-----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, IaCcNOHL3gGoO/WgD+sL84iUNfOrskf4VKtrvCuvmx/XsnHxR+8gCygcXHdV5eH1 O3ADBnyiSLsr5ZEHdyXAeA== 0000950131-95-003531.txt : 19951219 0000950131-95-003531.hdr.sgml : 19951219 ACCESSION NUMBER: 0000950131-95-003531 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951218 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING CHEMICALS INC 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10059 FILM NUMBER: 95602250 BUSINESS ADDRESS: STREET 1: 1200 SMITH ST, SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 BUSINESS PHONE: 7136503700 MAIL ADDRESS: STREET 1: 1200 SMITH ST SUITE 1900 CITY: HOUSTON STATE: TX ZIP: 77002-4312 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ---------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 1-10059 STERLING CHEMICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 76-0185186 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1200 SMITH STREET SUITE 1900 77002-4312 HOUSTON, TEXAS (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANTS'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-3700 ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED TITLE OF EACH CLASS NEW YORK STOCK EXCHANGE, INC. COMMON STOCK, PAR VALUE $.01 PER SHARE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [_]. As of November 27, 1995, the number of shares of common stock outstanding was 55,673,991. As of such date, the aggregate market value of common stock held by nonaffiliates, based upon the closing price of these shares on the New York Stock Exchange, was approximately $359 million. DOCUMENTS INCORPORATED BY REFERENCE: (1) Portions of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1995 (Part II Items 5-8 & Part IV Item 14 (a) (1) (2) Portions of the Company's Definitive Proxy Statement dated December 21, 1995 (Part III Items 10-12). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business....................................................... 1 Item 2. Properties..................................................... 15 Item 3. Legal Proceedings.............................................. 16 Item 4. Submission of Matters to Vote of Security Holders.............. 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder.. 17 Item 6. Selected Financial Data........................................ 17 Management's Discussion and Analysis of Financial Condition and Item 7. Results of Operations.......................................... 17 Item 8. Financial Statements and Supplementary Data.................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 17 PART III Item 10. Directors and Executive Officers of the Registrant............. 18 Item 11. Executive Compensation......................................... 18 Item 12. Security Ownership of Certain Beneficial Owners and Management. 18 Item 13. Certain Relationships and Related Transactions................. 18 PART IV Exhibits, Financial Statement Schedules and Reports on Form 8- Item 14. K.............................................................. 18
i PART I ITEM 1. BUSINESS Sterling Chemicals, Inc. ("Company") was organized as a Delaware corporation in 1986 and has its principal executive offices in Houston, Texas. The Company manufactures seven commodity petrochemicals at its Texas City, Texas plant ("Texas City Plant") and manufactures chemicals for use primarily in the pulp and paper industry at four plants in Canada. At its Texas City Plant, the Company produces styrene, acrylonitrile, acetic acid, plasticizers, lactic acid, tertiary butylamine ("TBA") and sodium cyanide. The Company generally sells its petrochemical products to customers for use in the manufacture of other chemicals and products, which in turn are used in the production of a wide array of consumer goods and industrial products. Sodium chlorate is produced at the four plants in Canada and sodium chlorite is produced at one of the Canadian locations. The Company licenses, engineers and oversees construction of large-scale chlorine dioxide generators for the pulp and paper industry as part of the pulp chemicals business. These generators convert sodium chlorate into chlorine dioxide at pulp mills. Hereafter, unless otherwise indicated, the Company and its subsidiaries are collectively referred to as "the Company". RECENT DEVELOPMENTS In fiscal 1995, the Company initiated a three year capital spending program of approximately $200 million. The program includes modernization of the Company's Texas City petrochemical plant, the construction of a methanol plant at Texas City, a substantial expansion of the Company's acetic acid capacity, the construction of a sodium chlorate plant at Valdosta, Georgia, debottlenecking projects to add incremental capacity at the Company's existing sodium chlorate facilities and various other projects. The plant modernization effort at Texas City includes a significant capital commitment for replacing the older control technology in the styrene, acrylonitrile and acetic acid units with state-of-the-art distributive control systems, which should result in increased efficiencies and stronger operating fundamentals. The Company is constructing a world-scale, 150 million gallon per year methanol plant at Texas City as part of its capital plan. The plant is expected to be operational by June 1996. Capital investment in the plant and production capacity will be shared by the Company and BP Chemicals Inc. Approximately 50% of the methanol production will be used as a raw material in the Company's acetic acid plant, replacing methanol that is currently being purchased, while the remainder will be available for the merchant market and for BP Chemical's worldwide acetic acid business. The plant will be constructed at significantly less than normal replacement cost because available equipment already at the Company's Texas City Plant will be refurbished and used in the project. The plant will use highly efficient state-of-the-art ICI catalyst technology. The lower capital investment coupled with modern operating technology should result in a methanol plant with significant competitive advantages. In a project related to the new methanol plant, Praxair, Inc. ("Praxair") will construct a new partial oxidation unit at the Company's Texas City Plant that will supply carbon monoxide and hydrogen to the Company for use in the production of acetic acid and plasticizers. The Company's synthesis gas reformer, which currently is being used to produce carbon monoxide and hydrogen at the Texas City Plant, will then be available for use in the methanol plant. Refurbishing the existing reformer, rather than building a new one, will enable the Company to construct the methanol plant at significantly less than the normal capital cost of a new plant. The partial oxidation unit is expected to begin production in the second quarter of fiscal 1996. The Company and BP Chemicals are expanding acetic acid capacity by nearly 30% or 200 million pounds, to nearly 800 million pounds annually. This expansion is scheduled to be completed early in fiscal 1996. BP Chemicals will continue to market all of the Company's acetic acid production. 1 The Company also is constructing a 110,000 ton per year sodium chlorate plant in Valdosta, Georgia. The new facility, expected to cost approximately $50 million, will increase the Company's total annual sodium chlorate capacity by more than 30% to nearly 460,000 tons. Valdosta, Georgia was selected because of its proximity to existing customers, currently being supplied from the Company's Canadian plants, and to reliable, competitively priced electricity, the most important variable in sodium chlorate production costs. The new facility is intended to meet the growing market demand from the pulp and paper industry in the southeastern U.S. In addition to building the new facility to meet growing demand, debottlenecking is adding incremental capacity at each of the Company's existing sodium chlorate plants. On April 13, 1995, the Company entered into a seven-year credit agreement (the "Credit Agreement") with a group of 14 commercial banks that was used to refinance the Company's existing debt except for the revolving debt associated with Sterling Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a revolving credit facility of $150 million (the "Revolver") and a term loan of $125 million (the "Term Loan"). The Credit Agreement will reduce the Company's future interest costs and provide additional financial flexibility and debt capacity. On April 28, 1995, Sterling Pulp entered into a separate agreement for a Cdn. $20 million revolving credit facility with the Bank of Nova Scotia (the "Canadian Revolver"). The Canadian Revolver was utilized to refinance the revolving debt associated with Sterling Pulp. On September 28, 1995, Sterling Pulp entered into a seven-year credit agreement to finance the construction of the new sodium chlorate plant (the "Chlorate Plant Credit Agreement") with the same bank group that is a party to the Credit Agreement. Sterling Pulp can borrow up to $60 million under the Chlorate Plant Credit Agreement to purchase taxable bonds from the local county development authority that will utilize the bond proceeds to finance the construction of the plant. SALES AND MARKETING The Company sells its products primarily pursuant to multi-year contracts and spot transactions in both the domestic and export markets through its commercial organization and sales force. This long-term, high volume focus allows the Company to maintain relatively low selling, general and administrative expenses related to the marketing of its products. The Company competes primarily on the basis of product price, quality and deliverability. Prices for the Company's commodity chemicals are determined by market factors that are largely beyond the Company's control, and, except with respect to a number of its multi-year contracts, the Company generally sells its products at prevailing market prices. The Company emphasizes the importance of delivering products to its customers on time and within specifications. In its effort to insure that its products are of consistently high quality, the Company uses a statistical quality control program. During fiscal 1995 a significant portion of the Company's production from the Texas City Plant was dedicated to multi-year contracts with Monsanto Company ("Monsanto"), subsidiaries of British Petroleum Company plc ("BP"), BASF Corporation ("BASF"), Mitsubishi International Corporation ("Mitsubishi") Flexsys America L.P. (a joint venture between Monsanto and Akzo Nobel N. V.) ("Flexsys") and E.I. du Pont de Nemours and Company ("Dupont"). These contracts provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, TBA and sodium cyanide, each to one customer, as well as significant portions of the Company's production of styrene monomer and acrylonitrile. Under certain market conditions, the loss of one or more of these customers or a material reduction in the amount of product purchased by one or more of them could have a material adverse effect on the Company. The balance of the Company's products are sold by its direct sales force, which concentrates on the styrene, acrylonitrile, pulp chemical and lactic acid markets. Revenues from BP and Mitsubishi accounted for approximately 16% and 13%, respectively, of the Company's revenue during the year ended September 30, 1995. These sales were primarily petrochemical products. There were no individual customers of the Company's pulp chemical business which accounted for more than 10% of the Company's revenues. 2 Some of the Company's multi-year contracts for its petrochemical products are structured as conversion agreements, pursuant to which the customer furnishes raw materials which the Company processes. In exchange, the Company receives a fee typically designed to cover its fixed and variable costs of production and to generally provide an element of profit dependent in amount on the then existing market conditions. These conversion agreements allow the Company to lower working capital requirements and, in some cases, to gain access to certain improvements in manufacturing process technology. The Company believes its conversion agreements help insulate the Company to some extent from the effects of declining markets and changes in raw material prices while allowing it to share in the benefits of favorable market conditions for most of the products sold under these arrangements. The Company's production is geared primarily to the level of incoming orders and to projections of future demand. In general, the Company does not manufacture its products against a backlog of firm orders. The Company has no material contracts with the government of the United States or any state, local or foreign government. For information regarding the Company's export sales and domestic and foreign operations, see Item 8, Note 7 of the "Notes to Consolidated Financial Statements" which is hereby incorporated by reference. PRODUCTS At its Texas City Plant, the Company manufactures seven commodity petrochemicals which are used in the manufacture of other goods or in other chemical processes. At its four Canadian plants, the Company manufactures chemicals used primarily in the bleaching of kraft pulp for paper manufacturing. The Company also is a supplier of patented and proprietary technology for chlorine dioxide generators used by certain mills in the kraft pulp bleaching process. PETROCHEMICALS Styrene. The Company manufactures styrene from ethylene and benzene using Monsanto/Lummus technology. Styrene is principally used in the manufacture of intermediate products such as polystyrene, acrylonitrile butadiene styrene ("ABS") resins, synthetic rubbers, SBLatex, unsaturated polyester resins and styrene acrylonitrile resins ("SAN"). These intermediate products are used to produce various consumer products, including building products, boat and automotive components, disposable cups and trays, packaging and containers, housewares, tires, audio and video cassettes, luggage, children's toys, paper coating, appliance parts and carpet backing. The Company and Monsanto are currently operating under a conversion agreement and a sales agreement, each effective through December 31, 1995. Under these agreements the Company provides Monsanto, subject to a specified minimum and maximum, a major portion of Monsanto's styrene requirements for its manufacture of styrene-containing polymers. The Company and Monsanto have entered into a new conversion agreement that will begin January 1, 1996 and be effective through December 31, 2000 with terms and conditions similar to the previous agreements. The new agreement permits Monsanto to terminate its obligations upon twelve months' notice to the Company should Monsanto sell its business that uses styrene or to assign the agreement, subject to the Company's consent, to a third party that may purchases the business. Monsanto has recently announced a tentative agreement to sell its ABS and SAN businesses to Bayer AG. However, the Company has not yet received any notice of termination or assignment of the new agreement. During fiscal 1995, the Company delivered approximately 13% of its styrene production to Monsanto pursuant to these agreements. Effective April 1, 1994 the Company and BP entered into a sales and purchase agreement. The term of the agreement initially expires in December 1996 but extends on a year-to-year basis thereafter unless terminated by either party by giving the other a written notice of at least twelve months prior to cancellation. During fiscal 1995, the Company delivered approximately 13% of its styrene production to BP pursuant to this agreement. 3 The balance of the Company's styrene production is sold by the Company's sales organization in the export and domestic markets. Acrylonitrile. The Company manufactures acrylonitrile by propylene ammoxidation.. Acrylonitrile is used primarily in the manufacture of intermediate products such as acrylic fiber and ABS resins. The principal end uses for acrylonitrile include apparel, furnishings, upholstery, household appliances, carpets and plastics for automotive parts. Approximately 80% of the Company's acrylonitrile production in fiscal 1995 was exported, principally to the Far East, either directly or pursuant to arrangements with large international trading companies. Except for the two conversion agreements described below, the Company's acrylonitrile production is sold by its sales force and certain international agents. The Company and Monsanto entered into a multi-year conversion agreement effective January 1, 1994 which superseded a prior agreement that had been in place since 1986 and contains essentially the same terms. This agreement will expire at the end of 1998. The agreement permits Monsanto to terminate all or part of its obligation upon six months' notice to the Company should Monsanto sell its business using acrylonitrile. Monsanto has recently announced a tentative agreement to sell its ABS and SAN businesses to Bayer AG. However, the Company has not yet received any notice of termination or assignment of this agreement. During fiscal 1995, the Company delivered approximately 25% of its acrylonitrile production to Monsanto pursuant to this agreement. In 1988, the Company entered into a long-term conversion agreement with BP, under which BP contributed the majority of the capital expenditures required for starting the third acrylonitrile reactor train at the Texas City Plant and has the option to take up to approximately one-sixth of the Company's total acrylonitrile capacity. BP furnishes the necessary raw materials and pays the Company a conversion fee for the amount of acrylonitrile it takes. During fiscal 1995, the Company delivered approximately 21% of its acrylonitrile production to BP pursuant to this agreement. This agreement has an initial term of ten years, with BP having the option to extend the agreement for two additional five-year terms. One of the Company's three acrylonitrile reactors incorporates certain BP technological improvements under a separate license agreement from BP, and the Company has the right to incorporate these and any future improvements into its other existing acrylonitrile facilities. BP has a first security interest in and lien on the third reactor and related equipment and in the first acrylonitrile produced in the three reactor units and the proceeds generated from the sales thereof to the extent of the acrylonitrile which BP is entitled to purchase under the production agreement. These rights are only to be exercised upon an event of default by the Company. Acetic Acid. The Company produces acetic acid from carbon monoxide (produced on-site from carbon dioxide and natural gas) and methanol using a technology owned and licensed to the Company by BP. Acetic acid is primarily used in the manufacture of intermediate products such as vinyl acetate monomer. These intermediate products are used to produce various consumer products, including pharmaceuticals, adhesives, glue, cigarette filters and surface coatings. The Company has had an agreement in effect since August 1986 with BP which, as now amended, gives BP the exclusive right to purchase all of the Company's acetic acid production until August 2016. In exchange for that exclusive right, BP is obligated to make certain unconditional monthly payments to the Company until August 2006. BP provides methanol and reimburses the Company on the basis of a formula designed to provide the Company with full cost recovery. In addition, the Company is entitled to receive annually a portion of the profits earned by BP from the sale of acetic acid produced by the Company. The acetic acid unit is subject to certain security arrangements (taking the form of a sale-leaseback transaction) which provide that, until August 1996, under certain limited circumstances generally under the Company's control, BP can take physical possession of and operate the acetic acid unit. In August 1996, title to the acetic acid unit will revert to the Company. 4 Plasticizers. The Company manufactures plasticizers employing a series of processes using alpha-olefins and orthoxylene as the primary raw materials. Major end-uses for plasticizers include flexible plastics such as shower curtains and liners, floor coverings, cable insulation, upholstery and plastic molding. The Company has a product sales agreement with BASF that extends through the end of the decade, pursuant to which the Company sells all of its plasticizer production to BASF. BASF provides certain raw materials to the Company and markets the plasticizers produced by the Company. BASF pays fees to the Company on a formula basis designed to reimburse the Company's direct and allocated costs. In addition, the Company is entitled to a share of profits earned by BASF attributable to the plasticizers supplied by the Company. BASF retains title to and has a security interest in the raw materials furnished by it and in the finished inventory of plasticizers produced by the Company for delivery to BASF. Lactic Acid. The Company markets synthetic lactic acid, the highest purity lactic acid available, to food processing and pharmaceutical companies in both the domestic and export markets through its sales personnel. The Company uses hydrogen cyanide, a by-product of its acrylonitrile process, acetaldehyde and hydrogen chloride as raw materials. Primary uses for lactic acid are as a food additive and preservative and in pharmaceuticals. TBA. The Company manufactures TBA by adding part of the Company's by-product hydrogen cyanide to isobutylene in an acid catalyst reaction. Major end uses for TBA include pesticides, solvents, pharmaceuticals and synthetic rubber. The Company sells all of its TBA production to Flexsys pursuant to a long-term conversion agreement which expires on December 31, 1996, but shall continue thereafter unless terminated by either party with 24 months prior written notification, as of December 31 of any calendar year. The Company has not received any such notice and does not anticipate any such termination in the foreseeable future. The Company's capacity for TBA production is currently 21 million pounds per year. Sodium Cyanide. The Company operates a sodium cyanide facility owned by Dupont which was constructed in 1989 on land owned by the Company at the Texas City Plant. The Company and Dupont have an agreement whereby the Company receives a fee for operating the facility for up to 30 years. The facility utilizes as a raw material hydrogen cyanide, a by-product of the Company's acrylonitrile process. The Company is compensated by Dupont for the raw material value of the hydrogen cyanide as well as for the Company's allocated and incremental out-of-pocket costs for operating the facility. Either party may terminate this agreement by giving 36 months' written notice. Termination by the Company prior to the 15th anniversary of the agreement (May 2003) would require various remedies to be made by the Company to Dupont, including penalties and cost of removal of the facility from the Company's plant site. Termination by Dupont would require Dupont to pay for the cost of removal of the facility. Assignability of the agreement is limited, and if the Company assigns the agreement under certain circumstances, it must deliver to Dupont a lease for the land on which the facility is situated and permit Dupont to operate the facility. Dupont also may operate the sodium cyanide facility in the event of certain defaults. PULP CHEMICALS Sodium Chlorate. Sodium chlorate is used in the production of chlorine dioxide and is sold primarily to paper manufacturers for use as a bleaching chemical for kraft pulp manufacturing. Kraft pulp is a strong paper or paperboard made from wood chips. Bleached kraft pulp is used to make uncoated paper for commercial printing and for office copiers and printers and coated paper for magazines, catalogues and promotional printed products. Chlorine dioxide also is used to bleach paperboard for packing, tissue and other products and as a raw material to produce sodium chlorite. Other uses for sodium chlorate include a raw material for rocket propellants and as a cotton defoliant. The Company markets sodium chlorate primarily in Canada and the U.S. Heightened environmental concerns and new regulations limiting dioxins and furans in bleach plant effluent have resulted in growth in the sodium chlorate industry as pulp mills have accelerated substitution of chlorine dioxide for elemental chlorine. Chlorine dioxide is a powerful and highly selective oxidizing agent suitable for pulp bleaching with the ability to substantially reduce dioxins and furans in bleach plant effluent as well as produce high- brightness pulp with little or no damage to the cellulose fiber. 5 The Company sells sodium chlorate generally under one to five year supply contracts, most of which provide for minimum and maximum volumes at market prices. In addition, most sales contracts contain certain "meet or release" pricing clauses and some contain restrictions on the amount of future price increases. Certain contracts are evergreen and require advance notice before termination. Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the Company is the largest worldwide supplier of patented technology for the generators which certain pulp mills use to convert sodium chlorate into chlorine dioxide. Each mill that uses chlorine dioxide requires at least one generator. The Company receives revenue when a generator is sold to a mill and also receives royalties from the mill after start-up, generally over the next ten-year period, based on the amount of chlorine dioxide produced by the generator. The research and development group of Sterling Pulp works to develop new and more efficient generators. When pulp mills move to higher levels of substitution of chlorine dioxide for chlorine, they usually upgrade generator capacity which frequently requires new generator technology. Mills may also convert to a newer generator to take advantage of efficiency advances and technological improvements. Each upgrade or conversion results in a licensing agreement which generally provides for payment of an additional ten-year royalty. Selection by a mill of the type of generator is completely independent from the selection of their sodium chlorate supplier. The Company has a small representative office in Beijing, China. This office focuses on the development of opportunities for future sales of sodium chlorate and chlorine dioxide generators as well as for the licensing and construction of sodium chlorate plants in that region. The first generator in China to convert sodium chlorate to chlorine dioxide was sold by ERCO and commenced operation in fiscal 1994. Several more generators are under construction in China by ERCO. Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham, Quebec facility. Sodium chlorite is a specialty product used primarily for water treatment and as a disinfectant for fresh produce. RAW MATERIALS FOR PRODUCTS AND ENERGY RESOURCES For each of the Company's products, the combined cost of raw materials and utilities is far greater than all other production costs combined. Thus, an adequate supply of these materials at reasonable prices is critical to the success of the Company's business. The Company does not currently produce any of its major raw materials, benzene, ethylene, propylene, ammonia and methanol, at the Texas City Plant, or electricity at its pulp chemical facilities, although a methanol plant is under construction at the Texas City Plant as previously described under "Recent Developments". Moreover some of the Company's competitors are integrated and produce their own raw materials. Although management believes that the Company will continue to be able to secure adequate supplies of its raw materials at acceptable prices to meet its requirements, there can be no assurance that it will be able to do so. PETROCHEMICALS Styrene. Styrene is a clear liquid that the Company manufactures from ethylene and benzene. The Company's conversion agreements require that other parties furnish to the Company the ethylene and/or benzene necessary to fulfill its conversion obligations. Approximately 30% and 20% of the Company's fiscal 1995 benzene and ethylene requirements, respectively, were furnished by customers pursuant to conversion arrangements. The Company purchases benzene and ethylene for use in the remainder of its production of styrene for sale to others. Benzene and ethylene are both commodity petrochemicals and the price for each can fluctuate widely due to significant changes in the availability of these products, such as major capacity additions or significant plant operating problems, and due to variations in the economy and commodity 6 chemical markets in general. The Company has multi-year arrangements with several ethylene suppliers that provide for its estimated requirements for purchased ethylene at generally prevailing and competitive market prices. If the conversion agreement with Monsanto is terminated or reduced upon the sale of Monsanto's ABS and SAN businesses, or if various other customers for whom the Company now manufactures styrene under conversion arrangements were to cease furnishing their own raw materials and seek only to purchase styrene from the Company, the Company's requirements for purchased benzene and ethylene could significantly increase. The Company believes that benzene and ethylene will, for the foreseeable future, remain in adequate supply to meet demand. Acrylonitrile. The Company produces acrylonitrile by reacting propylene and ammonia over a solid-fluidized catalyst at low pressure. The Company's conversion agreements require that other parties furnish to the Company the propylene and/or ammonia necessary to fulfill its conversion obligations. Approximately 45% of the Company's fiscal 1995 propylene and ammonia requirements were furnished by customers pursuant to conversion arrangements. The Company purchases propylene and ammonia for use in the remainder of its production of acrylonitrile for sale to others. Propylene and ammonia are both commodity petrochemicals and the price for each can fluctuate widely due to significant changes in the availability of these products such as major capacity additions or significant plant operating problems, and due to variations in the economy and commodity chemical markets in general. If various customers for whom the Company now manufactures acrylonitrile under conversion arrangements were to cease furnishing their own raw materials and seek only to purchase acrylonitrile from the Company, the Company's requirements for purchased propylene and ammonia could significantly increase. The Company believes that both ammonia and propylene will, for the foreseeable future, remain in adequate supply to meet demand. Hydrogen cyanide is a by-product of the manufacture of acrylonitrile and is used by the Company as a raw material for the production of lactic acid, TBA and sodium cyanide and is also burned as fuel. Acetic Acid. Acetic acid is manufactured by the Company primarily from carbon monoxide and methanol using a technology originally licensed worldwide by Monsanto to the Company and others but now owned by BP. At present, the Company's methanol is supplied by BP under its long-term contract with the Company which expires in August 2016. However, the Company has begun construction of a methanol unit at its Texas City Plant. BP is a participant in the project. Once completed, this unit will supply the methanol needed for production of acetic acid. Carbon monoxide is currently produced on-site from carbon dioxide and natural gas. Carbon dioxide and natural gas are purchased under requirements contracts with major suppliers and are available in adequate supply. In a project related to the new methanol plant, Praxair will construct and own a partial oxidation unit at the Company's Texas City Plant that will supply carbon monoxide to the Company for production of acetic acid. The construction of the partial oxidation unit will allow equipment currently used in the production of carbon monoxide to be used in the new methanol unit, thereby reducing the new capital required for the methanol unit. The partial oxidation and methanol units are expected to begin production in the second and third quarters of fiscal 1996, respectively. Plasticizers. The Company manufactures plasticizers using a series of processes. Primary raw materials are alpha-olefins and orthoxylene, which are supplied by BASF under its long-term contract with the Company which expires at the end of 1999. Management believes that adequate supplies of raw materials will be available for the Company's needs in the foreseeable future. Lactic Acid. Lactic acid is manufactured from the Company's hydrogen cyanide, a by-product of its acrylonitrile process, and two other raw materials, acetaldehyde and hydrogen chloride, which are readily available from commercial suppliers. TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in an acid catalyst reaction. The Company uses a portion of its by-product hydrogen cyanide in this process. Flexsys supplies the isobutylene, sulfuric acid and caustic soda under its long-term conversion agreement with the Company. Management believes that supplies of these raw materials will remain adequate for its needs in the foreseeable future. 7 Sodium Cyanide. Sodium cyanide is manufactured from the Company's by-product hydrogen cyanide and caustic soda. Dupont supplies the caustic soda under its long-term contract with the Company which expires in May 2018. PULP CHEMICALS Sodium Chlorate. Sodium chlorate is manufactured by passing an electric current through an undivided cell containing a solution of sodium chloride (salt). Electric power costs typically represent approximately 70% of the variable cost of production of sodium chlorate. Electric power is purchased by each of the Company's facilities pursuant to contracts with local electric utilities. Consequently, the rates charged by local electric utilities are an important competitive factor among sodium chlorate producers. On average, the Company's electrical power costs are believed to be competitive with other producers in the areas in which it operates. The Company also purchases sodium chloride for use in the manufacture of sodium chlorate. Sodium chloride is purchased under requirements contracts with major suppliers. The Company believes that sodium chloride will be available for its needs for the foreseeable future. TECHNOLOGY AND LICENSING PETROCHEMICALS Monsanto has assigned to the Company certain third party technology licenses that granted the Company a nonexclusive, irrevocable and perpetual right and license to use Monsanto's technology at the Texas City Plant in effect at the time of the acquisition for the purpose of (i) continuing the production of the chemicals which were then produced at the Texas City Plant and (ii) modifying, operating and maintaining the synthesis gas production unit to produce carbon monoxide, blend gas and hydrogen for internal plant use. During fiscal 1991, BP purchased the license related to the acetic acid unit from Monsanto. Under this license, the Company is not obligated to make any royalty payments to BP. The Company believes that these licenses are material to the operation of the Texas City Plant. BP has granted to the Company a perpetual, royalty free license to use BP's acrylonitrile technology at the Company's Texas City Plant as part of the acrylonitrile expansion project. The Company and BP have agreed to cross- license any technology or improvements relating to the manufacture of acrylonitrile in the Company's facility. During the term of the Company's agreement with Dupont pursuant to which Dupont supplies the caustic soda needed in the Company's manufacture of sodium cyanide, Dupont has the option to provide to the Company any improvements in its sodium cyanide technology without cost to the Company. Management believes that the manufacturing processes that the Company utilizes at the Texas City Plant are cost effective and competitive. Although the Company does not engage in alternative process research with respect to its U.S. operations, it does monitor new technology developments, and when management believes it is appropriate, the Company will seek to obtain licenses for process improvements. PULP CHEMICALS There are various technologies available for production of sodium chlorate. The Company's current technology was developed internally, prior to the acquisition of the pulp chemicals business by the Company in 1992, and is metal cell technology utilizing titanium anodes, piping and reactors. The principal business of ERCO is the design, sale and technical service of custom-built patented chlorine dioxide generators. Sterling Pulp's engineering group is involved in the technical support of the Company's sales and marketing group through joint calling efforts and defines the scope of a project and produces technical schedules and cost estimates. The Company performs detailed design of chlorine dioxide generators which are then constructed by customers. Plant and instrumentation testing and generator start-up are handled by a joint engineering/technical service team of the Company. The Company is involved in a number of patent disputes with Akzo Nobel. See Item 8, Note 6 of the "Notes to Consolidated Financial Statements". 8 The Company's pulp chemical research and development activities are carried out at its Toronto, Ontario laboratories. Activities include the development of new or improved chlorine dioxide generation processes and research in new technologies focusing on electrochemical and membrane technology related to chorine dioxide, including municipal water treatment, its by-products and pulp mill effluent. COMPETITION AND INDUSTRY CONDITIONS GENERAL The basis for competition in all of the Company's petrochemical products is price, quality and deliverability. The industries in which the Company operates are highly competitive. Many of the Company's competitors are larger and have greater financial resources than the Company. Among the Company's competitors are some of the world's largest chemical companies and major integrated petroleum companies, some of which, unlike the Company, have their own raw material sources. The Company has both domestic and foreign competitors and sells its products in both domestic and foreign markets. The Company sells large percentages of its styrene and acrylonitrile production in the export market, which has historically been more volatile than the domestic market. The Company's export operations subject it to a number of potential risks, including fluctuations in currency, exchange control regulations, changes in foreign tax and economic policies including import and trade restrictions, employment and environmental regulations, governmental instability and other potentially detrimental foreign government practices or policies affecting U.S. companies doing business abroad. The petrochemical industry historically has experienced periods of high demand and high capacity utilization resulting in increasingly high operating margins and profitability. This generally leads to new capacity investment until supply exceeds demand. The overcapacity in turn leads to periods of decreasing capacity utilization and declining operating margins until demand exceeds supply and the cycle is repeated. Changes in capacity, combined with the effects of U.S. and world economic conditions, directly impacts margins and the volume of products sold. There is no assurance that capacity increases in the U.S. and in other parts of the world or other factors, will not adversely affect the industry's supply and demand balance. Historically, petrochemical industry profitability has been affected by vigorous price competition, which may intensify due to, among other things, new domestic and foreign industry capacity. The Company's businesses are subject to changes in the world economy, including changes in currency exchange rates. In general, weak economic conditions either in the United States or in the world tend to reduce demand and put pressure on margins. Operations outside the United States are subject to the economic and political risks inherent in the countries in which they operate. Additionally, the export and domestic markets can be affected significantly by import laws and regulations. During 1995, the Company's export sales were approximately 52% of total revenues. It is not possible to predict accurately how changes in raw material costs, market conditions or other factors will affect petrochemical industry margins in the future. PETROCHEMICALS Styrene. According to industry publications, the total domestic capacity for styrene is currently 13.8 billion pounds per year. The Company's rated capacity of 1.5 billion pounds per year represents approximately 11% of the domestic capacity. The Company's major domestic competitors in the manufacture of styrene are Dow Chemical Company, Arco Chemical Company, Amoco Chemicals Company, Chevron Chemical Company, COS-MAR (a joint venture of General Electric Company and Fina) and Huntsman Chemical Corporation. Prior to 1994, styrene's profitability was depressed because of both overcapacity and recessionary pressures in parts of the world. By the spring of 1994, however, market growth resulting from economic expansion had absorbed much of the excess capacity. As a result, the Company's styrene volumes and margins 9 increased substantially in fiscal 1994 and through most of fiscal 1995. Beginning in the third quarter of fiscal 1995, styrene prices started decreasing as demand weakened as a result of a general economic slowdown in the worldwide economic growth rate, prompting customers to begin utilizing their available inventories and decreasing purchases of additional product. The weakening market conditions were accelerated in the fourth fiscal quarter by significantly decreased purchases of styrene and styrene derivatives by China primarily as a result of changes in China's enforcement of economic and tax policies and monetary constraints that negatively affected its imports. China accounts for a significant portion of global purchases of styrene and styrene derivatives. While the industry cannot predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve. The Company anticipates that styrene demand worldwide will improve in fiscal 1996, relative to the fourth quarter of fiscal 1995, although the Company does not anticipate prices and margins returning to 1995 levels. Acrylonitrile. According to industry publications, the total domestic capacity for acrylonitrile production is approximately 3.4 billion pounds per year, with the Company's rated capacity of approximately 700 million pounds representing approximately 21% of the total. Approximately 80% of the Company's acrylonitrile production in fiscal 1995 was exported, either directly or pursuant to arrangements with large international trading companies. Other major domestic producers of acrylonitrile are Cytec Industries (formerly American Cyanamid Co.), Dupont, BP and Monsanto. As a result of the Company's very high percentage of export acrylonitrile sales, demand for the Company's acrylonitrile is most significantly influenced by export customers, particularly those that supply acrylic fiber to China. In recent years the acrylic fiber market has been subject to volatility because of the relatively unstable nature of the Chinese market. During most of fiscal 1995, strong demand for acrylic fiber and ABS, particularly in China, increased demand for acrylonitrile. However, the Company believes that acrylonitrile demand began to weaken in the third quarter for the same reasons that caused the significant negative changes in the styrene market. Demand for acrylonitrile from export customers decreased significantly in the fourth quarter of fiscal 1995 as a result of these changes, although export prices and margins did not decrease significantly until the first quarter of fiscal 1996. While the industry cannot predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve. The Company anticipates that acrylonitrile demand worldwide will improve in fiscal 1996, relative to the fourth quarter of fiscal 1995, although the Company does not anticipate prices and margins returning to 1995 levels. Acetic Acid. According to industry publications, the total domestic capacity for acetic acid production is approximately 4.7 billion pounds per year, with the Company's current rated capacity of approximately 600 million pounds per year representing approximately 13% of the total domestic capacity. The Company has begun an expansion of acetic acid capacity from 600 million pounds to nearly 800 million pounds annually. This expansion is expected to be completed in 1996. The Company's major domestic competitors are Hoechst Celanese Corporation, Eastman Chemical Products, Inc. and Hanson plc (formerly Quantum Chemicals). Plasticizers. The Company's capacity for plasticizers is 280 million pounds per year. The Company's major domestic competitors in the production of plasticizers are Exxon Chemical Americas, Aristech Chemicals and Eastman Chemical Products, Inc. The Company has an agreement with BASF pursuant to which the Company sells all of its plasticizer production to BASF through the end of the decade. Lactic Acid. The Company is the sole domestic producer of synthetic lactic acid, the highest purity lactic acid available. Major competition for the Company in lactic acid is from foreign competitors who manufacture primarily fermentation grade lactic acid. Management believes that the quality of synthetic lactic acid generally is preferred over the quality of fermentation grade lactic acid, particularly in certain time and heat exposure applications. TBA. The Company believes that there are currently only three TBA production units in the world: the Company's TBA unit (21 million pounds rated capacity), Nitto Chemical Industries Co., Ltd. (3.3 million pounds rated capacity) and BASF (13 million pounds rated capacity). 10 Sodium cyanide The Company operates a sodium cyanide plant at its Texas City facility which is owned by Dupont. The capacity of this plant is 100 million pounds per year. PULP CHEMICALS Sodium Chlorate. The Company markets sodium chlorate primarily in Canada and the U.S. The Company is one of the three largest producers of sodium chlorate in North America with its rated capacity of 350,000 tons representing approximately 20% of North American capacity. Upon completion of the Valdosta, Georgia plant, the Company's capacity for sodium chlorate will increase to nearly 460,000 tons. The Company's major North American competitors in the manufacture of sodium chlorate are Akzo Nobel, CXY Chemicals, Ltd. and Kerr- McGee. Chlorine Dioxide Generators. The Company is the largest worldwide supplier of patented technology for chlorine dioxide generators, and historically has supplied approximately two-thirds of all large scale pulp mill generators worldwide. The Company's major competitor is Akzo Nobel. Outside of North America, Akzo Nobel operates under the name Cell Chem. Sodium Chlorite. Total North American capacity for sodium chlorite production is approximately 13,000 metric tons per year, with the Company's rated capacity of approximately 3,000 metric tons representing approximately 23% of the total. The only other North American producer of sodium chlorite is Vulcan Chemical. For information regarding capacity utilization and revenues for each of the Company's principal products, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" which is hereby incorporated herein by reference. ENVIRONMENTAL AND SAFETY MATTERS The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. New laws or permit requirements and conditions may affect the Company's operations, products or waste disposal. Past or future operations may result in claims, regulatory action or liabilities. Expenditures could be required to upgrade wastewater collection, pretreatment, disposal systems or other matters. Some risk of environmental costs and liabilities is inherent in particular operations and products of the Company, as it is with other companies engaged in similar businesses. Management believes that the environmental management programs to maintain compliance with applicable environmental laws are appropriate and adequate. As part of its ongoing environmental oversight efforts, the Company conducts or commissions reviews of its environmental performance and addresses issues identified. The Company routinely conducts inspection and surveillance programs to detect and respond to any leaks or spills of regulated hazardous substances and to correct any identified regulatory deficiency. To reduce the risk of off- site consequences from any unanticipated event, the Company acquired a greenbelt buffer zone adjacent to the Texas City Plant in 1991. The Company also participates in a regional air monitoring network to monitor ambient air quality in the Texas City community. This five-year program is part of the Company's commitment to Responsible Care initiatives of the Chemical Manufacturers Association and Canadian Chemical Producers Association. The Company has recently been recognized as a 33/50 Environmental Champion by the EPA for surpassing the emission reduction goals of the 33/50 program at the Texas City Plant faster than the EPA's timetable. The voluntary 33/50 program targeted 17 high priority chemicals included in the EPA's Toxic Release 11 Inventory. Six of the 17 chemicals are present at the Company's Texas City Plant. The goal of the program was a 33% reduction in air emissions of these compounds by 1992, compared to 1987 levels, and a 50% reduction by 1995. For the 1994 reporting year, the Company achieved a 74% reduction in the targeted chemicals including a 99% reduction in chromium and nickel compounds, a 96% reduction in hydrogen cyanide emissions by converting this byproduct into sodium cyanide and an 87% reduction in benzene emissions primarily by constructing a major new waste water treatment facility. In addition to these improvements, the Company has voluntarily initiated a complete review of the overall environmental condition at its Texas City Plant and will initiate appropriate actions or preventative projects necessary to insure that the facility continues to operate in a safe and environmentally responsible manner, including appropriate responses to previously identified elevated concentrations of certain chemicals in the soil and groundwater. The Company is presently unable to determine what remediation or other action, if any, may need to be taken regarding these conditions. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations or products. Changing and increasingly strict environmental laws and regulations might affect the manufacture, handling, processing, distribution or use of chemical products and the release, treatment, storage or disposal of wastes by the Company. For example, at both the state and federal level, the trend towards regulation of discharges on a sectoral, geographic or multimedia basis may directly or indirectly affect producers of specific chemicals. Such actions may be expected to exert pressure on companies in the commodity chemical industry to enhance their wastewater recycling and on-site treatment systems to reflect the government's evolving views. Accordingly, the Company could be required from time to time to make expenditures to upgrade its wastewater collection, pretreatment or disposal systems at the Texas City Plant. Production of chemical products involves the use, storage, transportation and disposal of materials that may be classified as hazardous or toxic under applicable laws. Management believes that the Company's procedures for the use, storage, transportation and disposal of these materials are consistent with industry standards and applicable laws and that it takes precautions to protect its employees and others from harmful exposure to such materials. However, there can be no assurance that past or future operations will not result in exposure or injury or to claims of injury by employees or the public due to the use, storage, transportation or disposal of these materials. Under the Assets Purchase Agreement for the Company's acquisition of the Texas City Plant from Monsanto, Monsanto agreed to be liable and to indemnify the Company for (a) any pre-acquisition violations of environmental law; (b) the clean-up of pre-acquisition deposits or emissions, of hazardous substances (defined in the Assets Purchase Agreement as government agency mandated remedial work, including investigative work, monitoring and temporary relocation of assets) with certain limitations for securely-contained deposits; (c) legal liability to third parties as a result of such pre-acquisition deposits or emissions or for exposure to hazardous substances; (d) clean-up, fines, penalties and third party liabilities arising from any improper clean-up undertaken by Monsanto pursuant to the Assets Purchase Agreement; and (e) related legal fees, costs and expenses incurred by the Company. Certain of Monsanto's obligations and agreements under the provisions of the Assets Purchase Agreement described herein ("Monsanto's Commitments") expire and are no longer applicable under a variety of circumstances, including an assignment of the Assets Purchase Agreement without Monsanto's consent, or if either Gordon A. Cain, the Company's Chairman, or J. Virgil Waggoner, the Company's President and Chief Executive Officer, cease to have Active Management Responsibility (as defined in the Assets Purchase Agreement) for the Company or cease to own at least 2.5% of the outstanding shares of voting stock of the Company, except due to death or disability. In the event of a death or disability prior to August 1, 1996, the Company has the right to designate, subject to Monsanto's reasonable approval, a replacement for either individual. After that date, however, certain of Monsanto's Commitments expire if, for any reason, including prior or subsequent death or disability and regardless of any previously designated replacement, either of the two named individuals no longer have such Active Management Responsibility or ownership. Certain of Monsanto's Commitments also expire (as to the facility 12 as a whole or any operating unit) on the purchase or assumption of operating responsibility by a third party for the entire facility or unit. In addition, certain of Monsanto's Commitments could be terminated as to specific areas of the Texas City Plant if the Company does not satisfy various other conditions contained in the Assets Purchase Agreement. The Company's management is unable to determine the impact, if any, of the potential expiration of Monsanto's Commitments. The Company has entered into negotiations with Monsanto with respect to the scope of Monsanto's obligations to the Company for pre-acquisition environmental conditions at the Company's Texas City Plant under applicable state and federal law and the indemnification provisions of the Assets Purchase Agreement. To date, the negotiations have not produced any change in the parties respective rights and obligations. The results of those negotiations could impact the Company's future environmental expenditures. In connection with the Company's purchase of the pulp chemical business in 1992, the seller, Tenneco Canada, Inc., contractually retained liability for costs, damages, fines, penalties and other losses under claims by third parties (including employees and authorities) arising from the ownership or operation of the facilities and businesses prior to the acquisition. The Company is also indemnified against the breach of Tenneco Canada's environmental remediation covenants. These covenants oblige Tenneco Canada to do specific remedial work (including decommissioning the old section of the Vancouver facility, which is underway) at the facilities within set time periods, and to do any investigation, monitoring or remedial work required by present or future legislation governing environmental conditions predating the acquisition. Tenneco Canada has, in addition, indemnified the Company against losses arising from the remediation of preacquisition environmental conditions or from preacquisition violations of environmental laws. With the exception of any third party claims, the losses against which the Company is indemnified do not include consequential damages or lost profits. Groundwater data obtained in the course of the acquisition of the pulp chemical business indicated elevated concentrations of certain chemicals in the soil and groundwater at the four Canadian sites. The Company conducted a focused baseline sampling of groundwater conditions beneath its Canadian facilities in connection with Tenneco Canada's indemnification of the Company for preclosing conditions which confirmed the previous data. Tenneco Canada continues to work with the provincial governments to address these issues. The Company from time to time has encountered elevated concentrations of chemicals in soils or groundwater at its Canadian plants which it has addressed or is addressing. During the course of the acquisition of the pulp chemical facilities by the Company, air emissions sources were reviewed, and any available dustfall and vegetation stress studies were considered. This review indicated emission excursion episodes at specific locations in the scrubber systems at the Thunder Bay, Buckingham and Vancouver facilities. The conditions at Thunder Bay and Vancouver have been addressed and satisfactorily resolved and the conditions at Buckingham are being addressed. Management believes that the Company is otherwise in compliance in all material respects with permit requirements under applicable provincial law for operating emissions sources. The Company's pulp chemical business is sensitive to potential environmental regulation. In general, environmental regulations support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) or chlorine derivatives in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine containing compounds, regulation restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine containing compounds could have a material adverse effect on the Company's financial condition and results of operations. 13 There are currently efforts in some jurisdictions to ban all chlorine and chlorine-containing products, including chlorine dioxide, from the pulp bleaching process. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes that a ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. The Company is not aware of any other laws or regulations currently in place which would restrict the use of the product. Emissions into the air from the Company's Texas City Plant are subject to certain permit requirements and self-implementing emission limitations and standards under state and federal law. The Company's Texas City Plant is located in an area that is classified by the EPA as not having attained the ambient air quality standards for ozone, which is controlled by direct regulation of volatile organic compounds ("VOCs") and nitrogen oxide ("NOx"). Additional requirements were issued in fiscal 1992 and modified in fiscal 1994 by the Texas Natural Resource Conservation Commission ("TNRCC") in order to achieve ambient air quality standards for ozone. These measures may substantially increase the Company's VOCs and NOx control costs in the future, although the cost and full impact, if any, cannot be determined at this time. Additionally, the Clean Air Act Amendments of 1990 contain new federal permit requirements and provisions governing toxic air emissions. The Company has incurred and will incur additional costs to comply with this law and with requirements issued by the State of Texas to control VOCs and NOx, as will all other similarly situated organic chemical manufacturing facilities. Management believes that the Company's solid and hazardous waste management practices are in compliance in all material respects with permit and other requirements under applicable environmental law. However, there can be no assurance that past practices or future operations will not result in claims or regulatory action. EMPLOYEES As of September 30, 1995, just under 1,200 persons were employed by the Company including approximately 300 at its facilities in Canada. Approximately 60% of the employees at the Company's manufacturing facilities are covered by union agreements. The primary union agreement is with the Texas City, Texas Metal Trades Council, AFL-CIO, of Galveston County, Texas and covers all hourly employees except security guards at the Texas City Plant. The union agreements for the security guards are with the Associated Guards of the United States. These agreements were last negotiated in May 1993 and the full contract is again subject to renegotiation in May 1996. Employees at the Buckingham plant are represented the Canadian Communications, Energy and Chemicals Workers Union and the Office and Professional Employees International Union, while employees at the Vancouver plant are represented by the Pulp Paper and Woodworkers Union. The Buckingham agreements were last negotiated in June 1995 and are subject to renegotiation in November 1997. The Vancouver agreement was renegotiated in November 1994 and is subject to renegotiation in November 1997. The Company enjoys a good relationship with its employees. INSURANCE The Company currently maintains $500 million of coverage for property damage to its Texas City facility and resulting business interruption. Although the Company carries such insurance, it has only one styrene manufacturing facility and one acrylonitrile manufacturing facility; thus, a significant interruption in the operation of either facility could have a material adverse affect on the Company's financial condition, results of operations or cash flows. The Company maintains $338 million of combined coverage for property damage and resulting business interruption for its pulp chemical operations. The Company also maintains other insurance coverages for various risks associated with its business. There is no assurance that the Company will not incur losses beyond the limits of, or outside the coverage of, its insurance. From time to time various types of insurance for companies in the chemical industry have been very expensive or, in some cases, unavailable. There is no assurance that in the future the Company will be able to maintain its existing coverage or that the premiums will not increase substantially. 14 ITEM 2. PROPERTIES The principal executive offices of the Company are located in Houston, Texas and are subleased through Citicorp, N.A. The Company's Texas City Plant is located approximately 45 miles south of Houston in Texas City, Texas, on a 290-acre site on Galveston Bay near many other chemical manufacturing complexes and refineries. The Company has facilities to load its products in drums, containers, trucks, railcars, barges and ocean-going tankers for shipment to customers. The site offers room for future expansion and includes a greenbelt around the northern edge of the plant site. The Company's Texas City Plant comprises seven basic operating units which can be divided into three groups based on the chemistry involved. One group of operating units involves synthesis gas chemistry (carbon monoxide and hydrogen), and its facilities include the synthesis gas complex, the acetic acid unit and three plasticizer units (oxo-alcohol, phthalic anhydride and linear phthalate esters). Carbon monoxide and hydrogen are utilized as feedstocks in the oxo-alcohol manufacturing process, and carbon monoxide is a feedstock to produce acetic acid. As described in Item 1 under the caption "Recent Developments", a new partial oxidation unit will be constructed by Praxair at the Texas City Plant to supply carbon monoxide and hydrogen to the Company. The synthesis gas reformer will then be available for use in the new methanol unit also under construction at the Texas City Plant. A second group of operating units involves acrylonitrile and hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit, the lactic acid unit, the TBA unit and the sodium cyanide unit. Ammonia and propylene are used as feedstocks in the acrylonitrile process, and hydrogen cyanide, a by-product of that process, is used as a feedstock for the other units in this second group and is also burned as fuel. The third operating group is based on ethylene and benzene chemistry, and its facilities comprise the ethylbenzene and styrene units. Although the styrene unit is independent of the rest of the facility from a feedstock and by-product standpoint, it is the cornerstone of the Company's energy balance, as it uses large quantities of by-product steam generated by the acrylonitrile and phthalic anhydride units, thus reducing the demands on the Company's steam generating facility. In this way, the Company's utilities system links the three operating groups together in an effort to minimize utility costs. This integration results in cost efficiencies without significantly compromising the operating flexibility of the individual product units. The Company owns or leases all of the real property which comprise its Texas City Plant, and all of the facilities and equipment located there other than the sodium cyanide unit owned by Dupont, a cogeneration facility owned by a joint venture between the Company and Praxair, the new partial oxidation unit currently under construction at the site by Praxair and the acetic acid unit and related facilities which are operated under a ten-year sale leaseback arrangement with BP ending in August 1996. Upon expiration of such ten-year period the Company will reacquire title to the acetic acid unit. The Company also owns storage facilities, approximately 200 rail cars and an acetic acid barge. In addition, the Company subleases approximately 20,000 square feet of office space in Houston, Texas for its corporate headquarters and leases several storage facilities in the U.S. and Asia. The Company's pulp chemical business includes four manufacturing plants in Canada and one under construction in Valdosta, Georgia. The Buckingham, Quebec and Vancouver, British Columbia sites are approximately 20 acres each and are owned by the Company. The Thunder Bay, Ontario and Grande Prairie, Alberta sites are leased by the Company. The new plant is being constructed in conjunction with, and will be leased from, the Valdosta-Lowndes County Industrial Authority. The Company also leases approximately 200 rail cars. Headquarters for the Canadian operations is located in Toronto in an approximately 50,000 square foot single story office building owned by the Company. The building is situated on 6.56 acres owned by the Company and serves as the headquarters for the pulp chemicals business and its respective laboratories. Management believes that these properties and equipment are sufficient to conduct the Company's business. See Item 1. "Business" for other information required by this item. 15 ITEM 3. LEGAL PROCEEDINGS The information set forth under the caption "Legal Proceedings" in Note 6 of the "Notes to Consolidated Financial Statements" is hereby incorporated herein by this reference. The cause numbers, the styles of the cases, the courts in which the cases are pending and certain other information with respect to the matters described in Note 6 is set forth below. HUNTSMAN LAWSUIT: Sterling Chemicals, Inc. v. Huntsman Chemical Corporation, Huntsman Styrene Corporation and Huntsman Corporation; Cause No. 95-005256; In the 61st Judicial District Court of Harris County, Texas. ALLEMAND LAWSUIT: George Allemand and Willa Allemand v. Sterling Chemicals, Inc., Olin Corporation, Goodyear Tire & Rubber Co., Inc. Marine Fueling Service, Inc.; le Manufacturier de Granford, Triplex Inc. and Shrieve Chemical Company, Cause No. A-152,286; In the 58th Judicial District Court of Jefferson County, Texas. AMMONIA RELEASE: 1. Otis Pointer Jr., individually and on behalf of all others similarly situated, v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 94CV0514; In the 56th Judicial District Court of Galveston County, Texas. 2. Bobbie J. Adams, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0764; In the 56th Judicial District Court of Galveston County, Texas. 3. Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0947; In the 56th Judicial District Court of Galveston County, Texas. 4. Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV1147; In the 212th Judicial District Court of Galveston County, Texas. 5. Holly Benefiel, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV0246; In the 56th Judicial District Court of Galveston County, Texas. 6. Richard Gayton, individually and as next friend of Ruben Gayton, et al. v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 95-43771; In the 55th Judicial District Court of Harris County, Texas. 7. Lilly Gordon, et al. v. Sterling Chemicals, Inc.; Cause No. 95-36592; In the 281st Judicial District Court of Harris County, Texas. 8. Connie Alaniz and Emilio Alaniz, et al. v. Sterling Chemicals, Inc., Paul Saunders and Terry Bellard; Cause No. 95CV1011; In the 10th Judicial District Court of Galveston County, Texas. 9. Anita R. Afriyie, et al. v. Sterling Chemicals, Inc., Paul Saunders and Terry Bellard; Cause No. 95CV0997; In the 122nd Judicial District Court of Galveston County, Texas. 10. Versell Allums, et al. v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause No. 95CV1017; In the 10th Judicial District Court of Galveston County, Texas. 11. Guadalupe Trevino v. Sterling Chemicals, Inc.; Cause No. 42634; In the Probate and County Court of Galveston County, Texas. 12. Beverly D. Mitchell, et al. v. Sterling Chemicals, Inc., et al.; Cause No. 94CV1312 in the 56th Judicial District Court of Galveston County, Texas. 13. Maurice Benson, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1265; In the 56th Judicial District Court of Galveston County, Texas. 14. Rodney Curry, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1263; In the 122nd Judicial District Court of Galveston County, Texas. 15. Jayson Rhodes, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1266; In the 10th Judicial District Court of Galveston County, Texas. 16. Darrell Vick, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1262; In the 122nd Judicial District Court of Galveston County, Texas. 16 SMITH LAWSUIT: Angela Smith, et al. v. Amoco Chemical Company, et al.; Cause No. 95CV0509; In the 212th Judicial District Court of Galveston County, Texas. ALLEN LAWSUIT: Moranda Allen, et al. v. Sterling Chemicals, Inc., et al.; Cause No. 91-019786; In the 127th Judicial District Court of Harris County, Texas. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1995. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information on pages 22 and 38 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 6. SELECTED FINANCIAL DATA The information on pages 38 and 39 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information on pages 18 to 23 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The information on pages 24 to 39 of the Company's 1995 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On October 25, 1995, the Audit Committee of the Board of Directors of the Company recommended and the Board of Directors of the Company approved the engagement of the firm of Arthur Andersen LLP ("Arthur Andersen") as its independent auditors for the year ending September 30, 1996, to replace the firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand"). The termination by the Company of the engagement of Coopers & Lybrand was effective upon the completion of the audit for the year ended September 30, 1995, and the filing of this Form 10-K. During the two most recent fiscal years and the subsequent interim period through the filing of this Form 10-K, there were no disagreements with Coopers & Lybrand on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their report to the subject matter of the disagreement. On October 31, 1995, the Company filed a Current Report on Form 8-K describing the engagement of Arthur Andersen as its independent auditors for the year ending September 30, 1996, to replace Coopers & Lybrand. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning directors of the Company beginning on page 3 and the information beginning on page 16 of the Definitive Proxy Statement for the Company's 1996 Annual Meeting of Shareholders is incorporated herein by reference in response to this item. ITEM 11. EXECUTIVE COMPENSATION The information concerning Executive Compensation beginning on page 5 of the Proxy Statement for the Company's 1996 Annual Meeting of Shareholders is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information beginning on page 3 and beginning on page 15 of the Proxy Statement for the Company's 1996 Annual Meeting of Shareholders is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits 1. Consolidated Financial Statements
PAGE ---- Report of Management............................................... * Report of Independent Accountants.................................. * Sterling Chemicals, Inc. Consolidated Balance Sheet as of September 30, 1995 and 1994................................................. * Sterling Chemicals, Inc. Consolidated Statements of Operations for the fiscal years ended September 30, 1995, 1994 and 1993.......... * Sterling Chemicals, Inc. Consolidated Statement of Changes in Stockholders' Equity for the fiscal years ended September 30, 1995, 1994 and 1993............................................... * Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for the fiscal years ended September 30, 1995, 1994 and 1993.......... * Notes to Consolidated Financial Statements......................... *
* Incorporated herein by reference to the appropriate portions of the Company's Annual Report to Shareholders for the fiscal year ended September 30, 1995. 2. All schedules for which provision is made in Regulation S-X of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and, therefore, have been omitted. 18 3. Exhibits Except as otherwise noted under "Description of Exhibit," each exhibit not filed herewith is incorporated by reference to the exhibit of the same number filed with the Company's Registration Statement of Form S-1 dated October 12, 1988 (Registration No. 33-24020).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 2.1 --Purchase Agreement dated as of August 20, 1992 between Tenneco Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and Sterling Canada, Inc. as Buyers (the "Purchase Agreement"), incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K dated as of September 3, 1992. 3.1 --Restated Certificate of Incorporation of the Company. 3.2 --Amended By-laws of the Company, incorporated by reference from exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 4.2 --Form of Registration Rights Agreements dated as of July 30, 1986 among the Company and the holders of Common Stock listed on the signature page thereto. +10.1 --Assets Purchase Agreement dated August 1, 1986, between Monsanto Company and the Company, incorporated by reference from exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. **10.2 --Credit Agreement dated April 13, 1995, among the Company, Texas Commerce Bank National Association as Agent and as a Lender and Other Lenders. **10.2(a) --Guaranty dated as of September 28, 1995, among the Company, Texas Commerce Bank National Association as Agent and as a Lender and Other Lenders. **10.2(b) --First Amendment to Credit Agreement dated September 28, 1995, among the Company, Texas Commerce Bank National Association as Agent and as a Lender and Other Lenders. **10.3 --Credit Agreement dated September 28, 1995, among Sterling Pulp Chemicals, Ltd., Texas Commerce Bank National Association as agent and as a lender and Other Lenders. **10.4 --Credit Agreement dated as of April 28, 1995, between Sterling Pulp Chemicals, Ltd. and the Bank of Nova Scotia. 10.6 --Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of October 1, 1993), incorporated by reference from exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.6(a) --Supplement to the Sterling Chemicals, Inc. Salaried Employee's Pension Plan (Restated as of January 1, 1994), incorporated by reference from exhibit 10.6(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.6(b) --First and Second Amendments to the Sterling Chemicals, Inc. Salaried Employees' Pension Plan dated April 27, 1994 and September 23, 1994, respectively, incorporated by reference from exhibit 10.6(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.8 --Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of October 1, 1993), incorporated by reference from exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.8(a) --Supplement to the Sterling Chemicals, Inc. Hourly Paid Employee's Pension Plan (Restated as of January 1, 1994), incorporated by reference from exhibit 10.8(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994.
19
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.8 (b) --First Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan dated April 27, 1994, incorporated by reference from exhibit 10.8(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.9 --Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan, incorporated by reference from exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.9 (a) --Supplements to the Sterling Chemicals, Inc. Savings and Investment Plan for Hourly Paid Employees and Salaried Employees, incorporated by reference from exhibit 10.10(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.9 (b) --First and Second Amendments to the Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan dated April 27, 1994 and October 26, 1994, respectively, incorporated by reference from exhibit 10.10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.10 --Sterling Chemicals, Inc. Pension Benefit Equalization Plan. 10.11 --Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan. 10.12 --Sterling Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan, incorporated by reference from exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.12(a) --First Amendment to the Sterling Chemicals, Inc. Amended and Restated Employees' Stock Ownership Plan dated April 27, 1994, incorporated by reference from exhibit 10.12(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. ++10.13 --Styrene Monomer Conversion Contract dated November 3, 1995, between Monsanto Company and the Company. +10.17 --Styrene Monomer Sales Contract dated as of August 1, 1991, between the Company and Monsanto Company, incorporated by reference from exhibit 10.12(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. +10.18 --Styrene Monomer Exchange Contract dated as of August 1, 1991, between the Company and Monsanto Company, incorporated by reference from exhibit 10.13(A) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. +10.19 --Acrylonitrile Exchange Contract dated January 1, 1994, between the Company and Monsanto Company, incorporated by reference from exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. +10.21 --Production Agreement dated April 15, 1988 between BP Chemicals Americas Inc. and the Company and First and Second Amendment thereto. +10.22 --Agreement dated May 2, 1988, between E.I. du Pont de Nemours and Company and the Company. 10.23 --License Agreement dated April 15, 1988, between BP Chemicals Americas Inc. and the Company. +10.24 --Product Sales Agreement dated August 1, 1986, between BASF Corporation and the Company, incorporated by reference from exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. +10.24(a) --Amendment No. 3 to Product Sales Agreement as of January 1,1994, between BASF Corporation and the Company, incorporated by reference from exhibit 10.22(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994.
20
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.25 --License Agreement dated August 1, 1986, between Monsanto Company and the Company. +10.26 --Amended Lease and Production Agreement dated August 8, 1994, between BP Chemicals Americas Inc. and the Company, incorporated by reference from exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.30 --Form of Indemnity Agreement executed between the Company and each of its officers and directors, incorporated by reference from exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.31 --Agreement dated January 30, 1987, among J. Virgil Waggoner, Gordon A. Cain and the Company, regarding capital stock of the Company. 10.32 --Amended and Restated Sterling Chemicals, Inc. Hourly Employees' Profit Sharing Plan, incorporated by reference from exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.33 --Amended and Restated Sterling Chemicals, Inc. Salaried Employee's Profit Sharing Plan, incorporated by reference from exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.34 --Sterling Chemicals, Inc. Amended and Restated Supplemental Employee Retirement Plan, incorporated by reference from exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1989 (Commission File Number 1-10059). 10.35 --Sterling Chemicals, Inc. Deferred Compensation Plan, incorporated by reference from exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1989 (Commission File Number 1-10059).. 10.36 --Article of Agreement between the Company, its successors and assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas, May 1, 1993 to May 1, 1996, incorporated by reference from exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1993. 10.38 --Conditional Performance Guaranty dated as of August 20, 1992, by Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals, Ltd., Sterling Canada, Inc. and the Indemnities identified in Section 10.2 of the Purchase Agreement, incorporated by reference from exhibit 10.38 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.39 --Performance Guaranty dated as of August 20, 1992, by the Company in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright & Wilson Americas, Inc. and the Indemnities identified in Section 10.3 of the Purchase Agreement, incorporated by reference from exhibit 10.39 to the Company's Current Report on Form 8-K dated September 3, 1992. 10.45 --Lease dated March 1, 1990 between Procter & Gamble, Inc. and Tenneco Canada Inc., as amended by a Lease Modification Agreement dated August 9, 1991, and Consent and Assignment Agreement dated as of August 21, 1992 among 982174 Ontario Limited, Sterling Pulp Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and The Bank of Nova Scotia, incorporated by reference from exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. 10.46 --Lease dated July 1, 1977 between Canadian National Railway Company and ERCO Industries Limited, and Consent and Assignment Agreement dated as of August 21, 1992 among Tenneco Canada Inc., Sterling Pulp Chemicals, Ltd., Canadian National Railway Company and The Bank of Nova Scotia, incorporated by reference from exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1992. +10.48 --Sales and Purchase Agreement dated April 1, 1994, between BP Chemicals Ltd. and the Company, incorporated by reference from exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994.
21
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- +10.49 --Contract for Sale and Purchase of Ethylene dated October 28, 1988, between Phillips 66 Company and the Company, incorporated by reference from exhibit 10.49 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 10.50 --Agreement between Sterling Pulp Chemicals Ltd. North Vancouver British Columbia and Pulp, Paper and Woodworkers of Canada Local 5 British Columbia effective December 1, 1994 to November 30, 1997, incorporated by reference from exhibit 10.50 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. ++10.51 --Contract for Sale and Purchase of Ethylene effective January 1, 1995, between Phillips Chemical Company and the Company. ++10.52 --Chemical Products Sales Agreement--Ethylene, dated December 7, 1994, between Lyondell Petrochemical Company and the Company. **10.53 --Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec and the Energy and Chemicals Workers Union effective November 30, 1994 to November 30, 1997. **10.54 --Agreement between Sterling Pulp Chemicals Ltd., Buckingham, Quebec, and the Office and Professional Employees International Union, effective June 25, 1995 to November 14, 1997. ++10.55 --Product Supply Agreement dated May 15, 1995, between Praxair Hydrogen Supply, Inc. and the Company. **13.1 --Sterling Chemicals, Inc. Annual Report to Shareholders for the fiscal year ended September 30, 1995. **27.0 --Financial Data Schedule.
- -------- ** Filed herewith. + Confidential treatment has been requested with respect to portions of this Exhibit, and such request has been granted. ++ Filed herewith and confidential treatment has been requested with respect to portions of this Exhibit. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 1995. However, on October 31, 1995, the Company filed a Current Report on Form 8-K describing the engagement of the firm of Arthur Andersen LLP as its independent auditors for the year ending September 30, 1996, to replace the firm of Coopers & Lybrand L.L.P. 22 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. STERLING CHEMICALS, INC. (Registrant) /s/ J. Virgil Waggoner By __________________________________ (J. Virgil Waggoner) President and ChiefExecutive Officer DATE: OCTOBER 25, 1995 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gordon A. Cain Chairman of the Board of October 25, 1995 ____________________________________ Directors (Gordon A. Cain) /s/ J. Virgil Waggoner President and Director October 25, 1995 ____________________________________ (principal executive (J. Virgil Waggoner) officer) /s/ Jim P. Wise (Vice President--Finance October 25, 1995 ____________________________________ (principal financial (Jim P. Wise) officer) /s/ Paul G. Vanderhoven Controller October 25, 1995 ____________________________________ (principal accounting (Paul G. Vanderhoven) officer) /s/ James J. Kerley Director October 25, 1995 ____________________________________ (James J. Kerley) /s/ Raymond R. Knowland Director October 25, 1995 ____________________________________ (Raymon R. Knowland) /s/ William A. McMinn Director October 25, 1995 ____________________________________ (William A. McMinn) /s/ Frank J. Pizzitola Director October 25, 1995 ____________________________________ (Frank J. Pizzitola) /s/ Gilbert M. A. Portal Director October 25, 1995 ____________________________________ (Gilbert M. A. Portal)
23 EX-10.2 2 EXHIBIT 10.2 Exhibit 10.2 CREDIT AGREEMENT ($125,000,000 TERM LOAN FACILITY AND $150,000,000 REVOLVING LOAN FACILITY) dated as of April 13, 1995 AMONG STERLING CHEMICALS, INC., as Borrower; TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent and as a Lender; THE BANK OF NOVA SCOTIA, as Documentation Agent and as a Lender, ABN AMRO BANK N.V., HOUSTON AGENCY, BANK OF SCOTLAND and CREDIT LYONNAIS, NEW YORK BRANCH, as Co-Agents and as Lenders AND THE OTHER LENDERS NOW OR HEREAFTER PARTIES HERETO TABLE OF CONTENTS
Page ---- 1. Definitions.......................................................... 1 1.1 Certain Defined Terms........................................ 1 1.2 Miscellaneous................................................ 17 2. Commitments and Loans................................................ 17 2.1 Loans........................................................ 17 2.2 Letters of Credit............................................ 18 2.3 Terminations or Reductions of Revolving Loan Commitments..... 22 2.4 Fees......................................................... 22 2.5 Several Obligations.......................................... 23 2.6 Notes........................................................ 23 2.7 Use of Proceeds.............................................. 24 2.8 Designated Amount............................................ 24 3. Borrowings, Payments and Prepayments................................. 24 3.1 Borrowings................................................... 24 3.2 Payments; Prepayments........................................ 24 4. Payments; Pro Rata Treatment; Computations, Etc...................... 26 4.1 Payments..................................................... 26 4.2 Pro Rata Treatment........................................... 26 4.3 Certain Actions, Notices, Etc................................ 26 4.4 Non-Receipt of Funds by the Agent............................ 27 4.5 Sharing of Payments, Etc..................................... 28 5. Conditions Precedent................................................. 28 5.1 Initial Loans and Letters of Credit.......................... 28 5.2 All Loans and Letters of Credit.............................. 30 6. Representations and Warranties....................................... 30 6.1 Organization................................................. 30 6.2 Financial Statements......................................... 31 6.3 Enforceable Obligations; Authorization....................... 31 6.4 Other Borrowed Money Indebtedness............................ 31 6.5 Litigation................................................... 31 6.6 Taxes........................................................ 32 6.7 Regulations G, U and X....................................... 32 6.8 Subsidiaries................................................. 32
6.9 No Untrue or Misleading Statements........................... 32 6.10 ERISA........................................................ 32 6.11 Investment Company Act....................................... 32 6.12 Public Utility Holding Company Act........................... 32 6.13 Solvency..................................................... 33 6.14 Compliance................................................... 33 6.15 Environmental Matters........................................ 33 7. Affirmative Covenants................................................ 33 7.1 Taxes, Existence, Regulations, Property, Etc................. 33 7.2 Financial Statements and Information......................... 34 7.3 Financial Tests.............................................. 35 7.4 Inspection................................................... 35 7.5 Further Assurances........................................... 35 7.6 Books and Records............................................ 35 7.7 Insurance.................................................... 35 7.8 Notice of Certain Matters.................................... 36 7.9 Interest Rate Risk........................................... 36 7.10 Capital Adequacy............................................. 36 7.11 ERISA Information and Compliance............................. 37 8. Negative Covenants................................................... 37 8.1 Indebtedness................................................. 37 8.2 Liens........................................................ 38 8.3 Contingent Liabilities....................................... 39 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets...................................................... 39 8.5 Redemption, Dividends and Distributions...................... 40 8.6 Nature of Business........................................... 40 8.7 Transactions with Affiliates................................. 40 8.8 Loans and Investments........................................ 40 8.9 No Subsidiaries.............................................. 40 8.10 BP Lease..................................................... 41 8.11 Fiscal Year.................................................. 42 8.12 Sterling Energy and Sterling Pulp (US)....................... 42 9. Defaults............................................................. 42 9.1 Events of Default............................................ 42 9.2 Right of Setoff.............................................. 45 9.3 Collateral Account........................................... 46 9.4 Preservation of Security for Unmatured Reimbursement Obligations................................................. 46 9.5 Remedies Cumulative.......................................... 47
ii 10. The Agent............................................................ 47 10.1 Appointment, Powers and Immunities........................... 47 10.2 Reliance..................................................... 48 10.3 Defaults..................................................... 48 10.4 Rights as a Lender........................................... 49 10.5 Indemnification.............................................. 49 10.6 Non-Reliance on Agent and Other Lenders...................... 49 10.7 Failure to Act............................................... 50 10.8 Resignation or Removal of Agent.............................. 50 10.9 No Partnership............................................... 51 11. Miscellaneous........................................................ 51 11.1 Waiver....................................................... 51 11.2 Notices...................................................... 51 11.3 Expenses, Etc................................................ 51 11.4 Indemnification.............................................. 52 11.5 Amendments, Etc.............................................. 53 11.6 Successors and Assigns....................................... 53 11.7 Limitation of Interest....................................... 56 11.8 Survival..................................................... 57 11.9 Captions..................................................... 57 11.10 Counterparts................................................. 57 11.11 Governing Law................................................ 57 11.12 Severability................................................. 57 11.13 Tax Forms.................................................... 57 11.14 Venue........................................................ 58 11.15 Confidentiality.............................................. 58 11.16 Amended and Restated Credit Agreement........................ 59
iii EXHIBITS A -- Request for Extension of Credit B -- Borrowing Base Certificate C -- Subsidiaries D -- Term Note E -- Revolving Note F -- Assignment and Acceptance G -- Compliance Certificate H -- Existing Letters of Credit SCHEDULES 1 -- Interest Rate Agreement 6.10 -- ERISA Matters 8.1 -- Borrowed Money Indebtedness 8.2 -- Liens 8.3 -- Contingent Liabilities 8.8 -- Existing Investments iv CREDIT AGREEMENT THIS CREDIT AGREEMENT is made and entered into as of April 13, 1995 (the "Effective Date"), by and among STERLING CHEMICALS, INC., a Delaware corporation (the "Borrower"); each of the lenders which is or may from time to time become a party hereto (individually, a "Lender" and, collectively, the "Lenders"); TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"), THE BANK OF NOVA SCOTIA, as Documentation Agent, and ABN AMRO BANK N.V., HOUSTON AGENCY, BANK OF SCOTLAND and CREDIT LYONNAIS, NEW YORK BRANCH, as Co-Agents. The parties hereto agree as follows: 1. Definitions. 1.1 Certain Defined Terms. Unless a particular term, word or phrase is otherwise defined or the context otherwise requires, capitalized terms, words and phrases used herein or in the Loan Documents (as hereinafter defined) have the following meanings (all definitions that are defined in this Agreement in the singular to have the same meanings when used in the plural and vice versa): Accounts, Equipment, General Intangibles and Inventory shall have the respective meanings assigned to them in the Texas Business and Commerce Code in force on the Effective Date. Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the ratio of (a) EBITDA for the Rolling Four Quarters as of such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for such Rolling Four Quarters. Adjusted Fixed Charges shall mean (without duplication), for any period and with respect to any Person, (a) Fixed Charges for such period plus (b) any dividends on any equity interests in such Person of any class (except dividends payable solely in shares of common stock) paid during such period. Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation. Agreement shall mean this Credit Agreement, as it may from time to time be amended, modified, restated or supplemented. Annual Audited Financial Statements shall mean the annual consolidated financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows for such fiscal year, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with GAAP, and accompanied by a report and opinion of Coopers & Lybrand or other independent certified public accountants reasonably satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with GAAP. Such statements shall be accompanied by a certificate of such accountants that in making the appropriate examination in connection with such report and opinion, such accountants did not become aware of any Default relating to the financial tests set forth in Section 7.3 hereof or, if in the opinion of such accountants any such Default exists, a description of the nature and status thereof. Applications shall mean all applications and agreements for Letters of Credit, or similar instruments or agreements, in a form acceptable to the Borrower and the Issuer and otherwise in Proper Form, now or hereafter executed by the Borrower in connection with any Letter of Credit now or hereafter issued or to be issued under the terms hereof at the request of any Person. Assignment and Acceptance shall have the meaning ascribed to such term in Section 11.6 hereof. Bankruptcy Code shall mean the United States Bankruptcy Code, as amended, and any successor statute. Borrowed Money Indebtedness shall have the meaning ascribed to it in Section 8.1 hereof. Borrowing Base shall mean, as at any date, the amount of the Borrowing Base shown on the Borrowing Base Certificate then most recently delivered pursuant to Section 7.2 hereof, determined by calculating the amount equal to: (i) 85% of the aggregate amount of the Eligible Accounts at said date, plus (ii) the lesser of (I) 65% of the sum of (x) the aggregate amount of Eligible Inventory at said date and (y) seventy-five percent (75%) of the value (determined in accordance with GAAP) at said date of materials and 2 supplies which are not Inventory (provided that the amount determined under this clause (y) shall not exceed $7,000,000) or (II) the amount determined in clause (i) above. In the absence of a Borrowing Base Certificate delivered as required by Section 7.2, the Agent shall determine the Borrowing Base from time to time in its reasonable discretion, taking into account all information reasonably available to it, and the Borrowing Base from time to time so determined shall be the Borrowing Base for all purposes of this Agreement until such a Borrowing Base Certificate, in Proper Form, is furnished to and accepted by the Agent. Borrowing Base Certificate shall mean a certificate, duly executed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower, appropriately completed and in substantially the form of Exhibit B hereto. BP shall mean BP Chemicals Americas, Inc., a Delaware corporation, and its successors. BP Lease shall mean that certain Amended and Restated Lease and Production Agreement dated August 8, 1994, executed by and between BP Chemicals, Inc. and the Borrower, as the same may from time to time be amended, modified, restated or supplemented. Business Day shall mean any day other than a day on which commercial banks are authorized or required to close in Houston, Texas or in New York City, New York. Canadian Facility shall mean that certain Credit Agreement executed or to be executed, in Proper Form, by and between Sterling Pulp Chemicals, Ltd. and The Bank of Nova Scotia, as the same may be amended, restated or supplemented. The unpaid principal balance of the Canadian Facility, together with the aggregate face amount of letters of credit issued under the Canadian Facility, shall not exceed Canadian $20,000,000. Canadian Subsidiary shall mean any Subsidiary of the Borrower which is organized and exists under the laws of Canada or any province thereof. Capital Expenditures shall mean expenditures in respect of fixed or capital assets by a Person, to the extent capitalized in accordance with GAAP, but excluding (a) expenditures for the restoration, repair or replacement of any fixed or capital asset which was destroyed or damaged, in whole or in part, to the extent financed by the proceeds of an insurance policy maintained by such Person, (b) increases in the consolidated fixed or capital assets of such Person resulting solely from Permitted Acquisitions (other than expenditures made after the date of such Permitted Acquisition), and (c) increases in the capital assets of such Person resulting from expenditures in respect of fixed or capital assets made by another so long as such Person has no obligation to reimburse the other for such expenditures. Expenditures in respect of replacements and maintenance consistent with the business practices of such Person in respect of plant facilities, machinery, fixtures and other like 3 capital assets utilized in the ordinary course of business are not Capital Expenditures to the extent such expenditures are not capitalized in preparing a balance sheet of such Person in accordance with GAAP. Capital Lease Obligations shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, as amended) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). Capital Lease Obligations shall not include the interest component of any applicable rental payment. Ceiling Rate shall have the meaning assigned to it in the Interest Rate Agreement. Change of Control shall mean a change resulting when any Unrelated Person or any Unrelated Persons acting together which would constitute a Group together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own more than 50% of the aggregate voting power of all classes of Voting Stock of the Borrower or (ii) succeed in having sufficient of its or their nominees elected to the Board of Directors of the Borrower such that such nominees, when added to any existing director remaining on the Board of Directors of the Borrower after such election who is an Affiliate or Related Person of such Person or Group, shall constitute a majority of the Board of Directors of the Borrower. As used herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person other than the Borrower or any of its Subsidiaries and other than any trust for any employee benefit plan of the Borrower or any of its Subsidiaries; (d) "Related Person" of any Person shall mean any other Person owning (1) 5% or more of the outstanding common stock of such Person or (2) 5% or more of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. Code shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service. 4 Collateral shall mean all Property, tangible or intangible, real, personal or mixed, now or hereafter subject to the Security Agreements. Commitment Fee Percentage shall mean: (a) on any day prior to the first adjustment after the date hereof pursuant to clause (b) of this definition, 0.25%; (b) the Commitment Fee Percentage for any day shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt to EBITDA Ratio as of the last day of each March, June, September and December (beginning with the fiscal quarter ending on June 30, 1995) (such increase or decrease to be effective on the date that Borrower delivers the Quarterly Financial Statements to the Agent pursuant to the terms of this Agreement): Debt to Commitment Fee EBITDA Ratio Percentage Greater than or equal to 3.50 0.375 Greater than or equal to 2.50 but less than 3.50 0.30 Greater than or equal to 1.50 but less than 2.50 0.25 Less than 1.50 0.20 Compliance Certificate shall have the meaning given to it in Section 7.2 hereof. Contribution Agreement shall mean that certain Contribution Agreement dated concurrently herewith executed by and among the Borrower and its Subsidiaries, as the same may be amended, modified, supplemented and restated-- and joined in pursuant to a joinder agreement--from time to time. Controlled Group shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. Corporation shall mean a corporation, limited liability company, partnership, joint venture, joint stock association, business trust and other business entity. 5 Cover for Letter of Credit Liabilities shall mean the payment to the Agent in immediately available funds, to be held by the Agent in a collateral account maintained by the Agent at its Principal Office and collaterally assigned as security by the Borrower for the Reimbursement Obligations using documentation reasonably satisfactory to the Agent, in the amount required by any applicable provision hereof. Such amount shall be retained by the Agent in such collateral account until such time as no Default or Event of Default is continuing. Current Assets shall mean all assets of a Person which under GAAP would be classified as current assets. Current Liabilities shall mean all liabilities of a Person which under GAAP would be classified as current liabilities, other than current maturities of long term debt and the obligation to repay the Revolving Loan Obligations and any Borrowed Money Indebtedness under the Canadian Facility. Current Ratio means, as of any day, the ratio of Current Assets to Current Liabilities. Debt to EBITDA Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) the outstanding balance of Borrowed Money Indebtedness on such date to (b) EBITDA for the Rolling Four Quarters ending on such date. Default shall mean an Event of Default or an event which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. Designated Amount shall have the meaning ascribed to such term in Section 2.8 hereof. Dollar Equivalent shall mean the equivalent in another currency of an amount in Dollars to be determined by reference to the exchange quoted by TCB at 10:00 a.m. (Houston time) on the date of determination, for the spot purchase in the foreign exchange market of such amount of Dollars with such other currency. Dollars and $ shall mean lawful money of the United States of America. EBITDA shall mean, without duplication, for any period the sum of (a) Net Income less non-cash income and (b) the sum of (i) Interest Expense for such period, (ii) Federal, state and local income taxes deducted in determining such Net Income, (iii) amortization of goodwill and other non-cash expenses and intangibles (including, without limitation, patents, deferred financing costs and debt discount) deducted in determining such Net Income, (iv) depreciation, depletion and obsolescence of Property, in each case, determined in accordance with GAAP and (v) prepaid royalty income to the extent actually paid in cash. 6 Eligible Accounts shall mean, as at any date of determination thereof, each Account or General Intangible for the payment of money, in each case valued in accordance with GAAP, which is at said date payable to the Borrower or any of its Subsidiaries and which complies with the following requirements: (a) in the case of the sale of goods, the subject goods have been sold to an account debtor on an absolute sale basis on open account and not on consignment, on approval or on a "sale or return" basis or subject to any other repurchase or return agreement and no material part of the subject goods has been returned, rejected, lost or damaged, the Account or General Intangible is not evidenced by chattel paper or an instrument of any kind and said account debtor is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind; (b) the account debtor must be located in the United States or in Canada, except for (x) Accounts or General Intangibles as to which the Borrower or the applicable Subsidiary and the Agent have mutually and reasonably agreed shall be included and (y) Accounts or General Intangibles as to which the Borrower or the applicable Subsidiary has received a letter of credit in an amount equal to or greater than such Account or General Intangibles issued by a financial institution reasonably acceptable to the Agent and otherwise in form and substance reasonably satisfactory to the Agent; (c) to the extent included as an Eligible Account, such Account or General Intangible is a valid obligation of the account debtor thereunder and is not subject to any offset or other defense on the part of such account debtor or to any claim on the part of such account debtor denying liability thereunder; (d) such Account or General Intangible is subject to no Lien whatsoever, except for the Liens created or permitted pursuant to the Security Agreements; (e) such Account or General Intangible is evidenced by an invoice submitted to the account debtor and such Account or General Intangible has not remained unpaid beyond 90 days after the due date stated on the invoice therefor (or such Account or General Intangible is not invoiced in the ordinary course of business but by the terms of the agreements creating such Account or General Intangible, such Account or General Intangible has not remained unpaid beyond ninety (90) days after the due date therefor); (f) such Account or General Intangible does not arise out of transactions with any Affiliate of the Borrower or an employee, officer, agent or director of the Borrower or any Affiliate of the Borrower; (g) not more than 20% of the other Accounts or General Intangibles of the applicable account debtor or any of its Affiliates owed to the Borrower or any of its Subsidiaries fail to satisfy all of the requirements of an "Eligible Account"; (h) except as Agent may otherwise agree, inclusion of the applicable Account or General Intangible does not cause the total Eligible Accounts with respect to the applicable account debtor and its Affiliates, in the aggregate, to exceed 15% of the total Eligible Accounts; (i) each of the representations and warranties set forth in the Security Agreements with respect thereto is true and correct in all material respects on such date, and (j) the Agent, on behalf of the Lenders, shall have a first- priority perfected Lien covering such Account or General Intangible or, in the case of the Canadian Subsidiaries, the Agent, on behalf of the Lenders, shall have a first-priority perfected Lien in and to 65% of the issued and outstanding equity interests of such Subsidiary and in and to 100% of the issued and outstanding equity interests of Sterling Canada, in each case to the extent required by and in accordance with the applicable Security Agreement. 7 Eligible Inventory shall mean, as at any date of determination thereof, Inventory of the Borrower and its Subsidiaries which complies with the following requirements: (a) such Inventory shall be valued in accordance with GAAP and consist of (i) raw materials and (ii) finished goods; (b) it is in good condition, meets all standards imposed by any Governmental Authority having regulatory authority over it, its use and/or sale and is either currently usable or currently salable in the normal course of business of the Borrower and its Subsidiaries; (c) except for (x) Inventory having a value up to but no more than $15,000,000 and (y) Inventory which is in transit in the ordinary course of business but in respect of which title remains in Borrower or the applicable Subsidiary of Borrower and which is fully insured, it is not (1) located outside the United States of America or Canada or (2) in the possession or control of any warehouseman, bailee, or any agent or processor for or customer of the Borrower or its Subsidiaries or, if it is, the Borrower or its Subsidiaries shall have notified, in a manner that effectively under applicable law creates a valid and first priority Lien in favor of the Agent, on behalf of the Lenders, in such Inventory, such warehouseman, bailee, agent, processor or customer of the Agent's Lien and such warehouseman, bailee, agent, processor or customer has subordinated any Lien it may claim therein and agreed to hold all such Inventory for the Agent's account subject to the Agent's instructions; (d) each of the representations and warranties set forth in the Security Agreements with respect thereto is true and correct in all material respects on such date, and (e) the Agent, on behalf of the Lenders, shall have a first-priority perfected Lien covering such Inventory or, in the case of the Inventory of the Canadian Subsidiaries, the Agent shall, on behalf of the Lenders, have a first-priority perfected Lien in and to 65% of the issued and outstanding equity interests of such Subsidiary and in and to 100% of the issued and outstanding equity interests of Sterling Canada, in each case to the extent required by and in accordance with the applicable Security Agreement. Environmental Claim shall mean any third party (including Governmental Authorities) action, lawsuit, claim or proceeding (including claims or proceedings at common law) which seeks to impose liability for (i) noise; (ii) pollution or contamination of the air, surface water, ground water or land or the clean up of such pollution or contamination; (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) the manufacture, processing, distribution in commerce or use of Hazardous Substances. An "Environmental Claim" includes, but is not limited to, a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit. Environmental Liabilities includes all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including but not limited to: remedial, removal, response, abatement, investigative, monitoring, personal injury and damage to property or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit including reasonable attorneys' fees and court costs. 8 Environmental Permit means any permit, license, approval or other authorization under any applicable Requirements of Environmental Law. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Event of Default shall have the meaning assigned to it in Section 9 hereof. Existing Letters of Credit shall mean the letters of credit described on Exhibit H hereto. Federal Funds Rate shall have the meaning assigned to it in the Interest Rate Agreement. Financing Statements shall mean all such Uniform Commercial Code financing statements as the Agent shall require, in Proper Form, duly executed by the Borrower or others to give notice of and to perfect or continue perfection of the Agent's Liens in all Collateral, as any of the foregoing may from time to time be amended, modified, supplemented or restated. Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Fixed Charges for such Rolling Four Quarters. Fixed Charges shall mean (without duplication), for any period, (a) the amounts of scheduled principal payments made or to be made during such period with respect to Borrowed Money Indebtedness (other than Capital Lease Obligations) of the applicable Person (it is agreed that such scheduled principal payments do not include any principal payments made to reduce any Revolving Loan Obligations or other revolving Indebtedness), plus (b) payments made or required to be made during such period with respect to the principal component of the Capital Lease Obligations of the applicable Person with unrelated third parties, plus (c) the amount of Interest Expense for such period, plus (d) Capital Expenditures made during such period. GAAP shall mean generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the September 30, 1994 audited financial statements of the Borrower delivered to the Lenders together with the notes thereto. Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any central bank, agency, department, commission, board, bureau, court or other tribunal having jurisdiction over the Agent, any Lender, the Borrower or any of the Borrower's Subsidiaries or their respective Property. 9 Guaranties shall mean those certain Guaranties dated concurrently herewith executed by the Subsidiaries of Borrower (other than Sterling Energy, Sterling Pulp (US) and other than Canadian Subsidiaries), together with any other guaranties hereafter executed with respect to the Obligations, as any of the same may from time to time be amended, modified, restated or supplemented. Hazardous Substance shall mean petroleum products, and any hazardous or toxic waste or substance defined or regulated as such from time to time by any law, rule, regulation or order described in the definition of "Requirements of Environmental Law". Indebtedness shall mean and include (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits); (b) all guaranties, letter of credit contingent reimbursement obligations, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed; provided, that the term "Indebtedness" shall not mean or include any Indebtedness of the type described in clause (a) of this definition in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to the Agent in trust for the payment thereof. Interest Expense shall mean, for any period, the sum of the interest payments by an obligor made or accrued in accordance with GAAP during such period in connection with all of its Borrowed Money Indebtedness, including the interest component of any Capital Lease Obligations. Interest Rate Agreement shall mean the Interest Rate Agreement attached hereto as Schedule 1, as it may from time to time be amended, modified, restated or supplemented. Interest Rate Risk Agreement shall mean an interest rate swap agreement, interest rate cap agreement or similar arrangement entered into between the Borrower and one or more financial institutions for the purpose of reducing Borrower's exposure to interest rate risk and not for speculative purposes, as it may from time to time be amended, modified, restated or supplemented from time to time. Interest Rate Risk Indebtedness shall mean all obligations and Indebtedness of the Borrower with respect to the program for the hedging of interest rate risk provided for in any Interest Rate Risk Agreement. 10 Investment shall mean the purchase or other acquisition of any securities or Indebtedness of, or the making of any loan, advance, or other extension of credit or capital contribution to (by means of transfers of property or assets or otherwise) any Person. Issuer shall mean the issuer of a Letter of Credit under this Agreement. Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, whether presently existing or arising in the future. Letter of Credit shall have the meaning assigned to such term in Section 2.2 hereof. Letter of Credit Liabilities shall mean, at any time and in respect of any Letter of Credit, the sum of (i) the amount available for drawings under such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement Obligations at the time due and payable in respect of previous drawings made under such Letter of Credit. For the purpose of determining at any time the amount described in clause (i), in the case of any Letter of Credit payable in a currency other than Dollars, such amount shall equal the Dollar Equivalent of the face amount of such Letter of Credit. Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien of any kind, whether based on common law, constitutional provision, statute or contract to secure payment of debt or performance of an obligation. Loans shall mean the loans provided for by Section 2.1 hereof. Loan Documents shall mean, collectively, this Agreement, the Notes, the Interest Rate Agreement, all Applications, the Guaranties, the Contribution Agreement, the Security Agreements, the Notice of Entire Agreement, all instruments, certificates and agreements now or hereafter executed or delivered to the Agent or any Lender pursuant to any of the foregoing or in connection with the Obligations or any commitment regarding the Obligations, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. Majority Lenders shall mean, at any time while no Loans are outstanding, Lenders having greater than 66-2/3% of the aggregate amount of Revolving Loan Commitments, and at any time while Loans are outstanding, Lenders having greater than 66-2/3% of the aggregate amount of Term Loans outstanding plus Revolving Loan Commitments outstanding. Margin Percentage shall have the meaning ascribed to such term in the Interest Rate Agreement. 11 Material Adverse Effect shall mean a material adverse effect on the business, financial condition, operations or Properties of the Borrower and its Subsidiaries, taken as a whole, or on the ability of any of them to perform their respective material obligations under any Loan Document to which any of them is a party. Maturity Date shall mean the maturity of the Notes, April 13, 2002, as the same may hereafter be accelerated pursuant to the provisions of any of the Loan Documents. Maximum Revolving Loan Available Amount shall mean, at any date, an amount equal to the lesser of (i) the aggregate of the Revolving Loan Commitments or (ii) the Borrowing Base less the Dollar Equivalent of the then current unpaid principal balance of the Canadian Facility. Net Income shall mean, for any Person and any period, the consolidated net income of such Person for such period after taxes but before extraordinary items, determined in accordance with GAAP. Net Worth shall mean net worth determined in accordance with GAAP. Notes shall have the meaning assigned to such term in Section 2.6 hereof. Notice of Entire Agreement shall mean a notice of entire agreement, in Proper Form, executed by the Borrower, the Agent and each other Party, as the same may from time to time be amended, modified, supplemented or restated. Obligations shall mean, as at any date of determination thereof, the sum (without duplication) of the following: (i) the aggregate principal amount of Loans outstanding hereunder, plus (ii) the aggregate amount of the Letter of Credit Liabilities hereunder, plus (iii) all other liabilities, obligations and indebtedness of any Party under any Loan Document. Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof. Parties shall mean the Borrower and each of its Subsidiaries executing a Loan Document. Past Due Rate shall mean, on any day, a rate per annum equal to the lesser of (i) the Ceiling Rate for that day or (ii) the Base Rate (as defined in the Interest Rate Agreement) plus two percent (2%). 12 PBGC shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. Permitted Acquisitions shall mean non-hostile acquisitions of all or substantially all of the assets, or 50% or more of the voting securities, of any Person (or any division or product line of such Person), but only so long as no Default or Event of Default shall have occurred and be continuing (or would result from such acquisition). Permitted Dividends shall mean an amount not to exceed 50% of Net Income of the Borrower for the immediately preceding Rolling Four Quarters which may, so long as no Default or Event of Default shall have occurred and be continuing (or would result from such distribution) and so long as the Adjusted Fixed Charge Coverage Ratio for the Borrower and its Subsidiaries is not (and would not be, after giving effect to such distribution) less than 1.10 to 1.00, be distributed by the Borrower so long as the Borrower has delivered to the Agent a Compliance Certificate calculated after giving effect to the proposed distribution which indicates that such distribution complies with the terms of this Agreement. Permitted Investments shall mean: (a) certificates of deposit maturing within 90 days of the acquisition thereof and issued by a bank or trust company organized under the laws of the United States of America or a State thereof, having combined capital and surplus of at least $250,000,000 and which has (or which is a Subsidiary of a bank holding company which has) publicly traded debt securities rated A or higher by Standard and Poor's Corporation and A-2 or higher by Moody's Investors Service, Inc.; (b) obligations issued or guaranteed by the United States of America; (c) commercial paper with a published rating of not less than A-2 and P-2 (or the equivalent rating); (d) repurchase obligations for underlying securities of the type described in clauses (a), (b) or (c) above entered into on a fully collateralized basis with any Lender; (e) dollar denominated time deposits with, including certificates of deposit issued by, any non-United States branch or office of any Lender; (f) Permitted Acquisitions; (g) securities (other than those securities described in clauses (a) through (e) of this definition) of money market mutual funds with net assets in excess of $100,000,000, provided that the investment amounts in securities described in this clause (g) may not exceed 5% of the issued and outstanding securities of any Person (or such lesser percentage as would constitute a controlling interest), irrespective of whether such securities having voting power or may be convertible to securities with voting power of any Person; (h) loan participations with a rating of not less than A-2 and P-2 (or the equivalent rating) by Moody's Investors Service, Inc. and Standard and Poor's Corporation, respectively; (i) money market preferred stock with a rating of not less than AAA (or the equivalent rating); (j) other investments approved by Agent in writing not exceeding, in the aggregate, $20,000,000, and (k) other investments approved by the Majority Lenders in writing. Person shall mean any individual, Corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. 13 Plan shall mean an employee pension benefit plan (as such term is defined in Section 3(2) of ERISA) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code or Section 302 of ERISA and (a) which is maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group or (b) as to which the Borrower or any member of the Controlled Group may have any liability. Principal Office shall mean the principal office of the Agent, presently located at 712 Main Street, Houston, Harris County, Texas 77002. Proper Form shall mean in form and substance reasonably satisfactory to the Agent. Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. Quarterly Dates shall mean the first day of each April, July, October and January, provided that if any such date is not a Business Day, then the relevant Quarterly Date shall be the next succeeding Business Day. Quarterly Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of a fiscal quarter and an income statement and a statement of changes in financial position for such fiscal quarter and for the fiscal year to date, subject to normal adjustments, all setting forth in comparative form the corresponding figures for the corresponding calendar quarter of the preceding year, prepared in accordance with GAAP and certified as true and correct to the best of his knowledge by the chief financial officer or other authorized officer of such Person. Regulatory Change shall mean with respect to any Lender, any change after the date of this Agreement in any Legal Requirement (including, without limitation, Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of financial institutions including such Lender under any Legal Requirements (whether or not having the force of law) by any Governmental Authority. Reimbursement Obligations shall mean, as at any date, the obligations of the Borrower then outstanding, or which may thereafter arise, in respect of Letters of Credit under this Agreement, to reimburse the applicable Issuers for the amount paid by such Issuers in respect of any drawing under such Letters of Credit, which obligations shall at all times be payable in Dollars notwithstanding any such Letter of Credit being payable in a currency other than Dollars. Request for Extension of Credit shall mean a request for extension of credit duly executed by the chief executive officer, chief financial officer or treasurer of the Borrower (or other Person 14 designated in writing by any of the foregoing to whom authority has been properly delegated), appropriately completed and substantially in the form of Exhibit A attached hereto. Requirements of Environmental Law shall mean all requirements imposed by any law (including for example and without limitation The Comprehensive Environmental Response, Compensation, and Liability Act), rule, regulation, or order of any federal, state or local executive, legislative, judicial, regulatory or administrative agency, board or authority at the applicable time which relate to (i) noise; (ii) pollution, protection or clean up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) regulation of the manufacture, processing, distribution in commerce, use, discharge or storage of Hazardous Substances. Revolving Loan shall mean a Loan made pursuant to Section 2.1(b) hereof. Revolving Loan Availability Period shall mean, for each Revolving Loan Lender, the period from and including the Effective Date to (but not including) the Termination Date. Revolving Loan Lender shall mean each Lender with (i) prior to the Termination Date, a Revolving Loan Commitment and (ii) on and after the Termination Date, any outstanding Revolving Loan Obligations. Revolving Loan Commitment shall mean, as to any Lender, the obligation, if any, of such Lender to make Revolving Loans and incur Letter of Credit Liabilities in an aggregate principal amount at any one time outstanding up to (but not exceeding) the amount, if any, set forth opposite such Lender's name on the signature pages hereof under the caption "Revolving Loan Commitment", or otherwise provided for in an Assignment and Acceptance Agreement (as the same may be reduced from time to time pursuant to Section 2.3 hereof). Revolving Loan Commitment Percentage shall mean, as to any Revolving Loan Lender, the percentage equivalent of a fraction the numerator of which is the amount of such Lender's Revolving Loan Commitment and the denominator of which is the aggregate amount of the Revolving Loan Commitments of all Lenders. Revolving Loan Obligations shall mean, as at any date of determination thereof, the sum of the following (determined without duplication): (i) the aggregate principal amount of Revolving Loans outstanding hereunder plus (ii) the aggregate amount of the Letter of Credit Liabilities hereunder. Revolving Notes shall mean the Notes of the Borrower evidencing the Revolving Loans, in the form of Exhibit E hereto. 15 Rolling Four Quarters shall mean, as of any day, the then most recently ended four (4) fiscal quarter period of the Borrower. Secretary's Certificate shall mean a certificate, in Proper Form, of the Secretary or an Assistant Secretary of a corporation as to (a) the resolutions of the Board of Directors of such corporation authorizing the execution, delivery and performance of the documents to be executed by such corporation; (b) the incumbency and signatures of the officers of such corporation executing such documents on behalf of such corporation, and (c) the Organizational Documents of such corporation. Security Agreements shall mean, collectively, (i) the Security Agreements dated as of the Effective Date executed between the Borrower and the Agent covering the Borrower's Accounts and Inventory, the BP Lease, all of the issued and outstanding equity interests in and to Sterling Canada and certain other contract rights, and all other Property therein described, and securing the Obligations, (ii) the Security Agreement dated as of the Effective Date executed between Sterling Canada and the Agent covering 65% of the issued and outstanding equity interest in and to the Canadian Subsidiaries, (iii) the Security Agreement dated as of the Effective Date executed between the Subsidiaries of the Borrower (other than Sterling Energy, Sterling Pulp (US) and the Canadian Subsidiaries) and the Agent covering all of the Accounts and Inventory of such Subsidiaries of the Borrower, and all other Property therein described, and securing, without limitation, the Guaranties, and (iv) any and all security instruments hereafter executed by any Party in favor of the Agent, as any of them may from time to time be amended, modified, restated or supplemented. Sterling Canada shall mean Sterling Canada, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Borrower. Sterling Energy shall mean Sterling Chemicals Energy, Inc., a Delaware corporation. Sterling Pulp (US) shall mean Sterling Pulp Chemicals US, Inc., a Delaware corporation. Subordinated Debt shall mean, as of the date of determination thereof, unsecured Indebtedness with any lender for which the Borrower is directly and primarily liable, in respect of which none of its Subsidiaries is contingently or otherwise obligated, and which is subordinated to the obligations of the Borrower to pay principal of and interest (before and after bankruptcy) on the Loans, the Reimbursement Obligations and the Notes and on any Interest Rate Risk Indebtedness owed to any of the Lenders, on terms, and which contains other terms (including interest, amortization and financial covenants), in form and substance satisfactory to the Agent and the Majority Lenders. 16 Subsidiary shall mean, as to a particular parent Corporation, any Corporation of which more than 50% of the indicia of equity rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent Corporation. Term Loan shall mean a Loan made pursuant to Section 2.1(a) hereof. Term Loan Lender shall mean each Lender with a Term Loan outstanding. Term Notes shall mean the Notes of the Borrower evidencing the Term Loans, in the form of Exhibit D hereto. Termination Date shall mean the earlier of (a) the Maturity Date or (b) the date specified by the Agent in accordance with Section 9.1 hereof. Texas Credit Code shall mean Title 79, Texas Revised Civil Statutes, 1925, as amended. Unfunded Vested Liabilities shall mean, with respect to any Plan, at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Borrower or any member of the Controlled Group to the PBGC or such Plan under Title IV of ERISA. Welfare Plan shall mean a "welfare plan," as such term is defined in Section 3(1) of ERISA. 2 Miscellaneous. The words "hereof," "herein," and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement. 2. Commitments and Loans. 1 Loans. Each Lender severally agrees, subject to all of the terms and conditions of this Agreement (including, without limitation, Sections 5.1 and 5.2 hereof), to make Loans as follows: (a) Term Loans. On the Effective Date, each Term Loan Lender shall make a loan to the Borrower in the amount set forth opposite such Term Loan Lender's signature on the signature pages of this Agreement. (b) Revolving Loans. From time to time on or after the Effective Date and during the applicable Revolving Loan Availability Period, each Revolving Loan Lender shall make loans under this Section 2.1(b) to the Borrower in an aggregate principal amount at any one time 17 outstanding (including its Revolving Loan Commitment Percentage of all Letter of Credit Liabilities at such time) up to but not exceeding such Lender's Revolving Loan Commitment Percentage of the Maximum Revolving Loan Available Amount (if the aggregate amount of the outstanding Revolving Loan Obligations after giving effect to a request under this Section exceeds the then current Designated Amount, the Designated Amount shall be automatically increased by the amount of such excess and the fees provided for in Section 2.4(c) hereof shall be due and payable). Subject to the conditions in this Agreement, any such Revolving Loan repaid prior to the Termination Date may be reborrowed pursuant to the terms of this Agreement; provided, that any and all such Revolving Loans shall be due and payable in full on the Termination Date. The Borrower, the Agent and the Lenders agree that Chapter 15 of the Texas Credit Code shall not apply to this Agreement, the Revolving Notes or any Revolving Loan Obligation. The aggregate of all Revolving Loans to be made by the Lenders in connection with a particular borrowing shall be equal to $1,000,000 or a multiple of $100,000 in excess of $1,000,000. 2.2 Letters of Credit. (a) Letters of Credit. Subject to the terms and conditions of this Agreement, and on the condition that aggregate Letter of Credit Liabilities shall never exceed $20,000,000, the Borrower shall have the right to, in addition to Loans provided for in Section 2.1 hereof, utilize the Revolving Loan Commitments from time to time during the Revolving Loan Availability Period to obtain the issuance, increase or extension of letters of credit for the account of the Borrower or any of its Subsidiaries and on behalf of the Borrower or any of its Subsidiaries as herein provided if the Borrower shall so request in the notice referred to in Section 2.2(b)(i) hereof (such letters of credit, together with the Existing Letters of Credit, as any of them may be amended, supplemented, extended or confirmed from time to time, being herein collectively called the "Letters of Credit)". Upon the date of the issuance, increase or extension of a Letter of Credit (or, in the case of the Existing Letters of Credit, on the Effective Date), the applicable Issuer shall be deemed, without further action by any party hereto, to have sold to each Revolving Loan Lender, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuer, a participation, to the extent of such Lender's Revolving Loan Commitment Percentage, in such Letter of Credit and the related Letter of Credit Liabilities. No Letter of Credit issued, increased or extended pursuant to this Agreement shall, unless approved by the Lenders in writing, have an expiration date later than one year from date of issuance (or, if extendable beyond such one year period, shall be cancelable upon notice given by the Issuer to the beneficiary of such Letter of Credit at least 30 days before the automatic extension of such Letter of Credit). No Letter of Credit shall have an expiration date after the end of the Revolving Loan Availability Period unless the Lenders shall have approved the same in writing. TCB agrees that it shall be the Issuer of each Letter of Credit where so designated by the Borrower; provided that the current issuers of the Existing Letters of Credit shall continue as the Issuer with respect thereto and provided, further, that the Borrower may, at its option (and with the approval of the applicable Lender), designate any other Lender to be the Issuer in respect of any Letter of Credit. 18 (b) Additional Provisions. The following additional provisions shall apply to each Letter of Credit: (i) The Borrower shall give the Agent notice requesting each issuance, increase or extension of a Letter of Credit hereunder as provided in Section 4.3 hereof and shall furnish such additional information regarding such transaction as the Agent may reasonably request. Upon receipt of such notice, the Agent shall promptly notify the Issuer and each other Revolving Loan Lender of the contents thereof and of such Lender's Revolving Loan Commitment Percentage of the amount of such proposed Letter of Credit. (ii) No Letter of Credit may be issued, increased or extended if after giving effect thereto the sum of (A) the aggregate outstanding principal amount of Revolving Loans plus (B) the aggregate Letter of Credit Liabilities would exceed the Maximum Revolving Loan Available Amount. On each day during the period commencing with the issuance, increase or extension of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, the Revolving Loan Commitment of each Revolving Loan Lender shall be deemed to be utilized for all purposes hereof in an amount equal to such Lender's Revolving Loan Commitment Percentage of the sum of the amount then available for drawings under such Letter of Credit plus any unpaid and outstanding Reimbursement Obligations relating to Letters of Credit which have already been drawn against. (iii) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment thereunder, Issuer shall promptly notify the Agent and, thereafter, the Agent shall promptly notify the Borrower and each Lender as to the amount to be paid as a result of such demand and the payment date. If at any time any Issuer shall have made a payment to a beneficiary of a Letter of Credit in respect of a drawing or in respect of an acceptance created in connection with a drawing under such Letter of Credit, each Revolving Loan Lender will pay to the Agent, for the account of the Issuer, immediately upon demand by such Issuer at any time during the period commencing after such payment until reimbursement thereof in full by the Borrower, an amount equal to such Lender's Revolving Loan Commitment Percentage of such payment, together with interest on such amount for each day from the date of demand for such payment (or, if such demand is made after 11:00 a.m. Houston time on such date, from the next succeeding Business Day) to the date of payment by such Lender of such amount at a rate of interest per annum equal to the Federal Funds Rate for such period. (iv) The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the Issuer, by payment to the Agent for the account of the Issuer, for any amount paid by any Issuer upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind, all of which are hereby waived. Such reimbursement may, subject to satisfaction of the conditions in Sections 5.1 and 5.2 hereof and to the Maximum Revolving Loan Available Amount (after adjustment in 19 the same to reflect the elimination of the corresponding Letter of Credit Liability), be made by the borrowing of Revolving Loans. Agent will pay to each Revolving Loan Lender such Lender's Revolving Loan Commitment Percentage of all amounts received from the Borrower for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Letter of Credit, but only to the extent such Lender has made payment to Agent in respect of such Letter of Credit pursuant to clause (iii) above. (v) The Borrower will pay to the Agent at the Principal Office for the account of each Revolving Loan Lender a letter of credit fee with respect to each Letter of Credit equal to the greater of (x) $500 or (y) an amount, calculated on the basis of the actual number of days elapsed in a year composed of 360 days and on the basis of the face amount of such Letter of Credit available for drawings under such Letter of Credit from time to time, in each case for the period from and including the date of issuance, increase or extension of such Letter of Credit to and including the date of expiration or termination thereof at the Margin Percentage (on a per annum basis) from time to time in effect applicable to Eurodollar Rate Borrowings (as defined in the Interest Rate Agreement) under Revolving Notes, such fee to be due and payable in arrears on (A) each Interest Payment Date applicable to Base Rate Borrowings which occurs after the date of issuance, increase or extension thereof and prior to the expiration or termination of such Letter of Credit, and (B) on the date of expiration or termination of such Letter of Credit. The Agent will pay to each Revolving Loan Lender, promptly after receiving any payment in respect of letter of credit fees referred to in this clause (v), an amount equal to the product of such Lender's Revolving Loan Commitment Percentage times the amount of such fees. The Borrower will also pay to the Agent at the Principal Office for the account of the Issuer alone an amount, calculated on the basis of the daily average amount available for drawings under the applicable Letter of Credit from and including the date of issuance, increase or extension of such Letter of Credit to and including the date of expiration or termination thereof at 0.1875% (on a per annum basis), such fee to be due and payable in advance on the date of issuance, increase or extension of the applicable Letter of Credit. All fees relating to the Existing Letters of Credit for any period prior to the Effective Date shall be paid in full on the Effective Date. (vi) The issuance, increase or extension by the applicable Issuer of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 5 hereof, be subject to the conditions precedent (A) that such Letter of Credit shall be in such form and contain such terms as shall be reasonably satisfactory to the Agent, and (B) that the Borrower shall have executed and delivered such Applications and other instruments and agreements relating to such Letter of Credit as the Agent or the Issuer shall have reasonably requested and are not inconsistent with the terms of this Agreement. In the event of a conflict between the terms of this Agreement and the terms of any Application (including the charging of any fees other than normal and customary reimbursable expenses), the terms hereof shall control. 