126 77,565 Current portion of long-term debt ..................................... 5,634 5,710 ---------- ---------- Total current liabilities .......................................... 153,094 163,933 Long-term debt ............................................................ 768,947 768,870 Deferred income tax liability ............................................. 34,186 42,646 Deferred credits and other liabilities .................................... 70,677 73,337 Common stock held by ESOP ................................................. 5,938 7,688 Less: unearned compensation ............................................... (3,530) (5,570) Commitments and contingencies Stockholder's equity (deficiency in assets): Common stock, $.01 par value .......................................... -- -- Additional paid-in capital ............................................ (139,230) (139,786) Retained earnings (deficit) ........................................... (35,119) (14,677) Pension adjustment .................................................... (31) (31) Deferred compensation ................................................. (136) -- Accumulated translation adjustment .................................... (25,321) (21,093) ---------- ---------- Total stockholder's equity (deficiency in assets) .................. (199,837) (175,587) ---------- ---------- Total liabilities and stockholder's equity (deficiency in assets) ................................................. $ 829,475 $ 875,317 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 7 8 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- -------- --------- Revenues ................................................... $ 204,504 $ 239,763 $ 434,740 $ 426,689 Cost of goods sold ......................................... 190,116 222,936 397,855 394,779 --------- --------- --------- --------- Gross profit ............................................... 14,388 16,827 36,885 31,910 Selling, general and administrative expenses ............... 11,466 7,012 22,900 12,783 Other (income) expense ..................................... 2,940 -- 2,940 -- Interest and debt related expenses ......................... 20,782 17,011 41,679 31,812 Interest income from parent ................................ -- -- -- (1,788) --------- --------- --------- --------- Loss before income taxes ................................... (20,800) (7,196) (30,634) (10,897) Benefit for income taxes ................................... (7,228) (2,553) (10,192) (3,076) --------- --------- --------- --------- Net loss ................................................... $ (13,572) $ (4,643) $ (20,442) $ (7,821) ========= ========= ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 8 9 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, ---------------------------- 1998 1997 ---------- ---------- Cash flows from operating activities Cash received from customers ............................... $ 497,231 $ 441,473 Miscellaneous cash receipts (payments) ..................... (869) 9,412 Cash paid to suppliers and employees ....................... (449,265) (415,150) Interest paid .............................................. (39,861) (28,579) Interest received .......................................... 100 261 Income tax refund received ................................. 6,864 1,433 ---------- ---------- Net cash provided by operating activities ....................... 14,200 8,850 ---------- ---------- Cash flows from existing activities: Capital expenditures ....................................... (13,303) (25,154) Purchase of assets-acrylic fibers business ................. -- (88,200) Proceeds from sale of assets ............................... -- 16 ---------- ---------- Net cash used in investing activities ........................... (13,303) (113,338) Cash flows from financing activities: Proceeds from long-term debt ............................... 48,361 146,900 Repayment of long-term debt ................................ (47,202) (50,072) Intercompany financing ..................................... (1,105) 3,000 Contributions from parent .................................. -- 8,604 Other ...................................................... (25) (3,168) ---------- ---------- Net provided by financing activities ............................ 29 105,264 Effect of exchange rate on cash ................................. (91) (77) ---------- ---------- Net change in cash and cash equivalents ......................... 835 699 Cash and cash equivalents - beginning of period ................. 7,958 5,581 ---------- ---------- Cash and cash equivalents - end of period ....................... $ 8,793 $ 6,280 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 9 10 STERLING CHEMICALS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
SIX MONTHS ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ Net loss ........................................................ $ (20,442) $ (7,821) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ............................... 28,014 22,973 Debt Fee Amortization ....................................... 1,706 2,029 Loss on disposal of assets .................................. 256 7 Deferred tax (benefit) expense .............................. (7,813) 5,787 Unearned compensation ....................................... 923 1,067 Change in: Accounts receivable ......................................... 26,930 (34,753) Inventories ................................................. (12,658) 1,201 Prepaid expenses ............................................ 4,910 (4,234) Other assets ................................................ 562 (7,844) Accounts payable ............................................ (9,479) 7,361 Accrued liabilities ......................................... 1,067 7,063 Interest payable ............................................ 3,378 8,570 Taxes payable ............................................... (3,089) (3,076) Other liabilities ........................................... (65) 10,520 ---------- ---------- Net cash provided by operating activities ....................... $ 14,200 $ 8,850 ========== ==========
The accompanying notes are an integral part of the condensed consolidated financial statements. 10 11 STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION: In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly the consolidated financial position of Sterling Chemicals Holdings, Inc. ("Holdings") and its subsidiaries (Holdings and its subsidiaries collectively, the "Company") and Sterling Chemicals, Inc. and its subsidiaries (collectively, "Chemicals") as of March 31, 1998 and their consolidated results of operations and cash flows for the applicable three month and six month periods ended March 31, 1998 and 1997. All such adjustments are of a normal and recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be, and are assumed to have been, read in conjunction with the consolidated financial statements and notes included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal year ended September 30, 1997 (the "Annual Report"). The accompanying condensed consolidated balance sheets as of September 30, 1997, have been derived from the audited consolidated balance sheets as of September 30, 1997, included in the Annual Report. The accompanying condensed consolidated financial statements as of and for the three month and six month periods ended March 31, 1998, have been subjected to a review by Deloitte & Touche LLP, the Company's independent public accountants, whose reports are included herein. 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 loss or stockholders' equity (deficiency in assets). 2. INVENTORIES:
MARCH 31, SEPTEMBER 30, 1998 1997 ---------- ------------- Inventories consisted of the following (in thousands): Finished products ............................................... $ 49,484 $ 47,572 Raw materials ................................................... 18,223 17,800 Inventories under exchange agreements ........................... 11,945 2,179 Stores and supplies ............................................. 20,618 20,319 ---------- ---------- $ 100,270 $ 87,870 ========== ==========
3. LONG-TERM DEBT:
MARCH 31, SEPTEMBER 30, 1998 1997 ---------- ------------- Long-term debt consisted of the following (in thousands): Revolving credit facility ....................................... $ 12,877 $ 9,400 Term loans ...................................................... 274,667 275,334 Saskatoon term loans ............................................ 51,992 53,822 ESOP term loan .................................................. 4,062 4,875 11 1/4% Notes ................................................... 152,982 153,148 11 3/4% Notes ................................................... 275,000 275,000 13 1/2% Notes .................................................. 118,838 110,412 ---------- ---------- Total debt outstanding ...................................... 890,418 881,991 Less: Current maturities .......................................... (5,634) (5,710) ---------- ---------- Total long-term debt ............................................ $ 884,784 $ 876,281 ========== ==========
11 12 During April 1998, the Company obtained certain amendments to the financial covenants contained in its $404.5 million senior secured credit agreement (the "Credit Agreement"). The Company requested the changes in order to reduce the covenant thresholds based on its revised financial projections for fiscal years 1998 and 1999. The amendments span a seven-quarter period, through September 30, 1999. The Company's ability to comply with the covenants and other terms of its various debt agreements, meet its debt service obligations, and repay principal when due will depend on the future performance of the Company. The future performance of the Company is subject to a number of uncertainties. The Company was in compliance with the financial covenants in effect as of March 31, 1998. However, if weak market conditions (particularly in various countries in the Far East) continue to negatively impact the sales prices, margins, and volumes of the Company's products, particularly styrene, acrylonitrile, sodium chlorate, and acrylic fibers, the Company may have difficulty remaining in compliance with the financial covenants under certain of its debt agreements. If the Company fails to remain in compliance with any financial covenants, the Company believes it can obtain curative amendments or waivers for the non-compliance to its current debt agreements; however, no assurances can be given that these amendments or waivers will be obtained. In the event amendments or waivers are not obtained, debt holders may pursue remedies available to them under the relevant debt agreements. 4. COMMITMENTS AND CONTINGENCIES: Product Contracts The Company has certain long-term agreements that provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, tertiary butylamine, and sodium cyanide, each to one customer. The Company also has various sales and conversion agreements that dedicate significant portions of the Company's production of styrene monomer, acrylonitrile, and methanol, the Company's major petrochemical products, to various customers. These agreements generally provide for cost recovery plus an agreed margin or element of profit based upon market price. Environmental Regulations The Company's operations involve the handling, production, transportation, and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. New laws or permit requirements and conditions may affect the Company's operations, products, or waste disposal. Past or future operations may result in claims or liabilities. Expenditures could be required to upgrade waste water collection, pretreatment, or disposal systems or for other matters related to handling, production, transportation, and disposal of materials classified as hazardous or toxic. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations, or products. Legal Proceedings Ammonia Release Lawsuits. A description of the ammonia release lawsuits is found under "Legal Proceedings" in Note 7 of the "Notes To Consolidated Financial Statements" of the Annual Report and is incorporated herein by reference. As discussed therein, the Company continues to vigorously defend against the claims of the approximately 1,500 remaining plaintiffs. The Company has settled such lawsuits with certain of the original plaintiffs on an on-going basis and anticipates that such practice will continue. Nickel Carbonyl Lawsuit. A description of the nickel carbonyl lawsuit is found under "Legal Proceedings" in Note 7 of the "Notes to Consolidated Financial Statements" of the Annual Report and is incorporated herein by reference. A total of fifteen contractor employees allegedly exposed to nickel carbonyl have filed a lawsuit against Chemicals seeking unspecified damages for personal injuries. Additional claims and litigation against Chemicals asserting similar claims may ensue. Ethylbenzene Release. On April 1, 1998, a minor chemical leak occurred when a line failed in the ethylbenzene unit at the Company's Texas City petrochemical plant. The released chemicals included ethylbenzene, benzene, polyethylbenzene and a small amount of hydrochloric acid. The Company does not believe any serious injuries were sustained, although a number of citizens sought medical examinations at local hospitals after a precautionary alert was given to neighboring communities. 12 13 The Company anticipates that claims and litigation against Chemicals will ensue as a result of the release. The Company believes that its general liability insurance coverage is sufficient to cover all costs and expenses in excess of the deductible. Other Lawsuits. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. Litigation Contingency The Company has made estimates of the reasonably possible range of its liability with regard to outstanding litigation for which it may incur liability. In addition, liabilities have been accrued based on the estimated probable loss from such litigation. These estimates are based on management's judgments using currently available information as well as consultation with the Company's insurance carriers and outside legal counsel. A number of the claims in these litigation matters are covered by the Company's insurance policies or by third-party indemnification of the Company. The Company, therefore, has also made estimates of its probable recoveries under these insurance policies or third-party indemnitors based on its understanding of its insurance policies and indemnifications, discussions with its insurers and indemnitors, and consultation with outside legal counsel, in addition to the Company's judgments. Based on the foregoing, as of March 31, 1998, the Company has accrued approximately $6.3 million as its estimate of aggregate contingent liability for these matters, and has also recorded aggregate receivables from its insurers and third-party indemnitors of approximately $6.0 million. At March 31, 1998, management estimates that the aggregate reasonably possible range of loss for all litigation combined, in addition to the amount accrued, is from $0 to $12 million. The Company believes that this additional reasonably possible loss is substantially covered by insurance. While the Company has based its estimates on its evaluation of available information to date and the other matters described above, much of the litigation is in its early stages and it is impossible to predict with certainty the ultimate outcome. The Company will adjust its estimates as necessary if and when additional information is developed and evaluated. However, the Company believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, results of operations, or cash flows of the Company. The timing of probable insurance recoveries and additional accruals or payment of liabilities, if any, are not expected to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. 5. NEW ACCOUNTING STANDARDS: Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," establishes standards for computing and presenting earnings per share ("EPS") and replaces the presentation of primary EPS previously prescribed with a presentation of basic EPS, which is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The statement also requires presentation of diluted EPS. Diluted EPS is computed similarly to fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15. The Company adopted SFAS No. 128 for fiscal 1998 and has restated prior year amounts to reflect adoption of the new standard. As losses were incurred for each of the three month and six month periods ended March 31, 1998 and 1997, basic and dilutive EPS are the same amount for these periods. For purposes of computing net loss per common share, net loss has been reduced by an amount equal to the fair market value of Released Shares (as hereinafter defined) at the end of the period, minus the sum of the amount previously recognized as compensation expense with respect to Released Shares and the amount of depreciation/appreciation in value of Released Shares in prior periods. This reduction results from the Company being required, under certain circumstances, to purchase for cash common stock distributed to participants by the Employee Stock Ownership Plan (the "ESOP"). "Released Shares" are shares held by the ESOP but allocated to 13 14 employees. The weighted average number of outstanding shares and computation of the net loss per common share is as follows (in thousands, except per share data):
Three Months Ended Six Months Ended March 31, March 31, ------------------------ ------------------------ 1998 1997 1998 1997 -------- --------- -------- --------- Net loss attributable to common stockholders ................... $ (16,879) $ (7,973) $ (27,652) $ (15,171) Less depreciation in value of Released Shares .................. 505 -- 505 -- --------- --------- --------- --------- Net loss for purpose of computing net loss per share ........... $ (16,374) $ (7,973) $ (27,147) $ (15,171) ========= ========= ========= ========= Net loss per common share ...................................... $ (1.37) $ (0.72) $ (2.28) $ (1.40) ========= ========= ========= ========= Weighted average shares outstanding ............................ 11,984 11,118 11,918 10,860 ========= ========= ========= =========
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for reporting and displaying of comprehensive income and its components. SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information", establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. Management is currently evaluating the disclosures required when these two statements are adopted in the first quarter of fiscal 1999. 6. BUSINESS ACQUISITIONS: On January 31, 1997, the Company acquired the acrylic fibers business from Cytec Industries Inc. (the "AFB Acquisition"). The acrylic fibers business, now owned by two wholly owned subsidiaries of Chemicals (collectively "Sterling Fibers"), recorded sales of approximately $92 million during the eight months of operations in fiscal 1997 and consists of an acrylic fibers plant located near Pensacola, Florida, and several associated marketing and research offices. The Company used the purchase method to account for the AFB Acquisition and operating results of Sterling Fibers beginning February 1, 1997 are included with those of the Company. On July 10, 1997, Sterling Pulp Chemicals (Sask) Ltd. ("Sterling Sask"), an indirect wholly owned subsidiary of Holdings and Chemicals, acquired substantially all of the assets of Saskatoon Chemicals Ltd., a subsidiary of Weyerhaeuser Canada Ltd. (the "Saskatoon Acquisition"). The acquired assets include a manufacturing plant near Saskatoon, Saskatchewan, and are used by Sterling Sask to manufacture sodium chlorate, caustic soda, calcium hypochlorite, chlorine, and hydrochloric acid. The Company used the purchase method to account for the acquisition and operating results of Sterling Sask beginning July 10, 1997 are included with those of the Company. The following table presents the unaudited pro forma results of operations of the Company as if the AFB Acquisition and the Saskatoon Acquisition had occurred on October 1, 1996. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the AFB Acquisition and the Saskatoon Acquisition been made at the beginning of fiscal year 1997 or of results which may occur in the future (in thousands, except per share amounts). PRO FORMA SIX MONTHS ENDED MARCH 31, 1997 ---------- Revenues............................................... $494,100 Net loss before extraordinary items.................... (17,300) Net loss attributable to common stockholders........... (17,300) Net loss per common share.............................. $ (1.43) 14 15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals Holdings, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals Holdings, Inc. and subsidiaries (the "Company") as of March 31, 1998, and the related condensed consolidated statements of operations and cash flows for the three month and six month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of September 30, 1997, and the related consolidated statements of operations, stockholders' equity (deficiency in assets), and cash flows for the year then ended (not presented herein); and in our report dated December 3, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1997 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas May 12, 1998 15 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholder of Sterling Chemicals, Inc. We have reviewed the accompanying condensed consolidated balance sheet of Sterling Chemicals, Inc. and subsidiaries ("Chemicals") as of March 31, 1998, and the related condensed consolidated statements of operations and cash flows for the three month and six month periods then ended. These financial statements are the responsibility of Chemicals' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Chemicals as of September 30, 1997, and the related consolidated statement of operations, stockholder's equity (deficiency in assets), and cash flows for the year then ended (not presented herein); and in our report dated December 3, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1997 is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Houston, Texas May 12, 1998 16 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain capitalized terms used herein but not defined have the meanings assigned to them in the Notes To Condensed Consolidated Financial Statements or in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K. OVERVIEW Holdings is a holding company whose only material asset is its investment in Chemicals. Holdings' only material liabilities are its obligation to repay the 13 1/2% Senior Secured Discount Notes due 2008 (the "13 1/2% Notes"), redeem its outstanding preferred stock, and certain other contingent obligations. Chemicals owns substantially all of the consolidated operating assets and is obligated for substantially all remaining liabilities of the Company. Other than the additional interest expense associated with the 13 1/2% Notes, the results of operations for the Company are essentially the same as those for Chemicals. Accordingly, the discussion that follows is applicable to both entities, except as specifically noted. A separate discussion of the results of operations for Chemicals, would not, in the opinion of the Company, provide any additional meaningful information. RECENT DEVELOPMENTS During April 1998, the Company obtained certain amendments to the financial covenants contained in its $404.5 million senior secured credit agreement (the "Credit Agreement"). The Company requested the changes in order to reduce the covenant thresholds based on its revised financial projections for fiscal years 1998 and 1999. The amendments span a seven-quarter period, through September 30, 1999. On April 1, 1998, a minor chemical leak occurred when a line failed in the ethylbenzene unit at the Company's Texas City petrochemical plant (the "Texas City Plant"). The released chemicals included ethylbenzene, benzene, polyethylbenzene, and a small amount of hydrochloric acid. The Company does not believe any serious injuries were sustained, although a number of citizens sought medical examinations at local hospitals after a precautionary alert was given to neighboring communities. On March 30, 1998, the Company and BP Chemicals Inc. ("BP") established an exclusive 50/50 acrylonitrile joint venture marketing company, ANEXCO LLC, to service the acrylonitrile marketing needs of both partners in Asia and South America beginning April 1, 1998. The Company and BP project annual sales by ANEXCO LLC of approximately 500,000 metric tons of acrylonitrile with most material coming from the United States, supplemented by product from South Africa. On January 28, 1998, one of the Company's suppliers experienced a fire in the Partial Oxidation Unit used by the supplier to provide carbon monoxide and hydrogen to the Texas City Plant. As a result of this incident, the Company was forced to shutdown its acetic acid unit and a portion of its plasticizers unit at the Texas City Plant for a portion of the second quarter of fiscal 1998. During January and April of 1998, 64 and 47 Company employees, respectively, took early retirement under voluntary severance programs established by the Company at the Texas City Plant. The Company recorded a pre-tax charge of $2.9 million in the second quarter of fiscal 1998 for costs associated with the January workforce reduction. The Company expects to record a pre-tax charge of approximately $3.0 million in the third quarter of fiscal 1998 for costs associated with the April workforce reduction. The Company anticipates annual savings from such workforce reductions of approximately $6.0 million. Effective January 1, 1998, the Company extended, for a period of at least ten years, the plasticizers product sales agreement with BASF Corporation. During the second quarter of fiscal 1998, Peter W. De Leeuw joined the Company as President and Chief Executive Officer and a member of the Board of Directors following the retirement of Robert W. Roten. In addition, David G. Elkins and Gary M. Spitz joined the Company as Vice President and General Counsel and Vice President - Finance and Chief Financial Officer, respectively. These new employees join Frank P. Diassi, (Chairman of the Board of Directors), Richard K. Crump, (Vice President-Strategic Planning), Robert O. McAlister (Vice President-Human Resources and Administration), 17 18 Mark A. Davis (President-Pulp Chemicals Division), and Richard J. Ryan (President-Fibers Division) as members of the Company's senior management team. Upon his retirement, Robert W. Roten was elected Vice Chairman of the Board of Directors. In addition, on April 22, 1998, J. Virgil Waggoner, a co-founder of the Company in 1986, tendered his resignation from the Board of Directors. RESULTS OF OPERATIONS Revenues for the second quarter of fiscal 1998 were $205 million compared to revenues of $240 million for the second quarter of fiscal 1997, a decrease of 15%. The decrease in revenues was primarily due to reduced styrene and acrylonitrile sales volumes and sales prices, partially offset by the favorable impact of revenues from the Saskatoon Acquisition in the current quarter. Revenues for the six month period ending March 31, 1998 were $435 million compared to $427 million in the prior year period, an increase of 2%. The increase in revenues was the result of the positive impact of the AFB and the Saskatoon Acquisitions mostly offset by reduced styrene sales volumes and lower styrene and acrylonitrile selling prices. Revenues excluding the impact of the AFB Acquisition and the Saskatoon Acquisition would have been $167 million and $216 million for the second quarters of fiscal 1998 and 1997, respectively, and $360 million and $403 million for the six month periods ending March 31, 1998 and 1997, respectively. A net loss of $16.9 million, or $1.37 per share, was recorded for the second quarter of fiscal 1998 compared to a net loss of $8.0 million, or $0.72 per share, for the second quarter of fiscal 1997. A net loss of $27.7 million, or $2.28 per share, was recorded for the six month period ending March 31, 1998, compared to a net loss of $15.2 million, or $1.40 per share, for the same period of fiscal 1997. Increased losses for the three and six month periods ending March 31, 1998 as compared to the prior year periods were primarily due to: (i) reduced acrylonitrile and styrene margins, (ii) weak markets in acrylic fibers, (iii) lower margins in sodium chlorate, (iv) increased interest expense resulting from financings related to the AFB Acquisition and the Saskatoon Acquisition and the issuance of $150,000,000 of 11 1/4% Senior Subordinated Notes due 2007 (the "11 1/4% Notes"), and (v) increased selling, general and administrative ("SG&A") expense. Petrochemicals and Fibers For the second quarter of fiscal 1998, revenues from the petrochemical and fibers businesses decreased 22% to $155 million as compared to $198 million in the prior year period. The decrease in revenues was primarily due to decreased styrene and acrylonitrile sales volumes and sales prices. For the six months ending March 31, 1998, revenues were $332 million as compared to $342 million in the same period of fiscal 1997. The 3% decrease in revenues was primarily due to reduced styrene sales volumes and lower styrene and acrylonitrile sales prices. These decreases were partially offset by increased revenues from the AFB Acquisition. The economic conditions in Asia negatively impacted market conditions in the fiscal 1998 periods, particularly for the Company's styrene, acrylonitrile, and acrylic fibers products. The Company's petrochemical and fibers businesses recorded operating losses of $8.8 million and $9.3 million for the three and six month periods of fiscal 1998, respectively, compared to operating losses of $3.3 million and $5.8 million for the same periods of fiscal 1997. The increase in operating losses in the three and six month periods ending March 31, 1998, as compared to the same periods of fiscal 1997, were primarily due to weaker operational performance in styrene and acrylonitrile, partially offset by stronger performance in acetic acid and plasticizers. Styrene. Styrene revenues decreased 37% to $56 million in the second quarter of fiscal 1998 and 25% to $123 million for the six months ending March 31, 1998, compared to the same periods in fiscal 1997. Styrene sales prices decreased 22% and 14% for the second quarter and first six months of fiscal 1998, respectively, as compared to the prior year periods. In addition, styrene sales volumes decreased 24% and 18% for the second quarter and first six months of fiscal 1998, respectively, as compared to the prior year periods. These decreases in sales prices and volumes were primarily due to weaker market conditions, particularly in the Far East export market. The prices of styrene's major raw materials, benzene and ethylene, were approximately 14% and 21% lower, respectively, during the second quarter of fiscal 1998 and approximately 9% and 13% lower, respectively, during the first six months of fiscal 1998 as compared to the same periods in fiscal 1997. Styrene margins decreased in the second quarter and first six months of fiscal 1998 compared to the same periods in fiscal 1997 as significantly lower sales prices more than offset the lower raw materials costs. In addition, the styrene business was negatively impacted by approximately $4 million due to reduced margins and inventory devaluations associated with falling raw materials costs during the second quarter of fiscal 1998. Acrylonitrile. Acrylonitrile revenues decreased 31% to $29 million in the second quarter of fiscal 1998 18 19 and 10% to $61 million in the first six months of fiscal 1998 compared to the same periods in fiscal 1997. Decreased revenues in the second quarter of fiscal 1998 were primarily due to lower volumes (22%) and lower selling prices (25%). The decrease in volume was primarily due to a 21 day shutdown as a result of a mechanical problem in the acrylonitrile unit during the second quarter of fiscal 1998, which has been fully corrected and will not impact the third quarter of fiscal 1998 operations. Decreased revenues for the first six months of fiscal 1998 were the result of a 21% decline in selling prices. The lower sales prices in both periods were primarily due to weaker market conditions, primarily in the Far East export market. The prices of acrylonitrile's major raw materials, propylene and ammonia, were approximately 27% and 35% lower, respectively, in the second quarter of fiscal 1998 and approximately 16% and 27% lower, respectively, during the first six months of fiscal 1998 as compared to the comparable periods in fiscal 1997. Acrylonitrile margins decreased in the second quarter and the first six months of fiscal 1998 compared to the same periods of fiscal 1997, as significantly lower sales prices more than offset the lower raw material costs. Fibers. Sterling Fibers revenues for the second quarter and first six months of fiscal 1998 were $25 million and $51 million, respectively. The Company consummated the AFB Acquisition on January 31, 1997, and, therefore recorded revenues of $23 million for the comparable periods of fiscal 1997. Sterling Fibers performance in fiscal 1998 was negatively impacted by weak market conditions, particularly in the Far East export market and to a lesser extent the loss of a domestic customer. Other Petrochemical Products. Revenues from the Company's other petrochemical products (including methanol, acetic acid, plasticizers, tertiary butylamine, and sodium cyanide) in the second quarter of fiscal 1998 increased 3% to $45 million and 12% to $96 million in the first six months of fiscal 1998 as compared to the same periods last fiscal year. The Company's other petrochemical products continued its stable, strong performance with an increase in operating earnings in the second quarter and first six months of fiscal 1998 as compared to the same periods of fiscal 1997 despite any impacts from economic conditions in Asia. The increase in revenues and operating earnings was primarily due to better operating performance in acetic acid and plasticizers. Pulp Chemicals Revenues from the Company's pulp chemical business increased 19% to $49 million and 22% to $103 million for the second quarter and first six months of fiscal 1998, respectively, when compared to the same periods last fiscal year. The increase in revenues was primarily due to an increase in sales volumes of sodium chlorate of 12% and 28% for the second quarter and first six months of fiscal 1998, respectively, when compared to the corresponding periods of fiscal 1997. The increases in sales volumes were primarily due to the additional volumes from the recent Saskatoon Acquisition and the startup of the Valdosta Plant in December 1996. Average sales prices for sodium chlorate declined 9% in both the second quarter and first six months of fiscal 1998 compared to the corresponding periods in fiscal 1997. The decline in chlorate sales prices was primarily due to weaker market conditions resulting, in part, from the economic environment in various countries in the Far East as well as lower pulp mill operating rates. Revenues from the sale of generators and royalty income remained level in the second quarter and decreased 22% in the first six months of fiscal 1998 compared to the corresponding periods of fiscal 1997. The decrease in revenues for the six month period of fiscal 1998 was primarily due to timing of project work related to generators. The Company's pulp chemicals business recorded operating earnings of $8 million and $20 million for the three and six months ending March 31, 1998, respectively, compared to operating earnings of $13 million and $24 million for the same periods of fiscal 1997. The reduced operating earnings in the fiscal 1998 periods compared to the fiscal 1997 periods is primarily due to reduced sodium chlorate sales prices and higher energy costs in the current periods, partially offset by increased sodium chlorate sales volumes. Selling, General, and Administrative Expenses SG&A expenses increased to $12 million and $24 million during the second quarter and first six months of fiscal 1998, respectively, as compared to $7 million and $13 million in the second quarter and first six months of fiscal 1997, respectively. The increase was primarily due to SG&A expense related to the new fibers business, the new Saskatoon chemical business, and increased corporate development activities. Other Expense Other expense of $3 million in the three and six month periods ending March 31, 1998 is related to the previously discussed January 1998 voluntary severance program. 19 20 Interest and Debt Related Expense Interest and debt related expenses for the three and six months ending March 31, 1998, were $25 million and $50 million, respectively, compared to $21 million and $39 million, respectively, for the corresponding periods in fiscal 1997. This increase is primarily due to the additional debt incurred in connection with the AFB and Saskatoon Acquisitions and the issuance of the 11 1/4% Notes. LIQUIDITY AND CAPITAL RESOURCES Debt Structure As of March 31, 1998, the Company's debt structure consisted of: (i) term loans due March 31, 2003 and September 30, 2004 (the "Term Loans"); (ii) Saskatoon Term Loans due June 30, 2002 and June 30, 2005; (iii) the 11 1/4% Notes; (iv) 11 3/4% Senior Subordinated Notes due 2006 (the "11 3/4% Notes"); (v) the 13 1/2% Notes; (vi) an ESOP Term Loan due September 30, 2000; and (vii) a revolving credit facility providing up to $125 million (subject to a monthly borrowing base calculation) in revolving loans (the "Revolver") (see Note 3 to the Notes to Condensed Financial Statements). At March 31, 1998, the Company's long-term debt (including current maturities) totaled $890.4 million. The Company intends to meet its liquidity needs for operating activities and capital expenditures (other than acquisitions) through internally generated funds and, to the extent necessary, borrowings under the Revolver. As of March 31, 1998, the Company had $12.9 million drawn and approximately $2.4 million in letters of credit outstanding under the Revolver, thereby decreasing the available commitments under the Revolver at such time to $108.9 million (compared to an available commitment thereunder as of September 30, 1997, of $113.0 million). Available credit under the Revolver for loans and letters of credit is subject to a monthly borrowing base consisting of 85% of eligible accounts receivable and 65% of eligible inventory with an inventory cap of 50% of the borrowing base. At March 31, 1998, the borrowing base limited the total credit available under the Revolver to a maximum of $124.2 million. The Revolver matures on March 31, 2003. The Company believes its internally generated funds and the undrawn amount of the Revolver will be sufficient to meet its liquidity needs during fiscal 1998. The Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes, should it need to do so, will be affected by the covenants in its various debt agreements and by cash requirements for debt service. The Credit Agreement and the indentures governing the 11 1/4% Notes, 11 3/4% Notes, and 13 1/2% Notes (the "Indentures") contain numerous financial and operational covenants, including, without limitation, restrictions on the Company's ability to incur indebtedness, pay dividends, create liens, sell assets, engage in mergers and acquisitions, and refinance existing indebtedness, as well as the obligation of the Company to maintain certain financial ratios. Based on the Company's pro forma results of operations for the four quarters ended March 31, 1998, these restrictions currently operate to prevent the Company from incurring any additional debt other than debt incurred under the Revolver or pursuant to certain limited "baskets" and other exceptions. Under limited circumstances, the Company may, however, consummate additional acquisitions under the Credit Agreement and the Indentures (i) through the incurrence of debt in Unrestricted Subsidiaries (as defined in the Indentures and the Credit Agreement) or (ii) if the pro forma effect of such acquisition has a sufficient positive impact on certain financial ratios. The Company generally will not have access to the cash flows of Unrestricted Subsidiaries, as in the case of Sterling Sask. The Credit Agreement also requires that certain amounts of Excess Cash Flow (as defined therein) be used to prepay amounts outstanding under the Term Loans. No such mandatory prepayment is required in fiscal 1998. During April 1998, the Company announced it had obtained certain amendments to the financial covenants in the Credit Agreement. The Company requested the changes in order to reduce the covenant thresholds based on its revised financial projections for fiscal years 1998 and 1999. The amendments span a seven-quarter period, through September 30, 1999. The Company's ability to comply with the covenants and other terms of its various debt agreements, meet its debt service obligations, and repay principal when due will depend on the future performance of the Company. The future performance of the Company is subject to a number of uncertainties. The Company was in compliance with the financial covenants in effect as of March 31, 1998. However, if weak market conditions (particularly in various countries in the Far East) continue to negatively impact the sales prices, margins, and volumes of the Company's products (particularly styrene, acrylonitrile, and acrylic fibers), the Company may have difficulty remaining in 20 21 compliance with the financial covenants under certain of its debt agreements. If the Company fails to remain in compliance with any financial covenants, the Company believes it can obtain curative amendments or waivers for the non-compliance to its current debt agreements; however, no assurances can be given that these amendments or waivers will be obtained. In the event amendments or waivers are not obtained, debt holders may pursue remedies available to them under the relevant debt agreements. The Company's loan documents contain provisions which restrict the payment of advances, loans, and dividends from its subsidiaries (including Chemicals) to Holdings. The most restrictive of those covenants limits such payments during fiscal 1998 to approximately $2.0 million plus any amounts due to Holdings from Chemicals under the intercompany tax sharing agreement. Such restriction is not expected to limit Holdings' ability to meet its obligations in fiscal 1998. Working Capital Working capital of the Company was $110 million at March 31, 1998, down from $120 million at September 30, 1997. The $10 million decrease in working capital was primarily due to lower receivables. Cash Flow Net cash provided by operations was $14 million for the six months ending March 31, 1998 and $9 million for the six months ending March 31, 1997. The increase in cash provided by operations is primarily due to the timing of working capital items. Capital Expenditures The Company's capital expenditures for the first six months of fiscal 1998 were $13 million compared to $25 million in the same period in fiscal 1997. The capital expenditures in the first six months of fiscal 1998 were primarily related to routine safety, environmental, and replacement capital. The capital expenditures in the first six months of fiscal 1997 were primarily related to the construction of the Valdosta, Georgia sodium chlorate plant, along with a distributive control system installation at the Company's acrylonitrile unit. During the remainder of fiscal 1998, the Company expects to spend approximately $12 million to $17 million on process modernization, routine safety, environmental, and replacement capital. The Company expects to fund its remaining fiscal 1998 capital expenditures from operating cash flow, plus borrowings under the Revolver, if needed. Year 2000 Issue The Year 2000 issue is the result of potential problems with computer systems or any equipment with computer chips that use dates where the date has been stored as just two digits (e.g. 97 for 1997). On January 1, 2000, any clock or date recording mechanism including date sensitive software which uses only two digits to represent the year may recognize a date using 00 as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruption of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar activities. As is the case with most companies using computers in their operations, the Company is in the process of addressing the Year 2000 issue. The Company is currently engaged in a comprehensive project to upgrade its information, technology, manufacturing and facilities computer software to programs that will consistently and properly recognize the Year 2000. The Company will utilize both internal and external resources to replace all of the necessary software for Year 2000 compliance, and the Company expects to complete the project by mid 1999. The estimated expense for this project is approximately $7 to $10 million. In addition, no assurances can be given that total Year 2000 compliance can be achieved because of the significant degree of interdependence with third party suppliers, service providers, and customers. Failure by the Company to complete Year 2000 compliance work in a timely manner could have a material adverse effect on the Company's financial condition and results of operations. 21 22 NOTE REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements (other than statements of historical facts) included in this Form 10-Q, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the cyclicality of the Company's industry, current and future industry conditions and the potential effects of such matters on the Company's business strategy, results of operations and financial position, are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from expectations ("Cautionary Statements") are stated herein in conjunction with the forward-looking statements or are included elsewhere in this Form 10-Q. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information under "Legal Proceedings" in the Notes to Condensed Consolidated Financial Statements herein is hereby incorporated by reference. See also "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on January 28, 1998, at which time the Company's nine nominees for directors were elected, the appointment of Deloitte & Touche LLP as the independent auditors of the financial statements of the Company for the fiscal year ended September 30, 1998 was ratified, and the Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and Incentive Plan was approved. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The following exhibits are filed as part of this Form 10-Q.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 4.1 --First Amendment to Amended and Restated Credit Agreement, dated March 31, 1998, among Sterling Chemicals, Inc. and Chase Bank of Texas, N.A., individually and as Administrative Agent, Credit Suisse First Boston, individually and as Documentation Agent, and the other lenders named therein. 4.2 --First Supplemental Indenture, dated October 1, 1997, governing the 13 1/2% Senior Secured Discount Notes Due 2008 of the Company. 4.3 --Second Supplemental Indenture, dated March 16, 1998, governing the 13 1/2% Senior Secured Discount Notes Due 2008 of the Company. 4.4 --First Supplemental Indenture, dated October 1, 1997, governing the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling Chemicals, Inc. (formerly known as STX Chemicals Corp.) 4.5 --Second Supplement Indenture, dated March 16, 1998, governing the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling Chemicals, Inc. 4.6 --First Supplemental Indenture, dated March 16, 1998, governing the 11 1/4% Senior Subordinated Notes Due 2007 of Sterling Chemicals, Inc.
22 23
4.7 --First Amendment to Sterling Chemicals Holdings, Inc. Stockholders Agreement dated effective as of December 31, 1997. 10.1 --Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and Incentive Plan effective April 23, 1997, as amended. +10.2 -- Amended and Restated Production Agreement dated March 31, 1998, between BP Chemicals, Inc. and Sterling Chemicals, Inc. +10.3 --Amended and Restated Production Agreement effective August 1, 1998, between BP Chemicals, Inc. and Sterling Chemicals, Inc. +10.4 --Joint Venture Agreement dated March 31, 1998, between Sterling Chemicals, Inc. and BP Chemicals, Inc. 11.1 --Earnings Per Share Calculation. 15.1 --Letter of Deloitte & Touche LLP regarding unaudited interim financial information. 27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc. 27.2 --Financial Data Schedule of Sterling Chemicals, Inc
+ Filed herewith and confidential treatment has been requested with respect to portions of this exhibit. (b) Reports on Form 8-K. None. 23 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. STERLING CHEMICALS HOLDINGS, INC. STERLING CHEMICALS, INC. (Registrants) Date: May 13, 1998 /s/ PETER W. DE LEEUW ------------------------------------------ Peter W. De Leeuw President and Chief Executive Officer (Principal Executive Officer) Date: May 13, 1998 /s/ GARY M. SPITZ ------------------------------------------ Gary M. Spitz Vice President-Finance and Chief Financial Officer (Principal Financial Officer) 24 25 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 4.1 --First Amendment to Amended and Restated Credit Agreement, dated March 31, 1998, among Sterling Chemicals, Inc. and Chase Bank of Texas, N.A., individually and as Administrative Agent, Credit Suisse First Boston, individually and as Documentation Agent, and the other lenders named therein. 4.2 --First Supplemental Indenture, dated October 1, 1997, governing the 13 1/2% Senior Secured Discount Notes Due 2008 of the Company. 4.3 --Second Supplemental Indenture, dated March 16, 1998, governing the 13 1/2% Senior Secured Discount Notes Due 2008 of the Company. 4.4 --First Supplemental Indenture, dated October 1, 1997, governing the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling Chemicals, Inc. (formerly known as STX Chemicals Corp.) 4.5 --Second Supplement Indenture, dated March 16, 1998, governing the 11 3/4% Senior Subordinated Notes Due 2006 of Sterling Chemicals, Inc. 4.6 --First Supplemental Indenture, dated March 16, 1998, governing the 11 1/4% Senior Subordinated Notes Due 2007 of Sterling Chemicals, Inc.
