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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-10059
STERLING CHEMICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
REGISTRANTS'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 650-3700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
TITLE OF EACH CLASS NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_].
As of November 27, 1995, the number of shares of common stock outstanding was
55,673,991. As of such date, the aggregate market value of common stock held by
nonaffiliates, based upon the closing price of these shares on the New York
Stock Exchange, was approximately $359 million.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Company's Annual Report to Shareholders for the fiscal year
ended September 30, 1995 (Part II Items 5-8 & Part IV Item 14 (a) (1)
(2) Portions of the Company's Definitive Proxy Statement dated December 21,
1995 (Part III Items 10-12).
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 15
Item 3. Legal Proceedings.............................................. 16
Item 4. Submission of Matters to Vote of Security Holders.............. 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder.. 17
Item 6. Selected Financial Data........................................ 17
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations.......................................... 17
Item 8. Financial Statements and Supplementary Data.................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant............. 18
Item 11. Executive Compensation......................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management. 18
Item 13. Certain Relationships and Related Transactions................. 18
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14. K.............................................................. 18
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PART I
ITEM 1. BUSINESS
Sterling Chemicals, Inc. ("Company") was organized as a Delaware corporation
in 1986 and has its principal executive offices in Houston, Texas. The Company
manufactures seven commodity petrochemicals at its Texas City, Texas plant
("Texas City Plant") and manufactures chemicals for use primarily in the pulp
and paper industry at four plants in Canada. At its Texas City Plant, the
Company produces styrene, acrylonitrile, acetic acid, plasticizers, lactic
acid, tertiary butylamine ("TBA") and sodium cyanide. The Company generally
sells its petrochemical products to customers for use in the manufacture of
other chemicals and products, which in turn are used in the production of a
wide array of consumer goods and industrial products. Sodium chlorate is
produced at the four plants in Canada and sodium chlorite is produced at one of
the Canadian locations. The Company licenses, engineers and oversees
construction of large-scale chlorine dioxide generators for the pulp and paper
industry as part of the pulp chemicals business. These generators convert
sodium chlorate into chlorine dioxide at pulp mills.
Hereafter, unless otherwise indicated, the Company and its subsidiaries are
collectively referred to as "the Company".
RECENT DEVELOPMENTS
In fiscal 1995, the Company initiated a three year capital spending program
of approximately $200 million. The program includes modernization of the
Company's Texas City petrochemical plant, the construction of a methanol plant
at Texas City, a substantial expansion of the Company's acetic acid capacity,
the construction of a sodium chlorate plant at Valdosta, Georgia,
debottlenecking projects to add incremental capacity at the Company's existing
sodium chlorate facilities and various other projects. The plant modernization
effort at Texas City includes a significant capital commitment for replacing
the older control technology in the styrene, acrylonitrile and acetic acid
units with state-of-the-art distributive control systems, which should result
in increased efficiencies and stronger operating fundamentals.
The Company is constructing a world-scale, 150 million gallon per year
methanol plant at Texas City as part of its capital plan. The plant is expected
to be operational by June 1996. Capital investment in the plant and production
capacity will be shared by the Company and BP Chemicals Inc. Approximately 50%
of the methanol production will be used as a raw material in the Company's
acetic acid plant, replacing methanol that is currently being purchased, while
the remainder will be available for the merchant market and for BP Chemical's
worldwide acetic acid business. The plant will be constructed at significantly
less than normal replacement cost because available equipment already at the
Company's Texas City Plant will be refurbished and used in the project. The
plant will use highly efficient state-of-the-art ICI catalyst technology. The
lower capital investment coupled with modern operating technology should result
in a methanol plant with significant competitive advantages.
In a project related to the new methanol plant, Praxair, Inc. ("Praxair")
will construct a new partial oxidation unit at the Company's Texas City Plant
that will supply carbon monoxide and hydrogen to the Company for use in the
production of acetic acid and plasticizers. The Company's synthesis gas
reformer, which currently is being used to produce carbon monoxide and hydrogen
at the Texas City Plant, will then be available for use in the methanol plant.
Refurbishing the existing reformer, rather than building a new one, will enable
the Company to construct the methanol plant at significantly less than the
normal capital cost of a new plant. The partial oxidation unit is expected to
begin production in the second quarter of fiscal 1996.
The Company and BP Chemicals are expanding acetic acid capacity by nearly 30%
or 200 million pounds, to nearly 800 million pounds annually. This expansion is
scheduled to be completed early in fiscal 1996. BP Chemicals will continue to
market all of the Company's acetic acid production.
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The Company also is constructing a 110,000 ton per year sodium chlorate plant
in Valdosta, Georgia. The new facility, expected to cost approximately $50
million, will increase the Company's total annual sodium chlorate capacity by
more than 30% to nearly 460,000 tons. Valdosta, Georgia was selected because of
its proximity to existing customers, currently being supplied from the
Company's Canadian plants, and to reliable, competitively priced electricity,
the most important variable in sodium chlorate production costs. The new
facility is intended to meet the growing market demand from the pulp and paper
industry in the southeastern U.S. In addition to building the new facility to
meet growing demand, debottlenecking is adding incremental capacity at each of
the Company's existing sodium chlorate plants.
On April 13, 1995, the Company entered into a seven-year credit agreement
(the "Credit Agreement") with a group of 14 commercial banks that was used to
refinance the Company's existing debt except for the revolving debt associated
with Sterling Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement
provides for a revolving credit facility of $150 million (the "Revolver") and a
term loan of $125 million (the "Term Loan"). The Credit Agreement will reduce
the Company's future interest costs and provide additional financial
flexibility and debt capacity. On April 28, 1995, Sterling Pulp entered into a
separate agreement for a Cdn. $20 million revolving credit facility with the
Bank of Nova Scotia (the "Canadian Revolver"). The Canadian Revolver was
utilized to refinance the revolving debt associated with Sterling Pulp.
On September 28, 1995, Sterling Pulp entered into a seven-year credit
agreement to finance the construction of the new sodium chlorate plant (the
"Chlorate Plant Credit Agreement") with the same bank group that is a party to
the Credit Agreement. Sterling Pulp can borrow up to $60 million under the
Chlorate Plant Credit Agreement to purchase taxable bonds from the local county
development authority that will utilize the bond proceeds to finance the
construction of the plant.
SALES AND MARKETING
The Company sells its products primarily pursuant to multi-year contracts and
spot transactions in both the domestic and export markets through its
commercial organization and sales force. This long-term, high volume focus
allows the Company to maintain relatively low selling, general and
administrative expenses related to the marketing of its products. The Company
competes primarily on the basis of product price, quality and deliverability.
Prices for the Company's commodity chemicals are determined by market factors
that are largely beyond the Company's control, and, except with respect to a
number of its multi-year contracts, the Company generally sells its products at
prevailing market prices. The Company emphasizes the importance of delivering
products to its customers on time and within specifications. In its effort to
insure that its products are of consistently high quality, the Company uses a
statistical quality control program.
During fiscal 1995 a significant portion of the Company's production from the
Texas City Plant was dedicated to multi-year contracts with Monsanto Company
("Monsanto"), subsidiaries of British Petroleum Company plc ("BP"), BASF
Corporation ("BASF"), Mitsubishi International Corporation ("Mitsubishi")
Flexsys America L.P. (a joint venture between Monsanto and Akzo Nobel N. V.)
("Flexsys") and E.I. du Pont de Nemours and Company ("Dupont"). These contracts
provide for the dedication of 100% of the Company's production of acetic acid,
plasticizers, TBA and sodium cyanide, each to one customer, as well as
significant portions of the Company's production of styrene monomer and
acrylonitrile. Under certain market conditions, the loss of one or more of
these customers or a material reduction in the amount of product purchased by
one or more of them could have a material adverse effect on the Company. The
balance of the Company's products are sold by its direct sales force, which
concentrates on the styrene, acrylonitrile, pulp chemical and lactic acid
markets. Revenues from BP and Mitsubishi accounted for approximately 16% and
13%, respectively, of the Company's revenue during the year ended September 30,
1995. These sales were primarily petrochemical products. There were no
individual customers of the Company's pulp chemical business which accounted
for more than 10% of the Company's revenues.
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Some of the Company's multi-year contracts for its petrochemical products
are structured as conversion agreements, pursuant to which the customer
furnishes raw materials which the Company processes. In exchange, the Company
receives a fee typically designed to cover its fixed and variable costs of
production and to generally provide an element of profit dependent in amount
on the then existing market conditions. These conversion agreements allow the
Company to lower working capital requirements and, in some cases, to gain
access to certain improvements in manufacturing process technology. The
Company believes its conversion agreements help insulate the Company to some
extent from the effects of declining markets and changes in raw material
prices while allowing it to share in the benefits of favorable market
conditions for most of the products sold under these arrangements.
The Company's production is geared primarily to the level of incoming orders
and to projections of future demand. In general, the Company does not
manufacture its products against a backlog of firm orders. The Company has no
material contracts with the government of the United States or any state,
local or foreign government.
For information regarding the Company's export sales and domestic and
foreign operations, see Item 8, Note 7 of the "Notes to Consolidated Financial
Statements" which is hereby incorporated by reference.
PRODUCTS
At its Texas City Plant, the Company manufactures seven commodity
petrochemicals which are used in the manufacture of other goods or in other
chemical processes. At its four Canadian plants, the Company manufactures
chemicals used primarily in the bleaching of kraft pulp for paper
manufacturing. The Company also is a supplier of patented and proprietary
technology for chlorine dioxide generators used by certain mills in the kraft
pulp bleaching process.
PETROCHEMICALS
Styrene. The Company manufactures styrene from ethylene and benzene using
Monsanto/Lummus technology. Styrene is principally used in the manufacture of
intermediate products such as polystyrene, acrylonitrile butadiene styrene
("ABS") resins, synthetic rubbers, SBLatex, unsaturated polyester resins and
styrene acrylonitrile resins ("SAN"). These intermediate products are used to
produce various consumer products, including building products, boat and
automotive components, disposable cups and trays, packaging and containers,
housewares, tires, audio and video cassettes, luggage, children's toys, paper
coating, appliance parts and carpet backing.
The Company and Monsanto are currently operating under a conversion
agreement and a sales agreement, each effective through December 31, 1995.
Under these agreements the Company provides Monsanto, subject to a specified
minimum and maximum, a major portion of Monsanto's styrene requirements for
its manufacture of styrene-containing polymers. The Company and Monsanto have
entered into a new conversion agreement that will begin January 1, 1996 and be
effective through December 31, 2000 with terms and conditions similar to the
previous agreements. The new agreement permits Monsanto to terminate its
obligations upon twelve months' notice to the Company should Monsanto sell its
business that uses styrene or to assign the agreement, subject to the
Company's consent, to a third party that may purchases the business. Monsanto
has recently announced a tentative agreement to sell its ABS and SAN
businesses to Bayer AG. However, the Company has not yet received any notice
of termination or assignment of the new agreement. During fiscal 1995, the
Company delivered approximately 13% of its styrene production to Monsanto
pursuant to these agreements.
Effective April 1, 1994 the Company and BP entered into a sales and purchase
agreement. The term of the agreement initially expires in December 1996 but
extends on a year-to-year basis thereafter unless terminated by either party
by giving the other a written notice of at least twelve months prior to
cancellation. During fiscal 1995, the Company delivered approximately 13% of
its styrene production to BP pursuant to this agreement.
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The balance of the Company's styrene production is sold by the Company's
sales organization in the export and domestic markets.
Acrylonitrile. The Company manufactures acrylonitrile by propylene
ammoxidation.. Acrylonitrile is used primarily in the manufacture of
intermediate products such as acrylic fiber and ABS resins. The principal end
uses for acrylonitrile include apparel, furnishings, upholstery, household
appliances, carpets and plastics for automotive parts.
Approximately 80% of the Company's acrylonitrile production in fiscal 1995
was exported, principally to the Far East, either directly or pursuant to
arrangements with large international trading companies. Except for the two
conversion agreements described below, the Company's acrylonitrile production
is sold by its sales force and certain international agents.
The Company and Monsanto entered into a multi-year conversion agreement
effective January 1, 1994 which superseded a prior agreement that had been in
place since 1986 and contains essentially the same terms. This agreement will
expire at the end of 1998. The agreement permits Monsanto to terminate all or
part of its obligation upon six months' notice to the Company should Monsanto
sell its business using acrylonitrile. Monsanto has recently announced a
tentative agreement to sell its ABS and SAN businesses to Bayer AG. However,
the Company has not yet received any notice of termination or assignment of
this agreement. During fiscal 1995, the Company delivered approximately 25% of
its acrylonitrile production to Monsanto pursuant to this agreement.
In 1988, the Company entered into a long-term conversion agreement with BP,
under which BP contributed the majority of the capital expenditures required
for starting the third acrylonitrile reactor train at the Texas City Plant and
has the option to take up to approximately one-sixth of the Company's total
acrylonitrile capacity. BP furnishes the necessary raw materials and pays the
Company a conversion fee for the amount of acrylonitrile it takes. During
fiscal 1995, the Company delivered approximately 21% of its acrylonitrile
production to BP pursuant to this agreement. This agreement has an initial term
of ten years, with BP having the option to extend the agreement for two
additional five-year terms. One of the Company's three acrylonitrile reactors
incorporates certain BP technological improvements under a separate license
agreement from BP, and the Company has the right to incorporate these and any
future improvements into its other existing acrylonitrile facilities. BP has a
first security interest in and lien on the third reactor and related equipment
and in the first acrylonitrile produced in the three reactor units and the
proceeds generated from the sales thereof to the extent of the acrylonitrile
which BP is entitled to purchase under the production agreement. These rights
are only to be exercised upon an event of default by the Company.
Acetic Acid. The Company produces acetic acid from carbon monoxide (produced
on-site from carbon dioxide and natural gas) and methanol using a technology
owned and licensed to the Company by BP. Acetic acid is primarily used in the
manufacture of intermediate products such as vinyl acetate monomer. These
intermediate products are used to produce various consumer products, including
pharmaceuticals, adhesives, glue, cigarette filters and surface coatings.
The Company has had an agreement in effect since August 1986 with BP which,
as now amended, gives BP the exclusive right to purchase all of the Company's
acetic acid production until August 2016. In exchange for that exclusive right,
BP is obligated to make certain unconditional monthly payments to the Company
until August 2006. BP provides methanol and reimburses the Company on the basis
of a formula designed to provide the Company with full cost recovery. In
addition, the Company is entitled to receive annually a portion of the profits
earned by BP from the sale of acetic acid produced by the Company. The acetic
acid unit is subject to certain security arrangements (taking the form of a
sale-leaseback transaction) which provide that, until August 1996, under
certain limited circumstances generally under the Company's control, BP can
take physical possession of and operate the acetic acid unit. In August 1996,
title to the acetic acid unit will revert to the Company.
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Plasticizers. The Company manufactures plasticizers employing a series of
processes using alpha-olefins and orthoxylene as the primary raw materials.
Major end-uses for plasticizers include flexible plastics such as shower
curtains and liners, floor coverings, cable insulation, upholstery and plastic
molding.
The Company has a product sales agreement with BASF that extends through the
end of the decade, pursuant to which the Company sells all of its plasticizer
production to BASF. BASF provides certain raw materials to the Company and
markets the plasticizers produced by the Company. BASF pays fees to the Company
on a formula basis designed to reimburse the Company's direct and allocated
costs. In addition, the Company is entitled to a share of profits earned by
BASF attributable to the plasticizers supplied by the Company. BASF retains
title to and has a security interest in the raw materials furnished by it and
in the finished inventory of plasticizers produced by the Company for delivery
to BASF.
Lactic Acid. The Company markets synthetic lactic acid, the highest purity
lactic acid available, to food processing and pharmaceutical companies in both
the domestic and export markets through its sales personnel. The Company uses
hydrogen cyanide, a by-product of its acrylonitrile process, acetaldehyde and
hydrogen chloride as raw materials. Primary uses for lactic acid are as a food
additive and preservative and in pharmaceuticals.
TBA. The Company manufactures TBA by adding part of the Company's by-product
hydrogen cyanide to isobutylene in an acid catalyst reaction. Major end uses
for TBA include pesticides, solvents, pharmaceuticals and synthetic rubber. The
Company sells all of its TBA production to Flexsys pursuant to a long-term
conversion agreement which expires on December 31, 1996, but shall continue
thereafter unless terminated by either party with 24 months prior written
notification, as of December 31 of any calendar year. The Company has not
received any such notice and does not anticipate any such termination in the
foreseeable future. The Company's capacity for TBA production is currently 21
million pounds per year.
Sodium Cyanide. The Company operates a sodium cyanide facility owned by
Dupont which was constructed in 1989 on land owned by the Company at the Texas
City Plant. The Company and Dupont have an agreement whereby the Company
receives a fee for operating the facility for up to 30 years. The facility
utilizes as a raw material hydrogen cyanide, a by-product of the Company's
acrylonitrile process. The Company is compensated by Dupont for the raw
material value of the hydrogen cyanide as well as for the Company's allocated
and incremental out-of-pocket costs for operating the facility. Either party
may terminate this agreement by giving 36 months' written notice. Termination
by the Company prior to the 15th anniversary of the agreement (May 2003) would
require various remedies to be made by the Company to Dupont, including
penalties and cost of removal of the facility from the Company's plant site.
Termination by Dupont would require Dupont to pay for the cost of removal of
the facility. Assignability of the agreement is limited, and if the Company
assigns the agreement under certain circumstances, it must deliver to Dupont a
lease for the land on which the facility is situated and permit Dupont to
operate the facility. Dupont also may operate the sodium cyanide facility in
the event of certain defaults.
PULP CHEMICALS
Sodium Chlorate. Sodium chlorate is used in the production of chlorine
dioxide and is sold primarily to paper manufacturers for use as a bleaching
chemical for kraft pulp manufacturing. Kraft pulp is a strong paper or
paperboard made from wood chips. Bleached kraft pulp is used to make uncoated
paper for commercial printing and for office copiers and printers and coated
paper for magazines, catalogues and promotional printed products. Chlorine
dioxide also is used to bleach paperboard for packing, tissue and other
products and as a raw material to produce sodium chlorite. Other uses for
sodium chlorate include a raw material for rocket propellants and as a cotton
defoliant. The Company markets sodium chlorate primarily in Canada and the U.S.
Heightened environmental concerns and new regulations limiting dioxins and
furans in bleach plant effluent have resulted in growth in the sodium chlorate
industry as pulp mills have accelerated substitution of chlorine dioxide for
elemental chlorine. Chlorine dioxide is a powerful and highly selective
oxidizing agent suitable for pulp bleaching with the ability to substantially
reduce dioxins and furans in bleach plant effluent as well as produce high-
brightness pulp with little or no damage to the cellulose fiber.
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The Company sells sodium chlorate generally under one to five year supply
contracts, most of which provide for minimum and maximum volumes at market
prices. In addition, most sales contracts contain certain "meet or release"
pricing clauses and some contain restrictions on the amount of future price
increases. Certain contracts are evergreen and require advance notice before
termination.
Chlorine Dioxide Generators. Through its ERCO Systems Group ("ERCO"), the
Company is the largest worldwide supplier of patented technology for the
generators which certain pulp mills use to convert sodium chlorate into
chlorine dioxide. Each mill that uses chlorine dioxide requires at least one
generator. The Company receives revenue when a generator is sold to a mill and
also receives royalties from the mill after start-up, generally over the next
ten-year period, based on the amount of chlorine dioxide produced by the
generator.
The research and development group of Sterling Pulp works to develop new and
more efficient generators. When pulp mills move to higher levels of
substitution of chlorine dioxide for chlorine, they usually upgrade generator
capacity which frequently requires new generator technology. Mills may also
convert to a newer generator to take advantage of efficiency advances and
technological improvements. Each upgrade or conversion results in a licensing
agreement which generally provides for payment of an additional ten-year
royalty. Selection by a mill of the type of generator is completely independent
from the selection of their sodium chlorate supplier.
The Company has a small representative office in Beijing, China. This office
focuses on the development of opportunities for future sales of sodium chlorate
and chlorine dioxide generators as well as for the licensing and construction
of sodium chlorate plants in that region. The first generator in China to
convert sodium chlorate to chlorine dioxide was sold by ERCO and commenced
operation in fiscal 1994. Several more generators are under construction in
China by ERCO.
Sodium Chlorite. The Company manufactures sodium chlorite at its Buckingham,
Quebec facility. Sodium chlorite is a specialty product used primarily for
water treatment and as a disinfectant for fresh produce.
RAW MATERIALS FOR PRODUCTS AND ENERGY RESOURCES
For each of the Company's products, the combined cost of raw materials and
utilities is far greater than all other production costs combined. Thus, an
adequate supply of these materials at reasonable prices is critical to the
success of the Company's business. The Company does not currently produce any
of its major raw materials, benzene, ethylene, propylene, ammonia and methanol,
at the Texas City Plant, or electricity at its pulp chemical facilities,
although a methanol plant is under construction at the Texas City Plant as
previously described under "Recent Developments". Moreover some of the
Company's competitors are integrated and produce their own raw materials.
Although management believes that the Company will continue to be able to
secure adequate supplies of its raw materials at acceptable prices to meet its
requirements, there can be no assurance that it will be able to do so.
PETROCHEMICALS
Styrene. Styrene is a clear liquid that the Company manufactures from
ethylene and benzene. The Company's conversion agreements require that other
parties furnish to the Company the ethylene and/or benzene necessary to fulfill
its conversion obligations. Approximately 30% and 20% of the Company's fiscal
1995 benzene and ethylene requirements, respectively, were furnished by
customers pursuant to conversion arrangements. The Company purchases benzene
and ethylene for use in the remainder of its production of styrene for sale to
others. Benzene and ethylene are both commodity petrochemicals and the price
for each can fluctuate widely due to significant changes in the availability of
these products, such as major capacity additions or significant plant operating
problems, and due to variations in the economy and commodity
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chemical markets in general. The Company has multi-year arrangements with
several ethylene suppliers that provide for its estimated requirements for
purchased ethylene at generally prevailing and competitive market prices. If
the conversion agreement with Monsanto is terminated or reduced upon the sale
of Monsanto's ABS and SAN businesses, or if various other customers for whom
the Company now manufactures styrene under conversion arrangements were to
cease furnishing their own raw materials and seek only to purchase styrene from
the Company, the Company's requirements for purchased benzene and ethylene
could significantly increase. The Company believes that benzene and ethylene
will, for the foreseeable future, remain in adequate supply to meet demand.
Acrylonitrile. The Company produces acrylonitrile by reacting propylene and
ammonia over a solid-fluidized catalyst at low pressure. The Company's
conversion agreements require that other parties furnish to the Company the
propylene and/or ammonia necessary to fulfill its conversion obligations.
Approximately 45% of the Company's fiscal 1995 propylene and ammonia
requirements were furnished by customers pursuant to conversion arrangements.
The Company purchases propylene and ammonia for use in the remainder of its
production of acrylonitrile for sale to others. Propylene and ammonia are both
commodity petrochemicals and the price for each can fluctuate widely due to
significant changes in the availability of these products such as major
capacity additions or significant plant operating problems, and due to
variations in the economy and commodity chemical markets in general. If various
customers for whom the Company now manufactures acrylonitrile under conversion
arrangements were to cease furnishing their own raw materials and seek only to
purchase acrylonitrile from the Company, the Company's requirements for
purchased propylene and ammonia could significantly increase. The Company
believes that both ammonia and propylene will, for the foreseeable future,
remain in adequate supply to meet demand.
Hydrogen cyanide is a by-product of the manufacture of acrylonitrile and is
used by the Company as a raw material for the production of lactic acid, TBA
and sodium cyanide and is also burned as fuel.
Acetic Acid. Acetic acid is manufactured by the Company primarily from carbon
monoxide and methanol using a technology originally licensed worldwide by
Monsanto to the Company and others but now owned by BP. At present, the
Company's methanol is supplied by BP under its long-term contract with the
Company which expires in August 2016. However, the Company has begun
construction of a methanol unit at its Texas City Plant. BP is a participant in
the project. Once completed, this unit will supply the methanol needed for
production of acetic acid. Carbon monoxide is currently produced on-site from
carbon dioxide and natural gas. Carbon dioxide and natural gas are purchased
under requirements contracts with major suppliers and are available in adequate
supply. In a project related to the new methanol plant, Praxair will construct
and own a partial oxidation unit at the Company's Texas City Plant that will
supply carbon monoxide to the Company for production of acetic acid. The
construction of the partial oxidation unit will allow equipment currently used
in the production of carbon monoxide to be used in the new methanol unit,
thereby reducing the new capital required for the methanol unit. The partial
oxidation and methanol units are expected to begin production in the second and
third quarters of fiscal 1996, respectively.
Plasticizers. The Company manufactures plasticizers using a series of
processes. Primary raw materials are alpha-olefins and orthoxylene, which are
supplied by BASF under its long-term contract with the Company which expires at
the end of 1999. Management believes that adequate supplies of raw materials
will be available for the Company's needs in the foreseeable future.
Lactic Acid. Lactic acid is manufactured from the Company's hydrogen cyanide,
a by-product of its acrylonitrile process, and two other raw materials,
acetaldehyde and hydrogen chloride, which are readily available from commercial
suppliers.
TBA. TBA is produced by the addition of hydrogen cyanide to isobutylene in an
acid catalyst reaction. The Company uses a portion of its by-product hydrogen
cyanide in this process. Flexsys supplies the isobutylene, sulfuric acid and
caustic soda under its long-term conversion agreement with the Company.
Management believes that supplies of these raw materials will remain adequate
for its needs in the foreseeable future.
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Sodium Cyanide. Sodium cyanide is manufactured from the Company's by-product
hydrogen cyanide and caustic soda. Dupont supplies the caustic soda under its
long-term contract with the Company which expires in May 2018.
PULP CHEMICALS
Sodium Chlorate. Sodium chlorate is manufactured by passing an electric
current through an undivided cell containing a solution of sodium chloride
(salt). Electric power costs typically represent approximately 70% of the
variable cost of production of sodium chlorate. Electric power is purchased by
each of the Company's facilities pursuant to contracts with local electric
utilities. Consequently, the rates charged by local electric utilities are an
important competitive factor among sodium chlorate producers. On average, the
Company's electrical power costs are believed to be competitive with other
producers in the areas in which it operates.
The Company also purchases sodium chloride for use in the manufacture of
sodium chlorate. Sodium chloride is purchased under requirements contracts with
major suppliers. The Company believes that sodium chloride will be available
for its needs for the foreseeable future.
TECHNOLOGY AND LICENSING
PETROCHEMICALS
Monsanto has assigned to the Company certain third party technology licenses
that granted the Company a nonexclusive, irrevocable and perpetual right and
license to use Monsanto's technology at the Texas City Plant in effect at the
time of the acquisition for the purpose of (i) continuing the production of the
chemicals which were then produced at the Texas City Plant and (ii) modifying,
operating and maintaining the synthesis gas production unit to produce carbon
monoxide, blend gas and hydrogen for internal plant use. During fiscal 1991, BP
purchased the license related to the acetic acid unit from Monsanto. Under this
license, the Company is not obligated to make any royalty payments to BP. The
Company believes that these licenses are material to the operation of the Texas
City Plant.
BP has granted to the Company a perpetual, royalty free license to use BP's
acrylonitrile technology at the Company's Texas City Plant as part of the
acrylonitrile expansion project. The Company and BP have agreed to cross-
license any technology or improvements relating to the manufacture of
acrylonitrile in the Company's facility.
During the term of the Company's agreement with Dupont pursuant to which
Dupont supplies the caustic soda needed in the Company's manufacture of sodium
cyanide, Dupont has the option to provide to the Company any improvements in
its sodium cyanide technology without cost to the Company.
Management believes that the manufacturing processes that the Company
utilizes at the Texas City Plant are cost effective and competitive. Although
the Company does not engage in alternative process research with respect to its
U.S. operations, it does monitor new technology developments, and when
management believes it is appropriate, the Company will seek to obtain licenses
for process improvements.
PULP CHEMICALS
There are various technologies available for production of sodium chlorate.
The Company's current technology was developed internally, prior to the
acquisition of the pulp chemicals business by the Company in 1992, and is metal
cell technology utilizing titanium anodes, piping and reactors.
The principal business of ERCO is the design, sale and technical service of
custom-built patented chlorine dioxide generators. Sterling Pulp's engineering
group is involved in the technical support of the Company's sales and marketing
group through joint calling efforts and defines the scope of a project and
produces technical schedules and cost estimates. The Company performs detailed
design of chlorine dioxide generators which are then constructed by customers.
Plant and instrumentation testing and generator start-up are handled by a joint
engineering/technical service team of the Company. The Company is involved in a
number of patent disputes with Akzo Nobel. See Item 8, Note 6 of the "Notes to
Consolidated Financial Statements".
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The Company's pulp chemical research and development activities are carried
out at its Toronto, Ontario laboratories. Activities include the development of
new or improved chlorine dioxide generation processes and research in new
technologies focusing on electrochemical and membrane technology related to
chorine dioxide, including municipal water treatment, its by-products and pulp
mill effluent.
COMPETITION AND INDUSTRY CONDITIONS
GENERAL
The basis for competition in all of the Company's petrochemical products is
price, quality and deliverability. The industries in which the Company operates
are highly competitive. Many of the Company's competitors are larger and have
greater financial resources than the Company. Among the Company's competitors
are some of the world's largest chemical companies and major integrated
petroleum companies, some of which, unlike the Company, have their own raw
material sources.
The Company has both domestic and foreign competitors and sells its products
in both domestic and foreign markets. The Company sells large percentages of
its styrene and acrylonitrile production in the export market, which has
historically been more volatile than the domestic market. The Company's export
operations subject it to a number of potential risks, including fluctuations in
currency, exchange control regulations, changes in foreign tax and economic
policies including import and trade restrictions, employment and environmental
regulations, governmental instability and other potentially detrimental foreign
government practices or policies affecting U.S. companies doing business
abroad.
The petrochemical industry historically has experienced periods of high
demand and high capacity utilization resulting in increasingly high operating
margins and profitability. This generally leads to new capacity investment
until supply exceeds demand. The overcapacity in turn leads to periods of
decreasing capacity utilization and declining operating margins until demand
exceeds supply and the cycle is repeated. Changes in capacity, combined with
the effects of U.S. and world economic conditions, directly impacts margins and
the volume of products sold. There is no assurance that capacity increases in
the U.S. and in other parts of the world or other factors, will not adversely
affect the industry's supply and demand balance.
Historically, petrochemical industry profitability has been affected by
vigorous price competition, which may intensify due to, among other things, new
domestic and foreign industry capacity. The Company's businesses are subject to
changes in the world economy, including changes in currency exchange rates. In
general, weak economic conditions either in the United States or in the world
tend to reduce demand and put pressure on margins. Operations outside the
United States are subject to the economic and political risks inherent in the
countries in which they operate. Additionally, the export and domestic markets
can be affected significantly by import laws and regulations. During 1995, the
Company's export sales were approximately 52% of total revenues. It is not
possible to predict accurately how changes in raw material costs, market
conditions or other factors will affect petrochemical industry margins in the
future.
PETROCHEMICALS
Styrene. According to industry publications, the total domestic capacity for
styrene is currently 13.8 billion pounds per year. The Company's rated capacity
of 1.5 billion pounds per year represents approximately 11% of the domestic
capacity. The Company's major domestic competitors in the manufacture of
styrene are Dow Chemical Company, Arco Chemical Company, Amoco Chemicals
Company, Chevron Chemical Company, COS-MAR (a joint venture of General Electric
Company and Fina) and Huntsman Chemical Corporation.
Prior to 1994, styrene's profitability was depressed because of both
overcapacity and recessionary pressures in parts of the world. By the spring of
1994, however, market growth resulting from economic expansion had absorbed
much of the excess capacity. As a result, the Company's styrene volumes and
margins
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increased substantially in fiscal 1994 and through most of fiscal 1995.
Beginning in the third quarter of fiscal 1995, styrene prices started
decreasing as demand weakened as a result of a general economic slowdown in the
worldwide economic growth rate, prompting customers to begin utilizing their
available inventories and decreasing purchases of additional product. The
weakening market conditions were accelerated in the fourth fiscal quarter by
significantly decreased purchases of styrene and styrene derivatives by China
primarily as a result of changes in China's enforcement of economic and tax
policies and monetary constraints that negatively affected its imports. China
accounts for a significant portion of global purchases of styrene and styrene
derivatives. While the industry cannot predict when China's chemical imports
will return to previous levels, the Company believes that demand in the Far
East is beginning to improve. The Company anticipates that styrene demand
worldwide will improve in fiscal 1996, relative to the fourth quarter of fiscal
1995, although the Company does not anticipate prices and margins returning to
1995 levels.
Acrylonitrile. According to industry publications, the total domestic
capacity for acrylonitrile production is approximately 3.4 billion pounds per
year, with the Company's rated capacity of approximately 700 million pounds
representing approximately 21% of the total. Approximately 80% of the Company's
acrylonitrile production in fiscal 1995 was exported, either directly or
pursuant to arrangements with large international trading companies. Other
major domestic producers of acrylonitrile are Cytec Industries (formerly
American Cyanamid Co.), Dupont, BP and Monsanto.
As a result of the Company's very high percentage of export acrylonitrile
sales, demand for the Company's acrylonitrile is most significantly influenced
by export customers, particularly those that supply acrylic fiber to China. In
recent years the acrylic fiber market has been subject to volatility because of
the relatively unstable nature of the Chinese market. During most of fiscal
1995, strong demand for acrylic fiber and ABS, particularly in China, increased
demand for acrylonitrile. However, the Company believes that acrylonitrile
demand began to weaken in the third quarter for the same reasons that caused
the significant negative changes in the styrene market. Demand for
acrylonitrile from export customers decreased significantly in the fourth
quarter of fiscal 1995 as a result of these changes, although export prices and
margins did not decrease significantly until the first quarter of fiscal 1996.
While the industry cannot predict when China's chemical imports will return to
previous levels, the Company believes that demand in the Far East is beginning
to improve. The Company anticipates that acrylonitrile demand worldwide will
improve in fiscal 1996, relative to the fourth quarter of fiscal 1995, although
the Company does not anticipate prices and margins returning to 1995 levels.
Acetic Acid. According to industry publications, the total domestic capacity
for acetic acid production is approximately 4.7 billion pounds per year, with
the Company's current rated capacity of approximately 600 million pounds per
year representing approximately 13% of the total domestic capacity. The Company
has begun an expansion of acetic acid capacity from 600 million pounds to
nearly 800 million pounds annually. This expansion is expected to be completed
in 1996. The Company's major domestic competitors are Hoechst Celanese
Corporation, Eastman Chemical Products, Inc. and Hanson plc (formerly Quantum
Chemicals).
Plasticizers. The Company's capacity for plasticizers is 280 million pounds
per year. The Company's major domestic competitors in the production of
plasticizers are Exxon Chemical Americas, Aristech Chemicals and Eastman
Chemical Products, Inc. The Company has an agreement with BASF pursuant to
which the Company sells all of its plasticizer production to BASF through the
end of the decade.
Lactic Acid. The Company is the sole domestic producer of synthetic lactic
acid, the highest purity lactic acid available. Major competition for the
Company in lactic acid is from foreign competitors who manufacture primarily
fermentation grade lactic acid. Management believes that the quality of
synthetic lactic acid generally is preferred over the quality of fermentation
grade lactic acid, particularly in certain time and heat exposure applications.
TBA. The Company believes that there are currently only three TBA production
units in the world: the Company's TBA unit (21 million pounds rated capacity),
Nitto Chemical Industries Co., Ltd. (3.3 million pounds rated capacity) and
BASF (13 million pounds rated capacity).
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Sodium cyanide The Company operates a sodium cyanide plant at its Texas City
facility which is owned by Dupont. The capacity of this plant is 100 million
pounds per year.
PULP CHEMICALS
Sodium Chlorate. The Company markets sodium chlorate primarily in Canada and
the U.S. The Company is one of the three largest producers of sodium chlorate
in North America with its rated capacity of 350,000 tons representing
approximately 20% of North American capacity. Upon completion of the Valdosta,
Georgia plant, the Company's capacity for sodium chlorate will increase to
nearly 460,000 tons. The Company's major North American competitors in the
manufacture of sodium chlorate are Akzo Nobel, CXY Chemicals, Ltd. and Kerr-
McGee.
Chlorine Dioxide Generators. The Company is the largest worldwide supplier of
patented technology for chlorine dioxide generators, and historically has
supplied approximately two-thirds of all large scale pulp mill generators
worldwide. The Company's major competitor is Akzo Nobel. Outside of North
America, Akzo Nobel operates under the name Cell Chem.
Sodium Chlorite. Total North American capacity for sodium chlorite production
is approximately 13,000 metric tons per year, with the Company's rated capacity
of approximately 3,000 metric tons representing approximately 23% of the total.
The only other North American producer of sodium chlorite is Vulcan Chemical.
For information regarding capacity utilization and revenues for each of the
Company's principal products, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which is hereby incorporated
herein by reference.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations involve the handling, production, transportation and
disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
required for the Company's operations are subject to periodic renewal and may
be revoked or modified for cause.
New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result in
claims, regulatory action or liabilities. Expenditures could be required to
upgrade wastewater collection, pretreatment, disposal systems or other matters.
Some risk of environmental costs and liabilities is inherent in particular
operations and products of the Company, as it is with other companies engaged
in similar businesses.
Management believes that the environmental management programs to maintain
compliance with applicable environmental laws are appropriate and adequate. As
part of its ongoing environmental oversight efforts, the Company conducts or
commissions reviews of its environmental performance and addresses issues
identified. The Company routinely conducts inspection and surveillance programs
to detect and respond to any leaks or spills of regulated hazardous substances
and to correct any identified regulatory deficiency. To reduce the risk of off-
site consequences from any unanticipated event, the Company acquired a
greenbelt buffer zone adjacent to the Texas City Plant in 1991. The Company
also participates in a regional air monitoring network to monitor ambient air
quality in the Texas City community. This five-year program is part of the
Company's commitment to Responsible Care initiatives of the Chemical
Manufacturers Association and Canadian Chemical Producers Association.
The Company has recently been recognized as a 33/50 Environmental Champion by
the EPA for surpassing the emission reduction goals of the 33/50 program at the
Texas City Plant faster than the EPA's timetable. The voluntary 33/50 program
targeted 17 high priority chemicals included in the EPA's Toxic Release
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Inventory. Six of the 17 chemicals are present at the Company's Texas City
Plant. The goal of the program was a 33% reduction in air emissions of these
compounds by 1992, compared to 1987 levels, and a 50% reduction by 1995. For
the 1994 reporting year, the Company achieved a 74% reduction in the targeted
chemicals including a 99% reduction in chromium and nickel compounds, a 96%
reduction in hydrogen cyanide emissions by converting this byproduct into
sodium cyanide and an 87% reduction in benzene emissions primarily by
constructing a major new waste water treatment facility. In addition to these
improvements, the Company has voluntarily initiated a complete review of the
overall environmental condition at its Texas City Plant and will initiate
appropriate actions or preventative projects necessary to insure that the
facility continues to operate in a safe and environmentally responsible manner,
including appropriate responses to previously identified elevated
concentrations of certain chemicals in the soil and groundwater. The Company is
presently unable to determine what remediation or other action, if any, may
need to be taken regarding these conditions. No assurances can be given that
the Company will not incur material environmental expenditures associated with
its facilities, operations or products.
Changing and increasingly strict environmental laws and regulations might
affect the manufacture, handling, processing, distribution or use of chemical
products and the release, treatment, storage or disposal of wastes by the
Company. For example, at both the state and federal level, the trend towards
regulation of discharges on a sectoral, geographic or multimedia basis may
directly or indirectly affect producers of specific chemicals. Such actions may
be expected to exert pressure on companies in the commodity chemical industry
to enhance their wastewater recycling and on-site treatment systems to reflect
the government's evolving views. Accordingly, the Company could be required
from time to time to make expenditures to upgrade its wastewater collection,
pretreatment or disposal systems at the Texas City Plant.
Production of chemical products involves the use, storage, transportation and
disposal of materials that may be classified as hazardous or toxic under
applicable laws. Management believes that the Company's procedures for the use,
storage, transportation and disposal of these materials are consistent with
industry standards and applicable laws and that it takes precautions to protect
its employees and others from harmful exposure to such materials. However,
there can be no assurance that past or future operations will not result in
exposure or injury or to claims of injury by employees or the public due to the
use, storage, transportation or disposal of these materials.
Under the Assets Purchase Agreement for the Company's acquisition of the
Texas City Plant from Monsanto, Monsanto agreed to be liable and to indemnify
the Company for (a) any pre-acquisition violations of environmental law; (b)
the clean-up of pre-acquisition deposits or emissions, of hazardous substances
(defined in the Assets Purchase Agreement as government agency mandated
remedial work, including investigative work, monitoring and temporary
relocation of assets) with certain limitations for securely-contained deposits;
(c) legal liability to third parties as a result of such pre-acquisition
deposits or emissions or for exposure to hazardous substances; (d) clean-up,
fines, penalties and third party liabilities arising from any improper clean-up
undertaken by Monsanto pursuant to the Assets Purchase Agreement; and (e)
related legal fees, costs and expenses incurred by the Company. Certain of
Monsanto's obligations and agreements under the provisions of the Assets
Purchase Agreement described herein ("Monsanto's Commitments") expire and are
no longer applicable under a variety of circumstances, including an assignment
of the Assets Purchase Agreement without Monsanto's consent, or if either
Gordon A. Cain, the Company's Chairman, or J. Virgil Waggoner, the Company's
President and Chief Executive Officer, cease to have Active Management
Responsibility (as defined in the Assets Purchase Agreement) for the Company or
cease to own at least 2.5% of the outstanding shares of voting stock of the
Company, except due to death or disability. In the event of a death or
disability prior to August 1, 1996, the Company has the right to designate,
subject to Monsanto's reasonable approval, a replacement for either individual.
After that date, however, certain of Monsanto's Commitments expire if, for any
reason, including prior or subsequent death or disability and regardless of any
previously designated replacement, either of the two named individuals no
longer have such Active Management Responsibility or ownership. Certain of
Monsanto's Commitments also expire (as to the facility
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as a whole or any operating unit) on the purchase or assumption of operating
responsibility by a third party for the entire facility or unit. In addition,
certain of Monsanto's Commitments could be terminated as to specific areas of
the Texas City Plant if the Company does not satisfy various other conditions
contained in the Assets Purchase Agreement. The Company's management is unable
to determine the impact, if any, of the potential expiration of Monsanto's
Commitments.
The Company has entered into negotiations with Monsanto with respect to the
scope of Monsanto's obligations to the Company for pre-acquisition
environmental conditions at the Company's Texas City Plant under applicable
state and federal law and the indemnification provisions of the Assets Purchase
Agreement. To date, the negotiations have not produced any change in the
parties respective rights and obligations. The results of those negotiations
could impact the Company's future environmental expenditures.
In connection with the Company's purchase of the pulp chemical business in
1992, the seller, Tenneco Canada, Inc., contractually retained liability for
costs, damages, fines, penalties and other losses under claims by third parties
(including employees and authorities) arising from the ownership or operation
of the facilities and businesses prior to the acquisition. The Company is also
indemnified against the breach of Tenneco Canada's environmental remediation
covenants. These covenants oblige Tenneco Canada to do specific remedial work
(including decommissioning the old section of the Vancouver facility, which is
underway) at the facilities within set time periods, and to do any
investigation, monitoring or remedial work required by present or future
legislation governing environmental conditions predating the acquisition.
Tenneco Canada has, in addition, indemnified the Company against losses arising
from the remediation of preacquisition environmental conditions or from
preacquisition violations of environmental laws. With the exception of any
third party claims, the losses against which the Company is indemnified do not
include consequential damages or lost profits.
Groundwater data obtained in the course of the acquisition of the pulp
chemical business indicated elevated concentrations of certain chemicals in the
soil and groundwater at the four Canadian sites. The Company conducted a
focused baseline sampling of groundwater conditions beneath its Canadian
facilities in connection with Tenneco Canada's indemnification of the Company
for preclosing conditions which confirmed the previous data. Tenneco Canada
continues to work with the provincial governments to address these issues. The
Company from time to time has encountered elevated concentrations of chemicals
in soils or groundwater at its Canadian plants which it has addressed or is
addressing.
During the course of the acquisition of the pulp chemical facilities by the
Company, air emissions sources were reviewed, and any available dustfall and
vegetation stress studies were considered. This review indicated emission
excursion episodes at specific locations in the scrubber systems at the Thunder
Bay, Buckingham and Vancouver facilities. The conditions at Thunder Bay and
Vancouver have been addressed and satisfactorily resolved and the conditions at
Buckingham are being addressed. Management believes that the Company is
otherwise in compliance in all material respects with permit requirements under
applicable provincial law for operating emissions sources.
The Company's pulp chemical business is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. Certain environmental groups are
encouraging passage of regulations which restrict the amount of Absorbable
Organic Halides (AOX) or chlorine derivatives in bleach plant effluent.
Increased substitution of chlorine dioxide for elemental chlorine in the pulp
bleaching process significantly reduces the amount of AOX and chlorine
derivatives in bleach plant effluent. As long as there is not an outright ban
on chlorine containing compounds, regulation restricting AOX or chlorine
derivatives in bleach plant effluent should favor the use of chlorine dioxide,
thus sodium chlorate. Any significant ban on all chlorine containing compounds
could have a material adverse effect on the Company's financial condition and
results of operations.
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There are currently efforts in some jurisdictions to ban all chlorine and
chlorine-containing products, including chlorine dioxide, from the pulp
bleaching process. British Columbia has a regulation in place that would
effectively eliminate the use of chlorine dioxide in the bleaching process by
the year 2002. The pulp and paper industry is working to change this regulation
and believes that a ban of chlorine dioxide in the bleaching process will yield
no measurable environmental or public health benefit. The Company is not aware
of any other laws or regulations currently in place which would restrict the
use of the product.
Emissions into the air from the Company's Texas City Plant are subject to
certain permit requirements and self-implementing emission limitations and
standards under state and federal law. The Company's Texas City Plant is
located in an area that is classified by the EPA as not having attained the
ambient air quality standards for ozone, which is controlled by direct
regulation of volatile organic compounds ("VOCs") and nitrogen oxide ("NOx").
Additional requirements were issued in fiscal 1992 and modified in fiscal 1994
by the Texas Natural Resource Conservation Commission ("TNRCC") in order to
achieve ambient air quality standards for ozone. These measures may
substantially increase the Company's VOCs and NOx control costs in the future,
although the cost and full impact, if any, cannot be determined at this time.
Additionally, the Clean Air Act Amendments of 1990 contain new federal permit
requirements and provisions governing toxic air emissions. The Company has
incurred and will incur additional costs to comply with this law and with
requirements issued by the State of Texas to control VOCs and NOx, as will all
other similarly situated organic chemical manufacturing facilities.
Management believes that the Company's solid and hazardous waste management
practices are in compliance in all material respects with permit and other
requirements under applicable environmental law. However, there can be no
assurance that past practices or future operations will not result in claims or
regulatory action.
EMPLOYEES
As of September 30, 1995, just under 1,200 persons were employed by the
Company including approximately 300 at its facilities in Canada. Approximately
60% of the employees at the Company's manufacturing facilities are covered by
union agreements. The primary union agreement is with the Texas City, Texas
Metal Trades Council, AFL-CIO, of Galveston County, Texas and covers all hourly
employees except security guards at the Texas City Plant. The union agreements
for the security guards are with the Associated Guards of the United States.
These agreements were last negotiated in May 1993 and the full contract is
again subject to renegotiation in May 1996. Employees at the Buckingham plant
are represented the Canadian Communications, Energy and Chemicals Workers Union
and the Office and Professional Employees International Union, while employees
at the Vancouver plant are represented by the Pulp Paper and Woodworkers Union.
The Buckingham agreements were last negotiated in June 1995 and are subject to
renegotiation in November 1997. The Vancouver agreement was renegotiated in
November 1994 and is subject to renegotiation in November 1997. The Company
enjoys a good relationship with its employees.
INSURANCE
The Company currently maintains $500 million of coverage for property damage
to its Texas City facility and resulting business interruption. Although the
Company carries such insurance, it has only one styrene manufacturing facility
and one acrylonitrile manufacturing facility; thus, a significant interruption
in the operation of either facility could have a material adverse affect on the
Company's financial condition, results of operations or cash flows. The Company
maintains $338 million of combined coverage for property damage and resulting
business interruption for its pulp chemical operations. The Company also
maintains other insurance coverages for various risks associated with its
business. There is no assurance that the Company will not incur losses beyond
the limits of, or outside the coverage of, its insurance. From time to time
various types of insurance for companies in the chemical industry have been
very expensive or, in some cases, unavailable. There is no assurance that in
the future the Company will be able to maintain its existing coverage or that
the premiums will not increase substantially.
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ITEM 2. PROPERTIES
The principal executive offices of the Company are located in Houston, Texas
and are subleased through Citicorp, N.A.
The Company's Texas City Plant is located approximately 45 miles south of
Houston in Texas City, Texas, on a 290-acre site on Galveston Bay near many
other chemical manufacturing complexes and refineries. The Company has
facilities to load its products in drums, containers, trucks, railcars, barges
and ocean-going tankers for shipment to customers. The site offers room for
future expansion and includes a greenbelt around the northern edge of the plant
site.
The Company's Texas City Plant comprises seven basic operating units which
can be divided into three groups based on the chemistry involved. One group of
operating units involves synthesis gas chemistry (carbon monoxide and
hydrogen), and its facilities include the synthesis gas complex, the acetic
acid unit and three plasticizer units (oxo-alcohol, phthalic anhydride and
linear phthalate esters). Carbon monoxide and hydrogen are utilized as
feedstocks in the oxo-alcohol manufacturing process, and carbon monoxide is a
feedstock to produce acetic acid. As described in Item 1 under the caption
"Recent Developments", a new partial oxidation unit will be constructed by
Praxair at the Texas City Plant to supply carbon monoxide and hydrogen to the
Company. The synthesis gas reformer will then be available for use in the new
methanol unit also under construction at the Texas City Plant. A second group
of operating units involves acrylonitrile and hydrogen cyanide chemistry, and
its facilities include the acrylonitrile unit, the lactic acid unit, the TBA
unit and the sodium cyanide unit. Ammonia and propylene are used as feedstocks
in the acrylonitrile process, and hydrogen cyanide, a by-product of that
process, is used as a feedstock for the other units in this second group and is
also burned as fuel. The third operating group is based on ethylene and benzene
chemistry, and its facilities comprise the ethylbenzene and styrene units.
Although the styrene unit is independent of the rest of the facility from a
feedstock and by-product standpoint, it is the cornerstone of the Company's
energy balance, as it uses large quantities of by-product steam generated by
the acrylonitrile and phthalic anhydride units, thus reducing the demands on
the Company's steam generating facility. In this way, the Company's utilities
system links the three operating groups together in an effort to minimize
utility costs. This integration results in cost efficiencies without
significantly compromising the operating flexibility of the individual product
units.
The Company owns or leases all of the real property which comprise its Texas
City Plant, and all of the facilities and equipment located there other than
the sodium cyanide unit owned by Dupont, a cogeneration facility owned by a
joint venture between the Company and Praxair, the new partial oxidation unit
currently under construction at the site by Praxair and the acetic acid unit
and related facilities which are operated under a ten-year sale leaseback
arrangement with BP ending in August 1996. Upon expiration of such ten-year
period the Company will reacquire title to the acetic acid unit. The Company
also owns storage facilities, approximately 200 rail cars and an acetic acid
barge. In addition, the Company subleases approximately 20,000 square feet of
office space in Houston, Texas for its corporate headquarters and leases
several storage facilities in the U.S. and Asia.
The Company's pulp chemical business includes four manufacturing plants in
Canada and one under construction in Valdosta, Georgia. The Buckingham, Quebec
and Vancouver, British Columbia sites are approximately 20 acres each and are
owned by the Company. The Thunder Bay, Ontario and Grande Prairie, Alberta
sites are leased by the Company. The new plant is being constructed in
conjunction with, and will be leased from, the Valdosta-Lowndes County
Industrial Authority. The Company also leases approximately 200 rail cars.
Headquarters for the Canadian operations is located in Toronto in an
approximately 50,000 square foot single story office building owned by the
Company. The building is situated on 6.56 acres owned by the Company and serves
as the headquarters for the pulp chemicals business and its respective
laboratories.
Management believes that these properties and equipment are sufficient to
conduct the Company's business.
See Item 1. "Business" for other information required by this item.
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ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Legal Proceedings" in Note 6 of
the "Notes to Consolidated Financial Statements" is hereby incorporated herein
by this reference. The cause numbers, the styles of the cases, the courts in
which the cases are pending and certain other information with respect to the
matters described in Note 6 is set forth below.
