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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10059
STERLING CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 76-0185186
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH STREET SUITE 1900 77002-4312
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-3700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange, Inc.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. /X/.
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As of December 5, 1994, the number of shares of common stock outstanding
was 55,673,991. As of such date, the aggregate market value of common stock held
by nonaffiliates, based upon the closing price of these shares on the New York
Stock Exchange, was approximately $430 million.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1994 (Part II Items 5-8 & Part IV Item 14 (a) 1)
(2) Portions of the Company's definitive Proxy Statement dated December 19, 1994
(Part III Items 10-12).
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 12
Item 3. Legal Proceedings............................................................ 13
Item 4. Submission of Matters to Vote of Security Holders............................ 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 15
Item 6. Selected Financial Data...................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 15
Operations...................................................................
Item 8. Financial Statements and Supplementary Data.................................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 15
Disclosure...................................................................
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 15
Item 11. Executive Compensation....................................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 15
Item 13. Certain Relationships and Related Transactions............................... 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 16
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PART I
ITEM 1. BUSINESS
Sterling Chemicals, Inc. (the "Company") was organized as a Delaware
corporation in 1986. At its Texas City, Texas plant ("Texas City Plant") it
manufactures seven commodity petrochemicals: styrene, acrylonitrile, acetic
acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide. In
August 1992 the Company acquired four plants in Canada which manufacture sodium
chlorate, a chemical used primarily in the pulp and paper industry, and one of
which manufactures sodium chlorite. The Company also licenses, engineers and
oversees construction of large scale generators for the pulp and paper industry
to convert sodium chlorate into chlorine dioxide. Unless otherwise indicated
herein, the "Company" refers to the Company and its subsidiaries collectively.
SALES, MARKETING AND COMPETITION
The Company sells its products pursuant to long and short-term contracts
and through its direct sales force. During fiscal 1994 a significant portion of
the Company's production from the Texas City Plant was dedicated to long-term
contracts with Monsanto Company ("Monsanto"), subsidiaries of British Petroleum
Company plc, BASF Corporation ("BASF") and E.I. du Pont de Nemours and Company
("Dupont"). Although management of the Company does not anticipate the loss of
any of these customers, under certain market conditions, the loss of or a
material reduction in the amount of product purchased by these customers could
have a material adverse effect on the Company. The balance of the Company's
products are sold pursuant to short-term contracts and spot transactions by its
direct sales force, which concentrates on the styrene, acrylonitrile, pulp
chemicals and lactic acid markets. Sales to BP Chemicals Inc. ("BPC") and
Mitsubishi International Corporation ("Mitsubishi") each accounted for 10% or
more of the Company's revenue during the fiscal year ended September 30, 1994.
Some of the Company's long-term contracts for its petrochemical products
are structured as conversion agreements, pursuant to which the customer
furnishes raw materials which the Company processes. In exchange, the Company
receives a fee typically designed to cover its fixed and variable costs of
production and to generally provide an element of profit dependent in amount on
the then existing market conditions. These long-term contracts allow the Company
to lower working capital requirements, maintain relatively low selling, general
and administrative expenses related to the marketing of products and gain access
to certain improvements in manufacturing process technology. The Company
believes its long-term contracts help insulate the Company to some extent from
the effects of declining markets while allowing it to share the benefits of
favorable market conditions for most of the products sold under these
arrangements.
During fiscal 1994, the Company experienced a significant increase in
direct sales versus conversion sales of styrene. The change resulted from the
expiration in late fiscal 1993 of a conversion agreement that had been in effect
since 1986 for approximately one-third of the Company's annual styrene
production. During fiscal 1994, the Company successfully replaced all of the
volumes from the expired conversion agreement with domestic and export sales
arrangements and spot sales. In the current tight market for styrene, the sales
arrangements were more profitable than the expired conversion agreement would
have been and the shift from that long-term conversion agreement to more spot
sales allowed the Company to take advantage of the greater price volatility in
the spot market. In down cycles, however, long-term arrangements may provide
more stability and conversions may continue to help insulate the Company from
changes in raw materials prices.
The Company competes primarily on the basis of product price, service,
reliability and quality. Prices for the Company's commodity chemicals are
determined by market factors that are largely beyond the Company's control, and,
except with respect to a number of its long-term contracts, the Company
generally sells its products at prevailing market prices. In managing its
production schedules and product inventories, the Company emphasizes the
importance of its ability to deliver products to its customers on time and
within specifications. In its effort to ensure that its products are of
consistently high quality, the Company uses a statistical quality control
program.
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The industries in which the Company operates are highly competitive. Many
of the Company's competitors, particularly in the petrochemical industry, are
larger and have greater financial resources than the Company. Among the
Company's competitors are some of the world's largest chemical companies and
major integrated petroleum companies, some of which have their own raw material
resources.
The Company has both domestic and foreign competitors and sells its
products in both domestic and foreign markets. The Company sells large
percentages of its styrene and acrylonitrile production in the export market,
which has historically been more volatile than the domestic market. Revenues and
demographics of export sales from domestic operations are summarized below:
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YEAR ENDED SEPTEMBER 30,
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1994 1993 1992
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Export revenues (in thousands)..................... $324,930 $158,804 $183,241
Percentage of total revenues....................... 46% 31% 43%
Export revenues (as a percent of total exports) by
geographical area:
Asia............................................. 80% 61% 62%
Europe........................................... 16% 39% 37%
Other............................................ 4% -- 1%
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For additional information regarding the Company's domestic and foreign
operations, see Item 8, "Note 8 of Notes to Consolidated Financial Statements."
PRODUCTS
At its Texas City Plant, the Company manufactures seven commodity
petrochemicals which are used in the manufacture of other goods or in other
chemical processes. At its four Canadian plants, the Company manufactures
chemicals used primarily in the bleaching of kraft pulp for paper manufacture.
The Company also is a supplier of patented and proprietary technology for
chlorine dioxide generators used by certain mills in the kraft pulp bleaching
process.
Petrochemicals
Styrene. The Company manufactures styrene from ethylene and benzene using
Monsanto/Lummus technology. Styrene is principally used in the manufacture of
intermediate products such as polystyrene, latex, acrylonitrile butadiene
styrene ("ABS") resins, synthetic rubbers and unsaturated polystyrene resins.
These intermediate products are used to produce various consumer products,
including building products, boat and automotive components, disposable cups and
trays, packaging and containers, housewares, tires, audio and video cassettes,
luggage, children's toys, paper coating, appliance parts and carpet backing.
Effective April 1, 1994 the Company and BP Chemicals Ltd. entered into a
sales and purchase agreement for approximately 15% of the Company's production
of styrene, subject to specified minimum and maximum yearly requirements. The
term of the agreement initially expires in December 1996 but extends on a
year-to-year basis thereafter unless terminated by either party by giving at
least twelve month's prior written notice.
The Company and Monsanto are operating under a conversion agreement and a
sales agreement, each effective through December 31, 1995. The Company is
negotiating with Monsanto with respect to the renewal of these agreements.
Although there can be no assurances, the Company anticipates that these
agreements will be renewed on substantially similar terms. Under these
agreements the Company provides Monsanto, subject to a specified minimum and
maximum, a major portion of Monsanto's styrene requirements for its manufacture
of styrene-containing polymers. Under the conversion agreement, Monsanto
delivers ethylene and benzene to the Company and pays the Company a fee
generally designed to recover the Company's conversion costs and to provide the
Company an element of profit dependent on the then existing market conditions.
Alternatively, under the sales agreement, Monsanto may purchase all or a portion
of its styrene requirements described above from the Company at market price,
subject to certain prior notice requirements. The agreements permit Monsanto to
terminate all or part of its obligations upon twelve months' notice to the
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Company should Monsanto sell or discontinue all or part of its business that
uses styrene. During fiscal years 1994, 1993 and 1992, the Company delivered to
Monsanto a significant portion of the Company's styrene production each year.
Effective September 1992, the Company and Mitsubishi entered into a sales
agreement which has an original term expiring in August 1995. The contract
renews automatically on an annual basis unless terminated by either party with
three months' prior notice. This agreement is for approximately 10% of the
Company's production of styrene, subject to specified minimum and maximum yearly
requirements.
The balance of the Company's styrene production is sold pursuant to other
contractual arrangements and by the Company's sales organization in the export
and domestic markets.
According to industry publications, the total domestic capacity for styrene
is currently 11.6 billion pounds per year. The Company's rated capacity* of 1.5
billion pounds per year accounts for approximately 13% of the domestic capacity.
The Company's major domestic competitors in the manufacture of styrene are Dow
Chemical Company, Arco Chemical Company, Amoco Chemicals Company, Chevron
Chemical Company, COS-MAR (a joint venture of General Electric Company and Fina)
and Huntsman Chemical Corporation.
The commodity chemical markets in which the Company competes are cyclical,
volatile and sensitive to changes in supply and demand, which are in turn
affected by general economic conditions. Tight market conditions for products
that result in strong profit margins, such as those now existing for styrene,
have historically caused significant new capacity additions. These typically
lead to overcapacity and declining prices and profit margins until market growth
can absorb the new capacity. The relative strength or weakness of the global
economy can influence the rate of market growth.
Beginning in 1991, styrene's profitability became depressed because of both
overcapacity and recessionary pressures in parts of the world. By the spring of
1994, however, market growth resulting from economic expansion had absorbed much
of the excess capacity. As a result, the Company's styrene volumes began
increasing late in the first fiscal quarter and by the third fiscal quarter
prices and margins were increasing as well. Generally, all of the Company's
products benefited in 1994 from the recovery under way in the global commodity
chemical markets. While fiscal 1994 began with weak demand for both styrene and
acrylonitrile, by the end of fiscal 1994 both products were experiencing higher
prices, margins and sales volumes.
Acrylonitrile. The Company manufactures acrylonitrile from propylene and
ammonia using BPC technology. Acrylonitrile is principally used in the
manufacture of intermediate products such as acrylic fibers and ABS resins.
These intermediate products are used to produce various consumer products,
including apparel, carpets, furnishings, upholstery, household appliances, and
plastics for automotive parts.
Approximately 80% of the Company's acrylonitrile production was exported in
fiscal 1994, primarily through large international trading companies or in
connection with a conversion agreement with BPC. In 1988, the Company entered
into a long-term conversion agreement with BPC, under which BPC contributed the
majority of the capital expenditures required to start the third acrylonitrile
reactor train at the Texas City Plant and BPC has the option to take up to
approximately one-sixth of the Company's total acrylonitrile capacity. BPC
furnishes the necessary raw materials and pays the Company a conversion fee for
the amount of acrylonitrile it takes. During fiscal 1994, the Company delivered
approximately 9% of its acrylonitrile production to BPC pursuant to this
agreement, while in fiscal 1993 and 1992, the quantity was immaterial. This
agreement has an initial term of ten years, with BPC having the option to extend
the agreement for two additional five-year terms. The third reactor incorporates
certain BPC technological improvements under a separate license agreement from
BPC. During the term of the agreement, the Company has the right to incorporate
these and any future improvements into its other existing acrylonitrile
facilities. BPC has a first security interest in and lien on the third reactor
and related equipment and in the first acrylonitrile produced in the reactor
units and the proceeds generated from the sales thereof to the extent of the
acrylonitrile which
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* "Rated capacity" or "capacity" is calculated by estimating the number of days
in a year that a production unit is expected to operate and multiplying that
number by an amount equal to the production unit's optimal daily output.
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BPC is entitled to purchase under the production agreement. These rights may
only be exercised upon an event of default by the Company.
The Company and Monsanto entered into a long-term conversion agreement
effective January 1, 1994, which supersedes and contains essentially the same
terms as a prior agreement that had been in place since 1986. This agreement
will expire at the end of 1998. Under this agreement, Monsanto pays the Company
a fee generally designed to cover fixed and variable costs and to provide an
element of profit, dependent on the then existing market conditions, with
respect to acrylonitrile delivered. The agreement permits Monsanto to terminate
all or part of its obligation upon six months' notice to the Company should
Monsanto sell or discontinue all or part of its business using acrylonitrile.
During fiscal years 1994, 1993 and 1992, the Company delivered a substantial
amount of its acrylonitrile production to Monsanto.
The balance of the Company's acrylonitrile production is sold by its sales
force and certain international agents. During fiscal 1993, the Company opened
an office in Beijing, China. During fiscal 1994, the Company made its first
direct sales of acrylonitrile into China and anticipates increased marketing
opportunities in this region.
According to industry publications, the total domestic capacity for
acrylonitrile production is approximately three billion pounds per year with the
Company's rated capacity of approximately 700 million pounds accounting for
approximately 25% of the total. Other major domestic producers of acrylonitrile
are Cytec Industries (formerly American Cyanamid Co.), Dupont, BPC and Monsanto.
Acetic Acid. The Company produces acetic acid from carbon monoxide
(produced on-site from carbon dioxide and natural gas) and methanol using a
technology owned and licensed to the Company by BPC. Acetic acid is principally
used in the manufacture of intermediate products such as vinyl acetate monomer.
These intermediate products are used to produce various consumer products,
including pharmaceuticals, adhesives, glue, cigarette filters and surface
coatings.
The Company has had an agreement in effect since August 1986 with BPC
giving BPC the exclusive right to purchase all of the Company's acetic acid
production until August 1996. In exchange for that exclusive right, BPC is
obligated to make unconditional payments to the Company through August 1, 1996
sufficient to repay the Company's project loan related to the acetic acid unit.
This project loan will be discharged pursuant to its terms on August 1, 1996.
BPC provides methanol and reimburses the Company on the basis of a formula
designed to provide the Company with full cost recovery. In addition, the
Company is entitled to receive annually a portion of the profits earned by BPC
from the sale of acetic acid produced by the Company. The acetic acid unit is
subject to certain security arrangements (taking the form of a sale-leaseback
transaction) which provide that until August 1996, under certain limited
circumstances generally under the Company's control, BPC could take physical
possession of and operate the acetic acid unit. In August of 1996, the Company
will reacquire title to the acetic acid unit.
In August 1994 the Company and BPC amended and restated the 1986 agreement
to extend the production provisions (but not the security arrangements) to
August 2016. In connection with this extension, the Company and BPC modified the
profit sharing provisions of the 1986 agreement and terminated BPC's conditional
right to further extensions of the Agreement.
The Company has reached agreement with BPC to expand acetic acid capacity
from about 600 million pounds to nearly 800 million pounds annually. This
expansion is expected to be completed in fiscal 1996 and should make acetic acid
the Company's second largest volume product.
According to industry publications, the total domestic capacity for acetic
acid production is approximately 3.8 billion pounds per year, with the Company's
current rated capacity of about 600 million pounds representing approximately
16% of the total domestic capacity. The Company's major domestic competitors are
Hoechst Celanese Corporation, Eastman Chemical Products, Inc. and Hanson plc
(formerly Quantum Chemicals).
Plasticizers. The Company manufactures plasticizers employing a series of
processes using alpha-olefins and orthoxylene as the primary raw materials.
Plasticizers are used to make various products, including
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flexible plastics such as shower curtains and liners, floor coverings, cable
insulation, upholstery and plastic molding.
The Company has a product sales agreement with BASF that extends through
the end of the decade but renews automatically for six years unless either party
delivers a termination notice to the other on or prior to December 31, 1997.
Pursuant to the agreement, the Company sells all of its plasticizer production
to BASF. BASF provides certain raw materials to the Company and markets the
plasticizers and BASF pays fees to the Company on a formula basis designed to
reimburse the Company's direct and allocated costs. In addition, the Company is
entitled to a share of profits earned by BASF attributable to the plasticizers
supplied by the Company. BASF retains title to and has a security interest in
the raw materials furnished by it and in the finished inventory of plasticizers
produced by the Company for delivery to BASF.
The Company's current rated capacity for the production of plasticizers is
approximately 280 million pounds per year. The other major domestic producers of
plasticizers are Exxon Chemical Americas, Aristech Chemicals and Eastman
Chemical Products, Inc.
Lactic Acid. The Company markets synthetic lactic acid to food processing
and pharmaceutical companies in both the domestic and export markets through its
sales personnel. The Company is the sole domestic producer of synthetic lactic
acid, the highest purity lactic acid available. The Company uses hydrogen
cyanide, a by-product of its acrylonitrile process, acetaldehyde and hydrogen
chloride as raw materials. Primary uses for lactic acid are as a food additive
and preservative and in pharmaceuticals. Major competition for the Company in
lactic acid is from competitors who manufacture primarily fermentation grade
lactic acid. Management believes that the quality of synthetic lactic acid
generally is preferred over the quality of fermentation grade lactic acid,
particularly in certain time and heat exposure applications.
TBA. The Company manufactures TBA by adding part of the Company's
by-product hydrogen cyanide to isobutylene in an acid catalyst reaction. TBA is
used to make various products, including pesticides, solvents, pharmaceuticals
and synthetic rubber. The Company sells all of its TBA production to Monsanto
pursuant to a long-term contract that expires on December 31, 1996.
The Company believes that there are currently only three TBA production
units in the world: the Company's TBA unit (21 million pounds rated capacity),
Nitto Chemical Industries Co., Ltd (3.3 million pounds rated capacity) and BASF
(13 million pounds rated capacity).
Sodium Cyanide. The Company operates a sodium cyanide facility owned by
Dupont which was constructed in 1989 on land owned by the Company at the Texas
City Plant. The facility has an annual rated capacity of 100 million pounds and
utilizes as a raw material hydrogen cyanide, a by-product of the Company's
acrylonitrile process. The Company and Dupont have an agreement whereby the
Company receives a fee for operating the facility for up to 30 years. The
Company is compensated by Dupont for the raw material value of the hydrogen
cyanide as well as for the Company's allocated and incremental out-of-pocket
costs for operating the facility. Either party may terminate this agreement by
giving 36 months' written notice. Termination by the Company prior to the 15th
anniversary of the agreement (May 2003) would require various remedies to be
made by the Company to Dupont, including penalties and cost of removal of the
facility from the Company's plant site. Termination by Dupont would require
Dupont to pay for the cost of removal of the facility. Assignability of the
agreement is limited, and if the Company assigns the agreement under certain
circumstances, it must deliver to Dupont a lease for the land on which the
facility is situated and permit Dupont to operate the facility. Dupont also may
operate the sodium cyanide facility in the event of certain defaults.
Pulp Chemicals
On August 21, 1992 Sterling Canada, Inc. ("Sterling Canada"), a
wholly-owned subsidiary of the Company, and Sterling Pulp Chemicals, Ltd., a
wholly-owned subsidiary of Sterling Canada ("Sterling Pulp"), purchased
substantially all of the assets of the pulp chemicals business of Albright &
Wilson Americas, a division of Tenneco Canada, Inc., a wholly owned subsidiary
of Tenneco Inc. ("Tenneco Canada") for approximately $202 million. All four of
the Canadian plants acquired produce sodium chlorate,
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and one also produces sodium chlorite. In addition to the manufacturing
facilities, the Company acquired from Tenneco Canada an operating unit that is
one of the largest worldwide suppliers of patented technology for the
large-scale generators used by certain kraft pulp mills to convert sodium
chlorate into chlorine dioxide. The purchased assets also include systems for
the design, installation, sale and servicing of such generators for use by kraft
pulp mills and the licensing and construction of sodium chlorate plants.
Sodium Chlorate. Sodium chlorate is used in the production of chlorine
dioxide and is sold primarily to paper manufacturers for use as a bleaching
chemical for kraft pulp manufacturing. Kraft pulp is a strong paper or
paperboard made from wood chips. Bleached kraft pulp is used to make uncoated
paper for commercial printing and for office copiers and printers and coated
paper for magazines, catalogues and promotional printed products. Chlorine
dioxide also is used to bleach paperboard for packing, tissue and other products
and as a raw material to produce sodium chlorite. Other uses for sodium chlorate
include a raw material for rocket propellants and as a cotton defoliant. The
Company markets sodium chlorate primarily in Canada and the U.S. heightened
environmental concerns and new regulations limiting dioxins and furans in pulp
mill effluent have resulted in growth in the sodium chlorate industry as pulp
mills have begun to substitute chlorine dioxide for elemental chlorine. Chlorine
dioxide is an environmentally preferred substitute for elemental chlorine in the
bleaching of kraft pulp. Chlorine dioxide is a powerful and highly selective
oxidizing agent suitable for pulp bleaching with the ability to produce
high-brightness pulp with little or no damage to the cellulose fiber. There are
currently efforts in some jurisdictions to ban all chlorine and
chlorine-containing products, including chlorine dioxide, from the pulp
bleaching process. See "--Environmental and Safety Matters."
The Company is one of the three largest producers of sodium chlorate in
North America. Its rated capacity of 320,000 metric tons accounts for
approximately 20% of North American capacity. The Company's major North American
competitors in the manufacture of sodium chlorate are Akzo Nobel (formerly Eka
Nobel), Occidental Petroleum, Canadian Occidental and Kerr-McGee.
The Company sells sodium chlorate generally under one to five year
contracts, most of which provide for minimum and maximum volumes at market
prices. In addition, most of these contracts contain certain "meet or release"
pricing clauses. Certain contracts are evergreen and require advance notice
before termination.
Chlorine Dioxide Generators. Through its ERCO Systems Group, the Company
is one of the largest worldwide suppliers of patented technology for the
generators which certain pulp mills use to convert sodium chlorate into chlorine
dioxide. Each mill that uses chlorine dioxide requires at least one generator.
The Company receives revenue when a generator is sold to a mill. More
importantly, however, the Company also receives royalties from the mills
generally over the next ten-year period based on the amount of chlorine dioxide
produced. The Company was awarded ten new generator contracts during fiscal
1994, while eight of the generators sold in prior years commenced operation in
fiscal 1994.
The research and development group of Sterling Pulp works to develop new
and more efficient generators. When pulp mills move to higher chlorine
substitution levels, they usually upgrade generator capacity which frequently
requires new generator technology. Mills may also convert to a newer generator
to take advantage of efficiency advances and technological improvements. Each
upgrade or conversion results in a licensing agreement which generally provides
for payment of an additional ten-year royalty.
Selection by the mills of the type of generator and the supplier of sodium
chlorate is completely independent. The Company's pulp chemicals business
historically has supplied approximately two-thirds of all large scale pulp mill
generators worldwide. The Company's major competitor is Akzo Nobel. Outside of
North America, Akzo Nobel operates under the name Cell Chem.
During fiscal 1993, the Company opened a small representative office in
Beijing, China. This office is expected to develop opportunities for future
sales of sodium chlorate and chlorine dioxide generators and/or for the
licensing and construction of sodium chlorate plants in that region. The first
generator in China to convert sodium chlorate to chlorine dioxide was sold by
ERCO and commenced operation in fiscal 1994. Several more generators are under
construction in China by ERCO.
Sodium Chlorite. The Company manufactures sodium chlorite at its
Buckingham, Quebec facility. That facility's capacity is approximately 3,000
metric tons per year. Sodium chlorite is a specialty product used
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primarily for water treatment and as a disinfectant for fresh produce. North
American capacity for sodium chlorite is approximately 13,000 metric tons with
one other North American producer, Vulcan Chemicals.
For information regarding the production capacities, operating rates and
revenues generated by each of the Company's principal products, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
AVAILABILITY OF RAW MATERIALS FOR PRODUCTS
For each of the Company's products, the combined cost of raw materials and
utilities is far greater than all other production costs combined. Thus, an
adequate supply of these materials at reasonable prices is critical to the
success of the Company's business. The Company does not produce any of its major
raw materials, benzene, ethylene, propylene and ammonia at the Texas City Plant,
and electricity at its pulp chemical facilities. Moreover, some of the Company's
competitors are integrated and produce their own raw materials. Although
management believes that the Company will continue to be able to secure adequate
supplies of its raw materials to meet its requirements at acceptable prices,
there can be no assurance that it will be able to do so.
PETROCHEMICALS
Styrene. Styrene is a clear liquid that the Company manufactures from
ethylene and benzene. The Company's conversion agreements require that other
parties furnish to the Company the ethylene and/or benzene necessary to fulfill
its conversion obligations. In recent years, approximately one-third of the
Company's ethylene has been furnished by customers pursuant to conversion
arrangements. The Company nevertheless must purchase large volumes of ethylene
and benzene for use in most of its production of styrene for sale to others.
There is currently a high demand for ethylene and its price has risen
significantly recently. The Company has arrangements with several ethylene
suppliers that provide for its estimated requirements for purchased ethylene at
generally prevailing and competitive market prices. If any of these suppliers
were to experience significant operating problems, the Company would be forced
to seek alternative sources at prices that could be unfavorable for the Company.
Moreover, if various customers for whom the Company now manufactures styrene
under conversion arrangements were to cease furnishing their own raw materials
and seek only to purchase styrene from the Company, the Company's requirements
for purchased ethylene and benzene could correspondingly increase.
Acrylonitrile. The Company produces acrylonitrile by reacting propylene
and ammonia over a solid-fluidized catalyst at low pressure. Similar to styrene,
the Company sells a significant portion of its acrylonitrile pursuant to
conversion agreements but must purchase large volumes of propylene and ammonia
for use in most of its production of acrylonitrile for sale to others. If
various customers for whom the Company now manufactures acrylonitrile under
conversion arrangements were to cease furnishing their own raw materials and
seek only to purchase acrylonitrile from the Company, the Company's requirements
for purchased propylene and ammonia could increase. Although currently the
demand for propylene is high and the price of propylene has risen significantly
recently, the Company believes that both ammonia and propylene will, for the
foreseeable future, remain in adequate supply to meet demand. Hydrogen cyanide
is a by-product of the manufacture of acrylonitrile and is used by the Company
as a raw material for the production of lactic acid, TBA and sodium cyanide and
any excess is burned as fuel.
Acetic Acid. Acetic acid is manufactured by the Company primarily from
carbon monoxide (produced on-site from carbon dioxide and natural gas) and
methanol. At present, the Company's methanol is supplied by BPC under its
long-term contract with the Company. The Company believes that methanol will be
available for its needs for the foreseeable future. Carbon dioxide and natural
gas are purchased under requirements contracts with major suppliers and are
available in adequate supply.
Plasticizers. The Company manufactures plasticizers using a series of
processes. Primary raw materials are alpha-olefins and orthoxylene, which are
supplied by BASF under its long-term contract with the Company. Management
believes that adequate supplies of raw materials will be available for the
Company's needs in the foreseeable future.
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Lactic Acid. Lactic acid is manufactured from the Company's hydrogen
cyanide, a by-product of its acrylonitrile process, and two other raw materials,
acetaldehyde and hydrogen chloride, which are readily available from commercial
suppliers.
TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in
an acid catalyst reaction. The Company uses a portion of its by-product hydrogen
cyanide in this process. Monsanto supplies the isobutylene, sulfuric acid and
caustic soda under its long-term contract with the Company, and management
believes that supplies of these raw materials will remain adequate for its needs
in the foreseeable future.
Sodium Cyanide. Sodium cyanide is manufactured from the Company's
by-product hydrogen cyanide and caustic soda. Dupont supplies the caustic soda
under its long-term contract with the Company.
PULP CHEMICALS
Sodium Chlorate. Sodium chlorate is manufactured by passing an electric
current through an undivided cell containing a solution of sodium chloride.
There are various technologies available for production of sodium chlorate. The
Company's current technology was developed internally prior to the acquisition
and is metal cell technology utilizing titanium anodes, piping and reactors.
Electric power is purchased by each of the Company's pulp chemical facilities
pursuant to contracts with local electric utilities. Electric power costs
typically represent approximately 70% of the variable cost of production of
sodium chlorate. Consequently, the rates charged by local electric utilities are
an important competitive factor among sodium chlorate producers. On average, the
Company's electrical power costs are believed to be competitive with other
producers in the areas in which it operates.
The Company also purchases sodium chloride (salt) for use in the
manufacture of sodium chlorate. Sodium chloride is purchased under requirements
contracts with major suppliers. The Company believes that sodium chloride will
be available for its needs for the foreseeable future.
TECHNOLOGY AND LICENSING
PETROCHEMICALS
In connection with the Company's purchase of the Texas City Plant in 1986,
Monsanto assigned to the Company certain third party technology licenses that
granted the Company a nonexclusive, irrevocable and perpetual right and license
to use Monsanto's technology at the Texas City Plant in effect at the time of
the acquisition for the purpose of (i) continuing the production of the
chemicals which were then produced at the Texas City Plant and (ii) modifying,
operating and maintaining the synthesis gas production unit to produce carbon
monoxide, blend gas and hydrogen for internal plant use. During fiscal 1991, BPC
purchased the technology and the license related to the acetic acid unit from
Monsanto. Under this license, the Company is not obligated to make any royalty
payments to BPC. The Company believes that these licenses are material to the
operation of the Texas City Plant. The right and license granted by Monsanto
with respect to styrene does not require the Company to make royalty payments
unless the styrene capacity or production level exceeds 1.5 billion pounds per
year. In the event that Monsanto grants to another a similar license with
respect to styrene offering more favorable royalty rates, Monsanto must offer
the Company the more favorable rates.
BPC has granted to the Company a perpetual, royalty free license to use
BPC's acrylonitrile technology at the Company's Texas City Plant as part of the
acrylonitrile expansion project. The Company and BPC have agreed to
cross-license any technology or improvements relating to the manufacture of
acrylonitrile in the Company's facility.
During the term of the sodium cyanide contract, Dupont has the option to
provide to the Company any improvements in its sodium cyanide technology without
cost to the Company.
Management believes that the manufacturing processes that the Company
utilizes at the Texas City Plant are cost effective and competitive. Although
the Company does not engage in alternative process research with respect to its
U.S. operations, it does monitor new technology developments, and when
management believes it is appropriate, the Company seeks to obtain licenses for
process improvements.
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<PAGE> 11
PULP CHEMICALS
Along with the sodium chlorate manufacturing facilities, the Company also
acquired from Tenneco Canada an operating unit that is one of the largest
worldwide suppliers of patented technology for the generators used by certain
pulp mills to convert sodium chlorate into chlorine dioxide. The purchased
assets also included chlorine dioxide generation technology and systems for the
design, installation, sale and servicing of such technology for use by kraft
pulp mills.
The principal business of this unit is the design, sale and technical
service of custom-built patented chlorine dioxide generators. Sterling Pulp's
engineering group is involved in the technical support of its company's sales
and marketing group through joint calling efforts and defines the scope of a
project and produces technical schedules and cost estimates. The Company
subcontracts the detailed design and construction of the chlorine dioxide
generators. Plant and instrumentation testing and generator start-up are handled
by a joint engineering/technical service team of the Company. The Company is
involved in a number of patent disputes with Akzo Nobel. See Item 3, "Legal
Proceedings."
The Company's pulp chemicals research and development activities are
carried out at its Toronto, Ontario laboratories. Activities include the
development of new or improved chlorine dioxide generation processes and
research in new technologies focusing on electrochemical and membrane technology
related to chorine dioxide, its by-products and pulp mill effluent.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations are subject to extensive regulation relating to
environmental emissions or discharges, process controls, waste management,
worker and community health and safety and chemical products. Operating permits
or approvals are or may be required for the Company's production operations and
waste disposal practices, and these permits are subject to revocation or
modification for cause and to renewal upon expiration. Governmental authorities
have the power to enforce compliance with these regulations and permits, and
violators are subject to mandatory orders, fines, injunctions or imprisonment of
individuals. In the U.S., third parties may also have the right to sue to enjoin
certain actions or to enforce compliance.
Management believes that the environmental management programs that the
Company has implemented to maintain compliance with applicable environmental
laws are exemplary for the chemical industry generally. As part of its ongoing
environmental oversight efforts, the Company conducts or commissions reviews of
its environmental performance and addresses issues identified in those reviews.
The Company routinely conducts inspection and surveillance programs to detect
and respond to any leaks or spills of regulated hazardous substances and to
correct any identified regulatory deficiency. To reduce the risk of off-site
consequences from any unanticipated event, the Company acquired a greenbelt
buffer zone adjacent to the Texas City Plant in 1991. The Company also initiated
and continues its participation in a regional air monitoring network to monitor
ambient air quality in the Texas City community. This model five-year program is
a cooperative effort as part of the Company's commitment to the Chemical
Manufacturers Association and Canadian Chemical Producers Association
Responsible Care initiatives. The Company was a Regional Finalist in EPA's
Administrator Awards for 1992 in recognition of "excellence in effort and
significant contributions to environmental improvement through pollution
prevention." In 1993 and 1994, the Company received a Certificate of Nomination
from the EPA in recognition of the efficient operation, maintenance and
management of its deep-well disposal facility. In 1994 the Company's Commitment
to Safety was also rewarded. The Company became the first facility in Texas
City, Texas to be accepted into the Merit Program of the U.S. Occupational
Safety and Health Administration ("OSHA"), part of OSHA's Voluntary Protection
Program.
Changing and increasingly strict environmental laws and regulations might
affect the manufacture, handling, processing, distribution or use of chemical
products and the release, treatment, storage or disposal of wastes by the
Company. For example, at both the state and federal level, the trend towards
regulation of discharges on a sectoral, geographic or multimedia basis may
directly or indirectly affect producers of specific chemicals. Such actions may
be expected to exert pressure on companies in the commodity chemical industry to
enhance their wastewater recycling and on-site treatment systems to reflect the
government's evolving
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<PAGE> 12
views. Some risk of environmental costs and liabilities is inherent in
particular operations and products of the Company, as it is with other companies
engaged in similar businesses. There can be no assurance that material costs and
liabilities will not be incurred.
Production of chemical products involves the use, storage, transportation
and disposal of materials that may be classified as hazardous or toxic under
applicable laws. Management believes that the Company's procedures for the use,
storage, transportation and disposal of these materials are consistent with
industry standards and applicable laws and that it takes precautions to protect
its employees and others from harmful exposure to such materials. However, there
can be no assurance that past or future operations will not result in exposure
or injury or to claims of injury by employees or the public due to the use,
storage, transportation or disposal of these materials.
In connection with the Company's purchase of the Texas City Plant from
Monsanto, Monsanto contractually retained liability for any pre-closing
violations, for pre-closing deposits or emissions, including costs for cleanups
(defined as remediation work mandated by a governmental agency to clean up,
contain or remove hazardous substances) and third party claims as a result
thereof and for related legal fees, costs and expenses. These obligations
terminate under a variety of circumstances, including an assignment of the
acquisition agreement without Monsanto's consent. The obligations also terminate
if either of Mr. Gordon A. Cain or Mr. J. Virgil Waggoner, the Company's
Chairman and President, respectively, cease to have active management
responsibility for the Company or cease to own at least 2.5% of the outstanding
voting stock of the Company, except due to death or disability. The Company has
the right, until August 1, 1996, to designate, subject to Monsanto's reasonable
approval, a replacement for either of these individuals who might die or become
disabled on or before such date. After that date, the Monsanto indemnity
obligations expire, if, for any reason, either of the two named individuals no
longer have such management responsibility or ownership. These obligations may
also terminate (as to the facilities as a whole or any operating unit) on the
purchase or assumption of operating responsibility by a third party for the
entire facility or unit. Under certain circumstances, however, BPC's assumption
of operating control of the acetic acid unit under the BPC agreement would not
terminate Monsanto's obligations. The indemnity obligations would also terminate
or be limited in the event of other occurrences such as the release by the
Company of securely-contained deposits or the operation of the deep injection
wells in excess of certain contractual limitations. The expansion of the
acrylonitrile facilities has caused the injection wells to be operated outside
of those contractual operating conditions, although within applicable state
operating permit conditions. This may jeopardize Monsanto's contractual
indemnity with respect to the injection wells. The Company's management is
unable to determine the impact, if any, of such loss of indemnity for the
injection wells or the potential expiration of the indemnity upon a change in
ownership or management, as described above, after August 1, 1996.
In connection with the Company's purchase of the pulp chemicals business,
Tenneco Canada contractually retained liability for costs, damages, fines,
penalties and other losses arising from claims by third parties (including
employees and authorities) arising from the ownership or operation of the
facilities and businesses prior to the acquisition. Tenneco Canada's
indemnification obligations are guaranteed by Albright & Wilson Ltd., subject to
certain net-worth conditions. The Company is also indemnified against the breach
of Tenneco Canada's environmental remediation covenants. These covenants oblige
Tenneco Canada to do specific remedial work (including decommissioning the old
section of the Vancouver facility, which is underway) at the facilities within
set time periods, and to do any investigation, monitoring or remedial work
required by present or future legislation in connection with environmental
conditions predating the acquisition. Tenneco Canada has, in addition,
indemnified the Company against losses arising from the remediation of
preacquisition environmental conditions or from preacquisition violations of
environmental laws. With the exception of any third party claims, the losses
against which the Company is indemnified do not include consequential damages or
lost profits.
Environmental regulations may also affect certain of the Company's markets.
For example, there are currently efforts by certain environmental groups to ban
all chlorine and chlorine-containing products, including chlorine dioxide, from
the pulp bleaching process. The Canadian province of British Columbia has passed
legislation that would effectively ban the discharge of effluents containing
certain byproducts that result from the use of chlorine or chlorine-containing
bleaching agents by the year 2002. In light of recent scientific
10
<PAGE> 13
research, however, the Environment Ministry of British Columbia has expressed
willingness to reconsider its ban on effluent discharges containing
chlorine-bleaching products. Any significant ban on all chlorine products could
have a material adverse effect on the Company's financial condition and results
of operations. The pulp and paper portions of the chemical industry are opposing
such proposals and legislation. The Company believes British Columbia will face
both scientific reasons and economic pressures to change its legislation. The
Company and most of its customers believe that bleaching methods that substitute
chlorine dioxide for elemental chlorine achieve all reasonable pollution
reduction targets for air and water emissions, and that a conversion to totally
chlorine-free bleaching will yield no measurable environmental or public health
benefits. The cost to industry of switching to alternative bleaching methods
would be significant and important qualities of pulp and paper such as strength,
durability, brightness, absorbency and softness would be diminished. Based on
current scientific research, the Company believes that higher levels of chlorine
dioxide substitution for elemental chlorine may be the preferred solution and
the current technical debate could actually benefit the Company. The ultimate
resolution of this issue may not be known for several years.
Long-term joint research efforts between the University of Toronto and the
Company have had a significant role in the widespread adoption of chlorine
dioxide as a substitute for elemental chlorine in the pulp bleaching process.
Among other activities, the University of Toronto is conducting research into
the characterization of organochlorine compounds found in pulp and paper
products and mill effluents. This research should be valuable in directing the
Company's activity to help its chlorine dioxide pulp bleaching technologies meet
customer and environmental demands. The Company was also one of the leading
founders of an industry association to commission scientific research into the
environmental effects of the production and use of chlorine dioxide. The
association will continue to focus on supporting the pulp and paper industry in
regulatory and legislative matters through sound science.
The Company could be required from time to time to make expenditures to
upgrade its wastewater collection, pretreatment or disposal systems at the Texas
City Plant. The Company has completed a focused baseline sampling of groundwater
conditions beneath its Canadian facilities in connection with Tenneco Canada's
indemnification of the Company for preclosing conditions which confirmed the
previous data. Groundwater data obtained in the course of the acquisition of the
pulp chemical business indicated elevated concentrations of certain chemicals in
the soil and groundwater at the four Canadian sites. Tenneco Canada continues to
work with the provincial governments to address these issues. The Company from
time to time has encountered elevated concentrations of chemicals in soils or
groundwater at its plants which it has or is addressing.
Emissions into the air from the Company's Texas City Plant are subject to
certain permit requirements and self-implementing emission limitations and
standards under state and federal law. The Company's Texas City Plant is located
in an area that is classified by the EPA as not having attained the ambient air
quality standards for ozone, which is controlled by direct regulation of
volatile organic compounds ("VOCs") and nitrogen oxide ("NOx"). Additional
requirements were issued in fiscal 1992 and modified in fiscal 1994 by the Texas
Natural Resource Conservation Commission ("TNRCC") in order to achieve ambient
air quality standards for ozone. These measures may substantially increase the
Company's VOCs and NOx control costs in the future, although the cost and full
impact, if any, cannot be determined at this time. See also Item 3. "Legal
Proceedings".
Additionally, the Clean Air Act Amendments of 1990 contain new federal
permit requirements and provisions governing toxic air emissions. The Company
expects that it will incur additional compliance costs as a result of this law
as well as requirements issued by the State of Texas to control VOCs and NOx, as
will all other organic chemical manufacturing facilities similarly situated. The
cost and full impact cannot be determined at this time. The Company has
voluntarily committed to achieve, by 1995, a 65% reduction in emissions of six
of the chemicals targeted in the EPA's "33/50 Plan," which called for voluntary
emissions reductions. The Company met this commitment in reporting year 1991,
four years ahead of schedule. In addition, by 1993 further emission reductions
had resulted in a 83% voluntary decrease in the emissions of these targeted
compounds.
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During the course of the acquisition of the pulp chemical facilities by the
Company, air emissions sources were reviewed, and any available dustfall and
vegetation stress studies were considered. This review indicated emission
excursion episodes at specific locations in the scrubber systems at the Thunder
Bay, Buckingham and Vancouver facilities. Management believes that the issues
disclosed by the review have been or are being addressed and that the Company is
otherwise in compliance in all material respects with permit requirements under
applicable provincial law for operating emissions sources.
Management believes that the Company's solid and hazardous waste management
practices are in compliance in all material respects with permit and other
requirements under applicable environmental law. However, there can be no
assurance that past practices will not result in claims or regulatory action.
See also Item 3. "Legal Proceedings."
EMPLOYEES
As of September 30, 1993, just over 1,200 persons were employed by the
Company including approximately 300 at its facilities in Canada. Approximately
60% of the employees at the Company's manufacturing facilities are covered by
union agreements. The primary union agreement is with the Texas City, Texas
Metal Trades Council, AFL-CIO, of Galveston County, Texas and covers all hourly
employees except security guards at the Texas City Plant. The union agreements
for the security guards are with the Associated Guards of the United States.
These agreements were last negotiated in May 1993 and are again subject to
renegotiation in May 1996. Employees at the Buckingham and Vancouver plants are
represented by the Energy and Chemicals Workers Union and the Pulp Paper and
Woodworkers Union, respectively. The Buckingham agreement, which was last
negotiated in December 1992, expires in November 1994 and negotiations are
underway. The Vancouver agreement was renegotiated in November 1994 and is
subject to renegotiation in November 1997. The Company enjoys a good
relationship with its employees.
INSURANCE
The Company maintains $75 million in excess liability coverage. In
addition, it maintains $500 million of coverage for property damage to its Texas
City Plant and resulting business interruption. Although the Company carries
such insurance, it has only one styrene manufacturing facility and one
acrylonitrile manufacturing facility; thus, a significant interruption in the
operation of either facility could have a material adverse affect on the
Company's financial condition and operations. The Company maintains $364 million
of combined coverage for property damage and resulting business interruption for
its pulp chemical operations. The Company also maintains other insurance
covering risks associated with its business. From time to time various types of
insurance for companies in the chemicals industry have been very expensive or,
in some cases, unavailable. There is no assurance that in the future the Company
will be able to maintain its existing coverage or that the premiums will not
increase substantially. In addition, a catastrophic event at the Company's
facilities could result in liabilities to the Company in excess of its insurance
coverages.
ITEM 2. PROPERTIES
The Company's Texas City Plant is located approximately 45 miles south of
Houston in Texas City, Texas, on a 290-acre site on Galveston Bay near many
other chemical manufacturing complexes and refineries. The Company has
facilities to load its products in drums, containers, trucks, railcars, barges
and ocean-going tankers for shipment to customers. The 290-acre site offers room
for future expansion and includes a greenbelt around the plant site.
The Company's Texas City Plant comprises seven basic operating units which
can be divided into three groups based on the chemistry involved. One group of
operating units involves synthesis gas chemistry (carbon monoxide and hydrogen),
and its facilities include the synthesis gas complex, the acetic acid unit and
three plasticizer units (oxo-alcohol, phthalic anhydride and linear phthalate
esters). Carbon monoxide and hydrogen are utilized as feedstocks in the
oxo-alcohol manufacturing process, and carbon monoxide is a feedstock to produce
acetic acid. A second group of operating units involves acrylonitrile and
hydrogen cyanide chemistry, and its facilities include the acrylonitrile unit,
the lactic acid unit, the TBA unit and the
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<PAGE> 15
sodium cyanide unit. Ammonia and propylene are used as feedstocks in the
acrylonitrile process, and hydrogen cyanide, a by-product of that process, is
used as a feedstock for the other units in this second group and is also burned
as fuel. The third operating group is based on ethylene and benzene chemistry,
and its facilities comprise the ethylbenzene and styrene units. Although the
styrene unit is independent of the rest of the facility from a feedstock and
by-product standpoint, it is the cornerstone of the Company's energy balance, as
it uses large quantities of by-product steam generated by the acrylonitrile and
phthalic anhydride units, thus reducing the demands on the Company's steam
generating facility. In this way, the Company's utilities system links the three
operating groups together in an effort to minimize utility costs. This
integration results in cost efficiencies without significantly compromising the
operating flexibility of the individual product units.
The Company owns or leases all of the real property, plant and equipment
which comprise its Texas City Plant, other than the sodium cyanide unit owned by
Dupont, the acetic acid unit and related facilities which it operates under a
sale leaseback arrangement with BPC that expires in August of 1996 and a
cogeneration facility owned by a joint venture with a subsidiary of Praxair,
Inc. The Company also owns storage facilities, approximately 200 rail cars and
an acetic acid barge. In addition, the Company leases approximately 20,000
square feet of office space in Houston, Texas for its corporate headquarters and
leases several storage facilities in the U.S. and Asia.
The Company's pulp chemical operations include four manufacturing plants.
The Company purchased 20 acres out of a total of 104 acres (owned by Tenneco
Canada) at the Buckingham, Quebec site. The facility is essentially a
stand-alone operation and is physically separate from the other facilities at
the site. The Vancouver, British Columbia site covers 20 acres owned by the
Company. The Thunder Bay, Ontario and Grande Prairie, Alberta sites are leased
by the Company. The Company also leases approximately 200 rail cars.
Headquarters for the Canadian operations is located in Toronto in a single story
office building owned by the Company which contains approximately 50,000 square
feet. The building is situated on 6.56 acres owned by the Company and serves as
the headquarters for the pulp chemical business and its respective laboratories.
Management believes that these properties and equipment are sufficient to
conduct the Company's business.
See Item 1. "Business" for other information required by this item.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and legal actions that arise in the
ordinary course of its business. There is no litigation pending or threatened
against the Company that management believes will have a material adverse effect
on the financial position or results of operations of the Company.
On May 9, 1991, a lawsuit styled Moranda Allen, et al. v. Sterling
Chemicals, Inc., et al., Cause No. 91-019786; In the 127th Judicial District
Court of Harris County, Texas, was filed against the Company and several other
petrochemical companies operating in the Texas City area. The plaintiffs in the
lawsuit assert personal injury and property damage claims arising from alleged
chemical releases. The plaintiffs seek an unspecified amount of damages in
excess of $50,000. Although the court dismissed a number of the plaintiffs for
failure to comply with discovery, over 300 plaintiffs remain in the action. The
Company is vigorously defending the lawsuit.
On April 27, 1994, approximately 1,000 plaintiffs sued the Company and 18
other corporate defendants in the Texas City area in a lawsuit styled Angela
Smith, et al. v. Amoco Chemical Company, et al.; Cause No. B-0148-927; In the
60th Judicial District Court of Jefferson County, Texas. The plaintiffs seek an
unspecified amount of damages in excess of $50,000 for claimed personal injury
and property damages arising from alleged chemical releases. Discovery is
proceeding and the Company is vigorously defending this lawsuit.
On May 8, 1994, an ammonia release occurred at the Texas City Plant
facility while a reactor in the acrylonitrile unit was being restarted after a
shutdown for routine maintenance. The Company estimates that approximately 3,000
pounds of ammonia were emitted into the atmosphere. As of November 15, 1994,
approximately 9,000 individuals had filed claims directly with the Company
alleging personal injury and/or property damage as a result of exposure to the
ammonia. The Company and its insurance carrier are in the
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<PAGE> 16
process of evaluating the merits of these claims. Approximately 2,000 of these
claims have been settled and 3,000 have been denied by the Company. As of
December 15, 1994, five lawsuits involving approximately 1,100 plaintiffs had
been filed against the Company seeking unspecified damages for personal injuries
and property damage as a result of the release. Otis Pointer, et al. v. Sterling
Chemicals, Inc., et al.; Cause No. 94-CV-0514; In the 56th Judicial District
Court of Galveston County, Texas; Bobbie J. Adams, et al. v. Sterling Chemicals,
Inc.; Cause No. 94-CV-0764; In the 56th Judicial District Court of Galveston
County, Texas; Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No.
94-CV-0947; In the 56th Judicial District Court of Galveston County, Texas; and
Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94-CV-1147; In the
212th Judicial District Court of Galveston County, Texas; Beverly O. Mitchell,
et al. v. Sterling Chemical, Inc., et al.; Cause No. 94-CV-1312; In the 202nd
Judicial District Court of Galveston County, Texas. The Company anticipates that
additional claims and litigation against the Company asserting similar claims
will ensue. The Company believes that its general liability insurance coverage
is sufficient to cover anticipated costs and expenses and has accrued its
deductible under this coverage. The Company intends to vigorously defend these
claims and litigation.
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
(formerly Eka Nobel) and its affiliates. The Company is engaged with Akzo Nobel
in numerous patent disputes throughout the world in which the Company and Akzo
Nobel are challenging certain patents of the other and attempting to restrict
the other's operating range. If either party is successful in these disputes,
the other party may have to make adjustments and modifications in its commercial
operations or obtain a license from the prevailing party. The Company s
management believes that any potential costs for such adjustments or
modifications would not be material. The Company believes it is entitled to
certain indemnities from Tenneco Canada with respect to the technology acquired
from Tenneco Canada.
In October 1993, the Company and the Internal Revenue Service ("IRS")
agreed upon a basis for settlement of the adjustments proposed as a result of
the IRS' examination of the Company's federal income tax returns for fiscal
years 1987 through 1990. This settlement will result in a tax refund of
approximately $3,800,000 plus interest. The settlement also requires adjustments
to the fiscal year 1991 and 1992 federal income tax returns which will result in
additional taxes owed of approximately $1,400,000 plus interest. In addition,
the Company s deferred tax liability for future years will increase by
approximately $4,000,000. During fiscal year 1992, the Company accrued
$2,000,000 in anticipation of this settlement. These adjustments resulted in a
reduction of $429,000 in tax expense during fiscal 1994.
On August 6, 1993, the Company received a Notice of Violation ("NOV") from
the TNRCC alleging that NOx emissions from one of its Waste Oxidation Boilers
("WOB-A") exceeded a federal new source performance standard that the TNRCC
contends is applicable. The Company has challenged the applicability of this
federal standard in its timely response to the NOV. WOB-A operates under a
permit issued by the TNRCC, which contains a NOx emission limit which is less
stringent than the NOx limit set in the federal standard which the permit
incorporates by reference. In February 1993, the Company filed a petition with
the EPA seeking relief from the more stringent federal standard. In August 1994,
EPA notified the Company that after reviewing extensive technical data provided
by the Company regarding the operation of WOB-A and the NOx content of the fuel
stream used to fire that boiler, EPA has determined that WOB-A was being (and
had always been) operated in compliance with the federal NOx standard. The
Company believes that all compliance issues associated with NOx emissions from
WOB-A have been resolved, and is awaiting TNRCC's concurrence that EPA's finding
resolves all enforcement issues with respect to WOB-A.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1994.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information on pages 21, 29, 30 and page 38 of the Company's 1994
Annual Report to Shareholders is incorporated herein by reference in response to
this item.
ITEM 6. SELECTED FINANCIAL DATA
The information on pages 38 and 39 of the Company's 1994 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages 18 to 23 of the Company's 1994 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information on pages 24 to 39 of the Company's 1994 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors of the Company beginning on page 2 and
the information beginning on page 15 of the Proxy Statement for the Company's
1995 Annual Meeting of Shareholders is incorporated herein by reference in
response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning Executive Compensation beginning on page 5 of
the Proxy Statement for the Company's 1995 Annual Meeting of Shareholders is
incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information beginning on page 2 and beginning on page 13 of the Proxy
Statement for the Company's 1995 Annual Meeting of Shareholders is incorporated
herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management....................................................... *
Report of Independent Accountants.......................................... *
Sterling Chemicals, Inc. Consolidated Balance Sheet as of September 30,
1994 and 1993............................................................ *
Sterling Chemicals, Inc. Consolidated Statements of Operations for the
fiscal years ended September 30, 1994, 1993 and 1992..................... *
Sterling Chemicals, Inc. Consolidated Statement of Changes in Stockholders'
Equity for the fiscal years ended September 30, 1994, 1993 and 1992...... *
Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for the
fiscal years ended September 30, 1994, 1993 and 1992..................... *
Notes to Consolidated Financial Statements................................. *
2. Consolidated Financial Statement Schedules
Report of Independent Accountants.......................................... S-1
Schedule V -- Property, Plant and Equipment for the fiscal years ended
September 30, 1994, 1993 and 1992........................... S-2
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment for the fiscal years ended
September 30, 1994, 1993 and 1992........................... S-3
Schedule X -- Supplementary Income Statement Information for the fiscal
years ended September 30, 1994, 1993 and 1992............... S-4
</TABLE>
All other schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instruction or are inapplicable and, therefore, have been omitted.
3. Exhibits
Except as otherwise noted under "Description of Exhibit," each
exhibit is incorporated by reference to the exhibit of the same
number filed with the Company's Registration Statement of Form S-1
(Registration No. 33-24020).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
2.1 Purchase Agreement dated as of August 20, 1992 between Tenneco
Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and
Sterling Canada, Inc. as Buyers (Purchase Agreement)incorporated
by reference from Exhibit 2.1 to the Company's Current Report on
Form 8-K dated as of September 3, 1992.
3.1 Restated Certificate of Incorporation of the Company.
**3.2 Amended By-laws of the Company.
4.2 Form of Registration Rights Agreements dated as of July 30, 1986
among the Company and the holders of Common Stock listed on the
signature page thereto.
10.1 Asset Purchase Agreement dated August 1, 1986, between Monsanto
Company and the Company incorporated by reference from exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
10.2 Third Amended and Restated Credit Agreement dated as of August
20, 1992 among the Company, the Banks, The Chase Manhattan Bank
(National Association) ("Chase"), and The Bank of Nova Scotia, as
Agent incorporated by reference from Exhibit 10.2(F) to the
Company's Current Report on Form 8-K dated September 2, 1992.
10.3 Amendment No. 1 dated as of August 20, 1992 among the Company,
the Banks and The Bank of Nova Scotia as Agent incorporated by
reference from exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
10.3(A) Amendment No. 2 dated as of June 30, 1993 among the Company, the
Banks and The Bank of Nova Scotia, as Agent.
**10.3(B) Amendment No. 3 dated as of April 29, 1994 among the Company, the
Banks and The Bank of Nova Scotia, as Agent.
10.4 Third Amended and Restated Security Agreement dated as of August
20, 1992, among the Company, the Banks and The Bank of Nova
Scotia, as Agent incorporated by reference from exhibit 10.4 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
10.5 First Amendment to Credit Agreement dated as of August 20, 1992
among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd.,
certain financial institutions and The Bank of Nova Scotia, as
Agent incorporated by reference from exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
10.5(A) Second Amendment to Credit Agreement dated as of March 31, 1993
among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain
financial institutions and The Bank of Nova Scotia, as Agent.
**10.5(B) Third Amendment to Credit Agreement dated as of September 30,
1994 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd.
certain financial institutions and The Bank of Nova Scotia, as
Agent.
10.6 Sterling Chemicals, Inc. (Restated as of October 1, 1993)
Salaried Employees' Pension Plan incorporated by reference from
exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
**10.6(a) Supplement to the Sterling Chemicals, Inc. Salaried Employees'
Pension Plan Restated as of January 1, 1994.
**10.6(b) First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively.
10.8 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Hourly
Paid Employees' Pension Plan incorporated by reference from
exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
**10.8(a) Supplement to the Sterling Chemicals, Inc. Hourly Paid Employees'
Pension Plan restated as of January 1, 1994.
**10.8(b) First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994.
10.10 Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan incorporated by reference from exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
**10.10(a) Supplements to Sterling Chemicals, Inc. Savings and Investment
Plan for Hourly Paid Employees and Salaried Employees.
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
**10.10(b) First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April 27,
1994 and October 26, 1994, respectively.
10.12 Sterling Chemicals, Inc. Amended and Restated Employee Stock
Ownership Plan incorporated by reference from exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
**10.12(a) First Amendment to the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan dated April 27, 1994.
10.15 Sterling Chemicals, Inc. Pension Benefit Equalization Plan
incorporated by reference from exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993.
10.16 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan.
+10.17 Styrene Monomer Sales Contract dated as of August 1, 1991,
between the Company and Monsanto Company incorporated by
reference from exhibit 10.12(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
+10.18 Styrene Monomer Exchange Contract dated as of August 1, 1991,
between the Company and Monsanto Company incorporated by
reference from exhibit 10.13(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
++10.19 Acrylonitrile Exchange Contract dated January 1, 1994, between
the Company and Monsanto Company.
++10.21 Amended and Restated Lease and Production Agreement dated August
8, 1994, between BP Chemicals Americas Inc. and the Company.
+10.22 Product Sales Agreement dated August 1, 1986, between BASF
Corporation and the Company incorporated by reference from
exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
++10.22(a) Amendment No. 3 to Product Sales Agreement as of January 1,1994
between BASF Corporation and the Company.
+10.25 Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto.
+10.26 Agreement dated May 2, 1988, between E.I. du Pont de Nemours and
Company and the Company.
10.27 License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company.
+10.28 Sales Agreement dated September 1992, between the Company and
Mitsubishi International Corporation incorporated by reference
from exhibit 10.28 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993.
10.29 License Agreement dated August 1, 1988, between the Monsanto
Company and the Company.
**10.30 Form of Indemnity Agreement executed between the Company and each
of its officers and directors.
10.31 Amended and Restated Sterling Chemicals, Inc. Salaried Employee's
Profit Sharing Plan incorporated by reference from exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.32 Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan incorporated by reference from exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
10.33 Agreement dated January 30, 1987 among J. Virgil Waggoner, Gordon
A. Cain and the Company regarding capital stock of the Company.
10.35 Article of Agreement between the Company, its successors and
assigns and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, Texas May 1, 1992 to May 1, 1995 incorporated.
10.36 Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan incorporated by reference from exhibit
10.34. to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1989
10.37 Sterling Chemicals, Inc. Deferred Compensation Plan.
+10.38 Buckingham Transition and Services Agreement dated as of August
21, 1992 between Tenneco Canada Inc. and Sterling Pulp Chemicals,
Ltd. incorporated by reference from exhibit 10.36 to the
Company's Current Report on Form 8-K dated September 3, 1992.
10.39 Processing Agreement dated as of August 21, 1992 between ERCO
Industries, Inc. and Sterling Canada, Inc.
10.40 Conditional Performance Guaranty dated as of August 20, 1992 by
Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals,
Ltd., Sterling Canada, Inc. and the Indemnitees identified in
Section 10.2 of the Purchase Agreement incorporated by reference
from exhibit 10.38 to the Company's Current Report on Form 8-K
dated September 3, 1992.
10.41 Performance Guaranty dated as of August 20, 1992 by the Company
in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright
& Wilson Americas, Inc. and the Indemnitees under Section 10.3 of
the Purchase Agreement incorporated by reference from exhibit
10.39 to the Company's Current Report on Form 8-K dated September
3, 1992.
10.42 Replacement Subordinated Promissory Note dated August 20, 1992 in
the original principal amount of $44,268,114.43 from Sterling
Canada, Inc. to Tenneco Credit Corporation incorporated by
reference from exhibit 10.42 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
10.43 Subordinated Note Guaranty dated as of August 20, 1992 by the
Company in favor of Tenneco Canada Inc. incorporated by reference
from exhibit 10.41 to the Company's Current Report on Form 8-K
dated September 3, 1992.
10.44 Credit Agreement dated as of August 12, 1992 among Sterling
Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial
institutions and The Bank of Nova Scotia, as Agent incorporated
by reference from exhibit 10.42 to the Company's Current Report
on Form 8-K dated September 3, 1992.
10.45 Lease dated March 1, 1990 between Procter & Gamble, Inc. and
Tenneco Canada Inc., as amended by a Lease Modification Agreement
dated August 9, 1991, and Consent and Assignment Agreement dated
as of August 21, 1992 among 982174 Ontario Limited, Sterling Pulp
Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and
The Bank of Nova Scotia incorporated by reference from exhibit
10.45 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.46 Lease dated July 1, 1977 between Canadian National Railway
Company and ERCO Industries Limited, and Consent and Assignment
Agreement dated as of August 21, 1992 among Tenneco Canada Inc.,
Sterling Pulp Chemicals, Ltd., Canadian National Railway Company
and The Bank of Nova Scotia incorporated by reference from
exhibit 10.46 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
++10.48 Sales and Purchase Agreement dated April 1, 1994 between BP
Chemicals Ltd. and the Company.
++10.49 Contract for Sale and Purchase of Ethylene dated October 28, 1988
between Phillips 66 Company and the Company.
**10.50 Agreement between Sterling Pulp Chemicals Ltd. North Vancouver
British Columbia and Pulp, Paper and Woodworkers of Canada Local
5 British Columbia effective December 1, 1994 to November 30,
1997
**13.1 Sterling Chemicals, Inc. Annual Report to Shareholders for the
fiscal year ended September 30, 1994.
**27 Financial Data Schedule
</TABLE>
- - ---------------
* Incorporated herein by reference to the appropriate portions of the Company's
Annual Report to Shareholders for the fiscal year ended September 30, 1994.
** Filed herewith.
+ Confidential treatment has been requested with respect to positions of this
Exhibit, and such request has been granted.
++ Filed herewith and confidential treatment has been requested with respect to
portions of this Exhibit.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September
30, 1994.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STERLING CHEMICALS, INC.
(Registrant)
By: /s/ J. VIRGIL WAGGONER
(J. Virgil Waggoner)
President and Chief
Executive Officer
Date: December 5, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- - ----------------------------------------------- ------------------------- ------------------
<S> <C> <C>
/s/ GORDON A. CAIN Chairman of the Board of December 5, 1994
(Gordon A. Cain) Directors
/s/ J. VIRGIL WAGGONER President and Director December 5, 1994
(J. Virgil Waggoner) (principal executive
officer)
/s/ JIM P. WISE Vice President -- Finance December 5, 1994
(Jim P. Wise) (principal financial
officer)
/s/ PAUL G. VANDERHOVEN
(Paul G. Vanderhoven) Controller (principal December 5, 1994
accounting officer)
/s/ JAMES J. KERLEY
(James J. Kerley) Director December 5, 1994
/s/ RAYMOND R. KNOWLAND
(Raymond R. Knowland) Director December 5, 1994
/s/ WILLIAM A. McMINN
(William A. McMinn) Director December 5, 1994
/s/ FRANK J. PIZZITOLA
(Frank J. Pizzitola) Director December 5, 1994
/s/ GILBERT M. A. PORTAL
(Gilbert M. A. Portal) Director December 5, 1994
</TABLE>
21
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Sterling Chemicals,
Inc. has been incorporated by reference in this Form 10-K from page 37 of the
1994 Annual Report to Shareholders of Sterling Chemicals, Inc. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedules listed in the table of contents on page 16 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
November 11, 1994
Houston, Texas
S-1
<PAGE> 25
SCHEDULE V
STERLING CHEMICALS, INC.
PROPERTY, PLANT AND EQUIPMENT
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS RETIREMENTS TRANSFERS OTHER OF PERIOD
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1992
Land............................ $ 4,226 $ 5,015 $ -- $ -- $ -- $ 9,241
Buildings....................... 13,021 11,406 -- 690 -- 25,117
Machinery and Equipment......... 259,964 106,462 (236) 29,198 -- 395,388
Construction in Progress........ 30,667 14,946 -- (29,888) -- 15,725
---------- --------- --------- --------- ------- ---------
Total................... $ 307,878 $ 137,829 $ (236) $ -- $ -- $ 445,471
========== ========= ========= ========= ======= =========
Year ended September 30, 1993
Land............................ $ 9,241 $ -- $ -- $ -- $ (330) $ 8,911
Buildings....................... 25,117 -- -- 37 (857) 24,297
Machinery and Equipment......... 395,388 291 (2,363) 8,839 (8,179) 393,976
Construction in Progress........ 15,725 11,427 -- (8,876) 1,933 20,209
---------- --------- --------- --------- ------- ---------
Total................... $ 445,471 $ 11,718 $ (2,363) $ -- $(7,433) $ 447,393
========== ========= ========= ========= ======= =========
Year ended September 30, 1994
Land............................ $ 8,911 $ -- $ -- $ 2,892 $ (32) $ 11,771
Buildings....................... 24,297 -- (1) 721 (73) 24,944
Machinery and Equipment......... 393,976 129 (1,267) 14,710 (688) 406,860
Construction in Progress........ 20,209 12,258 -- (18,323) (12) 14,132
---------- --------- --------- --------- ------- ---------
Total................... $ 447,393 $ 12,387 $ (1,268) $ -- $ (805) $ 457,707
========== ========= ========= ========= ======= =========
</TABLE>
S-2
<PAGE> 26
SCHEDULE VI
STERLING CHEMICALS, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO AT END
OF PERIOD EXPENSE RETIREMENTS OTHER OF PERIOD
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1992
Buildings.................................. $ 3,338 $ 878 $ -- $ -- $ 4,216
Machinery and Equipment.................... 73,962 23,573 (95) -- 97,440
--------- -------- -------- ----- ---------
Total................................. $ 77,300 $24,451 $ (95) $ -- $ 101,656
========= ======== ======== ===== =========
Year Ended September 30, 1993
Buildings.................................. $ 4,216 $ 1,294 $ -- $ (21) $ 5,489
Machinery and Equipment.................... 97,440 31,615 (1,091) (375) 127,589
--------- -------- -------- ----- ---------
Total................................. $ 101,656 $32,909 $(1,091) $(396) $ 133,078
========= ======== ======== ===== =========
Year Ended September 30, 1994
Buildings.................................. $ 5,489 $ 1,388 $ -- $ (36) $ 6,841
Machinery and Equipment.................... 127,589 32,944 (771) (22) 159,740
--------- -------- -------- ----- ---------
Total................................. $ 133,078 $34,332 $ (771) $ (58) $ 166,581
========= ======== ======== ===== =========
</TABLE>
S-3
<PAGE> 27
SCHEDULE X
STERLING CHEMICALS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance and Repairs....................................... $57,726 $53,061 $49,630
Depreciation and Amortization of Intangible Assets............ 6,134 6,038 773
Property Taxes(1)............................................. 8,877 9,396 7,769
</TABLE>
- - ---------------
(1) Taxes, other than property taxes, payroll and income taxes, do not exceed 1%
of total revenues.
S-4
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
2.1 Purchase Agreement dated as of August 20, 1992 between Tenneco
Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and
Sterling Canada, Inc. as Buyers (Purchase Agreement)incorporated
by reference from Exhibit 2.1 to the Company's Current Report on
Form 8-K dated as of September 3, 1992.
3.1 Restated Certificate of Incorporation of the Company.
**3.2 Amended By-laws of the Company.
4.2 Form of Registration Rights Agreements dated as of July 30, 1986
among the Company and the holders of Common Stock listed on the
signature page thereto.
10.1 Asset Purchase Agreement dated August 1, 1986, between Monsanto
Company and the Company incorporated by reference from exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.2 Third Amended and Restated Credit Agreement dated as of August
20, 1992 among the Company, the Banks, The Chase Manhattan Bank
(National Association) ("Chase"), and The Bank of Nova Scotia, as
Agent incorporated by reference from Exhibit 10.2(F) to the
Company's Current Report on Form 8-K dated September 2, 1992.
10.3 Amendment No. 1 dated as of August 20, 1992 among the Company,
the Banks and The Bank of Nova Scotia as Agent incorporated by
reference from exhibit 10.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
10.3(A) Amendment No. 2 dated as of June 30, 1993 among the Company, the
Banks and The Bank of Nova Scotia, as Agent.
**10.3(B) Amendment No. 3 dated as of April 29, 1994 among the Company, the
Banks and The Bank of Nova Scotia, as Agent.
10.4 Third Amended and Restated Security Agreement dated as of August
20, 1992, among the Company, the Banks and The Bank of Nova
Scotia, as Agent incorporated by reference from exhibit 10.4 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992.
10.5 First Amendment to Credit Agreement dated as of August 20, 1992
among Sterling Canada, Inc., Sterling Pulp Chemicals, Ltd.,
certain financial institutions and The Bank of Nova Scotia, as
Agent incorporated by reference from exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
10.5(A) Second Amendment to Credit Agreement dated as of March 31, 1993
among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd. certain
financial institutions and The Bank of Nova Scotia, as Agent.
**10.5(B) Third Amendment to Credit Agreement dated as of September 30,
1994 among Sterling Canada, Inc. Sterling Pulp Chemicals, Ltd.
certain financial institutions and The Bank of Nova Scotia, as
Agent.
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
10.6 Sterling Chemicals, Inc. (Restated as of October 1, 1993)
Salaried Employees' Pension Plan incorporated by reference from
exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
**10.6(a) Supplement to the Sterling Chemicals, Inc. Salaried Employees'
Pension Plan Restated as of January 1, 1994.
**10.6(b) First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively.
10.8 Sterling Chemicals, Inc. (Restated as of October 1, 1993) Hourly
Paid Employees' Pension Plan incorporated by reference from
exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
**10.8(a) Supplement to the Sterling Chemicals, Inc. Hourly Paid Employees'
Pension Plan restated as of January 1, 1994.
**10.8(b) First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994.
10.10 Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan incorporated by reference from exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
**10.10(a) Supplements to Sterling Chemicals, Inc. Savings and Investment
Plan for Hourly Paid Employees and Salaried Employees.
**10.10(b) First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April 27,
1994 and October 26, 1994, respectively.
10.12 Sterling Chemicals, Inc. Amended and Restated Employee Stock
Ownership Plan incorporated by reference from exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
**10.12(a) First Amendment to the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan dated April 27, 1994.
10.15 Sterling Chemicals, Inc. Pension Benefit Equalization Plan
incorporated by reference from exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993.
10.16 Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan.
+10.17 Styrene Monomer Sales Contract dated as of August 1, 1991,
between the Company and Monsanto Company incorporated by
reference from exhibit 10.12(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
+10.18 Styrene Monomer Exchange Contract dated as of August 1, 1991,
between the Company and Monsanto Company incorporated by
reference from exhibit 10.13(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
++10.19 Acrylonitrile Exchange Contract dated January 1, 1994, between
the Company and Monsanto Company.
++10.21 Amended and Restated Lease and Production Agreement dated August
8, 1994, between BP Chemicals Americas Inc. and the Company.
+10.22 Product Sales Agreement dated August 1, 1986, between BASF
Corporation and the Company incorporated by reference from
exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
++10.22(a) Amendment No. 3 to Product Sales Agreement as of January 1,1994
between BASF Corporation and the Company.
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
+10.25 Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto.
+10.26 Agreement dated May 2, 1988, between E.I. du Pont de Nemours and
Company and the Company.
10.27 License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company.
+10.28 Sales Agreement dated September 1992, between the Company and
Mitsubishi International Corporation incorporated by reference
from exhibit 10.28 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993.
10.29 License Agreement dated August 1, 1988, between the Monsanto
Company and the Company.
**10.30 Form of Indemnity Agreement executed between the Company and each
of its officers and directors.
10.31 Amended and Restated Sterling Chemicals, Inc. Salaried Employee's
Profit Sharing Plan incorporated by reference from exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.32 Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan incorporated by reference from exhibit 10.32
to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.33 Agreement dated January 30, 1987 among J. Virgil Waggoner, Gordon
A. Cain and the Company regarding capital stock of the Company.
10.35 Article of Agreement between the Company, its successors and
assigns and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, Texas May 1, 1992 to May 1, 1995 incorporated.
10.36 Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan incorporated by reference from exhibit
10.34. to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1989
10.37 Sterling Chemicals, Inc. Deferred Compensation Plan.
+10.38 Buckingham Transition and Services Agreement dated as of August
21, 1992 between Tenneco Canada Inc. and Sterling Pulp Chemicals,
Ltd. incorporated by reference from exhibit 10.36 to the
Company's Current Report on Form 8-K dated September 3, 1992.
10.39 Processing Agreement dated as of August 21, 1992 between ERCO
Industries, Inc. and Sterling Canada, Inc.
10.40 Conditional Performance Guaranty dated as of August 20, 1992 by
Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals,
Ltd., Sterling Canada, Inc. and the Indemnitees identified in
Section 10.2 of the Purchase Agreement incorporated by reference
from exhibit 10.38 to the Company's Current Report on Form 8-K
dated September 3, 1992.
10.41 Performance Guaranty dated as of August 20, 1992 by the Company
in favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright
& Wilson Americas, Inc. and the Indemnitees under Section 10.3 of
the Purchase Agreement incorporated by reference from exhibit
10.39 to the Company's Current Report on Form 8-K dated September
3, 1992.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
----------- -----------------------------------------------------------------
<S> <C>
10.42 Replacement Subordinated Promissory Note dated August 20, 1992 in
the original principal amount of $44,268,114.43 from Sterling
Canada, Inc. to Tenneco Credit Corporation incorporated by
reference from exhibit 10.42 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992.
10.43 Subordinated Note Guaranty dated as of August 20, 1992 by the
Company in favor of Tenneco Canada Inc. incorporated by reference
from exhibit 10.41 to the Company's Current Report on Form 8-K
dated September 3, 1992.
10.44 Credit Agreement dated as of August 12, 1992 among Sterling
Canada, Inc., Sterling Pulp Chemicals, Ltd., certain financial
institutions and The Bank of Nova Scotia, as Agent incorporated
by reference from exhibit 10.42 to the Company's Current Report
on Form 8-K dated September 3, 1992.
10.45 Lease dated March 1, 1990 between Procter & Gamble, Inc. and
Tenneco Canada Inc., as amended by a Lease Modification Agreement
dated August 9, 1991, and Consent and Assignment Agreement dated
as of August 21, 1992 among 982174 Ontario Limited, Sterling Pulp
Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and
The Bank of Nova Scotia incorporated by reference from exhibit
10.45 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
10.46 Lease dated July 1, 1977 between Canadian National Railway
Company and ERCO Industries Limited, and Consent and Assignment
Agreement dated as of August 21, 1992 among Tenneco Canada Inc.,
Sterling Pulp Chemicals, Ltd., Canadian National Railway Company
and The Bank of Nova Scotia incorporated by reference from
exhibit 10.46 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
++10.48 Sales and Purchase Agreement dated April 1, 1994 between BP
Chemicals Ltd. and the Company.
++10.49 Contract for Sale and Purchase of Ethylene dated October 28, 1988
between Phillips 66 Company and the Company.
**10.50 Agreement between Sterling Pulp Chemicals Ltd. North Vancouver
British Columbia and Pulp, Paper and Woodworkers of Canada Local
5 British Columbia effective December 1, 1994 to November 30,
1997
**13.1 Sterling Chemicals, Inc. Annual Report to Shareholders for the
fiscal year ended September 30, 1994.
**27 Financial Data Schedule
</TABLE>
- - ---------------
* Incorporated herein by reference to the appropriate portions of the Company's
Annual Report to Shareholders for the fiscal year ended September 30, 1994.
** Filed herewith.
+ Confidential treatment has been requested with respect to positions of this
Exhibit, and such request has been granted.
++ Filed herewith and confidential treatment has been requested with respect to
portions of this Exhibit.
<PAGE> 1
EXHIBIT 3.2
STERLING CHEMICALS, INC.
* * * * *
A M E N D E D B Y - L A W S
as of October 28, 1992
and July 27, 1994
* * * * *
ARTICLE I
OFFICES
Section 1. The initial registered office shall be the
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801, and the name of the initial registered agent
of the Corporation at such address shall be The Corporation Trust Company.
Section 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at
such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a Board of Directors, and transact such other business as may
properly be brought before the meeting.
<PAGE> 2
Section 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board or
president and shall be called by the president or secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented,
any business may
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<PAGE> 3
be transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any questions brought before such meeting,
unless the question is one upon which by express provision of the statutes, the
certificate of incorporation or these by-laws, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be seven (7). The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders. A majority of the directors
may elect from its members a chairman who shall preside at all meetings of the
Board of Directors. The chairman, if any, shall hold this office until the
next regular meeting of the directors or until his successor shall have been
elected and qualified.
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<PAGE> 4
Section 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. If, at
the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed
by or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time
be determined by the board.
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<PAGE> 5
Section 7. Special meetings of the board may be called by the
chairman of the board or president on two (2) days' notice to each director,
either personally or by mail or by telegram; special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director; in
which case special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting, if all
members of the board consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the board.
Section 10. Members of the Board of Directors, or any
committee designated by the board, may participate in a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
COMPENSATION OF DIRECTORS
Section 11. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
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<PAGE> 6
REMOVAL OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these by-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of
the corporation, with postage thereon prepaid, and such notice shall be deemed
to be given at the time when the same shall be deposited in the United States
mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a president, a vice-president, a secretary
and a treasurer. The Board of Directors may also choose additional
vice-presidents, and one or more assistant secretaries and assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these by-laws otherwise provide.
Section 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
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<PAGE> 7
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. Any vacancy
occurring in any office of the corporation shall be filled by the Board of
Directors.
PRESIDENT
Section 6. The president shall be the chief executive officer
of the corporation, shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. The president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
VICE-PRESIDENT
Section 8. In the absence of the president or in the event of
his inability or refusal to act, the vice- president (or in the event there be
more than one vice- president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings
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<PAGE> 8
of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or the president, under whose supervision
he shall be. He shall have custody of the corporate seal of the corporation
and he, or an assistant secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURER
Section 11. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 12. He shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the Board of Directors, he shall
give the corporation a bond (which shall be renewed every six years) in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 14. The assistant treasurer, or if there shall be
more than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer
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<PAGE> 9
or in the event of his inability or refusal to act, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the Board of Directors, or the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of the State
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, and subject to applicable federal and state securities laws and
contractual obligations, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
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FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7.