26
4.7 --First Amendment to Sterling Chemicals Holdings, Inc. Stockholders Agreement dated effective as of December 31, 1997. 10.1 --Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and Incentive Plan effective April 23, 1997, as amended. +10.2 -- Amended and Restated Production Agreement dated March 31, 1998, between BP Chemicals, Inc. and Sterling Chemicals, Inc. +10.3 --Amended and Restated Production Agreement effective August 1, 1998, between BP Chemicals, Inc. and Sterling Chemicals, Inc. +10.4 --Joint Venture Agreement dated March 31, 1998, between Sterling Chemicals, Inc. and BP Chemicals, Inc. 11.1 --Earnings Per Share Calculation. 15.1 --Letter of Deloitte & Touche LLP regarding unaudited interim financial information. 27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc. 27.2 --Financial Data Schedule of Sterling Chemicals, Inc
+ Filed herewith and confidential treatment has been requested with respect to portions of this exhibit. EX-4.1 2 1ST AMEND TO AMENDED & RESTATED CREDIT AGREEMENT 1 Exhibit 4.1 FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "First Amendment") dated effective as of March 31, 1998 (the "First Amendment Effective Date") is by and among STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, individually and as Administrative Agent, and CREDIT SUISSE FIRST BOSTON, individually and as Documentation Agent, and the other financial institutions signatories hereto. PRELIMINARY STATEMENTS 1. The Company has entered into an Amended and Restated Credit Agreement dated as of July 10, 1997 among the Company, Texas Commerce Bank National Association (now known as Chase Bank of Texas, National Association), individually, as an Issuing Bank and as Administrative Agent, Credit Suisse First Boston, individually, as an Issuing Bank and as Documentation Agent, and the financial institutions parties thereto (the "Original Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings assigned such terms in the Original Agreement. 2. The Company has requested that certain provisions of the Original Agreement be modified and amended. 3. The Company, the Administrative Agent, the Documentation Agent, the Subsidiary Guarantors and the Lenders have agreed to amend the Original Agreement on the terms and conditions contained herein. AGREEMENT In consideration of the premises and the mutual covenants contained herein and in the Original Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Amendment of Section 1.01 of the Original Agreement. Section 1.01 of the Original Agreement is hereby amended by adding the following new definitions thereto immediately following the definition of "Financing Documents" contained therein: "First Amendment" shall mean the First Amendment to Amended and Restated Credit Agreement dated as of March 31, 1998 among the Company, the Administrative Agent, the Documentation Agent and the Required Lenders. 2 Section 2. Amendment of Section 1.01 of the Original Agreement. The definition of "Agreement" contained in Section 1.01 of the Original Agreement is hereby amended to read in its entirety as follows: "Agreement" shall mean this Amended and Restated Credit Agreement, as amended by the First Amendment and as further amended, modified or supplemented from time to time. Section 3. Amendment of Section 4.09 of the Original Agreement. The first sentence of Section 4.09 of the Original Agreement is hereby amended to read in its entirety as follows: The Company will use the proceeds of the Loans only for the purposes specified in the Introductory Statements to this Agreement; provided, however, that in no event shall the Company use the proceeds of any Loan for the purpose of making any investment pursuant to Section 5.04(e)(xx). Section 4. Amendment of Section 5.03(a) of the Original Agreement. Section 5.03(a) of the Original Agreement is hereby amended to read in its entirety as follows: (a) Interest Coverage Ratio. Maintain an Interest Coverage Ratio of not less than the ratio for each Rolling Period indicated below:
Each Rolling Period ending Ratio -------------------------- ----- December 31, 1996 1.75 March 31, 1997 1.75 June 30, 1997 1.75 September 30, 1997 1.50 December 31, 1997 1.35 March 31, 1998 1.30 June 30, 1998 1.05 September 30, 1998 1.00 December 31, 1998 1.00 March 31, 1999 1.15 June 30, 1999 1.30 September 30, 1999 1.35 Each Rolling Period Ratio ------------------- ----- thereafter 2.50 ----------
-2- 3 Section 5. Amendment of Section 5.03(c) of the Original Agreement. Section 5.03(c) of the Original Agreement is hereby amended to read in its entirety as follows: (c) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio of not less than the ratio for each Rolling Period indicated below: Each Rolling Period during -------------------------- the period beginning January 1, Ratio ------------------------------- ----- 1997 through September 30, 1997 1.05 ------------------------------- Each Rolling Period ending Ratio -------------------------- ----- December 31, 1997 1.00 March 31, 1998 0.80 June 30, 1998 0.75 September 30, 1998 0.75 December 31, 1998 0.75 March 31, 1999 0.90 June 30, 1999 0.95 September 30, 1999 1.00 Each Rolling Period during -------------------------- the Fiscal Years ending Ratio ----------------------- ----- September 30, 2000 1.15 ------------------ Each Rolling Period Ratio ------------------- ----- thereafter 1.20 ----------
Section 6. Amendment of Section 5.03(d) of the Original Agreement. Section 5.03(d) of the Original Agreement is hereby amended to read in its entirety as follows: (d) Leverage Ratio. Maintain a Leverage Ratio of not greater than the ratio for each Rolling Period indicated below: Each Rolling Period ending Ratio -------------------------- ----- December 31, 1996 5.25 March 31, 1997 6.35 June 30, 1997 7.00 September 30, 1997 7.00 December 31, 1997 7.00 March 31, 1998 8.25 June 30, 1998 9.25 September 30, 1998 9.75 December 31, 1998 9.75
-3- 4 March 31, 1999 8.25 June 30, 1999 7.50 September 30, 1999 7.00 Each Rolling Period during -------------------------- the Fiscal Years ending Ratio ----------------------- ----- September 30, 2000 4.00 September 30, 2001 3.50 Each Rolling Period Ratio ------------------- ----- thereafter 3.00 ----------
Section 7. Amendment of Section 5.03(e) of the Original Agreement. Section 5.03(e) of the Original Agreement is hereby amended to read in its entirety as follows: (e) Senior Debt Leverage Ratio. Maintain a Senior Debt Leverage Ratio of not greater than the ratio for each Rolling Period indicated below:
Each Rolling Period ending Ratio -------------------------- ----- March 31, 1997 3.50 June 30, 1997 3.50 September 30, 1997 3.50 December 31, 1997 3.50 March 31, 1998 3.50 June 30, 1998 4.00 September 30, 1998 4.25 December 31, 1998 4.25 March 31, 1999 3.50 June 30, 1999 3.25 Each Rolling Period Ratio ------------------- ----- thereafter 3.00 ----------
Section 8. Amendment of Section 5.04(e) of the Original Agreement. Section 5.04(e) of the Original Agreement is hereby amended by (a) deleting the word "and" at the end of clause (xviii) thereof, (b) replacing the period at the end of clause (xix) thereof with "; and" and (c) adding a new clause (xx) to read in its entirety as follows: (xx) investments resulting from purchases after June 30, 1998 of shares of Holdco Common Stock pursuant to put options arising under the ESOP or the Old ESOP but only to the extent such purchases are required by (A) the provisions of the ESOP or the Old ESOP, as the case may be, as in effect on January 1, 1997 and (B) Section 409(h)(1)(B) of the Code and the regulations thereunder. -4- 5 Section 9. Limitations. The amendments set forth herein are limited precisely as written and shall not (a) be deemed to be a consent to, or a waiver or modification of, any other term or condition of any of the Financing Documents or (b) except as expressly set forth herein, prejudice any right or rights which the Lenders may now have or may have in the future under or in connection with any of the Financing Documents or any of the other documents or instruments referred to therein. Except as expressly modified hereby or by express written amendments thereof, each of the Financing Documents and each of the other documents and instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this First Amendment and any of the foregoing documents, the terms of this First Amendment shall be controlling. Section 10. Conditions Precedent and Effectiveness. This First Amendment shall not be effective unless this First Amendment has been executed and delivered by the Required Lenders. Section 11. Representations and Warranties. The Company hereby represents and warrants to the Administrative Agent, the Documentation Agent and each of the Lenders that (a) except as affected by the transactions contemplated in the Original Agreement and this First Amendment, each of the representations and warranties made by the Company and the Subsidiary Guarantors in or pursuant to each of the Financing Documents is true and correct in all material respects as of the First Amendment Effective Date, as if made on and as of such date, except for any representations and warranties made as of a specified date, which are true and correct in all material respects as of such specified date and (b) no Default or Event of Default has occurred and is continuing as of the First Amendment Effective Date. Section 12. Adoption, Ratification and Confirmation of Original Agreement. Each of the Company, the Administrative Agent, the Documentation Agent and each of the Lenders signatories hereto hereby adopts, ratifies and confirms the Original Agreement, as amended hereby, and acknowledges and agrees that the Original Agreement, as amended hereby, is and remains in full force and effect. Section 13. Ratification and Affirmation of Subsidiary Guaranty. Each of the Subsidiary Guarantors hereby expressly (a) acknowledges the terms of this First Amendment, (b) acknowledges, renews and extends its continued liability under the Guaranty Agreement to which it is a party and agrees that such Guaranty Agreement remains in full force and effect and (c) agrees with the Administrative Agent, the Documentation Agent, each Lender and each Issuing Bank to promptly pay when due all amounts owing or to be owing by it under such Guaranty Agreement pursuant to the terms and conditions thereof. Section 14. Payment of Expenses. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to reimburse and save the Administrative Agent and the Documentation Agent harmless from and against liability for the payment of all reasonable out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the -5- 6 preservation of any rights under this First Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees and other charges which may be payable in respect of, or in respect of any modification of, any of the Financing Documents. The provisions of this Section shall survive the termination of the Original Agreement and the repayment of the Loans. Section 15. Governing Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW, OR ANY SIMILAR SUCCESSOR PROVISIONS THERETO, BUT EXCLUDING ALL OTHER CONFLICT-OF-LAWS RULES) AND TO THE EXTENT CONTROLLING, LAWS OF THE UNITED STATES OF AMERICA. Section 16. Descriptive Headings, Etc. The descriptive headings of the several sections of this First Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 17. Entire Agreement. This First Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof. Section 18. Counterparts. This First Amendment may be executed in any number of counterparts (including by telecopy) and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective duly authorized officers as of the First Amendment Effective Date. COMPANY: STERLING CHEMICALS, INC. By: --------------------------------------- Gary M. Spitz, Vice President - Finance and Chief Financial Officer -6- 7 ADMINISTRATIVE AGENT CHASE BANK OF TEXAS, DOCUMENTATION AGENT NATIONAL ASSOCIATION, AND THE LENDERS: Individually and as Administrative Agent By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- CREDIT SUISSE FIRST BOSTON, Individually and as Documentation Agent By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- ABN AMRO BANK N.V. Houston Agency By: ABN AMRO North America, Inc., as Agent By: -------------------------------- Printed Name: ---------------------- Title: ----------------------------- By: ------------------------------- Printed Name: ---------------------- Title: ----------------------------- -7- 8 THE BANK OF NOVA SCOTIA By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- BANK OF SCOTLAND By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- BHF-BANK AKTIENGESELLSCHAFT By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- By: -------------------------------------- Printed Name: --------------------------- Title: ----------------------------------- CIBC, INC. By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -8- 9 CREDIT LYONNAIS NEW YORK BRANCH By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- FIRST SOURCE FINANCIAL LLP By: First Source Financial, Inc., as its Agent/Manager By: -------------------------------- Printed Name: ---------------------- Title: ---------------------------- THE FIRST NATIONAL BANK OF CHICAGO By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- THE CIT GROUP/BUSINESS CREDIT, INC. By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- COMERICA BANK By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- -9- 10 CREDITANSTALT CORPORATE FINANCE, INC. By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- HIBERNIA NATIONAL BANK By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- MERITA BANK LTD New York Branch By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- -10- 11 NATIONAL BANK OF CANADA By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- THE LONG-TERM CREDIT BANK OF JAPAN LIMITED NEW YORK BRANCH By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- OCTAGON CREDIT INVESTORS LOAN PORTFOLIO (a unit of The Chase Manhattan Bank) By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -11- 12 MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- ML CBO IV (CAYMAN) LTD. By: Protective Asset Management L.L.C., as Collateral Manager By: -------------------------------- Printed Name: ---------------------- Title: ----------------------------- VAN KAMPEN AMERICA CAPITAL PRIME RATE INCOME TRUST By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- PARIBAS CAPITAL FUNDING LLC By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -12- 13 RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By: ABN Trustcompany (Nederland) B.V., its Managing Director By: -------------------------------- Printed Name: ---------------------- Title: ----------------------------- By: -------------------------------- Printed Name: --------------------- Title: ---------------------------- AERIES FINANCE LTD. By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- CAPTIVA FINANCE LTD. By: -------------------------------------- Printed Name: ---------------------------- Title: ---------------------------------- CAPTIVA II FINANCE LTD. By: -------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -13- 14 CERES FINANCE LTD. By: ---------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ---------------------------------- Printed Name: ----------------------- Title: ------------------------------- SKANDINAVISKA ENSKILDA BANKEN CORPORATION By: ---------------------------------------- Printed Name: ------------------------------ Title: ------------------------------------ THE CHASE MANHATTAN BANK By: ---------------------------------------- Printed Name: ------------------------------ Title: ------------------------------------- -14- 15 SUBSIDIARY GUARANTORS: STERLING CHEMICALS INTERNATIONAL, INC. STERLING CHEMICALS ENERGY, INC. STERLING FIBERS, INC. By: -------------------------------------- Gary M. Spitz, Vice President STERLING CANADA, INC. STERLING PULP CHEMICALS US, INC. STERLING PULP CHEMICALS, INC. By: -------------------------------------- Gary M. Spitz, Vice President - Finance -15- EX-4.2 3 1ST SUPPLMENTAL INDENTURE - 13 1/2% NOTES DUE 2008 1 Exhibit 4.2 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental Indenture") dated as of October 1, 1997 is between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS 1. The Company and Fleet National Bank, as Trustee (the "Initial Trustee"), entered into that certain Indenture dated as of August 15, 1996 (the "Indenture") providing, among other things, for the issuance of the Company's 13 1/2% Senior Secured Discount Notes Due 2008 in the aggregate principal amount of up to $191,751,000 (the "Discount Notes"). 2. The Trustee has replaced the Initial Trustee as the "Trustee" under the Indenture. 3. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Discount Note to, among other things, cure any ambiguity, omission, defect or inconsistency. 4. The Company has determined that the definition of "Consolidated Interest Expense" appearing in Section 1.01 of the Indenture contains a defect due to the omission of the words "of Restricted Subsidiaries" in clause (vii) of such definition. 5. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt of certain documents by the Trustee, the Trustee is required to join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of the Indenture. 6. The Board of Directors of the Company has authorized the execution of this First Supplemental Indenture and, simultaneously with and as a condition to the execution of this First Supplemental Indenture by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors of the Company authorizing the execution of this First Supplemental Indenture and an Officers' Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. 2 7. All acts and things necessary to make the Indenture, as supplemented and modified hereby, a valid, binding and legal agreement according to its terms have been done and performed. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Discount Notes, as follows: ARTICLE I AMENDMENT OF INDENTURE Clause (vii) of the definition of "Consolidated Interest Expense" appearing in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: "(vii) Preferred Stock dividends in respect of all Redeemable Stock of Holdings and all Preferred Stock of Restricted Subsidiaries held by Persons other than Holdings or a Wholly Owned Subsidiary". ARTICLE II THE TRUSTEE The Trustee hereby accepts the trusts declared and provided in this First Supplemental Indenture, upon the terms and conditions contained in the Indenture as amended hereby. All of the provisions of the Indenture with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this First Supplemental Indenture as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this First Supplemental Indenture, the authorization or permissibility of this First Supplemental Indenture pursuant to the terms of the Indenture, the due execution hereof by the Company or for or in respect of the recitals or statements contained herein (other than the statements contained in the first sentence of this Article II), all of such recitals and statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness of provisions contained in this First Supplemental Indenture. -2- 3 ARTICLE III EFFECT OF EXECUTION AND DELIVERY HEREOF From and after the execution and delivery of this First Supplemental Indenture, (i) the Indenture shall be deemed to be amended and modified as provided herein, (ii) this First Supplemental Indenture shall form a part of the Indenture, (iii) except as modified and amended by this First Supplemental Indenture, the Indenture shall continue in full force and effect, and (iv) every Holder of Discount Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this First Supplemental Indenture. ARTICLE IV MISCELLANEOUS PROVISIONS Section 4.01 Defined Terms. Capitalized terms used but not defined in this First Supplemental Indenture shall have the respective meanings ascribed to such terms in the Indenture. Section 4.02 Headings. The headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this First Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.03 Counterparts. This First Supplemental Indenture may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 4.04 Successors and Assigns. All agreements of the Company contained in this First Supplemental Indenture shall bind the Company and its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind the Trustee and its successors. This First Supplemental Indenture shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Discount Notes then Outstanding. Section 4.05 Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STERLING CHEMICALS HOLDINGS, INC. [SEAL] By: /s/ ROBERT W. ROTEN ------------------------------------- Robert W. Roten President and Chief Executive Officer ATTEST: By: /s/ STEWART H. YONTS ----------------------------------- Stewart H. Yonts Treasurer and Assistant Secretary STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE [SEAL] By: /s/ MICHAEL M. HOPKINS -------------------------------------- Printed Name: Michael M. Hopkins --------------------------- Title: Vice President ---------------------------------- -4- EX-4.3 4 2ND SUPPLEMENTAL INDENTURE - 3 1/2% NOTES DUE 2008 1 Exhibit 4.3 SECOND SUPPLEMENTAL INDENTURE THIS SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture") dated as of March 16, 1998 is between STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS 1. The Company and Fleet National Bank, as Trustee (the "Initial Trustee"), entered into that certain Indenture dated as of August 15, 1996 (as amended, the "Indenture") providing, among other things, for the issuance of the Company's 13 1/2% Senior Secured Discount Notes Due 2008 in the aggregate principal amount of up to $191,751,000 (the "Discount Notes"). 2. The Trustee has replaced the Initial Trustee as the "Trustee" under the Indenture. 3. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Discount Note to, among other things, cure any ambiguity, omission, defect or inconsistency. 4. The Company has determined that Section 5.05(b)(v) of the Indenture contains a defect in that it fails to permit the Company or any of its Restricted Subsidiaries to repurchase shares of the common stock of the Company that have been distributed to participants and beneficiaries of a terminated employee stock ownership plan of the Company and Sterling Chemicals, Inc. which was in existence as of the date of the Indenture, as required by the terms of such plan and applicable law, while permitting repurchases under similar circumstances from participants and beneficiaries of Sterling Chemicals, Inc.'s current employee stock ownership plan. 5. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt of certain documents by the Trustee, the Trustee is required to join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of the Indenture. 6. The Board of Directors of the Company has authorized the execution of this Second Supplemental Indenture and, simultaneously with and as a condition to the execution of this Second Supplemental Indenture by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors of the Company authorizing the execution of this Second Supplemental Indenture and an Officers' Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. 2 7. All acts and things necessary to make the Indenture, as supplemented and modified hereby, a valid, binding and legal agreement according to its terms have been done and performed. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Discount Notes, as follows: ARTICLE I Amendment of Indenture Clause (v) of Section 5.05(b) of the Indenture is hereby amended to read in its entirety as follows: (v) repurchases of common stock of Holdings distributed to participants and beneficiaries of any employee stock ownership plan of Holdings or any of its Restricted Subsidiaries which was in effect as of the Issue Date as required by and in accordance with the terms thereof and Section 409(h)(1)(B) of the Code and the regulations thereunder; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; ARTICLE II The Trustee The Trustee hereby accepts the trusts declared and provided in this Second Supplemental Indenture, upon the terms and conditions contained in the Indenture as amended hereby. All of the provisions of the Indenture with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this Second Supplemental Indenture as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Second Supplemental Indenture, the authorization or permissibility of this Second Supplemental Indenture pursuant to the terms of the Indenture, the due execution hereof by the Company or for or in respect of the recitals or statements contained herein (other than the statements contained in the first sentence of this Article II), all of such recitals and statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness of provisions contained in this Second Supplemental Indenture. -2- 3 ARTICLE III Effect of Execution and Delivery Hereof From and after the execution and delivery of this Second Supplemental Indenture, (i) the Indenture shall be deemed to be amended and modified as provided herein, (ii) this Second Supplemental Indenture shall form a part of the Indenture, (iii) except as modified and amended by this Second Supplemental Indenture, the Indenture shall continue in full force and effect, and (iv) every Holder of Discount Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this Second Supplemental Indenture. ARTICLE IV Miscellaneous Provisions Section 4.01 Defined Terms. Capitalized terms used but not defined in this Second Supplemental Indenture shall have the respective meanings ascribed to such terms in the Indenture. Section 4.02 Headings. The headings of the Articles and Sections of this Second Supplemental Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this Second Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.03 Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 4.04 Successors and Assigns. All agreements of the Company contained in this Second Supplemental Indenture shall bind the Company and its successors. All agreements of the Trustee in this Second Supplemental Indenture shall bind the Trustee and its successors. This Second Supplemental Indenture shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Discount Notes then Outstanding. Section 4.05 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STERLING CHEMICALS HOLDINGS, INC. [SEAL] By: /s/ ROBERT W. ROTEN ------------------------------------- Robert W. Roten President and Chief Executive Officer ATTEST: By: /s/ GARY M. SPITZ ---------------------------------------------- Gary M. Spitz Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE [SEAL] By: /s/ MICHAEL M. HOPKINS ------------------------------------- Printed Name: Michael M. Hopkins -------------------------- Title: Vice President -------------------------------- -4- EX-4.4 5 1ST SUPPLEMENTAL INDENTURE - 11 3/4% DUE 2006 1 Exhibit 4.4 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental Indenture") dated as of October 1, 1997 is between STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS 1. The Company and Fleet National Bank, as Trustee (the "Initial Trustee"), entered into that certain Indenture dated as of August 15, 1996 (the "Indenture") providing, among other things, for the issuance of the Company's 11-3/4% Senior Subordinated Notes Due 2006 in the aggregate principal amount of up to $275,000,000 (the "Notes"). 2. The Trustee has replaced the Initial Trustee as the "Trustee" under the Indenture. 3. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Note to, among other things, cure any ambiguity, omission, defect or inconsistency. 4. The Company has determined that the definition of "Consolidated Interest Expense" appearing in Section 1.01 of the Indenture contains a defect due to the omission of the words "of Restricted Subsidiaries" in clause (vii) of such definition. 5. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt of certain documents by the Trustee, the Trustee is required to join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of the Indenture. 6. The Board of Directors of the Company has authorized the execution of this First Supplemental Indenture and, simultaneously with and as a condition to the execution of this First Supplemental Indenture by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors of the Company authorizing the execution of this First Supplemental Indenture and an Officers' Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. 7. All acts and things necessary to make the Indenture, as supplemented and modified hereby, a valid, binding and legal agreement according to its terms have been done and performed. 2 NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Notes, as follows: ARTICLE I AMENDMENT OF INDENTURE Clause (vii) of the definition of "Consolidated Interest Expense" appearing in Section 1.01 of the Indenture is hereby amended to read in its entirety as follows: "(vii) Preferred Stock dividends in respect of all Redeemable Stock of Chemicals and all Preferred Stock of Restricted Subsidiaries held by Persons other than Chemicals or a Wholly Owned Subsidiary". ARTICLE II THE TRUSTEE The Trustee hereby accepts the trusts declared and provided in this First Supplemental Indenture, upon the terms and conditions contained in the Indenture as amended hereby. All of the provisions of the Indenture with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this First Supplemental Indenture as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this First Supplemental Indenture, the authorization or permissibility of this First Supplemental Indenture pursuant to the terms of the Indenture, the due execution hereof by the Company or for or in respect of the recitals or statements contained herein (other than the statements contained in the first sentence of this Article II), all of such recitals and statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness of provisions contained in this First Supplemental Indenture. ARTICLE III EFFECT OF EXECUTION AND DELIVERY HEREOF From and after the execution and delivery of this First Supplemental Indenture, (i) the Indenture shall be deemed to be amended and modified as provided herein, (ii) this First Supplemental Indenture shall form a part of the Indenture, (iii) except as modified and amended by this First Supplemental Indenture, the Indenture shall continue in full force and effect, and (iv) every -2- 3 Holder of Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this First Supplemental Indenture. ARTICLE IV MISCELLANEOUS PROVISIONS Section 4.01 Defined Terms. Capitalized terms used but not defined in this First Supplemental Indenture shall have the respective meanings ascribed to such terms in the Indenture. Section 4.02 Headings. The headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this First Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.03 Counterparts. This First Supplemental Indenture may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 4.04 Successors and Assigns. All agreements of the Company contained in this First Supplemental Indenture shall bind the Company and its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind the Trustee and its successors. This First Supplemental Indenture shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Notes then Outstanding. Section 4.05 Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STERLING CHEMICALS, INC. [SEAL] By: /s/ ROBERT W. ROTEN ------------------------------------- Robert W. Roten President and Chief Executive Officer ATTEST: By: /s/ STEWART H. YONTS -------------------------------------- Stewart H. Yonts Treasurer and Assistant Secretary STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE [SEAL] By: /s/ MICHAEL M. HOPKINS -------------------------------------- Printed Name: Michael M. Hopkins --------------------------- Title: Vice President ----------------------------------- -4- EX-4.5 6 2ND SUPPLEMENTAL INDENTURE - 11 3/4% DUE 2006 1 Exhibit 4.5 SECOND SUPPLEMENTAL INDENTURE THIS SECOND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture") dated as of March 16, 1998 is between STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS 1. The Company and Fleet National Bank, as Trustee (the "Initial Trustee"), entered into that certain Indenture dated as of August 15, 1996 (as amended, the "Indenture") providing, among other things, for the issuance of the Company's 11 3/4% Senior Subordinated Notes Due 2006 in the aggregate principal amount of up to $275,000,000 (the "Notes"). 2. The Trustee has replaced the Initial Trustee as the "Trustee" under the Indenture. 3. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Note to, among other things, cure any ambiguity, omission, defect or inconsistency. 4. The Company has determined that Section 5.05(b)(viii) of the Indenture contains a defect in that it fails to permit the Company to repurchase shares of common stock of Sterling Chemicals Holdings, Inc. that have been distributed to participants and beneficiaries of a terminated employee stock ownership plan of the Company which was in existence as of the date of the Indenture, as required by the terms of such plan and applicable law, while permitting repurchases under similar circumstances from participants and beneficiaries of the Company's current employee stock ownership plan. 5. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt of certain documents by the Trustee, the Trustee is required to join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of the Indenture. 6. The Board of Directors of the Company has authorized the execution of this Second Supplemental Indenture and, simultaneously with and as a condition to the execution of this Second Supplemental Indenture by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors of the Company authorizing the execution of this Second Supplemental Indenture and an Officers' Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. 2 7. All acts and things necessary to make the Indenture, as supplemented and modified hereby, a valid, binding and legal agreement according to its terms have been done and performed. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Notes, as follows: ARTICLE I Amendment of Indenture Clause (viii) of Section 5.05(b) of the Indenture is hereby amended to read in its entirety as follows: (viii) a payment by Chemicals to Holdings or to the ESOP or directly by Chemicals to be used to repurchase common stock of Holdings distributed to participants and beneficiaries of any employee stock ownership plan of Holdings or Chemicals or any of its Restricted Subsidiaries which was in effect as of the Issue Date as required by and in accordance with the terms thereof as in effect as of the Issue Date and Section 409(h)(1)(B) of the Code and the regulations thereunder; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; ARTICLE II The Trustee The Trustee hereby accepts the trusts declared and provided in this Second Supplemental Indenture, upon the terms and conditions contained in the Indenture as amended hereby. All of the provisions of the Indenture with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this Second Supplemental Indenture as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Second Supplemental Indenture, the authorization or permissibility of this Second Supplemental Indenture pursuant to the terms of the Indenture, the due execution hereof by the Company or for or in respect of the recitals or statements contained herein (other than the statements contained in the first sentence of this Article II), all of such recitals and statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness of provisions contained in this Second Supplemental Indenture. -2- 3 ARTICLE III Effect of Execution and Delivery Hereof From and after the execution and delivery of this Second Supplemental Indenture, (i) the Indenture shall be deemed to be amended and modified as provided herein, (ii) this Second Supplemental Indenture shall form a part of the Indenture, (iii) except as modified and amended by this Second Supplemental Indenture, the Indenture shall continue in full force and effect, and (iv) every Holder of Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this Second Supplemental Indenture. ARTICLE IV Miscellaneous Provisions Section 4.01 Defined Terms. Capitalized terms used but not defined in this Second Supplemental Indenture shall have the respective meanings ascribed to such terms in the Indenture. Section 4.02 Headings. The headings of the Articles and Sections of this Second Supplemental Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this Second Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.03 Counterparts. This Second Supplemental Indenture may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 4.04 Successors and Assigns. All agreements of the Company contained in this Second Supplemental Indenture shall bind the Company and its successors. All agreements of the Trustee in this Second Supplemental Indenture shall bind the Trustee and its successors. This Second Supplemental Indenture shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Notes then Outstanding. Section 4.05 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STERLING CHEMICALS, INC. [SEAL] By: /s/ ROBERT W. ROTEN ------------------------------------- Robert W. Roten President and Chief Executive Officer ATTEST: By: /s/ GARY M. SPITZ ------------------------------------------- Gary M. Spitz Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE [SEAL] By: /s/ MICHAEL M. HOPKINS -------------------------------------- Printed Name: Michael M. Hopkins --------------------------- Title: Vice President ---------------------------------- -4- EX-4.6 7 1ST SUPPLEMENTAL INDENTURE - 11 1/4% DUE 2007 1 Exhibit 4.6 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental Indenture") dated as of March 16, 1998 is between STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, as Trustee (in such capacity, the "Trustee"). PRELIMINARY STATEMENTS 1. The Company and Fleet National Bank, as Trustee (the "Initial Trustee"), entered into that certain Indenture dated as of April 7, 1997 (the "Indenture") providing, among other things, for the issuance of the Company's 11 1/4% Senior Subordinated Notes Due 2007 in the aggregate principal amount of up to $150,000,000 (the "Notes"). 2. The Trustee has replaced the Initial Trustee as the "Trustee" under the Indenture. 3. Pursuant to Section 10.01 of the Indenture, the Company and the Trustee may amend or supplement the Indenture without the consent of any Holder of a Note to, among other things, cure any ambiguity, omission, defect or inconsistency. 4. The Company has determined that Section 5.05(b)(viii) of the Indenture contains a defect in that it fails to permit the Company to repurchase shares of common stock of Sterling Chemicals Holdings, Inc. that have been distributed to participants and beneficiaries of a terminated employee stock ownership plan of the Company which was in existence as of the date of the Indenture, as required by the terms of such plan and applicable law, while permitting repurchases under similar circumstances from participants and beneficiaries of the Company's current employee stock ownership plan. 5. Pursuant to Section 10.01 of the Indenture, upon the request of the Company accompanied by a resolution of the Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt of certain documents by the Trustee, the Trustee is required to join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of the Indenture. 6. The Board of Directors of the Company has authorized the execution of this First Supplemental Indenture and, simultaneously with and as a condition to the execution of this First Supplemental Indenture by the Trustee, the Company is delivering to the Trustee resolutions of the Board of Directors of the Company authorizing the execution of this First Supplemental Indenture and an Officers' Certificate and Opinion of Counsel, each in the form required by the Indenture and satisfactory to the Trustee. 2 7. All acts and things necessary to make the Indenture, as supplemented and modified hereby, a valid, binding and legal agreement according to its terms have been done and performed. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective Holders from time to time of the Notes, as follows: ARTICLE I Amendment of Indenture Clause (viii) of Section 5.05(b) of the Indenture is hereby amended to read in its entirety as follows: (viii) a payment by Sterling to Holdings or to the ESOP or directly by Sterling to be used to repurchase common stock of Holdings distributed to participants and beneficiaries of any employee stock ownership plan of Holdings or Sterling or any of its Restricted Subsidiaries which was in effect as of August 21, 1996 as required by and in accordance with the terms thereof as in effect as of August 21, 1996 and Section 409(h)(1)(B) of the Code and the regulations thereunder; provided, however, that such amount shall be excluded in the calculation of the amount of Restricted Payments; ARTICLE II The Trustee The Trustee hereby accepts the trusts declared and provided in this First Supplemental Indenture, upon the terms and conditions contained in the Indenture as amended hereby. All of the provisions of the Indenture with respect to the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this First Supplemental Indenture as fully and with the same effect as if set forth herein in full. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this First Supplemental Indenture, the authorization or permissibility of this First Supplemental Indenture pursuant to the terms of the Indenture, the due execution hereof by the Company or for or in respect of the recitals or statements contained herein (other than the statements contained in the first sentence of this Article II), all of such recitals and statements being made solely by the Company. The Trustee shall not be responsible in any manner to determine the correctness of provisions contained in this First Supplemental Indenture. -2- 3 ARTICLE III Effect of Execution and Delivery Hereof From and after the execution and delivery of this First Supplemental Indenture, (i) the Indenture shall be deemed to be amended and modified as provided herein, (ii) this First Supplemental Indenture shall form a part of the Indenture, (iii) except as modified and amended by this First Supplemental Indenture, the Indenture shall continue in full force and effect, and (iv) every Holder of Notes heretofore and hereafter authenticated and delivered under the Indenture shall be bound by this First Supplemental Indenture. ARTICLE IV Miscellaneous Provisions Section 4.01 Defined Terms. Capitalized terms used but not defined in this First Supplemental Indenture shall have the respective meanings ascribed to such terms in the Indenture. Section 4.02 Headings. The headings of the Articles and Sections of this First Supplemental Indenture have been inserted for convenience only, and shall not, for any reason, be deemed to be part of this First Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. Section 4.03 Counterparts. This First Supplemental Indenture may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 4.04 Successors and Assigns. All agreements of the Company contained in this First Supplemental Indenture shall bind the Company and its successors. All agreements of the Trustee in this First Supplemental Indenture shall bind the Trustee and its successors. This First Supplemental Indenture shall be binding upon and inure to the benefit of and be enforceable by the Holders of any Notes then Outstanding. Section 4.05 Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. STERLING CHEMICALS, INC. [SEAL] By: /s/ ROBERT W. ROTEN ------------------------------------- Robert W. Roten President and Chief Executive Officer ATTEST: By: /s/ GARY M. SPITZ ------------------------------------------- Gary M. Spitz Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE [SEAL] By: /s/ MICHAEL M. HOPKINS -------------------------------------- Printed Name: Michael M. Hopkins ---------------------------- Title: Vice President ---------------------------------- -4- EX-4.7 8 1ST AMENDMENT TO STOCKHOLDERS AGREEMENT 1 Exhibit 4.7 FIRST AMENDMENT TO STERLING CHEMICALS HOLDINGS, INC. STOCKHOLDERS AGREEMENT THIS FIRST AMENDMENT TO STERLING CHEMICALS HOLDINGS, INC. STOCKHOLDERS AGREEMENT (this "Amendment") dated effective as of December 31, 1997 is by and among STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Corporation"), STERLING CHEMICALS, INC. EMPLOYEE STOCK OWNERSHIP TRUST, an employee stock ownership trust created pursuant to the Sterling Chemicals, Inc., Employee Stock Ownership Plan (the "ESOT"), and the other persons and entities whose signatures appear on the signature pages hereof (the "Other Parties" and, together with the Corporation and the ESOT, the "Parties"). Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Original Agreement referred to below. PRELIMINARY STATEMENTS 1. The Parties, together with certain other Holders, are parties to that certain Sterling Chemicals Holdings, Inc. Stockholders Agreement dated effective as of August 21, 1996 (the "Original Agreement"). 2. The Parties desire to amend the Original Agreement in certain respects in order to, among other things, permit the Holders under certain circumstances to transfer certain of their shares of Stock by way of gift without first offering such shares of Stock to the Corporation, the ESOT or the other Holders. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and in the Original Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: Section 1. Amendment of Section 4.6 of the Original Agreement. The last sentence of Section 4.6 of the Original Agreement is hereby amended to read in its entirety as follows: The Purchase Price of any Shares Subject to the Offer purchased by any Eligible Offeree under Sections 3.2 through 3.5 shall be paid in the form of a cashier's check or such other form of consideration mutually acceptable to the party making the Acquisition Proposal and the purchasing Eligible Offerees. Section 2. Amendment of Section 5.2(b) of the Original Agreement. Section 5.2(b) of the Original Agreement is hereby amended by replacing the phrase "at the election of the Control Offeror" appearing in clause (2) thereof with the phrase "at the election of the Control Offeree". 2 Section 3. Amendment of Section 6 of the Original Agreement. Section 6 of the Original Agreement is hereby amended by inserting the word "and" at the end of subsection 6.19 thereof and adding a new subsection 6.20 to read in its entirety as follows: 6.20. by any Holder to any person or entity as a gift; provided, however, that the aggregate number of shares of Stock that may be transferred by any Holder pursuant to this subsection 6.20 during any calendar year may not exceed 20,000 (as such number may be adjusted from time to time to reflect any stock split, combination of shares, recapitalization or other similar event); Section 4. Amendment of Section 13.11 of the Original Agreement. Section 13.11 of the Original Agreement is hereby amended to read in its entirety as follows: 13.11. Enforceability. This Agreement shall be enforceable by and against the Company, the Holders, the ESOT and their respective spouses, guardians, heirs, legatees, executors, legal representatives, administrators, and permitted successors and assignees. Section 5. Effect of Amendments. Except as amended and modified by this Amendment, the Original Agreement shall continue in full force and effect. The Original Agreement and this Amendment shall be read, taken and construed as one and the same instrument. Upon the effectiveness of this Amendment, each reference in the Original Agreement to "this Agreement" shall mean and be a reference to the Original Agreement as amended hereby. Section 6. Effectiveness. This Amendment shall not be or become effective unless and until it has been duly executed and delivered by the Corporation and Holders constituting a Required Voting Percentage. Section 7. Binding Effect. This Amendment shall inure to the benefit of, and shall be binding upon (i) the Corporation and its successors and permitted assigns and (ii) the Holders and their respective heirs, legatees, executors, personal representatives, administrators, successors and permitted assigns. Section 8. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement. It shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. Section 9. Severability. Should any clause, sentence, paragraph, subsection or Section of this Amendment be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Amendment, and the Parties agree that the part or parts of this Amendment so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom as if such stricken part or parts had never been included herein. -2- 3 Section 10. Governing Law. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. Section 11. Entire Agreement. This Amendment and the Original Agreement set forth all of the promises, agreements, conditions, understandings, warranties and representations among the Parties with respect to the matters cover hereby, and supersede all prior agreements, arrangements and understandings among the Parties, whether written, oral or otherwise. There are no promises, agreements, conditions, understandings, warranties or representations, oral or written, express or implied, among the Parties concerning the subject matter hereof or thereof except as set forth herein or therein. IN WITNESS WHEREOF, the Parties have executed this Amendment effective as of the date first written above. STERLING CHEMICALS HOLDINGS, INC. By: /s/ DAVID G. ELKINS --------------------------------------- Printed Name: David G. Elkins ----------------------------- Title: Vice President ----------------------------------- STERLING CHEMICALS, INC. EMPLOYEE STOCK OWNERSHIP TRUST By: Merrill Lynch, Pierce, Fenner & Smith Incorporated, solely in its capacity as Trustee By: ---------------------------------- Printed Name: ----------------------- Title: ----------------------------- -3- 4 OTHER PARTIES: Individual: /s/ LAURA M. NEUMAN ---------------------------------------- Printed Name: Laura M. Neuman --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: -------------------------------- -4- 5 OTHER PARTIES: Individual: /s/ WILLIAM E. STREETMAN ---------------------------------------- Printed Name: William E. Streetman --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 6 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: Clipper Capital Associates, Inc. ---------------------------------------- (Print Name of Entity) By: /s/ EUGENE P. LYNCH ------------------------------------ Printed Name: Eugene P. Lynch --------------------------- Title: Treasurer & Secretary --------------------------------- -4- 7 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: Chase Equity Associates, L.P. ---------------------------------------- (Print Name of Entity) By: /s/ GEORGE E. KEITS III ------------------------------------ Printed Name: George E. Keits III --------------------------- Title: Managing Director and Chief --------------------------------- Administrative Officer of Chase --------------------------------- Capital Partners, General --------------------------------- Partner --------------------------------- -4- 8 OTHER PARTIES: Individual: /s/ J.R. BALL Trustee ---------------------------------------- Printed Name: J.R. Ball IRA --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 9 OTHER PARTIES: Individual: /s/ RAYMOND McLAUGHLIN ---------------------------------------- Printed Name: Raymond McLaughlin --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 10 OTHER PARTIES: Individual: /s/ [ILLEGIBLE] ---------------------------------------- Printed Name: [ILLEGIBLE] --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 11 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: The CIT Group/Equity Investments, Inc. ---------------------------------------- (Print Name of Entity) By: /s/ COLBY W. COLLINS ------------------------------------- Printed Name: Colby W. Collins --------------------------- Title: Managing Director ---------------------------------- -4- 12 OTHER PARTIES: Individual: /s/ FRANK A. VANDIVER ---------------------------------------- Printed Name: Frank A. Vandiver --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 13 OTHER PARTIES: Individual: /s/ JOHN K. O'CONNOR ---------------------------------------- Printed Name: John K. O'Connor --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 14 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: The Rheney Living Trust ---------------------------------------- (Print Name of Entity) By: /s/ SUSAN O. RHENEY ------------------------------------- Printed Name: Susan O. Rheney --------------------------- Title: Trustee ---------------------------------- -4- 15 OTHER PARTIES: Individual: /s/ ALFRED C. GLASSELL, JR. ---------------------------------------- Printed Name: Alfred C. Glassell, Jr. --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 16 OTHER PARTIES: Individual: /s/ ALLAN R. DRAGONE ---------------------------------------- Printed Name: Allan R. Dragone --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 17 OTHER PARTIES: Individual: /s/ SCOTT A. LAWIT ---------------------------------------- Printed Name: Scott A. Lawit --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 18 OTHER PARTIES: Individual: /s/ JOHN D. HAWKINS ---------------------------------------- Printed Name: John D. Hawkins --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 19 OTHER PARTIES: Individual: /s/ JOSEPH A. BAJ ---------------------------------------- Printed Name: Joseph A. Baj --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 20 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: Vanderbilt University ---------------------------------------- (Print Name of Entity) By: /s/ GEORGE B. STADLER ------------------------------------ Printed Name: George B. Stadler --------------------------- Title: Assistant Treasurer --------------------------------- -4- 21 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: --------------------------- Entity: The Baylor School ---------------------------------------- (Print Name of Entity) By: /s/ HUGH W. HUDDLESTON ------------------------------------ Printed Name: Hugh W. Huddleston --------------------------- Title: Treasurer 3/2/98 --------------------------------- -4- 22 OTHER PARTIES: Individual: /s/ MINDY LANIGAN ----------------------------------- Investor: Chartwell Capital Investors, L.P. Printed Name: Mindy Lanigan --------------------- Its General Partner: Chartwell Capital Partners, L.P. Entity: Its General Partner: Chartwell Partners, L.P. ----------------------------------- Its General Partner: Chartwell, Inc. (Print Name of Entity) By: -------------------------------- Printed Name: --------------------- Title: ----------------------------