HUNTSMAN LAWSUIT: Sterling Chemicals, Inc. v. Huntsman Chemical Corporation,
Huntsman Styrene Corporation and Huntsman Corporation; Cause No. 95-005256; In
the 61st Judicial District Court of Harris County, Texas.
ALLEMAND LAWSUIT: George Allemand and Willa Allemand v. Sterling Chemicals,
Inc., Olin Corporation, Goodyear Tire & Rubber Co., Inc. Marine Fueling
Service, Inc.; le Manufacturier de Granford, Triplex Inc. and Shrieve Chemical
Company, Cause No. A-152,286; In the 58th Judicial District Court of Jefferson
County, Texas.
AMMONIA RELEASE:
1. Otis Pointer Jr., individually and on behalf of all others similarly
situated, v. Sterling Chemicals, Inc., Paul Saunders and an unknown chemical
operator; Cause No. 94CV0514; In the 56th Judicial District Court of Galveston
County, Texas.
2. Bobbie J. Adams, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0764;
In the 56th Judicial District Court of Galveston County, Texas.
3. Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV0947;
In the 56th Judicial District Court of Galveston County, Texas.
4. Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94CV1147; In
the 212th Judicial District Court of Galveston County, Texas.
5. Holly Benefiel, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV0246; In
the 56th Judicial District Court of Galveston County, Texas.
6. Richard Gayton, individually and as next friend of Ruben Gayton, et al. v.
Sterling Chemicals, Inc., Paul Saunders and an unknown chemical operator; Cause
No. 95-43771; In the 55th Judicial District Court of Harris County, Texas.
7. Lilly Gordon, et al. v. Sterling Chemicals, Inc.; Cause No. 95-36592; In
the 281st Judicial District Court of Harris County, Texas.
8. Connie Alaniz and Emilio Alaniz, et al. v. Sterling Chemicals, Inc., Paul
Saunders and Terry Bellard; Cause No. 95CV1011; In the 10th Judicial District
Court of Galveston County, Texas.
9. Anita R. Afriyie, et al. v. Sterling Chemicals, Inc., Paul Saunders and
Terry Bellard; Cause No. 95CV0997; In the 122nd Judicial District Court of
Galveston County, Texas.
10. Versell Allums, et al. v. Sterling Chemicals, Inc., Paul Saunders and an
unknown chemical operator; Cause No. 95CV1017; In the 10th Judicial District
Court of Galveston County, Texas.
11. Guadalupe Trevino v. Sterling Chemicals, Inc.; Cause No. 42634; In the
Probate and County Court of Galveston County, Texas.
12. Beverly D. Mitchell, et al. v. Sterling Chemicals, Inc., et al.; Cause
No. 94CV1312 in the 56th Judicial District Court of Galveston County, Texas.
13. Maurice Benson, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1265;
In the 56th Judicial District Court of Galveston County, Texas.
14. Rodney Curry, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1263; In
the 122nd Judicial District Court of Galveston County, Texas.
15. Jayson Rhodes, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1266; In
the 10th Judicial District Court of Galveston County, Texas.
16. Darrell Vick, et al. v. Sterling Chemicals, Inc.; Cause No. 95CV1262; In
the 122nd Judicial District Court of Galveston County, Texas.
16
<PAGE>
SMITH LAWSUIT: Angela Smith, et al. v. Amoco Chemical Company, et al.; Cause
No. 95CV0509; In the 212th Judicial District Court of Galveston County, Texas.
ALLEN LAWSUIT: Moranda Allen, et al. v. Sterling Chemicals, Inc., et al.;
Cause No. 91-019786; In the 127th Judicial District Court of Harris County,
Texas.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information on pages 22 and 38 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA
The information on pages 38 and 39 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information on pages 18 to 23 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information on pages 24 to 39 of the Company's 1995 Annual Report to
Shareholders is incorporated herein by reference in response to this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 25, 1995, the Audit Committee of the Board of Directors of the
Company recommended and the Board of Directors of the Company approved the
engagement of the firm of Arthur Andersen LLP ("Arthur Andersen") as its
independent auditors for the year ending September 30, 1996, to replace the
firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand"). The termination by the
Company of the engagement of Coopers & Lybrand was effective upon the
completion of the audit for the year ended September 30, 1995, and the filing
of this Form 10-K.
During the two most recent fiscal years and the subsequent interim period
through the filing of this Form 10-K, there were no disagreements with Coopers
& Lybrand on any matter of accounting principles or practices, financial
statement disclosure, or audit scope or procedures, which disagreements, if not
resolved to their satisfaction, would have caused them to make reference in
connection with their report to the subject matter of the disagreement.
On October 31, 1995, the Company filed a Current Report on Form 8-K
describing the engagement of Arthur Andersen as its independent auditors for
the year ending September 30, 1996, to replace Coopers & Lybrand.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors of the Company beginning on page 3 and
the information beginning on page 16 of the Definitive Proxy Statement for the
Company's 1996 Annual Meeting of Shareholders is incorporated herein by
reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning Executive Compensation beginning on page 5 of the
Proxy Statement for the Company's 1996 Annual Meeting of Shareholders is
incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information beginning on page 3 and beginning on page 15 of the Proxy
Statement for the Company's 1996 Annual Meeting of Shareholders is incorporated
herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management............................................... *
Report of Independent Accountants.................................. *
Sterling Chemicals, Inc. Consolidated Balance Sheet as of September
30, 1995 and 1994................................................. *
Sterling Chemicals, Inc. Consolidated Statements of Operations for
the fiscal years ended September 30, 1995, 1994 and 1993.......... *
Sterling Chemicals, Inc. Consolidated Statement of Changes in
Stockholders' Equity for the fiscal years ended September 30,
1995, 1994 and 1993............................................... *
Sterling Chemicals, Inc. Consolidated Statement of Cash Flows for
the fiscal years ended September 30, 1995, 1994 and 1993.......... *
Notes to Consolidated Financial Statements......................... *
</TABLE>
* Incorporated herein by reference to the appropriate portions of the
Company's Annual Report to Shareholders for the fiscal year ended September 30,
1995.
2. All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instruction or are inapplicable and, therefore, have been omitted.
18
<PAGE>
3. Exhibits
Except as otherwise noted under "Description of Exhibit," each exhibit not
filed herewith is incorporated by reference to the exhibit of the same number
filed with the Company's Registration Statement of Form S-1 dated October 12,
1988 (Registration No. 33-24020).
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 --Purchase Agreement dated as of August 20, 1992 between Tenneco
Canada Inc. as Seller, and Sterling Pulp Chemicals, Ltd. and
Sterling Canada, Inc. as Buyers (the "Purchase Agreement"),
incorporated by reference from Exhibit 2.1 to the Company's
Current Report on Form 8-K dated as of September 3, 1992.
3.1 --Restated Certificate of Incorporation of the Company.
3.2 --Amended By-laws of the Company, incorporated by reference from
exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
4.2 --Form of Registration Rights Agreements dated as of July 30, 1986
among the Company and the holders of Common Stock listed on the
signature page thereto.
+10.1 --Assets Purchase Agreement dated August 1, 1986, between Monsanto
Company and the Company, incorporated by reference from exhibit
10.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992.
**10.2 --Credit Agreement dated April 13, 1995, among the Company, Texas
Commerce Bank National Association as Agent and as a Lender and
Other Lenders.
**10.2(a) --Guaranty dated as of September 28, 1995, among the Company, Texas
Commerce Bank National Association as Agent and as a Lender and
Other Lenders.
**10.2(b) --First Amendment to Credit Agreement dated September 28, 1995,
among the Company, Texas Commerce Bank National Association as
Agent and as a Lender and Other Lenders.
**10.3 --Credit Agreement dated September 28, 1995, among Sterling Pulp
Chemicals, Ltd., Texas Commerce Bank National Association as agent
and as a lender and Other Lenders.
**10.4 --Credit Agreement dated as of April 28, 1995, between Sterling
Pulp Chemicals, Ltd. and the Bank of Nova Scotia.
10.6 --Sterling Chemicals, Inc. Salaried Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.6(a) --Supplement to the Sterling Chemicals, Inc. Salaried Employee's
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.6(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.6(b) --First and Second Amendments to the Sterling Chemicals, Inc.
Salaried Employees' Pension Plan dated April 27, 1994 and
September 23, 1994, respectively, incorporated by reference from
exhibit 10.6(b) to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
10.8 --Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan
(Restated as of October 1, 1993), incorporated by reference from
exhibit 10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
10.8(a) --Supplement to the Sterling Chemicals, Inc. Hourly Paid Employee's
Pension Plan (Restated as of January 1, 1994), incorporated by
reference from exhibit 10.8(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.8 (b) --First Amendment to the Sterling Chemicals, Inc. Hourly Paid
Employees' Pension Plan dated April 27, 1994, incorporated by
reference from exhibit 10.8(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.9 --Sterling Chemicals, Inc. Amended and Restated Savings and
Investment Plan, incorporated by reference from exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.9 (a) --Supplements to the Sterling Chemicals, Inc. Savings and
Investment Plan for Hourly Paid Employees and Salaried Employees,
incorporated by reference from exhibit 10.10(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1994.
10.9 (b) --First and Second Amendments to the Sterling Chemicals, Inc.
Amended and Restated Savings and Investment Plan dated April 27,
1994 and October 26, 1994, respectively, incorporated by
reference from exhibit 10.10(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
10.10 --Sterling Chemicals, Inc. Pension Benefit Equalization Plan.
10.11 --Sterling Chemicals, Inc. 1989 Omnibus Stock and Incentive Plan.
10.12 --Sterling Chemicals, Inc. Amended and Restated Employee Stock
Ownership Plan, incorporated by reference from exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993.
10.12(a) --First Amendment to the Sterling Chemicals, Inc. Amended and
Restated Employees' Stock Ownership Plan dated April 27, 1994,
incorporated by reference from exhibit 10.12(a) to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1994.
++10.13 --Styrene Monomer Conversion Contract dated November 3, 1995,
between Monsanto Company and the Company.
+10.17 --Styrene Monomer Sales Contract dated as of August 1, 1991,
between the Company and Monsanto Company, incorporated by
reference from exhibit 10.12(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
+10.18 --Styrene Monomer Exchange Contract dated as of August 1, 1991,
between the Company and Monsanto Company, incorporated by
reference from exhibit 10.13(A) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1990.
+10.19 --Acrylonitrile Exchange Contract dated January 1, 1994, between
the Company and Monsanto Company, incorporated by reference from
exhibit 10.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
+10.21 --Production Agreement dated April 15, 1988 between BP Chemicals
Americas Inc. and the Company and First and Second Amendment
thereto.
+10.22 --Agreement dated May 2, 1988, between E.I. du Pont de Nemours and
Company and the Company.
10.23 --License Agreement dated April 15, 1988, between BP Chemicals
Americas Inc. and the Company.
+10.24 --Product Sales Agreement dated August 1, 1986, between BASF
Corporation and the Company, incorporated by reference from
exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992.
+10.24(a) --Amendment No. 3 to Product Sales Agreement as of January 1,1994,
between BASF Corporation and the Company, incorporated by
reference from exhibit 10.22(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.25 --License Agreement dated August 1, 1986, between Monsanto Company and
the Company.
+10.26 --Amended Lease and Production Agreement dated August 8, 1994, between
BP Chemicals Americas Inc. and the Company, incorporated by reference
from exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1994.
10.30 --Form of Indemnity Agreement executed between the Company and each of
its officers and directors, incorporated by reference from exhibit
10.30 to the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994.
10.31 --Agreement dated January 30, 1987, among J. Virgil Waggoner, Gordon
A. Cain and the Company, regarding capital stock of the Company.
10.32 --Amended and Restated Sterling Chemicals, Inc. Hourly Employees'
Profit Sharing Plan, incorporated by reference from exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.33 --Amended and Restated Sterling Chemicals, Inc. Salaried Employee's
Profit Sharing Plan, incorporated by reference from exhibit 10.31 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993.
10.34 --Sterling Chemicals, Inc. Amended and Restated Supplemental Employee
Retirement Plan, incorporated by reference from exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1989 (Commission File Number 1-10059).
10.35 --Sterling Chemicals, Inc. Deferred Compensation Plan, incorporated by
reference from exhibit 10.35 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1989 (Commission File
Number 1-10059)..
10.36 --Article of Agreement between the Company, its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas
City, Texas, May 1, 1993 to May 1, 1996, incorporated by reference
from exhibit 10.35 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.38 --Conditional Performance Guaranty dated as of August 20, 1992, by
Albright & Wilson, Ltd. in favor of Sterling Pulp Chemicals, Ltd.,
Sterling Canada, Inc. and the Indemnities identified in Section 10.2
of the Purchase Agreement, incorporated by reference from exhibit
10.38 to the Company's Current Report on Form 8-K dated September 3,
1992.
10.39 --Performance Guaranty dated as of August 20, 1992, by the Company in
favor of Tenneco Canada Inc., Rio Linda Chemical Co., Albright &
Wilson Americas, Inc. and the Indemnities identified in Section 10.3
of the Purchase Agreement, incorporated by reference from exhibit
10.39 to the Company's Current Report on Form 8-K dated September 3,
1992.
10.45 --Lease dated March 1, 1990 between Procter & Gamble, Inc. and Tenneco
Canada Inc., as amended by a Lease Modification Agreement dated
August 9, 1991, and Consent and Assignment Agreement dated as of
August 21, 1992 among 982174 Ontario Limited, Sterling Pulp
Chemicals, Ltd., Proctor & Gamble, Inc., Tenneco Canada Inc. and The
Bank of Nova Scotia, incorporated by reference from exhibit 10.45 to
the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
10.46 --Lease dated July 1, 1977 between Canadian National Railway Company
and ERCO Industries Limited, and Consent and Assignment Agreement
dated as of August 21, 1992 among Tenneco Canada Inc., Sterling Pulp
Chemicals, Ltd., Canadian National Railway Company and The Bank of
Nova Scotia, incorporated by reference from exhibit 10.46 to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1992.
+10.48 --Sales and Purchase Agreement dated April 1, 1994, between BP
Chemicals Ltd. and the Company, incorporated by reference from
exhibit 10.48 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
+10.49 --Contract for Sale and Purchase of Ethylene dated October 28, 1988,
between Phillips 66 Company and the Company, incorporated by
reference from exhibit 10.49 to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1994.
10.50 --Agreement between Sterling Pulp Chemicals Ltd. North Vancouver
British Columbia and Pulp, Paper and Woodworkers of Canada Local 5
British Columbia effective December 1, 1994 to November 30, 1997,
incorporated by reference from exhibit 10.50 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994.
++10.51 --Contract for Sale and Purchase of Ethylene effective January 1,
1995, between Phillips Chemical Company and the Company.
++10.52 --Chemical Products Sales Agreement--Ethylene, dated December 7, 1994,
between Lyondell Petrochemical Company and the Company.
**10.53 --Agreement between Sterling Pulp Chemicals Ltd. Buckingham, Quebec
and the Energy and Chemicals Workers Union effective November 30,
1994 to November 30, 1997.
**10.54 --Agreement between Sterling Pulp Chemicals Ltd., Buckingham, Quebec,
and the Office and Professional Employees International Union,
effective June 25, 1995 to November 14, 1997.
++10.55 --Product Supply Agreement dated May 15, 1995, between Praxair
Hydrogen Supply, Inc. and the Company.
**13.1 --Sterling Chemicals, Inc. Annual Report to Shareholders for the
fiscal year ended September 30, 1995.
**27.0 --Financial Data Schedule.
</TABLE>
- --------
** Filed herewith.
+ Confidential treatment has been requested with respect to portions of this
Exhibit, and such request has been granted.
++ Filed herewith and confidential treatment has been requested with respect
to portions of this Exhibit.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1995. However, on October 31, 1995, the Company filed a Current Report on Form
8-K describing the engagement of the firm of Arthur Andersen LLP as its
independent auditors for the year ending September 30, 1996, to replace the
firm of Coopers & Lybrand L.L.P.
22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
STERLING CHEMICALS, INC.
(Registrant)
/s/ J. Virgil Waggoner
By __________________________________
(J. Virgil Waggoner)
President and ChiefExecutive Officer
DATE: OCTOBER 25, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS REPORT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gordon A. Cain Chairman of the Board of October 25, 1995
____________________________________ Directors
(Gordon A. Cain)
/s/ J. Virgil Waggoner President and Director October 25, 1995
____________________________________ (principal executive
(J. Virgil Waggoner) officer)
/s/ Jim P. Wise (Vice President--Finance October 25, 1995
____________________________________ (principal financial
(Jim P. Wise) officer)
/s/ Paul G. Vanderhoven Controller October 25, 1995
____________________________________ (principal accounting
(Paul G. Vanderhoven) officer)
/s/ James J. Kerley Director October 25, 1995
____________________________________
(James J. Kerley)
/s/ Raymond R. Knowland Director October 25, 1995
____________________________________
(Raymon R. Knowland)
/s/ William A. McMinn Director October 25, 1995
____________________________________
(William A. McMinn)
/s/ Frank J. Pizzitola Director October 25, 1995
____________________________________
(Frank J. Pizzitola)
/s/ Gilbert M. A. Portal Director October 25, 1995
____________________________________
(Gilbert M. A. Portal)
</TABLE>
23
<PAGE>
Exhibit 10.2
CREDIT AGREEMENT
($125,000,000 TERM LOAN FACILITY
AND
$150,000,000 REVOLVING LOAN FACILITY)
dated as of April 13, 1995
AMONG
STERLING CHEMICALS, INC.,
as Borrower;
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent and as a Lender;
THE BANK OF NOVA SCOTIA,
as Documentation Agent and as a Lender,
ABN AMRO BANK N.V., HOUSTON AGENCY, BANK OF SCOTLAND
and CREDIT LYONNAIS, NEW YORK BRANCH,
as Co-Agents and as Lenders
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................... 1
1.1 Certain Defined Terms........................................ 1
1.2 Miscellaneous................................................ 17
2. Commitments and Loans................................................ 17
2.1 Loans........................................................ 17
2.2 Letters of Credit............................................ 18
2.3 Terminations or Reductions of Revolving Loan Commitments..... 22
2.4 Fees......................................................... 22
2.5 Several Obligations.......................................... 23
2.6 Notes........................................................ 23
2.7 Use of Proceeds.............................................. 24
2.8 Designated Amount............................................ 24
3. Borrowings, Payments and Prepayments................................. 24
3.1 Borrowings................................................... 24
3.2 Payments; Prepayments........................................ 24
4. Payments; Pro Rata Treatment; Computations, Etc...................... 26
4.1 Payments..................................................... 26
4.2 Pro Rata Treatment........................................... 26
4.3 Certain Actions, Notices, Etc................................ 26
4.4 Non-Receipt of Funds by the Agent............................ 27
4.5 Sharing of Payments, Etc..................................... 28
5. Conditions Precedent................................................. 28
5.1 Initial Loans and Letters of Credit.......................... 28
5.2 All Loans and Letters of Credit.............................. 30
6. Representations and Warranties....................................... 30
6.1 Organization................................................. 30
6.2 Financial Statements......................................... 31
6.3 Enforceable Obligations; Authorization....................... 31
6.4 Other Borrowed Money Indebtedness............................ 31
6.5 Litigation................................................... 31
6.6 Taxes........................................................ 32
6.7 Regulations G, U and X....................................... 32
6.8 Subsidiaries................................................. 32
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
6.9 No Untrue or Misleading Statements........................... 32
6.10 ERISA........................................................ 32
6.11 Investment Company Act....................................... 32
6.12 Public Utility Holding Company Act........................... 32
6.13 Solvency..................................................... 33
6.14 Compliance................................................... 33
6.15 Environmental Matters........................................ 33
7. Affirmative Covenants................................................ 33
7.1 Taxes, Existence, Regulations, Property, Etc................. 33
7.2 Financial Statements and Information......................... 34
7.3 Financial Tests.............................................. 35
7.4 Inspection................................................... 35
7.5 Further Assurances........................................... 35
7.6 Books and Records............................................ 35
7.7 Insurance.................................................... 35
7.8 Notice of Certain Matters.................................... 36
7.9 Interest Rate Risk........................................... 36
7.10 Capital Adequacy............................................. 36
7.11 ERISA Information and Compliance............................. 37
8. Negative Covenants................................................... 37
8.1 Indebtedness................................................. 37
8.2 Liens........................................................ 38
8.3 Contingent Liabilities....................................... 39
8.4 Mergers, Consolidations and Dispositions and Acquisitions of
Assets...................................................... 39
8.5 Redemption, Dividends and Distributions...................... 40
8.6 Nature of Business........................................... 40
8.7 Transactions with Affiliates................................. 40
8.8 Loans and Investments........................................ 40
8.9 No Subsidiaries.............................................. 40
8.10 BP Lease..................................................... 41
8.11 Fiscal Year.................................................. 42
8.12 Sterling Energy and Sterling Pulp (US)....................... 42
9. Defaults............................................................. 42
9.1 Events of Default............................................ 42
9.2 Right of Setoff.............................................. 45
9.3 Collateral Account........................................... 46
9.4 Preservation of Security for Unmatured Reimbursement
Obligations................................................. 46
9.5 Remedies Cumulative.......................................... 47
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
10. The Agent............................................................ 47
10.1 Appointment, Powers and Immunities........................... 47
10.2 Reliance..................................................... 48
10.3 Defaults..................................................... 48
10.4 Rights as a Lender........................................... 49
10.5 Indemnification.............................................. 49
10.6 Non-Reliance on Agent and Other Lenders...................... 49
10.7 Failure to Act............................................... 50
10.8 Resignation or Removal of Agent.............................. 50
10.9 No Partnership............................................... 51
11. Miscellaneous........................................................ 51
11.1 Waiver....................................................... 51
11.2 Notices...................................................... 51
11.3 Expenses, Etc................................................ 51
11.4 Indemnification.............................................. 52
11.5 Amendments, Etc.............................................. 53
11.6 Successors and Assigns....................................... 53
11.7 Limitation of Interest....................................... 56
11.8 Survival..................................................... 57
11.9 Captions..................................................... 57
11.10 Counterparts................................................. 57
11.11 Governing Law................................................ 57
11.12 Severability................................................. 57
11.13 Tax Forms.................................................... 57
11.14 Venue........................................................ 58
11.15 Confidentiality.............................................. 58
11.16 Amended and Restated Credit Agreement........................ 59
</TABLE>
iii
<PAGE>
EXHIBITS
A -- Request for Extension of Credit
B -- Borrowing Base Certificate
C -- Subsidiaries
D -- Term Note
E -- Revolving Note
F -- Assignment and Acceptance
G -- Compliance Certificate
H -- Existing Letters of Credit
SCHEDULES
1 -- Interest Rate Agreement
6.10 -- ERISA Matters
8.1 -- Borrowed Money Indebtedness
8.2 -- Liens
8.3 -- Contingent Liabilities
8.8 -- Existing Investments
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of April 13, 1995 (the
"Effective Date"), by and among STERLING CHEMICALS, INC., a Delaware corporation
(the "Borrower"); each of the lenders which is or may from time to time become a
party hereto (individually, a "Lender" and, collectively, the "Lenders"); TEXAS
COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking association, as
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent"), THE BANK OF NOVA SCOTIA, as Documentation Agent, and ABN
AMRO BANK N.V., HOUSTON AGENCY, BANK OF SCOTLAND and CREDIT LYONNAIS, NEW YORK
BRANCH, as Co-Agents.
The parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
Accounts, Equipment, General Intangibles and Inventory shall have the
respective meanings assigned to them in the Texas Business and Commerce Code in
force on the Effective Date.
Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the
ratio of (a) EBITDA for the Rolling Four Quarters as of such day less cash
income taxes paid during such Rolling Four Quarters plus cash income tax refunds
received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for
such Rolling Four Quarters.
Adjusted Fixed Charges shall mean (without duplication), for any period
and with respect to any Person, (a) Fixed Charges for such period plus (b) any
dividends on any equity interests in such Person of any class (except dividends
payable solely in shares of common stock) paid during such period.
Affiliate shall mean any Person controlling, controlled by or under
common control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise. Notwithstanding the foregoing, no
individual shall be deemed to be
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an Affiliate of a corporation solely by reason of his or her being an officer or
director of such corporation.
Agreement shall mean this Credit Agreement, as it may from time to time
be amended, modified, restated or supplemented.
Annual Audited Financial Statements shall mean the annual consolidated
financial statements of a Person, including all notes thereto, which statements
shall include a balance sheet as of the end of such fiscal year and an income
statement and a statement of cash flows for such fiscal year, all setting forth
in comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with GAAP, and accompanied by a report and opinion of
Coopers & Lybrand or other independent certified public accountants reasonably
satisfactory to the Agent, which shall state that such financial statements, in
the opinion of such accountants, present fairly the financial position of such
Person as of the date thereof and the results of its operations for the period
covered thereby in conformity with GAAP. Such statements shall be accompanied by
a certificate of such accountants that in making the appropriate examination in
connection with such report and opinion, such accountants did not become aware
of any Default relating to the financial tests set forth in Section 7.3 hereof
or, if in the opinion of such accountants any such Default exists, a description
of the nature and status thereof.
Applications shall mean all applications and agreements for Letters of
Credit, or similar instruments or agreements, in a form acceptable to the
Borrower and the Issuer and otherwise in Proper Form, now or hereafter executed
by the Borrower in connection with any Letter of Credit now or hereafter issued
or to be issued under the terms hereof at the request of any Person.
Assignment and Acceptance shall have the meaning ascribed to such term
in Section 11.6 hereof.
Bankruptcy Code shall mean the United States Bankruptcy Code, as
amended, and any successor statute.
Borrowed Money Indebtedness shall have the meaning ascribed to it in
Section 8.1 hereof.
Borrowing Base shall mean, as at any date, the amount of the Borrowing
Base shown on the Borrowing Base Certificate then most recently delivered
pursuant to Section 7.2 hereof, determined by calculating the amount equal to:
(i) 85% of the aggregate amount of the Eligible Accounts at said date,
plus
(ii) the lesser of (I) 65% of the sum of (x) the aggregate amount of
Eligible Inventory at said date and (y) seventy-five percent (75%)
of the value (determined in accordance with GAAP) at said date of
materials and
2
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supplies which are not Inventory (provided that the amount
determined under this clause (y) shall not exceed $7,000,000) or
(II) the amount determined in clause (i) above.
In the absence of a Borrowing Base Certificate delivered as required by Section
7.2, the Agent shall determine the Borrowing Base from time to time in its
reasonable discretion, taking into account all information reasonably available
to it, and the Borrowing Base from time to time so determined shall be the
Borrowing Base for all purposes of this Agreement until such a Borrowing Base
Certificate, in Proper Form, is furnished to and accepted by the Agent.
Borrowing Base Certificate shall mean a certificate, duly executed by
the chief executive officer, chief financial officer, treasurer or controller of
the Borrower, appropriately completed and in substantially the form of Exhibit B
hereto.
BP shall mean BP Chemicals Americas, Inc., a Delaware corporation, and
its successors.
BP Lease shall mean that certain Amended and Restated Lease and
Production Agreement dated August 8, 1994, executed by and between BP Chemicals,
Inc. and the Borrower, as the same may from time to time be amended, modified,
restated or supplemented.
Business Day shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston, Texas or in New York City,
New York.
Canadian Facility shall mean that certain Credit Agreement executed or
to be executed, in Proper Form, by and between Sterling Pulp Chemicals, Ltd. and
The Bank of Nova Scotia, as the same may be amended, restated or supplemented.
The unpaid principal balance of the Canadian Facility, together with the
aggregate face amount of letters of credit issued under the Canadian Facility,
shall not exceed Canadian $20,000,000.
Canadian Subsidiary shall mean any Subsidiary of the Borrower which is
organized and exists under the laws of Canada or any province thereof.
Capital Expenditures shall mean expenditures in respect of fixed or
capital assets by a Person, to the extent capitalized in accordance with GAAP,
but excluding (a) expenditures for the restoration, repair or replacement of any
fixed or capital asset which was destroyed or damaged, in whole or in part, to
the extent financed by the proceeds of an insurance policy maintained by such
Person, (b) increases in the consolidated fixed or capital assets of such Person
resulting solely from Permitted Acquisitions (other than expenditures made after
the date of such Permitted Acquisition), and (c) increases in the capital assets
of such Person resulting from expenditures in respect of fixed or capital assets
made by another so long as such Person has no obligation to reimburse the other
for such expenditures. Expenditures in respect of replacements and maintenance
consistent with the business practices of such Person in respect of plant
facilities, machinery, fixtures and other like
3
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capital assets utilized in the ordinary course of business are not Capital
Expenditures to the extent such expenditures are not capitalized in preparing a
balance sheet of such Person in accordance with GAAP.
Capital Lease Obligations shall mean, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board, as amended) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13). Capital Lease Obligations shall not include the interest
component of any applicable rental payment.
Ceiling Rate shall have the meaning assigned to it in the Interest Rate
Agreement.
Change of Control shall mean a change resulting when any Unrelated
Person or any Unrelated Persons acting together which would constitute a Group
together with any Affiliates or Related Persons thereof (in each case also
constituting Unrelated Persons) shall at any time either (i) Beneficially Own
more than 50% of the aggregate voting power of all classes of Voting Stock of
the Borrower or (ii) succeed in having sufficient of its or their nominees
elected to the Board of Directors of the Borrower such that such nominees, when
added to any existing director remaining on the Board of Directors of the
Borrower after such election who is an Affiliate or Related Person of such
Person or Group, shall constitute a majority of the Board of Directors of the
Borrower. As used herein (a) "Beneficially Own" means "beneficially own" as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto; provided, however, that, for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates until such tendered securities are accepted for
purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means
at any time any Person other than the Borrower or any of its Subsidiaries and
other than any trust for any employee benefit plan of the Borrower or any of its
Subsidiaries; (d) "Related Person" of any Person shall mean any other Person
owning (1) 5% or more of the outstanding common stock of such Person or (2) 5%
or more of the Voting Stock of such Person; and (e) "Voting Stock" of any Person
shall mean capital stock of such Person which ordinarily has voting power for
the election of directors (or persons performing similar functions) of such
Person, whether at all times or only so long as no senior class of securities
has such voting power by reason of any contingency.
Code shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
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Collateral shall mean all Property, tangible or intangible, real,
personal or mixed, now or hereafter subject to the Security Agreements.
Commitment Fee Percentage shall mean:
(a) on any day prior to the first adjustment after the date hereof
pursuant to clause (b) of this definition, 0.25%;
(b) the Commitment Fee Percentage for any day shall be the applicable
per annum percentage set forth at the appropriate intersection in the table
shown below, based on the Debt to EBITDA Ratio as of the last day of each March,
June, September and December (beginning with the fiscal quarter ending on June
30, 1995) (such increase or decrease to be effective on the date that Borrower
delivers the Quarterly Financial Statements to the Agent pursuant to the terms
of this Agreement):
Debt to Commitment Fee
EBITDA Ratio Percentage
Greater than or equal to 3.50 0.375
Greater than or equal to
2.50 but less than 3.50 0.30
Greater than or equal to
1.50 but less than 2.50 0.25
Less than 1.50 0.20
Compliance Certificate shall have the meaning given to it in Section 7.2
hereof.
Contribution Agreement shall mean that certain Contribution Agreement
dated concurrently herewith executed by and among the Borrower and its
Subsidiaries, as the same may be amended, modified, supplemented and restated--
and joined in pursuant to a joinder agreement--from time to time.
Controlled Group shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
Corporation shall mean a corporation, limited liability company,
partnership, joint venture, joint stock association, business trust and other
business entity.
5
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Cover for Letter of Credit Liabilities shall mean the payment to the
Agent in immediately available funds, to be held by the Agent in a collateral
account maintained by the Agent at its Principal Office and collaterally
assigned as security by the Borrower for the Reimbursement Obligations using
documentation reasonably satisfactory to the Agent, in the amount required by
any applicable provision hereof. Such amount shall be retained by the Agent in
such collateral account until such time as no Default or Event of Default is
continuing.
Current Assets shall mean all assets of a Person which under GAAP would
be classified as current assets.
Current Liabilities shall mean all liabilities of a Person which under
GAAP would be classified as current liabilities, other than current maturities
of long term debt and the obligation to repay the Revolving Loan Obligations and
any Borrowed Money Indebtedness under the Canadian Facility.
Current Ratio means, as of any day, the ratio of Current Assets to
Current Liabilities.
Debt to EBITDA Ratio shall mean, as of the last day of any fiscal
quarter, the ratio of (a) the outstanding balance of Borrowed Money Indebtedness
on such date to (b) EBITDA for the Rolling Four Quarters ending on such date.
Default shall mean an Event of Default or an event which with notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
Designated Amount shall have the meaning ascribed to such term in
Section 2.8 hereof.
Dollar Equivalent shall mean the equivalent in another currency of an
amount in Dollars to be determined by reference to the exchange quoted by TCB at
10:00 a.m. (Houston time) on the date of determination, for the spot purchase in
the foreign exchange market of such amount of Dollars with such other currency.
Dollars and $ shall mean lawful money of the United States of America.
EBITDA shall mean, without duplication, for any period the sum of (a)
Net Income less non-cash income and (b) the sum of (i) Interest Expense for such
period, (ii) Federal, state and local income taxes deducted in determining such
Net Income, (iii) amortization of goodwill and other non-cash expenses and
intangibles (including, without limitation, patents, deferred financing costs
and debt discount) deducted in determining such Net Income, (iv) depreciation,
depletion and obsolescence of Property, in each case, determined in accordance
with GAAP and (v) prepaid royalty income to the extent actually paid in cash.
6
<PAGE>
Eligible Accounts shall mean, as at any date of determination thereof,
each Account or General Intangible for the payment of money, in each case valued
in accordance with GAAP, which is at said date payable to the Borrower or any of
its Subsidiaries and which complies with the following requirements: (a) in the
case of the sale of goods, the subject goods have been sold to an account debtor
on an absolute sale basis on open account and not on consignment, on approval or
on a "sale or return" basis or subject to any other repurchase or return
agreement and no material part of the subject goods has been returned, rejected,
lost or damaged, the Account or General Intangible is not evidenced by chattel
paper or an instrument of any kind and said account debtor is not insolvent or
the subject of any bankruptcy or insolvency proceedings of any kind; (b) the
account debtor must be located in the United States or in Canada, except for (x)
Accounts or General Intangibles as to which the Borrower or the applicable
Subsidiary and the Agent have mutually and reasonably agreed shall be included
and (y) Accounts or General Intangibles as to which the Borrower or the
applicable Subsidiary has received a letter of credit in an amount equal to or
greater than such Account or General Intangibles issued by a financial
institution reasonably acceptable to the Agent and otherwise in form and
substance reasonably satisfactory to the Agent; (c) to the extent included as an
Eligible Account, such Account or General Intangible is a valid obligation of
the account debtor thereunder and is not subject to any offset or other defense
on the part of such account debtor or to any claim on the part of such account
debtor denying liability thereunder; (d) such Account or General Intangible is
subject to no Lien whatsoever, except for the Liens created or permitted
pursuant to the Security Agreements; (e) such Account or General Intangible is
evidenced by an invoice submitted to the account debtor and such Account or
General Intangible has not remained unpaid beyond 90 days after the due date
stated on the invoice therefor (or such Account or General Intangible is not
invoiced in the ordinary course of business but by the terms of the agreements
creating such Account or General Intangible, such Account or General Intangible
has not remained unpaid beyond ninety (90) days after the due date therefor);
(f) such Account or General Intangible does not arise out of transactions with
any Affiliate of the Borrower or an employee, officer, agent or director of the
Borrower or any Affiliate of the Borrower; (g) not more than 20% of the other
Accounts or General Intangibles of the applicable account debtor or any of its
Affiliates owed to the Borrower or any of its Subsidiaries fail to satisfy all
of the requirements of an "Eligible Account"; (h) except as Agent may otherwise
agree, inclusion of the applicable Account or General Intangible does not cause
the total Eligible Accounts with respect to the applicable account debtor and
its Affiliates, in the aggregate, to exceed 15% of the total Eligible Accounts;
(i) each of the representations and warranties set forth in the Security
Agreements with respect thereto is true and correct in all material respects on
such date, and (j) the Agent, on behalf of the Lenders, shall have a first-
priority perfected Lien covering such Account or General Intangible or, in the
case of the Canadian Subsidiaries, the Agent, on behalf of the Lenders, shall
have a first-priority perfected Lien in and to 65% of the issued and outstanding
equity interests of such Subsidiary and in and to 100% of the issued and
outstanding equity interests of Sterling Canada, in each case to the extent
required by and in accordance with the applicable Security Agreement.
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<PAGE>
Eligible Inventory shall mean, as at any date of determination thereof,
Inventory of the Borrower and its Subsidiaries which complies with the following
requirements: (a) such Inventory shall be valued in accordance with GAAP and
consist of (i) raw materials and (ii) finished goods; (b) it is in good
condition, meets all standards imposed by any Governmental Authority having
regulatory authority over it, its use and/or sale and is either currently usable
or currently salable in the normal course of business of the Borrower and its
Subsidiaries; (c) except for (x) Inventory having a value up to but no more than
$15,000,000 and (y) Inventory which is in transit in the ordinary course of
business but in respect of which title remains in Borrower or the applicable
Subsidiary of Borrower and which is fully insured, it is not (1) located outside
the United States of America or Canada or (2) in the possession or control of
any warehouseman, bailee, or any agent or processor for or customer of the
Borrower or its Subsidiaries or, if it is, the Borrower or its Subsidiaries
shall have notified, in a manner that effectively under applicable law creates a
valid and first priority Lien in favor of the Agent, on behalf of the Lenders,
in such Inventory, such warehouseman, bailee, agent, processor or customer of
the Agent's Lien and such warehouseman, bailee, agent, processor or customer has
subordinated any Lien it may claim therein and agreed to hold all such Inventory
for the Agent's account subject to the Agent's instructions; (d) each of the
representations and warranties set forth in the Security Agreements with respect
thereto is true and correct in all material respects on such date, and (e) the
Agent, on behalf of the Lenders, shall have a first-priority perfected Lien
covering such Inventory or, in the case of the Inventory of the Canadian
Subsidiaries, the Agent shall, on behalf of the Lenders, have a first-priority
perfected Lien in and to 65% of the issued and outstanding equity interests of
such Subsidiary and in and to 100% of the issued and outstanding equity
interests of Sterling Canada, in each case to the extent required by and in
accordance with the applicable Security Agreement.
Environmental Claim shall mean any third party (including Governmental
Authorities) action, lawsuit, claim or proceeding (including claims or
proceedings at common law) which seeks to impose liability for (i) noise; (ii)
pollution or contamination of the air, surface water, ground water or land or
the clean up of such pollution or contamination; (iii) solid, gaseous or liquid
waste generation, handling, treatment, storage, disposal or transportation; (iv)
exposure to Hazardous Substances; or (v) the manufacture, processing,
distribution in commerce or use of Hazardous Substances. An "Environmental
Claim" includes, but is not limited to, a common law action, as well as a
proceeding to issue, modify or terminate an Environmental Permit.
Environmental Liabilities includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
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Environmental Permit means any permit, license, approval or other
authorization under any applicable Requirements of Environmental Law.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default shall have the meaning assigned to it in Section 9
hereof.
Existing Letters of Credit shall mean the letters of credit described on
Exhibit H hereto.
Federal Funds Rate shall have the meaning assigned to it in the Interest
Rate Agreement.
Financing Statements shall mean all such Uniform Commercial Code
financing statements as the Agent shall require, in Proper Form, duly executed
by the Borrower or others to give notice of and to perfect or continue
perfection of the Agent's Liens in all Collateral, as any of the foregoing may
from time to time be amended, modified, supplemented or restated.
Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal
quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such
day less cash income taxes paid during such Rolling Four Quarters plus cash
income tax refunds received during such Rolling Four Quarters to (b) the Fixed
Charges for such Rolling Four Quarters.
Fixed Charges shall mean (without duplication), for any period, (a) the
amounts of scheduled principal payments made or to be made during such period
with respect to Borrowed Money Indebtedness (other than Capital Lease
Obligations) of the applicable Person (it is agreed that such scheduled
principal payments do not include any principal payments made to reduce any
Revolving Loan Obligations or other revolving Indebtedness), plus (b) payments
made or required to be made during such period with respect to the principal
component of the Capital Lease Obligations of the applicable Person with
unrelated third parties, plus (c) the amount of Interest Expense for such
period, plus (d) Capital Expenditures made during such period.
GAAP shall mean generally accepted accounting principles as in effect
from time to time, applied on a basis consistent (except for changes concurred
in by the Borrower's independent public accountants) with the September 30, 1994
audited financial statements of the Borrower delivered to the Lenders together
with the notes thereto.
Governmental Authority shall mean any foreign governmental authority,
the United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal having jurisdiction over the
Agent, any Lender, the Borrower or any of the Borrower's Subsidiaries or their
respective Property.
9
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Guaranties shall mean those certain Guaranties dated concurrently
herewith executed by the Subsidiaries of Borrower (other than Sterling Energy,
Sterling Pulp (US) and other than Canadian Subsidiaries), together with any
other guaranties hereafter executed with respect to the Obligations, as any of
the same may from time to time be amended, modified, restated or supplemented.
Hazardous Substance shall mean petroleum products, and any hazardous or
toxic waste or substance defined or regulated as such from time to time by any
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law".
Indebtedness shall mean and include (a) all items which in accordance
with GAAP would be included on the liability side of a balance sheet on the date
as of which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, letter of credit
contingent reimbursement obligations, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on
any interest of the Person with respect to which Indebtedness is being
determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed; provided, that the term
"Indebtedness" shall not mean or include any Indebtedness of the type described
in clause (a) of this definition in respect of which monies sufficient to pay
and discharge the same in full (either on the expressed date of maturity thereof
or on such earlier date as such Indebtedness may be duly called for redemption
and payment) shall be deposited with a depository, agency or trustee acceptable
to the Agent in trust for the payment thereof.
Interest Expense shall mean, for any period, the sum of the interest
payments by an obligor made or accrued in accordance with GAAP during such
period in connection with all of its Borrowed Money Indebtedness, including the
interest component of any Capital Lease Obligations.
Interest Rate Agreement shall mean the Interest Rate Agreement attached
hereto as Schedule 1, as it may from time to time be amended, modified, restated
or supplemented.
Interest Rate Risk Agreement shall mean an interest rate swap agreement,
interest rate cap agreement or similar arrangement entered into between the
Borrower and one or more financial institutions for the purpose of reducing
Borrower's exposure to interest rate risk and not for speculative purposes, as
it may from time to time be amended, modified, restated or supplemented from
time to time.
Interest Rate Risk Indebtedness shall mean all obligations and
Indebtedness of the Borrower with respect to the program for the hedging of
interest rate risk provided for in any Interest Rate Risk Agreement.
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Investment shall mean the purchase or other acquisition of any
securities or Indebtedness of, or the making of any loan, advance, or other
extension of credit or capital contribution to (by means of transfers of
property or assets or otherwise) any Person.
Issuer shall mean the issuer of a Letter of Credit under this Agreement.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future.
Letter of Credit shall have the meaning assigned to such term in Section
2.2 hereof.
Letter of Credit Liabilities shall mean, at any time and in respect of
any Letter of Credit, the sum of (i) the amount available for drawings under
such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit. For the purpose of determining at any time the
amount described in clause (i), in the case of any Letter of Credit payable in a
currency other than Dollars, such amount shall equal the Dollar Equivalent of
the face amount of such Letter of Credit.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien of any kind, whether based on
common law, constitutional provision, statute or contract to secure payment of
debt or performance of an obligation.
Loans shall mean the loans provided for by Section 2.1 hereof.
Loan Documents shall mean, collectively, this Agreement, the Notes, the
Interest Rate Agreement, all Applications, the Guaranties, the Contribution
Agreement, the Security Agreements, the Notice of Entire Agreement, all
instruments, certificates and agreements now or hereafter executed or delivered
to the Agent or any Lender pursuant to any of the foregoing or in connection
with the Obligations or any commitment regarding the Obligations, and all
amendments, modifications, renewals, extensions, increases and rearrangements
of, and substitutions for, any of the foregoing.
Majority Lenders shall mean, at any time while no Loans are outstanding,
Lenders having greater than 66-2/3% of the aggregate amount of Revolving Loan
Commitments, and at any time while Loans are outstanding, Lenders having greater
than 66-2/3% of the aggregate amount of Term Loans outstanding plus Revolving
Loan Commitments outstanding.
Margin Percentage shall have the meaning ascribed to such term in the
Interest Rate Agreement.
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Material Adverse Effect shall mean a material adverse effect on the
business, financial condition, operations or Properties of the Borrower and its
Subsidiaries, taken as a whole, or on the ability of any of them to perform
their respective material obligations under any Loan Document to which any of
them is a party.
Maturity Date shall mean the maturity of the Notes, April 13, 2002, as
the same may hereafter be accelerated pursuant to the provisions of any of the
Loan Documents.
Maximum Revolving Loan Available Amount shall mean, at any date, an
amount equal to the lesser of (i) the aggregate of the Revolving Loan
Commitments or (ii) the Borrowing Base less the Dollar Equivalent of the then
current unpaid principal balance of the Canadian Facility.
Net Income shall mean, for any Person and any period, the consolidated
net income of such Person for such period after taxes but before extraordinary
items, determined in accordance with GAAP.
Net Worth shall mean net worth determined in accordance with GAAP.
Notes shall have the meaning assigned to such term in Section 2.6
hereof.
Notice of Entire Agreement shall mean a notice of entire agreement, in
Proper Form, executed by the Borrower, the Agent and each other Party, as the
same may from time to time be amended, modified, supplemented or restated.
Obligations shall mean, as at any date of determination thereof, the sum
(without duplication) of the following: (i) the aggregate principal amount of
Loans outstanding hereunder, plus (ii) the aggregate amount of the Letter of
Credit Liabilities hereunder, plus (iii) all other liabilities, obligations and
indebtedness of any Party under any Loan Document.
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof.
Parties shall mean the Borrower and each of its Subsidiaries executing a
Loan Document.
Past Due Rate shall mean, on any day, a rate per annum equal to the
lesser of (i) the Ceiling Rate for that day or (ii) the Base Rate (as defined in
the Interest Rate Agreement) plus two percent (2%).
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PBGC shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Permitted Acquisitions shall mean non-hostile acquisitions of all or
substantially all of the assets, or 50% or more of the voting securities, of any
Person (or any division or product line of such Person), but only so long as no
Default or Event of Default shall have occurred and be continuing (or would
result from such acquisition).
Permitted Dividends shall mean an amount not to exceed 50% of Net Income
of the Borrower for the immediately preceding Rolling Four Quarters which may,
so long as no Default or Event of Default shall have occurred and be continuing
(or would result from such distribution) and so long as the Adjusted Fixed
Charge Coverage Ratio for the Borrower and its Subsidiaries is not (and would
not be, after giving effect to such distribution) less than 1.10 to 1.00, be
distributed by the Borrower so long as the Borrower has delivered to the Agent a
Compliance Certificate calculated after giving effect to the proposed
distribution which indicates that such distribution complies with the terms of
this Agreement.
Permitted Investments shall mean: (a) certificates of deposit maturing
within 90 days of the acquisition thereof and issued by a bank or trust company
organized under the laws of the United States of America or a State thereof,
having combined capital and surplus of at least $250,000,000 and which has (or
which is a Subsidiary of a bank holding company which has) publicly traded debt
securities rated A or higher by Standard and Poor's Corporation and A-2 or
higher by Moody's Investors Service, Inc.; (b) obligations issued or guaranteed
by the United States of America; (c) commercial paper with a published rating of
not less than A-2 and P-2 (or the equivalent rating); (d) repurchase obligations
for underlying securities of the type described in clauses (a), (b) or (c) above
entered into on a fully collateralized basis with any Lender; (e) dollar
denominated time deposits with, including certificates of deposit issued by, any
non-United States branch or office of any Lender; (f) Permitted Acquisitions;
(g) securities (other than those securities described in clauses (a) through (e)
of this definition) of money market mutual funds with net assets in excess of
$100,000,000, provided that the investment amounts in securities described in
this clause (g) may not exceed 5% of the issued and outstanding securities of
any Person (or such lesser percentage as would constitute a controlling
interest), irrespective of whether such securities having voting power or may be
convertible to securities with voting power of any Person; (h) loan
participations with a rating of not less than A-2 and P-2 (or the equivalent
rating) by Moody's Investors Service, Inc. and Standard and Poor's Corporation,
respectively; (i) money market preferred stock with a rating of not less than
AAA (or the equivalent rating); (j) other investments approved by Agent in
writing not exceeding, in the aggregate, $20,000,000, and (k) other investments
approved by the Majority Lenders in writing.
Person shall mean any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
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Plan shall mean an employee pension benefit plan (as such term is
defined in Section 3(2) of ERISA) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code or
Section 302 of ERISA and (a) which is maintained by the Borrower or any member
of the Controlled Group for employees of the Borrower or any member of the
Controlled Group or (b) as to which the Borrower or any member of the Controlled
Group may have any liability.
Principal Office shall mean the principal office of the Agent, presently
located at 712 Main Street, Houston, Harris County, Texas 77002.
Proper Form shall mean in form and substance reasonably satisfactory to
the Agent.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
Quarterly Dates shall mean the first day of each April, July, October
and January, provided that if any such date is not a Business Day, then the
relevant Quarterly Date shall be the next succeeding Business Day.
Quarterly Financial Statements shall mean the quarterly financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of a fiscal quarter and an income
statement and a statement of changes in financial position for such fiscal
quarter and for the fiscal year to date, subject to normal adjustments, all
setting forth in comparative form the corresponding figures for the
corresponding calendar quarter of the preceding year, prepared in accordance
with GAAP and certified as true and correct to the best of his knowledge by the
chief financial officer or other authorized officer of such Person.
Regulatory Change shall mean with respect to any Lender, any change
after the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of financial
institutions including such Lender under any Legal Requirements (whether or not
having the force of law) by any Governmental Authority.
Reimbursement Obligations shall mean, as at any date, the obligations of
the Borrower then outstanding, or which may thereafter arise, in respect of
Letters of Credit under this Agreement, to reimburse the applicable Issuers for
the amount paid by such Issuers in respect of any drawing under such Letters of
Credit, which obligations shall at all times be payable in Dollars
notwithstanding any such Letter of Credit being payable in a currency other than
Dollars.
Request for Extension of Credit shall mean a request for extension of
credit duly executed by the chief executive officer, chief financial officer or
treasurer of the Borrower (or other Person
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designated in writing by any of the foregoing to whom authority has been
properly delegated), appropriately completed and substantially in the form of
Exhibit A attached hereto.
Requirements of Environmental Law shall mean all requirements imposed by
any law (including for example and without limitation The Comprehensive
Environmental Response, Compensation, and Liability Act), rule, regulation, or
order of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority at the applicable time
which relate to (i) noise; (ii) pollution, protection or clean up of the air,
surface water, ground water or land; (iii) solid, gaseous or liquid waste
generation, treatment, storage, disposal or transportation; (iv) exposure to
Hazardous Substances; or (v) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
Revolving Loan shall mean a Loan made pursuant to Section 2.1(b) hereof.
Revolving Loan Availability Period shall mean, for each Revolving Loan
Lender, the period from and including the Effective Date to (but not including)
the Termination Date.
Revolving Loan Lender shall mean each Lender with (i) prior to the
Termination Date, a Revolving Loan Commitment and (ii) on and after the
Termination Date, any outstanding Revolving Loan Obligations.
Revolving Loan Commitment shall mean, as to any Lender, the obligation,
if any, of such Lender to make Revolving Loans and incur Letter of Credit
Liabilities in an aggregate principal amount at any one time outstanding up to
(but not exceeding) the amount, if any, set forth opposite such Lender's name on
the signature pages hereof under the caption "Revolving Loan Commitment", or
otherwise provided for in an Assignment and Acceptance Agreement (as the same
may be reduced from time to time pursuant to Section 2.3 hereof).
Revolving Loan Commitment Percentage shall mean, as to any Revolving
Loan Lender, the percentage equivalent of a fraction the numerator of which is
the amount of such Lender's Revolving Loan Commitment and the denominator of
which is the aggregate amount of the Revolving Loan Commitments of all Lenders.
Revolving Loan Obligations shall mean, as at any date of determination
thereof, the sum of the following (determined without duplication): (i) the
aggregate principal amount of Revolving Loans outstanding hereunder plus (ii)
the aggregate amount of the Letter of Credit Liabilities hereunder.
Revolving Notes shall mean the Notes of the Borrower evidencing the
Revolving Loans, in the form of Exhibit E hereto.
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Rolling Four Quarters shall mean, as of any day, the then most recently
ended four (4) fiscal quarter period of the Borrower.