(a) Right to Indemnification. The corporation shall, to
the fullest extent authorized by the D.G.C.L. (as defined below), indemnify any
person (an "indemnitee") made or threatened to be made a party to, or otherwise
involved in, any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that
the indemnitee is or was a director, officer or employee of the corporation or
is or was serving at the request of the corporation as a director, officer or
employee of another corporation, a partnership, joint venture, trust, employee
benefit plan or other enterprise (each being referred to as an "Other
Enterprise"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
for the benefit of the corporation or any such Other Enterprise while serving
as a director, officer or employee, and such indemnification shall continue as
to an indemnitee who has ceased to be a director, officer or employee and shall
inure to the benefit of the indemnitee's heirs, executors, administrators,
legal representatives and assigns; provided, however, that, except with respect
to proceedings (i) to enforce rights to indemnification or advancement of
expenses, or (ii) authorized by the Board of Directors of the corporation, the
corporation shall not indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee. For purposes of
this Section 7, the term "D.G.C.L." shall mean the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than permitted prior
thereto).
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(b) Right to Advancement of Expenses. The corporation
shall, to the fullest extent authorized by the D.G.C.L., pay the expenses of
the indemnitee incurred in defending any proceeding referred to in paragraph
(a) in advance of its final disposition (an "advancement of expenses");
provided, however, that if required under the D.G.C.L., an advancement of
expenses shall be made only upon delivery to the corporation of an undertaking
(an "undertaking"), by or on behalf of such indemnitee, in a form which
complies with D.G.C.L., to repay any amounts so advanced to the extent it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "final adjudication") that such indemnitee is not
entitled to be indemnified for such amounts under this Section or otherwise;
and provided further, that if such an undertaking is not required by the
D.G.C.L., the corporation shall make advancements of expenses without any
undertaking, commitment to repay or other terms unless the Board of Directors
requires, as a condition to any such advancement of expenses, such terms and
conditions, including an undertaking or commitment to repay, as it deems
appropriate. In the event of a suit by the corporation to recover an
advancement of expenses, the indemnitee shall repay any amounts so advanced
only to the extent it shall be ultimately determined by a final adjudication
that such indemnitee is not entitled to be indemnified therefor under this
Section or otherwise.
(c) Right of Indemnitee to Bright Suit; Other Matters.
The indemnitee may make a written claim ("Claim") against the corporation for
indemnification (after indemnitee's liability for which indemnification is
sought has been established) or advancement of expenses under paragraph (a) or
(b) of this Section. If the amount claimed in the Claim is not paid in full by
the corporation within ninety days after a proper Claim has been received by
the corporation, the indemnitee may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the Claim. If successful in
whole or in part in any such suit, the indemnitee shall be entitled to be paid
the expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses, or by the corporation to recover an advancement of expenses, the
burden of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Section or otherwise shall be on the
corporation. A determination by the corporation (including its Board of
Directors, independent legal counsel or stockholders) that the indemnitee is
not entitled to indemnification under this Section or otherwise, the failure by
the corporation to make a determination as to whether the indemnitee is
entitled to indemnification under this Section or otherwise, or the termination
of any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not create any presumption in any such
suit that the indemnitee is not entitled to indemnification under this Section
or otherwise. In any suit against the corporation to enforce a right to
indemnification under paragraph (a) of this Section, the indemnitee shall be
entitled to indemnification except to the extent it is ultimately determined by
final adjudication that
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<PAGE> 14
indemnitee is not entitled to be indemnified under this Section or otherwise.
(d) Non-Exclusivity of Rights. The rights to
indemnification and to advancement of expenses conferred in this Section shall
not be exclusive of any other rights which any person may have or hereafter
acquire under any statute, the corporation's certification of incorporation,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise.
(e) Insurance. The corporation may maintain insurance,
at its expense, to protect itself and any director, officer or employee of the
corporation or any Other Enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the D.G.C.L.
(f) Serving at the Request of the Corporation. A person
shall be deemed to have served or to be serving as a director, officer or
employee of an Other Enterprise "at the request of the corporation" for
purposes of this Section only if (i) such person has a written agreement with
the corporation acknowledging that such person is entitled to indemnification
with respect to such service, (ii) such request is made in writing by the
corporation specifically referencing such person's rights to indemnification
from the corporation, (iii) such request is reflected in resolutions duly
adopted by the Board of Directors specifically referencing such person's right
to indemnification from the corporation, or (iv) such request is made verbally
or in writing by the Board of Directors or the President or any Vice President
of the corporation.
(g) Indemnity Agreements. The corporation may enter into
indemnity agreements with any person containing such terms and provisions as
may be approved by the Board of Directors, including, without limitation,
provisions permitting, to the extent permitted by law, binding arbitration of
the question of whether such person has met applicable standards of conduct
under the D.G.C.L. in order to be entitled to indemnification from the
corporation or in order to determine whether such person has met such standards
of conduct in order to defend any action by the corporation seeking recovery of
any advancement of expenses. To the extent the terms of any such indemnity
agreement conflict with the terms of this Section 7, the terms of such
indemnity agreement shall, to the extent permitted by applicable law, control.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed
or new by-laws may be adopted by the stockholders or by the board of directors,
when such
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<PAGE> 15
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws shall be contained in the notice of such special meeting. If the power
to adopt, amend or repeal by-laws is conferred upon the board of directors by
the certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
-15-
<PAGE> 1
EXHIBIT 10.3(B)
AMENDMENT NO. 3
This Amendment No. 3 dated as of April 29, 1994 ("Agreement"), is
among Sterling Chemicals, Inc., a Delaware corporation ("Sterling"), the
financial institutions which are parties to the Credit Agreement referred to
below ("Banks"), and The Bank of Nova Scotia, as agent for the Banks ("Agent").
INTRODUCTION
The parties hereto have entered into that certain Third Amended and
Restated Credit Agreement dated as of August 20, 1992, as amended by Amendment
No. 1 dated as of August 20, 1992, and Amendment No. 2 dated as of June 30,
1993 (as amended, the "Credit Agreement"), and desire to further amend the
Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and provisions hereinafter set forth, the parties hereto agree as follows:
SECTION 1. Definitions; References. Each initially capitalized term
used herein shall have the meaning assigned to such term in the Credit
Agreement, as amended hereby, unless otherwise specifically defined herein.
SECTION 2. Amendments of Certain Provisions of the Credit Agreement.
The Credit Agreement is hereby amended as follows:
2.1. To provide for changes to the leverage ratio under the Credit
Agreement, Section 9.10 of the Credit Agreement is amended in its entirety to
read as follows:
9.10. Leverage Ratio. Sterling will not permit the
Leverage Ratio of Sterling and its Restricted Subsidiaries to exceed
the following respective amounts at any time during the following
respective periods:
Periods Ratio
------- -----
From May 1, 1994
through June 30, 1994 1.60 to 1.00
<PAGE> 2
From July 1, 1994
through December 31, 1994 1.50 to 1.00
From January 1, 1995
through March 31, 1995 1.40 to 1.00.
From April 1, 1995
through September 30, 1995 1.30 to 1.00
From October 1, 1995
through December 31, 1995 1.20 to 1.00
From January 1, 1996
and thereafter 1.10 to 1.00.
2.2. To provide for adjustments to the Tangible Net Worth
requirements in the Credit Agreement, the definition of "Tangible Net Worth" in
Section 1.01 of the Credit Agreement and Section 9.11 of the Credit Agreement
are replaced in their entirety to read, respectively, as follows:
"Tangible Net Worth" shall mean the consolidated net worth of
Sterling and its Restricted Subsidiaries after subtracting therefrom
the good will of Sterling and its Restricted Subsidiaries.
9.11. Tangible Net Worth. Sterling will not permit the
Tangible Net Worth of Sterling and its Restricted Subsidiaries to be
less than $76,000,000 plus (a) 100% of the monthly net income of
Sterling and its Restricted Subsidiaries since April 30, 1994 (without
reduction for any monthly net losses), less (b) dividends (in cash,
property or obligations) on, or other payments or distributions on
account of, common stock made by Sterling in accordance with this
Agreement since April 30, 1994.
2.3. To provide for adjustments to the Cash Flow ratio requirements of
the Credit Agreement, Section 9.13 of the Credit Agreement is amended in its
entirety to read as follows:
9.13. Cash Flow. Sterling will not permit the ratio,
calculated as at the end of each fiscal quarter of Sterling, of (a)
(i) the Cash Flow of Sterling and its Restricted Subsidiaries for the
four fiscal quarters then ended (such period of four fiscal quarters
being hereinafter referred to
-2-
<PAGE> 3
as the "Calculation Period") plus (ii) Canadian Distributions received
by Sterling and its Restricted Subsidiaries during the Calculation
Period less (iii) any Restricted Payments (excluding dividends
declared by Sterling before the Effective Date) made by Sterling
during the Calculation Period plus (iv) all non-cash charges to the
net income of Sterling and its Restricted Subsidiaries during the
Calculation Period associated with employee stock appreciation rights
and post-retirement benefits (less all payments actually made in
connection with such employee stock appreciation rights and post-
retirement benefits) to (b) (i) the aggregate amount of all payments
of principal of Indebtedness of Sterling and its Restricted
Subsidiaries (other than Indebtedness hereunder) scheduled to be made
during the Calculation Period plus (ii) the aggregate amount of
reductions of Commitments hereunder pursuant to clause (i) of Section
2.03(a) hereof (as adjusted from time to time pursuant to Section
2.03(a)(iii) during the Calculation Period plus (iii) the aggregate
amount of interest paid during the Calculation Period on Indebtedness
of Sterling and its Restricted Subsidiaries plus (iv) the Capital
Expenditures of Sterling and its Restricted Subsidiaries (other than
Reimbursable Capital Expenditures and Designated Capital Expenditures)
for the Calculation Period plus (v) income taxes paid during the
Calculation Period by Sterling and its Restricted Subsidiaries less
any income tax refunds received during the Calculation Period by
Sterling and its Restricted Subsidiaries, to be less than 1.10 to
1.00.
2.4. To provide for adjustments to the definition of Available Cash in
the Credit Agreement, the definition of "Available Cash" in Section 1.01 of the
Credit Agreement is amended in its entirety to read as follows:
"Available Cash" shall mean, for any Person and any period,
the sum of the following amounts (calculated without duplication):
(a) EBDIT for such period, plus (b) interest income for such period,
including the net amount received pursuant to any Interest Swap
Agreement during such period (to the extent not included in
determining EBDIT), minus (c) Capital Expenditures (other than
Reimbursable Capital Expenditures and Designated Capital Expenditures)
for such period funded from
-3-
<PAGE> 4
other than the cash proceeds from any insurance policy, minus (d)
income taxes paid during such period less any income tax refunds
received during such period, minus (e) all interest on Indebtedness
paid during such period, including the net amount paid pursuant to any
Interest Swap Agreement during such period, plus (iv) all non-cash
charges to the net income during such period associated with employee
stock appreciation rights and post-retirement benefits (less all
payments actually made in connection with such employee stock
appreciation rights and post-retirement benefits).
SECTION 3. Effectiveness. This Agreement shall become effective as
of the date hereof when the Agent shall have received counterparts hereof duly
executed by Sterling, the Agent, and the Majority Banks (or, in the case of any
party as to which an executed counterpart shall not have been received,
telegraphic, telex, or other written confirmation from such party of execution
of a counterpart hereof by such party). This Agreement shall be deemed part of
and is hereby incorporated in the Credit Agreement.
SECTION 4. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which taken together shall constitute one and the
same instrument. Each of the parties hereto may execute this Agreement by
signing any such counterpart. Any party delivering an executed counterpart of
its signature page of this Agreement by telecopy shall thereafter also promptly
deliver a manually executed counterpart, but the failure to deliver such
manually executed counterpart shall not affect the validity, enforceability and
binding effect of this Agreement.
SECTION 5. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first set forth above.
STERLING CHEMICALS, INC.
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NOVA SCOTIA,
in its individual capacity
and as Agent
By:____________________________
Name:__________________________
Title:_________________________
ABN AMRO BANK N.V.
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
BANK OF SCOTLAND
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 6
CITICORP USA, INC.
By:____________________________
Name:__________________________
Title:_________________________
BANQUE PARIBAS HOUSTON AGENCY
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
TEXAS COMMERCE BANK, NATIONAL
ASSOCIATION
By:____________________________
Name:__________________________
Title:_________________________
NATIONAL BANK OF CANADA,
NEW YORK BRANCH
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
-6-
<PAGE> 1
EXHIBIT 10.5(B)
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement dated as of September 30,
1994 ("Agreement"), is among Sterling Canada, Inc., a Delaware corporation,
Sterling Pulp Chemicals, Ltd., an Ontario corporation, the financial
institutions which are parties to the Credit Agreement referred to below, and
The Bank of Nova Scotia, as agent for the Banks.
INTRODUCTION
The parties hereto have entered into that certain Credit Agreement
dated as of August 12, 1992, as amended by First Amendment to Credit Agreement
dated as of August 20, 1992, and the Second Amendment to Credit Agreement dated
as of March 31, 1993 (as so amended, the "Credit Agreement"), and desire to
further amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
and provisions hereinafter set forth, the parties hereto agree as follows:
SECTION 1. Definitions; References. Each initially capitalized term
used herein shall have the meaning assigned to such term in the Credit
Agreement, as amended hereby, unless otherwise specifically defined herein.
SECTION 2. Amendments of Certain Provisions of the Credit Agreement.
The Credit Agreement is hereby amended as follows:
2.1. Section 1.1. In Section 1.1:
(a) The definition of "Designated Canadian Investments"
is amended in its entirety to read as follows:
"Designated Canadian Investments" means, on any date,
(a) capital contributions made by Sterling Chemicals, Inc. to
the U.S. Borrower, (b) purchases of stock of the U.S. Borrower
by Sterling Chemicals, Inc., or (c) loans and advances made by
Sterling Chemicals, Inc. to either Borrower at any time and
from time to time not in excess of, in the case of loans or
advances, $4,000,000 in the aggregate principal amount
outstanding on such date provided either Borrower shall have
given notice to the Agent prior to the effectuation of each
relevant capital contribution, stock purchase, loan or advance
of the fact that such Investment constitutes a Designated
Canadian Investment; and, provided,
<PAGE> 2
further, however, such loans or advances shall not bear interest at a
rate higher than the lowest interest rate then available to Sterling
Chemicals, Inc. from the Sterling Chemicals Lenders.
(b) The definition of "Relevant Principal Payments" is
amended by deleting "(other than Indebtedness hereunder)".
2.2. Section 3.1.
(a) Paragraph (f) is amended in its entirety to read as
follows:
(f) [intentionally deleted]; and
(b) Paragraph (k) of Section 3.1 is amended by
substituting "Borrowers" for "Canadian Borrower" in the first line.
2.3. Section 7.2.2. Paragraphs (g) and (h) of Section 7.2.2 are
amended in their entirety to read as follows:
(g) Indebtedness of the Canadian Borrower or the U.S.
Borrower to Sterling Chemicals, Inc. in an aggregate amount at any
time outstanding not to exceed $4,000,000; and Indebtedness of the
Canadian Borrower to the U.S. Borrower or of the U.S. Borrower to the
Canadian Borrower; and
(h) unsecured Contingent Liabilities arising on account
of stock appreciation rights granted to not more than 25 key employees
of the Canadian Borrower from time to time pursuant to employee
compensation plans for Canadian employees; provided that cash payments
made in respect thereof may not exceed (i) for such stock appreciation
rights exercisable for fiscal year 1994 and payable in October 1994,
$4,200,000 (provided that the first $4,000,000 paid on any such
obligations must be funded by Sterling Chemicals, Inc.); (ii) for such
stock appreciation rights exercisable fiscal year 1995 and payable in
September 1995, $4,200,000 (provided that any payments on such
obligations must be funded by Sterling Chemicals, Inc.); and (iii) in
each fiscal year thereafter, the positive difference, if any, between
(A) Restricted Payments permitted to be made during such fiscal year
and (B) Restricted Payments actually made during such fiscal year. In
calculating Restricted Payments permitted to be made or made during a
fiscal year, payments made to Sterling Chemicals, Inc. of Designated
Canadian Investments (other than Designated Canadian Investments
originally advanced or contributed by Sterling Chemicals, Inc., for
the purpose of funding payments on obligations under stock
appreciation rights permitted underSection 7.2.2(h)) and
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<PAGE> 3
payments on the Subordinated Debt with proceeds of Designated Canadian
Investments shall not be used in such calculation; and
2.4. Section 7.2.6. In Section 7.2.6:
(a) In paragraph (a), "provided the proceeds of any such
sale or issuance are applied to the payment of the Obligations pursuant to
clause (f) or (k) of Section 3.1, as applicable" is deleted.
(b) The second proviso in Section 7.2.6 in the paragraph
following paragraph (c) (such second proviso beginning with the words "provided
that so long as no Default exists . . . ") is amended in its entirety to read
as follows:
provided that so long as no Default exists and is continuing
or would result therefrom, (i) either Borrower may also make
principal and interest payments to Sterling Chemicals, Inc. on
loans or advances constituting Designated Canadian Investments
(other than principal and interest payments on loans or
advances representing Designated Canadian Investments
originally advanced by Sterling Chemicals, Inc., for the
purpose of funding payments on obligations under stock
appreciation rights permitted under Section 7.2.2(h), which
can only be repaid in accordance with the immediately
preceding proviso at the beginning of this paragraph), (ii)
the U.S. Borrower may also redeem shares of its stock
purchased as a Designated Canadian Investment and pay
dividends on its stock in an amount not to exceed the amount
of Designated Canadian Investments made as capital
contributions (other than redemptions and dividends which
represent the repayment of Designated Canadian Investments
originally contributed by Sterling Chemicals, Inc., for the
purpose of funding payments on obligations under stock
appreciation rights permitted under Section 7.2.2(h), which
can only be repaid in accordance with the immediately
preceding proviso at the beginning of this paragraph), and
(iii) either Borrower may also use the proceeds of Designated
Canadian Investments to make payments on the Subordinated
Debt;
2.5. Section 7.2.9. In Section 7.2.9, the proviso to Section 7.2.9
is amended by adding the following:
, and provided further that when determining the Leverage
Ratio of the U.S. Borrower under this Section 7.2.9, the U.S.
Borrower's
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<PAGE> 4
Tangible Net Worth shall be increased by the amount of the
balance sheet liability of the U.S. Borrower reflecting
obligations under stock appreciation rights permitted under
Section 7.2.2(h).
2.6. Section 7.2.15. In Section 7.2.15, the proviso to Section
7.2.15 is amended by adding the following:
, and provided further that when determining the Tangible Net
Worth of the U.S. Borrower under this Section 7.2.15, the
U.S. Borrower's Tangible Net Worth shall be increased by the
amount of the balance sheet liability of the U.S. Borrower
reflecting obligations under stock appreciation rights
permitted under Section 7.2.2(h).
2.7. Section 7.2.16. In Section 7.2.16, the following new clause
(z) is added after clause (y):
plus(z) all Designated Canadian Investments made by Sterling
Chemicals, Inc. in or to either Borrower during such Calculation
Periodless any distributions or other payments made in respect of
Designated Canadian Investments to Sterling Chemicals, Inc. by the
Borrowers during such Calculation Periodless any payments made by
either Borrower during such Calculation Period on obligations under
stock appreciation rights permitted underSection 7.2.2(h).
2.8. Section 7.2.17. In Section 7.2.17, the definition of
"Available Cash" is amended by adding the following new clause (vii):
, plus (vii) all Designated Canadian Investments made by Sterling
Chemicals, Inc. in or to either Borrower during such periodless any
distributions or other payments made in respect of Designated Canadian
Investments to Sterling Chemicals, Inc. by the Borrowers during such
period less any payments made by either Borrower during such
Calculation Period on obligations under stock appreciation rights
permitted underSection 7.2.2(h).
2.9. Section 8.1.3. In Section 8.1.3, "U.S. Borrower" is
substituted for "Canadian Borrower" in the sixth line.
SECTION 3. Effectiveness. This Agreement shall become effective as of
the date hereof when the Agent shall have received counterparts hereof duly
executed by the Borrowers, the Agent, and the Required Lenders (or, in the case
of any party as to which an executed counterpart shall not have been received,
telegraphic, telex, or other written confirmation from such party of
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<PAGE> 5
execution of a counterpart hereof by such party). This Agreement shall be
deemed part of and is hereby incorporated in the Credit Agreement.
SECTION 4. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed
an original and all of which taken together shall constitute one and the same
instrument. Each of the parties hereto may execute this Agreement by signing
any such counterpart. Any party delivering an executed counterpart of its
signature page of this Agreement by telecopy shall thereafter also promptly
deliver a manually executed counterpart, but the failure to deliver such
manually executed counterpart shall not affect the validity, enforceability and
binding effect of this Agreement.
SECTION 5. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first set forth above.
STERLING CANADA, INC.
By:____________________________________
Name:____________________________
Title:___________________________
STERLING PULP CHEMICALS, LTD.
By:____________________________________
Name:____________________________
Title:___________________________
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<PAGE> 6
THE BANK OF NOVA SCOTIA,
in its individual capacity and as Agent
U.S. Office:
By:____________________________________
Name:____________________________
Title:___________________________
Canadian Office:
By:____________________________________
Name:____________________________
Title:___________________________
BANQUE INDOSUEZ
By:_____________________________________
Name:_________________________
Title:________________________
By:____________________________________
Name:____________________________
Title:___________________________
-6-
<PAGE> 1
EXHIBIT 10.6(a)
SUPPLEMENT
TO
STERLING CHEMICALS, INC. SALARIED EMPLOYEES' PENSION PLAN
FOR
ALL SALARIED EMPLOYEES OF STERLING CHEMICALS, INC.
AND
PARTICIPATING SUBSIDIARIES
Restated as of January 1, 1994
Purpose:
This Supplement to the Plan modifies the provisions of the Plan as applied to
covered employees. Unless otherwise expressly qualified by the context of this
Supplement, terms used in this Supplement shall have the same meanings given to
those terms in the Plan.
Eligibility:
The Plan shall continue to apply in accordance with its terms to the salaried
employees of the Corporation and participating subsidiaries on and after the
Effective Date. As used in this Supplement, the term "covered employee" means
a salaried employee actively employed on the Effective Date or who accrues
Benefit Service on or after the Effective Date with an Employer, but unless
otherwise provided, excluding any such employee who on the Effective Date has
been on a leave of absence in excess of twelve consecutive months and who does
not return to active employment with an Employer, and who is a member of a
group of employees identified in the heading of this supplement to which the
Plan is extended or continues to be extended.
Monthly Retirement Income:
The Monthly Retirement Income payable to a covered employee hereunder pursuant
to Section 4.1 through 4.3 will be equal to the greatest of his applicable
amount:
1. Standard Amount:
The Standard Amount shall be applicable to a Prior Employer
participant employed by the Monsanto Company prior to April 1,
1986, and shall be the Monthly Retirement Income determined by
multiplying 1.4% times Average Monthly Earnings times Years of
<PAGE> 2
Benefit Service times the Vested Percentage set forth in
Section 2.2 of the Plan.
For purposes of this computation, Years of Benefit Service
shall include full and partial years of Benefit Service as
such service is determined under Sections 17.3 and 17.4 of the
Plan.
2. Alternate Amount:
The Alternate Amount shall be applicable to a Prior Employer
participant employed by the Monsanto Company on or after April
1, 1986, or any other participant employed by the Employer on
or after the Effective Date and shall be the Monthly
Retirement Income of 1.2% times Average Monthly Earnings times
Years of Benefit Service times the Vested Percentage set forth
in Section 2.2 of the Plan.
3. Minimum Amount:
The Minimum Amount shall be determined in accordance with
Section 4.3 of the Plan and the Minimum Retirement Income
Factor defined below. The Minimum Amount shall be the Minimum
Retirement Income Factor times Years of Benefit Service times
the Vested Percentage set forth in Section 2.2 of the Plan.
Notwithstanding the foregoing, a participant who retires between January 1,
1991 and March 1, 1991 has the option to retire under the terms of this Plan or
under the terms of the Plan in effect on December 31, 1990.
Minimum Retirement Income Factor:
The "Minimum Retirement Income Factor" applicable with respect to a covered
employee whose Retirement Date or Employment Termination Date occurs on or
after the Effective Date shall be determined in accordance with the following
table:
<TABLE>
<CAPTION>
Retirement Date or Employment Retirement
Termination Date Occurring: Income Factor
----------------------------- -------------
<S> <C>
Before January 1, 1991 $30.00
On or after January 1, 1991 $35.00
</TABLE>
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<PAGE> 3
Special Early Income Retirement Supplement Factor:
The "Special Early Retirement Income Supplement Factor" shall be $4.00 per
calendar month.
Early Retirement - Combo Factor:
The "Combo Factor," i.e., (number of years of Vesting Service plus age) for
purposes of subsection 4.5 shall be 80 if the participant reached 80 on or
before December 31, 1993. Otherwise,the number of years of Vesting Service
plus age for purposes of Section 4.5 shall be 85.
Average Monthly Earnings:
As used in this Supplement, the "Average Monthly Earnings" of a participant
shall be the greater of (i) the average of his monthly earnings during the 36
months immediately prior to his Retirement Date or Employment Termination Date,
whichever first occurs, or (ii) the average monthly earnings received during
the highest three of the five calendar years immediately prior to the year of
the participant's Retirement Date or Employment Termination Date, whichever
first occurs, except that:
(a) if he has no earnings during one or more of such final 36 months, then
his Average Monthly Earnings shall be the average of his monthly
earnings during the final 36 months in which he had earnings;
(b) if his base salary has been reduced because of a decline in his
physical or mental capacity to continue his former assignment, or
because he was transferred to a position of reduced responsibilities
or his assignment was abolished or its responsibilities curtailed, his
Average Monthly Earnings shall be computed as if his base salary had
not been reduced; and
(c) if he received disability income from any employee welfare benefit
plan maintained by his Employer or in which his Employer participates,
then his average monthly earnings for the computation periods for
determination of Average Monthly Earnings shall be computed:
(i) on the assumption that for each month of such computation
periods during which month he received disability income under
such plan he had monthly earnings equal to his base salary for
the month
-3-
<PAGE> 4
immediately preceding the month in which his disability income
commenced under such plan and any employee welfare benefit
plan maintained by his Employer or in which his Employer
participates; and
(ii) with respect to the balance of such computation periods, if
any, by applying the actual monthly earnings received in each
of such months.
The Average Monthly Earnings of a participant shall include all compensation
paid to him by any Employer, any Affiliate Company and any Affiliate Unit,
including shift differential pay, overtime pay, holiday pay, fire brigade pay,
military summer encampment pay, sick leave pay, including Incentive Pay (as
defined below), including any deferred compensation pursuant to a salary
reduction agreement under Code Sections 401 or 125, but excluding strike time
and other bonuses, amounts paid under any incentive plans in the future,
commissions, amounts paid by his Employer for insurance or other welfare plans
or benefits, and pay in lieu of vacations. Overtime pay will be considered as
having been earned in the month in which it is paid.
The Average Monthly Earnings of a participant who was not a regular full-time
employee of the Employer or Employers during said computation period shall be
determined as provided above, except that for purposes of such determination
his actual monthly earnings during any period of said computation period when
he was not in a regular full-time employee status shall be increased to an
amount of monthly earnings equal to that amount he would have received during
such period as a regular full-time employee based upon the standard work week
at such location during such period. The above provisions shall be subject to
special provisions for the Average Monthly Earnings set forth in the Benefit
Service provisions of this Plan.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the compensation of each participant
taken into account under the Plan for purposes of determining Average Monthly
Earnings shall not exceed the "OBRA '93 Annual Compensation Limit." The "OBRA
'93 Annual Compensation Limit" is $150,000, as adjusted for increases in the
cost of living in accordance with Code Section 401(a)(17)(B). The cost of
living adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined ("Determination
Period") beginning in such calendar
-4-
<PAGE> 5
year. If a Determination Period consists of fewer than 12 months, the "OBRA
'93 Annual Compensation Limit" will be multiplied by a fraction, the numerator
of which is the number of months in the Determination Period, and the
denominator of which is 12.
If compensation for any prior Determination Period is taken into account in
determining a participant's benefits accruing in the current Plan Year, the
compensation for that prior Determination Period is subject to the "OBRA '93
Annual Compensation Limit" in effect for that prior Determination Period. For
this purpose, for Determination Periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the "OBRA '93 Annual
Compensation Limit" is $150,000.
Incentive Pay:
"Incentive Pay" means the additional compensation (other than any award made to
participants under the Employer incentive plan) which may be paid on an annual
or more frequent basis to one or more participants and which is computed under
a formula directly reflecting the performance of such participant or group of
participants. It does not mean any distributions made to participants from the
Incentive Plan or Profit Sharing Plan.
-5-
<PAGE> 1
EXHIBIT 10.6(b)
FIRST AMENDMENT TO THE STERLING CHEMICALS, INC.
SALARIED EMPLOYEES' PENSION PLAN
(Restated as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the
Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of
October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective January 1, 1994, Section 4.9 is hereby added to read as
follows:
4.9 Section 401(a)(17) Participants. Notwithstanding any
other provision in the Plan, each "Section 401(a)(17) Participant's"
accrued benefit under this Plan will be the greater of:
(a) the participant's accrued benefit as of the last day of
the last Plan Year beginning before January 1, 1994,
frozen in accordance with Regulation 1.401(a)(4)-13, or
(b) the participant's accrued benefit determined with respect
to the benefit formula applicable for the Plan Year
beginning on or after January 1, 1994, as applied to the
participant's total years of service taken into account
under the Plan for purposes of benefit accruals.
A "Section 401(a)(17) Participant" means a participant whose
current accrued benefit as of a date on or after the first day of the
first Plan Year beginning on or after January 1, 1994, is based on
compensation for a year beginning prior to the first day of the first Plan
Year beginning on or after January 1, 1994 that exceeded $150,000.
<PAGE> 2
2. Effective January 1, 1994, Section 8.4.E. is hereby amended in
its entirety to read as follows:
E. Compensation: For purposes of determining
compliance with the limitations of Code Section 415, for Plan
Years beginning on or after January 1, 1989, Compensation shall
mean a participant's earned income, wages, salaries, fees for
professional services and other amounts received for personal
services actually rendered in the course of employment with any
member of the Extended Group maintaining the Plan, including, but
not limited to, commissions paid to salesmen, compensation for
services based on a percentage of profits, commissions on
insurance premiums, tips and bonuses, and excluding the
following:
(a) Employer contributions to a plan of
deferred compensation to the extent contributions are not
included in gross income of the participant for the
taxable year in which contributed, or on behalf of a
participant to a simplified employee pension plan to the
extent such contributions are deductible under Code
Section 210(b)(2), and any distributions from a plan of
deferred compensation whether or not includable in the
gross income of the participant when distributed
(however, any amounts received by a participant pursuant
to an unfunded nonqualified plan may be considered as
Compensation in the year such amounts are included in the
gross income of the participant);
(b) amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by a participant becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(c) amounts realized from the sale, exchange
or other disposition of stock acquired under a qualified
stock option; and
(d) other amounts which receive special tax
benefits, or contributions made by any
-2-
<PAGE> 3
member of the Extended Group (whether or not under a
salary reduction agreement) towards the purchase of an
annuity contract described under Code Section 403(b)
(whether or not the contributions are excludable from the
gross income of the participant).
For purposes of applying the limitations in this Section, amounts
included as Compensation are those actually paid or made
available to a participant within the Limitation Year.
Notwithstanding anything to the contrary in the definition,
Compensation shall include any and all items which may be
includable in Compensation under Section 415(c)(3) of the Code.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994,
the Compensation of each participant taken into account under the
Plan shall not exceed the "OBRA '93 Annual Compensation Limit."
The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted
for increases in the cost of living in accordance with Code
Section 401(a)(17)(B). The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined ("Determination
Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the "OBRA '93 Annual
Compensation Limit" will be multiplied by a fraction, the
numerator of which is the number of months in the Determination
Period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit"
set forth in this Section.
If Compensation for any prior Determination Period is taken into
account in determining a participant's benefits accruing in the
current Plan Year, the Compensation for that prior Determination
Period is subject to the "OBRA '93 Annual Compensation Limit" in
effect for that prior Determination Period. For this purpose,
for
-3-
<PAGE> 4
Determination Periods beginning before the first day of the first
Plan Year beginning on or after January 1, 1994, the "OBRA '93
Annual Compensation Limit" is $150,000.
3. Effective January 1, 1994, Section 8.5.C. is hereby amended in
its entirety to read as follows:
C. Limitation on Compensation: For Plan Years
beginning on or after January 1, 1994, a participant's annual
Compensation taken into account under this Section 8.5 for
purposes of computing benefits under this Plan shall not be in
excess of the limitation under Code Section 401(a)(17).
IN WITNESS WHEREOF, the Employer has executed this First Amendment to the
Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of
October 1, 1993) on this ___ day of ____________, 1994.
STERLING CHEMICALS, INC.
Attest: By:____________________________
_________________________ "Employer"
-4-
<PAGE> 5
SECOND AMENDMENT TO THE STERLING CHEMICALS, INC.
SALARIED EMPLOYEES' PENSION PLAN
(Restated as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the
Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of
October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective October 1, 1994, Section 9.13 is hereby added to read
as follows:
9.13 Limitation of Benefits upon Termination.
(a) Benefits distributed to any of the twenty-five
(25) most highly compensated employees (as defined in Code
Section 414(q) and the regulations thereunder) and highly
compensated former employees with the greatest compensation in
the current or prior year are restricted such that the monthly
payments are no greater than an amount equal to the monthly
payment that would be made on behalf of such individual under a
straight line annuity that is the actuarial equivalent of the sum
of the individual's accrued benefit, the individual's other
benefits under the Plan (other than a social security supplement
within the meaning of Treasury Regulation 1.411(a)-7(c)(4)(ii)),
and the amount the individual is entitled to receive under a
social security supplement. However, the limitation of this
Section shall not apply if:
(i) after payment of the benefit to an
individual described above, the value of Plan assets
equals or exceeds 110 percent of the
<PAGE> 6
value of current liabilities, as defined in Code Section
412(l)(7);
(ii) the value of the benefits for an
individual described above is less than one percent of
the value of current liabilities before distribution; or
(iii) the value of the benefits payable under
the Plan to an individual described above does not exceed
$3,500.
(b) For purposes of this Section, benefit includes
any periodic income, any withdrawal values payable to a living
participant, and any death benefits not provided for by insurance
on the individual's life.
(c) An individual's otherwise restricted benefit may
be distributed in full to the affected individual if, prior to
receipt of the restricted amount, the individual enters into a
written agreement with the Committee to secure repayment to the
Plan of the restricted amount. The restricted amount is the
excess of the amounts distributed to the individual (accumulated
with reasonable interest) over the amounts that could have been
distributed to the individual under the straight life annuity
described above (accumulated with reasonable interest). The
individual may secure repayment of the restricted amount upon
distribution by:
(i) entering into an agreement for promptly
depositing in escrow with an acceptable depositary,
property having a fair market value equal to at least 125
percent of the restricted amount;
(ii) providing a bank letter of credit in an
amount equal to at least 100 percent of the restricted
amount; or
(iii) posting a bond equal to at least 100
percent of the restricted amount. The bond must be
furnished by an insurance company, bonding company or
other surety for federal bonds.
-2-
<PAGE> 7
(d) The escrow arrangement may permit an individual
to withdraw from escrow amounts in excess of 125 percent of the
restricted amount. If the market value of the property in an
escrow account falls below 110 percent of the remaining
restricted amount, the individual must deposit additional
property to bring the value of the property held by the
depositary up to 125 percent of the restricted amount. The
escrow arrangement may provide that the individual has the right
to receive any income from the property placed in escrow, subject
to the individual's obligation to deposit additional property, as
set forth in the preceding sentence.
(e) A surety or bank may release any liability on a
bond or letter of credit in excess of 100 percent of the
restricted amount.
(f) If the Committee certifies to the depositary,
surety or bank that the individual (or the individual's estate)
is no longer obligated to repay any restricted amount, a
depositary may deliver to the individual any property held under
an escrow arrangement, and a surety or bank may release any
liability on an individual's bond or letter of credit.
(g) Notwithstanding the foregoing, with respect to
Plan Years beginning prior to January 1, 1994, compliance with
the Plan and Treasury Regulations then in effect shall be deemed
compliance with this Section.
2. Effective October 1, 1994, Section 15.7 is hereby added to read
as follows:
15.7 Limitation of Benefits on Plan Termination. In the event
of Plan termination, the benefit of any highly compensated employee (as
defined in Code Section 414(q) and the regulations thereunder) or any
highly compensated former employee shall be limited to a benefit that is
nondiscriminatory under Code Section 401(a)(4).
-3-
<PAGE> 8
IN WITNESS WHEREOF, the Employer has executed this Second Amendment to the
Sterling Chemicals, Inc. Salaried Employees' Pension Plan (Restated as of
October 1, 1993) on this ___ day of ____________, 1994.
STERLING CHEMICALS, INC.
Attest: By:____________________________
_________________________ "Employer"
-4-
<PAGE> 1
EXHIBIT 10.8 (a)
SUPPLEMENT
TO
STERLING CHEMICALS, INC. HOURLY PAID
EMPLOYEES' PENSION PLAN
FOR
HOURLY PAID EMPLOYEES OF STERLING CHEMICALS, INC.
AT
Texas City Plant, Texas City, Texas -
Texas City Metal Trades Council
Restated as of January 1, 1994
Purpose:
This Supplement to the Plan modifies the provisions of the Plan (exclusive of
any other Supplement thereto) as applied to covered employees. Unless
otherwise expressly qualified by the context of this Supplement, terms used in
this Supplement shall have the same meanings given to those terms in the Plan.
Effective Date:
Except to the extent modified by the Union Pension Agreement, the Effective
Date of the Plan for the group of employees covered by this Supplement is
August 1, 1986, provided there is timely and appropriate ratification and
acceptance.
Eligibility:
Subject to subparagraph (b) of Section 2 of the Plan, the Plan shall continue
to apply, in accordance with its terms, to the hourly paid employees of the
Corporation employed at the above locations on and after the Effective Date and
through December 31, 1996. As used in this Supplement, the term "covered
employee" means an hourly paid employee actively employed on the Effective Date
or who accrues Benefit Service on or after the Effective Date with an employer,
excluding any such employee who on the Effective Date has been on a leave of
absence in excess of twelve consecutive months and who does not return to
active employment with an Employer, and who is a member of a group of employees
identified in the heading of this Supplement to which the Plan is extended or
continues to be extended.
<PAGE> 2
Retirement Income Factor:
The "Retirement Income Factor" applicable with respect to a covered employee
whose Retirement Date or Employment Termination Date occurs on or after May 1,
1993 shall be determined based on Final Average Pay in accordance with the
following table:
<TABLE>
<CAPTION>
Final Average Pay: Retirement Income Factor:
------------------ -------------------------
<S> <C>
Less than $35,500 $35
$35,500 - $36,499 $36
$36,500 - $37,499 $37
$37,500 - $38,499 $38
$38,500 - $39,499 $39
$39,500 - $40,499 $40
$40,500 - $41,499 $41
$41,500 - $42,499 $42
$42,500 - $43,499 $43
$43,500 - $44,499 $44
$44,500 - $45,499 $45
$45,500 - $46,499 $46
$46,500 - $47,499 $47
$47,500 or greater $48
</TABLE>
The Final Average Pay of a covered employee shall be the greater of the Final
Average Pay in the following two computation periods:
-- the 36 whole months immediately prior to the covered employee's
Retirement Date or Employment Termination Date, whichever occurs
first, or
-- the three of the last five calendar years which produced the
highest Final Average Pay immediately prior to the year of the
covered employee's Retirement Date or Employment Termination
Date, whichever occurs first.
The Final Average Pay of a covered employee for each computation period shall
be the sum of (a), (b) and (c):
(a) Average annual base pay.
Average annual base pay shall be calculated by (1) determining
the covered employee's regular base straight-time rate, exclusive
of any premiums, for the last day of each month during the
applicable
-2-
<PAGE> 3
computation period; (2) averaging the above regular base
straight-time rates; and (3) multiplying the average by 2,080.
(b) Average annual straight-time overtime base pay.
Average annual straight-time overtime base pay shall be
calculated by multiplying the covered employee's average regular
base straight-time rate, exclusive of any premiums, as determined
in (a) above, by the average annual number of overtime hours
worked by all covered employees during the applicable computation
period at the location at which the covered employee is employed.
For purposes of this calculation, overtime hours shall be
considered worked in the month in which the straight-time
overtime base pay is actually paid.
(c) Average annual shift premium pay.
Average annual shift premium pay shall be calculated by (1)
determining the covered employee's total shift premium paid for
regularly scheduled hours during the applicable computation
period; and (2) dividing by three. For purposes of this
calculation, shift premium shall be considered attributable to
hours worked in the month in which the shift premium pay is
actually paid.
Computation of a covered employee's Final Average Pay shall be subject to the
following:
(1) For purposes of calculating Final Average Pay during the final 36
months computation period, if the covered employee has no
earnings during one or more of his final 36 months, his Final
Average Pay shall be based upon his average annual base pay,
average annual straight-time overtime base pay, and average
annual shift premium pay during the final 36 months in which he
had base pay.
(2) For any month in which a covered employee receives only accident
and sickness pay or disability income from any employee welfare
benefit plan maintained by his Employer or in which his Employer
participates, his regular base straight-time rate for purposes of
paragraph (a)(1) above shall be calculated based upon his regular
base straight-
-3-
<PAGE> 4
time rate on his last day worked, exclusive of any premiums.
(3) If a covered employee voluntarily bid to or was involuntarily
placed in a different job which resulted in a reduction in his
regular base straight-time rate during the applicable computation
period and the covered employee's regular base straight-time rate
for each month thereafter during the applicable computation
period for purposes of paragraph (a)(1) above shall be the
greater of the regular base straight-time rate on the last day of
the month prior to such reduction or the regular base
straight-time rate in any subsequent month during the applicable
computation period.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the compensation of each participant
taken into account under the Plan for purposes of determining Final Average Pay
shall not exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93
Annual Compensation Limit" is $150,000, as adjusted for increases in the cost
of living in accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined ("Determination Period")
beginning in such calendar year. If a Determination Period consists of fewer
than 12 months, the "OBRA '93 Annual Compensation Limit" will be multiplied by
a fraction, the numerator of which is the number of months in the Determination
Period, and the denominator of which is 12.
If compensation for any prior Determination Period is taken into account in
determining a participant's benefits accruing in the current Plan Year, the
compensation for that prior Determination Period is subject to the "OBRA '93
Annual Compensation Limit" in effect for that prior Determination Period. For
this purpose, for Determination Periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the "OBRA '93 Annual
Compensation Limit" is $150,000.
-4-
<PAGE> 5
Early Retirement:
The number of years of Vesting Service plus age for purposes of Section 4.4
shall be 80 if the covered employee reached 80 on or before December 31, 1993.
Otherwise, the number of years of Vesting Service plus age for purposes of
Section 4.4 shall be 85.
Pension Board:
Certain powers and authority otherwise exercised by the Plan Committee in
accordance with subsection 1.3 and in accordance with Section 12 of the Plan
shall be exercised by a Pension Board as may be provided in the collective
bargaining agreement between the Corporation and the representatives of the
covered employees.
-5-
<PAGE> 1
EXHIBIT 10.8(b)
FIRST AMENDMENT TO THE STERLING CHEMICALS, INC.
HOURLY PAID EMPLOYEES' PENSION PLAN
(Restated as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") presently maintains the
Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of
October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 15.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective January 1, 1994, Section 4.7 is hereby added to read as
follows:
4.7 Section 401(a)(17) Participants. Notwithstanding any
other provision in the Plan, each "Section 401(a)(17) Participant's"
accrued benefit under this Plan will be the greater of:
(a) the participant's accrued benefit as of the last
day of the last Plan Year beginning before January 1, 1994,
frozen in accordance with Regulation 1.401(a)(4)-13, or
(b) the participant's accrued benefit determined
with respect to the benefit formula applicable for the Plan Year
beginning on or after January 1, 1994, as applied to the
participant's total years of service taken into account under the
Plan for purposes of benefit accruals.
A "Section 401(a)(17) Participant" means a participant whose
current accrued benefit as of a date on or after the first day of the
first Plan Year beginning on or after January 1, 1994, is based on
compensation for a year beginning prior to the first day of the first Plan
Year beginning on or after January 1, 1994 that exceeded $150,000.
<PAGE> 2
2. Effective January 1, 1994, Section 8.4(e) is hereby amended in
its entirety to read as follows:
(e) Compensation. For purposes of determining
compliance with the limitations of Code Section 415, for Plan
Years beginning on or after January 1, 1989, Compensation shall
mean a participant's earned income, wages, salaries, fees for
professional services and other amounts received for personal
services actually rendered in the course of employment with an
Employer maintaining the Plan, including, but not limited to,
commissions paid to salesmen, compensation for services based on
a percentage of profits, commissions on insurance premiums, tips
and bonuses, and excluding the following:
(i) Employer contributions to a plan of
deferred compensation to the extent contributions are not
included in gross income of the participant for the
taxable year in which contributed, or on behalf of an
participant to a simplified employee pension plan to the
extent such contributions are deductible under Code
Section 210(b)(2), and any distributions from a plan of
deferred compensation whether or not includable in the
gross income of the participant when distributed
(however, any amounts received by a participant pursuant
to an unfunded nonqualified plan may be considered as
Compensation in the year such amounts are included in the
gross income of the participant);
(ii) amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by a participant becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture;
(iii) amounts realized from the sale, exchange
or other disposition of stock acquired under a qualified
stock option; and
(iv) other amounts which receive special tax
benefits, or contributions made by an
-2-
<PAGE> 3
Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract
described under Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the
participant).
For purposes of applying the limitations in this Article, amounts
included as Compensation are those actually paid or made
available to a participant within the Limitation Year.
Notwithstanding anything to the contrary in the definition,
Compensation shall include any and all items which may be
includable in Compensation under Section 415(c)(3) of the Code.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994,
the Compensation of each participant taken into account under the
Plan shall not exceed the "OBRA '93 Annual Compensation Limit."
The "OBRA '93 Annual Compensation Limit" is $150,000, as adjusted
for increases in the cost of living in accordance with Code
Section 401(a)(17)(B). The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding 12
months, over which Compensation is determined ("Determination
Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the "OBRA '93 Annual
Compensation Limit" will be multiplied by a fraction, the
numerator of which is the number of months in the Determination
Period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the "OBRA '93 Annual Compensation Limit"
set forth in this Section.
If Compensation for any prior Determination Period is taken into
account in determining a participant's benefits accruing in the
current Plan Year, the Compensation for that prior Determination
Period is subject to the "OBRA '93 Annual Compensation Limit" in
effect for that prior Determination Period. For this purpose,
for
-3-
<PAGE> 4
Determination Periods beginning before the first day of the first
Plan Year beginning on or after January 1, 1994, the "OBRA '93
Annual Compensation Limit" is $150,000.
3. Effective January 1, 1994, Section 8.5(c) is hereby amended in
its entirety to read as follows:
(c) Limitation on Compensation. For Plan Years
beginning on or after January 1, 1994, a participant's annual
Compensation taken into account under this Section 8.5 and for
purposes of computing benefits under this Plan shall not be in
excess of the limitation under Code Section 401(a)(17).
IN WITNESS WHEREOF, the Employer has executed this First Amendment to the
Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (Restated as of
October 1, 1993) on this ___ day of ____________, 1994.
STERLING CHEMICALS, INC.
Attest: By:____________________________
_________________________ "Employer"
-4-
<PAGE> 1
EXHIBIT 10.10(a)
SUPPLEMENT
TO
STERLING CHEMICALS, INC.
SAVINGS AND INVESTMENT PLAN
FOR
HOURLY PAID EMPLOYEES OF STERLING CHEMICALS, INC.
AT
Texas City Plant, Texas City, Texas -
Texas City, Texas Metal Trades Council
Restated as of January 1, 1994
Purpose:
This Supplement to the Plan modifies the provisions of the Plan as applied to
covered employees. Unless otherwise expressly qualified by the context of this
Supplement, terms used in this Supplement shall have the same meanings given to
those terms in the Plan.
Effective Date:
The Effective Date of this Supplement for the hourly-paid employees of the
Employers listed above is April 1, 1991.
Eligibility:
The Plan shall continue to apply, in accordance with its terms, to the
hourly-paid employees of the Corporation employed at the above locations on and
after the Effective Date and through the term specified in the Savings and
Investment Plan Agreement with the above Union dated January 1, 1991. As used
in this Supplement, the term "covered employee" means an hourly-paid employee
of the Corporation who is employed at such locations on or after the Effective
Date.
After-tax Savings
Participants may elect under Sections 6.1 and 6.2 of the Plan to direct up to
11 1/2 percent of their Eligible Earnings as After-tax Matched Savings and
After-tax Supplemental Savings. The first 7 1/2 percent of their savings based
upon their Eligible Matched Earnings shall be considered After-tax Matched
Savings. The remainder of their savings shall be considered After-tax
Supplemental Savings.
<PAGE> 2
Pre-tax Contributions
Participants may elect under Sections 5.2 and 5.3 of the Plan to direct up to
11 1/2 percent of their Eligible Earnings as Pre-tax Matched Contributions and
Pre-tax Supplemental Contributions. The first 7 1/2 percent of their
contributions based upon their Eligible Matched Earnings shall be considered
Pre-tax Matched Contributions, provided, however, that if the sum of Pre-tax
Matched Contributions plus After-tax Matched Savings exceeds 7 1/2 percent of
Eligible Matched Earnings, Pre-tax Matched Contributions shall be reduced until
such sum equals 7 1/2 percent of Eligible Matched Earnings. All remaining
contributions shall be considered Pre- tax Supplemental Contributions.
Eligible Earnings
Subject to the limitations of Section 5.5 of the Plan, a covered employee's
Eligible Earnings for any period means cash compensation for services rendered
to the Employers, including amounts that would have been paid to the employee
absent the execution of an Earnings Reduction Agreement, but only to the extent
that such earnings do not exceed his straight time pay plus overtime plus shift
differential, exclusive of all other forms of premium pay. For Plan Years
beginning on or after January 1, 1994, Eligible Earnings in excess of the "OBRA
'93 Annual Compensation Limit" (as defined in Section 5.5 of the Plan) shall be
disregarded. Such amount shall be adjusted at the same time and in such manner
as permitted under Code Section 401(a)(17)(B).
Eligible Matched Earnings:
Subject to the limitations of Section 5.5 of the Plan, a covered employee's
Eligible Matched Earnings for any period means cash compensation for services
rendered to the Employers, including amounts that would have been paid to the
employee absent the execution of an Earnings Reduction Agreement, but only to
the extent that such earnings do not exceed his straight time pay, exclusive of
all forms of premium pay.
Employer Matching Contributions:
With respect to covered employees who participate in the Plan, the Employer's
Matching Contribution shall be made in the form of an ESOP contribution as set
forth in Section 4.2 and shall be in an amount equal to 60 percent of the
aggregate After-tax Matched Savings and Pre-tax Matched Contributions of such
covered employees minus ESOP forfeitures.
-2-
<PAGE> 3
SUPPLEMENT
TO
STERLING CHEMICALS, INC.
SAVINGS AND INVESTMENT PLAN
FOR
SALARIED EMPLOYEES OF STERLING CHEMICALS, INC.
AND
PARTICIPATING SUBSIDIARIES
Restated as of January 1, 1994
Purpose:
This Supplement to the Plan modifies the provisions of the Plan as applied to
covered employees. Unless otherwise expressly qualified by the context of this
Supplement, terms used in this Supplement shall have the same meanings given to
those terms in the Plan.
Effective Date:
The Effective Date of this Supplement for the salaried employees of the
Employers listed above is April 1, 1991.
Eligibility:
The Plan shall continue to apply, in accordance with its terms, to the salaried
employees of the Employer listed above on and after the Effective Date. As
used in this Supplement, the term "covered employee" means a salaried employee
who is employed by the listed Employer on or after the Effective Date.
After-tax Savings
Participants may elect under Sections 6.1 and 6.2 of the Plan to direct up to
11 1/2 percent of their Eligible Earnings as After-tax Matched Savings and
After-tax Supplemental Savings. The first 7 1/2 percent of their savings based
upon their Eligible Matched Earnings shall be considered After-tax Matched
Savings. The remainder of their savings shall be considered After-tax
Supplemental Savings.
Pre-tax Contributions
Participants may elect under Sections 5.2 and 5.3 of the Plan to direct up to
11 1/2 percent of their Eligible Earnings as Pre-tax Matched Contributions and
Pre-tax Supplemental Contributions.
<PAGE> 4
The first 7 1/2 percent of their contributions based upon their Eligible
Matched Earnings shall be considered Pre-tax Matched Contributions, provided,
however, that if the sum of Pre-tax Matched Contributions plus After-tax
Matched Savings exceeds 7 1/2 percent of Eligible Matched Earnings, Pre-tax
Matched Contributions shall be reduced until such sum equals 7 1/2 percent of
Eligible Matched Earnings. All remaining contributions shall be considered
Pre-tax Supplemental Contributions.
Eligible Earnings
Subject to the limitations of Section 5.5 of the Plan, a covered employee's
Eligible Earnings for any period means cash compensation for services rendered
to the Employers, including amounts that would have been paid to the employee
absent the execution of an Earnings Reduction Agreement. For Plan Years
beginning on or after January 1, 1994, Eligible Earnings in excess of the "OBRA
'93 Annual Compensation Limit" (as defined in Section 5.5 of the Plan) shall be
disregarded. Such amount shall be adjusted at the same time and in such manner
as permitted under Code Section 401(a)(17)(B).
Eligible Matched Earnings:
Subject to the limitations of Section 5.5 of the Plan, a covered employee's
Eligible Matched Earnings for any period means cash compensation for services
rendered to the Employers, including amounts that would have been paid to the
employee absent the execution of an Earnings Reduction Agreement.
Employer Matching Contributions:
With respect to covered employees who participate in the Plan, the Employer's
Matching Contribution shall be made in the form of an ESOP contribution as set
forth in Section 4.2 and shall be in an amount equal to 60 percent of the
aggregate After-tax Matched Savings and Pre-tax Matched Contributions of such
covered employees minus ESOP forfeitures.
-2-
<PAGE> 1
EXHIBIT 10.10(b)
FIRST AMENDMENT TO THE STERLING CHEMICALS, INC.
AMENDED AND RESTATED
SAVINGS AND INVESTMENT PLAN
(Effective as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling
Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as
of October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 16.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective January 1, 1994, Section 4.3(d)(i) is hereby amended in its
entirety to read as follows:
(i) The combined actual contribution ratio for the family
group (which shall be treated as one Highly Compensated
Participant) shall be determined by aggregating Employer
Matching Contributions made pursuant to Section 4.2,
After-tax Savings made pursuant to Sections 6.1 and 6.2,
Excess Contributions recharacterized as After-tax Savings
pursuant to Section 5.10(a) and "414(s) Compensation" of
all eligible Family Members (including Highly Compensated
Participants). However, in applying the limitation under
Code Section 401(a)(17) to "414(s) Compensation," Family
Members shall include only the affected employee's spouse
and any lineal descendants who have not attained age 19
before the close of the Plan Year.
2. Effective January 1, 1994, Section 5.5 is hereby amended in its entirety
to read as follows:
5.5 Eligible Earnings. With respect to any period, a participant's
"Eligible Earnings" shall be as defined in the applicable Supplement
hereto, but shall in any event
<PAGE> 2
be limited to the cash compensation for services rendered to the Employers
as an employee during that period, including any amounts that would have
been paid the employee absent the execution of an Earnings Reduction
Agreement. In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the contrary,
for Plan Years beginning on or after January 1, 1994, the annual Eligible
Earnings of each employee taken into account under the Plan shall not
exceed the "OBRA '93 Annual Compensation Limit." The "OBRA '93 Annual
Compensation Limit" is $150,000, as adjusted for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which Eligible Earnings is determined
("Determination Period") beginning in such calendar year. If a
Determination Period consists of fewer than 12 months, the "OBRA '93
Annual Compensation Limit" will be multiplied by a fraction, the numerator
of which is the number of months in the Determination Period, and the
denominator of which is 12.
Any reference in this Plan to the limitation under Code Section 401(a)(17)
shall mean the "OBRA '93 Annual Compensation Limit" set forth in this
Section.
If Eligible Earnings for any prior Determination Period is taken into
account in determining a participant's benefits accruing in the current
Plan Year, the Eligible Earnings for that prior Determination Period is
subject to the "OBRA '93 Annual Compensation Limit" in effect for that
prior Determination Period. For this purpose, for Determination Periods
beginning before the first day of the first Plan Year beginning on or
after January 1, 1994, the "OBRA '93 Annual Compensation Limit" is
$150,000.
3. Effective January 1, 1994, Section 5.9(c)(i) is hereby amended in its
entirety to read as follows:
(i) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated
Participant) shall be the greater of: (1) the ratio
determined by aggregating Pre-tax Contributions and
"414(s) Compensation" of all eligible Family Members who
are Highly Compensated Participants
-2-
<PAGE> 3
without regard to family aggregation; and (2) the ratio
determined by aggregating Pre-tax Contributions and
"414(s) Compensation" of all eligible Family Members
(including Highly Compensated Participants). However, in
applying the limitation under Code Section 401(a)(17) to
"414(s) Compensation," Family Members shall include only
the affected Employee's spouse and any lineal descendants
who have not attained age 19 before the close of the Plan
Year.
4. Effective April 1, 1994, Section 5.10(c) is hereby added to read as
follows:
5.10 Adjustment to Actual Deferral Percentage Tests.
(c) If during a Plan Year the projected aggregate amount of Pre-tax
Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set
forth in Section 5.9(a), cause the Plan to fail such tests, then
the Administrator may automatically reduce proportionately or in
the order provided in Section 5.10(a) each affected Highly
Compensated Participant's Pre-tax Contributions as set forth in
such Highly Compensated Participant's Earnings Reduction
Agreement pursuant to Section 5.2 or 5.3 by an amount necessary
to satisfy one of the tests set forth in Section 5.9(a), as
determined by the Administrator in its sole discretion. Unless
an affected Highly Compensated Participant elects otherwise, any
Pre-Tax Contributions reduced pursuant to this paragraph shall be
treated as After-Tax Contributions.
5. Effective January 1, 1994, Section 7.1(d) is hereby amended in its
entirety to read as follows:
(d) For purposes of applying the limitations of Code Section 415,
"415 Compensation" shall include the participant's wages,
salaries, fees for professional service and other amounts for
personal services actually rendered in the course of employment
with an Employer maintaining the Plan (including, but not limited
to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
-3-
<PAGE> 4
premiums, tips and bonuses and in the case of a participant who
is an Employee within the meaning of Code Section 401(c)(1) and
the regulations thereunder, the participant's earned income (as
described in Code Section 401(c)(2) and the regulations
thereunder)) paid during the "limitation year." "415
Compensation" shall exclude (1)(A) contributions made by the
Employer to a plan of deferred compensation to the extent that,
before the application of the Code Section 415 limitations to the
Plan, the contributions are not includable in the gross income of
the Employee for the taxable year in which contributed, (B)
Employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section 408(k)
to the extent such contributions are deductible by the Employee
under Code Section 219(a), (C) any distributions from a plan of
deferred compensation regardless of whether such amounts are
includable in the gross income of the Employee when distributed
except that any amounts received by an Employee pursuant to an
unfunded non-qualified plan to the extent such amounts are
includable in the gross income of the Employee; (2) amounts
realized from the exercise of a non-qualified stock option or
when restricted stock (or property) held by an Employee either
becomes freely transferable or is no longer subject to a
substantial risk of forfeiture; (3) amounts realized from the
sale, exchange or other disposition of stock acquired under a
qualified stock option; and (4) other amounts which receive
special tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums are not
includable in the gross income of the Employee), or contributions
made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described
in Code Section 403(b) (whether or not the contributions are
excludable from the gross income of the Employee).
"414(s) Compensation" with respect to any participant means such
participant's Pre-tax Contributions attributable to Deferred
Compensation recharacterized as After-tax Savings pursuant to
Section 5.10(a) plus "415 Compensation" paid during a Plan Year.
The amount of "414(s) Compensation"
-4-
<PAGE> 5
with respect to any participant shall include "414(s)
Compensation" for the entire twelve month period ending on the
last day of such Plan Year. For purposes of this Section, the
determination of "414(s) Compensation" shall be made by including
amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the
gross income of the participant under Code Sections 125,
402(e)(3), 402(h), 403(b) or 457, and Employee contributions
described in Code Section 414(h)(2) that are treated as Employer
contributions.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994,
the annual "414(s) Compensation" of each employee taken into
account under the Plan shall not exceed the "OBRA '93 Annual
Compensation Limit" as set forth in Section 5.5. In applying
this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules
of Code Section 414(q)(6) because such participant is either a
"five-percent owner" of the Employer or one of the ten (10)
Highly Compensated Employees paid the greatest "415 Compensation"
during the year, shall be treated as a single participant, except
that for this purpose Family Members shall include only the
affected participant's spouse and any lineal descendants who have
not attained age nineteen (19) before the close of the year.
IN WITNESS WHEREOF, the Employer has executed this First Amendment to the
Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan
(Effective as of October 1, 1993) on this ____ day of ______________, 1994.
STERLING CHEMICALS, INC.
Attest:
By:____________________________
_________________________ "Employer"
-5-
<PAGE> 6
SECOND AMENDMENT TO THE STERLING CHEMICALS, INC.
AMENDED AND RESTATED
SAVINGS AND INVESTMENT PLAN
(Effective as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling
Chemicals, Inc. Amended and Restated Savings and Investment Plan (Effective as
of October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 16.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective October 1, 1994, Section 11.1 is hereby amended in its entirety
to read as follows:
11.1 Withdrawals by Participants with Five or More Years of Participation.
Twice each Plan Year a participant who has at least five years of
participation in this Plan, by writing filed with the Plan Committee, may
elect to withdraw up to all of the balance of his Participant Rollover
Account (to the extent not previously withdrawn and not more than the
balance credited to such Account). A participant may also elect to
withdraw up to all of the following amounts (to the extent not previously
withdrawn and not more than the balance credited to his respective
Accounts), in the following order:
(a) all of the savings previously made to his After-tax Supplemental
Savings Account and all earnings credited to such Account; and
(b) all of the savings previously made to his After-tax Matched
Savings Account and all earnings credited to such Account.
The minimum withdrawal shall be $500 or the balance available, if less.
Notwithstanding anything in this Section 11.1 to the contrary, any
withdrawals during the Plan Year pursuant to Section 11.2 shall be
considered to be withdrawals under this Section 11.1 for purposes of the
requirement that withdrawals be made no more than twice each Plan Year.
Notwithstanding the foregoing, for the period beginning October 1, 1994
and ending December 31, 1994, each participant shall be entitled to make
one (1) withdrawal under
<PAGE> 7
this Section 11.1 in addition to the number of withdrawals such
participant would otherwise be entitled to make under this Section 11.1.
Beginning January 1, 1995, withdrawals under this Section 11.1 may be made
no more than twice each calendar year.
2. Effective October 1, 1994, Section 11.2 is hereby amended in its entirety
to read as follows:
11.2 Withdrawals by Participants with Less than Five Years of
Participation. Twice each Plan Year a participant who has less than five
years of participation in this Plan, by writing filed with the Plan
Committee, may elect to withdraw up to all of the balance then in his
Participant Rollover Account and all earnings credited to such Account (to
the extent not previously withdrawn and not more than the balance credited
to such Account). A participant may also elect to withdraw up to the
following amounts (to the extent not previously withdrawn and not more
than the balance credited to his respective Accounts), in the following
order:
(a) all of the savings previously made to his After-tax Supplemental
Savings Account and all earnings credited to such Account;
(b) all of the savings previously made to his After-tax Matched
Savings Account and all earnings credited to such Account
(excluding After-tax Matched Savings made and all earnings
credited to such Account during the current month and the
immediately preceding twenty-three months); and
(c) all After-tax Matched Savings made and all earnings credited to
such Account during the current month and the immediately
preceding twenty-three months.
If a participant makes a withdrawal under subsection (c) of this Section
11.2, the Employers may not make any Employer Matching Contributions under
the Plan on behalf of the participant for a three-month period commencing
as soon as practicable after the date of the withdrawal.
The minimum withdrawal shall be $500 or the balance available, if less.
Notwithstanding the foregoing, for the period beginning October 1, 1994
and ending December 31, 1994, each participant shall be entitled to make
one (1) withdrawal under this Section 11.2 in addition to the number of
withdrawals such participant would otherwise be entitled to make under
this Section 11.2.
-2-
<PAGE> 8
Beginning January 1, 1995, withdrawals under this Section 11.2 may be made
no more than twice each calendar year.
3. Effective October 1, 1994, Section 11.5 is hereby amended in its entirety
to read as follows:
11.5 Charging and Allocations of Withdrawals and Periodic Distributions.
All Withdrawals and Periodic Distributions under Sections 11.1 through
11.4 shall be charged to the proper account of the participant and
allocated as directed by the participant to his interests in the
Investment Funds set forth in Section 9.2.
IN WITNESS WHEREOF, the Employer has executed this Second Amendment to the
Sterling Chemicals, Inc. Amended and Restated Savings and Investment Plan
(Effective as of October 1, 1993) on this ____ day of ______________, 1994.
STERLING CHEMICALS, INC.
Attest:
By:____________________________
_________________________ "Employer"
-3-
<PAGE> 1
EXHIBIT 10.12(a)
FIRST AMENDMENT TO THE STERLING CHEMICALS, INC.
AMENDED AND RESTATED
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of October 1, 1993)
W I T N E S S E T H:
WHEREAS, Sterling Chemicals, Inc. (the "Employer") maintains the Sterling
Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan (Effective
as of October 1, 1993) (the "Plan"); and
WHEREAS, the Employer, pursuant to Section 14.1 of the Plan, has the right
to amend the Plan from time to time subject to certain limitations.
NOW, THEREFORE, in order to make various revisions desired by the
Employer, the Plan is hereby amended in the following manner:
1. Effective January 1, 1994, Section 4.7(d)(i) is hereby amended in its
entirety to read as follows:
(i) The combined actual contribution ratio
for the family group (which shall be treated as one
Highly Compensated Participant) shall be determined by
aggregating Employer contributions and "414(s)
Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying
the limitation under Code Section 401(a)(17) to "414(s)
Compensation," Family Members shall include only the
affected employee's spouse and any lineal descendants who
have not attained age 19 before the close of the Plan
Year.
2. Effective January 1, 1994, Section 7.1(d) is hereby amended in its
entirety to read as follows:
(d) For purposes of applying the limitations of
Code Section 415, "415 Compensation" shall include the
participant's wages, salaries, fees for professional service and
other amounts for personal services actually rendered in the
course of employment with an Employer maintaining the Plan
<PAGE> 2
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips and bonuses and
in the case of a participant who is an Employee within the
meaning of Code Section 401(c)(1) and the regulations thereunder,
the participant's earned income (as described in Code Section
401(c)(2) and the regulations thereunder)) paid during the
"limitation year." "415 Compensation" shall exclude (1)(A)
contributions made by the Employer to a plan of deferred
compensation to the extent that, before the application of the
Code Section 415 limitations to the Plan, the contributions are
not includable in the gross income of the Employee for the
taxable year in which contributed, (B) Employer contributions
made on behalf of an Employee to a simplified employee pension
plan described in Code Section 408(k) to the extent such
contributions are deductible by the Employee under Code Section
219(a), (C) any distributions from a plan of deferred
compensation regardless of whether such amounts are includable in
the gross income of the Employee when distributed except that any
amounts received by an Employee pursuant to an unfunded
non-qualified plan to the extent such amounts are includable in
the gross income of the Employee; (2) amounts realized from the
exercise of a non-qualified stock option or when restricted stock
(or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture; (3) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(4) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the
Employee), or contributions made by the Employer (whether or not
under a salary reduction agreement) towards the purchase of any
annuity contract described in Code Section 403(b) (whether or not
the contributions are excludable from the gross income of the
Employee).
"414(s) Compensation" with respect to any participant
means such participant's Pre-tax Contributions attributable to
Deferred Compensation
-2-
<PAGE> 3
recharacterized as After-tax Savings pursuant to Section 5.10(a)
of the Savings and Investment Plan plus "415 Compensation" paid
during a Plan Year. The amount of "414(s) Compensation" with
respect to any participant shall include "414(s) Compensation"
for the entire twelve month period ending on the last day of such
Plan Year. For purposes of this Section, the determination of
"414(s) Compensation" shall be made by including amounts which
are contributed by the Employer pursuant to a salary reduction
agreement and which are not includible in the gross income of the
participant under Code Sections 125, 402(e)(3), 402(h), 403(b) or
457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
In addition to other applicable limitations set forth in
the Plan, and notwithstanding any other provision of the Plan to
the contrary, for Plan Years beginning on or after January 1,
1994, the annual "414(s) Compensation" of each employee taken
into account under the Plan shall not exceed the "OBRA '93 Annual
Compensation Limit." The "OBRA '93 Annual Compensation Limit" is
$150,000, as adjusted for increases in the cost of living in
accordance with Code Section 401(a)(17)(B). The cost of living
adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which "414(s) Compensation" is
determined ("Determination Period") beginning in such calendar
year. If a Determination Period consists of fewer than 12
months, the "OBRA '93 Annual Compensation Limit" will be
multiplied by a fraction, the numerator of which is the number of
months in the Determination Period, and the denominator of which
is 12.
Any reference in this Plan to the limitation under Code
Section 401(a)(17) shall mean the "OBRA '93 Annual Compensation
Limit" set forth in this Section.
If "414(s) Compensation" for any prior Determination
Period is taken into account in determining a participant's
benefits accruing in the current Plan Year, the "414(s)
Compensation" for that prior Determination Period is subject to
-3-
<PAGE> 4
the "OBRA '93 Annual Compensation Limit" in effect for that prior
Determination Period. For this purpose, for Determination
Periods beginning before the first day of the first Plan Year
beginning on or after January 1, 1994, the "OBRA '93 Annual
Compensation Limit" is $150,000. In applying this limitation,
the family group of a Highly Compensated Participant who is
subject to the Family Member aggregation rules of Code Section
414(q)(6) because such participant is either a "five-percent
owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year,
shall be treated as a single participant, except that for this
purpose Family Members shall include only the affected
participant's spouse and any lineal descendants who have not
attained age nineteen (19) before the close of the year.
IN WITNESS WHEREOF, the Employer has executed this First Amendment to the
Sterling Chemicals, Inc. Amended and Restated Employee Stock Ownership Plan
(Effective as of October 1, 1993) on this ____ day of ______________, 1994.
STERLING CHEMICALS, INC.
Attest:
By:____________________________
_________________________ "Employer"
-4-
<PAGE> 1
EXHIBIT 10.19
**OMITTED INFORMATION
DENOTED BY ASTERISKS (***)
HAS BEEN FILED SEPARATELY
WITH THE COMMISSION AND IS
SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST**
ACRYLONITRILE EXCHANGE CONTRACT
THIS CONTRACT, made as of January 1, 1994 by and between Sterling
Chemicals, Inc., a Delaware corporation ("Sterling") having a plant at Texas
City, Texas (the "Plant"), and Monsanto Company, a Delaware corporation
("Monsanto").
W I T N E S S E T H :
WHEREAS, Sterling desires to exchange Acrylonitrile with Monsanto and
Monsanto desires to exchange Ammonia and Propylene with Sterling, on the terms
and conditions herein after specified, including the Terms and Conditions set
forth in Attachment 1 hereto, which is incorporated herein by reference:
NOW THEREFORE, in consideration of the following mutual covenants,
Sterling and Monsanto agree:
1. GOODS. Sterling shall deliver Acrylonitrile meeting the
specifications set forth in Exhibit A hereto, which is incorporated herein by
reference (as used with reference to Sterling's delivery obligation, herein
called the "Goods") to Monsanto in exchange for Ammonia and Propylene meeting
the specifications set forth, respectively, in Exhibits B and C hereto, which
are incorporated herein by reference ( as used with reference to Monsanto's
delivery obligation, herein called the "Goods") to be delivered by Monsanto to
Sterling, together with the differential to be paid by Monsanto to Sterling as
hereafter provided in Section 4.
2. PERIOD. The period of this Contract shall be January 1, 1994
through December 31, 1998.
3. QUANTITY. Subject to all the terms and conditions hereof, the
Goods to be delivered hereunder by Sterling shall be Monsanto's annual purchase
requirement for such Goods in excess of Monsanto's own production of
Acrylonitrile, which excess is estimated to be between * * * * and * * * * per
calendar year, subject to the General Terms and Conditions set forth in
Attachment 1 hereto. For each 1 pound of Goods to be delivered by Sterling to
Monsanto during each calendar quarter of the Contract Period, Monsanto shall
deliver to Sterling either * * * * pounds of Ammonia and * * * * of Propylene,
or Sterling's actual ratio of the usage of Ammonia and Propylene in the
production of each one pound of the Goods during such calendar quarter,
whichever is less. Promptly after the close of each calendar quarter, but not
later than thirty (30) days thereafter, Sterling shall compute such actual
ratio of usage for such quarter, and Monsanto will be appropriately and
equitably debited or
<PAGE> 2
credited for deliveries of Ammonia or Propylene to correct for any over or
under deliveries which may have occurred during such quarter.
4. (a) DIFFERENTIAL. For the first calendar quarter immediately
following the effective date of this Contract, in addition to the Goods to be
exchanged by Monsanto for each 1 pound of the Goods delivered each month by
Sterling in conformance with the terms hereof, Monsanto shall pay Sterling a
differential fee of * * * *, subject to the General Terms and Conditions set
forth on Attachment 1. Within thirty (30) days following the end of each
calendar quarter * * * * of such * * * * per pound fee shall be adjusted up or
down as follows: * * * * shall be adjusted by the same percentage change as
shall have occurred in the average costs per KWH for electric power at the
Plant between the second calendar quarter of 1993 and such average costs for
the calendar quarter just ended; * * * * shall be adjusted by the same
percentage change as shall have occurred in the average hourly labor costs for
workers employed at the Plant between the second calendar quarter of 1993 and
such average costs for the calendar quarter just ended; and * * * * shall be
adjusted by the same percentage change as shall have occurred in the Industrial
Commodity Index (less fuel and related power) contained in the Department of
Labor, Bureau of Labor Statistics, Product Price Index, between the first
calendar quarter of 1994 and such Index for the calendar quarter just ended;
less a negative * * * * (i.e., a steam credit against the preceding
adjustments) which negative amount (steam credit) shall be adjusted by the same
percentage change as shall have occurred in the average cost per million BTUs
for natural gas used at the Plant between $2.30 per million BTUs and the
average cost per million BTUs for such gas for the calendar quarter just ended.
Any change in the * * * * fee required shall be made retroactively effective to
the first day of the calendar quarter in which the computation is made, with
appropriate debits or credits issued between the parties for shipments made
during such quarter prior to the making of the adjustment calculations. For
all proceeding calendar quarters after the first calender quarter of this
Contract, the estimated conversion fee will be taken as the final conversion
fee for the previous quarter.
(b) For each one (1) pound of Goods delivered by Sterling in
excess of * * * * in a calendar year, Monsanto will pay Sterling a revised
Differential equal to one-half of the Differential defined in Section 4(a)
above plus one-half of "Sterling's volume weighted average $/lb. margin" on all
Acrylonitrile export shipments (meeting or exceeding Sterling's standard sales
specifications) during the calendar year in question. "Sterling's average
$/lb. margin" shall be defined as Sterling's average per pound sales price in
$/lb. for Acrylonitrile exported (meeting or exceeding Sterling's standard
sales specifications) during the calendar year in question (adjusted to F.O.B.
Sterling's Texas City Plant and adjusted for any Temporary voluntary or
Competitive Allowances or other price adjustments extended to customers by
Sterling) reduced by Sterling's average per pound cost in $/lb. of Ammonia and
contained Propylene used during such calendar year. Such revised Differential
shall begin when * * * * is exceeded and shall be estimated
2
<PAGE> 3
by Sterling; provided that premium grade Acrylonitrile sold by Sterling at a
premium price shall not be included in the calculation of "Sterling's average
$/lb. margin." Promptly after the close of any calendar year in which such
revised Differential is payable, Sterling shall compute such actual revised
Differential and shall debit or credit Monsanto for any under or over payment."
5. SPECIFICATIONS. The specifications attached hereto shall not
be changed without the mutual agreement of both parties. It is understood,
however, that if at any time during the Contract period general market
conditions change so that Monsanto can no longer make products acceptable to
its customers from Goods meeting the attached specifications, Monsanto shall
notify Sterling promptly and if the parties are unable, after attempting to do
so in good faith, to reach agreement on revised specifications for the Goods,
Monsanto may, by and effective upon notice to Sterling suspend its obligations
to obtain from Sterling hereunder so much of the Goods as to which such
conditions prevail, without liability, until such time as Monsanto and Sterling
either reach agreement on revised specifications for the Goods, or Sterling
otherwise modifies the Goods so that Monsanto is able to make products
therefrom acceptable under then current general market conditions, and during
any such suspension period, Monsanto may obtain its requirements for so much of
the Goods as require revised specifications from others who can meet such
revised specifications. Any such suspension period shall not operate to extend
the Contract Period.
6. DELIVERIES. The FOB point where title and risk of loss shall
pass to Sterling from Monsanto on the Goods to be delivered by Monsanto shall
be (a) in the case of delivery by pipeline, when the Goods are delivered to the
first flange of Sterling's receiving pipelines at the Plant; and (b) in the
case of delivery by tankcar or barge, when the carrier tenders delivery of the
tankcar or barge to Sterling at the Plant. The FOB point where title and risk
of loss shall pass to Monsanto from Sterling on the Goods to be delivered by
Sterling shall be when the Goods have been loaded aboard the delivering
tankcar, barge or ship and possession of the conveyance is in the carrier. The
method of delivery shall be by pipeline for Propylene; by barge for Ammonia;
and by barges or ships furnished or arranged for by Monsanto, or by tankcars
furnished by Sterling, for Acrylonitrile, all as Monsanto may specify from time
to time.
