-----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, AcHwaOyRqJCLd7fA9TqG02Tu4AzqSQ/ngBoluZ5GlNvEumyYAR0bgh1pTpMWxWmF B15fWUhTasxsBgaJL25qaA== 0000950152-99-004377.txt : 19990517 0000950152-99-004377.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004377 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990430 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEON CO CENTRAL INDEX KEY: 0000897547 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 341730488 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11804 FILM NUMBER: 99621023 BUSINESS ADDRESS: STREET 1: ONE GEON CTR CITY: AVON LAKE STATE: OH ZIP: 44012 BUSINESS PHONE: 4409301001 MAIL ADDRESS: STREET 1: ONE GEON CENTER CITY: AVON LAKE STATE: OH ZIP: 44012 8-K 1 THE GEON COMPANY 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 30, 1999 THE GEON COMPANY (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 1-11804 34-1730488 (Commission file number) (I.R.S. Employer Identification No.) One Geon Center Avon Lake, Ohio 44012 ------------------------------------------------- (Address of principal executive offices ) (Zip Code) (440) 930-1001 (Registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On April 30, 1999, The Geon Company (Geon or the Company) formed two partnerships (Partnerships) with Occidental Chemical Corporation (OxyChem), named Oxy Vinyls, LP (OxyVinyls or PVC Partnership) and PVC Powder Blends, LP (PVC Powder Blends or Compounding Partnership). OxyVinyls is owned 24% by Geon and 76% by OxyChem. The partnership combines the polyvinyl chloride (PVC) resin and vinyl chloride monomer (VCM) businesses and related operations of both companies, and also includes OxyChem's Houston Chlor-Alkali complex. OxyVinyls will be North America's largest and the world's third largest PVC producer. PVC Powder Blends is owned 90% by Geon and 10% by OxyChem. The Compounding Partnership will manufacture dry-blend compounds. In conjunction with the formation of the Partnerships Geon realized approximately $104 million in cash and working capital retention and transferred $189 million of debt obligations to OxyVinyls, and OxyChem transferred its PVC flexible film and specialty pellet compound businesses located in Burlington, New Jersey and Pasadena, Texas to the Company (Related Transactions). 1 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Audited Combined Financial Statements of the OxyChem Transferred Businesses Report of Independent Public Accountants Combined Balance Sheets as of December 31, 1998 and 1997 Combined Statements of Operations and Invested Capital for the years ended December 31, 1998, 1997 and 1996 Combined Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 Notes to Combined Financial Statements (b) Unaudited Pro Forma Condensed Consolidated Financial Statements of The Geon Company Introduction Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1998 Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 1998 Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 1998 Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 1998 EXHIBITS 10.1 Master Transaction Agreement * 10.2 Limited Partnership Agreement of Oxy Vinyls, LP 10.3 Asset Contribution Agreement - PVC Partnership (Geon) 10.4 Parent Agreement (Oxy Vinyls, LP) 10.5 Parent Agreement (PVC Powder Blends, LP) and Business Opportunity Agreement 23 Consent of Independent Public Accountants 99 Press Release * Incorporated by reference to the corresponding Exhibit filed with the registrant's Special Meeting Proxy Statement dated March 29, 1999. 2 4 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. THE GEON COMPANY (Registrant) By: \S\GREGORY L. RUTMAN ------------------------------- Gregory L. Rutman Secretary Dated May 13, 1999 3 5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors, Occidental Chemical Corporation: We have audited the accompanying combined balance sheets of the OxyChem Transferred Businesses, as defined in Note 1, as of December 31, 1998 and 1997, and the related combined statements of operations and invested capital and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of Occidental Chemical Corporation'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 financial position of the OxyChem Transferred Businesses as of December 31, 1998 and 1997, and the related combined statements of operations and invested capital and cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Dallas, Texas, April 30, 1999 4 6 OXYCHEM TRANSFERRED BUSINESSES COMBINED BALANCE SHEETS December 31, 1998 and 1997 (Amounts in thousands)
1998 1997 -------- -------- CURRENT ASSETS: Cash $ 18 $ 18 Trade receivables 13,574 26,903 Other receivables 18,064 487 Inventories 69,973 76,019 Prepaid expenses 4,101 2,691 -------- -------- Total current assets 105,730 106,118 EQUITY INVESTMENT -- 9,300 PROPERTY, PLANT AND EQUIPMENT, net 623,831 606,199 OTHER ASSETS 17,684 12,949 -------- -------- TOTAL ASSETS $747,245 $734,566 ======== ======== CURRENT LIABILITIES: Current maturities of long-term debt $ 209 $ 209 Accounts payable 58,960 52,588 Accrued liabilities 30,281 27,233 -------- -------- Total current liabilities 89,450 80,030 EQUITY INVESTMENT 25,632 -- LONG-TERM DEBT, net of unamortized discount and current maturities 21,968 21,997 DEFERRED CREDITS AND OTHER LIABILITIES 33,855 33,486 INVESTED CAPITAL 576,340 599,053 -------- -------- TOTAL LIABILITIES AND INVESTED CAPITAL $747,245 $734,566 ======== ========
The accompanying notes are an integral part of these combined financial statements. 5 7 OXYCHEM TRANSFERRED BUSINESSES COMBINED STATEMENTS OF OPERATIONS AND INVESTED CAPITAL For the years ended December 31, 1998, 1997 and 1996 (Amounts in thousands)
1998 1997 1996 --------- --------- --------- NET SALES $ 839,805 $ 993,612 $ 956,911 OPERATING COSTS AND EXPENSES: Costs of sales (711,002) (817,918) (752,738) Selling, general and administrative and other operating expenses (45,670) (84,199) (49,559) Loss from equity investments (35,347) (22,267) (7,586) --------- --------- --------- OPERATING INCOME 47,786 69,228 147,028 Interest expense (1,807) (1,821) (1,841) Other expense, net (4,772) (3,912) (3,166) --------- --------- --------- INCOME BEFORE TAXES 41,207 63,495 142,021 Provision for income taxes (17,391) (24,796) (55,502) --------- --------- --------- NET INCOME 23,816 38,699 86,519 MINIMUM PENSION LIABILITY ADJUSTMENT -- -- 222 --------- --------- --------- COMPREHENSIVE INCOME 23,816 38,699 86,741 INCREASE (DECREASE) IN INVESTED CAPITAL (46,529) 5,945 (43,778) INVESTED CAPITAL, beginning of year 599,053 554,409 511,446 --------- --------- --------- INVESTED CAPITAL, end of year $ 576,340 $ 599,053 $ 554,409 ========= ========= =========
The accompanying notes are an integral part of these combined financial statements. 6 8 OXYCHEM TRANSFERRED BUSINESSES COMBINED STATEMENTS OF CASH FLOWS For the years ended December 31, 1998, 1997 and 1996 (Amounts in thousands)
1998 1997 1996 ---- ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 23,816 $ 38,699 $ 86,519 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of assets 43,087 34,498 29,878 Unfunded losses from equity investee 35,347 22,267 7,586 Reserve for asset impairment -- 32,800 -- Other noncash charges to income 4,937 10,626 3,452 Changes in operating assets and liabilities: Decrease (increase) in receivables (4,248) (8,235) 16,619 Decrease (increase) in inventories 6,046 (4,275) 980 Decrease (increase) in prepaid expenses (1,410) (1,812) 1,177 Increase (decrease) in accounts payable and accrued liabilities 9,414 (3,570) 3,174 Other operating, net (8,827) (3,972) (3,350) --------- --------- --------- Net cash provided by operating activities 108,162 117,026 146,035 CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (61,364) (122,711) (102,011) --------- --------- --------- Net cash used by investing activities (61,364) (122,711) (102,011) CASH FLOW FROM FINANCING ACTIVITIES: Principal payments on long-term debt and capital lease liability (269) (263) (243) Increase (decrease) in invested capital (46,529) 5,945 (43,778) --------- --------- --------- Net cash provided (used) by financing activities (46,798) 5,682 (44,021) --------- --------- --------- Change in cash -- (3) 3 Cash - beginning of period 18 21 18 --------- --------- --------- Cash - end of period $ 18 $ 18 $ 21 ========= ========= =========
The accompanying notes are an integral part of these combined financial statements. 7 9 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (1) BASIS OF PRESENTATION AND DESCRIPTION OF THE TRANSFERRED BUSINESSES - On June 24, 1998, Occidental Chemical Corporation (together with its wholly-owned subsidiaries, "OxyChem") signed a letter of intent with The Geon Company (together with its wholly-owned subsidiaries, "Geon") to effect, among other things, the proposed formation by Geon and OxyChem of two separate limited partnerships, focusing on the suspension/mass polyvinyl chloride ("PVC") and vinyl chloride monomer ("VCM") businesses, together with OxyChem's Houston Chlor-Alkali Complex and the powder/dry blend compound business, respectively, and the transfer of a compound and flexible film plant and a pellet compound business by OxyChem to Geon, as well as certain related supply arrangements. The formation of each entity will involve the contribution by both Geon and OxyChem of such assets, together with certain related assets and liabilities as well as the transfer of related employees. All of the foregoing transactions shall be referred to collectively hereinafter as the "Proposed Transactions." OxyChem's transfers to the Proposed Transactions include the following: 1. OxyChem and Geon will form a limited partnership (the "PVC Partnership") to which OxyChem will contribute its PVC and VCM facilities in Pasadena, Texas, and Deer Park, Texas, as well as a fifty percent investment interest in OxyMar, a partnership which manufactures VCM at its plant in Ingleside, Texas. OxyMar is owned by an OxyChem affiliate, Oxy VCM, Inc. Additionally, OxyChem will contribute its Houston Chlor-Alkali Complex facilities to the PVC Partnership. 2. OxyChem and Geon will also form a limited partnership (the "Compounding Partnership") to which OxyChem will contribute its powder compound business and related assets at its Pasadena, Texas, facility. 3. OxyChem's specialty cube or pellet compound business being constructed and installed at its Pasadena, Texas, plant ("Pasadena Subject Business"), and its Burlington, New Jersey, plant, which manufactures flexible film and compound (the "Burlington Plant"), will be conveyed to Geon. In return for the contributions and transfers of assets mentioned above, OxyChem will acquire a 76% controlling interest in the PVC Partnership and a 10% non-controlling interest in the Compounding Partnership. Under the Proposed Transactions, the PVC Partnership and the Compounding Partnership will also assume certain liabilities of OxyChem. The accompanying combined financial statements include the assets and liabilities and results of operations of OxyChem's contributions to the PVC Partnership and the Compounding Partnership as well as the Pasadena Subject Business, the Burlington Plant and Oxy VCM, Inc. (collectively, the "OxyChem Transferred Businesses"). The OxyChem Transferred Businesses are represented by OxyChem and Oxy VCM, Inc., which are indirect subsidiaries of Occidental Chemical Holding Corporation ("OCHC"). OCHC is an indirect subsidiary of Occidental Petroleum Corporation ("OPC"). Certain amounts in the accompanying combined financial statements have been allocated in a consistent manner in order to depict the financial position, results of operations and cash flows of the OxyChem Transferred Businesses on a stand alone basis. OxyChem's management believes these allocations are reasonable. Consequently, the financial position, results of operations, and cash flows may not be indicative of what would have been reported if the OxyChem Transferred Businesses had been one or more separate, stand-alone entities or had been operated as a part of the Proposed Transactions during the periods presented. 8 10 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (1) BASIS OF PRESENTATION AND DESCRIPTION OF THE TRANSFERRED BUSINESSES - (continued) Certain assets and liabilities of the OxyChem Transferred Businesses will be retained by OPC or OxyChem after closing of the Proposed Transactions. The retained assets and liabilities include certain trade receivables and finished goods inventory, long-term debt, property tax, and other liabilities. The amount of assets and liabilities that would have been retained was approximately $7 million and $47 million, respectively, at December 31, 1998. The OxyChem Transferred Businesses operate as OxyChem and enter into operating and sales contracts administered by OxyChem. These include national sales agreements as well as purchase and energy agreements. (2) SIGNIFICANT ACCOUNTING POLICIES - Principles of combination - The combined financial statements include the assets and liabilities and results of operations of the OxyChem Transferred Businesses. All material intercompany accounts and transactions between the OxyChem Transferred Businesses have been eliminated. Risks and uncertainties - The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts, generally not by material amounts. OxyChem's management believes that these estimates and assumptions, as well as any allocations, provide a reasonable basis for the fair presentation of the OxyChem Transferred Businesses' combined financial position and results of operations. Since the OxyChem Transferred Businesses' major products are commodities, significant changes in the prices of chemical products could have a significant impact on the OxyChem Transferred Businesses' results of operations for any particular period. Revenue recognition - Revenue from product sales is recognized upon shipment of product to the customer. Environmental liabilities and costs - Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Reserves for estimated costs that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, OPC uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The environmental reserves are based on management's estimate of the most likely cost to be incurred and are reviewed periodically and adjusted as additional or new information becomes available. 9 11 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (2) SIGNIFICANT ACCOUNTING POLICIES - (continued) Equity investment - The OxyChem Transferred Businesses' fifty percent interest in OxyMar is accounted for on the equity method. At December 31, 1998 and 1997, the historical underlying equity in net assets of OxyMar exceeded the OxyChem Transferred Businesses' investment in OxyMar by $8.3 million and $8.8 million, respectively. The investment deficiency is being amortized on a straight-line basis into income over 25 years. The following table presents summarized financial information of OxyMar as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and 1996 (in thousands).
1998 1997 1996 ---- ---- ---- Net sales $ 257,344 $ 334,983 $ 273,651 Costs and expenses 328,906 380,373 289,691 ----------- ----------- --------- Net loss $ (71,562) $ (45,390) $ (16,040) =========== =========== ========= Current assets $ 35,055 $ 49,874 Noncurrent assets $ 393,113 $ 414,331 Current liabilities $ 78,362 $ 52,653 Noncurrent liabilities $ 384,378 $ 375,342 Partners' equity $ (34,572) $ 36,210
As of December 31, 1998, OPC unconditionally provides guarantees of $192.5 million of the OxyMar partnership obligations, which includes bonds and a revolving credit line. Income taxes - The OxyChem Transferred Businesses have been included in the consolidated U.S. federal income tax return and in certain unitary state income tax returns of OPC. A portion of the income tax provision for these returns is allocated to the OxyChem Transferred Businesses on the basis of a tax sharing arrangement with OPC using net income determined on a separate tax return basis. Income tax provisions under the tax sharing arrangement are calculated using the applicable U.S. federal statutory rate and a unitary state effective rate (based on unitary state income taxes incurred by OPC and subsidiaries). The OxyChem Transferred Businesses also record state income tax provisions for operations required to be reported in separate tax returns. The difference between the provision for income taxes at the U.S. federal statutory rate and the effective tax rate is primarily due to state income taxes. Liabilities for current and/or deferred income taxes have been and remain the responsibility of OPC and, accordingly, have been included in the Combined Balance Sheets as invested capital. Fair value of financial instruments - The fair value of on-balance sheet financial instruments approximates carrying value. 10 12 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (2) SIGNIFICANT ACCOUNTING POLICIES - (continued) Asset impairment - During 1997, OxyChem decided to sell the Burlington Plant after determining it to be a non-strategic asset. OxyChem estimated its fair value based on discussions with prospective buyers adjusted for selling costs. OxyChem reduced its carrying value by $32.8 million to record the assets held for sale at fair value. The charge for this write-down is included in selling, general and administrative and other operating expenses in the accompanying Combined Statement of Operations and Invested Capital. Management believes there will be no additional write-down resulting from the sale of the Burlington Plant to Geon. (3) RECEIVABLES - As of December 31, 1998 and 1997, the OxyChem Transferred Businesses transferred, with limited recourse, to an OPC affiliate certain trade receivables under a revolving sale program in connection with the ultimate sale for cash of an undivided ownership interest in such receivables by the affiliate. The net receivables transferred amounted to approximately $98 million and $85 million as of December 31, 1998 and 1997, respectively. The OxyChem Transferred Businesses transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in invested capital. OPC retained collection responsibility with respect to the receivables sold. An interest in newly created receivables is transferred monthly, net of collections made from customers. Fees related to the sales of receivables under this program, which are allocated from OPC to the OxyChem Transferred Businesses, were $4.8 million, $3.9 million and $3.2 million for 1998, 1997 and 1996, respectively, and are included in other expense, net. (4) INVENTORIES - Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted-average-cost method. Inventories consisted of the following as of December 31 (in thousands):
1998 1997 ---- ---- Raw materials $ 12,135 $ 15,667 Materials and supplies 17,687 16,153 Finished goods 38,428 48,073 ----------- ----------- 68,250 79,893 LIFO/lower of cost or market reserve 1,723 (3,874) ----------- ----------- Inventories at lower of cost or market $ 69,973 $ 76,019 =========== ===========
11 13 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (5) PROPERTY, PLANT AND EQUIPMENT - Property additions and major renewals and improvements are capitalized at cost. Depreciation is primarily provided using the units-of-production method based on estimated total productive life. Interest costs incurred in connection with major capital expenditures which extend longer than one year are capitalized and amortized over the lives of the related assets. Capitalized interest is calculated based on the average borrowing rate of OPC and allocated to the OxyChem Transferred Businesses. Interest allocated and capitalized was approximately $1 million, $6 million and $2 million for the years ended December 31, 1998, 1997 and 1996, respectively. Property, plant and equipment consists of the following as of December 31 (in thousands):
1998 1997 ---- ---- Land and land improvements $ 21,133 $ 19,272 Buildings 49,784 46,034 Machinery and equipment 791,120 665,001 Construction in progress 88,107 169,877 ----------- ----------- 950,144 900,184 Accumulated depreciation (326,313) (293,985) ----------- ----------- Property, plant and equipment, net $ 623,831 $ 606,199 =========== ===========
(6) OTHER ASSETS - Other assets, net of any accumulated amortization, consist of the following as of December 31 (in thousands):
1998 1997 ---- ---- Deferred start-up costs $ 4,052 $ 3,710 Asbestos and lead abatement 6,572 6,197 Other 7,060 3,042 ----------- ----------- $ 17,684 $ 12,949 =========== ===========
Deferred start-up costs are amortized over a period of 10 years. Other amortizable assets are written off to income over the estimated periods to be benefited. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), which requires that costs of start-up activities, including organizational costs, be expensed as incurred. The initial application of the statement will result in a charge to income for any costs of start-up activities that have not yet been fully amortized. OPC will implement SOP 98-5 effective January 1, 1999. 12 14 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (7) ACCRUED LIABILITIES - Accrued liabilities consist of the following as of December 31 (in thousands):
1998 1997 ---- ---- Turnaround maintenance $ 11,758 $ 7,307 Property taxes 14,355 13,052 Other 4,168 6,874 ----------- ----------- $ 30,281 $ 27,233 =========== ===========
Maintenance turnarounds are generally performed every 2 to 5 years. OxyChem utilizes an accrual methodology under which it estimates the projected cost of a turnaround and accrues the cost equally over the years between turnarounds. Turnaround costs charged to operations for the years ended December 31, 1998, 1997 and 1996 were $7.7 million, $8.0 million, and $7.3 million, respectively. (8) LONG-TERM DEBT - Long-term debt, including current maturities, at December 31 consisted of the following (in thousands):
1998 1997 ---- ---- Pollution control and solid waste disposal revenue bonds, 6 to 7%, due through 2020 $ 23,875 $ 24,084 Unamortized discount (1,698) (1,878) ----------- ----------- $ 22,177 $ 22,206 =========== ===========
Minimum principal payments on long-term debt subsequent to 1998 are as follows (in thousands): 1999 $ 209 2000 218 2001 218 2002 218 2003 237 Thereafter 22,775 ---------- $ 23,875 ==========
Unamortized discount is being amortized to interest expense over the lives of the related issues. Certain of the pollution control revenue bonds are secured by the equipment purchased with the proceeds of the bond financing. At December 31, 1998, $8 million of the long-term debt was guaranteed by OPC. 13 15 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (9) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - Effective January 1, 1998, OPC adopted the provisions of SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement standardized the disclosure requirements for pensions and other postretirement benefits and amends SFAS No. 87 "Employers' Accounting for Pensions," SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans" and SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions". The provisions of SFAS No. 132 are disclosure oriented and do not change the measurement or recognition of the plans. Accordingly, the implementation of SFAS No. 132 did not have an impact on the OxyChem Transferred Businesses' combined financial position or results of operations. The prior disclosures for 1997 have been changed to conform to the new disclosure requirements. The OxyChem Transferred Businesses participate in various defined contribution retirement plans sponsored by OPC for its salaried, domestic union and nonunion hourly, and certain foreign national employees that provide for periodic contributions by the OxyChem Transferred Businesses based on plan-specific criteria, such as base pay, age level, and/or employee contributions. The OxyChem Transferred Businesses contributed and expensed approximately $5 million under the provisions of these plans in each of the years 1998, 1997 and 1996. OPC provides medical and dental benefits and life insurance coverage for certain active, retired and disabled employees and their eligible dependents. Beginning in 1993, certain salaried participants pay for all medical cost increases in excess of increases in the consumer Price Index (CPI). The benefits generally are funded by OPC as the benefits are paid during the year. The cost of providing these benefits is based on claims filed and insurance premiums paid for the period. The OxyChem Transferred Businesses' retirement and postretirement defined benefit plans are accrued based on various assumptions and discount rates, as described below. The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors which, depending on the nature of the changes, could cause increases or decreases in the liabilities accrued. Retirement plans - Pension costs for the OxyChem Transferred Businesses' defined benefit pension plans, determined by independent actuarial valuations, are generally funded by payments to trust funds, which are administered by independent trustees. The following table sets forth the components of the net periodic benefit costs for the OxyChem Transferred Businesses' defined benefit pension plans for the years ended December 31 (in thousands):
1998 1997 1996 ---- ---- ---- Service cost - benefits earned during the period $ 426 $ 435 $ 427 Interest cost on projected benefit obligation 1,024 981 901 Expected return on plan assets (1,233) (1,031) (924) Net amortization and deferral (30) (21) (21) --------- -------- --------- Net periodic benefit cost $ 187 $ 364 $ 383 ========= ======== =========
In 1996, the OxyChem Transferred Businesses recorded adjustments to invested capital of $222,000 to reflect the net-of-tax difference between the additional liability required under pension accounting provisions and the corresponding intangible asset. 14 16 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (9) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued) Retirement plans - (continued) The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation for the OxyChem Transferred Businesses' defined pension plans (in thousands):
1998 1997 ---- ---- Changes in benefit obligation: Benefit obligation - beginning of year $ 14,246 $ 13,100 Service cost - benefits earned during the period 426 435 Interest cost on projected benefit obligation 1,024 981 Actual loss 649 220 Benefits paid (540) (490) ----------- ----------- Benefit obligation - end of year $ 15,805 $ 14,246 =========== ===========
The following table sets forth the reconciliation of the beginning and ending balances of the fair value of plan assets for OxyChem Transferred Businesses' defined benefit pension plans (in thousands):
1998 1997 ---- ---- Changes in plan assets: Fair value of plan assets - beginning of year $ 15,556 $ 13,396 Actual return on plan assets 2,045 2,575 Employer contribution 452 75 Benefits paid (540) (490) ----------- ----------- Fair value of plan assets - end of year $ 17,513 $ 15,556 =========== ===========
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligations was 7 percent in 1998 and 7.5 percent in 1997. The weighted average rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was approximately 5 percent in both 1998 and 1997. The expected weighted average long-term rate of return on assets was 8 percent in both 1998 and 1997. The following table sets forth the funded status and amounts recognized in the OxyChem Transferred Businesses' combined balance sheets for the defined pension plans at December 31 (in thousands):
1998 1997 ---- ---- Funded status $ 1,708 $ 1,309 Unrecognized net transition obligation (62) (83) Unrecognized prior service cost 1 1 Unrecognized net gain (1,483) (1,328) -------------- ------------- Net amount recognized $ 164 $ (101) ============== ============= Prepaid benefit cost $ 164 $ - Accrued benefit liability - (101) -------------- ------------- Net amount recognized $ 164 $ (101) ============== =============
15 17 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (9) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued) Postretirement benefits - To reflect the OxyChem Transferred Businesses' participation in the OPC plan, the net periodic postretirement benefit costs and the postretirement benefit obligations are based on an allocation of the OPC actuarial study using participant counts and demographic information for the OxyChem Transferred Businesses for each of the years presented in the tables below. This allocation excludes amounts attributable to salaried retirees and surviving spouses because nonunion retiree information is not maintained for such participants by plant location. The postretirement benefit obligation as of December 31, 1998 and 1997 was determined by application of the terms of medical and dental benefits and life insurance coverage, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates projected at a CPI increase of 2.5 percent and 3 percent as of December 31, 1998 and 1997, respectively (beginning in 1993, participants other than certain union employees pay for all medical cost increases in excess of increases in the CPI). For certain union employees, the health care cost trend rates were projected at annual rates ranging ratably from 8 percent in 1998 to 5 percent through the year 2004 and level thereafter. A one percent increase or a one percent decrease in these assumed health care cost trend rates would result in an increase of $1 million or a reduction of $1 million, respectively, in the postretirement benefit obligation as of December 31, 1998. The annual service and interest costs would not be materially affected by these changes. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7 percent in 1998 and 7.5 percent in 1997. The plans are unfunded. The following table sets forth the components of the allocated net periodic benefit costs for the OxyChem Transferred Businesses' defined postretirement benefit plans for the years ended December 31 (in thousands):
1998 1997 1996 ---- ---- ---- Service cost - benefits earned during the period $ 403 $ 428 $ 443 Interest cost on accumulated benefit obligation 1,351 1,306 1,322 Net amortization and deferral (83) - - --------- ------ --------- Allocated net periodic benefit cost $ 1,671 $ 1,734 $ 1,765 ========= ======== =========
The following table sets forth the reconciliation of the beginning and ending balances of the allocated benefit obligation for the OxyChem Transferred Businesses' defined postretirement benefit plans (in thousands):
1998 1997 ---- ---- Changes in allocated benefit obligation: Allocated benefit obligation - beginning of year $ 18,177 $ 18,086 Service cost - benefits earned during the period 403 428 Interest cost on projected benefit obligation 1,351 1,306 Actual (gain) loss 991 (884) Benefits paid (697) (759) ----------- ----------- Allocated benefit obligation - end of year $ 20,225 $ 18,177 =========== ===========
16 18 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (9) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued) Postretirement benefits - (continued) The following table sets forth the funded status and amounts recognized in the OxyChem Transferred Businesses' combined balance sheets for the defined postretirement benefit plans at December 31 (in thousands):
1998 1997 ---- ---- Funded status $ (20,225) $ (18,177) Unrecognized net gain (1,502) (2,576) --------------- ------------- Net amount recognized $ (21,727) $ (20,753) =============== ============= Accrued benefit liability $ (21,727) $ (20,753) -------------- ------------- Net amount recognized $ (21,727) $ (20,753) ============== =============
(10) COMMITMENTS AND CONTINGENCIES - At December 31, 1998, future operating lease commitments for railcars with terms greater than one year are as follows (in thousands): 1999 $ 8,065 2000 8,401 2001 7,905 2002 7,812 2003 6,027 Thereafter 90,028 ----------- Total minimum lease payments $ 128,238 ===========
Rental expense for railcars was approximately $17 million for 1998, $15 million for 1997, and $16 million for 1996. Lawsuits - OxyChem has been named as defendant or as a potentially responsible party with regard to the OxyChem Transferred Businesses in a number of lawsuits, claims and proceedings, including governmental proceedings under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and corresponding state acts. OxyChem has accrued reserves with regard to the OxyChem Transferred Businesses at the most likely cost to be incurred, if any. In management's opinion, after taking into account reserves and indemnities, it is unlikely that any of the foregoing matters will have a material adverse effect upon the combined financial position or results of operations of the OxyChem Transferred Businesses. 17 19 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (10) COMMITMENTS AND CONTINGENCIES - (continued) Other - The OxyChem Transferred Businesses have entered into an agreement providing for the following minimum future payments to purchase brine, a raw material, as of December 31, 1998 (in thousands). 1999 $ 850 2000 820 2001 790 2002 760 2003 730 2003 through 2014 5,726 ----------- $ 9,676 ===========
Payments under this agreement were $880,000, $909,000 and $939,000 in 1998, 1997 and 1996, respectively. The OxyChem Transferred Businesses have certain other commitments to purchase electrical power, raw materials and other potential obligations, all in the ordinary course of business. (11) RELATED PARTY TRANSACTIONS - OPC utilizes a centralized cash management system for its operations, including the OxyChem Transferred Businesses. Cash distributed to or advanced from OPC has been reflected in invested capital in the accompanying Combined Balance Sheets. In addition, settlements of transactions with other OPC affiliates are recorded through invested capital. OPC provided certain corporate, general and administrative services to the OxyChem Transferred Businesses, including legal, financial, marketing, sales and customer service, technical, executive and other services. Charges for these services were allocated based on ratios in a reasonable and consistent manner and by the estimated costs of specific functions performed by OPC and affiliates for the OxyChem Transferred Businesses. OxyChem's management believes the allocations, which totaled $41.7 million in 1998, $41.9 million in 1997 and $41.6 million in 1996, are reasonable. Such amounts are included in selling, general and administrative and other operating expenses. The OxyChem Transferred Businesses were also allocated research and development costs by OxyChem, which are charged to operations as incurred. These charges, which are included in selling, general and administrative and other operating expenses in the accompanying Combined Statements of Operations and Invested Capital, were $2.6 million, $2.5 million and $1.6 million for 1998, 1997 and 1996, respectively. The OxyChem Transferred Businesses sell to other OxyChem facilities and affiliated businesses of OPC. These sales, reflected at market prices and included in the accompanying Combined Statements of Operations and Invested Capital, were approximately $49 million, $69 million and $68 million for 1998, 1997 and 1996, respectively. 18 20 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (11) RELATED PARTY TRANSACTIONS - (continued) The OxyChem Transferred Businesses purchase VCM from OxyMar under the terms of a VCM purchase agreement between OxyChem and OxyMar that runs for the life of the OxyMar partnership. Purchases are at market prices and totaled approximately $96 million, $83 million and $69 million in 1998, 1997 and 1996, respectively. Accounts payable as of both December 31, 1998 and 1997 include approximately $8 million and $7 million, respectively, payable to OxyMar. The OxyChem Transferred Businesses purchase ethylene at market prices from an affiliate of OxyChem. These purchases totaled approximately $88 million in 1998, $136 million in 1997, and $99 million in 1996. See Note 3 regarding the transfer of receivables to an affiliate. (12) SUMMARIZED FINANCIAL INFORMATION - The following is summarized financial information (in millions) for (1) the business to be contributed by Oxychem to the PVC Partnership and (2) the business to be contributed by OxyChem to the Compounding Partnership combined with the Pasadena Subject Business and the Burlington Plant which are to be acquired by Geon. As the Compounding Partnership, Pasadena Subject Business and the Burlington Plant will be controlled and consolidated by Geon, they have been combined in the presentation below. Net sales of resins by the PVC Partnership to the Compounding Partnership have been eliminated in combining the OxyChem Transferred Businesses.
OxyChem Compounding Partnership Transferred PVC Pasadena and Businesses Partnership(1) Burlington(2) Eliminations Combined -------------- ------------- ------------ -------- December 31, 1998 Current assets $ 68 $ 38 $ 106 Current liabilities (74) (15) (89) --------- --------- --------- Working capital (6) 23 17 Noncurrent assets 626 15 641 Noncurrent liabilities (69) (13) (82) --------- --------- --------- Invested capital $ 551 $ 25 $ 576 ========= ========= ========= December 31, 1997 Current assets $ 73 $ 33 $ 106 Current liabilities (69) (11) (80) --------- --------- --------- Working capital 4 22 26 Noncurrent assets 626 2 628 Noncurrent liabilities (41) (14) (55) --------- --------- --------- Invested capital $ 589 $ 10 $ 599 ========= ========= =========
19 21 OXYCHEM TRANSFERRED BUSINESSES NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (12) SUMMARIZED FINANCIAL INFORMATION - (continued)
OxyChem Compounding Partnership Transferred PVC Pasadena and Businesses Partnership(1) Burlington(2) Eliminations Combined -------------- ------------- ------------ -------- For the year ended December 31, 1998 Net sales $ 726 $ 167 $ (53) $ 840 Operating income 37 11 48 Net income 18 6 24 Loss from equity investment (35) - (35) Depreciation and amortization 41 2 43 For the year ended December 31, 1997 Net sales $ 883 $ 178 $ (67) $ 994 Operating income (loss) 98 (29) 69 Net income (loss) 57 (18) 39 Loss from equity investment (22) - (22) Depreciation and amortization 32 2 34 For the year ended December 31, 1996 Net sales $ 849 $ 165 $ (57) $ 957 Operating income 139 8 147 Net income 83 4 87 Loss from equity investment (8) - (8) Depreciation and amortization 28 2 30
20 22 ITEM 7B. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE GEON COMPANY The unaudited pro forma condensed consolidated financial statements of Geon reflect the formation of the Partnerships and Related Transactions as if they had been completed on December 31, 1998 for pro forma balance sheet data purposes and on January 1, 1998, for pro forma income statement data purposes. The Unaudited Pro Forma Condensed Consolidated Statement of Income includes amounts derived from the audited consolidated statement of income of Geon for the year ended December 31, 1998 and the audited combined statement of operations of the OxyChem Transferred Businesses for the year ended December 31, 1998. The Unaudited Pro Forma Condensed Consolidated Balance Sheet includes amounts derived from the audited consolidated balance sheet of Geon and the audited combined balance sheet of the OxyChem Transferred Businesses as of December 31, 1998. OxyChem's transfer of its PVC flexible film and specialty pellet compound businesses to Geon and OxyChem's business contributed to the Compounding Partnership are collectively referred to as the "Acquired Businesses" in the accompanying Unaudited Pro Forma Condensed Consolidated Financial Statements. For accounting purposes, Geon's interest in the PVC Partnership is reflected on the equity basis. Geon's majority ownership of the Compounding Partnership requires the assets and liabilities contributed by OxyChem to the Compounding Partnership to be valued at their estimated fair value in Geon's consolidated financial statements. OxyChem's transfer of its PVC flexible film and specialty pellet compound businesses to Geon requires the assets and liabilities transferred to be valued at their estimated fair value in Geon's consolidated financial statements. Certain pro forma adjustments result from a preliminary determination of purchase accounting adjustments and are based upon information provided by management of OxyChem and certain assumptions that management of Geon considers reasonable under the circumstances. Consequently, the amounts reflected in Geon's Unaudited Pro Forma Condensed Consolidated Financial Statements are subject to change. The contributions by Geon to the PVC Partnership and the Compounding Partnership will trigger the recognition of an after-tax gain (estimated to be $53 million on a pro forma basis) in the second quarter of 1999. Such contributions include, for accounting purposes, a sale to OxyChem of 76% of Geon's PVC business contributed to the PVC Partnership and a sale to OxyChem of 10% of Geon's compounding business contributed to the Compounding Partnership. The resultant gain represents the excess of fair value (including the realization of a net $104 million in cash and working capital retention benefits from the PVC Partnership) over book value for the 76% and 10% of Geon's PVC and Compounding Contributed Businesses, respectively. 21 23 In the Unaudited Pro Forma Condensed Consolidated Financial Statements, the following components comprise the net cash and working capital retention benefits:
$ MILLIONS --------------------------------------------------------------------------- ESTIMATED AMOUNTS PER THE DEFINITIVE PROXY STATEMENT REALLOCATION REDUCTION REVISED Working capital of Geon's PVC Contributed Business retained by Geon $ 70 $ (8) $ 62 Cash realized from the PVC Partnership to Geon 76 8 $ (6) 78 Purchase price paid by Geon to OxyChem for the PVC flexible film and specialty pellet compound businesses (27) (27) Geon's share of the PVC Partnership's incremental financing (9) (9) --------------------------------------------------------------------------- $ 110 $ 0 $ (6) $ 104 ===========================================================================
The $6 million reduction in the net cash and working capital retention benefits result from the contribution of $4 million of additional debt and lease obligations plus $2 million which represents Geon's funding of a portion of the LaPorte plant maintenance shutdown scheduled for the second quarter of 1999 after formation of the PVC Partnership. The Unaudited Pro Forma Condensed Consolidated Financial Statements of Geon and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Geon as of and for the year ended December 31, 1998 and the audited combined financial statements of the OxyChem Transferred Businesses as of and for the year ended December 31, 1998 which are included herein. The Unaudited Pro Forma Condensed Consolidated Financial Statements of Geon do not purport to be indicative of what Geon's financial condition or results of operations would have been had the formation of the Partnerships and Related Transactions in fact been consummated as of the assumed dates and for the periods presented, nor are they indicative of the results of operations or financial condition for any future period or date. The pro forma adjustments reflected in the Unaudited Pro Forma Condensed Consolidated Financial Statements to give effect to the formation of the Partnerships and Related Transactions, are based on available information and certain assumptions that Geon believes are reasonable in the circumstances. 22 24 The Geon Company Unaudited Pro Forma Condensed Consolidated Balance Sheet December 31, 1998 (In millions)
ACQUIRED INVESTMENT BUSINESS IN PVC PURCHASE DEDUCT PARTNERSHIP ADD ACCOUNTING GEON PVC AND ACQUIRED AND OTHER PRO HISTORICAL BUSINESS ADJUSTMENTS BUSINESSES ADJUSTMENTS FORMA --------------------------------------------------------------------------------- (a) ASSETS Current assets: Cash and cash equivalents $ 14.4 $ 0.1 $ 14.3 Accounts receivable 70.8 24.1 $ 24.1 (m) $ 0.3 $ 18.1 (e) 89.2 Inventories 113.9 39.6 3.0 (m) 34.8 1.0 (e) 113.1 Other current assets 35.6 3.6 2.2 34.2 ----------------------------------------------------------------------------------- Total current assets 234.7 67.4 27.1 37.3 19.1 250.8 Property, plant and equipment (net) 443.5 222.1 (6.0)(b) 15.5 1.5 (e) 232.4 Other non-current assets: Investments, goodwill and other assets 123.8 4.8 0.2 119.2 Investment in PVC Partnership 202.9 (c) 202.9 ----------------------------------------------------------------------------------- $ 802.0 $ 294.3 $224.0 $ 53.0 $ 20.6 $ 805.3 =================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short term debt including current $ 51.7 $ 0.2 $(78.0)(i) $ 27.0 (f) $ 0.5 maturities Accounts payable 129.1 63.8 $ 13.6 78.9 Accrued expenses 76.0 17.4 18.0 (b) 1.4 (0.5)(k) 97.7 15.7 (m) 4.5 (e) ----------------------------------------------------------------------------------- Total current liabilities 256.8 81.4 (44.3) 15.0 31.0 177.1 Non-current liabilities: Long-term debt 135.4 9.6 125.8 Deferred income taxes 32.8 27.7 (d) 6.2 (l) 66.7 Other liabilities 162.9 1.9 0.6 (m) 13.0 (5.0)(k) 164.9 (4.7)(n) Minority interest 3.6 (g) 3.6 ----------------------------------------------------------------------------------- Total liabilities 587.9 92.9 (20.7) 28.0 35.8 538.1 Total stockholders' equity 214.1 201.4 244.7 (o) 25.0 9.8 (h) 267.2 (25.0)(j) ----------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 802.0 $ 294.3 $224.0 $ 53.0 $ 20.6 $ 805.3 ===================================================================================
23 25 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (a) Reflects the historical cost of the assets and liabilities of the Geon PVC Business. The Geon PVC Business refers to Geon's suspension and mass resin business including certain assets and liabilities, described in note (m) below, which will be retained by Geon. (b) Reflects accrual of direct transaction costs related to the formation of the PVC Partnership to be borne by Geon and the write-off of non-contributed assets related to Geon's PVC business consisting of management information systems assets that will no longer be used upon formation of the PVC Partnership. (c) Geon's investment in the PVC Partnership is as follows: Geon's proportionate share of the PVC Partnership fair value $ 232.9 Cash received 78.0 -------- 310.9 Net book value of Geon's PVC Business' contributed net assets (185.9) -------- 125.0 Ownership percentage sold to OxyChem 76% -------- Pre-tax gain before one time charges associated with formation of the PVC Partnership 95.0 Plus net book value, net of assets and liabilities retained by Geon, of Geon's PVC Business 185.9 Less cash received (78.0) -------- Investment in PVC Partnership $ 202.9 ========
(d) Represents the income tax effects, computed at an estimated effective tax rate of 39%, associated with the gain on the contribution of Geon's net assets to the PVC Partnership and the direct costs related to the formation of the PVC Partnership. 24 26 (e) Represents adjustments for the Acquired Businesses under the purchase method of accounting as follows: TRADE RECEIVABLES (NET) To reflect trade receivables of the Acquired Businesses which were sold under a receivable sales agreement. The receivable sales agreement was terminated as it related to the Acquired Businesses as of the date of acquisition. $ 18.1 INVENTORIES To write-up the acquired inventories to fair value. $ 1.0 PROPERTY, PLANT AND EQUIPMENT, NET To write-up the acquired property, plant and equipment to fair value and to reflect the write-off of plant and equipment of Geon's Conroe, Texas, facility. $ 1.5 ACCRUED EXPENSE AND OTHER LIABILITIES To reflect accrual of costs primarily associated with the demolition of an idle facility of the Acquired Businesses and the closure of Geon's Conroe, Texas facility. $ 4.5
(f) Represents the amount payable to OxyChem to affect the acquisition of the PVC flexible film and specialty pellet compound businesses. (g) Represents the minority interest liability related to OxyChem's 10% ownership interest in the Compounding Partnership. (h) Represents the after-tax effects of the gain on the contribution of Geon's net assets to the Compounding Partnership. (i) To reflect the reduction of debt resulting from the $78 million of cash received from the PVC Partnership. (j) To eliminate the equity accounts of the Acquired Business under purchase method of accounting. (k) To reflect certain obligations of OxyChem which will not be contributed to the Compounding Partnership or transferred to Geon. 25 27 (l) Represents the income tax effects, computed at an estimated effective tax rate of 39%, associated with the gain on the contribution of Geon's net assets to the Compounding Partnership and the purchase price adjustments relating to the Acquired Businesses. Such gain represents the difference between the fair value and historical net book value of 10% of Geon's compounding net assets contributed to the Compounding Partnership. (m) Reflects the following items which were not contributed to the PVC Partnership and were retained by the Company: accounts receivable (net of receivables sold of $34.9 million at December 31, 1998), certain inventories, and accrued liabilities primarily consisting of sales taxes, environmental, and employee liabilities. (n) To reflect the assumption by the PVC Partnership of the Geon corporate liability for post retirement health care for active employees transferring employment to the PVC Partnership. (o) Geon's equity is estimated to increase $43.3 million as a result of the formation of the PVC Partnership. This increase represents the gain on Geon's disposition of 76% of its interest in its PVC Business. Equity after Geon's investment in the PVC Partnership and adjustments $ 244.7 Equity of the Geon PVC Business on a historical basis (201.4) --------- Equity increase at formation $ 43.3 =========
26 28 The Geon Company Unaudited Pro Forma Condensed Consolidated Statement of Income Year Ended December 31, 1998 (In millions)
ACQUIRED INVESTMENT BUSINESS IN PVC PURCHASE DEDUCT PARTNERSHIP ADD ACCOUNTING GEON PVC AND ACQUIRED AND OTHER PRO HISTORICAL BUSINESS ADJUSTMENTS BUSINESSES ADJUSTMENTS FORMA ------------------------------------------------------------------------------------- Sales $ 1,284.4 $ 577.7 $ 131.7 (g) $ 167.4 $ 1,005.8 Cost of goods sold 1,092.6 564.1 131.7 (g) 146.2 $ 1.0 (k) 814.2 8.6 (b) (1.8)(j) Depreciation and amortization 57.9 27.5 2.3 0.1 (c) 32.8 Selling, general and administrative expenses 82.0 21.2 9.4 (b) 7.7 77.9 Employee separation and plant phase out 14.6 14.6(h) ------------------------------------------------------------------------------------- Operating income (loss) 37.3 (35.1) (18.0) 11.2 0.7 66.3 Interest (expense) (16.0) (1.0) 5.1 (i) (1.8)(d) (11.7) Interest income 1.2 1.2 Other income (expense), net (2.6) 0.6 (1.2) 1.2 (j) (3.2) Equity (loss) from equity affiliates 3.7 (5.4)(a) (1.7) Minority interest (1.3)(e) (1.3) ------------------------------------------------------------------------------------- Income (loss) before provision for income taxes 23.6 (35.5) (18.3) 10.0 (1.2) 49.6 (Expense) benefit for income taxes (9.8) 13.8 7.1 (f) (4.2) 0.5 (20.2) ===================================================================================== Net income (loss) $ 13.8 $ (21.7) $ (11.2) $ 5.8 $ (0.7) $ 29.4 ===================================================================================== Earnings per share of common share: Basic 0.60 1.28 Diluted 0.58 1.25 Number of share used to compute earnings per share: Basic 22.9 22.9 Diluted 23.6 23.6
27 29 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS): (a) To reflect the sum of Geon's 24% share of the pro forma PVC Partnership loss for the period and the amortization of the difference between the carrying value of Geon's investment in and its underlying equity in the PVC Partnership. Geon's share of the loss from the PVC Partnership has also been adjusted by the amount of supplemental pension benefit costs associated with former Geon personnel who continue employment with the PVC Partnership. Such benefits will be paid by Geon. Such loss is computed as follows:
YEAR ENDED DECEMBER 31, 1998 ----------------- Pre-tax income (loss) contributed by: Geon PVC Business $ (35.5) OxyChem PVC Business 31.1 Pro forma adjustments of the PVC Partnership (19.1) ----------- (23.5) Geon's ownership in the PVC Partnership 24% ----------- Geon's share of the PVC Partnership's losses (5.6) Amortization of the difference between Geon's investment in and underlying equity in the PVC Partnership 1.0 Supplemental Pension Benefit Costs (0.8) ----------- Geon's pro forma equity loss from the PVC Partnership $ (5.4) ===========
28 30 The PVC Partnership Pro Forma adjustments are comprised of the following items:
YEAR ENDED DECEMBER 31, 1998 ----------------- Adjust PVC and VCM pricing to supply contracts (Represents adjustments to the historical PVC and VCM pricing of the Geon PVC Business and the OxyChem PVC Business to reflect the pricing terms of the PVC and VCM supply contracts between the PVC Partnership and the parent companies) $ (6.1) Incremental Depreciation (Represents incremental depreciation on the write-up to fair value of Geon's PVC assets contributed to the PVC Partnership.) (9.0) Interest on PVC Partnership debt (Represents the PVC Partnership's interest expense relating to the $104 million to be paid to Geon or to finance initial working capital requirements) (4.0) ---------- $ (19.1) ==========
(b) Represents overhead and selling, general and administrative costs historically allocated to the Geon PVC Business that will not be transferred to the PVC Partnership. (c) Represents incremental depreciation expense due to the write-up of property of the Acquired Businesses to fair value under the purchase method of accounting. (d) Includes incremental interest expense based on the $27 million payable to OxyChem for the acquisition of the Acquired Businesses at an estimated borrowing rate of 6.5%. (e) Represents the minority interest related to OxyChem's 10% interest in the Compounding Partnership. (f) To record the tax effect of the pro forma adjustments using an estimated income tax rate of 39%. (g) To adjust for the historical elimination in consolidation of revenue and cost of sales related to the sale of PVC and VCM from the Geon PVC Business to the other businesses of Geon. (h) Reflects a pre-tax employee separation and plant phase out charge of $14.6 million related to the Company's consolidation of its compounding operations. 29 31 (i) Reflects the reduction in interest expense associated with the $78 million reduction in debt at an estimated short-term borrowing rate of 6.5%. (j) Reflects the reversal of costs associated with obligations and assets of the Acquired Businesses which were not transferred to Geon and adjusts PVC resin costs to the PVC Partnership's PVC supply contract with OxyChem as follows:
YEAR ENDED DECEMBER 31, 1998 ----------------- Adjust PVC resin costs to the supply contract (represents an adjustment to OxyChem's historical transfer prices to reflect the pricing terms of its PVC supply contract with the PVC Partnership) (classified as cost of goods sold) $ 1.8 Reverse OxyChem's allocation of the discount from the sale of receivables pursuant to a receivables sales agreement, which were terminated and total trade receivables from customers transferred to the Compounding Partnership and Geon (classified as other expense) 1.2 ---------- $ 3.0 ==========
(k) Represents the incremental costs of sales due to the write-up of acquired inventory to fair value under the purchase method of accounting. The Unaudited Pro Forma Consolidated Statement of Income does not reflect the following: (i) The one time estimated after tax gain of $53 million resulting from Geon's contributions to the PVC Partnership and the Compounding Partnership, which for accounting purposes are treated as a sale to OxyChem of 76% of Geon's PVC Businesses contributed to the PVC Partnership and a sale to OxyChem of 10% of Geon's Compounding Business contributed to the Compounding Partnership. The resultant gain represents the excess of fair value (including cash received of $78 million) over the book value of the 76% and 10% of Geon's PVC and Compounding Contributed Businesses, respectively. 30 32 Such gain is net of certain one-time costs directly related to the formation of the PVC Partnership and Compounding Partnership as follows:
COSTS ATTRIBUTED TO THE FORMATION COSTS ATTRIBUTED TO THE FORMATION OF THE PVC PARTNERSHIP OF THE COMPOUNDING PARTNERSHIP --------------------------------- --------------------------------- One-time benefit payment to be made to Geon employees that will Conroe, Texas, powder plant closures become employees of the PVC Partnership $ (4.0) Asset write-off $ (2.5) Employee separation (1.5) ------- Transaction costs (legal, accounting) (9.0) $ (4.0) ======= Personnel costs (consisting primarily of pension and post-retirement benefit (5.0) curtailment losses) Write-off of capitalized software cost specifically related to the management information systems of Geon's PVC Business (6.0) ------- $ (24.0) =======
(ii) The synergies and the cost of such synergies expected to be realized by Geon as a result of the formation of the Partnerships and Related Transactions. Geon expects its share of the synergies and the cost of such synergies resulting from the PVC Partnership to approximate $20 million and $4 million, respectively, and the synergies and related costs of the synergies related to the Compounding Partnership to approximate $7 million and $3 million, respectively. The synergies are expected to be fully realized in 2001, and the costs of such synergies are expected to be incurred in 1999 and 2000. Such synergies, as they relate to the PVC Partnership, are expected to be realized from cost reductions resulting from production, logistics, and distribution efficiencies; the consolidation of production facilities, reductions in executive management positions and related compensation and benefits; elimination of duplicate overhead, staffing and information systems costs; the consolidation of research and development facilities, as well as, legal, environmental, health and safety and risk management services; and reductions in the cost of property and liability insurance coverage. The synergies related to the Compounding Partnership are expected to be realized through the reduction of excess production capacity, the benefits resulting from the volume purchasing of materials, and the reduction of selling, general and administrative costs. (iii) The charges and expected cost savings associated with the completion of Geon's consolidation of its compounding operations. In the first quarter of 1999, the Company will recognize costs totaling $1.7 million relating to the completion of the compound consolidation plan previously announced in 31 33 November 1998. Such costs consist of $0.6 million of accelerated depreciation on software assets to be taken out of service in the second quarter of 1999, asset write-offs of $0.4 million, legal and professional fees of $0.5 million and employee separation costs of $0.2 million. The Company anticipates incurring, in the second quarter of 1999 and upon formation of the powder compound partnership, estimated costs totaling $6.0 million relating to the completion of the compound consolidation plan. The amounts expected to be incurred are as follows: accelerated depreciation of $0.6 million and disposition costs of $1.4 million which will be expensed as incurred, and (b) costs associated with exiting Geon's Conroe, Texas, powder compounding facility, which will be closed subject to the consummation of the Joint Venture Transactions, totaling $4.0 million. The costs of closing the Conroe, Texas, facility primarily represent non-cash write-offs of fixed assets with a net book value of $2.0 million and other assets with a carrying value of $.5 million, and cash employee separation costs of approximately $1.5 million relating to the termination of 70 individuals. These terminations are expected to be completed in the third quarter of 1999. These costs are in addition to the $14.6 million recorded in the fourth quarter 1998 related to the consolidation of the compounding operations. The consolidation is projected to produce total cost savings of $6 million in 1999 and $14 million annually thereafter. 32 EX-10.2 2 EXHIBIT 10.2 1 Exhibit 10.2 FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF OXY VINYLS, LP - ------------------------------------------------------------------------------- ORGANIZED UNDER THE DELAWARE REVISED UNIFORM LIMITED PARTNERSHIP ACT - ------------------------------------------------------------------------------- 2