Secretary's Certificate shall mean a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signatures of the officers of such corporation executing
such documents on behalf of such corporation, and (c) the Organizational
Documents of such corporation.
Security Agreements shall mean, collectively, (i) the Security
Agreements dated as of the Effective Date executed between the Borrower and the
Agent covering the Borrower's Accounts and Inventory, the BP Lease, all of the
issued and outstanding equity interests in and to Sterling Canada and certain
other contract rights, and all other Property therein described, and securing
the Obligations, (ii) the Security Agreement dated as of the Effective Date
executed between Sterling Canada and the Agent covering 65% of the issued and
outstanding equity interest in and to the Canadian Subsidiaries, (iii) the
Security Agreement dated as of the Effective Date executed between the
Subsidiaries of the Borrower (other than Sterling Energy, Sterling Pulp (US) and
the Canadian Subsidiaries) and the Agent covering all of the Accounts and
Inventory of such Subsidiaries of the Borrower, and all other Property therein
described, and securing, without limitation, the Guaranties, and (iv) any and
all security instruments hereafter executed by any Party in favor of the Agent,
as any of them may from time to time be amended, modified, restated or
supplemented.
Sterling Canada shall mean Sterling Canada, Inc., a Delaware corporation
and a wholly-owned Subsidiary of the Borrower.
Sterling Energy shall mean Sterling Chemicals Energy, Inc., a Delaware
corporation.
Sterling Pulp (US) shall mean Sterling Pulp Chemicals US, Inc., a
Delaware corporation.
Subordinated Debt shall mean, as of the date of determination thereof,
unsecured Indebtedness with any lender for which the Borrower is directly and
primarily liable, in respect of which none of its Subsidiaries is contingently
or otherwise obligated, and which is subordinated to the obligations of the
Borrower to pay principal of and interest (before and after bankruptcy) on the
Loans, the Reimbursement Obligations and the Notes and on any Interest Rate Risk
Indebtedness owed to any of the Lenders, on terms, and which contains other
terms (including interest, amortization and financial covenants), in form and
substance satisfactory to the Agent and the Majority Lenders.
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Subsidiary shall mean, as to a particular parent Corporation, any
Corporation of which more than 50% of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by, such parent Corporation.
Term Loan shall mean a Loan made pursuant to Section 2.1(a) hereof.
Term Loan Lender shall mean each Lender with a Term Loan outstanding.
Term Notes shall mean the Notes of the Borrower evidencing the Term
Loans, in the form of Exhibit D hereto.
Termination Date shall mean the earlier of (a) the Maturity Date or (b)
the date specified by the Agent in accordance with Section 9.1 hereof.
Texas Credit Code shall mean Title 79, Texas Revised Civil Statutes,
1925, as amended.
Unfunded Vested Liabilities shall mean, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Plan exceeds (b) the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of the Borrower or any member of the Controlled
Group to the PBGC or such Plan under Title IV of ERISA.
Welfare Plan shall mean a "welfare plan," as such term is defined in
Section 3(1) of ERISA.
2 Miscellaneous. The words "hereof," "herein," and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement.
2. Commitments and Loans.
1 Loans. Each Lender severally agrees, subject to all of the terms and
conditions of this Agreement (including, without limitation, Sections 5.1 and
5.2 hereof), to make Loans as follows:
(a) Term Loans. On the Effective Date, each Term Loan Lender shall make
a loan to the Borrower in the amount set forth opposite such Term Loan Lender's
signature on the signature pages of this Agreement.
(b) Revolving Loans. From time to time on or after the Effective Date
and during the applicable Revolving Loan Availability Period, each Revolving
Loan Lender shall make loans under this Section 2.1(b) to the Borrower in an
aggregate principal amount at any one time
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outstanding (including its Revolving Loan Commitment Percentage of all Letter of
Credit Liabilities at such time) up to but not exceeding such Lender's Revolving
Loan Commitment Percentage of the Maximum Revolving Loan Available Amount (if
the aggregate amount of the outstanding Revolving Loan Obligations after giving
effect to a request under this Section exceeds the then current Designated
Amount, the Designated Amount shall be automatically increased by the amount of
such excess and the fees provided for in Section 2.4(c) hereof shall be due and
payable). Subject to the conditions in this Agreement, any such Revolving Loan
repaid prior to the Termination Date may be reborrowed pursuant to the terms of
this Agreement; provided, that any and all such Revolving Loans shall be due and
payable in full on the Termination Date. The Borrower, the Agent and the Lenders
agree that Chapter 15 of the Texas Credit Code shall not apply to this
Agreement, the Revolving Notes or any Revolving Loan Obligation. The aggregate
of all Revolving Loans to be made by the Lenders in connection with a particular
borrowing shall be equal to $1,000,000 or a multiple of $100,000 in excess of
$1,000,000.
2.2 Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions of this
Agreement, and on the condition that aggregate Letter of Credit Liabilities
shall never exceed $20,000,000, the Borrower shall have the right to, in
addition to Loans provided for in Section 2.1 hereof, utilize the Revolving Loan
Commitments from time to time during the Revolving Loan Availability Period to
obtain the issuance, increase or extension of letters of credit for the account
of the Borrower or any of its Subsidiaries and on behalf of the Borrower or any
of its Subsidiaries as herein provided if the Borrower shall so request in the
notice referred to in Section 2.2(b)(i) hereof (such letters of credit, together
with the Existing Letters of Credit, as any of them may be amended,
supplemented, extended or confirmed from time to time, being herein collectively
called the "Letters of Credit)". Upon the date of the issuance, increase or
extension of a Letter of Credit (or, in the case of the Existing Letters of
Credit, on the Effective Date), the applicable Issuer shall be deemed, without
further action by any party hereto, to have sold to each Revolving Loan Lender,
and each such Lender shall be deemed, without further action by any party
hereto, to have purchased from such Issuer, a participation, to the extent of
such Lender's Revolving Loan Commitment Percentage, in such Letter of Credit and
the related Letter of Credit Liabilities. No Letter of Credit issued, increased
or extended pursuant to this Agreement shall, unless approved by the Lenders in
writing, have an expiration date later than one year from date of issuance (or,
if extendable beyond such one year period, shall be cancelable upon notice given
by the Issuer to the beneficiary of such Letter of Credit at least 30 days
before the automatic extension of such Letter of Credit). No Letter of Credit
shall have an expiration date after the end of the Revolving Loan Availability
Period unless the Lenders shall have approved the same in writing. TCB agrees
that it shall be the Issuer of each Letter of Credit where so designated by the
Borrower; provided that the current issuers of the Existing Letters of Credit
shall continue as the Issuer with respect thereto and provided, further, that
the Borrower may, at its option (and with the approval of the applicable
Lender), designate any other Lender to be the Issuer in respect of any Letter of
Credit.
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(b) Additional Provisions. The following additional provisions shall
apply to each Letter of Credit:
(i) The Borrower shall give the Agent notice requesting each
issuance, increase or extension of a Letter of Credit hereunder as provided in
Section 4.3 hereof and shall furnish such additional information regarding such
transaction as the Agent may reasonably request. Upon receipt of such notice,
the Agent shall promptly notify the Issuer and each other Revolving Loan Lender
of the contents thereof and of such Lender's Revolving Loan Commitment
Percentage of the amount of such proposed Letter of Credit.
(ii) No Letter of Credit may be issued, increased or extended if
after giving effect thereto the sum of (A) the aggregate outstanding principal
amount of Revolving Loans plus (B) the aggregate Letter of Credit Liabilities
would exceed the Maximum Revolving Loan Available Amount. On each day during the
period commencing with the issuance, increase or extension of any Letter of
Credit and until such Letter of Credit shall have expired or been terminated,
the Revolving Loan Commitment of each Revolving Loan Lender shall be deemed to
be utilized for all purposes hereof in an amount equal to such Lender's
Revolving Loan Commitment Percentage of the sum of the amount then available for
drawings under such Letter of Credit plus any unpaid and outstanding
Reimbursement Obligations relating to Letters of Credit which have already been
drawn against.
(iii) Upon receipt from the beneficiary of any Letter of Credit
of any demand for payment thereunder, Issuer shall promptly notify the Agent
and, thereafter, the Agent shall promptly notify the Borrower and each Lender as
to the amount to be paid as a result of such demand and the payment date. If at
any time any Issuer shall have made a payment to a beneficiary of a Letter of
Credit in respect of a drawing or in respect of an acceptance created in
connection with a drawing under such Letter of Credit, each Revolving Loan
Lender will pay to the Agent, for the account of the Issuer, immediately upon
demand by such Issuer at any time during the period commencing after such
payment until reimbursement thereof in full by the Borrower, an amount equal to
such Lender's Revolving Loan Commitment Percentage of such payment, together
with interest on such amount for each day from the date of demand for such
payment (or, if such demand is made after 11:00 a.m. Houston time on such date,
from the next succeeding Business Day) to the date of payment by such Lender of
such amount at a rate of interest per annum equal to the Federal Funds Rate for
such period.
(iv) The Borrower shall be irrevocably and unconditionally
obligated forthwith to reimburse the Issuer, by payment to the Agent for the
account of the Issuer, for any amount paid by any Issuer upon any drawing under
any Letter of Credit, without presentment, demand, protest or other formalities
of any kind, all of which are hereby waived. Such reimbursement may, subject to
satisfaction of the conditions in Sections 5.1 and 5.2 hereof and to the Maximum
Revolving Loan Available Amount (after adjustment in
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the same to reflect the elimination of the corresponding Letter of Credit
Liability), be made by the borrowing of Revolving Loans. Agent will pay to each
Revolving Loan Lender such Lender's Revolving Loan Commitment Percentage of all
amounts received from the Borrower for application in payment, in whole or in
part, of the Reimbursement Obligation in respect of any Letter of Credit, but
only to the extent such Lender has made payment to Agent in respect of such
Letter of Credit pursuant to clause (iii) above.
(v) The Borrower will pay to the Agent at the Principal Office
for the account of each Revolving Loan Lender a letter of credit fee with
respect to each Letter of Credit equal to the greater of (x) $500 or (y) an
amount, calculated on the basis of the actual number of days elapsed in a year
composed of 360 days and on the basis of the face amount of such Letter of
Credit available for drawings under such Letter of Credit from time to time, in
each case for the period from and including the date of issuance, increase or
extension of such Letter of Credit to and including the date of expiration or
termination thereof at the Margin Percentage (on a per annum basis) from time to
time in effect applicable to Eurodollar Rate Borrowings (as defined in the
Interest Rate Agreement) under Revolving Notes, such fee to be due and payable
in arrears on (A) each Interest Payment Date applicable to Base Rate Borrowings
which occurs after the date of issuance, increase or extension thereof and prior
to the expiration or termination of such Letter of Credit, and (B) on the date
of expiration or termination of such Letter of Credit. The Agent will pay to
each Revolving Loan Lender, promptly after receiving any payment in respect of
letter of credit fees referred to in this clause (v), an amount equal to the
product of such Lender's Revolving Loan Commitment Percentage times the amount
of such fees. The Borrower will also pay to the Agent at the Principal Office
for the account of the Issuer alone an amount, calculated on the basis of the
daily average amount available for drawings under the applicable Letter of
Credit from and including the date of issuance, increase or extension of such
Letter of Credit to and including the date of expiration or termination thereof
at 0.1875% (on a per annum basis), such fee to be due and payable in advance on
the date of issuance, increase or extension of the applicable Letter of Credit.
All fees relating to the Existing Letters of Credit for any period prior to the
Effective Date shall be paid in full on the Effective Date.
(vi) The issuance, increase or extension by the applicable
Issuer of each Letter of Credit shall, in addition to the conditions precedent
set forth in Section 5 hereof, be subject to the conditions precedent (A) that
such Letter of Credit shall be in such form and contain such terms as shall be
reasonably satisfactory to the Agent, and (B) that the Borrower shall have
executed and delivered such Applications and other instruments and agreements
relating to such Letter of Credit as the Agent or the Issuer shall have
reasonably requested and are not inconsistent with the terms of this Agreement.
In the event of a conflict between the terms of this Agreement and the terms of
any Application (including the charging of any fees other than normal and
customary reimbursable expenses), the terms hereof shall control.
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(vii) If the Agent fails to send to any Lender its portion of
any payment of Reimbursement Obligations in respect of any Letter of Credit or
letter of credit fees, to the extent timely received by the Agent, by the close
of business on the day such payment was received, the Agent shall pay to such
Lender interest on its portion of such payment from the day such payment was
timely received by the Agent until the date such Lender's portion of such
payment is sent to such Lender, at the Federal Funds Rate.
(c) Indemnification; Release. The Borrower hereby indemnifies and holds
harmless the Agent, each Revolving Loan Lender and each Issuer from and against
any and all claims and damages, losses, liabilities, costs or expenses which the
Agent, such Lender or such Issuer may incur (or which may be claimed against the
Agent, such Lender or such Issuer by any Person whatsoever), REGARDLESS OF
WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED
PARTIES, in connection with the execution and delivery of any Letter of Credit
or transfer of or payment or failure to pay under any Letter of Credit; provided
that the Borrower shall not be required to indemnify any party seeking
indemnification for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of the party seeking indemnification, or (ii) the failure by
the party seeking indemnification to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law. The
Borrower hereby releases, waives and discharges the Agent, each Revolving Loan
Lender and each Issuer from any claims, causes of action, damages, losses,
liabilities, costs or expenses which the Agent, such Lender or such Issuer, as
the case may be, may incur, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY
THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES, by reason of or in connection
with the failure of any other Revolving Loan Lender to fulfill or comply with
its obligations to the Agent, such Lender or such Issuer, as the case may be,
hereunder (but nothing herein contained shall affect any rights the Borrower may
have against such defaulting Lender). Nothing in this Section 2.2(c) is intended
to limit the obligations of the Borrower under any other provision of this
Agreement.
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(d) Additional Costs in Respect of Letters of Credit. If as a result of
any Regulatory Change there shall be imposed, modified or deemed applicable any
tax, reserve, special deposit or similar requirement against or with respect to
or measured by reference to Letters of Credit issued or to be issued hereunder
or participations in such Letters of Credit, and the result shall be to increase
the cost to any Revolving Loan Lender of issuing or maintaining any Letter of
Credit or any participation therein, or reduce any amount receivable by any
Revolving Loan Lender hereunder in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of such Lender's reasonable allocation of the
aggregate of such increases or reductions resulting from such event), then such
Lender shall notify the Borrower through the Agent, and upon demand therefor by
such Lender through the Agent, the Borrower shall pay to such Lender, from time
to time as specified by such Lender, within fifteen (15) days after request
therefor, such additional amounts as shall be sufficient to compensate such
Lender for such increased costs or reductions in amount; provided that the
Borrower shall not be obligated to compensate any Lender for any such costs or
reductions which relate to a period more than seventy-five (75) days prior to
such request. A statement as to such increased costs or reductions in amount
incurred by such Lender, submitted by such Lender to the Borrower, shall be
conclusive as to the amount thereof, absent manifest error, and may be computed
using any reasonable averaging and attribution method. Each Lender will notify
the Borrower through the Agent of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by the Borrower
through the Agent) will designate a different lending office of such Lender for
the issuance or maintenance of Letters of Credit by such Lender or will take
such other action as the Borrower may reasonably request if such designation or
action is consistent with the internal policy of such Lender and legal and
regulatory restrictions, will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender (provided that such Lender shall have no
obligation so to designate a different lending office which is not located in
the United States of America).
2.3 Terminations or Reductions of Revolving Loan Commitments.
(a) Mandatory. On the Termination Date, all Revolving Loan Commitments
shall be terminated in their entirety.
(b) Optional. The Borrower shall have the right to terminate or reduce
the unused portion of the Revolving Loan Commitments at any time or from time to
time, provided that (i) the Borrower shall give notice of each such termination
or reduction to the Agent as provided in Section 4.3 hereof and (ii) each such
partial reduction shall be in an aggregate amount of at least $5,000,000.
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(c) No Reinstatement. Any termination or reduction of the Revolving Loan
Commitments may not be reinstated without the written approval of the Agent and
the Lenders.
2.4 Fees.
(a) The Borrower shall pay to the Agent for the account of each
Revolving Loan Lender revolving loan commitment fees with respect to such
Revolving Loan Lender's pro rata share of the unused Designated Amount for the
period from the Effective Date to and including the Termination Date at a rate
per annum equal to the Commitment Fee Percentage from time to time in effect.
Such revolving loan commitment fees shall be computed (on the basis of the
actual number of days elapsed in a year composed of 360 days) on each day and
shall be based on the excess of (x) such Revolving Loan Lender's pro rata share
of the Designated Amount for such day over (y) the sum of (i) the aggregate
unpaid principal balance of such Revolving Loan Lender's Revolving Note on such
day plus (ii) such Revolving Loan Lender's pro rata share of the aggregate
Letter of Credit Liabilities for such day. Accrued revolving loan commitment
fees payable under this provision shall be payable on the Quarterly Dates prior
to the Termination Date and on the Termination Date.
(b) The Borrower shall pay to the Agent for the account of each
Revolving Loan Lender revolving loan commitment fees with respect to the
Revolving Loan Commitments in excess of the Designated Amount for the period
from the Effective Date to and including the Termination Date at a rate equal to
one half (1/2) of the Commitment Fee Percentage from time to time in effect.
Such Revolving Loan Commitment Fees shall be computed (on the basis of the
actual number of days elapsed in a year composed of 360 days) on each day and
shall be based on the excess of (x) the amount of each Revolving Loan Lender's
Revolving Loan Commitment for such day (without regard to any limitation based
on the Borrowing Base or the Designated Amount) over (y) such Revolving Loan
Lender's pro rata share of the Designated Amount for such day. Accrued revolving
loan commitment fees payable under this provision shall be payable on the
Quarterly Dates prior to the Termination Date and on the Termination Date.
(c) An additional revolving loan commitment fee shall be due and payable
effective upon any designation of an increase in the Designated Amount. Such
additional commitment fee shall be calculated at a rate equal to one-half (1/2)
of the Commitment Fee Percentage from time to time in effect and shall be
computed on the amount of such increase for the period commencing on the most
recently occurring Quarterly Date through the date of such increase.
(d) All past due fees payable under this Section shall bear interest at
the Past Due Rate.
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2.5 Several Obligations. The failure of any Lender to make any Loan to
be made by it on the date specified therefor shall not relieve any other Lender
of its obligation to make its Loan on such date, but neither the Agent nor any
Lender shall be responsible or liable for the failure of any other Lender to
make a Loan to be made by such other Lender or to participate in, or co-issue,
any Letter of Credit. Notwithstanding anything contained herein to the contrary,
if a Revolving Loan Lender fails to make a Revolving Loan as and when required
hereunder, then upon each subsequent event which would otherwise result in funds
being paid to the defaulting Lender, the amount which would have been paid to
the defaulting Lender shall be divided among the non-defaulting Lenders ratably
according to their respective Revolving Loan Commitment Percentages until the
Revolving Loan Obligations of each Revolving Loan Lender (including the
defaulting Lender) are equal to such Lender's Revolving Loan Commitment
Percentage of the total Revolving Loan Obligations (nothing in this Section
shall result in any additional liability on the Borrower and each Lender agrees
to make such adjustments on the terms and provisions of its Note as may be
required to address the results of this Section).
2.6 Notes. The Loans made by each Lender shall be evidenced by a single
Term Note or Revolving Note, as the case may be, of the Borrower (each, together
with all renewals, extensions, modifications and replacements thereof and
substitutions therefor, a "Note," collectively, the "Notes") in substantially
the form of, respectively, Exhibit D or E hereto, as the case may be, payable to
the order of such Lender in a principal amount equal to (i) in the case of a
Term Note, the aggregate outstanding principal amount of the Term Loan of such
Lender and (ii) in the case of a Revolving Note, the Revolving Loan Commitment
of such Lender, and otherwise duly completed. Each Lender is hereby authorized
by the Borrower to endorse on the schedule (or a continuation thereof) that may
be attached to each Note of such Lender, to the extent applicable, the date,
amount, type of and the applicable period of interest for each Loan made by such
Lender to the Borrower hereunder, and the amount of each payment or prepayment
of principal of such Loan received by such Lender, provided, that any failure by
such Lender to make any such endorsement (or any error in such endorsement)
shall not affect the obligations of the Borrower under such Note or hereunder in
respect of such Loan.
2.7 Use of Proceeds. The proceeds of the Loans shall be used by the
Borrower to refinance existing indebtedness of the Borrower and its
Subsidiaries, to pay certain fees and expenses related to the closing of this
facility and to fund ongoing working capital and other general corporate
requirements of the Borrower and its Subsidiaries. No proceeds of the Loans will
be used for any purpose which would violate any applicable Legal Requirement.
2.8 Designated Amount. The Borrower may from time to time designate a
maximum aggregate principal amount of Revolving Loans permitted to be
outstanding hereunder for a specified period (such amount being herein called
the "Designated Amount"). The Designated Amount shall never be less than
$100,000,000. In the absence of a specific designation of another Designated
Amount hereunder, the Designated Amount shall equal
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the Maximum Revolving Loan Available Amount. The Designated Amount may be
increased at any time but no decreases of a Designated Amount shall become
effective on a date other than a Quarterly Date and no designation of a
Designated Amount may terminate on a date which is not a day immediately
preceding a Quarterly Date. Written notice of the designation of a Designated
Amount must be given to the Agent by the Borrower no later than two (2) Business
Days prior to the effective date thereof.
3. Borrowings, Payments and Prepayments.
3.1 Borrowings. The Borrower shall give the Agent notice of each
borrowing to be made hereunder as provided in Section 4.3 hereof. Not later than
12:00 noon Houston time on the date specified for each such borrowing hereunder,
each Lender shall make available the amount of the Loan, if any, to be made by
it on such date to the Agent, at its Principal Office, in immediately available
funds, for the account of the Borrower. Such amounts received by the Agent will
be held in an account maintained by the Borrower with the Agent. The amounts so
received by the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Borrower by wiring or otherwise
transferring, in immediately available funds, such amount to an account
designated by the Borrower and maintained with Agent in Houston, Texas.
3.2 Payments; Prepayments.
(a) Optional Prepayments. Subject to the terms of the Interest Rate
Agreement, the Borrower shall have the right to prepay, on any Business Day, in
whole or in part, without the payment of any penalty or fee, Loans at any time
or from time to time, provided that the Borrower shall give the Agent notice of
each such prepayment as provided in Section 4.3 hereof. Each optional prepayment
on a Loan shall be in an amount at least equal to the lesser of $1,000,000 or
the unpaid principal balance of the Note evidencing such Loan.
(b) Maximum Revolving Loan Available Amount. The Borrower shall from
time to time, within ten (10) days after demand by the Agent (which demand Agent
may make at its option and shall make if directed to do so by the Majority
Lenders), prepay the Revolving Loans (or provide Cover for Letter of Credit
Liabilities) in such amounts as shall be necessary so that at all times the
aggregate outstanding amount of all Revolving Loan Obligations shall be less
than or equal to the Maximum Revolving Loan Available Amount.
(c) Application of Prepayments on Term Loans. Any prepayments made on
the Term Loans will be applied either to scheduled principal installments on the
Term Loans in inverse order of their maturities or pro rata among all the
scheduled principal installments on the Term Loans, at the election of the
Borrower.
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(d) Term Loan Amortization. The principal of each Term Note shall be due
and payable in quarterly installments due on each Quarterly Date, beginning on
July 1, 1995, equal to the applicable Term Loan Lender's pro rata share of the
Term Loans times $4,464,285.71. On the Maturity Date, the entire unpaid
principal balance of each Term Note and all accrued and unpaid interest on the
unpaid principal balance of each Term Note shall be finally due and payable.
(e) Interest Payments. Accrued and unpaid interest on the unpaid
principal balance of the Notes shall be due and payable on the Interest Payment
Dates (as defined in the Interest Rate Agreement).
(f) Payments; Interest Rate Agreement. The Borrower shall pay all
amounts required to be paid under the Interest Rate Agreement, the Notes and the
other Loan Documents as and when due.
(g) Payments and Interest on Reimbursement Obligations. The Borrower
will pay to the Agent for the account of each Revolving Loan Lender the amount
of each Reimbursement Obligation promptly upon its incurrence. The amount of any
Reimbursement Obligation may, if the applicable conditions precedent specified
in Section 5.2 hereof have been satisfied or waived, be paid with the proceeds
of Revolving Loans. Subject to Section 11.7 hereof, the Borrower will pay to the
Agent for the account of each Revolving Loan Lender interest at the applicable
Past Due Rate on any Reimbursement Obligation and on any other amount payable by
the Borrower hereunder to or for the account of such Lender (but, if such amount
is interest, only to the extent legally allowed), which shall not be paid in
full when due (whether at stated maturity, by acceleration or otherwise), for
the period commencing on the due date thereof until the same is paid in full.
4. Payments; Pro Rata Treatment; Computations, Etc.
4.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be paid by
the Borrower hereunder, under the Notes and under the other Loan Documents shall
be made in Dollars, in immediately available funds, to the Agent at the
Principal Office (or in the case of a successor Agent, at the principal office
of such successor Agent in the United States), not later than 11:00 a.m. Houston
time on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) The Borrower shall, at the time of making each payment hereunder,
under any Note or under any other Loan Document, specify to the Agent the Loans
or other amounts payable by the
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Borrower hereunder or thereunder to which such payment is to be applied. Each
payment received by the Agent hereunder, under any Note or under any other Loan
Document for the account of a Lender shall be paid promptly to such Lender, in
immediately available funds. If the Agent fails to send to any Lender its
portion of any payment, to the extent timely received by the Agent, by the close
of business on the day such payment was received, the Agent shall pay to such
Lender interest on its portion of such payment from the day such payment was
timely received by the Agent until the date such Lender's portion of such
payment is sent to such Lender, at the Federal Funds Rate.
(c) If the due date of any payment hereunder or under any Note falls on
a day which is not a Business Day, the due date for such payments (except as
otherwise provided in the Interest Rate Agreement) shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
4.2 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under Section 2.1 hereof shall be made (x)
in the case of Term Loans, ratably from the Term Loan Lenders and (y) in the
case of Revolving Loans, ratably from the Revolving Loan Lenders, in each case
on the basis of their respective Term Loan or Revolving Loan Commitments, as the
case may be; (b) each payment of commitment fees shall be made for the account
of the Revolving Loan Lenders, and each termination or reduction of the
Revolving Loan Commitments of the Lenders under Section 2.3 hereof shall be
applied, pro rata, according to the Revolving Loan Lenders' respective Revolving
Loan Commitments and (c) each payment by the Borrower of principal of or
interest on the Term Loans or Revolving Loans, as the case may be, shall be made
to the Agent for the account of the Lenders pro rata in accordance with the
respective unpaid principal amounts of such Term Loans or Revolving Loans, as
the case may be, held by the Lenders.
4.3 Certain Actions, Notices, Etc. Notices to the Agent of any
termination or reduction of Revolving Loan Commitments and of borrowings and
prepayments of Loans and requests for issuances of Letters of Credit shall be
irrevocable and shall be effective only if received by the Agent not later than
11:00 a.m. Houston time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing, prepayment and/or issuance specified
below:
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Number of
Notice Business Days Prior
Termination or
Reduction of Revolving
Loan Commitments 5
Borrowing at the Base Rate same day
(as defined in the Interest
Rate Agreement)
Borrowing at the Eurodollar 3 Eurodollar Business Days (as
Rate (as defined in the defined in the Interest Rate
Interest Rate Agreement) Agreement)
Letter of Credit issuance 3
Revolving Loan repayment same day
Optional prepayment of
Term Loan 1
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of borrowing or prepayment shall specify the amount of the Loans to be
borrowed or prepaid and the date of borrowing or prepayment (which shall be a
Business Day). The Agent shall promptly notify the affected Lenders of the
contents of each such notice.
4.4 Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Lender or the Borrower (the "Payor") prior to the date on which
such Lender is to make payment to the Agent of the proceeds of a Loan (or
funding of a drawing under a Letter of Credit or reimbursement with respect to
any drawing under a Letter of Credit) to be made by it hereunder or the Borrower
is to make a payment to the Agent for the account of one or more of the Lenders,
as the case may be (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient of such payment (or, if such recipient is the beneficiary
of a Letter of Credit, the Borrower and, if the Borrower fails to pay the amount
thereof to the Agent forthwith upon demand, the Lenders ratably in proportion to
their respective
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Revolving Loan Commitment Percentages) shall, on demand, pay to the Agent the
amount made available by the Agent together with interest thereon in respect of
the period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such period or (if the recipient is the Borrower) the
Base Rate (as defined in the Interest Rate Agreement).
4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement, on any
Reimbursement Obligation or on other Obligation then due to such Lender
hereunder, through the exercise of any right of set-off (including, without
limitation, any right of setoff or lien granted under Section 9.2 hereof),
banker's or other lien, counterclaim or similar right, or otherwise, it shall
promptly purchase from the other Lenders participations in the Loans made,
Reimbursement Obligations or other Obligations held, by the other Lenders in
such amounts, and make such other adjustments from time to time as shall be
equitable to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) pro rata in accordance with the unpaid principal and
interest on the Obligations then due to each of them. To such end all the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any Lender so purchasing a participation in the Loans
made, Reimbursement Obligations or other Obligations held, by other Lenders may
exercise all rights of set-off, bankers' or other lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans, Reimbursement Obligations or other Obligations in the
amount of such participation. Nothing contained herein shall require any Lender
to exercise any such right or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower.
5. Conditions Precedent.
5.1 Initial Loans and Letters of Credit. The obligation of each Lender
or TCB to make its initial Loans or issue, increase or extend or participate in
a Letter of Credit (if such Letter of Credit is issued prior to the funding of
the initial Loans) hereunder is subject to the following conditions precedent,
each of which shall have been fulfilled or waived to the satisfaction of the
Agent:
(1) Corporate Action and Status. The Agent shall have received a
Secretary's Certificate from the Borrower and each of its Subsidiaries signing a
Loan Document, which shall be accompanied by copies of the Organizational
Documents of the Borrower and each of its Subsidiaries, copies of the bylaws of
the Borrower and each of its Subsidiaries and such certificates as may be
appropriate to demonstrate the qualification and good standing of and payment of
taxes by the Borrower and each of its Subsidiaries in each state where the
failure in which to qualify
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would have a Material Adverse Effect. The Agent and each Lender may conclusively
rely on such certificates until they receive notice in writing from the Borrower
or the appropriate Party to the contrary.
(2) Notes. The Agent shall have received the appropriate Notes of the
Borrower for each Lender, duly completed and executed.
(3) Loan Documents. The Borrower and each other Party shall have duly
executed and delivered the Loan Documents to which it is a party (in such number
of copies as the Agent shall have requested) and each such Loan Document shall
be in form satisfactory to Agent. Each such Loan Document shall be in
substantially the form furnished to the Lenders prior to their execution of this
Agreement.
(4) Security Matters. All such action as the Agent shall have requested
to perfect the Liens created pursuant to the Security Agreements shall have been
taken, including, without limitation, the delivery to the Agent of all property
with respect to which possession is necessary for the purpose of perfecting such
Liens and, with respect to collateral covered by the Security Agreements, stock
powers executed in blank by the Person in whose name the applicable stock
certificate is issued, together with the delivery of appropriately completed and
duly executed Uniform Commercial Code financing statements with appropriate
Governmental Authorities. The Agent shall also have received evidence
satisfactory to it that the Liens created by the Security Agreements constitute
first priority Liens, except for the exceptions expressly provided for herein,
including, without limitation, Uniform Commercial Code search reports,
satisfactory title evidence in form and substance acceptable to the Agent, and
executed releases of any prior Liens (except as permitted by Section 8.2).
Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days
after the Effective Date in which to obtain releases of the Liens securing
Borrowed Money Indebtedness which is to be paid concurrently with the closing
hereof covering Property located in Canada.
(5) Fees and Expenses. The Borrower shall have paid to the Agent all
unpaid fees in the amounts previously agreed upon in writing between the
Borrower and the Agent; and shall have in addition paid to the Agent all amounts
payable under Section 11.3 hereof, on or before the date of this Agreement.
(6) Insurance. The Borrower shall have delivered to the Agent
certificates of insurance satisfactory to the Agent evidencing the existence of
all insurance required to be maintained by the Borrower by this Agreement and
the Security Agreements.
(7) Opinion of Counsel. The Agent shall have received an opinion of
Bracewell & Patterson, L.L.P., counsel to the Borrower and its Subsidiaries, in
form and substance reasonably satisfactory to the Agent.
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(8) Consents. The Agent shall have received evidence satisfactory to it
that all material consents of each Governmental Authority and of each other
Person, if any, reasonably required in connection with (a) the Loans and the
Letters of Credit and (b) the execution, delivery and performance of this
Agreement and the other Loan Documents have been satisfactorily obtained.
Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days
after the Effective Date in which to obtain consent by BP Chemicals, Inc. to the
collateral assignment of the BP Lease.
(9) BP Lease. The Agent shall have received a copy of the BP Lease.
(10) Other Documents. The Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as the Agent may reasonably request.
5.2 All Loans and Letters of Credit. The obligation of each Lender to
make any Loan to be made by it hereunder or to issue, increase or extend or
participate in any Letter of Credit is subject to (a) the accuracy, in all
material respects, on the date of such Loan or such issuance or participation of
all representations and warranties of the Borrower and any other Party contained
in this Agreement and the other Loan Documents; (b) receipt by the Agent of the
following, all of which shall be duly executed and in Proper Form: (1) a Request
for Extension of Credit as to the Loan or the Letter of Credit, as the case may
be, no later than 11:00 a.m. Houston time on the Business Day on which such
Request for Extension of Credit must be given under Section 4.3 hereof, (2) in
the case of a Letter of Credit, an Application, and (3) such other documents as
the Agent or any Lender may reasonably require; (c) prior to the making of such
Loan or the issuance of such Letter of Credit, there shall have occurred no
event which has had or could reasonably be expected to have a Material Adverse
Effect; (d) no Default or Event of Default shall have occurred and be continuing
and shall not occur as a result of the making of such Loan or the issuance of
(or participation in) such Letter of Credit, and (e) the making of such Loan or
the issuance of (or participation in) such Letter of Credit shall not be illegal
or prohibited by any Legal Requirement.
6. Representations and Warranties.
The Borrower represents and warrants to the Lenders and the Agent as
follows:
6.1 Organization. The Borrower and each of its Subsidiaries (a) is duly
organized, validly existing and in good standing under the laws of the State or
Province of its organization; (b) has all necessary corporate power and
authority to conduct its business as presently conducted, and (c) is duly
qualified to do business and in good standing in the State or Province of its
organization and in all jurisdictions in which the failure to so qualify would
have a Material Adverse Effect.
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6.2 Financial Statements. The Borrower has furnished to the Agent the
Annual Audited Financial Statements of the Borrower as at September 30, 1994,
which fairly present, the financial condition and the results of operations of
the Borrower as at such date. No events, conditions or circumstances have
occurred from the date that the financial statements were delivered to the Agent
through the date hereof which would cause said financial statements to be
misleading in any material respect. There are no material instruments or
liabilities which should be reflected in such financial statements provided to
the Agent which are not so reflected. Since September 30, 1994, no event has
occurred which has had (or could reasonably be expected to have) a Material
Adverse Effect.
6.3 Enforceable Obligations; Authorization. The Loan Documents are
legal, valid and binding obligations of the Parties, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy, insolvency
and other similar laws and judicial decisions affecting creditors' rights
generally and by general equitable principles. The execution, delivery and
performance of the Loan Documents (a) have all been duly authorized by all
necessary corporate action; (b) are within the corporate power and authority of
the Parties; (c) do not and will not contravene or violate any Legal Requirement
applicable to the Parties or the Organizational Documents of the Parties, the
contravention or violation of which could have a Material Adverse Effect on the
business, condition (financial or otherwise), operations or Properties of the
Borrower or any other Party; (d) do not and will not result in the breach of, or
constitute a default under, any agreement or instrument by which the Parties or
any of their respective Property may be bound or affected which breach or
default could reasonably be expected to cause a Material Adverse Effect, and (e)
do not and will not result in the creation of any Lien upon any Property of any
of the Parties, except in favor of the Agent or as expressly contemplated
therein. All necessary permits, registrations and consents for such making and
performance have been obtained. Except as otherwise expressly stated in the
Security Agreements, the Liens created under the Security Agreements constitute
valid and perfected first and prior Liens on the Property described therein,
subject to no other Liens whatsoever.
6.4 Other Borrowed Money Indebtedness. Neither the Borrower nor any of
its Subsidiaries is in default in the payment of any other Borrowed Money
Indebtedness or under any agreement, mortgage, deed of trust, security agreement
or lease to which it is a party and which default could reasonably be expected
to cause a Material Adverse Effect.
6.5 Litigation. There is no litigation or administrative proceeding
pending or, to the knowledge of the Borrower, threatened against, nor any
outstanding judgment, order or decree affecting, the Borrower or any of its
Subsidiaries before or by any Governmental Authority which could reasonably be
expected to cause a Material Adverse Effect. Neither the Borrower nor any of its
Subsidiaries is in default with respect to any judgment, order or decree of any
Governmental Authority where such default would have a Material Adverse Effect.
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6.6 Taxes. The Borrower and its Subsidiaries each has filed all tax
returns required to have been filed and paid all taxes shown thereon to be due,
except those for which extensions have been obtained and those which are being
contested in good faith as provided in Section 7.1(a) hereof.
6.7 Regulations G, U and X. None of the proceeds of any Obligation will
be used for the purpose of purchasing or carrying directly or indirectly any
margin stock or for any other purpose would constitute this transaction a
"purpose credit" within the meaning of Regulation G, U and X of the Board of
Governors of the Federal Reserve System, as either of them may be amended from
time to time.
6.8 Subsidiaries. The Borrower has no Subsidiaries except as set forth
on Exhibit C attached hereto or those formed in compliance with Section 8.9
hereof.
6.9 No Untrue or Misleading Statements. No document, instrument or other
writing furnished to the Lenders by or on behalf of the Borrower or any other
Party in connection with the transactions contemplated in any Loan Document,
taken as a whole, contains any untrue material statement of fact or omits to
state any such fact (of which the Borrower or any other Party has knowledge)
necessary to make the representations, warranties and other statements contained
herein or in such other document, instrument or writing not misleading.
6.10 ERISA. The Borrower and each member of the Controlled Group have
fulfilled their obligations under the minimum funding standards of ERISA and the
Code and are in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and have not incurred any liability
to the PBGC or a Plan under Title IV of ERISA (other than to make contributions
in the ordinary course) and no contribution failure has occurred with respect to
any Plan sufficient to give rise to the Lien under Section 302(f) of ERISA, in
each case which could reasonably be expected to have a Material Adverse Effect.
Except as described in Schedule 6.10, neither the Borrower nor any member of the
Controlled Group has any contingent liability with respect to any post-
retirement benefit under a Welfare Plan other than liability for continuation
coverage described in Section 602 of ERISA which could reasonably be expected to
have a Material Adverse Effect.
6.11 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, or, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company, within the
meaning of said Act.
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6.12 Public Utility Holding Company Act. Neither the Borrower nor any of
its Subsidiaries is an "affiliate" or a "subsidiary company" of a "public
utility company," or a "holding company," or an "affiliate" or a "subsidiary
company" of a "holding company," as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
6.13 Solvency. Neither the Borrower, nor the Borrower and its
Subsidiaries, on a consolidated basis, is "insolvent," as such term is used and
defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent
Transfer Act, Tex. Bus. & Com. Code Ann. (s) 24.001 et seq., as amended from
time to time.
6.14 Compliance. The Borrower and its Subsidiaries are each in
compliance with all Legal Requirements applicable to it, except to the extent
that the failure to comply therewith could not reasonably be expected to cause a
Material Adverse Effect.
6.15 Environmental Matters. The Borrower and its Subsidiaries have
obtained and maintained in effect all Environmental Permits (or the applicable
Person has initiated the necessary steps to transfer the Environmental Permits
into its name or obtain such permits), the failure to obtain which could
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries and their Properties, business and operations have been and are in
compliance with all applicable Requirements of Environmental Law and
Environmental Permits failure to comply with which could reasonably be expected
to have a Material Adverse Effect. The Borrower and its Subsidiaries and their
Properties, business and operations are not subject to any (A) Environmental
Claims or (B) Environmental Liabilities, in either case direct or contingent,
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any of its
Subsidiaries has received any notice of any violation or alleged violation of
any Requirements of Environmental Law or Environmental Permit or any
Environmental Claim in connection with its Properties, liabilities, condition
(financial or otherwise), business or operations which could reasonably be
expected to have a Material Adverse Effect. The Borrower does not know of any
event or condition with respect to currently (as of the date this representation
is provided) enacted Requirements of Environmental Laws presently scheduled to
become effective in the future with respect to any of its Properties or the
Properties of any of its Subsidiaries which could reasonably be expected to have
a Material Adverse Effect, for which the Borrower or the applicable Subsidiary
of the Borrower has not made good faith provisions in its business plan and
projections of financial performance.
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7. Affirmative Covenants.
The Borrower covenants and agrees with the Agent and the Lenders that
prior to the termination of this Agreement it will do, and cause each of its
Subsidiaries to do, and if necessary cause to be done, each and all of the
following:
7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay,
prior to the date when penalties attach with respect thereto, all taxes and
governmental charges of every kind upon it or against its income, profits or
Property, unless and only to the extent that the same shall be contested
diligently in good faith and reserves deemed adequate by the independent
certified public accounting firm used by the Borrower to prepare the Borrower's
Annual Audited Financial Statements have been established therefor; (b) do all
things necessary to preserve its corporate existence, qualifications, rights and
franchises in all States where such failure to qualify would have a Material
Adverse Effect; (c) comply with all applicable Legal Requirements (including
without limitation Requirements of Environmental Law) in respect of the conduct
of its business and the ownership of its Property, the noncompliance with which
could reasonably be expected to cause a Material Adverse Effect; and (d) cause
its Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably necessary to
conduct its business properly and efficiently.
7.2 Financial Statements and Information. Furnish to the Agent and, in
each case other than the monthly management report described in clause (e)
below, the Lenders one copy of each of the following: (a) as soon as available
and in any event within 90 days after the end of each fiscal year of the
Borrower, beginning with the fiscal year 1995, Annual Audited Financial
Statements of the Borrower; (b) as soon as available and in any event within 45
days after the end of each calendar quarter of each fiscal year of the Borrower,
Quarterly Financial Statements of the Borrower and its Subsidiaries; (c)
concurrently with the financial statements provided for in Subsections 7.2(a)
and (b) hereof, such schedules, computations and other information, in
reasonable detail, as may be required by the Agent to demonstrate compliance
with the covenants set forth herein or reflecting any non-compliance therewith
as of the applicable date, all certified and signed by the president or chief
financial officer of the Borrower (or other authorized officer approved by the
Agent) as true, correct and complete and, commencing with the quarterly
financial statement prepared as of June 30, 1995, a compliance certificate
("Compliance Certificate") in the form of Exhibit G hereto, duly executed by
such authorized officer; (d) (1) as of the Effective Date and (2) within 30 days
after the end of each calendar month, a Borrowing Base Certificate as at the
Effective Date or the last day of such calendar month or the date of such
receipt, as the case may be, together with such supporting information as the
Agent may reasonably request; (e) within 30 days after the end of each calendar
month of each fiscal year of the Borrower, a management report with respect to
sales and operating revenues and costs of manufacturing and related information
in such detail as such management
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report is prepared for the use of the management of the Borrower (promptly upon
receipt of each such report, Agent shall forward copies thereof to each Lender);
(f) from time to time, at any time upon the request of the Agent, but at the
cost of the Borrower, a report of an independent collateral field examiner
approved by the Agent in writing and reasonably acceptable to the Borrower
(which may be, or be affiliated with, the Agent or one of the Lenders) with
respect to the Accounts and Inventory components included in the Borrowing Base
(provided, however, that so long as no Event of Default has occurred and is
continuing, the Agent shall not require such a report more than once per
calendar year); (g) by October 31 of each year, the financial projections of
income and cash flow of the Borrower for each month of the fiscal year of the
Borrower which begins on the October 1 immediately preceding such October 31,
and (h) such other information relating to the condition (financial or
otherwise), operations, prospects or business of any of the Borrower and its
Subsidiaries as from time to time may be reasonably requested by the Agent.
7.3 Financial Tests. The Borrower, on a consolidated basis, will have:
(a) Debt to EBITDA Ratio - as of the last day of each fiscal
quarter, a Debt to EBITDA Ratio of not greater than 4.00 to 1.00.
(b) Fixed Charge Coverage Ratio - as of the last day of each
fiscal quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00.
(c) Adjusted Fixed Charge Coverage Ratio - as of the date of any
proposed dividend which is subject to the Adjusted Fixed Charge Coverage Ratio
(and after giving effect to such dividend), an Adjusted Fixed Charge Coverage
Ratio of not less than 1.10 to 1.00.
(d) Net Worth - Net Worth of not less than (1) at all times
during the period commencing on the Effective Date through and including June
30, 1995, $106,000,000 plus 50% of the Net Income of the Borrower (if positive)
for the fiscal quarter beginning on January 1, 1995 and ending on March 31, 1995
and (2) at all times during each fiscal quarter after June 30, 1995, the minimum
Net Worth required during the immediately preceding fiscal quarter plus 50% of
the Net Income of the Borrower (if positive) for the immediately preceding
fiscal quarter plus all of the net proceeds of any issuance of equity in the
Borrower during such fiscal quarter.
(e) Current Ratio - a Current Ratio of not less than 1.10 to
1.00 at all times.
7.4 Inspection. Permit the Agent and any Lender upon 3 days' prior
notice to inspect its Property, to examine its files, books and records except
privileged communication with legal counsel and classified governmental
material, and make and take away copies thereof, and to discuss its affairs with
its officers and accountants, all during normal business
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hours and at such intervals and to such extent as the Agent or the applicable
Lender may reasonably desire.
7.5 Further Assurances. Promptly execute and deliver, at the Borrower's
expense, any and all other and further instruments which may be reasonably
requested by the Agent to cure any defect in the execution and delivery of any
Loan Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve protect and perfect the validity and
priority of the security interests created by the Security Agreements.
7.6 Books and Records. Maintain books of record and account in
accordance with GAAP.
7.7 Insurance. Maintain insurance with such insurers, on such of its
Property, with responsible companies in such amounts, with such deductibles and
against such risks as are usually carried by owners of similar businesses and
properties in the same general areas in which the Borrower and its Subsidiaries
operate (including without limitation business interruption insurance), and
furnish the Agent satisfactory evidence thereof promptly upon request. The
Borrower shall provide the Agent with copies of the policies of insurance and a
certificate of the insurer that the insurance required by this Section may not
be canceled, reduced or affected in any material manner without thirty (30)
days' prior written notice to the Agent.
7.8 Notice of Certain Matters. Give the Agent prompt written notice of
the following:
(a) the issuance by any Governmental Authority of any injunction, order
or other restraint prohibiting, or having the effect of prohibiting, the
performance of this Agreement, any other Loan Document, or the making of the
Loans or the initiation of any litigation, or any claim or controversy which
might result in the initiation of any litigation, seeking any such injunction,
order or other restraint that could reasonably be expected to cause a Material
Adverse Effect;
(b) the filing or commencement of any action, suit or proceeding,
whether at law or in equity or by or before any court or any Federal, state,
municipal or other Governmental Authority which could reasonably be expected to
cause a Material Adverse Effect;
(c) any Event of Default or Default known to Borrower, specifying the
nature and extent thereof and the action (if any) which is proposed to be taken
with the respect thereto; and
(d) any development in the business or affairs of the Borrower or any of
its Subsidiaries which has had or which could reasonably be expected to have, in
the reasonable judgment of the Borrower, a Material Adverse Effect.
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The Borrower will also notify the Agent in writing at least 30 days prior to the
date that any Party changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its books and
records.
7.9 Interest Rate Risk. Promptly upon execution thereof, the Borrower
shall deliver to the Agent true and correct and complete copies of any Interest
Rate Risk Agreement.
7.10 Capital Adequacy. Agrees that if any Lender shall have determined
that the adoption after the Effective Date or effectiveness after the Effective
Date (whether or not previously announced) of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein after the
Effective Date, or any change in the interpretation or administration thereof
after the Effective Date by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender with any request or directive after the Effective Date
regarding capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency has or would have the
effect of reducing the rate of return on such Lender's capital as a consequence
of its obligations hereunder, under the Letters of Credit, the Notes or other
Obligations held by it to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, upon satisfaction of the
conditions precedent set forth in this Section 7.10, upon demand by such Lender
(with a copy to the Agent), the Borrower (subject to Section 11.7 hereof) shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. The certificate of any Lender setting forth such
amount or amounts as shall be necessary to compensate it and the basis thereof
shall be delivered as soon as practicable to the Borrower and shall be
conclusive and binding, absent manifest error. The Borrower shall pay the amount
shown as due on any such certificate within fifteen (15) days after the delivery
of such certificate; provided that the Borrower shall not be obligated to
compensate any Lender for any such amounts which relate to a period more than
seventy-five (75) days prior to such request for payment. In preparing such
certificate, a Lender may employ such assumptions and allocations of costs and
expenses as it shall in good faith deem reasonable and may use any reasonable
averaging and attribution method.
7.11 ERISA Information and Compliance. If and when Borrower or any
member of the Controlled Group (i) gives or is required to give notice to the
PBGC of any "reportable event" (as defined in subsections (b)(1), (c)(1),
(c)(5), or (c)(6) of Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of ERISA, or
knows that the plan administrator of any Plan has given or is required to give
notice of any such reportable event, or (ii) knows that a failure to make a
required contribution with respect to any Plan has occurred if such
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failure is sufficient to give rise to a Lien under section 203(f) of ERISA, or
(iii) that any other event has occurred that could result in (A) the incurrence
by Borrower or a member of the Controlled Group of a liability, fine or penalty
with respect to a Plan or (B) any increase in the contingent liability of
Borrower or a member of the Controlled Group with respect to any post-retirement
benefit under a Welfare Plan, in each case which could reasonably be expected to
have a Material Adverse Effect, Borrower shall deliver to the Agent a copy of
the notice of such reportable event given or required to be given to the PBGC or
a notice of such contribution failure or other event, as the case may be.
8. Negative Covenants.
The Borrower covenants and agrees with the Agent and the Lenders that
prior to the termination of this Agreement it will not, and will not suffer or
permit any of its Subsidiaries to, do any of the following:
8.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Borrowed Money Indebtedness (as defined below), whether direct, indirect,
absolute, contingent or otherwise, except the following: (a) the Obligations;
(b) the liabilities existing on the date of this Agreement and disclosed on
Schedule 8.1 hereto and all renewals, extensions and replacements (but not
increases) of any of the foregoing; (c) Indebtedness under the Canadian Facility
and all renewals, extensions and replace-ments (but not increases) thereof; (d)
purchase money Indebtedness to acquire Equipment not exceeding, in the
aggregate, $10,000,000 outstanding at any one time; (e) in addition to
Indebtedness permitted under the preceding clause (d), non-recourse Indebtedness
in an aggregate amount not to exceed $60,000,000 at any one time outstanding
incurred by Subsidiaries of the Borrower which is payable solely by recourse to
Properties which are not included in the Borrowing Base and which are acquired
or constructed by such Subsidiary after the date hereof; (f) Subordinated Debt
so long as the net proceeds of such Subordinated Debt are applied in payment of
the Term Loans or, if no Term Loans remain outstanding, so long as the Revolving
Loan Commitments are reduced by an amount equal to the net proceeds of such
Subordinated Debt; (g) Interest Rate Risk Indebtedness; (h) insurance premiums
financed with the applicable insurance carrier, and (i) other Borrowed Money
Indebtedness not in excess of $30,000,000 in the aggregate outstanding at any
time on terms no more restrictive than the terms provided herein. For purposes
of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any
Person, without duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person under conditional
sale or other title retention agreements relating to Property purchased by such
Person, (d) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable
incurred in the ordinary course of such Person's business), (e) all Capital
Lease Obligations, (f) all obligations of others of the types specified in
clauses (a) through (e) above secured by any lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby
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have been assumed, (g) Interest Rate Risk Indebtedness, (h) all outstanding
letters of credit issued for the account of such Person and (i) all guarantees
of such Person of obligations of the type referred to in the foregoing clauses
(a) through (i).