-4- 23 OTHER PARTIES: Individual: /s/ SAMUEL Z. CHAMBERLAIN ---------------------------------------- Printed Name: Samuel Z. Chamberlain --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 24 OTHER PARTIES: Individual: /s/ DAVID HEANEY ---------------------------------------- Printed Name: David Heaney --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 25 OTHER PARTIES: Individual: /s/ DAVID G. ELKINS ---------------------------------------- Printed Name: David G. Elkins --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 26 OTHER PARTIES: Individual: /s/ MICHAEL G. MARK DORIS M. MARK ---------------------------------------- Printed Name: Michael G. Mark Doris M. Mark --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- -4- 27 OTHER PARTIES: Individual: /s/ RAY W. GRIFFIN, III BY MARIAN OEHMIG LATIMER, POA ---------------------------------------- Printed Name: Ray W. Griffin III by --------------------------- Marian Oehmig Latimer ---------------------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------ Printed Name: --------------------------- Title: --------------------------------- Address correction: 8 Bartram Road Lookout Mountain, TN 37350 -4- 28 OTHER PARTIES: Individual: /s/ MARIAN OEHMIG LATIMER ---------------------------------------- Printed Name: Marian Oehmig Latimer ------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- Address Correction: 8 Bartram Road Lookout Mountain, TN 37350 -4- 29 OTHER PARTIES: Individual: ---------------------------------------- Printed Name: -------------------------- Entity: Kinkaid Investments Foundation ---------------------------------------- (Print Name of Entity) By: /s/ JOANNE WILSON ------------------------------------- Printed Name: Joanne Wilson --------------------------- Title: Assistant Treasurer ---------------------------------- -4- 30 OTHER PARTIES: Individual: /s/ MARK DAVIS ---------------------------------------- Printed Name: Mark Davis ------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 31 OTHER PARTIES: Individual: /s/ [ILLEGIBLE] ---------------------------------------- Printed Name: [ILLEGIBLE] ------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 32 OTHER PARTIES: Individual: /s/ MICHAEL J. A. LOBO ---------------------------------------- Printed Name: Michael J. A. Lobo Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 33 OTHER PARTIES: Individual: /s/ [ILLEGIBLE] ---------------------------------------- Printed Name: --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- 34 OTHER PARTIES: Individual: /s/ ---------------------------------------- Printed Name: --------------------------- Entity: Koch Capital Services, Inc. ---------------------------------------- (Print Name of Entity) By: /s/ JOHN C. PITTENGER ------------------------------------- Printed Name: John C. Pittenger --------------------------- Title: Vice President ---------------------------------- -4- 35 OTHER PARTIES: Individual: /s/ FRANK J. HENRDEJS ---------------------------------------- Printed Name: Frank J. Henrdejs --------------------------- Entity: ---------------------------------------- (Print Name of Entity) By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- -4- EX-10.1 9 OMNIBUS STOCK AWARDS AND INCENTIVE PLAN 1 EXHIBIT 10.1 APPENDIX A STERLING CHEMICALS HOLDINGS, INC. OMNIBUS STOCK AWARDS AND INCENTIVE PLAN (AS AMENDED) I. PURPOSE The purpose of the STERLING CHEMICALS HOLDINGS, INC. OMNIBUS STOCK AWARDS AND INCENTIVE PLAN (the "Plan") is to provide a means through which STERLING CHEMICALS HOLDINGS, INC., a Delaware corporation (the "Company"), and its Subsidiaries (as defined herein), may attract able persons to enter the employ of the Company and its Subsidiaries and to provide a means whereby those employees upon whom the responsibilities of the successful administration and management of the Company and its Subsidiaries rest, and whose present and potential contributions to the welfare of the Company and its Subsidiaries are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and its Subsidiaries and their desire to remain in the Company's and its Subsidiaries' employ. A further purpose of the Plan is to provide such employees with additional incentive and reward opportunities designed to enhance the profitable growth of the Company and its Subsidiaries. Accordingly, the Plan provides for granting Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Performance Awards, Phantom Stock Awards, or any combination of the foregoing, as is best suited to the circumstances of the particular employee as provided herein. II. DEFINITIONS The following definitions shall be applicable throughout the Plan unless specifically modified by any paragraph: (a) "Affiliates" means any "parent corporation" of the Company and any "subsidiary" of the Company within the meaning of Code Sections 424(e) and (f), respectively. (b) "Agreement" means, individually or collectively, any Option Agreement, Performance Award Agreement, Phantom Stock Award Agreement, Restricted Stock Agreement and Stock Appreciation Rights Agreement. (c) "Award" means, individually or collectively, any Option, Restricted Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right. (d) "Board" means the Board of Directors of the Company. (e) "Change of Control" means the occurrence of any of the following events: (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved and liquidated, (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company's voting stock (based upon voting power), or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board. A-1 2 (f) "Change of Control Value" shall mean (i) the per share price offered to stockholders of the Company in any such merger, consolidation, reorganization, sale of assets or dissolution transaction, (ii) the price per share offered to stockholders of the Company in any tender offer or exchange offer whereby a Change of Control takes place, or (iii) if such Change of Control occurs other than in (i) or (ii) above, the Fair Market Value per share of the shares into which Awards are exercisable, as determined by the Committee, whichever is applicable. In the event that the consideration offered to stockholders of the Company consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash. (g) "Code" means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulations under such section. (h) "Committee" means the Compensation Committee of the Board which shall be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii) constituted solely of "outside directors," within the meaning of section 162(m) of the Code and applicable interpretive authority thereunder. (i) "Company" means Sterling Chemicals Holdings, Inc. and any successors thereto. (j) "Director" means an individual elected to the Board by the stockholders of the Company or by the Board under applicable corporate law who is serving on the Board on the date the Plan is adopted by the Board or is elected to the Board after such date. (k) "Disabled" means a Holder who is on Long-Term Disability as defined in the Pension Plan. (l) An "employee" means any person (including an officer or a Director) in an employment relationship with the Employer. (m) "Employer" means the Company, an Affiliate or any Subsidiary. (n) "Fair Market Value" means, with respect to a share of Stock as of any specified date, (i) if the Stock is listed on a national stock exchange, the mean of the high and low sales prices of the Stock reported on the stock exchange composite tape on that date, or if no prices are reported on that date, on the last preceding date on which such prices of Stock are so reported; or (ii) in the event the Stock is not traded on a national stock exchange, the fair market value of a share of Stock determined by the Committee in such reasonable manner as it deems appropriate. (o) "Forfeiture Restrictions" means with regard to shares of Stock that are subject to a Restricted Stock Award, restrictions placed on a Holder's disposition of such shares under certain circumstances or an obligation of a Holder to forfeit and surrender such shares under certain circumstances. (p) "Holder" means an employee who has been granted an Award. (q) "Incentive Stock Option" means an incentive stock option within the meaning of section 422(b) of the Code. (r) "Initial Public Offering" or "IPO" means the consummation of an underwritten public offering of Stock pursuant to a registration statement of the Company filed under the Securities Act of 1933, as amended, after the effective date of the Plan (other than any registration statement (a) relating to warrants, options or shares of capital stock of the Company granted or to be granted or sold primarily to employees, directors, or officers of the Company, (b) filed in connection with a transaction described in Rule 145 under the Securities Act of 1933, as amended, or any successor rule, (c) relating to employee benefit plans or interests therein, or (d) primarily relating to preferred stock or other securities issued in connection with any financing by the Company which is principally debt or preferred stock financing) wherein the aggregate net proceeds (after deducting all costs, discounts, commissions and other expenses of the offering) to the Company are at least $100,000,000. A-2 3 (s) "1934 Act" means the Securities Exchange Act of 1934, as amended. (t) "Nonqualified Stock Option" means an option granted under Paragraph VII of the Plan to purchase Stock which does not constitute an Incentive Stock Option. (u) "Option" means an Award granted under Paragraph VII of the Plan and includes both Incentive Stock Options to purchase Stock and Nonqualified Stock Options to purchase Stock. (v) "Optionee" means a Holder who has been granted an Option. (w) "Option Agreement" means a written agreement between the Company and a Holder with respect to an Option. (x) "Pension Plan" means the Sterling Chemicals, Inc. Amended and Restated Salaried Employees' Pension Plan (Effective as of May 1, 1996). (y) "Performance Award" means an Award granted under Paragraph X of the Plan. (z) "Performance Award Agreement" means a written agreement between the Company and a Holder with respect to a Performance Award. (aa) "Phantom Stock Award" means an Award granted under Paragraph XI of the Plan. (bb) "Phantom Stock Award Agreement" means a written agreement between the Company and a Holder with respect to a Phantom Stock Award. (cc) "Plan" means the Sterling Chemicals Holdings, Inc. Omnibus Stock Awards and Incentive Plan, as amended from time to time. (dd) "Restricted Stock Agreement" means a written agreement between the Company and a Holder with respect to a Restricted Stock Award. (ee) "Restricted Stock Award" means an Award granted under Paragraph IX of the Plan. (ff) "Retirement" means a Holder's Early Retirement, Normal Retirement or Late Retirement as set forth in the Pension Plan. (gg) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a similar function. (hh) "Spread" means, in the case of a Stock Appreciation Right, an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date such right is exercised over the exercise price of such Stock Appreciation Right; provided, however, the Committee may establish, in its sole discretion, in any Stock Appreciation Rights Agreement, the maximum amount of Spread attributable to a Stock Appreciation Right. (ii) "Stock" means the common stock, $0.01 par value of the Company. (jj) "Stock Appreciation Right" means an Award granted under Paragraph VIII of the Plan. (kk) "Stock Appreciation Rights Agreement" means a written agreement between the Company and a Holder with respect to an Award of Stock Appreciation Rights. A-3 4 (ll) "Subsidiary" means any corporation or entity of which more than 50% of the outstanding securities or ownership interests having ordinary voting power to elect a majority of the members of the Board of Directors, or persons in similar capacity of such corporation or entity, is, directly or indirectly owned by the Company. III. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall be effective upon the date of its adoption by the Board, provided that the Plan is approved by the stockholders of the Company within twelve months thereafter. No further Awards may be granted under the Plan after the expiration of ten years from the date of its adoption by the Board. The Plan shall remain in effect until all Awards granted under the Plan have been satisfied or expired. IV. ADMINISTRATION (a) Committee. The Plan shall be administered by the Committee. (b) Powers. Subject to the provisions of the Plan, the Committee shall have sole authority, in its discretion, to determine which employees shall receive an Award, the time or times when such Award shall be made, whether an Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall be granted, the number of shares of Stock which may be issued under each Option, Stock Appreciation Right or Restricted Stock Award, and the value of each Performance Award and Phantom Stock Award. In making such determinations the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contributions to the Employer's success and such other factors as the Committee in its discretion shall deem relevant. (c) Additional Powers. The Committee shall have such additional powers as are delegated to it by the other provisions of the Plan. Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and the respective agreements executed thereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the Plan, and to determine the terms, restrictions and provisions of each Award, including such terms, restrictions and provisions as shall be requisite in the judgment of the Committee to cause designated Options to qualify as Incentive Stock Options, and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in any agreement relating to an Award in the manner and to the extent it shall deem expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Article IV shall be conclusive. (d) Expenses. All expenses and liabilities incurred by the Committee in the administration of this Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons to assist the Committee in the carrying out of its duties hereunder. V. STOCK SUBJECT TO THE PLAN (a) Stock Grant and Award Limits. The Committee may from time to time grant Awards to one or more employees determined by it to be eligible for participation in the Plan in accordance with the provisions of Paragraph VI. Subject to Paragraph XII, the aggregate number of shares of Stock that may be issued under the Plan shall not exceed 1,000,000 shares. The shares subject to this Plan shall consist of authorized but unissued shares of Stock or previously issued shares of Stock reacquired and held by the Company, and such number of shares shall be and is hereby reserved for such purpose. Shares of Stock shall be deemed to have been issued under the Plan only to the extent actually issued and delivered pursuant to an Award. To the extent that an Award lapses or the rights of its Holder terminate or the Award is to only be paid in cash or is paid in cash, any shares of Stock subject to such Award shall again be available for the grant of an Award. To the extent that an Award lapses or the rights of its Holder terminate, any shares of Stock subject to such Award shall again be available for the grant of an Award. Separate stock certificates shall be issued by the Company for those shares acquired pursuant to the exercise of an Incentive Stock Option and for those shares acquired pursuant to the exercise of a Nonqualified Stock Option. A-4 5 (b) Stock Offered. The stock to be offered pursuant to the grant of an Award may be authorized but unissued Stock or Stock previously issued and outstanding and reacquired by the Company. VI. ELIGIBILITY Awards may be granted only to persons who, at the time of grant, are employees. Awards may not be granted to any Director who is not an employee. An Award may be granted on more than one occasion to the same person, and, subject to the limitations set forth in the Plan, such Award may include an Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or any combination thereof. VII. STOCK OPTIONS (a) Option Period. The term of each Option shall be as specified by the Committee at the date of grant. (b) Limitations on Exercise of Option. An Option shall be exercisable in whole or in such installments and at such times as determined by the Committee. (c) Special Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Stock with respect to which Incentive Stock Options are exercisable for the first time by an employee during any calendar year under all incentive stock option plans of the Company and its Affiliates exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Stock Options as determined by the Committee. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of an Optionee's Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Optionee of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an employee if, at the time the Option is granted, such employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is granted the option price is at least 110% of the Fair Market Value of the Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. (d) Option Agreement. Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve, including, without limitation, provisions to qualify an Incentive Stock Option under section 422 of the Code. An Option Agreement may provide for the payment of the option price, in whole or in part, in cash or by the delivery of a number of shares of Stock (plus cash if necessary) having a Fair Market Value equal to such option price. Each Option shall specify the effect of termination of employment on the exercisability of the Option; provided, that upon the death of an Optionee, the Retirement of an Optionee, or upon the Optionee becoming Disabled, all outstanding Options of such Optionee shall immediately vest and become exercisable. Moreover, an Option Agreement may provide for a "cashless exercise" of the Option by establishing procedures whereby the Holder, by a properly-executed written notice, directs (i) an immediate market sale or margin loan respecting all or a part of the shares of Stock to which he is entitled upon exercise pursuant to an extension of credit by the Company to the Holder of the option price, (ii) the delivery of the shares of Stock from the Company directly to a brokerage firm and (iii) the delivery of the option price from the sale or margin loan proceeds from the brokerage firm directly to the Company. Such Option Agreement may also include, without limitation, provisions relating to (i) vesting of Options, subject to the provisions hereof accelerating such vesting upon the occurrence of an IPO or a Change of Control, (ii) tax matters (including provisions (y) permitting the delivery of additional shares of Stock or the withholding of shares of Stock from those acquired upon exercise to satisfy federal or state income tax withholding requirements and (z) dealing with any other applicable employee wage withholding requirements), and (iii) any other matters not inconsistent with the terms and provisions of this Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Option Agreements need not be identical. A-5 6 (e) Option Price and Payment. The price at which a share of Stock may be purchased upon exercise of an Option shall be determined by the Committee, but (i) such purchase price shall not be less than the Fair Market Value of Stock subject to an Incentive Stock Option on the date the Incentive Stock Option is granted and (ii) such purchase price shall be subject to adjustment as provided in Paragraph XII. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company. The purchase price of the Option or portion thereof shall be paid in full in the manner prescribed by the Committee. (f) Stockholder Rights and Privileges. The Holder shall be entitled to all the privileges and rights of a stockholder only with respect to such shares of Stock as have been purchased under the Option and for which certificates of stock have been registered in the Holder's name. (g) Options and Rights in Substitution for Stock Options Granted by Other Corporations. Options and Stock Appreciation Rights may be granted under the Plan from time to time in substitution for stock options held by individuals employed by corporations who become employees as a result of a merger or consolidation of the employing corporation with the Company, an Affiliate, or any Subsidiary, or the acquisition by the Company, an Affiliate or a Subsidiary of the assets of the employing corporation, or the acquisition by the Company, an Affiliate or a Subsidiary of stock of the employing corporation with the result that such employing corporation becomes a Subsidiary. VIII. STOCK APPRECIATION RIGHTS (a) Stock Appreciation Rights. A Stock Appreciation Right is the right to receive an amount equal to the Spread with respect to a share of Stock upon the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be granted in connection with the grant of an Option, in which case the Option Agreement will provide that exercise of Stock Appreciation Rights will result in the surrender of the right to purchase the shares under the Option as to which the Stock Appreciation Rights were exercised. The Spread with respect to a Stock Appreciation Right may be payable either in cash, shares of Stock with a Fair Market Value equal to the Spread or in a combination of cash and shares of Stock. With respect to Stock Appreciation Rights that are subject to Section 16 of the 1934 Act, however, the Committee shall, except as provided in Paragraph XII(c), retain sole discretion (i) to determine the form in which payment of the Stock Appreciation Right will be made (i.e., cash, securities or any combination thereof) or (ii) to approve an election by a Holder to receive cash in full or partial settlement of Stock Appreciation Rights. (b) Stock Appreciation Rights Agreement. Stock Appreciation Rights granted independently of Options shall be evidenced by a Stock Appreciation Rights Agreement. Each Stock Appreciation Rights Agreement shall specify the effect of termination of employment on the exercisability of the Stock Appreciation Rights; provided, that upon the death of a Holder of a Stock Appreciation Right, the Retirement of such Holder, or upon such Holder becoming Disabled, all outstanding Stock Appreciation Rights of such Holder shall immediately vest and become exercisable. Stock Appreciation Rights Agreements may also include, without limitation, provisions relating to (i) vesting of Awards, subject to the provisions hereof accelerating vesting upon the occurrence of an IPO or a Change of Control, (ii) tax matters (including provisions covering applicable wage withholding requirements), and (iii) any other matters not inconsistent with the terms and provisions of this Plan, that the Committee shall in its sole discretion determine. The terms and conditions of the respective Stock Appreciation Rights Agreements need not be identical. (c) Exercise Price. The exercise price of each Stock Appreciation Right shall be determined by the Committee in its sole discretion and shall be subject to adjustment as provided in Paragraph XII. (d) Exercise Period. The term of each Stock Appreciation Right shall be as specified by the Committee at the date of grant. (e) Limitations on Exercise of Stock Appreciation Right. A Stock Appreciation Right shall be exercisable in whole or in such installments and at such times as determined by the Committee. A-6 7 IX. RESTRICTED STOCK AWARDS (a) Restricted Stock Awards. A Restricted Stock Award shall be represented by a certificate of Stock registered in the name of the Holder of such Restricted Stock Award. The Holder shall have the right to receive dividends with respect to Stock subject to a Restricted Stock Award, to vote Stock subject thereto and to enjoy all other stockholder rights, except that (i) the Holder shall not be entitled to delivery of the Stock certificate until the Forfeiture Restrictions shall have expired, (ii) the Company shall retain custody of the Stock until the Forfeiture Restrictions shall have expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Stock until the Forfeiture Restrictions shall have expired, and (iv) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock Award. (b) Forfeiture Restrictions to be Established by the Committee. The Forfeiture Restrictions on shares of Stock that are the subject of a Restricted Stock Award shall be determined by the Committee in its sole discretion, and the Committee may provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of targets established by the Committee that are based on (1) the price of a share of Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the revenue of a business unit of the Company designated by the Committee, (5) the return on stockholders' equity achieved by the Company, or (6) the Company's pre-tax cash flow from operations, (ii) the Holder's continued employment with the Employer for a specified period of time, or (iii) a combination of any two or more of the factors listed in clauses (i) and (ii) of this sentence. Each Restricted Stock Award may have different Forfeiture Restrictions, in the discretion of the Committee. The Forfeiture Restrictions applicable to a particular Restricted Stock Award shall not be changed except as permitted by Paragraph IX(b) or Paragraph XII. (c) Other Terms and Conditions. At the time of a Restricted Stock Award, the Committee may, in its sole discretion, prescribe additional terms, conditions or restrictions relating to Restricted Stock Awards, including, but not limited to, rules pertaining to the termination of employment of a Holder prior to expiration of the Forfeiture Restrictions; provided, that upon the death of a Holder of a Restricted Stock Award, the Retirement of such Holder, or upon such Holder becoming Disabled, all Forfeiture Restrictions applicable to all Restricted Stock Awards of such Holder shall lapse and expire. Such additional terms, conditions or restrictions shall be set forth in a Restricted Stock Agreement made in conjunction with the Award. Such Restricted Stock Agreement may also include, without limitation, provisions relating to (i) subject to the provisions hereof accelerating vesting upon the occurrence of an IPO or a Change of Control, vesting of Awards, (ii) tax matters (including provisions (y) covering any applicable employee wage withholding requirements and (z) prohibiting an election by the Holder under section 83(b) of the Code), and (iii) any other matters not inconsistent with the terms and provisions of this Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Restricted Stock Agreements need not be identical. (d) Payment for Restricted Stock. The Committee shall determine the amount and form of any payment for Stock received pursuant to a Restricted Stock Award, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Stock received pursuant to a Restricted Stock Award, except to the extent otherwise required by law. (e) Agreements. At the time any Award is made under this Paragraph IX, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters as the Committee may determine to be appropriate. The terms and provisions of the respective Restricted Stock Agreements need not be identical. X. PERFORMANCE AWARDS (a) Performance Period. The Committee shall establish, with respect to and at the time of each Performance Award, a performance period over which the performance of the Holder shall be measured. (b) Performance Awards. Each Performance Award shall have a maximum value established by the Committee at the time of such Award. A-7 8 (c) Performance Measures. A Performance Award shall be awarded to an employee contingent upon future performance of the employee, the Company, an Affiliate, any Subsidiary, or any division or department thereof by or in which he is employed during the performance period. The Committee shall establish the performance measures applicable to such performance prior to the beginning of the performance period but subject to such later revisions as the Committee shall deem appropriate to reflect significant, unforeseen events or changes. (d) Awards Criteria. In determining the value of Performance Awards, the Committee shall take into account an employee's responsibility level, performance, potential, other Awards and such other considerations as it deems appropriate. (e) Payment. Following the end of the performance period, the Holder of a Performance Award shall be entitled to receive payment of an amount, not exceeding the maximum value of the Performance Award, based on the achievement of the performance measures for such performance period, as determined by the Committee. Payment of a Performance Award may be made in cash, Stock or a combination thereof, as determined by the Committee. Payment shall be made in a lump sum or in installments as prescribed by the Committee. Any payment to be made in Stock shall be based on the Fair Market Value of the Stock on the payment date. If a payment of cash is to be made on a deferred basis, the Committee shall establish whether interest shall be credited, the rate thereof and any other terms and conditions applicable thereto. (f) Termination of Employment. A Performance Award shall terminate if the Holder does not remain continuously in the employ of the Employer at all times during the applicable performance period, except as may be determined by the Committee or as may otherwise be provided in the Award at the time granted. (g) Agreements. At the time any Award is made under this Paragraph X, the Company and the Holder shall enter into a Performance Stock Award Agreement setting forth each of the matters contemplated hereby, and, in addition such matters are set forth in Paragraph IX(b) as the Committee may determine to be appropriate. The terms and provisions of the respective agreements need not be identical. XI. PHANTOM STOCK AWARDS (a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares of Stock (or cash in an amount equal to the Fair Market Value thereof), or rights to receive an amount equal to any appreciation in the Fair Market Value of Stock (or portion thereof) over a specified period of time, which vest over a period of time (subject to the provisions hereof accelerating vesting upon the occurrence of an IPO or a Change of Control) as established by the Committee, without payment of any amounts by the Holder thereof (except to the extent otherwise required by law) or satisfaction of any performance criteria or objectives. Each Phantom Stock Award shall have a maximum value established by the Committee at the time of such Award. (b) Award Period. The Committee shall establish, with respect to and at the time of each Phantom Stock Award, a period over which or the event upon which the Award shall vest with respect to the Holder. (c) Awards Criteria. In determining the value of Phantom Stock Awards, the Committee shall take into account an employee's responsibility level, performance, potential, other Awards and such other considerations as it deems appropriate. (d) Payment. Following the end of the vesting period for a Phantom Stock Award, the Holder of a Phantom Stock Award shall be entitled to receive payment of an amount, not exceeding the maximum value of the Phantom Stock Award, based on the then vested value of the Award. Payment of a Phantom Stock Award may be made in cash, Stock or a combination thereof as determined by the Committee. Payment shall be made in a lump sum or in installments as prescribed by the Committee in its sole discretion. Any payment to be made in Stock shall be based on the Fair Market Value of the Stock on the payment date. Cash dividend equivalents may be paid during or after the vesting period with respect to a Phantom Stock Award, as determined by the Committee. If a payment of cash is to be A-8 9 made on a deferred basis, the Committee shall establish whether interest shall be credited, the rate thereof and any other terms and conditions applicable thereto. (e) Termination of Employment. Except as may be otherwise determined by the Committee or as set forth in the Award at the time of grant, a Phantom Stock Award shall terminate if the Holder does not remain continuously in the employ of the Employer at all times during the applicable vesting period; provided, however, that upon the death of a Holder of a Phantom Stock Award, the Retirement of such Holder, or upon such Holder becoming Disabled, all outstanding Phantom Stock Awards of such Holder shall immediately vest and become distributable. (f) Agreements. At the time any Award is made under this Paragraph XI, the Company and the Holder shall enter into a Phantom Stock Award Agreement setting forth each of the matters contemplated hereby and, in addition, such matters as are set forth in Paragraph IX(b) as the Committee may determine to be appropriate. The terms and provisions of the respective agreements need not be identical. XII. RECAPITALIZATION OR REORGANIZATION (a) The shares with respect to which Awards may be granted are shares of Stock as presently constituted, but if, and whenever, prior to the expiration of an Award theretofore granted, the Company shall effect a subdivision or consolidation of such shares of Stock or other capital readjustment, the number of shares of Stock with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. (b) If the Company recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of an Award theretofore granted the Holder shall be entitled to (or entitled to purchase, if applicable) under such Award, in lieu of the number of shares of Stock then covered by such Award, the number and class of shares of stock and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of shares of Stock then covered by such Award. (c) In the event of an IPO or a Change of Control, all outstanding Awards shall immediately vest and become exercisable or satisfiable, as applicable. The Committee, in its discretion, may determine that upon the occurrence of a Change of Control, each Award other than an Option outstanding hereunder shall terminate within a specified reasonable number of days after notice to the Holder, and such Holder shall receive, with respect to each share of Stock subject to such Award, cash in an amount equal to the excess, if any, of the Change of Control Value over any exercise price or purchase price paid, if applicable. Further, in the event of a Change of Control, the Committee, in its discretion shall act to effect one or more of the following alternatives with respect to outstanding Options, which may vary among individual Holders and which may vary among Options held by any individual Holder: (i) determine a reasonable period of time on or before a specified date (before or after such Change of Control) after which specified date all unexercised Options and all rights of Holders thereunder shall terminate, (2) require the mandatory surrender to the Company by selected Holders of some or all of the outstanding Options held by such Holders (irrespective of whether such Options are then exercisable under the provisions of the Plan) as of a date, before or after such Change of Control, specified by the Committee, in which event the Committee shall thereupon cancel such Options and the Company shall pay to each Holder an amount of cash per share equal to the excess, if any, of the Change of Control Value of the shares subject to such Option over the exercise price(s) under such Options for such shares, or (3) provide that thereafter upon any exercise of an Option theretofore, granted the Holder shall be entitled to purchase under such Option, in lieu of the number of shares of Stock then covered by such Option, the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the Holder would have been entitled pursuant to the terms of the agreement of merger, consolidation or sale of assets and dissolution if, immediately prior to such merger, consolidation or sale of assets and dissolution the Holder has been the holder of record of the number of shares of Stock then covered by such Option. The provisions contained in this paragraph shall not terminate any A-9 10 rights of the Holder to further payments pursuant to any other agreement with the Company following a Change of Control. (d) In the event of changes in the outstanding Stock by reason of recapitalization, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Paragraph XII, any outstanding Awards and any agreements evidencing such Awards shall be subject to adjustment by the Committee at its reasonable discretion as to the number and price of shares of Stock or other consideration subject to such Awards. In the event of any such change in the outstanding Stock, the aggregate number of shares available under the Plan may be appropriately adjusted by the Committee, whose determination shall be reasonable and conclusive. (e) The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. (f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above shall be subject to any required stockholder action. (g) Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares of obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Awards theretofore granted or the purchase price per share, if applicable. XIII. AMENDMENT AND TERMINATION OF THE PLAN The Board, in its discretion, may at any time or times amend, suspend or terminate the Plan; provided, however, such action shall be subject to the approval of the stockholders of the Company where stockholder approval (i) is required by applicable law or (ii) the Board determines (A) such approval is necessary to comply with any requirements of any securities exchange on which the stock is listed or (B) such approval is desired for any other reason; provided, further, however, that no amendment, suspension or termination of the Plan may, without the consent of the holder of an Award, terminate such Award or adversely affect such person's rights in any material respect. XIV. MISCELLANEOUS (a) No Right to An Award. Neither the adoption of the Plan by the Company nor any action of the Board or the Committee shall be deemed to give an employee any right to be granted an Award to purchase Stock, a right to a Stock Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom Stock Award or any of the rights hereunder except as may be evidenced by an Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement on behalf of the Company, and then only to the extent and on the terms and conditions expressly set forth therein. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to assure the payment of any Award. (b) Employees' Rights Unsecured. The right of an employee to receive Stock, cash or any other payment under this Plan shall be an unsecured claim against the general assets of the Company. The Company may, but shall not be obligated to, acquire shares of Stock from time to time in anticipation of its obligations under this Plan, but a Participant shall have no right in or against any shares of Stock so acquired. All Stock shall constitute the general assets of the Company and may be disposed of by the Company at such time and for such purposes as it deems appropriate. A-10 11 (c) Agreement Controls. No discretionary action by the Committee as set forth herein shall amend or supersede the express terms of any Agreement. (d) No Employment Rights Conferred. Nothing contained in the Plan shall (i) confer upon any employee any right with respect to continuation of employment with any Employer or (ii) interfere in any way with the right of any Employer to terminate an employee's employment at any time. (e) Other Laws; Withholding. The Company shall not be obligated to issue any Stock pursuant to any Award granted under the Plan at any time when the shares covered by such Award have not been registered under the Securities Act of 1933 and such other state and federal laws, rules or regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules or regulations available for the issuance and sale of such shares. Unless the Awards and Stock covered by this Plan have been registered under the Securities Act of 1933, or the Company has determined that such registration is unnecessary, each Holder exercising an Award under this Plan may be required by the Company to give representation in writing that such Holder is acquiring such shares for his or her own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. No fractional shares of Stock shall be delivered, nor shall any cash in lieu of fractional shares be paid. The Company shall have the right to deduct in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations. (f) No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to prevent the Company, an Affiliate or any Subsidiary from taking any corporate action which is deemed by the Company, an Affiliate or any Subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No employee, beneficiary or other person shall have any claim against the Company, an Affiliate or any Subsidiary as a result of any such action. (g) Restrictions on Transfer. Except as provided below, an Award shall not be transferable otherwise than by will or the laws of descent and distribution and shall be exercisable during the Holder's lifetime only by such Holder or the Holder's guardian or legal representative. However, the Committee may, in its discretion, provide in an option agreement (other than with respect to an Incentive Stock Option) that the option right granted to the individual may be transferred (in whole or in part and shall be subject to such terms and conditions as the Committee may impose thereon, including, without limitation, the approval by the Company of the form of transfer agreement) by the individual to (i) the spouse, children or grandchildren of the individual ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of the Immediate Family Members and, if applicable, the individual, (iii) a partnership in which such Immediate Family Members and, if applicable, the individual are the only partners, or (iv) any other person or entity otherwise permitted by the Committee. Following transfer, any such transferred option rights shall continue to be subject to the same terms and conditions as were applicable to the option rights immediately prior to transfer; provided, however, that no transferred option rights shall be exercisable unless arrangements satisfactory to the Company have been made to satisfy any tax withholding obligations the Company may have with respect to the option rights. (h) Beneficiary Designation. Each Holder may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Holder, shall be in a form prescribed by the Committee, and will be effective only when filed by the Holder in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Holder's death shall be paid to his estate. (i) Rule 16b-3. It is intended that the Plan and any grant of an Award made to a person subject to Section 16 of the 1934 Act meet all of the requirements of Rule 16b-3. If any provision of the Plan or any such Award would disqualify the Plan or such Award under, or would otherwise not comply with, Rule 16b-3, such provision or Award shall be construed or deemed amended to conform to Rule 16b-3. A-11 12 (j) Section 162(m). If the Plan is subject to Section 162(m) of the Code, it is intended that the Plan comply fully with and meet all the requirements of Section 162(m) of the Code so that Options and Stock Appreciation Rights granted hereunder and, if determined by the Committee, Restricted Stock Awards, shall constitute "performance- based" compensation within the meaning of such section. If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Section 162(m) as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Section 162(m); provided that no such construction or amendment shall have an adverse effect on the economic value to a Holder of any Award previously granted hereunder. (k) Indemnification. Each person who is or shall have been a member of the Committee or of the Board and any employee delegated authority hereunder shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company's approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company prompt written notice of any such action, suit or proceeding, and an opportunity, at its own expense, to handle, defend and/or settle the same before he undertakes to handle, defend and/or settle it on his own behalf. The foregoing right of indemnification shall not be exclusive of any other rights or indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. (l) Governing Law. This Plan shall be construed in accordance with the laws of the State of Delaware and applicable federal law. IN WITNESS WHEREOF, Sterling Chemicals Holdings, Inc. has caused this document to be duly executed in its name and behalf by its proper officer thereunto duly authorized, effective for all purposes as of the date of the adoption of the Plan by the Board, being April 23, 1997. STERLING CHEMICALS HOLDINGS, INC. By: /s/ FRANK P. DIASSI ----------------------------------- Frank P. Diassi Chairman of the Board of Directors A-12 EX-10.2 10 AMENDED AND RESTATED PRODUCTION AGREEMENT- 3/31/98 1 EXECUTION COPY EXHIBIT 10.2 *** OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN SEPARATELY FILED WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST*** AMENDED AND RESTATED PRODUCTION AGREEMENT between BP CHEMICALS INC. and STERLING CHEMICALS, INC. -1- 2 PRODUCTION AGREEMENT TABLE OF CONTENTS
ARTICLE PAGE ------- ---- 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 - Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 - Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4 - Rights and Obligations Respecting Facility Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 5 - Delivery, Shipment and Storage Instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 6 - Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 7 - Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8 - Deliveries and Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 9 - Testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 10 - Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ***. 12 - Co-Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 13 - Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 14 - Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 15 - BP Security Interests; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 16 - Access to Information and Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 17 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 18 - Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 19 - Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-i- 3 20 - Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 21 - Dispute Resolution and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 22 - Confidentiality and Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 23 - Defaults; Failures; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 24 - Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 25 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBITS Exhibit A - Definitions Exhibit B - Propylene Specifications Exhibit C -Ammonia Specifications Exhibit D - Acrylonitrile Specifications SCHEDULES Schedule 3.5(e)(i) - Sterling Actual Costs Schedule 15.2 - Insurance Schedule A-1 - Facility Schedule A-2 - Example of Fixed Costs Schedule A-3 - Example of Variable Costs Schedule A-4 - BP Net Unrecouped Investment Amount -ii- 4 AMENDED AND RESTATED PRODUCTION AGREEMENT THIS AMENDED AND RESTATED PRODUCTION AGREEMENT executed as of the 31st day of March 1998 is by and between BP Chemicals Inc., an Ohio corporation ("BP") and Sterling Chemicals, Inc., a Delaware corporation ("Sterling"). WHEREAS, Sterling owns and operates the Plant which contains the Facility for the production of Product and Co-Products; and WHEREAS, BP and Sterling are parties to the Production Agreement dated as of April 15, 1988 (the "Original Agreement") pursuant to which BP provided funds for the Project and Sterling granted BP the right to purchase a specified portion of the Product produced by the Facility for a period of ten years with BP options to extend such right for up to an additional ten years; and WHEREAS, in lieu of an extension of the Original Agreement, the parties hereto wish to amend and restate the Original Agreement to reflect (i) the completion of the Project, (ii) the Right, and (iii) *** and otherwise to provide for the terms and conditions under which Sterling shall produce and BP shall purchase Product hereunder; NOW, THEREFORE, for and in consideration of the premises and of the mutual representations, warranties, covenants and agreements herein contained and the mutual benefits to be derived therefrom, the parties hereto agree as follows: Article 1 - Definitions 1.1 Unless otherwise stated in this Agreement, capitalized terms used herein shall have the meanings ascribed to them in Exhibit A. 5 1.2 In this Agreement, unless a clear contrary intention appears: (a) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (b) reference to any gender includes each other gender and the neuter; (c) all terms defined in the singular shall have the same meanings in the plural and vice versa; (d) reference to any Person includes such Person's heirs, executors, personal representatives, administrators, successors and assigns; provided, however, that nothing contained in this clause (d) is intended to authorize any assignment not otherwise permitted by this Agreement; (e) reference to a Person in a particular capacity or capacities excludes such Person in any other capacity; (f) reference to any contract or agreement means such contract or agreement as amended, supplemented or modified from time to time in accordance with the terms thereof; (g) all references to Articles and Sections shall be deemed to be references to the Articles and Sections of this Agreement; (h) all references to Exhibits and Schedules shall be deemed to be references to the Exhibits and Schedules attached hereto which are made a part hereof and incorporated herein by reference; (i) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; -2- 6 (j) with respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding"; (k) the captions and headings contained in this Agreement shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise; (l) where any provision of this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person; and (m) no provision of this Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. Article 2 - Term 2.1 Unless sooner terminated as provided herein, the term of this Agreement shall be for an initial term commencing on the Effective Date and ending on December 31, 2009 (the "Initial Term") and from year to year thereafter unless either party gives two years' prior written notice of its election to terminate this Agreement at the expiration of the Initial Term or any Additional Term pursuant to this Article 2. Each year that this Agreement remains in effect after the expiration of the Initial Term shall be considered an "Additional Term". Notwithstanding anything to the contrary contained in this Agreement, in the event that (i) ANEXCO, LLC, a Delaware limited liability company in which Sterling and BP are members, is dissolved and liquidated for any reason, or (ii) any of the Joint Venture Agreement dated as of March 31, 1998 or the ***, is terminated for any reason, then each of Sterling and BP shall have the right, in its sole discretion, to terminate this Agreement by -3- 7 providing written notice of its election to terminate this Agreement within 30 days after the date ANEXCO LLC is dissolved or liquidated or such other agreement is effectively terminated, as the case may be (the "Cross Termination Right"). 2.2 Either party shall have the right to terminate this Agreement without cause for reasons other than as set forth in Section 2.3 effective at any time by giving the other party at least 24 Months prior written notice of its intent to terminate as of a date at least 24 Months after the delivery of such notice. If BP terminates this Agreement pursuant to this Section 2.2 or the Cross Termination Right during the Initial Term, ***. If Sterling terminates this Agreement pursuant to this Section 2.2 or the Cross Termination Right during the Initial Term, in either case, (i) prior to November 26, 2004, *** of the License Agreement or (ii) on or after November 26, 2004 but prior to November 26, 2009, *** of the License Agreement, and, in any event, BP will receive no further payments hereunder. 2.3 If this Agreement is terminated during the Initial Term due to a final, non-appealable order of a court or governmental agency of competent jurisdiction, ***, if any, produced from the Facility each calendar quarter after the date of termination in excess of one-fourth of *** then in effect which is sold or otherwise provided to a third party during such calendar quarter. Such payments shall be made for each calendar quarter during the period from the date of termination until the earlier to occur of the following: (i) BP has received the BP Net Unrecouped Investment Amount or (ii) December 31, 2004 (if termination occurs before November 26, 1999), or December 31, 2009 (if termination occurs thereafter). Nothing herein shall require Sterling to pay BP, in the aggregate, a sum greater than the BP Net Unrecouped Investment Amount or require Sterling to produce any amount of Product. -4- 8 Article 3 - Technology 3.1 *** 3.2 *** 3.3 Sterling shall have no obligation to pay BP for use of the New Technology in the Facility except as otherwise provided in this Agreement, the License Agreement ***. 3.4 *** 3.5 (a) Representatives of each of BP and Sterling shall meet at least twice during each Contract Year. At each such meeting, (i) BP will make preliminary disclosures, on a non-confidential basis, with respect to any technology, know-how, operating practices and procedures and similar matters of which it is aware which could improve the operation of the Facility, reduce the costs of manufacturing acrylonitrile at the Facility or which are related to safety, manufacturing, maintenance, technical issues or review of projects and (ii) Sterling will make preliminary disclosures, on a non-confidential basis, with respect to any technology, know-how, operating practices and procedures and similar matters of which it is aware which could improve the operation of the acrylonitrile facilities of BP located in Lima, Ohio and Green Lake, Texas (collectively, the "BP Facilities"), reduce the costs of manufacturing acrylonitrile at the BP Facilities or which are related to safety, manufacturing, maintenance, technical issues or review of projects. (b) If the recipient of any such preliminary disclosure was previously aware of the matter disclosed, either (i) each of BP and Sterling shall make full disclosure to the other of -5- 9 the relevant matter, in which event each of BP and Sterling will be entitled to implement all or any portion of the matter disclosed by the other without any payment made to the disclosing party, or (ii) if either party so elects prior to any further disclosure by the other party, BP and Sterling shall not make any further disclosure with respect to the relevant matter. (c) If the recipient of any preliminary disclosure was not previously aware of the matter disclosed, the recipient shall be entitled to elect at any time and from time to time, by providing written notice of such election to the disclosing party, to receive full disclosure of the relevant matter, in which event the party making the preliminary disclosure will, as soon as practicable after such election, make full disclosure of the relevant matter to the recipient. (d) In the event that the recipient of a disclosed matter implements such matter after full disclosure by the disclosing party, the recipient shall pay the disclosing party ***. If the implementation of the disclosed matter is related to a Capital Project previously contemplated by the recipient, the value of the disclosed matter to the recipient will be based upon the difference between the estimated cost of the Capital Project contained in the most recent Appropriation Request (in the case of Sterling) or Financial Memorandum (in the case of BP) prepared prior to the disclosure of such matter and, in the case of a matter resulting in recurring savings, the actual cost of the Capital Project (with appropriate adjustments to such estimated costs due to changes in scope of the Capital Project which are unrelated to the disclosed matter) or, in the case of a matter resulting in a one-time savings, the estimated cost of the Capital -6- 10 Project if the disclosed matter is implemented. If the implementation of the disclosed matter is not related to a Capital Project, the value of the disclosed matter to the recipient will be based upon, in the case of a matter resulting in recurring savings, the savings realized through the improvement in operating or maintenance procedures or the reduction in costs from the implementation of the disclosed matter or, in the case of a matter resulting in a one-time savings, the savings estimated to be realized through the improvement in operating or maintenance procedures or the reduction in costs from the implementation of the disclosed matter. In the absence of any agreement by the parties as to the value of the disclosed matter to the recipient, such value shall be determined in accordance with Article 21. The recipient shall calculate the documented savings associated with the implementation of any matter resulting in recurring savings, as soon as practicable after the expiration of one-year (and, if applicable, two years) following the implementation of such matter. Any payment by the recipient or the disclosing party associated with the full disclosure of any matter resulting in recurring savings shall be due and payable upon each such calculation or notice of such calculation, as the case may be. (e) For purposes of determining the value of any matter disclosed pursuant to this Section 3.5, each of BP and Sterling acknowledge and agree that, as of the date of this Agreement, the actual costs for the manufacture of acrylonitrile at the Facility is as set forth in Schedule 3.5(e)(i). -7- 11 (f) Any matter which is fully disclosed by a party pursuant to this Section 3.5 shall be treated by the recipient as confidential information of the disclosing party and be subject to the provisions of Article 22 hereof. (g) Notwithstanding anything to the contrary contained in this Agreement, (i) this Section 3.5 shall not apply to any matter disclosed or required to be disclosed pursuant to, and shall not affect the rights of Sterling to receive technical support under, the License Agreement, including the disclosure by BP of any matter related to optimization changes in the reactor areas of the Facility during the change-out of any catalyst, and (ii) no payment by Sterling or BP pursuant to this Section 3.5 shall be deemed to be a Fixed Cost or Variable Cost for purposes of this Agreement. Article 4 - Rights and Obligations Respecting Facility Production 4.1 On the terms and subject to the conditions of this Agreement, Sterling hereby grants to BP the Rights, and BP hereby agrees to receive and purchase and pay for, and Sterling agrees to sell and deliver to BP, Product in the manner provided herein subject at all times to the limitations imposed herein. 4.2 BP and Sterling agree that Product 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 Sterling shall deliver, Product 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 term of this Agreement. -8- 12 4.3 BP and Sterling each agree to give the other reasonable notice of such party's desire at any time to materially increase or decrease the quantity of Product 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 Product equal to or in excess of the Minimum Quarterly Contract Quantity, provided that BP at its option may purchase and take in any Quarter a quantity of Product less than the Minimum Quarterly Contract Quantity, if BP pays to Sterling pursuant to the terms of Section 7.1: (a) the Variable Cost Component then in effect multiplied by the pounds of Product actually taken by BP during the Quarter; plus (b) the Fixed Cost Component in effect for each Month during the Quarter. In the event BP makes payments to Sterling pursuant to this Section 4.4, the failure of BP to purchase the Minimum Quarterly Contract Quantity in any Quarter shall not be deemed to be a breach of this Agreement. 4.5 Subject to the terms of this Agreement, Sterling agrees to sell and deliver to BP the Maximum Annual Contract Quantity of Product (or such lesser amount as BP shall request) each Contract Year. Sterling shall not be obligated to sell or deliver to BP hereunder (i) during any Month, a quantity of Product in excess of the Maximum Monthly Contract Quantity, (ii) during any Quarter, a quantity of Product in excess of the Maximum Quarterly Contract Quantity, or (iii) during any Contract Year, a quantity of Product in excess of the -9- 13 Maximum Annual Contract Quantity. Subject to the foregoing, Sterling agrees to use commercially reasonable efforts, subject to Sterling's existing or ongoing obligations to third parties, to meet any request by BP for Product (a) in any Month, in amounts in excess of the Maximum Monthly Contract Quantity, and (b) in any Quarter, in amounts in excess of the Maximum Quarterly Contract Quantity. 4.6 *** Article 5 - Delivery, Shipment and Storage Instructions 5.1 On or before the fifteenth Day of each Month during each Contract Year, BP shall deliver written notice to Sterling setting forth (a) BP's requested dates and volumes of deliveries and shipping and its storage requirements of Product for the coming Month (the "Delivery, Shipment and Storage Instructions") and (b) BP's estimated delivery, shipment and storage instructions of Product for the Month after the coming Month (the "Estimated Delivery, Shipment and Storage Instructions") which shall include estimated dates and volumes of deliveries, shipments and storage requirements of Product for such Month. For example, on January 15, BP would deliver Delivery, Shipment and Storage Instructions for the Month of February, and Estimated Delivery, Shipment and Storage Instructions for the Month of March. The estimated and requested volumes shall comply with Article 4 hereof. Sterling shall be entitled to rely on the Estimated Delivery, Shipment and Storage Instructions and the same shall be deemed to be the Delivery, Shipment and Storage Instructions unless actual Delivery, Shipment and Storage Instructions are received by Sterling. Notwithstanding anything to the contrary in this Agreement, delivery of Product shall be made by Sterling only by barge or ocean going vessels. -10- 14 5.2 Sterling will use reasonable efforts to comply with the Delivery, Shipment and Storage Instructions and shall give BP the same rights of priority and scheduling with respect thereto that it uses for deliveries, shipments and storage of its own Product and those of Sterling's other customers. If Sterling fails to comply with the Delivery, Shipment and Storage Instructions as a result of Force Majeure or the actions or omissions of BP, Sterling shall have no liability for such failure. Nothing contained in this Agreement is intended to authorize or require, or shall be deemed or construed as authorizing or requiring, Sterling to violate any Laws. 5.3 In addition to the Estimated Delivery, Shipping and Storage Instructions and the Delivery, Shipping and Storage Instructions, BP may deliver to Sterling from time to time additional shipping instructions for Product. All such instructions with respect to any particular shipment shall be given as early as is practicable prior to the requested shipment date. Sterling shall use reasonable efforts to deliver Product at the times specified in such instructions. If such instructions cause Sterling to incur unusual expenses in order to deliver Product for such shipment, and if Sterling has obtained BP's approval of such expenses before they are incurred, BP shall reimburse Sterling upon receipt of invoice therefor. 5.4 Sterling and BP shall cooperate in utilizing their respective storage and transportation facilities to maximize cost savings and efficiencies in the transportation and storage of Product for both parties. With respect to shipments or exchanges made pursuant to this provision, the provisions of Articles 5, 8, 9 and 10 relating to delivery, shipment, testing and measurement shall generally apply. -11- 15 5.5 To the extent required hereunder, Sterling shall comply with all Laws and other requirements of governmental authorities having jurisdiction now in force or which may hereafter be in force pertaining to the operation of the Facility and the production of acrylonitrile. Article 6 - Specifications The Specifications shall not be changed unless agreed to in advance in writing by BP and Sterling. Sterling agrees to use all commercially reasonable efforts to comply with state of the U.S. chemical industry statistical process control requirements. Article 7 - Purchase Price and Payment 7.1 The Purchase Price for all Product delivered to BP hereunder shall be equal to the sum of the following: ***. BP shall pay each such invoice on or before the 30th Day after date of shipment or the 25th Day after receipt of invoice, whichever is later. 7.2 As soon as is practicable after the end of each Quarter, but in any event prior to the 15th day of first Month following the end of such Quarter, Sterling shall submit to BP a statement showing: *** 7.3 *** 7.4 Sterling will at all times use commercially reasonable efforts to minimize its costs of producing Product. 7.5 BP shall provide Sterling at no charge the Raw Materials needed to produce the Product purchased by BP under this Agreement, provided that BP may terminate its obligation to provide Raw Materials on one year's prior written notice to Sterling and, provided further, that, if BP so terminates its obligation to provide Raw Materials, it may not again provide Raw Materials needed to produce the Product purchased by BP hereunder unless it gives -12- 16 Sterling at least one year's prior written notice and then only if such provision does not materially interfere with Sterling's contractual relationships existing at the time of such notice. BP's ammonia exchange balance shall never exceed plus or minus five million pounds. For purposes of determining BP's propylene supply obligations hereunder, it is agreed that initially the Baseline Raw Materials Usage for propylene shall apply, adjusted each Quarter to reflect actual propylene usage. Sterling will maintain a running account of the Raw Materials supplied by BP and used to produce BP purchased Product, which amount shall be reflected in the statements delivered pursuant to this Article 7 and reconciled every Quarter along with the reconciliation under Section 7.2. It is agreed that ammonia provided by BP will be delivered by barge and propylene provided by BP will be delivered by pipeline. Sterling will make available to BP on a volume pro rata basis any propylene pipeline transportation rights it has with third parties for the transportation of Raw Materials to the Facility. To the extent that BP's use of Sterling's pipeline transportation rights results in charges payable by Sterling to a third party for BP's transportation of Raw Materials on any given pipeline, BP shall reimburse Sterling for all of such charges upon receipt of an invoice therefor. 7.6 If BP has reason to dispute the accuracy of any invoice submitted to it by Sterling, 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 resolved, BP will pay any balance due to Sterling upon receipt by BP of a replacement or additional invoice submitted to it by Sterling. -13- 17 7.7 Sterling shall maintain records and production data in accordance with its usual and customary practices and standards in respect of all matters referred to in this Agreement and in such detail as is sufficient to make the calculations required hereby. Sterling shall provide access to such records and data pursuant to the provisions of Article 16 hereof. Article 8 - Deliveries and Shipments 8.1 The point of delivery of any Product ("Point of Delivery") shall be the point of transfer of custody of such Product from Sterling to BP, and shall mean the first intake flange on the ship, barge or other inland water or marine vessel into which the Product is loaded for shipment. Title and risk of loss shall pass to BP at such flange (irrespective of whether Sterling owns or has provided the barge or ship into which the Product is loaded or delivered). As between Sterling and BP, Sterling shall be in control and possession of the Product sold and purchased hereunder and responsible for any damage or injury caused thereby until risk of loss with respect thereto has passed to BP. In addition to its other obligations hereunder, BP shall be in control and possession of the Product sold and purchased hereunder and responsible for any damage or injury caused thereby after risk of loss with respect thereto has passed to BP. The Point of Delivery of Raw Materials, if any, delivered by BP pursuant to Section 7.5 hereof shall be the point of transfer of custody of such Raw Materials to Sterling and shall be (i) the last exit flange on the ship, barge or other inland water or marine vessel from which the Raw Materials are unloaded or (ii) the first inlet flange at the Plant used by the pipeline to effect delivery of Raw Materials to Sterling by the common carrier, in the case of delivery by pipeline. Title and risk of loss shall pass to Sterling at such flange or outlet, as the case may be, and BP shall be in control and -14- 18 possession of Raw Materials delivered pursuant to Section 7.5 hereof and responsible for any damage or injury caused thereby until risk of loss with respect thereto has passed to Sterling. Article 9 - Testing 9.1 Product shall be tested prior to delivery to BP under the testing procedures and schedules being utilized by Sterling at the Facility. Such procedures and schedules may be changed from time to time by the agreement of BP and Sterling. Sterling shall retain representative samples for sufficient time to allow delivery to and acceptance by BP's customers of such Product but in no event less than six months. Sterling shall provide BP access to such samples and all records maintained by Sterling with respect thereto pursuant to the provisions of Article 16 hereof. 9.2 Confirmatory tests of the quality of (i) Product shipments and (ii) Raw Materials provided by BP, if any, shall be performed at the time of delivery according to the procedures and schedules being used from time to time by Sterling and where requested, in the presence of an independent surveyor, at BP's expense, utilizing representative samples taken, (a) in the case of Product, from the intake flange of the ship, barge or other inland water or marine vessel and from the tanks thereof where appropriate, into which the Product is loaded, and (b) in the case of Raw Materials provided by BP, from the outlet flange of the ship, barge or other inland water or marine vessel and from the tanks thereof where appropriate, from which such Product is unloaded or other appropriate facility, in the case of pipeline delivery. The testing procedures and schedules described herein shall be subject to change from time to time by agreement of BP and Sterling. -15- 19 9.3 All product of the Facility (other than Co-Products) when tested according to the agreed procedures and schedules shall be conclusively presumed to constitute Product unless analysis of the sample retained pursuant to the provisions of Sections 9.1, 9.2 or 9.4 hereof shows the product not to have been Product. 