20 (vii) If the Agent fails to send to any Lender its portion of any payment of Reimbursement Obligations in respect of any Letter of Credit or letter of credit fees, to the extent timely received by the Agent, by the close of business on the day such payment was received, the Agent shall pay to such Lender interest on its portion of such payment from the day such payment was timely received by the Agent until the date such Lender's portion of such payment is sent to such Lender, at the Federal Funds Rate. (c) Indemnification; Release. The Borrower hereby indemnifies and holds harmless the Agent, each Revolving Loan Lender and each Issuer from and against any and all claims and damages, losses, liabilities, costs or expenses which the Agent, such Lender or such Issuer may incur (or which may be claimed against the Agent, such Lender or such Issuer by any Person whatsoever), REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES, in connection with the execution and delivery of any Letter of Credit or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify any party seeking indemnification for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the party seeking indemnification, or (ii) the failure by the party seeking indemnification to pay under any Letter of Credit after the presentation to it of a request required to be paid under applicable law. The Borrower hereby releases, waives and discharges the Agent, each Revolving Loan Lender and each Issuer from any claims, causes of action, damages, losses, liabilities, costs or expenses which the Agent, such Lender or such Issuer, as the case may be, may incur, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES, by reason of or in connection with the failure of any other Revolving Loan Lender to fulfill or comply with its obligations to the Agent, such Lender or such Issuer, as the case may be, hereunder (but nothing herein contained shall affect any rights the Borrower may have against such defaulting Lender). Nothing in this Section 2.2(c) is intended to limit the obligations of the Borrower under any other provision of this Agreement. 21 (d) Additional Costs in Respect of Letters of Credit. If as a result of any Regulatory Change there shall be imposed, modified or deemed applicable any tax, reserve, special deposit or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or participations in such Letters of Credit, and the result shall be to increase the cost to any Revolving Loan Lender of issuing or maintaining any Letter of Credit or any participation therein, or reduce any amount receivable by any Revolving Loan Lender hereunder in respect of any Letter of Credit or any participation therein (which increase in cost, or reduction in amount receivable, shall be the result of such Lender's reasonable allocation of the aggregate of such increases or reductions resulting from such event), then such Lender shall notify the Borrower through the Agent, and upon demand therefor by such Lender through the Agent, the Borrower shall pay to such Lender, from time to time as specified by such Lender, within fifteen (15) days after request therefor, such additional amounts as shall be sufficient to compensate such Lender for such increased costs or reductions in amount; provided that the Borrower shall not be obligated to compensate any Lender for any such costs or reductions which relate to a period more than seventy-five (75) days prior to such request. A statement as to such increased costs or reductions in amount incurred by such Lender, submitted by such Lender to the Borrower, shall be conclusive as to the amount thereof, absent manifest error, and may be computed using any reasonable averaging and attribution method. Each Lender will notify the Borrower through the Agent of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the issuance or maintenance of Letters of Credit by such Lender or will take such other action as the Borrower may reasonably request if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender shall have no obligation so to designate a different lending office which is not located in the United States of America). 2.3 Terminations or Reductions of Revolving Loan Commitments. (a) Mandatory. On the Termination Date, all Revolving Loan Commitments shall be terminated in their entirety. (b) Optional. The Borrower shall have the right to terminate or reduce the unused portion of the Revolving Loan Commitments at any time or from time to time, provided that (i) the Borrower shall give notice of each such termination or reduction to the Agent as provided in Section 4.3 hereof and (ii) each such partial reduction shall be in an aggregate amount of at least $5,000,000. 22 (c) No Reinstatement. Any termination or reduction of the Revolving Loan Commitments may not be reinstated without the written approval of the Agent and the Lenders. 2.4 Fees. (a) The Borrower shall pay to the Agent for the account of each Revolving Loan Lender revolving loan commitment fees with respect to such Revolving Loan Lender's pro rata share of the unused Designated Amount for the period from the Effective Date to and including the Termination Date at a rate per annum equal to the Commitment Fee Percentage from time to time in effect. Such revolving loan commitment fees shall be computed (on the basis of the actual number of days elapsed in a year composed of 360 days) on each day and shall be based on the excess of (x) such Revolving Loan Lender's pro rata share of the Designated Amount for such day over (y) the sum of (i) the aggregate unpaid principal balance of such Revolving Loan Lender's Revolving Note on such day plus (ii) such Revolving Loan Lender's pro rata share of the aggregate Letter of Credit Liabilities for such day. Accrued revolving loan commitment fees payable under this provision shall be payable on the Quarterly Dates prior to the Termination Date and on the Termination Date. (b) The Borrower shall pay to the Agent for the account of each Revolving Loan Lender revolving loan commitment fees with respect to the Revolving Loan Commitments in excess of the Designated Amount for the period from the Effective Date to and including the Termination Date at a rate equal to one half (1/2) of the Commitment Fee Percentage from time to time in effect. Such Revolving Loan Commitment Fees shall be computed (on the basis of the actual number of days elapsed in a year composed of 360 days) on each day and shall be based on the excess of (x) the amount of each Revolving Loan Lender's Revolving Loan Commitment for such day (without regard to any limitation based on the Borrowing Base or the Designated Amount) over (y) such Revolving Loan Lender's pro rata share of the Designated Amount for such day. Accrued revolving loan commitment fees payable under this provision shall be payable on the Quarterly Dates prior to the Termination Date and on the Termination Date. (c) An additional revolving loan commitment fee shall be due and payable effective upon any designation of an increase in the Designated Amount. Such additional commitment fee shall be calculated at a rate equal to one-half (1/2) of the Commitment Fee Percentage from time to time in effect and shall be computed on the amount of such increase for the period commencing on the most recently occurring Quarterly Date through the date of such increase. (d) All past due fees payable under this Section shall bear interest at the Past Due Rate. 23 2.5 Several Obligations. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither the Agent nor any Lender shall be responsible or liable for the failure of any other Lender to make a Loan to be made by such other Lender or to participate in, or co-issue, any Letter of Credit. Notwithstanding anything contained herein to the contrary, if a Revolving Loan Lender fails to make a Revolving Loan as and when required hereunder, then upon each subsequent event which would otherwise result in funds being paid to the defaulting Lender, the amount which would have been paid to the defaulting Lender shall be divided among the non-defaulting Lenders ratably according to their respective Revolving Loan Commitment Percentages until the Revolving Loan Obligations of each Revolving Loan Lender (including the defaulting Lender) are equal to such Lender's Revolving Loan Commitment Percentage of the total Revolving Loan Obligations (nothing in this Section shall result in any additional liability on the Borrower and each Lender agrees to make such adjustments on the terms and provisions of its Note as may be required to address the results of this Section). 2.6 Notes. The Loans made by each Lender shall be evidenced by a single Term Note or Revolving Note, as the case may be, of the Borrower (each, together with all renewals, extensions, modifications and replacements thereof and substitutions therefor, a "Note," collectively, the "Notes") in substantially the form of, respectively, Exhibit D or E hereto, as the case may be, payable to the order of such Lender in a principal amount equal to (i) in the case of a Term Note, the aggregate outstanding principal amount of the Term Loan of such Lender and (ii) in the case of a Revolving Note, the Revolving Loan Commitment of such Lender, and otherwise duly completed. Each Lender is hereby authorized by the Borrower to endorse on the schedule (or a continuation thereof) that may be attached to each Note of such Lender, to the extent applicable, the date, amount, type of and the applicable period of interest for each Loan made by such Lender to the Borrower hereunder, and the amount of each payment or prepayment of principal of such Loan received by such Lender, provided, that any failure by such Lender to make any such endorsement (or any error in such endorsement) shall not affect the obligations of the Borrower under such Note or hereunder in respect of such Loan. 2.7 Use of Proceeds. The proceeds of the Loans shall be used by the Borrower to refinance existing indebtedness of the Borrower and its Subsidiaries, to pay certain fees and expenses related to the closing of this facility and to fund ongoing working capital and other general corporate requirements of the Borrower and its Subsidiaries. No proceeds of the Loans will be used for any purpose which would violate any applicable Legal Requirement. 2.8 Designated Amount. The Borrower may from time to time designate a maximum aggregate principal amount of Revolving Loans permitted to be outstanding hereunder for a specified period (such amount being herein called the "Designated Amount"). The Designated Amount shall never be less than $100,000,000. In the absence of a specific designation of another Designated Amount hereunder, the Designated Amount shall equal 24 the Maximum Revolving Loan Available Amount. The Designated Amount may be increased at any time but no decreases of a Designated Amount shall become effective on a date other than a Quarterly Date and no designation of a Designated Amount may terminate on a date which is not a day immediately preceding a Quarterly Date. Written notice of the designation of a Designated Amount must be given to the Agent by the Borrower no later than two (2) Business Days prior to the effective date thereof. 3. Borrowings, Payments and Prepayments. 3.1 Borrowings. The Borrower shall give the Agent notice of each borrowing to be made hereunder as provided in Section 4.3 hereof. Not later than 12:00 noon Houston time on the date specified for each such borrowing hereunder, each Lender shall make available the amount of the Loan, if any, to be made by it on such date to the Agent, at its Principal Office, in immediately available funds, for the account of the Borrower. Such amounts received by the Agent will be held in an account maintained by the Borrower with the Agent. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by wiring or otherwise transferring, in immediately available funds, such amount to an account designated by the Borrower and maintained with Agent in Houston, Texas. 3.2 Payments; Prepayments. (a) Optional Prepayments. Subject to the terms of the Interest Rate Agreement, the Borrower shall have the right to prepay, on any Business Day, in whole or in part, without the payment of any penalty or fee, Loans at any time or from time to time, provided that the Borrower shall give the Agent notice of each such prepayment as provided in Section 4.3 hereof. Each optional prepayment on a Loan shall be in an amount at least equal to the lesser of $1,000,000 or the unpaid principal balance of the Note evidencing such Loan. (b) Maximum Revolving Loan Available Amount. The Borrower shall from time to time, within ten (10) days after demand by the Agent (which demand Agent may make at its option and shall make if directed to do so by the Majority Lenders), prepay the Revolving Loans (or provide Cover for Letter of Credit Liabilities) in such amounts as shall be necessary so that at all times the aggregate outstanding amount of all Revolving Loan Obligations shall be less than or equal to the Maximum Revolving Loan Available Amount. (c) Application of Prepayments on Term Loans. Any prepayments made on the Term Loans will be applied either to scheduled principal installments on the Term Loans in inverse order of their maturities or pro rata among all the scheduled principal installments on the Term Loans, at the election of the Borrower. 25 (d) Term Loan Amortization. The principal of each Term Note shall be due and payable in quarterly installments due on each Quarterly Date, beginning on July 1, 1995, equal to the applicable Term Loan Lender's pro rata share of the Term Loans times $4,464,285.71. On the Maturity Date, the entire unpaid principal balance of each Term Note and all accrued and unpaid interest on the unpaid principal balance of each Term Note shall be finally due and payable. (e) Interest Payments. Accrued and unpaid interest on the unpaid principal balance of the Notes shall be due and payable on the Interest Payment Dates (as defined in the Interest Rate Agreement). (f) Payments; Interest Rate Agreement. The Borrower shall pay all amounts required to be paid under the Interest Rate Agreement, the Notes and the other Loan Documents as and when due. (g) Payments and Interest on Reimbursement Obligations. The Borrower will pay to the Agent for the account of each Revolving Loan Lender the amount of each Reimbursement Obligation promptly upon its incurrence. The amount of any Reimbursement Obligation may, if the applicable conditions precedent specified in Section 5.2 hereof have been satisfied or waived, be paid with the proceeds of Revolving Loans. Subject to Section 11.7 hereof, the Borrower will pay to the Agent for the account of each Revolving Loan Lender interest at the applicable Past Due Rate on any Reimbursement Obligation and on any other amount payable by the Borrower hereunder to or for the account of such Lender (but, if such amount is interest, only to the extent legally allowed), which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full. 4. Payments; Pro Rata Treatment; Computations, Etc. 4.1 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be paid by the Borrower hereunder, under the Notes and under the other Loan Documents shall be made in Dollars, in immediately available funds, to the Agent at the Principal Office (or in the case of a successor Agent, at the principal office of such successor Agent in the United States), not later than 11:00 a.m. Houston time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Borrower shall, at the time of making each payment hereunder, under any Note or under any other Loan Document, specify to the Agent the Loans or other amounts payable by the 26 Borrower hereunder or thereunder to which such payment is to be applied. Each payment received by the Agent hereunder, under any Note or under any other Loan Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent fails to send to any Lender its portion of any payment, to the extent timely received by the Agent, by the close of business on the day such payment was received, the Agent shall pay to such Lender interest on its portion of such payment from the day such payment was timely received by the Agent until the date such Lender's portion of such payment is sent to such Lender, at the Federal Funds Rate. (c) If the due date of any payment hereunder or under any Note falls on a day which is not a Business Day, the due date for such payments (except as otherwise provided in the Interest Rate Agreement) shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be made (x) in the case of Term Loans, ratably from the Term Loan Lenders and (y) in the case of Revolving Loans, ratably from the Revolving Loan Lenders, in each case on the basis of their respective Term Loan or Revolving Loan Commitments, as the case may be; (b) each payment of commitment fees shall be made for the account of the Revolving Loan Lenders, and each termination or reduction of the Revolving Loan Commitments of the Lenders under Section 2.3 hereof shall be applied, pro rata, according to the Revolving Loan Lenders' respective Revolving Loan Commitments and (c) each payment by the Borrower of principal of or interest on the Term Loans or Revolving Loans, as the case may be, shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of such Term Loans or Revolving Loans, as the case may be, held by the Lenders. 4.3 Certain Actions, Notices, Etc. Notices to the Agent of any termination or reduction of Revolving Loan Commitments and of borrowings and prepayments of Loans and requests for issuances of Letters of Credit shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 a.m. Houston time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, prepayment and/or issuance specified below: 27 Number of Notice Business Days Prior Termination or Reduction of Revolving Loan Commitments 5 Borrowing at the Base Rate same day (as defined in the Interest Rate Agreement) Borrowing at the Eurodollar 3 Eurodollar Business Days (as Rate (as defined in the defined in the Interest Rate Interest Rate Agreement) Agreement) Letter of Credit issuance 3 Revolving Loan repayment same day Optional prepayment of Term Loan 1 Each such notice of termination or reduction shall specify the amount of the applicable Revolving Loan Commitment to be terminated or reduced. Each such notice of borrowing or prepayment shall specify the amount of the Loans to be borrowed or prepaid and the date of borrowing or prepayment (which shall be a Business Day). The Agent shall promptly notify the affected Lenders of the contents of each such notice. 4.4 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower (the "Payor") prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan (or funding of a drawing under a Letter of Credit or reimbursement with respect to any drawing under a Letter of Credit) to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (or, if such recipient is the beneficiary of a Letter of Credit, the Borrower and, if the Borrower fails to pay the amount thereof to the Agent forthwith upon demand, the Lenders ratably in proportion to their respective 28 Revolving Loan Commitment Percentages) shall, on demand, pay to the Agent the amount made available by the Agent together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period or (if the recipient is the Borrower) the Base Rate (as defined in the Interest Rate Agreement). 4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement, on any Reimbursement Obligation or on other Obligation then due to such Lender hereunder, through the exercise of any right of set-off (including, without limitation, any right of setoff or lien granted under Section 9.2 hereof), banker's or other lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders participations in the Loans made, Reimbursement Obligations or other Obligations held, by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Loans made, Reimbursement Obligations or other Obligations held, by other Lenders may exercise all rights of set-off, bankers' or other lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans, Reimbursement Obligations or other Obligations in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. 5. Conditions Precedent. 5.1 Initial Loans and Letters of Credit. The obligation of each Lender or TCB to make its initial Loans or issue, increase or extend or participate in a Letter of Credit (if such Letter of Credit is issued prior to the funding of the initial Loans) hereunder is subject to the following conditions precedent, each of which shall have been fulfilled or waived to the satisfaction of the Agent: (1) Corporate Action and Status. The Agent shall have received a Secretary's Certificate from the Borrower and each of its Subsidiaries signing a Loan Document, which shall be accompanied by copies of the Organizational Documents of the Borrower and each of its Subsidiaries, copies of the bylaws of the Borrower and each of its Subsidiaries and such certificates as may be appropriate to demonstrate the qualification and good standing of and payment of taxes by the Borrower and each of its Subsidiaries in each state where the failure in which to qualify 29 would have a Material Adverse Effect. The Agent and each Lender may conclusively rely on such certificates until they receive notice in writing from the Borrower or the appropriate Party to the contrary. (2) Notes. The Agent shall have received the appropriate Notes of the Borrower for each Lender, duly completed and executed. (3) Loan Documents. The Borrower and each other Party shall have duly executed and delivered the Loan Documents to which it is a party (in such number of copies as the Agent shall have requested) and each such Loan Document shall be in form satisfactory to Agent. Each such Loan Document shall be in substantially the form furnished to the Lenders prior to their execution of this Agreement. (4) Security Matters. All such action as the Agent shall have requested to perfect the Liens created pursuant to the Security Agreements shall have been taken, including, without limitation, the delivery to the Agent of all property with respect to which possession is necessary for the purpose of perfecting such Liens and, with respect to collateral covered by the Security Agreements, stock powers executed in blank by the Person in whose name the applicable stock certificate is issued, together with the delivery of appropriately completed and duly executed Uniform Commercial Code financing statements with appropriate Governmental Authorities. The Agent shall also have received evidence satisfactory to it that the Liens created by the Security Agreements constitute first priority Liens, except for the exceptions expressly provided for herein, including, without limitation, Uniform Commercial Code search reports, satisfactory title evidence in form and substance acceptable to the Agent, and executed releases of any prior Liens (except as permitted by Section 8.2). Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days after the Effective Date in which to obtain releases of the Liens securing Borrowed Money Indebtedness which is to be paid concurrently with the closing hereof covering Property located in Canada. (5) Fees and Expenses. The Borrower shall have paid to the Agent all unpaid fees in the amounts previously agreed upon in writing between the Borrower and the Agent; and shall have in addition paid to the Agent all amounts payable under Section 11.3 hereof, on or before the date of this Agreement. (6) Insurance. The Borrower shall have delivered to the Agent certificates of insurance satisfactory to the Agent evidencing the existence of all insurance required to be maintained by the Borrower by this Agreement and the Security Agreements. (7) Opinion of Counsel. The Agent shall have received an opinion of Bracewell & Patterson, L.L.P., counsel to the Borrower and its Subsidiaries, in form and substance reasonably satisfactory to the Agent. 30 (8) Consents. The Agent shall have received evidence satisfactory to it that all material consents of each Governmental Authority and of each other Person, if any, reasonably required in connection with (a) the Loans and the Letters of Credit and (b) the execution, delivery and performance of this Agreement and the other Loan Documents have been satisfactorily obtained. Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days after the Effective Date in which to obtain consent by BP Chemicals, Inc. to the collateral assignment of the BP Lease. (9) BP Lease. The Agent shall have received a copy of the BP Lease. (10) Other Documents. The Agent shall have received such other documents consistent with the terms of this Agreement and relating to the transactions contemplated hereby as the Agent may reasonably request. 5.2 All Loans and Letters of Credit. The obligation of each Lender to make any Loan to be made by it hereunder or to issue, increase or extend or participate in any Letter of Credit is subject to (a) the accuracy, in all material respects, on the date of such Loan or such issuance or participation of all representations and warranties of the Borrower and any other Party contained in this Agreement and the other Loan Documents; (b) receipt by the Agent of the following, all of which shall be duly executed and in Proper Form: (1) a Request for Extension of Credit as to the Loan or the Letter of Credit, as the case may be, no later than 11:00 a.m. Houston time on the Business Day on which such Request for Extension of Credit must be given under Section 4.3 hereof, (2) in the case of a Letter of Credit, an Application, and (3) such other documents as the Agent or any Lender may reasonably require; (c) prior to the making of such Loan or the issuance of such Letter of Credit, there shall have occurred no event which has had or could reasonably be expected to have a Material Adverse Effect; (d) no Default or Event of Default shall have occurred and be continuing and shall not occur as a result of the making of such Loan or the issuance of (or participation in) such Letter of Credit, and (e) the making of such Loan or the issuance of (or participation in) such Letter of Credit shall not be illegal or prohibited by any Legal Requirement. 6. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Agent as follows: 6.1 Organization. The Borrower and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the State or Province of its organization; (b) has all necessary corporate power and authority to conduct its business as presently conducted, and (c) is duly qualified to do business and in good standing in the State or Province of its organization and in all jurisdictions in which the failure to so qualify would have a Material Adverse Effect. 31 6.2 Financial Statements. The Borrower has furnished to the Agent the Annual Audited Financial Statements of the Borrower as at September 30, 1994, which fairly present, the financial condition and the results of operations of the Borrower as at such date. No events, conditions or circumstances have occurred from the date that the financial statements were delivered to the Agent through the date hereof which would cause said financial statements to be misleading in any material respect. There are no material instruments or liabilities which should be reflected in such financial statements provided to the Agent which are not so reflected. Since September 30, 1994, no event has occurred which has had (or could reasonably be expected to have) a Material Adverse Effect. 6.3 Enforceable Obligations; Authorization. The Loan Documents are legal, valid and binding obligations of the Parties, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws and judicial decisions affecting creditors' rights generally and by general equitable principles. The execution, delivery and performance of the Loan Documents (a) have all been duly authorized by all necessary corporate action; (b) are within the corporate power and authority of the Parties; (c) do not and will not contravene or violate any Legal Requirement applicable to the Parties or the Organizational Documents of the Parties, the contravention or violation of which could have a Material Adverse Effect on the business, condition (financial or otherwise), operations or Properties of the Borrower or any other Party; (d) do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected which breach or default could reasonably be expected to cause a Material Adverse Effect, and (e) do not and will not result in the creation of any Lien upon any Property of any of the Parties, except in favor of the Agent or as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained. Except as otherwise expressly stated in the Security Agreements, the Liens created under the Security Agreements constitute valid and perfected first and prior Liens on the Property described therein, subject to no other Liens whatsoever. 6.4 Other Borrowed Money Indebtedness. Neither the Borrower nor any of its Subsidiaries is in default in the payment of any other Borrowed Money Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party and which default could reasonably be expected to cause a Material Adverse Effect. 6.5 Litigation. There is no litigation or administrative proceeding pending or, to the knowledge of the Borrower, threatened against, nor any outstanding judgment, order or decree affecting, the Borrower or any of its Subsidiaries before or by any Governmental Authority which could reasonably be expected to cause a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries is in default with respect to any judgment, order or decree of any Governmental Authority where such default would have a Material Adverse Effect. 32 6.6 Taxes. The Borrower and its Subsidiaries each has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained and those which are being contested in good faith as provided in Section 7.1(a) hereof. 6.7 Regulations G, U and X. None of the proceeds of any Obligation will be used for the purpose of purchasing or carrying directly or indirectly any margin stock or for any other purpose would constitute this transaction a "purpose credit" within the meaning of Regulation G, U and X of the Board of Governors of the Federal Reserve System, as either of them may be amended from time to time. 6.8 Subsidiaries. The Borrower has no Subsidiaries except as set forth on Exhibit C attached hereto or those formed in compliance with Section 8.9 hereof. 6.9 No Untrue or Misleading Statements. No document, instrument or other writing furnished to the Lenders by or on behalf of the Borrower or any other Party in connection with the transactions contemplated in any Loan Document, taken as a whole, contains any untrue material statement of fact or omits to state any such fact (of which the Borrower or any other Party has knowledge) necessary to make the representations, warranties and other statements contained herein or in such other document, instrument or writing not misleading. 6.10 ERISA. The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA (other than to make contributions in the ordinary course) and no contribution failure has occurred with respect to any Plan sufficient to give rise to the Lien under Section 302(f) of ERISA, in each case which could reasonably be expected to have a Material Adverse Effect. Except as described in Schedule 6.10, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post- retirement benefit under a Welfare Plan other than liability for continuation coverage described in Section 602 of ERISA which could reasonably be expected to have a Material Adverse Effect. 6.11 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act. 33 6.12 Public Utility Holding Company Act. Neither the Borrower nor any of its Subsidiaries is an "affiliate" or a "subsidiary company" of a "public utility company," or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 6.13 Solvency. Neither the Borrower, nor the Borrower and its Subsidiaries, on a consolidated basis, is "insolvent," as such term is used and defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. (s) 24.001 et seq., as amended from time to time. 6.14 Compliance. The Borrower and its Subsidiaries are each in compliance with all Legal Requirements applicable to it, except to the extent that the failure to comply therewith could not reasonably be expected to cause a Material Adverse Effect. 6.15 Environmental Matters. The Borrower and its Subsidiaries have obtained and maintained in effect all Environmental Permits (or the applicable Person has initiated the necessary steps to transfer the Environmental Permits into its name or obtain such permits), the failure to obtain which could reasonably be expected to have a Material Adverse Effect. The Borrower and its Subsidiaries and their Properties, business and operations have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits failure to comply with which could reasonably be expected to have a Material Adverse Effect. The Borrower and its Subsidiaries and their Properties, business and operations are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect. None of the Borrower or any of its Subsidiaries has received any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with its Properties, liabilities, condition (financial or otherwise), business or operations which could reasonably be expected to have a Material Adverse Effect. The Borrower does not know of any event or condition with respect to currently (as of the date this representation is provided) enacted Requirements of Environmental Laws presently scheduled to become effective in the future with respect to any of its Properties or the Properties of any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, for which the Borrower or the applicable Subsidiary of the Borrower has not made good faith provisions in its business plan and projections of financial performance. 34 7. Affirmative Covenants. The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, and cause each of its Subsidiaries to do, and if necessary cause to be done, each and all of the following: 7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay, prior to the date when penalties attach with respect thereto, all taxes and governmental charges of every kind upon it or against its income, profits or Property, unless and only to the extent that the same shall be contested diligently in good faith and reserves deemed adequate by the independent certified public accounting firm used by the Borrower to prepare the Borrower's Annual Audited Financial Statements have been established therefor; (b) do all things necessary to preserve its corporate existence, qualifications, rights and franchises in all States where such failure to qualify would have a Material Adverse Effect; (c) comply with all applicable Legal Requirements (including without limitation Requirements of Environmental Law) in respect of the conduct of its business and the ownership of its Property, the noncompliance with which could reasonably be expected to cause a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair and make all replacements and additions to its Property as may be reasonably necessary to conduct its business properly and efficiently. 7.2 Financial Statements and Information. Furnish to the Agent and, in each case other than the monthly management report described in clause (e) below, the Lenders one copy of each of the following: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, beginning with the fiscal year 1995, Annual Audited Financial Statements of the Borrower; (b) as soon as available and in any event within 45 days after the end of each calendar quarter of each fiscal year of the Borrower, Quarterly Financial Statements of the Borrower and its Subsidiaries; (c) concurrently with the financial statements provided for in Subsections 7.2(a) and (b) hereof, such schedules, computations and other information, in reasonable detail, as may be required by the Agent to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified and signed by the president or chief financial officer of the Borrower (or other authorized officer approved by the Agent) as true, correct and complete and, commencing with the quarterly financial statement prepared as of June 30, 1995, a compliance certificate ("Compliance Certificate") in the form of Exhibit G hereto, duly executed by such authorized officer; (d) (1) as of the Effective Date and (2) within 30 days after the end of each calendar month, a Borrowing Base Certificate as at the Effective Date or the last day of such calendar month or the date of such receipt, as the case may be, together with such supporting information as the Agent may reasonably request; (e) within 30 days after the end of each calendar month of each fiscal year of the Borrower, a management report with respect to sales and operating revenues and costs of manufacturing and related information in such detail as such management 35 report is prepared for the use of the management of the Borrower (promptly upon receipt of each such report, Agent shall forward copies thereof to each Lender); (f) from time to time, at any time upon the request of the Agent, but at the cost of the Borrower, a report of an independent collateral field examiner approved by the Agent in writing and reasonably acceptable to the Borrower (which may be, or be affiliated with, the Agent or one of the Lenders) with respect to the Accounts and Inventory components included in the Borrowing Base (provided, however, that so long as no Event of Default has occurred and is continuing, the Agent shall not require such a report more than once per calendar year); (g) by October 31 of each year, the financial projections of income and cash flow of the Borrower for each month of the fiscal year of the Borrower which begins on the October 1 immediately preceding such October 31, and (h) such other information relating to the condition (financial or otherwise), operations, prospects or business of any of the Borrower and its Subsidiaries as from time to time may be reasonably requested by the Agent. 7.3 Financial Tests. The Borrower, on a consolidated basis, will have: (a) Debt to EBITDA Ratio - as of the last day of each fiscal quarter, a Debt to EBITDA Ratio of not greater than 4.00 to 1.00. (b) Fixed Charge Coverage Ratio - as of the last day of each fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00. (c) Adjusted Fixed Charge Coverage Ratio - as of the date of any proposed dividend which is subject to the Adjusted Fixed Charge Coverage Ratio (and after giving effect to such dividend), an Adjusted Fixed Charge Coverage Ratio of not less than 1.10 to 1.00. (d) Net Worth - Net Worth of not less than (1) at all times during the period commencing on the Effective Date through and including June 30, 1995, $106,000,000 plus 50% of the Net Income of the Borrower (if positive) for the fiscal quarter beginning on January 1, 1995 and ending on March 31, 1995 and (2) at all times during each fiscal quarter after June 30, 1995, the minimum Net Worth required during the immediately preceding fiscal quarter plus 50% of the Net Income of the Borrower (if positive) for the immediately preceding fiscal quarter plus all of the net proceeds of any issuance of equity in the Borrower during such fiscal quarter. (e) Current Ratio - a Current Ratio of not less than 1.10 to 1.00 at all times. 7.4 Inspection. Permit the Agent and any Lender upon 3 days' prior notice to inspect its Property, to examine its files, books and records except privileged communication with legal counsel and classified governmental material, and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all during normal business 36 hours and at such intervals and to such extent as the Agent or the applicable Lender may reasonably desire. 7.5 Further Assurances. Promptly execute and deliver, at the Borrower's expense, any and all other and further instruments which may be reasonably requested by the Agent to cure any defect in the execution and delivery of any Loan Document in order to effectuate the transactions contemplated by the Loan Documents, and in order to grant, preserve protect and perfect the validity and priority of the security interests created by the Security Agreements. 7.6 Books and Records. Maintain books of record and account in accordance with GAAP. 7.7 Insurance. Maintain insurance with such insurers, on such of its Property, with responsible companies in such amounts, with such deductibles and against such risks as are usually carried by owners of similar businesses and properties in the same general areas in which the Borrower and its Subsidiaries operate (including without limitation business interruption insurance), and furnish the Agent satisfactory evidence thereof promptly upon request. The Borrower shall provide the Agent with copies of the policies of insurance and a certificate of the insurer that the insurance required by this Section may not be canceled, reduced or affected in any material manner without thirty (30) days' prior written notice to the Agent. 7.8 Notice of Certain Matters. Give the Agent prompt written notice of the following: (a) the issuance by any Governmental Authority of any injunction, order or other restraint prohibiting, or having the effect of prohibiting, the performance of this Agreement, any other Loan Document, or the making of the Loans or the initiation of any litigation, or any claim or controversy which might result in the initiation of any litigation, seeking any such injunction, order or other restraint that could reasonably be expected to cause a Material Adverse Effect; (b) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court or any Federal, state, municipal or other Governmental Authority which could reasonably be expected to cause a Material Adverse Effect; (c) any Event of Default or Default known to Borrower, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with the respect thereto; and (d) any development in the business or affairs of the Borrower or any of its Subsidiaries which has had or which could reasonably be expected to have, in the reasonable judgment of the Borrower, a Material Adverse Effect. 37 The Borrower will also notify the Agent in writing at least 30 days prior to the date that any Party changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. 7.9 Interest Rate Risk. Promptly upon execution thereof, the Borrower shall deliver to the Agent true and correct and complete copies of any Interest Rate Risk Agreement. 7.10 Capital Adequacy. Agrees that if any Lender shall have determined that the adoption after the Effective Date or effectiveness after the Effective Date (whether or not previously announced) of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein after the Effective Date, or any change in the interpretation or administration thereof after the Effective Date by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive after the Effective Date regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, under the Letters of Credit, the Notes or other Obligations held by it to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, upon satisfaction of the conditions precedent set forth in this Section 7.10, upon demand by such Lender (with a copy to the Agent), the Borrower (subject to Section 11.7 hereof) shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. The certificate of any Lender setting forth such amount or amounts as shall be necessary to compensate it and the basis thereof shall be delivered as soon as practicable to the Borrower and shall be conclusive and binding, absent manifest error. The Borrower shall pay the amount shown as due on any such certificate within fifteen (15) days after the delivery of such certificate; provided that the Borrower shall not be obligated to compensate any Lender for any such amounts which relate to a period more than seventy-five (75) days prior to such request for payment. In preparing such certificate, a Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 7.11 ERISA Information and Compliance. If and when Borrower or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in subsections (b)(1), (c)(1), (c)(5), or (c)(6) of Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, or (ii) knows that a failure to make a required contribution with respect to any Plan has occurred if such 38 failure is sufficient to give rise to a Lien under section 203(f) of ERISA, or (iii) that any other event has occurred that could result in (A) the incurrence by Borrower or a member of the Controlled Group of a liability, fine or penalty with respect to a Plan or (B) any increase in the contingent liability of Borrower or a member of the Controlled Group with respect to any post-retirement benefit under a Welfare Plan, in each case which could reasonably be expected to have a Material Adverse Effect, Borrower shall deliver to the Agent a copy of the notice of such reportable event given or required to be given to the PBGC or a notice of such contribution failure or other event, as the case may be. 8. Negative Covenants. The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not, and will not suffer or permit any of its Subsidiaries to, do any of the following: 8.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Borrowed Money Indebtedness (as defined below), whether direct, indirect, absolute, contingent or otherwise, except the following: (a) the Obligations; (b) the liabilities existing on the date of this Agreement and disclosed on Schedule 8.1 hereto and all renewals, extensions and replacements (but not increases) of any of the foregoing; (c) Indebtedness under the Canadian Facility and all renewals, extensions and replace-ments (but not increases) thereof; (d) purchase money Indebtedness to acquire Equipment not exceeding, in the aggregate, $10,000,000 outstanding at any one time; (e) in addition to Indebtedness permitted under the preceding clause (d), non-recourse Indebtedness in an aggregate amount not to exceed $60,000,000 at any one time outstanding incurred by Subsidiaries of the Borrower which is payable solely by recourse to Properties which are not included in the Borrowing Base and which are acquired or constructed by such Subsidiary after the date hereof; (f) Subordinated Debt so long as the net proceeds of such Subordinated Debt are applied in payment of the Term Loans or, if no Term Loans remain outstanding, so long as the Revolving Loan Commitments are reduced by an amount equal to the net proceeds of such Subordinated Debt; (g) Interest Rate Risk Indebtedness; (h) insurance premiums financed with the applicable insurance carrier, and (i) other Borrowed Money Indebtedness not in excess of $30,000,000 in the aggregate outstanding at any time on terms no more restrictive than the terms provided herein. For purposes of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of such Person's business), (e) all Capital Lease Obligations, (f) all obligations of others of the types specified in clauses (a) through (e) above secured by any lien on property or assets owned or acquired by such Person, whether or not the obligations secured thereby 39 have been assumed, (g) Interest Rate Risk Indebtedness, (h) all outstanding letters of credit issued for the account of such Person and (i) all guarantees of such Person of obligations of the type referred to in the foregoing clauses (a) through (i). 8.2 Liens. Create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its Accounts; provided, however, that the Borrower or any of its Subsidiaries may create or suffer to exist: (a) Liens in favor of the Agent or any Lender under the Loan Documents, including, without limitation, Liens securing Interest Rate Risk Indebtedness owed to one or more of the Lenders (but not to any Person which is not, at such time, a Lender); (b) Liens in effect on the Effective Date and disclosed on Schedule 8.2 hereto, provided that neither the Indebtedness secured thereby nor the Property covered thereby shall increase after the Effective Date; (c) Liens securing the Canadian Facility but only on assets of the Canadian Subsidiaries; (d) Liens securing purchase money Indebtedness permitted under Section 8.1(d) hereof and covering only the Property so purchased and the proceeds therefrom and Liens permitted under Section 8.1(e) hereof covering Properties acquired or constructed after the date hereof and the proceeds therefrom; (e) normal encumbrances and restrictions on title which do not secure Borrowed Money Indebtedness and which do not have a material adverse effect on the value or utility of the applicable Property; (f) Liens incurred or deposits made in the ordinary course of business (i) in connection with workmen's compensation, unemployment insurance, social security and other like laws, (ii) to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts, leases, licenses, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business, not, in any of the cases specified in this clause (ii), incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, or (iii) on deposits made in financial institutions in the ordinary course of business as a result of common law and statutory rights of setoff and depositary agreements and other contractual arrangements (other than Borrowed Money Indebtedness) arising in the ordinary course of business; (g) attachments, judgments and other similar Liens arising in connection with the court proceedings, provided that the execution and enforcement of such Liens are effectively stayed and the claims secured thereby are being actively contested in good faith with adequate reserves made therefor in accordance with GAAP; (h) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (i) Liens for taxes which are not yet due or are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (j) Liens or rights under insurance policies securing Indebtedness permitted under Section 8.1(g); and (k) extensions, renewals and replacements of Liens referred to in clauses (a) through (j) of this Section; provided that any such extension, renewal or replacement Lien shall be limited to the Property or assets covered by the Lien extended, 40 renewed or replaced and that the Indebtedness secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the Indebtedness secured by the Lien extended, renewed or replaced. 8.3 Contingent Liabilities. Directly or indirectly guarantee the performance or payment of, or purchase or agree to purchase, or assume or contingently agree to become or be secondarily liable in respect of, any obligation or liability of any other Person except for (a) the endorsement of checks or other negotiable instruments in the ordinary course of business; (b) obligations disclosed on Schedule 8.3 hereto (but not increases of such obligations after the Effective Date), (c) those liabilities permitted under Section 8.1 hereof and (d) guaranties by the Borrower of any of its Subsidiaries obligations (except where recourse is expressly required to be limited by this Agreement). 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets. In any single transaction or series of transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger or consolidation unless and so long as (i) no Default or Event of Default has occurred that is then continuing, (ii) immediately thereafter and giving effect thereto, no event will occur and be continuing which constitutes a Default, (iii) the Borrower or a Subsidiary of the Borrower is the surviving Person, and (iv) the surviving Person ratifies and assumes each Loan Document to which any party to such merger was a party; (c) sell, convey or lease all or any substantial part of its assets, except for sale of Inventory in the ordinary course of business and except for sales of Property (other than Inventory) in the ordinary course of the Borrower's business; (d) pledge, transfer or otherwise dispose of any shares of capital stock of any Subsidiary of the Borrower or any Borrowed Money Indebtedness of any Subsidiary of the Borrower, or permit any such Subsidiary to issue any additional shares of capital stock other than to the Borrower or to acquire any shares of capital stock of any Subsidiary of the Borrower, or (e) acquire all or substantially all of the assets of any Person or (except as expressly permitted by Section 8.8 hereof) any shares of stock of or similar interest in any other Person except for Permitted Acquisitions. 8.5 Redemption, Dividends and Distributions. At any time: (a) redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock except to the extent that no Default or Event of Default has occurred which is continuing (or would result from the same); (b) pay any dividend other than payments of the Permitted Dividends by the Borrower or dividends by a Subsidiary of the Borrower to the Borrower or any Subsidiary of the Borrower or (c) make any other distribution of any Property or cash to stockholders as such. 8.6 Nature of Business. Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged. 41 8.7 Transactions with Affiliates. Enter into any transaction or agreement with any Affiliate of the Borrower or any of its Subsidiaries (or any Affiliate of any such Person) unless the same is upon terms substantially comparable to those obtainable from wholly unrelated sources or in an arms length transaction. 8.8 Loans and Investments. Make any loan, advance, extension of credit or capital contribution to, or make or have any Investment in, any Person, or make any commitment to make any such extension of credit or Investment, except (a) Permitted Investments, (b) normal and reasonable advances in the ordinary course of business, (c) trade and customer accounts receivable in accordance with the ordinary course of business, (d) Investments in Subsidiaries who are Guarantors and who have granted to the Agent, on behalf of the Lenders, a first- priority Lien covering all of its Accounts and Inventory, (e) Investments in 50% or less owned joint ventures and other Corporations not to exceed $20,000,000 in unreturned capital Investment at any one time outstanding provided that such joint ventures and other Corporations are in substantially the same lines of business as the Borrower and its Subsidiaries, and (f) other Investments existing as of the date hereof which are described on the attached Schedule 8.8. 8.9 No Subsidiaries. Form, create or acquire a Subsidiary (other than Sterling Energy, Sterling Pulp (US) and other than Canadian Subsidiaries all of the equity interests of which are owned by Sterling Canada, Inc. (or by a previously existing Canadian Subsidiary) and with respect to which the Agent, on behalf of the Lenders shall have a first-priority perfected Lien in and to 65% of its issued and outstanding equity interests) unless there shall have been executed and delivered to the Agent (a) a guaranty, substantially in the form of the Guaranties executed and delivered concurrently herewith, whereby the applicable Subsidiary guaranties the payment of all of the Obligations, (b) collateral documentation, in Proper Form, reasonably required by Agent to create and perfect a first-priority Lien covering all of the Accounts and Inventory of the applicable Subsidiary, securing the Obligations and (c) appropriate resolutions and authorizations regarding all such documents and such other documents, instruments, certificates, opinions and other collateral matters as the Agent may reasonably require. Each guaranty and collateral document executed by the applicable Subsidiary shall contain the following language (using the appropriate variations): Guarantor agrees that while its obligations to Lenders under this document are joint and several as to Lenders, Guarantor (together with other Subsidiaries (as defined in the Credit Agreement) of the Borrower heretofore or hereafter executing and delivering to Lender a Credit Document) (Guarantor and such other Subsidiaries of Borrower being herein collectively called "Obligors") shall be liable as among other Obligors only for its Proportionate Share of the indebtedness guaranteed pursuant to this document calculated as of the time the applicable portion of such indebtedness was incurred. If at any time any Obligor (the "Indemnified Obligor") makes any 42 payment to Agent or Lenders or otherwise incurs any other expenses (collectively, the "Indemnified Outlay") under the Credit Documents, the Indemnified Obligor shall have the right to make demand on any or all of the other Obligors (each an "Indemnifying Obligor") for the payment to the Indemnified Obligor of the amount (the "Excess Amount") by which the Indemnified Outlay exceeds the Indemnified Obligor's Proportionate Share of the Indemnified Outlay and thereupon the Indemnifying Obligors upon which demand has so been made shall pay to the Indemnified Obligor the Excess Amount; provided, that no Indemnifying Obligor shall be liable to pay to Indemnified Obligor more than the Proportionate Share of the Indemnifying Obligor (calculated exclusive of the Indemnified Obligor) of the Excess Amount. If any of the payments to be made pursuant to the foregoing are not paid promptly upon demand, then the past due payments shall bear interest at the Past Due Rate from the date of demand until paid in full. The term "Proportionate Share" as used hereinabove shall mean with respect to any Obligor the percentage derived by dividing (a) the net worth of such Obligor by (b) the consolidated net worth of Borrower and all of the Obligors (exclusive of the Indemnified Obligor where indicated above), all as of a particular time. Nothing in this Section shall in any manner impair or extinguish any of the Credit Documents or any lien or security interest now or hereafter securing the payment of any of the indebtedness arising pursuant to the Credit Documents. 8.10 BP Lease. Terminate or agree to the termination of the BP Lease without the prior written consent of all of the Lenders or amend, modify or obtain or grant a waiver of any provision of the BP Lease if such amendment, modification or waiver could reasonably be expected to have a material adverse effect on the ability of the Lenders to collect, as and when due and payable, amounts due and payable hereunder and under the other Loan Documents without the prior written consent of the Majority Lenders. 8.11 Fiscal Year. The Borrower will not (and will not permit any of its Subsidiaries to) change its fiscal year, unless the Agent shall have consented thereto in writing or unless required to make such change because of a change in or amendment to the Code. In the event that the Borrower is required to make any such change in its fiscal year, the parties hereto agree to negotiate in good faith any changes in this Agreement made necessary by the required change in fiscal year. Sterling NRO, Ltd. may change its fiscal year in connection with any merger of Sterling NRO, Ltd. into Sterling Pulp Chemicals, Ltd. which is permitted under the terms of this Agreement. 8.12 Sterling Energy and Sterling Pulp (US). Sterling Energy shall not own any Property of any material nature other than its undivided 50% interest under the Joint Venture Agreement dated as of February 8, 1991 between Praxair Energy Resources, Inc., formerly known as UCIG Energy Resources, Inc., and 43 Sterling Energy. Any distributions paid to Sterling Energy under said Joint Venture Agreement shall be promptly paid over to the Borrower as dividends. Sterling Pulp (US) shall not own any Property of any material nature. 9. Defaults. 9.1 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur, then the Agent may (and at the direction of the Majority Lenders, shall) do any or all of the following: (1) upon notice to the Borrower, declare the Revolving Loan Commitments terminated (whereupon the Revolving Loan Commitments shall be terminated) and/or accelerate the Termination Date to a date as early as the date of termination of the Revolving Loan Commitments; (2) declare the principal amount then outstanding of and the unpaid accrued interest on the Loans and Reimbursement Obligations and all fees and all other amounts payable hereunder, under the Notes and under the other Loan Documents to be forthwith due and payable, whereupon such amounts shall be and become immediately due and payable, without notice (including, without limitation any notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; provided that in the case of the occurrence of an Event of Default with respect to the Borrower or any of its Subsidiaries referred to in clause (f), (g) or (h) of this Section 9.1, the Revolving Loan Commitments shall be automatically terminated and the principal amount then outstanding of and unpaid accrued interest on the Loans and the Reimbursement Obligations and all fees and all other amounts payable hereunder, under the Notes and under the other Loan Documents shall be and become automatically and immediately due and payable, without notice (including, without limitation, notice of acceleration and notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower, and (3) exercise any or other rights and remedies available to the Agent or any of the Lenders under the Loan Documents, at law or in equity: (a) Payments - (i) the Borrower or any other Party shall fail to make any payment or required prepayment of any installment of principal on the Loans or any Reimbursement Obligation payable under the Notes, this Agreement or the other Loan Documents when due or (ii) the Borrower or any other Party fails to make any payment or required prepayment of interest with respect to the Loans, any Reimbursement Obligation or any other fee or amount under the Notes, this Agreement or the other Loan Documents when due and (except in the case of acceleration of maturity) such failure to pay continues unremedied for a period of five days; or (b) Other Obligations - the Borrower or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any Borrowed Money Indebtedness having an outstanding principal amount of at least $5,000,000 (other than the Loans and Reimbursement Obligations) and such default shall continue beyond any applicable period of grace; or any event or condition shall occur which results in the acceleration of the 44 maturity of any such Borrowed Money Indebtedness or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any such Borrowed Money Indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof and such event or condition shall not be cured within any applicable period of grace; or (c) Representations and Warranties - any representation or warranty made or deemed made by or on behalf of the Borrower or any other Party in this Agreement or any other Loan Document or in any certificate furnished or made by the Borrower or any other Party to the Agent or the Lenders in connection herewith or therewith shall prove to have been incorrect, false or misleading in any material respect as of the date thereof or as of the date as of which the facts therein set forth were stated or certified; or (d) Affirmative Covenants - (i) default shall be made in the due observance or performance of any of the covenants or agreements contained in Section 7.3 hereof, (ii) the Borrower shall permit any of the insurance provided for in Section 7.7 hereof to lapse, (iii) default shall be made in the due observance or performance of any of the covenants or agreements contained in Section 7.7 hereof (other than lapse of required insurance, which is provided for above) and such default continues unremedied for a period of 10 days after (x) notice thereof is given by the Agent to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier or (iv) default is made in the due observance or performance of any of the other covenants and agreements contained in Section 7 hereof or any other affirmative covenant of the Borrower or any other Party contained in this Agreement or any other Loan Document and such default continues unremedied for a period of 30 days after (x) notice thereof is given by the Agent to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier; or (e) Negative Covenants - default is made in the due observance or performance by the Borrower of any of the other covenants or agreements contained in Section 8 of this Agreement or of any other negative covenant of the Borrower or any other Party contained in this Agreement or any other Loan Document; or (f) Involuntary Bankruptcy or Receivership Proceedings - a receiver, conservator, liquidator or trustee of the Borrower or any of its Subsidiaries or of any of its property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction, and such decree or order remains in effect for more than 30 days; or the Borrower or any of its Subsidiaries is adjudicated bankrupt or insolvent; or any of such Person's property is sequestered by court order and such order remains in effect for more than 30 days; or a petition is filed against the Borrower or any of its Subsidiaries under any state or federal bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, dissolution, liquidation or receivership law or any jurisdiction, whether now or hereafter in effect, and is not dismissed within 30 days after such filing; or 45 (g) Voluntary Petitions or Consents - the Borrower or any of its Subsidiaries commences a voluntary case or other proceeding or order seeking liquidation, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other relief with respect to itself or its debt or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or fails generally to, or cannot, pay its debts generally as they become due or takes any corporate action to authorize or effect any of the foregoing; or (h) Assignments for Benefit of Creditors or Admissions of Insolvency - the Borrower or any of its Subsidiaries makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of the Borrower or such Subsidiary or of all or any substantial part of its Property; or (i) Undischarged Judgments - a final judgment or judgments for the payment of money exceeding, in the aggregate, $5,000,000 is rendered by any court or other governmental body against the Borrower or any of its Subsidiaries and the Borrower or such Subsidiary does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 30 days from the date of entry thereof; or (j) Security Agreements; Guaranties - any Security Agreement for any reason ceases to create a valid and perfected first-priority Lien on any material portion of the Collateral purported to be covered thereby, or any Guaranty shall cease to be in full force and effect and a valid, binding and enforceable obligation of the applicable Party (except as otherwise herein expressly permitted), or the Borrower or any of its Subsidiaries or any Party to a Guaranty (or any other Person who may have granted or purported to grant such Lien or executed any such Guaranty) will so state in writing, or Agent, on behalf of the Lenders, shall cease to have a first priority Lien upon (x) all of the equity interests of each Subsidiary of the Borrower (other than Canadian Subsidiaries) which owns any of the equity interests in and to any Canadian Subsidiary and (y) 65% of the equity interests of each Canadian Subsidiary; or (k) Attachment - the Borrower or any of its Subsidiaries shall suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within 30 days after its issue or levy; or 46 (l) ERISA Matters - (i) Borrower or any member of the Controlled Group shall fail to pay when due an amount or amounts which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans against Borrower or any member of the Controlled Group to enforce Section 5415 of ERISA; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated or a contribution failure occurs with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA on the property of Borrower or any member of the Controlled Group, and (ii) in each case, such event could reasonably be expected to cause a Material Adverse Effect; or (m) Change of Control - there shall occur any Change of Control. 9.2 Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, the Lenders each are hereby authorized at any time and from time to time, without notice to the Borrower or any of its Subsidiaries (any such notice being expressly waived by the Borrower and its Subsidiaries), to setoff and apply any and all deposits (general or special, time or demand, provisional or final (but excluding the funds held in accounts clearly designated as escrow or trust accounts held by the Borrower or such Subsidiary for the benefit of Persons which are not Affiliates of the Borrower or any of its Subsidiaries), whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower or any such Subsidiary against any and all of the Obligations irrespective of whether or not such Lender or the Agent will have made any demand under this Agreement, the Notes or any other Loan Document. The Borrower also hereby grants to each of the Lenders a security interest in and hereby transfers, assigns, sets over, and conveys to each of the Lenders, as security for payment of all Loans and Reimbursement Obligations, all such deposits, funds or property of the Borrower or any such Subsidiary, or Indebtedness of any Lender to the Borrower or any such Subsidiary. Should the right of any Lender to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Lenders shall make restitution or refund to the Borrower pro rata in accordance with their Revolving Loan Commitments. Each Lender agrees to promptly notify the Borrower and the Agent after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Agent and the Lenders under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Agent or the Lenders may have. This Section is subject to the terms and provisions of Sections 4.5 and 11.7 hereof. 47 9.3 Collateral Account. The Borrower hereby agrees, in addition to the provisions of Section 9.1 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Agent or the Majority Lenders (through the Agent) and automatically and without any request or demand upon the occurrence of an Event of Default of the type described in Sections 9.1(f), (g) or (h) hereof, pay to the Agent an amount in immediately available funds equal to the then aggregate amount available for drawings under all Letters of Credit issued for the account of the Borrower, which funds shall be held by the Agent as Cover. 9.4 Preservation of Security for Unmatured Reimbursement Obligations. In the event that, following (i) the occurrence of an Event of Default and the exercise of any rights available to the Agent or any Lender under the Loan Documents, and (ii) payment in full of the principal amount then outstanding of and the accrued interest on the Loans and Reimbursement Obligations and fees and all other amounts payable hereunder and under the Notes and all other amounts secured by the Security Agreements, any Letters of Credit shall remain outstanding and undrawn upon, the Agent shall be entitled to hold (and the Borrower hereby grants and conveys to the Agent a security interest in and to) all cash or other property ("Proceeds of Remedies") realized or arising out of the exercise by the Agent of any rights available to it under the Loan Documents, at law or in equity, including, without limitation, the proceeds of any foreclosure, as collateral for the payment of any amounts due or to become due under or in respect of such Letters of Credit. Such Proceeds of Remedies shall be held for the ratable benefit of the Lenders. Such Proceeds of Remedies shall constitute "Collateral" for all purposes under the terms and provisions of the Security Agreements, and the rights, titles, benefits, privileges, duties and obligations of Agent with respect thereto shall be governed by the terms and provisions of this Agreement and, to the extent not inconsistent with this Agreement, the Security Agreements. The Agent may, but shall have no obligation to, invest any such Proceeds of Remedies in clauses (a) through (e) and (g) through (i) of the definition of "Permitted Investments" set forth in Article 1 hereof or in such other manner as the Majority Lenders may direct. Such Proceeds of Remedies shall be applied to Reimbursement Obligations arising in respect of any such Letters of Credit and/or the payment of any Lender's obligations under any such Letter of Credit when such Letter of Credit is drawn upon. The Borrower hereby agrees to execute and deliver to the Agent and the Lenders such security agreements, pledges or other documents as the Agent or any of the Lenders may, from time to time, require to perfect the pledge, Lien and security interest in and to any such Proceeds of Remedies provided for in this Section. Nothing in this Section shall cause or permit an increase in the maximum amount of the Revolving Loan Obligations permitted to be outstanding from time to time under this Agreement. 9.5 Remedies Cumulative. No remedy, right or power conferred upon the Agent or any Lender is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 48 10. The Agent. 10.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder, under the Letters of Credit and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent (the "Agent" as used in this Section 10 shall include reference to its Affiliates and its own and its Affiliates' respective officers, shareholders, directors, employees and agents) (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not be responsible to any Lender for any recitals, statements, representations or warranties contained in this Agreement, the Letters of Credit or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, the Letters of Credit or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, execution, filing, registration, collectibility, recording, perfection, existence or sufficiency of this Agreement, the Letters of Credit, or any other Loan Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Party or any other Person to perform any of its obligations hereunder or thereunder, and shall not have any duty to inquire into or pass upon any of the foregoing matters; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under the Letters of Credit or any other Loan Document except to the extent requested by the Majority Lenders; (d) shall not be responsible for any mistake of law or fact or any action taken or omitted to be taken by it hereunder or under the Letters or Credit or any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, including, without limitation, pursuant to its own negligence, except for its own gross negligence or willful misconduct; (e) shall not be bound by or obliged to recognize any agreement among or between the Borrower and any Lender, regardless of whether the Agent has knowledge of the existence of any such agreement or the terms and provisions thereof; (f) shall not be charged with notice or knowledge of any fact or information not herein set out or provided to the Agent in accordance with the terms of this Agreement or any other Loan Document; (g) shall not be responsible for any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator, and (h) shall not be responsible for the acts or edicts of any Governmental Authority. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Without in any way limiting any of the foregoing, each Lender acknowledges that the Agent shall have no greater responsibility in the operation of the Letters of Credit than is specified in the Uniform Customs and Practice for Documentary Credits (1993 Revision, International Chamber of Commerce Publication No. 500). In any foreclosure proceeding concerning any Collateral, each holder of an Obligation if bidding for its own account or for its own account and the accounts of other Lenders is prohibited from including in the amount of its bid an amount to be applied as a credit against the Obligations held by it or the Obligations held by the other Lenders; instead, such holder must bid in cash only. However, in any such foreclosure proceeding, the Agent may (but shall not be obligated to) submit a bid for all Lenders (including itself) in the form of a credit against the Obligations, and the Agent 49 or its designee may (but shall not be obligated to) accept title to such collateral for and on behalf of all Lenders. 10.2 Reliance. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Borrower), independent accountants and other experts selected by the Agent. The Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. As to any matters not expressly provided for by this Agreement, the Letters of Credit, or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Lenders, and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. Subject to the provisions of Section 11.5 hereof, the Agent shall have the authority to execute releases of the Security Agreements on behalf of the Lenders without the joinder of any Lender. If any order, writ, judgment or decree shall be made or entered by any court affecting the rights, duties and obligations of the Agent under this Agreement or any other Loan Document, then and in any of such events the Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree which it is advised by legal counsel of its own choosing is binding upon it under the terms of this Agreement, the relevant Loan Document or otherwise; and if the Agent complies with any such order, writ, judgment or decree, then it shall not be liable to any Lender or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 10.3 Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or Reimbursement Obligations) unless it has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a Notice of Default, the Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 10.7 hereof) take such action with respect to such Notice of Default as shall be directed by the Majority Lenders and within its rights under the Loan Documents and at law or in equity, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, permitted hereby with respect to such Notice of Default as it shall deem advisable in the best interests of the Lenders and within its rights under the Loan Documents, at law or in equity. 10.4 Rights as a Lender. With respect to its Revolving Loan Commitments and the Loans made and Letter of Credit Liabilities, TCB in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting in its agency capacity, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. 50 The Agent may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from the Borrower (in addition to the fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.5 Indemnification. The Lenders agree to indemnify the Agent each (to the extent not reimbursed under Section 2.2(c), Section 11.3 or Section 11.4 hereof, but without limiting the obligations of the Borrower under said Sections 2.2(c), 11.3 and 11.4), ratably in accordance with the sum of the Lenders' respective Revolving Loan Commitments and Term Loans, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, the Letters of Credit or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Borrower is obligated to pay under Sections 2.2(c), 11.3 and 11.4 hereof, interest, penalties, reasonable attorneys' fees and amounts paid in settlement, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. The obligations of the Lenders under this Section 10.5 shall survive the termination of this Agreement and the repayment of the Obligations. 10.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has received current financial information with respect to the Borrower and that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be required to keep itself informed as to the performance or observance by any Party of this Agreement, the Letters of Credit or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any Party. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, under the Letters of Credit or the other Loan Documents, the Agent shall not have any duty or 51 responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Party (or any of their affiliates) which may come into the possession of the Agent. 10.7 Failure to Act. Except for action expressly required of the Agent hereunder, under the Letters of Credit or under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 10.5 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 10.8 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, (i) the Majority Lenders without the consent of the Borrower shall have the right to appoint a successor Agent so long as such successor Agent is also a Lender at the time of such appointment and (ii) the Majority Lenders shall have the right to appoint a successor Agent that is not a Lender at the time of such appointment so long as the Borrower consents to such appointment (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any successor Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder and under any other Loan Documents. Such successor Agent shall promptly specify by notice to the Borrower its Principal Office referred to in Section 3.1 and Section 4 hereof. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 10.9 No Partnership. Neither the execution and delivery of this Agreement nor any of the other Loan Documents nor any interest the Lenders, the Agent or any of them may now or hereafter have in all or any part of the Obligations shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Lenders or among the Lenders and the Agent. The relationship between the Lenders, on the one hand, and the Agent, on the other, is and shall be that of principals and agent only, and nothing in this Agreement or any of the other Loan Documents shall be construed to constitute the Agent as trustee or other fiduciary for any Lender or to impose on the Agent any duty, responsibility or obligation other than those expressly provided for herein and therein. 52 11. Miscellaneous. 11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver of any other Default or Event of Default. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. 11.2 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy or other writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (or provided for in an Assignment and Acceptance); or, as to any party, at such other address as shall be designated by such party in a notice to the Borrower and the Agent given in accordance with this Section 11.2. Except as otherwise provided in this Agreement, all such notices or communications shall be deemed to have been duly given when (i) transmitted by telex or telecopier, (ii) personally delivered (iii) one Business Day after deposit with an overnight mail or delivery service, postage prepaid or (iv) three Business Days' after deposit in a receptacle maintained by the United States Postal Service, postage prepaid, registered or certified mail, return receipt requested, in each case given or addressed as aforesaid. 11.3 Expenses, Etc. Whether or not any Loan is ever made or any Letter of Credit ever issued, the Borrower shall pay or reimburse on demand (a) the Agent for paying the reasonable fees and expenses of one legal counsel to the Agent, in connection with the preparation, negotiation, execution and delivery of this Agreement (including the exhibits and schedules hereto), the Security Agreements and the other Loan Documents and the making of the Loans and the issuance of Letters of Credit hereunder, and any modification, supplement or waiver of any of the terms of this Agreement, the Letters of Credit or any other Loan Document; (b) the Agent for any lien search fees; (c) the Agent for reasonable out-of-pocket expenses incurred in connection with the preparation, documentation, administration and syndication of the Loans or any of the Loan Documents (including, without limitation, the advertising, marketing, printing, publicity, duplicating, mailing and similar expenses) of the Loans and Letter of Credit Liabilities; (d) the Agent or any Lender for paying all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, any Letter of Credit or any other Loan Document or any other document referred to herein or therein; (e) the Agent or any Lender for paying all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement, any Security Agreement or any document 53 referred to herein or therein, and (f) any Lender or the Agent for paying all amounts reasonably expended, advanced or incurred by such Lender or Agent to satisfy any obligation of the Borrower under this Agreement or any other Loan Document, to protect the Collateral, to collect the Obligations or to enforce, protect, preserve or defend the rights of such Lender or Agent under this Agreement or any other Loan Document, including, without limitation, fees and expenses incurred in connection with such Lender's or Agent's participation as a member of a creditor's committee in a case commenced under the Bankruptcy Code or other similar law, fees and expenses incurred in connection with lifting the automatic stay prescribed in (s) 362 of the Bankruptcy Code and fees and expenses incurred in connection with any action pursuant to (s) 1129 of the Bankruptcy Code and all other customary out-of-pocket expenses incurred by such Lender or Agent in connection with such matters, together with interest thereon at the Past Due Rate on each such amount from the date which is fifteen days after demand is made on the Borrower until the date of reimbursement to such Lender or Agent. 11.4 Indemnification. The Borrower shall indemnify each of the Agent, the Lenders, and each affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages arise out of or result from any (i) actual or proposed use by the Borrower of the proceeds of any extension of credit (whether a Loan or a Letter of Credit) by any Lender hereunder; (ii) breach by the Borrower of this Agreement or any other Loan Document or the breach by any Party of any Loan Document; (iii) violation by the Borrower or any other Party of any Legal Requirement; (iv) investigation, litigation or other proceeding relating to any of the foregoing, and the Borrower shall reimburse the Agent, each Lender, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable expenses (including reasonable legal fees) incurred in connection with any such investigation or proceeding, or (v) taxes (excluding income taxes and franchise taxes) payable or ruled payable by any Governmental Authority in respect of the Obligations or any Loan Document other than taxes incurred due to a Lender's failure to comply with Section 11.13 hereof; provided, however, that the Borrower shall not have any obligations pursuant to this Section with respect to any losses, liabilities, claims, damages or expenses incurred by the Person seeking indemnification by reason of the gross negligence or willful misconduct of that Person. Nothing in this Section is intended to limit the obligations of the Borrower under any other provision of this Agreement. 11.5 Amendments, Etc. No amendment or modification of this Agreement, the Notes or any other Loan Document shall in any event be effective against the Borrower unless the same shall be agreed or consented to in writing by the Borrower. No amendment, modification or waiver of any provision of this Agreement, the Notes or any other Loan Document, nor any consent to any departure by the Borrower therefrom, shall in any event be 54 effective against the Lenders unless the same shall be agreed or consented to in writing by the Majority Lenders, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, modification, waiver or consent shall, unless in writing and signed by each Lender affected thereby, do any of the following: (a) increase any Revolving Loan Commitment of any of the Lenders or subject the Lenders to any additional obligations; (b) reduce the principal of, or interest on, any Loan, Reimbursement Obligation or fee hereunder; (c) postpone or extend the Maturity Date, the Termination Date, the Revolving Loan Availability Period or any scheduled date fixed for any payment of principal of, or interest on, any Loan, Reimbursement Obligation, fee or other sum to be paid hereunder or waive any Event of Default described in Section 9.1(a) hereof; (d) change the percentage of any of the Revolving Loan Commitments or of the aggregate unpaid principal amount of any of the Loans and Letter of Credit Liabilities, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement; (e) change any provision contained in Sections 2.2(c), 7.10, 11.3 or 11.4 hereof or this Section 11.5; (f) increase any of the fixed percentages to be multiplied by the aggregate amounts of the components comprising the Borrowing Base that are described in (i) and (ii) of the definition of Borrowing Base herein; (g) change the definition of "Majority Lenders" set forth in Article 1 hereof, or (h) release the liability of any Guarantor under the Guaranties or release, in any one (1) calendar year, Collateral having an aggregate value exceeding $1,000,000. Notwithstanding anything in this Section 11.5 to the contrary, no amendment, modification, waiver or consent shall be made with respect to Section 10 without the consent of the Agent to the extent it affects the Agent. 55 11.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all of the Lenders, and any such assignment or transfer without such consent shall be null and void. Each Lender may sell participations in all or part of any Loan, or all or part of its Notes or Revolving Loan Commitments, to another bank or other entity, in which event, without limiting the foregoing, the provisions of the Loan Documents (including, without limitation, the Interest Rate Agreement) shall inure to the benefit of each purchaser of a participation; provided, however, the pro rata treatment of payments, as described in Section 4.2 hereof, shall be determined as if such Lender had not sold such participation. Any Lender that sells one or more participations to any Person shall not be relieved by virtue of such participation from any of its obligations to Borrower under this Agreement relating to the Loans. In the event any Lender shall sell any participation, such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower relating to the Loans, including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement other than amendments, modifications or waivers with respect to (i) any fees payable hereunder to the Lenders, (ii) the amount of principal or the rate of interest payable on, or the dates fixed for the scheduled repayment of principal of, the Loans and (iii) the release of the Liens on any of the Collateral. (b) Each Lender may assign to one or more Lenders or any other Person all or a portion of its interests, rights and obligations under this Agreement; provided, however, that (i) the aggregate amount of the Revolving Loan Commitments and the Term Loans of the assigning Lender subject to each such assignment shall in no event be less than $10,000,000, and each such assignment shall be in a constant and not varying percentage of all such assigning Lender's rights and obligations under the Loan Documents; (ii) other than in the case of an assignment to another Lender (that is, at the time of the assignment, a party hereto) or to an Affiliate of such Lender or to a Federal Reserve Bank, the Agent and, so long as no Event of Default shall have occurred and be continuing, the Borrower must each give its prior written consent, which consents shall not be unreasonably withheld, and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance an Assignment and Acceptance in the form of Exhibit F hereto (each an "Assignment and Acceptance") with blanks appropriately completed, together with any Note or Notes subject to such assignment and a processing and recording fee of $3,000.00 paid by the assignee (for which the Borrower will have no liability). Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such 56 Lender shall cease to be a party hereto but shall still have indemnification rights surviving as provided in Section 11.8 hereof). Notwithstanding anything contained in this Agreement to the contrary, any Lender may at any time assign all or any portion of its rights under this Agreement and the Notes issued to it as collateral to a Federal Reserve Bank; provided that no such assignment shall release such Lender from any of its obligations hereunder. (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Lender assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such Lender assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 6.2 hereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such Lender assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (d) The entries in the records of the Agent as to each Assignment and Acceptance delivered to it and the names and addresses of the Lenders and the Revolving Loan Commitments of, and principal amount of the Loans owing to, each Lender from time to time shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Lenders may treat each Person the name of which is recorded in the books and records of the Agent as a Lender hereunder for all purposes of this Agreement and the other Loan Documents. (e) Upon the Agent's receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee thereunder, together with any Note or Notes subject to such assignment and the written consent to such assignment, the Agent shall, if such Assignment and Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in its records and (iii) give prompt notice thereof to the Borrower. Within five Business Days after receipt of notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Notes new Notes to the order of such assignee in an amount equal to the Revolving Loan Commitments and the Term Loans (or either of them) assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Revolving Loan Commitment and Term Loans (or either of them) hereunder, new Notes to the order of the assigning Lender in an amount equal to the Revolving Loan Commitment and the Term Loans (or either of them) retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes, shall be dated the effective date of such 57 Assignment and Acceptance and shall otherwise be in substantially the form of the respective Note. Thereafter, such surrendered Notes shall be marked renewed and substituted and the originals thereof delivered to the Borrower (with copies, certified by the Borrower as true, correct and complete, to be retained by the Agent). (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 11.6, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower provided that such Person agrees in writing to the confidentiality obligations set forth in Section 11.14 hereof. 11.7 Limitation of Interest. The Borrower and the Lenders intend to strictly comply with all applicable federal and Texas laws, including applicable usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply to the Notes or any other Loan Documents despite the intention and desire of the parties to apply the usury laws of the State of Texas). Accordingly, the provisions of this Section 11.7 shall govern and control over every other provision of this Agreement or any other Loan Document which conflicts or is inconsistent with this Section, even if such provision declares that it controls. As used in this Section, the term "interest" includes the aggregate of all charges, fees, benefits or other compensation which constitute interest under applicable law, provided that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall be characterized as an expense or as compensation for something other than the use, forbearance or detention of money and not as interest, and (b) all interest at any time contracted for, reserved, charged or received shall be amortized, prorated, allocated and spread, in equal parts during the full term of the Obligations. In no event shall the Borrower or any other Person be obligated to pay, or any Lender have any right or privilege to reserve, receive or retain, (a) any interest in excess of the maximum amount of nonusurious interest permitted under the laws of the State of Texas or the applicable laws (if any) of the United States or of any other state, or (b) total interest in excess of the amount which such Lender could lawfully have contracted for, reserved, received, retained or charged had the interest been calculated for the full term of the Obligations at the Ceiling Rate. On each day, if any, that the interest rate (the "Stated Rate") called for under this Agreement or any other Loan Document exceeds the Ceiling Rate, the rate at which interest shall accrue shall automatically be fixed by operation of this sentence at the Ceiling Rate for that day, and shall remain fixed at the Ceiling Rate for each day thereafter until the total amount of interest accrued equals the total amount of interest which would have accrued if there were no such ceiling rate imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the Ceiling Rate, in which case, the provisions of the immediately preceding sentence shall again automatically operate to limit the interest accrual rate to the Ceiling Rate. The daily interest rates to be used in calculating interest at the Ceiling Rate shall be determined by dividing the applicable Ceiling Rate per annum by the number of days in the calendar year for which such calculation is being made. None of the terms and provisions contained in this Agreement or in any other Loan Document (including, without limitation, Section 9.1 hereof) which directly or indirectly relate to interest shall ever be construed without 58 reference to this Section 11.7, or be construed to create a contract to pay for the use, forbearance or detention of money at an interest rate in excess of the Ceiling Rate. If the term of any Obligation is shortened by reason of acceleration of maturity as a result of any Default or by any other cause, or by reason of any required or permitted prepayment, and if for that (or any other) reason any Lender at any time, including but not limited to, the stated maturity, is owed or receives (and/or has received) interest in excess of interest calculated at the Ceiling Rate, then and in any such event all of any such excess interest shall be canceled automatically as of the date of such acceleration, prepayment or other event which produces the excess, and, if such excess interest has been paid to such Lender, it shall be credited pro tanto against the then-outstanding principal balance of the Borrower's obligations to such Lender, effective as of the date or dates when the event occurs which causes it to be excess interest, until such excess is exhausted or all of such principal has been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess shall be promptly refunded to its payor. 11.8 Survival. The obligations of the Borrower under Sections 2.2(c), 2.2(d), 7.10, 11.3 and 11.4 hereof and all other obligations of the Borrower in any other Loan Document (to the extent stated therein), and the obligations of the Lenders under Section 10.5 and 11.7 hereof, shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Revolving Loan Commitments and the Letters of Credit. 11.9 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 11.12 Severability. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of any Loan Document shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions of such Loan Document shall not be affected or impaired thereby. 11.13 Tax Forms. With respect to each Lender which is organized under the laws of a jurisdiction outside the United States, on the day of the initial borrowing from each such Lender hereunder and from time to time thereafter if requested by the Borrower or the Agent, 59 such Lender shall provide the Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Lender's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Lender hereunder or other documents satisfactory to the Lender and the Agent indicating that all payments to be made to such Lender hereunder are subject to such tax at a rate reduced by an applicable tax treaty. Unless the Borrower and the Agent shall have received such forms or such documents indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. 11.14 Venue. The Borrower hereby irrevocably (a) agrees that any legal proceeding against the Agent or any Lender arising out of or in connection with the Loan Documents shall be brought in the district courts of Harris County, Texas, or in the United States District Court for the Southern District of Texas, Houston Division (collectively, the "Houston Courts"); (b) submits to the non-exclusive jurisdiction of the Houston Courts; (c) agrees and consents that service of process may be made upon it in any proceeding arising out of the Loan Documents or any transaction contemplated thereby by service of process as provided by Texas law; (d) WAIVES, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of any Loan Document or the transactions contemplated thereby in the Houston Courts; and (e) WAIVES any claim that any such suit, action or proceeding in any Houston Court has been brought in an inconvenient forum. All of the obligations of the Borrower under the Loan Documents are performable in Harris County, Texas. Nothing herein shall affect the right of the Agent or any Lender to commence legal proceedings or otherwise proceed against the Borrower in any jurisdiction or to serve process in any manner permitted by applicable law. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions in any manner provided by law. 11.15 Confidentiality. Each Lender agrees to comply with its customary procedures to keep any information delivered or made available by the Borrower to it confidential from anyone other than Persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering commitments, the Loans, or Letters of Credit or participations therein or the collateral thereon or the Loan Documents, provided that nothing herein shall prevent any Lender from disclosing such information (a) to any other Lender, (b) to any Person if reasonably incidental to the administration of the Loans, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority having jurisdiction over such Lender, (e) which has been publicly disclosed, (f) in connection with any litigation to which any Lender, the Agent, or their respective Affiliates may be a party, (f) to the extent reasonably required or desirable in connection with the exercise of any remedy hereunder or under any Loan Document, (h) to such 60 Lender's legal counsel and independent auditors, and (i) to any actual or proposed participant or assignee of all or part of its Loans, Commitments or participations hereunder. 11.16 Amended and Restated Credit Agreement. This Agreement amends and restates in its entirety that certain Third Amended and Restated Credit Agreement dated as of August 20, 1992, by and among the Borrower, each of the financial institutions which is or which may from time to time become a party thereto, the issuer of certain letters of credit, and The Bank of Nova Scotia, as agent, as amended, restated, modified and supplemented prior to the date hereof (the "Original Credit Agreement"). The Notes are given, in part, in renewal, extension and rearrangement of the unpaid balances owing on the Notes (as that term is defined in the Original Credit Agreement). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. STERLING CHEMICALS, INC. By: /s/ Jim P. Wise Jim P. Wise, Vice President-Finance & Chief Financial Officer Address for Notices: 1200 Smith Street, Suite 1900 Houston, Texas 77002 Attention: Mr. Jim P. Wise Telecopy No.: (713) 654-9552 61 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /s/ Gregory R. Ford Gregory R. Ford, Vice President Address for Notices: Revolving Loan Commitment: 712 Main Street Houston, Texas 77002 $19,090,909.09 Attention: Mr. Gregory R. Ford Telecopy No.: (713) 216-6387 Term Loan: $15,909,090.91 62 THE BANK OF NOVA SCOTIA, as Documentation Agent and as a Lender By: /s/ Claude Ashby Name: F.C.N. Ashby Title: Senior Manager Loan Operations Address for Notices: Revolving Loan Commitment: 1100 Louisiana, Suite 3000 Houston, Texas 77002 $19,090,909.09 Attention: Mr. Larry Loyd Telecopy No.: (713) 752-2425 Term Loan: with a copy to $15,909,090.91 600 Peachtree Street, N.E., Suite 2700 Atlanta, Georgia 30308 Attention: Mr. Claude Ashby Telecopy No.: (404) 888-8998 63 ABN AMRO BANK N.V., HOUSTON AGENCY, as Co-Agent and as a Lender By: /s/ Ken Womack Name: Kenneth S. Womack Title: Assistant V.P. By: /s/ Michael N. Oakes Name: Michael N. Oakes Title: V.P. Address for Notices: Revolving Loan Commitment: Three Riverway, Suite 1600 Houston, Texas 77056 $16,363,636.36 Attention: Mr. Kenneth S. Womack Telecopy No.: (713) 621-5801 Term Loan: $13,636,363.64 64 BANK OF SCOTLAND, as Co-Agent and as a Lender By:/s/ Elizabeth Wilson Name: Elizabeth Wilson Title: V.P. and Branch Manager Address for Notices: Revolving Loan Commitment: 565 Fifth Avenue New York, New York 10017 $16,363,636.36 Attention: Mr. James Halley Telecopy No.: (212) 682-5720 Term Loan: $13,636,363.64 65 CREDIT LYONNAIS NEW YORK BRANCH, as Co-Agent and as a Lender By: /s/ Xavier Ratouis Name: Xavier Ratouis Title: Sr. V.P. Address for Notices: Revolving Loan Commitment: c/o Credit Lyonnais Representative Office 1000 Louisiana, Suite 5360 $16,363,636.36 Houston, Texas 77002 Attention: Mr. Page Dillehunt Telecopy No.: (713) 751-0307 Term Loan: $13,636,363.64 66 BANQUE PARIBAS HOUSTON AGENCY By: /s/ Christopher S. Goodwin Name: Christopher S. Goodwin Title: V.P. By: /s/ Mei Wan Fong Name: Mei Wan Fong Title: Group V.P. Address for Notices: Revolving Loan Commitment: 1200 Smith, Suite 3100 Houston, Texas 77002 $8,181,818.18 Attention: Mr. Chris Goodwin Telecopy No.: (713) 659-3832 Term Loan: $6,818,181.82 67 FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ Ann M. Rhoads Name: Ann M. Rhoads Title: V.P. Address for Notices: Revolving Loan Commitment: 1000 Louisiana, 3rd Floor Houston, Texas 77002 $8,181,818.18 Attention: Ms. Ann Rhoads Telecopy No.: (713) 250-7912 Term Loan: $6,818,181.82 68 THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: /s/ S. Otsubo Name: Satoru Otsubo Title: Joint General Manager Address for Notices: Revolving Loan Commitment: 165 Broadway New York, New York 10006 $8,181,818.18 Attention: Mr. David Manheim Telecopy No.: (212) 608-2371 Term Loan: $6,818,181.82 69 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Dixon Schultz Name: Dixon P. Schultz Title: V.P. By: Name: Title: Address for Notices: Revolving Loan Commitment: 1100 Louisiana, Suite 3200 Houston, Texas 77002 $8,181,818.18 Attention: Ms. Susan Hodge Telecopy No.: (713) 654-7370 Term Loan: with a copy to: $6,818,181.82 125 West 55th Street New York, New York 10019-5366 Attention: Christina Tang Telecopy No.: (212) 632-8736 70 SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Paul E. Cornell Name: Paul E. Cornell Title: First V.P. Address for Notices: Revolving Loan Commitment: 2001 Ross Avenue, Suite 4800 Dallas, Texas 75201 $8,181,818.18 Attention: Ms. Tequlla English Telecopy No.: (214) 754-0171 Term Loan: with a copy to $6,818,181.82 1111 Bagby, Suite 2020 Houston, Texas 77002 Attention: Mr. Jim Shelton Telecopy No.: (713) 650-0824 71 HIBERNIA NATIONAL BANK By: /s/ Colleen Smith Name: Colleen Smith Title: Banking Officer Address for Notices: Revolving Loan Commitment: 313 Carondelet Street, Suite 1400 New Orleans, Louisiana 70130 $5,454,545.45 Attention: Ms. Colleen Smith Telecopy No.: (504) 533-2042 Term Loan: $4,545,454.55 72 COMERICA BANK By: /s/ Bradley Terryn Name: Bradley Terryn Title: V.P. Address for Notices: Revolving Loan Commitment: 500 Woodward Avenue, 9th Floor, MC3281 Detroit, Michigan 48226 $5,454,545.45 Attention: Mr. Bradley A. Terryn Telecopy No.: (313) 222-3330 Term Loan: $4,545,454.55 73 CIBC, INC. By: /s/ Gary C. Gaskill Name: Gary C. Gaskill Title: V.P. Address for Notices: Revolving Loan Commitment: Two Paces West 2727 Paces Ferry Road, Suite 1200 $5,454,545.45 Atlanta, Georgia 30339 Attention: Loan Operations Telecopy No.: (404) 319-4950 Term Loan: with a copy to: $4,545,454.55 Canadian Imperial Bank of Commerce Two Houston Center 909 Fannin Street, Suite 1200 Houston, Texas 77010 Attention: Mr. Dave Balderach Telecopy No.: (713) 658-9922 74 NATIONAL BANK OF CANADA By: /s/ Larry L. Sears Name: Larry L. Sears Title: Group Vice President By: /s/ David L. Schreiber Name: David L. Schreiber Title: Assistant Vice President Address for Notices: 125 West 55th Street New York, New York 10019-5366 Attention: Ms. Christina Tang Telecopy No.: (212) 632-8736 Address for Notices: Revolving Loan Commitment: 2121 San Jacinto, Suite 1850 Dallas, Texas 75201 $5,454,545.45 Attention: Mr. David Schreiber Telecopy No.: (214) 871-2015 Term Loan: $4,545,454.55 75 76 [STERLING CHEMICALS, INC. LETTERHEAD] REQUEST FOR EXTENSION OF CREDIT ------------------------------- ________________, 199____ Texas Commerce Bank National Association, as Agent 712 Main Street Houston, Texas 77002 Attention: Manager, Refining and Petrochemicals Group Gentlemen: The undersigned hereby certifies that the undersigned is the _________________________________ of STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), and that as such the undersigned is authorized to execute this Request for Extension of Credit (the "Request") on behalf of the Company pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 13, 1995, by and among the Company, Texas Commerce Bank National Association, as Agent, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and the Lenders therein named. The (check one) [___] Loan [___] Letter of Credit being requested hereby is to be in the amount set forth in (b) below and is requested to be made on __________________, 199____, which is a Business Day. The undersigned further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified herein): (a) As of the date hereof, the Maximum Revolving Loan Available Amount is: $__________ (b) The Company hereby requests under this Request a Revolving Loan or Letter of Credit (as indicated above) in the amount of $____________. (c) If a Letter of Credit is requested hereby, it should be issued for the benefit of __________________________________ and should have an expiration date of _______________________, 199___ (which date is no later than one year from the proposed date of EXHIBIT A to Credit Agreement Page 1 issuance) and any special language to be incorporated into such Letter of Credit is attached hereto. The sum of the face amount of the requested Letter of Credit plus the Letter of Credit Liabilities as the date hereof does not exceed $20,000,000. (d) The representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. (e) No event which has had (or could reasonably be expected to have) a Material Adverse Effect has occurred. (f) No Default or Event of Default has occurred and is continuing or will occur as a result of the making of the Loan or the issuance of the Letter of Credit requested hereby. Thank you for your attention to this matter. Very truly yours, STERLING CHEMICALS, INC. By:___________________________________ Name:_________________________________ Title:________________________________ EXHIBIT A to Credit Agreement Page 2 BORROWING BASE CERTIFICATE The undersigned hereby certifies that the undersigned is the _______________________ of STERLING CHEMICALS, INC., a Delaware corporation (the "Company"), and that as such the undersigned is authorized to execute this Borrowing Base Certificate on behalf of the Company pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 13, 1995, by and among the Company and Texas Commerce Bank National Association, as Agent, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank, N. V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and the Lenders therein named. The undersigned further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified herein): (a) The Borrowing Base as the date hereof is calculated as follows: (i) Eligible Accounts as of the date hereof $_____ (ii) 85% times Line (a)(i) $_____ (iii) Eligible Inventory as of the date hereof $_____ (iv) 65% times Line (a)(iii) $_____ (v) Value (determined in accordance with GAAP) as of the date hereof of materials and supplies which are not Eligible Inventory $_____ (vi) 75% times Line (a)(v) (not to exceed $7,000,000) $_____ (vii) 65% times Line (a)(vi) $_____ (viii) The Dollar Equivalent of the current unpaid principal balance of the Canadian Facility $_____ (ix) Borrowing Base as the date hereof [Line (a)(ii) plus (y) the lesser of (I) Line (a)(ii) or (II) the sum of Line (a)(iv) plus Line (a)(vii) less (z) Line (a)(viii)] $_____ EXHIBIT B to Credit Agreement Page 1 (b) Calculations of the Eligible accounts and Eligible Inventory are set forth on Schedule 1 attached hereto and such calculations are true and correct in all respects and conform to the definitions of "Eligible Accounts" and "Eligible Inventory" set forth in the Credit Agreement. (c) No Default or Event of Default has occurred and is continuing. Dated _______________, 199__. _____________________________________ (SIGNATURE OF AUTHORIZED OFFICER) EXHIBIT B to Credit Agreement Page 2 SUBSIDIARIES ------------ 1. Sterling Chemicals International, Inc., a Delaware corporation (100% owned by Borrower) 2. Sterling Chemicals Energy, Inc., a Delaware corporation (100% owned by Borrower) 3. Sterling Canada, Inc., a Delaware corporation (100% owned by Borrower) 4. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100% owned by Borrower) 5. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling Canada, Inc.) 6. Sterling Pulp Chemicals US, Inc., a Delaware corporation (100% owned by Sterling Canada, Inc.) 7. Sterling Pulp Chemicals, Ltd., an Ontario corporation (100% owned by Sterling Canada, Inc.) EXHIBIT C TERM NOTE Houston, Texas $__________ ______________, 199_ FOR VALUE RECEIVED, STERLING CHEMICALS, INC. ("Maker"), a Delaware corporation, promises to pay to the order of _______________________________ ______________________ ___ ("Payee"), a __________________, at the principal office of Texas Commerce Bank National Association, a national banking association, 712 Main Street, Houston, Harris County, Texas 77002, in immediately available funds and in lawful money of the United States of America, the principal sum of __________________________________________ Dollars ($_____ _____________) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the rate or rates provided in that certain Interest Rate Agreement (as amended, supplemented, restated or replaced from time to time, the "Interest Rate Agreement") attached as Schedule 1 to the Credit Agreement (hereinafter defined); provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate. Any term defined in the Interest Rate Agreement or in that certain Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement") dated as of April 13, 1995 among Maker, certain signatory financial institutions named therein, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and Texas Commerce Bank National Association, as Agent, which is used in this note and which is not otherwise defined in this note shall have the meaning ascribed to it in the Credit Agreement or the Interest Rate Agreement, as the case may be. 1. Credit Agreement; Advances; Security. This note has been issued pursuant to the terms of the Credit Agreement, and is one of the Term Notes referred to in the Credit Agreement. Advances against this note by Payee or other holder hereof shall be governed by the terms and provisions of the Credit Agreement. Reference is hereby made to the Credit Agreement for all purposes. Payee is entitled to the benefits of and security provided for in the Credit Agreement. The unpaid principal balance of this note at any time shall be the total of all amounts lent or advanced against this note less the amount of all payments or permitted prepayments made on this note and by or for the account of Maker. All loans and advances and all payments and permitted prepayments made hereon may be endorsed by the holder of this note on a schedule which may be attached hereto (and thereby made a part hereof for all purposes) or otherwise recorded in the holder's records; provided, that any failure to make notation (or any error in such notation) of (a) any advance shall not cancel, limit or otherwise affect Maker's EXHIBIT D to Credit Agreement Page 1 obligations or any holder's rights with respect to that advance, or (b) any payment or permitted prepayment of principal shall not cancel, limit or otherwise affect Maker's entitlement to credit for that payment as of the date received by the holder. 2. Mandatory Payments of Principal and Interest. (a) Accrued and unpaid interest on the unpaid principal balance of this note shall be due and payable on the Interest Payment Dates in accordance with the terms of the Credit Agreement and the Interest Rate Agreement. (b) The principal of this note shall be due and payable in quarterly installments due on each Quarterly Date, beginning on July 1, 1995, equal to ___________% times $4,464,285.71 (subject to adjustment as provided in the Credit Agreement). On the Maturity Date, the entire unpaid principal balance of this note and all accrued and unpaid interest on the unpaid principal balance of this note shall be finally due and payable. (c) The Credit Agreement provides for required prepayments of the indebtedness evidenced hereby upon terms and conditions specified therein. 3. No Usury Intended; Spreading. Notwithstanding any provision to the contrary contained in this note or any of the other Loan Documents, it is expressly provided that in no case or event shall the aggregate of (i) all interest on the unpaid balance of this note, accrued or paid from the date hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to this note or any of the other Loan Documents, which under applicable laws are or may be deemed to constitute interest upon the indebtedness evidenced by this note from the date hereof, ever exceed the Ceiling Rate. In this connection, Maker and Payee stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable federal and Texas usury laws (and the usury laws of any other jurisdiction whose usury laws are deemed to apply to this note or any of the other Loan Documents despite the intention and desire of the parties to apply the usury laws of the State of Texas). In furtherance thereof, none of the terms of this note or any of the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming liable for payment of the indebtedness evidenced by this note shall never be liable for interest in excess of the Ceiling Rate. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the holder of this note shall credit against the principal of this note (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by applicable law, be amortized, EXHIBIT D to Credit Agreement Page 2 prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note. The provisions of this Paragraph shall control all agreements, whether now or hereafter existing and whether written or oral, between Maker and Payee. 4. Default. The Credit Agreement provides for the acceleration of the maturity of this note and other rights and remedies upon the occurrence of certain events specified therein. 5. Waivers by Maker and Others. Except to the extent, if any, that notice of default is expressly required herein or in any of the other Loan Documents, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or to maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. 6. Paragraph Headings. Paragraph headings appearing in this note are for convenient reference only and shall not be used to interpret or limit the meaning of any provision of this note. 7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 8. Successors and Assigns. This note and all the covenants and agreements contained herein shall be binding upon, and shall inure to the benefit of, the respective legal representatives, heirs, successors and assigns of Maker and Payee. 9. Records of Payments. The records of Payee shall be prima facie evidence of the amounts owing on this note. 10. Severability. If any provision of this note is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this note shall not be affected thereby, and this note shall be liberally construed so as to carry out the intent of the parties to it. EXHIBIT D to Credit Agreement Page 3 11. Business Loans. Maker warrants and represents to Payee and all other holders of this note that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One. STERLING CHEMICALS, INC. By:___________________________________ Name:_________________________________ Title:________________________________ EXHIBIT D to Credit Agreement Page 4 REVOLVING NOTE Houston, Texas $__________ ________________, 199_ FOR VALUE RECEIVED, STERLING CHEMICALS, INC. ("Maker"), a Delaware corporation, promises to pay to the order of _________________________________ ("Payee"), a _______________, at the principal office of Texas Commerce Bank National Association, a national banking association, 712 Main Street, Houston, Harris County, Texas 77002, in immediately available funds and in lawful money of the United States of America, the principal sum of_____________________ ___________________ Dollars ($____________) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the rate or rates provided in that certain Interest Rate Agreement (as amended, supplemented, restated or replaced from time to time, the "Interest Rate Agreement") attached as Schedule 1 to the Credit Agreement (hereinafter defined); provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate. Any term defined in the Interest Rate Agreement or in that certain Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement") dated as of April 13, 1995 among Maker, certain signatory financial institutions named therein, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank, N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and Texas Commerce Bank National Association, as Agent, which is used in this note and which is not otherwise defined in this note shall have the meaning ascribed to it in the Credit Agreement or the Interest Rate Agreement, as the case may be. 1. Credit Agreement; Advances; Security. This note has been issued pursuant to the terms of the Credit Agreement, and is one of the Revolving Notes referred to in the Credit Agreement. Advances against this note by Payee or other holder hereof shall be governed by the terms and provisions of the Credit Agreement. Reference is hereby made to the Credit Agreement for all purposes. Payee is entitled to the benefits of and security provided for in the Credit Agreement. The unpaid principal balance of this note at any time shall be the total of all amounts lent or advanced against this note less the amount of all payments or permitted prepayments made on this note and by or for the account of Maker. All loans and advances and all payments and permitted prepayments made hereon may be endorsed by the holder of this note on a schedule which may be attached hereto (and thereby made a part hereof for all purposes) or otherwise recorded in the holder's records; provided, that any failure to make notation (or any error in such notation) of (a) any advance shall not cancel, limit or otherwise affect Maker's EXHIBIT E to Credit Agreement Page 1 obligations or any holder's rights with respect to that advance, or (b) any payment or permitted prepayment of principal shall not cancel, limit or otherwise affect Maker's entitlement to credit for that payment as of the date received by the holder. 2. Mandatory Payments of Principal and Interest. (a) Accrued and unpaid interest on the unpaid principal balance of this note shall be due and payable on the Interest Payment Dates in accordance with the terms of the Credit Agreement and the Interest Rate Agreement. (b) The entire unpaid principal balance of this note shall be finally due and payable on the Maturity Date. (c) The Credit Agreement provides for required prepayments of the indebtedness evidenced hereby upon terms and conditions specified therein. 3. No Usury Intended; Spreading. Notwithstanding any provision to the contrary contained in this note or any of the other Loan Documents, it is expressly provided that in no case or event shall the aggregate of (i) all interest on the unpaid balance of this note, accrued or paid from the date hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to this note or any of the other Loan Documents, which under applicable laws are or may be deemed to constitute interest upon the indebtedness evidenced by this note from the date hereof, ever exceed the Ceiling Rate. In this connection, Maker and Payee stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable federal and Texas usury laws (and the usury laws of any other jurisdiction whose usury laws are deemed to apply to this note or any of the other Loan Documents despite the intention and desire of the parties to apply the usury laws of the State of Texas). In furtherance thereof, none of the terms of this note or any of the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming liable for payment of the indebtedness evidenced by this note shall never be liable for interest in excess of the Ceiling Rate. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the holder of this note shall credit against the principal of this note (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note. The provisions of this Paragraph shall control all agreements, whether now or hereafter existing and whether written or oral, between Maker and Payee. EXHIBIT E to Credit Agreement Page 2 4. Default. The Credit Agreement provides for the acceleration of the maturity of this note and other rights and remedies upon the occurrence of certain events specified therein. 5. Waivers by Maker and Others. Except to the extent, if any, that notice of default is expressly required herein or in any of the other Loan Documents, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or to maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. 6. Paragraph Headings. Paragraph headings appearing in this note are for convenient reference only and shall not be used to interpret or limit the meaning of any provision of this note. 7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 8. Successors and Assigns. This note and all the covenants and agreements contained herein shall be binding upon, and shall inure to the benefit of, the respective legal representatives, heirs, successors and assigns of Maker and Payee. 9. Records of Payments. The records of Payee shall be prima facie evidence of the amounts owing on this note. 10. Severability. If any provision of this note is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this note shall not be affected thereby, and this note shall be liberally construed so as to carry out the intent of the parties to it. 11. Revolving Loan. Subject to the terms and provisions of the Credit Agreement, Maker may use all or any part of the credit provided to be evidenced by this note at any time before the Maturity Date. Maker may borrow, repay and reborrow hereunder, and except as set forth in the Credit Agreement there is no limitation on the number of advances made hereunder. Pursuant to Article 15.10(b) of Chapter 15 ("Chapter 15") of Title 79, Texas EXHIBIT E to Credit Agreement Page 3 Revised Civil Statutes, 1925, as amended, Maker and Payee expressly agree that Chapter 15 shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by or subject to the provisions of Chapter 15 in any manner whatsoever. 12. Business Loans. Maker warrants and represents to Payee and all other holders of this note that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One. STERLING CHEMICALS, INC. By:___________________________________ Name:_________________________________ Title:________________________________ EXHIBIT E to Credit Agreement Page 4 ASSIGNMENT AND ACCEPTANCE ------------------------- Dated: ___________________, 199_ Reference is made to the Credit Agreement dated as of April 13, 1995 (as restated, amended, modified, supplemented and in effect from time to time, the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation (the "Company"), the Lenders named therein, The Bank of Nova Scotia, a Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and Texas Commerce Bank National Association, as Agent (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. This Assignment and Acceptance, between the Assignor (as defined and set forth on Schedule I hereto and made a part hereof) and the Assignee (as defined and set forth on Schedule I hereto and made a part hereof) is dated as of the Effective Date (as set forth on Schedule I hereto and made a part hereof). 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date, an undivided ________% interest (the "Assigned Interest") in and to all the Assignor's rights and obligations under the Credit Agreement as set forth on Schedule I (collectively, the "Assigned Facilities," individually, an "Assigned Facility"). 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or its Subsidiaries or the performance or observance by the Company or its Subsidiaries of any of its respective obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto; and (iii) attaches the Note(s) held by it evidencing the Assigned Facility or Facilities, as the case may be, and requests that the Agent exchange such Note(s) for a new Note or Notes payable to the Assignor (if the Assignor has retained any interest in the Assigned Facility or Facilities) and a new Note or Notes payable to the Assignee in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). EXHIBIT F to Credit Agreement Page 1 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 6.2 thereof, or if later, the most recent financial statements delivered pursuant to Section 7.2 thereof, and such other documents and information as it has deemed appropriate to make its own credit analysis; (iii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; (vi) if the Assignee is organized under the laws of a jurisdiction outside the United States, attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied the information requested on the administrative questionnaire submitted by the Agent. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance by it and the Company and recording by the Agent pursuant to Section 11.6 of the Credit Agreement, effective as of the Effective Date (which Effective Date shall, unless otherwise agreed to by the Agent, be at least five Business Days after the execution of this Assignment and Acceptance). 5. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee, whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by the Agent or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. EXHIBIT F to Credit Agreement Page 2 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective duly authorized officers on Schedule I hereto. EXHIBIT F to Credit Agreement Page 3 SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE Legal Name of Assignor: ______________________________________________________ Legal Name of Assignee: ______________________________________________________ Effective Date of Assignment: __________________, 199_ Principal Amount (or, with respect to Letters Assigned of Credit, face Facilities amount) Assigned ---------- ---------------- Term Loans: $_______________ Revolving Loans: $_______________ Letter of Credit participation interests $_______________ Total $______________ Accepted: TEXAS COMMERCE BANK NATIONAL _______________________________________ ASSOCIATION, as Agent as Assignor By:_________________________ By:____________________________________ Name:_______________________ Name:__________________________________ Title:______________________ Title:_________________________________ EXHIBIT F to Credit Agreement Page 1 ____________________________ as Assignee By:_________________________ Name:_______________________ Title:______________________ Acknowledged and Agreed: STERLING CHEMICALS, INC. By:_________________________ Name:_______________________ Title:______________________ EXHIBIT F to Credit Agreement Page 2 COMPLIANCE CERTIFICATE ---------------------- The undersigned hereby certifies that the undersigned is the _____________ ________________________________ of STERLING CHEMICALS, INC., a Delaware corporation (the "Borrower"), and that as such the undersigned is authorized to execute this certificate on behalf of the Borrower pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 13, 1995, by and among the Borrower, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent, a national banking association, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and the financial institutions therein named; and that a review of the Borrower and its Subsidiaries has been made under the supervision of the undersigned with a view to determining whether the Borrower and its Subsidiaries have fulfilled all of their respective obligations under the Credit Agreement, the Notes and the other Loan Documents; and on behalf of the Borrower further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) The financial statements delivered to the Agent concurrently with this Compliance Certificate have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present the financial condition and results of operations of the applicable Persons as at the end of, and for, the period indicated (subject, in the case of Quarterly Financial Statements and monthly statements of income and cash flow, to normal changes resulting from year-end adjustments). (b) No Default or Event of Default has occurred and is continuing. In this regard, the compliance with the provisions of Section 7.3 of the Credit Agreement is as follows: (i) Section 7.3(a) -- Debt to EBITDA Ratio -------------- Actual Required ------ -------- ______ to 1.00 4.00 to 1.00 (ii) Section 7.3(b) -- Fixed Charge Coverage Ratio -------------- Actual Required ------ -------- ______ to 1.00 1.25 to 1.00 EXHIBIT G to Credit Agreement Page 1 (iii) Section 7.3(c) -- Adjusted Fixed Charge Ratio (only required in case of -------------- dividends) Actual Required ------ -------- ______ to 1.00 1.10 to 1.00 (iv) Section 7.3(d) -- Net Worth ______________ Actual Required ------ -------- $ _______ $ ________ (v) Section 7.3(e) -- Current Ratio Actual Required ------ -------- ______ to 1.00 1.10 to 1.00 DATED as of __________________, 199___. ----------------------------------- [SIGNATURE OF AUTHORIZED OFFICER] EXHIBIT G to Credit Agreement Page 2 EXHIBIT H EXISTING LETTERS OF CREDIT
ISSUER LC# BENEFICIARY AMOUNT ------ --- ----------- ------ Bank of Nova Scotia A152180 Insurance Company of North America $ 20,000 Bank of Nova Scotia A152224 Texas Natural Resource Conservation Commission $ 387,450.00 Bank of Nova Scotia A152225 Texas Natural Resource Conservation Commission $1,464,517.00 Bank of Nova Scotia A152413 Reliance National Risk Specialists $ 300,000.00 ------------- TOTAL $2,171,967.00 =============
SCHEDULE 6.10 ERISA MATTERS NONE SCHEDULE 8.1 EXISTING BORROWED MONEY INDEBTEDNESS NONE ---- SCHEDULE 8.2 EXISTING LIENS Liens existing under the Security Agreement dated as of August 1, 1988, between BP Chemicals Inc., formerly known as BP Chemicals America Inc., as secured party, and Sterling Chemicals, Inc., as debtor, securing obligations under the Production Agreement dated as of April 15, 1988, between those parties covering certain production related to the Production Agreement, certain proceeds of such production, and certain equipment and fixtures related to the production, all as described in the Security Agreement. SCHEDULE 8.3 EXISTING CONTINGENT LIABILITIES NONE ---- SCHEDULE 8.8 EXISTING INVESTMENTS DESCRIPTION ----------- PRIMEX, LTD.- COMMON STOCK (2,500 SHARES) PRIMEX, LTD.-SERIES "A" PREFERRED (7,957 SHARES) 50% OF S & L CO-GENERATION (A PARTNERSHIP) INTEREST RATE AGREEMENT THIS INTEREST RATE AGREEMENT (this "Agreement") is attached as SCHEDULE 1 to the Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement"), of even date herewith, by and among STERLING CHEMICALS, INC. ("Borrower"), a Delaware corporation, certain financial institutions from time to time a party thereto, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION (in such capacity "Agent"), a national banking association acting as agent for such financial institutions. RECITALS 1. Any capitalized term defined in the Credit Agreement which is used in this Agreement shall, unless otherwise defined herein, have the meaning ascribed to it in the Credit Agreement. 2. For convenience, Borrower and Agent desire to gather the provisions of the Loan Documents relating solely to interest, including the selection of interest rate options, into a separate agreement. AGREEMENTS NOW, THEREFORE, in consideration of the execution and delivery of the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS Capitalized words and phrases used in this Agreement have the meanings provided below. Unless otherwise stated, references to sections are to sections in this Agreement. Additional Interest means the aggregate of all amounts accrued or paid pursuant to the Notes or any of the other Loan Documents (other than interest on the Notes at the Stated Rate) which, under applicable laws, are or may be deemed to constitute interest on the indebtedness evidenced by the Notes. Base Rate means for any day a rate per annum equal to the lesser of (a) the greater of (1) the Prime Rate for that day and (2) the Federal Funds Rate for that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds SCHEDULE 1 to Credit Agreement Rate for any reason, including, without limitation, the inability or failure of Agent to obtain sufficient quotations in accordance with the terms hereof, the Base Rate shall, until the circumstances giving rise to such inability no longer exist, be the lesser of (a) the Prime Rate or (b) the Ceiling Rate. Base Rate Borrowing means that portion of the principal balance of the Loans at any time bearing interest at the Base Rate. Ceiling Rate means, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter One) for that day. Agent may from time to time, as to current and future balances, implement any other ceiling under Chapter One by notice to Borrower, if and to the extent permitted by Chapter One. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. Chapter One means Chapter One of Title 79, Texas Revised Civil Statutes, 1925, as amended. Eurodollar Business Day means a Business Day on which transactions in United States dollar deposits between banks may be carried on in whatever Eurodollar interbank market may be selected by Agent in accordance herewith. Eurodollar Interbank Rate means, for each Interest Period, the rate of interest per annum, rounded, if necessary, to the next highest whole multiple of one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston, Texas time (or as soon thereafter as practicable), on the date two Eurodollar Business Days before the first day of such Interest Period, to be the arithmetic average of the prevailing rates per annum at the time of determination and in accordance with the then existing practice in the applicable market, for the offering to Agent by one or more prime banks selected by Agent in its sole discretion, in whatever Eurodollar interbank market may be selected by Agent in its sole discretion, of deposits in Dollars for delivery on the first day of such Interest Period and having a maturity equal to the length of such Interest Period and in an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to which such Interest Period relates. Each determination by Agent of the Eurodollar Interbank Rate shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. Eurodollar Rate means for any day a rate per annum equal to the lesser of (a) the sum of (1) the Eurodollar Interbank Rate in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing plus (2) the applicable Margin Percentage in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing and (b) the Ceiling 2 Rate. Each Eurodollar Rate is subject to adjustments for reserves and other matters as provided for in Section 2.3 hereof. Eurodollar Rate Borrowing means each portion of the principal balance of the Loans at any time bearing interest at a Eurodollar Rate. Eurodollar Reserve Requirement means, on any day, for any Loans of any Lender bearing interest at the Eurodollar Rate and any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained by such Lender during such Interest Period under Regulation D against "Eurocurrency liabilities" (as such term is used in Regulation D). Each determination of the Eurodollar Reserve Requirement by a Lender shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. Federal Funds Rate means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent in its sole and absolute discretion. Funding Loss means, with respect to (a) Borrower's payment of principal of a Eurodollar Rate Borrowing on a day before the last day of the applicable Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate Borrowing on the date specified by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other than Base Rate Borrowings) on the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part thereof pursuant to Section 2.3, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any Lender (including but not limited to any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain a Loan). Interest Options means the Base Rate and each Eurodollar Rate, and "Interest Option" means either of them. Interest Payment Dates means (a) for Base Rate Borrowings, July 1, 1995 and the first day of each October, January, April and July thereafter prior to the Maturity Date and the Maturity Date; and (b) for Eurodollar Rate Borrowings, the end of the applicable Interest Period (and if such Interest Period exceeds three months' duration, quarterly, commencing on the first quarterly anniversary of the first day of such Interest Period) and the Maturity Date. 3 Interest Period means, for each Eurodollar Rate Borrowing, a period commencing on the date such Eurodollar Rate Borrowing began and ending on the numerically corresponding day which is, subject to availability, not less than 1 nor more than 12 months thereafter, as Borrower shall elect in accordance herewith; provided, (v) any Interest Period with respect to a Eurodollar Rate Borrowing which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (w) any Interest Period with respect to a Eurodollar Rate Borrowing which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of the appropriate calendar month; (x) no Interest Period shall ever extend beyond the Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a manner that the Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date. Margin Percentage means: (a) On any day prior to the first adjustment after the date hereof pursuant to clause (b) of this definition, 0.75%; (b) the Margin Percentage for any day shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt to EBITDA Ratio as of the last day of each March, June, September and December (beginning with the fiscal quarter ending on June 30, 1995) (such increase or decrease to be effective on the date that Borrower delivers the Quarterly Financial Statements for the fiscal quarter ending on such date to the Agent pursuant to the terms of the Credit Agreement):
Eurodollar Rate Debt to Borrowings Margin EBITDA Ratio Percentage ------------ ---------- Greater than or equal to 3.50 1.25 Greater than or equal to 2.50 but less than 3.50 1.00 Greater than or equal to 1.50 but less than 2.50 0.75 Less than 1.50 0.65