8.2 Liens. Create or suffer to exist any Lien upon any of its Property
now owned or hereafter acquired, or acquire any Property upon any conditional
sale or other title retention device or arrangement or any purchase money
security agreement; or in any manner directly or indirectly sell, assign, pledge
or otherwise transfer any of its Accounts; provided, however, that the Borrower
or any of its Subsidiaries may create or suffer to exist: (a) Liens in favor of
the Agent or any Lender under the Loan Documents, including, without limitation,
Liens securing Interest Rate Risk Indebtedness owed to one or more of the
Lenders (but not to any Person which is not, at such time, a Lender); (b) Liens
in effect on the Effective Date and disclosed on Schedule 8.2 hereto, provided
that neither the Indebtedness secured thereby nor the Property covered thereby
shall increase after the Effective Date; (c) Liens securing the Canadian
Facility but only on assets of the Canadian Subsidiaries; (d) Liens securing
purchase money Indebtedness permitted under Section 8.1(d) hereof and covering
only the Property so purchased and the proceeds therefrom and Liens permitted
under Section 8.1(e) hereof covering Properties acquired or constructed after
the date hereof and the proceeds therefrom; (e) normal encumbrances and
restrictions on title which do not secure Borrowed Money Indebtedness and which
do not have a material adverse effect on the value or utility of the applicable
Property; (f) Liens incurred or deposits made in the ordinary course of business
(i) in connection with workmen's compensation, unemployment insurance, social
security and other like laws, (ii) to secure insurance in the ordinary course of
business, the performance of bids, tenders, contracts, leases, licenses,
statutory obligations, surety, appeal and performance bonds and other similar
obligations incurred in the ordinary course of business, not, in any of the
cases specified in this clause (ii), incurred in connection with the borrowing
of money, the obtaining of advances or the payment of the deferred purchase
price of Property, or (iii) on deposits made in financial institutions in the
ordinary course of business as a result of common law and statutory rights of
setoff and depositary agreements and other contractual arrangements (other than
Borrowed Money Indebtedness) arising in the ordinary course of business; (g)
attachments, judgments and other similar Liens arising in connection with the
court proceedings, provided that the execution and enforcement of such Liens are
effectively stayed and the claims secured thereby are being actively contested
in good faith with adequate reserves made therefor in accordance with GAAP; (h)
Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, incurred in good faith in the ordinary course
of business and securing obligations which are not yet due or which are being
contested in good faith by appropriate proceedings if adequate reserves with
respect thereto are maintained in accordance with GAAP; (i) Liens for taxes
which are not yet due or are being contested in good faith by appropriate
proceedings if adequate reserves with respect thereto are maintained in
accordance with GAAP; (j) Liens or rights under insurance policies securing
Indebtedness permitted under Section 8.1(g); and (k) extensions, renewals and
replacements of Liens referred to in clauses (a) through (j) of this Section;
provided that any such extension, renewal or replacement Lien shall be limited
to the Property or assets covered by the Lien extended,
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renewed or replaced and that the Indebtedness secured by any such extension,
renewal or replacement Lien shall be in an amount not greater than the amount of
the Indebtedness secured by the Lien extended, renewed or replaced.
8.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
obligations disclosed on Schedule 8.3 hereto (but not increases of such
obligations after the Effective Date), (c) those liabilities permitted under
Section 8.1 hereof and (d) guaranties by the Borrower of any of its Subsidiaries
obligations (except where recourse is expressly required to be limited by this
Agreement).
8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets.
In any single transaction or series of transactions, directly or indirectly: (a)
liquidate or dissolve; (b) be a party to any merger or consolidation unless and
so long as (i) no Default or Event of Default has occurred that is then
continuing, (ii) immediately thereafter and giving effect thereto, no event will
occur and be continuing which constitutes a Default, (iii) the Borrower or a
Subsidiary of the Borrower is the surviving Person, and (iv) the surviving
Person ratifies and assumes each Loan Document to which any party to such merger
was a party; (c) sell, convey or lease all or any substantial part of its
assets, except for sale of Inventory in the ordinary course of business and
except for sales of Property (other than Inventory) in the ordinary course of
the Borrower's business; (d) pledge, transfer or otherwise dispose of any shares
of capital stock of any Subsidiary of the Borrower or any Borrowed Money
Indebtedness of any Subsidiary of the Borrower, or permit any such Subsidiary to
issue any additional shares of capital stock other than to the Borrower or to
acquire any shares of capital stock of any Subsidiary of the Borrower, or (e)
acquire all or substantially all of the assets of any Person or (except as
expressly permitted by Section 8.8 hereof) any shares of stock of or similar
interest in any other Person except for Permitted Acquisitions.
8.5 Redemption, Dividends and Distributions. At any time: (a) redeem,
retire or otherwise acquire, directly or indirectly, any shares of its capital
stock except to the extent that no Default or Event of Default has occurred
which is continuing (or would result from the same); (b) pay any dividend other
than payments of the Permitted Dividends by the Borrower or dividends by a
Subsidiary of the Borrower to the Borrower or any Subsidiary of the Borrower or
(c) make any other distribution of any Property or cash to stockholders as such.
8.6 Nature of Business. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
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8.7 Transactions with Affiliates. Enter into any transaction or
agreement with any Affiliate of the Borrower or any of its Subsidiaries (or any
Affiliate of any such Person) unless the same is upon terms substantially
comparable to those obtainable from wholly unrelated sources or in an arms
length transaction.
8.8 Loans and Investments. Make any loan, advance, extension of credit
or capital contribution to, or make or have any Investment in, any Person, or
make any commitment to make any such extension of credit or Investment, except
(a) Permitted Investments, (b) normal and reasonable advances in the ordinary
course of business, (c) trade and customer accounts receivable in accordance
with the ordinary course of business, (d) Investments in Subsidiaries who are
Guarantors and who have granted to the Agent, on behalf of the Lenders, a first-
priority Lien covering all of its Accounts and Inventory, (e) Investments in 50%
or less owned joint ventures and other Corporations not to exceed $20,000,000 in
unreturned capital Investment at any one time outstanding provided that such
joint ventures and other Corporations are in substantially the same lines of
business as the Borrower and its Subsidiaries, and (f) other Investments
existing as of the date hereof which are described on the attached Schedule 8.8.
8.9 No Subsidiaries. Form, create or acquire a Subsidiary (other than
Sterling Energy, Sterling Pulp (US) and other than Canadian Subsidiaries all of
the equity interests of which are owned by Sterling Canada, Inc. (or by a
previously existing Canadian Subsidiary) and with respect to which the Agent, on
behalf of the Lenders shall have a first-priority perfected Lien in and to 65%
of its issued and outstanding equity interests) unless there shall have been
executed and delivered to the Agent (a) a guaranty, substantially in the form of
the Guaranties executed and delivered concurrently herewith, whereby the
applicable Subsidiary guaranties the payment of all of the Obligations, (b)
collateral documentation, in Proper Form, reasonably required by Agent to create
and perfect a first-priority Lien covering all of the Accounts and Inventory of
the applicable Subsidiary, securing the Obligations and (c) appropriate
resolutions and authorizations regarding all such documents and such other
documents, instruments, certificates, opinions and other collateral matters as
the Agent may reasonably require. Each guaranty and collateral document executed
by the applicable Subsidiary shall contain the following language (using the
appropriate variations):
Guarantor agrees that while its obligations to Lenders under this
document are joint and several as to Lenders, Guarantor (together with
other Subsidiaries (as defined in the Credit Agreement) of the Borrower
heretofore or hereafter executing and delivering to Lender a Credit
Document) (Guarantor and such other Subsidiaries of Borrower being
herein collectively called "Obligors") shall be liable as among other
Obligors only for its Proportionate Share of the indebtedness guaranteed
pursuant to this document calculated as of the time the applicable
portion of such indebtedness was incurred. If at any time any Obligor
(the "Indemnified Obligor") makes any
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payment to Agent or Lenders or otherwise incurs any other expenses
(collectively, the "Indemnified Outlay") under the Credit Documents, the
Indemnified Obligor shall have the right to make demand on any or all of
the other Obligors (each an "Indemnifying Obligor") for the payment to
the Indemnified Obligor of the amount (the "Excess Amount") by which the
Indemnified Outlay exceeds the Indemnified Obligor's Proportionate Share
of the Indemnified Outlay and thereupon the Indemnifying Obligors upon
which demand has so been made shall pay to the Indemnified Obligor the
Excess Amount; provided, that no Indemnifying Obligor shall be liable to
pay to Indemnified Obligor more than the Proportionate Share of the
Indemnifying Obligor (calculated exclusive of the Indemnified Obligor)
of the Excess Amount. If any of the payments to be made pursuant to the
foregoing are not paid promptly upon demand, then the past due payments
shall bear interest at the Past Due Rate from the date of demand until
paid in full. The term "Proportionate Share" as used hereinabove shall
mean with respect to any Obligor the percentage derived by dividing (a)
the net worth of such Obligor by (b) the consolidated net worth of
Borrower and all of the Obligors (exclusive of the Indemnified Obligor
where indicated above), all as of a particular time. Nothing in this
Section shall in any manner impair or extinguish any of the Credit
Documents or any lien or security interest now or hereafter securing the
payment of any of the indebtedness arising pursuant to the Credit
Documents.
8.10 BP Lease. Terminate or agree to the termination of the BP Lease
without the prior written consent of all of the Lenders or amend, modify or
obtain or grant a waiver of any provision of the BP Lease if such amendment,
modification or waiver could reasonably be expected to have a material adverse
effect on the ability of the Lenders to collect, as and when due and payable,
amounts due and payable hereunder and under the other Loan Documents without the
prior written consent of the Majority Lenders.
8.11 Fiscal Year. The Borrower will not (and will not permit any of its
Subsidiaries to) change its fiscal year, unless the Agent shall have consented
thereto in writing or unless required to make such change because of a change in
or amendment to the Code. In the event that the Borrower is required to make any
such change in its fiscal year, the parties hereto agree to negotiate in good
faith any changes in this Agreement made necessary by the required change in
fiscal year. Sterling NRO, Ltd. may change its fiscal year in connection with
any merger of Sterling NRO, Ltd. into Sterling Pulp Chemicals, Ltd. which is
permitted under the terms of this Agreement.
8.12 Sterling Energy and Sterling Pulp (US). Sterling Energy shall not
own any Property of any material nature other than its undivided 50% interest
under the Joint Venture Agreement dated as of February 8, 1991 between Praxair
Energy Resources, Inc., formerly known as UCIG Energy Resources, Inc., and
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Sterling Energy. Any distributions paid to Sterling Energy under said Joint
Venture Agreement shall be promptly paid over to the Borrower as dividends.
Sterling Pulp (US) shall not own any Property of any material nature.
9. Defaults.
9.1 Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur, then the Agent may (and at the
direction of the Majority Lenders, shall) do any or all of the following: (1)
upon notice to the Borrower, declare the Revolving Loan Commitments terminated
(whereupon the Revolving Loan Commitments shall be terminated) and/or accelerate
the Termination Date to a date as early as the date of termination of the
Revolving Loan Commitments; (2) declare the principal amount then outstanding of
and the unpaid accrued interest on the Loans and Reimbursement Obligations and
all fees and all other amounts payable hereunder, under the Notes and under the
other Loan Documents to be forthwith due and payable, whereupon such amounts
shall be and become immediately due and payable, without notice (including,
without limitation any notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower; provided that in the case of the occurrence of an Event
of Default with respect to the Borrower or any of its Subsidiaries referred to
in clause (f), (g) or (h) of this Section 9.1, the Revolving Loan Commitments
shall be automatically terminated and the principal amount then outstanding of
and unpaid accrued interest on the Loans and the Reimbursement Obligations and
all fees and all other amounts payable hereunder, under the Notes and under the
other Loan Documents shall be and become automatically and immediately due and
payable, without notice (including, without limitation, notice of acceleration
and notice of intent to accelerate), presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower, and (3) exercise any or other rights and remedies available to the
Agent or any of the Lenders under the Loan Documents, at law or in equity:
(a) Payments - (i) the Borrower or any other Party shall fail to make
any payment or required prepayment of any installment of principal on the Loans
or any Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents when due or (ii) the Borrower or any other Party fails to
make any payment or required prepayment of interest with respect to the Loans,
any Reimbursement Obligation or any other fee or amount under the Notes, this
Agreement or the other Loan Documents when due and (except in the case of
acceleration of maturity) such failure to pay continues unremedied for a period
of five days; or
(b) Other Obligations - the Borrower or any of its Subsidiaries shall
default in the payment when due of any principal of or interest on any Borrowed
Money Indebtedness having an outstanding principal amount of at least $5,000,000
(other than the Loans and Reimbursement Obligations) and such default shall
continue beyond any applicable period of grace; or any event or condition shall
occur which results in the acceleration of the
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maturity of any such Borrowed Money Indebtedness or enables (or, with the giving
of notice or lapse of time or both, would enable) the holder of any such
Borrowed Money Indebtedness or any Person acting on such holder's behalf to
accelerate the maturity thereof and such event or condition shall not be cured
within any applicable period of grace; or
(c) Representations and Warranties - any representation or warranty made
or deemed made by or on behalf of the Borrower or any other Party in this
Agreement or any other Loan Document or in any certificate furnished or made by
the Borrower or any other Party to the Agent or the Lenders in connection
herewith or therewith shall prove to have been incorrect, false or misleading in
any material respect as of the date thereof or as of the date as of which the
facts therein set forth were stated or certified; or
(d) Affirmative Covenants - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained in
Section 7.3 hereof, (ii) the Borrower shall permit any of the insurance provided
for in Section 7.7 hereof to lapse, (iii) default shall be made in the due
observance or performance of any of the covenants or agreements contained in
Section 7.7 hereof (other than lapse of required insurance, which is provided
for above) and such default continues unremedied for a period of 10 days after
(x) notice thereof is given by the Agent to the Borrower or (y) such default
otherwise becomes known to the Borrower, whichever is earlier or (iv) default is
made in the due observance or performance of any of the other covenants and
agreements contained in Section 7 hereof or any other affirmative covenant of
the Borrower or any other Party contained in this Agreement or any other Loan
Document and such default continues unremedied for a period of 30 days after (x)
notice thereof is given by the Agent to the Borrower or (y) such default
otherwise becomes known to the Borrower, whichever is earlier; or
(e) Negative Covenants - default is made in the due observance or
performance by the Borrower of any of the other covenants or agreements
contained in Section 8 of this Agreement or of any other negative covenant of
the Borrower or any other Party contained in this Agreement or any other Loan
Document; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Borrower or any of its Subsidiaries or
of any of its property is appointed by the order or decree of any court or
agency or supervisory authority having jurisdiction, and such decree or order
remains in effect for more than 30 days; or the Borrower or any of its
Subsidiaries is adjudicated bankrupt or insolvent; or any of such Person's
property is sequestered by court order and such order remains in effect for more
than 30 days; or a petition is filed against the Borrower or any of its
Subsidiaries under any state or federal bankruptcy, reorganization, arrangement,
insolvency, readjustment or debt, dissolution, liquidation or receivership law
or any jurisdiction, whether now or hereafter in effect, and is not dismissed
within 30 days after such filing; or
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(g) Voluntary Petitions or Consents - the Borrower or any of its
Subsidiaries commences a voluntary case or other proceeding or order seeking
liquidation, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its debt or
other liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or consents to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or fails generally to, or cannot, pay its debts generally
as they become due or takes any corporate action to authorize or effect any of
the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency -
the Borrower or any of its Subsidiaries makes an assignment for the benefit of
its creditors, or admits in writing its inability to pay its debts generally as
they become due, or consents to the appointment of a receiver, trustee, or
liquidator of the Borrower or such Subsidiary or of all or any substantial part
of its Property; or
(i) Undischarged Judgments - a final judgment or judgments for the
payment of money exceeding, in the aggregate, $5,000,000 is rendered by any
court or other governmental body against the Borrower or any of its Subsidiaries
and the Borrower or such Subsidiary does not discharge the same or provide for
its discharge in accordance with its terms, or procure a stay of execution
thereof within 30 days from the date of entry thereof; or
(j) Security Agreements; Guaranties - any Security Agreement for any
reason ceases to create a valid and perfected first-priority Lien on any
material portion of the Collateral purported to be covered thereby, or any
Guaranty shall cease to be in full force and effect and a valid, binding and
enforceable obligation of the applicable Party (except as otherwise herein
expressly permitted), or the Borrower or any of its Subsidiaries or any Party to
a Guaranty (or any other Person who may have granted or purported to grant such
Lien or executed any such Guaranty) will so state in writing, or Agent, on
behalf of the Lenders, shall cease to have a first priority Lien upon (x) all of
the equity interests of each Subsidiary of the Borrower (other than Canadian
Subsidiaries) which owns any of the equity interests in and to any Canadian
Subsidiary and (y) 65% of the equity interests of each Canadian Subsidiary; or
(k) Attachment - the Borrower or any of its Subsidiaries shall suffer
any writ of attachment or execution or any similar process to be issued or
levied against it or any substantial part of its Property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
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(l) ERISA Matters - (i) Borrower or any member of the Controlled Group
shall fail to pay when due an amount or amounts which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of
intent to terminate a Plan or Plans shall be filed under Title IV of ERISA; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans against
Borrower or any member of the Controlled Group to enforce Section 5415 of ERISA;
or a condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any such Plan or Plans must be terminated or a
contribution failure occurs with respect to any Plan sufficient to give rise to
a lien under Section 302(f) of ERISA on the property of Borrower or any member
of the Controlled Group, and (ii) in each case, such event could reasonably be
expected to cause a Material Adverse Effect; or
(m) Change of Control - there shall occur any Change of Control.
9.2 Right of Setoff. Upon the occurrence and during the continuance of
any Event of Default, the Lenders each are hereby authorized at any time and
from time to time, without notice to the Borrower or any of its Subsidiaries
(any such notice being expressly waived by the Borrower and its Subsidiaries),
to setoff and apply any and all deposits (general or special, time or demand,
provisional or final (but excluding the funds held in accounts clearly
designated as escrow or trust accounts held by the Borrower or such Subsidiary
for the benefit of Persons which are not Affiliates of the Borrower or any of
its Subsidiaries), whether or not such setoff results in any loss of interest or
other penalty, and including without limitation all certificates of deposit at
any time held, and any other funds or property at any time held, and other
Indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower or any such Subsidiary against any and all of the
Obligations irrespective of whether or not such Lender or the Agent will have
made any demand under this Agreement, the Notes or any other Loan Document. The
Borrower also hereby grants to each of the Lenders a security interest in and
hereby transfers, assigns, sets over, and conveys to each of the Lenders, as
security for payment of all Loans and Reimbursement Obligations, all such
deposits, funds or property of the Borrower or any such Subsidiary, or
Indebtedness of any Lender to the Borrower or any such Subsidiary. Should the
right of any Lender to realize funds in any manner set forth hereinabove be
challenged and any application of such funds be reversed, whether by court order
or otherwise, the Lenders shall make restitution or refund to the Borrower pro
rata in accordance with their Revolving Loan Commitments. Each Lender agrees to
promptly notify the Borrower and the Agent after any such setoff and
application, provided that the failure to give such notice will not affect the
validity of such setoff and application. The rights of the Agent and the Lenders
under this Section are in addition to other rights and remedies (including
without limitation other rights of setoff) which the Agent or the Lenders may
have. This Section is subject to the terms and provisions of Sections 4.5 and
11.7 hereof.
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9.3 Collateral Account. The Borrower hereby agrees, in addition to the
provisions of Section 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Agent or the
Majority Lenders (through the Agent) and automatically and without any request
or demand upon the occurrence of an Event of Default of the type described in
Sections 9.1(f), (g) or (h) hereof, pay to the Agent an amount in immediately
available funds equal to the then aggregate amount available for drawings under
all Letters of Credit issued for the account of the Borrower, which funds shall
be held by the Agent as Cover.
9.4 Preservation of Security for Unmatured Reimbursement Obligations. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to the Agent or any Lender under the Loan
Documents, and (ii) payment in full of the principal amount then outstanding of
and the accrued interest on the Loans and Reimbursement Obligations and fees and
all other amounts payable hereunder and under the Notes and all other amounts
secured by the Security Agreements, any Letters of Credit shall remain
outstanding and undrawn upon, the Agent shall be entitled to hold (and the
Borrower hereby grants and conveys to the Agent a security interest in and to)
all cash or other property ("Proceeds of Remedies") realized or arising out of
the exercise by the Agent of any rights available to it under the Loan
Documents, at law or in equity, including, without limitation, the proceeds of
any foreclosure, as collateral for the payment of any amounts due or to become
due under or in respect of such Letters of Credit. Such Proceeds of Remedies
shall be held for the ratable benefit of the Lenders. Such Proceeds of Remedies
shall constitute "Collateral" for all purposes under the terms and provisions of
the Security Agreements, and the rights, titles, benefits, privileges, duties
and obligations of Agent with respect thereto shall be governed by the terms and
provisions of this Agreement and, to the extent not inconsistent with this
Agreement, the Security Agreements. The Agent may, but shall have no obligation
to, invest any such Proceeds of Remedies in clauses (a) through (e) and (g)
through (i) of the definition of "Permitted Investments" set forth in Article 1
hereof or in such other manner as the Majority Lenders may direct. Such Proceeds
of Remedies shall be applied to Reimbursement Obligations arising in respect of
any such Letters of Credit and/or the payment of any Lender's obligations under
any such Letter of Credit when such Letter of Credit is drawn upon. The Borrower
hereby agrees to execute and deliver to the Agent and the Lenders such security
agreements, pledges or other documents as the Agent or any of the Lenders may,
from time to time, require to perfect the pledge, Lien and security interest in
and to any such Proceeds of Remedies provided for in this Section. Nothing in
this Section shall cause or permit an increase in the maximum amount of the
Revolving Loan Obligations permitted to be outstanding from time to time under
this Agreement.
9.5 Remedies Cumulative. No remedy, right or power conferred upon the
Agent or any Lender is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
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10. The Agent.
10.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder, under the
Letters of Credit and under the other Loan Documents with such powers as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such other powers as are reasonably incidental thereto. The Agent (the
"Agent" as used in this Section 10 shall include reference to its Affiliates and
its own and its Affiliates' respective officers, shareholders, directors,
employees and agents) (a) shall not have any duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents, and
shall not by reason of this Agreement or any other Loan Document be a trustee or
fiduciary for any Lender; (b) shall not be responsible to any Lender for any
recitals, statements, representations or warranties contained in this Agreement,
the Letters of Credit or any other Loan Document, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, the Letters of Credit or any other Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability, execution, filing,
registration, collectibility, recording, perfection, existence or sufficiency of
this Agreement, the Letters of Credit, or any other Loan Document or any other
document referred to or provided for herein or therein or any property covered
thereby or for any failure by any Party or any other Person to perform any of
its obligations hereunder or thereunder, and shall not have any duty to inquire
into or pass upon any of the foregoing matters; (c) shall not be required to
initiate or conduct any litigation or collection proceedings hereunder or under
the Letters of Credit or any other Loan Document except to the extent requested
by the Majority Lenders; (d) shall not be responsible for any mistake of law or
fact or any action taken or omitted to be taken by it hereunder or under the
Letters or Credit or any other Loan Document or any other document or instrument
referred to or provided for herein or therein or in connection herewith or
therewith, including, without limitation, pursuant to its own negligence, except
for its own gross negligence or willful misconduct; (e) shall not be bound by or
obliged to recognize any agreement among or between the Borrower and any Lender,
regardless of whether the Agent has knowledge of the existence of any such
agreement or the terms and provisions thereof; (f) shall not be charged with
notice or knowledge of any fact or information not herein set out or provided to
the Agent in accordance with the terms of this Agreement or any other Loan
Document; (g) shall not be responsible for any delay, error, omission or default
of any mail, telegraph, cable or wireless agency or operator, and (h) shall not
be responsible for the acts or edicts of any Governmental Authority. The Agent
may employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Without in any way limiting any of the foregoing, each
Lender acknowledges that the Agent shall have no greater responsibility in the
operation of the Letters of Credit than is specified in the Uniform Customs and
Practice for Documentary Credits (1993 Revision, International Chamber of
Commerce Publication No. 500). In any foreclosure proceeding concerning any
Collateral, each holder of an Obligation if bidding for its own account or for
its own account and the accounts of other Lenders is prohibited from including
in the amount of its bid an amount to be applied as a credit against the
Obligations held by it or the Obligations held by the other Lenders; instead,
such holder must bid in cash only. However, in any such foreclosure proceeding,
the Agent may (but shall not be obligated to) submit a bid for all Lenders
(including itself) in the form of a credit against the Obligations, and the
Agent
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or its designee may (but shall not be obligated to) accept title to such
collateral for and on behalf of all Lenders.
10.2 Reliance. The Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (which may be counsel for the Borrower),
independent accountants and other experts selected by the Agent. The Agent shall
not be required in any way to determine the identity or authority of any Person
delivering or executing the same. As to any matters not expressly provided for
by this Agreement, the Letters of Credit, or any other Loan Document, the Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder and thereunder in accordance with instructions of the Majority
Lenders, and any action taken or failure to act pursuant thereto shall be
binding on all of the Lenders. Subject to the provisions of Section 11.5 hereof,
the Agent shall have the authority to execute releases of the Security
Agreements on behalf of the Lenders without the joinder of any Lender. If any
order, writ, judgment or decree shall be made or entered by any court affecting
the rights, duties and obligations of the Agent under this Agreement or any
other Loan Document, then and in any of such events the Agent is authorized, in
its sole discretion, to rely upon and comply with such order, writ, judgment or
decree which it is advised by legal counsel of its own choosing is binding upon
it under the terms of this Agreement, the relevant Loan Document or otherwise;
and if the Agent complies with any such order, writ, judgment or decree, then it
shall not be liable to any Lender or to any other Person by reason of such
compliance even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
10.3 Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless it has received notice from a
Lender or the Borrower specifying such Default and stating that such notice is a
"Notice of Default." In the event that the Agent receives such a Notice of
Default, the Agent shall give prompt notice thereof to the Lenders (and shall
give each Lender prompt notice of each such non-payment). The Agent shall
(subject to Section 10.7 hereof) take such action with respect to such Notice of
Default as shall be directed by the Majority Lenders and within its rights under
the Loan Documents and at law or in equity, provided that, unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, permitted
hereby with respect to such Notice of Default as it shall deem advisable in the
best interests of the Lenders and within its rights under the Loan Documents, at
law or in equity.
10.4 Rights as a Lender. With respect to its Revolving Loan Commitments and
the Loans made and Letter of Credit Liabilities, TCB in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting in its agency capacity,
and the term "Lender" or "Lenders" shall, unless the context otherwise
indicates, include the Agent in its individual capacity.
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The Agent may (without having to account therefor to any Lender) accept deposits
from, lend money to and generally engage in any kind of banking, trust, letter
of credit, agency or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent, and the Agent may accept fees
and other consideration from the Borrower (in addition to the fees heretofore
agreed to between the Borrower and the Agent) for services in connection with
this Agreement or otherwise without having to account for the same to the
Lenders.
10.5 Indemnification. The Lenders agree to indemnify the Agent each (to the
extent not reimbursed under Section 2.2(c), Section 11.3 or Section 11.4 hereof,
but without limiting the obligations of the Borrower under said Sections 2.2(c),
11.3 and 11.4), ratably in accordance with the sum of the Lenders' respective
Revolving Loan Commitments and Term Loans, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever, REGARDLESS OF
WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES,
which may be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement, the Letters of Credit or any other
Loan Document or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which the Borrower is obligated to pay under
Sections 2.2(c), 11.3 and 11.4 hereof, interest, penalties, reasonable
attorneys' fees and amounts paid in settlement, but excluding, unless a Default
has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents; provided
that no Lender shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
The obligations of the Lenders under this Section 10.5 shall survive the
termination of this Agreement and the repayment of the Obligations.
10.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has received current financial information with respect to the Borrower and that
it has, independently and without reliance on the Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Borrower and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or any of the other Loan Documents. The Agent
shall not be required to keep itself informed as to the performance or
observance by any Party of this Agreement, the Letters of Credit or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Borrower or any Party.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Agent hereunder, under the
Letters of Credit or the other Loan Documents, the Agent shall not have any duty
or
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responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any
other Party (or any of their affiliates) which may come into the possession of
the Agent.
10.7 Failure to Act. Except for action expressly required of the Agent
hereunder, under the Letters of Credit or under the other Loan Documents, the
Agent shall in all cases be fully justified in failing or refusing to act
hereunder and thereunder unless it shall receive further assurances to its
satisfaction by the Lenders of their indemnification obligations under Section
10.5 hereof against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
10.8 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders and the Borrower, and the Agent may
be removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, (i) the Majority Lenders without the consent of the
Borrower shall have the right to appoint a successor Agent so long as such
successor Agent is also a Lender at the time of such appointment and (ii) the
Majority Lenders shall have the right to appoint a successor Agent that is not a
Lender at the time of such appointment so long as the Borrower consents to such
appointment (which consent shall not be unreasonably withheld). If no successor
Agent shall have been so appointed by the Majority Lenders and accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any
successor Agent shall be a bank which has an office in the United States and a
combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder and under any other Loan
Documents. Such successor Agent shall promptly specify by notice to the Borrower
its Principal Office referred to in Section 3.1 and Section 4 hereof. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Section 10 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.
10.9 No Partnership. Neither the execution and delivery of this Agreement
nor any of the other Loan Documents nor any interest the Lenders, the Agent or
any of them may now or hereafter have in all or any part of the Obligations
shall create or be construed as creating a partnership, joint venture or other
joint enterprise between the Lenders or among the Lenders and the Agent. The
relationship between the Lenders, on the one hand, and the Agent, on the other,
is and shall be that of principals and agent only, and nothing in this Agreement
or any of the other Loan Documents shall be construed to constitute the Agent as
trustee or other fiduciary for any Lender or to impose on the Agent any duty,
responsibility or obligation other than those expressly provided for herein and
therein.
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11. Miscellaneous.
11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver
of any other Default or Event of Default. No failure on the part of the Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under any Loan Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege thereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided in
the Loan Documents are cumulative and not exclusive of any remedies provided by
law or in equity.
11.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telecopy or other
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or provided for in an Assignment and Acceptance); or, as to any party,
at such other address as shall be designated by such party in a notice to the
Borrower and the Agent given in accordance with this Section 11.2. Except as
otherwise provided in this Agreement, all such notices or communications shall
be deemed to have been duly given when (i) transmitted by telex or telecopier,
(ii) personally delivered (iii) one Business Day after deposit with an overnight
mail or delivery service, postage prepaid or (iv) three Business Days' after
deposit in a receptacle maintained by the United States Postal Service, postage
prepaid, registered or certified mail, return receipt requested, in each case
given or addressed as aforesaid.
11.3 Expenses, Etc. Whether or not any Loan is ever made or any Letter of
Credit ever issued, the Borrower shall pay or reimburse on demand (a) the Agent
for paying the reasonable fees and expenses of one legal counsel to the Agent,
in connection with the preparation, negotiation, execution and delivery of this
Agreement (including the exhibits and schedules hereto), the Security Agreements
and the other Loan Documents and the making of the Loans and the issuance of
Letters of Credit hereunder, and any modification, supplement or waiver of any
of the terms of this Agreement, the Letters of Credit or any other Loan
Document; (b) the Agent for any lien search fees; (c) the Agent for reasonable
out-of-pocket expenses incurred in connection with the preparation,
documentation, administration and syndication of the Loans or any of the Loan
Documents (including, without limitation, the advertising, marketing, printing,
publicity, duplicating, mailing and similar expenses) of the Loans and Letter of
Credit Liabilities; (d) the Agent or any Lender for paying all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement, any Letter of
Credit or any other Loan Document or any other document referred to herein or
therein; (e) the Agent or any Lender for paying all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
this Agreement, any Security Agreement or any document
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referred to herein or therein, and (f) any Lender or the Agent for paying all
amounts reasonably expended, advanced or incurred by such Lender or Agent to
satisfy any obligation of the Borrower under this Agreement or any other Loan
Document, to protect the Collateral, to collect the Obligations or to enforce,
protect, preserve or defend the rights of such Lender or Agent under this
Agreement or any other Loan Document, including, without limitation, fees and
expenses incurred in connection with such Lender's or Agent's participation as a
member of a creditor's committee in a case commenced under the Bankruptcy Code
or other similar law, fees and expenses incurred in connection with lifting the
automatic stay prescribed in (s) 362 of the Bankruptcy Code and fees and
expenses incurred in connection with any action pursuant to (s) 1129 of the
Bankruptcy Code and all other customary out-of-pocket expenses incurred by such
Lender or Agent in connection with such matters, together with interest thereon
at the Past Due Rate on each such amount from the date which is fifteen days
after demand is made on the Borrower until the date of reimbursement to such
Lender or Agent.
11.4 Indemnification. The Borrower shall indemnify each of the Agent, the
Lenders, and each affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by the Borrower of
the proceeds of any extension of credit (whether a Loan or a Letter of Credit)
by any Lender hereunder; (ii) breach by the Borrower of this Agreement or any
other Loan Document or the breach by any Party of any Loan Document; (iii)
violation by the Borrower or any other Party of any Legal Requirement; (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and the Borrower shall reimburse the Agent, each Lender, and each Affiliate
thereof and their respective directors, officers, employees and agents, upon
demand for any reasonable expenses (including reasonable legal fees) incurred in
connection with any such investigation or proceeding, or (v) taxes (excluding
income taxes and franchise taxes) payable or ruled payable by any Governmental
Authority in respect of the Obligations or any Loan Document other than taxes
incurred due to a Lender's failure to comply with Section 11.13 hereof;
provided, however, that the Borrower shall not have any obligations pursuant to
this Section with respect to any losses, liabilities, claims, damages or
expenses incurred by the Person seeking indemnification by reason of the gross
negligence or willful misconduct of that Person. Nothing in this Section is
intended to limit the obligations of the Borrower under any other provision of
this Agreement.
11.5 Amendments, Etc. No amendment or modification of this Agreement, the
Notes or any other Loan Document shall in any event be effective against the
Borrower unless the same shall be agreed or consented to in writing by the
Borrower. No amendment, modification or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor any consent to any
departure by the Borrower therefrom, shall in any event be
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effective against the Lenders unless the same shall be agreed or consented to in
writing by the Majority Lenders, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, modification, waiver or consent shall,
unless in writing and signed by each Lender affected thereby, do any of the
following: (a) increase any Revolving Loan Commitment of any of the Lenders or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, any Loan, Reimbursement Obligation or fee hereunder; (c)
postpone or extend the Maturity Date, the Termination Date, the Revolving Loan
Availability Period or any scheduled date fixed for any payment of principal of,
or interest on, any Loan, Reimbursement Obligation, fee or other sum to be paid
hereunder or waive any Event of Default described in Section 9.1(a) hereof; (d)
change the percentage of any of the Revolving Loan Commitments or of the
aggregate unpaid principal amount of any of the Loans and Letter of Credit
Liabilities, or the number of Lenders, which shall be required for the Lenders
or any of them to take any action under this Agreement; (e) change any provision
contained in Sections 2.2(c), 7.10, 11.3 or 11.4 hereof or this Section 11.5;
(f) increase any of the fixed percentages to be multiplied by the aggregate
amounts of the components comprising the Borrowing Base that are described in
(i) and (ii) of the definition of Borrowing Base herein; (g) change the
definition of "Majority Lenders" set forth in Article 1 hereof, or (h) release
the liability of any Guarantor under the Guaranties or release, in any one (1)
calendar year, Collateral having an aggregate value exceeding $1,000,000.
Notwithstanding anything in this Section 11.5 to the contrary, no amendment,
modification, waiver or consent shall be made with respect to Section 10 without
the consent of the Agent to the extent it affects the Agent.
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11.6 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Agent and the Lenders and their respective successors and assigns;
provided, however, that the Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of all of the
Lenders, and any such assignment or transfer without such consent shall be null
and void. Each Lender may sell participations in all or part of any Loan, or all
or part of its Notes or Revolving Loan Commitments, to another bank or other
entity, in which event, without limiting the foregoing, the provisions of the
Loan Documents (including, without limitation, the Interest Rate Agreement)
shall inure to the benefit of each purchaser of a participation; provided,
however, the pro rata treatment of payments, as described in Section 4.2 hereof,
shall be determined as if such Lender had not sold such participation. Any
Lender that sells one or more participations to any Person shall not be relieved
by virtue of such participation from any of its obligations to Borrower under
this Agreement relating to the Loans. In the event any Lender shall sell any
participation, such Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower relating to the Loans, including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement other than amendments, modifications or
waivers with respect to (i) any fees payable hereunder to the Lenders, (ii) the
amount of principal or the rate of interest payable on, or the dates fixed for
the scheduled repayment of principal of, the Loans and (iii) the release of the
Liens on any of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person
all or a portion of its interests, rights and obligations under this Agreement;
provided, however, that (i) the aggregate amount of the Revolving Loan
Commitments and the Term Loans of the assigning Lender subject to each such
assignment shall in no event be less than $10,000,000, and each such assignment
shall be in a constant and not varying percentage of all such assigning Lender's
rights and obligations under the Loan Documents; (ii) other than in the case of
an assignment to another Lender (that is, at the time of the assignment, a party
hereto) or to an Affiliate of such Lender or to a Federal Reserve Bank, the
Agent and, so long as no Event of Default shall have occurred and be continuing,
the Borrower must each give its prior written consent, which consents shall not
be unreasonably withheld, and (iii) the parties to each such assignment shall
execute and deliver to the Agent, for its acceptance an Assignment and
Acceptance in the form of Exhibit F hereto (each an "Assignment and Acceptance")
with blanks appropriately completed, together with any Note or Notes subject to
such assignment and a processing and recording fee of $3,000.00 paid by the
assignee (for which the Borrower will have no liability). Upon such execution,
delivery and acceptance, from and after the effective date specified in each
Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (B) the Lender thereunder shall, to
the extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such
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<PAGE>
Lender shall cease to be a party hereto but shall still have indemnification
rights surviving as provided in Section 11.8 hereof). Notwithstanding anything
contained in this Agreement to the contrary, any Lender may at any time assign
all or any portion of its rights under this Agreement and the Notes issued to it
as collateral to a Federal Reserve Bank; provided that no such assignment shall
release such Lender from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Lender assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Lender assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or the performance or observance by the Borrower of any of its
obligations under this Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 6.2 hereof and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Lender assignor or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this Agreement and the other Loan Documents are required to be performed by
it as a Lender.
(d) The entries in the records of the Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Revolving Loan Commitments of, and principal amount of the Loans owing to, each
Lender from time to time shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Lenders may treat each Person the name of
which is recorded in the books and records of the Agent as a Lender hereunder
for all purposes of this Agreement and the other Loan Documents.
(e) Upon the Agent's receipt of an Assignment and Acceptance executed by
an assigning Lender and the assignee thereunder, together with any Note or Notes
subject to such assignment and the written consent to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in its records and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after receipt of notice, the
Borrower, at its own expense, shall execute and deliver to the Agent in exchange
for the surrendered Notes new Notes to the order of such assignee in an amount
equal to the Revolving Loan Commitments and the Term Loans (or either of them)
assumed by it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Revolving Loan Commitment and Term Loans (or either of
them) hereunder, new Notes to the order of the assigning Lender in an amount
equal to the Revolving Loan Commitment and the Term Loans (or either of them)
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such
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<PAGE>
Assignment and Acceptance and shall otherwise be in substantially the form of
the respective Note. Thereafter, such surrendered Notes shall be marked renewed
and substituted and the originals thereof delivered to the Borrower (with
copies, certified by the Borrower as true, correct and complete, to be retained
by the Agent).
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 11.6, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower provided that such Person agrees in writing to the confidentiality
obligations set forth in Section 11.14 hereof.
11.7 Limitation of Interest. The Borrower and the Lenders intend to
strictly comply with all applicable federal and Texas laws, including applicable
usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to
apply to the Notes or any other Loan Documents despite the intention and desire
of the parties to apply the usury laws of the State of Texas). Accordingly, the
provisions of this Section 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate of
all charges, fees, benefits or other compensation which constitute interest
under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Borrower or any other Person be obligated to pay, or any
Lender have any right or privilege to reserve, receive or retain, (a) any
interest in excess of the maximum amount of nonusurious interest permitted under
the laws of the State of Texas or the applicable laws (if any) of the United
States or of any other state, or (b) total interest in excess of the amount
which such Lender could lawfully have contracted for, reserved, received,
retained or charged had the interest been calculated for the full term of the
Obligations at the Ceiling Rate. On each day, if any, that the interest rate
(the "Stated Rate") called for under this Agreement or any other Loan Document
exceeds the Ceiling Rate, the rate at which interest shall accrue shall
automatically be fixed by operation of this sentence at the Ceiling Rate for
that day, and shall remain fixed at the Ceiling Rate for each day thereafter
until the total amount of interest accrued equals the total amount of interest
which would have accrued if there were no such ceiling rate imposed by this
sentence. Thereafter, interest shall accrue at the Stated Rate unless and until
the Stated Rate again exceeds the Ceiling Rate, in which case, the provisions of
the immediately preceding sentence shall again automatically operate to limit
the interest accrual rate to the Ceiling Rate. The daily interest rates to be
used in calculating interest at the Ceiling Rate shall be determined by dividing
the applicable Ceiling Rate per annum by the number of days in the calendar year
for which such calculation is being made. None of the terms and provisions
contained in this Agreement or in any other Loan Document (including, without
limitation, Section 9.1 hereof) which directly or indirectly relate to interest
shall ever be construed without
58
<PAGE>
reference to this Section 11.7, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Ceiling Rate. If the term of any Obligation is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Lender at any time, including but not limited to, the stated
maturity, is owed or receives (and/or has received) interest in excess of
interest calculated at the Ceiling Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Lender, it shall be credited pro tanto
against the then-outstanding principal balance of the Borrower's obligations to
such Lender, effective as of the date or dates when the event occurs which
causes it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
11.8 Survival. The obligations of the Borrower under Sections 2.2(c),
2.2(d), 7.10, 11.3 and 11.4 hereof and all other obligations of the Borrower in
any other Loan Document (to the extent stated therein), and the obligations of
the Lenders under Section 10.5 and 11.7 hereof, shall survive the repayment of
the Loans and Reimbursement Obligations and the termination of the Revolving
Loan Commitments and the Letters of Credit.
11.9 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED)
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF
TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11.12 Severability. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 Tax Forms. With respect to each Lender which is organized under
the laws of a jurisdiction outside the United States, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by the Borrower or the Agent,
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<PAGE>
such Lender shall provide the Agent and the Borrower with the forms prescribed
by the Internal Revenue Service of the United States certifying as to such
Lender's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Lender
hereunder or other documents satisfactory to the Lender and the Agent indicating
that all payments to be made to such Lender hereunder are subject to such tax at
a rate reduced by an applicable tax treaty. Unless the Borrower and the Agent
shall have received such forms or such documents indicating that payments
hereunder are not subject to United States withholding tax or are subject to
such tax at a rate reduced by an applicable tax treaty, the Borrower or the
Agent shall withhold taxes from such payments at the applicable statutory rate
in the case of payments to or for any Lender organized under the laws of a
jurisdiction outside the United States.
11.14 Venue. The Borrower hereby irrevocably (a) agrees that any legal
proceeding against the Agent or any Lender arising out of or in connection with
the Loan Documents shall be brought in the district courts of Harris County,
Texas, or in the United States District Court for the Southern District of
Texas, Houston Division (collectively, the "Houston Courts"); (b) submits to the
non-exclusive jurisdiction of the Houston Courts; (c) agrees and consents that
service of process may be made upon it in any proceeding arising out of the Loan
Documents or any transaction contemplated thereby by service of process as
provided by Texas law; (d) WAIVES, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of any Loan Document or the transactions
contemplated thereby in the Houston Courts; and (e) WAIVES any claim that any
such suit, action or proceeding in any Houston Court has been brought in an
inconvenient forum. All of the obligations of the Borrower under the Loan
Documents are performable in Harris County, Texas. Nothing herein shall affect
the right of the Agent or any Lender to commence legal proceedings or otherwise
proceed against the Borrower in any jurisdiction or to serve process in any
manner permitted by applicable law. The Borrower agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions in any manner provided by law.
11.15 Confidentiality. Each Lender agrees to comply with its customary
procedures to keep any information delivered or made available by the Borrower
to it confidential from anyone other than Persons employed or retained by such
Lender who are or are expected to become engaged in evaluating, approving,
structuring or administering commitments, the Loans, or Letters of Credit or
participations therein or the collateral thereon or the Loan Documents, provided
that nothing herein shall prevent any Lender from disclosing such information
(a) to any other Lender, (b) to any Person if reasonably incidental to the
administration of the Loans, (c) upon the order of any court or administrative
agency, (d) upon the request or demand of any regulatory agency or authority
having jurisdiction over such Lender, (e) which has been publicly disclosed, (f)
in connection with any litigation to which any Lender, the Agent, or their
respective Affiliates may be a party, (f) to the extent reasonably required or
desirable in connection with the exercise of any remedy hereunder or under any
Loan Document, (h) to such
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<PAGE>
Lender's legal counsel and independent auditors, and (i) to any actual or
proposed participant or assignee of all or part of its Loans, Commitments or
participations hereunder.
11.16 Amended and Restated Credit Agreement. This Agreement amends and
restates in its entirety that certain Third Amended and Restated Credit
Agreement dated as of August 20, 1992, by and among the Borrower, each of the
financial institutions which is or which may from time to time become a party
thereto, the issuer of certain letters of credit, and The Bank of Nova Scotia,
as agent, as amended, restated, modified and supplemented prior to the date
hereof (the "Original Credit Agreement"). The Notes are given, in part, in
renewal, extension and rearrangement of the unpaid balances owing on the Notes
(as that term is defined in the Original Credit Agreement).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
STERLING CHEMICALS, INC.
By: /s/ Jim P. Wise
Jim P. Wise, Vice President-Finance & Chief
Financial Officer
Address for Notices:
1200 Smith Street, Suite 1900
Houston, Texas 77002
Attention: Mr. Jim P. Wise
Telecopy No.: (713) 654-9552
61
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Lender
By: /s/ Gregory R. Ford
Gregory R. Ford,
Vice President
Address for Notices:
Revolving Loan Commitment: 712 Main Street
Houston, Texas 77002
$19,090,909.09 Attention: Mr. Gregory R. Ford
Telecopy No.: (713) 216-6387
Term Loan:
$15,909,090.91
62
<PAGE>
THE BANK OF NOVA SCOTIA,
as Documentation Agent and as a Lender
By: /s/ Claude Ashby
Name: F.C.N. Ashby
Title: Senior Manager Loan Operations
Address for Notices:
Revolving Loan Commitment: 1100 Louisiana, Suite 3000
Houston, Texas 77002
$19,090,909.09 Attention: Mr. Larry Loyd
Telecopy No.: (713) 752-2425
Term Loan: with a copy to
$15,909,090.91 600 Peachtree Street, N.E., Suite 2700
Atlanta, Georgia 30308
Attention: Mr. Claude Ashby
Telecopy No.: (404) 888-8998
63
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY,
as Co-Agent and as a Lender
By: /s/ Ken Womack
Name: Kenneth S. Womack
Title: Assistant V.P.
By: /s/ Michael N. Oakes
Name: Michael N. Oakes
Title: V.P.
Address for Notices:
Revolving Loan Commitment: Three Riverway, Suite 1600
Houston, Texas 77056
$16,363,636.36 Attention: Mr. Kenneth S. Womack
Telecopy No.: (713) 621-5801
Term Loan:
$13,636,363.64
64
<PAGE>
BANK OF SCOTLAND,
as Co-Agent and as a Lender
By:/s/ Elizabeth Wilson
Name: Elizabeth Wilson
Title: V.P. and Branch Manager
Address for Notices:
Revolving Loan Commitment: 565 Fifth Avenue
New York, New York 10017
$16,363,636.36 Attention: Mr. James Halley
Telecopy No.: (212) 682-5720
Term Loan:
$13,636,363.64
65
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as Co-Agent and as a Lender
By: /s/ Xavier Ratouis
Name: Xavier Ratouis
Title: Sr. V.P.
Address for Notices:
Revolving Loan Commitment: c/o Credit Lyonnais Representative Office
1000 Louisiana, Suite 5360
$16,363,636.36 Houston, Texas 77002
Attention: Mr. Page Dillehunt
Telecopy No.: (713) 751-0307
Term Loan:
$13,636,363.64
66
<PAGE>
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Christopher S. Goodwin
Name: Christopher S. Goodwin
Title: V.P.
By: /s/ Mei Wan Fong
Name: Mei Wan Fong
Title: Group V.P.
Address for Notices:
Revolving Loan Commitment: 1200 Smith, Suite 3100
Houston, Texas 77002
$8,181,818.18 Attention: Mr. Chris Goodwin
Telecopy No.: (713) 659-3832
Term Loan:
$6,818,181.82
67
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Ann M. Rhoads
Name: Ann M. Rhoads
Title: V.P.
Address for Notices:
Revolving Loan Commitment: 1000 Louisiana, 3rd Floor
Houston, Texas 77002
$8,181,818.18 Attention: Ms. Ann Rhoads
Telecopy No.: (713) 250-7912
Term Loan:
$6,818,181.82
68
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ S. Otsubo
Name: Satoru Otsubo
Title: Joint General Manager
Address for Notices:
Revolving Loan Commitment: 165 Broadway
New York, New York 10006
$8,181,818.18 Attention: Mr. David Manheim
Telecopy No.: (212) 608-2371
Term Loan:
$6,818,181.82
69
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Dixon Schultz
Name: Dixon P. Schultz
Title: V.P.
By:
Name:
Title:
Address for Notices:
Revolving Loan Commitment: 1100 Louisiana, Suite 3200
Houston, Texas 77002
$8,181,818.18 Attention: Ms. Susan Hodge
Telecopy No.: (713) 654-7370
Term Loan: with a copy to:
$6,818,181.82 125 West 55th Street
New York, New York 10019-5366
Attention: Christina Tang
Telecopy No.: (212) 632-8736
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<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Paul E. Cornell
Name: Paul E. Cornell
Title: First V.P.
Address for Notices:
Revolving Loan Commitment: 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
$8,181,818.18 Attention: Ms. Tequlla English
Telecopy No.: (214) 754-0171
Term Loan: with a copy to
$6,818,181.82 1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mr. Jim Shelton
Telecopy No.: (713) 650-0824
71
<PAGE>
HIBERNIA NATIONAL BANK
By: /s/ Colleen Smith
Name: Colleen Smith
Title: Banking Officer
Address for Notices:
Revolving Loan Commitment: 313 Carondelet Street, Suite 1400
New Orleans, Louisiana 70130
$5,454,545.45 Attention: Ms. Colleen Smith
Telecopy No.: (504) 533-2042
Term Loan:
$4,545,454.55
72
<PAGE>
COMERICA BANK
By: /s/ Bradley Terryn
Name: Bradley Terryn
Title: V.P.
Address for Notices:
Revolving Loan Commitment: 500 Woodward Avenue, 9th Floor, MC3281
Detroit, Michigan 48226
$5,454,545.45 Attention: Mr. Bradley A. Terryn
Telecopy No.: (313) 222-3330
Term Loan:
$4,545,454.55
73
<PAGE>
CIBC, INC.
By: /s/ Gary C. Gaskill
Name: Gary C. Gaskill
Title: V.P.
Address for Notices:
Revolving Loan Commitment: Two Paces West
2727 Paces Ferry Road, Suite 1200
$5,454,545.45 Atlanta, Georgia 30339
Attention: Loan Operations
Telecopy No.: (404) 319-4950
Term Loan:
with a copy to:
$4,545,454.55
Canadian Imperial Bank of Commerce
Two Houston Center
909 Fannin Street, Suite 1200
Houston, Texas 77010
Attention: Mr. Dave Balderach
Telecopy No.: (713) 658-9922
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<PAGE>
NATIONAL BANK OF CANADA
By: /s/ Larry L. Sears
Name: Larry L. Sears
Title: Group Vice President
By: /s/ David L. Schreiber
Name: David L. Schreiber
Title: Assistant Vice President
Address for Notices:
125 West 55th Street
New York, New York 10019-5366
Attention: Ms. Christina Tang
Telecopy No.: (212) 632-8736
Address for Notices:
Revolving Loan Commitment: 2121 San Jacinto, Suite 1850
Dallas, Texas 75201
$5,454,545.45 Attention: Mr. David Schreiber
Telecopy No.: (214) 871-2015
Term Loan:
$4,545,454.55
75
<PAGE>
76
<PAGE>
[STERLING CHEMICALS, INC. LETTERHEAD]
REQUEST FOR EXTENSION OF CREDIT
-------------------------------
________________, 199____
Texas Commerce Bank National Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Refining and Petrochemicals Group
Gentlemen:
The undersigned hereby certifies that the undersigned is the
_________________________________ of STERLING CHEMICALS, INC., a Delaware
corporation (the "Company"), and that as such the undersigned is authorized to
execute this Request for Extension of Credit (the "Request") on behalf of the
Company pursuant to the Credit Agreement (as it may be amended, supplemented or
restated from time to time, the "Credit Agreement") dated as of April 13, 1995,
by and among the Company, Texas Commerce Bank National Association, as Agent,
The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston
Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and
the Lenders therein named. The (check one) [___] Loan [___] Letter of Credit
being requested hereby is to be in the amount set forth in (b) below and is
requested to be made on __________________, 199____, which is a Business Day.