TABLE OF CONTENTS Page ---- SECTION 1 ORGANIZATION MATTERS ..................................... 2 1.1 Continuation of Partnership...................... 2 1.2 Name............................................. 2 1.3 Business Offices................................. 2 1.4 Purpose and Business............................. 2 1.5 Filings.......................................... 2 1.6 Power of Attorney................................ 3 1.7 Term............................................. 3 SECTION 2 CAPITAL CONTRIBUTIONS..................................... 3 2.1 Acquisition of Units............................. 3 2.2 Property Contributions........................... 4 2.3 Other Contributions.............................. 4 2.4 Capital Accounts................................. 5 2.5 No Return of or on Capital....................... 5 2.6 Partner Loans.................................... 5 2.7 Administration and Investment of Funds........... 5 SECTION 3 DISTRIBUTIONS............................................. 5 3.1 Operating Distributions.......................... 5 3.2 Liquidating Distributions........................ 6 3.3 Withholding...................................... 6 3.4 Offset........................................... 6 SECTION 4 BOOK AND TAX ALLOCATIONS.................................. 6 4.1 General Book Allocations......................... 6 4.2 Special Allocations.............................. 6 4.3 Change in Partner's Units........................ 6 4.4 Deficit Capital Account and Nonrecourse Debt Rules........................................... 7 4.5 Federal Tax Allocations.......................... 8 4.6 Other Tax Allocations............................ 9 4.7 Transaction Costs................................ 9 SECTION 5 ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS........... 9 5.1 Fiscal Year...................................... 9 5.2 Method of Accounting for Financial Reporting Purposes........................................ 9 5.3 Books and Records; Right of Partners to Audit.......................................... 10 5.4 Reports and Financial Statements................ 10 5.5 Method of Accounting for Book and Tax Purposes.. 10 5.6 Taxation........................................ 10
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Page ---- 5.7 Delegation...................................... 13 SECTION 6 MANAGEMENT .............................................. 13 6.1 Partnership Governance Committee................ 13 6.2 Limitations on Authority........................ 14 6.3 Lack of Authority............................... 14 6.4 Composition of Partnership Governance Committee...................................... 15 6.5 Partnership Governance Committee Meetings....... 16 6.6 Partnership Governance Committee Quorum and General Voting Requirement..................... 17 6.7 Partnership Governance Committee Unanimous Voting Requirements............................ 17 6.8 Auxiliary Committees............................ 20 SECTION 7 OFFICERS AND EMPLOYEES................................... 21 7.1 Partnership Officers............................ 21 7.2 Selection and Term of Executive Officers........ 22 7.3 Removal of Executive Officers................... 22 7.4 Duties.......................................... 23 7.5 CEO............................................. 24 7.6 Other Officers.................................. 24 7.7 Secretary....................................... 24 7.8 Salaries........................................ 24 7.9 Delegation...................................... 25 7.10 General Authority............................... 25 SECTION 8 STRATEGIC PLANS, ANNUAL BUDGETS AND LOANS................ 25 8.1 Strategic Plan.................................. 25 8.2 Annual Budget................................... 26 8.3 Funding of Partnership Expenses................. 27 8.4 Implementation of Budgets and Discretionary Expenditures by CEO............................ 27 8.5 Strategic Plan Deadlock......................... 27 8.6 Loans........................................... 28 SECTION 9 RIGHTS OF PARTNERS....................................... 28 9.1 Delegation and Contracts with Related Parties... 28 9.2 General Authority............................... 29 9.3 Limitation on Fiduciary Duty; Non-Competition; Right of First Opportunity..................... 29 9.4 Limited Partners................................ 31 9.5 Partner Covenants............................... 31
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Page ---- 9.6 Special Purpose Entities........................ 32 SECTION 10 TRANSFERS AND PLEDGES........................................... 32 10.1 Restrictions on Transfer and Prohibition on Pledge......................................... 32 10.2 Right of First Option and Right of First Refusal........................................ 32 10.3 Inclusion of General or Limited Partner Units.......................................... 34 10.4 Rights of Transferee............................ 34 10.5 Effective Date of Transfer...................... 34 10.6 Transfer to 80%-Owned Affiliate................. 35 10.7 Invalid Transfer................................ 35 SECTION 11 DEFAULT......................................................... 35 11.1 Default......................................... 35 11.2 Remedies for Default............................ 36 11.3 Purchase of Defaulting Partners' Units.......... 36 11.4 Liquidation..................................... 37 11.5 Certain Consequences of Default................. 37 SECTION 12 DISSOLUTION, LIQUIDATION AND TERMINATION........................ 38 12.1 Dissolution and Termination..................... 38 12.2 Procedures Upon Dissolution..................... 38 12.3 Termination of the Partnership.................. 40 12.4 Asset and Liability Statement................... 40 SECTION 13 MISCELLANEOUS 40 13.1 Confidentiality and Use of Information.......... 40 13.2 Indemnification................................. 42 13.3 Third Party Claim Reimbursement................. 44 13.4 Dispute Resolution.............................. 45 13.5 Extent of Limitation of Liability, Indemnification, Etc........................... 45 13.6 Further Assurances.............................. 45 13.7 Successors and Assigns.......................... 46 13.8 Benefits of Agreement Restricted to the Parties........................................ 46 13.9 Notices......................................... 46 13.10 Severability ................................... 46 13.11 Construction.................................... 47 13.12 Counterparts.................................... 47 13.13 Waiver of Right to Partition.................... 47 13.14 Governing Law................................... 47 13.15 Expenses........................................ 47 13.16 Payment Terms and Interest Calculations......... 47
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Page ---- 13.17 Usury Savings Clause............................ 48 13.18 Amendment....................................... 48
APPENDICES Appendix A Defined Terms Appendix B Partnership Financial Statements and Reports Appendix C Initial Executive Officers Appendix D Dispute Resolution Procedures Appendix E Division of Partnership Business SCHEDULES Schedule 2.2 Credits to Partner Capital Accounts iv 6 FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF OXY VINYLS, LP This FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF OXY VINYLS, LP, dated as of the 1st day of May, 1999, is entered into among Occidental PVC, LLC, a Delaware limited liability company ("OCC GP"), Occidental PVC LP, Inc., a Delaware corporation ("OCC LP"), and 1999 PVC Partner Inc., a Delaware corporation ("Geon LP"). WHEREAS, the definitions of capitalized terms used in this Agreement are set forth in Appendix A hereto; and WHEREAS, as contemplated by the Master Transaction Agreement, Occidental Chemical Corporation ("OCC"), the parent entity of each of OCC GP and OCC LP, and The Geon Company ("Geon"), the ultimate parent entity of Geon LP, desired to establish a joint venture in the form of a limited partnership; and WHEREAS, the Partnership was formed as a Delaware limited partnership named "Oxy Vinyls, LP" by the filing on April 6, 1999 with the Delaware Secretary of State of a Certificate of Limited Partnership under and pursuant to the Act; and WHEREAS, OCC GP, OCC LP, and GEON LP entered into that certain Limited Partnership Agreement of the Partnership dated as of April 6, 1999 (the "Initial Agreement"); and WHEREAS, in furtherance of the foregoing, OCC GP, OCC LP, and Geon LP wish to utilize the Partnership to acquire, own and operate the Contributed Business, the Initial Assets and such other assets and businesses as are consistent with the purposes of the Partnership; and WHEREAS, on or before the Closing Date, the Related Agreements relating to the Partnership and the Contributed Business also will be entered into, all as set forth in the Master Transaction Agreement; and WHEREAS, OCC GP, OCC LP, and Geon LP now desire to amend and restate the Initial Agreement in its entirety to set forth new terms and conditions for the ownership and management of the Partnership; NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto, it is hereby agreed to amend and restate the Initial Agreement in its entirety as follows: 7 SECTION 1 ORGANIZATION MATTERS -------------------- 1.1 CONTINUATION OF PARTNERSHIP. The Partnership is hereby continued as a limited partnership under the Act. The Partners desire to enter into this Agreement, which amends and restates the Initial Agreement in its entirety and constitutes the limited partnership agreement of the Partnership as of the date hereof. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. Without the need for the consent of any other Person, upon the execution of this Agreement, (i) OCC GP is hereby admitted to the Partnership as a general partner of the Partnership and (ii) each of OCC LP and Geon LP is hereby admitted to the Partnership as a limited partner of the Partnership. Subject to the terms, conditions and restrictions set forth in this Agreement, the Partnership shall have the power to exercise all the powers and privileges granted by this Agreement and by the Act, together with any powers incidental thereto, so far as such powers and privileges are necessary and appropriate for the conduct of the business of the Partnership. 1.2 NAME. The name of the Partnership is "Oxy Vinyls, LP." The Partnership's business shall be conducted under such name or any other name or names determined by the Partnership Governance Committee. The General Partner will comply and will cause the Partnership to comply with all applicable laws and other requirements relating to fictitious or assumed names. 1.3 BUSINESS OFFICES. The principal place of business of the Partnership shall be located at 5005 LBJ Freeway in Dallas, Texas, or such other place as the General Partner may from time to time determine. The registered agent of the Partnership in the State of Delaware is The Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, Delaware 19805. 1.4 PURPOSE AND BUSINESS. The purpose of the business of the Partnership shall be to (i) engage in the Specified Business and (ii) do all things necessary and appropriate in connection with the ownership, operation or financing of the foregoing business as are permitted under the Act, including the acquisition and operation of the Contributed Business. 1.5 FILINGS. The General Partner shall, or shall cause the Partnership to, execute, swear to, acknowledge, deliver, file or record in public offices and publish all such certificates, notices, statements or other instruments, and take all such other actions, as may be required by law for the formation, reformation, qualification, registration, operation or continuation of the Partnership in any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership's status as a partnership for tax purposes or otherwise to comply with applicable law. Upon request of the General Partner, the Limited Partners shall execute all such certificates and other documents as may be necessary, in the sole judgment of the General Partner, in order for the General Partner to accomplish all such executions, swearings, acknowledgments, deliveries, filings, recordings in public offices, publishings and other acts. The General Partner hereby agrees and covenants that it will execute any appropriate amendment to the Certificate of Limited Partnership of the Partnership 2 8 pursuant to Section 17-204 of the Act to reflect any admission of a Substitute General Partner in accordance with this Agreement. 1.6 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably makes, constitutes and appoints the General Partner and any successor thereto permitted as provided herein, with full power of substitution and resubstitution, as the true and lawful agent and attorney-in-fact of such Limited Partner, with full power and authority in the name, place and stead of such Limited Partner to execute, swear, acknowledge, deliver, file or record in public offices and publish: (i) all certificates and other instruments (including counterparts thereof) that the General Partner deems appropriate to reflect any amendment, change or modification of or supplement to this Agreement in accordance with the terms of this Agreement; (ii) all certificates and other instruments and all amendments thereto that the General Partner deems appropriate or necessary to form, qualify or continue the Partnership in any jurisdiction, to maintain the limited liability of such Limited Partner, to preserve the Partnership's status as a partnership for tax purposes or otherwise to comply with applicable law; and (iii) all conveyances and other instruments or documents that the General Partner deems appropriate or necessary to reflect the transfers or assignments of interests in, to or under, this Agreement, including the Units, the dissolution, liquidation and termination of the Partnership, and the distribution of assets of the Partnership in connection therewith, pursuant to the terms of this Agreement. Each Limited Partner hereby agrees to execute and deliver to the General Partner within five Business Days after receipt of a written request therefor such other further statements of interest and holdings, designations, powers of attorney and other instruments as the General Partner deems necessary or appropriate to effect the transactions contemplated by this Agreement. The power of attorney granted herein is hereby declared irrevocable and a power coupled with an interest, shall survive the bankruptcy, dissolution or termination of such Limited Partner and shall extend to and be binding upon such Limited Partner's successors and permitted assigns. Each Limited Partner hereby (i) agrees to be bound by any representations made by the agent and attorney-in-fact acting in good faith pursuant to such power of attorney; and (ii) waives any and all defenses that may be available to contest, negate, or disaffirm any action of the agent and attorney-in-fact taken in accordance with such power of attorney. 1.7 TERM. The term for which the Partnership is to exist as a limited partnership is from the date of first filing of the Partnership's Certificate of Limited Partnership with the office of the Secretary of State of the State of Delaware through the dissolution and termination of the Partnership in accordance with the provisions of Section 12. SECTION 2 CAPITAL CONTRIBUTIONS --------------------- 2.1 ACQUISITION OF UNITS. In exchange for the capital contributions made pursuant to Section 2.2, each Partner shall be entitled to the following Units: 3 9 PARTNER UNITS OCC GP 1 OCC LP 75 Geon LP 24 TOTAL 100
The Units shall entitle the holder to the distributions set forth in Section 3 and to the allocation of Profits, Losses and other items as set forth in Section 4. Units shall not be represented by certificates. 2.2 PROPERTY CONTRIBUTIONS. On the Closing Date, the Partners shall make the following capital contributions: (a) OCC. Pursuant to the applicable Asset Contribution Agreement, each of OCC GP and OCC LP will contribute or cause to be contributed to the Partnership the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby. Thereupon, OCC GP's and OCC LP's respective Capital Accounts will be credited with the amount set forth on Schedule 2.2. (b) GEON. Pursuant to the applicable Asset Contribution Agreement, Geon LP will contribute or cause to be contributed to the Partnership the Initial Assets contemplated thereby subject to the Assumed Liabilities contemplated thereby. Thereupon, Geon LP's Capital Account will be credited with the amount set forth on Schedule 2.2. The Partners intend that the contribution of assets subject to liabilities provided for in Sections 2.2(a) and (b) will qualify as a tax-free contribution under section 721 of the Code in which no Partner will recognize gain or loss. The Partners agree that the Partnership will so file its tax return, and each Partner agrees to file its tax return on the same basis and to maintain such position consistently at all times thereafter. 2.3 OTHER CONTRIBUTIONS. From time to time and subject to the limitations of Section 6.7, if applicable, the Partnership Governance Committee (or the CEO acting pursuant to Section 8.3), on behalf of the Partnership, may issue a written notice ("Funding Notice") to the Partners calling for an additional capital contribution to the Partnership. Any Funding Notice will set forth: (a) the use of funds therefor; (b) the aggregate amount of the capital contribution required, which amount shall be apportioned among the Partners Pro Rata; and 4 10 (c) the date by which the capital contribution must be received by the Partnership, which date will not be earlier than seven Business Days from the date the Funding Notice is issued. Each Partner shall timely wire transfer its Pro Rata share of the amount set forth in the Funding Notice to the Partnership's bank account. Except as expressly set forth in this Agreement, no Partner shall be permitted or required to make any additional capital contribution to the Partnership. 2.4 CAPITAL ACCOUNTS. Each Partner's Capital Account shall be determined and maintained in accordance with Regulation Section 1.704-l(b)(2)(iv). If any Partner transfers all or a portion of its Units in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent such Capital Account relates to the transferred Units. 2.5 NO RETURN OF OR ON CAPITAL. Except as provided in Sections 3 and 4, no Partner shall receive any interest or other return on its capital contributions or on the balance in its Capital Account and no return of its capital contributions. 2.6 PARTNER LOANS. A Partner or its Affiliates may loan funds to the Partnership on such terms and conditions as may be approved by the Partnership Governance Committee and, subject to other applicable law, have the same rights and obligations with respect thereto as a Person who is neither a Partner nor an Affiliate of a Partner. The existence of such a relationship and acting in such a capacity will not result in a Limited Partner's being deemed to be participating in the control of the business of the Partnership or otherwise affect the limited liability of a Partner. If a Partner or any Affiliate thereof is a lender, in exercising its rights as a lender, including making its decision whether to foreclose on property of the Partnership, such lender will have no duty to consider (i) its status as a Partner or an Affiliate of a Partner, (ii) the interests of the Partnership or (iii) any duty it may have to any other Partner or the Partnership. 2.7 ADMINISTRATION AND INVESTMENT OF FUNDS. The administration and investment of Partnership funds shall be in accordance with the procedures and guidelines as shall be adopted by the Partnership Governance Committee. The Partnership may delegate to a third party (which may be an Affiliate of one of the Partners) the responsibility for administering and investing Partnership funds pursuant to such guidelines. SECTION 3 DISTRIBUTIONS ------------- 3.1 OPERATING DISTRIBUTIONS. Subject to Section 17-607 of the Act and other applicable law, distributions to the Partners shall be made as provided in the Strategic Plan. The Partners contemplate that the Strategic Plan will provide that, except for debt redemption or prepayment goals contained therein, the Distributable Cash as of the end of each month shall be distributed to the Partners Pro Rata. 5 11 3.2 LIQUIDATING DISTRIBUTIONS. Distributions to the Partners of cash or property arising from a liquidation of the Partnership shall be made in accordance with the Capital Account balances of the Partners as provided in Section 12.2(d). 3.3 WITHHOLDING. The Partnership is authorized to withhold from distributions to a Partner and to pay over to the appropriate foreign, federal, state or local government tax authority any amounts required to be withheld pursuant to the Code or any provisions of any other foreign, federal, state or local law. Any amounts so withheld shall be treated as distributed to such Partner pursuant to this Section 3 for all purposes of this Agreement, and shall be offset against any amounts otherwise distributable to such Partner. 3.4 OFFSET. Any amount otherwise distributable to a Partner pursuant to this Section 3 shall be applied by the Partnership to satisfy any of the following obligations that are owed by such Partner or its Affiliate to the Partnership and that are not paid when due: (a) NOTES. In the case of any Partner, the failure to pay any interest or principal when due on any indebtedness for borrowed money of such Partner or any Affiliate of such Partner to the Partnership. (b) ASSET CONTRIBUTION AGREEMENT. In the case of any Partner, the failure of such Partner or any Affiliate of such Partner to make any payment pursuant to Section 5 of its Asset Contribution Agreement that has been Finally Determined to be due. (c) CONTRIBUTION. In the case of any Partner, the failure to make any capital contribution required pursuant to Section 2.3 (other than pursuant to its Asset Contribution Agreement). SECTION 4 BOOK AND TAX ALLOCATIONS ------------------------ 4.1 GENERAL BOOK ALLOCATIONS. Except as otherwise provided in this Section 4, Profits or Losses each year shall be allocated among the Partners Pro Rata for book purposes. As used herein and in Section 4.5(a), "book" means the allocations used to determine debits and credits to the Capital Accounts of the Partners as set forth in Section 2.5. It does not refer to the method in which books are maintained for financial reporting purposes pursuant to Section 5.2. 4.2 SPECIAL ALLOCATIONS. Depreciation and other amortization with respect to each Partnership asset acquired pursuant to Section 6.7(iv) shall be allocated to each Partner in accordance with its contribution, or obligation to contribute, to the cost of the underlying asset. 4.3 CHANGE IN PARTNER'S UNITS. If during a year Units are transferred or new Units issued, allocations among the Partners shall be made in accordance with their interests in the Partnership from time to time during such year in accordance with section 706 of the Code, using the closing-of-the-books method, except that depreciation and other amortization with respect to each Partnership 6 12 asset shall be deemed to accrue ratably on a daily basis over the entire period during such year that the asset is owned and in service by the Partnership. 4.4 DEFICIT CAPITAL ACCOUNT AND NONRECOURSE DEBT RULES. The special rules in this Section 4.4 apply in the following order to take into account the possibility of the Partners' having deficit Capital Account balances for which they are not economically responsible and the effect of the Partnership's incurring nonrecourse debt, directly or indirectly. (a) PARTNERSHIP MINIMUM GAIN CHARGEBACK. If there is a net decrease in "partnership minimum gain" during any year, determined in accordance with the tiered partnership rules of Regulation Section 1.704-2(k), each Partner shall be allocated items of income and gain for such year equal to such Partner's share of the net decrease in partnership minimum gain within the meaning of Regulation Sections 1.704-2(g)(2), except to the extent not required by Regulation Section 1.704-2(f). To the extent that this Section 4.4(a) is inconsistent with Regulation Section 1.704-2(f) or Section 1.704-2(k) or incomplete with respect to such regulations, the minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations. (b) PARTNER MINIMUM GAIN CHARGEBACK. If there is a net decrease in "partner nonrecourse debt minimum gain" during any year, within the meaning of Regulation Section 1.704-2(i)(2), each Partner who has a share of such gain, determined in accordance with Regulation Section 1.704-2(i)(5), shall be allocated items of income and gain for such year (and, if necessary, subsequent years) equal to such Partner's share of the net decrease in partner nonrecourse debt minimum gain. To the extent that this Section 4.4(b) is inconsistent with Regulation Section 1.704-2(i) or Section 1.704-2(k) or incomplete with respect to such regulations, the partner nonrecourse debt minimum gain chargeback provided for herein shall be applied and interpreted in accordance with such regulations. (c) DEFICIT ACCOUNT CHARGEBACK AND QUALIFIED INCOME OFFSET. If any Partner has an Adjusted Capital Account Deficit at the end of any year, including an Adjusted Capital Account Deficit for such Partner caused or increased by an adjustment, allocation or distribution described in Regulation Sections 1.704-l(b)(2)(ii)(d)(4), (5) or (6), such Partner shall be allocated items of income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. This Section 4.4(c) is intended to constitute a "qualified income offset" pursuant to Regulation Section 1.704-l(b)(2)(ii)(d) and shall be interpreted consistently therewith. (d) PARTNER NONRECOURSE DEDUCTIONS. Any partner nonrecourse deductions for any year or other period shall be allocated to the Partner who bears the economic risk of loss with respect to the partner nonrecourse debt to which such partner nonrecourse deductions are attributable in accordance with Regulation Sections 1.704-2(i) or Section 1.704-2(k). (e) CURATIVE ALLOCATIONS. The Allocations provided by this Section 4.4 may not be consistent with the manner in which the Partners intend to allocate Profits and Losses. Accordingly, Profits and Losses will be reallocated among the Partners (in the same year and to the extent 7 13 necessary, in subsequent years) in a manner consistent with Regulation Section 1.704-l(b) and Section 1.704-2 so as to prevent such allocations from distorting the manner in which Profits and Losses are intended to be allocated among the Partners pursuant to Sections 4.1, 4.2, and 4.3. (f) NONRECOURSE DEBT SHARING. For purposes of this Agreement, nonrecourse deductions, within the meaning of Regulation Section 1.704-2(b), shall be allocated among the Partners Pro Rata. Solely for purposes of determining a Partner's proportionate share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulation Section 1.752-3(a)(3), Partnership Profits are allocated to the Partners Pro Rata. 4.5 FEDERAL TAX ALLOCATIONS. (a) GENERAL RULE. Except as otherwise provided in the following paragraphs of this Section 4.5, allocations for federal income tax purposes of items of income, gain, loss and deduction, and credits and basis therefor, shall be made in the same manner as book allocations are made. (b) SPECIAL ALLOCATIONS. Except as provided in Section 4.5(c), depreciation and other amortization with respect to each Partnership asset acquired pursuant to Section 6.7(iv) shall be allocated to each Partner in accordance with its contribution to the adjusted tax basis of such asset. (c) ELIMINATION OF BOOK/TAX DISPARITIES. Taxable income and tax deductions shall be shared among the Partners so as to take into account the variation between the Book Value and the adjusted tax basis of each property at the time it is contributed to the Partnership and at each time it is revalued. (i) To account for such variation, effective as of the formation of the Partnership: (A) the depreciation and other deductions attributable to the basis that the contributing Partner had in each property at the time of contribution shall be allocated to such Partner, and (B) upon disposition of a contributed property, the excess of its Book Value at the time of such disposition over its tax basis at the time of such disposition shall be allocated to the Partner who contributed the property. (ii) If the Book Value of a Partnership property is revalued as of a date subsequent to the date of its acquisition by the Partnership, the portion of its Book Value at the time of its disposition that is attributable to the increase resulting from such revaluation: (A) shall be disregarded in applying Section 4.5(c)(i)(B) to the Partner who contributed such property, and 8 14 (B) shall be treated for purposes of this Section 4.5(c) as a separate property that was contributed on the revaluation date by the Persons who were partners immediately prior to the revaluation date. (iii) The Partners agree that the foregoing allocations constitute a reasonable method for purposes of Regulation Section 1.704-3(a)(1) and will be so reported and defended by the Partnership and all Partners unless and until the Partners otherwise agree or it is otherwise Finally Determined. (d) ALLOCATION OF ITEMS AMONG PARTNERS. Each item of income, gain, loss, deduction and credit and all other items governed by section 702(a) of the Code shall be allocated among the Partners in proportion to the allocation of Profits, Losses and other items to such Partners hereunder, PROVIDED that any gain treated as ordinary income because it is attributable to the recapture of any depreciation or amortization shall be allocated among the Partners in accordance with Regulation Section 1.1245-1(e)(2) and Section 1.1250-l(f). (e) SECTION 754 ELECTION ALLOCATIONS. Income and deductions of the Partnership that are attributable to the election under section 754 of the Code shall be allocated to the Partners entitled thereto. 4.6 OTHER TAX ALLOCATIONS. Items of income, gain, loss, deduction, credit and tax preference for state, local and foreign income tax purposes shall be allocated among the Partners in a manner consistent with the allocation of such items for federal income tax purposes in accordance with the foregoing provisions of this Section. 4.7 TRANSACTION COSTS. If the Partnership is entitled to deductions with respect to costs described in Section 6.10 of the Master Transaction Agreement that have been incurred by a Partner and for which that Partner is not entitled to reimbursement, such deductions shall be allocated to that Partner. SECTION 5 ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS ----------------------------------------------- 5.1 FISCAL YEAR. The fiscal year of the Partnership shall be the calendar year. 5.2 METHOD OF ACCOUNTING FOR FINANCIAL REPORTING PURPOSES. For financial reporting purposes, the Partnership shall adopt a standard set of accounting policies and shall maintain separate books of account, all in accordance with GAAP. The Partnership's financial reports shall comply with requirements of the SEC to the extent applicable to the Partnership and any Partner or any controlling Person of such Partner, to the extent such information is necessary, in conjunction with the financial reporting obligations of such Person under applicable SEC requirements. 9 15 5.3 BOOKS AND RECORDS; RIGHT OF PARTNERS TO AUDIT. (a) Proper and complete records and books of account of the Partnership's business, including all such transactions and other matters as are usually entered into records and books of account maintained by businesses of like character or as are required by law, shall be kept by the Partnership at the Partnership's principal place of business. The Partnership shall maintain one or more bank accounts in a manner so that the amount of such funds can at all times be determined. (b) Each Partner and its internal and independent auditors, at the expense of such Partner, shall have full and complete access to the internal and independent auditors of the Partnership and shall have the right to inspect all books and records and the physical properties of the Partnership during normal business hours and, at its own expense, to cause an independent audit thereof. The Partnership shall make all books and records of the Partnership available to such Partner and its internal and independent auditors in connection with such audit and shall cooperate with such Partner and auditors and to provide any assistance reasonably necessary in connection with such audit. (c) The Partnership will cause an independent audit to be conducted annually, and the independent auditors for the Partnership shall be Arthur Andersen L.L.P. unless and until changed by the Partnership Governance Committee. 5.4 REPORTS AND FINANCIAL STATEMENTS. The Partnership shall prepare and deliver to the Partners the Partnership financial statements and reports described on Appendix B as soon as reasonably practicable and in any event on or prior to the due date indicated on Appendix B. 5.5 METHOD OF ACCOUNTING FOR BOOK AND TAX PURPOSES. For purposes of making allocations and distributions hereunder (including distributions in liquidation of the Partnership in accordance with Capital Account balances as required by Section 12.2), Capital Accounts and Profits and Losses and other items described in Section 4.1 shall be determined in accordance with federal income tax accounting principles utilizing the accrual method of accounting, with the adjustments required by Regulation Section 1.704-l(b) to properly maintain Capital Accounts. 5.6 TAXATION. (a) STATUS OF THE PARTNERSHIP. The Partners acknowledge that the Partnership is a partnership for federal, foreign and state income tax purposes, and hereby agree not to elect to be excluded from the application of subchapter K of chapter 1 of subtitle A of the Code or any similar state statute. 10 16 (b) TAX ELECTIONS AND REPORTING. (i) GENERALLY. The Partnership shall make the following elections under the Code and the Regulations and any similar state statutes: (A) Adopt the calendar year as the annual accounting period; (B) Adopt the accrual method of accounting; (C) Elect to deduct organization costs ratably over a 60-month period as provided in section 709 of the Code; (D) Adopt the LIFO method of accounting for inventory; (E) Elect the most rapid depreciation period and method available; (F) Elect to amortize start-up expenditures over a 60-month period under section 195 of the Code; (G) Apply the recurring items exception under section 461(h)(3)(A)(iii) of the Code to the extent applicable; (H) Apply ratable accrual of property Taxes under section 461(c) of the Code; and (I) Make any other elections available under the Code that the Partnership Governance Committee determine are appropriate, with the determination of whether an election is appropriate to be made pursuant to the principle that each Partner shall be treated equally (i.e., no Partner will receive preferential tax treatment to the disadvantage of another Partner). (ii) SECTION 754 ELECTION. The Partnership shall, upon the written request of any Partner benefitted thereby, cause the Partnership to file an election under section 754 of the Code to adjust the basis of the Partnership assets under section 734(b) or 743(b) of the Code, and a corresponding election under the applicable sections of state and local law. 11 17 (c) TAX RETURNS. The Tax Matters Partner, on behalf of the Partnership, shall prepare and file the necessary tax and information returns. Each Partner shall timely provide such information, if any, as may be needed by the Partnership for purposes of preparing such tax and information returns. At least 90 days before the due date (as extended) for the Partnership's federal income tax return, the Tax Matters Partner shall deliver a draft of such return to each Partner. Each Partner shall have 15 days after receipt of the draft in which to furnish any objections or comments on the draft to the Tax Matters Partner. The Tax Matters Partner shall use commercially reasonable efforts to finalize the Partnership's federal income tax return at least 60 days before the due date for filing (as extended) of such return. A Partner may not report its share of any Partnership tax item in a manner inconsistent with the Partnership's reporting of such item unless the Partner has timely furnished its objection to the Tax Matters Partner as provided in the second preceding sentence. If a Partner reports its share of any Partnership tax item in a manner inconsistent with the Partnership's reporting of such item, such Partner shall promptly notify the Partnership in writing at least 20 Business Days prior to the filing of any statement with the IRS in which such inconsistent position is reported. The Partnership shall promptly deliver to each Partner a copy of the federal income tax return for the Partnership as filed with the appropriate taxing authorities and a copy of any material state and local income tax return as filed. (d) TAX AUDITS. (i) FEDERAL TAX MATTERS. The Partnership is authorized to make such filings with the IRS as may be required to designate OCC LP in its capacity as the sole owner of OCC GP as the Tax Matters Partner. The Tax Matters Partner, as an authorized representative of the Partnership, shall direct the defense of any claims made by the IRS to the extent that such claims relate to the adjustment of Partnership items at the Partnership level. The Tax Matters Partner shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind (including any notice of beginning of administrative proceedings or any report explaining the reasons for a proposed adjustment) received from the IRS relating to or potentially resulting in an adjustment of Partnership items, as well as any other information requested by a Partner that is commercially reasonable to request. The Tax Matters Partner shall act in good faith in deciding whether to contest at the administrative and judicial level any proposed adjustment of a Partnership item and whether to appeal any adverse judicial decision. The Tax Matters Partner shall keep each Partner advised of all material developments with respect to any proposed adjustment that comes to its attention. All costs incurred by the Tax Matters Partner in performing under this subsection (d) shall be paid by the Partnership. The Tax Matters Partner shall have sole authority to represent the Partnership in connection with all tax audits, including the power to extend the statute of limitations, to enter in any settlement, and to litigate any proposed partnership adjustment, subject to the following: (A) No settlement will be entered into with respect to an item that would materially affect any Partner adversely unless each Partner is first notified of the terms of the settlement; and no Partner will be bound by any settlement unless it consents thereto; (B) If a Partner does not consent to a settlement, the settlement will nevertheless be binding on all Partners who do consent; and the non-consenting Partner may, at its sole cost, pursue 12 18 such administrative or judicial remedies as it deems appropriate; (C) If the Tax Matters Partner brings an action in any court, each Partner, at its sole cost, shall have the right to intervene in the proceeding to the extent permitted by the court; and (D) The Tax Matters Partner shall take any and all actions as may be necessary to cause Geon LP to become a partner required to be notified pursuant to section 6223 of the Code or a similar provision under any state law. (ii) STATE AND LOCAL TAX MATTERS. The Partnership shall promptly deliver to each Partner a copy of all notices, communications, reports or writings of any kind with respect to income or similar taxes received from any state or local taxing authority relating to the Partnership that might, in the judgment of the Tax Matters Partner, materially and adversely affect any Partner, and shall keep each Partner advised of all material developments with respect to any proposed adjustment of Partnership items that come to its attention. (iii) CONTINUATION OF RIGHTS. Each Partner shall continue to have the rights described in this Section 5.6(d) with respect to tax matters relating to any period during which it was a Partner, whether or not it is a Partner at the time of the tax audit or contest. (e) TAX RULINGS. No Person other than the Tax Matters Partner shall request an administrative ruling (or similar administrative procedures) from any taxing authority with respect to any tax issue relating to the Partnership or affecting the taxation of any other Partner unless such Person shall have received written authorization from the Tax Matters Partner and any such other Partner to make such request. (f) TAX INFORMATION. At the request of any Partner, the Tax Matters Partner shall timely furnish annual earnings and profits computations (as defined in section 312 of the Code) with respect to that Partner's share of Partnership income. 5.7 DELEGATION. The Partners agree that all of the tasks to be performed under this Section (other than serving as Tax Matters Partner) may be delegated to employees and consultants of the Partnership. SECTION 6 MANAGEMENT ---------- 6.1 PARTNERSHIP GOVERNANCE COMMITTEE. (a) The General Partner and Geon LP hereby establish a committee (the "Partnership Governance Committee") to manage and control the business, property and affairs of the Partnership, including the determination and implementation of the Partnership's strategic direction. The Partnership Governance Committee (on behalf of the Partners) shall have (i) the full authority of the Partners to exercise all of the powers of the Partnership and (ii) full control over the business, property and affairs of the Partnership. Except to the extent set forth in this Agreement, the 13 19 Partnership Governance Committee shall have full, exclusive and complete discretion to manage and control the business, property and affairs of the Partnership, to make all decisions affecting the business, property and affairs of the Partnership and to take all such actions as it deems necessary and appropriate to accomplish the purpose of the Partnership as set forth in Section 1.4 (as such purpose may be expanded in accordance with Section 6.7(i)). (b) The Partnership Governance Committee shall act exclusively by means of Partnership Governance Committee Action. As used in this Agreement, "Partnership Governance Committee Action" means any action that the Partnership Governance Committee is authorized and empowered to take in accordance with this Agreement and the Act and that is taken by the Partnership Governance Committee either (i) by action taken at a meeting of the Partnership Governance Committee duly called and held in accordance with this Agreement or (ii) by a formal written consent complying with the requirements of Section 6.5(f). In no event shall the Partnership Governance Committee be authorized to act other than by Partnership Governance Committee Action, and any action or purported action by the Partnership Governance Committee (including any authorization, consent, approval, waiver, decision or vote) not constituting a Partnership Governance Committee Action shall be null and void and of no force and effect. Each Partnership Governance Committee Action shall be binding on the Partnership. (c) The Partnership Governance Committee shall adopt policies and procedures consistent with this Agreement (including Section 6.7) or the Act, governing financial controls and legal compliance, including delegations of authority (and limitations thereon) to the officers of the Partnership as permitted hereby. Such policies and procedures may be revised or revoked (in a manner consistent with this Agreement and the Act) from time to time as determined by the Partnership Governance Committee. To the extent any authority is not delegated to officers of the Partnership in this Agreement or in accordance with Partnership Governance Committee Action, it shall remain with the Partnership Governance Committee. 6.2 LIMITATIONS ON AUTHORITY. Except as expressly set forth in this Agreement, each of the General Partner and Geon LP agrees to exercise its authority to manage and control the Partnership only through the Partnership Governance Committee. Each of the General Partner and Geon LP agrees not to exercise, or purport or attempt to exercise any authority (i) to act for or incur, create or assume any obligation, liability or responsibility on behalf of the Partnership or any other Partner, (ii) to execute any documents on behalf of, or otherwise bind, or purport or attempt to bind, the Partnership or (iii) to otherwise transact any business in the Partnership's name, in each case except pursuant to Partnership Governance Committee Action. 6.3 LACK OF AUTHORITY. Except as expressly set forth in this Agreement, no Person or Persons other than (i) the General Partner and Geon LP, acting through the Partnership Governance Committee, and (ii) the officers of the Partnership appointed in accordance with this Agreement and acting as agents or employees, as applicable, of the Partnership in conformity with this Agreement and any applicable Partnership Governance Committee Action, shall be authorized (a) to exercise 14 20 the powers of the Partnership, (b) to manage the business, property and affairs of the Partnership or (c) to contract for, or incur on behalf of, the Partnership any debts, liabilities or other obligations. 6.4 COMPOSITION OF PARTNERSHIP GOVERNANCE COMMITTEE. (a) The Partnership Governance Committee shall consist of six Representatives, with the General Partner designating three Representatives and Geon LP designating three Representatives (each a "Representative"). All the Representatives of both the General Partner and Geon LP shall together constitute the Partnership Governance Committee. (b) The General Partner and Geon LP may designate one or more individuals (each an "Alternate") who (i) shall be authorized, in the event a Representative is absent from any meeting of the Partnership Governance Committee (and in the order of succession designated by either the General Partner or Geon LP, as applicable), to attend such meeting in the place of, and as substitute for, such Representative and (ii) shall be vested with all the powers to take action on behalf of either the General Partner or Geon LP, as applicable, that the absent Representative could have exercised at such meeting. The term "Representative," when used herein with reference to any Representative who is absent from a meeting of the Partnership Governance Committee, shall mean and refer to any Alternate attending such meeting in place of such absent Representative. (c) On or before the date hereof, the General Partner and Geon LP shall have delivered to the other a written notice (i) designating the three persons to serve as such Partner's initial Representatives and (ii) designating the person or persons, if any, who are to serve as initial Alternates and their order of succession. (d) Each of the General Partner and Geon LP may, in its sole discretion and by written notice delivered to the other and the Partnership at any time or from time to time, remove or replace one or more of its Representatives or change one or more of its Alternates. If a Representative or Alternate dies, resigns or becomes disabled or incapacitated, the Partner, whether the General Partner or Geon LP, that designated such Representative or Alternate, as the case may be, shall promptly designate a replacement. Each Representative and each Alternate shall serve until replaced by the Partner that designated such Representative or Alternate, as the case may be. (e) Copies of all written notices designating Representatives and Alternates shall be delivered to the Secretary and shall be placed in the Partnership minute books, but the failure to deliver a copy of any such notice to the Secretary shall not affect the validity or effectiveness of such notice or the designation described therein. (f) Each Representative, in his capacity as such, shall be the agent of the Partner that designated such Representative. Accordingly, (i) each Representative, as such, shall act (or refrain from acting) with respect to the business, property and affairs of the Partnership solely in accordance with the wishes of the Partner that designated such Representative and (ii) no Representative, as such, shall owe (or be deemed to owe) any duty (fiduciary or otherwise) to the Partnership or to any 15 21 Partner other than the Partner that designated such Representative; PROVIDED, HOWEVER, that nothing in this Agreement is intended to or shall relieve or discharge any Representative or Partner from liability to the Partnership or the Partners on account of any fraudulent or intentional misconduct of such Representative. Nothing in this Section 6.4(f) shall limit the duty owed to the Partnership by any person acting in his capacity as an officer of the Partnership (including any such officer who is also a Representative). (g) Representatives shall not receive from the Partnership any compensation for their service or any reimbursement of expenses for attendance at meetings of the Partnership Governance Committee. 6.5 PARTNERSHIP GOVERNANCE COMMITTEE MEETINGS. (a) Regular but not less often than quarterly meetings of the Partnership Governance Committee shall be held at such times and at such places as shall from time to time be determined in advance and committed to a written schedule by the Partnership Governance Committee. The first regular meeting of the Partnership Governance Committee during each fiscal year shall be deemed to be the "Annual Meeting." The Secretary shall deliver by commercial courier service or other hand delivery or transmit by facsimile transmission (with proof of confirmation from the transmitting machine), an agenda for each regular meeting to the Representatives at least five Business Days prior to such meeting. Each agenda for a regular meeting shall specify, to a reasonable degree, the business to be transacted at such meeting. Subject to Section 6.6, at any regular meeting of the Partnership Governance Committee at which a quorum is present, any and all business of the Partnership may be transacted. (b) Special meetings of the Partnership Governance Committee may be called by any Representative by delivering by commercial courier service or other hand delivery or transmitting by facsimile transmission (with proof of confirmation from the transmitting machine), written notice of a special meeting to each of the other Representatives at least two Business Days before such meeting. Each notice of a special meeting shall specify, to a reasonable degree, the business to be transacted at, or the purpose of, such meeting. Notice of any special meeting may be waived before or after the meeting by a written waiver of notice signed by the Representative entitled to notice. A Representative's attendance at a special meeting shall constitute a waiver of notice unless the Representative states at the beginning of the meeting his objection to the transaction of business because the meeting was not lawfully called or convened. Special meetings of the Partnership Governance Committee shall be held at the Partnership's offices (or at such other place or in such other manner as the Representatives shall agree) at such time as may be stated in the notice of such meeting. (c) One Representative of each of the General Partner and Geon LP shall serve as a co-chair of each meeting (regular and special) of the Partnership Governance Committee. Either co-chair may instruct the Secretary to include one or more items on a meeting agenda and neither co-chair nor the Secretary may delete or exclude an agenda item proposed by the other. 16 22 (d) Following each meeting of the Partnership Governance Committee, the Secretary shall promptly draft and distribute minutes of such meeting to the Representatives for approval at the next meeting, and after such approval shall retain the minutes in the Partnership minute books. (e) Representatives, at their discretion, may participate in or hold regular or special meetings of the Partnership Governance Committee by means of a telephone conference or any at least equally effective device or technology by which all individuals participating in the meeting may hear each other, and participation in such a meeting shall constitute presence in person at such meeting. (f) Any action required or permitted to be taken at a meeting of the Partnership Governance Committee may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by at least two Representatives of each of the General Partner and Geon LP, and such consent shall have the same force and effect as a duly conducted vote of the Partnership Governance Committee. A counterpart of each such consent to action shall be delivered promptly to each of the Representatives and to the Secretary for placement in the minute books of the Partnership, but the failure to deliver a counterpart of any such consent to action to the Secretary shall not affect the validity or effectiveness of such consent to action. 6.6 PARTNERSHIP GOVERNANCE COMMITTEE QUORUM AND GENERAL VOTING REQUIREMENT. (a) The presence of at least two Representatives (including any duly present Alternates) of the General Partner shall constitute a quorum of the Partnership Governance Committee for the transaction of business and the taking of appropriate Partnership Governance Committee Actions at any meeting; PROVIDED, HOWEVER, that the presence at such meeting of at least two Representatives (including any duly present Alternates) from each of the General Partner and Geon LP shall be necessary for the taking of any action described in Section 6.7; and PROVIDED, FURTHER, that no Partnership Governance Committee Actions can be taken at any meeting with respect to any matter that was not reflected, with a reasonable level of specificity, on an agenda for such meeting that was delivered in accordance with Section 6.5 unless at least one Representative of each of the General Partner and Geon LP is present. No Partnership Governance Committee Action may be taken at any meeting at which a quorum is not present. (b) Except as otherwise provided in Section 6.7 or elsewhere in this Agreement, the approval of two or more Representatives acting for the General Partner will be sufficient for the Partnership Governance Committee to take any Partnership Governance Committee Action and in such case the Partnership shall be authorized to take such action without the consent of any other Person. 6.7 PARTNERSHIP GOVERNANCE COMMITTEE UNANIMOUS VOTING REQUIREMENTS. Unless and until two or more Representatives of the General Partner and two or more Representatives of Geon LP have given their approval (in which event a Partnership Governance Committee Action is hereby authorized without the need for the consent of any other Person), no Partnership Governance 17 23 Committee Action will be deemed for any purpose to have been taken at any Partnership Governance Committee meeting that would cause or permit the Partnership or any subsidiary thereof (or any Person acting in the name or on behalf of any of them) directly or indirectly to take (or commit to take), and neither the Partnership nor any subsidiary thereof nor any person acting in the name or on behalf of any of them directly or indirectly may take or commit to take, any of the actions described below (whether in a single transaction or series of related transactions): (i) to cause the Partnership, directly or indirectly, to engage, participate or invest in any business outside the scope of its business as described in Section 1.4; (ii) to approve any Strategic Plan, as well as any amendments or updates thereto (including the annual updates provided for in Section 8.1); (iii) except as contemplated by Section 12.2, to authorize any disposition of assets outside the ordinary course of business having a fair market value exceeding $50 million in any one transaction or a series of related transactions not contemplated in an approved Strategic Plan; PROVIDED, HOWEVER, that no such approval shall be required in respect of a disposition of assets in excess of such threshold amount if the CEO, acting through the Partnership Governance Committee, shall obtain an opinion, in form and substance reasonably satisfactory to the representatives of both the General Partner and Geon LP, from a nationally recognized independent professional appraisal firm with a recognized expertise in process chemical plants, as to the fairness and adequacy of the consideration received by the Partnership for such assets, taking into consideration all of the terms of such disposition; PROVIDED, FURTHER, HOWEVER, that in no event shall a disposition of assets in excess of such threshold amount be made to an Affiliate of the General Partner or Geon LP; (iv) to authorize any acquisition of assets outside the ordinary course of business or any capital expenditure exceeding $25 million that is not contemplated in an approved Strategic Plan; PROVIDED, HOWEVER, that, if the Representatives of Geon LP do not approve an acquisition of assets or a capital expenditure exceeding $25 million that is not contemplated in an approved Strategic Plan or Geon LP does not agree to pay its Pro Rata share of any additional capital contribution required to effect such acquisition or capital expenditure, approval of the Representatives of Geon LP is not required for the Partnership Governance Committee to authorize such acquisition or capital expenditure if all amounts for such acquisition or expenditure that exceed $1 million are paid, directly or indirectly, by OCC GP and OCC LP, and in such an event, (a) all such amounts paid by OCC GP and OCC LP shall be deemed additional capital contributions to the Partnership, and (b) OCC GP and OCC LP shall receive additional Units to account for such additional capital contributions. The number of additional Units received by such contributing Partners shall, immediately after being issued, constitute a percentage of all then outstanding Units equal to the following, expressed as a percentage: A/B, where A = the Enterprise Value Increase; and B = the Enterprise Value Increase plus the Partnership Annual Agreed Value for the year during which such acquisition or expenditure is made; 18 24 (v) to require capital contributions to the Partnership (other than contributions contemplated by the Asset Contribution Agreements or an approved Strategic Plan or to achieve or maintain compliance with any HSE Law or other law) within any fiscal year (a) if the total of such contributions required from the Partners within that year would exceed $10 million or (b) to the extent the aggregate principal amount of the Partnership's borrowings is less than the Leverage Ceiling; (vi) to make borrowings under one or more of the Partnership's bank credit facilities, its uncommitted lines of credit or any credit facility or debt instrument of the Partnership of any kind that finances or refinances all or any portion of the Partnership's credit facilities, or to enter into any capitalized lease or similar off-balance sheet financing arrangement, at any time, if as a result of any such borrowing the aggregate principal amount of all such borrowings outstanding at such time would exceed $575 million (the "Leverage Ceiling"); (vii) to enter into interest rate protection or other hedging agreements, including commodity hedging agreements, unless the transactions resulting from such agreements constitute a "hedge" as such term is defined in the Financial Accounting Standards Board Statement of Financial Accounting Standards Number 80 and Number 133 (other than commodity hedging agreements offset by physical positions arising in the ordinary course of business); (viii) except as otherwise provided in Section 2.1, to cause the Partnership or any subsidiary of the Partnership to issue, sell, redeem or acquire any Units or other equity securities (or any rights to acquire, or any securities convertible into or exchangeable for, Units or other equity securities); (ix) except as contemplated by Section 12.2, to make Partnership distributions that are not contemplated in (a) an approved Strategic Plan or (b) Section 1.3(b)(x) of the Master Transaction Agreement; (x) to initiate or settle any litigation or governmental proceedings if the effect thereof could reasonably be expected to be material to the financial condition of the Partnership; (xi) to change the Partnership's method of accounting as adopted pursuant to Section 5.2 or to change the Partnership's method of accounting as provided in Section 5.5 or to make the elections referred to in Section 5.6(b)(i)(E); (xii) to create or change the authority of any Auxiliary Committee; (xiii) to merge, consolidate or convert the Partnership or any subsidiary thereof with or into any other entity (other than a Wholly-Owned Subsidiary of the Partnership); 19 25 (xiv) to file a petition in bankruptcy or seeking any reorganization, liquidation or similar relief on behalf of the Partnership or any subsidiary of the Partnership; or to consent to the filing of a petition in bankruptcy against the Partnership or any subsidiary of the Partnership; or to consent to the appointment of a receiver, custodian, liquidator or trustee for the Partnership or any subsidiary of the Partnership or for all or any substantial portion of their respective property; (xv) to enter into any raw material supply contract with a term of two years or longer that calls for payments by the Partnership that exceed $50 million in any fiscal year; (xvi) except in connection with transactions contemplated by Section 12.2, to enter into an indemnification agreement whereby the Partnership agrees (a) to indemnify a Partner, (b) to an indemnification outside of the ordinary course of business or (c) to an indemnification for any item that could cause obligations of the Partnership in excess of $5 million; (xvii) except in connection with transactions contemplated by Section 12.2, to authorize prepayments of the loans to the Partnership guaranteed by Geon pursuant to Section 1.3(b)(x) of the Master Transaction Agreement; or (xviii) to approve any loan referred to in Section 1.1(e) of the Parent Agreement. 