9.4 BP shall have the right, at BP's expense, to have Product tested by independent third parties prior to shipment as Product hereunder, so long as any such testing does not materially interfere with Facility operations, and Sterling 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 Product. After such independent test, unless BP or its independent surveyor notifies Sterling prior to shipment of any such product that such product is not Product for purposes hereof, all such product shall be conclusively presumed to meet the Specifications and constitute Product. If such a notice is delivered to Sterling with respect to any such product which has not been shipped at the time such notice is given, such product shall not constitute Product hereunder, and BP shall have no obligation with respect to any such product; provided, however, that should Sterling object in writing to such notice with five Business Days after delivery of such objection, the parties will meet to resolve the question of whether such product is Product hereunder. If the parties fail to resolve the matter within 20 Business Days after the delivery of the original objection by Sterling to BP, either party may refer the matter for dispute resolution pursuant to Article 21 hereof. -16- 20 9.5 BP's sole remedy with respect to all product which is determined not to have constituted Product hereunder at the Point of Delivery shall be to require Sterling to, at Sterling's option, either (i) reprocess such product in the Facility at Sterling's sole cost and expense, (ii) exchange Product for such product or (iii) refund to BP the Purchase Price therefor, if previously paid. 9.6 BP agrees to be financially responsible for all product which is determined to have constituted Product sold to it hereunder at the Point of Delivery thereof, and the indemnity in Article 19 shall cover Damages arising from such Product. 9.7 Sterling shall have the right to refuse to accept delivery of raw materials which do not constitute Raw Materials hereunder, in addition to any other remedies it may have. Article 10 - Measurement 10.1 The unit of measurement of Product, Co-Products and Raw Materials (the "Unit of Measurement") shall be one pound (avoirdupois). All quantities given herein, unless otherwise expressly stated, are in terms of such Unit of Measurement. 10.2 Sterling shall maintain and operate the Measuring Equipment in accordance with customary practice in the industry and all applicable Laws. BP may, at its option and expense, install measuring equipment for checking the Measuring Equipment so long as such installation does not materially interfere with the operation of the Facility. 10.3 BP shall have the right, at BP's expense, to monitor and check the measurement of Product from the Facility into the tanks of the ship, barge or other inland water or marine vessel into which Product is loaded or delivered, in the presence of an independent surveyor, at BP's -17- 21 expense. Any reports and certifications resulting from such monitoring and checking will be made available by BP to Sterling on request. 10.4 The determination of the quantity of Product deliveries hereunder shall be made by taking the opening and closing inventory of Sterling properly calibrated static shore tanks before and after each shipment. 10.5 The determination of the quantity of Product and Co-Product for pipeline in-Plant transport shall be made by suitable meter(s) and any other necessary equipment designated by Sterling. The determination of the quantity of Raw Materials, if any, provided by BP hereunder, including by means of pipeline, shall be made in the same manner as set forth in Section 10.4 and this Section 10.5. 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 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 15 days after receipt thereof. Such records, charts and weight tickets shall be kept on file for a period of not less than 90 days. 10.7 If upon any test the Measuring Equipment is found to be inaccurate in the aggregate by 2% 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 of the time elapsed since the last successful test. Following any test, any Measuring Equipment found to be inaccurate -18- 22 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 delivered cannot be ascertained or computed from the readings thereof, the quantity 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 Product has been loaded onto (or Raw Materials unloaded from) 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, Sterling'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 Sterling within three weeks after receipt of notice of inaccurate measurement from BP's customer, but in no event greater than 90 days from the date of shipment. -19- 23 ***. Article 12 - Co-Products 12.1 The parties shall have the benefit of Co-Products produced at the Facility in proportion to the respective pounds of Product actually taken or retained, as the case may be, by such parties hereunder. *** In no event shall Co-Products be taken from or delivered off the Plant site unless they have first been converted to a form deemed safe for transport by both BP and Sterling. Article 13 - Capital Expenditures 13.1 Upon compliance by Sterling with the procedures contained in this Article 13 and the receipt by BP of an invoice therefor, BP shall ***. 13.2 On or before October 1 of each Contract Year, Sterling shall prepare and submit to BP a capital budget for the next succeeding Contract Year (the "Capital Budget") including (i) with respect to each proposed or continuing Capital Project for which the Capital Expenditures related thereto are anticipated to exceed *** in such Contract Year (each, a "Major Capital Project"), a description of such Major Capital Project in reasonable detail (including, to the extent known at such time, a brief description of such Capital Project, the estimated costs thereof and any anticipated benefits), and an estimate of the Capital Expenditures anticipated to be made in connection with such Major Capital Project during such Contract Year, and (ii) with respect to any proposed or continuing Capital Projects for which the Capital Expenditures related thereto are anticipated to be less than or equal to *** on an individual basis in such Contract Year ("Minor Capital Projects"), an estimate of the -20- 24 aggregate amount of Capital Expenditures anticipated to be made in connection with such Minor Capital Projects during such Contract Year (the "Minor Capital Projects Budget"). BP shall, on or before the next succeeding January 1, approve the Capital Budget in whole or in part; provided that Sterling has provided BP with the description of each Major Capital Project included in the Capital Budget, as required under this Section 13.2. Sterling may submit any portion of the Capital Budget which is not approved by BP for dispute resolution under Article 21 and, if the matter is ultimately submitted to arbitration, the arbitrators shall determine whether all or any portion of such disputed matter should have been approved by BP based upon whether or not the disputed matter would have been implemented by a prudent operator in like circumstances in the acrylonitrile manufacturing business. Prior to making any Capital Expenditure in connection with a Major Capital Project, Sterling shall, to the extent practicable under the circumstances, consult with BP with respect to such Major Capital Project and give BP the opportunity to propose alternative approaches to such Major Capital Project which it believes will reduce costs. In the event that Sterling and BP disagree on the approach to any Major Capital Project, Sterling shall be entitled to proceed with such Major Capital Project in such manner as it deems advisable, in its sole discretion, and the matter shall be referred for dispute resolution under Article 21 and, if the matter is ultimately submitted to arbitration, the arbitrators shall determine which of Sterling's and BP's respective approaches would have been pursued by a prudent operator in like circumstances in the acrylonitrile manufacturing business and estimate the cost of BP's approach. The costs and expenses of Sterling's approach shall be deemed to be Capital Expenditures hereunder if the arbitrators choose Sterling's approach. The estimated costs and expenses -21- 25 of BP's approach (as determined by the arbitrators) shall be deemed to be Capital Expenditures hereunder if the arbitrators choose BP's approach; provided, however, that Section 3.5 shall not apply to such approach or any savings which would have been realized had BP's approach been implemented. 13.3 Prior to commencement of a Major Capital Project included in the Capital Budget, Sterling shall furnish BP with the details of the proposed Capital Expenditure including (i) the anticipated cost of such proposed Major Capital Project, (ii) the anticipated benefits of such proposed Major Capital Project, (iii) the anticipated effect of such proposed Major Capital Project on one or more of the Variable Cost Component, the Fixed Cost Component, production rates of the Facility, safety and environmental and the quality of Product, and (iv) an estimated time-table for completion of such proposed Major Capital Project and the making of the Capital Expenditures associated therewith. Sterling shall not be required to furnish any of such information to BP as a condition to any disbursement from BP related to a Minor Capital Project; provided, however, that the aggregate amount of Capital Expenditures made during any Contract Year is less than or equal to the Minor Capital Projects Budget for such Contract Year. 13.4 Sterling may, at any time and from time to time, propose Major Capital Projects which are not included in the Capital Budget for the relevant Contract Year and/or Minor Capital Projects which will cause the aggregate amount of Capital Expenditures for the relevant Contract Year to exceed the Minor Capital Projects Budget; provided, however, that BP shall not be obligated to reimburse Sterling for any Capital Expenditures made in connection with any such Capital Project unless and until BP has approved such Capital Project. In the event -22- 26 that Sterling is required to make any Capital Expenditure on an emergency basis, BP will not thereafter unreasonably withhold or delay approval of the related Capital Project or reimbursement of such Capital Expenditures. Sterling will provide BP with notice of any Capital Expenditure made on an emergency basis as soon as practicable after it has made such Capital Expenditure. 13.5 Any Capital Project for which BP has reimbursed Sterling for a portion of the Capital Expenditures in accordance with the terms of this Agreement shall, unless otherwise agreed by the parties, be deemed to have a useful life of ten years and the Capital Expenditures associated therewith shall be amortized on a straight- line basis. If this Agreement is terminated (or rejected in connection with any bankruptcy proceeding) prior to the end of the useful life of any such Capital Project, Sterling shall, within 90 days after the date of such termination or rejection, ***. 13.6 BP shall be entitled to the benefit of any and all depreciation and amortization or expense deductions with respect to the portion of any Capital Expenditures for which BP has reimbursed Sterling and Sterling shall be entitled to the benefit of any and all depreciation and amortization or expense deductions with respect to the portion of any Capital Expenditures which has not been reimbursed by BP. Article 14 - Personnel Sterling shall at all times have sole authority with respect to all personnel matters involving the employees, consultants and third-party contractors at the Facility, including salaries, benefits, compensation, indirect personnel costs, manpower needs, training, insurance, labor matters, working -23- 27 hours, job responsibilities, bonding and all other employee, personnel-related and contracting matters. Article 15 - BP Security Interests; Insurance 15.1 Sterling has granted to BP, and hereby reaffirms such grant to BP of, a first security interest in and lien on the first production of Product and the receivables and proceeds therefrom generated from the sale of such Product from the Facility to the extent of BP's Right and a first security interest in and lien on the Third Reactor, including associated equipment, (subject to customary exceptions as to immaterial liens and charges) to secure the performance of Sterling's obligations under this Agreement and shall execute any necessary financing statement, mortgage and other documents to perfect such interests and shall cause any current lien holders on Product and the Third Reactor to subordinate their security interests and liens to the above security interests and liens of BP. Subject to the foregoing rights of BP and obligations of Sterling, Sterling shall have the right to pledge, mortgage and grant security interests in the Facility, Product, Co- Products and this Agreement as collateral security for loans or other financing. The documents granting BP a security interest and lien shall provide to BP appropriate access rights to the collateral should a Sterling Event of Default thereunder occur and be continuing. 15.2 During the term of this Agreement, insurance on the Facility and those parts of the Plant which serve the Facility shall be maintained by Sterling in types and amounts agreed to by BP and Sterling or, in the absence of any agreement, as described in Schedule 15.2; but BP and Sterling may each carry additional insurance, at its sole discretion and cost. Sterling shall make BP an additional insured under the policies evidencing such insurance coverages -24- 28 for liability purposes only. In the event of a fire, explosion, flood, hurricane or windstorm or other casualty resulting in the loss of the Facility or a substantial part thereof, and Sterling and BP cannot agree whether or not the Facility should be repaired, Sterling shall have the right to require the Facility to be repaired and that the insurance proceeds first be applied to the payment of all repair costs and the parties' obligations under this Agreement shall continue, but Sterling shall bear all costs of such repair in excess of the proceeds of insurance and shall have the right to fully depreciate such repair costs. Article 16 - Access to Information and Facility 16.1 For purposes of verifying any information pertinent to this Agreement, upon written request by BP from time to time, subject to the receipt by Sterling of appropriate confidentiality agreements, Sterling shall provide to an independent third party accountant selected by BP, at reasonable times during normal business hours, access to Sterling's books, records and accounts relating to this Agreement, except as such access may be prohibited by law or presently existing third party confidentiality agreements. Such independent third party accountant shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at BP's expense, which copies may be removed from the premises of Sterling and retained by such accountant, subject to the terms of any confidentiality agreement between Sterling and BP regarding use of such information. It is agreed that such accountant may report to BP only its conclusions resulting from such accountant's review of Sterling data, and nothing else. -25- 29 16.2 Sterling agrees to permit representatives of BP, at BP's expense, to have access to the Facility at reasonable times and on reasonable notice to obtain information relating to the present or proposed operations thereof to the extent related to this Agreement so long as such access does not violate existing third party confidentiality agreements or materially disrupt the operation of the Facility. BP agrees to furnish Sterling with copies of all information and audits obtained or prepared pursuant to the provisions of this Section. 16.3 For purposes of verifying any information pertinent to the Agreement, upon written request by Sterling from time to time, subject to the receipt by BP of appropriate confidentiality agreements, BP shall provide to an independent third party accountant selected by Sterling, at reasonable times during normal business hours, access to BP's books, records and accounts relating to this Agreement, except as such access may be prohibited by law or presently existing third party confidentiality agreements. Such independent third party accountant shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at Sterling's expense, which copies may be removed from the premises of BP and retained by such accountant, subject to the terms of any confidentiality agreement between BP and Sterling regarding use of such information. It is agreed that such accountant may report to Sterling only its conclusions resulting from such accountant's review of BP data, and nothing else. -26- 30 Article 17 - Representations and Warranties 17.1 Sterling represents and warrants to BP as follows: (a) Organization, Good Standing and Corporate Power. Sterling is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, 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 presently conducted, to enter into this Agreement and perform its obligations hereunder. (b) Authority Relative to Agreement. The execution, delivery and performance by Sterling of this Agreement have been duly and effectively authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Sterling and constitutes a legal, valid and binding obligation of Sterling enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar Laws affecting creditors' rights generally and general equitable principles. (c) 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 Sterling of, or constitute a default under, or result in the creation of any lien, charge or encumbrance (other than those set forth herein) upon, any asset of Sterling pursuant to any of the terms, conditions or provisions of (i) the Certificate of Incorporation or Bylaws of Sterling, (ii) any mortgage, deed of trust, lease, contract, agreement or other instrument to -27- 31 which Sterling is a party or by which Sterling 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 Sterling is subject, or by which Sterling may be bound or affected. (d) No Litigation or Agency Proceedings. As of the Effective Date, except as expressly set forth in writing delivered by Sterling to BP, there are no actions, suits, claims, investigations or proceedings, private or governmental, pending or to Sterling's knowledge threatened against Sterling 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 Sterling, or any past or present environmental, safety or health issue, matter or problem pertaining to the Plant or the Facility that would diminish the ability of BP to fully enjoy all of its rights and privileges under this Agreement. (e) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, STERLING HEREBY EXPRESSLY DISCLAIMS AND NEGATES (i) ANY REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, COMMON LAW, STATUTORY OR OTHERWISE) RELATING TO THE FACILITY, ANY PRODUCT OR CO-PRODUCT, THE THIRD REACTOR, 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 -28- 32 PURPOSE OR FITNESS OF DESIGN OR ENGINEERING, AND (ii) ANY IMPLIED REPRESENTATION OR WARRANTY RELATING TO ANY PRODUCT OR CO-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. 17.2 BP represents and warrants to Sterling as follows: (a) 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 and to enter into this Agreement and perform its obligations hereunder. (b) 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 and delivered by BP and constitutes a legal, valid and binding obligation of BP enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar Laws affecting creditors' rights generally and general equitable principles. (c) 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 -29- 33 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. (d) No Litigation or Agency Proceedings. As of the Effective Date, except as expressly set forth in writing delivered by BP to Sterling, there are no actions, suits, claims, investigations or proceedings, private or governmental, pending or to BP's knowledge threatened against 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. (e) EXCEPT AS OTHERWISE PROVIDED HEREIN, IN THE LICENSE AGREEMENT OR IN THE CATALYST SALES CONTRACT, BP HEREBY EXPRESSLY DISCLAIMS AND NEGATES (i) ANY REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, COMMON LAW, STATUTORY OR OTHERWISE) RELATING TO THE CATALYST, ANY RAW MATERIALS SUPPLIED BY BP, OR THE NEW TECHNOLOGY INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR ENGINEERING, -30- 34 AND (ii) ANY IMPLIED REPRESENTATIONS OR WARRANTY RELATING TO THE FOREGOING INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR ENGINEERING. Article 18 - Force Majeure 18.1 In the event of either party being rendered unable, wholly or in part, by Force Majeure to carry out its obligations under this Agreement (other than any obligation to make payment of any amount when due and payable hereunder), it is agreed that on such party giving notice and reasonably full particulars of such Force Majeure in writing to the other party within a reasonable time after the occurrence of the cause relied on, then the obligations of the party giving such notice, so far as they are affected by such Force Majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch. 18.2 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. 18.3 Notwithstanding the definitions of Force Majeure herein and the provisions of Section 18.1 hereof, the failure by either party to perform any of its obligations under this Agreement shall be deemed not to have been caused by circumstances reasonably outside its control if such failure results from breakage or accident to machinery, equipment, lines of pipe or other -31- 35 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. 18.4 In the event that for any reason maintenance, utilities, any pipelines or other services and resources at or servicing the Plant become limited, Sterling agrees that it will in good faith allocate such maintenance utilities, pipelines, services and resources between the Facility 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 Sterling of other chemicals produced in the Plant. Article 19 - Indemnification 19.1 Except as otherwise provided herein, Sterling, from and after the Effective Date, shall defend, indemnify and hold harmless BP, its affiliates, their respective present and former directors, officers and stockholders and their respective heirs, executors, personal representatives, administrators, successors and assigns ("BP Indemnified Persons") 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 Sterling 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 Sterling at or in connection with the Facility, the Plant, or any Product (prior to the time risk of loss has passed to BP) or any Co-Product or arising out of Spills or Releases (whether occurring before or after the termination -32- 36 of this Agreement), except and to the extent that (i) such Damages arise out of or relate to any theory of product liability, including those covering the manufacture, sale, introduction into commerce or use of Product for which risk of loss has passed to BP, (ii) such Damages arise out of Spills or Releases that are attributable to the acts, omissions, or default of BP, (iii) such Damages are payable to an employee of BP or (iv) such Damages arise out of or result from a material breach by BP of its obligations under this Agreement or the gross negligence, fraud or willful misconduct of any BP Indemnified Person. 19.2 Except as otherwise provided herein, BP, from and after the Effective Date, shall defend, indemnify and hold harmless Sterling, its affiliates, their respective present and former directors, officers and stockholders and their respective heirs, executors, personal representatives, administrators, successors and assigns ("Sterling Indemnified Persons") from and against any and all Damages suffered or incurred by Sterling 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 Facility, the Plant, any Product or any Co-Product or arising out of Spills and Releases (which Spills and Releases have occurred during the Initial Term or any Additional Term) to the extent that the Damages arising out of such Spills and Releases are attributable to the acts, omissions or default of BP, including Damages arising from or relating to any theory of product liability, including those covering the manufacture, sale, introduction into commerce or use of Product on and after the time risk of loss has passed to BP, excepting any Damages -33- 37 (i) payable to employees of Sterling or (ii) arising out of or resulting from a material breach by Sterling of its obligations under this Agreement or the gross negligence, fraud or willful misconduct of any Sterling Indemnified Person. 19.3 BP and Sterling 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 (each, a "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 shall relieve the other party from any liability in respect of such Claim to the extent such other party is prejudiced by the failure to receive timely notice. For purposes of this Section 19.3, receipt by a party of notice of any demand, assertion, claim, action to proceedings (judicial, administrative or otherwise) by or from any Person (other than the other party to this Agreement) ("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 19.3. Any notice pursuant to this Section 19.3 shall set forth all information respecting such 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 19. 19.4 For purposes of this Article 19, 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 19 and the term "Indemnified Party" as to a particular Claim or Third Party Action -34- 38 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 19. 19.5 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 20 days from the date of mailing to Indemnifying Party of notice by Indemnified 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 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 19.5, 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 Indemnifying Party. At any time after the commencement of defense of any such Third Party Action, Indemnifying Party may request Indemnified Party -35- 39 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 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. 19.6 If requested by Indemnifying Party, Indemnified Party agrees to provide reasonable cooperation to Indemnifying Party and its counsel in contesting any Third Party Action which Indemnifying Party elects to contest or, if appropriate, in making any counter-claim against the third party taking the Third Party Action, or any cross-complaint against any other Person not a party hereto, but Indemnifying Party will reimburse Indemnified Party for any expenses incurred by it in so cooperating. 19.7 Indemnified Party agrees to afford Indemnifying Party and its counsel the opportunity to be present at, and to participate in, conferences with all Persons taking Third Party Action against Indemnified Party or conference with representatives of or counsel for such Persons. 19.8 Indemnifying Party shall promptly pay Indemnified Party any amount due under this Article 19 and reimburse each Indemnified Party for all reasonable expenses (including reasonable counsel fees) for which Indemnified Party is entitled to be indemnified hereunder as they are -36- 40 incurred by such Indemnified Party. Upon judgment, determination by a governmental authority having jurisdiction, settlement or compromise of any Third Party Action, Indemnifying Party shall promptly pay on behalf of Indemnified Party, and/or to Indemnified Party in reimbursement of any amount theretofore required to be paid by it pursuant to any judgment, determination by a governmental authority having jurisdiction, settlement or compromise, the amount so determined by such judgment, determination by such governmental authority, settlement or compromise, and all other Damages of Indemnified Party with respect thereto, unless in the case of a judgment or determination by such governmental authority an appeal is made from such judgment or determination; provided, however, that if Indemnifying Party desires to appeal from an adverse judgment or determination by such governmental authority, then Indemnifying Party shall post and pay the cost of the security or bond to stay execution of such judgment or determination pending appeal. Upon the payment in full by Indemnifying Party of the amounts described in this Section 19.8, Indemnifying Party shall succeed to the rights of Indemnified Party, to the extent such rights are not waived in settlement, against the third party in such Third Party Action. 19.9 In no event shall either party be liable to the other for damages other than Damages. -37- 41 Article 20 - Assignment 20.1 Except where all or substantially all of the assets of Sterling are sold or otherwise transferred to or Sterling is merged with or acquired by another Person, Sterling shall not assign its rights or obligations under this Agreement without BP's prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned. 20.2 BP may assign its rights or delegate its duties and obligations hereunder to any Person without the consent of Sterling provided that: (a) Such assignee is 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 days after a request by Sterling, BP executes a written guarantee of such assignee's timely performance of BP's obligations hereunder, containing provisions usually and customarily contained in guarantees of financial performance in the United States. 20.3 Notwithstanding any assignment of any of its rights or any 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 such assignee hereunder (the "Obligations"). On default by any such assignee, Sterling 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. -38- 42 20.4 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. 20.5 Notwithstanding the foregoing, Sterling may assign its rights hereunder as collateral to financial institutions, but any such assignment shall be subject to BP's security interests and liens referred to in Article 15. Article 21 - Dispute Resolution and Arbitration 21.1 In the event of a dispute, difference or question arising out of or relating to this Agreement or the License Agreement which the parties are unable to resolve within 30 days, the parties agree to promptly refer such dispute to a committee comprised of two members appointed by Sterling (General Manger Acrylonitrile and Technical Service Manager Acrylonitrile) and two members appointed by BP (Manager of Planning and Development and Director of Acrylonitrile Engineering and Technology) ("Dispute Resolution Committee"). If the Dispute Resolution Committee does not unanimously approve a resolution within 30 days, the parties shall promptly advise their respective chief executive officers ("CEOs") of their inability to reach agreement through informal discussion within the required time limits, and shall within ten days of the passing of such time limits, submit the dispute to their respective CEOs for resolution. In the event that the CEOs fail to amicably resolve the dispute within 30 days of such referral, the dispute shall be settled by binding arbitration as set forth below. 21.2 All disputes, differences or questions arising out of or relating to this Agreement or the License Agreement (including those as to the validity, interpretation, breach, violation or termination hereof) which are not resolved pursuant to Section 21.1 above shall be finally -39- 43 determined and settled pursuant to arbitration in Houston, Texas, by three arbitrators, one to be appointed by Sterling, one to be appointed by BP, and a neutral arbitrator to be appointed by such two party-appointed arbitrators. The neutral arbitrator shall be an attorney and shall act as chair-person. 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. The panel of arbitrators shall be empowered to impose sanctions, permit or order depositions and discovery and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure and applicable law. With respect to any matter subject to arbitration hereunder, each party agrees that all discovery activities shall be expressly limited to matters directly relevant to such matter and the panel of arbitrators shall be required to fully enforce this requirement. 21.3 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 20 days after the receipt of the Arbitration Notice, or (ii) the two arbitrators appointed by or on behalf of the parties as contemplated in Section 21.2 hereof fail to appoint a neutral arbitrator as hereinabove contemplated within 20 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 Sterling 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. -40- 44 21.4 The arbitration proceeding shall be conducted in the English language in Houston, Texas, in accordance with the Rules of the American Arbitration Association. Each of the parties may, by summary proceedings (e.g., a plea in abatement or motion to stay further proceedings) bring any action in any court of competent jurisdiction to (i) compel arbitration of any dispute, difference or question arising out of or related to this Agreement or the License Agreement, (ii) obtain interim measures of protection pending arbitration of any dispute, difference or question and/or (iii) enforce any decision of the arbitrators, including the final award. A determination, award or other action shall be considered the valid action of the arbitrators if supported by the affirmative vote of two or three of the three 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 Sterling and BP. The arbitration award shall be final and conclusive and shall receive recognition, and judgment upon such award may be entered and enforced in any court of competent jurisdiction. Article 22 - Confidentiality and Intellectual Property 22.1 During the term of this Agreement and thereafter, except for the New Technology and other technology subject to the License Agreement, all information relating to the business, products, assets and finances of Sterling shall be treated as proprietary to Sterling and as confidential by BP and shall not be disclosed by BP or its officers, employees, agents, affiliates or representatives to any third party, or used for the benefit of, BP or any other Person except as otherwise specifically provided herein. At the termination of the Initial -41- 45 Term or any Additional Term, the obligations as to confidentiality herein shall continue for a period of five years from the date of such termination. 22.2 During the term of this Agreement and thereafter, except for the New Technology and other technology subject to the License Agreement, all information relating to the business, products, assets and finances of BP shall be treated as proprietary to BP and as confidential by Sterling and shall not be disclosed by Sterling or its officers, employees, agents, affiliates or representatives to any third party, or used for the benefit of, Sterling or any other Person except as otherwise specifically provided herein. At the termination of the Initial Term or any Additional Term, the obligations as to confidentiality herein shall continue for a period of five years from the date of such termination. Article 23 - Defaults; Failures; Remedies 23.1 If a Sterling Event of Default shall occur and be continuing, BP may, at its option, by written notice to Sterling, declare Sterling to be in default hereunder ("Declaration of Sterling Default"); provided, however, that a Declaration of Sterling Default shall not relieve or otherwise discharge Sterling 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 23.3 hereof otherwise prevents or restricts Sterling from fully performing its obligations under this Agreement. 23.2 If a BP Event of Default shall occur and be continuing, Sterling 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. -42- 46 23.3 Subject to Article 24 hereof, upon a Declaration of Sterling Default, BP may, in addition to the remedies available to it at law or in equity, by written notice to Sterling, require Sterling to permit, and Sterling shall permit, at BP's risk but at Sterling'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 Facility and those parts of the Plant that serve the Facility for the purpose of seeking a solution to the cause of the Sterling Event of Default or failure, and Sterling shall cause its employees to cooperate with BP's said employees while present in the Facility; provided, however, that BP shall indemnify and hold Sterling harmless pursuant to the provisions of Article 19 hereof from Damages which Sterling 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 Sterling's operations at the Facility or those parts of the Plant that serve the Facility. BP's access to the Facility and those parts of the Plant that serve the Facility shall continue until the Facility has operated so as to enable Sterling to comply with its obligations hereunder for one Month. BP shall thereupon withdraw its employees from the Facility. After withdrawing such employees, BP shall not have any rights pursuant to the provisions of this Section 23.3 of access to the Facility for a period of 30 days beginning on the date of such withdrawal. Once BP has withdrawn its employees, (i) if Sterling fails to operate the Facility during such 30 day period following such withdrawal by BP in such a manner as to enable Sterling to comply with its obligations under this Agreement, BP shall have the right to require Sterling to permit BP's employees to have access to the Facility and those parts of the Plant which serve the Facility immediately upon the expiration of such 30 day period, or (ii) if Sterling operates the Facility throughout such 30 day period following such -43- 47 withdrawal by BP in such a manner as to enable Sterling to comply with its obligations under this Agreement, BP shall have no right to require Sterling to permit BP's employees to have such access until a subsequent Declaration of Sterling Default, if any. 23.4 Subject to Article 24 hereof, upon a BP Event of Default, Sterling may, by written notice to BP, cease all further sales and deliveries of Product and/or Co-Product to BP under this Agreement until such time as BP complies with its obligations hereunder and may likewise exercise any and all other remedies available to it at law or in equity. Article 24 - Survival The representations, warranties, covenants and agreements contained herein, together with all indemnity and payment obligations of any party hereto owing to the other party (or its directors, officers or stockholders) 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. Article 25 - Miscellaneous 25.1 Notices. Any notice provided for by this Agreement and any other notice, demand or communication which any party may wish to send to the other party shall be in writing and either delivered by (i) regular, overnight or registered or certified mail (return receipt requested), with first class postage prepaid, (ii) hand delivery, (iii) facsimile or electronic mail transmission or (iv) overnight courier service, to the parties at the following addresses or numbers: -44- 48 (a) Sterling: Sterling Chemicals, Inc. 1200 Smith Street Houston, Texas 77002 Attention: General Manager - Acrylonitrile Fax No.: (713) 654-9551 E-Mail: PRostek@Sterlingchemicals.com (b) BP: BP Chemicals Inc. 4440 Warrensville Center Road Warrensville Heights, Ohio 44128-2837 Attention: Vice President Marketing Fax No.: (216) 586-3838 E-Mail: smithdb@bp.com Any address, number, or name specified above may be changed by a notice given by the addressee to the other parties in accordance with this Section. Any notice, demand or other communication shall be deemed given and effective (1) in the case of a notice sent by regular mail, on the date actually received by the addressee, (2) in the case of a notice sent by registered or certified mail, on the date receipted for (or refused) on the return receipt, (3) in the case of a notice delivered by hand, when personally delivered, (4) in the case of a notice sent by facsimile or electronic mail, upon transmission subject to telephone confirmation of receipt, and (5) in the case of a notice sent by overnight mail or courier service, the date delivered at the designated address, in each case given or addressed as aforesaid. The inability to deliver because of changed address of which no notice was given, or the rejection or other refusal to accept any notice, demand or communication, shall be deemed to be the receipt of the notice, demand or communication as of the date of such inability to deliver or the rejection or refusal to accept. -45- 49 25.2 Controlling Law. All questions concerning the validity, operation and interpretation of this Agreement and the performance of the obligations imposed upon the parties hereunder shall be governed by the laws of the State of Texas. 25.3 Modifications and Waivers. No 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. No failure or delay on the part of either of the parties hereto in exercising any right, power or privilege hereunder, and no course of dealing between the parties hereto, shall operate as a waiver of any right, power or privilege hereunder. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. No notice to or demand on either of the parties hereto in any case shall entitle such party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of either of the parties hereto to any other or further action in any circumstances without notice or demand. 25.4 Entire Agreement. This Agreement 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. 25.5 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 -46- 50 remain in force, provided that the purpose of this Agreement can be effected. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement is deemed to be a valid and binding agreement enforceable in accordance with its terms. 25.6 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. 25.7 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. 25.8 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. 25.9 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 Sterling and BP. Except for the sale or transfer of Product and Co-Product to BP as contemplated hereby and the granting of the security interests and liens pursuant to Article 15, nothing in this Agreement shall be deemed to convey to BP any legal or beneficial ownership of the Facility. 25.10 Wire Funds, 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 -47- 51 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 either party is required to pay or reimburse the other party upon receipt of invoice or otherwise when no due date for payment is specifically provided, payment shall be due ten Business Days after receipt of invoice or other statement, and shall be made in the manner set forth above. Executed as of the Effective Date. BP Chemicals Inc. By: /s/ Gary C. Greve ------------------------------ Gary C. Greve, President Sterling Chemicals, Inc. By: /s/ Frank P. Diassi ------------------------------ Frank P. Diassi, Chairman of the Board -48- 52 EXHIBIT A Definitions Additional Costs and Expenses means all additional direct and indirect costs and expenses incurred by Sterling as a result of the failure by BP to take the Minimum Annual Contract Quantity in any Contract Year or during the one- year period following a termination date, including increased costs of production of Product, increased incremental costs incurred in the operation of the Facility and increased raw materials usages, utilities and other costs and expenses. Additional Term is defined in Section 2.1 hereof. Agreement means this Amended and Restated Production Agreement. Arbitration Notice is defined in Section 21.2 hereof. Baseline Raw Materials Usage means ***. BP is defined in the introductory paragraph hereof. BP Event of Default means (i) the failure by BP to perform any of its financial obligations hereunder or under the License Agreement which failure shall continue for a period of ten days after notice from Sterling, (ii) the failure of BP to perform any other covenants or agreements hereunder or under the License Agreement to a material extent which failure continues for a period of 30 days after receipt of written notice thereof by BP from Sterling or (iii) the inaccuracy in any material respect of any representation or warranty made by BP in this Agreement or in the License Agreement; provided, however, that (a) with respect to an event described in (i) or (ii) above, if BP has performed any such obligation, covenant or agreement or made any such payment prior to the expiration of such ten or 30 day period, as applicable such failure or default shall not constitute a BP Event of Default; and (b) a BP Event of Default shall not be deemed to have occurred if BP is -1- 53 challenging in good faith in accordance with Article 21 hereof a Declaration of BP Event of Default, unless such Declaration of BP Event of Default is found by a court or arbitration to be effective. BP Facilities is defined in Section 3.5(a) hereof. BP Indemnified Persons is defined in Section 19.1 hereof. BP Net Unrecouped Investment Amount shall mean the ***. BP's Share is defined in Section 12.1 hereof. Business Day means 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, Cleveland, Ohio or New York, New York are obligated or permitted by law to close. Capital Budget is defined in Section 13.2 hereof. Capital Expenditures means expenditures (whether treated as capital or expense for financial reporting or tax purposes) incurred to (i) acquire or replace any asset for use on the Facility, (ii) add to (or improve) any asset in the Facility or (iii) comply with environmental, safety or other Laws applicable to the Facility or its operation. Such expenditures shall be classified in accordance with Sterling's usual and customary practices as it applies them to its own expenditures. Capital Project means a project which requires Capital Expenditures. ***. ***. CEOs is defined in Section 21.1 hereof. Claim is defined in Section 19.3 hereof. Contract Year means a period of 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 -2- 54 subsequent year during the Initial Term and, if applicable, any Additional Term. 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, any Additional Term, until the end of the Initial Term, or, if applicable, any Additional Term, 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. Co-Products means hydrogen cyanide (HCN), acetonitrile (ACN) and derivatives thereof and any other materials reasonably agreed to by the parties. Cross Termination Right is defined in Section 2.1 hereof. Damages means 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, business interruption and other losses, including any such matters arising from Spills or Releases but otherwise excluding consequential, incidental, special, punitive or indirect damages. Day means 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 is defined in Section 23.2 hereof. Declaration of Sterling Default is defined in Section 23.1 hereof. Delivery, Shipment and Storage Instructions is defined in Section 5.1 hereof. Dispute Resolution Committee is defined in Section 21.1 hereof. Effective Date is the date of execution hereof by BP and Sterling. -3- 55 Estimated Delivery, Shipment and Storage Instructions is defined in Section 5.1 hereof. Facility means any and all equipment of Sterling which is located at the Plant and which is dedicated to the production of acrylonitrile, including the equipment listed on Schedule A-1; provided, however, that the term Facility shall not include any off-site utilities (e.g., nitrogen, fuel gas, plant air, instrument air and electricity) or any equipment dedicated to loading dock operations. Fixed Cost Component means, ***. Fixed Costs means any and all actual fixed costs incurred, sustained or paid by Sterling in connection with the production, sale or delivery of Products included within the categories listed on Schedule A-2; provided, however, that ***. For purposes of the definition of Fixed Costs, actual fixed costs shall be calculated in substantially the same manner as that for the fourth quarter of fiscal year 1997 attached hereto as Schedule A-2. Force Majeure means any acts of God, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, high water, washouts, arrests, restraints of government and people, civil disturbances, explosions, breakage or accidents to machines, equipment or lines of pipe or property, freezing of wells, machines, lines of pipe or property, partial or entire failure of any machinery, equipment or lines of pipe or other property, the occurrence of any Spills or Releases and any regulatory, civil or criminal action with respect thereto, strikes, work stoppages, labor difficulties, other industrial disturbances, acts of public enemy, transportation difficulties, sabotage, material shortages, difficulties in obtaining materials through regular channels of supply, governmental controls (including price and allocation controls), regulations or actions, embargoes or, without limitation, any other causes or contingencies (whether or not of the same nature as those hereinbefore specified) beyond the reasonable control of the party claiming Force -4- 56 Majeure, provided the party prevented from performing gives prompt notice to the other party and takes all reasonable actions within its power to remove the basis for nonperformance and after doing so resumes performance as soon as possible. Indemnified Party is defined in Section 19.4 hereof. Indemnifying Party is defined in Section 19.4 hereof. Initial Term is defined in Section 2.1 hereof. Laws means all laws, statutes, rules, regulations, ordinances, orders, writs, injunctions or decrees and other pronouncements having the effect of law of any governmental authority. License Agreement means the License Agreement between BP and Sterling dated as of April 15, 1988. Major Capital Project is defined in Section 13.2 hereof. Maximum Annual Contract Quantity means, ***. Maximum Monthly Contract Quantity means, ***. Maximum Quarterly Contract Quantity means, ***. Measuring Equipment means shore tanks or other appropriate equipment for measuring deliveries to be loaded into or from barges or ships, scales for measuring deliveries to be loaded into or from trucks or rail cars and meters and other appropriate equipment for measuring deliveries into or from pipelines. Minimum Annual Contract Quantity means, *** . Minimum Quarterly Contract Quantity means, ***. Minor Capital Projects is defined in Section 13.2 hereof. Minor Capital Projects Budget is defined in section 13.2 hereof. -5- 57 Month means 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. Net Margin means ***. New Technology is defined in Section 1 of the License Agreement and includes BP's improvements. Obligations is defined in Section 20.3 hereof. Original Agreement is defined in the recitals hereof. Other Raw Materials means *** . Person means any individual, firm, corporation, trust, association, company, limited liability company, joint stock company, partnership, joint venture, governmental authority or other entity or enterprise. Plant means the entire Texas City, Texas petrochemical plant owned by Sterling. Point of Delivery is defined in Article 8 hereof. Prime Rate means the prime rate of interest announced from time to time by The Chase Manhattan Bank, N.A. or any successor thereto. Product means acrylonitrile meeting the Specifications. Project means the pipe-up, instrumentation and completion of the Third Reactor and alterations to the recovery and purification section to accommodate the Third Reactor and the New Technology. Purchase Price means the purchase price payable by BP for Product as provided in Article 7 hereof. -6- 58 Quarter means (i) 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 and (ii) during any Contract Year which is not a calendar year, the 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 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. Rated Capacity means ***. The Rated Capacity, once so established, shall remain in effect until further agreement of the parties or until proven to be materially inaccurate. Raw Materials means propylene meeting the specifications set forth on Exhibit B and ammonia meeting the specifications set forth on Exhibit C. Right means BP's exclusive right, during the term of this Agreement, to purchase Product produced at the Facility in the amount of up to *** as provided in Article 4 hereof. Shutdown Reserve means an account for the Facility 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 consistent with the expected major shutdown schedule. BP and Sterling will review and agree on the Shutdown Reserve and corresponding major shutdown schedule by October 1 of each year. Once agreed, the amount for "Shutdown Reserve" in the Fixed Costs shall be revised so that the sum of the monthly charges in current dollars during the interval between major shutdowns will equal the total. If, during the period prior to the major shutdown, additions or deletions of major (non-routine) items to or from the reserve account may be mutually agreed upon. After completion -7- 59 of a major shutdown, total costs will be reconciled against the Shutdown Reserve account. Any difference will then be used to recalculate the next Shutdown Reserve Account. Specifications means the acrylonitrile specifications, attached hereto as Exhibit D, as the same may be changed from time to time by written agreement between BP and Sterling. Spills or Releases means any emission, discharge, release or threatened release of pollutants, contaminants, or hazardous substances or toxic materials or wastes into or upon 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 Facility, or the production, delivery, storage, shipment, sale, resale or use, disposal or transportation of Product, Co-Products, or feedstocks, raw materials, wastes or other materials used in or resulting from the production of Product or Co-Products. Start-Up Date means November 26, 1989. Sterling is defined in the introductory paragraph. Sterling Event of Default means (i) the failure by Sterling to perform any of its financial obligations hereunder or under the License Agreement which failure shall continue for a period of ten days after notice from BP, (ii) the failure of Sterling to perform any other covenants or agreements hereunder or under the License Agreement to a material extent which failure continues for a period of 30 days after receipt of written notice thereof by Sterling from BP or (iii) the inaccuracy in any material respect of any representation or warranty made by Sterling in this Agreement or the License Agreement; provided, however, that (a) with respect to an event described -8- 60 in (i) or (ii) above, if Sterling has performed any such obligation, covenant or agreement or made any such payment prior to the expiration of such ten or 30 day period, as applicable, such failure or default shall not constitute a Sterling Event of Default; and (b) a Sterling Event of Default shall not be deemed to have occurred if Sterling is challenging in good faith in accordance with Article 21 hereof a Declaration of Sterling Event of Default, unless such Declaration of Sterling Event of Default is found by a court or arbitration to be effective. Sterling Indemnified Persons is defined in Section 19.2 hereof. Sterling's Share is defined in Section 12.1 hereof. *** is defined in Section 3.4 hereof. Termination Notice is defined in Section 2.2 hereof. Third Party Action is defined in Section 19.3 hereof. Third Reactor means the reactor in place in the Facility that, prior to April 15, 1988, was not connected by piping within the Facility and was incomplete and which the parties acknowledge and agree has a useful life of ten years from November 26, 1989. Unit of Measurement is defined in Section 10.1 hereof. Variable Cost Component means, ***. Variable Costs means any and all actual variable costs incurred, sustained or paid by Sterling in connection with the production, sale or delivery of Products or Co-Products hereunder included within the categories listed on Schedule A-3; provided, however, that in no event shall the costs of Raw Materials which are provided by BP pursuant to Section 7.5 hereof be deemed to be Variable Costs hereunder. -9- 61 EXHIBIT B PROPYLENE SPECIFICATIONS
PROPERTY SPECIFICATION SHELL TEXAS CITY -------- ------------- ----- ----- ---- MIN MAX --- --- Propylene, Wt. % 92 92.0 MIN 602.045 Propane, Wt. % -- 8 8.0 MAX 602.045 C4+, ppm Wt. -- 1000 602.046 C2H4, ppm Wt. (Ethylene) -- 200 100 MAX 602.045 Butylenes, ppm. Wt. -- 125 125 MAX 602.046 Methylacetylene, ppm. Wt. -- 100 602.045 Propadiene, ppm Wt. -- 100 602.045 Acetylene, ppm Wt. -- 100 602.045 Sulfur, ppm Wt. -- 10 3 MAX 602.027 Water, ppm Wt. -- 60 60 MAX No Method H2, O2, N2, CO, CO2 -- 100 100 MAX 602.036 Total, ppm, Wt. Methanol, ppm Wt. -- 100 No Method DMF, ppm Wt. -- 0.3 No Method Amines, as MEA, ppm Wt. -- 5 No Method Ethane & Lighter H.C., Wt. % 0.4 MAX Butane & Heavier H.C., ppm Wt. 1000 MAX Butadiene, ppm Wt. 20 MAX
62 EXHIBIT C AMMONIA SPECIFICATIONS
TEXAS CITY PROPERTY SPECIFICATION METHOD NO. -------- ------------- ------ --- MIN MAX --- --- Ammonia, Wt. % 99.5 -- 602.247 Water, Wt. % 0.2 0.5 602.246 Oil, ppm Wt. -- 10 TOC
63 EXHIBIT D ACRYLONITRILE SPECIFICATIONS
TEXAS CITY PROPERTY SPECIFICATION METHOD NO. -------- ------------- ---------- ***
64 SCHEDULE 3.5(e)(i) STERLING ACTUAL COSTS *** 65 SCHEDULE 15.2 INSURANCE *** 66 SCHEDULE A-1 Facility *** 67 SCHEDULE A-2 EXAMPLE OF FIXED COSTS *** 68 SCHEDULE A-3 EXAMPLE OF VARIABLE COSTS *** 69 SCHEDULE A-4 BP NET UNRECOUPED INVESTMENT AMOUNT *** EX-10.3 11 AMENDED AND RESTATED PRODUCITON AGREEMENT - 8/1/98 1 EXHIBIT 10.3 *** OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN SEPARATELY FILED WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST*** ================================================================================ SECOND AMENDED AND RESTATED PRODUCTION AGREEMENT between BP CHEMICALS INC. and STERLING CHEMICALS, INC. effective as of August 1, 1996 ================================================================================ -1- 2 SECOND AMENDED AND RESTATED PRODUCTION AGREEMENT TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 2 INITIAL AND ADDITIONAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE 3 SUPPLY OF ACETIC ACID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 4 DELIVERY, SHIPMENT AND STORAGE INSTRUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 5 CHANGES IN SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE 6 PAYMENT FOR ACETIC ACID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE 7 PRODUCT OWNERSHIP, DELIVERIES AND SHIPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 8 TESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 9 MEASUREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 10 STORAGE OF ACETIC ACID BY COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 11 OPERATION OF UNIT AND RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 12 SHUT-DOWNS OF THE UNIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 13 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-i- 3 ARTICLE 14 ACCESS TO THE UNIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 ARTICLE 15 METHANOL SUPPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 16 SPECIAL EXPENDITURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE 17 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE 18 PERSONNEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 19 REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE 20 REPRESENTATIONS AND WARRANTIES OF BP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 21 PARTICIPATION IN NEGOTIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 22 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 23 SEMIANNUAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 24 FINANCIAL ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 25 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 26 CONFIDENTIALITY AND INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ARTICLE 27 DEFAULTS; FAILURES; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE 28 NOTICE OF CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-ii- 4 ARTICLE 29 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 30 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE 31 ADDITIONAL RIGHTS AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ARTICLE 32 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 ARTICLE 33 ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE 34 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-iii- 5 SECOND AMENDED AND RESTATED PRODUCTION AGREEMENT EXHIBITS Cost of Sales A Fixed Costs B Methanol Specification C Acetic Acid Specifications D Legal Description of the Land of the Unit E Variable Costs F Summary of Insurance Coverage G Sample Profit Calculations After 2006 H Blend Gas Credit I