7. SPECIAL TERMINATION ASSIGNMENT RIGHTS. Monsanto may terminate
its quantity obligation with respect to so much of the quantity of Goods to be
purchased [exchanged] hereunder as is consumed directly or indirectly by any
business of Monsanto which Monsanto elects to sell to any third party or which
Monsanto elects to discontinue, by giving Sterling at least one hundred eighty
(180) days prior notice of the quantity to be terminated. IN the event of the
sale of any Goods consuming business and not withstanding the prohibition
against assignment contained in Section 12 of the "General Terms and
Conditions", Monsanto may assign this Contract with the consent of Sterling
(which consent
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will not be unreasonably withheld) to any one or more third parties which
purchase a business of Monsanto which consumes, directly or indirectly, a
quantity of the Goods covered hereby to the extent of the quantity so consumed,
provided at least thirty (30) days prior notice is given to Sterling of any
such assignment. Sterling shall be deemed to have approved any such assignment
unless it has raised objections to such assignment within the thirty (30) day
period. In all cases involving the sale by Monsanto of any Goods consuming
business, Monsanto agrees to use all reasonable efforts to assign the relevant
quantities to the purchaser provided Sterling has not objected to such
assignment within the thirty (30) day notice period referenced above. In the
event, however, that Monsanto (i) is unable to assign the relevant quantities
to the purchaser or (ii) Sterling does not consent to the assignment, Monsanto
may nevertheless terminate its obligations with respect to any such quantity in
accordance with the one hundred eighty day notice provision set forth above.
5. FAVORED NATIONS. Sterling shall promptly notify Monsanto of
any conversion or exchange during the contract Period by Sterling of
Acrylonitrile functionally equivalent to the Goods covered hereby for use or
consumption within the United States at a delivered cost to the third party
involved (adjusted to a net price FOB Sterling's Plant) which is lower than the
delivered cost to Monsanto at Sterling's Plant, Texas City, then applicable to
the Goods hereunder, and Monsanto shall thereupon be entitled to exchange
hereunder a quantity of the Goods at such lower delivered cost (adjusted to a
net price FOB Sterling's Plant) equal to the quantity of Acrylonitrile so
disposed of to such third party.
9. GOODS AND RECORDS. If Monsanto so requests, Sterling shall
make available to an independent certified public accounting firm, mutually
acceptable to Monsanto and Sterling and paid for by Monsanto such of Sterling
books and records as shall be necessary to permit such accountants to verify
the propriety and correctness of any matter relevant to Sterling's performance
of this Contract or one or more of the provisions hereof, provided, however,
that such accountant shall report to Monsanto only his conclusion concerning
the correctness and accuracy of Sterling's calculations and whether there has
been a correct application of the Contract provisions or, if not, what such
firm considers to be the correct calculations and/or application of the
contract. Such firm shall agree to keep confidential the information of
Sterling to which it has access pursuant to such agreement as Sterling may
reasonably require, and shall not otherwise divulge any of the data of Sterling
which it has inspected or reviewed without the consent of Sterling.
10. WATERBORNE DELIVERY & MEASUREMENT
(a) Monsanto shall give reasonable prior notice of vessel
arrival and permitted laytime applicable to the vessel. After
Sterling accepts a vessel
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nominated by Monsanto, Sterling shall provide a safe berth at all
times for any such vessel placed for loading/unloading by Monsanto.
(b) Vessels shall be handled with all reasonable
expediency and any delay beyond permitted laytime of which Sterling
has been advised by Monsanto for the type of equipment used shall be
paid for by Sterling. Sterling accepts that, from January 1, 1993 and
for all further shipments of product from Texas City, Texas, to
Monsanto, the permitted laytime will be 1,500 barrels per hour plus
three (3) free hours of time for every barge loaded during one trip of
the unit tow.
(c) Sterling shall inspect all barges and vessels to
ensure cleanliness so as not to affect purity of the Goods to be
loaded.
(d) Inspection of the quantity and quality of Goods being
loaded upon or unloaded from barge(s) at the loading or unloading
point shall be performed by a licensed inspector of petroleum
products, who shall be mutually agreed upon by the parties, and the
cost for such service shall be shared equally by Monsanto and
Sterling. The determination of the quantity of Goods delivered
hereunder shall be determined by taking the opening and closing
inventory of Sterling's properly calibrated still shore tank before
and after each shipment, unless such quantity determination is proven
to be in error. For invoicing purposes volume shall be corrected to
60 Fahrenheit in accordance with applicable ASTM tables. Inspection
of quality of the Goods shall be made on representative samples of the
Goods taken from loading flange of Monsanto's barge or ship at loading
point by a licensed inspector of petroleum products. In the event
that a disagreement should arise as to quantity or quality, an
inspection will be made by such mutually agreed upon licensed
inspector of petroleum products and the results of such inspection
shall govern, the cost to be borne by the party proven to be in error.
11. PIPELINE MEASUREMENTS. On all deliveries hereunder
the quantity delivered shall be measured by meters. The following
provisions (a) through (j) shall apply as to determination of
quantity:
(a) Sterling shall operate and maintain at no
expense to Monsanto, the Goods (Propylene) custody
transfer meter station located at or near the West
Gate parking lot at the Plant. Such meter station
shall be equipped with facilities necessary to
determine accurately the quantity of Goods delivered
by Monsanto hereunder and such measurement station
shall be operated and maintained by Sterling in
accordance with good industry practice. The primary
measuring device shall be a recording turbine meter,
or such other primary measure device as may be
mutually agreed upon by the parties and shall be
equipped with such provers, recorder and equipment as
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appropriate and shall be installed and operated, all
in accordance with appropriate American Petroleum
Institute (API) standards including Chapter 5 Section
3 of API Manual of Petroleum Measurement Standards (A
part of API-2534).
(b) Monsanto, or its representative, may, at its
option, install a check meter or meters at or near
the FOB point for checking Sterling's measurement.
Said meter shall be so installed as to not interfere
with the operation of Sterling's metering facilities.
The calibrating and adjusting of Monsanto's meters
and the changing of charts and reading of charts on
Monsanto's meters shall be done only by Monsanto, or
its representative. Monsanto, or its representative,
shall have access at all reasonable times to its
equipment and shall make all repairs to said
equipment at no expense to Sterling. Sterling shall
have access at reasonable times to Monsanto's charts,
records and calculations on written request to
Monsanto.
(c) Monsanto, or its representative, upon prior
notice to Sterling and at Sterling's option
accompanied by a Sterling employee or representative,
shall have access at all reasonable times to the
meters and equipment used in determining the quantity
and quality of the Goods delivered hereunder,
including all instruments used by Sterling or its
designated representative, but the reading, metering
and testing thereof and the changing of charts shall
be done only by the agents or representatives of
Sterling and only upon notice to Monsanto. Upon
written request of Monsanto, Sterling shall submit to
Monsanto records, charts and calculations from
Sterling subject to return by Monsanto within 45 days
after receipt thereof.
(d) At least once a month, and on a date as near the
first of the month as practicable, Sterling shall at
the joint expense of Sterling and Monsanto, prove and
test or cause to be proved and tested the meters and
instruments, in the presence of Monsanto, or
Monsanto's representative, and the parties hereto
shall jointly observe any adjustments which are made,
should same be necessary. Sterling shall give
Monsanto at least three days' prior notice of the
date and time all such tests and proving are to be
conducted so that Monsanto may conveniently have its
representative present.
(e) Sterling shall, upon notice to Monsanto,
cause the custody transfer meters to be read for
billing purposes on a monthly basis, as close to the
date of proving as possible.
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Monsanto shall have the right to be present for such
reading and a certified copy of such reading shall be
supplied to Monsanto.
(f) Monsanto, at its expense, shall have the
right to request that the meter be inspected and
checked for calibration by an independent qualified
third party at any time between normal Sterling
recalibration intervals; if, as a result of such
inspection, the meter is determined to be inaccurate
by 1/2 percent or more, the cost of said inspection
and subsequent recalibrations shall be borne by
Sterling.
(g) Following any test, any metering equipment
found to be inaccurate to any degree shall be
adjusted immediately to measure accurately, or, if
applicable, an appropriate correction factor shall be
agreed upon. If upon any calibration any metering
equipment is found to be inaccurate by 1/2 percent or
more, registration from said metering equipment and
any payments based upon such registration shall be
corrected at the rate of such inaccuracy for any
period of inaccuracy which is definitely known or
agreed upon, but in the case the period is not
definitely known or agreed upon, then for a period
extending back one-half of the time elapsed since the
previous test, not exceeding however, 15 days.
(h) If for any reason any meter is out of
service, out of repair, or is found registering
inaccurately and the error is not determinable by
ordinary test, so that the quantity of Goods
delivered through such meter cannot be ascertained or
computed from the readings thereof, the quantity of
Goods so delivered during the period same is out of
service, out of repair, or is found to be so
registering inaccurately shall be estimated and
agreed upon by the parties hereto upon the basis of
the best available data, using the first of the
following methods which is feasible:
(i) By using the registration of any
check measuring equipment of Monsanto and/or
Monsanto's representative, if installed and
registering accurately.
(ii) By correcting the error if the
percentage of error is ascertainable by
calibration, special test, or mathematical
calculation; or
(iii) By such other method as shall be
mutually agreed upon by the parties hereto.
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(i) If the parties are unable to agree on
quantities delivered as a result of a meter
inaccuracy determined pursuant to Section 11 (g)
above, or if there is disagreement as to whether the
Goods meet the relevant specifications attached
hereto, either party may, on ten days' written notice
to the other party, submit such question to such
independent third party as may be mutually agreed,
and the decision of such third party shall be binding
on the parties. Costs of such determination shall be
borne equally by each party.
12. NOMINATION/FORECAST. Monsanto shall at least
thirty (30) days prior to the beginning of each calendar
quarter give Sterling a nomination of Monsanto's deliveries of
the Goods and requests for delivery of the Goods, each at the
respective points of delivery for in the Contract. These
quarterly volume nominations regarding Acrylonitrile offtake
will be made in 5 million pound ranges with the minimum
nomination being 30 million pounds and the maximum being 50
million pounds. All pounds delivered to Monsanto during the
quarter will be invoiced according to the fee schedule above
in Section 4. If, however, Monsanto's conversion with
Sterling is greater than the 30 million pound per quarter
minimum and Monsanto has given Sterling the required
notification regarding this volume need or Sterling has agreed
to a change of the volume nomination, then the Fixed Component
for the additional volume, (pounds above 30 million per
quarter) will be adjusted from the $0.03 per pound set forth
in Section 4. The fee for the first 10 million pounds taken
above the 30 million pound minimum per quarter (pounds between
30 and 40 million) will be based on a Fixed Component fee of
$0.0275 per pound and the next 10 million pounds taken
(between 40 and 50 million) per quarter will have a Fixed
Component fee of $0.0250 per pound.
MONSANTO COMPANY STERLING CHEMICALS, INC.
BY: _________________________ BY: ________________________
TITLE _________________________ TITLE ______________________
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ATTACHMENT 1
MONSANTO COMPANY
AND
STERLING CHEMICALS, INC.
General Terms and Conditions
If, and to the extent that, the transaction governed by the following
Terms and Conditions is a sale and purchase transaction the phrase "shipping
party" shall mean "Seller", and the phrase "receiving party" shall mean
"Buyer", unless the context requires otherwise. In the event of a conflict
between these "General Terms and Conditions" and the specific terms and
conditions in the Contract to which they are attached, such specific terms and
conditions shall govern.
1. EXCUSE OF PERFORMANCE (a) Shipments and deliveries may be
suspended by either party in the event of: Act of God, declared or undeclared
war, acts of the public enemy, riot, fire, explosion, accident, flood,
sabotage, blockades, embargoes, insurrections, epidemics, landslides,
lightening, earthquakes, storms, hurricanes, washouts, civil disturbances,
arrests; lack of adequate fuel, power, raw materials, labor, containers or
transportation facilities; compliance with federal, state, local, municipal,
civil and military governmental and governmental agency requests, laws,
regulations, orders, actions, requisitions, restraints or directives; breakage,
failures, disruptions, and necessary maintenance of machinery or apparatus;
national defense requirements or any other event, whether or not of the class
of kind enumerated herein, beyond the reasonable control of such party; or in
the event of labor trouble, strike, slowdowns, lockout or injunction (provided
that neither party shall be required to settle a labor dispute against its own
best judgment); which event hinders, limits or makes impracticable the
performance of this Contract or the manufacture, consumption, sale, exchange,
shipment, receipt, use or obtaining of the Goods or any raw material, or any
product manufactured or processed therefrom or therewith.
(b) If either party determines that its ability to obtain or supply
the total demand for the Goods which it is supplying pursuant to this Contract,
or obtain any or a sufficient quantity of any material used directly or
indirectly in the manufacture of the Goods, is hindered, limited or made
impracticable by any event referred to in Section 1(a) such party shall
allocate its available supply of the Goods or such
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material (without obligation to acquire other supplies of any such Goods or
material) among itself and its other contract customers and the other party to
this Contract on a fair and equitable basis without liability for any failure
of performance which may result therefrom, except, if the transaction covered
hereby is an exchange, for any liability for imbalances stated in this
Contract.
(c) Shipments suspended or not made by reason of this section shall
be canceled without liability except, if the transaction covered hereby is an
exchange for any liability for imbalances arising out of such cancellation, but
this Contract shall otherwise remain unaffected.
(d) The affected party shall invoke this Section 1 by promptly
notifying the other party in writing of the nature of this event on which it
relies and the estimated extent and duration of the suspension. During the
continuance of any such event the affected party shall not be obligated to
purchase Goods from another source to fulfill its obligations hereunder. If
the event relied upon is one which prevents the affected party from obtaining
raw materials, the affected party agrees to give the other party the option for
the duration of the inability of the affected party to obtain such raw
materials, to convert the Contract into an exchange agreement under which the
other party shall be entitled to obtain from the affected party a quantity of
the Goods up to the quantity to which such other party is otherwise entitled
(not to exceed the maximum quantity) and which can be produced on a
stoichiometric basis from the quantities of the raw materials in short supply
which such other party can arrange to be delivered to the affected party, and
the affected party shall supply any other required raw materials. If the other
party exercises such option, such other party shall, in addition to the raw
material to be delivered to the affected party, and the affected party shall
supply any other required raw materials. If the other party exercises such
option, such other party shall, in addition to the raw material to be delivered
by such other party pay the affected party per unit of the Goods delivered
under the exchange a differential equal to the sales price per unit of the
Goods otherwise then applicable under the contract less the then prevailing
market value of the stoichiometric amount of the raw material delivered by the
other party and contained in the unit of Goods delivered by the affected party
under the exchange. During any such exchange period, the provisions hereunder
applicable to exchanges shall apply. In such event, the affected party will,
in addition to deliveries otherwise due the other party, deliver to the other
party an amount of Goods equivalent to the quantity which may be made from the
raw materials supplied by the other party, but the aggregate amount of Goods
from either source shall not exceed the
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total amount of Goods to which such other party was otherwise entitled before
such option was exercised.
2. SHIPMENTS. Receiving party shall provide shipping party with
reasonable advance notice of its desired schedule for shipment of Goods. If
the transaction covered hereby is an exchange, orders for shipments of Goods
shall be at a monthly rate as uniform as reasonably practicable, unless
otherwise provided in this Contract. If the transaction covered hereby is a
sales, the Seller shall not make any shipments under this Contract until
released in accordance with separate purchase orders or releases issued by
Buyer's using locations and Seller shall not be required to ship more than
thirty percent (30%) of Seller's maximum annual quantity obligation in any
quarter without Seller's prior consent.
3. LOADING AND UNLOADING. Shipping party agrees to load, and
receiving party agrees to unload, carriers or transports furnished by the other
party within, as applicable, any free time specified by tariffs on file with
the applicable regulatory bodies or as otherwise specified by the carrier and
to pay any charges resulting from its failure in this regard, provided either
such party, as applicable, has been advised, prior to commencement of
unloading, or loading, as the case may be, of carrier's permitted free time. A
party shall not be excused from its obligations to pay such charges by the
provisions of Section 1 if the event relied upon occurs after the carriers or
transports have been accepted for loading or unloading, as the case may be.
4. IMBALANCES. This Section 4 shall have application only if the
transaction covered hereby is an exchange. both parties shall endeavor,
insofar as practicable, to keep the exchange in balance in accordance with the
provisions of this Contract. Unless otherwise provided in this Contract, an
over-delivering party shall not be required to make any further shipments
hereunder if the Goods shipped pursuant to this Contract are not in balance
until such imbalance is eliminated or reduced, by the shipment of Goods to the
over-delivering party, to a level acceptable to the over-delivering party, even
if the imbalance results from an event described in Section 1 hereof. If such
imbalance does result from an event described in Section 1, the over-delivery
party may, in lieu of awaiting for the imbalance to be brought into balance,
require that any over-deliveries be returned or that the over- deliveries be
paid for by the under-delivering party at such price as may be agreed upon.
Such action by the over-delivering party shall not limit any rights or remedies
of the over-delivering party. A party shall not be entitled to refuse to make
shipments due to such an
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imbalance if such imbalance has resulted from its failure to accept and receive
Goods in accordance with the provisions of this Contract. Any such reduction
or elimination of such an imbalance shall occur within thirty (30) days
following a request from the over-delivering party that such imbalance be
reduced or eliminated. Upon the termination or expiration of this Contract,
the over-delivering party shall be entitled to receive, within sixty (60) days
following the date of such expiration or termination, the quantity of Goods
required to bring the exchange in balance and payment of any differential due
to it. An imbalance may be eliminated by a cash payment to the over-delivering
party, rather than by the shipment of Goods, if (i) any imbalance is less than
one full load in accordance with the method of shipment provided for in this
Contract or (ii) the obligation of the party making such payment to ship the
Goods required to eliminate an imbalance has been suspended pursuant to Section
1 hereof. such cash payment, which shall be in addition to any payment due for
any differential, shall be based upon the market price for the Goods, as
determined by the over-delivering party, at the time such payment is made, or
at the time such payment becomes due, whichever amount is greater. all
provisions of this Contract shall be deemed applicable to deliveries made
subsequent to the expiration or termination of this Contract for the purpose of
eliminating an imbalance.
5. LIMITED WARRANTY and CHANGES IN SPECIFICATION. Subject to
Section 6 and unless otherwise expressly provided herein, the shipping party
warrants; (i) title to the Goods shipped and (ii) that the Goods shipped, shall
conform to the shipping party's standard specifications (or to the attached
specifications, if any). Subject to the preceding sentence and except as
otherwise expressly provided herein, SHIPPING PARTY MAKES NO REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR
PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE GOODS, whether used
alone or in combination with any other material. Shipping party shall not make
any change in raw materials or methods of manufacturing employed in producing
the Goods without the prior approval of receiving party, unless any such change
will have no affect on the continued suitability of the Goods to receiving
party even though such Goods would continue to meet specifications.
6. LIMITATION OF LIABILITY. (a) Within fifteen (15) days after
actual receipt by the receiving party at its consuming location of each
shipment of the Goods, the receiving party shall examine such Goods for any
damage, defect or shortage. all claims for any cause whatsoever (whether such
cause be based in Contract negligence,
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strict liability, other tort or otherwise) shall be deemed waived unless made
in writing and received by the shipping party within thirty (30) days after
such actual receipt of the Goods by the receiving party in respect to which
such claim is made, provided that s to any such cause not reasonably
discoverable within such thirty (30) day period (including that discoverable
only in processing, further manufacture, other use or resale), any claim shall
be made in writing and received by the shipping party within ninety (90) days
after such actual receipt by the receiving party of the Goods in respect to
which such claim is made, or within thirty (30) days after the receiving party
learns of the facts giving rise to such claim, whichever shall first occur.
Any claim for non- delivery of such Goods shall be deemed waived unless made in
writing and received by the party alleged to have failed to deliver such Goods
within ninety (90) days following the expiration or termination of this
Contract. Failure of a party to receive written notice of any claim within the
applicable time period shall be deemed an absolute and unconditional waiver by
the other party of such claim irrespective of whether the facts giving rise to
such claim shall have then been discovered or whether processing, further
manufacture, other use or resale of the Goods shall have then taken place.
(b) THE RECEIVING PARTY'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND
THE SHIPPING PARTY'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING
OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT,
NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED
THE THEN PREVAILING CONTRACT MARKET PRICE, IF THE TRANSACTION IS AN EXCHANGE,
OR THE THEN PREVAILING CONTRACT PRICE, IF THE TRANSACTION IS A SALE, FOR THE
QUANTITY OF GOODS IN RESPECT TO WHICH SUCH CAUSE ARISES, OR, AT SHIPPING
PARTY'S OPTION, THE REPAIR OR REPLACEMENT OF SUCH GOODS, AND IN NO EVENT SHALL
THE SHIPPING PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT
OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE. The shipping party shall
not be liable for, and the receiving party assumes liability for, all personal
injury and property damage connected with the transportation, possession,
processing, further manufacture, other use or resale of the Goods by or on
behalf of the receiving party or its customers, whether the Goods are used
alone or in combination with any other material or are resold by receiving
party. transportation charges for the return of the Goods shall not be paid
unless authorized in advance by the party initially shipping the Goods.
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(c) If the shipping party furnishes technical or other advice to the
receiving party, whether or not at the request of the receiving party, with
respect to processing, further manufacture, other use or resale of the Goods,
the shipping party shall not be liable for, and the receiving party assumes all
risk of, such advice and the results thereof.
7. TITLE AND RISK OF LOSS. Unless otherwise provided in this
Contract, title to and risk of loss of Goods shall pass to the receiving party
and delivery by the shipping party shall take place (a) in the case of delivery
by pipeline, immediately after the Goods pass the last flange on the shipping
party's property, (b) in the case of delivery into tankcars, upon delivery of
the loaded tankcars by the shipping party to the carrier outside shipping
party's property (c) in the case of delivery into tanktrucks or other trucks,
immediately after such trucks leave the shipping party's property, and (d) in
the case of delivery into barges or ship tankers immediately after the Goods
pass the last flange in the shipping party's loading line.
8. PATENTS. Subject to Section 6 and unless otherwise expressly
provided herein, the shipping party warrants that the Goods supplied pursuant
to this Contract, except for those made for the receiving party according to
the receiving party's specifications; provided, however, Monsanto (as Buyer or
receiving party) shall not assert against Sterling (as Seller or shipping
party) any claim for infringement based on Sterling's use of the technical
Information as defined in and licensed to Sterling under the License Agreement,
(Exhibit 2.1(a) to the Asset Purchase Agreement between Monsanto and Sterling)
dated the date hereof, in the operation of Sterling's plant to produce the
Goods in accordance with procedures employed in such plant by Monsanto as of
the date of the License Agreement. This warranty is given upon condition that
the receiving party promptly notify the shipping party of any claim or suit
involving the receiving party in which such infringement is alleged and that,
if the shipping party is affected, the receiving party permit the shipping
party to control completely the defense or compromise of any such allegation of
infringement. the shipping party does not warrant that the use of the Goods or
any material made therefrom, whether the Goods are used alone or in combination
with any other material, will not infringe a patent. The shipping party
reserves the right to terminate the shipping party's warranty under this
Section 8 at any time with respect to any undelivered Goods. In the event of
such termination, the receiving party may thereafter refuse acceptance of such
undelivered Goods and the receiving party may, within forty-five (45) days
following such termination, terminate this Contract upon not less than thirty
(30) days' written notice to the other party.
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9. FREIGHT AND TAXES. Any new tax or any increase in an existing
tax or governmental charge, paid by the shipping party, hereafter becoming
effective imposed upon the sale, exchange or delivery of the Goods, such as
sales tax, use tax, retailer's occupational tax, but excluding taxes based on
production or income such as value added, gross receipts or franchise taxes,
may, if the transaction covered hereby is a sale, be added to and included as a
part of the price herein specified, provided that shipping party invoices such
new charges within 90 days following the effective date of their imposition;
and, if the transaction covered hereby is an exchange, and, if the effect of
such new or increased tax or charge is to increase the cost to the shipping
party of exchanging or delivering the Goods or procuring materials used
therein, shipping party may notify the receiving party thereof, in writing,
requesting an adjustment to the differential as a result of such factors. If
the parties are unable to agree upon a satisfactory revision to such
differential within forty-five (45) days following receipt of such notice, the
shipping party may terminate this Contract upon thirty (30) days' written
notice to the other party. Shipping party shall be entitled initially to
assert that any Superfund tax (or tax of similar purpose or effect) or any
increase in any such tax, should become a part of the differential to be paid,
if the transaction covered hereby is an exchange, or should be added to the
price for the Goods, if the transaction covered hereby is a sale, and to
include the amount thereof in its invoices for the relevant Goods; provided
however, that the shipping party shall not be entitled to continue to collect
any such tax, or increase therein, unless such tax, or increase therein, is
generally then being taken into account and being included in the differential,
or added to the price, as the case may be, by other sellers or exchangers of
the Goods covered hereby, and if such other sellers or exchangers are not
generally collecting such tax, or increase therein, shipping party shall no
longer attempt to collect any such tax, or increase therein, hereunder and
there shall be a prompt refund of any amounts theretofore collected therefore
from the receiving party. Except as otherwise expressly provided in the
special terms and conditions which are applicable to this Contract, freight
from the point of passage of title provided for in Section 7 for the Goods
shall be for the account of receiving party.
10. WEIGHTS. Unless otherwise specifically provided for herein,
the shipping party's weights or measurements shall govern unless proven in
error.
11. COMPLIANCE WITH CERTAIN LAWS. Subject to Section 6 and unless
otherwise expressly provided herein, the Goods shall be
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produced in compliance with the requirements of the Fair Labor Standards Act of
1938, as amended, and Executive Order 11246.
12. ASSIGNMENT. Subject to the special terms and conditions
applicable to this Contract and except as provided in the Asset Purchase
Agreement of even date herewith between the parties, neither party shall (by
operation of law or otherwise) assign its rights or delegate its performance
hereunder without the prior written consent of the other party, and any
attempted assignment or delegation without such consent shall be void. To the
extent assignment is permitted hereunder this Contract shall be binding on any
permitted assignee.
13. MONTHLY REPORTS. If the transaction covered hereby is an
exchange, each party shall, within thirty (30) days following the end of each
month, provide the other party with a report stating the quantities delivered
and received during the month and the calendar year pursuant to this Contract,
as well as the exchange balances for such periods. the parties shall promptly
attempt to reconcile any discrepancies apparent from such reports.
14. MEET COMPETITION. (a) If the transaction covered hereby is a
sale and if from time to time Monsanto can purchase Goods of functionally
equivalent quality at a lower delivered cost than the delivered cost of the
Goods then in effect hereunder and in an amount equal to at least Monsanto's
annual purchase obligation hereunder for the then remaining balance of the
Contract period, and Monsanto gives Sterling written notice thereof, Monsanto
may purchase such Goods, unless within fifteen (15) days of receipt by Sterling
of said notice Sterling shall meet such lower delivered cost for an equal
quantity of Goods thereafter sold hereunder.
(b) If the transaction covered hereby is an exchange and if from time
to time Monsanto can obtain, by exchange or conversion, Goods of functionally
equivalent quality at a lower delivered cost than the delivered cost of the
Goods then in effect hereunder, and in an amount equal to at least Monsanto's
annual exchange obligation hereunder, for the then remaining balance of the
contract period, and Monsanto gives Sterling written notice thereof, Monsanto
may obtain such Goods by exchange or conversion, unless within fifteen (15)
days of receipt by Sterling of said notice, Sterling shall meet such lower
delivered cost for an equal quantity of Goods thereafter exchanged hereunder.
(c) In either event, any quantity so obtained by Monsanto from
another source shall be deducted from Monsanto's annual obligation hereunder,
but the contract otherwise shall remain unaffected.
16
<PAGE> 17
15. MISCELLANEOUS. (a) Governing Law. The validity,
interpretation and performance of this Contract and any dispute connected
herewith shall be governed and construed in accordance with the laws of the
state of Texas. Buyer (Sterling) has consented to service of process in the
State of Missouri.
(b) Set Off. Monsanto (or Buyer, as the case may be, and for
purposes of this section 15 (b) herein called "Monsanto") may retain from any
moneys due or sums payable to Seller (or Exchanger or sterling, as the case may
be, herein called "Sterling") under this Contract and set off any such moneys
or sums against any moneys, sums or claims owing by or due from Monsanto to
third parties, which Sterling is not contesting in good faith and which result
in any manner from Sterling's deficient performance or failure to perform under
any agreements assigned to Sterling pursuant to the assets Purchase agreement
between Monsanto and sterling.
(c) Notices. Any notice required or permitted to be given under this
Contract shall be deemed sufficient if (i) in writing and (ii) served either by
(a) depositing the same in the United States mail, property addressed as
provided below, postage prepaid, registered or certified mail, and with return
receipt requested, (b) delivering the same in person, or (c) sending a prepaid
telegram of the same, confirmed by notice deposited in the mail in the manner
provided in this Section 15(c). Unless otherwise provided in this Contract,
any notice deposited in the mail in the manner provided in this Section 15(c)
shall be effective upon the expiration of three days after the date on which it
is so deposited, and any notice given in any other manner shall be effective
only if and when it is received by the addressee. for the purposes of notice
hereunder, the addresses of the parties hereto shall be as follows:
BUYER: Monsanto Company
800 N. Lindbergh
St. Louis, Missouri 63167
Attn: Director, Purchasing
Monsanto Chemical Co.
SELLER: Sterling Chemicals, Inc.
1200 Smith, Suite 1900
Houston, Texas 77002
Attn: Vice President, Commercial
17
<PAGE> 18
Any party hereto may change its address for the purpose of notice hereunder by
giving written notice of such change of address to the other party as specified
in this Section 15(c)
(d) Entire and Only Agreement. This Contract and all other
related documents and instruments executed and delivered pursuant hereto
constitute the entire and only understanding and agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
negotiations, understandings and agreements among such parties relating to the
same subject matter.
(e) Amendments. No alterations, modifications, amendments or
changes of this Contract or any other related document or instrument executed
and delivered pursuant hereto shall be effective or binding on any party
hereto, unless the same shall be in writing and executed by all of the parties
hereto.
(f) Severability. If a court of competent jurisdiction declares
that any provision of this Contract or any other related document or instrument
executed and delivered pursuant hereto is illegal, invalid or unenforceable,
then such provision shall be modified automatically to the extent necessary to
make such provision fully enforceable. If such court does not modify any such
provision as contemplated herein, but instead declares it to be wholly illegal,
invalid or unenforceable, then such provision shall be severed from this
Contract or such other document or instrument, and such declaration shall in no
way affect the legality, validity and enforceability of the other provisions of
this Contract or such other document or instrument to which such declaration
does not relate. In such event, this Contract or such other document or
instrument shall be construed as if it did not contain the particular provision
held to be illegal, invalid or unenforceable, the rights and obligations of the
parties hereto shall be construed and enforced accordingly, and this Contract
otherwise shall remain in full force and effect.
(g) Captions. The captions contained in this Contract are for the
purpose of reference only and shall not affect in any way the meaning,
interpretation or scope of this Contract.
(h) Waivers. Any failure of any party hereto to comply with any
of its obligations, agreements or conditions as set forth herein may be
expressly waived in writing by the other party. No such waiver shall operate
as a waiver of any other obligation, agreement or condition and the failure to
enforce any provision hereof shall not
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<PAGE> 19
operate as a waiver of such provision or of any other provisions hereof.
(i) Multiple Counterparts. This Contract may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed to be an
original for all purposes, and all of which together shall constitute one and
the same instrument.
(j) Invoices. Shipping party shall invoice receiving party for
any differential due with respect to deliveries hereunder, or, if the
transaction is a sale, for the purchase price due with respect to deliveries
hereunder, and such invoices shall be paid net thirty (30) days from date of
invoice.
7/27/94
19
<PAGE> 1
EXHIBIT 10.21
*OMITTED INFORMATION
DENOTED BY ASTERISKS (***)
HAS BEEN SEPARATELY FILED
WITH THE COMMISSION AND IS
SUBJECT TO A CONFIDENTIAL
TREATMENT REQUEST**
===============================================================================
AMENDED AND RESTATED
LEASE AND PRODUCTION AGREEMENT
between
BP CHEMICALS INC.
and
STERLING CHEMICALS, INC.
August 8, 1994
================================================================================
<PAGE> 2
AMENDED AND RESTATED
LEASE AND PRODUCTION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Introductory 1
Article 1 Definitions 2
Article 2 Lease 13
Article 3 Initial and Additional Terms 22
Article 4 Sale and Purchase of Acetic Acid 25
Article 5 Delivery, Shipment and Storage Instructions 26
Article 6 Changes in Specifications 28
Article 7 Purchase Price and Payment 29
Article 8 Deliveries and Shipments 34
Article 9 Testing 36
Article 10 Measurement 38
Article 11 Storage of Acetic Acid by Company 40
Article 12 Operation of the Unit and Related Matters 41
Article 13 Shut-Downs of the Unit 42
Article 14 Insurance 46
Article 15 Access to the Unit 47
Article 16 Methanol Supply 48
Article 17 Special Expenditure 50
Article 18 Capital Expenditures 51
Article 19 Personnel 54
Article 20 Representations and Warranties of the Company 54
Article 21 Representations and Warranties of BP 56
Article 22 Participation in Negotiations 57
Article 23 Access to Information 57
Article 24 Semiannual Meetings 58
Article 25 Financial Assurances 59
Article 26 Arbitration 59
Article 27 Confidentiality and Intellectual Property 61
Article 28 Defaults; Failures; Remedies 63
Article 29 Notice of Certain Events 64
Article 30 Survival 65
Article 31 Indemnification 66
Article 32 Additional Rights and Liabilities 69
Article 33 Force Majeure 71
Article 34 Assignments 73
Article 35 General 74
Testimonium 79
Signatures 79
</TABLE>
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<PAGE> 3
AMENDED AND RESTATED
LEASE AND PRODUCTION AGREEMENT
EXHIBITS
Cost of Sales A
Fixed Cost Fee and Formula B
Methanol Specification C
Acetic Acid Specifications D
Legal Description of the Land of the Unit E
Variable Cost Component Formula F
Insurance G
Sample Profit Calculations After 2006 H
Blend Gas Credit I
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<PAGE> 4
AMENDED AND RESTATED
LEASE AND PRODUCTION AGREEMENT
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF GALVESTON )
THIS AMENDED AND RESTATED LEASE AND PRODUCTION AGREEMENT executed this
8th day of August, 1994, and effective as of the Effective Date, is by and
between BP CHEMICALS INC., an Ohio corporation and successor in interest to BP
Chemicals Americas Inc., and STERLING CHEMICALS, INC., a Delaware corporation.
W I T N E S S E T H :
WHEREAS, the Company acquired on August 1, 1986 a petrochemical plant
located in Texas City, Texas which contains facilities for the production of
acetic acid; and
WHEREAS, the Company executed and delivered to BP a special warranty
deed with vendor's lien effective August 1, 1986 whereby the Company conveyed
to BP fee simple determinable title in and to the Unit, which fee interest
ceases, determines and reverts to the Company on August 1, 1996; and
WHEREAS, on August 1, 1986 the Company leased the Unit from BP for the
production of acetic acid pursuant to this Agreement; and
WHEREAS, BP leased the Unit to the Company provided that the Company
agreed to give BP during an Initial Term of ten (10) years commencing on August
1, 1986 the exclusive right to purchase all acetic acid produced by the Company
in the Unit, except as otherwise permitted by this Agreement; and
WHEREAS, the Company gave BP an option to extend such Initial Term for
up to two further periods (not exceeding in the aggregate a period of ten [10]
years) during which BP shall have the exclusive right to purchase all acetic
acid produced by the Company in the Unit in consideration of the payment of an
extension fee; and
<PAGE> 5
WHEREAS, the Agreement has heretofore been amended on October 9, 1986,
November 17, 1988, December 12, 1988, December 13, 1988, and September 8, 1993,
but the Agreement has not been restated to reflect the terms of such
amendments; and
WHEREAS, the parties hereto wish to (a) restate the Agreement to
reflect all prior amendments, and (b) amend the Agreement to make provision for
the terms and conditions under which, in lieu of BP exercising its right to
extend the Initial Term for up to two further periods not exceeding in the
aggregate a period of ten (10) years, (i) the production agreement portion of
this Agreement shall be extended through July 31, 2016, composed of two ten
(10) year terms and (ii) BP will be granted the exclusive right to purchase
acetic acid during the period from August 1, 1996 through July 31, 2016;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements herein contained
and the mutual benefits to be derived therefrom, the parties hereto agree that
the Agreement is hereby amended and restated in its entirety as follows:
ARTICLE 1
DEFINITIONS
Unless otherwise stated in this Agreement, the following terms shall
have the meanings ascribed to them below, and the following definitions shall
be equally applicable to both the singular and plural forms of any of the terms
herein defined:
Acetic Acid: Acetic acid produced in the Unit and meeting the
Specifications in effect from time to time pursuant to this Agreement.
Acetic Acid Measuring Equipment: Shore tanks located on the Unit for
measuring deliveries of Acetic Acid to be loaded into barges or ships, and
scales located at the Plant for measuring deliveries of Acetic Acid to be
loaded into trucks and rail cars.
Acetic Acid Plant Assets: As defined in Section 18.8 hereof.
Additional Rail Cars: As defined in Section 8.2 hereof.
After Acquired Assets: As defined in Section 3.1 hereof.
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<PAGE> 6
Agreement: This Amended and Restated Lease and Production Agreement,
as the same may be further amended from time to time pursuant to the provisions
hereof.
Arbitration Notice: As defined in Section 26.1 hereof.
Assignment of Contract Rights: That certain Consent to Assignment
dated August 1, 1986 among the Company, BP and Monsanto whereby, subject to and
in accordance with the terms and conditions thereof, the Company assigned to BP
the Company's rights against Monsanto under the Purchase Agreement with respect
to the Unit, BP assumed the Company's obligations to Monsanto under the
Purchase Agreement with respect to the Unit, and Monsanto consented thereto.
Bank: Bank of Nova Scotia, as successor to The Chase Manhattan Bank
(National Association) and agent for the Lenders (as that term is defined in
that certain Agreement and Guaranty dated August 1, 1986 among BP, BP North
America Inc., a Delaware corporation, and The Chase Manhattan Bank (National
Association), constituting a guaranty of the Note) and its successors, any such
successor to be a commercial bank or trust company which has an office in New
York, New York and which has a combined capital and surplus of at least TWO
HUNDRED FIFTY MILLION AND NO/100 DOLLARS ($250,000,000.00) U.S.
Barge: That certain barge, identified as M-25, Official No. 527030,
for so long as such barge remains in service during the Initial Term and the
First and Second Additional Terms.
Blend Gas: A mixed carbon monoxide/hydrogen stream plus a pure
hydrogen stream.
Blend Gas Credit: A credit calculated in the manner set forth in
Exhibit I attached hereto.
BP: BP Chemicals Inc., an Ohio corporation, and its successors and
permitted assigns hereunder.
BPCL: BP Chemicals Ltd., a company registered in England and Wales,
and an affiliate of BP.
BP Event of Default: During the Initial Term and the First and Second
Additional Terms hereof, (i) the failure by BP to perform any of its financial
obligations hereunder which failure shall continue for a period of thirty (30)
days after the same is due hereunder, (ii) the failure by BP to perform any
other covenants or agreements hereunder to a material extent which failure
continues for a period of thirty (30)
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<PAGE> 7
days after receipt of written notice thereof by BP from the Company, (iii) the
inaccuracy in any material respect of any representation or warranty made by BP
in this Agreement, and/or (iv) the default by BP in payment of the Note which
default results in the acceleration by the holder thereof of the maturity of
the Note AND BP thereafter fails or refuses to pay the amount demanded in such
acceleration notice for a period of thirty (30) days after receipt of such
notice by BP from such holder; provided, however, that with respect to an event
described in (i), (ii) or (iv) above, if BP has performed any such obligation,
covenant or agreement or made any such payment prior to the expiration of such
thirty (30) day period, such failure or default shall not constitute a BP Event
of Default.
Business Day: A day in the City of Houston, Harris County, Texas, that
is neither a Saturday, Sunday or legal holiday nor a day on which banking
institutions in Houston, Texas or New York, New York are obligated by law to
close.
Capital Expenditures: Expenditures incurred to acquire any asset for
use on the Unit, or to add to or improve any asset on the Unit so that (i) the
cost of operations on the Unit is reduced, (ii) the capacity of the Unit is
increased, (iii) the efficiency of the Unit is improved, (iv) operational
safety of the Unit is improved, and/or (v) product quality of the Unit is
improved. Also, any expenditures incurred in replacing or improving the Barge
or the Rail Cars or in purchasing the Additional Rail Cars.
Capital Project: A project which requires Capital Expenditures.
Claim: As defined in Section 31.3 hereof.
Company: Sterling Chemicals, Inc., a Delaware corporation, and its
successors and permitted assigns hereunder.
Company Event of Default: During the Initial Term and the First and
Second Additional Terms hereof, (i) the failure by the Company to perform any
of its obligations, covenants or agreements hereunder to a material extent
which failure continues for a period of thirty (30) days after receipt of
written notice thereof by the Company from BP provided that if the Company has
performed any such obligation, covenant or agreement prior to the expiration of
such thirty (30) day period, such failure to
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<PAGE> 8
perform shall not constitute a Company Event of Default, (ii) the inaccuracy in
any material respect of any representation or warranty made by the Company in
this Agreement, and/or (iii) the failure by the Company to deliver to BP the
quantity of Acetic Acid as required by the Delivery, Shipment and Storage
Instructions for two (2) consecutive Months unless such failure to deliver is
otherwise excused hereunder.
Company Taxes: Subject to the provisions of Section 35.2(b), all
taxes, if any, (other than capital stock, income or excess profit taxes,
general franchise taxes imposed on corporations on account of their corporate
existence or on their right to do business within the state as a foreign
corporation, ad valorem and real property taxes and similar taxes) licenses,
fees or charges levied, assessed or made by any governmental authority on the
act, right or privilege of production, transportation, handling, sale, resale
or delivery of Acetic Acid produced, sold or delivered under this Agreement
which (i) are measured by the volume in pounds, value or sales price of, or are
otherwise based on producing, purchasing, handling, marketing or resale factors
respecting, Acetic Acid and (ii) are imposed upon and paid by or for the
account of the Company.
Contract Year: A period of twelve (12) consecutive months beginning on
the first Day of January next following the Effective Date, and beginning on
the first Day of January of each subsequent year during the Initial Term and,
if applicable, the First and Second Additional Terms. The period of time from
the Effective Date until the first day of the January next following the
Effective Date, and the period of time from the first day of January last
occurring during the Initial Term or, if applicable, the First and Second
Additional Terms, shall each be considered to be a Contract Year, provided that
in each such period the Minimum Annual Contract Quantity and the Maximum Annual
Contract Quantity shall be prorated.
Conversion Ratio: * * * * of Methanol per pound of Acetic Acid as
the same may be changed from time to time by written agreement between BP and
the Company. On at least a quarterly basis the Conversion Ratio shall be
adjusted to reflect actual usage in the manner provided by Section 16.2.
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<PAGE> 9
Cost of Sales: The reasonable direct out-of-pocket expenses incurred
by BP in connection with the sale of Acetic Acid or Unit Product including, but
not limited to, the expenses listed in Exhibit A attached hereto, but in any
event excluding, prior to August 1, 1996, allocations of corporate overhead and
general and administrative expenses (unless such allocations are specifically
listed in Exhibit A attached hereto). After August 1, 1996, reasonable
allocations of BP's direct marketing support costs may be included.
DB III: A debottlenecking project for the purpose of increasing
Acetic Acid production capacity to 780,000,000 pounds per year.
Damages: Any and all damages, cash payments, expenses, obligations,
claims, liabilities, fines, penalties, clean-up or remedial costs, shut-down
costs, repairs or reconstruction costs, costs of investigation, attorneys'
fees, court costs, and operating, extraordinary or business interruption losses
including (i) except as otherwise provided herein, any such matters arising
from Spills or Releases Requiring Response Action, and (ii) unless otherwise
specifically disclaimed herein, consequential, incidental and indirect damages.
Day: The 24-hour period commencing at 7:00 a.m. Houston, Texas time on
one calendar day and ending at 7:00 a.m. Houston, Texas time on the following
calendar day. The date of a Day shall be that of its beginning.
Declaration of BP Default: As defined in Section 28.2 hereof.
Declaration of Company Default: As provided in Section 28.1 hereof.
Deed: That certain Special Warranty Deed with vendor's lien dated as
of August 1, 1986 from the Company, as grantor, to BP, as grantee, conveying a
fee simple determinable in the Unit to BP.
Deed of Trust: That certain Deed of Trust and Security Agreement dated
as of August 1, 1986 from BP, as grantor, to J. David Heaney, as Trustee, or
any duly appointed successor trustee, for the use and benefit of the Company,
as beneficiary, the lien of which encumbers the property conveyed to BP by the
Deed.
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<PAGE> 10
Delivery, Shipment and Storage Instructions: As defined in Section 5.1
hereof.
Effective Date: The Purchase Closing Date.
Estimated Delivery, Shipment and Storage Instructions: As defined in
Section 5.1 hereof.
First Additional Term: As defined in Section 3.1(a) hereof.
First Extension Fee: As defined in Section 3.1(c) hereof.
Fixed Cost Fee. As of January 1, 1994 * * * *
Initial Term: As defined in Section 3.1(a) hereof.
Interest Rate Letter Agreement: That certain Interest Rate Letter
Agreement dated as of August 1, 1986 executed by BP North America Inc. to the
Company and The Chase Manhattan Bank (National Association), wherein it
guarantees payment to the Bank of certain sums in the event of prepayment of
the Note by BP.
Lease Term: As defined in Section 2.1 hereof.
Lease Event of Default: As defined in Section 2.12 hereof.
Major Capital Item: As defined in Section 7.6(c) hereof.
Maximum Annual Contract Quantity: For any Contract Year consisting of
twelve (12) months, 600,000,000 pounds of Acetic Acid (unless such quantity of
Acetic Acid is increased or decreased from
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<PAGE> 11
time to time by written agreement between BP and the Company). For any Contract
Year consisting of less than twelve (12) Months, the product obtained by
multiplying the number of Months and any portion of a Month in such Contract
Year by 50,000,000 pounds of Acetic Acid (unless such quantity of Acetic Acid
is increased or decreased from time to time by written agreement between BP and
the Company).
Maximum Monthly Contract Quantity: In any Month during which there is
no Scheduled Shutdown, 55,000,000 pounds of Acetic Acid (unless such quantity
of Acetic Acid is increased or decreased from time to time by written agreement
between BP and the Company). In any Month during which there is a Scheduled
Shutdown, the parties shall meet to agree the Maximum Monthly Contract Quantity
applicable for that Month.
Maximum Quarterly Contract Quantity: In any Quarter during which there
is no Scheduled Shutdown, 165,000,000 pounds of Acetic Acid (unless such
quantity of Acetic Acid is increased or decreased from time to time by written
agreement between BP and the Company). In any Quarter during which there is a
Scheduled Shutdown, the parties shall meet to agree the Maximum Quarterly
Contract Quantity applicable for that Quarter.
Methanol: Methanol meeting the specification set forth on Exhibit C
attached hereto.
Methanol Measuring Equipment: Shore tanks located at the Plant for
measuring deliveries of Methanol.
Minimum Annual Contract Quantity: For any Contract Year consisting of
twelve (12) Months, 430,000,000 pounds of Acetic Acid (unless such quantity of
Acetic Acid is increased or decreased from time to time by written agreement
between BP and the Company). For any Contract Year consisting of less than
twelve (12) Months, the product obtained by multiplying the number of Months
and any portion of a Month in such Contract Year by 36,000,000 pounds of Acetic
Acid (unless such quantity of Acetic Acid is increased or decreased from time
to time by written agreement between BP and the Company).
Minor Capital Item: As defined in Section 7.6(c) hereof.
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<PAGE> 12
Minimum Quarterly Contract Quantity: For any Quarter during which
there is no Scheduled Shutdown, 110,000,000 pounds of Acetic Acid (unless such
quantity of Acetic Acid is increased or decreased from time to time by written
agreement between BP and the Company).
Monsanto: Monsanto Company, a Delaware corporation.
Month: The period beginning at 7:00 a.m. on the first day of a
calendar month and ending at 7:00 a.m. on the first day of the next succeeding
calendar month.
Note: That certain Promissory Note dated August 1, 1986 in the
original principal amount of * * * * executed by BP, as maker, payable to the
order of the Company, as payee, and bearing interest as provided therein,
constituting the purchase price of the Unit.
Permitted Exceptions: Those certain exceptions to title affecting the
Unit as expressly set forth in the Deed.
Plant: The petrochemical plant located in Texas City, Texas, acquired
by the Company from Monsanto pursuant to the Purchase Agreement.
Point of Delivery: As defined in Section 8.1 hereof.
Profit: The gross sales revenue received by BP arising from sales of
Acetic Acid and Unit Product during any Contract Year, less (i) freight (if
any) incurred in shipping such Acetic Acid, (ii) any unrecovered accumulated
losses with respect to such sales in prior Contract Years, (iii) during the
Initial Term, the sum of * * * * a sum equal to the portion of the First
Extension Fee payable during such Contract Year, (iv) the Fixed Cost Fee paid
during such Contract Year, the Variable Cost Fee paid during such Contract
Year, any Special Billings paid or reimbursed to the Company during such
Contract Year, and other expenses paid or reimbursed to the Company hereunder
during such Contract Year (including
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<PAGE> 13
Capital Expenditures (excluding Major Capital Expenditures after August 1,
2006), Special Expenditures and insurance reimbursements or other insurance
payments, if any), and (v) Cost of Sales per Exhibit A during such Contract
Year. Provided, however, that from January 1, 1988, until termination of the
American Acetyls Joint Venture between BP and Union Carbide Corporation, the
gross sales revenue arising from sales of Unit Product included in this venture
will be determined from BP's share of American Acetyls Profit, to the extent
that such share derives from Acetic Acid produced by the Unit. The gross sales
revenue for sales of Acetic Acid contributed to American Acetyls shall be
determined as BP's share of the American Acetyls Profit, plus credit received
for incurred Variable and Fixed Costs as recognized by the American Acetyls
Contract Formulas and accounting procedures. Effective July 1, 1991 an annual
amount of ONE MILLION TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($1,200,000.00)
U.S., to compensate BPCL for technology development costs allocated to the
Unit, will be paid by the Company to BPCL. This expense will be included in
the calculation of Profit. This amount will be escalated beginning with the
first month of beneficial operation of the DB III expansion, using the "ICI"
defined in the Fixed Cost Fee and Formula. Except as otherwise specifically
set forth above, Profit shall be determined in accordance with generally
accepted accounting principles of the United States of America consistently
applied.
Purchase Agreement: The Asset Purchase Agreement dated August 1, 1986
between Monsanto and the Company.
Purchase Closing Date: The date the closing occurred under the
Purchase Agreement.
Quarter: During any Contract Year which is a calendar year, the period
beginning at 7:00 a.m. on the first day of the Months of January, April, July
and October and ending at 7:00 a.m. on the first day of the next succeeding
April, July, October and January, respectively. During any Contract Year which
is not a calendar year, Quarter shall mean a three (3) month period (or such
lesser period prior to reaching the commencement of a calendar year as shall be
applicable) commencing at 7:00 a.m. on
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<PAGE> 14
the first day of such period and ending at 7:00 a.m. on the morning of the
first day of the next succeeding January, April, July or October, as the case
may be.
Rail Cars: Those certain sixty (60) railroad tank cars made available
by the Company to BP pursuant to Section 8.2 hereof for so long as such cars
remain in service during the Initial Term and the First and Second Additional
Terms.
Right: The exclusive right to purchase all Acetic Acid or Unit Product
produced by the Company in the Unit.
Scheduled Shutdown: A period during which the Unit is shut down for
the purpose of a Capital Project or to install equipment acquired by a Special
Expenditure or such maintenance as has been agreed by the parties hereto in a
Semiannual Meeting.
Second Additional Term: As defined in Section 3.1(a) hereof.
Semiannual Meetings: The meetings of representatives of the Company
and BP to be held no later than four (4) weeks after the end of each March and
September in each Contract Year.
Special Billings: Charges by the Company to BP for incremental costs
of operating the Unit, agreed upon by the Company and BP, which result from
operating conditions believed by the Company and BP to be temporary in nature
and for which the Company and BP do not wish to adjust the Fixed Cost Fee or
the Variable Cost Fee. The parties shall agree on the manner of invoicing, and
the timing and method of payment of, any Special Billings.
Special Expenditure: Any expenditure incurred to acquire and install
any significant item of equipment for use on the Unit not otherwise defined as
Capital Expenditure or reimbursed by BP to the Company as part of the Fixed
Cost Fee.
Specifications: The acetic acid specifications, attached hereto as
Exhibit D, as the same may be changed from time to time by written agreement
between BP and the Company.
Spills or Releases Requiring Response Action: Any emission, discharge,
release or threatened release of pollutants, contaminants, or hazardous
substances or toxic materials or wastes into or upon
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<PAGE> 15
ambient air, surface water, ground water or land, or subsurface strata or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, or hazardous substances or toxic materials or wastes, as any of
the same relate to or affect or arise in connection with the operation of the
Unit, the Barges, the Rail Cars or Additional Rail Cars, or the production,
delivery, storage, shipment, sale, resale or use, disposal or transportation of
Acetic Acid, Unit Product, or feedstocks, raw materials, wastes or other
materials used in or resulting from the production of Acetic Acid or Unit
Product.
Surplus Payment: As defined in Section 7.6(b) hereof.
Third Party Action: As defined in Section 31.3 hereof.
Unit: Those certain tracts of real property situated in Texas City,
Galveston County, Texas, as more particularly described on Exhibit E attached
hereto and made a part hereof by reference for all purposes as if copied herein
in full, together with all buildings, improvements and fixtures located and to
be located thereon, generally known or referred to as the Plant's acetic acid
complex, including, but not limited to the syn-gas unit, the acetic acid plant,
buildings, storage tanks and all replacements, substitutions, deletions,
additions or other changes thereto from time to time as permitted by this
Agreement.
Unit of Measurement: As defined in Section 10.1 hereof.
Unit Product: Any acetic acid produced in the Unit which does not meet
the Specifications in effect from time to time pursuant to this Agreement.
Variable Cost Component: As of January 1, 1994, * * * * * *
subject to monthly adjustment in accordance with the formula set
forth on Exhibit F attached hereto. The utilities component of the Variable
Cost Component will be reviewed by the parties during the first seven (7)
months of 1996, 2001, 2006 and 2011 and modifications thereto agreed upon prior
to July 31 of each such year, with the revised formula being applied during the
following five (5) year period. In addition, either party may request that any
aspect of the Variable Cost Component be reviewed at any time if any
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event has occurred which causes such party to believe that the Variable Cost
Component formula must be adjusted in order to permit full recovery of all
costs or savings resulting from the event. The other party shall cooperate in
the review of all such requests.
Variable Cost Fee: The product obtained by multiplying the amount of
Acetic Acid taken by BP during any Month by the sum of (i) the Variable Cost
Component, plus (ii) the product obtained by multiplying the Conversion Ratio
by the Methanol price for the Month in question.
ARTICLE 2
LEASE
2.1 The term of the lease of the Unit from BP to the Company shall
be for a period of ten (10) years commencing on August 1, 1986 unless earlier
terminated as provided herein (the "Lease Term").
2.2 For and in consideration of the Company's giving BP during the
Lease Term the Right and for and in further consideration of the covenants and
agreements agreed by the Company to be kept and performed hereunder, BP leases
unto the Company, and the Company leases from BP, the Unit.
TO HAVE AND TO HOLD the same unto the Company for the Lease Term.
2.3 The Unit shall be used by the Company for the production and
sale of Acetic Acid or Unit Product pursuant to this Agreement.
2.4 Title to the Unit, including all replacements, substitutions,
deletions, additions or other changes thereto from time to time permitted by
this Agreement, shall be and remain in BP during the Lease Term.
2.5 BP does not consent, and has not by the execution and delivery
of this Agreement consented, to the imposition, voluntarily or involuntarily,
by the Company or any other person or entity of any lien, security interest or
other encumbrance upon the Company's interest in the Unit or any portion
thereof, other than (i) liens in favor of mechanics and materialmen for which
invoices are not yet due and payable or which the Company is contesting in good
faith in appropriate proceedings diligently pursued,
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and (ii) the lien and security interest of Bank in the Company's leasehold
estate in the Unit provided that such lien and security interest of Bank,
together with all rights and remedies of Bank under the instruments creating or
establishing such lien and security interest, shall be and remain in all
respects whatsoever subject to the obligations, covenants and agreements of the
Company under this Agreement (provided that Bank assumes no obligations
hereunder until it shall have exercised its rights and remedies under such
instruments creating or establishing such lien and security interest of Bank)
and junior, inferior and subordinate to all of the rights of BP under this
Agreement. The Company shall not impose or permit to be imposed, voluntarily or
involuntarily, any such lien, security interest or other encumbrance without
the prior written consent of BP; provided, however, that any such lien,
security interest or other encumbrance to which BP is requested to consent
shall by its express terms provide that (i) any person or entity claiming by,
through or under any instrument creating any such lien, security interest or
other encumbrance shall by virtue thereof acquire no greater interest in the
Unit than the Company then had under this Agreement, and (ii) the indebtedness,
obligations and liabilities secured thereby, together with all rights and
remedies of any such person or entity claiming by, through or under any such
instrument, shall be and remain in all respects whatsoever subject to the
obligations, covenants and agreements of the Company under this Agreement and
junior, inferior and subordinate to all of the rights of BP under this
Agreement.
2.6 During the Lease Term, the Company shall timely pay all taxes
and other governmental charges levied or presently existing upon or now or
hereafter assessed against the Unit and, subject to the provisions of Section
35.2 hereof, all taxes levied or presently existing upon or now or hereafter
assessed against the use and possession of the Unit by the Company. BP shall,
within five (5) days of receipt, present to the Company copies of all tax bills
and statements received by BP, and the Company shall furnish to BP copies of
all receipts for payment of such tax bills and statements within thirty (30)
days after such taxes and other governmental charges would have been delinquent
unless such taxes are being contested by the Company in good faith in
appropriate proceedings diligently pursued. BP may,
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at any time that the payment of any item of such taxes or other governmental
charges which the Company is obligated to pay under the provisions of this
Section 2.6 remains delinquent, give written notice to the Company of said
delinquency, specifying the same, and if the Company continues to fail to pay
such item of taxes or other governmental charges and fails to contest the same
in good faith in appropriate proceedings diligently pursued, then at any time
after ten (10) days of receipt by the Company of such written notice, BP may
pay the items specified in such notice and the Company covenants to reimburse
and pay BP on demand any amount so paid or expended in the payment of the items
specified in such notice, subject to the provisions of Section 35.2 hereof.
2.7 BP warrants and represents that (i) the Unit is owned by BP,
free and clear of all liens, security interests and encumbrances other than the
vendor's lien retained in the Deed, the lien of the Deed of Trust and the
Permitted Exceptions, and that BP has the legal right to own and lease the Unit
to the Company for the Lease Term, (ii) the Company shall, and may peacefully
have, hold and enjoy the Unit without interference by BP, so long as a Lease
Event of Default has not occurred, and (iii) BP will not take any action which
may interfere with the Company's right of possession of the Unit hereunder so
long as a Lease Event of Default has not occurred.
2.8 Subject to the provisions of Article 7 hereof, during the
Lease Term, the Company agrees to pay any and all expenses of operation of the
Unit, including, but not limited to, all charges and expenses for electricity,
water, gas and other utility services furnished to the Unit, it being the sense
and intention of this Article 2 that the Right shall be, except as otherwise
provided herein, net to BP, without diminution by reason of any expenses of use
and operation of the Unit.
2.9 The Company shall keep the Unit in good repair and condition,
and at the end or other expiration of the Lease Term deliver up the Unit in
good condition, ordinary wear and tear excepted, unless the Unit shall have
been damaged or destroyed by fire or other casualty and the Company shall not
have been required hereunder to repair or restore the Unit. The Company shall
have all risk of loss of the Unit during the Lease Term. Subject to Section
13.4 hereof, in the event that the Unit shall have
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been damaged or destroyed by fire or other casualty, the Company shall repair
the same as soon as practicable and to the extent that insurance proceeds, if
any, are deficient, the Company will make up the difference from its own funds.
To the extent required hereunder, the Company shall comply with the
requirements of governmental authorities having jurisdiction now in force or
which may hereafter be in force pertaining to the operation of the Unit and the
production of Acetic Acid or Unit Product and shall faithfully observe in the
use and operation of the Unit applicable laws and regulations now in force or
which may hereafter be in force. Each party hereto agrees to deliver to the
other party hereto, within five (5) days of receipt, a copy of any notice or
correspondence received from any such governmental authority pertaining to the
use and operation of the Unit.
2.10 The Company agrees to maintain at all times during the Lease
Term insurance in the amounts and having the coverages and issued by the
insurers as required pursuant to Article 14 hereof. All insurance policies
required by this Section 2.10 shall be obtained by the Company at its sole
expense, subject to the provisions of Section 14.2 hereof, and said insurance
policies shall provide for at least thirty (30) days' notice to BP before
cancellation. Copies of certificates of insurance shall be promptly delivered
to BP by the Company. All said insurance policies shall name both BP and the
Company as insureds, as their respective interests may appear; provided,
however, that it is agreed and understood by the parties hereto that Bank shall
not be named as an insured on said policies with respect to the properties
comprising the Unit. If the Company shall fail and neglect to make any payment
on premiums and charges for any of said insurance policies when due, BP may
make any such payment.
2.11 Each party hereto agrees to promptly furnish the other party
with any condemnation notice or notice of intent to take received by such party
during the Lease Term. If the Unit or substantially all of the Unit shall be
taken in condemnation proceedings, this Agreement shall terminate as of the
taking, and BP's share of the condemnation award, together with any separate
award to the Company, shall be apportioned and paid in the following order of
priority:
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(a) There shall be first paid any and all reasonable
expenses, charges and fees, including reasonable attorneys' fees, in
collecting the condemnation awards;
(b) BP and the Company shall then be required to apply
and pay the proceeds of the then remaining balance of the condemnation
awards as follows: (i) if the Note has not been prepaid, to the
payment of the outstanding principal balance of and all accrued but
unpaid interest on the Note and all sums then owing under the Interest
Rate Letter Agreement, or (ii) if the Note has been prepaid, to the
payment to BP of an amount equal to the sum of (A) what the
outstanding principal balance of and all accrued but unpaid interest
on the Note would have been as of the date of the condemnation award
had the Note been paid according to its terms but not prepaid prior to
such date, and (B) the amount which would have been owing under the
Interest Rate Letter Agreement as of the date of the condemnation
award had the Note not been prepaid prior to such date; and
(c) The proceeds of the then remaining balance of the
condemnation awards, if any, shall thereafter be paid to the Company.
If less than all or substantially all of the Unit shall be taken in
condemnation proceedings, the Company and BP shall mutually determine, within a
reasonable time after such taking, whether the remaining portion of the Unit
can be economically and feasibly used by the Company for the production and
sale of Acetic Acid or Unit Product pursuant to this Agreement and how BP's
share of the condemnation award, together with any separate award to the
Company, should be apportioned and paid. If the parties fail to resolve the
matter within twenty (20) Business Days after the Company's receipt from the
condemning authority of a notice of intent to take, either party may refer the
matter to arbitration under Article 26 hereof by Arbitration Notice to the
other party within ten (10) Business Days after the expiration of such twenty
(20) Business Day period. If it is determined either by mutual agreement or
arbitration that such remaining portion of the Unit cannot be economically
and/or feasibly used by the Company for the production and sale of such Acetic
Acid and Unit Product, or if the parties fail to
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resolve the matter but neither party refers the matter to arbitration within
such ten (10) Business Day period, this Agreement may be terminated by either
party hereto upon thirty (30) Days' prior written notice to the other party,
and BP's share of the condemnation award, together with any separate award to
the Company, shall be apportioned and paid in the order of priority set forth
above in this Section 2.11. If it is determined either by mutual agreement or
arbitration that such remaining portion of the Unit can be economically and
feasibly used by the Company for the production and sale of such Acetic Acid
and Unit Product, (i) this Agreement shall not terminate but shall continue in
full force and effect as to the remaining portion of the Unit, (ii) the Company
shall commence and proceed with reasonable diligence to repair or reconstruct
the Unit so as to enable the Company to comply with its obligations hereunder,
and (iii) the parties shall mutually determine the changes which will result to
one or more of the Variable Cost Component, the Fixed Cost Fee, the Maximum
Quarterly Contract Quantity and the Specifications as a result of such partial
taking of the Unit. BP's share of the condemnation award, together with any
separate award to the Company, shall thereupon be apportioned and paid in the
following order of priority:
(a) There shall be first paid any and all reasonable
expenses, charges and fees, including reasonable attorneys' fees, in
collecting the condemnation awards;
(b) The proceeds of the awards shall next be used as a
fund for the restoration and repair of the Unit to a condition so as
to enable the Company to comply with its obligations hereunder (said
proceeds to be held by BP and the Company jointly and paid out from
time to time to persons furnishing labor or materials or both approved
and verified by BP and the Company);
(c) BP and the Company shall then be required to apply
and pay the proceeds of the then remaining balance of the condemnation
awards as follows: (i) if the Note has not been prepaid, to the
payment of the outstanding principal balance of and all accrued but
unpaid interest on the Note and all sums then owing under the Interest
Rate Letter Agreement, or (ii) if the Note
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has been prepaid, to the payment to BP of an amount equal to the sum
of (A) what the outstanding principal balance of and all accrued but
unpaid interest on the Note would have been as of the date of the
condemnation award had the Note been paid according to its terms but
not prepaid prior to such date, and (B) the amount which would have
been owing under the Interest Rate Letter Agreement as of the date of
the condemnation award had the Note not been prepaid prior to such
date; and
(d) The proceeds of the then remaining balance of the
condemnation awards, if any, shall thereafter be paid to the Company.
2.12 The following events ("Lease Events of Default") shall be
deemed to be events of default by the Company under this Article 2:
(a) The sale by the Company of any Acetic Acid or Unit
Product to any person or entity other than BP, except as a result of
the exercise by the Company of its rights and remedy pursuant to the
provisions of Section 28.4 hereof or as otherwise provided herein;
(b) The refusal of the Company to sell to BP any Acetic
Acid or Unit Product that has been produced in the Unit but not yet
sold by the Company and which is capable of being sold and delivered,
except as a result of the exercise by the Company of its rights and
remedy pursuant to the provisions of Section 28.4 hereof;
(c) The refusal of the Company to permit employees of BP
to have access to the Plant and the Unit pursuant to the provisions of
Section 28.3 hereof, unless the Company is prohibited or restrained
from permitting employees of BP to have such access by an order,
injunction or other ruling of a governmental authority having
jurisdiction; or
(d) The Company shall (i) make a general assignment for
the benefit of creditors or shall petition or apply to any tribunal
for the appointment of a trustee, custodian or receiver of all or any
substantial part of its business, estate or assets or shall commence
any proceeding under any bankruptcy, reorganization, arrangement,
insolvency or readjustment of debt law of
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any jurisdiction; or any such petition or application shall be filed
or any such proceedings shall be commenced against the Company and the
Company shall indicate approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a
trustee, custodian or receiver of all or any substantial part of the
business, estate or assets of the Company or approving the petition or
application in any such proceeding, and such order shall remain in
effect for more than ninety (90) days, AND (ii) as a result thereof,
any such trustee, custodian or receiver shall take any action having
any of the effects set forth in Section 2.12(a), (b), or (c) hereof.
2.13 Upon the occurrence of any Lease Event of Default, BP shall
have the right, at BP's election, to terminate this Agreement, in which event
the Company shall surrender the Unit to BP within thirty (30) days after
receipt of written notice from BP that a Lease Event of Default has occurred,
and if the Company fails so to do, BP may, without prejudice to any other
remedy which it may have for possession, enter upon and take possession of the
Unit and expel or remove the Company and any other person or entity who may be
occupying the Unit or any part thereof, without being liable for prosecution or
any claim of damages therefor; and the Company agrees to pay to BP on demand
any reasonable costs and expenses incurred by BP in expelling or removing the
Company and entering upon and taking possession of the Unit (including, but not
limited to reasonable attorneys' fees), and all necessary costs and expenses
incurred by BP in repairing any damages to or destruction of the Unit arising
as a result of or caused by the gross negligence or willful misconduct of the
Company, its agents or employees. Failure by BP to enforce the remedy herein
provided upon any Lease Event of Default shall not be deemed or construed to
constitute a waiver of such default or of any other violations or breach of any
of the terms, provisions and covenants herein contained. No waiver by BP of any
breach by the Company of any of the Company's obligations, agreements or
covenants hereunder shall be a waiver of any subsequent breach or of any other
obligation, agreement or covenant, nor shall any forbearance by BP to seek such
remedy for any breach by the Company be a waiver by BP of its rights and remedy
with
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<PAGE> 24
respect to such subsequent breach. The foregoing remedy of BP to terminate
this Agreement and to enter upon and take possession of the Unit shall be
exclusive of any other remedy provided at law or in equity; provided, however,
that nothing contained in this Agreement shall prohibit BP from (i) securing
injunctive relief or any other relief or remedy necessary to enforce its right
of entry upon and possession of the Unit, or (ii) seeking and recovering
Damages and/or holdover rentals from the Company in the event that the Company
holds over in the Unit after the termination of the Lease Term pursuant to the
provisions of this Section 2.13, or in the event BP's remedy pursuant to the
provisions of this Section 2.13 is deemed or construed to be illegal, invalid
or unenforceable for any reason whatsoever.
2.14 The Company shall permit BP and its agents to enter into and
upon the Unit at all reasonable times and upon reasonable notice for the
purpose of inspecting the same provided that such inspection is not
inconsistent with the Company's use and operation of the Unit and further
provided that BP complies with all reasonable rules and regulations of the
Company pertaining thereto.
2.15 Any holding over by the Company of the Unit or any portion
thereof after the termination of the Lease Term pursuant to the provisions of
Section 2.13 hereof shall operate and be construed as a tenancy from day-to-day
* * * *, and the Company agrees to surrender the Unit upon such termination of
the Lease Term immediately upon demand therefor by BP. In the event that a
court having jurisdiction, after the expiration of all appeals, determines that
such termination of the Lease Term by BP was wrongful, the Company shall not be
liable to BP pursuant to the provisions of this Section 2.15.
2.16 BP and the Company have executed as of August 1, 1986 a
memorandum of lease, in form and substance satisfactory to BP and the Company,
setting forth the basic terms of this Article 2, which memorandum has been
recorded at the expense of the Company in the Deed Records of Galveston County,
Texas.
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2.17 In the event that BP enforces its rights and exercises its
remedy pursuant to the provisions of Section 2.13 hereof by terminating this
Agreement and entering upon and taking possession of the Unit, then this
Agreement shall no longer be of any force and effect; provided, however, that
subject to and in accordance with the terms and conditions of Article 3 hereof,
BP may at its option, for and in consideration of the First Extension Fee and
other good and valuable consideration to be paid by BP to the Company,
reinstate this Agreement for the First and Second Additional Terms, as
described in Section 3.2 hereof, whereupon the respective rights, duties,
privileges and obligations of the parties hereto shall recommence as of the
first day of the First Additional Term; it being the intent of the parties
hereto that the occurrence of a Lease Event of Default and the subsequent
enforcement and exercise by BP of its rights and remedy pursuant to the
provisions of Section 2.13 hereof shall not operate to deprive or deny BP of
the extension of this Agreement beyond the Initial Term hereof for the First
and Second Additional Terms subject to and in accordance with the terms and
conditions of Article 3 hereof.
2.18 BP shall not execute and deliver to Monsanto the certificate
contemplated by the Assignment of Contract Rights until and unless one or more
Lease Events of Default have occurred; provided, however, that BP shall have
the right but not the obligation to execute and deliver to Monsanto such
certificate if one or more Lease Events of Default have occurred and shall do
so only in the event that BP intends to exercise its rights and remedy pursuant
to the provisions of Section 2.13 hereof.
ARTICLE 3
INITIAL AND ADDITIONAL TERMS
3.1(a) The term of the sale and purchase of Acetic Acid pursuant to
this Agreement, during which time BP shall have the Right, shall be for a
period of thirty (30) years commencing on August 1, 1986 and continuing through
July 31, 2016, unless earlier terminated as provided herein. The first ten
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(10) year period, commencing on August 1, 1986 and continuing through July 31,
1996, is herein referred to as the "Initial Term". The second ten (10) year
period, commencing on August 1, 1996 and continuing through July 31, 2006, is
herein referred to as the "First Additional Term". The third ten (10) year
period, commencing on August 1, 2006 and continuing through July 31, 2016, is
herein referred to as the "Second Additional Term".
(b) On July 31, 1996, Article II of this Agreement will terminate
and the Unit, as constituted on August 1, 1986 and including all improvements
thereto made by the Company and unreimbursed by BP subsequent to August 1,
1986, shall be and remain the sole property of the Company. BP agrees to
execute and deliver to the Company such instruments, in recordable form, as the
Company may reasonably request at the termination of the lease portion of this
Agreement to confirm the reversion of record title to the Unit and all personal
property used as part of the Unit to the Company. BP agrees that it has no
ownership interest in the Unit or any improvements to the Unit made since
August 1, 1986, other than that portion of any Capital Expenditure, Capital
Project or Special Expenditure paid for either directly or through
reimbursement by BP (the "After Acquired Assets").
(c) As consideration for the grant by the Company to BP of the
Right for the First Additional Term, BP shall pay to the Company an aggregate
amount (the "First Extension Fee") equal to 120 (the number of Months in the
First Additional Term) multiplied by the monthly payment set forth below. The
First Extension Fee shall be payable in * * * *
each, in
immediately available funds by wire transfer to the Company's account at Bank
or at such other account or place of payment as may be designated by the
Company in writing to BP. The first monthly installment shall be due and
payable on the first Business Day of the first Month of the First Additional
Term and each of the remaining monthly payments shall be due and payable on the
first Business Day of each Month thereafter. As consideration for the grant by
the Company to BP of the Right for the Second Additional Term, BP shall not be
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required to pay to the Company any extension fee, but the share of Profit
payable to the Company shall be increased in accordance with Section 7.6(b),
and paid in accordance with Section 7.6(c), of this Agreement.
3.2 In the event of any breach or failure to perform hereunder
during the First or Second Additional Term by BP or the Company, which breach
or failure continues for a period of thirty (30) Days after written notice
thereof, the other party hereto shall be entitled to pursue all rights and
remedies provided at law or in equity for such breach or failure including, but
not limited to, terminating this Agreement and seeking and recovering Damages
therefor or the remedy of specific performance of this Agreement whether or not
such remedy is otherwise normally available. Unless earlier terminated in
accordance with the provisions hereof, or unless the parties agree to another
extension hereof prior to January 1, 2016, this Agreement will terminate on
July 31, 2016. Upon termination of this Agreement, BP agrees to sell to the
Company and the Company agrees to purchase from BP, all of BP's right, title
and interest in and to the After Acquired Assets for an amount equal to BP's
undepreciated book basis in the After Acquired Assets, plus ten (10) percent,
and BP will receive no further payments at the termination of the Agreement.
For purposes of calculating the purchase price of the After Acquired Assets,
BP's undepreciated book basis will be calculated utilizing a ten (10) year life
and straight line depreciation. BP agrees to execute and deliver to the
Company such instruments, in recordable form, as the Company shall reasonably
require at the termination of this Agreement to transfer record title to the
After Acquired Assets to the Company. In the event that a project or projects
similar in scope and effect to DB III are agreed and implemented by the parties
during the First or Second Additional Term, it is the intent of the parties to
negotiate an extension of the Agreement over the estimated useful life of such
project or projects.
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ARTICLE 4
SALE AND PURCHASE OF ACETIC ACID
4.1 On the terms and subject to the conditions of this Agreement,
commencing on August 1, 1986 BP hereby agrees to receive and purchase and pay
for and the Company agrees to sell and deliver to BP Acetic Acid in such
amounts as requested by BP in the manner provided herein subject at all times
to the limitations imposed in Section 4.5 hereof.
4.2 BP and the Company agree that Acetic Acid delivered to the
applicable Point of Delivery hereunder shall be made available to BP under as
uniform conditions and rates as possible. Accordingly, BP shall take deliveries
of, and the Company shall deliver, Acetic Acid in a manner commensurate with
good operating practices and in accordance with proper maintenance, operating
and distribution procedures and at as uniform rates of delivery as possible
throughout each Quarter during the Initial Term and the First and Second
Additional Terms.
4.3 BP and the Company each agree to give the other reasonable
notice of such party's desire at any time materially to increase or decrease
the quantity of Acetic Acid deliverable at any particular time hereunder. If
either party fails to meet the requirements of the Delivery, Shipment and
Storage Instructions, such party shall notify the other party of the reasons
for such failure and the estimated time such failure may continue.
4.4 BP agrees, subject to the terms, provisions and limitations
hereof to purchase hereunder each Quarter a quantity of Acetic Acid in excess
of the Minimum Quarterly Contract Quantity provided that BP at its option may
purchase and take in any Quarter a quantity of Acetic Acid less than the
Minimum Quarterly Contract Quantity, if BP pays:
(a) The additional costs incurred by the Company in the
operation of the Unit during that Quarter; and
(b) In the event that BP shall have taken a quantity of
Acetic Acid in an amount less than seventy percent (70%) of the
Maximum Quarterly Contract Quantity, a further sum equal
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to the additional costs incurred by the Company in the operation of
the Plant (other than the additional costs described or referred to in
Section 4.4(a) hereof) during that Quarter calculated in the manner
provided in Article 7 hereof provided that if the quantity of Acetic
Acid taken by BP is in an amount greater than fifty percent (50%) of
the Maximum Quarterly Quantity such further sum shall not exceed TWO
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00) U.S.
4.5 The Company shall not be obligated to deliver to BP hereunder
during any Month of any Contract Year a quantity of Acetic Acid in excess of
the Maximum Monthly Contract Quantity. The Company shall not be required to
expand, upgrade or, except as otherwise expressly required herein, rebuild the
Unit or any other Plant facilities or to purchase acetic acid from other
sources in order to perform its obligations to BP pursuant to the provisions of
this Agreement. Subject to the foregoing, the Company agrees to use all
reasonable endeavors to meet any request by BP in any Month for Acetic Acid in
amounts in excess of the Maximum Monthly Contract Quantity.
ARTICLE 5
DELIVERY, SHIPMENT AND STORAGE INSTRUCTIONS
5.1 On or before fourteen (14) Days prior to the end of each
Quarter during each Contract Year, BP shall provide notice to the Company
(orally, in writing or in other mutually agreeable form) setting forth BP's
estimated delivery, shipment and storage instructions of Acetic Acid for the
coming Quarter (the "Estimated Delivery, Shipment and Storage Instructions")
which shall include estimated dates, quality requirements and volumes of
deliveries, shipments and storage requirements of Acetic Acid for such Quarter.