6.8 AUXILIARY COMMITTEES. (a) From time to time, the Partnership Governance Committee may, by Partnership Governance Committee Action, designate one or more committees ("Auxiliary Committees") or disband any Auxiliary Committee. Each Auxiliary Committee shall (i) operate under the specific authority delegated to it by the Partnership Governance Committee (consistent with Section 6.7) for the purpose of assisting the Partnership Governance Committee in managing (on behalf of the General Partners) the business, property and affairs of the Partnership and (ii) report to the Partnership Governance Committee. (b) Each of the General Partner and Geon LP shall have the right to appoint an equal number of members on each Auxiliary Committee. Auxiliary Committee members may (but need not) be members of the Partnership Governance Committee. No Auxiliary Committee member shall be compensated or reimbursed by the Partnership for service as a member of such Auxiliary Committee. (c) Each Partnership Governance Committee Action designating an Auxiliary Committee shall be in writing and shall set forth (i) the name of such Auxiliary Committee, (ii) the number of members and (iii) in such detail as the Partnership Governance Committee deems appropriate, the purposes, powers and authorities (consistent with Section 6.7) of such Auxiliary Committee; PROVIDED, HOWEVER, that in no event shall any Auxiliary Committee have any powers or authority in 20 26 reference to amending this Agreement, adopting an agreement of merger, consolidation or conversion of the Partnership, authorizing the sale, lease or exchange of all or substantially all of the property and assets of the Partnership, authorizing a dissolution of the Partnership or declaring a distribution. Each Auxiliary Committee shall keep regular minutes of its meetings and promptly deliver the same to the Partnership Governance Committee. The members of any Auxiliary Committee, at their discretion, may participate in or hold regular meetings by means of a telephone conference or any at least equally effective device or technology by which all individuals participating in the meeting may hear each other, and participation in such a meeting shall constitute presence in person at such meeting. 6.9 ENTERPRISE VALUE INCREASE AND PARTNERSHIP ANNUAL AGREED VALUE. The "Enterprise Value Increase" shall mean, for any acquisition or expenditure, the Annual Agreed Multiple times the EBITDA Contribution of such acquisition or expenditure. The "Partnership Annual Agreed Value" of the Partnership shall mean the enterprise value of the Partnership as agreed upon between the General Partner and Geon LP, with such value being updated annually in January of each calendar year and applying for the entire calendar year in which such value is determined; PROVIDED, HOWEVER, that (i) the Partnership Annual Agreed Value shall be $2 billion for 1999 and 2000, and (ii) if the General Partner and Geon LP are unable to agree on a Partnership Annual Agreed Value by January 31 of any year in which such determination is necessary, then the Partnership Annual Agreed Value for that year shall be the same as the Partnership Annual Agreed Value for the immediately preceding year. The setting of the initial Partnership Annual Agreed Value at $2 billion is solely for the purposes of the calculation under Section 6.7(iv) and is not intended necessarily to reflect or bear upon the determination of the Fair Market Value of the Partnership. SECTION 7 OFFICERS AND EMPLOYEES ---------------------- 7.1 PARTNERSHIP OFFICERS. (a) The Partnership Governance Committee may select natural persons who are (or upon becoming an officer will be) agents or employees of the Partnership to be designated as officers of the Partnership, with such titles as the Partnership Governance Committee shall determine. The Partnership Governance Committee also shall appoint a Secretary and may appoint such other officers and assistant officers and agents as may be deemed necessary or desirable and such persons shall perform such duties in the management of the Partnership as may be provided in this Agreement or as may be determined by Partnership Governance Committee Action. (b) The executive officers of the Partnership shall consist of a Chief Executive Officer ("CEO"), and others as determined from time to time by Partnership Governance Committee Action (collectively, the "Executive Officers"). 21 27 (c) The Partnership Governance Committee may leave unfilled any offices except those of CEO and Secretary. Two or more offices may be held by the same person, except that the same person may not hold the offices of CEO and Secretary. 7.2 SELECTION AND TERM OF EXECUTIVE OFFICERS. (a) The initial Executive Officers are listed on Appendix C. (b) The CEO shall hold office for a three-year term, subject to the CEO's earlier death, resignation or removal. Upon the expiration of such term or earlier death, resignation or removal, OCC GP shall designate the replacement CEO. The CEO shall not be required to be an employee of the Partnership but shall be required to devote substantially all of his or her efforts to the Partnership's business. (c) Each Executive Officer (other than the CEO) shall hold office until his or her death, resignation or removal. Upon the death, resignation or removal of an Executive Officer, or the creation of a new Executive Officer position, the CEO may nominate a person to fill the vacancy, which shall be subject to Partnership Governance Committee approval. Executive Officers shall not be required to be employees of the Partnership. Any Executive Officer also may serve as an officer or employee of any Partner or Affiliate of a Partner. 7.3 REMOVAL OF EXECUTIVE OFFICERS. (a) The CEO may be removed (i) at any time, by Partnership Governance Committee Action taken pursuant to Section 6.6, with or without cause, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby or (ii) by Geon LP, at any time after twelve months have passed following the delivery of written notice from Geon LP to the Partnership Governance Committee stating that the CEO should be removed for cause and setting forth with reasonable specificity the factual bases for such removal, if the bases for such removal for cause have not been rescinded, removed or cured (to the reasonable satisfaction of Geon LP) within such twelve month period. (b) Any Executive Officer (other than the CEO), or any other officer or agent may be removed, at any time, by Partnership Governance Committee Action taken pursuant to Section 6.6, with or without cause, upon the recommendation of the CEO, whenever in the judgment of the Partnership Governance Committee the best interests of the Partnership would be served thereby. (c) Notwithstanding anything to the contrary in Sections 7.3(a) and 7.3(b), either of the General Partner or Geon LP may, by action of two or more of its Representatives, remove from office any Executive Officer who takes or causes the Partnership to take any action described in Section 6.7 that has not been approved by two or more Representatives of the General Partner and two or more Representatives of Geon LP as contemplated by Section 6.7. Any such removal shall be effected by delivery by such Representatives of written notice of such removal (i) to such 22 28 Executive Officer and (ii) to the Representatives of the other Partner; PROVIDED THAT such removal shall not be effective if such action is rescinded or cured (to the reasonable satisfaction of the Partner, whether the General Partner or Geon LP, who has delivered such notice) promptly after such notice is delivered. 7.4 DUTIES. (a) Each officer or employee of the Partnership shall owe to the Partnership, but not to any Partner, all such duties (fiduciary or otherwise) as are imposed upon such an officer or employee of a Delaware corporation. Without limitation of the foregoing, each officer and employee in any dealings with a Partner shall have a duty to act in good faith and to deal fairly; PROVIDED, THAT, no officer shall be liable to the Partnership or to any Partner for his or her good faith reliance on the provisions of this Agreement. Notwithstanding the foregoing, it is understood that any officer or employee of the Partnership who is also a Representative of either the General Partner or Geon LP shall, in his capacity as a Representative, owe no duty (fiduciary or otherwise) to any Person other than such Representative's appointing Partner. (b) The policies and procedures of the Partnership adopted by the Partnership Governance Committee may set forth the powers and duties of the officers of the Partnership to the extent not set forth in or inconsistent with this Agreement. The officers of the Partnership shall have such powers and duties, except as modified by the Partnership Governance Committee, as generally pertain to their respective offices in the case of a publicly held Delaware corporation, as well as other such powers and duties as from time to time may be conferred by the Partnership Governance Committee and by this Agreement. The CEO and the other officers and employees of the Partnership shall develop and implement management and other policies and procedures consistent with this Agreement and the general policies and procedures established by the Partnership Governance Committee. (c) Notwithstanding any other provision of this Agreement, no Partner, Representative, officer, employee or agent of the Partnership shall have the power or authority, without specific authorization from the Partnership Governance Committee, to undertake any of the following: (i) to do any act which contravenes (or otherwise is inconsistent with) this Agreement or which would make it impracticable or impossible to carry on the Partnership's business; (ii) to confess a judgment against the Partnership; (iii) to possess Partnership property other than in the ordinary conduct of the Partnership's business; or (iv) to take, or cause to be taken, any of the actions described in Section 6.7. 23 29 7.5 CEO. Subject to the terms of this Agreement, the CEO shall have general authority and discretion comparable to that of a chief executive officer of a publicly held Delaware corporation of similar size to direct and control the business and affairs of the Partnership, including its day-to-day operations in a manner consistent with the Annual Budget and the most recently approved Strategic Plan. The Partnership Governance Committee shall establish and maintain a compensation plan for the CEO and the other key employees of the Partnership. The level of compensation provided in such plan for the CEO and the other key employees of the Partnership shall be consistent with levels obtaining in the industry generally for comparably situated persons, and such plan shall establish incentive compensation goals intended to reward the CEO and the other key employees of the Partnership for achievement of the synergies and objectives set forth in the Strategic Plan. The CEO shall take steps to implement all orders and resolutions of the Partnership Governance Committee or, as applicable, any Auxiliary Committee. The CEO shall be authorized to execute and deliver, in the name and on behalf of the Partnership, (i) contracts or other instruments authorized by Partnership Governance Committee Action and (ii) contracts or instruments in the usual and regular course of business (not otherwise requiring Partnership Governance Committee Action), except in cases when the execution and delivery thereof shall be expressly delegated by the Partnership Governance Committee to some other officer or agent of the Partnership, and, in general, shall perform all duties incident to the office of CEO as well as such other duties as from time to time may be assigned to him or her by the Partnership Governance Committee or as are prescribed by this Agreement. 7.6 OTHER OFFICERS. The President (if any) and the Vice Presidents (if any) shall perform such duties as may, from time to time, be assigned to them by the Partnership Governance Committee or by the CEO. In addition, at the request of the CEO, or in the absence or disability of the CEO, the President (if any) or any Vice President, in any order determined by the Partnership Governance Committee, temporarily shall perform all (or if limited through the scope of the delegation, some of) the duties of the CEO, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the CEO. 7.7 SECRETARY. The Secretary shall keep the minutes of all meetings (and copies of written records of action taken without a meeting) of the Partnership Governance Committee in minute books provided for such purpose and shall see that all notices are duly given in accordance with the provisions of this Agreement. The Secretary shall be the custodian of the records and of the seal, if any. The Secretary shall have general charge of books and papers of the Partnership as the Partnership Governance Committee may direct and, in general, shall perform all duties and exercise all powers incident to the office of Secretary and such other duties and powers as the Partnership Governance Committee or the CEO from time to time may assign to or confer upon the Secretary. 7.8 SALARIES. Salaries or other compensation of the other Executive Officers of the Partnership shall be established by the CEO consistent with plans approved by the Partnership Governance Committee. Except as approved by the Partnership Governance Committee, all fees and compensation of the officers and employees of the Partnership other than the CEO with respect to their services as such officers and employees shall be payable solely by the Partnership and no 24 30 Partner or its Affiliates shall pay (or offer to pay) any such fees or compensation to any officer or employee, except to the extent that the Partnership shall have agreed with a Partner or one of its Affiliates pursuant to a separate agreement that a portion of the compensation of such officer or employee shall be paid by such Partner or Affiliate. 7.9 DELEGATION. The Partnership Governance Committee may delegate temporarily the powers and duties of any officer of the Partnership, in case of absence or for any other reason, to any other officer of the Partnership, and may authorize the delegation by any officer of the Partnership of any of such officer's powers and duties to any other officer or employee of the Partnership, subject to the general supervision of such officer. 7.10 GENERAL AUTHORITY. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of each of the officers as set forth in this Agreement. In no event shall any Person dealing with any officer with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the officer; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the officer with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (ii) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (iii) the officer was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership. SECTION 8 STRATEGIC PLANS, ANNUAL BUDGETS AND LOANS ----------------------------------------- 8.1 STRATEGIC PLAN. (a) The Partnership shall be managed in accordance with a five-year strategic business plan (the "Strategic Plan") that shall be updated annually under the direction of the CEO and presented for approval by the Partnership Governance Committee pursuant to Section 6.7 no later than 45 days prior to the start of the first fiscal year covered by the updated plan. (b) The Strategic Plan shall establish the strategic direction of the Partnership, including plans relating to capital maintenance and enhancement, geographic expansion, acquisitions and dispositions, new product lines, technology, long-term supply and customer arrangements, internal and external financing, environmental and legal compliance, and plans, programs and policies relating to compensation and industrial relations. Subject to Section 3.1, the Strategic Plan also shall establish the Partnership's policies regarding the timing and amount of any distributions to the Partners. The Strategic Plan shall include projected income statements, balance sheets and cash flow statements, including the expected timing and amounts of capital contributions and cash 25 31 distributions. The format and level of detail of each Strategic Plan shall be consistent with that of the initial Strategic Plan agreed to by the Partners on or prior to the Closing Date or the Strategic Plan most recently approved pursuant to Section 6.7. Except for entering into the Related Agreements, the Partnership shall not, on other than an arm's length basis, enter into, or waive any material rights under, any agreement between the Partnership and a Partner or its Affiliates unless the taking of such action is specifically contemplated by an approved Strategic Plan. 8.2 ANNUAL BUDGET. (a) The Executive Officers of the Partnership shall prepare an Annual Budget (each, an "Annual Budget") for each fiscal year, including an Operating Budget and Capital Expenditure Budget; PROVIDED that each Annual Budget shall be consistent with the information for such fiscal year included in the Strategic Plan most recently approved pursuant to Section 6.7; and PROVIDED, FURTHER, that unless provided otherwise in the most recently approved Strategic Plan, the Annual Budget (including any Annual Budget prepared under Section 8.2(b)) shall utilize a format and provide a level of detail consistent with the Partnership's initial Annual Budget. The Annual Budget for each year shall be submitted to the Partnership Governance Committee for approval at least 45 days prior to the start of the fiscal year covered by such budget. Each Annual Budget shall incorporate (i) a projected income statement, balance sheet and a cash flow statement, (ii) the amount of any corresponding cash deficiency or surplus and (iii) the estimated amount, if any, and expected timing for all required capital contributions. Each proposed Annual Budget shall be prepared on a basis consistent with the Partnership's financial statements. (b) If for any fiscal year the Partnership Governance Committee has failed to approve an updated Strategic Plan, then, subject to Section 8.5, for such year and each subsequent year prior to approval of an updated Strategic Plan, the Executive Officers of the Partnership shall prepare (and promptly furnish to the Partnership Governance Committee) the Annual Budget consistent with the projections and other information for that year included in the Strategic Plan most recently approved pursuant to Section 6.7; PROVIDED, HOWEVER, that the CEO, acting in good faith, shall be entitled to modify any such Annual Budget in order to satisfy current contractual and compliance obligations and to account for other changes in circumstances reflecting the passage of time, such as general changes in general economic or industry circumstances, or the occurrence of events beyond the control of the Partnership, and notwithstanding any other provision of this Agreement, the CEO shall be authorized to take or cause to be taken, on behalf of the Partnership, all actions that the CEO determines in good faith are appropriate in order to satisfy such obligations or respond to such changed circumstances. Except as may be required above, the CEO shall not be authorized to cause the Partnership to proceed with discretionary capital expenditures to accomplish capital enhancement projects, except to the extent that such expenditures would enable the Partnership to continue or complete any such capital project reflected in the last Strategic Plan that was approved by the Partnership Governance Committee pursuant to Section 6.7. 26 32 (c) Each "Operating Budget" shall constitute an estimate for each applicable period of all operating income, which shall include expenses required to maintain, repair and restore to good and usable condition the Partnership's assets. (d) Each "Capital Expenditure Budget" shall constitute an estimate for the applicable period of the capital expenditures required to (i) accomplish capital enhancement projects included in the most recently approved Strategic Plan, (ii) maintain and preserve the Partnership's assets in good operating condition and repair and (iii) achieve or maintain compliance with any HSE Law. 8.3 FUNDING OF PARTNERSHIP EXPENSES. All Partnership expenses (both operating and capital expenses), regardless of whether included in any Strategic Plan or Annual Budget, shall be funded from operating cash flows or authorized borrowings under available lines of credit, unless otherwise agreed bythe Partnership Governance Committee. Subject to the limitations of Sections 2.3 and 6.7(v), if applicable, to the extent that the CEO determines at any time that funds are needed to fund Partnership operations, the CEO may issue a Funding Notice to the Limited Partners calling for an additional capital contribution. 8.4 IMPLEMENTATION OF BUDGETS AND DISCRETIONARY EXPENDITURES BY CEO. (a) After a Strategic Plan and an Annual Budget have been approved by the Partnership Governance Committee (or an Annual Budget has been developed in accordance with Section 8.2(b)), the CEO will be authorized, without further action by the Partnership Governance Committee, to cause the Partnership to make expenditures consistent with such Strategic Plan and Annual Budget; PROVIDED, HOWEVER, that all internal control policies and procedures, including those regarding the required authority for certain expenditures, shall have been followed. (b) In any emergency, the CEO or the CEO's designee shall be authorized to take such actions and to make such expenditures as may be reasonably necessary to react to the emergency, regardless of whether such expenditures have been included in an approved Strategic Plan or Annual Budget. Promptly after learning of an emergency, the CEO or such designee shall notify the Representatives of the nature of the emergency and the response that has been made, or is committed or proposed to be made, with respect to the emergency. 8.5 STRATEGIC PLAN DEADLOCK. If, after the fifth anniversary of the date of this Agreement, the Partnership Governance Committee has not agreed upon and approved an updated Strategic Plan, as contemplated by Sections 6.7 and 8.1, within 12 months after the beginning of the first fiscal year that would have been covered by such plan, then the General Partner and Geon LP shall each submit their disagreements to non-binding mediation by a Neutral. If the General Partner and Geon LP are unable to agree upon a mutually acceptable Neutral within 30 days after a nomination of a Neutral is made by the General Partner or Geon LP to the other, then such Neutral shall upon the application of either the General Partner or Geon LP be appointed within 70 days of such nomination by the Center for Public Resources, or if such appointment is not so made promptly, then promptly thereafter by the American Arbitration Association in Dallas, Texas, or if such appointment is not 27 33 so made promptly, then promptly thereafter by the senior United States District Court judge sitting in Dallas, Texas. The fees of the Neutral shall be paid equally by the General Partner and Geon LP. Within 20 days of selection of the Neutral, two persons having decision-making authority on behalf of each the General Partner and Geon LP shall meet with the Neutral and agree upon procedures and a schedule for attempting to resolve the differences between the General Partner and Geon LP. They shall continue to meet thereafter on a regular basis until (i) agreement is reached by the General Partner and Geon LP (acting through their Representatives) on an updated Strategic Plan or (ii) at least 24 months have elapsed since the beginning of the first fiscal year on or after the fifth anniversary of the date of this Agreement that would have been covered by the updated plan for which agreement was not reached, and the General Partner or Geon LP shall determine and notify the other and the Neutral in writing (a "Deadlock Notice") that no agreement resolving the dispute is likely to be reached. Notwithstanding anything contained in this Agreement to the contrary, in no event shall the General Partner or Geon LP have the right to commence the procedures contained in this Section 8.5 until after the fifth anniversary of the date of this Agreement. 8.6 LOANS. (a) INITIAL FACILITIES. On the Closing Date, the Partnership shall enter into the credit agreement provided for in Section 1.3(b)(x) of the Master Transaction Agreement. (b) OTHER LOANS. The Partnership Governance Committee may by Partnership Governance Committee Action authorize the CEO to cause the Partnership to borrow funds from third party lenders. No Partner shall be required, and the Partnership Governance Committee shall not be authorized to require any Partner, to guarantee or to provide other credit or financial support for any loan. Any Partner may, at its sole discretion, guarantee or provide other credit or financial support for all or any portion of any debt of the Partnership, for such period of time and on such other terms as the Partner shall determine. SECTION 9 RIGHTS OF PARTNERS ------------------ 9.1 DELEGATION AND CONTRACTS WITH RELATED PARTIES. (a) The Partners acknowledge that the General Partner and Geon LP (acting through the Partnership Governance Committee) are permitted to delegate responsibility for day-to-day operations of the Partnership to officers and employees of the Partnership. (b) The Related Agreements, and upon receipt of any required approval by the Partnership Governance Committee (including, as applicable, any approval required by Section 6.7), all other contracts and transactions between the Partnership and a Partner or its Affiliates, shall be deemed to be entered into on an arm's-length basis and to be subject to ordinary contract and commercial law, without any other duties or rights being implied by reason of the status of being a Partner or by reason of any provision of this Agreement or the existence of the Partnership. In the 28 34 case of any contract (including applicable Related Agreements) between the Partnership and OCC or any Affiliate thereof, Geon LP shall have the right under all reasonable circumstances, after reasonable prior notice to the General Partner, to cause the Partnership to exercise all of the Partnership's audit and similar rights under any such contract, and shall have full access to any audit or other reports resulting from the exercise of such rights. 9.2 GENERAL AUTHORITY. Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of each of the General Partner and Geon LP as set forth in this Agreement. In no event shall any Person dealing with either the General Partner or Geon LP or such Partners' representatives with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the General Partner or Geon LP or such Partners' representatives; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the General Partner or Geon LP or such Partners' representatives with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (ii) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (iii) either the General Partner or Geon LP or such Partners' representative was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership. Nothing in this Section 9.2 shall be deemed to be a waiver or release of either the General Partner's or Geon LP's obligations to the other Partners as set forth elsewhere in this Agreement. 9.3 LIMITATION ON FIDUCIARY DUTY; NON-COMPETITION; RIGHT OF FIRST OPPORTUNITY. (a) Each Partner (directly or through its Affiliates) is a sophisticated party possessing extensive knowledge of and experience relating to, and is actively engaged in, significant businesses in addition to its Contributed Business, has been represented by legal counsel, is capable of evaluating and has thoroughly considered the merits, risks and consequences of the provisions of this Section 9.3 and is agreeing to such provision knowingly and advisedly. The liability of the General Partner (including any liability of its Affiliates or its and their respective officers, directors, agents and employees) or of any Limited Partner (including any liability of its Affiliates or its and their respective officers, agents, directors and employees), either to the Partnership or to any other Partner, for any act or omission by such Partner in its capacity as a partner of the Partnership that is imposed by such Partner's status as a "general partner" or "limited partner" (as such terms are used in the Act) of a limited partnership is hereby eliminated, waived and limited to the fullest extent permitted by law; PROVIDED, HOWEVER, that the General Partner and Geon LP shall at all times owe to the other a fiduciary duty in observing the requirement described in Section 6.7 that (except as provided in Section 6.7(iv)) two or more Representatives of the General Partner and two or more Representatives of Geon LP shall be required to give their approval before the Partnership may undertake any of the actions listed in Section 6.7. Nothing in this Section 9.3(a) shall relieve any Partner from liability 29 35 for any breach of this Agreement, and the General Partner and Geon LP shall at all times owe to each other a duty to act in good faith with respect to all matters involving the Partnership. (b) Except as set forth in Section 9.3(c), each Partner's Affiliates shall be free to engage in or possess an interest in any other business of any type, including any business in direct competition with the Partnership, and to avail itself of any business opportunity available to it without having to offer the Partnership or any Partner the opportunity to participate in such business. Except as set forth in Section 9.3(c), it is expressly agreed that the legal doctrine of "corporate or business opportunities" sometimes applied to a Person deemed to be subject to fiduciary or other similar duties so as to prevent such Persons from engaging in or enjoying the benefits of certain additional business opportunities shall not be applied in the case of any investment, acquisition, business, activity or operation of any Partner's Affiliates. (c) (i) If a Partner's Affiliate desires to initiate or pursue an opportunity to undertake, engage in, acquire or invest in a Related Business by investing in or acquiring a Person whose business is a Related Business, acquiring assets of a Related Business, or otherwise engaging in or undertaking a Related Business (a "Business Opportunity"), such Affiliate (such Affiliate, together with its Affiliates, being called the "Proposing Person") shall offer the Partnership the Business Opportunity on the terms set forth in Section 9.3(c)(ii). (ii) When a Proposing Person offers a Business Opportunity to the Partnership, the Partnership shall elect to do one of the following within a reasonably prompt period: (A) acquire or undertake the Business Opportunity for the benefit of the Partnership as a whole, at the cost, expense and benefit of the Partnership; provided, however, that, if the Partnership ceases to actively pursue such opportunity for any reason, then the Proposing Person will be entitled to proceed under clause (B) below; or (B) permit the Proposing Person to acquire or undertake the Business Opportunity for its own benefit and account without any duty to the Partnership or the other Partners with respect thereto; PROVIDED, HOWEVER, that if the Business Opportunity is in direct competition with the then existing business of the Partnership (a "Competing Opportunity"), then the Proposing Person and the Partnership shall, if either so elects, promptly seek to negotiate and implement an arrangement whereby the Partnership would either (i) acquire or undertake the Competing Opportunity at the sole cost, expense and benefit of the Proposing Person under a mutually acceptable arrangement whereby the Competing Opportunity is treated as a separate business within the Partnership with the costs, expenses and benefits related thereto being borne and enjoyed solely by the Proposing Person, or (ii) enter into a management agreement with the Proposing Person to manage the Competing Opportunity on behalf of the Proposing Person on terms and conditions mutually acceptable to the Proposing Person and the Partnership. If the Partnership and the Proposing Person do not reach agreement as to such arrangement within a reasonable period not to 30 36 exceed 30 days, the Proposing Person may acquire or undertake the Competing Opportunity for its own benefit and account without any duty to the Partnership or the other Partners with respect thereto. (d) Notwithstanding the provisions of Section 9.3(c)(ii), if the Business Opportunity constitutes less than 25% (based on annual revenues of the business to be acquired or invested in for the most recently completed fiscal year) of an acquisition of or investment in assets, activities, operations or businesses that is not otherwise a Related Business, then a Proposing Person may acquire or invest in such Business Opportunity without first offering it to the Partnership; PROVIDED, that, after completion of the acquisition or investment thereof, such Proposing Person must offer the Business Opportunity to the Partnership pursuant to the terms of Section 9.3(c)(ii); and if the Partnership elects option (A) of Section 9.3(c)(ii) with respect thereto, the Business Opportunity shall be acquired by the Partnership at its fair market value as mutually agreed or Finally Determined as of the date of such acquisition. (e) If (i) the Partnership is presented with an opportunity to acquire or undertake a Business Opportunity that it determines not to acquire or undertake and (ii) the Representatives of the General Partner or Geon LP, but not the other, desired that the Partnership acquire or undertake such Business Opportunity, then the Partnership shall permit such first Partner's Affiliates to acquire or undertake such Business Opportunity and Section 9.3(c)(ii)(B) shall be deemed to be applicable thereto to the same extent as if such Partner's Affiliates were a Proposing Person with respect to such Business Opportunity. 9.4 LIMITED PARTNERS. (a) Except as expressly set forth in this Agreement, no Limited Partner shall take part in the management or control of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise to bind the Partnership. (b) Each Limited Partner shall have the rights with respect to the Partnership's books and records as set forth in Section 5.3. 9.5 PARTNER COVENANTS. Each Partner covenants and agrees with the Partnership and with the other Partners as follows: (i) It shall not exercise, or purport or attempt to exercise, its authority to withdraw, retire, resign, or assert that it has been expelled from the Partnership; (ii) It shall not do any act that would make it impossible or impracticable to carry on the Partnership's business; and (iii) It shall not act or purport or attempt to act in a manner inconsistent with any act of the General Partner or Geon LP acting pursuant to the Partnership Governance 31 37 Committee or in a manner contrary to the agreements of the Partners set forth in this Agreement; PROVIDED, THAT, nothing in this Section 9.5 shall be deemed to waive its rights under Sections 10, 11 or 12. 9.6 SPECIAL PURPOSE ENTITIES. Each Partner covenants and agrees that (i) its business shall be restricted solely to the holding of its Units and the doing of things necessary or appropriate in connection therewith (including the exercise of its rights and powers under this Agreement), and (ii) it shall not own any assets, incur any liabilities or engage, participate or invest in any business outside the scope of such business. SECTION 10 TRANSFERS AND PLEDGES --------------------- 10.1 RESTRICTIONS ON TRANSFER AND PROHIBITION ON PLEDGE. Except pursuant to Section 11 or the procedures described below in this Section, a Partner shall not, in any transaction or series of transactions, directly or indirectly Transfer all or any part of its Units without the consent of the Other Partner, which consent may be granted or withheld in the Other Partner's sole discretion. A Partner shall not, in any transaction or series of transactions, directly or indirectly Pledge all or any part of its Units or its interest in the Partnership without the consent of the Other Partner, which consent may be granted or withheld in the Other Partner's sole discretion. Neither the term "Transfer" nor the term "Pledge," however, shall include an assignment by a Partner of such Partner's right to receive distributions from the Partnership so long as such assignment does not purport to assign any right of such Partner to participate in or manage the affairs of the Partnership, to receive any information or accounting of the affairs of the Partnership, or to inspect the books or records of the Partnership or any other right of a Partner pursuant to this Agreement or the Act. Any attempt by a Partner to Transfer or Pledge all or a portion of its Units in violation of this Agreement shall be void AB INITIO and shall not be effective to Transfer or Pledge such Units or any portion thereof. Subject to any applicable restrictions imposed by the Parent Agreement, nothing in this Agreement shall prevent the Transfer or Pledge by the owner thereof of any capital stock, equity ownership interests or other securities of a Partner or any Affiliate of a Partner, whether such Transfer or Pledge by such owner is in connection with the merger, consolidation, conversion, share exchange or Change of Control of such owner or otherwise. 10.2 RIGHT OF FIRST OPTION AND RIGHT OF FIRST REFUSAL. (a) Except as provided in Section 10.6, without the consent of the Partnership Governance Committee, no Partner may Transfer less than all of its Units, and no Partner may Transfer its Units, directly or indirectly, for consideration other than cash. Any Limited Partner and, in the case of OCC LP, OCC GP (together, the "Selling Partners"), that receive a bona fide offer to purchase all of their Units that the Selling Partners desire to accept (an "Offer") or that otherwise 32 38 desire to Transfer all of their Units to any Person shall give written notice (the "Initial Notice") to the Partnership and the other Partners (the "Offeree Partners") stating that the Selling Partners have received an Offer or otherwise desire to Transfer their Units and shall set forth the cash purchase price and all other terms of the Offer or the cash purchase price (established as provided below) and all other terms on which they are willing to sell their Units (in each case, the "Offer Terms"). In establishing the Offer Terms for a proposed sale that does not involve an Offer, the Selling Partners shall obtain an appraisal from an independent appraiser with a reasonable level of industry experience of the cash price that a willing buyer under no compulsion to buy would pay and a willing seller under no compulsion to sell would accept for the Units of the Selling Partners (the "Appraised Value"). Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Partners to sell their Units to the Offeree Partners hereunder. (b) The Offeree Partners shall have the option, exercisable by delivering written notice (the "Acceptance Notice") of such exercise to the Selling Partners within 60 days of the date of the Initial Notice, to elect to purchase all, but not less than all, of the Units of the Selling Partners on the Offer Terms described in the Initial Notice. The Acceptance Notice shall set a date for closing the purchase, such date to be not less than 30 nor more than 90 days after delivery of the Acceptance Notice; PROVIDED, HOWEVER, that such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 90 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act (or any successor statute) or other Legal Requirement. The closing shall be held at the Partnership's offices. The purchase price for the Selling Partners' Units shall be paid in immediately available funds delivered at the closing, and all actions at the closing shall conform in all material respects to the Offer Terms. (c) If the Offeree Partners do not elect to purchase all of the Selling Partners' Units within 60 days after the receipt of the Initial Notice, the Selling Partners shall have a further 180 days during which they may, subject to Section 10.2(d), consummate the sale of their Units (i) substantially in accordance with the terms of the Offer or (ii) if no Offer is involved, to a third party purchaser on terms that are not substantially more favorable to such purchaser than the Offer Terms and at a price equal to not less than 90% of the Appraised Value of the Units. If the sale is not completed within such further 180-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Partners may make any Transfer of their Units. If the Selling Partners receive a written offer during such further 180-day period from a third party purchaser that is for less than 90% of the Appraised Value, and the Selling Partners are willing to accept the offer, then (1) the offer shall be treated as an Offer, and (2) the Selling Partners must comply with the provisions of this Section 10.2 before the Selling Partners may make any Transfer of their Units to the third party purchaser that made the Offer. (d) Notwithstanding the foregoing provisions of this Section 10.2, a Partner may Transfer its Units only if all of the following occur: 33 39 (i) The proposed transferor is not in default in the timely performance of any of its material obligations to the Partnership. (ii) The Transfer is accomplished in a non-public offering in compliance with, and exempt from, the registration and qualification requirements of all federal and state securities laws and regulations. (iii) The Transfer does not cause a default under any material contract (A) that has been approved unanimously by the Partnership Governance Committee and (B) to which the Partnership is a party or by which the Partnership or any of its properties is bound. (iv) The transferee executes an appropriate agreement to be bound by this Agreement. (v) The transferor and transferee bear all reasonable costs incurred by the Partnership in connection with the Transfer. (vi) The business and activities of the transferee comply with Section 9.6. (vii) The provisions of Section 10.3 are satisfied. (viii) The parent of the transferee satisfies the criteria set forth in Section 1.2(d)(vii) of the Parent Agreement and delivers an agreement to the Parent of the Offeree Partners and to the Partnership, substantially in the form of the Parent Agreement. 10.3 INCLUSION OF GENERAL OR LIMITED PARTNER UNITS. OCC LP may not Transfer its Units to any Person (other than in accordance with Section 10.6) unless the Units of OCC GP are simultaneously transferred to such Person or a Wholly-Owned Affiliate of such Person. OCC GP may not transfer its Units to any Person (other than in accordance with Section 10.6) unless the Units of OCC LP are simultaneously transferred to such Person or a Wholly-Owned Affiliate of such Person. 10.4 RIGHTS OF TRANSFEREE. Upon consummation of a Transfer in accordance with Section 10.2, the transferee or transferees shall immediately, and without any further action of any Person, become (i) a Substitute Limited Partner if and to the extent Limited Partner Units are transferred and (ii) a Substitute General Partner, if and to the extent General Partner Units are transferred. 10.5 EFFECTIVE DATE OF TRANSFER. Each Transfer shall become effective as of the first day of the calendar month following the calendar month during which the Partnership Governance Committee approves such Transfer and receives a copy of the instrument of assignment and all such certificates and documents of the character described in Section 10.2, which the Partnership Governance Committee may reasonably request. 34 40 10.6 TRANSFER TO 80%-OWNED AFFILIATE. Without the need for the consent of any Person (subject to the provisions contained in Section 10.2(d) and this Section 10.6): (a) any Partner may Transfer its Units to any 80%-Owned Affiliate of such Partner. Upon consummation of a Transfer in accordance with this Section 10.6(a), the transferee shall immediately, and without any further action of any Person, become (i) a Substitute Limited Partner, if and to the extent Limited Partner Units are transferred, and (ii) a Substitute General Partner, if and to the extent General Partner Units are transferred; and (b) OCC LP may, at its option and at any time, Transfer up to 99% of its Limited Partner Units to OCC GP, whereupon such Limited Partner Units shall, without any further action, become General Partner Units. Promptly following any Transfer of Limited Partner Units in accordance with this Section 10.6(b), each Partner shall take such actions and execute such instruments or documents (including amendments to this Agreement or supplemental agreements hereto) as may be reasonably necessary to ensure that OCC GP and OCC LP shall, taken as a whole and following such Transfer, maintain all of its rights under this Agreement as in effect immediately prior to such Transfer (including the portion of any Partnership cash distributable to OCC GP and OCC LP). 10.7 INVALID TRANSFER. No Transfer of Units which is in violation of this Section 10 shall be valid or effective, and the Partnership shall not recognize the same for the purposes of making any allocation or distribution. SECTION 11 DEFAULT ------- 11.1 DEFAULT. (a) Each of the following events shall constitute a "Default" and create the rights provided for in this Section 11 in favor of the Partnership and the Non-Defaulting Partners against the Defaulting Partners: (i) the failure by a Partner to make any contribution to the Partnership as required pursuant to this Agreement (other than pursuant to the Asset Contribution Agreement), which failure continues for at least five Business Days from the date that the Partner is notified such contribution is overdue; or (ii) the withdrawal, retirement, resignation or dissolution of a Partner (other than in connection with a Transfer of all of a Partner's Units in accordance with this Agreement); or the Bankruptcy of a Partner or its Parent. 35 41 (b) The day upon which the Default commences or occurs (or if the Default is subject to a cure period and is not timely cured, then the day following the end of the applicable cure period) shall be the "Default Date." Without prejudice to a Partner's (or any of its Affiliates') rights to seek temporary or preliminary judicial relief, prior to any such Default Date all rights and obligations of the Partners under this Agreement shall remain in full force and effect. 11.2 REMEDIES FOR DEFAULT. Provided that there shall be no duplication of remedies, without prejudice to any right to pursue independently and at any time, including simultaneously, any other remedy it may have under law, including the right to seek to recover Damages, or equity, the Non-Defaulting Partners in their sole discretion may elect to pursue the following remedies: (a) At any time prior to the expiration of 60 days from the Default Date, each of the Non-Defaulting Partners may elect to purchase its pro rata share (based on the ratio of the number of Units owned by such Partners to the number of Units owned by each of the Non-Defaulting Partners electing to purchase) of the Units of the Defaulting Partners as described in Section 11.3; PROVIDED, HOWEVER, that within 10 days after the determination of the Fair Market Value, the Non-Defaulting Partners may withdraw their election, in which case the Non-Defaulting Partners shall have an additional 30 days from their determination not to proceed to elect an alternative remedy under Section 11.2(b) below; and (b) At any time prior to the expiration of 60 days from the Default Date (or if the Non-Defaulting Partners initially elected to pursue their remedy under Section 11.2(a) above, then at any time prior to the expiration of the 30-day extension period), the Non-Defaulting Partners may elect to effect a liquidation of the Partnership under Section 11.4 and thereby cause the Partnership to dissolve under Section 12.1(iv). 11.3 PURCHASE OF DEFAULTING PARTNERS' UNITS. (a) Upon any election pursuant to Section 11.2(a), the purchase price that the Non-Defaulting Partners shall pay, in the aggregate, to the Defaulting Partners for their Units shall be an amount equal to (i) the amount that the Defaulting Partners would receive in a liquidation (assuming that any sale under Section 12.2 were for an amount equal to the Fair Market Value, without giving effect to any Damages) reduced by (ii) the unrecovered Damages attributable to the Default by the Defaulting Partners. (b) If the Non-Defaulting Partners have a right to purchase the Units of the Defaulting Partners, they may first seek a determination of Fair Market Value at the sole cost and expense of the Defaulting Partners by delivering notice in writing to the Defaulting Partners. The Non-Defaulting Partners shall have 10 days from the final determination of Fair Market Value to elect to purchase the Defaulting Partner Units by delivering notice of such election in writing, and the purchase shall be consummated prior to the expiration of 60 days from the date such notice is delivered; PROVIDED that, such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 60 day period) in order to comply with any 36 42 applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act or other Legal Requirement. (c) The purchase price so determined shall be payable in cash at a closing held at the Partnership's offices. The purchase shall be consummated by appropriate and customary documentation (including the giving of representations and warranties substantially similar to those set forth in Sections 2.1 and 2.2 of the Master Transaction Agreement) as soon as practicable and in any event within the applicable time period specified in subsection (b). (d) The Non-Defaulting Partners may assign, in whole or in part, their right to purchase the Units of the Defaulting Partners to one or more third parties without the consent of any Partner hereunder. (e) If Units are transferred in accordance with this Section 11.3, whether to the Non-Defaulting Partners or a third party, upon the consummation of such Transfer, each such transferee shall immediately, and without any further action on the part of any Person, become (i) a Substitute Limited Partner of the Defaulting Partner if and to the extent that Limited Partner Units were transferred to such Person and (ii) a Substitute General Partner of the Defaulting Partner if and to the extent that General Partner Units were transferred to such Person. 11.4 LIQUIDATION. Upon any election pursuant to Section 11.2(b), the Non-Defaulting Partners shall have the right to elect to dissolve and liquidate the Partnership pursuant to the procedures in Section 12.1(iv) (such procedures constituting a "Liquidation"); PROVIDED, HOWEVER, that any amount payable to the Defaulting Partners in such Liquidation pursuant to Section 12.2 shall be reduced by, without duplication, any unrecovered Damages incurred by the Non-Defaulting Partner and the Non-Defaulting Partners' Percentage Interest of any unrecovered Damages incurred by the Partnership in connection with the Default. The Non-Defaulting Partners shall deliver notice of such election to dissolve and liquidate in writing to the Partnership and the Defaulting Partners. 11.5 CERTAIN CONSEQUENCES OF DEFAULT. Notwithstanding any other provision of this Agreement, commencing on the Default Date and (i) prior to the Non-Defaulting Partners' collection of Damages through the exercise of its legal remedies or otherwise, or (ii) while the Non-Defaulting Partners are pursuing their remedies under Section 11.2(a) or (b), the Representatives of the Defaulting General Partner shall not have any voting or decisional rights with respect to matters requiring Partnership Governance Committee Action, and such matters shall be determined solely by the Representatives of the Non-Defaulting General Partner; PROVIDED, HOWEVER, that the foregoing loss of voting and decisional rights shall not occur as a result of a Default caused solely by the Bankruptcy of a Partner or a Parent described in Section 11.1(a)(ii); and PROVIDED FURTHER, that in the case of a Default under Section 11.1(a)(i), the foregoing loss of voting and decisional rights shall not apply to those voting and decisional rights contained in Sections 6.7(i), (viii), (xi) or (xiii) of this Agreement, which rights shall continue in full force and effect at all times. 37 43 SECTION 12 DISSOLUTION, LIQUIDATION AND TERMINATION ---------------------------------------- 12.1 DISSOLUTION AND TERMINATION. As long as Geon LP is willing then to convert its Units to General Partner Units and thereafter serve as the General Partner (who is hereby authorized in such event to so convert its Units and to conduct the business of the Partnership without dissolution), the withdrawal, retirement, resignation, dissolution or Bankruptcy of the General Partner shall not dissolve the Partnership, but rather shall be a Default covered by Section 11. The Partnership shall be dissolved upon the happening of any one of the following events: (i) the written determination of both the General Partner and Geon LP to dissolve the Partnership; (ii) the entry of a judicial decree of dissolution; (iii) any other act or event that results in the dissolution of a limited partnership under the Act (except as provided in the first sentence of this Section 12.1); (iv) the election of the Non-Defaulting Partners to effect a dissolution of the Partnership under Section 11.4; or (v) after the delivery of a Deadlock Notice by either the General Partner or Geon LP pursuant to Section 8.5, the written determination by either the General Partner or Geon LP to dissolve the Partnership. 12.2 PROCEDURES UPON DISSOLUTION. (a) GENERAL. If the Partnership dissolves, it shall commence winding-up pursuant to the appropriate provisions of the Act and the procedures set forth in this Section 12. Notwithstanding the dissolution of the Partnership, prior to the termination of the Partnership, the business of the Partnership and the affairs of the Partners, as such, shall continue to be governed by this Agreement. (b) CONTROL OF WINDING-UP. The winding up of the Partnership shall be conducted under the direction of the Partnership Governance Committee; PROVIDED, HOWEVER, that (i) if OCC GP and OCC LP are then Defaulting Partners and Geon LP is a Non-Defaulting Partner, such winding-up shall be conducted under the direction of Geon LP, and (ii) if the dissolution is caused by entry of a decree of judicial dissolution, the winding-up shall be carried out in accordance with such decree. The term "Liquidator" shall mean the Person or committee conducting such winding-up of the Partnership. (c) MANNER OF WINDING-UP. Unless the provisions of Section 12.2(e) apply, the Liquidator shall cause the Partnership to attempt to sell all Partnership properties and apply the 38 44 proceeds therefrom in accordance with this Section 12.2(c) and Section 12.2(d). Upon dissolution of the Partnership and subject to Section 12.2(f), the Liquidator shall determine the time, manner and terms of any sale or sales of Partnership property pursuant to such winding-up, consistent with its duties and having due regard to the activity and condition of the relevant market and general financial and economic conditions. Except as otherwise agreed by the Partners, no distributions will be made in kind to any Partner without the consent of each Partner. (d) APPLICATION OF ASSETS. In the case of a dissolution and winding-up of the Partnership, the Partnership's assets shall be applied as follows: (i) First, to satisfaction of the liabilities of the Partnership owing to creditors (including Partners and Affiliates of the Partners who are creditors), whether by payment or reasonable provision for payment. Any reserves created to make any such provision for payment may be paid over by the Partnership to an independent escrow holder or trustee, to be held in escrow or trust for the purpose of paying any such contingent, conditional or unmatured liabilities or obligations, and, at the expiration of such period as the Liquidator may deem advisable, such reserves shall be distributed to the Partners or their assigns in the manner set forth in Section 12.2(d)(ii) below. (ii) Second, after all allocations of Profits or Losses and other items pursuant to Section 4, to the Partners in accordance with the balances in their Capital Accounts. (iii) Notwithstanding the foregoing, if any Partner shall be indebted to the Partnership, then until payment in full of the principal of and accrued but unpaid interest on such indebtedness, regardless of the stated maturity or maturities thereof, the Partnership shall retain such Partner's distributive share of Partnership property and apply such sums to the liquidation of such indebtedness and the cost of operation of such Partnership property during the period of such liquidation. (e) DIVISION OF ASSETS UPON DEADLOCK. If dissolution occurs pursuant to Section 12.1(v), then the provisions of this Section 12.2(e) shall, if elected by any Partner, apply in lieu of the provisions of Section 12.2(c), but subject to the provisions of Section 12.2(d)(ii). In such event, the Partnership properties shall be divided and distributed in kind to the Partners in accordance with the provisions of Appendix E. (f) SUPPLY AGREEMENTS. In connection with a sale of Partnership properties pursuant to Section 12.2(c), the Liquidator shall, at its option, either (i) if a single purchaser acquires all or substantially all of such properties, cause such purchaser to assume and agree to perform under all the Supply Agreements, or if such properties are sold to more than one purchaser, cause such purchasers (on a several basis) in the aggregate to assume and agree to perform under all the Supply Agreements, with the benefits, duties and obligations under the Supply Agreements being allocated among such purchasers as deemed appropriate by the Liquidator, or (ii) cause the Supply Agreements to be terminated prior to the sale of such properties with the purchaser or purchasers of 39 45 such properties not assuming the Supply Agreements, and prior to any distribution of the Partnership's assets in connection with the dissolution and winding-up of the Partnership, cause the Partnership to pay Geon LP in cash an amount equal to the remaining value of the Supply Agreements (to the parties thereto other than the Partnership) as of the date of the termination of the Supply Agreements, assuming the extension of the Supply Agreements beyond their respective initial terms pursuant to Geon's two five-year renewal options. The Partners agree that any dispute regarding the value of the Supply Agreements shall be resolved pursuant to the Dispute Procedures. 12.3 TERMINATION OF THE PARTNERSHIP. Upon the completion of the liquidation of the Partnership and the distribution of all Partnership assets, the Partnership's affairs shall terminate and the Partnership shall cause to be executed and filed a Certificate of Cancellation of the Partnership's Certificate of Limited Partnership pursuant to the Act, as well as any and all other documents required to effectuate the termination of the Partnership. 