-iv- 6 SECOND AMENDED AND RESTATED PRODUCTION AGREEMENT THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF HARRIS ) THIS SECOND AMENDED AND RESTATED PRODUCTION AGREEMENT executed this ___ day of ____________, 1997, but effective as of August 1, 1996, 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 (as defined below) acquired on August 1, 1986 a petrochemical plant located in Texas City, Texas which contains facilities for the production of acetic acid; and WHEREAS, effective August 1, 1986 the Company executed and delivered to BP (as defined below) a special warranty deed with vendor's lien whereby the Company conveyed to BP fee simple determinable title in and to the Unit, which fee interest ceased, determined and reverted to the Company on August 1, 1996; and WHEREAS, on August 1, 1986 BP leased the Unit to the Company for the production of acetic acid pursuant to a Lease and Production Agreement dated August 1, 1986 ("1986 Agreement") 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 the 1986 Agreement; and -1- 7 WHEREAS, on August 1, 1986 pursuant to the 1986 Agreement 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 was granted the exclusive right to acquire all acetic acid produced by the Company in the Unit in consideration of the payment of an extension fee; and WHEREAS, the 1986 Agreement has heretofore been amended on October 9, 1986, November 17, 1988, December 12, 1988, December 13, 1988, and September 8, 1993; and WHEREAS, on August 8, 1994, the parties hereto (a) restated the 1986 Agreement to reflect all prior amendments, and (b) amended the 1986 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 the 1986 Agreement was extended through July 31, 2016, composed of two ten (10) year terms and (ii) BP was granted the exclusive right to acquire acetic acid during the period from August 1, 1996 through July 31, 2016 ("1994 Restated Agreement"); and WHEREAS, the Initial Term expired and title to the Unit reverted to the Company on August 1, 1996; and WHEREAS; the parties hereto wish to restate the 1994 Restated Agreement again, and also to further amend the 1994 Restated Agreement to among other things: (a) ***. (b) modify the 1994 Restated Agreement to reflect changes in the operation of the Unit resulting from (i) completion by Praxair of the Praxair Facility, (ii) completion of the Methanol Facility and (iii) the completion of DB III; and (c) reflect the expiration of the Initial Term; 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 -2- 8 be derived therefrom, the parties hereto agree that the 1994 Restated Agreement, be and hereby is further amended as provided herein, such amendments to be effective as of the Amendment Effective Date (except as otherwise provided herein), and that the 1994 Restated Agreement be and hereby is 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 17.8(a) hereof. Acetic Acid Technology Agreement: That certain Acetic Acid Technology Agreement dated as of the date hereof but effective as of August 1, 1986 among BPCL, BP and the Company. Additional Rail Cars: As defined in Section 7.2 hereof. Affiliate: Affiliate of a party shall mean a corporation, at least 50% of the voting securities of which is owned directly or indirectly by such party; a corporation which owns directly or indirectly at least 50% of the voting stock of such party; a corporation, at least 50% of the voting securities of which is owned directly by a corporation which owns directly or indirectly at least 50% -3- 9 of the voting stock of such party; or any other entity controlled, controlled by or under common control with such party. After Acquired Assets: As defined in Section 2.1(b) hereof. Agreement: This Second Amended and Restated Production Agreement, as the same may be further amended from time to time pursuant to the provisions hereof. 1986 Agreement and 1994 Restated Agreement: As defined in the recitals hereof. Amendment Effective Date: August 1, 1996. Arbitration Notice: As defined in Section 25.1 hereof. 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, and its successors and assigns. 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) 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, (iv) the failure by either of BP or BPCL to perform any of its financial obligations or -4- 10 any other covenants or agreements under the Acetic Acid Technology Agreement to a material extent which failure continues for a period of thirty (30) days after receipt of written notice by BP from the Company, and/or (v) if BP shall (a) 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 any jurisdiction; or any such petition or application shall be filed or any such proceedings shall be commenced against BP and BP 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 BP or approving the petition or application in any such proceeding, and such order shall remain in effect for more than ninety (90) days, and (b) as a result thereof, any such trustee, custodian or receiver shall take any action having any of the effects set forth in subsections (i), (ii) and/or (iv) above; provided, however, that with respect to an event described in (i), (ii) or (iv) above, if BP (or in the case of (iv) above, and/or BPCL) or any such trustee, custodian or receiver 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 (a) acquire any asset for use on the Unit, or (b) add to, modify, replace 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, -5- 11 (iv) operational safety of the Unit is improved, or compliance with legal requirements is achieved or maintained, and/or (v) the product quality or reliability 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 30.3 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, (ii) the inaccuracy in any material respect of any representation or warranty made by the Company in this Agreement, (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, and/or (iv) if the Company shall (a) 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 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 -6- 12 the petition or application in any such proceeding, and such order shall remain in effect for more than ninety (90) days, and (b) as a result thereof, any such trustee, custodian or receiver shall take any action having any of the effects set forth in subsections (i) and/or (iii) above; provided however, with respect to an event described in (i) above, if the Company or any such trustee, custodian or receiver has performed any such obligation, covenant or agreement prior to the expiration of such thirty (30) day period, such failure to perform shall not constitute a Company Event of Default. Company Taxes: Subject to the provisions of Section 34.2(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, transporting, purchasing, handling, selling or reselling, 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. -7- 13 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 and reasonable allocations of BP's direct marketing support costs. DB III: A debottlenecking project for the purpose of increasing Acetic Acid production capacity to 770,000,000 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, but excluding any and all of the foregoing arising from or related to the acetic acid process or acetic acid technology licensed by BPCL to the Company. 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 27.2 hereof. Declaration of Company Default: As provided in Section 27.1 hereof. Delivery, Shipment and Storage Instructions: As defined in Section 4.1 hereof. Effective Date: The Purchase Closing Date. Estimated Delivery, Shipment and Storage Instructions: As defined in Section 4.1 hereof. First Additional Term: As defined in Section 2.1(a) hereof. First Extension Fee: As defined in Section 2.1(c) hereof. -8- 14 Fixed Costs: All actual fixed costs incurred, sustained or paid in connection with the production, sale or delivery of Acetic Acid, Unit Product and syn-gas, including but not limited to the items listed in Exhibit B; provided that fixed costs invoiced to Sterling by Praxair as a result of the monthly production of carbon monoxide will be considered Fixed Costs under this Agreement and will be included therein. Initial Term: As defined in Section 2.1(a) hereof. Major Capital Item: As defined in Section 6.6(c) hereof. Methanol: Methanol meeting the specification set forth on Exhibit C attached hereto. Methanol Facility: That certain facility owned by the Company and located at the Plant that, through a combination of new construction and increases in capacity, has been reconstructed by the Company and BP pursuant to the Methanol Production Agreement and from which BP will purchase methanol for delivery to the Company pursuant to this Agreement. Methanol Measuring Equipment: For Methanol delivered by barge, shore tanks located at the Plant for measuring deliveries of Methanol. For Methanol delivered from the Methanol Facility, the meter that measures the flow of Methanol into the Unit. Methanol Production Agreement: That certain Methanol Production Agreement dated September 26, 1996 by and between the Company and BP, as same may be amended from time to time pursuant to the terms thereof. Minor Capital Item: As defined in Section 6.6(c) hereof. 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. -9- 15 Note: That certain Promissory Note dated August 1, 1986 in the original principal amount ***, 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. 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 7.1 hereof. Praxair: Praxair Hydrogen Supply, Inc., a Delaware corporation, and its successors and assigns. Praxair Facility: That certain facility for the production of carbon monoxide, blend gas, hydrogen and steam owned by Praxair and located within the Plant on a site leased by the Company to Praxair, from which the Company has contracted to purchase its requirements of carbon monoxide, hydrogen and blend gas for the Unit and for the Company's oxo-alcohol unit. Praxair Product Supply Agreement: That certain Product Supply Agreement dated as of May 15, 1995 by and between the Company and Praxair, as same may be amended from time to time pursuant to the terms thereof. Profit: ***. -10- 16 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 -11- 17 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 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 7.2 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 of BP to acquire 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 2.1(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 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 a Fixed Cost. 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 ambient air, surface water, ground water or land, or subsurface strata or otherwise -12- 18 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 6.6(b) hereof. Third Party Action: As defined in Section 30.3 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; provided, that from and after the shutdown of the syn-gas unit in connection with the Startup (as that term is defined in the Praxair Product Supply Agreement) of the Praxair Facility, those items of the syn-gas unit to be used as part of the Methanol Facility shall cease to be a part of the Unit for all purposes. Unit Capacity: As defined in Section 6.6(b) hereof. Unit of Measurement: As defined in Section 9.1 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. -13- 19 Variable Costs: The actual variable costs incurred in the production of acetic acid including but not limited to the items listed on Exhibit F and the variable costs invoiced to the Company by Praxair but excluding the variable costs associated with the syn-gas unit. ARTICLE 2 INITIAL AND ADDITIONAL TERMS 2.1 (a) The term of 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 (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, the lease provisions of the 1994 Restated Agreement terminated and on August 1, 1996 title to the Unit reverted to the Company 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, became 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 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"). -14- 20 (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 equal consecutive monthly installments of *** each, in immediately available funds by wire transfer to the Company's account at such 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 second Month of the First Additional Term (September 3, 1996) and each of the remaining monthly payments shall be due and payable on the first Business Day of each Month thereafter, with the last payment due on August 1, 2006. As consideration for the grant by the Company to BP of the Right for the Second Additional Term, BP shall not be 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 6.6(b), and paid in accordance with Section 6.6(c), of this Agreement. 2.2 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 *** -15- 21 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. 2.3 Upon the termination of this Agreement, BP will own the Acetic Acid and Unit Product in inventory at the Unit and will pay to the Company within thirty (30) days the Company's share of the Profit on such inventory, calculated using a sales price equal to the average price of all sales by BP during the month following such termination. ARTICLE 3 SUPPLY OF ACETIC ACID 3.1 On the terms and subject to the conditions of this Agreement, commencing on August 1, 1986 BP hereby agrees to receive and pay for and the Company agrees to produce 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 3.4 hereof. -16- 22 3.2 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. 3.3 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. 3.4 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. ARTICLE 4 DELIVERY, SHIPMENT AND STORAGE INSTRUCTIONS 4.1 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, -17- 23 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"). 4.2 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. 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. ARTICLE 5 CHANGES IN SPECIFICATIONS 5.1 The Company shall produce Acetic Acid in accordance with established procedures and methods of manufacture. 5.2 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 -18- 24 makes such change, the Company shall indemnify and hold BP harmless pursuant to the provisions of Article 30 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 30 hereof from Damages which the Company may suffer or incur by reason of such change. 5.3 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 30 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 Company harmless pursuant to the provisions of Article 30 hereof from Damages which the Company may suffer or incur by reason of such unsuitable Acetic Acid. 5.4 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 30 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 Unit Product notwithstanding such failure, BP shall indemnify and hold the Company harmless pursuant to the -19- 25 provisions of Article 30 hereof from Damages which the Company may suffer or incur by reason of such failure. 5.5 The Specifications shall not be changed unless agreed to in advance in writing by BP and the Company. ARTICLE 6 PAYMENT FOR ACETIC ACID 6.1 Effective as of October 1, 1995, the charge for all Acetic Acid delivered to BP hereunder during each Month of each Contract Year shall be the sum of the following: (a) ***. (b) ***. (c) ***. 6.2 BP shall pay the charge therefor to the Company after receipt of invoice therefor in the following manner: (a) ***. (b) ***. (c) ***. 6.3 The Company shall, on or before the fifth Business Day of each Month, render to BP -20- 26 (a) an invoice for the preceding Month showing the quantity of Acetic Acid delivered; beginning and ending Acetic Acid inventories, the production quantities of hydrogen, carbon monoxide, blend gas; the carbon monoxide usage in Acetic Acid; the value of Acetic Acid (including the value of the Methanol contained therein) shipped to the Company's acrylonitrile unit; the current price of methanol, carbon dioxide and natural gas; and the amount of the Variable Costs 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. 6.4 As soon as is practicable after the end of each Month, the Company shall submit to BP an invoice showing an adjustment to the Fixed Costs based on the difference between the estimated Fixed Costs paid by BP and referred to in Section 6.2(a) hereof and the actual Fixed Costs due for that Month based on any adjustments thereto necessary to fully reimburse the Company for all Fixed Costs for the Month. The net sum due to the Company or any credit due to BP resulting from the items referred to in Section 6.4 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). 6.5 The Company and BP shall cooperate in investigating, evaluating and implementing mutually agreeable methods to reduce the Variable Costs and the Fixed Costs; provided, however, that nothing contained in this Section 6.5 shall be construed to apply or pertain to any Capital Project. -21- 27 6.6 (a) For the period of time from December 12, 1988 through the end of the First Additional Term within ninety (90) Days after the end of each Contract Year, BP shall pay to the Company in cash an amount equal to *** of any Profit for such Contract Year as an additional fee hereunder. (b) Commencing August 1, 2006 through the termination of this Agreement, the Company's share of Profit will be increased during the period from *** to the quotient, expressed as a percentage, obtained as a result of the application of the following formula: Sterling Profit Share (%) = *** where "Unit Capacity" is the rated daily output of the Unit multiplied by 325 days in millions of pounds on August 1, 2006. BP shall pay *** to the Company on the first day of each January, April, July and October (*** per Contract Year) during this period as an advance of the Company's share of Profit for such Contract Year. (The period from August 1, 2006 through December 31, 2006, and the period from January 1, 2016 through July 31, 2016, shall each be considered a Contract Year, with payments by BP to the Company during such periods being prorated. For example, during the period from August 1, 2006 through December 31, 2006, a *** payment shall be made on August 1, 2006 and a payment of *** shall be made on November 1, 2006 [***, the quotient obtained by dividing 61 (the number of days remaining in 2006) by 365]. If for any Contract Year of twelve months the Company's share of Profit is less than ***, the difference between *** and the amount of the Company's share of Profit for such Contract Year ("Surplus Payment") shall accumulate from year to year. (For Contract Years of less than 12 months in which the payments by BP to the Company have been prorated, the amount of the Company's share of Profit used to calculate the amount of any -22- 28 Surplus Payment shall also be prorated on the same basis as the payments by BP to the Company during the Contract Year were prorated.) If at the beginning of any Contract Year a Surplus Payment accumulation exists and the amount of the Company's share of Profit at the end of such year (calculated in the manner provided by Section 6.6(b)) exceeds *** , BP shall be entitled to reduce the amount of the Company's share of Profit for such year (but not below *** for Contract Years of 12 months, with such amount prorated for Contract Years having less than 12 months) until the sum of the accumulated Surplus Payments has been reduced to zero. Any accumulated Surplus Payment which has not been paid by December 31, 2016 shall be forgiven by BP. Notwithstanding the provisions above, if in any Contract Year of 12 months the Profit is less than ***, BP shall be entitled to take a credit equal to the difference between the *** advanced and the total Profit for the Contract Year. BP shall take such credits against the *** per quarter advance payments to the Company in the Contract Year immediately following. (In this manner, BP shall not be required to pay out a sum that exceeds that total Profit for a Contract Year.) The difference between cash received by the Company (the *** advanced, less the subsequent credits to BP) and the Company's calculated Profit Share shall be accumulated as Surplus Payment for future recovery by BP as described above. Example calculations of the Company's share of Profit are shown on Exhibit H. (c) During the Second Additional Term the Company will be reimbursed by BP for all costs of Minor Capital Items and the costs of Major Capital Items will be shared in accordance with the Profit sharing ratios in effect during the period. For these purposes, a "Major Capital Item" shall be a Capital Expenditure of ONE HUNDRED THOUSAND -23- 29 AND NO/100 DOLLARS ($100,000.00) U.S. or more, and a "Minor Capital Item" shall be a Capital Expenditure of less than ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00) U.S. 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. Expenditures for any major project that would achieve beneficial operation after August 1, 2006, but that would require fund disbursement prior to August 1, 2006, shall be shared in accordance with the Profit sharing ratios to become effective on August 1, 2006 without regard to the impact such major project may have on Unit Capacity after August 1, 2006. 6.7 If BP has reason to dispute the accuracy of any invoice submitted to it by the Company, other than invoices for the Fixed Costs or the Variable Costs, BP will pay that part of the invoice which is undisputed in accordance with the provisions of this Article 6 and, after such dispute has been 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 Costs for any Month or any Variable Costs for any Month, BP will pay an amount at least equal to the Fixed Costs or the Variable Costs, as the case may be, paid by BP to the Company for the preceding Month in accordance with the provisions of Sections 6.2 and 6.3 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. -24- 30 6.8 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 6. The Company shall provide BP access to such records and data pursuant to the provisions of Section 22.1 hereof. 6.9 The suspension of the obligations of the Company hereunder to produce and supply Acetic Acid by reason of a force majeure event shall not suspend BP's obligation to make the payments required hereunder. ARTICLE 7 PRODUCT OWNERSHIP, DELIVERIES AND SHIPMENTS 7.1 Title to all Acetic Acid and Unit Product shall automatically vest in BP from the moment of initial production, and all Acetic Acid and Unit Product produced in the Unit shall at all times remain one hundred percent (100%) owned by BP. Solely for purposes of establishing BP's title to and ownership of all Acetic Acid and Unit Product produced in the Unit, the Company shall execute and deliver to BP an information UCC financing statement and/or other necessary documents in a form reasonably acceptable to BP and any renewals thereof as reasonably requested by BP to reflect such BP ownership of Acetic Acid and Unit Product as a matter of public record. The Point of Delivery of any Acetic Acid for purpose of offsite shipment 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. Risk of loss shall pass to BP at such flange or perimeter boundary line, as the case may be (irrespective of -25- 31 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 7.2 hereof, the Company shall be in control and possession of the Acetic Acid produced 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 produced hereunder and responsible for any damage or injury caused thereby after risk of loss with respect thereto has passed to BP. 7.2 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 16 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 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 -26- 32 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. 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. 7.3 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 4.2 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 7.3. If the Company, in arranging for the delivery and transportation of Acetic Acid pursuant to this Section 7.3, 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 7.3. -27- 33 ARTICLE 8 TESTING 8.1 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 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 22.1 hereof. 8.2 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 8.1 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 22.1 hereof. 8.3 All product made pursuant to the provisions of Article 5 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 8.1 or 8.2 hereof shows the product not to have been Acetic Acid. -28- 34 8.4 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. ARTICLE 9 MEASUREMENT 9.1 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. 9.2 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. 9.3 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 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. 9.4 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. -29- 35 9.5 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 9.7 hereof shall apply. 9.6 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. 9.7 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 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 -30- 36 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. 9.8 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 10 STORAGE OF ACETIC ACID BY COMPANY 10.1 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 -31- 37 thereto are subject to reimbursement under this Agreement or included as a part of the Fixed Costs, repair the same and place it back in service as soon as is practicable. ARTICLE 11 OPERATION OF UNIT AND RELATED MATTERS 11.1 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 and (ii) does not have the effect of altering the Specifications unless agreed between the Company and BP. 11.2 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 its other units at the Plant, and the Company shall have no liability hereunder based on any higher standard of care. 11.3 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. 11.4 Effective for the Company's fiscal year beginning October 1, 1991, the Company will prepare a detailed annual maintenance budget for the Unit, which will cover the period October 1 to September 30 on an evergreen basis. This budget will be available for review by BP 45 days prior to each October 1 and will be agreed to by both parties by September 15 of each year. If there is a -32- 38 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 upon reasonable notice from BP. 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 maintenance to the extent and in the manner provided in Article 22 of this Agreement. ARTICLE 12 SHUT-DOWNS OF THE UNIT 12.1 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. 12.2 Upon reasonable notice from BP, the Company shall temporarily cease or reduce 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 and reasonable supporting detail as BP's auditors may reasonably require for any 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 -33- 39 from such cessation or reduction; provided that the Company shall have a duty to reasonably mitigate any such additional costs and expenses and to share with BP any benefit in excess of such additional costs that the Company may obtain or derive as a result of such cessation or reduction of production. 12.3 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 Costs 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 Costs; 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, (X) all amounts due or that become due to Praxair under the Praxair Production Agreement, whether as a result of the shutdown or otherwise (net of any benefit derived by the Company in connection with the shutdown pursuant to the Praxair Production Agreement) and (Y) 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 (including but not limited to the First Extension Fee) nor the other covenants and agreements of the parties hereunder. -34- 40 12.4 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 and BP shall meet to decide whether or not to repair the Unit. If the Company and BP agree to repair the Unit, the Unit shall be repaired and the parties' obligations under this Agreement shall continue, irrespective of whether or not the proceeds of insurance are sufficient to pay all costs of such repair. Any costs of such repair in excess of the proceeds of insurance shall be shared by the parties as Capital Expenditures in accordance with their then applicable Profit sharing ratios. If both parties agree not to repair the Unit, this Agreement shall terminate whereupon the Company shall retain all insurance proceeds and purchase BP's undepreciated book basis in the After Acquired Assets, plus ten (10) percent, pursuant to Section 2.2 hereof; provided, however, that such payment shall not exceed an amount equal to the product obtained by multiplying the insurance proceeds of such After Acquired Assets by (a) during the First Additional Term, *** or (b) during the Second Additional Term, *** minus the Company's share of Profit calculated in accordance with Section 6.5(b) hereof and the covenants and obligations referred to in Articles 26 and 29 hereof shall survive such termination as set forth therein. If the Company and BP cannot agree whether or not the Unit should be repaired, either party shall have the right to require the Unit to be repaired and that the insurance proceeds be first applied to the payment of all repair costs and the parties' obligations under this Agreement shall continue, but the party requiring the repair shall bear all costs of such repair in excess of the proceeds of insurance and shall have the right to fully depreciate such excess repair costs. 12.5 The Company will prepare a detailed shutdown reserve ("SDR") account for the Unit and a corresponding schedule for major shutdowns and update these on a regular basis. The period -35- 41 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 account and corresponding major shutdown schedule by October 1 of each year. Once agreed, the amount for "Shutdown Reserve" in the Fixed Costs 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 total. If, during the period prior to the major shutdown, additions or deletions of major (non-routine) items to or from the reserve account may be mutually agreed upon. After completion of a major shutdown, total costs will be reconciled against the SDR account. Any difference will then be used to recalculate the next SDR. In the event that there is a significant change to the major shutdown schedule, the parties may agree to modify SDR charges 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 account to the extent and in the manner provided in Article 22 of this Agreement. ARTICLE 13 INSURANCE 13.1 As of the Amendment Effective Date, the Company will obtain the insurance coverage for the benefit of the Company and BP as described on Exhibit G attached here to in respect of the Unit. The Company shall obtain adequate insurance coverage for those parts of the Plant which serve the Unit. In the event that any parts of the Plant which serve the Unit 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. The Company shall advise BP whenever any insurance policy or area of -36- 42 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 not 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 Costs as appropriate. The Company and BP shall jointly review and compare current insurance coverages with those specified in Exhibit G, on an annual basis. BP shall be named an additional insured with respect to the Unit on the policies as specified in Exhibit G and no action to drop coverage for BP or increase insurance policy deductibles shall be taken by the Company without prior approval by BP. 13.2 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 Costs shall be paid by BP on receipt by BP of an invoice. ARTICLE 14 ACCESS TO THE UNIT 14.1 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. 14.2 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 -37- 43 Company harmless pursuant to the provisions of Article 30 hereof from Damages which the Company may suffer or incur by reason of its admission of such BP personnel to the Unit. ARTICLE 15 METHANOL SUPPLY 15.1 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 supply Acetic Acid as required hereby. The Company shall provide adequate facilities to receive, handle and store, on behalf of BP for use in the Unit, Methanol delivered by pipeline from the Methanol Facility or Methanol delivered by sea in up to 6,000 metric ton shipments. Title to all Methanol supplied by BP for use in the Unit shall at all times remain one hundred percent (100%) in BP. Solely for purposes of establishing BP's title to and ownership of such Methanol supplied by BP for use in the Unit, the Company shall execute and deliver to BP an information UCC financing statement and/or other necessary documents in a form reasonably acceptable to BP and any renewals thereof as reasonably requested by BP to reflect such BP ownership of Methanol supplied by BP as a matter of public record. 15.2 For all Methanol delivered pursuant to Section 15.1 by means other than pipeline from the Methanol Facility, the cost of Methanol consumed shall be the price payable by BP from time to time to its major Methanol supplier together with any reasonable costs incurred by BP in connection with its purchase of Methanol from such supplier, including, without limitation, the costs of delivery from the said supplier's terminal to the Company. For all Methanol delivered pursuant to Section 15.1 by pipeline from the Methanol Facility, the cost for the Methanol consumed in the Unit shall be the price of Methanol as reported for the -38- 44 Month of delivery in the Transaction Index of the Methanol and Derivatives Pricing Table contained in the Methanol and Derivatives Monthly Business Report (published monthly by Petrochemical Consultants International), appropriately adjusted to reflect the FOB Gulf Coast Price for Methanol available to large volume users. For any Month, Methanol consumption shall be equal to the amount measured by the Methanol Measuring Equipment. 15.3 For all Methanol delivered pursuant to Section 15.1 by any means other than pipeline from the Methanol Facility, the point of delivery 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 15.1 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 delivered by BP pursuant to Section 15.1 hereof and responsible for any damage or injury caused thereby until risk of loss with respect thereto has passed to the Company. 15.4 The Methanol produced in the Methanol Facility and purchased by BP for use in the Unit shall be transferred by the Company by pipeline to the Unit. ARTICLE 16 SPECIAL EXPENDITURE 16.1 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 -39- 45 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 16.1. 16.2 A project and Special Expenditure not contemplated by Section 16.1 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 16.1 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; (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 25 hereof. -40- 46 ARTICLE 17 CAPITAL EXPENDITURES 17.1 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 17. Each Contract Year during the Initial Term and the First Additional Term BP shall recover payment of the Company's share of Capital Expenditures (determined in accordance with the parties then applicable Profit sharing ratios) by deducting the Company's share of Capital Expenditures for that year from the Company's share of Profit, if any, for that year. In the event the Company's share of Capital Expenditures is greater than the Company's share of Profit for any Contract Year, the Company shall pay BP the difference within ninety (90) days after the end of each such Contract Year. 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 17. 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. During the Second Additional Term, 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. 17.2 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 -41- 47 budget will be discussed at the October Semiannual 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. 17.3 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 the Variable Costs, the Fixed Costs, the Acetic Acid production volume and the Specifications, for authorization and disbursement of funds in accordance with the procedures in Sections 17.4 through 17.6, inclusive, hereof. 17.4 Further proposed Capital Projects may be added to the capital budget described in Section 17.2 by the Company at any time during a Contract Year, provided that the approval of BP has first been obtained. 17.5 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 *** U.S., submit the same to BP for approval. 17.6 The effective date of any changes in the Specifications will be the date the Capital Project in question is completed. The actual results arising from a Capital Project shall be determined by BP and the Company no later than six (6) Months after such completion date. If BP and the Company agree that the actual results therefrom differ from those anticipated in Section 17.2 hereof, the items referred to above in this Section 17.6 shall be adjusted to take account of the actual results obtained. -42- 48 17.7 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. 17.8 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 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 -43- 49 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 during the Initial Term. (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 17.8. ARTICLE 18 PERSONNEL 18.1 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 19 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to BP as follows: 19.1 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 -44- 50 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. 19.2 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. 19.3 No Conflict with Other Instruments or Proceeding. Neither the execution and delivery of this Agreement, nor the performance or compliance with the terms and conditions hereof conflict with, or will result in a breach by the Company of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any asset of the Company pursuant to any of the terms, conditions or provisions of (i) the Certificate of Incorporation or Bylaws of the Company, (ii) any mortgage, deed of trust, lease, contract, agreement or other instrument to which the Company is a party by which the Company may be bound or affected, or (iii) any writ, order, judgment, decree, statute, ordinance, regulation or any other restriction of any kind or character, to which the Company is subject, or by which the Company may be bound or affected. 19.4 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. -45- 51 19.5 No Warranties. 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. ARTICLE 20 REPRESENTATIONS AND WARRANTIES OF BP BP represents and warrants to the Company as follows: 20.1 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. 20.2 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 -46- 52 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. 20.3 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, 20.4 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 21 PARTICIPATION IN NEGOTIATIONS 21.1 Upon any amendment to or the expiration from time to time of any of the supply contracts in effect as of the Amendment Effective Date pursuant to which natural gas or carbon monoxide are or are to be supplied to the Unit, and before entering into any new supply contracts -47- 53 for natural gas or carbon monoxide for the Unit, at BP's request the Company shall permit BP to participate in (i) the negotiations which the Company conducts with such suppliers and (ii) the resolution of any disputes relating to the supply of natural gas or carbon monoxide 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 22 ACCESS TO INFORMATION 22.1 Upon written request by BP from time to time, the Company shall provide to BP, its attorneys, accountants and other representatives, subject to the confidentiality provisions of Section 26.1 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 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 Section 26.1 hereof. 22.2 The Company agrees to permit representatives of BP, at BP's expense for purposes other than the Acetic Acid Technology Agreement, to have (i) access to the Unit at reasonable times -48- 54 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 as 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 22.2. The Company shall make its employees and other representatives available to BP for purposes other than the Acetic Acid Technology Agreement 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. 22.3 Upon written request by the Company from time to time, BP shall provide to the Company and its attorneys, accountants and other representatives subject to the confidentiality provisions of Section 26.1 hereof, at reasonable times during normal business hours, access to BP's books, records and accounts relating to the calculation of Profit, Cost of Sales, Methanol supplies, cost savings and the performance of BP's obligations under this Agreement. The Company shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at the Company's expense, which copies may be removed from the premises of BP and retained by the Company, subject to the confidentiality provisions of Section 26.1 hereof. -49- 55 ARTICLE 23 SEMIANNUAL MEETINGS 23.1 At the Semiannual Meetings, the representatives of BP and the Company shall review such matters as may be determined as appropriate by the parties. 23.2 By no later than September 30 of each Contract Year, the Company shall deliver to BP a proposed operating plan (including proposed Special Expenditures, 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 24 FINANCIAL ASSURANCES 24.1 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 -50- 56 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 25 ARBITRATION 25.1 All disputes, differences or questions arising out of or relating to this Agreement (including, without limitation, those as to the validity, interpretation, breach, violation or termination hereof) shall, at the written request of either party, be finally determined and settled pursuant to arbitration at Houston, Texas, by three (3) arbitrators, one (1) to be appointed by the Company, one (1) by BP, and a neutral arbitrator to be appointed by such two (2) party-appointed arbitrators. The neutral arbitrator shall be an attorney and shall act as chairman. Any such arbitration may be initiated by a party by written notice ("Arbitration Notice") to the other party specifying the subject of the requested arbitration and appointing such party's arbitrator for such arbitration. 25.2 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 25.1 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. -51- 57 25.3 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. 25.4 The validity of the foregoing provisions of this Article 25 shall, to the fullest extent practicable, be governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. ARTICLE 26 CONFIDENTIALITY AND INTELLECTUAL PROPERTY 26.1 During the term of this Agreement and thereafter, all information relating to the business, products, assets and finances of the Company or BP or their respective Affiliates, including, but not limited to financial statements and related books and records, minutes books, personnel records, list of customers and potential customers, lists of suppliers and potential suppliers, price and cost data, computer programs, computer hardware, reports and similar information and records, excluding, however, all information provided in connection with and covered by the Acetic Acid Technology Agreement, shall be treated as confidential to the Company or BP or their respective Affiliate, as the case may be, and as confidential by BP or the Company, as the case may -52- 58 be, and shall not be disclosed directly or indirectly by or for 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. 26.2 The rights and obligations of BP, BPCL and the Company with respect to confidentiality and intellectual property relating to acetic acid process or acetic acid technology licensed by BPCL to the Company are set forth in the Acetic Acid Technology Agreement. ARTICLE 27 DEFAULTS; FAILURES; REMEDIES 27.1 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 27.3 hereof otherwise prevents or restricts the Company with respect thereto. 27.2 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. 27.3 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 -53- 59 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 30 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 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 27.3 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. 27.4 Forthwith upon a Declaration of BP Default, the Company may, by written notice to BP, (i) cease all further production of Acetic Acid for BP under this Agreement, (ii) commence -54- 60 production of Acetic Acid using Methanol other than that which is provided by BP hereunder, at which time title to any Acetic Acid or Unit Product produced shall not automatically vest in BP as set forth in Article 7 hereof, and (iii) sell Acetic Acid or Unit Product produced following a Declaration of BP Default to third parties until such time as BP complies with its obligations hereunder. Upon a Declaration of BP Default pursuant to clause (iv) of the definition of "BP Event of Default", the Company may, by written notice to BP terminate this Agreement. ARTICLE 28 NOTICE OF CERTAIN EVENTS 28.1 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 *** 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 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. 28.2 In the event the Company enters serious negotiations with a third party with respect to the sale or transfer of 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 -55- 61 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. 28.3 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 29 SURVIVAL 29.1 The representations, warranties, covenants and agreements contained in Article 30 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. ARTICLE 30 INDEMNIFICATION 30.1 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 -56- 62 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. 30.2 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. 30.3 BP and the Company each agree that promptly after any of its officers becomes aware of the discovery of facts giving rise to a claim by it for indemnification hereunder ("Claim"), such party will provide notice thereof in writing to the other party. The failure of either party to so notify the other party of a Claim, where such failure results in insufficient time being available to permit the party receiving the notice or its counsel to defend against such Claim, shall relieve the other party from any liability in respect of such Claim which it may have otherwise had, but shall not relieve such party from any liability it may have hereunder. For purposes of this Section 30.3, 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 -57- 63 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 30.3. Any notice pursuant to this Section 30.3 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 30. 30.4 For purposes of this Article 30, 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 30 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 30. 30.5 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 by Indemnified Party of notice to 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 employed by Indemnifying Party, but Indemnified Party -58- 64 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 30.5, 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. 30.6 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 cross complaint against any other person or entity not a party hereto, but -59- 65 Indemnifying Party will reimburse Indemnified Party for any expenses incurred by it in so cooperating. 30.7 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 authorities, taking Third Party Action against Indemnified Party or conference with representatives of or counsel for such persons or entities. 30.8 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 30. ARTICLE 31 ADDITIONAL RIGHTS AND LIABILITIES 31.1 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 a Company Event of Default. ARTICLE 32 FORCE MAJEURE 32.1 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 -60- 66 such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch. 32.2 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, (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; and (iii) the failure of Praxair to deliver to the Company carbon monoxide, blend gas and hydrogen at the times and in the quantities required by -61- 67 the Praxair Product Supply Agreement; provided the Company uses reasonable diligence to resolve such failure to deliver pursuant to the Praxair Product Supply Agreement. 32.3 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. 32.4 Notwithstanding the provisions of Section 32.2 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 33 ASSIGNMENTS 33.1 Except in a transaction pursuant to which all or substantially all of the assets of the Plant 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 as collateral to any third party providing financing to the Company or sell, assign or transfer the Unit to any person without -62- 68 the prior written consent of BP. A public offering of securities by the Company shall not be deemed an assignment hereunder. 33.2 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. 33.3 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 the holder of a collateral assignment of this Agreement 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. 33.4 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. -63- 69 ARTICLE 34 GENERAL 34.1 Noncompetition Agreement. The Company covenants and agrees with BP that, during the First and Second Additional Terms and so long as no BP Event of Default has occurred and is continuing, the Company will not produce or sell acetic acid other than pursuant to this Agreement without BP's consent, which will not be unreasonably withheld; 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 Agreement. 34.2 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 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. (c) BP shall be responsible for and pay any state or local property tax attributable to the Acetic Acid and Unit Product produced hereunder and to the Methanol provided by BP hereunder, which taxes shall be considered part of BP Cost of Sales. 34.3 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 -64- 70 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: General Manager, Acetic Acid 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 34.3. 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 communication, shall be -65- 71 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. 34.4 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. 34.5 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. 34.6 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. 34.7 Entire Agreement. This Agreement, including the other instruments herein provided for or referred to, and that certain letter dated as of the date of execution of this Agreement between BP and the Company regarding the purchase of inventory supersede all other agreements, oral or written, heretofore made with respect to the subject matter hereof and the transactions contemplated hereby, and contain the entire agreement of the parties. 34.8 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 -66- 72 purpose of this Agreement can be effected. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement is deemed to be a valid and binding agreement enforceable in accordance with its terms. 34.9 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. 34.10 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. 34.11 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. 34.12 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. 34.13 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. The Company expressly does not by the terms of this Agreement sell, transfer or assign to BP any title or interest in the Unit or any of the Company's other assets or properties other than Acetic Acid when and as provided herein. 34.14 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 -67- 73 have been given, by check to the payee in the manner and at the address set forth above. Whenever in this Agreement BP is required to pay or reimburse the Company upon receipt of invoice or otherwise when no due date for payment is specifically provided, payment shall be due ten (10) Business Days after receipt of invoice or other statement, and shall be made in the manner set forth above. 34.15 No Known Disputes. As of the date of this Amended and Restated 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. 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: /s/ G.C. Greve ----------------------------------------- G. C. Greve President Endorsed By: /s/ G.R. Hunt ------------------------------------- G. R. Hunt Business General Manager, Acetyls BP Chemicals Ltd. STERLING CHEMICALS, INC., a Delaware corporation By: /s/ Robert W. Roten ------------------------------------- Robert W. Roten President -68- 74 EXHIBIT A BP Cost of Sales Cost of Sales shall include, but not be limited to, the following items of direct expenditure: SALARIES, ASSOCIATED DIRECT EMPLOYMENT AND TRAVEL AND ENTERTAINMENT COSTS For each of the following positions, the actual percentage of direct man-years dedicated to the Texas City acetic acid operations shall be estimated on an annual basis. (The 1994 man-year allocations are shown in parenthesis.) Salaries associated to direct employment costs (excluding incentive schemes) and travel and entertainment for each individual shall be included based on these percentages.
Position Location - -------- -------- *** Warrensville, OH *** Warrensville, OH *** Texas City, TX *** Texas City, TX Local Local *** Warrensville, OH
OFFICE ACCOMMODATION, EQUIPMENT, AND DIRECT BUSINESS SUPPORT COSTS Business Support costs shall be allocated to Cost of Sales, based on the ratio of direct man-years (from the list above) to the total comparable man-years (i.e. V.P., Business and Product Managers, Sales Managers, Sales Representatives and Customer Service personnel) included in the Acetyls, Solvents and Petrochemicals Department. (For 1994, *** ) The percentage thus determined shall be applied to the total actual Acetyls, Solvents and Petrochemicals Department cost for business support areas, including, but not limited to, those listed below: -1- 75 *** DIRECT EXPORTING COSTS Agents' Commissions (e.g. Marubeni, Japan 3%) Commissions (Internal BP) on sales to South/Central America Duties, Taxes as applicable Direct Costs of Independent Surveyors The above costs to be advised on a provisional quarterly basis, together with any identified additional costs. Formal costs to be advised on an annual basis for profit sharing calculations. -2- 76 EXHIBIT B FIXED COSTS *** -1- 77 EXHIBIT C Methanol Specification *** -1- 78 EXHIBIT D Acetic Acid Specifications *** -1- 79 EXHIBIT E Legal Description of the Land of the Unit -1- 80 TRACT 1 ACETIC ACID SITE METES AND BOUNDS DESCRIPTION 77,729 S.F. OUT OF A 237.0539 ACRE TRACT NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 77,729 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72, James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence S. 00 degrees 23' 20" E - 949.19'; Thence N 89 degrees 36' 40" E - 1,069.61' to the POINT OF BEGINNING of the herein described parcel; THENCE N 0 degrees 23' 20" W - 439.50' to a point; THENCE N 89 degrees 36' 40" E - 284.60' to a point; THENCE S 0 degrees 23' 20" E - 141.50' to a point; THENCE S 89 degrees 36' 40" W - 198.90' to a point; THENCE S 0 degrees 23' 20" E - 298.00' to a point; THENCE S 89 degrees 36' 40" W - 125.70' to the POINT OF BEGINNING and containing 77,729 square feet. Compiled By: Prejean & Company Inc., Surveying and Mapping July 30, 1986 Page 1 81 TRACT 2 SYNGAS UNIT METES AND BOUNDS DESCRIPTION 96,295 S.F. OUT OF A 237.0539 ACRE TRACT OUT OF THE NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 96,295 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72, James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence S. 00 degrees 23' 20" E - 112.22'; Thence N 89 degrees 36' 40" E - 1,523.94' to the POINT OF BEGINNING of the herein described parcel; THENCE S 89 degrees 13' 04" E - 228.21' to a point for corner; THENCE S 01 degrees 28' 23" E - 252.06' to a point for corner; THENCE S 88 degrees 44' 19" E - 112.24' to a point for corner; THENCE S 02 degrees 12' 19" W - 113.22' to a point for corner; THENCE S 88 degrees 26' 45" W - 197.05' to a point for corner; THENCE N 01 degrees 56' 59" E - 19.03' to a point for corner; THENCE S 89 degrees 19' 25" W - 142.19' to a point for corner; THENCE N 00 degrees 38' 23" W - 358.61' to the POINT OF BEGINNING and containing 96,295 square feet (2.2106 acres) of land, more or less. Compiled By: PREJEAN & COMPANY, INC. Surveying/mapping July 30, 1986 Page 2 82 TRACT 3 FLARE FOR SYNGAS UNIT METES AND BOUNDS DESCRIPTION 796 S.F. OUT OF A 237.0539 ACRE TRACT OUT OF THE NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 796 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72, James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence S. 00 degrees 23' 20" E - 467.50'; Thence N 89 degrees 36' 40" E - 1,461.50' to the POINT OF BEGINNING of the herein described parcel; THENCE N 00 degrees 23' 20" W - 32.50' to a point for corner; THENCE N 89 degrees 36' 40" E - 24.50' to a point for corner; THENCE S 00 degrees 23' 20" E - 32.50' to a point for corner; THENCE S 89 degrees 36' 40" W - 24.50' to the POINT OF BEGINNING and containing 796 square feet of land, more or less. Compiled By: PREJEAN & COMPANY, INC. Surveying/mapping July 30, 1986 Page 3 83 TRACT 4 DAY TANKS SITE METES AND BOUNDS DESCRIPTION 4,773 S.F. OUT OF A 237.0539 ACRE TRACT OUT OF THE NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 4,773 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72, James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence S. 00 degrees 23' 20" E - 470.50'; Thence N 89 degrees 36' 40" E - 1,218.30' to the POINT OF BEGINNING of the herein described parcel; THENCE N 00 degrees 23' 20" W - 64.50' to a point for corner; THENCE N 89 degrees 36' 40" E - 74.00' to a point for corner; THENCE S 00 degrees 23' 20" E - 64.50' to a point for corner; THENCE S 89 degrees 36' 40" W - 74.00' to the POINT OF BEGINNING and containing 4,773 square feet of land, more or less. Compiled By: PREJEAN & COMPANY, INC. Surveying/mapping July 30, 1986 Page 4 84 TRACT 5 ACETIC ACID TANK SITE METES AND BOUNDS DESCRIPTION 56,220 SQUARE FEET GROUND LEASE JOHN GRANT SURVEY, A-72 SYLVESTER BOWEN SURVEY, A-24 TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 56,220 square feet for ground lease out of the John Grant Survey, A-72 and the Sylvester Bowen Survey, A-24 in Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod marking the southeast corner of that certain 22.71 acres of land described in a deed dated 8-19-1969 from Texas City Terminal Railway Company to Monsanto Company filed at Volume 2051, Page 654 Galveston County Deed Records, thence N 00' 51' 00" W - 389.07', along the east line of said 22.71 acre tract being westerly of, parallel with and 50' perpendicular distance from the centerline of said flood wall, to a set 5/8" iron rod for the southerly southeast corner of said 22.71 acre tract, thence N 20 degrees 52 degrees 05" W - 209.65', continuing along the east line of said 22.71 acre tract, to a set 5/8" iron rod for angle point, thence N 89 degrees 46' 57" E - 80.15', along an interior south line of said 22.71 acre tract, to a set 5/8" iron rod for corner, thence N 20 degrees 52' 05" W - 82.13', along the east line of said flood wall, to a set 5/8" iron rod for corner, thence N 00 degrees 50' 20" E - 204.69', along the east line of said 22.71 acre tract being easterly of, parallel with and 25' perpendicular distance from the centerline of said flood wall, to a point for corner, thence N 89 degrees 09' 40" W - 86.82', to the POINT OF BEGINNING of the herein described tract: THENCE N 01 degrees 17' 29" E - 143.99', to a point for corner; THENCE S 75 degrees 20' 45" W - 306.41', to a point for corner; THENCE S 00 degrees 36' 19" E - 242.45', to a point for corner; THENCE N 89 degrees 33' 49" E - 137.79', to a point for corner; THENCE N 16 degrees 37' 18" W - 126.42', to a point for corner; THENCE N 74 degrees 06' 25" E - 196.52', to the POINT OF BEGINNING and containing 56.220 square feet for ground lease more or less. Compiled By: Prejean and Company, Inc. Surveying and Mapping July 30, 1986 Page 5 85 TRACT 6 METHANOL TANK SITE METES AND BOUNDS DESCRIPTION 72,362 S.F. OUT OF 237.0639 ACRE TRACT OUT OF THE NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 72.362 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72 and James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence S 00 degrees 23' 20" E - 438.00'; Thence N 89 degrees 36' 40" E - 30.00' to the POINT OF BEGINNING of the herein described parcel; THENCE N 00 degrees 23' 20" W - 373.00' to a point for corner; THENCE N 89 degrees 36' 40" E - 194.00' to a point for corner; THENCE S 00 degrees 23' 20" E - 373.00' to a point for corner; THENCE S 89 degrees 36' 40" W - 194.00' to the POINT OF BEGINNING and containing 72.362 square feet of land, more or less. Compiled By: PREJEAN & COMPANY, INC. Surveying/mapping July 30, 1986 Page 6 86 TRACT 7 CARBON DIOXIDE SITE METES AND BOUNDS DESCRIPTION 10,360 S.F. OUT OF 237.0639 ACRE TRACT OUT OF HE NORMAN HURD SURVEY, A-77 SYLVESTER BOWEN SURVEY, A-24 JOHN GRANT SURVEY, A-72 JAMES B. WELLS SURVEY TEXAS CITY, GALVESTON COUNTY, TEXAS All that certain 10,360 square feet of land out of a 237.0539 acre tract out of the Norman Hurd Survey, A-77, Sylvester Bowen Survey, A-24, John Grant Survey, A-72 and James B. Wells Survey, Texas City, Galveston County, Texas and being more particularly described by metes and bounds as follows: Commencing at a set 5/8" iron rod located in the south right-of-way line of 4th Avenue South (70' wide) at its intersection with the east right-of-way line of 6th Street (100' wide); Thence N 89 degrees 36' 40" E - 1,882.50'; Thence N 00 degrees 23' 20" W - 261.00' to the POINT OF BEGINNING of the herein described parcel; THENCE N 00 degrees 23' 20" W - 285.00' to a point for corner; THENCE N 89 degrees 36' 40" E - 27.00' to a point for corner; THENCE S 00 degrees 23' 20" E - 220.00' to a point for corner; THENCE N 89 degrees 36' 40" E - 41.00' to a point for corner; THENCE S 00 degrees 23' 20" E - 65.00' to a point for corner; THENCE S 89 degrees 36' 40" W - 68.00' to the POINT OF BEGINNING and containing 10.360 square feet of land, more or less. Compiled By: PREJEAN & COMPANY, INC. Surveying/mapping July 30, 1986 Page 7 87 EXHIBIT F VARIABLE COSTS-ACETIC ACID *** Page 1 88 EXHIBIT G Insurance *** Page 1 89 EXHIBIT H SAMPLE PROFIT CALCULATIONS AFTER 2006 Page 1 90 EXAMPLE POST-2006 PROFIT CALCULATION AND PAYMENT *** 91 EXHIBIT I BLEND GAS CREDIT *** -1- EX-10.4 12 JOINT VENTURE AGREEMENT - 3/31/98 1 EXHIBIT 10.4 *** OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN SEPARATELY FILED WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST*** ================================================================================ RGR EXECUTION COPY 3/16/98 JOINT VENTURE AGREEMENT BETWEEN STERLING CHEMICALS, INC. AND BP CHEMICALS INC. THIS JOINT VENTURE AGREEMENT executed this 31st day of March, 1998, and effective as of the Effective Date, is made by and between STERLING CHEMICALS, INC., a corporation headquartered in Houston, Texas and duly organized and existing under the laws of the state of Delaware, United States of America (hereinafter referred to as "Sterling"), and BP CHEMICALS INC., a corporation headquartered in Cleveland, Ohio and duly organized and existing under the laws of the state of Ohio, United States of America (hereinafter referred to as "BP"). RECITALS: -1- 2 EXHIBIT 10.4 *** OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN SEPARATELY FILED WITH THE COMMISSION AND IS SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST*** ================================================================================ RGR EXECUTION COPY 3/16/98 WHEREAS, Sterling and BP desire to enter into a marketing joint venture as hereinafter described for the sale and distribution of acrylonitrile in and to the Joint Venture Territory (as hereinafter defined); and WHEREAS, Sterling and BP desire to enter into this Agreement to establish their respective interests, rights and obligations in connection with such joint venture; NOW, THEREFORE, Sterling and BP, intending to be legally bound hereby, do mutually covenant and agree as follows: Article 1. Definitions 1. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Acrylonitrile" shall mean acrylonitrile meeting the Specifications. -2- 3 1.2 "Agreement" shall mean this Joint Venture Agreement, including all Exhibits attached hereto which are incorporated herein, as the same may be modified or amended by the Parties in accordance with the provisions hereof. 1.3 "BP Floor" as defined in Section 5.1 hereof. 1.4 "BRV" as defined in Section 5.1 hereof. 1.5 "BRV Ratio" as defined in Article 4 hereof. 1.6 "Certificate of Formation" as defined in Section 2.2 hereof. 1.7 "Company" shall mean the Delaware limited liability company established by the Parties pursuant to the provisions of Section 2.2 hereof for the purpose of carrying out the Joint Venture. 1.8 "Confidential Information" as defined in Section 12.1 hereof. 1.9 "Default" as defined in Section 10.1 hereof; 1.10 "Delivery Differences" as defined in Section 3.5 hereof. 1.11 "Effective Date" shall mean March 31,1998. 1.12 "Excess Volume" as defined in Section 5.3 hereof. 1.13 "Existing Contracts" as defined in Section 3.4 hereof. 