4 Prime Rate means, on any day, the prime rate for that day as announced from time to time by TCB and thereafter entered in the minutes of its Loan and Discount Committee. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate or a favored rate, and TCB, Agent and each Lender disclaims any statement, representation or warranty to the contrary. TCB, Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. Rate Designation Date means that Business Day which is (a) in the case of Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such borrowing and (b) in the case of Eurodollar Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date three Eurodollar Business Days preceding the first day of any proposed Interest Period. Rate Designation Notice means a written notice substantially in the form of Exhibit A. Regulation D means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and includes any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. Stated Rate means the effective weighted per annum rate of interest applicable to the Loans. Without notice to Borrower or any other person or entity, the Stated Rate shall automatically fluctuate upward and downward in accordance with the provisions of this definition. Taxes means any tax, levy, impost, duty, charge or fee. 2. INTEREST OPTIONS FOR LOANS 2.1 Options Available. The outstanding principal balance of the Notes shall bear interest at the Base Rate; provided, that (1) all amounts, both principal and accrued interest, remaining past due beyond the grace period (if any) provided in the Credit Agreement shall bear interest at the Past Due Rate, and (2) subject to the provisions hereof, Borrower shall have the option of having all or any portion of the principal balances of the Notes from time to time outstanding bear interest at a Eurodollar Rate. The records of Agent with respect to Interest Options, Interest Periods and the amounts of Loans to which they are applicable shall be binding and conclusive, absent manifest error. Interest on the Loans shall be calculated at the Base Rate except where it is expressly provided pursuant to this Agreement that a Eurodollar Rate or the Past Due Rate is to apply. Interest on the amount of each advance against the Notes shall be computed on the amount of that advance and from the date it is made. Notwithstanding anything in this Agreement to the contrary, for the full term of the Notes the interest rate produced by the aggregate of all sums paid or agreed to be paid to the holders of the Notes for the use, forbearance or detention of the debt evidenced thereby (including all interest on the Notes at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate. 5 2.2 Designation and Conversion. Borrower shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Subject to the last sentence of Section 2.1 and the provisions of Section 2.3, Borrower may elect to have a Eurodollar Rate apply or continue to apply to all or any portion of the principal balance of the Notes. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion shall not change the respective outstanding principal balances of the Notes. The Interest Options shall be designated or converted in the manner provided below: (a) Borrower shall give Agent telephonic notice, promptly confirmed by a Rate Designation Notice. Each such telephonic and written notice shall specify the amount of the Loan and type (i.e. Revolving Loan or Term Loan) which is the subject of the designation, if any; the amount of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion and the Interest Period or Periods, if any, selected by Borrower. Such telephonic notice shall be irrevocable and shall be given to Agent no later than the applicable Rate Designation Date. (b) No more than six (6) Eurodollar Rate Borrowings shall be in effect at any time. (c) Each designation or conversion of a Eurodollar Rate Borrowing shall occur on a Eurodollar Business Day. (d) Unless the Borrower makes the payment required by Section 2.3(d) hereof, no Eurodollar Rate Borrowing shall be converted to a Base Rate Borrowing on any day other than the last day of the applicable Interest Period. (e) Each Eurodollar Rate Borrowing shall be in the amount of at least $1,000,000. (f) Each designation of an Interest Option with respect to the Revolving Notes or the Term Notes shall apply to all of the Revolving Notes or Term Notes, respectively, ratably in accordance with their respective outstanding principal balances. If any Lender assigns an interest in any of its Notes when any Eurodollar Rate Borrowing is outstanding with respect thereto, then such assignee shall have its ratable interest in such Eurodollar Rate Borrowing. 2.3 Special Provisions Applicable to Eurodollar Rate Borrowings. (a) Options Unlawful. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by Agent or any Lender with any request or directive (whether or not having the force of law) of any central bank or other Governmental 6 Authority shall at any time make it unlawful or impossible for Agent or any Lender to permit the establishment of or to maintain any Eurodollar Rate Borrowing, the commitment to establish or maintain such Eurodollar Rate Borrowing shall forthwith be suspended and Borrower shall forthwith, upon demand by Agent to Borrower, (1) if required to avoid a violation of any Legal Requirement, convert the Eurodollar Rate Borrowing with respect to which such demand was made to a Base Rate Borrowing; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate each Lender for any additional cost or expense which each Lender may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Funding Loss which each Lender may incur as a result of such conversion. If, when Agent so notifies Borrower, Borrower has given a Rate Designation Notice specifying a Eurodollar Rate Borrowing but the selected Interest Period has not yet begun, such Rate Designation Notice shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Rate Designation Notice shall bear interest at the Base Rate until a different available Interest Option shall be designated in accordance herewith. (b) Increased Cost of Borrowings. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive (whether or not having the force of law) of any central bank or Governmental Authority shall at any time, as a result of any portion of the principal balances of the Notes being maintained on the basis of a Eurodollar Rate: (1) subject any Lender (or make it apparent that any Lender is subject) to any Taxes, or any deduction or withholding for any Taxes, on or from any payment due under any Eurodollar Rate Borrowing or other amount due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or (2) change the basis of taxation of payments due from Borrower to any Lender under any Eurodollar Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of such Lender); or (3) impose, modify, increase or deem applicable any reserve requirement, special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by any Lender, or against deposits or accounts in or for the account of any Lender, or against loans made by any Lender, or against any other funds, obligations or other property owned or held by any Lender; or 7 (4) impose on any Lender any other condition regarding any Eurodollar Rate Borrowing; and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such Eurodollar Rate Borrowing, or reduce the amount of principal or interest received by any Lender, then, upon demand by Agent, Borrower shall pay to Agent, from time to time as specified by Agent, additional amounts which shall compensate each Lender for such increased cost or reduced amount. The determination by any Lender of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error. Each Lender will notify the Borrower through the Agent of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the applicable Eurodollar Rate Borrowing or will take such other action as the Borrower may reasonable request if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender shall have no obligation so to designate a different lending office which is located in the United States of America). (c) Inadequacy of Pricing and Rate Determination. If for any reason with respect to any Interest Period, the Agent (or, in the case of clause 3 below, the applicable Lender) shall have determined (which determination shall be conclusive and binding upon Borrower) that: (1) Agent is unable through its customary general practices to determine any applicable Eurodollar Rate, or (2) by reason of circumstances affecting the applicable market, generally, Agent is not being offered deposits in United States dollars in such market, for the applicable Interest Period and in an amount equal to the amount of any applicable Eurodollar Rate Borrowing requested by Borrower, or (3) any applicable Eurodollar Rate will not adequately and fairly reflect the cost to any Lender of making and maintaining such Eurodollar Rate Borrowing hereunder for any proposed Interest Period, then Agent shall give Borrower notice thereof and thereupon, (A) any Rate Designation Notice previously given by Borrower designating the applicable Eurodollar Rate Borrowing which has not commenced as of the date of such notice from Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until Agent shall notify Borrower that the circumstances giving rise to such notice from Agent no longer exist, each Rate Designation 8 Notice requesting the applicable Eurodollar Rate shall be deemed a request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then outstanding shall be converted, without any notice to or from Borrower, upon the termination of the Interest Period then in effect with respect to it, to a Base Rate Borrowing. (d) Funding Losses. Borrower shall indemnify each Lender against and hold each Lender harmless from any Funding Loss. This agreement shall survive the payment of the Notes. A certificate as to any additional amounts payable pursuant to this paragraph submitted to Borrower shall be conclusive and binding upon Borrower, absent manifest error. 3. MISCELLANEOUS 3.1 Funding Offices; Adjustments Automatic; Calculation Year. Any Lender may, if it so elects, fulfill its obligation as to any Eurodollar Rate Borrowing by causing a branch or affiliate of such Lender to make such Loan and may transfer and carry such Loan at, to or for the account of any branch office or affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of Borrower to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it for the account of such branch or affiliate. Without notice to Borrower or any other person or entity, each rate required to be calculated or determined under this Agreement shall automatically fluctuate upward and downward in accordance with the provisions of this Agreement. Interest at the Prime Rate shall be computed on the basis of the actual number of days elapsed in a year consisting of 365 or 366 days, as the case may be. All other interest required to be calculated or determined under this Agreement shall be computed on the basis of the actual number of days elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, the applicable interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which accrued. 3.2 Funding Sources. Notwithstanding any provision of this Agreement to the contrary and each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Rate Borrowing during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. 3.3 Affected Lenders. In the event a Lender ("Affected Lender") shall have (i) delivered a notice pursuant to this Agreement claiming that such Affected Lender is unable to extend Eurodollar Rate Loans to Borrower for reasons not generally applicable to the other Lenders, or 9 (ii) shall have requested compensation from Borrower under any of the provisions hereof to recover increased costs incurred by such Affected Lender which are not being incurred generally by the other Lenders, then, in any such case, Borrower or Agent may make written demand on such Affected Lender (with a copy to Borrower in the case of a demand by Agent and with a copy to Agent in the case of a demand by Borrower) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed Assignment and Acceptances within five (5) Business Days after the date of such demand, to one or more assignees permitted under Section 11.6 of the Credit Agreement (each, an "Eligible Assignee") which Borrower or Agent, as the case may be, shall have engaged for such purpose, all of such Affected Lender's rights and obligations under the Credit Agreement (including, without limitation, its Revolving Loan Commitments, its Notes and all Loans owing to it, all Letters of Credit, and its obligation to participate in additional Letters of Credit thereunder) in accordance with Section 11.6 of the Credit Agreement. EXECUTED as of the 13th day of April, 1995. STERLING CHEMICALS, INC., a Delaware corporation By: /s/ Jim P. Wise ------------------------------------ Jim P. Wise, Vice President-Finance & Chief Financial Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By: /s/ Gregory R. Ford ------------------------------------ Gregory R. Ford, Vice President 10 RATE DESIGNATION NOTICE Sterling Chemicals, Inc., Texas Commerce Bank National Association, as Agent, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co- Agents, and certain financial institutions executed and delivered that certain Credit Agreement (as amended, supplemented and restated, the "Credit Agreement") dated as of April 13, 1995. Schedule 1 to the Credit Agreement is entitled the "Interest Rate Agreement". Any term used herein and not otherwise defined herein shall have the meaning herein ascribed to it in the Interest Rate Agreement. In accordance with the Interest Rate Agreement, Borrower hereby notifies Agent of the exercise of an Interest Option. A. Type of Loan The Loans with respect to which this Rate Designation Notice is being given are (check one): [____] Term Loans [____] Revolving Loans B. Current borrowings 1. Interest Options now in effect: _______________________ 2. Amounts: $_____________________ 3. Expiration of current Interest Periods, if applicable: _____________ C. Proposed election 1. Total Amount: $______________________ 2. Date Interest Option is to be effective: __________________________ 3. Interest Option to be applicable (check one): [ ] Base Rate [ ] Eurodollar Rate 4. Interest Period: ______ months (if available and if applicable) Borrower represents and warrants that the Interest Option and Interest Period selected above comply with all provisions of the Interest Rate Agreement. Date:_________________ STERLING CHEMICALS, INC., a Delaware corporation By:___________________________________ Name:_________________________________ Title:________________________________ EXHIBIT A EX-10.2(A) 3 EXHIBIT 10.2(A) Exhibit 10.2(a) GUARANTY (Parent) THIS GUARANTY ("Guaranty"), dated as of September 28, 1995, is executed and delivered by STERLING CHEMICALS, INC., a Delaware corporation ("Guarantor"), to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, acting in its capacity as agent (in such capacity, together with all successors in such capacity, "Agent") for the financial institutions (collectively, the "Lenders" and each a "Lender") which are now or hereafter become parties to that certain Credit Agreement (as amended, modified, restated and supplemented from time to time, the "Credit Agreement") of even date herewith, by and among the Borrower (as hereinafter defined), the Lenders and the Agent. ARTICLE 1 SECTION 1.1 Definitions. As used in this Guaranty, these terms shall have these respective meanings: Borrower means STERLING PULP CHEMICALS, LTD., a corporation organized under the laws of the Province of Ontario, Canada, and its successors, assigns, trustees and receivers. Debt means (a) all Indebtedness (principal, interest or other obligations and including withholding tax, environmental and other indemnity obligations) owed by Borrower evidenced by or arising pursuant to the Credit Agreement, the Notes and the Interest Rate Risk Agreement between Borrower and one or more of the Lenders (but no other Person), (b) the Interest Rate Risk Indebtedness to the extent, only, that it is owed to one or more Lenders by Borrower, and (c) all other Indebtedness (principal, interest or other) to any Lender or Agent incurred under or evidenced by the other Loan Documents. The Debt includes interest and other obligations accruing or arising after (a) commencement of any case under any bankruptcy or similar laws by or against any Obligor or (b) the obligations of any Obligor shall cease to exist by operation of law. The Debt also includes all reasonable attorneys' fees and any other expenses incurred by any Lender or Agent in enforcing any of the Loan Documents. Obligor means any Person now or hereafter primarily or secondarily obligated to pay all or any part of the Debt, including Borrower and Guarantor. Unless redefined in this Guaranty, capitalized terms used in this Guaranty have the respective meanings ascribed to them in the Credit Agreement. All principles of construction set forth in Section 1.2 of the Credit Agreement are incorporated herein by reference for all purposes. ARTICLE 2 SECTION 2.1 Execution of Loan Documents. Borrower has executed and delivered the Credit Agreement and the Notes to the Lenders, and the Debt is secured by the Liens created, evidenced or carried forward by the Loan Documents. SECTION 2.2 Consideration. In consideration of the credit and financial accommodations contemplated to be extended to Borrower by the Lenders pursuant to the Loan Documents or otherwise, which the Board of Directors of Guarantor has determined will substantially benefit Guarantor directly or indirectly, and for other good and valuable consideration, the receipt and sufficiency of which Guarantor hereby acknowledges, Guarantor executes and delivers this Guaranty to Agent on behalf of Lenders with the intention of being presently and legally bound by its terms. ARTICLE 3 SECTION 3.1 Payment Guaranty. Guarantor, as primary obligor and not as a surety, unconditionally guarantees to Agent on behalf of Lenders the full, prompt and punctual payment of the Debt when due (whether at its stated maturity, by acceleration or otherwise) in accordance with the Loan Documents. This Guaranty is irrevocable, unconditional and absolute, and if for any reason all or any portion of the Debt shall not be paid when due, Guarantor will immediately pay, upon demand made by Agent on Guarantor, all such Debt to Agent or other Person entitled to it, in Dollars, regardless of (a) any defense, right of set-off or counterclaim which any Obligor may have or assert, (b) whether any Lender or Agent or any other Person shall have taken any steps to enforce any rights against any Obligor or any other Person to collect any of the Debt and (c) any other circumstance, condition or contingency. SECTION 3.2 Obligations Not Affected. Guarantor's covenants, agreements and obligations under this Guaranty shall not in any way be released, diminished, reduced, impaired or otherwise affected by reason of the happening from time to time of any of the following things, for any reason, whether by voluntary act, operation of law or order of any competent Governmental Authority and whether or not Guarantor is given any notice or gives any consent (all requirements for which, however arising, Guarantor hereby WAIVES): (a) release or waiver of any obligation or duty to perform or observe any express or implied agreement, covenant, term or condition imposed in any of the Loan Documents (other than this Guaranty) or by applicable law on any Obligor or any party to the Loan Documents. (b) extension of the time for payment of any part of the Debt or any other sums payable under the Loan Documents (other than this Guaranty), extension of the time for performance of any other obligation under or arising out of or in connection with the Loan 2 Documents (other than this Guaranty) or change in the manner, place or other terms of such payment or performance. (c) settlement or compromise of any or all of the Debt. (d) renewal, supplementing, modification, rearrangement, amendment, restatement, replacement, cancellation, rescission, revocation or reinstatement (whether or not material) of any part of any of the Loan Documents or any obligations under the Loan Documents of any Obligor or any other party to the Loan Documents (without limiting the number of times any of the foregoing may occur). (e) acceleration of the time for payment or performance of any Debt or other obligation under any of the Loan Documents or exercise of any other right, privilege or remedy under or in regard to any of the Loan Documents. (f) failure, omission, delay, neglect, refusal or lack of diligence by any Lender or Agent or any other Person to assert, enforce, give notice of intent to exercise--or any other notice with respect to--or exercise any right, privilege, power or remedy conferred on any Lender or Agent or any other Person in any of the Loan Documents or by law or action on the part of any Lender or Agent or any other Person granting indulgence, grace, adjustment, forbearance or extension of any kind to any Obligor or any other Person. (g) release, surrender, exchange, subordination or loss of any Lien priority under any of the Loan Documents or in connection with the Debt. (h) release, modification or waiver of, or failure, omission, delay, neglect, refusal or lack of diligence to enforce, any guaranty (other than this Guaranty), pledge, mortgage, deed of trust, security agreement, lien, charge, insurance agreement, bond, letter of credit or other security device, guaranty, surety or indemnity agreement whatsoever, or any right, benefit, privilege or interest under any contract or agreement, under which the rights of any Obligor have been collaterally or absolutely assigned, or in which a Lien has been granted, to any Lender or Agent as direct or indirect security for payment of the Debt or performance of any other obligations to--or at any time held by--any Lender or Agent. (i) taking or acceptance of any other security or guaranty for the payment or performance of any or all of the Debt or the obligations of any Obligor. (j) voluntary or involuntary liquidation, dissolution, sale of any collateral, marshaling of assets and liabilities, change in corporate or organizational status, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt or other similar proceedings of or affecting any Obligor or any 3 of the assets of any Obligor, even if any of the Debt is thereby rendered void, unenforceable or uncollectible against any other Person. (k) occurrence or discovery of any irregularity, invalidity or unenforceability of any of the Debt or Loan Documents or any defect or deficiency in any of the Debt or Loan Documents, including the unenforceability of any provisions of any of the Loan Documents because entering into any such Loan Document was ultra vires or because anyone who executed them exceeded their authority. (l) failure to acquire, protect or perfect any Lien in any collateral intended by any Obligor and Agent to secure any part of the Debt or any other obligations under the Loan Documents or failure to maintain perfection. (m) occurrence of any event or circumstances which might otherwise constitute a defense available to, or a discharge of, any Obligor, including any defense to the obligation to reimburse each Lender for withholding tax obligations, failure of consideration, fraud by or affecting any Person, usury, forgery, breach of warranty, failure to satisfy any requirement of the statute of frauds, running of any statute of limitation, accord and satisfaction and any defense based on election of remedies of any type. (n) receipt and/or application of any proceeds, credits or recoveries from any source, including any proceeds, credits, or amounts realized from exercise of any rights, remedies, powers or privileges of any Lender or Agent under the Loan Documents, by law or otherwise available to any Lender or Agent. (o) occurrence of any act, error or omission of any Lender or Agent, except behavior which is proven to be in bad faith to the extent (but no further) that Guarantor cannot effectively waive the right to complain. (p) failure by any Lender or Agent or any other Person to notify--or timely noti-fy--Guarantor of any default, event of default or similar event (however denominated) under any of the Loan Documents or of the occurrence of any of the foregoing in this Section. None of the Lenders and Agent has any duty or obligation to give Guarantor any notice of any kind under any circumstances whatsoever with respect to or in connection with the Debt or the Loan Documents. .3 Waiver of Certain Rights and Notices. Guarantor hereby WAIVES and RELEASES all right to require marshalling of assets and liabilities, sale in inverse order of alienation, notice of acceptance of this Guaranty and of any liability to which it applies or may apply, notice of the creation, accrual, renewal, increase, extension, modification, amendment or rearrangement of any part of the Debt, presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of intent to accelerate, notice of acceleration and all other notices and demands, collection, suit and the taking of any other action by any Lender or Agent. 4 SECTION 3.4 Not a Collection Guaranty. This is an absolute guaranty of payment and not of collection, and Guarantor WAIVES any right to require that any action be brought against any Obligor or any other Person, or that any Lender or Agent be required to enforce, attempt to enforce or exhaust any rights, benefits or privileges of any Lender or Agent under any of the Loan Documents, by law or otherwise; provided that nothing herein shall be construed to prevent any Lender or Agent from exercising and enforcing at any time any right, benefit or privilege which any Lender or Agent may have under any Loan Document or by law from time to time, and at any time, and Guarantor agrees that its obligations hereunder are--and shall be--absolute, independent and unconditional under any and all circumstances. Should any Lender or Agent seek to enforce Guarantor's obligations by action in any court, Guarantor WAIVES any requirement, substantive or procedural, that (a) any Lender or Agent pursue any foreclosure action, realize or attempt to realize on any security or preserve or enforce any deficiency claim against any Obligor or any other Person after any such realization, (b) a judgment first be sought or rendered against any Obligor or any other Person, (c) any Obligor or any other Person be joined in such action or (d) a separate action be brought against any Obligor or any other Person. Guarantor's obligations under this Guaranty are several from those of any other Obligor or any other Person, and are primary obligations concerning which Guarantor is the principal obligor. All waivers in this Guaranty or any of the Loan Documents shall be without prejudice to any Lender or Agent at its option to proceed against any Obligor or any other Person, whether by separate action or by joinder. Guarantor agrees that this Guaranty shall not be discharged except by payment of the Debt in full, complete performance of all obligations of the Obligors under the Loan Documents and termination of each Lender's obligation--if any--to make any further advances under the Credit Agreement or extend other financial accommodations to any Obligor. SECTION 3.5 Subrogation. Guarantor agrees that it shall never be entitled to be subrogated to any of any Lender or Agent's rights against any Obligor or any other Person or any collateral or offset rights held by any Lender or Agent for payment of the Debt until final termination of this Guaranty. SECTION 3.6 Reliance on Guaranty. All extensions of credit and financial accommodations heretofore or hereafter made by Agent and Lenders under or in respect of the Credit Agreement or any of the other Loan Documents shall be conclusively presumed to have been made in acceptance of this Guaranty. SECTION 3.7 Joint and Several. If any other Person makes any guaranty of any of the obligations guaranteed hereby or gives any security for them, Guarantor's obligations hereunder shall be joint and several with the obligations of such other Person. SECTION 3.8 Payments Returned. Guarantor agrees that, if at any time all or any part of any payment previously applied by any Lender or Agent to the Debt is or must be returned by any Lender or Agent--or recovered from any Lender or Agent-- for any reason (including the order of any bankruptcy court), this Guaranty shall automatically be reinstated to the same effect as if the prior 5 application had not been made, and, in addition, Guarantor hereby agrees to indemnify the Lenders and Agent against, and to save and hold the Lenders and Agent harmless from any required return by any Lender or Agent--or recovery from any Lender or Agent--of any such payment because of its being deemed preferential under applicable bankruptcy, receivership or insolvency laws, or for any other reason. ARTICLE 4 Guarantor warrants and represents as follows: SECTION 4.1 Relationship to Borrower. Guarantor's board of directors has determined that the liability and obligation under this Guaranty may reasonably be expected to substantially benefit Guarantor directly or indirectly. Guarantor has had full and complete access to the Loan Documents and all other papers executed by any Obligor in connection with the Debt, has reviewed them and is fully aware of the meaning and effect of their contents. Guarantor is fully informed of all circumstances which bear upon the risks of executing this Guaranty and which a diligent inquiry would reveal. Guarantor has adequate means to obtain from Borrower on a continuing basis information concern-ing Borrower's financial condition, and is not depending on any Lender or Agent to provide such information, now or in the future. Guarantor agrees that no Lender or Agent shall have any obligation to advise or notify Guarantor or to provide Guarantor with any data or information. The execution and delivery of this Guaranty is not a condition precedent (and no Lender or Agent has in any way implied that the execution of this Guaranty is a condition precedent) to any Lender's or Agent's making, extending or modifying any loan to Guarantor or to any other financial accommodation to or for Guarantor. SECTION 4.2 Guarantor Solvent. Guarantor is now solvent, and no bankruptcy or insolvency proceedings are pending or contemplated by or--to the best of its knowledge--against it. ARTICLE 5 SECTION 5.1 Term; Survival. Subject to the automatic reinstatement provisions of Article 3 above, this Guaranty shall terminate and be of no further force or effect upon full payment of the Debt, complete performance of all of the obligations of the Obligors under the Loan Documents and final termination of every Lender's obligation--if any--to make any further advances under the Credit Agreement or to provide any other financial accommodations in connection with or arising out of the Debt to any Obligor. The representations, covenants and agreements set forth in this Guaranty shall continue and survive until final termination of this Guaranty. 6 ARTICLE 6 SECTION 6.1 Binding on Successors; No Assignment by Guarantor. All guaranties, warranties, representations, covenants and agreements in this Guaranty shall bind the heirs, devisees, executors, administrators, personal representatives, trustees, beneficiaries, conservators, receivers, successors and assigns of Guarantor and shall benefit Lenders and Agent, their respective successors and assigns, and any holder of any part of the Debt. Guarantor shall not assign or delegate any of its obligations under this Guaranty or any of the Loan Documents without express prior written consent of the Majority Lenders. SECTION 6.2 Subordination of Borrower's Obligations to Guarantor. Guarantor agrees that if, for any reason whatsoever, Borrower now or hereafter owes any Indebtedness, directly or indirectly, to Guarantor or any other Obligor, all such Indebtedness, together with all interest thereon and fees and other charges in connection therewith, and all Liens shall at all times, be second, subordinate and inferior in right of payment, in Lien priority and in all other respects to the Debt and all Liens securing the Debt or any part thereof. SECTION 6.3 Acknowledgment of Terms of Credit Agreement Binding Upon Guarantor. Guarantor acknowledges and agrees to the covenants, agreements, representations, warranties and other provisions of the Credit Agreement which refer to Guarantor, and, further, agrees that whenever the Credit Agreement refers to the knowledge of Borrower it shall also mean and include to the knowledge of Guarantor. SECTION 6.4 Waiver of Suretyship Rights. By signing this Guaranty, Guarantor WAIVES each and every right to which it may be entitled by virtue of any suretyship law, including any rights it may have pursuant to Rule 31 of the Texas Rules of Civil Procedure, (s)17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as the same may be amended from time to time. SECTION 6.5 Notices. Any notices or other communications required or permitted to be given hereunder shall be given, made and received in the manner provided in Section 11.2 of the Credit Agreement; provided, that with respect to Guarantor, any such notices or other communications shall be sent to it at the "Address for Notices" specified below its name on the signature page hereof or at such other address as shall be designated by such recipient in a notice to the other parties hereto given in accordance with this Section. SECTION 6.6 Amendments in Writing. This Guaranty may not be changed orally but shall be changed only by agreement in writing signed by Guarantor and Agent. Any waiver or consent with respect to this Guaranty shall be effective only in the specific instance and for the specific purpose for which given. No course of dealing between the parties, no usage of trade and no parole or extrinsic 7 evidence of any nature shall be used to supplement or modify any of the terms or provisions of this Guaranty. SECTION 6.7 Gender; "Including" is Not Limiting; Section Headings. The masculine and neuter genders used in this Guaranty each includes the masculine, feminine and neuter genders, and the singular number includes the plural where appropriate, and vice versa. Wherever the term "including" or a similar term is used in this Guaranty, it shall be read as if it were written "including by way of example only and without in any way limiting the generality of the clause or concept referred to." The headings used in this Guaranty are included for reference only and shall not be considered in interpreting, applying or enforcing this Guaranty. SECTION 6.8 Venue. This Guaranty is performable in Harris County, Texas, which shall be a proper place of venue for suit on or in respect of this Guaranty. Guarantor irrevocably agrees that any legal proceeding in respect of this Guaranty shall be brought in the district courts of Harris County, Texas or the United States District Court for the Southern District of Texas, Houston Division (collectively, the "Specified Courts"). Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts of the State of Texas. Guarantor hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to any Loan Document brought in any Specified Court, and hereby further irrevocably waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Guarantor further irrevocably consents to the service of process out of any of the Specified Courts in any such suit, action or proceeding by the mailing of copies thereof by certified mail, return receipt requested, postage prepaid, to it at its address as provided in this Guaranty or as otherwise provided by Texas law. Nothing herein shall affect the right of any Lender or Agent to commence legal proceedings or otherwise proceed against Guarantor in any jurisdiction or to serve process in any manner permitted by applicable law. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. SECTION 6.9 Rights Cumulative; Delay Not Waiver. Any Lender's or Agent's exercise of any right, benefit or privilege under any of the Loan Documents or at law or in equity shall not preclude the concurrent or subsequent exercise of any other present or future rights, benefits or privileges of any Lender or Agent. The remedies provided in this Guaranty are cumulative and not exclusive of any remedies provided by law or the Loan Documents. No failure by any Lender or Agent to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof. SECTION 6.10 Severability. If any provision of this Guaranty is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining 8 provisions of this Guaranty shall not be affected thereby, and this Guaranty shall be liberally construed so as to carry out the intent of the parties to it. Each waiver in this Guaranty is subject to the overriding and controlling rule that it shall be effective only if and to the extent that (a) it is not prohibited by applicable law and (b) applicable law neither provides for nor allows any material sanctions to be imposed against any Lender or Agent for having bargained for and obtained it. SECTION 6.11 Entire Agreement. This Guaranty embodies the entire agreement and understanding among Guarantor, Lenders and Agent with respect to its subject matter and supersedes all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Guarantor acknowledges and agrees that there is no oral agreement between Guarantor and any Lender or Agent which has not been incorporated in this Guaranty. SECTION 6.12 Offset Rights. Agent and each Lender is hereby authorized at any time and from time to time, without notice to any Person (and Guarantor hereby WAIVES any such notice) to the fullest extent permitted by law, to set-off and apply any and all monies, securities and other properties of Guarantor now or in the future in the possession, custody or control of Agent or any Lender, or on deposit with or otherwise owed to Guarantor by Agent or any Lender--including all such monies, securities and other properties held in general, special, time, demand, provisional or final accounts or for safekeeping or as collateral or otherwise but excluding those accounts clearly designated as escrow or trust accounts held by Guarantor for a Person which is not an Affiliate of Guarantor-- against any and all of Guarantor's obligations to Agent and each Lender now or hereafter existing under this Guaranty, irrespective of whether Agent or any Lender shall have made any demand under this Guaranty. Agent and Lenders agree to use reasonable efforts to promptly notify Guarantor after any such set-off and application with respect to Guarantor, provided that failure to give--or delay in giving--any such notice shall not affect the validity of such set-off and application or impose any liability on Agent or any Lender. Agent and Lenders' rights under this Section are in addition to other rights and remedies (including other rights of set-off) which Agent or any Lender may have. SECTION 6.13 Usury Not Intended; Savings Provisions. Notwithstanding any provision to the contrary contained in any Loan Document, it is expressly provided that in no case or event shall the aggregate of any amounts accrued or paid pursuant to this Guaranty which under applicable laws are or may be deemed to constitute interest ever exceed the maximum nonusurious interest rate permitted by applicable Texas or federal laws, whichever permit the higher rate. In this connection, Guarantor and Agent on behalf of Lenders stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable usury laws. In furtherance thereof, none of the terms of this Guaranty shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the maximum rate permitted by applicable laws. Guarantor shall never be liable for interest in excess of the maximum rate permitted by applicable laws. If, for any reason whatever, such interest paid or received during the full term of the applicable indebtedness produces a rate which exceeds the maximum rate permitted by applicable laws, Lenders shall credit against the principal of such 9 indebtedness (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid to produce a rate equal to the maximum rate permitted by applicable laws. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the applicable indebtedness, so that the interest rate is uniform throughout the full term of such indebtedness. The provisions of this Section shall control all agreements under the Loan Documents, whether now or hereafter existing and whether written or oral, among Guarantor and any Lender or Agent. SECTION 6.14 Parent Credit Facility. Guarantor shall not permit any "Event of Default" to occur under the Parent Credit Facility. THIS GUARANTY is executed as of the date first above written. STERLING CHEMICALS, INC., a Delaware corporation By: /s/ Jim P. Wise ---------------------------------------- Jim P. Wise, Vice President-Finance and Chief Financial Officer "Address for Notices" 1200 Smith Street, Suite 1900 Houston, Texas 77002 10 EX-10.2(B) 4 EXHIBIT 10.2(B) EXHIBIT 10.2(b) FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and entered into as of September 28, 1995 by and among STERLING CHEMICALS, INC., a Delaware corporation (the "Borrower"); each of the banks which is or may from time to time become a party to the Credit Agreement (as defined below) (individually, a "Bank" and, collectively, the "Banks"), THE BANK OF NOVA SCOTIA, as Documentation Agent (in such capacity, together with its successors in such capacity, the "Documentation Agent"), ABN AMRO BANK N.V., HOUSTON AGENCY, BANK OF SCOTLAND and CREDIT LYONNAIS, NEW YORK BRANCH, as Co-Agents (in such capacity, together with its successors in such capacity, collectively called the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, acting as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks, the Co-Agents, the Documentation Agent and the Agent executed and delivered that certain Credit Agreement dated as of April 13, 1995 (the "Credit Agreement"). Any capitalized term used in this Amendment and not otherwise defined shall have the meaning ascribed to it in the Credit Agreement. B. The Borrower, the Banks, the Co-Agents, the Documentation Agent and the Agent desire to amend the Credit Agreement in certain respects. NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations and warranties herein set forth, and further good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Banks, the Co-Agents, the Documentation Agent and the Agent do hereby agree as follows: 1. Amendments. (1) The definition of "Capital Expenditures" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: Capital Expenditures shall mean expenditures in respect of fixed or capital assets by a Person, to the extent capitalized in accordance with GAAP, but excluding (a) expenditures for the restoration, repair or replacement of any fixed or capital asset which was destroyed or damaged, in whole or in part, to the extent financed by the proceeds of an insurance policy maintained by such Person, (b) increases in the consolidated fixed or capital assets of such Person resulting solely from Permitted Acquisitions (other than expenditures made after the date of such Permitted Acquisition), (c) increases in the capital assets of such Person resulting from expenditures in respect of fixed or capital assets made by another so long as such Person has no obligation to reimburse the other for such expenditures and (d) the Plant Work (as defined in the Pulp Credit Facility). Expenditures in respect of replacements and maintenance consistent with the business practices of such Person in respect of plant facilities, machinery, fixtures and other like capital assets utilized in the ordinary course of business are not Capital Expenditures to the extent such expenditures are not capitalized in preparing a balance sheet of such Person in accordance with GAAP. (2) The reference to "royalty" in clause (v) of the definition of "EBITDA" set forth in Section 1.1 of the Credit Agreement is hereby deleted. (3) The reference to ", Sterling Pulp (US)" and "dated concurrently herewith" in the definition of "Guaranties" set forth in Section 1.1 of the Credit Agreement is hereby deleted. (4) Clause (h) of the definition of "Permitted Investments" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: (h) loan participations with a rating of not less than A-2 and P-2 (or, in the case of investments maintained in the Cash Flow Account (as defined in the Pulp Credit Facility), A-1 and P-1) (or the equivalent rating) by Moody's Investors Service, Inc. and Standard and Poor's Corporation, respectively; (5) New clauses (j) and (k) are hereby added to the definition of "Permitted Investments" set forth in Section 1.1 of the Credit Agreement, reading in their entirety as follows (with the existing clauses (j) and (k) to be restyled as clauses (l) and (m), respectively): (j) the Bonds (as defined in the Pulp Credit Facility); (k) investments maintained in the Cash Flow Account (as defined in the Pulp Credit Facility) in publicly traded securities rated BB+ or better by Standard & Poor's Corporation or Ba1 or better by Moody's Investors Service, Inc. (6) A sentence is hereby added to the end of the definition of "Permitted Investments" set forth in Section 1.1 of the Credit Agreement, reading in its entirety as follows: Amounts in the Cash Flow Account may not be invested in the items described in clauses (f) or (l) above. (7) A new definition of "Pulp Credit Facility" is hereby added to Section 1.1 of the Credit Agreement, reading in its entirety as follows: Pulp Credit Facility shall mean that certain Credit Agreement dated as of September 28, 1995 executed by and among Sterling Pulp Chemicals, Ltd., TCB, as Agent, and the lenders party thereto, as the same may from time to time be amended, restated or supplemented. 2 (8) The reference to ", Sterling Pulp (US)" and "dated as of the Effective Date" in clause (iii) of the definition of "Security Agreements" set forth in Section 1.1 of the Credit Agreement is hereby deleted. (9) The definition of "Subordinated Debt" set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows: Subordinated Debt shall mean, as of the date of determination thereof, unsecured Indebtedness with any lender for which the Borrower is directly and primarily liable, in respect of which none of its Subsidiaries is contingently or otherwise obligated, and which is subordinated to the obligations of the Borrower to pay principal of and interest (before and after bankruptcy) on the Loans and the Notes and on any Interest Rate Risk Indebtedness owed to any of the Lenders, on terms, and which contains other terms (including interest, amortization and financial covenants), in form and substance satisfactory to the Agent and the Majority Lenders. (10) Clause (c) of Section 6.3 of the Credit Agreement is hereby amended to read in its entirety as follows: (c) do not and will not contravene or violate any Legal Requirement applicable to the Parties or the Organizational Documents of the Parties, the contravention or violation of which could reasonably be expected to cause a Material Adverse Effect. (11) Section 8.1 of the Credit Agreement is hereby amended to read in its entirety as follows: 8.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Borrowed Money Indebtedness (as defined below), whether direct, indirect, absolute, contingent or otherwise, except the following: (a) the Obligations; (b) the liabilities existing on the date of this Agreement and disclosed on Schedule 8.1 hereto and all renewals, extensions and replacements (but not increases) of any of the foregoing; (c) Indebtedness under the Canadian Facility and all renewals, extensions and replacements (but not increases) thereof; (d) purchase money Indebtedness to acquire Equipment not exceeding, in the aggregate, $10,000,000 outstanding at any one time; (e) in addition to Indebtedness permitted under the preceding clause (d), non-recourse Indebtedness in an aggregate amount not to exceed $60,000,000 at any one time outstanding incurred by Subsidiaries of the Borrower which is payable solely by recourse to Properties which are not included in the Borrowing Base or in the "Collateral" under the Pulp Credit Facility and which are acquired or constructed by such Subsidiary after the date hereof; (f) Subordinated Debt so long as the net proceeds of such Subordinated Debt are applied in payment of the Term Loans or "Loans" under the Pulp Credit Facility or, if no Term Loans or "Loans" under the Pulp Credit Facility remain outstanding, so long as the Revolving Loan Commitments or the "Loan Commitments" under the Pulp Credit Facility are reduced by an amount equal to the net proceeds of such Subordinated Debt; 3 (g) Interest Rate Risk Indebtedness, together with "Interest Rate Risk Indebtedness" as defined in the Pulp Credit Facility; (h) insurance premiums financed with the applicable insurance carrier; (i) Indebtedness under the Bond Documents (as defined in the Pulp Credit Facility) and Indebtedness under (or permitted under) the Pulp Credit Facility, but only so long as the Agent is the "Agent" under the Pulp Credit Facility and the Lenders hold "Loans" and/or "Loan Commitments" under the Pulp Credit Facility in amounts sufficient to constitute "Majority Lenders" under the Pulp Credit Facility, and (j) other Borrowed Money Indebtedness not in excess of $30,000,000 in the aggregate outstanding at any time on terms no more restrictive than the terms provided herein. For purposes of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of such Person's business), (e) all Capital Lease Obligations, (f) all obligations of others of the types specified in clauses (a) through (e) above secured by any lien on property or assets owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) Interest Rate Risk Indebtedness, together with "Interest Rate Risk Indebtedness" as defined in the Pulp Credit Facility, (h) all outstanding letters of credit issued for the account of such Person and (i) all guarantees of such Person of obligations of the type referred to in the foregoing clauses (a) through (h). (12) Section 8.2 of the Credit Agreement is hereby amended to read in its entirety as follows: 8.2 Liens. Create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its Accounts; provided, however, that the Borrower or any of its Subsidiaries may create or suffer to exist: (a) Liens in favor of the Agent or any Lender under the Loan Documents, including, without limitation, Liens securing Interest Rate Risk Indebtedness owed to one or more of the Lenders (but not to any Person which is not, at such time, a Lender); (b) Liens in effect on the Effective Date and disclosed on Schedule 8.2 hereto, provided that neither the Indebtedness secured thereby nor the Property covered thereby shall increase after the Effective Date; (c) Liens securing the Canadian Facility but only on assets of the Canadian Subsidiaries; (d) Liens securing purchase money Indebtedness permitted under Section 8.1(d) hereof and covering only the Property so purchased and the proceeds therefrom and Liens permitted under Section 8.1(e) hereof covering Properties acquired or constructed after the date hereof and the proceeds therefrom; (e) normal encumbrances and restrictions on title which do not secure Borrowed Money Indebtedness and which do not have a material adverse effect on the value or utility of the applicable Property; (f) Liens incurred or deposits made in the ordinary course of 4 business (i) in connection with workmen's compensation, unemployment insurance, social security and other like laws, (ii) to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts, leases, licenses, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business, not, in any of the cases specified in this clause (ii), incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, or (iii) on deposits made in financial institutions in the ordinary course of business as a result of common law and statutory rights of setoff and depositary agreements and other contractual arrangements (other than Borrowed Money Indebtedness) arising in the ordinary course of business; (g) attachments, judgments and other similar Liens arising in connection with the court proceedings, provided that the execution and enforcement of such Liens are effectively stayed and the claims secured thereby are being actively contested in good faith with adequate reserves made therefor in accordance with GAAP; (h) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (i) Liens for taxes which are not yet due or are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (j) Liens or rights under insurance policies securing Indebtedness permitted under Section 8.1(h); (k) Liens securing or otherwise permitted under the Pulp Credit Facility to the extent required under the present terms and provisions of the Pulp Credit Facility, without amendment except as approved (or consented to pursuant to the proviso to Section 8.13 hereof) by the Majority Lenders (wherever consent by the "Majority Lenders" under the Pulp Credit Facility is required) or by all of the Lenders (wherever consent by all of the "Lenders" under the Pulp Credit Facility is required), but only so long as the Agent is the "Agent" under the Pulp Credit Facility and the Lenders hold "Loans" and/or "Loan Commitments" under the Pulp Credit Facility in amounts sufficient to constitute "Majority Lenders" under the Pulp Credit Facility, and (l) extensions, renewals and replacements of Liens referred to in clauses (a) through (j) of this Section; provided that any such extension, renewal or replacement Lien shall be limited to the Property or assets covered by the Lien extended, renewed or replaced and that the Indebtedness secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the Indebtedness secured by the Lien extended, renewed or replaced. (13) The reference to "Loan Document" set forth in Section 8.4 of the Credit Agreement is hereby amended to read "Loan Document and each 'Loan Document' under the Pulp Credit Facility". (14) A new sentence is hereby added to the end of Section 8.7 of the Credit Agreement, reading in its entirety as follows: 5 The Key Plant Contracts (as defined in the Pulp Credit Facility) shall not result in a violation of this provision. (15) The reference to ", Sterling Pulp (US)" in Section 8.9 of the Credit Agreement is hereby deleted and the references to "Credit Document" and "Credit Documents" set forth in the indented portion of Section 8.9 are hereby amended to read "Loan Document" and "Loan Documents", respectively. (16) The last sentence of Section 8.12 is hereby deleted in its entirety. (17) A new Section 8.13 is hereby added to the Credit Agreement, reading in its entirety as follows: 8.13 Pulp Credit Facility. Amend, modify or obtain or grant a waiver of any material provision of the Pulp Credit Facility unless the same shall be consented to in writing by the Majority Lenders (wherever consent by the "Majority Lenders" under the Pulp Credit Facility is required) or by all of the Lenders (wherever consent by all of the "Lenders" under the Pulp Credit Facility is required) (such consent not to be unreasonably withheld); provided, however, that execution of, or written consent to, any such amendment, modification or waiver of any material provision of the Pulp Credit Facility by a particular Lender shall evidence the consent by such Lender required under this Section. (18) Clause (m) of Section 9.1 of the Credit Agreement is hereby amended to read in its entirety as follows: (m) Change of Control - there shall occur any Change of Control without the written consent of the Majority Lenders; or (19) A new clause (n) is hereby added to Section 9.1 of the Credit Agreement, reading in its entirety as follows: (n) Pulp Credit Facility - the occurrence of an "Event of Default" under the Pulp Credit Facility. (20) The following proviso is hereby added to the end of the second sentence of Section 11.5 of the Credit Agreement: ; provided, however, that execution of, or written consent to, any amendment, modification or waiver of a particular provision of the Pulp Credit Facility by a particular Lender shall evidence the consent by such Lender required under this Section with respect to an amendment, modification or waiver of the identical provision contained in this Agreement and/or the Loan Documents, without the necessity for any further action hereunder or under the Loan Documents 6 (21) Clause (i) of Section 11.6(b) of the Credit Agreement is hereby amended to read in its entirety as follows: (i) the aggregate amount of the Revolving Loan Commitments and the Term Loans of the assigning Lender subject to each such assignment shall in no event be less than $10,000,000, each such assignment shall be in a constant and not varying percentage of all such assigning Lender's rights and obligations under the Loan Documents and each Lender hereunder shall also be a "Lender" under the Pulp Credit Facility; (22) Clause (ii) of Section 11.6(c) of the Credit Agreement is hereby amended to read in its entirety as follows: (ii) such Lender assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any other Party or the performance or observance by the Borrower or any other Party of any of its obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto; (23) The reference to "Section 11.14" set forth in Section 11.6(f) of the Credit Agreement is hereby amended to read "Section 11.15". (24) The reference to "Commitments" set forth in Section 11.15 of the Credit Agreement is hereby amended to read "Revolving Loan Commitment". (25) Each reference to "the Debt to EBITDA Ratio" set forth in clause (b) of the definition of "Margin Percentage" set forth in the Interest Rate Agreement attached to the Credit Agreement as Schedule 1 is hereby amended to read "the Debt to EBITDA Ratio for the Borrower (on a consolidated basis). 2. Ratification. Except as expressly amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect. None of the rights, title and interests existing and to exist under the Credit Agreement are hereby released, diminished or impaired, and the Borrower hereby reaffirms all covenants, representations and warranties in the Credit Agreement or any other Loan Document. 3. Expenses. The Borrower shall pay to the Agent all reasonable fees and expenses of its legal counsel (pursuant to Section 11.3 of the Credit Agreement) incurred in connection with the execution of this Amendment. 4. Miscellaneous. This Amendment (a) shall be binding upon and inure to the benefit of the Borrower, the Banks, the Co-Agents, the Documentation Agent and the Agent and their respective successors, assigns, receivers and trustees; (b) may be modified or amended only by a writing signed by each party; (c) shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America; (d) may be executed in several counterparts by the parties hereto on separate counterparts, and each counterpart, when 7 so executed and delivered shall constitute an original agreement, and all such separate counterparts shall constitute but one and the same agreement, and (e) together with the other Loan Documents, embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter. The headings herein shall be accorded no significance in interpreting this Amendment. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE (S)26.02 THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR SUBSTANTIALLY CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the Borrower, the Banks, the Co-Agents, the Documentation Agent and the Agent have caused this Amendment to be signed by their respective, duly authorized officers, effective as of the date first above written. STERLING CHEMICALS, INC., a Delaware corporation By: /s/ Jim P. Wise _________________________________________ Jim P. Wise, Vice President-Finance & Chief Financial Officer TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Gregory R. Ford _________________________________________ Gregory R. Ford, Vice President 8 THE BANK OF NOVA SCOTIA By: /s/ F.C.H. Ashby ______________________________________ Name: F.C.H. Ashby ______________________________________ Title: Senior Manager Loan Operations ______________________________________ 9 ABN AMRO BANK N.V., HOUSTON AGENCY By: /s/ Kenneth S. Womack ______________________________________ Name: Kenneth S. Womack ______________________________________ Title: Assistant V.P. ______________________________________ By: /s/ Michael N. Oakes ______________________________________ Name: Michael N. Oakes ______________________________________ Title: V.P. ______________________________________ 10 BANK OF SCOTLAND By: /s/ Elizabeth Wilson ______________________________________ Name: Elizabeth Wilson ______________________________________ Title: V.P. and Branch Manager ______________________________________ 11 CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Xavier Ratous ______________________________________ Name: Xavier Ratous ______________________________________ Title: Sr. V.P. ______________________________________ 12 BANQUE PARIBAS HOUSTON AGENCY By: /s/ Christopher S. Goodwin ______________________________________ Name: Christopher S. Goodwin ______________________________________ Title: V.P. ______________________________________ By: /s/ Cheryl Johnson ______________________________________ Name: Cheryl Johnson ______________________________________ Title: Assistant V.P. ______________________________________ 13 FIRST INTERSTATE BANK OF TEXAS, N.A. By: /s/ Ann Rhoads ______________________________________ Name: Ann Rhoads ______________________________________ Title: V.P. ______________________________________ 14 THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By: /s/ John J. Sullivan ______________________________________ Name: John J. Sullivan ______________________________________ Title: Joint General Manager ______________________________________ 15 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Dixon P. Schultz ______________________________________ Name: Dixon P. Schultz ______________________________________ Title: V.P. ______________________________________ 16 SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ James R. Shelton ______________________________________ Name: James R. Shelton ______________________________________ Title: V.P. ______________________________________ 17 HIBERNIA NATIONAL BANK By: /s/ Colleen Smith ______________________________________ Name: Colleen Smith ______________________________________ Title: Assistant V.P. ______________________________________ 18 COMERICA BANK By: /s/ Bradley A. Terryn ______________________________________ Name: Bradley A. Terryn ______________________________________ Title: V.P. ______________________________________ 19 CIBC, INC. By: /s/ Gary C. Gaskill ______________________________________ Name: Gary C. Gaskill ______________________________________ Title: V.P. ______________________________________ 20 NATIONAL BANK OF CANADA By: /s/ David L. Schreiber ______________________________________ Name: David L. Schreiber ______________________________________ Title: Assistant V.P. ______________________________________ By: /s/ William Handley ______________________________________ Name: William Handley ______________________________________ Title: V.P. ______________________________________ 21 The undersigned hereby consent to execution by STERLING CHEMICALS, INC. of the foregoing First Amendment to Credit Agreement, confirms that the Loan Documents executed by the undersigned apply and shall continue to apply to the Credit Agreement, as amended by the foregoing First Amendment to Credit Agreement and acknowledges that without such consent and confirmation, the Agent and the Banks would not execute the foregoing First Amendment to Credit Agreement. STERLING CHEMICALS INTERNATIONAL, INC., a Delaware corporation By: /s/ Jim P. Wise _________________________________________ Jim P. Wise, Vice President STERLING CHEMICALS MARKETING, INC., a U.S. Virgin Islands corporation By: /s/ Jim P. Wise _________________________________________ Jim P. Wise, Vice President STERLING CANADA, INC., a Delaware corporation By: /s/ Jim P. Wise _________________________________________ Jim P. Wise, Vice President-Finance & Treasurer 22 STERLING PULP CHEMICALS US, INC., a Delaware corporation By: /s/ Jim P. Wise ______________________________________ Name: Jim P. Wise ______________________________________ Title: Vice President - Finance & Treasurer ______________________________________ 23 EX-10.3 5 EXHIBIT 10.3 Exhibit 10.3 CREDIT AGREEMENT ($60,000,000 ADVANCE TERM LOAN FACILITY) DATED AS OF SEPTEMBER 28, 1995 AMONG STERLING PULP CHEMICALS, LTD., AS BORROWER; TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS AGENT AND AS A LENDER; AND THE OTHER LENDERS NOW OR HEREAFTER PARTIES HERETO TABLE OF CONTENTS
Page ---- 1. Definitions........................................................... 1 1.1 Certain Defined Terms........................................... 1 1.2 Miscellaneous................................................... 16 2. Commitments and Loans................................................. 16 2.1 Loans........................................................... 16 2.2 Terminations or Reductions of Loan Commitments.................. 16 2.3 Fees............................................................ 17 2.4 Several Obligations............................................. 17 2.5 Notes........................................................... 17 2.6 Use of Proceeds................................................. 18 3. Borrowings, Payments and Prepayments.................................. 18 3.1 Borrowings...................................................... 18 3.2 Payments; Prepayments........................................... 18 4. Payments; Pro Rata Treatment; Computations, Etc. ..................... 20 4.1 Payments........................................................ 20 4.2 Pro Rata Treatment.............................................. 21 4.3 Certain Actions, Notices, Etc. ................................. 21 4.4 Non-Receipt of Funds by the Agent............................... 21 4.5 Sharing of Payments, Etc. ...................................... 22 5. Conditions Precedent.................................................. 22 5.1 Initial Loans................................................... 22 5.2 All Loans....................................................... 24 6. Representations and Warranties........................................ 25 6.1 Organization.................................................... 25 6.2 Financial Statements............................................ 25 6.3 Enforceable Obligations; Authorization.......................... 25 6.4 Other Borrowed Money Indebtedness............................... 25 6.5 Litigation...................................................... 26 6.6 Taxes........................................................... 26 6.7 Regulations G, U and X.......................................... 26 6.8 Subsidiaries.................................................... 26 6.9 No Untrue or Misleading Statements.............................. 26 6.10 ERISA........................................................... 26 6.11 Investment Company Act.......................................... 27
6.12 Public Utility Holding Company Act.............................. 27 6.13 Solvency........................................................ 27 6.14 Compliance...................................................... 27 6.15 Environmental Matters........................................... 27 6.16 Certain Representations Regarding the Plant Work................ 27 7. Affirmative Covenants................................................. 28 7.1 Taxes, Existence, Regulations, Property, Etc. .................. 28 7.2 Financial Statements and Information............................ 28 7.3 Financial Tests................................................. 29 7.4 Inspection...................................................... 29 7.5 Further Assurances.............................................. 30 7.6 Books and Records............................................... 30 7.7 Insurance....................................................... 30 7.8 Notice of Certain Matters....................................... 30 7.9 Interest Rate Risk.............................................. 31 7.10 Capital Adequacy................................................ 31 7.11 ERISA Information and Compliance................................ 31 7.12 Certain Affirmative Covenants Relating to the Plant Work........ 32 7.13 Satisfaction of Conditions Precedent............................ 32 7.14 Pledge of Bonds................................................. 33 7.15 Third Party Obligations......................................... 33 8. Negative Covenants.................................................... 33 8.1 Indebtedness.................................................... 33 8.2 Liens........................................................... 34 8.3 Contingent Liabilities.......................................... 35 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets...................................................... 35 8.5 Redemption, Dividends and Distributions......................... 36 8.6 Nature of Business.............................................. 36 8.7 Transactions with Affiliates.................................... 36 8.8 Loans and Investments........................................... 36 8.9 No Subsidiaries................................................. 36 8.10 BP Lease........................................................ 36 8.11 Fiscal Year..................................................... 36 8.12 Sterling Energy................................................. 37 8.13 Parent Credit Facility.......................................... 37 8.14 Key Plant Contracts............................................. 37 8.15 Revisions....................................................... 37 8.16 Third Party Obligations......................................... 37 9. Defaults.............................................................. 38 9.1 Events of Default............................................... 38
ii 9.2 Right of Setoff................................................. 41 9.3 Remedies Cumulative............................................. 42 10. The Agent............................................................. 42 10.1 Appointment, Powers and Immunities.............................. 42 10.2 Reliance........................................................ 43 10.3 Defaults........................................................ 43 10.4 Rights as a Lender.............................................. 44 10.5 Indemnification................................................. 44 10.6 Non-Reliance on Agent and Other Lenders......................... 44 10.7 Failure to Act.................................................. 45 10.8 Resignation or Removal of Agent................................. 45 10.9 No Partnership.................................................. 45 11. Miscellaneous......................................................... 46 11.1 Waiver.......................................................... 46 11.2 Notices......................................................... 46 11.3 Expenses, Etc. ................................................. 46 11.4 Indemnification................................................. 47 11.5 Amendments, Etc. ............................................... 47 11.6 Successors and Assigns.......................................... 48 11.7 Limitation of Interest.......................................... 51 11.8 Survival........................................................ 52 11.9 Captions........................................................ 52 11.10 Counterparts.................................................... 52 11.11 Governing Law................................................... 52 11.12 Severability.................................................... 52 11.13 Tax Forms....................................................... 52 11.14 Venue........................................................... 53 11.15 Confidentiality................................................. 53 11.16 Permitted Transfer to a US Subsidiary........................... 53 11.17 Canadian Taxes.................................................. 54
EXHIBITS A -- Request for Extension of Credit B -- Subsidiaries C -- Note D -- Assignment and Acceptance E -- Compliance Certificate F -- Plant Land iii SCHEDULES 1 -- Interest Rate Agreement 6.10 -- ERISA Matters 8.1 -- Borrowed Money Indebtedness 8.2 -- Liens 8.3 -- Contingent Liabilities 8.8 -- Existing Investments iv CREDIT AGREEMENT THIS CREDIT AGREEMENT is made and entered into as of September 28, 1995 (the "Effective Date"), by and among STERLING PULP CHEMICALS, LTD., a corporation organized under the laws of the Province of Ontario, Canada (the "Borrower"); each of the lenders which is or may from time to time become a party hereto (individually, a "Lender" and, collectively, the "Lenders"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "Agent"). The parties hereto agree as follows: 1. Definitions. 1.1 Certain Defined Terms. Unless a particular term, word or phrase is otherwise defined or the context otherwise requires, capitalized terms, words and phrases used herein or in the Loan Documents (as hereinafter defined) have the following meanings (all definitions that are defined in this Agreement in the singular to have the same meanings when used in the plural and vice versa): Accounts, Equipment, General Intangibles and Inventory shall have the respective meanings assigned to them in the Texas Business and Commerce Code in force on the Effective Date. Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the ratio of (a) EBITDA for the Rolling Four Quarters as of such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for such Rolling Four Quarters. Adjusted Fixed Charges shall mean (without duplication), for any period and with respect to any Person, (a) Fixed Charges for such period plus (b) any dividends on any equity interests in such Person of any class (except dividends payable solely in shares of common stock) paid during such period. Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation. Agreement shall mean this Credit Agreement, as it may from time to time be amended, modified, restated or supplemented. Amortization Fraction shall mean a fraction, the numerator of which is equal to the amount by which the aggregate principal amount of the Loans made through the Termination Date exceeds $50,000,000 and the denominator of which is equal to $10,000,000. Annual Audited Financial Statements shall mean the annual consolidated financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows for such fiscal year, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with GAAP, and accompanied by a report and opinion of Coopers & Lybrand or other independent certified public accountants reasonably satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with GAAP. Such statements shall be accompanied by a certificate of such accountants that in making the appropriate examination in connection with such report and opinion, such accountants did not become aware of any Default relating to the financial tests set forth in Section 7.3 hereof or, if in the opinion of such accountants any such Default exists, a description of the nature and status thereof. Assignment and Acceptance shall have the meaning ascribed to such term in Section 11.6 hereof. Authority shall mean Valdosta-Lowndes County Industrial Authority. Bankruptcy Code shall mean the United States Bankruptcy Code, as amended, and any successor statute. Bond Documents shall mean documentation, in Proper Form, relating to the issuance of industrial development revenue bonds by the Authority in an aggregate principal amount not exceeding $60,000,000, including without limitation the Bonds and the Facilities Development Agreement, as the same may from time to time be amended, restated or supplemented. Bond Owner shall mean a limited liability company to be formed, of which 99% of the membership interests are to be owned by the Borrower and 1% of the membership interests are to be owned by Sterling Canada. Bonds shall mean the bonds issued pursuant to the Bond Documents. Borrowed Money Indebtedness shall have the meaning ascribed to it in Section 8.1 hereof. 2 BP shall mean BP Chemicals Americas, Inc., a Delaware corporation, and its successors. BP Lease shall mean that certain Amended and Restated Lease and Production Agreement dated August 8, 1994, executed by and between BP Chemicals, Inc. and the Parent, as the same may from time to time be amended, modified, restated or supplemented. Budget shall mean the budget heretofore delivered to the Agent reflecting all costs of all labor and materials required to complete the Plant Work, together with all updates, if any, reflecting material changes thereto. Business Day shall mean any day other than a day on which commercial banks are authorized or required to close in Houston, Texas or in New York City, New York. Canadian Facility shall mean that certain Credit Agreement dated April 28, 1995 executed by and between the Borrower and The Bank of Nova Scotia, as the same may be amended, restated or supplemented. The unpaid principal balance of the Canadian Facility, together with the aggregate face amount of letters of credit issued under the Canadian Facility, shall not exceed Canadian $20,000,000. Canadian Subsidiary shall mean any Subsidiary of the Parent which is organized and exists under the laws of Canada or any province thereof. Capital Expenditures shall mean expenditures in respect of fixed or capital assets by a Person, to the extent capitalized in accordance with GAAP, but excluding (a) expenditures for the restoration, repair or replacement of any fixed or capital asset which was destroyed or damaged, in whole or in part, to the extent financed by the proceeds of an insurance policy maintained by such Person, (b) increases in the consolidated fixed or capital assets of such Person resulting solely from Permitted Acquisitions (other than expenditures made after the date of such Permitted Acquisition), (c) increases in the capital assets of such Person resulting from expenditures in respect of fixed or capital assets made by another so long as such Person has no obligation to reimburse the other for such expenditures and (d) the Plant Work. Expenditures in respect of replacements and maintenance consistent with the business practices of such Person in respect of plant facilities, machinery, fixtures and other like capital assets utilized in the ordinary course of business are not Capital Expenditures to the extent such expenditures are not capitalized in preparing a balance sheet of such Person in accordance with GAAP. Capital Lease Obligations shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board, as amended) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 3 13). Capital Lease Obligations shall not include the interest component of any applicable rental payment. Cash Flow shall mean, without duplication, for any period, (a) Net Income of the Plant Owner plus (b) depreciation and depletion and other non-cash charges deducted in determining Net Income of the Plant Owner plus (c) interest accrued and paid on the Bonds minus (d) non-cash income, all determined in accordance with GAAP. Cash Flow Account shall mean an account established by the Borrower at a financial institution reasonably acceptable to the Agent in which Excess Cash Flow is to be deposited. The depository documentation relating to the Cash Flow Account shall be in Proper Form. Ceiling Rate shall have the meaning assigned to it in the Interest Rate Agreement. Change of Control shall mean a change resulting when any Unrelated Person or any Unrelated Persons acting together which would constitute a Group together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own more than 50% of the aggregate voting power of all classes of Voting Stock of the Parent or (ii) succeed in having sufficient of its or their nominees elected to the Board of Directors of the Parent such that such nominees, when added to any existing director remaining on the Board of Directors of the Parent after such election who is an Affiliate or Related Person of such Person or Group, shall constitute a majority of the Board of Directors of the Parent. As used herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person other than the Parent or any of its Subsidiaries and other than any trust for any employee benefit plan of the Parent or any of its Subsidiaries; (d) "Related Person" of any Person shall mean any other Person owning (1) 5% or more of the outstanding common stock of such Person or (2) 5% or more of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. Code shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service. 4 Collateral shall mean all Property, tangible or intangible, real, personal or mixed, now or hereafter subject to the Security Documents. Compliance Certificate shall have the meaning given to it in Section 7.2 hereof. Completion Date shall mean the date on which the Agent shall have received the Evidence of Completion. Contractor shall mean each Person (other than a design professional) entering into any agreement directly with the Plant Owner relating to such Person's performance of the Plant Work or any part thereof. Contribution Agreement shall mean that certain Contribution Agreement dated concurrently herewith executed by and among the Parent and the other Parties, as the same may be amended, modified, supplemented and restated--and joined in pursuant to a joinder agreement--from time to time. Controlled Group shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Parent, are treated as a single employer under Section 414 of the Code. Corporation shall mean a corporation, limited liability company, partnership, joint venture, joint stock association, business trust and other business entity. Current Assets shall mean all assets of a Person which under GAAP would be classified as current assets. Current Liabilities shall mean all liabilities of a Person which under GAAP would be classified as current liabilities, other than current maturities of long term debt. Current Ratio means, as of any day, the ratio of Current Assets to Current Liabilities. Debt to EBITDA Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) the outstanding balance of Borrowed Money Indebtedness on such date to (b) EBITDA for the Rolling Four Quarters ending on such date. Default shall mean an Event of Default or an event which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. Dollars and $ shall mean lawful money of the United States of America. EBITDA shall mean, without duplication, for any period the sum of (a) Net Income less non-cash income and (b) the sum of (i) Interest Expense for such period, (ii) Federal, state and 5 local income taxes deducted in determining such Net Income, (iii) amortization of goodwill and other non-cash expenses and intangibles (including, without limitation, patents, deferred financing costs and debt discount) deducted in determining such Net Income, (iv) depreciation, depletion and obsolescence of Property, in each case, determined in accordance with GAAP and (v) prepaid income to the extent actually paid in cash. Electrical Agreement shall mean that certain Agreement for Electrical Service dated as of July 31, 1995 executed by and among Colquitt Electric Membership Corporation, Oglethorpe Power Corporation (An Electric Generation & Transmission Corporation) and Sterling Pulp (US) (and assigned or to be assigned by Sterling Pulp (US) to the Plant Owner), as the same may be amended, restated or supplemented. Environmental Claim shall mean any third party (including Governmental Authorities) action, lawsuit, claim or proceeding (including claims or proceedings at common law) which seeks to impose liability for (i) noise; (ii) pollution or contamination of the air, surface water, ground water or land or the clean up of such pollution or contamination; (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) the manufacture, processing, distribution in commerce or use of Hazardous Substances. An "Environmental Claim" includes, but is not limited to, a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit. Environmental Liabilities includes all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including but not limited to: remedial, removal, response, abatement, investigative, monitoring, personal injury and damage to property or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, reissuance or renewal of any Environmental Permit including reasonable attorneys' fees and court costs. Environmental Permit means any permit, license, approval or other authorization under any applicable Requirements of Environmental Law. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. Event of Default shall have the meaning assigned to it in Section 9 hereof. Evidence of Completion shall mean a certificate from the Plant Owner certifying that the Plant Work has been completed and the Plant is operating. Excess Cash Flow shall mean, for any period, the product of (I) Cash Flow minus the sum of (a) current maturities of Capital Lease Obligations of the Plant Owner, (b) principal 6 payments and prepayments of the Obligations, (c) unreimbursed costs incurred by the Plant Owner in connection with the Plant Work in accordance with this Agreement, (d) other Capital Expenditures by the Plant Owner after the Completion Date not to exceed $5,000,000 in the aggregate in any fiscal year and (e) $5,000,000 for any period from the Effective Date through and including September 30, 1997 (but from and after October 1, 1997, no deduction shall be made under this clause (e) in calculating Excess Cash Flow) multiplied by (II) eighty percent (80%). Facilities Development Agreement shall mean a document, in Proper Form, executed or to be executed by and between the Authority and the Plant Owner, relating to the construction of the Plant. Federal Funds Rate shall have the meaning assigned to it in the Interest Rate Agreement. Financing Statements shall mean all such Uniform Commercial Code financing statements as the Agent shall require, in Proper Form, duly executed by the Borrower, the Plant Owner, the Authority or others to give notice of and to perfect or continue perfection of the Agent's Liens in all Collateral, as any of the foregoing may from time to time be amended, modified, supplemented or restated. Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Fixed Charges for such Rolling Four Quarters. Fixed Charges shall mean (without duplication), for any period, (a) the amounts of scheduled principal payments made or to be made during such period with respect to Borrowed Money Indebtedness (other than Capital Lease Obligations) of the applicable Person (it is agreed that such scheduled principal payments do not include any principal payments made to reduce any revolving Indebtedness), plus (b) payments made or required to be made during such period with respect to the principal component of the Capital Lease Obligations of the applicable Person with unrelated third parties, plus (c) the amount of Interest Expense for such period, plus (d) Capital Expenditures made during such period. GAAP shall mean generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the September 30, 1994 audited financial statements of the Parent delivered to the Lenders together with the notes thereto. Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any central bank, agency, department, commission, board, bureau, court or other tribunal 7 having jurisdiction over the Agent, any Lender, the Borrower, the Bond Owner, the Plant Owner, the Parent or any of the Parent's Subsidiaries or their respective Property. Guaranties shall mean that certain Guaranty dated concurrently herewith executed by the Parent, together with any other guaranties hereafter executed with respect to the Obligations, as any of the same may from time to time be amended, modified, restated or supplemented. Hazardous Substance shall mean petroleum products, and any hazardous or toxic waste or substance defined or regulated as such from time to time by any law, rule, regulation or order described in the definition of "Requirements of Environmental Law". Indebtedness shall mean and include (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits); (b) all guaranties, letter of credit contingent reimbursement obligations, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed; provided, that the term "Indebtedness" shall not mean or include any Indebtedness of the type described in clause (a) of this definition in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to the Agent in trust for the payment thereof. Interest Expense shall mean, for any period, the sum of the interest payments by an obligor made or accrued in accordance with GAAP during such period in connection with all of its Borrowed Money Indebtedness, including the interest component of any Capital Lease Obligations. Interest Rate Agreement shall mean the Interest Rate Agreement attached hereto as Schedule 1, as it may from time to time be amended, modified, restated or supplemented. Interest Rate Risk Agreement shall mean an interest rate swap agreement, interest rate cap agreement or similar arrangement entered into between the Borrower and one or more financial institutions for the purpose of reducing Borrower's exposure to interest rate risk and not for speculative purposes, as it may from time to time be amended, modified, restated or supplemented from time to time. Interest Rate Risk Indebtedness shall mean all obligations and Indebtedness of the Borrower with respect to the program for the hedging of interest rate risk provided for in any Interest Rate Risk Agreement. 8 Investment shall mean the purchase or other acquisition of any securities or Indebtedness of, or the making of any loan, advance, or other extension of credit or capital contribution to (by means of transfers of property or assets or otherwise) any Person. Key Plant Contracts shall mean the Electrical Agreement and the Bond Documents. Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, whether presently existing or arising in the future. Lending Percentage shall mean, as to any Lender, the percentage equivalent of a fraction the numerator of which is the sum of the Loans made by such Lender plus the amount of such Lender's remaining Loan Commitment and the denominator of which is the sum of the aggregate Loans made by all Lenders plus the aggregate amount of the remaining Loan Commitments of all Lenders. Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien of any kind, whether based on common law, constitutional provision, statute or contract to secure payment of debt or performance of an obligation. Loans shall mean the loans provided for by Section 2.1 hereof. Loan Commitment shall mean, as to any Lender, the unused obligation, if any, of such Lender to make Loans in an aggregate principal amount up to (but not exceeding) the amount, if any, set forth opposite such Lender's name on the signature pages hereof under the caption "Loan Commitment," or otherwise provided for in an Assignment and Acceptance Agreement (as the same may be reduced from time to time pursuant to Section 2.2 hereof). Loan Documents shall mean, collectively, this Agreement, the Notes, the Interest Rate Agreement, the Guaranties, the Contribution Agreement, the Security Documents, the Notice of Entire Agreement, all instruments, certificates and agreements now or hereafter executed by any Party and delivered to, and for the benefit of, the Agent or any Lender in connection with the Obligations or any commitment regarding the Obligations, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. Majority Lenders shall mean Lenders having greater than 60% of the aggregate amount of Loans outstanding plus the remaining Loan Commitments outstanding. Material Adverse Effect shall mean a material adverse effect on the business, financial condition, operations or Properties of the Parent and its Subsidiaries, taken as a whole, or on 9 the ability of any of them to perform their respective material obligations under any Loan Document to which any of them is a party. Maturity Date shall mean the maturity of the Notes, September 30, 2002, as the same may hereafter be accelerated pursuant to the provisions of any of the Loan Documents. Maximum Payment Cap shall mean the aggregate of the Payment Cap of each Loan. The "Payment Cap" of each Loan shall be equal to twenty-five percent (25%) of the original principal amount of such Loan less all principal payments and prepayments deemed to have theretofore been made on such Loan in accordance with the provisions of clause (iv) below; provided, however, (i) on October 1, 2001, the "Payment Cap" of each Loan made prior to October 1, 1996 shall be increased by an amount equal to seventy-five percent of the original principal amount thereof; (ii) on the date which is five (5) calendar years plus one (1) Business Day from the date of drawdown of any Loan made on or after October 1, 1996, the "Payment Cap" of each such Loan shall be increased by an amount equal to seventy-five percent (75%) of the original principal amount thereof; (iii) on the date (if any) that a Subsidiary of Parent organized in the United States is substituted as the "Borrower" hereunder as provided for in Section 11.16 hereof, the "Maximum Payment Cap" shall automatically, without the need for notice to any Person, be amended to equal the entire aggregate unpaid principal balance of the Loans; (iv) notwithstanding any other provision hereof and for all purposes under this Agreement, principal payments and prepayments shall be applied to Loans in the order in which such Loans were advanced, up to the Payment Cap of each such Loan (i.e if application of any such principal payment or prepayment to a particular Loan would exceed the Payment Cap of any such Loan, the excess shall be applied to the other Loans up to the Payment Cap of each such Loan in the order in which such Loans were advanced); and (v) payments received concurrently shall be aggregated for purposes of clause (iv) and for purposes of the calculation of the Maximum Payment Cap. Mortgaged Property shall mean all Property of any Party, whether now existing or hereafter acquired, which is subject to the Lien of the Mortgage. Mortgage shall mean, collectively, a Deed to Secure Debt and Security Agreement, in Proper Form, executed or to be executed by the Authority and the Plant Owner in favor of the 10 Agent, covering and affecting the Property described on Exhibit F hereto, and all improvements, appurtenances and personal property related thereto, and also covering the interests of the Plant Owner under the Electrical Agreement and Facilities Development Agreement, as the same may from time to time be amended, modified, restated or supplemented. Net Income shall mean, for any Person and any period, the consolidated net income of such Person for such period after taxes but before extraordinary items, determined in accordance with GAAP. Net Worth shall mean net worth determined in accordance with GAAP. Notes shall mean the promissory notes of the Borrower evidencing the Loans, substantially in the form of Exhibit C hereto, together with all renewals, extensions, modifications and replacements thereof and substitutions therefor. Notice of Entire Agreement shall mean a notice of entire agreement, in Proper Form, executed by the Borrower, the Plant Owner, the Parent, the Agent and each other Party, as the same may from time to time be amended, modified, supplemented or restated. Obligations shall mean, as at any date of determination thereof, the sum (without duplication) of the following: (i) the aggregate principal amount of Loans outstanding hereunder plus (ii) all other liabilities, obligations and indebtedness of any Party under any Loan Document. Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof. Parent shall mean Sterling Chemicals, Inc., a Delaware corporation. Parent Credit Facility shall mean that certain Credit Agreement dated as of April 13, 1995 executed by and among the Parent, TCB, as Agent, The Bank of Nova Scotia, as Documentation Agent, and ABN AMRO Bank, N.V., Houston Agency, Bank of Scotland, and Credit Lyonnais, New York Branch, as Co-Agents, and the lenders party thereto, as the same may from time to time be amended, restated or supplemented. Parties shall mean the Borrower, the Plant Owner, the Bond Owner, the Parent and each Subsidiary of the Parent executing a Loan Document. 11 Past Due Rate shall mean, on any day, a rate per annum equal to the lesser of (i) the Ceiling Rate for that day or (ii) the Base Rate (as defined in the Interest Rate Agreement) plus two percent (2%). PBGC shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. Permitted Acquisitions shall mean non-hostile acquisitions of all or substantially all of the assets, or 50% or more of the voting securities, of any Person (or any division or product line of such Person), but only so long as no Default or Event of Default shall have occurred and be continuing (or would result from such acquisition). Permitted Dividends shall mean an amount not to exceed 50% of Net Income of the Parent for the immediately preceding Rolling Four Quarters which may, so long as no Default or Event of Default shall have occurred and be continuing (or would result from such distribution) and so long as the Adjusted Fixed Charge Coverage Ratio for the Parent and its Subsidiaries is not (and would not be, after giving effect to such distribution) less than 1.10 to 1.00, be distributed by the Parent so long as the Parent has delivered to the Agent a Compliance Certificate calculated after giving effect to the proposed distribution which indicates that such distribution complies with the terms of this Agreement. Permitted Investments shall mean: (a) certificates of deposit maturing within 90 days of the acquisition thereof and issued by a bank or trust company organized under the laws of the United States of America or a State thereof, having combined capital and surplus of at least $250,000,000 and which has (or which is a Subsidiary of a bank holding company which has) publicly traded debt securities rated A or higher by Standard and Poor's Corporation and A-2 or higher by Moody's Investors Service, Inc.; (b) obligations issued or guaranteed by the United States of America; (c) commercial paper with a published rating of not less than A-2 and P-2 (or the equivalent rating); (d) repurchase obligations for underlying securities of the type described in clauses (a), (b) or (c) above entered into on a fully collateralized basis with any Lender; (e) dollar denominated time deposits with, including certificates of deposit issued by, any non-United States branch or office of any Lender; (f) Permitted Acquisitions; (g) securities (other than those securities described in clauses (a) through (e) of this definition) of money market mutual funds with net assets in excess of $100,000,000, provided that the investment amounts in securities described in this clause (g) may not exceed 5% of the issued and outstanding securities of any Person (or such lesser percentage as would constitute a controlling interest), irrespective of whether such securities having voting power or may be convertible to securities with voting power of any Person; (h) loan participations with a rating of not less than A-2 and P-2 (or, in the case of investments maintained in the Cash Flow Account, A-1 and P-1) (or the equivalent rating) by Moody's Investors Service, Inc. and Standard and Poor's Corporation, respectively; (i) money market preferred stock with a rating of not less than AAA (or the equivalent rating); (j) the Bonds; (k) investments maintained in the Cash Flow Account in publicly traded securities rated BB+ or better by Standard & Poor's Corporation or Ba1 or 12 better by Moody's Investors Service, Inc.; (l) other investments approved by Agent in writing not exceeding, in the aggregate, $20,000,000, and (m) other investments approved by the Majority Lenders in writing. Amounts in the Cash Flow Account may not be invested in the items described in clauses (f) or (l) above. Person shall mean any individual, Corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. Plan shall mean an employee pension benefit plan (as such term is defined in Section 3(2) of ERISA) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code or Section 302 of ERISA and (a) which is maintained by the Parent or any member of the Controlled Group for employees of the Parent or any member of the Controlled Group or (b) as to which the Parent or any member of the Controlled Group may have any liability. Plans and Specifications shall mean written plans, proposals and drawings for the Plant Work heretofore delivered to the Agent, together with all updates, if any, reflecting material changes thereto. Plant shall mean, collectively, the Plant Land and the Plant Improvements. Plant Contract shall mean any contract or agreement now or hereafter entered into between the Plant Owner and any Contractor relating to the Plant Work. Plant Improvements shall mean all improvements now or hereafter situated on the Plant Land. Plant Land shall mean the real property described on Exhibit F attached hereto. Plant Owner shall mean an entity to be formed or acquired, all of the equity interests in which will be owned by Sterling Pulp (US), and which will own a leasehold interest in and to the Plant under a lease to be entered into with the Authority, in Proper Form. Plant Work shall mean all work required to complete and equip the Plant in accordance with the Plans and Specifications. Principal Office shall mean the principal office of the Agent, presently located at 712 Main Street, Houston, Harris County, Texas 77002. Proper Form shall mean in form and substance reasonably satisfactory to the Agent. Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. 13 Quarterly Dates shall mean the first day of each April, July, October and January, provided that if any such date is not a Business Day, then the relevant Quarterly Date shall be the next succeeding Business Day. Quarterly Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of a fiscal quarter and an income statement and a statement of changes in financial position for such fiscal quarter and for the fiscal year to date, subject to normal adjustments, all setting forth in comparative form the corresponding figures for the corresponding calendar quarter of the preceding year, prepared in accordance with GAAP and certified as true and correct to the best of his knowledge by the chief financial officer or other authorized officer of such Person. Regulatory Change shall mean with respect to any Lender, any change after the date of this Agreement in any Legal Requirement (including, without limitation, Regulation D) or the adoption or making on or after such date of any interpretation, directive or request applying to a class of financial institutions including such Lender under any Legal Requirements (whether or not having the force of law) by any Governmental Authority. Request for Extension of Credit shall mean a request for extension of credit duly executed by the chief executive officer, chief financial officer or treasurer of the Borrower (or other Person designated in writing by any of the foregoing to whom authority has been properly delegated), appropriately completed and substantially in the form of Exhibit A attached hereto. Requirements of Environmental Law shall mean all requirements imposed by any law (including for example and without limitation The Comprehensive Environmental Response, Compensation, and Liability Act), rule, regulation, or order of any federal, state or local executive, legislative, judicial, regulatory or administrative agency, board or authority at the applicable time which relate to (i) noise; (ii) pollution, protection or clean up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) regulation of the manufacture, processing, distribution in commerce, use, discharge or storage of Hazardous Substances. Rolling Four Quarters shall mean, as of any day, the then most recently ended four (4) fiscal quarter period of the Parent. Scheduled Completion Date shall mean June 30, 1997. Secretary's Certificate shall mean a certificate, in Proper Form, of the Secretary or an Assistant Secretary of a corporation as to (a) the resolutions of the Board of Directors of such corporation authorizing the execution, delivery and performance of the documents to be executed by such corporation; (b) the incumbency and signatures of the officers of such corporation 14 executing such documents on behalf of such corporation, and (c) the Organizational Documents of such corporation. Security Agreements shall mean, collectively, the Security Agreements executed or to be executed, in Proper Form, in favor of the Agent covering the Bonds and the Cash Flow Account, as any of them may from time to time be amended, modified, restated or supplemented. Security Documents shall mean, collectively, the Mortgage, the Security Agreements, and any and all other security documentation now or hereafter executed and delivered by the Authority or any Party to the Agent, as any of them may from time to time be amended, modified, restated or supplemented. Sterling Canada shall mean Sterling Canada, Inc., a Delaware corporation and a wholly-owned Subsidiary of the Parent. Sterling Energy shall mean Sterling Chemicals Energy, Inc., a Delaware corporation. Sterling Pulp (US) shall mean Sterling Pulp Chemicals US, Inc., a Delaware corporation. Subcontractor shall mean any Person who furnishes labor or materials for the Plant to fulfill an obligation to a Contractor or to another Subcontractor to perform all or part of the work required by a Plant Contract. Subordinated Debt shall mean, as of the date of determination thereof, unsecured Indebtedness with any lender for which the Parent is directly and primarily liable, in respect of which none of its Subsidiaries is contingently or otherwise obligated, and which is subordinated to the obligations of the Parent to pay principal of and interest (before and after bankruptcy) on the Loans and the Notes and on any Interest Rate Risk Indebtedness owed to any of the Lenders, on terms, and which contains other terms (including interest, amortization and financial covenants), in form and substance satisfactory to the Agent and the Majority Lenders. Subsidiary shall mean, as to a particular parent Corporation, any Corporation of which more than 50% of the indicia of equity rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent Corporation. Survey shall mean a current survey of the applicable portion of the Mortgaged Properties by a state-licensed surveyor who is reasonably acceptable to the Agent and to the Title Company, which shall contain the surveyor's certificate that the survey satisfies the standards and tolerances of a "Class A Survey" currently prescribed by the ALTA and ACSM. Termination Date shall mean the earlier of (a) September 30, 1997 or (b) the date specified by the Agent in accordance with Section 9.1 hereof. 15 Texas Credit Code shall mean Title 79, Texas Revised Civil Statutes, 1925, as amended. Title Company shall mean a title insurance company reasonably acceptable to the Agent and the Borrower. Title Insurance Policies shall mean a policy of title insurance, in Proper Form, in a face amount reasonably satisfactory to the Agent, issued in favor of the Agent by the Title Company and insuring that title to the Mortgaged Properties is vested in the Authority, free and clear of any Lien, objection, exception or requirement other than those securing the Bonds or that could otherwise be reasonably expected to materially affect the operation of the Plant, and that the Mortgage creates a valid first and prior lien in favor of the Agent on all the Mortgaged Properties affected by the Mortgage, subject only to such exceptions as may be approved in writing by the Agent, together with any endorsements thereto reasonably requested by the Agent. Said policy shall contain a complete and accurate description of the Mortgage, shall specify the recording and filing information applicable to it and shall describe the Mortgaged Properties identically to the description thereof in the Mortgage. Unfunded Vested Liabilities shall mean, with respect to any Plan, at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Parent or any member of the Controlled Group to the PBGC or such Plan under Title IV of ERISA. Welfare Plan shall mean a "welfare plan," as such term is defined in Section 3(1) of ERISA. 1.2 Miscellaneous. The words "hereof," "herein," and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement. 2. Commitments and Loans. 2.1 Loans. Each Lender severally agrees, subject to all of the terms and conditions of this Agreement (including, without limitation, Sections 5.1 and 5.2 hereof), to make Loans to the Borrower from time to time prior to the Termination Date in an aggregate principal amount up to but not exceeding such Lender's Loan Commitment. 2.2 Terminations or Reductions of Loan Commitments. (a) Mandatory. Each Loan Commitment shall be automatically reduced by the amount of any Loan made by the applicable Lender. On September 30, 1996, the aggregate of all remaining Loan Commitments shall be reduced by the amount, if any, by which such 16 aggregate amount exceeds $10,000,000. On the Termination Date, all Loan Commitments shall be terminated in their entirety. (b) Optional. The Borrower shall have the right to terminate or reduce the unused portion of the Loan Commitments at any time or from time to time, provided that (i) the Borrower shall give notice of each such termination or reduction to the Agent as provided in Section 4.3 hereof and (ii) each such partial reduction shall be in an aggregate amount of at least $1,000,000. (c) No Reinstatement. Any termination or reduction of the Loan Commitments may not be reinstated without the written approval of the Agent and the Lenders. 2.3 Fees. (a) The Borrower shall pay to the Agent for the account of each Lender commitment fees with respect to such Lender's Loan Commitment for the period from the Effective Date to and including the Termination Date at a rate per annum equal to 0.25%. Such commitment fees shall be computed (on the basis of the actual number of days elapsed in a year composed of 360 days) on each day and shall be based on the amount of such Lender's Loan Commitment for such day. Accrued commitment fees payable under this provision shall be payable in arrears on the Quarterly Dates prior to the Termination Date and on the Termination Date. (b) All past due fees payable under this Section shall bear interest at the Past Due Rate. 2.4 Several Obligations. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither the Agent nor any Lender shall be responsible or liable for the failure of any other Lender to make a Loan to be made by such other Lender. Notwithstanding anything contained herein to the contrary, if a Lender fails to make a Loan as and when required hereunder, then upon each subsequent event which would otherwise result in funds being paid to the defaulting Lender, the amount which would have been paid to the defaulting Lender shall be divided among the non-defaulting Lenders ratably according to their respective Lending Percentages until the aggregate principal amount of Loans outstanding hereunder made by each Lender (including the defaulting Lender) are equal to such Lender's Lending Percentage of the aggregate principal amount of Loans outstanding hereunder made by all Lenders (nothing in this Section shall result in any additional liability on the Borrower and each Lender agrees to make such adjustments on the terms and provisions of its Note as may be required to address the results of this Section). 2.5 Notes. The Loans made by each Lender shall be evidenced by a single Note of the Borrower payable to the order of such Lender in a principal amount equal to the initial Loan Commitment of such Lender, and otherwise duly completed. Each Lender is hereby authorized 17 by the Borrower to endorse on the schedule (or a continuation thereof) that may be attached to each Note of such Lender, to the extent applicable, the date, amount, type of and the applicable period of interest for each Loan made by such Lender to the Borrower hereunder, and the amount of each payment or prepayment of principal of such Loan received by such Lender, provided, that any failure by such Lender to make any such endorsement (or any error in such endorsement) shall not affect the obligations of the Borrower under such Note or hereunder in respect of such Loan. 2.6 Use of Proceeds. The proceeds of the Loans shall be used by the Borrower to provide funds to the Bond Owner for the purchase of Bonds or to pay, or cause to be paid, on behalf of the Authority, costs (or reimbursement of costs) of the Plant Work and for no other purpose, and upon the Agent's request, the Borrower shall furnish evidence of items which have been paid by the proceeds of any applicable Loan. 3. Borrowings, Payments and Prepayments. 3.1 Borrowings. The Borrower shall give the Agent notice of each borrowing to be made hereunder as provided in Section 4.3 hereof. Not later than 12:00 noon Houston time on the date specified for each such borrowing hereunder, each Lender shall make available the amount of the Loan, if any, to be made by it on such date to the Agent, at its Principal Office, in immediately available funds, for the account of the Borrower. Such amounts received by the Agent will be held in an account maintained by the Borrower with the Agent. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by wiring or otherwise transferring, in immediately available funds, such amount to an account designated by the Borrower and maintained with Agent in Houston, Texas. 3.2 Payments; Prepayments. (a) Optional Prepayments. Subject to the terms of the Interest Rate Agreement, the Borrower shall have the right to prepay, on any Business Day, in whole or in part, without the payment of any penalty or fee, Loans at any time or from time to time, provided that the Borrower shall give the Agent notice of each such prepayment as provided in Section 4.3 hereof. Each optional prepayment on a Loan shall be in an amount at least equal to the lesser of $1,000,000 or the unpaid principal balance of the Note evidencing such Loan. Without limiting the foregoing, the Borrower may, at any time, apply all or any part of the funds held in the Cash Flow Account in prepayment on the Loans. (b) Certain Mandatory Prepayments. (1) Insurance Proceeds and Condemnation Awards. Promptly following the receipt thereof by the Parent or any of its Subsidiaries, the Borrower shall deposit or cause to be deposited in the Cash Flow Account all of the net cash proceeds of any 18 payment or award in excess of $250,000 made to the Parent or any of its Subsidiaries under any policy of property insurance covering any of the Mortgaged Properties or pursuant to any condemnation award with respect to any such properties. Upon delivery to the Agent of written certification by the Borrower that the Borrower or any of its Subsidiaries has reasonably expended amounts or committed in writing to expend amounts for the restoration or replacement of the Mortgaged Properties, specifying the amount expended or committed, so long as no Default or Event of Default shall have occurred and be continuing any such amount deposited in the Cash Flow Account shall be released to the Borrower; provided, however, that, in the event that within 90 days of receipt of such payment or award, to the extent the Borrower shall not have certified to the Agent its intention to expend an equivalent amount for the restoration or replacement of the asset in respect of which such payment or award was made, the Borrower shall make a prepayment on the Loans (using any funds deposited in the Cash Flow Account pursuant to this Section 3.2(b)(1) or other funds) in the amount of the excess of the amount of such payment or award over the amount of such expenditures and/or commitment on such 90th day; provided, however, that if such excess is greater than the Maximum Payment Cap, only the Maximum Payment Cap shall be so applied, with the balance to be deposited in the Cash Flow Account. (2) Excess Cash Flow. Not later than five (5) Business Days after the delivery of the Annual Audited Financial Statements pursuant to Section 7.2 hereof with respect to each fiscal year of the Parent (commencing with the fiscal year ending on September 30, 1997), an amount equal to Excess Cash Flow for such fiscal year shall, at the option of the Borrower, be deposited in the Cash Flow Account or be applied in prepayment of the Loans. (3) Cash Flow Account. On each Quarterly Date, all amounts held in the Cash Flow Account shall be applied in prepayment on the Loans; provided, however, that if such amount is greater than the Maximum Payment Cap, only the Maximum Payment Cap shall be so applied, with the balance to be retained in the Cash Flow Account (income accruing on amounts and investments held in the Cash Flow Account may be distributed to the Borrower so long as no Event of Default has occurred). (c) Application of Prepayments on Loans. Any prepayments made on the Loans will be applied (i) first, pro rata to the scheduled principal installments due on October 1, 2001, January 1, 2002, April 1, 2002 and July 1, 2002, until one- half (1/2) of the aggregate amount of such scheduled principal installments shall have been paid and (ii) thereafter, to the scheduled principal installments on the Loans in inverse order of their maturities. (d) Loan Amortization. The principal of each Note shall be due and payable in quarterly installments due on each Quarterly Date, beginning on October 1, 1997, equal to the applicable Lender's pro rata share of the Loans times (i) for each Quarterly Date through and including July 1, 1998, the sum of $781,250 plus the product of $625,000 times the 19 Amortization Fraction, (ii) for the Quarterly Date on October 1, 1998 and for each Quarterly Date thereafter through and including July 1, 2001, $781,250, and (iii) for the Quarterly Date on October 1, 2001 and for each Quarterly Date thereafter through and including July 1, 2002, $9,375,000; provided, however, that if the payment required under the foregoing provisions of this sentence exceed the Maximum Payment Cap, only the Maximum Payment Cap shall be applied to the Loans, with the balance to be either applied in prepayment of the Loans or deposited in the Cash Flow Account, at the option of the Borrower. On the Maturity Date, the entire unpaid principal balance of each Note and all accrued and unpaid interest on the unpaid principal balance of each Note shall be finally due and payable. (e) Interest Payments. Accrued and unpaid interest on the unpaid principal balance of the Notes shall be due and payable on the Interest Payment Dates (as defined in the Interest Rate Agreement). (f) Payments; Interest Rate Agreement. The Borrower shall pay all amounts required to be paid under the Interest Rate Agreement, the Notes and the other Loan Documents as and when due. 4. Payments; Pro Rata Treatment; Computations, Etc. 4.1 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be paid by the Borrower hereunder, under the Notes and under the other Loan Documents shall be made in Dollars, in immediately available funds, to the Agent at the Principal Office (or in the case of a successor Agent, at the principal office of such successor Agent in the United States), not later than 11:00 a.m. Houston time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Borrower shall, at the time of making each payment hereunder, under any Note or under any other Loan Document, specify to the Agent the Loans or other amounts payable by the Borrower hereunder or thereunder to which such payment is to be applied. Each payment received by the Agent hereunder, under any Note or under any other Loan Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent fails to send to any Lender its portion of any payment, to the extent timely received by the Agent, by the close of business on the day such payment was received, the Agent shall pay to such Lender interest on its portion of such payment from the day such payment was timely received by the Agent until the date such Lender's portion of such payment is sent to such Lender, at the Federal Funds Rate. (c) If the due date of any payment hereunder or under any Note falls on a day which is not a Business Day, the due date for such payments (except as otherwise provided in the 20 Interest Rate Agreement) shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1 hereof shall be made ratably from the Lenders on the basis of their respective Loan Commitments; (b) each payment of commitment fees shall be made for the account of the Lenders, and each termination or reduction of the Loan Commitments of the Lenders under Section 2.2 hereof shall be applied, pro rata, according to the Lenders' respective Loan Commitments and (c) each payment by the Borrower of principal of or interest on the Loans shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of such Loans held by the Lenders. 4.3 Certain Actions, Notices, Etc. Notices to the Agent of termination or reduction of Loan Commitments, borrowings and prepayments of Loans shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 a.m. Houston time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, prepayment and/or issuance specified below: Number of Notice Business Days Prior ------ ------------------- Termination or Reduction of Loan Commitments 5 Loan Borrowing at the Base Rate Same day Borrowing at the Eurodollar Rate 3 Eurodollar Business Days (as (as defined in the Interest defined in the Interest Rate Rate Agreement) Agreement) Optional prepayment of Loan 1 Each such notice of termination or reduction shall specify the amount of the applicable Loan Commitment to be terminated or reduced. Each such notice of borrowing or prepayment shall specify the amount of the Loans to be borrowed or prepaid and the date of borrowing or prepayment (which shall be a Business Day). The Agent shall promptly notify the affected Lenders of the contents of each such notice. 4.4 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower (the "Payor") prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective 21 upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available by the Agent together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period or (if the recipient is the Borrower) the Base Rate (as defined in the Interest Rate Agreement). 4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement or on any other Obligation then due to such Lender hereunder through the exercise of any right of set-off (including, without limitation, any right of setoff or lien granted under Section 9.2 hereof), banker's or other lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders participations in the Loans made, or other Obligations held, by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Lender so purchasing a participation in the Loans made, or other Obligations held, by other Lenders may exercise all rights of set-off, bankers' or other lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other Obligations in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. 5. Conditions Precedent. 5.1 Initial Loans. The obligation of each Lender to make its initial Loans hereunder is subject to the following conditions precedent, each of which shall have been fulfilled or waived to the satisfaction of the Agent: (1) Corporate Action and Status. The Agent shall have received a Secretary's Certificate from the Parent and each of its Subsidiaries signing a Loan Document, which shall be accompanied by copies of the Organizational Documents of the Parent and each such Subsidiary, copies of the bylaws of the Parent and each such Subsidiary and such certificates as may be appropriate to demonstrate the qualification and good standing of and payment of taxes by the Parent and each such Subsidiary in each state where the failure in which to qualify would 22 have a Material Adverse Effect. The Agent and each Lender may conclusively rely on such certificates until they receive notice in writing from the Borrower or the appropriate Party to the contrary. (2) Notes. The Agent shall have received the appropriate Notes of the Borrower for each Lender, duly completed and executed. (3) Loan Documents. The Authority and the Parent and each other Party shall have duly executed and delivered the Loan Documents to which it is a party (in such number of copies as the Agent shall have requested) and each such Loan Document shall be in form satisfactory to Agent. Each such Loan Document shall be in form and substance reasonably satisfactory to the Lenders. (4) Security Matters. All such action as the Agent shall have requested to perfect the Liens created pursuant to the Security Documents shall have been taken, including, without limitation, receipt by the Agent of (a) documentation, in Proper Form, relating to the perfection of a security interest in the Cash Flow Account and providing any required consents for the collateral assignment of (and foreclosure upon) the Electrical Agreement and the Facilities Development Agreement and the Bonds, (b) the Bonds issued as of the date of such initial Loans and (c) the Title Insurance Policy (accompanied by copies of all title matters referred to therein) and the delivery to the Agent of appropriately completed and duly executed Uniform Commercial Code financing statements with appropriate Governmental Authorities. The Agent shall also have received evidence satisfactory to it that the Liens created by the Security Documents constitute first priority Liens, except for the exceptions expressly provided for herein and therein, including, without limitation, Uniform Commercial Code search reports, satisfactory title evidence in form and substance acceptable to the Agent, and executed releases of any prior Liens. (5) Fees and Expenses. The Borrower shall have paid to the Agent all unpaid fees in the amounts previously agreed upon in writing between the Borrower and the Agent; and shall have in addition paid to the Agent all amounts payable under Section 11.3 hereof, on or before the date of this Agreement. (6) Insurance. The Borrower shall have delivered to the Agent certificates of insurance satisfactory to the Agent evidencing the existence of all insurance required to be maintained by the Borrower by this Agreement and the Security Documents. (7) Opinion of Counsel. The Agent shall have received an opinion of Bracewell & Patterson, L.L.P., counsel to the Parent and its Subsidiaries, as well as such separate local counsel as the Agent may reasonably require, each in form and substance reasonably satisfactory to the Agent. 23 (8) Consents. The Agent shall have received evidence satisfactory to it that all material consents of each Governmental Authority and of each other Person, if any, reasonably required in connection with (a) the Loans and (b) the execution, delivery and performance of this Agreement and the other Loan Documents have been satisfactorily obtained. (9) Real Estate Matters. The Agent shall have received each of the following: (a) a Survey covering the Mortgaged Properties prepared by a qualified surveyor reasonably acceptable to the Agent, in Proper Form; (b) evidence reasonably satisfactory to the Agent that environmental due diligence has been performed with respect to the Mortgaged Properties of a nature and to an extent consistent with normal and customary business practices with respect to facilities similar to the Plant and similarly situated; and (c) true, correct and complete copies of all Key Plant Contracts. (10) Amendments to Parent Credit Facility and Canadian Facility. The Agent shall have received amendments to the Parent Credit Facility and the Canadian Facility permitting the consummation of the transactions herein described. (11) Other Documents. The Agent shall have received such other documents consistent with the terms of this Agreement and relating to the transactions contemplated hereby as the Agent may reasonably request. 5.2 All Loans. The obligation of each Lender to make any Loan to be made by it hereunder is subject to (a) the accuracy, in all material respects, on the date of such Loan of all representations and warranties of the Authority and the Borrower and any other Party contained in this Agreement and the other Loan Documents; (b) receipt by the Agent of the following, all of which shall be duly executed or endorsed and in Proper Form: (1) a Request for Extension of Credit as to the Loan no later than 11:00 a.m. Houston time on the Business Day on which such Request for Extension of Credit must be given under Section 4.3 hereof, (2) all Bonds issued prior to the date of such Loan (and assurances reasonably satisfactory to the Agent that the Authority will cause all additional Bonds subsequently issued to be delivered directly to the Agent) and (3) such other documents as the Agent or any Lender may reasonably require; (c) prior to the making of such Loan, there shall have occurred no event which has had or could reasonably be expected to have a Material Adverse Effect; (d) no Default or Event of Default shall have occurred and be continuing and shall not occur as a result of the making of such Loan, and (e) the making of such Loan shall not be illegal or prohibited by any Legal Requirement. 24 6. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Agent as follows: 6.1 Organization. The Parent and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the State or Province of its organization; (b) has all necessary corporate power and authority to conduct its business as presently conducted, and (c) is duly qualified to do business and in good standing in the State or Province of its organization and in all jurisdictions in which the failure to so qualify would have a Material Adverse Effect. 6.2 Financial Statements. The Parent has furnished to the Agent the Annual Audited Financial Statements of the Parent and its Subsidiaries as at September 30, 1994, which fairly present, the financial condition and the results of operations of the Parent and its Subsidiaries as at such date. No events, conditions or circumstances have occurred from the date that the financial statements were delivered to the Agent through the date hereof which would cause said financial statements to be misleading in any material respect. There are no material instruments or liabilities which should be reflected in such financial statements provided to the Agent which are not so reflected. Since September 30, 1994, no event has occurred which has had (or could reasonably be expected to have) a Material Adverse Effect. 6.3 Enforceable Obligations; Authorization. The Loan Documents are legal, valid and binding obligations of the Parties and, where applicable, the Authority, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws and judicial decisions affecting creditors' rights generally and by general equitable principles. The execution, delivery and performance of the Loan Documents (a) have all been duly authorized by all necessary corporate action; (b) are within the corporate power and authority of the Parties and, where applicable, the Authority; (c) do not and will not contravene or violate any Legal Requirement applicable to the Parties or, where applicable, the Authority, or the Organizational Documents of the Parties or, where applicable, the Authority, the contravention or violation of which could reasonably be expected to cause a Material Adverse Effect; (d) do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected which breach or default could reasonably be expected to cause a Material Adverse Effect, and (e) do not and will not result in the creation of any Lien upon any Property of any of the Parties, except in favor of the Agent or as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained. Except as otherwise expressly stated in the Security Documents, the Liens created under the Security Documents constitute valid and perfected first and prior Liens on the Property described therein, subject to no other Liens whatsoever. 6.4 Other Borrowed Money Indebtedness. Neither the Parent nor any of its Subsidiaries is in default in the payment of any other Borrowed Money Indebtedness or under 25 any agreement, mortgage, deed of trust, security agreement or lease to which it is a party and which default could reasonably be expected to cause a Material Adverse Effect. 6.5 Litigation. There is no litigation or administrative proceeding pending or, to the knowledge of the Borrower, threatened against, nor any outstanding judgment, order or decree affecting, the Parent or any of its Subsidiaries before or by any Governmental Authority which could reasonably be expected to cause a Material Adverse Effect. Neither the Parent nor any of its Subsidiaries is in default with respect to any judgment, order or decree of any Governmental Authority where such default would have a Material Adverse Effect. 6.6 Taxes. The Parent and its Subsidiaries each has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained and those which are being contested in good faith as provided in Section 7.1(a) hereof and those which could not reasonably be expected to have a Material Adverse Effect. 6.7 Regulations G, U and X. None of the proceeds of any Obligation will be used for the purpose of purchasing or carrying directly or indirectly any margin stock or for any other purpose would constitute this transaction a "purpose credit" within the meaning of Regulation G, U and X of the Board of Governors of the Federal Reserve System, as either of them may be amended from time to time. 6.8 Subsidiaries. The Parent has no Subsidiaries except as set forth on Exhibit B attached hereto or those formed in compliance with Section 8.9 hereof. 6.9 No Untrue or Misleading Statements. No document, certificate, instrument or other writing furnished to the Lenders by or on behalf of the Authority or any Party in connection with the transactions contemplated in any Loan Document, taken as a whole, contains any untrue material statement of fact or omits to state any such fact (of which the Borrower or any other Party has knowledge) necessary to make the representations, warranties and other statements contained herein or in such other document, instrument or writing not misleading. 6.10 ERISA. The Parent and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA (other than to make contributions in the ordinary course) and no contribution failure has occurred with respect to any Plan sufficient to give rise to the Lien under Section 302(f) of ERISA, in each case which could reasonably be expected to have a Material Adverse Effect. Except as described in Schedule 6.10, neither the Parent nor any member of the Controlled Group has any contingent liability with respect to any post- retirement benefit under a Welfare Plan other than liability for continuation coverage described in Section 602 of ERISA which could reasonably be expected to have a Material Adverse Effect. 26 6.11 Investment Company Act. Neither the Parent nor any of its Subsidiaries is an investment company within the meaning of the Investment Company Act of 1940, as amended, or, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company, within the meaning of said Act. 6.12 Public Utility Holding Company Act. Neither the Parent nor any of its Subsidiaries is an "affiliate" or a "subsidiary company" of a "public utility company," or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 6.13 Solvency. None of the Borrower, the Plant Owner, the Bond Owner, the Parent, or the Parent and its Subsidiaries, on a consolidated basis, is "insolvent," as such term is used and defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. (S) 24.001 et seq., as amended from time to time. 6.14 Compliance. The Parent and its Subsidiaries are each in compliance with all Legal Requirements applicable to it, except to the extent that the failure to comply therewith could not reasonably be expected to cause a Material Adverse Effect. 6.15 Environmental Matters. The Parent and its Subsidiaries have obtained and maintained in effect all Environmental Permits (or the applicable Person has initiated the necessary steps to transfer the Environmental Permits into its name or obtain such permits), the failure to obtain which could reasonably be expected to have a Material Adverse Effect. The Parent and its Subsidiaries and their Properties, business and operations have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits failure to comply with which could reasonably be expected to have a Material Adverse Effect. The Parent and its Subsidiaries and their Properties, business and operations are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect. None of the Parent or any of its Subsidiaries has received any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with its Properties, liabilities, condition (financial or otherwise), business or operations which could reasonably be expected to have a Material Adverse Effect. The Borrower does not know of any event or condition with respect to currently (as of the date this representation is provided) enacted Requirements of Environmental Laws presently scheduled to become effective in the future with respect to any of the Properties of the Parent or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, for which the Parent or the applicable Subsidiary of the Parent has not made good faith provisions in its business plan and projections of financial performance. 6.16 Certain Representations Regarding the Plant Work. The Plans and Specifications are complete and adequate for the Plant Work. The Plans and Specifications comply, and the 27 Plant Work, when completed in accordance with the Plans and Specifications will comply, with all applicable restrictive covenants, zoning ordinances and building codes and, to the knowledge of the Borrower, all other applicable Legal Requirements, in each case the non-compliance with which could reasonably be expected to have a Material Adverse Effect. The Plant has, or where applicable will have when necessary for the timely completion of the Plant Work, all necessary building, utility and other permits and rights of access to and from public streets and roads, except in each instance those which could not reasonably be expected to have a Material Adverse Effect. 7. Affirmative Covenants. The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, and cause the Parent and each of its Subsidiaries to do, and if necessary cause to be done, each and all of the following: 7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay, or work with the Authority to cause to be paid, prior to the date when Liens attach with respect thereto, all bills of Contractors, Subcontractors and other Persons incurred on labor, materials and services in connection with the Plant Work unless and only to the extent that the same shall be diligently contested in good faith and reserves have been established therefor, and will pay, prior to the date when penalties attach with respect thereto, all taxes and governmental charges of every kind upon it or against its income, profits or Property and which could reasonably be expected to have a Material Adverse Effect, unless and only to the extent that the same shall be contested diligently in good faith and reserves deemed adequate by the independent certified public accounting firm used by the Parent to prepare the Parent's Annual Audited Financial Statements have been established therefor; (b) do all things necessary to preserve its corporate existence, qualifications, rights and franchises in all States where such failure to qualify would have a Material Adverse Effect; (c) comply with all applicable Legal Requirements (including without limitation Requirements of Environmental Law) in respect of the conduct of its business and the ownership of its Property, the noncompliance with which could reasonably be expected to cause a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair and make all replacements and additions to its Property as may be reasonably necessary to conduct its business properly and efficiently. 7.2 Financial Statements and Information. Furnish to the Agent and, in each case other than the monthly management report described in clause (e) below, the Lenders one copy of each of the following: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Parent, beginning with the fiscal year 1995, Annual Audited Financial Statements of the Parent and its Subsidiaries; (b) as soon as available and in any event within 45 days after the end of each calendar quarter of each fiscal year of the Parent, Quarterly Financial Statements of the Parent and its Subsidiaries and of the Borrower; (c) concurrently with the financial statements provided for in Subsections 7.2(a) and (b) hereof, such schedules, computations and other information, in reasonable detail, as may be required by the Agent to 28 demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified and signed by the president or chief financial officer of the Borrower (or other authorized officer approved by the Agent) as true, correct and complete and, commencing with the quarterly financial statement prepared as of September 30, 1995, a compliance certificate ("Compliance Certificate") in the form of Exhibit E hereto, duly executed by such authorized officer (provided, however, that if a "Compliance Certificate" has been delivered by the Parent for any applicable period as provided for in the Parent Credit Facility, the Borrower shall not be required to deliver a Compliance Certificate with respect to such period pursuant to this provision); (d) within 30 days after the end of each calendar month of each fiscal year of the Parent, a management report with respect to sales and operating revenues and costs of manufacturing and related information in such detail as such management report is prepared for the use of the management of the Parent (promptly upon receipt of each such report, Agent shall forward copies thereof to each Lender); (e) by October 31 of each year, the financial projections of income and cash flow of the Parent for each month of the fiscal year of the Parent which begins on the October 1 immediately preceding such October 31, and (f) such other information relating to the condition (financial or otherwise), operations, prospects or business of any of the Parent and its Subsidiaries as from time to time may be reasonably requested by the Agent. 7.3 Financial Tests. The Parent, on a consolidated basis, will have: (a) Debt to EBITDA Ratio - as of the last day of each fiscal quarter, a Debt to EBITDA Ratio of not greater than 4.00 to 1.00. (b) Fixed Charge Coverage Ratio - as of the last day of each fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00. (c) Adjusted Fixed Charge Coverage Ratio - as of the date of any proposed dividend which is subject to the Adjusted Fixed Charge Coverage Ratio (and after giving effect to such dividend), an Adjusted Fixed Charge Coverage Ratio of not less than 1.10 to 1.00. (d) Net Worth - Net Worth of not less than (1) at all times during the period commencing on the Effective Date through and including September 30, 1995, $134,039,000 plus and (2) at all times during each fiscal quarter after September 30, 1995, the minimum Net Worth required during the immediately preceding fiscal quarter plus 50% of the Net Income of the Parent (if positive) for the immediately preceding fiscal quarter plus all of the net proceeds of any issuance of equity in the Parent during such fiscal quarter. (e) Current Ratio - a Current Ratio of not less than 1.10 to 1.00 at all times. 7.4 Inspection. Permit the Agent and any Lender upon 3 days' prior notice to inspect its Property, to examine its files, books and records except privileged communication with legal counsel and classified governmental material, and make and take away copies thereof, and to 29 discuss its affairs with its officers and accountants, all during normal business hours and at such intervals and to such extent as the Agent or the applicable Lender may reasonably desire. 7.5 Further Assurances. Promptly execute and deliver, at the Borrower's expense, any and all other and further instruments which may be reasonably requested by the Agent to cure any defect in the execution and delivery of any Loan Document in order to effectuate the transactions contemplated by the Loan Documents, and in order to grant, preserve protect and perfect the validity and priority of the security interests created by the Security Agreements. 7.6 Books and Records. Maintain books of record and account in accordance with GAAP. 7.7 Insurance. Maintain insurance with such insurers, on such of its Property, with responsible companies in such amounts, with such deductibles and against such risks as are usually carried by owners of similar businesses and properties in the same general areas in which the Parent and its Subsidiaries operate (including without limitation business interruption insurance), and furnish the Agent satisfactory evidence thereof promptly upon request. The Borrower shall provide the Agent with copies of the policies of insurance and a certificate of the insurer that the insurance required by this Section may not be canceled, reduced or affected in any material manner without thirty (30) days' prior written notice to the Agent. 7.8 Notice of Certain Matters. Give the Agent prompt written notice of the following: (a) the issuance by any Governmental Authority of any injunction, order or other restraint prohibiting, or having the effect of prohibiting, the performance of this Agreement, any other Loan Document, or the making of the Loans or the initiation of any litigation, or any claim or controversy which might result in the initiation of any litigation, seeking any such injunction, order or other restraint that could reasonably be expected to cause a Material Adverse Effect; (b) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court or any Federal, state, municipal or other Governmental Authority which could reasonably be expected to cause a Material Adverse Effect; (c) any Event of Default or Default known to Borrower, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with the respect thereto; and (d) any development in the business or affairs of the Parent or any of its Subsidiaries which has had or which could reasonably be expected to have, in the reasonable judgment of the Borrower, a Material Adverse Effect. The Borrower will also notify the Agent in writing at least 30 days prior to the date that any Party changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. 30 7.9 Interest Rate Risk. Promptly upon execution thereof, the Borrower shall deliver to the Agent true and correct and complete copies of any Interest Rate Risk Agreement. 