12.4 ASSET AND LIABILITY STATEMENT. Within a reasonable time following the completion of the winding-up and liquidation of the Partnership's business, the Liquidator shall supply to each of the Partners a statement (which may be unaudited) which shall set forth the assets and the liabilities of the Partnership as of the date of complete liquidation, and each Partner's pro rata portion of distributions pursuant to Section 12.2. SECTION 13 MISCELLANEOUS ------------- 13.1 CONFIDENTIALITY AND USE OF INFORMATION. (a) Except as provided in Section 13.1(c) or (d), each Partner shall, and shall cause each of its Affiliates and its and their respective partners, shareholders, directors, officers, employees and agents (collectively, "Related Persons") to, keep secret, retain in strictest confidence, and not distribute, disseminate or disclose any and all Confidential Information except to (i) the Partnership and its officers and employees, (ii) any lender to the Partnership or (iii) any Partner or any of their respective Affiliates or other Related Persons on a "need to know" basis in connection with the transactions leading up to and contemplated by this Agreement and the operation of the Partnership, and such Partner disclosing Confidential Information pursuant to this Section 13.1(a) shall use, and shall cause its Affiliates and other Related Persons to use, such Confidential Information only for the benefit of the Partnership in conducting the Partnership's business or for any other specific purposes for which it was disclosed to such Person; PROVIDED THAT the disclosure of financial statements of, or other information relating to the Partnership shall not be deemed to be the disclosure of Confidential Information (y) to the extent that any Partner (or its ultimate parent entity) deems it necessary, appropriate or customary pursuant to law, regulation or stock exchange rule (in the reasonable good faith judgment of such parent entity) to disclose such information in or in connection with filings with the SEC, press releases disseminated to the financial community, presentations to lenders, presentations to ratings agencies or information disclosed to similar 40 46 audiences or (z) to the extent that in order to sustain a position taken for tax purposes, any Partner deems it necessary and appropriate to disclose such financial statements or other information. All Confidential Information disclosed in connection with the Partnership or pursuant to this Agreement shall remain the property of the Person whose property it was prior to such disclosure unless such property has been transferred to the Partnership pursuant to an Asset Contribution Agreement. (b) No Confidential Information regarding the plans or operations of any Partner or any Affiliate thereof received or acquired by or disclosed to any unaffiliated Partner or Affiliate thereof in the course of the conduct of Partnership business, or otherwise as a result of the existence of the Partnership, may be used by such unaffiliated Partner or Affiliate thereof for any purpose other than for the benefit of the Partnership in conducting the Partnership Business. The Partnership and each Partner shall have the affirmative obligation to take all necessary steps to prevent the disclosure to any Partner or Affiliate thereof of information regarding the plans or operations of such Partner and its Affiliates in markets and areas unrelated to the business of the Partnership in which any other Partner or its respective Affiliate competes. (c) In the event that any Partner is legally required (by interrogatories, discovery requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, it is agreed that such Partner prior to disclosure will provide the Partnership Governance Committee with prompt notice of such request(s) so that the Partnership Governance Committee may seek an appropriate protective order or other appropriate remedy and/or waive the Partner's compliance with the provisions of this Section. In the event that such protective order or other remedy is not obtained, or that the Partnership Governance Committee grants a waiver hereunder, such Partner may furnish that portion (and only that portion) of the Confidential Information that, in the opinion of the Partner's counsel, the Partner is legally compelled to disclose, and the Partner will exercise its commercially reasonable best efforts to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so furnished. (d) Any Partner may disclose Confidential Information to a third party who requires such Confidential Information for the purpose of evaluating a possible purchase of such Partner's Units in accordance with Section 10; PROVIDED, HOWEVER, that such third party shall be informed by such Partner of the confidential nature of the information and the existence of this Section 13.1 and prior to any disclosure shall execute a written confidentiality agreement with such Partner substantially identical in scope to this Section and providing that such confidentiality agreement is also made for the benefit of the Partnership and each of the other Partners. (e) The Partners and their Affiliates shall consult with each other on an ongoing basis with respect to disclosures regarding the Partnership and its business and affairs permitted under Section 13.1(a)(y). 41 47 13.2 INDEMNIFICATION. (a) INDEMNIFICATION BY PARTNERSHIP. The Partnership agrees, to the fullest extent permitted by applicable law, to indemnify, defend and hold harmless each Partner, its Affiliates and their respective officers, directors and employees from, against and in respect of any Liability which such Indemnified Party may sustain, incur or assume as a result of, or relative to, a Third Party Claim arising out of or in connection with the business, property or affairs of the Partnership, except to the extent that it is Finally Determined that such Third Party Claim arose out of or was related to actions or omissions of the indemnified Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) constituting a breach of this Agreement or any Related Agreement. The Partnership shall periodically reimburse or advance to any Person entitled to indemnity under this Section 13.2(a) its legal and other expenses incurred in connection with defending any claim with respect to such Liability if such Person shall agree to reimburse promptly the Partnership for such amounts if it is finally determined that such Person was not entitled to indemnity hereunder. Nothing in this Section 13.2(a) is intended to, nor shall it, affect or take precedence over the indemnity provisions contained in any Related Agreement. (b) PARTNER'S RIGHT OF INDEMNIFICATION. Each Partner hereby agrees, to the fullest extent permitted by law, to indemnify, defend and hold harmless the other Partners, their Affiliates and their respective officers, directors and employees from and against the indemnifying Partner's Percentage Interest (calculated at the time any such Liability was incurred) of any Liability that such Indemnified Party may sustain, incur or assume as a result of or relating to any Third Party Claim arising out of or in connection with the business, property or affairs of the Partnership; PROVIDED, HOWEVER, that such indemnified Partner, its Affiliates and their respective officers, directors and employees shall not be entitled to indemnity under this Section 13.2(b) to the extent that it is Finally Determined that such Third Party Claim arose out of or was related to actions or omissions of the indemnified Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) constituting a breach of this Agreement or any Related Agreement; PROVIDED, FURTHER, that such indemnified Partner, its Affiliates and their respective officers, directors and employees shall not be entitled to indemnity under this Section 13.2(b) unless (i) the indemnified Partner shall first make a written demand for indemnification from the Partnership in accordance with Sections 13.2(a) and (c) and the Partnership shall fail to satisfy such demand in a manner reasonably satisfactory to the indemnified Partner within 60 days of such notice or (ii) the Partnership is insolvent or otherwise unable to satisfy its obligations. The indemnifying Partner shall periodically reimburse any Person entitled to indemnity under this Section 13.2(b) for its legal and other expenses incurred in connection with defending any claim with respect to such Liability if such Person shall agree to reimburse promptly the indemnifying Partner for such amounts if it is Finally Determined that such Person was not entitled to indemnity hereunder. (c) PROCEDURES. Promptly after receipt by a Person entitled to indemnification under subsection (a) or (b) (an "Indemnified Party") of notice of any pending or threatened claim against it (a "Claim"), such Indemnified Party shall give prompt written notice (including copies of all papers served with respect to such claim) to the Person to whom the Indemnified Party is entitled 42 48 to look for indemnification (the "Indemnifying Party") of the commencement thereof, which notice shall describe in reasonable detail the nature of the Third Party Claim, an estimate of the amount of damages attributable to the Third Party Claim to the extent feasible and the basis of the Indemnified Party's request for indemnification under this Agreement; PROVIDED that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of any liability that it may have to any Indemnified Party except to the extent the Indemnifying Party demonstrates that it is prejudiced thereby. In case any Claim that is subject to indemnification under Section 13.2(a) shall be brought against an Indemnified Party and it shall give notice to the Indemnifying Party of the commencement thereof, the Indemnifying Party may, and at the request of the Indemnified Party shall, participate in and control the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment thereof has been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party failed to assume the defense and employ counsel or failed to diligently prosecute or settle the Third Party Claim or (iii) there shall exist or develop a conflict that would ethically prohibit counsel to the Indemnifying Party from representing the Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, including by making any counterclaim against the Person asserting the Third Party Claim or any cross-complaint against any Person, in each case only if and to the extent that any such counterclaim or cross-complaint arises from the same actions or facts giving rise to the Third Party Claim. The Indemnifying Party shall be the sole judge of the acceptability of any compromise or settlement of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, PROVIDED that the Indemnifying Party will give the Indemnified Party reasonable prior written notice of any such proposed settlement or compromise and will not consent to the entry of any judgment or enter into any settlement with respect to any Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld. The Indemnifying Party (if the Indemnified Party is entitled to indemnification hereunder) shall reimburse the Indemnified Party for its reasonable out of pocket costs incurred with respect to such cooperation. If the Indemnifying Party fails to assume the defense of a Third Party Claim within a reasonable period after receipt of written notice pursuant to the first sentence of this Section 13.2(c), or if the Indemnifying Party assumes the defense of the Indemnified Party pursuant to this Section 13.2(c) but fails diligently to prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party (if the Indemnified Party is entitled to indemnification hereunder), the Third Party Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled. The Indemnified Party shall have full control of such defense and proceedings; PROVIDED that the Indemnified Party shall not settle such Third Party Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The Indemnifying Party may participate in, but not control, any defense or 43 49 settlement controlled by the Indemnified Party pursuant to this Section, and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the other provisions of this Section 13.2, if the Indemnifying Party disputes its potential liability to the Indemnified Party under this Section 13.2 and if such dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party shall not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this Section 13.2 or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all costs and expenses of the litigation concerning such dispute. If a dispute over potential liability is resolved in favor of the Indemnified Party, the Indemnifying Party shall reimburse the Indemnified Party in full for all costs of the litigation concerning such dispute. After it has been mutually agreed or Finally Determined that an Indemnifying Party is liable to the Indemnified Party under this Section 13.2(c), the Indemnifying Party shall pay or cause to be paid to the Indemnified Party the amount of the Liability within ten Business Days of receipt by the Indemnifying Party of a notice reasonably itemizing the amount of the Liability but only to the extent actually paid or suffered by the Indemnified Party. (d) SURVIVAL. The indemnities contained in this Section shall survive the termination and liquidation of the Partnership. (e) SUBROGATION. In the event of any payment by or on behalf of an Indemnifying Party to an Indemnified Party in connection with any Liability, the Indemnifying Party (or any guarantor who made such payment) shall be subrogated to and shall stand in the place of the Indemnified Party as to any events or circumstances in respect of which the Indemnified Party may have any right or claim against any third party (not including the Partnership) relating to such event or indemnification, but only to the extent of any such payments. The Indemnified Party shall cooperate with the Indemnifying Party (or such guarantor) in any reasonable manner in prosecuting any subrogated claim. (f) NO LIMITATION. Nothing in this Agreement shall be deemed to (i) limit the Partnership's power to indemnify its officers, employees, agents or any other Person, to the fullest extent permitted by law, or (ii) limit the Partnership's indemnity obligations to the Partners under the Act. 13.3 THIRD PARTY CLAIM REIMBURSEMENT. (a) In the case of a Liability relating to a Third Party Claim and caused by the Fault of either the General Partner or Geon LP, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) against whom reimbursement is being sought, such Partner, whether the General Partner or Geon LP, hereby agrees to reimburse the Partnership for such Liability to the extent that: 44 50 (i) the Liability relates to a Third Party Claim that has been finally resolved and that the Partnership has actually paid (an "Expense"); (ii) the Expense is not covered by insurance proceeds actually received by the Partnership under policies of a nature such that future premium rates thereunder will not be increased by claim experience relating to such Liability; PROVIDED that, if the Partnership is reimbursed by either the General Partner or Geon LP pursuant to this Section 13.3(a) and subsequently receives insurance proceeds covering such Expense under policies of a nature that future premium rates thereunder will not be increased by claim experience relating to such Liability, the Partnership shall promptly pay such insurance proceeds to the reimbursing Partner up to the amount reimbursed by such Partner; and (iii) the Expense is not offset by third party indemnification or otherwise; PROVIDED, HOWEVER, that such reimbursing Partner shall reimburse the Partnership for the Expense only to the extent and in proportion to its Fault. (b) Any claim by the Partnership for reimbursement under this Section may be initiated by either the General Partner or Geon LP upon written notice to the other, and the General Partner and Geon LP shall have a period of 60 days during which to reach unanimous agreement as to the terms on which any reimbursement shall be made. If the General Partner and Geon LP are unable to agree or there are any disputes over Fault and reimbursement under this Section, such matters shall be resolved pursuant to the Dispute Procedures. 13.4 DISPUTE RESOLUTION. Except as otherwise provided for herein, all controversies or disputes arising under this Agreement shall be resolved pursuant to the provisions set forth on Appendix D (the "Dispute Procedures"). 13.5 EXTENT OF LIMITATION OF LIABILITY, INDEMNIFICATION, ETC. TO THE FULLEST EXTENT PERMITTED BY LAW AND WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE LIMITATION OF LIABILITY, INDEMNIFICATION, RELEASE AND ASSUMPTION OBLIGATIONS SET FORTH HEREIN, A PARTY SHALL BE ENTITLED TO INDEMNIFICATION OR RELEASE HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS GIVING RISE TO ANY SUCH INDEMNIFICATION OR RELEASE IS THE RESULT OF THE SOLE, GROSS, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH PARTY. THE PARTIES AGREE THAT THIS STATEMENT CONSTITUTES A CONSPICUOUS LEGEND. 13.6 FURTHER ASSURANCES. From time to time, each Partner agrees to execute and deliver such additional documents, and will provide such additional information and assistance, as the Partnership may reasonably require to carry out the terms of this Agreement and to accomplish the Partnership's business. 45 51 13.7 SUCCESSORS AND ASSIGNS. Except as may be expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the successors of the Partners, but no Partner may assign or delegate any of its rights or obligations under this Agreement. Except as expressly provided herein, any purported assignment or delegation shall be void and ineffective. 13.8 BENEFITS OF AGREEMENT RESTRICTED TO THE PARTIES. This Agreement is made solely for the benefit of the Partnership and the Partners, and no other Person, including any officer or employee of the Partnership or any Partner, shall have any right, claim or cause of action under or by virtue of this Agreement. 13.9 NOTICES. All notices, requests and other communications that are required or may be given under this Agreement shall, unless otherwise provided for elsewhere in this Agreement, be in writing and shall be deemed to have been duly given if and when (i) transmitted by telecopier facsimile during business hours with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows:
If to OCC GP or OCC LP: If to Geon LP: c/o Occidental Chemical Corporation c/o The Geon Company 5005 LBJ Freeway One Geon Center Dallas, Texas 75244 Avon Lake, Ohio 44012 Attention: President Attention: Chief Executive Officer Telecopy Number: (972) 404-3906 Telecopy Number: (440) 930-1002 With a copy to: With a copy to: Occidental Petroleum Corporation The Geon Company 10889 Wilshire Boulevard One Geon Center Los Angeles, California 90024 Avon Lake, Ohio 44012 Attention: General Counsel Attention: General Counsel Telecopy Number: (310) 443-6333 Telecopy Number: (440) 930-1002 And to: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: General Counsel Telecopy Number: (972) 404-3957
13.10 SEVERABILITY. In the event that any provisions of this Agreement shall be Finally Determined to be unenforceable, such provision shall, so long as the economic and legal substance 46 52 of the transactions contemplated hereby is not affected in any materially adverse manner as to any Partner, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 13.11 CONSTRUCTION. In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction; (ii) no consideration shall be given to the fact or presumption that any Partner had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; (vi) each gender shall be deemed to include the other gender; and (vii) each appendix, exhibit, attachment and schedule to this Agreement is a part of this Agreement. 13.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which when taken together shall constitute one and the same original document. 13.13 WAIVER OF RIGHT TO PARTITION. Except as provided in Section 12.2(e), each Person who now or hereafter is a party hereto or who has any right herein or hereunder irrevocably waives during the term of the Partnership any right to maintain any action for partition with respect to Partnership property. 13.14 GOVERNING LAW. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 13.15 EXPENSES. Except as otherwise provided herein or in the Master Transaction Agreement, each party hereto shall be responsible for its own expenses incurred in connection with this Agreement. 13.16 PAYMENT TERMS AND INTEREST CALCULATIONS. (a) If the payment due date for any payment hereunder (including capital contributions and Damages) falls on a Saturday or a bank or federal holiday, other than a Monday, the payment shall be due on the past preceding Business Day. If the payment due date falls on a Sunday or Monday bank or federal holiday, the payment shall be due on the following Business Day. (b) Interest shall accrue on any unpaid and outstanding amount from the time such amount is due and payable through the date upon which such amount, together with accrued interest thereon, is paid in full. Interest shall, subject to the provisions of Section 13.17, accrue at a per annum rate equal to the lesser of (i) the Agreed Rate plus 2% per annum, compounded quarterly, to the extent permitted by law or (ii) the Highest Lawful Rate. 47 53 (c) A wire transfer or delivery of a check shall not operate to discharge any payment under this Agreement and shall be accepted subject to collection. 13.17 USURY SAVINGS CLAUSE. Notwithstanding any other provision of this Agreement, it is the intention of the parties hereto to conform strictly to Applicable Usury Laws, in each case to the extent they are applicable to this Agreement. Accordingly, if any payment made pursuant to this Agreement results in any Person having paid any interest in excess of the Maximum Amount, or if any transaction contemplated hereby would otherwise be usurious under any Applicable Usury Laws, then, in that event, it is agreed as follows: (i) the provisions of this Section 13.17 shall govern and control; (ii) the aggregate of all interest under Applicable Usury Laws that is contracted for, charged or received under this Agreement shall under no circumstances exceed the Maximum Amount, and any excess shall be promptly refunded to the payor by the recipient hereof; (iii) no Person shall be obligated to pay the amount of such interest to the extent that it is in excess of the Maximum Amount; and (iv) the effective rate of any interest payable under this Agreement shall be IPSO FACTO reduced to the Highest Lawful Rate, and the provisions of this Agreement immediately shall be deemed reformed, without the necessity of the execution of any new document or instrument, so as to comply with all Applicable Usury Laws. All sums paid, or agreed to be paid, to any person pursuant to this Agreement for the use, forbearance or detention of any indebtedness arising hereunder shall, to the fullest extent permitted by the Applicable Usury Laws, be amortized, pro rated, allocated and spread throughout the full term of any such indebtedness so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. 13.18 AMENDMENT. All waivers, modifications, amendments or alterations of this Agreement shall require the written approval of the General Partner and each of the Limited Partners. 48 54 IN WITNESS WHEREOF, this Agreement has been executed on behalf of each of the parties hereto, by their respective officers thereunto duly authorized, effective as of the date first written above. GENERAL PARTNER OCCIDENTAL PVC, LLC By: /s/ John L. Hurst, III ----------------------------------- John L. Hurst, III President LIMITED PARTNERS OCCIDENTAL PVC LP, INC. By: /s/ James R. Havert ----------------------------------- James R. Havert Vice President and Treasurer 1999 PVC PARTNER INC. By: /s/ Woodrow W. Ban ----------------------------------- Name: Woodrow W. Ban -------------------------------- Title: Assistant Secretary -------------------------------- 55 APPENDIX A TO LIMITED PARTNERSHIP AGREEMENT DEFINITIONS ----------- "AAA" has the meaning set forth in Appendix D. "Acceptance Notice" has the meaning set forth in Section 10.2(b). "Act" means the Delaware Revised Uniform Limited Partnership Act, as amended and in effect from time to time. "Adjusted Capital Account Deficit" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant fiscal year, after giving effect to the following adjustments: (i) Such Capital Account shall be deemed to be increased by any amounts which such Partner is obligated to restore to the Partnership (pursuant to this Agreement or otherwise) or is deemed to be obligated to restore pursuant to the second to last sentence of Regulation Section 1.704-2(g)(1) and Section 1.704-2(i)(5) (relating to allocations attributable to nonrecourse debt). (ii) Such Capital Account shall be deemed to be decreased by the items described in Regulationss. 1.704-l(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted Capital Deficit is intended to comply with the provisions of Regulation Section 1.704-l(b)(2)(ii)(d) and shall be interpreted and applied consistently therewith. "Affiliate" means any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified; PROVIDED, HOWEVER, that for purposes of this Agreement neither the Partnership nor Compounding Partnership, nor any entity controlled by either entity, shall be considered an Affiliate of any Partner. For purposes of this definition, the term "control" (including the terms "controlled by" and "under common control with") means the ownership of more than 50% of the equity interests, Fully Diluted. "Agreed Rate" means the base commercial lending rate announced by Citibank, N.A. (or its successor) at its principal office, in effect from time to time, such interest rate to change automatically, effective as of the date of each change in such base rate. "Agreement" means this First Amended and Restated Limited Partnership Agreement of Oxy Vinyls, LP, as amended from time to time. "Alternate" has the meaning set forth in Section 6.4(b). Appendix A-1 56 "Annual Agreed Multiple" means five, unless and until otherwise mutually agreed between the General Partner and Geon LP. "Annual Budget" has the meaning set forth in Section 8.2. "Applicable Usury Laws" means laws regarding the use, forbearance or detention of any indebtedness arising under this Agreement whether such laws are now or hereafter in effect, including the laws of the United States of America or any other jurisdiction whose laws are applicable, and including any subsequent revisions to or judicial interpretations of those laws. "Appraised Value" has the meaning set forth in Section 10.2(a). "Asset Contribution Agreement" means (i) in the case of OCC LP and OCC GP, the Asset Contribution Agreement to be entered into between the Partnership, OCC, OCC LP and OCC GP, and (ii) in the case of Geon LP, the Asset Contribution Agreement to be entered into between the Partnership, Geon, and Geon LP. "Asset Fair Market Value" means, with respect to any asset, as of the date of determination, the cash price at which a willing seller would sell, and a willing buyer would buy, each being apprised of all relevant facts and neither acting under compulsion, such as in an arm's-length negotiated transaction with an unaffiliated third party without time constraints. "Assumed Liabilities" means (i) in the case of OCC LP and OCC GP, "Assumed Liabilities," as defined in the Asset Contribution Agreement of OCC, and (ii) in the case of Geon LP, "Assumed Liabilities," as defined in the Asset Contribution Agreement of Geon. "Auxiliary Committee" has the meaning set forth in Section 6.8. "Bankruptcy" means the occurrence of any of the following: (i) a Partner or its Parent shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer or consent seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, conservator or liquidator of such Partner or its Parent or of all or any substantial part of its properties or its Units (the term "acquiesce," as used in this definition, includes the failure to file a petition or motion to vacate or discharge any order, judgment or decree within ten Business Days after entry of such order, judgment or decree); (ii) a court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against any Partner or its Parent seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act, or any other present or future applicable federal, state or other statute or law relating to bankruptcy, insolvency, or other relief for debtors, and such Partner or its Parent shall acquiesce in the entry of such order, judgment or decree or such other order, judgment or decree Appendix A-2 57 shall remain unvacated and unstayed for an aggregate of 60 days (whether or not consecutive) from the date of entry thereof, or any trustee, receiver, conservator or liquidator of such Partner or its Parent or of all or any substantial part of its property or its Units shall be appointed without the consent or acquiescence of such Partner or its Parent and such appointment shall remain unvacated and unstayed for an aggregate of 60 days (whether or not consecutive); (iii) a Partner or its Parent shall admit in writing its inability to pay its debts as they mature; (iv) a Partner or its Parent shall give notice to any governmental body of insolvency or pending insolvency, or suspension or pending suspension of operations; or (v) a Partner or its Parent shall make an assignment for the benefit of creditors or take any other similar action for the protection or benefit of creditors. "Book Value" means, with respect to any asset of the Partnership, the asset's adjusted basis for federal income tax purposes as of the relevant date, except as follows: (i) The initial aggregate Book Value of all of the assets of the Partnership as of the Closing Date shall be equal to the sum of (A) the beginning aggregate Capital Accounts of the Partners immediately after the Closing Date, and (B) the aggregate amount of all liabilities of the Partnership for federal income tax purposes immediately after the Closing Date. (ii) The initial Book Value of any asset contributed by a Partner to the Partnership after the Closing Date shall be the gross fair market value of such asset, which shall be equal to the amount credited to such Partner's Capital Account for such contribution (increased by the amount of any liabilities which the Partnership assumes or takes subject to). (iii) The Book Values of all Partnership assets (including intangible assets such as goodwill) shall be adjusted (at the election of the Partnership Governance Committee) to equal their respective gross fair market values upon the occurrence of any of the events described in Regulation Section 1.704-l(b)(2)(iv)(f)(5). (iv) The Book Value of any asset distributed by the Partnership to a Partner shall be equal to the gross fair market value of such asset on the date of the distribution. (v) The Book Value of any Partnership asset with respect to which an adjustment to tax basis has occurred by reason of the application of section 734(b) or 754(b) of the Code shall be adjusted to the extent such adjustment to tax basis is taken into account pursuant to Regulation Section 1.704-l(b)(2)(iv)(m). (vi) If the Book Value of an asset is not equal to its adjusted tax basis for federal income tax purposes, such Book Value shall be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Profits and Losses and other items allocated pursuant to Section 4.1. Appendix A-3 58 The foregoing definition of Book Value is intended to comply with the provisions of Regulation Section 1.704-l(b)(2)(iv) and shall be interpreted and applied consistently therewith. Any determinations of "gross fair market value" in this definition of Book Value shall be made by the Partnership Governance Committee. "Business Day" means any day other than a Saturday, Sunday or other day on which banks are closed in New York City, New York. "Business Opportunity" has the meaning set forth in Section 9.3(c). "Capital Account" means the separate capital account established and maintained by the Partnership for each Partner, as contemplated by Section 2. "Capital Expenditure Budget" has the meaning set forth in Section 8.2(d). "CEO" has the meaning set forth in Section 7.1(b). "Change of Control" means "Change of Control," as defined in Section 1.1(c) of the Parent Agreement. "Claim" has the meaning set forth in Section 13.2(c). "Closing Date" means "Closing Date," as defined in the Master Transaction Agreement. "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time and any successor thereto. "Competing Opportunity" has the meaning set forth in Section 9.3(c). "Compounding Partnership" means "Compounding Partnership," as defined in the Master Transaction Agreement. "Confidential Information" means all documents and information (including commercial information and information with respect to customers, trade secrets and proprietary technologies or processes (including with respect to the Specialty Resin Business) and the design and development of new products or services) concerning the Partnership, the Partners or their Affiliates, furnished to a Partner in connection with the transactions leading up to and contemplated by this Agreement and the operation of the Partnership, except to the extent that such information (i) is or becomes generally available to and known by the public or the chemical industry (other than as a result of an unpermitted disclosure directly or indirectly by the Partnership or a Partner), (ii) is or becomes available to a Partner on a nonconfidential basis from a source other than the Partnership or a Partner; PROVIDED, HOWEVER, that such source is not and was not bound by a confidentiality agreement with, or other obligation of secrecy to, the Partnership or the other Partner, (iii) has Appendix A-4 59 already been or is hereafter independently acquired or developed by a Partner without violating any confidentiality agreement with or other obligation of secrecy to the Partnership or another Partner or (iv) is otherwise generated by the Partnership with the intention that it not be held as confidential. "Contributed Business" means the "Contributed Business," as defined in both of the Asset Contribution Agreements. "Damages" means, with respect to a Person in connection with a Default, any and all obligations (including all obligations to take an affirmative or curative act), liabilities, damages (including damages arising out of any breach of any representation or warranty, damages related to investigations, proceedings, audits, the interruption of the Partnership's business, restrictions upon the use of, or adverse impact on, the Assets or the Partnership's business, or the interruption, breach or termination of any Related Agreements or other agreements, including any lost profits attributable thereto), fines, penalties, deficiencies, losses, judgments, settlements, costs and expenses (including costs and expenses incurred in connection with performing obligations, bonding and appellate costs and attorneys', accountants', engineers', health, safety, environmental and other consultants' and investigators' fees and disbursements, liquidating, selling or offering for sale the Partnership's business and assets or winding-up the Partnership's business, or other payments in respect of such payments) suffered or incurred by such Person that arise out of or relate to such Default, regardless of whether any of the foregoing are foreseeable, unforeseeable, matured or unmatured, existing or contingent as of the date of such Default. "Damages" also shall include, if and to the extent interest is not already included therein under applicable law or other provisions hereof and subject to Section 13.17, interest on amounts actually due until payment thereof is made at a rate per annum equal to the rate set forth in Section 13.16(b). "Damages" shall not include any consequential, incidental, indirect, punitive, exemplary, special or other similar damages. "Deadlock Notice" has the meaning set forth in Section 8.5. "Default" has the meaning set forth in Section 11.1. "Default Date" has the meaning set forth in Section 11.1. "Defaulting Partners" means (i) OCC GP and OCC LP, in the case of a Default by OCC GP, OCC LP or their Parent; and (ii) Geon LP, in the case of a Default by Geon LP or its Parent. "Depreciation" means, for each fiscal year or part thereof, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable for federal income tax purposes with respect to an asset for such year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year, Depreciation shall be (i) an amount which bears the same ratio to such Book Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year bears to such adjusted tax basis, or, (ii) if the federal income tax depreciation, amortization or other cost recovery Appendix A-5 60 deduction for such year is equal to zero, an amount determined with reference to such Book Value using a reasonable method selected by the Tax Matters Partner. "Dispute Notice" has the meaning set forth in Appendix D. "Dispute Procedures" has the meaning set forth in Section 13.4. "Disputing Partner" has the meaning set forth in Appendix D. "Distributable Cash" means as of the end of each month during the term of this Agreement the cash plus short-term investments of the Partnership less (i) the amount needed to meet the current operating expenses of the Partnership, (ii) the amount needed for capital expenditures, (iii) the amount needed for debt service, and (iv) the amount needed to fund reserves, in each case as determined by the Partner Governance Committee pursuant to the authority granted under Section 6 and as set forth in the Strategic Plan. "EBITDA" means, for any period, the sum of the Partnership's net income from operations before any extraordinary items, plus the following expenses or charges to the extent deducted to arrive at net income in such period: interest expense, income taxes, depreciation, and amortization, all determined in accordance with GAAP. "EBITDA Contribution" means, for any acquisition or expenditure, the estimated average annual EBITDA attributable to such acquisition or expenditure, calculated on an average annual basis with respect to a five year period commencing at the end of a transition and integration period (the duration of which shall be determined by the General Partner, acting reasonably) following such acquisition or expenditure. "80%-Owned Affiliate" means, as to any Person, an Affiliate of such Person where the level of ownership of the equity interests involved, Fully Diluted, is 80% or more. "Enterprise Value Increase" has the meaning set forth in Section 6.9. "Executive Officers" has the meaning set forth in Section 7.1(b). "Expense" has the meaning set forth in Section 13.3(a). "Fair Market Value" means (i) with respect to the Partnership, the Asset Fair Market Value of all of the Partnership's assets decreased by the fair value of all its liabilities, as of the most recently ended fiscal quarter; and (ii) with respect to a Related Business, the Asset Fair Market Value of all the assets of such Related Business decreased by the fair value of all its liabilities, as of the most recently ended fiscal quarter. In either case, the following shall apply to the determination of Fair Market Value: Appendix A-6 61 (a) The General Partner and Geon LP shall first attempt to agree on such value, which if agreed to shall be the Fair Market Value. (b) If the General Partner and Geon LP are unable to agree within 20 days of the first written notice from either the General Partner or Geon LP to the other proposing an amount to be the Fair Market Value (the "Notice"), then if requested by either the General Partner or Geon LP, the General Partner and Geon LP shall each (at its own cost) cause an independent, qualified appraiser to deliver a written appraisal of its determination of the Fair Market Value within 50 days of the Notice. If the lower appraised value is greater than or equal to 90% of the higher appraised value, then the average of the two appraised values shall be the Fair Market Value. (c) If the lower appraised value is less than 90% of the higher appraised value, then the General Partner and Geon LP shall jointly appoint a Neutral within 20 days of the delivery of both such appraisals. If the General Partner and Geon LP have been unable to agree upon such appointment within such 20 days, then such Neutral shall upon the application of either the General Partner or Geon LP be appointed within 10 days of the filing of such application by the Center for Public Resources, or if such appointment is not so made promptly then promptly thereafter by the American Arbitration Association in Dallas, Texas or if such appointment is not so made promptly then promptly thereafter by the senior United States District Court judge sitting in Dallas, Texas. The fees and expenses of the Neutral shall be paid equally by the General Partner and Geon LP. (d) The Neutral shall, within 30 days of the appointment of the Neutral, determine which of the two appraised values (without in any way modifying or compromising between the two appraised values) is closest to the fair market value of the enterprise's assets as determined by the Neutral, and that appraised value shall be the Fair Market Value. "Fault" means any act or omission of a Partner, its Affiliates or any of their respective officers, directors or employees (acting in their capacities as such) that constitutes or results from intentional misconduct, criminal intent or gross negligence. "Finally Determined" means determined by any final, nonappealable judicial order or pursuant to a binding alternative dispute resolution procedure. "Fully Diluted" means a computation of equity interests on a basis as if all potentially dilutive securities, including warrants, stock options and convertible bonds, have been exercised or converted. "Funding Notice" has the meaning set forth in Section 2.3. "GAAP" means United States generally accepted accounting principles, as in effect from time to time. Appendix A-7 62 "General Partner" means each Person who executes this Agreement and who is hereby admitted to the Partnership as a general partner of the Partnership, unless such General Partner ceases to be a General Partner hereunder or sells, transfers, forfeits or otherwise disposes of its Units and is replaced by a Substitute General Partner in accordance with this Agreement and the Act, and each Person that becomes a Substitute General Partner, if any, of the Partnership as provided herein, in such Person's capacity as a general partner of the Partnership. "Geon" has the meaning set forth in the second recital. "Geon LP" has the meaning set forth in the first paragraph. "Highest Lawful Rate" means the maximum rate of interest, if any, that may be charged to any person under all Applicable Usury Laws on any principal balance from time to time outstanding pursuant to this Agreement. "HSE Law" means "HSE Law," as defined in both of the Asset Contribution Agreements. "Indemnified Party" has the meaning set forth in Section 13.2(c). "Indemnifying Party" has the meaning set forth in Section 13.2(c). "Initial Agreement" has the meaning set forth in the fourth recital. "Initial Assets" means "Assets," as defined in Section 1 of both of the Asset Contribution Agreements. "Initial Notice" has the meaning set forth in Section 10.2(a). "IRS" means Internal Revenue Service. "Legal Requirement" means any law, statute, rule, ordinance, decree, regulation, requirement, order (including any executive order) or judgment of any court or government or regulatory body or political subdivision thereof. "Leverage Ceiling" has the meaning set forth in Section 6.7(vi). "Liability" means any loss, claim, damages, fine, penalty, assessment by public agencies, settlement, cost or expense (including costs of investigation, defense and reasonable attorneys' fees) or other liability. "Limited Partner" means each Person who executes this Agreement and who is hereby admitted to the Partnership as a limited partner of the Partnership, unless such Limited Partner ceases to be a Limited Partner hereunder or sells, transfers, forfeits or otherwise disposes of its Units and Appendix A-8 63 is replaced by a Substitute Limited Partner in accordance with this Agreement and the Act, and each Person that becomes a Substitute Limited Partner, if any, of the Partnership as provided herein, in such Person's capacity as a limited partner of the Partnership. "Limited Partners Pro Rata" means from or to the Limited Partners in the ratio of the Units owned by each. "Liquidation" has the meaning set forth in Section 11.4. "Losses" has the meaning set forth in definition of "Profits and Losses." "Master Transaction Agreement" means that certain agreement between OCC and Geon dated December 22, 1998, providing for the execution of various agreements concerning the Partnership and the Initial Assets. "Maximum Amount" means the maximum nonusurious amount of interest that may be lawfully contracted for, charged or received by the applicable Person in connection with any indebtedness arising under this Agreement under all Applicable Usury Laws. "Neutral" means a neutral Person acceptable to all of the appointing Partners and not affiliated with any of the Partners, except where otherwise specifically provided; PROVIDED that, if the appointing Partners are not able to agree upon a neutral Person to act as the Neutral, the AAA shall select the Neutral. "Non-Defaulting Partners" means the Partners other than the Defaulting Partners. "OCC" has the meaning set forth in the second recital. "OCC GP" has the meaning set forth in the first paragraph. "OCC LP" has the meaning set forth in the first paragraph. "Offer" has the meaning set forth in Section 10.2(a). "Offeree Partners" has the meaning set forth in Section 10.2(a). "Operating Budget" has the meaning set forth in Section 8.2(c). "Other Partner" means, in the case of Geon LP, OCC GP, and in the case of OCC GP or OCC LP, Geon LP. "Parent" means "Parent," as defined in the Parent Agreement. Appendix A-9 64 "Parent Agreement" means the Parent Agreement (Oxy Vinyls, LP) to be entered into among Occidental Petroleum Corporation, OCC, Geon and the Partnership in connection with this Agreement, as amended from time to time, the form of which is referenced in the Master Transaction Agreement. "Partners" means the General Partner and the Limited Partners on the date of this Agreement until such Person ceases to be a partner of the Partnership. "Partnership" means Oxy Vinyls, LP, a Delaware limited partnership, the limited partnership formed and continued under the Act and this Agreement. "Partnership Annual Agreed Value" has the meaning set forth in Section 6.9. "Partnership Governance Committee" has the meaning set forth in Section 6.1. "Partnership Governance Committee Action" has the meaning set forth in Section 6.1. "Percentage Interest" means the percentage determined by dividing the number of Units owned by a Partner by the total number of outstanding Units. "Person" means any natural person or any corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, business, government (or any agency or subdivision thereof) or other entity. "Pledge" means to mortgage, pledge, encumber or create or suffer to exist any lien or encumbrance upon or security interest in. Such defined term is used in this Agreement as both a noun and a verb. "Profits and Losses" means, for each applicable period, the Partnership's taxable income or loss for such period determined in accordance with section 703(a) of the Code (for this purpose, all items of income, gain, loss, deduction or credit required to be stated separately pursuant to section 703(a)(1) of the Code shall be included in taxable income or loss) with the following adjustments: (i) Any income of the Partnership that is exempt from federal income tax and not otherwise taken in account in computing Profits or Losses pursuant to this definition shall be added to such taxable income or loss. (ii) Any expenditures of the Partnership described in section 705(a)(2)(B) of the Code or treated as such pursuant to Regulation Section 1.704-1(b)(2)(iv)(i) and not otherwise taken in account in computing Profits or Losses pursuant to this definition shall be subtracted from such taxable income or loss. Appendix A-10 65 (iii) Depreciation for such period shall be taken into account in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss. (iv) Gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed with reference to the Book Value of the property disposed of, rather than the adjusted tax basis of such property. (v) If any property is distributed in kind to any Partner, the difference between its fair market value and its Book Value at the time of distribution shall be treated as Profit or Loss, as the case may be, recognized by the Partnership. (vi) The amount of any adjustment to the Book Value of any Partnership asset pursuant to clause (iii) of the definition of Book Value herein shall be taken into account as Profit or Loss from the disposition of such asset. "Pro Rata" means in the ratio of the Units owned by a Partner to the total number of applicable Units. "Proposing Person" has the meaning set forth in Section 9.3(c). "PVC" means polyvinyl chloride. "Reconstituted Basis" means, as to each Partnership property, the Partnership's basis in such property immediately after it is contributed to the Partnership reduced by any depreciation and other deductions allocated to a Partner pursuant to Section 4.5(c)(i)(a). "Regulations" means the final or temporary income tax regulations promulgated by Department of the Treasury and in effect from time to time. "Related Agreements" means the agreements (other than this Agreement) defined as "Related Agreements" in the Master Transaction Agreement, as such agreements may be amended from time to time after the Closing Date. "Related Business" means any Specified Business, except for any business of producing, purchasing or otherwise acquiring, using, distributing, marketing or exchanging caustic soda, chlorine, ethylene dichloride, ethylene, sodium methylate or chlorinated paraffins. "Related Persons" has the meaning set forth in Section 13.1. "Representative" has the meaning set forth in Section 6.4(a). Appendix A-11 66 "Retained Business" means, in the case of OCC, the Specialty Resin Business conducted primarily at its manufacturing plant located in Pottstown, Pennsylvania and all related assets, and in the case of Geon, the Specialty Resin Business conducted primarily at its retained portion of the Pedricktown, New Jersey manufacturing plant and all related assets and its manufacturing plant located in Henry, Illinois and all related assets. "SEC" means the Securities and Exchange Commission. "Selling Partners" has the meaning set forth in Section 10.2(a). "Specialty Resin Business" means the business of producing, purchasing or otherwise acquiring, using, distributing, marketing and exchanging (i) dispersion, blending and copolymer resins and (ii) Specialty Suspension PVC Resin (as that term is defined in the Related Agreements that are attached as Exhibits T and V to the Master Transaction Agreement), including those produced by any Retained Business. "Specified Business" means the business of doing the following: (i) to produce, purchase or otherwise acquire, use, distribute, market and exchange suspension/mass PVC resin products, chlorinated PVC, VCM (to the extent permitted under applicable agreements concerning VCM produced by OxyMar), caustic soda, chlorine, ethylene dichloride, sodium methylate and chlorinated paraffins (the "Primary Business"); (ii) to maintain, conduct and expand the Primary Business, including the development of new technologies and products for, the licensing of intellectual property related to, and the transportation, storage and exchange of any products produced, purchased, acquired, used, distributed, marketed or exchanged by, the Primary Business; PROVIDED, HOWEVER, that the production of caustic soda, chlorine and ethylene dichloride may be expanded by the Partnership only to meet the internal consumption demand of the other parts of the Primary Business for such products; (iii) to produce, purchase or otherwise acquire electricity and to purchase or otherwise acquire ethylene, in each case as required to conduct the Primary Business; (iv) to distribute and market, but only through OCC in accordance with agreements between the Partnership and OCC, any excess caustic soda, chlorine, ethylene dichloride, sodium methylate and chlorinated paraffins that the Partnership produces, purchases or otherwise acquires for, and does not consume in, the Primary Business; (v) to distribute and market any ethylene, electricity and other products and by-products (except for caustic soda, chlorine, ethylene dichloride, sodium methylate and chlorinated paraffins, the distribution and marketing of which are covered in clause (iv) above) that the Partnership produces, purchases or otherwise acquires for, but does not consume in, the Primary Business; PROVIDED, HOWEVER, that the distribution and marketing of any such ethylene shall only be through Equistar Chemicals, LP in accordance with agreements between the Partnership and Equistar Chemicals, LP; (vi) to engage in the incidental purchase, acquisition, use or sale of PVC dry blend powder compounds to support customers of the pipe segment of the Primary Business and to support other customers of the Primary Business as approved by all Partners (such approval not to be unreasonably withheld); and (vii) to produce, purchase or otherwise acquire, use, distribute, market and exchange PVC pipe and pipe fittings; PROVIDED, HOWEVER, that the "Specified Business" shall not include the Specialty Resin Business. Appendix A-12 67 "Strategic Plan" has the meaning set forth in Section 8.1. "Substitute General Partner" means a Person who is admitted as a General Partner to the Partnership in place of and with all the rights of a General Partner. "Substitute Limited Partner" means a Person who is admitted as a Limited Partner to the Partnership in place of and with all the rights of a Limited Partner. "Supply Agreements" means the Related Agreements that are attached as Exhibits L and O to the Master Transaction Agreement. "Taxes" means all taxes, charges, fees, levies or other assessments imposed by any taxing authority, including income, gross receipts, excise, property, sales, use, transfer, payroll, license, ad valorem, value added, withholding, social security, national insurance (or other similar contributions or payments), franchise, severance and stamp taxes (including any interest, fines, penalties or additions attributable to, or imposed on or with respect to, any such taxes, charges, fees, levies or other assessments) and "Tax Return" means any return, report, information return or other document (including any related or supporting information) with respect to Taxes. "Tax Matters Partner" means OCC LP in its capacity as the sole owner of OCC GP or any substitute Partner designated by OCC LP. "Third Party Claim" means any allegation, claim, demand, civil or criminal action, proceeding, charge or prosecution brought by a Person other than the Partnership, any Partner or any Affiliate of a Partner; PROVIDED, HOWEVER, that if such allegation, claim, demand, civil or criminal action, proceeding, charge or prosecution is brought by any Partner or any Affiliate of a Partner, in each case in its capacity as the owner or operator of property not transferred pursuant to the OCC or Geon Asset Contribution Agreement, such allegation, claim, demand, civil or criminal action, proceeding, charge or prosecution shall be a Third Party Claim. "Transfer" means to sell, assign or otherwise dispose of, whether by act, deed, merger or otherwise. Such defined term is used in this Agreement as both a noun and a verb. "Unit" means a unit representing a partnership interest in the Partnership. "VCM" means vinyl chloride monomer. "Wholly-Owned Affiliate" means, as to any Person, an Affiliate of such Person all of the equity interests of which are owned, directly or indirectly, by a Partner, by another Wholly-Owned Affiliate of such Person or by the Parent thereof "Wholly-Owned Subsidiary" means, as to any Person, a subsidiary of such Person all of the equity interests of which are owned, directly or indirectly, by such Person. Appendix A-13 68 APPENDIX B TO LIMITED PARTNERSHIP AGREEMENT -------------------------------- PARTNERSHIP FINANCIAL STATEMENTS AND REPORTS --------------------------------------------
Item & Frequency Due Dates - ---------------- --------- Monthly: Income Statement - current period and year-to-date 8th Business Day following month-end Balance Sheet - current period 9th Business Day following month-end Cash Flow Statement - current period and year-to-date 9th Business Day following month-end Schedule of Income Allocation - preliminary 6th Business Day following month-end Schedule of Income Allocation - final 10th Business Day following month-end Calculation of Distribution of Available Net Operating Cash - final 15th Business Day following month-end Results of Operations Analysis 10th Business Day following month-end Quarterly: Analysis for Investor Relations and Form 10-Q disclosures: - Results of Operations 15th Business Day following quarter-end - Cash Flow 15th Business Day following quarter-end - Sales Variances 15th Business Day following quarter-end - Capital Expenditures 15th Business Day following quarter-end - Intercompany Transactions 15th Business Day following quarter-end - Volumes 15th Business Day following quarter-end - Prices 15th Business Day following quarter-end - Unusual Items 15th Business Day following quarter-end Income Statement - current quarter and year-to-date 10th Business Day following quarter-end Balance Sheet - current period 11th Business Day following quarter-end Cash Flow Statement - current quarter and year-to-date 11th Business Day following quarter-end
Appendix B-1 69
Annual: Analysis for Investor Relations and Form 10-K disclosures - Same as quarterly requirements - Plant Capacities 15th Business Day following year-end Audited Financial Statements 90days following year-end