At least five (5) Business Days prior to the first Day of each Month, BP shall
provide notice in similar form to the Company setting forth BP's requested
dates, quality requirements and volumes of deliveries and shipping and its
storage requirements of Acetic Acid for the coming Month (the "Delivery,
Shipment and Storage Instructions"). The requested volumes shall comply with
Article 4 hereof. The Company shall be entitled to rely on the Estimated
Delivery, Shipment and Storage
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Instructions and the same shall be deemed to be the Delivery, Shipment and
Storage Instructions unless actual Delivery, Shipment and Storage Instructions
are received by the Company.
5.2 The Company will comply with the Delivery, Shipment and
Storage Instructions. If the Company fails to comply with the Delivery,
Shipment and Storage Instructions, then the Company shall pay all demurrage and
other expenses incurred by BP as a result thereof; provided, however, that if
the Company's failure to comply with the Delivery, Shipment and Storage
Instructions is a result of the actions or omissions of BP, then the Company
shall have no liability for such failure and BP shall pay all expenses incurred
by the Company in connection therewith. Nothing contained in this Agreement is
intended to authorize or require, or shall be deemed or construed as
authorizing or requiring, the Company to violate any laws or governmental
regulations.
5.3 In addition to the Estimated Delivery, Shipment and Storage
Instructions and the Delivery, Shipment and Storage Instructions, BP may
deliver to the Company from time to time additional shipping instructions for
the Acetic Acid. All such instructions with respect to any particular shipment
shall be given as early as is practicable prior to the requested shipment date.
The Company shall use its best efforts to deliver Acetic Acid at the times
specified in such instructions. If such shipping instructions cause the Company
to incur unusual expenses in order to deliver Acetic Acid for such shipment, BP
shall reimburse the Company therefor upon receipt of invoice therefor.
5.4 To the extent required hereunder, the Company shall comply
with the requirements of governmental authorities having jurisdiction now in
force or which may hereafter be in force pertaining to the operation of the
Unit and the production of Acetic Acid or Unit Product and shall faithfully
observe in the use and operation of the Unit applicable laws and regulations
now in force or which may hereafter be in force.
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ARTICLE 6
CHANGES IN SPECIFICATIONS
6.1 The Company shall produce Acetic Acid in accordance with
established procedures and methods of manufacture.
6.2 Prior to making any change in raw materials or in procedures
and methods of manufacture employed in producing Acetic Acid hereunder which
the Company has, or should have, reason to believe may make such Acetic Acid
unsuitable to any of BP's customers, the Company will notify BP of the
Company's intent to make any such change. If the Company fails to notify BP of
the Company's intent to make any such change, or if the Company notifies BP of
the Company's intent to make any such change and BP does not consent to such
change, and the Company thereafter makes such change, the Company shall
indemnify and hold BP harmless pursuant to the provisions of Article 31 hereof
from Damages which BP may suffer or incur by reason of such change. If the
Company notifies BP of the Company's intent to make any such change and BP
consents to such change, BP shall indemnify and hold the Company harmless
pursuant to the provisions of Article 31 hereof from Damages which the Company
may suffer or incur by reason of such change.
6.3 If at any time, any Acetic Acid to be supplied to BP changes
in chemical composition from that previously supplied to BP by the Company
hereunder, or the procedures and methods of manufacture employed in producing
Acetic Acid hereunder change so that in either event, such Acetic Acid is
unsuitable to any of BP's customers, then (i) BP shall notify the Company of
such unsuitability and may thereafter refuse to accept shipments of Acetic Acid
hereunder, and (ii) the Company shall indemnify and hold BP harmless pursuant
to the provisions of Article 31 hereof from Damages which BP may suffer or
incur by reason of any such change or changes. If, notwithstanding the
unsuitability of Acetic Acid to BP's customer, BP accepts such shipment of
Acetic Acid, then (i) BP shall notify the Company of such acceptance
notwithstanding such unsuitability, and (ii) BP shall indemnify and hold the
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Company harmless pursuant to the provisions of Article 31 hereof from Damages
which the Company may suffer or incur by reason of such unsuitable Acetic Acid.
6.4 If the product produced by the Company in the Unit fails to
meet the Specifications, in whole or in part, and is delivered to BP as if it
were Acetic Acid and BP is not notified of such failure in advance, the Company
shall indemnify and hold BP harmless pursuant to the provisions of Article 31
hereof from Damages which BP may suffer or incur by reason of any such failure.
If the Company notifies BP of such failure in advance, but BP accepts the
product notwithstanding such failure, BP shall indemnify and hold the Company
harmless pursuant to the provisions of Article 31 hereof from Damages which the
Company may suffer or incur by reason of such failure.
6.5 The Specifications shall not be changed unless agreed to in
advance in writing by BP and the Company.
ARTICLE 7
PURCHASE PRICE AND PAYMENT
7.1 The purchase price for all Acetic Acid delivered to BP
hereunder during each Month of each Contract Year shall be the sum of the
following:
(a) The Fixed Cost Fee;
(b) The Variable Cost Fee;
(c) The Blend Gas Credit; and
(d) Any Special Billings.
7.2 BP shall pay the purchase price therefor to the Company after
receipt of invoice therefor in the following manner:
(a) The estimated Fixed Cost Fee for each Month, which
shall be the actual Fixed Cost Fee for the preceding quarter, and
which shall be paid by BP on the fifteenth day of each Month (or if
such Day is not a Business Day, then on the Business Day next
occurring) during
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the Initial Term and the First and Second Additional Terms, commencing
on the first such date occurring after the Effective Date;
(b) The Variable Cost Fee for each Month, which shall be
paid as provided in Section 7.3(a) hereof; and
(c) The Blend Gas Credit, which shall be calculated in
the manner provided by Exhibit I hereto and paid as provided in
Section 7.3(b) hereof.
7.3 The Company shall, on or before the fifth Business Day of each
Month, render to BP
(a) an invoice for the preceding Month showing the quantity of
Acetic Acid delivered, the Variable Cost Component, the Conversion
Ratio, the Methanol price and the total amount of the Variable Cost
Fee due, and BP shall pay each such invoice on or before the tenth Day
after receipt thereof (or if such Day is not a Business Day, on the
Business Day next following); and
(b) a credit memorandum for the preceding Month showing the
calculation of the Blend Gas Credit in the manner provided by Exhibit
I hereto.
7.4 As soon as is practicable after the end of each Quarter, the
Company shall submit to BP an invoice showing:
(a) An adjustment to the Fixed Cost Fee based on the
difference between the Fixed Cost Fee paid by BP and referred to in
Section 7.2(a) hereof and the actual Fixed Cost Fee due for that
Quarter based on any adjustments to prices of components thereof; and
(b) Any additional charges due to the Company as a result
of the quantity of Acetic Acid taken by BP being below the Minimum
Quarterly Contract Quantity and referred to in Section 4.4 hereof.
The net sum due to the Company or any credit due to BP resulting from
the items referred to in Section 7.4 (a) and (b) hereof shall be paid
or credited, as the case may be, on or before the twelfth Day after
receipt of the invoice (or if such Day is not a Business Day, on the
Business Day next following).
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7.5 The Company and BP shall cooperate in investigating,
evaluating and implementing mutually agreeable methods to reduce the Variable
Cost Component, the Fixed Cost Fee and the Conversion Ratio; provided, however,
that nothing contained in this Section 7.5 shall be construed to apply or
pertain to any Capital Project. If any such method is implemented and results
in a material reduction or increase in the costs of production of Acetic Acid
hereunder from the amount of such costs which would have been incurred had such
method not been implemented, the appropriate values of the components of the
formula for the calculation of the Fixed Cost Fee and the Variable Cost
Component referred to in Exhibits B and F , respectively, attached hereto,
together with the Conversion Ratio and the Specifications, if appropriate,
shall be adjusted so that BP takes the benefit, if a material reduction
results, equal to two-thirds (2/3) of such reduction or bears the cost, if a
material increase results, equal to two-thirds (2/3) of such increase. The
Company shall thereafter invoice BP accordingly.
7.6 For the period of time from December 12, 1988 through the end
of the First Additional Term:
* * * *
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* * * *
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* * * *
7.7 If BP has reason to dispute the accuracy of any invoice
submitted to it by the Company, other than invoices for the Fixed Cost Fee or
the Variable Cost Fee, BP will pay that part of the invoice which is undisputed
in accordance with the provisions of this Article 7 and, after such dispute has
been
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resolved, BP will pay any balance due to the Company on or before the twelfth
day after the receipt by BP of a replacement invoice submitted to it by the
Company. If BP has reason to dispute the accuracy of any Fixed Cost Fee for
any Month or any Variable Cost Fee for any Month, BP will pay an amount at
least equal to the Fixed Cost Fee or the Variable Cost Fee, as the case may be,
paid by BP to the Company for the preceding Month in accordance with the
provisions of Sections 7.2 and 7.3 hereof and, after such dispute has been
resolved, BP will pay any balance due to the Company or the Company will pay
any balance due to BP, as the case may be, on or before the twelfth day after
the receipt by BP of a replacement invoice submitted to it by the Company;
provided, however, that in the event that any balance is due to BP, such
replacement invoice be submitted to BP later than ten (10) days after such
dispute has been resolved.
7.8 The Company shall maintain records and production data in
accordance with usual and customary practices and standards in the acetyls
industry in respect of all matters referred to in this Article 7. The Company
shall provide BP access to such records and data pursuant to the provisions of
Section 23.1 hereof.
7.9 The suspension of the obligations of the Company hereunder to
produce and sell Acetic Acid by reason of a force majeure event shall not
suspend BP's obligation to make the payments required hereunder; provided,
however, that the occurrence of such force majeure event shall not of itself
obligate or otherwise require BP to make any payments described in Section 4.4
hereof.
ARTICLE 8
DELIVERIES AND SHIPMENTS
8.1 The Point of Delivery of any Acetic Acid shall be the point of
transfer of custody of such Acetic Acid from the Company to BP, and shall mean
(i) the first intake flange on the Barge or other inland water or marine vessel
into which the Acetic Acid is loaded for shipment, and (ii) the perimeter
boundary line of the Plant with respect to any Rail Car, Additional Rail Car,
truck or other conveyance into which the Acetic Acid is loaded for shipment.
Title and risk of loss shall pass to BP at such flange
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or perimeter boundary line, as the case may be (irrespective of whether the
Company owns or has provided any Barge, Rail Car, Additional Rail Car or other
conveyance into which the Acetic Acid is loaded). As between the Company and
BP, except as otherwise provided in Section 8.2 hereof, the Company shall be in
control and possession of the Acetic Acid sold and purchased hereunder and
responsible for any damage or injury caused thereby until risk of loss with
respect there to has passed to BP. In addition to its other obligations
hereunder, BP shall be in control and possession of the Acetic Acid sold and
purchased hereunder and responsible for any damage or injury caused thereby
after risk of loss with respect thereto has passed to BP.
8.2 Subject to the terms and conditions of this Agreement and to
normal and customary shipping practices, the Company shall make available to BP
at all times hereunder the Barge and the Rail Cars for movement of the Acetic
Acid, except when the Barge and/or the Rail Cars are being stored or used under
instruction for BP, provided that the Estimated Delivery, Shipment and Storage
Instructions, the Delivery, Shipment and Storage Instructions or any additional
shipping instructions state (i) the number of Rail Cars required by BP and the
date(s) on which the same are required, (ii) the date(s) on which the Barge is
required, (iii) transfer, connection and dispatch instructions, and (iv) such
other information as may be reasonably required by the Company. The Company
shall bear the costs of regular maintenance and repair of the Barge and the
Rail Cars and in-Plant loading and switching charges and other normal expenses
with respect to the ownership and operation thereof. The Company shall not be
required to pay any Capital Expenditures with respect to the Barge or the Rail
Cars unless BP is obligated to reimburse the Company therefor as provided in
Article 18 hereof. The use of the Barge or any Rail Car by BP shall not affect
or alter the Point of Delivery hereunder or the time of the passing of title to
or risk of loss with respect to the Acetic Acid. The Company shall have no
liability for any loss, damage, injury or other event or occurrence involving
the Barge or any Rail Car other than loss, damage or injuries resulting solely
from the gross negligence or willful misconduct of the Company, its agents or
employees.
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At such times as it becomes necessary to supplement the Rail Cars with
additional rail cars ("Additional Rail Cars") for transporting Unit Product to
customers, the costs of leasing the Additional Rail Cars shall be billed to BP
on a monthly basis. Costs shall include lease fees, less mileage credits
received by the Company for the use of the Additional Rail Cars. The
utilization of the Rail Cars and the Additional Rail Cars will be reviewed at
least annually to determine whether new cars are required or subleases should
be sought for excess rail cars in the fleet. BP will make best efforts to use
any excess Rail Cars or Additional Rail Cars within its system for other
products, crediting the Profit with agreed sublease fees.
8.3 BP may from time to time request that the Company arrange the
delivery and transportation of Acetic Acid in accordance with the Delivery,
Shipment and Storage Instructions or any additional instructions referred to in
Section 5.3 hereof and the Company may at its option comply with any such
request of BP; provided, however, that the Company shall have no liability or
other obligation with respect to its having arranged the delivery and
transportation of any Acetic Acid pursuant to this Section 8.3. If the Company,
in arranging for the delivery and transportation of Acetic Acid pursuant to
this Section 8.3, earns or realizes discounts or other cost savings as a result
of aggregating shipments or by reason of other economies of scale, such
discounts and other cost savings shall be proportionately shared with BP on the
basis on which such discounts and other cost savings were earned or realized by
the Company. BP shall reimburse the Company for any additional costs incurred
by the Company in the performance of any request of BP pursuant to the
provisions of this Section 8.3.
ARTICLE 9
TESTING
9.1 The Acetic Acid and Unit Product shall be tested prior to
delivery to BP under the testing procedures and schedules being utilized by the
Company at the Effective Date. Such procedures and schedules may be changed
from time to time by the agreement of BP and the Company. The Company shall
retain representative samples for sufficient time to allow delivery to and
acceptance by BP's
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customers of such product. The Company shall provide BP access to such samples
and all records maintained by the Company with respect there to pursuant to the
provisions of Section 23.1 hereof.
9.2 Confirmatory tests of the quality of Acetic Acid shipments
shall be performed at the time of delivery according to the procedures and
schedules referred to in Section 9.1 hereof and where requested, in the
presence of an independent surveyor, utilizing representative samples taken
from the intake flange of the Barge, other inland water or marine vessel, any
Rail Car, Additional Rail Car, truck or other conveyance, and from the tanks
thereof where necessary, into which the Acetic Acid is loaded. The Company
shall retain such samples for sufficient time to allow delivery to and
acceptance by BP's customers of such product. The Company shall provide BP
access to such samples and certifications and all records maintained by the
Company with respect thereto pursuant to the provisions of Section 23.1 hereof.
9.3 All product made pursuant to the provisions of Article 6
hereof when tested according to the agreed procedures and schedules shall be
conclusively presumed to constitute Acetic Acid unless analysis of the sample
retained pursuant to the provisions of Sections 9.1 or 9.2 hereof shows the
product not to have been Acetic Acid.
9.4 BP shall have the right, at BP's expense, to have the Acetic
Acid tested by independent third parties prior to shipment as Acetic Acid
hereunder, so long as any such testing does not materially interfere with Unit
or Plant operations, and the Company shall cooperate in any such test and shall
have the right to be represented and to participate in any such test and to
inspect any equipment used in determining the nature or quality of the Acetic
Acid or Unit Product. After such independent test, unless BP delivers to the
Company written notice prior to shipment of any such product that such product
is not Acetic Acid for purposes hereof, all such product shall be conclusively
presumed to meet the Specifications and constitute Acetic Acid. If such a
notice is delivered to the Company with respect to any such product which has
not been shipped at the time such notice is given, such product shall not
constitute Acetic Acid hereunder, and BP shall have no obligation with respect
to any such product;
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provided, however, that should the Company object in writing to such notice
within five (5) Business Days after receipt thereof, the parties will meet
within five (5) Business Days after delivery of such objection to resolve the
question of whether such product is Acetic Acid hereunder. If the parties fail
to resolve the matter within twenty (20) Business Days after the delivery of
the original objection by the Company to BP, either party may refer the matter
to arbitration under Article 26 hereof.
9.5 The Company agrees to be financially responsible for all
product which is determined not to have constituted Acetic Acid hereunder at
the Point of Delivery and, at the Company's option, such product shall be
reprocessed by the Company in the Unit at its sole cost and expense or sold,
transferred or otherwise disposed of on such terms as may be agreed between BP
and the Company.
9.6 BP agrees to be financially responsible for all product which
is determined to have constituted Acetic Acid hereunder at the Point of
Delivery thereof. If the parties hereto agree, such product shall thereupon be
reprocessed by the Company in the Unit at no cost or expense to the Company;
provided, however, that the Company shall have no obligation to reprocess any
such product.
ARTICLE 10
MEASUREMENT
10.1 The Unit of Measurement of Acetic Acid shall be one pound
(avoirdupois). All quantities given herein, unless otherwise expressly stated,
are in terms of such Unit of Measurement.
10.2 The Company shall maintain and operate the Acetic Acid
Measuring Equipment and the Methanol Measuring Equipment in accordance with
customary practice in the industry and all applicable laws and regulations. BP
may, at its option and expense, install measuring equipment for checking the
Acetic Acid Measuring Equipment or the Methanol Measuring Equipment so long as
such installation does not materially interfere with the operation of the Unit
or the Plant.
10.3 BP shall have the right, at BP's expense, to monitor and check
the measurement of Acetic Acid from the Unit into the tanks of the Barge, other
inland water or marine vessels, any Rail Cars, Additional Rail Cars, trucks or
other conveyances into which the Acetic Acid is loaded, in the presence
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of an independent surveyor. Any reports and certifications resulting from such
monitoring and checking will be made available by BP to the Company on request.
10.4 The determination of the quantity of Acetic Acid deliveries
hereunder for inland water and marine vessel transport shall be made by taking
the opening and closing inventory of the Company's properly calibrated shore
tank before and after each shipment.
10.5 The determination of the quantity of Acetic Acid deliveries
hereunder for transport by rail car or tank truck shall be made by weighing the
rail cars or tank trucks on certified scales before and after loading. The
receiving party shall gauge or weigh the rail cars or tank trucks upon arrival
and, if the amount gauged or weighed is different than the weight obtained
prior to shipment by more than one percent (1%), the receiving party shall
notify BP, and BP will in turn notify the Company, and the procedures set forth
in Section 10.7 hereof shall apply.
10.6 Each party shall have the right to be present at the time any
installing, reading, cleaning, changing, repairing, inspecting, testing or
adjusting is done in connection with the other party's measuring equipment used
in measuring deliveries hereunder. The records from such measuring equipment
shall remain the property of the owner thereof, but, upon request, each party
will submit to the other party its records, charts and weight tickets, together
with calculations therefrom, subject to return within fifteen (15) days after
receipt thereof. Such records, charts and weight tickets shall be kept on file
for a period of not less than ninety (90) days.
10.7 If upon any test the measuring equipment is found to be
inaccurate in the aggregate by one percent (1%) or more, any payment based upon
such measurements shall be corrected at the rate of such inaccuracy for any
period of inaccuracy which is definitely known or agreed upon, or if not known
or agreed upon, then for a period extending back one-half (1/2) of the time
elapsed since the last successful test. Following any test, any measuring
equipment found to be inaccurate to any degree shall be adjusted as soon as
practicable to measure accurately. If for any reason any measuring equipment
is out of service or out of repair so that the quantity of Acetic Acid
delivered cannot be ascertained or
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computed from the readings thereof, the quantity of Acetic Acid so delivered
during the period the measuring equipment is out of service or out of repair
shall be estimated and agreed upon by the parties upon the basis of the best
available data, using the first of the following methods which is feasible:
(a) By using the results of any check measuring equipment
or other measuring device of BP, if installed and measuring
accurately;
(b) By using the ship's records of tank measurements
where Acetic Acid has been loaded onto a ship;
(c) By correcting the error if the percentage of error is
ascertainable by test or mathematical calculation; or
(d) By estimating the quantity of deliveries during
preceding periods under similar conditions when the measuring
equipment was measuring accurately.
10.8 Notwithstanding the foregoing, the Company's measurements
shall be deemed to be accurate for purposes of all deliveries made hereunder
unless as to any particular delivery, BP objects thereto in writing delivered
to the Company within three (3) weeks after such delivery to BP's customer.
ARTICLE 11
STORAGE OF ACETIC ACID BY COMPANY
11.1 The Unit presently contains three (3) bulk storage tanks (Nos.
5OT508-1, 5OT508-2 and 5OT508-3) with an aggregate storage capacity of
approximately 30,000,000 pounds. The Company shall use such bulk storage tanks
for the storage of Acetic Acid as designated by BP in the Estimated Delivery,
Shipment and Storage Instructions and the Delivery, Shipment and Storage
Instructions or as otherwise determined by the Company. Should any such bulk
storage tank be taken out of service by the Company for repair service, the
Company will, so long as the costs with respect thereto are subject to
reimbursement under this Agreement or included in the Fixed Cost Fee, repair
the same and place it back in service as soon as is practicable.
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ARTICLE 12
OPERATION OF UNIT AND RELATED MATTERS
12.1 The Company shall have the authority to, and does hereby agree
to, operate the Unit subject to the terms and conditions of this Agreement.
Unless otherwise provided herein, the Company shall operate the Unit in
accordance with the Delivery, Shipment and Storage Instructions of BP provided
that such operation (i) is not in violation of this Agreement, prudent
operation and maintenance procedures, or applicable laws, (ii) does not have
the effect of reducing the Variable Cost Component or the Fixed Cost Fee, and
(iii) does not have the effect of altering the Specifications unless agreed
between the Company and BP.
12.2 Notwithstanding any other provision of this Agreement to the
contrary, the Company shall operate the Unit and perform its other obligations
hereunder using the same standard of care as it would use in operating the Unit
and performing such obligations for its own account, and the Company shall have
no liability hereunder based on any higher standard of care.
12.3 In the event that for any reason maintenance, utilities or
other services and resources at the Plant become limited, the Company agrees
that it will in good faith allocate such maintenance, utilities, services and
resources between the Unit and the other activities at the Plant on a fair and
equitable basis having regard to the needs of BP hereunder and third parties
under contracts for the sale by the Company of other chemicals produced in the
Plant.
12.4 The Company covenants and agrees with BP that, during the
Initial Term and the First and Second Additional Terms and so long as no BP
Event of Default has occurred and is continuing, it will not sell, convey,
otherwise dispose of or deal with any acetic acid other than pursuant to this
Agreement.
12.5 Effective for the Company's fiscal year beginning October 1,
1991, the Company will prepare a detailed annual maintenance budget for the
syngas and acetic acid plants which will cover the period October 1 to
September 30 on an evergreen basis. This budget will be available for review
by
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BP 45 days prior to each October 1 and will be agreed to by both parties by
September 15 of each year. Once agreed, the budget amount will be incorporated
into the Fixed Cost Fee (replacing the former Repairs, M&E and I&E lines) and
will be deemed to act as a cap on the maintenance spending. As such, the
budget represents an upper spending limit and any underspend will be credited
to BP by December 31 of each year. If however, during the period October 1 -
September 30 there is a need to undertake significant additional maintenance
or, if certain scheduled items are found no longer to require attention,
additions or deletions will be mutually agreed upon.
The Company shall keep a record of maintenance spending and will
report such spending to BP on a quarterly basis. Such reports will include, as
a minimum requirement: any agreed changes to the original budget, actual
spending compared to budget, and an annualized total forecast including agreed
additions or deletions.
BP shall have access to the Company's maintenance records necessary to
verify the accuracy of all items charged against the maintenance budget to the
extent and in the manner provided in Article 23 of this Agreement.
ARTICLE 13
SHUT-DOWNS OF THE UNIT
13.1 The parties agree that the Unit will be shut down for such
periods of time as are required to accomplish the Scheduled Shutdowns. During
such shut-down, the Company shall not be required to produce Acetic Acid
hereunder and it is the present intention of the parties to utilize the Unit's
storage capacity to accumulate Acetic Acid for delivery during such Scheduled
Shutdowns. Any such Scheduled Shutdown shall affect neither the obligations of
BP to make all other payments due hereunder nor the other covenants and
agreements of the parties hereunder.
13.2 Upon reasonable notice from BP, the Company shall temporarily
cease the production of Acetic Acid at the times and for the periods so
requested. In such event, in addition to all other payments required hereunder,
BP shall reimburse the Company upon receipt of invoice therefor for any
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and all additional costs and expenses incurred in connection with such
cessation or reduction, including, without limitation, increased costs of
production of other products produced at the Plant resulting from such
cessation or reduction as described in Section 4.4 hereof provided that the
Company shall have a duty to reasonably mitigate any such additional costs and
expenses.
13.3 In the event BP gives six (6) Months' prior written notice to
the Company that, in its judgment, the Unit should be permanently shut down,
(i) the Company shall proceed to shut down the Unit and BP shall pay all
expenses of such shutdown, and (ii) the Company shall reduce the Fixed Costs as
soon as is practicable. Notwithstanding such shut-down, BP shall remain
obligated to pay the Fixed Cost Fee for a full six (6) Months after the date of
such shut-down. Thereafter, BP shall have no further obligations hereunder to
pay the Fixed Cost Fee; provided, however, that BP shall reimburse the Company
for (i) all insurance, maintenance, security and other expenses thereafter
incurred by the Company with respect to the Unit, provided that the Company has
a duty to reasonably mitigate such expenses, and (ii) any and all additional
expenses incurred by the Company in connection with such permanent shut-down
including, but not limited to, increased costs of production of other products
produced at the Plant (other than the Unit) provided that the Company shall
have a duty to reasonably mitigate any such additional expenses. The Company
shall not be required to operate the Unit or to maintain the Unit in a
condition which is ready for production of Acetic Acid. Any such permanent
shut-down shall affect neither the obligations of BP to make all other payments
due hereunder nor the other covenants and agreements of the parties hereunder.
13.4 During the Initial Term hereof, in the event of a fire,
explosion, flood, hurricane, windstorm or other casualty resulting in the loss
of the Unit or a substantial part thereof or the inability for a period of more
than three (3) Months of the Company to deliver Acetic Acid as required by BP,
the Company and BP shall meet to agree whether or not the Unit should be
repaired. If the proceeds of insurance are sufficient to pay all costs of such
repair, the Unit will be repaired and the insurance proceeds will be applied to
such repair, unless the parties mutually agree that the Unit shall not be
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repaired in which event the insurance proceeds shall be applied and paid in the
following order of priority:
(a) The insurance proceeds shall be first applied to the
payment of (i) all of BP's remaining obligations to the Company
hereunder, and (ii) if the Note has not been prepaid, the outstanding
principal balance of and all accrued but unpaid interest on the Note
and all sums then owing under the Interest Rate Letter Agreement, OR,
if the Note has been prepaid, to the payment to BP of an amount equal
to the sum of (A) what the outstanding principal balance of and all
accrued but unpaid interest on the Note would have been as of the date
of such casualty had the Note been paid according to its terms but not
prepaid prior to such date, and (B) the amount which would have been
owing under the Interest Rate Letter Agreement as of the date of such
casualty had the Note not been prepaid prior to such date; and
(b) Thereafter, the then remaining balance, if any, of
the insurance proceeds shall be paid to the Company whereupon the
parties' obligations under this Agreement shall be terminated provided
that the covenants and obligations referred to in Articles 27 and 31
hereof shall survive such termination as set forth therein.
If the proceeds of insurance are not sufficient to pay all costs of such
repair, then:
(a) If the parties mutually agree, the Unit shall be
repaired and the excess of repair costs after all insurance proceeds
have been applied and paid against repair costs shall be apportioned
between the parties by mutual agreement;
(b) If BP desires to repair the Unit, but the Company
does not agree, the Unit shall be repaired and the excess of repair
costs after all insurance proceeds have been applied and paid against
repair costs shall be paid by BP; and
(c) If BP does not desire to repair the Unit, regardless
of the desires of the Company, the Unit shall not be repaired in which
event the insurance proceeds shall be applied and paid in the
following order of priority:
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(1) If the Company desires to repair the syn-gas
unit, the insurance proceeds shall be first applied and paid
against actual repair costs incurred by the Company in the
construction or repair of a syn-gas unit having sufficient
capacity to enable the Company to perform its obligations to
produce syn-gas required in the production of other products
produced at the Plant (other than the Unit); (2) Thereafter,
the then remaining balance of the insurance proceeds shall be
next applied to the payment of (i) all of BP's remaining
obligations to the Company hereunder, and (ii) if the Note has
not been prepaid, the outstanding principal balance of and all
accrued but unpaid interest on the Note and all sums then
owing under the Interest Rate Letter Agreement, OR, if the
Note has been prepaid, to the payment to BP of an amount equal
to the sum of (A) what the outstanding principal balance of
and all accrued but unpaid interest on the Note would have
been as of the date of such casualty had the Note been paid
according to its terms but not prepaid prior to such date, and
(B) the amount which would have been owing under the Interest
Rate Letter Agreement as of the date of such casualty had the
Note not been prepaid prior to such date; and
(2) Thereafter, the then remaining balance, if
any, of the insurance proceeds shall be paid to the Company
whereupon the parties' obligations under this Agreement shall
be terminated provided that the covenants and obligations
referred to in Articles 27 and 31 hereof shall survive such
termination as set forth therein.
13.5 During the First and Second Additional Terms, in the event of
a fire, explosion, flood, hurricane, windstorm or other casualty resulting in
the loss of the Unit or a substantial part thereof or the inability for a
period of more than three (3) Months of the Company to deliver Acetic Acid as
required by BP, the Company shall have the sole option whether or not to repair
the Unit, irrespective of whether or not the proceeds of insurance are
sufficient to pay all costs of such repair, and BP shall have no obligation or
liability therefor. If the Company repairs the Unit, the parties' obligations
under
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this Agreement shall continue. If the Company fails or refuses to commence
within ninety (90) days thereafter and proceed with reasonable diligence to
repair the Unit, the parties' obligations under this Agreement shall be
terminated provided that the covenants and obligations referred to in Articles
27 and 31 hereof shall survive such termination as set forth therein.
13.6 The Company will prepare a detailed shutdown reserve ("SDR")
budget for the syngas and acetic acid plants and a corresponding schedule for
major shutdowns and update these on a regular basis. The period over which the
shutdown reserve is accrued is agreed to be a nominal 24 months consistent with
the expected major shutdown schedule. BP and the Company will review and agree
on the SDR budget and corresponding major shutdown schedule by October 1 of
each year.
Once agreed, the amount for "Shutdown Reserve" in the Fixed Cost
Formula shall be revised so that the sum of the monthly charges in current
dollars during the interval between major shutdowns (nominally 24 months) will
equal the unescalated budget total. The SDR budget will act as a cap on
spending. As such, the budget represents an upper spending limit. If,
however, during the period prior to the major shutdown, additions or deletions
of major (non- routine) items to or from the budget cap may be mutually agreed
upon. After completion of a major shutdown, total costs will be reconciled
against the SDR charges. Any difference will then be used to recalculate the
next SDR budget.
In the event that there is a significant change to the major shutdown
schedule, the parties may agree to modify SDR charges in the formula to reflect
the expected interval between major shutdowns. BP shall have access to the
Company's records necessary to verify the accuracy of charges made against the
SDR budget to the extent and in the manner provided in Article 23 of this
Agreement.
ARTICLE 14
INSURANCE
14.1 As of the Effective Date, the Company will obtain the
Insurance coverage described on Exhibit G attached here to in respect of the
Unit and shall obtain adequate Insurance coverage for those parts of the Plant
which serve the Unit. Subject to Section 13.4 hereof, in the event that such
parts of the
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Plant are destroyed or damaged whether by the insured risks or not, the Company
shall rebuild the same as soon as practicable and to the extent that the
insurance proceeds are deficient will make up the difference from its own
funds.
It is the intent of both BP and the Company to eliminate BP as a named
insured for general liability and business interruption coverage, subject to
suitable cost savings and mutual agreement on commensurate changes to the Fixed
Fee Formula. No action to drop coverage for BP shall be taken by the Company
without prior approval by BP.
The Company shall advise BP whenever any insurance policy or area of
coverage listed on the Summary of Insurance Coverage as set out in Exhibit G to
this Agreement is renegotiated or otherwise changed. BP shall be advised prior
to making any major changes in these coverages and shall be afforded a
reasonable opportunity to review such changes. If, as a result of such review,
it is determined that the revised coverages do no provide equivalent value to
the coverages required by Exhibit G, the parties shall agree to revise cost
allocations to the Unit and revise the Fixed Cost Fee and Formula as
appropriate.
The Company and BP shall jointly review and compare current insurance
coverages with those specified in Exhibit G, on an annual basis.
14.2 During the Initial Term and the First and Second Additional
Terms, the Company shall maintain such insurance coverage, and all insurance
premiums in respect of the insurance for the Unit which are not included in the
Fixed Cost Fee shall be paid by BP on receipt by BP of an invoice.
ARTICLE 15
ACCESS TO THE UNIT
15.1 The Company agrees that upon written request by BP, the
Company shall provide to BP, at cost, reasonably suitable office accommodation
at the Plant for a limited number of BP personnel.
15.2 Subject to the provisions of Section 15.3 hereof, BP
acknowledges that the Company is required to permit representatives of
technology licensees described or referred to in the Purchase Agreement and
such additional licensees as may be requested by BP from time to time to visit
the Unit
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and receive training in the operation thereof; provided, however, that BP shall
indemnify and hold the Company harmless pursuant to the provisions of Article
31 hereof from Damages which the Company may suffer or incur by reason of its
admission of such representatives to the Unit.
15.3 The Company shall cause the representatives described or
referred to in Section 15.2 hereof and any other third party to whom access to
the Unit is given by the Company to sign a confidentiality agreement having
terms no less onerous than apply to the parties hereto under Article 27 hereof.
15.4 The Company agrees to permit BP personnel, at the cost of BP,
to have access to the Unit at reasonable times and on reasonable notice and
consistent with the Company's contractual obligations under licenses or
sub-licenses to which it is a party. BP shall indemnify and hold the Company
harmless pursuant to the provisions of Article 31 hereof from Damages which the
Company may suffer or incur by reason of its admission of such BP personnel to
the Unit.
ARTICLE 16
METHANOL SUPPLY
16.1 BP shall provide Methanol meeting the specifications described
in Exhibit C attached hereto in the volumes and at the times required by the
Company to operate the Unit and produce Acetic Acid as required hereby. The
Company agrees that it shall (i) provide adequate facilities to receive and
store, on behalf of BP for use in the Unit, Methanol delivered by sea in up to
6,000 metric ton shipments and with a maximum storage capacity of no more than
4,000,000 gallons, (ii) maintain and utilize, on behalf of BP, the two (2)
Methanol storage tanks (Nos. 50T530-1 and 50T530-2) available at the Plant (or
substitute storage facilities designated by the Company) for the purpose of
storing Methanol supplied by BP, and (iii) subject to the foregoing limitations
store, on behalf of BP, any Methanol delivered by BP without charge. For the
purpose of inventory control, the quantity of Methanol delivered by BP pursuant
to this Section 16.1 shall initially be the amount declared on the bill of
lading of the delivery
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vessel and shall be adjusted at the end of each Quarter to the amount actually
received as measured by the Methanol Measuring Equipment.
16.2 The price payable by the Company for Methanol consumed shall
be the price payable by BP from time to time to its major Methanol supplier
together with the costs of delivery from the said supplier's terminal to the
Company. The Company shall pay BP for the Methanol consumed during any Month
contemporaneously with the payment by BP for the Acetic Acid delivered by the
Company to BP during such Month. For any Month, Methanol consumption shall be
equal to the amount of Methanol in the Methanol storage tanks on the first day
of such month as determined by physically gauging the storage tanks, increased
by deliveries of Methanol during such Month pursuant to Section 16.1 hereof,
and reduced by the amount of Methanol in the Methanol storage tanks on the
first day of the following Month as determined by physically gauging the
storage tanks. Any difference between the price payable by BP to its major
supplier and the cost to BP of Methanol supplied hereunder shall be deemed to
be an expense for inclusion in the Costs of Sales hereunder.
16.3 The point of delivery of Methanol delivered pursuant to
Section 16.1 hereof shall be the point of transfer of custody of such Methanol
to the Company, which for purposes of this Agreement shall mean the last exit
flange on the ship or other conveyance from which the Methanol is unloaded.
Risk of loss shall pass from BP to the Company at such flange and the Company
shall be in control and possession of Methanol delivered pursuant to Section
16.1 hereof and responsible for any damage or injury caused thereby after risk
of loss with respect thereto has passed to it. As between the Company and BP,
BP shall be deemed to be in control and possession of Methanol sold and
purchased pursuant to Section 16.1 hereof and responsible for any damage or
injury caused thereby until risk of loss with respect thereto has passed to the
Company.
16.4 Title to all Methanol delivered to the Plant hereunder shall
pass from BP to the Company upon the removal thereof from the Methanol Storage
Facilities at the Plant for consumption in the Plant.
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ARTICLE 17
SPECIAL EXPENDITURE
17.1 The Company may approve any project requiring Special
Expenditure and make any Special Expenditure, regardless of amount, in any
Contract Year if such project and such Special Expenditure have been included
in the Company's operating plan under this Agreement for such Contract Year and
such plan was approved by BP prior to the payment of such Special Expenditure.
Upon receipt of invoice therefor, BP will promptly reimburse the Company for a
Special Expenditure incurred in accordance with this Section 17.1.
17.2 A project and Special Expenditure not contemplated by Section
17.1 hereof, and the manner of reimbursement or payment to the Company
therefor, shall be agreed upon by the parties hereto. The Company may, where
circumstances reasonably require, without the approval of BP, commence a
project and Special Expenditure not contemplated by Section 17.1 hereof
necessary, in the judgment of the Company, (i) to ensure that the Unit, the
Barge, the Rail Cars, the Additional Rail Cars and the operation of any of the
foregoing and the production, delivery, storage, shipment, sale, resale, use,
disposal or transportation of Acetic Acid, Unit Product, feedstock, supplies
and materials comply with applicable law and regulations, and (ii) to provide
for the health, safety and welfare of the Company's employees on the Unit;
provided, however, that the Company shall at the earliest practicable
opportunity notify BP of such project and Special Expenditure, and thereupon
the manner of reimbursement or payment shall be as follows:
(a) All costs actually incurred by the Company with
respect to such project and Special Expenditure prior to notifying BP
of the commencement thereof shall be promptly reimbursed by BP to the
Company upon receipt of invoice therefor;
(b) If the parties hereto agree, the Company shall be
paid for additional costs to be incurred by the Company with respect
thereto as agreed by the parties hereto;
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(c) If the parties fail to agree, the Company shall at
its option (i) cease such project and Special Expenditure, or (ii)
continue such project and Special Expenditure at its own cost;
provided, however, that the Company may refer the matter to
arbitration under Article 26 hereof.
ARTICLE 18
CAPITAL EXPENDITURES
18.1 During the Initial Term and the First Additional Term, all
Capital Expenditures shall be paid by the Company but shall be reimbursed by BP
upon receipt of an invoice, provided that the Company complies with the
procedures described in this Article 18. During the Second Additional Term,
all Minor Capital Items shall be paid by the Company but reimbursed by BP upon
receipt of an invoice, provided that the Company complies with the procedures
described in this Article 18. During the Second Additional Term, the cost of
all Major Capital Items will be invoiced to BP in accordance with the Profit
sharing ratios in effect during such period. Expenditures on Major Capital
Items will have no effect on the definition of Profit, and such expenditures
will be made for jointly approved projects without regard to the presence or
absence of Profit or any accumulated Surplus Payment.
18.2 For any Contract Year a capital budget shall be prepared by
the Company and submitted for approval by BP no later than September 30 of the
previous Contract Year. Such capital budget shall consist of an outline
description of and an estimate of the Capital Expenditures for each identified
job and a lump sum provision in respect of other possible developments. Such
capital budget will be discussed at the October Quarterly meeting and approved
in whole or in part by BP at or subsequent to that meeting, but in any event
before the next succeeding January 1.
18.3 When the Company desires to obtain a disbursement from BP for
a Capital Project described in the capital budget, the Company shall furnish BP
with the details of the proposed Capital Project including (i) the cost of such
proposed Capital Project, (ii) the benefits of the proposed Capital
Expenditure, and (iii) the changes which will result to one or more of the
Variable Cost Component, the
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Fixed Cost Fee, the Maximum Quarterly Contract Quantity and the Specifications,
for authorization and disbursement of funds in accordance with the procedures
in Sections 18.4 through 18.6, inclusive, hereof.
18.4 Further proposed Capital Projects may be added to the capital
budget described in Section 18.2 by the Company at any time during a Contract
Year, provided that the approval of BP has first been obtained.
18.5 All Capital Projects may be committed to by the Company and
expended by the Company only after the approval of the authorized BP
representative who will, in respect of any Capital Project requiring Capital
Expenditures of more than ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000.00)
U.S., submit the same to BP for approval.
18.6 The date that the changes in the Variable Cost Component, the
Fixed Cost Fee, the Minimum Quarterly Contract Quantity and the Specifications
will be effected will be the date of the completion of the Capital Project in
question. The actual results arising from a Capital Project shall be determined
by BP and the Company no later than six (6) Months after the said completion
date. If BP and the Company agree that the actual results therefrom differ from
those anticipated in Section 18.2 hereof, the items referred to above in
Section 18.6 hereof shall be adjusted to take account of the actual results
obtained.
18.7 BP shall designate in writing to the Company the name of the
authorized BP representative for purposes of this Agreement which name may be
changed from time to time by BP by written notice to the Company.
18.8 During the operation of the Agreement questions have arisen
regarding the allocation of certain U.S. federal income tax deductions between
the Company and BP. In order to clarify this situation and avoid confusion on
this issue in the future, the parties have agreed and do hereby agree as
follows:
(a) At all times from and after August 1, 1986, the
Company has been the beneficial owner of the Acetic Acid Plant Assets
covered by the Production Agreement, being the following
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specific assets acquired by the Company from the Monsanto Company on
August 1, 1986, and therefore the Company is entitled to all available
depreciation and/or amortization deductions with respect thereto:
All acetic acid process units, technology licenses, tank cars
and all personal property more particularly described on
Exhibit "B" of the Contract of Purchase and Sale of Real
Estate and Personal Property entered into between the Company
and BP, effective August 1, 1986, said Exhibit "B" being
incorporated herein by reference for all purposes as if copied
herein in full (the "Acetic Acid Plant Assets").
The parties hereby agree that BP is not and will not be
entitled to any depreciation or amortization deductions with respect
to the Acetic Acid Plant Assets.
(b) BP will be entitled to any and all depreciation and
amortization or expense deduction with respect to the After Acquired
Assets, and the Company will be entitled to any and all depreciation
and amortization or expense deductions with respect to that portion of
any Capital Expenditure, Capital Project or Special Expenditure or any
other expenditure unreimbursed by BP.
(c) The payments required under the terms of the Note
shall be currently deductible as rental expense by BP and recognized
as income by the Company.
(d) The Company and BP will not file claims for refund,
or any other form of return with the United States Internal Revenue
Service, or with any governmental unit of any state, based on
depreciation and/or amortization deductions inconsistent with the
agreement reflected in this Section 18.8.
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ARTICLE 19
PERSONNEL
19.1 The Company shall at all times have sole authority with
respect to all personnel matters involving the employees, consultants and
third-party contractors at the Plant and the Unit, including, without
limitation, salaries, benefits, compensation, indirect personnel costs,
manpower needs, training, insurance, labor matters, working hours, job
responsibilities, bonding and all other employee, personnel-related and
contracting matters. Any incentive schemes for employees on the Unit shall be
made at the discretion and cost of the Company.
ARTICLE 20
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to BP as follows:
20.1 Organization, Good Standing and Corporate Power. The Company
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Delaware, is duly qualified as a foreign corporation
in the State of Texas, and has all requisite corporate power and authority to
carry on its business as presently conducted, to enter into this Agreement and
perform its obligations hereunder.
20.2 Authority Relative to Agreement. The execution, delivery and
performance by the Company of this Agreement have been duly and effectively
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by the Company and is a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except
insofar as enforcement may be limited by (i) bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally, and (ii) general principles of equity.
20.3 No Conflict with Other Instruments or Proceeding. Neither the
execution and delivery of this Agreement, nor the performance or compliance
with the terms and conditions hereof conflict with, or will result in a breach
by the Company of, or constitute a default under, or result in the creation of
any lien, charge or encumbrance upon, any asset of the Company pursuant to any
of the terms, conditions
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or provisions of (i) the Certificate of Incorporation or Bylaws of the Company,
(ii) any mortgage, deed of trust, lease, contract, agreement or other
instrument to which the Company is a party by which the Company may be bound or
affected, or (iii) any writ, order, judgment, decree, statute, ordinance,
regulation or any other restriction of any kind or character, to which the
Company is subject, or by which the Company may be bound or affected.
20.4 No Litigation or Proceeding. As of the date hereof, there are
no actions, suits, investigations or proceedings pending or to the Company's
knowledge threatened against the Company at law or in equity or before or by
any federal, state, municipal or other governmental or non-governmental
department, commission, board, bureau, agency or instrumentality seeking to
enjoin, restrain or otherwise prevent the execution and delivery of this
Agreement by the Company.
20.5 No Warranties. EXCEPT FOR THE WARRANTY OF TITLE CONTAINED IN
THE DEED, THE COMPANY HEREBY EXPRESSLY DISCLAIMS AND NEGATES (I) ANY
REPRESENTATION OR WARRANTY (EXPRESS, IMPLIED, COMMON LAW, STATUTORY OR
OTHERWISE) RELATING TO THE UNIT, THE BARGE, THE RAIL CARS, THE ADDITIONAL RAIL
CARS, OR THE OPERATION OF ANY OF THE FOREGOING, OR ANY OTHER TANGIBLE PERSONAL
PROPERTY AND FIXTURES INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR
ENGINEERING, EXCEPT AS EXPRESSLY SET FORTH HEREIN, AND (ii) ANY IMPLIED
REPRESENTATION OR WARRANTY RELATING TO ANY ACETIC ACID OR UNIT PRODUCT SOLD
HEREUNDER, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS OF DESIGN OR
ENGINEERING. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE COMPANY HAS ASSIGNED AND
TRANSFERRED THE UNIT, THE BARGE, THE RAIL CARS, THE ADDITIONAL RAIL CARS
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AND SUCH OTHER TANGIBLE PERSONAL PROPERTY AND FIXTURES TO BP ON AN "AS IS"
BASIS.
ARTICLE 21
REPRESENTATIONS AND WARRANTIES OF BP
BP represents and warrants to the Company as follows:
21.1 Organization. BP is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and is duly
qualified to do business as a foreign corporation in the State of Texas and has
all requisite corporate power and authority to carry on its business as
currently conducted, to own and operate the properties owned by it and to enter
into this Agreement and perform its obligations hereunder.
21.2 Authority Relative to Agreement. The execution, delivery and
performance by BP of this Agreement have been duly and effectively authorized
by all necessary corporate action. This Agreement has been duly executed by BP
and is a legal, valid and binding obligation of BP enforceable in accordance
with its terms, except insofar as enforcement may be limited by (i) bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity.
21.3 No Conflict with Other Instruments or Proceedings. Neither the
execution and delivery of this Agreement, nor the performance or compliance
with the terms and conditions hereof conflict with, or will result in a breach
by BP of, or constitute a default under, or result in the creation of any lien,
charge or encumbrance upon, any of its assets pursuant to any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or Bylaws of
BP, (ii) any mortgage, deed of trust, lease, contract, agreement or other
instrument to which BP is a party or by which BP may be bound or affected, or
(iii) any writ, order, judgment, decree, statute, ordinance, regulation or any
other restriction of any kind or character, to which BP is subject, or by which
BP may be bound or affected,
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21.4 No Litigation or Proceedings. As of the date hereof, there are
no actions, suits, investigations or proceedings pending or to BP's knowledge
threatened against or affecting BP at law or in equity or before or by any
federal, state, municipal or other governmental or non-governmental department,
commission, board, bureau, agency or instrumentality seeking to enjoin,
restrain or otherwise prevent the execution and delivery of this Agreement by
BP.
ARTICLE 22
PARTICIPATION IN NEGOTIATIONS
22.1 Upon the expiration from time to time of the supply contracts
pursuant to which natural gas and carbon dioxide are supplied to the Unit, at
BP's request the Company shall permit BP to participate in the negotiations
which the Company conducts relating to the supply of natural gas and carbon
dioxide to the Unit. Except as otherwise provided herein, the Company may,
without participation by BP, negotiate and shall have the right, without the
approval of BP, to enter into all contracts relating to supplies, materials,
feedstocks (except Methanol so long as BP has not defaulted in its contractual
obligations with respect thereto), utilities, treatment, disposal and other
services or materials or property required in the Company's opinion for the
operation of the Unit, the Barge, the Rail Cars, the Additional Rail Cars,
storage facilities and the performance of its obligations hereunder.
ARTICLE 23
ACCESS TO INFORMATION
23.1 Upon written request by BP from time to time, the Company
shall provide to BP, its attorneys, accountants and other representatives,
subject to the receipt by the Company of confidentiality agreements no less
onerous than apply to the parties hereto under Article 27 hereof, at reasonable
times during normal business hours, access to the Company's books, records and
accounts relating to the operation of the Unit and the performance of the
Company's obligations under this Agreement, except as such access may be
prohibited by licenses or sub-licenses from a third party other than BPCL to
which the Company is a party. BP shall thereupon have the right to make copies
of and abstracts from such
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books, records and accounts, at BP's expense, which copies may be removed from
the premises of the Company and retained by BP, subject to the confidentiality
provisions of Article 27 hereof.
23.2 The Company agrees to permit representatives of BP, at BP's
expense, to have (i) access to the Unit at reasonable times and on reasonable
notice to obtain information relating to the present or proposed operations of
the Unit so long as such access does not materially disrupt the operation of
the Unit, and (ii) access to the Plant at reasonable times and on reasonable
notice to obtain information and audit the environmental status and condition
of the Plant and the operations thereof so long as such access does not
materially disrupt the operation of the Plant and BP pays all costs relating
thereto. BP agrees to furnish the Company with copies of all information and
audits obtained or prepared pursuant to the provisions of this Section 23.2.
23.3 The Company shall make its employees and other representatives
available to BP at reasonable times on reasonable notice to discuss the present
or proposed operations of the Unit so long as such availability does not
materially disrupt the operation of the Unit or the Plant. BP shall reimburse
the Company for all reasonable direct out-of-pocket costs incurred by the
Company in making such employees or other representatives available, on receipt
of an invoice therefor.
23.4 Upon written request by the Company from time to time, BP
shall provide to the Company and its attorneys, accountants and other
representatives approved by BP (such approval not to be unreasonably withheld),
subject to the receipt by BP of confidentiality agreements no less onerous than
apply to the parties here to under Article 27 hereof, at reasonable times and
during normal business hours, access to BP's books, records and accounts
relating to Profit, Cost of Sales, Methanol supplies, cost savings and the
performance of BP's obligations under this Agreement.
ARTICLE 24
SEMIANNUAL MEETINGS
24.1 At the Semiannual Meetings, the representatives of BP and the
Company shall review such matters as may be determined as appropriate by the
parties.
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24.2 By no later than September 30 of each Contract Year, the
Company shall deliver to BP a proposed operating plan (including proposed
Special Expenditure, Capital Projects and Capital Expenditures) for the Unit,
the Barge, the Rail Cars, the Additional Rail Cars and the other equipment and
property used in connection therewith, prepared by the Company in good faith
and upon realistic assumptions, for the following Contract Year. At or after
the October Semiannual Meeting in each Contract Year and in any event prior to
the commencement of the next Contract Year, the parties shall formally agree on
and adopt the operating plan for the following Contract Year. In the absence
of such an agreement on or before the first day of the Contract Year to which
such proposed operating plan would, if agreed, apply, the Company shall be
entitled to operate, maintain, repair, renovate, remodel, change and make
expenditures as may be reasonably necessary for the operation of the Unit and
in a manner consistent with the pattern of expenditure in the preceding
Contract Year but excluding any Capital Expenditures unless approved by BP
pursuant to this Agreement.
ARTICLE 25
FINANCIAL ASSURANCES
25.1 In the event any federal, state or other governmental
authority requires the Company to provide financial assurances in connection
with the Unit, its operations or any Spills or Releases Requiring Response
Action, the Company will use its best efforts to provide the same, and BP will
reimburse the Company for all premiums or other costs incurred in connection
with providing such financial assurances, upon receipt of invoice therefor. In
the event the Company is unable to provide such financial assurances, BP will
provide them.
ARTICLE 26
ARBITRATION
26.1 All disputes, differences or questions arising out of or
relating to this Agreement (including, without limitation, those as to the
validity, interpretation, breach, violation or termination hereof) shall, at
the written request of either party, be finally determined and settled pursuant
to
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arbitration at Houston, Texas, by three (3) arbitrators, one (1) to be
appointed by the Company, one (1) by BP, and a neutral arbitrator to be
appointed by such two (2) party-appointed arbitrators. The neutral arbitrator
shall be an attorney and shall act as chairman. Any such arbitration may be
initiated by a party by written notice ("Arbitration Notice") to the other
party specifying the subject of the requested arbitration and appointing such
party's arbitrator for such arbitration.
26.2 Should (i) a party receiving an Arbitration Notice fail to
appoint an arbitrator as hereinabove contemplated by written notice to the
party giving the Arbitration Notice within ten (10) days after the receipt of
the Arbitration Notice, or (ii) the two (2) arbitrators appointed by or on
behalf of the parties as contemplated in Section 26.1 hereof fail to appoint a
neutral arbitrator as hereinabove contemplated within ten (10) days after the
date of the appointment of the last arbitrator appointed by or on behalf of the
parties, then a Judge of the United States District Court for the Southern
District of Texas, Houston Division, upon application of the Company or of BP,
shall appoint an arbitrator to fill any such position with the same force and
effect as though such arbitrator had been appointed as hereinabove
contemplated.
26.3 The arbitration proceeding shall be conducted in the English
language in Houston, Texas, in accordance with the Rules of the American
Arbitration Association. A determination, award or other action shall be
considered the valid action of the arbitrators if supported by the affirmative
vote of two (2) or three (3) of the three (3) arbitrators. The costs of
arbitration (exclusive of the expense of a party in obtaining and presenting
evidence and attending the arbitration, and of the fees and expenses of legal
counsel to such party, all of which shall be borne by such party) shall be
shared equally by the Company and BP. The arbitration award shall be final and
conclusive and shall receive recognition, and judgment upon such award may be
entered and enforced in any court of competent jurisdiction.
26.4 The validity of the foregoing provisions of this Article 26
shall, to the fullest extent practicable, be governed by the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards.
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ARTICLE 27
CONFIDENTIALITY AND INTELLECTUAL PROPERTY
27.1 During the terms of this Agreement and thereafter, all
information relating to the business, products, assets and finances of the
Company or BP, including, but not limited to, financial statements and related
books and records, minute books, personnel records, list of customers and
potential customers, lists of suppliers and potential suppliers, price and cost
data, computer programs, computer hardware, patents, patent applications,
apparatus, equipment, drawings, reports, processes, methods and techniques of
manufacture, know-how, trade secrets, specifications of materials, manuals,
technical information and similar information and records shall be treated as
proprietary to the Company or BP, as the case may be, and as confidential by BP
or the Company, as the case may be, and shall not be disclosed by BP or the
Company or their respective officers, employees, agents, affiliates or
representatives to, or used for the benefit of, BP or the Company or any other
person. At the termination of this Agreement, the obligations as to
confidentiality herein shall continue for a period of five (5) years from the
date of such termination.
27.2 Each and every invention and improvement, whether or not
patentable, conceived, developed or made during the Initial Term and the First
and Second Additional Terms by the Company, its agents or employees alone or in
conjunction with BP or third parties, arising out of, in connection with or
relating to the manufacture and production of Acetic Acid or Unit Product, the
procedures and methods of such manufacture and production, or the operation of
the Unit, or conceived, developed or made in the course of the Company's
performance under this Agreement, (i) shall be and become the sole and
exclusive property of BP and ipso facto the Company shall have a perpetual
right and license to use such invention or improvement on the Unit which right
and license shall be freely assignable to the Company's assignee for use on the
Unit in the event the Company sells, transfers and assigns its interest in the
Unit, (ii) shall be disclosed promptly by the Company to BP, and (iii) the
Company shall, and shall
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cause its agents or employees, as the case may be, to immediately and without
additional consideration or compensation assign, transfer and convey to BP all
right, title and interest in and to such inventions and improvements, and in
and to any and all applications for Letters Patent that may be filed thereon,
and in and to all Letters Patent that may issue on such applications. The
Company shall, and shall cause its agents and employees to, without additional
consideration or compensation, execute and deliver to BP such other and further
applications, assignments, instruments and documents which BP shall deem
necessary, convenient or desirable in connection with any such invention,
improvement, application or Letters Patent or in connection with any patent
infringement, interference or other contest involving such invention,
improvement, application or Letters Patent. Concurrently with the assignment,
transfer and conveyance to BP of all such right, title and interest in and to
each such invention or improvement, BP shall for no additional consideration or
compensation grant to the Company a perpetual right and license to use such
invention or improvement on the Unit; provided, however, that such invention or
improvement shall be and remain at all times thereafter the sole and exclusive
property of BP.
27.3 Each and every invention and improvement conceived, developed
or made during the Initial Term and the First and Second Additional Terms by
BP, its agents or employees alone or in conjunction with the Company or third
parties, regardless of where such invention or improvement is conceived,
developed or made, arising out of, in connection with or relating to the
manufacture and production of acetic acid, the procedures and methods of such
manufacture and production, or the operation of acetic acid plants generally,
or conceived, developed or made in the course of BP's performance under this
Agreement, shall be and remain the sole and exclusive property of BP. BP shall
promptly grant to the Company for no additional consideration or compensation a
perpetual right and license to use on the Unit any invention or improvement
whenever developed that is installed, employed, used or otherwise becomes a
part of the production of Acetic Acid on the Unit or a part of the operation of
the Unit which right and license shall be freely assignable to the Company's
assignee for use on the Unit in the event the Company sells, transfer and
assigns its interest in the Unit; provided, however, that
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such invention or improvement shall be and remain at all times thereafter the
sole and exclusive property of BP.
ARTICLE 28
DEFAULTS; FAILURES; REMEDIES
28.1 If a Company Event of Default shall occur and be continuing,
BP may, at its option, by written notice to the Company, declare the Company to
be in default hereunder ("Declaration of Company Default"); provided, however,
that a Declaration of Company Default shall not relieve or otherwise discharge
the Company from the performance of its obligations under this Agreement,
except to the extent that the exercise by BP of its remedies pursuant to the
provisions of Section 28.3 hereof otherwise prevents or restricts the Company
with respect thereto.
28.2 If a BP Event of Default shall occur and be continuing, the
Company may, at its option, by written notice to BP, declare BP to be in
default hereunder ("Declaration of BP Default"); provided, however, that a
Declaration of BP Default shall not relieve or otherwise discharge BP from the
performance of its obligations under this Agreement.
28.3 Forthwith upon a Declaration of Company Default, BP may, by
written notice to the Company, require the Company to permit, and the Company
shall permit at BP's risk, but at the Company's cost (subject to BP's duty to
reasonably mitigate such cost), such employees of BP as BP may require to have
access to the Unit and those parts of the Plant that serve the Unit for the
purpose of seeking and implementing (including, if necessary, operating the
Unit) a solution to the cause of the Company Event of Default or failure, and
the Company shall cause its employees to comply with the requests and
instructions of BP's said employees while present in the Plant or the Unit;
provided, however, that BP shall indemnify and hold the Company harmless
pursuant to the provisions of Article 31 hereof from Damages which the Company
may suffer or incur by reason of permitting such employees of BP to have such
access and provided further that BP shall not materially disrupt the Company's
operations on other parts of the Plant. BP's access to the Unit and those parts
of the Plant that serve the
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Unit shall continue until the Unit has operated so as to enable the Company to
comply with its obligations hereunder for one (1) calendar month. BP shall
thereupon withdraw its employees from the Unit and the Plant. After withdrawing
such employees, BP shall not have any rights pursuant to the provisions of this
Section 28.3 of access to the Plant or the Unit for a period of thirty (30)
days beginning on the date of such withdrawal. Once BP has withdrawn its
employees, (i) if the Company fails to operate the Unit during such thirty (30)
day period following such withdrawal by BP in such a manner as to enable the
Company to comply with its obligations under this Agreement, BP shall have the
right to require the Company to permit BP's employees to have access to the
Unit and those parts of the Plant which serve the Unit immediately upon the
expiration of such thirty (30) day period, or (ii) if the Company operates the
Unit throughout such thirty (30) day period following such withdrawal by BP in
such a manner as to enable the Company to comply with its obligations under
this Agreement, BP shall have no right to require the Company to permit BP's
employees to have such access until a subsequent Declaration of Company
Default, if any.
28.4 Forthwith upon a Declaration of BP Default, the Company may,
by written notice to BP, cease all further sales of Acetic Acid to BP under
this Agreement and sell Acetic Acid to third parties until such time as BP
complies with its obligations hereunder.
28.5 Notwithstanding the provisions of this Article 28, during the
Initial Term BP may enforce its rights and remedy under Section 2.13 hereof in
the event of a Lease Event of Default.
ARTICLE 29
NOTICE OF CERTAIN EVENTS
29.1 In the event that the Company has failed to make payment of
any part of principal or interest on any of its indebtedness for borrowed money
with an outstanding balance of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00)
U.S. or more when same shall have become due and payable and such failure has
not been waived by the holder(s) of such Indebtedness, the Company agrees to
give written notice thereof to BP within seven (7) days of such failure. In
such event, the Company shall
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discuss with BP such failure to make any such payment and the effects thereof
on the operations of the Company and afford BP a reasonable opportunity for a
reasonable period of time under the existing circumstances to assist the
Company in resolving any financial difficulties the Company might have.
29.2 In the event the Company enters serious negotiations with a
third party with respect to the sale or transfer of the possibility of reverter
in the Unit (whether directly or indirectly) or as part of the sale or exchange
of all or substantially all of the assets of the Company, the sale or exchange
of a majority or more of the outstanding voting securities of the Company in a
transaction requiring approval by the Company, the merger or consolidation of
the Company with or into another corporation or otherwise, the Company agrees
to inform BP of such negotiations as soon as the Company is permitted to so
inform BP by such third party or by applicable law.
29.3 In the event that the Company receives notice that the holders
of a majority of the outstanding voting securities of the Company have entered
serious negotiations to sell, exchange or otherwise transfer such voting
securities in a transaction not requiring approval of the Company or its
security holders as such, the Company agrees to inform BP of such negotiations
as soon as the Company is permitted to so inform BP by such holders or by
applicable law.
ARTICLE 30
SURVIVAL
30.1 The representations, warranties, covenants and agreements
contained in Articles 27 and 31 hereof, together with all indemnity and payment
obligations of any party hereto owing to the other party on the date of
termination hereof or arising thereafter based on events or occurrences prior
to the termination of this Agreement shall survive such termination and for the
period of the applicable statute of limitations (or, if there is no such
statute, for the longest period permitted by law) with respect to such
obligations.
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ARTICLE 31
INDEMNIFICATION
31.1 Except as otherwise provided herein, the Company, from and
after the Effective Date, shall indemnify and hold BP harmless from and against
any and all Damages suffered or incurred by BP on account of or arising from or
related to the breach of, or the failure to perform or satisfy any of, the
representations, warranties, covenants or agreements made by the Company in or
under this Agreement, or any liability to any party whether incurred under
statute or in tort arising directly or indirectly from the operations carried
on by or on behalf of the Company at or in connection with the Plant or arising
out of Spills or Releases Requiring Response Action (whether occurring before
or after the termination of this Agreement), unless such Spills or Releases
Requiring Response Action are attributable to the acts, omissions or default of
BP.
31.2 Except as otherwise provided herein, BP, from and after the
Effective Date, shall indemnify and hold the Company harmless from and against
any and all Damages suffered or incurred by the Company on account of or
arising from or related to the breach of, or the failure to perform or satisfy
any of, the representations, warranties, covenants or agreements made by BP in
or under this Agreement, or any liability to any party whether incurred under
statute or in tort arising directly or indirectly from the actions of BP
carried out at or in connection with the Plant excepting any Damages arising
out of Spills or Releases Requiring Response Action occurring during the
Initial Term or the First or Second Additional Terms unless such Spills or
Releases Requiring Response Action are attributable to the acts, omissions or
default of BP.
31.3 BP and the Company each agree that promptly after any of its
officers becomes aware of the discovery of facts giving rise to a claim by it
for indemnification hereunder ("Claim"), such party will provide notice thereof
in writing to the other party. The failure of either party to so notify the
other party of a Claim, where such failure results in insufficient time being
available to permit the party receiving the notice or its counsel to defend
against such Claim, shall relieve the other party from any
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liability in respect of such Claim which it may have otherwise had, but shall
not relieve such party from any liability it may have hereunder. For purposes
of this Section 31.3, receipt by a party of notice of any demand, assertion,
claim, action or proceeding (judicial, administrative or otherwise) by or from
any person or entity (other than the other party to this Agreement) or
governmental authority ("Third Party Action") which may give rise to a Claim on
behalf of such party shall constitute the discovery of facts giving rise to a
Claim by it and shall require prompt notice of the receipt of such matter as
provided in the first sentence of this Section 31.3. Any notice pursuant to
this Section 31.3 shall set forth all information respecting the Claim and the
Third Party Action, if any, as such party shall then have and shall contain a
statement to the effect that the party giving the notice is making a Claim
pursuant to and formal demand for indemnification under this Article 31.
31.4 For purposes of this Article 31, the term "Indemnifying
Party," as to a particular Claim or Third Party Action shall mean the party
having or which is held to have an obligation to indemnify the other party with
respect to such Claim or Third Party Action pursuant to this Article 31 and the
term "Indemnified Party" as to a particular Claim or Third Party Action shall
mean the party having or which is held to have the right to be indemnified with
respect to such Claim or Third Party Action by the other party pursuant to this
Article 31.
31.5 Except as otherwise expressly provided herein, Indemnifying
Party shall be entitled at its cost and expense to contest and defend by all
appropriate legal proceedings any Third Party Action with respect to which it
is called upon to indemnify Indemnified Party under the provisions of this
Agreement; provided, however, that with respect to any Claim arising from the
assertion of any Third Party Action, notice of the intention so to contest
shall be delivered by Indemnifying Party to Indemnified Party within twenty
(20) days from the date of mailing to Indemnified Party of notice by
Indemnifying Party of the assertion of the Third Party Action. Any such
contest with respect to a Third Party Action may be conducted in the name and
on behalf of Indemnifying Party or the Indemnified Party as may be appropriate.
Except as otherwise expressly provided herein, such contest shall be conducted
by attorneys
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employed by Indemnifying Party, but Indemnified Party shall have the right to
participate in such proceedings and to be represented by attorneys of its own
choosing at its cost and expense. If Indemnified Party joins in any such
contest, Indemnified Party shall have full authority to determine all action to
be taken with respect thereto. If after notice as provided for herein,
Indemnifying Party does not elect to contest any Third Party Action as provided
in this Section 31.5, Indemnifying Party shall be bound by the result obtained
with respect thereto by Indemnified Party and the Indemnified Party may (but
shall have no obligation to) contest any such Third Party Action or settle or
admit liability with respect thereto, all for the account of the Indemnifying
Party. At any time after the commencement of defense of any such Third Party
Action, Indemnifying Party may request Indemnified Party to agree in writing to
the abandonment of such contest or the payment or compromise by Indemnifying
Party of the asserted Third Party Action whereupon such action shall be taken
unless Indemnified Party so determines that the contest should be continued,
and so notifies Indemnifying Party in writing within fifteen (15) days of such
request from Indemnifying Party. In the event that Indemnified Party determines
that the contest should be continued, Indemnifying Party shall be liable with
respect to such Third Party Action only to the extent of the lesser of (i) the
amount which the third party taking the Third Party Action had agreed to accept
in payment or compromise as of the time Indemnifying Party made its request
therefor to Indemnified Party, or (ii) such amount for which Indemnifying Party
may be liable with respect to such Claim by reason of the provisions hereof.
31.6 If requested by Indemnifying Party, Indemnified Party agrees
to cooperate with Indemnifying Party and its counsel in contesting any Third
Party Action which Indemnifying Party elects to contest or, if appropriate, in
making any counterclaim against the third party taking the Third Party Action,
or any crosscomplaint against any other person or entity not a party hereto,
but Indemnifying Party will reimburse Indemnified Party for any expenses
incurred by it in so cooperating.
31.7 Indemnified Party agrees to afford Indemnifying Party and its
counsel the opportunity to be present at, and to participate in, conferences
with all persons or entities, including governmental
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authorities, taking Third Party Action against Indemnified Party or conference
with representatives of or counsel for such persons or entities.
31.8 Indemnifying Party shall pay to Indemnified Party, upon
demand, the amount of any Damages to which Indemnified Party may become
entitled by reason of the provisions of this Article 31.
ARTICLE 32
ADDITIONAL RIGHTS AND LIABILITIES
32.1 Nothing contained in this Agreement shall require BP to
reimburse the Company for any costs or expenses or to provide financial
assurances if such costs or expenses are incurred or such financial assurances
are required for reasons attributable to the failure by the Company to comply
with its obligations under this Agreement.
32.2 Nothing contained in this Agreement shall require BP to
reimburse the Company for any costs or expenses or to provide financial
assurances if such costs or expenses are incurred or such financial assurances
are required for reasons attributable to the default or breach by Monsanto of
its obligations under the Purchase Agreement AND for which the Company has
obtained or recovered from Monsanto reimbursement monies and/or financial
assurances. In the event that BP in good faith believes that Monsanto has
defaulted in or breached an obligation under the Purchase Agreement with
respect to the Unit, BP shall thereupon notify the Company; provided, however,
that such notice by BP shall not relieve or otherwise discharge BP from its
payment obligations under this Agreement.
(a) After receipt of such notice from BP, if the Company
agrees that such default or breach has occurred, and the Company
within a reasonable time commences and diligently pursues (including,
but not limited to, the institution of legal proceedings, if
necessary) its claim against Monsanto under the Purchase Agreement, BP
shall continue to reimburse the Company for the costs and expenses or,
to the extent required by Article 25 hereof, to provide financial
assurances which costs, expenses or financial assurances are the
subject of such claim against Monsanto until Monsanto's liability with
respect thereto is finally determined. To the extent that
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the Company successfully recovers reimbursement monies and/or
financial assurances from Monsanto for which BP has either theretofore
paid or provided or would thereafter otherwise pay or provide, BP
shall receive a credit or reimbursement from the Company and shall no
longer have any obligation or liability therefor.
(b) After receipt of such notice from BP, if the Company
agrees that such default or breach has occurred, but does not within a
reasonable time commence or diligently pursue (including, but not
limited to, the institution of legal proceedings, if necessary) a
claim against Monsanto under the Purchase Agreement, the parties
hereto agree that BP shall no longer have any obligation or liability
hereunder to reimburse the Company for the costs and expenses and/or
to provide financial assurances incurred or required for reasons
attributable to such default or breach of Monsanto, and BP shall
receive a credit or reimbursement from the Company if BP shall have
theretofore reimbursed the Company for any such costs and expenses
and/or provided any such financial assurances.
(c) After receipt of such notice from BP, if the Company
disagrees that such default or breach has occurred, either party
hereto may refer the matter to arbitration under Article 26 hereof.
BP shall not be relieved or otherwise discharged from its payment
obligations under this Agreement during the pendency of the
arbitration proceedings.
(1) If the arbitrators determine that Monsanto
has not defaulted in or breached an obligation under the
Purchase Agreement, then BP shall discharge its payment
obligations under this Agreement with respect thereto.
(2) If the arbitrators determine that Monsanto
defaulted in or breached an obligation under the Purchase
Agreement, then (i) after receipt of such notice from BP, if
the Company agrees that such default or breach has occurred,
and the Company within a reasonable time commences and
diligently pursues (including, but not limited to, the
institution of legal proceedings, if necessary) its claim
against Monsanto under the
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Purchase Agreement, BP shall continue to reimburse the Company
for the costs and expenses or, to the extent required by
Article 25 hereof, to provide financial assurances which
costs, expenses or financial assurances are the subject of
such claim against Monsanto until Monsanto's liability with
respect thereto is finally determined. To the extent that the
Company successfully recovers reimbursement monies and/or
financial assurances from Monsanto for which BP has either
theretofore paid or provided or would thereafter otherwise pay
or provide, BP shall receive a credit or reimbursement from
the Company and shall no longer have any obligation or
liability therefor; and (ii) after receipt of such notice from
BP, if the Company agrees that such default or breach has
occurred, but does not within a reasonable time commence or
diligently pursue (including, but not limited to, the
institution of legal proceedings, if necessary) a claim
against Monsanto under the Purchase Agreement, the parties
hereto agree that BP shall no longer have any obligation or
liability hereunder to reimburse the Company for the costs and
expenses and/or to provide financial assurances incurred or
required for reasons attributable to such default or breach of
Monsanto, and BP shall receive a credit or reimbursement from
the Company if BP shall have theretofore reimbursed the
Company for any such costs and expenses and/or provided any
such financial assurances.
ARTICLE 33
FORCE MAJEURE
33.1 In the event of either party being rendered unable, wholly or
in part, by force majeure to carry out its obligations under this Agreement
(other than any obligation to make payment of any amount when due and payable
hereunder), it is agreed that on such party giving notice and reasonably full
particulars of such force majeure in writing or by telegraph to the other party
within a reasonable time after the occurrence of the cause relied on, then the
obligations of the party giving such notice, so far as they are affected by
such force majeure, shall be suspended during the continuance of any inability
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so caused, but for no longer period, and such cause shall so far as possible be
remedied with all reasonable dispatch.
33.2 The term "force majeure," as employed herein, shall mean acts
of God, strikes, lockouts or other industrial disturbances, acts of the public
enemy, wars, blockades, embargoes, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, storms, floods, high water, washouts, arrests
and restraints of government and people, civil disturbances, explosions,
breakage or accident to machinery, equipment, lines of pipe or property,
freezing of wells, machines, equipment, lines of pipe, or property, partial or
entire failure of any machine, equipment, lines of pipe or other property, the
occurrence of any Spill or Release Requiring Response Action and any
regulatory, civil or criminal action with respect thereto and any other causes,
whether of the kind herein enumerated or otherwise, not reasonably within the
control of the party claiming suspension; such term shall likewise include (i),
in those instances where any party hereto is required to obtain servitudes,
rights-of-way grants, permits or licenses (including permits relating to any
Spill or Release Requiring Response Action) to enable such party to fulfil its
obligations hereunder, the inability of such party to acquire, or delays on the
part of such party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such servitudes, rights-of-way grants, permits or
licenses, and (ii), in those instances where any party hereto is required to
furnish materials and supplies or is required to secure permits or permissions
from any governmental agency to enable such party to fulfill its obligations
hereunder, the inability of such party to acquire, or delays on the party of
such party in acquiring, at reasonable cost and after the exercise of
reasonable diligence, such materials and supplies, permits and permissions.
33.3 It is understood and agreed that the settlement of strikes or
lockouts shall be entirely within the discretion of the party having the
difficulty, and that the above requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of the opposing party when such
course is inadvisable in the discretion of the party having the difficulty.
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33.4 Notwithstanding the provisions of Section 33.2 hereof, the
failure by either party to perform any of its obligations under this Agreement
shall be deemed not to have been caused by circumstances reasonably outside its
control if such failure results from breakage or accident to machinery,
equipment, lines of pipe or other property or the partial or entire failure
thereof or the necessity to make repairs or alterations thereto which result
from normal wear and tear which could be reasonably anticipated by a reasonably
prudent operator or in circumstances where a reasonably prudent operator would
have standby equipment or spare parts.
ARTICLE 34
ASSIGNMENTS
34.1 Except in a transaction pursuant to which all or substantially
all of the assets of the Company are sold or exchanged or the Company merges or
consolidates with or into another corporation, and in which the purchaser of
the assets or the other party to the merger or consolidation is not a
competitor of BP, the Company may not assign its rights hereunder except to the
Bank, or sell, assign or transfer its leasehold estate in the Unit to any
person, except as otherwise provided in Section 2.5 hereof, without the prior
written consent of BP. A public offering of securities by the Company shall not
be deemed an assignment hereunder.
34.2 BP may assign its rights or delegate its duties and
obligations hereunder to any person without the consent of the Company provided
that:
(a) Such assignee be of sound financial condition and, in
BP's good faith judgment, able timely to perform BP's obligations
under this Agreement; and
(b) Within ten (10) days after a request by the Company,
BP executes a written guarantee of such assignee's timely performance
of BP's obligations hereunder, containing the provisions usually and
customarily contained in guarantees of financial performance in the
United States.
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34.3 Notwithstanding any assignment of any of its rights or a
delegation of any of its duties by BP under this Agreement, whether permitted
hereby or otherwise, BP shall continue to be responsible for its obligations
hereunder, and does hereby unconditionally and absolutely guarantee the timely
payment of all sums due, and the timely performance of all obligations, by any
assignee hereunder. On default by any such assignee, the Company or Bank may,
at its option, proceed directly and at once against BP to enforce BP's
obligations hereunder, and exercise all remedies available hereunder, without
notice to such assignee or the necessity for proceeding or taking any action
against such assignee.
34.4 Any attempted assignment or delegation by either party hereto
not otherwise permitted hereby which is made without the prior written consent
of the other party shall be ineffective and void for all purposes.
ARTICLE 35
GENERAL
35.1 Noncompetition Agreement. The Company covenants and agrees
with BP that, during the Initial Term and the First and Second Additional
Terms, the Company will not produce or sell acetic acid other than pursuant to
this Agreement; provided, that (i) the disposition of waste acid pursuant to
mutually agreed procedures, and (ii) the transfer of acetic acid to the
acrylonitrile production unit located at the Plant for the Company's internal
use shall be permitted and shall not constitute violations of this Section
35.1.
35.2 Taxes.
(a) Upon receipt of invoice therefor, BP shall remit to
the Company all Company Taxes.