1.14 "Final Price" as defined in Section 3.6 hereof. 1.15 "Fixed Costs" as defined in Section 3.6 hereof. 1.16 "Force Majeure" as defined in Section 11.2 hereof. 1.17 "Joint Venture" shall mean the Acrylonitrile joint venture arrangement between the Parties established pursuant to the provisions of this Agreement. 1.18 "Joint Venture Territory" shall mean ***. -3- 4 1.19 "LLC Agreement" as defined in Section 2.2.1 hereof. 1.20 "Marketing Plan" as defined in Section 3.1 hereof. 1.21 "Operating Costs" as defined in Section 3.6 hereof. 1.22 "Parties" or "Party" shall mean, respectively, Sterling and BP, or either of them, and shall include their respective successors in interest. 1.23 "Production Agreement" as defined in Section 5.1 hereof. 1.24 "Provisional Price" as defined in Section 3.6 hereof. 1.25 "Purchase Contracts" as defined in Section 3.4 hereof. 1.26 "Revenue-Streamed Volume" as defined in Section 3.4.3 hereof. 1.27 "Sales Contracts" as defined in Section 3.4 hereof. 1.28 "Specifications" shall mean the acrylonitrile specifications set forth in attached Exhibit B. 1.29 "Sterling Floor" as defined in Section 5.1 hereof. 1.30 "Support Services" as defined in Article 4 hereof. 1.31 "Support Services Agreement" as defined in Article 4 hereof. 1.32 "Terminal Contracts" as defined in Section 3.4 hereof. 1.33 "Texas City Plant" as defined in Section 5.4 hereof. Article 2. Purpose and Structure 2.1 Joint Venture Purpose. Subject to and under the terms and conditions set forth in this Agreement, the Parties hereby establish the Joint Venture, with effect as of the Effective Date, to sell and distribute Acrylonitrile in and to the Joint Venture Territory pursuant to the provisions of this Agreement. -4- 5 2.2 Joint Venture Structure. Promptly after the Effective Date, and subject to the Parties obtaining any necessary government approvals, the Parties shall establish, pursuant to the provisions of the Certificate of Formation set forth in attached Exhibit C-1 ("Certificate of Formation"), a limited liability company under the laws of the State of Delaware to carry out the Joint Venture ("Company"). 2.2.1 Sterling and BP shall become the sole members of the Company, *** pursuant to the provisions of the limited liability company agreement set forth in attached Exhibit C-2 ("LLC Agreement"). Voting rights, capital contributions, earnings distribution and allocation of Company costs shall be as set forth in the LLC Agreement. 2.2.2 The business purposes of the Company shall be as set forth in the Certificate of Formation and the LLC Agreement and shall not be changed nor shall the business of the Company be extended, unless the members of the Company agree to do so pursuant to duly approved amendments to the Certificate of Formation and the LLC Agreement. 2.2.3 Although the structure of the Company shall initially be a limited liability company, the Parties recognize that in time there may be advantages in adopting additional or alternative company structures under the laws of the State of Delaware or such other jurisdiction as the Parties mutually agree to in writing. Accordingly, the Parties shall undertake a review of the Company structure from time to time for -5- 6 the purpose of considering the desirability and advantages of any alternative structures as may be then available and determining whether, and if so what, changes in the Company structure may be appropriate. 2.3 Company Name. The name of the Company shall be "ANEXCO, LLC" or such other name as the members of the Company and the appropriate governmental authorities may approve. 2.4 Transfer of Company Interests. Neither Party at any time during the term of this Agreement shall sell or otherwise transfer its limited liability company interests in the Company except in accordance with the provisions of the LLC Agreement. Article 3 - Marketing Responsibilities 3.1 Marketing Plan. The Company shall develop and define for review and approval at least annually by the Board and, as so approved, shall implement a comprehensive business plan and strategy for the sale and distribution of Acrylonitrile in the Joint Venture Territory, consistent with the provisions of the Certificate of Formation, the LLC Agreement and this Agreement ("Marketing Plan"). The Board shall revise the Marketing Plan as needed to achieve the overall business results desired by the Company. The Marketing Plan shall allow the Company to enter into advantageous exchange agreements within the Joint Venture Territory. 3.2 *** 3.3 Purchase and Resale. The Company, as a separate and independent contracting Party, shall purchase Acrylonitrile from the Parties (or their foreign sales companies or other corporate affiliates), take title thereto and resell the Acrylonitrile to the Company's customers in the Joint -6- 7 Venture Territory on its own behalf and for its own account, all subject to the provisions of the Marketing Plan. 3.4 Existing Contracts. The Parties shall, as of the Effective Date, assign to the Company all acrylonitrile sales and sales agency contracts ("Sales Contracts") and all storage and terminal contracts with third parties ("Terminal Contracts" and together with the Sales Contracts, collectively referred to as the "Existing Contracts") that they have as of the Effective Date to the extent that they relate to the sale of Acrylonitrile to or the handling and storage of Acrylonitrile in the Joint Venture Territory ***. No existing third-party contract under which either Party is obligated to purchase acrylonitrile ("Purchase Contracts") shall be assigned to the Company, but the volume of Acrylonitrile which each of the Parties is required to purchase under such Purchase Contracts shall be used in determining each Party's BRV as provided in Article 5 hereof. 3.4.1 ***. 3.4.2 ***. 3.4.3 The Parties shall ***. 3.5 Deliveries. All shipments of Acrylonitrile to the Company shall be made FOB the U.S. Gulf Coast deep water port for Acrylonitrile produced, purchased or otherwise obtained in the U.S., and as the Company and the shipping Party shall agree for foreign-sourced Acrylonitrile. Unless the Company and the Parties otherwise agree, title to and risk of loss of Acrylonitrile sold by each Party hereunder shall pass at the point and time set forth in the relevant contract between -7- 8 the Company and its customer for the transfer of title and risk of loss. In the event that the Company ships any Acrylonitrile to an offshore storage facility prior to having a customer for such Acrylonitrile, title to and risk of loss of such Acrylonitrile shall pass from the Party shipping such Acrylonitrile to the Company at such point and at such time as the Company and the Parties shall agree. In the event a Party delivers Acrylonitrile to the Company at a location outside of the U.S. resulting in a higher or lower freight cost to the Company (when compared with deliveries from the U.S. Gulf Coast), such difference ("Delivery Differences") shall be debited or credited, as the case may be, to such delivering Party as set forth in Section 3.4.3 hereof. 3.6 Price and Terms. The Company shall *** Article 4 - Support Services Support services for the Company, including, but not limited to, marketing and sales function and associated support, customer service, marine, distribution, health, safety, environmental and other technical services, credit billing and other related services ("Support Services"), shall be provided directly to the Company by BP or passed through to the Company by BP from service providers under contract to BP and the costs of the Support Services shall be shared by BP and Sterling as set forth in attached Exhibit E ("Support Services Agreement"). The Support Services Agreement shall cover the payment of all out of pocket third party service provider costs and BP's fully allocated costs, including salaries and benefits, incurred in providing the Support Services. Offshore terminalling costs (e.g., JTT terminal) will be included in the Support Services. Each calendar month each Party shall pay one-twelfth of its share of the Company's budgeted costs for -8- 9 such Support Services based on ***. At end of each calendar year, each Party shall pay its share of the Company's actual Support Service costs ***. Article 5 - Volumes and Base Reference Volumes 5.1 Base Reference Volumes. *** Force Majeure shall not apply to the extent a Party is able to provide substitute Acrylonitrile for the lost Acrylonitrile in the market at a price no greater than the price at which the Company is then selling in the Joint Venture Territory. In the event of Force Majeure, the BRV for the Party declaring Force Majeure for that year for the purposes of adjustment for the subsequent year shall be the actual sales which would have been made to the Company by such Party if the Force Majeure had not occurred. For the initial year of the Company (prorated for less than a full calendar year): ***. 5.2 Reduced Volume. If for any reason other than an event of Force Majeure declared by either of the Parties or by the Company as addressed herein, ***. If for reason of Force Majeure the Company is unable in any fiscal quarter to ***. 5.3 Excess Volume. During the course of any calendar year, either Party may offer volumes of Acrylonitrile in excess of its BRV for that year ("Excess Volume"), and the Company will purchase such volume (if both Parties offer Excess Volume, ratably in proportion to the Parties' respective BRVs) if and to the extent it is able to market such Excess Volume during such year at prices acceptable to the Board. If there remains any additional Excess Volume after the ratable purchases from both Parties hereunder, either Party shall be free to supply up to 100% of such additional Excess Volume that the Company is able to market during such year at prices acceptable to the Board. -9- 10 5.4 BRV Adjustment. ***. 5.5 Toll Conversions. Neither Party shall enter into any new or extend or increase the volume under any existing agreements with any third party for the raw material toll conversion of acrylonitrile for export to the Joint Venture Territory. 5.6 Volume Imbalances. Company purchases of Acrylonitrile loaded for shipment during each calendar quarter shall be provisionally allocated between the Parties based, as nearly as possible, on each Party's then applicable BRV Ratio. At the end of each calendar quarter, each Party's actual BRV for that quarter shall be reconciled with its provisionally allocated volume and any difference or imbalance shall be added to the underallocated Party's BRV and subtracted from the overallocated Party's BRV for the next calendar quarter, as described in attached Exhibit D, to determine purchases by the Company from the Parties in such calendar quarter; provided, however, that such reconciliation of any volume imbalances shall not affect the Parties' respective BRVs or BRV Ratios for any other purpose under this Agreement. 5.7 New Purchase Contracts. After the Effective Date, except as provided in Section 5.1 hereof, neither Party shall enter into any new Purchase Contracts relating to the purchase of Acrylonitrile for resale within the Joint Venture Territory without the consent of the other Party, it being the intent of the Parties hereto that the Company will execute any such new Purchase Contracts. -10- 11 Article 6 - Term and Termination 6.1 Term. The initial term of this Agreement shall be from the Effective Date through December 31, 2009. Thereafter, this Agreement shall continue from year to year unless and until terminated as provided herein. 6.2 Termination. Sterling may terminate this Agreement effective not earlier than December 31, 2009 by giving BP at least one (1) year's prior written notice of termination. BP may terminate this Agreement effective not earlier than December 31, 2009 by giving Sterling at least three (3) years' prior written notice of termination. In addition, either Party may terminate this Agreement on one year's prior written notice at any time in the event of a Default. This Agreement may also be terminated by either Party pursuant to Section 5.4 hereof. 6.3 Involuntary Termination. If this Agreement is terminated due to a final, non-appealable order of a court or governmental agency or authority having jurisdiction or with the consent of both Parties in connection with a court or governmental agency order or directive, BP shall act as Sterling's exclusive agent for the sale of acrylonitrile in the Joint Venture Territory at volumes no less than the volumes then in effect under this Agreement for a mutually agreed period, or in the absence of any agreement, for twelve (12) months from the effective date of such termination unless and except to the extent that such arrangement is barred by such order or directive. For such acrylonitrile sales during such period, ***. 6.4 *** If this Agreement is terminated pursuant to this Section 6.4 or Section 5.4 hereof, BP shall act as Sterling's exclusive agent for the sale of acrylonitrile in the Joint Venture Territory at volumes no less than the volumes then in effect under this Agreement for a mutually agreed period, or in the absence of any agreement, twelve (12) months from the effective date of such termination. For such acrylonitrile sales during such period, ***. -11- 12 6.5 *** be cleared by the Parties within one year of termination pursuant to a mutually acceptable arrangement or, in the absence of such an arrangement, by the sale of acrylonitrile by the oversupplied Party to the undersupplied Party at the times provided in such assigned contracts ***. BP shall continue to make available to Sterling any Support Services being provided by BP or any third party provider to the Company for a period of one (1) year after termination of this Agreement pursuant to terms identical to those contained in the Support Services Agreement. In addition, the Parties will provide for a transition continuation of third party services, such as joint terminalling, for up to one (1) year after termination of this Agreement, to the extent such services are transferable to the Parties. Article 7 - Transition Matters 7.1 Exchange Agreements. Exchange agreements whereby Acrylonitrile is received anywhere in the Joint Venture Territory shall be entered into solely and exclusively by the Company. 7.2 Third Party Beneficiary. Because not all Existing Contracts may be unilaterally assignable to the Company by the Parties, each Party agrees that, until such Existing Contracts expire or terminate or the consent to such assignment has been obtained, such Party shall perform such Existing Contract for the exclusive benefit of the Company, with the "benefit" of the contract being credited to the Company, subject to the revenue streaming provisions of Section 3.4.3 hereof. The volume of any Acrylonitrile sold in connection with such Sales Contracts shall be included, for all purposes of Article 5 hereof, in that Party's BRV for the calendar year in which such sales are made and shall be considered as sales by the Company on behalf of such party for purposes of the Sterling Floor and the BP Floor. Any sales commitments (other than those contained in the Sales -12- 13 Contracts) entered into by either Party prior to the Effective Date but loading after the Effective Date will be included in that Party's BRV for the calendar year in which loaded, will be deemed sales for the benefit of the Company, subject to the revenue streaming provisions of Section 3.4.3 hereof and shall be considered as sales by the Company on behalf of such Party for purposes of the Sterling Floor and the BP Floor. Any inventory in the Parties' offshore terminals or in transit to the Parties' offshore terminals after the Effective Date will be sold to the Company and applied to the individual Parties' BRVs and the Sterling Floor and the BP Floor as appropriate. Article 8 - Bookkeeping and Accounting 8.1 Books and Records. The Company shall keep true and accurate books of account and records and shall make all reports in accordance with sound accounting practices and principles employing standards and procedures, and in a form, in conformity with U.S. generally accepted accounting principles as historically practiced by BP. If, in the reasonable opinion of either BP or Sterling, such practices do not readily provide for the preparation of quarterly financial reports in a form that it is accustomed to using in their own operations, then the detailed substance for the preparation of all necessary financial reports and all relevant cost reports shall be supplied to BP and Sterling by the Company at the Company's expense. 8.2 Financial Reports; Audit. At the end of each fiscal year, the financial records of the Company shall be audited at the Company's expense by a firm of independent certified public accountants of international reputation to be selected by BP and Sterling, as auditor of the Company. The financial reports prepared by the Company and the audit report prepared by these accountants shall be in English. BP and Sterling, each at its own expense, reserves the right to have an annual -13- 14 review and audit made by an outside accounting firm of its own choice of: (i) the audit prepared by the auditor of the Company; and (ii) the underlying records of the Company. 8.3 Access to Books and Records. In addition to any other rights they may have under the laws of the State of Delaware as members of the Company, BP and Sterling each shall have the right to verify any information pertinent to this Agreement. Upon written request by either Party from time to time, the Company shall provide to an independent third party accountant selected by the Party making the request, at reasonable times during normal business hours, subject to the receipt by the Company of an appropriate confidentiality agreement signed by such accountant, access to the Company's books, records and accounts relating to this Agreement, except as such access may be prohibited by law or presently existing third party confidentiality agreements. Such independent third party accountant shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at the requesting Party's expense, which copies may be removed from the premises of the Company and retained by such accountant, subject to the terms of the confidentiality agreement signed by such accountant. It is agreed that such accountant may report to the requesting Party only its conclusions resulting from such accountant's review of the Company's data, and nothing else. Article 9 - Representations and Warranties 9.1 Each of the Parties represents and warrants to the other Party that: (i) it is a corporation, duly organized, validly existing and in good standing in the jurisdiction of its incorporation; -14- 15 (ii) it has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and the LLC Agreement; (iii) the execution and delivery of this Agreement and the LLC Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by its Board of Directors and no other corporate proceeding or approvals on its part are necessary to authorize this Agreement or the LLC Agreement or to consummate the transactions contemplated hereby or thereby; (iv) this Agreement and the LLC Agreement have been duly executed and delivered by it and, assuming the due authorization, execution and delivery hereof and thereof by the other Party, constitute its legal, valid and binding obligations, enforceable against it in accordance with their respective terms, except as such enforcement may be limited by applicable law and general equitable principles; (v) the execution and delivery of this Agreement and the LLC Agreement and the consummation of the transactions contemplated hereby and thereby by it do not and will not (a) constitute a violation of any law, statute, rule or regulation, (b) constitute a breach or violation of any provision contained in its articles or certificate of incorporation or bylaws, (c) constitute a breach of any provision contained in, or a default under, (1) any authorization, consent, approval, license, permit, certificate or exemption of any governmental authority, (2) any order, writ, injunction, judgment or award of any governmental authority or (3) any contract or other agreement to which it is a party, or (d) result in or require the creation of any lien, claim or encumbrance upon any of its assets (other than such violations, conflicts, breaches, defaults or creations of liens, claims or encumbrances that, individually or in the aggregate, could not reasonably be expected to have a -15- 16 material adverse affect on its or the Company's business, operations, assets, conditions (financial or otherwise), results of operations or prospects); (vi) no authorizations, consents, approvals, licenses, permits, certificates of any governmental authority, and no notifications, filings or registrations to or with any governmental authority or any other person or entity is or will be necessary for the valid execution and delivery by it of this Agreement or the LLC Agreement or the consummation by it of the transactions contemplated hereby or thereby other than (1) those that have been obtained or made and are in full force and effect, and (2) those that the failure to obtain or make, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on its or the Company's business, operations, assets, condition (financial or otherwise), results of operations or prospects. 9.2 Health, Safety and Environmental Compliance. In the performance of this Agreement, the Parties shall comply in all material respects with any and all applicable laws, regulations, permits and orders of governmental authorities pertaining to health, safety and the environment. Article 10 - Default and Remedies 10.1 Definition. For purposes of this Agreement, a "Default" shall mean, with respect to a Party, the failure by such Party to make any payment or to perform any other material obligation under or pursuant to this Agreement (for any reason other than an event of Force Majeure), which failure remains uncured for thirty (30) days after receipt of notice of such failure from the other Party. -16- 17 10.2 Rights and Obligations upon Default. Upon the occurrence of any Default, the non-defaulting Party may, at its option, terminate this Agreement in accordance with the provisions of Section 6.2 hereof and/or may make a claim for damages pursuant to Section 11.3 hereof. 10.3 Damages. In the event of any Default, the defaulting Party shall compensate the non-defaulting Party for all loss or damage sustained as a direct result of the Default, excluding punitive, exemplary, consequential or contingent damages (e.g., loss of profits, loss of goodwill and investment opportunity loss). No claim for damages hereunder shall be made later than six (6) months after a Default shall have occurred. Article 11 - Force Majeure 11.1 The inability of either Party to make or take delivery hereunder (or any material portion thereof) when due, if occasioned by an event or condition of Force Majeure, shall not subject such Party to any liability hereunder to the extent that such event or condition prevents or delays in whole or in material part the manufacture, sale, supply, shipment, acceptance, conversion, use, consumption or resale by such Party of the Acrylonitrile to be delivered by such Party hereunder. The total quantity hereunder so omitted shall be deducted from such Party's BRV and the Sterling Floor or the BP Floor, whichever is appropriate, without liability, but the Agreement shall otherwise remain unaffected. 11.2 For purposes of this Agreement, "Force Majeure" shall mean, without limitation, conditions arising out of war, fire, flood, strike, breakage of equipment, accident, riot, action of governmental authority and laws, rules, ordinances and regulations (including, but not limited to, those dealing with pollution, health, ecology, tariffs, duties and other governmental assessments or -17- 18 restrictions, environmental matters), act of God, the inability to obtain any raw material (including energy source or power) used in connection with the production of Acrylonitrile, or any other event, contingency or circumstances of like or different character beyond the reasonable control of the Party so affected which prevents or delays the material performance by such Party of its obligations hereunder. 11.3 If a Party is prevented or delayed by Force Majeure from performing hereunder, it shall give prompt notice to the other Party and the Company and take all actions within its power (excluding the settlement of labor disputes or strikes) to remove the basis for non-performance and after doing so shall resume performance as soon as possible. 11.4 Notwithstanding the above definition of Force Majeure and the provisions of Section 11.1 hereof to the contrary, the failure by either Party to perform any of its obligations under this Agreement shall be deemed not to have been caused by Force Majeure or 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 or 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 12 - Confidentiality and Public Statements 12.1 Except as otherwise provided in this Article 12, the terms and conditions of this Agreement, and all data, reports, records, and other information of any kind whatsoever developed or acquired by either Party in connection with the Joint Venture shall be used solely for purposes of -18- 19 this Agreement and the LLC Agreement and shall be treated by the Parties as confidential (hereinafter referred to as "Confidential Information") and neither Party shall reveal or otherwise disclose such Confidential Information to third parties, other than the Company, without prior written consent of the other Party. The foregoing restrictions shall not apply to the disclosure of Confidential Information by a Party to any of its affiliates, and to employees and consultants of the Parties; provided, however, that in any such case only such Confidential Information as such third party shall have a legitimate business need to know shall be disclosed and the person or company to whom disclosure is made shall first undertake in writing to protect the confidential nature of such Confidential Information at least to the same extent as the Parties are obligated under this Article 12. In addition, the foregoing restrictions shall not apply to information that (i) at the time of its disclosure is, or thereafter becomes, generally available to the public other than as a result of a disclosure by a Party or any of its affiliates in violation of this Agreement, (ii) was known by or available to the Party receiving such information or its affiliates on a non-confidential basis prior to its disclosure to such Party pursuant to this Agreement (provided that the source of such information was not known by such Party or its affiliates to be then bound by a confidentiality agreement or other obligation of confidentiality to the other Party or any of its affiliates with respect to such information), or (iii) becomes available to such Party or its affiliates on a non-confidential basis (provided that the source of such information was not known by such Party or its affiliates to be then bound by a confidentiality agreement or other obligation of confidentiality with respect to such information). Notwithstanding anything contained herein to the contrary, in the event that (1) any information or materials is excluded from the term Confidential Information hereunder because such information or materials was known by or available to a Party or any of its affiliates on a non- -19- 20 confidential basis through a source which was not known by a Party or any of its affiliates to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the other Party or any of its affiliates with respect to such information or materials, and (2) a Party or any of its affiliates thereafter becomes aware that such source was, in fact, bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the other Party or any of its affiliates with respect to such information or materials, then, upon such awareness, such information or materials shall thereafter be deemed to be Confidential Information hereunder; provided, however, that a Party or any of its affiliates shall not have any liability hereunder for any disclosure of such Confidential Information which it may have made prior to such awareness. 12.2 Nothing contained in this Agreement shall be deemed to prohibit a Party from disclosing any of the Confidential Information to the extent required by law, regulation, legal process or other legal compulsion. In the event that a Party or anyone to whom it transmits any Confidential Information in accordance with this Agreement are requested or required (by deposition, interrogatories, requests for information or documents in legal proceedings, subpoenas, civil investigative demand or similar process), in connection with any proceeding or investigation to disclose any Confidential Information, that Party will use commercially reasonable efforts to give the other Party prompt written notice of such request or requirement so that the other Party may seek an appropriate protective order or other remedy and/or waive compliance with the provisions of this Agreement, and that Party will cooperate (reasonably) with the other Party (at the latter's expense) to obtain such protective order. In the event that such protective order or other remedy is not obtained and the other Party does not waive compliance with the relevant provisions of this -20- 21 Agreement, the Party so requested or required to disclose Confidential Information (or such other persons to whom such request is directed) will furnish only that portion of the Confidential Information which, in the opinion of its counsel, is legally required to be disclosed and, upon the other Party's request, and at its expense, use commercially reasonable efforts to obtain assurances that confidential treatment will be accorded to such information. 12.3 Neither Party shall make any public announcement or public disclosure with regard to the Joint Venture, including confidential and non-confidential information, without the prior written consent of the other Party as to the content and timing of such announcement or disclosure unless such Party is required by law to make such public announcement or disclosure, in which case the provisions of Section 12.2 hereof shall apply with respect to any Confidential Information disclosed. 12.4 Prior to the disclosure of any technical Confidential Information by one Party to the other, or by a Party to the Company, the Parties, or Party and the Company, as the case may be, will enter into a separate Confidentiality Agreement covering such disclosures in the event such disclosures are not protected by any pre-existing agreement by the Parties or by the Party and Company, as the case may be. 12.5 Nothing in this Agreement shall require the Parties to disclose to the Company or to each other confidential information received from third parties which is precluded by written agreement from further disclosure by the Parties. -21- 22 Article 13 - Miscellaneous 13.1 Assignment. Neither Party hereto may assign or otherwise transfer, in whole or part, to any third party any of its rights or obligations under this Agreement without the prior written consent of the other Party provided, however, that no such consent shall be required for assignment to a successor in interest of all or substantially all of the assets or business of any Party to which this Agreement relates (unless such successor in interest is, at the time of proposed assignment, a competitor of the other Party or is otherwise objectionable to the other Party for legitimate business reasons, and such objection is asserted in good faith and not waived by the Party asserting it). As part of any permitted assignment, the assigning Party shall require its assignee to accept and be bound by the terms of this Agreement. In the case of an assignment to a successor in interest of a Party, the assigning Party shall remain liable for the performance by the assignee of the obligations of the assigning Party under this Agreement unless the other Party agrees otherwise in writing. This Agreement shall be binding upon and inure to the benefit of the successors in interest and permitted assigns of the Parties hereto. 13.2 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without giving effect to conflict of laws principles thereof. 13.3 Relationship of Parties. Each Party hereto shall be responsible only for the obligations and liabilities as expressly set forth in this Agreement. Nothing contained in this Agreement shall be deemed to constitute either Party the agent or legal representative of the other. Neither Party shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Party, except as otherwise provided herein. -22- 23 13.4 Entire Agreement. This Agreement, including the Exhibits attached hereto and the LLC Agreement, constitute the entire agreement of the Parties in respect to the subject matter hereof and thereof. Any and all previous discussions, representations, negotiations, proposals and understandings relative thereto, oral or written, are superseded by this Agreement and the LLC Agreement, and any and all other documents exchanged by the Parties prior to the signature of this Agreement and the LLC Agreement and relating to the subject matter hereof and thereof, whether or not signed by either or both of the Parties, are null and void. 13.5 Amendments. No waiver, modification or amendment of this Agreement shall be valid for any purpose whatsoever unless made in writing and signed by both Parties. 13.6 Severability. The Parties agree that if any part, term or provision of this Agreement shall be found illegal or unenforceable by a court of competent jurisdiction or by binding arbitration, the validity and effect of the remaining parts, terms and provisions shall not be affected thereby. 13.7 Headings and Titles. The various headings and titles in this Agreement are inserted solely for convenience and shall not affect the meaning or interpretation of this Agreement. 13.8 Waiver. The failure of either Party to insist on a strict performance of any of the terms or provisions of this Agreement shall not be deemed a waiver of any subsequent breach of or default in the performance of such terms or provisions. 13.9 Notices. All notices made or required hereunder shall be deemed sufficiently given if made by first class mail or by personal delivery, air express courier or by facsimile or electronic transmission and confirmed by first class mail, properly addressed and sent to the recipient at its designated address. All notices shall be deemed to have been sent on the date mailed or, if by fax or electronic mail on the date faxed or sent, and to have been received on the third business day -23- 24 thereafter in the case of mail or when actually received in the case of fax or electronic mail (subject to telephonic confirmation of receipt). For purposes hereof, the designated addresses and numbers of the Parties shall be the following addresses and numbers or, with respect to either Party, such other address as such Party may at any time designate in a notice given in accordance with this section for these purposes: TO BP: BP Chemicals Inc. 4440 Warrensville Road Cleveland, Ohio 44128-2837 Attention: Vice President Nitriles Marketing Fax #: (216) 586-3838 E-mail: smithdb@bp.com TO STERLING: Sterling Chemicals Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 Attention: General Manager, Acrylonitrile and General Counsel Fax #: (713) 654-9551 E-mail: PRostek@Sterlingchemicals.com 13.10 Disputes. In the event the Parties, using commercially reasonable efforts, fail to amicably resolve within thirty (30) days any dispute arising out of: (i) the interpretation of this Agreement, (ii) the execution, amendment or termination of any Company contract with any person or entity (not part of the Company's approved Marketing Plan), including any sales Contract or Purchase Contract, involving a Company commitment reasonably expected in the aggregate to exceed one million dollars ($1,000,000), or (iii) any Acrylonitrile price changes (not part of the Company's approved Marketing Plan), unless both Parties otherwise agree such matter shall be resolved in accordance with the following: -24- 25 13.10.1 They shall promptly advise their respective chief executive officers ("CEOs") of their inability to reach agreement through informal discussion within the required time limits, and shall within ten (10) days of the passing of such time limits, submit the dispute to their respective CEOs for resolution. In the event the CEOs fail to amicably resolve the dispute within thirty (30) days of such referral, the dispute shall be settled by binding arbitration pursuant to Section 13.10.2 below. 13.10.2 Both Parties shall set forth their respective positions with regard to the issue in dispute in writing and resolution of the issue shall be determined by arbitration by three (3) arbitrators, one (1) of whom shall be appointed by BP, one (1) by Sterling and one (1) by the other two (2) arbitrators. If the first two (2) arbitrators cannot agree on the appointment of a third arbitrator, then such third arbitrator shall be a partner in one of the "Big Six" accounting firms not employed by BP or Sterling or any of their affiliate companies appointed by the Midwest Regional Director of the American Arbitration Association. The arbitration shall be conducted in Chicago pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Parties hereto agree that the determination of the arbitrators will be final and binding. Judgment upon the arbitrators' award may be entered in any court having jurisdiction thereof. BP and Sterling shall each bear the costs of their respective arbitrators and their related expenses, and the costs of the third arbitrator and his related expenses, as well as all other costs of the arbitration, shall be paid equally by BP and Sterling or as otherwise determined by -25- 26 such arbitrators. During arbitration, the Parties shall continue to perform their obligations under this Agreement with the exception of those under arbitration. IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized and empowered representatives on the day and year first above written, but effective as of the Effective Date. STERLING CHEMICALS, INC. BP CHEMICALS INC. By:/s/ Frank P. Diassi By: /s/ Gary C. Greve --------------------------- ------------------------------ Frank P. Diassi Gary C. Greve Chairman of the Board President -26- 27 EXHIBIT A *** -1- 28 EXHIBIT B EXPORT GRADE ACRYLONITRILE SPECIFICATIONS *** -1- 29 EXHIBIT C-1 Form of Company Certificate of Formation -1- 30 CERTIFICATE OF FORMATION OF ANEXCO, LLC This Certificate of Formation of ANEXCO, LLC (the "Company") is being executed by the undersigned for the purpose of forming a limited liability company pursuant to the Delaware Limited Liability Company Act ("Act"). ARTICLE I NAME, REGISTRATION AND PURPOSE Section 1.01 Name. The name of the limited liability company is "ANEXCO, LLC" (the "Company"). Section 1.02 Registered Office and Registered Agent. The registered office of the Company in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The name of the registered agent of the Company at such address is The Company Trust Company. Section 1.03 Purpose. The purpose and business of the Company shall be to sell and distribute acrylonitrile produced, purchased or otherwise obtained by the members of the Company (the "Members") in the Territory (as defined in the Limited Liability Company Agreement of the Company, the "LLC Agreement"). In addition, the Company may carry on any business that a company organized under the Delaware Limited Liability Company Act (the "Act") may carry on that is necessary or incidental to such purpose, or otherwise appropriate given such purpose, that is not forbidden by the LLC Agreement or the Act. The Company shall conduct no business other than the businesses permitted under this Section 1.03. ARTICLE II MANAGERS Section 2.01 Number and Term. The number of managers of the Company (the "Managers") shall from time to time be fixed exclusively by the Members in accordance with, and subject to the limitations set forth in, the LLC Agreement. No decrease in the number of Managers shall have the effect of shortening the term of any incumbent Manager. Notwithstanding anything -2- 31 to the contrary contained in this Certificate of Formation or the LLC Agreement, each Manager shall hold office until his or her successor is duly appointed or elected and qualified or until his or her earlier death, resignation or removal. Section 2.02 Nomination and Election. (a) The LLC Agreement shall set forth procedures for the nomination of persons for election or reelection to the Board of Managers and only persons who are nominated in accordance with such procedures (if any) shall be eligible for election or reelection as Managers of the Company. (b) Each Manager shall be elected in accordance with this Certificate of Formation, the LLC Agreement and applicable law. Election of Managers by the Members need not be by written ballot unless the LLC Agreement so provides. Section 2.03 Limitation of Personal Liability. (c) No person who is or was a Manager of the Company shall be personally liable to the Company or its Members for monetary damages for breach of fiduciary duty as a Manager, except for liability (i) for acts or omissions which involve fraudulent or intentional misconduct or a knowing violation of law or (ii) for any transaction from which the Manager derived an improper personal benefit. (b) If the Act is hereafter amended to authorize action by the Company further limiting or eliminating the personal liability of Managers, then the personal liability of the Managers to the Company or its Members shall be limited or eliminated to the full extent permitted by the Act, as so amended from time to time. ARTICLE III INDEMNIFICATION OF MANAGERS AND OFFICERS Subject to the standards and restrictions, if any, as are set forth in the LLC Agreement, the Company shall (i) indemnify, to the fullest extent permitted by applicable law, each person who is or was a Manager or officer of the Company or is or was serving at the request of the Company as a manager, director, officer or fiduciary of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, and (ii) may indemnify each employee and agent of the Company and all other persons whom the Company is authorized to indemnify under the provisions of the Act. Without limiting the generality or effect of the foregoing, the Company may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article III. -3- 32 ARTICLE IV AMENDMENT OF CERTIFICATE OF FORMATION The Company reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Formation, in the manner now or hereafter prescribed by applicable law, and all rights, preferences and privileges conferred upon Members, Managers or any other persons by and pursuant to this Certificate of Formation are granted subject to this reservation. Notwithstanding the foregoing or any other provision of this Certificate of Formation or any provision of law that might otherwise permit a lesser or no vote, the provisions of this Article IV and of Articles II and III may not be repealed or amended in any respect, unless such action is approved by the affirmative vote of all of the Members; provided, however, that any amendment or repeal of Section 2.03 or Article III of this Certificate of Formation shall not adversely affect any right or protection existing thereunder in respect of any act or omission occurring prior to such amendment or repeal. IN WITNESS WHEREOF, the undersigned, an authorized person or agent or attorney-in-fact of the Company, has caused this Certificate of Formation to be duly executed as of the 16th day of March, 1998. ----------------------------- Jared A. Schnall, President -4- 33 EXHIBIT C-2 Form of LLC Agreement -1- 34 LIMITED LIABILITY COMPANY AGREEMENT of ANEXCO, LLC THIS LIMITED LIABILITY COMPANY AGREEMENT OF ANEXCO, LLC, dated as of March 31, 1998, is entered into by and between BP Chemicals Inc., an Ohio corporation ("BP"), and Sterling Chemicals, Inc., a Delaware corporation ("Sterling"). ARTICLE V DEFINITIONS AND INTERPRETATION Section 5.01 Certain Defined Terms. Capitalized terms used in this Agreement shall have the following respective meanings, except as otherwise provided herein or as the context shall otherwise require: "Act" means the Delaware Limited Liability Company Act. "Adjusted Capital Account" means the Capital Account maintained for each Member as of the end of each fiscal year of the Company: (i) increased by any amounts that such Member is obligated to restore under the standards set forth by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)); and (ii) decreased by (a) the amount of all losses and deductions that, as of the end of such fiscal year, are reasonably expected to be allocated to such Member in subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (b) the amount of all distributions that, as of the end of such fiscal year, are reasonably expected to be made to such Member in subsequent fiscal years in accordance with the terms of this Agreement, or otherwise to the extent they exceed offsetting increases to such Member's Capital Account that are reasonably expected to occur during (or prior to) the fiscal year of the Company in which such distributions are reasonably expected to be made. This definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. -2- 35 "Adjusted Property" means any Asset of the Company, the Carrying Value of which has been adjusted pursuant to Section 6.01(d) or Section 6.01(e). Upon termination of the Company pursuant to Treasury Regulation 1.708-1(b)(1)(iv), an Adjusted Property deemed contributed to a new company in exchange for an interest in the new company, followed by the deemed liquidation of the Company, shall thereafter constitute a Contributed Property until the Carrying Value of such Contributed Property is subsequently adjusted pursuant to Section 6.01(d) or 6.01(e). "Affiliate" means, when used with respect to any Person, (i) any other Person at the time directly or indirectly controlling, controlled by or under common control with, such Person, (ii) any other Person of which such Person at the time owns, or has the right to acquire, directly or indirectly, more than 50% on a consolidated basis of the equity or beneficial interest, or (iii) any other Person which at the time owns, or has the right to acquire, directly or indirectly, more than 50% of any class of the capital stock or beneficial interest of such Person. The term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether by Contract or otherwise. For purposes of this Agreement, (a) the Company shall not be deemed an Affiliate of any of the Members and (b) none of the Members shall be deemed Affiliates of each other by virtue of the consummation of the transactions contemplated hereby. "Agreed Allocation" means any allocation, other than a Required Allocation, of an item of income, gain, loss or deduction pursuant to the provisions of Section 6.02, including a Curative Allocation (if appropriate to the context). "Agreed Value" means, with respect to any Contributed Property, the fair market value of such Contributed Property or other consideration at the time of contribution as determined by the Board using such reasonable method of valuation as it may adopt; provided, however, that (i) with respect to the Continued Properties initially contributed to the Company by each of the Members, the Agreed Value of such Contributed Properties is the amounts reflected on Exhibit B hereto on an aggregate and separate property basis, and (ii) the Board shall, in its discretion, use such method as it deems reasonable and appropriate to allocate the aggregate Agreed Value of Contributed Properties contributed to the Company in a single or integrated transaction among each separate Contributed Property on a basis proportional to the fair market value of each Contributed Property. "Agreement" means this Limited Liability Company Agreement. "Annual Business Plan" means, for each fiscal year of the Company, the comprehensive business plan and strategy for the sale and distribution of acrylonitrile in the Territory for such fiscal year, including goals and objectives of the Company with respect -3- 36 to volume, customers, pricing, storage, distribution, exchange and Third Party supply Contracts, market penetration and share and similar matters. "Assets" means, with respect to any Person, all assets and properties of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, wherever situated, including any goodwill related thereto, which are operated, owned or leased by such Person. "Bankrupt" or "Bankruptcy" means, with respect to any Person, that: (i) such Person has (a) made a general assignment for the benefit of creditors, (b) filed a voluntary bankruptcy petition, (c) become the subject of an order for relief or been declared insolvent in any federal or state bankruptcy or insolvency proceeding, (d) instituted a proceeding or filed an answer in a proceeding seeking to adjudicate itself insolvent or seeking reorganization, arrangement, composition, readjustment, protection, liquidation, winding-up, dissolution or similar relief of such Person or such Person's Liabilities under any Debtor Relief Law, (e) filed an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Person in a proceeding of the type described in subclauses (a) through (d) of this clause (i), (f) sought, consented to or acquiesced in an order for relief or the appointment of a trustee, receiver, liquidator or similar official for such Person or for any substantial part of such Person's Assets or (g) taken any action in furtherance of any such actions; or (ii) any proceeding of the type referred to in clause (i) above has been filed or commenced against such Person or such Person by any act has indicated its approval thereof, consented thereto or acquiesced therein, or an order for relief has been entered in an involuntary case under any Debtor Relief Law, or an order, judgment or decree has been entered appointing a trustee, receiver, custodian, liquidator or similar official or adjudicating such Person insolvent, or approving the petition in any such proceedings, and such order, judgment or decree has remained in effect and unstayed for 60 days. "Bankrupt Member" has the meaning specified in Section 4.05(b). "Board" has the meaning specified in Section 7.01. "Book-Tax Disparity" means with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Member's share of the Company's Book-Tax Disparities in all of its Contributed Property and Adjusted Property shall be reflected by the difference between such Member's Capital Account balance as maintained pursuant to -4- 37 Section 6.01 and the hypothetical balance of such Member's Capital Account computed as if it had been maintained in accordance with federal income tax accounting principles. "BP" has the meaning specified in the introductory paragraph of this Agreement. "BP Representative" has the meaning specified in Section 7.03(a). "Capital Account" means the capital account maintained for a Member pursuant to Section 6.01. "Capital Contribution" means any cash, cash equivalents or the Net Agreed Value of any Contributed Property that a Member contributes to the Company pursuant to Article V of this Agreement. "Carrying Value" means (i) with respect to a Contributed Property, the Agreed Value of such Contributed Property reduced (but not below zero) by all depreciation, amortization and cost recovery deductions charged to the Member' Capital Accounts in respect of such Contributed Property, and (ii) with respect to any other Asset of the Company, the adjusted basis of such Asset for federal income tax purposes, all as of the time of determination. The Carrying Value of any Asset shall be adjusted from time to time in accordance with Sections 6.01(d) and 6.01(e) and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Assets of the Company, as approved by the Tax Matters Member. "Catalyst Supply Contract" means *** . "CEOs" has the meaning specified in Section 7.02. "Certificate of Formation" has the meaning specified in Section 2.01. "Claim" means any claim, demand, investigation, inquiry, cause of action, suit, default, assessment, litigation, third party action, arbitral proceeding or other proceeding by or before any Governmental Authority or any other Person. "Code" means the Internal Revenue Code of 1986, together with, and as interpreted by, the regulations promulgated and rulings issued thereunder. "Company" means ANEXCO, LLC, a Delaware limited liability company. "Company Fiduciary" has the meaning specified in Section 7.16(a). -5- 38 "Contract" means any agreement, lease, license, evidence of indebtedness, mortgage, deed of trust, note, bond, indenture, security agreement, commitment, instrument, understanding or other contract, obligation or arrangement of any kind. "Contributed Property" means each Asset, in such form as may be permitted by the Act, but excluding cash or cash equivalents, contributed or deemed contributed to the Company (or deemed contributed to the Company pursuant to Section 708 of the Code). Once the Carrying Value of a Contributed Property is adjusted pursuant to Section 6.01(d) or 6.01(e), such Contributed Property shall no longer constitute a Contributed Property, but shall be deemed to be an Adjusted Property "Curative Allocation" means any allocation of an item of income, gain, deduction, loss or credit pursuant to the provisions of Section 6.02(c). "Debtor Relief Laws" means the Bankruptcy Code of the United States, and any successor statute of similar import, and all other applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium, readjustment of debt, compromise, rearrangement, receivership, insolvency, fraudulent transfer or conveyance, reorganization or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "Dissolution Event" has the meaning specified in Section 2.05. "Economic Risk of Loss" has the meaning set forth in Treasury Regulation Section 1.752-2(a). "GAAP" means generally accepted United States accounting principles, applied by BP on a consistent basis (except for changes made due to the implementation of new or revised standards issued by the Financial Accounting Standards Board), which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles observed by BP in a current period are comparable in all material respects with those accounting principles applied by BP in a preceding period. "Governmental Authority" means (i) any nation or government, (ii) any federal, state, county, province, city, town, municipality, local or other political subdivision thereof or thereto, (iii) any court, tribunal, department, commission, board, bureau, instrumentality, agency, council, arbitrator or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and (iv) any other governmental entity, agency or authority having or exercising jurisdiction over any relevant Person, item or matter. "Indemnified Persons" has the meaning specified in Section 11.06. -6- 39 "Joint Venture Agreement" means the Joint Venture Agreement dated as of March 31, 1998 between Sterling and BP. "Laws" means (i) all laws, statutes, rules, regulations, ordinances, orders, writs, injunctions or decrees and other pronouncements having the effect of law of any Governmental Authority and (ii) all Contracts with any Governmental Authority relating to compliance with the matters described in (i) above. "Liability" means, with respect to any Person, any indebtedness, obligation and other liability of such Person, whether absolute, accrued, contingent, fixed, liquidated or otherwise, or whether due or to become due. "Lien" means (i) any lien, charge, mortgage, pledge, hypothecation, assignment, security interest, assessment, levy or encumbrance of any kind or nature whatsoever (whether voluntary or involuntary, affirmative or negative, and whether imposed or created by Contract, operation of Law or otherwise) in, on, of or with respect to any Assets of the applicable Person, whether now owned or hereafter acquired, (ii) any Contract to give any of the foregoing and (iii) any conditional sale or other title retention agreement and any financing lease having substantially the same effect as any of the foregoing. "Liquidator" has the meaning specified in Section 11.01. "Losses" means any and all damages (including special, consequential, exemplary or punitive damages), fines, penalties, judgments, deficiencies, losses, costs and expenses, including court costs, reasonable fees of attorneys, legal assistants, consultants, accountants and other experts and other reasonable expenses of any Claim. "Major Acquisitions" means, for any fiscal year of the Company, the acquisition of Assets by the Company, in a single transaction or series of related transactions, for consideration in an aggregate amount exceeding ***. "Major Expenditures" means, for any fiscal year of the Company, (i) all capital expenditures in such fiscal year which, when aggregated with the capital expenditures included in the Annual Business Plan for such fiscal year, exceed the aggregate amount of capital expenditures approved in such Annual Business Plan by more than ***, (ii) a reallocation of capital expenditure amounts between and among authorized categories of spending in the Annual Business Plan for such fiscal year which, when aggregated with all other such reallocations in such fiscal year, exceeds ***, (iii) any capital expenditures not included as a line item in the Annual Business Plan for such fiscal year (other than capital expenditures which are consistent with or incidental to such approved line items and which do not, in the aggregate, exceed ***) and (iv) operating and personnel expenses not included in the Annual Business Plan for such fiscal year; provided, however, that the term "Major Expenditures" shall not include any expenditures related to the acquisition of any Assets. -7- 40 "Manager" means a manager of the Company. "Member" means any Person executing this Agreement as of the date of this Agreement as a member or hereafter admitted to the Company as a member as provided in this Agreement; provided, however, that such term does not include any Person which has ceased to be a member in the Company. "Membership Interest" means the interest of a Member in the Company, including rights to distributions (liquidating or otherwise), allocations, information and to consent or approve. "Net Agreed Value" means (i) in the case of any Contributed Property, the Agreed Value of such Contributed Property reduced by any Liabilities either assumed by the Company upon such contribution or to which such Contributed Property is subject when contributed, and (ii) in the case of any Asset of the Company distributed to a Member by the Company, the Company's Carrying Value of such Asset (as adjusted pursuant to Section 6.01(e)) at the time such Asset is distributed, reduced by any indebtedness either assumed by such Member upon such distribution or to which such Asset is subject at the time of distribution, in either case, as determined under Section 752 of the Code. "Net Income" means, for any fiscal year of the Company, the excess, if any, of the Company's items of income and gain (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such fiscal year over the Company's items of loss and deduction (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such fiscal year. The items included in the calculation of Net Income shall be determined in accordance with Section 6.01(b) and shall not include any items specially allocated under Section 6.02(c). "Net Loss" means, for any fiscal year of the Company, the excess, if any, of the Company's items of loss and deduction (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such fiscal year over the Company's items of income and gain (other than those items taken into account in the computation of Net Termination Gain or Net Termination Loss) for such fiscal year. The items included in the calculation of Net Loss shall be determined in accordance with Section 6.01(b) and shall not include any items specially allocated under Section 6.02(c). "Net Termination Gain" means the sum, if positive, of all items of income, gain, loss or deduction recognized by the Company for the fiscal year of the Company that includes the date on which the Company is liquidated and all fiscal years thereafter. The items included in the determination of Net Termination Gain shall be determined in accordance with Section 6.01(b) and shall not include any items of income, gain or loss specially allocated under Section 6.02(c). -8- 41 "Net Termination Loss" means the sum, if negative, of all items of income, gain, loss or deduction recognized by the Company for the fiscal year of the Company that includes the date on which the Company is liquidated and all fiscal years thereafter. The items included in the determination of Net Termination Loss shall be determined in accordance with Section 6.01(b) and shall not include any items of income, gain or loss specially allocated under Section 6.02(c). "Nonrecourse Built-in Gain" means, with respect to any Contributed Properties or Adjusted Properties that are subject to a Lien securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Members pursuant to Sections 6.03(b)(i)(A), 6.03(b)(ii)(A) and 6.03(b)(iii) if such Assets were disposed of in a taxable transaction in full satisfaction of such Liabilities and for no other consideration. "Nonrecourse Deductions" means any and all items of loss, deduction or expenditures (including any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability. "Nonrecourse Liability" has the meaning specified in Treasury Regulation Section 1.752-1(a)(2). "Partner Nonrecourse Debt" has the meaning specified in Treasury Regulation Section 1.704-2(b)(4). "Partner Nonrecourse Debt Minimum Gain" has the meaning specified in Treasury Regulation Section 1.704- 2(i)(2). "Partner Nonrecourse Deductions" means any and all items of loss, deduction or expenditures (including any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(i), are attributable to a Nonrecourse Liability. "Partnership Minimum Gain" means the amount determined in accordance with Treasury Regulation Section 1.704-2(d). "Percentage Interests" means ***. "Permitted Liens" means (i) statutory liens for Taxes if the same shall at the time not be delinquent or thereafter may be paid without penalty or if such Taxes are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, (ii) Liens consisting of easements, zoning restrictions or other restrictions on the use of real property that do not materially affect the value of the Assets encumbered thereby or materially impair the ability of the owner thereof to use such Assets in its business as is -9- 42 presently being conducted, (iii) with respect to any Person, Liens of landlords, mechanics, materialmen, warehousemen, carriers or other statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business of such Person, (iv) with respect to any Person, Liens resulting from deposits to secure payments of workmen's compensation or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids or Contracts in the ordinary course of business of such Person, and (v) purchase money security interests. "Permitted Transfer" has the meaning specified in Section 10.01. "Person" means any