Appendix B-2 70 APPENDIX C INITIAL EXECUTIVE OFFICERS -------------------------- John L. Hurst, III, Chief Executive Officer Appendix C-1 71 APPENDIX D ---------- DISPUTE RESOLUTION PROCEDURES ----------------------------- (1) BINDING AND EXCLUSIVE MEANS. Except as otherwise provided in the Partnership Agreement, the dispute resolution provisions set forth in this Appendix shall be the binding and exclusive means to resolve all disputes arising under the Agreement (each a "Dispute"). (2) STANDARDS AND CRITERIA. In resolving any Dispute, the standards and criteria for resolving such Dispute shall, unless the Partners involved in the Dispute in their discretion jointly stipulate otherwise, be as set forth in Appendix 1 to this Appendix. (3) ADR AND BINDING ARBITRATION PROCEDURES. If a Dispute arises, the following procedures shall be implemented (with references to "Partners" meaning the Partners involved in the Dispute): (a) Any Partner may at any time invoke the dispute resolution procedures set forth in this Appendix as to any Dispute by providing written notice of such action to the Secretary of the Partnership, who within five Business Days after such notice shall schedule a meeting to be held in Dallas, Texas between the Partners. The Partners' meeting shall occur within 10 Business Days after notice of the meeting is delivered to the Partners. The meeting shall be attended by representatives of each Partner having decision-making authority regarding the Dispute as well as the dispute resolution process and who shall attempt in a commercially reasonable manner to negotiate a resolution of the Dispute. (b) The representatives of the Partners shall cooperate in a commercially reasonable manner and shall explore whether techniques such as mediation, minitrials, mock trials or other techniques of alternative dispute resolution might be useful. In the event that a technique of alternative dispute resolution is so agreed upon, a specific timetable and completion date for its implementation shall also be agreed upon. The representatives will continue to meet and discuss settlement until the date (the "Interim Decision Date") that is the earliest to occur of the following events: (i) an agreement shall be reached by the Partners resolving the Dispute; (ii) one of the Partners shall determine and notify the other Partners in writing that no agreement resolving the Dispute is likely to be reached; (iii) if a technique of alternative dispute resolution is agreed upon, the completion date therefor shall occur without the Partners having resolved the Dispute; or (iv) if another technique of alternative dispute resolution is not agreed upon, two full Business Days (or such other time period as may be agreed upon) shall expire without the Partners having resolved the Dispute. (c) If, as of the Interim Decision Date, the Partners have not succeeded in negotiating a resolution of the Dispute pursuant to subsection (b), the Partners shall proceed under subsections (d), (e) and (f). Appendix D-1 72 (d) After satisfying the requirements above, such Dispute shall be submitted to mandatory and binding arbitration at the election of any Partner involved in the Dispute (the "Disputing Partner"). The arbitration shall be subject to the Federal Arbitration Act as supplemented by the conditions set forth in this Appendix. The arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the notice of arbitration is served, other than as specifically modified herein. In the absence of an agreement to the contrary, the arbitration shall be held in Dallas, Texas. The Arbitrator (as defined below) will allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. During the pendency of the Dispute, each Partner shall make available to the Arbitrator and the other Partners all books, records and other information within its control requested by the other Partners or the Arbitrator subject to the confidentiality provisions contained herein, and PROVIDED that no such access shall waive or preclude any objection to such production based on any privilege recognized by law. Recognizing the express desire of the Partners for an expeditious means of dispute resolution, the Arbitrator may limit the scope of discovery between the Partners as may be reasonable under the circumstances. In deciding the substance of the Partners' claims, the laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement (including this Appendix) without giving effect to any conflicts of law principles. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each Partner involved in the Dispute being allocated an equal amount of time for the presentation of its case. Unless otherwise agreed to by the Partners, the arbitration hearing shall be conducted on consecutive days. Time is of the essence in the arbitration proceeding, and the Arbitrator shall have the right and authority to issue monetary sanctions against any of the Partners if, upon a showing of good cause, that Partner is unreasonably delaying the proceeding. To the fullest extent permitted by law, the arbitration proceedings and award shall be maintained in confidence by the Arbitrator and the Partners. (e) The Disputing Partner shall notify the American Arbitration Association ("AAA") and the other Partners in writing describing in reasonable detail the nature of the Dispute (the "Dispute Notice"). The arbitrator (the "Arbitrator") shall be selected within 15 days of the date of the receipt of the Dispute Notice by all of the Partners from the members of a panel of arbitrators of the AAA or, if the AAA fails or refuses to provide a list of potential arbitrators, of the Center for Public Resources, and shall be experienced in commercial arbitration. In the event that the Partners are unable to agree on the selection of the Arbitrator, the AAA shall select the Arbitrator, using the criteria set forth in this Appendix, within 30 days of the date of the Dispute Notice. In the event that the Arbitrator is unable to serve, his or her replacement will be selected in the same manner as the Arbitrator to be replaced. The Arbitrator shall be neutral. The Arbitrator shall have the authority to assess the costs and expenses of the arbitration proceeding (including the arbitrators' costs and attorneys' fees and expenses) against any or all Partners. (f) The Arbitrator shall decide all Disputes and all substantive and procedural issues related thereto, and shall enforce this Agreement in accordance with its terms. Without limiting the generality of the previous sentence, the Arbitrator shall have the authority to issue injunctive relief; however, the Arbitrator shall not have any power or authority to (i) award consequential, incidental, Appendix D-2 73 indirect, punitive, exemplary, special or other similar damages or (ii) amend this Agreement. The Arbitrator shall render the arbitration award, in writing, within 20 days following the completion of the arbitration hearing, and shall set forth the reasons for the award. In the event that the Arbitrator awards monetary damages in favor of either party, the Arbitrator must certify in the award that no indirect, consequential, incidental, punitive, exemplary, special or other similar damages are included in such award. If the Arbitrator's decision results in a monetary award, the interest to be granted on such award, if any, and the rate of such interest shall be determined by the Arbitrator in his or her discretion. The arbitration award shall be final and binding on the Partners, and judgment thereon may be entered in any court of competent jurisdiction, and may not be appealed except to the extent permitted by the Federal Arbitration Act. (4) CONTINUATION OF BUSINESS. Notwithstanding the existence of any Dispute or the pendency of any procedures pursuant to this Appendix, the Partners agree and undertake that all payments not in dispute shall continue to be made and all obligations not in dispute shall continue to be performed. Appendix D-3 74 APPENDIX 1 TO APPENDIX D ------------------------ (a) First priority shall be given to maximizing the consistency of the resolution of the Dispute with the satisfaction of all express obligations of the Partners and their Affiliates as set forth in the Partnership Agreement. (b) Second priority shall be given to resolution of the Dispute in a manner which best achieves the objectives of the business activities and arrangements under the Partnership Agreement and the Related Agreements and permits the Partners to realize the benefits intended to be afforded thereby. (c) Third priority shall be given to such other matters, if any, as the Partners or the Arbitrator shall determine to be appropriate under the circumstances. Appendix D-4 75 APPENDIX E DIVISION OF PARTNERSHIP BUSINESS -------------------------------- If the Partnership is dissolved and Section 12.2(e) applies to the winding-up of the affairs of the Partnership, the Partnership properties shall, to the extent legally and contractually feasible and, after satisfaction of the liabilities of the Partnership (whether by payment or reasonable provision for payment), be distributed in kind to the Partners in accordance with a division (the "Division") of the properties. The Division shall be implemented by dividing the properties, to the extent feasible, in accordance with the following priorities and principles: A. First priority shall be given to maximizing the consistency of the Division with a division of the Partnership properties that allocates to each Partner (subject to such Partner's Percentage Interest of the Partnership's liabilities) Partnership properties in proportion to the value of such Partner's Percentage Interest in the Partnership's business taking into account the aggregate Asset Fair Market Value of the Partnership's properties and the value and benefits afforded to such Partner under the Partnership Agreement and the other Related Agreements. B. Second priority shall be given to the allocation of the Partnership's various assets and business units between the Partners so as to maximize the aggregate going concern value of the respective assets and business units allocated to each Partner, taking into account, without limitation, the potential synergies and efficiencies that are reasonably achievable in connection with the operation of such allocated assets and business units as an independent business entity. C. Third priority shall be given to maximizing the consistency of the Division with the nature and quality of the Assets and Contributed Business originally transferred to the Partnership by the respective Partners or their Affiliates. Absent an agreement by the Partners or direction by the Neutral as to both (i) how the Partners should allocate Partnership debt and (ii) the process for relieving each Partner of liability for that portion of Partnership debt allocated to the other Partner, the Partners (A) shall be jointly and severally liable to the holders of all Partnership debt and (B) as between the Partners, each Partner shall be obligated to pay to holders of the debt its Percentage Interest of all payments of principal and interest on Partnership debt. Notwithstanding the foregoing, the Neutral shall be entitled to direct, and any Partner may propose, an alternative allocation of Partnership debt in any circumstance where such alternative allocation is reasonably likely to result in a Division that is more consistent with the priorities outlined above. For purposes of this Appendix E, OCC GP and OCC LP shall be treated as if they were a single Partner. Appendix E-1 76 The Partners shall attempt to agree on a plan for a mutually acceptable Division. If they are unable to so agree after 60 days following the occurrence of the dissolution, a Neutral shall be appointed in accordance with Appendix D and each Partner shall submit to the Neutral a written proposal for a Division. The Neutral shall decide which of the two proposals (without in any way modifying or compromising between the two proposals) more closely follows the priorities and principles set forth above, and the proposal so chosen shall thereupon be binding upon all Partners and shall be promptly implemented under the direction of the Neutral. The Neutral shall be entitled to employ (at the expense of the Partnership) such financial and accounting advisors and legal counsel as he or she shall select, provided that no such advisor or counsel shall have any affiliation with any Partner. Appendix E-2 EX-10.3 3 EXHIBIT 10.3 1 Exhibit 10.3 ASSET CONTRIBUTION AGREEMENT - PVC PARTNERSHIP (GEON) AMONG THE GEON COMPANY, 1999 PVC PARTNER INC. AND OXY VINYLS, LP 2 TABLE OF CONTENTS
Page ---- SECTION 1 CONTRIBUTION OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES............ 1 1.1 Transfer of Assets............................................ 1 1.2 Excluded Assets............................................... 2 1.3 Instruments of Conveyance and Assignment...................... 3 1.4 Further Assurances............................................ 4 1.5 Assumption of Liabilities..................................... 5 1.6 [Intentionally Omitted]....................................... 6 1.7 Employee Matters.............................................. 6 1.8 Joint Contracts............................................... 10 1.9 Retained Business; Support Services.......................... 11 SECTION 2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR........................ 11 2.1 Employee Benefits............................................. 11 2.2 Labor Relations............................................... 14 2.3 Title to Assets; Absence of Liens and Encumbrances; Leases.... 15 2.4 Title Matters; Defects in Improvements........................ 16 2.5 Working Capital............................................... 16 2.6 Government Licenses, Permits and Related Approvals............ 16 2.7 All Necessary Assets.......................................... 16 2.8 Conduct of Business in Compliance with Regulatory and Contractual Requirements..................................... 17 2.9 Legal Proceedings............................................. 17 2.10 Tax Matters................................................... 17 2.11 HSE Matters................................................... 18 2.12 Contributed Subsidiaries...................................... 19 SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP.................... 19 3.1 Due Organization; Good Standing and Power..................... 19 3.2 Authorization and Validity of Agreement....................... 19 3.3 No Consents Required; No Conflict with Instruments to which the Partnership is a Party............................. 20 SECTION 4 COVENANTS SUBSEQUENT TO CLOSING DATE................................. 20 4.1 Access to Information......................................... 20 4.2 Mail or Other Communications.................................. 21 4.3 Asset Transfer Effective Time Balance Sheet................... 21 4.4 Insurance Claims.............................................. 21 4.5 Special Covenant.............................................. 21
-i- 3 SECTION 5 SURVIVAL AND INDEMNIFICATION........................................ 21 5.1 Survival Limitations.......................................... 21 5.2 Indemnification............................................... 22 5.3 Procedures.................................................... 27 5.4 Subrogation................................................... 29 5.5 Claims for HSE Remedial Action................................ 29 5.6 Extent of Indemnification..................................... 32 SECTION 6 MISCELLANEOUS........................................................ 33 6.1 Construction.................................................. 33 6.2 Payment of Certain Expenses and Taxes......................... 33 6.3 Notices....................................................... 34 6.4 Binding Effect; Benefit....................................... 35 6.5 Occasional and Bulk Sales..................................... 35 6.6 Assignability................................................. 36 6.7 Amendment; Waiver............................................. 36 6.8 Dispute Resolution............................................ 36 6.9 Severability.................................................. 36 6.10 Counterparts.................................................. 36 6.11 Conflict with Transfer Documents.............................. 36 6.12 Transfer Documents............................................ 36
SCHEDULES Schedule A Contributed Business Schedule B Tier 1 Employees Schedule C Tier 2 Employees Schedule 1.1(a) Fee Interests Schedule 1.1(b) Leases Schedule 1.1(d) Equipment Schedule 1.1(g) Certain Contributed Contracts Schedule 1.2(g) Certain Excluded Assets Schedule 1.2(j) Excluded Railcars Schedule 1.5(a)(vi) Assumed Indebtedness Schedule 1.5(a)(x) Assumed Long-Term Liabilities Schedule 2 Disclosure Schedule Schedule 2.1 Employee Benefit Plans Schedule 2.9 Legal Proceedings Schedule 2.10 Tax Exempt Indebtedness APPENDICES Appendix A Definitions Appendix B Dispute Resolution Procedures -ii- 4 EXHIBITS Exhibit A Form of Deeds Exhibit B Form of Assignment of Leases Exhibit C Form of Bill of Sale and Assignment Exhibit D Form of Trademark Assignment Exhibit E Form of Patent Assignment Exhibit F Form of Partnership Assumption Agreement Exhibit G Form of Site Lease Agreement -iii- 5 ASSET CONTRIBUTION AGREEMENT- ----------------------------- PVC PARTNERSHIP (GEON) ---------------------- This ASSET CONTRIBUTION AGREEMENT - PVC PARTNERSHIP (GEON) (this "Agreement"), dated as of the 30th day of April, 1999, is entered into among The Geon Company, a Delaware corporation ("Contributor"), 1999 PVC Partner Inc., a Delaware corporation ("Geon LP"), and Oxy Vinyls, LP, a Delaware limited partnership (the "Partnership"). WHEREAS, the definitions of capitalized terms used in this Agreement are set forth in Appendix A hereto; and WHEREAS, Contributor owns all of the issued and outstanding shares of capital stock of Geon LP; and WHEREAS, Contributor wishes to contribute the assets subject to certain liabilities associated with the businesses described in Schedule A (the "Contributed Business") to the Partnership, and the Partnership wishes to accept such assets and assume such liabilities, all upon the terms and conditions hereinafter set forth; and WHEREAS, Contributor will become a limited partner in the Partnership and receive 24 PVC Units and the Specified Amount, if any, from the Partnership; and WHEREAS, Contributor will transfer the 24 PVC Units to Geon LP, whereupon Geon LP will be admitted to the Partnership as a limited partner; and WHEREAS, the Partnership will consummate certain transactions and enter into certain agreements as provided for in the Master Transaction Agreement, dated as of December 22, 1998, between Occidental Chemical Corporation ("OCC") and Contributor (the "Master Transaction Agreement"); NOW THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereto, it is hereby agreed as follows: SECTION I CONTRIBUTION OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES --------------------------------------------------------- 1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions set forth in this Agreement, on the date hereof and effective as of the Asset Transfer Effective Time, Contributor hereby contributes, conveys, assigns, transfers and delivers to the Partnership, or causes to be contributed, conveyed, assigned, transferred and delivered to the Partnership, and the Partnership hereby accepts and acquires, all of the assets, rights, and properties used or held for use in the operation and conduct or contemplated operation and conduct of the Contributed Business of every kind, nature, character and description, tangible and intangible, real, personal or mixed, whether held by Contributor or an Affiliate thereof, wherever located, other than the Excluded Assets; and which conveyance, subject to Section 1.2, shall include the following: 6 (a) the Fee Interests; (b) the Leaseholds; (c) the Associated Rights, including all contracts, easements, rights-of-way, permits, licenses and leases and other similar rights for related equipment, power and communications cables, and other related property and equipment used principally in the normal operation and conduct of the Contributed Business; (d) the Equipment and all warranties and guarantees, if any, express or implied, existing for the benefit of Contributor or any Affiliate thereof in connection with the Equipment to the extent assignable; (e) Subject to the Master Intellectual Property Agreement, the Unrecorded Assets; (f) Subject to the Master Intellectual Property Agreement, the Contributed Intellectual Property; (g) the Contributed Contracts; (h) All Government Licenses that are transferable and as to which Consents to transfer are obtained where required; (i) Accounts Receivable, Inventory, Stores Inventory, Prepaid Expenses, and plant petty cash funds, including, by way of illustration only, any amounts or balances owing to Contributor under any product exchange or similar agreeement, other than the Specified Working Capital Items; (j) All of the outstanding capital stock of LaPorte Chemicals Corp. (the "Contributed Subsidiary"); (k) All claims and rights against third parties (including insurance carriers, indemnitors, suppliers and service providers) to the extent, but only to the extent that, they relate to the Assumed Liabilities; PROVIDED, HOWEVER, that to the extent that any claims or rights of Contributor against any third parties are not assigned to the Partnership, and the Partnership incurs Liabilities that would create such claims or rights on behalf of Contributor, Contributor shall enforce such claims or rights for the benefit (and at the cost) of the Partnership to the extent it may lawfully do so, except that Contributor shall not be required to enforce insurance claims against fronting, captive or retrospectively rated policies which would ultimately result in such claims being ultimately borne, directly or indirectly, by Contributor; and (l) Any other asset of Contributor or its Affiliates contributed to the Partnership pursuant to the terms of this Agreement. 1.2 EXCLUDED ASSETS. It is expressly understood and agreed that the Assets shall not include the following (the "Excluded Assets"): -2- 7 (a) Specified Working Capital Items; (b) Except as may be agreed pursuant to Section 1.7, any assets of any qualified or non-qualified pension or welfare plans or other deferred compensation arrangements maintained by any Contributor or any Affiliate thereof for employees of such Contributor or any Affiliate thereof prior to the Asset Transfer Effective Time; (c) Subject to the Master Intellectual Property Agreement, any and all of the Intellectual Property of Contributor or any Affiliate thereof to the extent not primarily used in the normal operation and conduct of, or to the extent not applicable to, the Contributed Business, and any and all Trademarks of Contributor or any Affiliate thereof except for the Trademarks assigned or licensed in the Master Intellectual Property Agreement; (d) All claims and rights against third parties (including insurance carriers, indemnitors, suppliers and service providers), to the extent they do not relate to the Assumed Liabilities; (e) Claims held by Contributor or any Affiliate thereof for refunds of Taxes for time periods ending on or before the Asset Transfer Effective Time, which Taxes remain the liability of Contributor or its Affiliates under this Agreement; (f) All items sold in the ordinary course of business prior to the Asset Transfer Effective Time, none of which individually or in the aggregate are material to the normal operation and conduct of the Contributed Business; (g) The tangible assets, intangible assets, real properties, contracts and rights described on Schedule 1.2(g); (h) Any of Contributor's or any Affiliates' right, title and interest in and to any dispersion PVC resin producing plant assets, co-polymer PVC resin producing plant assets, or specialty homopolymer suspension and blending resins; (i) Any real property of Contributor or any Affiliate thereof in the vicinity of but not within the metes and bounds or other descriptions of the Fee Interests and any related easements or rights-of-way surveyed pursuant to Section 6.2(d); and (j) The interest of Contributor and its Affiliates in all railcars (whether owned or leased) utilized in the operation and conduct of the Contributed Business and described on Schedule 1.2(j) (the "Excluded Railcars"). 1.3 INSTRUMENTS OF CONVEYANCE AND ASSIGNMENT. On the Closing Date: (a) Contributor shall deliver or cause to be delivered to the Partnership, (i) properly executed and acknowledged warranty deeds, in substantially the form attached hereto as Exhibit A (the "Deeds"), for all Fee Interests being conveyed hereunder, (ii) assignments of lease for the Leases in substantially the form attached hereto as Exhibit B (the "Assignment of Leases"), (iii) a bill of sale -3- 8 and assignment in substantially the form attached hereto as Exhibit C (the "Bill of Sale and Assignment") conveying title to the Assets (other than the Fee Interests and Leaseholds) and assigning the Contributed Contracts, (iv) an assignment of the trademarks included in the Assets in substantially the form attached as Exhibit D (the "Trademark Assignment"), (v) an assignment of those patent rights included in the Assets, as specifically provided in the Master Intellectual Property Agreement, in substantially the form attached hereto as Exhibit E (the "Patent Assignment"), and (vi) stock certificates representing all of the outstanding capital stock of the Contributed Subsidiary, together with stock powers duly executed in blank; (b) Contributor and the Partnership shall deliver or cause to be delivered to each other a Site Lease Agreement with respect to certain properties in Pedricktown, New Jersey, in substantially the form attached hereto as Exhibit G (the "Site Lease Agreement"); and (c) Contributor shall transfer to the Partnership the originals (to the extent Contributor or any Affiliate thereof possesses an original and retained no rights thereunder after the Asset Transfer Effective Time) or copies, as appropriate, of the Contributed Contracts and the originals or copies, as appropriate, of all current records, files and other data that relate to the Assets and that are necessary for continuing the normal operation and conduct of the Contributed Business by the Partnership. 1.4 FURTHER ASSURANCES. (a) On and from time to time after the Closing Date, Contributor will execute and deliver, or cause to be executed and delivered, at its sole cost and expense, such other instruments of conveyance, assignment, transfer and delivery as the Partnership may reasonably request in order to fulfill and implement the terms of this Agreement, to vest in the Partnership title to the Assets or to enable the Partnership to continue the normal operation and conduct of the Contributed Business and otherwise to realize the benefits intended to be afforded hereby. (b) On and from time to time after the Closing Date, the Partnership will execute and deliver, or cause to be executed and delivered, at its sole cost and expense, such other instruments of assumption, conveyance, assignment, transfer, power of attorney or assurance as Contributor may reasonably request in order to fulfill and implement the terms of this Agreement, to vest in the Partnership all of the Assumed Liabilities or to enable Contributor to realize the benefits intended to be afforded hereby. (c) Notwithstanding any other provision of this Agreement to the contrary, the Partnership and Contributor acknowledge and agree that any Government Licenses, Contributed Contracts, warranties or other Assets related to the Contributed Business and required to be conveyed pursuant to this Agreement that by their terms require Consent from any other Person shall not be assigned to the Partnership unless any such Consent has been obtained prior to the Closing Date. (d) From and after the Closing Date, Contributor and the Partnership shall cooperate in good faith and in a commercially reasonable manner with respect to all matters pertinent to the carrying into effect of this Agreement and the discharge by each party of its obligations and -4- 9 liabilities hereunder and thereunder, and shall furnish to each other such information, cooperation and assistance as reasonably may be requested in connection with the foregoing, including any and all financial information necessary for the Partnership's operation of the Contributed Business or required for financial reporting or other purposes. 1.5 ASSUMPTION OF LIABILITIES. (a) On the terms and subject to the conditions, including Sections 1.7 and 5.2, set forth in this Agreement, effective as of the Asset Transfer Effective Time, the debts, liabilities and obligations of Contributor set forth in this Section 1.5 shall be assumed by the Partnership in connection with the transfer of Assets to it, and the Partnership agrees to pay, perform and discharge all such debts, liabilities and obligations when due: (i) All obligations arising on or after the Asset Transfer Effective Time under the Contributed Contracts and Leases that are assigned to the Partnership hereunder unless and to the extent that such obligation arises out of a violation of such Contributed Contract or Lease prior to the Asset Transfer Effective Time; (ii) All obligations under purchase orders accepted by Contributor in the ordinary course of business of the Contributed Business prior to the Asset Transfer Effective Time that are assigned to the Partnership hereunder and that are not filled as of the Asset Transfer Effective Time, but only to the extent not filled; (iii) Trade Accounts Payable; (iv) All obligations and liabilities, of every kind and nature, without limitation, arising out of, in connection with or related to the ownership, operation or use on or after the Asset Transfer Effective Time of the Assets or the Contributed Business, except for HSE Claims that are related to Pre-Closing Liabilities and that arise out of the Partnership's status after the Asset Transfer Effective Time as an owner or operator of the Assets or the Contributed Business; (v) Except for HSE Claims, Exposure Claims and Product Exposure Claims, any Third Party Claims that are related to Pre-Closing Liabilities and that are first asserted ten years or more after the Asset Transfer Effective Time; (vi) The obligations for Indebtedness described on Schedule 1.5(a)(vi); (vii) All Liabilities associated with products sold by the Partnership after the Asset Transfer Effective Time regardless of when manufactured; (viii) Any Product Exposure Claims that are first asserted 20 years or more after the Asset Transfer Effective Time; (ix) Any HSE Claims that are related to Pre-Closing Liabilities and that are first asserted ten years or more after the Asset Transfer Effective Time; -5- 10 (x) The long-term Liabilities set forth on Schedule 1.5(a)(x); and (xi) Any other Liability specifically assumed by the Partnership pursuant to the terms of this Agreement. The liabilities and obligations assumed by the Partnership pursuant to this Section are sometimes hereinafter referred to collectively as the "Assumed Liabilities." (b) On the Closing Date, the Partnership shall deliver to Contributor an instrument of assumption of the Assumed Liabilities substantially in the form attached hereto as Exhibit F (the "Partnership Assumption Agreement"). 1.6 [Intentionally Omitted]. 1.7 EMPLOYEE MATTERS. (a) In accordance with and subject to Section 3.7 of the Master Transaction Agreement, the Partnership shall offer employment to certain Salaried Employees and to each Union Employee in accordance with the terms and conditions negotiated between the Partnership and the Unions. Any Employee that accepts such offer is hereinafter referred to as a "Partnership Employee." Partnership Employees shall be employed effective as of the Asset Transfer Effective Time. Notwithstanding the foregoing, if as of the Asset Transfer Effective Time, any Employee is eligible for and receiving short term disability benefits or sick pay, or is on leave of absence, and the Partnership has offered such Employee an offer of employment, such Employee shall become employed by the Partnership (and become a Partnership Employee for purposes of this Section 1.7) upon eligibility to return to active employment with Contributor under the applicable conditions of the short term disability benefits or sick pay plan of Contributor, or upon return from leave of absence. Such Employee's employment by the Partnership shall not be effective until Contributor verifies that the Employee has satisfied the conditions (if any) to return to active employment. Until such time as such Employee becomes a Partnership Employee, Contributor shall continue to bear all costs and expenses associated with such Employee. (b) Contributor shall remain solely responsible for (i) any liability with respect to Tier 1 Employees who do not become Partnership Employees (as well as any employees of Contributor who do not become Partnership Employees and who are not Tier 1 Employees, Tier 2 Employees or Plant Employees), including any liability for severance benefit payments and any costs associated with violations of any Legal Requirements; (ii) bonus or executive compensation, if any, to Employees covered by Contributor's bonus or executive compensation programs; and (iii) any liability related to the termination of any employees of Contributor or any of its Affiliates at any time prior to the Asset Transfer Effective Time, including liability for all severance benefit payments to such employees pursuant to any applicable severance plan and any costs associated with violations of any Legal Requirements. With respect to Employees who become Partnership Employees, Contributor shall pay prior to the Asset Transfer Effective Time bonus or executive compensation earned in 1998. Contributor shall promptly reimburse the Partnership for a pro rata portion of any bonus or executive compensation paid by the Partnership that is earned in 1999 by Partnership -6- 11 Employees, based on the months of employment in 1999 with Contributor prior to the Asset Transfer Effective Time. (c) The Partnership shall be responsible for any severance costs with respect to Plant Employees pursuant to the applicable plan or program of the Partnership, as applicable to such Employee and in effect as of the termination date of such Employee. Any Partnership Employee whose employment is terminated by the Partnership within six months after the Asset Transfer Effective Time shall be entitled to receive a severance benefit from the Partnership not less than the benefits, if any, provided under the severance plan of Contributor in effect as of the Asset Transfer Effective Time. (d) Any employees of Contributor that the Partnership and Contributor agree are necessary for the orderly transfer of the Contributed Business to the Partnership but who will not become Partnership Employees ("Transition Employees") shall be compensated by Contributor on terms and conditions and for a duration to be agreed upon by the Partnership and Contributor. The Partnership shall reimburse Contributor for any such agreed upon compensation, including payroll taxes, travel expenses and other support expenses, benefit costs and workers compensation premiums and claims, paid by Contributor to or with respect to any Transition Employee. (e) With regard to the Contributed Business, the Partnership shall not at any time prior to 60 days after the Asset Transfer Effective Time, effectuate a "plant closing" or a "mass layoff," as those terms are defined in the Worker Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in whole or in part, any facility, site of employment or operating unit, or any Employees without complying fully with the notice and all other applicable requirements of WARN. (f) As of the Asset Transfer Effective Time, the Partnership shall provide each Salaried Employee that is a Partnership Employee with "Partnership Benefit Plans," which shall mean the benefit plans and programs under (i) Plans effective immediately prior to the Asset Transfer Effective Time, (ii) the benefit plans and programs applicable to employees of OCC in similar jobs, or (iii) a combination of the Plans and OCC's benefit plans and programs, the determination of which shall be at the sole discretion of the Partnership. From and after the Asset Transfer Effective Time, each Salaried Employee that is a Partnership Employee shall be eligible to participate in such Partnership Benefit Plans in accordance with the terms and conditions thereof. Under such Partnership Benefit Plans that are Employee Welfare Benefit Plans, Salaried Employees that are Partnership Employees and their eligible dependents, if participants in any health, long term disability or life insurance plans, as applicable, of Contributor immediately prior to the Asset Transfer Effective Time, (i) shall participate in such Partnership Benefit Plans as of the Asset Transfer Effective Time, and (ii) shall be deemed to satisfy any pre-existing condition limitations under group medical, dental, life insurance or disability plans that shall be provided after the Asset Transfer Effective Time. In addition, amounts paid by such Salaried Employees that are Partnership Employees towards deductibles and copayment limitations under the health plans of Contributor shall be counted toward meeting any similar deductible and copayment limitations under the health plans that shall be provided under the Partnership Benefit Plans. (g) The Partnership shall recognize all service credited for each of the Salaried Employees that are Partnership Employees on Contributor's records for purposes of eligibility for -7- 12 benefits and vesting under the Partnership Benefit Plans and the level of benefits under the Partnership Benefit Plans, but no such recognition will be made for any benefit accrual under any Partnership Benefit Plan that is a defined benefit pension plan. (h) Contributor agrees that, for Partnership Employees with an accrued benefit under any Employee Pension Benefit Plan, Contributor shall, or shall cause an Affiliate, as appropriate, to amend such Employee Pension Benefit Plans so that full vesting in such accrued benefits shall occur as of the Asset Transfer Effective Time. (i) Contributor and the Partnership shall take all necessary and reasonable steps to prevent a default of any loans of any Partnership Employee under the Geon Retirement Savings Plan ("Contributor's 401(k) Plan"), including taking prompt action to provide for a plan-to-plan asset transfer (as such transfer is defined in section 414(l) of the Code) of account balances (including outstanding loans) of those Partnership Employees who so elect to transfer from Contributor's 401(k) Plan to the appropriate Partnership Benefit Plan pursuant to section 401(k) of the Code. (j) From and after the Asset Transfer Effective Time, Salaried Employees that are Partnership Employees shall be entitled to retain and take any paid vacation days accrued during the period from January 2, 1999 through the Asset Transfer Effective Time but not taken under Contributor's vacation policy, if applicable. On or promptly after the Asset Transfer Effective Time, Contributor shall pay any Banked Vacation to each Salaried Employee. "Banked Vacation" shall mean vacation time accrued on Contributor's records as payable to any Salaried Employee who becomes a Partnership Employee for which vacation time has not been taken prior to January 2, 1999. (k) Contributor and the Partnership agree that they will satisfy their respective obligations, if any, under the National Labor Relations Act regarding Union Employees. The Partnership will recognize each Union, and each Union Employee shall participate in such plans and programs as are applicable to the Union Employees in accordance with the terms and conditions negotiated by the Partnership. (l) From and after the Asset Transfer Effective Time, Employees that are Partnership Employees shall cease to accrue service credit and benefits, except as expressly provided in this Section 1.7, under any and all welfare plans of Contributor and its Affiliates, under any and all pension plans of Contributor and its Affiliates, and under any and all non-ERISA plan or programs of Contributor and its Affiliates, in which participation had been available to such Employees prior to the Asset Transfer Effective Time; provided, however, that Contributor at its sole expense may provide additional benefits to such Partnership Employees. (m) Except as otherwise provided in this Section 1.7, Contributor and the Partnership agree that this Agreement does not contemplate the transfer of any assets or liabilities from any benefit plan of Contributor to any Partnership Benefit Plan. The Partnership hereby waives any and all claims that the Partnership or any of its Affiliates might have to any of the assets of any plan of Contributor or its Affiliates. -8- 13 (n) Except with respect to Assumed Liabilities (other than Assumed Liabilities described in Section 1.5(a)(v)), Contributor shall retain the sole responsibility for, and shall continue to pay, all hospital, medical, and health care continuation coverage benefits as described in section 4980B of the Code, life insurance, disability, other welfare plan expenses and benefits (including all benefits under any benefit plan of Contributor), and worker's compensation for employees of Contributor (including each Employee) and their covered dependents, including "qualified beneficiaries" within the meaning of section 607(3) of ERISA, with respect to claims incurred prior to the Asset Transfer Effective Time. In addition, except with respect to Assumed Liabilities (other than Assumed Liabilities described in Section 1.5(a)(v)), Contributor shall retain sole responsibility for the payment of any claim for medical benefits, health care continuation coverage benefits as described in section 4980B of the Code, life insurance benefits or other welfare benefits by, Exposure Claims by, or any other item of compensation or benefits payable under any Contributor Plan to, (i) any employee of Contributor after the Asset Transfer Effective Time, and (ii) any former employee of Contributor who retired, died, became disabled or otherwise terminated employment prior to the Asset Transfer Effective Time. Expenses and benefits relating to such claims incurred by Partnership Employees and their covered dependents attributable to employment with the Partnership on or after the Asset Transfer Effective Time shall be the sole responsibility of the Partnership under the terms of its benefit plans. For the purposes of this Section 1.7(n), a claim is deemed incurred when the medical or other therapeutic services giving rise to the claim were performed. (o) Except as otherwise specified in this Section 1.7 and except with respect to Exposure Claims, the Partnership hereby agrees to indemnify Contributor and its Affiliates and to defend and hold Contributor and its Affiliates harmless from and against any claims, losses, expenses, obligations, and liabilities (including cost of defense and reasonable attorney's fees) asserted against and imposed on Contributor and its Affiliates and arising out of or otherwise in respect of the following: (i) any failure by the Partnership to comply with its obligations hereunder or otherwise with respect to any Partnership Employee; (ii) any suit or claim of violation brought against Contributor or its Affiliates under WARN for any actions taken by the Partnership after the Asset Transfer Effective Time with regard to the Partnership Employees at any facility, site of employment or operating unit affected by this Agreement; (iii) all claims by any Partnership Employee attributable to employment after the Asset Transfer Effective Time who the Partnership or its Affiliates actually or constructively terminates or by any spouse, dependent, estate or other beneficiary of such Employee; or (iv) any claims or charges by or relating to Employee concerning wrongful termination, discrimination, harassment, or violation of (1) the Fair Labor Standards Act, (2) the Labor Management Relations Act, (3) WARN, (4) the Americans With Disabilities Act, (5) ERISA, (6) the Consolidated Omnibus Budget Reconciliation Act of 1985, (7) the National Labor Relations Act, (8) the Family and Medical Leave Act, (9) the Health Insurance Portability and Accountability Act, (10) Title VII of the Civil Rights Act of 1964, -9- 14 (11) the Age Discrimination in Employment Act, or (12) any and all applicable state and local laws relating to employees or labor relations; all as attributable to the conduct of the Partnership or its Affiliates with respect to such Employee relating to the period subsequent to the Asset Transfer Effective Time. (p) Nothing expressed or implied in this Agreement shall confer upon any Employee or any other Person other than the parties hereto, or any legal representative thereof, any rights or remedies, including any right to employment, whether directly or as a third party beneficiary, or continued employment for any specified period, of any nature or kind whatsoever. (q) Except as otherwise specified in this Section 1.7 and except with respect to Assumed Liabilities (other than the Assumed Liabilities described in Section 1.5(a)(v)), Contributor agrees to indemnify the Partnership and to defend and hold the Partnership and its Affiliates harmless from and against claims, losses, expenses, obligations, and liabilities (including costs of defense and reasonable attorney's fees) arising out of or otherwise in respect of the following: (i) any Contributor employee benefit plans, or claims of employees or former employees of Contributor or of any spouse, dependent, estate, or other beneficiary of such employees or former employees attributable to employment with Contributor or any of its Affiliates, including any such liability or obligation that may arise under Section 1.7(n), and (ii) any claims or charges relating to wrongful termination, discrimination, harassment, or violation of (1) the Fair Labor Standards Act, (2) the Labor Management Relations Act, (3) WARN, (4) the Americans With Disabilities Act, (5) ERISA, (6) the Consolidated Omnibus Budget Reconciliation Act of 1985, (7) the National Labor Relations Act, (8) the Family and Medical Leave Act, (9) the Health Insurance Portability and Accountability Act, (10) Title VII of the Civil Rights Act of 1964, (11) the Age Discrimination in Employment Act, or (12) any and all applicable state and local laws relating to employees or labor relations, all as attributable to the conduct of Contributor or its Affiliates with respect to (I) any employees or former employees of Contributor who do not become Partnership Employees relating to the periods both before and after the Asset Transfer Effective Time, and (II) the Employees, attributable to employment with Contributor or any of its Affiliates. (r) Representatives of the Partnership shall be entitled to meet with the Employees at mutually agreeable times prior to the Asset Transfer Effective Time to explain and answer questions about the conditions, policies and benefits of employment by Partnership after the Asset Transfer Effective Time. Contributor shall cooperate with the Partnership until the Asset Transfer Effective Time in communicating to such Employees any additional information concerning employment after the Asset Transfer Effective Time which such Employees may seek, or which the Partnership may desire to provide, and during normal business hours shall allow additional meetings by representatives of the Partnership with such Employees upon the reasonable request of the Partnership. In addition, Contributor and the Partnership agree to furnish each other with appropriate records for each of the Employees, subject to customary confidentiality restrictions, compliance with Legal Requirements and appropriate employee consents, as may be necessary to assist in proper benefit administration. (s) The indemnity provisions of this Section shall be subject to the requirements of Section 5.3. -10- 15 1.8 JOINT CONTRACTS. (a) Any Contributed Contracts contributed to the Partnership pursuant to Section 1.1 that relate principally to the Contributed Business but also relate to the business (other than the Contributed Business) of Contributor or its Affiliates will be made available to Contributor and its Affiliates by the Partnership pursuant to arrangements by which Contributor and its Affiliates will enjoy the benefits of such Contributed Contracts as they relate to their business (other than the Contributed Business) on the same terms and conditions as the Partnership. (b) Any Contracts that relate principally to the business (other than the Contributed Business) of Contributor or its Affiliates but also relate to the Contributed Business will be made available to the Partnership by Contributor or its Affiliates pursuant to arrangements by which the Partnership will enjoy the benefits of such Contracts as they relate to the Contributed Business on the same terms and conditions as Contributor or its Affiliates. 1.9 RETAINED BUSINESS; SUPPORT SERVICES. In addition to the Partnership's rights under the Related Agreements, for two years from the date hereof, the Partnership shall have the right to purchase services from the Retained Business at full cost and otherwise on arms'-length terms, in all cases where it is reasonable under all the circumstances for the Retained Business to provide such services but in no event in excess of the quantity of, or in kind other than, such services provided to the Contributed Business prior to the Asset Transfer Effective Time. In addition, for two years from the date hereof, the Retained Business shall have the right to purchase services from the Partnership at full cost and otherwise on arms'-length terms, in all cases where it is reasonable under all the circumstances for the Partnership to provide such services. In no event, however, shall this Section 1.9 override the express terms and conditions of a Related Agreement as to particular services. SECTION 2 REPRESENTATIONS AND WARRANTIES OF CONTRIBUTOR --------------------------------------------- Except as set forth on Schedule 2, Contributor and Geon LP jointly and severally represent and warrant to the Partnership as follows: 2.1 EMPLOYEE BENEFITS. (a) Schedule 2.1 contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, employment, consulting, severance or termination pay, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program, agreement or arrangement, and each other "employee benefit plan" (within the meaning of section 3(2) of ERISA), program, agreement or arrangement, whether formal or informal, written or oral, and whether legally binding or not, sponsored, maintained or contributed to or required to be contributed to by Contributor or by any trade or business, whether or not incorporated, that, together with Contributor, would be deemed a "single employer" within the meaning of section 4001(b)(1) of ERISA, a "controlled group" within the meaning of section 414(b) of the Code, "trades or businesses under common control" within the meaning of section 414(c) of the Code, or an "affiliated service group" -11- 16 within the meaning of section 414(m) of the Code (an "ERISA Affiliate") within the last three years, for the benefit of any employee, former employee, consultant, officer, or director of Contributor or its Affiliates (collectively, the "Plans"). Neither Contributor nor any ERISA Affiliate has any plan or commitment, whether legally binding or not, to create any additional Plan or to modify or change any existing Plan that would affect any employee or terminated employee of Contributor or any ERISA Affiliate. There has been no merger, consolidation, or transfer of assets or liabilities (including any spinoff, split up or split off) with respect to any of the ERISA Plans. (b) With respect to each of the Plans, neither Contributor nor any ERISA Affiliate is obligated to continue with any such Plan beyond the Asset Transfer Effective Time. (c) To the extent necessary or appropriate for the proper operation and administration of each of the Plans, the participant and beneficiary records of each Plan accurately state the history of each participant and beneficiary in connection with such Plan and accurately states the benefits earned and owed to each person under such Plan. (d) To the Knowledge of Contributor, each of the Plans is, and has always been, operated in all respects in accordance with all Legal Requirements, and all persons who participate in the operation of such Plans and all Plan "fiduciaries" (within the meaning of section 3(2) of ERISA) have always acted in accordance with the provisions of all Legal Requirements, the Plan documents and written descriptions of the Plans. Each of the Plans intended to be "qualified" within the meaning of section 401(a) of the Code is so qualified and has received a currently applicable favorable determination letter, and nothing has occurred since the date of such letter that could reasonably be expected to cause the loss of such qualification. (e) No liability under Title IV of ERISA has been incurred, directly or indirectly, by Contributor or any ERISA Affiliate since the effective date of ERISA that has not been satisfied in full, and no condition exists that presents a material risk to Contributor or an ERISA Affiliate of incurring liability under such Title, other than a liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC"), which payments have been or will be made when due. To the extent that this representation applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only with respect to ERISA Plans but also with respect to any employee benefit plan, program, agreement or arrangement subject to Title IV of ERISA to which Contributor or an ERISA Affiliate made, or was required to make, contributions during the three year period ending on the last day of Contributor's most recent fiscal year. (f) The PBGC has not instituted any Proceedings to terminate any of the ERISA Plans, and no condition exists that presents a material risk that any such Proceedings will be instituted. (g) No reportable event within the meaning of section 4043 of ERISA, or prohibited transaction within the meaning of section 406 of ERISA, has occurred with respect to any Plan. (h) Neither Contributor, any ERISA Affiliate, any of the ERISA Plans or any trust created thereunder nor any trustee or administrator thereof has engaged in any transaction or has taken or failed to take any action in connection with which Contributor, any ERISA Affiliate, any of the ERISA Plans, any such trust, any trustee or administrator thereof, or any party dealing with -12- 17 the ERISA Plans or any such trust could be subject to any liability, fine, penalty, tax or related charge under section 409, section 502(c)(i) or (1), or section 4071 of ERISA or Chapter 43 of the Code, or the imposition of a lien pursuant to section 401(a)(29) or 412(n) of the Code. Each welfare plan of Contributor or any ERISA Affiliate that is subject to section 1862(b)(1) of Social Security Act has been operated in compliance with the secondary payor requirements of such section. (i) No assets of any of the Plans are invested, directly or indirectly, in real or personal property used by Contributor or, with respect to the ERISA Plans, any ERISA Affiliate. There is sufficient liquidity of assets in each of the funded Plans to promptly pay for the benefits earned and other liabilities owed under such Plan. With respect to each of the Plans, no insurance contract, annuity contract, or other agreement or arrangement with any financial or other organization would impose any penalty, discount or other reduction on account of the withdrawal of assets from such organization or the change in the investment of such assets. (j) No Plan is a "multiemployer plan" as such term is defined in section 3(37) of ERISA. No Plan is a plan maintained by more than one employer (a so-called "multiple employer plan") for purposes of section 413(c) of the Code. (k) No amounts payable under the Plans or any other agreement or arrangement to which Contributor or any ERISA Affiliate is a party will, as a result of the transactions contemplated by this Agreement, fail to be deductible for federal income tax purposes by virtue of section 280G of the Code. (l) No "leased employee," as that term is defined in section 414(n) of the Code, performs services for Contributor or any ERISA Affiliate. (m) No Plan provides benefits, including death or medical benefits (whether or not insured), with respect to current or former employees after retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) death benefits or retirement benefits under any "employee pension plan," as that term is defined in section 3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on the books of Contributor or the ERISA Affiliates, or (iv) benefits, the full cost of which is borne by the current or former employee (or his beneficiary). (n) With respect to each Plan that is funded wholly or partially through an insurance policy, there will be no liability of Contributor or an ERISA Affiliate, as of the Closing Date, under any such insurance policy or ancillary agreement with respect to such insurance policy in the nature of a retroactive rate adjustment, loss sharing arrangement or other actual contingent liability arising wholly or partially out of events occurring prior to the Closing Date. (o) There is, and has been, no actual, and to the Knowledge of Contributor, no anticipated, threatened or expected, litigation or arbitration concerning or involving any of the Plans. No complaints to or by any Authority have been filed, or, to the knowledge of Contributor, are threatened or expected, with respect to any of the Plans. No claims have been made, or, to the Knowledge of Contributor, are expected, with respect to any bond or any fiduciary or other similar insurance with regard to the actions of any Person in connection with any of the ERISA Plans or other funded Plans, nor has there been, nor is there, to the Knowledge of Contributor, expected, any -13- 18 notice to any insurer under any such bond or policy with regard to any of such Plans. No application for any bond or fiduciary liability or similar insurance policy has been issued subject to any qualification, condition or exclusion. (p) Except as provided in this Agreement, the consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or officer of Contributor or any of its Affiliates to severance pay, unemployment compensation or any other similar payment, (ii) accelerate the time of payment or vesting, or increase the amount of, any compensation due to any such employee or officer, (iii) result in any employment-related expenses or liabilities, the full cost of which will not be paid by Contributor, or (iv) result in any prohibited transaction described in section 406 of ERISA or section 4975 of the Code for which an exemption is not available. 2.2 LABOR RELATIONS. (a) As related to the Contributed Business, (i) there are no collective bargaining agreements or other similar agreements, arrangements or undertakings, written or oral, with employees as a group to or by which Contributor is a party or is bound, (ii) no employees of Contributor are represented by any labor organization, collective bargaining representative or group of employees, (iii) no labor organization, collective bargaining representative or group of employees claims to represent a majority of the employees of Contributor in an appropriate unit of Contributor, (iv) Contributor has not been the subject of any representational campaign or organizing activity by any union or other organization or group seeking to become the collective bargaining representative of any of Contributor employees, (v) Contributor has not been subject to, or threatened with, any strike, labor dispute, slowdown, stoppage, or other concerted labor activity or dispute during the period of 12 months prior to the date hereof, (vi) Contributor is not obligated to bargain collectively with respect to wages, hours and other terms and conditions of employment with any recognized or certified labor organization, collective bargaining representative or group of employees, and (vii) to the Knowledge of Contributor, employer-employee relations of Contributor are generally satisfactory. (b) As related to the Contributed Business, Contributor is in compliance in all material respects with all Legal Requirements pertaining to labor, employment and employment practices and wages, hours, and other terms and conditions of employment, with respect to Contributor employees, including each Legal Requirement pertaining to equal opportunity, discrimination, immigration, promotion or pay of employees, wages, hours of work, family or medical leaves of absence, plant closings and layoffs, collective bargaining, occupational safety and health, unemployment, and ERISA. There is no pending, or to the Knowledge of Contributor, threatened, Proceeding by or before the National Labor Relations Board, the Equal Employment Opportunity Commission, the Department of Labor or any other Authority in connection with any current, former or prospective employee related to the Contributed Business. (c) As related to the Contributed Business, Contributor (i) has withheld all amounts required by Legal Requirements or by agreement to be withheld from the wages, salaries and other payments to Employees, (ii) is not liable for any arrears of wages, (iii) is not delinquent with respect to any payment to any trust or other fund or to any Authority with respect to unemployment -14- 19 compensation benefits, workers' compensation, social security, or other benefits for Employees, and (iv) is not liable for any Taxes, fines, or penalties, or involved in any pending or, to the Knowledge of Contributor, threatened Proceeding for the failure (or alleged failure) to comply with any of the foregoing. 