(b) The parties recognize that, during the term of this
Agreement, major changes may occur in the system of federal, state and
local taxation at the location of the Unit, which may materially alter
the existing federal, state and local property, energy, franchise,
income and sales
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tax systems presently in effect. In the event of such alteration, the
parties agree to equitably adjust all formulas in this Agreement to
reflect such changes.
35.3 Notices. Except as otherwise specifically provided, any
notice provided for by this Agreement and any other notice, demand or
communication which any party may wish to send to another shall be in writing
and either delivered in person or sent by registered or certified United States
mail, first-class postage prepaid, return receipt requested, in a properly
sealed envelope, and addressed to the party for which such notice, demand or
communication is intended at such party's address as set forth below:
(a) Company: Sterling Chemicals, Inc.
1200 Smith Street
Houston, Texas 77002
Attention: President
Copy To: Sterling Chemicals, Inc.
1200 Smith Street
Houston, Texas 77002
Attention: General Counsel
(b) BP: BP Chemicals Inc.
4440 Warrensville Center Road
Warrensville Heights, Ohio 44128-2837
Attention: Vice President, Acetyls
Copy To: BP Chemicals Inc.
1 Second Avenue South
Texas City, Texas 77590
Attention: Product Manager, Acetyls
and
Copy To: BP America Inc.
200 Public Square
Cleveland, Ohio 44114-2373
Attention: Mr. R.G. Raymond
Corporate Counsel
Any address or name specified above may be changed by a notice given
by the addressee to the other parties in accordance with this Section 35.3. Any
notice, demand or other communication shall be deemed given and effective as of
the date of delivery in person or upon receipt as set forth on the return
receipt. The inability to deliver because of changed address of which no
notice was given, or the
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rejection or other refusal to accept any notice, demand or communication, shall
be deemed to be the receipt of the notice, demand or communication as of the
date of such inability to delivery or the rejection or refusal to accept.
35.4 Controlling Law. All questions concerning the validity,
operation and interpretation of this Agreement and the performance of the
obligations imposed upon the parties hereunder shall be governed by the laws of
the State of Texas.
35.5 Heading. The headings and titles to the Articles of this
Agreement are inserted for convenience only and shall not be deemed a part
hereof or affect the construction or interpretation of any provision hereof.
35.6 Modifications and Waivers. No intermination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement
or any provision hereof, or waiver of any right or remedy herein provided,
shall be effective for any purpose unless specifically set forth in writing
signed by the party or parties to be bound thereby. The waiver of any right or
remedy in respect of any occurrence or event on the occasion shall not be
deemed a waiver of such right or remedy in respect of such occurrence or event
on any other occasion.
35.7 Entire Agreement. This Agreement, including the other
instruments herein provided for or referred to, supersedes all other
agreements, oral or written, heretofore made with respect to the subject matter
hereof and the transactions contemplated hereby, and contains the entire
agreement of the parties.
35.8 Severability. Any provisions hereof prohibited by or unlawful
or unenforceable under any applicable law of any jurisdiction shall be
ineffective as to such jurisdiction, without affecting any other provision of
this Agreement, or shall be deemed to be severed or modified to conform with
such law, and the remaining provisions of this Agreement shall remain in force,
provided that the purpose of this Agreement can be effected. To the full
extent, however, that the provisions of such applicable law may
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be waived, they are hereby waived, to the end that this Agreement is deemed to
be a valid and binding agreement enforceable in accordance with its terms.
35.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of such
counterparts together shall constitute but one and the same instrument.
35.10 Binding on Successors. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
35.11 Public Statements. The parties hereto agree to consult with
one another prior to issuing any public announcement or statement with respect
to the transactions contemplated herein.
35.12 No Partnership or Agency. This Agreement shall not be
construed to create a partnership, joint venture, association or other entity
or business organization or to create a principal-agent relationship between
the Company and BP.
35.13 No Transfer of Title. BP expressly does not by the terms of
this Agreement sell, transfer or assign to the Company any title or interest in
the Unit other than the leasehold interest described or referred to in Article
2 hereof. The Company expressly does not by the terms of this Agreement sell,
transfer or assign to BP any title or interest in the portion of the Plant
other than the Unit or any of the Company's other assets or properties other
than Acetic Acid when and as provided herein.
35.14 Wire Transfer, Etc. All sums and amounts payable or to be
payable pursuant to this Agreement shall be payable in immediately available
funds and in coin or currency of the United States of America that, at the time
of payment, is legal tender for the payment of public and private debts in the
United States of America and shall be made by wire transfer of immediately
available funds to such bank and/or account in the continental United States
for the account of the payee as from time to time the payee shall have directed
to the payor in writing, or, if no such direction shall have been given, by
check to the payee in the manner and at the address set forth above. Whenever
in this Agreement BP is required to pay or reimburse the Company upon receipt
of invoice or otherwise when no due date for
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payment is specifically provided, payment shall be due ten (10) Business Days
after receipt of invoice or other statement, and shall be made in the manner
set forth above.
35.15 Development of the Unit.
(a) The parties agree that the Company and BP will share
any capacity expansion fee which may become due from BPCL to Monsanto
as a result of DB III or any other future capacity expansions in
accordance with their respective Profit sharing percentages hereunder
at the time such fee shall become due.
(b) The Company and BP agree that the title to the carbon
monoxide, blend gas and hydrogen produced in the syn-gas unit shall at
all times be and remain in the Company, notwithstanding the ownership
of the syn-gas unit.
(c) The Company and BP agree to cooperate in determining
whether and by what methods the production capacity of the Unit should
be increased. In making these determinations, the Company and BP
agree as follows:
(i) The costs of any such expansion shall be
borne by BP.
(ii) The Company at any time may enter into any
arrangement with respect to the sale of any blend gas and
hydrogen produced in the reformer and not required for Acetic
Acid production.
35.16 As of the date of this Amended and Restated Lease and
Production Agreement, the Company and BP agree, acknowledge and confirm (i)
that there are no known disputes pending between them arising out of or
relating to this Agreement which are unresolved and (ii) that the Agreement, as
amended and restated hereby, remains in full force and effect on and as of the
date hereof.
-78-
<PAGE> 82
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written, but effective as of the Effective Date.
BP CHEMICALS INC.,
an Ohio corporation
By:____________________________________
R.R. Mesel
President
Endorsed
By:__________________________________
G. R. Hunt
Business General Manager, Acetyls
BP Chemicals Ltd.
STERLING CHEMICALS, INC.,
a Delaware corporation
By:___________________________________
J. Virgil Waggoner
President
-79-
<PAGE> 83
EXHIBIT A
BP Cost of Sales
***CONFIDENTIAL TREATEMENT REQUESTED FOR THIS INFORMATION***
<PAGE> 84
EXHIBIT B
Fixed Cost Fee and Formula
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
<PAGE> 85
ADDENDUM TO EXHIBIT B
Fixed Cost Fee and Formula
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
<PAGE> 86
EXHIBIT C
Methanol Specification
2
<PAGE> 87
STERLING CHEMICALS, INC. Dept. No. ____________________________
Material Code: ____________________________
TEXAS CITY, TEXAS Sales Code: ____________________________
RAW MATERIALS SPECIFICATION
Approval Date
Product (Trade Name): Methanol Chief Chemist: _________________________
Mfg. Svc. Supt._________________________
Grade of Material: BP CHEMICALS Mgr. of Mfg. _________________________
AMERICAS Mfg. Supt. _________________________
TSD Supt. _________________________
Chemical Name: METHYL ALCOHOL Commercial _________________________
Marketing _________________________
Chemical Formula: CH3CH
Issue Date: __________________________
Supersedes Spec Issued: __________________________
Review Date: __________________________
SPECIFICATIONS
<TABLE>
<CAPTION>
TEXAS CITY
PROPERTY SPECIFICATION METHOD NO.
- - -------- ------------- ----------
<S> <C> <C>
Acetone, W/V % 0.003 MAX 602.390
Acidity (as acetic acid) Wt% 0.003 MAX 602.391
Appearance Clear and free of
suspended matter 602.393
Carbonizable substances, Pt-Co 35 MAX TCOA-192
Color, Pt-Co 5 MAX 602.009
Distillation Range, #C @760 mm (1#C including 64.6#C + .1#C) 602.396
Hydrocarbon No turbidity with water 602.397
Iron (as soluble Fe), ppmn 0.15 MAX TCOA-47
Non-Volatile Matter, W/V % 0.001 MAX 602.399
Permanganate Time, min at 15.5#C 50 MIN 602.401
Methanol Content, Wt. % (1) 99.85 MIN
Alkalinity (as NH3), Wt% 0.003 MAX 602.392
Water, Wt % 0.10 MAX TCOA-174
Ethanol, ______ 50 MAX 602.395
Specific Gravity @25/25 #C 0.7883-0.7893 602.404
Specific Gravity @20/20 #C 0.7920-0.7930 602.406
Chloride, _______ 1 MAX 602.406
</TABLE>
(1) Defined as 100 - (% acetone + NVM + acidity + alkalinity + water +
ethanol)
3
<PAGE> 88
EXHIBIT D
Acetic Acid Specifications
-4-
<PAGE> 89
STERLING CHEMICALS, INC. Dept. No. ______________________
Material Code: ______________________
TEXAS CITY, TEXAS Sales Code: ______________________
RAW MATERIALS SPECIFICATION
Approval Date
______________________
Product (Trade Name): Acetic Acid Chief Chemist: ______________________
Mfg. Svc. Supt. ______________________
Grade of Material: MANUFACTURING Mgr. of Mfg. ______________________
Mfg. Supt. ______________________
TSD Supt. ______________________
Chemical Name: ETHANOIC ACID Commercial ______________________
Marketing ______________________
Chemical Formula: ________
Issue Date: __________________________
Supersedes Spec Issued: __________________________
Review Date: __________________________
SPECIFICATIONS
<TABLE>
<CAPTION>
PROPERTY SPECIFICATION METHOD NO.
- - -------- ------------- ----------
<S> <C> <C> <C>
Appearance C&F TCOA174 602.509
Assay, Wt. % 99.85 MIN D1493, E302 602.500
Color, PtCo Color 10 MAX D1209, E302 602.009
Water, Wt. % 0.15 MAX E203, E302 602.551
Formic Acid, Wt. % 0.05 MAX E3546 602.506
Acetaldehyde, Wt. % 0.05 MAX D2191 602.507
Iron, ppm 1.0 MAX E394 602.512
Permanganate Time, Hour 2 MIN (3) 602.501
Freezing Point, #C 16.35 MIN D1493, F302 602.509
Total Halides, ppm 1.0 MAX (3) -------
T ' Mel, ppb 20 MAX (1) TOQA171 is 602.516
instrumental method
using Technicon 602.517
Chloride, ppm 1.0 MAX (3) D512 602.502
Propionic Acid, ppm 250 MAX (2) 602.515
Methyl Acetate, ppm 20 MAX 602.520
Heavy Metal, as pb ppm 0.5 MAX (3) 602.504
Arsenic, ppm 0.2 MAX (3) 602.514
Sulfur, ppm 1.0 MAX (3) D3961 602.528
Sulfates, ppm 1.0 MAX (3) D516 602.503
Sulfurous, ppm 1.0 MAX (3) 602.506
Distillation Range #C 0.8#C MAX (3) 602.511
Initial Boiling Point, #C 117.5 MIN (3) 602.511
Dry Point, #C 118.3 MAX (3) 602.511
Specific Gravity (20#C/20#C) 1.0505 - 1.0520 (3) 602.510
NVM, ppm 10 MAX (3) 602.513
</TABLE>
(1) = Yearly Average - 10 ppb, (2) = Yearly Average - 200 ppm,
(3) = Guaranteed Analyses - Checked Periodically
-5-
<PAGE> 90
EXHIBIT E
Legal Description of the Land of the Unit
Incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 33-24020).
-6-
<PAGE> 91
EXHIBIT F
Variable Cost Component Formula
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
-7-
<PAGE> 92
ADDENDUM TO EXHIBIT F
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
-8-
<PAGE> 93
EXHIBIT G
Insurance
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
-9-
<PAGE> 94
EXHIBIT H
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
-10-
<PAGE> 95
EXHIBIT I
*** CONFIDENTIAL TREATMENT REQUESTED FOR THIS INFORMATION ***
-11-
<PAGE> 1
EXHIBIT 10.22a to 10-K
**OMITTED INFORMATION DENOTED BY
ASTERISKS (***) HAS BEEN
FILED SEPARATELY WITH THE
COMMISSION AND IS THE
SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST.**
AMENDMENT NO. 3
TO PRODUCT SALES AGREEMENT
This Amendment No. 3 to Product Sales Agreement ("Amendment No. 3") is entered
into on January 1, 1993, by and between BASF Corporation, a Delaware
corporation with offices at 100 Cherry Hill Road, Parsippany, New Jersey, 07054
("BASF") and Sterling Chemicals, Inc., a Delaware corporation with offices
located at 1200 Smith Street, Suite 1900, Houston, Texas 77002 ("SC").
W I T N E S S E T H:
WHEREAS, BASF and SC are parties to that certain Product Sales Agreement dated
August 1, 1986 (the "Product Sales Agreement");
WHEREAS, BASF and SC desire to amend the Product Sales Agreement as set forth
herein, such amendments to be effective as of the respective effective dates
specified herein for each such amendment;
WHEREAS, Section 8.6 of the Product Sales Agreement provides, among other
things, that amendments to the Product Sales Agreement must be in writing and
signed by BASF and SC in order to be effective; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, BASF and SC agree as set forth below.
1. Definitions. Capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms pursuant to the terms of the Product Sales
Agreement.
2. Article I, Number 9 - Restatement. Effective as of January 1, 1993, Article
I, Number 9 of the Product Sales Agreement is hereby amended and restated in
its entirety as set forth below:
"9. Capital Expenditures: Any expenditures with respect to the
Unit which SC makes to replace capital equipment that has served its
useful life or to install capital equipment and such expenditure is
required and necessary to be made to permit SC to comply with its
obligations under this Agreement."
3. Article I, Number 23 - Amendment and Restatement. Effective as of January 1,
1993 Article I, Number 23 of the Product Sales Agreement is hereby amended and
restated in its entirety as set forth below:
"23. Initial Term. The period from the Effective Date to 5:00
p.m. Houston, Texas time on December 31, 1999."
4. Article I, Number 39(a) - Restatement. Effective as of January 1, 1993,
Article I, Number 39(a) of the Product Sales Agreement is hereby amended and
restated in its entirety as set forth below:
"39(a) - Return Capital shall mean any expenditure with respect
to the Unit other than Capital Expenditures which SC made to improve,
enhance or expand the Unit which produces some measurable benefit [to
both parties hereunder]. Such benefit
<PAGE> 2
may include, but is not limited to, yield increases, capacity increase or
reduced costs."
5. Section 3.5 - Amendment and Restatement. Effective as of January 1, 1993,
Section 3.5 is amended and restated in its entirety as set forth below:
"3.5 Purchase Price and Payment.
(a) The purchase price for all Agreement Product delivered to
BASF hereunder during each Month during each Contract Year shall be
the sum of the following:
(i) The Fixed Cost Fee for such Month as described in
Exhibit B.
(ii) The Variable Cost Fee for such Month, as described
in Exhibit C.
(iii) The Insurance Cost Fee for such Month as
described in Section 4.7 and Exhibit E.
(iv) The Capital Expenditures and Return Capital for
such Month as defined in Section 4.8.
(v) The Incinerator Fee (if any) for such Month as
defined in Section 3.5(e).
(b) SC shall during each Month render to BASF an invoice
showing the quantity of Agreement Product delivered during the
preceding calendar Month, and the Variable Cost Fee, to be reimbursed
to SC by BASF pursuant to the terms hereof, and all other fees,
payments or reimbursements due to SC from BASF pursuant to the terms
hereof for the preceding calendar Month and credits due BASF for
excessive Raw Material or Ancillary Raw Material usage as provided in
Section 4.12 within 30 Days after each semi-annual period and the total
amount due and an invoice showing the Fixed Cost Fee, Insurance Cost
Fee, Capital Expenditures and Return Capital for which payment is due.
BASF shall pay each such invoice on or before * * * * after
receipt thereof (or if such Day is not a Business Day, then on the
Business day next occurring).
(c) SC and BASF shall cooperate in investigating, evaluating,
and implementing mutually agreeable methods to reduce the Variable Cost
and the Fixed Cost. The parties will benefit from such reductions in
proportion to their respective contribution. The pro rata adjustments
will be negotiated in good faith on a case by case basis.
(d) on or before March 31 of each Contract Year, commencing
March 31, 1994, * * * *
<PAGE> 3
* * * * * *
(e) on or before the fifteenth of each Month, BASF shall pay to
SC an Incinerator Fee calculated according to the following formula:
*****
However, no days within any month shall be used in calculating
***** is produced at the Unit. Notwithstanding the aforementioned. *****
(f) Notwithstanding anything to the contrary contained herein,
BASF may, if it shall so desire, in good faith contest the validity or
amount of any fee, cost or other imposition and may defer the payment
of any contested portion thereof during the pendency of such contest
without defaulting under the Agreement. BASF shall give notice to SC of
any deferral within a reasonable time. Should it be determined that any
part of such contested portion is due and owing to SC, BASF shall pay
such part to SC immediately upon such determination, * * * * * * .
Payment of any fee, cost or other imposition shall not prejudice the
right of BASF to dispute or question the correctness thereof."
6. Section 3.6 (d) and (e) - Restatement. Effective as of April 27, 1988,
Sections 3.6 (d) and (e) of the Product Sales Agreement are hereby restated in
its entirety as set forth below:
" (d) SC shall make available to BASF pursuant to a "Car
Service Contract" substantially in the same form as Appendix 1,
attached hereto and hereby made a part hereof, those Rail Cars
identified in EXHIBIT L hereof as "Owned Railcars", except for those
Owned Railcars which BASF does not want made available to it, all of
which are identified in Appendix 2, attached hereto and hereby made a
part hereof.
(e) At such time as may be requested in writing by BASF to SC,
SC agrees, with the prior written consent or consents of the respective
Rail Car owners, (i) to assign to BASF all of the leases relating to
those Rail Cars identified in EXHIBIT L as "Leased Rail Cars", except
for those Leased Rail Cars which BASF does not want assigned to it, all
of which are identified in Appendix 3, attached hereto and
<PAGE> 4
hereby made a part hereof, and to request permission from the
respective owners of said Leased Rail Cars by means of a letter or
letters substantially in the form set forth in Appendix 4, attached
hereto and hereby made a part hereof."
7. Section 4.8 - Amendment and Restatement. Effective as of January 1, 1993,
Section 4.8 of the Product Sales Agreement is hereby amended and restated in
its entirety as set forth below:
"4.8 Capital Expenditures and Return Capital
(a) * * * * * *
(b) * * * * * *
(c) * * * * * *
(i) * * * * * *
<PAGE> 5
* * * * * *
(d) * * * * * *
(e) * * * * * *
(f) * * * * * *
8. Section 7.2 - Amendment and Restatement. Effective as of the date of this
Amendment No. 3, Section 7.2 of the Product Sales Agreement is hereby amended
and restated in its entirety as follows:
"7.2 Term. The term of this agreement shall be the Initial Term unless
earlier terminated as provided herein. However, this Agreement shall be
automatically renewed for a period of six (6) years (the "Additional Term") at
the end of the Initial Term unless either party has delivered a Notice of
Termination to the other on or prior to December 31, 1997."
9. Article VII - Amendment. Effective as of January 1, 1993 Article VII is
amended to include new Section 7.15 stated in its entirety as set forth below:
"7.15 Technical Advice
<PAGE> 6
(a) BASF or its representatives shall advise SC regarding
technical questions arising in connection with the operation of SC's
phthalic anhydride plant in Texas City (the "PA Plant"), and shall be
of assistance to SC in the event of disturbances of the PA plant.
(b) The advice to be given by BASF pursuant to Section 7.15(a)
hereof shall embrace BASF's technical knowledge and experience, to the
extent that they are suitable for the operation of the PA Plant.
However, BASF shall not be obliged to provide SC with technical
knowledge and experience acquired by BASF during the term of the
Agreement and which BASF, in its reasonable judgment, considers to be a
considerable improvement and/or in respect of which BASF has filed a
patent application. Notwithstanding anything to the contrary contained
in this Section 7.15, BASF shall be under no obligation to provide
technical advice which would require in-house work by BASF or its
representatives, including, but not limited to, laboratory or pilot
plant tests, unless BASF and SC agree on a mutually acceptable fee for
such services.
(c) All technical advice provided to SC shall be in writing.
Furthermore, BASF shall be available to discuss important technical
questions at a meeting between technical experts of BASF and SC, either
in Ludwigshafen or in Texas City, by mutual agreement and at suitable
intervals. In the event that BASF or its representatives' personnel
are, by mutual agreement, assigned to SC, the reasonable travel and
living expenses shall be borne by SC pursuant to Section 7.15(g)
hereof. Assignments of BASF or its representatives shall not exceed 25
man-days in any contract year.
(d) In the event that BASF develops and commercially
manufactures new PA catalysts which can be used without the addition of
SO2, BASF shall offer such catalysts to SC for evaluation and use in
SC's PA Plant on terms and conditions to be agreed upon.
(e) BASF shall render the services to be rendered hereunder in
the best interest of SC and shall apply the same care in rendering such
services as it is accustomed to apply in its own affairs. In the event
that BASF fails to fulfill its obligation with such care, it shall be
obligated to render the service concerned again free of charge. The
foregoing obligation to render the service again shall be SC's
exclusive remedy for BASF's breach of its obligation under this Section
7.15 and BASF shall incur no further liability whatsoever related to
such matters.
(f) In the event that engineering services of BASF are required
in connection with SC's replacing obsolete equipment by more advanced
equipment, BASF shall, at its sole option, provide such engineering
services and SC shall pay for each engineering hour a certain amount
agreed upon in a separate agreement relating to engineering services of
BASF if BASF and SC cannot agree upon a lump-sum price for such
services, in either case to be invoiced as Capital Expenditures.
(g) For any technical expert to be assigned by BASF to SC, SC
shall pay to BASF daily rates of DM 1, 195. - based upon collective
agreements in the German Chemical Industry as in force for BASF
Aktiengesellschaft on July 1, 1992. In the case of any amendments or
changes of such collective agreement, the daily rates shall be adjusted
proportionately from the effective date of such amendments or changes.
Upon request, BASF shall provide a list of such rates to SC, together
with written verification that such rates are currently in effect.
<PAGE> 7
SC shall further pay all reasonable travel and living expenses
of such personnel actually incurred during their absence from
Ludwigshafen.
(h) In accordance with Section 7.5 of this Agreement, each
party undertakes to keep strictly secret and to withhold from third
parties all technical information and know-how and all plans, drawings
and other data furnished or disclosed by the other party under the
Agreement (hereinafter referred to as "Technical Information"), except
(i) such Technical Information as can be shown to have been of public
knowledge prior to its disclosure to a third party or to the extent
known to the other party prior to the furnishing or disclosure thereof
to the disclosing party, to the extent that and for as long as such
Technical Information shall not have become public knowledge or shall
not have been disclosed from other sources having the bona fide right
to make such disclosure, (ii) such Technical Information as may be
required to be disclosed by law or legal process, or is developed by
the receiving party independent of, and without reference to, the
Technical Information.
Each party undertakes, as far as is legally possible, to
require its representatives or employees with access to said Technical
Information to keep said Technical Information secret and confidential,
both during and after the period of their employment by either party,
to the same extent that and for so long as said party shall be
obligated to do. The foregoing secrecy obligation shall terminate ten
(10) years after disclosure of such Technical Information.
(i) In addition, when operational needs arise, BASF shall
advise SC on technical questions arising in connection with the
operation of SC's OXO alcohol and Phthalate Esters plants in Texas
city only to the extent that BASF shall have access to such plants and
related information on a non-confidential basis. Timing of this advice
can be pursued only after existing secrecy agreements are no longer
binding.
(j) There shall be no fee to SC for any such technical advice,
assistance or information. "
10. Section 8.3 - Amendment and Restatement. Effective as of the date of this
Amendment No. 3, Section 8.3 of the Product Sales Agreement is hereby amended
and restated in its entirety as follows:
"8.3 Notices. Any notice provided for by this Agreement and any others'
demand or communication which any party may wish to send to another shall be in
writing and either delivered in person or sent by registered or certified
United States mail, return receipt requested in a properly sealed envelope, and
addressed to the party for which such notice, demand or communication is
intended at such party's address as set forth below:
SC:
STERLING CHEMICALS, INC.
1200 Smith Street
Suite 1900
Houston Texas 77002
Attention: V.P. - Commercial
Copy to: Mr. John L. Bland
Bracewell & Patterson
2900 South Tower Pennzoil Place
<PAGE> 8
Houston, Texas 77002
BASF:
Group Vice President
Industrial Organics
BASF CORPORATION
100 Cherry Hill Road
Parsippany, New Jersey 07054
Copy to: General Counsel
BASF CORPORATION
100 Cherry Hill Road
Parsippany, New Jersey 107054
Any address or name specified above may be changed by a notice given by
the addressee to the other parties in accordance with this Section 8.3.
Any notice, demand or other communication shall be deemed given and
effective as of the date of delivery in person or upon receipt as set
forth on the return receipt. The inability to deliver because of
changed address of which no notice was given, or the rejection or other
refusal to accept any notice, demand or other communication, shall be
deemed to be the receipt of the notice, demand or other communication
as of the date of such inability to deliver or the rejection or refusal
to accept "
11. Exhibit B - Amendment and Restatement. Effective as of January 1, 1993,
Exhibit B is hereby amended and restated in its entirety as follows:
EXHIBIT B
Fixed Cost Fee and Adjustment Calculation
* * * * * *
* * * * * *
<PAGE> 9
<TABLE>
<S> <C>
* * * *
</TABLE>
* * * *
12. Exhibit C - Amendment and Restatement.
Effective as of January 1, 1988, Exhibit C is hereby amended and restated in
its entirety as follows:
"EXHIBIT C
Variable Cost Fee Adjustment Calculation
* * * *
<PAGE> 10
* * * * * *
TABLE 1
* * * * * *
TABLE 2
* * * * * *
<PAGE> 11
* * * * * *
TABLE 3
* * * * * *
TABLE 4
* * * * * *
<PAGE> 12
* * * * * *
TABLE 5
* * * * * *
<PAGE> 13
* * * *
TABLE 6
* * * *
TABLE 7
* * * *
<PAGE> 14
TABLE 8
* * * * * *
TABLE 9
* * * * * *
<PAGE> 15
12. Exhibit D - Amendment. Effective as of January 1, 1993, Exhibit D is
hereby amended as follows:
Sections 1.b.3. and 1.b.4. are deleted and replaced with "1.b.3. Insurance Cost
Fee".
13. Exhibit F - Amendment. Effective as of the Effective Date, Exhibit F is
hereby amended and restated in its entirety as follows:
"EXHIBIT F
* * * * * *
<PAGE> 16
* * * * * *
14. Miscellaneous.
14.1 The Amendment No. 3 supersedes and replaces all prior amendments to the
Product Sales Agreement. Except as specifically amended by this Amendment No.
3, the terms and provisions of the Product Sales Agreement shall remain
unchanged and in full force and effect.
14.2 The section headings contained in the Amendment No. 3 are for reference
only and shall not affect the interpretation of the terms and provisions of
this Amendment No. 3.
14.3 This Amendment No. 3 contains the entire agreement of BASF and SC with
respect to the matters addressed herein and supersedes and replaces any prior
oral or written understandings between the parties with respect to such
matters.
14.4 This Amendment No. 3 may be executed in any number of counterparts, each
of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
14.5 Notwithstanding anything to the contrary contained herein, this Amendment
No.3 shall have no force or effect and neither party shall have any liability
to the other contractual or otherwise unless and until all of the following
enumerated conditions are fulfilled,
(a) A definitive agreement for the purchase of alpha-olefins for supply of Raw
Materials to the Unit is negotiated with Ethyl Corporation (the "Definitive
Agreement");
(b) The Definitive Agreement is approved by the
management of BASF; and
(c) The execution and delivery of the Definitive Agreement.
Duly executed as of the date first appearing above.
STERLING CHEMICALS, INC.
<PAGE> 17
(SC)
By: J. Virgil Waggoner
Title: President & CEO
BASF CORPORATION
(BASF)
By: Gilbert J. Muller
Title: Business Director
APPENDIX 1
CAR SERVICE CONTRACT
THIS AGREEMENT, made and entered into as of the of of , 1993 by and
between Sterling Chemicals, Inc., a Delaware corporation, ("SCI") and BASF
Corporation, a Delaware corporation, ("BASF").
1. Definitions
(a) "ARR Rules": The rules adopted by the Association of American Railroads
governing the condition of and repairs to railroad cars for the interchange of
freight traffic, as currently in effect and as subsequently amended.
(b) "car" or "cars": the car or cars described as Owned Rail Cars in Exhibit L
of the Restated Product Sales Agreement, except for the cars listed on Schedule
1, attached hereto and hereby made a part hereof.
(c) "claims": any and all liability, charge, cost, loss, damage, expense or
demand (including for personal injury or death), including reasonable
attorney's fees and court costs respecting the prosecution or defense thereof.
(d) "cleaned of commodities": cleaned of all commodities and accumulations and
deposits caused by commodities to the effect that there is no measurable amount
of such commodities, accumulations and deposits remaining in the oar and the
car is safe for human entry.
(e) "private tracts or premises": tracks or premises having other than railroad
ownership, except that tracks or premises belonging to a railroad and leased to
others than railroads shall be considered private tracks or premises .
(f) "unavoidable delay": any SCI delay due to strike lockout, act of God,
inability to obtain labor or materials, act or failure to act of BASF,
governmental action or restriction, enemy action, civil commotion, fire,
casualty, or any other cause beyond the control of SCI whether or not of the
class of causes heretofore enumerated.
2. Description of Cars-Service Charges.
SCI shall furnish to BASF and BASF shall accept and use, on the terms and
conditions hereinafter set forth, the car or cars for use of each of which BASF
shall pay SCI the service charges of one (1) dollar per car per year. Service
charges with respect to each car shall commence upon delivery of each car to
BASF and shall continue in effect, subject to Article 6 hereof, until each such
car is returned to SCI in accordance with Article 5 hereof. Service charges
shall accrue annually, in advance, upon the first day of each year, and BASF
shall be invoiced annually. Payments of all charges payable by BASF to SCI
under this Agreement shall
<PAGE> 18
be made, without deduction, to SCI at the address shown on the invoice within
fifteen days following the date of invoice. Payments not made within thirty
(30) days of invoice may, at SCI's option, bear interest at the rate of 1% over
the prime rate of interest quoted by Citibank N.A. per month on the unpaid
balance (or such lesser interest rate as may be consistent with the law of the
state of BASF's domicile until the balance is paid.
3. Delivery/Acceptance of Cars.
As of the date hereof, each car has been delivered to and accepted by BASF.
4. Inspection of Cars/Responsibility for Damage.
(a) Cars loaded at sites other than SCI plants. BASF is responsible for having
each car visually inspected prior to each loading to determine whether such car
is suitable for receiving, transporting and discharging the commodity to be
loaded therein. BASF shall indemnify and hold SCI harmless from all claims
resulting from conditions which have or should have been determined from such
inspection except for latent defects. BASF shall be responsible for any loss of
or damage (including corrosion damage) to any commodity, or to any other car or
part thereof caused by the commodity contained therein or incurred in the
process of loading or unloading such commodity, or caused by the chemical
environment in which the car is loaded, unloaded or stored, and BASF shall
indemnify SCI from all claims resulting therefrom, unless such claims result
directly from the negligent act or omission of SCI.
(b) Cars loaded at SCI plants. SCI is responsible for having each car visually
inspected prior to each loading to determine whether such car is suitable for
receiving, transporting and discharging the commodity to be loaded therein.
SCI shall indemnify and hold BASF harmless from all claims resulting from
conditions which have or should have been determined from such inspection
except for latent defects. SCI shall be responsible for any loss or damage
(including corrosion damage) to any commodity, or to any car or part thereof
caused by the commodity contained therein or incurred in the process of loading
or unloading such commodity, or caused by the chemical environment in which the
car is loaded, unloaded or stored, and SCI shall indemnify BASF from all claims
resulting therefrom, unless such claims result directly from the negligent act
or omission of BASF.
(c) As between BASF and SCI, BASF shall be responsible for any and all risk of
loss of damage to, or destruction of any car, or part thereof, occurring while
such car is located upon private tracks or premises other than SCI's.
5. Return of Cars.
Promptly upon the expiration or termination of this Agreement with respect to
any car, BASF shall return such car to SCI in the same condition complete with
all parts, equipment and accessories as when initially delivered to BASF,
ordinary were and tear excepted, and cleaned of commodities; but nothing herein
shall be construed as relieving SCI from its obligation to maintain the cars as
provided in Article 6 of this Agreement. Each car shall be deemed returned to
SCI hereunder when BASF shall release such car to a forwarding railroad within
the boundaries of the United States (excluding Alaska and Hawaii) in accordance
with instructions furnished to BASF by SCI either at the final unloading point
or at such other point mutually agreed upon between SCI and BASF. BASF shall
give SCI a minimum of thirty (30) days' advance notice, confirmed promptly in
writing, of the return date of each car, including advice of the last contents
of each such car. SCI shall give
<PAGE> 19
BASF disposition instruction for each such car prior to the later of (a) the
return date specified in BASF's notice, or (b) thirty (30) days following
receipt by SCI of BASF's notice. Notwithstanding the foregoing, BASF shall
immediately pay service charges per month equal to 1.5 times each car's average
monthly mileage earnings for the previous twelve (12) month period for any car
not returned to SCI within thirty (30) days pursuant to the terms hereof or for
any returned car if BASF has not caused the car to be cleaned of commodities,
unless mutually agreed to the contrary.
6. Maintenance/Modifications.
(a) SCI shall have each car maintained in accordance with the ARR Rules and the
rules and regulations of the U.S. Department of Transportation and of any
other federal authorities having jurisdiction over tank car design, provided
(except for normal running repairs performed by railroads) SCI has been advised
or has actual knowledge of the need for necessary maintenance and subject to
unavoidable delay. No maintenance, alterations or repairs to any car shall be
made or authorized by BASF without SCI's prior written consent. Any
maintenance, alteration, repair or replacement to any car or part thereof made
by SCI shall be done to standards and with parts that are like kind and at
least equal quality to items being repaired or replaced. If BASF has or obtains
information indicating that any car requires maintenance, BASF shall promptly
notify SCI. Upon request by SCI, BASF shall make any car needing maintenance
available at a car repair location designated by SCI cleaned of commodities. If
any car is in need of maintenance, modification or alteration determined by SCI
to be uneconomical to perform or if any car is determined by a railroad to have
been destroyed, SCI has the option to terminate this Agreement with respect to
such car effective upon notification by SCI to BASF or to substitute another
car meeting BASF's original specifications of approximately the same age, type
and capacity under this Agreement within a period of time not to exceed sixty
(60) days. SCI shall have the right to inspect and repair any car at anytime,
but shall do so in a manner reasonably calculated to minimize disruption to
BASF's transportation services.
(b) If a physical alteration or modification to any car is required by the AAR
or any government, agency, group or committee exercising authority over tank
car design or operation, SCI may, at its option, perform such alterations or
modifications and BASF shall pay SCI an amount equal to 50% of the cost of the
modification or alteration, provided that, BASF shall not be obligated to share
in the cost of any modification or alteration where the cost of the
modification or alteration exceeds the then fair market value of the car. In
the event BASF elects to not so participate, BASF shall surrender such car to
SCI and such car shall be released from this Agreement as of the date of such
surrender. Such change will be effective upon date of acceptance by a railroad
of instructions to forward such car to BASF after such change has been
completed. Should SCI elect to make the alterations or modifications as
aforesaid, BASF shall, upon notice from SCI make the car available at a car
repair location designated by SCI cleaned of commodities.
7. Lining.
BASF shall pay the cost of the interior lining of any car and shall maintain
and renew all car linings (both new and currently existing) whenever necessary
during the term of this Agreement, including when necessitated by repair to
other portions of the car.
<PAGE> 20
8. Reports, Mileage and Charges. Payment of Expenses.
(a) BASF shall furnish SCI promptly with complete reports of the movements of
each of the cars, including dates loaded and shipped, commodity, destination,
and full junction routing, SCI shall use its best efforts to collect mileage
earnings as paid by the railroads for car movements during the term hereof. For
purposes of mileage accounting all cars under all Car Service Contracts between
SCI and BASF are to be combined into a single account for the term of this
Agreement.
(b) Such total mileage earnings each year will be credited against the total
lining costs documented in 7. above and the ad valorem taxes described in 10.
below, insurance and other costs of ownership and operation of the cars. Any
excess of mileage earnings thus determined will then be used to offset the
total maintenance in 6.(a) and 6.(b) above. If there is an excess of
maintenance costs, ad valorem taxes, insurance and other costs of ownership and
operation of the cars, over mileage earnings, then SCI will invoice BASF for
such excess, providing an appropriate accounting. If there is an excess of
mileage earnings over lining and maintenance costs, ad valorem taxes, insurance
and other costs of ownership and operation of the cars, SCI shall retain such
excess for its own account.
(c) If the operation of any car during the term of this Agreement would result
in charges being made against SCI by any railroad with respect to such car in
accordance with the then prevailing tariffs or other applicable rules and
regulations to which such railroad is a party, BASF shall pay SCI for such
charges within the period specified by such tariffs, rules or regulations; and
BASF shall use the cars upon each railroad over which the cars move in
accordance with such railroad is a party.
9. Lettering of Cars.
BASF shall place no lettering or marking of any kind upon the cars without
SCI's prior written consent; except that for the purpose of evidencing the
operation of the cars in BASF's service hereunder or for purposes of indicating
the nature of the material carried in the cars, BASF shall be permitted to
board, placard or stencil the cars as required or permitted by the AAR Rules or
the rules or regulations of any federal authority having authority over the
lettering of tank cars with letters no greater than two inches high (unless
otherwise required by said authorities). Any lettering or marking done by BASF
must be removed from the cars at BASF's expense upon termination of this
Agreement.
10. Taxes.
SCI is responsible for payment of all ad valorem property taxes levied upon the
cars and for filing all necessary returns and reports for such taxes. BASF
shall pay, or cause to be paid, or shall reimburse SCI for all other taxes,
including but not limited to, sales, use, rental, gross income, and excise
taxes (except net income taxes) as may be levied or assessed against SCI or
BASF in connection with this Agreement, or arising out of any sale, lease,
rental, use, operation, ownership, payment, shipment, or delivery of any cars.
11. Indemnification.
BASF shall indemnify and save harmless SCI from and against all claims made
against SCI or which SCI may incur arising out of BASF's failure to comply with
the terms and conditions of this Agreement, unless and to the extent such claim
results from SCI negligent act or omission, or is a claim for which a
railroad(s) is responsible and has satisfied such responsibility. All
indemnities contained in this Agreement shall survive the termination of this
Agreement, howsoever the same shall occur.
<PAGE> 21
12. Assignment/Subcontracting/Liens.
The cars shall be used exclusively in the service of BASF, and BASF shall not
furnish, assign or subcontract any car, or make any transfer or assignment of
this Agreement, without SCI's prior written consent, except that BASF may
furnish any car for single trips to its customers or to its suppliers in
accordance with the provisions of demurrage tariffs lawfully in effect, and
provided that BASF shall remain liable to SCI for the fulfillment of all
obligations under this Agreement. This Agreement and the rights of BASF herein
shall not be assignable or transferable by operation of law; and no title,
leasehold, or property interest of any kind shall vest in BASF, or in BASF's
successors or assigns, by reason of this Agreement, or by reason of the
delivery of the cars to, or the use of the cars by, BASF its successors or
assigns. Subject to the foregoing limitations on assignment and subcontracting,
this Agreement is binding upon and shall inure to the benefit of the parties
hereto and their successors and assigns. BASF shall not permit any encumbrance
or lien arising out of acts or claims against BASF to be entered, levied, or to
exist upon any car; and BASF shall have any such encumbrance or lien removed
immediately after becoming aware of the existence thereof or upon written
notice thereof from SCI.
13. Remedies.
If BASF shall fail to perform any of its obligations under this Agreement, SCI
may
(a) with ten (10) days prior written notice terminate this Agreement with
respect to any or all of the cars covered hereunder and thereafter take
possession of any or all of such cars; or
(b) upon ten (10) days prior written notice to BASF, change the term of this
Agreement to a month-to-month term, subject to termination thereafter upon ten
(10) days prior written notice from either party to the other; or
(c) permit BASF to retain possession of any or all cars under this Agreement as
the same may continue in force provided BASF shall, within five (5) days after
written notice from SCI cure any and all defaults under this Agreement, and
shall also, within said five (5) day period, provide to SCI adequate assurances
(including collateral security) of future full performance of this Agreement,
so that all amounts due hereunder shall promptly be paid by BASF to SCI when
they shall become due, and that all covenants hereunder to be performed by BASF
shall be promptly performed by it in the manner provided herein. BASF shall be
liable to SCI for all charges hereunder and no termination nor modification of
this Agreement shall affect or modify any rights, claims, or obligations
hereunder which shall have accrued prior to such termination or modification,
except as otherwise specifically provided by such termination or modification.
Upon termination by SCI of this Agreement as permitted by this Article 13, BASF
shall thereupon, without further act or deed by SCI be completely divested of
any and all of BASF's rights and interests, if any, under this Agreement, and
in and to any and all cars covered hereby. SCI shall thereupon be entitled to
the immediate return of any and all such cars, cleaned of commodities, all at
BASF's expense.
In the event bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceeding is instituted by or against BASF, under
the United States Bankruptcy Code or other law of the United States or any
State, then, unless BASF, as debtor or debtor-in possession in any such
bankruptcy or other proceeding or any Trustee acting therein, shall comply with
the provisions of
<PAGE> 22
Section 365 of the United States Bankruptcy Code (as now existing or hereafter
amended), SCI shall be entitled to the immediate return of all cars covered
hereby cleaned of commodities, by summary proceedings, or otherwise, with no
liability by reason thereof. BASF hereby waives any rights now or hereafter
conferred by statute or otherwise to object to or contest any such legal action
or proceeding instituted by SCI to recover possession of the cars. The rights
and remedies herein given to SCI in no way limit its rights and remedies at law
or in equity.
14. Use of Cars.
No cars shall be used to ship products other than Agreement Products (as
defined in the Restated Product Sales Agreement executed as of August 1, 1986,
as amended, between the parties). No car shall be utilized in unit train
service, nor shall the average loaded mileage of all cars under this Agreement
exceed eighteen thousand (18,000) miles during any calendar year during the
term hereof, unless consented to in writing by SCI in advance of such use. The
cars shall be used exclusively within the boundaries of the United States
(excluding Alaska and Hawaii), Canada and Mexico. BASF is responsible for all
taxes and duties and for complying with all governmental requirements arising
out of any of the cars leaving, being outside of, or returning to the
boundaries of the United States; and BASF shall defend and hold harmless SCI
from any claim connected therewith. BASF shall comply with all AAR and
governmental regulations respecting the use and operation of each of the cars
during the term of this Agreement.
15. limitations of Obligations.
SCI's obligations under this Agreement are limited to those expressly set forth
herein. AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY SCI. IN NO EVENT SHALL SCI HAVE ANY
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES.
16. Subordination.
This Agreement and all rights of BASF (and of any persons claiming or who may
hereafter claim under or through BASF) under this Agreement, including any
purchase option or options provided for herein are hereby made subject and
subordinate to any leveraged lease, chattel mortgage, conditional sale or other
financing agreement heretofore or hereafter established with respect to any of
the cars including any equipment trust agreement and to all rights of a trustee
under any such agreement. Any assignment, subcontract, or loan of cars made by
BASF pursuant to Article 12 of this Agreement shall be expressly made subject
to the above subordination. At the request of SCI the cars may be lettered or
marked to identify the legal owner of the cars at no expense to BASF. If during
the continuance of this Agreement, any such marking shall at any time be
removed or become illegible in whole or in part, BASF shall immediately cause
such marking to be restored or replaced at SCI's expense.
17. Miscellaneous.
This Agreement, together with any and all exhibits attached hereto, constitutes
the entire agreement between SCI and BASF. This Agreement may not be amended,
altered, or changed except by written agreement signed by the parties hereto.
No waiver of any provision of this Agreement or consent to any departure by
BASF therefrom shall be effective unless the same shall be in writing signed by
both parties and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. The headings that have
been used herein are solely for convenience and shall not be construed in any
event or manner as interpretive or limiting the interpretation of this
Agreement.
<PAGE> 23
The invalidity of any provision of this Agreement shall not affect the
remainder hereof, which shall in such event be construed as if such invalid
provision had not been inserted.
In the event the AAR Rules conflict with any provision of this Agreement, the
provision of this Agreement shall control.
This Agreement shall be governed by and construed under the laws of the State
of Texas.
18. Term.
Unless otherwise terminated pursuant to this Agreement, this Agreement shall
remain in full force and effect until the expiration of all Riders attached
hereto. BASF's obligations to SCI under this Agreement, however, shall remain
in full force and effect until the time all cars are returned to SCI Pursuant
to Article 5 of this Agreement.
19. Notices.
All notices hereunder shall be in writing and shall be deemed delivered when
mailed, postage prepaid, as follows:
To BASF: BASF Corporation
100 Cherry Hill Road
Parsippany, New Jersey 07054
Attention:
To SCI: Sterling Chemicals, Inc.
1200 Smith Street
Suite 1900
Houston, Texas 77002
Attention:
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the
day and year first above mentioned.
STERLING CHEMICALS, INC.
BY: J. Virgil Waggoner
Title President & CEO
DATE: 3/16/94
BASF CORPORATION
BY: Gilbert J. Muller
TITLE Business Director
DATE: 2/7/94
SCHEDULE 1
OWNED RAIL CARS WHICH ARE NOT COVERED BY THE CAR SERVICE CONTRACT:
CAR NUMBERS:
STEX 26003
STEX 26010
STEX 26013
STEX 26015
STEX 26017
STEX 26018
STEX 26021
APPENDIX 2
<PAGE> 24
OWNED RAIL CARS WHICH BASF DOES NOT WANT MADE AVAILABLE TO IT:
CAR NUMBERS:
STEX 26003
STEX 26010
STEX 26013
STEX 26015
STEX 26017
STEX 26018
STEX 26021
APPENDIX 3
LEASED RAIL CARS WHICH BASF DOES NOT WANT ASSIGNED TO IT:
CAR NUMBERS:
UTLX 76391
UTLX 76394
UTLX 76527
UTLX 76603
UTLX 76634
APPENDIX 4
(Date)
(To be sent to the Lessors of those Rail Cars Leased by Sterling Chemicals,
Inc.)
Re: Assignment of Rail Car Leases by Sterling Chemicals, Inc. to BASF
Corporation
Gentlemen:
This letter confirms our previous advice that Sterling Chemicals, Inc.
("Sterling") and BASF Corporation ("BASF") have entered into an amendment to a
"Product Sales Agreement" which contemplates the use by BASF of those rail cars
under those leases identified in the attachment to this letter.
Accordingly, Sterling and BASF request that your firm consent to the assignment
of said rail car leases under the following terms and conditions:
1. The assignment of said leases shall become effective as of ________, 1993.
2. BASF agrees to observe, keep and perform all of Sterling's duties and
obligations under said lease agreements accruing after the date specified in
numbered paragraph 1, above.
3. Your firm agrees to release Sterling of all duties and obligations under
said lease agreements, effective as of the date specified in numbered paragraph
1, above, except for such of said duties and obligations which have accrued
prior to said date.
Please indicate your consent to the foregoing assignment by executing the
enclosed three originals of this letter, retaining one for your files and
returning one each to the following:
Sterling Chemicals, Inc.
1200 Smith Street,
Suite 1900
<PAGE> 25
Houston, Texas 77002
Attention:
and to
BASF Corporation
100 Cherry Hill Road
Parsippany, New Jersey 07054
Attention: Transportation Department
Very truly yours,
STERLING CHEMICALS, INC.
By: J. Virgil Waggoner
Title: President & CEO
Date: 3/l6/94
BASF CORPORATION
BY: Gilbert J. Muller
Title: Business Director
Date: 2/7/94
The undersigned hereby consents to the assignment by Sterling to BASF of said
lease agreements on the terms and conditions hereinabove set forth.
By:
Title:
Date:
APPENDIX 5
1993 RETURN CAPITAL PROJECTS
<TABLE>
<CAPTION>
project Title Fully Funded 50% Share
<S> <C> <C>
79P Marine Loadings 1 $286,000 $143,000
Incinerator
Isolation Valve 2 $181,000 $90,500
1993 TOTAL $467,000 $233,500
</TABLE>
1 Benefits to be shared through reduction in freight costs.
2 Benefits from reduction of Incinerator operating days to be shared through
the Incinerator Fee.
<PAGE> 1
EXHIBIT 10.30
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") made as of the 27th day of
July, 1994, between Sterling Chemicals, Inc., a Delaware corporation
("Company"), and __________________________________ ("Indemnitee").
WHEREAS, the Company and the Indemnitee desire that the Indemnitee
serve or continue to serve as a director, officer or employee of the Company or
as a director, officer or employee of any Affiliate of the Company or, if
serving at the request of the Company, as a director, officer or employee of
any Other Enterprise; and
WHEREAS, the Company desires and intends hereby to provide
indemnification (including advancement of expenses) against any and all
liabilities asserted against the Indemnitee to the fullest extent permitted by
the D.G.C.L.;
NOW, THEREFORE,
WITNESSETH:
THAT for and in consideration of the premises and the covenants
contained herein, the Company and the Indemnitee do hereby covenant and agree
as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following definitions apply herein:
(a) "Affiliate of the Company" shall mean any
corporation, partnership, joint venture, limited partnership, trust,
association or other business entity directly or indirectly, at any time in the
past, presently or in the future controlling, controlled by or under common
control with the Company and any employee benefit plan or trust existing in the
past, present or future, for the benefit of the Company or any other Affiliate
of the Company.
(b) "Company Change of Control" shall mean any change in
the ownership of a majority of the capital stock of the Company or in the
composition of a majority of the members of the board of directors of the
Company.
(c) "Control" including the correlative terms
"controlling," "controlled by," and "under common control with," shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the
<PAGE> 2
management or policies (whether through ownership of securities or any
partnership or other ownership interest, by contract or otherwise).
(d) "D.G.C.L." shall mean the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Company to provide broader indemnification rights than permitted prior
thereto).
(e) "Final adjudication" shall mean a final judicial
decision from which there is no further right to appeal.
(f) "Fines" shall include, without limitation, any
penalties of any kind, and any excise taxes assessed on the Indemnitee with
respect to any employee benefit plan.
(g) "Other Enterprise" shall mean any corporation,
partnership, joint venture, limited partnership, trust, employee benefit plan,
association, civic, non-profit or charitable organization or other entity or
organization, other than the Company or an Affiliate of the Company.
(h) "Serving at the request of the Company" shall include
any service at the request of the Company as an officer, director or employee
of any Other Enterprise, which request shall be evidenced by (i) a written
agreement with the Company acknowledging that the Indemnitee is entitled to
indemnification with respect to such service, (ii) a written request by the
Company specifically referencing the Indemnitee's rights to indemnification
from the Company, (iii) resolutions duly adopted by the board of directors of
the Company or (iv) a written or verbal request by the board of directors or
the President or any Vice President of the Company.
2. TERMINATION OF PRIOR AGREEMENTS. This Agreement replaces and
supersedes in their entireties any and all prior agreements between the Company
and the Indemnitee, written or oral, with respect to the subject matter hereof
and upon the execution and delivery of this Agreement, all such prior
agreements shall be terminated and shall no longer have any force or effect.
In the event of any conflict between the terms of this Agreement and the terms
of the By-laws of the Company, the terms of this Agreement shall, to the extent
permitted by applicable law, control.
3. INDEMNIFICATION. The Company shall indemnify the Indemnitee
as follows:
-2-
<PAGE> 3
(a) The Company shall, to the fullest extent authorized
by the D.G.C.L., indemnify the Indemnitee if the Indemnitee is or has been made
a party to, is threatened to be made a party to, or otherwise has become or
becomes involved in, any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that
the Indemnitee is or was a director, officer or employee of the Company or any
Affiliate of the Company, or is or was serving at the request of the Company as
a director, officer or employee of any Other Enterprise, whether the basis of
such Proceeding is alleged action in an official capacity as a director,
officer or employee or in any other capacity for the benefit of the Company,
any Affiliate of the Company or any such Other Enterprise while serving as a
director, officer or employee, against expenses (including attorneys' fees),
judgments, liabilities, losses, fines and amounts paid in settlement actually
and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with such Proceeding; provided that:
(i) the Indemnitee has met the applicable standard of
conduct required by the D.G.C.L. in order to be entitled to indemnification
with respect to such Proceeding;
(ii) except as provided in paragraph (d) of Section 4
hereof with respect to Proceedings to enforce rights to indemnification or
advancement of expenses, the Company shall indemnify the Indemnitee in
connection with a Proceeding (or part thereof) initiated by the Indemnitee (or
the Indemnitee's heirs, legal representatives or assigns) against the Company,
any Affiliate of the Company or any such Other Enterprise only if such
Proceeding was authorized by the board of directors of the Company; and
(iii) in the event such Proceeding is brought by or in the
right of the Company to procure a judgment in its favor, unless otherwise
permitted by the D.G.C.L., no indemnification shall be made in respect of any
claim, issue or matter as to which the Indemnitee shall have been adjudged to
be liable to the Company unless and only to the extent that the court in which
such Proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnification for such
expenses and any judgments, liabilities, losses, fines and amounts paid in
settlement which such court shall deem proper.
(b) Any indemnification under paragraph (a) of this
Section 3 (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination in the manner required by
the D.G.C.L. that indemnification of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth
-3-
<PAGE> 4
in clause (i) of paragraph (a) of this Section 3. Such determination shall be
made as required by the D.G.C.L. and, to the extent permitted by the D.G.C.L.,
pursuant to the procedures set forth in Section 4, including, to the extent
permitted by applicable law, if demanded by the Indemnitee pursuant to Section
4, by the Neutral Arbitrator appointed pursuant thereto.
(c) Expenses (including attorneys' fees) incurred by the
Indemnitee in defending a Proceeding shall be paid by the Company in advance of
the final disposition of any Proceeding (an "advancement of expenses") within
30 days after incurrence thereof if the Company has theretofore received a
statement of request for advancement of expenses substantially in the form of
Exhibit A attached hereto ("Undertaking").
(d) The right to indemnification and advancement of
expenses provided by this Agreement shall not be deemed exclusive of any other
rights to which the Indemnitee may be entitled under any statute, bylaw,
insurance policy, agreement, vote of stockholders or disinterested directors,
arbitration award, court order or otherwise, both as to action in the
Indemnitee's capacity as an officer, director or employee and as to action in
another capacity for the benefit of the Company, any Affiliate of the Company
or any Other Enterprise as to which the Indemnitee is or was serving at the
request of the Company while holding such office or position, and shall
continue after the Indemnitee has ceased to be a director, officer or employee
and shall inure to the benefit of the Indemnitee's heirs, executors,
administrators, legal representatives and assigns.
4. DETERMINATION OF RIGHT TO INDEMNIFICATION. The determination
in a specific case required under paragraph (b) of Section 3 hereof shall be
made (unless ordered by a court) in accordance with the following procedure:
(a) At any time after the termination of a Proceeding
with respect to which indemnification is sought by the Indemnitee by judgement,
order, settlement, conviction, upon a plea of nolo contendere or its equivalent
or otherwise, the Indemnitee shall submit to the board of directors of the
Company a statement of request for indemnification substantially in the form of
Exhibit B attached hereto ("Indemnification Statement").
(b) Submission of the Indemnification Statement to the
board of directors of the Company shall create a rebuttable presumption that
the Indemnitee is entitled to indemnification under this Agreement, and, if
arbitration is not demanded in the Indemnification Statement, the board of
directors of the Company, independent legal counsel, the stockholders or such
other person, group or board as may be required under the D.G.C.L., as the case
may be, shall within 120 days after submission of the Indemnification
-4-
<PAGE> 5
Statement specifically determine that the Indemnitee is so entitled, unless it
or they shall possess sufficient evidence to rebut the presumption that the
Indemnitee has met the applicable standard of conduct set forth in clause (i)
of paragraph (a) of Section 3 hereof, which evidence shall be disclosed to the
Indemnitee with particularity in a written statement denying indemnification
("Denial Statement") signed by all persons who participated in the
determination and voted or opined that the Indemnitee is not entitled to
indemnification.
(c) If arbitration is demanded in the Indemnification
Statement, the Company shall, within 90 days after receipt of the
Indemnification Statement (the "Response Period"), deliver written notice
("Company Representative Notice") to the Indemnitee containing the name,
mailing address and telephone number of the Company's designated representative
for purposes of the arbitration. The representatives appointed by the
Indemnitee and the Company, shall, within 30 days after delivery of the Company
Representative Notice, appoint a neutral, independent third party arbitrator
(the "Neutral Arbitrator") who shall, within 120 days of appointment, determine
whether indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
clause (i) of paragraph (a) of Section 3 hereof, taking into account the
rebuttable presumption referred to in paragraph (b) of this Section 4 and the
applicable provisions of paragraph (d) of this Section 4 regarding the burden
of proof and denial of certain presumptions. Should the Company fail to
appoint a representative by a timely delivered Company Representative Notice,
the representative designated by the Indemnitee in the Indemnification
Statement shall, within 20 days after the expiration of the Response Period,
appoint the Neutral Arbitrator. Should a Neutral Arbitrator not be appointed
as required hereby within the time required hereby, then a Judge of the United
States District Court for the Southern District of Texas, Houston Division,
upon application of the Indemnitee or the Company, shall appoint a Neutral
Arbitrator to fill such position with the same force and effect as though such
Neutral Arbitrator had been appointed as hereinabove contemplated.
The arbitration proceeding shall be conducted in the English
language in Houston, Texas, in accordance with the Rules of the American
Arbitration Association. A determination, award or other action shall be
considered a valid action when made by the Neutral Arbitrator. The costs of
arbitration (including the expense of a party in obtaining and presenting
evidence and attending the arbitration, and of the fees and expenses of legal
counsel to such party) shall be borne by the Company if the Indemnitee prevails
in whole or in part in the arbitration, and otherwise shall be borne by the
Indemnitee. If such costs are to be borne by the Indemnitee, the Company shall
not indemnify the Indemnitee for such costs, notwithstanding the
-5-
<PAGE> 6
provisions of Section 3. To the extent permitted by law, the arbitration award
shall be final and conclusive as to whether indemnification of the Indemnitee
is proper in the circumstances because the Indemnitee has met the applicable
standard of conduct set forth in clause (i) of paragraph (a) of Section 3
hereof, and shall receive recognition, and judgment upon such award may be
entered and enforced in any court of competent jurisdiction.
(d) In the event the Company does not make any payment
for indemnification or advancement of expenses to the Indemnitee within 30 days
after the Company's obligation to so indemnify Indemnitee or to make such
advancement of expenses to Indemnitee is established hereunder, or in the event
the Company delivers a Denial Statement to Indemnitee pursuant to paragraph (b)
of Section 4 hereof, the Indemnitee may make a written claim ("Claim") against
the Company for indemnification or advancement of expenses, as the case may be.
If the amount claimed in the Claim is not paid in full by the Company within 60
days after the Claim has been received by the Company, the Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid amount
of the Claim. If successful in whole or in part in any such suit, or in a suit
brought by the Company to recover an advancement of expenses, the Indemnitee
shall be entitled to be paid the expense of prosecuting or defending such suit.
In any arbitration pursuant to paragraph (c) of this Section 4 and in any suit
brought by the Indemnitee to enforce a right to indemnification or to an
advancement of expenses, and in any suit by the Company to recover an
advancement of expenses, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Agreement or otherwise shall be on the Company. No determination by the
Company (including its board of directors, independent legal counsel or
stockholders) that the Indemnitee has not met the applicable standard of
conduct required under the D.G.C.L., and no failure by the Company to make a
determination as to whether the Indemnitee has met such standard of conduct,
shall create any presumption in any such arbitration or suit that the
Indemnitee has not met such standard of conduct. In any suit against the
Company to enforce a right to indemnification under Section 3, the Indemnitee
shall be entitled to indemnification except to the extent that it is ultimately
determined by final adjudication that such indemnification is not permitted
under this Agreement or otherwise. In the event of a suit by the Company to
recover an advancement of expenses, the Indemnitee shall repay amounts so
advanced only to the extent it shall be ultimately determined by a final
adjudication that the Indemnitee is not entitled to be indemnified therefor
under this Agreement or otherwise. Notwithstanding the foregoing, any
determination by the Neutral Arbitrator, if made pursuant to this Section 4,
shall, to the extent permitted by law, be conclusive as to whether
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in clause (i)
of
-6-
<PAGE> 7
paragraph (a) of Section 3 hereof. The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
failed to meet the applicable standard of conduct under the D.G.C.L.
5. MERGER, CONSOLIDATION OR COMPANY CHANGE OF CONTROL. In the
event that the Company shall be a constituent corporation in a consolidation or
merger, whether the Company is the resulting or surviving corporation or is
absorbed, or if there is a Company Change of Control, the Indemnitee shall
stand in the same position under this Agreement with respect to the resulting,
surviving or changed corporation as the Indemnitee would have with respect to
the Company if its separate existence had continued or if there had been no
Company Change of Control.
6. SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected.
7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to its conflict of laws rules. The parties hereby irrevocably consent and
agree that any legal action, suit or proceeding brought against either party
hereto with respect to the obligations or liabilities of either party hereunder
or any other matter under or arising out of or in connection with this
Agreement shall be brought in the United States District Court for the Southern
District of Texas, Houston Division or in the courts of the State of Texas
located in Houston, Harris County, Texas and hereby irrevocably accept and
submit to the exclusive jurisdiction of each of the aforesaid courts in
personam, generally and unconditionally with respect to any such action, suit
or proceeding for themselves and in respect of their properties, assets and
revenues. The parties hereby irrevocably and unconditionally waive any
objection which they, or either of them, may now or hereafter have to the
laying of venue of any of the aforesaid actions, suits or proceedings arising
out of or in connection with this Agreement brought in the United States
District Court for the Southern District of Texas, Houston Division or the
courts of the State of Texas located in Houston, Harris County, Texas.
8. MODIFICATION; SURVIVAL. This Agreement contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
may be modified only by an instrument in writing signed by both parties hereto.
The provisions of this Agreement shall survive the termination of the
Indemnitee's service as a director, officer or employee of the Company or any
Affiliate of the Company or any Other Enterprise as to which the Indemnitee is
-7-
<PAGE> 8
or was serving at the request of the Company. The rights of the Indemnitee
hereunder shall inure to the benefit of the Indemnitee's heirs, executors,
administrators, legal representatives and assigns.
9. DEPOSIT OF FUNDS IN TRUST. In the event that the Company
decides to voluntarily dissolve or to file a voluntary petition for relief
under applicable bankruptcy, moratorium or similar laws, then not later than
ten (10) days prior to such dissolution or filing, the Company shall deposit in
trust for the exclusive benefit of the Indemnitee a cash amount equal to all
amounts previously authorized to be paid to the Indemnitee hereunder, such
amounts to be used to discharge the Company's obligations to the Indemnitee
hereunder. Any amounts in such trust not required for such purpose shall be
returned to the Company. This Section 9 shall not apply to dissolution of the
Company in connection with a transaction as to which Section 5 hereof applies.
10. GENDER. Whenever the context requires, the gender of all
words used herein shall include the masculine, feminine and neuter.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement and the Company has set its seal as of the date first above written.
STERLING CHEMICALS, INC.
Attest: _________________________ By:_________________________________
(Corporate Seal) J. VIRGIL WAGGONER
President & Chief Executive
Officer
INDEMNITEE
____________________________________
-8-
<PAGE> 9
EXHIBIT A
STATEMENT OF UNDERTAKING
I, ______________________, hereby agree as follows:
1. This Statement is submitted pursuant to the Indemnity
Agreement dated ___________________, 19___ (the "Agreement"), between Sterling
Chemicals, Inc., a Delaware corporation ("Company"), and the undersigned, in
connection with that certain action, suit or proceeding described as follows
(the "Proceeding") as to which I have been made or threatened to be made a
party or am otherwise involved by reason of the fact that I am or was a
director, officer or employee of the Company, an Affiliate of the Company (as
defined in the Agreement) or an Other Enterprise (as defined in the Agreement)
as to which I am or was serving at the request of the Company (as defined in
the Agreement) as a director, officer or employee, the basis of the Proceeding
being alleged action in my official capacity as a director, officer or employee
or in another capacity for the benefit of the Company, any Affiliate of the
Company or such Other Enterprise while serving as a director, officer or
employee:
______________________________
______________________________
______________________________
______________________________
2. I am requesting advancement of certain actual expenses of
defense which have reasonably been incurred or will be reasonably incurred by
me or on my behalf in defending the Proceeding.
3. I hereby undertake to repay this advancement of expenses if it
is ultimately determined by judicial decision from which there is no further
right to appeal or by arbitration pursuant to the Agreement that I am not
entitled to be indemnified by the Company.
4. The expenses for which advancement is requested are legal
fees, court costs and other direct expenses related to the Proceeding.
5. The Company may engage legal counsel to represent me in the
Proceeding on my behalf with or without my prior consent. Nevertheless, I
reserve the right to engage separate legal counsel to represent me in the
Proceeding at any time, provided that any obligation of the Company to advance
expenses or indemnify me for the expenses of such separate legal counsel is
expressly conditional upon the Company's prior written approval of the terms
and conditions of the engagement of such separate legal counsel.
<PAGE> 10
6. My agreements and undertakings herein shall be binding upon my
heirs, executors, administrators, legal representatives and assigns.
Dated this ________ day of _______________, 19____.
________________________________
Indemnitee
________________________________
(Print Name)
________________________________
(Title)
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<PAGE> 11
EXHIBIT B
STATEMENT OF REQUEST FOR INDEMNIFICATION
I, ______________________, hereby certify as follows:
1. This Statement is submitted pursuant to the Indemnity
Agreement dated __________________, 19__ (the "Agreement") between Sterling
Chemicals, Inc., a Delaware corporation ("Company"), and the undersigned.
2. I am requesting indemnification against expenses (including
attorneys' fees) and judgments, losses, liabilities, fines and amounts paid in
settlement, all of which have been actually and reasonably incurred by me or on
my behalf in connection with the action, suit or proceeding (the "Proceeding")
described as follows to which I am a party or am threatened to be made a party
or am otherwise involved by reason of the fact that I am or was a director,
officer or employee of the Company or an Affiliate of the Company (as defined
in the Agreement) or of an Other Enterprise (as defined in the Agreement) as to
which I am or was serving at the request of the Company as a director, officer
or employee, the basis of the Proceeding being alleged action in my official
capacity as a director, officer or employee or in another capacity for the
benefit of the Company, any Affiliate of the Company or any such Other
Enterprise while serving as a director, officer or employee:
_____________________________
_____________________________
_____________________________
_____________________________
3. With respect to all matters related to the Proceeding, my
actions met the applicable standards of conduct required under the D.G.C.L. (as
defined in the Agreement) in order for me to be entitled to indemnification
from the Company.
4. I am requesting indemnification against the following
liabilities arising from the Proceeding:
______________________________
______________________________
______________________________
5. I ____ am ____ am not demanding arbitration pursuant to
Section 4 of the Agreement.
<PAGE> 12
6. If I have indicated that I am demanding arbitration in
paragraph 5 above, I hereby appoint the following person as my representative
for such purpose:
Name Address Telephone Number
__________________________ _______________________ ________________
_______________________
7. My agreements and certifications herein shall be binding upon
my heirs, executors, administrators, legal representatives and assigns.
Dated this _____ day of ____________, 19____.
________________________________
Name:__________________________
Title:____________________________
-2-
<PAGE> 1
EXHIBIT 10.48
**OMITTED INFORMATION DENOTED BY
ASTERISKS (***) HAS BEEN
FILED SEPARATELY WITH THE
COMMISSION AND IS THE
SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST**
SALES AND PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of _________, 1994 by and
between Sterling Chemicals, Inc., with offices at 1200 Smith Street, Suite
1900, Houston, Texas 77002 (hereinafter called SCI) and BP Chemicals Ltd., with
offices at Belgrave House, 76 Buckingham Palace Road, London, SW1W OSU
(hereinafter called BP).
WITNESSETH:
WHEREAS SCI has facilities for producing Styrene Monomer from Ethylene and
Benzene at Texas City, Texas (hereinafter called Plant) and is willing to
produce and sell Styrene Monomer to BP.
WHEREAS BP is willing to purchase Styrene from SCI.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:
SECTION 1-DEFINITIONS
For purpose of this Agreement, the following terms shall have the meanings
assigned thereto:
A. "Styrene" shall mean Styrene Monomer having the specifications as set
forth in Exhibit A, attached and made part of this Agreement.
B. "Contract Year" shall mean any such twelve (12) consecutive months
commencing on April 1, 1994 or any anniversary thereof.
C. "Quarter" shall mean three (3) consecutive months starting from any
January, April, July, or October.
D. Delivery shall mean CIF BP's unloading flange at Antwerp or Dunkirk
storage tanks.
SECTION 2-TERM OF AGREEMENT
The term of this Agreement shall commence on April 1, 1994 and end on
December 31, 1996, and shall be extended on a year-to-year basis thereafter
unless terminated by either party giving the other a written notice of at
least twelve (12) months prior to cancellation.
1
<PAGE> 2
SECTION 3-QUANTITY
Quantity of Styrene to be sold by SCI to BP during a Contract Year shall be a
minimum of * * * * and a maximum of * * * *
* * * * as mutually agreed to by SCI and BP. BP is required to purchase and
SCI is required to sell a minimum of * * * *
* * * * per Contract Year under this Agreement, volumes to be taken ratably
on a month-to-month basis.
SECTION 4-PRICE FORMULA
BASE FORMULA: The price each month of Styrene delivered in accordance
with Section 6 shall be determined pursuant to the following formula:
PRICE: * * * *
Where: * * * * *
Where: * * * * *
* * * * *
Where: * * * * *
* * * * *
* * * * *
2
<PAGE> 3
* * * * *
* * * * *
FLOOR
PRICE: At no time will Price be less and * * * * *
CEILING
PRICE: At no time will * * * * * If
the ceiling price falls below the Floor Price, then * * * * *
* * * * *.
SECTION 5-PAYMENT
A. BP shall pay the price calculated pursuant to Section 4 covering
the quantity of Styrene of each shipment.
B. Payment of each shipment shall be made 50% in U.S. Dollars and 50%
in Deutsche Marks by wire transfer within forty-five (45) days from
the date of bill of lading. The exchange rate used will be the
monthly average of the mean of the quotation for converting United
States Dollars to Deutsche Marks of each working day as published in
the Financial Times for the month of shipment.
SECTION 6-SHIPMENT OF STYRENE
A. The shipment of Styrene shall be made every month and evenly spread
during the Contract Year and the quantity of each shipment shall be
determined by mutual agreement between SCI and BP on the basis of
BP's requirements. In no case should BP's monthly requirements exceed
10% of the annual contract volume without SCI's agreement.
B. BP shall give SCI a notice of desired delivery date at least thirty
(30) days prior to desired delivery date, and this notice shall
include a firm quantity of Styrene. Within three (3) days after
receipt of BP's notice, SCI shall indicate its acceptance of BP's
order or offer alternate, most timely vessel in best effort to
3
<PAGE> 4
meet BP's delivery date requested. All ships nominated by SCI must
be acceptable to the BP Vetting System.
SECTION 7-QUALITY
SCI warrants that Styrene produced and supplied under this Agreement meets
those specifications as set forth in Exhibit A.
SECTION 8-INSPECTION
The quality and quantity of Styrene for each shipment shall be determined in
accordance with the inspection to be made at SCI's shore tanks by an
independent surveyor mutually agreed to be SCI and BP and quality and quantity
shall be accepted as conclusive of quality and quantity of loaded Styrene. The
cost of such public inspector shall be shared equally by SCI and BP.
SECTION 9-FORCE MAJEURE
(A) Deliveries may be suspended by either party in the event of Act of
God, war, riot, fire, explosion, accident, flood, sabotage; lack of
adequate fuel, power, raw materials, labor, containers or
transportation facilities; compliance with governmental requests,
laws, regulations, order of action; breakage or failure of machinery
or apparatus; national defense requirements or any other event,
whether or not of the class or kind enumerated herein, beyond the
reasonable control of such party; or in the event of labor trouble,
strike, lockout or injunction (provided that neither party shall be
required to settle a labor dispute against its own best judgement);
which event makes impracticable the manufacture, transportation,
acceptance or use of a shipment of the Styrene or of a material upon
which the manufacture of the Styrene is dependent. Within five (5)
days after the occurrance of any such event, the affected party
shall give the other party written notice thereof.
(B) If SCI determines that its ability to supply the total demand for
the Styrene, or obtain any or sufficient quantity of any material
used directly or indirectly in manufacture of the Styrene, is
hindered, limited or made impracticable, SCI may allocate its
available supply of the Styrene or such material (without obligation
to acquire other supplies of any such Styrene or material) among
itself and its customers on such basis as SCI determines to be
equitable without liability for any failure of performance which may
result therefrom.
4
<PAGE> 5
(C) Deliveries suspended or not made by reason of this Section 9 shall
be canceled without liability, but this Agreement shall otherwise
remain unaffected.
SECTION 10-DELIVERY AND RISK OF LOSS
The point where risk of loss shall pass to BP on Styrene to be delivered by SCI
shall be when the Styrene has passed the ship's rail at the port of shipment.
SECTION 11-ASSIGNMENT
Neither this Agreement nor any claim against either party arising directly or
indirectly out of or in connection with this Agreement shall be assignable by
either party or by operation of law without the prior written consent of the
other, such consent not to be unreasonably withheld; provide, however, that no
such consent shall be required in the event of assignment to any purchaser of
all or substantially all of the business to which this Agreement relates. This
Agreement shall endure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns.
SECTION 12-GENERAL TERMS AND CONDITIONS
The "Terms and Conditions" hereto attached as Exhibit "B" are herein
incorporated by reference as if set forth in the body of this Agreement. If
there is a conflict between the terms of this Agreement and the Terms and
Conditions set forth in Exhibit "B", the terms of this Agreement shall control.
SECTION 13-GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York
5
<PAGE> 6
SECTION 14-NOTICE
It shall be a sufficient giving of any notice, request or other communication
in writing hereunder by a party to this Agreement to the other party if the
party desiring to give such notice, request or other communication in writing
shall cause the notice to be personally delivered or sent by telefax, registered
mail or recognized overnight delivery service properly addressed to the address
set forth below, or at such other address as the other party shall hereafter
designate in writing. The date of giving of any such notice or other
communication in writing shall be the date on which said copy was so delivered
or sent properly addressed as aforesaid.
BP Chemicals, Ltd. Sterling Chemicals, Inc.
Belgrave House 1200 Smith Street
76 Buckingham Palace Road Suite 1900
London SW1W OSU Houston, Texas 77002-4312
United Kingdom Attn: Vice President Commercial
Attn: Manager Fax: (713) 654-9551
General Petrochemicals Business
Fax#: 071-581-6790
SECTION 15-NON WAIVER
The failure of a party hereto at any time to exercise any of its rights or
options under this Agreement, except rights and options specifically limited as
to a date or time of exercise thereof, shall not be construed to be a waiver of
such rights or options, or prevent such party from subsequently asserting or
exercising such rights or options.
SECTION 16-SEVERABILITY
Any provisions hereof prohibited by or unlawful or unenforceable under any
applicable law of any jurisdiction shall be ineffective as to such
jurisdiction, without affecting any other provision of this Agreement, or shall
be deemed to be severed or modified to conform with such law, and the remaining
provisions of this Agreement can be effected. To the full extent, however, that
the provisions of such applicable law may be waived, they are hereby waived, to
the end that this Agreement is deemed to be a valid and binding agreement
enforceable in accordance with its terms.
SECTION 17-MERGER
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges all prior discussions and
negotiations and agreements between them whether written or oral, and neither
of the parties shall be bound by any
6
<PAGE> 7
decisions, agreement, covenants, definitions, warranties or representations
with respect to the subject matter hereof, other than an expressly provided
herein or as duly set forth on or subsequent to the date hereof in writing and
signed by both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized representatives as of the day and year first above written:
STERLING CHEMICALS, INC. BP CHEMICALS LTD.
Date:______________________ Date:____________________
By:________________________ By:______________________
Title:_____________________ Title:___________________
7
<PAGE> 8
EXHIBIT "A"
STYRENE MONOMER SPECIFICATIONS
<TABLE>
<CAPTION>
PROPERTY SPECIFICATION TEST METHOD
- - -------- ------------- -----------
<S> <C> <C>
APPEARANCE Clear Liquid --
COLOR, APHA 15 MAXIMUM * ASTM D-1209
PURITY (Wt. %) 99.8 MINIMUM ASTM D-3962
POLYMER (ppm) 10 MAXIMUM ASTM D-2121
ALDEHYDES (Wt %) 0.02 MAXIMUM ASTM D-2119
PEROXIDES (Wt. %) 0.0004 MAXIMUM ASTM D-2340
SULFUR (ppm) 10 MAXIMUM ASTM D-3961
PHENYLACETYLENE (ppm) 150 MAXIMUM
TBC INHIBITOR (ppm) 10 - 15 ASTM D-2120
TOTAL CHLORIDES (ppm) 20 MAXIMUM
BENZENE (ppm) 1.0 MAXIMUM
</TABLE>
* Color of 15 maximum based on ASTM D-1209 Hunter Method.
8
<PAGE> 9
EXHIBIT "B"
TERMS AND CONDITIONS
Seller hereafter called "SCI", Buyer hereafter to be called "BP".
1. TECHNICAL ADVICE. Seller assumes no liability for any technical advice
given or results obtained therefrom, all such advice being given and
accepted at Buyer's risk.
2. BUYERS CREDIT. Seller reserves the right, among other remedies, either
to terminate this contract or to suspend further deliveries under it
in the event Buyer fails to pay for any one shipment when same becomes
due. Should Buyer's financial responsibility become unsatisfactory to
Seller, cash payments or satisfactory security may be required by
Seller for future deliveries and for goods previously delivered.