7.10 Capital Adequacy. Agrees that if any Lender shall have determined that the adoption after the Effective Date or effectiveness after the Effective Date (whether or not previously announced) of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein after the Effective Date, or any change in the interpretation or administration thereof after the Effective Date by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive after the Effective Date regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, under the Notes or other Obligations held by it to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, upon satisfaction of the conditions precedent set forth in this Section 7.10, upon demand by such Lender (with a copy to the Agent), the Borrower (subject to Section 11.7 hereof) shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. The certificate of any Lender setting forth such amount or amounts as shall be necessary to compensate it and the basis thereof shall be delivered as soon as practicable to the Borrower and shall be conclusive and binding, absent manifest error. The Borrower shall pay the amount shown as due on any such certificate within fifteen (15) days after the delivery of such certificate; provided that the Borrower shall not be obligated to compensate any Lender for any such amounts which relate to a period more than seventy-five (75) days prior to such request for payment. In preparing such certificate, a Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 7.11 ERISA Information and Compliance. If and when Parent or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in subsections (b)(1), (c)(1), (c)(5), or (c)(6) of Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, or (ii) knows that a failure to make a required contribution with respect to any Plan has occurred if such failure is sufficient to give rise to a Lien under section 203(f) of ERISA, or (iii) that any other event has occurred that could result in (A) the incurrence by Parent or a member of the Controlled Group of a liability, fine or penalty with respect to a Plan or (B) any increase in the contingent liability of Parent or a member of the Controlled Group with respect to any post-retirement benefit under a Welfare Plan, in each case which could reasonably be expected to have a Material Adverse Effect, Parent shall deliver to the Agent a copy of the notice of such reportable event given or required to be given to the PBGC or a notice of such contribution failure or other event, as the case may be. 31 7.12 Certain Affirmative Covenants Relating to the Plant Work. (a) The Borrower shall, upon request by the Agent from time to time, deliver to the Agent evidence that the anticipated use of the Plant complies with all applicable Legal Requirements and the Plant Work is being constructed in a good and workmanlike manner, with reasonable diligence and generally in accordance with the Plans and Specifications. (b) If and when the Borrower or the Plant Owner acquires an updated Survey, Borrower shall deliver to the Agent a copy of such Survey. (c) The Borrower will (and will cause the Plant Owner to) prosecute the construction of the Plant Improvements in accordance with all applicable Legal Requirements the non-compliance with which could reasonably be expected to have a Material Adverse Effect, this Agreement and the other Loan Documents, and with diligence and dispatch, and will complete the Plant Work on or before the Scheduled Completion Date. (d) The Borrower agrees to permit (and to cause the Plant Owner to permit) the Agent and each of the Lenders and their agents, representatives and employees at all reasonable times and upon reasonable notice to go upon, examine, inspect and remain on the Plant, to assist and cooperate, and require the Parent's, the Borrower's and the Plant Owner's employees, agents and the Contractors to cooperate, with the Agent or the applicable Lender and to furnish to the Agent or the applicable Lender on request all pertinent information concerning the physical and economic condition, development and operation of the Plant. The Agent may discuss the Plant directly with any of the Borrower's or the Plant Owner's or the Parent's employees holding a supervisory position, partners, officers, directors and managers so long as such discussions do not unreasonably interfere with the business operations of the Borrower or the Plant Owner or the Parent. (e) Upon request of the Agent, the Borrower shall inform the Agent of locations (other than the Plant Land) where equipment, supplies and materials acquired or furnished in connection with the Plant Work but not affixed to or incorporated into the Plant (but only to the extent that the aggregate acquisition costs with respect to items stored at any single offsite location at the time in question exceed $500,000) are located. Upon request of the Agent, the Borrower will furnish an inventory of all equipment, supplies and materials stored off-site, specifying the location thereof. (f) As soon as reasonably possible after the Borrower is of the opinion that Plant Work has been completed, the Borrower shall deliver the Evidence of Completion to the Agent. 7.13 Satisfaction of Conditions Precedent. The Borrower shall cause the conditions precedent to the initial Loans to be satisfied on or before November 15, 1995. 32 7.14 Pledge of Bonds. All of the issued and outstanding Bonds shall at all times be pledged to (and shall have been delivered, or be in transit, to) the Agent. 7.15 Third Party Obligations. The Borrower guarantees that the Authority shall duly perform each affirmative covenant made by the Authority to the Agent or the Lenders under any Loan Document. 8. Negative Covenants. The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not, and will not suffer or permit the Parent or any of its Subsidiaries to, do any of the following: 8.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Borrowed Money Indebtedness (as defined below), whether direct, indirect, absolute, contingent or otherwise, except the following: (a) the Obligations; (b) the liabilities existing on the date of this Agreement and disclosed on Schedule 8.1 hereto and, except for the Parent Credit Facility, all renewals, extensions and replacements (but not increases) of any of the foregoing; (c) Indebtedness under the Canadian Facility and all renewals, extensions and replacements (but not increases) thereof; (d) purchase money Indebtedness to acquire Equipment not exceeding, in the aggregate, $10,000,000 outstanding at any one time; (e) in addition to Indebtedness permitted under the preceding clause (d), non-recourse Indebtedness in an aggregate amount not to exceed $60,000,000 at any one time outstanding incurred by Subsidiaries of the Parent which is payable solely by recourse to Properties which are not included in the Collateral, which are not included in the "Borrowing Base" under the Parent Credit Facility and which are acquired or constructed by such Subsidiary after the date hereof; (f) Subordinated Debt so long as the net proceeds of such Subordinated Debt are applied in payment of the Loans or "Term Loans" under the Parent Credit Facility or, if no Loans or "Term Loans" under the Parent Credit Facility remain outstanding, so long as the Loan Commitments or the "Revolving Loan Commitments" under the Parent Credit Facility are reduced by an amount equal to the net proceeds of such Subordinated Debt; (g) Interest Rate Risk Indebtedness, together with "Interest Rate Risk Indebtedness" as defined in the Parent Credit Facility; (h) insurance premiums financed with the applicable insurance carrier; (i) Indebtedness under the Bond Documents and Indebtedness under (or permitted under) the Parent Credit Facility, but only so long as the Agent is the "Agent" under the Parent Credit Facility and the Lenders hold "Term Loans," "Revolving Loans" and/or "Revolving Loan Commitments" under the Parent Credit Facility in amounts sufficient to constitute "Majority Lenders" under the Parent Credit Facility, and (j) other Borrowed Money Indebtedness not in excess of $30,000,000 in the aggregate outstanding at any time on terms no more restrictive than the terms provided herein. For purposes of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under 33 conditional sale or other title retention agreements relating to Property purchased by such Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of such Person's business), (e) all Capital Lease Obligations, (f) all obligations of others of the types specified in clauses (a) through (e) above secured by any lien on property or assets owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) Interest Rate Risk Indebtedness, together with "Interest Rate Risk Indebtedness" as defined in the Parent Credit Facility, (h) all outstanding letters of credit issued for the account of such Person and (i) all guarantees of such Person of obligations of the type referred to in the foregoing clauses (a) through (j). 8.2 Liens. Create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its Accounts; provided, however, that the Parent or any of its Subsidiaries may create or suffer to exist: (a) Liens in favor of the Agent or any Lender under the Loan Documents, including, without limitation, Liens securing Interest Rate Risk Indebtedness owed to one or more of the Lenders (but not to any Person which is not, at such time, a Lender); (b) Liens in effect on the Effective Date and disclosed on Schedule 8.2 hereto, provided that neither the Indebtedness secured thereby nor the Property covered thereby shall increase after the Effective Date; (c) Liens securing the Canadian Facility but only on assets of the Canadian Subsidiaries; (d) Liens securing purchase money Indebtedness permitted under Section 8.1(d) hereof and covering only the Property so purchased and the proceeds therefrom and Liens permitted under Section 8.1(e) hereof covering Properties acquired or constructed after the date hereof and the proceeds therefrom; (e) normal encumbrances and restrictions on title which do not secure Borrowed Money Indebtedness and which do not have a material adverse effect on the value or utility of the applicable Property; (f) Liens incurred or deposits made in the ordinary course of business (i) in connection with workmen's compensation, unemployment insurance, social security and other like laws, (ii) to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts, leases, licenses, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business, not, in any of the cases specified in this clause (ii), incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, or (iii) on deposits made in financial institutions in the ordinary course of business as a result of common law and statutory rights of setoff and depositary agreements and other contractual arrangements (other than Borrowed Money Indebtedness) arising in the ordinary course of business; (g) attachments, judgments and other similar Liens arising in connection with the court proceedings, provided that the execution and enforcement of such Liens are effectively stayed and the claims secured thereby are being actively contested in good faith with adequate reserves made therefor in accordance with GAAP; (h) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings if 34 adequate reserves with respect thereto are maintained in accordance with GAAP; (i) Liens for taxes which are not yet due or are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (j) Liens or rights under insurance policies securing Indebtedness permitted under Section 8.1(h); (k) Liens securing or otherwise permitted under the Parent Credit Facility to the extent required under the present terms and provisions of the Parent Credit Facility, without amendment except as approved (or consented to pursuant to the proviso to Section 8.13 hereof) by the Majority Lenders (wherever consent by the "Majority Lenders" under the Parent Credit Facility is required) or by all of the Lenders (wherever consent by all of the "Lenders" under the Parent Credit Facility is required), but only so long as the Agent is the "Agent" under the Parent Credit Facility and the Lenders hold "Term Loans," "Revolving Loans" and/or "Revolving Loan Commitments" under the Parent Credit Facility in amounts sufficient to constitute "Majority Lenders" under the Parent Credit Facility, and (l) extensions, renewals and replacements of Liens referred to in clauses (a) through (j) of this Section; provided that any such extension, renewal or replacement Lien shall be limited to the Property or assets covered by the Lien extended, renewed or replaced and that the Indebtedness secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the Indebtedness secured by the Lien extended, renewed or replaced. 8.3 Contingent Liabilities. Directly or indirectly guarantee the performance or payment of, or purchase or agree to purchase, or assume or contingently agree to become or be secondarily liable in respect of, any obligation or liability of any other Person except for (a) the endorsement of checks or other negotiable instruments in the ordinary course of business; (b) obligations disclosed on Schedule 8.3 hereto (but not increases of such obligations after the Effective Date), (c) those liabilities permitted under Section 8.1 hereof and (d) guaranties by the Parent of any of its Subsidiaries obligations (except where recourse is expressly required to be limited by this Agreement). 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets. In any single transaction or series of transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger or consolidation unless and so long as (i) no Default or Event of Default has occurred that is then continuing, (ii) immediately thereafter and giving effect thereto, no event will occur and be continuing which constitutes a Default, (iii) the Parent or a Subsidiary of the Parent is the surviving Person, and (iv) the surviving Person ratifies and assumes each Loan Document and each "Loan Document" under the Parent Credit Facility to which any party to such merger was a party; (c) sell, convey or lease all or any substantial part of its assets, except for sale of Inventory in the ordinary course of business and except for sales of Property (other than Inventory) in the ordinary course of the Parent's or the applicable Subsidiary's business; (d) pledge, transfer or otherwise dispose of any shares of capital stock of any Subsidiary of the Parent or any Borrowed Money Indebtedness of any Subsidiary of the Parent, or permit any such Subsidiary to issue any additional shares of capital stock other than to the Parent or to acquire any shares of capital stock of any Subsidiary of the Parent, or (e) acquire all or substantially all of the assets of any Person or (except as expressly permitted by Section 35 8.8 hereof) any shares of stock of or similar interest in any other Person except for Permitted Acquisitions. 8.5 Redemption, Dividends and Distributions. At any time: (a) redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock except to the extent that no Default or Event of Default has occurred which is continuing (or would result from the same); (b) pay any dividend other than payments of the Permitted Dividends by the Parent or dividends by a Subsidiary of the Parent to the Parent or any Subsidiary of the Parent or (c) make any other distribution of any Property or cash to stockholders as such. 8.6 Nature of Business. Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged. 8.7 Transactions with Affiliates. Enter into any transaction or agreement with any Affiliate of the Parent or any of its Subsidiaries (or any Affiliate of any such Person) unless the same is upon terms substantially comparable to those obtainable from wholly unrelated sources or in an arms length transaction. The Key Plant Contracts shall not result in a violation of this provision. 8.8 Loans and Investments. Make any loan, advance, extension of credit or capital contribution to, or make or have any Investment in, any Person, or make any commitment to make any such extension of credit or Investment, except (a) Permitted Investments, (b) normal and reasonable advances in the ordinary course of business, (c) trade and customer accounts receivable in accordance with the ordinary course of business, (d) Investments in Subsidiaries of the Parent, (e) Investments in 50% or less owned joint ventures and other Corporations not to exceed $20,000,000 in unreturned capital Investment at any one time outstanding provided that such joint ventures and other Corporations are in substantially the same lines of business as the Parent and its Subsidiaries, and (f) other Investments existing as of the date hereof which are described on the attached Schedule 8.8. 8.9 No Subsidiaries. Form, create or acquire a Subsidiary unless the same 8.10 BP Lease. Terminate or agree to the termination of the BP Lease without the prior written consent of all of the Lenders or amend, modify or obtain or grant a waiver of any provision of the BP Lease if such amendment, modification or waiver could reasonably be expected to have a material adverse effect on the ability of the Lenders to collect, as and when due and payable, amounts due and payable hereunder and under the other Loan Documents without the prior written consent of the Majority Lenders. 8.11 Fiscal Year. The Parent will not (and will not permit any of its Subsidiaries to) change its fiscal year, unless the Agent shall have consented thereto in writing or unless required to make such change because of a change in or amendment to the Code. In the event that the 36 Parent or any of its Subsidiaries is required to make any such change in its fiscal year, the parties hereto agree to negotiate in good faith any changes in this Agreement made necessary by the required change in fiscal year. Sterling NRO, Ltd. may change its fiscal year in connection with any merger of Sterling NRO, Ltd. into Sterling Pulp Chemicals, Ltd. which is hereby permitted under the terms of this Agreement. 8.12 Sterling Energy. Sterling Energy shall not own any Property of any material nature other than its undivided 50% interest under the Joint Venture Agreement dated as of February 8, 1991 between Praxair Energy Resources, Inc., formerly known as UCIG Energy Resources, Inc., and Sterling Energy. Any distributions paid to Sterling Energy under said Joint Venture Agreement shall be promptly paid over to the Parent as dividends. 8.13 Parent Credit Facility. Amend, modify or obtain or grant a waiver of any material provision of the Parent Credit Facility unless the same shall be consented to in writing by the Majority Lenders (wherever consent by the "Majority Lenders" under the Parent Credit Facility is required) or by all of the Lenders (wherever consent by all of the "Lenders" under the Parent Credit Facility is required) (such consent not to be unreasonably withheld); provided, however, that execution of, or written consent to, any such amendment, modification or waiver of any material provision of the Parent Credit Facility by a particular Lender shall evidence the consent by such Lender required under this Section. 8.14 Key Plant Contracts. Except as provided in Section 8.15 below, materially amend, modify or obtain or grant a waiver of any material provision of any of the Key Plant Contracts unless the same shall be consented to in writing by the Majority Lenders (such consent not to be unreasonably withheld). 8.15 Revisions. Without first obtaining the written consent of the Majority Lenders (which consent shall not be unreasonably withheld), agree or consent to any revision to the Budget or the Plans and Specifications which (a) results in any material reduction either in the anticipated production capacity of the Plant or in the projected economics of the Plant), (b) extends or is likely to extend (in the reasonable judgment of Agent) the scheduled date for completion of the Plant Work beyond the Scheduled Completion Date or (c) would result in an increase in the aggregate cost of the Plant Work to an amount exceeding $60,000,000. All amendments to the Budget or Plans and Specifications shall control advances required to be made under this Agreement after the effective date of each such amendment, provided that such amendments have been approved to the extent and in the manner provided for in this Section. 8.16 Third Party Obligations. The Borrower shall not permit the Authority to fail to duly perform any negative covenant made by the Authority to the Agent or the Lenders under any Loan Document. The Borrower shall not permit any of the events described in Sections 9.1 (f), (g) or (h) hereof to occur with respect to the Authority unless, within thirty (30) days following the occurrence of such event, the Borrower shall have either (i) demonstrated to the reasonable satisfaction of the Majority Lenders that such event cannot reasonably be expected 37 to materially and adversely affect the validity, enforceability or priority of any of the Security Documents or (ii) provided to the Agent supplemental collateral of a nature and character, and pursuant to documentation, acceptable to the Majority Lenders. 9. Defaults. 9.1 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur, then the Agent may (and at the direction of the Majority Lenders, shall) do any or all of the following: (1) upon notice to the Borrower, declare the Loan Commitments terminated (whereupon the Loan Commitments shall be terminated) and/or accelerate the Termination Date to a date as early as the date of termination of the Loan Commitments; (2) declare the principal amount then outstanding of and the unpaid accrued interest on the Loans and all fees and all other amounts payable hereunder, under the Notes and under the other Loan Documents to be forthwith due and payable, whereupon such amounts shall be and become immediately due and payable, without notice (including, without limitation any notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; provided that in the case of the occurrence of an Event of Default with respect to the Parent or any of its Subsidiaries referred to in clause (f), (g) or (h) of this Section 9.1, the Loan Commitments shall be automatically terminated and the principal amount then outstanding of and unpaid accrued interest on the Loans and all fees and all other amounts payable hereunder, under the Notes and under the other Loan Documents shall be and become automatically and immediately due and payable, without notice (including, without limitation, notice of acceleration and notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower, and (3) exercise any or other rights and remedies available to the Agent or any of the Lenders under the Loan Documents, at law or in equity: (a) Payments - (i) the Borrower or any other Party shall fail to make any payment or required prepayment of any installment of principal on the Loans payable under the Notes, this Agreement or the other Loan Documents when due or (ii) the Borrower or any other Party fails to make any payment or required prepayment of interest with respect to the Loans or any other fee or amount under the Notes, this Agreement or the other Loan Documents when due and (except in the case of acceleration of maturity) such failure to pay continues unremedied for a period of five days; or (b) Other Obligations - the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) shall default in the payment when due (including amounts due on acceleration) of any principal of or interest on the Parent Credit Facility or any other Borrowed Money Indebtedness having an outstanding principal amount of at least $5,000,000 (other than the Loans) and such default shall continue beyond any applicable period of grace; or any event or condition shall occur which enables (or, with the giving of notice or lapse of time or both, would enable) the holder of the Parent 38 Credit Facility or any such other Borrowed Money Indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof and such event or condition shall not be cured within any applicable period of grace and there is no reasonable ability of the Person in default to pay the amount of principal or interest that would be due on acceleration; or (c) Representations and Warranties - any representation or warranty made or deemed made by or on behalf of the Borrower in this Agreement or any other Loan Document or in any certificate furnished or made by the Borrower to the Agent or the Lenders in connection herewith or therewith shall, taken as a whole, prove to have contained any untrue, incorrect, false or misleading material fact or omits to state any such fact necessary to make the representations, warranties or other statements contained herein or in such other document, instrument or writing not untrue, false or misleading in any material respect as of the date thereof or as of the date as of which the facts therein set forth were stated or certified; or (d) Affirmative Covenants - (i) default shall be made in the due observance or performance of any of the covenants or agreements contained in Sections 7.3 or 7.13 hereof, (ii) any of the insurance provided for in Section 7.7 hereof that relates to any material risk shall lapse, (iii) default shall be made in the due observance or performance of any of the covenants or agreements contained in Section 7.7 hereof (other than lapse of required insurance, which is provided for above) and such default continues unremedied for a period of 10 days after (x) notice thereof is given by the Agent to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier or (iv) default is made in the due observance or performance of any of the other covenants and agreements contained in Section 7 hereof or any other affirmative covenant of the Borrower or any other Party in this Agreement or any other Loan Document and such default continues unremedied for a period of 30 days after (x) notice thereof is given by the Agent to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier; or (e) Negative Covenants - default is made in the due observance or performance by the Borrower or any other Party of any of the other covenants or agreements contained in Section 8 of this Agreement or of any other negative covenant of the Borrower or any other Party contained in this Agreement or any other Loan Document; or (f) Involuntary Bankruptcy or Receivership Proceedings - a receiver, conservator, liquidator or trustee of the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) or of any of its property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction, and such decree or order remains in effect for more than 30 days; or the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) is adjudicated bankrupt 39 or insolvent; or any of such Person's property is sequestered by court order and such order remains in effect for more than 30 days; or a petition is filed against the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) under any state or federal bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, dissolution, liquidation or receivership law or any jurisdiction, whether now or hereafter in effect, and is not dismissed within 30 days after such filing; or (g) Voluntary Petitions or Consents - the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) commences a voluntary case or other proceeding or order seeking liquidation, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other relief with respect to itself or its debt or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or fails generally to, or cannot, pay its debts generally as they become due or takes any corporate action to authorize or effect any of the foregoing; or (h) Assignments for Benefit of Creditors or Admissions of Insolvency - the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of the Parent or such Subsidiary or of all or any substantial part of its Property; or (i) Undischarged Judgments - a final judgment or judgments for the payment of money exceeding, in the aggregate, $5,000,000 is rendered by any court or other governmental body against the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) and the Parent or such Subsidiary does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 30 days from the date of entry thereof; or (j) Security Documents; Guaranties - any Security Document for any reason ceases to create a valid and perfected first-priority Lien on any material portion of the Collateral purported to be covered thereby, or any Guaranty shall cease to be in full force and effect and a valid, binding and enforceable obligation of the applicable Party (except as otherwise herein expressly permitted), or the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) or any Party to a Guaranty (or any other Person who may have granted or purported to grant such Lien or executed any such Guaranty) will so state in writing; or 40 (k) Attachment - the Parent or any of its Subsidiaries (other than Subsidiaries that own no material assets) shall suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within 30 days after its issue or levy; or (l) ERISA Matters - (i) Parent or any member of the Controlled Group shall fail to pay when due an amount or amounts which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans against Parent or any member of the Controlled Group to enforce Section 5415 of ERISA; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated or a contribution failure occurs with respect to any Plan sufficient to give rise to a lien under Section 302(f) of ERISA on the property of Parent or any member of the Controlled Group, and (ii) in each case, such event could reasonably be expected to cause a Material Adverse Effect; or (m) Change of Control - there shall occur any Change of Control, or the Parent shall cease to own (directly or indirectly) all of the issued and outstanding equity interests in the Borrower, without the written consent of the Majority Lenders. 9.2 Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, the Lenders each are hereby authorized at any time and from time to time, without notice to the Parent or any of its Subsidiaries (any such notice being expressly waived by the Parent and its Subsidiaries), to setoff and apply any and all funds and liquid investments held in the Cash Flow Account and any and all deposits (general or special, time or demand, provisional or final (but excluding the funds held in accounts clearly designated as escrow or trust accounts held by the Parent or such Subsidiary for the benefit of Persons which are not Affiliates of the Parent or any of its Subsidiaries), whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Parent or any such Subsidiary against any and all of the Obligations irrespective of whether or not such Lender or the Agent will have made any demand under this Agreement, the Notes or any other Loan Document. The Borrower also hereby grants to each of the Lenders a security interest in and hereby transfers, assigns, sets over, and conveys to each of the Lenders, as security for payment of all Loans, all such deposits, funds or property of the Parent or any such Subsidiary, or Indebtedness of any Lender to the Parent or any such Subsidiary. Should the right of any Lender to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Lenders shall make restitution or refund to 41 the Borrower pro rata in accordance with their Loan Commitments. Each Lender agrees to promptly notify the Borrower and the Agent after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Agent and the Lenders under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Agent or the Lenders may have. This Section is subject to the terms and provisions of Sections 4.5 and 11.7 hereof. 9.3 Remedies Cumulative. No remedy, right or power conferred upon the Agent or any Lender is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 10. The Agent. 10.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent (the "Agent" as used in this Section 10 shall include reference to its Affiliates and its own and its Affiliates' respective officers, shareholders, directors, employees and agents) (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not be responsible to any Lender for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, execution, filing, registration, collectibility, recording, perfection, existence or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Party or any other Person to perform any of its obligations hereunder or thereunder, and shall not have any duty to inquire into or pass upon any of the foregoing matters; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Majority Lenders; (d) shall not be responsible for any mistake of law or fact or any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, including, without limitation, pursuant to its own negligence, except for its own gross negligence or willful misconduct; (e) shall not be bound by or obliged to recognize any agreement among or between the Borrower and any Lender, regardless of whether the Agent has knowledge of the existence of any such agreement or the terms and provisions thereof; (f) shall not be charged with notice or knowledge of any fact or information not herein set out or provided to the Agent in accordance with the terms of this Agreement or any other Loan Document; (g) shall not be responsible for any delay, error, omission or default of any mail, 42 telegraph, cable or wireless agency or operator, and (h) shall not be responsible for the acts or edicts of any Governmental Authority. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. In any foreclosure proceeding concerning any Collateral, each holder of an Obligation if bidding for its own account or for its own account and the accounts of other Lenders is prohibited from including in the amount of its bid an amount to be applied as a credit against the Obligations held by it or the Obligations held by the other Lenders; instead, such holder must bid in cash only. However, in any such foreclosure proceeding, the Agent may (but shall not be obligated to) submit a bid for all Lenders (including itself) in the form of a credit against the Obligations, and the Agent or its designee may (but shall not be obligated to) accept title to such collateral for and on behalf of all Lenders. 10.2 Reliance. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Borrower), independent accountants and other experts selected by the Agent. The Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Lenders, and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. Subject to the provisions of Section 11.5 hereof, the Agent shall have the authority to execute releases of the Security Documents on behalf of the Lenders without the joinder of any Lender. If any order, writ, judgment or decree shall be made or entered by any court affecting the rights, duties and obligations of the Agent under this Agreement or any other Loan Document, then and in any of such events the Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree which it is advised by legal counsel of its own choosing is binding upon it under the terms of this Agreement, the relevant Loan Document or otherwise; and if the Agent complies with any such order, writ, judgment or decree, then it shall not be liable to any Lender or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 10.3 Defaults. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless it has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a Notice of Default, the Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 10.7 hereof) take such action with respect to such Notice of Default as shall be directed by the Majority Lenders and within its rights under the Loan Documents and at law or in equity, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated 43 to) take such action, or refrain from taking such action, permitted hereby with respect to such Notice of Default as it shall deem advisable in the best interests of the Lenders and within its rights under the Loan Documents, at law or in equity. 10.4 Rights as a Lender. With respect to its Loan Commitments and the Loans made, TCB in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting in its agency capacity, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent, and the Agent may accept fees and other consideration from the Borrower (in addition to the fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.5 Indemnification. The Lenders agree to indemnify the Agent each (to the extent not reimbursed under Section 11.3 or Section 11.4 hereof, but without limiting the obligations of the Borrower under said Sections 11.3 and 11.4), ratably in accordance with the sum of the Lenders' respective Loan Commitments and Loans, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Borrower is obligated to pay under Sections 11.3 and 11.4 hereof, interest, penalties, reasonable attorneys' fees and amounts paid in settlement, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. The obligations of the Lenders under this Section 10.5 shall survive the termination of this Agreement and the repayment of the Obligations. 10.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has received current financial information with respect to the Borrower and that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Agent shall not be 44 required to keep itself informed as to the performance or observance by any Party or the Authority of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any Party or the Authority. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or the other Loan Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Party or the Authority (or any of their affiliates) which may come into the possession of the Agent. 10.7 Failure to Act. Except for action expressly required of the Agent hereunder or under the Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 10.5 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 10.8 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, (i) the Majority Lenders without the consent of the Borrower shall have the right to appoint a successor Agent so long as such successor Agent is also a Lender at the time of such appointment and (ii) the Majority Lenders shall have the right to appoint a successor Agent that is not a Lender at the time of such appointment so long as the Borrower consents to such appointment (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any successor Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder and under any other Loan Documents. Such successor Agent shall promptly specify by notice to the Borrower its Principal Office referred to in Section 3.1 and Section 4 hereof. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 10.9 No Partnership. Neither the execution and delivery of this Agreement nor any of the other Loan Documents nor any interest the Lenders, the Agent or any of them may now or hereafter have in all or any part of the Obligations shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Lenders or among the Lenders 45 and the Agent. The relationship between the Lenders, on the one hand, and the Agent, on the other, is and shall be that of principals and agent only, and nothing in this Agreement or any of the other Loan Documents shall be construed to constitute the Agent as trustee or other fiduciary for any Lender or to impose on the Agent any duty, responsibility or obligation other than those expressly provided for herein and therein. 11. Miscellaneous. 11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver of any other Default or Event of Default. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. 11.2 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy or other writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (or provided for in an Assignment and Acceptance); or, as to any party, at such other address as shall be designated by such party in a notice to the Borrower and the Agent given in accordance with this Section 11.2. Except as otherwise provided in this Agreement, all such notices or communications shall be deemed to have been duly given when (i) transmitted by telex or telecopier, (ii) personally delivered (iii) one Business Day after deposit with an overnight mail or delivery service, postage prepaid or (iv) three Business Days' after deposit in a receptacle maintained by the United States Postal Service, postage prepaid, registered or certified mail, return receipt requested, in each case given or addressed as aforesaid. 11.3 Expenses, Etc. Whether or not any Loan is ever made, the Borrower shall pay or reimburse on demand (a) the Agent for paying the reasonable fees and expenses of one primary legal counsel to the Agent, together with the reasonable fees and expenses of each local counsel to the Agent, in connection with the preparation, negotiation, execution and delivery of this Agreement (including the exhibits and schedules hereto), the Security Documents and the other Loan Documents and the making of the Loans hereunder, and any modification, supplement or waiver of any of the terms of this Agreement or any other Loan Document; (b) the Agent for any lien search fees; (c) the Agent for reasonable out-of-pocket expenses incurred in connection with the preparation, documentation, administration and syndication of the Loans or any of the Loan Documents (including, without limitation, the advertising, marketing, printing, publicity, duplicating, mailing and similar expenses) of the Loans; (d) the Agent or any Lender for paying all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any 46 other Loan Document or any other document referred to herein or therein; (e) the Agent or any Lender for paying all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement, any Security Document or any document referred to herein or therein, and (f) any Lender or the Agent for paying all amounts reasonably expended, advanced or incurred by such Lender or Agent to satisfy any obligation of the Borrower under this Agreement or any other Loan Document, to protect the Collateral, to collect the Obligations or to enforce, protect, preserve or defend the rights of such Lender or Agent under this Agreement or any other Loan Document, including, without limitation, fees and expenses incurred in connection with such Lender's or Agent's participation as a member of a creditor's committee in a case commenced under the Bankruptcy Code or other similar law, fees and expenses incurred in connection with lifting the automatic stay prescribed in (S) 362 of the Bankruptcy Code and fees and expenses incurred in connection with any action pursuant to (S) 1129 of the Bankruptcy Code and all other customary out-of- pocket expenses incurred by such Lender or Agent in connection with such matters, together with interest thereon at the Past Due Rate on each such amount from the date which is fifteen days after demand is made on the Borrower until the date of reimbursement to such Lender or Agent. 11.4 Indemnification. The Borrower shall indemnify each of the Agent, the Lenders, and each affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages arise out of or result from any (i) actual or proposed use by the Borrower of the proceeds of any extension of credit by any Lender hereunder; (ii) breach by the Borrower of this Agreement or any other Loan Document or the breach by any Party or the Authority of any Loan Document; (iii) violation by the Borrower or any other Party of any Legal Requirement; (iv) investigation, litigation or other proceeding relating to any of the foregoing, and the Borrower shall reimburse the Agent, each Lender, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable expenses (including reasonable legal fees) incurred in connection with any such investigation or proceeding, or (v) taxes (excluding income taxes and franchise taxes) payable or ruled payable by any Governmental Authority in respect of the Obligations or any Loan Document other than taxes incurred due to a Lender's failure to comply with Section 11.13 hereof; provided, however, that the Borrower shall not have any obligations pursuant to this Section with respect to any losses, liabilities, claims, damages or expenses incurred by the Person seeking indemnification by reason of the gross negligence or willful misconduct of that Person. Nothing in this Section is intended to limit the obligations of the Borrower under any other provision of this Agreement. 11.5 Amendments, Etc. No amendment or modification of this Agreement, the Notes or any other Loan Document shall in any event be effective against the Borrower unless the same shall be agreed or consented to in writing by the Borrower. No amendment, modification 47 or waiver of any provision of this Agreement, the Notes or any other Loan Document, nor any consent to any departure by the Borrower therefrom, shall in any event be effective against the Lenders unless the same shall be agreed or consented to in writing by the Majority Lenders, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no amendment, modification, waiver or consent shall, unless in writing and signed by each Lender, do any of the following: (a) increase any Loan Commitment of any of the Lenders or subject the Lenders to any additional obligations; (b) reduce the principal of, or interest on, any Loan or fee hereunder; (c) postpone or extend the Maturity Date, the Termination Date or any scheduled date fixed for any payment of principal of, or interest on, any Loan, fee or other sum to be paid hereunder or waive any Event of Default described in Section 9.1(a) hereof; (d) change the percentage of any of the Loan Commitments or of the aggregate unpaid principal amount of any of the Loans, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement; (e) change any provision contained in Sections 7.10, 11.3 or 11.4 hereof or this Section 11.5; (f) change the definition of "Majority Lenders" set forth in Article 1 hereof, or (g) release the liability of any Guarantor under the Guaranties or release, in any one (1) calendar year, Collateral having an aggregate value exceeding $1,000,000; provided, however, that execution of, or written consent to, any amendment, modification or waiver of a particular provision of the Parent Credit Facility by a particular Lender shall evidence the consent by such Lender required under this Section with respect to an amendment, modification or waiver of the identical provision contained in this Agreement and/or the Loan Documents, without the necessity for any further action hereunder or under the Loan Documents. Notwithstanding anything in this Section 11.5 to the contrary, no amendment, modification, waiver or consent shall be made with respect to Section 10 without the consent of the Agent to the extent it affects the Agent. 11.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent and the Lenders and their respective successors and assigns; provided, however, that, except as provided in Section 11.16, the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of all of the Lenders, and any such assignment or transfer without such consent shall be null and void. Each Lender may sell participations in all or part of any Loan, or all or part of its Notes or Loan Commitments, to another bank or other entity, in which event, without limiting the foregoing, the provisions of the Loan Documents (including, without limitation, the Interest Rate Agreement) shall inure to the benefit of each purchaser of a participation; provided, however, the pro rata treatment of payments, as described in Section 4.2 hereof, shall be determined as if such Lender had not sold such participation. Any Lender that sells one or more participations to any Person shall not be relieved by virtue of such participation from any of its obligations to Borrower under this Agreement relating to the Loans. In the event any Lender shall sell any participation, such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower relating to the Loans, including, without limitation, the right to approve any amendment, 48 modification or waiver of any provision of this Agreement other than amendments, modifications or waivers with respect to (i) any fees payable hereunder to the Lenders, (ii) the amount of principal or the rate of interest payable on, or the dates fixed for the scheduled repayment of principal of, the Loans and (iii) the release of the Liens on any of the Collateral. (b) Each Lender may assign to one or more Lenders or any other Person all or a portion of its interests, rights and obligations under this Agreement; provided, however, that (i) the aggregate amount of the Loan Commitments and the Loans of the assigning Lender subject to each such assignment shall in no event be less than $2,000,000, each such assignment shall be in a constant and not varying percentage of all such assigning Lender's rights and obligations under the Loan Documents and each Lender hereunder shall also be a "Lender" under the Parent Credit Facility; (ii) other than in the case of an assignment to another Lender (that is, at the time of the assignment, a party hereto) or to an Affiliate of such Lender or to a Federal Reserve Bank, the Agent and, so long as no Event of Default shall have occurred and be continuing, the Borrower must each give its prior written consent, which consents shall not be unreasonably withheld, and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance an Assignment and Acceptance in the form of Exhibit D hereto (each an "Assignment and Acceptance") with blanks appropriately completed, together with any Note or Notes subject to such assignment and a processing and recording fee of $3,000.00 paid by the assignee (for which the Borrower will have no liability). Upon such execution, delivery and acceptance, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall still have indemnification rights surviving as provided in Section 11.8 hereof). Notwithstanding anything contained in this Agreement to the contrary, any Lender may at any time assign all or any portion of its rights under this Agreement and the Notes issued to it as collateral to a Federal Reserve Bank; provided that no such assignment shall release such Lender from any of its obligations hereunder. (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Lender assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant thereto; (ii) such Lender assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition 49 of the Borrower or any other Party or the performance or observance by the Borrower or any other Party of any of its obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 6.2 hereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such Lender assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (d) The entries in the records of the Agent as to each Assignment and Acceptance delivered to it and the names and addresses of the Lenders and the Loan Commitments of, and principal amount of the Loans owing to, each Lender from time to time shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Lenders may treat each Person the name of which is recorded in the books and records of the Agent as a Lender hereunder for all purposes of this Agreement and the other Loan Documents. (e) Upon the Agent's receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee thereunder, together with any Note or Notes subject to such assignment and the written consent to such assignment, the Agent shall, if such Assignment and Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in its records and (iii) give prompt notice thereof to the Borrower. Within five Business Days after receipt of notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Notes new Notes to the order of such assignee in an amount equal to the Loan Commitments and the Loans (or either of them) assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Loan Commitment and Loans (or either of them) hereunder, new Notes to the order of the assigning Lender in an amount equal to the Loan Commitment and the Loans (or either of them) retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the respective Note. Thereafter, such surrendered Notes shall be marked renewed and substituted and the originals thereof delivered to the Borrower (with copies, certified by the Borrower as true, correct and complete, to be retained by the Agent). (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 11.6, disclose to the assignee or participant 50 or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower provided that such Person agrees in writing to the confidentiality obligations set forth in Section 11.15 hereof. 11.7 Limitation of Interest. The Borrower and the Lenders intend to strictly comply with all applicable federal and Texas laws, including applicable usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to apply to the Notes or any other Loan Documents despite the intention and desire of the parties to apply the usury laws of the State of Texas). Accordingly, the provisions of this Section 11.7 shall govern and control over every other provision of this Agreement or any other Loan Document which conflicts or is inconsistent with this Section, even if such provision declares that it controls. As used in this Section, the term "interest" includes the aggregate of all charges, fees, benefits or other compensation which constitute interest under applicable law, provided that, to the maximum extent permitted by applicable law, (a) any non-principal payment shall be characterized as an expense or as compensation for something other than the use, forbearance or detention of money and not as interest, and (b) all interest at any time contracted for, reserved, charged or received shall be amortized, prorated, allocated and spread, in equal parts during the full term of the Obligations. In no event shall the Borrower or any other Person be obligated to pay, or any Lender have any right or privilege to reserve, receive or retain, (a) any interest in excess of the maximum amount of nonusurious interest permitted under the laws of the State of Texas or the applicable laws (if any) of the United States or of any other state, or (b) total interest in excess of the amount which such Lender could lawfully have contracted for, reserved, received, retained or charged had the interest been calculated for the full term of the Obligations at the Ceiling Rate. On each day, if any, that the interest rate (the "Stated Rate") called for under this Agreement or any other Loan Document exceeds the Ceiling Rate, the rate at which interest shall accrue shall automatically be fixed by operation of this sentence at the Ceiling Rate for that day, and shall remain fixed at the Ceiling Rate for each day thereafter until the total amount of interest accrued equals the total amount of interest which would have accrued if there were no such ceiling rate imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the Ceiling Rate, in which case, the provisions of the immediately preceding sentence shall again automatically operate to limit the interest accrual rate to the Ceiling Rate. The daily interest rates to be used in calculating interest at the Ceiling Rate shall be determined by dividing the applicable Ceiling Rate per annum by the number of days in the calendar year for which such calculation is being made. None of the terms and provisions contained in this Agreement or in any other Loan Document (including, without limitation, Section 9.1 hereof) which directly or indirectly relate to interest shall ever be construed without reference to this Section 11.7, or be construed to create a contract to pay for the use, forbearance or detention of money at an interest rate in excess of the Ceiling Rate. If the term of any Obligation is shortened by reason of acceleration of maturity as a result of any Default or by any other cause, or by reason of any required or permitted prepayment, and if for that (or any other) reason any Lender at any time, including but not limited to, the stated maturity, is owed or receives (and/or has received) interest in excess of interest calculated at the Ceiling Rate, then and in any such event all of any such excess interest shall be canceled automatically 51 as of the date of such acceleration, prepayment or other event which produces the excess, and, if such excess interest has been paid to such Lender, it shall be credited pro tanto against the then-outstanding principal balance of the Borrower's obligations to such Lender, effective as of the date or dates when the event occurs which causes it to be excess interest, until such excess is exhausted or all of such principal has been fully paid and satisfied, whichever occurs first, and any remaining balance of such excess shall be promptly refunded to its payor. 11.8 Survival. The obligations of the Borrower under Sections 7.10, 11.3 and 11.4 hereof and all other obligations of the Borrower in any other Loan Document (to the extent stated therein), and the obligations of the Lenders under Section 10.5 and 11.7 hereof, shall survive the repayment of the Loans and the termination of the Loan Commitments. 11.9 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 11.12 Severability. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of any Loan Document shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions of such Loan Document shall not be affected or impaired thereby. 11.13 Tax Forms. With respect to each Lender which is organized under the laws of a jurisdiction outside the United States, on the day of the initial borrowing from each such Lender hereunder and from time to time thereafter if requested by the Borrower or the Agent, such Lender shall provide the Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Lender's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Lender hereunder or other documents satisfactory to the Lender and the Agent indicating that all payments to be made to such Lender hereunder are subject to such tax at a rate reduced by an applicable tax treaty. Unless the Borrower and the Agent shall have received such forms or such documents indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, 52 the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States. 11.14 Venue. The Borrower hereby irrevocably (a) agrees that any legal proceeding against the Agent or any Lender arising out of or in connection with the Loan Documents shall be brought in the district courts of Harris County, Texas, or in the United States District Court for the Southern District of Texas, Houston Division (collectively, the "Houston Courts"); (b) submits to the non-exclusive jurisdiction of the Houston Courts; (c) agrees and consents that service of process may be made upon it in any proceeding arising out of the Loan Documents or any transaction contemplated thereby by service of process as provided by Texas law; (d) WAIVES, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of any Loan Document or the transactions contemplated thereby in the Houston Courts; and (e) WAIVES any claim that any such suit, action or proceeding in any Houston Court has been brought in an inconvenient forum. All of the obligations of the Borrower under the Loan Documents are performable in Harris County, Texas. Nothing herein shall affect the right of the Agent or any Lender to commence legal proceedings or otherwise proceed against the Borrower in any jurisdiction or to serve process in any manner permitted by applicable law. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions in any manner provided by law. 11.15 Confidentiality. Each Lender agrees to comply with its customary procedures to keep any information delivered or made available by the Borrower to it confidential from anyone other than Persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering commitments, the Loans or the Loan Documents, provided that nothing herein shall prevent any Lender from disclosing such information (a) to any other Lender, (b) to any Person if reasonably incidental to the administration of the Loans, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority having jurisdiction over such Lender, (e) which has been publicly disclosed, (f) in connection with any litigation to which any Lender, the Agent, or their respective Affiliates may be a party, (f) to the extent reasonably required or desirable in connection with the exercise of any remedy hereunder or under any Loan Document, (h) to such Lender's legal counsel and independent auditors, and (i) to any actual or proposed participant or assignee of all or part of its Loans, Loan Commitment or participations hereunder. 11.16 Permitted Transfer to a US Subsidiary. Upon thirty (30) days' prior written notice to the Agent, the Borrower may assign and transfer all of its duties, liabilities and obligations under this Agreement and under the other Loan Documents to any Subsidiary of the Parent which is organized in the United States and substitute such Subsidiary for the "Borrower" for all purposes under this Agreement and the other Loan Documents. In the event of any such 53 transfer, the present Borrower, Sterling Pulp Chemicals, Ltd., shall be released from all of its duties, liabilities and obligations hereunder subject to and contingent upon the following: (i) assumption by the applicable Subsidiary of all of the duties, liabilities and obligations of Sterling Pulp Chemicals, Ltd. under this Agreement and the other Loan Documents; (ii) Section 3.2(d) hereof shall have been amended to require amortization of the unpaid principal balance of the Loans in equal installments due and payable (x) on the later of October 1, 1997 or the Quarterly Date first occurring after an assignment pursuant to this Section, (y) on each Quarterly Date thereafter prior to the Maturity Date and (z) on the Maturity Date; (iii) transfer and conveyance by Sterling Pulp Chemicals, Ltd. to the applicable Subsidiary of all rights, titles and interests, then currently owned or thereafter acquired, in and to the Cash Flow Account, the Bond Documents and the Bonds; (iv) ratification by the Parent of its Guaranty; and (v) review and approval by the Agent (such approval not to be unreasonably withheld) of the documentation evidencing such transfer and evidencing the satisfaction of the above-described conditions precedent. Upon satisfaction of the above-described conditions precedent, the Agent shall execute and deliver to Sterling Pulp Chemicals, Ltd. a written release from any further duties, liabilities or obligations under this Agreement or any of the Loan Documents. The release of Sterling Pulp Chemicals, Ltd. from its duties, liabilities and obligations under this Agreement and the other Loan Documents shall not become effective until the execution and delivery of such written release by the Agent. 11.17 Canadian Taxes. All payments made by the Borrower under this Agreement, under the Notes or under any of the other Loan Documents are to be made without any deduction or withholding for or on account of any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including, without limitation, interest, penalties and additions thereto) that is imposed by any Canadian Governmental Authority in respect of a payment under this Agreement, under the Notes or under any of the other Loan Documents (a "Canadian Tax"). If the Borrower is required by any applicable law, rule or regulation to make any deduction or withholding for or on account of any Canadian Tax from any payment to be made by it under this Agreement, under the Notes or under any other Loan Documents, then the Borrower shall (i) promptly notify the Lender that is entitled to such payment of such requirement, in writing (with a copy to the Agent) to so deduct or withhold such Canadian Tax, (ii) pay to the relevant authorities the full amount required to be so deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required or 54 receiving notice that such amount has been assessed against such Lender, (iii) promptly forward to such Lender an official receipt (or certified copies thereof), or other documentation reasonably acceptable to such Lender, evidencing such payment to such authorities (with copies to the Agent) and (iv) pay, to the extent permitted by law, to the Agent for the account of such Lender, such additional amount as is necessary to ensure that the total amount actually received by such Lender will equal the full amount of the payment such Lender would have received had no such deduction or withholding been required. The provisions of this Section shall not apply with respect to Canadian Taxes paid or incurred by any Lender organized under the laws of Canada (or a Province of Canada) and accruing after a transfer to a Subsidiary of the Parent organized in the United States pursuant to Section 11.16 hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. STERLING PULP CHEMICALS, LTD. By: /s/ Stewart H. Yonts --------------------- Name: Stewart H. Yonts ----------------- Title: Treasurer ---------- Address for Notices: 2 Gibbs Road Toronto, Ontario, Canada M9B 1R1 Attention: Mr. Mark A. Davis Telecopy No.: (416) 239-8091 55 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent and as a Lender By: /s/ Gregory R. Ford --------------------- Gregory R. Ford, Vice President Address for Notices: Loan Commitment: 712 Main Street Houston, Texas 77002 $6,500,000 Attention: Mr. Gregory R. Ford Telecopy No.: (713) 216-6387 56 [STERLING PULP CHEMICALS, LTD. LETTERHEAD] REQUEST FOR EXTENSION OF CREDIT ------------------------------- ________________, 199____ Texas Commerce Bank National Association, as Agent 712 Main Street Houston, Texas 77002 Attention: Manager, Refining and Petrochemicals Group Gentlemen: The undersigned hereby certifies that the undersigned is the _________________________________ of STERLING PULP CHEMICALS, LTD., a corporation organized under the laws of the Province of Ontario, Canada (the "Borrower"), and that as such the undersigned is authorized to execute this Request for Extension of Credit (the "Request") on behalf of the Borrower pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of September 28, 1995, by and among the Borrower, Texas Commerce Bank National Association, as Agent, and the Lenders a party thereto. The Loan being requested hereby is to be in the amount set forth in (b) below and is requested to be made on __________________, 199____, which is a Business Day. The undersigned further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified herein): (a) As of the date hereof, the unused aggregate amount of the Loan Commitments is: $__________ (b) The Borrower hereby requests under this Request a Loan in the amount of $__________. (c) Except to the extent that such representations and warranties expressly relate to an earlier specified date, the representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. EXHIBIT A to Credit Agreement Page 1 (d) No event which has had (or could reasonably be expected to have) a Material Adverse Effect has occurred and is continuing. (e) No Default or Event of Default has occurred and is continuing or will occur as a result of the making of the Loan requested hereby. Thank you for your attention to this matter. Very truly yours, STERLING PULP CHEMICALS, LTD. By: _______________________________ Name:______________________________ Title:_____________________________ EXHIBIT A to Credit Agreement Page 2 SUBSIDIARIES ------------ 1. Sterling Chemicals International, Inc., a Delaware corporation (100% owned by Borrower) 2. Sterling Chemicals Energy, Inc., a Delaware corporation (100% owned by Borrower) 3. Sterling Canada, Inc., a Delaware corporation (100% owned by Borrower) 4. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100% owned by Borrower) 5. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling Canada, Inc.) 6. Sterling Pulp Chemicals US, Inc., a Delaware corporation (100% owned by Sterling Canada, Inc.) 7. Sterling Pulp Chemicals, Ltd., an Ontario corporation (100% owned by Sterling Canada, Inc.) EXHIBIT B NOTE Houston, Texas $__________________ _____________, 199___ FOR VALUE RECEIVED, STERLING PULP CHEMICALS, LTD. ("Maker"), a ----- corporation organized under the laws of the Province of Ontario, Canada, promises to pay to the order of _______________________________________________ ("Payee"), a _________________, at the principal office of Texas Commerce Bank National Association, a national banking association, 712 Main Street, Houston, Harris County, Texas 77002, in immediately available funds and in lawful money of the United States of America, the principal sum of ________________________________________________________ Dollars ($__________________) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the rate or rates provided in that certain Interest Rate Agreement (as amended, supplemented, restated or replaced from time to time, the "Interest Rate Agreement") attached as Schedule 1 to the Credit Agreement (hereinafter defined); provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate. Any term defined in the Interest Rate Agreement or in that certain Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement") dated as of September 28, 1995 among Maker, certain signatory financial institutions named therein, and Texas Commerce Bank National Association, as Agent, which is used in this note and which is not otherwise defined in this note shall have the meaning ascribed to it in the Credit Agreement or the Interest Rate Agreement, as the case may be. 1. Credit Agreement; Advances; Security. This note has been issued pursuant to the terms of the Credit Agreement, and is one of the Notes referred to in the Credit Agreement. Advances against this note by Payee or other holder hereof shall be governed by the terms and provisions of the Credit Agreement. Reference is hereby made to the Credit Agreement for all purposes. Payee is entitled to the benefits of and security provided for in the Credit Agreement. The unpaid principal balance of this note at any time shall be the total of all amounts lent or advanced against this note less the amount of all payments or permitted prepayments made on this note and by or for the account of Maker. All loans and advances and all payments and permitted prepayments made hereon may be endorsed by the holder of this note on a schedule which may be attached hereto (and thereby made a part hereof for all purposes) or otherwise recorded in the holder's records; provided, that any failure to make notation (or any error in such notation) of (a) any advance shall not cancel, limit or otherwise affect Maker's obligations or any holder's rights with respect to that advance, or (b) any payment or permitted prepayment EXHIBIT C to Credit Agreement Page 1 of principal shall not cancel, limit or otherwise affect Maker's entitlement to credit for that payment as of the date received by the holder. 2. Mandatory Payments of Principal and Interest. (a) Accrued and unpaid interest on the unpaid principal balance of this note shall be due and payable on the Interest Payment Dates in accordance with the terms of the Credit Agreement and the Interest Rate Agreement. (b) The principal of this note shall be due and payable in quarterly installments due on each Quarterly Date, beginning on October 1, 1997, equal to ___________% times the amount provided under Section 3.2(d) of the Credit Agreement (subject to adjustment as provided in the Credit Agreement). On the Maturity Date, the entire unpaid principal balance of this note and all accrued and unpaid interest on the unpaid principal balance of this note shall be finally due and payable. (c) The Credit Agreement provides for required prepayments of the indebtedness evidenced hereby upon terms and conditions specified therein. 3. No Usury Intended; Spreading. Notwithstanding any provision to the contrary contained in this note or any of the other Loan Documents, it is expressly provided that in no case or event shall the aggregate of (i) all interest on the unpaid balance of this note, accrued or paid from the date hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to this note or any of the other Loan Documents, which under applicable laws are or may be deemed to constitute interest upon the indebtedness evidenced by this note from the date hereof, ever exceed the Ceiling Rate. In this connection, Maker and Payee stipulate and agree that it is their common and overriding intent to contract in strict compliance with applicable federal and Texas usury laws (and the usury laws of any other jurisdiction whose usury laws are deemed to apply to this note or any of the other Loan Documents despite the intention and desire of the parties to apply the usury laws of the State of Texas). In furtherance thereof, none of the terms of this note or any of the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Ceiling Rate. Maker or other parties now or hereafter becoming liable for payment of the indebtedness evidenced by this note shall never be liable for interest in excess of the Ceiling Rate. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the holder of this note shall credit against the principal of this note (or, if such indebtedness shall have been paid in full, shall refund to the payor of such interest) such portion of said interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by applicable law, be amortized, EXHIBIT C to Credit Agreement Page 2 prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note. The provisions of this Paragraph shall control all agreements, whether now or hereafter existing and whether written or oral, between Maker and Payee. 4. Default. The Credit Agreement provides for the acceleration of the maturity of this note and other rights and remedies upon the occurrence of certain events specified therein. 5. Waivers by Maker and Others. Except to the extent, if any, that notice of default is expressly required herein or in any of the other Loan Documents, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or to maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. 6. Paragraph Headings. Paragraph headings appearing in this note are for convenient reference only and shall not be used to interpret or limit the meaning of any provision of this note. 7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. 8. Successors and Assigns. This note and all the covenants and agreements contained herein shall be binding upon, and shall inure to the benefit of, the respective legal representatives, heirs, successors and assigns of Maker and Payee. 9. Records of Payments. The records of Payee shall be prima facie evidence of the amounts owing on this note. 10. Severability. If any provision of this note is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this note shall not be affected thereby, and this note shall be liberally construed so as to carry out the intent of the parties to it. EXHIBIT C to Credit Agreement Page 3 11. Business Loans. Maker warrants and represents to Payee and all other holders of this note that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One. STERLING PULP CHEMICALS, LTD. By: __________________________ Name:_________________________ Title:________________________ EXHIBIT C to Credit Agreement Page 4 ASSIGNMENT AND ACCEPTANCE ------------------------- Dated: ___________________, 199___ Reference is made to the Credit Agreement dated as of September 28, 1995 (as restated, amended, modified, supplemented and in effect from time to time, the "Credit Agreement"), among Sterling Pulp Chemicals, Ltd., a corporation organized under the laws of the Province of Ontario, Canada (the "Borrower"), the Lenders a party thereto, and Texas Commerce Bank National Association, as Agent (the "Agent"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement. This Assignment and Acceptance, between the Assignor (as defined and set forth on Schedule I hereto and made a part hereof) and the Assignee (as defined and set forth on Schedule I hereto and made a part hereof) is dated as of the Effective Date (as set forth on Schedule I hereto and made a part hereof). 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date, an undivided ________% interest (the "Assigned Interest") in and to all the Assignor's rights and obligations under the Credit Agreement as set forth on Schedule I (the "Assigned Facility"). 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, the Parent or the Parent's Subsidiaries or the performance or observance by the Borrower, the Parent or the Parent's Subsidiaries of any of its respective obligations under the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto; and (iii) attaches the Note held by it evidencing the Assigned Facility, as the case may be, and requests that the Agent exchange such Note for a new Note payable to the Assignor (if the Assignor has retained any interest in the Assigned Facility) and a new Note payable to the Assignee in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance and, upon the effectiveness of this Assignment and Acceptance, EXHIBIT D to Credit Agreement Page 1 that it will be in compliance with Section 11.6 of the Credit Agreement; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 6.2 thereof, or if later, the most recent financial statements delivered pursuant to Section 7.2 thereof, and such other documents and information as it has deemed appropriate to make its own credit analysis; (iii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; (vi) if the Assignee is organized under the laws of a jurisdiction outside the United States, attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied the information requested on the administrative questionnaire submitted by the Agent. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance by it and the Borrower and recording by the Agent pursuant to Section 11.6 of the Credit Agreement, effective as of the Effective Date (which Effective Date shall, unless otherwise agreed to by the Agent, be at least five Business Days after the execution of this Assignment and Acceptance). 5. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee, whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to the Effective Date by the Agent or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. EXHIBIT D to Credit Agreement Page 2 7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective duly authorized officers on Schedule I hereto. EXHIBIT D to Credit Agreement Page 3 SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE Legal Name of Assignor: ______________________________________________ Legal Name of Assignee: ______________________________________________ Effective Date of Assignment: __________________, 199___ Assigned Principal Facility Amount Assigned -------- --------------- Loans: $______________ Accepted: TEXAS COMMERCE BANK NATIONAL __________________________________ ASSOCIATION, as Agent as Assignor By: _____________________________ By: _____________________________ Name: ___________________________ Name: ___________________________ Title: __________________________ Title: __________________________ _________________________________ as Assignee By: _____________________________ Name: ___________________________ Title: __________________________ EXHIBIT D to Credit Agreement Page 1 Acknowledged and Agreed: STERLING PULP CHEMICALS, LTD. By: _____________________________ Name: ___________________________ Title: __________________________ EXHIBIT D to Credit Agreement Page 2 COMPLIANCE CERTIFICATE ---------------------- The undersigned hereby certifies that the undersigned is the ______________________________ of STERLING PULP CHEMICALS, LTD., a corporation organized under the laws of the Province of Ontario, Canada (the "Borrower"), and that as such the undersigned is authorized to execute this certificate on behalf of the Borrower pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of September 28, 1995, by and among the Borrower, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, as Agent, and the financial institutions a party thereto; and that a review of the Borrower, the Parent and the Parent's Subsidiaries has been made under the supervision of the undersigned with a view to determining whether the Borrower, the Parent and the Parent's Subsidiaries have fulfilled all of their respective obligations under the Credit Agreement, the Notes and the other Loan Documents; and on behalf of the Borrower further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) The financial statements delivered to the Agent concurrently with this Compliance Certificate have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present the financial condition and results of operations of the applicable Persons as at the end of, and for, the period indicated (subject, in the case of Quarterly Financial Statements and monthly statements of income and cash flow, to normal changes resulting from year-end adjustments). (b) No Default or Event of Default has occurred and is continuing. In this regard, the compliance with the provisions of Sections 7.3 of the Credit Agreement is as follows: (i) SECTION 7.3(A) -- DEBT TO EBITDA RATIO Actual Required ------ -------- ______ to 1.00 4.00 to 1.00 (ii) SECTION 7.3(B) -- FIXED CHARGE COVERAGE RATIO Actual Required ------ -------- ______ to 1.00 1.25 to 1.00 EXHIBIT E to Credit Agreement Page 1 (iii) SECTION 7.3(C) -- ADJUSTED FIXED CHARGE RATIO (only required in the case of dividends) Actual Required ------ -------- ______ to 1.00 1.10 to 1.00 (iv) SECTION 7.3(D) -- NET WORTH Actual Required ------ -------- $_____________ $_______________ (v) SECTION 7.3(E) -- CURRENT RATIO Actual Required ------ -------- ______ to 1.00 1.10 to 1.00 DATED as of ____________________, 199___. ___________________________________ [SIGNATURE OF AUTHORIZED OFFICER] EXHIBIT E to Credit Agreement Page 2 EXHIBIT F PLANT LAND Tract I (Easement Tract: All that tract or parcel of land situate, lying and being in Land Lots 153 and 170 of the 11th Land District of Lowndes County, Georgia and being all of that certain 6.80 acres of land depicted as Tract IV upon that certain plat or map of survey made by Robin Nelson Harris, Georgia Registered Land Surveyor No. 2101 dated 8/14/95 entitled "Survey for Valdosta-Lowndes County Industrial Authority", a copy of which is of record in Plat Record Book 38, page 200, Lowndes County Deed Records and which is more particularly described, by metes and bounds, as follows: Commence at a point on the easterly margin of the right of way of Perimeter Road (200 foot right of way) which is located north 00 degrees 53 minutes 06 seconds east a distance of 1968.90 feet from the northeast corner of the intersection of the right of way of Perimeter Road and the right of way of Georgia Southern and Florida Railroad (100 foot right of way); thence north 89 degrees 15 minutes 00 seconds east 930.87 feet; thence south 01 degrees 05 minutes 36 seconds west 191.85 feet; thence south 83 degrees 47 minutes 00 seconds east 517.81 feet; thence south 00 degrees 56 minutes 08 seconds west 118.78 feet; thence north 87 degrees 26 minutes 55 seconds west 185.43 feet; thence north 56 degrees 35 minutes 51 seconds west 65.94 feet; thence south 82 degrees 59 minutes 57 seconds west 380 feet; thence north 72 degrees 43 minutes 37 seconds west 862.95 feet to the easterly margin of the right of way of Perimeter Road; and thence run north 00 degrees 53 minutes 06 seconds east 100 feet to the point of beginning. Tract 2: All that tract or parcel of land situate, lying and being in Land Lot 170 of the 11th Land District of Lowndes County, Georgia and being all of that certain 28.00 acres of land depicted as Tract I upon that certain plat or map of survey made by Robin Nelson Harris, Georgia Registered Land Surveyor No. 2101 dated 8-14-95 entitled "Survey for Valdosta-Lowndes County Industrial Authority", a copy of which is of record in Plat Record Book 38, page 200, Lowndes County Deed Records and which is more particularly described by metes and bounds as follows: Commence at a point located on the northerly margin of the right of way of Georgia Southern and Florida Railroad (100 foot right of way) which is located south 87 degrees 07 minutes 21 seconds east of the northeast corner of the intersection of Georgia Southern and Florida Railroad right of way with Perimeter Road right of way a distance of 1487.32 feet; thence north 07 degrees 00 minutes 03 seconds west 1657.59 feet; thence south 87 degrees 26 minutes 55 seconds east 185.43 feet; thence south 87 degrees 26 minutes 55 seconds east 451.86 feet; thence south 87 degrees 26 minutes 55 seconds east 113.89 feet; thence south 07 degrees 00 minutes 03 seconds east 1635.44 feet to a point on the northerly margin of Georgia Southern and Florida Railroad right of way; and thence run north 89 degrees 07 minutes 21 seconds west 747.82 feet to the point of beginning. Page 1 of 2 EXHIBIT F Survey map for Valdosta - Lowndes County Tract 1 (Easement Tract) and Tract 2 [MAP APPEARS HERE] SCHEDULE 1 INTEREST RATE AGREEMENT THIS INTEREST RATE AGREEMENT (this "Agreement") is attached as SCHEDULE 1 to the Credit Agreement (as amended, supplemented, restated or replaced from time to time, the "Credit Agreement"), of even date herewith, by and among STERLING PULP CHEMICALS, LTD. ("Borrower"), a corporation organized under the laws of the Province of Ontario, Canada, certain financial institutions from time to time a party thereto, and TEXAS COMMERCE BANK NATIONAL ASSOCIATION (in such capacity "Agent"), a national banking association acting as agent for such financial institutions. RECITALS 1. Any capitalized term defined in the Credit Agreement which is used in this Agreement shall, unless otherwise defined herein, have the meaning ascribed to it in the Credit Agreement. 2. For convenience, Borrower and Agent desire to gather the provisions of the Loan Documents relating solely to interest, including the selection of interest rate options, into a separate agreement. AGREEMENTS NOW, THEREFORE, in consideration of the execution and delivery of the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS Capitalized words and phrases used in this Agreement have the meanings provided below. Unless otherwise stated, references to sections are to sections in this Agreement. Additional Interest means the aggregate of all amounts accrued or paid pursuant to the Notes or any of the other Loan Documents (other than interest on the Notes at the Stated Rate) which, under applicable laws, are or may be deemed to constitute interest on the indebtedness evidenced by the Notes. Base Rate means for any day a rate per annum equal to the lesser of (a) the greater of (1) the Prime Rate for that day and (2) the Federal Funds Rate for that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent shall have determined (which determination shall be conclusive and binding, absent manifest error) that it is unable to ascertain the Federal Funds Rate for any reason, including, without limitation, the inability or failure of Agent to obtain SCHEDULE 1 to Credit Agreement sufficient quotations in accordance with the terms hereof, the Base Rate shall, until the circumstances giving rise to such inability no longer exist, be the lesser of (a) the Prime Rate or (b) the Ceiling Rate. Base Rate Borrowing means that portion of the principal balance of the Loans at any time bearing interest at the Base Rate. Ceiling Rate means, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter One) for that day. Agent may from time to time, as to current and future balances, implement any other ceiling under Chapter One by notice to Borrower, if and to the extent permitted by Chapter One. Without notice to Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. Chapter One means Chapter One of Title 79, Texas Revised Civil Statutes, 1925, as amended. Eurodollar Business Day means a Business Day on which transactions in United States dollar deposits between banks may be carried on in whatever Eurodollar interbank market may be selected by Agent in accordance herewith. Eurodollar Interbank Rate means, for each Interest Period, the rate of interest per annum, rounded, if necessary, to the next highest whole multiple of one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston, Texas time (or as soon thereafter as practicable), on the date two Eurodollar Business Days before the first day of such Interest Period, to be the arithmetic average of the prevailing rates per annum at the time of determination and in accordance with the then existing practice in the applicable market, for the offering to Agent by one or more prime banks selected by Agent in its sole discretion, in whatever Eurodollar interbank market may be selected by Agent in its sole discretion, of deposits in Dollars for delivery on the first day of such Interest Period and having a maturity equal to the length of such Interest Period and in an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to which such Interest Period relates. Each determination by Agent of the Eurodollar Interbank Rate shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. Eurodollar Rate means for any day a rate per annum equal to the lesser of (a) the sum of (1) the Eurodollar Interbank Rate in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing plus (2) the applicable Margin Percentage in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing and (b) the Ceiling 2 Rate. Each Eurodollar Rate is subject to adjustments for reserves and other matters as provided for in Section 2.3 hereof. Eurodollar Rate Borrowing means each portion of the principal balance of the Loans at any time bearing interest at a Eurodollar Rate. Eurodollar Reserve Requirement means, on any day, for any Loans of any Lender bearing interest at the Eurodollar Rate and any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained by such Lender during such Interest Period under Regulation D against "Eurocurrency liabilities" (as such term is used in Regulation D). Each determination of the Eurodollar Reserve Requirement by a Lender shall be conclusive and binding, absent manifest error, and may be computed using any reasonable averaging and attribution method. Federal Funds Rate means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by Agent in its sole and absolute discretion. Funding Loss means, with respect to (a) Borrower's payment of principal of a Eurodollar Rate Borrowing on a day before the last day of the applicable Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate Borrowing on the date specified by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other than Base Rate Borrowings) on the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part thereof pursuant to Section 2.3, in each case whether voluntary or involuntary, any loss, expense, penalty, premium or liability incurred by any Lender (including but not limited to any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain a Loan). Interest Options means the Base Rate and each Eurodollar Rate, and "Interest Option" means either of them. Interest Payment Dates means (a) for Base Rate Borrowings, January 1, 1996 and the first day of each October, January, April and July thereafter prior to the Maturity Date and the Maturity Date; and (b) for Eurodollar Rate Borrowings, the end of the applicable Interest Period (and if such Interest Period exceeds three months' duration, quarterly, commencing on the first quarterly anniversary of the first day of such Interest Period) and the Maturity Date. 3 Interest Period means, for each Eurodollar Rate Borrowing, a period commencing on the date such Eurodollar Rate Borrowing began and ending on the numerically corresponding day which is, subject to availability, not less than 1 nor more than 12 months thereafter, as Borrower shall elect in accordance herewith; provided, (v) any Interest Period with respect to a Eurodollar Rate Borrowing which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (w) any Interest Period with respect to a Eurodollar Rate Borrowing which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of the appropriate calendar month; (x) no Interest Period shall ever extend beyond the Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a manner that the Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date. Margin Percentage means: (a) On any day prior to the first adjustment after the date hereof pursuant to clause (b) of this definition, 0.65; (b) the Margin Percentage for any day shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt to EBITDA Ratio for the Parent (on a consolidated basis) as of the last day of each March, June, September and December (beginning with the fiscal quarter ending on September 30, 1995) (such increase or decrease to be effective on the date that Borrower delivers the Quarterly Financial Statements for the fiscal quarter ending on such date to the Agent pursuant to the terms of the Credit Agreement):
Eurodollar Rate Debt to Borrowings Margin EBITDA Ratio Percentage - ------------------------------- ----------------- Greater than or equal to 3.50 1.25 Greater than or equal to 2.50 but less than 3.50 1.00 Greater than or equal to 1.50 but less than 2.50 0.75 Less than 1.50 0.65
4 Prime Rate means, on any day, the prime rate for that day as announced from time to time by TCB and thereafter entered in the minutes of its Loan and Discount Committee. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate or a favored rate, and TCB, Agent and each Lender disclaims any statement, representation or warranty to the contrary. TCB, Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. Rate Designation Date means that Business Day which is (a) in the case of Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such borrowing and (b) in the case of Eurodollar Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date three Eurodollar Business Days preceding the first day of any proposed Interest Period. Rate Designation Notice means a written notice substantially in the form of Exhibit A. Regulation D means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and includes any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. Stated Rate means the effective weighted per annum rate of interest applicable to the Loans. Without notice to Borrower or any other person or entity, the Stated Rate shall automatically fluctuate upward and downward in accordance with the provisions of this definition. Taxes means any tax, levy, impost, duty, charge or fee. 2. INTEREST OPTIONS FOR LOANS 2.1 Options Available. The outstanding principal balance of the Notes shall bear interest at the Base Rate; provided, that (1) all amounts, both principal and accrued interest, remaining past due beyond the grace period (if any) provided in the Credit Agreement shall bear interest at the Past Due Rate, and (2) subject to the provisions hereof, Borrower shall have the option of having all or any portion of the principal balances of the Notes from time to time outstanding bear interest at a Eurodollar Rate. The records of Agent with respect to Interest Options, Interest Periods and the amounts of Loans to which they are applicable shall be binding and conclusive, absent manifest error. Interest on the Loans shall be calculated at the Base Rate except where it is expressly provided pursuant to this Agreement that a Eurodollar Rate or the Past Due Rate is to apply. Interest on the amount of each advance against the Notes shall be computed on the amount of that advance and from the date it is made. Notwithstanding anything in this Agreement to the contrary, for the full term of the Notes the interest rate produced by the aggregate of all sums paid or agreed to be paid to the holders of the Notes for the use, forbearance or detention of the debt evidenced thereby (including all interest on the Notes at the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate. 5 2.2 Designation and Conversion. Borrower shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Subject to the last sentence of Section 2.1 and the provisions of Section 2.3, Borrower may elect to have a Eurodollar Rate apply or continue to apply to all or any portion of the principal balance of the Notes. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion shall not change the respective outstanding principal balances of the Notes. The Interest Options shall be designated or converted in the manner provided below: (a) Borrower shall give Agent telephonic notice, promptly confirmed by a Rate Designation Notice. Each such telephonic and written notice shall specify the amount of the Loan which is the subject of the designation, if any; the amount of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion and the Interest Period or Periods, if any, selected by Borrower. Such telephonic notice shall be irrevocable and shall be given to Agent no later than the applicable Rate Designation Date. (b) No more than three (3) Eurodollar Rate Borrowings shall be in effect at any time. (c) Each designation or conversion of a Eurodollar Rate Borrowing shall occur on a Eurodollar Business Day. (d) Unless the Borrower makes the payment required by Section 2.3(d) hereof, no Eurodollar Rate Borrowing shall be converted to a Base Rate Borrowing on any day other than the last day of the applicable Interest Period. (e) Each Eurodollar Rate Borrowing shall be in the amount of at least $1,000,000. (f) Each designation of an Interest Option with respect to the Notes shall apply to all of the Notes, respectively, ratably in accordance with their respective outstanding principal balances. If any Lender assigns an interest in any of its Notes when any Eurodollar Rate Borrowing is outstanding with respect thereto, then such assignee shall have its ratable interest in such Eurodollar Rate Borrowing. 2.3 Special Provisions Applicable to Eurodollar Rate Borrowings. (a) Options Unlawful. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by Agent or any Lender with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority shall at any time make it unlawful or impossible for Agent or any Lender to permit the establishment of or to maintain any Eurodollar Rate Borrowing, the commitment to establish 6 or maintain such Eurodollar Rate Borrowing shall forthwith be suspended and Borrower shall forthwith, upon demand by Agent to Borrower, (1) if required to avoid a violation of any Legal Requirement, convert the Eurodollar Rate Borrowing with respect to which such demand was made to a Base Rate Borrowing; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate each Lender for any additional cost or expense which each Lender may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Funding Loss which each Lender may incur as a result of such conversion. If, when Agent so notifies Borrower, Borrower has given a Rate Designation Notice specifying a Eurodollar Rate Borrowing but the selected Interest Period has not yet begun, such Rate Designation Notice shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Rate Designation Notice shall bear interest at the Base Rate until a different available Interest Option shall be designated in accordance herewith. (b) Increased Cost of Borrowings. If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive (whether or not having the force of law) of any central bank or Governmental Authority shall at any time, as a result of any portion of the principal balances of the Notes being maintained on the basis of a Eurodollar Rate: (1) subject any Lender (or make it apparent that any Lender is subject) to any Taxes, or any deduction or withholding for any Taxes, on or from any payment due under any Eurodollar Rate Borrowing or other amount due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or (2) change the basis of taxation of payments due from Borrower to any Lender under any Eurodollar Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of such Lender); or (3) impose, modify, increase or deem applicable any reserve requirement, special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by any Lender, or against deposits or accounts in or for the account of any Lender, or against loans made by any Lender, or against any other funds, obligations or other property owned or held by any Lender; or (4) impose on any Lender any other condition regarding any Eurodollar Rate Borrowing; 7 and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such Eurodollar Rate Borrowing, or reduce the amount of principal or interest received by any Lender, then, upon demand by Agent, Borrower shall pay to Agent, from time to time as specified by Agent, additional amounts which shall compensate each Lender for such increased cost or reduced amount. The determination by any Lender of the amount of any such increased cost, increased reserve requirement or reduced amount shall be conclusive and binding, absent manifest error. Each Lender will notify the Borrower through the Agent of any event occurring after the date of this Agreement which will entitle such Lender to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the applicable Eurodollar Rate Borrowing or will take such other action as the Borrower may reasonable request if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender shall have no obligation so to designate a different lending office which is located in the United States of America). (c) Inadequacy of Pricing and Rate Determination. If for any reason with respect to any Interest Period, the Agent (or, in the case of clause 3 below, the applicable Lender) shall have determined (which determination shall be conclusive and binding upon Borrower) that: (1) Agent is unable through its customary general practices to determine any applicable Eurodollar Rate, or (2) by reason of circumstances affecting the applicable market, generally, Agent is not being offered deposits in United States dollars in such market, for the applicable Interest Period and in an amount equal to the amount of any applicable Eurodollar Rate Borrowing requested by Borrower, or (3) any applicable Eurodollar Rate will not adequately and fairly reflect the cost to any Lender of making and maintaining such Eurodollar Rate Borrowing hereunder for any proposed Interest Period, then Agent shall give Borrower notice thereof and thereupon, (A) any Rate Designation Notice previously given by Borrower designating the applicable Eurodollar Rate Borrowing which has not commenced as of the date of such notice from Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until Agent shall notify Borrower that the circumstances giving rise to such notice from Agent no longer exist, each Rate Designation Notice requesting the applicable Eurodollar Rate shall be deemed a request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then outstanding shall be converted, 8 without any notice to or from Borrower, upon the termination of the Interest Period then in effect with respect to it, to a Base Rate Borrowing. (d) Funding Losses. Borrower shall indemnify each Lender against and hold each Lender harmless from any Funding Loss. This agreement shall survive the payment of the Notes. A certificate as to any additional amounts payable pursuant to this paragraph submitted to Borrower shall be conclusive and binding upon Borrower, absent manifest error. 3. MISCELLANEOUS 3.1 Funding Offices; Adjustments Automatic; Calculation Year. Any Lender may, if it so elects, fulfill its obligation as to any Eurodollar Rate Borrowing by causing a branch or affiliate of such Lender to make such Loan and may transfer and carry such Loan at, to or for the account of any branch office or affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of Borrower to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it for the account of such branch or affiliate. Without notice to Borrower or any other person or entity, each rate required to be calculated or determined under this Agreement shall automatically fluctuate upward and downward in accordance with the provisions of this Agreement. Interest at the Prime Rate shall be computed on the basis of the actual number of days elapsed in a year consisting of 365 or 366 days, as the case may be. All other interest required to be calculated or determined under this Agreement shall be computed on the basis of the actual number of days elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, the applicable interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which accrued. 3.2 Funding Sources. Notwithstanding any provision of this Agreement to the contrary and each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Rate Borrowing during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. 3.3 Affected Lenders. In the event a Lender ("Affected Lender") shall have (i) delivered a notice pursuant to this Agreement claiming that such Affected Lender is unable to extend Eurodollar Rate Loans to Borrower for reasons not generally applicable to the other Lenders, or 9 (ii) shall have requested compensation from Borrower under any of the provisions hereof to recover increased costs incurred by such Affected Lender which are not being incurred generally by the other Lenders, then, in any such case, Borrower or Agent may make written demand on such Affected Lender (with a copy to Borrower in the case of a demand by Agent and with a copy to Agent in the case of a demand by Borrower) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed Assignment and Acceptances within five (5) Business Days after the date of such demand, to one or more assignees permitted under Section 11.6 of the Credit Agreement (each, an "Eligible Assignee") which Borrower or Agent, as the case may be, shall have engaged for such purpose, all of such Affected Lender's rights and obligations under the Credit Agreement (including, without limitation, its Loan Commitment, its Note and all Loans owing to it) in accordance with Section 11.6 of the Credit Agreement. EXECUTED as of the 28th day of September, 1995. STERLING PULP CHEMICALS, LTD. By: /s/ Stewart H. Yonts --------------------- Name: Stewart H. Yonts ----------------- Title: Treasurer ---------- TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent By: /s/ Gregory R. Ford -------------------- Gregory R. Ford, Vice President 10 RATE DESIGNATION NOTICE Sterling Pulp Chemicals, Ltd., Texas Commerce Bank National Association, as Agent, and certain financial institutions executed and delivered that certain Credit Agreement (as amended, supplemented or restated from time to time, the "Credit Agreement") dated as of September 28, 1995. Schedule 1 to the Credit Agreement is entitled the "Interest Rate Agreement". Any term used herein and not otherwise defined herein shall have the meaning herein ascribed to it in the Interest Rate Agreement. In accordance with the Interest Rate Agreement, Borrower hereby notifies Agent of the exercise of an Interest Option. A. Current borrowings 1. Interest Options now in effect: _______________________ 2. Amounts: $_____________________ 3. Expiration of current Interest Periods, if applicable: B. Proposed election 1. Total Amount: $______________________ 2. Date Interest Option is to be effective: __________________________ 3. Interest Option to be applicable (check one): [ ] Base Rate [ ] Eurodollar Rate 4. Interest Period: ______ months (if available and if applicable) Borrower represents and warrants that the Interest Option and Interest Period selected above comply with all provisions of the Interest Rate Agreement. Date:_________________ STERLING PULP CHEMICALS, LTD. By: _______________________________ Name: _____________________________ Title: ____________________________ EXHIBIT A SCHEDULE 6.10 ERISA MATTERS NONE SCHEDULE 8.1 BORROWED MONEY INDEBTEDNESS NONE SCHEDULE 8.2 LIENS Liens existing under the Security Agreement dated as of August 1, 1988 between BP Chemicals Inc., formerly known as BP Chemicals America Inc., as secured party, and Sterling Chemicals, Inc. as debtor, securing obligations under the Production Agreement dated as of April 15, 1988 between those parties covering production related to the Production Agreement, proceeds of such production and equipment and fixtures related to the production, all as described in such Security Agreement. SCHEDULE 8.3 CONTINGENT LIABILITIES NONE SCHEDULE 8.8 INVESTMENTS DESCRIPTION ----------- PRIMEX, LTD.-COMMON STOCK (2,500 SHARES) PRIMEX, LTD. -SERIES "A " PREFERRED (7,957 SHARES) 50% OF S & L CO-GENERATION (A PARTNERSHIP) EX-10.4 6 EXHIBIT 10.4 Exhibit 10.4 CREDIT AGREEMENT CDN$20,000,000 REVOLVING LOAN FACILITY DATED AS OF APRIL 28, 1995 BETWEEN STERLING PULP CHEMICALS, LTD., AS BORROWER AND THE BANK OF NOVA SCOTIA, AS LENDER TABLE OF CONTENTS
Page ---- 1. Definitions .................................................... 1 1.1 Certain Defined Terms...................................... 1 1.2 Miscellaneous.............................................. 16 2. Commitments and Loans........................................... 16 2.1 ........................................................... 16 2.2 Prime Rate Borrowing....................................... 17 2.3 Bankers' Acceptances....................................... 17 2.4 Letters of Credit.......................................... 19 2.5 Terminations or Reductions of Revolving Loan Commitments... 20 2.6 Fees....................................................... 20 2.7 Evidence of Indebtedness and Manner of Payments............ 21 2.8 Use of Proceeds............................................ 22 2.9 Interest Act............................................... 22 2.10 Calculation of Interest and Fees........................... 22 2.11 Designated Amount.......................................... 22 3. Borrowings, Payments and Prepayments............................ 22 3.1 Borrowings................................................. 22 3.2 Payments; Prepayments...................................... 23 4. Payments; Computations, Etc..................................... 23 4.1 Payments................................................... 23 4.2 Certain Actions, Notices, Etc.............................. 24 5. Conditions Precedent............................................ 25 5.1 Initial Revolving Loans.................................... 25 5.2 All Revolving Loans........................................ 26 5.3 Additional Condition Precedent to the Issuance of the First Letter of Credit............................. 26 6. Representations and Warranties.................................. 26 6.1 Organization............................................... 26 6.2 Financial Statements....................................... 26 6.3 Enforceable Obligations; Authorization..................... 27 6.4 Other Borrowed Money Indebtedness.......................... 27 6.5 Litigation................................................. 27 6.6 Taxes...................................................... 27 6.7 Subsidiaries............................................... 28
i 6.8 No Untrue or Misleading Statements........................ 28 6.9 Solvency.................................................. 28 6.10 Compliance................................................ 28 6.11 Environmental Matters..................................... 28 6.12 Certain Business Matters.................................. 28 6.13 Additional Representations and Warranties Respecting Sterling in U.S. Facility..................... 29 6.14 Survival of Representations and Warranties................ 29 7. Affirmative Covenants.......................................... 29 7.1 Taxes, Existence, Regulations, Property, Etc.............. 29 7.2. Financial Statements and Information...................... 29 7.3 Financial Tests........................................... 30 7.4 Inspection................................................ 31 7.5 Further Assurances........................................ 31 7.6 Books and Records......................................... 31 7.7 Insurance................................................. 31 7.8 Notice of Certain Matters................................. 31 7.9 Increased Costs........................................... 32 7.10 Capital Adequacy.......................................... 33 8. Negative Covenants............................................. 34 8.1 Indebtedness.............................................. 34 8.2 Liens..................................................... 35 8.3 Contingent Liabilities.................................... 36 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets................................................ 36 8.5 Redemption, Dividends and Distributions................... 36 8.6 Nature of Business........................................ 37 8.7 Transactions with Affiliates.............................. 37 8.8 Loans and Investments..................................... 37 8.9 No Subsidiaries........................................... 37 8.10 Fiscal Year............................................... 37 9. Defaults....................................................... 38 9.1 Events of Default......................................... 38 9.2 Right of Setoff........................................... 40 9.3 Collateral Account........................................ 41 9.4 Preservation of Security for Unmatured Reimbursement Obligations.............................................. 41 9.5 Remedies Cumulative....................................... 42 10. Payment of Certain Amounts................................ 42
ii 11. Miscellaneous............................................ 42 11.1 Waiver................................................... 42 11.2 Notices.................................................. 42 11.3 Expenses, Etc............................................ 43 11.4 Indemnification.......................................... 43 11.5 Amendments, Etc.......................................... 44 11.6 Successors and Assigns................................... 44 11.7 Limitation of Interest................................... 44 11.8 Survival................................................. 45 11.9 Captions................................................. 45 11.10 Counterparts............................................. 45 11.11 Governing Law............................................ 45 11.12 Severability............................................. 45 11.13 Judgment Currency........................................ 45 11.14 Confidentiality.......................................... 46
iii EXHIBITS A -- Request for Extension of Credit B -- Borrowing Base Certificate C -- Subsidiaries/Affiliates D-1 -- Compliance Certificate (Borrower) D-2 -- Compliance Certificate (Sterling) SCHEDULES 8.1 -- Borrowed Money Indebtedness 8.2 -- Liens 8.3 -- Contingent Liabilities 8.8 -- Existing Investments iv CREDIT AGREEMENT THIS CREDIT AGREEMENT is made and entered into as of April 28, 1995 (the "Effective Date"), by and between STERLING PULP CHEMICALS, LTD., an Ontario corporation (the "Borrower"), and THE BANK OF NOVA SCOTIA, as lender (the "Lender"). The parties hereto agree as follows: 1. Definitions. 1.1 Certain Defined Terms. Unless a particular term, word or phrase is otherwise defined or the context otherwise requires, capitalized terms, words and phrases used herein or in the Loan Documents (as hereinafter defined) have the following meanings (all definitions that are defined in this Agreement in the singular to have the same meanings when used in the plural and vice versa): Accounts, Equipment, Intangibles and Inventory shall have the respective meanings assigned to them in the Personal Property Security Act (Ontario) in force on the Effective Date. Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the ratio of (a) EBITDA for the Rolling Four Quarters as of such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for such Rolling Four Quarters. Adjusted Fixed Charges shall mean (without duplication), for any period and with respect to any Person, (a) Fixed Charges for such period plus (b) any dividends on any equity interests in such Person of any class (except dividends payable solely in shares of common stock) paid during such period. Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation. For the purposes of this Agreement, Affiliates of the Borrower shall include Sterling, which owns all of the stock of Sterling Canada, Inc., and Sterling Canada, Inc., which owns all of the stock of the Borrower. Agent shall mean the Agent, as defined in the U.S. Facility. Agreement shall mean this Credit Agreement, as it may from time to time be amended, modified, restated or supplemented. Annual Financial Statements shall mean the annual consolidated financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows for such fiscal year, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with GAAP, and, in the case of Sterling, accompanied by a report and opinion of Coopers & Lybrand or other independent certified chartered or public accountants reasonably satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with GAAP. In the case of Sterling's financial statements, such statements shall be accompanied by a certificate of such accountants that in making the appropriate examination in connection with such report and opinion, such accountants did not become aware of any Default relating to the financial tests set forth in Section 7.3 hereof or, if in the opinion of such accountant any such Default exists, a description of the nature and status thereof. Bankers' Acceptance shall mean a draft or bill of exchange in Dollars drawn by the Borrower and accepted by the Lender pursuant to this Agreement. Bankers' Acceptance Fee shall mean the acceptance fee payable on the face amount of each Bankers' Acceptance, which fee shall be calculated and payable in the manner provided for in Section 2.3. Bankruptcy and Insolvency Act shall mean the Bankruptcy and Insolvency Act, (Canada), as amended, and any successor statute. Borrowed Money Indebtedness shall have the meaning ascribed to it in Section 8.1 hereof. Borrowing shall mean any and all utilizations of the Revolving Loan Commitment by the Borrower (including a conversion or rollover) consisting of a Prime Rate Borrowing, the acceptance by the Lender of one or more drafts or bills of exchange presented by the Borrower as Bankers' Acceptances, the issuance of a Letter of Credit or any combination thereof. Borrowing Base shall mean, as at any date, the amount of the Borrowing Base shown on the Borrowing Base Certificate then most recently delivered pursuant to Section 7.2 hereof, determined by calculating the amount equal to: (i) 85% of the aggregate amount of the Eligible Accounts at said date, plus (ii) the lesser of (I) 65% of the sum of (x) the aggregate amount of Eligible Inventory at said date and (y) seventy-five percent (75%) of the value (determined in accordance with GAAP) at said date of materials and supplies which are not Inventory under GAAP (provided that the amount 2 determined under this clause (y) shall not exceed $5,000,000) or (II) the amount determined in clause (i) above. In the absence of a Borrowing Base Certificate delivered as required by Section 7.2, the Lender shall determine the Borrowing Base from time to time in its reasonable discretion, taking into account all information reasonably available to it, and the Borrowing Base from time to time so determined shall be the Borrowing Base for all purposes of this Agreement until such a Borrowing Base Certificate, in Proper Form, is furnished to and accepted by the Agent. Borrowing Base Certificate shall mean a certificate, duly executed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower, appropriately completed and in substantially the form of Exhibit B hereto. Branch of Account shall mean the branch of the Lender at the address set out after the Lender's name on the signature pages hereof or such other branch or office of the Lender in Metropolitan Toronto as the Lender may advise the Borrower in writing. Business Day shall mean any day other than a day on which commercial banks are authorized or required to close in Toronto, Canada. Capital Expenditures shall mean expenditures in respect of fixed or capital assets by a Person, to the extent capitalized in accordance with GAAP, but excluding (a) expenditures for the restoration, repair or replacement of any fixed or capital asset which was destroyed or damaged, in whole or in part, to the extent financed by the proceeds of an insurance policy maintained by such Person, (b) increases in the consolidated fixed or capital assets of such Person resulting solely from Permitted Acquisitions (other than expenditures made after the date of such Permitted Acquisition), and (c) increases in the capital assets of such Person resulting from expenditures in respect of fixed or capital assets made by another so long as such Person has no obligation to reimburse the other for such expenditures. Expenditures in respect of replacements and maintenance consistent with the business practices of such Person in respect of plant facilities, machinery, fixtures and other like capital assets utilized in the ordinary course of business are not Capital Expenditures to the extent such expenditures are not capitalized in preparing a balance sheet of such Person in accordance with GAAP. Capital Lease Obligations shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. Capital Lease Obligations shall not include the interest component of any applicable rental payment. 3 Change of Control shall mean a change resulting when any Unrelated Person or any Unrelated Persons acting together which would constitute a Group together with any Affiliates or Related Persons thereof (in each case also constituting Unrelated Persons) shall at any time either (i) Beneficially Own more than 50% of the aggregate voting power of all classes of Voting Stock of Sterling or (ii) succeed in having sufficient of its or their nominees elected to the Board of Directors of Sterling such that such nominees, when added to any existing director remaining on the Board of Directors of Sterling after such election who is an Affiliate or Related Person of such Person or Group, shall constitute a majority of the Board of Directors of Sterling. As used herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto; provided, however, that, for purposes of this definition, a Person shall not be deemed to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person other than Sterling or any of its Subsidiaries and other than any trust for any employee benefit plan of Sterling or any of its Subsidiaries; (d) "Related Person" of any Person shall mean any other Person owning (1) 5% or more of the outstanding common stock of such Person or (2) 5% or more of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall mean capital stock of such Person which ordinarily has voting power for the election of directors (or persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. Collateral shall mean all Property, tangible or intangible, real, personal or mixed, now or hereafter subject to the Security Agreements. Commitment Fee Percentage shall mean: (a) on any day prior to the first adjustment after the date hereof pursuant to clause (b) of this definition, 0.25%; (b) the Commitment Fee Percentage for any day shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt to EBITDA Ratio for Sterling as of the last day of each March, June, September and December (beginning with the fiscal quarter ending on June 30, 1995) (such increase or decrease to be effective on the date that Borrower delivers the Quarterly Financial Statements for Sterling to the Lender pursuant to the terms of this Agreement): 4 Sterling Debt to Commitment Fee EBITDA Ratio Percentage - ------------ -------------- Greater than or equal to 3.50 0.375 Greater than or equal to 2.50 but less than 3.50 0.30 Greater than or equal to 1.50 but less than 2.50 0.25 Less than 1.50 0.20; and (c) if the Borrower fails to provide to the Lender the calculation of Sterling's Debt to EBITDA Ratio as required hereunder, 0.375%. Compliance Certificate shall have the meaning given to it in Section 7.2 hereof. Corporate Bankers' Acceptance Fee shall mean the standard fee rate per annum quoted from time to time by the Lender as its Corporate Bankers' Acceptance Fee. Corporation shall mean a corporation, limited liability company, partnership, joint venture, joint stock association, business trust and other business entity. Cover for outstanding Bankers' Acceptances and Letters of Credit shall mean the payment to the Lender of immediately available funds, to be held by the Lender in a collateral account maintained by the Lender at its Branch of Account and collaterally assigned as security by the Borrower for the Reimbursement Obligations using documentation reasonably satisfactory to the Lender, in the amount required by any applicable provision hereof. Such amount shall be retained by the Lender in such collateral account until such time as in the case of the Cover being provided pursuant to Section 2.1 hereof, the applicable Bankers' Acceptance or Letters of Credit shall have matured and the Reimbursement Obligations, if any, with respect thereto shall have been fully satisfied or, in the case of Section 9.3 hereof, at such time as no Default or Event of Default is continuing. Current Assets shall mean all assets of a Person which under GAAP would be classified as current assets. Current Liabilities shall mean all liabilities of a Person which under GAAP would be classified as current liabilities, other than current maturities of long term debt and, as may apply to Sterling, the obligation of either Sterling or the Borrower to repay the Revolving Loan Obligations and any Borrowed Money Indebtedness hereunder. 5 Current Ratio means, as of any day, the ratio of Current Assets to Current Liabilities. Debt to EBITDA Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) the outstanding balance of Borrowed Money Indebtedness on such date to (b) EBITDA for the Rolling Four Quarters ending on such date. Default shall mean an Event of Default or an event which with notice or lapse of time or both would, unless cured or waived, become an Event of Default. Designated Amount shall have the meaning ascribed to such term in Section 2.11 hereof. Dollars and $ shall, unless otherwise indicated, mean lawful money of Canada. EBITDA shall mean, without duplication, for any period the sum of (a) Net Income less non-cash income and (b) the sum of (i) Interest Expense for such period, (ii) Federal, Provincial, State and local income taxes deducted in determining such Net Income, (iii) amortization of goodwill and other non-cash expenses and intangibles (including, without limitation, patents, deferred financing costs and debt discount) deducted in determining such Net Income, (iv) depreciation, depletion and obsolescence of Property, in each case, determined in accordance with GAAP and (v) prepaid royalty income to the extent actually paid in cash. Eligible Accounts shall mean, as at any date of determination thereof, each Account or Intangible for the payment of money, in each case valued in accordance with GAAP, which is at said date payable to the Borrower or any of its Subsidiaries and which complies with the following requirements: (a) in the case of the sale of goods, the subject goods have been sold to an account debtor on an absolute sale basis on open account and not on consignment, on approval or on a "sale or return" basis or subject to any other repurchase or return agreement and no material part of the subject goods has been returned, rejected, lost or damaged, the Account or Intangible is not evidenced by chattel paper or an instrument of any kind and said account debtor is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind; (b) the account debtor must be located in the United States or in Canada, except for (x) Accounts or Intangibles as to which the Borrower and the Lender have mutually and reasonably agreed shall be included and (y) Accounts or Intangibles as to which the Borrower or its Subsidiaries has received a letter of credit in an amount equal to or greater than such Account or Intangibles issued by a financial institution reasonably acceptable to the Lender and otherwise in form and substance reasonably satisfactory to the Lender; (c) to the extent included as an Eligible Account, such Account or Intangible is a valid obligation of the account debtor thereunder and is not subject to any offset or other defense on the part of such account debtor or to any claim on the part of such account debtor denying liability thereunder; (d) such Account or Intangible is subject to no Lien whatsoever, except for the Liens created or permitted pursuant to the Security Agreements; (e) such Account or Intangible is evidenced by an invoice submitted to the account debtor and such Account or Intangible has not remained unpaid beyond 90 days after the due date stated on the invoice therefor (or such Account or Intangible is not invoiced in the ordinary course of business but by the terms of the agreements creating such Account or 6 Intangible, such Account or Intangible has not remained unpaid beyond ninety (90) days after the due date therefor); (f) such Account or Intangible does not arise out of transactions with any Affiliate of the Borrower or an employee, officer, agent or director of the Borrower or any Affiliate of the Borrower; (g) not more than 20% of the other Accounts or Intangibles of the applicable account debtor or any of its Affiliates owed to the Borrower fail to satisfy all of the requirements of an "Eligible Account"; (h) except as Lender may otherwise agree, inclusion of the applicable Account or Intangible does not cause the total Eligible Accounts with respect to the applicable account debtor and its Affiliates, in the aggregate, to exceed 15% of the total Eligible Accounts; (i) each of the representations and warranties set forth in the Security Agreements with respect thereto is true and correct in all material respects on such date, and (j) the Lender shall have a first-priority perfected Lien covering such Account or Intangible to the extent required by and in accordance with the applicable Security Agreement. Eligible Inventory shall mean, as at any date of determination thereof, Inventory of the Borrower and its Subsidiaries which complies with the following requirements: (a) such Inventory shall be valued in accordance with GAAP and consist of (i) eligible raw materials and (ii) finished goods, provided that except as provided below with respect to Inventory in transit and except for the $1,500,000 basket provided in clause (c)(x) of this definition, all such Inventory shall be within Canada; (b) it is in good condition, meets all standards imposed by any Governmental Authority having regulatory authority over it, its use and/or sale and is either currently usable or currently saleable in the normal course of business of the Borrower and its Subsidiaries; (c) except for (x) Inventory having a value up to but no more than $1,500,000 and (y) Inventory which is in transit in the ordinary course of business but in respect of which title remains in Borrower or the applicable Subsidiary of Borrower and which is fully insured, it is not in the possession or control of any warehouseman, bailee, or any agent or processor for or customer of the Borrower or its Subsidiaries or, if it is, the Borrower or its Subsidiaries shall have notified, in a manner that effectively under applicable law creates a valid and first priority Lien in favour of the Lender in such Inventory, such warehouseman, bailee, agent, processor or customer of the Lender's Lien and such warehouseman, bailee, agent, processor or customer has subordinated any Lien it may claim therein and agreed to hold all such Inventory for the Lender's account subject to the Lender's instructions; (d) each of the representations and warranties set forth in the Security Agreements with respect thereto is true and correct in all material respects on such date, and (e) the Lender shall have a first-priority perfected Lien covering such Inventory to the extent required by and in accordance with the applicable Security Agreement. Environmental Claim shall mean any third party (including Governmental Authorities) action, lawsuit, claim or proceeding (including claims or proceedings at common law) which seeks to impose liability for (i) noise; (ii) pollution or contamination of the air, surface water, ground water or land or the clean up of such pollution or contamination; (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) the manufacture, processing, distribution in commerce or use of Hazardous Substances. An "Environmental Claim" includes, but is not limited to, a common law action, as well as a proceeding to issue, modify or terminate an Environmental Permit. 7 Environmental Liabilities includes all liabilities arising from any Environmental Claim, Environmental Permit or Requirement of Environmental Law under any theory of recovery, at law or in equity, and whether based on negligence, strict liability or otherwise, including but not limited to: remedial, removal, response, abatement, investigative, monitoring, personal injury and damage to property or injuries to persons, and any other related costs, expenses, losses, damages, penalties, fines, liabilities and obligations, and all costs and expenses necessary to cause the issuance, re-issuance or renewal of any Environmental Permit including reasonable attorneys' fees and court costs. Environmental Permit means any permit, license, approval or other authorization under any applicable Requirements of Environmental Law. Equivalent Amount in one currency (the "First Currency") of an amount in another currency (the "Other Currency") means the amount of the First Currency which is required to purchase such amount of the Other Currency at the Lender's spot buying rate for the purchase of the Other Currency with the First Currency as of approximately 12:00 noon , Toronto time, on the date of determination. Event of Default shall, for the Borrower, have the meaning assigned to it in Section 9 hereof and, for Sterling, have the meaning ascribed thereto in the U.S. Facility Credit Agreement. Financing Statements shall mean all such Personal Property Security Act (Ontario) or equivalent financing statements as the Lender shall require, in Proper Form, duly executed by the Borrower or others to give notice of and to perfect or continue perfection of the Lender's Liens in all Collateral, as any of the foregoing may from time to time be amended, modified, supplemented or restated. Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such day less cash income taxes paid during such Rolling Four Quarters plus cash income tax refunds received during such Rolling Four Quarters to (b) the Fixed Charges for such Rolling Four Quarters. Fixed Charges shall mean (without duplication), for any period, (a) the amounts of scheduled principal payments made or to be made during such period with respect to Borrowed Money Indebtedness (other than Capital Lease Obligations) of the applicable Person (it is agreed that such scheduled principal payments do not include any principal payments made to reduce any Revolving Loan Obligations or other revolving Indebtedness), plus (b) payments made or required to be made during such period with respect to the principal component of the Capital Lease Obligations of the applicable Person with unrelated third parties, plus (c) the amount of Interest Expense of such Person for such period, plus (d) Capital Expenditures made during such period by such Person. 8 GAAP shall mean, for the Borrower and for Sterling, U.S. generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by Sterling's independent chartered or public accountants, as the case may be) with the September 30, 1994 audited financial statements of Sterling, or the September 30, 1994 unaudited financial statements of the Borrower , as the case may be, delivered to the Lender together with the notes thereto, if any. Governmental Authority shall mean any foreign governmental authority, Canada, any Province of Canada and any political subdivision of any of the foregoing, and any central bank, agency, department, commission, board, bureau, court or other tribunal having jurisdiction over the Lender, the Borrower, Sterling or its Property. Guaranties shall mean that certain Guarantee dated concurrently herewith executed by Sterling Chemicals, Inc. with respect to the Obligations of the Borrower, together with any other guaranties hereafter executed with respect to the Obligations, as any of the same may from time to time be amended, modified, restated or supplemented. Hazardous Substance shall mean petroleum products, and any hazardous or toxic waste or substance defined or regulated as such from time to time by any law, rule, regulation or order described in the definition of "Requirements of Environmental Law". Indebtedness shall mean and include (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits); (b) all guaranties, letter of credit contingent reimbursement obligations, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed; provided, that the term "Indebtedness" shall not mean or include any Indebtedness of the type described in clause (a) of this definition in respect of which monies sufficient to pay and discharge the same in full (either on the expressed date of maturity thereof or on such earlier date as such Indebtedness may be duly called for redemption and payment) shall be deposited with a depository, agency or trustee acceptable to the Lender, in the case of the Borrower, and the Agent, in the case of Sterling, in trust for the payment thereof. Interest Expense shall mean, for any period, the sum of the cash interest payments by an obligor made or accrued in accordance with GAAP during such period in connection with all of its Borrowed Money Indebtedness, including the interest component of any Capital Lease Obligations. Interest Payment Date means July 1 and each Quarterly Date thereafter prior to the Maturity Date and the Maturity Date, or if any such date is not a Business Day, the Business Day next following. 9 Investment shall mean the purchase or other acquisition of any securities or Indebtedness of, or the making of any loan, advance, or other extension of credit or capital contribution to (by means of transfers of property or assets or otherwise) any Person. Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, or regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, whether presently existing or arising in the future. Letter of Credit means a letter of credit or letter of guarantee, as the case may be, issued as provided in Section 2.4 by the Lender in favour of any Person with respect to the liability of the Borrower to pay Dollars or U.S. Dollars. Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien of any kind, whether based on common law, constitutional provision, statute or contract to secure payment of debt or performance of an obligation. Loan Documents, when in respect of the Borrower, shall mean, collectively, this Agreement, the Guaranties, the Security Agreements, all instruments, certificates and agreements now or hereafter executed or delivered to the Lender pursuant to any of the foregoing or in connection with the Obligations or any commitment regarding the Obligations, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing; and when in respect of Sterling, shall mean as defined in the U.S. Facility. Margin Percentage shall mean: (a) On any day prior to the first adjustment after the date hereof pursuant to clause (b) of this definition, 0.125% for Bankers Acceptances and 0.75% for Letters of Credit; (b) the Margin Percentage for any day shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt to EBITDA Ratio for Sterling as of the last day of each March, June, September and December (beginning with the fiscal quarter ending on June 30, 1995) (such increase or decrease to be effective on the date that Borrower delivers the Quarterly Financial Statements for Sterling for the fiscal quarter ending on such date to the Lender pursuant to the terms of this Agreement): 10
Letter of Credit Sterling Bankers' Acceptance Borrowings Debt to Borrowings Margin Margin EBITDA Ratio Percentage Percentage - ------------ ------------------- ---------- Greater than or equal to 3.50 0.625 1.25 Greater than or equal to 2.50 but less than 3.50 0.375 1.00 Greater than or equal to 1.50 but less than 2.50 0.125 0.75 Less than 1.50 0.025; and 0.65; and