2.3 TITLE TO ASSETS; ABSENCE OF LIENS AND ENCUMBRANCES; LEASES. (a) Each of Contributor and Contributed Subsidiary has good and marketable title to all of its Fee Interests, free and clear of all Encumbrances, except (i) any prior reservations, rights of way, easements and other matters of record to the extent valid, subsisting and affecting the Assets, (ii) any prior unrecorded easements set forth in a written instrument or agreement for which permanent improvements have been constructed in such a manner as to be apparent to the Partnership from inspection of the Assets to the extent valid, subsisting and affecting the Assets, (iii) liens for current Taxes not yet due and payable and mechanics and similar statutory liens arising in the ordinary course of business, (iv) liens of employees and laborers for current wages not yet due, (v) building, zoning and health regulations of the jurisdictions in which the Assets are located, (vi) such imperfections of title or Encumbrances, if any, as do not in the aggregate materially detract from the value or materially interfere with the use of the Assets as they are currently being used or as otherwise would not reasonably be expected to have a Material Adverse Effect, and (vii) any matters disclosed by surveys obtained in connection with the transactions contemplated by this Agreement. (b) Each of Contributor and Contributed Subsidiary is the sole lessee under its Leases and the sole party entitled to its Leasehold interests in favor of the lessee thereunder, and the sole owner of the permanent improvements (other than fixtures) situated on its Leased Premises, free and clear of all Encumbrances affecting its Leaseholds except (i) any prior reservations, easements and other matters of record to the extent valid, subsisting and affecting the Assets, (ii) any prior unrecorded easements set forth in a written instrument or agreement for which permanent improvements have been constructed in such a manner as to be apparent to the Partnership from inspection of the Assets to the extent valid, subsisting and affecting the Assets, (iii) liens for current Taxes not yet due and payable and mechanics and similar statutory liens arising in the ordinary course of business, (iv) liens of employees and laborers for current wages not yet due, (v) building, zoning and health regulations of the jurisdictions in which the Assets are located, (vi) such imperfections of title or Encumbrances, if any, as do not in the aggregate materially detract from the value or materially interfere with the use of the Assets or as otherwise would not reasonably be expected to have a Material Adverse Effect, and (vii) any matters disclosed by surveys obtained in connection with the transactions contemplated by this Agreement. Neither Contributor nor any Affiliate thereof has received from or delivered to the lessors under such Leases any written notice of termination or threat of termination of such respective Leases. True and complete copies of all written lease agreements (including any written amendments, modifications or assignments thereof) constituting, or evidencing the terms of, such Leases have been delivered or made available to the Partnership. No material default or event of default on the part of a Contributor or any Affiliate thereof under the provisions of any of such Leases, and no event that with the giving of notice or passage of time or both would constitute such default or event of default on the part of such Contributor, has occurred (which default or event of default has not been cured). Contributor and its Affiliates have not received any written notice from any lessor under any Lease, that any material -15- 20 default or event of default on the part of Contributor or such Affiliate, as lessee, under the provisions of any Leases, or that any event that with the giving of notice or passage of time or both would constitute such a default or an event of default on the part of Contributor or any such Affiliate, as lessee, has occurred (which default or event of default has not been cured). To Contributor's Knowledge, no material default or event of default on the part of the lessor under the provisions of any of such Leases, and no event that with the giving of notice or passage of time or both would constitute such default or event of default on the part of any such lessor, has occurred (which default or event of default has not been cured). (c) Contributor or its Affiliates have good title to all of the personal property constituting Assets (other than the Contributed Intellectual Property) owned or purported to be owned by it, free and clear of all Encumbrances, except for liens for Taxes not yet due and payable and such Encumbrances, if any, that do not in the aggregate materially detract from the value or materially interfere with the use of the Assets (as they are currently being used) or as otherwise would not reasonably be expected to have a Material Adverse Effect. (d) No Asset is burdened by (i) an Encumbrance that secures an obligation that is of such a nature that, after the consummation of the transactions contemplated by this Agreement, (A) will be binding upon or applicable to a Person other than the Partnership or (B) in the event of a breach of such obligation by a Person other than the Partnership, would cause such Asset to be foreclosed upon or otherwise taken from the Partnership or (ii) an Encumbrance that secures Indebtedness. 2.4 TITLE MATTERS; DEFECTS IN IMPROVEMENTS. To Contributor's Knowledge, there are no trespassers or other adverse parties in possession on or affecting the Fee Interests, the Leased Premises or the Leaseholds of Contributor or any of its Affiliates that would reasonably be expected to have a Material Adverse Effect. Contributor and its Affiliates have not granted and none of the foregoing is party to any unrecorded options, rights of refusal, sales contracts or other such contractual rights to acquire such Fee Interests, Leased Premises or Leaseholds in favor of any third parties relating to its Fee Interests, Leased Premises or Leaseholds. No written notice has been received by Contributor or any of its Affiliates (i) from any insurance company or any Authority with respect to its Fee Interests, Leased Premises or Leaseholds or by any board of fire underwriters claiming any material defects or deficiencies or requiring the performance of any repairs, replacement, alteration or other work relating to the permanent improvements situated thereon (in each case, which have not been cured) or (ii) from any other Person making an adverse claim against the Assets. 2.5 WORKING CAPITAL. Including for this purpose the Specified Working Capital Items, (a) Contributor has operated the Contributed Business in the ordinary course of business from June 24, 1998 to the Asset Transfer Effective Time such that its Inventory, Stores Inventory, Prepaid Expenses, Accounts Receivable and Trade Accounts Payable, as of the Asset Transfer Effective Time, are at substantially the same level as would have existed for Contributor without regard to the transactions contemplated by the Master Transaction Agreement, and (b) the level of Working Capital of Contributor as of the Asset Transfer Effective Time is reasonably sufficient to operate the Contributed Business consistent with current and historical practices. -16- 21 2.6 GOVERNMENT LICENSES, PERMITS AND RELATED APPROVALS. The Government Licenses constitute all those necessary for the normal operation and conduct of the Contributed Business as it is currently operated and conducted, except where the failure to have such Government Licenses would not reasonably be expected to have a Material Adverse Effect. 2.7 ALL NECESSARY ASSETS. Including for this purpose the Excluded Railcars, the Assets together with the rights under this Agreement and the Related Agreements constitute all property and other rights necessary to enable the Partnership to operate and conduct the Contributed Business in substantially the same manner as it is being operated and conducted on the date of this Agreement, except in all cases where the failure of the Partnership to acquire such property or other rights by conveyance or license would not in the aggregate reasonably be expected to have a Material Adverse Effect. 2.8 CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND CONTRACTUAL REQUIREMENTS. Contributor and its Affiliates are operating and conducting the Assets and the Contributed Business in compliance with all applicable Legal Requirements, rights of concession, licenses, know-how or other proprietary rights of others, the failure to comply with which would reasonably be expected to have a Material Adverse Effect. 2.9 LEGAL PROCEEDINGS. Schedule 2.9 contains a complete and accurate list of all current Proceedings to which any of Contributor or its Affiliates is a party and involving the Assets. There is no Proceeding to which Contributor or its Affiliates is a party (i) that is pending or, to the Knowledge of Contributor, threatened, (ii) that relates in any way to the Assets, to the operation or conduct of the Contributed Business, or to the transactions contemplated by this Agreement, and (iii) that upon resolution adverse to Contributor or any of its Affiliates, could reasonably be expected to have a Material Adverse Effect. 2.10 TAX MATTERS. (a) There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) upon the Assets. (b) Except for the Indebtedness listed on Schedule 2.10, none of the Assets directly or indirectly secures any Indebtedness the interest on which is exempt from federal income taxation under the Code. (c) The interest on the Indebtedness listed on Schedule 2.10 is exempt from federal income taxation under the Code. (d) All tax returns of the Contributed Subsidiary, Canco 1 or Canco 2 that are required by any Legal Requirement to be filed with respect to periods ending on or prior to the Asset Transfer Effective Time have been timely filed, and all Taxes required to be paid for the periods covered by such tax returns or related to such tax returns have been timely paid in full by or on behalf of the Contributed Subsidiary, Canco 1 or Canco 2. -17- 22 (e) There are no Proceedings pending against Contributor, Geon LP, the Contributed Subsidiary, Canco 1 or Canco 2 or any of their respective Affiliates with respect to any Taxes due from the Contributed Subsidiary, Canco 1 or Canco 2 or for which the Contributed Subsidiary, Canco 1 or Canco 2 may be liable. (f) None of Contributor, Geon LP, the Contributed Subsidiary, Canco 1 or Canco 2 or any of their respective Affiliates has any outstanding agreement, waiver or arrangement (i) extending the statute of limitations with respect to Taxes due from any such party or (ii) agreeing to any extension of time with respect to any Tax assessment or deficiency for any taxable period for which the Contributed Subsidiary, Canco 1 or Canco 2 may be liable. There have been no issues raised in any audit or assessment of Contributor, Geon LP, the Contributed Subsidiary, Canco 1 or Canco 2 or any of their respective Affiliates that may result in the Contributed Subsidiary, Canco 1 or Canco 2 being liable for any Taxes. (g) There are no overall foreign losses associated with the Contributed Subsidiary. 2.11 HSE MATTERS. Except as would not be reasonably likely to have a Material Adverse Effect: (a) (i) The Fee Interests, the Leased Premises and the operations of Contributor and its Affiliates in connection with the Assets are in compliance with all HSE Laws and (ii) to the extent arising out of Contributor's or its Affiliates' ownership, use or operation of the Assets, there are no Chemical Substances held, located, released, generated, treated, stored or disposed of on, under or from such Fee Interests or such Leased Premises or in, on or from any fixtures or permanent improvements thereon or transported, disposed or arranged for transport or disposal offsite such Fee Interests or such Leased Premises in excess or in contravention of any standard prescribed or permitted by any HSE Laws or that require corrective or other action pursuant to the provisions of any HSE Laws. (b) Since May 1, 1993, Contributor and its Affiliates have not received any written notice from any Authority, or any comparable written claim or notice from any other Person, naming Contributor or its Affiliates as a potentially responsible party, or otherwise notifying Contributor or any of its Affiliates of any potential liability under any HSE Law that relates in any way to any Chemical Substances stored or disposed on or under or generated by or derived or transported from the operations on the Fee Interests, or the Leased Premises of Contributor or any of its Affiliates, regardless of whether the events that gave rise to such claim or notice allegedly occurred before or after May 1, 1993. (c) Contributor and its Affiliates, as applicable, have been, since May 1, 1993, and are in compliance with all permits, licenses, approvals, permission, or authorizations necessary for its operations in connection with the Contributed Business to comply in all respects with then applicable HSE Laws and all such permits, licenses, approvals, permission, and authorizations have been issued and are in full force and effect. (d) (i) Contributor and its Affiliates have not received written notice of any actual, pending, threatened or potential Proceedings of any kind in connection with the Contributed -18- 23 Business and HSE Laws, Product Exposure Claims or Exposure Claims (including exposure of any Person or the Environment to any Chemical Substances) ("HSE Proceedings") and (ii) Contributor and its Affiliates have no Knowledge of any facts, events or occurrences that are reasonably expected to result in any HSE Proceedings being brought. (e) Contributor and its Affiliates are not parties to, or subject to, the terms of, any consent order, consent judgment, consent decree, court or administrative order or judgment, agreement, schedule, or decree issued by any Authority with respect to any HSE Proceedings. (f) There are no underground storage tanks owned or operated by Contributor and its Affiliates in, on, or under the Fee Interests or Leased Premises, and Contributor and its Affiliates have no Knowledge of such tanks that were previously located thereon that have since been removed or abandoned in place. 2.12 CONTRIBUTED SUBSIDIARIES. As of the time immediately after the consummation of the Closing: (i) the Partnership is the record and beneficial owner of all of the issued and outstanding shares of capital stock of the Contributed Subsidiary, and the Contributed Subsidiary is the record and beneficial owner of all of the issued and outstanding shares of capital stock of Canco 2, in each case free and clear of any Encumbrances or limitations on the voting or transfer thereof; (ii) there are no subscriptions, options to purchase, rights of refusal, rights of first offer, conversion or exchange rights, warrants, preemptive rights or other agreements, claims or commitments of any kind obligating the Contributed Subsidiary or Canco 2 to issue, transfer, deliver or sell shares of the capital stock or other securities of, or interests in, the Contributed Subsidiary or Canco 2 or obligating the Contributed Subsidiary or Canco 2 to grant, extend or enter into any such agreement or commitment; (iii) the Contributed Subsidiary has no assets other than all of the issued and outstanding shares of capital stock of Canco 2, and has no Liabilities, whether accrued, contingent or otherwise, and whether due or to become due; and (iv) Canco 2 has no Liabilities, whether accrued, absolute, contingent or otherwise, and whether due or to become due, other than (a) the Liabilities assumed by Canco 1 pursuant to the Geon Canada Transfer Agreement and (b) the Canco Lending Liability, if any. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP ------------------------------------------------- The Partnership represents and warrants to Contributor as follows: 3.1 DUE ORGANIZATION; GOOD STANDING AND POWER. The Partnership is a limited partnership duly formed and validly existing under the laws of the State of Delaware. The Partnership has all partnership power and authority to enter into this Agreement and the other Related Agreements and to perform its obligations hereunder and thereunder. The Partnership is duly authorized, qualified or licensed to do business as a foreign partnership, in each of the jurisdictions in which its right, title or interest in or to any asset, or the conduct of its business, requires such authorization, qualification or licensing, except where the failure to so qualify would not have a material adverse effect on the ability of the Partnership to perform its obligations hereunder or under the Assignment and Assumption Agreements. -19- 24 3.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery and performance of this Agreement and the other Related Agreements by the Partnership and the consummation by the Partnership of the transactions contemplated hereby and thereby have been duly authorized by all necessary partnership action on the part of the Partnership. No other partnership action is necessary for the authorization, execution, delivery and performance by the Partnership of this Agreement and the Related Agreements and the consummation by the Partnership of the transactions contemplated hereby or thereby. This Agreement and the Related Agreements have been duly executed and delivered by the Partnership and constitute legal, valid and binding obligations of the Partnership, enforceable in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and by general equity principles. 3.3 NO CONSENTS REQUIRED; NO CONFLICT WITH INSTRUMENTS TO WHICH THE PARTNERSHIP IS A PARTY. The execution, delivery and performance of this Agreement and the Related Agreements by the Partnership and the consummation by it of the transactions contemplated hereby and thereby (i) will not require any Consent except for such Consents the failure of which to be obtained or made, would not in the aggregate reasonably be expected to have a Material Adverse Effect on the Partnership's ability to perform its obligations hereunder or thereunder, and (ii) will not violate (with or without the giving of notice or the lapse of time or both), conflict with, or result in the breach or termination of any provision of, or constitute a default under, or result in the acceleration of the performance of the obligations of the Partnership under, the Limited Partnership Agreement of the Partnership, or any indenture, mortgage, deed of trust, lease, licensing agreement, contract, instrument or other agreement to which the Partnership is a party or by which the Partnership or any of its assets or properties is bound, except for such violations, conflicts, breaches, terminations, defaults, accelerations or liens which would not in the aggregate reasonably be expected to have a material adverse effect on the Partnership's ability to perform its obligations hereunder or thereunder. SECTION 4 COVENANTS SUBSEQUENT TO CLOSING DATE ------------------------------------ 4.1 ACCESS TO INFORMATION. Following the Closing Date, the Partnership shall afford, and will cause its Affiliates to afford, to Contributor, its counsel, accountants and other authorized representatives, during normal business hours, reasonable access to the books, records and other data of the Contributed Business with respect to the period prior to the Asset Transfer Effective Time (and any personnel familiar therewith) to the extent that such access may be reasonably required by Contributor to facilitate (i) the preparation by Contributor or its Affiliates of such tax returns as it may be required to file with respect to the operations of the Assets and the Contributed Business or in connection with any audit, amended return, claim for refund or any proceeding with respect thereto, (ii) the investigation, litigation and final disposition of any claims which may have been or may be made against Contributor or its Affiliates in connection with the Assets or the Contributed Business, (iii) the payment of any amount in connection with any liabilities or obligations which have not been assumed by the Partnership under this Agreement, (iv) the preparation by Contributor or its Affiliates of financial statements and reports, and (v) for any other reasonable business purpose. For a period of ten years after the date of this Agreement, the Partnership will not dispose of, alter or destroy any such books, records and other data without giving 90 days' prior notice to -20- 25 Contributor to permit it, at its expense, to examine, duplicate or repossess such records, files, documents and correspondence. Without limiting the foregoing, Contributor shall cooperate fully in the preparation of the balance sheets, statements of income and retained earnings and statements of cash flow of the Contributed Business and shall provide access to financial books and records and all such information as may be reasonably requested by OCC or any of its Affiliates, in connection with the satisfaction of disclosure requirements under the federal securities laws, any Legal Requirement or as may otherwise be appropriate or necessary. 4.2 MAIL OR OTHER COMMUNICATIONS. Contributor authorizes and empowers the Partnership on and after the Closing Date to receive and open all mail received by the Partnership relating to the Contributed Business or the Assets and to deal with the contents of such communications in any proper manner. Contributor shall promptly deliver to the Partnership any mail or other communication received by it on and after the Closing Date pertaining to the Contributed Business or the Assets and any cash, checks or other instruments of payment to which the Partnership is entitled. The Partnership shall promptly deliver to Contributor any mail or other communication received by it after the Closing Date pertaining to the Excluded Assets or liabilities not assumed by the Partnership, and any cash, checks or other instruments of payment in respect of such. 4.3 ASSET TRANSFER EFFECTIVE TIME BALANCE SHEET. Not later than 60 days after the Closing Date, Contributor shall cause its independent accountants to prepare and deliver to Contributor and the Partnership a consolidated audited balance sheet of the Contributed Business and the Transferred Business as of the Asset Transfer Effective Time (the "Asset Transfer Effective Time Balance Sheet"). The Asset Transfer Effective Time Balance Sheet shall be prepared in accordance with GAAP, consistent with past practices. In addition, Contributor shall prepare and deliver to the Partnership such other financial statements or information as the Partnership may reasonably request in connection with any proposed Partnership financing. 4.4 INSURANCE CLAIMS. From and after the Closing Date, Contributor and the Partnership shall each cooperate in making information available to the other to assist the other in preparing and filing any insurance claims relating to occurrences prior to the Asset Transfer Effective Time and pertaining to the Contributed Business. From and after the Closing Date, Contributor shall not be required to maintain any policy, binder or contract of insurance that provides coverage for Contributor, any of its Affiliates or the Assets and covers the Assets or the Contributed Business. Contributor or its representatives may, after the Closing Date, cancel any such policy, binder or contract of insurance that covers the Assets or the Contributed Business by issuing a cancellation notice with respect to such policies owned by Contributor. 4.5 SPECIAL COVENANT. Contributor agrees to use all reasonable efforts to obtain as soon as practicable the approval from, or other agreement with, B. F. Goodrich Company as contemplated by Schedule 4.3(g) to the Master Transaction Agreement, all at the sole cost and expense of Contributor. -21- 26 SECTION 5 SURVIVAL AND INDEMNIFICATION ---------------------------- 5.1 SURVIVAL LIMITATIONS. The representations and warranties of the parties hereto contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith shall survive until the date that is 24 months after the Asset Transfer Effective Time, except for the representations and warranties contained in (i) Section 2.10, which shall survive until the expiration of the applicable statute of limitations, (ii) Sections 2.3 and 2.4, which shall survive until the date that is ten years after the Asset Transfer Effective Time and shall not be merged with the Assignment and Assumption Agreements, and (iii) Section 2.12, which shall survive without limitation. No action can be brought with respect to any breach of any representation or warranty (except with respect to Section 2.12) pursuant to this Agreement unless a written notice that complies with Section 5.3 has been delivered pursuant to such Section 5.3 prior to the expiration of the survival period applicable to such representation or warranty; PROVIDED that upon the giving of such notice, notwithstanding any other provision of this Agreement, the representation and warranty that is the basis of such action shall continue only with respect to such action beyond the time at which the representation and warranty would otherwise terminate, and only until the resolution of such action pursuant to this Agreement. 5.2 INDEMNIFICATION. (a) Subject to the other provisions of this Section 5, Contributor hereby agrees, to the fullest extent permitted by applicable law, to indemnify, defend and hold harmless the Partnership, its partners, their Affiliates and their respective officers, directors and employees from, against and in respect of any losses, claims, damages, fines, penalties, assessments by public agencies, settlement, cost or expenses (including costs of defense and attorneys' fees) and other liabilities (any of the foregoing being a "Liability") incurred or suffered by such indemnitees arising out of, in connection with or relating to: (i) Any misrepresentation in or breach of the representations and warranties of Contributor or any of its Affiliates in this Agreement, the Assignment and Assumption Agreements, the Master Intellectual Property Agreement, or the Master Transaction Agreement, PROVIDED that any Liability arising out of, in connection with or relating to any breach of the warranties in any Assignment and Assumption Agreement that is not a breach of the warranties in this Agreement shall not be indemnified against pursuant to this Section 5; (ii) Any failure of Contributor or any of its Affiliates to perform any of its covenants or obligations contained in this Agreement, the Assignment and Assumption Agreements, the Master Intellectual Property Agreement, or the Master Transaction Agreement; (iii) Any obligation or liability relating to the Excluded Assets; (iv) Any Exposure Claim; -22- 27 (v) Any Product Exposure Claim that is not an Assumed Liability; (vi) Any HSE Claim that is related to a Pre-Closing Liability and that is not an Assumed Liability; (vii) Any Third Party Claim (other than Exposure Claims, Product Exposure Claims and HSE Claims) that is related to a Pre-Closing Liability and that is not an Assumed Liability; (viii) Any obligation (A) for the payment of severance benefits to employees of Contributor or any of its Affiliates except as set forth in Section 1.7, (B) attributable to Contributor's or any of its Affiliates' employment of any employee, agent or independent contractor prior to the Asset Transfer Effective Time or (C) assumed by Contributor and its Affiliates pursuant to Section 1.7; (ix) Any Taxes of Contributor, Contributed Subsidiary, Canco 1, Canco 2 or Geon LP for any taxable period or portion thereof ending before the Asset Transfer Effective Time or arising from any of the transactions contemplated by this Agreement, except to the extent otherwise provided in Sections 6.2(c) and (d); or (x) any Proceeding instituted or asserted against the Partnership by any Person (A) that arises, directly or indirectly, as a result of the parcels identified as "Assigned Area C" and "Assigned Area D" on the survey of Contributor's Pedricktown, New Jersey facility (collectively, the "Parcels") not being owned by Contributor, but instead being owned by B.F. Goodrich Company or (B) to prevent, prohibit, or place a material restriction upon the Partnership from utilizing the Parcels in connection with its operation of the Contributed Business. PROVIDED, HOWEVER, that the following provisions shall apply to the indemnification obligations of Contributor: (A) Contributor, in the aggregate, shall not have any indemnification obligation under clause (i) above for any individual Liability (I) unless the amount of such Liability exceeds $100,000 (the "Individual Basket") (it being understood that all Liabilities arising from the same event, condition or set of circumstances shall be considered as an individual Liability for purposes of such calculation) and (II) until the total of all Liabilities under said clause (i) equals an aggregate deductible of $500,000 (the "Deductible") (after which point, subject to clause (I) above, Contributor will be obligated to indemnify the Partnership and the other indemnitee against such further Liabilities); and PROVIDED, FURTHER, that the parties agree that the amount of Liability for which indemnification may be sought for breach of any representation or warranty under clause (i) above shall be calculated taking into account the Individual Basket and Deductible but without regard to any qualification or exception regarding materiality or Material Adverse Effect qualification contained in such representation or warranty (it being understood that such materiality or Material Adverse Effect qualifications shall apply for purposes of determining whether there has been such a breach in the first place, but once it has been established that there is such a breach, the -23- 28 Partnership and the other indemnitee shall be entitled to indemnity relating back to the first dollar, subject to the Individual Basket and Deductible); and PROVIDED, FURTHER, that this clause (A) shall not be applicable to a misrepresentation in or a breach of the representations and warranties in Section 2.3(d)(ii). (B) If Contributor is indemnifying against a particular Liability under two or more of clauses (i) - (x) above, the Partnership and the other indemnitee shall have the right to select the clause or clauses under which they seek indemnification; PROVIDED, that the aggregate indemnification shall in no event exceed the amount of the particular Liability. (b) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, EXCEPT FOR CLAIMS ARISING SOLELY UNDER SECTION 5.2(a)(x), NEITHER CONTRIBUTOR NOR ANY OF ITS AGENTS, EMPLOYEES, REPRESENTATIVES OR AFFILIATES SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, EXEMPLARY, SPECIAL OR OTHER SIMILAR DAMAGES IN CONNECTION WITH DIRECT CLAIMS BY AN INDEMNIFIED PARTY (I.E., A CLAIM BY AN INDEMNIFIED PARTY THAT DOES NOT SEEK REIMBURSEMENT FOR A THIRD PARTY CLAIM PAID OR PAYABLE BY SUCH INDEMNIFIED PARTY) WITH RESPECT TO THEIR INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT UNLESS ANY SUCH CLAIM ARISES OUT OF THE FRAUDULENT ACTIONS OF CONTRIBUTOR OR ANY OF ITS AFFILIATES. IN DETERMINING THE AMOUNT OF ANY LOSS, LIABILITY, OR EXPENSE FOR WHICH AN INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION UNDER THIS AGREEMENT, THE GROSS AMOUNT THEREOF WILL BE REDUCED (BUT NOT BELOW ZERO) BY THE NET PRESENT VALUE OF ANY CORRELATIVE INSURANCE PROCEEDS ACTUALLY REALIZED BY SUCH INDEMNIFIED PARTY UNDER POLICIES TO THE EXTENT THAT THE FUTURE PREMIUM RATE WILL NOT BE INCREASED BY CLAIM EXPERIENCE RELATING TO SUCH LOSS, LIABILITY OR EXPENSE. (c) Notwithstanding the provisions of this Section 5 to the contrary, it is expressly agreed that Contributor shall not be required to indemnify the Partnership and the other indemnitee for any Liability arising out of, in connection with or related to any HSE Claim to the extent that the action, condition, event, circumstance or other basis for the HSE Claim was exacerbated or accelerated by the Partnership. The Partnership shall not be deemed to have exacerbated an action, condition, event, circumstance or other basis for an HSE Claim by reason of the continuance thereof after the Asset Transfer Effective Time (i) under circumstances where the Partnership does not know of its existence and has not breached any affirmative legal duty to have conducted an investigation or inquiry that would have uncovered the matter or (ii) under circumstances where the Partnership does know of its existence but is taking commercially reasonable actions to cure the matter or to otherwise achieve compliance in a commercially reasonable and prudent manner. By way of example, and not by way of limitation, the following actions by the Partnership shall not be deemed to be exacerbation or acceleration of any HSE Claim or any condition, event, circumstance or other basis therefor: (A) any action required to comply with Legal Requirements or with any Contracts with third parties; -24- 29 (B) any action that, in the Partnership's reasonable judgment, is necessary to be taken in emergencies or in order to protect human health and safety from any imminent and substantial endangerment; (C) any investigation, or any report to any Authority, directly resulting from repair or maintenance activities necessary to the continued operation of the Assets or from the replacement, relocation, demolition, closure or expansion of buildings, structures, fixtures or other improvements on or appurtenant to the Fee Interests or the Leaseholds (where there was no reasonably practicable alternative, in the reasonable judgment of the Partnership, to effecting such replacement, relocation, demolition, closure or expansion in the place and manner in which it was effected), which investigation or report is required pursuant to HSE Laws, including waste classification or characterization and reports of Releases or the presence of Chemical Substances, if such discovery is made in the ordinary course of such activities; (D) periodic compliance or management system audits conducted in the ordinary course of business, including any OSHA Star or IS 14000 audits; (E) responding to an inquiry, inspection, request for information or other communication from an Authority, regardless of whether a subpoena or other Legal Requirement mandates a response; (F) responding to an inquiry, request for information or other communication from a third party, regardless of whether a subpoena or other Legal Requirement mandates a response, and providing information to a community advisory panel or the public; (G) filing or processing applications for issuance, renewal, modification, amendment or termination of Government Licenses and providing information to an Authority or other third party in connection therewith; or (H) participating in or communicating with a group of potentially responsible parties involved in a Remedial Action, regardless of whether a subpoena or other Legal Requirement mandates such participation or communication, if the Partnership believes in good faith that such participation or communication may reduce any Liability associated with such Remedial Action. (d) Subject to the other provisions of this Section 5, the Partnership hereby indemnifies, to the fullest extent permitted by applicable law, Contributor and its Affiliates, officers, directors and employees against and agrees to hold each of them harmless from any and all Liability incurred or suffered by such indemnitee arising out of or relating to: (i) Any misrepresentation in or breach of the representations and warranties of the Partnership or the failure of the Partnership to perform any of its covenants or obligations -25- 30 contained in this Agreement, the Assignment and Assumption Agreements, the Master Intellectual Property Agreement or the Master Transaction Agreement; (ii) Assumed Liabilities; or (iii) Any HSE Claim to the extent arising out of the Partnership's exacerbation or acceleration of such HSE Claim. (e) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY LAW, NEITHER THE PARTNERSHIP NOR ANY OF ITS AGENTS, EMPLOYEES, REPRESENTATIVES OR AFFILIATES SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, EXEMPLARY, SPECIAL OR OTHER SIMILAR DAMAGES IN CONNECTION WITH DIRECT CLAIMS BY AN INDEMNIFIED PARTY (I.E., A CLAIM BY AN INDEMNIFIED PARTY THAT DOES NOT SEEK REIMBURSEMENT FOR A THIRD PARTY CLAIM PAID OR PAYABLE BY SUCH INDEMNIFIED PARTY ) WITH RESPECT TO THEIR INDEMNIFICATION OBLIGATIONS UNDER THIS AGREEMENT UNLESS ANY SUCH CLAIM ARISES OUT OF THE FRAUDULENT ACTIONS OF THE PARTNERSHIP. IN DETERMINING THE AMOUNT OF ANY LOSS, LIABILITY, OR EXPENSE FOR WHICH AN INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION UNDER THIS AGREEMENT, THE GROSS AMOUNT THEREOF WILL BE REDUCED (BUT NOT BELOW ZERO) BY THE NET PRESENT VALUE OF ANY CORRELATIVE INSURANCE PROCEEDS ACTUALLY REALIZED BY SUCH INDEMNIFIED PARTY UNDER POLICIES TO THE EXTENT THE FUTURE PREMIUM RATE WILL NOT BE INCREASED BY CLAIM EXPERIENCE RELATING TO SUCH LOSS, LIABILITY OR EXPENSE. (f) NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, CONTRIBUTOR AND GEON LP MAKE NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND THERE ARE NO EXPRESS OR IMPLIED CONDITIONS, AS TO THE FOLLOWING MATTERS: THE MAINTENANCE, REPAIR, DESIGN OR MARKETABILITY OF THE TANGIBLE PERSONAL PROPERTY AND FIXTURES THAT CONSTITUTE PART OF THE CONTRIBUTED BUSINESS OR ASSETS, INCLUDING ANY REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF SUCH TANGIBLE PERSONAL PROPERTY AND FIXTURES, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT THE PARTNERSHIP SHALL BE DEEMED TO BE OBTAINING RIGHTS IN SUCH TANGIBLE PERSONAL PROPERTY AND FIXTURES IN THE PRESENT STATE OF REPAIR OF SUCH TANGIBLE PERSONAL PROPERTY AND FIXTURES, "AS IS, WHERE IS, AND WITH ALL FAULTS." (g) The rights provided to each Indemnified Party pursuant to this Section 5, as limited by and subject to the provisions of this Section 5, shall be such Indemnified Party's sole remedy for breach of any representation or warranty by or covenant or obligation of any Indemnifying Party under this Agreement, the Assignment and Assumption Agreements, the Master Intellectual Property Agreement and the Master Transaction Agreement, or arising in connection with or related in any way to the subject matter of this Agreement or such agreements. Each Indemnified Party -26- 31 hereby waives and relinquishes any other rights, remedies, causes of action or other claims in respect of any such breach, including equitable and common law rights and rights created by statute, that such Indemnified Party would otherwise have for any such breach or with respect to this Agreement or such agreements or any Liability arising from, in connection with or related to the subject matter of this Agreement, including any such Liability arising from, in connection with or related to HSE Laws. 5.3 PROCEDURES. (a) Any Person seeking indemnification under Section 5.2 (the "Indemnified Party") agrees to give prompt written notice to the party against whom indemnity is sought (the "Indemnifying Party") of the assertion of any claim that does not involve a Third Party Claim, which notice shall describe in reasonable detail the nature of the claim, an estimate of the amount of damages attributable to such claim to the extent feasible and the basis of the Indemnified Party's request for indemnification under this Agreement. If the Indemnifying Party disputes such claim and such dispute is not resolved by the parties, such dispute shall be resolved in accordance with Section 6.8. (b) If an Indemnified Party is notified of a Third Party Claim that may give rise to a claim for indemnification against any Indemnifying Party under this Section, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing (including copies of all papers served with respect to such Third Party Claim), which notice shall describe in reasonable detail the nature of the Third Party Claim, an estimate of the amount of damages attributable to the Third Party Claim to the extent feasible and the basis of the Indemnified Party's request for indemnification under this Agreement; PROVIDED that any failure to timely give such notice shall not relieve the Indemnifying Party of any of its obligations under this Section 5 except to the extent that such failure prejudices or impairs, in any material respect, any of the rights or obligations of the Indemnifying Party. (c) Any Indemnifying Party may, and at the request of the Indemnified Party shall, participate in and control the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party. The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment thereof has been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party failed to assume the defense and employ counsel or failed to diligently prosecute or settle the Third Party Claim or (iii) there shall exist or develop a conflict that would ethically prohibit counsel to the Indemnifying Party from representing the Indemnified Party. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any Third Party Claim that the Indemnifying Party elects to contest, including by making any counterclaim against the Person asserting the Third Party Claim or any cross-complaint against any Person, in each case only if and to the extent that any such counterclaim or cross-complaint arises from the same actions or facts giving rise to the Third Party Claim. The Indemnifying Party shall be the sole judge of the acceptability of any compromise or settlement of any claim, litigation or proceeding in respect of which indemnity may be sought hereunder, PROVIDED that the Indemnifying Party will give the Indemnified Party reasonable prior written notice of any such -27- 32 proposed settlement or compromise and will not consent to the entry of any judgment or enter into any settlement with respect to any Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld; and PROVIDED FURTHER that the Indemnifying Party will not, without the written consent of the Indemnified Party, consent to the entry of any judgment or enter into any settlement that (A) does not provide for the unconditional written release of, or final resolution of, Liability of the Indemnified Party with respect to such Third Party Claim, or (B) places any obligations, other than payment obligations fully indemnified by the Indemnifying Party under this Agreement, on the Indemnified Party or on or relating to the Assets. The Indemnifying Party (if the Indemnified Party is entitled to indemnification hereunder) shall reimburse the Indemnified Party for its reasonable out of pocket costs incurred with respect to such cooperation. (d) If the Indemnifying Party fails to assume the defense of a Third Party Claim within a reasonable period after receipt of written notice pursuant to the first sentence of Section 5.3(a) or (b), or if the Indemnifying Party assumes the defense of the Indemnified Party pursuant to Section 5.3(c) but fails diligently to prosecute or settle the Third Party Claim, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, including interest from the date any sum is so expended by the Indemnified Party at a rate calculated pursuant to Section 13.16(b) of the Limited Partnership Agreement of the Partnership (if the Indemnified Party is entitled to indemnification hereunder), the Third Party Claim by all appropriate proceedings, which proceedings shall be promptly and vigorously prosecuted by the Indemnified Party to a final conclusion or settled. The Indemnified Party shall have full control of such defense and proceedings; PROVIDED that the Indemnified Party shall not settle such Third Party Claim without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld; and PROVIDED FURTHER, that the Indemnified Party will not, without the written consent of the Indemnifying Party, consent to the entry of any judgment or enter into any settlement that (i) does not provide for the unconditional written release of, or final resolution of, Liability of the Indemnifying Party with respect to such Third Party Claim, or (ii) places any obligations, other than payment obligations fully indemnified by the Indemnifying Party under this Agreement, on the Indemnifying Party or on or relating to the Assets. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this Section, and the Indemnifying Party shall bear its own costs and expenses with respect to such participation. (e) Notwithstanding the other provisions of this Section 5.3, if the Indemnifying Party disputes its potential liability to the Indemnified Party under this Section 5.3 and if such dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party shall not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this Section 5.3 or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all costs and expenses of the litigation concerning such dispute. If a dispute over potential liability is resolved in favor of the Indemnified Party, the Indemnifying Party shall reimburse the Indemnified Party in full for all costs of the litigation concerning such dispute, together with interest as provided in Section 5.3(d). (f) After it has been determined, by acknowledgment, agreement, or ruling of court of law, that an Indemnifying Party is liable to the Indemnified Party under this Section 5, the Indemnifying Party shall pay or cause to be paid to the Indemnified Party the amount of the Liability -28- 33 within ten business days of receipt by the Indemnifying Party of a notice reasonably itemizing the amount of the Liability but only to the extent actually paid or suffered by or on behalf of the Indemnified Party. (g) In the event a Third Party Claim is brought in which both the Partnership and Contributor are alleged to be liable or the liability as between the Partnership and Contributor is alleged to be joint, or in which the entitlement to indemnification under this Section 5 has not been determined, the Partnership and Contributor shall cooperate in the joint defense of such Third Party Claim and shall offer to each other such assistance as may reasonably be requested in order to ensure the proper and adequate defense of any such matter. Such joint defense shall be under the general management and supervision of the party that is expected to bear the greater share of the liability, unless otherwise agreed; PROVIDED, HOWEVER, that neither party shall settle or compromise any such joint defense matter without the consent of the other, which consent shall not be unreasonably withheld or delayed. Any uninsured costs of such joint defense shall be borne as the parties may agree, PROVIDED, HOWEVER, that in the absence of such agreement, the defense costs shall be borne by the party incurring such costs; PROVIDED, FURTHER, that, if it is determined that one party was entitled to indemnification under this Section 5, the other party shall reimburse the party entitled to indemnification for all of its costs incurred in connection with such defense. 5.4 SUBROGATION. In the event of any payment by an Indemnifying Party to an Indemnified Party in connection with any Liability, the Indemnifying Party shall be subrogated to and shall stand in the place of the Indemnified Party as to any events or circumstances in respect of which the Indemnified Party may have any right or claim against any third party relating to such event or indemnification, but only to the extent of any such payment. The Indemnified Party shall cooperate with the Indemnifying Party in any reasonable manner in prosecuting any subrogated claim. 5.5 CLAIMS FOR HSE REMEDIAL ACTION. This Section 5.5 shall govern the interpretation of the indemnification obligations under Sections 5.2(a)(vi) and 5.2(d)(iii) in respect of any HSE Claim requiring the performance of investigatory, removal or remedial work, correction of noncompliance or other corrective action (but not the payment of money other than to third parties performing such investigatory, removal or remedial work, correction of noncompliance or other corrective action) by or on behalf of the Partnership or Contributor ("Remedial Action") for which the Partnership or Contributor, respectively, may seek indemnification (an "HSE Remedial Action Claim") from the other, regardless of whether such HSE Claim is an HSE Type A Claim or an HSE Type B Claim. Notwithstanding the other provisions of this Section 5: (a) In the case of an HSE Remedial Action Claim, the Partnership shall have the right to conduct and control such Remedial Action; PROVIDED, that the Partnership provides Contributor with the opportunity to: (i) review and comment to the Partnership upon any significant work plans for such Remedial Action prior to finalization and implementation; (ii) attend meetings with Authorities concerning such Remedial Action, PROVIDED that the Partnership will control the negotiations with any Authorities during such meetings; and (iii) have a representative present during the performance of such Remedial Action. -29- 34 (b) Contributor and the Partnership agree that Contributor shall have no obligation pursuant to Section 5.2(a)(vi) to indemnify against any HSE Remedial Action Claim unless the Remedial Action for which the Partnership is seeking indemnification was or will be undertaken as a result of the Partnership's discovery or receipt of notice of (i) with respect to an HSE Type B Claim, any noncompliance with HSE Laws, (ii) with respect to an HSE Type A Claim, the presence, Release or threatened Release of Chemical Substances on or before the Asset Transfer Effective Time at levels in excess or in contravention of any applicable level or standard of any HSE Law applicable to such Remedial Action or any levels set forth in the EPA Region III Risk-Based Concentration Table (or any replacement or modification thereof) for water, ambient air or soil (as applicable) as in effect on the date of such Remedial Action (collectively, the "Threshold Level"), (iii) with respect to an HSE Type A Claim, any requirement of any HSE Law or any agreement with a third party who has asserted an HSE Claim, or (iv) any imminent and substantial endangerment to human health and safety. (c) Contributor and the Partnership agree that any Remedial Action to be undertaken pursuant to this Section 5.5 for which either party may seek indemnification shall: (i) be the Lowest Cost Response under the circumstances and based on the assumption that the Fee Interests and the Leaseholds are and will continue to be used for industrial (as opposed to residential) purposes, unless (A) any HSE Law applicable to such Remedial Action requires a different land use assumption (e.g., residential) or (B) the Lowest Cost Response would result from a different land use assumption; (ii) not, unless required to achieve the Lowest Cost Response, exceed the least stringent requirements of all HSE Laws and agreements with third parties who have asserted an HSE Claim; and (iii) be conducted and completed in compliance in all material respects with all HSE Laws. To the extent that the Partnership elects to exceed the Lowest Cost Response in undertaking a Remedial Action that is the subject of an HSE Remedial Action Claim, Contributor's obligation under Section 5.2(a)(vi) shall be limited to the Lowest Cost Response, and the Partnership shall be responsible for any costs associated with exceeding the Lowest Cost Response. (d) Each of Contributor and the Partnership agrees that it shall not solicit or importune any Authority to require any Remedial Action for which it may seek indemnification unless (i) required by any HSE Law or agreement with a third party who has asserted an HSE Claim, (ii) an HSE Law or Threshold Level has been contravened or exceeded or (iii) such Remedial Action, in the Partnership's reasonable judgment, is necessary in order to protect human health and safety from any imminent and substantial endangerment, PROVIDED, that in the event a Threshold Level has been contravened or exceeded, the Partnership may undertake any Remedial Action under any applicable self-directed or voluntary cleanup program. Nothing in this Section 5 shall prevent Contributor or the Partnership from reporting any noncompliance or potential noncompliance with any HSE Law, or any Release, threatened Release or the discovery or presence of any Chemical Substance to any Authority, or from seeking written approval or certification from such Authority that Contributor or the Partnership has completed any Remedial Action regarding an HSE Remedial Action Claim, if, in each case, Contributor or the Partnership believes in good faith that such reporting is (A) required by any HSE Law or any agreement with a third party who has asserted an HSE Claim, (B) necessary to achieve the Lowest Cost Response or (C) necessary to receive immunity or penalty mitigation under any HSE Law, including the U.S. Environmental Protection Agency's Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations dated December 22, 1995, as it may be amended from time to time; PROVIDED, that Contributor's obligation under -30- 35 Section 5.2(a)(vi) or the Partnership's obligation under Section 5.2(d)(iii) in connection with any Remedial Action resulting from any notice described in clause (C) shall be limited to the Lowest Cost Response. (e) Contributor and the Partnership shall promptly notify the other party of any action, condition, event or circumstance that may be subject to Remedial Action under this Section 5.5 for which either party may seek indemnification upon receipt of any written document concerning such matter. Contributor and the Partnership shall promptly notify the other party of any Release or threatened Release of Chemical Substances or other action, condition, event or circumstance that such party believes may adversely impact a Remedial Action after any such matter comes to such party's attention, PROVIDED, that failure to so notify shall not affect the rights of an Indemnified Party except to the extent that an Indemnifying Party is actually prejudiced as a result of such delay. The Partnership shall develop and administer its standards and practices for determining whether to undertake Remedial Action and, if undertaken, how to carry out Remedial Action, so that comparable circumstances or conditions existing at its various properties and facilities are managed in a comparable way, regardless of whether or not the Partnership acquired such properties and facilities from Contributor. (f) Contributor and the Partnership agree to consult with each other in connection with any Remedial Action subject to indemnification under this Section 5. If so requested by the other party, Contributor or the Partnership, as the case may be, shall provide the requesting party with (i) any material correspondence, reports, technical data or other material written information generated regarding such Remedial Action, (ii) reasonable access to the properties and to employees, books and records related to such Remedial Action, and (iii) the right to take split samples, in each case for the purpose of verifying the performance of any Remedial Action, the costs for which Remedial Action Contributor is required to indemnify the Partnership pursuant to this Section 5. Contributor and the Partnership agree that they shall maintain in strict confidence, and in accordance with any confidentiality or joint defense agreements then in effect between the Partnership and Contributor, any of the foregoing information that is non-public and confidential and any other confidential information concerning any HSE Remedial Action Claim, subject to disclosure required by Legal Requirements. If either party is required to disclose any such non-public, confidential information as a result of any Legal Requirement, such party will promptly notify the other party and will give such other party the opportunity to review and comment in advance upon the content and timing of any such disclosure. The Partnership shall submit any reimbursement request for indemnification pursuant to this Section 5 to Contributor and Contributor shall pay the amount requested in such reimbursement request within 30 days of receipt thereof. If Contributor objects to any portion of such reimbursement request, it shall notify the Partnership in writing of such objection with ten days of receipt thereof, and shall pay the undisputed portion as set forth in the previous sentence. Any dispute regarding any reimbursement request shall be resolved pursuant to the dispute resolution procedures set forth in Appendix B. (g) Upon performance of a Remedial Action subject to indemnification pursuant to this Section 5.5, the party conducting such Remedial Action (the Partnership or Contributor, as applicable), shall use commercially reasonable efforts to obtain written documentation, approval or certification of such completion. The obligation of Contributor in respect of a particular HSE Remedial Action Claim shall cease when: (i) with respect to a Remedial Action involving an HSE -31- 36 Type A Claim over which an Authority has not asserted jurisdiction, the Remedial Action has been completed, and any Chemical Substances for which the Threshold Level was contravened or exceeded have been satisfactorily investigated, removed or remediated, in accordance with HSE Laws, and the contractor conducting the Remedial Action (on behalf of the Partnership or Contributor, as applicable) provides a written certification reasonably satisfactory to the Partnership confirming the completion of the Remedial Action in accordance with HSE Laws; (ii) with respect to a Remedial Action involving an HSE Type A Claim over which an Authority has asserted jurisdiction, the Remedial Action has been completed in accordance with HSE Laws to the satisfaction of such Authority, and the Authority has either (A) issued a written approval or certification of completion of such Remedial Action that provides that no further action is required or planned at a future date as of the time of such approval, but which approval may be qualified or conditioned by the Authority with respect to the accuracy or completeness of the data or information provided, the discovery of new information, changes in land use which affect the Remedial Action or other standard or model reservations of similar type or form in use by the Authority at the time of such approval (an "Approval"), or (B) failed through inaction to issue such Approval within one year of the submission of a written request by the party conducting such Remedial Action for such Approval, without during this one-year period rejecting approval or requesting further information or further Remedial Action; (iii) with respect to a Remedial Action involving an HSE Type B Claim over which an Authority has not asserted jurisdiction, the Remedial Action has been completed in accordance with HSE Laws and the contractor conducting the Remedial Action (on behalf of the Partnership or Contributor, as applicable) provides a written certification reasonably satisfactory to the Partnership confirming the completion of the Remedial Action in accordance with HSE Laws; or (iv) with respect to a Remedial Action involving an HSE Type B Claim over which an Authority has asserted jurisdiction, the Remedial Action has been completed in accordance with HSE Laws and to the satisfaction of such Authority, and the Authority has either (A) issued an Approval or (B) failed through inaction to issue such Approval within one year of the submission of a written request by the party conducting such Remedial Action for such Approval, without during this one-year period rejecting approval or requesting further information or further Remedial Action. (h) Completion of a Remedial Action shall not preclude Contributor or the Partnership from asserting a subsequent HSE Remedial Action Claim that arises from the same condition, event, circumstance or other basis that resulted in the original Remedial Action (except with respect to the work completed in such original Remedial Action); PROVIDED, that the Partnership shall be responsible, pursuant to Section 5.2(d), if and to the extent that it exacerbates or accelerates such subsequent HSE Remedial Action Claim as set forth in Section 5.2(c); and PROVIDED, FURTHER, that the Partnership shall be responsible for maintaining compliance with HSE Laws from and after the date on which the correction of any noncompliance with HSE Laws is completed consistent with Section 5.5(g). (i) Notwithstanding any other provision of this Agreement, Contributor shall have the right to conduct and control all Remedial Action related to the authorities and approvals necessary in order to consummate the transactions contemplated hereby under the New Jersey Environmental Cleanup Responsibility Act, including the New Jersey Industrial Site Recovery Act, including such Remedial Action that occurs after the Closing Date. Such Remedial Action conducted by the Seller shall not be subject to Section 5.5(c). -32- 37 5.6 EXTENT OF INDEMNIFICATION. WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION, RELEASE AND ASSUMPTION OBLIGATIONS SET FORTH HEREIN, TO THE FULLEST EXTENT PERMITTED BY LAW, AN INDEMNIFIED PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE INDEMNIFIABLE LOSS GIVING RISE TO ANY SUCH INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, GROSS, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR BY ANY SUCH INDEMNIFIED PARTY. THE PARTIES AGREE THAT THIS STATEMENT CONSTITUTES A CONSPICUOUS LEGEND. SECTION 6 MISCELLANEOUS ------------- 6.1 CONSTRUCTION. In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction: (ii) no consideration shall be given to the fact or presumption that any of the parties had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; (vi) each gender shall be deemed to include the other gender; and (vii) each exhibit, appendix, attachment and schedule to this Agreement is a part of this Agreement. 