The undersigned further certifies, represents and warrants that to the
undersigned's knowledge, after due inquiry (each capitalized term used herein
having the same meaning given to it in the Credit Agreement unless otherwise
specified herein):
(a) As of the date hereof, the Maximum Revolving
Loan Available Amount is: $__________
(b) The Company hereby requests under this Request a Revolving Loan or
Letter of Credit (as indicated above) in the amount of $____________.
(c) If a Letter of Credit is requested hereby, it should be issued for the
benefit of __________________________________ and should have an
expiration date of _______________________, 199___ (which date is no
later than one year from the proposed date of
EXHIBIT A
to Credit Agreement
Page 1
<PAGE>
issuance) and any special language to be incorporated into such Letter
of Credit is attached hereto. The sum of the face amount of the
requested Letter of Credit plus the Letter of Credit Liabilities as
the date hereof does not exceed $20,000,000.
(d) The representations and warranties made in each Loan Document are true
and correct in all material respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
(e) No event which has had (or could reasonably be expected to have) a
Material Adverse Effect has occurred.
(f) No Default or Event of Default has occurred and is continuing or will
occur as a result of the making of the Loan or the issuance of the
Letter of Credit requested hereby.
Thank you for your attention to this matter.
Very truly yours,
STERLING CHEMICALS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT A
to Credit Agreement
Page 2
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that the undersigned is the
_______________________ of STERLING CHEMICALS, INC., a Delaware corporation (the
"Company"), and that as such the undersigned is authorized to execute this
Borrowing Base Certificate on behalf of the Company pursuant to the Credit
Agreement (as it may be amended, supplemented or restated from time to time, the
"Credit Agreement") dated as of April 13, 1995, by and among the Company and
Texas Commerce Bank National Association, as Agent, The Bank of Nova Scotia, as
Documentation Agent, ABN AMRO Bank, N. V., Houston Agency, Bank of Scotland and
Credit Lyonnais, New York Branch, as Co-Agents, and the Lenders therein named.
The undersigned further certifies, represents and warrants that to the
undersigned's knowledge, after due inquiry (each capitalized term used herein
having the same meaning given to it in the Credit Agreement unless otherwise
specified herein):
(a) The Borrowing Base as the date hereof is calculated as follows:
(i) Eligible Accounts as of the date hereof $_____
(ii) 85% times Line (a)(i) $_____
(iii) Eligible Inventory as of the date hereof $_____
(iv) 65% times Line (a)(iii) $_____
(v) Value (determined in accordance with GAAP)
as of the date hereof of materials and supplies
which are not Eligible Inventory $_____
(vi) 75% times Line (a)(v)
(not to exceed $7,000,000) $_____
(vii) 65% times Line (a)(vi) $_____
(viii) The Dollar Equivalent of the current unpaid
principal balance of the Canadian Facility $_____
(ix) Borrowing Base as the date hereof [Line (a)(ii)
plus (y) the lesser of (I) Line (a)(ii) or (II) the
sum of Line (a)(iv) plus Line (a)(vii) less (z)
Line (a)(viii)] $_____
EXHIBIT B
to Credit Agreement
Page 1
<PAGE>
(b) Calculations of the Eligible accounts and Eligible Inventory are set
forth on Schedule 1 attached hereto and such calculations are true and
correct in all respects and conform to the definitions of "Eligible
Accounts" and "Eligible Inventory" set forth in the Credit Agreement.
(c) No Default or Event of Default has occurred and is continuing.
Dated _______________, 199__.
_____________________________________
(SIGNATURE OF AUTHORIZED OFFICER)
EXHIBIT B
to Credit Agreement
Page 2
<PAGE>
SUBSIDIARIES
------------
1. Sterling Chemicals International, Inc., a Delaware corporation (100% owned
by Borrower)
2. Sterling Chemicals Energy, Inc., a Delaware corporation (100% owned by
Borrower)
3. Sterling Canada, Inc., a Delaware corporation (100% owned by Borrower)
4. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100%
owned by Borrower)
5. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling Canada,
Inc.)
6. Sterling Pulp Chemicals US, Inc., a Delaware corporation (100% owned by
Sterling Canada, Inc.)
7. Sterling Pulp Chemicals, Ltd., an Ontario corporation (100% owned by
Sterling Canada, Inc.)
EXHIBIT C
<PAGE>
TERM NOTE
Houston, Texas
$__________ ______________, 199_
FOR VALUE RECEIVED, STERLING CHEMICALS, INC. ("Maker"), a Delaware
corporation, promises to pay to the order of _______________________________
______________________ ___ ("Payee"), a __________________, at the principal
office of Texas Commerce Bank National Association, a national banking
association, 712 Main Street, Houston, Harris County, Texas 77002, in
immediately available funds and in lawful money of the United States of America,
the principal sum of __________________________________________ Dollars ($_____
_____________) (or the unpaid balance of all principal advanced against this
note, if that amount is less), together with interest on the unpaid principal
balance of this note from time to time outstanding at the rate or rates provided
in that certain Interest Rate Agreement (as amended, supplemented, restated or
replaced from time to time, the "Interest Rate Agreement") attached as Schedule
1 to the Credit Agreement (hereinafter defined); provided, that for the full
term of this note the interest rate produced by the aggregate of all sums paid
or agreed to be paid to the holder of this note for the use, forbearance or
detention of the debt evidenced hereby (including, but not limited to, all
interest on this note at the Stated Rate plus the Additional Interest) shall not
exceed the Ceiling Rate. Any term defined in the Interest Rate Agreement or in
that certain Credit Agreement (as amended, supplemented, restated or replaced
from time to time, the "Credit Agreement") dated as of April 13, 1995 among
Maker, certain signatory financial institutions named therein, The Bank of Nova
Scotia, as Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of
Scotland and Credit Lyonnais, New York Branch, as Co-Agents, and Texas Commerce
Bank National Association, as Agent, which is used in this note and which is not
otherwise defined in this note shall have the meaning ascribed to it in the
Credit Agreement or the Interest Rate Agreement, as the case may be.
1. Credit Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Credit Agreement, and is one of the Term Notes
referred to in the Credit Agreement. Advances against this note by Payee or
other holder hereof shall be governed by the terms and provisions of the Credit
Agreement. Reference is hereby made to the Credit Agreement for all purposes.
Payee is entitled to the benefits of and security provided for in the Credit
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or permitted prepayments made on this note and by or for the account of
Maker. All loans and advances and all payments and permitted prepayments made
hereon may be endorsed by the holder of this note on a schedule which may be
attached hereto (and thereby made a part hereof for all purposes) or otherwise
recorded in the holder's records; provided, that any failure to make notation
(or any error in such notation) of (a) any advance shall not cancel, limit or
otherwise affect Maker's
EXHIBIT D
to Credit Agreement
Page 1
<PAGE>
obligations or any holder's rights with respect to that advance, or (b) any
payment or permitted prepayment of principal shall not cancel, limit or
otherwise affect Maker's entitlement to credit for that payment as of the date
received by the holder.
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates in accordance with
the terms of the Credit Agreement and the Interest Rate Agreement.
(b) The principal of this note shall be due and payable in quarterly
installments due on each Quarterly Date, beginning on July 1, 1995, equal to
___________% times $4,464,285.71 (subject to adjustment as provided in the
Credit Agreement). On the Maturity Date, the entire unpaid principal balance of
this note and all accrued and unpaid interest on the unpaid principal balance of
this note shall be finally due and payable.
(c) The Credit Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and Texas usury
laws (and the usury laws of any other jurisdiction whose usury laws are deemed
to apply to this note or any of the other Loan Documents despite the intention
and desire of the parties to apply the usury laws of the State of Texas). In
furtherance thereof, none of the terms of this note or any of the other Loan
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized,
EXHIBIT D
to Credit Agreement
Page 2
<PAGE>
prorated, allocated and spread in equal parts throughout the full term of this
note, so that the interest rate is uniform throughout the full term of this
note. The provisions of this Paragraph shall control all agreements, whether now
or hereafter existing and whether written or oral, between Maker and Payee.
4. Default. The Credit Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Loan
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability
on or with respect to this note shall not be affected by any release of or
change in any guaranty or security at any time existing or by any failure to
perfect or to maintain perfection of any lien against or security interest in
any such security or the partial or complete unenforceability of any guaranty or
other surety obligation, in each case in whole or in part, with or without
notice and before or after maturity.
6. Paragraph Headings. Paragraph headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
9. Records of Payments. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
10. Severability. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it.
EXHIBIT D
to Credit Agreement
Page 3
<PAGE>
11. Business Loans. Maker warrants and represents to Payee and all other
holders of this note that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One.
STERLING CHEMICALS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT D
to Credit Agreement
Page 4
<PAGE>
REVOLVING NOTE
Houston, Texas
$__________ ________________, 199_
FOR VALUE RECEIVED, STERLING CHEMICALS, INC. ("Maker"), a Delaware
corporation, promises to pay to the order of _________________________________
("Payee"), a _______________, at the principal office of Texas Commerce Bank
National Association, a national banking association, 712 Main Street, Houston,
Harris County, Texas 77002, in immediately available funds and in lawful money
of the United States of America, the principal sum of_____________________
___________________ Dollars ($____________) (or the unpaid balance of all
principal advanced against this note, if that amount is less), together with
interest on the unpaid principal balance of this note from time to time
outstanding at the rate or rates provided in that certain Interest Rate
Agreement (as amended, supplemented, restated or replaced from time to time, the
"Interest Rate Agreement") attached as Schedule 1 to the Credit Agreement
(hereinafter defined); provided, that for the full term of this note the
interest rate produced by the aggregate of all sums paid or agreed to be paid to
the holder of this note for the use, forbearance or detention of the debt
evidenced hereby (including, but not limited to, all interest on this note at
the Stated Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
Any term defined in the Interest Rate Agreement or in that certain Credit
Agreement (as amended, supplemented, restated or replaced from time to time, the
"Credit Agreement") dated as of April 13, 1995 among Maker, certain signatory
financial institutions named therein, The Bank of Nova Scotia, as Documentation
Agent, ABN AMRO Bank, N.V., Houston Agency, Bank of Scotland and Credit
Lyonnais, New York Branch, as Co-Agents, and Texas Commerce Bank National
Association, as Agent, which is used in this note and which is not otherwise
defined in this note shall have the meaning ascribed to it in the Credit
Agreement or the Interest Rate Agreement, as the case may be.
1. Credit Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Credit Agreement, and is one of the Revolving Notes
referred to in the Credit Agreement. Advances against this note by Payee or
other holder hereof shall be governed by the terms and provisions of the Credit
Agreement. Reference is hereby made to the Credit Agreement for all purposes.
Payee is entitled to the benefits of and security provided for in the Credit
Agreement. The unpaid principal balance of this note at any time shall be the
total of all amounts lent or advanced against this note less the amount of all
payments or permitted prepayments made on this note and by or for the account of
Maker. All loans and advances and all payments and permitted prepayments made
hereon may be endorsed by the holder of this note on a schedule which may be
attached hereto (and thereby made a part hereof for all purposes) or otherwise
recorded in the holder's records; provided, that any failure to make notation
(or any error in such notation) of (a) any advance shall not cancel, limit or
otherwise affect Maker's
EXHIBIT E
to Credit Agreement
Page 1
<PAGE>
obligations or any holder's rights with respect to that advance, or (b) any
payment or permitted prepayment of principal shall not cancel, limit or
otherwise affect Maker's entitlement to credit for that payment as of the date
received by the holder.
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates in accordance with
the terms of the Credit Agreement and the Interest Rate Agreement.
(b) The entire unpaid principal balance of this note shall be finally due
and payable on the Maturity Date.
(c) The Credit Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and Texas usury
laws (and the usury laws of any other jurisdiction whose usury laws are deemed
to apply to this note or any of the other Loan Documents despite the intention
and desire of the parties to apply the usury laws of the State of Texas). In
furtherance thereof, none of the terms of this note or any of the other Loan
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of this note. The
provisions of this Paragraph shall control all agreements, whether now or
hereafter existing and whether written or oral, between Maker and Payee.
EXHIBIT E
to Credit Agreement
Page 2
<PAGE>
4. Default. The Credit Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Loan
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability
on or with respect to this note shall not be affected by any release of or
change in any guaranty or security at any time existing or by any failure to
perfect or to maintain perfection of any lien against or security interest in
any such security or the partial or complete unenforceability of any guaranty or
other surety obligation, in each case in whole or in part, with or without
notice and before or after maturity.
6. Paragraph Headings. Paragraph headings appearing in this note are for
convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
9. Records of Payments. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
10. Severability. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry out
the intent of the parties to it.
11. Revolving Loan. Subject to the terms and provisions of the Credit
Agreement, Maker may use all or any part of the credit provided to be evidenced
by this note at any time before the Maturity Date. Maker may borrow, repay and
reborrow hereunder, and except as set forth in the Credit Agreement there is no
limitation on the number of advances made hereunder. Pursuant to Article
15.10(b) of Chapter 15 ("Chapter 15") of Title 79, Texas
EXHIBIT E
to Credit Agreement
Page 3
<PAGE>
Revised Civil Statutes, 1925, as amended, Maker and Payee expressly agree that
Chapter 15 shall not apply to this note or to any loan evidenced by this note
and that neither this note nor any such loan shall be governed by or subject to
the provisions of Chapter 15 in any manner whatsoever.
12. Business Loans. Maker warrants and represents to Payee and all other
holders of this note that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One.
STERLING CHEMICALS, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT E
to Credit Agreement
Page 4
<PAGE>
ASSIGNMENT AND ACCEPTANCE
-------------------------
Dated: ___________________, 199_
Reference is made to the Credit Agreement dated as of April 13, 1995
(as restated, amended, modified, supplemented and in effect from time to time,
the "Credit Agreement"), among Sterling Chemicals, Inc., a Delaware corporation
(the "Company"), the Lenders named therein, The Bank of Nova Scotia, a
Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and
Credit Lyonnais, New York Branch, as Co-Agents, and Texas Commerce Bank National
Association, as Agent (the "Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Credit
Agreement. This Assignment and Acceptance, between the Assignor (as defined and
set forth on Schedule I hereto and made a part hereof) and the Assignee (as
defined and set forth on Schedule I hereto and made a part hereof) is dated as
of the Effective Date (as set forth on Schedule I hereto and made a part
hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided ________% interest (the "Assigned Interest") in and
to all the Assignor's rights and obligations under the Credit Agreement as set
forth on Schedule I (collectively, the "Assigned Facilities," individually, an
"Assigned Facility").
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Company or its Subsidiaries or the performance or observance by the
Company or its Subsidiaries of any of its respective obligations under the
Credit Agreement, any other Loan Document or any other instrument or document
furnished pursuant thereto; and (iii) attaches the Note(s) held by it evidencing
the Assigned Facility or Facilities, as the case may be, and requests that the
Agent exchange such Note(s) for a new Note or Notes payable to the Assignor (if
the Assignor has retained any interest in the Assigned Facility or Facilities)
and a new Note or Notes payable to the Assignee in the respective amounts which
reflect the assignment being made hereby (and after giving effect to any other
assignments which have become effective on the Effective Date).
EXHIBIT F
to Credit Agreement
Page 1
<PAGE>
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of the financial statements
referred to in Section 6.2 thereof, or if later, the most recent financial
statements delivered pursuant to Section 7.2 thereof, and such other documents
and information as it has deemed appropriate to make its own credit analysis;
(iii) agrees that it will, independently and without reliance upon the Agent,
the Assignor or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Credit Agreement; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(v) agrees that it will be bound by the provisions of the Credit Agreement and
will perform in accordance with its terms all the obligations which by the terms
of the Credit Agreement are required to be performed by it as a Lender; (vi) if
the Assignee is organized under the laws of a jurisdiction outside the United
States, attaches the forms prescribed by the Internal Revenue Service of the
United States certifying as to the Assignee's exemption from United States
withholding taxes with respect to all payments to be made to the Assignee under
the Credit Agreement or such other documents as are necessary to indicate that
all such payments are subject to such tax at a rate reduced by an applicable tax
treaty, and (vii) has supplied the information requested on the administrative
questionnaire submitted by the Agent.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Agent for acceptance by it and the Company and recording by
the Agent pursuant to Section 11.6 of the Credit Agreement, effective as of the
Effective Date (which Effective Date shall, unless otherwise agreed to by the
Agent, be at least five Business Days after the execution of this Assignment and
Acceptance).
5. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts) to the Assignee,
whether such amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective Date by
the Agent or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (i) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
EXHIBIT F
to Credit Agreement
Page 2
<PAGE>
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
EXHIBIT F
to Credit Agreement
Page 3
<PAGE>
SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE
Legal Name of Assignor: ______________________________________________________
Legal Name of Assignee: ______________________________________________________
Effective Date of Assignment: __________________, 199_
Principal
Amount (or,
with respect
to Letters
Assigned of Credit, face
Facilities amount) Assigned
---------- ----------------
Term Loans: $_______________
Revolving Loans: $_______________
Letter of Credit
participation interests $_______________
Total $______________
Accepted:
TEXAS COMMERCE BANK NATIONAL _______________________________________
ASSOCIATION, as Agent as Assignor
By:_________________________ By:____________________________________
Name:_______________________ Name:__________________________________
Title:______________________ Title:_________________________________
EXHIBIT F
to Credit Agreement
Page 1
<PAGE>
____________________________
as Assignee
By:_________________________
Name:_______________________
Title:______________________
Acknowledged and Agreed:
STERLING CHEMICALS, INC.
By:_________________________
Name:_______________________
Title:______________________
EXHIBIT F
to Credit Agreement
Page 2
<PAGE>
COMPLIANCE CERTIFICATE
----------------------
The undersigned hereby certifies that the undersigned is the _____________
________________________________ of STERLING CHEMICALS, INC., a Delaware
corporation (the "Borrower"), and that as such the undersigned is authorized to
execute this certificate on behalf of the Borrower pursuant to the Credit
Agreement (as it may be amended, supplemented or restated from time to time,
the "Credit Agreement") dated as of April 13, 1995, by and among the Borrower,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent, a national banking
association, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank
N.V., Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as
Co-Agents, and the financial institutions therein named; and that a review of
the Borrower and its Subsidiaries has been made under the supervision of the
undersigned with a view to determining whether the Borrower and its Subsidiaries
have fulfilled all of their respective obligations under the Credit Agreement,
the Notes and the other Loan Documents; and on behalf of the Borrower further
certifies, represents and warrants that to the undersigned's knowledge, after
due inquiry (each capitalized term used herein having the same meaning given to
it in the Credit Agreement unless otherwise specified):
(a) The financial statements delivered to the Agent concurrently
with this Compliance Certificate have been prepared in accordance with
GAAP consistently followed throughout the period indicated and fairly
present the financial condition and results of operations of the
applicable Persons as at the end of, and for, the period indicated
(subject, in the case of Quarterly Financial Statements and monthly
statements of income and cash flow, to normal changes resulting from
year-end adjustments).
(b) No Default or Event of Default has occurred and is continuing.
In this regard, the compliance with the provisions of Section 7.3 of the
Credit Agreement is as follows:
(i) Section 7.3(a) -- Debt to EBITDA Ratio
--------------
Actual Required
------ --------
______ to 1.00 4.00 to 1.00
(ii) Section 7.3(b) -- Fixed Charge Coverage Ratio
--------------
Actual Required
------ --------
______ to 1.00 1.25 to 1.00
EXHIBIT G
to Credit Agreement
Page 1
<PAGE>
(iii) Section 7.3(c) -- Adjusted Fixed Charge Ratio (only required in case of
-------------- dividends)
Actual Required
------ --------
______ to 1.00 1.10 to 1.00
(iv) Section 7.3(d) -- Net Worth
______________
Actual Required
------ --------
$ _______ $ ________
(v) Section 7.3(e) -- Current Ratio
Actual Required
------ --------
______ to 1.00 1.10 to 1.00
DATED as of __________________, 199___.
-----------------------------------
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT G
to Credit Agreement
Page 2
<PAGE>
EXHIBIT H
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
ISSUER LC# BENEFICIARY AMOUNT
------ --- ----------- ------
<S> <C> <C> <C>
Bank of Nova Scotia A152180 Insurance Company of North America $ 20,000
Bank of Nova Scotia A152224 Texas Natural Resource Conservation Commission $ 387,450.00
Bank of Nova Scotia A152225 Texas Natural Resource Conservation Commission $1,464,517.00
Bank of Nova Scotia A152413 Reliance National Risk Specialists $ 300,000.00
-------------
TOTAL $2,171,967.00
=============
</TABLE>
<PAGE>
SCHEDULE 6.10
ERISA MATTERS
NONE
<PAGE>
SCHEDULE 8.1
EXISTING BORROWED MONEY INDEBTEDNESS
NONE
----
<PAGE>
SCHEDULE 8.2
EXISTING LIENS
Liens existing under the Security Agreement dated as of August 1, 1988, between
BP Chemicals Inc., formerly known as BP Chemicals America Inc., as secured
party, and Sterling Chemicals, Inc., as debtor, securing obligations under the
Production Agreement dated as of April 15, 1988, between those parties covering
certain production related to the Production Agreement, certain proceeds of such
production, and certain equipment and fixtures related to the production, all as
described in the Security Agreement.
<PAGE>
SCHEDULE 8.3
EXISTING CONTINGENT LIABILITIES
NONE
----
<PAGE>
SCHEDULE 8.8
EXISTING INVESTMENTS
DESCRIPTION
-----------
PRIMEX, LTD.- COMMON STOCK (2,500 SHARES)
PRIMEX, LTD.-SERIES "A" PREFERRED (7,957 SHARES)
50% OF S & L CO-GENERATION (A PARTNERSHIP)
<PAGE>
INTEREST RATE AGREEMENT
THIS INTEREST RATE AGREEMENT (this "Agreement") is attached as SCHEDULE 1
to the Credit Agreement (as amended, supplemented, restated or replaced from
time to time, the "Credit Agreement"), of even date herewith, by and among
STERLING CHEMICALS, INC. ("Borrower"), a Delaware corporation, certain financial
institutions from time to time a party thereto, The Bank of Nova Scotia, as
Documentation Agent, ABN AMRO Bank N.V., Houston Agency, Bank of Scotland and
Credit Lyonnais, New York Branch, as Co-Agents, and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (in such capacity "Agent"), a national banking association acting as
agent for such financial institutions.
RECITALS
1. Any capitalized term defined in the Credit Agreement which is used in
this Agreement shall, unless otherwise defined herein, have the meaning ascribed
to it in the Credit Agreement.
2. For convenience, Borrower and Agent desire to gather the provisions of
the Loan Documents relating solely to interest, including the selection of
interest rate options, into a separate agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the execution and delivery of the
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
Capitalized words and phrases used in this Agreement have the meanings
provided below. Unless otherwise stated, references to sections are to sections
in this Agreement.
Additional Interest means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest on
the Notes at the Stated Rate) which, under applicable laws, are or may be deemed
to constitute interest on the indebtedness evidenced by the Notes.
Base Rate means for any day a rate per annum equal to the lesser of (a) the
greater of (1) the Prime Rate for that day and (2) the Federal Funds Rate for
that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason Agent shall
have determined (which determination shall be conclusive and binding, absent
manifest error) that it is unable to ascertain the Federal Funds
SCHEDULE 1
to Credit Agreement
<PAGE>
Rate for any reason, including, without limitation, the inability or failure of
Agent to obtain sufficient quotations in accordance with the terms hereof, the
Base Rate shall, until the circumstances giving rise to such inability no longer
exist, be the lesser of (a) the Prime Rate or (b) the Ceiling Rate.
Base Rate Borrowing means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
Ceiling Rate means, on any day, the maximum nonusurious rate of interest
permitted for that day by whichever of applicable federal or Texas laws permits
the higher interest rate, stated as a rate per annum. On each day, if any, that
Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the
"indicated rate ceiling" (as defined in Chapter One) for that day. Agent may
from time to time, as to current and future balances, implement any other
ceiling under Chapter One by notice to Borrower, if and to the extent permitted
by Chapter One. Without notice to Borrower or any other person or entity, the
Ceiling Rate shall automatically fluctuate upward and downward as and in the
amount by which such maximum nonusurious rate of interest permitted by
applicable law fluctuates.
Chapter One means Chapter One of Title 79, Texas Revised Civil Statutes,
1925, as amended.
Eurodollar Business Day means a Business Day on which transactions in
United States dollar deposits between banks may be carried on in whatever
Eurodollar interbank market may be selected by Agent in accordance herewith.
Eurodollar Interbank Rate means, for each Interest Period, the rate of
interest per annum, rounded, if necessary, to the next highest whole multiple of
one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston,
Texas time (or as soon thereafter as practicable), on the date two Eurodollar
Business Days before the first day of such Interest Period, to be the arithmetic
average of the prevailing rates per annum at the time of determination and in
accordance with the then existing practice in the applicable market, for the
offering to Agent by one or more prime banks selected by Agent in its sole
discretion, in whatever Eurodollar interbank market may be selected by Agent in
its sole discretion, of deposits in Dollars for delivery on the first day of
such Interest Period and having a maturity equal to the length of such Interest
Period and in an amount equal (or as nearly equal as may be) to the Eurodollar
Rate Borrowing to which such Interest Period relates. Each determination by
Agent of the Eurodollar Interbank Rate shall be conclusive and binding, absent
manifest error, and may be computed using any reasonable averaging and
attribution method.
Eurodollar Rate means for any day a rate per annum equal to the lesser of
(a) the sum of (1) the Eurodollar Interbank Rate in effect on the first day of
the Interest Period for the applicable Eurodollar Rate Borrowing plus (2) the
applicable Margin Percentage in effect on the first day of the Interest Period
for the applicable Eurodollar Rate Borrowing and (b) the Ceiling
2
<PAGE>
Rate. Each Eurodollar Rate is subject to adjustments for reserves and other
matters as provided for in Section 2.3 hereof.
Eurodollar Rate Borrowing means each portion of the principal balance of
the Loans at any time bearing interest at a Eurodollar Rate.
Eurodollar Reserve Requirement means, on any day, for any Loans of any
Lender bearing interest at the Eurodollar Rate and any Interest Period, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained by such Lender during such
Interest Period under Regulation D against "Eurocurrency liabilities" (as such
term is used in Regulation D). Each determination of the Eurodollar Reserve
Requirement by a Lender shall be conclusive and binding, absent manifest error,
and may be computed using any reasonable averaging and attribution method.
Federal Funds Rate means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent in its sole and absolute discretion.
Funding Loss means, with respect to (a) Borrower's payment of principal of
a Eurodollar Rate Borrowing on a day before the last day of the applicable
Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate Borrowing on
the date specified by Borrower; (c) Borrower's failure to make any prepayment of
the Loans (other than Base Rate Borrowings) on the date specified by Borrower,
or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part
thereof pursuant to Section 2.3, in each case whether voluntary or involuntary,
any loss, expense, penalty, premium or liability incurred by any Lender
(including but not limited to any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund or maintain a Loan).
Interest Options means the Base Rate and each Eurodollar Rate, and
"Interest Option" means either of them.
Interest Payment Dates means (a) for Base Rate Borrowings, July 1, 1995 and
the first day of each October, January, April and July thereafter prior to the
Maturity Date and the Maturity Date; and (b) for Eurodollar Rate Borrowings, the
end of the applicable Interest Period (and if such Interest Period exceeds three
months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period) and the Maturity Date.
3
<PAGE>
Interest Period means, for each Eurodollar Rate Borrowing, a period
commencing on the date such Eurodollar Rate Borrowing began and ending on the
numerically corresponding day which is, subject to availability, not less than 1
nor more than 12 months thereafter, as Borrower shall elect in accordance
herewith; provided, (v) any Interest Period with respect to a Eurodollar Rate
Borrowing which would otherwise end on a day which is not a Eurodollar Business
Day shall be extended to the next succeeding Eurodollar Business Day, unless
such Eurodollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business Day; (w) any
Interest Period with respect to a Eurodollar Rate Borrowing which begins on the
last Eurodollar Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Eurodollar Business Day of the
appropriate calendar month; (x) no Interest Period shall ever extend beyond the
Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a
manner that the Interest Period with respect to any portion of the Loans which
shall become due shall not extend beyond such due date.
Margin Percentage means:
(a) On any day prior to the first adjustment after the date hereof
pursuant to clause (b) of this definition, 0.75%;
(b) the Margin Percentage for any day shall be the applicable per annum
percentage set forth at the appropriate intersection in the table
shown below, based on the Debt to EBITDA Ratio as of the last day of
each March, June, September and December (beginning with the fiscal
quarter ending on June 30, 1995) (such increase or decrease to be
effective on the date that Borrower delivers the Quarterly Financial
Statements for the fiscal quarter ending on such date to the Agent
pursuant to the terms of the Credit Agreement):
<TABLE>
<CAPTION>
Eurodollar Rate
Debt to Borrowings Margin
EBITDA Ratio Percentage
------------ ----------
<S> <C>
Greater than or equal to 3.50 1.25
Greater than or equal to
2.50 but less than 3.50 1.00
Greater than or equal to
1.50 but less than 2.50 0.75
Less than 1.50 0.65
</TABLE>
4
<PAGE>
Prime Rate means, on any day, the prime rate for that day as announced from
time to time by TCB and thereafter entered in the minutes of its Loan and
Discount Committee. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate or a favored rate, and TCB, Agent and each
Lender disclaims any statement, representation or warranty to the contrary.
TCB, Agent or any Lender may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
Rate Designation Date means that Business Day which is (a) in the case of
Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such
borrowing and (b) in the case of Eurodollar Rate Borrowings, 11:00 a.m.,
Houston, Texas time, on the date three Eurodollar Business Days preceding the
first day of any proposed Interest Period.
Rate Designation Notice means a written notice substantially in the form of
Exhibit A.
Regulation D means Regulation D of the Board of Governors of the Federal
Reserve System from time to time in effect and includes any successor or other
regulation relating to reserve requirements applicable to member banks of the
Federal Reserve System.
Stated Rate means the effective weighted per annum rate of interest
applicable to the Loans. Without notice to Borrower or any other person or
entity, the Stated Rate shall automatically fluctuate upward and downward in
accordance with the provisions of this definition.
Taxes means any tax, levy, impost, duty, charge or fee.
2. INTEREST OPTIONS FOR LOANS
2.1 Options Available. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; provided, that (1) all amounts, both
principal and accrued interest, remaining past due beyond the grace period (if
any) provided in the Credit Agreement shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of Agent with
respect to Interest Options, Interest Periods and the amounts of Loans to which
they are applicable shall be binding and conclusive, absent manifest error.
Interest on the Loans shall be calculated at the Base Rate except where it is
expressly provided pursuant to this Agreement that a Eurodollar Rate or the Past
Due Rate is to apply. Interest on the amount of each advance against the Notes
shall be computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holders of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
5
<PAGE>
2.2 Designation and Conversion. Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. Subject to the last sentence of Section 2.1 and the provisions of
Section 2.3, Borrower may elect to have a Eurodollar Rate apply or continue to
apply to all or any portion of the principal balance of the Notes. Each change
in Interest Options shall be a conversion of the rate of interest applicable to
the specified portion of the Loans, but such conversion shall not change the
respective outstanding principal balances of the Notes. The Interest Options
shall be designated or converted in the manner provided below:
(a) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice. Each such telephonic and written notice
shall specify the amount of the Loan and type (i.e. Revolving Loan or
Term Loan) which is the subject of the designation, if any; the amount
of borrowings into which such borrowings are to be converted or for
which an Interest Option is designated; the proposed date for the
designation or conversion and the Interest Period or Periods, if any,
selected by Borrower. Such telephonic notice shall be irrevocable and
shall be given to Agent no later than the applicable Rate Designation
Date.
(b) No more than six (6) Eurodollar Rate Borrowings shall be in effect at
any time.
(c) Each designation or conversion of a Eurodollar Rate Borrowing shall
occur on a Eurodollar Business Day.
(d) Unless the Borrower makes the payment required by Section 2.3(d)
hereof, no Eurodollar Rate Borrowing shall be converted to a Base Rate
Borrowing on any day other than the last day of the applicable
Interest Period.
(e) Each Eurodollar Rate Borrowing shall be in the amount of at least
$1,000,000.
(f) Each designation of an Interest Option with respect to the Revolving
Notes or the Term Notes shall apply to all of the Revolving Notes or
Term Notes, respectively, ratably in accordance with their respective
outstanding principal balances. If any Lender assigns an interest in
any of its Notes when any Eurodollar Rate Borrowing is outstanding
with respect thereto, then such assignee shall have its ratable
interest in such Eurodollar Rate Borrowing.
2.3 Special Provisions Applicable to Eurodollar Rate Borrowings.
(a) Options Unlawful. If the adoption of any applicable Legal Requirement
or any change in any applicable Legal Requirement or in the interpretation or
administration thereof by any Governmental Authority or compliance by Agent or
any Lender with any request or directive (whether or not having the force of
law) of any central bank or other Governmental
6
<PAGE>
Authority shall at any time make it unlawful or impossible for Agent or any
Lender to permit the establishment of or to maintain any Eurodollar Rate
Borrowing, the commitment to establish or maintain such Eurodollar Rate
Borrowing shall forthwith be suspended and Borrower shall forthwith, upon demand
by Agent to Borrower, (1) if required to avoid a violation of any Legal
Requirement, convert the Eurodollar Rate Borrowing with respect to which such
demand was made to a Base Rate Borrowing; (2) pay all accrued and unpaid
interest to date on the amount so converted; and (3) pay any amounts required to
compensate each Lender for any additional cost or expense which each Lender may
incur as a result of such adoption of or change in such Legal Requirement or in
the interpretation or administration thereof and any Funding Loss which each
Lender may incur as a result of such conversion. If, when Agent so notifies
Borrower, Borrower has given a Rate Designation Notice specifying a Eurodollar
Rate Borrowing but the selected Interest Period has not yet begun, such Rate
Designation Notice shall be deemed to be of no force and effect, as if never
made, and the balance of the Loans specified in such Rate Designation Notice
shall bear interest at the Base Rate until a different available Interest Option
shall be designated in accordance herewith.
(b) Increased Cost of Borrowings. If the adoption of any applicable Legal
Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by any Lender with any request or directive (whether or not having
the force of law) of any central bank or Governmental Authority shall at any
time, as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
(1) subject any Lender (or make it apparent that any Lender is
subject) to any Taxes, or any deduction or withholding for any
Taxes, on or from any payment due under any Eurodollar Rate
Borrowing or other amount due hereunder, other than income and
franchise taxes of the United States and its political
subdivisions; or
(2) change the basis of taxation of payments due from Borrower to any
Lender under any Eurodollar Rate Borrowing (otherwise than by a
change in the rate of taxation of the overall net income of such
Lender); or
(3) impose, modify, increase or deem applicable any reserve
requirement, special deposit requirement or similar requirement
(including, but not limited to, state law requirements and
Regulation D) imposed, modified, increased or deemed applicable
by any Governmental Authority against assets held by any Lender,
or against deposits or accounts in or for the account of any
Lender, or against loans made by any Lender, or against any other
funds, obligations or other property owned or held by any Lender;
or
7
<PAGE>
(4) impose on any Lender any other condition regarding any Eurodollar
Rate Borrowing;
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such Eurodollar Rate
Borrowing, or reduce the amount of principal or interest received by any Lender,
then, upon demand by Agent, Borrower shall pay to Agent, from time to time as
specified by Agent, additional amounts which shall compensate each Lender for
such increased cost or reduced amount. The determination by any Lender of the
amount of any such increased cost, increased reserve requirement or reduced
amount shall be conclusive and binding, absent manifest error. Each Lender will
notify the Borrower through the Agent of any event occurring after the date of
this Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by the Borrower
through the Agent) will designate a different lending office of such Lender for
the applicable Eurodollar Rate Borrowing or will take such other action as the
Borrower may reasonable request if such designation or action is consistent with
the internal policy of such Lender and legal and regulatory restrictions, will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Lender, be disadvantageous to such Lender (provided
that such Lender shall have no obligation so to designate a different lending
office which is located in the United States of America).
(c) Inadequacy of Pricing and Rate Determination. If for any reason with
respect to any Interest Period, the Agent (or, in the case of clause 3 below,
the applicable Lender) shall have determined (which determination shall be
conclusive and binding upon Borrower) that:
(1) Agent is unable through its customary general practices to
determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable market,
generally, Agent is not being offered deposits in United States
dollars in such market, for the applicable Interest Period and in
an amount equal to the amount of any applicable Eurodollar Rate
Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately and fairly
reflect the cost to any Lender of making and maintaining such
Eurodollar Rate Borrowing hereunder for any proposed Interest
Period,
then Agent shall give Borrower notice thereof and thereupon, (A) any Rate
Designation Notice previously given by Borrower designating the applicable
Eurodollar Rate Borrowing which has not commenced as of the date of such notice
from Agent shall be deemed for all purposes hereof to be of no force and effect,
as if never given, and (B) until Agent shall notify Borrower that the
circumstances giving rise to such notice from Agent no longer exist, each Rate
Designation
8
<PAGE>
Notice requesting the applicable Eurodollar Rate shall be deemed a request for a
Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then
outstanding shall be converted, without any notice to or from Borrower, upon the
termination of the Interest Period then in effect with respect to it, to a Base
Rate Borrowing.
(d) Funding Losses. Borrower shall indemnify each Lender against and hold
each Lender harmless from any Funding Loss. This agreement shall survive the
payment of the Notes. A certificate as to any additional amounts payable
pursuant to this paragraph submitted to Borrower shall be conclusive and binding
upon Borrower, absent manifest error.
3. MISCELLANEOUS
3.1 Funding Offices; Adjustments Automatic; Calculation Year. Any Lender
may, if it so elects, fulfill its obligation as to any Eurodollar Rate Borrowing
by causing a branch or affiliate of such Lender to make such Loan and may
transfer and carry such Loan at, to or for the account of any branch office or
affiliate of such Lender; provided, that in such event for the purposes of this
Agreement such Loan shall be deemed to have been made by such Lender and the
obligation of Borrower to repay such Loan shall nevertheless be to such Lender
and shall be deemed held by it for the account of such branch or affiliate.
Without notice to Borrower or any other person or entity, each rate required to
be calculated or determined under this Agreement shall automatically fluctuate
upward and downward in accordance with the provisions of this Agreement.
Interest at the Prime Rate shall be computed on the basis of the actual number
of days elapsed in a year consisting of 365 or 366 days, as the case may be.
All other interest required to be calculated or determined under this Agreement
shall be computed on the basis of the actual number of days elapsed in a year
consisting of 360 days, unless the Ceiling Rate would thereby be exceeded, in
which event, to the extent necessary to avoid exceeding the Ceiling Rate, the
applicable interest shall be computed on the basis of the actual number of days
elapsed in the applicable calendar year in which accrued.
3.2 Funding Sources. Notwithstanding any provision of this Agreement to
the contrary and each Lender shall be entitled to fund and maintain its funding
of all or any part of the Loans in any manner it sees fit, it being understood,
however, that for the purposes of this Agreement all determinations hereunder
shall be made as if each Lender had actually funded and maintained each
Eurodollar Rate Borrowing during each Interest Period through the purchase of
deposits having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the Eurodollar Rate for such Interest Period.
3.3 Affected Lenders. In the event a Lender ("Affected Lender") shall
have
(i) delivered a notice pursuant to this Agreement claiming that such
Affected Lender is unable to extend Eurodollar Rate Loans to
Borrower for reasons not generally applicable to the other
Lenders, or
9
<PAGE>
(ii) shall have requested compensation from Borrower under any of the
provisions hereof to recover increased costs incurred by such
Affected Lender which are not being incurred generally by the
other Lenders,
then, in any such case, Borrower or Agent may make written demand on such
Affected Lender (with a copy to Borrower in the case of a demand by Agent and
with a copy to Agent in the case of a demand by Borrower) for the Affected
Lender to assign, and such Affected Lender shall assign pursuant to one or more
duly executed Assignment and Acceptances within five (5) Business Days after the
date of such demand, to one or more assignees permitted under Section 11.6 of
the Credit Agreement (each, an "Eligible Assignee") which Borrower or Agent, as
the case may be, shall have engaged for such purpose, all of such Affected
Lender's rights and obligations under the Credit Agreement (including, without
limitation, its Revolving Loan Commitments, its Notes and all Loans owing to it,
all Letters of Credit, and its obligation to participate in additional Letters
of Credit thereunder) in accordance with Section 11.6 of the Credit Agreement.
EXECUTED as of the 13th day of April, 1995.
STERLING CHEMICALS, INC.,
a Delaware corporation
By: /s/ Jim P. Wise
------------------------------------
Jim P. Wise, Vice President-Finance
& Chief Financial Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent
By: /s/ Gregory R. Ford
------------------------------------
Gregory R. Ford,
Vice President
10
<PAGE>
RATE DESIGNATION NOTICE
Sterling Chemicals, Inc., Texas Commerce Bank National Association, as
Agent, The Bank of Nova Scotia, as Documentation Agent, ABN AMRO Bank N.V.,
Houston Agency, Bank of Scotland and Credit Lyonnais, New York Branch, as Co-
Agents, and certain financial institutions executed and delivered that certain
Credit Agreement (as amended, supplemented and restated, the "Credit Agreement")
dated as of April 13, 1995. Schedule 1 to the Credit Agreement is entitled the
"Interest Rate Agreement". Any term used herein and not otherwise defined
herein shall have the meaning herein ascribed to it in the Interest Rate
Agreement. In accordance with the Interest Rate Agreement, Borrower hereby
notifies Agent of the exercise of an Interest Option.
A. Type of Loan The Loans with respect to which this Rate Designation Notice
is being given are (check one): [____] Term Loans
[____] Revolving Loans
B. Current borrowings
1. Interest Options now in effect: _______________________
2. Amounts: $_____________________
3. Expiration of current Interest Periods, if applicable: _____________
C. Proposed election
1. Total Amount: $______________________
2. Date Interest Option is to be effective: __________________________
3. Interest Option to be applicable (check one):
[ ] Base Rate [ ] Eurodollar Rate
4. Interest Period: ______ months (if available and if applicable)
Borrower represents and warrants that the Interest Option and Interest
Period selected above comply with all provisions of the Interest Rate Agreement.
Date:_________________ STERLING CHEMICALS, INC.,
a Delaware corporation
By:___________________________________
Name:_________________________________
Title:________________________________
EXHIBIT A
<PAGE>
Exhibit 10.2(a)
GUARANTY
(Parent)
THIS GUARANTY ("Guaranty"), dated as of September 28, 1995, is executed
and delivered by STERLING CHEMICALS, INC., a Delaware corporation ("Guarantor"),
to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association,
acting in its capacity as agent (in such capacity, together with all successors
in such capacity, "Agent") for the financial institutions (collectively, the
"Lenders" and each a "Lender") which are now or hereafter become parties to that
certain Credit Agreement (as amended, modified, restated and supplemented from
time to time, the "Credit Agreement") of even date herewith, by and among the
Borrower (as hereinafter defined), the Lenders and the Agent.
ARTICLE 1
SECTION 1.1 Definitions. As used in this Guaranty, these terms shall have these
respective meanings:
Borrower means STERLING PULP CHEMICALS, LTD., a corporation organized
under the laws of the Province of Ontario, Canada, and its successors, assigns,
trustees and receivers.
Debt means (a) all Indebtedness (principal, interest or other
obligations and including withholding tax, environmental and other indemnity
obligations) owed by Borrower evidenced by or arising pursuant to the Credit
Agreement, the Notes and the Interest Rate Risk Agreement between Borrower and
one or more of the Lenders (but no other Person), (b) the Interest Rate Risk
Indebtedness to the extent, only, that it is owed to one or more Lenders by
Borrower, and (c) all other Indebtedness (principal, interest or other) to any
Lender or Agent incurred under or evidenced by the other Loan Documents. The
Debt includes interest and other obligations accruing or arising after (a)
commencement of any case under any bankruptcy or similar laws by or against any
Obligor or (b) the obligations of any Obligor shall cease to exist by operation
of law. The Debt also includes all reasonable attorneys' fees and any other
expenses incurred by any Lender or Agent in enforcing any of the Loan Documents.
Obligor means any Person now or hereafter primarily or secondarily
obligated to pay all or any part of the Debt, including Borrower and Guarantor.
Unless redefined in this Guaranty, capitalized terms used in this Guaranty have
the respective meanings ascribed to them in the Credit Agreement. All principles
of construction set forth in Section 1.2 of the Credit Agreement are
incorporated herein by reference for all purposes.
<PAGE>
ARTICLE 2
SECTION 2.1 Execution of Loan Documents. Borrower has executed and delivered
the Credit Agreement and the Notes to the Lenders, and the Debt is secured by
the Liens created, evidenced or carried forward by the Loan Documents.
SECTION 2.2 Consideration. In consideration of the credit and financial
accommodations contemplated to be extended to Borrower by the Lenders pursuant
to the Loan Documents or otherwise, which the Board of Directors of Guarantor
has determined will substantially benefit Guarantor directly or indirectly, and
for other good and valuable consideration, the receipt and sufficiency of which
Guarantor hereby acknowledges, Guarantor executes and delivers this Guaranty to
Agent on behalf of Lenders with the intention of being presently and legally
bound by its terms.
ARTICLE 3
SECTION 3.1 Payment Guaranty. Guarantor, as primary obligor and not as a
surety, unconditionally guarantees to Agent on behalf of Lenders the full,
prompt and punctual payment of the Debt when due (whether at its stated
maturity, by acceleration or otherwise) in accordance with the Loan Documents.
This Guaranty is irrevocable, unconditional and absolute, and if for any reason
all or any portion of the Debt shall not be paid when due, Guarantor will
immediately pay, upon demand made by Agent on Guarantor, all such Debt to Agent
or other Person entitled to it, in Dollars, regardless of (a) any defense, right
of set-off or counterclaim which any Obligor may have or assert, (b) whether any
Lender or Agent or any other Person shall have taken any steps to enforce any
rights against any Obligor or any other Person to collect any of the Debt and
(c) any other circumstance, condition or contingency.
SECTION 3.2 Obligations Not Affected. Guarantor's covenants, agreements and
obligations under this Guaranty shall not in any way be released, diminished,
reduced, impaired or otherwise affected by reason of the happening from time to
time of any of the following things, for any reason, whether by voluntary act,
operation of law or order of any competent Governmental Authority and whether or
not Guarantor is given any notice or gives any consent (all requirements for
which, however arising, Guarantor hereby WAIVES):
(a) release or waiver of any obligation or duty to perform or observe any
express or implied agreement, covenant, term or condition imposed in any of the
Loan Documents (other than this Guaranty) or by applicable law on any Obligor or
any party to the Loan Documents.
(b) extension of the time for payment of any part of the Debt or any other
sums payable under the Loan Documents (other than this Guaranty), extension of
the time for performance of any other obligation under or arising out of or in
connection with the Loan
2
<PAGE>
Documents (other than this Guaranty) or change in the manner, place or other
terms of such payment or performance.
(c) settlement or compromise of any or all of the Debt.
(d) renewal, supplementing, modification, rearrangement, amendment,
restatement, replacement, cancellation, rescission, revocation or reinstatement
(whether or not material) of any part of any of the Loan Documents or any
obligations under the Loan Documents of any Obligor or any other party to the
Loan Documents (without limiting the number of times any of the foregoing may
occur).
(e) acceleration of the time for payment or performance of any Debt or
other obligation under any of the Loan Documents or exercise of any other right,
privilege or remedy under or in regard to any of the Loan Documents.
(f) failure, omission, delay, neglect, refusal or lack of diligence by any
Lender or Agent or any other Person to assert, enforce, give notice of intent to
exercise--or any other notice with respect to--or exercise any right, privilege,
power or remedy conferred on any Lender or Agent or any other Person in any of
the Loan Documents or by law or action on the part of any Lender or Agent or any
other Person granting indulgence, grace, adjustment, forbearance or extension of
any kind to any Obligor or any other Person.
(g) release, surrender, exchange, subordination or loss of any Lien
priority under any of the Loan Documents or in connection with the Debt.
(h) release, modification or waiver of, or failure, omission, delay,
neglect, refusal or lack of diligence to enforce, any guaranty (other than this
Guaranty), pledge, mortgage, deed of trust, security agreement, lien, charge,
insurance agreement, bond, letter of credit or other security device, guaranty,
surety or indemnity agreement whatsoever, or any right, benefit, privilege or
interest under any contract or agreement, under which the rights of any Obligor
have been collaterally or absolutely assigned, or in which a Lien has been
granted, to any Lender or Agent as direct or indirect security for payment of
the Debt or performance of any other obligations to--or at any time held by--any
Lender or Agent.
(i) taking or acceptance of any other security or guaranty for the payment
or performance of any or all of the Debt or the obligations of any Obligor.
(j) voluntary or involuntary liquidation, dissolution, sale of any
collateral, marshaling of assets and liabilities, change in corporate or
organizational status, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt or other similar proceedings of or affecting any Obligor or any
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of the assets of any Obligor, even if any of the Debt is thereby rendered void,
unenforceable or uncollectible against any other Person.
(k) occurrence or discovery of any irregularity, invalidity or
unenforceability of any of the Debt or Loan Documents or any defect or
deficiency in any of the Debt or Loan Documents, including the unenforceability
of any provisions of any of the Loan Documents because entering into any such
Loan Document was ultra vires or because anyone who executed them exceeded their
authority.
(l) failure to acquire, protect or perfect any Lien in any collateral
intended by any Obligor and Agent to secure any part of the Debt or any other
obligations under the Loan Documents or failure to maintain perfection.
(m) occurrence of any event or circumstances which might otherwise
constitute a defense available to, or a discharge of, any Obligor, including any
defense to the obligation to reimburse each Lender for withholding tax
obligations, failure of consideration, fraud by or affecting any Person, usury,
forgery, breach of warranty, failure to satisfy any requirement of the statute
of frauds, running of any statute of limitation, accord and satisfaction and any
defense based on election of remedies of any type.
(n) receipt and/or application of any proceeds, credits or recoveries from
any source, including any proceeds, credits, or amounts realized from exercise
of any rights, remedies, powers or privileges of any Lender or Agent under the
Loan Documents, by law or otherwise available to any Lender or Agent.
(o) occurrence of any act, error or omission of any Lender or Agent, except
behavior which is proven to be in bad faith to the extent (but no further) that
Guarantor cannot effectively waive the right to complain.
(p) failure by any Lender or Agent or any other Person to notify--or timely
noti-fy--Guarantor of any default, event of default or similar event (however
denominated) under any of the Loan Documents or of the occurrence of any of the
foregoing in this Section. None of the Lenders and Agent has any duty or
obligation to give Guarantor any notice of any kind under any circumstances
whatsoever with respect to or in connection with the Debt or the Loan Documents.
.3 Waiver of Certain Rights and Notices. Guarantor hereby WAIVES and RELEASES
all right to require marshalling of assets and liabilities, sale in inverse
order of alienation, notice of acceptance of this Guaranty and of any liability
to which it applies or may apply, notice of the creation, accrual, renewal,
increase, extension, modification, amendment or rearrangement of any part of the
Debt, presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of intent to accelerate, notice of acceleration and all other
notices and demands, collection, suit and the taking of any other action by any
Lender or Agent.
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SECTION 3.4 Not a Collection Guaranty. This is an absolute guaranty of payment
and not of collection, and Guarantor WAIVES any right to require that any action
be brought against any Obligor or any other Person, or that any Lender or Agent
be required to enforce, attempt to enforce or exhaust any rights, benefits or
privileges of any Lender or Agent under any of the Loan Documents, by law or
otherwise; provided that nothing herein shall be construed to prevent any Lender
or Agent from exercising and enforcing at any time any right, benefit or
privilege which any Lender or Agent may have under any Loan Document or by law
from time to time, and at any time, and Guarantor agrees that its obligations
hereunder are--and shall be--absolute, independent and unconditional under any
and all circumstances. Should any Lender or Agent seek to enforce Guarantor's
obligations by action in any court, Guarantor WAIVES any requirement,
substantive or procedural, that (a) any Lender or Agent pursue any foreclosure
action, realize or attempt to realize on any security or preserve or enforce any
deficiency claim against any Obligor or any other Person after any such
realization, (b) a judgment first be sought or rendered against any Obligor or
any other Person, (c) any Obligor or any other Person be joined in such action
or (d) a separate action be brought against any Obligor or any other Person.