3. SHIPMENTS. The quantity shipped in any contract month may be limited
by Seller to either (a) the average of the monthly quantities
purchased by Buyer for the preceding contract months or (b) die
maximum quantity covered by this contract divided by the number of
months in the period of this contract (provided, however, that if
different quantities apply to different time periods within the period
of this contract, Seller may limit shipments based upon the current
maximum quantity for the applicable time period under this contract
divided by the number of months in such time period). Any quantity not
shipped as a result of any such limitation shall be deducted from the
total quantity of this contract, Seller shall not be bound to tender
delivery of any quantities for which Buyer has not given shipping
instructions.
4. LIMITED WARRANTY. Subject to the limitations of Section 8 of the
Agreement and unless otherwise provided herein, Seller warrants title
and that all goods sold hereunder shall conform to Seller's standard
specifications or to the attached specifications, if any. Subject to
the preceding sentence and except as otherwise expressley provided
herein, SELLER MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, AS TO MECHANTABILITY, FITNESS FOR PARTICULAR
PURPOSE, OR ANY OTHER MATTER WITH RESPECT TO THE GOODS, whether used
alone or in combination with any other material.
9
<PAGE> 10
5. LIMITATION OF LIABILITY. (a) Within thirty (30) days after receipt of
each shipment of the goods, Buyer shall examine such goods for any
damage, defect or shortage. All claims for any cause whatsoever
(whether such cause be based in contract, negligence, strict
liability, other tort or otherwise) shall be deemed waived unless made
in writing and received by Seller within sixty (60) days after Buyer's
receipt of the goods, in respect to which such claim is made, or, if
such claim is for non-delivery of such goods, within sixty (60) days
after the date upon which such goods were to be delivered, provided
that as to any such cause not reasonably discoverable within such
sixty (60) day period (including that discoverable only in processing,
further manufacture, other use or resale any claim shall be made in
writing and received by Seller within one hundred eighty (180) days
after Buyer's receipt of the goods, in respect to which such claim is
made, or within thirty (30) days after Buyer learns of the facts giving
rise to such claim, whichever shall first occur. Failure of Seller to
receive written notice of any such claim within the applicable time
period shall be deemed an absolute and unconditional waiver by Buyer
of such claim, irrespective of whether the facts giving rise to such
claim shall have then been discovered or of whether processing,
further manufacture, other use or resale of the goods shall have then
taken place.
(b) BUYER'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND SELLER'S
TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING OUT OF ANY
CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT, NEGLIGENCE,
STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED
THE "PRICE", AS DEFINED IN SECTION 4 OF THE AGREEMENT IN RESPECT TO
WHICH SUCH CAUSE ARISES OR, AT SELLER'S OPTION, THE REPAIR OR
REPLACEMENT OF SUCH GOODS AND IN NO EVENT SHALL SELLER BE LIABLE FOR
PRICE INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES RESULTING FROM ANY
SUCH CAUSE. Seller shall not be liable for, and Buyer assumes
liability for, all personal injury and property damage connected with
the handling, transportation, possession, processing, further
manufacture, other use or resale of the goods, whether the goods are
used alone or in combination with any other material. Transportation
charges for the return of the goods shall not be paid unless
authorized in advance by Seller.
6. PATENTS AND TRADEMARKS. Seller makes no representation or warranty of
any kind, express or implied, that the use of such goods, or articles
made therefrom, either alone or in conjunction with other material
will not infringe any patent or trademark rights. Buyer shall promptly
notify Seller of any claim or suit involving Buyer in which such
infringement is alleged, and, if Seller is affected, Buyer shall
permit Seller to control completely the defense or compromise of any
such allegation of infringement.
10
<PAGE> 11
7. FREIGHT AND TAXES. Any increase in freight rates paid by Seller on
shipments covered by this contact and hereafter becoming effective and
any tax or governmental charge or increase in same (excluding any
franchise or income tax or other tax or charge based on income) (a)
increasing the cost to Seller of procuring, producing, selling or
delivering goods or of procuring materials used therein of (b) payable
by Seller because of the production, sale or delivery of the goods,
such as Sales Tax, Use Tax, Retailer's Occupational Tax, Gross
Receipts Tax, Value Added Tax, may, at Seller's option, be added to
the price herein specified.
8. PRICE REVISION. The order for the goods accepted hereby is accepted
subject to delivery when available at Seller's price, point of
delivery, service allowance, if any, and terms of payment in effect at
date of shipment. If Seller desires to revise the price, point of
delivery, service allowance or terms of payment for the goods
hereunder but is restricted to any extent against so doing by reason
of any governmental request, law, regulation, order or action, or if
the price, point of delivery, service allowance or terms of payment in
effect under this contract are altered by reason of governmental
request, law, regulation, order or action, Seller shall have the right
to (a) terminate this contract with respect to any goods not then
delivered by written notice to buyer, (b) suspend deliveries for the
duration of such restriction or alteration or (c) have apply to this
contract (as of the effective date of such restriction or alteration)
any price, point of delivery, service allowance or terms of payment
governmentally acceptable. Any delivery suspended under this section
shall be canceled without liability, but this contact shall otherwise
remain unaffected.
11
<PAGE> 1
EXHIBIT 10.49
***OMITTED INFORMATION DENOTED BY
ASTERISKS (***) HAS BEEN
FILED SEPARATELY WITH THE
COMMISSION AND IS THE
SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST.***
CONTRACT FOR SALE AND PURCHASE OF ETHYLENE
THIS CONTRACT, entered into as of this 28th day of October, 1988, by and
between STERLING CHEMICALS, INC., a Delaware corporation with an operating
office at Houston, Texas, hereinafter referred to as "BUYER", and PHILLIPS 66
COMPANY, a Delaware corporation with an operating office in Bartlesville,
Oklahoma, hereinafter referred to as "SELLER";
W I T N E S S E T H:
WHEREAS, SELLER has committed to build an olefins unit and related facilities
(hereinafter collectively called the "olefins unit") near its Sweeny, Texas
refinery and petrochemical complex and will produce ethylene, propylene and
other products from said unit; and
WHEREAS, the parties hereto desire for SELLER to sell and BUYER to purchase
and/or pay for part of the ethylene produced at said olefins unit during the
term hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE
SELLER hereby sells and agrees to deliver and BUYER hereby purchases and
agrees to receive, on the terms and conditions and at the price hereinafter
stated, the volume of ethylene (plus or minus five percent (5%), at BUYER's
option) during each and every contract year of the term hereof set out in Table
1 below.
TABLE 1
<TABLE>
<CAPTION>
CONTRACT YEAR QUANTITY
- - ------------- --------
<S> <C>
1 through 8 * * * year
</TABLE>
In the event BUYER shall at any time or from time to time fail to purchase at
least ninety-five percent (95%) of the quantity of ethylene set out in said
Table 1 at a time when SELLER is ready, willing and able to deliver same, BUYER
shall nevertheless pay for such quantity of ethylene at the price established
under either Article IV or Article XI below, as the case may be.
The maximum quantity BUYER may purchase and take delivery of in any month,
subject to the provision of Article XI below, is * * * of * * *
* * * of the annual volume set out in Table 1 above. If,
at any time during a contract year, for reasons other than force majeure under
Article XI, BUYER's monthly purchases fall below a level which, in view of such
monthly maximum purchase limitation, will not permit BUYER to fulfill its
<PAGE> 2
purchase obligation for that contract year, BUYER shall nevertheless pay for a
volume of ethylene, at a price determined under Article IV, during that month
and succeeding months in that contract year at a rate which will result in
payment by the end of that contract year for BUYER's purchase obligation for
that contract year. Any such ethylene paid for but not delivered during the
contract year in question shall be forfeited, except as otherwise provided for
in Article XI.
SELLER shall advise BUYER in writing of the date on which the olefins unit is
deemed to be in start-up operation. SELLER shall use due diligence to achieve
start-up operation as soon as reasonably practicable, but SELLER does not
guarantee the particular date by which start-up operation will occur. From such
date until SELLER notifies BUYER that the final facility completion test
applicable to the olefins unit under SELLER's financing arrangements with its
senior secured lenders (hereinafter the "Completion Test") has occurred shall
be considered the start-up period. During such start-up period, SELLER shall
have the obligation to sell and deliver ethylene to BUYER on a pro rata basis
determined by applying the ratio that the annual obligation set out in Table 1
above bears to the design capacity of the olefins unit, to the total quantity
of ethylene then being produced. SELLER's obligation to sell to BUYER during
the start-up period is conditioned upon SELLER being satisfied, in its sole
discretion, that the olefins unit has achieved reliable production status and
inventory up to * * * * at SELLER's sole option, has been established. In no
event shall SELLER make sales during the start-up period to non-contract
customers. BUYER agrees to purchase such tendered ethylene during the start-up
period and may elect within thirty (30) days following commencement of the
first contract year, to have any quantities so purchased credited against its
obligation to purchase ethylene hereunder during the first contract year.
The Completion Test shall occur as soon as reasonably practicable and, in any
event, within one year of the commencement of the start-up period. SELLER shall
use due diligence to complete the olefins unit so as to achieve a capacity of
1.5 billion pounds of ethylene per year, but SELLER does not guarantee the
particular capacity level which will actually be achieved.
The primary term of this contract shall commence the first day of the month
immediately succeeding the month of the Completion Test.
If the Completion Test demonstrates an actual capacity less than 1.5 billion
pounds of ethylene per year, there shall be a pro rata reduction in the annual
quantity of ethylene to be purchased by BUYER during the primary term and any
extensions thereof. In such event, the annual quantity to be purchased by
BUYER, as set out in Table 1 above, during the primary term and any extensions
thereof shall be determined in accordance with the following formula:
<PAGE> 3
Revised Annual Contract Quantity = Annual Quantity in Table 1 Above X
Demonstrated Capacity(Based on Final Completion Test) / Original Design
Capacity
Thereafter, if SELLER shall at any time during the term of this contract
determine that the olefins unit has achieved a capacity greater than the
demonstrated capacity set forth above, SELLER shall promptly notify BUYER and,
BUYER shall have the option to increase its annual quantity to its pro rata
portion of said new capacity, subject to a maximum of the quantity set out in
Table 1 above. BUYER shall exercise its option by giving notice thereof to
SELLER no later than thirty (30) days from the date of notification by SELLER.
If BUYER exercises such option within the thirty (30) day period, the annual
quantity to be purchased by BUYER during the remaining term of this contract,
commencing the first day of the month immediately succeeding the month in which
SELLER receives written notice from BUYER that it has elected to exercise such
option, shall be increased to BUYER's pro rata share of the new capacity
determined by the formula set out above. All such purchases shall be subject to
the terms and provisions of this contract.
ARTICLE II
PERIOD OF CONTRACT
Subject to the provisions of Article I, this contract shall be binding upon the
parties upon and after execution hereof. It shall remain in full force and
effect for a primary term of eight (8) years beginning upon the first day of
the primary contract term established under Article I above (estimated to be
January 1, 1991), and continuing thereafter unless and until terminated by
either party by the giving of written notice of termination to the other party
at least thirty-six (36) months in advance of the date of termination specified
in such termination notice, which date of termination so specified shall be the
last day of the primary term or the last day of any calendar month thereafter.
ARTICLE III
SPECIFICATIONS
All of the ethylene to be sold and purchased hereunder shall meet the
specifications therefor set forth in Exhibit "A" attached hereto and by this
reference made a part hereof as fully as though set forth at length herein.
ARTICLE IV
PRICE
It is the intent of the parties that this contract constitute a long-term
relationship for the sale and purchase of ethylene, and therefore, it is to the
mutual benefit of the parties that short-term pricing disputes be resolved
<PAGE> 4
satisfactorily to permit accomplishment of this objective. It is the desire of
both parties that the sale and purchase of ethylene hereunder be at a price
established through monthly negotiations, subject to certain minimum price
provisions as defined in subparagraph (5) below. The parties acknowledge that
the marketplace for contract sales of ethylene by pipeline on the Texas Gulf
Coast is represented by a range of prices nominated monthly by suppliers of
ethylene to purchasers of ethylene. It is the intent of the parties that the
price for ethylene hereunder reflect the average price generally nominated, with
consideration given to the approximate quantity of ethylene represented by each
nomination (hereinafter "average market price"), less a discount as more fully
set forth in subparagraph (3) below. The procedure to be used to determine the
actual selling price each month and to settle price disputes is set out below
in this Article IV.
(1) SELLER shall nominate a price no earlier than ten (10) days preceding the
first day of each calendar month. BUYER and SELLER shall within ten (10) days
after SELLER's nomination agree to a price meeting the criteria set forth
above, which shall be the average market price for that month. The actual
selling price for the month in question would be this average market price less
the discount defined (3).
(2) In the event the parties fail to reach agreement prior to the end of such
period, the average market price for the month in question shall be calculated
as follows:
The difference between the Texas Gulf Coast delivered contract price (or if a
range of prices is given, the arithmetic average of the range) for ethylene, as
reported in the end of the month Monomers Market Report published by Chemical
Marketing Associates, Inc., for the previous month and the month in question
shall be added to or subtracted from, as the case may be, the previous month's
average market price to arrive at the average market price for the month in
question. In the event Monomer's Market Report ceases to be published, or the
parties wish to discontinue its use, the parties shall mutually agree upon a
replacement reference.
The actual selling price for the month in question would be this calculated
average market price less the discount defined in subparagraph (3).
(3) At such time as the price is established under either (1) or (2) above, the
minimum price, as hereafter defined in subparagraph (5), shall be calculated
for the month in question. If the average market price is greater than the
minimum price by * * * * or less, BUYER shall receive a discount from the
average market price in (1) or (2) above, of * * * * of such difference. If the
average market price is greater than the minimum price by more than * * * *,
BUYER shall receive a discount from the average market price in (1) or (2)
above, of * * * * of such difference for the first * * * * and a discount of
<PAGE> 5
* * * * of such difference in excess of * * * *
In lieu of accepting SELLER's price nomination and discount provided for in
subparagraphs (1), (2) and (3) above, BUYER may within ten (10) days following
such nomination, notify SELLER of a competitive offer as defined immediately
below. In order to be considered hereunder, a competitive offer must be for a
contract, either existing or offered, of at least one (1) year in duration,
with a quantity of at least 100 million pounds per year, on a delivered basis
to any of BUYER's plants or pipelines, and with comparable quality. In all
cases, tolls feedstock and cost-related formulas shall be excluded, unless the
formula establishes a minimum price in a market-related price contract. BUYER
may submit any such competitive offer which is effective for a period of time,
once for the entire period during which such offer continues in effect rather
than repetitively each month during such period. SELLER shall thereupon have
the options set out in subparagraphs (i), (ii) and (iii) below, except that
SELLER may exercise any such option for the entire period of the offer's
effectiveness or on a month-by-month basis.
SELLER shall respond to any such offer presented by BUYER within five (5) days
of BUYER's notification thereof, or within five (5) days after the first day of
the month if it is a continuing offer, in one of the following ways at SELLER's
sole option:
(i) SELLER may agree to meet the competitive price, which would become the
actual selling price for the month in question.
( ii) SELLER may propose an alternate price, which if mutually acceptable to
BUYER and SELLER would become the actual selling price for the month in
question.
(iii) In the alternative, SELLER may decline to meet the competitive offer
presented by BUYER, and in such event the actual selling price for the month in
question shall be established as follows:
The difference between the Texas Gulf Coast delivered contract price (or if a
range of prices is given, the arithmetic average of the range) for ethylene, as
reported in the end of the month Monomers Market Report published by Chemical
Marketing Associates, Inc., for the previous month and the month in question
shall then be added to or subtracted from, as the case may be, the previous
month's actual selling price to arrive at the actual selling price for the
month in question. In the event Monomer's Market Report ceases to be
published, or the parties wish to discontinue its use, the parties shall
mutually agree upon a replacement reference.
(4) In the event BUYER and SELLER fail to agree on a price for deliveries
hereunder under (1), (i) or (ii), and must rely on subparagraph (2) or (iii) or
a combination thereof, for the immediately preceding two (2) consecutive
<PAGE> 6
months, the actual selling price for the third month shall be determined as
follows:
The weighted average of SELLER's contract sales prices, and, BUYER's option,
the weighted average of BUYER's contract purchase prices for the month in
question, excluding the prices under this contract, shall be calculated. The
prices included in each such calculation shall be only those from contracts of
one (1) year or more duration for sale and purchase of at least 50 million
pounds of ethylene per year between non-affiliated entities in the Texas Gulf
Coast area, excluding any arrangement or side agreements affecting other
products or product consideration such as barter or toll arrangements or cost
related formulas. The actual selling price for the month in question shall
then be the arithmetic average of the two prices calculated above. In the
event BUYER has no purchases satisfying the conditions stated herein, or elects
not to submit any such purchase prices for consideration, then the price shall
be SELLER'S weighted average contract sales price meeting the conditions of this
paragraph. In the next ensuing month, the actual selling price shall be
calculated again in accordance with subparagraph (1), (2), (i) (ii) or (iii)
above.
In the event that the actual selling price for the month in question is
determined by subparagraph (i), (ii), (iii), or (4), an average market price
for the month in question shall be calculated for future reference as follows:
If the difference between the average market price and the minimum price is
* * * * or less;
Average Market Price = (Actual Selling Price - * * * * / * * * *
If the difference between the average market price and the minimum price is
greater than * * * *
Average Market Price = (Actual Selling Price - * * * * (Minimum Price) -
* * * * / * * * *
For the above calculation all prices are in dollars per pound.
Both parties recognize that changes in market conditions from time to time can
result in the need to change the timing of price nomination and response
provided for above. The parties agree to meet at mutually agreeable intervals
for the purpose of attempting to agree to revised timing of price nomination
and response in order to permit accurate assessment of the average market
price.
(5) The pricing procedures set out above in this Article IV are at all times
subject to a minimum price to be calculated each month as necessary using the
following formula:
<PAGE> 7
Minimum Price = (A) - (B) + (C)
Where (A) is the cost of the feedstock for the month in question, (B) is the
credit to be applied as a result of the sale of co-products from ethylene
production, and (C) is a fee initially set at * * * *, all as more
fully defined below.
(A) Feedstock cost shall be calculated as set forth immediately below,
expressed in dollars per pound of ethylene, and multiplied by the quantity of
ethylene sold to BUYER during the month in question. Feedstock volumes required
to produce the quantity of ethylene sold to BUYER for the month in question are
determined as follows:
Feedstocks Required Per Pound of Ethylene
<TABLE>
<CAPTION>
Amount Feedstock
<S> <C>
* * * * 80% ethane/20% propane
* * * * 100% propane
</TABLE>
The price per gallon used to determine feedstock cost for the ethane component
of the ethane/propane mixture and for propane, either as a component of a
mixture or alone, during any month, is the average of the midpoint of the daily
high and low spot prices for ethane in ethane/propane mix and for propane for
that month as reported for Mont Belvieu, Texas, TET basis, by Oil Price
Information Service (published by United Communications Group, 4550 Montgomery
Avenue, Suite 700 N, Bethesda, Maryland 20014-3382). In the event this
publication ceases to be published, or the parties wish to discontinue its
use, the parties shall mutually agree upon a replacement reference.
In making the foregoing calculations, it will be assumed that the feedstock
used (as between ethane/propane mix and 100% propane), regardless of the
feedstock actually run, is the one that results in the lowest minimum price (as
defined above) for ethylene that month.
(B) Co-product credit shall be calculated as set forth immediately below,
expressed in dollars per pound of ethylene, and multiplied by the quantity of
ethylene sold to BUYER during the month in question. The volumes of co-products
used to calculate the credit are on the following standard yields:
Co-Products Per Pound of Ethylene
Co-Products Feedstock
- - ----------- -------------------------------------
EO/20 Ethane/Propane 100% Propane
Propylene, Polymer * * * * * * * *
Grade (Lbs.)
Butadiene Concentrate * * * * * * * *
(gal.)
Debutanized Aromatic * * * * * * * *
Concentrate (gal.)
<PAGE> 8
The price for each co-product shall be Phillips 66 Company's actual outside
weighted average selling price of the individual products to non-affiliated
purchasers in the Texas Gulf Coast area.
(C) The final component is set initially at * * * * per pound, but * * * * will
be adjusted up or down monthly based on the following factors:
(i) * * * * of said * * * * will increase or decrease from the "Base Value" in
the latest published final monthly figure for "Average Hourly Earnings" for the
"Manufacturing" group, "Chemicals and Allied Products", as published in Table
C-2 entitled "Gross Hours and Earnings of Production or Non-supervisory
Workers", in the monthly booklet entitled "Employment and Earnings", issued by
the Bureau of Labor Statistics, United States Department of Labor, available on
the last day of the previous month. The "Base Value" referred to above is the
final monthly figure for March, 1988, which is $12.52 per hour. Such increase
or decrease shall be calculated as follows:
Change = (Latest Figure for Average Hourly Earnings/$12.52) X * * * * - * * * *
If said monthly figure shall cease to be published by the Bureau of Labor
Statistics, the parties shall adopt by mutual agreement such other labor index
in the chemical industry as most closely approximates the discontinued figure.
(ii) * * * * of said * * * * will increase or decrease from the "Base Value" in
the final monthly index for "Industrial Commodities" as published in the
monthly booklet entitled "Producers Price Index" prepared by the Bureau of
Labor Statistics, United States Department of Labor, for the latest previous
month. The "Base Value" referred to above is 104.7, which is the final monthly
index for March, 1988 (1982 equaling 100). Such increase or decrease shall be
calculated as follows:
Change = (Latest Figure for Industrial Commodities/104.7) X * * * * - * * * *
If said monthly index shall cease to be published by the Bureau of Labor
Statistics, the parties shall adopt by mutual agreement such other commodity
index as most closely approximates the discontinued one; and if the Bureau of
Labor Statistics changes the basis for reporting said monthly index from the
present basis of 1982 prices equaling 100, this escalation factor shall be
altered accordingly.
<PAGE> 9
The minimum price formula, as defined in subparagraph (5) above, shall be
calculated monthly no later than the 10th day after the end of the month in
question. SELLER shall notify BUYER promptly in the event that the minimum
price formula affects the actual selling price. Anytime the minimum price is
in effect, SELLER shall account for the total dollar difference between the
MINIMUM price and either the average market price or the actual selling price,
as the case may be, as such prices are derived under the provisions of
paragraphs (1), (2), (i), (ii), (iii), or (4) above. If, during the remaining
term of this contract, the actual selling price once again exceeds the minimum
price, BUYER shall receive as a credit against sums owing to SELLER in excess
of the minimum price the amount accounted for as described above. If the
actual selling price remains below the minimum price for the remaining term of
this contract or BUYER is otherwise unable to fully utilize all such credits,
BUYER's right to use such sums as credits shall expire upon expiration of this
contract.
ARTICLE V
DELIVERY AND TITLE TRANSFER
Deliveries of ethylene hereunder shall be made to BUYER at the point of
delivery, which shall be the point of connection between SELLER's pipeline or
pipelines arranged by SELLER and BUYER's plant at Texas City, Texas. Title and
risk of loss shall pass from SELLER to BUYER at said point of delivery.
BUYER shall have no responsibility or liability on account of anything which
may be done, happen or arise with respect to ethylene before delivery, and
SELLER shall have no responsibility or liability on account of anything which
may be done, happen or arise with respect to ethylene after delivery. SELLER
shall bear all costs of transporting the ethylene to said point of delivery,
and BUYER shall bear all costs of transporting the ethylene from said point of
delivery. Delivery shall be made at the pressure designated by BUYER but not
exceeding 1950 pounds per square inch gauge at the point of delivery. SELLER
shall install, maintain, and operate at said point of delivery a suitable meter
and other facilities whereby the volume of ethylene delivered by SELLER to
BUYER is measured and the temperature and pressure recorded, and BUYER shall
grant to SELLER all necessary rights and easements for the installation,
maintenance, operation and removal of said meter and facilities. BUYER, if it
so elects and gives notice of such election to SELLER shall have the right to
observe the periodic recalibration of said meter and facilities, such
recalibration to be made at SELLER'S expense as often as necessary but no less
frequently than once each month. BUYER may, at its option and at its sole cost
and expense, install a check meter at said point of delivery; and in the event
it does so, SELLER will furnish BUYER with information to permit BUYER to
duplicate SELLER's meter.
The volume of ethylene delivered by SELLER hereunder each day shall be
determined by references to daily readings of SELLER's meter. For this
<PAGE> 10
purpose, a day shall be construed to extend from 7:00 a.m. on one day to 7:00
a.m. on the next succeeding day, and correction factors and calculations from
such meter readings for the purpose of determining the daily quantities of
ethylene delivered hereunder shall conform with procedures mutually agreed upon
by the parties. Such daily quantities shall be converted to pounds of ethylene
in accordance with the method set forth in Exhibit "B" attached hereto and by
this reference made a part hereof as fully as though herein set forth at
length.
In the event representatives of the parties hereto are unable to agree (1) on
whether any ethylene delivered hereunder meets the specifications set forth in
Article III hereof, or (2) on the measurements of any ethylene delivered
hereunder for which provision is made in this Article V, or (3) on the
determination of pounds of ethylene delivered hereunder in accordance with the
methods prescribed in Exhibit "B", any and all such disputes shall be resolved
either by Chas. Martin Inspectors of Petroleum, Inc., or E. W. Saybolt and
Company, at the election of the party raising the question, or such other
recognized referee as may be agreed upon by the parties. Submission to such
referee shall occur within thirty (30) days after notice of a dispute is given
by one party to the other. The decision of such referee with respect to such
matters shall be final, conclusive, and binding on each of the parties hereto
and the changes of such referee shall be borne equally by the parties.
ARTICLE VI
TAXES
Any tax (except property, franchise, and income taxes), license fee, inspection
fee, or other charge imposed by any governmental authority or other agency on
or measured by gross receipts from ethylene herein sold, or on the production,
manufacture, transportation, sale, use, delivery, or other handling of ethylene
or any component thereof or on any feature thereof or of this contract existing
at the time of any delivery hereunder shall be added to the price then in
effect hereunder and shall be paid by BUYER to SELLER if such tax, fee, or
charge is required to be or is paid by SELLER. Failure of SELLER to add any
such tax, fee or charge to the invoice shall not relieve BUYER of liability
therefor unless a time period of more than five (5) years has elapsed, but in
no event shall BUYER be subject to payment of interest and penalties.
ARTICLE VII
INVOICING AND PAYMENT
SELLER shall invoice BUYER for ethylene sold and purchased hereunder no more
often than once during each calendar month for the preceding months' sales.
Such invoices shall be dispatched promptly by SELLER telegraphically or
otherwise, so as to be received by BUYER within three (3) days of the date of
invoice based upon quantities actually delivered and the SELLER's best
<PAGE> 11
estimate of the actual selling price. Such provisional price shall be adjusted
in the next month's invoice based upon the actual selling price for the
relevant month calculated in accordance with Article IV, and shall be shown as
a charge or a credit, as the case may be, in the invoice reflecting the
adjustment. Payment shall be made by BUYER to SELLER on or before the 15th day
following the date of each invoice by telegraphic transfer or other means
satisfactory to SELLER of immediately available funds to SELLER's account at
such bank or depository as is designated in the invoice. Late payments for
purchases shall be assessed a delinquency charge on a daily basis at the rate
of one percent (1%) per month (30 days) on the unpaid balance. In no event
shall the delinquency charge exceed the legal maximum.
It is agreed that SELLER may decline to make deliveries of the ethylene sold
under this contract except for cash payable upon delivery whenever SELLER shall
have any reasonable doubt as to BUYER's financial responsibility and shall so
advise BUYER, whereupon BUYER shall have the privilege of satisfying SELLER as
to BUYER's financial responsibility. If SELLER is so satisfied, deliveries may
be resumed hereunder on the terms provided in the first paragraph of this
Article VII. SELLER may exercise its rights under this Article VII at any time
and from time to time during the continuance of this contract.
ARTICLE VIII
CLAIMS
No claim, other than willful or intentional breach of this contract, as to
ethylene delivered (whether or not conforming to specifications) or for
nondelivery of ethylene and whether or not based on negligence, shall be
greater in amount than the purchase price of the ethylene in respect of which
such claim is made; provided, however, that the limitations stated herein do
not apply to deliveries that contain less than seventy-five (75%) ethylene. IN
NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, CONSEQUENTIAL,
OR PUNITIVE DAMAGES, WHETHER OR NOT CAUSED BY OR FROM THE NEGLIGENCE OF SUCH
PARTY. BUYER shall notify SELLER within thirty (30) days of date of delivery
of any claim, and failure of BUYER to make such claim within thirty (30) days
shall operate as a waiver of any claim.
ARTICLE. IX
RECORDS
To the extent that records of either party are to be used in the administration
of this contract, the party whose records are to be used agrees to keep true
and correct records pertaining to this contract and all transactions related
thereto and to maintain s such records for a period of at least three (3) years
after termination of this contract. On written request by either party and at
such party's expense, such party may have a firm of
<PAGE> 12
independent certified public accountants audit any and all such records of the
other party at any time or from time to time for the purpose of confirming the
accuracy of such records and the manner in which such records have been used in
the administration of this contract; provided, however, that such accountants
shall not disclose to the party requesting the audit any information obtained
during such audit and shall only report to such party the results of the audit
and whether same shows compliance with the terms of this contract, or as the
case may be, the respects in which the terms of this contract have not been
complied with. The right to audit such records shall expire three years after
termination of this contract.
ARTICLE X
NOTICES
Any notice, request or other communication provided for hereunder shall be
deemed sufficient if given in writing, or by telegram or other electronic
means, properly addressed with postage or other charges prepaid, and mailed or
delivered to the party for which it is intended, as follows:
BUYER: STERLING CHEMICALS INCORPORATED
333 Clay Street, Suite 3700
Houston, Texas 77002
SELLER: Phillips 66 Company
Chemicals Division
Adams Building
Bartlesville, Oklahoma 74004
or at such other address as a party may designate which is communicated as
herein provided. Any such notice, request or other communication mailed by
registered or certified mail shall be deemed to have been given or delivered at
the time of mailing; if otherwise mailed or delivered, or if electronic
transmission is used, it shall be deemed given or delivered when received.
ARTICLE XI
FORCE MAJEURE
No liability (except payment by BUYER for ethylene purchased hereunder, as more
fully provided below) shall result to either party from delay in performance or
nonperformance arising from any cause or causes reasonably beyond the control
of the party affected, including but not limited to the following, which shall
be deemed to be beyond the control of such party: Acts of God, fire, flood,
war, accident, labor trouble (from whatever cause), shortage of or inability to
obtain any goods deliverable hereunder or raw materials therefor from SELLER's
existing or intended sources of supply,
<PAGE> 13
shortage of or inability to obtain equipment or transportation, or compliance
with any law, regulation, order, direction or request made by governmental
authority or person purporting to act therefor. If, by reason of any such
cause or causes, supplies of any goods deliverable hereunder or raw materials
therefor are curtailed or cut off, SELLER's obligation hereunder during such
curtailment or cessation may, at its option, be reduced to the extent necessary
in the SELLER's judgment to apportion fairly among its contract customers and
among the operations of SELLER (including those of SELLER's subsidiaries and
affiliated companies) the goods or raw materials then in storage and such
additional quantities as may be received in the ordinary course of SELLER's
business; but SELLER shall not be required to increase its taking from any
sources of supply or to purchase goods or raw materials therefor to replace the
goods or raw materials so curtailed or cut off. SELLER's obligation to supply
hereunder during all force majeure situations, except the inability to obtain
raw materials, is based upon production solely from the olefins unit. SELLER's
obligation to supply hereunder in the event of force majeure due to the
inability to obtain raw materials shall be based upon a pro rata portion of
production from all of Phillips 66 Company's olefins units. In the event a
force majeure occurrence resulting from physical damage to or destruction of
the olefins unit continues for one (1) year, BUYER shall, at anytime after the
expiration of such one (l)-year period, have the option to cancel this contract
upon thirty (30) days' written notice to SELLER. If within such thirty (30) day
period, SELLER notifies BUYER in writing that it intends to repair, reconstruct
or otherwise take such action as is necessary to return the olefins unit to
operation with reasonable dispatch, then in such event BUYER's cancellation
notice shall be void and of no further force and effect. Deficiencies in
deliveries of ethylene hereunder by reason of any such cause or causes shall be
canceled from the contract with no liability to either party therefor.
Notwithstanding a declaration of force majeure by BUYER and subject to the
provisions of Article IV above, BUYER shall nevertheless pay for a quantity of
ethylene each month during the continuance of BUYER's force majeure condition
sufficient to enable BUYER to fulfill its purchase obligation for that contract
year by the end of such year. The price for such purchases shall be component
(C) of the minimum price calculated under the provisions of Article IV above.
During the continuance of BUYER's force majeure the Obligation of BUYER to pay
such price for such quantity of ethylene shall be absolute and unconditional
under any and all circumstances, except for force majeure by SELLER, shall not
be subject to any reduction, limitation, impairment or termination whether by
reason of any claim of any character whatsoever or otherwise, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise and shall not be subject to any defense, set-off, counterclaim,
recoupment, rescission or termination whatsoever, whether by reason of any
default, willful misconduct, negligence or otherwise either within or outside
the control of BUYER or any Other reason except that the obligation of BUYER
hereunder shall be deemed discharged to the extent of any payment by BUYER in
respect of such quantity. If (1) no joint venture
<PAGE> 14
company, as described in Article XIV below, is formed and no indebtedness
pertaining directly and specifically to the olefins unit is obtained on or
before the commencement of the of the start-up period, or (2) this contract is
assigned under Article XIV below to the joint venture company described therein
and subsequently SELLER purchases the interests of all other equity investors
in said olefins unit, and all indebtedness pertaining directly and specifically
to the olefins unit has been retired, then upon the occurrence of either (1) or
(2) above, the provisions of this paragraph requiring BUYER to purchase
ethylene notwithstanding its own force majeure declaration shall thenceforth
be void and of no further force or effect.
Notwithstanding the monthly maximum delivery limitation set out in Article I
above, SELLER shall use its best efforts to deliver to BUYER over the remaining
term of this contract all quantities sold but not delivered under the
provisions of this Article XI. If such quantities are not entirely delivered
prior to termination of this contract, BUYER shall have the option to extend
the contract for period of time necessary to complete such deliveries. The
rate at which such deliveries are made during such extended term shall be
determined by SELLER, which shall in turn dictate the period of such extended
term. Whenever ethylene sold but not delivered under the terms of this article
is delivered, the actual selling price therefor shall be determined at the time
of actual delivery under Article IV above, less the price already paid by BUYER
(based on first-in-first-out accounting on such undelivered volumes).
ARTICLE XII
WAIVERS
The right of either party to require strict performance by the other party of
any or all obligations imposed upon such other party by this contract shall not
in any way be affected by previous waiver, forbearance or course of dealing.
ARTICLE XIII
WARRANTIES
SELLER warrants that all ethylene delivered hereunder will comply with the
specifications set forth in Exhibit "A", that said ethylene will have been
produced in compliance with of the Fair Labor Standards Act of 1938, as
amended, and that SELLER will convey good title thereto.
THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES
(WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED), INCLUDING WITHOUT LIMITATION
WARRANTY OF MERCHANTABILITY IN OTHER RESPECTS THAN EXPRESSLY SET FORTH ABOVE
AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
<PAGE> 15
ARTICLE XIV
ASSIGNABILITY
All of the terms, conditions, and provisions hereof shall extend to and be
binding upon the respective parties hereto, their successors and assigns;
provided, however, that neither party shall assign this contract or any interest
herein without the prior written consent of the other party; except that either
party may, without the consent of the other assign this contract or any
interest herein to (1) a corporation with which such party merges or to which
such party's assets used in the performance hereunder shall be sold and
conveyed during the term hereof, or (2) one or more lenders to such party, or
to a trustee, fiscal agent or fiduciary for such lenders, or to any third party
that supplies a letter of credit, payment bond, performance bond, financial
guarantee bond, business risk insurance or any other third party coverage
insuring payment to such lenders, in any such case for security purposes; and
with the further exception that (i) SELLER may, without the consent of BUYER,
assign this contract to a joint venture company 50% of which would be owned
directly or indirectly by SELLER, which joint venture company would be the
owner of the ethylene production facility referred to herein and would be an
independent entity with respect to production and inventory of ethylene, (ii)
such joint venture company may, without the consent of BUYER, assign this
contract to one or more lenders to such company, or to a trustee, fiscal agent
or fiduciary for such lenders, or to any third party that supplies a letter of
credit, payment bond, performance bond, financial guarantee bond, business risk
insurance or any other third party coverage insuring payment to such lenders.
BUYER agrees to execute and deliver a written consent to any of the assignments
permitted herein.
ARTICLE XV
ENTIRETY OF AGREEMENT
This instrument contains the entire agreement between the parties hereto
regarding the sale, purchase and delivery of ethylene during the period
provided herein; and all prior promises, agreements or warranties, written or
verbal, shall be canceled and superseded hereby and shall be of no further
force or effect unless embodied herein. No modifications of this contract shall
be valid unless in writing and signed by both parties, and no modification
shall be effected by the acknowledgment or acceptance of any purchase orders or
printed forms containing different conditions
ARTICLE XVI
GOVERNMENTAL CONTROLS
If any existing or future law or governmental decree, regulation, order or
ruling, or interpretation thereof, shall in the opinion of SELLER prohibit
<PAGE> 16
SELLER at any present or future time from charging and receiving payment of the
minimum price as defined in Article IV above for ethylene delivered hereunder,
SELLER may at its option terminate this contract by giving BUYER not less than
thirty (30) days' prior written notice; provided, however, such notice of
termination shall not be given until and unless such price prohibition becomes
effective.
In the event SELLER shall exercise a right of termination under the provisions
of this Article XVI, SELLER agrees that it will not during the unexpired term
of this contract sell, exchange or otherwise dispose of any portion of the
ethylene which was subject to this contract to any third party (exclusive of
purchase for consumption by affiliated companies) without first offering such
ethylene to BUYER on terms and conditions at least as favorable to BUYER as
those offered to such third party.
Notwithstanding the foregoing it is the intention of the parties to make such
reasonable adjustments under this contract as will accommodate any price
limitations imposed by any governmental law or regulation without imposing
undue economic hardship to either party.
ARTICLE XVII
APPLICABLE LAW
The validity, interpretation and performance of this contract shall be governed
by the laws of the State of Texas.
IN WITNESS WHEREOF, this contract is executed in duplicate for each party by
and through its respective officers duly authorized, as of the date first above
written.
PHILLIPS 66 COMPANY
ATTEST: Diane F. Stewart By
By Gary E. Southerland
SELLER
STERLING CHEMICALS INC.
ATTEST: J. David Heaney By
Secretary
By J. Virgil Waggoner
President
BUYER
EXHIBIT A
<PAGE> 17
EXHIBIT A
SPECIFICATIONS
ETHYLENE
<TABLE>
<CAPTION>
SPECIFICATION TEST METHOD *
------------- -----------
<S> <C> <C>
Ethylene, Min. Mol % 99.85 Gas Chromatography
PPCo. 6605-AG-1
Inerts, max. mol % 0.150 Gas Chromatography
PPCo. 6605-AG-1
Carbon Dioxide, max., ppm 10 Gas Chromatography
PPCo. 6605-AG-1
Carbon Monoxide, max., ppm 5 Gas Chromatography
PPCo. 6605-AG-1
Acetylenes, max., ppm 5 Gas Chromatography
PPCo. 6605-AG-1
Sulfur, max., ppm 2 ASTM D-2784
Water, max., ppm 10 Karl Fischer
PPCo. 5688-AK-3
Oxygen, max., ppm 5 Gas Chromatography
PPCo. 6605-AG-1
Hydrogen, max., ppm 5 Gas Chromatography
PPCo. 6605-AG-1
</TABLE>
* Test methods shown below shall be used unless an equivalent test method can
be mutually agreed upon.
<PAGE> 18
* Test methods shown below shall be used unless an equivalent test method can
be mutually agreed upon.
EXHIBIT B
METHOD OF CONVERSION OF VOLUMES OF ETHYLENE TO POUNDS OF ETHYLENE
The pounds of ethylene delivered daily shall be determined in accordance with
the method outlined in the booklet entitled "Phillips Chemical Company Ethylene
Flow Measurement Manual as Revised January 1, 1985." The methods of gas flow
measurement and the methods of gas volume computation outlined in the manual
referred to above will be controlling; provided, however, that revisions in the
aforesaid manual may be made at any time during the life of this contract upon
agreement by both parties.
<PAGE> 1
EXHIBIT 10.50 ROGER THOMEY
AGREEMENT BETWEEN
STERLING PULP CHEMICALS LTD.
NORTH VANCOUVER
BRITISH COLUMBIA
AND
PULP, PAPER AND WOODWORKERS
OF CANADA
LOCAL 5
BRITISH COLUMBIA
EFFECTIVE
DECEMBER 1, 1994 to NOVEMBER 30, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE
<S> <C> <C>
1 PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 RECOGNITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3 MANAGEMENT FUNCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4 UNION SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5 TERMS OF AGREEMENT AND CHANGES IN AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6 STRIKES AND LOCKOUTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7 HOLIDAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
8 CALL TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9 HOURS OF WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
11 ALLOWANCE FOR FAILURE TO PROVIDE WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
12 UNION NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
13 SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
14 SENIORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
15 GRIEVANCE PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17 DAYS OFF AND SCHEDULE OF SHIFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18 VACATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
19 TEMPORARY EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
20 JOB CLASSIFICATIONS AND JOB RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
21 WAGE RATE ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
22 OVERTIME AND PREMIUM TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
TABLE OF CONTENTS (CONT'D)
<TABLE>
<S> <C> <C>
23 JURY DUTY PAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
24 BEREAVEMENT LEAVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
25 MAINTENANCE DEPARTMENT APPRENTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
26 SUSPENSION AND/OR DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
27 LEAVE OF ABSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
29 TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
30 TECHNOLOGICAL CHANGE AND TERMINATION PAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
31 CONTINUOUS 12-HOUR SHIFTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
32 HEALTH AND WELFARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
33 PENSION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EARLY RETIREMENT PROVISION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
34 BANKING OF OVERTIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
APPENDIX "A" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
APPENDIX "B" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
APPENDIX "C"
BENEFITS OF HOURLY-PAID EMPLOYEES
North Vancouver Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
APPENDIX "D"
PRODUCTION SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
Changes from previous contract (November 1994) are indicated
by highlighting & bolding.
<PAGE> 4
AGREEMENT BETWEEN
STERLING PULP CHEMICALS LTD.
NORTH VANCOUVER, B.C.
(HEREINAFTER REFERRED TO AS "THE COMPANY")
AND
LOCAL 5
PULP, PAPER AND WOODWORKERS
OF CANADA
(HEREINAFTER REFERRED TO AS THE "UNION")
Article 1
PURPOSE
1.01 The purpose of the Agreement is to provide for orderly
collective bargaining, prompt disposition of grievances, wages, hours
of work and other terms and working conditions to the extent and in
the manner provided herein.
Article 2
RECOGNITION
2.01 The Company recognizes the Union as the sole and exclusive
bargaining agent for its employees employed in production and
maintenance except those excluded by the Labour Relations Code of
British Columbia (1993), foreman, those above the rank of foreman,
sales staff, office and clerical staff test and quality control staff,
laboratory technicians, draftsmen, security guards and those engaged
in office janitor work.
2.02 The terms "employee" and "employees" when used in this
agreement shall mean persons in the employ of the Company within the
bargaining unit described herein above and covered by this Agreement.
Gender: The use of "he", "his" and "him" refer to both the
masculine and feminine genders.
2.03 The Company recognizes the Union's right to communicate with
its members on the Company's property so that the Union, through its
elected officials, may fairly represent the employees.
Article 3
MANAGEMENT FUNCTIONS
3.01 All functions, powers, or authority which the Company has not
specifically abridged, delegated or modified by this Agreement will be
recognized by the Union as being retained by the Company.
1
<PAGE> 5
Article 4
UNION SECURITY
4.01 Any employee who is now a member in good standing or who
becomes or is reinstated as a member of the Union shall, as a
condition of employment, maintain such membership in good standing
throughout the term of this Agreement. Any new employee hired shall
become a member of the Union thirty (30) days after his or her
employment. In the event of a Local Union intending to suspend a
member for non-maintenance of membership, the Company shall be
notified by the local, in writing at least seven (7) days before
suspension.
4.02 No employee shall be subject to any penalties against his
application for membership or reinstatement, except as may be provided
for in the Constitution of the Pulp, Paper and Woodworkers of Canada.
4.03 There shall be no discrimination against any employee or
employees in any manner whatsoever because of race, colour, creed,
nationality, Union membership, and non-Union membership.
4.04 In case a dispute arises as to whether or not an employee has
failed to maintain his Union membership in good standing, the Union
agrees to save harmless from and indemnify the Company for any
liability that may arise from any acts of the Company taken under
provisions of ARTICLE 4, as a result of its reliance on a
representation of facts by the Union.
4.05 The Company will deduct a Union initiation fee and monthly
Union dues in amounts authorized by individual employees and presented
in writing to the Company. Any Union dues passed in compliance with
Local 5 of the Pulp, Paper and Woodworkers of Canada by-laws shall be
applied and deducted upon notification from the Secretary of Local 5
sent to the Company. Such deductions shall be remitted to the Local
Secretary - Treasurer as soon as possible after the first pay period
of each month and any adjustments will be made the following month.
The Union shall advise the Company of the address of the Local
Treasurer and of any changes in this address. Deductions of Union dues
from an employee's pay shall be discontinued when written
authorization furnished the Company by the employee is revoked, in
writing by the employee.
4.06 There shall be no solicitation for membership, meetings, etc.,
during working hours and/or on Company premises except with the
permission of the Company.
4.07 For the purpose of this Agreement, a member of the Union in
good standing shall mean an employee who has paid or tendered an
amount equivalent to the regular monthly Union dues and assessments.
Article 5
TERMS OF AGREEMENT
AND CHANGES IN AGREEMENT
5.01 This Agreement shall be in effect until the 30th of November,
1997 and shall continue thereafter from year to year unless during
the four months immediately preceding the expiry date either party has
given written notice to the other party that desires revision of this
Agreement and its expiry date.
2
<PAGE> 6
5.02 If notice of desire for changes has been given the parties
shall, as soon as agreeable, meet for collective bargaining. If such
negotiations cannot be completed prior to December 1st following the
October 1st on which such notice was given, any changes in
compensation to employees shall be retroactive to December 1st.
Article 6
STRIKES AND LOCKOUTS
6.01 The Union and its members agree that it will not cause,
authorize or sanction any strike or stoppage of any of the Company's
operations or any Curtailment of work or restriction of or
interference with production during the terms of this Agreement.
6.02 The Company agrees that it will not cause or sanction a
lockout during the terms of this Agreement.
Article 7
HOLIDAYS
7.01 Recognized Holidays
<TABLE>
<S> <C> <C> <C>
(a) New Year's Day Canada Day Remembrance Day
Good Friday 1st Monday In August Christmas Day
Easter Monday Labour Day Boxing Day
Victoria Day Thanksgiving Day
</TABLE>
(b) In the event that Heritage Day is declared as a Statutory
Holiday by the Federal Government it will be included in the above
list of holidays.
7.02 The period of time recognized as a holiday is the twenty-four
(24) hour period from 0001 hrs to 2400 hrs on the date recognized
as the holiday. However for those employees working the 12 hour shift
schedule, the holiday will commence at 1830 hours immediately
preceding such 12:01am and will end twenty-four (24) hours later. (ie
1830 hours on the day of the holiday) .
7.03 The hours of commencing and ending specified above may be
varied by mutual agreement of the Management and the Union Standing
committee. The specified hours of commencing or ending will be
adjusted to coincide with regular hours for changing shifts.
7.04 a) It is understood that day workers will not be required to work
on a holiday except to meet the needs of the continued uninterrupted
operation of the plant.
b) Further, and with special reference to the Christmas holiday
the parties recognized that shift workers will be held to absolute
reasonable minimum and that only those activities required to
maintain the necessary efficient operation of the plant shall be
performed.
7.05 a) When any of the holidays listed in the Agreement falls on a
Saturday or Sunday, shift workers should observe the holiday on the
day which it falls. Day workers, scheduled Monday to Friday, will
observe the holiday on such a day as will provide them with a long
weekend. The determination of such day or days shall be determined by
the Company consistent with operational requirements.
3
<PAGE> 7
b) In the event a holiday falls on a day when a day worker would
otherwise be scheduled off, then said employee will take the holiday
on the Thursday before or the Tuesday following the holiday whichever
is applicable and is mutually agreed.
c) In the event the holiday falls on the day when a shift
worker would otherwise be scheduled off, he has the option of banking
the time and/or the money.
d) For shift workers, holiday pay is calculated as 8 hours pay
at straight time, and in the case of banking, 8 hours will be banked
for each holiday that falls on a scheduled day off, and 12 hours for
each holiday worked.
7.06 Overtime shall be paid for all work performed during holidays
at the rates hereinafter specified.
7.07 In addition to any other compensation earned, all employees
who are on the payroll of the Company on any of the forgoing
recognized holidays will be granted eight (8) hours pay on the
straight time rate of the employee's regular job, provided however,
that:
(a) Any new employee must have been on the payroll for not less
than thirty (30) days just preceding the holiday and must have worked
a minimum of eighty five (85) hours during that thirty (30) day
qualifying period.
b) The employees must have worked his scheduled work day before
and his scheduled work day after the holiday unless failure to work
was due to any of the following events.
(1) When the employee is on his regular authorized vacation.
(2) When the employee's absence is due to bonafide sickness or
occupational or non-occupational accident provided however,
that payment for such holiday is not being covered by W.C.B.
or sick benefit insurance. Payment for such holiday will not
be extended beyond the time limit of W.C.B. or sick benefit
insurance.
(3) When a trade in shifts agreed upon between employees, and
approved in advance by Management, results in temporary change
of the scheduled work day after the holiday, provided the
employee works the shift agreed upon.
(4) When the employee's absence is due to an approved leave of
absence granted by the Company; provided however that such
leave of absence does not exceed ten (10) days prior to or ten
(10) days following such holiday.
(5) When the employee's absence is due to Jury Duty,
subpoenaed witness or bereavement leave as provided by this
Agreement.
(6) When the operation in which the employee is engaged is
curtailed or discontinued by the decision of management and
which curtailment of discontinuance changes or eliminates the
employee's scheduled work day before, or his scheduled work
day after, such holiday.
7.08 An employee whose work schedule conflicts with the normal
observance of a specified holiday may elect to bank the holiday, and
take the time off and pay thereof, provided the following conditions
are met:
(a) The holiday(s) and holiday(s) pay shall be taken at a time
convenient to the employee and management consistent with the
continued, economic and efficient operation of the plant.
4
<PAGE> 8
It is understood that requests for time off received and
granted thirty (30) days in advance will be honoured.
(b) Employees must notify their supervisor in writing at least one
week in advance of the holiday of his intent to bank that holiday.
(c) It is also agreed and understood that the employee will take
such banked holidays within one year of banking. If the employee does
not arrange to take the holiday within the given delay, the Company
will schedule time off at its own discretion in lieu thereof or
alternatively, if mutually agreed, reimburse any banked holiday pay
and forfeit the banked time.
7.09 Employees working temporarily at a higher job rate will be
paid at the job rate for a statutory holiday providing they work at
that higher job rate on both sides of said statutory holiday,
otherwise they will be paid for the statutory holiday based on their
regular job rate. If the employee is scheduled off on either side of
the statutory holiday, then his last scheduled day on before, and his
first scheduled day on after the statutory holiday, will satisfy this
section.
7.10 In the event that an employee is called in, or is scheduled to
work, on a recognized statutory holiday on a job paying a higher rate
than his regular job, he will be paid for the statutory holiday at the
higher rate of pay.
Article 8
CALL TIME
8.01 Call time is an occasion when an employee, after leaving the
premises, is called in to work before his next regularly scheduled
reporting time. In such cases, the Company will pay an additional
amount over and above pay for hours worked, equal to three (3) hours
pay at the employee's straight time hourly rate, which shall be known
as call time. Such call time shall not be payable when the employee,
before leaving the premises, is notified to report for work before his
next regularly scheduled reporting time.
8.02 When the hours worked on call time are extended to the
employee's regularly scheduled starting time, overtime rates as called
for by this section, shall cease at the employee's regularly scheduled
starting time unless such call-in was of such duration as to give the
employee a full shift prior to his regular starting time consistent
with article 22.10.
Article 9
HOURS OF WORK
9.01 Hours of work shall be scheduled by the Company in accordance
with the requirements of the plant.
9.02 Employees shall be at their work place and ready to assume
their duties at the commencement of their work day.
9.03 Shift workers will not leave their work place until 0630 HRS
(or 1830 HRS) unless relieved by the employee assigned to the same
position on the following shift.
5
<PAGE> 9
9.04 Employees are expected to co-operate in the execution of
necessary overtime work. The Company will make every effort to keep
overtime to a minimum consistent with the continued efficient
operation of the plant.
9.05 The normal hours of work shall be:
a) For Day Workers - from 0700 Hrs. to 1200 Hrs. and
from 1230 Hrs. to 1650 Hrs. A ten minute wash up period will
be provided prior to lunch and at the completion of the work
day.
Labourers and Relief Brine Operators assigned to the
Maintenance Department (for a period of a week or more), will
be classified as Day Workers.
b) For Shift Workers - from 0630 Hrs. to 1830 Hrs.,
and 1830 Hrs. to 0630 Hrs. - as per Article 31.
c) For Labourers and Relief Brine Operators assigned to
the Production Department - Two different workday formats
are available:
i) From 0630 Hrs. (or 0730 Hrs.) to 1600 Hrs. (or 1700
Hrs.), and 1600 Hrs. (or 1700 Hrs.) to 0130 Hrs. (or 0230
Hrs.).
A one-half hour lunch break is included, with a ten
minute wash up period prior to lunch and at the completion of
the work day.
ii) From 0630 Hrs. to 1830 Hrs., and 1830 Hrs. to 0630
Hrs. - similar to a shift worker.
9.06 The regular schedule of hours of work shall be:
a) For Day Workers - 9 1/3 hours per day and 37 1/3
hours per week. The normal work week will be either Monday
to Thursday, or Tuesday to Friday.
b) For Shift Workers - 12 hours per day and 36 or 48
hours per week with compensating scheduled time off to average
37 1/3 hours/week - as per Article 31.
Compensating time off for Shift Workers shall be
covered by the Senior Relief Operators and taken in blocks of
three (3) day shifts as outlined in the shift schedule in
Appendix D.
When ever the Senior Relief Operator is scheduled as
a spare operator, he may be rescheduled to provide relief on
dayshift or nightshift as required.
c) For Labourers & Relief Brine Operators assigned to
the Production Department - either:
i) Four workdays of 9 hours per day, with
compensation to allow averaging of 37 1/3
hours/week over a 9 week period, or
ii) Three workdays of 12 hours per day, with
compensation to allow averaging of 37 1/3
hours/week over a 9 week period.
Labourers and Relief Brine Operators assigned to the
Production Department will receive shift premiums
(when working the evening shift(s) outlined in
Article 9.05(c) as per Article 22.09, & statutory
holiday compensation as per Article 7.05(c) & (d).
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Every effort shall be made to schedule consecutive
days off in each work week when ever possible.
This article is for the purpose of providing a basis for
calculating overtime and shall not be construed as a guarantee of
hours of work.
Article 10
DEFINITIONS
10.01 The words "shift workers" means employees assigned to a job on
a regularly rotating shift schedule. All other employees are
considered day workers.
10.02 The word "day" shall mean a calendar day and shall be a period
of twenty-four (24) hours beginning at 0001 hours. However, in the
case of the work schedule a shift worker working the 12 hour schedule,
and only in such cases, the day shall deem to have commenced at 0630
HRS.
10.03 The word "week" means a period of seven (7) days beginning at
0001 hours Monday. However, in the case of the work schedule of a
shift worker working the 12 hour schedule, and only in such cases, the
week shall deem to have commenced at 0630 HRS Monday.
10.04 Further to Article 18:
(a) The word "week", when used to define a length of vacation, and
for the purposes of calculating vacation pay, shall mean 37 1/3
average working hours.
(b) The word "day", when used to define a length of a vacation,
shall mean 9 1/3 working hours.
10.05 Bargaining Unit Work
It is the policy of the Company not to use non-bargaining unit
personnel to do work normally performed by hourly paid employees.
It is recognized by the parties that there may be exceptions to the
above, such as:
(a) in emergency situations
(b) when no qualified hourly employee is available
It is recognized by both parties, however, that for the
practical and efficient operation of the plant, there are occasions
when a supervisor must help. These occasions will be temporary in
nature and will not result in the displacement or exclusion of hourly
rated employees.
Article 11
ALLOWANCE FOR FAILURE TO PROVIDE WORK
11.01 An employee who reports for work at his regularly scheduled
time and who has not been notified by the Company not to report, shall
receive not less than one half his regular shifts work at his regular
straight time hourly rate, or pay in lieu thereof at the discretion of
the Company.
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<PAGE> 11
11.02 A telephone call to the number on record in the employee's
name in the plant personnel files will be considered as proof of
notification. An employee who leaves no telephone number by which he
can be contacted forfeits the right to the one half shift or pay in
lieu thereof as mentioned in 11.01 above.
Article 12
UNION NOTICES
12.01 The Company will provide the Union with a secured bulletin
board in the plant for the purpose of posting official Union notices
and papers. Notices will be posted and initialled by a member of the
Union Standing Committee, or the authorized representative of the
Bargaining Agent.
Article 13
SAFETY
13.01 Employees and the Company are to comply with established
Safety Rules as amended by the Joint Occupational Health and Safety
Committee from time to time. Employees will not be expected to
operate with unsafe equipment or under unsafe working conditions.
Employees are expected to report immediately any unsafe equipment or
condition to the Production or Maintenance Manager using where
appropriate the Safety Work Order System.
13.02 The Union will appoint three of its members to serve on the
Joint Occupational Health and Safety Committee preferably with
representation from each Department. The Plant Manager will appoint
three Company representatives.
The Occupational Health and Safety Committee will meet monthly
to develop and promote the safety program. It is agreed that the
Committee will appoint a Chairman with the responsibility alternating
between the Company and the Union. Where the Chairman is a Union
employee, the Secretary shall be a Company representative and vice
versa.
13.03 The Union undertakes to encourage its members to cooperate in
the execution of the Plant Safety Program and Safety Education.
13.04 First Aid Attendants
As of September 1st, 1994, the Occupational First Aid
Regulations require that the First Aid Attendants only require a Level
II certificate.
First Aid Attendants currently holding a Level III equivalent
certificate, (ie: an Industrial First Aid 'A' or 'B' certificate) and
who desires to renew at that level may do so.
All new candidates will only be given necessary training to
acquire a Level II certificate.
If a person lapses in renewing his First Aid certificate and
then wants to renew, he will be treated as a new candidate.
Wages during training and exams will be paid as for scheduled
hours of work:
- During the training period.
- On the day before the exam.
- On the exam or re-exam day.
The company will pay for the tuition, books and exam.
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<PAGE> 12
The following hourly rate will be paid over and above an
employee's regular rate for all employees holding a W.C.B. Industrial
First Aid certificate:
Level II or Level III will be paid the same rate.
Effective December 1st, 1994 $0.60/Hr.
Effective December 1st, 1995 $0.70/Hr.
Article 14
SENIORITY
14.01 General Principles
(a) The company recognizes the principles of seniority in the
administration of promotions, demotions, transfers, layoffs and
recalls. In the application of seniority, provided an employee has
the necessary qualifications and ability to perform the work in
accordance with job requirements, seniority shall prevail.
Definitions
(b) Plant seniority shall mean the length of continuous service in
the employ of the signatory Company in the North Vancouver Bargaining
Unit.
(c) Departmental seniority shall mean the length of continuous
service in a permanent position within the recognized departments.
14.02 Establishing Seniority
(a) Plant seniority shall be established from the original date of
hire, after completion of a probationary period. A probationary
period consists of 40 working days and may be extended by mutual
agreement between the company and the union.
(b) During the probationary period defined in 14.02(a), a new
employee will not have any seniority rights and shall be subject to
transfer, demotion, promotion, layoff or discharge at the sole
discretion of the Company without recourse to the grievance procedure
of this Agreement.
(c) The Company will appraise each probationary employee at the
end of his first thirty (30) working days in his presence. A Shop
Steward or Union Standing Committee Member shall be present if
requested by the employee. Copy of the appraisal to be sent to the
employee and the Union Standing Committee.
(d) An employee who exercises his seniority to promote or bump
into another job within the Bargaining Unit, shall be probationary in
the new job for a period of two (2) weeks after training is completed.
In such instance, the employee shall be formally appraised in his
presence and within the stipulated probationary period. A Shop
Steward or Union Standing Committee Member shall be present if
requested by the employee.
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<PAGE> 13
14.03 Loss of Seniority
(a) Plant or Departmental
An employee shall cease to have Plant seniority or
Departmental seniority if the employee:
1) Quits or resigns
2) Is discharged
3) Is laid off for a period exceeding recall provisions.
4) Is absent from work for three (3) consecutive days on
which he is scheduled to work without notifying his
immediate supervisor, giving satisfactory reasons.
5) When recalled to work, once notice by registered mail
to the address on record with the company has been
made, fails to indicate his intent to return to
company service within three (3) days or fails to
report to work within seven (7) days.
6) Is absent without cause, to the satisfaction of
Management, beyond the time limit of a sick leave or
an authorized leave of absence granted by the
Company.
However, Plant and Departmental seniority shall continue to
accrue:
i) If absent due to illness or injury provided
the absence does not exceed the period provided for
in the L.T.D. program, unless seniority would have
otherwise been lost.
ii) If absent due to industrial illness or
accident at work (recognized by the Worker's
Compensation Board) which occurs while working for
the Company, unless seniority would have otherwise
been lost.
(b) Departmental Seniority
An employee shall cease to have Departmental seniority in the
Department from which he was displaced, if the employee is:
1) Laid off or demoted out of the Department, because of
cutbacks, for a period exceeding the recall rights as
set out in 14.05(a).
2) Permanently transferred to another Department for a
period exceeding six (6) months.
3) Is demoted outside the recognized Departments either
voluntarily or for inability to perform the work.
If the cause for the demotion has been corrected the
employees' previous Departmental seniority will be
reinstated.
14.04 Layoffs
In the event of departmental layoff resulting from cutbacks,
employees affected will be re-classified to Relief Brine Operator or
Labourer positions. Layoff from these positions will be on the basis
of Plant seniority. (Refer to diagram in 14.06)
14.05 Recall Provisions
(a) In the event of a layoff, recall rights shall be established
according to:
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<PAGE> 14
1) An employee who is laid off with more than the
probationary period, but less than one (1) year of
continuous service, shall be entitled to recall
rights according to his accumulated Plant seniority
for six (6) months from the date of layoff.
2) An employee with one or more years of continuous
service shall be entitled to recall rights according
to his accumulated Plant seniority for twelve (12)
months from the date of layoff, plus one (1)
additional month for each year's service up to an
additional six (6) months.
(b) Departmental Recall Rights
An employee shall have recall rights to the Department from which he
was displaced as follows:
1) Less than one (1) year of Departmental seniority:
- six (6) months recall rights from date of
displacement.
2) One (1) or more years of Departmental seniority:
- twelve (12) months recall rights plus one (1)
month for each year of service up to a maximum of six
(6) additional months.
However, departmental recall rights shall decrease from the
time of displacement and ultimately expire, unless the affected
employee is permanently recalled to or promoted to his former
position. In such instance the employee affected will be reinstated
with his previous accumulated Departmental seniority.
(c) Employees shall be recalled to the plant on the basis of
Departmental or Plant seniority, subject to Article 14.01(a) depending
on where the vacancy occurs.
(d) Benefits
All benefit plans shall immediately be reinstated upon the recall of
an employee.
(e) It shall be the duty of all employees to notify the Company
promptly of any change in their address or phone number. If an
employee fails to do this, the Company will not be responsible for
failure to contact the employee.
14.06 Departmental Organization
The parties recognize the following two departments for
seniority purposes in matters of permanent promotions, demotions,
layoffs, recalls and transfers:
1) Production Department
2) Maintenance Department
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<PAGE> 15
The lines of progression shall be as follows:
<TABLE>
<CAPTION>
PRODUCTION DEPARTMENT MAINTENANCE DEPARTMENT
- - --------------------- ----------------------
<S> <C>
Senior Relief operator Tradesperson
Crystal Operator Storesperson
Cell Operator Maintenance Helper
Brine Operator
Relief Brine Operator
Labourer
</TABLE>
14.07 Promotions
(a) Permanent promotions in established lines of progression will
take place with Departmental seniority governing subject to Article
14.01(a). The positions outlined in Article 14.06 that are excluded
from lines of progression shall be subject to posting provisions.
(See Article 14.08)
(b) It is understood that promotion to the position of Tradesman
can only be done through the apprenticeship program as outlined in
Article 25, or through the promotion of a qualified person.
(c) In the event that an employee declines to exercise his
Departmental seniority to step up to the next position in his
Department, whether permanently or temporarily, to which he would
otherwise have been entitled by virtue of Departmental seniority,
ability and qualifications, he will no longer be able to exercise his
Departmental seniority to obtain a job senior to the employee who
bypassed him. A refusal to step up to the next position in the line
of progression shall be recorded and a copy sent to the Union.
(d) 4th Class Stationary Engineer's Certificate (Permanent 4th
Class Certificate)
1) Upon permanent shutdown of the current boiler and
temporary low pressure boiler, a permanent certificate is not
a requirement for the purpose of promotion in the production
department. It is understood and agreed that production
department seniority as of the boiler(s) shutdown date
prevails, in accordance with Article 14.07(c).
2) Present Brine Operators and Relief Brine Operators
have the option to obtain their permanent 4th Class
certificate as per Article 14.07(d)3 iv. Upon successful
completion of a permanent 4th Class certificate the Brine
Operator / Relief Brine Operator will receive the steam ticket
rate when working as a Brine Operator.
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<PAGE> 16
3) Should the need arise in the future for a permanent
4th Class certificate because of physical plant changes, the
following will apply:
i) A permanent 4th Class certificate is required
for the permanent positions of Cell Operator &
Crystal Operator. The Relief & Temporary Crystal
Operators will also require a permanent 4th Class
certificate.
ii) In order to assist an employee who is
promoted to the position of temporary or permanent
Cell Operator, he will be supported in his
application for a temporary 4th Class certificate.
He will be required to obtain a permanent 4th Class
certificate within 12 months. This may be extended
to 15 months if he has attempted and failed his exam
in the first 12 months. This also applies to Relief,
Temporary, or Permanent Crystal Operators.
iii) If after the 15 months, or after 12 months if
no attempt is made to write the exam, he shall be
demoted to a position not requiring a permanent 4th
Class certificate.
iv) In order to assist a production employee to
obtain a permanent 4th Class certificate (to study
and write the necessary material and exam) he will be
allowed paid time off to a maximum of 84 hours. This
will also include employees who, prior to 1994, have
previously been given the opportunity to write the
exam for a permanent 4th Class certificate.
14.08 Postings
Permanent vacancies in the following job classifications will
be posted and shall be filled on the basis of Plant seniority subject
to 14.01(a) and Article 14.07.
(1) Brine Operator
(2) Maintenance Helper
(3) Storesperson
(4) Tradesperson
Notice of permanent vacancies within the scope of the
agreement will be posted for twelve (12) days, on the bulletin boards.
During this time, applications may be made to the Administration
Manager.
14.09 Temporary Openings
Temporary openings in the Production Department will be
divided into two (2) categories, namely:
Type "A" having a duration in excess of three (3) months, and
will be applicable only in cases of extended leave of
absence and long term sickness or disability.
Type "B" having a duration of up to three (3) months to cover
vacation relief, short term illness and short term
absence.
Type "A" openings will be filled in the same manner
as that outlined in Article 14.06 for permanent
openings. However, in the event that the
circumstances which caused the opening, return to
normal, then the temporary position will cease to
exist. The accrual of Departmental seniority in such
cases will be governed by Article 14.01.
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<PAGE> 17
Type "B" openings may be filled by employees in the
lowest classification within the respective
Department, out of line of Departmental seniority and
subject to Article 14.01(a), to meet the continued
and efficient operation of the Plant.
The Company, in administering Type "A" openings, will estimate
the expected duration of an opening without prejudice, from the
information available.
14.10 Transfers
(a) In the case of permanent transfer from one Department to
another, Plant seniority shall govern subject to the provision of
Article 14.01(a).
14.11 Demotions
(a) Demotions resulting in bumping in the recognized Departments
for whatever reason inclusive of layoffs, shall take place in reverse
progression to that outlined in Article 14.06 with accumulated
Departmental seniority governing subject to Article 14.01(a). It is
understood that Maintenance employees in such instance shall exercise
Departmental seniority to displace only those employees in the
Maintenance Helper and Storesperson positions.
(b) An employee who is demoted, within his Department, either
voluntarily or for inability to perform the work shall not be entitled
to exercise Departmental seniority to move up to a higher job
classification. If the cause for the demotion has been corrected the
employees' previous Departmental seniority will be reinstated.
14.12 Seniority Lists
The company shall, within thirty (30) days of the date on
which this Agreement is signed, furnish the Union with two (2) copies
of a list showing the Plant and Departmental seniority of each
employee then on the payroll and will thereafter revise such list each
six (6) months.
14.13 Any employee promoted to a supervisory or staff position which
removes him from the Bargaining Unit shall retain and accumulate his
Plant and Departmental seniority within the Bargaining Unit for a
period of up to twelve (12) months following this promotion. The
employee will continue to pay the prescribed union dues while he
maintains his seniority within the Bargaining Unit. If during this
twelve (12) month period such employee is transferred back to the
Bargaining Unit, he shall exercise his accumulated Plant and
Departmental seniority in returning his to his former job. Any
extension of the above shall be by mutual agreement and limited to two
(2) month intervals.
Article 15
GRIEVANCE PROCEDURE
15.01 A grievance is any difference of opinion or dispute with
respect to the interpretation, application or alleged violation of
this Agreement. A grievance must be presented in writing and may be
taken up in the following manner.
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<PAGE> 18
15.02 Step No. One (1)
An employee may submit a grievance alone or accompanied by his
shop steward, or a member of the Union Standing Committee, to his
supervisor who shall render his decision to the employee concerned
within the next seven (7) calendar days.
15.03 Step No. Two (2)
If a decision of the supervisor is not accepted, or if a
decision is not rendered within the given delay, the griever,
accompanied by the shop steward, or a member of the Union Standing
Committee, may within a period of seven (7) days submit the grievance
to the Department Head, who shall render this decision within seven
(7) calendar days.
15.04 Step No. Three (3)
If the decision of the Department Head is not accepted or if a
decision is not rendered within the given delay the Union Standing
Committee may within seven (7) calendar days submit the grievance to
the Plant Manager who shall render his decision within seven (7)
calendar days. At this meeting the Union Counsellor and/or an officer
of the National Union may be present.
15.05 If the decision of the Plant Manager is not accepted or if the
decision is not rendered by the Plant Manager within the given delay,
the union may refer the grievance to arbitration.
15.06 Notice of reference to arbitration specifying the matter or
matters to be arbitrated shall be given in writing to the other party
within thirty (30) days after the rendering of the decision by the
Plant Manager or within thirty (30) days after the expiry of the delay
provided for in Article 15.04.
15.07 The Company or Union may submit a Policy Grievance which
directly affects the interests of the party to the Collective
Agreement and shall not be administered as an employee grievance.
The Policy Grievance my be submitted within twenty-five (25)
working days from the date of occurrence of the incident giving rise
to the grievance. The recipient of the grievance shall render a
decision in writing within thirty (30) working days of receipt of the
grievance.
The Policy Grievance shall be submitted at Step No. Three (3)
of the Grievance Procedure.
15.08 In the event that either of the parties does not take a
grievance to the next higher step within seven days after the
rendering of a decision, or within seven days after expiry of the
delay in which a decision could have been given, the grievance shall
be deemed to have been withdrawn.
15.09 A grievance shall be presented as soon as practicable, but in
no event later than seven (7) days after the occurrence causing the
grievance. Any grievance not so presented shall be deemed to be
abandoned and shall not be entitled to consideration thereafter.
This limitation shall be extended to thirty (30) calendar days
in instances where the grievor is on vacation, authorized absence or
sick leave at the time the alleged violation occurred.
15.10 The parties hereby agree to exclude the operation of
sub-section (1) of section 96 or the Labour Code of B.C. (1973) as
provided for in sub-section (2) section 96, unless both parties so
petition the registrar in writing to appoint an officer to handle a
specific grievance.
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<PAGE> 19
15.11 When an agreement has been reached between the Company and the
Union at any stage of the grievance procedure it shall be put in
writing and it shall be final and binding on both parties.
15.12 Nothing in this agreement shall be construed to prevent any
employee from presenting any complaints on his own behalf directly to
the Company or to prevent the Company from making adjustments in
respect of such individual complaints not inconsistent with the terms
and provisions of this agreement.
15.13 The time limit between steps may be extended by mutual
consent.
Article 16
ARBITRATION
16.01 A grievance which has not been settled after being carried
through the steps of the Grievance Procedure may be referred to
Arbitration in accordance with the following procedure.
16.02 When notice is given in accordance with Article 15.06 the
party giving the notice shall, at the same time, in writing, nominate
an arbitrator.
16.03 Within seven (7) days thereafter the other party shall
nominate an arbitrator and so advise the other party in writing within
the said delay.
16.04 The two nominees shall endeavour to select a third person who
shall act as chairman.
16.05 In all matters of procedure not covered by the provisions of
this section, including alternating procedures for the selection of a
third arbitrator the provisions of the Labour Relations Code of
British Columbia (1993) shall apply.
16.06 The Arbitration Board shall have jurisdiction to interpret the
provision of this Agreement in so far as shall be necessary to the
determination of the grievance, but shall not have jurisdiction or
authority to alter in any way, add to, subtract from or modify any of
the terms hereof, nor make any decision inconsistent with the
provisions of this agreement.
16.07 The decision of the Arbitration Board shall be final and
binding upon the parties hereto and the employee or employees
concerned.
16.08 Each of the parties shall bear equally the expense of the
Chairman of the Arbitration Board.
16.09 The parties hereby request the Arbitration Board to render its
decision as expeditiously as possible.
16.10 The award of the Arbitration Board shall not be made
retroactive to a date prior to the date on which the grievance was
submitted in writing as provided for in the Grievance Procedure.
16.11 The Company and the Union may be mutual agreement, elect a
single arbitrator instead of a three-man arbitration board, and the
powers of the single arbitrator shall be the same as those of the
board of arbitration pursuant to this article.
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<PAGE> 20
Article 17
DAYS OFF AND SCHEDULE OF SHIFTS
17.01 The employer will normally designate consecutive regular days
off for each regular employee.
17.02 When extensive changes to the schedule are necessary the
Company will so notify the Union in advance whenever practical, and
will welcome discussion with the Union Standing Committee.
17.03 Employees may change their day or days off by mutual agreement
with the supervisor of the department concerned provided such change
shall not involve additional cost to the company.
17.04 Employees will normally not be scheduled to work six (6)
consecutive days in a two week period. The exception being that if
the shift schedule is altered significantly as a result of layoff,
plant shutdown, etc., this may not always be possible.
(a) Relief Brine Operators/Labourers (assigned to the Production
Department) shifts may be changed at anytime provided the employee is
given 24 hour notice prior to shift change. Every effort will be made
to give the employee as much notice as possible.
This article will be subject to review by the members of the
Union Standing Committee and the Company after both a six and a twelve
month period after implementation and if there are problems with the
application of the article then it is mutually agreed that the
notification will revert back to the 48 hours which presently exists.
Article 18
VACATIONS
18.01 It is hereby understood and agreed that in the application of
the following provisions governing vacations and vacation pay, no
employee shall be treated less favourably than is provided for under
the "Annual Holidays Act". (R.S.B.C. 1980) SBC Chap 10 - #36.
18.02 The Vacation year shall be the twelve (12) months commencing
on May 1st and ending the following April 30th. However, for the
purposes of calculating vacation pay only May 1st shall be interpreted
as being the end of the last pay period in April.
18.03 Management will co-operate in arranging vacation time to suit
each employee. However, the scheduling of vacation time is to be
decided by Management. Management will give consideration to requests
for vacation dates on the basis of plant seniority, provided such
requests are made before March 1st for the current year. However, it
is understood that no employee can exercise seniority rights over less
senior employees in the scheduling of more than two (2) weeks vacation
during the period June 15th to September 15th.
18.04 Vacations are not cumulative and must be taken annually within
the vacation year as defined in 18.02. However, the Company may
extend the vacation year due to extenuating circumstances and as
mutually agreed at the request of an employee.
18.05 No employee may continue to work and draw vacation pay in lieu
of taking his vacation.
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<PAGE> 21
18.06 Vacation pay will be paid by direct deposit to an employee's
account on a weekly basis as vacation is taken. The company may grant
vacation pay in advance due to extenuating circumstances and as
mutually agreed at the request of the employee.
18.07 Employees of the Company shall receive their vacation with pay
entitlement exclusive of recognized holidays to which they are
entitled under Article 7 of this Agreement.
18.08 When services of an employee are terminated for any reason, he
shall receive vacation pay for the vacation earned but not taken,
computed as 4% of his total earnings for the period during which
vacation was earned. An employee who qualifies for vacation under
18.12 will be paid 6% of his total earnings on termination, those who
qualify for vacations under 18.13 will be paid 8% of their total
earnings on termination, and those who qualify for vacation under
18.14 will be paid 10% of their total earnings on termination, those
who qualify for vacation under 18.15 will be paid 12% of total
earnings on termination, and those who qualify under 18.16 will be
paid 14% of total earnings on termination.
18.09 The following shall be considered as time worked (maximum 9
1/3 hours per day and 37 1/3 hours per week) for the purpose of
qualifying for a vacation.
(a) Time lost as a result of an accident as recognized by the
Worker's Compensation Board.
(b) Time, not exceeding one year, lost as a result of a
non-occupational accident or illness, provided that the employee has
completed the probationary period as outlined in Article 14.02, and
that he returns to his employment.
(c) Time spent on earned vacations.
(d) Time spend on holidays as defined in Article 7 of this
Agreement.
(e) Time absent from work because of Jury Duty or as a subpoenaed
witness.
(f) Time absent from work because of a death in family.
(g) Time absent from work on approved leaves of absence.