6.2 PAYMENT OF CERTAIN EXPENSES AND TAXES. (a) Subject to the further provisions of this Section 6.2, (i) Contributor shall be responsible for all Taxes attributable to Contributor's or its Affiliates' ownership, use or transfer of the Assets or operation of the Contributed Business prior to the Asset Transfer Effective Time, including all Taxes, tax returns, and filings (A) of the Contributed Subsidiary, Canco 1 and Canco 2 attributable to the period before the Asset Transfer Effective Time or (B) attributable to the transfer and assignment to the Partnership pursuant to this Agreement, and (ii) the Partnership shall be responsible for all Taxes attributable to the Partnership's ownership, use or transfer of the Assets or operation of the Contributed Business after the Asset Transfer Effective Time. (b) All sales, use, value added, excise, transfer, land transfer or similar taxes incurred or arising in connection with the transfer of the Assets to the Partnership shall be borne solely by Contributor. (c) All real property taxes, personal property taxes, ad valorem taxes and other similar Taxes (or payments in lieu of such Taxes) assessed on any of the Contributed Business or the Assets (including Inventory) in the tax period in which the Asset Transfer Effective Time occurs ("Property Taxes") shall be prorated between the Partnership and Contributor, as of the Asset Transfer Effective Time. -33- 38 (d) The Partnership shall pay any title or recordation fees in connection with the transfer of the Assets. The Partnership shall also pay for any surveys of the Fee Interests and any related easements or rights-of-way that are requested or ordered by the Partnership. (e) After the Closing Date, either Contributor or the Partnership receiving each Property Tax bill or notice applicable to the Contributed Business or the Assets for the period in which the Asset Transfer Effective Time occurred shall, if other than the Partnership, promptly notify the Partnership and shall pay each such tax bill prior to the last day such taxes may be paid without penalty or interest. If paid by Contributor, the Partnership shall promptly on receipt of a written request (accompanied by appropriate supporting documentation) reimburse the paying party with respect to the share of the Partnership of such amount so paid as provided under this Agreement. If paid by the Partnership, Contributor shall promptly on receipt of a written request (accompanied by appropriate supporting documentation) reimburse the Partnership with respect to the share of Contributor of such amount so paid as provided under this Agreement. Contributor and the Partnership shall cooperate fully with each other on and after the Closing Date with respect to any Property Tax assessment or valuation (or protest in connection therewith) by any Authority with respect to the tax period in which the Asset Transfer Effective Time occurs. (f) If any party receives a refund of any Taxes for which the other is liable or responsible under this Agreement, the party receiving such refund shall, within 30 days after the receipt of such refund, remit it to the party who is liable. (g) Notwithstanding any other provision of this Agreement, the obligations of the parties set forth in this Section 6.2 shall be unconditional and absolute and shall remain in effect until audit, assessment and collection of any such taxes are barred by the applicable statute of limitations. 6.3 NOTICES. All notices, requests, demands and other communications that are required or may be given under this Agreement shall, unless otherwise provided for elsewhere in this Agreement, be in writing and shall be deemed to have been duly given if and when (i) transmitted by telecopier facsimile during business hours with proof of confirmation from the transmitting machine, or (ii) delivered by courier or other hand delivery, as follows: (a) If to Contributor or Geon LP: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: Chief Executive Officer Telecopy Number: (440) 930-1002 with a copy to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: General Counsel -34- 39 Telecopy Number: (440) 930-1002 (b) If to the Partnership: Oxy Vinyls, LP 5005 LBJ Freeway Dallas, Texas 75244 Attention: Chief Executive Officer Telecopy Number: (972) 720-7402 with a copy to: Oxy Vinyls, LP 5005 LBJ Freeway Dallas, Texas 75244 Attention: General Counsel Telecopy Number: (972) 720-7403 and to: Occidental Petroleum Corporation 10889 Wilshire Boulevard Los Angeles, California 90024 Attention: General Counsel Telecopy Number: (310) 443-6333 and to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: Chief Executive Officer Telecopy Number: (440) 930-1002 and to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: General Counsel Telecopy Number: (440) 930-1002 or to such other address or telecopy number as either party shall have specified by notice in writing to the other party. All such notices, requests, demands and communications shall be deemed to be effective upon receipt. -35- 40 6.4 BINDING EFFECT; BENEFIT. Subject to Section 6.6, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto and their Affiliates or their respective permitted successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 6.5 OCCASIONAL AND BULK SALES. To the extent applicable, the Partnership and Contributor each agree to waive, to the fullest extent permitted by law, compliance by the other with the provisions of the Bulk Sales Law of any jurisdiction. Notwithstanding the foregoing, Contributor agrees to indemnify and save harmless the Partnership from and against any Liability that may be made or brought against the Partnership or that the Partnership may suffer or incur as a result of, in respect of, or arising out of such non-compliance. 6.6 ASSIGNABILITY. Neither this Agreement nor any of the rights or obligations hereunder shall be assignable (by operation of law or otherwise) by Contributor or Geon LP without the prior written consent of the Partnership or shall be assignable (by operation of law or otherwise) by the Partnership (except to a wholly-owned subsidiary thereof) without the prior written consent of Contributor and Geon LP. Any assignment or purported assignment in violation of this Section shall be null and void. 6.7 AMENDMENT; WAIVER. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving. Subject to the agreements and obligations of the Partnership hereunder or under applicable Legal Requirements, no investigations by the Partnership heretofore or hereafter made shall affect the representations and warranties of Contributor, and, except as otherwise provided in Section 5.1, such representations and warranties shall survive any such investigation. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 6.8 DISPUTE RESOLUTION. All disputes under this Agreement shall be resolved in accordance with the Dispute Resolution Procedures set forth in Appendix B. 6.9 SEVERABILITY. In the event that any provisions of this Agreement shall finally be determined to be unlawful, such provision shall, so long as the severance of such provision does not have a Material Adverse Effect on the economic and legal substance of the transactions contemplated hereby as to Contributor or the Partnership, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 6.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 6.11 CONFLICT WITH TRANSFER DOCUMENTS. Notwithstanding anything to the contrary contained in any Transfer Document, no remedy or claim shall be available to any Person under or by reason of any Transfer Document or any terms or warranties thereof, except to the extent, if any, -36- 41 such remedy or claim arises under this Agreement. In the event of any conflict between this Agreement and any of the Transfer Documents, this Agreement shall prevail for all purposes. 6.12 TRANSFER DOCUMENTS. Notwithstanding the form of any Transfer Document attached to this Agreement as an Exhibit, on the Closing Date, the parties may, upon mutual agreement, execute and deliver revised forms of such Transfer Documents or elect to not use any such Transfer Document. -37- 42 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. THE GEON COMPANY By: /s/ Thomas A. Waltermire ------------------------------------- Thomas A. Waltermire President and Chief Operating Officer 1999 PVC PARTNER INC. By: /s/ Woodrow W. Ban ------------------------------------- Name: Woodrow W. Ban ----------------------------------- Title: Assistant Secretary ---------------------------------- OXY VINYLS, LP By: Occidental PVC, LLC, general partner By: /s/ John L. Hurst, III ------------------------------------- John L. Hurst, III President 43 Appendix A Definitions ----------- The terms used in this Agreement have the following definitions or are defined in the Sections referenced below: "AAA" is defined in Appendix B. "Accounts Receivable" means all uncollected accounts receivable that have been generated by, or are attributable to, Contributor's and its Affiliates' operation prior to the Asset Transfer Effective Time of the Contributed Business in the ordinary course and in all respects in a manner consistent with the provisions of Section 3.3 of the Master Transaction Agreement. "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified; PROVIDED, HOWEVER, that for purposes of this Agreement neither the Partnership nor the Compounding Partnership nor any Person controlled by either entity shall be considered an Affiliate of Contributor. For purposes of this definition, the term "control" (including the terms "controlled by" and "under common control with") means the ownership of more than 50% of the equity interests, Fully Diluted. With respect to the period from and after the Asset Transfer Effective Time, the Contributed Subsidiary and Canco shall not be considered Affiliates of Contributor. "Agreement" is defined in the first paragraph of this Agreement. "Approval" is defined in Section 5.5(g). "Arbitrator" is defined in Appendix B. "Asset Transfer Effective Time" is defined in the Master Transaction Agreement. "Asset Transfer Effective Time Balance Sheet" is defined in Section 4.3. "Assets" means all of the assets, rights and properties being contributed, conveyed, assigned, transferred and delivered to the Partnership pursuant to Section 1.1. "Assignment and Assumption Agreements" means the Assignment of Leases, the Deeds, the Bill of Sale and Assignment, the Trademark Assignment, the Patent Assignment, the Partnership Assumption Agreement and the Site Lease Agreement. "Assignment of Leases" is defined in Section 1.3(a). "Associated Rights" means all right, title and interest of Contributor and any of its Affiliates, if any, in the lands, real property and personal property of others used principally in the normal operation and conduct of the Contributed Business. A-1 44 "Assumed Liabilities" is defined in Section 1.5(a). "Authority" means any government or governmental or regulatory body thereof, or political subdivision thereof, whether federal (or any commonwealth, territory or possession thereof), provincial, state, local or foreign, or any agency, department or instrumentality thereof, or any court or arbitrator (public or private). "Banked Vacation" is defined in Section 1.7(j). "Canco Lending Liability" means the Liability of Canco 2 that is created if the alternative is utilized that is described in clause (iii) of the term "Canco Financing Arrangements," as defined in the Master Transaction Agreement. "Canco 1" is defined in the Master Transaction Agreement. "Canco 2" is defined in the Master Transaction Agreement. "Capital Spares" means the inventory of spare parts used by Contributor in the Contributed Business and owned by Contributor as of the Asset Transfer Effective Time. "Chemical Substance" means any (i) chemical substance, pollutant, contaminant, constituent, chemical, mixture, raw material, intermediate or final product or byproduct the manufacture, generation, formulation, processing, labeling, use, treatment, handling, storage, disposal, transportation, arrangement for transportation or disposal, distribution, re-use, recycling or reclamation of which is regulated (including any requirement for the reporting of any Release thereof) for the protection of health, safety or the Environment under any Legal Requirement or defined or listed as an industrial, toxic, deleterious, harmful, radioactive, infectious, disease-causing or hazardous substance, material or waste under any Legal Requirement, and (ii) petroleum, crude oil or any fraction or derivative thereof, (iii) asbestos or asbestos-containing material or (iv) polychlorinated biphenyls ("PCBs"). "Closing" is defined in the Master Transaction Agreement. "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Compounding Partnership" is defined in the Master Transaction Agreement. "Consent" means any consent, waiver, appraisal, authorization, exception, registration, license or declaration of or by any Person or any Authority, or any expiration or termination of any applicable waiting period under any Legal Requirement, required with respect to the Contributed Business or Contributor or any of its Affiliates in connection with (i) the execution and delivery of this Agreement or any of the Related Agreements or (ii) the consummation of the transactions contemplated hereby or thereby. A-2 45 "Contracts" means contracts, maintenance and service agreements, purchase commitments for materials and other services, advertising and promotional agreements, leases, taxation agreements with any Authority, and other agreements. "Contributed Business" is defined in the third WHEREAS clause. "Contributed Contracts" means, other than the Leases and Government Licenses, all right, title, and interest of Contributor and any Affiliate thereof in (i) all Contracts to which Contributor or an Affiliate thereof is a party, whether or not entered into in the ordinary course of business, that relate principally to the normal operation and conduct of the Contributed Business, but in the case of any Contracts under which either Contributor or any Affiliate thereof retains rights with respect to its other businesses, only to the extent any such Contract relates to the operation of the Contributed Business, (ii) all agreements and instruments setting forth Contributor's and any of its Affiliates' rights with respect to rights-of-way, privileges, riparian and other rights, appurtenances, licenses or franchises and in respect of intellectual property rights, in each case that constitute Assets described in clauses (a) through (f) of Section 1.1, and (iii) the Contracts listed on Schedule 1.1(g). "Contributed Intellectual Property" means, to the extent such items are not Excluded Assets, all right, title, and interest of Contributor and any Affiliate thereof (i) in Intellectual Property primarily used in the Contributed Business, and a non-exclusive, royalty-free license as set forth in the Master Intellectual Property Agreement in Intellectual Property used in, but not primarily used in, the Contributed Business, and (ii) in any Trademarks specifically assigned or licensed by Contributor in the Master Intellectual Property Agreement. "Contributed Subsidiary" is defined in Section 1.1(j). "Contributor" is defined in the first paragraph of this Agreement. "Contributor's 401(k) Plan" is defined in Section 1.7(i). "Deeds" is defined in Section 1.3(a). "Dispute Notice" is defined in Appendix B. "Disputing Party" is defined in Appendix B. "Employee Pension Benefit Plan" has the meaning set forth in section 3(2) of ERISA. "Employee Welfare Benefit Plan" has the meaning set forth in section 3(1) of ERISA "Employees" means, collectively, the Salaried Employees and the Union Employees. "Encumbrance" means any lien, easement, adverse claim, charge, encumbrance, security interest, title defect, option, right of first refusal or any other restriction or third party right. "Environment" is defined in Section (a) of the definition of "HSE Laws". A-3 46 "Equipment" means all of the right, title and interest of Contributor and any of its Affiliates in and to the equipment, furniture, furnishings, fixtures, machinery, Capital Spares, vehicles, tools, computers and other tangible personal property used principally in the normal operation and conduct of the Contributed Business, including the items listed on Schedule 1.1(d). "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. "Excluded Assets" is defined in Section 1.2. "Excluded Railcars" is defined in Section 1.2(j). "Exposure Claim" means any Liability, other than a Product Exposure Claim, arising out of or relating to exposure of any individual to PVC, VCM or any other Chemical Substances in connection with the Contributed Business, to the extent such Liability is attributable to the period prior to the Asset Transfer Effective Time. "Fee Interests" means fee title in and to the parcels of land described as fee property on Schedule 1.1(a), together with all buildings, structures, fixtures and other permanent improvements situated thereon and all easements, privileges, rights-of-way, riparian and other water rights, lands underlying any adjacent streets or roads, appurtenances and licenses to the extent pertaining to or accruing to the benefit of such land. "Fully Diluted" means a computation of equity interests on a basis as if all potentially dilutive securities, including warrants, stock options and convertible bonds, have been exercised or converted. "GAAP" means United States generally accepted accounting principles, as in effect from time to time. "Geon Canada Transfer Agreement" is defined in the Master Transaction Agreement. "Geon LP" is defined in the first paragraph of this Agreement. "Geon PVC Resin Supply Agreement" means the Geon PVC Resin Supply Agreement between Contributor and the Partnership executed and delivered pursuant to the Master Transaction Agreement. "Government Licenses" means all licenses, permits or franchises issued by any Authority relating to the operation, development, use, maintenance or occupancy of the Assets or of the Contributed Business to extent that such licenses, permits or franchises relate principally to the normal operation and conduct of the Contributed Business. "HSE Claim" means (i) any action, condition, event, circumstance or responsibility (including any compliance action or requirement) that is necessary to comply with HSE Laws but only to the extent that any of the foregoing gives rise to out of pocket costs or expenses or results A-4 47 in a Liability that is required by GAAP to be reflected on the balance sheet of the applicable party or (ii) any Third Party Claim arising under HSE Laws, excluding, however, Exposure Claims and Product Exposure Claims. "HSE Laws" means, (i) with respect to an HSE Type A Claim, Legal Requirements in effect as of the Asset Transfer Effective Time, together with all changes from time to time in such Legal Requirements, and (ii) with respect to an HSE Type B Claim, Legal Requirements in effect as of the Asset Transfer Effective Time, in each case relating to (a) any ambient air, surface water, drinking water, groundwater, land surface, subsurface strata, river or marine sediments, natural resources or real property and the physical buildings, structures and fixtures thereon, including sewer, septic and waste treatment, storage or disposal systems (the "Environment"), including pollution, contamination, cleanup, preservation, protection and reclamation of the Environment; (b) health or safety, including the exposure of employees and other Persons to any Chemical Substance; (c) the Release or threatened Release of any Chemical Substance, noxious noise or odor, including investigation, study, assessment, testing, monitoring, containment, removal, remediation, response, cleanup and abatement of such Release or threatened Release; and (d) the management of any Chemical Substance, including the manufacture, generation, formulation, processing, labeling, use, treatment, handling, storage, disposal, transportation, arrangement for transportation or disposal, distribution, re-use, recycling or reclamation of any Chemical Substance. "HSE Proceeding" is defined in Section 2.11(d). "HSE Remedial Action Claim" is defined in Section 5.5. "HSE Type A Claim" means an HSE Claim, or portion thereof, in which the sole relief sought is the investigation, removal or remediation of Chemical Substances present in soil, sediment, surface water or groundwater prior to the Asset Transfer Effective Time or the restoration of natural resources allegedly affected thereby. "HSE Type B Claim" means an HSE Claim other than an HSE Type A Claim. "Indebtedness" is defined in the Master Transaction Agreement. "Indemnified Party" is defined in Section 5.3(a). "Indemnifying Party" is defined in Section 5.3(a). "Intellectual Property" means research material, technical information, marketing information, patent rights, patent licenses, pending patent applications, trade secrets, technical information, know-how, management information systems, technology, quality control data, specifications, designs, drawings, software, copyrights, copyright applications or copyright registrations, sales promotion literature and advertising materials. "Inventory" means materials used by Contributor in the Contributed Business and owned by Contributor as of the Asset Transfer Effective Time including raw materials, feed stocks, supplies, additives, pigments, process chemicals, packaging materials (to the extent the Partnership's use A-5 48 thereof would be consistent with the Master Intellectual Property Agreement), catalysts, work-in-process and finished goods that relate principally to the normal operation and conduct of the Contributed Business. "Knowledge" with respect to Contributor means the actual knowledge of (i) any current plant manager employed in the Contributed Business and (ii) any current officer of Contributor having responsibilities with respect to the Contributed Business or the transactions contemplated in this Agreement. "Leased Premises" means the premises described in the Leases. "Leaseholds" means the interest of the tenant under the Leases, for the use and occupancy of the Leased Premises, together with all buildings, structures, fixtures and other permanent improvements situated thereon and all easements, privileges, rights-of-way, riparian and other water rights, appurtenances and licenses pertaining to the Leases or accruing to the benefit of the tenant under the Leases. "Leases" means the leases and subleases, all amendments thereto and all agreements related thereto described on Schedule 1.1(b). "Legal Requirement" means any law, common law, statute, rule, ordinance, consent or other decree, regulation, requirement, standard (including any clean-up standard), order (including any executive, judicial or administrative order) or judgment of any Authority, as enacted, established, published or applied, and any judicial or administrative interpretation thereof, including (i) the terms of any Government License, (ii) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and (iii) the Resource Conservation and Recovery Act of 1976, as amended. "Liability" is defined in Section 5.2(a). "Licensed Technology" means the technology licensed to the Partnership pursuant to the Master Intellectual Property Agreement. "Lowest Cost Response" means the response required or allowed under HSE Laws that corrects the noncompliance with HSE Law, and/or addresses the Chemical Substances present, as applicable, at the lowest cost (considered as a whole taking into consideration any negative impact such response may have on the conduct of the Contributed Business and any potential additional costs or liabilities that may arise as a result of such response) as compared to any other response that is consistent with HSE Laws. With respect to an HSE Type A Claim: (i) taking no action shall constitute the Lowest Cost Response if, after investigation, taking no action is determined to be consistent with HSE Laws; and (ii) if taking no action is not consistent with such HSE Laws, the least costly non-permanent remedy (such as mechanisms to contain or stabilize Chemical Substances, including caps, dikes, encapsulation, leachate collection systems, etc.) shall be the Lowest Cost Response, PROVIDED that such non-permanent remedy is consistent with such HSE Laws and less costly than the least costly permanent remedy (such as the excavation and removal of soil). With respect to an HSE Type B Claim: (a) the Lowest Cost Response shall be that required to A-6 49 achieve compliance with HSE Laws, recognizing that the amount of penalties assessed may be determined by HSE Laws as in effect as of the date the HSE Claim is asserted; (b) the least costly permanent remedy that would minimize the likelihood of subsequent or repeated HSE Claims related to the same condition, event, circumstance or other basis for noncompliance consistent with HSE Laws shall constitute the Lowest Cost Response, provided that Contributor may elect to pay the penalty, and to mitigate the negative impacts and assume any additional costs or liabilities associated with a non-permanent remedy to the reasonable satisfaction of the Partnership, and thereby avoid such a permanent remedy; and (c) the Partnership may elect to conduct a supplemental environmental project or perform corrective action that is more costly than a proposed penalty in lieu of paying some or all of the proposed penalty, and such project or action shall constitute the Lowest Cost Response if, in the reasonable judgment of the Partnership, paying penalties would subject the Partnership to negative impacts on the Contributed Business or potential additional costs or liabilities sufficient to warrant the additional cost of such project or action; PROVIDED, that Contributor may elect to pay the penalty, and to mitigate the negative impacts and assume such additional costs or liabilities to the reasonable satisfaction of the Partnership, and thereby avoid such a project or action. "Master Intellectual Property Agreement" means the Related Agreement that is attached as Exhibit T to the Master Transaction Agreement. "Master Transaction Agreement" is defined in the sixth WHEREAS clause. "Material Adverse Effect" means any adverse circumstance or consequence that, individually or in the aggregate, has an effect that is material to the financial condition, results of operations, assets or business of the Contributed Business or the Assets, taken as a whole. Without limiting the generality of the foregoing, a "Material Adverse Effect" shall be deemed to have occurred if the applicable effect, individually or in the aggregate with all other effects or matters that are qualified by materiality or Material Adverse Effect, would be reasonably likely to involve liability, loss, or diminution in value of $5,000,000 or more in the aggregate. "OCC" is defined in the sixth WHEREAS clause. "Partnership" is defined in the first paragraph of this Agreement. "Partnership Assumption Agreement" is defined in Section 1.5(b). "Partnership Benefit Plans" is defined in Section 1.7(f). "Partnership Employee" is defined in Section 1.7(a). "Patent Assignment" is defined in Section 1.3(a). "PBGC" is defined in Section 2.1(e). "PCBs" is defined in this Appendix in the definition of "Chemical Substance". A-7 50 "Person" means any natural person, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, business, Authority or other entity. "Plans" is defined in Section 2.1(a). "Plant Employees" means the Salaried Employees whose principal place of employment is at a manufacturing facility and who are not Tier 1 Employees or Tier 2 Employees. "Pre-Closing Liabilities" means all Liabilities of every kind and nature arising out of, in connection with or related to the ownership, operation or use prior to the Asset Transfer Effective Time of the Assets or the Contributed Business other than the Liabilities referred to in Sections 1.5(a)(i), (ii), (iii), (vi), (vii), (viii) and (x). "Prepaid Expenses" means the balances in the prepaid accounts consistent with GAAP of Contributor or its Affiliates, as of the Asset Transfer Effective Time, that are associated with the Contributed Business and that will have value to the Partnership in owning and operating the Contributed Business after the Asset Transfer Effective Time. "Proceeding" means any audit, litigation, allegation, claim, grievance, arbitration, investigation, civil, criminal, quasi-criminal or administrative action, proceeding, charge, prosecution, suit or other action, in each case instituted or asserted in writing. "Product Exposure Claim" means any Liability arising out of or relating to exposure of any individual to PVC, VCM or any other Chemical Substances from an alleged defect in a finished product manufactured by a Person other than Contributor, any Affiliate thereof, the Partnership, any member of the OCC Group (as defined in the Master Transaction Agreement) or any member of the Geon Group (as defined in the Master Transaction Agreement) from one or more products of the Contributed Business sold before the Asset Transfer Effective Time. "Property Tax" is defined in Section 6.2(c). "PVC" means polyvinyl chloride. "PVC Unit" is defined in the Master Transaction Agreement. "Related Agreements" means the Related Agreements (as such term is defined in the Master Transaction Agreement), other than this Agreement. "Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, dumping, discharge, dispersal, leaching, escaping, emanation or migration of any Chemical Substance in, into or onto the Environment of any kind whatsoever, including the movement of any Chemical Substance through or in the Environment, exposure of any type in any workplace, any release as defined under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any other HSE Law and any noxious noise or odor emission. "Remedial Action" is defined in Section 5.5. A-8 51 "Retained Business" means any business of Contributor or its Affiliates that is not part of the Contributed Business. "Salaried Employees" means all employees (either salaried or hourly) of Contributor whose work relates solely and exclusively to, or substantially in support of, the Assets, who are not Union Employees, and who are, immediately prior to the Asset Transfer Effective Time, either (i) in the active employment of Contributor or (ii) on short-term disability leave, sick leave, or other temporary leave of absence approved by Contributor. "Site Lease Agreement" is defined in Section 1.3(b). "Specified Amount" is defined in the Master Transaction Agreement. "Specified Working Capital Items" is defined in the Master Transaction Agreement. "Stores Inventory" means the inventory of spare parts, excluding Capital Spares, that are used by a Contributor or any Affiliate thereof in the Contributed Business and owned by such Contributor or any Affiliate thereof as of the Asset Transfer Effective Time and that consist of items that generally can be used for several processes or types of equipment, including such items as pumps, motors, pipe fittings, electrical wiring, instruments, nuts and bolts, unfabricated metals, safety items, small hand tools and other miscellaneous repair parts or supplies. Stores Inventory shall include any reserve for slow moving or obsolete materials and supplies, and for any inventory volume or price adjustments. "Taxes" means all taxes, charges, fees, levies or other assessments imposed by any Authority, including income, gross receipts, excise, property, sales, use, transfer, payroll, license, ad valorem, value added, withholding, social security, national insurance (or other similar contributions or payments), franchise, severance and stamp taxes (including any interest, fines, penalties or additions attributable to, or imposed on or with respect to, any such taxes, charges, fees, levies or other assessments). "Third Party Claim" means any allegation, claim, demand, civil, criminal or administrative action, proceeding, charge or prosecution brought by a Person other than Contributor, any Affiliate thereof, the Partnership, any member of the OCC Group (as defined in the Master Transaction Agreement) or any member of the Geon Group (as defined in the Master Transaction Agreement); PROVIDED, HOWEVER, that, if such allegation, claim, demand, civil, criminal or administrative action, proceeding, charge or prosecution is brought by Contributor, any Affiliate thereof, any member of the OCC Group or any member of the Geon Group, in each case in its capacity as the owner or operator of property not transferred pursuant to the Asset Contribution and Sale Agreements (as defined in the Master Transaction Agreement), such allegation, claim, demand, civil, criminal or administrative action, proceeding, charge or prosecution shall be a Third Party Claim. "Threshold Level" is defined in Section 5.5. "Tier 1 Employees" means the Salaried Employees who are identified on Schedule B, consisting of (i) certain Salaried Employees who are not Plant Employees and whose work relates A-9 52 indirectly to the support of the Assets and (ii) certain Salaried Employees whose principal place of business is at a manufacturing facility. "Tier 2 Employees" means the Salaried Employees who are identified on Schedule C, consisting of Salaried Employees who are not Plant Employees and whose work relates directly to the support of the Assets. "Trade Accounts Payable" means, as of the Asset Transfer Effective Time, all current trade accounts payable and current accrued expenses, including salaries and wages due to Partnership Employees, that are generated by and result from the execution by Contributor and its Affiliates of normal and customary payment and month-end closing processes prior to the Asset Transfer Effective Time. Trade Accounts Payable includes unpaid invoices or accruals for services, materials, supplies, feedstocks and products received in the ordinary course of business prior to the Asset Transfer Effective Time and which are attributable to the Contributed Business, including, by way of illustration only, any amounts or balances owing by Contributor under any product exchange or similar agreement. Trade Accounts Payable shall not include any payments due to an Affiliate of Contributor including any payments due for services, rent, overhead or similar items. "Trademark Assignment" is defined in Section 1.3(a). "Trademarks" means trade names, trademarks, trademark registrations or trademark applications or any derivative thereof or design used in connection therewith. "Transfer Documents" means documents transferring, conveying, assigning or contributing any of the Assets to the Partnership, including the Assignment and Assumption Agreements. "Transferred Business" is defined in the Geon Canada Transfer Agreement. "Transition Employees" is defined in Section 1.7(d). "Union Contracts" means any contracts in place between any of the Unions and Contributor immediately prior to the Asset Transfer Effective Time. "Union Employees" means all employees who are part of a collective bargaining unit represented by any Union, and who are, immediately prior to the Asset Transfer Effective Time, either (i) in the active employment of Contributor or (ii) on short-term disability leave, sick leave or other temporary leave of absence approved by Contributor. "Unions" means (i) the International Brotherhood of Electrical Workers Local Union Number 369, (ii) the International Association of Machinists and Aerospace Workers, District Lodge Number 27, (iii) the United Food and Commercial Workers Union Number 72D (AFL/CIO), and (iv) the United Association of Journeyman and Apprentices of the Plumbing and Pipe Fitting Industry, Local Union Number 522. "Unrecorded Assets" means all right, title and interest of Contributor and any of its Affiliates in customer lists, customer credit information (to the extent neither Contributor nor any of its A-10 53 Affiliates is bound to any confidentiality obligation with respect thereto), customer payment histories and credit limits, vendor lists, and catalogs. "VCM" means vinyl chloride monomer. "WARN" is defined in Section 1.7(e). "Working Capital" means working capital, determined in accordance with GAAP. A-11 54 Appendix B Dispute Resolution Procedures ----------------------------- (1) BINDING AND EXCLUSIVE MEANS. The dispute resolution provisions set forth in this Appendix B shall be the binding and exclusive means to resolve all disputes arising under this Agreement (each a "Dispute"). (2) STANDARDS AND CRITERIA. In resolving any Dispute, the standards and criteria for resolving such dispute shall, unless Contributor and the Partnership in their discretion jointly stipulate otherwise, be as set forth in Appendix 1 to this Appendix B. (3) ADR AND BINDING ARBITRATION PROCEDURES. If a Dispute arises, the following procedures shall be implemented: (a) Any party to this Agreement may at any time invoke the dispute resolution procedures set forth in this Appendix B as to any Dispute by providing written notice of such action to the other party or parties to the Dispute, who within five business days after such notice shall schedule a meeting to be held in Dallas, Texas between the parties. The meeting shall occur within 10 business days after notice of the meeting is delivered to the other party or parties. The meeting shall be attended by representatives of each party having decision-making authority regarding the Dispute as well as the dispute resolution process and who shall attempt in a commercially reasonable manner to negotiate a resolution of the Dispute. (b) The representatives of the parties shall cooperate in a commercially reasonable manner and shall explore whether techniques such as mediation, minitrials, mock trials or other techniques of alternative dispute resolution might be useful. In the event that a technique of alternative dispute resolution is so agreed upon, a specific timetable and completion date for its implementation shall also be agreed upon. The representatives will continue to meet and discuss settlement until the date (the "Interim Decision Date") that is the earliest to occur of the following events: (i) an agreement shall be reached by the parties resolving the Dispute; (ii) one of the parties shall determine and notify the other party in writing that no agreement resolving the Dispute is likely to be reached; (iii) if a technique of alternative dispute resolution is agreed upon, the completion date therefor shall occur without the parties having resolved the Dispute; or (iv) if another technique of alternative dispute resolution is not agreed upon, two full meeting days (or such other time period as may be agreed upon) shall expire without the parties having resolved the Dispute. (c) If, as of the Interim Decision Date, the parties have not succeeded in negotiating a resolution of the dispute pursuant to subsection (b), the parties shall proceed under subsections (d), (e) and (f). (d) After satisfying the requirements above, such Dispute shall be submitted to mandatory and binding arbitration at the election of any party involved in the Dispute (the "Disputing Party"). The arbitration shall be subject to the Federal Arbitration Act as supplemented by the conditions set forth in this Appendix. The arbitration shall be conducted in accordance with B-1 55 the Commercial Arbitration Rules of the American Arbitration Association in effect on the date the notice of arbitration is served, other than as specifically modified herein. In the absence of an agreement to the contrary, the arbitration shall be held in Dallas, Texas. The Arbitrator (as defined below) will allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. During the pendency of the Dispute, each party shall make available to the Arbitrator and the other parties all books, records and other information within its control requested by the other parties or the Arbitrator subject to the confidentiality provisions contained herein, and PROVIDED that no such access shall waive or preclude any objection to such production based on any privilege recognized by law. Recognizing the express desire of the parties for an expeditious means of dispute resolution, the Arbitrator may limit the scope of discovery between the parties as may be reasonable under the circumstances. In deciding the substance of the parties' claims, the laws of the State of New York shall govern the construction, interpretation and effect of this Agreement (including this Appendix) without giving effect to any conflict of law principles. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each party involved in the Dispute being allocated an equal amount of time for the presentation of its case. Unless otherwise agreed to by the parties, the arbitration hearing shall be conducted on consecutive days. Time is of the essence in the arbitration proceeding, and the Arbitrator shall have the right and authority to issue monetary sanctions against any of the parties if, upon a showing of good cause, that party is unreasonably delaying the proceeding. To the fullest extent permitted by law, the arbitration proceedings and award shall be maintained in confidence by the Arbitrator and the parties. (e) The Disputing Party shall notify the American Arbitration Association ("AAA") and the other parties involved in the Dispute in writing describing in reasonable detail the nature of the Dispute (the "Dispute Notice"). The arbitrator (the "Arbitrator") shall be selected within 15 days of the date of receipt of the Dispute Notice by all of the parties from the members of a panel of arbitrators of the AAA or, if the AAA fails or refuses to provide a list of potential arbitrators, of the Center for Public Resources, and shall be experienced in commercial arbitration. In the event that the parties are unable to agree on the selection of the Arbitrator, the AAA shall select the Arbitrator, using the criteria set forth in this Appendix, within 30 days of the date of the Dispute Notice. In the event that the Arbitrator is unable to serve, his or her replacement will be selected in the same manner as the Arbitrator to be replaced. The Arbitrator shall be neutral. The Arbitrator shall have the authority to assess the costs and expenses of the arbitration proceeding (including the arbitrators' costs and attorneys' fees and expenses) against any or all parties. (f) The Arbitrator shall decide all Disputes and all substantive and procedural issues related thereto, and shall enforce this Agreement in accordance with its terms. Without limiting the generality of the previous sentence, the Arbitrator shall have the authority to issue injunctive relief; however, the Arbitrator shall not have any power or authority to (i) award consequential, incidental, indirect, punitive, exemplary, special or other similar damages or (ii) amend this Agreement. The Arbitrator shall render the arbitration award, in writing, within 20 days following the completion of the arbitration hearing, and shall set forth the reasons for the award. In the event that the Arbitrator awards monetary damages in favor of a party, the Arbitrator must certify in the award that no indirect, consequential, incidental, punitive, exemplary, special or other similar damages are included in such award. If the Arbitrator's decision results in a monetary award, the interest to be granted on such award, if any, and the rate of such interest shall be determined by the Arbitrator in B-2 56 his or her discretion. The arbitration award shall be final and binding on the parties, and judgment thereon may be entered in any court of competent jurisdiction, and may not be appealed except to the extent permitted by the Federal Arbitration Act. (g) In the event that a Dispute involving Remedial Action pursuant to Section 5.5 is submitted to mandatory and binding arbitration, any factual or technical dispute regarding the presence, Release or threatened Release of Chemical Substances under Section 5.5(b)(ii) or the Lowest Cost Response under Section 5.5(c)(i) or (ii) shall be submitted, either by the Arbitrator or by the parties, to a nationally-recognized environmental consulting firm acceptable to both parties for binding resolution of such factual or technical dispute, and the Arbitrator shall be bound to accept and apply the factual or technical findings of such firm in rendering its decision hereunder. (h) To assist the Arbitrator or the environmental consulting firm in resolving Disputes where the Disputing Party alleges, pursuant to Section 5.3(g), and the Arbitrator and/or environmental consulting firm determines, that both the Partnership and Contributor are liable for a Remedial Action, the parties authorize the Arbitrator to allocate the Liability, as between Contributor and the Partnership and for purposes of this Agreement only, based upon the following rebuttable presumptions: (i) with respect to an HSE Type A Claim involving a Remedial Action in, on, under, at, or in the vicinity of the Fee Interests or the Leaseholds, the Liability should be allocated based upon the relative years of use or operation by Contributor and the Partnership of the building, structure, fixture or improvement from which the Chemical Substance was Released; (ii) with respect to an HSE Type A Claim involving a Remedial Action in, on, under, at or in the vicinity of an offsite treatment, storage or disposal facility, which facility received solid or hazardous waste or recyclable materials as a public or commercial enterprise and to which the Contributed Business is alleged to have sent or transported such materials for treatment, storage, recycling or disposal both before and after the Asset Transfer Effective Time, the Liability should be allocated based upon the relative volume of materials attributed to Contributor and its Affiliates and the Partnership, PROVIDED that the Chemical Substances attributed to the parties, and the constituents, toxicity, mobility and concentrations thereof, are similar in all material respects; (iii) with respect to an HSE Type B Claim, the Liability to attain compliance with HSE Laws in effect as of the Asset Transfer Effective Time should be allocated solely to Contributor, while the Liability to attain compliance with HSE Laws that become more stringent after the Asset Transfer Effective Time and to continue to operate in compliance with then applicable HSE Laws should be allocated to the Partnership. To the extent penalties for noncompliance with HSE Laws in effect as of the Asset Transfer Effective Time are assessed for a period of time before the Asset Transfer Effective Time, before the Partnership knows of the existence of the noncompliance, or after the Partnership knows of the existence of such noncompliance but is taking commercially reasonable actions to cure the matter or to otherwise achieve compliance in a commercially reasonable and prudent matter, Liability in each case should be allocated solely to Contributor. To the extent B-3 57 penalties for noncompliance with HSE Laws are assessed for a period of time after the Partnership knows of the existence of the noncompliance but has failed to take commercially reasonable actions to cure the matter or to otherwise achieve compliance in a commercially reasonable and prudent matter pursuant to Section 5.2(c), Liability should be allocated solely to the Partnership. (4) CONTINUATION OF BUSINESS. Notwithstanding the existence of any Dispute or the pendency of any procedures pursuant to this Appendix B, the parties agree and undertake that all payments not in dispute shall continue to be made and all obligations not in dispute shall continue to be performed. B-4 58 Appendix 1 ---------- (a) First priority shall be given to maximizing the consistency of the resolution of the Dispute with the satisfaction of all express obligations of the parties and their Affiliates as set forth in the Agreement. (b) Second priority shall be given to resolution of the Dispute in a manner which best achieves the objectives of the business activities and arrangements under the Agreement and permits the parties to realize the benefits intended to be afforded thereby. (c) Third priority shall be given to such other matters, if any, as the parties or the Arbitrator shall determine to be appropriate under the circumstances. B-5 EX-10.4 4 EXHIBIT 10.4 1 Exhibit 10.4 PARENT AGREEMENT (OXY VINYLS, LP) AMONG OCCIDENTAL CHEMICAL CORPORATION, OCCIDENTAL PETROLEUM CORPORATION, THE GEON COMPANY AND OXY VINYLS, LP 2 TABLE OF CONTENTS
Page SECTION 1 OWNERSHIP AND BUSINESS OF PARTNER SUBS...........................................3 1.1 Restrictions on Transfer and Pledge of Partner Sub Stock................3 1.2 Right of First Refusal and Right of First Option........................4 1.3 Effect of Transfer......................................................6 1.4 Special Purpose Subsidiaries............................................6 SECTION 2 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS...................................6 2.1 Standstill..............................................................6 2.2 Exceptions..............................................................7 SECTION 3 MISCELLANEOUS....................................................................8 3.1 No Waivers..............................................................8 3.2 Expenses in Connection with Exercise. .................................8 3.3 Confidentiality and Use of Information..................................8 3.4 Non-Solicitation. .....................................................9 3.5 Further Assurances......................................................9 3.6 Assignment; Successors and Assigns......................................9 3.7 Benefits of Agreement Restricted to the Parties.........................9 3.8 Notices.................................................................9 3.9 Severability...........................................................11 3.10 Termination............................................................11 3.11 Construction and Certain Definitions...................................12 3.12 Counterparts...........................................................12 3.13 Governing Law..........................................................12 3.14 Obligations Regarding Affiliates.......................................12 3.15 Amendment..............................................................12 3.16 Jurisdiction; Consent to Service of Process; Waiver....................12 3.17 Waiver of Jury Trial...................................................13
1 3 PARENT AGREEMENT ---------------- (OXY VINYLS, LP) ---------------- This PARENT AGREEMENT (OXY VINYLS, LP) (this "Agreement") dated as of the 30th day of April, 1999, is entered into among Occidental Chemical Corporation, a New York corporation ("OCC"), The Geon Company, a Delaware corporation ("Geon"), Occidental Petroleum Corporation, a Delaware corporation ("OPC"), and Oxy Vinyls, LP, a Delaware limited partnership (the "Partnership," and together with OCC, OPC and Geon, the "Parties", and each individually, a "Party"). WHEREAS, each of OCC and Geon is a "Parent" for purposes of this Agreement; and WHEREAS, each of OPC and Geon is a "Subject Parent" for purposes of this Agreement; PROVIDED, HOWEVER, that neither OPC nor Geon shall be a "Subject Parent" from and after the expiration of 12 months from the date on which it and its Affiliates no longer hold any Units in the Partnership; and WHEREAS, 1999 PVC Partner Inc., a Delaware corporation ("Geon Partner Sub"), is a direct wholly-owned subsidiary of Geon; and WHEREAS, Occidental PVC, LLC, a Delaware limited liability company ("OCC GP"), and Occidental PVC LP, Inc., a Delaware corporation ("OCC LP" and, together with OCC GP, the "OCC Partner Subs"), are both direct or indirect wholly-owned subsidiaries of OCC; and OCC is an indirect wholly-owned subsidiary of OPC; and WHEREAS, OCC and Geon entered into a Master Transaction Agreement, dated December 22, 1998 (the "Master Transaction "Agreement"), providing for, among other things, the formation of the Partnership pursuant to the Limited Partnership Agreement of the Partnership dated as of the date of this Agreement (the "Partnership Agreement") and the admission of the OCC Partner Subs and the Geon Partner Sub as partners in the Partnership. The OCC Partner Subs and the Geon Partner Sub, collectively or individually, as the context may require, are referred to herein as the "Partner Subs"; and WHEREAS, this Agreement is essential to the consummation of the closing pursuant to the Master Transaction Agreement; and WHEREAS, each Parent is willing to subject the Partner Sub Stock (as defined in Section 1.1) to certain restrictions on transfer, as set forth in this Agreement; and WHEREAS, each of OPC and Geon is willing to agree to certain covenants in favor of the other in connection with the closing of the transactions contemplated by the Master Transaction Agreement; 2 4 NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants of the Parties, the Parties hereby agree as follows: SECTION 1 OWNERSHIP AND BUSINESS OF PARTNER SUBS -------------------------------------- 1.1 RESTRICTIONS ON TRANSFER AND PLEDGE OF PARTNER SUB STOCK. (a) Each Parent agrees that, except as otherwise provided below in this Section 1, or with the written consent of the other Parent, which consent may be granted or withheld in such Parent's sole discretion, it will not, in any transaction or series of transactions, directly or indirectly, (i) sell, assign or otherwise dispose of, whether by act, deed, merger or otherwise ("Transfer") or (ii) mortgage, pledge, encumber or create or suffer to exist any lien or encumbrance upon or security interest in ("Pledge"), all or any part of the capital stock or other equity interests (including any securities convertible into or exchangeable for or carrying any rights to purchase, subscribe for or otherwise acquire any such capital stock or other equity interests) of its Partner Subs (collectively, the "Partner Sub Stock"). (Each of the defined terms "Transfer" and "Pledge" is used herein both as a noun and as a verb.) Any attempt by a Parent to Transfer or Pledge all or a portion of its Partner Sub Stock in violation of this Agreement shall be void AB INITIO and shall not be effective to Transfer such Partner Sub Stock or any portion thereof. The Partnership Agreement contains provisions relating to the Transfer and Pledge of the Partner Subs' direct interests in the Partnership. (b) Each Parent agrees that all certificates (if any) representing Partner Sub Stock, whether currently owned or hereafter acquired, shall carry the following legend, which legend each Parent agrees to cause to be placed thereon and to cause to remain thereon as long as the Partner Sub Stock is subject to the restrictions of this Agreement: THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OR HYPOTHECATION OF THE STOCK OR OTHER EQUITY INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO AND MAY NOT BE EFFECTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF AN AGREEMENT BINDING UPON THE OWNER OF THE STOCK OR OTHER EQUITY INTEREST REPRESENTED HEREBY. THE OWNER OR ISSUER WILL FURNISH A COPY OF SUCH AGREEMENT TO ANY PROPOSED TRANSFEREE OR PLEDGEE WITHOUT CHARGE UPON REQUEST. (c) Without the need for the consent of any Person and without the application of the requirements of Section 1.2, each Parent may Transfer all (but not less than all) of its Partner Sub Stock, if such Transfer is: (i) in connection with (A) a merger, consolidation, conversion, share exchange or Change of Control of such Parent or (B) a sale or other disposition by such Parent of assets including the Partner Sub Stock where such Partner Sub Stock constitutes less than 50% of the book value of the aggregate assets to be sold or disposed of, as reflected on such Parent's most recent audited consolidated (or combined) financial statements; (ii) to an 80%-Owned Affiliate of 3 5 such Parent; or (iii) to the shareholders of (A) such Parent, in the case of Geon, or (B) OPC, in the case of OCC; PROVIDED, HOWEVER, that the requirements of Section 1.2(d)(i)-(vi) must be satisfied in connection therewith. For purposes of the preceding sentence, the term "Change of Control" shall (A) for Geon be defined in the same way as that term is defined for Geon in Section 2.2 in its capacity as a Subject Parent and (B) for OCC mean an event or circumstance that results in OCC's no longer being an Affiliate of OPC. (d) Except as provided in Section 1.1(c), nothing in this Agreement shall prevent or restrict the Transfer or Pledge of the capital stock, equity ownership interests or other securities of a Parent or any Person that owns a direct or indirect interest in a Parent, and no such Transfer or Pledge of securities issued by a Parent shall be deemed to constitute a Transfer or Pledge of Partner Sub Stock hereunder. (e) Each Parent (so long as such Parent is performing its obligations hereunder) may Pledge all (but not less than all) of its Partner Sub Stock in connection with a loan to such Parent, PROVIDED that (i) the loan to such Parent has been approved by the Partnership and (ii) the Pledge shall be evidenced by an instrument, reasonably satisfactory to the Partnership, wherein, in the case of the Partner Sub Stock of OCC GP and OCC LP, the lender receiving such Pledge shall agree that in the event such lender obtains a right of foreclosure on OCC's Partner Sub Stock, such lender will foreclose on the Partner Sub Stock of OCC's Partner Subs proportionately so that such lender will in all events hold portions of Partner Sub Stock of OCC GP and OCC LP proportionate to OCC's holdings thereof. 1.2 RIGHT OF FIRST REFUSAL AND RIGHT OF FIRST OPTION. (a) Without the consent of the other Parent, no Parent may Transfer less than all of its Partner Sub Stock, and unless such Transfer is otherwise permitted by Section 1.1, no Parent may Transfer its Partner Sub Stock, directly or indirectly, for consideration other than cash. Unless such Transfer is otherwise permitted by Section 1.1, any Parent (the "Selling Parent") that receives a bona fide offer to purchase all of its Partner Sub Stock that it desires to accept (an "Offer") or that otherwise desires to Transfer all of its Partner Sub Stock to any Person shall give written notice (the "Initial Notice") to the Partnership and the other Parent (the "Offeree Parent") stating that the Selling Parent has received an Offer or otherwise desires to Transfer its Partner Sub Stock and shall set forth the cash purchase price and all other terms of the Offer or the cash purchase price (established as provided below) and all other terms on which it otherwise is willing to sell its Partner Sub Stock (in each case, the "Offer Terms"). In establishing the Offer Terms for a proposed sale that does not involve an Offer, the Selling Parent shall obtain an appraisal from an independent appraiser with a reasonable level of industry experience of the cash price that a willing buyer under no compulsion to buy would pay and a willing seller under no compulsion to sell would accept for the Partner Sub Stock of the Selling Parent (the "Fair Market Value"). Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Parent to sell its Partner Sub Stock to the Offeree Parent hereunder. 4 6 (b) The Offeree Parent shall have the option, exercisable by delivering written notice (the "Acceptance Notice") of such exercise to the Selling Parent within 60 days of the date of the Initial Notice, to elect to purchase all, but not less than all, of the Partner Sub Stock of the Selling Parent on the Offer Terms described in the Initial Notice. The Acceptance Notice shall set a date for closing the purchase, such date to be not less than 30 nor more than 90 days after delivery of the Acceptance Notice; PROVIDED, HOWEVER, that such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 90 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act (or any successor statute) or other Legal Requirement. The closing shall be held at the Partnership's offices. The purchase price for the Selling Parent's Partner Sub Stock shall be paid in immediately available funds delivered at the closing, and all actions at the closing shall conform in all material respects to the Offer Terms. (c) If the Offeree Parent does not elect to purchase all of the Selling Parent's Partner Sub Stock within 60 days after the receipt of the Initial Notice, the Selling Parent shall have a further 180 days during which it may, subject to Section 1.2(d), consummate the sale of its Partner Sub Stock (i) substantially in accordance with the terms of the Offer or (ii) if no Offer is involved, to a third party purchaser on terms that are not substantially more favorable to such purchaser than the Offer Terms and at a price equal to not less than 90% of the Fair Market Value of the Partner Sub Stock. If the sale is not completed within such further 180-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Parent may make any Transfer of its Partner Sub Stock. If the Selling Parent receives a written offer during such further 180-day period from a third party purchaser that is for less than 90% of the Fair Market Value, and the Selling Parent is willing to accept the offer, then (1) the offer shall be treated as an Offer, and (2) the Selling Parent must comply with the provisions of this Section 1.2 before the Selling Parent may make any Transfer of its Partner Sub Stock to the third party purchaser that made the Offer. (d) Notwithstanding the foregoing provisions of this Section 1.2, except as provided in Section 1.1(c), a Parent may Transfer its Partner Sub Stock only if all of the following occur: (i) The proposed transferor is not in default in the timely performance of any of its material obligations to the Partnership. (ii) The Transfer is accomplished in a non-public offering in compliance with, and exempt from, the registration and qualification requirements of all federal and state securities laws and regulations. (iii) The Transfer does not cause a default under any material contract (A) that has been approved unanimously by the Partnership Governance Committee and (B) to which the Partnership is a party or by which the Partnership or any of its properties is bound. (iv) The Successor Parent executes an appropriate agreement to be bound by this Agreement. 