Guarantor's obligations under this Guaranty are several from those of any other
Obligor or any other Person, and are primary obligations concerning which
Guarantor is the principal obligor. All waivers in this Guaranty or any of the
Loan Documents shall be without prejudice to any Lender or Agent at its option
to proceed against any Obligor or any other Person, whether by separate action
or by joinder. Guarantor agrees that this Guaranty shall not be discharged
except by payment of the Debt in full, complete performance of all obligations
of the Obligors under the Loan Documents and termination of each Lender's
obligation--if any--to make any further advances under the Credit Agreement or
extend other financial accommodations to any Obligor.
SECTION 3.5 Subrogation. Guarantor agrees that it shall never be entitled to be
subrogated to any of any Lender or Agent's rights against any Obligor or any
other Person or any collateral or offset rights held by any Lender or Agent for
payment of the Debt until final termination of this Guaranty.
SECTION 3.6 Reliance on Guaranty. All extensions of credit and financial
accommodations heretofore or hereafter made by Agent and Lenders under or in
respect of the Credit Agreement or any of the other Loan Documents shall be
conclusively presumed to have been made in acceptance of this Guaranty.
SECTION 3.7 Joint and Several. If any other Person makes any guaranty of any of
the obligations guaranteed hereby or gives any security for them, Guarantor's
obligations hereunder shall be joint and several with the obligations of such
other Person.
SECTION 3.8 Payments Returned. Guarantor agrees that, if at any time all or any
part of any payment previously applied by any Lender or Agent to the Debt is or
must be returned by any Lender or Agent--or recovered from any Lender or Agent--
for any reason (including the order of any bankruptcy court), this Guaranty
shall automatically be reinstated to the same effect as if the prior
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application had not been made, and, in addition, Guarantor hereby agrees to
indemnify the Lenders and Agent against, and to save and hold the Lenders and
Agent harmless from any required return by any Lender or Agent--or recovery from
any Lender or Agent--of any such payment because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
ARTICLE 4
Guarantor warrants and represents as follows:
SECTION 4.1 Relationship to Borrower. Guarantor's board of directors has
determined that the liability and obligation under this Guaranty may reasonably
be expected to substantially benefit Guarantor directly or indirectly. Guarantor
has had full and complete access to the Loan Documents and all other papers
executed by any Obligor in connection with the Debt, has reviewed them and is
fully aware of the meaning and effect of their contents. Guarantor is fully
informed of all circumstances which bear upon the risks of executing this
Guaranty and which a diligent inquiry would reveal. Guarantor has adequate means
to obtain from Borrower on a continuing basis information concern-ing Borrower's
financial condition, and is not depending on any Lender or Agent to provide such
information, now or in the future. Guarantor agrees that no Lender or Agent
shall have any obligation to advise or notify Guarantor or to provide Guarantor
with any data or information. The execution and delivery of this Guaranty is not
a condition precedent (and no Lender or Agent has in any way implied that the
execution of this Guaranty is a condition precedent) to any Lender's or Agent's
making, extending or modifying any loan to Guarantor or to any other financial
accommodation to or for Guarantor.
SECTION 4.2 Guarantor Solvent. Guarantor is now solvent, and no bankruptcy or
insolvency proceedings are pending or contemplated by or--to the best of its
knowledge--against it.
ARTICLE 5
SECTION 5.1 Term; Survival. Subject to the automatic reinstatement provisions
of Article 3 above, this Guaranty shall terminate and be of no further force or
effect upon full payment of the Debt, complete performance of all of the
obligations of the Obligors under the Loan Documents and final termination of
every Lender's obligation--if any--to make any further advances under the Credit
Agreement or to provide any other financial accommodations in connection with or
arising out of the Debt to any Obligor. The representations, covenants and
agreements set forth in this Guaranty shall continue and survive until final
termination of this Guaranty.
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ARTICLE 6
SECTION 6.1 Binding on Successors; No Assignment by Guarantor. All guaranties,
warranties, representations, covenants and agreements in this Guaranty shall
bind the heirs, devisees, executors, administrators, personal representatives,
trustees, beneficiaries, conservators, receivers, successors and assigns of
Guarantor and shall benefit Lenders and Agent, their respective successors and
assigns, and any holder of any part of the Debt. Guarantor shall not assign or
delegate any of its obligations under this Guaranty or any of the Loan Documents
without express prior written consent of the Majority Lenders.
SECTION 6.2 Subordination of Borrower's Obligations to Guarantor. Guarantor
agrees that if, for any reason whatsoever, Borrower now or hereafter owes any
Indebtedness, directly or indirectly, to Guarantor or any other Obligor, all
such Indebtedness, together with all interest thereon and fees and other charges
in connection therewith, and all Liens shall at all times, be second,
subordinate and inferior in right of payment, in Lien priority and in all other
respects to the Debt and all Liens securing the Debt or any part thereof.
SECTION 6.3 Acknowledgment of Terms of Credit Agreement Binding Upon Guarantor.
Guarantor acknowledges and agrees to the covenants, agreements, representations,
warranties and other provisions of the Credit Agreement which refer to
Guarantor, and, further, agrees that whenever the Credit Agreement refers to the
knowledge of Borrower it shall also mean and include to the knowledge of
Guarantor.
SECTION 6.4 Waiver of Suretyship Rights. By signing this Guaranty, Guarantor
WAIVES each and every right to which it may be entitled by virtue of any
suretyship law, including any rights it may have pursuant to Rule 31 of the
Texas Rules of Civil Procedure, (s)17.001 of the Texas Civil Practice and
Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as the
same may be amended from time to time.
SECTION 6.5 Notices. Any notices or other communications required or permitted
to be given hereunder shall be given, made and received in the manner provided
in Section 11.2 of the Credit Agreement; provided, that with respect to
Guarantor, any such notices or other communications shall be sent to it at the
"Address for Notices" specified below its name on the signature page hereof or
at such other address as shall be designated by such recipient in a notice to
the other parties hereto given in accordance with this Section.
SECTION 6.6 Amendments in Writing. This Guaranty may not be changed orally but
shall be changed only by agreement in writing signed by Guarantor and Agent. Any
waiver or consent with respect to this Guaranty shall be effective only in the
specific instance and for the specific purpose for which given. No course of
dealing between the parties, no usage of trade and no parole or extrinsic
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evidence of any nature shall be used to supplement or modify any of the terms or
provisions of this Guaranty.
SECTION 6.7 Gender; "Including" is Not Limiting; Section Headings. The
masculine and neuter genders used in this Guaranty each includes the masculine,
feminine and neuter genders, and the singular number includes the plural where
appropriate, and vice versa. Wherever the term "including" or a similar term is
used in this Guaranty, it shall be read as if it were written "including by way
of example only and without in any way limiting the generality of the clause or
concept referred to." The headings used in this Guaranty are included for
reference only and shall not be considered in interpreting, applying or
enforcing this Guaranty.
SECTION 6.8 Venue. This Guaranty is performable in Harris County, Texas, which
shall be a proper place of venue for suit on or in respect of this Guaranty.
Guarantor irrevocably agrees that any legal proceeding in respect of this
Guaranty shall be brought in the district courts of Harris County, Texas or the
United States District Court for the Southern District of Texas, Houston
Division (collectively, the "Specified Courts"). Guarantor hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Guarantor hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to any
Loan Document brought in any Specified Court, and hereby further irrevocably
waives any claims that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Guarantor further irrevocably
consents to the service of process out of any of the Specified Courts in any
such suit, action or proceeding by the mailing of copies thereof by certified
mail, return receipt requested, postage prepaid, to it at its address as
provided in this Guaranty or as otherwise provided by Texas law. Nothing herein
shall affect the right of any Lender or Agent to commence legal proceedings or
otherwise proceed against Guarantor in any jurisdiction or to serve process in
any manner permitted by applicable law. Guarantor agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME
TO TIME IN EFFECT.
SECTION 6.9 Rights Cumulative; Delay Not Waiver. Any Lender's or Agent's
exercise of any right, benefit or privilege under any of the Loan Documents or
at law or in equity shall not preclude the concurrent or subsequent exercise of
any other present or future rights, benefits or privileges of any Lender or
Agent. The remedies provided in this Guaranty are cumulative and not exclusive
of any remedies provided by law or the Loan Documents. No failure by any Lender
or Agent to exercise, and no delay in exercising, any right under any Loan
Document shall operate as a waiver thereof.
SECTION 6.10 Severability. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining
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provisions of this Guaranty shall not be affected thereby, and this Guaranty
shall be liberally construed so as to carry out the intent of the parties to it.
Each waiver in this Guaranty is subject to the overriding and controlling rule
that it shall be effective only if and to the extent that (a) it is not
prohibited by applicable law and (b) applicable law neither provides for nor
allows any material sanctions to be imposed against any Lender or Agent for
having bargained for and obtained it.
SECTION 6.11 Entire Agreement. This Guaranty embodies the entire agreement and
understanding among Guarantor, Lenders and Agent with respect to its subject
matter and supersedes all prior conflicting or inconsistent agreements, consents
and understandings relating to such subject matter. Guarantor acknowledges and
agrees that there is no oral agreement between Guarantor and any Lender or Agent
which has not been incorporated in this Guaranty.
SECTION 6.12 Offset Rights. Agent and each Lender is hereby authorized at any
time and from time to time, without notice to any Person (and Guarantor hereby
WAIVES any such notice) to the fullest extent permitted by law, to set-off and
apply any and all monies, securities and other properties of Guarantor now or in
the future in the possession, custody or control of Agent or any Lender, or on
deposit with or otherwise owed to Guarantor by Agent or any Lender--including
all such monies, securities and other properties held in general, special, time,
demand, provisional or final accounts or for safekeeping or as collateral or
otherwise but excluding those accounts clearly designated as escrow or trust
accounts held by Guarantor for a Person which is not an Affiliate of Guarantor--
against any and all of Guarantor's obligations to Agent and each Lender now or
hereafter existing under this Guaranty, irrespective of whether Agent or any
Lender shall have made any demand under this Guaranty. Agent and Lenders agree
to use reasonable efforts to promptly notify Guarantor after any such set-off
and application with respect to Guarantor, provided that failure to give--or
delay in giving--any such notice shall not affect the validity of such set-off
and application or impose any liability on Agent or any Lender. Agent and
Lenders' rights under this Section are in addition to other rights and remedies
(including other rights of set-off) which Agent or any Lender may have.
SECTION 6.13 Usury Not Intended; Savings Provisions. Notwithstanding any
provision to the contrary contained in any Loan Document, it is expressly
provided that in no case or event shall the aggregate of any amounts accrued or
paid pursuant to this Guaranty which under applicable laws are or may be deemed
to constitute interest ever exceed the maximum nonusurious interest rate
permitted by applicable Texas or federal laws, whichever permit the higher rate.
In this connection, Guarantor and Agent on behalf of Lenders stipulate and agree
that it is their common and overriding intent to contract in strict compliance
with applicable usury laws. In furtherance thereof, none of the terms of this
Guaranty shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the maximum rate permitted by applicable laws. Guarantor shall never be liable
for interest in excess of the maximum rate permitted by applicable laws. If, for
any reason whatever, such interest paid or received during the full term of the
applicable indebtedness produces a rate which exceeds the maximum rate permitted
by applicable laws, Lenders shall credit against the principal of such
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indebtedness (or, if such indebtedness shall have been paid in full, shall
refund to the payor of such interest) such portion of said interest as shall be
necessary to cause the interest paid to produce a rate equal to the maximum rate
permitted by applicable laws. All sums paid or agreed to be paid to Lender for
the use, forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread in equal parts
throughout the full term of the applicable indebtedness, so that the interest
rate is uniform throughout the full term of such indebtedness. The provisions of
this Section shall control all agreements under the Loan Documents, whether now
or hereafter existing and whether written or oral, among Guarantor and any
Lender or Agent.
SECTION 6.14 Parent Credit Facility. Guarantor shall not permit any "Event of
Default" to occur under the Parent Credit Facility.
THIS GUARANTY is executed as of the date first above written.
STERLING CHEMICALS, INC., a Delaware corporation
By: /s/ Jim P. Wise
----------------------------------------
Jim P. Wise, Vice President-Finance
and Chief Financial Officer
"Address for Notices"
1200 Smith Street, Suite 1900
Houston, Texas 77002
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EXHIBIT 10.2(b)
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and
entered into as of September 28, 1995 by and among STERLING CHEMICALS, INC., a
Delaware corporation (the "Borrower"); each of the banks which is or may from
time to time become a party to the Credit Agreement (as defined below)
(individually, a "Bank" and, collectively, the "Banks"), THE BANK OF NOVA
SCOTIA, as Documentation Agent (in such capacity, together with its successors
in such capacity, the "Documentation Agent"), ABN AMRO BANK N.V., HOUSTON
AGENCY, BANK OF SCOTLAND and CREDIT LYONNAIS, NEW YORK BRANCH, as Co-Agents (in
such capacity, together with its successors in such capacity, collectively
called the "Co-Agents"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a
national banking association, acting as agent for the Banks (in such capacity,
together with its successors in such capacity, the "Agent").
RECITALS
A. The Borrower, the Banks, the Co-Agents, the Documentation Agent and
the Agent executed and delivered that certain Credit Agreement dated as of April
13, 1995 (the "Credit Agreement"). Any capitalized term used in this Amendment
and not otherwise defined shall have the meaning ascribed to it in the Credit
Agreement.
B. The Borrower, the Banks, the Co-Agents, the Documentation Agent and
the Agent desire to amend the Credit Agreement in certain respects.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and further good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Banks, the Co-Agents, the Documentation Agent
and the Agent do hereby agree as follows:
1. Amendments.
(1) The definition of "Capital Expenditures" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read in its entirety as follows:
Capital Expenditures shall mean expenditures in respect of fixed
or capital assets by a Person, to the extent capitalized in accordance
with GAAP, but excluding (a) expenditures for the restoration, repair or
replacement of any fixed or capital asset which was destroyed or
damaged, in whole or in part, to the extent financed by the proceeds of
an insurance policy maintained by such Person, (b) increases in the
consolidated fixed or capital assets of such Person resulting solely
from Permitted Acquisitions (other than expenditures made after the date
of such Permitted Acquisition), (c) increases in the capital assets of
such Person resulting from expenditures in respect of fixed or capital
assets made by another so long as such Person has no obligation to
reimburse the other for such expenditures and (d) the Plant Work (as
defined in the Pulp Credit Facility).
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Expenditures in respect of replacements and maintenance consistent with
the business practices of such Person in respect of plant facilities,
machinery, fixtures and other like capital assets utilized in the
ordinary course of business are not Capital Expenditures to the extent
such expenditures are not capitalized in preparing a balance sheet of
such Person in accordance with GAAP.
(2) The reference to "royalty" in clause (v) of the definition of
"EBITDA" set forth in Section 1.1 of the Credit Agreement is hereby deleted.
(3) The reference to ", Sterling Pulp (US)" and "dated concurrently
herewith" in the definition of "Guaranties" set forth in Section 1.1 of the
Credit Agreement is hereby deleted.
(4) Clause (h) of the definition of "Permitted Investments" set forth in
Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
(h) loan participations with a rating of not less than A-2 and
P-2 (or, in the case of investments maintained in the Cash Flow Account
(as defined in the Pulp Credit Facility), A-1 and P-1) (or the
equivalent rating) by Moody's Investors Service, Inc. and Standard and
Poor's Corporation, respectively;
(5) New clauses (j) and (k) are hereby added to the definition of
"Permitted Investments" set forth in Section 1.1 of the Credit Agreement,
reading in their entirety as follows (with the existing clauses (j) and (k) to
be restyled as clauses (l) and (m), respectively):
(j) the Bonds (as defined in the Pulp Credit Facility); (k)
investments maintained in the Cash Flow Account (as defined in the Pulp
Credit Facility) in publicly traded securities rated BB+ or better by
Standard & Poor's Corporation or Ba1 or better by Moody's Investors
Service, Inc.
(6) A sentence is hereby added to the end of the definition of
"Permitted Investments" set forth in Section 1.1 of the Credit Agreement,
reading in its entirety as follows:
Amounts in the Cash Flow Account may not be invested in the items
described in clauses (f) or (l) above.
(7) A new definition of "Pulp Credit Facility" is hereby added to
Section 1.1 of the Credit Agreement, reading in its entirety as follows:
Pulp Credit Facility shall mean that certain Credit Agreement
dated as of September 28, 1995 executed by and among Sterling Pulp
Chemicals, Ltd., TCB, as Agent, and the lenders party thereto, as the
same may from time to time be amended, restated or supplemented.
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(8) The reference to ", Sterling Pulp (US)" and "dated as of the
Effective Date" in clause (iii) of the definition of "Security Agreements" set
forth in Section 1.1 of the Credit Agreement is hereby deleted.
(9) The definition of "Subordinated Debt" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read in its entirety as follows:
Subordinated Debt shall mean, as of the date of determination
thereof, unsecured Indebtedness with any lender for which the Borrower
is directly and primarily liable, in respect of which none of its
Subsidiaries is contingently or otherwise obligated, and which is
subordinated to the obligations of the Borrower to pay principal of and
interest (before and after bankruptcy) on the Loans and the Notes and on
any Interest Rate Risk Indebtedness owed to any of the Lenders, on
terms, and which contains other terms (including interest, amortization
and financial covenants), in form and substance satisfactory to the
Agent and the Majority Lenders.
(10) Clause (c) of Section 6.3 of the Credit Agreement is hereby amended
to read in its entirety as follows:
(c) do not and will not contravene or violate any Legal
Requirement applicable to the Parties or the Organizational Documents of
the Parties, the contravention or violation of which could reasonably be
expected to cause a Material Adverse Effect.
(11) Section 8.1 of the Credit Agreement is hereby amended to read in
its entirety as follows:
8.1 Indebtedness. Create, incur, suffer or permit to exist, or
assume or guarantee, directly or indirectly, or become or remain liable
with respect to any Borrowed Money Indebtedness (as defined below),
whether direct, indirect, absolute, contingent or otherwise, except the
following: (a) the Obligations; (b) the liabilities existing on the date
of this Agreement and disclosed on Schedule 8.1 hereto and all renewals,
extensions and replacements (but not increases) of any of the foregoing;
(c) Indebtedness under the Canadian Facility and all renewals,
extensions and replacements (but not increases) thereof; (d) purchase
money Indebtedness to acquire Equipment not exceeding, in the aggregate,
$10,000,000 outstanding at any one time; (e) in addition to Indebtedness
permitted under the preceding clause (d), non-recourse Indebtedness in
an aggregate amount not to exceed $60,000,000 at any one time
outstanding incurred by Subsidiaries of the Borrower which is payable
solely by recourse to Properties which are not included in the Borrowing
Base or in the "Collateral" under the Pulp Credit Facility and which are
acquired or constructed by such Subsidiary after the date hereof; (f)
Subordinated Debt so long as the net proceeds of such Subordinated Debt
are applied in payment of the Term Loans or "Loans" under the Pulp
Credit Facility or, if no Term Loans or "Loans" under the Pulp Credit
Facility remain outstanding, so long as the Revolving Loan Commitments
or the "Loan Commitments" under the Pulp Credit Facility are reduced by
an amount equal to the net proceeds of such Subordinated Debt;
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(g) Interest Rate Risk Indebtedness, together with "Interest Rate Risk
Indebtedness" as defined in the Pulp Credit Facility; (h) insurance
premiums financed with the applicable insurance carrier; (i)
Indebtedness under the Bond Documents (as defined in the Pulp Credit
Facility) and Indebtedness under (or permitted under) the Pulp Credit
Facility, but only so long as the Agent is the "Agent" under the Pulp
Credit Facility and the Lenders hold "Loans" and/or "Loan Commitments"
under the Pulp Credit Facility in amounts sufficient to constitute
"Majority Lenders" under the Pulp Credit Facility, and (j) other
Borrowed Money Indebtedness not in excess of $30,000,000 in the
aggregate outstanding at any time on terms no more restrictive than the
terms provided herein. For purposes of this Agreement, "Borrowed Money
Indebtedness" shall mean, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person under
conditional sale or other title retention agreements relating to
Property purchased by such Person, (d) all obligations of such Person
issued or assumed as the deferred purchase price of property or services
(excluding trade accounts payable incurred in the ordinary course of
such Person's business), (e) all Capital Lease Obligations, (f) all
obligations of others of the types specified in clauses (a) through (e)
above secured by any lien on property or assets owned or acquired by
such Person, whether or not the obligations secured thereby have been
assumed, (g) Interest Rate Risk Indebtedness, together with "Interest
Rate Risk Indebtedness" as defined in the Pulp Credit Facility, (h) all
outstanding letters of credit issued for the account of such Person and
(i) all guarantees of such Person of obligations of the type referred to
in the foregoing clauses (a) through (h).
(12) Section 8.2 of the Credit Agreement is hereby amended to read in
its entirety as follows:
8.2 Liens. Create or suffer to exist any Lien upon any of its
Property now owned or hereafter acquired, or acquire any Property upon
any conditional sale or other title retention device or arrangement or
any purchase money security agreement; or in any manner directly or
indirectly sell, assign, pledge or otherwise transfer any of its
Accounts; provided, however, that the Borrower or any of its
Subsidiaries may create or suffer to exist: (a) Liens in favor of the
Agent or any Lender under the Loan Documents, including, without
limitation, Liens securing Interest Rate Risk Indebtedness owed to one
or more of the Lenders (but not to any Person which is not, at such
time, a Lender); (b) Liens in effect on the Effective Date and disclosed
on Schedule 8.2 hereto, provided that neither the Indebtedness secured
thereby nor the Property covered thereby shall increase after the
Effective Date; (c) Liens securing the Canadian Facility but only on
assets of the Canadian Subsidiaries; (d) Liens securing purchase money
Indebtedness permitted under Section 8.1(d) hereof and covering only the
Property so purchased and the proceeds therefrom and Liens permitted
under Section 8.1(e) hereof covering Properties acquired or constructed
after the date hereof and the proceeds therefrom; (e) normal
encumbrances and restrictions on title which do not secure Borrowed
Money Indebtedness and which do not have a material adverse effect on
the value or utility of the applicable Property; (f) Liens incurred or
deposits made in the ordinary course of
4
<PAGE>
business (i) in connection with workmen's compensation, unemployment
insurance, social security and other like laws, (ii) to secure insurance
in the ordinary course of business, the performance of bids, tenders,
contracts, leases, licenses, statutory obligations, surety, appeal and
performance bonds and other similar obligations incurred in the ordinary
course of business, not, in any of the cases specified in this clause
(ii), incurred in connection with the borrowing of money, the obtaining
of advances or the payment of the deferred purchase price of Property,
or (iii) on deposits made in financial institutions in the ordinary
course of business as a result of common law and statutory rights of
setoff and depositary agreements and other contractual arrangements
(other than Borrowed Money Indebtedness) arising in the ordinary course
of business; (g) attachments, judgments and other similar Liens arising
in connection with the court proceedings, provided that the execution
and enforcement of such Liens are effectively stayed and the claims
secured thereby are being actively contested in good faith with adequate
reserves made therefor in accordance with GAAP; (h) Liens imposed by
law, such as carriers', warehousemen's, mechanics', materialmen's and
vendors' liens, incurred in good faith in the ordinary course of
business and securing obligations which are not yet due or which are
being contested in good faith by appropriate proceedings if adequate
reserves with respect thereto are maintained in accordance with GAAP;
(i) Liens for taxes which are not yet due or are being contested in good
faith by appropriate proceedings if adequate reserves with respect
thereto are maintained in accordance with GAAP; (j) Liens or rights
under insurance policies securing Indebtedness permitted under Section
8.1(h); (k) Liens securing or otherwise permitted under the Pulp Credit
Facility to the extent required under the present terms and provisions
of the Pulp Credit Facility, without amendment except as approved (or
consented to pursuant to the proviso to Section 8.13 hereof) by the
Majority Lenders (wherever consent by the "Majority Lenders" under the
Pulp Credit Facility is required) or by all of the Lenders (wherever
consent by all of the "Lenders" under the Pulp Credit Facility is
required), but only so long as the Agent is the "Agent" under the Pulp
Credit Facility and the Lenders hold "Loans" and/or "Loan Commitments"
under the Pulp Credit Facility in amounts sufficient to constitute
"Majority Lenders" under the Pulp Credit Facility, and (l) extensions,
renewals and replacements of Liens referred to in clauses (a) through
(j) of this Section; provided that any such extension, renewal or
replacement Lien shall be limited to the Property or assets covered by
the Lien extended, renewed or replaced and that the Indebtedness secured
by any such extension, renewal or replacement Lien shall be in an amount
not greater than the amount of the Indebtedness secured by the Lien
extended, renewed or replaced.
(13) The reference to "Loan Document" set forth in Section 8.4 of the
Credit Agreement is hereby amended to read "Loan Document and each 'Loan
Document' under the Pulp Credit Facility".
(14) A new sentence is hereby added to the end of Section 8.7 of the
Credit Agreement, reading in its entirety as follows:
5
<PAGE>
The Key Plant Contracts (as defined in the Pulp Credit Facility) shall
not result in a violation of this provision.
(15) The reference to ", Sterling Pulp (US)" in Section 8.9 of the
Credit Agreement is hereby deleted and the references to "Credit Document" and
"Credit Documents" set forth in the indented portion of Section 8.9 are hereby
amended to read "Loan Document" and "Loan Documents", respectively.
(16) The last sentence of Section 8.12 is hereby deleted in its
entirety.
(17) A new Section 8.13 is hereby added to the Credit Agreement, reading
in its entirety as follows:
8.13 Pulp Credit Facility. Amend, modify or obtain or grant a
waiver of any material provision of the Pulp Credit Facility unless the
same shall be consented to in writing by the Majority Lenders (wherever
consent by the "Majority Lenders" under the Pulp Credit Facility is
required) or by all of the Lenders (wherever consent by all of the
"Lenders" under the Pulp Credit Facility is required) (such consent not
to be unreasonably withheld); provided, however, that execution of, or
written consent to, any such amendment, modification or waiver of any
material provision of the Pulp Credit Facility by a particular Lender
shall evidence the consent by such Lender required under this Section.
(18) Clause (m) of Section 9.1 of the Credit Agreement is hereby amended
to read in its entirety as follows:
(m) Change of Control - there shall occur any Change of Control
without the written consent of the Majority Lenders; or
(19) A new clause (n) is hereby added to Section 9.1 of the Credit
Agreement, reading in its entirety as follows:
(n) Pulp Credit Facility - the occurrence of an "Event of
Default" under the Pulp Credit Facility.
(20) The following proviso is hereby added to the end of the second
sentence of Section 11.5 of the Credit Agreement:
; provided, however, that execution of, or written consent to, any
amendment, modification or waiver of a particular provision of the Pulp
Credit Facility by a particular Lender shall evidence the consent by
such Lender required under this Section with respect to an amendment,
modification or waiver of the identical provision contained in this
Agreement and/or the Loan Documents, without the necessity for any
further action hereunder or under the Loan Documents
6
<PAGE>
(21) Clause (i) of Section 11.6(b) of the Credit Agreement is hereby
amended to read in its entirety as follows:
(i) the aggregate amount of the Revolving Loan Commitments and
the Term Loans of the assigning Lender subject to each such assignment
shall in no event be less than $10,000,000, each such assignment shall
be in a constant and not varying percentage of all such assigning
Lender's rights and obligations under the Loan Documents and each Lender
hereunder shall also be a "Lender" under the Pulp Credit Facility;
(22) Clause (ii) of Section 11.6(c) of the Credit Agreement is hereby
amended to read in its entirety as follows:
(ii) such Lender assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
the Borrower or any other Party or the performance or observance by the
Borrower or any other Party of any of its obligations under this
Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant hereto;
(23) The reference to "Section 11.14" set forth in Section 11.6(f) of
the Credit Agreement is hereby amended to read "Section 11.15".
(24) The reference to "Commitments" set forth in Section 11.15 of the
Credit Agreement is hereby amended to read "Revolving Loan Commitment".
(25) Each reference to "the Debt to EBITDA Ratio" set forth in clause
(b) of the definition of "Margin Percentage" set forth in the Interest Rate
Agreement attached to the Credit Agreement as Schedule 1 is hereby amended to
read "the Debt to EBITDA Ratio for the Borrower (on a consolidated basis).
2. Ratification. Except as expressly amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect.
None of the rights, title and interests existing and to exist under the Credit
Agreement are hereby released, diminished or impaired, and the Borrower hereby
reaffirms all covenants, representations and warranties in the Credit Agreement
or any other Loan Document.
3. Expenses. The Borrower shall pay to the Agent all reasonable fees and
expenses of its legal counsel (pursuant to Section 11.3 of the Credit Agreement)
incurred in connection with the execution of this Amendment.
4. Miscellaneous. This Amendment (a) shall be binding upon and inure to the
benefit of the Borrower, the Banks, the Co-Agents, the Documentation Agent and
the Agent and their respective successors, assigns, receivers and trustees; (b)
may be modified or amended only by a writing signed by each party; (c) shall be
governed by and construed in accordance with the laws of the State of Texas and
the United States of America; (d) may be executed in several counterparts by the
parties hereto on separate counterparts, and each counterpart, when
7
<PAGE>
so executed and delivered shall constitute an original agreement, and all such
separate counterparts shall constitute but one and the same agreement, and (e)
together with the other Loan Documents, embodies the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements, consents and understandings relating to such
subject matter. The headings herein shall be accorded no significance in
interpreting this Amendment.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE (S)26.02
THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, AND ALL OTHER LOAN
DOCUMENTS EXECUTED BY ANY OF THE PARTIES PRIOR HERETO OR SUBSTANTIALLY
CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Borrower, the Banks, the Co-Agents, the
Documentation Agent and the Agent have caused this Amendment to be signed by
their respective, duly authorized officers, effective as of the date first above
written.
STERLING CHEMICALS, INC.,
a Delaware corporation
By: /s/ Jim P. Wise
_________________________________________
Jim P. Wise, Vice President-Finance
& Chief Financial Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Bank
By: /s/ Gregory R. Ford
_________________________________________
Gregory R. Ford,
Vice President
8
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
______________________________________
Name: F.C.H. Ashby
______________________________________
Title: Senior Manager Loan Operations
______________________________________
9
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: /s/ Kenneth S. Womack
______________________________________
Name: Kenneth S. Womack
______________________________________
Title: Assistant V.P.
______________________________________
By: /s/ Michael N. Oakes
______________________________________
Name: Michael N. Oakes
______________________________________
Title: V.P.
______________________________________
10
<PAGE>
BANK OF SCOTLAND
By: /s/ Elizabeth Wilson
______________________________________
Name: Elizabeth Wilson
______________________________________
Title: V.P. and Branch Manager
______________________________________
11
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Xavier Ratous
______________________________________
Name: Xavier Ratous
______________________________________
Title: Sr. V.P.
______________________________________
12
<PAGE>
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Christopher S. Goodwin
______________________________________
Name: Christopher S. Goodwin
______________________________________
Title: V.P.
______________________________________
By: /s/ Cheryl Johnson
______________________________________
Name: Cheryl Johnson
______________________________________
Title: Assistant V.P.
______________________________________
13
<PAGE>
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ Ann Rhoads
______________________________________
Name: Ann Rhoads
______________________________________
Title: V.P.
______________________________________
14
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
By: /s/ John J. Sullivan
______________________________________
Name: John J. Sullivan
______________________________________
Title: Joint General Manager
______________________________________
15
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Dixon P. Schultz
______________________________________
Name: Dixon P. Schultz
______________________________________
Title: V.P.
______________________________________
16
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ James R. Shelton
______________________________________
Name: James R. Shelton
______________________________________
Title: V.P.
______________________________________
17
<PAGE>
HIBERNIA NATIONAL BANK
By: /s/ Colleen Smith
______________________________________
Name: Colleen Smith
______________________________________
Title: Assistant V.P.
______________________________________
18
<PAGE>
COMERICA BANK
By: /s/ Bradley A. Terryn
______________________________________
Name: Bradley A. Terryn
______________________________________
Title: V.P.
______________________________________
19
<PAGE>
CIBC, INC.
By: /s/ Gary C. Gaskill
______________________________________
Name: Gary C. Gaskill
______________________________________
Title: V.P.
______________________________________
20
<PAGE>
NATIONAL BANK OF CANADA
By: /s/ David L. Schreiber
______________________________________
Name: David L. Schreiber
______________________________________
Title: Assistant V.P.
______________________________________
By: /s/ William Handley
______________________________________
Name: William Handley
______________________________________
Title: V.P.
______________________________________
21
<PAGE>
The undersigned hereby consent to execution by STERLING CHEMICALS, INC.
of the foregoing First Amendment to Credit Agreement, confirms that the Loan
Documents executed by the undersigned apply and shall continue to apply to the
Credit Agreement, as amended by the foregoing First Amendment to Credit
Agreement and acknowledges that without such consent and confirmation, the Agent
and the Banks would not execute the foregoing First Amendment to Credit
Agreement.
STERLING CHEMICALS INTERNATIONAL,
INC., a Delaware corporation
By: /s/ Jim P. Wise
_________________________________________
Jim P. Wise, Vice President
STERLING CHEMICALS MARKETING, INC., a
U.S. Virgin Islands corporation
By: /s/ Jim P. Wise
_________________________________________
Jim P. Wise, Vice President
STERLING CANADA, INC.,
a Delaware corporation
By: /s/ Jim P. Wise
_________________________________________
Jim P. Wise, Vice President-Finance
& Treasurer
22
<PAGE>
STERLING PULP CHEMICALS US, INC., a
Delaware corporation
By: /s/ Jim P. Wise
______________________________________
Name: Jim P. Wise
______________________________________
Title: Vice President - Finance & Treasurer
______________________________________
23
<PAGE>
Exhibit 10.3
CREDIT AGREEMENT
($60,000,000 ADVANCE TERM LOAN FACILITY)
DATED AS OF SEPTEMBER 28, 1995
AMONG
STERLING PULP CHEMICALS, LTD.,
AS BORROWER;
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
AS AGENT AND AS A LENDER;
AND
THE OTHER LENDERS NOW OR HEREAFTER
PARTIES HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions........................................................... 1
1.1 Certain Defined Terms........................................... 1
1.2 Miscellaneous................................................... 16
2. Commitments and Loans................................................. 16
2.1 Loans........................................................... 16
2.2 Terminations or Reductions of Loan Commitments.................. 16
2.3 Fees............................................................ 17
2.4 Several Obligations............................................. 17
2.5 Notes........................................................... 17
2.6 Use of Proceeds................................................. 18
3. Borrowings, Payments and Prepayments.................................. 18
3.1 Borrowings...................................................... 18
3.2 Payments; Prepayments........................................... 18
4. Payments; Pro Rata Treatment; Computations, Etc. ..................... 20
4.1 Payments........................................................ 20
4.2 Pro Rata Treatment.............................................. 21
4.3 Certain Actions, Notices, Etc. ................................. 21
4.4 Non-Receipt of Funds by the Agent............................... 21
4.5 Sharing of Payments, Etc. ...................................... 22
5. Conditions Precedent.................................................. 22
5.1 Initial Loans................................................... 22
5.2 All Loans....................................................... 24
6. Representations and Warranties........................................ 25
6.1 Organization.................................................... 25
6.2 Financial Statements............................................ 25
6.3 Enforceable Obligations; Authorization.......................... 25
6.4 Other Borrowed Money Indebtedness............................... 25
6.5 Litigation...................................................... 26
6.6 Taxes........................................................... 26
6.7 Regulations G, U and X.......................................... 26
6.8 Subsidiaries.................................................... 26
6.9 No Untrue or Misleading Statements.............................. 26
6.10 ERISA........................................................... 26
6.11 Investment Company Act.......................................... 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.12 Public Utility Holding Company Act.............................. 27
6.13 Solvency........................................................ 27
6.14 Compliance...................................................... 27
6.15 Environmental Matters........................................... 27
6.16 Certain Representations Regarding the Plant Work................ 27
7. Affirmative Covenants................................................. 28
7.1 Taxes, Existence, Regulations, Property, Etc. .................. 28
7.2 Financial Statements and Information............................ 28
7.3 Financial Tests................................................. 29
7.4 Inspection...................................................... 29
7.5 Further Assurances.............................................. 30
7.6 Books and Records............................................... 30
7.7 Insurance....................................................... 30
7.8 Notice of Certain Matters....................................... 30
7.9 Interest Rate Risk.............................................. 31
7.10 Capital Adequacy................................................ 31
7.11 ERISA Information and Compliance................................ 31
7.12 Certain Affirmative Covenants Relating to the Plant Work........ 32
7.13 Satisfaction of Conditions Precedent............................ 32
7.14 Pledge of Bonds................................................. 33
7.15 Third Party Obligations......................................... 33
8. Negative Covenants.................................................... 33
8.1 Indebtedness.................................................... 33
8.2 Liens........................................................... 34
8.3 Contingent Liabilities.......................................... 35
8.4 Mergers, Consolidations and Dispositions and Acquisitions
of Assets...................................................... 35
8.5 Redemption, Dividends and Distributions......................... 36
8.6 Nature of Business.............................................. 36
8.7 Transactions with Affiliates.................................... 36
8.8 Loans and Investments........................................... 36
8.9 No Subsidiaries................................................. 36
8.10 BP Lease........................................................ 36
8.11 Fiscal Year..................................................... 36
8.12 Sterling Energy................................................. 37
8.13 Parent Credit Facility.......................................... 37
8.14 Key Plant Contracts............................................. 37
8.15 Revisions....................................................... 37
8.16 Third Party Obligations......................................... 37
9. Defaults.............................................................. 38
9.1 Events of Default............................................... 38
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.2 Right of Setoff................................................. 41
9.3 Remedies Cumulative............................................. 42
10. The Agent............................................................. 42
10.1 Appointment, Powers and Immunities.............................. 42
10.2 Reliance........................................................ 43
10.3 Defaults........................................................ 43
10.4 Rights as a Lender.............................................. 44
10.5 Indemnification................................................. 44
10.6 Non-Reliance on Agent and Other Lenders......................... 44
10.7 Failure to Act.................................................. 45
10.8 Resignation or Removal of Agent................................. 45
10.9 No Partnership.................................................. 45
11. Miscellaneous......................................................... 46
11.1 Waiver.......................................................... 46
11.2 Notices......................................................... 46
11.3 Expenses, Etc. ................................................. 46
11.4 Indemnification................................................. 47
11.5 Amendments, Etc. ............................................... 47
11.6 Successors and Assigns.......................................... 48
11.7 Limitation of Interest.......................................... 51
11.8 Survival........................................................ 52
11.9 Captions........................................................ 52
11.10 Counterparts.................................................... 52
11.11 Governing Law................................................... 52
11.12 Severability.................................................... 52
11.13 Tax Forms....................................................... 52
11.14 Venue........................................................... 53
11.15 Confidentiality................................................. 53
11.16 Permitted Transfer to a US Subsidiary........................... 53
11.17 Canadian Taxes.................................................. 54
</TABLE>
EXHIBITS
A -- Request for Extension of Credit
B -- Subsidiaries
C -- Note
D -- Assignment and Acceptance
E -- Compliance Certificate
F -- Plant Land
iii
<PAGE>
SCHEDULES
1 -- Interest Rate Agreement
6.10 -- ERISA Matters
8.1 -- Borrowed Money Indebtedness
8.2 -- Liens
8.3 -- Contingent Liabilities
8.8 -- Existing Investments
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of September 28, 1995
(the "Effective Date"), by and among STERLING PULP CHEMICALS, LTD., a
corporation organized under the laws of the Province of Ontario, Canada (the
"Borrower"); each of the lenders which is or may from time to time become a
party hereto (individually, a "Lender" and, collectively, the "Lenders"), and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TCB"), a national banking
association, as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent").
The parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
Accounts, Equipment, General Intangibles and Inventory shall have the
respective meanings assigned to them in the Texas Business and Commerce Code in
force on the Effective Date.
Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the ratio
of (a) EBITDA for the Rolling Four Quarters as of such day less cash income
taxes paid during such Rolling Four Quarters plus cash income tax refunds
received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for
such Rolling Four Quarters.
Adjusted Fixed Charges shall mean (without duplication), for any period and
with respect to any Person, (a) Fixed Charges for such period plus (b) any
dividends on any equity interests in such Person of any class (except dividends
payable solely in shares of common stock) paid during such period.
Affiliate shall mean any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise. Notwithstanding the foregoing, no
individual shall be deemed to be an Affiliate of a corporation solely by reason
of his or her being an officer or director of such corporation.
<PAGE>
Agreement shall mean this Credit Agreement, as it may from time to time be
amended, modified, restated or supplemented.
Amortization Fraction shall mean a fraction, the numerator of which is
equal to the amount by which the aggregate principal amount of the Loans made
through the Termination Date exceeds $50,000,000 and the denominator of which is
equal to $10,000,000.
Annual Audited Financial Statements shall mean the annual consolidated
financial statements of a Person, including all notes thereto, which statements
shall include a balance sheet as of the end of such fiscal year and an income
statement and a statement of cash flows for such fiscal year, all setting forth
in comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with GAAP, and accompanied by a report and opinion of
Coopers & Lybrand or other independent certified public accountants reasonably
satisfactory to the Agent, which shall state that such financial statements, in
the opinion of such accountants, present fairly the financial position of such
Person as of the date thereof and the results of its operations for the period
covered thereby in conformity with GAAP. Such statements shall be accompanied
by a certificate of such accountants that in making the appropriate examination
in connection with such report and opinion, such accountants did not become
aware of any Default relating to the financial tests set forth in Section 7.3
hereof or, if in the opinion of such accountants any such Default exists, a
description of the nature and status thereof.
Assignment and Acceptance shall have the meaning ascribed to such term in
Section 11.6 hereof.
Authority shall mean Valdosta-Lowndes County Industrial Authority.
Bankruptcy Code shall mean the United States Bankruptcy Code, as amended,
and any successor statute.
Bond Documents shall mean documentation, in Proper Form, relating to the
issuance of industrial development revenue bonds by the Authority in an
aggregate principal amount not exceeding $60,000,000, including without
limitation the Bonds and the Facilities Development Agreement, as the same may
from time to time be amended, restated or supplemented.
Bond Owner shall mean a limited liability company to be formed, of which
99% of the membership interests are to be owned by the Borrower and 1% of the
membership interests are to be owned by Sterling Canada.
Bonds shall mean the bonds issued pursuant to the Bond Documents.
Borrowed Money Indebtedness shall have the meaning ascribed to it in
Section 8.1 hereof.
2
<PAGE>
BP shall mean BP Chemicals Americas, Inc., a Delaware corporation, and its
successors.
BP Lease shall mean that certain Amended and Restated Lease and Production
Agreement dated August 8, 1994, executed by and between BP Chemicals, Inc. and
the Parent, as the same may from time to time be amended, modified, restated or
supplemented.
Budget shall mean the budget heretofore delivered to the Agent reflecting
all costs of all labor and materials required to complete the Plant Work,
together with all updates, if any, reflecting material changes thereto.
Business Day shall mean any day other than a day on which commercial banks
are authorized or required to close in Houston, Texas or in New York City, New
York.
Canadian Facility shall mean that certain Credit Agreement dated April 28,
1995 executed by and between the Borrower and The Bank of Nova Scotia, as the
same may be amended, restated or supplemented. The unpaid principal balance of
the Canadian Facility, together with the aggregate face amount of letters of
credit issued under the Canadian Facility, shall not exceed Canadian
$20,000,000.
Canadian Subsidiary shall mean any Subsidiary of the Parent which is
organized and exists under the laws of Canada or any province thereof.
Capital Expenditures shall mean expenditures in respect of fixed or capital
assets by a Person, to the extent capitalized in accordance with GAAP, but
excluding (a) expenditures for the restoration, repair or replacement of any
fixed or capital asset which was destroyed or damaged, in whole or in part, to
the extent financed by the proceeds of an insurance policy maintained by such
Person, (b) increases in the consolidated fixed or capital assets of such Person
resulting solely from Permitted Acquisitions (other than expenditures made after
the date of such Permitted Acquisition), (c) increases in the capital assets of
such Person resulting from expenditures in respect of fixed or capital assets
made by another so long as such Person has no obligation to reimburse the other
for such expenditures and (d) the Plant Work. Expenditures in respect of
replacements and maintenance consistent with the business practices of such
Person in respect of plant facilities, machinery, fixtures and other like
capital assets utilized in the ordinary course of business are not Capital
Expenditures to the extent such expenditures are not capitalized in preparing a
balance sheet of such Person in accordance with GAAP.
Capital Lease Obligations shall mean, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP (including Statement of Financial Accounting
Standards No. 13 of the Financial Accounting Standards Board, as amended) and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No.
3
<PAGE>
13). Capital Lease Obligations shall not include the interest component of any
applicable rental payment.
Cash Flow shall mean, without duplication, for any period, (a) Net Income
of the Plant Owner plus (b) depreciation and depletion and other non-cash
charges deducted in determining Net Income of the Plant Owner plus (c) interest
accrued and paid on the Bonds minus (d) non-cash income, all determined in
accordance with GAAP.
Cash Flow Account shall mean an account established by the Borrower at a
financial institution reasonably acceptable to the Agent in which Excess Cash
Flow is to be deposited. The depository documentation relating to the Cash Flow
Account shall be in Proper Form.
Ceiling Rate shall have the meaning assigned to it in the Interest Rate
Agreement.
Change of Control shall mean a change resulting when any Unrelated Person
or any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also constituting
Unrelated Persons) shall at any time either (i) Beneficially Own more than 50%
of the aggregate voting power of all classes of Voting Stock of the Parent or
(ii) succeed in having sufficient of its or their nominees elected to the Board
of Directors of the Parent such that such nominees, when added to any existing
director remaining on the Board of Directors of the Parent after such election
who is an Affiliate or Related Person of such Person or Group, shall constitute
a majority of the Board of Directors of the Parent. As used herein (a)
"Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, or any successor provision thereto;
provided, however, that, for purposes of this definition, a Person shall not be
deemed to Beneficially Own securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's Affiliates
until such tendered securities are accepted for purchase or exchange; (b)
"Group" means a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person
other than the Parent or any of its Subsidiaries and other than any trust for
any employee benefit plan of the Parent or any of its Subsidiaries; (d) "Related
Person" of any Person shall mean any other Person owning (1) 5% or more of the
outstanding common stock of such Person or (2) 5% or more of the Voting Stock of
such Person; and (e) "Voting Stock" of any Person shall mean capital stock of
such Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
Code shall mean the Internal Revenue Code of 1986, as amended, as now or
hereafter in effect, together with all regulations, rulings and interpretations
thereof or thereunder by the Internal Revenue Service.
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Collateral shall mean all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Security Documents.
Compliance Certificate shall have the meaning given to it in Section 7.2
hereof.
Completion Date shall mean the date on which the Agent shall have received
the Evidence of Completion.
Contractor shall mean each Person (other than a design professional)
entering into any agreement directly with the Plant Owner relating to such
Person's performance of the Plant Work or any part thereof.
Contribution Agreement shall mean that certain Contribution Agreement dated
concurrently herewith executed by and among the Parent and the other Parties, as
the same may be amended, modified, supplemented and restated--and joined in
pursuant to a joinder agreement--from time to time.
Controlled Group shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Parent, are treated as a single employer
under Section 414 of the Code.
Corporation shall mean a corporation, limited liability company,
partnership, joint venture, joint stock association, business trust and other
business entity.
Current Assets shall mean all assets of a Person which under GAAP would be
classified as current assets.
Current Liabilities shall mean all liabilities of a Person which under GAAP
would be classified as current liabilities, other than current maturities of
long term debt.
Current Ratio means, as of any day, the ratio of Current Assets to Current
Liabilities.
Debt to EBITDA Ratio shall mean, as of the last day of any fiscal quarter,
the ratio of (a) the outstanding balance of Borrowed Money Indebtedness on such
date to (b) EBITDA for the Rolling Four Quarters ending on such date.
Default shall mean an Event of Default or an event which with notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
Dollars and $ shall mean lawful money of the United States of America.
EBITDA shall mean, without duplication, for any period the sum of (a) Net
Income less non-cash income and (b) the sum of (i) Interest Expense for such
period, (ii) Federal, state and
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local income taxes deducted in determining such Net Income, (iii) amortization
of goodwill and other non-cash expenses and intangibles (including, without
limitation, patents, deferred financing costs and debt discount) deducted in
determining such Net Income, (iv) depreciation, depletion and obsolescence of
Property, in each case, determined in accordance with GAAP and (v) prepaid
income to the extent actually paid in cash.
Electrical Agreement shall mean that certain Agreement for Electrical
Service dated as of July 31, 1995 executed by and among Colquitt Electric
Membership Corporation, Oglethorpe Power Corporation (An Electric Generation &
Transmission Corporation) and Sterling Pulp (US) (and assigned or to be assigned
by Sterling Pulp (US) to the Plant Owner), as the same may be amended, restated
or supplemented.
Environmental Claim shall mean any third party (including Governmental
Authorities) action, lawsuit, claim or proceeding (including claims or
proceedings at common law) which seeks to impose liability for (i) noise; (ii)
pollution or contamination of the air, surface water, ground water or land or
the clean up of such pollution or contamination; (iii) solid, gaseous or liquid
waste generation, handling, treatment, storage, disposal or transportation; (iv)
exposure to Hazardous Substances; or (v) the manufacture, processing,
distribution in commerce or use of Hazardous Substances. An "Environmental
Claim" includes, but is not limited to, a common law action, as well as a
proceeding to issue, modify or terminate an Environmental Permit.
Environmental Liabilities includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
Environmental Permit means any permit, license, approval or other
authorization under any applicable Requirements of Environmental Law.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Event of Default shall have the meaning assigned to it in Section 9 hereof.
Evidence of Completion shall mean a certificate from the Plant Owner
certifying that the Plant Work has been completed and the Plant is operating.
Excess Cash Flow shall mean, for any period, the product of (I) Cash Flow
minus the sum of (a) current maturities of Capital Lease Obligations of the
Plant Owner, (b) principal
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payments and prepayments of the Obligations, (c) unreimbursed costs incurred by
the Plant Owner in connection with the Plant Work in accordance with this
Agreement, (d) other Capital Expenditures by the Plant Owner after the
Completion Date not to exceed $5,000,000 in the aggregate in any fiscal year and
(e) $5,000,000 for any period from the Effective Date through and including
September 30, 1997 (but from and after October 1, 1997, no deduction shall be
made under this clause (e) in calculating Excess Cash Flow) multiplied by (II)
eighty percent (80%).
Facilities Development Agreement shall mean a document, in Proper Form,
executed or to be executed by and between the Authority and the Plant Owner,
relating to the construction of the Plant.
Federal Funds Rate shall have the meaning assigned to it in the Interest
Rate Agreement.
Financing Statements shall mean all such Uniform Commercial Code financing
statements as the Agent shall require, in Proper Form, duly executed by the
Borrower, the Plant Owner, the Authority or others to give notice of and to
perfect or continue perfection of the Agent's Liens in all Collateral, as any of
the foregoing may from time to time be amended, modified, supplemented or
restated.
Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal
quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such
day less cash income taxes paid during such Rolling Four Quarters plus cash
income tax refunds received during such Rolling Four Quarters to (b) the Fixed
Charges for such Rolling Four Quarters.
Fixed Charges shall mean (without duplication), for any period, (a) the
amounts of scheduled principal payments made or to be made during such period
with respect to Borrowed Money Indebtedness (other than Capital Lease
Obligations) of the applicable Person (it is agreed that such scheduled
principal payments do not include any principal payments made to reduce any
revolving Indebtedness), plus (b) payments made or required to be made during
such period with respect to the principal component of the Capital Lease
Obligations of the applicable Person with unrelated third parties, plus (c) the
amount of Interest Expense for such period, plus (d) Capital Expenditures made
during such period.
GAAP shall mean generally accepted accounting principles as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the Parent's independent public accountants) with the September 30, 1994 audited
financial statements of the Parent delivered to the Lenders together with the
notes thereto.
Governmental Authority shall mean any foreign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any central bank, agency, department,
commission, board, bureau, court or other tribunal
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having jurisdiction over the Agent, any Lender, the Borrower, the Bond Owner,
the Plant Owner, the Parent or any of the Parent's Subsidiaries or their
respective Property.
Guaranties shall mean that certain Guaranty dated concurrently herewith
executed by the Parent, together with any other guaranties hereafter executed
with respect to the Obligations, as any of the same may from time to time be
amended, modified, restated or supplemented.
Hazardous Substance shall mean petroleum products, and any hazardous or
toxic waste or substance defined or regulated as such from time to time by any
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law".