(c) if the Borrower fails to provide to the Lender the calculation of Sterling's Debt to EBITDA Ratio as required hereunder, 0.625% for Bankers' Acceptances and 1.25% for Letters of Credit. Material Adverse Effect shall mean a material adverse effect on the business, financial condition, operations or Properties of the Borrower or of Sterling, as the case may be, or on the ability of either of them to perform their respective material obligations under any Loan Document to which any of them is a party. Maturity Date shall mean April 13, 2002, as the same may hereafter be accelerated pursuant to the provisions of any of the Loan Documents. Maximum Letter of Credit Amount shall mean, at any date, the amount of $10,000,000 or the Equivalent Amount in U.S. Dollars. Maximum Revolving Loan Available Amount shall mean, at any date, an amount equal to the lesser of (i) the Revolving Loan Commitment or (ii) the Borrowing Base. Net Income shall mean, for any Person and any period, the consolidated net income of such Person for such period after taxes but before extraordinary items, determined in accordance with GAAP. Net Worth shall mean net worth determined in accordance with GAAP. Obligations shall mean, as at any date of determination thereof, the sum (without duplication) of the following: (i) the aggregate principal amount of Revolving Loans outstanding hereunder (including the aggregate face amount of all outstanding Bankers' Acceptances and Letters of Credit hereunder), plus (ii) all other liabilities, obligations and indebtedness of any Party under any Loan Document. 11 Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof. Parties shall mean the Borrower and each of its Subsidiaries executing a Loan Document. Past Due Rate shall mean, on any day, a rate per annum equal to the Prime Lending Rate plus two percent (2%). Permitted Acquisitions shall mean non-hostile acquisitions of all or substantially all of the assets, or 50% or more of the voting securities, of any Person (or any division or product line of such Person), but only so long as no Default or Event of Default shall have occurred and be continuing (or would result from such acquisition). Permitted Dividends shall mean an amount not to exceed 50% of Net Income of Sterling for the immediately preceding Rolling Four Quarters which may, so long as no Default or Event of Default shall have occurred and be continuing (or would result from such distribution) and so long as the Adjusted Fixed Charge Coverage Ratio for Sterling , determined on a consolidated basis, is not (and would not be, after giving effect to such distribution) less than 1.10 to 1.00, be distributed by Sterling so long as Sterling has delivered to the Lender a Compliance Certificate calculated after giving effect to the proposed distribution which indicates that such distribution complies with the terms of this Agreement. Permitted Investments shall mean: (a) certificates of deposit maturing within 90 days of the acquisition thereof and issued by a bank or trust company organized under the laws of Canada, the United States of America, or a Province, State thereof, respectively, having combined capital and surplus of at least U.S.$250,000,000 and which has (or which is a Subsidiary of a bank holding company which has) publicly traded debt securities rated A or higher by Standard and Poor's Corporation and A-2 or higher by Moody's Investors Service, Inc.; (b) obligations issued or guaranteed by the United States of America or Canada; (c) commercial paper with a published rating of not less than A-2 and P-2 (or the equivalent rating); (d) repurchase obligations for underlying securities of the type described in clauses (a) , (b) or (c) above entered into on a fully collateralized basis with any Lender (as defined in the U.S. Facility Credit Agreement); (e) Dollar or U.S. Dollar denominated time deposits with, including certificates of deposit issued by, any non-United States branch or office of any Lender (as defined in the U.S. Facility Credit Agreement); (f) Permitted Acquisitions; (g) securities (other than those securities described in clauses (a) through (e) of this definition) of money market mutual funds with net assets in excess of U.S.$100,000,000, provided that the investment amounts in securities described in this clause (g) may not exceed 5% of the issued and outstanding securities of any Person (or such lesser percentage as would constitute a controlling interest), irrespective of whether such securities having voting power or may be convertible to securities with voting power of any Person; (h) loan participations with a rating of not less than 12 A-2 and P-2 (or the equivalent rating) by Moody's Investors Services, Inc. and Standard and Poor's Corporation, respectively; (i) money market preferred stock with a rating of not less than AAA (or the equivalent rating) ; (j) other investments approved by the Agent in writing not exceeding, in the aggregate, $20,000,000, and (k) other investments approved by the Majority Lenders (as that term is defined in the U.S. Facility Credit Agreement) in writing. Person shall mean any individual, Corporation, trust, unincorporated organization, Governmental Authority or any other form of entity. Prime Lending Rate shall mean the variable rate of interest per annum, calculated on the basis of a calendar year and for the actual number of days elapsed, equal to the rate of interest determined by the Lender from time to time as its prime rate for Canadian dollar commercial loans in Canada from time to time, being a variable per annum reference rate of interest adjusted automatically upon change by the Lender. Prime Rate Borrowing shall mean any or all advances of money, as the context requires, in Dollars as a Revolving Loan bearing interest as provided for in Section 2.2 or at the Past Due Rate, as the case may be, and includes a deemed Prime Rate Borrowing as provided for in Section 2.3(e). Proper Form shall mean in form and substance reasonably satisfactory to the Lender. Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible. Quarterly Dates shall mean the first day of each April, July, October and January, provided that if any such date is not a Business Day, then the relevant Quarterly Date shall be the next succeeding Business Day. Quarterly Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of a fiscal quarter and an income statement and a statement of changes in financial position for such fiscal quarter and for the fiscal year to date, subject to normal year-end adjustments, all setting forth in comparative form the corresponding figures for the corresponding calendar quarter of the preceding year, prepared in accordance with GAAP and certified as true and correct to the best of his knowledge by the chief financial officer or other authorized officer of such Person. Regulatory Change shall mean with respect to the Lender, any change after the date of this Agreement in any Legal Requirement or the adoption or making on or after such date of any interpretation, directive or request applying to a class of financial institutions including such Lender under any Legal Requirements (whether or not having the force of law) by any Governmental Authority. 13 Reimbursement Obligations shall mean, as at any date, the obligations of the Borrower then outstanding, or which may thereafter arise, in respect of Bankers' Acceptances and Letters of Credit under this Agreement, to reimburse the Lender for the amount paid by the Lender to any holder of a Bankers' Acceptance or Letter of Credit upon maturity thereof. Request for Extension of Credit shall mean a request for extension of credit duly executed by the chief executive officer, chief financial officer or treasurer of the Borrower (or other Person designated in writing by any of the foregoing to whom authority has been properly delegated), appropriately completed and substantially in the form of Exhibit A attached hereto. Requirements of Environmental Law shall mean all requirements imposed by any law (including for example and without limitation the respective Environmental Protection Act or equivalent statute of each Province in which the Borrower has facilities), rule, regulation, or order of any Federal, Provincial, State or local executive, legislative, judicial, regulatory or administrative agency, board or authority at the applicable time which relate to (i) noise; (ii) pollution, protection or clean up of the air, surface water, ground water or land; (iii) solid, gaseous or liquid waste generation, treatment, storage, disposal or transportation; (iv) exposure to Hazardous Substances; or (v) regulation of the manufacture, processing, distribution in commerce, use, discharge or storage of Hazardous Substances. Revolving Loan shall mean a loan or loans made pursuant to Section 2.1 hereof and, for greater certainty, includes loans by way of Bankers' Acceptance and issuance of Letters of Credit. Revolving Loan Availability Period shall mean, for the Revolving Loan Lender, the period from and including the Effective Date to (but not including) the Termination Date. Revolving Loan Lender shall mean the Lender with (i) prior to the Termination Date, its Revolving Loan Commitment and (ii) on and after the Termination Date, any outstanding Revolving Loan Obligation. Revolving Loan Commitment shall mean the obligation, if any, of the Lender to make Revolving Loans in an aggregate principal amount at any one time outstanding up to (but not exceeding) the amount of $20,000,000 (as the same may be reduced from time to time pursuant to the terms hereof), including Letters of Credit in U.S. Dollars at the Equivalent Amount. Revolving Loan Obligation shall mean, as at any date of determination thereof, with respect to the Borrower, the aggregate principal amount of Revolving Loan outstanding hereunder; and with respect to Sterling, as defined in the U.S. Facility Credit Agreement. Rolling Four Quarters shall mean, as of any day, the then most recently ended four (4) fiscal quarter period of the Person. 14 Secretary's Certificate shall mean a certificate, in Proper Form, of the Secretary or an Assistant Secretary of a corporation as to (a) the resolutions of the Board of Directors of such corporation authorizing the execution, delivery and performance of the documents to be executed by such corporation; (b) the incumbency and signatures of the officers of such corporation executing such documents on behalf of such corporation, and (c) the Organizational Documents of such corporation. Security Agreements, when in respect of the Borrower, shall mean, collectively, (i) the Security Agreements dated as of the Effective Date executed between the Borrower and the Lender covering the Borrower's Accounts and Inventory, (ii) the Guaranties, and (iii) any and all security instruments hereafter executed by any Party in favour of the Lender, as any of them may from time to time be amended, modified, restated or supplemented; and when in respect of Sterling, shall mean as defined in the U.S. Facility Credit Agreement. Sterling shall mean Sterling Chemicals, Inc. and, where the meaning requires, its Subsidiaries on a consolidated basis. Subordinated Debt shall mean, as of the date of determination thereof, unsecured Indebtedness with any lender for which the Borrower or Sterling is directly and primarily liable, in respect of which none of its respective Subsidiaries is contingently or otherwise obligated, and which is subordinated to the obligations of the Borrower or Sterling to pay principal of and interest (before and after bankruptcy) on the Revolving Loans and the Reimbursement Obligations (in the case of the Borrower, as such terms are defined herein, and in the case of Sterling, as such terms are defined in the U.S. Facility Credit Agreement), on terms, and which contains other terms (including interest, amortization and financial covenants), in form and substance satisfactory to, in the case of Subordinated Debt of the Borrower, the Lender, and in the case of Subordinated Debt of Sterling, the Majority Lenders (as defined in the U.S. Facility Credit Agreement) and the Agent. Subsidiary shall mean, as to a particular parent Corporation, any Corporation of which more than 50% of the indicia of equity rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent Corporation. Termination Date shall mean the earlier of (a) the Maturity Date or (b) the date specified by the Lender in accordance with Section 9.1 hereof. U.S. Dollars and U.S.$ shall mean lawful money of the United States of America. U.S. Facility shall mean the loan facility available to Sterling pursuant to the U.S. Facility Credit Agreement. U.S. Facility Credit Agreement shall mean the credit agreement dated as of April 13, 1995 among Sterling, Texas Commerce Bank National Association, as Agent, and the Co-Agents and Lenders as defined therein. 15 1.2 Miscellaneous. The words "hereof," "herein," and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement. 2. Commitments and Loans. 2.1 The Lender agrees, subject to all of the terms and conditions of this Agreement (including, without limitation, Sections 5.1, 5.2 and 5.3 hereof), to make Revolving Loans as follows: (a) Revolving Loans. From time to time on or after the Effective Date and during the Revolving Loan Availability Period, the Revolving Loan Lender shall make loans under this Section 2.1 to the Borrower in an aggregate principal amount at any one time outstanding up to but not exceeding the Maximum Revolving Loan Available Amount. Upon the terms and conditions of this Agreement, Revolving Loans may be requested by the Borrower either (i) by requesting a Prime Rate Borrowing, (ii) by presenting drafts for acceptance as Bankers' Acceptances, (iii) by requesting the Lender to issue a Letter of Credit on behalf of the Borrower, or (iv) any combination thereof. Subject to the conditions in this Agreement, any such Revolving Loan repaid prior to the Termination Date may be reborrowed pursuant to the terms of this Agreement; provided, that any and all such Revolving Loans shall be due and payable in full on the Termination Date. Should the amount of the Revolving Loans, for any reason, exceed, at any time, the Maximum Revolving Loan Available Amount available hereunder as reduced from time to time, the Borrower agrees to immediately, in the case of Prime Rate Borrowings, repay the amount in excess of the Maximum Revolving Loan Available Amount, and in the case of Bankers' Acceptances and Letters of Credit, deposit with the Lender an amount equal to the amount in excess of the Maximum Revolving Loan Available Amount available hereunder, which amount the Borrower agrees that the Lender can use to repay any Bankers' Acceptance upon its maturity or any Letter of Credit if drawn upon by the beneficiary. All Revolving Loans to be made by the Lender in connection with a particular borrowing shall be equal to $100,000 or a multiple thereof. (b) Conversions: Subject to the terms and conditions of this Agreement, the Borrower may from time to time convert a Borrowing to another type of Borrowing by converting (i) all or any part of the outstanding principal amount of any Prime Rate Borrowings into Bankers' Acceptances or Letters of Credit or any combination thereof, (ii) on the date of maturity of any Bankers' Acceptances, all or any part of the outstanding principal amount at maturity of such Bankers' Acceptances into Prime Rate Borrowings or Letters of Credit or any combination thereof, and (iii) on the date of maturity of any Letter of Credit, all or any part of the outstanding principal amount at maturity of such Letter of Credit into Prime Rate Borrowings or Bankers' Acceptances or any combination thereof; subject however in each case, to the following: 16 a. the principal amount of each type of Borrowing being converted shall not be less than the amounts necessary to fulfil the requirements of this Agreement with respect to the minimum principal amounts for Borrowings (with such rounding or adjustments as the Lender may deem appropriate); b. in the case of a conversion into Bankers' Acceptances or Letters of Credit, the portion of the principal amount of each type of the Borrowing being so converted, together with all other amounts owing under this Agreement with respect thereto, shall be paid to the Lender; c. no conversion shall be made into Dollar or U.S. Dollar Letters of Credit if the result thereof would be to exceed either the Maximum Letter of Credit Amount or the Maximum Revolving Loan Available Amount; and d. no Default will occur upon such conversion or shall have occurred and be continuing. Amounts which are converted shall not reduce the amount of the Revolving Loan Commitment. 2.2 Prime Rate Borrowing. Subject to Section 3.2(e) hereof, the Borrower shall pay interest to the Lender in Canadian Dollars at the Lender's Branch of Account on any amounts outstanding from time to time hereunder as a Prime Rate Borrowing made to the Borrower. Such interest shall accrue from day to day, shall be calculated monthly for the actual number of days elapsed, and shall be payable in arrears on each Interest Payment Date at a variable rate of interest per annum equal to the Prime Lending Rate. The rate of interest per annum with respect to any Prime Rate Borrowing is calculated on the basis of a calendar year. 2.3 Bankers' Acceptances. (a) Form of Bankers' Acceptances: All drafts presented by the Borrower to the Lender for acceptance as Bankers' Acceptances pursuant to this Agreement shall be properly executed and drawn by the Borrower. The Borrower may, at its option, execute any draft so presented by the facsimile signatures of any two designated signing officers of the Borrower and the Lender is hereby authorized to accept any draft of the Borrower which purports to bear such facsimile signatures notwithstanding that any such individual has ceased to be a designated signing officer of the Borrower and any such draft or Bankers' Acceptance shall be as valid as if he were a designated signing officer of the Borrower at the date of issue of such Bankers' Acceptance. Any such draft or Bankers' Acceptance may be dealt with by the Lender to all intents and purposes and shall bind the Borrower as if duly signed in the signing officer's own handwriting and issued by the Borrower and the Borrower will and hereby does undertake to hold the Lender harmless and indemnified against all loss, costs, damages and expenses arising out of the payment or negotiation of any such draft or Bankers' Acceptance on which a facsimile signature has been wrongly affixed. 17 (b) Proceeds from Bankers' Acceptance and Payment of Bankers' Acceptance Rate: Upon presentation by the Borrower to the Lender of any draft for acceptance by the Lender as a Bankers' Acceptance, the Lender shall pay or arrange for the payment to the Borrower of the proceeds from the issuance thereof. At the same time, the Borrower shall pay to the Lender at its Branch of Account the Bankers' Acceptance Fee applicable upon the principal amount of each such Bankers' Acceptance for the duration of its term on the basis of the actual number of days from the date of acceptance by the Lender up to and including the maturity date of the Bankers' Acceptance, calculated on the basis of a calendar year at a rate equal to the sum of the Corporate Bankers' Acceptance Fee plus the applicable Margin Percentage per annum in effect at the time of acceptance. Payment of such Bankers' Acceptance Fee may be received from the proceeds of the issuance of such Bankers' Acceptance. (c) Maturity of Bankers' Acceptances: Each Bankers' Acceptance shall mature on a Business Day which shall neither be less than 30 days nor more than 180 days after the date of acceptance of the draft by the Lender; provided that no Bankers' Acceptance issued as a Revolving Loan may mature on a date later than the Maturity Date. The principal amount at maturity of a Bankers' Acceptance which matures and is satisfied by the Borrower on its date of maturity may be renewed as a Bankers' Acceptance or converted into a Prime Rate Borrowing on its date of maturity. A Bankers' Acceptance may not be prepaid prior to its maturity date without the consent of the Lender (it being understood that if any such prepayment is permitted, the Borrower shall be required to pay all breakage costs associated therewith. (d) Payment of Bankers' Acceptances: Subject to Section 2.3(e) hereof, the Borrower shall provide for the payment to the Lender of the full principal amount of each Bankers' Acceptance issued by the Lender on its date of maturity. (e) Deemed Prime Rate Borrowing: If the Borrower does not provide for payment in full of a Bankers' Acceptance on maturity, the unpaid principal amount of the Bankers' Acceptance shall on the date of maturity thereof be automatically converted to a Prime Rate Borrowing and, in respect of such deemed Prime Rate Borrowing, the Lender shall be entitled to all of the covenants and conditions and representations and warranties in favour of the Lender contained in this Agreement. (f) Waiver: The Borrower shall not claim from the Lender any days of grace for the payment at maturity of any Bankers' Acceptances presented to and accepted by the Lender pursuant to this Agreement. Further, the Borrower waives any defence to payment which might otherwise arise as a result of a Bankers' Acceptance being held by the Lender in its own right at the maturity thereof. (g) Degree of Care: Any executed drafts to be used as Bankers' Acceptances which are delivered by the Borrower to the Lender need only be held in safekeeping with the same degree of care as if they were the Lender's property. 18 (h) Indemnity: The Borrower agrees to indemnify and hold the Lender harmless from any and all suits, debts, demands and claims whatsoever and howsoever arising by reason of the acceptance by the Lender of any Bankers' Acceptance dealt with by the Lender in accordance with this Agreement. (i) Obligations Absolute: The obligations of the Borrower with respect to Bankers' Acceptances under this Section 2.3 shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement notwithstanding the existence of any circumstances, including, without limitation, the following circumstances: a. any lack of validity or enforceability of any draft accepted by the Lender as a Bankers' Acceptance; or b. the existence of any claim, set-off, defence or other right which the Borrower may have at any time against the holder of a Bankers' Acceptance or the Lender or any other Person, whether in connection with this Agreement or otherwise. 2.4 Letters of Credit. Each Letter of Credit to be issued by the Lender must be satisfactory in form and substance to the Lender, but without limiting the generality of the foregoing, each of the term, beneficiary, amount and conditions of each Letter of Credit must be satisfactory. Each Letter of Credit shall not be for a term longer than one year and can be denominated in either Dollars or U.S. Dollars; provided that no Letter of Credit issued as a Revolving Loan may mature on a date later than the Maturity Date. Each Letter of Credit will be specifically subject to the terms of the agreement referred to in Section 5.3 hereof. The amount of the Borrowing constituted by a Letter of Credit shall be deemed to be the maximum amount payable to the beneficiary under such Letter of Credit for which the Lender is or may become at any time contingently liable. Aggregate Borrowings constituted by Letters of Credit cannot exceed at any time the Maximum Letter of Credit Amount. The Lender shall forthwith give notice to the Borrower of any payment made by the Lender pursuant to any Letter of Credit, and the amount of such payment shall be deemed to be a Prime Rate Borrowing, with payments made by the Lender in U.S. Dollars converted to the Equivalent Amount of Dollars on the date of payment. If any Letter of Credit is outstanding at any time that payment of any amounts owing by the Borrower hereunder is demanded or accelerated or on the Maturity Date, the Borrower shall forthwith upon such demand or on the Maturity Date pay to the Lender funds in the currency of and in an amount equal to the maximum aggregate liability (contingent or actual) of the Lender pursuant thereto. Such funds (together with interest thereon) shall be held by the Lender for set-off against the liability of the Borrower to the Lender in respect of such Letter of Credit, when it comes due. If the Letter of Credit for which funds are deposited is not drawn upon-by the beneficiary, whether by reason of maturity or cancellation, and if the Borrower is not otherwise indebted to the Lender, the Lender shall return such funds to the 19 Borrower together with interest thereon calculated at the rate for like deposits and for a like term. The Borrower shall pay to the Lender in respect of each Letter of Credit requested to be issued by the Lender pursuant to this Section 2.4, a fee in Dollars or U.S. Dollars (depending on the currency of the primary indebtedness to which such Letter of Credit relates) equal to the greater of: (i) 500 Dollars or U.S. Dollars, as the case may be, and (ii) an amount, calculated on the basis of the actual number of days elapsed in a year (based on a year of 360 days in the case of U.S. Dollar Letters of Credit) and on the basis of the face amount of such Letter of Credit available for drawings under such Letter of Credit from time to time in each case for the period from and including the date of issuance of such Letter of Credit to and including the date of expiration or termination thereof at the Margin Percentage (on a per annum basis) from time to time in effect. The Borrower will pay such fee in Dollars or U.S. Dollars (depending on the currency of the primary indebtedness for which such Letter of Credit relates) in arrears on (i) each Interest Payment Date which occurs after the date of issuance and prior to the expiration or termination of such Letter of Credit and (ii) the date of expiration or termination of such Letter of Credit. The issue by the Lender on behalf of the Borrower of a Letter of Credit shall constitute a Borrowing under the Credit in the amount represented by such Letter of Credit. 2.5 Terminations or Reductions of Revolving Loan Commitments. (a) Mandatory. On the Termination Date, the Revolving Loan Commitment shall be terminated in its entirety. (b) Optional. The Borrower shall have the right to terminate or reduce the unused portion of the Revolving Loan Commitment at any time or from time to time without penalty, bonus or other fee, provided that (i) the Borrower shall give notice of each such termination or reduction to the Lender as provided in Section 4.2 hereof and (ii) each such partial reduction shall be in an aggregate amount of at least $100,000. The Borrower shall not make a voluntary repayment with respect to a Bankers' Acceptance or Letter of Credit other than on the maturity date of the draft accepted as that Bankers' Acceptance or on the maturity of the Letter of Credit, as the case may be. (c) No Reinstatement. Any termination or reduction of the Revolving Loan Commitment may not be reinstated without the written approval of the Lender. 2.6 Fees. (a) The Borrower shall pay to the Lender a revolving loan commitment fee with respect to the unused Designated Amount for the period from the Effective Date to and including the Termination Date at a rate per annum equal to the Commitment Fee Percentage from time to time in effect. Such revolving loan commitment fee shall be computed (on the basis of the 20 actual number of days elapsed in a year composed of 360 days) on each day and shall be based on the excess of (x) the Designated Amount for such day over (y) the aggregate unpaid principal balance of the Revolving Loan for such day. Accrued revolving loan commitment fees payable under this provision shall be payable in arrears on the Quarterly Dates prior to the Termination Date and on the Termination Date. (b) The Borrower shall pay to the Lender a revolving loan commitment fee with respect to the Revolving Loan Commitment in excess of the Designated Amount for the period from the Effective Date to and including the Termination Date at a rate equal to one half (1/2) of the Commitment Fee Percentage from time to time in effect. Such revolving loan commitment fee shall be computed (on the basis of the actual number of days elapsed in a year composed of 360 days) on each day and shall be based on the excess of (x) the Revolving Loan Commitment for such day (without regard to any limitation based on the Borrowing Rate or the Designated Amount) over (y) the Designated Amount for such day. Accrued revolving loan commitment fees payable under this provision shall be payable on the Quarterly Dates prior to the Termination Date and on the Termination Date. (c) An additional revolving loan commitment fee shall be due and payable effective upon any designation of an increase in the Designated Amount. Such additional commitment fee shall be calculated at a rate equal to one-half (1/2) of the Commitment Fee Percentage from time to time in effect and shall be computed on the amount of such increase for the period commencing on the most recently occurring Quarterly Date through the date of such increase. (d) In consideration of the time and effort expended by the Lender in connection with the Loan Documents, the Borrower shall also pay to the Lender on the Effective Date the sum of $50,000 as an upfront fee. (e) All past due fees payable under this Section shall bear interest at the Past Due Rate. 2.7 Evidence of Indebtedness and Manner of Payments: The indebtedness of the Borrower to the Lender shall be evidenced by the loan accounts which shall be opened and maintained by the Lender at its Branch of Account. The loan accounts kept by the Lender shall constitute, in the absence of manifest error, prima facie evidence of the indebtedness of the Borrower to the Lender hereunder, the date borrowings were made or deemed to have been made to the Borrower, the amount of such indebtedness repaid by the Borrower and the dates of such repayments, provided that the failure of the Lender to record any such amount or date shall not affect the obligation of the Borrower to pay amounts due hereunder in accordance with this Agreement. The Lender shall upon the request of the Borrower provide any information contained in its accounts to the Borrower and the Lender and the Borrower shall cooperate in providing all information reasonably required to keep all accounts accurate and up-to-date. All payments to be made by the Borrower pursuant to this Agreement are to be made without set-off, compensation or counterclaim and without deduction of any kind and for same day value. 21 2.8 Use of Proceeds. The proceeds of the Revolving Loans shall be used by the Borrower to pay certain fees and expenses related to the closing of this facility and to fund ongoing working capital and other general corporate requirements of the Borrower. No proceeds of the Revolving Loans will be used for any purpose which would violate any applicable Legal Requirement. 2.9 Interest Act. Where any rate of interest, or fee expressed as a rate of interest, herein is calculated on the basis of a year of 360 days, in this Agreement such rate expressed as an annual rate of interest for purposes of the Interest Act (Canada), shall be such rate multiplied by 365, or 366 where the period for which interest is being calculated includes February 29, and divided by 360. 2.10 Calculation of Interest and Fees. For greater certainty, whenever any amount is payable under this Agreement by the Borrower either as interest, commission or as a fee which requires the calculation of an amount using a percentage per annum, each Party to this Agreement acknowledges and agrees that such amount shall be calculated as of the date payment is due using the "nominal rate method", without application of the so-called "deemed reinvestment principle" or the "effective yield method". As an example of the "nominal rate method", when interest is calculated and payable monthly, the rate of interest payable per month equals the principal amount outstanding on a daily basis multiplied by the stated rate of interest per annum, multiplied by the number of days in the month and divided by the number of days in the applicable year. 2.11 Designated Amount. The Borrower may from time to time designate a maximum aggregate principal amount of Revolving Loan permitted to be outstanding hereunder for a specified period (such amount being herein called the "Designated Amount"). The Designated Amount shall never be less than $13,000,000. In the absence of a specific designation of another Designated Amount hereunder, the Designated Amount shall equal the Maximum Revolving Loan Available Amount. The Designated Amount may be increased at any time but no decreases of a Designated Amount shall become effective on a date other than a Quarterly Date and no designation of a Designated Amount may terminate on a date which is not a day immediately preceding a Quarterly Date. Written notice of the designation of a Designated Amount must be given to the Lender by the Borrower no later than two (2) Business Days prior to the effective date thereof. 3. Borrowings, Payments and Prepayments. 3.1 Borrowings. The Borrower shall give the Lender notice of each Borrowing to be made hereunder as provided in Section 4.2 hereof. Not later than 12:00 noon Toronto time on the date specified for each such Borrowing he under, the Lender shall make available the amount of the Revolving Loan, if any, to be made by it on such date for the account of the Borrower in the Branch of Account. 22 3.2 Payments; Prepayments. (a) Optional Prepayments. The Borrower shall have the right to prepay, on any Business Day, in whole or in part, without the payment of any penalty or fee, Revolving Loans at any time or from time to time, provided that the Borrower shall give the Lender notice of each such prepayment as provided in Section 4.2 hereof. Each optional prepayment on a Revolving Loan shall be in an amount at least equal to the lesser of $100,000 or the unpaid principal balance of the Revolving Loan. The Borrower shall not make a voluntary prepayment with respect to a Bankers' Acceptance or Letter of Credit other than on the maturity date of the draft accepted as that Bankers' Acceptance or on the maturity of the Letter of Credit, as the case may be. (b) Maximum Revolving Loan Available Amount. The Borrower shall from time to time, within ten (10) days after demand by the Lender, prepay the Revolving Loan (or provide Cover for outstanding Bankers' Acceptances and Letters of Credit) in such amounts as shall be necessary so that at all times the aggregate outstanding amount of the Revolving Loan Obligation shall be less than or equal to the Maximum Revolving Loan Available Amount. (c) Interest Payments. Accrued and unpaid interest on the unpaid principal balance of Prime Rate Borrowings shall be due and payable on the Interest Payment Dates. (d) Payments. The Borrower shall pay all amounts required to be paid hereunder and under the other Loan Documents as and when due. (e) Post-Maturity Interest and Payments and Interest on Reimbursement Obligations. The Borrower will pay to the Lender the amount of each Reimbursement Obligation promptly upon its incurrence. The amount of any Reimbursement Obligation may, if the applicable conditions precedent specified in Section 5.2 hereof have been satisfied or waived, be paid with the proceeds of Revolving Loans in accordance with Sections 2.3 and 2.4 hereof . Subject to Section 11.7 hereof, the Borrower will pay to the Lender interest at the applicable Past Due Rate on any Reimbursement Obligation and on any other amount payable by the Borrower hereunder to or for the account of the Lender (but, if such amount is interest, only to the extent legally allowed), which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full. 4. Payments; Computations, Etc. 4.1 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be paid by the Borrower hereunder and under the other Loan Documents shall be made in Dollars (or U.S. Dollars in the case of U.S. Dollar denominated Letters of Credit), in immediately available funds, to the Lender at the Branch of Account, not later than 12:00 noon Toronto time on the date on which such payment shall 23 become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Borrower shall, at the time of making each payment hereunder or under any other Loan Document, specify to the Lender the Revolving Loans or other amounts payable by the Borrower hereunder or thereunder to which such payment is to be applied. (c) If the due date of any payment hereunder falls on a day which is not a Business Day, the due date for such payments shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2 Certain Actions, Notices, Etc. Notices to the Lender of any termination or reduction of the Revolving Loan Commitment and of Borrowings, conversions and prepayments of Revolving Loans and requests for issuances of Bankers' Acceptances and Letters of Credit shall be irrevocable and shall be effective only if received by the Lender at the Branch of Account not later than 12:00 noon Toronto time on the number of Business Days prior to the date of the relevant termination, reduction, Borrowing, conversion and/or prepayment specified below: Number of Notice Business Days Prior ------ ------------------- Termination or Reduction of Revolving Loan Commitment 5 Borrowing or conversion at the Prime Lending Rate same day Borrowing or conversion by way of Bankers' Acceptance or Letter of Credit 2 Revolving Loan repayment same day Each such notice of termination or reduction shall specify the amount of the applicable Revolving Loan Commitment to be terminated or reduced. Each such notice of Borrowing, conversion or prepayment shall specify the amount of the Revolving Loans to be borrowed or prepaid and the date of Borrowing, conversion or prepayment (which shall be a Business Day). 24 5. Conditions Precedent. 5.1 Initial Revolving Loans. The obligation of the Lender to make its initial Revolving Loan hereunder is subject to the following conditions precedent, each of which shall have been fulfilled or waived to the satisfaction of the Lender: (1) Corporate Action and Status. The Lender shall have received a Secretary's Certificate from the Borrower and each of its Affiliates signing a Loan Document, which shall be accompanied by copies of the Organizational Documents of the Borrower and each of its Affiliates, copies of the by-laws of the Borrower and each of its Affiliates and such certificates as may be appropriate to demonstrate the qualification and good standing of and payment of taxes by the Borrower and each of its Affiliates in each Province or State where the failure in which to qualify would have a Material Adverse Effect. The Lender may conclusively rely on such certificates until it receives notice in writing from the Borrower or the appropriate Party to the contrary. (2) Loan Documents. The Borrower and each other Party shall have duly executed and delivered the Loan Documents to which it is a party (in such number of copies as the Lender shall have requested) and each such Loan Document shall be in form satisfactory to Lender. (3) Security Matters. All such action as the Lender shall have requested to perfect the Liens created pursuant to the Security Agreements shall have been taken, including, without limitation, the delivery of appropriately completed and duly executed and registered Personal Property Security Act (Ontario) financing statements or equivalents with appropriate Governmental Authorities. The Lender shall also have received evidence satisfactory to it that the Liens created by the Security Agreements constitute first priority Liens, except for the exceptions expressly provided for herein, including, without limitation, Personal Property Security Act (Ontario) or equivalent search reports, and executed releases of any prior Liens (except as permitted by Section 8.2). Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days after the Effective Date in which to obtain releases of the Liens securing Borrowed Money Indebtedness which is to be paid concurrently with the closing hereof or the U.S. Facility covering Property located in Canada. (4) Fees and Expenses. The Borrower shall have paid to the Lender the fee specified in Section 2.6(d) hereof. (5) Insurance. The Borrower shall have delivered to the Lender certificates of insurance satisfactory to the Lender evidencing the existence of all insurance required to be maintained by the Borrower by this Agreement and the Security Agreements. (6) Opinion of Counsel. The Lender shall have received an opinion of Borden & Elliot, counsel to the Borrower and its Affiliates, in form and substance reasonably satisfactory to the Lender. 25 (7) Consents. The Lender shall have received evidence reasonably satisfactory to it that all material consents of each Governmental Authority and of each other Person, if any, reasonably required in connection with (a) the Revolving Loans and (b) the execution, delivery and performance of this Agreement and the other Loan Documents have been satisfactorily obtained. (8) Other Documents. The Lender shall have received such other documents consistent with the terms of this Agreement and relating to the transactions contemplated hereby as the Lender may reasonably request. 5.2 All Revolving Loans. The obligation of the Lender to make any Revolving Loan to be made by it hereunder is subject to (a) the accuracy, in all material respects, on the date of such Revolving Loan of all representations and warranties of the Borrower and any other Party contained in this Agreement and the other Loan Documents; (b) receipt by the Lender of the following, all of which shall be duly executed and in Proper Form: (1) a Request for Extension of Credit as to the Revolving Loan no later than 12:00 noon Toronto time on the Business Day on which such Request for Extension of Credit must be given under Section 4.2 hereof, (2) in the case of a Bankers' Acceptance, a draft duly executed and in Proper Form, and (3) such other documents as the Lender may reasonably require; (c) prior to the making of such Revolving Loan, there shall have occurred no event which has had or could reasonably be expected to have a Material Adverse Effect; (d) no Default or Event of Default shall have occurred and be continuing and shall not occur as a result of the Borrowing, and (e) the making of such Revolving Loan shall not be illegal or prohibited by any Legal Requirement. 5.3 Additional Condition Precedent to the Issuance of the First Letter of Credit. The obligation of the Lender to issue the first Letter of Credit hereunder is subject to the creation and delivery by the Borrower to the Lender of a Letter of Credit reimbursement agreement in form and substance satisfactory to the Lender. 6. Representations and Warranties. The Borrower represents and warrants to the Lender as follows: 6.1 Organization. The Borrower and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the State or Province of its organization; (b) has all necessary corporate power and authority to conduct its business as presently conducted, and (c) is duly qualified to do business and in good standing in the State or Province of its organization and in all jurisdictions in which the failure to so qualify would have a Material Adverse Effect. 6.2 Financial Statements. The Borrower has furnished to the Lender the audited Annual Financial Statements of Sterling and the unaudited Annual Financial Statements of the Borrower as at September 30, 1994 which fairly present the financial condition and the results of operations of Sterling and the Borrower as at such date. No events, conditions or 26 circumstances have occurred from the date that the financial statements were delivered to the Lender through the date hereof which would cause said financial statements to be misleading in any material respect. There are no material instruments or liabilities which should be reflected in such financial statements provided to the Lender which are not so reflected. Since September 30, 1994, no event has occurred which has had (or would reasonably be expected to have) a Material Adverse Effect. 6.3 Enforceable Obligations; Authorization. The Loan Documents are legal, valid and binding obligations of the Parties, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws and judicial decisions affecting creditors' rights generally and by general equitable principles. The execution, delivery and performance of the Loan Documents (a) have all been duly authorized by all necessary corporate action; (b) are within the corporate power and authority of the Parties; (c) do not and will not contravene or violate any Legal Requirement applicable to the Parties or the Organizational Documents of the Parties, the contravention or violation of which could have a Material Adverse Effect on the business, condition (financial or otherwise), operations or Properties of the Borrower or any other Party; (d) do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected which breach or default could reasonably be expected to cause a Material Adverse Effect, and (e) do not and will not result in the creation of any Lien upon any Property of any of the Parties, except in favour of the Lender or as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained. Except as otherwise expressly stated in the Security Agreements, the Liens created under the Security Agreements constitute valid and perfected first and prior Liens on the Property described therein, subject to no other Liens whatsoever. 6.4 Other Borrowed Money Indebtedness. Neither the Borrower nor any of its Subsidiaries is in default in the payment of any other Borrowed Money Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party and which default could reasonably be expected to cause a Material Adverse Effect. 6.5 Litigation. There is no litigation or administrative proceeding pending or, to the knowledge of the Borrower, threatened against, nor any outstanding judgment, order or decree affecting, the Borrower or any of its Subsidiaries before or by any Governmental Authority which could reasonably be expected to cause a Material Adverse Effect except for a claim threatened by Miramichi Pulp & Paper Inc.. Neither the Borrower nor any of its Subsidiaries is in default with respect to any judgment, order or decree of any Governmental Authority where such default would have a Material Adverse Effect. 6.6 Taxes. The Borrower and its Subsidiaries each has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained and those which are being contested in good faith as provided in Section 7.1(a) hereof. 27 6.7 Subsidiaries. The Borrower has no Subsidiaries or Affiliates except as set forth on Exhibit C attached hereto or those formed in compliance with Section 8.9 hereof. 6.8 No Untrue or Misleading Statements. No document, instrument or other writing furnished to the Lender by or on behalf of the Borrower or any other Party in connection with the transactions contemplated in any Loan Document, taken as a whole, contains any untrue material statement of fact or will omit to state any such fact (of which the Borrower or any other Party has knowledge) necessary to make the representations, warranties and other statements contained herein or in such other document, instrument or writing not misleading. 6.9 Solvency. Neither the Borrower nor any Subsidiary nor any Affiliate has made any assignment for the benefit of creditors, made a proposal for the benefit of its creditors or has had any receiving order made against it under the provisions of the Bankruptcy and Insolvency Act (Canada), or has had any petition for such an order served upon it. 6.10 Compliance. The Borrower and its Subsidiaries are each in compliance with all Legal Requirements applicable to it, except to the extent that the failure to comply therewith could not reasonably be expected to cause a Material Adverse Effect. 6.11 Environmental Matters. The Borrower and its Subsidiaries have obtained and maintained in effect all Environmental Permits (or the applicable Person has initiated the necessary steps to transfer the Environmental Permits into its name or obtain such permits), the failure to obtain which could reasonably be expected to have a Material Adverse Effect. The Borrower and its Subsidiaries and their Properties, business and operations have been and are in compliance with all applicable Requirements of Environmental Law and Environmental Permits failure to comply with which could reasonably be expected to have a Material Adverse Effect. The Borrower and its Subsidiaries and their Properties, business and operations are not subject to any (A) Environmental Claims or (B) Environmental Liabilities, in either case direct or contingent, arising from or based upon any act, omission, event, condition or circumstance occurring or existing on or prior to the date hereof which could reasonably be expected to have a Material Adverse Effect. None of the Borrower or any of its Subsidiaries has received any notice of any violation or alleged violation of any Requirements of Environmental Law or Environmental Permit or any Environmental Claim in connection with its Properties, liabilities, condition (financial or otherwise), business or operations which could reasonably be expected to have a Material Adverse Effect. The Borrower does not know of any event or condition with respect to currently (as of the date this representation is provided) enacted Requirements of Environmental Laws presently scheduled to become effective in the future with respect to any of its Properties or the Properties of any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, for which the Borrower or the applicable Subsidiary of the Borrower has not made good faith provisions in its business plan and projections of financial performance. 6.12 Certain Business Matters. The Borrower has all licenses and permits necessary to carry on its business except those 28 not having a Material Adverse Effect. Except for those not having a Material Adverse Effect, there are no employee claims against the Borrower and the Borrower is not in violation or default of any major agreements to which it is a party. 6.13 Additional Representations and Warranties Respecting Sterling in U.S. Facility. All of the representations and warranties made by Sterling in the U.S. Facility are true and correct. 6.14 Survival of Representations and Warranties. The representations and warranties made by the Borrower herein shall survive the execution of this Agreement and all other agreements provided for or contemplated herein and each Borrowing hereunder including without limitation any conversion of a Borrowing. 7. Affirmative Covenants. The Borrower covenants and agrees with the Lender that prior to the termination of this Agreement it will do, and cause each of its Subsidiaries and Sterling to do (with respect to their own affairs), and if necessary cause to be done, each and all of the following (for greater certainty, where any covenant is expressed to apply to one entity only, the Borrower shall be required to cause only that entity to comply with such covenant): 7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay, prior to the date when penalties attach with respect thereto, all taxes and governmental charges of every kind upon it or against its income, profits or Property, unless and only to the extent that the same shall be contested diligently in good faith and reserves deemed adequate by the independent chartered accounting firm used to prepare Sterling's audited Annual Financial Statements and the Borrower's unaudited Annual Financial Statements have been established therefor; (b) do all things necessary to preserve its corporate existence, qualifications, rights and franchises in all Provinces and States where such failure to qualify would have a Material Adverse Effect; (c) comply with all applicable Legal Requirements (including without limitation Requirements of Environmental Law) in respect of the conduct of its business and the ownership of its Property, the noncompliance with which could reasonably be expected to cause a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair and make all replacements and additions to its Property as may be reasonably necessary to conduct its business properly and efficiently. 7.2 Financial Statements and Information. Furnish to the Lender one copy of each of the following: (a) as soon as available and in any event within 90 days after the end of each of its fiscal years, beginning with the fiscal year 1995, its Annual Financial Statements (audited for Sterling and unaudited for the Borrower); (b) as soon as available and in any event within 45 days after the end of each calendar quarter of each of its fiscal years, Quarterly Financial Statements; (c) concurrently with the financial statements provided for in Subsections 7.2(a) and (b) hereof, such schedules, computations and other information, in reasonable detail, as may be required by the Lender to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified and signed by the 29 president or chief financial officer of the Borrower or Sterling, as the case may be (or other authorized officer approved by the Lender) as true, correct and complete and, commencing with the quarterly financial statement prepared as of June 30, 1995, a compliance certificate ("Compliance Certificate") in the form of Exhibit D-1 for the Borrower and Exhibit D-2 for Sterling, each attached hereto, duly executed by such authorized officer; (d) (1) as of the Effective Date and (2) within 30 days after the end of each calendar month, a Borrowing Base Certificate as at March 31, 1995 for the Borrowing Base Certificate delivered as at the Effective Date and thereafter the last day of such calendar month or the date of such receipt, as the case may be, together with such supporting information as the Lender may reasonably request; (e) within 30 days after the end of each calendar month of each fiscal year, a management report prepared for use by management of Sterling with respect to sales and operating revenues and costs of manufacturing and related information for both Sterling and the Borrower in such detail as such management report is prepared for the use of the management of Sterling; (f) from time to time, at any time upon the request of the Lender, but at the cost of the Borrower, a report of an independent collateral field examiner approved by the Lender in writing and reasonably acceptable to the Borrower (which may be, or be affiliated with, the Lender) with respect to the Accounts and Inventory components included in the Borrowing Base (provided, however, that so long as no Event of Default has occurred and is continuing, the Lender shall not require such a report more than once per calendar year); (g) by September 30 of each year, the financial projections of income and cash flow of Sterling for each of the next 12 calendar months, and (h) such other information relating to the condition (financial or otherwise), operations, prospects or business of any of the Borrower and its Subsidiaries and Sterling as from time to time may be reasonably requested by the Lender. 7.3 Financial Tests. The Borrower, on a consolidated basis, will have Net Worth of not less than U.S.$13,000,000 at all times, ignoring any accumulated currency translation adjustments made after March 31, 1995, which are caused solely by a change in the currency exchange ratio between the Dollar and the U.S. Dollar and including any change to the amount of the accumulated currency translation adjustment resulting solely from the accounting treatment of any amalgamation of the Borrower and Sterling NRO, Ltd. Sterling on a consolidated basis, will have: (a) Debt to EBITDA Ratio - as of the last day of each fiscal quarter, a Debt to EBITDA Ratio of not greater than 4.00 to 1.00. (b) Fixed Charge Coverage Ratio - as of the last day of each fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00. (c) Adjusted Fixed Charge Coverage Ratio - as of the date of any proposed dividend which is subject to the Adjusted Fixed Charge Coverage Ratio (and after giving effect to such dividend), an Adjusted Fixed Charge Coverage Ratio of not less than 1.10 to 1.00. (d) Net Worth - Net Worth of not less than (1) at all times during the period commencing on the Effective Date through and including June 30, 1995, U.S. $106,000,000 plus 50% of the Net Income of Sterling (if positive) for the fiscal quarter beginning on January 1, 1995 and ending on March 31, 1995, and (2) at all times during each fiscal quarter 30 after June 30, 1995, the minimum Net Worth required during the immediately preceding fiscal quarter plus 50% of the Net Income of Sterling (if positive) for the immediately preceding fiscal quarter plus all of the net proceeds of any issuance of equity in Sterling during such fiscal quarter. (e) Current Ratio - a Current Ratio of not less than 1.10 to 1.00 at all times. 7.4 Inspection. As to the Borrower only, permit the Lender upon 3 days' prior notice to inspect its Property, to examine its files, books and records except privileged communication with legal counsel and classified governmental material, and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all during normal business hours and at such intervals and to such extent as the Lender may reasonably desire. 7.5 Further Assurances. Promptly execute and deliver, at the Borrower's expense, any and all other and further instruments which may be reasonably requested by the Lender to cure any defect in the execution and delivery of any Loan Document in order to effectuate the transactions contemplated by the Loan Documents, and in order to grant, preserve, protect and perfect the validity and priority of the security interests created by the Security Agreements. 7.6 Books and Records. Maintain books of record and account in accordance with GAAP. 7.7 Insurance. Maintain insurance with such insurers, on such of its Property, with responsible companies in such amounts, with such deductibles and against such risks as are usually carried by owners of similar businesses and properties in the same general areas in which it operates (including without limitation business interruption insurance), and furnish the Lender satisfactory evidence thereof promptly upon request. The Borrower shall provide the Lender with copies of the relevant sections of policies of insurance and a certificate of the insurer for itself and Sterling that the insurance required by this Section may not be cancelled, reduced or affected in any material manner without thirty (30) days' prior written notice to the Lender. 7.8 Notice of Certain Matters. Give the Lender prompt written notice of the following: (a) the issuance by any Governmental Authority of any injunction, order or other restraint prohibiting, or having the effect of prohibiting, the performance of this Agreement by the Borrower or the performance of the U.S. Facility Credit Agreement by Sterling, as the case may be, any other Loan Document, or the making of the Revolving Loans or the initiation of any litigation, or any claim or controversy which might result in the initiation of any litigation, seeking any such injunction, order or other restraint that could reasonably be expected to cause a Material Adverse Effect; 31 (b) the filing or commencement of any action, suit or proceeding, whether at law or in equity or by or before any court or any Federal, Provincial, State, municipal or other Governmental Authority which could reasonably be expected to cause a Material Adverse Effect; (c) any Event of Default or Default as defined herein or in the U.S. Facility Credit Agreement known to Borrower or Sterling, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto; and (d) any development in the business or affairs of the Borrower or any of its Subsidiaries or Sterling which has had or which could reasonably be expected to have, in the reasonable judgment of the Borrower or Sterling a Material Adverse Effect. The Borrower will also notify the Lender in writing at least 30 days prior to the date that any Party changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. 7.9 Increased Costs. If after the date hereof, any Legal Requirement or the adoption of any Legal Requirement, or any change therein or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by the Lender (or its Branch of Account) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency: (a) shall subject the Lender (or its Branch of Account) to any tax, duty or other charge, or shall cause the withdrawal or termination of any previously available exemption from any tax, duty or other charge, with respect to the unutilized portion of its Revolving Loan Commitment, its obligation to make Revolving Loans or its Revolving Loans or with respect to its obligation to accept Bankers' Acceptances or issue Letters of Credit or shall change the basis of taxation of payments to the Lender (or its Branch of Account) including the principal of or interest on its Borrowings or any fees payable hereunder or any other amounts due under this Agreement (except for changes in the rate of taxes measured by or imposed on the overall net income of the Lender or its Branch of Account imposed by the jurisdiction of incorporation of the Lender, the jurisdiction in which such Lender's principal executive office or Branch of Account is located or a jurisdiction in which the Lender is subject to taxation without regard to this Agreement and the documentation entered into pursuant thereto and except for changes in any such jurisdiction in the method of calculation of net income for income tax purposes where any such change is applicable to corporations generally regardless of whether they are lenders); or (b) shall impose, modify or deem applicable any reserve, deemed reserve, special deposit, capital adequacy or similar requirement against assets of, deposits with or for the account of, or credit extended or committed to be extended by the Lender or its Branch of Account or shall impose on the Lender (or its Branch of Account) any other condition affecting its obligation to permit borrowings or affecting outstanding borrowings including, without 32 limitation, the amount of capital required or expected to be maintained by the Lender as a result of entering into this Agreement or its Revolving Loan Commitment or in respect of its outstanding Borrowings; and the net result of any of the foregoing is to increase the cost or reduce the applicable rate of return to the Lender (or its Branch of Account) of maintaining its Revolving Loan Commitment, making or maintaining any Borrowing or accepting any draft as a Bankers' Acceptance or issuing any Letter of Credit, or to reduce the amount of any sum received or receivable by the Lender (or its Branch of Account) under this Agreement or with respect hereto, by an amount deemed by the Lender to be material, then within fifteen (15) days after each demand by the Lender claiming compensation, setting forth the additional amount or amounts to be paid to it hereunder and the basis thereof, the Borrower agrees to pay promptly to the Lender such additional amount or amounts incurred prior to such demand as will compensate the Lender for such increased costs or deductions. The Lender will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lender to compensation pursuant to this Section 7.9 and will designate a different Branch of Account, as the case may be, if such designation will avoid the need for or reduce the amount of, such compensation and will not, in the sole judgment of the Lender, be otherwise disadvantageous to the Lender acting reasonably. A certificate of the Lender claiming compensation under this Section 7.9 setting forth the additional amount or amounts (which additional amounts may be calculated by the Lender on the basis of reasonable estimates or averaging methods) to be paid to it hereunder and the basis therefor shall be conclusive in the absence of manifest error. If the Lender demands compensation under this Section 7.9, the Borrower may at any time, upon at least four Business Day, prior notice to the Lender, which notice shall be irrevocable, prepay in full, without penalty, the then outstanding Borrowing of the Lender together with accrued interest thereon to the date of repayment and all such compensation to the date of repayment. 7.10 Capital Adequacy. Agrees that if the Lender shall have determined that the adoption after the Effective Date or effectiveness after the Effective Date (whether or not previously announced) of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein after the Effective Date, or any change in the interpretation or administration thereof after the Effective Date by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender with any request or directive after the Effective Date regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency has or would have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder, under the Bankers' Acceptances or Letters of Credit or other Obligations held by it to a level below that which the Lender could have achieved but for such adoption, change or compliance (taking into consideration the Lender's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then from time to time, upon satisfaction of the conditions precedent set forth in this Section 7.10, upon demand by the Lender, the Borrower (subject to Section 11.7 hereof) shall pay to 33 the Lender such additional amount or amounts as will compensate the Lender for such reduction. The certificate of the Lender setting forth such amount or amounts as shall be necessary to compensate it and the basis thereof shall be delivered as soon as practicable to the Borrower and shall be conclusive and binding, absent manifest error. The Borrower shall pay the amount shown as due on any such certificate within fifteen (15) days after the delivery of such certificate; provided that the Borrower shall not be obligated to compensate the Lender for any such amounts which relate to a period more than seventy-five (75) days prior to such request for payment. In preparing such certificate, the Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 8. Negative Covenants. The Borrower covenants and agrees with the Lender that prior to the termination of this Agreement it will not, and will not suffer or permit any of its Subsidiaries or Sterling (with respect to their own affairs) to, do any of the following (for greater certainty, where any covenant is expressed to apply to one entity only, the Borrower shall be required to cause only that entity to comply with such covenant): 8.1 Indebtedness. Other than the Borrowings hereunder and borrowings under the U.S. Facility, create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, or become or remain liable with respect to any Borrowed Money Indebtedness (as defined below), whether direct, indirect, absolute, contingent or otherwise, except the following: (a) the Obligations, as to the Borrower, and the Obligations and Interest Rate Risk Indebtedness (as those terms are defined in the U.S. Facility Credit Agreement), as to Sterling; (b) the liabilities existing on the date of this Agreement and disclosed on Schedule 8.1 hereto for each of Sterling and the Borrower and all renewals, extensions and replacements (but not increases) of any of the foregoing; (c) purchase money Indebtedness to acquire Equipment not exceeding, in the aggregate, for Sterling and the Borrower collectively, U.S.$10,000,000 outstanding at any one time; (d) in addition to Indebtedness permitted under the preceding clause (c) non-recourse, purchase money Indebtedness in an aggregate amount not to exceed U.S.$60,000,000 at any one time outstanding incurred by Subsidiaries of Sterling, including the Borrower, which is payable solely by recourse to Properties which are not included in the Borrowing Base and which are acquired or constructed by such Subsidiary after the date hereof; (e) Subordinated Debt of Sterling so long as the Term Loans or U.S. Revolving Loan Commitments (as defined in the U.S. Facility Credit Agreement) are permanently reduced by an amount equal to the net proceeds of such Subordinated Debt; (f) insurance premiums financed with the applicable insurance carrier, and (g) other Borrowed Money Indebtedness of either Sterling or the Borrower which collectively does not exceed U.S.$30,000,000 in the aggregate outstanding at any time on terms no more restrictive than the terms provided herein. For purposes of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to Property purchased by such 34 Person, (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable incurred in the ordinary course of such Person's business), (e) all Capital Lease Obligations, (f) all obligations of others of the types specified in clauses (a) through (e) above secured by any lien on property or assets owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all outstanding letters of credit issued for the account of such Person and (h) all guarantees of such Person of obligations of the type referred to in the foregoing clauses (a) through (g) and, for Sterling only, Interest Rate Risk Indebtedness as defined in the U.S. Facility Credit Agreement. 8.2 Liens. Other than the Liens securing the Borrowings hereunder, create or suffer to exist any Lien upon any of its Property now owned or hereafter acquired, or acquire any Property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its Accounts; provided, however, that it may create or suffer to exist: (a) Liens in favour of the Agent (with respect to Sterling) and the Lender (with respect to the Borrower) under the Loan Documents in respect of Sterling and the Borrower, as the case may be; (b) Liens in effect on the Effective Date and disclosed on Schedule 8.2 hereto for each of Sterling and the Borrower, provided that neither the Indebtedness secured thereby nor the Property covered thereby shall increase after the Effective Date; (c) Liens securing purchase money Indebtedness permitted under Section 8.1(c) hereof and covering only the Property so purchased and the proceeds therefrom and Liens permitted under Section 8.1(d) hereof covering Properties acquired or constructed after the date hereof and the proceeds therefrom; (d) normal encumbrances and restrictions on title which do not secure Borrowed Money Indebtedness and which do not have a material adverse effect on the value or utility of the applicable Property; (e) Liens incurred or deposits made in the ordinary course of business (i) in connection with workmen's compensation, unemployment insurance, social security and other like laws, (ii) to secure insurance in the ordinary course of business, the performance of bids, tenders, contracts, leases, licenses, statutory obligations, surety, appeal and performance bonds and other similar obligations incurred in the ordinary course of business, not, in any of the cases specified in this clause (ii), incurred in connection with the borrowing of money, the obtaining of advances or the payment of the deferred purchase price of Property, or (iii) on deposits made in financial institutions in the ordinary course of business as a result of common law and statutory rights of setoff and depository agreements and other contractual arrangements (other than Borrowed Money Indebtedness) arising in the ordinary course of business; (f) attachments, judgments and other similar Liens arising in connection with the court proceedings, provided that the execution and enforcement of such Liens are effectively stayed and the claims secured thereby are being actively contested in good faith with adequate reserves made therefor in accordance with GAAP; (g) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens, incurred in good faith in the ordinary course of business and securing obligations which are not yet due or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (h) Liens for taxes which are not yet due or are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained in accordance with GAAP; (i) Liens or 35 rights under insurance policies securing Indebtedness permitted under Section 8.1(f); and (j) extensions, renewals and replacements of Liens referred to in clauses (a) through (i) of this Section; provided that any such extension, renewal or replacement Lien shall be limited to the Property or assets covered by the Lien extended, renewed or replaced and that the Indebtedness secured by any such extension, renewal or replacement Lien shall be in an amount not greater than the amount of the Indebtedness secured by the Lien extended, renewed or replaced. 8.3 Contingent Liabilities. Directly or indirectly guarantee the performance or payment of, or purchase or agree to purchase, or assume or contingently agree to become or be secondarily liable in respect of, any obligation or liability of any other Person except for (a) the endorsement of checks or other negotiable instruments in the ordinary course of business; (b) obligations disclosed on Schedule 8.3 hereto for each of Sterling and the Borrower (but not increases of such obligations after the Effective Date), (c) those liabilities permitted under Section 8.1 hereof and (d) guaranties by Sterling of any of its Subsidiaries obligations (except where recourse is expressly required to be limited by the U.S. Facility Credit Agreement). 8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets. In any single transaction or series of transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party to any amalgamation, merger or consolidation unless and so long as (i) no Default or Event of Default has occurred that is then continuing, (ii) immediately thereafter and giving effect thereto, no event will occur and be continuing which constitutes a Default, (iii) the Borrower, or Sterling, as the case may be, or their respective Subsidiary is the surviving Person, and (iv) the surviving or continuing Person ratifies and assumes each Loan Document to which any party to such amalgamation or merger was a party; (c) sell, convey or lease all or any substantial part of its assets, except for sale of Inventory in the ordinary course of business and except for sales of Property (other than Inventory) in the ordinary course of the Borrower's or Sterling's, as the case may be, business; (d) pledge, transfer or otherwise dispose of any shares of capital stock of any Subsidiary of the Borrower, or Sterling, as the case may be, or any Borrowed Money Indebtedness of any Subsidiary of the Borrower, or Sterling, as the case may be, or permit any such Subsidiary to issue any additional shares of capital stock other than to the Borrower, or Sterling, as the case may be, and other than pledges of shares contemplated under the U.S. Facility Credit Agreement, or to acquire any shares of capital stock of any Subsidiary of the Borrower, or Sterling, as the case may be, or (e) acquire all or substantially all of the assets of any Person or (except as expressly permitted by Section 8.8 hereof) any shares of stock of or similar interest in any other Person except for Permitted Acquisitions. 8.5 Redemption, Dividends and Distributions. As to Sterling only, at any time: (a) redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock except to the extent that no Default or Event of Default has occurred which is continuing (or would result from the same); (b) pay any dividend other than payments of the Permitted Dividends by Sterling or dividends by a Subsidiary of Sterling to Sterling or any Subsidiary of Sterling or (c) make any other distribution of any Property or cash to stockholders as such. As to the Borrower only, at any time pay any dividend if a Default or Event of Default has occurred which is continuing (or would result from same). 36 8.6 Nature of Business. Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged. 8.7 Transactions with Affiliates. Enter into any transaction or agreement with any of its Affiliates or any of its Subsidiaries (or any Affiliate of any such Person) unless the same is upon terms substantially comparable to those obtainable from wholly unrelated sources or in an arms length transaction. 8.8 Loans and Investments. Make any loan, advance, extension of credit or capital contribution to, or make or have any Investment in, any Person, or make any commitment to make any such extension of credit or Investment, except (a) Permitted Investments, (b) normal and reasonable advances in the ordinary course of business, (c) trade and customer accounts receivable in accordance with the ordinary course of business, (d) Investments in Subsidiaries who are Guarantors (as defined in the U.S. Facility Credit Agreement) and who have granted to the Agent a first-priority lien covering all of its Accounts and Inventory, (e) Investments in 50% or less owned joint ventures and other corporations not to exceed U.S.$20,000,000 in unreturned capital Investment at any one time outstanding provided that such joint ventures and other Corporations are in substantially the same lines of business as Sterling and its Subsidiaries, (f) Investments in Subsidiaries formed, created or acquired for the purposes of developing and constructing a sodium chlorate plant in Hong Ya, Sichuan Province, China, provided such Investments do not exceed in aggregate U.S.$10,000,000, and (g) other investments existing as of the date hereof which are described in the attached Schedule 8.8. 8.9 No Subsidiaries. As to the Borrower only, form, create or acquire a Subsidiary unless there shall have been executed and delivered to the Lender (a) a guaranty, substantially in the form of the Guaranties executed and delivered concurrently herewith, whereby the applicable Subsidiary guaranties the payment of all of the Obligations, (b) collateral documentation, in Proper Form, reasonably required by Lender to create and perfect a first-priority Lien covering all of the Accounts and Inventory of the applicable Subsidiary, securing the Obligations and (c) appropriate resolutions and authorizations regarding all such documents and such other documents, instruments, certificates, opinions and other collateral matters as the Lender may reasonably require. Notwithstanding the foregoing, the Borrower may, without the consent of the Lender, form, create or acquire one or more Subsidiaries for the purposes of developing and constructing a sodium chlorate plant in Hong Ya, Sichuan Province, China and such resulting Subsidiaries shall not be required to execute or otherwise provide any such guaranty or collateral documentation. 8.10 Fiscal Year. The Borrower will not (and, except in the case of Sterling NRO, Ltd. will not permit any of its Subsidiaries to) change its fiscal year, unless the Lender shall have consented thereto in writing or unless required to make such change because of a change in or amendment to the Income Tax Act (Canada) as amended. In the event that the Borrower is required to change in its fiscal year, the parties hereto agree to negotiate in good faith any changes in this Agreement made necessary by the required change in fiscal year. Sterling NRO, Ltd. may change its fiscal year in connection with any merger of Sterling NRO, 37 Ltd. into Sterling Pulp Chemicals, Ltd. which is permitted under the terms of this Agreement. 9. Defaults. 9.1 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur, then the Lender may do any or all of the following: (1) upon notice to the Borrower, declare the Revolving Loan Commitments terminated (whereupon the Revolving Loan Commitments shall be terminated) and/or accelerate the Termination Date to a date as early as the date of termination of the Revolving Loan Commitments; (2) declare the principal amount then outstanding of and the unpaid accrued interest on the Revolving Loans and Reimbursement Obligations and all fees and all other amounts payable hereunder and under the other Loan Documents to be forthwith due and payable, whereupon such amounts shall be and become immediately due and payable, without notice (including, without limitation any notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower; provided that in the case of the occurrence of an Event of Default with respect to the Borrower referred to in clause (f), (g) or (h) of this Section 9.1, the Revolving Loan Commitments shall be automatically terminated and the principal amount then outstanding of and unpaid accrued interest on the Loans and the Reimbursement Obligations and all fees and all other amounts payable hereunder and under the other Loan Documents shall be and become automatically and immediately due and payable, without notice (including, without limitation, notice of acceleration and notice of intent to accelerate), presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrower, and (3) exercise any or other rights and remedies available to the Lender under the Loan Documents, at law or in equity: (a) Payments - (i) the Borrower or any other Party shall fail to make any payment or required prepayment of principal on the Revolving Loans or any Reimbursement Obligation payable under this Agreement or the other Loan Documents when due or (ii) the Borrower or any other Party fails to make any payment or required prepayment of interest with respect to the Revolving Loans, any Reimbursement Obligation or any other fee or amount under this Agreement or the other Loan Documents when due and (except in the case of acceleration of maturity) such failure to pay continues unremedied for a period of five days; or (b) Other Obligations - the Borrower or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any Borrowed Money Indebtedness having an outstanding principal amount of at least $5,000,000 (other than the Revolving Loans and Reimbursement Obligations) and such default shall continue beyond any applicable period of grace; or any event or condition shall occur which results in the acceleration of the maturity of any such Borrowed Money Indebtedness or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of any such Borrowed Money Indebtedness or any Person acting on such holder's behalf to accelerate the maturity thereof and such event or condition shall not be cured within any applicable period of grace; or 38 (c) Representations and Warranties - any representation or warranty made or deemed made by or on behalf of the Borrower or any other Party in this Agreement or any other Loan Document or in any certificate furnished or made by the Borrower or any other Party to the Lender in connection herewith or therewith shall prove to have been incorrect, false or misleading in any material respect as of the date thereof or as of the date as of which the facts therein set forth were stated or certified; or (d) Affirmative Covenants - (i) default shall be made in the due observance or performance of any of the covenants or agreements contained in Section 7.3 hereof, (ii) the Borrower shall permit any of the insurance provided for in Section 7.7 hereof to lapse, (iii) default shall be made in the due observance or performance of any of the covenants or agreements contained in Section 7.7 hereof (other than lapse of required insurance, which is provided for above) and such default continues unremedied for a period of 10 days after (x) notice thereof is given by the Lender to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier or (iv) default is made in the due observance or performance of any of the other covenants and agreements contained in Section 7 hereof or any other affirmative covenant of the Borrower or any other Party contained in this Agreement or any other Loan Document and such default continues unremedied for a period of 30 days after (x) notice thereof is given by the Agent to the Borrower or (y) such default otherwise becomes known to the Borrower, whichever is earlier; or (e) Negative Covenants - default is made in the due observance or performance by the Borrower of any of the other covenants or agreements contained in Section 8 of this Agreement or of any other negative covenant of the Borrower or any other Party contained in this Agreement or any other Loan Document; or (f) Involuntary Bankruptcy or Receivership Proceedings - a receiver, conservator, liquidator or trustee of the Borrower or any of its Subsidiaries or of any of its property is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction, and such decree or order remains in effect for more than 30 days; or the Borrower or any of its Subsidiaries is adjudicated bankrupt or insolvent; or any of such Person's property is sequestered by court order and such order remains in effect for more than 30 days; or a petition is filed against the Borrower or any of its Subsidiaries under any federal bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, dissolution, liquidation or receivership law or any jurisdiction, whether now or hereafter in effect, and is not dismissed within 30 days after such filing; or (g) Voluntary Petitions or Consents - the Borrower or any of its Subsidiaries commences a voluntary case or other proceeding or order seeking liquidation, reorganization, arrangement, insolvency, readjustment of debt, dissolution, liquidation or other relief with respect to itself or its debt or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary 39 case or other proceeding commenced against it, or fails generally to, or cannot, pay its debts generally as they become due or takes any corporate action to authorize or effect any of the foregoing; or (h) Assignments for Benefit of Creditors or Admissions of Insolvency - the Borrower or any of its Subsidiaries makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of the Borrower or such Subsidiary or of all or any substantial part of its Property; or (i) Undischarged Judgments - a final judgment or judgments for the payment of money exceeding, in the aggregate, $5,000,000 is rendered by any court or other governmental body against the Borrower or any of its Subsidiaries and the Borrower or such Subsidiary does not discharge the same or provide for its discharge in accordance with its terms, or procure a stay of execution thereof within 30 days from the date of entry thereof; or (j) Security Agreements - any Security Agreement for any reason ceases to create a valid and perfected first-priority Lien on any material portion of the Collateral purported to be covered thereby, or the Borrower or any of its Subsidiaries (or any other Person who may have granted or purported to grant such Lien) will so state in writing; or (k) Attachment - the Borrower or any of its Subsidiaries shall suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within 30 days after its issue or levy; or (l) Default under U.S. Facility An Event of Default (as defined therein) occurs and is continuing under the U.S. Facility and is not cured within the time period specified therein ; or (m) Change of Control - there shall occur any Change of Control in Sterling or the Borrower shall cease to be a wholly-owned direct or indirect Subsidiary of Sterling. 9.2 Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized at any time and from time to time, without notice to the Borrower or any of its Subsidiaries (any such notice being expressly waived by the Borrower and its Subsidiaries), to setoff and apply any and all deposits (general or special, time or demand, provisional or final (but excluding the funds held in accounts clearly designated as escrow or trust accounts held by the Borrower or such Subsidiary for the benefit of Persons which are not Affiliates of the Borrower or any of its Subsidiaries)), whether or not such setoff results in any loss of interest or other penalty, and including without limitation all certificates of deposit at any time held, and any other funds or property at any time held, and other Indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower or any such Subsidiary against any and all of the Obligations irrespective of whether or not the 40 Lender will have made any demand under this Agreement or any other Loan Document. The Borrower also hereby grants to the Lender a security interest in and hereby transfers, assigns, sets over, and conveys to the Lender, as security for payment of all Revolving Loans and Reimbursement Obligations, all such deposits, funds or property of the Borrower or any such Subsidiary, or Indebtedness of the Lender to the Borrower or any such Subsidiary. Should the right of the Lender to realize funds in any manner set forth hereinabove be challenged and any application of such funds be reversed, whether by court order or otherwise, the Lender shall make restitution or refund same to the Borrower. The Lender agrees to promptly notify the Borrower after any such setoff and application, provided that the failure to give such notice will not affect the validity of such setoff and application. The rights of the Lender under this Section are in addition to other rights and remedies (including without limitation other rights of setoff) which the Lender may have. This Section is subject to the terms and provisions of Section 11.7 hereof. 9.3 Collateral Account. The Borrower hereby agrees, in addition to the provisions of Section 9.1 hereof, that upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Lender, and automatically and without any request or demand upon the occurrence of an Event of Default of the type described in Sections 9.1(f), (g) or (h) hereof, pay to the Lender at its Branch of Account an amount in immediately available funds equal to the then aggregate principal amount at maturity of all Bankers' Acceptances and Letters of Credit then outstanding, including any which may be held by the Lender in its own right, which funds shall be held by the Lender as Cover. 9.4 Preservation of Security for Unmatured Reimbursement Obligations. In the event that, following (i) the occurrence of an Event of Default and the exercise of any rights available to the Lender under the Loan Documents, and (ii) payment in full of the principal amount then outstanding of and the accrued interest on the Revolving Loans and Reimbursement Obligations and fees and all other amounts payable hereunder and all other amounts secured by the Security Agreements, any Bankers' Acceptances or Letters of Credit shall remain outstanding, the Lender shall be entitled to hold (and the Borrower hereby grants and conveys to the Lender a security interest in and to) all cash or other property ("Proceeds of Remedies") realized or arising out of the exercise by the Lender of any rights available to it under the Loan Documents, at law or in equity, including, without limitation, the proceeds of any foreclosure, as collateral for the payment of any amounts due or to become due under or in respect of such Bankers' Acceptances or Letters of Credit. Such Proceeds of Remedies shall constitute "Collateral" for all purposes under the terms and provisions of the Security Agreements, and the rights, titles, benefits, privileges, duties and obligations of Lender with respect thereto shall be governed by the terms and provisions of this Agreement and, to the extent not inconsistent with this Agreement, the Security Agreements. The Lender may, but shall have no obligation to, invest any such Proceeds of Remedies in such manner as the Lender, in the exercise of its sole discretion, deems appropriate. Such Proceeds of Remedies shall be applied to Reimbursement Obligations arising in respect of any such Bankers' Acceptances or Letters of Credit and/or the payment of the Lender's obligations under any such Bankers' Acceptances or Letters of Credit when such Bankers' Acceptance or Letter of Credit is presented for payment. The Borrower hereby agrees 41 to execute and deliver to the Lender such security agreements, pledges or other documents as the Lender may, from time to time, require to perfect the pledge, Lien and security interest in and to any such Proceeds of Remedies provided for in this Section. Nothing in this Section shall cause or permit an increase in the maximum amount of the Revolving Loan Obligations permitted to be outstanding from time to time under this Agreement. 9.5 Remedies Cumulative. No remedy, right or power conferred upon the Lender is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 10. Payment of Certain Amounts: If the Borrower fails to pay to the Lender when due any amounts owing under this Agreement for fees, interest or any other sum (other than principal) from time to time due to the Lender, the Lender, without prejudice to any remedy the Lender may have pursuant to this Agreement and without notice to, or authorization by, the Borrower and without regard to minimum amounts or whole multiples or any other restriction contained in this Agreement, may elect, at any time and from time to time, to draw down from the unused amount of the Revolving Loans, and to pay to itself a corresponding amount which shall be deemed to be a Prime Rate Borrowing to the Borrower under this Agreement and shall be payable on demand and the Lender, as the case may be, shall be entitled to all of the covenants and conditions and representations and warranties in favour of the Lender contained in this Agreement. 11. Miscellaneous. 11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver of any other Default or Event of Default. No failure on the part of the Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. 11.2 Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy (confirmed by mail) or other writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to the other party given in accordance with this Section 11.2. Except as otherwise provided in this Agreement, all such notices or communications shall be deemed to have been duly given when (i) transmitted by telex or telecopier, (ii) personally delivered (iii) one Business Day after deposit with an overnight mail or delivery service, postage prepaid or (iv) three Business Days' after deposit in a receptacle maintained by the Canada Post, 42 postage prepaid, registered or certified mail, return receipt requested, in each case given or addressed as aforesaid. 11.3 Expenses, Etc. Whether or not any Revolving Loan is ever made or any Bankers' Acceptance ever stamped and issued or any Letter of Credit is issued, the Borrower shall pay or reimburse on demand (a) the Lender for paying the reasonable fees and expenses of one legal counsel to the Lender, in connection with the preparation, negotiation, execution and delivery of this Agreement (including the exhibits and schedules hereto), the Security Agreements and the other Loan Documents and the making of the Revolving Loans hereunder, and any modification, supplement or waiver of any of the terms of this Agreement or any other Loan Document; (b) the Lender for any lien search fees; (c) the Lender for paying all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, any Bankers' Acceptance, any Letter of Credit or any other Loan Document or any other document referred to herein or therein; (d) the Lender for paying all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement, any Security Agreement or any document referred to herein or therein, not otherwise incurred by Borrower or its legal counsel, and (e) the Lender for paying all amounts reasonably expended, advanced or incurred by the Lender to satisfy any obligation of the Borrower under this Agreement or any other Loan Document, to protect the Collateral, to collect the Obligations or to enforce, protect, preserve or defend the rights of the Lender under this Agreement or any other Loan Document, including, without limitation, fees and expenses incurred in connection with the Lender's participation as a member of a creditor's committee in a case commenced under the Bankruptcy and Insolvency Act or other similar law and all other customary out-of-pocket expenses incurred by the Lender in connection with such matters, together with interest thereon at the Past Due Rate on each such amount from the date which is fifteen days after demand is made on the Borrower until the date of reimbursement to the Lender. 11.4 Indemnification. The Borrower shall indemnify the Lender and each affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages arise out of or result from any (i) actual or proposed use by the Borrower of the proceeds of any extension of credit by the Lender hereunder; (ii) breach by the Borrower of this Agreement or any other Loan Document or the breach by any Party of any Loan Document; (iii) violation by the Borrower or any other Party of any Legal Requirement; (iv) investigation, litigation or other proceeding relating to any of the foregoing, and the Borrower shall reimburse the Lender, and each Affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable expenses (including reasonable legal fees) incurred in connection with any such investigation or proceeding, or (v) taxes (excluding income taxes and franchise taxes) payable or ruled payable by any Governmental Authority in respect of the Obligations or any Loan Document; provided, however, that the 43 Borrower shall not have any obligations pursuant to this Section with respect to any losses, liabilities, claims, damages or expenses incurred by the Person seeking indemnification by reason of the gross negligence or wilful misconduct of that Person. Nothing in this Section is intended to limit the obligations of the Borrower under any other provision of this Agreement. 11.5 Amendments, Etc. No amendment or modification of this Agreement or any other Loan Document shall in any event be effective against the Borrower unless the same shall be agreed or consented to in writing by the Borrower. No amendment, modification or waiver of any provision of this Agreement or any other Loan Document, nor any consent to any departure by the Borrower therefrom, shall in any event be effective against the Lender unless the same shall be agreed or consented to in writing by the Lender, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 11.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lender and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lender, and any such assignment or transfer without such consent shall be null and void. The Lender may assign with the Borrower's prior written consent, not to be unreasonably withheld, any or all of its rights and obligations under this Agreement and all agreements entered into or delivered in connection herewith. Upon completion of any such assignment, the obligations of the assignor and the assignee under this Agreement shall be several and not joint and several and neither the assignor nor the assignee shall be responsible in any way for the obligations of the other. The Borrower acknowledges that in the regular course of the Lender's commercial banking business the Lender may from time to time sell participating interests in the Revolving Loans and the Bankers' Acceptances and Letters of Credit to other financial institutions ("Participants"). Upon the completion of any such participation, the Lender shall remain responsible for the fulfilment of its obligation hereunder and the Lender shall act on behalf of its Participant in all dealings with the Borrower. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 7.9 and 7.10 of this Agreement with respect to its participation in the Borrowings and Bankers' Acceptances and Letters of Credit outstanding from time to time, in each case with effect from the time at which such financial institution becomes a Participant; provided that the overall liability of the Borrower shall not be increased by the sale of such participating interests. 11.7 Limitation of Interest. With the intent that the rate of interest herein shall at all times be lawful, if the receipt of any funds owing hereunder or under any other agreement related hereto by the Lender would cause the Lender to charge the Borrower a criminal rate of interest (as contemplated under the Criminal Code (Canada)), the Lender agrees it will not require the payment or receipt thereof or a portion thereof which would cause a criminal rate of interest to be charged and if received will return such funds or equity to the Borrower so that the rate of interest paid by the Borrower shall not exceed the rate of 58% per annum from the date this Agreement was entered into. 44 11.8 Survival. The obligations of the Borrower under Sections 2.3(h), 2.3(i), 7.9, 7.10, 11.3 and 11.4 hereof and all other obligations of the Borrower in any other Loan Document (to the extent stated therein), and the obligations of the Lender under Section 11.7 hereof, shall survive the repayment of the Revolving Loans and Reimbursement Obligations and the termination of the Revolving Loan Commitments and maturity of the Bankers' Acceptances and Letters of Credit. 11.9 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE PROVINCE OF ONTARIO AND CANADA FROM TIME TO TIME IN EFFECT. 11.12 Severability. Whenever possible, each provision of the Loan Documents shall be interpreted in such manner as to be effective and valid under applicable law. If any provision of any Loan Document shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions of such Loan Document shall not be affected or impaired thereby. 11.13 Judgment Currency. If for the purpose of obtaining judgment in any court, it is necessary to convert an amount due hereunder or under any instrument delivered hereunder from the currency in which it is due (the "Original Currency") into another currency (the "Second Currency") the parties hereto agree, to the fullest extent permitted by law, that the rate of exchange used shall be that at which, in accordance with normal banking procedures, the Lender could purchase the Original Currency with the Second Currency on the date two Business Days preceding that on which judgment is given. The obligation of the Borrower in respect of any Original Currency due from it to the Lender hereunder or any instrument delivered hereunder shall, notwithstanding any judgment in the Second Currency, be discharged by a payment made to the Lender on account thereof in the Second Currency only to the extent that, on the Business Day following receipt of such payment in the Second Currency, the Lender may, in accordance with normal banking procedures, purchase the Original Currency with the amount of the Second Currency so paid; and if the amount of the Original Currency which may be so purchased is less than the amount originally due in the Original Currency, the Borrower agrees as a separate and independent obligation and notwithstanding any such payment or judgment to indemnify the Lender against such deficiency. 45 11.14 Confidentiality. The Lender agrees to comply with its customary procedures to keep any information delivered or made available by the Borrower to it confidential from anyone other than Persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering commitments, the Revolving Loans, or Bankers' Acceptances or Letters of Credit or participations therein or the collateral thereon or the Loan Documents, provided that nothing herein shall prevent the Lender from disclosing such information (a) to any Person if reasonably incidental to the administration of the Revolving Loans, (b) upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority having jurisdiction over the Lender, (d) which has been publicly disclosed, (e) in connection with any litigation to which the Lender or its respective Affiliates may be a party, (f) to the extent reasonably required or desirable in connection with the exercise of any remedy hereunder or under any Loan Document, (g) to the Lender's legal counsel and independent auditors, and (h) to any actual or proposed participant or assignee of all or part of its Revolving Loans, Revolving Loan Commitments or participations hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. STERLING PULP CHEMICALS, LTD. By: /s/ Jim P. Wise Name: Jim P. Wise Title: Vice President - Finance & Treasury Address for Notices: 2 Gibbs Road Toronto, Ontario, Canada M9B 1R1 Attention: Mr. Mark Davis Telecopy No.: (416) 239-8091 THE BANK OF NOVA SCOTIA By: /s/ Michael G. Locke Name: Michael G. Locke Title: V.P. 46 Address for Notices: Branch of Account 195 The West Mall Etobicoke, Ontario, Canada M9C 5K1 Attention: Mr. Bill Carius with a copy to: 1100 Louisiana, Suite 3000 Houston, Texas 77002 Attention: Messrs. Joseph P. Lattanzi and Michael W. Nepveux Telecopy No.: (713) 752-2425 and with a copy to: Corporate Credit - West 44 King Street West Toronto, Ontario, Canada M5H 1H1 Attention: Mr. David Torrey Telecopy No.: (416) 866-3750 47 EXHIBIT "A" STERLING PULP CHEMICALS, LTD. REQUEST FOR EXTENSION OF CREDIT DATE The undersigned hereby certifies that the undersigned is the _________________________-of STERLING PULP CHEMICALS, LTD., an Ontario corporation (the "Company"), and that as such the undersigned is authorized to execute this Request for Extension of Credit (the "Request") on behalf of the Company pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 28, 1995, by and between the Company and The Bank of Nova Scotia. The Borrowing being requested hereby is to be in the amount indicated and is requested to be made on ____________________________ , which is a Business Day. Amount ------ Borrowing (Specify Cdn. orU.S. dollar for L/C) - --------- ------------------------------------ Prime Rate Borrowing $__________________ Bankers' Acceptance $__________________ Letter of Credit $__________________ The undersigned further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified herein) : (a) As of the date hereof, the Maximum Revolving Loan Available Amount is: $________________________________ (b) If acceptance of a Bankers' Acceptance is requested hereby, a duly executed draft is attached and should have an expiration date of _______________ (which date is not less than 30 days nor more than 180 days after date of acceptance). 48 EXHIBIT "A" STERLING PULP CHEMICALS, LTD. REQUEST FOR EXTENSION OF CREDIT DATE The undersigned hereby certifies that the undersigned is the ____________________________________________________-of STERLING PULP CHEMICALS, LTD., an Ontario corporation (the "Company"), and that as such the undersigned is authorized to (c) If a Letter of Credit is requested hereby, it should be issued for the benefit of _______________________________ and should have an expiration date of _____________________ (which date is no later than one year from the proposed date of issuance) and any special language to be incorporated into such Letter of Credit is attached hereto. (d) The representations and warranties made in each Loan Document are true and correct in all material respects on and as of the time of delivery hereof, with the same force and effect as if made on and as of the time of delivery hereof. (e) No event which has had (or could reasonably be expected to have) a Material Adverse Effect has occurred. (f) No Default or Event of Default has occurred and is continuing or will occur as a result of the making of the Borrowing. STERLING PULP CHEMICALS, LTD. BY: _____________________________ NAME: ___________________________ TITLE: ____________________________ 49 EXHIBIT "B" STERLING PULP CHEMICALS, LTD. BORROWING BASE CERTIFICATE DATE The undersigned hereby certifies that the undersigned is the _________________________________________________________________ of STERLING PULP CHEMICALS, LTD., an Ontario corporation (the " Company"), and that as such the undersigned is authorized to execute this Borrowing Base Certificate on behalf of the Company pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 28, 1995, by and between the Company and The Bank of Nova Scotia. The undersigned further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified herein): (a) The Borrowing Base as of the date hereof is calculated as follows: (i) Eligible Accounts as of the date hereof $___________________ (ii) 85% times Line (a) (I) $___________________ (iii) Eligible Inventory as of the date hereof $___________________ (iv) 65% times Line (a) (iii) $___________________ (v) Value (determined in accordance with GAAP) as of the date hereof of materials and supplies which are not Eligible Inventory $___________________ (vi) 75% times Line (a) (vi) 54 (not to exceed $5,000,000) $___________________ (vii) 65% times Line (a) (vi) $___________________ 55 (viii) Borrowing Base as of the date hereof: Line (a) (ii) plus (y) the lesser of (I) Line (a) (ii) or (II) the sum of Line (a) (iv) plus Line (a) (vii) $___________________ (b) Calculations of Eligible Accounts and Eligible Inventory are set forth on Schedule 1 attached hereto and such calculations are true and correct in all respects and conform to the definitions of "Eligible Accounts" and "Eligible Inventory" set forth in the Credit Agreement. (c) No Default or Event of Default has occurred and is continuing. STERLING PULP CHEMICALS, LTD. BY: _____________________________ NAME: ___________________________ TITLE: ____________________________ 56 EXHIBIT " C " SUBSIDIARIES AND AFFILIATES OF THE BORROWER 1. Sterling Chemicals, Inc. a Delaware corporation 2. Sterling Canada, Inc. a Delaware corporation (100% owned by Sterling Chemicals, Inc.) 3. Sterling Chemicals International Inc., a Delaware corporation (100%) owned by Sterling Chemicals Inc.) 4. Sterling Energy, Inc., a Delaware corporation (100% owned by Sterling Chemicals Inc.) 5. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100% owned by Sterling Chemicals Inc. 6. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling Canada ,Inc.) 7. Sterling Pulp Chemicals US, Inc. a Delaware corporation (100% owned by Sterling Canada Inc.) 57 EXHIBIT " D -1 " STERLING PULP CHEMICALS, LTD. COMPLIANCE CERTIFICATE DATE The undersigned hereby certifies that the undersigned is the _________________________________________________________________ _____________of STERLING PULP CHEMICALS, LTD., an Ontario corporation (the "Borrower") , and that as such the undersigned is authorized to execute this certificate on behalf of the borrower pursuant to the Credit Agreement (as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 28, 1995, by and between the Borrower and The Bank of Nova Scotia; and that a review of the Borrower and its Subsidiaries has been made under the supervision of the undersigned with view to determining their respective obligations under the Credit Agreement and the other Loan Documents; and on behalf of the Borrower further certifies, after due inquiry (each capitalized term used herein having the same meaning given to it in the Credit Agreement unless otherwise specified): (a) The financial statements delivered to the Lender concurrently with this Compliance Certificate have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present the financial condition and results of operations of the applicable Persons as at the end of, and for, the period indicated (subject, in the case of Quarterly Financial Statements and monthly statements of income and cash flow, to normal changes resulting from year-end adjustments). (b) No Default or Event of Default has occurred and is continuing. In this regard, the compliance with the provisions of section 7.3 of the Credit Agreement is as follows: 58 Net Worth - --------- Actual Required - ------ -------- $______________________________ U.S. $ 13,000,000, ignoring accumulated currency translation adjustments made after march 31, 1995 which are caused solely by a change in the currency exchange ratio between the Dollar and U.S. Dollar and including any change to the amount of the accumulated currency translation adjustment resulting solely from the accounting treatment of any amalgamation of the Borrower and Sterling NRO, Ltd. STERLING PULP CHEMICALS, LTD. BY:______________________________ NAME:___________________________ TITLE:____________________________ 59 EXHIBIT "D-2" STERLING CHEMICALS, INC. COMPLIANCE CERTIFICATE DATE The undersigned hereby certifies that the undersigned is the______________________________________________________________ _______of STERLING CHEMICALS, INC. (" Sterling") , a Delaware corporation, which indirectly is wholly-owning parent of Sterling Pulp Chemicals, Ltd. ("the Borrower") and that as such the undersigned is authorized to execute this certificate on behalf of Sterling pursuant to the Credit Agreement ( as it may be amended, supplemented or restated from time to time, the "Credit Agreement") dated as of April 28, 1995, by and between the Borrower and The Bank of Nova Scotia; and that a review of Sterling and its Subsidiaries have fulfilled all of their respective obligations under the Credit Agreement made on their behalf by the Borrower; and on behalf of Sterling and the Borrower further certifies, represents and warrants that to the undersigned's knowledge, after due inquiry (each capitalized term used herein having the same meaning to it in the Credit Agreement unless otherwise specified): (a) The financial statements delivered to the Lender concurrently with this Compliance Certificate have been prepared in accordance with GAAP consistently followed throughout the period indicated and fairly present the financial condition and results of operations of the applicable Persons as at the end of Quarterly Financial Statements and monthly statements of income and cash flow, to normal changes resulting from year-end adjustments). (b) No Default or Event of Default has occurred and is continuing. In this regard, the compliance with the provisions of Section 7.3 of the Credit Agreement is as follows: 60 (i) SECTION 7.3 (A) -- DEBT TO EBITDA RATIO Actual Required _____ to 1.00 4.00 to 1.00 (ii) SECTION 7.3 (B) -- FIXED CHARGE COVERAGE RATIO Actual Required _____ to 1.00 1.25 to 1.00 (iii) SECTION 7.3 (C) -- ADJUSTED FIXED CHARGED RATIO Actual Required _____ to 1.00 1.10 to 1.00 (iv) SECTION 7.3 (D) -- NET WORTH Actual Required $_________ $_________ (v) SECTION 7.3 (E) -- CURRENT RATIO Actual Required _____ to 1.00 1.10 to 1.00 STERLING CHEMICALS, INC. BY: ________________________________ NAME:______________________________ TITLE_______________________________ 61 SCHEDULE 8.1 BORROWED MONEY INDEBTEDNESS STERLING CHEMICALS, INC. None STERLING PULP CHEMICALS LTD. None 62 SCHEDULE 8.2 LIENS STERLING PULP CHEMICALS, LTD. Personal Property Security Act (Ontario) (a) Secured Party: Xerox Canada Ltd./Ltee Collateral Classification: Equipment, Other Registration No.: 931103 1531 0088 4495 File No.: 070734231 Date of Registration: November 3, 1993 General Collateral Description Xerox equipment (b) Secured Party Xerox Canada Ltd./Ltee Collateral Classification: Equipment, Other Registration No: 931025 1535 0088 5733 File No.: 070739055 Date of Registration November 3, 1993 General Collateral Description: Xerox equipment (c) Secured Party: Pacific National Leasing Corporation Collateral Classification: Equipment, Other Registration No.: 930128 1351 0043 0182 File No.: 053832618 Date of Registration January 28, 1993 Other Information: With regards to lease #3159-004, photocopier (d) Secured Party: Manufacturer Finance Programs Ltd. Collateral Classification: Equipment, Other Registration No.: 930114 1110 0004 6691 File No.: 429291189 Date of Registration: January 14, 1993 General Collateral Description: All equipment pursuant to schedule of terms no. 503 dated December 16, 1992, and all equipment leased and amounts owing thereunder 63 (e) Secured Party: Manufacturer Finance Programs Ltd. Collateral Classification: Equipment, Other Registration No.: 930114 1103 0004 6676 File No.: 429291198 Date of Registration: January 14, 1993 General Collateral Description Computer equipment pursuant to lease agreement no. 503-1 dated January 7, 1993 under schedule of terms no. 503 dated December 16, 1992 and all amounts owing thereunder The General Collateral Description was amended on March 23, 1993 by Financing Change Statement no. 930323 2013 1531 0067 to " computer equipment pursuant to lease agreement no. 503.1 dated March 19, 1993 under schedule of terms no. 503 dated March 19, 1993 and all amounts owing thereunder." This registration was assigned on May 21, 1993 to Scotia Leasing Limited by Financing Change Statement no. 930521 2040 1529 9087. This registration was amended on May 27, 1993 by Financing Charge Statement no. 930527 2134 1531 9471, to delete Scotia Leasing Limited as secured party and to add Manufacturer Finance Programs Ltd. and The Bank of Nova Scotia as secured parties. This registration was amended on September 21, 1993 by Financing Change Statement no. 930921 2123 1531 4091 to change the address of the secured party. This registration also provides new information for the general collateral description and a new secured party. The general description now provides" computer equipment pursuant to lease agreement no. 503-1 dated 19/3/93 and amendment dated 27/8/93 under Master Lease no. 503 dated 19/3/93 and all amounts owing thereunder. The secured party referred to is " MFP Technology Services Ltd." This registration was amended on October 18, 1993 by Financing Change Statement no. 931018 2030 1529 2339 to amend the general collateral description to "computer equipment pursuant to lease agreement no. 503-1 dated March 19, 1993 and amendment dated September 23, 1993 and all amendments thereto under schedule of terms no. 503 dated March 19, 1993 and all amount owing thereunder." 64 This registration was renewed on December 15, 1994 for a period of two years by Financing Change Statement no. 941212 2148 1513 0136. This registration was renewed on March 7, 1995 for a period of two years by Financing Change Statement no. 950307 1725 1513 6148. 65 (f) Secured Party: NEL National Equipment Leasing Ltd. Collateral Classification: [none listed] Registration No.: 920922 0905 0088 8976 File No.: 419463342 Date of Registration: September 22, 1992 General Collateral Description: 1-Konica 3035 copier s/n 542209269 C/WRADF S/N 48117857, ADD/PFU S/N 73212189, 20 bin sorter S/N 74103940, 1-Konia 86 ol fax S/N 7530201108 (g) Secured Party: The Hamilton Group Limited Debtor: Albright & Wilson Americas Collateral Classification: Equipment, Other Registration No.: 920519 0849 0088 1992 File No.: 433897884 Date of Registration: May 19, 1992 General Collateral Description: All property leased by secured party to debtor This registration was amended on January 13, 1993 by Financing Change Statement no. 930113 1123 0043 1234 to change the name of the debtor to Sterling Pulp Chemicals, Ltd. Personal Property Security Act (Alberta) (a) Secured Party: Pacific National Corporation Registration No.: 4476059 Date of Registration: February 16, 1993 General Collateral Description: With regards to lease #2-21633-0, Telephone System (b) Secured Party: Benndorf-Verster Ltd. Registration No.: 5174427 Date of Registration: April 20, 1994 General Collateral Description: Canon office equipment (c) Secured Party: General Electric Capital Canada Leasing Inc. Registration No.: 5651278 Date of Registration: February 17, 1995 66 General Collateral Description: Railway Rolling Stock 67 STERLING CHEMICALS, INC. Liens existing under the Security Agreement dated as of August 1, 1988, between BP Chemicals Inc., formerly known as BP Chemicals America Inc., as secured party, and Sterling Chemicals, Inc. as debtor, securing obligations under the Production Agreement, dated as of April 15, 1988, between those parties covering certain proceeds of such production, and certain equipment and fixtures related to the production, all as describe in the Security Agreement 68 SCHEDULE 8.3 CONTINGENT LIABILITIES STERLING CHEMICALS, LTD. None STERLING PULP CHEMICALS, LTD. None 69 SCHEDULE 8.8 EXISTING INVESTMENTS STERLING CHEMICALS, INC. Primex, Ltd.- Common Stock (2,500 shares) Primex, Ltd.- Series " A " Preferred (7,957 shares) 50% of S & L Co-generation ( a Partnership ) STERLING PULP CHEMICALS, LTD. None 70 EX-10.13 7 EXHIBIT 10.13 Exhibit 10.13 ***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST*** STYRENE MONOMER CONVERSION CONTRACT THIS CONTRACT, made as of November 3, 1995 by and between Sterling Chemicals, Inc., a Delaware corporation ("Sterling') having a plant at Texas City, Texas (the "Plant"), and Monsanto Company, a Delaware corporation ("Monsanto"). WITNESSETH: WHEREAS, Sterling desires to exchange styrene monomer with Monsanto and Monsanto desires to exchange benzene with Sterling, on the terms and conditions hereinafter specified, including terms and conditions set forth in Attachment 1 hereto, which is incorporated herein by reference; NOW, THEREFORE, in consideration of the following mutual covenants, Sterling and Monsanto agree: 1. GOODS. Sterling shall deliver styrene monomer meeting the specifications set forth in Exhibit A hereto, which are incorporated herein by reference (as used with reference to Sterling's delivery obligation, herein called the "Goods") to Monsanto in exchange for benzene meeting the specifications set forth in Exhibit B hereto, which are incorporated herein by reference (as used with reference to Monsanto's delivery obligation, herein called the "Goods") to be delivered by Monsanto to Sterling, together with the differential to be paid by Monsanto to Sterling as hereafter provided in Section 4. 2. CONTRACT PERIOD. The period of this Contract shall be from January 1, 1996 through December 31, 2000, and evergreen thereafter, cancelable by either party upon written notice to the other party no less than 24 months prior to December 31, 2000, or any subsequent December 31. 3. QUANTITY. Subject to all the terms and conditions hereof, the Goods to be delivered hereunder by Sterling (and corresponding quantities of Goods to be delivered by Monsanto pursuant to the ratio provided) shall be as scheduled by Monsanto (***) per calendar year on a ratable basis without Sterling's prior consent. A maximum of (***). of this annual volume may be designated by Monsanto for Monsanto's consumption in one of its consuming locations outside of the U.S. without Sterling's agreement. (***) Promptly after the close of each calendar quarter, but not later than thirty (30) days thereafter, Sterling shall compute the actual ratio of usage for such quarter, and Monsanto will be appropriately and equitably debited or credited for deliveries of benzene to correct for any over or under deliveries which may have occurred during such quarter. Monsanto will adjust deliveries of benzene during the first month of the quarter to compensate for deviations from actual utilization ratios of the previous quarter. 4. DIFFERENTIAL. Subject to all the terms and conditions hereof, in addition to the Goods to be exchanged by Monsanto for each one (1) pound of Goods delivered by Sterling in any calendar quarter in conformance with the terms hereof, Monsanto shall pay Sterling (***) (***) Where: (***) For any calendar month Sterling shall tentatively invoice Monsanto for the differential due pursuant to the foregoing formula based on Sterling's best good faith estimate of the various values which make up the various factors in the formula. Promptly after the close of each calendar quarter, but not more than thirty (30) days thereafter, Sterling shall re-compute the composite differentials based on the actual values for such factors and Monsanto shall be approximately and equitably debited or credited to conform the initial tentative invoice to the actual differential due from Monsanto for Goods delivered during such calendar quarter. Notwithstanding the foregoing provisions, should Sterling develop a different more favorable conversion formula with a third party to determine a fee to Sterling for converting benzene into styrene monomer for consumption within the U.S., such formula shall be substituted herein and used to determine the differential to be paid by Monsanto to Sterling hereunder. The foregoing provision shall not apply to Goods designated for consumption outside of the United States, nor for any conversion or sale of Goods by Sterling for which the Buyer has provided significant capital contribution, nor for Goods which do not involve contract quantities and a contract term similar to the quantities and term of this Contract. 2 5. SPECIFICATIONS. The specifications attached hereto shall not be changed without the mutual agreement of both parties. It is understood, however, that if at any time during the Contract Period environmental regulations change so that Monsanto can no longer make products acceptable to its customers from Goods meeting the attached specifications, Monsanto shall notify Sterling promptly and if the parties are unable, after attempting to do so in good faith, to reach agreement on revised specifications for the Goods, Monsanto may, by and effective upon notice to Sterling, suspend its obligation to obtain from Sterling hereunder so much of the Goods as to which such conditions prevail, without liability, until such time as Monsanto and Sterling either reach agreement on revised specification for the Goods, or Sterling otherwise modifies the Goods so that Monsanto is able to make products therefrom acceptable under then current general market conditions, and during any such suspension period, Monsanto may obtain its requirements for so much of the Goods as require revised specifications from others who can meet such revised specifications. Any such suspension period shall not operate to extend the Contract Period. 6. DELIVERIES. The F.O.B. point where title and risk of loss shall pass to Sterling from Monsanto on the Goods to be delivered by Monsanto shall be when the carrier tenders delivery of the barge/ship/or pipeline to Sterling at the Plant or other Sterling terminal. The F.O.B. point where risk of loss shall pass to Monsanto from Sterling on the Goods to be delivered by Sterling shall be when the Goods have been loaded aboard the delivering tankcar, barge or ship and possession of the conveyance is in the carrier. The F.O.B. point where title shall pass to Monsanto from Sterling on the Goods to be delivered by Sterling shall be when the carrier tenders delivery of the ship or barge to Monsanto at the Port Plastics Muscatine Facility or other designated location in the continental United States. For any shipment of Goods to points of destination outside the continental United States, the F.O.B. point where tile and risk of loss shall pass to Monsanto from Sterling on the Goods to be delivered by Sterling shall be when the Goods have been loaded aboard the delivering tankcar, barge or ship and possession of the conveyance is in the carrier. The method of delivery shall be by pipeline or barge for Benzene; and by barges, tankcars or ships for Styrene furnished or arranged for by Monsanto. 7. SPECIAL TERMINATION/ASSIGNMENT RIGHTS. Monsanto may terminate its quantity obligation as identified herein in Paragraph 3 if Monsanto elects to sell to any third party its business which consumes Goods, by giving Sterling at least twelve (12) months prior notice. In the event Monsanto does not sell the entire business which consumes directly or indirectly the type of Goods purchased hereunder, any termination of Monsanto's quantity obligation must be on a pro rata basis with other suppliers of Goods to Monsanto subject to the consent of Sterling. 3 In the event of the sale of any Goods consuming business, and notwithstanding the prohibition against assignment contained in Section 12 of the "General Terms and Conditions", Monsanto will exercise all reasonable, good faith efforts to assign this Contract with the consent of Sterling (which consent will not be unreasonably withheld) to any one or more third parties which purchase a business of Monsanto which consumes, directly or indirectly, a quantity of the Goods covered hereby to the extent of the quantity so consumed, provided at least ninety (90) days prior notice is given in writing to Sterling of any such assignment. If Monsanto is for any reason unable to assign this Contract to the third parties or Sterling does not consent to the assignment. Monsanto may nevertheless terminate its obligations with respect to any such quantity in accordance with the twelve (12) month notice provision set forth above. Sterling shall be deemed to have approved any such assignment unless it has raised objections to such assignment within thirty (30) days of receipt of such written notice. 8. WATERBORNE DELIVERY & MEASUREMENT. (a) Monsanto shall give reasonable prior notice of barge/ship arrival and permitted laytime applicable to the barge/ship. After Sterling accepts a barge/ship nominated by Monsanto, Sterling shall provide a safe berth at all times for any such barge placed for loading/unloading by Monsanto. (b) Barges/ships shall be handled with all reasonable expediency and any delay beyond permitted laytime of which Sterling has been advised by Monsanto for the type of equipment used shall be paid for by Sterling. This permitted laytime will be 1500 barrels per hour plus three free hours of time for every ship or each barge loaded during one trip of the unit tow. (c) Sterling shall inspect all barges/ships for cleanliness so as not to affect purity of the Goods to be loaded. Inspection of the quantity and quality of Goods being loaded upon or unloaded from barge(s)/ship(s) at the loading or unloading point shall be performed by a licensed inspector of petroleum mutually agreed upon by the parties, and the cost for such service shall be shared equally by Monsanto and Sterling. The determination of the quantity of Goods delivered hereunder shall be determined by taking the opening and closing inventory of Sterling's properly calibrated still shore tank before and after each shipment, unless such quantity determination is proven to be in error. For invoicing purposes volume shall be corrected to 60 degrees Fahrenheit in accordance with applicable ASTM tables. Inspection of quality of the Goods shall be made on representative samples of the Goods taken from loading flange of Monsanto's barge at loading point by a licensed inspector of petroleum products. In the event that a disagreement should arise as to quantity or quality, an inspection will be made by such mutually agreed upon licensed inspector of petroleum products and the results of such inspection shall govern, the cost to be borne by the party proven to be in error. 4 9. BOOKS & RECORDS. If Monsanto or Sterling so requests, either party shall make available to an independent certified public accounting firm, mutually acceptable to Monsanto and Sterling and paid for by the requesting party such of Sterling's or Monsanto's books and records as shall be necessary to permit such accountants to verify the propriety and correctness of any matter relevant to the performance of this Contract or one or more of the provisions hereof, provided, however, that such accountant shall report to the requesting party only his conclusion concerning the correctness and accuracy of the calculations and whether there has been a correct application of the Contract provisions or, if not, what such firm considers to be the correct calculations and/or application of the Contract. Such firm shall agree to keep confidential the information of Sterling and Monsanto to which it has access pursuant to such agreement as Sterling or Monsanto may reasonably require, and shall not otherwise divulge any of the data of Sterling or Monsanto which it has inspected or reviewed without the consent of said party. 10. TANKCAR DELIVERY AND MEASUREMENT. (a) Sterling agrees to use reasonable efforts within the current tankcar capabilities to provide necessary tankcars to Monsanto upon reasonable notice of Monsanto's requirements; provided, however that Sterling shall incur no liability hereunder in the event such railcars cannot be made available through reasonable efforts by Sterling. (b) Sterling shall be responsible for inspection of all tankcars for cleanliness so as not to affect purity of the Goods to be loaded. (c) Quantities of Goods shipped hereunder by tankcars shall be determined by weighing of the cars on certified scales before and after loading by shipping party. The receiving party will gauge or weigh cars upon arrival and if the amount gauged or weighed is different than shipping party's weight by more than one percent (l%), the receiving party shall notify the shipping party of such discrepancy and, upon agreement, shipping party shall issue an appropriate debit or credit to adjust the shipped quantity to the quantity received. IN WITNESS WHEREOF, the parties have executed this Contract to be effective as of the day and year first above written. MONSANTO COMPANY STERLING CHEMICALS, INC. By: /s/ W. B. Gray By: /s/ Robert W. Roten (W. B. Gray) (Robert W. Roten) Title: Director of Purchasing Title: Executive VP and Chief Operating Officer 5 ATTACHMENT I Monsanto Company and Sterling Chemicals, Inc. GENERAL TERMS AND CONDITIONS If, and to the extent that, the transaction governed by the following Terms and Conditions is a sale and purchase transaction, the phrase "shipping party" shall mean "Seller", and the phrase "receiving party" shall mean "Buyer", unless the context requires otherwise. In the event of a conflict between these "General Terms and Conditions" and the specific terms and conditions in the Contract to which they are attached, such specific terms and conditions shall govern. 1. EXCUSE OF PERFORMANCE. (a) Shipments and deliveries may be suspended by either party in the event of: Act of God, declared or undeclared war, acts of the public enemy, riot, fire, explosion, accident, flood, sabotage, blockades, embargoes, insurrections, epidemics, landslides, lightning, earthquakes, storms, hurricanes, washouts, civil disturbances, arrests; lack of adequate fuel, power, raw materials, labor, containers or transportation facilities; compliance with federal, state, local, municipal, civil and military governmental and governmental agency requests, laws, regulations, orders, actions, requisitions, restraints or directives; breakage, failures, disruptions, and necessary maintenance of machinery or apparatus; national defense requirements or any other event, whether or not of the class or kind enumerated herein, beyond the reasonable control of such party; or in the event of labor trouble, strike, slowdowns, lockout or injunction (provided that neither party shall be required to settle a labor dispute against its own best judgment); which event hinders, limits or makes impracticable the performance of this Contract or the manufacture, consumption, sale, exchange, shipment, receipt, use or obtaining of the Goods or any raw material, or any product manufactured or processed therefrom or therewith. (b) If either party determines that its ability to obtain or supply the total demand for the Goods which it is supplying pursuant to this Contract, or obtain any or a sufficient quantity of material used directly or indirectly in the manufacture of the Goods, is hindered, limited or made impracticable by any event referred to in Section 1(a) hereof, such party shall allocate its 6 available supply of the Goods or such material (without obligation to acquire other supplies of any such Goods or material) among itself and its other Contract customers and the other party to this Contract on a fair and equitable basis without liability for any failure of performance which may result therefrom, except, if the transaction covered hereby is an exchange, for any liability for imbalances stated in this Contract. (c) Shipments suspended or not made by reason of this section shall be canceled without liability, except, if the transaction covered hereby is an exchange, for any liability for imbalances arising out of such cancellation, but this Contract shall otherwise remain unaffected. ((d) The affected party shall invoke this Section 1 by promptly notifying the other party in writing of the nature of this event on which it relies and the estimated extent and duration of the suspension. During the continuance of any such event, the affected party shall not be obligated to purchase Goods from another source to fulfill its obligations hereunder. If the event relied upon is one which prevents the affected party from obtaining raw materials, the affected party agrees to give the other party the option for the duration of the inability of the affected party to obtain such raw materials, to convert the Contract into an exchange agreement under which the other party shall be entitled to obtain from the affected party a quantity of the Goods up to the quantity to which such other party is otherwise entitled (not to exceed the maximum quantity) and which can be produced on a stoichiometric basis from the quantities of the raw materials in short supply which such other party can arrange to be delivered to the affected party, and the affected party shall supply any other required raw materials. If the other party exercises such option, such other party shall, in addition to the raw material to be delivered by such other party pay the affected party per unit of the Goods delivered under the exchange a differential equal to the sales price per unit of the Goods otherwise then applicable under the Contract less the then prevailing market value of the stoichiometric amount of the raw material delivered by the other party and contained in the unit of Goods delivered by the affected party under the exchange. During any such exchange period, the provisions hereunder applicable to exchanges shall apply. In such event, the affected party will, in addition to deliveries otherwise due the other party, deliver to the other party an amount of Goods equivalent to the quantity which may be made from the raw materials supplied by the other party, but the aggregate amount of Goods from either source shall not exceed the total amount of Goods to which such other party was otherwise entitled before such option was exercised. 2. SHIPMENTS. Receiving party shall provide shipping party with reasonable advance notice of its desired schedule for shipment of Goods. If the transaction covered hereby is an exchange, orders for shipments of Goods shall be at a monthly rate as uniform as reasonably practicable, unless otherwise provided in this Contract. If the transaction covered 7 hereby is a sale, the Seller shall not make any shipments under this Contract until released in accordance with separate purchase orders or releases issued by Buyer's using locations and Seller shall not be required to ship more than thirty percent (30%) of Seller's maximum annual quantity obligation in any quarter without Seller's prior consent. 3. LOADING AND UNLOADING. Shipping party agrees to load, and receiving party agrees to unload, carriers or transports furnished by the other party within, as applicable, any free time specified by tariffs on file with the applicable regulatory bodies or as otherwise specified by the carrier and to pay any charges resulting from its failure in this regard, provided either such party, as applicable, has been advised, prior to commencement of unloading, or loading, as the case may be, of carrier's permitted free time. A party shall not be excused from its obligations to pay such charges by the provisions of Section 1 hereof if the event relied upon occurs after the carriers or transports have been accepted for loading or unloading, as the case may be. 4. IMBALANCES. Both parties shall endeavor, insofar as practicable, to keep the exchange in balance in accordance with the provisions of this Contract. Unless otherwise provided in this Contract, an over-delivering party shall not be required to make any further shipments hereunder if the Goods shipped pursuant to this Contract are not in balance until such imbalance is eliminated or reduced, by the shipment of Goods to the over-delivering party, to a level acceptable to the over-delivering party, even if the imbalance results from an event described in Section 1 hereof. If such imbalance does result from an event described in Section 1, the over-delivering party may, in lieu of awaiting for the imbalance to be brought into balance, require that any over- deliveries be returned or that the over-deliveries be paid for by the under- delivering party at such price as may be agreed upon. Such action by the over- delivering party shall not limit any rights or remedies of the over-delivering party. A party shall not be entitled to refuse to make shipments due to such an imbalance if such imbalance has resulted from its failure to accept and receive Goods in accordance with the provisions of this Contract. Any such reduction or elimination of such an imbalance shall occur within thirty (30) days following a request from the over-delivering party that such imbalance be reduced or eliminated. Upon the termination or expiration of this Contract, the over- delivering party shall be entitled to receive, within sixty (60) days following the date of such expiration or termination, the quantity of Goods required to bring the exchange in balance and payment of any differential due to it. An imbalance may be eliminated by a cash payment to the over-delivering party, rather than by the shipment of Goods, if (I) any imbalance is less than one full load in accordance with the method of shipment provided for in this Contract or (ii) the obligation of the party making such payment 8 to ship the Goods required to eliminate an imbalance has been suspended pursuant to Section 1 hereof. Such cash payment which shall be in addition to any payment due for any differential, shall be based upon the market price for the Goods, as determined by the over-delivering party, at the time such payment is made, or at the time such payment becomes due, whichever amount is greater. All provisions of this Contract shall be deemed applicable to deliveries made subsequent to the expiration or termination of this Contract for the purpose of eliminating an imbalance. 5. LIMITED WARRANTY AND CHANGES IN SPECIFICATION. Subject to Section 6 hereof and unless otherwise expressly provided herein, the shipping party warrants (I) title to the Goods shipped and (ii) that the Goods shipped, shall conform to the attached specifications. Subject to the preceding sentence and except as otherwise expressly provided herein, SHIPPING PARTY MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE GOODS, whether used alone or in combination with any other material. Shipping party shall not make any change in raw materials or methods of manufacturing employed in producing the Goods without the prior approval of receiving party, unless any such change will have no affect on the continued suitability of the Goods to receiving party even though such Goods would continue to meet specifications. 6. LIMITATION OF LIABILITY. (a) Within fifteen (15) days after actual receipt by the receiving party at its consuming location of each shipment of the Goods, the receiving party shall examine such Goods for any damage, defect or shortage. All claims for any cause whatsoever (whether such cause be based in contract, negligence, strict liability, other tort or otherwise) shall be deemed waived unless made in writing and received by the shipping party within thirty (30) days after such actual receipt of the Goods by the receiving party in respect to which such claim is made, provided that as to any such cause not reasonably discoverable within such thirty (30) day period (including that discoverable only in processing, further manufacture, other use or resale), any claim shall be made in writing and received by the shipping party within ninety (90) days after such actual receipt by the receiving party of the Goods in respect to which such claim is made, of within thirty (30) days after the receiving party learns of the facts giving rise to such claim, whichever shall first occur. Any claim for non-delivery of such Goods shall be deemed waived unless made in writing and received by the party alleged to have failed to deliver such Goods within ninety (90) days following the expiration or termination of this Contract. Failure of a party to receive written notice of any claim within the 9 applicable time period shall be deemed an absolute and unconditional waiver by the other party of such claim irrespective of whether the facts giving rise to such claim shall have then been discovered or whether processing, further manufacture, other use or resale of the goods shall have then taken place. (b) THE RECEIVING PARTY'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND THE SHIPPING PARTY'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED THE THEN PREVAILING CONTRACT MARKET PRICE, IF THE TRANSACTION IS AN EXCHANGE, OR THE THEN PREVAILING CONTRACT, PRICE IF THE TRANSACTION IS A SALE, FOR THE QUANTITY OF GOODS IN RESPECT TO WHICH SUCH CAUSE ARISES, OR AT SHIPPING PARTY'S OPTION, THE REPAIR OR REPLACEMENT OF SUCH GOODS, AND IN NO EVENT SHALL THE SHIPPING PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE. The shipping party shall not be liable for, and the receiving party assumes liability for, all personal injury and property damage connected with the transportation, possession, processing, further manufacture, other use or resale of the Goods by or on behalf of the receiving party or its customers, whether the Goods are used alone or in combination with any other material or are resold by receiving party provided Goods meet specifications and the shipping party is not otherwise negligent. Transportation charges for the return of the Goods shall not be paid unless authorized in advance by the party initially shipping the Goods. (c) If the shipping party furnishes technical or other advice to the receiving party, whether or not at the request of the receiving party, with respect to processing, further manufacture, other use or resale of the Goods, the shipping party shall not be liable for, and the receiving party assumes all risk of, such advice and the results thereof. 7. TITLE AND RISK OF LOSS. Unless otherwise provided in this Contract, title to and risk of loss of Goods shall pass to the receiving party and delivery by the shipping party shall take place (a) in the case of delivery into tankcars, upon delivery of the loaded tankcars by the shipping party to the carrier outside shipping party's property (b) in the case of delivery into tanktrucks or other trucks, immediately after such trucks leave the shipping party's property, and (c) in the case of delivery into barges or ship tankers immediately after the Goods pass the last flange in the shipping party's loading line. 10 8. PATENTS. Subject to Section 6 hereof and unless otherwise expressly provided herein, the shipping party warrants the Goods supplied pursuant to this Contract, except for those made for the receiving party according to the receiving party's specifications, do not infringe on any patents; provided, however, Monsanto (as Buyer or receiving party) shall not assert against Sterling (as Seller or shipping party) any claim for infringement based on Sterling's use of the Technical Information as defined in and licensed to Sterling under the License Agreement, (Exhibit 2.1(a) to the Asset Purchase Agreement between Monsanto and Sterling) dated August 1, 1986, in the operation of Sterling's plant to produce the Goods in accordance with procedures employed in such plant by Monsanto as of the date of the License Agreement. This warranty is given upon condition that the receiving party promptly notify the shipping party of any claim or suit involving the receiving party in which such infringement is alleged and that, if the shipping party is affected, the receiving party permit the shipping party to control completely the defense or compromise of any such allegation of infringement. The shipping party does not warrant that the use of the Goods or any material made therefrom, whether the Goods are used alone or in combination with any other material, will not infringe a patent. The shipping party reserves the right to terminate the shipping party's warranty under this Section 8 at any time with respect to any undelivered Goods. In the event of such termination, the receiving party may thereafter refuse acceptance of such undelivered Goods and the receiving party may, within forty-five (45) days following such termination, terminate this Contract upon not less than thirty (30) days' written notice to the other party. 9. FREIGHT AND TAXES. Any new tax or any increase in an existing tax or governmental charge, paid by the shipping party, hereafter becoming effective imposed upon the sale, exchange or delivery of the Goods, such as sales tax, use tax, retailer's occupational tax, but excluding taxes based on production or income such as value added, gross receipts or franchise taxes, may, if the transaction covered hereby is a sale, be added to and included as a part of the price herein specified, provided that shipping party invoices such new charges within 90 days following the effective date of their imposition; and, if the transaction covered hereby is an exchange, and, if the effect of such new or increased tax or charge is to increase the cost to the shipping party of exchanging or delivering the Goods or procuring materials used therein, shipping party may notify the receiving party thereof in writing, requesting an adjustment to the differential as a result of such factors. If the parties are unable to agree upon a satisfactory revision to such differential within forty- five (45) days following receipt of such notice, the shipping party may terminate this Contract upon thirty (30) days, written notice to the other party. Shipping party shall be entitled initially to assert that any Superfund tax (or tax of similar purpose or effect) or any increase in any such tax, should become a part of the differential to be paid if 11 the transaction covered hereby is an exchange, or should be added to the price for the Goods, if the transaction covered hereby is a sale, and to include the amount thereof in its invoices for the relevant Goods; provided however, that the shipping party shall not be entitled to continue to collect any such tax, or increase therein, unless such tax, or increase therein, is generally then being taken into account and being included in the differential, or added to the price, as the case may be, by other sellers or exchangers of the Goods covered hereby, and if such other sellers or exchangers are not generally collecting such tax, or increase therein, shipping party shall no longer attempt to collect any such tax, or increase therein, hereunder and there shall be a prompt refund of any amounts theretofore collected therefor from the receiving party. Except as otherwise expressly provided in the special terms and conditions which are applicable to this Contract, freight from the point of passage of title provided for in Section 7 hereof for the Goods shall be for the account of receiving party. 10. WEIGHTS. Unless otherwise specifically provided for herein, the shipping party's weights or measurements shall govern unless proven in error. 11. COMPLIANCE WITH CERTAIN LAWS. Seller has and will comply with all governmental laws, regulations and orders covering the production, sale, packaging and delivery of the Goods from which, because of noncompliance by the Seller, liability may accrue to Buyer under this Contract. Seller warrants that all Goods covered by this Contract have been produced in compliance with the requirements of the Fair Standards Act of 1938, as amended, and Executive Order 11246 and of the rules, regulations and relevant orders of the Secretary of Labor, if applicable. Section 202 of Executive Order 11246 is incorporated herein by specific reference. Seller warrants that each and every chemical substance sold or otherwise transferred by Seller to Buyer as of the time of such sale or transfer, is on the list of chemical substances compiled and published by the Administrator of the EPA pursuant to the Toxic Substances Control Act, (PL94-469). 12. ASSIGNMENT. Subject to Section 7 (Special Termination/Assignment Rights) in the main body of this Contract and except as provided in the Asset Purchase Agreement between the parties dated August 1, 1986, neither party shall (by operation of law or otherwise) assign its rights or delegate its performance hereunder without the prior written consent of the other party, and any attempted assignment or delegation without such consent shall be void. To the extent assignment is permitted hereunder, this Contract shall be binding on any permitted assignee. 12 13. MONTHLY REPORTS. If the transaction covered hereby is an exchange, each party shall, within thirty (30) days following the end of each month, provide the other party with a report stating the quantities delivered and received during the month and the calendar year pursuant to this Contract, as well as the exchange balances for such periods. The parties shall promptly attempt to reconcile any discrepancies apparent from such reports. 14. MEET COMPETITION. (a) If the transaction covered hereby is a sale and if from time to time Monsanto can purchase Goods of functionally equivalent quality at a lower delivered cost than the delivered cost of the Goods then in effect hereunder and in an amount equal to at least Monsanto's annual minimum purchase obligation, and Monsanto gives Sterling written notice thereof, Monsanto may purchase such Goods, unless within fifteen (15) days of receipt by Sterling of said notice Sterling shall meet such lower delivered cost for an equal quantity of goods thereafter sold hereunder. (b) If the transaction covered hereby is an exchange and if Monsanto can obtain, by exchange or conversion, Goods of functionally equivalent quality at a lower delivered cost than the delivered cost of the Goods then in effect hereunder, and in an amount equal to at least Monsanto's minimum annual exchange obligation hereunder, and Monsanto gives Sterling written notice thereof, Monsanto may obtain such Goods by exchange or conversion, unless within fifteen (15) days of receipt by Sterling of said notice, Sterling shall meet such lower delivered cost for an equal quantity of Goods thereafter exchanged hereunder. (c) In either event, any quantity so obtained by Monsanto from another source shall be deducted from Monsanto's annual obligation hereunder, but the Contract otherwise shall remain unaffected. 15. MISCELLANEOUS. (a) Governing Law. The validity, interpretation and performance of this Contract and any dispute connected herewith shall be governed and construed in accordance with the laws of the State of Texas. Seller (Sterling) has consented to service of process in the State of Missouri. (b) Notices. Any notice required or permitted to be given under this Contract shall be deemed sufficient if (I) in writing and (ii) served either by (a) depositing the same in the United States mail, properly addressed as provided below, postage prepaid, registered or certified mail, and with return receipt requested, (b) delivering the same in person, or (c) sending a prepaid telegram of the same, confirmed by notice deposited in the mail in the manner provided in this Section 14(b). Unless otherwise provided in this Contract, any notice deposited in the mail in the manner provided in this Section 14(b) shall be effective upon the expiration of three days 13 after the date on which it is so deposited, and any notice given in any other manner shall be effective only if and when it is received by the addressee. For the purposes of notice hereunder, the addresses of the parties hereto shall be as follows: Buyer: Monsanto Company 800 N. Lindbergh St. Louis, MO 63137 Attn.: Director, Purchasing Monsanto Corporation Seller: Sterling Chemicals, Inc. 1200 Smith, Suite 1900 Houston, TX 77002 Attn.: Vice President - Commercial Any party hereto may change its address for the purpose of notice hereunder by giving written notice of such change of address to the other party as specified in this Section 14(b). (c) Entire and Only Agreement. This Contract and all other related documents and instruments executed and delivered pursuant hereto constitute the entire and only understanding and agreement among the parties hereto with respect to the subject matter hereof and supersede all prior negotiations, understandings and agreements among such parties relating to the same subject matter. (d) Amendments. No alterations, modifications, amendments or changes of this Contract or any other related document or instrument executed and delivered pursuant hereto shall be effective or binding on any party hereto, unless the same shall be in writing and executed by all of the parties hereto. (e) Severability. If a court of competent jurisdiction declares that any provision of this Contract or any other related document or instrument executed and delivered pursuant hereto is illegal, invalid or unenforceable, then such provision shall be modified automatically to the extent necessary to make such provision fully enforceable. If such court does not modify any such provision as contemplated herein, but instead declares it to be wholly illegal, invalid or unenforceable, then such provision shall be severed from this Contract or such other document or instrument, and such declaration shall in no way affect the legality, validity and enforceability of the other provisions of this Contract or such other document or instrument to which such declaration does not relate. In such event, this Contract or such other document or instrument shall be construed as if it did not contain the particular provision held to be illegal, invalid or unenforceable, the rights and obligations of the parties hereto shall be construed and enforced accordingly, and this Contract otherwise shall remain in full force and effect. (f) Captions. The captions contained in this Contract are for the purpose of reference only and shall not affect in any way the meaning, interpretation or scope of this Contract. 14 (g) Waivers. Any failure of any party hereto to comply with any of its obligations, agreements or conditions as set forth herein may be expressly waived in writing by the other party. No such waiver shall operate as a waiver of an other obligation, agreement or condition and the failure to enforce any provision hereof shall not operate as a waiver of such provision or of any other provisions hereof. (h) Multiple Counterparts. This Contract may be executed by the parties hereto in multiple counterparts, each of which shall be deemed to be an original for all purposes, and all of which together shall constitute one and the same instrument. (i) Invoices. Shipping party shall invoice receiving party for any differential due with respect to deliveries hereunder, or, if the transaction is a sale, for the purchase price due with respect to deliveries hereunder, and such invoices shall be paid net thirty (30) days from date of shipment provided invoices are promptly rendered. 15 Exhibit "A-1" STYRENE MONOMER SPECIFICATION