5 7 (v) The transferor and transferee bear all reasonable costs incurred by the Partnership in connection with the Transfer. (vi) The provisions of Section 1.2(e) are satisfied. (vii) The Successor Parent must have sufficient resources to assume the obligations of the Parent, including any capital that may reasonably be expected to be requested from its Partner Subs by the Partnership under the then effective Strategic Plan, or the Successor Parent's obligations must be supported by a guarantee, letter of credit or other credit support reasonably satisfactory to the other Parent, and such Successor Parent must otherwise be reasonably acceptable to the other Parent. (e) OCC may Transfer the Partner Sub Stock of either of its Partner Subs to any Person only if it simultaneously Transfers the Partner Sub Stock of its other Partner Sub to such Person or a wholly-owned Affiliate of such Person. 1.3 EFFECT OF TRANSFER. Upon completion of any Transfer that is permitted hereunder, the Successor Parent shall succeed to and be substituted for the applicable Parent, with the same effect as if it had been named herein, and unless such Parent shall then be an Affiliate of such Successor Parent, such Parent and its Affiliates shall thereupon be released from all obligations under this Section 1 and Section 3. For purposes of this Section 1, the term "Successor Parent" shall mean the acquiring, succeeding or surviving entity in any permitted Transfer that directly or indirectly owns the applicable Partner Sub Stock following such transaction, if other than a Parent. In addition, a Parent and its Affiliates shall be released from all obligations under this Section 1 and Section 3 at such time as neither such Parent nor any of its Affiliates holds any Units in the Partnership pursuant to a Transfer of such Units in accordance with the Partnership Agreement. 1.4 SPECIAL PURPOSE SUBSIDIARIES. Each Parent covenants and agrees that (i) the business of its Partner Subs shall be restricted solely to the holding of the respective interests in the Partnership and the doing of things necessary or appropriate in connection therewith, and (ii) it will cause its Partner Subs not to own any assets, incur any liabilities or engage, participate or invest in any business outside the scope of their businesses as described in clause (i) hereof. SECTION 2 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS ---------------------------------------------- 2.1 STANDSTILL. Each Subject Parent agrees for the benefit of the other Subject Parent that, until the fifth anniversary of the date of this Agreement, neither it, nor any of its Affiliates shall, without prior written invitation or request of the other Subject Parent: (i) in any manner acquire, agree to acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property (other than an acquisition of assets or property in the ordinary course of business) of the other Subject Parent, whether such agreement or proposal is made with or to the other Subject Parent 6 8 or a third party; (ii) make any unsolicited proposal to enter into, directly or indirectly, any merger or other business combination involving the other Subject Parent; (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the other Subject Parent; (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other Subject Parent; (v) otherwise act, alone or in concert with others, to seek to control the management, board of directors or policies of the other Subject Parent; (vi) disclose any intention, plan or arrangement inconsistent with the foregoing; or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other Persons in connection with any of the foregoing. Each Subject Parent also agrees during such period not to: (a) request that the other Subject Parent (or its respective directors, officers, employees or agents), directly or indirectly, amend or waive any provision of this Section 2.1 (including this sentence); or (b) take any action that might reasonably be expected to require that the other Subject Parent make a public announcement regarding the possibility of a business combination or merger. 2.2 EXCEPTIONS. Notwithstanding the provisions of Section 2.1: (a) As to a Subject Parent, the provisions of Section 2.1 shall automatically be terminated and of no further force and effect if any of the following events occur with respect to the other Subject Parent: (i) a Change of Control (as defined below) of the other Subject Parent shall have occurred, (ii) the other Subject Parent shall have entered into a definitive agreement providing for, or publicly announced its intention to effect, any transaction involving a Change of Control of the other Subject Parent or (iii) a tender offer or exchange offer shall have been commenced or publicly announced that, if consummated, would have the effect with respect to the other Subject Parent described in clause (C) of the definition of "Change of Control." A "Change of Control" of a Subject Parent shall mean the occurrence of any of the following events: (A) there shall be consummated any consolidation, conversion, merger or share exchange of such Subject Parent (I) in which such Subject Parent is not the continuing or surviving Person (other than a consolidation, merger or share exchange with a wholly-owned subsidiary of such Subject Parent in which all shares of common stock of such Subject Parent outstanding immediately prior to the effectiveness thereof are changed into or exchanged for shares of common stock of such subsidiary) or (II) pursuant to which the common stock of such Subject Parent is converted into cash, securities or other property, other than, in each case, a consolidation, conversion, merger or share exchange of such Subject Parent in which the holders of the common stock immediately prior to the consolidation, conversion, merger or share exchange hold, directly or indirectly, at least a majority of the voting power and common equity of the continuing or surviving Person immediately after such consolidation, conversion, merger or share exchange; (B) such Subject Parent's properties and assets are sold or otherwise disposed of substantially as an entirety on a consolidated basis to any Person or group of Persons in any one transaction or a series of related transactions, other than as contemplated by the Master Transaction Agreement; or (C) any Person or any Persons acting together that would constitute a "group" (as defined in Section 2.1) (other than such Subject Parent, any subsidiary of 7 9 such Subject Parent, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic dividend reinvestment plan or any substantially similar plan of such Subject Parent or any subsidiary of such Subject Parent or any Person holding securities of such Subject Parent for or pursuant to the terms of any such employee benefit plan), together with any Affiliates thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more of the voting stock of such Subject Parent. (b) The terms of the first sentence of Section 2.1 shall not apply to the purchase and sale of any securities of a Subject Parent by any pension or other related employee benefit plans who are acting as passive investors in such Subject Parent. SECTION 3 MISCELLANEOUS ------------- 3.1 NO WAIVERS. No failure or delay by a Party in exercising any right or power under this Agreement, or any single or partial exercise of any such right or power, shall preclude any other or further exercise thereof or the exercise of any other right or power. Such single or partial exercise of any right or power shall be cumulative and not exclusive of any rights or remedies provided by law. 3.2 EXPENSES IN CONNECTION WITH EXERCISE. In the event of a dispute between Parties regarding the exercise or enforcement of any of the rights of a Party under this Agreement or the failure by a Party to perform or observe any of the provisions of this Agreement, the Party or Parties that do not ultimately prevail in such dispute shall be liable, and hereby agree, to reimburse, on demand, each prevailing Party for any and all costs and expenses, including the fees and expenses of legal counsel and of any other counsel, experts, consultants or agents, that such prevailing Party may incur in connection therewith. 3.3 CONFIDENTIALITY AND USE OF INFORMATION. (a) Each Parent agrees that it and its Affiliates shall be bound by the terms and conditions of Section 13.1 of the Partnership Agreement as if such Person was a "Partner" as defined in such agreement. (b) Geon and OPC shall consult with each other on an ongoing basis with respect to disclosures regarding the Partnership and its business and affairs that each is required to make in reports filed from time to time with the Securities and Exchange Commission. (c) The letter agreements regarding confidentiality dated January 21, 1998 and May 18, 1998 between Geon and OCC are hereby terminated. 8 10 3.4 NON-SOLICITATION. Each Parent agrees that, for a period ending on the first anniversary of the date of this Agreement (unless the applicability of this provision is terminated earlier pursuant to Section 1.3), it will not, and it will cause its Affiliates not to directly or knowingly induce or attempt to induce any officers or employees of the Partnership to leave the employ of the Partnership; PROVIDED, HOWEVER, that nothing in this Section 3.4 shall prohibit any Parent or its Affiliates from hiring or engaging any of the foregoing who respond to a general solicitation not directed specifically to officers or employees of the Partnership. 3.5 FURTHER ASSURANCES. From time to time, each Party agrees to execute and deliver such additional documents and provide such additional information and assistance as the other Parties may reasonably require to carry out the terms of this Agreement. 3.6 ASSIGNMENT; SUCCESSORS AND ASSIGNS. (a) Except as provided in this Agreement and except that a Parent may assign its rights or obligations under this Agreement to a third party in connection with a transfer of direct interests in the Partnership owned by its Partner Subs if such transfer is permitted and consummated in accordance with the Partnership Agreement, no Parent may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other Parent, which consent shall be in the sole discretion of such other Parent. Any purported assignment or delegation without such consent shall be void and ineffective. (b) No Subject Parent may assign or delegate any of its rights or obligations under this Agreement without the prior consent of the other Subject Parent, which consent shall be in the sole discretion of such other Subject Parent, except that a Subject Parent may assign its rights or obligations under the agreement without such consent in connection with any Change of Control. 3.7 BENEFITS OF AGREEMENT RESTRICTED TO THE PARTIES. This Agreement is made solely for the benefit of the Parties, and no other Person shall have any right, claim or cause of action under or by virtue of this Agreement. 3.8 NOTICES. All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) transmitted by telecopier facsimile during business hours with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows: 9 11 If to OPC: If to OCC: Occidental Petroleum Company Occidental Chemical Corporation 10889 Wilshire Blvd. 5005 LBJ Freeway Los Angeles, CA 90024 Dallas, TX 75244 Attention: President Attention: President Telecopy Number: (310) 443-6977 Telecopy Number: (972) 404-3906 With a copy to: With a copy to: Occidental Petroleum Corporation Occidental Petroleum Corporation 10889 Wilshire Boulevard 10889 Wilshire Boulevard Los Angeles, California 90024 Los Angeles, California 90024 Attention: General Counsel Attention: General Counsel Telecopy Number: (310) 443-6333 Telecopy Number: (310) 443-6333 If to Geon: And to: The Geon Company Occidental Chemical Corporation One Geon Center 5005 LBJ Freeway Avon Lake, Ohio 44012 Dallas, Texas 75244 Attention: Chief Executive Officer Attention: General Counsel Telecopy Number: (440) 930-1002 Telecopy Number: (972) 404-3957 With a copy to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: General Counsel Telecopy Number: (440) 930-1002 If to the Partnership: Oxy Vinyls, LP 5005 LBJ Freeway Dallas, Texas 75244 Attention: Chief Executive Officer Telecopy Number: (972) 720-7402
10 12 With a copy to: Oxy Vinyls, LP 5005 LBJ Freeway Dallas, Texas 75244 Attention: General Counsel Telecopy Number: (972) 720-7403 And to: Occidental Petroleum Corporation 10889 Wilshire Boulevard Los Angeles, California 90024 Attention: General Counsel Telecopy Number: (310) 443-6333 And to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: Chief Executive Officer Telecopy Number: (440) 930-1002 And to: The Geon Company One Geon Center Avon Lake, Ohio 44012 Attention: General Counsel Telecopy Number: (440) 930-1002 or to such other address as such Party shall have specified by notice to the other Parties. 3.9 SEVERABILITY. In the event that any provisions of this Agreement shall be Finally Determined to be unlawful, such provision shall, so long as the economic and legal substance of the transactions contemplated hereby is not affected in any materially adverse manner as to any Party, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 3.10 TERMINATION. The second Recital to this Agreement and Sections 1.3, 2.1, 2.2 and 3.4 set forth therein the timing for the termination of, or release from, the applicable provisions of this Agreement. In addition, Section 3.3(b) shall terminate at such time as OPC or Geon, as the case 11 13 may be, is no longer required to make the disclosures referred to in Section 3.3(b) to the Securities and Exchange Commission. Except for the foregoing, this Agreement shall terminate upon the termination of the Partnership; PROVIDED, HOWEVER, that no termination under this Agreement shall discharge any accrued obligations owed by a Parent or a Subject Parent as of the date of such termination. 3.11 CONSTRUCTION AND CERTAIN DEFINITIONS. (a) In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction; (ii) no consideration shall be given to the fact or presumption that any Party had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; and (vi) each gender shall be deemed to include the other gender. (b) The terms "Affiliate," "80%-Owned Affiliate," "Finally Determined," "Legal Requirement," "Partnership Governance Committee," "Person," "Strategic Plan" and "Units" have the meanings set forth in the Partnership Agreement. 3.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which when taken together shall constitute one and the same original document. 3.13 GOVERNING LAW. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 3.14 OBLIGATIONS REGARDING AFFILIATES. Each Parent shall cause its Affiliates (including any Person controlling such Parent) to comply with all provisions of this Agreement that apply to Affiliates of such Parent, and each Parent shall be responsible for any failure of any such Affiliate to comply with any such provision. 3.15 AMENDMENT. All waivers, modifications, amendments or alterations of this Agreement shall require the execution of a written instrument signed by each of the Parties. 3.16 JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER. ANY JUDICIAL PROCEEDING BROUGHT AGAINST ANY PARTY TO THIS AGREEMENT OR ANY DISPUTE UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER RELATED HERETO SHALL BE BROUGHT IN THE FEDERAL OR STATE COURTS OF THE STATE OF DELAWARE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES TO THIS AGREEMENT 12 14 ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT (AS FINALLY ADJUDICATED) RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PARTIES AGREE THAT ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY PROCEEDING SHALL BE EFFECTIVE AGAINST ANY PARTY IF DELIVERED PURSUANT TO THE NOTICE PROVISIONS CONTAINED IN SECTION 3.8. THE FOREGOING CONSENTS TO JURISDICTION SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF PROCESS IN THE STATE OF DELAWARE FOR ANY PURPOSE EXCEPT AS PROVIDED ABOVE AND SHALL NOT BE DEEMED TO CONFER RIGHTS ON ANY PERSON OTHER THAN THE PARTIES HERETO. EACH PARTY HEREBY WAIVES ANY OBJECTION IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. 3.17 WAIVER OF JURY TRIAL. EACH PARTY HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 13 15 IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date first above written. OCCIDENTAL CHEMICAL CORPORATION By: /s/ Richard A. Lorraine ------------------------------------------ Richard A. Lorraine Executive Vice President and Chief Financial Officer THE GEON COMPANY By: /s/ Thomas A. Waltermire ------------------------------------------- Thomas A.Waltermire President and Chief Operating Officer OCCIDENTAL PETROLEUM CORPORATION By: /s/ Stephen I. Chazen ------------------------------------------- Stephen I. Chazen Chief Financial Officer and Executive Vice President - Corporate Development OXY VINYLS, LP By: OCCIDENTAL PVC, LLC, general partner By: /s/ John L. Hurst, III ------------------------------------------- John L. Hurst, III President EX-10.5 5 EXHIBIT 10.5 1 Exhibit 10.5 PARENT AGREEMENT (PVC POWDER BLENDS, LP) AND BUSINESS OPPORTUNITY AGREEMENT AMONG OCCIDENTAL CHEMICAL CORPORATION, OCCIDENTAL PETROLEUM CORPORATION, THE GEON COMPANY, PVC POWDER BLENDS, LP AND OXY VINYLS, LP 2
TABLE OF CONTENTS Page ---- SECTION 1 OWNERSHIP AND BUSINESS OF PARTNER SUBS............................... 3 1.1 Restrictions on Transfer and Pledge of Partner Sub Stock.... 3 1.2 Right of First Refusal and Right of First Option............ 4 1.3 Effect of Transfer.......................................... 6 1.4 Special Purpose Subsidiaries................................ 6 SECTION 2 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS....................... 7 2.1 Standstill.................................................. 7 2.2 Exceptions.................................................. 7 SECTION 3 MISCELLANEOUS........................................................ 8 3.1 No Waivers.................................................. 8 3.2 Expenses in Connection with Exercise........................ 8 3.3 Confidentiality and Use of Information...................... 8 3.4 Partnership Competing Businesses............................ 9 3.5 Further Assurances.......................................... 9 3.6 Assignment; Successors and Assigns.......................... 9 3.7 Benefits of Agreement Restricted to the Parties............. 10 3.8 Notices..................................................... 10 3.9 Severability................................................ 12 3.10 Termination................................................. 12 3.11 Construction and Certain Definitions........................ 12 3.12 Counterparts................................................ 13 3.13 Governing Law............................................... 13 3.14 Obligations Regarding Affiliates............................ 13 3.15 Amendment................................................... 13 3.16 Jurisdiction; Consent to Service of Process; Waiver......... 13 3.17 Waiver of Jury Trial........................................ 14 3.18 Burlington Type Business.................................... 14 3.19 Pasadena Type Business...................................... 15 3.20 Burlington Non-Solicitation................................. 15 3.21 Pasadena Non-Solicitation................................... 16
1 3 PARENT AGREEMENT ---------------- (PVC POWDER BLENDS, LP) ----------------------- AND BUSINESS OPPORTUNITY AGREEMENT ---------------------------------- This PARENT AGREEMENT (PVC POWDER BLENDS, LP) AND BUSINESS OPPORTUNITY AGREEMENT (this "Agreement") dated as of the 30th day of April, 1999, is entered into among Occidental Chemical Corporation, a New York corporation ("OCC"), The Geon Company, a Delaware corporation ("Geon"), Occidental Petroleum Corporation, a Delaware corporation ("OPC"), PVC Powder Blends, LP, a Delaware limited partnership (the "Partnership"), and Oxy Vinyls, LP, a Delaware limited partnership (the "PVC Partnership," and together with OCC, OPC, Geon, and the Partnership, the "Parties", and each individually, a "Party"). WHEREAS, each of OCC and Geon is a "Parent" for purposes of this Agreement; and WHEREAS, each of OPC and Geon is a "Subject Parent" for purposes of this Agreement; PROVIDED, HOWEVER, that neither OPC nor Geon shall be a "Subject Parent" from and after the expiration of 12 months from the date on which it and its Affiliates no longer hold any Units in the Partnership; and WHEREAS, Occidental PVC Compound LP, Inc., a Delaware corporation ("OCC Partner Sub"), is a direct or indirect wholly-owned subsidiary of OCC; and OCC is an indirect wholly-owned subsidiary of OPC; and WHEREAS, 1999 General Compounding Partner Inc., a Delaware corporation ("Geon GP"), and 1999 Limited Compounding Partner Inc., a Delaware corporation ("Geon LP" and, together with Geon GP, the "Geon Partner Subs"), are both direct wholly-owned subsidiaries of Geon; and WHEREAS, OCC and Geon entered into a Master Transaction Agreement, dated December 22, 1998 (the "Master Transaction Agreement"), providing for, among other things, the formation of the Partnership pursuant to the Limited Partnership Agreement of the Partnership dated as of the date of this Agreement (the "Partnership Agreement") and the admission of the Geon Partner Subs and the OCC Partner Sub as partners in the Partnership. The Geon Partner Subs and the OCC Partner Sub, collectively or individually, as the context may require, are referred to herein as the "Partner Subs"; and WHEREAS, this Agreement is essential to the consummation of the closing pursuant to the Master Transaction Agreement; and WHEREAS, each Parent is willing to subject the Partner Sub Stock (as defined in Section 1.1) to certain restrictions on transfer, as set forth in this Agreement; and 2 4 WHEREAS, each of OPC and Geon is willing to agree to certain covenants in favor of the other in connection with the closing of the transactions contemplated by the Master Transaction Agreement; NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants of the Parties, the Parties hereby agree as follows: SECTION 1 OWNERSHIP AND BUSINESS OF PARTNER SUBS -------------------------------------- 1.1 RESTRICTIONS ON TRANSFER AND PLEDGE OF PARTNER SUB STOCK. (a) Each Parent agrees that, except as otherwise provided below in this Section 1, or with the written consent of the other Parent, which consent may be granted or withheld in such Parent's sole discretion, it will not, in any transaction or series of transactions, directly or indirectly, (i) sell, assign or otherwise dispose of, whether by act, deed, merger or otherwise ("Transfer") or (ii) mortgage, pledge, encumber or create or suffer to exist any lien or encumbrance upon or security interest in ("Pledge"), all or any part of the capital stock or other equity interests (including any securities convertible into or exchangeable for or carrying any rights to purchase, subscribe for or otherwise acquire any such capital stock or other equity interests) of its Partner Subs (collectively, the "Partner Sub Stock"). (Each of the defined terms "Transfer"and "Pledge" is used herein both as a noun and as a verb.) Any attempt by a Parent to Transfer or Pledge all or a portion of its Partner Sub Stock in violation of this Agreement shall be void AB INITIO and shall not be effective to Transfer such Partner Sub Stock or any portion thereof. The Partnership Agreement contains provisions relating to the Transfer and Pledge of the Partner Subs' direct interests in the Partnership. (b) Each Parent agrees that all certificates (if any) representing Partner Sub Stock, whether currently owned or hereafter acquired, shall carry the following legend, which legend each Parent agrees to cause to be placed thereon and to cause to remain thereon as long as the Partner Sub Stock is subject to the restrictions of this Agreement: THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OR HYPOTHECATION OF THE STOCK OR OTHER EQUITY INTEREST REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO AND MAY NOT BE EFFECTED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF AN AGREEMENT BINDING UPON THE OWNER OF THE STOCK OR OTHER EQUITY INTEREST REPRESENTED HEREBY. THE OWNER OR ISSUER WILL FURNISH A COPY OF SUCH AGREEMENT TO ANY PROPOSED TRANSFEREE OR PLEDGEE WITHOUT CHARGE UPON REQUEST. (c) Without the need for the consent of any Person and without the application of the requirements of Section 1.2, each Parent may Transfer all (but not less than all) of its Partner Sub Stock, if such Transfer is: (i) in connection with (A) a merger, consolidation, conversion, share 3 5 exchange or Change of Control of such Parent or (B) a sale or other disposition by such Parent of assets including the Partner Sub Stock where such Partner Sub Stock constitutes less than 50% of the book value of the aggregate assets to be sold or disposed of, as reflected on such Parent's most recent audited consolidated (or combined) financial statements; (ii) to an 80%-Owned Affiliate of such Parent; or (iii) to the shareholders of (A) such Parent, in the case of Geon, or (B) OPC, in the case of OCC; PROVIDED, HOWEVER, that the requirements of Section 1.2(d)(i)-(vi) must be satisfied in connection therewith. For purposes of the preceding sentence, the term "Change of Control" shall (A) for Geon be defined in the same way as that term is defined for Geon in Section 2.2 in its capacity as a Subject Parent and (B) for OCC mean an event or circumstance that results in OCC's no longer being an Affiliate of OPC. (d) Except as provided in Section 1.1(c), nothing in this Agreement shall prevent or restrict the Transfer or Pledge of the capital stock, equity ownership interests or other securities of a Parent or any Person that owns a direct or indirect interest in a Parent, and no such Transfer or Pledge of securities issued by a Parent shall be deemed to constitute a Transfer or Pledge of Partner Sub Stock hereunder. (e) Each Parent (so long as such Parent is performing its obligations hereunder) may Pledge all (but not less than all) of its Partner Sub Stock in connection with a loan to such Parent, PROVIDED that (i) the loan to such Parent has been approved by the Partnership and (ii) the Pledge shall be evidenced by an instrument, reasonably satisfactory to the Partnership, wherein, in the case of the Partner Sub Stock of Geon GP and Geon LP, the lender receiving such Pledge shall agree that in the event such lender obtains a right of foreclosure on Geon's Partner Sub Stock, such lender will foreclose on the Partner Sub Stock of Geon's Partner Subs proportionately so that such lender will in all events hold portions of Partner Sub Stock of Geon GP and Geon LP proportionate to Geon's holdings thereof. 1.2 RIGHT OF FIRST REFUSAL AND RIGHT OF FIRST OPTION. (a) Without the consent of the other Parent, no Parent may Transfer less than all of its Partner Sub Stock, and unless such Transfer is otherwise permitted by Section 1.1, no Parent may Transfer its Partner Sub Stock, directly or indirectly, for consideration other than cash. Unless such Transfer is otherwise permitted by Section 1.1, any Parent (the "Selling Parent") that receives a bona fide offer to purchase all of its Partner Sub Stock that it desires to accept (an "Offer") or that otherwise desires to Transfer all of its Partner Sub Stock to any Person shall give written notice (the "Initial Notice") to the Partnership and the other Parent (the "Offeree Parent") stating that the Selling Parent has received an Offer or otherwise desires to Transfer its Partner Sub Stock and shall set forth the cash purchase price and all other terms of the Offer or the cash purchase price (established as provided below) and all other terms on which it otherwise is willing to sell its Partner Sub Stock (in each case, the "Offer Terms"). In establishing the Offer Terms for a proposed sale that does not involve an Offer, the Selling Parent shall obtain an appraisal from an independent appraiser with a reasonable level of industry experience of the cash price that a willing buyer under no compulsion to buy would pay and a willing seller under no compulsion to sell would accept for the Partner Sub 4 6 Stock of the Selling Parent (the "Fair Market Value"). Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Parent to sell its Partner Sub Stock to the Offeree Parent hereunder. (b) The Offeree Parent shall have the option, exercisable by delivering written notice (the "Acceptance Notice") of such exercise to the Selling Parent within 60 days of the date of the Initial Notice, to elect to purchase all, but not less than all, of the Partner Sub Stock of the Selling Parent on the Offer Terms described in the Initial Notice. The Acceptance Notice shall set a date for closing the purchase, such date to be not less than 30 nor more than 90 days after delivery of the Acceptance Notice; PROVIDED, HOWEVER, that such time period shall be subject to extension as reasonably necessary (up to a maximum of an additional 120 days after such 90 day period) in order to comply with any applicable filing and waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements Act (or any successor statute) or other Legal Requirement. The closing shall be held at the Partnership's offices. The purchase price for the Selling Parent's Partner Sub Stock shall be paid in immediately available funds delivered at the closing, and all actions at the closing shall conform in all material respects to the Offer Terms. (c) If the Offeree Parent does not elect to purchase all of the Selling Parent's Partner Sub Stock within 60 days after the receipt of the Initial Notice, the Selling Parent shall have a further 180 days during which it may, subject to Section 1.2(d), consummate the sale of its Partner Sub Stock (i) substantially in accordance with the terms of the Offer or (ii) if no Offer is involved, to a third party purchaser on terms that are not substantially more favorable to such purchaser than the Offer Terms and at a price equal to not less than 90% of the Fair Market Value of the Partner Sub Stock. If the sale is not completed within such further 180-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Parent may make any Transfer of its Partner Sub Stock. If the Selling Parent receives a written offer during such further 180-day period from a third party purchaser that is for less than 90% of the Fair Market Value, and the Selling Parent is willing to accept the offer, then (1) the offer shall be treated as an Offer, and (2) the Selling Parent must comply with the provisions of this Section 1.2 before the Selling Parent may make any Transfer of its Partner Sub Stock to the third party purchaser that made the Offer. (d) Notwithstanding the foregoing provisions of this Section 1.2, except as provided in Section 1.1(c), a Parent may Transfer its Partner Sub Stock only if all of the following occur: (i) The proposed transferor is not in default in the timely performance of any of its material obligations to the Partnership. (ii) The Transfer is accomplished in a non-public offering in compliance with, and exempt from, the registration and qualification requirements of all federal and state securities laws and regulations. 5 7 (iii) The Transfer does not cause a default under any material contract (A) that has been approved unanimously by the Partnership Governance Committee and (B) to which the Partnership is a party or by which the Partnership or any of its properties is bound. (iv) The Successor Parent executes an appropriate agreement to be bound by this Agreement. (v) The transferor and transferee bear all reasonable costs incurred by the Partnership in connection with the Transfer. (vi) The provisions of Section 1.2(e) are satisfied. (vii) The Successor Parent must have sufficient resources to assume the obligations of the Parent, including any capital that may reasonably be expected to be requested from its Partner Subs by the Partnership under the then effective Strategic Plan, or the Successor Parent's obligations must be supported by a guarantee, letter of credit or other credit support reasonably satisfactory to the other Parent, and such Successor Parent must otherwise be reasonably acceptable to the other Parent. (e) Geon may Transfer the Partner Sub Stock of either of its Partner Subs to any Person only if it simultaneously Transfers the Partner Sub Stock of its other Partner Sub to such Person or a wholly-owned Affiliate of such Person. 1.3 EFFECT OF TRANSFER. Upon completion of any Transfer that is permitted hereunder, the Successor Parent shall succeed to and be substituted for the applicable Parent, with the same effect as if it had been named herein, and unless such Parent shall then be an Affiliate of such Successor Parent, such Parent and its Affiliates shall thereupon be released from all obligations under this Section 1 and Section 3. For purposes of this Section 1, the term "Successor Parent" shall mean the acquiring, succeeding or surviving entity in any permitted Transfer that directly or indirectly owns the applicable Partner Sub Stock following such transaction, if other than a Parent. In addition, a Parent and its Affiliates shall be released from all obligations under this Section 1 and (except as provided in Section 3.10) Section 3 at such time as neither such Parent nor any of its Affiliates holds any Units in the Partnership pursuant to a Transfer of such Units in accordance with the Partnership Agreement. 1.4 SPECIAL PURPOSE SUBSIDIARIES. Each Parent covenants and agrees that (i) the business of its Partner Subs shall be restricted solely to the holding of the respective interests in the Partnership and the doing of things necessary or appropriate in connection therewith, and (ii) it will cause its Partner Subs not to own any assets, incur any liabilities or engage, participate or invest in any business outside the scope of their businesses as described in clause (i) hereof. 6 8 SECTION 2 STANDSTILL AGREEMENT AND CERTAIN OTHER MATTERS ---------------------------------------------- 2.1 STANDSTILL. Each Subject Parent agrees for the benefit of the other Subject Parent that, until the fifth anniversary of the date of this Agreement, neither it, nor any of its Affiliates shall, without prior written invitation or request of the other Subject Parent: (i) in any manner acquire, agree to acquire or make any proposal to acquire, directly or indirectly, any securities, assets or property (other than an acquisition of assets or property in the ordinary course of business) of the other Subject Parent, whether such agreement or proposal is made with or to the other Subject Parent or a third party; (ii) make any unsolicited proposal to enter into, directly or indirectly, any merger or other business combination involving the other Subject Parent; (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the other Subject Parent; (iv) form, join or in any way participate in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any voting securities of the other Subject Parent; (v) otherwise act, alone or in concert with others, to seek to control the management, board of directors or policies of the other Subject Parent; (vi) disclose any intention, plan or arrangement inconsistent with the foregoing; or (vii) advise, encourage, provide assistance (including financial assistance) to or hold discussions with any other Persons in connection with any of the foregoing. Each Subject Parent also agrees during such period not to: (a) request that the other Subject Parent (or its respective directors, officers, employees or agents), directly or indirectly, amend or waive any provision of this Section 2.1 (including this sentence); or (b) take any action that might reasonably be expected to require that the other Subject Parent make a public announcement regarding the possibility of a business combination or merger. 2.2 EXCEPTIONS. Notwithstanding the provisions of Section 2.1: (a) As to a Subject Parent, the provisions of Section 2.1 shall automatically be terminated and of no further force and effect if any of the following events occur with respect to the other Subject Parent: (i) a Change of Control (as defined below) of the other Subject Parent shall have occurred, (ii) the other Subject Parent shall have entered into a definitive agreement providing for, or publicly announced its intention to effect, any transaction involving a Change of Control of the other Subject Parent or (iii) a tender offer or exchange offer shall have been commenced or publicly announced that, if consummated, would have the effect with respect to the other Subject Parent described in clause (C) of the definition of "Change of Control." A "Change of Control" of a Subject Parent shall mean the occurrence of any of the following events: (A) there shall be consummated any consolidation, conversion, merger or share exchange of such Subject Parent (I) in which such Subject Parent is not the continuing or surviving Person (other than a consolidation, merger or share exchange with a wholly-owned subsidiary of such Subject Parent in which all shares of common stock of such Subject Parent outstanding immediately prior to the effectiveness thereof are changed into or exchanged for shares of common stock of such subsidiary) or (II) pursuant to which the common stock of such Subject Parent is converted into cash, securities or other property, 7 9 other than, in each case, a consolidation, conversion, merger or share exchange of such Subject Parent in which the holders of the common stock immediately prior to the consolidation, conversion, merger or share exchange hold, directly or indirectly, at least a majority of the voting power and common equity of the continuing or surviving Person immediately after such consolidation, conversion, merger or share exchange; (B) such Subject Parent's properties and assets are sold or otherwise disposed of substantially as an entirety on a consolidated basis to any Person or group of Persons in any one transaction or a series of related transactions, other than as contemplated by the Master Transaction Agreement; or (C) any Person or any Persons acting together that would constitute a "group" (as defined in Section 2.1) (other than such Subject Parent, any subsidiary of such Subject Parent, any employee stock purchase plan, stock option plan or other stock incentive plan or program, retirement plan or automatic dividend reinvestment plan or any substantially similar plan of such Subject Parent or any subsidiary of such Subject Parent or any Person holding securities of such Subject Parent for or pursuant to the terms of any such employee benefit plan), together with any Affiliates thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more of the voting stock of such Subject Parent. (b) The terms of the first sentence of Section 2.1 shall not apply to the purchase and sale of any securities of a Subject Parent by any pension or other related employee benefit plans who are acting as passive investors in such Subject Parent. SECTION 3 MISCELLANEOUS ------------- 3.1 NO WAIVERS. No failure or delay by a Party in exercising any right or power under this Agreement, or any single or partial exercise of any such right or power, shall preclude any other or further exercise thereof or the exercise of any other right or power. Such single or partial exercise of any right or power shall be cumulative and not exclusive of any rights or remedies provided by law. 3.2 EXPENSES IN CONNECTION WITH EXERCISE. In the event of a dispute between Parties regarding the exercise or enforcement of any of the rights of a Party under this Agreement or the failure by a Party to perform or observe any of the provisions of this Agreement, the Party or Parties that do not ultimately prevail in such dispute shall be liable, and hereby agree, to reimburse, on demand, each prevailing Party for any and all costs and expenses, including the fees and expenses of legal counsel and of any other counsel, experts, consultants or agents, that such prevailing Party may incur in connection therewith. 3.3 CONFIDENTIALITY AND USE OF INFORMATION. (a) Each Parent agrees that it and its Affiliates shall be bound by the terms and conditions of Section 13.1 of the Partnership Agreement as if such Person was a "Partner" as defined in such agreement. 8 10 \ (b) Geon and OPC shall consult with each other on an ongoing basis with respect to disclosures regarding the Partnership and its business and affairs that each is required to make in reports filed from time to time with the Securities and Exchange Commission. (c) The letter agreements regarding confidentiality dated January 21, 1998 and May 18, 1998 between Geon and OCC are hereby terminated. 3.4 PARTNERSHIP COMPETING BUSINESSES. (a) If any Parent or an Affiliate thereof desires to initiate or pursue any opportunity to undertake, engage in, acquire or invest in a Business Opportunity, such Person shall offer such Business Opportunity to the Partnership under the terms and conditions set forth in Sections 9.3(c) and (d) of the Partnership Agreement as if such Person were the Proposing Person with respect thereto, and in such event the Partnership shall have the rights and obligations with respect thereto set forth in such Sections 9.3(c) and (d). (b) If any Parent or an Affiliate thereof desires to initiate or pursue any opportunity to undertake, engage in, acquire or invest in an Oxy Vinyls Business Opportunity, such Person shall offer such Oxy Vinyls Business Opportunity to the PVC Partnership under the terms and conditions set forth in Sections 9.3(c) and (d) of the Limited Partnership Agreement of the PVC Partnership as if such Person were the PVC Proposing Person with respect thereto, and in such event the PVC Partnership shall have the rights and obligations with respect thereto set forth in such Sections 9.3(c) and (d). 3.5 FURTHER ASSURANCES. From time to time, each Party agrees to execute and deliver such additional documents and provide such additional information and assistance as the other Parties may reasonably require to carry out the terms of this Agreement. 3.6 ASSIGNMENT; SUCCESSORS AND ASSIGNS. (a) Except as provided in this Agreement and except that a Parent may assign its rights or obligations under this Agreement to a third party in connection with a transfer of direct interests in the Partnership owned by its Partner Subs if such transfer is permitted and consummated in accordance with the Partnership Agreement, no Parent may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of the other Parent, which consent shall be in the sole discretion of such other Parent. Any purported assignment or delegation without such consent shall be void and ineffective. (b) No Subject Parent may assign or delegate any of its rights or obligations under this Agreement without the prior consent of the other Subject Parent, which consent shall be in the sole discretion of such other Subject Parent, except that a Subject Parent may assign its rights or obligations under the agreement without such consent in connection with any Change of Control. 9 11 3.7 BENEFITS OF AGREEMENT RESTRICTED TO THE PARTIES. This Agreement is made solely for the benefit of the Parties, and no other Person shall have any right, claim or cause of action under or by virtue of this Agreement. 3.8 NOTICES. All notices, requests, demands and other communications that are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if and when (i) transmitted by telecopier facsimile during business hours with proof of confirmation from the transmitting machine or (ii) delivered by commercial courier or other hand delivery, as follows:
If to OPC: If to OCC: Occidental Petroleum Company Occidental Chemical Corporation 10889 Wilshire Blvd. 5005 LBJ Freeway Los Angeles, CA 90024 Dallas, TX 75244 Attention: President Attention: President Telecopy Number: (310) 443-6977 Telecopy Number: (972) 404-3906 With a copy to: With a copy to: Occidental Petroleum Corporation Occidental Petroleum Corporation 10889 Wilshire Boulevard 10889 Wilshire Boulevard Los Angeles, California 90024 Los Angeles, California 90024 Attention: General Counsel Attention: General Counsel Telecopy Number: (310) 443-6333 Telecopy Number: (310) 443-6333 If to Geon: And to: The Geon Company Occidental Chemical Corporation One Geon Center 5005 LBJ Freeway Avon Lake, Ohio 44012 Dallas, Texas 75244 Attention: Chief Executive Officer Attention: General Counsel Telecopy Number: (440) 930-1002 Telecopy Number: (972) 404-3957 With a copy to: If to the PVC Partnership: The Geon Company Oxy Vinyls, LP One Geon Center 5005 LBJ Freeway Avon Lake, Ohio 44012 Dallas, Texas 75244 Attention: General Counsel Attention: Chief Executive Officer Telecopy Number: (440) 930-1002 Telecopy Number: (972) 720-7402
10 12
If to the Partnership: With a copy to: PVC Powder Blends, LP Oxy Vinyls, LP One Geon Center 5005 LBJ Freeway Avon Lake, Ohio 44012 Dallas, Texas 75244 Attention: Chief Executive Officer Attention: General Counsel Telecopy Number: (440) 930-1002 Telecopy Number: (972) 720-7403 With a copy to: And to: PVC Powder Blends, LP Occidental Petroleum Corporation One Geon Center 10889 Wilshire Boulevard Avon Lake, Ohio 44012 Los Angeles, California 90024 Attention: General Counsel Attention: General Counsel Telecopy Number: (440) 930-1002 Telecopy Number: (310) 443-6333 And to: And to: Occidental Chemical Corporation The Geon Company 5005 LBJ Freeway One Geon Center Dallas, Texas 75244 Avon Lake, Ohio 44012 Attention: President Attention: Chief Executive Officer Telecopy Number: (972) 404-3906 Telecopy Number: (440) 930-1002 And to: And to: Occidental Chemical Corporation The Geon Company 5005 LBJ Freeway One Geon Center Dallas, Texas 75244 Avon Lake, Ohio 44012 Attention: President Attention: General Counsel Telecopy Number: (972) 404-3906 Telecopy Number: (440) 930-1002 And to: Occidental Petroleum Corporation 10889 Wilshire Boulevard Los Angeles, California 90024 Attention: General Counsel Telecopy Number: (310) 443-6333
11 13 or to such other address as such Party shall have specified by notice to the other Parties. 3.9 SEVERABILITY. In the event that any provisions of this Agreement shall be Finally Determined to be unlawful, such provision shall, so long as the economic and legal substance of the transactions contemplated hereby is not affected in any materially adverse manner as to any Party, be deemed severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. 3.10 TERMINATION. The second Recital to this Agreement and Sections 1.3, 2.1, 2.2, 3.18, 3.19, 3.20 and 3.21 set forth therein the timing for the termination of, or release from, the applicable provisions of this Agreement. In addition, (i) Section 3.3(b) shall terminate at such time as OPC or Geon, as the case may be, is no longer required to make the disclosures referred to in Section 3.3(b) to the Securities and Exchange Commission, and (ii) Section 3.4 shall terminate as of the later to occur of (a) the Not Partners Date or (b) the fifth anniversary of the date of this Agreement. Except for the foregoing, this Agreement shall terminate upon the termination of the Partnership; PROVIDED, HOWEVER, that no termination under this Agreement shall discharge any accrued obligations owed by a Parent or a Subject Parent as of the date of such termination. 3.11 CONSTRUCTION AND CERTAIN DEFINITIONS. (a) In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Agreement and not as an aid in construction; (ii) no consideration shall be given to the fact or presumption that any Party had a greater or lesser hand in drafting this Agreement; (iii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iv) the word "includes" and its syntactic variants mean "includes, but is not limited to" and corresponding syntactic variant expressions; (v) the plural shall be deemed to include the singular, and vice versa; and (vi) each gender shall be deemed to include the other gender. (b) The terms "Affiliate," "Business Opportunity," "80%-Owned Affiliate," "Finally Determined," "Legal Requirement," "Partnership Governance Committee," "Person," "Proposing Person," "Strategic Plan" and "Units" have the meanings set forth in the Partnership Agreement. (c) The terms "Burlington Asset Sale Agreement," "Burlington Subject Business," "Pasadena Asset Sale Agreement," "Pasadena Subject Business," "PVC" and "PVC Partnership" have the meanings set forth in the Master Transaction Agreement. (d) The term "Burlington Type Business" means a business that (i) develops, manufactures in the United States and Canada, and markets flexible film and compounding PVC for molding applications and (ii) competes with the Burlington Subject Business; PROVIDED, HOWEVER, that "Burlington Type Business" shall not include any "Specified Business," as defined in the Partnership Agreement or as defined in the Limited Partnership Agreement of the PVC Partnership. 12 14 (e) The term "Pasadena Type Business" means a business that (i) owns, leases and operates, or contracts with third parties to operate, equipment used to manufacture in the United States and Canada pellets from PVC resin, (ii) markets, sells and distributes pellets manufactured from PVC resin and (iii) competes with the Pasadena Subject Business; PROVIDED, HOWEVER, that "Pasadena Type Business" shall not include any "Specified Business," as defined in the Partnership Agreement or as defined in the Limited Partnership Agreement of the PVC Partnership. (f) The term "Oxy Vinyls Business Opportunity" means "Business Opportunity," as defined in the Limited Partnership Agreement of the PVC Partnership. (g) The term "PVC Proposing Person" means "Proposing Person," as defined in the Limited Partnership Agreement of the PVC Partnership. (h) The term "Not Partners Date" means the first date hereafter when neither the Partnership nor the PVC Partnership has both OCC or an Affiliate thereof and Geon or an Affiliate thereof as partners (and by way of example only and not of limitation, OCC or its Affiliate and Geon or its Affiliate would not be partners of the Partnership upon the termination of the Partnership). 3.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original, and all of which when taken together shall constitute one and the same original document. 3.13 GOVERNING LAW. The laws of the State of Delaware shall govern the construction, interpretation and effect of this Agreement without giving effect to any conflicts of law principles. 3.14 OBLIGATIONS REGARDING AFFILIATES. Each Parent shall cause its Affiliates (including any Person controlling such Parent) to comply with all provisions of this Agreement that apply to Affiliates of such Parent, and each Parent shall be responsible for any failure of any such Affiliate to comply with any such provision. 3.15 AMENDMENT. All waivers, modifications, amendments or alterations of this Agreement shall require the execution of a written instrument signed by each of the Parties. 3.16 JURISDICTION; CONSENT TO SERVICE OF PROCESS; WAIVER. ANY JUDICIAL PROCEEDING BROUGHT AGAINST ANY PARTY TO THIS AGREEMENT OR ANY DISPUTE UNDER OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER RELATED HERETO SHALL BE BROUGHT IN THE FEDERAL OR STATE COURTS OF THE STATE OF DELAWARE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES TO THIS AGREEMENT ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT (AS FINALLY ADJUDICATED) RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PARTIES AGREE THAT ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY PROCEEDING 13 15 SHALL BE EFFECTIVE AGAINST ANY PARTY IF DELIVERED PURSUANT TO THE NOTICE PROVISIONS CONTAINED IN SECTION 3.8. THE FOREGOING CONSENTS TO JURISDICTION SHALL NOT CONSTITUTE GENERAL CONSENTS TO SERVICE OF PROCESS IN THE STATE OF DELAWARE FOR ANY PURPOSE EXCEPT AS PROVIDED ABOVE AND SHALL NOT BE DEEMED TO CONFER RIGHTS ON ANY PERSON OTHER THAN THE PARTIES HERETO. EACH PARTY HEREBY WAIVES ANY OBJECTION IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. 3.17 WAIVER OF JURY TRIAL. EACH PARTY HEREBY KNOWINGLY AND INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. 3.18 BURLINGTON TYPE BUSINESS. (a) If, at any time within five years after the date of this Agreement, OPC or an Affiliate of OPC desires to initiate or pursue an opportunity to undertake, engage in, acquire or invest in a Burlington Type Business by investing in or acquiring a Person whose business is a Burlington Type Business, acquiring assets of a Burlington Type Business, or otherwise engaging in or undertaking a Burlington Type Business (a "Burlington Opportunity"), such Person (a "Burlington Proposing Person") shall offer Geon the Burlington Opportunity on the terms set forth in Section 3.18(b). (b) When a Burlington Proposing Person offers a Burlington Opportunity to Geon, Geon shall elect to do one of the following within a reasonably prompt period: (i) acquire or undertake the Burlington Opportunity for the benefit of Geon as a whole, at the cost, expense and benefit of Geon; PROVIDED, HOWEVER, that if Geon ceases to actively pursue such opportunity for any reason, then the Burlington Proposing Person will be entitled to proceed under clause (ii) below; or (ii) permit the Burlington Proposing Person to acquire or undertake the Burlington Opportunity for its own benefit and account without any duty to Geon with respect thereto. (c) Notwithstanding the provisions of Section 3.18(b), if the Burlington Opportunity constitutes less than 25% (based on annual revenues of the business to be acquired or invested in for the most recently completed fiscal year) of an acquisition of or investment in assets, activities, operations or businesses that is not otherwise a Burlington Type Business, then a Burlington Proposing Person may acquire or invest in such Burlington Opportunity without first offering it to Geon; PROVIDED, that after completion of the acquisition or investment thereof, such Burlington Proposing Person must offer the Burlington Opportunity to Geon pursuant to the terms of Section 3.18(b); and if Geon elects option (i) of Section 3.18(b) with respect thereto, the Burlington 14 16 Opportunity shall be acquired by Geon at its fair market value as mutually agreed or Finally Determined as of the date of such acquisition. 3.19 PASADENA TYPE BUSINESS. (a) If, at any time within five years after the date of this Agreement, OPC or an Affiliate of OPC desires to initiate or pursue an opportunity to undertake, engage in, acquire or invest in a Pasadena Type Business by investing in or acquiring a Person whose business is a Pasadena Type Business, acquiring assets of a Pasadena Type Business, or otherwise engaging in or undertaking a Pasadena Type Business (a "Pasadena Opportunity"), such Person (a "Pasadena Proposing Person") shall offer Geon the Pasadena Opportunity on the terms set forth in Section 3.19(b). (b) When a Pasadena Proposing Person offers a Pasadena Opportunity to Geon, Geon shall elect to do one of the following within a reasonably prompt period: (i) acquire or undertake the Pasadena Opportunity for the benefit of Geon as a whole, at the cost, expense and benefit of Geon; PROVIDED, HOWEVER, that if Geon ceases to actively pursue such opportunity for any reason, then the Pasadena Proposing Person will be entitled to proceed under clause (ii) below; or (ii) permit the Pasadena Proposing Person to acquire or undertake the Pasadena Opportunity for its own benefit and account without any duty to Geon with respect thereto. (c) Notwithstanding the provisions of Section 3.19(b), if the Pasadena Opportunity constitutes less than 25% (based on annual revenues of the business to be acquired or invested in for the most recently completed fiscal year) of an acquisition of or investment in assets, activities, operations or businesses that is not otherwise a Pasadena Type Business, then a Pasadena Proposing Person may acquire or invest in such Pasadena Opportunity without first offering it to Geon; PROVIDED, that after completion of the acquisition or investment thereof, such Pasadena Person must offer the Pasadena Opportunity to Geon pursuant to the terms of Section 3.19(b); and if Geon elects option (i) of Section 3.19(b) with respect thereto, the Pasadena Opportunity shall be acquired by Geon at its fair market value as mutually agreed or Finally Determined as of the date of such acquisition. 3.20 BURLINGTON NON-SOLICITATION. OCC agrees that, for a period ending on the first anniversary of the date of this Agreement (unless the applicability of this provision is terminated earlier pursuant to Section 1.3), it will not, and will cause its Affiliates not to, directly or knowingly induce or attempt to induce any Hired Employees (as defined in the Burlington Asset Sale Agreement) to leave the employ of Geon; PROVIDED, HOWEVER, that nothing in this Section 3.20 shall prohibit OCC or its Affiliates from hiring or engaging any of the foregoing who respond to a general solicitation not directed specifically to the Hired Employees. 15 17 3.21 PASADENA NON-SOLICITATION. OCC agrees that, for a period ending on the first anniversary of the date of this Agreement (unless the applicability of this provision is terminated earlier pursuant to Section 1.3), it will not, and will cause its Affiliates not to directly or knowingly induce or attempt to, induce any Hired Employees (as defined in the Pasadena Asset Sale Agreement) to leave the employ of Geon; PROVIDED, HOWEVER, that nothing in this Section 3.21 shall prohibit OCC or its Affiliates from hiring or engaging any of the foregoing who respond to a general solicitation not directed specifically to the Hired Employees. 16 18 IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement as of the date first above written. OCCIDENTAL CHEMICAL CORPORATION By: /s/ Richard A. Lorraine ----------------------------------------------- Richard A. Lorraine Executive Vice President and Chief Financial Officer THE GEON COMPANY By: /s/ Thomas A. Waltermire ----------------------------------------------- Thomas A. Waltermire President and Chief Operating Officer OCCIDENTAL PETROLEUM CORPORATION By: /s/ Stephen I. Chazen ----------------------------------------------- Stephen I. Chazen Chief Financial Officer and Executive Vice President PVC POWDER BLENDS, LP By: 1999 General Compounding Partner Inc., general partner By: /s/ Woodrow W. Ban ----------------------------------------------- Name: Woodrow W. Ban -------------------------------------------- Title: Assistant Secretary ------------------------------------------- OXY VINYLS, LP By: Occidental PVC, LLC, general partner By /s/ John L. Hurst, III -------------------------------------------- John L. Hurst, III President EX-23.1 6 EXHIBIT 23.1 1 EXHIBIT 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into the Company's previously filed Registration Statements on Form S-3 No. 33-80522 and Form S-8 No. 33-92398, 33-80262, 33-65520, 33-62112, 33- 65518. Arthur Andersen LLP Dallas, Texas May 12, 1999 EX-99 7 EXHIBIT 99 1 Exhibit 99 GEON COMPLETES RESIN JOINT VENTURE WITH OXYCHEM Cleveland, Ohio - May 3, 1999 - The Geon Company (NYSE:GON) announced today that Oxy Vinyls, LP (OxyVinyls), its joint venture with the OxyChem division of Occidental Petroleum Corporation, began operations on May 1, as expected. OxyVinyls combined the two companies polyvinyl chloride (PVC)/vinyl chloride monomer resin businesses and other related operations. Geon will own 24 percent and OxyChem 76 percent of OxyVinyls, which will be North America's largest and the world's third-largest PVC producer. Previously, the joint venture underwent federal government review and received the approval of the boards of directors of both Geon and Occidental Petroleum. On April 19, Geon stockholders approved the transaction. "This is an important beginning for both the joint venture and the 'new' Geon," said William F. Patient, chairman and chief executive officer. "Adding OxyChem's compounding and film businesses to Geon is a significant next step as we create a multi-billion-dollar global performance polymers and services business." As part of its agreements with OxyChem, Geon acquired OxyChem's compound and vinyl film businesses in Burlington, New Jersey, and will create another, smaller joint venture for dry blend compounding. Geon also will receive $110 million in cash and/or cash equivalents, and will transfer $185 million in debt to OxyVinyls. The Geon Company is a leading North American-based polymer services and technology company with operations in PVC compounds, specialty PVC resins and other value-added products and services. Headquartered in Avon Lake, Ohio, The Geon Company and its subsidiaries employ more than 2,400 people and have 24 manufacturing plants in the United States, Canada, England and Australia, and joint ventures in the United States, Canada, England, Australia and Singapore. Information on the Company's products and services, as well as news releases, EDGAR filings, Form 10-K, 10-Q, etc., are available on the Internet at http://www.geon.com. -----END PRIVACY-ENHANCED MESSAGE-----