individual, firm, corporation, trust, association, company, limited liability company, joint stock company, partnership, joint venture, Governmental Authority or other entity or enterprise. "Production Agreement" means the Amended and Restated Production Agreement dated as of March 31, 1998 between Sterling and BP. "Recapture Income" means any gain recognized by the Company (computed without regard to any adjustment required by Section 734 or 743 of the Code) upon the disposition of any Asset of the Company, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such Asset. "Representatives" has the meaning specified in Section 7.03(a). "Required Allocation" means any allocation (or limitation imposed on an allocation) of an item of income, gain, deduction or loss pursuant to Section 6.02(c)(i) through Section 6.02(c)(vi). "Residual Gain" or "Residual Loss" means any item of gain or loss, as the case may be, of the Company recognized for federal income tax purposes resulting from a sale, exchange or other disposition of a Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Sections 6.03(b)(i)(A) or 6.03(b)(ii)(A) to eliminate Book-Tax Disparities. "Secretary of State" means the Secretary of State of the State of Delaware. "Sterling" has the meaning specified in the introductory paragraph of this Agreement. "Sterling Representative" has the meaning specified in Section 7.03(a). "Tax Adjustment" has the meaning specified in Section 6.01(f). "Tax Matters Member" has the meaning specified in Section 9.05. -10- 43 "Taxes" means any and all taxes, assessments, imposts, deductions, charges, withholdings, Claims and levies assessed or imposed by any Governmental Authority and all Liabilities with respect thereto, including any sales, use, occupation, transfer, stock transfer, real property transfer, export, recording, gains, stamp, documentary, income, windfall profits, franchise, license, excise, payroll, social security, withholding, service, service use, ad valorem and property taxes, charges and similar levies and fees. "Territory" means ***. "Third Parties" means any Person other than the Company, the Members and their respective Affiliates. "Transfer" means any sale, exchange, gift, assignment, grant of a Lien in or on, transfer by will or intestacy or other disposition of any Membership Interest (or any interest therein) or of all or part of the voting power (other than the granting of a revocable proxy) associated with any Membership Interest (or any interest therein) whatsoever, or any other transfer of beneficial ownership of any Membership Interest, whether voluntary or involuntary, including any such disposition or transfer as a part of any liquidation of a Member's Assets or any reorganization of a Member pursuant to any Debtor Relief Law. "Transferee" means any assignee, transferee, secured party, creditor, trustee, receiver or other Person who obtains any Membership Interest, whether pursuant to Article X, a Permitted Transfer or Debtor Relief Law or by attachment, execution or operation of law. "Treasury Regulations" means the Income Tax Regulations promulgated under the Code. "Unrealized Gain" means, with respect to any Asset of the Company, as of the date of determination, the excess, if any, of (i) the fair market value of such Asset (as determined under Section 6.01(d) or 6.01(e), over (ii) the Carrying Value of such Asset (prior to any adjustment to be made pursuant to Section 6.01(d) or 6.01(e) as of such date). "Unrealized Loss" means, with respect to any Asset of the Company, as of the date of determination, the excess, if any, of (i) the Carrying Value of such Asset (prior to any adjustment to be made pursuant to Section 6.01(d) or 6.01(e) as of such date) over (ii) the fair market value of such Asset as determined under Section 6.01(d) or 6.01(e). "Whole Board" has the meaning specified in Section 7.03(a). -11- 44 Section 5.02 Interpretation. In this Agreement, unless a clear contrary intention appears: (a) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement; (b) reference to any gender includes each other gender and the neuter; (c) all terms defined in the singular shall have the same meanings in the plural and vice versa; (d) reference to any Person includes such Person's heirs, executors, personal representatives, administrators, successors and assigns; provided, however, that nothing contained in this clause (d) is intended to authorize any assignment not otherwise permitted by this Agreement; (e) reference to a Person in a particular capacity or capacities excludes such Person in any other capacity; (f) reference to any Contract means such Contract as amended, supplemented or modified from time to time in accordance with the terms thereof; (g) all references to Articles and Sections shall be deemed to be references to the Articles and Sections of this Agreement; (h) all references to Exhibits shall be deemed to be references to the Exhibits attached hereto which are made a part hereof and incorporated herein by reference; (i) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (j) with respect to the determination of any period of time, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding"; (k) the captions and headings contained in this Agreement shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise; (l) reference to any Law means such Law as amended, modified, codified, reenacted, supplemented or superseded in whole or in part, and in effect from time to time; (m) references to sections of the Code shall be construed to also refer to any successor sections. -12- 45 (n) accounting terms used but not defined herein shall be construed in accordance with GAAP, and whenever the character or amount of any Asset, Liability or item of income or expense is required to be determined, or any consolidation or accounting computation is required to be made, such determination or computation shall be made in accordance with GAAP; (o) where any provision of this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person; (p) a Claim shall be deemed to be threatened against or with respect to any Person if any demand or statement shall have been made to such Person (orally or in writing) or any notice shall have been given to such Person (orally or in writing) that could reasonably be expected to lead such Person prudently to conclude that there is a reasonable possibility that such a Claim will be asserted, commenced, taken or otherwise pursued against or with respect to such Person in the future; and (q) no provision of this Agreement shall be interpreted or construed against any Member solely because that Member or its legal representative drafted such provision. ARTICLE VI ORGANIZATION Section 6.01 Formation. The Company has been or will be organized as a Delaware limited liability company by the filing of a Certificate of Formation in the form attached hereto as Exhibit C (the "Certificate of Formation") under and pursuant to the Act and the issuance of a Certificate of Formation certified by the Secretary of State. Except as otherwise specifically provided in this Agreement, the Members shall have the rights and Liabilities specified in the Act. Section 6.02 Name. The name of the Company is "ANEXCO, LLC" and all business of the Company shall be conducted in that name or such other names as the Board may select that comply with applicable Law. Section 6.03 Offices; Registered Agent. The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent named in the Certificate of Formation or such other office (which need not be a place of business of the Company) as the Board may designate in the manner provided by Law. The registered agent of the Company in the State of Delaware shall be the initial registered agent named in the Certificate of Formation or such other Person or Persons as the Board may designate in the manner provided by Law. The principal office of the Company in the United States shall be at such place as the Board may designate, which need not be in the State of Delaware. The Company may have such other offices as the Board may designate. -13- 46 Section 6.04 Foreign Qualification. Prior to the Company's conducting business in any jurisdiction other than the State of Delaware, the Board shall cause the Company to comply, to the extent procedures are available and those matters are reasonably within the control of the Board, with all requirements necessary to qualify the Company as a foreign limited liability company in that jurisdiction. At the request of the Board, each Member shall execute, acknowledge, swear to and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue or terminate the Company as a foreign limited liability company in all such jurisdictions in which the Company may conduct or cease conducting business, as the case may be. Section 6.05 Term. The term of the Company shall begin on the date that the Certificate of Formation is filed with the Secretary of State and continue thereafter until the business and affairs of the Company are wound up following the dissolution of the Company after the first of the following events to occur (each, a "Dissolution Event"): (a) the written consent of all of the Members; (b) any event which makes it unlawful for the business of the Company to be continued; (c) the termination of the Joint Venture Agreement; (d) the termination of the *** or the Production Agreement for any reason if, within 30 days after the effective date of such termination, either BP or Sterling provides written notice to the Company and the other Members of its election to have the Company dissolved and liquidated; (e) the breach by any Member of any material covenant, agreement, term, provision or condition of this Agreement which is not remedied within 30 days after receipt from another Member of a written notice of such breach if, within 10 days after the expiration of such 30-day period, the Member that provided such notice provides written notice to the Company and the other Members of its election to have the Company dissolved and liquidated; (f) the sale or other disposition of all of the Assets of the Company; provided, however, that if such sale or other disposition results in the acquisition of a receivable by the Company, then the Company shall not dissolve until such receivable has been collected; or (g) any other event which under this Agreement or the Act results in the dissolution of the Company. No Member shall cause a dissolution of the Company, directly or indirectly, except as provided for in this Section 2.05. -14- 47 Section 6.06 No State Law Partnership. The Members intend that the Company not be a partnership (including a limited partnership) or joint venture, and that, except as otherwise expressly provided in the Joint Venture Agreement, no Member be a partner or joint venturer of any other Member, for any purposes other than federal and state Tax purposes, and this Agreement may not be construed to suggest otherwise. Section 6.07 Title to Company Assets. Title to the Assets of the Company shall be deemed to be owned by the Company as an entity, and no Member, individually or collectively, shall have any ownership interest in such Assets or any portion thereof. Title to any or all Assets of the Company may be held in the name of the Company or one or more of its Affiliates, as the Board may determine. All Assets of the Company shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to any of such Assets is held. ARTICLE VII PURPOSE AND BUSINESS Section 7.01 Scope of Company Business. The purpose and business of the Company shall be to sell and distribute in the Territory, pursuant to the provisions of the Joint Venture Agreement, acrylonitrile produced, purchased or otherwise obtained by the Members. In addition, the Company may carry on any business that a company organized under the Act may carry on that is necessary or incidental to such purpose, or otherwise appropriate given such purpose, that is not forbidden by this Agreement or the Act. Section 7.02 Restricted Activities. The Company shall conduct no business other than the businesses permitted under Section 3.01. Section 7.03 Customer Claims. The Company shall have sole responsibility for handling and resolving any Claims by its customers and other third parties, and shall bear all costs in defense thereof, for alleged damage to persons, property or the environment arising from the marketing and sale of acrylonitrile and any other chemicals sold by the Company, whether supplied by any of the Members or obtained from third parties by purchase, exchange or otherwise, including any combination of acrylonitrile and other chemicals commingled in terminal or other storage facilities. Section 7.04 Insurance. The Company shall procure and maintain in full force and effect during the term of this Agreement insurance coverage of such types and in such amounts as may be deemed advisable by the Board, from time to time, insuring against the Liability risks of the Company unless the costs of such insurance, when compared with the risks involved, are determined by the Board to not be economically justified. -15- 48 Section 7.05 Health, Safety and Environmental Compliance. The Company shall at all times comply in all material respects with any and all applicable Laws and permits and orders of Governmental Authorities pertaining to health, safety and the environment and with any applicable policies and procedures established by BP or its parent company pertaining thereto. Section 7.06 Affiliate Transactions. No Contract between the Company and a Member or any of its Affiliates which is approved by the Board shall be deemed to constitute a breach of such Member's obligations to the Company, including duties of loyalty, care and good faith under the Act and such other duties as may be imposed under the Act or any other applicable Law. Section 7.07 Conflicts of Interest. Subject to the express provisions of this Agreement and the Joint Venture Agreement, each Member, Manager and officer of the Company and each of their respective Affiliates may engage in and possess interests in other business ventures of any and every type and description, independently or with others (other than, to the extent not specifically permitted in the Joint Venture Agreement, business ventures which compete with the Company in the Territory), with no obligation to offer the Company or any other Member, Manager or officer of the Company or any of their respective Affiliates the right to participate therein. ARTICLE VIII MEMBERSHIP Section 8.01 Initial Members. The initial Members of the Company are Sterling and BP, each of which is admitted to the Company as a Member effective contemporaneously with the execution by Sterling and BP of this Agreement. The respective name, address, Percentage Interest and Capital Contribution of each Member is set forth on Exhibit B hereto. The Membership Interest of each Member shall be personal property for all purposes. Section 8.02 Additional Members. Additional Persons may be admitted to the Company and Membership Interests may be created and issued to those Persons and to existing Members with the consent of the Members. The admission of such Person(s) to the Company and the creation of such Membership Interests shall be on such terms and conditions as the Members may agree at the time of admission. The terms of admission or issuance must specify the Percentage Interest applicable to the new Membership Interest and may provide for the creation of different classes or groups of Members having different rights, powers and duties. The Members shall reflect the creation of any new class or group of Members in an amendment to this Agreement which indicates the different rights, powers and duties. No such admission shall be recognized by the Company for any purpose until the Company and each of the Members has received a document executed by the Person to be admitted to the Company as a Member which includes the address and numbers of the Person to be admitted to the Company as a Member for notification purposes, such Person's agreement to be bound by this Agreement in respect of the Membership Interest acquired and such representations and warranties of such Person as the Company or the members may reasonably request. -16- 49 Section 8.03 Interests in a Member. A Member that is not a natural Person may not cause or permit an interest, direct or indirect, in itself to be disposed of such that, after the disposition, the Company would be considered to have terminated within the meaning of Section 708 of the Code. Section 8.04 Lack of Authority. Except as otherwise provided herein, no Member has the authority or power to (a) act for or on behalf of the Company, (b) bind the Company in any respect or (c) incur any expenditure on behalf of the Company. Section 8.05 Withdrawal of Members; Bankrupt Members. (a) No Member may withdraw from the Company prior to the dissolution of the Company, the completion of the winding up of the affairs of the Company and the liquidation (and/or distribution, as the case may be) of the Assets of the Company pursuant to the provisions of Article XI and, thereafter, each Member shall be entitled to receive those amounts (and only those amounts), if any, which are distributable to it pursuant to the provisions of Article XI. No Bankruptcy or dissolution or other occurrence with respect to, or act of, a Member shall dissolve the Company. If a Member dissolves, the legal representative of such Member may exercise all of its rights for the purpose of administering its Assets, including (but subject to the provisions of this Agreement) any power it has to assign its Membership Interest and to give an assignee the right to become a Member of the Company. All Persons who are liable for the obligations of any Member shall continue to be liable for the Liabilities of the Member notwithstanding the Bankruptcy or dissolution of such Member. (b) Upon the Bankruptcy of any Member, the Company shall have the option, exercisable by notice from the Company to such Member (a "Bankrupt Member") at any time prior to the 180th day after receipt of notice of the occurrence of an event causing it to become a Bankrupt Member, to buy, and on the exercise of such option the Bankrupt Member (or its representative) shall sell to the Company, the Bankrupt Member's Membership Interest. The purchase price for such Membership Interest shall be an amount equal to the fair market value of the Membership Interest as determined by agreement of the Bankrupt Member (or its representative) and the Company; provided, however, that if the Bankrupt Member (or its representative) and the Company do not agree on the fair market value on or before the 30th day following the exercise of the option, either the Bankrupt Member (or its representative) or the Company may require the determination of the fair market value to be made by an independent appraiser specified in a notice made to the other. If the Bankrupt Member (or its representative) or the Company receiving such notice objects, on or before the tenth day following receipt of the notice, to the designation of the independent appraiser named in the notice, and the Bankrupt Member (or its representative) and the Company otherwise fail to agree on an independent appraiser, then either the Bankrupt Member (or its representative) or the Company may petition a court of appropriate jurisdiction to designate an appraiser. The determination of the fair market value of the Membership Interest made by the independent appraiser, however chosen, shall be final and binding on all parties. -17- 50 (c) The Bankrupt Member and the Company shall each pay one-half of the costs of the appraisal. The Company shall pay the fair market value agreed upon or determined by the appraiser in four equal cash installments, the first such payment due on the closing of the purchase and one of the remaining installments (together with accumulated interest on the amount unpaid) shall be due and payable on each of the next three anniversaries of such closing until the purchase price shall have been paid in full. The payments to be made to the Bankrupt Member (or its representative) under this Section 4.05(c) are in complete liquidation and satisfaction of all the rights and interests of the Bankrupt Member (or its representative) and of all Persons claiming by, through or under the Bankrupt Member (or its representative) in respect of (i) the Company, including the Membership Interest of the Bankrupt Member, (ii) any rights in specific Assets of the Company, (iii) any rights against the Company and (iv) insofar as the affairs of the Company are concerned, against the other Members. If at the time a Member becomes a Bankrupt Member there is only one other Member, such other Member shall have all of the rights of the Company under this Section 4.05. Section 8.06 Expulsion. A Member may not be expelled from the Company. Section 8.07 Actions Reserved to the Members. The Board and the President shall not have the right or power to take any of the following actions without the prior unanimous consent of the Members: (a) any amendment or restatement of this Agreement or the Certificate of Formation (including any change in the purpose or scope of business activities) or the termination of this Agreement; (b) the admission of new Members to the Company, other than as a result of a Permitted Transfer; (c) the issuance of any equity interest in the Company, or any option, right, warrant or appreciation right relating thereto, or any other type of equity or debt security that the Company may lawfully issue; (d) the merger or consolidation of the Company with or into any other Person or the reorganization, recapitalization, liquidation or dissolution of the Company; (e) any investment in, acquisition or purchase of any stock, partnership, joint venture interest or other security of or any interest in, or any loan, advance or contribution of capital to, any other Person; (f) any commencement of an event of Bankruptcy; and (g) any other action or series of actions which constitutes a deviation from the stated purposes and business of the Company under Article III. -18- 51 Section 8.08 Annual Meetings. The annual meeting of the Members shall be held on such date and at such time and place as shall be determined by the Board unless, in the case of any such annual meeting, another date, time and/or place is fixed therefor by a majority of the Members. At each annual meeting of the Members, the Members shall elect members of the Board to succeed any members of the Board whose terms have expired or are scheduled to expire before the next annual meeting of the Members and to transact such other business as may lawfully come before the meeting. The Secretary of the Company shall give at least ten days' advance notice of the time, place and date of each annual meeting to each Member. Section 8.09 Special Meetings. Special meetings of the Members shall be called by the Secretary of the Company upon the request of the Chairman of the Board or the President of the Company or upon the request of at least one of the Members. The Secretary of the Company shall give at least 48 hours' advance notice of the time, place and date of each such special meeting, and the purpose or purposes for which the meeting is called, to each Member. Business transacted at any special meeting of the Members shall be limited to the purposes stated in the notice or any waivers of notice for such meeting. Section 8.10 Quorum and Voting. The presence of a majority of the Members shall be necessary and sufficient to constitute a quorum for the transaction of business at all meetings of the Members. The vote of a majority of the Members present at any such meeting at which there is a quorum shall decide any matter properly submitted to such meeting unless the matter is one upon which the vote of a greater number of the Members is required by applicable Law or by express provision of the Certificate of Formation or this Agreement, in which case the vote of such greater number shall govern and control the decision of such matter. If at any meeting of the Members there shall be less than a quorum present, a majority of the Members present may adjourn the meeting from time to time until a quorum is obtained. A meeting of the Members at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Members; provided, however, that no action of the remaining Members shall constitute the act of the Members unless the action is approved by at least a majority of the required quorum for the meeting or such greater number of Members as shall be required by applicable Law or by express provision of the Certificate of Formation or this Agreement. Attendance by a Member at a meeting shall constitute a waiver of notice of such meeting except where such Member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 8.11 Telephonic Meetings. Unless otherwise restricted by the Certificate of Formation or this Agreement, Members may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another, and such participation in a meeting shall constitute presence in person at such meeting. Section 8.12 Action by Written Consent. Any action required or permitted to be taken at a meeting of the Members may be taken without a meeting if a consent in writing, setting -19- 52 forth the action to be taken, shall be signed by all of the Members. All such written consents shall be filed with the minutes of proceedings of the Members. Section 8.13 Non-Liability of Members. No Member shall be personally liable or responsible for the Liabilities of the Company. ARTICLE IX CONTRIBUTIONS Section 9.01 Contributions. (a) Unless otherwise agreed by the Members, each Member shall deliver to the Company the Capital Contribution described in Exhibit B contemporaneously with the execution of this Agreement,. (b) In exchange for their Capital Contributions, the Members shall own, hold and be entitled to Membership Interests in the Company with the Percentage Interests shown on Exhibit B, such Membership Interests to be subject to all of the terms, provisions and conditions of this Agreement. Except as otherwise provided for by the Act, the Capital Contribution of each Member shall constitute the full obligation of such Member to furnish funds or property to the Company and no additional funds or other property shall be required of any Member. (c) Except as otherwise provided in Section 11.07 or as may otherwise be unanimously agreed by the Members, no Member shall be required, nor have the right, to make additional Capital Contributions to the Company. All costs and expenses of the Company shall be funded out of its revenues and, if and to the extent approved by the Board pursuant to Section 7.02, borrowing from commercial or institutional lenders, other Third Parties or the Members or their respective Affiliates. Section 9.02 Interest. No interest shall be paid by the Company on any Capital Contribution of any Member or on the balance in the Capital Account of any Member. Section 9.03 Return of Capital. A Member shall not be entitled to have any part of its Capital Contribution or its Capital Account returned to it or to receive any distributions from the Company, except in accordance with this Agreement or, if this Agreement is silent in respect of any particular situation, the Act. No Capital Contribution shall be deemed or considered to be a Liability of the Company or any Member. Except as otherwise provided in Section 11.07, no Member shall be required to contribute or lend any cash or property to the Company in order to enable the Company to return any Member's Capital Contribution. Section 9.04 Advances by Members. Subject to Section 5.01(c), any Member (or any Affiliate of any Member) may make loans to the Company in order to satisfy the Liabilities of the Company or further the business of the Company. Any such loan shall not be considered a -20- 53 Capital Contribution and shall be on such terms and conditions as are determined between the Company and the Member or Affiliate making such loan; provided, however, that the rate of interest charged on any such loan may not exceed the rate (including points or other financing charges or fees) that would be charged to the Company by unrelated lenders on a comparable loan. Section 9.05 Creditors of the Company. No creditor of the Company will have or shall acquire at any time any direct or indirect interest in the profits, capital or Assets of the Company (other than as a secured creditor, if applicable, as a result of making a loan to the Company which is approved by the Board pursuant to Section 7.02). ARTICLE X CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS Section 10.01 Capital Accounts. (a) The Company shall establish and maintain for each Member a separate Capital Account in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). To the extent not inconsistent with such regulation, the Capital Account of each Member shall be (i) increased by (A) the cash amount or Net Agreed Value of all Capital Contributions made or deemed made to the Company by such Member pursuant to this Agreement and (B) all items of Company income and gain (including income and gain exempt from tax) computed in accordance with Section 6.01(b) and allocated to such Member pursuant to Section 6.02, and (ii) decreased by (A) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or Assets made to such Member pursuant to this Agreement and (B) all items of Company deduction and loss computed in accordance with Section 6.01(b) and allocated to such Member pursuant to Section 6.02. The Members have agreed that the Net Agreed Value of the initial Capital Contributions made by each of them are the amounts set forth on Exhibit B. (b) For purposes of computing the amount of any item of income, gain, loss or deduction to be reflected in the Capital Accounts of the Members, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes (including any method or methods of depreciation, cost recovery or amortization used for that purpose); provided, however, that: (i) Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Company and, as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalized for federal income tax purposes. -21- 54 (ii) Any income, gain or loss attributable to the taxable disposition of any Assets of the Company shall be determined as if the adjusted basis of each such Asset as of the date of disposition was equal in amount to the Carrying Value with respect to such Asset as of such date. (iii) In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery or amortization attributable to any Contributed Property shall be determined as if the adjusted basis of such Contributed Property on the date it was acquired by the Company was equal to the Agreed Value of such Contributed Property. Upon any adjustment pursuant to Section 6.01(d) or 6.01(e) to the Carrying Value of any Assets of the Company subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such Assets shall be determined (A) as if the adjusted basis of such Assets was initially equal to the Carrying Value of such Assets immediately following such adjustment and (B) using a rate of depreciation, cost recovery or amortization derived from the same method and useful life (or, if applicable, the remaining useful life) as is applied for federal income tax purposes; provided, however, that, if any of such Assets has a zero adjusted basis for federal income tax purposes, depreciation, cost recovery or amortization deductions shall be determined using any reasonable method that the Tax Matters Member may adopt. (iv) If the Company's adjusted basis in a depreciable or cost recovery Asset is reduced for income tax purposes pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of reduction shall, solely for the purposes hereof, be deemed to be an additional depreciation or cost recovery deduction in the fiscal year of the Company during which such Asset is placed in service and shall be allocated among the Members pursuant to Sections 6.02, 6.03 and 6.04 and any restoration of such basis pursuant to Section 48(q)(2) of the Code shall, to the extent possible, be allocated in the same manner to the Members to whom such deemed deduction was allocated. (c) A transferee of a Membership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Membership Interest so transferred. If, however, the transfer causes a termination of the Company under Section 708(b)(1)(B) of the Code, the Assets of the Company shall be deemed to have been contributed to a new company which will be deemed to be a continuation of, and successor to, the Company, and the Company will be deemed to make liquidating distributions of the interests in such new company to the Members (including any transferee of a Membership Interest that is a party to the transfer causing such termination) pursuant to Article XI. Any such deemed distribution shall be treated as an actual distribution for purposes of this Section 6.01. In such event, the Carrying Values of the Assets of the Company shall be adjusted immediately prior to such deemed contribution and distribution pursuant to Section 6.01(e), and such Carrying Values shall then constitute the Agreed Values of such Assets upon such deemed contribution to the reconstituted company. The Capital Accounts of such reconstituted company shall be maintained in accordance with the principles of this Section 6.01. (d) Consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f), upon an issuance of additional Membership Interests for cash or Contributed Property, the Capital Accounts of the Members and the Carrying Value of all Assets of the Company -22- 55 immediately prior to such issuance shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Assets, as if such Unrealized Gain or Unrealized Loss had been recognized on a sale of such Assets immediately prior to such contribution for an amount equal to its fair market value. Any Unrealized Gain or Unrealized Loss attributable to such Assets shall be allocated in the manner set forth in Section 6.02(b). In determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market value of all Assets of the Company (including cash or cash equivalents) immediately prior to the issuance of additional Membership Interests shall be determined by the Tax Matters Member using such reasonable method of valuation as it may adopt. (e) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a Member of any Assets of the Company (other than a distribution of cash that is not in redemption or retirement of a Membership Interest), the Capital Accounts of all Members and the Carrying Value of all Assets of the Company shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Assets, as if such Unrealized Gain or Unrealized Loss had been recognized on a sale of such Assets immediately prior to such distribution for an amount equal to its fair market value. Any Unrealized Gain or Unrealized Loss attributable to such Assets shall be allocated in the same manner as set forth in Section 6.02(b). In determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market value of all Assets of the Company (including cash or cash equivalents) immediately prior to a distribution shall be determined and allocated among such Assets by the Tax Matters Member using such reasonable method of valuation as it may adopt. (f) If the Company's items of income, gain, loss or deduction are adjusted by any taxing authority by reason of a transaction between the Company and a member of a group of organizations under common ownership or control (of which the Company is also a member), including adjustments pursuant to Section 482 of the Code or any similar provisions under state, local or foreign Law (any such adjustment, a "Tax Adjustment") and such Tax Adjustment results in a deemed Capital Contribution to the Company by any Member or a deemed distribution by the Company to any Member, (i) the Capital Account of any Member that is deemed to have made any such Capital Contribution shall be increased by the amount of such Capital Contribution and (ii) the Capital Account of any Member that is deemed to have received any such deemed distribution shall be reduced by the amount of such distribution. In general, the adjustments to Capital Accounts pursuant to this Section 6.01(f) are intended to cause, after taking into account the adjustments to Capital Accounts pursuant to this Section 6.01(f) and Section 6.02(c)(ix), the balance in each Member's Capital Account, to the extent possible, to be equal to the balance which would have been in such Capital Account if no Tax Adjustment had occurred. Section 6.02. Allocations for Capital Account Purposes. (a) For purposes of allocating among the Members the items computed under Section 6.01(b) to be reflected in the Capital Accounts of the Members, subject to the special allocations set forth in Section 6.02(c), all items of income, gain, loss, deduction and credit of the Company taken into account in computing Net Income or Net Loss with respect to any fiscal year of the Company, shall be allocated among -23- 56 the Members in each fiscal year of the Company (or portion thereof) in accordance with their Percentage Interests. For purposes of allocating items of income, gain, loss, deduction and credit among the Members in any fiscal year of the Company during which the Percentage Interests of the Members change as a result of any event, such items shall be allocated as if the books of the Company were closed on the date of such change in Percentage Interests. (b) After giving effect to the special allocations set forth in 6.02(c), all items of income, gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss for the fiscal year that includes the date on which the Company is liquidated (and any subsequent fiscal year) shall be allocated in the same manner as such Net Termination Gain or Net Termination Loss is allocated hereunder. All allocations under this Section 6.02(b) shall be made after balances of the Capital Accounts have been adjusted by all other allocations provided under this Section 6.02 and after all distributions provided under Section 6.04 have been made. If a Net Termination Gain is recognized (or deemed recognized pursuant to Section 6.01(d) or (e)), such Net Termination Gain shall be allocated among the Members in the following manner (and the Capital Accounts of the Members shall be increased by the amount so allocated in each of the following subclauses, in the order listed, before an allocation is made pursuant to the next succeeding subclause): (i) first, to each Member having a deficit balance in its Capital Account, in the proportion that such deficit balance bears to the total deficit balances in the Capital Accounts of all Members, until each such Member has been allocated Net Termination Gain equal to any such deficit balance in its Capital Account; (ii) second, 100% to the Members whose Capital Accounts have a balance which is less than the product of (A) the Percentage Interest of such Member times (B) the total balance of the Capital Accounts of all Members until, to the extent possible, the relative ratios of the balances of the Capital Accounts of the Members are equal to their respective Percentage Interests; and (iii) third, to the Members in accordance with their respective Percentage Interests. If a Net Termination Loss is recognized (or deemed recognized pursuant to Section 6.01(d) or 6.01(e)), such Net Termination Loss shall be allocated among the Members in the following manner (and the Capital Accounts of the Members shall be decreased by the amount so allocated in each of the following subclauses, in the order listed, before an allocation is made pursuant to the next succeeding subclause): (i) first, 100% to the Members whose Capital Accounts have a balance which is greater than the product of (A) the Percentage Interest of such Members times (B) the total of the balances of the Capital Accounts of all Members until, to the extent possible, the relative ratios of the balances of the Capital Accounts of the Members are equal to their respective Percentage Interests; and -24- 57 (ii) second, to the Members in accordance with their respective Percentage Interests. (c) Notwithstanding the foregoing, the following special allocations shall be made: (i) Notwithstanding any other provision of this Section 6.02, if there is a net decrease in the amount of any Partnership Minimum Gain during any taxable year of the Company, each Member shall be allocated items of income and gain of the Company for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 6.02(c), the balance of the Adjusted Capital Account of each Member shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.02(c) with respect to such taxable year (other than an allocation pursuant to Sections 6.02(c)(v) and 6.02(c)(vi)). This Section 6.02(c)(i) is intended to comply with the minimum gain chargeback requirement of Treasury Regulation Section 1.704-2(f) and shall be interpreted and applied in a manner consistently therewith. (ii) Notwithstanding any other provision of this Section 6.02 (other than Section 6.02(c)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in the amount of any Partner Nonrecourse Debt Minimum Gain during any taxable year of the Company, any Member with a share of Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable year shall be allocated items of income and gain of the Company for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 6.02(c), the balance of the Adjusted Capital Account of each Member shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.02(c), other than Section 6.02(c)(i) and other than an allocation pursuant to Sections 6.02(c)(v) and 6.02(c)(vi), with respect to such taxable period. This Section 6.02(c)(ii) is intended to comply with the minimum gain chargeback requirements of Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted and applied consistently therewith. (iii) If any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of income and gain of the Company shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in the Adjusted Capital Account of such Member created by such adjustments, allocations or distributions as quickly as possible. (iv) In the event that any Member has a deficit balance in its Adjusted Capital Account at the end of any taxable period of the Company, such Member shall be specially allocated items of gross income and gain of the Company in the amount of such excess as quickly as possible; -25- 58 provided, however, that an allocation pursuant to this Section 6.02(c)(iv) shall be made only if and to the extent that such Member would have a deficit balance in its Adjusted Capital Account after all other allocations provided for in this Section 6.02 have been tentatively made as if this Section 6.02(c)(iv) were not in this Agreement. (v) Nonrecourse Deductions for any taxable period shall be allocated to the Members in accordance with their Percentage Interests. If the Tax Matters Member determines in its good faith discretion that the Nonrecourse Deductions of the Company must be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the Tax Matters Member is authorized, upon notice to the other Members, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements. (vi) Partner Nonrecourse Deductions for any taxable period shall be allocated 100% to the Member that bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). If more than one Member bears the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall be allocated between or among such Members in accordance with the ratios in which they share such Economic Risk of Loss. (vii) For purposes of Treasury Regulation Section 1.752-3(a)(3), the Members agree that Nonrecourse Liabilities of the Company in excess of the sum of (A) the amount of Partnership Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be allocated among the Members in accordance with the manner in which it is reasonably expected that the deductions attributable to those excess Nonrecourse Liabilities will be allocated. (viii) To the extent an adjustment to the adjusted tax basis of any Asset of the Company pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall treated as an item of gain (if the adjustment increases the basis of the Asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their respective Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations. (ix) In the event that a deduction or loss is imputed to the Company as a result of the imputation of income or gain to any Member by any taxing authority, such resulting deduction or loss shall be allocated among the Members in the same proportion as the Members are required to recognize the corresponding income or gain. In the event that income or gain is imputed to the Company as a result of the imputation of a deduction or loss to any Member, such resulting income or gain shall be allocated among the Members in the same proportion as the Members are required to recognize the corresponding deduction or loss. In general, the allocations pursuant to this Section 6.02(c)(ix), are intended to cause, after taking into account this Section 6.02(c)(ix) and the -26- 59 adjustments to Capital Accounts pursuant to Section 6.01(f), the balance of the Capital Account of each Member, to the extent possible, to be equal to the balance such Capital Account would have had if no Tax Adjustment had occurred. (x) Notwithstanding any other provision of this Section 6.02, other than the Required Allocations, the Required Allocations shall be taken into account in making the Agreed Allocations so that, to the extent possible, the net amount of items of income, gain, loss and deduction allocated to each Member pursuant to the Required Allocations and the Agreed Allocations, together, shall be equal to the net amount of such items that would have been allocated to each such Member under the Agreed Allocations had the Required Allocations and the related Curative Allocations not otherwise been provided in this Section 6.02. Notwithstanding the preceding sentence, Required Allocations relating to (A) Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partnership Minimum Gain and (B) Partner Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section 6.02(c)(x) shall only be made with respect to Required Allocations to the extent that the Tax Matters Member reasonably determines that such Required Allocations will otherwise be inconsistent with the economic agreement among the Members. Further, allocations pursuant to this Section 6.02(c)(x) shall be deferred with respect to allocations pursuant to clauses (A) and (B) hereof to the extent the Tax Matters Member reasonably determines that such allocations are likely to be offset by subsequent Required Allocations. Section 6.03. Allocations for Tax Purposes. (a) Except as otherwise provided herein, for tax purposes, each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 6.02. (b) In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, depreciation, amortization and cost recovery deductions shall be allocated for tax purposes among the Members as follows: (i) (A) in the case of a Contributed Property, such items attributable thereto shall be allocated among the Members in the manner provided under Section 704(c) of the Code that takes into account the variation between the Agreed Value of such Contributed Property and its adjusted basis at the time of contribution; and (B) except as otherwise provided in Section 6.03(b)(iii), any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Members in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 6.02(a); (ii) (A) in the case of an Adjusted Property, such items shall (x) first, be allocated among the Members in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such Adjusted Property and the -27- 60 allocations thereof pursuant to Section 6.01(d) or 6.01(e), and (y) second, in the event such Adjusted Property was originally a Contributed Property, be allocated among the Members in a manner consistent with Section 6.03(b)(i); and (B) except as otherwise provided in Section 6.03(b)(iii), any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Members in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 6.02(a); (iii) any items of income, gain, loss, or deduction otherwise allocable under Sections 6.03(a), 6.03(b)(i)(B) or 6.03(b)(ii)(B), at the election of the Tax Matters Member, shall be subject to allocation in the manner allowed under Treasury Regulation Section 1.704-3 to eliminate Book-Tax Disparities in a Contributed Property or Adjusted Property otherwise resulting from the application of the "ceiling" limitation (under Section 704(c) of the Code or related principles) to the allocations provided under Sections 6.03(b)(i)(A) or 6.03(b)(ii)(A); (iv) notwithstanding anything to the contrary contained in this Agreement, the Company shall not elect to eliminate Book-Tax Disparities pursuant to Treasury Regulation Section 1.704-3(d) and shall limit the curative allocations under Treasury Regulation Section 1.704-3(c) to income, gain, loss and deductions attributable to Assets of the Company with respect to which the Book-Tax Disparity exists; and (v) notwithstanding anything to the contrary contained in this Agreement, it is not intended that items of income or gain be allocated under this Section 6.03(b) and Treasury Regulation Section 1.704-3 with respect to an intangible Asset of the Company that is not an "amortizable section 197 intangible" under Section 197(f)(9) of the Code, even though the Tax Matters Member may elect, pursuant to Section 6.01(b)(iii), to amortize the Carrying Value with respect to such intangible Asset for purposes of maintaining the Capital Accounts of the Members. (c) Any gain allocated to the Members upon the sale or other taxable disposition of any Asset of the Company shall, to the extent possible, after taking into account other required allocations of gain pursuant to this Section 6.03, be characterized as Recapture Income in the same proportions and to the same extent as such Member (or their predecessors in interest) have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income. (d) All items of income, gain, loss, deduction and credit recognized by the Company for tax purposes and allocated to the Members in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code which may be made by the Company; provided, however, that such allocations, once made, shall be adjusted as necessary or appropriate to take into account those adjustments permitted or required by Sections 734 and 743 of the Code. -28- 61 (e) As between a transferor and transferee of any Membership Interest, each item of income, gain, loss, deduction or credit attributable to the transferred Membership Interest shall, for tax purposes, be allocated among the transferor and transferee as if the books of the Company were closed on the date of the transfer and (i) all items of income, gain, loss, deduction or credit attributable to the period ending on or before the date of the transfer shall be allocated to the transferor and (ii) all items of income, gain, loss, deduction or credit attributable to the period beginning on the day after the date of the transfer shall be allocated to the transferee. Section 6.04. Distributions. At such time or times as the Board determines, the Company shall make distributions of cash to the Members in proportion to their respective Membership Interests on the date of such distribution. Section 6.05. Distributions in Kind. The Company may distribute Assets of the Company to the Members in kind as the Members may unanimously agree. All distributions of Assets of the Company in kind (other than in connection with the winding up and liquidation of the Company) shall be made in proportion to the respective Percentage Interests of the Members on the date of any such distribution and may be (as the Members specifically provide) subject to existing Liabilities. Section 6.06. Limitations on Distributions. Notwithstanding anything to the contrary contained in this Agreement, the Company shall not make any distribution of any of its Assets to a Member to the extent that such distribution is not permitted under the Act; provided, however, that a Member who receives a distribution of any Assets of the Company that is not permitted under the terms of Section 18-607 of the Act shall have no Liability under the Act or this Agreement to return such distribution unless the Member knew that such distribution violated the terms of such Section. ARTICLE VII Board of Managers Section 7.01. Management. Except as otherwise provided by applicable Law or by express provision of the Certificate of Formation or this Agreement, the direction and management of the affairs of the Company and the control and disposition of its Assets shall be vested in a board of managers (the "Board"). In addition to the powers and authorities expressly conferred upon the Board by this Agreement, the Board may exercise all the powers of the Company and do all such lawful acts and things as are not by applicable Law, the Certificate of Formation or this Agreement directed or required to be exercised or done by the Members. Section 7.02. Actions Requiring Board Approval. The Company may not take any of the following actions unless such action is required by this Agreement or has been approved by a majority of the Whole Board: -29- 62 (a) any amendment to the Certificate of Formation of the Company or this Agreement, including any change in the name of the Company or its purpose, scope or structure; (b) adoption of the Company's financial statements and business reports; (c) any change in the Capital Contributions or Capital Accounts of the Members; (d) approval of the Annual Business Plan or any material revision to the Annual Business Plan; (e) any making of, or any commitment to make, any Major Expenditure or Major Acquisition; (f) any borrowing of funds by the Company from any Member or any other Person or the issuance of any bonds, debentures or other debt or equity securities; (g) the sale, transfer, lease or otherwise disposition of any Asset of the Company (other than pursuant to a Contract entered into pursuant to an Annual Business Plan) if the aggregate fair market value of the Assets disposed of in a single transaction exceeds $75,000; (h) the incurrence of any Lien (other than a Permitted Lien) on any Asset of the Company; (i) the discontinuation of the business of the Company or the liquidation of the Company; (j) any action which would constitute an event of Bankruptcy with respect to the Company; (k) any change in the distribution of the profits or retained earnings of the Company; (l) the initiation of any litigation or arbitration or other proceedings, or the settlement of any disputes, involving Claims in excess of $75,000; (m) the appointment of any successor to the President; and (n) the selection of a firm of independent certified public accountants to audit the books of account of the Company and outside attorneys to represent the Company. In the event that a majority of the Board fails to approve or disapprove of any of the foregoing matters which is submitted to the Board for its consideration within 30 days of its submission to the Board, the Representatives shall promptly, but in any event within ten days after the expiration of -30- 63 such 30-day period, advise their respective chief executive officers ("CEOs") of such failure and submit such matter to their respective CEOs for resolution. Section 7.03. Number, Qualification and Term of Office. (a) Until the number of Managers constituting the whole Board is changed by an amendment to this Agreement, the number of Managers constituting the whole Board (the "Whole Board") shall be ***. Each Representative shall (i) be a director, officer or employee of the Member that appointed such Representative (or an Affiliate of such Member) and (ii) be the agent of the Member that designated such Representative. Accordingly, (A) each Representative shall act (or refrain from acting) with respect to the business and affairs of the Company solely in accordance with the wishes of the Member that designated such Representative and (B) no Representative shall owe (or be deemed to owe) any duty (fiduciary or otherwise) to the Company or to any Member other than the Member that designated such Representative; provided, however, that nothing contained in this Agreement is intended to or shall relieve or discharge any Representative or Member from liability to the Company or the Members on account of any fraudulent or intentional misconduct of or a knowing violation of Law by such Representative or any transaction from which a Manager derived an improper personal benefit and, provided further, that each Representative shall not disclose any material information regarding the business of the Company and shall not use such information, in either case, in any manner not related to the business of the Company. (b) No decrease in the number of Managers shall have the effect of requiring the removal of, or shortening the term of, any Manager then in office. No Manager needs to be a Member or a resident of the State of Delaware. (c) Each Manager shall serve for a term of office commencing on the effective date of his or her appointment until the first annual meeting of the Members held after the effective date of his or her appointment and until his or her successor shall have been duly appointed and qualified or until his or her earlier death, resignation or removal. Any Manager whose term of office is scheduled to expire may be appointed to succeed himself or herself. Section 7.04. Appointments. Appointments of persons to the Board shall be made by BP (in the case of the BP Representatives) and by Sterling (in the case of the Sterling Representatives). Appointments to the Board by a Member shall be set forth in a notice to the Board and the other Members, each such notice to set forth the exact name of each person so appointed and such person's age, principal occupation, business and residence address and telephone number. Notwithstanding anything in this Agreement to the contrary, only persons who are appointed to the Board in accordance with the procedures set forth in this Section 7.04 (or who are appointed pursuant to Section 7.07 below) shall be appointed as Managers. Section 7.05. Resignation. Each Manager shall have the right to resign at any time upon written notice thereof to the Board or the President of the Company. Unless otherwise specified in the notice, any such resignation shall take effect upon receipt thereof, and the acceptance of such resignation shall not be necessary to make it effective. -31- 64 Section 7.06. Removal. BP may remove any BP Representative at any time, with or without cause, and Sterling may remove any Sterling Representative at any time, with or without cause. The Board may not remove any Manager. Except as otherwise provided in this Section 7.06, a Manager may not be removed prior to expiration of his or her term as Manager. Section 7.07. Vacancies. A vacancy shall be declared in any seat on the Board upon (a) the death, resignation or removal of the occupant thereof or (b) any increase in the number of Managers in accordance with this Agreement. Any vacancy occurring in the Board which results from the death, resignation or removal of a BP Representative may only be filled by BP and any vacancy occurring the Board which results from the death, resignation or removal of a Sterling Representative may only be filled by Sterling. Any Manager so elected shall serve for the remaining portion of the term of the Manager whose death, resignation or removal resulted in such vacancy and until his or her successor shall have been duly elected and qualified or until his or her earlier death, resignation or removal. In the event that the number of Managers constituting the Board is increased, the vacancy resulting from such increase may only be filled by a majority of the Managers then in office and any Manager so appointed shall serve until his or her successor shall have been duly elected and qualified or until his or her earlier death, resignation or removal. Section 7.08. Regular Meetings. The annual meeting of the Board shall be held on such date and at such time and place as the Board shall from time to time determine. At each annual meeting of the Board, the Board shall (a) subject to Section 8.01, elect officers of the Company to succeed any officers whose terms of office are scheduled to expire and (b) transact such other business as may lawfully come before the meeting. The annual meeting of the Board shall be deemed to be a regular meeting. Additional regular meetings of the Board shall be held on such dates and at such times and places as the Board shall from time to time determine; provided, however, that (i) the Board shall have at least four regular meetings during each calendar year and (ii) at least two of such meetings shall be held in person (i.e., without any participation by members of the Board by means of conference telephone or similar communications equipment). At each additional regular meeting of the Board, the Board shall transact such business as may lawfully come before such meeting. The Secretary of the Company shall give at least 30 days' advance notice of the time, place and date of each regular meeting to each Manager, which notice shall include the agenda for the meeting. Any Member may, with at least one business day's advance notice, add items to the agenda for the meeting; provided, however, that if the item of business is approval of any matter described in Section 7.02 above, the other Managers must receive at least 30 days' advance notice that such item will be considered at the meeting. Unless otherwise agreed by a majority of the Whole Board, the only matters which will be considered at a regular meeting of the Board shall be those items set forth in the agenda provided with the notice of the meeting and any items added to such agenda by a Member in accordance with the notice provisions of this Section 7.08. Each Manager shall be solely responsible for the payment of any and all costs and expenses incurred in connection with the participation by such Manager in or at any regular meeting of the Board. -32- 65 Section 7.09. Special Meetings. Special meetings of the Board shall be held whenever called by the Secretary of the Company upon the request of the Chairman of the Board or the President of the Company or upon the request of at least one of the BP Representatives and at least one of the Sterling Representatives. The Secretary of the Company shall give at least 48 hours' advance notice of the date, time, place and purpose of each such special meeting to each Manager. Business transacted at any special meeting of the Board shall be limited to the purposes stated in the notice or any waivers of notice of such meeting. Each Manager shall be solely responsible for the payment of any and all costs and expenses incurred in connection with the participation by such Manager in or at any special meeting of the Board. Section 7.10. Discussions Among Members and Representatives. Each of the Members acknowledges and agrees that it will not, and will cause its Representatives to not, disclose to or discuss with any other Member or any Representatives of any other Member, information regarding such Member's operations and related to any of the following matters: (a) prices, pricing formulas, discounts, credit terms or any other Contract terms or conditions of sale with respect to the sale of any product, co-product or by-product in the United States, Canada or Mexico; (b) markets, customers or marketing strategies for the sale of products, co-products or by-products in the United States, Canada or Mexico, including any refusal to deal with any customer or potential customer; (c) sales results for products, co-products or by-products in the United States, Mexico or Canada; (d) imports of products, co-products or by-products into the United States, Mexico or Canada; (e) profits projections or analyses in the United States, Canada or Mexico; (f) confidential, individual statistical data or competitive plans or forecasts for the United States, Mexico or Canada; or (g) bids or an intent to bid or not bid for any Contract, standardization of bidding or any other kind of communication with respect to bidding or not bidding for Contracts in the United States, Mexico or Canada; provided, however, that the foregoing restriction shall not apply to the disclosure or discussion of any information to the extent that such information is in the public domain and such disclosure or discussion is limited to purposes which are reasonably necessary for the exporting activities of the Company. In addition, each of the Members acknowledges and agrees that it will not, and will cause its Representatives to not, discuss any business of the Company through informal meetings or other -33- 66 interactions with any other Member or any Representatives of any other Member, it being the intention of the Members that all such discussions shall take place at meetings of the Board. Section 7.11. Quorum and Voting. The presence of a majority of the Whole Board, in person or by proxy, shall be necessary and sufficient to constitute a quorum for the transaction of business at all meetings of the Board. The vote of a majority of the Whole Board at any such meeting at which there is a quorum shall decide any matter properly submitted to such meeting unless the matter is one upon which the vote of a greater number of the Managers is required by applicable law or by express provision of the Certificate of Formation or this Agreement, in which event the vote of such greater number shall govern and control the decision of such matter. If at any meeting of the Board there shall be less than a quorum present, a majority of the Managers present may adjourn the meeting from time to time until a quorum is obtained. A meeting of the Board at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Managers; provided, however, that no action of the remaining Managers shall constitute the act of the Board unless the action is approved by at least a majority of the Whole Board or such greater number of Managers as shall be required by applicable Law or by express provision of the Certificate of Formation or this Agreement. Attendance by a Manager at a meeting shall constitute a waiver of notice of such meeting except where such Manager attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. Section 7.12. Proxies. (a) Each Manager may, by a proxy executed in writing by such Manager or by his or her duly authorized attorney-in-fact, authorize another person or persons to act for him or her, to vote at any meeting of the Board or to express consent or dissent to any action of the Company without a meeting. Each such proxy shall be filed with the Secretary of the Company at or before the beginning of any meeting at which such proxy is to be voted. Unless otherwise provided therein, no proxy shall be valid after the term of the Manager issuing such proxy has expired or, in any event, after three years from the date of its execution. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power or unless otherwise made irrevocable by applicable Law. (b) A proxy shall be deemed signed if the Manager's name is placed on the proxy (whether by manual signature, electronic transmission or otherwise) by the Manager or his or her attorney-in-fact. In the event any proxy shall designate two or more persons to act as proxies, a majority of such persons present at the meeting (or, if only one shall be present, then that one) shall have and may exercise all the powers conferred by the proxy upon all the persons so designated unless the proxy shall otherwise provide. (c) Except as otherwise provided by applicable Law, the Certificate of Formation or his Agreement, the Board may, in advance of any meeting of the Managers, prescribe additional regulations concerning the manner of execution and filing of proxies (and the validation of same) which may be voted at such meeting. -34- 67 Section 7.13. Action by Written Consent. Any action required or permitted to be taken at a meeting of the Board may be taken without a meeting if a consent in writing, setting forth the action to be taken, shall be signed by all members of the Board and such consent shall have the same force and effect as a unanimous vote at a meeting. All such written consents shall be filed with the minutes of proceedings of the Board. Section 7.14. Telephonic Meetings. Unless otherwise restricted by the Certificate of Formation or this Agreement, members of the Board may participate in a meeting of the Board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 7.15. Interests in Other Entities. Any action required or permitted to be taken by the Company in its capacity as a member, stockholder or holder of any other equity interest in any other entity may only be taken upon the affirmative vote of a majority of the Whole Board. Section 7.16. Indemnification of Managers, Officers and Others. (a) The Company (i) shall, to the maximum extent permitted from time to time under the Laws of the State of Delaware, indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that such person is or was a Manager or officer of the Company or is or was serving at the request of the Company as a manager, director, officer or fiduciary of another Person (each such person, a "Company Fiduciary"), and (ii) may, to the maximum extent permitted from time to time under the Laws of the State of Delaware, indemnify every person who is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that such person is or was an employee or agent of the Company or any of its direct or indirect subsidiaries or is or was serving at the request of the Company or any of its direct or indirect subsidiaries as an employee or agent of another Person, against expenses (including counsel fees), judgments, fines and amounts paid or owed in settlement actually and reasonably incurred by such person or rendered or levied against such person in connection with such action, suit or proceeding; provided, however, that no indemnification shall be made to any person under this Section 7.16(a) unless such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, in itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that his or her conduct was unlawful. Any person seeking indemnification under this Section 7.16(a) shall be deemed to have met the standard of conduct required for such indemnification unless the contrary is established. -35- 68 (b) The Company (i) shall, to the maximum extent permitted from time to time under the laws of the State of Delaware, indemnify every person who is or was a party or who is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a Company Fiduciary, and (ii) may, to the maximum extent permitted from time to time under the laws of the State of Delaware, indemnify every person who is or was a party or who is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was an employee or agent of the Company or any of its direct or indirect subsidiaries or is or was serving at the request of the Company or any of its direct or indirect subsidiaries as an employee or agent of another Person against expenses (including counsel fees) actually and reasonably incurred by such person in connection with the defense or settlement or such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that no indemnification shall be made to any person under this Section 7.16(b) with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification. (c) Unless otherwise determined by the affirmative vote of a majority of the Whole Board, no indemnification shall be made to any person under Section 7.16(a) or Section 7.16(b): (i) for amounts actually paid to such person pursuant to one or more policies of managers, directors and officers liability insurance maintained by the Company or pursuant to a trust fund, letter of credit or other security or funding arrangement provided by the Company; provided, however, that if it should subsequently be determined that such person is not entitled to retain any such amount, this clause (i) shall no longer apply to such amount; (ii) in respect of remuneration paid to such person if it shall be determined by a final judgment or other final adjudication that payment of such remuneration was in violation of applicable Law; (iii) on account of such person's conduct which is finally adjudged to constitute willful misconduct or to have been knowingly fraudulent, deliberately dishonest or from which such person derives an improper personal benefit; or (iv) on account of any suit in which final judgment is rendered against such person for an accounting of profits made from the sale or purchase by such person of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended. (d) Expenses, including counsel fees and court costs, actually and reasonably incurred by a Company Fiduciary in defending a civil or criminal action, suit or proceeding shall be -36- 69 paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Fiduciary to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorized in this Section 7.16. Such expenses incurred by other employees and agents of the Company and other persons eligible for indemnification under this Section 7.16 may be paid upon such terms and conditions, if any, as the Board deems appropriate. (e) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 7.16 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any provision of Law, the Certificate of Formation, the certificate of incorporation or bylaws or other governing documents of any direct or indirect subsidiary of the Company, under any agreement, vote of Members or disinterested Managers or under any policy or policies of insurance maintained by the Company on behalf of any person or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding any of the positions or having any of the relationships referred to in this Section 7.16. (f) The provisions of this Section 7.16 (i) are for the benefit of, and may be enforced directly by, each Company Fiduciary, the same as if set forth in their entirety in a written instrument executed and delivered by the Company and such Company Fiduciary, and (ii) constitute a continuing offer to all present and future Company Fiduciaries. The Members, on behalf of the Company, (A) acknowledge and agree that each present and future Company Fiduciary has relied upon and will continue to rely upon the provisions of this Section 7.16 in becoming, and serving as, a Company Fiduciary, (B) waive reliance upon, and all notices of acceptance of, such provisions by such Company Fiduciaries and (C) acknowledge and agree that no present or future Company Fiduciary shall be prejudiced in his or her right to enforce directly the provisions of this Section 7.16 in accordance with their terms by any act or failure to act on the part of the Company. (g) The provisions of this Section 7.16 shall continue as to any person who has ceased to be a Company Fiduciary and shall inure to the benefit of the estate, executors, administrators, heirs, legatees and devisees of any person entitled to indemnification under this Section 7.16. (h) No amendment, modification or repeal of this Section 7.16 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Company Fiduciary to be indemnified by the Company, nor the obligation of the Company to indemnify any such Company Fiduciary, under and in accordance with the provisions of this Section 7.16 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising, in whole or in part, from a state of facts extant on the date of, or relating to matters occurring prior to, such amendment, modification or repeal, regardless of when such claims may arise or be asserted. -37- 70 (i) For purposes of this Section 7.16, references to the Company shall be deemed to include any predecessor Person and any constituent Person absorbed in a merger, consolidation or other reorganization of or by the Company which, if its separate existence had continued, would have had power and authority to indemnify its managers, directors, officers, employees, agents and fiduciaries so that any person who was a manager, director, officer, employee, agent or fiduciary of such predecessor or constituent Person, or served at the request of such predecessor or constituent Person as a manager, director, officer, employee, agent or fiduciary of another Person, shall stand in the same position under the provisions of this Section 7.16 with respect to the Company as such person would have with respect to such predecessor or constituent Person if its separate existence had continued. ARTICLE VIII Officers Section 8.01. Number, Election, Qualification and Term of Office. (a) The officers of the Company shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as may be determined by the Board from time to time. At each annual meeting of the Board at which a quorum shall be present, a Majority of the Whole Board shall elect officers of the Company to succeed any officers whose terms of office are scheduled to expire; provided, however, that the sole right to appoint the Chairman of the Board shall alternate between Sterling and BP for the periods between the annual meetings of the Board, with Sterling having the sole right to appoint, remove and replace the Chairman of the Board during the period commencing on the formation of the Company and continuing thereafter until, but not including, the first annual meeting of the Board. Any two or more offices may be held by the same person, except that the offices of President and Secretary may not be held by the same person. No officer (other than the Chairman of the Board) needs to be a Manager. No officer needs to be a Member or a resident of the State of Delaware. (b) Each officer of the Company shall serve a term of office commencing on the effective date of his or her election until the first annual meeting of the Board held after the effective date of his or her election and until his or her successor shall have been duly elected and qualified or until his or her earlier death, resignation or removal. Any officer whose term of office is scheduled to expire may be elected or appointed to succeed himself or herself. Unless otherwise unanimously agreed by the Members, the President of the Company must be an employee of BP or one or more of its Affiliates. Section 8.02. Resignation. Any officer shall have the right to resign at any time upon written notice thereof to the Board or the President of the Company. Unless otherwise specified in the notice, any such resignation shall take effect upon receipt thereof, and the acceptance of such resignation shall not be necessary to make it effective. -38- 71 Section 8.03. Removal. The Chairman of the Board may be removed at any time, with or without cause, by the Member that appointed the Chairman of the Board. The President of the Company may be removed at any time, with or without cause, (i) upon the affirmative vote of two of the Managers and the delivery of written notice to the President by such Managers at least three months prior to the effective date of such removal, or (ii) upon the affirmative vote of a majority of the Whole Board. Each of the other officers of the Company may be removed at any time by the affirmative vote of a majority of the Whole Board, with or without cause. The removal of any officer of the Company shall be without prejudice to the rights, if any, of such officer under any employment agreement or other Contract between such officer and the Company which is in effect at the time of the removal of such officer. Election of an officer shall not of itself create contract rights. Except as otherwise provided in this Section 8.03, an officer of the Company may not be removed prior to expiration of his or her term. Section 8.04. Vacancies. Whenever a vacancy shall occur in the office of the Chairman of the Board, such vacancy may only be filled by the Member entitled to appoint the Chairman of the Board pursuant to Section 8.01(a) at the time of such vacancy by the appointment of a new Chairman of the Board. Whenever a vacancy shall occur in any other office of the Company, such vacancy may only be filled by a majority of the Whole Board. Any officer appointed or elected to fill a vacancy in any office of the Company pursuant to this section 8.04 shall hold such office until the date of the next annual meeting of the Board held after the date of his or her appointment or election and until his or her successor shall have been duly appointed or elected and qualified or until his or her earlier death, resignation or removal. Section 8.05. Attendance at Meetings of the Board. The Chairman of the Board shall call all meetings of the Board to order, and shall act as chairman of such meetings, but in the absence of the Chairman of the Board, a majority of the Whole Board may appoint any Manager present to act as chairman of the meeting. The Secretary of the Company shall act as secretary of all meetings of the Board, but in the absence of the Secretary, the chairman of the meeting may appoint any person present to act as secretary of the meeting. Section 8.06. Chairman of the Board. The Chairman of the Board, if present, shall preside at all meetings of the Board, shall be the principal officer of the Company and shall perform such other duties as may be assigned to him or her by the Board. The Chairman of the Board shall have the power to sign all certificates, Contracts and other instruments of the Company which may be authorized by the Board. Section 8.07. President. The President shall be the Chief Executive Officer of the Company and, subject to the control of the Board, shall have general charge and supervision of the administration of the activities and affairs of the Company. The President shall see that all orders and resolutions of the Board are carried into effect. The President may sign and execute all legal documents and instruments in the name of the Company when authorized to do so by the Board, shall prepare an Annual Business Plan and an annual budget showing expected receipts and expenditures for consideration by the Board, and shall perform such other duties as may be -39- 72 prescribed from time to time by the Board. The Annual Business Plan shall be consistent with the provisions of this Agreement, the Certificate of Formation and the Joint Venture Agreement. The President shall also have the power to appoint and remove subordinate employees (other than officers of the Company) and to determine the terms and conditions of their employment; provided, however, that any employee of the Company who is a secondee of a Member shall receive benefits, at the expense of the Company, which are in the aggregate substantially equivalent to the benefits provided by such Member to its other employees. The President shall submit to the Board plans and suggestions for the activities of the Company, shall direct its general correspondence and shall present recommendations in each case to the Board for decision. The President shall also submit a report of the activities and affairs of the Company at each annual meeting of the Board and at other times when called upon to do so by the Board. Section 8.08. Vice President(s). Each Vice President shall have such powers and perform such duties as may from time to time be assigned to him or her by the President. Section 8.09. Secretary. The Secretary shall have charge of the records and correspondence of the Company under the direction of the President, and shall be the custodian of the seal of the Company, if any. The Secretary shall give notice of and attend all meetings of the Board. The Secretary shall take and keep true minutes of all meetings of the Board of which, ex officio (but without a vote), the Secretary shall be the secretary. The Secretary shall discharge such other duties as shall be prescribed from time to time by the President or the Board. Section 8.10. Assistant Secretaries. Each Assistant Secretary shall have such powers and duties as may be assigned to him or her by the Board, the President or the Secretary. In case of the absence or disability of the Secretary, the Assistant Secretary designated by the President (or, in the absence of such designation, the Secretary) shall perform the duties and exercise the powers of the Secretary during the period of such absence or disability. In no event shall any third party having dealings with the Company be bound to inquire as to any facts required by the terms of this Section 8.10 for the exercise by any Assistant Secretary of the powers of the Secretary. Section 8.11. Treasurer. The Treasurer shall keep account of all moneys, credits and Assets of the Company which shall come into the Treasurer's hands and keep an accurate account of all moneys received and discharged. Except as otherwise ordered by the Board, the Treasurer shall have the custody of all the funds and securities of the Company and shall deposit the same in such banks or depositories as the Board shall designate. The Treasurer shall keep proper books of account and other books showing at all times the amount of the funds and other Assets belonging to the Company, all of which books shall be open at all times to the inspection of the Board. The Treasurer shall also submit a report of the accounts and financial condition of the Company at each annual meeting of the Board. The Treasurer shall, under the direction of the Board, disburse all moneys and sign all checks and other instruments drawn on or payable out of the funds of the Company, which checks, however, may also be required by the Board to be signed by the President or one of the Vice Presidents, or in the case of their absence or disability, by such member of the Board as the Board shall designate. The Treasurer shall also make such transfers and alterations in -40- 73 the securities of the Company as may be ordered by the Board. In general, the Treasurer shall perform all duties which are incident to the office of Treasurer, subject to the supervision and control of the Board, and shall perform such additional duties as may be prescribed from time to time by the Board. The Treasurer shall give bond only if required by the Board. Section 8.12. Assistant Treasurers. Each Assistant Treasurer shall have such powers and duties as may be assigned to him or her by the Board, the President or the Treasurer. In case of the absence or disability of the Treasurer, the Assistant Treasurer designated by the President (or, in the absence of such designation, the Treasurer) shall perform the duties and exercise the powers of the Treasurer during the period of such absence or disability. In no event shall any third party having dealings with the Company be bound to inquire as to any facts required by the terms of this Section 8.12 for the exercise by any Assistant Treasurer of the powers of the Treasurer. Section 8.13. Indemnification. Officers of the Company shall be entitled to be indemnified by the Company to the extent set forth in Section 7.16. -41- 74 ARTICLE IX Accounting and Tax Matters Section 9.01. Books and Records; Right to Audit. The Company shall keep, at the principal office of the Company or at such other places as the Company shall inform the Members, true and accurate books of account and other records of the Company and shall make all reports in accordance with sound accounting practices and principles employing standards and procedures, and in a form, in conformity with GAAP. If, in the reasonable opinion of any Member, such practices do not readily provide for the preparation of quarterly financial reports in a form that it is accustomed to using in its own operations, then the detailed substance for the preparation of all necessary financial reports and all relevant cost reports shall be supplied to such Member by the Company at the Company's expense. In addition to any other rights they may have under the Laws of the State of Delaware as Members of the Company, each of the Members shall have the right to verify any information pertinent to this Agreement. Upon written request of any of the Members, from time to time, the Company shall provide to an independent third party accountant selected by the Member making the request, at reasonable times during normal business hours, subject to the receipt by the Company of an appropriate confidentiality agreement signed by such accountant, access to the Company's books, records and accounts relating to this Agreement, except as such access may be prohibited by Law or presently existing Third Party confidentiality agreements. Such independent accountant shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at the expense of the requesting Member, which copies may be removed from the premises of the Company and retained by such accountant, subject to the terms of the confidentiality agreement signed by such accountant. Such account may report to the requesting Member only its conclusions resulting from such accountant's review of the Company's data and nothing else. All disputes arising from an audit shall be resolved in accordance with the provisions of Section 12.11. Any expense incurred by a Member or its accountant in connection with an inspection of the Company's books or records or in connection with auditing such books and records shall be borne by such Member or agent and not the Company. Section 9.02. Accrual Basis. The books and records of the Company shall be maintained for federal income tax purposes in accordance with the accrual method of accounting. Section 9.03. Preparation of Tax Returns. The Tax Matters Member shall have the responsibility to arrange for the preparation and timely filing of all returns of the Company income, gains, deductions, losses and other items required of the Company for federal and state income tax purposes. The Company's federal income tax information return shall be filed on or before August 15th of each year (assuming timely and proper filings have been made for an extension to such date, and if not, on or before the required filing date). The Members agree to furnish to the Tax Matters Member on or before June 1st of each year all information necessary for the preparation and filing of such returns. The Tax Matters Member shall provide to the Members a draft of the federal income tax information return for the Company annually on or before July 15th of the year following the year for which such return is prepared. Each Member shall review the draft and provide written -42- 75 comments thereon within 30 days after receipt of the draft. If comments are not provided within such 30-day period, the draft return shall be deemed approved by the Members. Section 9.04. Tax Elections. (a) The following elections shall be made on behalf of the Company for federal income tax purposes: (i) to adopt the calendar year as the fiscal year of the Company; (ii) to adopt the accrual method of accounting; (iii) to use the maximum allowable accelerated tax method and the shortest permissible life for depreciation; (iv) to account for dispositions of depreciable Assets under the general asset method to the extent permitted under Section 168(i)(4) of the Code; (v) to amortize the organizational and startup expenses ratably over a period of 60 months; (vi) to be treated as a partnership for federal income tax purposes under Treasury Regulation Section 301.7701-3 and timely file Form 8832, Entity Classification Election; (vii) to adopt the dollar value LIFO method of inventory accounting; and (viii) the election described in Section 6231(a)(1)(B)(ii) of the Code to have Chapter 63, Subchapter C of the Code apply to the Company. (b) The Company shall make the election under Section 754 of the Code (i) upon the request of a Transferee of a Membership Interest or (ii) upon the request of a Member upon a distribution of Assets of the Company to such Member. The Board, upon notice to and consent by the Members, shall seek to revoke any such election upon the Board's determination that such revocation is in the best interests of the Members. No election shall be made by the Company, or on behalf of the Company, to have the Company be treated as other than a partnership for tax purposes, and the Company shall make any election required of it to be treated as a partnership for tax purposes. Section 9.05. Tax Controversies. BP is hereby designated the "Tax Matters Member" to act on behalf of the Company as "Tax Matters Partner" pursuant to Section 6231 of the Code. The Tax Matters Member and each Member shall use commercially reasonable efforts to comply with the responsibilities outlined in this Section 9.05 and Code Section 6222 through Section 6233 and Section 6050K (and the Treasury Regulations thereunder) and in doing so shall not incur any Liability to any other Member. Notwithstanding the Tax Matters Member's obligation to use commercially reasonable -43- 76 efforts in the fulfillment of its responsibilities, the Tax Matters Member shall not be required to incur any expenses for the preparation for, or pursuance of, administrative or judicial proceedings, unless the Members agree on a method for sharing such expenses. Section 9.06. Information Request by Tax Matters Member. Each Member shall furnish the Tax Matters Member, within two weeks from the receipt of a request therefor, any information (including information specified in Code Section 6230(e) on partner identification and Section 6050K for transfers of Membership Interests) which the Tax Matters Member may reasonably request in order to comply with the requirements of furnishing information to the Internal Revenue Service. Section 9.07. Statute of Limitations; Tax and Settlement Agreements. The Tax Matters Member shall not agree to any extension of the statute of limitations for making assessments on behalf of the Company without first obtaining the written consent of the Members. The Tax Matters Member shall not bind any Member to a settlement agreement in tax audits without obtaining the written concurrence of such Member. Any other Member who enters into a settlement agreement with the Secretary of the Treasury with respect to any Company items, as defined in Code Section 6231(a)(3), shall notify the other Members of the terms of such settlement within 90 days from the date of such settlement. -44- 77 Section 9.08. Request for Administrative Adjustment. No Member shall file pursuant to Code Section 6227 a request for an administrative adjustment of Company items without first notifying the other Members. If the other Members agree with the requested adjustment, the Tax Matters Member shall file the request on behalf of the Company. If unanimous consent is not obtained within 30 days from such notice, or within the period required to timely file the request, if shorter, any Member, including the Tax Matters Member, may file a request for administrative adjustment on its own behalf. Section 9.09. Judicial Proceedings. Any Member intending to file a petition under Code Section 6226 or Section 6228 or any other Code section with respect to any Company item, or other tax matters involving the Company, shall notify the other Members prior to such filing of the nature of the contemplated proceeding. In the case where the Tax Matters Member is the Member intending to file such petition, such notice shall be given within a reasonable time to allow the other Members to participate in the choice of the forum for such petition, and the Members shall mutually agree on an appropriate forum. If a Member intends to seek review of any court decision rendered as a result of such proceeding, such Member shall notify the other Members prior to seeking such review. Section 9.10. Company Bank Account. All proceeds and cash receipts and other funds of the Company shall be deposited in one or more Company accounts in a bank approved by the Board. Such funds shall not be commingled with the funds of any Member or any other Person. All expenditures on behalf of the Company shall be made with funds withdrawn from the Company bank accounts. ARTICLE X Transfer of Membership Interests Section 10.01. Restrictions on Transfer of a Membership Interest. Except as otherwise provided in this Article X, no Member may Transfer all or any portion of its Membership Interest to any Person without the consent of the other Members; provided, however, that without obtaining the consent of the Members, any Member may (a) Transfer all or any part of its Membership Interest to an Affiliate of such Member, (b) Transfer all of its Membership Interest to a successor in interest of all or substantially all of the assets or business of such Member to which this Agreement relates (unless such successor in interest is, at the time of the proposed Transfer, a competitor of any other Member or is otherwise objectionable to any other Member for legitimate business reasons, and such objection is asserted in good faith and not waived by the Member asserting such objection) or (c) pledge, assign for security purposes or otherwise grant a Lien in all or any part of such Member's Membership Interest (each, a "Permitted Transfer"). As part of any Permitted Transfer pursuant to clause (a) or (b) above, the Member making the Transfer shall require the Transferee to deliver the document required by Section 10.03 and the Member making such Transfer shall remain liable for the performance by such Transferee of the obligations of such Member under this Agreement unless the other Members agree otherwise in writing -45- 78 Section 10.02. Right of Transferee to be Admitted to the Company. Subject to the provisions of this Article X, any Member may grant a Transferee of all or any part of its Membership Interest the right to be admitted to the Company as a Member, with such Percentage Interest as the Member and Transferee may agree; provided, however, that (a) in the event of a Transfer other than a Permitted Transfer, such Member obtains the consent of the other Members prior to the Transfer, which consent shall not be unreasonably withheld, delayed or conditioned, and (ii) the respective Membership Interests of the Member and Transferee shall in the aggregate equal the Percentage Interest of the Member making the Transfer prior to such Transfer. Section 10.03. Transfer Documents. No Transfer (other than a Permitted Transfer under Section 10.01(c)) shall be recognized by the Company for any purpose until the Company has received a document which: (a) is executed by the Member making the Transfer, or such Member's representative, and the Transferee; (b) includes the address and numbers of the Transferee to be admitted to the Company as a Member for notification purposes and the Transferee's agreement to be bound by (i) this Agreement in respect of the Membership Interest or part thereof acquired and (ii) if the Member making the Transfer is a party to the Joint Venture Agreement, the Joint Venture Agreement; (c) sets forth the respective Percentage Interests of the Member making the Transfer and the Transferee immediately subsequent to the Transfer; (d) contains a representation and warranty that the Transfer was made in accordance with this Agreement, the Joint Venture Agreement (if applicable) and all applicable Laws; and (e) if the Transferee is to be admitted to the Company as a Member, such representations and warranties of the Transferee as the Company or any Member may reasonably require. Each Transfer and, if applicable, admission to the Company shall be effective as of the first day of the calendar month immediately succeeding the month in which the all of requirements of this Section 10.03 have been met. Section 10.04. Compliance with Securities Laws. Prior to the effectiveness of any Transfer or, if applicable, admission of the Transferee to the Company as a Member, the Membership Interest or part thereof subject to the Transfer and/or the admission of the Transferee to the Company must be either (a) registered under the Securities Act of 1933, as amended, and any applicable state securities Laws or (b) exempt from any such registration. In addition, if requested by the Company or any Member, the Member making such Transfer must deliver to the Company a favorable opinion of legal counsel reasonably acceptable to the Company to the effect that (i) if such Transfer is not registered under the Securities Act of 1933, as amended, and all applicable state securities Laws, such Transfer is exempt from any such registration, and (ii) such Transfer and/or -46- 79 admission, when added to the total of all other sales, assignments or other Transfers made within the preceding 12 months, would not result in the Company being considered to have terminated within the meaning of the Code. Section 10.05. Reimbursement of Costs. The Member making a Transfer and any Transferee admitted to the Company in connection with such Transfer shall pay, or reimburse the Company for, all costs incurred by the Company in connection with the Transfer and/or admission, including reasonable attorneys' fees, on or before the 30th day after receipt of the Company's invoice for the amount due. If payment is not made by the date due, the Member or Transferee owing such amount shall pay interest on the unpaid amount from the date that such payment is due until paid at a rate equal to the lesser of 10% and the maximum non-usurious rate permissible under applicable Law. Section 10.06. Application to Transferees. All Transferees of all or any portion of a Member's Membership Interest shall be bound by, comply with and take such Membership Interest subject to the terms and conditions of this Agreement. Each Transferee shall be required to become a party to this Agreement by executing an adoption agreement in form and substance reasonably satisfactory to the Company and the other Members, whereupon such Person shall become a "Member" and shall have all of the rights and obligations of a "Member" under this Agreement, and such Membership Interest shall continue to be subject to the provisions of this Agreement. Section 10.07. Transfer in Violation of the Agreement. Notwithstanding anything contained in this Agreement to the contrary, no Transfer of any Membership Interest may be made by a Member or shall be effective if the Transfer is not in strict compliance with this Agreement; provided, however, that all or any portion of this Agreement may be waived with the written consent of the Company and the other Members. Any attempted or purported Transfer of any Membership Interest in violation of this Agreement shall be null and void and of no force and effect. Any Member making a Transfer of its Membership Interest in violation of any of the terms of this Agreement will retain beneficial ownership of such Membership Interest, including the right to vote such Membership Interest and to receive all distributions with respect to such Membership Interest. The Company shall have the right and the obligation to treat any Transfer in violation of any of the terms of this Agreement as void and, in enforcing such right and obligation, the Company may, in addition and without prejudice to any and all other rights which may be available to the Company, hold and refuse to Transfer any Membership Interest or any certificate therefor presented to it for Transfer. If the Company receives notice of any attempted Transfer which would be in violation of the terms of this Agreement, it shall notify the other Members. -47- 80 ARTICLE XI Winding Up and Liquidation Section 11.01. Liquidation of Assets of the Company and Disposition of Proceeds. Except as otherwise provided in this Article XI, as soon as practicable following the occurrence of a Dissolution Event the business of the Company shall be wound up and the Company shall be dissolved and liquidated; provided, however, that this Agreement shall not terminate until the liquidation of the Company is complete in accordance with the provisions of this Article XI. The Board (or such Person as may be designated by the Board) shall act as the liquidator (the "Liquidator") and shall immediately proceed to wind up and terminate the Company affairs with full power and authority to do all acts necessary and in accordance with the terms of this Article XI. All actions taken by the Board, if it acts directly as Liquidator, significantly affecting the liquidation distributions of the Members must first receive approval of a majority of the Whole Board. The Liquidator shall: (a) as soon as possible after dissolution, and again after final liquidation, cause a proper accounting to be made of the Assets and Liabilities of the Company through the last day of the calendar month in which the dissolution occurs or the final liquidation is completed, as applicable, by an independent certified accountant; (b) pay from Company funds all of the Liabilities of the Company (including all expenses incurred in the liquidation and any loans from Members) or otherwise make adequate provision therefor (including the establishment of a cash escrow fund for any contingent Liabilities in such amount and for such term as the Liquidator may reasonably determine); (c) establish any reserves which the Liquidator deems necessary or advisable to provide for any contingent or unforeseen Liabilities of the Company or of the Liquidator arising out of or in connection with the Company; provided, however, that after the expiration of such period of time as the Liquidator deems advisable, the balance of such reserves remaining after payment of such contingencies shall be distributed in the manner hereinafter set forth in this Section 11.01; and (d) subject to the terms of the Joint Venture Agreement, distribute and allocate the remaining Assets of the Company among the Members, pro rata, in accordance with the balances in their respective Capital Accounts (after adjustment to reflect the allocations under Article VI). All distributions made to the Member pursuant to clause (d) above shall be made either (i) within 90 days after the date of such liquidation or (ii) by the end of the fiscal year of the Company during which such liquidation occurs, whichever period shall expire later in time; provided, however, that the Company may withhold reserves established under Section 11.01(c) and receivables of the Company for the purpose of collecting any amounts due thereunder. Any amounts so withheld (or the proceeds of the collection of receivables so withheld) shall be distributed as soon as practicable to, and allocated among, the Members in the ratio of their respective Capital Accounts. -48- 81 Section 11.02. Partial Liquidation of Assets. Notwithstanding anything contained in this Article XI to the contrary, if the Liquidator determines that a complete liquidation of all of the Assets of the Company would involve substantial Losses or be impractical or ill advised under the circumstances, or be undesirable for any reason, the Liquidator shall liquidate the portion of the Assets of the Company necessary to pay the expenses of liquidation and the Liabilities of the Company (excluding the Liabilities of the Company to the extent they are adequately secured by Liens on the Assets of the Company), and the remaining Assets of the Company shall be distributed to the Members (i) as tenants-in-common, (ii) partitioned in accordance with applicable Laws or (iii) distributed in such other reasonable manner as shall be determined by the Liquidator. The distribution of such remaining Assets of the Company to the Members shall be made subject to any Liens covering such Assets. Section 11.03. Appointment of Liquidator. If the Board is unable or unwilling to act as the Liquidator, or if the Members elect to appoint a Liquidator other than the Board, the Members shall appoint a Liquidator to wind up the affairs and liquidate the Assets of the Company. Any such Liquidator shall have all of the powers necessary to perform all acts contemplated to be performed by the Liquidator under this Article XI and shall be compensated as agreed upon by the Liquidator and such Members. Section 11.04. Certificate of Cancellation. On completion of the distribution of the Assets of the Company as contemplated by Section 11.05, the Board (or such other Person or Persons as the Act may require or permit) shall file a Certificate of Cancellation with the Secretary of State, cancel any filings made pursuant to Section 2.04 and take such other actions as may be necessary to terminate the existence of the Company. Upon the effectiveness of the Certificate of Cancellation, the existence of the Company shall cease, except as may be otherwise provided by the Act or other applicable Law. Section 11.05. Indemnification of the Liquidator. The Company shall indemnify, defend and hold harmless any Liquidator from and against all Claims, Liabilities and Losses which may be imposed on, incurred by or asserted against the Liquidator, arising out of or resulting from, directly or indirectly, the Liquidator taking any action authorized under this Article XI; provided, however, that the Company shall not be liable for any portion of any Claims, Liabilities or Losses resulting from (a) a matter entirely unrelated to the Liquidator's authority under this Agreement, (b) a material breach by the Liquidator of its obligations under this Agreement or (c) from the Liquidator's gross negligence, fraud or willful misconduct. The indemnification rights contained herein shall be cumulative of, and in addition to, any and all other rights, remedies and recourse to which the Liquidator shall be entitled at law or in equity. Section 11.06. Indemnification for Dissolution. Each Member shall indemnify, defend and hold harmless the Company and the other Members and their respective present and former directors, officers, stockholders, employees and agents and their respective heirs, executors, personal representatives, administrators, successors and assigns (the "Indemnified Persons") from and against any and all Claims, Liabilities and Losses which may be imposed on, incurred by or -49- 82 asserted against any Indemnified Person, arising out of or resulting from, directly or indirectly, a dissolution of the Company arising out of a violation by any Member of the covenants set forth in Section 2.05 or Section 4.03. Section 11.07. Capital Contributions to Restore Capital Accounts. Except as otherwise agreed by the Members in writing, in the event that the Capital Accounts of less than all of the Members have negative balances upon liquidation of the Company, or the Capital Account of any Member has a negative balance upon liquidation of such Member's Membership Interest, after giving effect to the allocations under Article VI, each such Member whose Capital Account has such a negative balance shall be obligated to make an additional Capital Contribution to the Company by the end of the fiscal year in which such liquidation occurs in an amount sufficient to eliminate the negative balance in its Capital Account; provided, however, that the additional Capital Contributions described in this Section 11.07 shall not be required where such requirement would destroy or infringe on the limited liability characteristic of a Member's Membership Interest. For purposes of this Section 11.07, the Company shall be deemed to liquidate on the date on which the Company ceases to be a going concern (even though it may continue in existence for the purpose of winding up its affairs, paying its Liabilities and distributing any proceeds of the collection of its receivables to the Members). ARTICLE XII General Provisions Section 12.01. Notices. Any and all notices, requests or other communications hereunder shall be given in writing and delivered by (a) regular, overnight or registered or certified mail (return receipt requested), with first class postage prepaid, (b) hand delivery, (c) facsimile or electronic transmission or (d) overnight courier service, to the Company at its principal office and to the Members at the addresses or numbers set forth on Exhibit B or at such other address or number as shall be designated by the Company or a Member in a notice to the Company and the Members given in accordance with this Section 12.01. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given, (i) in the case of a notice sent by regular mail, on the date actually received by the addressee, (ii) in the case of a notice sent by registered or certified mail, on the date receipted for (or refused) on the return receipt, (iv) in the case of a notice delivered by hand, when personally delivered, (iv) in the case of a notice sent by facsimile or electronic transmission, upon transmission subject to telephone confirmation of receipt, and (v) in the case of a notice sent by overnight mail or overnight courier service, the date delivered at the designated address, in each case given or addressed as aforesaid. Section 12.02. Counterparts. This Agreement may be executed by the Members in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same agreement. No Member shall become bound by this Agreement or any other document or instrument executed by counterpart until all Members have affixed their respective signatures hereto. -50- 83 Section 12.03. Benefit and Burden. (a) This Agreement shall inure to the benefit of, and shall be binding upon, the Company and the Members and their respective successors and permitted assigns. (b) Anything herein or elsewhere to the contrary notwithstanding, in no event shall any director, officer, stockholder, employee, agent, advisor or other representative of any of the Members (past, present or future) have any personal liability (whether at law or in equity) under this Agreement or on account of any actions taken or omitted in connection therewith, it being specifically understood and agreed that only the Members and their respective successors and permitted assigns shall be subject to any such personal liability. Section 12.04. No Third Party Rights. Except as otherwise provided in Sections 11.06 and 12.03, nothing in this Agreement shall be deemed to create any right in any creditor or other Person not a party hereto (other than the Liquidator) and this Agreement shall not be construed in any respect to be a Contract in whole or in part for the benefit of any other third party. Section 12.05. Amendments and Waiver. No amendment, modification, restatement or supplement of this Agreement shall be valid unless the same is in writing and signed by the Members. No waiver of any provision of this Agreement shall be valid unless in writing and signed by the Member against whom that waiver is sought to be enforced. No failure or delay on the part of any Member in exercising any right, power or privilege hereunder, and no course of dealing between or among the Members, shall operate as a waiver of any right, power or privilege hereunder. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. No notice to or demand on any Member in any case shall entitle such Member to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any Member to any other or further action in any circumstances without notice or demand. Section 12.06. Assignments. Except in connection with an assignment of all or any portion of a Member's Membership Interest in compliance with Section 4.05(b) or Article X, neither this Agreement nor any right, interest or obligation hereunder may be assigned by any Member without the prior written consent of the other Members and any attempt to do so shall be null and void; provided, however, that no assignment, Transfer or other conveyance by any Member of any of its rights, interests or obligations hereunder shall relieve such Member of its obligations under this Agreement unless the other Members expressly agree otherwise in writing. Section 12.07. Severability. Should any clause, sentence, paragraph, subsection, Section or Article of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement, and the Members agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom as if such stricken part or parts had never been included herein. -51- 84 Section 12.08. Remedies. The Members agree that the covenants and obligations contained in this Agreement relate to special, unique and extraordinary matters and that a violation of any of the terms hereof would cause irreparable injury in an amount which would be very difficult to estimate or determine and for which any remedy at law would be inadequate. As such, the Members agree that if any Member fails or refuses to fulfill any of its obligations under this Agreement or to make any payment or deliver any instrument required hereunder, then the other Members shall have the remedy of specific performance, which remedy shall be cumulative and nonexclusive and shall be in addition to any other rights and remedies otherwise available under any other Contract or at law or in equity and to which such Member might be entitled. Section 12.09. Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY AND THE MEMBERS HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. Section 12.10. Expenses. Except as otherwise expressly provided in this Agreement, each of the Members shall pay its own expenses incident to this Agreement, including all legal and accounting fees and disbursements. Section 12.11. Dispute Resolution. (a) In the event that the Members, using commercially reasonable efforts, fail to resolve any dispute arising out of: (i) the interpretation of this Agreement; (ii) the entering into or amendment or termination of any Contact between the Company and any other Person which (A) is not a part of the Annual Business Plan for the fiscal year of the Company in which such action is taken and (B) is reasonably expected under then current market prices and conditions to involve more than $1,000,000 in the aggregate; or (iii) any change in the price at which acrylonitrile is purchased or sold by the Company which is not a part of the Annual Business Plan for the fiscal year of the Company in which such change is to take effect, within 30 days after the date on which such dispute arises, such dispute or matter shall be resolved in accordance with this Section 12.11. (b) Each of the Members which is a party to such dispute shall promptly, but in any event within ten days after the expiration of such 30-day period, advise their respective CEOs of such dispute and submit such dispute to their respective CEOs for resolution. In the event that the CEOs of such Members fail to resolve such dispute within 30 days after such dispute has been submitted to them for resolution, such dispute shall be settled by binding arbitration pursuant to Section 12.11(c). (c) In the event that the CEOs of the Members which are a party to a dispute fail to resolve such dispute under Section 12.11(b), each of such Members shall set forth their respective -52- 85 positions with regard to the issue in dispute in writing and resolution of the issue shall be determined by arbitration, with one arbitrator appointed by each of the Members which is a party to such dispute and an additional arbitrator appointed by the arbitrators appointed by such Members. If such arbitrators cannot agree on the appointment of the additional arbitrator, then such arbitrator shall be a partner in one of the "Big Six" accounting firms (which is not employed by any of the Members or any of their respective Affiliates) appointed by the Midwest Regional Director of the American Arbitration Association. The arbitration shall be conducted in Chicago, Illinois pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Members agree that the determination of the arbitrators will be final and binding. Judgment upon the arbitrators' award may be entered in any court having jurisdiction thereof. Each of the Members shall bear the costs of their respective arbitrators and their related expenses, and the costs of the additional arbitrator and his or her related expenses, as well as all other costs of the arbitration, shall be paid equally by the Members or as the arbitrators may otherwise determine. During the arbitration, the Members shall continue to perform their obligations under this Agreement with the exception of those under arbitration. Section 12.12. Agreement to Perform Actions Under Joint Venture Agreement. Each of the Members, by its execution of this Agreement, acknowledges and agrees that the Company shall be bound by and perform all covenants and actions contemplated to be performed by the Company under the Joint Venture Agreement. Section 12.13. Entire Agreement. This Agreement, ***, the Joint Venture Agreement and the Production Agreement set forth all of the promises, agreements, conditions, understandings, warranties and representations between or among the Members with respect to the matters contemplated hereby and thereby, and supersede all prior agreements, arrangements and understandings between or among any of the Members, whether written, oral or otherwise. In the event of any conflict between any provision of this Agreement and any provision of the Joint Venture Agreement, the provisions of the Joint Venture Agreement shall control. There are no promises, agreements, conditions, understandings, warranties or representations, oral or written, express or implied, between or among any of the Members concerning the subject matter hereof or thereof except as set forth herein or therein. -53- 86 EXECUTED to be effective as of the date and year first above written. STERLING CHEMICALS, INC. By: Frank P. Diassi, Chairman of the Board BP CHEMICALS INC. By: Gary C. Greve, President -54- 87 EXHIBIT A Countries Excluded From the Territory *** -1- 88 EXHIBIT B Members and Capital Contributions
- -------------------------------------------------------------------------------------------------------------------------- MEMBER ADDRESS PERCENTAGE CAPITAL CONTRIBUTION AGREED INTEREST VALUE - -------------------------------------------------------------------------------------------------------------------------- Sterling Chemicals, Inc. 1200 Smith, Suite 1900 *** The Assigned Assets (as Houston, Texas 77002 defined in that certain Attention: Paul Rostek Assignment and Assumption Facsimile: (713) 654-9591 Agreement dated effective as Telephone: (713) 654-9551 of midnight on March 31, 1998 E-Mail: PRostek@ between the Company and Sterling) and the rights Sterlingchemicals.com granted to the Company by Sterling pursuant to that certain Joint Venture Agreement dated as of March 31, 1998 between Sterling and BP. - -------------------------------------------------------------------------------------------------------------------------- BP Chemicals Inc. 4440 Warrensville Road *** The Assigned Assets (as Cleveland, Ohio 44128-2837 defined in that certain Attention: Vice President Assignment and Assumption Marketing Agreement dated effective as Facsimile: (216) 586-3838 of midnight on March 31, 1998 Telephone: (216) _________ between the Company and BP) E-Mail: smithdb@bp.com and the rights granted to the Company by BP pursuant to that certain Joint Venture Agreement dated as of March 31, 1998 between Sterling and BP. - --------------------------------------------------------------------------------------------------------------------------
-1- 89 EXHIBIT C Certificate of Formation (Attached) -1- 90 EXHIBIT D PRICE AND VOLUME RECONCILIATION *** -1- 91 EXHIBIT E SUPPORT SERVICE AGREEMENT *** -1- 92 SUPPORT SERVICE SCHEDULE
1998 PLAN EXPORT SHARE BP DIRECT OTHER ANEXCO STERLING BP VOLUME BASE EFFORT COSTS COST SHARE SHARE
*** -2- EX-11.1 13 EARNINGS PER SHARE CALCULATION 1 STERLING CHEMICALS HOLDINGS, INC. EXHIBIT 11.1 EARNINGS PER SHARE COMPUTATION (Amounts in thousands, except per share data)
Three Three Six Six Months Months Months Months Ended Ended Ended Ended 3/31/98 3/31/97 3/31/98 3/31/97 --------- --------- --------- --------- BASIC EARNINGS PER SHARE Weighted average of common stock outstanding ................... 11,984 11,118 11,918 10,860 Net Loss ....................................................... $ (16,288) $ (7,811) $ (26,433) $ (15,009) Less: Preferred dividend requirements and accretion ............ (591) (162) (1,219) (162) Add: ESOP fair market value adjustment (1) ..................... 505 -- 505 -- --------- --------- --------- --------- Net loss used in basic loss per share .......................... $ (16,374) $ (7,973) $ (27,147) $ (15,171) ========= ========= ========= ========= BASIC LOSS PER SHARE ...................................... $ (1.37) $ (0.72) $ (2.28) $ (1.40) ========= ========= ========= ========= DILUTED EARNINGS PER SHARE Weighted average of common stock outstanding ................... 11,984 11,118 11,918 10,860 Total weighted average shares outstanding used in diluted loss per share computation (2) .................... 11,984 11,118 11,918 10,860 Net loss ....................................................... $ (16,288) $ (7,811) $ (26,433) $ (15,009) Less: Preferred dividend requirements and accretion ............ (591) (162) (1,219) (162) Add: ESOP fair market value adjustment (1) ..................... 505 -- 505 -- --------- --------- --------- --------- Net loss used in diluted earning per share ..................... $ (16,374) $ (7,973) $ (27,147) $ (15,171) ========= ========= ========= ========= DILUTED LOSS PER SHARE (2) ............................ $ (1.37) $ (0.72) $ (2.28) $ (1.40) ========= ========= ========= =========
(1) This amount reflects the impact of the changes in the estimated fair market value of the Company's Employee Stock Ownership Plan ("ESOP") shares that have been released to plan participants. (2) Due to losses resulting in anti-dilution, same as amount used in basic computation. 25 EX-15.1 14 LETTER OF DELOITTE & TOUCHE LLP 1 Exhibit 15.1 Deloitte & Touche LLP 333 Clay Street Suite 2300 Houston, Texas 77002 May 13, 1998 Sterling Chemicals Holdings, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77094 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Sterling Chemicals Holdings, Inc. and subsidiaries for the three-month and six-month periods ended March 31, 1998 and 1997 as indicated in our report dated May 12, 1998; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is incorporated by reference in Registration Statement No. 333-30917 for Sterling Chemicals Holdings, Inc. on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP 26 EX-27.1 15 FINANCIAL DATA SCHEDULE- STERLING CHEMICAL HOLDING
5 0000795662 STERLING CHEMICALS HOLDING, INC. 1,000 6-MOS SEP-30-1998 OCT-01-1997 MAR-31-1998 8,841 0 134,942 (1,367) 100,270 262,612 748,896 (274,665) 833,190 153,091 884,784 17,013 0 120 (319,798) 833,190 434,740 434,740 397,855 397,855 26,620 0 50,273 (40,008) (13,575) (26,433) 0 0 0 (26,433) (2.28) (2.28)
EX-27.2 16 FINANCIAL DATA SCHEDULE - STERLING CHEMICALS, INC
5 0001014669 STERLING CHEMICALS, INC. 1,000 6-MOS SEP-30-1998 OCT-01-1997 MAR-31-1998 8,793 0 136,405 (1,367) 100,270 262,402 748,896 (274,665) 829,475 153,094 768,947 0 0 0 (199,837) 829,475 434,740 434,740 397,855 397,855 25,840 0 41,679 (30,634) (10,192) (20,442) 0 0 0 (20,442) 0 0
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