Indebtedness shall mean and include (a) all items which in accordance with
GAAP would be included on the liability side of a balance sheet on the date as
of which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, letter of credit
contingent reimbursement obligations, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on
any interest of the Person with respect to which Indebtedness is being
determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed; provided, that the term
"Indebtedness" shall not mean or include any Indebtedness of the type described
in clause (a) of this definition in respect of which monies sufficient to pay
and discharge the same in full (either on the expressed date of maturity thereof
or on such earlier date as such Indebtedness may be duly called for redemption
and payment) shall be deposited with a depository, agency or trustee acceptable
to the Agent in trust for the payment thereof.
Interest Expense shall mean, for any period, the sum of the interest
payments by an obligor made or accrued in accordance with GAAP during such
period in connection with all of its Borrowed Money Indebtedness, including the
interest component of any Capital Lease Obligations.
Interest Rate Agreement shall mean the Interest Rate Agreement attached
hereto as Schedule 1, as it may from time to time be amended, modified, restated
or supplemented.
Interest Rate Risk Agreement shall mean an interest rate swap agreement,
interest rate cap agreement or similar arrangement entered into between the
Borrower and one or more financial institutions for the purpose of reducing
Borrower's exposure to interest rate risk and not for speculative purposes, as
it may from time to time be amended, modified, restated or supplemented from
time to time.
Interest Rate Risk Indebtedness shall mean all obligations and Indebtedness
of the Borrower with respect to the program for the hedging of interest rate
risk provided for in any Interest Rate Risk Agreement.
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Investment shall mean the purchase or other acquisition of any securities
or Indebtedness of, or the making of any loan, advance, or other extension of
credit or capital contribution to (by means of transfers of property or assets
or otherwise) any Person.
Key Plant Contracts shall mean the Electrical Agreement and the Bond
Documents.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future.
Lending Percentage shall mean, as to any Lender, the percentage equivalent
of a fraction the numerator of which is the sum of the Loans made by such Lender
plus the amount of such Lender's remaining Loan Commitment and the denominator
of which is the sum of the aggregate Loans made by all Lenders plus the
aggregate amount of the remaining Loan Commitments of all Lenders.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien of any kind, whether based on
common law, constitutional provision, statute or contract to secure payment of
debt or performance of an obligation.
Loans shall mean the loans provided for by Section 2.1 hereof.
Loan Commitment shall mean, as to any Lender, the unused obligation, if
any, of such Lender to make Loans in an aggregate principal amount up to (but
not exceeding) the amount, if any, set forth opposite such Lender's name on the
signature pages hereof under the caption "Loan Commitment," or otherwise
provided for in an Assignment and Acceptance Agreement (as the same may be
reduced from time to time pursuant to Section 2.2 hereof).
Loan Documents shall mean, collectively, this Agreement, the Notes, the
Interest Rate Agreement, the Guaranties, the Contribution Agreement, the
Security Documents, the Notice of Entire Agreement, all instruments,
certificates and agreements now or hereafter executed by any Party and delivered
to, and for the benefit of, the Agent or any Lender in connection with the
Obligations or any commitment regarding the Obligations, and all amendments,
modifications, renewals, extensions, increases and rearrangements of, and
substitutions for, any of the foregoing.
Majority Lenders shall mean Lenders having greater than 60% of the
aggregate amount of Loans outstanding plus the remaining Loan Commitments
outstanding.
Material Adverse Effect shall mean a material adverse effect on the
business, financial condition, operations or Properties of the Parent and its
Subsidiaries, taken as a whole, or on
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the ability of any of them to perform their respective material obligations
under any Loan Document to which any of them is a party.
Maturity Date shall mean the maturity of the Notes, September 30, 2002, as
the same may hereafter be accelerated pursuant to the provisions of any of the
Loan Documents.
Maximum Payment Cap shall mean the aggregate of the Payment Cap of each
Loan. The "Payment Cap" of each Loan shall be equal to twenty-five percent
(25%) of the original principal amount of such Loan less all principal payments
and prepayments deemed to have theretofore been made on such Loan in accordance
with the provisions of clause (iv) below; provided, however,
(i) on October 1, 2001, the "Payment Cap" of each Loan made prior to
October 1, 1996 shall be increased by an amount equal to seventy-five
percent of the original principal amount thereof;
(ii) on the date which is five (5) calendar years plus one (1) Business
Day from the date of drawdown of any Loan made on or after October 1,
1996, the "Payment Cap" of each such Loan shall be increased by an
amount equal to seventy-five percent (75%) of the original principal
amount thereof;
(iii) on the date (if any) that a Subsidiary of Parent organized in the
United States is substituted as the "Borrower" hereunder as provided
for in Section 11.16 hereof, the "Maximum Payment Cap" shall
automatically, without the need for notice to any Person, be amended
to equal the entire aggregate unpaid principal balance of the Loans;
(iv) notwithstanding any other provision hereof and for all purposes under
this Agreement, principal payments and prepayments shall be applied
to Loans in the order in which such Loans were advanced, up to the
Payment Cap of each such Loan (i.e if application of any such
principal payment or prepayment to a particular Loan would exceed the
Payment Cap of any such Loan, the excess shall be applied to the
other Loans up to the Payment Cap of each such Loan in the order in
which such Loans were advanced); and
(v) payments received concurrently shall be aggregated for purposes of
clause (iv) and for purposes of the calculation of the Maximum
Payment Cap.
Mortgaged Property shall mean all Property of any Party, whether now
existing or hereafter acquired, which is subject to the Lien of the Mortgage.
Mortgage shall mean, collectively, a Deed to Secure Debt and Security
Agreement, in Proper Form, executed or to be executed by the Authority and the
Plant Owner in favor of the
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Agent, covering and affecting the Property described on Exhibit F hereto, and
all improvements, appurtenances and personal property related thereto, and also
covering the interests of the Plant Owner under the Electrical Agreement and
Facilities Development Agreement, as the same may from time to time be amended,
modified, restated or supplemented.
Net Income shall mean, for any Person and any period, the consolidated net
income of such Person for such period after taxes but before extraordinary
items, determined in accordance with GAAP.
Net Worth shall mean net worth determined in accordance with GAAP.
Notes shall mean the promissory notes of the Borrower evidencing the Loans,
substantially in the form of Exhibit C hereto, together with all renewals,
extensions, modifications and replacements thereof and substitutions therefor.
Notice of Entire Agreement shall mean a notice of entire agreement, in
Proper Form, executed by the Borrower, the Plant Owner, the Parent, the Agent
and each other Party, as the same may from time to time be amended, modified,
supplemented or restated.
Obligations shall mean, as at any date of determination thereof, the sum
(without duplication) of the following: (i) the aggregate principal amount of
Loans outstanding hereunder plus (ii) all other liabilities, obligations and
indebtedness of any Party under any Loan Document.
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof.
Parent shall mean Sterling Chemicals, Inc., a Delaware corporation.
Parent Credit Facility shall mean that certain Credit Agreement dated as of
April 13, 1995 executed by and among the Parent, TCB, as Agent, The Bank of Nova
Scotia, as Documentation Agent, and ABN AMRO Bank, N.V., Houston Agency, Bank of
Scotland, and Credit Lyonnais, New York Branch, as Co-Agents, and the lenders
party thereto, as the same may from time to time be amended, restated or
supplemented.
Parties shall mean the Borrower, the Plant Owner, the Bond Owner, the
Parent and each Subsidiary of the Parent executing a Loan Document.
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Past Due Rate shall mean, on any day, a rate per annum equal to the lesser
of (i) the Ceiling Rate for that day or (ii) the Base Rate (as defined in the
Interest Rate Agreement) plus two percent (2%).
PBGC shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
Permitted Acquisitions shall mean non-hostile acquisitions of all or
substantially all of the assets, or 50% or more of the voting securities, of any
Person (or any division or product line of such Person), but only so long as no
Default or Event of Default shall have occurred and be continuing (or would
result from such acquisition).
Permitted Dividends shall mean an amount not to exceed 50% of Net Income of
the Parent for the immediately preceding Rolling Four Quarters which may, so
long as no Default or Event of Default shall have occurred and be continuing (or
would result from such distribution) and so long as the Adjusted Fixed Charge
Coverage Ratio for the Parent and its Subsidiaries is not (and would not be,
after giving effect to such distribution) less than 1.10 to 1.00, be distributed
by the Parent so long as the Parent has delivered to the Agent a Compliance
Certificate calculated after giving effect to the proposed distribution which
indicates that such distribution complies with the terms of this Agreement.
Permitted Investments shall mean: (a) certificates of deposit maturing
within 90 days of the acquisition thereof and issued by a bank or trust company
organized under the laws of the United States of America or a State thereof,
having combined capital and surplus of at least $250,000,000 and which has (or
which is a Subsidiary of a bank holding company which has) publicly traded debt
securities rated A or higher by Standard and Poor's Corporation and A-2 or
higher by Moody's Investors Service, Inc.; (b) obligations issued or guaranteed
by the United States of America; (c) commercial paper with a published rating of
not less than A-2 and P-2 (or the equivalent rating); (d) repurchase obligations
for underlying securities of the type described in clauses (a), (b) or (c) above
entered into on a fully collateralized basis with any Lender; (e) dollar
denominated time deposits with, including certificates of deposit issued by, any
non-United States branch or office of any Lender; (f) Permitted Acquisitions;
(g) securities (other than those securities described in clauses (a) through (e)
of this definition) of money market mutual funds with net assets in excess of
$100,000,000, provided that the investment amounts in securities described in
this clause (g) may not exceed 5% of the issued and outstanding securities of
any Person (or such lesser percentage as would constitute a controlling
interest), irrespective of whether such securities having voting power or may be
convertible to securities with voting power of any Person; (h) loan
participations with a rating of not less than A-2 and P-2 (or, in the case of
investments maintained in the Cash Flow Account, A-1 and P-1) (or the equivalent
rating) by Moody's Investors Service, Inc. and Standard and Poor's Corporation,
respectively; (i) money market preferred stock with a rating of not less than
AAA (or the equivalent rating); (j) the Bonds; (k) investments maintained in the
Cash Flow Account in publicly traded securities rated BB+ or better by Standard
& Poor's Corporation or Ba1 or
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better by Moody's Investors Service, Inc.; (l) other investments approved by
Agent in writing not exceeding, in the aggregate, $20,000,000, and (m) other
investments approved by the Majority Lenders in writing. Amounts in the Cash
Flow Account may not be invested in the items described in clauses (f) or (l)
above.
Person shall mean any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan shall mean an employee pension benefit plan (as such term is defined
in Section 3(2) of ERISA) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code or Section 302 of
ERISA and (a) which is maintained by the Parent or any member of the Controlled
Group for employees of the Parent or any member of the Controlled Group or (b)
as to which the Parent or any member of the Controlled Group may have any
liability.
Plans and Specifications shall mean written plans, proposals and drawings
for the Plant Work heretofore delivered to the Agent, together with all updates,
if any, reflecting material changes thereto.
Plant shall mean, collectively, the Plant Land and the Plant Improvements.
Plant Contract shall mean any contract or agreement now or hereafter
entered into between the Plant Owner and any Contractor relating to the Plant
Work.
Plant Improvements shall mean all improvements now or hereafter situated on
the Plant Land.
Plant Land shall mean the real property described on Exhibit F attached
hereto.
Plant Owner shall mean an entity to be formed or acquired, all of the
equity interests in which will be owned by Sterling Pulp (US), and which will
own a leasehold interest in and to the Plant under a lease to be entered into
with the Authority, in Proper Form.
Plant Work shall mean all work required to complete and equip the Plant in
accordance with the Plans and Specifications.
Principal Office shall mean the principal office of the Agent, presently
located at 712 Main Street, Houston, Harris County, Texas 77002.
Proper Form shall mean in form and substance reasonably satisfactory to the
Agent.
Property shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
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Quarterly Dates shall mean the first day of each April, July, October and
January, provided that if any such date is not a Business Day, then the relevant
Quarterly Date shall be the next succeeding Business Day.
Quarterly Financial Statements shall mean the quarterly financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of a fiscal quarter and an income
statement and a statement of changes in financial position for such fiscal
quarter and for the fiscal year to date, subject to normal adjustments, all
setting forth in comparative form the corresponding figures for the
corresponding calendar quarter of the preceding year, prepared in accordance
with GAAP and certified as true and correct to the best of his knowledge by the
chief financial officer or other authorized officer of such Person.
Regulatory Change shall mean with respect to any Lender, any change after
the date of this Agreement in any Legal Requirement (including, without
limitation, Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of financial
institutions including such Lender under any Legal Requirements (whether or not
having the force of law) by any Governmental Authority.
Request for Extension of Credit shall mean a request for extension of
credit duly executed by the chief executive officer, chief financial officer or
treasurer of the Borrower (or other Person designated in writing by any of the
foregoing to whom authority has been properly delegated), appropriately
completed and substantially in the form of Exhibit A attached hereto.
Requirements of Environmental Law shall mean all requirements imposed by
any law (including for example and without limitation The Comprehensive
Environmental Response, Compensation, and Liability Act), rule, regulation, or
order of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority at the applicable time
which relate to (i) noise; (ii) pollution, protection or clean up of the air,
surface water, ground water or land; (iii) solid, gaseous or liquid waste
generation, treatment, storage, disposal or transportation; (iv) exposure to
Hazardous Substances; or (v) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
Rolling Four Quarters shall mean, as of any day, the then most recently
ended four (4) fiscal quarter period of the Parent.
Scheduled Completion Date shall mean June 30, 1997.
Secretary's Certificate shall mean a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signatures of the officers of such corporation
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executing such documents on behalf of such corporation, and (c) the
Organizational Documents of such corporation.
Security Agreements shall mean, collectively, the Security Agreements
executed or to be executed, in Proper Form, in favor of the Agent covering the
Bonds and the Cash Flow Account, as any of them may from time to time be
amended, modified, restated or supplemented.
Security Documents shall mean, collectively, the Mortgage, the Security
Agreements, and any and all other security documentation now or hereafter
executed and delivered by the Authority or any Party to the Agent, as any of
them may from time to time be amended, modified, restated or supplemented.
Sterling Canada shall mean Sterling Canada, Inc., a Delaware corporation
and a wholly-owned Subsidiary of the Parent.
Sterling Energy shall mean Sterling Chemicals Energy, Inc., a Delaware
corporation.
Sterling Pulp (US) shall mean Sterling Pulp Chemicals US, Inc., a Delaware
corporation.
Subcontractor shall mean any Person who furnishes labor or materials for
the Plant to fulfill an obligation to a Contractor or to another Subcontractor
to perform all or part of the work required by a Plant Contract.
Subordinated Debt shall mean, as of the date of determination thereof,
unsecured Indebtedness with any lender for which the Parent is directly and
primarily liable, in respect of which none of its Subsidiaries is contingently
or otherwise obligated, and which is subordinated to the obligations of the
Parent to pay principal of and interest (before and after bankruptcy) on the
Loans and the Notes and on any Interest Rate Risk Indebtedness owed to any of
the Lenders, on terms, and which contains other terms (including interest,
amortization and financial covenants), in form and substance satisfactory to the
Agent and the Majority Lenders.
Subsidiary shall mean, as to a particular parent Corporation, any
Corporation of which more than 50% of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by, such parent Corporation.
Survey shall mean a current survey of the applicable portion of the
Mortgaged Properties by a state-licensed surveyor who is reasonably acceptable
to the Agent and to the Title Company, which shall contain the surveyor's
certificate that the survey satisfies the standards and tolerances of a "Class A
Survey" currently prescribed by the ALTA and ACSM.
Termination Date shall mean the earlier of (a) September 30, 1997 or (b)
the date specified by the Agent in accordance with Section 9.1 hereof.
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Texas Credit Code shall mean Title 79, Texas Revised Civil Statutes, 1925,
as amended.
Title Company shall mean a title insurance company reasonably acceptable to
the Agent and the Borrower.
Title Insurance Policies shall mean a policy of title insurance, in Proper
Form, in a face amount reasonably satisfactory to the Agent, issued in favor of
the Agent by the Title Company and insuring that title to the Mortgaged
Properties is vested in the Authority, free and clear of any Lien, objection,
exception or requirement other than those securing the Bonds or that could
otherwise be reasonably expected to materially affect the operation of the
Plant, and that the Mortgage creates a valid first and prior lien in favor of
the Agent on all the Mortgaged Properties affected by the Mortgage, subject only
to such exceptions as may be approved in writing by the Agent, together with any
endorsements thereto reasonably requested by the Agent. Said policy shall
contain a complete and accurate description of the Mortgage, shall specify the
recording and filing information applicable to it and shall describe the
Mortgaged Properties identically to the description thereof in the Mortgage.
Unfunded Vested Liabilities shall mean, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Plan exceeds (b) the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that such excess
represents a potential liability of the Parent or any member of the Controlled
Group to the PBGC or such Plan under Title IV of ERISA.
Welfare Plan shall mean a "welfare plan," as such term is defined in
Section 3(1) of ERISA.
1.2 Miscellaneous. The words "hereof," "herein," and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement.
2. Commitments and Loans.
2.1 Loans. Each Lender severally agrees, subject to all of the terms and
conditions of this Agreement (including, without limitation, Sections 5.1 and
5.2 hereof), to make Loans to the Borrower from time to time prior to the
Termination Date in an aggregate principal amount up to but not exceeding such
Lender's Loan Commitment.
2.2 Terminations or Reductions of Loan Commitments.
(a) Mandatory. Each Loan Commitment shall be automatically reduced by the
amount of any Loan made by the applicable Lender. On September 30, 1996, the
aggregate of all remaining Loan Commitments shall be reduced by the amount, if
any, by which such
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aggregate amount exceeds $10,000,000. On the Termination Date, all Loan
Commitments shall be terminated in their entirety.
(b) Optional. The Borrower shall have the right to terminate or reduce the
unused portion of the Loan Commitments at any time or from time to time,
provided that (i) the Borrower shall give notice of each such termination or
reduction to the Agent as provided in Section 4.3 hereof and (ii) each such
partial reduction shall be in an aggregate amount of at least $1,000,000.
(c) No Reinstatement. Any termination or reduction of the Loan Commitments
may not be reinstated without the written approval of the Agent and the Lenders.
2.3 Fees.
(a) The Borrower shall pay to the Agent for the account of each Lender
commitment fees with respect to such Lender's Loan Commitment for the period
from the Effective Date to and including the Termination Date at a rate per
annum equal to 0.25%. Such commitment fees shall be computed (on the basis of
the actual number of days elapsed in a year composed of 360 days) on each day
and shall be based on the amount of such Lender's Loan Commitment for such day.
Accrued commitment fees payable under this provision shall be payable in arrears
on the Quarterly Dates prior to the Termination Date and on the Termination
Date.
(b) All past due fees payable under this Section shall bear interest at the
Past Due Rate.
2.4 Several Obligations. The failure of any Lender to make any Loan to be
made by it on the date specified therefor shall not relieve any other Lender of
its obligation to make its Loan on such date, but neither the Agent nor any
Lender shall be responsible or liable for the failure of any other Lender to
make a Loan to be made by such other Lender. Notwithstanding anything contained
herein to the contrary, if a Lender fails to make a Loan as and when required
hereunder, then upon each subsequent event which would otherwise result in funds
being paid to the defaulting Lender, the amount which would have been paid to
the defaulting Lender shall be divided among the non-defaulting Lenders ratably
according to their respective Lending Percentages until the aggregate principal
amount of Loans outstanding hereunder made by each Lender (including the
defaulting Lender) are equal to such Lender's Lending Percentage of the
aggregate principal amount of Loans outstanding hereunder made by all Lenders
(nothing in this Section shall result in any additional liability on the
Borrower and each Lender agrees to make such adjustments on the terms and
provisions of its Note as may be required to address the results of this
Section).
2.5 Notes. The Loans made by each Lender shall be evidenced by a single
Note of the Borrower payable to the order of such Lender in a principal amount
equal to the initial Loan Commitment of such Lender, and otherwise duly
completed. Each Lender is hereby authorized
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by the Borrower to endorse on the schedule (or a continuation thereof) that may
be attached to each Note of such Lender, to the extent applicable, the date,
amount, type of and the applicable period of interest for each Loan made by such
Lender to the Borrower hereunder, and the amount of each payment or prepayment
of principal of such Loan received by such Lender, provided, that any failure by
such Lender to make any such endorsement (or any error in such endorsement)
shall not affect the obligations of the Borrower under such Note or hereunder in
respect of such Loan.
2.6 Use of Proceeds. The proceeds of the Loans shall be used by the
Borrower to provide funds to the Bond Owner for the purchase of Bonds or to pay,
or cause to be paid, on behalf of the Authority, costs (or reimbursement of
costs) of the Plant Work and for no other purpose, and upon the Agent's request,
the Borrower shall furnish evidence of items which have been paid by the
proceeds of any applicable Loan.
3. Borrowings, Payments and Prepayments.
3.1 Borrowings. The Borrower shall give the Agent notice of each
borrowing to be made hereunder as provided in Section 4.3 hereof. Not later
than 12:00 noon Houston time on the date specified for each such borrowing
hereunder, each Lender shall make available the amount of the Loan, if any, to
be made by it on such date to the Agent, at its Principal Office, in immediately
available funds, for the account of the Borrower. Such amounts received by the
Agent will be held in an account maintained by the Borrower with the Agent. The
amounts so received by the Agent shall, subject to the terms and conditions of
this Agreement, be made available to the Borrower by wiring or otherwise
transferring, in immediately available funds, such amount to an account
designated by the Borrower and maintained with Agent in Houston, Texas.
3.2 Payments; Prepayments.
(a) Optional Prepayments. Subject to the terms of the Interest Rate
Agreement, the Borrower shall have the right to prepay, on any Business Day, in
whole or in part, without the payment of any penalty or fee, Loans at any time
or from time to time, provided that the Borrower shall give the Agent notice of
each such prepayment as provided in Section 4.3 hereof. Each optional prepayment
on a Loan shall be in an amount at least equal to the lesser of $1,000,000 or
the unpaid principal balance of the Note evidencing such Loan. Without limiting
the foregoing, the Borrower may, at any time, apply all or any part of the funds
held in the Cash Flow Account in prepayment on the Loans.
(b) Certain Mandatory Prepayments.
(1) Insurance Proceeds and Condemnation Awards. Promptly following
the receipt thereof by the Parent or any of its Subsidiaries, the Borrower
shall deposit or cause to be deposited in the Cash Flow Account all of the
net cash proceeds of any
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payment or award in excess of $250,000 made to the Parent or any of its
Subsidiaries under any policy of property insurance covering any of the
Mortgaged Properties or pursuant to any condemnation award with respect to
any such properties. Upon delivery to the Agent of written certification by
the Borrower that the Borrower or any of its Subsidiaries has reasonably
expended amounts or committed in writing to expend amounts for the
restoration or replacement of the Mortgaged Properties, specifying the
amount expended or committed, so long as no Default or Event of Default
shall have occurred and be continuing any such amount deposited in the Cash
Flow Account shall be released to the Borrower; provided, however, that, in
the event that within 90 days of receipt of such payment or award, to the
extent the Borrower shall not have certified to the Agent its intention to
expend an equivalent amount for the restoration or replacement of the asset
in respect of which such payment or award was made, the Borrower shall make
a prepayment on the Loans (using any funds deposited in the Cash Flow
Account pursuant to this Section 3.2(b)(1) or other funds) in the amount of
the excess of the amount of such payment or award over the amount of such
expenditures and/or commitment on such 90th day; provided, however, that if
such excess is greater than the Maximum Payment Cap, only the Maximum
Payment Cap shall be so applied, with the balance to be deposited in the
Cash Flow Account.
(2) Excess Cash Flow. Not later than five (5) Business Days after the
delivery of the Annual Audited Financial Statements pursuant to Section 7.2
hereof with respect to each fiscal year of the Parent (commencing with the
fiscal year ending on September 30, 1997), an amount equal to Excess Cash
Flow for such fiscal year shall, at the option of the Borrower, be
deposited in the Cash Flow Account or be applied in prepayment of the
Loans.
(3) Cash Flow Account. On each Quarterly Date, all amounts held in
the Cash Flow Account shall be applied in prepayment on the Loans;
provided, however, that if such amount is greater than the Maximum Payment
Cap, only the Maximum Payment Cap shall be so applied, with the balance to
be retained in the Cash Flow Account (income accruing on amounts and
investments held in the Cash Flow Account may be distributed to the
Borrower so long as no Event of Default has occurred).
(c) Application of Prepayments on Loans. Any prepayments made on the Loans
will be applied (i) first, pro rata to the scheduled principal installments due
on October 1, 2001, January 1, 2002, April 1, 2002 and July 1, 2002, until one-
half (1/2) of the aggregate amount of such scheduled principal installments
shall have been paid and (ii) thereafter, to the scheduled principal
installments on the Loans in inverse order of their maturities.
(d) Loan Amortization. The principal of each Note shall be due and payable
in quarterly installments due on each Quarterly Date, beginning on October 1,
1997, equal to the applicable Lender's pro rata share of the Loans times (i) for
each Quarterly Date through and including July 1, 1998, the sum of $781,250 plus
the product of $625,000 times the
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Amortization Fraction, (ii) for the Quarterly Date on October 1, 1998 and for
each Quarterly Date thereafter through and including July 1, 2001, $781,250, and
(iii) for the Quarterly Date on October 1, 2001 and for each Quarterly Date
thereafter through and including July 1, 2002, $9,375,000; provided, however,
that if the payment required under the foregoing provisions of this sentence
exceed the Maximum Payment Cap, only the Maximum Payment Cap shall be applied to
the Loans, with the balance to be either applied in prepayment of the Loans or
deposited in the Cash Flow Account, at the option of the Borrower. On the
Maturity Date, the entire unpaid principal balance of each Note and all accrued
and unpaid interest on the unpaid principal balance of each Note shall be
finally due and payable.
(e) Interest Payments. Accrued and unpaid interest on the unpaid principal
balance of the Notes shall be due and payable on the Interest Payment Dates (as
defined in the Interest Rate Agreement).
(f) Payments; Interest Rate Agreement. The Borrower shall pay all amounts
required to be paid under the Interest Rate Agreement, the Notes and the other
Loan Documents as and when due.
4. Payments; Pro Rata Treatment; Computations, Etc.
4.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be paid by the Borrower hereunder,
under the Notes and under the other Loan Documents shall be made in Dollars, in
immediately available funds, to the Agent at the Principal Office (or in the
case of a successor Agent, at the principal office of such successor Agent in
the United States), not later than 11:00 a.m. Houston time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day).
(b) The Borrower shall, at the time of making each payment hereunder, under
any Note or under any other Loan Document, specify to the Agent the Loans or
other amounts payable by the Borrower hereunder or thereunder to which such
payment is to be applied. Each payment received by the Agent hereunder, under
any Note or under any other Loan Document for the account of a Lender shall be
paid promptly to such Lender, in immediately available funds. If the Agent
fails to send to any Lender its portion of any payment, to the extent timely
received by the Agent, by the close of business on the day such payment was
received, the Agent shall pay to such Lender interest on its portion of such
payment from the day such payment was timely received by the Agent until the
date such Lender's portion of such payment is sent to such Lender, at the
Federal Funds Rate.
(c) If the due date of any payment hereunder or under any Note falls on a
day which is not a Business Day, the due date for such payments (except as
otherwise provided in the
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Interest Rate Agreement) shall be extended to the next succeeding Business Day
and interest shall be payable for any principal so extended for the period of
such extension.
4.2 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Lenders under Section 2.1 hereof shall be made
ratably from the Lenders on the basis of their respective Loan Commitments; (b)
each payment of commitment fees shall be made for the account of the Lenders,
and each termination or reduction of the Loan Commitments of the Lenders under
Section 2.2 hereof shall be applied, pro rata, according to the Lenders'
respective Loan Commitments and (c) each payment by the Borrower of principal of
or interest on the Loans shall be made to the Agent for the account of the
Lenders pro rata in accordance with the respective unpaid principal amounts of
such Loans held by the Lenders.
4.3 Certain Actions, Notices, Etc. Notices to the Agent of termination or
reduction of Loan Commitments, borrowings and prepayments of Loans shall be
irrevocable and shall be effective only if received by the Agent not later than
11:00 a.m. Houston time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing, prepayment and/or issuance specified
below:
Number of
Notice Business Days Prior
------ -------------------
Termination or Reduction of
Loan Commitments 5
Loan Borrowing at the Base Rate Same day
Borrowing at the Eurodollar Rate 3 Eurodollar Business Days (as
(as defined in the Interest defined in the Interest Rate
Rate Agreement) Agreement)
Optional prepayment of Loan 1
Each such notice of termination or reduction shall specify the amount of the
applicable Loan Commitment to be terminated or reduced. Each such notice of
borrowing or prepayment shall specify the amount of the Loans to be borrowed or
prepaid and the date of borrowing or prepayment (which shall be a Business Day).
The Agent shall promptly notify the affected Lenders of the contents of each
such notice.
4.4 Non-Receipt of Funds by the Agent. Unless the Agent shall have been
notified by a Lender or the Borrower (the "Payor") prior to the date on which
such Lender is to make payment to the Agent of the proceeds of a Loan to be made
by it hereunder or the Borrower is to make a payment to the Agent for the
account of one or more of the Lenders, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be effective
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upon receipt, that the Payor does not intend to make the Required Payment to the
Agent, the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the recipient of such
payment shall, on demand, pay to the Agent the amount made available by the
Agent together with interest thereon in respect of the period commencing on the
date such amount was so made available by the Agent until the date the Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such period or (if the recipient is the Borrower) the Base Rate (as defined in
the Interest Rate Agreement).
4.5 Sharing of Payments, Etc. If a Lender shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement or on any
other Obligation then due to such Lender hereunder through the exercise of any
right of set-off (including, without limitation, any right of setoff or lien
granted under Section 9.2 hereof), banker's or other lien, counterclaim or
similar right, or otherwise, it shall promptly purchase from the other Lenders
participations in the Loans made, or other Obligations held, by the other
Lenders in such amounts, and make such other adjustments from time to time as
shall be equitable to the end that all the Lenders shall share the benefit of
such payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Obligations then due to each of them. To such end
all the Lenders shall make appropriate adjustments among themselves (by the
resale of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any Lender so purchasing a
participation in the Loans made, or other Obligations held, by other Lenders may
exercise all rights of set-off, bankers' or other lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Loans or other Obligations in the amount of such participation.
Nothing contained herein shall require any Lender to exercise any such right or
shall affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of the Borrower.
5. Conditions Precedent.
5.1 Initial Loans. The obligation of each Lender to make its initial
Loans hereunder is subject to the following conditions precedent, each of which
shall have been fulfilled or waived to the satisfaction of the Agent:
(1) Corporate Action and Status. The Agent shall have received a
Secretary's Certificate from the Parent and each of its Subsidiaries signing a
Loan Document, which shall be accompanied by copies of the Organizational
Documents of the Parent and each such Subsidiary, copies of the bylaws of the
Parent and each such Subsidiary and such certificates as may be appropriate to
demonstrate the qualification and good standing of and payment of taxes by the
Parent and each such Subsidiary in each state where the failure in which to
qualify would
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have a Material Adverse Effect. The Agent and each Lender may conclusively rely
on such certificates until they receive notice in writing from the Borrower or
the appropriate Party to the contrary.
(2) Notes. The Agent shall have received the appropriate Notes of the
Borrower for each Lender, duly completed and executed.
(3) Loan Documents. The Authority and the Parent and each other Party
shall have duly executed and delivered the Loan Documents to which it is a party
(in such number of copies as the Agent shall have requested) and each such Loan
Document shall be in form satisfactory to Agent. Each such Loan Document shall
be in form and substance reasonably satisfactory to the Lenders.
(4) Security Matters. All such action as the Agent shall have requested to
perfect the Liens created pursuant to the Security Documents shall have been
taken, including, without limitation, receipt by the Agent of (a) documentation,
in Proper Form, relating to the perfection of a security interest in the Cash
Flow Account and providing any required consents for the collateral assignment
of (and foreclosure upon) the Electrical Agreement and the Facilities
Development Agreement and the Bonds, (b) the Bonds issued as of the date of such
initial Loans and (c) the Title Insurance Policy (accompanied by copies of all
title matters referred to therein) and the delivery to the Agent of
appropriately completed and duly executed Uniform Commercial Code financing
statements with appropriate Governmental Authorities. The Agent shall also have
received evidence satisfactory to it that the Liens created by the Security
Documents constitute first priority Liens, except for the exceptions expressly
provided for herein and therein, including, without limitation, Uniform
Commercial Code search reports, satisfactory title evidence in form and
substance acceptable to the Agent, and executed releases of any prior Liens.
(5) Fees and Expenses. The Borrower shall have paid to the Agent all unpaid
fees in the amounts previously agreed upon in writing between the Borrower and
the Agent; and shall have in addition paid to the Agent all amounts payable
under Section 11.3 hereof, on or before the date of this Agreement.
(6) Insurance. The Borrower shall have delivered to the Agent certificates
of insurance satisfactory to the Agent evidencing the existence of all insurance
required to be maintained by the Borrower by this Agreement and the Security
Documents.
(7) Opinion of Counsel. The Agent shall have received an opinion of
Bracewell & Patterson, L.L.P., counsel to the Parent and its Subsidiaries, as
well as such separate local counsel as the Agent may reasonably require, each in
form and substance reasonably satisfactory to the Agent.
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(8) Consents. The Agent shall have received evidence satisfactory to it
that all material consents of each Governmental Authority and of each other
Person, if any, reasonably required in connection with (a) the Loans and (b) the
execution, delivery and performance of this Agreement and the other Loan
Documents have been satisfactorily obtained.
(9) Real Estate Matters. The Agent shall have received each of the
following:
(a) a Survey covering the Mortgaged Properties prepared by a
qualified surveyor reasonably acceptable to the Agent, in Proper Form;
(b) evidence reasonably satisfactory to the Agent that
environmental due diligence has been performed with respect to the
Mortgaged Properties of a nature and to an extent consistent with
normal and customary business practices with respect to facilities
similar to the Plant and similarly situated; and
(c) true, correct and complete copies of all Key Plant Contracts.
(10) Amendments to Parent Credit Facility and Canadian Facility. The Agent
shall have received amendments to the Parent Credit Facility and the Canadian
Facility permitting the consummation of the transactions herein described.
(11) Other Documents. The Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as the Agent may reasonably request.
5.2 All Loans. The obligation of each Lender to make any Loan to be made
by it hereunder is subject to (a) the accuracy, in all material respects, on the
date of such Loan of all representations and warranties of the Authority and the
Borrower and any other Party contained in this Agreement and the other Loan
Documents; (b) receipt by the Agent of the following, all of which shall be duly
executed or endorsed and in Proper Form: (1) a Request for Extension of Credit
as to the Loan no later than 11:00 a.m. Houston time on the Business Day on
which such Request for Extension of Credit must be given under Section 4.3
hereof, (2) all Bonds issued prior to the date of such Loan (and assurances
reasonably satisfactory to the Agent that the Authority will cause all
additional Bonds subsequently issued to be delivered directly to the Agent) and
(3) such other documents as the Agent or any Lender may reasonably require; (c)
prior to the making of such Loan, there shall have occurred no event which has
had or could reasonably be expected to have a Material Adverse Effect; (d) no
Default or Event of Default shall have occurred and be continuing and shall not
occur as a result of the making of such Loan, and (e) the making of such Loan
shall not be illegal or prohibited by any Legal Requirement.
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<PAGE>
6. Representations and Warranties.
The Borrower represents and warrants to the Lenders and the Agent as
follows:
6.1 Organization. The Parent and each of its Subsidiaries (a) is duly
organized, validly existing and in good standing under the laws of the State or
Province of its organization; (b) has all necessary corporate power and
authority to conduct its business as presently conducted, and (c) is duly
qualified to do business and in good standing in the State or Province of its
organization and in all jurisdictions in which the failure to so qualify would
have a Material Adverse Effect.
6.2 Financial Statements. The Parent has furnished to the Agent the
Annual Audited Financial Statements of the Parent and its Subsidiaries as at
September 30, 1994, which fairly present, the financial condition and the
results of operations of the Parent and its Subsidiaries as at such date. No
events, conditions or circumstances have occurred from the date that the
financial statements were delivered to the Agent through the date hereof which
would cause said financial statements to be misleading in any material respect.
There are no material instruments or liabilities which should be reflected in
such financial statements provided to the Agent which are not so reflected.
Since September 30, 1994, no event has occurred which has had (or could
reasonably be expected to have) a Material Adverse Effect.
6.3 Enforceable Obligations; Authorization. The Loan Documents are legal,
valid and binding obligations of the Parties and, where applicable, the
Authority, enforceable in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency and other similar laws and judicial
decisions affecting creditors' rights generally and by general equitable
principles. The execution, delivery and performance of the Loan Documents (a)
have all been duly authorized by all necessary corporate action; (b) are within
the corporate power and authority of the Parties and, where applicable, the
Authority; (c) do not and will not contravene or violate any Legal Requirement
applicable to the Parties or, where applicable, the Authority, or the
Organizational Documents of the Parties or, where applicable, the Authority, the
contravention or violation of which could reasonably be expected to cause a
Material Adverse Effect; (d) do not and will not result in the breach of, or
constitute a default under, any agreement or instrument by which the Parties or
any of their respective Property may be bound or affected which breach or
default could reasonably be expected to cause a Material Adverse Effect, and (e)
do not and will not result in the creation of any Lien upon any Property of any
of the Parties, except in favor of the Agent or as expressly contemplated
therein. All necessary permits, registrations and consents for such making and
performance have been obtained. Except as otherwise expressly stated in the
Security Documents, the Liens created under the Security Documents constitute
valid and perfected first and prior Liens on the Property described therein,
subject to no other Liens whatsoever.
6.4 Other Borrowed Money Indebtedness. Neither the Parent nor any of its
Subsidiaries is in default in the payment of any other Borrowed Money
Indebtedness or under
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any agreement, mortgage, deed of trust, security agreement or lease to which it
is a party and which default could reasonably be expected to cause a Material
Adverse Effect.
6.5 Litigation. There is no litigation or administrative proceeding
pending or, to the knowledge of the Borrower, threatened against, nor any
outstanding judgment, order or decree affecting, the Parent or any of its
Subsidiaries before or by any Governmental Authority which could reasonably be
expected to cause a Material Adverse Effect. Neither the Parent nor any of its
Subsidiaries is in default with respect to any judgment, order or decree of any
Governmental Authority where such default would have a Material Adverse Effect.
6.6 Taxes. The Parent and its Subsidiaries each has filed all tax returns
required to have been filed and paid all taxes shown thereon to be due, except
those for which extensions have been obtained and those which are being
contested in good faith as provided in Section 7.1(a) hereof and those which
could not reasonably be expected to have a Material Adverse Effect.
6.7 Regulations G, U and X. None of the proceeds of any Obligation will
be used for the purpose of purchasing or carrying directly or indirectly any
margin stock or for any other purpose would constitute this transaction a
"purpose credit" within the meaning of Regulation G, U and X of the Board of
Governors of the Federal Reserve System, as either of them may be amended from
time to time.
6.8 Subsidiaries. The Parent has no Subsidiaries except as set forth on
Exhibit B attached hereto or those formed in compliance with Section 8.9 hereof.
6.9 No Untrue or Misleading Statements. No document, certificate,
instrument or other writing furnished to the Lenders by or on behalf of the
Authority or any Party in connection with the transactions contemplated in any
Loan Document, taken as a whole, contains any untrue material statement of fact
or omits to state any such fact (of which the Borrower or any other Party has
knowledge) necessary to make the representations, warranties and other
statements contained herein or in such other document, instrument or writing not
misleading.
6.10 ERISA. The Parent and each member of the Controlled Group have
fulfilled their obligations under the minimum funding standards of ERISA and the
Code and are in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and have not incurred any liability
to the PBGC or a Plan under Title IV of ERISA (other than to make contributions
in the ordinary course) and no contribution failure has occurred with respect to
any Plan sufficient to give rise to the Lien under Section 302(f) of ERISA, in
each case which could reasonably be expected to have a Material Adverse Effect.
Except as described in Schedule 6.10, neither the Parent nor any member of the
Controlled Group has any contingent liability with respect to any post-
retirement benefit under a Welfare Plan other than liability for continuation
coverage described in Section 602 of ERISA which could reasonably be expected to
have a Material Adverse Effect.
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6.11 Investment Company Act. Neither the Parent nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, or, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company, within the
meaning of said Act.
6.12 Public Utility Holding Company Act. Neither the Parent nor any of its
Subsidiaries is an "affiliate" or a "subsidiary company" of a "public utility
company," or a "holding company," or an "affiliate" or a "subsidiary company" of
a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
6.13 Solvency. None of the Borrower, the Plant Owner, the Bond Owner, the
Parent, or the Parent and its Subsidiaries, on a consolidated basis, is
"insolvent," as such term is used and defined in (i) the Bankruptcy Code and
(ii) the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. (S)
24.001 et seq., as amended from time to time.
6.14 Compliance. The Parent and its Subsidiaries are each in compliance
with all Legal Requirements applicable to it, except to the extent that the
failure to comply therewith could not reasonably be expected to cause a Material
Adverse Effect.
6.15 Environmental Matters. The Parent and its Subsidiaries have obtained
and maintained in effect all Environmental Permits (or the applicable Person has
initiated the necessary steps to transfer the Environmental Permits into its
name or obtain such permits), the failure to obtain which could reasonably be
expected to have a Material Adverse Effect. The Parent and its Subsidiaries and
their Properties, business and operations have been and are in compliance with
all applicable Requirements of Environmental Law and Environmental Permits
failure to comply with which could reasonably be expected to have a Material
Adverse Effect. The Parent and its Subsidiaries and their Properties, business
and operations are not subject to any (A) Environmental Claims or (B)
Environmental Liabilities, in either case direct or contingent, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which could reasonably be expected to
have a Material Adverse Effect. None of the Parent or any of its Subsidiaries
has received any notice of any violation or alleged violation of any
Requirements of Environmental Law or Environmental Permit or any Environmental
Claim in connection with its Properties, liabilities, condition (financial or
otherwise), business or operations which could reasonably be expected to have a
Material Adverse Effect. The Borrower does not know of any event or condition
with respect to currently (as of the date this representation is provided)
enacted Requirements of Environmental Laws presently scheduled to become
effective in the future with respect to any of the Properties of the Parent or
any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect, for which the Parent or the applicable Subsidiary of the Parent
has not made good faith provisions in its business plan and projections of
financial performance.
6.16 Certain Representations Regarding the Plant Work. The Plans and
Specifications are complete and adequate for the Plant Work. The Plans and
Specifications comply, and the
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Plant Work, when completed in accordance with the Plans and Specifications will
comply, with all applicable restrictive covenants, zoning ordinances and
building codes and, to the knowledge of the Borrower, all other applicable Legal
Requirements, in each case the non-compliance with which could reasonably be
expected to have a Material Adverse Effect. The Plant has, or where applicable
will have when necessary for the timely completion of the Plant Work, all
necessary building, utility and other permits and rights of access to and from
public streets and roads, except in each instance those which could not
reasonably be expected to have a Material Adverse Effect.
7. Affirmative Covenants.
The Borrower covenants and agrees with the Agent and the Lenders that prior
to the termination of this Agreement it will do, and cause the Parent and each
of its Subsidiaries to do, and if necessary cause to be done, each and all of
the following:
7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay,
or work with the Authority to cause to be paid, prior to the date when Liens
attach with respect thereto, all bills of Contractors, Subcontractors and other
Persons incurred on labor, materials and services in connection with the Plant
Work unless and only to the extent that the same shall be diligently contested
in good faith and reserves have been established therefor, and will pay, prior
to the date when penalties attach with respect thereto, all taxes and
governmental charges of every kind upon it or against its income, profits or
Property and which could reasonably be expected to have a Material Adverse
Effect, unless and only to the extent that the same shall be contested
diligently in good faith and reserves deemed adequate by the independent
certified public accounting firm used by the Parent to prepare the Parent's
Annual Audited Financial Statements have been established therefor; (b) do all
things necessary to preserve its corporate existence, qualifications, rights and
franchises in all States where such failure to qualify would have a Material
Adverse Effect; (c) comply with all applicable Legal Requirements (including
without limitation Requirements of Environmental Law) in respect of the conduct
of its business and the ownership of its Property, the noncompliance with which
could reasonably be expected to cause a Material Adverse Effect; and (d) cause
its Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably necessary to
conduct its business properly and efficiently.
7.2 Financial Statements and Information. Furnish to the Agent and, in
each case other than the monthly management report described in clause (e)
below, the Lenders one copy of each of the following: (a) as soon as available
and in any event within 90 days after the end of each fiscal year of the Parent,
beginning with the fiscal year 1995, Annual Audited Financial Statements of the
Parent and its Subsidiaries; (b) as soon as available and in any event within 45
days after the end of each calendar quarter of each fiscal year of the Parent,
Quarterly Financial Statements of the Parent and its Subsidiaries and of the
Borrower; (c) concurrently with the financial statements provided for in
Subsections 7.2(a) and (b) hereof, such schedules, computations and other
information, in reasonable detail, as may be required by the Agent to
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demonstrate compliance with the covenants set forth herein or reflecting any
non-compliance therewith as of the applicable date, all certified and signed by
the president or chief financial officer of the Borrower (or other authorized
officer approved by the Agent) as true, correct and complete and, commencing
with the quarterly financial statement prepared as of September 30, 1995, a
compliance certificate ("Compliance Certificate") in the form of Exhibit E
hereto, duly executed by such authorized officer (provided, however, that if a
"Compliance Certificate" has been delivered by the Parent for any applicable
period as provided for in the Parent Credit Facility, the Borrower shall not be
required to deliver a Compliance Certificate with respect to such period
pursuant to this provision); (d) within 30 days after the end of each calendar
month of each fiscal year of the Parent, a management report with respect to
sales and operating revenues and costs of manufacturing and related information
in such detail as such management report is prepared for the use of the
management of the Parent (promptly upon receipt of each such report, Agent shall
forward copies thereof to each Lender); (e) by October 31 of each year, the
financial projections of income and cash flow of the Parent for each month of
the fiscal year of the Parent which begins on the October 1 immediately
preceding such October 31, and (f) such other information relating to the
condition (financial or otherwise), operations, prospects or business of any of
the Parent and its Subsidiaries as from time to time may be reasonably requested
by the Agent.
7.3 Financial Tests. The Parent, on a consolidated basis, will have:
(a) Debt to EBITDA Ratio - as of the last day of each fiscal quarter, a
Debt to EBITDA Ratio of not greater than 4.00 to 1.00.
(b) Fixed Charge Coverage Ratio - as of the last day of each fiscal
quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00.
(c) Adjusted Fixed Charge Coverage Ratio - as of the date of any proposed
dividend which is subject to the Adjusted Fixed Charge Coverage Ratio (and after
giving effect to such dividend), an Adjusted Fixed Charge Coverage Ratio of not
less than 1.10 to 1.00.
(d) Net Worth - Net Worth of not less than (1) at all times during the
period commencing on the Effective Date through and including September 30,
1995, $134,039,000 plus and (2) at all times during each fiscal quarter after
September 30, 1995, the minimum Net Worth required during the immediately
preceding fiscal quarter plus 50% of the Net Income of the Parent (if positive)
for the immediately preceding fiscal quarter plus all of the net proceeds of any
issuance of equity in the Parent during such fiscal quarter.
(e) Current Ratio - a Current Ratio of not less than 1.10 to 1.00 at all
times.
7.4 Inspection. Permit the Agent and any Lender upon 3 days' prior notice
to inspect its Property, to examine its files, books and records except
privileged communication with legal counsel and classified governmental
material, and make and take away copies thereof, and to
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discuss its affairs with its officers and accountants, all during normal
business hours and at such intervals and to such extent as the Agent or the
applicable Lender may reasonably desire.
7.5 Further Assurances. Promptly execute and deliver, at the Borrower's
expense, any and all other and further instruments which may be reasonably
requested by the Agent to cure any defect in the execution and delivery of any
Loan Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve protect and perfect the validity and
priority of the security interests created by the Security Agreements.
7.6 Books and Records. Maintain books of record and account in accordance
with GAAP.
7.7 Insurance. Maintain insurance with such insurers, on such of its
Property, with responsible companies in such amounts, with such deductibles and
against such risks as are usually carried by owners of similar businesses and
properties in the same general areas in which the Parent and its Subsidiaries
operate (including without limitation business interruption insurance), and
furnish the Agent satisfactory evidence thereof promptly upon request. The
Borrower shall provide the Agent with copies of the policies of insurance and a
certificate of the insurer that the insurance required by this Section may not
be canceled, reduced or affected in any material manner without thirty (30)
days' prior written notice to the Agent.
7.8 Notice of Certain Matters. Give the Agent prompt written notice of
the following:
(a) the issuance by any Governmental Authority of any injunction, order or
other restraint prohibiting, or having the effect of prohibiting, the
performance of this Agreement, any other Loan Document, or the making of the
Loans or the initiation of any litigation, or any claim or controversy which
might result in the initiation of any litigation, seeking any such injunction,
order or other restraint that could reasonably be expected to cause a Material
Adverse Effect;
(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any court or any Federal, state, municipal
or other Governmental Authority which could reasonably be expected to cause a
Material Adverse Effect;
(c) any Event of Default or Default known to Borrower, specifying the
nature and extent thereof and the action (if any) which is proposed to be taken
with the respect thereto; and
(d) any development in the business or affairs of the Parent or any of its
Subsidiaries which has had or which could reasonably be expected to have, in the
reasonable judgment of the Borrower, a Material Adverse Effect.
The Borrower will also notify the Agent in writing at least 30 days prior to the
date that any Party changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its books and
records.
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7.9 Interest Rate Risk. Promptly upon execution thereof, the Borrower
shall deliver to the Agent true and correct and complete copies of any Interest
Rate Risk Agreement.
7.10 Capital Adequacy. Agrees that if any Lender shall have determined
that the adoption after the Effective Date or effectiveness after the Effective
Date (whether or not previously announced) of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein after the
Effective Date, or any change in the interpretation or administration thereof
after the Effective Date by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Lender with any request or directive after the Effective Date
regarding capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency has or would have the
effect of reducing the rate of return on such Lender's capital as a consequence
of its obligations hereunder, under the Notes or other Obligations held by it to
a level below that which such Lender could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, upon satisfaction of the conditions precedent set forth
in this Section 7.10, upon demand by such Lender (with a copy to the Agent), the
Borrower (subject to Section 11.7 hereof) shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
The certificate of any Lender setting forth such amount or amounts as shall be
necessary to compensate it and the basis thereof shall be delivered as soon as
practicable to the Borrower and shall be conclusive and binding, absent manifest
error. The Borrower shall pay the amount shown as due on any such certificate
within fifteen (15) days after the delivery of such certificate; provided that
the Borrower shall not be obligated to compensate any Lender for any such
amounts which relate to a period more than seventy-five (75) days prior to such
request for payment. In preparing such certificate, a Lender may employ such
assumptions and allocations of costs and expenses as it shall in good faith deem
reasonable and may use any reasonable averaging and attribution method.
7.11 ERISA Information and Compliance. If and when Parent or any member of
the Controlled Group (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in subsections (b)(1), (c)(1), (c)(5), or (c)(6)
of Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV of ERISA, or knows that
the plan administrator of any Plan has given or is required to give notice of
any such reportable event, or (ii) knows that a failure to make a required
contribution with respect to any Plan has occurred if such failure is sufficient
to give rise to a Lien under section 203(f) of ERISA, or (iii) that any other
event has occurred that could result in (A) the incurrence by Parent or a member
of the Controlled Group of a liability, fine or penalty with respect to a Plan
or (B) any increase in the contingent liability of Parent or a member of the
Controlled Group with respect to any post-retirement benefit under a Welfare
Plan, in each case which could reasonably be expected to have a Material Adverse
Effect, Parent shall deliver to the Agent a copy of the notice of such
reportable event given or required to be given to the PBGC or a notice of such
contribution failure or other event, as the case may be.
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7.12 Certain Affirmative Covenants Relating to the Plant Work.
(a) The Borrower shall, upon request by the Agent from time to time,
deliver to the Agent evidence that the anticipated use of the Plant complies
with all applicable Legal Requirements and the Plant Work is being constructed
in a good and workmanlike manner, with reasonable diligence and generally in
accordance with the Plans and Specifications.
(b) If and when the Borrower or the Plant Owner acquires an updated Survey,
Borrower shall deliver to the Agent a copy of such Survey.
(c) The Borrower will (and will cause the Plant Owner to) prosecute the
construction of the Plant Improvements in accordance with all applicable Legal
Requirements the non-compliance with which could reasonably be expected to have
a Material Adverse Effect, this Agreement and the other Loan Documents, and with
diligence and dispatch, and will complete the Plant Work on or before the
Scheduled Completion Date.