TARGET ASTM PROPERTY UNIT SPEC. LEVEL METHOD - -------- ---- ----- ------ ------ Appearance a. Color APHA max. 15 12 Hunter (pt-Co) ASTM 1209 b. Clarity Clear & Free Visual of sediment & suspended matter Purity Wt. % 99.8 99.9 602.088 Inhibitor Wt. ppm 10-15 12.5 602.089A (TBC) Acetaldehyde Wt. ppm Max 100 602.093 Peroxides as Wt. ppm max. 50 602.097 Hydrogen Peroxide Chlorides (as Cl) Wt. ppm max. 50 602.113 Ethylbenzene Wt. ppm max. 100 602.116 Total Sulfur Wt. ppm max. 20 602.003 Polymer Wt. ppm max. 10 602.092A Cumene Wt. ppm max. 400 602.116 Phenylacetylene Wt. ppm max. 200 AMS Wt. ppm max. Below 350
16 EXHIBIT B BENZENE SPECIFICATIONS
PROPERTY SPECIFICATIONS METHOD NO. - -------- -------------- ---------- Benzene, Wt. % 99.6, Min. 210 Toluene, Wt. % 0.05, Max. 210 Non-Aromatics, Wt. % 0.15 210 Appearance Clear and Free of G - 1 Suspended Matter @ 25 degrees C Color, Pt-Co 25, Max. G - 43 (ASTM D-1209) Sp. Gr. at 60/60 degrees F 0.882 - 0.886
17 18 EX-10.51 8 EXHIBIT 10.51 Exhibit 10.51 ***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.*** CONTRACT FOR SALE AND PURCHASE OF ETHYLENE THIS CONTRACT, entered into this first day of January 1995, by and between STERLING CHEMICALS, INC., a Delaware corporation having an office in Houston, Texas, hereinafter called "BUYER", and PHILLIPS CHEMICAL COMPANY, a division of Phillips Petroleum Company, a Delaware corporation with an operating office in Bartlesville, Oklahoma, hereinafter called "SELLER"; WITNESSETH: In consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: ARTICLE I: SALE AND PURCHASE SELLER hereby sells and agrees to deliver and BUYER hereby purchases and agrees to receive and pay for during the period, on the terms and conditions, and at the price hereinafter stated, (***) per contract year of ethylene (plus or minus (***), at BUYER's option) beginning January 1, 1995, and continuing thereafter for the term provided for in Article II below. Deliveries shall be made in approximately equal monthly installments, and in no event shall SELLER be required to deliver or BUYER be required to receive in any month more than (***). ARTICLE II: CONTRACT TERM This contract shall be effective January 1, 1995. It shall remain in full force and effect for a primary term of (***) beginning on the effective date, and continuing thereafter, unless and until terminated by either party by the giving of written notice of termination to the other party of at least (***) months in advance of the date of termination specified in such termination notice, which date of termination so specified shall be the last day of the primary term or the last day of any contract year thereafter. As used herein, the term "contract year" refers to the period of (***) commencing January 1, 1995, and to each succeeding twelve-month period. ARTICLE III: PRICE (***) ARTICLE IV: SPECIFICATIONS All of the ethylene sold and purchased hereunder shall meet the specifications set forth in Exhibit "A" attached hereto and by this reference made a part hereof as fully as though herein set forth at length. ARTICLE V: DELIVERY AND TITLE TRANSFER Deliveries of ethylene hereunder shall be made to BUYER at the point of delivery, which shall be the inlet of the first flange of BUYER's pipeline from SELLER's meter, or meter designated by SELLER, in BUYER's Texas City, Texas facility,or other mutually 6 agreed locations. Title and risk of loss shall pass from SELLER to BUYER at said point of delivery. BUYER shall have no responsibility or liability on account of anything which may be done, happen or arise with respect to ethylene before delivery, and SELLER shall have no responsibility or liability on account of anything which may be done, happen or arise with respect to ethylene after delivery. SELLER shall bear all costs of transporting the ethylene to said point of delivery, and BUYER shall bear all costs of transporting the ethylene from said point of delivery. Delivery shall be made at the pressure agreed to by BUYER and SELLER, and in a manner typical of industry practices. ARTICLE VI: MEASUREMENT SELLER or its designee shall install, maintain, and operate facilities whereby the volume of ethylene delivered by SELLER to BUYER is measured and the temperature and pressure recorded, and BUYER shall grant to or arrange for SELLER or its designee all necessary rights and easements for the installation, maintenance, operation, and removal of said meter and facilities. BUYER shall provide all utilities necessary for the operation of the meter station. BUYER, if it so elects and gives notice of such election to SELLER, shall have the right to observe the periodic recalibration of such meter and facilities, to be made at SELLER's expense as often as necessary but no less frequently than once each month. BUYER may, at its option and at its sole cost and expense, install a check meter at said point of delivery; and in the event it does so, SELLER will furnish BUYER with information to permit BUYER to duplicate SELLER's meter. The volume of ethylene delivered by SELLER hereunder each day shall be determined by reference to daily readings of SELLER's meter. For this purpose, a day shall be construed to extend from 7:00 a.m. on one day to 7:00 a.m. on the next succeeding day, and correction factors and calculations from such meter readings for the purpose of determining the daily quantities of ethylene delivered hereunder shall conform with procedures mutually agreed upon by the parties. Such daily quantities shall be converted to pounds of ethylene in accordance with the method set forth in Exhibit "B" attached hereto and by this reference made a part hereof as fully as though herein set forth at length. In the event representatives of the parties hereto are unable to agree (1) on whether any ethylene delivered hereunder meets the specifications set forth in Article IV hereof, or (2) on the measurement of any ethylene delivered hereunder for which provision is made in this Article Vl, or (3) on the determination of pounds of ethylene delivered hereunder in accordance with the methods prescribed in Exhibit "B", any and all such disputes shall be resolved either by Chas. Martin Inspectors of Petroleum, Inc., or E. W. Saybolt and Company, at the election of the party raising the question, or if neither shall accept the assignment to resolve the dispute, then by such other recognized referee as may be agreed upon by the parties. The decision of such referee with respect to such matters shall be final, conclusive, and binding on each of the parties hereto and the charges of such referee shall be borne equally by the parties. ARTICLE VII: INVOICING AND PAYMENT SELLER shall invoice BUYER for ethylene sold and purchased hereunder no more often than once during each calendar month for the preceding months' sales. Such invoices shall be dispatched promptly by SELLER, telegraphically or otherwise, so as to be received by BUYER within three (3) days of the date of invoice. Payment shall be made by BUYER to SELLER on or before the 15th day following the date of each invoice by telegraphic transfer or other means satisfactory to SELLER, of immediately available funds to SELLER's account at such bank or depository as is designated in the invoice. Late payments for purchases shall be assessed a delinquency charge on a daily basis at the rate equivalent to the Chase Manhattan Bank prime rate plus one (1) percent on the unpaid balance (excluding late payments due to SELLER's invoicing errors). In no event shall the delinquency charge exceed the legal maximum. It is agreed that SELLER may decline to make deliveries of ethylene under this contract except for cash payable upon delivery whenever SELLER shall have reasonable doubt as to BUYER's financial responsibility and shall so advise BUYER, whereupon BUYER shall have the privilege of satisfying SELLER as to BUYER's financial responsibility. If SELLER is so satisfied, deliveries may be resumed hereunder on the terms provided in the first paragraph of this Article Vll. SELLER may exercise its rights under this Article Vll at any time and from time to time during the continuance of this contract. ARTICLE VIII: TAXES In addition to the price of ethylene hereunder, BUYER shall assume liability for and pay all taxes associated with the sale, use or delivery of ethylene under this contract, including all new or increased taxes, excise taxes including Superfund taxes, fees, or other charges (but excluding taxes based upon net income, altemative minimum taxable income, excess profits, corporate franchise taxes and property taxes), imposed by any governmental authority upon the sale, use or delivery of the ethylene sold hereunder, including but not limited to, any and all taxes associated with the manufacture of ethylene. If BUYER is exempt from the payment of such taxes, fees or other charges, BUYER shall furnish to SELLER proper exemption certificates to cover the ethylene purchased hereunder. All other taxes, fees or governmental charges shall be for SELLER's account. ARTICLE IX: RECORDS To the extent that records of either party are to be used in the administration of this contract, the party whose records are to be used agrees to keep true and correct records pertaining to this contract and all transactions related thereto and to maintain such records for a period of at least two (2) years after termination of this contract. On written request by either party and at such party's expense, such party may have a firm of independent certified public accountants audit any and all such records of the other party at any time or from time to time for the purpose of confirming the accuracy of such records and the manner in which such records have been used in the administration of this contract; provided, however, that such accountants shall not disclose to the party requesting the audit any information obtained during such audit and shall only report to such party the results of the audit and whether same shows compliance with the terms of this contract, or as the case may be, the respects in detail in which the terms of this contract have not been complied with. The right to audit such records shall expire two (2) years after termination of this contract. ARTICLE X: NOTICES All notices provided for herein shall be considered as properly given if in writing and delivered personally or sent by overnight courier, telex, telefax, or registered or certified mail return receipt requested and postage prepaid, duly directed to the post office addresses of the parties hereto: BUYER: Sterling Chemical, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 770024312 Attn: Director-Commercial Telefax: (713)-654-9551 SELLER: Phillips Chemical Company, a division of Phillips Petroleum Company 8 Adams Building Bartlesville, Oklahoma 74004 Attn: Ethylene Director Telefax: (918)-662-1016 or at such other address as either party shall from time to time designate for the purpose by registered or certified letter, properly addressed, with sufficient postage prepaid and return receipt requested, addressed to the other party. The date of service of a notice served by mail shall be the date on which such notice is received as shown by a green receipt card from the United States Post Office or other messenger service. The date of service of a notice transmitted by any other means shall be the date received. ARTICLE XI: CLAIMS No claim of any kind, whether as to ethylene delivered (whether or not conforming to specifications) or for nondelivery of ethylene and whether or not based on negligence, shall be greater in amount than the purchase price of the ethylene in respect of which such claim is made. IN NO EVENT SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES, WHETHER OR NOT CAUSED BY OR RESULTING FROM THE NEGLIGENCE OF THE PARTY IN THE PERFORMANCE OF DUTIES UNDER THIS CONTRACT. BUYER shall notify SELLER within forty (40) days of date of delivery of any claim, and failure of BUYER to make such claim within forty (40) days shall operate as a waiver of any claim. ARTICLE XII: FORCE MAJEURE No liability (except payment by BUYER for ethylene sold hereunder) shall result to either party from delay in performance or nonperformance arising from any cause or causes reasonably beyond the control of the party affected, including but not limited to the following, which shall be deemed to be beyond the reasonable control of such party: acts of God; fire, flood, war, accident; labor trouble (from whatever cause); shortage of or inability to obtain any goods deliverable hereunder or raw materials therefor from such party's existing or intended sources of supply; shortage of or inability to obtain equipment or transportation; or compliance with any law, regulation, order, direction or request made by governmental authority or person purporting to act therefor. When such cause or causes result in a reduction in the amount of ethylene available from SELLER's production facilities, SELLER shall allocate its available supply of ethylene among its contract customers, and among its own operations (including its subsidiaries and affiliated companies), on a pro-rata basis using average annual volume commitments, where ranges exist, as a reference point. Deliveries pursuant to such allocation shall be in complete discharge of SELLER's obligation hereunder for so long as such cause or causes continue. When such cause or causes result in a reduction in the amount of ethylene that is consumed at BUYER's facilities, BUYER shall allocate its available ethylene consumption capacity among its contract suppliers, including affiliates of BUYER, on a pro-rata basis using average annual volume commitments, where ranges exist, as a reference point. Purchases pursuant to such allocation shall be in complete discharge of BUYER's obligation hereunder for so long as such cause or causes continue. Deficiencies in deliveries of ethylene hereunder by reason of any such cause or causes shall be canceled from the contract with no liability to either party therefor. If a Force Majeure declaration by SELLER meets the following uiteria, then BUYER shall have an alternate supply option. The Force Majeure declaration must be in effect for more than (***), and the allocation level must be considered to be a significant reduction in the supply to BUYER (an allocation of (***) or less of the contract commitment provided in Article I without regard to (***) to activate the alternate supply option. With written notification of thirty (30) days prior to the end of the (***) period, BUYER may request an alternate supply or release from the volume commitment for the remaining term of the contract for the amount affected by Force Majeure. SELLER then has (***) from receipt of BUYER's notification to respond to BUYER with the following options: (a) SELLER may satisfy BUYER's minimum remaining monthly contractual quantity (excluding volume under Force Majeure for the ninety (90) day period set forth above) through means outside SELLER's normal supply channels, such as outside ethylene purchases, loans, or exchanges, at a cost to BUYER equivalent to the price under this contract, or SELLER may supply ethylbenzene containing an equivalent quantity of ethylene at an agreed upon price. (b) If SELLER and BUYER cannot agree to a mutually acceptable supply option under subparagraph (a), then BUYER is released from the volume obligation for the amount covered by the Force Majeure declaration for the remaining period of the contract. The contract volume in effect at the end of the (***) period shall then become the volume commitment set out in Article I above (***). A party affected by force majeure shall promptly notify the other party (and shall confirm such notification in writing) explaining the date such event commenced and the nature, details and expected duration thereof. The affected party shall advise the other from time to time as to progress in remedying the force majeure situation and as to the time when the affected party expects to resume the performance of its obligations and shall notify the other as to the expiration of any such event as soon as the affected party knows thQ date thereof. ARTICLE XIII: WAIVERS The right of either party to require strict performance by the other party of any or all obligations imposed upon such other party by this contract shall not in any way be affected by previous waiver forbearance or course of dealing. ARTICLE XIV: WARRANTIES SELLER warrants that all ethylene delivered hereunder will comply with the specifications set forth in Exhibit "A", that said ethylene will have been produced in compliance with the requirements of the Fair Labor Standards Act of 1938, as amended, and that SELLER will convey good title thereto. THE FOREGOING WARRANTIES ARE EXCLUSIVE, AND ARE IN LIEU OF ALL OTHER WARRANTIES (WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED), INCLUDING, WITHOUT LIMITATION, WARRANTY OF MERCHANTABILITY AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ARTICLE XV: ASSIGNABILITY All of the terms, conditions, and provisions hereof shall extend to and be binding upon the respective parties hereto, their successors and assigns; provided, however, that neither party shall assign this contract or any interest herein without the prior written consent of the other party; except that either party may, without the consent of the other, assign this contract or any interest herein to any company of which it is a subsidiary or to any fifty percent (50%) or more owned subsidiary or affiliated company (but in such event, the party assigning shall not be relieved of its primary liability hereunder to the other party hereto), or to a corporation with which such party merges or to which such party's assets used in the performance hereunder shall be sold and conveyed during the term hereof. However, BUYER has the right to assign this Contract to any party acquiring all or substantially all of BUYER's assets or styrene facility (located in Texas City, Texas). ARTICLE XVI: ENTIRETY OF AGREEMENT This instrument contains the entire agreement between the parties hereto regarding the sale, purchase and delivery of ethylene during the period provided herein; and all prior promises, agreements or warranties, written or verbal, shall be cancelled and superseded hereby and shall be of no further force or effect unless embodied herein. No modifications of this contract shall be valid unless in writing and signed by both parties, and no modifications shall be effected by the acknowledgment or acceptance of any purchase orders or printed forms containing different conditions. ARTICLE XVII: APPLICABLE LAW The validity, interpretation and performance of this contract shall be governed by the laws of the State of Texas. IN WITNESS WHEREOF, this contract is executed in duplicate for each party by and through its respective officers duly authorized, as of the date first above written. PHILLIPS CHEMICAL COMPANY, A DIVISION OF PHILLIPS PETROLEUM COMPANY By: /s/ Guy Sutherland (Guy Sutherland) Title: Sr. V.P. KGK mpH/sterconU April 3,1995 STERLING CHEMICAL. INC. BY: /s/ Robert W. Roten (Robert W. Roten) Title: Executive V.P. and Chief Operating Officer EXHIBIT A PHILLIPS CHEMICAL COMPANY ETHYLENE PRODUCT SPECIFICATION
PROPERTY UNITS MINIMUM MAXIMUM TEST METHOD Ethylene Purity mol% 99.85% GC Ethane ppm mol 1500 PPC 6605-AG-1 Methane ppm mol 1000 PPC 6605-AG-1 Acetylene ppm mol 5 PPC 8705-AG Alcohols as Methanol ppm wt 20 PPC 6605-AG Carbon Dioxide ppm mol 10 PPC 6605-AG-1 Carbon Monoxide ppm mol 5 PPC 6605-AG-1 Hydrogen ppm mol 5 PPC 6605-AG-1 Other Olefins ppm mol 100 PPC 6605-AG-1 Oxygen ppm mol 5 PPC 6605-AG-1 Total Sulfur ppm wt 2 ASTM D-3246 Water ppm wt 5 PPC 6316 EK
EXHIBIT B Method of Conversion of Volumes of Ethylene to Pounds of Ethylene. The pounds of ethylene delivered daily shall be determined in accordance with the method outlined in the booklet entitled "Phillips Chemical Company Ethylene Flow Measurement Manual" as revised January 1, 1985. The methods of gas flow measurement and the methods of gas volume computation outlined in the manual referred to above will be controlling; provided, however, that revisions in the aforesaid manual may be made at any time during the life of this contract upon agreement by both parties. EX-10.52 9 EXHIBIT 10.52 Exhibit 10.52 ***OMITTED INFORMATION DENOTED BY ASTERICS (***) HAS BEEN FILED SEPARATELY WITH THE COMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.*** CHEMICAL PRODUCTS SALES AGREEMENT - ETHYLENE THIS AGREEMENT between LYONDELL PETROCHEMICAL COMPANY, with an office at 1221 McKinney, Houston, Tx 77010, hereinafter referred to as "SELLER," and STERLING CHEMICALS, INC., with an office at 1200 Smith Street, Suite 1900, Houston, Tx 77002, hereinafter referred to as "BUYER"; W I T N E S S E T H: SELLER agrees to sell and BUYER agrees to purchase and pay for Product in accordance with the provisions below: 1. PRODUCT AND SPECIFICATIONS: Ethylene meeting specifications set forth in Exhibit A, attached hereto ("Product"). 2. QUANTITY: BUYER is obligated to buy a minimum quantity of (***) of BUYER's Texas City, Texas facility's ethylene requirements (the "Annual Minimum") estimated to be (***) of Product annually ("Estimated Annual Minimum") and (***) of Product monthly ("Estimated Monthly Minimum".) SELLER is obligated to sell up to a maximum quantity of (***) of Product annually (the "Annual Maximum") and (***) lbs. of Product monthly ("Monthly Maximum".) In the event BUYER's Product purchase orders from SELLER fall below the Estimated Annual Minimum, BUYER shall ensure that BUYER's Product purchases from SELLER are no less than the Annual Minimum. In the event BUYER gives timely shipment orders for Product and SELLER, without excuse, does not deliver Product ordered up to the Monthly Maximum(as may be limited by the Annual Maximum), SELLER shall not sell ethylene to other customers, except proportionately equivalent shares of the maximum quantity obligations under term sales contracts with such customers. In the event that BUYER's annual Product purchases fall below the Estimated Annual Minimum in any year, SELLER may elect to reduce the Estimated Annual Minimum and Annual Maximum for all subsequent years by up to the difference between Estimated 1 Annual Minimum and the actual quantity purchased in said year, upon written notice to BUYER no later than the (***) following the year of such purchase shortfall. In the event of such reduction, the Annual Minimum, Estimated Monthly Minimum and Monthly Maximum shall be reduced by the same percentage as the Annual Minimum is reduced. SELLER's rights under this paragraph shall supplement all other rights available to SELLER under this Agreement. Exercise by SELLER of the rights under this paragraph shall not constitute a waiver of any other rights SELLER may have. 3. (***) 4. (***) 5. COMPETITIVE OFFERS: If BUYER receives a bona fide offer to sell to it, Product of similar Annual Maximum and quality for shipment to the same delivery points covered by this proposal, for a term not less than the remaining term of the agreement, from a responsible domestic manufacturer not affiliated with BUYER, at a price lower than that provided under this Agreement, then BUYER shall give SELLER written notice thereof and SELLER will, at its option (if satisfied as to the facts surrounding said lower price) give BUYER written notice within 10 days thereafter of its intent to either (1) meet such lower price, or (2) "Release" BUYER from its obligation to purchase from SELLER such quantities during the offer period provided that BUYER accepts the offer and buys the quantity offered at the lower price. In the event that SELLER meets a competitive offer under the terms of this Article, BUYER shall not, during the offer period, use a competitive offer from the same supplier or an affiliate of the same supplier, as the basis for seeking or requesting another "meet competition" price or other form of price concession from SELLER. Such subsequent competitive offers are not bona fide for the purpose of this agreement. Dissimilar product exchanges, barters, processing agreements, transactions tied to or contingent upon other agreements, and any other arrangements other than a direct purchase of Product, are not deemed offers to sell or to buy for the purpose of this Article. Any quantity of Product sold, or to be sold, hereunder by SELLER, at a "meet competition" price, due to SELLER's having given a price concession in response to a qualified competitive offer, shall be purchased by BUYER from SELLER at the original "meet competition" price for the duration of the offer period, i.e., such Product is not eligible for rebate or for additional discounting during such period. If SELLER Releases BUYER, SELLER may, at its sole discretion, elect to reduce the Estimated Annual Minimum and Annual Maximum for the remainder of the Agreement 2 term subsequent to the period of Release; such annual quantity reduction to be equal to the quantity Released. In such event, the Annual Minimum, Monthly Minimum and Monthly Maximum shall be reduced by the same percentage as the Estimated Annual Minimum is reduced. Such option shall be exercised by written notice by SELLER to BUYER not later than 20 days prior to the date in which the competitive offer Release period ceases to be effective. 6. TRANSPORTATION TERMS: Product delivered via pipeline to BUYER's Texas City, Texas plant or other mutually agreed upon locations ("Delivery Point"). 7. TITLE AND RISK OF LOSS: Title and risk of loss to Product will pass from SELLER to BUYER at the Delivery Point, when Product passes the connecting flange of the delivering pipeline to the receiving pipeline. 8. SHIPMENT ORDERS: Buyer shall give SELLER shipping instructions at least five days prior to the date on which shipments are requested to be scheduled. 9. DETERMINATION OF QUANTITY: SELLER will operate or cause to be operated a meter whereby quantities of Product delivered will be measured and its temperature and pressure recorded. The volume of Product delivered, pursuant to the Agreement, for each day will be determined by reference to daily readings of SELLER's meter. A day will be deemed the period from 7:00 a.m. on one day to 7:00 a.m. on the next succeeding day. Correction factors and calculations from such meter readings for the purpose of determining the daily quantities of Product delivered will conform with procedures set forth below. If the parties are unable to agree, procedures and quantities will be determined by E. W. Saybolt and Company or such other mutually agreed upon inspector, whose determination will be binding upon the parties who will equally bear the cost of such independent inspector. SELLER agrees to calibrate flow meters, pressure recorders, and temperature recorders at least once a month and at other times as may be agreed upon by the parties. If a third party is used to make the delivery to BUYER, the frequency of calibrations will be consistent with the third party's normal operating practices. BUYER will have the right to witness the calibrations. Following such calibrations, any equipment found to be inaccurate to any degree will be adjusted immediately to measure accurately. If following a calibration, any metering equipment is found to be inaccurate by one-half percent (0.5%) or more, then the quantity of Product previously delivered will be retroactively adjusted at the rate of such inaccuracy for any period of inaccuracy which is definitely known or agreed upon, but in case the 3 period is not definitely known or agreed upon, then for a period deemed to be one-half (1/2) of the number of days from the last previous calibration until the correction not exceeding, however, fifteen days. If for any reason the custody transfer meters are out of service so that the quantity of material delivered through such meters cannot be ascertained, the quantity of material delivered during the period the meters are out of service will be estimated and agreed upon by the parties upon the basis of the best available data, using in order of preference the following methods: (a) By using the registration of any check measuring equipment of BUYER, if installed and properly operating. (b) By using any measurement equipment which SELLER may have in the flowing stream if agreed upon by BUYER. (c) By a third party mutually agreed upon by the parties. All quantities of Product will be corrected for temperature to sixty degrees Fahrenheit (60.F) in accordance with current methods which are set forth in American Petroleum Institute Routine Catalog Number 852-25650 (Chapter 11.3.2.1) or other method mutually agreed to by both parties. 10. QUALITY AND TESTING: Samples or on-line analysis at the mutually agreed input sampling point will be the basis for determining compliance with quality specifications. SELLER's or SELLER's exchange partner's laboratory analysis or on-line analyzer will determine whether product specifications have been met. SELLER or SELLER's exchange partner shall continually monitor the quality of Product introduced into the pipeline for compliance with said specifications. However, if abnormalities develop in BUYER's plant operation, BUYER may request that SELLER arrange, and if so requested by BUYER, SELLER will arrange, for three representative samples to be taken daily. Two samples will be delivered to BUYER, and one will be retained by SELLER for analysis by analytical test methods set forth in Exhibit A (or by SELLER approved test methods if not set forth therein.) SELLER shall advise BUYER of the analysis of its sample. If a difference in analysis is reported by BUYER and cannot be reconciled within one week of BUYER's notice thereof, one of the samples will be submitted to a competent outside laboratory, agreed upon by BUYER and SELLER, for referee analysis (which analysis will be made by following the analytical test methods set forth in Exhibit A hereof). The cost of such independent analysis will be borne equally by BUYER and SELLER, and the results of such analysis will be binding. 4 11. PAYMENT AND CREDIT: BUYER shall pay SELLER for product by electronic funds transfer ("EFT") into SELLER's account per SELLER's instructions, net 22 days from last day of the month. If payment due date occurs on a bank holiday (except Monday) or a Saturday, BUYER shall EFT not later than the prior business day and if due date occurs on a Sunday or a Monday bank holiday, EFT not later than the next business day. If BUYER shall fail to pay SELLER in accordance with said terms, SELLER shall notify BUYER in writing of such payment default and if BUYER does not cure said default within 10 days, or if BUYER has 3 payment defaults in a calendar year, at its option SELLER may either (1) suspend deliveries until all indebtedness is paid in full, or (2) place BUYER on a cash-in-advance status until arrangements are made for security satisfactory to SELLER or, at SELLER's option, until all indebtedness to SELLER is paid in full. All timely payments under this Agreement shall be made without early payment discount. BUYER shall pay SELLER the maximum lawful rate of interest on past due payment obligations. Any preexisting obligation of BUYER to make payment for Product delivered hereunder shall survive termination of this Agreement for any reason. Prior to the commencement of deliveries of Product hereunder, and at any time and from time to time thereafter upon demand from SELLER, BUYER shall provide SELLER such credit information as may reasonably be required by SELLER to determine BUYER's creditworthiness. If at any time, in the reasonable opinion of SELLER, the financial responsibility of BUYER may be impaired or unsatisfactory such that SELLER reasonably believes that BUYER may no longer fulfill SELLER's reasonable requirements for unsecured credit on sums owed on outstanding invoices plus for future Product orders SELLER shall have the right to require BUYER to provide SELLER with the most recent audited or unaudited cash flow data and other financial information relevant to BUYER's ability to pay. Upon such request and until analysis of such information is completed, not to exceed two business days after such information is provided (during which time SELLER shall not disclose the suspension to any third party), or if such information fails to reasonably substantiate BUYER's ability to pay, SELLER shall have the right to restrict or suspend Product deliveries unless BUYER pays on a cash-in-advance of delivery basis or, at BUYER's option, BUYER posts a suitable letter of credit covering up to two months of receivables, from a reliable financial institution. Alternatively, at SELLER's option, BUYER and SELLER may make other arrangements to secure future transactions hereunder. If deliveries are suspended, or if deliveries are secured as provided herein, and BUYER subsequently furnishes SELLER with sufficient evidence of financial responsibility, then SELLER shall immediately resume Product deliveries or rescind the security requirements, as applicable. If SELLER's suspension of shipments or demand for security under this paragraph of Section 11 is determined to be arbitrary and capricious, SELLER shall be liable to BUYER for direct costs and compensatory damages arising therefrom. 12. TAXES: Any tax (other than income, ad valorem or franchise tax) , excise, fee, or other charge or any increase therein, now or hereafter imposed directly or indirectly by law upon Product, components of Product, or raw material from which Product is derived, 5 or on the production, manufacture, storage, sale, transportation or delivery thereof, which SELLER is required to pay or collect, including, without limitation, Superfund excise taxes and taxes on gasoline blend stocks and additives, shall, at SELLER's option, be paid by BUYER in addition to the price. It is the intent of the parties that any such tax may be passed on via explicit surcharge to BUYER, whether included in the current invoice, or added retroactively to price. Retroactive surcharges may include such interest for which SELLER is liable, in case that, subsequent to the original invoice, a law, regulation, ruling or determination of a taxing authority is deemed to cause SELLER to be liable for the tax. 13. GOVERNMENTAL ACTION AFFECTING CONTRACT TERMS: If any governmental action substantially affects the right to maintain or change the price or other terms of this Agreement, then at any time such governmental action is in effect, either party shall have the right, at its option, to (1) terminate this Agreement upon 30 days notice to the other party, or (2) postpone, by written notice to the other party, the effective date of any price change or change of other terms to the extent so affected until such date or dates as it is not so affected. By its election to postpone rather than terminate, the party does not waive its right to terminate thereafter. 14. OFFSETS: In the event of BUYER's default in payments or in its quantity purchase obligations hereunder, SELLER may offset damages arising therefrom, including, without limitation, withholding payment, delivery or acceptance of product, material or services, relating to any agreement or transaction with BUYER, its subsidiaries or affiliates. 15. CLAIMS: All claims of BUYER with respect to the measurement and evaluation of quality or quantity of Product sold and delivered pursuant to this Agreement, shall be deemed waived and forever barred, unless BUYER notifies SELLER of the nature and details of the claim in writing within (***) after receipt of the shipment by BUYER. Any such claim which is not asserted as a claim, counterclaim, defense or set-off in a judicial proceeding instituted within 2 years after the cause of action arises shall be forever waived, barred and released. BUYER assumes all risk and responsibility for handling the Product, for the results obtained by the use of the Product in manufacturing processes or otherwise, and for the results obtained by the use of said Product in combination with other substances. If any description, advice or suggestion is given, it is given and accepted at BUYER's risk, and SELLER shall not be responsible or liable therefor or for the results thereof. 6 16. PRODUCT HAZARDS: BUYER acknowledges that it has been adequately warned and understands the warnings by SELLER of the risks associated with handling, shipping, storing, using and disposing of the Product, including, without limitation, those set forth in SELLER's Material Safety Data Sheet for Product ("MSDS"). BUYER further acknowledges it is familiar with the Product and has independent knowledge of such risks, which are known in BUYER's industry. BUYER shall maintain compliance with all safety and health related governmental requirements concerning Product and shall take all reasonable and practicable steps to inform, warn and familiarize its employees, agents, contractors and customers with all hazards associated with the Product, including handling, shipment, storage, use and disposal. BUYER shall not deliver or consign commercial or sample quantities of Product to any Party whom BUYER reasonably believes will handle, ship, store, use or dispose of said Product in a dangerous manner or contrary to law or the advice of SELLER. 17. INDEMNIFICATION: SELLER shall indemnify BUYER Group for Liability and Costs relating to Product Incidents which occur while, SELLER its employees, contractors, subcontractors or agents have custody of Product where such Liability and Costs arise from or relate to any such Product Incident's harm to SELLER or its employees, customers, contractors, subcontractors or agents because of exposure to Product or explosion or combustion of Product. BUYER shall indemnify SELLER Group for Liability and Costs relating to Product Incidents which occur while BUYER, its employees, contractors, subcontractors or agents have custody of Product where such Liability and Costs arise from or relate to any such Product Incident's harm to BUYER or its employees, contractors, subcontractors or agents because of exposure to specification conforming Product or explosion or combustion of specification conforming Product. "SELLER Group" means SELLER and/or any of its agents, officers, directors, employees, contractors, representatives, and insurers. "BUYER Group" means BUYER and/or any of its agents, officers, directors, employees, contractors, representatives, and insurers. To "indemnify" means to defend and fully hold harmless from and against all liability, damages, losses, costs and expenses (including reasonable attorneys' fees, court costs and other costs of suit), for claims, demands, suits or judgments (hereinbefore "Liability and Costs") based on any Product related incident causing property damage, personal injury or death (hereinbefore "Product Incidents"), whether or not claimants allege indemnitee's negligence as a cause. 7 18. WARRANTIES: SELLER warrants Product shall meet the specifications established in this Agreement. SELLER warrants free and clear title on all Product produced by SELLER and that such Product is produced in compliance with the requirements of the Fair Labor Standards Act of 1938, as amended. There are no rightful patent infringement claims as to the Product itself available to any third party. SELLER makes no other express or implied warranty, statutory or otherwise, concerning the Product, including without limitation, no warranty of fitness for a particular purpose, warranties of merchantability, or warranties as to quality or correspondence with description or sample. SELLER does not warrant against United States patent infringement by way of the use of the Product in combination with other materials or in the operation of any process. 19. LIMITATION OF DAMAGES: BUYER'S exclusive remedy for any and all delivery shortfalls or contamination of Product sold under this Agreement, including, but not limited to, any allegations of breach of warranty, breach of contract, negligence or strict liability, shall be limited, at SELLER's option, to either the payment for then current market value cover costs incurred to replace such Product, or the replacement of the Product for which a valid claim is made. In the event of any such delivery shortfalls or contamination, SELLER shall not be liable to BUYER for any lost or prospective profits or any other special, consequential, incidental or indirect losses or damages from the sale of Product under this agreement or for any failure of performance related hereto. This limitation does not affect either party's rights respecting claims for personal injury (including death) or physical property damage. 20. FORCE MAJEURE AND ALLOCATION: Neither Party shall be responsible for any loss and or damage resulting from any delay in performing or failure to perform any provisions of this Agreement (other than BUYER's obligation to make payments for Product delivered under this Agreement), so long as any such failure or delay arises from fires, floods, storms, earthquakes, tidal waves, wars, military operations, national emergencies, civil commotions, strikes or other differences with workers or unions, or from any delay or failure in delivery when the supplies of either Party or the facilities of production, manufacture, transportation or distribution which otherwise would be available to either Party are impaired by mechanical breakdowns, or by the order, requisition, request or recommendation of any governmental agency or acting governmental authority, or either Party's compliance therewith or by governmental proration, regulation or priority, or the inability of SELLER to obtain on terms deemed by SELLER to be practicable, feedstock or other raw material (including energy sources), or from any other delay or failure due to any causes beyond either party's control similar or dissimilar to any such causes. When such cause or causes exist, the Party so affected shall have the right 8 in its sole discretion to restrict or cease deliveries or receipt of Product hereunder. SELLER's obligation to sell Product is subject to modification and reduction in accordance with any present or future allocation program of SELLER based upon laws, rules or regulations, orders, demand or requests of any governmental authority. During the continuance of any of the herein referenced contingencies, the obligations of SELLER and BUYER shall be suspended and proportionately abated except for BUYER's obligation to pay SELLER for Product delivered. If, due to any such contingency, either Party has not delivered or accepted delivery of the contracted quantity of Product for a period of at least (***), the other Party may terminate this Agreement by giving not less than (***) prior written notice of termination. Upon the occurrence of any of the Force Majeure events described in the section hereof, the Party claiming Force Majeure shall notify the other Party promptly in writing of such event and, to the extent possible, inform the other Party of the expected duration of the Force Majeure event and the volumes of Product to be affected by the termination, suspension or curtailment of performance under the Agreement. In the event that, at any time, the quantity of Product available from the plant ordinarily producing Product for sale hereunder ("Plant"), should be insufficient to fulfill SELLER's future sales volume commitments because of Plant production shortages due to any other event reasonably related to such shortages, SELLER, at its option, may (1) allocate its available supply of Product equitably among all term contract customers of SELLER during the period of such production shortage contingency, and/or (2) deliver Product to such customers, including BUYER, obtained from third Party sources. 21. GENERAL: A. Assignment: This Agreement shall be binding upon and inure to the benefit of the successors of BUYER and SELLER, but shall not be assigned by either Party and if assignment is attempted it shall be null and void without the prior written consent of the other Party, which consent shall not unreasonably be withheld, except that assignment to a parent corporation, subsidiary of a parent corporation, or a successor to substantially all of the chemical business of SELLER or the styrene monomer business of BUYER shall not require the other Party's consent to become effective. B. Governing Law: THIS AGREEMENT IS TO BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAWS. IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, THEY SHALL USE THEIR BEST EFFORTS TO MUTUALLY AGREE UPON AN ALTERNATIVE FORM OF DISPUTE RESOLUTION ("ADR") BEFORE AN ADR PANEL OR ADR INDIVIDUAL IN HOUSTON, TEXAS; ANY 9 JUDGMENT ENTERED THEREUPON SHALL BE FILED ONLY IN THE STATE OR FEDERAL COURTS OF TEXAS. IN THE EVENT OF (a) FAILURE TO AGREE ON ADR METHOD, (b) FAILURE TO CONSENT TO A NON-BINDING ADR DECISION, OR (c) APPEAL OF, OR CHALLENGE TO, AN ADR DECISION, THEN ANY LEGAL ACTIONS FILED MAY BE BROUGHT ONLY IN THE STATE OR FEDERAL COURTS AT HOUSTON, TEXAS. C. Duty Drawback: BUYER shall obtain and complete U.S. Customs Bureau forms and any other documentation required for duty drawback credits for BUYER's exports of eligible goods derived from or containing Product. SELLER will first claim any available drawback on any and all Products eligible for drawback which are exported by SELLER or its agent. SELLER shall then transmit to BUYER the Certificates of Delivery/Manufacture for remaining drawback Product available to SELLER as are necessary to file said drawback claim. Such drawback Product shall be allocated by SELLER among SELLER's customers if the remaining quantities of drawback Product which may be covered by the Certificates are insufficient to cover export quantities eligible for drawback. BUYER shall file a duty drawback entry for the maximum quantity of eligible Product covered by the Certificates furnished to BUYER and transmit (***) of all proceeds obtained to SELLER. D. No Waiver: Failure of either Party to require performance of any provision of this Agreement shall not affect either Party's right to require full performance thereof at any time thereafter, and the waiver by either Party of a breach of any provisions hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision. E. Entire Agreement: This Agreement and any attachments or addenda hereinafter set forth contain the entire agreement between the parties hereto and there are no oral representations, stipulations, warranties, agreements or understandings with respect to the subject matter of this Agreement which are not fully expressed herein. Neither this Agreement nor its execution has been induced by any representation, stipulation, warranty, agreement or understanding of any kind other than those herein expressed. F. No Modification: No amendment, addition to, alteration, modification or waiver of all or any part of this Agreement shall be of any force or effect, whether by course of conduct or otherwise, unless in writing and signed by SELLER and BUYER. If the provisions of this Agreement and the provisions of any purchase order or order acknowledgment written in connection with this Agreement conflict, then the provisions of this Agreement shall prevail. 10 G. Notices: Any notices given under this Agreement shall be in writing and addressed to the other Party at the address specified in the first paragraph of this Agreement. Notice may be given by U.S. mail (first class or certified), any personal delivery service, fax, or telex. Any notice required or permitted hereunder shall be deemed given upon the earlier of (1) the day of actual receipt by the Party to whom notice is being given or the following business day if actual receipt is during a non-business day of the receiving Party or is after regular business hours on a business day of the receiving Party, or (2) the fourth day after being deposited postage prepaid in the U.S. Mail as first class mail. Notice by fax or telex shall be deemed to be in actual receipt upon the completion of transmission to the receiving Party. For purposes hereof, all notices to SELLER shall be directed to the attention of the Commercial Manager, Light Olefins; and if faxed, transmitted to the Commercial Manager, Light Olefins at (713) 652-7383; and all notices to BUYER shall be transmitted to Elizabeth A. Trent, Raw Material Coordination Manager or successor; and if faxed; transmitted to Elizabeth A. Trent, Raw Material Coordination Manager or successor at (713) 654-9551. If, prior to the execution of this document by both parties, SELLER delivers Product to BUYER and BUYER receives Product from SELLER at any time within the Term stated herein, any such transactions will be governed by the terms and conditions hereof, except for any such terms or conditions expressly rejected in writing by BUYER prior to Product delivery, the parties by their conduct agreeing to be so bound. The parties recognize and agree that neither shall be obligated by their course of conduct to perform any future transactions hereunder unless and until this document is fully executed. IN WITNESS WHEREOF, SELLER and BUYER have executed this Agreement effective as of the date first above written. LYONDELL PETROCHEMICAL COMPANY STERLING CHEMICALS, INC. (SELLER) (BUYER) By: /s/ Bob G. Gower By: /s/ James S. Williams Print Name: Bob G. Gower Print Name: James S. Williams Title: Chairman and CEO Title: Director - Commercial Date: 12/20/94 Date: December 7, 1994 11 EXHIBIT A ETHYLENE PRODUCT SPECIFICATIONS
COMPONENT CONTRACT TEST METHODS SPECIFICATION Ethylene; mol % 99.85 min. ASTM D 2505 Methane; mol % 0.1 max. ASTM D 2505 Ethane; mol % 0.15 max. ASTM D 2505 Propylene and Heavier; mol ppm 100 max. ASTM D 2505 Carbon Monoxide; wt. ppm 5 max. ASTM D 2504 Carbon Dioxide; wt. ppm 10 max ASTM D 2505 Sulfur; wt. ppm 5 max. ASTM D 3246 Water; wt. ppm 10 max. LYON 5981 Acetylene; wt. ppm 5 max. ASTM D 2505 Oxygen; wt. ppm 5 max. ASTM D 2504 Hydrogen; wt. ppm 5 max ASTM D 2504 Ammonia, wt. ppm 1 max LYON 5234 Methanol; wt. ppm 10 max LYON 5881
12 EXHIBIT B Method of Conversion of Volumes of Ethylene to Pounds of Ethylene The pounds of ehtylene delivered daily shall be determined in accordance with the method outlined in the booklet entitled "Phillips Chemical Company Ethylene Flow Measurement Manual" as revised January 1, 1985. The methods of gas flow measurement and the methods of gas volume computation outlined in the manual referred to above will be controlling; provided, however, that revisions in the aforesaid manual may be made at any time during the life of this contract upon agreement by both parties. 13 EX-10.53 10 EXHIBIT 10.53 Exhibit 10.53 COLLECTIVE AGREEMENT BY AND BETWEEN PRODUITS CHIMIQUES STERLING Buckingham, Quebec AND CANADIAN COMMUNICATIONS, ENERGY, AND PAPIER UNION, CTC. (S.C.E.P.) Local 169 (FTQ) 3 year agreement expiring November 30, 1997. INDEX
ARTICLE NAME PAGE 01 Parties................................... 3 02 Recognition............................... 3 03 Management Functions...................... 3 04 Discrimination............................ 5 05 Union Representation...................... 6 06 Union Security............................ 9 07 Correspondence............................ 10 08 Seniority................................. 10 09 Probationers.............................. 16 10 Loss of Seniority......................... 16 11 Wages..................................... 18 12 Shift Differential........................ 20 13 Transfers................................. 21 14 Payment................................... 22 15 Hours of Work............................. 22 16 Overtime.................................. 24 17 Sunday Work............................... 29 18 Call-in................................... 29 19 Shift Schedule............................ 30 20 Reporting Pay............................. 32 21 Holidays.................................. 33 22 Vacations................................. 35 23 Bereavement Leave......................... 37 24 Jury Service.............................. 38 25 Rest Periods.............................. 38 26 Wash-Up................................... 39 27 Personal Protective Clothing & Equipment.. 39 28 Bulletin Boards........................... 39 29 Safety and Health......................... 40 30 Discharge................................. 41 31 Discipline................................ 41 32 Employee working outside the bargaining unit........................... 42 33 Grievance Procedure....................... 42 34 Arbitration............................... 43 35 Strikes and Lockouts...................... 45 36 General................................... 46 37 Duration.................................. 51 APPENDIX "A" Categories and Rates......... 54 APPENDIX "B" Payroll Deduction Auth....... 59 APPENDIX "C" Job Descriptions............. 60 APPENDIX "D".............................. 61 APPENDIX "E" Twelve Hour Schedule......... 62 APPENDIX "F" Letter of Agreement.......... 69 APPENDIX "G" Letter of Agreement.......... 74 APPENDIX "H" Letter of Agreement.......... 76 APPENDIX "I" Vacation Selection Proc...... 77 APPENDIX "J" Letter of Agreement.......... 79 APPENDIX "K" Letter of Agreement.......... 80 APPENDIX "L" Letter of Agreement.......... 81
3 ARTICLE 1 Parties This agreement, by and between Produits Chimiques Sterling, Buckingham, Quebec, hereinafter designated as the "Company" and the Canadian Communications, Energy, and Paper Union, CTC. (S.C.E.P.), Local 169 (FTQ), hereinafter designated as the "Union" witnessed. ARTICLE 2 Recognition The Company recognizes the Union as the bargaining agent for all the employees of the Company as described in the certificate of accreditation issued by the Ministry of Labour of the Province of Quebec. ARTICLE 3 Management Functions 03.01 It is the function of the Company: a) To manage the enterprise in which it is engaged, determine the products to be manufactured, methods, systems, processes and means of manufacturing, schedules of production, kinds and locations of machines, equipment and tools to be used, the control of materials, parts, the extensions, limitation, curtailment, or cessation of operations, location, number of size of plants, maintain order and efficiency and all matters concerning the operation, management, supervision and control of the Company and its business, works, plants and operations. 4 b) Without restricting the generality of the foregoing and subject only to the express provisions of this agreement, to maintain discipline, make and alter rules and regulations, direct the working forces, assign work, hire, classify, transfer, promote, lay off, discharge, suspend and otherwise discipline employees for just cause. A claim that an employee has been disciplined, demoted, suspended or discharged without just cause may be the subject of a grievance, and arbitration procedures hereinafter described. 03.02 It is the intent of the Company to not adversely affect employees in the bargaining unit by continuing contracting out practices. When outside assistance is considered, the Company shall submit in writing to the Union a description of the work for discussion before the decision is made to request outside assistance. Accordingly, the Company shall use employees in their negotiating unit for any work normally carried out by them, provided the employees have the necessary skills to carry out the work as efficiently within the time available. To facilitate the foregoing, the Company and the Union shall form a joint committee to consider the alternatives to outside assistance. This committee shall meet as required to advance discussions. a) Advance discussions on the work for which the Company is considering the use of outside assistance; b) jointly, consider the Union's proposals and alternatives objectively; c) ensure that the Union is aware of the reasons for the Company's decision; 5 d) early each year, the Company undertakes to discuss the work that has required outside assistance during the preceding year. e) When the employer uses the services of a contractor, the employer shall ensure that the contractor and the occupation of his employees are identified as such. When work is contracted out, the Company will request that, if possible, the contractor employ qualified men who are on lay-off from the bargaining unit. 03.03 The exercise of these functions shall not be inconsistent with the provisions of this Agreement. 03.04 Management functions shall not be limited in any way except as provided for specifically by the terms of this Agreement. ARTICLE 4 Discrimination 04.01 There shall be no discrimination, coercion or intimidation by the Company, the Union or their respective representatives or members, against any employee(s) because of union activities or lack of union activities, union membership, or reasons of race, colour or religion, sex, marital status, political convictions, language, ethnic or national origin or for reasons foreseen by the Quebec Charter of Human Rights and liberties. Although a distinction, exclusion or preference based on the aptitudes and qualifications needed by a job is not discriminatory. 04.02 There shall be no solicitation or union promotional activity on company time. Meetings of the Union or its members shall not be held on the premises of the Company at any time without prior approval of the Plant Manager. 6 ARTICLE 5 Union Representation 05.01 For the purpose of this agreement the following are recognized officers and committees of the Union. a) Officers Employees duly elected to the office of President, Vice-President, Recording-Secretary, Secretary-Treasurer and two (2) Shop Stewards. b) Committees 1. A Negotiation Committee and a Union Committee of four (4) employees made up of the officers specified in 5.01 a). 2. A Grievance Committee of three (3) employees as follows: President, Vice-President and Shop Steward of the area concerned. The Recording-Secretary may replace any absent member of the Grievance Committee. c) There shall be a Shop Steward for each of the following departments: Production and Maintenance. 05.02 The National Representative of the Union shall have the right to assist the Bargaining Committee during negotiations, the Grievance Committee in the processing of grievances at Step No. 2 of the Grievance Procedure or to attend meetings between Management and the Union at the request of either party. 05.03 A monthly meeting between Management and a Union Committee, not to exceed eight (8) in number, may be held if requested by either party in order to discuss matters of interest to employees. These meetings will be normally scheduled from 8:00 a.m. to 4 p.m. The members of the Union Committee will be paid for attending the monthly meetings as follows: a) When the meeting is held during the employee's working hours, the employee will be releaved from his work for the duration of the meeting. b) When the meeting is held during the employee's day off: employees with a regular schedule will have one of his 12 hour shifts moved without any loss of premium in order to be released for the duration of the meeting. When this is not possible, the employee will be paid in overtime to attend the meeting on his day off. 7 c) Employees that do not have a regular schedule, such as relief operators, can be scheduled an 8 hour shift to attend these meetings. d) In all cases, the employees will work, in addition to the hours spent to attend the meeting, the number of hours scheduled on that day. Particular arrangements based on mutual agreement can be taken to work the hours exceeding the duration of the meeting. 05.04 The members of the negotiating committee will be paid for the time spent in attending negotiating meetings. The Company will take the appropriate measures to ensure that the employees receive, during a week when one or more negotiating meetings are held, the same pay (salary and premiums) that would have been received according to his regular schedule, had there been no meetings. The Company will accomplish this by modifying the schedules to have the working days correspond to the meeting days and will ensure that the employee works the same number of hours that he would normally have worked that week. 05.05 a) The Company will pay for reasonable time spent by stewards in servicing grievances during working hours. b) Members of the Grievance Committee will be paid for time spent during normal working hours to discuss grievances in accordance with the provision of Article 33. c) It is understood that stewards and members of the grievance committee have their regular work to perform on behalf of the Company and that if it is necessary to service grievances during working hours they will not leave their work without first obtaining permission from their immediate supervisor. This permission will not be unreasonably withheld. Upon resuming their regular work they will report to their immediate supervisor and if absent beyond the period agreed to, will give a reasonable explanation of their absence. d) The President and the Vice-President will be paid according to Article 05.03 for the time spent in meetings for the second level grievance procedure. These meetings normally follow the monthly meetings. 8 e) The Shop Steward will be paid to attend the second level grievance meetings that involve the area he represents. In this case, the Company will not normally modify his schedule to facilitate his attendance. f) During arbitration and mediation hearings, the President of the Union or his replacement will be paid for the time passed in hearings. In addition, the grievor will be paid for the time passed in hearings that coincides with his hours of work if he completely wins his case. 05.06 Whenever possible, the Human Resources Dept. will give prior notice to foremen concerned to permit the release of Union Committee members for meetings with Company representatives. 05.07 Any employee elected to a full-time Union position will be given a leave of absence up to twelve (12) months upon written request of the Union to the Human Resources Administrator. This period may be extended by agreement of the parties. Group insurance and Pension benefits would continue to apply provided the employee and employer shares of the premiums are paid by the employee and the Union. 05.08 Employees will have the right to examine their personal files. 05.09 The Company may grant time off without pay to not more than six (6) employees at any one time to act as union delegates to attend union business and conventions. Time off for conventions may be allowed up to two (2) weeks with written request two (2) weeks in advance. Time off for union business may be up to three (3) days. 9 ARTICLE 6 Union Security 06.01 a) As a condition of continued employment all present employees covered by this agreement shall become members of the Union within thirty (30) days of signing of this agreement and all new employees covered by this agreement shall become members of the Union and shall remain members of the Union in good standing during the term of this agreement. For the purpose of this agreement, a members of the Union in good standing shall mean an employee who has paid an amount equivalent to the regular weekly union dues. b) As a condition of continued employment all employees covered by this agreement shall be subject to a payroll deduction of the regular weekly Union dues. Each employee shall execute and deliver to the Company a written authorization to make such deductions. This authorization shall be signed by the employee before a witness, on the form attached hereto and forming part hereof as Appendix "B". c) The Secretary-Treasurer of the Union will advise the Company in writing of the amount of the regular weekly Union dues. 06.02 a) Subject to the foregoing, the Company will deduct the weekly dues from the pay of all employees covered by this Agreement. b) The Company will directly deposit in the Union's bank account the deductions within seven (7) days of the collection date. 06.03 Not later than the 15th of each month the Company will transmit to the Union a list of hirings and separations for the previous month. 06.04 Within fifteen (15) days after the signing of this Agreement, the Company will transmit to the Union a seniority list of all employees covered by this Agreement. 06.05 The Company will collect the initiation fee for the Union. The initiation fee will be deducted from the employee's wages when he joins the Union. The Secretary-Treasurer shall advise the Company in writing of the names of the employees from whom such deduction will be made. The employee will authorize the Company to make the deduction on the form attached hereto as Appendix "B". 10 ARTICLE 7 Correspondence 07.01 Except where otherwise provided, official communications in the form of correspondence between the Company and the Union shall be hand delivered or sent by mail as follows: To the Company: Plant Manager Produits Chimiques Sterling 101, chemin Donaldson Buckingham (Quebec) J8L 3X3 To the Union: Recording-Secretary S.T.E.C. (FTQ) Local 169 Buckingham (Quebec) ARTICLE 8 Seniority 08.01 Seniority means the length of service in the employ of the Company at its plant in Buckingham, Quebec. 08.02 Seniority shall be established after nine hundred and sixty (960) hours worked in units of normal shifts within a twelve (12) consecutive month period and shall be calculated from a period equivalent to nine hundred and sixty (960) hours worked prior to the establishment of such seniority. 08.03 Seniority shall be plant wide. 08.04 a) In case of promotions, seniority shall govern provided the employees have approximately equal qualifications required to do the work as defined in the agreed upon job descriptions. b) In case of lay-offs, recalls, demotions and transfers, seniority shall govern provided the employees possess the necessary qualifications to perform the required work. In the application of this paragraph, an employee will be considered to possess the necessary qualifications if he is able to perform the required work after a familiarisation period. c) An employee acquires bumping rights when he is permanently displaced from his regular occupation. An employee acquiring such bumping rights may displace another employee with less seniority, except in the occupations described below, provided he possesses the capabilities of doing the work with minimal training. 11 Occupations excluded from the application of these rights, except where a man possesses the necessary skills to make him immediately qualified are: Instrument Mechanic, Machinist, Bricklayer, Carpenter, Electrician, Garage Mechanic, Millwright, Pipefitter, Steelworker, Tinsmith, Welder, Blacksmith, Rigger, Stationary Engineman. Administration of Article 8.04 c) .01 The employee's choice to transfer, expressed as "may transfer" means that the employee is entitled to transfer in accordance with the provisions of Section 8.04 c) or to refrain from transferring and therefore to be dismissed as follows: A) If the employee chooses to move; the employee shall exercise his or her right to transfer in accordance with the following options: 1 - to the following positions 1. Services Team - Chlorate 2. Warehouses Services - Chlorite 3. Chlorite Dryer Operator 2. To any previously occupied posted position in accordance with the term regular occupation Section .02. 3. To any position the employee can fill with minimum training because of previously acquired experience in this position. 4. To any assigned position, provided this position does not necessitate any transfer by the employees. B) If the employee chooses not to exercise his or her right to transfer, the employee shall receive the termination compensation provided for in Section 10.06. However, in this case, compensation is pegged at a maximum of fifty (50) weeks of salary. Despite the foregoing, an employee is not entitled to choose dismissal and therefore compensation if he or she is filling a posted position involving experimental, research or development work or any other temporary activity. In these cases, a management/union committee shall be set up to determine as exact a timetable as possible for these temporary positions. This timetable shall be posted with the positions. 12 C) If an employee chooses not to exercise his or her right to transfer and to not receive at this time the severance pay of Article 10.06, which is set in this case to a maximum of fifty (50) weeks of salary, the employee will be laid off, will maintain seniority and will be placed on the recall list. During the time the employee is on the recall list, he may at any time demand his severance pay as indicated in item B and would consequently loose his seniority. The employee will receive his severance pay if his seniority ends under the conditions of 10.01. .02 "Regular occupation" means a position obtained after the employee completes the training required for the position. .03 In a situation of transfer expressed as "may transfer", the employee will displace in a position the person with the less seniority in that position regardless of his schedule. 08.05 Temporary lay-offs due to emergencies may be effected without regard to seniority. Employees shall not be subjected to temporary lay-offs for more than an aggregate of ten (10) eight hour or seven (7) twelve hour working days in any three (3) month period. If there are remaining jobs, the employees with the most seniority shall be retained if they are capable of doing the work. 08.06 Emergencies referred to in 8.05 above are defined as storms, floods, fires, explosions, serious mechanical breakdowns, power and steam failures. 08.07 a) Notice of lay-off shall be given to the Union and the employees concerned seventy-two (72) hours prior to the effective date of the lay-off. The Company will discuss with the committee any case or instance of hardship or alleged injustice to an employee arising out of such lay-off. This shall not apply in case of temporary lay-offs referred to in Article 8.05. In a lay-off of probationers only, the seventy-two (72) hours notice shall not apply. 13 b) Thirty days notice of dismissal shall be given to the Union and employees concerned for any cancellation of a posted position caused by permanent closure of one or more operations or by permanent cessation of production of one or more products. c) A notice of lay-off must be forwarded to the Government of Quebec, as stipulated under the terms of the Act respecting Manpower Vocational Training and Qualification, and a copy of this notice shall be sent to the Union. 08.08 a) The Union's Executive Committee shall consider the notice of lay-off as confidential, and will not discuss this with any employees, except after they have been notified by the Company, such notification to take place not later than the beginning of this last day at work. b) In case of recalls, a list of the employees recalled will be given to the Union immediately. 08.09 a) All job vacancies which exceed five (5) weeks duration will be posted for a period of seven (7) days. All applicants will be required to complete an application form, one copy of which will be retained by the Company, one copy to be submitted to the Union and one copy will be made available to the employee. Applications must be returned to the Personnel Department within fourteen (14) days of the date of the posting. Transfers described in 13.04 will bot be posted. Experience acquired during temporary transfers will not be considered when selecting employees to fill posted vacancies. All job vacancies which are posted between June 1st and September 30th will remain on the main posting board during this period. Employees who are absent on vacation when these vacancies are posted may apply within seven (7) days of their return to work. b) Employees who are off work due to illness or injury during the entire period of a job posting will be sent a copy of the posting by registered mail. If they wish to apply for the posted vacancy they must complete an application form and return it to the Personnel Department within one week of the receipt of the posting. In the event that the employee is hospitalized he must return the application within one week of his discharge from hospital. 14 c) When a job vacancy has been filled, the name of the employee chosen for the job shall be posted on the main posting board for a period of three (3) weeks. The selection of the successful candidate will be made within thirty (30) days of the posting. d) An employee may submit a grievance claiming a position for which he has made an unsuccessful application within ten (10) days subsequent to his return to work after vacation, illness or accident. e) An employee who does not apply within the allowable time forfeits his right to grieve. f) An employee may refuse to accept a position for which he has made an application during the one hundred and twenty (120) hours of work following the commencement of his training. This does not apply when the employee is applying for a position immediately above his current position, and within his line of advancement. g) Selected candidates from job postings will receive the rate of the job on completion of the training period or 520 hours worked after selection, whichever occurs first. h) When a position with a regular schedule is needed, the position will be first offered to the employee who has the same posting with the relief schedule, if it exists. When a position with a relief schedule is needed, the position will first be offered, in order of seniority, to the employees who have the same posting with a regular schedule. Following the above selection, a job posting will be posted for the required schedule. i) In applying 8:09 h), the offer will be made in writing to each person and an answer must be given after one week. The choice of schedule will be final once an answer is given. j) In the choice of candidates for positions in the Chlorate Plant: Chlorate Lead Hand - Operator Level 1 - Operator Level 2 - Operator Level 3, and for the positions in the Chlorite Plant: Chlorite Lead Hand, preference will be granted to candidates occupying the job classification immediately below the classification for the posted job. 15 k) The Company shall supply to the Union a copy of any statement signed by an employee refusing a promotion or transfer. 08.10 The name of an employee who has been or is promoted from a job classification covered by this agreement to an excepted position with the Company at its plant in Buckingham, Quebec, will be carried on a staff seniority list. The names of the employees who have been entered on this seniority list prior to September 8th, 1966 will continue to maintain and accumulate their seniority for a maximum of nine (9) months. Such a person, when released from excepted employment may, within thirty (30) calendar days of such release, exercise his seniority to return to a job classification in the bargaining unit; and failing to do so, will forfeit his seniority and his name will be removed from the staff seniority list. The Company will maintain an up-to-date list of staff employees which it will supply to the Union. 08.11 The Company will maintain a plant wide seniority list and bring it up to date monthly and keep it posted in an appropriate place. 08.12 Students hired for a vacation period will not acquire seniority. If a student wishes to change his status to regular employment he must submit a formal request to the Human Resources Department. If accepted he must complete the normal probation period and his seniority will be established according to Article 9 in addition to the time employed as a student. 16 ARTICLE 9 Probationers 09.01 An employee undergoing a probationary period is a person whose total accumulated service in the employ of the Company at its Buckingham (Quebec) plant is less than nine hundred and sixty (960) hours worked in normal shifts during the course of twelve (12) consecutive months. Seniority shall begin at a date equivalent to nine hundred and sixty (960) hours from the date on which such seniority is established. However, the right of recall shall apply after the first four hundred and eighty (480) hours worked in normal shifts. 09.02 A probationary employee has no seniority rights, and his name shall not appear on any seniority list. It will be the exclusive privilege of the Company to retain, to lay off or to dismiss a probationary employee. 09.03 A probationary employee who is not entitled to seniority may submit a grievance for reasons other than those mentioned in 9.02 above. 09.04 Probationary employees will receive the beginner's rate for the first two hundred and forty (240) hours worked in normal shifts. After which, they will receive the pay rate for the work performed. ARTICLE 10 Loss of Seniority 10.01 Seniority shall be broken if the employee: a) voluntarily leaves the employ of the Company; b) is justifiably discharged; c) following a lay-off, fails to report for work within seven (7) calendar days of sending a telegram to his last address on record in the Personnel Department of the Company. Notice of the telegram will be given simultaneously to the Union. If the employee, within the seven (7) days mentioned above, notifies the Company of his 17 intention to return to work but claims that he is unable to report on the date and at the time specified due to circumstances beyond his control, his name will be left on the seniority list provided he actually commences work within the next two (2) calendar weeks. Such laid off employee so notified, in writing, declines to accept the job offered if it is not in a wage category equal to or higher than his last job classification. In such cases, the employee permitted to decline to return to work for the above reasons, shall not lose his relative position on the recall list; d) cannot be located after reasonable effort. A registered letter mailed to the last address on record with the Personnel Department of the Company and a copy of the letter sent to the Union shall constitute a reasonable effort on the part of the Company; e) is laid off and is not recalled within 18 months of his last date of lay- off; f) is absent from work for more than three (3) consecutive working days and is unable to give the Personnel Department of the Company satisfactory reasons on his return; g) is absent beyond the time limit of coverage provided under the terms of the health insurance plan, an industrial accident insurance plan or if permission for absence is granted by the Company. h) decides to be laid-off according to option B of the administration of Article 8.04 c), 01. 10.02 It shall be the duty of all employees to notify the Personnel Department of the Company promptly of any change in their address. If an employee fails to do this, the Company will not be responsible for failure to contact the employee. 18 10.03 a) The Company may grant leave of absence to any employee for legitimate personal reasons. Any person who is absent with written permission shall not be considered to be laid off, and his seniority shall continue to accumulate during his absence. In no case will an employee be granted a leave of absence for a period longer than three (3) months except as provided in Article 5.07. b) Prolonged periods of time may be considered under circumstances directly related to professional training. 10.04 Employees will normally be laid off at the end of a calendar week except in cases where the provisions of Article 8.05 may apply. 10.05 The average hourly rate will be communicated to the Union every three (3) months. 10.06 Severance Pay Employees shall be paid severance pay when they are laid off due to lack of work. However, severance pay will not apply to lay-offs caused by emergencies as defined in article 8.06 of the collective agreement. The severance benefit will be two (2) weeks pay (40 hours per week) at the employee's regular straight time rate for each complete year of seniority. Employees who are re-hired will begin to accumulate a new service credit based on time actually worked from their last date of hire. Students hired for a vacation period will not qualify for severance pay. ARTICLE 11 Wages 11.01 The Company agrees to pay and the Union agrees to accept, for the term of this Agreement, the schedule of wage rates as shown in Appendix "A" attached hereto and forming part of this Agreement. 19 11.02 Job Classification Arbitration a) Classification and hourly rate for existing jobs or for new jobs cannot be changed, except by mutual agreement between the parties. In the event that the Union and the Company cannot come to an agreement, wether regarding the classification and/or the rates payable for a modified task, or regarding classification and/or the rates for a new job, the Union will formally notify the Company of its disagreement regarding the classification under dispute. b) In such instances, the Company's proposed classification shall be maintained unless the Union elects to proceed to arbitration within thirty (30) days of the above advice in accordance with the provisions as defined herewith and the arbitrator upholds the Union position. c) If any classification is changed as a result of the Arbitrator's decision, the resulting classification shall be effective retroactive to the date the Company formally advised the Union of its classification of the job. Such disputes will be submitted to an arbitrator with experience in job classification systems. The decision reached by the arbitrator will be final and binding on both parties and the cost of the arbitrator will be shared equally by the Company and the Union. The arbitrator will be expected to render a decision within thirty (30) days following the completion of his hearing. 11.03 The Company shall submit to the Union the job descriptions for any new positions or any changes made in the job descriptions before a new position is created, or before a position is modified. The job descriptions regarding which an agreement has been reached between the parties shall form a part of the collective agreement. 20 11.04 The Company may as required need an employee to act as sub-foreman. The selection of a sub-foreman will follow the process of 8.04 a) and will put special attention on the qualifications of the employee. The role of a sub-foreman, in addition to his regular work, is to assist the supervisor or the department head in the distribution and coordination of work. In addition, he may be assigned various administration tasks such as preparing schedules, purchasing equipment, etc. All new tasks assigned to a sub-foreman must first be discussed by the Labor/Management committee. At no time can a sub-foreman discipline or recommend disciplinary measures. A sub-foreman will receive in addition to his regular rate, a premium of $2.00 per hour for the period he works as a foreman. ARTICLE 12 Shift Differential 12.01 a) The following shift differentials shall be paid to employees working on the afternoon and night shifts as follows: Shift differential
94.12.01 95.12.01 96.12.01 --------- --------- --------- 4.00p.m.-12.00a.m. $ 0.87 $ 0.89 $0.92 12.00a.m.- 8.00a.m. $ 1.53 $ 1.56 $1.61 12 hours $ 1.60 $ 1.63 $1.69 (Night shift)
b) Basis of calculation: shift differentials will be 4% and 7% of the highest hourly rate paid to a shift worker in Appendix "A" excluding all premiums. 21 12.02 The shift differential shall not enter into the calculation of holiday pay nor vacation pay. 12.03 The shift differential is not payable on call-ins and overtime unless a complete shift is worked as per article 15.04 a) and b). For employees working 7.30 a.m. to 4.00 p.m., the shift premium shall not apply to emergency calls or overtime unless an additional period of eight (8) consecutive working hours has been completed. 12.04 The shift differential will be added after any overtime calculations have been made. ARTICLE 13 Transfers 13.01 a) An employee temporarily transferred to a job which pays a higher rate shall receive the higher rate for the duration of the transfer. b) When an employee is directed by his supervisor to perform work at a higher rate during the course of a shift, he shall receive the higher rate for each complete hour worked. c) A transferred employee shall work the normal hours of the group to which he is transferred. However, an employee who is transferred to another sector or another department after his shift commences shall continue on the same shift. 13.02 An employee temporarily transferred to a job which pays a lower rate, shall continue to receive his previous rate until he is transferred back to his former job or is transferred to another job. 13.03 A permanent transfer is a transfer of more than five (5) weeks duration except when the provisions of 13.04 will apply. 22 13.04 Relief work because of vacations, sickness, accident or authorized leave of absence will not constitute a permanent transfer. Transfers resulting from the shutdown or reduction of operations for periods of less than four (4) months shall not constitute permanent transfers however, transfers for the above reasons which exceed four (4) months will be posted according to the provisions of article 8.09. ARTICLE 14 Payment 14.01 The Company shall deposit employees' pay cheques in the financial institution of their choice. Payday shall normally be every Thursday, unless Thursday is a holiday, in which case payday shall be the day preceding the holiday(s), or if the payroll is unavoidably delayed. 14.02 Upon the submission of evidence to substantiate a weekly indemnity benefit claim from Quebec Workmen's Compensation Commission, Group Insurance or Unemployment Insurance Commission, an employee may request an advance to provide income assistance during the period pending the commencement of regular indemnity payments. The advances will be made according to the employee's eligibility however, they cannot exceed the level of the group insurance weekly indemnity amount. All amounts advanced to an employee must be reimbursed to the Company when regular indemnity payments commence. ARTICLE 15 Hours of Work 15.01 a) The regular schedule of hours of work shall be eight (8) hours per day and forty (40 hours per week. 23 b) 12 hour shifts only: "The regular schedule of hours of work shall be twelve (12) hours per day in accordance with the attached schedule". "Relief operators however will work a schedule which will include twelve (12) hour shifts and eight (8) hour shifts". 15.02 a) The day shall commence at midnight and shall consist of twenty four (24) consecutive hours. b) 12 hour shifts only: "The day shall commence at 07.30 hours and shall consist of twenty four (24) consecutive hours" 15.03 a) The week shall commence at midnight on Saturday and shall consist of seven (7) consecutive days. b) 12 hour shifts only: "The week shall commence at 07.30 hours on Sunday and shall consist of seven (7) consecutive days". 15.04 a) Normally the shifts shall be as follows: 1. 11.30 p.m. to 7.30 a.m. (night) 2. 7.30 a.m. to 3.30 p.m.(day) 3. 3.30 p.m. to 11.30 p.m. (afternoon) 4. 7.30 a.m. to 12.00 (noon) and 12.30 p.m. to 4.00 p.m.(day) The above mentioned shifts can only be changed by mutual agreement of the parties. b) 12 hour shifts only: Day shift 7.30 a.m. to 7.30 p.m. Night shift 7.30 p.m. to 7.30 a.m. 15.05 This article is for the purpose of providing a basis for calculating overtime and shall not be construed as a guarantee of hours of work per day or per week or weeks per month. 24 ARTICLE 16 Overtime 16.01 a) Overtime shall be either all authorized time worked in excess of eight (8) hours in any one day or in excess of forty (40) hours in any week, or for all unscheduled hours, or in excess of thirty-two (32) hours in any week in which a holiday occurs, or in excess of twenty-four (24) hours in any week in which two (2) holidays occur. Hours worked on an employee's scheduled days off will not be included. The thirty-two (32) hours and twenty-four (24) hours referred to above are exclusive of any time worked on the statutory holiday itself. 16.02 Unless otherwise stipulated, all authorized overtime worked shall be paid for at one and one-half time the employee's regular hourly rate. Also, this shall apply to all authorized hours worked in excess of eight (8) consecutive hours or twelve (12) consecutive hours for employees working the twelve (12) hours shift schedule. 16.03 Employees will be paid at twice their regular hourly rate for all authorized overtime worked between 11.30 p.m. and 7.30 a.m. 16.04 Employees shall be paid at one and one-half times their regular hourly rate for all hours worked on scheduled days off. However, the first two (2) hours will be paid at twice their regular hourly rate if they have not been advised of the overtime to be worked within the time limits defined in clause 19.01. 16.05 Employees who work overtime for less than a normal shift, as defined in clause 15.04 will be paid a minimum of two (2) hours at twice their regular hourly rate. However, no minimum shall apply when the overtime work forms a continuous period with the employee's regularly scheduled working hours except as provided for in clause 18.02. 25 16.06 a) Employees shall not be paid for both daily and weekly overtime for the same hours worked. There shall be no pyramiding nor compounding of overtime and/or other premium payments. b) In any case where both the time and one-half, double time and triple rates would apply, the higher rate will be paid. c) Only one minimum payment will apply to any one period of continuous work. 16.07 When overtime is required it shall be distributed as equitably as circumstances permit amongst qualified employees in the following appropriate sector or maintenance occupational groups. Production Department First choice - Employees scheduled on the job requiring overtime who are on their days off. Second choice - Employees scheduled on the job requiring overtime with preference according to the lowest accumulated overtime hours paid. Third choice - Employees scheduled in the sector and those of the sector scheduled in maintenance capable of performing the work satisfactorily with preference according to the lowest accumulated overtime hours paid. Fourth choice - All other employees capable of performing the work satisfactorily. Fifth choice - Qualified students. Maintenance Department First choice - Employees with the base trade in the job requiring overtime who are on their days off. 26 Second choice - Employees with the base trade in the job requiring overtime with preference according to the lowest accumulated overtime hours paid. Third choice - Employees with the second trade capable of performing the work satisfactorily with preference according to the lowest accumulated overtime hours paid. Fourth choice - All other employees capable of performing the work satisfactorily. Fifth choice - Qualified students. Administration of Article 16.07 .01 Definition and application of "schedule". In applying article 16.07 first and second choice, "schedule " means the following: 1) A work schedule is established for a period of one week beginning Sunday at 12.01 a.m. and ending Saturday at midnight for eight (8) hours shifts, and beginning Sunday at 7.30 a.m. and ending Sunday at 7.29 a.m. for twelve (12) hour shifts. 2) Employees are entitled to overtime in the position to which they are assigned for the entire period covered by the schedule except; 3) In the event an employee is assigned to more than one position during the period covered by the schedule, said employee shall be entitled to overtime in his or her first assigned position from when the schedule begins until the second assignment begins and so on until the schedule expires. .02 TWELVE-HOUR SHIFT Notwithstanding the provisions of Article 16.07, an employee shall not be asked to work overtime during the four (4) hours immediately following his or her departure from the plant after a twelve (12) hour night shift. 27 .03 Compilation of Time Overtime is compiled as paid hours, which are totalled at the end of each work week. Total overtime in the previous week will be used as a basis for equitable distribution of overtime on the current week. Compiled overtime excludes regular time paid at overtime rates on a statutory holiday. .04 In applying 16.07, the term "sector" identifies: chlorate, chlorite and warehouse, or janitorial areas. .05 Acid Washes - For an acid wash of the cells, all employees of the chlorate and chlorite sectors will be considered in the third choice. .06 An employee who has started a maintenance task may in preference be asked to continue this task in overtime. .07 Scheduled Downtime When additional manpower is needed to assist the maintenance department on scheduled shutdowns, call-ins will be made. If the call-in list has been completely done and that not all the manpower needs have been met, the call-in list will be repeated up to 24 hours prior to the shutdown. If the shutdown is scheduled on Monday morning, the period will be 72 hours. .08 When an employee loses an opportunity to work on overtime because of an error in overtime distribution according to 16.07, the employee will be offered the opportunity to work an equivalent number of hours and at the same rate of pay that the missed opportunity provided, and according to the following: 1) The Company will offer the employee a single block of scheduled work. 2) At least two choices of schedules will be offered for the work. 3) The employee will indicate his choice and do the work within three weeks following the loss of the overtime opportunity. 4) A minimum of two hours must be worked. 5) The work offered will not replace foreseen overtime and will be limited to direct or indirect training, and to tasks relating to organizing the work environment. 28 16.08 The Company shall undertake to reduce the amount or overtime. The Company shall ask employees whether they wish to work overtime. However, employees shall not refuse to work overtime without valid reason. An overtime list shall be posted in each Division and updated on a weekly basis. 16.09 Employees will receive a meal allowance when they work overtime and were not given four (4) hours' notice prior to the start of their work. a) After two (2) hours of overtime worked which follows a regular or overtime shift and after each succeeding four (4) hours of overtime work. b) After two (2) hours of overtime worked which immediately precedes his regular shift. c) After two (2) hours of call-in work if the time worked overlaps a normal meal hour and after each succeeding four (4) hours of continuous call-in work. For the purposes of this clause the normal meal hours are: 8.00-8.30 a.m. / 12.00-12.30 p.m. / 5.00-5.30 p.m. d) After four (4) hours of continuous call-in work. e) A paid period of thirty (30) minutes at the applicable rate will be allowed to consume each meal. f) The meal allowance will be $7.25. The present practice which permits 30 minutes to employees of the Maintenance and Yard Departments to leave the plant premises when working overtime for purposes of consuming a meal will not be changed. Meal allowances are not paid in these cases. 16.10 An employee will have the option of taking time off without pay at a time mutually agreeable to the employee and the Company. 16.11 Employees will advise the Company as soon as possible if they are unable to report to work as scheduled. If required, employees will remain on the job for an additional two (2) hours to permit their relief to be arranged. 29 ARTICLE 17 Sunday Work 17.01 Employees shall be paid at one and one-half times their regular hourly rate for all scheduled hours worked on Sundays except when one of the statutory holidays defined in clause 21.01 is observed on Sunday in which case the provisions of clause 21.05 a) will apply. 17.02 Employees shall be paid at twice their regular hourly rate for all unscheduled hours worked on Sundays. and statutory holidays. ARTICLE 18 Call-in 18.01 An employee shall be considered to have been called in when he is contacted off the job and is directed or requested to report to overtime work. 18.02 Minimum call-in pay is two (2) hours' pay at twice the employee's regular straight time hourly rate. If the work which required the call exceeds two (2) hours, the employee will be paid at the applicable rate of pay for the additional time worked. In the event that the two (2) hour period specified herein overlaps the start of the employees regularly scheduled shift, such overlap period shall be paid at double time as specified herein and the balance of hours worked on his regularly scheduled shift shall be paid at straight time. 18.03 a) All hours worked between 4.00 p.m. and 11.30 p.m. when an employee is called in will be paid for at time and one half the employee's regular hourly rate. b) Call-ins which occur between 11.30 p.m. and 7.30 a.m. will be paid a minimum of two (2) hours at triple the employee>s regular straight time rate. c) For a call-in on Sunday or a statutory holiday, an employee shall receive a minimum of two (2) hours pay at triple the normal hourly rate. 30 ARTICLE 19 Shift Schedules 19.01 Weekly shift schedules for all employees covered by this agreement will be posted before Wednesday midnight and will be effective as of the following Friday at 3.00 p.m. If any change is made before the time limit of 3.00 p.m. Friday, such change will be communicated by the foreman or his delegate to the employee(s) concerned and witnessed by the Shop Steward or a member of the Executive Committee. In the event of an employee returning to work after an absence due to illness or injury, the time limit for changes shall be 10.00 p.m. Friday. Employee should advise the Plant Nurse as soon as they receive clearance to return to work after an absence due to illness or injury. 19.02 MAINTENANCE MEN Shift schedules shall not include more than two (2) shift changes per week. Time worked shall be paid for at one and one-half times the employee's regular hourly rate for the first shift worked on a third or subsequent shift change per week or for the first shift worked following a change in the shift schedule after 3.00 p.m. Friday; if time is worked on the night shift employees will be paid at twice their regular hourly rate. 19.03 OTHER EMPLOYEES Time worked shall be paid for at one and one-half times the employee's regular hourly rate for the first shift worked following a change in the shift schedule after 3.00 p.m. and 7.30 a.m., employees will be paid at twice their regular hourly rate. 19.04 a) When an employee's shift schedule is changed after being posted, and he has not had an opportunity to become aware of the change, he shall not be penalized for reporting as originally scheduled and will be given an opportunity of working forty (40) hours in that week. b) Before leaving for vacation, the employee must be aware of his first shift scheduled to work upon his return from vacation. Unless notified otherwise during the period of his vacation, the employee shall be considered to be scheduled to recommence work on the shift and date indicated prior to his departure. 31 If an employee is advised to report on another shift, he will be paid at the rate of time and one-half, or double time rate if between 11.30 p.m. and 7.30 a.m. for all hours worked on the first shift. If a section of the plant is shutdown for vacations, the Company will make every reasonable effort to ensure that shift rotation is not interrupted. 19.05 The rate of double time and time and one-half shall not apply in 19.02 and 19.03 above if the shift change is made for any of the following reasons: a) emergencies as defined in Article 08.06; b) changes made at the request of the employees concerned; c) a change from 7.30 a.m.-3.30 p.m. to 7.30 a.m.-4.00 p.m. or vice-versa shall not constitute a change of shift, provided the notice of such change is given on the previous day. 19.06 a) All employees who are working the day shift or 7.30 a.m. to 12 noon and 12.30 p.m. to 4.00 p.m. and are required to return to work for the following night shift, will be sent home at 3.30 p.m. with no loss in pay. They will still be allowed one half-hour at noon for lunch. b) If an employee works the half-hour from 3.30 p.m. to 4.00 p.m. when he should have been finished at 3.30 p.m., he will be paid for one half-hour at one and one-half times his regular rate in addition to his eight (8) hours pay. c) Whenever possible the employee will be given eleven (11) hours notice of the change. 19.07 All Company employees are considered as potential shift workers. Normally, plant employees are regular shift workers and maintenance and yard employees are day workers. However, these conditions may be reversed at times to give the Company flexibility of operation. In the case of planned repairs, the Company will make every effort to notify the employees concerned at least twenty- four (24) hours in advance. 19.08 All days off will be scheduled consecutively unless one of the days off is Sunday. When this cannot be done, the employees will receive four (4) hours pay at their regular straight time hourly rate in addition to all hours worked in the week. 32 ARTICLE 20 Reporting Pay 20.01 An employee who is scheduled for work at his regularly scheduled time and has not been notified by the Company not to report, shall receive not less than four (4) hours work at one and one-half times his regular straight time hourly rate or in lieu thereof at the discretion of the Company, he may be given four (4) hours pay at his straight time hourly rate provided that failure to provide work is due to circumstances within the control of the Company. 20.02 When an employee reports to work as scheduled, he is not to be turned back at the gate without being allowed to record his presence. 20.03 If an employee is notified not to come to work less than four (4) hours before the time he was supposed to report, he will receive four (4) hours' pay except for the reasons outlined in paragraph 8.06. 20.04 A phone call made to the telephone operator or the Personnel Department and recorded will be considered as proof of notification. An employee who has not left a phone number in the Personnel Department of the Company by which he can be contacted forfeits the right to the four (4) hours' pay mentioned in paragraph 20.03. 33 ARTICLE 21 Holidays 21.01 The following twelve (12) holidays will be observed with compensation New Year's Day Day after New Year's Good Friday Queen's Birthday St. Jean Baptiste Canada Day Civic Holiday Labour Day Thanksgiving Remembrance Day Christmas Day Boxing Day 21.02 Compensation for holiday will be on the basis of the employee's regular hourly rate multiplied by eight (8) hours. 21.03 To be eligible for holiday pay, an employee must have been at work the first regular work day after the holiday and the last regular work day before the holiday except when on: 1) paid vacation; 2) illness attested to by sufficient medical evidence to substantiate an illness, or an injury, submitted within one week after the holiday. However, an employee who is absent due to illness or injury for more than twelve (12) months beyond the end of his forty one (41) week period of weekly indemnity payments will not be eligible for holiday pay. 3) leave of absence signed by the Plant Manager or his designated representative; 4) scheduled days off; 5) lay off which occurs on the last regular work day before the holiday or recall to work on the first regular work day after the holiday. 21.04 An employee who works on a holiday will not be scheduled to work less than five (5) days in a week in which there is one (1) holiday or four (4) days in a week in which there are two (2) holidays. 34 21.05 a) Employees scheduled to work on any of the holidays mentioned in paragraph 21.01 above will be paid for the hours actually worked at one and one- half times their regular straight time hourly rate in addition to any holiday pay to which they may be entitled under the provisions of this agreement except when the hours are worked between 11.30 p.m. and 7.30 a.m. when they will be paid at twice their regular straight time hourly rate. However, when a holiday is observed on a Sunday, employees will be paid for the hours actually worked at twice their regular straight time hourly rate. Employees may elect to accumulate those holidays according to the provisions of paragraph 21.06. b) Employees who work on Christmas Day or new Year's Day will be granted equivalent time off with pay. Employees may elect to accumulate this time according to the provisions of paragraph 21.06. When a holiday occurs during an employee's vacation, he must take an additional day off with pay. Employees may elect to accumulate these holidays according to the provisions of paragraph 21.06. 21.06 Accumulation of Holidays a) It is intended that holidays may be accumulated to permit employees to take time off in units of one (1) week. However, employees may take time off in units of one (1) day. b) Employees on twelve (12) hour rotating shift schedules, may take time off in units of one ad one-half days (12 hours). c) Employees cannot take pay in lieu of additional days off or accumulated holidays. d) Days off will be taken at a time mutually agreeable to the employees and the Company. e) The total of accumulated holidays and deferred vacations cannot exceed twelve (12) weeks. 21.07 Statutory holidays which fall on Saturday shall be observed the preceding Friday, and statutory holidays which fall on Sunday shall be observed the following Monday, unless the parties agree otherwise. However, employees working seven (7) day shifts shall observe the holiday on the day it falls. 35 ARTICLE 22 Vacations 22.01 Employees who have completed less than one (1) year of seniority on May 1st of the current year shall receive one (1) day of vacation for each working month of continuous service not to exceed a maximum of two (2) regular weeks. 22.02 Employees who have completed one (1) or more years of seniority but less than three (3) years of seniority on or before May 1st of the current year shall receive two (2) weeks' vacation. 22.03 Employees who have completed three (3) or more years of seniority but less than ten (10) years of seniority on or before May 1st of the current year shall receive three (3) weeks' vacation. 22.04 Employees who have completed ten (10) or more years of seniority but less than eighteen (18) years of seniority on or before May 1st of the current year shall receive four (4) weeks' vacation. 22.05 Employees who have completed eighteen (18) or more years of seniority on or before May 1st of the current year shall receive five (5) weeks' vacation. 22.06 Employees who have completed twenty-five (25) or more years of seniority on or before May 1st of the current year will receive six (6) weeks' vacation. 22.07 Employees who, after May 1st and prior to the end of the calendar year, reach the age or service required to entitle them to one (1) additional week of vacation, in accordance with the vacation scale, will become eligible for such additional week of vacation on completion of the required years of age or service. If circumstances permit such week may be granted earlier in the year. 22.08 Vacation pay will be the greater of either. a) the employee's regular straight time hourly rate multiplied by forty (40) hours for each complete week of vacation to which the employee is entitled. OR b) two percent (2%) of the employee's annual gross earnings (as per T4 form of previous year) for each complete week of vacation to which he is entitled. 36 22.09 An employee shall not be called back to work during his vacation. When at the request of the Company, an employee agrees to return to work during his vacation, he will be paid at twice his regular hourly rate for all hours worked. If he works eight (8) hours or more, he will be given equivalent time off, without pay, at a later date of his choice. 22.10 a) An employee recalled to work within six (6) months of his date of lay-off will maintain his right to vacation time off. b) Employees with five (5) or more years of seniority, who may be laid off, will continue to accumulate vacation credits while on lay-off for a period up to ninety (90) calendar days. 22.11 Every effort will be made to give the employee at least a portion of his vacation at the date which he has chosen, under the condition that this does not harm the efficient operations of the plant. The Company will have the right to close certain divisions for the purpose of granting vacations for a maximum period of three (3) consecutive weeks, between July 1st an August 30th. However, the Company will do everything within its power to give notice, as soon as possible, of vacation periods. The Company and the Union will each name a person to represent the respective parties in order to resolve problems arising out of vacation scheduling. 22.12 Employees will be able to indicate their choices for vacations at the latest May 1st. The Company will post vacation schedules each year on or before June 1st. Employees who indicate their choices before May 1st will be able to take their vacations as the vacation schedule permits. 22.13 a) When an employee leaves the employ of the Company for any reason, he shall receive the vacation payment to which he is entitled for the portion of the current year during which he was employed since May 1st and the vacation pay to which he became entitled on May 1st, if he has not received this vacation pay. b) When calculating the vacation pay of retiring employees, a four-month (4) service credit will be added to the retirement date. 37 22.14 Vacations will be taken during the twelve (12) month period between May 1st and April 30th. Advance vacations may be taken during the current calendar year after January 1st. 22.15 Employees are not permitted to take annual vacations while receiving weekly indemnity benefits under the group insurance plan. 22.16 Deferred Vacations Annual vacations may be deferred in order to be taken at a later date, in accordance with the following stipulations: a) Only earned vacations in excess of two (2) weeks may be deferred beyond the current vacation year. b) The total annual vacations thus deferred and/or accumulated statutory holidays may not be in excess of twelve (12) weeks. c) Deferred annual vacations are payable at retirement or termination of employment for any reason. 22.17 Employees of the Maintenance Department, the warehouse and the janitor, may elect to take one week of vacation per year in single days. The days will be taken at a time mutually agreeable to the employees and the Company. 22.18 An employee who is absent due to sickness or accident, for more than twelve (12) months beyond the end of his forty one (41) week period of weekly indemnity payments will not be eligible for vacation pay. However, employees may choose to receive remuneration for their accumulated vacations between the 41st and 93rd weeks. ARTICLE 23 Bereavement Leave 23.01 a) Bereavement leave of five (5) days will be granted to an employee in the event of death in the immediate family (parents, spouse or children). Maximum bereavement pay will be forty (40) hours. This leave of five (5) days may be taken between the day of the death and the fourth day following the funeral. b) Bereavement leave of three (3) days will be granted to an employee in the event of the death of his brother, sister, mother-in-law or father-in-law. 38 c) Bereavement leave of one (1) day will be granted to an employee in the event of the death of his grand-mother, grand-father, brother-in-law or sister-in-law. d) The bereavement leave mentioned in b) and c) may be taken between the day of the death and the second (2nd) day following the funeral. 23.02 a) Bereavement pay shall be calculated on the basis of the employee's regular straight time hourly rate times eight (8) hours for each day. b) Twelve (12) hour shifts only: Employees will be granted leave of five (5), three (3) or one (1) day as defined above however, compensation will not exceed forty (40), thirty- six (36) or twelve (12) hours respectively. 23.03 This payment shall be made only where the time off falls on the employee's working days. ARTICLE 24 Jury Service 24.01 An employee who is called for Jury Duty or as a subpoenaed witness and who by virtue of such call loses time from work shall receive for each day of such Jury or Witness Duty the difference between eight (8) hours at the base rate of the employee's regular job and any jury fee or witness fee received for that day. The Company may require the employee to furnish a certificate of service signed by the Clerk of the Court before making any payment under this clause. ARTICLE 25 Rest Periods 25.01 a) All employees will have the right to two twenty (20) minute rest periods during their regular working hours each day. This specifically means twenty (20) minutes from the time work is interrupted until it resumes. b) Twelve (12) hours shifts only. All employees will have the right to three (3) twenty (20) minute rest periods during their regular working hours each day. This specifically means twenty (20) minutes from the time work is interrupted until it resumes. 39 ARTICLE 26 Wash-Up 26.01 All employees shall have the right of washing and cleaning up before their regular quitting time. On the other hand, the Company may insist on these conditions being observed. ARTICLE 27 Personal Protective Clothing & Equipment 27.01 The Company will reimburse employees the cost of fitting safety prescription glasses provided under the eye protection programme. 27.02 The Company will pay in each twelve (12) month period towards the cost of safety footwear purchased by employees in accordance with present regulations. Safety boots - $75.00 27.03 The present practice on safety prescription glasses and personal protective clothing will not be changed prior to agreement with the Union. 27.04 All employees will observe the plant safety regulations regarding the use of personal protective clothing and equipment. ARTICLE 28 Bulletin Boards 28.01 Bulletin boards shall be provided by the Company for the use of the Union. They shall be located as designated by the Company. All notices shall be signed by the President of the Union or some other authorized signing officer of the Union. 28.02 Use of bulletin boards shall be restricted to notices of union recreational and social affairs, union elections, results of union elections, union appointments, time and place of union meetings. 40 ARTICLE 29 Safety and Health 29.01 The Company will provide all adequate and necessary safeguards for the health and safety of its employees. 29.02 Both the Company and the Union recognize their mutual obligations to assist in the prevention, correction and elimination of all unhealthy and unsafe working conditions and practices. The employees and the Union will provide support in all reasonable and necessary ways to ensure that those safeguards provided are effective. No employee shall be required to perform work that endangers his or any other employee's health or physical safety or under conditions which are in violation of safety rues and/or existing legislation. 29.03 A safety and health committee shall be established following the C.S.S.T. model and composed by a minimum of two (2) Union employees or by a committee of equal labour/management representation of six (6) members. The Union will provide a thirty (30) day notice to the Company if the Union wishes to change the composition of the committee. The duties of the Committee consist of making recommendations for the improvement of safety, working conditions and the investigations of all accidents. The Committee will work toward the elimination of safety hazards. The Committee shall meet regularly and discuss safety programmes and accident reports. It shall make periodic inspections of work sites to check all health and safety conditions, and make recommendations to Management. Members of the Health & Safety Committee will be paid for the hours spent in the plant Health and Safety meetings according to Article 5.03. 29.04 Either party may, on its own or in cooperation with the other party, arrange for an inspection of facilities by appropriate inspectors of government or the National Union, provided, however, that no request shall be made without fully informing the other party to this agreement, and provided, further, that such inspections, shall be made in the company of the prevention representative and of Management and that all reports, advice, recommendations, opinions, findings, and anything else of pertinence, whether verbal or documentary, shall be confined to the Union and the Company. 41 29.05 In addition to the provisions of this agreement the parties undertake to respect Bill 17, an act respecting Occupational Health and Safety. 29.06 a) In implementing article 239 of the industrial accidents and occupational diseases act, the worker contemplated by this article would have to right to bump another employee with less seniority provided that he has the competence to accomplish the work with minimal training. b) If an employee cannot assume a position in Article 29.06 a), he or she may replace another employee with less seniority in a position determined by the Company and appropriate to his or her condition. ARTICLE 30 Discharge 30.01 In the event that an employee, other than a probationer, has been discharged and it is alleged that he has been unjustly dealt with, the Grievance and Arbitration procedure may be used. 30.02 In the case of lay-offs or recalls, a member of the grievance committee shall have the right to sign a grievance on behalf of the employee(s) concerned and submit it to the Personnel Manager within five (5) days. ARTICLE 31 Discipline 31.01 An employee who has been disciplined or suspended without just cause may make use of the Grievance and Arbitration procedure as herein provided. 31.02 a) No disciplinary notice shall be entered in the employee's file unless the matter has been discussed by the Company and the Union. b) Such notice shall be removed from the employee's file after a period of twelve (12) months provided there has been no repetition of the infraction. 42 ARTICLE 32 Employee working outside the bargaining unit. 32.01 The senior staff, the office staff and the Laboratory staff cannot perform any work normally performed under their supervision, except: a) in emergencies; b) for the purpose of instructing or training; c) for work of an experimental, development or investigating nature; d) for commissioning equipment. ARTICLE 33 Grievance Procedure 33.01 A grievance is any difference of opinion or dispute with respect to the interpretation, application or alleged violation of any provision of this agreement. Any employee who believes he has a justifiable grievance will discuss and attempt to settle it with his supervisor or, in his absence, the Department Head, with or without a Steward being present, as the employee may elect. The supervisor or Department Head will be expected to give a reply to such employee within three (3) days. Except for the delay specified in Article 30, a grievance shall be presented in writing within five (5) days of its occurrence in the following manner and sequence: 33.02 Step No. 1 One or more employees may submit a grievance in writing, accompanied by his Shop Steward or in his absence a member of the Executive Committee, to his supervisor who shall render the written decision of his department to the employee(s) concerned within five (5) days. 33.03 Step No. 2 If the employee(s) does not accept the decision of the Personnel Manager or if a decision is rendered within five (5) days, the Grievance Committee may, within ten (10) working administrative days, submit the written grievance to the Plant Manager who shall render his decision within seven (7) days. 33.04 The employee(s) who submits the grievance may attend the meetings of the Grievance Committee and the Company at the 2nd and 3rd steps of the grievance procedure if he so desires. 43 33.05 When an agreement has been reached at any stage of the grievance procedure it shall be put in writing and it shall be final and binding on all parties. 33.06 Saturdays, Sundays, holidays (as defined in Article 21), and scheduled days off shall not be counted in determining the time within which action has to be taken or completed under the grievance procedure. 33.07 Any adjustment arising out of the settlement of a grievance shall not be made retroactive to a date which is more than five (5) or fifteen (15) days prior to the date on which the grievance was presented as provided for in articles 33 and 30 respectively. 33.08 The parties will respect the delays defined in articles 33 et 34. These delays can only be extended by mutual agreement in writing or due to extenuating circumstances. 33.09 The Company and the Union may make use of the foregoing grievance procedure. 33.10 A grievance pertaining to policies, suspensions or a discharge will be submitted to the second level within fifteen (15) working administrative days from the incident which caused the need for the grievance. ARTICLE 34 Arbitration 34.01 A grievance involving any difference of opinion or dispute with respect to the interpretation of alleged violation of any provision of this agreement which has not been settled after being carried through the steps of the Grievance Procedure in accordance with Article 33, may be referred to Arbitration in accordance with the following procedure. 34.02 The Arbitration Board shall have jurisdiction to interpret the provisions of this agreement in so far as shall be necessary to the determination of the grievance, but shall not have jurisdiction or authority to alter in any way, add to, subtract from, or modify any of the terms hereof, or make any decision inconsistent with the provisions of this agreement. 44 34.03 When either of the parties decides to request arbitration, they will, at the same time, advise the other party. 34.04 Notice of reference to Arbitration shall be given in writing to the other party within thirty (30) full working days after the rendering of the decision by the Plant Manager or within thirty (30) full working days of the expiry of the delay provided for in Step No. 2 of the Grievance Procedure. All grievances referred to arbitration will be heard by a single arbitrator selected by the parties. If the parties cannot agree on the choice of an arbitrator during the thirty (30) working days following the notice of reference to Arbitration as defined above, an arbitrator will be appointed by the Minister of Labour. The letter to the Minister of Labour requesting the appointment of an arbitrator must be sent within sixty days following the notice of reference to Arbitration. If the notice of reference to Arbitration is not given within the specified delay or if the letter to the Minister of Labour is not sent within the specified delay, the grievance shall be deemed to have been abandoned and shall not be entitled to consideration thereafter. 34.05 If either party desires the grievance to be heard by a three-man board, the parties will each appoint a representative. The role of the representatives will be to advise the Arbitrator who shall decide upon the grievance, and to deliberate with him. The representatives may register their agreement or disagreement with the decision of the Arbitrator and may render written opinions; however, these opinions must not delay the decision of the Arbitrator. 34.06 The decision of the Arbitrator is final and binding on the parties. 34.07 The decision of the Arbitrator shall be rendered in writing to both parties within thirty (30) days after the completion of the hearings. 34.08 Each party shall bear the expense of its representative as well as half of the fees and expenses of the Arbitrator. 45 34.09 In cases of suspension or discharge judged unjust, by the Arbitrator, he will have the authority to order the rehiring of the employee and the reimbursement of salary and benefit loses incurred, however, he will take into account any salary earned by the employee during the interval. 34.10 The award of the Arbitration Board shall not be made retroactive to a date which is more than five (5) days or fifteen (15) days prior to the date on which the grievance was presented as provided for in articles 33 and 30 respectively. ARTICLE 35 Strikes and Lockouts 35.01 The Company agrees that it will not cause or direct any lockout of its employees and the Union agrees that there will be no strike or other collective action which will stop, curtail or interfere with work during the life of this agreement. 35.02 It is understood that any employee or employees taking any action contrary to the provisions of paragraph 35.01 may be subject to discharge. 46 ARTICLE 36 General Pension Plan 36.01 a) The parties agree that the revised pension plan will remain in effect for the duration of this agreement. b) Employees absent from work due to illness or injury may maintain full credited pension service by repaying missed pension premiums on the basis of the following formulas: employees must repay 60% of the missed premiums. Although employees will have no premiums to reimburse when on weekly indemnity. c) The basic provisions of the pension plan are as follows: Membership: Compulsory after twelve (12) months of service. Normal Pension: Normal annual pension is 1.25% of the average of the employee's best three (3) year's earnings multiplied by the number of years of credited service. Full earned pension at age 60 provided employees have 25 or more years' seniority. As of December 1st, 1996, this will be reduced to 20 years or more of seniority. As of December 1st, 1996, a bridging of $200 per month from age 60 to 65 will be given to employees on full pension. Health Insurance: Company will pay the full cost of health insurance (Major Medical) for retirees to age 65. Group Insurance 36.02 a) It is understood that the administrative changes which the employer could make to said system should not have the effect of diminishing the group insurance benefits, as described in the master policy. b) The Company shall furnish to the Union at least once annually a copy of any financial or other report of the operation of the plan made to it by the underwriter. Dividends or other rebates made by the underwriter to the Company shall be shared equally by the employees or shall be applied against the increased costs, if any, of improved benefits. 47 c) Group insurance benefits mutually agrees upon and effective on the date of signature of the collective labour agreement are as follows: Life Insurance $45,000 Accidental Death and Dismemberment (additional) $45,000 Weekly Indemnity Benefit a) The weekly indemnity will be seventy percent (70%) of the employee's weekly salary, determined by multiplying by 40 the hourly rate of his posting on the first day of his absence. b) Minimum of $560. per week. c) Reduced of all other benefits provided by the various governmental legislations up to a total of 90% of the employee's salary. d) The weekly indemnity will end at age 65, on the retirement date that the employee would have indicated when the choice of pension payments has been signed off, or when deceased. Weekly Indemnity Payments For a period of 41 weeks and the payments will commence on the 1st day in cases of accidents and hospitalization. In other cases of illness, payments will commence on the 3rd day. Waiting Period If an employee is absent on insurance for one week or more the two-day waiting period will be paid. Long Term Disability Benefit An employee who has exhausted his weekly indemnity will be eligible to receive, with satisfactory medical evidence, the long term disability benefit. a) The long term disability benefit will be sixty percent (60%) of the employee's monthly salary, determined by multiplying by 2080 and dividing by twelve the hourly rate of the employee's posting during his first day of absence, and up to a maximum of $2000 per month. b) The amount of the benefit will be reduced by all other benefits provided by various government legislations including unemployment insurance. 48 c) The benefit will be paid in two equal instalments per month. d) The long term disability benefit will be for two years if the employee is incapacitated only with respect to his posting, or will be extended up to age 65 if the employee is totally disabled according to an insurer. e) Although after two years of incapacity in his posting, an employee who has acquired 15 years of service and a total of years of service and age equal to 65, and who is unable to work in a position at Sterling according to the standards of the November 25th 1988 agreement, will continue to receive the long term disability benefit up to the age when the employee can take his retirement without actuarial reductions. f) The benefit will end when the employee is no longer disabled or when deceased. Hospital Benefit Semi-private unlimited Injections not paid by Quebec Health insurance Major Medical Benefit Deductible - 25.00$/family Basis of payment - 100% Includes Paramedical benefits. Maximum $15,000 per year per person of medical coverage. Membership Compulsory after three (3) months continuous service. In the event of the lay-off of employees with seniority all group insurance benefits, except the weekly indemnity benefit, will remain in effect until the end of the next complete calendar month following the effective date of the lay-off. Retired Employees Death Benefit On retirement an employee will receive a paid-up Group Death Certificate payable to his named beneficiary based upon a formula of $100.00 for each completed year of service with a minimum benefit of $500.00. 49 36.03 a) Dental Programme - Basic preventative care, 100% reimbursement. - Endodontic and periodontic treatments (root canals and gum treatments), 100% reimbursement. - Major restoration care (crowns, bridges, dentures), 50% reimbursement up to a maximum of $1,500 per calendar year per person. - All reimbursements are according to the applicable Provincial Dental Association's current rates. b) Eye Care Fifty percent (50%) of costs associated with glasses, replacement lenses, contact lenses, and eye examinations up to a maximum of 150.00$ per two calendar years and for each member of the family. 36.04 Should any employee require medical advice during the hours that the doctor is in attendance, he shall ask the Foreman or in his absence the Foreman's assistant for permission to be absent for the necessary time. During the normal working hours, the Company will pay for time lost to receive medical treatment or examination due to industrial illness or accident at work if Quebec Workmen's Compensation benefits do not apply. The Company will pay up to one (1) hour at the employee's regular straight time rate for time lost to receive medical treatment for a chronic illness. Exceptional cases will be considered on the basis of merit and circumstances 36.05 The official test is as provided by law. 36.06 When a new contract is being negotiated the conditions of the old contract will remain in force. 36.07 Rules and Regulations In order to maintain discipline and in the interests of safety and economy of operations and for the protection of persons and property, reasonable general rules covering plant discipline and regulations will be posted as a guide to individual conduct at the plant and a copy will be made available to each employee. In order to effectively inform Union representatives of the intent and application of such regulations the Company agrees to periodically review existing rules with the Union Executive and to communicate new rules and their purpose prior to their implementation. 50 The Company will objectively consider any recommendations made by the Union concerning such rules and their application. It is understood that any rule which allegedly violates or abuses the rights of an employee under this agreement, shall be the subject of a grievance and dealt with under the Grievance Procedure. 36.08 Handicapped Employees If an employee incurs a disability which in the opinion of the Company Doctor and the employee's doctor, if he so desires, prevents him from performing his regular work but which does not render him incapable of carrying out other duties in the bargaining unit, the Company will review any jobs which it deems suitable to the employee's disability and will make reasonable effort to arrange the establishment of such employee in a satisfactory position. The Company will consider the recommendations of the Company Doctor and the employee's doctor, is he so desires, in making any reassignment of such employee. 36.09 The disability benefit programme shall be considered an integral part of the current collective agreement. 36.10 The memorandums of agreement signed by the parties shall be considered an integral part of this agreement. 36.11 The Company and the Union mutually agree to deal in a cooperative, constructive, and confidential manner with the problem of alcoholism and drug abuse of employees. The Company and the Union recognize that alcoholism and drug abuse are a sickness that can and must be treated with the services covered by the collective and governmental insurances. The Company will strive to assist as much as possible the work of individuals facilitating the employee assistance program. 51 ARTICLE 37 Duration 37.01 This agreement shall remain in force for a three (3) year period up to and including the 30th of November 1997. Either party will give notice in writing to the other party within ninety (90) days preceding the expiration of this agreement of its intention to terminate the agreement or to seek amendments thereto. 52 In witness whereof the parties to this Agreement have signed at Buckingham (Quebec), this 29th day of June 1993. For PRODUITS CHIMIQUES STERLING Carl Yank /s/ Carl Yank ---------------------------------- Plant Manager Alain Lahaie /s/ Alain Lahaie ---------------------------------- Production Manager Dominic Laska /s/ Dominic Laska ---------------------------------- Maintenance Manager 53 For CANADIAN COMMUNICATIONS, ENERGY AND PAPER UNION Denis Periard /s/ Denis Periard ---------------------------------- President Scott Quaile /s/ Scott Quaile -------------------------------- Vice-President Marc Beauchamp /s/ Marc Beauchamp ------------------------------------ Recording-Secretary Remi Matte /s/ Remi Matte ------------------------------ Secretary-Treasurer Alfred Theobald /s/ Alfred Theobald ------------------------------------ National Representative 54 APPENDICE "A" - APPENDIX "A" CATEGORIES ET TAUX - CATEGORIES AND RATES
CATEGORIES EN VIGUEUR - EFFECTIVE INGENIERIE / ENGINEERING 1er dec.94 1er dec.95 1er dec.96 ---------------------- ---------- ---------- Technicien en instrumentation / Instrumentation Technician 21.83 22.31 22.98 *-Mecanicien de machines fixes / Stationary Engineman 21.54 22.01 22.67 *-Briqueteur "A" / Bricklayer "A" 20.97 21.43 22.07 Electricien "A" / Electrician "A" * Machiniste "A" / Machinist "A" Mecanicien d'instrumentation "A" / Instrument Mechanic "A" Tuyauteur "A" / Pipefitter "A" Mecanicien monteur "A" / Millwright "A" *-Menuisier "A" / Carpenter "A" Soudeur "A" / Welder "A" *-Peintre / Painter 20.25 20.70 21.32 *-Operateur Centrale electrique / Power House Operator 20.09 20.53 21.15 Intermediate B-1 20.13 20.57 21.19 *-Briqueteur "B" / Bricklayer "B" 19.65 20.08 20.68 Electricien "B" / Electrician "B"
* Machiniste "B" / Machinist "B" Mecanicien d'instrumentation "B" / Instrument Mechanic "B" Tuyauteur "B" / Pipefitter "B" Mecanicien monteur "B" / Millwright "B" *-Menuisier "B" / Carpenter "B" Soudeur "B" / Welder "B" *-Classification inactive / Inactive classification. 55 APPENDICE "A" - APPENDIX "A" CATEGORIES ET TAUX - CATEGORIES AND RATES
CATEGORIES EN VIGUEUR - EFFECTIVE INGENIERIE / ENGINEERING 1er dec.94 1er dec.95 1er dec.96 ---------------------- ---------- ---------- Intermediate C-1 19.36 19.79 20.38 *-Briqueteur "C" / Bricklayer "C" 19.03 19.45 20.03 Electricien "C" / Electrician "C" * Machiniste "C" / Machinist "C" Mecanicien d'instrumentation "C" / Instrument Mechanic "C" Tuyauteur "C" / Pipefitter "C" Mecanicien monteur "C" / Millwright "C" *-Menuisier "C" / Carpenter "C" Soudeur "C" / Welder "C" *-Aide entretien / Maintenance Helper 18.57 18.98 19.55 Journalier / Labourer 18.44 18.85 19.42 Journalier / Labourer 17.44 17.82 18.35 (premier 6 mois d'emploi total / first 6 months of total employment)
*-Classification inactive / Inactive classification. 56 SALAIRES MULTI-METIERS / MULTI-TRADE SALARIES
1ER DEC. 1994 1ER DEC. 1995 1ER DEC. 1996 ------------- ------------- ------------- A-C2 21.21 21.67 22.32 A-C1 21.43 21.90 22.56 A-B2 21.68 22.16 22.83 A-B1 21.90 22.39 23.07 A-A 22.37 22.86 23.55 A-A Tech. en instrumentation 23.24 23.75 24.47
57 PRODUCTION
1ER DEC/ 1994 1ER DEC. 1995 1ER DEC. 1996 ------------- ------------- ------------- Chef d'equipe Chlorate / Chlorate Lead Hand 21.83 22.31 22.98 Operateur - Niveau 1 Chlorate / Operator - Level 1 Chlorate 20.97 21.43 22.07 Chef d'equipe Chlorite / Chlorite Lead Hand 20.42 20.87 21.50 Operateur - Niveau 2 Chlorate / Operator - Level 2 Chlorate 20.32 20.77 21.39 Operateur - Niveau 3 Chlorate / Operator - Level 3 Chlorate 19.79 20.23 20.84 Prepose aux entrepots / Warehouse Services 19.25 19.67 20.26 Equipe de service - Chlorate / Chlorate Services Team Operateur sechoir Chlorite / Chlorite Dryer Operator Emballeur Chlorite / Chlorite Packer 18.44 18.85 19.42 Chef d'equipe concierge / Janitor Lead Hand 18.44 18.85 19.42 Concierge / Janitor 17.87 18.26 18.81
58
COUR / YARD 1ER DEC. 1994 1ER DEC. 1995 1ER DEC. 1996 ------------- ------------- ------------- *-Mecanicien du garage / Garage Mechanic 20.97 21.43 22.07 *-Chef d'equipe - Cour / Yard Lead Head 20.09 20.53 21.15 *-Chauffeur de camion remorque / Tractor Trailer Driver 19.89 20.33 20.94 *-Expediteur / Shipper *-Operateur de chargeur mecanique / Payloader Operator 19.25 19.67 20.26 *-Chauffeur de camion / Truck Driver 18.95 19.37 19.95 *-Operateur de chariot elevateur / Forklift Operator 18.57 18.98 19.55 *-Fabricant de palettes / Pallet Maker 18.44 18.85 19.42
*-Classification inactive / Inactive Classification. 59 APPENDIX "B" Payroll Deduction Authorization Date 19_______ I, the undersigned, hereby authorize and request Produits Chimiques Sterling in accordance with the Agreement between the Company and the Union to deduct Union dues and initiation fees levied against all Union members in amounts as notified to the Company by the Secretary-Treasurer in writing, from my wages and to pay such amount to the Secretary-Treasurer of Local 169 (FTQ) of the Canadian Communications, Energy, and Paper Union, CTC (S.C.E.P.) I understand that refusal to pay this amount makes me liable to dismissal from the Company's employ. Signature of this card cancels any previously signed deduction card. Employee #________ Witness_____________________________________________________ 60 APPENDICE "C" The job descriptions which have been agreed to by the parties will form an integral part of the collective agreement. Each job description will be initialled by the parties when agreement has been reached.