18.10 Employees employed by the Company on May 1st of any year and
who have: (a) Less than twelve (12) months continuous service and
do not qualify under 18.11 below will be granted one quarter ( 1/4) of
a day's vacation with pay for each full week of work performed in the
immediately preceding vacation period. No vacation of less than one
(1) day, nor more than eight (8) days will be granted under this
provision. Fractional entitlements will be rounded off to the nearest
full day; eg: an employee with three and one-quarter (3 1/4) days
vacation credit will be granted three (3) days vacation; whereas, an
employee with three and one-half (3 1/2) or three and three quarters
(3 3/4) days vacation credit will be granted four (4) days vacation.
Pay for such vacations will be computed at four per cent (4%) of the
employee's actual earnings during the vacation period in which the
vacation was earned.
18.11 Employees on the payroll of the Company on May 1st who have
1400 hours continuous service have qualified for a first vacation and
shall be granted two (2) weeks vacation with pay. Pay for such
two-week vacation shall be four per cent (4%) of the employee's actual
earnings during the vacation period in which the vacation was earned,
OR two weeks base pay computed on the basis of the employee's regular
job rate at the time he goes on vacation, whichever is greater.
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<PAGE> 22
18.12 Employees on the payroll of the Company on May 1st who qualify
for a second vacation shall be granted three (3) weeks vacation with
pay. Pay for such three-week vacation shall be six per cent (6%) of
the employee's actual earnings during the immediately preceding
vacation period, OR three weeks base pay computed on the basis of the
employee's regular job rate at the time he goes on vacation, whichever
is greater.
18.13 Employees on the payroll of the Company on May 1st who qualify
for a 7th vacation shall be granted four (4) weeks vacation with pay.
Pay for such four-week vacation shall be eight per cent (8%) of the
employee's actual earnings during the immediately preceding vacation
period, OR four weeks base pay computed on the basis of the employee's
regular job rate at the time he goes on vacation, whichever is
greater.
18.14 Employees on the payroll of the Company on May 1st who qualify
for a 17th vacation shall be granted five (5) weeks vacation with pay.
Pay for such five-week vacation shall be ten per cent (10%) of the
employee's actual earnings during the immediately preceding vacation
period, OR five weeks base pay computed on the basis of the employee's
regular job rate at the time he goes on vacation, whichever is
greater.
18.15 Employees on the payroll of the Company on May 1st who qualify
for a 24th vacation shall be granted six (6) weeks vacation with pay.
Pay for such six week vacation shall be twelve per cent (12%) of the
employee's actual earnings during the immediately preceding vacation
period, OR six weeks base pay computed on the basis of the employee's
regular job rate at the time he goes on vacation, whichever is
greater.
18.16 Employees on the payroll of the Company on May 1st who qualify
for a 30th vacation shall be granted seven (7) weeks vacation with
pay. Pay for such seven week vacation shall be fourteen per cent
(14%) of the employee's actual earnings during the immediately
preceding vacation period, OR seven weeks base pay computed on the
basis of the employee's regular job rate at the time he goes on
vacation, whichever is greater.
18.17 For the purpose of calculating vacation pay, actual earnings
shall not include profit sharing earnings.
18.18 After completing the necessary period of continuous service
with the Company, an employee shall, in addition to the regular
vacation to which he is entitled, become eligible to receive a
Supplementary Vacation with pay as set forth below:
<TABLE>
<CAPTION>
Year of Completed Continuous Service Supplementary Vacation
- - ------------------------------------ ----------------------
<S> <C>
After 5 years 1 week
After 10 years 2 weeks
After 15 years 2 weeks
After 20 years 2 weeks
After 25 years 2 weeks
After 30 years 1 week
</TABLE>
(a) The Supplementary Vacation must be taken within five (5) years
of the employee's becoming eligible or before his becoming
eligible for his next earning period of Supplementary Vacation
as above, whichever comes first.
(b) For the purpose of determining eligibility for Supplementary
Vacation, an employee's service shall be calculated from the
date of his joining the Company.
19
<PAGE> 23
(c) The Supplementary Vacation may be taken in conjunction with
the regular vacation to which the employee is entitled,
subject to Article 18.03.
(d) One week's Supplementary Vacation pay shall be equal to 37
1/3 hours at the straight time hourly rate of the employee's
regular job.
(e) At retirement or termination from the Company an employee who
has qualified for Supplementary Vacation shall be entitled to
that portion of Supplementary Vacation Pay proportionate to
the number of years of service completed subsequent to his
last five-year entitlement period.
Article 19
TEMPORARY EMPLOYEES
19.01 A temporary employee shall be an employee who is hired to fill
a temporary labour need, be it skilled or unskilled.
19.02 He shall be considered a temporary employee for up to one
year.
19.03 The company will notify the Union when a temporary employee is
being hired.
19.04 All articles, with the exception of Article 14, will apply to
temporary employees.
Article 20
JOB CLASSIFICATIONS AND JOB RATES
20.01 Job classification during the term of this Agreement shall be
in accordance with Appendix "A" appended hereto.
20.02 Job rates as detailed in Appendix "A" will be made effective
December 1, 1994 and will remain in effect until November 30, 1997.
Article 21
WAGE RATE ADJUSTMENTS
21.01 Job rate shall be defined as the wage rate for any job
classification as listed in Appendix "A", "Job Classifications and Job
Rates" and excludes all premium pay, bonuses, shift differentials and
allowances of any type or kind.
21.02 Should the Company introduce a change(s) that will affect job
content during the term of the Agreement, the following procedure
shall apply:
(a) The Company shall notify the Union as far in advance of the
change(s) as is practicable.
(b) The Company shall describe the change(s) and provide an
estimate of the effect on Union members' jobs.
20
<PAGE> 24
(c) After an appropriate period from commissioning the change(s),
up to SIXTY (60) DAYS, a new rate will be settled by
discussion between the Company and Union Standing Committee.
(d) The Company agrees that failure to resolve any differences
there may be after discussions, may result in the Union filing
a grievance, as herein provided, alleging that the new rate is
incompatible with relevant internal and external comparisons.
The company agrees that any change in the new rate that may
result from grievance procedure, discussions, or from an arbitration
decision will be made retroactive to the date on which the new rate
was first applied or the date on which the job changed, whichever
first occurs.
21.03 If an employee is temporarily transferred to a job paying a
higher rate he shall be paid the higher rate.
21.04 It is understood that when an employee is being trained for a
higher paying job he shall receive this regular job rate.
Article 22
OVERTIME AND PREMIUM TIME
22.01 Overtime
Overtime shall be either all authorized time worked in excess
of nine and one third (9-1/3) hours in a twenty-four (24) consecutive
hour period, starting when an employee reports for work; or, all hours
worked in excess of thirty seven and one third (37-1/3) hours in any
one week except in the case of those employees assigned to the 12-hour
shifts when overtime shall be all hours worked in excess of 12 hours
in a 24 consecutive hour period, starting when an employee reports for
work, or all hours worked in excess of 36 or 48 hours per week
depending on whether such 36 or 48 hours per week fall into the
regular schedule of 3 days on and 3 days off.
(a) In the event an employee is required to work overtime
hours that run continuously from the end of this
previous shift and extend past midnight when such
employee is scheduled to report for work at 0700
hours (or 0630 HRS) following, then the employee will
not actually be required to report for work until
eight hours after completing the overtime and any
straight time earnings lost as a result will be paid
the employee affected.
(b) In the event an employee is called in to work
overtime hours that occur in, or extend into, the
period between 2330 Hrs. and 0700 Hrs. (or 0630 Hrs)
when such employee is scheduled to report for work at
0700 Hrs. (or 0630 Hrs), when the time worked in this
period is one or more hours the employee will not be
required to report for work for a period past 0700
Hrs. (or 0630 Hrs) equivalent to the hours worked
during the 2330 Hrs. to 0700 Hrs. (or 0630 Hrs)
period, straight time earnings lost as a result will
be paid the employee affected.
22.02 In those weeks when a day worker works a scheduled 37 1/3
hour week, hours in excess of 37 1/3 hours shall be paid at overtime
rates.
22.03 All authorized overtime shall be paid at double time.
21
<PAGE> 25
22.04 For the purpose of avoiding pyramiding of overtime, hours
compensated for at overtime or premium time rates shall not be counted
further for any purpose in determining overtime liability under the
same or any other provision.
22.05 Shift Premiums shall not be included when computing pay for
overtime. Sunday Premiums shall not be included when computing pay
for overtime.
22.06 Time exchanged between employees, hours worked as a result of
shift change, shall be paid for at the regular straight time hourly
rate of the employee scheduled to work at that time plus shift
differential applicable to the time worked. Such changes must have
the approval of the supervisor concerned.
22.07 Where an employee's shift schedule is changed with less than
48 hours notice then the employee will be paid overtime for the first
shift worked (except as noted in 17.04(a)).
22.08 Sunday Premium
A premium per hour shall be paid to all workers for work
performed on Sunday which shall be known as "Sunday Premium".
<TABLE>
<CAPTION>
Effective Premium
---------- -------
<S> <C>
December 1st, 1994 $ 1.59
December 1st, 1995 $ 1.63
December 1st, 1996 $ 1.68
</TABLE>
22.09 Shift Differentials
(a) A differential of One Dollar and Forty Four cents
($1.44) per hour for all hours worked on scheduled evening
night shifts between the hours of 1830 and 0630.
(b) The shift premium increases from $1.44/hr. to
$1.48/hr. in the second year (December 1, 1995). Shift
premium increases from $1.48/hr. to $1.52/hr. in the third
year (December 1, 1996).
(c) An employee working on a regularly scheduled night
shift shall continue to receive the shift differential for
overtime worked beyond 0630 hrs.
22.10 In the event that an employee is called in and reports to work
at least one full shift before his regular starting time he shall
continue to receive overtime rates if he is asked to continue on into
this regular shift.
22.11 A hot meal, value of $12.50 shall be provided for any employee
called in to work four (4) hours or more on a scheduled day off or if
less than 24 hours notice is given, or for two (2) hours or more if
these overtime hours are continuous with his regular scheduled hours,
and every four hours thereafter.
In the latter case, depending on the urgency of the work
involved, the meal may be taken prior to or during the overtime period
provided the actual time worked is two (2) hours or more.
When a maintenance employee is called in to work, he will
receive the hot meal allowance after four (4) hours of work and every
(4) hour hours thereafter, until the completion of the work.
Meal vouchers will be included on the pay cheque and be a
taxable benefit.
22
<PAGE> 26
Article 23
JURY DUTY PAY
23.01 The Company will pay an employee called for Jury Duty or as a
subpoenaed witness, the difference between the jury duty or witness
pay and his straight time pay, provided he works his regular shift
when not performing such jury or witness service. The employee will
be required to furnish proof of performing such service and such duty
pay received.
Article 24
BEREAVEMENT LEAVE
24.01 In the event of a death of a member of an employee's immediate
family, the employee will be allowed a reasonable time off. The
Company will pay such employee his straight time pay for any of his
scheduled working days lost immediately following the death, up to a
maximum of three (3) days to attend the funeral. If the employee is
unable to attend such funeral, he will be allowed one (1) day off for
personal reasons for which he will be reimbursed, at this straight
time rate for any wages lost during such absence.
"Immediate Family" means Father, Mother, Child, Spouse, Brother,
Sister, Father-In-Law, Mother-In-Law, Step-Father, Step-Mother,
Step-Children, Grand Parents and Grand Children, Son-In-Law and
Daughter-In-Law.
Article 25
MAINTENANCE DEPARTMENT APPRENTICES
25.01 Appendix "B" attached hereto and entitled "Maintenance
Apprenticeship" shall be part of this agreement.
Article 26
SUSPENSION AND/OR DISCHARGE
26.01 When in the opinion of the Company disciplinary action
involving suspension or discharge become necessary the Union shall be
notified of that intent and the reasons therefore, prior to the
action, if such prior notification is practicable. Further the
Company welcomes pertinent discussion with the Union about the
suspension or the discharge prior to that action when practicable.
26.02 In the event that an employee has been discharged and it is
alleged that he has been unjustly dealt with the grievance procedure
may be used. The grievance must be submitted to the Company in
writing within seven (7) days of the discharge and in such cases steps
one and two of the grievance procedure shall be omitted.
23
<PAGE> 27
Article 27
LEAVE OF ABSENCE
27.01 The Company will consider granting a leave of absence to
employees for personal reasons consistent with the continued and
efficient operation of the plant, and provided there is a minimum of
disruption to fellow employees.
27.02 The length of such leave of absence in any one year shall be:
(a) Those employees with more than one year's service but less
than five year's service - up to one week.
(b) Those employee with more than five year's service - up to
one month.
However under extenuating circumstances, the Plant Manager may
alter the above conditions at his sole discretion.
27.03 Such leave of absence shall be without remuneration.
27.04 A leave of absence must be applied for in writing.
27.05 It will be the responsibility of the employee to arrange with
the Company for the payment, suspension, or other disposition, of the
Company sponsored welfare plans at the time of applying for such leave
of absence.
27.06 No employee will be granted a leave of absence to accept other
employment. It is understood, however, that other employment does not
include duties as elected union officers, elected political
representative, (ie: M.L.A., M.P., Councillor, Mayor, etc), or other
such assignments, for which remuneration may be paid.
27.07 The following specific exceptions will be made to the above
were a leave of absence is granted by the Company to an employee in
order that he may accept an elected Union or political office (as in
27.06 above).
(a) It is agreed that an employee who is elected or appointed to
Union office shall be granted sufficient leave in order to perform the
duties of the position. The length of such leave of absence may be up
to one year or for the elected term.
(b) The employee will continue to accumulate seniority.
27.08 Parental leave as outlined in the Employment Standards Act.
Article 28
COMMITTEES
28.01 The Company shall appoint a Company Standing Committee of
three (3) individuals which shall represent the Company.
28.02 The Union shall select from its membership of employees at
Sterling Pulp Chemical's North Vancouver plant a Union Standing
Committee of three (3) which shall represent the Union for the purpose
stated in this Agreement.
24
<PAGE> 28
28.03 (a) The Company and Union Standing Committee shall meet quarterly
to discuss items of mutual interest. The agenda for each
meeting shall consist of the following items.
i) Safety
ii) Changes to the plant that will affect Union members.
Where the change(s) is significant. Workers for the
affected areas will be included to provide their
input in subsequent discussions.
iii) Other items.
(b) Minutes of these meetings shall be distributed for signatures
within one (1) week after the meeting.
Article 29
TRAINING
29.01 The Company recognizes its responsibility to ensure that its
employees are adequately trained to perform their jobs in a
satisfactory manner. The Company will institute a training programme
for all Production employees under the direction of the Production
Manager or his appointee so that the opportunity will be given to each
employee to perform his job satisfactorily and to satisfactorily
perform the duties of the next higher job classification. The Union
recognizes that it is to the mutual benefit of both parties to have an
adequately trained workforce.
Article 30
TECHNOLOGICAL CHANGE AND TERMINATION PAY
30.01 The Company will endeavour to give as much prior notice of
technological change however, not less than 90 days before the date on
which the technological change is to be effected.
The notice of technological change shall be in writing and
shall state:
(a) Nature of the technological change.
(b) Date of which technological change will be effected.
(c) Approximate number and type of employees likely to be
affected by the technological change.
If the Company and Union are unable to resolve their
differences regarding technological change, final and conclusive
settlement, without work stoppage, shall be by arbitration or another
method agreed to by the parties.
30.02 The Company agrees to pay termination pay to employees
permanently laid off because of plant closure, automation,
technological change, modernization or for economic reasons at the
rate of pay of two (2) weeks pay per year of service. In the event of
plant closure the Company agrees to negotiate with the Union the
termination payout. The Company also agrees to cooperate with the
Government to minimize the impact of plant closure.
The terms of payout shall be defined as:
(a) Initial payment conforming to provisions of the
Employment Standards Act.
(b) Remainder, if applicable, on expiry of recall rights.
25
<PAGE> 29
(c) A laid off employee may request in writing payment of
his termination pay after three (3) months on layoff
providing the employee agrees in writing to waive his
remaining recall rights.
30.03 When an employee is terminated as a direct result of plant
closure, automation, and/or technological change, Management will
assist the Union in communicating with Canada Manpower to advise them
of the suitability of the employee for re-training and re-location in
another job, and request that they use their facilities for this
purpose.
In the event of plant closure, the company will endeavor to
give as much prior notice as possible, however, not less than 90 days.
30.04 The Company agrees to retrain those employees whose jobs
cease to exist due to Modernization or Expansion, for other jobs
within the plant.
This excludes employees who are laid off or terminated and
does not obligate the Company under the Maintenance Apprenticeship
program.
Article 31
CONTINUOUS 12-HOUR SHIFTS
The parties hereto agree to the following terms and conditions
relating to the continuous rotating shift schedule, as hereafter defined.
31.01 The work schedule considered herein will be applicable to The
Job Classifications, currently on the existing continuous rotating
shift schedule, in the Production Department.
31.02 The shift schedule is as per Appendix D.
31.03 Upon converting to a revised schedule and during the first
week under it, no premiums will be paid to an employee for the sole
reason of transferring from one standard work week to another standard
work week.
31.04 Each employee's pay will be calculated on a weekly basis.
However, if an employee wishes, the Company will hold back a fixed
amount each week the employee works in excess of 36 hours, to be paid
to the employee at the time he gets his "9 days off". It is clearly
understood that this holdback of pay will not be flexible, and will
only be paid to the employee when he takes his scheduled 9 days off.
31.05 Vacations will be allotted on a weekly basis and will be paid
on a 37 1/3 hr. basis.
Article 32
HEALTH AND WELFARE
32.01 Benefits of hourly-paid employees during the term of this
Agreement shall be in accordance with appendix "C" appended hereto.
For full details refer to the current Sterling Pulp Chemicals Plan
Texts and Associated policies. For ease of reference, see the current
Employees Benefits Program booklet.
26
<PAGE> 30
32.02 U.I.C. Premium reduction will be applied to funding the
benefits package.
32.03 For the purposes of Weekly Indemnity claims the waiting period
will be "0" days for both illness and accidents and subsequently the
claim will be paid on the first calendar day.
This article will be subject to review by the members of the
Union Standing Committee and Company after both a six and a twelve
month period after implementation and if the general sickness or
absence from work has increased then it is mutually agreed that the
one day waiting period (as it presently exists) will be re instated.
Article 33
PENSION PLAN
33.01 a) There shall be a Pension Plan for all employees with
contributions made by the Company, to provide for the needs of
the employees upon retirement.
b) Pension benefits are increased from $38.50/month/year
to $40.00/month/year December 1, 1995 and benefit increases to
$41.00/month/year December 1, 1996.
c) Spousal Pension - Effective December 1st, 1994 the
spousal benefit is 60% for all years of service.
LETTER OF UNDERSTANDING
Credited service for future retirees is calculated from day one, provided the
employee has satisfied the probation period (40 working days). All other terms
as per Plan Text.
27
<PAGE> 31
EARLY RETIREMENT PROVISION
I Effective September 8, 1992, retirement at 60 years of age
with 20 years of service with no reduction.
Effective December 1st, 1994 the following reduction from age
60 to 55 with 20 years service apply (.41667%/month reduction to age
55)
<TABLE>
<CAPTION>
Age Years of Service Reduction
--- ---------------- ---------
<S> <C> <C>
65 20 0 %
64 20 0 %
63 20 0 %
62 20 0 %
61 20 0 %
60 20 0 %
59 20 5 %
58 20 10%
57 20 15%
56 20 20%
55 20 25%
</TABLE>
II Age 55-64 minimum of 10 years service - 1/4 of 1% per month
for each month of early retirement -/from 60 to 64 plus 1/2 of 1% per
month prior to age of 60 (55-60)
<TABLE>
<CAPTION>
Current age of 60 (55 to 60) Schedule
<S> <C>
65 0%
64 3%
63 6%
62 9%
61 12%
60 15%
59 21%
58 27%
57 33%
56 39%
55 45%
</TABLE>
III Age 55 to 64 - less than 10 years service - 1/2 of 1% per
month for each month of early retirement prior to age 65.
<TABLE>
<CAPTION>
Schedule
<S> <C>
65 0%
64 6%
63 12%
62 18%
61 24%
60 30%
59 36%
58 42%
57 48%
56 54%
55 60%
</TABLE>
28
<PAGE> 32
Bridging:
a) Effective December 1, 1988 a bridging formula of
$15.00 per month per year service will be available to those
retiring between age 63 and 65. A minimum of 10 years service
is required for bridging.
b) Bridging will be provided for John Hunt for 5 years
of service at age 63 (effective February 1995). This will be
done outside of the existing Pension Plan and is on a one time
only basis.
Article 34
BANKING OF OVERTIME
This article will be reviewed in six (6) months and again in twelve
(12) months to correct any administrative problems.
34.01 It is understood and agreed that the voluntary banking of
overtime hours will involve no extra time or cost to the company, nor
will it affect the smooth and efficient operation of the plant.
34.02 Time off in lieu of overtime will receive low priority and
requires mutual agreement between supervisor and employee.
34.03 Overtime pay and/or hours may be banked.
34.04 Overtime hours may be banked to a maximum of thirty-six (36)
hours at any one time.
34.05 Overtime pay may be banked with no maximum. Pay may be drawn
out on any regular pay period. Balances in excess of 36 hours not
withdrawn by September 30th of each year will be paid out in the
following pay period.
34.06 Overtime pay may be taken when earned and hours banked.
29
<PAGE> 33
APPENDIX "A" - JOB CLASSIFICATIONS AND RATES
<TABLE>
<CAPTION>
CLASSIFICATION DEC.1/93 DEC.1/94 DEC.1/95 DEC.1/96
- - -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Tradesperson 24.66 25.28 25.91 26.69
Storesperson 21.26 21.79 22.33 23.00
Maintenance Helper 19.96 20.46 20.97 21.60
Senior Relief Operator 24.66 25.28 25.91 26.69
Crystal Operator 24.66 25.28 25.91 26.69
Cell Operator 24.56 25.17 25.80 26.57
Brine Operator (4TH Class Steam Ticket) 22.71 23.28 23.86 24.58
Brine Operator 22.28 22.84 23.41 24.11
Relief Brine Operator 19.96 20.46 20.97 21.60
Labourer 18.89 19.36 19.84 20.44
</TABLE>
<TABLE>
<S> <C> <C>
Wage increases: December 1/94 2 1/2 % OF Hourly Rate
December 1/95 2 1/2 % OF Hourly Rate
December 1/96 3 % of Hourly Rate
</TABLE>
MULTI SKILLS / DUAL TRADES
1. Multi Skills is defined as a plant recognized provincial TQ
Ticket (as defined below) plus in house training for instrumentation,
Level "C" Provincial Welding certificate or a BCIT Pipefitting
Certificate Program (or equivalent).
2. Dual Trades is defined as two plant recognized TQ
qualifications (as defined below), a single plant recognized TQ ticket
plus a Level "B" welding certificate or successful completion of a
SAIT (or equivalent) correspondence course for instrumentation.
3. Based on the needs of the plant, multi skills training will be
provided to personnel meeting the necessary qualifications.
4. Minimum qualifications is a provincial TQ ticket in at least
one of the required trades:
Electrician
Instrument Mechanic
Millwright
Pipefitter
Welder
5. Employee must be presently active in one of the above trades.
6. A selection board similar to Appendix "B" with a plant
committee member representing the bargaining unit will determine who
will receive the multi skills training.
7. Such training does not preclude the possibility of hiring from
outside the present bargaining unit for a dual trades person if such a
tradesperson were required or needed at the plant.
30
<PAGE> 34
8. A $0.50/hr premium will be paid after successful completion of
the training for the multi skilled position.
9. An additional $0.50/hr premium will be paid for the dual
trades position as defined in Section 2.
31
<PAGE> 35
LETTER OF UNDERSTANDING
Based on the needs of the plant, the intent is to provide
multi skills training to at least two tradespersons during the
duration of this contract.
/s/ DEAN R. KIBSEY
/s/ ROGER K. THOMEY
October 21st, 1994
32
<PAGE> 36
APPENDIX "B"
MAINTENANCE APPRENTICESHIP
1. PURPOSE
To train Tradespersons of the highest calibre consistent with
plant requirements.
2. SCOPE
The program will embrace the Electrical, Instrument Mechanic,
Millwright, Pipefitter and Welder trades and will be run in
conjunction with the B.C. Department of Labour Apprenticeship Training
Branch. Other trades may be added in the future as required. It is
intended that there will be no more than one apprentice in each trade
at any one time.
*3. STERLING PULP CHEMICALS APPRENTICESHIP BOARD
(Otherwise known as "The Board")
The Board will be established consisting of the Plant Manager,
(Chairman), the Maintenance Manager, a member of the personnel
function, and a Tradesperson employee of the designated trade involved
to made the final selection of apprentices. Said Board will also
review the progress of the apprentice from time to time and will be
empowered to take appropriate action. The tradesperson employee
member of the board will be appointed by the Plant Manager after due
consultation with the Union.
4. SELECTION OF CANDIDATES
Candidates will be selected from interested employees, recent
high school/technical school graduates, and graduates from accredited
pre-apprenticeship training course. Psychological, I.Q. aptitude
tests and other such aids may be used in assessing prospective
candidates. Apprentices will be selected on the basis of ability,
personality, and attitude.
5. JOB SECURITY
Apprenticeship training under this program does not constitute
guaranteed employment to a graduate. He retains and accumulates
seniority while employed as an apprentice, as spelled out in the Union
Contract, and as such is treated as any other employee on graduation.
Over and above any provisions in the B.C. Department of Labour
Apprenticeship program for the termination of unsuitable candidates,
and apprentice will be on probation for the first year and the Company
retains the right to terminate the apprentice if, in the opinion of
the "Board", the candidate is in any way unsuitable.
6. PAY SCHEDULE
The pay schedule for apprentices will be as follows:
<TABLE>
<S> <C> <C>
1st 6 months - Labourer rate
2nd 6 months - Mech. "A" Rate less 7/8 spread
(Labourer rate to Tradesperson rate)
3rd 6 months - Tradesperson Rate less 6/8 spread
4th 6 months - Tradesperson Rate less 5/8 spread
5th 6 months - Tradesperson Rate less 4/8 spread
6th 6 months - Tradesperson Rate less 3/8 spread
7th 6 months - Tradesperson Rate less 2/8 spread
8th 6 months - Tradesperson Rate less 1/8 spread
On graduation - Tradesperson Rate
</TABLE>
33
<PAGE> 37
While an apprentice is in school the Company will make up his
pay to his regular weekly pay less all government sponsored allowances
available. Additional travelling and living expenses will not be
paid.
For the purpose of calculating the regular weekly pay for
classroom training, the average weekly hours will be used, ie: 37 1/3
hours.
7. PROGRAM
On the job training will be done under the direction of the
Maintenance Manager through skilled Tradesperson. The apprentice
will be expected to perform useful tasks relating to maintenance in
general and to a large degree his selected trade in particulate. In
no circumstances is an apprentice to be considered a helper.
8. TOOLS
Apprentices will be expected to provide their own hand tools
within a reasonable period of time.
9. Apprentices will be considered as part of the bargaining unit
and will become Union members as provided for in the Sterling Pulp
Chemicals Union Contract. They shall be subject to the rights,
privileges and responsibilities of full Union membership except as
herein specified.
34
<PAGE> 38
APPENDIX "C"
BENEFITS OF HOURLY-PAID EMPLOYEES
NORTH VANCOUVER PLANT
<TABLE>
<CAPTION>
WEEKLY LONG TERM
INDEMNITY DISABILITY LIFE A D & D
--------- ---------- ---- -------
<S> <C> <C> <C> <C>
ELIGIBILITY 3 MONTHS 3 MONTHS 3 MONTHS 3 MONTHS
BENEFITS 75% 60% $85,000 $ 85,000
HOURS LOST BASIC MONTHLY WAGE
DEC. 1/94 MAX. $2250
DEC 1/95 MAX. $2500
DEDUCTIBLE - - - -
ELIMINATION 0-DAYS ACC. 26 WEEKS - -
PERIOD 0 DAY ILL
DURATION PERIOD 26 WEEKS 10 YEARS/OR TO - -
AGE 65
AMOUNT OF - - 50% OF BENEFIT -
RETIREMENT $85000 DECR.
5%/YR MIN 25%
RETIREMENT - - - -
CARRIER SPC SUNLIFE SUN LIFE SUN LIFE
SPC PAYS 90% 90% 96% 96%
EMPLOYEE PAYS 10% 10% FIRST $1000 OF FIRST $1000 OF
COVERAGE COVERAGE
TERMINATION DATE ACTIVE AS W.I. OTHER THAN DEATH OR DATE DEATH OR DATE
EMPLOYMENT SICK, INJURY OR EMPLOYMENT EMPLOYMENT
CEASES VACATION PAY TERMINATES TERMINATES
VESTING - - - -
</TABLE>
<TABLE>
<CAPTION>
EXTENDED
MEDICAL HEALTH
SERVICE PLAN BENEFITS DENTAL PENSION
------------ -------- ------ -------
<S> <C> <C> <C> <C>
ELIGIBILITY 1 MONTH 1 MONTH 3 MONTHS PROBATION
PERIOD/40 DAYS THEN DAY
ONE.
BENEFITS ALL MEDICAL, 80% OF 1ST $1000/YR 100% DIAGNOSTIC DECEMBER 1, 1993
SURGICAL AND 100% ABOVE PREVENTIVE/RESTORATIVE $38.50/MONTH/YEAR
OBSTETRICAL $1000/YR 75% PROSTHETICS DECEMBER 1, 1995
MAX $100,000/ YR. 50% CROWNS, BRIDGES $40/MONTH/YEAR
RENEWABLE EACH 50% ORTHODONTICS DECEMBER 1, 1996
YEAR - $2,500.00 $41/MONTH/YEAR
LIFETIME LIMIT 60% SPOUSAL
DEDUCTIBLE - $25/PERSON OR AMOUNTS IN EXCESS OF -
FAMILY PER YEAR B.C. FEE GUIDE
ELIMINATION - - - -
PERIOD
DURATION PERIOD - - - -
AMOUNT OF - - - BENEFIT IN EFFECT AT
RETIREMENT RETIREMENT X YEARS OF
SERVICE
RETIREMENT - - - AGE 65; 60/20 YEARS
CARRIER M.S.P. M.S.A. BLUE CROSS STANDARD LIFE /
MONTREAL TRUST
SPC PAYS 100% 100% 90% -
EMPLOYEE PAYS - - 10% -
TERMINATION LAST DAY OF MONTH LAST DAY OF MONTH LAST DAY OF THE MONTH DEATH OR TERMINATION OF
WHICH EMPLOYMENT WHICH EMPLOYMENT WHICH EMPLOYMENT EMPLOYMENT
TERMINATES TERMINATES TERMINATES
VESTING - - - AFTER 2 YEARS SERVICE
IN PLAN
</TABLE>
35
<PAGE> 39
LETTER OF INTENT
In cases where a sickness is in excess of two weeks and a doctor's
certificate has been presented to the Company, the Company will pay the
employee his lost time wages for the first day of disability up to a maximum of
12 or 9 hours straight time wage, only if it was a scheduled work day.
LETTER OF INTENT
Agreed to eliminate for the term of the agreement requirement for
physician's statement for absences due to non-occupational sickness or
accident up to one week. Physician's statement may be required at the
discretion of the supervisor.
LETTER OF UNDERSTANDING
Supplementary Benefit Fund
The company (Sterling Pulp Chemicals) agrees to allocate the following
amounts of money to a trust fund to be set up by PPWC #5 for use as a
supplementary benefit fund for current and past members of the local.
Effective September 8, 1992 the company will contribute *$0.35/hour
(contribution increased from $0.30/hr. to $0.35/hr. in year 1), to the fund.
Utilization/application of this supplementary benefit shall be at the
discretion of members of the local. The company will be kept informed as to
application of the fund.
This fund will not prejudice the Company reviewing the ad hoc
increases to retirees.
An additional $0.016/hr. will be added to the fund effective September
8, 1992 to allocate the surplus funding from supplemental vacation. This
brings the contribution to *$0.366/hr.
* Based on 37 1/3 Hrs/week. (For all employees.)
LETTER OF UNDERSTANDING
Pension Benefit Costs
$1.00 increase in benefit rate costs $.12/hr. based on the new Solvency
Deficiency funding scheduled for January 1, 1993.
If there is a means of avoiding the reduced amortization period (increased
cost) then the company agrees to put the surplus funds into other benefits upon
discussion with the union.
36
<PAGE> 40
UNION HAS PROPOSED THE FOLLOWING:
The Company and the Union will agree in principle to discuss the L.T.D. funding
mechanism with the objective of arriving at a mutually acceptable proposal
which is acceptable to revenue Canada and which is a no-cost (no additional
cost) item for both parties.
37
<PAGE> 41
Appendix "D"
Production Schedule
Sterling Pulp Chemicals, Ltd.
North Vancouver
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
8/29/94 8/30/94 8/31/94 9/1/94 9/2/94 9/3/94 9/4/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A A D D D B
Operator B B B C C C A
Cell H H H E E E E
Operator F F F G G G H
Brine K K K L L L J
Operator J J J I I I K
Spare VD
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/5/94 9/6/94 9/7/94 9/8/94 9/9/94 9/10/94 9/11/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B C C C VD VD
Operator A A D D D B B
Cell F F G G G H H
Operator H H E E E F F
Brine J J I I I K K
Operator K K L L L J J
Spare VD VD
Sen. Op. DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/12/94 9/13/94 9/14/94 9/15/94 9/16/94 9/17/94 9/18/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD D D D DK DK DK
Operator B C C C A A A
Cell H E E E F F F
Operator F G G G H H H
Brine K L L L VD VD VD
Operator J I I I K K K
Spare
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/19/94 9/20/94 9/21/94 9/22/94 9/23/94 9/24/94 9/25/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C C A A A D
Operator D D D B B B C
Cell D D D VD VD VD E
Operator E E E F F F G
Brine I I I DK DK DK L
Operator L L L J J J I
Spare
Sen. Op.
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/26/94 9/27/94 9/28/94 9/29/94 9/30/94 10/1/94 10/2/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D B B B C C
Operator C C A A A D D
Cell E E DK DK DK GD G
Operator G G H H H E E
Brine L L J J J I I
Operator I I K K K L L
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/3/94 10/4/94 10/5/94 10/6/94 10/7/94 10/8/94 10/9/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C A A A VD VD VD
Operator D B B B C C C
Cell G H H H E E E
Operator E F F F G G G
Brine I K K K L L L
Operator L J J J I I I
Spare
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/10/94 10/11/94 10/12/94 10/13/94 10/14/94 10/15/94 10/16/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B B VD VD VD A
Operator A A A D D D B
Cell F F F G G G H
Operator H H H E E E F
Brine J J J DK DK DK K
Operator K K K L L L J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/17/94 10/18/94 10/19/94 10/20/94 10/21/94 10/22/94 10/23/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A D D D B B
Operator B B C C C A A
Cell H H DK DK DK F F
Operator F F G G G H H
Brine K K VD VD VD J J
Operator J J I I I K K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/24/94 10/25/94 10/26/94 10/27/94 10/28/94 10/29/94 10/30/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B C C C DK DK DK
Operator A D D D B B B
Cell F VD VD VD H H H
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator H E E E F F F
Brine J I I I K K K
Operator K L L L J J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/31/94 11/1/94 11/2/94 11/3/94 11/4/94 11/5/94 11/6/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D D DK DK DK C
Operator C C C A A A D
Cell E E E F F F G
Operator G G G H H H E
Brine L L L VD VD VD I
Operator I I I K K K L
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
11/7/94 11/8/94 11/9/94 11/10/94 11/11/94 11/12/94 11/13/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C A A A D D
Operator D D B B B C C
Cell G G VD VD VD E E
Operator E E F F F G G
Brine I I DK DK DK L L
Operator L L J J J I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
11/14/94 11/15/94 11/16/94 11/17/94 11/18/94 11/19/94 11/20/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D B B B C C C
Operator C A A A D D D
Cell E DK DK DK G G G
Operator G H H H E E E
Brine L J J J I I I
Operator I K K K L L L
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
11/21/94 11/22/94 11/23/94 11/24/94 11/25/94 11/26/94 11/27/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A A VD VD VD B
Operator B B B C C C A
Cell H H H E E E F
Operator F F F G G G H
Brine K K K L L L J
Operator J J J I I I K
Spare
Sen. Op. DK DK DK
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
11/28/94 11/29/94 11/30/94 12/1/94 12/2/94 12/3/94 12/4/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B DK DK DK A A
Operator A A D D D B B
Cell F F G G G H H
Operator H H E E E F F
Brine J J VD VD VD K K
Operator K K L L L J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
12/5/94 12/6/94 12/7/94 12/8/94 12/9/94 12/10/94 12/11/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A D D D B B B
Operator B C C C A A A
Cell H VD VD VD F F F
Operator F G G G H H H
Brine K DK DK DK J J J
Operator J I I I K K K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
12/12/94 12/13/94 12/14/94 12/15/94 12/16/94 12/17/94 12/18/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C C A A A D
Operator D D D B B B C
Cell DK DK DK H H H E
Operator E E E F F F G
Brine I I I K K K L
Operator L L L J J J I
Spare VD VD VD
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
12/19/94 12/20/94 12/21/94 12/22/94 12/23/94 12/24/94 12/25/94
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D B B B C C
Operator C C A A A D D
Cell E E F F F G G
Operator G G H H H E E
Brine L L J J J I I
Operator I I K K K L L
Spare VD VD VD
Sen. Op. DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
12/26/94 12/27/94 12/28/94 12/29/94 12/30/94 12/31/94 1/1/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C VD VD VD D D D
Operator D B B B C C C
Cell G H H H E E E
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator E F F F G G G
Brine I K K K L L L
Operator L J J J I I I
Spare
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
1/2/95 1/3/95 1/4/95 1/5/95 1/6/95 1/7/95 1/8/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK DK DK C C C A
Operator A A A D D D B
Cell F F F G G G VD
Operator H H H E E E F
Brine VD VD VD I I I DK
Operator K K K L L L J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
1/9/95 1/10/95 1/11/95 1/12/95 1/13/95 1/14/95 1/15/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A D D D B B
Operator B B C C C A A
Cell VD VD E E E DK DK
Operator F F G G G H H
Brine DK DK L L L J J
Operator J J I I I K K
Spare VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
1/16/95 1/17/95 1/18/95 1/19/95 1/20/95 1/21/95 1/22/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B C C C A A A
Operator A D D D B B B
Cell DK G G G H H H
Operator H E E E F F F
Brine J I I I K K K
Operator K L L L J J J
Spare VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
1/23/95 1/24/95 1/25/95 1/26/95 1/27/95 1/28/95 1/29/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD VD B B B DK
Operator C C C A A A D
Cell E E E F F F G
Operator G G G H H H E
Brine L L L J J J VD
Operator I I I K K K L
Spare
Sen. Op. DK DK DK
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
1/30/95 1/31/95 2/1/95 2/2/95 2/3/95 2/4/95 2/5/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK DK A A A D D
Operator D D B B B C C
Cell G G H H H VD VD
Operator E E F F F G G
Brine VD VD K K K DK DK
Operator L L J J J I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
2/6/95 2/7/95 2/8/95 2/9/95 2/10/95 2/11/95 2/12/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D B B B C C C
Operator C A A A D D D
Cell VD F F F DK DK DK
Operator G H H H E E E
Brine DK J J J I I I
Operator I K K K L L L
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
2/13/95 2/14/95 2/15/95 2/16/95 2/17/95 2/18/95 2/19/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD VD D D D DK
Operator B B B C C C A
Cell H H H E E E F
Operator F F F G G G H
Brine K K K L L L VD
Operator J J J I I I K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
2/20/95 2/21/95 2/22/95 2/23/95 2/24/95 2/25/95 2/26/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK DK C C C A A
Operator A A D D D B B
Cell F F G G G VD VD
Operator H H E E E F F
Brine VD VD I I I DK DK
Operator K K L L L J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
2/27/95 2/28/95 3/1/95 3/2/95 3/3/95 3/4/95 3/5/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A D D D B B B
Operator B C C C A A A
Cell VD E E E DK DK DK
</TABLE>
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator F G G G H H H
Brine DK L L L J J J
Operator J I I I K K K
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
3/6/95 3/7/95 3/8/95 3/9/95 3/10/95 3/11/95 3/12/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C C A A A VD
Operator D D D B B B C
Cell G G G H H H E
Operator E E E F F F G
Brine I I I K K K L
Operator L L L J J J I
Spare
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
3/13/95 3/14/95 3/15/95 3/16/95 3/17/95 3/18/95 3/19/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD B B B DK DK
Operator C C A A A D D
Cell E E F F F G G
Operator G G H H H E E
Brine L L J J J VD VD
Operator I I K K K L L
Spare
Sen. Op. DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
3/20/95 3/21/95 3/22/95 3/23/95 3/24/95 3/25/95 3/26/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK A A A D D D
Operator D B B B C C C
Cell G H H H VD VD VD
Operator E F F F G G G
Brine VD K K K DK DK DK
Operator L J J J I I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
3/27/95 3/28/95 3/29/95 3/30/95 3/31/95 4/1/95 4/2/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B B C C C A
Operator A A A D D D B
Cell F F F DK DK DK H
Operator H H H E E E F
Brine J J J I I I K
Operator K K K L L L J
Spare VD VD VD
Sen. Op.
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
4/3/95 4/4/95 4/5/95 4/6/95 4/7/95 4/8/95 4/9/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A D D D B B
Operator B B C C C A A
Cell H H E E E F F
Operator F F G G G H H
Brine K K L L L J J
Operator J J I I I K K
Spare VD VD
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
4/10/95 4/11/95 1/12/95 4/13/95 4/14/95 4/15/95 4/16/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B C C C VD VD VD
Operator A D D D B B B
Cell F G G G H H H
Operator H E E E F F F
Brine J I I I K K K
Operator K L L L J J J
Spare VD
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
4/17/95 4/18/95 4/19/95 4/20/95 4/21/95 4/22/95 4/23/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D D DK DK DK C
Operator C C C A A A D
Cell E E E F F F G
Operator G G G H H H E
Brine L L L VD VD VD I
Operator I I I K K K L
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
4/24/95 4/25/95 4/26/95 4/27/95 4/28/95 4/29/95 4/30/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C A A A D D
Operator D D B B B C C
Cell G G VD VD VD E E
Operator E E F F F G G
Brine I I DK DK DK L L
Operator L L J J J I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
5/1/95 5/2/95 5/3/95 5/4/95 5/5/95 5/6/95 5/7/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D B B B C C C
Operator C A A A D D D
Cell E DK DK DK G G G
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator G H H H E E E
Brine L J J J I I I
Operator I K K K L L L
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
5/8/95 5/9/95 5/10/95 5/11/95 5/12/95 5/13/95 5/14/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A A VD VD VD B
Operator B B B C C C A
Cell H H H E E E F
Operator F F F G G G H
Brine K K K L L L J
Operator J J J I I I K
Spare
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
5/15/95 5/16/95 5/17/95 5/18/95 5/19/95 5/20/95 5/21/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B VD VD VD A A
Operator A A D D D B B
Cell F F G G G H H
Operator H H E E E F F
Brine J J DK DK DK K K
Operator K K L L L J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
5/22/95 5/23/95 5/24/95 5/25/95 5/26/95 5/27/95 5/28/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A D D D B B B
Operator B C C C A A A
Cell H DK DK DK F F F
Operator F G G G H H H
Brine K VD VD VD J J J
Operator J I I I K K K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
5/29/95 5/30/95 5/31/95 6/1/95 6/2/95 6/3/95 6/4/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C C DK DK DK D
Operator D D D B B B C
Cell VD VD VD H H H E
Operator E E E F F F G
Brine I I I K K K L
Operator L L L J J J I
Spare
Sen. Op.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
6/5/95 6/6/95 6/7/95 6/8/95 6/9/95 6/10/95 6/11/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D DK DK D C C
Operator C C A A A D D
Cell E E F F F G G
Operator G G H H H E E
Brine L L VD VD VD I I
Operator I I K K K L L
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
6/12/95 6/13/95 6/14/95 6/15/95 6/16/95 6/17/95 6/18/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C A A A D D D
Operator D B B B C C C
Cell G VD VD VD E E E
Operator E F F F G G G
Brine I DK DK DK L L L
Operator L J J J I I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
6/19/95 6/20/95 6/21/95 6/22/95 6/23/95 6/24/95 6/25/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B B C C C A
Operator A A A D D D B
Cell DK DK DK G G G H
Operator H H H E E E F
Brine J J J I I I K
Operator K K K L L L J
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
6/26/95 6/27/95 6/28/95 6/29/95 6/30/95 7/1/95 7/2/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A VD VD VD B B
Operator B B C C C A A
Cell H H E E E F F
Operator F F G G G H H
Brine K K L L L J J
Operator J J I I I K K
Spare
Sen. Op. DK DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
7/3/95 7/4/95 7/5/95 7/6/95 7/7/95 7/8/95 7/9/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B DK DK DK A A A
Operator A D D D B B B
Cell F G G G H H H
</TABLE>
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator H E E E F F F
Brine J VD VD VD K K K
Operator K L L L J J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
7/10/95 7/11/95 7/12/95 7/13/95 7/14/95 7/15/95 7/16/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D D B B B C
Operator C C C A A A D
Cell VD VD VD F F F DK
Operator G G G H H H E
Brine DK DK DK J J J I
Operator I I I K K K L
Spare VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
7/17/95 7/18/95 7/19/95 7/20/95 7/21/95 7/22/95 7/23/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C A A A D D
Operator D D B B B C C
Cell DK DK H H H E E
Operator E E F F F G G
Brine I I K K K L L
Operator L L J J J I I
Spare VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
7/24/95 7/25/95 7/26/95 7/27/95 7/28/95 7/29/95 7/30/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D B B B C C C
Operator C A A A D D D
Cell E F F F G G G
Operator G H H H E E E
Brine L J J J I I I
Operator I K K K L L L
Spare VD VD VD
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
7/31/94 8/1/95 8/2/95 8/3/95 8/4/95 8/5/95 8/6/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD VD D D D DK
Operator B B B C C C A
Cell H H H E E E F
Operator F F F G G G H
Brine K K K L L L VD
Operator J J J I I I K
Spare
Sen. Op. DK DK DK
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
8/7/95 8/8/95 8/9/95 8/10/95 8/11/95 8/12/95 8/13/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK DK C C C A A
Operator A A D D D B B
Cell F F G G G VD VD
Operator H H E E E F F
Brine VD VD I I I DK DK
Operator K K L L L J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
8/14/95 8/15/95 8/16/95 8/17/95 8/18/95 8/19/95 8/20/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A D D D B B B
Operator B C C C A A A
Cell VD E E E DK DK DK
Operator F G G G H H H
Brine DK L L L J J J
Operator J I I I K K K
Spare VD VD VD
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
8/21/95 8/22/95 8/23/95 8/24/95 8/25/95 8/26/95 8/27/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C C A A A VD
Operator D D D B B B C
Cell G G G H H H E
Operator E E E F F F G
Brine I I I K K K L
Operator L L L J J J I
Spare
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
8/28/95 8/29/95 8/30/95 8/31/95 9/1/95 9/2/95 9/3/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD B B B DK DK
Operator C C A A A D D
Cell E E F F F G G
Operator G G H H H E E
Brine L L J J J VD VD
Operator I I K K K L L
Spare
Sen. Op. DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/4/95 9/5/95 9/6/95 9/7/95 9/8/95 9/9/95 9/10/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK A A A D D D
Operator D B B B C C C
Cell G H H H VD VD VD
</TABLE>
<PAGE> 53
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Operator E F F F G G G
Brine VD K K K DK DK DK
Operator L J J J I I I
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/11/95 9/12/95 9/13/95 9/14/95 9/15/95 9/16/95 9/17/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal B B B C C C VD
Operator A A A D D D B
Cell F F F DK DK DK H
Operator H H H E E E F
Brine J J J I I I K
Operator K K K I I I J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/18/95 9/19/95 9/20/95 9/21/95 9/22/95 9/23/95 9/24/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD VD D D D DK DK
Operator B B C C C A A
Cell H H E E E F F
Operator F F G G G H H
Brine K K L L L VD VD
Operator J J I I I K K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
9/25/95 9/26/95 9/27/95 9/28/95 9/29/95 9/30/95 10/1/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal DK C C C A A A
Operator A D D D B B B
Cell F G G G VD VD VD
Operator H E E E F F F
Brine VD I I I DK DK DK
Operator K L L L J J J
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/2/95 10/3/95 10/4/95 10/5/95 10/6/95 10/7/95 10/8/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal D D D B B B C
Operator C C C A A A D
Cell E E E DK DK DK G
Operator G G G H H H E
Brine L L L J J J I
Operator I I I K K K L
Spare VD VD VD
Sen. Op.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/9/95 10/10/95 10/11/95 10/12/95 10/13/95 10/14/95 10/15/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal C C A A A VD VD
Operator D D B B B C C
Cell G G H H H E E
Operator E E F F F G G
Brine I I K K K L L
Operator L L J J J I I
Spare
Sen. Op. DK DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/16/95 10/17/95 10/18/95 10/19/95 10/20/95 10/21/95 10/22/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal VD B B B DK DK DK
Operator C A A A D D D
Cell E F F F G G G
Operator G H H H E E E
Brine L J J J VD VD VD
Operator I K K K L L L
Spare
Sen. Op. DK
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/23/95 10/24/95 10/25/95 10/26/95 10/27/95 10/28/95 10/29/95
<S> <C> <C> <C> <C> <C> <C> <C>
Crystal A A A D D D B
Operator B B B C C C A
Cell H H H VD VD VD F
Operator F F F G G G H
Brine K K K DK DK DK J
Operator J J J I I I K
Spare
Sen. Op.
</TABLE>
<TABLE>
<CAPTION>
Mon Tue Wed Thu Fri Sat Sun
10/30/95 10/31/95 11/1/95 11/2/95 11/3/95
<S> <C> <C> <C> <C> <C>
Crystal B B C C C
Operator A A D D D
Cell F F DK DK DK
Operator H H E E E
Brine J J I I I
Operator K K L L L
Spare VD VD VD
Sen. Op.
</TABLE>
A - Hall
B - Chapman
C - Wilson
D - Kennedy
E - Thompson
F - Bruce
<PAGE> 55
G - Penzer
H - Hehn
I - Vass
J - Gatto
K - Baxter
L - Levesque
VD - Donegan
DK - Kibsey
<PAGE> 56
IN WITNESS WHEREOF we, the undersigned, have as the accredited representatives
of the respective parties to this Agreement hereunto set our signatures this
17th day of November 1994.
FOR: STERLING PULP FOR: PULP, PAPER & WOODWORKERS
CHEMICALS, LTD. OF CANADA, LOCAL 5
/s/ ROGER K. THOMEY /s/ GREGORY A. HALL
R.K. THOMEY G.A. HALL
PLANT MANAGER
/s/ T.X. SZPYTMAN /s/ D. R. KIBSEY
T.Z. SZPYTMAN, D.R. KIBSEY
ENVIRONMENTAL & PROJECT CO-ORD.
/s/ T. N. MILLER /s/ H. W. WEIR
T.N. MILLER H.W. WEIR
PRODUCTION MANAGER
/s/ HOWARD T. CHAPMAN
H.T. CHAPMAN
40
<PAGE> 1
EXHIBIT 13.1
STERLING CHEMICALS
1994 ANNUAL REPORT
(PHOTO)
(LOGO) STERLING CHEMICALS
<PAGE> 2
Cover: Below, Sterling's Texas City facility produces seven petrochemical
products. Its styrene monomer facility is one of the largest in the world.
Top, Sterling Pulp Chemicals operates four plants for the production of
sodium chlorate, including a plant at Buckingham, Quebec, Canada.
<PAGE> 3
CORPORATE PROFILE
Sterling Chemicals, Inc. produces styrene monomer, acrylonitrile, acetic acid,
plasticizers, lactic acid, tertiary butylamine and sodium cyanide at its
petrochemical facility in Texas City, Texas. Sterling also produces sodium
chlorate at four pulp chemical plants in Canada and sodium chlorite at one of
the Canadian locations, and licenses, designs and manages the construction of
large-scale generators to produce chlorine dioxide from sodium chlorate for
the pulp and paper industry.
Sterling is headquartered in Houston, Texas. Its stock is listed on the New
York Stock Exchange and traded under the symbol STX.
FINANCIAL HIGHLIGHTS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
1994 1993 1992 1991 1990
- - -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $700,840 $518,821 $430,529 $542,664 $506,046
- - -----------------------------------------------------------------------
Income (Loss) Before
Income Taxes and
Cumulative Effect of
Change in Accounting
Principle $ 28,254 $ (6,968) $ 9,254 $ 54,502 $ 88,452
- - -----------------------------------------------------------------------
Income (Loss) Before
Cumulative Effect of
Change in Accounting
Principle $ 19,132 $ (5,420) $ 4,538 $ 36,797 $ 59,083
- - -----------------------------------------------------------------------
Net Income (Loss) $ 19,132 $ (5,420) $(5,890) $ 36,797 $ 59,083
- - -----------------------------------------------------------------------
Net Income (Loss)
Per Share $ .34 $ (.10) $ (.11) $ .67 $ 1.07
- - -----------------------------------------------------------------------
Net Cash Provided by
(Used in) Operations $ 75,249 $ 48,114 $(3,752) $ 65,605 $ 85,384
- - -----------------------------------------------------------------------
</TABLE>
<PAGE> 4
Photo No. 1 Page 2 [Photo Description -- Above left, Gordon A. Cain Chairman of
the Board. Above right, J. Virgil Waggoner President and Chief Executive
Officer.]
To Our Shareholders:
We are pleased to report that the operating results for Sterling Chemicals
improved each successive quarter in fiscal 1994, with our fourth quarter
performance the best since the first quarter of fiscal 1991. Our improvement
resulted principally from the recovery underway in the global market for
commodity chemical products. During the past few years, the industry was in a
cyclical trough primarily caused by excess capacity and recessionary pressures
on demand.
The most dramatic improvement was in our largest volume product, styrene
monomer. The turnaround for styrene has been more rapid and pronounced than we
anticipated a year ago. In addition, market conditions for acrylonitrile and
our other petrochemical products strengthened during the year, and our pulp
chemical business also improved.
In fiscal 1994, Sterling's revenues were up 35% to $701 million compared to
revenues of $519 million for fiscal 1993. Our net profit was $19.1 million for
the year compared to a net loss of $5.4 million for fiscal 1993. Earnings per
share were $.34 compared to a loss of $.10 per share for the previous fiscal
year.
During fiscal 1994, we upgraded our facilities, reduced outstanding debt about
$66 million and continued our emphasis on our safety, environmental and quality
processes. We were able to take advantage of improving market conditions during
the year because of the operating reliability of our facilities. Continued
emphasis by our employees on cost reduction also enhanced our performance.
Petrochemical Business
Sterling is one of the largest producers of styrene in the world and a major
supplier to the merchant market. The cyclical nature of the styrene business is
determined by changes in the supply/demand balance worldwide. During the past
few years, styrene's profitability was depressed primarily because of
overcapacity even though the worldwide market for styrene continued to grow
each year.
2
<PAGE> 5
The United States continues to experience economic growth with the U.S.
automotive, housing and packaging markets being important contributors to the
recent increase in demand for styrene. Europe's economy is recovering and most
of the Asian countries are experiencing dramatic growth, as well.
By the spring of 1994, increased demand for styrene had absorbed much of the
excess capacity. In addition, some styrene plants experienced operating
difficulties during the year, which further tightened
the market. While some new capacity came on stream during 1994, the market
quickly absorbed it. Most plants were operating near full capacity during the
last half of our 1994 fiscal year and as a result, styrene prices and margins
increased significantly during the period.
We anticipate some incremental styrene capacity additions over the next few
years but demand growth should absorb the capacity additions during that
period.
The market for acrylonitrile also strengthened during the fiscal year for
several reasons. Acrylonitrile demand benefited from favorable economic
conditions worldwide. In addition, poor cotton crops in parts of the world
contributed to increased demand for all synthetic fibers, increasing sales for
acrylic fibers, the largest derivatives of acrylonitrile. Although export
prices steadily increased during the last half of the fiscal year,
acrylonitrile's profitability did not significantly improve until the last
quarter because of increasing prices for raw materials. We believe that
favorable market conditions for acrylonitrile will continue during fiscal 1995.
We are expanding our acetic acid capacity by more than 20% to nearly 800
million pounds per year. It is scheduled to come on stream in early fiscal
1996. This will make acetic acid Sterling's second largest volume product. BP
Chemicals, our partner in the expansion, will market the additional production.
This expansion phase is part of our on-going effort to optimize the
opportunities for growth at our current facilities.
Pulp Chemical Business
The sodium chlorate market improved during the last half of the fiscal year as
a result of increased substitution of environmentally-preferred chlorine
dioxide, derived from sodium chlorate, for elemental chlorine in the pulp
bleaching process. In addition, sodium chlorate demand increased because of
greater use of elemental chlorine-free paper and the recovery occurring in the
pulp and paper industry.
At fiscal year end, our plants were operating near full capacity. In the last
fiscal quarter, Sterling realized its first sodium chlorate price increase
since acquiring the business in 1992. We expect pricing will continue to
improve in fiscal 1995.
The first generator in China to convert sodium chlorate to chlorine dioxide was
sold by our ERCO Systems Group and began operation in fiscal 1994. Several more
units are under construction in China by ERCO Systems. In total, eight new ERCO
Systems generators started up during the year. These additions should increase
sodium chlorate demand in general and add to our royalties in the future.The
royalties from generator licensing also increased in fiscal 1994. We were
awarded a total of ten new contracts during the year.
We anticipate that as our pulp chemical business continues to grow, it will
partially help offset the cyclical nature of the petrochemical business. In
particular, royalties from generator licensing provide a relatively steady and
increasing revenue stream.
3
<PAGE> 6
The Environment, Safety and Quality
We are committed to providing a safe and environmentally sound workplace for
our employees and the communities in which we operate. Our goal is to have
zero impact on the environment. Sterling is an active participant in the
Responsible Care(rm) initiatives of the Chemical Manufacturers Association and
the Canadian Chemical Producers Association.
We achieved notable safety accomplishments during the year, including becoming
the first facility in Texas City accepted into the Merit Program of the U.S.
Occupational Safety and Health Administration.
Our Deming-based quality effort has focused on continuous improvement of our
products and services for our customers. In past years, most of our gains came
from reducing variability in existing processes. Currently, we are involved in
the next step of redefining the way we do business through Business Process
Improvement. We expect to change or streamline many processes and systems to
meet the needs of our customers more effectively. Our employees already have
achieved significant successes through teamwork. We expect this effort to
improve our productivity and competitiveness in the marketplace.
Sterling People
Our pulp chemical employees have become an integral part of our workforce team,
which continues to perform with dedication and enthusiasm. We appreciate the
strong support from our employees during the down cycle as we worked to reduce
costs and improve product quality and service. Sterling employees have
demonstrated that their extra effort does make a difference. The commitment of
the entire employee family was rewarded during fiscal 1994 with participation
in profit sharing for the first time in several years.
Jim P. Wise joined Sterling as Vice President and Chief Financial Officer
following the resignation of J. David Heaney. Mr. Wise brings extensive
financial and operating experience to Sterling, including serving as chief
financial officer for several New York Stock Exchange-listed companies. We
appreciate Mr. Heaney's valuable contributions to Sterling's success.
For the Future
We are optimistic that market conditions for our major products will continue
to improve during 1995. We believe that we are beginning to see the financial
results that demonstrate the soundness of our management philosophy and
strategic direction. We will continue to enhance our existing facilities and
seek new opportunities to grow and diversify the Company through acquisitions,
strategic alliances or partnerships. We will maintain our commitment to quality
and safety and strive for excellence.
Since the Company was founded in 1986, we have experienced both the excitement
of strong markets and significant profitability and the struggles resulting
from overcapacity and profit erosion. Sterling understands the commodity
chemicals market. We are a low-cost manufacturer of each of our products, and
we have shown that we can weather the tough times. We will continue to work
diligently to enhance the value of your investment in Sterling.
/s/ Gordon A. Cain
Gordon A. Cain
Chairman of the Board
/s/ J. VIRGIL WAGGONER
J. Virgil Waggoner
President and Chief Executive Officer
November 28, 1994
4
<PAGE> 7
CORPORATE REVIEW
Capital Expenditures
In fiscal 1994, capital expenditures were approximately $12 million.
Petrochemical operations spent approximately $8 million, primarily for various
safety and environmental projects and for Sterling's initial contribution to
the acetic acid expansion. Pulp chemicals spent about $4 million for office and
plant improvements.
Capital expenditures for fiscal 1995 are expected to increase significantly,
with $36 million allocated to petrochemical operations and $4 million for pulp
chemical operations. The capital investments include several plant
instrumentation modernization projects at Texas City that should be completed
over a two-year period. These projects will replace older technology with
state-of-the-art control equipment that is expected to result in manufacturing
cost improvements. Sterling also will take advantage of third-party
participation in facility improvements by continuing the expansion phase of the
acetic acid unit in conjunction with BP Chemicals, Inc. Pulp chemicals capital
investment will be used primarily for cost savings and plant reliability
improvements.
Sterling Chemicals, Inc.
Selected Financial and Operating Data(1)
(In Thousands)
<TABLE>
<CAPTION>
Petrochemical Pulp Chemical
Operations Operations
<S> <C> <C>
Fiscal Year Ended September 30, 1994
Sales and Other Revenues . . . . . . . . . . . . . . $ 578,295 $ 122,545
Earnings before Interest, Taxes,
Depreciation and Amortization . . . . . . . . . . $ 62,341 $ 27,130
Depreciation and Amortization . . . . . . . . . . . . $ 26,327 $ 14,626
Interest Expense . . . . . . . . . . . . . . . . . . $ 9,757 $ 12,369
Net Cash Provided by Operations . . . . . . . . . . . $ 54,807 $ 20,442
Net Income . . . . . . . . . . . . . . . . . . . . . $ 17,979 $ 1,153
Capital Expenditures . . . . . . . . . . . . . . . . $ 7,875 $ 4,468
At September 30, 1994
Current Assets . . . . . . . . . . . . . . . . . . . $ 173,879 $ 38,937
Property, Plant and Equipment (Net) . . . . . . . . . $ 187,244 $ 103,882
Current Liabilities(2) . . . . . . . . . . . . . . . $ 148,355 $ 43,652
Long-Term Debt . . . . . . . . . . . . . . . . . . . $ 49,078 $ 137,708
Employees(3) . . . . . . . . . . . . . . . . . . . . 910 300
</TABLE>
(1) Amounts do not include eliminating entries.
(2) Current Liabilities includes current portion of long-term debt of
$13,312 and $20,459 for Petrochemicals and Pulp Chemicals,
respectively.
(3) Employee counts exclude contract and temporary personnel.
Employee Ownership and Profit Sharing
Sterling employees, both directly and through the Company's Employee Stock
Ownership Plan, own over 30% of the Company's common stock. All employees
participate in a profit sharing program designed to reward their contribution
to the success of Sterling. In August, employees received profit sharing for
the third quarter of fiscal 1994.
It was the first profit sharing distribution since fiscal 1991. An additional
profit sharing distribution was made following the end of the fourth quarter of
fiscal 1994, reflecting the strong results of the year.
5
<PAGE> 8
OPERATING REVIEW
Sterling Facilities
Sterling's petrochemical facility is located on about 290 acres in Texas City,
Texas. The facility is located on Galveston Bay, about 45 miles south of
Houston. The site is accessible to raw materials and worldwide distribution
facilities. A significant portion of the facility's steam and electrical needs
is purchased from a cogeneration facility that is a joint venture between a
Sterling subsidiary and a subsidiary of Praxair, Inc.
Since 1986, significant improvements have been made at the Texas City facility
to take advantage of underutilized assets and growth opportunities. Since that
time, Sterling and others have made a significant investment in the
manufacturing facilities resulting in process and quality improvement and
additional production capacity.
Pulp chemical operations that were acquired from Tenneco Inc. include four
plants in Canada that manufacture sodium chlorate. The four plants are
strategically located in Buckingham, Quebec; Vancouver, British Columbia;
Thunder Bay, Ontario; and Grande Prairie, Alberta. The plants are near customer
facilities and have dependable sources of low cost electricity. The Buckingham
plant also includes a small sodium chlorite facility. The facilities also
include business headquarters in Toronto, Ontario, for Sterling Pulp Chemicals
and for ERCO Systems Group, which provides licensing, design and construction
management of large-scale chlorine dioxide generators to convert sodium
chlorate into chlorine dioxide at pulp mill sites.
Petrochemical Products
The Texas City facility produces styrene monomer, acrylonitrile, acetic acid,
plasticizers, lactic acid, tertiary butylamine and sodium cyanide. Production
is grouped into three main complexes based on the chemistry involved.
PHOTO NO. 1, PAGE 6-7 [PHOTO DESCRIPTION -- CUSTOMER SATISFACTION IN ORDER
HANDLING AND MATERIALS MANAGEMENT RECEIVED INTENSIVE REVIEW FROM STERLING.
The Texas City facility is strategically located near supply sources and
distribution facilities. A cross-functional team studied Sterling's order
handling and materials management systems and recommended changes to improve
efficiencies. Members of the team included, from left, Marilyn Decker, Luther
D. Shotwell, Wynell A. Young, Dorothy Janecka, Ellen Rutherford, Richard Curtis,
Jo Sweeney and Sidney Christopher.]
6
<PAGE> 9
7
<PAGE> 10
PHOTO NO. 1, PAGE 8 [PHOTO DESCRIPTION -- SAFETY PERFORMANCE BY STERLING AT
TEXAS CITY RESULTED IN AN OUTSTANDING RECORD. A STEPS team (Sterling Teams to
Enhance Plant Safety) coordinated the effort that earned the Company membership
in OSHA's Merit Program, part of OSHA's Voluntary Protection Program, a
partnership among labor, management and government. Members of the team
included, standing, Debra Carlisle, David Douglass, Tom Hughes, Bruce
Blankenship and Johnny Johnson; kneeling, Al Magliolo and Walter Treybig.]
Sterling has a significant market share for each of the products it
manufactures. The styrene unit is one of the world's largest, with a capacity
of approximately 1.5 billion pounds annually. The Company's styrene capacity is
approximately 13% of total domestic capacity. Styrene accounts for more than
one-third of Sterling's total chemical production capacity.
Sterling is the second largest domestic producer of acrylonitrile, with about
25% of domestic capacity. Total annual production capacity is in excess of 700
million pounds.
Acetic acid capacity is scheduled to be expanded by early fiscal 1996 from
about 600 million pounds to nearly 800 million pounds annually. Currently,
Sterling has about 16% of domestic capacity for acetic acid. BP Chemicals is
participating in the expansion and will market the product.
Plasticizer capacity is about 280 million pounds annually. Annual capacity for
lactic acid is 19 million pounds, and Sterling is the only domestic producer of
synthetic lactic acid. Tertiary butylamine capacity is 21 million pounds
annually, and Sterling is the only U.S. producer and one of three worldwide.
Annual sodium cyanide capacity approaches 100 million pounds.
Acrylonitrile production set an annual record in fiscal 1994, and styrene,
acetic acid and plasticizers set monthly records for production. Equipment
reliability and process improvements, combined with teamwork among the
operations, maintenance and support personnel of each unit, enabled the units
to meet customer demand for product.
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Petrochemical Markets
Styrene monomer, acrylonitrile and lactic acid are sold to customers under
various long-term and short-term contractual arrangements and spot
transactions, while the total capacity of other products manufactured by
Sterling are committed to long-term arrangements. BP Chemicals markets
Sterling's acetic acid production, while BASF markets all plasticizer
production and Monsanto Company purchases the tertiary butylamine production.
The sodium cyanide unit is owned by E. I. du Pont de Nemours and Company.
Sterling provides hydrogen cyanide as a raw material and operates the unit,
while Dupont markets the product.
Although the global market for styrene has grown each year, capacity tends to
be added in very large increments, creating periods of overcapacity that must
be absorbed by additional market growth. Beginning in 1991, styrene was in an
overcapacity situation which depressed profitability. During the second quarter
of fiscal 1994, sales volumes increased significantly for Sterling and other
producers primarily as a result of market growth. Increases in styrene prices
and margins followed rapidly during the last half of fiscal 1994. Economic
growth in the United States, the recovering economy in Europe and dramatic
growth in most Asian countries are major factors driving global market growth.
The strength of the U.S. automotive, housing and packaging markets contributed
to the increased demand for styrene. The Company anticipates some incremental
capacity additions over the next few years but demand growth should absorb the
capacity additions during that period.
Acrylonitrile demand also increased in fiscal 1994. By year-end most producers
were operating at or near full capacity. Demand increased primarily because of
favorable economic conditions worldwide. In addition, the effect of poor cotton
crops in parts of the world contributed to increased demand for all synthetic
fibers, including acrylic fibers. Acrylic fibers are the largest consuming
derivatives of acrylonitrile.
Although export prices for acrylonitrile increased steadily during the last
half of fiscal 1994, profitability did not significantly improve until the last
quarter because of increasing raw material costs.
Other products manufactured by Sterling at Texas City also are experiencing
overall increased demand because of improved economic conditions worldwide.
Pulp Chemical Products
Sterling Pulp Chemicals, Ltd. is the second largest supplier of sodium chlorate
to the North American pulp and paper market, with about 20% of the market.
Capacity of the four Canadian facilities is approximately 320,000 metric tons.
At fiscal year end, production of sodium chlorate was near full capacity.
Sodium chlorite also is produced in small quantities at the Buckingham
facility. Sterling Pulp Chemicals supplies about 23% of the North American
sodium chlorite market.
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<PAGE> 12
PHOTO NO. 1, PAGE 10-11 [PHOTO DESCRIPTION -- STERLING PULP CHEMICALS PRODUCES
ABOUT 20% OF THE NORTH AMERICAN SODIUM CHLORATE SUPPLY. The Sterling Pulp
Chemicals facility at Buckingham is the largest of the four plants. Projects
have been initiated to meet growing market demand. Participating in a
cross-functional team are, from left, Jacques Lanthier, Alex Megyeal, Alain
Lahale, Ted Sale and Jean-Guy Desjariline.]
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Through the ERCO Systems Group, Sterling Pulp Chemicals also supplies
large-scale generators used to convert sodium chlorate into chlorine dioxide at
the pulp mill site. Sterling believes that the ERCO Systems Group is the
industry leader in providing complete design, construction management services
and technical support. ERCO invented the first generator technology in 1954 and
has supplied about two-thirds of the chlorine dioxide generators used
worldwide. After a generator is installed at a mill site, royalties are
received from the licensing of the generator technology based on operating
rates, usually over a ten-year period, providing a steady, ongoing cash flow
for the overall business.
Pulp Chemical Markets
Growth in the sodium chlorate market was attributable to increased substitution
of chlorine dioxide for elemental chlorine in the pulp bleaching process,
increased demand for elemental chlorine-free paper and the recovery in the pulp
and paper industry. During the last fiscal quarter, Sterling realized its first
sodium chlorate price increase since the pulp chemicals business was acquired.
Sterling was awarded ten new generator contracts during the year, and eight new
Company generators commenced operation in fiscal 1994. The Company continues to
be a leader in bringing new technology to the pulp and paper industry,
developing systems to provide environmentally acceptable bleaching methods.
Chlorine dioxide is rapidly becoming the predominant bleaching agent in the
manufacture of pulp, the raw material from which most white paper products are
manufactured. Using chlorine dioxide as the bleaching agent virtually
eliminates dioxins and furans in pulp mill wastewater. In addition,
substituting chlorine dioxide for elemental chlorine produces stronger,
brighter pulp at a lower cost than alternate bleaching methods. In general,
Sterling believes that current and proposed environmental regulations favor
chlorine dioxide as the preferred substitute for elemental chlorine when all
costs and benefits are considered.
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Quality
At Texas City, Sterling is making progress in achieving its long-range goal of
Best-In-Class Performance in safety, environmental compliance, reliability and
productivity. The driving force for these accomplishments is a strong
foundation based upon solid relationships and mutual trust between the hourly
employees and the plant management team. The records Texas City is achieving in
safety, productivity and other areas demonstrate the progress being made.
The Deming total quality management process has been an integral part of
Sterling's operations since the Company was established. That philosophy has
been extended to the pulp chemical operations and also forms the basis of
Business Process Improvement that Sterling is using successfully.
Sterling is utilizing a collaborative team environment to review systematically
all of its business processes in order to remain a low-cost producer of quality
products. One example of Business Process Improvement is in the area of order
handling and materials management at Texas City. While customers rated Sterling
very highly in customer satisfaction, opportunities for improvement in the
process were identified. A cross-functional team representing various areas
reviewed the entire process and suggested a number of changes that are being
implemented. The results included fewer people involved in the process,
improved service to customers, elimination of redundant work and lower costs.
The Manufacturing Systems Team is leading the effort to become Best-In-Class in
manufacturing and maintenance. This cross-functional team of five salaried and
two union hourly members is developing recommendations that will become the
basis for improvements in the way maintenance and operations work together. The
two union hourly representatives were selected by the Plant Union Committee to
work on this important cooperative effort.
At Sterling Pulp Chemicals, Deming-based quality training has been implemented,
and teams are improving both internal and external services. The quality
process introduced by Sterling involves management leadership, customer focus,
employee involvement and continuous process improvement. Customer feedback has
been extremely positive.
Safety
Safety is of primary importance to the Company. The chemical industry is among
the safest in the United States. The Texas City facility's recordable injury
and lost-time injury rates are significantly better than the average rates of
the U.S. chemical industry which, in turn, is significantly better than U.S.
manufacturing as a whole. The Texas City facility recorded its second best year
in safety performance in Company history. Sterling also set a new plant safety
record at the Texas City facility during the year with 1,966,269 manhours
worked without a lost-time injury.
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Photo No. 1, Page 13 [Photo Description -- THE FIRST CHLORINE DIOXIDE GENERATOR
TO BE STARTED UP IN CHINA WAS A STERLING PULP CHEMICALS PROJECT. A Sterling
Pulp Chemicals team reviews a plant model as part of a design project. From
left are Ibrahim Erel, Dennis Elwood, Alex Megyesi and Luc Gonzalez. The
plant at Thunder Bay supplies sodium chlorate to pulp mill sites in Canada.]
In recognition of Sterling's efforts, the Company earned membership in the
Merit Program of the U.S. Occupational Safety and Health Administration (OSHA).
The Merit Program is part of OSHA's Voluntary Protection Program, a partnership
among labor, management and government working together toward workplace safety
and health. The award is the second highest conferred by OSHA, and Sterling was
the first facility in Texas City to receive this recognition. Companies apply
for the program, then OSHA reviews all written programs, verifies the programs
and conducts employee interviews as part of its audit of the safety and health
programs. Several Sterling teams and community leaders participated in the
approval inspection.
In addition to the OSHA Merit Program, Sterling was recognized by the
National Petroleum Refiners Association with the NPRA Award for Safety
Achievement for 1,650,000 hours worked at Texas City without a lost workday
case. This record was achieved during the period from March 27, 1993 to
January 31, 1994.
Leading the safety effort at Texas City is the STEPS team (Sterling Teams
to Enhance Plant Safety). This team is composed of 11 standing committees, with
five chaired by union hourly personnel and six chaired by salaried personnel,
with the manager of safety/health/environmental and the plant manager as part
of the team.
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Sterling Pulp Chemicals also achieved new safety records. The Grande Prairie,
Thunder Bay and Vancouver facilities maintained their records of no lost-time
injuries. The Buckingham facility improved its accident and injury performance
significantly for the second consecutive year, reducing its rate by two-thirds.
The pulp chemical operations have achieved a safety record that is
two-and-a-half times better than the average of the Canadian pulp and paper
industry and equivalent to the Canadian chemical industry. Initiatives
introduced in 1994 provide additional equipment, training and guidelines for
the safety program.
Environmental Programs
Sterling is committed to sound environmental management. Since emissions
reporting to the EPA initially was mandated in 1987, Sterling has reduced total
emissions at the Texas City facility by more than half, while plant production
has increased. As a participant in the EPA's 33/50 air emission reduction
program, Sterling committed to a 65% reduction in 17 targeted air pollutants by
1995. The Company achieved an 83% reduction for calendar 1993, two years ahead
of schedule.
More than 95% of the Texas City facility's emissions are safely managed by deep
well injection. Deep-well injection uses state-of-the-art technology to
contain waste solutions permanently within the subterranean injection zone,
similar to the way that oil and gas deposits are trapped for millions of years.
Stringent federal and state regulations control the permitting, construction,
operation and monitoring of deep wells.
The primary component of Sterling's deep well stream is ammonium sulfate, a
compound that when concentrated is used as a commercial fertilizer. Sterling
believes that its deep well injection should be classified by the EPA as waste
management rather than a release to the environment and is actively seeking
that reclassification. The EPA has stated that Class I underground injection
wells are safer than virtually all other waste disposal practices. Sterling
has received an EPA award for its deep well operations.
Sterling also is a charter member of the Clean Industries 2000 program
sponsored by the Texas Natural Resource Conservation Commission. Charter
members were required to have reduced the amount of hazardous waste generated
since 1987 by 50%. One of Sterling's waste minimization projects was selected
as a finalist for a Governor's Award for Environmental Excellence.
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Photo No. 1, Page 14-15
[Photo Description -- STERLING'S TEXAS CITY FACILITY HAS SET PRODUCTION RECORDS
WHILE ACHIEVING ENVIRONMENTAL SUCCESSES. A manufacturing systems team is
studying improvements in operations and maintenance at Texas City. From left,
members of the team include Mike Hennington, Roger Mears, Wayne Payton, Carlos
Mata, Bob Grannon, Lloyd Johnson and, standing, Robert McLaren. A
state-of-the-art water treatment system is among the many environmental
improvements that have contributed to significant reductions in emissions.]
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Sterling is an active participant in Responsible Care(rm), a major chemical
industry initiative sponsored by the Chemical Manufacturers Association in the
United States and by the Canadian Chemical Producers Association in Canada.
Sterling and its workforce are committed to the Responsible Care principles and
codes of management practice that all members have agreed to uphold. The six
codes require members to promote methods of tracking progress toward reaching
specific goals in the areas of process safety, community awareness and
emergency response, distribution, process pollution prevention, employee health
and safety and product stewardship. Sterling is making substantial progress in
moving closer to achieving its goals. As part of the Responsible Care program,
Sterling reports to the community on a regular basis.
Sterling Pulp Chemicals is a leader in bringing new technology to the pulp and
paper industry, developing systems to provide bleaching methods with
environmental advantages. The Company also is a leader in the Alliance for
Environmental Technology, an organization with the mission to research and
promote practical, proven technologies that advance modern papermaking and to
help achieve sound governmental policies and regulations.
Sterling produces seven petrochemical products and two chemicals in its pulp
chemical operations. These chemicals are used in a variety of processes,
frequently as building blocks for finished consumer goods.
STYRENE MONOMER is produced with ethylene and benzene as raw materials. Styrene
is used in the production of foam products such as ice chests, residential
sheathing, cups, egg cartons, insulation and protective packaging; for other
applications such as housing for computers, telephones, videocassettes, small
home appliances and automotive parts; and for tableware, luggage, packing,
toys, textile products and synthetic rubber products.
ACRYLONITRILE is produced using ammonia, air and propylene as raw materials.
Acrylonitrile is used for acrylic fibers for apparel, rugs and blankets; in
polymer products for casings for ice chests, hard luggage, calculators and
computers; in automotive parts and synthetic rubber products.
ACETIC ACID is produced using methanol and carbon monoxide as the raw
materials. Acetic acid's largest use is in the production of vinyl acetate. It
also is used in pharmaceuticals, pain relief medicine, latex products for
adhesive and surface coatings, and certain synthetic fabric finishes.
PLASTICIZERS are produced from olefins, carbon monoxide, hydrogen, orthoxylene
and air. Plasticizers are used in producing flexible plastics for consumer
products and building materials.
TERTIARY BUTYLAMINE (TBA) is manufactured using by-product hydrogen cyanide
from the acrylonitrile process and isobutylene as raw materials. TBA is used
for silicone caulk, in tires and hoses and as a chemical intermediate.
LACTIC ACID is produced using by-product hydrogen cyanide and acetaldehyde as
its raw materials. It is used as a preservative for food products, for the
manufacture of acrylic enamel, for silk finishing and in intravenous solutions.
SODIUM CYANIDE utilizes by-product hydrogen cyanide and sodium hydroxide as its
raw materials. It is used for electroplating and to enhance precious metals
recovery.
SODIUM CHLORATE is produced from water and salt in reaction with electrical
current. Sodium chlorate then is used by pulp mills to produce chlorine
dioxide, which is used to bleach pulp for production of high quality office
papers, commercial printing papers, coated papers and tissue paper products.
SODIUM CHLORITE is produced using sodium chlorate and hydrochloric acid as raw
materials. Sodium chlorite is used as an antimicrobial agent for water
treatment, as a disinfectant for fresh produce, for treatment of industrial
wastewater and for oilfield microbe control.
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STERLING CHEMICALS, INC.
FINANCIAL INFORMATION
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company's revenues and earnings improved each successive quarter in fiscal
1994, largely because of the improved performance of styrene, and fourth
quarter earnings were the best since the first fiscal quarter of 1991. The
Company reported earnings per share of $.34 in fiscal 1994 after two years of
net losses. The Company anticipates that demand for styrene and acrylonitrile
will remain strong in 1995 and that market conditions for its pulp chemical
business will continue to improve.
Beginning in 1991, styrene's profitability became depressed because of both
overcapacity and recessionary pressures in parts of the world. By the spring of
1994, however, market growth resulting from economic expansion had absorbed
much of the excess capacity. As a result, styrene volumes began increasing late
in the first fiscal quarter and by the third fiscal quarter prices and margins
were increasing as well. Generally, all of the Company's products benefited in
1994 from the recovery underway in the global commodity chemical markets. While
fiscal 1994 began with weak demand for both styrene and acrylonitrile, by the
end of fiscal 1994 both products were experiencing higher prices, margins and
sales volumes. Sodium chlorate also experienced increased demand during fiscal
1994, and the Company realized its first price increase for that product since
acquiring the business in 1992.
RESULTS OF OPERATIONS
Comparison of Fiscal 1994 to Fiscal 1993
Revenues for fiscal 1994 totaled $701 million, an increase of $182 million from
fiscal 1993. This increase was primarily the result of increased sales volumes
and sales prices for styrene. Also, approximately one-third of the Company's
styrene was previously marketed under one of its conversion agreements that
expired late in 1993. In fiscal 1994, this volume was successfully marketed
under various sales agreements and spot sales. As a result, the Company had
more direct styrene sales than conversion sales during fiscal 1994 than in
fiscal 1993. Under a conversion arrangement, the customer furnishes raw
materials which the Company processes. In a direct sales arrangement, the
Company supplies the raw materials and sells the finished product at a price
which includes the value of the raw materials. Because of this difference, the
revenue recognized from a direct sale is significantly greater than the revenue
recognized from an equivalent conversion sale, although the gross profit might
be the same. Acrylonitrile and acetic acid also generated higher revenues in
fiscal 1994 primarily due to higher sales volumes. The pulp chemical business
contributed $123 million to the Company's revenues in fiscal 1994, an increase
of $4 million over fiscal 1993.
Fiscal 1994 net income increased by $25 million or $0.44 per share over fiscal
1993. The increase primarily resulted from the improvement in styrene margins
and higher sales volumes for styrene. This improvement was partially offset by
a substantial increase in selling, general and administrative expenses
discussed below.
STYRENE: Styrene revenues increased 99% to $287 million in fiscal 1994 compared
to fiscal 1993 because of higher prices, increased sales volumes and the shift
to more direct sales from conversion sales. Styrene's gross profit accounted
for 36% of the Company's total gross profit in fiscal 1994 compared to a loss
in fiscal 1993. The styrene unit operated at approximately 98% of its 1.5
billion pound capacity in fiscal 1994 compared to about 75% of capacity in
fiscal 1993. In addition to increased demand, two planned shutdowns for
maintenance and installation of new and improved catalyst during fiscal 1993,
compared to none in 1994, contributed to the increase in operating rates.
Styrene's improved performance primarily resulted from continuing market growth
for styrene and its derivatives based on global economic growth. The U.S.
economy and the economies of most Asian countries expanded during fiscal 1994
while Europe's economy began to recover. The strength of the U.S. automotive,
housing and packaging markets also has contributed to the increased demand for
styrene. By the spring of 1994, increased demand for styrene had absorbed much
of the excess capacity. In addition, some competitors' styrene plants
experienced operating difficulties during the year which further tightened
the market. Most styrene plants were operating near full capacity during the
last half of fiscal 1994. The Company anticipates some incremental capacity
additions over the next few years but demand growth should absorb the capacity
additions during that period.
During fiscal 1994, the Company successfully replaced all of the volume from
the expired conversion agreement with domestic and export sales arrangements
and spot sales. In the current tight market for styrene, the sales arrangements
were more profitable than the expired conversion arrangement and the shift from
that long-term conversion arrangement to more spot sales allowed the Company to
take advantage of the greater price volatility in the spot market.
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During fiscal 1994, approximately 55% of the Company's styrene production
representing approximately 62% of styrene revenue was sold in the export
market, which is typically more volatile than the domestic market. While the
prices for styrene's raw materials, benzene and ethylene, increased
significantly during the second half of the fiscal year, their average prices
for the year increased only slightly.
ACRYLONITRILE: Acrylonitrile revenues for fiscal 1994 totaled $138 million, an
increase of 11% from fiscal 1993. A 26% increase in sales volumes was partially
offset by a 12% decrease in average sales prices in fiscal 1994 compared to
fiscal 1993. The acrylonitrile unit operated at approximately 96% of capacity
during fiscal 1994 compared to approximately two-thirds of capacity in fiscal
1993.
Demand for acrylonitrile strengthened during fiscal 1994 for several reasons.
Favorable economic conditions worldwide helped increase acrylonitrile demand.
In addition, poor cotton crops in parts of the world contributed to increased
demand for all synthetic fibers, including acrylic fibers, which are the
largest derivatives of acrylonitrile. Although average sales prices were lower
in fiscal 1994 than in 1993, export prices steadily increased during the last
half of the fiscal year. Acrylonitrile's profitability did not significantly
improve until the fourth fiscal quarter, however, because of increasing raw
material costs.
Demand for the Company's acrylonitrile is significantly influenced by demand
from export customers, particularly those that supply acrylic fibers to China.
In recent years, the acrylic fiber market has been subject to volatility
because of the relatively unstable nature of the Chinese market. During 1994,
China's strong demand for acrylic fibers increased demand for acrylonitrile.
Demand in most other Asian countries also was strong. By the end of fiscal
1994, most acrylonitrile producers were operating at or near full capacity.
In fiscal 1994, acrylonitrile's gross profit was significantly lower than
fiscal 1993 and accounted for approximately 8% of the Company's gross profit
compared to approximately 36% during fiscal 1993. Average export acrylonitrile
prices and margins were lower in fiscal 1994 than fiscal 1993, and the average
price of acrylonitrile's primary raw material, propylene, was slightly higher.
Acrylonitrile prices and margins and propylene prices, however, increased
significantly during the last half of fiscal 1994. Acrylonitrile's performance
benefited from lower per unit fixed costs because of higher operating rates in
fiscal 1994 compared to fiscal 1993. The improved profitability of styrene also
contributed to acrylonitrile's lower percentage contribution to the Company's
total gross profit. Export sales of acrylonitrile increased in 1994 and
constituted the great majority of revenues in fiscal years 1994 and 1993.
PULP CHEMICALS: Revenues from the Company's pulp chemical operations increased
3% to $123 million, primarily because of increased sales volumes of sodium
chlorate and higher generator royalty revenue. The sodium chlorate market
improved and sales volumes increased because of increased substitution of
chlorine dioxide, derived from sodium chlorate, for elemental chlorine in the
bleaching process, increased demand for elemental chlorine-free paper and the
recovery underway in the pulp and paper industry. As a result, during the
fourth quarter of fiscal 1994, the Company realized its first sodium chlorate
price increase since acquiring the business in 1992. During fiscal 1993, the
sluggish North American pulp and paper market resulted in lower demand for
sodium chlorate. Royalty revenues also increased during fiscal 1994 because of
higher generator operating rates and new start-ups. In total, eight new Company
generators commenced operation in fiscal 1994, including the first such
generator ever in China. The Company also was awarded ten new generator
contracts in fiscal 1994.
Revenues from sodium chlorate increased 5% from fiscal 1993 as higher sales
volumes were partially offset by lower average sales prices. The increased
sales volumes resulted in increased capacity utilization, which contributed to
lower per unit cost and increased margins. A 3% decrease in the Company's
average cost of electricity, the predominant cost in the manufacture of sodium
chlorate, also contributed to lower costs. The Company's sodium chlorate
facilities operated at approximately 86% of capacity in fiscal 1994, compared
to 75% during fiscal 1993.
Gross profit for the pulp chemical business increased by 6% in fiscal 1994 from
1993. Pulp chemicals accounted for 38% of the Company's total gross profit in
fiscal 1994, down significantly from 1993. The percentage decrease, however,
was solely attributable to the increase in profitability of the Company's
petrochemical operations.
ACETIC ACID: Acetic acid revenues increased by 20% in fiscal 1994 over fiscal
1993. During each year, the Company's acetic acid unit operated at
approximately its capacity of about 600 million pounds. The Company and BP
Chemicals, Inc. ("BPC"), a U.S. subsidiary of British Petroleum Company plc,
have agreed to expand acetic acid capacity to nearly 800 million pounds
annually. This expansion is scheduled to be completed in fiscal 1996. In August
1994, the Company and BPC amended the production agreement to extend BPC's
exclusive right to purchase acetic acid produced by the Company through July
31, 2016.
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OTHER PRODUCTS: The Company's other products performed well during fiscal 1994,
with plasticizers showing significant improvement. In March 1994, the Company
and BASF Corporation executed an amendment to the plasticizers sales agreement
which covers all of the Company's production, extending it to December 31, 1999
under similar terms.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: The Company's selling, general
and administrative expenses ("SG&A") increased solely because of expenses
related to the stock appreciation rights ("SARs") program. The Company
recognized expense of $21.8 million or $0.26 per share related to the SARs in
fiscal 1994 because of the increase in the Company's stock price (see Notes 5
and 6 of "Notes to Consolidated Financial Statements"). Prior to this accrual,
SG&A was $1.1 million lower in fiscal 1994 compared to 1993. There were no
expenses associated with the SARs in fiscal 1993.
ACCOUNTING CHANGES: The Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), effective October 1, 1993. Under SFAS 109, deferred income taxes are
provided for temporary differences in recognition of income and expenses for
tax and financial reporting purposes. The adoption of this statement did not
have an effect on the Company's financial position or results of operations.
Upon adoption of SFAS 109, the Company's current deferred tax asset and
deferred tax liability each increased by $1.6 million.
Comparison of Fiscal 1993 to Fiscal 1992
Revenues for fiscal 1993 totaled $519 million, an increase of $88 million from
fiscal 1992. This increase was a result of the first full year of operations of
the Company's pulp chemical business, partially offset by a reduction in
petrochemical revenues. The pulp chemical business contributed $119 million to
the Company's revenues in fiscal 1993. The decrease in the Company's
petrochemical revenues was primarily the result of lower sales volumes for
styrene and acrylonitrile.
Fiscal 1993 earnings before the cumulative effect of a change in accounting for
postretirement benefits due to SFAS 106 decreased $9.9 million from fiscal
1992. The reduction in earnings before the cumulative effect of a change in
accounting principle was primarily because of lower production rates for
styrene and acrylonitrile that resulted in lower operating margins.
STYRENE: Styrene revenues decreased 5% to $144 million in fiscal 1993 compared
to fiscal 1992 primarily because of lower sales volumes. Styrene's gross profit
was a significant loss in fiscal year 1993 compared to a slight loss in fiscal
1992. The styrene unit operated at approximately 75% of its 1.5 billion pound
capacity in fiscal 1993 compared to about 85% of capacity in fiscal 1992. The
production decline was primarily caused by worldwide overcapacity of styrene
and the Company's two planned shutdowns during fiscal 1993 for maintenance and
installation of new catalyst. The decrease in production resulted in lower
operating margins.
During both fiscal 1993 and 1992, approximately 27% of the Company's styrene
production representing approximately 44% and 38%, respectively, of styrene
revenues was sold in the export market. The average price for benzene decreased
16% while the average price for ethylene increased 3% from fiscal 1992 levels.
When there is overcapacity, however, a decrease in the price of raw materials
may be accompanied by a similar decrease in the market price of styrene. Thus,
the decrease in the price of benzene did not improve styrene profit margins
during fiscal 1993.
ACRYLONITRILE: Acrylonitrile revenues for fiscal 1993 totaled $124 million, a
decrease of $13 million from fiscal 1992. An 8% decrease in sales volumes
accounted for this change. The acrylonitrile unit operated at approximately
two-thirds of capacity during fiscal 1993 compared to approximately 90% in
fiscal 1992. The decreased sales volumes and production rates for acrylonitrile
resulted from weaker demand from export customers, particularly those shipping
acrylic fibers to China.
During both fiscal 1993 and 1992, approximately two-thirds of acrylonitrile
production representing approximately 70% and 85%, respectively, of
acrylonitrile revenues was sold in the export market.
During fiscal 1993, acrylonitrile accounted for approximately 36% of the
Company's gross profit compared to approximately 59% during fiscal 1992.
Although gross profit declined, acrylonitrile's performance benefited somewhat
from an approximately 10% decrease in the price of propylene in fiscal 1993
compared to fiscal 1992.
PULP CHEMICALS: The pulp chemical business made a positive contribution to
earnings during fiscal 1993 despite sodium chlorate's overcapacity situation
and flat demand due to the sluggish pulp and paper market during the period.
Approximately 89% of the Company's gross profit was attributable to the pulp
chemical business during fiscal 1993, primarily as a result of the weak
performance of the Company's petrochemical business.
The majority of the Company's sodium chlorate is sold in North America. The
sluggish pulp and paper market in North America during fiscal 1993 contributed
to lower demand for sodium chlorate than was anticipated at the time of the
acquisition in fiscal 1992. The pulp chemical business operated its sodium
chlorate facilities at approximately 75% of capacity during fiscal 1993. The
lower than anticipated demand was
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<PAGE> 23
partially offset by two factors. Sales of generators to pulp and paper mills to
produce chlorine dioxide from sodium chlorate were strong during fiscal 1993,
with the Company having the largest share of the market for the sale and
licensing of new generators. In addition, the average price of electricity
purchased by the Company's four sodium chlorate manufacturing facilities
decreased beginning in the first quarter of fiscal 1993. Since electricity is
the predominant raw material used in the manufacture of sodium chlorate, this
decrease improved operating margins.
ACETIC ACID: Acetic acid revenues were approximately the same in fiscal 1993
compared to fiscal 1992. During each year, the Company's acetic acid unit
operated at approximately its capacity of nearly 600 million pounds.
OTHER PRODUCTS: The Company's other products performed well during fiscal 1993,
with plasticizers showing significant improvement.
INTEREST EXPENSE: The increase in interest and debt related expenses was due to
higher average borrowings in fiscal 1993 compared to fiscal 1992, primarily
because of the purchase of the pulp chemical business late in fiscal 1992.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: The increase in selling, general
and administrative expenses in fiscal 1993 when compared to fiscal 1992 was
also a result of increased costs associated with a full year of operation of
the pulp chemical business, compared to less than two months of operations in
fiscal 1992.
ACCOUNTING CHANGES: During the fourth quarter of fiscal 1992, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"),
effective as of October 1, 1991. Under this Statement, the Company is required
to accrue the cost of postretirement benefits in its financial statements when
the employee is eligible to receive such benefits. The Company previously
recorded these expenses as they were paid. Accordingly, the cumulative effect
of approximately $10.4 million, net of a deferred tax benefit of $5.4 million,
was reflected in the results of operations for the first quarter of fiscal
1992. The Company, as required by SFAS 106, also accrues the annual expenses of
these benefits.
LIQUIDITY AND CAPITAL RESOURCES
Management regularly assesses the liquidity and funding requirements of the
Company's operations. Some of the factors important in the Company's liquidity
are cash flow from operations including working capital management, capital
spending, adequacy of bank lines of credit and availability of long-term
capital on satisfactory terms. Management believes that funds generated from
operations and borrowings under its existing bank lines will be sufficient to
permit the Company to meet its liquidity needs. However, if necessary or
appropriate, the Company may seek additional funds or refinance existing
indebtedness through public offerings, private placements of securities or bank
credit facilities.
Working capital at September 30, 1994 was $19 million, a decrease of $12
million from September 30, 1993. This change primarily resulted from accruing
the current portion of the Company's SAR liability. Accounts receivable
increased by $53 million primarily because of significantly higher sales prices
and volumes for styrene and acrylonitrile in the fourth quarter of fiscal 1994
than in the fourth quarter of fiscal 1993. Accounts payable increased by $35
million because of higher prices and volumes for styrene and acrylonitrile raw
materials. In addition, accounts receivable and accounts payable were also
higher because of increased direct styrene sales. Accrued liabilities increased
by $37 million because of increases in accrued compensation, accrued repairs
and income taxes payable.
Net cash provided by operations was $75 million for fiscal 1994, an increase of
$27 million or 56% compared to fiscal 1993. This increase resulted primarily
from increased earnings during fiscal 1994. Most of the increased cash flow was
used to reduce debt, which decreased by about $66 million during the year. The
Company paid cash dividends on its common stock of approximately $3 million
during fiscal 1993. On July 1, 1993, the Company's Board of Directors suspended
the quarterly dividend and, consequently, no dividends were paid in fiscal
1994. For information concerning certain restrictions on the Company's ability
to pay dividends, see "Note 3 of the Notes to Consolidated Financial
Statements."
The Company has a credit agreement with a syndicate of banks ("Credit
Agreement"). The Credit Agreement provides a $16.1 million project loan related
to the acetic acid unit ("Project Loan"), a $20.0 million term loan ("Term
Loan") and an $80.0 million revolving credit facility ("Company Revolver"), the
availability of which was reduced by $20.0 million in loans and $2.3 million in
letters of credit at September 30, 1994. The Credit Agreement also allows $20.0
million of additional indebtedness from other lenders.
21
<PAGE> 24
At September 30, 1994 the Company had $7.9 million of such additional
indebtedness. The Term Loan matures January 1998 while the Company Revolver and
Project Loan mature August 1996.
The Company has a separate stand-alone credit agreement for the pulp chemical
business. The Sterling Canada credit agreement provides a $113.1 million term
loan ("Subsidiary Term Loan") and a Cdn. $20.0 million denominated revolving
credit facility ("Canadian Revolver"), the availability of which was reduced by
$5.0 million in loans and $0.7 million in letters of credit at September 30,
1994. The Subsidiary Term Loan matures August 1999 while the Subsidiary
Revolver matures August 1997.
The Sterling Canada credit agreement effectively restricted Sterling Canada's
ability to pay dividends to 5% of Excess Cash Flow (as defined in the Sterling
Canada credit agreement) for fiscal 1994 and effectively prohibits Sterling
Canada from paying any dividends to the Company in fiscal 1995 and thereafter.
Sterling Canada also is required to make a mandatory prepayment on the
Subsidiary Term Loan of $2.3 million from Excess Cash Flow in December 1994.
Obligations owed under the Sterling Canada credit agreement are not guaranteed
by the Company.
Sterling Canada also owes a $44.3 million subordinated note to Tenneco Credit
Corporation ("Subordinated Note"). The Subordinated Note matures in December
1999 and is guaranteed by the Company. Sterling Canada is required to make a
$0.3 million mandatory prepayment on the Subordinated Note from Excess Cash
Flow (as defined in the Sterling Canada credit agreement) in December 1994.
Capital expenditures were $12 million in each of fiscal 1994 and 1993. In
fiscal 1994, capital expenditures were primarily for various plant
modernization projects and environmental and safety matters. In fiscal 1995,
because the Company anticipates an increase in cash flow, the Company expects
capital expenditures to be approximately $40 million, with approximately $36
million dedicated to the petrochemical operations. Capital investment at the
Texas City facility will include several plant instrumentation modernization
projects that should be completed over a two-year period, in addition to the
planned acetic acid expansion and various environmental, safety and process
improvement projects. The Company expects to fund its fiscal 1995 capital
expenditures from operating cash flow and its revolving credit facilities.
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses
include items such as depreciation on its waste treatment facilities, outside
waste management, fuel, electricity and salaries. The amounts of these
operating expenses were $44 million and $46 million for fiscal years 1994 and
1993, respectively. The Company does not anticipate a material increase in
these types of expenses during fiscal 1995. The Company considers these types
of environmental expenditures normal operating expenses and includes them in
cost of goods sold.
The Company's capital expenditures to limit or monitor hazardous substances or
pollutants were $2 million and $6 million for fiscal years 1994 and 1993,
respectively. During both fiscal years, the Company did not incur any material
expenditures to remediate previously contaminated sites. The Company also did
not incur any other infrequent or non-recurring material environmental
expenditures which were required under existing environmental regulations in
fiscal years 1994 or 1993. At present, the Company anticipates no such material
expenditures during fiscal 1995. The Company estimates capital expenditures for
environmental and safety matters will be approximately $11 million for fiscal
1995.
During fiscal 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS 112"). SFAS 112 requires accrual accounting for
benefits provided to former or inactive employees after employment but before
retirement. The Company is required to implement the provisions of SFAS 112 in
fiscal 1995 and estimates the impact on the Company's results of operations in
fiscal 1995 will not be material.
The Company enters into forward foreign exchange contracts to hedge Canadian
dollar currency transactions on a continuing basis for periods consistent with
its committed exposures. The Company's forward foreign exchange contracts do
not subject the Company to additional risk due to Canadian dollar exchange rate
movements because gains and losses on these contracts offset losses and gains
on the assets, liabilities and transactions being hedged. The Company does not
engage in speculation. As of September 30, 1994, the Company had approximately
$19.6 million of forward foreign exchange contracts outstanding to buy Canadian
dollars. There were no forward foreign exchange contracts outstanding at
September 30, 1993. The forward foreign exchange contracts generally have
varying maturities with none exceeding 12 months. The Company makes net
settlements of U.S. dollars for Canadian dollars at rates agreed to at
inception of the contracts.
22
<PAGE> 25
CERTAIN KNOWN EVENTS, TRENDS AND UNCERTAINTIES
Raw Material Prices and Availability
For each of the Company's products, the cost of raw materials and utilities is
far greater than all other costs of production combined. Therefore, an adequate
supply of raw materials at reasonable prices is critical to the success of the
Company's business. The Company does not produce any of its major raw
materials, benzene, ethylene, propylene and ammonia. There is currently a high
demand for ethylene and propylene and the prices of each have recently risen
significantly. The Company has several long-term arrangements with ethylene
suppliers that provide for the majority of its estimated requirements for
purchased ethylene. Although no assurances can be given, management believes
that the Company will continue to be able to secure adequate supplies of all
its raw materials at acceptable prices.
Environmental and Safety Matters
The Company's operations involve the handling, production, transportation and
disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits are
required for the Company's operations. They are subject to periodic renewal and
may be revoked or modified for cause.
Increasingly strict new laws or permits might affect the Company's operations,
products or waste disposal. Past or future operations may result in claims or
liabilities. Also, expenditures could be required to upgrade wastewater
collection, pretreatment or disposal systems or other matters. Although no
assurances can be given, the Company does not anticipate any material
environmental costs or liabilities associated with its operations or products.
The Company's sodium chlorate market is sensitive to potential environmental
regulation. Certain environmental groups are encouraging passage of regulations
which restrict the amount of Absorbable Organic Halides (AOX) in pulp mill
effluent. In general, environmental regulations support substitution of
chlorine dioxide for elemental chlorine in the pulp bleaching process. As long
as there is not an outright ban on these compounds, such regulation favors the
use of chlorine dioxide, thus sodium chlorate.
British Columbia has a regulation in place that would effectively eliminate the
use of chlorine dioxide in the bleaching process by the year 2002. The industry
is actively working to change this regulation on the basis that it is not
supported by sound science and is becoming increasingly optimistic of success.
There are no other laws or regulations currently in place which would be
detrimental to the product. The Company believes that bleaching methods that
substitute chlorine dioxide for elemental chlorine achieve all reasonable
pollution reduction targets for air and water emissions, and it believes that a
conversion to totally chlorine-free bleaching will yield no measurable
environmental or public health benefits. The Company believes its position is
supported by the EPA's selection of chlorine dioxide as the best available
technology for pulp bleaching.
Legal Proceedings
The Company is subject to claims and legal actions that arise in the ordinary
course of its business. The Company believes that the ultimate liability, if
any, with respect to these claims and legal actions will not have a material
adverse effect on the financial position or results of operations of the
Company (see Note 7 of "Notes to the Consolidated Financial Statements").
In May 1994 approximately 3,000 pounds of ammonia were released into the
atmosphere at the Company's Texas City facility while a reactor in the
acrylonitrile unit was being restarted after a shutdown for routine
maintenance. As of November 15, 1994, approximately 9,000 individuals have
filed claims directly with the Company. About 2,000 of these claims have been
settled and 3,000 have been denied by the Company and its insurance carrier.
Four lawsuits have been filed against the Company and the Company anticipates
that additional litigation will ensue. The Company believes that its general
liability insurance coverage is sufficient to cover all costs and expenses and
has accrued and reflected in expense its deductible under this coverage.
The Company is a defendant, together with other chemical company defendants, in
several lawsuits. In each case, a large number of plaintiffs have asserted
unspecified damages for alleged personal injury and property damage arising
from exposure to chemical releases. The Company believes there will be no
material adverse effect from these lawsuits on the financial position or
results of operations of the Company.
23
<PAGE> 26
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1994 1993 1992
-------- --------- ------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $700,840 $ 518,821 $ 430,529
Cost of goods sold . . . . . . . . . . . . . . . . . . 606,916 477,902 402,647
-------- --------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . . 93,924 40,919 27,882
Selling, general and administrative expenses (Note 6) . 46,150 25,495 10,297
Interest and debt related expenses,
net of interest income . . . . . . . . . . . . . . . . 22,126 22,392 8,331
Gain on sale of assets . . . . . . . . . . . . . . . . (2,606) -- --
-------- --------- ------------
Income (loss) before taxes and cumulative effect of
change in accounting principle . . . . . . . . . . . . 28,254 (6,968) 9,254
Provision (benefit) for income taxes . . . . . . . . . 9,122 (1,548) 4,716
-------- --------- ------------
Income (loss) before cumulative effect of change
in accounting principle . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ 4,538
Cumulative effect of change in accounting
for postretirement benefits other than pensions . . . -- -- (10,428)
-------- --------- ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ (5,890)
======== ========= ============
Per share data:
Income (loss) before change in accounting principle . . $ 0.34 $ (0.10) $ 0.08
Change in accounting principle . . . . . . . . . . . . -- -- (0.19)
-------- --------- ------------
Net income (loss) (primary and fully diluted) . . . . . $ 0.34 $ (0.10) $ (0.11)
======== ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 27
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
September 30,
-----------------------------
1994 1993
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 2,013 $ 1,352
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 127,705 74,553
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 69,758 60,328
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 2,700 4,632
Deferred income tax benefit . . . . . . . . . . . . . . . . . . 9,332 3,856
----------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 211,508 144,721
Property, plant and equipment, net . . . . . . . . . . . . . . . . 291,126 314,315
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,456 80,669
----------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 575,090 $ 539,705
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 76,857 $ 42,241
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 80,071 43,513
Current portion of long-term debt . . . . . . . . . . . . . . . . 33,771 28,015
----------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 190,699 113,769
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 186,786 256,845
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 38,837 36,098
Deferred credits and other liabilities . . . . . . . . . . . . . . 69,034 62,657
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares authorized,
60,327 and 60,325 shares issued, 55,660 and 55,435 shares
outstanding at September 30, 1994 and 1993,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 603 603
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 33,232 34,708
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 125,003 105,871
Pension adjustment . . . . . . . . . . . . . . . . . . . . . . . (950) (1,297)
Accumulated translation adjustment . . . . . . . . . . . . . . . (17,322) (16,184)
Deferred compensation . . . . . . . . . . . . . . . . . . . . . (68) (164)
----------- ------------
140,498 123,537
Treasury stock, at cost, 4,667 and 4,891 shares at
September 30, 1994 and 1993, respectively . . . . . . . . . . . (50,764) (53,201)
----------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 89,734 70,336
----------- ------------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 575,090 $ 539,705
=========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE> 28
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-In Retained Pension Translation Deferred Treasury
Shares Amount Capital Earnings Adjustment Adjustment Compensation Stock
------- -------- --------- --------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1991 . . . 60,150 $ 602 $ 33,933 $ 133,985 $ (545) $ -- $ (647) $(55,136)
Net loss . . . . . . . . . . . . -- -- -- (5,890) -- -- -- --
Translation adjustment . . . . . -- -- -- -- -- (6,610) -- --
Dividends paid:
common stock $.245 per share . -- -- -- (13,492) -- -- -- --
Tax benefit from exercise
of warrants . . . . . . . . . -- -- 1,638 -- -- -- -- --
Treasury stock transactions . . . -- -- (93) -- -- -- 444 (351)
Amortization of
deferred compensation . . . . -- -- -- -- -- -- (31) --
Pension adjustment . . . . . . . -- -- -- -- (464) -- -- --
------ -------- -------- --------- -------- -------- -------- --------
Balance, September 30, 1992 . . . 60,150 $ 602 $ 35,478 $ 114,603 $ (1,009) $ (6,610) $ (234) $(55,487)
Net loss . . . . . . . . . . . . -- -- -- (5,420) -- -- -- --
Translation adjustment . . . . . -- -- -- -- -- (9,574) -- --
Dividends paid:
common stock $.06 per share . -- -- -- (3,312) -- -- -- --
Common stock issued . . . . . . . 175 1 700 -- -- -- -- --
Treasury stock transactions . . . -- -- (1,470) -- -- -- (135) 2,286
Amortization of
deferred compensation . . . . -- -- -- -- -- -- 205 --
Pension adjustment . . . . . . . -- -- -- -- (288) -- -- --
------ -------- -------- --------- -------- -------- -------- --------
Balance, September 30, 1993 . . . 60,325 $ 603 $ 34,708 $ 105,871 $ (1,297) $(16,184) $ (164) $(53,201)
Net income . . . . . . . . . . . -- -- -- 19,132 -- -- -- --
Translation adjustment . . . . . -- -- -- -- -- (1,138) -- --
Common stock issued . . . . . . . 2 -- 6 -- -- -- -- --
Treasury stock transactions . . . -- -- (1,482) -- -- -- -- 2,437
Amortization of
deferred compensation . . . . -- -- -- -- -- -- 96 --
Pension adjustment . . . . . . . -- -- -- -- 347 -- -- --
------ -------- -------- --------- -------- -------- -------- --------
Balance, September 30, 1994 . . . 60,327 $ 603 $ 33,232 $ 125,003 $ (950) $(17,322) $ (68) $(50,764)
====== ======== ======== ========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 29
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
1994 1993 1992
--------- ------------ ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . $ 709,026 $ 558,088 $ 452,224
Miscellaneous cash receipts . . . . . . . . . . . 10,618 10,945 8,932
Cash paid to suppliers and employees . . . . . . . (614,856) (497,920) (453,734)
Interest paid . . . . . . . . . . . . . . . . . . (20,443) (21,622) (6,273)
Interest received . . . . . . . . . . . . . . . . 60 86 99
Income taxes paid . . . . . . . . . . . . . . . . (9,156) (1,463) (5,000)
--------- ------------ ----------
Net cash provided by (used in) operating activities . 75,249 48,114 (3,752)
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . (12,343) (12,175) (15,953)
Investment in joint venture . . . . . . . . . . . -- -- (3,971)
Investment in other assets . . . . . . . . . . . . -- -- (500)
Proceeds from sale of assets . . . . . . . . . . . 2,606 -- --
--------- ------------ ----------
Net cash used in investing activities . . . . . . . . (9,737) (12,175) (20,424)
Cash flows from financing activities:
Net changes in revolving bank debt . . . . . . . . (20,752) (7,403) 19,567
Payments on other long-term debt . . . . . . . . . (44,765) (26,246) (6,115)
Proceeds from borrowings . . . . . . . . . . . . . -- -- 31,843
Payment of debt placement fees . . . . . . . . . . -- (299) (7,421)
Dividends paid . . . . . . . . . . . . . . . . . . -- (3,312) (13,492)
Other . . . . . . . . . . . . . . . . . . . . . . 643 203 (630)
--------- ------------ ----------
Net cash provided by (used in) financing activities . (64,874) (37,057) 23,752
Effect of US/Canadian exchange rate on cash . . . . . 23 (155) 35
--------- ------------ ----------
Net increase (decrease) in cash and cash equivalents 661 (1,273) (389)
Cash and cash equivalents -- beginning of year . . . 1,352 2,625 3,014
--------- ------------ ----------
Cash and cash equivalents -- end of year . . . . . . $ 2,013 $ 1,352 $ 2,625
========= ============ ==========
Reconciliation of Net Income (Loss) to
Cash Provided by (Used In) Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . $ 19,132 $ (5,420) $ (5,890)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 40,953 38,679 23,895
Loss (gain) on disposal of assets . . . . . . . . . (2,134) 804 144
Deferred tax expense (benefit) . . . . . . . . . . (4,817) 1,239 (890)
Cumulative effect of change in accounting principle -- -- 10,428
Tax benefit from exercise of warrants . . . . . . . -- -- 1,638
Accrued compensation including SARs . . . . . . . . 21,941 205 (35)
Treasury stock issued to ESOT . . . . . . . . . . 954 690 --
Change in assets/liabilities net of effects from
acquisition:
Accounts receivable . . . . . . . . . . . . . . . (52,304) (17,705) (16,499)
Inventories . . . . . . . . . . . . . . . . . . . (9,493) 17,708 (17,425)
Prepaid expenses . . . . . . . . . . . . . . . . . 2,649 2,430 (4,210)
Other assets . . . . . . . . . . . . . . . . . . . (1,437) (4,411) 2,287
Accounts payable . . . . . . . . . . . . . . . . . 34,083 8,123 (4,052)
Accrued liabilities . . . . . . . . . . . . . . . 17,604 6,332 1,932
Interest payable . . . . . . . . . . . . . . . . . (1,739) (1,311) 1,474
Taxes payable . . . . . . . . . . . . . . . . . . 13,257 1,207 (3,422)
Other liabilities . . . . . . . . . . . . . . . . (3,400) (456) 6,873
--------- ------------ ----------
Cash provided by (used in) operating activities . . . $ 75,249 $ 48,114 $ (3,752)
========= ============ ==========
</TABLE>
Supplemental schedule of non-cash investing and financing activities: In fiscal
1992, the Company incurred debt obligations of $208,306, net of $6,212 cash
received, to finance the acquisition of the pulp chemicals business.
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 30
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities in
Texas City, Texas and pulp chemicals facilities throughout Canada. The
significant accounting policies of the Company are described below.
Principles of Consolidation
The consolidated financial statements include all majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
The Company's investment in a cogeneration joint venture is accounted for under
the equity method. The Company's equity in earnings from the joint venture is
recorded as a reduction of cost of goods sold.
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market; cost is determined on
the first-in, first-out ("FIFO") basis except for stores and supplies, which
are valued at average cost.
The Company enters into agreements with other chemical manufacturers to
exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to
or payable by the Company are included in inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major renewals and
improvements which extend the useful lives of the equipment are capitalized,
while repair and maintenance expenses are charged to operations as incurred.
Disposals are removed at carrying cost less accumulated depreciation with any
resulting gain or loss reflected in operations. Depreciation is provided using
the straight- line method over estimated useful lives ranging from 5 to 25
years with the predominant life of the plant and equipment being 15 years. The
Company capitalizes interest costs which are incurred as part of the cost of
constructing major facilities and equipment. The amount of interest
capitalized for the fiscal years 1994, 1993 and 1992 was $145, $291 and $931,
respectively.
Patents and Royalties
The cost of patents is amortized on a straight-line basis over their useful
lives which approximates ten years. The Company has capitalized the value of
the chlorine dioxide generator technology based on the net present value of all
estimated remaining royalty payments associated with the technology. The
resulting intangible amount is amortized over an average life for these royalty
payments of ten years.
Debt Issue Costs
Debt issue costs relating to long-term debt are amortized over the scheduled
maturity of the debt and are shown as a reduction of the related liability.
Income taxes
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year-end (the liability method).
Revenue Recognition
The Company generates revenues through sales in the open market, raw material
conversion agreements and long-term contracts. In certain cases, these
arrangements include shared profits with its customers. The Company recognizes
revenue from long-term contracts, sales in the open market and raw material
conversion agreements as the products are shipped. Revenues from shared profit
arrangements are estimated and accrued monthly. Revenues associated with the
construction and sale of chlorine dioxide generators are recognized using the
percentage of completion method. Deferred credits are amortized over the life
of the contract which gave rise to them. The Company also receives prepaid
royalties which are recognized over a period which is typically ten years.
Foreign Exchange
Assets and liabilities denominated in Canadian dollars are translated into U.S.
dollars at year-end exchange rates and revenues and expenses are translated at
the average monthly exchange rates. Translation adjustments are reported as a
separate component of stockholders' equity while transaction gains and losses
are included in operations. The Company enters into forward foreign exchange
contracts to minimize the short-term impact of Canadian dollar fluctuations on
specific Canadian dollar denominated commitments of its Canadian subsidiaries.
Gains or losses on these contracts are deferred and are included in operations
in the same period in which the hedged transactions are settled.
Income (Loss) Per Share
Income (loss) per share for fiscal years 1994, 1993 and 1992 has been computed
using a weighted average shares outstanding of 55,606, 55,252 and 55,063,
respectively.
28
<PAGE> 31
Environmental Costs
Environmental costs are expensed unless the expenditures extend the economic
useful life of the assets. Costs that extend the economic life of the assets
are capitalized and depreciated over the remaining life of such assets.
Reclassification
Certain amounts reported in the financial statements for the prior periods have
been reclassified to conform with the current financial statement presentation
with no effect on net income (loss) or stockholders' equity.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
September 30,
------------------------------
1994 1993
------------ -------------
<S> <C> <C>
Inventories:
Finished products . . . . . . . . . . . . . $ 42,431 $ 27,024
Work in process . . . . . . . . . . . . . . 6,758 2,794
Raw materials . . . . . . . . . . . . . . . 21,761 16,598
------------ -------------
Inventories at FIFO cost . . . . . . . . . 70,950 46,416
Inventories under
exchange agreements . . . . . . . . . . . (12,350) 2,684
Stores and supplies . . . . . . . . . . . . 11,158 11,228
------------ -------------
$ 69,758 $ 60,328
============ =============
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . $ 11,771 $ 8,911
Buildings . . . . . . . . . . . . . . . . . 24,944 24,297
Plant and equipment . . . . . . . . . . . . 406,860 393,976
Construction in progress . . . . . . . . . . 14,132 20,209
Less accumulated depreciation . . . . . . . (166,581) (133,078)
------------ -------------
$ 291,126 $ 314,315
============ =============
Other assets:
Patents and technology, net . . . . . . . . $ 46,918 $ 52,945
Intangible pension asset . . . . . . . . . . 4,139 4,545
Deferred catalyst . . . . . . . . . . . . . 4,126 6,893
Other . . . . . . . . . . . . . . . . . . . 17,273 16,286
------------ -------------
$ 72,456 $ 80,669
============ =============
Accrued liabilities:
Repairs . . . . . . . . . . . . . . . . . . $ 13,468 $ 7,763
Income taxes . . . . . . . . . . . . . . . . 13,257 5,100
Interest . . . . . . . . . . . . . . . . . . 576 734
Estimated contract adjustments . . . . . . . 9,684 5,115
Property taxes . . . . . . . . . . . . . . . 5,796 6,147
Accrued compensation . . . . . . . . . . . . 21,719 3,747
Other . . . . . . . . . . . . . . . . . . . 15,571 14,907
------------ -------------
$ 80,071 $ 43,513
============ =============
Deferred credits and other liabilities:
Deferred revenue . . . . . . . . . . . . . . $ 27,513 $ 29,593
Accrued postretirement benefits . . . . . . 22,746 20,792
Additional minimum
pension liability . . . . . . . . . . . . 5,601 6,505
Accrued compensation . . . . . . . . . . . . 9,030 --
Other . . . . . . . . . . . . . . . . . . . 4,144 5,767
------------ -------------
$ 69,034 $ 62,657
============ =============
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
------------------------------
1994 1993
------------ -------------
<S> <C> <C>
Revolving credit facilities . . . . . . . . . . $ 32,940 $ 53,692
Term loan . . . . . . . . . . . . . . . . . . . 20,000 39,563
Subsidiary term loan . . . . . . . . . . . . . 113,050 130,900
Subordinated note . . . . . . . . . . . . . . . 44,268 44,268
Project loan . . . . . . . . . . . . . . . . . 16,134 23,486
------------ -------------
Total debt outstanding . . . . . . . . . . . $ 226,392 $ 291,909
Less:
Current maturities . . . . . . . . . . . . . (33,771) (28,015)
Unamortized debt issue costs . . . . . . . . (5,835) (7,049)
------------ -------------
Total long-term debt . . . . . . . . . . . . $ 186,786 $ 256,845
============ =============
</TABLE>
The Company has a credit agreement with a syndicate of banks ("Credit
Agreement"). The Credit Agreement provides for a revolving credit facility
("Company Revolver") of up to $80,000, the availability of which is reduced by
loans ($20,000 at September 30, 1994) and letters of credit ($2,307 at
September 30, 1994), provides for a project loan of $16,134 related to the
acetic acid unit ("Project Loan") and a term loan ("Term Loan") of $20,000. The
margin on borrowings under the Company Revolver and Term Loan is dependent on
the outstanding indebtedness under the Company Revolver and Term Loan and cash
flow. The Credit Agreement also allows for up to $20,000 of additional
borrowings from other lenders ($7,940 in loans at September 30, 1994). The
average effective interest rate on the additional borrowings at September 30,
1994 and 1993 (including all associated interest rate swaps) was 10.9% and
4.3%, respectively.
The Term Loan matures in January 1998 and requires scheduled quarterly
payments. The Term Loan bears interest, at the option of the Company, at LIBOR
plus a margin of from 3/4% to 2 1/8%, the prime rate plus from zero to 1 1/8%,
or the CD rate plus 1% to 2 3/8%. The effective interest rate on the Term Loan
at September 30, 1994 and 1993 was 6.8% and 5.1%, respectively.
The Company Revolver matures in August 1996 and bears interest, at the option
of the Company, at LIBOR plus a margin of from 3/4% to 2 1/8%, the prime rate
plus zero to 1 1/8%, or the CD rate plus 1% to 2 3/8%. The average effective
interest rate on the Company Revolver at September 30, 1994 and 1993 (including
all associated interest rate swaps) was 11.0% and 5.7%, respectively. The
Company is required to pay a commitment fee of 1/2% of the unused Company
Revolver commitment.
29
<PAGE> 32
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
The Company entered into interest rate swap agreements to reduce the impact of
changes in interest rates on revolving bank debt. Beginning in February 1992,
the Company has outstanding three-year interest rate swap agreements with
commercial banks having a total equivalent principal amount of $40,000. The
agreements effectively fix the Company's interest rate on $40,000 of revolving
bank debt to 4.6% in year one (beginning February 1992), 6.3% in year two and
7.9% in year three, plus any applicable margin under the Company Revolver. The
Company is exposed to interest rate risk in the event of nonperformance by the
other parties to the interest rate swap agreements. However, the Company does
not anticipate nonperformance by such parties.
The Term Loan and the Company Revolver are collateralized by substantially all
of the inventories and accounts receivable of the Company, other than those of
its pulp chemical operations, Sterling Canada, Inc. ("Sterling Canada") and
Sterling Pulp Chemicals, Ltd., ("Sterling Pulp"), and all of the capital stock
of Sterling Canada.
The Project Loan is payable in 120 monthly installments commencing September 1,
1986. Interest accrues at LIBOR plus a 3/4% margin. In connection with the
Project Loan, the Company entered into an interest rate swap agreement,
effective September 30, 1986, which effectively fixes the Company's interest
rate on its Project Loan to 9.03% per annum. The agreement has a equivalent
principal amount equal to the outstanding principal amount of the Project Loan
and matures at the time the Project Loan matures. In addition, the Project Loan
continues to be collateralized by the Company's rights related to the acetic
acid unit and a related note from BPC. The Company is exposed to interest rate
risk in the event of nonperformance by the other party to the interest rate
swap agreement. However, the Company does not anticipate nonperformance by
such party.
The Credit Agreement restricts the Company's ability to incur additional
indebtedness and make dividend payments above specified amounts and contains a
number of financial and other covenants which management believes are customary
in lending transactions of this type.
The Company also has a separate stand-alone credit agreement for Sterling
Canada and an unsecured $44,268 subordinated note to the seller ("Subordinated
Note"). The Sterling Canada credit agreement includes a $113,050 term loan to
Sterling Canada ("Subsidiary Term Loan") and an additional Cdn. $20,000
denominated revolving credit line ("Canadian Revolver") the availability of
which is reduced by loans ($5,000 at September 30, 1994) and letters of credit
($688 at September 30, 1994).
The Subsidiary Term Loan matures in August 1999 and requires scheduled
quarterly payments and additionally provides for mandatory prepayments of
certain percentages of Sterling Canada's and Sterling Pulp's Excess Cash Flow
(as defined in the Sterling Canada credit agreement). An Excess Cash Flow
payment of $2,331 is due in December 1994. The Subsidiary Term Loan bears
interest at the option of Sterling Canada at LIBOR plus 2 1/2%, the CD rate plus
2 3/4% or the higher of the base rate plus 1 1/2% or the Federal Reserve rate
plus 2%. The effective interest rate at September 30, 1994 and 1993 was 7.5%
and 5.7%, respectively.
The Canadian Revolver allows Sterling Pulp to denominate borrowings in U.S. or
Canadian dollars. Sterling Canada can only borrow in U.S. dollars. Depending on
the currency in which the borrowing is denominated, borrowings bear interest at
the base rate plus 1 1/2%, LIBOR plus 2 1/2%, the CD rate plus 2 3/4% or the
prime rate plus 1 1/2%. The Canadian Revolver matures in August 1997. At
September 30, 1994 and 1993, the average effective interest rate on the
Canadian Revolver was 7.5% and 5.7%, respectively. Sterling Canada is required
to pay a commitment fee of 1/2% of the unused commitment.
The Sterling Canada credit agreement restricts the ability of both Sterling
Canada and Sterling Pulp to incur additional indebtedness and make dividend
payments above specified amounts and contains a number of financial and other
covenants which management believes are customary in lending transactions of
this type. The Sterling Canada credit agreement is collateralized by a first
lien on the assets of Sterling Canada and Sterling Pulp. Obligations owed under
the Sterling Canada credit agreement are not guaranteed by the Company.
The Subordinated Note matures in December 1999 and provides for mandatory
prepayments of certain percentages of Sterling Canada's Excess Cash Flow (as
defined in the Sterling Canada credit agreement). An Excess Cash Flow payment
of $278 is due in December 1994.
30
<PAGE> 33
The Subordinated Note bears interest at the three month LIBOR plus the
applicable margin on the Subsidiary Term Loan plus 1% and restricts the
Company's ability to pay dividends and repurchase treasury stock. The
Subordinated Note is uncollateralized; however, it is guaranteed by the
Company. The interest rate of the Subordinated Note at September 30, 1994 and
1993 was 8.3% and 6.7%, respectively.
Debt Maturities
The estimated remaining principal payments on the outstanding debt are as
follows:
<TABLE>
<CAPTION>
Year ending Principal
September 30, Payments
------------- -----------
<S> <C>
1995 . . . . . . . . . . . . . . . $ 33,771
1996 . . . . . . . . . . . . . . . 62,837
1997 . . . . . . . . . . . . . . . 34,800
1998 . . . . . . . . . . . . . . . 26,550
1999 . . . . . . . . . . . . . . . 24,444
2000 . . . . . . . . . . . . . . . 43,990
-----------
Total outstanding debt . . . . $ 226,392
===========
</TABLE>
4. INCOME TAXES:
A reconciliation of federal statutory income taxes to the Company's effective
tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1994 1993 1992
----------- -------- --------
<S> <C> <C> <C>
Provision (benefit) for federal
income tax at the
statutory rate . . . . . . . . . . $ 9,772 $ (2,994) $ 3,146
Tax deductible ESOT
dividends . . . . . . . . . . . . -- (132) (542)
State and foreign
income taxes . . . . . . . . . . . 90 877 702
Estimated income tax
settlement and other . . . . . . . (740) 701 1,410
----------- -------- --------
Effective tax provision
(benefit) . . . . . . . . . . . . $ 9,122 $ (1,548) $ 4,716
=========== ======== ========
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------
1994 1993 1992
----------- -------- --------
<S> <C> <C> <C>
From operations:
Current federal . . . . . . . . . $ 18,618 $ (2,849) $ 3,064
Deferred federal . . . . . . . . . (7,809) 148 1,652
Deferred foreign . . . . . . . . . (1,687) 1,153 --
----------- -------- --------
Total tax provision
(benefit) . . . . . . . . . . . . $ 9,122 $ (1,548) $ 4,716
=========== ======== ========
</TABLE>
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), effective
October 1, 1993. Under SFAS 109, deferred income taxes are provided for
temporary differences in recognition of income and expenses for tax and
financial reporting purposes. The adoption of this statement did not have an
effect on the Company's results of operations. Upon adoption of SFAS 109, the
Company's current deferred tax asset and deferred tax liability each increased
by approximately $1,600.
The components of the deferred income taxes for 1993 and 1992 (a disclosure no
longer required upon adoption of SFAS 109) are summarized below:
<TABLE>
<CAPTION>
Year Ended
September 30,
------------------------------
1994 1993
------------ -------------
<S> <C> <C>
Depreciation and amortization . . . . . . . . . $ 1,709 $ 3,167
Alternate minimum tax . . . . . . . . . . . . . (959) 309
Accrued expenses
for book purposes . . . . . . . . . . . . . 484 (1,107)
Pension expense . . . . . . . . . . . . . . . . (729) (117)
Postretirement expense . . . . . . . . . . . . (667) (680)
Effect of tax rate change . . . . . . . . . . . 500 --
Other . . . . . . . . . . . . . . . . . . . . . 963 80
------------ -------------
Total deferred tax expense . . . . . . . . . . $ 1,301 $ 1,652
============ =============
</TABLE>
The components of the Company's deferred income tax assets and liabilities are
summarized below:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
Assets Liabilities Assets Liabilities
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Property, plant and equipment . . . . . . . . . $ -- $ 60,756 $ - $ 55,512
Accrued liabilities . . . . . . . . . . . . . . 13,099 -- 5,968 --
Accrued pension cost . . . . . . . . . . . . . -- 1,165 628 --
Accrued postretirement cost . . . . . . . . . . 7,405 -- 6,811 --
Tax loss and credit carryforward . . . . . . . 11,389 -- 10,430 --
Other . . . . . . . . . . . . . . . . . . . . . 523 -- -- 567
--------- ----------- ---------- --------
Total deferred taxes . . . . . . . . . . . 32,416 61,921 23,837 56,079
Less current deferred taxes . . . . . . . . . . 9,332 -- 3,856 --
--------- ----------- ---------- --------
Noncurrent deferred taxes . . . . . . . . . . . $ 23,084 $ 61,921 $ 19,981 $ 6,079
========= ========== ========== ========
</TABLE>
The Company has approximately $29,000 in tax loss carryforwards which will
expire from 1998 through 2001.
31
<PAGE> 34
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
5. EMPLOYEE BENEFITS:
The Company has established the following benefit plans:
Retirement Benefit Plans
The Company has non-contributory pension plans in the United States and
employer and employee contributory plans in Canada which cover all salaried and
wage employees. The benefits under these plans are based primarily on years of
service and employees' pay near retirement. For those Company employees who
were employed by the Company as of September 30, 1986 and were previously
employed by Monsanto, the Company recognizes their Monsanto pension years of
service for purposes of determining benefits under the Company's plans. For
those Company employees who were employed by Tenneco Inc., the Company
recognizes their Tenneco Inc. pension years for purposes of determining
benefits under the Company's plans. The Company's funding policy is consistent
with the funding requirements of federal law and regulations. Plan assets
consist principally of common stocks and government and corporate securities.
The Company has recorded its additional minimum liability in accordance with
Statement of Financial Accounting Standards No. 87 "Employers' Accounting for
Pensions." In recognizing the additional pension liability at September 30,
1994 and 1993, the Company recorded a liability of $5,601 and $6,505, an
intangible asset of $4,139 and $4,545, which is included with other assets, and
a reduction of stockholders' equity of $950 and $1,297, net of deferred tax of
$512 and $666, respectively.
The components of pension cost for the years ended September 30, 1994, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- -------
<S> <C> <C> <C>
Service cost (for benefits
earned during the period) . . . $ 3,386 $ 3,195 $ 2,530
Interest cost on projected
benefit obligation . . . . . . . 3,891 3,499 2,535
Actual return on plan assets
and contributions . . . . . . . 617 (2,940) (1,739)
Deferral of asset gain (loss) . . . (3,997) 59 (151)
Net amortization of
unrecognized amounts . . . . . . 848 863 808
--------- -------- -------
$ 4,745 $ 4,676 $ 3,983
========= ======== =======
</TABLE>
Assumptions used in determining the projected benefit obligation and pension
cost for the periods were as follows:
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1994 1993 1992
---- ---- -----
<S> <C> <C> <C>
Discount rates . . . . . . . . . . 8.0% 7.5% 8.25%
Rates of increase in salary
compensation levels . . . . . . 5.5% 5.5% 5.5%
Expected long-term rate of return
on assets . . . . . . . . . . . 9.0% 9.0% 9.0%
</TABLE>
The funded status of the Company's pension plans for which assets exceed
accumulated benefits and plans for which accumulated benefits exceed assets as
of the actuarial valuation dates of August 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------- -------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefits
based on service to date and
present pay levels:
Vested benefit obligation . . . . . $ 19,392 $ 17,776 $15,991 $ 16,718
Non-vested benefit obligation . . . 2,040 1,309 2,015 1,859
--------- -------- ------- ---------
Accumulated benefit obligation. . . 21,432 19,085 18,006 18,577
Plan assets at fair value . . . . . 26,835 16,795 25,000 12,549
--------- -------- ------- ---------
Plan assets in excess of (less than)
accumulated benefit obligation . 5,403 (2,290) 6,994 (6,028)
Additional amounts related to
projected salary increases . . . 14,806 812 14,294 986
--------- -------- ------- ---------
Plan assets less than total projected
benefit obligation . . . . . . . (9,403) (3,102) (7,300) (7,014)
Unrecognized net loss resulting from
plan experience and
changes in actuarial assumptions 4,935 1,871 2,863 2,766
Unrecognized prior service cost . . (49) 3,949 10 4,328
Unrecognized transition obligation 3,067 182 3,420 208
--------- -------- ------- ---------
Prepaid (accrued) pension cost before
additional minimum liability . . (1,450) 2,900 (1,007) 288
Additional minimum liability . . . -- (5,601) -- (6,505)
--------- -------- ------- ---------
Total accrued pension cost . . . . $ (1,450) $ (2,701) $(1,007) $ (6,217)
========= ======== ======= =========
</TABLE>
32
<PAGE> 35
Postretirement Benefits Other than Pensions
The Company provides certain health care benefits and life insurance benefits
for retired employees. Substantially all of the Company's employees become
eligible for these benefits at normal retirement age. Prior to fiscal 1992, the
Company recognized the costs of providing these benefits as they were paid.
Retiree health care expenses and life insurance premiums prior to fiscal 1992
were not material. During the fourth quarter of fiscal 1992 the Company
adopted, effective October 1, 1991, Statement of Financial Accounting Standards
No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("SFAS 106") which requires the accrual of such costs during the period in
which the employee renders the necessary service. The Company elected to fully
recognize the obligation upon adoption. The cumulative effect of adopting the
provisions of SFAS 106 was $10,428, net of a deferred tax benefit of $5,372.
Health care benefits are provided to employees who retire from the Company with
ten or more years of service except for Canadian employees subject to
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for U.S.
employees are a contributory, comprehensive plan while all other plans are
non-contributory. Benefit provisions for most hourly and some salaried
employees are subject to collective bargaining. In general, the plan stipulates
that retiree health care benefits are paid as covered expenses are incurred.
For U.S. employees, postretirement medical plan deductibles are assumed to
increase at the rate of the long-term consumer price index. Approximately one
hundred fifty six retirees and dependents are covered under these plans. The
components of postretirement benefits cost other than pensions for the years
ended September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Service cost
(for benefits earned
during the period) . . . . . . . $ 1,064 $ 932
Interest cost on projected
benefit obligation . . . . . . . 1,688 1,531
Amortization of plan amendments . . 29 12
--------- --------
$ 2,781 $ 2,475
========= ========
</TABLE>
Actuarial assumptions used to determine fiscal year 1994 and 1993 costs and
benefit obligations for postretirement benefits plans other than pensions
include an average discount rate of 7.5% and an average rate of future
increases in benefit compensation of 5.5%. The assumed rate of future increases
in per capita cost of health care benefits ("health care cost trend rate") was
8.5% for fiscal year 1994, exclusive of demographic changes, decreasing
gradually to 6% by the year 2026.
These trend rates reflect current cost performance and management's expectation
that future rates will decline. Increasing the health care cost trend rate by
one percentage point would increase the accumulated postretirement benefit
obligation by $1,338 and would increase annual aggregate service and interest
costs by $168.
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheet at September 30, 1994 and
1993.
Accumulated postretirement benefit obligation ("APBO"):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Retirees . . . . . . . . . . . . . $ 5,956 $ 4,756
Fully eligible active plan
participants . . . . . . . . . . 7,234 6,568
Other active plan participants . . 11,752 10,168
--------- --------
Total APBO . . . . . . . . . . . 24,942 21,492
Plan assets at fair value . . . . . -- --
Unrecognized loss . . . . . . . . . (1,915) (386)
Unrecognized prior service cost . . (281) (314)
--------- --------
Accrued postretirement
benefit liability . . . . . . . $ 22,746 $ 20,792
========= ========
</TABLE>
Postemployment Benefits
During the first quarter of fiscal 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires accrual
accounting for benefits provided to former or inactive employees after
employment but before retirement. The Company will implement the provisions of
SFAS 112 in fiscal 1995 and management estimates the effect of initial adoption
on the Company's financial position and results of operations will not be
material.
Employee Stock Ownership Trust
The Employee Stock Ownership Trust ("ESOT") was formed to invest primarily in
the Company's common stock and includes only participants contributing to the
Company's Savings and Investment Plan ("SIP"). The Company's contribution to
the ESOT is 60% of the participant's SIP contributions to the extent that such
participant's contributions do not exceed 7.5% of the employee's eligible
earnings. The contributions are subject to a 20% per year vesting schedule
commencing after one year of service. The Company's contributions to the ESOT
for the years ended September 30, 1994, 1993 and 1992 were $1,688, $1,649 and
$1,598, respectively.
33
<PAGE> 36
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
Profit Sharing Plans
The Company provides profit sharing plans, as amended, for the benefit of
salaried and hourly employees meeting certain eligibility requirements. These
plans were amended and restated in fiscal 1993. The Company distributes
quarterly, to eligible employees, a specified percentage of its earnings before
interest, taxes, depreciation and amortization above a specified level. The
amount of each eligible employee's quarterly cash distribution is related to a
specified percentage of such employee's base salary or wages, with the
percentage determined by the employee's position in the Company. Profit sharing
expense for fiscal year 1994 was $3,815. There was no profit sharing expense
during fiscal years 1993 or 1992.
Omnibus Stock and Incentive Plan
The Company has an Omnibus Stock and Incentive Plan, under which the Company
may grant to key employees incentive and nonincentive stock options, stock
appreciation rights, restricted stock, performance units and performance
shares. The total number of shares of the Company's common stock reserved under
the plan is 3,000. The terms and amounts of the awards are determined by the
Compensation Committee of the Board of Directors. Upon a change of control of
the Company, all awards granted under the plan become fully vested and all
performance based awards will be paid at the higher of performance goals or
actual performance to date.
In fiscal year 1993, the Company granted stock appreciation rights ("SARs") to
certain key employees and directors. Total expense is determined based on the
number of SARs granted (3,632), the vesting period (five years beginning
September 1992) and the appreciation of the Company's stock price above $4 per
share, which was the fair market value of the Company's common stock on the
date of grant of the SARs. In October 1994, the Company amended the SAR program
by modifying the vesting periods and limiting the amount of appreciation for
each SAR during each vesting period, thereby limiting the Company's future
expenses. The Company recorded expense of $21,800 in fiscal 1994 and paid out
$8,297 in October 1994 pursuant to the SARs, as amended.
There was no expense associated with the SARs for fiscal year 1993 as the
market price of the Company's stock at September 30, 1993 was less than the
price at the date of grant. The expense for the SARs is included in selling,
general and administrative expenses in the Company's income statement.
6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
United States . . . . . . . . . . . $ 10,232 $ 10,422 $ 8,873
Canada . . . . . . . . . . . . . . 14,075 15,073 1,424
SARs . . . . . . . . . . . . . . . 21,843 -- --
--------- -------- -------
$ 46,150 $ 25,495 $10,297
========= ======== =======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Product Contracts
The Company has certain long-term agreements which provide for the dedication
of 100% of the Company's production of acetic acid, plasticizers, TBA and
sodium cyanide, each to one customer. The Company also has various sales and
conversion agreements which dedicate significant portions of the Company's
production of styrene monomer and acrylonitrile to various customers.
Lease Commitments
The Company has entered into various long-term noncancellable operating leases.
Future minimum lease commitments at September 30, 1994 are as follows: fiscal
1995 - $2,730; fiscal 1996 - $2,236; fiscal 1997 - $2,230; fiscal 1998 -
$2,150; fiscal 1999 - $1,660; and $7,251 thereafter. Rent expense for fiscal
years 1994, 1993 and 1992 was not material.
Environmental Regulations
The Company's operations are subject to extensive federal, state, provincial
and local environmental regulations. The Company may incur significant
expenditures in order to comply with environmental regulations.
Legal Proceedings
The Company is subject to claims and legal actions that arise in the ordinary
course of its business. The Company believes that the ultimate liability, if
any, with respect to these claims and legal actions will not have a material
effect on the financial position or results of operations of the Company.
In October 1993, the Company and the Internal Revenue Service ("IRS") agreed
upon a basis for settlement of the adjustments proposed as a result of the
IRS's examination of the Company's federal income tax returns for fiscal years
1987 through 1990. This settlement resulted in a slight reduction of tax
expense during fiscal 1994.
In May 1994, an ammonia release occurred at the Company's Texas City facility
while a reactor in the acrylonitrile unit was being restarted after a shutdown
for routine maintenance. The Company estimates that approximately three
thousand pounds of ammonia were emitted into the atmosphere.
34
<PAGE> 37
As of November 15, 1994, approximately nine thousand individuals have filed
claims directly with the Company alleging personal injury and/or property
damage as a result of exposure to the ammonia. The Company and its insurance
carrier are in the process of evaluating these claims. Approximately two
thousand of these claims have been settled and three thousand have been denied
by the Company. As of November 15, 1994, four lawsuits involving approximately
nine hundred sixty plaintiffs have been filed against the Company seeking
unspecified damages for personal injuries and property damage as a result of
the release. The Company anticipates that additional claims and litigation
against the Company asserting similar claims will ensue. The Company believes
that its general liability insurance coverage is sufficient to cover all costs
and expenses and has accrued and reflected in expense its deductible under this
coverage. Accordingly, the Company believes that final resolution of this
matter will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
(formerly Eka Nobel) and its affiliates. The Company is engaged with Akzo Nobel
in numerous patent disputes throughout the world in which the Company and Akzo
Nobel are challenging certain patents of the other and attempting to restrict
the other's operating range. If either party is successful in these disputes,
the other party may have to make adjustments and modifications in its
commercial operations or obtain a license from the prevailing party. The
Company's management believes that any potential costs for such adjustments or
modifications would be immaterial. The Company believes it is entitled to
certain indemnities from Tenneco Canada with respect to the acquired
technology.
On April 27, 1994, approximately one thousand plaintiffs sued the Company and
eighteen other corporate defendants in the Texas City area. The plaintiffs seek
an unspecified amount of damages for claimed personal injury and property
damages arising from alleged chemical releases. Discovery is proceeding and the
Company is vigorously defending this lawsuit.
On May 9, 1991, a lawsuit was filed against the Company and several other
petrochemical companies operating in the Texas City area. The plaintiffs in
the lawsuit assert personal injury and property damage claims arising from
alleged chemical releases. The plaintiffs seek an unspecified amount of
damages. Although the court dismissed a number of the plaintiffs for failure to
comply with discovery, over three hundred plaintiffs remain. The Company is
vigorously defending the lawsuit.
8 SEGMENT AND GEOGRAPHIC INFORMATION:
Sales to individual customers constituting 10% or more of total revenues (in
any of the last three fiscal years) and sales by geographic region were as
follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1994 1993 1992
------------ ---------- -----------
<S> <C> <C> <C>
Major Customers
Customer A . . . . . . . . . . . . . . . $ 103,637 $ 54,497 $ 55,821
Customer B . . . . . . . . . . . . . . . $ 69,920 $ 60,186 $ 86,213
Export Sales
Export revenues . . . . . . . . . . . . . $ 324,930 $ 158,804 $ 183,241
Percentage of
total revenues . . . . . . . . . . . . 46% 31% 43%
Export revenues
(as a percent of total
exports) by
geographical area:
Asia . . . . . . . . . . . . . . . . . . 80% 61% 62%
Europe . . . . . . . . . . . . . . . . . 16% 39% 37%
Other . . . . . . . . . . . . . . . . . . 4% -- 1%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1994 1993
----------- ------------
<S> <C> <C>
Geographic Segment Information
Revenues
United States . . . . . . . . . . . . . . . . . . . . . $ 578,295 $ 399,486
Canada . . . . . . . . . . . . . . . . . . . . . . . . . 122,545 119,335
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 700,840 $ 518,821
---------- -----------
Income before taxes and cumulative effect
of change in accounting principle
United States . . . . . . . . . . . . . . . . . . . . . $ 27,106 $ (12,877)
Canada . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 5,909
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 28,254 $ (6,968)
========== ===========
Assets
United States . . . . . . . . . . . . . . . . . . . . . $ 374,910 $ 328,746
Canada . . . . . . . . . . . . . . . . . . . . . . . . . 200,180 210,959
---------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 575,090 $ 539,705
========== ===========
</TABLE>
35
<PAGE> 38
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands Except Per Share Data)
Concentration of Credit Risk
The Company sells its products primarily to companies involved in the
petrochemical and pulp manufacturing industries. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral
for accounts receivable. The Company's credit losses have been minimal.
The Company maintains cash deposits with major banks which from time to time
may exceed federally insured limits. Management periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
9. FINANCIAL INSTRUMENTS:
The Company enters into forward foreign exchange contracts to hedge Canadian
dollar transactions on a continuing basis for periods consistent with its
committed exposures. The Company's forward foreign exchange contracts are
intended to reduce the Company's risk due to Canadian exchange rate movements
because gains and losses on these contracts are intended to offset losses and
gains on the assets, liabilities and transactions being hedged. The Company
does not engage in speculation. As of September 30, 1994, the Company had
approximately $19,639 of forward foreign exchange contracts outstanding to buy
Canadian dollars. There were no forward foreign exchange contracts outstanding
at September 30, 1993. The forward foreign exchange contracts generally have
varying maturities with none exceeding 12 months. The Company makes net
settlements of U.S. dollars for Canadian dollars at rates agreed to at
inception of the contracts.
The fair value approximated the carrying value of financial instruments
included in current assets, current liabilities and long- term debt, including
any related swaps, at September 30, 1994. Unrealized gains related to forward
foreign exchange contracts were not material.
10. RELATED PARTY TRANSACTIONS:
The Company, through a wholly-owned subsidiary, is a partner in a joint venture
which constructed and operates a cogeneration plant at the Texas City facility.
During fiscal years 1994 and 1993, the Company purchased $16,546 and $16,646 of
steam and electricity from the joint venture, respectively, and recorded
earnings of $2,788 and $2,598, respectively. The Company's investment in the
joint venture is not material.
36
<PAGE> 39
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and Stockholders of
Sterling Chemicals, Inc.
We have audited the consolidated balance sheet of Sterling Chemicals, Inc. as
of September 30, 1994 and 1993 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sterling
Chemicals, Inc. as of September 30, 1994 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1994, in conformity with generally accepted
accounting principles.
As more fully discussed in Note 4 to the consolidated financial statements,
effective October 1, 1993 the Company changed its method of accounting for
income taxes.
/s/ Coopers & Lybrand, L.L.P.
COOPERS & LYBRAND L.L.P.
November 11, 1994
Houston, Texas
REPORT OF MANAGEMENT
Management is responsible for the preparation and content of the financial
statements included in this annual report and the information contained in
other sections of this annual report. The financial statements have been
prepared in conformity with generally accepted accounting principles
appropriate under the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included. The financial
statements reflect Management's judgments and estimates as to the effects of
events and transactions that are accounted for or disclosed.
Management maintains accounting systems which are supported by internal
accounting controls that provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with Management's
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal accounting controls should not exceed the benefits. Internal
audits are conducted to test compliance with internal controls. Results of
audit efforts and actions are communicated to appropriate Management and to the
Audit Committee of the Board of Directors.
Coopers & Lybrand L.L.P. performs a separate independent audit of the Company's
financial statements for the purpose of determining that the statements are
presented fairly and in accordance with generally accepted accounting
principles. Coopers & Lybrand L.L.P. is appointed by the Board of Directors
and meets regularly with the Audit Committee of the Board.
The Audit Committee of the Board of Directors is composed solely of outside
directors. The Committee meets periodically with the Company's senior officers,
the Company's Manager of Internal Audit and independent accountants to review
the adequacy and reliability of the Company's accounting, financial reporting
and internal controls.
/s/ J. Virgil Waggoner
J. Virgil Waggoner
President and Chief Executive Officer
/s/ Jim P. Wise
Jim P. Wise
Vice President and Chief Financial Officer
November 11, 1994
37
<PAGE> 40
STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In Thousands Except Per Share Data)
Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . 1994 $ 130,560 $ 154,754 $ 204,668 $ 210,858
1993 $ 137,789 $ 113,045 $ 132,259 $ 135,728
Gross profit . . . . . . . . . . . 1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286
1993 $ 13,125 $ 8,619 $ 11,864 $ 7,311
Net income (loss) . . . . . . . . . 1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
1993 $ 79 $ (2,586) $ (447) $ (2,466)
Per Share Data:
Net income (loss) . . . . . . . . . 1994 $ (.06) $ .03 $ .10 $ .27
1993 $ -- $ (.05) $ (.01) $ (.04)
Cash dividends per common share . . 1994 $ -- $ -- $ -- $ --
1993 $ .02 $ .02 $ .02 $ --
Price range of common stock (NYSE) 1994 High $ 4 1/2 $ 6 3/4 $ 10 $ 13 3/4
Low $ 3 3/8 $ 4 $ 5 1/2 $ 9
1993 High $ 4 1/4 $ 5 $ 4 1/2 $ 4
Low $ 3 1/2 $ 3 3/4 $ 3 3/8 $ 3 1/8
</TABLE>
The common stock of the Company is traded on the New York Stock Exchange
("NYSE") under the ticker symbol "STX." There were approximately 15,000
shareholders of record and other beneficial owners as of September 30, 1994.
For more information concerning the Company's ability and intention to pay
future dividends see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
38
<PAGE> 41
STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(In Thousands Except Per Share Data)
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------------------------------------
Operating Data: 1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- --------- --------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . $ 700,840 $ 518,821 $ 430,529 $ 542,664 $ 506,046 $ 580,797 $ 698,964 $413,192
Gross profit . . . . 93,924 40,919 27,882 70,257 106,403 172,608 334,990 118,956
EBITDA . . . . . . . 89,471 52,477 40,967 78,522 115,241 178,562 337,336 125,450
Net income (loss) . . 19,132 (5,420) (5,890) 36,797 59,083 103,898 213,079 47,381
Per share data: *
Income (loss) . . 0.34 (0.10) (0.11) 0.67 1.07 1.77 3.55 .79
Cash dividends . . 0.00 0.06 0.245 0.65 1.00 .75 3.17 --
Balance Sheet Data:
Working capital . . . $ 20,809 $ 30,952 $ 56,787 $ 28,623 $ 33,359 $ 35,566 $ 39,448 $ 28,585
Total assets . . . . 575,090 539,705 600,094 361,030 352,024 329,040 294,242 283,375
Long-term debt . . . 186,786 256,845 291,844 71,162 63,739 66,499 86,279 116,047
Stockholders'
equity . . . . . . 89,734 70,336 87,343 112,192 108,240 110,372 90,562 52,360
</TABLE>
* Per share data have been computed using the weighted average number of common
shares outstanding during each period.
39
<PAGE> 42
CORPORATE
INFORMATION
Form 10-K
Copies of the Company's 1994 Form
10-K are available without charge
upon written request to:
Jim P. Wise
Vice President - Finance and
Chief Financial Officer
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002-4312
Annual Meeting
Date: January 25, 1995
Time: 9:00 a.m.
Place: Texas Commerce Center
Auditorium
601 Travis
Houston, Texas 77002
Legal Counsel
Bracewell & Patterson, L.L.P.
2900 South Tower Pennzoil Place
Houston, Texas 77002
713/223-2900
Independent Accountants
Coopers & Lybrand L.L.P.
1100 Louisiana, Suite 4100
Houston, Texas 77002
713/757-5200
Stock Listing
New York Stock Exchange
Ticker Symbol STX
Stock Transfer Agent and Registrar
Society National Bank
c/o KeyCorp Shareholder
Services, Inc.
700 Louisiana, Suite 2620
Houston, Texas 77002-2729
Corporate Headquarters
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002-4312
713/650-3700
40
<PAGE> 43
(Sterling Chemicals Logo)
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002-4312
713/650-3700
41
<PAGE> 44
Board of Directors
Photo No. 1, Page 41 [Photo Description -- Board of Director Seated, from left:
J. Virgil Waggoner, Gordon A. Cain, Gilbert M. A. Portal. Standing, from left,
F. Maxwell Evans, Secretary to the Board; Raymond R. Knowland; James J.
Kerley; Frank J. Pizzitola; William A. McMinn.]
Photo No. 2, Page 41 [Photo Description -- Officers Seated, from left: Robert
W. Roten, J. Virgil Waggoner, Jim P. Wise. Standing, Stewart H. Yonts; Robert
N. Bannon; F. Maxwell Evans, Richard K. Crump.]
DIRECTORS AND OFFICERS
Board of Directors
Gordon A. Cain(2)
Chairman of the Board of the Company
J. Virgil Waggoner
President and Chief Executive Officer
of the Company
James J. Kerley(1)
Retired Vice Chairman,
Emerson Electric Co.
Raymond R. Knowland(1)(2)
Industrial Consultant
William A. McMinn(2)
Chairman, Arcadian Corporation
Frank J. Pizzitola(1)(2)
Limited Partner, Lazard Freres & Co.
Gilbert M. A. Portal(1)(2)
Secretary General, European
Petroleum Industry Association
(1)Audit Committee
(2)Compensation Committee
Executive Officers
J. Virgil Waggoner
President and Chief Executive Officer
Robert W. Roten
Executive Vice President and
Chief Operating Officer
Jim P. Wise
Vice President - Finance and
Chief Financial Officer
Richard K. Crump
Vice President - Commercial
Robert N. Bannon
Vice President - Operations
F. Maxwell Evans
Corporate Secretary and General Counsel
Stewart H. Yonts
Treasurer
42
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1993
<PERIOD-END> SEP-30-1994
<CASH> 2,013
<SECURITIES> 0
<RECEIVABLES> 127,705
<ALLOWANCES> 0
<INVENTORY> 69,758
<CURRENT-ASSETS> 211,508
<PP&E> 457,707
<DEPRECIATION> 166,581
<TOTAL-ASSETS> 575,090
<CURRENT-LIABILITIES> 190,699
<BONDS> 186,786
<COMMON> 603
0
0
<OTHER-SE> 89,131
<TOTAL-LIABILITY-AND-EQUITY> 89,734
<SALES> 700,840
<TOTAL-REVENUES> 700,840
<CGS> 606,916
<TOTAL-COSTS> 606,916
<OTHER-EXPENSES> 43,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,126
<INCOME-PRETAX> 28,254
<INCOME-TAX> 9,122
<INCOME-CONTINUING> 19,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,132
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