DATE DATE -------- ------------ Descrip. des taches de la class. convenue d'amendement List of job descriptions Agreed Amended - -------------------------------- -------- ------------ *-Briqueteur "A" / Bricklayer "A" Mar./72 Aout/Aug./83 *-Menuisier "A"/ Carpenter "A" Mar./72 Aout/Aug./83 Electricien "A"/ Electrician "A" Mar./72 6 Nov./77 Mec. d'inst."A"/Inst. Mec."A" Mar./72 * Machiniste "A"/ Machinist "A" Mar./72 Aout/Aug./83 Mec. monteur "A"/ Millwright "A" Mar./72 Mec.de tuyauterie "A"/Pipefitter"A" Mar./72 6 Nov./77 *-Mec.de machines fixes/Stat. Engineman Mar./72 *-Travailleur d'acier"A"/Steel Wker"A" Mar./72 *-Ferblantier "A"/ Tinsmith "A" Mar./72 Aout/Aug./83 Soudeur "A"/ Welder "A" Mar./72 *-Peintre / Painter Mar./72 6 Nov./77 *-Monteur / Rigger Mar./72 *-Oper.central elect. / Power House Op. Mar./72 *-Menuisier "B" / Carpenter "B" Aout/76 Aout/Aug./83 Electricien "B" / Electrician"B" Aout/76 * Machiniste "B" / Machinist "B" Aout/76 Aout/Aug./83 Mecanicien monteur "B" /Millwright"B" Aout/76 Mec. de Tuyauterie"B"/Pipefitter"B" Aout/76 Soudeur "B" / Welder "B" Aout/76 *-Menuisier "C" / Carpenter "C" Aout/76 Aout/Aug./83 Electricien "C" / Electrician "C" Aout/76 * Machiniste "C" / Machinist "C" Aout/76 Aout/Aug./83 Mec. monteur "C"/Millwright"C" Aout/76 Mec. de Tuyauterie "C"/Pipefitter"C" Aout/76 Soudeur "C" / Welder "C Aout/76 *-Aide entretien / Maintenance Helper Aout/76 * Journalier-entretien/Maint. Labourer Aout/76
*-Classification inactive. 61
DATE DATE Desc. des taches de la classification convenue d'amendement List of job descriptions Agreed Amended - ------------------------ ------ ------- *-Emballeur - Chl. / Chl. Packer Mar./72 *-Mec. du garage / Garage Mechanic Mar./72 Aout/Aug./83 *-Chef d'equipe-Cour / Yard Lead Hand Aout/76 Aout/Aug./83 *-Chauf.-camion remor./Trac.Trail.Driv. Mar./72 *-Expediteur / Shipper *-Oper.de chargeur mec./Payloader Oper. Mar./72 *-Chauffeur de camion / Truck Driver Mar./72 *-Oper. de chariot elev./Forklift Oper. Mar./72 *-Fabricant de palettes / Pallet Maker Mar./72 Chef d'equipe concierge/Janitor L.H. Mar./72 Journalier de la cour / Yard Labour Aout/76 Concierge / Janitor Mar./72 Chef d'equipe - Chlorate Avr.29/91 Mai/93 Chef d'equipe - Chlorite Avr.29/91 Mai/93 Operateur - Niveau 1 Chlorate Avr.29/91 Mai/93 Operateur - Niveau 2 Chlorate Avr.29/91 Mai/93 Operateur - Niveau 3 Chlorate Avr.29/91 Mai/93 Operateur sechoir Chlorite Avr.29/91 Mai/93 Emballeur Chlorite Avr.29/91 Mai/93 Equipe de service Avr.29/91 Mai/93 Prepose a l'entrepot Avr.29/91 Mai/93
APPENDIX "D" The details of the trades training programme and system of progression form an integral part of the collective agreement. 62 APPENDIX "E" TWELVE (12) HOUR SCHEDULES 1. GENERAL 1.1 Some sections of this collective agreement contain specific references to provisions that apply only to employees on twelve (12) hour shifts. 1.2 If the only change is from one regular work schedule to another, no bonus shall be paid to the employee during the first week. 1.3 Each employee's pay shall be calculated on the basis of hours worked per week. 1.4 Only schedules accepted by the Union Committee and the Company may be used in the various sectors. 1.5 Employees working twelve (12) hour shifts shall have the opportunity to work an average of forty (40) hours during their rotation. 1.6 Employees who do not work an average of forty (40) hours per week during their rotation shall have the choice of working catch-up shifts, which shall be remunerated at regular rates. 1.7 Overtime shall consist of any authorized time in excess of twelve (12) daily hours any day or hour in addition to the regular weekly schedule. 63 2. 12-HOUR/7-DAY SCHEDULE - ----------------------------------------------------------- 1 5 9 2 6 10 3 7 11 4 8 12 - ----------------------------------------------------------- S M T W T F S S M T W T F S S M T W T F S S M T W T F S - ----------------------------------------------------------- - ------------------------------------------------------------ "Day" - ------------------------------------------------------------ [S] C A A B B D D D C C A A B B B D D C C A A A B B D D C C - ------------------------------------------------------------ "Night" - ------------------------------------------------------------ B D D C C A A A B B D D C C C A A B B D D D C C A A B B - ------------------------------------------------------------ "Shift off" - ------------------------------------------------------------ D C C A A B B B D D C C A A A B B D D C C C A A B B D D - ------------------------------------------------------------ "Shift off" - ------------------------------------------------------------ A B B D D C C C A A B B D D D C C A A B B B D D C C A A - ------------------------------------------------------------ 2.1 The Twelve (12) hour shift schedule for employees not on rotating shifts shall be established for a twelve (12) week cycle. Once every twelve (12) weeks, employees shall have an additional two (2) shifts off, to result in an average of forty (40) hours a week. 2.2 Employees on this schedule shall have two (2) extra shifts off every twelve (12) weeks, on Monday and Tuesday for the day shift. Operators will have these two (2) shifts off in the weeks # 1-4-7-10. 2.3 In a week with a single statutory holiday, employees who work all regular hours on days other than the holiday shall be paid for four (4) additional hours at their regular hourly rate. 2.4 In a week with two (2) statutory holidays, employees who work all regular hours on days other than the two (2) holidays shall be paid for eight (8) additional hours at their regular rate. However, employees whose regular schedule requires that they work one (1) of the two (2) statutory holidays shall be paid for four (4) additional hours at their regular hourly rate, provided they work all the hours in the week. 64 Employees may choose to accumulate the above mentioned hourly rates according to the provisions of paragraph 21.06. 3. 12-HOUR RELIEF SCHEDULE 3.1 The following provisions apply only to "relief workers" and other employees who do not work constantly on rotating twelve (12) hour shifts. 3.2 The shift schedule for relief employees included in this appendix reflects typical schedules for normal operating conditions, but changing conditions may require other schedules. 3.3 The work cycle shall be six (6) consecutive weeks. 3.4 Employees on the six (6) week cycle may be required to work twelve (12) and eight (8) hour shifts. 3.5 Relief workers shall not be scheduled to work more than two (2) consecutive thirty-six (36) hour weeks. 3.6 If an employee is scheduled to work four (4) regular twelve (12) hour shifts in three (3) consecutive weeks, the fourth shift worked in the third week shall be remunerated at overtime rate. 3.7 Relief workers may be scheduled to work only thirty-two (32) hours in a week if this is required to balance their regular working hours at an average of forty (40) hours a week. If necessary relief employees may be scheduled to work thirty-two (32) hours in a week in order to balance their regular hours of work to an average of forty (40) hours per week. 65 3.8 Relief Operator Schedule - ----------------------------------------------------------- 1 5 9 2 6 10 3 7 11 4 8 12 - ----------------------------------------------------------- S M T W T F S S M T W T F S S M T W T F S S M T W T F S - ----------------------------------------------------------- - ------------------------------------------------------------ "Day" - ------------------------------------------------------------ C A A B B D D D C C A A B B B D D C C A A A B B D D C C - ------------------------------------------------------------ "Night" - ------------------------------------------------------------ B D D C C A A A B B D D C C C A A B B D D D C C A A B B - ------------------------------------------------------------ "Shift off" - ------------------------------------------------------------ D C C A A B B B D D C C A A A B B D D C C C A A B B D D - ------------------------------------------------------------ "Shift off" - ------------------------------------------------------------ A B B D D C C C A A B B D D D C C A A B B B D D C C A A - ------------------------------------------------------------ NOTE: In a week when they replace the regular operator on 12 week leave: the reliefs will work the typical two (2) twelve (12) hour shifts and two (2) eight (8) hour shifts, unless they are needed to replace employees taking floaters on days other than those when the 12 week leave is taken. When the employee does not work as a relief, the employee will work a typical 40 hour week (five (5) days of eight (8) hours), or will be replacing other employees off due to sickness, vacations, or accumulated statutory holidays. A. Relief employees working on eight (8) hour shifts will execute various tasks. B. There are no guarantees that the relief employees will have all week-ends off, nevertheless these employees will not be scheduled for work during a week-end for more than two (2) consecutive week-ends, nor for four (4) consecutive nights. These restrictions apply only to relief operators. With respect to section B only, a week-end starts at 4 p.m. on Friday and ends at 6:30 a.m. on Monday (or 7:30 a.m. depending on the schedule). C. When the relief operator works a regular schedule to replace employees on vacation or sick leave, the employee can maintain this schedule even during a week when there is a 12 week leave. If the employee wishes to change his schedule to replace this leave, the employee can make a request for this. 66 4. 12-HOURS SCHEDULES - 5 DAYS --------------------------- - ----------------------------------------------------------- S M T W T F S - ----------------------------------------------------------- - ----------------------------------------------------------- "A" ------ O NIGHT NIGHT NIGHT O O O - ----------------------------------------------------------- "B" ------- O 0 0 DAY DAY DAY O - ----------------------------------------------------------- "C" -------- O DAY DAY 0 NIGHT NIGHT O - ----------------------------------------------------------- Working conditions for employees assigned to 12-hour schedules, 5 days a week, are the following: 4.1 The work cycle shall be three (3) consecutive weeks. 4.2 If a statutory holiday is not observed, employees shall be remunerated as follows: a) All employees shall receive "eight 8 hours" of pay for the statutory holiday. b) Employees may choose to accumulate these statutory holidays in accordance with the terms of Article 21.06. c) Employees working the "day" shift on the holiday shall be paid twelve (12) hours at time and a half, i.e. eighteen (18) hours. d) Employees working the NIGHT shift on the holiday shall be paid: 4 hours at time and a half: 6 hours 8 hours at double time: 16 hours 22 hours 4.3 If a statutory holiday is observed, employees shall be remunerated as follows: a) All employees shall receive "eight 8 hours" of pay for the holiday. b) In a week containing a statutory holiday, employees who work all regular hours on days other than the holiday may choose to accumulate the holiday. 67 5. 12-HOURS SCHEDULES - 3 DAYS - ----------------------------------------------------------- S M T W T F S - ----------------------------------------------------------- - ----------------------------------------------------------- "A" ------ O DAY DAY DAY DAY (8) O O - ----------------------------------------------------------- "B" ------- O NIGHT NIGHT NIGHT 0 0 O - ----------------------------------------------------------- Working conditions for employees assigned to 12-hour schedules, 3 days a week, are the following: 5.1 The work cycle shall be two (2) consecutive weeks. 5.2 This schedule can be started on a Monday or a Tuesday according to the discretion and needs of the Company. 5.3 If a statutory holiday is not observed, employees shall be remunerated as follows: a) All employees shall receive "eight 8 hours" of pay for the statutory holiday. b) Employees may choose to accumulate these statutory holidays in accordance with the terms of Article 21.06. c) Employees working the "day" shift on the holiday shall be paid twelve (12) hours at time and a half, i.e. eighteen (18) hours. d) Employees working the NIGHT shift on the holiday shall be paid: 4 hours at time and a half: 6 hours 8 hours at double time: 16 hours 22 hours 5.4 If a statutory holiday is observed, employees shall be remunerated as follows: a) All employees shall receive "eight 8 hours" of pay for the holiday. b) In a week containing a statutory holiday, employees who work all regular hours on days other than the holiday may choose to accumulate the holiday. 68 6. Equilibration Method 6.1 At the end of each equilibration period, hours worked (excluding overtime) beyond four hundred and eighty (480) hours for regular employees (12 hours / 7 days) and two hundred and forty (240) hours (12 hours / 5 days or 12 hours/3 days) and for other employees shall be considered overtime and adjusted accordingly. Solely for the purposes of this clause, half of the overtime shall be paid at time and a half the regular hourly rate and the other half at double the regular rate. 6.2 In the vent of absences caused by vacations, illness or other reasons, the hours the employee would have normally worked shall be used for equilibration purposes. 6.3 Hours worked for equilibration purposes in the previous cycle shall not be counted in the next cycle. 69 APPENDIX "F" December 15, 1994 M. Denis Periard President S.C.E.P. (FTQ), Local 169 Buckingham (Quebec) LETTER OF AGREEMENT This letter confirms an agreement reached between the Company and Union during negotiations of the collective agreement. The parties agree to maintain the maintenance multi-trades concept in accordance with the following basic principles that were introduced in 1985: Eligibility Class "A" tradesmen presently working in the Maintenance Department. Participation Voluntary Choice of Trade According to needs and logical combinations. Selection By Job Posting. Training Under the direction of the Adult Education section of the Papineau Regional School Board and the Department of Education. 70 Progression Training and examinations according to the existing structure. Training Wages Payment at straight time rate for formal training hours including examinations. Job Security In case of lay-off, seniority in the base trade will apply. Basic Trade The Company undertakes to maintain a representation of the following basic trades: Instrumentation Electrician Pipefitter Millwright Welder Definition: Basic Trade The first trade an employee has when hired if not the first trade acquired during employment with the Company. Multi-Trade Concept The Company will use employees in a base trade on a preferential basis. the 2nd trade will be used: a) when there is not sufficient work in the 1st trade; b) when the work requires the skills of a 2nd trade; c) for training purposes and/or to maintain the competence of the 2nd trade. Administration By a Company-Union Committee. Wages: As described in Appendix A. This letter forms part of the collective agreement signed on December 15, 1994. Carl Yank Plant Manager 71 Diagram of Rates Schedule, December 1994 72 Diagram of Rates Schedule, December 1995 73 Diagram of Rates Schedule, December 1996 74 APPENDIX "G" Letter of Agreement November 29, 1994 M. Denis Periard President S.C.E.P. (FTQ), Local 169 Buckingham (Quebec) Letter of Agreement The parties agree that it is in their mutual interest to have a policy of on- going dialogue by means of a Labour/Management Committee. This dialogue will enable each party to function better by exchanging information on the activities at the plant. In addition, this will permit employees, as well as the local and national Union, to express their opinion on the content and implementation of significant programs for employees. The dialogue may focus on but not be limited to the following areas: job security, employment programs, progressing technology, contracting out, plant competitiveness and efficiency, communications, union effectiveness, hours of work, training requirements, projections regarding future opportunities and studies i.e. impact and social consequences of new technology. More specifically, the parties agree to discuss during the life of this agreement: the employee assistance program, the implementation of ISO9002, and the preventive maintenance program. It is agreed that matters which fall under the general provisions of the grievance and arbitration procedures will be resolved in accordance with these procedures. 75 It is further agreed that this Letter of Agreement shall be in force for the duration of the collective agreement expiring November 30, 1997 and shall continue only upon the mutual agreement of the parties. Carl Yank Plant Manager 76 APPENDIX H Letter of Intent September 22, 1993 M. Denis Periard President S.C.E.P. (FTQ) Local 169 Buckingham (Quebec) This letter confirms the agreement taken on September 17, 1993 between the Company and the Union. It was agreed that when employees are hired on the same date, the Company will evaluate each employee at the end of their probation period in order to assign an order to their seniority. This order will apply on all articles of the collective agreement until the employee loses his seniority. For employees hired before September 17, 1993, this agreement will be applied only if all employees of a group, in a distinct and unanimous way, so desire. If a unanimous agreement is not reached in a group, this agreement will not be valid for this group and the employees will maintain equal seniority. Carl Yank Plant Manager 77 APPENDIX "I" Vacation Selection Procedure - - Vacation schedules will be posted in all departments by February 1st. - - Vacations will be selected in units of 2 weeks with priority based on plant seniority. Coloured pencils will be used to indicate the sequence of selection. e.g. 1st selection of 2 weeks RED 2nd selection of 2 weeks GREEN 3rd selection of 2 weeks BLACK - - There will be a limit of 3 weeks for each selection sequence. - - Vacations must be taken in units of 1 calendar week. - - In departments with continuous operations, vacations may be taken in a block of two (2) weeks during the Christmas and New Year's period if the employee expresses this period in his first choice of vacation. In order to enable a fair distribution of this benefit, the opportunity of taking the block of two weeks can be limited to once per five year period. Problems arising from the application of this clause will be revised by the committee identified in 22.11. - - The deadline for vacation scheduling is May 1st. Employees who do not schedule all their vacations by May 1st cannot use their seniority to "bump" another employee after that date. ACCUMULATED DAYS OFF AND PERMISSION - - After May 1st employees may schedule accumulated days off or time off with permission by contacting their foreman. Priority will be on a "first come, first served" basis and approved time off will be recorded on the vacation schedule. Seniority will only apply where more than one employee simultaneously request the same week off. The supervisor is responsible for recording approved time off on the vacation schedule. 78 ADVANCE VACATION PAY IT IS THE RESPONSIBILITY OF THE EMPLOYEE TO SUBMIT HIS REQUEST FOR ADVANCE VACATION PAY TO THE PERSONNEL DEPARTMENT. REQUESTS MUST BE SUBMITTED AT LEAST 2 WEEKS BEFORE THE COMMENCEMENT OF THE VACATION. 79 APPENDIX "J" Letter of Agreement November 29, 1994 M. Denis Periard President S.C.E.P. (FTQ) Local 169 Buckingham, Quebec In order to finalize the introduction of the new chlorate organizaton, it is agreed that the following employees will have transitional salaries: D. Lanthier, L. Lawlis, D.Periard, R. Murphy and R. Theoret. This transition will enable their existing salary, fixed at the Operator Level I on November 29, 1992, to gradually reach the salary of their present respective positions of Operator Level 2 or Lead Hand chlorite. The transition will be accomplished by applying yearly salary increases equivalent to the agreed increases less 1%. It is understood that the employee will be freed of this agreement if he obtains by posting another position. Carl Yank Plant Manager 80 APPENDIX "K" Letter of Agreement November 29, 1994 M. Denis Periard President S.C.E.P. (FTQ) Local 169 Buckingham, Quebec It is agreed that employees who complete their 8,000 hours of apprenticeship in their second trade and subsequently pass the requirements for their class "AA" certification, will have the right to a retroactivity. This retroactivity will be the difference in salary between the class "AA" and class "AB1" wages for a maximum period of nine months between the end of his 8,000 hours and receiving the certification of a class "AA". Professional and personal situations can be taken into consideration to extend the retroactivity. This period enables the employee to make three (3) attempts at passing the certification testing. Carl Yank Plant Manager 81 APPENDIX L Letter of Agreement December 15, 1994 M. Denis Periard President S.C.E.P. (FTQ) Local 169 Buckingham (Quebec) This letter confirms the agreement taken between the Company and the Union on the removal of the machinist position from the basic trades in Appendix F of the collective agreement. M. Rene Caya will be given the choice of pipefitter or millwright as first trade. The employee will maintain his "AA" classification in both trades. The employee can decide to be discharged and obtain his severance if he so desires. Carl Yank Denis Periard Plant Manager President Local 169 EX-10.54 11 EXHIBIT 10.54 EXHIBIT 10.54 COLLECTIVE LABOUR AGREEMENT BY AND BETWEEN PRODUITS CHIMIQUES STERLING BUCKINGHAM, QUEBEC AND OFFICE AND PROFESSIONAL EMPLOYEES INTERNATIONAL UNION LOCAL 480 - C.L.C. BUCKINGHAM (QUEBEC) JUNE 25, 1995 TO NOVEMBER 14, 1997 ----------------------------------------------
INDEX --------------------------------------- ARTICLES PAGES --------------------------------------- ----- GENERAL PURPOSE 3 1 RECOGNITION 3 2 UNION SECURITY 4 3 MANAGEMENT RIGHTS 5 4 VACATIONS 5 5 HOLIDAYS 8 6 LEAVE OF ABSENCE 10 7 SENIORITY 11 8 DISCHARGE AND DISCIPLINE 14 9 INSURANCE AND PENSION 15 10 BULLETIN BOARDS 18 11 HOURS OF WORK 18 12 OVERTIME & PREMIUM PAYMENTS 19 13 WORK SCHEDULES & RATES OF PAY 22 14 REST PERIODS 23 15 GRIEVANCE PROCEDURE 24 16 ARBITRATION 25 17 SICK LEAVE 26 18 BEREAVEMENT LEAVE 26 19 SEPARABILITY 27 20 SAFETY AND HEALTH 27 21 GENERAL 27 22 EFFECTIVE DATE OF DURATION OF AGREEMENT 29 APPENDIX "A" 31 APPENDIX "B" 31 APPENDIX "C" (Schedule of weekly rates) 32 APPENDIX "D" (12 hour schedule) 34 LETTER OF AGREEMENT 39 LETTER OF AGREEMENT 42 LETTER OF AGREEMENT 43 LETTER OF AGREEMENT 44
3 COLLECTIVE LABOUR AGREEMENT --------------------------------------- by and between Produits Chimiques Sterling and Office and Professional Employees International Union Local 480 - C.L.C. GENERAL PURPOSE - --------------- The purpose of and consideration for this agreement is to provide orderly collective bargaining relations between the Company and the Union on matters covered by this agreement, to secure prompt disposition of grievances, to establish wages, hours and working conditions for the employees covered by this agreement. ARTICLE 1 - RECOGNITION - ----------------------- 1.01 The employer agrees to recognize the Union as the sole collective bargaining agent for salaried employees as certified by the attached request dated August 23rd, 1995 in accordance with Article 39 of the Labour Relations Board of the Province of Quebec. 1.02 The words employee and employees when used in this agreement shall mean persons in the employ of the Company within the bargaining unit, described in Article 1 - Recognition and covered by this agreement. 1.03 Employees of the Company not included in the Bargaining Unit will not work on any job covered by this agreement, except:- (a) For the purpose of instructions or training; (b) In the case of emergencies as defined in 13.03 (c); (c) For work of an experimental, development or auditing nature; (d) For start-up of new equipment; (e) When regularly assigned employees are not available to report to work. 1.04 The Company will discuss with the Union any newly created position which the Union considers should be included in this bargaining unit. 4 ARTICLE 2 - UNION SECURITY - -------------------------- 2.01 The Union agrees that: (a) There will be no Union activity during Company time; (b) There shall be no strikes or other action which would stop or interfere with production and that if any such action should be taken, it will instruct its members to carry out the provisions of this agreement by returning to work and by performing their duties. 2.02 The Company agrees that: (a) The Company will collect the initiation fees and dues for the Union and will remit such deductions to the Secretary-Treasurer. The initiation fee will be deducted from the employee's wages when he joins the Union. The Secretary-Treasurer will advise the Company in writing, of the names of the employees from whom such deductions will be made. The employees will authorize the Company to make the deductions on the forms attached hereto as Appendix "A" and "B"; (b) It will not cause or direct any lock-out of any employee so long as this agreement is in effect. 2.03 As a condition of continued employment, all present employees covered by this agreement shall become members of the Union within thirty (30) days of signing of this agreement and all new employees covered by this agreement shall become members of the Union on their hiring date and shall remain members of the Union in good standing during the terms of this agreement. 2.04 For the purpose of this article, a member of the Union in good standing shall mean an employee who has paid or tendered his regular monthly Union dues. 2.05 The Union shall indemnify the Company and save it harmless from any claim which may be made against it by an employee or employees for amounts deducted from wages as provided by this Article. 5 ARTICLE 3 - MANAGEMENT RIGHTS - ----------------------------- 3.01 It is recognized by the Union that Managements rights, responsibilities and authority shall be modified only as specifically stated in this agreement, otherwise management of the business and all of its aspects are vested exclusively in the Company. 3.02 Without restricting the generality of the foregoing the exercise of such rights by the Company shall include and not be limited to the right to hire, to direct the working forces, assign and reassign duties, schedule and classify the work, promote, demote, transfer, make lay-offs due to lack of business, make and enforce rules, regulations and systems, and suspend and discharge for just cause or otherwise discipline employees. This agreement constitutes a complete understanding between the parties. 3.03 The Company agrees that its exclusive functions shall not be exercised in a manner inconsistent with all provisions of this agreement. ARTICLE 4 - VACATIONS - --------------------- 4.01 Notwithstanding the provisions of 7.04 and solely for the purpose of vacation entitlement, seniority in this article shall mean the combined length of service with Produits Chimiques Sterling plus that with AWA (ERCO) which was recognized with the August 21, 1992 sale of company. This applies only to employees with seniority in this bargaining unit at November 15th 1974. 4.02 Employees who have completed less than one (1) year of seniority on May 1st of the current year shall receive one (1) day of vacation for each working month of continuous service not to exceed a maximum of two (2) regular weeks. However, an employee may, during his first year of employment, take one (1) week of his vacation eligibility, as defined above, after having completed six months of service. 4.03 Employees who have completed one (1) or more years of seniority but less than three (3) years of seniority on or before May 1st of the current year shall receive two (2) weeks' vacation. 4.04 Employees who have completed three (3) or more years of seniority but less than ten (10) years of seniority on or before May 1st of the current year shall receive three (3) weeks' vacation. 4.05 Employees who have completed ten (10) or more years of seniority but less than eighteen (18) years of seniority on or before May 1st of the current year shall receive four (4) weeks' vacation. 4.06 Employees who have completed eighteen (18) or more years of seniority but less than twenty-five (25) years of seniority on or before May 1st of the current year shall receive five (5) weeks' vacation. 6 4.07 Employees who have completed thirty (30) or more years of seniority on or before May 1st of the current year, shall receive six (6) weeks' vacation. 4.08 The amount of vacation pay for each week of vacation shall be one (1) week's regular straight time pay at the employee's current regular salary rate or 2% of previous year's gross earnings per week of vacation, the greater of both to be applied. 4.09 Vacations must be taken during the twelve (12) month period between May 1st and April 30th. 4.10 Vacations will be taken during the twelve (12) month period between May 1st and April 30th. Advance vacations may be taken during the current calendar year after January 1st. 4.11 In the event a holiday named in this contract falls during an employee's vacation period, the employee shall have the option of being paid for the day owing, or having an additional day of vacation, the day to be agreed upon by the Department Head. 4.12 A vacation schedule shall be completed by the employer and posted by May 1st of each year. 4.13 Senior employees, as defined in clause 7.04, will be given preference in the selection of vacation periods. 4.14 When at the request of the Company, an employee agrees to return to work during his vacation, he will be paid at twice his regular rate for all hours worked, in addition to his vacation pay. 7 4.15 When an employee leaves the employ of the Company for any reason, he shall receive the vacation payment to which he is entitled for the portion of the current year during which he was employed since May 1st and the vacation pay to which he became entitled on May 1st, if he has not already received this vacation pay. If an employee is hired again he will be paid vacation pay only for the length of time he has been back on the payroll. 4.16 Every effort will be made to give the employee all of his vacation at the time requested by him. The ultimate determination of vacation time, however, will be vested in the Company to ensure efficient operation of the Plant. The Company shall have the right to divisional shutdowns for the purpose of granting vacations. The Company will endeavour to give as much advance notice as possible of vacation periods. 4.17 Vacations may be deferred to be taken later according to the following provisions: a) Only vacations in excess of two (2) weeks per year can be deferred. b) The total of deferred vacations cannot exceed twelve (12) weeks. c) Deferred vacations may be taken at any time provided they do not conflict with the regular vacations of other employees. d) Deferred vacations are payable at retirement or upon termination of employment for any reason. 4.18 The Vacation eligibility of temporary employees will be calculated in the same manner as that of regular employees with the exception that eligibility will be based on time actually worked. Each fifty-two (52) weeks actually worked will be equivalent to one (1) year of service. 4.19 An employee who is absent due to illness or injury for more than twelve (12) months beyond the end of his forty-one (41) week period of weekly indemnity payments will not be eligible for vacation pay. 4.20 Employees may elect to take one (1) week of vacation per year in single days. The days will be taken at a time mutually agreeable to the employees and the Company. 8 ARTICLE 5 - HOLIDAYS - -------------------- 5.01 Each employee covered by this agreement will receive his straight time rate with the number of straight time hours the employee would otherwise have worked on the following statutory holidays: New Year Day Day after New Year's Good Friday Queen's Birthday St-Jean Baptiste Canada Day Civic Holiday Labour Day Thanksgiving Armistice Christmas Day after Christmas This will apply only:- a) When a specified holiday falls or is directed by statute to fall on a normal work day. b) When an employee has been at work on his last regular working day before the holiday and on his first regular working day after the holiday unless absent due to vacations, verified illness, bereavement leave, jury duty or approved leave of absence. 5.02 Holidays which fall on Saturday will be observed on the preceding Friday and holidays which fall on Sunday will be observed on the following Monday unless the parties agree otherwise. 5.03 Employees who are required to work on Christmas Day or New Year's Day will be granted equivalent time off with pay. The time off will be taken at a time mutually agreeable to the employees and the Company. The extra time off given for anyone working these holidays will be given to the person or persons working the actual rather than the observed holiday. This would apply only when Christmas or New Year's fall on Saturday or Sunday. 9 Employees scheduled to work on any of the holidays mentioned in paragraph 5.01 above will be paid for the hours actually worked at one and one-half times their regular straight time hourly rate in addition to any holiday pay to which they may be entitled under the provisions of this agreement except when the hours are worked between 11.30 p.m. and 7.30 a.m. when they will be paid at twice their regular straight time hourly rate. However, when a holiday is observed on a Sunday, employees will be paid for the hours actually worked at twice their regular straight time hourly rate. Employees may elect to accumulate those holidays according to the provisions of paragraph 5.04. 5.04 When an employee works on any of the observed holidays, he shall have the option of being paid for these holidays or taking them as time off. The days owing for these holidays can be accumulated and taken consecutively or separately. a) It is intended that holidays may be accumulated to permit employees to take time off in units of one (1) week. However, employees may take time off in units of one (1) day. b) Employees on twelve (12) hour rotating shift schedules, may take time off in units of one and one-half days (12 hours). c) Employees can take pay in lieu of additional days off or accumulated holidays. d) Days off will be taken at a time mutually agreeable to the employees and the Company. e) The total of accumulated holidays and deferred vacation cannot exceed twelve (12) weeks. 5.05 An employee who works on a holiday will not be scheduled to work less than five (5) days in a week in which there is one (1) holiday or four (4) days in a week in which there are two (2) holidays. 5.06 An employee who is absent due to illness or injury for more than twelve (12) months beyond the end of his forty one (41) week period of weekly indemnity payments will not be eligible for holiday pay. 10 ARTICLE 6 - LEAVE OF ABSENCE - ---------------------------- 6.01 The employer may grant a leave of absence without pay to an employee selected to perform work for the Union provided that such leave of absence shall not exceed five (5) calendar days for any such employee. Such leave of absence will include union conventions and conferences. Employees granted such leave of absence will retain and accumulate seniority. The Company reserves the right to restrict the number of employees absent at any one time. 6.02 An employee may be allowed a leave of absence without pay up to three (3) months for personal reasons consistent with Company policy, providing he requests it from the Company in writing, and the Company believes the leave is for good reason and does not interfere with efficient operations. Seniority shall continue to accumulate during his absence. 6.03 On written request of the Union to the Personnel Department, the Company may, wherever practical, grant leave of absence to not more than one employee selected by the Union to work in an official capacity on a full- time basis. Such leave of absence shall be limited to twelve (12) months. It is understood that the Company's need for properly trained personnel will have a bearing on its willingness to grant such leave. Seniority will be retained on a cumulative basis for the maximum period of twelve (12) months. Group insurance and pension benefits would continue to apply provided the employee and employer shares of the premiums are paid by the employee and/or the Union. 6.04 An employee returning from approved leave of absence shall assume his former position at his former rate of pay in addition to any negotiated wage increases which were applied to his job classification during the period of lay-off. In the event that the position has ceased to exist during his absence, the employee may exercise his seniority rights to assume a position for which he is qualified. 11 ARTICLE 7 - SENIORITY - --------------------- 7.01 The seniority of each employee covered by this Agreement shall be established after three hundred and sixty (360) hours worked within a six (6) consecutive month period. 7.02 a) After a period of three hundred and sixty (360) hours worked within a six (6) consecutive month period, an employee shall have his name placed on a seniority list unless the parties agree otherwise. The seniority date shall be calculated from a period equivalent to three hundred and sixty (360) working hours prior to the establishment of such seniority. b) Temporary employees hired as replacements for vacations, illnesses, leaves of absence and peak work periods will not acquire seniority. c) A peak work period will not exceed thirteen (13) consecutive weeks in the same position unless by special agreement between the parties. If no special agreement exists, the provisions of 7.02 a) will apply after thirteen (13) weeks. Any abuse of the thirteen (13) week consecutive period will be subject to the grievance procedure. d) Experience acquired by temporary employees will not count for future promotions on regular permanent positions. 7.03 The retention, lay-off and discharge of an employee who has not acquired seniority are entirely within the discretion of the Company. In no case shall these matters only be the subject of a grievance. However, probationary and temporary employees shall retain all other rights defined in this agreement. 7.04 a) Seniority shall mean the length of continuous service in the employ of the Company at its Buckingham Plant in a position within the bargaining unit. The sole exception to the above is defined in clause 4.01. b) An employee promoted or transferred to a position outside the bargaining unit and in the employ of the Company will maintain, but not accumulate seniority for a period of twenty-four (24) months. An employee returning to the bargaining unit within twenty-four (24) months shall assume his former position. In the event that the position has ceased to exist, the employee may exercise his seniority rights to assume a position for which he is qualified. 12 7.05 Seniority of an employee shall cease for any one of the following reasons: a) If the employee quits his employment; b) If the employee is discharged for cause and such discharge is not reversed through the grievance procedure; c) If the employee fails to return to work within five (5) consecutive working days after notification to do so to his address, which shall be the last one he has given the Company; d) If the employee is laid-off for a period of more than twenty-four (24) consecutive months. However should the employee be re-hired within this period of twenty-four (24) months the seniority which he had at the date of lay-off shall be restored. 7.06 Seniority shall be computed on a departmental basis. The departments for the purposes of this agreement are as follows: 1. Laboratory 2. General Offices 7.07 a) In cases of promotions, demotions, transfers, lay-offs and recalls, seniority shall govern, provided the employees have relatively equal qualifications required to do the work. b) An employee acquires bumping rights when he is permanently displaced from his regular occupation. An employee acquiring such bumping rights may displace an employee with less seniority, within the same seniority group as described in 7.06, if one of the following conditions are met: 1. the employee previously occupied the position by posting, and completed the training required. 2. the employee possesses the qualifications to perform the required work and is able to perform the required work after a familiarization period of approximately three weeks. 13 7.08 Newly created jobs and vacancies shall be posted on the bulletin boards for five (5) working days. Such posting shall state the classification, requirements for the vacancy, and salary grade. A copy of the posting will be sent to the Union at the same time. Any employee wishing to apply shall sign the posting, and under the circumstances that an employee is absent, the Union could sign the posting in his absence. Within five (5) working days of receipt of the signed posting by the Human Resources Department, an application form will be sent to all applicants. The completed application form must be returned to the Human Resources Department within five (5) working days. The Company will post on the bulletin boards the name of the successful applicant within thirty (30) days from the first day of posting and send a copy to the Union. It is understood, however, that the Company may make a temporary appointment for such period as is necessary to complete the posting, and fill such vacancy. Should no qualified candidate apply, the vacancy may be filled from outside the bargaining unit. Temporary vacancies of less than six (6) weeks duration will not be posted. Employees transferred in accordance with this clause may return to their former position within four (4) weeks of their transfer provided that there is valid justification. 7.09 Notice of lay-offs shall be given two (2) weeks before such lay-offs except when the employee has over five (5) years seniority where such notice shall be four (4) weeks. In cases of emergency as defined in 13.03 c) the length of time shall be reduced to three (3) days. 7.10 An employee recalled and reinstated to his former position held shall receive his former rate of pay in addition to any negotiated wage increases which were applied to his job classification during the period of lay-off. 7.11 Any notice of re-employment to an employee who has been laid off shall be made by registered mail to the last known address of such laid-off employee. It is the responsibility of the employee to keep the Company informed of his current address. The employer agrees to recall employees on the recall list before hiring from the open market subject to the provisions of Article 7.07. 7.12 The Company agrees to submit a seniority list the Union on each anniversary date of the contract. 7.13 The Company undertakes to advise the Union Executive Committee at least sixty (60) calendar days prior to any change which will result in a lay- off following the elimination of a permanent position. 14 7.14 SEVERANCE PAY ------------- Employees shall be paid severance pay when they are laid-off due to lack of work. However, severance pay will not apply to lay-offs caused by emergencies as defined in article 13.03 of the collective agreement. The severance benefit will be two (2) weeks pay (37.5 or 40 hours per week) at the employee's regular straight time rate for each complete year of seniority. Employees who are re-hired will begin to accumulate a new service credit based on time actually worked from their last date of hire. Students hired for a vacation period and temporary employees will not qualify for severance pay. ARTICLE 8 - DISCHARGE AND DISCIPLINE - ------------------------------------ 8.01 It is hereby agreed that the employer has the right to discharge for just and reasonable cause. The Company agrees to notify the Union in writing of any such discharge. 8.02 In the event that an employee, whose name appears on the seniority list, has been discharged, disciplined or suspended, and it is alleged that he has been unjustly dealt with, the grievance procedure may be used. The grievance must be submitted in writing to the Personnel Department within fifteen (15) days of the discharge and in such cases, step one (1) of the grievance procedure shall be omitted. In such cases, reinstatements in the employ of the Company and compensation for loss of earnings shall be within the jurisdiction of the Arbitration Board. 8.03 Written notices of disciplinary action shall be withdrawn from an employee's file and shall not be used against the employee after the expiration of a 12 month period following the last disciplinary notice entered in his file. 15 ARTICLE 9 - INSURANCE AND PENSION - --------------------------------- 9.01 a) The Company agrees to continue the present contributory pension plan for the duration of this agreement. No changes shall be made to the plan except by mutual consent of the parties. b) The basic provisions of the pension plan are as follows: - Membership: Compulsory after twelve (12) months of service. - Normal Pension: Normal annual pension is 1.25% of the average of the employee's best three (3) year's earnings multiplied by the number of years of credited service. Full earned pension at age 60 provided employees have 25 or more years of seniority. As of November 15, 1996, this will be reduced to 20 years or more years seniority. As of November 15, 1996, a bridging of $200.00 per month from age 60 to 65 will be given to employees on full pension. Health Insurance - ---------------- Company will pay the full cost of health insurance (Major Medical) for retirees to age 65. - Interest rate on employee contributions will be the annual average of bank interest on a non-checking savings account. - Employees absent from work due to illness or injury may elect to repay missed pension contributions on the basis of the following formula:- employees will repay 49% of the premium, however will have no premiums to reimburse when he is receiving 70% of his salary while on W.I. 9.02 The Company shall furnish to the Union at least once annually a copy of any financial or other report of the operation of the plan made to it by the underwriter. 9.03 The Union agrees that any grievances concerning the plan will not be subject to the arbitration procedure. Group Insurance Benefits - ------------------------ It is understood that the Company contributions shall apply against the cost of all present insurance benefits during the life of this agreement. It is further understood that the stipulated Company contributions shall only be increased in the event of premium increases for the coverage which has been mutually agreed upon. In such cases, of increased premiums, the additional cost shall be borne equally by the Company and the employee. 16 Mutually agreed upon insurance coverage - --------------------------------------- Grade I Grade II or ----------------------- Higher ----------- (a) Life insurance $55,000 $60,000 Accidental Death Dismemberment $55,000 $60,000 (b) Major Medical Benefits: - Deductible - 25$/family maximum - Basis of Payment - 100% - Injections not paid by Quebec Health Insurance. - Includes Paramedical benefits - Maximum $15,000 per person per year of medical coverage. (c) Weekly Indemnity: (41 weeks maximum) 1st five (5) weeks: 100% of the employee's weekly salary which is the weekly rate of his job posting on the 1st day of his absence. Following thirty-six (36) weeks: 70% of the employee's weekly salary which is the weekly rate of his job posting on the 1st day of his absence. For the laboratory technicians: The weekly salary will be determined by multiplying his hourly job posting rate by 40 hours. Applies normally to absences of two (2) days or more in duration but also applies to absences of two (2) days or less, if the sick bank has already been exhausted. Reduced of all other benefits provided by the various government legislations up to a total of 100% of the employee's salary for the first five (5) weeks followed by a total of 90% of the employee's salary for the remaining 36 weeks. The W.I. will end at age 65, on the retirement date that the employee would have indicated when the choice of his pension payments have been signed off or when deceased. 17 (d) Hospital Benefit - Semi-private room - unlimited (e) Waiting period - 3 months continuous service. (f) In case of lay-off of employees with seniority, all benefits except weekly indemnity remain in effect to end of next calendar month following date of lay- off. Dental Plan - The dental programme agreed to by the parties ----------- shall be considered an integral part of this agreement. - Periodontics - 100% - Major restoration - 50% (crowns, bridges, dentures) with $1,500. maximum per year per each member of the family. Eye Care --------- Fifty percent (50%) of costs associated with glasses, replacement lenses, contact lenses, and eye examination up to a maximum of 150.00$ per two calendar years and for each member of the family. (g) Long Term Disability Benefit ---------------------------- An employee who has exhausted his weekly indemnity will be eligible to receive, with satisfactory medical evidence, the long term disability benefit. The long term disability benefit will be sixty percent (60%) of the employee's monthly salary, determined by multiplying by 52 and then dividing by twelve (12) the weekly rate of the employee's job posting during his first day of absence, and up to a maximum of $2000.00 per month. The amount of the benefit will be reduced by all other benefits provided by various goverment legislations including unemployment insurance. The long term disability benefit will be for two (2) years if the employee is incapacitated only with respect to his posting or will be extended up to age 65 if the employee is totally disabled according to the insurer. Although after two (2) years of incapacity in his posting, an employee who has acquired fifteen (15) years of service and a total of years of service and age equal to 65, and who is unable to work in his posting at Sterling, will continue to receive the long term disability benefit up to the age when the employee can take his retirement without actuarial reductions. This benefit will end when the employee is no longer disabled or when deceased. 18 (h) The Company shall furnish to the Union at least once annually a copy of any financial or other report of the operation of the plan made to it by the underwriter. Dividends or other rebates made by the underwriter to the Company shall be shared equally by the Company and the employees or shall, by mutual agreement, be applied against the increased costs, if any, or improved benefits. (i) Retired Employee Death Benefit ------------------------------ On retirement an employee will receive a paid-up Group Death Certificate payable to his named beneficiary based upon a formula of $100.00 for each completed year of service with a minimum of $500.00. ARTICLE 10 - BULLETIN BOARDS - ---------------------------- 10.01 Bulletin boards shall be provided by the Company for the use of the Union. They shall be located as designated by the Company. All notices shall be signed by the President of the Union or some other authorized signing officer of the Union and before posting, shall be submitted for approval to the Plant Manager or someone designated by him. The answer to requests for posting will be given within one (1) day. 10.02 Use of bulletin boards shall be restricted to notices of Union recreational and social affairs, Union elections, results of Union elections, Union appointments, time and place of Union meetings. ARTICLE 11 - HOURS OF WORK - -------------------------- 11.01 The normal working hours shall be as follows:
Technical Department Commercial, Production & - --------------------------- ------------------------ Engineering Departments ------------------------ 23h30 to 07h30 08h00 to 16h00 07h30 to 15h30 or 15h30 to 23h30 07h30 to 15h30 12 hour shifts only - --------------------------- Day shift 07h30 to 19h30 Night shift 19h30 to 07h30
No changes shall be made in the above working hours except by mutual consent between the Union and the Employer. However, in the Commercial and Engineering departments, employees and their supervisors may agree to modify the working hours subject to the guidelines established by the parties. 19 11.02 a) The normal work day for employees not assigned to shift work for the purpose of this Article, shall be eight (8) consecutive hours with an unpaid lunch period of one-half (1/2) hour. b) The normal day for employees assigned to shift work for the purpose of this Article, shall be eight (8) consecutive hours with a paid lunch period of one-half (1/2) hour. c) An employee who works or is scheduled to work a week the afternoon or night shift shall be considered a shift worker for the following week. 11.03 a) The day shall commence at 12.00 midnight (Commercial) and 11.30 p.m. (Laboratory) and shall consist of twenty-four (24) consecutive hours. b) The week shall commence at midnight on Saturday and shall consist of seven (7) consecutive days. 11.04 In the event that an employee cannot report to work, he must notify his supervisor, or his representative, as soon as possible before the start of his shift. 11.05 12 hour shifts only The day shall commence at 7.30 a.m. and shall consist of twenty-four (24) consecutive hours. ARTICLE 12 - OVERTIME & PREMIUM PAYMENTS - ---------------------------------------- 12.01 a) All authorized overtime worked shall be paid at the rate of one and one- half times the employee's regular rate of pay unless otherwise specified. b) In the case of scheduled overtime, the employee will be paid a minimum of two (2) hours at the applicable rate when the scheduled time is less than two (2) hours except where the provisions of 12.08 apply. 12.02 a) Employees who work beyond the normal office hours at the request of the Department Head, will be compensated at the applicable overtime rate. b) Employees who work shifts will be paid at straight time for the first eight (8) hours worked per day. Additional authorized hours will be paid for at the applicable overtime rate. c) In a week in which a holiday occurs, overtime shall be paid for all hours worked in excess of thirty (30) hours by day-workers or thirty two (32) hours by shift-workers. This is exclusive of any time worked on an employee's scheduled days off or on the statutory holiday itself. 20 d) In a week in which two (2) holidays occur, overtime shall be paid for all hours worked in excess of twenty-two and one half (22 1/2) hours by day-workers or twenty-four (24) hours by shift-workers. This is exclusive of any time worked on an employee's scheduled days off or on the statutory holidays themselves. 12.03 Employees will be paid at one and one-half (1 1/2) times their regular rate for normal hours worked on Saturdays, Sundays and holidays provided they are scheduled according to the provisions of Article 13 or if the employee has been advised in writing before 15h00 on the previous Friday. 12.04 a) Employees will be paid at the applicable overtime rate for work on scheduled days off where the employee has worked his regular schedule in that week. b) However, the first two (2) hours will be paid at twice their regular hourly rate if they have not been advised of the overtime to be worked within the time limits defined in clause 13.01. 12.05 Employees shall be paid at twice their regular rate for all overtime hours worked on Sundays and statutory holidays. 12.06 All employees shall be paid at twice their regular hourly rate for all overtime hours worked between 11.30 p.m. and 7.30 a.m. provided such work does not result from changes made at the request of the employees concerned. 12.07 a) Employees who are called-in to work outside their normal working hours will receive a minimum of four (4) hours pay at their regular rate of pay. After two (2) hours of work, the minimum will be considered satisfied and the employee will be paid at the applicable overtime rate for additional time worked. Call-ins which occur between 11.30 p.m. and 7.30 a.m. will be paid a minimum of two (2) hours at triple the employees regular straight time rate. b) For a call-in on Sunday or a statutory holiday, an employee shall receive a minimum of two (2) hours pay at triple the normal hourly rate. 12.08 Part shifts worked immediately prior to or immediately after an employee's regularly scheduled shift shall be considered as overtime hours and not as call-in hours. 21 12.09 For the purpose of avoiding pyramiding of overtime, hours compensated for at time and one-half or double time rates, shall not be counted further for any purpose in determining overtime liability under the same or any other provisions. 12.10 No overtime will be paid because of personal arrangements between employees. All such arrangements, must be made with the permission of the employee's Supervisor or his representative. 12.11 a) A shift differential shall be paid for each complete shift except for the day shift which will be the shift normally commencing between 7.00 a.m. and 9.00 a.m. For the duration of this agreement the differentials will be: 16h00 to 24h00 - $0.85/hour 24h00 to 08h00 - $1.50/hour 12 hours - $1.57/hour b) The shift differential shall not enter into the calculation of holiday pay nor vacation pay. c) The shift differential is not payable on call-ins and overtime unless a complete shift is worked. d) The shift differential will be added after any overtime calculation is made. 12.12 An employee who has worked forty (40) or more hours of overtime in the year will have the option of taking up to two (2) weeks off without pay during the current year at a time mutually agreeable to the employee and the Company according to the following formula: 40 hours of overtime work - maximum one (1) week off. 80 or more hours of overtime work - maximum two (2) weeks off. 12.13 Employees will receive a meal allowance when they are required to work overtime without adequate prior notice. Meal allowances will be paid as follows: a) after two (2) hours of overtime work and every four (4) hours thereafter. b) the meal allowance will be: June 25, 1995 Nov. 15, 1995 Nov. 15, 1996 ------------- -------------------------------- $7.50 $7.75 $8.00 22 ARTICLE 13 - WORK SCHEDULES & RATES OF PAY - ------------------------------------------ 13.01 Weekly work schedules for all employees will be posted before Wednesday midnight of the preceding week and will be subject to change until 3.00 p.m. of the following Friday. All days off will be scheduled consecutively unless one of the days off is Sunday. When this cannot be done, the employees will receive four (4) hours pay at their regular straight time hourly rate in addition to all hours worked in the week. 13.02 Employees will be compensated at the rate of time and one-half for the fist shift worked following a change in the work schedule after 3.00 p.m. Friday. However, if the shift is worked between 11.30 p.m. and 7.30 a.m., compensation will be at double time rate. 13.03 The rate of time of one and one-half shall not apply in 13.02 if the change is made for any of the following reasons: a) Changes brought about by the absence of an employee due to illness or compassionate reasons. If the absentee is not receiving sick leave pay, the employee who replaces him will receive 1 1/2 times his regular rate, provided other conditions to warrant such payment are fulfilled. b) Changes made as a result of an employee's request. c) Emergencies such as floods, fires, explosions, serious mechanical breakdowns, power failures, steam failures, customers' strikes or suppliers' strikes. 13.04 a) All employees who are working the day shift and are required to return to work for the following 11.30 p.m. to 7.30 a.m. shift, will be sent home at 3.30 p.m. with no loss in pay. They will still be allowed their normal lunch period. b) If such employees work beyond 3.30 p.m., they will be paid at one and one-half (1 1/2) times their regular hourly rate. 13.05 The Company may, at their discretion, make salary adjustments on an individual merit basis at any time during or beyond the Salary Progression Plan. 13.06 The weekly pay of employees will be deposited with the financial institution of their choice. 23 13.07 Salary Progression Plan ----------------------- a) All jobs have been classified into four (4) grades in the Quality Control Department and into three (3) grades in the Commercial and Engineering Departments. The minimum and standard for each rate range are noted in the schedule of rates. b) Progression from the minimum to the standard rate shall be automatic on an annual basis. Incremental increases shall be effective on the anniversary date of the employee. Automatic progression shall also apply to temporary employees on the basis of each fifty-two (52) weeks actually worked. c) Each employee's performance and salary shall be reviewed annually and, in addition, the performance of a new employee shall be reviewed at the end of three (3) months. d) If an employee is promoted or transferred into a new job grade, for half a day or more, he will receive an increase of $20.00 per week or the minimum for that grade, whichever is greater. However, the employee will not receive a lower salary in his new job grade than he would have received in his former job grade. e) Employees replacing monthly salaried positions will be paid an adjustment of $50.00 per week after having worked one half day (1/2) or more in this position. f) Whenever a temporary employee is employed in a Grade II position the most senior employee with seniority in Grade I will be paid the greater of either the minimum of Grade II or a differential of $10.00 per week. This will not apply when the employee in Grade I declines the Grade II position. ARTICLE 14 - REST PERIODS - ------------------------- 14.01 Break period for Technical Department will be 9.30 a.m. to 9.50 a.m. and 2.00 p.m. to 2.20 p.m. Break period for Commercial, Production and Engineering Departments will be 10.15 a.m. to 10.35 a.m. and 2.30 p.m. to 2.50 p.m. This specifically means twenty (20) minutes from the time work is interrupted until it resumes. 12 Hour shifts only ------------------- All employees will have the right to three (3) twenty (20) minute rest periods during their regular working hours each day. This specifically means twenty (20) minutes from the time work is interrupted until it resumes. 24 ARTICLE 15 - GRIEVANCE PROCEDURE - -------------------------------- 15.01 A grievance is any disagreement respecting the interpretation or application of this collective agreement. 15.02 An employee may, and is encouraged, to discuss any possible grievances with his immediate supervisor for the purpose of seeking a solution. 15.03 A grievance shall be presented in writing within fifteen (15) days of its occurrence in the following manner and sequence: 15.04 Step No. 1 ---------- The griever will submit the grievance to his immediate supervisor or in his absence to the Department Head. The decision of the department shall be rendered within five (5) days. 15.05 Step No. 2 ---------- If the griever does not accept the decision rendered at Step No. 1 or if the decision is not rendered within five (5) days, the griever may, within five (5) days, submit the grievance to the Plant Manager who shall render his decision within seven (7) days. 15.06 At Step No. l, the griever may be accompanied by his Shop Steward if he so elects. At Step No. 2 the Grievance Committee has the right to be present at all meetings relating to the grievance. 15.07 When an agreement has been reached at any stage of the grievance procedure, it shall be put in writing and it shall be final and biding on all parties. 15.08 Saturdays, Sundays, holidays (as defined in Article 5) and scheduled days off, shall not be counted in determining the time within which action has to be taken or completed under the grievance procedure. 15.09 Any adjustment arising out of the settlement of a grievance shall not be made retroactive to a date which is more than fifteen (15) days prior to the date on which the grievance was presented as provided for in the grievance procedure. 15.10 The Company and the Union may make use of the foregoing grievance procedure. 15.11 If a grievance is not taken to the next higher step within the prescribed delay, it shall be deemed to have been settled. A grievance which is not presented in accordance with the provisions of this Article, shall be deemed to be abandoned and shall not be entitled to consideration thereafter. 15.12 The Company and the Union will honour requests for reasonable delays in processing grievances. 25 ARTICLE 16 - ARBITRATION - ------------------------ 16.01 A grievance which has not been settled after being carried through the steps of the Grievance Procedure in accordance with Article 15, may be referred to arbitration in accordance with the following procedure: 16.02 Notice of reference to arbitration shall be given in writing to the other party within thirty (30) working days after the rendering of the decision by the Plant Manager or within thirty (30) working days of the expiry of the delay provided for in Step No. 2 of the Grievance Procedure. 16.03 The grievance will be heard by a single arbitrator selected by the parties. If there is no agreement on the selection for an arbitrator during the twenty (20) days following the notice of reference to arbitration, the Union or Company representative may request the Minister of Labour to name one. 16.04 If either party desires the grievance to be heard by a three-man board, the parties will each appoint a representative. If there is no agreement on the selection of a chairman of the arbitration board during the twenty (20) days following the notice of reference to arbitration, the Union or Company representative may request the Minister of Labour to name one. 16.05 If the notice of reference to arbitration is not sent within the specified delay, the grievance shall be deemed to have been abandoned and shall not be entitled to consideration thereafter. 16.06 Saturdays, Sundays, holidays (as defined in Article 5) and scheduled days off, shall not be counted in determining the time within which action has to be taken or completed under the grievance procedure. 16.07 The arbitrator or arbitration board shall have jurisdiction to interpret the provisions of this agreement in so far as shall be necessary to the determination of the grievance, but shall not have jurisdiction or authority to alter in any way, add to or make any decision inconsistent with the provisions of this agreement. 16.08 The decision of the arbitrator or arbitration board shall be final and binding upon the parties hereto and the employee or employees concerned. 16.09 The decision of the arbitrator or arbitration board shall be rendered within thirty (30) days after completion of the hearings. 16.10 The award of the arbitrator or arbitration board shall not be made retroactive to a date which is more than fifteen (15) days prior to the date on which the grievance was presented as provided for in the grievance procedure. 16.11 Each of the parties shall bear its own costs and the expenses of its representatives. The parties shall bear jointly the fees and expenses of the arbitrator. 26 ARTICLE 17 - SICK LEAVE - ----------------------- 17.01 Sick leave may be granted to an employee who presents satisfactory medical evidence of illness. 17.02 A total of 48 hours of sick leave (either 6 days of 8 hours or 4 days of 12 hours) non-accumulative will be granted on an annual basis for absences of 2 days or less of sickness. 17.03 The sick leave granted will be renumerated at 100% of the regular job posting salary at the time the illness commences. 17.04 An employee who submits false evidence of illness, shall be subject to a penalty and shall not be eligible for sick leave pay. ARTICLE 18 - BEREAVEMENT LEAVE - ------------------------------ 18.01 a) Bereavement leave of five (5) days will be granted to an employee in the event of death in the immediate family (parents, spouse or children). Maximum bereavement pay will be thirty seven and one half (37 1/2) hours. This leave of five (5) days may be taken between the day of the death and the fourth day following the funeral. b) Bereavement leave of three (3) days will be granted to an employee in the event of the death of his brother, sister, mother-in-law or father-in-law. c) Bereavement leave of one (1) day will be granted to an employee in the event of the death of his grandmother, grandfather, brother-in- law, sister-in-law or grandchild. d) The bereavement leave mentioned in b) and c) may be taken between the day of the death and the second day following the funeral. e) Bereavement pay shall be calculated on the basis of the employee's regular straight time rate. This payment shall be made only where the time off falls on the employee's working days. f) 12 Hour shifts only ------------------- Employees will be granted leave of five (5), three (3) or one (1) day as defined above however, compensation will not exceed forty eight (48), twenty four (24) or twelve (12) hours respectively. A spouse is defined as a man or woman who are legally married and cohabit. Common-law spouse means a man or woman cohabiting for a period of at least three (3) years or after one (1) year if a child is born of their union. 27 ARTICLE 19 - SEPARABILITY - ------------------------- 19.01 In the event that any provision of this agreement shall at any time be declared invalid by any court of competent jurisdiction or through Government regulations or decree, such decision shall not invalidate the entire agreement, it being the express intention of the parties hereto that all other provisions not declared invalid shall remain in full force and effect. ARTICLE 20 - SAFETY AND HEALTH - ------------------------------ 20.01 The Company will make all reasonable provisions for the health and safety of the employees during their working hours and will furnish adequate facilities and equipment which, in the opinion of the Company, are necessary to protect the employees from injury. The Company, the Union and the employee, acknowledge their responsibility to cooperate in the maintenance of healthful and safe working conditions and the observance of rules in that regard. ARTICLE 21 - GENERAL - -------------------- 21.01 The Company will supply the employees with a french and english copy of the collective agreement. 21.02 In addition to the standard plant safety footwear, the Company will pay up to eighty dollars (80.00$) in each calendar year towards the cost of safety footwear for the position of Stores Clerk and his replacement. Other positions requiring such coverage will be agreed on by both parties. 21.03 The Company will grant the necessary permission to any employee called upon to serve as a juror or as a subpoenaed witness. For each working day that the employee is required to be in court, the Company will pay the difference between his straight hourly time equivalent salary, for the number of hours which he would normally work on his regular job and his jury pay or witness pay. The employee will present proof of service and the amount of pay received prior to payment under this clause. 21.04 In the event of employees sustaining injuries at work or becoming affected by occupational disease during the course of their employment and becoming physically handicapped as a result thereof, the Company will endeavour to give the handicapped employee such suitable employment as is available. Special consideration regarding service may be considered by the parties in the application of this Article. 28 21.05 a) A pregnant employee may take leave without pay from the seventh (7th) month of her pregnancy, or at an earlier date as determined by her doctor, by submitting a medical certificate which is acceptable to the Company's adviser. b) Normally the employee must resume work during the four month period following the confinement unless her doctor certifies that she is unable to return during this period for medical reasons and establishes another date of return. This certification, must be acceptable to the Company's medical adviser. The maximum leave is seventeen (17) weeks unless the employee takes advantage of the provisions of clause 21.05 c) or the leave is extended for valid medical reasons. Any employee who does not meet the requirements of this clause will be considered to have voluntarily terminated her service. c) Notwithstanding the above, an employee will be granted a leave of absence without Company pay up to a maximum of fifty two (52) weeks however, during this period, the employee may receive the full U.I.C. maternity income benefits. The employee must return to work and satisfy the provisions of article 21.05 d) to receive the lump sum payment as defined. d) An employee who return to work in accordance with the provisions of this article will receive a lump sum payment equivalent to 25% of her weekly salary multiplied by the number of weeks of maternity leave with a maximum of nine (9) weeks including the week of confinement. This lump sum must be repaid to the employer by the employee if she voluntarily quits her employment within six (6) months of the date of her return to work. e) The employee covered by this article will return to the same position she occupied prior to her maternity leave. If the position has been abolished she may exercise her seniority rights to obtain an equivalent or lower position. f) The employer may replace such employee by a temporary employee for the duration of the absence foreseen above. 29 g) A pregnant employee normally operating a CRT screen may request an assignment to another position. The Company undertakes to try to accommodate such a request taking into consideration the qualifications of the employees involved and the provisions of the collective agreement. If a transfer is not possible, the employee will be eligible for a leave of absence as defined in article 21.05 c) above. The Company will respect the parental leave legislation. 21.06 Employees will have the right to examine his personal file. ARTICLE 22 - EFFECTIVE DATE AND DURATION OF AGREEMENT - ----------------------------------------------------- 22.01 This agreement shall become effective on June 25, 1995 and shall expire on November 14, 1997. Within ninety (90) days preceding the date of expiration of this agreement, either party may advise the other by written notice of its desire to negotiate a new one. 22.02 The conditions of employment outlined in this agreement will remain in effect after its expiration until a new agreement is signed or the right of strike or lockout is exercised. 30 APPENDIX "A" ------------ To: Produits Chimiques Sterling Date:__________________________ You are hereby authorized and requested to deduct from my weekly wages, an amount as determined by the Local Constitution and by-laws. The amount deducted shall be remitted monthly to the Financial Secretary of Local 480 of the Office and Professional Employees International Union. This authorization shall become effective the seventh (7th) day following the date of its receipt by the Company and shall be automatically renewed from year to year unless a notice cancelling the authorization is furnished in writing to the Company by me and the Union within seven (7) days immediately prior to the termination of this Agreement. --------------------------------------------- (signature of employee) 31 APPENDIX "B" ------------ Date:________________________ I, the undersigned, hereby authorize and request Produits Chimiques Sterling in accordance with the Agreement between the Company and the Union, to deduct an initiation fee, an amount as notified to the Company by the Secretary- Treasurer in writing, from my wages and to pay such amount to the Secretary- Treasurer of Local 480, O.P.E.I.U. I understand that refusal to pay this amount, makes me liable to dismissal from the Company's employ. -------------------------------------------- (signature of employee) -------------------------------------------- (Witness) 32 ANNEXE "C" ---------- CEDULE DES TAUX HEBDOMADAIRE ---------------------------- SCHEDULE OF WEEKLY RATES ------------------------ GRADE OCCUPATION MINIMUM STANDARD - ------------------------------------------------------------------------ COMMERCIAL - PRODUCTION - ENTRETIEN/ENGINEERING - ------------------------------------------------------------------ I -Standardiste/receptioniste/Switchboard/receptionist -Commis/dactylo/Clerk/typist 25 juin 1995 573.34 584.00 594.34 604.91 622.77 638.59 15 nov. 1995 584.81 595.68 606.23 617.01 635.23 651.36 15 nov. 1996 601.18 612.36 623.20 634.29 653.02 669.60 II -Commis-archives/Records Clerk -Commis-comptes payables/Accounts Payable Clerk -Commis-achats/Purchasing Clerk -Commis-magasin/Stores Clerk -Commis-entretien/Engineering Clerk -Commis-paye/Payroll Clerk -Commis-general/General Clerk -Commis-personnel/Personnel Clerk -Commis-transport/Traffic Clerk -Commis-transport et materiels/Materials & Traffic Clerk -Commis-securite-transport/Security Shipping Clerk -Standardiste-receptioniste-commis achats/Switchboard-Receptionist- Purchasing Clerk 25 juin 1995 612.27 622.77 632.37 643.78 654.29 684.91 15 nov. 1995 624.52 635.23 645.02 656.66 667.38 698.61 15 nov. 1996 642.01 653.02 663.08 675.05 686.07 718.17 III -Commis aux couts/Cost Clerk -Dessinateur/Draftsman -Commis senior-achats/Senior Purchasing Clerk -Commis senior-personnel/Senior Personnel Clerk -Commis senior-transport/Senior Traffic Clerk -Commis senior-pesee/Senior Scales Clerk -Commis senior-paye-comptes payables/Senior Payroll & Accounts Payable Clerk -Commis senior-transport & materiels/Senior Materials & Traffic Clerk -Commis senior-magasin/Senior Stores Clerk -Commis de la paye & comptes payables/Payroll & Accounts Payable Clerk -Secretaire senior/Senior Secretary 25 juin 1995 654.59 668.76 682.76 696.84 711.05 751.20 15 nov. 1995 667.68 682.14 696.32 710.78 725.27 766.22 15 nov. 1996 686.38 701.24 715.82 730.68 745.58 787.67 33 CEDULE DES TAUX HEBDOMADAIRE ---------------------------- SCHEDULE OF WEEKLY RATES ------------------------ GRADE OCCUPATION MINIMUM STANDARD - ------------------------------------------------------------------------ CONTROLE DE LA QUALITE/QUALITY CONTROL - ------------------------------------------- I -Technicien de laboratoire/Laboratory Technician
25 juin 1995 590.96 601.48 612.13 622.65 640.39 15 nov. 1995 602.78 613.51 624.37 635.10 653.20 15 nov. 1996 619.66 630.69 641.85 652.88 671.49 II -Technicien senior de laboratoire/Senior Laboratory Technician 25 juin 1995 622.77 633.15 643.78 654.29 684.89 15 nov. 1995 635.23 645.81 656.66 667.38 698.59 15 nov. 1996 653.02 663.89 675.05 686.07 718.15
III -Analyste/Analyst -Technicien-recherche de procede/Process investigation technician -Tech. senior-environnement/Senior Environmental Control Tech. 25 juin 95 643.93 654.40 665.10 675.45 686.10 700.52 746.63 15 nov. 95 656.81 667.49 678.40 688.96 699.82 714.53 761.56 15 nov. 96 675.20 686.18 697.40 708.25 719.41 734.54 782.88 IV -Analyste senior/Senior Analyst -Chef de groupe-laboratoire/Laboratory Group Leader 25 juin 95 675.57 686.19 696.74 700.03 717.72 754.85 787.06 15 nov. 95 689.08 699.91 710.67 714.03 732.07 769.95 802.80 15 nov. 96 708.37 719.51 730.57 734.02 752.57 791.51 825.28 V -Technicien de procedes/Process Technician 25 juin 1995 19.86/h. 20.42/h. 20.93/h. 15 nov. 1995 20.26/h. 20.83/h. 21.35/h. 15 nov. 1996 20.83/h. 21.41/h. 21.95/h. 34 APPENDIX "D" ------------ TWELVE (12) HOUR SCHEDULES 1. General 1.1 Some Sections of this collective agreement contain specific references to provisions that apply only to employees on twelve (12) hour shifts at the Chlorate Metal Plant. 1.2 If the only change is from one regular work schedule to another, no bonus shall be paid to the employee during the first week. 1.3 Each employee's pay shall be calculated on the basis of hours worked per week. 1.4 Only schedules accepted by the Union committee and Company may be used in the various sectors. 1.5 Employees working twelve (12) hour shifts shall have the opportunity to work an average of forty (40) hours during their rotation. 1.6 Employees who do not work an average of forty (40) hours per week during their rotation shall have the choice of working catch-up shifts, which shall be remunerated at regular rates. 1.7 Overtime shall consist of any authorized time in excess of twelve (12) daily hours any day or hours in addition to the regular weekly schedule. 35 2. Twelve-hour/7 day schedule
- -------------------------------------------------------------------------------- 1 5 9 2 6 10 3 7 11 4 8 12 - -------------------------------------------------------------------------------- S M T W T F S S M T W T F S S M T W T F S S M T W T F S - -------------------------------------------------------------------------------- Day C A A B B D D D C C A A B B B D D C C A A A B B D D C C - -------------------------------------------------------------------------------- Night B D D C C A A A B B D D C C C A A B B D D D C C A A B B - -------------------------------------------------------------------------------- Shift off D C C A A B B B D D C C A A A B B D D C C C A A B B D D - -------------------------------------------------------------------------------- Shift off A B B D D C C C A A B B D D D C C A A B B B D D C C A A - --------------------------------------------------------------------------------
2.1 The twelve (12) hour shift schedule for employees not on rotating shifts shall be established for a twelve (12) week cycle. Once every twelve (12) weeks, employees shall have an additional two (2) shifts off, to result in an average of forty (40) hours a week. Employees on this schedule shall have two (2) extra shifts off every twelve (12) weeks, on Monday and Tuesday of the day shift. 2.2 In a week with a single statutory holiday, employees who work all regular hours on days other than the holidays shall be paid for four(4) additional hours at their regular hourly rate. 2.3 In a week with two (2) statutory holidays, employees who work all regular hours on days other than the two (2) holiday shall be paid for eight (8) additional hours at their regular rate. However, employees whose regular schedule requires that they work one (1) of the two (2) statutory holidays shall be paid for four (4) additional hours at their regular hourly rate, provided they work all the hours in the week. Employees may choose to accumulate the above-mentioned hourly rates according to the provisions of paragraph 5.04. 36 3. Twelve hour Relief Schedule 3.1 The following provisions apply only to "relief workers" and other employees who do not work constantly on rotating twelve (12) hour shifts. 3.2 The shift schedule for relief employees included in this appendix reflects typical schedules for normal operating conditions, but changing conditions may require other schedules. 3.3 The work cycle shall be six (6) consecutive weeks. 3.4 Employees on the six (6) week cycle may be required to work twelve (12) and eight (8) hour shifts. 3.5 Relief workers shall not be scheduled to work more than two (2) consecutive thirty-six (36) hour weeks. 3.6 If an employee is scheduled to work four (4) regular twelve (12) hour shifts in three (3) consecutive weeks, the fourth shift worked in the third week shall be remunerated at overtime rate. 3.7 Relief workers will not be scheduled to work less than thirty-two (32) hours per week. Relief workers may be scheduled to work only thirty-two (32) hours in a week if this is required to balance their regular working hours at an average of forty (40) hours a week. 37 3.8 Laboratory Technician Relief Schedule
- -------------------------------------------------------------------------------- 1 5 9 2 6 10 3 7 11 4 8 12 ------------------------------------------------------------------------ S M T W T F S S M T W T F S S M T W T F S S M T W T F S - ---------------------------------------------------------------------------- Day C A A B B D D D C C A A B B B D D C C A A A B B D D C C - ---------------------------------------------------------------------------- Night B D D C C A A A B B D D C C C A A B B D D D C C A A B B - ---------------------------------------------------------------------------- Shift off D C C A A B B B D D C C A A A B B D D C C C A A B B D D - ---------------------------------------------------------------------------- Shift off A B B D D C C C A A B B D D D C C A A B B B D D C C A A - ----------------------------------------------------------------------------
NOTE: In a week when they replace the regular laboratory technician on 12 week leave: the reliefs will work the typical two (2) twelve (12) hour shifts and two (2) eight (8) hour shifts, unless they are needed to replace employees taking floaters on days other than those when the twelve (12) week leave is taken. When the employee does not work as a relief, the employee will work a typical forty (40) hour week (five (5) days of eight (8) hours), or will be replacing other employees off due to sickness, vacations, or accumulated statutory holidays. A. Relief employees working on eight (8) hour shifts will execute various tasks. B. There are no guarantees that the relief employees will have all week-ends off, nevertheless these employees will not be scheduled for work during a week-end for more than two (2) consecutive week-ends, nor for four (4) consecutive nights. These restrictions apply only to relief laboratory technicians. With respect to section B only, a week-end starts at 4 p.m. on Friday and ends at 6:30 a.m. on Monday (or 7:30 a.m. depending on the schedule). C. When the relief laboratory technician works a regular schedule to replace employees on vacation or sick leave, the employee can maintain this schedule even during a week when there is a 12 week leave. If the employee wishes to change his schedule to replace this leave, the employee can make a request for this. 38 4. Twelve Hour Shift (day)/7 days ------------------------------ D L M M J V S D L M M J V S D L M M J V S - -------------------------------------------------------------------------------- Reg C A A C C A A A B B A A B B B C C B B C C - ------------------------------------------------------------------------- Releve - B B B B - - - C C C C - - - A A A A - - - ------------------------------------------------------------------------- Conge AB C C A A B BC BC A A B B AC AC AC B B C C AB AB - --------------------------------------------------------------------------- Note: The week of relief will be that of a thirty-six (36) hour week. Normally the schedule would be as follows: twelve (12) hours on Monday followed by three (3) consecutive days of eight (8) hours (Tuesday, Wednesday and Thursday). However, if necessary, the schedule for this week could be as follows: twelve (12) hours of Tuesday followed by three (3) consecutive days of eight (8) hours (Wednesday, Thursday and Friday). 5. Equilibration method 5.1 At the end of each equilibration period, hours worked (excluding overtime) beyond four hundred and eighty (480) hours for regular employees (12 hours/7 days) and two hundred and forty (240) hours (12 hours/5 days) for other employees shall be considered overtime and adjusted accordingly. Solely for the purposes of this clause, half of the overtime shall be paid at time and a half the regular hourly rate and the other half at double the regular rate. 5.2 In the event of absences caused by vacations, illness or other reasons, the hours the employee would have normally worked shall be used for equilibration purposes. 5.3 Hours worked for equilibration purposes in the previous cycle shall not be counted in the next cycle. 39 LETTER OF AGREEMENT EFFECTIVE JUNE 25, 1995 ----------------------- Mr. Paul Giroux & Mr. Pierre Boivin Vice-Presidents O.P.E.I.U. Local 480 Buckingham (Quebec) POLICY REGARDING TIME OFF BY MEMBERS OF BUCKINGHAM STAFF UNION -LOCAL 480 FOR MEDICAL OR DENTAL REASONS ---------------------------------------------------- Regulation ---------- Absences of short duration for medical and dental appointments could be granted by the Company. However these absences will be paid by working the time taken for these appointments upon approval by the supervisors. Time off for other personal reasons will be considered as time off with permission and will not be paid. Buckingham, August 23rd, 1995. /s/ Sharron C. McDonnell /s/ Paul Giroux ------------------------ --------------- Sharron C. McDonnell Paul Giroux Produits Chimiques Sterling Office and Professional Employees Division of International Union Sterling Pulp Chemicals, Ltd. Local 480 /s/ Pierre Boivin ----------------- Pierre Boivin Office and Professional Employees International Union Local 480 40 CANADA BUREAU DU COMMISSAIRE GENERAL DU TRAVAIL Dossier No: AM 94085 PRODUITS CHIMIQUES STERLING, DIVISION DE STERLING PULP CHEMICALS, LTD. 101, chemin Donaldson Buckingham (Quebec) J8L 3X3 ci-apres l'"Employeur" c. UNION INTERNATIONALE DES EMPLOYES PROFESSIONNELS ET DE BUREAU, SECTON LOCALE 480 1265, rue Berri Bureau 630 Montreal (Quebec) H2L 4C6 ci-apres l'"Union" --------------------------------------------- REQUETE CONJOINTE EN VERTU DE L'ARTICLE 39 C.T. 1. Union accreditation to represent: "All the office employees and laboratory workers excluding employees classifed as engineer, chemist, professional accountant, managers, supervisor and all other hourly workers already covered by accreditation of the Buckingham plant, as those automatically excluded by the Quebec Labour Code." 2. The Employer and the Union agree that the wording of the Accreditation Certification be amended so as to read as follows: "All the office employees and laboratory workers excluding employees classifed as engineer, chemist, professional accountant, SENIOR PLANT MANAGER'S SECRETARY, managers, supervisor and all other hourly workers already covered by accreditation of the Buckingham plant, as those automatically excluded by the Quebec Labour Code." (the bold type characters are ours) - 2 - 3. The present request is a joint request. FOR THESE GROUNDS, SUITS THE LABOUR COMMISSIONER: RECEIVE the present request; AMEND the Union's accreditation certification so that it reads the following: "All the office employees and laboratory workers excluding employees classifed as engineer, chemist, professional accountant, senior plant manager's secretary, managers, supervisor and all other hourly workers already covered by accreditation of the Buckingham plant, as those automatically excluded by the Quebec Labour Code." Directed at the Industry: 101 Donaldson Road Buckingham, Quebec J8L 3X3 ALL respectively submitted. Buckingham, August 23rd, 1995. /s/ Helene Guay /s/ Carl Yank --------------- ------------- Helene Guay Carl Yank Office and Professional Employees Produits Chimiques Sterling International Union Division de Local 480 - C.L.C. Sterling Pulp Chemicals, Ltd. 42 LETTER OF AGREEMENT EFFECTIVE JUNE 25, 1995 ----------------------- Mr. Paul Giroux & Mr. Pierre Boivin Vice-Presidents O.P.E.I.U. Local 480 Buckingham (Quebec) The parties acknowledge that the Company can demand that the laboratory technicians complete the shipping documents for the Traffic Department after normal working hours. The present intent does not have prejudice on claim of the parties that the Company has or does not have the right to have the shipping documents completed by the laboratory technicians prior to the signing of the present agreement. Buckingham, August 23rd, 1995. /s/ Sharron C. McDonnell /s/ Paul Giroux ------------------------ --------------- Sharron C. McDonnell Paul Giroux Produits Chimiques Sterling Office and Professional Employees Division of International Union Sterling Pulp Chemicals, Ltd. Local 480 /s/ Pierre Boivin ----------------- Pierre Boivin Office and Professional Employees International Union Local 480 43 LETTER OF AGREEMENT EFFECTIVE JUNE 25, 1995 ----------------------- Mr. Paul Giroux & Mr. Pierre Boivin Vice-Presidents O.P.E.I.U. Local 480 Buckingham (Quebec) The parties agree that the waiting period for the pension calculation purposes regarding Paul Giroux, Edmond Maheu and Richard Baulne will be only one year. Buckingham, August 23rd, 1995. /s/ Sharron C. McDonnell /s/ Paul Giroux ------------------------ --------------- Sharron C. McDonnell Paul Giroux Produits Chimiques Sterling Office and Professional Employees Division of International Union Sterling Pulp Chemicals, Ltd. Local 480 /s/ Pierre Boivin ----------------- Pierre Boivin Office and Professional Employees International Union Local 480 44 LETTER OF AGREEMENT EFFECTIVE JUNE 25, 1995 ----------------------- Mr. Paul Giroux & Mr. Pierre Boivin Vice-Presidents O.P.E.I.U. Local 480 Buckingham (Quebec) The parties agree on the following method in order to permit a transition period for the new weekly indemnity program. a) The employees keep their bank of sick days as of November 14, 1994 for the transition period of the new weekly Indemnity Program. b) For the period of 36 weeks at 70% of the salary, employees may use their bank to increase the benefit up to $560.00 per week. c) This agreement will cease when the employee has exhausted his bank or when 70% of his salary is greater than $560.00 per week. Buckingham, August 23rd, 1995. /s/ Sharron C. McDonnell /s/ Paul Giroux ------------------------ --------------- Sharron C. McDonnell Paul Giroux Produits Chimiques Sterling Office and Professional Employees Division of International Union Sterling Pulp Chemicals, Ltd. Local 480 /s/ Pierre Boivin ----------------- Pierre Boivin Office and Professional Employees International Union Local 480 EX-10.55 12 EXHIBIT 10.55 Exhibit 10.55 ***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH THE COMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.*** BUSINESS CONFIDENTIAL PRODUCT SUPPLY AGREEMENT BETWEEN PRAXAIR HYDROGEN SUPPLY, INC. AND STERLING CHEMICALS, INC. May 15, 1995 TABLE OF CONTENTS ARTICLE 1 2 DEFINITIONS 2 Section 1.1 "Adjustable Facility Fee" 2 Section 1.2 "Affiliate" 2 Section 1.3 "Agreement" 2 Section 1.4 "Blend Gas" 2 Section 1.5 "Blend Gas Contract Volume" 2 Section 1.6 "Blend Gas Delivery Point" 3 Section 1.7 "Blend Gas Totalizer" 3 Section 1.8 "Buyer's Annual Grace Period" 3 Section 1.9 "Buyer's Blend Gas Requirements" 3 Section 1.10 "Buyer's Carbon Monoxide Requirements" 3 Section 1.11 "Buyer's Hydrogen Requirements" 3 Section 1.12 "Buyer's Pipelines" 4 Section 1.13 "Buyer's Plant" 4 Section 1.14 "Buyer's Required Rates" 4 Section 1.15 "Carbon Monoxide" 4 Section 1.16 "Carbon Monoxide Contract Volume" 4 Section 1.17 "Carbon Monoxide Delivery Point" 4 Section 1.18 "Carbon Monoxide Totalizer" 5 Section 1.19 "Confidential Information" 5 Section 1.20 "Contract Volume of Products" 5 Section 1.21 "Contract Year" 5 Section 1.22 "Cubic Foot" 5 Section 1.23 "Event of Default" 5 Section 1.24 "Excess Shutdown Period" 5 Section 1.25 "Facility Site" 5 Section 1.26 "Feed/Fuel Fee" 6 Section 1.27 "First Additional Term" 6 Section 1.28 "Fixed Facility Fee" 6 Section 1.29 "Force Majeure Event" 6 Section 1.30 "Ground Lease" 6 Section 1.31 "Guarantor" 6 Section 1.32 "Guaranty" 6 Section 1.33 "Hydrogen" 6 Section 1.34 "Hydrogen Contract Volume" 6 Section 1.35 "Hydrogen Delivery Point" 7 Section 1.36 "Hydrogen Totalizer" 7 Section 1.37 "Initial Term" 7 Section 1.38 "Maximum Shutdown Period" 7 Section 1.39 "Metering Equipment" 7 Section 1.40 "Month" 7 Section 1.41 "MSCF" 7 Section 1.42 "Natural Gas" 7 Section 1.43 "New NG Index" 7 Section 1.44 "New PPI Index" 7 Section 1.45 "NG Base" 7
Section 1.46 "PPI Base" 7 Section 1.47 "Products" 8 Section 1.48 "Proprietary Rights" 8 Section 1.49 "Second Additional Term" 8 Section 1.50 "Seller's Facility" 8 Section 1.51 "Startup" 8 Section 1.52 "Steam" 8 Section 1.53 "Steam Contract Volume" 8 Section 1.54 "Steam Delivery Point" 8 Section 1.55 "Steam Fee" 8 Section 1.56 "Steam Totalizer" 9 Section 1.57 "Supplemental Hydrogen" 9 Section 1.58 "Term" 9 Section 1.59 "Texaco Information" 9 Section 1.60 "Utilities Agreement" 9 ARTICLE 2 9 STARTUP 9 Section 2.1 Startup 9 Section 2.2 Seller's Penalty for Late Startup 10 Section 2.3 Exceptions to Seller's Penalty for Delay 10 Section 2.4 Buyer's Penalty for Late Startup 10 Section 2.5 Exceptions to Buyer's Penalty for Late Startup 11 Section 2.6 Obligation to Deliver after Startup 11 Section 2.7 Covenant Regarding Delay 11 ARTICLE 3 11 DELIVERY OF CARBON MONOXIDE 11 Section 3.1 Obligation to Deliver Carbon Monoxide 11 Section 3.2 Carbon Monoxide Pressure 11 Section 3.3 Title to and Risk of Loss of Carbon Monoxide 12 Section 3.4 Carbon Monoxide Volume 12 ARTICLE 4 13 DELIVERY OF BLEND GAS 13 Section 4.1 Obligation to Deliver Blend Gas 13 Section 4.2 Blend Gas Pressure 13 Section 4.3 Title to and Risk of Loss of Blend Gas 13 Section 4.4 Blend Gas Volume 13 ARTICLE 5 14 DELIVERY OF HYDROGEN AND SUPPLEMENTAL HYDROGEN 14 Section 5.1 Obligation to Deliver Hydrogen 14 Section 5.2 Delivery of Supplemental Hydrogen 14 Section 5.3 Hydrogen Pressure 14 Section 5.4 Title to and Risk of Loss 14 Section 5.5 Hydrogen Volume 14
ARTICLE 6 15 DELIVERY OF STEAM 15 Section 6.1 Steam Delivery Obligation 15 Section 6.2 Title to and Risk of Loss of Steam 16 ARTICLE 7 16 SHUTDOWNS, FAILURES TO DELIVER AND FAILURES TO TAKE 16 Section 7.1 Seller's Maximum Shutdown Period 16 Section 7.2 Seller's Failure to Deliver; No Force Majeure 16 Section 7.3 Buyer's Failure to Take; No Force Majeure 18 Section 7.4 Seller's Failure to Deliver; Seller's Force Majeure 20 Section 7.5 Buyer's Failure to Take; Buyer's Force Majeure 22 Section 7.6 Mandatory Shut Down 23 ARTICLE 8 23 PRICING AND PAYMENT 23 Section 8.1 Purchase Price for Products 23 Section 8.2 Fixed Facility Fee 24 Section 8.3 Adjustable Facility Fee; Feed/Fuel and Steam Fees 24 Section 8.4 Supplemental Hydrogen 25 Section 8.5 Payment for Supplemental Hydrogen 26 Section 8.6 Terms of Payment 26 ARTICLE 9 27 TAXES 27 ARTICLE 10 28 FORCE MAJEURE 28 Section 10.1 Force Majeure Events 28 Section 10.2 Settlement of Strikes 29 Section 10.3 Notice of Force Majeure 30 ARTICLE 11 30 LIMITATION OF LIABILITY 30 Section 11.1 Acknowledgement of Hazards 30 Section 11.2 No Consequential Damages 31 ARTICLE 12 31 SELLER'S PRODUCT WARRANTIES; DISCLAIMERS 31 ARTICLE 13 34 REPRESENTATIONS AND WARRANTIES OF BUYER 34 Section 13.1 Organization, Good Standing and Corporate Power 34
Section 13.2 Authority Relative to Agreement 34 Section 13.3 No Conflict with Other Instruments or Proceedings 34 Section 13.4 No Litigation or Proceedings. 35 ARTICLE 14 35 REPRESENTATIONS AND WARRANTIES OF SELLER 35 Section 14.1 Organization, Good Standing and Corporate Power 35 Section 14.2 Authority Relative to Agreement 36 Section 14.3 No Conflict with Other Instruments or Proceedings 36 Section 14.4 No Litigation or Proceedings 36 Section 14.5 Compliance with Laws 37 Section 14.6 Proprietary Rights 37 ARTICLE 15 37 METERING EQUIPMENT 37 Section 15.1 Meter Testing 37 Section 15.2 Data Transmission 38 ARTICLE 16 39 ALTERNATIVE FEEDSTOCKS 39 ARTICLE 17 39 EXCESS PRODUCTION 39 ARTICLE 18 40 EVENTS OF DEFAULT; DISPUTE RESOLUTION 40 Section 18.1 Events of Default 40 Section 18.2 Dispute Resolution Meeting 41 Section 18.3 Failure to Resolve Dispute; Arbitration 42 Section 18.4 Right to Terminate Agreement 43 ARTICLE 19 43 ACCESS TO INFORMATION 43 Section 19.1 Access to Information 43 Section 19.2 Access to Seller's Facility 44 Section 19.3 Access to Seller's Personnel 44 Section 19.4 Limitations on Disclosure 44 ARTICLE 20 45 CAPACITY OF SELLER'S FACILITY 45 Section 20.1 Initial Capacity 45 Section 20.2 Capacity Expansion 45 ARTICLE 21 46 INITIAL AND ADDITIONAL TERMS 46 Section 21.1 Initial Term 46
Section 21.2 Additional Terms 46 ARTICLE 22 47 MISCELLANEOUS 47 Section 22.1 Assignment 47 Section 22.2 Confidentiality 48 Section 22.3 Applicable Law 51 Section 22.4 Notice 51 Section 22.5 Waiver 52 Section 22.6 Headings 52 Section 22.7 Entire Agreement 52 Section 22.8 Relationship between Parties 53 Section 22.9 Severability 53 Section 22.10 Amendment 54 Section 22.11 Pronouns and Plurals 54 Section 22.12 Section Numbers 54 EXHIBIT A: FEE CALCULATIONS A-1 EXHIBIT B: DESCRIPTION OF SELLER'S FACILITY B-1 EXHIBIT C: PRODUCT SPECIFICATIONS C-1 EXHIBIT D: NATURAL GAS SPECIFICATIONS D-1
PRODUCT SUPPLY AGREEMENT THIS PRODUCT SUPPLY AGREEMENT made and entered into as of May 15, 1995, by and between PRAXAIR HYDROGEN SUPPLY, INC., a Delaware corporation ("Seller"), and STERLING CHEMICALS, INC., a Delaware corporation ("Buyer"); W I T N E S S E T H: WHEREAS, Buyer requires substantial quantities of Carbon Monoxide, Blend Gas, Hydrogen and Steam for use at Buyer's Plant, and has requested Seller to supply such quantities of Carbon Monoxide, Blend Gas, Hydrogen and Steam; and WHEREAS, Seller has represented to Buyer that it is willing and able to design, construct and operate, at Seller's expense and in accordance with the terms of the Ground Lease, a facility for the production of Carbon Monoxide, Blend Gas, Hydrogen and Steam on the Facility Site from which Seller will be able to supply Carbon Monoxide, Blend Gas, Hydrogen and Steam to Buyer on a reliable basis, achieving an average on-stream operating time of (***) or better; and WHEREAS, in reliance on such representation by Seller, Buyer is willing to shut down its existing syngas plant, which currently produces Buyer's requirements for Carbon Monoxide, Hydrogen and Blend Gas for its acetic acid and oxoalcohol units, and rely exclusively on Seller's Facility for its requirements of these Products; NOW THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements herein contained and the mutual benefits to be derived therefrom, Buyer and Seller agree as follows: ARTICLE 1 - DEFINITIONS Unless otherwise stated in this Agreement, the following terms shall have the meanings ascribed to them below, and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: Section 1.1 "Adjustable Facility Fee" means the variable fee payable by Buyer to Seller as provided in Section 8.3. Section 1.2 "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; or a corporation, at least 50% of the voting securities of which is owned directly by a corporation which owns directly or indirectly at least 50% of the voting stock of such party. Section 1.3 "Agreement" means this Product Supply Agreement, as the same may be amended from time to time in accordance with its terms. Section 1.4 "Blend Gas" means a gas mixture conforming to the specifications set forth in Exhibit C, attached hereto and made a part hereof. Section 1.5 "Blend Gas Contract Volume" means, during any Month, Blend Gas containing an average of (***) of Hydrogen and Carbon Monoxide produced by Seller's Facility, calculated by dividing the total number of pounds delivered in any Month by the hours in such Month. Section 1.6 "Blend Gas Delivery Point" means the flange where Buyer's Pipelines will be connected to Seller's Facility at the Blend Gas custody transfer point depicted in Exhibit B attached hereto and made a part hereof. Section 1.7 "Blend Gas Totalizer" means Seller's metering equipment to be installed and maintained by Seller at Seller's Facility to measure the quantities of Blend Gas delivered to Buyer hereunder. Section 1.8 "Buyer's Annual Grace Period" shall have the meaning ascribed to it in Section 7.3(b). Section 1.9 "Buyer's Blend Gas Requirements" means Buyer's total present and future requirements, in gaseous form, of Blend Gas, other than that supplied in cylinders, for use at the oxoalcohol unit located at Buyer's Plant up to the Blend Gas Contract Volume. Section 1.10 "Buyer's Carbon Monoxide Requirements" means Buyer's total present and future requirements, in gaseous form, of Carbon Monoxide, other than Carbon Monoxide supplied in cylinders, for use at the acetic acid and oxoalcohol units located at Buyer's Plant up to the Carbon Monoxide Contract Volume. Section 1.11 "Buyer's Hydrogen Requirements" means Buyer's total present and future requirements, in gaseous form, of Hydrogen, other than that supplied in cylinders, for use at the oxoalcohol unit located at Buyer's Plant up to the Hydrogen Contract Volume. Section 1.12 "Buyer's Pipelines" means the system of trunk and service pipelines to be installed, owned and operated by Buyer for the transmission of (i) feedstocks and utilities to Seller's Facility, and (ii) Carbon Monoxide, Blend Gas, Hydrogen (and Supplemental Hydrogen) and Steam produced by Seller's Facility from the respective points of connection of Buyer's Pipelines with Seller's Facility. The points at which Buyer's Pipelines will connect with Seller's Facility are depicted in Exhibit B. Section 1.13 "Buyer's Plant" means Buyer's chemical plant in Texas City, Texas and any additions or modifications thereto and replacements thereof. Section 1.14 "Buyer's Required Rates" means the volume of any or all of the Products required by Buyer, during any given Month, not to exceed the Contract Volume of Products. Section 1.15 "Carbon Monoxide" means carbon monoxide conforming to the specifications set forth in Exhibit C. Section 1.16 "Carbon Monoxide Contract Volume" means during any Month an average of (***) of Carbon Monoxide produced by Seller's Facility, calculated by dividing the total number of pounds delivered in any Month by the hours in such Month. Section 1.17 "Carbon Monoxide Delivery Point" means the flange where Buyer's Pipelines will be connected to Seller's Facility at the Carbon Monoxide custody transfer point depicted in Exhibit B. Section 1.18 "Carbon Monoxide Totalizer" means Seller's metering equipment to be installed and maintained by Seller at Seller's Facility to measure the quantities of Carbon Monoxide delivered to Buyer hereunder. Section 1.19 "Confidential Information" has the meaning ascribed to it in Section 22.2. Section 1.20 "Contract Volume of Products" means, collectively or individually, as the context requires, 100% each of the Blend Gas Contract Volume, the Carbon Monoxide Contract Volume and the Hydrogen Contract Volume. Section 1.21 "Contract Year" means a period of one (1) year commencing on the August 1 next following the date of Startup and on each subsequent anniversary of such date during the Term; provided, however, that the period of time commencing on the date of Startup and ending on the July 31 next following the date of Startup shall also be a Contract Year, with appropriate prorations to the extent such period is less than twelve months. Section 1.22 "Cubic Foot" means the quantity of Carbon Monoxide, Blend Gas or Hydrogen that would occupy a volume of one cubic foot at a temperature of 60 degrees Fahrenheit and 14.696 pounds per square inch absolute pressure. Section 1.23 "Event of Default" shall have the meaning ascribed to it in Section 18.1. Section 1.24 "Excess Shutdown Period" shall have the meaning ascribed to it in Section 7.2. Section 1.25 "Facility Site" means the parcel of land that will be leased by Buyer to Seller pursuant to the Ground Lease, as depicted on Exhibit B. Section 1.26 "Feed/Fuel Fee" means the fee payable by Buyer to Seller for Natural Gas as provided in Section 8.3 or for any alternative feedstock as provided in Article 16. Section 1.27 "First Additional Term" has the meaning ascribed to it in Section 21.2. Section 1.28 "Fixed Facility Fee" means the fixed fee payable by Buyer to Seller as provided in Section 8.2. Section 1.29 "Force Majeure Event" has the meaning ascribed to it in Section 10.1. Section 1.30 "Ground Lease" means that certain Ground Lease Agreement of even date herewith between Buyer as lessor and Seller as lessee, as same may be amended from time to time in accordance with the provisions thereof. Section 1.31 "Guarantor" means Praxair, Inc., a Delaware corporation, and its successors and permitted assigns. Section 1.32 "Guaranty" means that certain Guaranty Agreement of even date herewith pursuant to which Guarantor, for the benefit of Buyer, has unconditionally guaranteed the obligations of Seller hereunder and under the Utilities Agreement and the Ground Lease. Section 1.33 "Hydrogen" means hydrogen conforming to the specifications set forth in Exhibit C. Section 1.34 "Hydrogen Contract Volume" means during any Month an average of (***) of Hydrogen produced by Seller's Facility, calculated by dividing the total number of pounds delivered in any Month by the hours in such Month. Section 1.35 "Hydrogen Delivery Point" means the flange where Buyer's Pipelines will be connected to Seller's Facility at the Hydrogen custody transfer point depicted in Exhibit B. Section 1.36 "Hydrogen Totalizer" means Seller's metering equipment to be installed and maintained by Seller at Seller's Facility to measure the quantities of Hydrogen (and Supplemental Hydrogen) delivered to Buyer hereunder from Seller's Facility. Section 1.37 "Initial Term" has the meaning ascribed to it in Section 21.1. Section 1.38 "Maximum Shutdown Period" shall have the meaning ascribed to it in Section 7.1. Section 1.39 "Metering Equipment" shall have the meaning ascribed to it in Section 15.1. Section 1.40 "Month" means that period of time beginning at 12:01 a.m., Houston, Texas time on the first day of any calendar month and extending to 12:01 a.m. Houston, Texas time on the first day of the following calendar month. Section 1.41 "MSCF" means one thousand (1,000) standard Cubic Feet. Section 1.42 "Natural Gas" means natural gas delivered by Buyer to Seller's Facility conforming to the specifications set forth in Exhibit D attached hereto and made a part hereof. Section 1.43 "New NG Index" shall have the meaning ascribed to it in Section 8.4. Section 1.44 "New PPI Index" shall have the meaning ascribed to it in Section 8.4. Section 1.45 "NG Base" shall have the meaning ascribed to it in Section 8.4. Section 1.46 "PPI Base" shall have the meaning ascribed to it in Section 8.4. Section 1.47 "Products" means Carbon Monoxide, Blend Gas,Hydrogen and Steam, individually and collectively. Section 1.48 "Proprietary Rights" shall have the meaning ascribed to it in Section 14.6. Section 1.49 "Second Additional Term" has the meaning ascribed to it in Section 21.2. Section 1.50 "Seller's Facility" means the facilities to be constructed, owned and operated by Seller for the production and delivery of Products for sale and delivery to Buyer pursuant to this Agreement and for the sale of Hydrogen to third parties. The location of Seller's Facility is depicted on Exhibit B. Section 1.51 "Startup" means the date by which Seller initially has produced Carbon Monoxide, Blend Gas, Hydrogen and Steam at Buyer's Required Rates up to the Contract Volume of Products for a continuous period of 48 hours. Section 1.52 "Steam" means steam produced by Seller's Facility conforming to the specifications set forth in Exhibit C. Section 1.53 "Steam Contract Volume" means the volume of steam produced by Seller's Facility. Section 1.54 "Steam Delivery Point" means the flange where Buyer's Pipelines will be connected to Seller's Facility at the Steam custody transfer point depicted in Exhibit B. Section 1.55 "Steam Fee" means the fee payable by Buyer to Seller for Steam sold hereunder as provided in Section 8.3. Section 1.56 "Steam Totalizer" means Seller's metering equipment to be installed and maintained by Seller at Seller's Facility to measure the quantities of Steam delivered to Buyer hereunder. Section 1.57 "Supplemental Hydrogen" means (i) all Hydrogen delivered to Buyer hereunder at the Hydrogen Delivery Point from a source other than Seller's Facility when Seller's Facility is not producing Hydrogen, and (ii) when Seller's Facility is producing Hydrogen and Buyer's Hydrogen Requirements exceed the Hydrogen Contract Volume, the volume of Hydrogen delivered to Buyer at the Hydrogen Delivery Point in excess of the Hydrogen Contract Volume. Section 1.58 "Term" has the meaning ascribed to it in Section 21.2. Section 1.59 "Texaco Information" has the meaning ascribed to it in Section 19.4. Section 1.60 "Utilities Agreement" means that certain Utilities Agreement of even date herewith between Seller and Buyer pursuant to which Buyer will provide certain utilities to Seller for use at Seller's Facility, as same may be amended from time to time in accordance with the provisions thereof. ARTICLE 2 - STARTUP Section 2.1 Startup. Seller shall use its best efforts to achieve Startup by February 1, 1996. Seller shall give Buyer not less than two days' notice prior to each attempt to achieve Startup and Buyer shall be entitled to have its representatives present at Seller's Facility to observe each such attempt and to verify that Startup has occurred. Subject to the limitations contained in Section 19.4, Seller shall provide all data reasonably requested by Buyer to help Buyer verify Startup. Section 2.2 Seller's Penalty for Late Startup. Subject to Section 2.3, Seller will pay to Buyer penalty payments in lump sums of (***) each if Startup is not achieved by the following penalty dates: June 1, 1996, July 1, 1996, August 1, 1996, September 1, 1996 and October 1, 1996. If Startup is not achieved by October 1, 1996, Buyer may elect to initiate the dispute resolution procedures contained in Article 18 hereof. Section 2.3 Exceptions to Seller's Penalty for Delay. To the extent that delay in Startup is caused by Buyer or by a Force Majeure Event, each penalty date specified in Section 2.2 will be extended by the period of such delay. Seller shall notify Buyer as soon as possible after the occurrence of any act or omission by Buyer, or the occurrence of any Force Majeure Event, that will cause a delay in Startup and the expected length of such delay. Section 2.4 Buyer's Penalty for Late Startup. Subject to Section 2.5, Buyer will pay to Seller penalty payments in lump sums of (***) each if Startup is not achieved by the following penalty dates because Buyer has requested Seller to delay Startup after Seller's Facility is mechanically complete and technically capable of achieving Startup: June 1, 1996, July 1, 1996, August 1, 1996, September 1, 1996 and October 1, 1996. If Seller's Facility is mechanically complete and technically capable of achieving Startup, and Startup is not achieved by November 1, 1996 because Buyer has requested Seller to delay Startup, Buyer shall pay the Fixed Facility Fee and (***) of the Adjustable Facility Fee until Startup occurs. Section 2.5 Exceptions to Buyer's Penalty for Late Startup. To the extent that Buyer's request that Seller delay Startup is caused by Seller or by a Force Majeure Event, each penalty date specified in Section 2.4 will be extended by the period of such delay. Buyer shall notify Seller as soon as possible after the occurrence of any act or omission by Seller, or the occurrence of any Force Majeure Event, that will cause Buyer to request a delay in Startup and the expected length of such delay. Section 2.6 Obligation to Deliver after Startup. Except as otherwise provided in this Agreement, after Startup Seller agrees to deliver the Products to Buyer at Buyer's Required Rates during the Term, and Buyer agrees to pay for Products delivered in accordance with the terms of this Agreement. Section 2.7 Covenant Regarding Delay. Seller covenants that it will not delay Startup for any reason (including, without limitation, the absence of contracts with third parties for the sale of hydrogen produced at Seller's Facility) once Seller's Facility is mechanically complete and it is technically feasible to achieve Startup. ARTICLE 3 - DELIVERY OF CARBON MONOXIDE Section 3.1 Obligation to Deliver Carbon Monoxide. After Startup Seller shall sell and deliver to Buyer and Buyer shall purchase and receive from Seller, on the terms and conditions set forth herein, Buyer's Carbon Monoxide Requirements. Section 3.2 Carbon Monoxide Pressure. Carbon Monoxide will be delivered to the Carbon Monoxide Delivery Point at a pressure of not less than (***), or greater than (***), per square inch gauge pressure. Buyer shall be responsible for installing and maintaining appropriate relief devices on Buyer's Pipelines with respect to Buyer's receipt of Carbon Monoxide. Section 3.3 Title to and Risk of Loss of Carbon Monoxide. Title to and risk of loss of Carbon Monoxide shall pass to Buyer at the Carbon Monoxide Delivery Point. Section 3.4 Carbon Monoxide Volume. Seller will deliver Carbon Monoxide to the Carbon Monoxide Delivery Point under as uniform conditions and rates as possible and in a manner commensurate with good operating practices. However, Seller will vary the volume of Carbon Monoxide delivered hereunder as may be necessary to accommodate savings that may occur in the production of acetic acid by Buyer's Plant of approximately (***). Seller represents and warrants to Buyer that Seller's Facility has been designed to operate, and following Startup can and will be operated, to deliver the Carbon Monoxide Contract Volume in accordance with the terms of this Agreement. ARTICLE 4 - DELIVERY OF BLEND GAS Section 4.1 Obligation to Deliver Blend Gas. After Startup Seller shall sell and deliver to Buyer and Buyer shall purchase and receive from Seller, on the terms and conditions set forth herein, Buyer's Blend Gas Requirements. Section 4.2 Blend Gas Pressure. Blend Gas will be delivered to the Blend Gas Delivery Point at a pressure of not less than (***), or greater than (***), per square inch gauge pressure. Buyer shall be responsible for installing and maintaining appropriate relief devices on Buyer's Pipelines with respect to Buyer's receipt of Blend Gas. Section 4.3 Title to and Risk of Loss of Blend Gas. Title to and risk of loss of Blend Gas shall pass to Buyer at the Blend Gas Delivery Point. Section 4.4 Blend Gas Volume. Seller will deliver Blend Gas to the Blend Gas Delivery Point under as uniform conditions and rates as possible and in a manner commensurate with good operating practices. However, Seller will vary the volume of Blend Gas delivered hereunder from (***) of the Blend Gas Contract Volume, as may be necessary to accommodate the operation of Buyer's Plant. In addition, in order to accommodate the operation of Buyer's Plant, Seller will vary the volume of Blend Gas delivered hereunder by as much as (***) above or below the volume produced at Seller's Facility during steady state operation in the ordinary course of the operation of Seller's Facility. Seller represents and warrants to Buyer that Seller's Facility has been designed to operate, and after Startup can and will be operated, to deliver the Blend Gas Contract Volume in accordance with the terms of this Agreement. ARTICLE 5 - DELIVERY OF HYDROGEN AND SUPPLEMENTAL HYDROGEN Section 5.1 Obligation to Deliver Hydrogen. After Startup Seller shall sell and deliver to Buyer and Buyer shall purchase and receive from Seller, on the terms and conditions set forth herein, Buyer's Hydrogen Requirements. Section 5.2 Delivery of Supplemental Hydrogen. After Startup Seller will, from time to time at the request of Buyer, sell and deliver Supplemental Hydrogen to Buyer, subject to Seller's prior commitments for the sale of hydrogen to third parties. Buyer will purchase any Supplemental Hydrogen received from Seller on the terms and conditions set forth herein. Section 5.3 Hydrogen Pressure. Hydrogen and Supplemental Hydrogen will be delivered to the Hydrogen Delivery Point at a pressure of not less than (***), or greater than (***), per square inch gauge pressure. Buyer shall be responsible for installing and maintaining appropriate relief devices on Buyer's Pipelines with respect to Buyer's receipt of Hydrogen produced by Seller's Facility and Supplemental Hydrogen. Section 5.4 Title to and Risk of Loss. Title to and risk of loss of Hydrogen (and Supplemental Hydrogen) shall pass to Buyer at the Hydrogen Delivery Point. Section 5.5 Hydrogen Volume. Seller will deliver Hydrogen (and, if any Supplemental Hydrogen is sold and purchased hereunder, such Supplemental Hydrogen) to the Hydrogen Delivery Point under as uniform conditions and rates as possible and in a manner commensurate with good operating practices. However, Seller agrees that it will vary the volume of Hydrogen delivered hereunder from (***) of the Hydrogen Contract Volume, as may be necessary to accommodate the operation of Buyer's Plant. In addition, in order to accommodate the operation of Buyer's Plant, Seller will vary the volume of Hydrogen delivered hereunder by as much as (***) above or below the steady state operation of Seller's Facility during steady state operation in the ordinary course of the operation of Seller's Facility. Seller represents and warrants to Buyer that Seller's Facility has been designed to operate, and after Startup can and will be operated, to deliver the Hydrogen Contract Volume in accordance with the terms of this Agreement. ARTICLE 6 - DELIVERY OF STEAM Section 6.1 Steam Delivery Obligation. After Startup, Seller shall deliver and Buyer shall accept the Steam Contract Volume at the Steam Delivery Point at a pressure of not less than (***) pounds per square inch gauge pressure, and at a temperature of (***) degrees Fahrenheit, and meeting the specifications set forth in Exhibit C; provided, however, that the boiler feedwater supplied by Buyer to Seller pursuant to the Utilities Agreement meets the expected specifications set forth therein. The expected quantity of Steam (in pounds per hour) that Seller's Facility will produce at various operating rates (expressed as a percentage of the Carbon Monoxide Contract Volume) is set forth on Attachment 1 to Exhibit C; provided, however, Buyer shall be obligated to take all Steam produced by Seller's Facility in quantities up to (***) of the quantities shown on Attachment 1 to Exhibit C, but shall not be obligated to pay for Steam delivered in quantities in excess of (***) of the quantities shown on Attachment 1 to Exhibit C. Buyer shall be responsible for installing and maintaining appropriate relief devices on Buyer's Pipelines with respect to Buyer's receipt of Steam. Section 6.2 Title to and Risk of Loss of Steam. Title to and risk of loss of Steam shall pass to Buyer at the Steam Delivery Point. ARTICLE 7 - SHUTDOWNS, FAILURES TO DELIVER AND FAILURES TO TAKE Section 7.1 Seller's Maximum Shutdown Period. After Startup, Seller will have the right from time to time, upon 14 days (or such shorter period as circumstances reasonably dictate) prior notice to Buyer, to shut down Seller's Facility for up to a maximum of (***) hours during any Contract Year (the "Maximum Shutdown Period") for the purpose of making ordinary repairs for maintenance and/or thawing necessary and consistent with proper operation. For purposes of calculating the Maximum Shutdown Period, any hour during which Seller does not deliver the Products (or any one of them) at (***) of Buyer's Required Rates shall be treated as an hour during which Seller has shut down Seller's Facility even if no prior notice thereof was given by Seller to Buyer. However, a shutdown of Seller's Facility (i) as a result of a Force Majeure Event, or (ii) at a time when each of Buyer's Blend Gas Requirements, Hydrogen Requirements and Carbon Monoxide Requirements is zero, shall not be included in calculating the Maximum Shutdown Period. Section 7.2 Seller's Failure to Deliver; No Force Majeure. (a) If subsequent to Startup Seller delivers Products, but such deliveries are at rates below Buyer's Required Rates for a period of time in excess of the Maximum Shutdown Period for any reason other than a Force Majeure Event (the "Excess Shutdown Period"), for the Excess Shutdown Period Buyer shall pay a prorated Fixed Facility Fee and a prorated Adjustable Facility Fee based upon the portion that the amount of Products actually delivered bears to Buyer's Required Rates therefor. If Seller shall fail to deliver any Product during any Contract Year for any Excess Shutdown Period, Buyer shall have no obligation to pay any part of the Fixed Facility Fee or the Adjustable Facility Fee for the Excess Shutdown Period. (b) In the event that Buyer's Required Rates for any Product equal the Contract Volume of Products and Seller shall be unable to supply the Contract Volume of Products thereof after the expiration of the Maximum Shutdown Period for any Contract Year for any reason other than a Force Majeure Event, Seller shall give Buyer prompt notice of Seller's inability to deliver the full Contract Volume of Products. In such event, the authorized representatives of each of the parties shall be obligated to meet within 24 hours after receipt by Buyer of such notice from Seller. Seller shall be obligated to present, at such meeting, a plan to remedy its failure to deliver. Additionally, Seller shall be obligated to restore delivery of such Product to Buyer's Required Rates therefor within a reasonable period of time, taking into account the scope of the technical requirements and the correction period associated with the modifications required to so restore delivery. Seller shall be obligated to use all reasonable commercial efforts to achieve such result. In the event that delivery of Products is not restored to Buyer's Required Rates within a reasonable period of time, Seller shall use its best efforts to provide Products from a facility other than Seller's Facility to satisfy Buyer's Required Rates up to the Contract Volume of Products, and Seller shall provide such Products at the same cost to Buyer as it would have provided Products from Seller's Facility; provided, however, that to the extent that the cost of providing Products from another facility exceeds two times the amount that Buyer would have paid for Products from Seller's Facility, Seller shall not be obligated to pay (or bear the cost of) the amount of such excess. If, however, Buyer shall agree to pay (or bear the cost of) the amount in excess of two times the cost of providing Products from another facility, Seller shall be obligated to continue to provide Products from such other location. (c) In the event that Seller is unable to supply a Product at Buyer's Required Rates therefor for any reason other than a Force Majeure Event, Buyer may elect to purchase such Product from another supplier to the extent Seller is unable to supply such Product up to Buyer's Required Rates therefor. In such event, Seller will pay Buyer for the difference between the amount that Buyer would have paid for Products delivered from Seller's Facility and the amount actually paid for such Products by Buyer, up to two times the amount that Buyer would have paid for Products delivered from Seller's Facility. (d) Notwithstanding the other provisions of this Agreement, in the event that Seller is unable to supply Products at Buyer's Required Rates on a sustained basis for any reason other than a Force Majeure Event, and such inability continues for a period of (***) consecutive days, Buyer may elect to initiate the dispute resolution procedures contained in Article 18 hereof. Section 7.3 Buyer's Failure to Take; No Force Majeure. (a) Seller's Facility will be operated and maintained to accommodate planned shutdowns of the acetic acid unit at Buyer's Plant. To the extent practicable, Buyer and Seller will cooperate in scheduling planned shutdowns of their respective plants. (b) Following Startup, Buyer shall be entitled to a grace period of eight days (plus such number of additional days during which Buyer and Seller have jointly scheduled planned shutdowns) during any Contract Year ("Buyer's Annual Grace Period") for planned shutdowns of its acetic acid unit. During Buyer's Annual Grace Period, Buyer shall not be obligated to take Products from Seller and Buyer shall be obligated to pay Seller only the Fixed Facility Fee. (c) If after Buyer's Annual Grace Period during any Contract Year, Buyer is unable to take at least (***) of the Carbon Monoxide Contract Volume for any reason other than a Force Majeure Event of Buyer at a time when Seller is able to provide at least (***) of the Carbon Monoxide Contract Volume, Buyer shall pay the full amount of the Fixed Facility Fee and (***) of the Adjustable Facility Fee. In such event, Buyer shall receive a credit equal to the difference between the Adjustable Facility Fee paid and the cost of the Carbon Monoxide actually taken; provided, however, that such credit will only be applied to Carbon Monoxide taken in excess of the Carbon Monoxide Contract Volume during the twelve-month period immediately following the period of reduced purchase of Carbon Monoxide by Buyer. (d) If Buyer's acetic acid unit is shut down but other operations at Buyer's Plant require Blend Gas and Hydrogen, Seller will use reasonable efforts to operate Seller's Facility as efficiently as possible at reduced production rates to enable Seller's Facility to meet such requirements. Buyer acknowledges that operating Seller's Facility in order to deliver Products at Buyer's Required Rates that are less than (***) of the Carbon Monoxide Contract Volume will be inefficient and Buyer agrees that if Seller so operates Seller's Facility at Buyer's request, Seller and Buyer shall agree on an appropriate adjustment to the Feed/Fuel Fee payable by Buyer hereunder for any Month in which Seller's Facility is so operated to compensate Seller for such inefficiency; provided, that Seller shall not be required to operate Seller's Facility at rates below (***) of the Carbon Monoxide Contract Volume if operating at such rates will result in a violation by Seller of its air emissions permit with respect to Seller's Facility. Section 7.4 Seller's Failure to Deliver; Seller's Force Majeure. (a) If at any time after Startup Seller experiences a Force Majeure Event which causes a total shutdown of Seller's Facility for a period of time in excess of the Maximum Shutdown Period, Buyer shall pay (***) of the Fixed Facility Fee and (***) of the Adjustable Facility Fee for such period, but not to exceed a total of (***) days during the Initial Term, or a total of (***) days during each of the First Additional Term and the Second Additional Term. To the extent that prior to such Seller's Force Majeure Event, Buyer has purchased Carbon Monoxide in excess of (***) of the Carbon Monoxide Contract Volume during the preceding twelve months, Buyer may apply all amounts it paid in excess of (***) as a credit against the Adjustable Facility Fee, thus reducing the payments required from Buyer during Seller's Force Majeure Event. Buyer may also apply such credit to payments for Carbon Monoxide after the termination of a Seller's Force Majeure Event until such credit has been fully utilized. (b) In the event of partial deliveries by Seller during a period in which Seller's Force Majeure Event has occurred and is continuing, the period of the Force Majeure Event shall be prorated in calculating the number of days of Seller's Force Majeure Event and the amount of credit that Buyer may apply in the manner set forth in Section 7.4(a) shall also be prorated. (c) If the time Seller's Facility is shut down for Seller's Force Majeure Events exceeds (***) days during the Initial Term ((***) days in the case of each of the First Additional Term and the Second Additional Term), but is less than (***) days ((***) days in the case of each of the First Additional Term and the Second Additional Term), Buyer shall pay (***) of the Fixed Facility Fee and (***) of the Adjustable Facility Fee for such period; provided, however, that Buyer's obligation to pay (***) each of the Fixed Facility Fee and the Adjustable Facility Fee shall be reduced by purchases of Carbon Monoxide in excess of (***) of the Carbon Monoxide Contract Volume during the twelve months preceding each Seller's Force Majeure Event and at any time during the remainder of the Term, in order to reduce the amount that Buyer will have paid during a Seller's Force Majeure Event to zero. (d) If a Seller's Force Majeure Event causes a total shutdown of Seller's Facility for a period in excess of (***) consecutive days, Seller will use its best efforts to supply Products (other than Steam) to Buyer from a source other than Seller's Facility; provided, however, that if the cost to Seller of supplying such Products is greater than the price Buyer would have paid for such Products had they been produced in Seller's Facility, Seller shall only be required to pay the difference between the cost to Buyer of Products supplied from Seller's Facility and Products supplied from elsewhere up to a limit of (***) times the purchase price Buyer would have paid for the Products as specified in Section 8.1. If a Seller's Force Majeure Event causes a total shutdown of Seller's Facility for a period in excess of (***) consecutive days, it is acknowledged that Buyer may purchase Products (other than Steam) from third parties in order to operate the oxoalcohol, acetic acid and other units at Buyer's Plant. If Buyer so purchases any of such Products from a third party, Seller will reimburse Buyer for the amount paid by Buyer in excess of the price that would have been charged to Buyer for such Products supplied from Seller's Facility not to exceed (***) the purchase price Buyer would have paid for such Products hereof as specified in Section 8.1. Nothing herein shall be construed to prohibit or restrict Buyer, in the event that Seller is unable to supply Products at any time for any reason, from obtaining Products from third parties to replace Products that Seller has failed or is unable to deliver hereunder. Section 7.5 Buyer's Failure to Take; Buyer's Force Majeure. If after the expiration of Buyer's Annual Grace Period during any Contract Year as specified in Section 7.3(b), Buyer does not purchase at least (***) of the Carbon Monoxide Contract Volume as a result of a Force Majeure Event, Buyer shall be obligated to pay the Fixed Facility Fee and (***) of the Adjustable Facility Fee until such time as Buyer resumes purchasing at least (***) of the Carbon Monoxide Contract Volume; provided, however, that such amounts shall be credited to the account of Buyer and Buyer may apply such credit as payment for purchases of Carbon Monoxide from Seller after July 31, 2016. In order to utilize such credit against purchases of Products after July 31, 2016, Buyer shall have the right to extend this Agreement on its then existing terms and conditions for the amount of time necessary to fully utilize its credit, not to exceed (***). If Buyer has credit remaining after the end of such twelve-month extension, Seller must elect to either agree with Buyer to further extend the Agreement to allow Buyer to fully utilize its credit, or to purchase the remaining credit from Buyer. In the event Buyer discontinues its supply of any utility to Seller as provided in Section 12.6 of the Utilities Agreement, the Adjustable Facility Fee and the Feed/Fuel Fee shall be increased to offset any costs Seller may incur as a result of such discontinuance, and in the event such discontinuance causes any interruption in the operation of Seller's Facility, such interruption shall be deemed to be a Force Majeure Event of Buyer. Section 7.6 Mandatory Shut Down. In addition to the other provisions on shutdowns contained in this Agreement, Seller agrees to shut down Seller's Facility at any time that Buyer shuts down its acetic acid unit; provided, however, that if Seller's Facility does not require any maintenance at the time of such shutdown, Buyer will pay the Fixed Facility Fee and (***) of the Adjustable Facility Fee during such shutdown, unless and to the extent that the period of such shutdown is included in Buyer's Annual Grace Period. ARTICLE 8 - PRICING AND PAYMENT Section 8.1 Purchase Price for Products. The purchase price for all Products purchased hereunder shall be the sum of the following: (a) the Fixed Facility Fee; (b) the Adjustable Facility Fee; (c) the Feed/Fuel Fee; (d) the Steam Fee; (e) any charges for Supplemental Hydrogen as provided in Section 8.4; and (f) the amount of any applicable sales, use or other taxes. Section 8.2 Fixed Facility Fee. In accordance with the procedures established in Section 8.6, Buyer shall pay to Seller for each Month during the Term, beginning with the Month in which the Startup occurs, a Fixed Facility Fee in the amount of (***). The Fixed Facility Fee for the Month in which Startup occurs shall be prorated in the event Startup occurs on a date other than the first day of such Month. Except as otherwise provided in Article 7, Buyer shall be obligated to pay the Fixed Facility Fee to Seller even if Buyer has no requirements for Carbon Monoxide, Blend Gas or Hydrogen. Section 8.3 Adjustable Facility Fee; Feed/Fuel and Steam Fees. As promptly as possible after the end of each Month, Seller will read the Carbon Monoxide Totalizer, the Blend Gas Totalizer, the Hydrogen Totalizer and the Steam Totalizer to determine the volumes of Carbon Monoxide, Blend Gas, Hydrogen and Steam delivered to Buyer from Seller's Facility during such Month. Based upon such readings, Seller will invoice Buyer for and Buyer will pay to Seller in accordance with the procedure established in Section 8.6 the following fees: (i) the Adjustable Facility Fee, the Feed/Fuel Fee and the Steam Fee, calculated in the manner prescribed in Exhibit A attached hereto and made a part hereof, in each case as adjusted as provided in Exhibit A, and (ii) the amount of any applicable sales, use or other excise taxes. In the event that the readings for any Month show that the volume of Carbon Monoxide delivered to Buyer from Seller's Facility during such Month is less than or is in excess of the Carbon Monoxide Contract Volume, the Adjustable Facility Fee and the Feed/Fuel Fee shall be adjusted as provided in Exhibit A. Section 8.4 Supplemental Hydrogen. In the event Seller delivers volumes of Supplemental Hydrogen to Buyer, Buyer shall pay Seller for such volumes of Supplemental Hydrogen in accordance with the following formula: (***) where: (***). Section 8.5 Payment for Supplemental Hydrogen. As promptly as possible after the end of each Month Seller will read the Hydrogen Totalizer to determine the volume of Supplemental Hydrogen delivered to Buyer during such Month. Based upon such readings, Seller will invoice Buyer and Buyer will pay Seller for such volume a charge as provided in Section 8.6. Section 8.6 Terms of Payment. (a) Terms of payment will be (***) following Buyer's receipt of invoice. In the event Buyer is late in the making of any payment hereunder, Buyer shall pay to Seller a late payment charge against the unpaid portion of the invoiced amount equal to the lesser of (i) a rate of (***) per annum or (ii) the maximum rate permitted by law of the unpaid balance for each Month or partial Month that said invoice remains unpaid after the above-mentioned due date. Such interest shall be in addition to any other rights of Seller arising as a result of Buyer's failure to make such payment or part thereof within the time specified. Any and all payments to Seller hereunder shall be made by Buyer to a location and/or account designated in writing by Seller sufficiently in advance of the payment date to permit such payment, and Buyer shall acknowledge such notice in writing. (b) If Buyer has reason to dispute the accuracy of any invoice submitted to it by Seller, Buyer will pay the part of the invoice that is not disputed in accordance with the provisions of this Article 8 and, after such dispute has been resolved, Buyer will pay the balance due to Seller, or Seller will refund any amount due to Buyer, within (***) of the receipt of a replacement invoice. (c) Seller shall maintain business and accounting records and production data in accordance with usual and customary practices and standards in the chemical industry in respect of all matters referred to in this Agreement. Subject to the limitations contained in Section 19.4, Seller shall provide Buyer access to such records and data pursuant to the provisions of Section 19.1 and 22.2 hereof. (d) In the event that any invoice submitted by Seller to Buyer shall contain terms and conditions that are inconsistent with this Agreement, the terms of this Agreement shall control. ARTICLE 9 - TAXES If at any time during the Term, any governmental authority imposes a tax (excluding federal income tax and state franchise tax) which increases Seller's costs incurred in the production, sale or delivery of any Product to Buyer hereunder, or if, due to a rate change, or other action of a governmental authority, there is at any time during the term of this Agreement an increase in any such tax presently existing, then Buyer and Seller will agree on an appropriate adjustment to the Adjustable Facility Fee to keep Seller whole. ARTICLE 10 - FORCE MAJEURE Section 10.1 Force Majeure Events. (a) In the event either party is rendered unable, wholly or in part, by a Force Majeure Event to perform its obligations under this Agreement (other than an obligation to pay monies when due), it is agreed that on such party promptly giving notice and reasonably full particulars of such Force Majeure Event in writing in accordance with Section 10.3 to the other party, then the obligations of the party giving such notice, so far as they are affected by such Force Majeure Event, 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. (b) The term "Force Majeure Event," as used in this Agreement, shall mean any act 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 extraordinary failure of any machine, equipment, lines of pipe or other property, the occurrence of any emission, discharge, release or threatened release of Hazardous Substances (as that term is defined in the Ground Lease), the inability of Seller's Facility to deliver Products (or any one of them) at 100% of Buyer's Required Rates because of any remediation required to be done in, on, about or under the Facility Site as provided in Section 5.8 of the Ground Lease (which inability shall be deemed to be a Force Majeure Event of Buyer), and any other causes, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension. (c) Notwithstanding the provisions of this Section 10.1 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 extraordinary failure thereof or the necessity to make repairs or alterations thereto which result from (i) normal wear and tear which would be reasonably anticipated by a reasonably prudent operator or in circumstances where a reasonably prudent operator would have standby equipment or spare parts or (ii) the lack of the proper operation, maintenance, quality control, design,engineering and/or procurement of such machinery, equipment, lines of pipe or other property. Section 10.2 Settlement of Strikes. 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 Event 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. Section 10.3 Notice of Force Majeure. As soon as practicable after occurrence of any Force Majeure Event, the party claiming force majeure shall notify the other party in writing of the occurrence and nature of such Force Majeure Event describing it in reasonable detail and, to the extent possible, inform the other party of the suspected cause and the expected duration of the Force Majeure Event and the performance to be affected by the suspension or curtailment under this Agreement. After the termination of any Force Majeure Event, as soon as practicable, the party claiming force majeure shall notify the other party in writing of the termination of such Force Majeure Event and its actual cause and duration. ARTICLE 11 - LIMITATION OF LIABILITY Section 11.1 Acknowledgement of Hazards. Each party acknowledges that there are hazards associated with the storage, use and handling of Carbon Monoxide, Blend Gas, Hydrogen and Steam and each party agrees that its personnel concerned therewith are aware of such hazards. Each party shall be responsible for complying with all relevant reporting obligations under all laws applicable thereto as the result of the presence at Buyer's Plant or at Seller's Facility, as the case may be, of Carbon Monoxide, Blend Gas, Hydrogen and Steam supplied under this Agreement, including but not limited to the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001-11049 ("EPCRA," also commonly known as Title III of the Superfund Amendments and Reauthorization Act of 1986, SARA Title III), as same may be amended. Each party to this Agreement shall be responsible for warning and protecting its respective employees, independent contractors and others exposed to the hazards posed by such party's storage, use and handling of Carbon Monoxide, Blend Gas, Hydrogen and Steam. As between Buyer and Seller, Buyer assumes all responsibility for the suitability and the results of using Carbon Monoxide, Blend Gas, Hydrogen and Steam delivered to Buyer hereunder alone or in combination with other articles or substances and in any manufacturing or other process or procedures. Section 11.2 No Consequential Damages. Neither party to this Agreement shall be liable to the other party to this Agreement for any incidental, consequential, indirect, or special damages. Seller will provide to Buyer copies of Seller's documents containing Seller's safety and health information pertaining to Carbon Monoxide, Blend Gas, Hydrogen and Steam delivered hereunder including, without limitation, Seller's Material Safety Data Sheet(s), and Buyer will incorporate such information into Buyer's safety program. ARTICLE 12 - SELLER'S PRODUCT WARRANTIES; DISCLAIMERS Seller represents and warrants to, and covenants and agrees with, Buyer that the Carbon Monoxide, Blend Gas, Hydrogen and Steam delivered hereunder shall conform to the specifications set forth in Exhibit C. Any Carbon Monoxide, Blend Gas, Hydrogen or Steam which does not conform to the foregoing specifications may be rejected by Buyer by providing verbal notice to Seller's Facility within two (2) hours and subsequent written confirmation within five (5) days thereafter, no charge will be made for any Carbon Monoxide, Blend Gas, Hydrogen or Steam so rejected and Buyer shall have no obligation to return any Product which does not conform to specifications. Seller shall have the right to confirm Buyer's data supporting such rejection. Since Seller will furnish Buyer with an analytical/isolation system that will be installed on Buyer's Pipelines, and will have the capability of testing whether Carbon Monoxide, Blend Gas or Hydrogen delivered hereunder meets the specifications set forth in Exhibit C, and which will be maintained, operated and monitored by Buyer, and Buyer may obtain other devices that have the capability of testing whether Carbon Monoxide, Blend Gas or Hydrogen delivered hereunder meets the specifications set forth on Exhibit C, no claim of any kind with respect to the conformance of Carbon Monoxide, Blend Gas, Hydrogen or Steam to such specifications, whether or not based on contract, warranty, negligence, indemnity, strict liability or otherwise, shall be greater than the price of the quantity of the nonconforming Product; provided, however, in the event (i) of Seller's negligence or willful misconduct or (ii) the analytical/isolation systems at Seller's Facility related to the delivery of Blend Gas, Carbon Monoxide or Hydrogen are damaged or disabled by any intentional act of Seller, and such negligence, willful misconduct or intentional act results in the delivery hereunder of Blend Gas, Carbon Monoxide or Hydrogen that fails to meet such specifications and damages any catalyst within Buyer's Plant, Seller shall be responsible to Buyer for any direct damages caused to any catalyst within Buyer's Plant, including any costs and expenses incurred by Buyer to repair or replace the damaged catalyst, to the extent such negligence, willful misconduct or intentional act of Seller causes such damages up to a maximum of (***) for each such claim; and provided further, that said (***) limitation shall be adjusted semi-annually during the Term effective as of January 1 and July 1 of each year to reflect changes in the average Monthly Producer Price Index - Industrial Commodities (where the base is 1982=100) published by the United States Department of Labor, Bureau of Labor Statistics, in accordance with the following formula: (***) Where: (***) If the Producer Price Index-Industrial Commodities index is revised and published on some base other than 1982=100, the value thereof used in the formula in this Article 12 will be adjusted to the new base in accordance with such conversion schedule or factor as may be supplied by the publisher of the index. Should the Producer Price Index-Industrial Commodities index cease to exist, Seller and Buyer shall jointly select a new index which is based on similar information. The foregoing shall constitute Buyer's exclusive remedy, and Seller's sole obligation, hereunder with respect to each such claim. THERE ARE NO EXPRESS WARRANTIES BY SELLER REGARDING THE CONFORMITY OF THE PRODUCTS TO THE SPECIFICATIONS OTHER THAN THOSE SPECIFIED IN THIS ARTICLE 12. NO WARRANTIES BY SELLER (OTHER THAN WARRANTIES OF TITLE AND AGAINST INFRINGEMENT AS PROVIDED IN THE UNIFORM COMMERCIAL CODE) SHALL BE IMPLIED OR OTHERWISE CREATED UNDER THE UNIFORM COMMERCIAL CODE WITH RESPECT TO SUCH PRODUCTS, INCLUDING BUT NOT LIMITED TO THE WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 13 - REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 13.1 Organization, Good Standing and Corporate Power. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified as a foreign corporation in the State of Texas, and has all requisite corporate power and authority to carry on its business as presently conducted, to enter into this Agreement and perform its obligations hereunder. Section 13.2 Authority Relative to Agreement. The execution, delivery and performance by Buyer of this Agreement have been duly and effectively authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Buyer and is a legal, valid and binding obligation of Buyer 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. Section 13.3 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 Buyer of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any asset of Buyer pursuant to any of the terms, conditions or provisions of (i) the Certificate of Incorporation or Bylaws of Buyer, (ii) any material mortgage, deed of trust, lease, contract, agreement or other instrument to which Buyer is a party or by which Buyer 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 Buyer is subject, or by which Buyer may be bound or affected. Section 13.4 No Litigation or Proceedings. As of the date hereof, there are no actions, suits, investigations or proceedings pending or, to Buyer's knowledge, threatened against Buyer 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 Buyer. ARTICLE 14 - REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Buyer as follows: Section 14.1 Organization, Good Standing and Corporate Power. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified as a foreign corporation in the State of Texas, and has all requisite corporate power and authority to carry on its business as presently conducted, to enter into this Agreement and perform its obligations hereunder. Section 14.2 Authority Relative to Agreement. The execution, delivery and performance by Seller of this Agreement have been duly and effectively authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Seller and is a legal, valid and binding obligation of Seller 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. Section 14.3 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 Seller of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon, any asset of Seller pursuant to any of the terms conditions or provisions of (i) the Certificate of Incorporation or Bylaws of Seller, (ii) any material mortgage, deed of trust, lease, contract, agreement or other instrument to which Seller is a party or by which Seller 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 Buyer is subject, or by which Seller may be bound or affected. Section 14.4 No Litigation or Proceedings. As of the date hereof, there are no actions, suits, investigations or proceedings pending or, to Seller's knowledge, threatened against Seller 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 Buyer. Section 14.5 Compliance with Laws. Seller represents that Seller's Facility will be operated in compliance with all applicable laws, and that the Carbon Monoxide, Blend Gas, Hydrogen and Steam produced by Seller's Facility will be produced in compliance with all applicable laws, including without limitation the Fair Labor Standards Act of 1938, as amended. Section 14.6 Proprietary Rights. Seller has, and after Startup and throughout the Term will continue to have, full and sufficient rights to use and practice all technology, proprietary information, know-how and patented ideas, designs and inventions required for the design, construction and operation of Seller's Facility (the "Proprietary Rights"). None of the ownership, license, access to, use or practice of the Proprietary Rights by Seller at Seller's Facility do or will infringe on the rights of any third party and all Proprietary Rights are valid and enforceable. ARTICLE 15 - METERING EQUIPMENT Section 15.1 Meter Testing. Seller, at its expense, will test and calibrate the Blend Gas Totalizer, the Carbon Monoxide Totalizer, the Hydrogen Totalizer and the Steam Totalizer (hereinafter collectively called the "Metering Equipment") annually, and will perform a verification of pressure and transducer calibration semi-annually. The Metering Equipment shall be calibrated to Compressed Gas Association Standards. Seller will provide Buyer with written notice so that Buyer may have its representatives present during such calibrations and tests. Readings will be corrected to standard cubic feet measured at 60 degrees Fahrenheit and 14.696 pounds per square inch absolute pressure. At any time requested by Buyer, Seller will test the Metering Equipment in the presence of Buyer's representatives and, if the Metering Equipment is found on such test to be accurate, Buyer will pay Seller the cost and expense of such test, but, if found on such test to be inaccurate, then the cost and expense of such test and of correcting the inaccuracy in the Metering Equipment will be borne by Seller. If, on any test or calibration the Metering Equipment is found to be inaccurate, a correcting invoice will be tendered to cover the actual amount of Carbon Monoxide, Blend Gas, Hydrogen, Supplemental Hydrogen and Steam delivered to Buyer through the Metering Equipment for the thirty (30) day period prior to the date on which such calibration or test was made, or the period from the date such Metering Equipment was last tested and considered accurate, whichever period is shorter. If, on any test of the Metering Equipment, its accuracy is not in excess of two percent (2%) either fast or slow, the Metering Equipment will be considered accurate. ARTICLE 15 - Data Transmission. Seller will provide equipment, hardware and a connection to the battery limits of Seller's Facility and Buyer will provide equipment, hardware and a connection so as to permit the continuous transmission of digital data relating to Product and utility metering by Seller, and the reception thereof by Buyer. Buyer will only have access to Product and utility metering information through the connection. Such access will be limited to "read only" capability and Buyer will have no ability to control the operation of Seller's Facility. ARTICLE 16 - (***) ARTICLE 17 - EXCESS PRODUCTION In the event that excess Carbon Monoxide or Hydrogen is produced or otherwise becomes available as the result of the production requirements of Buyer's Plant or Seller's Facility, Buyer will, if it is economically feasible, use its reasonable efforts to burn the excess Carbon Monoxide or Hydrogen, as the case may be, in the off-gas fuel system of Buyer's Plant. To the extent, if any, that Buyer is successful in so burning such excess Carbon Monoxide or Hydrogen, Buyer will credit Seller for Buyer's avoided cost, if any, of fuel that Buyer would have otherwise purchased. Buyer's determination of its avoided cost shall be final and binding on Seller. During the Term Seller will not, without the prior written consent of Buyer, sell or deliver any Carbon Monoxide from Seller's Facility to any other person or entity. ARTICLE 18 - EVENTS OF DEFAULT; DISPUTE RESOLUTION Section 18.1 Events of Default. Each of the following shall be deemed an "Event of Default" by the party to whom such event is applicable under this Agreement: (a) if either party shall fail to perform or observe any of the terms, covenants, conditions, agreements or obligations of this Agreement required to be observed and performed in this Agreement by such party, and such failure shall continue for a period of thirty (30) days after notice thereof has been delivered to such party; or (b) if either party or the Guarantor shall make a general assignment for the benefit of its creditors, or shall file a voluntary petition in bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file any petition or answer seeking, consenting to, or acquiescing in reorganization, arrangement, adjustment, composition, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file an answer admitting or failing to deny the material allegations of a petition against it for any such relief, or shall admit in writing its inability to pay its debts as they mature; or (c) if any proceeding against either party or the Guarantor seeking any of the relief mentioned in clause (b) of this Article 18 shall have been commenced and shall not have been stayed or dismissed within ninety (90) days after commencement; or (d) if a trustee, receiver or liquidator of either party or the Guarantor or of any substantial part of the properties or assets of such party or the Guarantor shall be appointed with the consent or acquiescence of such party or the Guarantor, or if any such appointment, if not so consented to or acquiesced in, shall remain unvacated or unstayed for a period of ninety (90) days; or (e) if either party or the Guarantor shall be liquidated or dissolved, or shall begin proceedings toward such liquidation or dissolution; or (f) if any of the material representations or warranties made by either party in this Agreement proves to be untrue in any material respect; or (g) A default or Event of Default by either party occurs under the Utilities Agreement or the Ground Lease Agreement, which default or Event of Default is not cured within any applicable cure period. Section 18.2 Dispute Resolution Meeting. In the event that a party to this Agreement has reasonable grounds to believe that an Event of Default has occurred and is continuing, or that its expectation of receiving due performance under this Agreement may be impaired, such party will promptly notify the other party in writing of the substance of its belief and, as appropriate, declare that an Event of Default has occurred or demand adequate assurance of due performance. The party receiving such notice and/or demand must respond in writing within twenty (20) days of receipt of such notice and provide (i) evidence of cure of and/or its ongoing best efforts to cure the condition specified, (ii) an explanation of why it believes that its performance is in accordance with the terms and conditions of this Agreement, and/or (iii) adequate assurance of due performance, as required by the claiming party's notice. Failure to respond within said twenty (20) day period shall be deemed an admission that an Event of Default has occurred or that due performance is impaired. The responding party shall also include in its written response three (3) dates, all of which must be within thirty (30) days following the date of such response, for a meeting to resolve the dispute and/or evaluate the adequacy of the assurance of due performance. The party declaring an Event of Default or seeking adequate assurance of performance will then select one (1) of the three (3) dates, and a dispute resolution meeting will be held on such date. Either party shall have the right to demand that individuals representing each of the companies who have the authority to execute this Agreement, or amendments hereto, or waivers hereof, and to authorize or agree to curative action, be in attendance at such dispute resolution meeting. Section 18.3 Failure to Resolve Dispute; Arbitration. (a) If the parties cannot, in good faith discussions, resolve their dispute during the dispute resolution required by Section 18.2, then either party may given notice of a request for arbitration and subject to the provisions of Section 18.4 such controversy shall be referred to and resolved by arbitration under the most current version of the Commercial Arbitration Rules of the American Arbitration Association. The board of arbitrators shall be composed of three arbitrators. Each party shall choose an arbitrator and the third shall be chosen by the two so chosen. If either party to the controversy fails to choose an arbitrator within thirty (30) days after notice of commencement of arbitration, or if the two arbitrators fail to choose a third arbitrator within thirty (30) days after their appointment, the American Arbitration Association shall, upon the request of either party, appoint the arbitrator or arbitrators to constitute or complete the board. The place of arbitration shall be Houston, Texas and the arbitration shall be held within thirty (30) days after the appointment of the arbitration board. The arbitration award shall be final and binding upon the parties to such arbitration and judgment thereon may be entered in any court having jurisdiction. (b) In connection with any such arbitration proceeding, the board of arbitrators shall have the right to grant all remedies that such board deems appropriate including, without limitation, monetary damages and/or the termination of this Agreement, the Ground Lease and the Utilities Agreement. The board of arbitrators shall also have the right to require the losing party to reimburse the prevailing party for all reasonable attorneys' fees and costs incurred in connection with all such proceedings. Section 18.4 Right to Terminate Agreement. Notwithstanding the provisions of Section 18.1 and 18.2, either party may decline to pursue arbitration and elect to terminate this Agreement if any of Events of Default specified in Section 8.1(b)-(e) shall have occurred. ARTICLE 19 - ACCESS TO INFORMATION Section 19.1 Access to Information. Upon written request by Buyer from time to time, but subject to Section 19.4, Seller shall provide to Buyer, its attorneys, accountants and other representatives, at reasonable times during normal business hours, access to Seller's books, records and accounts in connection with the operation of Seller's Facility as it relates to the performance of Seller's obligations under this Agreement. Subject to the provisions of Section 19.4, Buyer shall thereupon have the right to make copies of and abstracts from such books, records and accounts, at Buyer's expense, which copies may be removed from Seller's premises and retained by Buyer. All information disclosed to Buyer pursuant to this Agreement shall be subject to the confidentiality provisions of Section 22.2 hereof. Section 19.2 Access to Seller's Facility. Subject to Section 19.4, Seller agrees to permit representatives of Buyer, at Buyer's expense, to have access to Seller's Facility at reasonable times and on reasonable notice to obtain information relating to the present or proposed operations of Seller's Facility so long as such access does not materially disrupt the operation of Seller's Facility. Buyer will pay all costs incurred by Buyer relating to Buyer's exercise of its rights under this Section 19.2. Section 19.3 Access to Seller's Personnel. Subject to Section 19.4, Seller shall make its employees and other representatives available to Buyer at reasonable times on reasonable notice to discuss the present or proposed operations of Seller's Facility so long as such availability does not materially disrupt the operation of Seller's Facility. Section 19.4 Limitations on Disclosure. Seller has represented to Buyer that certain of the Proprietary Rights relating to Seller's Facility have been provided to Seller by Texaco, Inc. pursuant to the terms of a license agreement that prohibits Seller from disclosing the information provided by Texaco, Inc. (the "Texaco Information") to Buyer. Nothing in this Agreement shall be construed as requiring Seller to provide any of the Texaco Information to Buyer. ARTICLE 20 - CAPACITY OF SELLER'S FACILITY Section 20.1 Initial Capacity. Seller represents and warrants to Buyer that, at the time of Startup, the maximum instantaneous capacity of Seller's Facility to produce Products shall be at least (***) greater than the Contract Volume of Products. Buyer acknowledges that Seller has initially configured Seller's Facility to operate efficiently at the Contract Volume of Products and has been designed to produce up to (***) of the Contract Volume of Products under certain ambient temperatures and operating conditions. Section 20.2 Capacity Expansion. Seller represents and warrants to Buyer that, at the time of Startup, the maximum instantaneous capacity of Seller's Facility to produce Products may be increased to an ultimate instantaneous capacity of at least (***) of the Contract Volume of Products. Seller agrees that, upon not less than (***) advance written notice from Buyer, Seller will at its sole cost and expense take the actions necessary to expand the maximum instantaneous capacity of Seller's Facility to at least (***) of the Contract Volume of Products (or such greater capacity as may be mutually agreed). In exchange for such increase in the maximum instantaneous capacity of Seller's Facility, Buyer agrees to increase the Fixed Fee to (***) (or such lesser amount as may be mutually agreed). The parties acknowledge that such capacity expansion will result in reductions in the usage of Natural Gas, electricity and cooling water supplied by Buyer to Seller pursuant to the Utilities Agreement at production rates above the Contract Volume of Products, and may result in increases in the usage of Natural Gas, electricity and cooling water supplied by Buyer to Seller pursuant to the Utilities Agreement at production rates below the Contract Volume of Products. ARTICLE 21 - INITIAL AND ADDITIONAL TERMS Section 21.1 Initial Term. The term of this Agreement shall be for a period commencing on the date of the execution of this Agreement and ending at midnight on (***), unless earlier terminated as provided herein ("Initial Term"); provided, that if either or both Buyer or Seller exercises its option to extend this Agreement as provided in Section 7.5, the Initial Term shall include the period of any such extensions. Section 21.2 Additional Terms. Subject to the terms of this Section 21.2, Buyer shall have the option to extend this Agreement beyond the Initial Term for up to two (2) additional terms of five (5) years each. If this Agreement has not been terminated prior to the end of the Initial Term, the option to extend this Agreement beyond the Initial Term for an additional five (5) years shall be deemed to have been exercised by Buyer, and the Initial Term shall be automatically extended for a period of five (5) years after the end of the Initial Term (the "First Additional Term"), unless Buyer shall have given Seller notice no later than one (1) year prior to the expiration of the Initial Term that Buyer has elected not to extend the Initial Term. If this Agreement has not been terminated prior to the end of the First Additional Term, the option to extend this Agreement beyond the First Additional Term for an additional five (5) year period shall be deemed to have been exercised by Buyer, and the First Additional Term shall be automatically extended for a period of five (5) years after the end of the First Additional Term (the "Second Additional Term"), unless Buyer shall have given Seller notice no later than one (1) year prior to the expiration of the First Additional Term that Buyer has elected not to extend the First Additional Term. The Initial Term, the First Additional Term (if any) and the Second Additional Term (if any) are referred to in this Agreement as the "Term." ARTICLE 22 - MISCELLANEOUS Section 22.1 Assignment. (a) This Agreement shall inure to the benefit of and bind the respective successors and permitted assigns of the parties hereto. Except as expressly permitted hereby, neither party may assign this Agreement or its rights under this Agreement, including its rights to receive payments hereunder, to any other party without the consent of the other. (b) Either party may assign this Agreement and all of its rights and obligations hereunder to any subsidiary, Affiliate, partnership or venture, in which such party (or its parent company) holds an interest of 50% or more. (c) It is agreed that (i) the sale, transfer or conveyance by Buyer or Seller of all or substantially all of its assets, or (ii) the merger, consolidation, reorganization or recapitalization of Buyer or Seller with any third party, or (iii) the change of control of Buyer or Seller, whether effected by stock purchase, statutory share exchange, or otherwise, shall not constitute an assignment of this Agreement by Buyer or Seller, but Buyer or Seller (as the case may be) shall, as a condition precedent to the closing of any sale, transfer or conveyance referred to in clause (i) above, require the purchaser or transferee to assume all rights and obligations of Buyer or Seller (as the case may be) under this Agreement, the Ground Lease and the Utilities Agreement. In the event that Buyer sells or otherwise transfers or conveys all or substantially all of the assets constituting Buyer's Plant, such sale, transfer or conveyance shall not constitute an assignment of this Agreement by Buyer, but Buyer shall, as a condition precedent to the closing of such sale, transfer or conveyance, require the purchaser or transferee to assume all rights and obligations of Buyer under this Agreement, the Ground Lease and Utilities Agreement. In the event that Seller sells or otherwise transfers or conveys all or substantially all of the assets constituting Seller's Facility, such sale, transfer or conveyance shall not constitute an assignment of this Agreement by Seller, but Seller shall, as a condition to the closing of such sale, transfer or conveyance, require the purchaser or transferee to assume all rights and obligations of Seller under this Agreement, the Ground Lease and Utilities Agreement. (d) No assignment, transfer or conveyance of this Agreement by either party shall relieve the assigning party (or Guarantor) of any of its obligations, liabilities or duties hereunder (or under the Guaranty), unless the other party hereto shall agree otherwise. (e) Any assignment of this Agreement by either party shall be accompanied by the contemporaneous (i) assumption by the assignee of all rights and obligations of assignor hereunder, and (ii) assignment of the Ground Lease and the Utilities Agreement. Section 22.2 Confidentiality. (a) In connection with this Agreement, the parties hereto have exchanged and will continue to exchange certain nonpublic, proprietary or confidential information of a technical, business or financial nature (the "Confidential Information"). In order to facilitate discussion between Buyer and Seller relating to the design, construction, operation and maintenance of Seller's Facility and the purchase and sale of Products pursuant to this Agreement, Buyer and Seller desire to provide each other with assurances that Confidential Information will not be divulged. (b) For purposes of this Agreement, Confidential Information shall consist of this Agreement and all nonpublic, proprietary or confidential information whether obtained from observation or from materials, information or data submitted by the other party or from oral or written disclosures, and shall include, without intent to limit, all plans (including marketing plans, marketing information, sales information (including sales history and sales projections), designs, specifications, prices, processes, compositions and the like related to this Agreement, the Products, the operation of Seller's Facility or Buyer's Plant, and believed by the disclosing party to be unpublished and the disclosing party's private information at the time of its disclosure, and all memoranda, notes or other documents prepared by the receiving party which embody in whole or in part any of such information. However, the restrictions of this Section 22.2 shall apply only to written information, drawings and other tangible information and the like, as described above which are clearly marked "Confidential" or designated confidential in writing given to the receiving party orally, designated as confidential orally when revealed and confirmed in writing within thirty (30) days of disclosure as "Confidential" referencing the data and type of information disclosed. All other information whether disclosed in writing, orally or observed shall be considered as having been disclosed on a nonconfidential basis. (c) Each party agrees that it will treat the Confidential Information of the other party as confidential and will use the same care and caution that it affords its own proprietary information to protect such Confidential Information received under this Agreement from disclosure to any third party. Each party agrees to use the Confidential Information solely and exclusively for purposes of this Agreement and agrees to disclose the Confidential Information only to those individuals within its own organization who have a need to receive the information and who will be bound by nondisclosure agreements with the receiving party. (d) The restrictions of this Agreement shall not apply to any Confidential Information which (i) is now or hereafter becomes available to the public without a breach by the receiving party of the terms stated in this Agreement; (ii) is known to or in the possession of the receiving party as evidenced by documentary material in its possession before disclosure hereunder and the receiving party is not already obligated to the disclosing party to maintain it in confidence; (iii) is disclosed to the receiving party by a third party not under any obligation of secrecy or confidentiality to the disclosing party at the time of such disclosure; (iv) can be shown by substantial evidence was independently developed by employees of the receiving party who have not had access to the Confidential Information of the disclosing party; or (v) the receiving party is, in the opinion of its counsel, compelled by law to disclose; provided that in such cases the disclosure will be limited to the minimum to the extent possible without involving violation of applicable laws and the disclosing party will be given at least forty-eight (48) hours prior notice of the disclosure which is to be made. (e) Unless otherwise agreed to by the parties, each party agrees that it shall keep all Confidential Information confidential for a period which shall expire five (5) years after the termination date of this Agreement. Section 22.3 Applicable Law. This Agreement will be governed by the laws of the State of Texas. Section 22.4 Notice. Except as otherwise specifically provided in this Agreement, all notices, requests, demands, invoices, directions, and other communications under this Agreement shall be in writing signed by an authorized representative of the party issuing same and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given or if delivered by facsimile transmission, or on the second day after mailing if mailed to the party to whom notice is to be given by certified or registered mail, postage prepaid, return receipt requested, and properly addressed as follows: In the case of Seller: Praxair Hydrogen Supply, Inc. 222 Pennbright Dr., Suite 300 Houston, Texas 77090-5999 Attention: Executive Director Telecopier Number: (713) 872-2111 With a Copy to: Praxair Hydrogen Supply, Inc. 703 Sixth Street South Texas City, Texas 77590 Attention: Facility Manager Telecopier Number: (409) 943-9228 In the case of Buyer: Sterling Chemicals, Inc. 1200 Smith St., Suite 1900 Houston, Texas 77002 Attention: Business Director Telecopier Number: (713) 654-9551 With a Copy to: Sterling Chemicals, Inc. 1200 Smith St., Suite 1900 Houston, Texas 77002 Attention: General Counsel Telecopier Number: (713) 654-9551 Either party may change its address for purposes of this Section by giving the other party notice of its new address in the manner set forth above. Section 22.5 Waiver. No consent or waiver, express or implied, by a party, to or of any breach or default by the other party in the performance of its obligations hereunder, shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation of such party hereunder. Failure on the part of any party to complain of any act or failure to act of the other party or to declare the other party in breach or default irrespective of how long such failure, breach or default continues, shall not constitute a waiver by such party of its right hereunder. Section 22.6 Headings. The headings and titles contained in this Agreement are for convenience of reference only, and shall not affect the meaning or interpretation of any provision hereof. Section 22.7 Entire Agreement. This Agreement, the Ground Lease and the Utilities Agreement constitute the entire agreement between the parties hereto regarding the subject matter thereof and supersede any and all prior agreements regarding the same subject matter except as expressly provided herein or therein. This Agreement, the Ground Lease and the Utilities Agreement are part of a single, integrated transaction, and the provisions thereof shall be construed together in a consistent manner and any termination of the Ground Lease or the Utilities Agreement shall effect a termination of this Agreement. Other than the provisions of the Ground Lease, the Utilities Agreement and the Guaranty, there are no other promises, representations or warranties affecting this Agreement, and any other or different terms and conditions appearing in any purchase orders issued or accepted hereunder shall be deemed null and void. Section 22.8 Relationship between Parties. The relationship between Buyer and Seller created pursuant to this Agreement is an independent contractor relationship and, subject to the terms and conditions of this Agreement, Seller shall exercise the sole and exclusive right to control the ways, means and manner of providing the Products to Buyer under this Agreement. Seller shall be solely responsible for the selection, training, supervision and compensation of the personnel used by Seller to provide Products to Buyer. This Agreement shall not be construed as creating a partnership, joint venture, association or other entity or business organization, or as creating a principal-agent or other fiduciary relationship between Seller and Buyer. Section 22.9 Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision, to other persons or circumstances shall not be affected thereby and shall be enforceable to the greatest extent permitted by law. Section 22.10 Amendment. This Agreement may be amended only by written amendment executed by both parties. Section 22.11 Pronouns and Plurals. Whenever the context may require any pronoun used in this Agreement shall include the corresponding masculine, feminine, or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 22.12 Section Numbers. Unless otherwise indicated, references to section numbers are to sections of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. PRAXAIR HYDROGEN SUPPLY, INC. By: /s/ J. E. Gonzalez Name: J. E. Gonzalez Title: President STERLING CHEMICALS, INC. By: /s/ Robert W. Roten Name: Robert W. Roten Title: Chief Operating Officer EXHIBIT A FEE CALCULATIONS (***) EXHIBIT B TEXAS CITY SYNGAS PLANT STERLING CHEMICALS SITE (***) EXHIBIT C SPECIFICATIONS FOR CARBON MONOXIDE, BLEND GAS, HYDROGEN AND STEAM (***) EXHIBIT D NATURAL GAS DESIGN PROPERTIES (***) EX-13.1 13 EXHIBIT 13.1 Sterling Chemicals 1995 Annual Report Cover: Top: The skyline of the Texas City facility is changing with new construction in Sterling's aggressive capital program. Center: Sterling's Thunder Bay sodium chlorate plant is one of four in Canada. Bottom: A major investment in sound environmental management has been made at the Texas City facility. CORPORATE PROFILE Sterling Chemicals, Inc. is a major producer of seven petrochemical products at its facility in Texas City, Texas, with styrene monomer, acrylonitrile and acetic acid the most significant products. An additional product will be added in 1996 with the start-up of a world-scale methanol plant. Sterling Pulp Chemicals, Ltd., a wholly- owned subsidiary, produces sodium chlorate at four locations in Canada. Sterling Pulp Chemicals is also the world's leading supplier of large-scale chlorine dioxide generators for the pulp and paper industry. The Company is currently constructing a sodium chlorate plant in Georgia as a part of the largest capital program in its history. Headquarters are in Houston, Texas. Sterling's stock is listed on the New York Stock Exchange and trades under the symbol STX. FINANCIAL AND OPERATING HIGHLIGHTS (Dollars in Thousands Except Per Share Data)
- -------------------------------------------------------------------------------------------- 1995(1) 1994 1993 1992(2) 1991 - -------------------------------------------------------------------------------------------- Revenues $1,030,198 $700,840 $518,821 $430,529 $542,664 - -------------------------------------------------------------------------------------------- Gross Profit $ 271,618 $ 93,924 $ 40,919 $ 27,882 $ 70,257 - -------------------------------------------------------------------------------------------- Net Income (Loss) $ 150,049 $ 19,132 $ (5,420) $ (5,890) $ 36,797 - -------------------------------------------------------------------------------------------- Net Income (Loss) Per Share $ 2.70 $ .34 $ (.10) $ (.11) $ .67 - -------------------------------------------------------------------------------------------- Earnings before Interest, Taxes, Depreciation and Amortization $ 284,247 $ 89,471 $ 52,477 $ 40,967 $ 78,522 - -------------------------------------------------------------------------------------------- Capital Expenditures $ 53,962 $ 12,343 $ 12,175 $ 15,953 $ 34,374 - -------------------------------------------------------------------------------------------- Long-Term Debt, Net of Current Maturities $ 103,581 $192,621 $263,894 $300,220 $ 72,630 - -------------------------------------------------------------------------------------------- Sales Volumes: (in million pounds) Styrene 1,433 1,460 1,191 1,213 1,495 - -------------------------------------------------------------------------------------------- Acrylonitrile 739 668 528 573 663 - -------------------------------------------------------------------------------------------- Sodium Chlorate 672 588 498 -- -- - -------------------------------------------------------------------------------------------- Generator Royalties $ 19,058 $ 16,566 $ 14,659 -- -- - -------------------------------------------------------------------------------------------- Generator Contracts Received 9 10 10 -- -- - --------------------------------------------------------------------------------------------
/(1)/ Net income for fiscal 1995 included an extraordinary charge of $3,104 related to early extinguishment of debt. /(2)/ For fiscal 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", which reduced the Company's net income $10,428 for the fiscal year. Also, the pulp chemical business was acquired August 21, 1992. [CHARTS APPEAR HERE] 1 TO OUR SHAREHOLDERS: Sterling Chemicals had an outstanding 1995 fiscal year. We are pleased to report that we not only experienced our best financial year since becoming a public company in 1988, but also enjoyed success in all areas of our operations. The petrochemical business had very good results through the first three quarters, led by the performance of both styrene monomer and acrylonitrile, our two largest volume products. However, the performance of these products decreased significantly in the fourth quarter because of weakening market conditions and a shutdown that occurred in each unit. The pulp chemical business also had a very good year, with the best revenues and earnings since being acquired in 1992. Highlights of our consolidated financial performance included the highest per share earnings since becoming a public company, the achievement of more than $1 billion in revenues for the first time in our history and a significant reduction of debt. These results allowed us to strengthen our financial position and begin upgrading existing facilities and building new facilities to enhance shareholder value. In addition, we received recognition for our safety programs, environmental management and quality processes. PETROCHEMICALS Higher sales prices and margins for our major petrochemical products during most of fiscal 1995 led the way to our strong financial performance. Strong worldwide demand and market growth from global economic expansion positively affected the performance of styrene and acrylonitrile. Global economic growth should continue to increase long-term demand for styrene and its derivative products. As one of the largest producers of styrene in the world and a major supplier to the merchant market, Sterling is positioned to take advantage of this growth in demand. During a major scheduled shutdown in our styrene unit late in the fiscal year, we installed an improved catalyst and added state-of-the-art distributive control systems, resulting in lower operating costs. These improvements have created a strong foundation from which to take advantage of future growth. The fundamental demand for acrylonitrile also remained strong during most of fiscal 1995. We experienced a major improvement in acrylonitrile margins during fiscal 1995 as export sales prices climbed to extremely attractive levels through the third quarter. Strong demand for derivatives, particularly acrylic fiber, resulted in improved market conditions over fiscal 1994. PULP CHEMICALS The North American demand for chlorine dioxide, derived from sodium chlorate, has continued to increase each year because of increased chlorine dioxide utilization in pulp bleaching and growing demand for paper products that are elemental chlorine-free. These favorable conditions led to record production and sales volumes and higher prices and margins. [PHOTO OF GORDON A. CAIN] Above left Gordon A. Cain Chairman of the Board [PHOTO OF J. VIRGIL WAGGONER] Above right J. Virgil Waggoner President and Chief Executive Officer 2 Royalty revenues from installed generator technology also increased as a result of higher customer operating rates and additional installed capacity. Generator sales increased during the fourth quarter, an indication that the pulp and paper industry believes that environmental regulations in North America will support chlorine dioxide as the preferred bleaching agent into the next century. BUILDING FOR THE FUTURE Our excellent results have allowed us to initiate an approximately $200 million capital program which will continue through 1997. This program, the largest in our history, is designed to enhance long-term value for our shareholders through both construction of new units and modernization and expansion of existing facilities. Three related projects at our Texas City facility demonstrate Sterling's long-standing ability to take advantage of underutilized assets and to build or buy at significantly below replacement cost. These projects are expansion of the acetic acid unit by approximately 30% to nearly 800 million pounds per year, construction of a 150 million gallon per year, world-scale methanol plant and construction of a partial oxidation unit by Praxair, Inc. About half of the methanol will be used by Sterling as a raw material for acetic acid production. The new Praxair unit makes our existing synthesis gas reformer available for methanol production, which allows Sterling to reduce the capital investment required for the methanol plant to less than half the cost of a grass roots facility. The capital program also includes our first sodium chlorate plant in the United States. Under construction in Valdosta, Georgia, the 110,000-ton plant will increase the Company's total capacity by more than 30% and should increase our North American market share to about 26%. Since being formed in 1986, we have taken advantage of opportunities to both enhance assets at Texas City and acquire the pulp chemical business at substantially below replacement cost. This strategy helped our financial performance through the last down cycle of our business and increased our profitability during fiscal 1995. Our current capital program should benefit our long-term financial performance. FINANCIAL PERFORMANCE Revenues increased by 47% to $1.03 billion in fiscal 1995; cash flow from operations was $192 million. Net income increased to $150 million from $19 million in fiscal 1994, and earnings per share were $2.70 compared to $.34 in fiscal 1994. In both the second and third quarters of fiscal 1995, earnings exceeded $1.00 per share, our best quarterly results since becoming a public company. Our capital structure was strengthened by reducing debt $105 million during the year to $121 million at the end of fiscal 1995. All of the Company's debt at year end related to the 1992 acquisition of the pulp chemical business. We also entered into a new $275 million credit facility that significantly reduces our interest costs and provides us with financial resources for the future. In September 1995, we entered into a separate $60 million credit facility to finance the construction of the Georgia sodium chlorate plant. [CHART APPEARS ON THIS PAGE] 3 Our $200 million capital program included expenditures of $54 million in 1995. The majority of the capital program will be invested in 1996. The program is currently being funded from operating cash flow, except for the Georgia sodium chlorate plant which we elected to finance under favorable terms. To promote growth while diversifying risk, significant investments will also be made by other companies in projects at the Texas City facility, reflecting our successful use of joint venture and third-party participation since Sterling was formed. ENVIRONMENTAL PROGRESS Sterling has been committed to a sound environmental management program since its inception, with a corporate goal of zero environmental impact on our employees and our neighbors. Our achievements brought special recognition in 1995 for Sterling's successful environmental practices. Sterling was a 1995 winner of the EPA's Environmental Excellence Award for underground injection control in recognition of Sterling's success in the safe operation and maintenance of its underground injection facilities in Texas City. In addition, Sterling has been notified that it will be recognized as a 33/50 Environmental Champion by the EPA for surpassing the emission reduction goals of the 33/50 program at Texas City faster than the EPA's timetable. We were one of only 21 recipients nationwide selected for outstanding achievement in the 33/50 program, a voluntary program initiated by the EPA in 1991 to reduce air emissions. SAFETY Emphasis on safe practices has produced outstanding results. We recently exceeded 2.6 million manhours worked without a days-away injury at Texas City, a Sterling plant record. This achievement places Sterling's rate for days-away injuries among the top industry performers in the nation. Sterling Pulp Chemicals has demonstrated major improvement in its safety program. Since 1992, recordable injuries have been reduced by 50%, and days-away injuries have been reduced by 70%. In addition, the Texas City facility has been recommended for the STAR designation by the U.S. Occupational Safety and Health Administration (OSHA). The STAR is the highest designation conferred by OSHA, and Sterling was the first company in Texas City to be recommended for the award. STERLING PEOPLE Our workforce continues to demonstrate commitment and dedication in keeping Sterling a low-cost manufacturer. Our employees and directors have a major stake in the success of the Company since they own about 30% of the stock. Through employee-directed programs, we have increased productivity, enhanced customer service and improved product quality. Employee participation is a key factor in our efforts to redefine and streamline our entire organization and to further improve customer service. Our employees are essential to the 4 [CHART APPEARS ON THIS PAGE] success of our outstanding quality process, and they have demonstrated their ability to make significant changes through Business Process Improvement to benefit our productivity and our competitiveness. We thank them for their continuing efforts and commitment. We are pleased to recognize the important roles of two members of management in the successful operation of our business. F. Maxwell Evans has been named Vice President, General Counsel and Secretary and Robert O. McAlister has been named Vice President of Human Resources and Administration for Sterling. OUTLOOK During fiscal 1995, cash flow was used to repay debt and to initiate our extensive capital investment program. We remain committed to the long-term growth and profitability of your Company, and to support that goal, we will continue building value through our capital program. We are in a commodities business that is not only cyclical, but also volatile, as evidenced by the events that occurred toward the end of fiscal 1995. During the third quarter, we believe that demand for styrene and acrylonitrile began to weaken as a result of a general slowdown in the worldwide economic growth rate, prompting customers to begin utilizing their available inventories and decreasing purchases. The weakening market conditions for styrene and acrylonitrile were accelerated during the fourth quarter by China's enforcement of economic and tax policies and monetary constraints which reduced its imports. China accounts for a significant portion of global demand for styrene, styrene derivatives, acrylonitrile and acrylic fiber. As a result, a major decrease in styrene prices and margins, particularly in the export market, and a decline in export acrylonitrile prices and margins occurred in the fourth quarter. While the industry cannot predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve. We believe this region has tremendous economic potential and anticipate that its fundamental demand for styrene, acrylonitrile and their derivatives will continue to grow. The Far East should remain a significant, influential market for the foreseeable future. We are optimistic about the future, including the prospects for 1996. We will continue to review the various options for use of cash flow, including capital investment, acquisitions, debt repayment, stock repurchases and dividends, to further enhance shareholder value. We are positioning the Company for the future and will continue to take advantage of ways to add value to your investment in Sterling. [SIGNATURE OF GORDON A. CAIN] [SIGNATURE OF J. VIRGIL WAGGONER] Gordon A. Cain J. Virgil Waggoner Chairman of the Board President and Chief Executive Officer November 15, 1995 5 OPERATING REVIEW ABOUT STERLING CHEMICALS Sterling Chemicals was established in 1986 to acquire a major petrochemical facility in Texas City, Texas. Since that time, Sterling has grown by internally-generated expansions and the 1992 acquisition of the pulp chemical business. Today, Sterling is involved in the largest capital investment program in its history. PETROCHEMICAL FACILITIES Sterling's petrochemical facility is located on about 290 acres in Texas City, Texas on a site easily accessible to raw materials and worldwide distribution facilities. Seven petrochemical products are manufactured at the Texas City site. Sterling Chemicals is engaged in a process of upgrading, modernizing and adding to both its petrochemical and pulp chemical businesses through an extensive three-year capital program to add value through construction of new plants and units and upgrading of existing facilities. This program should result in additional process and quality improvements, lower operating costs and increased worker productivity, as well as increased production capacity and two new operating units. An integrated three-part program in progress at fiscal year end includes an expansion of the acetic acid unit, construction of a methanol plant and the addition of a partial oxidation unit by Praxair, Inc. The acetic acid expansion and the methanol unit are being constructed in conjunction with BP Chemicals Inc. Praxair will construct, own and operate the partial oxidation unit to supply Sterling with several raw materials. The acetic acid expansion will increase capacity of the unit by more than 30% to nearly 800 million pounds per year. The expansion is scheduled to come on stream early in fiscal 1996. BP Chemicals will continue to market all of the production. [PHOTO APPEARS ON THIS PAGE] The methanol refining column weighs more than one million pounds. A special tower jacking system was installed to lift the column into place. 6 In conjunction with the acetic acid expansion, Sterling is constructing a unit for the production of methanol at the Texas City facility. The methanol plant will be a world-scale, 150 million gallon per year facility, with completion expected in June 1996. Capital investment and production quantity will be shared by Sterling and BP Chemicals. About 50% of the methanol production will be used as a raw material in the Company's acetic acid unit, replacing methanol currently being purchased, while the remainder will be available for BP's worldwide acetic acid business and for sale in the merchant market. The Praxair partial oxidation unit will make Sterling's existing synthesis gas reformer available for use in the methanol plant. Refurbishing that reformer, rather than building a new one, will enable Sterling to construct the methanol plant at significantly less than the normal capital cost of a new plant. The unit will use highly efficient state-of-the-art ICI catalyst technology. The lower capital investment, coupled with modern operating technology, should result in a methanol plant with significant competitive advantages. The methanol plant and the acetic acid unit will be operated from the same control facility, providing additional economies and cost efficiencies. In addition to freeing the synthesis gas reformer for methanol production, Praxair's new plant will convert natural gas into carbon monoxide and hydrogen for use in the Company's production of acetic acid and plasticizers. This plant is scheduled to begin production in the second fiscal quarter of 1996. The acetic acid expansion and the methanol plant reflect Sterling's major strength of expanding or adding new facilities at significantly below replacement cost. [PHOTO APPEARS ON THIS PAGE] The acetic acid expansion is part of an integrated three-part program at the Texas City facility. 7 PULP CHEMICAL FACILITIES The pulp chemical business includes four sodium chlorate plants in Canada strategically located in Buckingham, Quebec; Thunder Bay, Ontario; Grande Prairie, Alberta; and Vancouver, British Columbia. The plants are near customer facilities and have attractive, dependable sources of electricity, the largest cost component of sodium chlorate production. Debottlenecking is adding incremental capacity at each of the plants. The Buckingham plant also includes a small sodium chlorite facility. The headquarters for Sterling Pulp Chemicals is in Toronto, Ontario. The Company is constructing a 110,000 ton per year sodium chlorate plant in Valdosta, Georgia. The new facility will increase total annual capacity by 30% to nearly 460,000 tons or about 920 million pounds. This is expected to increase the Company's total capacity from approximately 20% to about 26% of the North American market. The site was selected because of its proximity to existing customers, now being supplied from the Company's Canadian plants, and to available, competitively priced electricity. Capital expenditures for the plant are expected to be approximately $50 million. It is scheduled to begin production in December 1996. PETROCHEMICAL PRODUCTS The Texas City facility produces styrene monomer, acrylonitrile, acetic acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide. Sterling has a significant market share for each of the products it manufactures. The styrene unit is one of the world's largest, with a capacity of more than 1.5 billion pounds annually, accounting for more than one-third of Sterling's total chemical production capacity. The Company's styrene capacity is approximately 11% of total domestic capacity. [PHOTO APPEARS ON THIS PAGE] Construction has started on a new sodium chlorate plant in Georgia to serve customers in the southeastern United States. 8 Sterling is the second largest domestic producer of acrylonitrile, with about 21% of domestic capacity. The Company's total annual production capacity is in excess of 700 million pounds. Acetic acid capacity will expand by 30% to nearly 800 million pounds annually. Currently, Sterling has about 13% of domestic capacity for acetic acid. Plasticizer capacity is about 280 million pounds annually. An incremental expansion of the phthalic anhydride unit that provides a raw material for plasticizer production will add about 10% to existing phthalic anhydride capacity for open market sales. Annual capacity for lactic acid is 19 million pounds, and Sterling is the only domestic producer of synthetic lactic acid. Tertiary butylamine capacity is 21 million pounds annually, and Sterling is the only U.S. producer and one of three worldwide. Annual sodium cyanide capacity is 100 million pounds. PETROCHEMICAL MARKETS Styrene, acrylonitrile and lactic acid are sold to customers under various multi-year contractual arrangements and spot transactions, while the total capacity of the other petrochemical products manufactured by Sterling is sold by others under long-term arrangements. BP Chemicals markets Sterling's acetic acid production, while BASF markets the plasticizer production and Flexsys, a joint venture of Monsanto Company and Akzo Nobel N.V., purchases and resells the tertiary butylamine. The sodium cyanide unit is owned by E.I. du Pont de Nemours and Company. Sterling provides hydrogen cyanide as a raw material to produce sodium cyanide and operates the unit, while Dupont markets the product. Sterling experienced increased demand for its petrochemical products in 1995, primarily because of improved economic conditions worldwide. In the first three quarters of the fiscal year, favorable market conditions for both styrene and acrylonitrile resulted in higher sales prices and margins for most of the year. The markets for styrene and acrylonitrile are not only volatile but are also cyclical, driven by changes in the worldwide supply/demand balance. The global demand for styrene has grown each year during the past decade, but capacity tends to be added in very large increments, creating periods of overcapacity that must be absorbed by additional market growth. Demand for acrylonitrile is affected both by favorable economic conditions and by fashion trends, since acrylic fiber is the largest derivative of acrylonitrile. No major capacity additions for styrene are scheduled until 1997, and no significant additions in acrylonitrile capacity are anticipated until 1997 or later. - --------------------------------------------------------------------------------
PETROCHEMICAL HIGHLIGHTS/(1)/ (Dollars In Thousands) Petrochemical Business FISCAL YEAR ENDED SEPTEMBER 30, 1995 Sales and Other Revenues............................... $886,247 Interest Expense....................................... $ 1,432 Net Income ............................................ $140,382 Earnings before Interest, Taxes, Depreciation and Amortization........................ $239,538 Depreciation and Amortization.......................... $ 28,386 Capital Expenditures................................... $ 45,759 AT SEPTEMBER 30, 1995 Current Assets......................................... $178,192 Property, Plant and Equipment (Net).................... $204,638 Current Liabilities.................................... $123,541 Employees/(2)/......................................... 897 /(1)/ Amounts do not include eliminating entries. /(2)/ Employee counts exclude contract and temporary personnel. - --------------------------------------------------------------------------------
9 In the third quarter of fiscal 1995, the chemical markets began experiencing a weakening in demand for both styrene and acrylonitrile because of a general slowdown in the worldwide economic growth rate. As a result, customers began utilizing existing inventories and decreasing purchases. In addition, chemical imports by China were significantly lower in Sterling's fourth quarter because of changes in China's enforcement of economic and tax policies and monetary constraints. Since China accounts for about 10% of the market for styrene and styrene derivatives and a significant portion of the market for acrylonitrile and its derivatives, the import situation negatively affected demand and resulted in significantly lower styrene prices and somewhat lower acrylonitrile prices in the fourth quarter. While the industry is unable to predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve. Sterling believes that favorable conditions for growth remain in place for the Far East region. Sterling also had a major scheduled shutdown of its styrene plant for about three weeks in the fourth quarter for catalyst change, required maintenance and process control changes. In addition, the acrylonitrile unit had an unscheduled shutdown of almost two weeks to correct a mechanical problem. These shutdowns also negatively affected fiscal fourth quarter results. PULP CHEMICAL PRODUCTS Sterling Pulp Chemicals, Ltd. is the second largest supplier of sodium chlorate to the North American pulp and paper industry, with about 20% of the market. The four Canadian facilities have a combined capacity of approximately 350,000 tons. The Georgia facility currently under construction will increase the Company's capacity by more than 30%. The Buckingham facility also produces sodium chlorite in small quantities. The capacity represents about 23% of the North American sodium chlorite market. Debottlenecking projects at Sterling Pulp Chemicals' existing plants are expanding capacity to serve the growing market for bleached pulp. [PHOTO APPEARS ON THIS PAGE] 10 Sterling Pulp Chemicals also markets chlorine dioxide generator technology under the ERCO trademark and has supplied about two-thirds of the chlorine dioxide generators used worldwide. ERCO developed the first generator technology in 1954. This technology converts sodium chlorate to chlorine dioxide at the pulp mill site. The Company designs and manages construction of the generators and provides technical assistance to customers. Royalties are received from the licensing of technology based on generator operating rates, usually for a ten- year period, providing a relatively steady cash flow. PULP CHEMICAL MARKETS The market for sodium chlorate has continued to grow, with sales and production records set by Sterling Pulp Chemicals in fiscal 1995. Chlorine dioxide, derived from sodium chlorate, is used to produce bleached pulp, the raw material from which most white paper products are manufactured. The demand for sodium chlorate is strong, fueled by the increasing substitution of chlorine dioxide for elemental chlorine in the bleaching process and by growing demand for paper products that are elemental chlorine-free. While two-thirds of the North American sodium chlorate usage is in the United States, primarily in the southeastern U.S., two-thirds of the production is in Canada. The Company has been serving its southeastern U.S. customers from its Canadian facilities. The new facility in Georgia will serve this growing market and increase profitability through improved distribution logistics. Growth in demand by existing customers is expected to fully utilize the capacity of the Georgia plant. Sales of generator technology were approximately the same in 1995 as the previous year. However, generator sales increased during the fourth quarter as pulp and paper mills began moving ahead on increased substitution of chlorine dioxide for elemental chlorine in anticipation of regulatory support in North America for the technology. In general, regulatory authorities in both the U.S. and Canada increasingly support chlorine dioxide bleaching over other technologies, and Sterling believes that chlorine dioxide will be the pulp and paper industry's bleaching chemical of choice into the 21st century. In addition, substituting chlorine dioxide for elemental chlorine produces stronger, brighter pulp at a lower cost than other bleaching methods. - --------------------------------------------------------------------------------
PULP CHEMICAL HIGHLIGHTS/(1)/ (Dollars In Thousands) Pulp Chemical Business FISCAL YEAR ENDED SEPTEMBER 30, 1995 Sales and Other Revenues................................ $143,951 Interest Expense........................................ $ 13,172 Net Income.............................................. $ 9,667 Earnings before Interest, Taxes, Depreciation and Amortization......................... $ 44,709 Depreciation and Amortization........................... $ 14,647 Capital Expenditures.................................... $ 8,203 AT SEPTEMBER 30, 1995 Current Assets.......................................... $ 45,326 Property, Plant and Equipment (Net)..................... $104,446 Current Liabilities..................................... $ 46,557 Employees/(2)/.......................................... 300 /(1)/ Amounts do not include eliminating entries. /(2)/ Employee counts exclude contract and temporary personnel. - --------------------------------------------------------------------------------
11 As part of its leadership in developing new technology for the pulp and paper industry, Sterling Pulp Chemicals and Champion International Corporation have developed technologies that will allow for the manufacture of high quality bleached pulp with minimal bleach plant effluent using chlorine dioxide bleaching. The process is being used in a demonstration project at Champion's pulp and paper mill in Canton, North Carolina. Both Sterling and Champion have granted Wheelabrator Technologies, Inc. exclusive worldwide licensing rights to these proprietary technologies. Sterling Pulp Chemicals also continues its leadership role in the Alliance for Environmental Technology, an organization with a mission to research and promote practical, proven technologies that advance modern papermaking and to achieve sound governmental policies and regulations. ENVIRONMENTAL EXCELLENCE Since 1987, Sterling has achieved a 45% reduction in air emissions and a 93% reduction in offsite transfers. Overall, the Company's total release inventory figures for the calendar 1994 reporting year have decreased by approximately 70% from 1987 levels. At the same time, Sterling has increased production capacity at Texas City by about 25% over its 1987 levels. Sterling also was a 1995 Region 6 winner of the EPA's Environmental Excellence Award for underground injection control. This prestigious award recognizes Sterling's success in the safe operation and maintenance of its underground injection operations at Texas City. Region 6 includes Texas, Arkansas, Louisiana, Oklahoma and New Mexico. Sterling received Certificates of Environmental Excellence as a finalist after previous evaluations in 1993 and 1994. The primary component of the Company's injection well stream is ammonium sulfate, a compound that is used as a commercial fertilizer. In June 1995, the EPA delisted ammonium sulfate from the Toxic Release Inventory because of its non-toxic characteristics. With the delisting of ammonium sulfate, Sterling has reduced injection well reporting numbers by 90%. [PHOTO APPEARS ON THIS PAGE] At the Texas City facility, a new state-of-the-art distributive control system in the styrene unit is part of the modernization of existing facilities. 12 Sterling has been notified that it will be recognized as a 33/50 Environmental Champion by the EPA for its performance at Texas City, one of only 21 recipients nationwide that will receive this designation. Companies were selected in the chemical industry for outstanding achievement in the voluntary emissions reduction program initiated by the EPA in 1991. Sterling was a charter member of the program in 1991. The 33/50 program targeted 17 high priority chemicals included in the EPA's Toxic Release Inventory. The goal was a 33% reduction in emissions of these chemicals by 1992 compared to 1987 levels and a 50% reduction by 1995. Six of the 17 chemicals are present at Texas City. The Company committed to a goal higher than the one set by the EPA, a 65% reduction by 1995, and achieved that goal two years ahead of schedule. For the calendar 1994 reporting year, Sterling had a 74% reduction in emissions of the targeted chemicals. Sound environmental management has been an essential part of Sterling's on- going commitment to its employees and its neighbors. New technology, waste minimization, source reduction and environmental improvements on projects where feasible have all been employed to achieve Sterling's environmental successes. Sterling's capital investment in environmental projects since 1987 has been approximately $55 million, and the new capital program includes environmental components that will result in more progress toward the Company's ultimate goal of zero environmental impact on Sterling's employees and neighbors. Sterling is an active participant in Responsible Care(R), a major chemical industry initiative sponsored by the Chemical Manufacturers Association in the United States and by the Canadian Chemical Producers Association in Canada. Sterling upholds the Responsible Care principles and codes of management practice, including community awareness and emergency response programs. Sterling also participates in the National Petroleum Refiners Association's "BEST Program," which allows Sterling to benchmark its environmental performance and learn techniques used by others in the industry for continuous improvement. Sterling continues its voluntary participation in the Clean Texas 2000 program as a charter member of the Clean Industry Steering Committee. Sterling began an environmental community outreach program involving the Texas City intermediate schools to monitor the bay waters around the area. This Texas Watch program, a voluntary program with the Texas Natural Resource Conservation Commission, exemplifies Sterling's commitment to the communities in which it operates. [PHOTOS APPEAR ON THIS PAGE] Some Sterling employees and contract workers took advantage of the opportunity to sign the methanol column prior to raising it. The column was bolted into place after being raised. 13 In Canada, for the second consecutive year, Sterling Pulp Chemicals was presented the "Safe Handling Award" by Canadian National North America for its Grande Prairie facility. The Safe Handling Awards Program is designed to promote the safe handling and shipping of regulated goods by shippers, and the award is a mark of commitment to excellence in regulated materials handling. Sterling Pulp Chemicals is one of only 12 Canadian companies to receive this award more than once and was one of 37 companies to receive the award in 1995. SAFETY Sterling people are especially proud of the safety record set during the year. At Texas City, Sterling people achieved more than 2.6 million manhours without an injury involving days away from work. This is the equivalent of 444 days without a days-away injury. Sterling's previous record was 1.996 million manhours worked without a days-away injury. From 1993 to 1995, a combined 4.5 million manhours were worked with only one days-away injury. Sterling's recordable injury rate in Texas City also has shown significant improvement. Prior to 1995, the Texas City facility maintained an excellent record, and the further accomplishments in 1995 are outstanding. The chemical industry is among the safest in the U.S., and the Texas City facility's performance in 1995 is significantly better than the average rates of the U.S. chemical industry and U.S. manufacturing as a whole. In recognition of these achievements, Sterling received an award from the National Petroleum Refiners Association for safety achievement and also was recognized by the Texas Chemical Council for its safety program. [PHOTO APPEARS ON THIS PAGE] The methanol refining column is 17 feet in diameter and 216 feet tall. The specially designed lift took several hours to complete. 14 The Texas City facility has been recommended for the STAR designation by the U.S. Occupational Safety and Health Administration (OSHA) for its safe practices. The STAR designation is the highest given by OSHA, and Sterling was the first company in Texas City to be recommended for the STAR award. In 1994, the Texas City facility earned membership in the Merit Program, a part of OSHA's Voluntary Protection Program, a partnership among labor, management and government working together toward workplace safety and health. The Merit award is the second highest conferred by OSHA. Sterling employees used a teamwork approach to act on recommendations for improvement, resulting in recommendation for the STAR designation. At Sterling Pulp Chemicals, major achievements have also been accomplished in safety. Recordable injuries have been reduced by 50% since 1992, and days-away injuries have been reduced by 70%. The improvement was accomplished through commitment and leadership with plant site teams. These teams provided the tools, guidelines, resources and leadership that set the foundation for the common goal of continuous improvement. QUALITY Sterling utilizes a Deming-based approach to quality, focusing on continuous improvement of products and services. Through Business Process Improvement, Sterling is changing and streamlining many processes and systems to improve productivity, customer service and competitiveness in the marketplace. Employee teams are involved in redefining and revising work practices, with many becoming self-directed work groups. During 1995, Sterling received an "Outstanding Customer Service and Quality Product" designation from Exxon Chemical. Sterling has an ISO 9002 registration for its sodium cyanide manufacturing, and plant quality systems are in place to support registration of additional product lines. [PHOTO APPEARS ON THIS PAGE] At its Texas City facility, Sterling has compiled outstanding safety and environmental records. 15 Sterling Chemicals produces seven chemical products in its petrochemical business and two chemicals in its pulp chemical business. These chemicals are used in a variety of processes. Styrene monomer is produced with ethylene and benzene as raw materials. Styrene derivatives are used in the production of foam products such as ice chests, residential sheathing, cups, egg cartons, insulation and protective packaging; for other applications such as housings for computers, telephones, videocassettes, small home appliances and automotive parts; and for tableware, luggage, packing, toys, textile products and synthetic rubber products. Acrylonitrile is produced using ammonia, air and propylene as raw materials. Acrylonitrile is used in synthetic fibers for apparel, rugs and blankets; in polymer products for casings for ice chests, hard luggage, calculators, telephone handsets and computers; in automotive parts and for synthetic rubber products. Acetic Acid is produced using methanol and carbon monoxide as raw materials. Acetic acid's largest use is in the production of vinyl acetate. It is also used in pharmaceuticals, pain relief medicine, latex products for adhesive and surface coatings, certain synthetic fabric finishes and synthetic fibers (polyesters). Plasticizers are produced from olefins, carbon monoxide and hydrogen, (oxoalcohols) combined with orthoxylene and air (phthalic anhydride). Plasticizers are used in producing flexible vinyl plastics for consumer products and building materials. Tertiary Butylamine (TBA) is manufactured using by-product hydrogen cyanide from the acrylonitrile process and isobutylene as raw materials. TBA is used for silicone caulk, and in tires and hoses and as a chemical intermediate. Lactic Acid is produced using by-product hydrogen cyanide and acetaldehyde as its raw materials. It is used as a preservative for food products, for the manufacture of acrylic enamel, for silk finishing and in intravenous solutions. Sodium Cyanide utilizes by-product hydrogen cyanide and sodium hydroxide as its raw materials. It is used for electroplating and to enhance precious metals recovery. Sodium Chlorate is produced from water and salt (sodium chloride) in reaction with electrical current. Sodium chlorate is used at pulp mills to produce chlorine dioxide, which is used to bleach pulp for production of high quality white papers, envelopes, commercial printing papers, coated papers and tissue paper products. Sodium Chlorite is produced using sodium chlorate and hydrochloric acid as raw materials. Sodium chlorite is used as an antimicrobial agent for water treatment, as a disinfectant for fresh produce, for treatment of industrial wastewater and for oilfield microbe control. [PHOTO APPEARS ON THIS PAGE] Many consumer products are manufactured using products from Sterling as raw materials. 16 STERLING CHEMICALS, INC. FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Revenues in fiscal 1995 were the highest in Sterling's history and earnings were the best since becoming a public company in fiscal 1989. Revenues were $1.03 billion in fiscal 1995 compared to $701 million the previous year. The Company reported net earnings of $150 million or $2.70 per share in fiscal 1995 compared to $19 million or $.34 per share in fiscal 1994. Higher average sales prices and margins for styrene and acrylonitrile, the Company's largest volume petrochemical products, were the primary reasons for increased revenues and earnings. Improvement in the global commodity chemical markets that began in 1994 and strengthened through most of 1995 also resulted in continued high sales volumes for styrene and acrylonitrile in fiscal 1995. Also, the Company's pulp chemical business recorded the highest revenues and earnings in its three-year history. Net income for fiscal 1995 included an extraordinary charge of $3.1 million or $0.06 per share, related to early extinguishment of debt, while fiscal 1994 did not include any extraordinary items. The cash flow from the Company's improved operations was utilized to reduce debt by $105 million and for capital expenditures of $54 million which were part of the Company's three-year capital program of approximately $200 million, its largest ever, initiated in fiscal 1995. RESULTS OF OPERATIONS Comparison of Fiscal 1995 to Fiscal 1994 Petrochemicals The financial performance of the Company's petrochemical business was significantly better during fiscal 1995 than in fiscal 1994. Petrochemical revenues increased 53% to $886 million from fiscal 1994 and petrochemical net income increased to $140 million or $2.52 per share from $18 million or $.32 per share during fiscal 1994, primarily as a result of increased average styrene and acrylonitrile sales prices and margins and higher acrylonitrile sales volumes. STYRENE: Styrene revenues increased 62% to $467 million in fiscal 1995 compared to fiscal 1994 primarily because of a 64% increase in average sales prices. Styrene's gross profit accounted for approximately 52% of the Company's total gross profit in fiscal 1995 compared to 36% in 1994. The styrene unit operated at approximately 96% of its 1.5 billion pound capacity in fiscal 1995, slightly higher than in fiscal 1994, in spite of two planned shutdowns for maintenance and catalyst replacement during fiscal 1995 compared to none the prior year. The second planned shutdown, which occurred in the fourth quarter, also included modernization of the styrene unit's control instrumentation with state-of-the-art distributive control systems. Global economic growth for styrene and its derivatives, particularly in the Far East, was the driving force that resulted in the improved performance for fiscal 1995. Most styrene producers were operating their plants at or near full capacity during the last half of fiscal 1994 and for most of fiscal 1995. A series of significant price increases kept margins increasing into the third quarter of fiscal 1995. During the fourth quarter of the year, however, average styrene prices decreased 45% and average margins decreased approximately 75% from the third quarter. The Company believes that demand began to weaken in the third quarter as a result of a general slowdown in the worldwide economic growth rate, prompting customers to begin utilizing their available inventories and decreasing purchases of additional product. The weakening market conditions were accelerated in the fourth quarter by significantly decreased purchases of styrene and styrene derivatives by China primarily as a result of changes in China's enforcement of economic and tax policies and monetary constraints that negatively affected its imports. While the industry cannot predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve. The Company anticipates that styrene demand worldwide will improve in fiscal 1996 relative to the fourth quarter of fiscal 1995, although the Company does not anticipate prices and margins returning to 1995 levels. There were no major additions to capacity in the styrene market in fiscal 1995. Several new plants have been announced by competitors and are planned for 1997 and later years. The Company anticipates that only incremental capacity additions will occur until 1997 when the next major styrene capacity additions will become operational. During fiscal 1995, approximately 46% of the Company's styrene production, representing approximately 61% of styrene revenues, was sold in the export market. As was the situation in 1995, the export market is typically more volatile than the domestic market. The average prices for styrene's primary raw materials, benzene and ethylene, increased 5% and 40%, respectively, in fiscal 1995 compared to fiscal 1994. However, the Company was able to increase styrene selling prices and thereby margins until the dramatic fall in prices and margins in the fourth quarter of fiscal 1995. ACRYLONITRILE: Acrylonitrile revenues for fiscal 1995 totaled $251 million, an increase of 82% from fiscal 1994. The increased revenues primarily resulted from an increase of 70% in average sales prices, peaking at unprecedented levels in the third quarter of fiscal 1995, and a 11% increase in sales volumes. Acrylonitrile profitability began increasing in the fourth quarter of fiscal 1994 and continued into the third quarter of fiscal 1995 as sales prices increased ahead of escalating raw material prices. The improvement in market conditions for acrylonitrile was primarily due to improved demand for acrylic fiber and acrylonitrile butadiene styrene ("ABS") resins, the largest derivatives of acrylonitrile. Demand for all synthetic fibers, including acrylic fiber, was greater in fiscal 1995 than in fiscal 1994 because of generally more favorable economic conditions worldwide and poor cotton crops in various parts of the world. In fiscal 1995, acrylonitrile's gross profit was significantly higher than in fiscal 1994 and accounted for approximately 26% of the Company's total gross profit compared to approximately 8% during fiscal 1994. Acrylonitrile revenues from export sales constituted 93% and 92% of the Company's total acrylonitrile revenues, which represented approximately 81% and 83% of the Company's acrylonitrile production for 1995 and 1994, respectively. Almost all of the Company's domestic acrylonitrile revenues are from conversion agreements for which revenue recognized is substantially lower than from export sales. Average export acrylonitrile prices and margins were 18 significantly higher in fiscal 1995 than in fiscal 1994 as a result of the strong demand during most of the year. As a result of the Company's very high percentage of export acrylonitrile sales, demand for the Company's acrylonitrile is most significantly influenced by export customers, particularly those that supply acrylic fiber to China. In recent years, the acrylic fiber market has been subject to volatility because of the relatively unstable nature of the Chinese market. During most of fiscal 1995, strong demand for acrylic fiber and ABS, particularly in China, increased demand for acrylonitrile. However, the Company believes that acrylonitrile demand began to weaken in the third quarter for the same reasons that caused the significant negative changes in the styrene market. Demand for acrylonitrile from export customers decreased significantly in the fourth quarter of fiscal 1995 as a result of these changes, although export prices and margins did not decrease significantly until the first quarter of fiscal 1996. While the industry cannot predict when China's chemical imports will return to previous levels, the Company believes that demand in the Far East is beginning to improve, although export acrylonitrile prices remain under pressure. The Company anticipates that acrylonitrile demand worldwide will improve in fiscal 1996 relative to the fourth quarter of fiscal 1995, although the Company does not anticipate prices and margins returning to 1995 levels. The Company's acrylonitrile unit operated at approximately 96% of capacity during fiscal 1995, slightly higher than the prior year, in spite of a planned shutdown for maintenance in the first quarter and an approximately two-week unscheduled shutdown in the fourth quarter of fiscal 1995 to correct a mechanical problem. During fiscal 1995, most acrylonitrile producers, including the Company, were operating their plants at or near full capacity in response to strong demand. The average prices of acrylonitrile's primary raw materials, propylene and ammonia, increased substantially in fiscal 1995 compared to fiscal 1994. Average propylene prices were approximately 70% higher and average ammonia prices increased by approximately 35%. However, the Company was able to substantially improve margins for acrylonitrile during most of the year due to increases in acrylonitrile sales prices, until the situation in the fourth quarter that affected sales prices and margins. OTHER PETROCHEMICAL PRODUCTS: While revenues in fiscal 1995 from acetic acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide were approximately $168 million, an increase of approximately 10% compared to fiscal 1994, earnings from these products remained approximately the same primarily because of corresponding increases in raw material costs. Gross profit from these petrochemical products represented approximately 5% of the Company's total gross profit in fiscal 1995. Pulp Chemicals Revenues from the Company's pulp chemical business increased by approximately 17% to $144 million in fiscal 1995. The increase in revenues resulted primarily from a 14% increase in sodium chlorate sales volumes as well as an 11% increase in average selling prices. Sodium chlorate sales volumes and average sales prices increased because of increased substitution of chlorine dioxide, derived from sodium chlorate, for elemental chlorine in the pulp bleaching process, increased demand for elemental chlorine-free paper and improved market conditions in the pulp and paper industry generally. Royalty revenues from installed generator technology increased by 15% to $19 million in fiscal 1995 as a result of higher customer operating rates and additional installed capacity. The Company was awarded nine new generator contracts in fiscal 1995 and seven new Company generators commenced operation in fiscal 1995. Sales of generator technology were approximately the same in 1995 as the previous year. Although generator sales were slower during most of fiscal 1995, sales increased during the fourth quarter as pulp and paper mills began moving ahead on increased substitution of chlorine dioxide for elemental chlorine in anticipation of regulatory support in North America for the technology. The increased sodium chlorate sales volumes in fiscal 1995 resulted in increased capacity utilization, which contributed to lower per unit cost and increased margins. The Company's sodium chlorate facilities operated at approximately 97% of capacity in fiscal 1995, compared to 86% during fiscal 1994. Gross profit for the pulp chemical business increased by 30% in fiscal 1995 from 1994. The pulp chemical business accounted for 17% of the Company's total gross profit in fiscal 1995, down from 38% in fiscal 1994, as a result of the increase in profitability of the Company's petrochemical business. Selling, General and Administrative Expenses The Company's selling, general and administrative expenses ("SG&A") in fiscal 1995 were $29 million compared to $46 million in fiscal 1994. A $25 million decrease in the expense related to the stock appreciation rights ("SARs") program (see Note 5 of "Notes to Consolidated Financial Statements"), resulting from a 50% decrease in the number of SARs outstanding and a decrease in the Company's stock price at the end of fiscal 1995 compared to the end of fiscal 1994, was partially offset by a $4 million increase in employee profit sharing, which was directly related to the Company's improved earnings in fiscal 1995. Interest and Debt Related Expenses Interest expense decreased $7.5 million in fiscal 1995 primarily because the Company repaid $105 million of debt during the year. The Company's average interest rates decreased to 7% per annum on September 30, 1995 from 8% per annum on September 30, 1994 primarily due to the refinancing in April 1995. Accounting Changes Beginning in fiscal 1995, the Company adopted Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts" ("FIN 39"). That standard requires, among other things, that insured liabilities of the Company be recorded separately as a liability and a claim receivable. The Company previously recorded these items on a net basis. The adoption of FIN 39 did not have a material effect on the Company's financial position, results of operations or liquidity. The Financial Accounting Standards Board has issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which the Company is required to adopt by fiscal 1997. The Company does not anticipate that the adoption of this Statement will have a material adverse effect on the Company's financial position, results of operations or liquidity. 19 Comparison of Fiscal 1994 to Fiscal 1993 Revenues for fiscal 1994 totaled $701 million, an increase of $182 million from fiscal 1993. The higher revenues resulted primarily from an increase in styrene sales volumes and average sales prices. Acrylonitrile also generated higher revenues in fiscal 1994 primarily due to increases in sales volumes. The pulp chemical business contributed $123 million to the Company's revenues in fiscal 1994, an increase of $4 million over fiscal 1993. Fiscal 1994 net income increased by $25 million or $0.44 per share over fiscal 1993. The increase primarily resulted from the improvement in styrene margins and higher sales volumes for styrene. This improvement was partially offset by a substantial increase in selling, general and administrative expenses discussed below. Petrochemicals STYRENE: Styrene revenues increased 99% to $287 million in fiscal 1994 compared to fiscal 1993 because of a 63% increase in average sales prices, a 22% increase in sales volumes and a shift to more direct sales from conversion sales. Approximately one-third of the Company's styrene was previously marketed under one of its conversion agreements that expired late in 1993. In fiscal 1994, this volume was successfully marketed under various sales agreements and spot sales. As a result, the Company had more direct styrene sales than conversion sales during fiscal 1994 than in fiscal 1993. Under a conversion arrangement, the customer furnishes raw materials which the Company processes. In a direct sales arrangement, the Company supplies the raw materials and sells the finished product at a price which includes the value of the raw materials. Because of this difference, the revenue recognized from a direct sale is significantly greater than the revenue recognized from an equivalent conversion sale, although the gross profit might be the same. In the tight market for styrene existing at the time, the sales arrangements were more profitable than the expired conversion arrangement and the shift from that long-term conversion arrangement to more spot sales allowed the Company at that time to take advantage of the greater price volatility in the spot market. Styrene's gross profit accounted for 36% of the Company's total gross profit in fiscal 1994 compared to a loss in fiscal 1993. The styrene unit operated at approximately 98% of its 1.5 billion pound capacity in fiscal 1994 compared to about 75% of capacity in fiscal 1993. In addition to increased demand, two planned shutdowns for maintenance and installation of new and improved catalyst during fiscal 1993, compared to none in 1994, contributed to the increase in operating rates. Styrene's improved performance primarily resulted from continuing market growth for styrene and its derivatives based on global economic growth. The U.S. economy and the economies of most Asian countries expanded during fiscal 1994 while Europe's economy began to recover. The strength of the U.S. automotive, housing and packaging markets also contributed to the increased demand for styrene. By the spring of 1994, increased demand for styrene had absorbed much of the excess capacity. In addition, some competitors' styrene plants experienced operating difficulties and scheduled shutdowns during the year which further tightened the market. Most styrene plants were operating near full capacity during the last half of fiscal 1994. During fiscal 1994, approximately 55% of the Company's styrene production, representing approximately 62% of styrene revenues, was sold in the export market, which is typically more volatile than the domestic market. While the prices for styrene's raw materials, benzene and ethylene, increased significantly during the second half of the fiscal year, their average prices for the year increased only slightly. ACRYLONITRILE: Acrylonitrile revenues for fiscal 1994 totaled $138 million, an increase of 11% from fiscal 1993. A 26% increase in sales volumes was partially offset by a 12% decrease in average sales prices in fiscal 1994 compared to fiscal 1993. Although average sales prices were lower in fiscal 1994 than in 1993, acrylonitrile prices and margins increased significantly during the last half of fiscal 1994. Acrylonitrile's profitability did not significantly improve until the fourth fiscal quarter, however, because of increasing raw material costs. Demand for acrylonitrile strengthened during fiscal 1994 for several reasons. Favorable economic conditions worldwide helped increase acrylonitrile demand. In addition, poor cotton crops in parts of the world contributed to increased demand for all synthetic fibers, including acrylic fiber. During 1994, strong demand for acrylic fiber in China and in most other Asian countries increased demand for acrylonitrile. By the end of fiscal 1994, most acrylonitrile producers were operating at or near full capacity. The Company's acrylonitrile unit operated at approximately 96% of capacity during fiscal 1994 compared to approximately two-thirds of capacity in fiscal 1993. In fiscal 1994, acrylonitrile's gross profit was significantly lower than in fiscal 1993 and accounted for approximately 8% of the Company's gross profit compared to approximately 36% during fiscal 1993. Average export acrylonitrile prices and margins were lower in fiscal 1994 than fiscal 1993, and the average price of acrylonitrile's primary raw material, propylene, was slightly higher. Acrylonitrile's performance benefited from lower per unit fixed costs because of higher operating rates in fiscal 1994 compared to the prior year. The improved profitability of styrene also contributed to acrylonitrile's lower percentage contribution to the Company's total gross profit. Export sales of acrylonitrile increased in 1994 and constituted the great majority of revenues in fiscal years 1994 and 1993. OTHER PETROCHEMICAL PRODUCTS: Acetic acid revenues increased by 20% in fiscal 1994 over fiscal 1993. During each year, the Company's acetic acid unit operated approximately at its capacity of about 600 million pounds. The Company's other products performed well during fiscal 1994, with plasticizers showing significant improvement. Pulp Chemicals Revenues from the Company's pulp chemical business increased 3% to $123 million, primarily because of increased sales volumes of sodium chlorate and higher royalty revenues. The sodium chlorate market improved and sales volumes increased because of increased substitution of chlorine dioxide, derived from sodium chlorate, for elemental chlorine in the bleaching process, increased demand for elemental chlorine-free paper and the recovery in the pulp and paper industry. As a result, during the fourth quarter of fiscal 1994, the Company realized its first sodium chlorate price increase since acquiring the business in 1992. During fiscal 1993, the sluggish North American pulp and paper market resulted in lower demand for sodium chlorate. Royalty revenues also increased 20 during fiscal 1994 because of higher generator operating rates and new start- ups. In total, eight new Company generators commenced operation in fiscal 1994, including the first such generator ever in China. The Company also was awarded ten new generator contracts in fiscal 1994. Revenues from sodium chlorate increased 5% from fiscal 1993 as higher sales volumes were partially offset by lower average sales prices. The increased sales volumes resulted in increased capacity utilization, which contributed to lower per unit cost and increased margins. A 3% decrease in the average cost of electricity, the predominant cost in the manufacturing of sodium chlorate, also contributed to lower costs. The Company's sodium chlorate facilities operated at approximately 86% of capacity in fiscal 1994, compared to 75% during fiscal 1993. Gross profit for the pulp chemical business increased by 6% in fiscal 1994 from 1993. Pulp chemicals accounted for 38% of the Company's total gross profit in fiscal 1994, significantly lower than in fiscal 1993 due to the increase in profitability of the Company's petrochemical business. Selling, General and Administrative Expenses The Company's SG&A expenses increased solely because of expenses related to the SARs program. The Company recognized expense of $21.8 million or $0.26 per share related to the SARs in fiscal 1994 because of the increase in the Company's stock price (see Note 5 of "Notes to Consolidated Financial Statements"). Prior to this accrual, SG&A was $1.1 million lower in fiscal 1994 compared to 1993, despite employee profit sharing expense of $1.7 million in fiscal 1994 compared to none in fiscal 1993. There were no expenses associated with the SARs in fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES Management regularly assesses the liquidity and funding requirements of the Company's operations. Some of the factors important in the Company's liquidity are cash flow from operations (including working capital management), capital spending, adequacy of bank lines of credit and availability of long-term capital on satisfactory terms. Management believes that funds generated from operations and borrowing availability under its existing bank lines will be sufficient to permit the Company to meet its liquidity needs at least through fiscal 1996. Although the Company has no plans to do so currently, if necessary or appropriate, the Company may seek additional funds or refinance existing indebtedness through public offerings, private placements of securities or bank credit facilities. Working Capital Working capital at September 30, 1995 was $75 million, an increase of $54 million from September 30, 1994. This change resulted primarily from reductions in accrued liabilities of $24 million, accounts receivable of $16 million and the current portion of long-term debt of $16 million and an increase in cash and cash equivalents of $29 million. The increase in cash and cash equivalents reflects the increased cash from operations that was not used for debt reduction or capital expenditures. Accrued liabilities decreased due to the SAR payments in October 1994 and September 1995, a reduction in accrued repairs due to the styrene and acrylonitrile shutdowns in the fourth quarter of fiscal 1995 and reductions in income taxes payable and estimated contract adjustments. The reduction in accounts receivable reflects the lower sales prices and volumes for styrene and acrylonitrile near the end of fiscal 1995 compared to the end of fiscal 1994. The reduction in the current portion of long-term debt is a result of the refinancing in April 1995 described below under "Financing". Cash Flow Net cash provided by operations was $192 million for fiscal 1995, an increase of $117 million or 156% compared to fiscal 1994. This increase resulted primarily from increased earnings during fiscal 1995, partially offset by the change in working capital. The Company utilized the increased cash from operations to reduce long-term debt by $105 million during the year (see Note 3 of "Notes to Consolidated Financial Statements"), and for capital expenditures of approximately $54 million for various projects as a part of its three-year capital program. The Company paid cash dividends on its common stock of approximately $3 million or $.06 per share during fiscal 1993. On July 1, 1993, the Company's Board of Directors suspended the quarterly dividend and, consequently, no dividends were paid in fiscal 1994 or fiscal 1995. Financing On April 13, 1995, the Company entered into a seven-year credit agreement (the "Credit Agreement") with a group of 14 commercial banks to refinance the Company's existing debt except for the revolving debt associated with Sterling Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a revolving credit facility of $150 million (the "Revolver") and a term loan of $125 million (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a separate agreement for a Cdn. $20 million revolving credit facility (the "Canadian Revolver"). The Canadian Revolver was utilized to refinance the revolving debt associated with Sterling Pulp. The Revolver and the Term Loan bear interest at the Base Rate or, at the Company's option, the Eurodollar rate. The Base Rate is equal to the greater of the Prime Rate as announced from time to time by the agent bank, or the Federal Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar Interbank Rate plus the Margin Percentage, which is adjustable quarterly and can range from 0.65% to 1.25%. Subsequent to the closing of the Credit Agreement, the Company entered into an interest rate swap, equivalent in amount and term to the Term Loan. The swap effectively replaces the variable rate on the Term Loan with a fixed interest rate of approximately 7% per annum for the remaining term. In connection with arranging the Credit Agreement, the Company incurred fees of approximately $3 million which will be amortized over the term of the loans. Unamortized debt issue costs related to the retired loans were expensed in April 1995 and are recorded as an extraordinary loss from early extinguishment of debt of approximately $3.1 million, net of tax of $1.6 million, or $.06 per share. 21 At September 30, 1995, the Company had indebtedness of $120 million under the Term Loan and $1 million under the Canadian Revolver. Additionally, the Company had $2 million in letters of credit under the Revolver and $1 million in letters of credit under the Canadian Revolver which reduced the amounts available under these respective facilities. In addition, availability under the Revolver for loans and letters of credit is subject to a monthly borrowing base. At September 30, 1995, the borrowing base limited availability under the Revolver to approximately $129 million. The Term Loan requires equal quarterly installments of $4.5 million over its seven-year term. This payment schedule has resulted in a decrease in current maturities of long-term debt from $33.8 million on September 30, 1994 to $17.9 million on September 30, 1995. The Revolver and the Canadian Revolver will mature at the end of their seven-year terms, and no principal payments are required prior to that time. The Revolver and the Term Loan are collateralized by substantially all of the inventory and accounts receivable of the Company and certain of its domestic subsidiaries, all of the Company's equity interests in Sterling Canada, Inc. (a wholly-owned subsidiary of the Company), 65% of the equity of Sterling Pulp and Sterling NRO, Ltd., and certain contract rights of the Company. Additionally, certain of the Company's domestic subsidiaries have guaranteed the Revolver and Term Loan. The Credit Agreement contains a number of financial and other covenants that management believes are customary in lending transactions of this type. The Credit Agreement allows the Company to redeem, retire or acquire shares of its capital stock and to make dividend payments, within certain conditions and limitations, as long as no Default or Event of Default (as defined in the Credit Agreement) has occurred or is continuing. On September 28, 1995, Sterling Pulp entered into a seven-year credit agreement to finance the construction of the Georgia sodium chlorate plant (the "Chlorate Plant Credit Agreement") with the same bank group that is a party to the Credit Agreement. Sterling Pulp can borrow up to $60 million under the Chlorate Plant Credit Agreement to purchase taxable bonds from the local county development authority that will use the bond proceeds to finance the construction of the plant. The first quarterly scheduled principal payment on the debt is due October 1, 1997 while the final scheduled payment is due July 1, 2002. The Chlorate Plant Credit Agreement contains an annual excess cash flow test that could result in mandatory prepayments of some of the scheduled principal payments. Most of the debt is scheduled to be repaid during the last two years of the seven-year term. As a result of a guaranty provided by the Company, the overall borrowing rate under the Chlorate Plant Credit Agreement will be the same as under the Credit Agreement, excluding the effect of any interest rate hedging arrangements. The debt will be collateralized by the taxable bonds and the Company's interest in the plant. No debt was outstanding under the Chlorate Plant Credit Agreement at September 30, 1995. Capital Expenditures In fiscal 1995, the Company initiated a three-year capital spending program of approximately $200 million. The program includes modernization of the Company's Texas City facility, the new methanol plant at Texas City, the acetic acid expansion, the new sodium chlorate plant at Valdosta, Georgia, debottlenecking projects at its existing sodium chlorate facilities and various other projects. The plant modernization effort at Texas City includes a significant capital commitment for replacing the older control technology in the styrene, acrylonitrile and acetic acid units with state-of-the-art distributive control systems, which should result in increased efficiencies and stronger operating fundamentals. The Company is constructing a world-scale, 150 million gallon per year methanol plant at Texas City as part of its three-year capital plan. The plant is expected to be operational by June 1996. Capital investment and production capacity will be shared by the Company and BP Chemicals Inc. ("BPC"). Approximately 50% of the methanol production will be used as a raw material in the Company's acetic acid plant, replacing methanol that is currently being purchased, while the remainder will be available for the merchant market and for BPC's worldwide acetic acid business. The plant will be constructed at significantly less than normal replacement cost because available equipment already at the Company's Texas City facility will be refurbished and used in the plant. The plant will use highly efficient state-of-the-art ICI catalyst technology. The lower capital investment coupled with modern operating technology should result in a methanol plant with significant competitive advantages. The Company and BPC are expanding acetic acid capacity by nearly 30% or 200 million pounds, to nearly 800 million pounds annually. This expansion is scheduled to be completed in the first quarter of fiscal 1996. BPC will continue to market all of the production. The Company also is constructing a 110,000 ton per year sodium chlorate plant in Valdosta, Georgia. The new facility, expected to cost approximately $50 million, will increase the Company's total annual capacity by more than 30% to nearly 460,000 tons. Valdosta, Georgia was selected because of its proximity to customers, now being supplied from the Company's Canadian plants, and to available, competitively priced electricity, the most important variable in sodium chlorate production. The new facility is intended to meet the growing market demand from the pulp and paper industry in the southeastern U.S. In addition to building this new facility to meet growing demand, the Company is debottlenecking its existing sodium chlorate facilities. Capital expenditures for fiscal 1995 were $54 million compared to $12 million in fiscal 1994. The fiscal 1995 capital expenditures were primarily for plant instrumentation modernization and process improvements, the acetic acid expansion, the new methanol plant and the new sodium chlorate plant. The Company funded its fiscal 1995 capital expenditures from operating cash flow. Capital expenditures for fiscal 1996 are expected to be approximately $125 million, with about $65 million dedicated to the petrochemical business primarily for the completion of the acetic acid expansion, construction of the methanol plant and modernization of the plant instrumentation. The remainder will be invested in the pulp chemical business primarily for construction of the Georgia sodium chlorate plant. In addition to the capital spending program described above, the Company anticipates capital expenditures of approximately $25 million over the next five years for environmentally-related prevention, containment, process improvements and remediation at its Texas City facility. Specific classifications of 22 these expenditures are difficult to project, since an expenditure may be made for more than one purpose. The Company's capital expenditures for environmentally-related prevention, containment and process improvements were $3 million and $2 million for fiscal years 1995 and 1994, respectively. During both fiscal years, the Company did not incur any material expenditures to remediate previously contaminated sites. The Company also did not incur any other infrequent or non-recurring material environmental expenditures which were required under existing environmental regulations in fiscal years 1995 or 1994. Foreign Exchange The Company enters into forward foreign exchange contracts to hedge Canadian dollar currency transactions on a continuing basis for periods consistent with its committed exposures. The forward foreign exchange contracts have varying maturities with none exceeding 18 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. The Company does not engage in currency speculation. However, the Company enters into forward foreign exchange contracts to reduce risk due to Canadian dollar exchange rate movements. The Company had a notional amount of approximately $26 million and $20 million of forward foreign exchange contracts outstanding to buy Canadian dollars at September 30, 1995 and 1994, respectively. The deferred gain on these forward foreign exchange contracts at September 30, 1995 and 1994 was immaterial. CERTAIN KNOWN EVENTS, TRENDS AND UNCERTAINTIES Petrochemical Raw Material Prices and Availability For each of the Company's petrochemical products, the cost of raw materials and utilities is far greater than all other costs of production combined. Therefore, an adequate supply of raw materials at reasonable prices is critical to the success of the Company's business. The Company does not produce any of its major raw materials (benzene, ethylene, propylene, ammonia and methanol), although a methanol plant is under construction as described above. These materials are all commodity petrochemicals and the price for each can fluctuate widely for a variety of reasons, including changes in the availability of these products because of major capacity additions or significant plant operating problems. The Company has several long-term arrangements with ethylene suppliers that provide for the majority of its anticipated requirements for purchased ethylene. Although no assurances can be given, management believes that the Company will continue to secure adequate supplies of all its raw materials at acceptable prices. Environmental and Safety Matters The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits 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 wastewater collection, pretreatment, disposal systems or other matters. The Company routinely incurs expenses associated with managing hazardous substances and pollution in ongoing operations. These operating expenses include items such as depreciation on its waste treatment facilities, outside waste management, fuel, electricity and salaries. The amounts of these operating expenses were approximately $45 million and $44 million for fiscal years 1995 and 1994, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1996. The Company considers these types of environmental expenditures normal operating expenses and includes them in cost of goods sold. At its Texas City facility, the Company has reduced emissions of targeted chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These reductions included a 96% reduction in hydrogen cyanide emissions and an 87% reduction in benzene emissions. Additionally, the Company will initiate appropriate actions or preventive projects necessary to insure that the facility continues to operate in a safe and environmentally responsible manner. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations or products. The Company's sodium chlorate market is sensitive to potential environmental regulation. In general, environmental regulations support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) or chlorine derivatives in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine-containing compounds, regulation restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine-containing compounds could have a material adverse effect on the Company's financial condition and results of operations. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes that the ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. The Company is not aware of any other laws or regulations currently in place which would restrict the use of the product. Legal Proceedings The information under "Legal Proceedings" in Note 6 of the "Notes to Consolidated Financial Statements" herein is incorporated by reference. 23 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Dollars In Thousands Except Per Share Data)
Year Ended September 30, ------------------------ 1995 1994 1993 ------ ------ ------ Revenues.................................................... $1,030,198 $700,840 $518,821 Cost of goods sold.......................................... 758,580 606,916 477,902 ---------- -------- -------- Gross profit.............................................. 271,618 93,924 40,919 Selling, general and administrative expenses (Note 7)....... 28,856 46,150 25,495 Interest and debt related expenses, net of interest income.. 14,604 22,126 22,392 Gain on sale of assets...................................... -- (2,606) -- ---------- -------- -------- Income (loss) before taxes and extraordinary item........... 228,158 28,254 (6,968) Provision (benefit) for income taxes........................ 75,005 9,122 (1,548) ---------- -------- -------- Income (loss) before extraordinary item..................... 153,153 19,132 (5,420) Extraordinary item, loss on early extinguishment of debt, net of tax (Note 3)....................................... 3,104 -- -- ---------- -------- -------- Net income (loss)........................................... $ 150,049 $ 19,132 $ (5,420) ========== ======== ======== Per share data: Income (loss) before extraordinary item..................... $ 2.76 $ 0.34 $ (0.10) Extraordinary item.......................................... .06 -- -- ---------- -------- -------- Net income (loss) per share................................. $ 2.70 $ 0.34 $ (0.10) ========== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 24 STERLING CHEMICALS, INC. CONSOLIDATED BALANCE SHEET (Dollars In Thousands Except Per Share Data)
September 30, -------------------- 1995 1994 -------- -------- ASSETS Current assets: Cash and cash equivalents..................................................................... $ 30,882 $ 2,013 Accounts receivable........................................................................... 112,102 127,705 Inventories................................................................................... 67,867 69,758 Prepaid expenses.............................................................................. 3,878 2,700 Deferred income tax benefit................................................................... 5,622 9,332 -------- -------- Total current assets.......................................................................... 220,351 211,508 Property, plant and equipment, net............................................................. 309,084 291,126 Other assets................................................................................... 80,504 78,291 -------- -------- Total assets.................................................................................. $609,939 $580,925 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.............................................................................. $ 72,016 $ 76,857 Accrued liabilities........................................................................... 55,858 80,071 Current portion of long-term debt............................................................. 17,857 33,771 -------- -------- Total current liabilities 145,731 190,699 Long-term debt................................................................................. 103,581 192,621 Deferred income tax liability.................................................................. 40,297 38,837 Deferred credits and other liabilities......................................................... 81,012 69,034 Commitments and contingencies (Note 6) Stockholders' equity: Common stock, $.01 par value, 150,000 shares authorized, 60,327 shares issued, 55,674 and 55,660 shares outstanding at September 30, 1995 and 1994, respectively............ 603 603 Additional paid-in capital..................................................................... 33,269 33,232 Retained earnings............................................................................. 275,052 125,003 Pension adjustment............................................................................ (1,556) (950) Accumulated translation adjustment............................................................ (17,307) (17,322) Deferred compensation......................................................................... (129) (68) -------- -------- 289,932 140,498 Treasury stock, at cost, 4,653 and 4,667 shares at September 30, 1995 and 1994, respectively.. (50,614) (50,764) -------- -------- Total stockholders' equity.................................................................... 239,318 89,734 -------- -------- Total liabilities and stockholders' equity.................................................... $609,939 $580,925 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 25 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars In Thousands Except Per Share Data)
Common Stock Additional Accumulated -------------- Paid-In Retained Pension Translation Deferred Treasury Shares Amount Capital Earnings Adjustment Adjustment Compensation Stock ------ ------ ---------- -------- ----------- ----------- ------------ -------- Balance, September 30, 1992............. 60,150 $602 $35,478 $114,603 $(1,009) $ (6,610) $(234) $(55,487) Net loss................................ - - - (5,420) - - - - Translation adjustment.................. - - - - - (9,574) - - Dividends paid on common stock $.06 per share.............................. - - - (3,312) - - - - Common stock issued..................... 175 1 700 - - - - - Treasury stock transactions............. - - (1,470) - - - (135) 2,286 Amortization of deferred compensation........................... - - - - - - 205 - Pension adjustment...................... - - - - (288) - - - ------ ---- ------- -------- ------- -------- ----- -------- Balance, September 30, 1993............. 60,325 603 34,708 105,871 (1,297) (16,184) (164) (53,201) Net income.............................. - - - 19,132 - - - - Translation adjustment.................. - - - - - (1,138) - - Common stock issued..................... 2 - 6 - - - - - Treasury stock transactions............. - - (1,482) - - - - 2,437 Amortization of deferred compensation........................... - - - - - - 96 - Pension adjustment...................... - - - - 347 - - - ------ ---- ------- -------- ------- -------- ----- -------- Balance, September 30, 1994............. 60,327 603 33,232 125,003 (950) (17,322) (68) (50,764) Net income.............................. - - - 150,049 - - - - Translation adjustment.................. - - - - - 15 - - Treasury stock transactions............. - - 37 - - - - 150 Amortization of deferred compensation........................... - - - - - - (61) - Pension adjustment...................... - - - - (606) - - - ------ ---- ------- -------- ------- -------- ----- -------- Balance, September 30, 1995............. 60,327 $603 $33,269 $275,052 $(1,556) $(17,307) $(129) $(50,614) ====== ==== ======= ======== ======= ======== ===== ========
The accompanying notes are an integral part of the consolidated financial statements. 26 STERLING CHEMICALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars In Thousands Except Per Share Data)
Year Ended September 30, ------------------------ 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Cash received from customers........................................................... $1,159,192 $ 709,026 $ 558,088 Miscellaneous cash receipts............................................................ 14,007 10,618 10,945 Cash paid to suppliers and employees................................................... (893,324) (614,856) (497,920) Interest paid.......................................................................... (14,811) (20,443) (21,622) Interest received...................................................................... 2,540 60 86 Income taxes paid...................................................................... (75,766) (9,156) (1,463) ---------- --------- --------- Net cash provided by operating activities................................................. 191,838 75,249 48,114 Cash flows from investing activities: Capital expenditures................................................................... (53,962) (12,343) (12,175) Proceeds from sale of assets........................................................... - 2,606 - ---------- --------- --------- Net cash used in investing activities..................................................... (53,962) (9,737) (12,175) Cash flows from financing activities: Proceeds from long-term debt........................................................... 217,000 - - Repayment of long-term debt............................................................ (322,282) (65,517) (33,649) Dividends paid......................................................................... - - (3,312) Other.................................................................................. (3,735) 643 (96) ---------- --------- --------- Net cash used in financing activities..................................................... (109,017) (64,874) (37,057) Effect of U.S./Canadian exchange rate on cash............................................. 10 23 (155) ---------- --------- --------- Net increase (decrease) in cash and cash equivalents...................................... 28,869 661 (1,273) Cash and cash equivalents - beginning of year............................................. 2,013 1,352 2,625 ---------- --------- --------- Cash and cash equivalents - end of year................................................... $ 30,882 $ 2,013 $ 1,352 ========== ========= ========= Reconciliation of Net Income (Loss) to Cash Provided by Operating Activities Net income (loss)......................................................................... $ 150,049 $ 19,132 $ (5,420) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................................................... 43,033 40,953 38,679 Extraordinary item..................................................................... 3,104 - - Deferred tax expense (benefit)......................................................... 4,280 (4,817) 1,239 Accrued compensation including SARs.................................................... (2,638) 21,941 205 Other.................................................................................. 1,058 (1,180) 1,494 Change in assets/liabilities: Accounts receivable.................................................................... 22,540 (52,304) (17,705) Inventories............................................................................ 1,921 (9,493) 17,708 Prepaid expenses....................................................................... (1,183) 2,649 2,430 Other assets........................................................................... (4,075) (1,437) (4,411) Accounts payable....................................................................... (4,117) 34,083 8,123 Accrued liabilities.................................................................... (21,447) 17,604 6,332 Other liabilities...................................................................... (687) 8,118 (560) ---------- --------- --------- Net cash provided by operating activities................................................. $ 191,838 $ 75,249 $ 48,114 ========== ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 27 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands Except Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities in Texas City, Texas and pulp chemical facilities throughout Canada. The significant accounting policies of the Company are described below. Principles of Consolidation The consolidated financial statements include all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's investment in a cogeneration joint venture is accounted for under the equity method with earnings from the joint venture recorded as a reduction of cost of goods sold. Cash Equivalents The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market; cost is determined on the first-in, first-out ("FIFO") basis except for stores and supplies, which are valued at average cost. The Company enters into agreements with other companies to exchange chemical inventories in order to minimize working capital requirements and to facilitate distribution logistics. Balances related to quantities due to or payable by the Company are included in inventory. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Major renewals and improvements which extend the useful lives of the equipment are capitalized. Major planned maintenance expenses are accrued for during the periods prior to the maintenance, while routine repair and maintenance expenses are charged to operations as incurred. Disposals are removed at carrying cost less accumulated depreciation with any resulting gain or loss reflected in operations. Depreciation is provided using the straight-line method over estimated useful lives ranging from 5 to 25 years with the predominant life of the plant and equipment being 15 years. The Company capitalizes interest costs which are incurred as part of the cost of constructing major facilities and equipment. The amount of interest capitalized for the fiscal years 1995, 1994 and 1993 was $1,024, $145 and $291, respectively. Patents and Royalties The cost of patents is amortized on a straight-line basis over their estimated useful lives which approximates ten years. The Company capitalized the value of the chlorine dioxide generator technology acquired in 1992 based on the net present value of all estimated remaining royalty payments associated with the technology. The resulting intangible amount is included in other assets and is amortized over an average life for these royalty payments of ten years. Debt Issue Costs Debt issue costs relating to long-term debt are amortized using the interest method and are included in other assets. Income Taxes Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and the financial reporting amounts at each year-end. Revenue Recognition The Company generates revenues through sales in the open market, raw material conversion agreements and long-term supply contracts. In addition, the Company has entered into shared profit arrangements with respect to certain petrochemical products. The Company recognizes revenue from sales in the open market, raw material conversion agreements and long-term supply contracts as the products are shipped. Revenues from shared profit arrangements are estimated and accrued monthly. The Company also generates revenues from the construction and sale of chlorine dioxide generators which are recognized using the percentage of completion method. Deferred credits are amortized over the life of the contract which gave rise to them. The Company also receives prepaid royalties which are recognized over a period which is typically ten years. Foreign Exchange Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at year-end exchange rates and revenues and expenses are translated at the average monthly exchange rates. Translation adjustments are reported as a separate component of stockholders' equity while transaction gains and losses are included in operations when incurred. The Company's Canadian subsidiaries enter into forward foreign exchange contracts to minimize the short-term impact of Canadian dollar fluctuations on certain of its Canadian dollar denominated commitments. Gains or losses on these contracts are deferred and are included in operations in the same period in which the related transactions are settled. Income (Loss) Per Share Income (loss) per share for fiscal years 1995, 1994 and 1993 has been computed using a weighted average shares outstanding of 55,674,000, 55,606,000 and 55,252,000, respectively. 28 (Dollars In Thousands Except Per Share Data) Environmental Costs Environmental costs are expensed unless the expenditures extend the economic useful life of the assets. Costs that extend the economic life of the assets are capitalized and depreciated over the remaining life of such assets. Reclassification Certain amounts reported in the financial statements for the prior periods have been reclassified to conform with the current financial statement presentation with no effect on net income (loss) or stockholders' equity. 2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
September 30, ----------------------- 1995 1994 --------- --------- Inventories: Finished products ...................... $ 16,506 $ 49,189 Raw materials .......................... 44,802 21,761 --------- --------- Inventories at FIFO cost ................. 61,308 70,950 Inventories under exchange agreements .. (4,783) (12,350) Stores and supplies .................... 11,342 11,158 --------- --------- $ 67,867 $ 69,758 ========= ========= Property, plant and equipment: Land ................................... $ 11,775 $ 11,771 Buildings .............................. 26,955 24,944 Plant and equipment .................... 422,479 406,860 Construction in progress ............... 49,782 14,132 Less accumulated depreciation .......... (201,907) (166,581) --------- --------- $ 309,084 $ 291,126 ========= ========= Other assets: Patents and technology, net ............ $ 40,971 $ 46,918 Estimated insurance recoveries ......... 10,315 -- Intangible pension asset ............... 3,733 4,139 Deferred catalyst ...................... 4,357 4,126 Debt issue costs ....................... 3,370 5,835 Other .................................. 17,758 17,273 --------- --------- $ 80,504 $ 78,291 ========= ========= Accrued liabilities: Repairs ................................ $ 9,021 $ 13,468 Income taxes ........................... 2,250 13,257 Interest ............................... 574 576 Estimated contract adjustments ......... 1,536 9,684 Property taxes ......................... 6,179 5,796 Litigation contingency ................. 6,000 -- Accrued compensation ................... 10,019 21,719 Other .................................. 20,279 15,571 --------- --------- $ 55,858 $ 80,071 ========= ========= Deferred credits and other liabilities: Deferred revenue ....................... $ 21,969 $ 27,513 Accrued postretirement benefits ........ 24,722 22,746 Additional minimum pension liability ... 6,127 5,601 Accrued compensation ................... 2,922 9,030 Litigation contingency ................. 10,315 -- Other .................................. 14,957 4,144 --------- --------- $ 81,012 $ 69,034 ========= =========
3. LONG-TERM DEBT: Long-term debt consisted of the following:
September 30, ----------------------- 1995 1994 --------- --------- Revolving credit facilities .............. $ 902 $ 32,940 Term loan ................................ 120,536 20,000 Project loan ............................. 16,134 Subsidiary term loan ..................... -- 113,050 Subordinated note ........................ -- 44,268 --------- --------- Total debt outstanding ................. 121,438 226,392 ========= ========= Less: Current maturities ..................... (17,857) (33,771) --------- --------- Total long-term debt ..................... $ 103,581 $ 192,621 ========= =========
On April 13, 1995, the Company entered into a seven-year agreement (the "Credit Agreement") with a group of 14 commercial banks to refinance the Company's existing debt except for the revolving debt associated with Sterling Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a revolving credit facility of $150,000 (the "Revolver") and a term loan of $125,000 (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a separate agreement for a Cdn. $20,000 revolving credit facility (the "Canadian Revolver"). The Canadian Revolver was utilized to refinance the revolving debt associated with Sterling Pulp. The Revolver and the Term Loan bear interest at the Base Rate or, at the Company's option, the Eurodollar rate. The Base Rate is equal to the greater of the Prime Rate as announced from time to time by the agent bank, or the Federal Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar Interbank Rate plus the Margin Percentage, which is adjustable quarterly and can range from 0.65% to 1.25%. Subsequent to the closing of the Credit Agreement, the Company entered into an interest rate swap, equivalent in amount and term to the Term Loan. The swap effectively replaces the variable rate on the Term Loan with a fixed interest rate of approximately 7% per annum for the remaining term. 29 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands Except Per Share Data) In connection with arranging the Credit Agreement, the Company incurred fees of approximately $3,000 which will be amortized over the term of the loans. Unamortized debt issue costs related to the retired loans were expensed in April 1995 and are recorded as an extraordinary loss from early extinguishment of debt of approximately $3,104, net of tax of $1,571, or $.06 per share. At September 30, 1995, the Company had indebtedness of $120,536 under the Term Loan and $902 under the Canadian Revolver. Additionally, the Company had $2,172 in letters of credit under the Revolver and $1,070 in letters of credit under the Canadian Revolver, both of which reduced the amount available under these respective facilities. In addition, availability under the Revolver for loans and letters of credit is subject to a monthly borrowing base. At September 30, 1995, the borrowing base limited availability under the Revolver to $129,398. The Term Loan requires equal quarterly installments of $4,464 over the seven- year term. This payment schedule has resulted in a significant decrease in current maturities of long-term debt from $33,771 on September 30, 1994 to $17,857 on September 30, 1995. The Revolver and the Canadian Revolver mature at the end of their seven-year terms, and no principal payments are required prior to that time. The Revolver and the Term Loan are collateralized by substantially all of the inventory and accounts receivable of the Company and certain of its domestic subsidiaries, all of the Company's equity interests in Sterling Canada, Inc. (a wholly-owned subsidiary of the Company), 65% of the equity of Sterling Pulp and Sterling NRO, Ltd., and certain contract rights of the Company. Additionally, certain of the Company's domestic subsidiaries have guaranteed the Revolver and Term Loan. The Credit Agreement contains a number of financial and other covenants that management believes are customary in lending transactions of this type. The Credit Agreement allows the Company to redeem, retire or acquire shares of its capital stock and to make dividend payments, within certain conditions and limitations, as long as no Default or Event of Default (as defined in the Credit Agreement) has occurred or is continuing. On September 28, 1995, Sterling Pulp entered into a seven-year credit agreement to finance the construction of the Georgia sodium chlorate plant (the "Chlorate Plant Credit Agreement") with the same bank group that is a party to the Credit Agreement. Sterling Pulp can borrow up to $60 million under the Chlorate Plant Credit Agreement to purchase taxable bonds from the local county development authority that will use the bond proceeds to finance the construction of the plant. The first quarterly scheduled principal payment on the debt is due October 1, 1997 while the final scheduled payment is due July 1, 2002. There is an annual excess cash flow test required by the Chlorate Plant Credit Agreement that could result in mandatory prepayments of some of the scheduled principal payments. Most of the debt is scheduled to be paid during the last two years of the seven-year term. As a result of a guaranty provided by the Company, the overall borrowing rate under the Chlorate Plant Credit Agreement will be the same as under the Credit Agreement, excluding the effect of any interest rate hedging arrangements. The debt will be collateralized by the taxable bonds and the Company's interest in the plant. No debt was outstanding under the Chlorate Plant Credit Agreement at September 30, 1995. Debt Maturities The estimated remaining principal payments on the outstanding debt are as follows:
Year ending Principal September 30, Payments 1996........................... $ 17,857 1997........................... 17,857 1998........................... 17,857 1999........................... 17,857 2000........................... 17,857 2001........................... 17,857 2002........................... 14,296 -------- Total outstanding debt......... $121,438 ========
4. INCOME TAXES: A reconciliation of federal statutory income taxes to the Company's effective tax provision (benefit) before extraordinary item follows:
Year Ended September 30, ------------------------- 1995 1994 1993 ------ ------ ------ Provision (benefit) for federal income tax at the statutory rate.............. $79,855 $9,772 $(2,994) Foreign sales corporation............... (7,991) -- -- State and foreign income taxes.......... 2,862 90 877 Estimated income tax settlement and other................... 279 (740) 569 ------- ------ ------- Effective tax provision (benefit)....... $75,005 $9,122 $(1,548) ======= ====== =======
The provision (benefit) for income taxes is composed of the following:
Year Ended September 30, ------------------------- 1995 1994 1993 ------ ------ ------ From operations: Current federal............... $67,393 $18,618 $(2,849) Deferred federal.............. 1,075 (7,809) 148 Deferred foreign.............. 3,489 (1,687) 1,153 Current state................. 2,947 -- -- Deferred state................ 101 -- -- ------- ------- ------- Total tax provision (benefit)... $75,005 $ 9,122 $(1,548) ======= ======= =======
30 (Dollars In Thousands Except Per Share Data) The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes("SFAS 109"), effective October 1, 1993. Under SFAS 109, deferred income taxes are provided for temporary differences between the tax basis of assets and liabilities and amounts for financial reporting purposes. The adoption of this statement did not have an effect on the Company's results of operations. Upon adoption of SFAS 109, the Company's current deferred tax asset and deferred tax liability each increased by approximately $1,600. The components of the deferred income taxes for 1993 (a disclosure no longer required for years subsequent to adoption of SFAS 109) are summarized below:
Year Ended September 30, 1993 ------------- Depreciation and amortization......... $1,709 Alternate minimum tax................. (959) Accrued expenses for book purposes.... 484 Pension expense....................... (729) Postretirement expense................ (667) Effect of tax rate change............. 500 Other................................. 963 ------ Total deferred tax expense............ $1,301 ======
The components of the Company's deferred income tax assets and liabilities are summarized below:
September 30, ---------------- 1995 1994 ------ ------ Assets: Accrued liabilities............................. $10,475 $13,099 Accrued postretirement cost..................... 8,719 7,405 Tax loss and credit carryforward................ 7,470 11,389 Other........................................... -- 523 ------- ------- Total deferred tax assets....................... 26,664 32,416 Less current deferred income tax benefit........ 5,622 9,332 ------- ------- Noncurrent deferred tax assets.................. $21,042 $23,084 ======= ======= Liabilities: Property, plant and equipment................... $57,466 $60,756 Accrued pension cost............................ 2,471 1,165 Other........................................... 1,402 -- ------- ------- Total deferred tax liabilities.................. $61,339 $61,921 ======= =======
The Company has approximately Cdn. $25,000 in Canadian tax loss carryforwards which will expire from 1998 through 2001. 5. EMPLOYEE BENEFITS: The Company has established the following benefit plans: Retirement Benefit Plans The Company has non-contributory pension plans in the United States and employer and employee contributory plans in Canada which cover all salaried and wage employees. The benefits under these plans are based primarily on years of service and employees' pay near retirement. For those Company employees who were employed by the Company as of September 30, 1986 and were previously employed by Monsanto, the Company recognizes their Monsanto pension years of service for purposes of determining benefits under the Company's plans. For those Company employees who were employed by the Company on August 21, 1992 and were previously employed by Tenneco Inc., the Company recognizes their Tenneco Inc. pension years of service for purposes of determining benefits under the Company's plans. The Company's funding policy is consistent with the funding requirements of federal law and regulations. Plan assets consist principally of common stocks and government and corporate securities. The Company has recorded its additional minimum liability in accordance with Statement of Financial Accounting Standards No. 87 "Employers' Accounting for Pensions." In recognizing the additional pension liability at September 30, 1995 and 1994, the Company recorded a liability of $6,127 and $5,601, an intangible asset of $3,733 and $4,139, which is included with other assets, and a reduction of stockholders' equity of $1,556 and $950, net of deferred tax of $838 and $512, respectively. The components of pension expense for the years ended September 30, 1995, 1994 and 1993 were as follows:
1995 1994 1993 ------ ------ ------ Service cost (for benefits earned during the period)................ $ 3,288 $ 3,386 $ 3,195 Interest cost on projected benefit obligation................ 4,471 3,891 3,499 Actual return on plan assets and contributions................. (5,825) 617 (2,940) Deferral of asset gain (loss)...... 1,909 (3,997) 59 Net amortization of unrecognized amounts.............. 871 848 863 ------- ------- ------- Pension expense.................... $ 4,714 $ 4,745 $ 4,676 ======= ======= =======
Assumptions used in determining the projected benefit obligation and pension cost for the periods were as follows:
Fiscal Year -------------------- 1995 1994 1993 ------ ------ ------ Discount rates................ 7.5% 8.0% 7.5% Rates of increase in salary compensation level........... 5.5% 5.5% 5.5% Expected long-term rate of return on assets............. 9.0% 9.0% 9.0%
31 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands Except Per Share Data) The funded status of the Company's pension plans for which assets exceed accumulated benefits and plans for which accumulated benefits exceed assets as of the actuarial valuation dates of August 31, 1995 and 1994 follows:
1995 1994 ------------------------- ------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- Actuarial present value of benefits based on service to date and present pay levels: Vested benefit obligation.................................................... $ 26,222 $21,743 $19,392 $17,776 Non-vested benefit obligation................................................ 1,029 1,293 2,040 1,309 -------- ------- ------- ------- Accumulated benefit obligation............................................... 27,251 23,036 21,432 19,085 Plan assets at fair value.................................................... 33,540 21,134 26,835 16,795 -------- ------- ------- ------- Plan assets in excess of (less than) accumulated benefit obligation.......... 6,289 (1,902) 5,403 (2,290) Additional amounts related to projected salary increases..................... 16,431 658 14,806 812 -------- ------- ------- ------- Plan assets less than total projected benefit obligation..................... (10,142) (2,560) (9,403) (3,102) Unrecognized net loss resulting from plan experience and changes in actuarial assumptions....................................................... 5,995 2,579 4,935 1,871 Unrecognized prior service cost.............................................. 2 3,689 (49) 3,949 Unrecognized transition obligation........................................... 2,716 156 3,067 182 -------- ------- ------- ------- Prepaid (accrued) pension cost before additional minimum liability........... (1,429) 3,864 (1,450) 2,900 Additional minimum liability................................................. -- (6,127) -- (5,601) -------- ------- ------- ------- Total accrued pension obligation............................................. $ (1,429) $(2,263) $(1,450) $(2,701) ======== ======= ======= ======= - ----------------------------------------------------------------------------------------------------------------------------------
Postretirement Benefits Other Than Pensions The Company provides certain health care benefits and life insurance benefits for retired employees. Substantially all of the Company's employees become eligible for these benefits at normal retirement age. The Company accrues the cost of these benefits during the period in which the employee renders the necessary service. Health care benefits are provided to employees who retire from the Company with ten or more years of service except for Canadian employees subject to collective bargaining agreements. All of the Company's employees are eligible for postretirement life insurance. Postretirement health care benefits for most U.S. employees are provided for under a contributory, comprehensive plan while all other plans are non-contributory. Benefit provisions for most hourly and some salaried employees are subject to collective bargaining. In general, the plan stipulates that retiree health care benefits are paid as covered expenses are incurred. For U.S. employees, postretirement medical plan deductibles are assumed to increase at the rate of the long-term consumer price index. Approximately two hundred seventy-four retirees and dependents are covered under these plans. The components of postretirement benefits cost other than pensions for the years ended September 30, 1995 and 1994 were as follows:
1995 1994 ------ ------ Service cost (for benefits earned during the period)............................ $1,084 $1,064 Interest cost on projected benefit obligation 1,835 1,688 Amortization of plan amendments 29 29 ------ ------ $2,948 $2,781 ====== ======
Actuarial assumptions used to determine fiscal year 1995 and 1994 costs and benefit obligations for postretirement benefit plans other than pensions include an average discount rate of 7.5% and an average rate of future increases in benefit compensation of 5.5%. The assumed composite rate of future increases in per capita cost of health care benefits ( health care cost trend rate ) was 7.8% for fiscal year 1995, exclusive of demographic changes, decreasing gradually to 5.5% by the year 2028. These trend rates reflect current cost performance and management's expectation that future rates will decline. Increasing the health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation by $1,391 and would increase annual aggregate service and interest costs by $173. The following sets forth the plan's funded status reconciled with amounts reported in the Company's consolidated balance sheet at September 30, 1995 and 1994. Accumulated postretirement benefit obligation (APBO):
1995 1994 ------- ------- Retirees.................................. $ 7,315 $ 5,956 Fully eligible active plan participants 7,690 7,234 Other active plan participants............ 11,956 11,752 ------- ------- Total APBO............................... 26,961 24,942 Plan assets at fair value................. -- -- Unrecognized loss......................... (1,987) (1,915) Unrecognized prior service cost........... (252) (281) ------- ------- Accrued postretirement benefit liability.. $24,722 $22,746 ======= =======
32 (Dollars In Thousands Except Per Share Data) Postemployment Benefits During the first quarter of fiscal 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires accrual accounting for benefits provided to former or inactive employees after employment but before retirement. The Company implemented the provisions of SFAS 112 in fiscal 1995 and the effect of adoption on the Company's financial position and results of operations was not material. Employee Stock Ownership Trust The Employee Stock Ownership Trust ("ESOT") was formed to invest primarily in the Company's common stock and includes only participants contributing to the Company's Savings and Investment Plan ("SIP"). The Company's contribution to the ESOT is 60% of the participant's SIP contributions to the extent that such participant's contributions do not exceed 7.5% of the employee's eligible earnings. The Company's contributions are subject to a 20% per year vesting schedule commencing after one year of service. The Company's contributions to the ESOT for the years ended September 30, 1995, 1994 and 1993 were $1,684, $1,688 and $1649, respectively. Profit Sharing Plans The Company provides profit sharing plans for the benefit of salaried and hourly employees meeting certain eligibility requirements. These plans were amended and restated in fiscal 1993. The Company distributes quarterly, to eligible employees, a specified percentage of its earnings before interest, taxes, depreciation and amortization above a specified level. The amount of each eligible employee's quarterly cash distribution is related to a specified percentage of such employee's base salary or wages, with the percentage determined by the employee's position in the Company. Profit sharing expense for the years ended September 30, 1995 and 1994 was $13,038 and $3,815, respectively. There was no profit sharing expense during fiscal 1993. Omnibus Stock and Incentive Plan The Company has an Omnibus Stock and Incentive Plan, under which the Company may grant to key employees incentive and nonincentive stock options, stock appreciation rights, restricted stock, performance units and performance shares. The terms and amounts of the awards are determined by the Compensation Committee of the Board of Directors. Upon a change of control of the Company, all awards granted under the plan become fully vested and all performance based awards will be paid at the higher of performance goals or actual performance to date. 3,000,000 shares of the Company's stock were reserved under the plan when it was established. As of September 30, 1995, 263,000 shares have been issued. In fiscal year 1993, the Company granted stock appreciation rights ("SARs") to certain key employees and directors. Total expense benefit is determined based on 3,632,000 SARs granted, the vesting period (five years beginning September 1992) and the appreciation of the Company's stock price above $4 per share, which was the fair market value of the Company's common stock on the date of grant of the SARs. In October 1994, the Company amended the SAR program by modifying the vesting periods and limiting the amount of appreciation for each SAR during each vesting period, thereby limiting the Company's aggregate future expenses. The Company recorded expense (benefit) for the years ended September 30, 1995 and 1994 of ($2,767) and $21,800, respectively, and paid $8,297 in October 1994 and $5,820 in September 1995 pursuant to the SARs, as amended. There was no expense associated with the SARs for fiscal year 1993 as the market price of the Company's stock at September 30, 1993 was less than the price at the date of grant. The expense (benefit) for the SARs is included in selling, general and administrative expenses in the Company's income statement. In fiscal 1995, the Company granted 82,500 stock options to certain officers of the Company with an exercise price of $13.50 per share. The options are exercisable from the third through the tenth anniversary of the date of the grant. 6. COMMITMENTS AND CONTINGENCIES: Product Contracts The Company has certain long-term agreements which provide for the dedication of 100% of the Company's production of acetic acid, plasticizers, TBA and sodium cyanide, each to one customer. The Company also has various sales and conversion agreements which dedicate significant portions of the Company's production of styrene monomer and acrylonitrile to various customers. These agreements generally provide for cost recovery plus an agreed margin or element of profit based upon market price. Lease Commitments The Company has entered into various long-term noncancellable operating leases. Future minimum lease commitments at September 30, 1995 are as follows: fiscal 1996 -- $2,135; fiscal 1997 -- $1,971; fiscal 1998 -- $1,878; fiscal 1999 -- $1,661; fiscal 2000 -- $1,553; and $5,701 thereafter. Rent expense for fiscal years 1995, 1994 and 1993 was not material. Environmental and Safety Matters The Company's operations involve the handling, production, transportation and disposal of materials classified as hazardous or toxic and are extensively regulated under environmental and health and safety laws. Operating permits which are required for the Company's operations are subject to periodic renewal and may be revoked or modified for cause. New laws or permit requirements and conditions may affect the Company's operations, products or waste disposal. Past or future operations may result in claims or liabilities. Expenditures could be required to upgrade wastewater collection, pretreatment, disposal systems or other matters. 33 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands Except Per Share Data) The Company routinely incurs expenses associated with managing hazardous substances and pollution in ongoing operations. These operating expenses include items such as depreciation on its waste treatment facilities, outside waste management, fuel, electricity and salaries. The amounts of these operating expenses were approximately $45,000 and $44,000 for fiscal years 1995 and 1994, respectively. The Company does not anticipate a material increase in these types of expenses during fiscal 1996. The Company considers these types of environmental expenditures normal operating expenses and includes them in cost of goods sold. At its Texas City facility, the Company has reduced emissions of targeted chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These reductions included a 96% reduction in hydrogen cyanide emissions and an 87% reduction in benzene emissions. Additionally, the Company will initiate appropriate actions or preventive projects necessary to insure that the facility continues to operate in a safe and environmentally responsible manner. No assurances can be given that the Company will not incur material environmental expenditures associated with its facilities, operations or products. The Company's sodium chlorate market is sensitive to potential environmental regulation. In general, environmental regulations support substitution of chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine in the pulp bleaching process. Certain environmental groups are encouraging passage of regulations which restrict the amount of Absorbable Organic Halides (AOX) or chlorine derivatives in bleach plant effluent. Increased substitution of chlorine dioxide for elemental chlorine in the pulp bleaching process significantly reduces the amount of AOX and chlorine derivatives in bleach plant effluent. As long as there is not an outright ban on chlorine-containing compounds, regulation restricting AOX or chlorine derivatives in bleach plant effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any significant ban on all chlorine-containing compounds could have a material adverse effect on the Company's financial condition and results of operations. British Columbia has a regulation in place that would effectively eliminate the use of chlorine dioxide in the bleaching process by the year 2002. The pulp and paper industry is working to change this regulation and believes that the ban of chlorine dioxide in the bleaching process will yield no measurable environmental or public health benefit. The Company is not aware of any other laws or regulations currently in place which would restrict the use of the product. Legal Proceedings Petrochemicals HUNTSMAN LAWSUIT: On January 30, 1995, the Company filed a lawsuit against Huntsman Chemical Corporation and certain affiliates seeking a declaratory judgment in connection with an alleged agreement arising from discussions, previously suspended by the Company, relating to possible future capacity rights for a significant portion of the Company's styrene monomer unit at its Texas City facility. In the lawsuit, the Company is requesting a judicial determination that, among other things, there was no enforceable agreement between the Company and any of the defendants. In response, the defendants filed a counterclaim demanding a jury trial and asserting that a contractual agreement existed, that the Company breached the alleged agreement, and that as a result the defendants incurred an unspecified amount of "massive damages". Subsequently, the Company filed a motion for summary judgment. On November 30, 1995, summary judgment was granted in the Company's favor. The summary judgment, which is subject to appeal, confirms that as a matter of law, no enforceable contract or agreement ever existed between the Company and the defendants. The Court's order also moots the defendants' counterclaim against the Company for damages resulting from breach of the alleged contract. The Company believes a loss with respect to this matter is not probable and is unable to quantify a reasonably possible loss estimate (as defined in Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies") at this time. ALLEMAND LAWSUIT: On June 19, 1995, a lawsuit was filed against the Company and several other corporate defendants asserting personal injury and mental anguish resulting from an incident occurring on June 16, 1995 in which a hose being used to unload a barge of sulfuric acid at the Company's Texas City facility ruptured, spraying sulfuric acid on an employee of Marine Fueling Service, Inc. The plaintiffs seek an unspecified amount of damages. The incident is under investigation and discovery is ongoing. AMMONIA RELEASE: On May 8, 1994, an ammonia release occurred at the Company's Texas City facility while a reactor in the acrylonitrile unit was being restarted after a shutdown for routine maintenance. The Company estimated that approximately three thousand pounds of ammonia were emitted into the atmosphere. Approximately nine thousand individuals have filed claims directly with the Company alleging personal injury and/or property damage as a result of exposure to the ammonia. The Company and its insurance carriers are in the process of evaluating these claims. Approximately two thousand of these claims have been settled and three thousand have been denied. Settlements, costs and expenses to date have totaled less than $2,000. All amounts above the Company's $1,000 deductible (which has been charged against earnings) have been paid by its insurance carriers. Sixteen lawsuits involving approximately four thousand plaintiffs have been filed against the Company seeking unspecified damages for personal injuries and property damage as a result of the release. Additional claims and litigation against the Company asserting similar claims may ensue. 34 (Dollars In Thousands Except Per Share Data) SMITH LAWSUIT: On April 27, 1994, approximately one thousand two hundred plaintiffs sued the Company and eighteen other corporate defendants in the Texas City, Texas area. The plaintiffs seek an unspecified amount of damages for personal injury and property damages arising from alleged chemical releases. Discovery is proceeding and the Company is vigorously defending this lawsuit. ALLEN LAWSUIT: On May 9, 1991, a lawsuit was filed against the Company and several other petrochemical companies operating in the Texas City, Texas area. The plaintiffs in the lawsuit assert personal injury and property damage claims arising from alleged chemical releases. The plaintiffs seek an unspecified amount of damages. Although the court dismissed a number of the plaintiffs for failure to comply with discovery, over three hundred plaintiffs remain. The Company is vigorously defending this lawsuit. The Company is subject to various other claims and legal actions that arise in the ordinary course of its business. Pulp Chemicals The Company's primary competitor in the supply of patented technology for generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel and its affiliates. The Company and Akzo Nobel are involved in numerous patent disputes throughout the world in which the Company and Akzo Nobel are challenging certain patents of the other and attempting to restrict the other's operating range. If either party is successful in these disputes, the other party may be required to make adjustments and modifications to its commercial operations or obtain a license from the prevailing party. The Company believes that it is entitled to certain indemnities from Tenneco Canada with respect to the acquired technology. The Company and Akzo Nobel have initiated discussions to resolve these disputes. Litigation Contingency In accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" and Financial Accounting Standards Board Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts", the Company has made estimates of the reasonably possible range of liability with regard to its outstanding litigation for which it may incur liability. These estimates are based on 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 insurance policies or from third-party indemnitors based on its understanding of its insurance policies and indemnifications, discussions with its insurers and indemnitors and consultation with outside legal counsel, in addition to management's judgments. Based on the foregoing as of September 30, 1995, the Company has accrued approximately $17,000 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 $16,000. In addition, management estimates that at present, the reasonably possible range of loss, in addition to the amount accrued, is from $0 to $37,000. The Company believes that it is insured or indemnified for this additional reasonably possible loss, except for a portion which is not material. 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 as additional information is developed and evaluated. However, the Company believes that the final resolution of these contingencies will not have a material adverse impact on the financial position, results of operations or cash flows of the Company. The timing of probable insurance and indemnity recoveries, and payment of liabilities, if any, is not expected to have a material effect on the financial position, results of operations or cash flows of the Company. 7. SEGMENT AND GEOGRAPHIC INFORMATION: Sales to individual customers constituting 10% or more of total revenues (in any of the last three fiscal years) and sales by geographic region were as follows:
Year Ended September 30, -------------------------- 1995 1994 1993 -------------------------- Major Customers: British Petroleum plc and subsidiaries ... $169,944 $103,637 $ 54,497 Mitsubishi International Corporation ..... $129,812 $ 69,920 $ 60,186 Export Sales: Export revenues .......................... $534,067 $324,930 $158,804 Percentage of total revenues ............. 52% 46% 31% Export revenues (as a percent of total exports) by geographical area: Asia ..................................... 64% 80% 61% Europe ................................... 36% 16% 39% Other .................................... - 4% -
35 STERLING CHEMICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands Except Per Share Data)
Year Ended September 30, ----------------------- 1995 1994 1993 ---- ---- ---- Geographic Segment Information: Revenues: United States.................... $ 886,247 $578,295 $399,486 Canada........................... 143,951 122,545 119,335 ---------- -------- -------- Total............................. $1,030,198 $700,840 $518,821 ========== ======== ======== Income before taxes and extraordinary item: United States.................... $ 210,320 $ 27,106 $(12,877) Canada........................... 17,838 1,148 5,909 ---------- -------- -------- Total............................. $ 228,158 $ 28,254 $ (6,968) ========== ======== ======== Net Income: United States.................... $ 140,382 $ 17,979 $ (8,991) Canada........................... 9,667 1,153 3,571 ---------- -------- -------- Total............................. $ 150,049 $ 19,132 $ (5,420) ========== ======== ======== Assets: United States.................... $ 403,999 $376,594 $331,149 Canada........................... 204,615 204,331 215,605 ---------- -------- -------- Total............................. $ 608,614 $580,925 $546,754 ========== ======== ======== Selling, general and administrative expenses: United States.................... $ 14,535 $ 10,232 $ 10,422 Canada........................... 17,088 14,075 15,073 SARs............................. (2,767) 21,843 - ---------- -------- -------- Total............................. $ 28,856 $ 46,150 $ 25,495 ========== ======== ========
8. FINANCIAL INSTRUMENTS: Foreign Exchange The Company enters into forward foreign exchange contracts to hedge Canadian dollar currency transactions on a continuing basis for periods consistent with its committed exposures. The forward foreign exchange contracts have varying maturities with none exceeding 18 months. The Company makes net settlements of U.S. dollars for Canadian dollars at rates agreed to at inception of the contracts. The Company does not engage in currency speculation. However, the Company enters into forward foreign exchange contracts to reduce risk due to Canadian dollar exchange rate movements. The Company had a notional amount of approximately $26,000 and $20,000 of forward foreign exchange contracts outstanding to buy Canadian dollars at September 30, 1995 and 1994, respectively. The deferred gain on these forward foreign exchange contracts at September 30, 1995 and 1994 was immaterial. Concentration of Credit Risk The Company sells its products primarily to companies involved in the petrochemical and pulp and paper manufacturing industries. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. However, letters of credit are required by the Company on many of its export sales. The Company's credit losses have been minimal. The Company maintains cash deposits with major banks which from time to time may exceed federally insured limits. Management periodically assesses the financial condition of the institutions and believes that any possible loss is minimal. Investments It is the policy of the Company to invest its excess cash in investment instruments or securities whose value is not subject to market fluctuations such as certificates of deposit, repurchase agreements or Eurodollar deposits with domestic or foreign banks or other financial institutions. Other permitted investments include commercial paper of major U.S. corporations with ratings of A1 by Standard & Poor's or P1 by Moody's, loan participations of major U.S. corporations with a short term credit rating of A1/P1 and direct obligations of the U.S. Government or its agencies. In addition, not more than $5,000 will be invested with any single bank, financial institution or U.S. corporation. 9. RELATED PARTY TRANSACTIONS: The Company, through a wholly-owned subsidiary, is a partner in a joint venture which constructed and operates a cogeneration plant at the Texas City facility. During fiscal years 1995, 1994 and 1993, the Company purchased $16,622, $16,546 and $16,646 of steam and electricity from the joint venture, respectively, and recorded earnings of $3,391, $2,788 and $2,598, respectively. The Company's investment in the joint venture is not material. 36 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sterling Chemicals, Inc. We have audited the consolidated balance sheet of Sterling Chemicals, Inc. as of September 30, 1995 and 1994 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sterling Chemicals, Inc. as of September 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. [SIGNATURE OF COOPERS & LYBRAND L.L.P.] COOPERS & LYBRAND L.L.P. October 25, 1995 Houston, Texas REPORT OF MANAGEMENT Management is responsible for the preparation and content of the financial statements and other information included in this annual report. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. The financial statements reflect Management's judgments and estimates as to the effects of events and transactions that are accounted for or disclosed. Management maintains accounting systems which are supported by internal accounting controls that provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with Management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls should not exceed the benefits. Internal audits have been conducted to test compliance with internal controls. Results of audit efforts and actions are communicated to appropriate Management and to the Audit Committee of the Board of Directors. Coopers & Lybrand L.L.P. performed a separate independent audit of the Company's financial statements for the purpose of determining that the statements are presented fairly and in accordance with generally accepted accounting principles. Coopers & Lybrand L.L.P. was appointed by the Board of Directors and meet regularly with the Audit Committee of the Board. The Audit Committee of the Board of Directors is composed solely of outside directors. The Committee meets periodically with the Company's senior officers, the Company's Manager of Internal Audit and independent accountants to review the adequacy and reliability of the Company's accounting, financial reporting and internal controls. [SIGNATURE OF VIRGIL WAGGONER] J. Virgil Waggoner President and Chief Executive Officer [SIGNATURE JIM P. WISE] Jim P. Wise Vice President and Chief Financial Officer October 25, 1995 37 STERLING CHEMICALS, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Dollars In Thousands Except Per Share Data)
Quarterly Financial Data (unaudited) Fiscal First Second Third Fourth(1) Year Quarter Quarter Quarter Quarter ---- ------------- ------------- ------------ ------------- Revenues........................ 1995 $240,622 $303,954 $298,491 $187,131 1994 $130,560 $154,754 $204,668 $210,858 Gross profit.................... 1995 $ 48,354 $ 93,530 $103,504 $ 26,230 1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286 Income before extraordinary item............. 1995 $ 22,259 $ 56,077 $ 59,767 $ 15,050 1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248 Net income (loss)............... 1995 $ 22,259 $ 56,077 $ 56,663 $ 15,050 1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248 Per Share Data: Income (loss) before extraordinary item............. 1995 $ .40 $ 1.01 $ 1.08 $ .27 1994 $ (.06) $ .03 $ .10 $ .27 Net income (loss)............... 1995 $ .40 $ 1.01 $ 1.02 $ .27 1994 $ (.06) $ .03 $ .10 $ .27 Cash dividends per common share.......................... 1995 $ - $ - $ - $ - 1994 $ - $ - $ - $ - Price range of common stock (NYSE)................... 1995 High $ 13 7/8 $ 14 $ 13 $ 12 7/8 Low $ 9 3/4 $ 10 7/8 $ 10 1/4 $ 8 1/4 1994 High $ 4 1/2 $ 6 3/4 $ 10 $ 13 3/4 Low $ 3 3/8 $ 4 $ 5 1/2 $ 9
The common stock of the Company is traded on the New York Stock Exchange ("NYSE") under the ticker symbol "STX". There were approximately 20,000 shareholders of record and other beneficial owners as of September 30, 1995. For more information concerning the Company's ability and intention to pay future dividends see "Management's Discussion and Analysis of Financial Condition and Results of Operations". (1) The decline in revenues, gross profit and net income in the fourth quarter of fiscal 1995 relative to previous quarters resulted from the decrease in prices and margins for styrene and acrylonitrile as well as the negative impact from the shutdowns in styrene and acrylonitrile during the quarter. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations". Fourth quarter net income in fiscal 1994 included a charge of $12,159, or $.14 per share, for expenses related to the SARs described in Note 5 of the "Notes to Consolidated Financial Statements". In the fourth quarter of fiscal 1995, the charge was $(4,325), or $(.05) per share. The Company's stock price decreased from $13.50 on September 30, 1994 to $8.25 on September 30, 1995, resulting in the reversal of the previously accrued expenses. 38 STERLING CHEMICALS, INC. SUPPLEMENTAL FINANCIAL INFORMATION (Dollars In Thousands Except Per Share Data) Selected Financial Data
Year Ended September 30, -------------------------------------------------------------------------------------------- Operating Data: 1995 1994 1993 1992 1991 1990 1989 1988 1987 -------------------------------------------------------------------------------------------- Revenues.......................... $1,030,198 $700,840 $518,821 $430,529 $542,664 $506,046 $580,797 $ 698,964 $413,192 Gross profit...................... 271,618 93,924 40,919 27,882 70,257 106,403 172,608 334,990 118,956 Net income (loss)................. 150,049 19,132 (5,420) (5,890) 36,797 59,083 103,898 213,079 47,381 Net cash provided by (used in) operating activities............. 191,838 75,249 48,114 (3,752) 65,605 85,384 136,433 253,082 79,726 Net cash used in investing activities............. (53,962) (9,737) (12,175) (20,424) (36,051) (22,185) (60,820) (19,168) (13,916) Net cash provided by (used in) financing activities............. (109,017) (64,874) (37,057) 23,752 (26,721) (63,452) (75,627) (236,461) (70,454) Capital expenditures.............. 53,962 12,343 12,175 15,953 34,374 19,915 57,592 16,993 13,174 EBITDA(1)......................... 284,247 89,471 52,477 40,967 78,522 115,241 178,562 337,336 125,450 Per Share Data: Income (loss)..................... 2.70 0.34 (0.10) (0.11) 0.67 1.07 1.77 3.55 .79 Cash dividends.................... - - 0.06 0.245 0.65 1.00 .75 3.17 - Weighted average number of common shares outstanding...................... 55,674 55,606 55,252 55,063 55,055 55,219 58,701 60,000 60,000 Balance Sheet Data: Working capital................... $ 74,620 $ 20,809 $ 30,952 $ 56,787 $ 28,623 $ 35,315 $ 35,566 $ 39,448 $ 28,585 Total assets...................... 609,939 580,925 546,754 608,470 362,498 353,728 331,030 296,512 288,435 Long-term debt.................... 103,581 192,621 263,894 300,220 72,630 65,443 68,489 88,554 121,107 Stockholders' equity.............. 239,318 89,734 70,336 87,343 112,192 108,240 110,372 90,562 52,360
/(1)/EBITDA (Earnings before interest, taxes, depreciation and amortization) is presented to further enhance understanding of the Company's results of operations and cash flows. It is not intended as an alternative measure of performance to net income. EBITDA is used in certain calculations in the financial covenants of the Company's credit agreements. In addition, with certain adjustments, EBITDA is the basis for payments to employees under the Company's profit sharing plans. 39 CORPORATE INFORMATION FORM 10-K Copies of the Company's 1995 Form 10-K are available without charge upon written request to: Jim P. Wise Vice President - Finance and Chief Financial Officer Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 ANNUAL MEETING Date: January 24, 1996 Time: 9:00 a.m. Place: Texas Commerce Center Auditorium 601 Travis Houston, Texas 77002 LEGAL COUNSEL Bracewell & Patterson, L.L.P. 2900 South Tower Pennzoil Place Houston, Texas 77002 713/223-2900 INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. 1100 Louisiana, Suite 4100 Houston, Texas 77002 713/757-5200 STOCK LISTING New York Stock Exchange Ticker Symbol STX STOCK TRANSFER AGENT AND REGISTRAR Society National Bank c/o KeyCorp Shareholder Services, Inc. 700 Louisiana, Suite 2620 Houston, Texas 77002-2729 CORPORATE HEADQUARTERS Sterling Chemicals, Inc. 1200 Smith Street, Suite 1900 Houston, Texas 77002-4312 713/650-3700 DESIGN: BAXTER & KORGE, INC./HOUSTON PRINTED IN U.S.A. PAPER STOCK: THE COVER AND NARRATIVE SECTIONS OF THIS ANNUAL REPORT PRINTED ON PAPER WHOSE PULP WAS BLEACHED WITH CHLORINE DIOXIDE. 40 DIRECTORS AND OFFICERS BOARD OF DIRECTORS Gordon A. Cain(2) Chairman of the Board J. Virgil Waggoner President and Chief Executive Officer James J. Kerley(1) Retired Vice Chairman, Emerson Electric Co. Raymond R. Knowland(1)(2) Industrial Consultant William A. McMinn(2) Chairman, Arcadian Corporation Frank J. Pizzitola(1)(2) Limited Managing Director Lazard Freres & Co., LLC Gilbert M. A. Portal(1)(2) President, GMH International Oil and Gas Consulting (1)Audit Committee (2)Compensation Committee EXECUTIVE OFFICERS J. Virgil Waggoner President and Chief Executive Officer Robert W. Roten Executive Vice President and Chief Operating Officer Jim P. Wise Vice President - Finance and Chief Financial Officer Richard K. Crump Vice President - Commercial Robert N. Bannon Vice President - Operations F. Maxwell Evans Vice President, General Counsel and Secretary Robert O. McAlister Vice President - Human Resources and Administration Stewart H. Yonts Treasurer [PHOTO OF BOARD OF DIRECTORS] Board of Directors Seated, from left: J. Virgil Waggoner, Gordon A. Cain, Gilbert M. A. Portal. Standing, from left: F. Maxwell Evans, Secretary to the Board, Raymond R. Knowland, James J. Kerley, Frank J. Pizzitola, William A. McMinn. [PHOTO OF OFFICERS] Officers Seated, from left: Jim P. Wise, J. Virgil Waggoner, Robert W. Roten. Standing, from left: F. Maxwell Evans, Stewart H. Yonts, Robert O. McAlister, Robert N. Bannon, Richard K. Crump. [LOGO APPEARS HERE] Sterling Chemicals 1200 Smith Street Houston, Texas 77002 EX-27 14 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS SEP-30-1995 OCT-01-1994 SEP-30-1995 30,882 0 112,102 0 67,867 220,351 510,991 (201,907) 609,939 145,731 0 603 0 0 238,715 609,939 1,030,198 1,030,198 758,580 758,580 28,856 0 14,604 228,158 75,005 153,153 0 3,104 0 150,049 2.70 2.70
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