(d) The Borrower agrees to permit (and to cause the Plant Owner to permit)
the Agent and each of the Lenders and their agents, representatives and
employees at all reasonable times and upon reasonable notice to go upon,
examine, inspect and remain on the Plant, to assist and cooperate, and require
the Parent's, the Borrower's and the Plant Owner's employees, agents and the
Contractors to cooperate, with the Agent or the applicable Lender and to furnish
to the Agent or the applicable Lender on request all pertinent information
concerning the physical and economic condition, development and operation of the
Plant. The Agent may discuss the Plant directly with any of the Borrower's or
the Plant Owner's or the Parent's employees holding a supervisory position,
partners, officers, directors and managers so long as such discussions do not
unreasonably interfere with the business operations of the Borrower or the Plant
Owner or the Parent.
(e) Upon request of the Agent, the Borrower shall inform the Agent of
locations (other than the Plant Land) where equipment, supplies and materials
acquired or furnished in connection with the Plant Work but not affixed to or
incorporated into the Plant (but only to the extent that the aggregate
acquisition costs with respect to items stored at any single offsite location at
the time in question exceed $500,000) are located. Upon request of the Agent,
the Borrower will furnish an inventory of all equipment, supplies and materials
stored off-site, specifying the location thereof.
(f) As soon as reasonably possible after the Borrower is of the opinion
that Plant Work has been completed, the Borrower shall deliver the Evidence of
Completion to the Agent.
7.13 Satisfaction of Conditions Precedent. The Borrower shall cause the
conditions precedent to the initial Loans to be satisfied on or before November
15, 1995.
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7.14 Pledge of Bonds. All of the issued and outstanding Bonds shall at all
times be pledged to (and shall have been delivered, or be in transit, to) the
Agent.
7.15 Third Party Obligations. The Borrower guarantees that the Authority
shall duly perform each affirmative covenant made by the Authority to the Agent
or the Lenders under any Loan Document.
8. Negative Covenants.
The Borrower covenants and agrees with the Agent and the Lenders that prior
to the termination of this Agreement it will not, and will not suffer or permit
the Parent or any of its Subsidiaries to, do any of the following:
8.1 Indebtedness. Create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Borrowed Money Indebtedness (as defined below), whether direct, indirect,
absolute, contingent or otherwise, except the following: (a) the Obligations;
(b) the liabilities existing on the date of this Agreement and disclosed on
Schedule 8.1 hereto and, except for the Parent Credit Facility, all renewals,
extensions and replacements (but not increases) of any of the foregoing; (c)
Indebtedness under the Canadian Facility and all renewals, extensions and
replacements (but not increases) thereof; (d) purchase money Indebtedness to
acquire Equipment not exceeding, in the aggregate, $10,000,000 outstanding at
any one time; (e) in addition to Indebtedness permitted under the preceding
clause (d), non-recourse Indebtedness in an aggregate amount not to exceed
$60,000,000 at any one time outstanding incurred by Subsidiaries of the Parent
which is payable solely by recourse to Properties which are not included in the
Collateral, which are not included in the "Borrowing Base" under the Parent
Credit Facility and which are acquired or constructed by such Subsidiary after
the date hereof; (f) Subordinated Debt so long as the net proceeds of such
Subordinated Debt are applied in payment of the Loans or "Term Loans" under the
Parent Credit Facility or, if no Loans or "Term Loans" under the Parent Credit
Facility remain outstanding, so long as the Loan Commitments or the "Revolving
Loan Commitments" under the Parent Credit Facility are reduced by an amount
equal to the net proceeds of such Subordinated Debt; (g) Interest Rate Risk
Indebtedness, together with "Interest Rate Risk Indebtedness" as defined in the
Parent Credit Facility; (h) insurance premiums financed with the applicable
insurance carrier; (i) Indebtedness under the Bond Documents and Indebtedness
under (or permitted under) the Parent Credit Facility, but only so long as the
Agent is the "Agent" under the Parent Credit Facility and the Lenders hold "Term
Loans," "Revolving Loans" and/or "Revolving Loan Commitments" under the Parent
Credit Facility in amounts sufficient to constitute "Majority Lenders" under the
Parent Credit Facility, and (j) other Borrowed Money Indebtedness not in excess
of $30,000,000 in the aggregate outstanding at any time on terms no more
restrictive than the terms provided herein. For purposes of this Agreement,
"Borrowed Money Indebtedness" shall mean, with respect to any Person, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person under
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conditional sale or other title retention agreements relating to Property
purchased by such Person, (d) all obligations of such Person issued or assumed
as the deferred purchase price of property or services (excluding trade accounts
payable incurred in the ordinary course of such Person's business), (e) all
Capital Lease Obligations, (f) all obligations of others of the types specified
in clauses (a) through (e) above secured by any lien on property or assets owned
or acquired by such Person, whether or not the obligations secured thereby have
been assumed, (g) Interest Rate Risk Indebtedness, together with "Interest Rate
Risk Indebtedness" as defined in the Parent Credit Facility, (h) all outstanding
letters of credit issued for the account of such Person and (i) all guarantees
of such Person of obligations of the type referred to in the foregoing clauses
(a) through (j).
8.2 Liens. Create or suffer to exist any Lien upon any of its Property
now owned or hereafter acquired, or acquire any Property upon any conditional
sale or other title retention device or arrangement or any purchase money
security agreement; or in any manner directly or indirectly sell, assign, pledge
or otherwise transfer any of its Accounts; provided, however, that the Parent or
any of its Subsidiaries may create or suffer to exist: (a) Liens in favor of the
Agent or any Lender under the Loan Documents, including, without limitation,
Liens securing Interest Rate Risk Indebtedness owed to one or more of the
Lenders (but not to any Person which is not, at such time, a Lender); (b) Liens
in effect on the Effective Date and disclosed on Schedule 8.2 hereto, provided
that neither the Indebtedness secured thereby nor the Property covered thereby
shall increase after the Effective Date; (c) Liens securing the Canadian
Facility but only on assets of the Canadian Subsidiaries; (d) Liens securing
purchase money Indebtedness permitted under Section 8.1(d) hereof and covering
only the Property so purchased and the proceeds therefrom and Liens permitted
under Section 8.1(e) hereof covering Properties acquired or constructed after
the date hereof and the proceeds therefrom; (e) normal encumbrances and
restrictions on title which do not secure Borrowed Money Indebtedness and which
do not have a material adverse effect on the value or utility of the applicable
Property; (f) Liens incurred or deposits made in the ordinary course of business
(i) in connection with workmen's compensation, unemployment insurance, social
security and other like laws, (ii) to secure insurance in the ordinary course of
business, the performance of bids, tenders, contracts, leases, licenses,
statutory obligations, surety, appeal and performance bonds and other similar
obligations incurred in the ordinary course of business, not, in any of the
cases specified in this clause (ii), incurred in connection with the borrowing
of money, the obtaining of advances or the payment of the deferred purchase
price of Property, or (iii) on deposits made in financial institutions in the
ordinary course of business as a result of common law and statutory rights of
setoff and depositary agreements and other contractual arrangements (other than
Borrowed Money Indebtedness) arising in the ordinary course of business; (g)
attachments, judgments and other similar Liens arising in connection with the
court proceedings, provided that the execution and enforcement of such Liens are
effectively stayed and the claims secured thereby are being actively contested
in good faith with adequate reserves made therefor in accordance with GAAP; (h)
Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, incurred in good faith in the ordinary course
of business and securing obligations which are not yet due or which are being
contested in good faith by appropriate proceedings if
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adequate reserves with respect thereto are maintained in accordance with GAAP;
(i) Liens for taxes which are not yet due or are being contested in good faith
by appropriate proceedings if adequate reserves with respect thereto are
maintained in accordance with GAAP; (j) Liens or rights under insurance policies
securing Indebtedness permitted under Section 8.1(h); (k) Liens securing or
otherwise permitted under the Parent Credit Facility to the extent required
under the present terms and provisions of the Parent Credit Facility, without
amendment except as approved (or consented to pursuant to the proviso to Section
8.13 hereof) by the Majority Lenders (wherever consent by the "Majority Lenders"
under the Parent Credit Facility is required) or by all of the Lenders (wherever
consent by all of the "Lenders" under the Parent Credit Facility is required),
but only so long as the Agent is the "Agent" under the Parent Credit Facility
and the Lenders hold "Term Loans," "Revolving Loans" and/or "Revolving Loan
Commitments" under the Parent Credit Facility in amounts sufficient to
constitute "Majority Lenders" under the Parent Credit Facility, and (l)
extensions, renewals and replacements of Liens referred to in clauses (a)
through (j) of this Section; provided that any such extension, renewal or
replacement Lien shall be limited to the Property or assets covered by the Lien
extended, renewed or replaced and that the Indebtedness secured by any such
extension, renewal or replacement Lien shall be in an amount not greater than
the amount of the Indebtedness secured by the Lien extended, renewed or
replaced.
8.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
obligations disclosed on Schedule 8.3 hereto (but not increases of such
obligations after the Effective Date), (c) those liabilities permitted under
Section 8.1 hereof and (d) guaranties by the Parent of any of its Subsidiaries
obligations (except where recourse is expressly required to be limited by this
Agreement).
8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets.
In any single transaction or series of transactions, directly or indirectly: (a)
liquidate or dissolve; (b) be a party to any merger or consolidation unless and
so long as (i) no Default or Event of Default has occurred that is then
continuing, (ii) immediately thereafter and giving effect thereto, no event will
occur and be continuing which constitutes a Default, (iii) the Parent or a
Subsidiary of the Parent is the surviving Person, and (iv) the surviving Person
ratifies and assumes each Loan Document and each "Loan Document" under the
Parent Credit Facility to which any party to such merger was a party; (c) sell,
convey or lease all or any substantial part of its assets, except for sale of
Inventory in the ordinary course of business and except for sales of Property
(other than Inventory) in the ordinary course of the Parent's or the applicable
Subsidiary's business; (d) pledge, transfer or otherwise dispose of any shares
of capital stock of any Subsidiary of the Parent or any Borrowed Money
Indebtedness of any Subsidiary of the Parent, or permit any such Subsidiary to
issue any additional shares of capital stock other than to the Parent or to
acquire any shares of capital stock of any Subsidiary of the Parent, or (e)
acquire all or substantially all of the assets of any Person or (except as
expressly permitted by Section
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8.8 hereof) any shares of stock of or similar interest in any other Person
except for Permitted Acquisitions.
8.5 Redemption, Dividends and Distributions. At any time: (a) redeem,
retire or otherwise acquire, directly or indirectly, any shares of its capital
stock except to the extent that no Default or Event of Default has occurred
which is continuing (or would result from the same); (b) pay any dividend other
than payments of the Permitted Dividends by the Parent or dividends by a
Subsidiary of the Parent to the Parent or any Subsidiary of the Parent or (c)
make any other distribution of any Property or cash to stockholders as such.
8.6 Nature of Business. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
8.7 Transactions with Affiliates. Enter into any transaction or agreement
with any Affiliate of the Parent or any of its Subsidiaries (or any Affiliate of
any such Person) unless the same is upon terms substantially comparable to those
obtainable from wholly unrelated sources or in an arms length transaction. The
Key Plant Contracts shall not result in a violation of this provision.
8.8 Loans and Investments. Make any loan, advance, extension of credit or
capital contribution to, or make or have any Investment in, any Person, or make
any commitment to make any such extension of credit or Investment, except (a)
Permitted Investments, (b) normal and reasonable advances in the ordinary course
of business, (c) trade and customer accounts receivable in accordance with the
ordinary course of business, (d) Investments in Subsidiaries of the Parent, (e)
Investments in 50% or less owned joint ventures and other Corporations not to
exceed $20,000,000 in unreturned capital Investment at any one time outstanding
provided that such joint ventures and other Corporations are in substantially
the same lines of business as the Parent and its Subsidiaries, and (f) other
Investments existing as of the date hereof which are described on the attached
Schedule 8.8.
8.9 No Subsidiaries. Form, create or acquire a Subsidiary unless the same
8.10 BP Lease. Terminate or agree to the termination of the BP Lease
without the prior written consent of all of the Lenders or amend, modify or
obtain or grant a waiver of any provision of the BP Lease if such amendment,
modification or waiver could reasonably be expected to have a material adverse
effect on the ability of the Lenders to collect, as and when due and payable,
amounts due and payable hereunder and under the other Loan Documents without the
prior written consent of the Majority Lenders.
8.11 Fiscal Year. The Parent will not (and will not permit any of its
Subsidiaries to) change its fiscal year, unless the Agent shall have consented
thereto in writing or unless required to make such change because of a change in
or amendment to the Code. In the event that the
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Parent or any of its Subsidiaries is required to make any such change in its
fiscal year, the parties hereto agree to negotiate in good faith any changes in
this Agreement made necessary by the required change in fiscal year. Sterling
NRO, Ltd. may change its fiscal year in connection with any merger of Sterling
NRO, Ltd. into Sterling Pulp Chemicals, Ltd. which is hereby permitted under the
terms of this Agreement.
8.12 Sterling Energy. Sterling Energy shall not own any Property of any
material nature other than its undivided 50% interest under the Joint Venture
Agreement dated as of February 8, 1991 between Praxair Energy Resources, Inc.,
formerly known as UCIG Energy Resources, Inc., and Sterling Energy. Any
distributions paid to Sterling Energy under said Joint Venture Agreement shall
be promptly paid over to the Parent as dividends.
8.13 Parent Credit Facility. Amend, modify or obtain or grant a waiver of
any material provision of the Parent Credit Facility unless the same shall be
consented to in writing by the Majority Lenders (wherever consent by the
"Majority Lenders" under the Parent Credit Facility is required) or by all of
the Lenders (wherever consent by all of the "Lenders" under the Parent Credit
Facility is required) (such consent not to be unreasonably withheld); provided,
however, that execution of, or written consent to, any such amendment,
modification or waiver of any material provision of the Parent Credit Facility
by a particular Lender shall evidence the consent by such Lender required under
this Section.
8.14 Key Plant Contracts. Except as provided in Section 8.15 below,
materially amend, modify or obtain or grant a waiver of any material provision
of any of the Key Plant Contracts unless the same shall be consented to in
writing by the Majority Lenders (such consent not to be unreasonably withheld).
8.15 Revisions. Without first obtaining the written consent of the
Majority Lenders (which consent shall not be unreasonably withheld), agree or
consent to any revision to the Budget or the Plans and Specifications which (a)
results in any material reduction either in the anticipated production capacity
of the Plant or in the projected economics of the Plant), (b) extends or is
likely to extend (in the reasonable judgment of Agent) the scheduled date for
completion of the Plant Work beyond the Scheduled Completion Date or (c) would
result in an increase in the aggregate cost of the Plant Work to an amount
exceeding $60,000,000. All amendments to the Budget or Plans and Specifications
shall control advances required to be made under this Agreement after the
effective date of each such amendment, provided that such amendments have been
approved to the extent and in the manner provided for in this Section.
8.16 Third Party Obligations. The Borrower shall not permit the Authority
to fail to duly perform any negative covenant made by the Authority to the Agent
or the Lenders under any Loan Document. The Borrower shall not permit any of
the events described in Sections 9.1 (f), (g) or (h) hereof to occur with
respect to the Authority unless, within thirty (30) days following the
occurrence of such event, the Borrower shall have either (i) demonstrated to the
reasonable satisfaction of the Majority Lenders that such event cannot
reasonably be expected
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to materially and adversely affect the validity, enforceability or priority of
any of the Security Documents or (ii) provided to the Agent supplemental
collateral of a nature and character, and pursuant to documentation, acceptable
to the Majority Lenders.
9. Defaults.
9.1 Events of Default. If any one or more of the following events (herein
called "Events of Default") shall occur, then the Agent may (and at the
direction of the Majority Lenders, shall) do any or all of the following: (1)
upon notice to the Borrower, declare the Loan Commitments terminated (whereupon
the Loan Commitments shall be terminated) and/or accelerate the Termination Date
to a date as early as the date of termination of the Loan Commitments; (2)
declare the principal amount then outstanding of and the unpaid accrued interest
on the Loans and all fees and all other amounts payable hereunder, under the
Notes and under the other Loan Documents to be forthwith due and payable,
whereupon such amounts shall be and become immediately due and payable, without
notice (including, without limitation any notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the case of the
occurrence of an Event of Default with respect to the Parent or any of its
Subsidiaries referred to in clause (f), (g) or (h) of this Section 9.1, the Loan
Commitments shall be automatically terminated and the principal amount then
outstanding of and unpaid accrued interest on the Loans and all fees and all
other amounts payable hereunder, under the Notes and under the other Loan
Documents shall be and become automatically and immediately due and payable,
without notice (including, without limitation, notice of acceleration and notice
of intent to accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the Borrower, and (3)
exercise any or other rights and remedies available to the Agent or any of the
Lenders under the Loan Documents, at law or in equity:
(a) Payments - (i) the Borrower or any other Party shall fail to make
any payment or required prepayment of any installment of principal on the
Loans payable under the Notes, this Agreement or the other Loan Documents
when due or (ii) the Borrower or any other Party fails to make any payment
or required prepayment of interest with respect to the Loans or any other
fee or amount under the Notes, this Agreement or the other Loan Documents
when due and (except in the case of acceleration of maturity) such failure
to pay continues unremedied for a period of five days; or
(b) Other Obligations - the Parent or any of its Subsidiaries (other
than Subsidiaries that own no material assets) shall default in the payment
when due (including amounts due on acceleration) of any principal of or
interest on the Parent Credit Facility or any other Borrowed Money
Indebtedness having an outstanding principal amount of at least $5,000,000
(other than the Loans) and such default shall continue beyond any
applicable period of grace; or any event or condition shall occur which
enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of the Parent
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Credit Facility or any such other Borrowed Money Indebtedness or any Person
acting on such holder's behalf to accelerate the maturity thereof and such
event or condition shall not be cured within any applicable period of grace
and there is no reasonable ability of the Person in default to pay the
amount of principal or interest that would be due on acceleration; or
(c) Representations and Warranties - any representation or warranty
made or deemed made by or on behalf of the Borrower in this Agreement or
any other Loan Document or in any certificate furnished or made by the
Borrower to the Agent or the Lenders in connection herewith or therewith
shall, taken as a whole, prove to have contained any untrue, incorrect,
false or misleading material fact or omits to state any such fact necessary
to make the representations, warranties or other statements contained
herein or in such other document, instrument or writing not untrue, false
or misleading in any material respect as of the date thereof or as of the
date as of which the facts therein set forth were stated or certified; or
(d) Affirmative Covenants - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained
in Sections 7.3 or 7.13 hereof, (ii) any of the insurance provided for in
Section 7.7 hereof that relates to any material risk shall lapse, (iii)
default shall be made in the due observance or performance of any of the
covenants or agreements contained in Section 7.7 hereof (other than lapse
of required insurance, which is provided for above) and such default
continues unremedied for a period of 10 days after (x) notice thereof is
given by the Agent to the Borrower or (y) such default otherwise becomes
known to the Borrower, whichever is earlier or (iv) default is made in the
due observance or performance of any of the other covenants and agreements
contained in Section 7 hereof or any other affirmative covenant of the
Borrower or any other Party in this Agreement or any other Loan Document
and such default continues unremedied for a period of 30 days after (x)
notice thereof is given by the Agent to the Borrower or (y) such default
otherwise becomes known to the Borrower, whichever is earlier; or
(e) Negative Covenants - default is made in the due observance or
performance by the Borrower or any other Party of any of the other
covenants or agreements contained in Section 8 of this Agreement or of any
other negative covenant of the Borrower or any other Party contained in
this Agreement or any other Loan Document; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Parent or any of its Subsidiaries
(other than Subsidiaries that own no material assets) or of any of its
property is appointed by the order or decree of any court or agency or
supervisory authority having jurisdiction, and such decree or order remains
in effect for more than 30 days; or the Parent or any of its Subsidiaries
(other than Subsidiaries that own no material assets) is adjudicated
bankrupt
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or insolvent; or any of such Person's property is sequestered by court
order and such order remains in effect for more than 30 days; or a petition
is filed against the Parent or any of its Subsidiaries (other than
Subsidiaries that own no material assets) under any state or federal
bankruptcy, reorganization, arrangement, insolvency, readjustment or debt,
dissolution, liquidation or receivership law or any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 30 days after such
filing; or
(g) Voluntary Petitions or Consents - the Parent or any of its
Subsidiaries (other than Subsidiaries that own no material assets)
commences a voluntary case or other proceeding or order seeking
liquidation, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its debt
or other liabilities under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or consents to any such relief or to the
appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or fails generally to, or
cannot, pay its debts generally as they become due or takes any corporate
action to authorize or effect any of the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency -
the Parent or any of its Subsidiaries (other than Subsidiaries that own no
material assets) makes an assignment for the benefit of its creditors, or
admits in writing its inability to pay its debts generally as they become
due, or consents to the appointment of a receiver, trustee, or liquidator
of the Parent or such Subsidiary or of all or any substantial part of its
Property; or
(i) Undischarged Judgments - a final judgment or judgments for the
payment of money exceeding, in the aggregate, $5,000,000 is rendered by any
court or other governmental body against the Parent or any of its
Subsidiaries (other than Subsidiaries that own no material assets) and the
Parent or such Subsidiary does not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution
thereof within 30 days from the date of entry thereof; or
(j) Security Documents; Guaranties - any Security Document for any
reason ceases to create a valid and perfected first-priority Lien on any
material portion of the Collateral purported to be covered thereby, or any
Guaranty shall cease to be in full force and effect and a valid, binding
and enforceable obligation of the applicable Party (except as otherwise
herein expressly permitted), or the Parent or any of its Subsidiaries
(other than Subsidiaries that own no material assets) or any Party to a
Guaranty (or any other Person who may have granted or purported to grant
such Lien or executed any such Guaranty) will so state in writing; or
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(k) Attachment - the Parent or any of its Subsidiaries (other than
Subsidiaries that own no material assets) shall suffer any writ of
attachment or execution or any similar process to be issued or levied
against it or any substantial part of its Property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
(l) ERISA Matters - (i) Parent or any member of the Controlled Group
shall fail to pay when due an amount or amounts which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice
of intent to terminate a Plan or Plans shall be filed under Title IV of
ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan
or Plans or a proceeding shall be instituted by a fiduciary of any such
Plan or Plans against Parent or any member of the Controlled Group to
enforce Section 5415 of ERISA; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree adjudicating that any
such Plan or Plans must be terminated or a contribution failure occurs with
respect to any Plan sufficient to give rise to a lien under Section 302(f)
of ERISA on the property of Parent or any member of the Controlled Group,
and (ii) in each case, such event could reasonably be expected to cause a
Material Adverse Effect; or
(m) Change of Control - there shall occur any Change of Control, or
the Parent shall cease to own (directly or indirectly) all of the issued
and outstanding equity interests in the Borrower, without the written
consent of the Majority Lenders.
9.2 Right of Setoff. Upon the occurrence and during the continuance of
any Event of Default, the Lenders each are hereby authorized at any time and
from time to time, without notice to the Parent or any of its Subsidiaries (any
such notice being expressly waived by the Parent and its Subsidiaries), to
setoff and apply any and all funds and liquid investments held in the Cash Flow
Account and any and all deposits (general or special, time or demand,
provisional or final (but excluding the funds held in accounts clearly
designated as escrow or trust accounts held by the Parent or such Subsidiary for
the benefit of Persons which are not Affiliates of the Parent or any of its
Subsidiaries), whether or not such setoff results in any loss of interest or
other penalty, and including without limitation all certificates of deposit at
any time held, and any other funds or property at any time held, and other
Indebtedness at any time owing by such Lender to or for the credit or the
account of the Parent or any such Subsidiary against any and all of the
Obligations irrespective of whether or not such Lender or the Agent will have
made any demand under this Agreement, the Notes or any other Loan Document. The
Borrower also hereby grants to each of the Lenders a security interest in and
hereby transfers, assigns, sets over, and conveys to each of the Lenders, as
security for payment of all Loans, all such deposits, funds or property of the
Parent or any such Subsidiary, or Indebtedness of any Lender to the Parent or
any such Subsidiary. Should the right of any Lender to realize funds in any
manner set forth hereinabove be challenged and any application of such funds be
reversed, whether by court order or otherwise, the Lenders shall make
restitution or refund to
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the Borrower pro rata in accordance with their Loan Commitments. Each Lender
agrees to promptly notify the Borrower and the Agent after any such setoff and
application, provided that the failure to give such notice will not affect the
validity of such setoff and application. The rights of the Agent and the Lenders
under this Section are in addition to other rights and remedies (including
without limitation other rights of setoff) which the Agent or the Lenders may
have. This Section is subject to the terms and provisions of Sections 4.5 and
11.7 hereof.
9.3 Remedies Cumulative. No remedy, right or power conferred upon the
Agent or any Lender is intended to be exclusive of any other remedy, right or
power given hereunder or now or hereafter existing at law, in equity, or
otherwise, and all such remedies, rights and powers shall be cumulative.
10. The Agent.
10.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes the Agent to act as its agent hereunder and under the
other Loan Documents with such powers as are specifically delegated to the Agent
by the terms hereof and thereof, together with such other powers as are
reasonably incidental thereto. The Agent (the "Agent" as used in this Section
10 shall include reference to its Affiliates and its own and its Affiliates'
respective officers, shareholders, directors, employees and agents) (a) shall
not have any duties or responsibilities except those expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(b) shall not be responsible to any Lender for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement or any other Loan Document,
or for the value, validity, effectiveness, genuineness, enforceability,
execution, filing, registration, collectibility, recording, perfection,
existence or sufficiency of this Agreement or any other Loan Document or any
other document referred to or provided for herein or therein or any property
covered thereby or for any failure by any Party or any other Person to perform
any of its obligations hereunder or thereunder, and shall not have any duty to
inquire into or pass upon any of the foregoing matters; (c) shall not be
required to initiate or conduct any litigation or collection proceedings
hereunder or under any other Loan Document except to the extent requested by the
Majority Lenders; (d) shall not be responsible for any mistake of law or fact or
any action taken or omitted to be taken by it hereunder or under any other Loan
Document or any other document or instrument referred to or provided for herein
or therein or in connection herewith or therewith, including, without
limitation, pursuant to its own negligence, except for its own gross negligence
or willful misconduct; (e) shall not be bound by or obliged to recognize any
agreement among or between the Borrower and any Lender, regardless of whether
the Agent has knowledge of the existence of any such agreement or the terms and
provisions thereof; (f) shall not be charged with notice or knowledge of any
fact or information not herein set out or provided to the Agent in accordance
with the terms of this Agreement or any other Loan Document; (g) shall not be
responsible for any delay, error, omission or default of any mail,
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telegraph, cable or wireless agency or operator, and (h) shall not be
responsible for the acts or edicts of any Governmental Authority. The Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. In any foreclosure proceeding concerning any Collateral,
each holder of an Obligation if bidding for its own account or for its own
account and the accounts of other Lenders is prohibited from including in the
amount of its bid an amount to be applied as a credit against the Obligations
held by it or the Obligations held by the other Lenders; instead, such holder
must bid in cash only. However, in any such foreclosure proceeding, the Agent
may (but shall not be obligated to) submit a bid for all Lenders (including
itself) in the form of a credit against the Obligations, and the Agent or its
designee may (but shall not be obligated to) accept title to such collateral for
and on behalf of all Lenders.
10.2 Reliance. The Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel (which may be counsel for the Borrower),
independent accountants and other experts selected by the Agent. The Agent
shall not be required in any way to determine the identity or authority of any
Person delivering or executing the same. As to any matters not expressly
provided for by this Agreement or any other Loan Document, the Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
and thereunder in accordance with instructions of the Majority Lenders, and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders. Subject to the provisions of Section 11.5 hereof, the Agent shall have
the authority to execute releases of the Security Documents on behalf of the
Lenders without the joinder of any Lender. If any order, writ, judgment or
decree shall be made or entered by any court affecting the rights, duties and
obligations of the Agent under this Agreement or any other Loan Document, then
and in any of such events the Agent is authorized, in its sole discretion, to
rely upon and comply with such order, writ, judgment or decree which it is
advised by legal counsel of its own choosing is binding upon it under the terms
of this Agreement, the relevant Loan Document or otherwise; and if the Agent
complies with any such order, writ, judgment or decree, then it shall not be
liable to any Lender or to any other Person by reason of such compliance even
though such order, writ, judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.
10.3 Defaults. The Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans) unless it has received notice from a Lender or the Borrower specifying
such Default and stating that such notice is a "Notice of Default." In the
event that the Agent receives such a Notice of Default, the Agent shall give
prompt notice thereof to the Lenders (and shall give each Lender prompt notice
of each such non-payment). The Agent shall (subject to Section 10.7 hereof)
take such action with respect to such Notice of Default as shall be directed by
the Majority Lenders and within its rights under the Loan Documents and at law
or in equity, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated
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to) take such action, or refrain from taking such action, permitted hereby with
respect to such Notice of Default as it shall deem advisable in the best
interests of the Lenders and within its rights under the Loan Documents, at law
or in equity.
10.4 Rights as a Lender. With respect to its Loan Commitments and the
Loans made, TCB in its capacity as a Lender hereunder shall have the same rights
and powers hereunder as any other Lender and may exercise the same as though it
were not acting in its agency capacity, and the term "Lender" or "Lenders"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may (without having to account therefor to any
Lender) accept deposits from, lend money to and generally engage in any kind of
banking, trust, letter of credit, agency or other business with the Borrower
(and any of its Affiliates) as if it were not acting as the Agent, and the Agent
may accept fees and other consideration from the Borrower (in addition to the
fees heretofore agreed to between the Borrower and the Agent) for services in
connection with this Agreement or otherwise without having to account for the
same to the Lenders.
10.5 Indemnification. The Lenders agree to indemnify the Agent each (to
the extent not reimbursed under Section 11.3 or Section 11.4 hereof, but without
limiting the obligations of the Borrower under said Sections 11.3 and 11.4),
ratably in accordance with the sum of the Lenders' respective Loan Commitments
and Loans, for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever, REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE
NEGLIGENCE OF ANY INDEMNIFIED PARTIES, which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
(including, without limitation, the costs and expenses which the Borrower is
obligated to pay under Sections 11.3 and 11.4 hereof, interest, penalties,
reasonable attorneys' fees and amounts paid in settlement, but excluding, unless
a Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other
documents; provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified. The obligations of the Lenders under this Section 10.5
shall survive the termination of this Agreement and the repayment of the
Obligations.
10.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has received current financial information with respect to the Borrower and that
it has, independently and without reliance on the Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Borrower and decision to enter into this Agreement
and that it will, independently and without reliance upon the Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement or any of the other Loan Documents. The
Agent shall not be
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required to keep itself informed as to the performance or observance by any
Party or the Authority of this Agreement or any of the other Loan Documents or
any other document referred to or provided for herein or therein or to inspect
the properties or books of the Borrower or any Party or the Authority. Except
for notices, reports and other documents and information expressly required to
be furnished to the Lenders by the Agent hereunder or the other Loan Documents,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the affairs, financial condition or
business of the Borrower or any other Party or the Authority (or any of their
affiliates) which may come into the possession of the Agent.
10.7 Failure to Act. Except for action expressly required of the Agent
hereunder or under the Loan Documents, the Agent shall in all cases be fully
justified in failing or refusing to act hereunder and thereunder unless it shall
receive further assurances to its satisfaction by the Lenders of their
indemnification obligations under Section 10.5 hereof against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.8 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders and the Borrower, and the Agent may
be removed at any time with or without cause by the Majority Lenders. Upon any
such resignation or removal, (i) the Majority Lenders without the consent of the
Borrower shall have the right to appoint a successor Agent so long as such
successor Agent is also a Lender at the time of such appointment and (ii) the
Majority Lenders shall have the right to appoint a successor Agent that is not a
Lender at the time of such appointment so long as the Borrower consents to such
appointment (which consent shall not be unreasonably withheld). If no successor
Agent shall have been so appointed by the Majority Lenders and accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Any
successor Agent shall be a bank which has an office in the United States and a
combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder and under any other Loan
Documents. Such successor Agent shall promptly specify by notice to the
Borrower its Principal Office referred to in Section 3.1 and Section 4 hereof.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Section 10 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
10.9 No Partnership. Neither the execution and delivery of this Agreement
nor any of the other Loan Documents nor any interest the Lenders, the Agent or
any of them may now or hereafter have in all or any part of the Obligations
shall create or be construed as creating a partnership, joint venture or other
joint enterprise between the Lenders or among the Lenders
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and the Agent. The relationship between the Lenders, on the one hand, and the
Agent, on the other, is and shall be that of principals and agent only, and
nothing in this Agreement or any of the other Loan Documents shall be construed
to constitute the Agent as trustee or other fiduciary for any Lender or to
impose on the Agent any duty, responsibility or obligation other than those
expressly provided for herein and therein.
11. Miscellaneous.
11.1 Waiver. No waiver of any Default or Event of Default shall be a
waiver of any other Default or Event of Default. No failure on the part of the
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law or in equity.
11.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telecopy or other
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or provided for in an Assignment and Acceptance); or, as to any party,
at such other address as shall be designated by such party in a notice to the
Borrower and the Agent given in accordance with this Section 11.2. Except as
otherwise provided in this Agreement, all such notices or communications shall
be deemed to have been duly given when (i) transmitted by telex or telecopier,
(ii) personally delivered (iii) one Business Day after deposit with an overnight
mail or delivery service, postage prepaid or (iv) three Business Days' after
deposit in a receptacle maintained by the United States Postal Service, postage
prepaid, registered or certified mail, return receipt requested, in each case
given or addressed as aforesaid.
11.3 Expenses, Etc. Whether or not any Loan is ever made, the Borrower
shall pay or reimburse on demand (a) the Agent for paying the reasonable fees
and expenses of one primary legal counsel to the Agent, together with the
reasonable fees and expenses of each local counsel to the Agent, in connection
with the preparation, negotiation, execution and delivery of this Agreement
(including the exhibits and schedules hereto), the Security Documents and the
other Loan Documents and the making of the Loans hereunder, and any
modification, supplement or waiver of any of the terms of this Agreement or any
other Loan Document; (b) the Agent for any lien search fees; (c) the Agent for
reasonable out-of-pocket expenses incurred in connection with the preparation,
documentation, administration and syndication of the Loans or any of the Loan
Documents (including, without limitation, the advertising, marketing, printing,
publicity, duplicating, mailing and similar expenses) of the Loans; (d) the
Agent or any Lender for paying all transfer, stamp, documentary or other similar
taxes, assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any
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other Loan Document or any other document referred to herein or therein; (e) the
Agent or any Lender for paying all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by this Agreement, any Security
Document or any document referred to herein or therein, and (f) any Lender or
the Agent for paying all amounts reasonably expended, advanced or incurred by
such Lender or Agent to satisfy any obligation of the Borrower under this
Agreement or any other Loan Document, to protect the Collateral, to collect the
Obligations or to enforce, protect, preserve or defend the rights of such Lender
or Agent under this Agreement or any other Loan Document, including, without
limitation, fees and expenses incurred in connection with such Lender's or
Agent's participation as a member of a creditor's committee in a case commenced
under the Bankruptcy Code or other similar law, fees and expenses incurred in
connection with lifting the automatic stay prescribed in (S) 362 of the
Bankruptcy Code and fees and expenses incurred in connection with any action
pursuant to (S) 1129 of the Bankruptcy Code and all other customary out-of-
pocket expenses incurred by such Lender or Agent in connection with such
matters, together with interest thereon at the Past Due Rate on each such amount
from the date which is fifteen days after demand is made on the Borrower until
the date of reimbursement to such Lender or Agent.
11.4 Indemnification. The Borrower shall indemnify each of the Agent, the
Lenders, and each affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages to which any of them may become subject,
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY
INDEMNIFIED PARTIES, insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by the Borrower of
the proceeds of any extension of credit by any Lender hereunder; (ii) breach by
the Borrower of this Agreement or any other Loan Document or the breach by any
Party or the Authority of any Loan Document; (iii) violation by the Borrower or
any other Party of any Legal Requirement; (iv) investigation, litigation or
other proceeding relating to any of the foregoing, and the Borrower shall
reimburse the Agent, each Lender, and each Affiliate thereof and their
respective directors, officers, employees and agents, upon demand for any
reasonable expenses (including reasonable legal fees) incurred in connection
with any such investigation or proceeding, or (v) taxes (excluding income taxes
and franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Obligations or any Loan Document other than taxes incurred due to
a Lender's failure to comply with Section 11.13 hereof; provided, however, that
the Borrower shall not have any obligations pursuant to this Section with
respect to any losses, liabilities, claims, damages or expenses incurred by the
Person seeking indemnification by reason of the gross negligence or willful
misconduct of that Person. Nothing in this Section is intended to limit the
obligations of the Borrower under any other provision of this Agreement.
11.5 Amendments, Etc. No amendment or modification of this Agreement, the
Notes or any other Loan Document shall in any event be effective against the
Borrower unless the same shall be agreed or consented to in writing by the
Borrower. No amendment, modification
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<PAGE>
or waiver of any provision of this Agreement, the Notes or any other Loan
Document, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective against the Lenders unless the same shall be agreed or
consented to in writing by the Majority Lenders, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, that no amendment, modification, waiver or consent
shall, unless in writing and signed by each Lender, do any of the following: (a)
increase any Loan Commitment of any of the Lenders or subject the Lenders to any
additional obligations; (b) reduce the principal of, or interest on, any Loan or
fee hereunder; (c) postpone or extend the Maturity Date, the Termination Date or
any scheduled date fixed for any payment of principal of, or interest on, any
Loan, fee or other sum to be paid hereunder or waive any Event of Default
described in Section 9.1(a) hereof; (d) change the percentage of any of the Loan
Commitments or of the aggregate unpaid principal amount of any of the Loans, or
the number of Lenders, which shall be required for the Lenders or any of them to
take any action under this Agreement; (e) change any provision contained in
Sections 7.10, 11.3 or 11.4 hereof or this Section 11.5; (f) change the
definition of "Majority Lenders" set forth in Article 1 hereof, or (g) release
the liability of any Guarantor under the Guaranties or release, in any one (1)
calendar year, Collateral having an aggregate value exceeding $1,000,000;
provided, however, that execution of, or written consent to, any amendment,
modification or waiver of a particular provision of the Parent Credit Facility
by a particular Lender shall evidence the consent by such Lender required under
this Section with respect to an amendment, modification or waiver of the
identical provision contained in this Agreement and/or the Loan Documents,
without the necessity for any further action hereunder or under the Loan
Documents. Notwithstanding anything in this Section 11.5 to the contrary, no
amendment, modification, waiver or consent shall be made with respect to Section
10 without the consent of the Agent to the extent it affects the Agent.
11.6 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Agent and the Lenders and their respective successors and assigns;
provided, however, that, except as provided in Section 11.16, the Borrower may
not assign or transfer any of its rights or obligations hereunder without the
prior written consent of all of the Lenders, and any such assignment or transfer
without such consent shall be null and void. Each Lender may sell
participations in all or part of any Loan, or all or part of its Notes or Loan
Commitments, to another bank or other entity, in which event, without limiting
the foregoing, the provisions of the Loan Documents (including, without
limitation, the Interest Rate Agreement) shall inure to the benefit of each
purchaser of a participation; provided, however, the pro rata treatment of
payments, as described in Section 4.2 hereof, shall be determined as if such
Lender had not sold such participation. Any Lender that sells one or more
participations to any Person shall not be relieved by virtue of such
participation from any of its obligations to Borrower under this Agreement
relating to the Loans. In the event any Lender shall sell any participation,
such Lender shall retain the sole right and responsibility to enforce the
obligations of the Borrower relating to the Loans, including, without
limitation, the right to approve any amendment,
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<PAGE>
modification or waiver of any provision of this Agreement other than amendments,
modifications or waivers with respect to (i) any fees payable hereunder to the
Lenders, (ii) the amount of principal or the rate of interest payable on, or the
dates fixed for the scheduled repayment of principal of, the Loans and (iii) the
release of the Liens on any of the Collateral.
(b) Each Lender may assign to one or more Lenders or any other Person all
or a portion of its interests, rights and obligations under this Agreement;
provided, however, that (i) the aggregate amount of the Loan Commitments and the
Loans of the assigning Lender subject to each such assignment shall in no event
be less than $2,000,000, each such assignment shall be in a constant and not
varying percentage of all such assigning Lender's rights and obligations under
the Loan Documents and each Lender hereunder shall also be a "Lender" under the
Parent Credit Facility; (ii) other than in the case of an assignment to another
Lender (that is, at the time of the assignment, a party hereto) or to an
Affiliate of such Lender or to a Federal Reserve Bank, the Agent and, so long as
no Event of Default shall have occurred and be continuing, the Borrower must
each give its prior written consent, which consents shall not be unreasonably
withheld, and (iii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance an Assignment and Acceptance in the
form of Exhibit D hereto (each an "Assignment and Acceptance") with blanks
appropriately completed, together with any Note or Notes subject to such
assignment and a processing and recording fee of $3,000.00 paid by the assignee
(for which the Borrower will have no liability). Upon such execution, delivery
and acceptance, from and after the effective date specified in each Assignment
and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (B) the Lender thereunder shall, to the
extent provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto but shall still have indemnification rights surviving as provided in
Section 11.8 hereof). Notwithstanding anything contained in this Agreement to
the contrary, any Lender may at any time assign all or any portion of its rights
under this Agreement and the Notes issued to it as collateral to a Federal
Reserve Bank; provided that no such assignment shall release such Lender from
any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or any of the other Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant thereto; (ii) such Lender assignor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition
49
<PAGE>
of the Borrower or any other Party or the performance or observance by the
Borrower or any other Party of any of its obligations under this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 6.2 hereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such Lender assignor or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents; (v) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all obligations that by the terms of this Agreement
and the other Loan Documents are required to be performed by it as a Lender.
(d) The entries in the records of the Agent as to each Assignment and
Acceptance delivered to it and the names and addresses of the Lenders and the
Loan Commitments of, and principal amount of the Loans owing to, each Lender
from time to time shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders may treat each Person the name of which is
recorded in the books and records of the Agent as a Lender hereunder for all
purposes of this Agreement and the other Loan Documents.
(e) Upon the Agent's receipt of an Assignment and Acceptance executed by
an assigning Lender and the assignee thereunder, together with any Note or Notes
subject to such assignment and the written consent to such assignment, the Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in its records and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after receipt of notice, the
Borrower, at its own expense, shall execute and deliver to the Agent in exchange
for the surrendered Notes new Notes to the order of such assignee in an amount
equal to the Loan Commitments and the Loans (or either of them) assumed by it
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Loan Commitment and Loans (or either of them) hereunder, new Notes to
the order of the assigning Lender in an amount equal to the Loan Commitment and
the Loans (or either of them) retained by it hereunder. Such new Notes shall be
in an aggregate principal amount equal to the aggregate principal amount of such
surrendered Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the respective
Note. Thereafter, such surrendered Notes shall be marked renewed and
substituted and the originals thereof delivered to the Borrower (with copies,
certified by the Borrower as true, correct and complete, to be retained by the
Agent).
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 11.6, disclose to
the assignee or participant
50
<PAGE>
or proposed assignee or participant, any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower provided that such
Person agrees in writing to the confidentiality obligations set forth in Section
11.15 hereof.
11.7 Limitation of Interest. The Borrower and the Lenders intend to
strictly comply with all applicable federal and Texas laws, including applicable
usury laws (or the usury laws of any jurisdiction whose usury laws are deemed to
apply to the Notes or any other Loan Documents despite the intention and desire
of the parties to apply the usury laws of the State of Texas). Accordingly, the
provisions of this Section 11.7 shall govern and control over every other
provision of this Agreement or any other Loan Document which conflicts or is
inconsistent with this Section, even if such provision declares that it
controls. As used in this Section, the term "interest" includes the aggregate
of all charges, fees, benefits or other compensation which constitute interest
under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Borrower or any other Person be obligated to pay, or any
Lender have any right or privilege to reserve, receive or retain, (a) any
interest in excess of the maximum amount of nonusurious interest permitted under
the laws of the State of Texas or the applicable laws (if any) of the United
States or of any other state, or (b) total interest in excess of the amount
which such Lender could lawfully have contracted for, reserved, received,
retained or charged had the interest been calculated for the full term of the
Obligations at the Ceiling Rate. On each day, if any, that the interest rate
(the "Stated Rate") called for under this Agreement or any other Loan Document
exceeds the Ceiling Rate, the rate at which interest shall accrue shall
automatically be fixed by operation of this sentence at the Ceiling Rate for
that day, and shall remain fixed at the Ceiling Rate for each day thereafter
until the total amount of interest accrued equals the total amount of interest
which would have accrued if there were no such ceiling rate imposed by this
sentence. Thereafter, interest shall accrue at the Stated Rate unless and until
the Stated Rate again exceeds the Ceiling Rate, in which case, the provisions of
the immediately preceding sentence shall again automatically operate to limit
the interest accrual rate to the Ceiling Rate. The daily interest rates to be
used in calculating interest at the Ceiling Rate shall be determined by dividing
the applicable Ceiling Rate per annum by the number of days in the calendar year
for which such calculation is being made. None of the terms and provisions
contained in this Agreement or in any other Loan Document (including, without
limitation, Section 9.1 hereof) which directly or indirectly relate to interest
shall ever be construed without reference to this Section 11.7, or be construed
to create a contract to pay for the use, forbearance or detention of money at an
interest rate in excess of the Ceiling Rate. If the term of any Obligation is
shortened by reason of acceleration of maturity as a result of any Default or by
any other cause, or by reason of any required or permitted prepayment, and if
for that (or any other) reason any Lender at any time, including but not limited
to, the stated maturity, is owed or receives (and/or has received) interest in
excess of interest calculated at the Ceiling Rate, then and in any such event
all of any such excess interest shall be canceled automatically
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<PAGE>
as of the date of such acceleration, prepayment or other event which produces
the excess, and, if such excess interest has been paid to such Lender, it shall
be credited pro tanto against the then-outstanding principal balance of the
Borrower's obligations to such Lender, effective as of the date or dates when
the event occurs which causes it to be excess interest, until such excess is
exhausted or all of such principal has been fully paid and satisfied, whichever
occurs first, and any remaining balance of such excess shall be promptly
refunded to its payor.
11.8 Survival. The obligations of the Borrower under Sections 7.10, 11.3
and 11.4 hereof and all other obligations of the Borrower in any other Loan
Document (to the extent stated therein), and the obligations of the Lenders
under Section 10.5 and 11.7 hereof, shall survive the repayment of the Loans and
the termination of the Loan Commitments.
11.9 Captions. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
11.12 Severability. Whenever possible, each provision of the Loan Documents
shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 Tax Forms. With respect to each Lender which is organized under the
laws of a jurisdiction outside the United States, on the day of the initial
borrowing from each such Lender hereunder and from time to time thereafter if
requested by the Borrower or the Agent, such Lender shall provide the Agent and
the Borrower with the forms prescribed by the Internal Revenue Service of the
United States certifying as to such Lender's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to such Lender hereunder or other documents satisfactory to the Lender
and the Agent indicating that all payments to be made to such Lender hereunder
are subject to such tax at a rate reduced by an applicable tax treaty. Unless
the Borrower and the Agent shall have received such forms or such documents
indicating that payments hereunder are not subject to United States withholding
tax or are subject to such tax at a rate reduced by an applicable tax treaty,
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<PAGE>
the Borrower or the Agent shall withhold taxes from such payments at the
applicable statutory rate in the case of payments to or for any Lender organized
under the laws of a jurisdiction outside the United States.
11.14 Venue. The Borrower hereby irrevocably (a) agrees that any legal
proceeding against the Agent or any Lender arising out of or in connection with
the Loan Documents shall be brought in the district courts of Harris County,
Texas, or in the United States District Court for the Southern District of
Texas, Houston Division (collectively, the "Houston Courts"); (b) submits to the
non-exclusive jurisdiction of the Houston Courts; (c) agrees and consents that
service of process may be made upon it in any proceeding arising out of the Loan
Documents or any transaction contemplated thereby by service of process as
provided by Texas law; (d) WAIVES, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of any Loan Document or the transactions
contemplated thereby in the Houston Courts; and (e) WAIVES any claim that any
such suit, action or proceeding in any Houston Court has been brought in an
inconvenient forum. All of the obligations of the Borrower under the Loan
Documents are performable in Harris County, Texas. Nothing herein shall affect
the right of the Agent or any Lender to commence legal proceedings or otherwise
proceed against the Borrower in any jurisdiction or to serve process in any
manner permitted by applicable law. The Borrower agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions in any manner provided by law.
11.15 Confidentiality. Each Lender agrees to comply with its customary
procedures to keep any information delivered or made available by the Borrower
to it confidential from anyone other than Persons employed or retained by such
Lender who are or are expected to become engaged in evaluating, approving,
structuring or administering commitments, the Loans or the Loan Documents,
provided that nothing herein shall prevent any Lender from disclosing such
information (a) to any other Lender, (b) to any Person if reasonably incidental
to the administration of the Loans, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Lender, (e) which has been publicly
disclosed, (f) in connection with any litigation to which any Lender, the Agent,
or their respective Affiliates may be a party, (f) to the extent reasonably
required or desirable in connection with the exercise of any remedy hereunder or
under any Loan Document, (h) to such Lender's legal counsel and independent
auditors, and (i) to any actual or proposed participant or assignee of all or
part of its Loans, Loan Commitment or participations hereunder.
11.16 Permitted Transfer to a US Subsidiary. Upon thirty (30) days' prior
written notice to the Agent, the Borrower may assign and transfer all of its
duties, liabilities and obligations under this Agreement and under the other
Loan Documents to any Subsidiary of the Parent which is organized in the United
States and substitute such Subsidiary for the "Borrower" for all purposes under
this Agreement and the other Loan Documents. In the event of any such
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<PAGE>
transfer, the present Borrower, Sterling Pulp Chemicals, Ltd., shall be released
from all of its duties, liabilities and obligations hereunder subject to and
contingent upon the following:
(i) assumption by the applicable Subsidiary of all of the duties,
liabilities and obligations of Sterling Pulp Chemicals, Ltd. under
this Agreement and the other Loan Documents;
(ii) Section 3.2(d) hereof shall have been amended to require amortization
of the unpaid principal balance of the Loans in equal installments
due and payable (x) on the later of October 1, 1997 or the Quarterly
Date first occurring after an assignment pursuant to this Section,
(y) on each Quarterly Date thereafter prior to the Maturity Date and
(z) on the Maturity Date;
(iii) transfer and conveyance by Sterling Pulp Chemicals, Ltd. to the
applicable Subsidiary of all rights, titles and interests, then
currently owned or thereafter acquired, in and to the Cash Flow
Account, the Bond Documents and the Bonds;
(iv) ratification by the Parent of its Guaranty; and
(v) review and approval by the Agent (such approval not to be
unreasonably withheld) of the documentation evidencing such transfer
and evidencing the satisfaction of the above-described conditions
precedent.
Upon satisfaction of the above-described conditions precedent, the Agent shall
execute and deliver to Sterling Pulp Chemicals, Ltd. a written release from any
further duties, liabilities or obligations under this Agreement or any of the
Loan Documents. The release of Sterling Pulp Chemicals, Ltd. from its duties,
liabilities and obligations under this Agreement and the other Loan Documents
shall not become effective until the execution and delivery of such written
release by the Agent.
11.17 Canadian Taxes. All payments made by the Borrower under this
Agreement, under the Notes or under any of the other Loan Documents are to be
made without any deduction or withholding for or on account of any present or
future tax, levy, impost, duty, charge, assessment or fee of any nature
(including, without limitation, interest, penalties and additions thereto) that
is imposed by any Canadian Governmental Authority in respect of a payment under
this Agreement, under the Notes or under any of the other Loan Documents (a
"Canadian Tax"). If the Borrower is required by any applicable law, rule or
regulation to make any deduction or withholding for or on account of any
Canadian Tax from any payment to be made by it under this Agreement, under the
Notes or under any other Loan Documents, then the Borrower shall (i) promptly
notify the Lender that is entitled to such payment of such requirement, in
writing (with a copy to the Agent) to so deduct or withhold such Canadian Tax,
(ii) pay to the relevant authorities the full amount required to be so deducted
or withheld promptly upon the earlier of determining that such deduction or
withholding is required or
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<PAGE>
receiving notice that such amount has been assessed against such Lender, (iii)
promptly forward to such Lender an official receipt (or certified copies
thereof), or other documentation reasonably acceptable to such Lender,
evidencing such payment to such authorities (with copies to the Agent) and (iv)
pay, to the extent permitted by law, to the Agent for the account of such
Lender, such additional amount as is necessary to ensure that the total amount
actually received by such Lender will equal the full amount of the payment such
Lender would have received had no such deduction or withholding been required.
The provisions of this Section shall not apply with respect to Canadian Taxes
paid or incurred by any Lender organized under the laws of Canada (or a Province
of Canada) and accruing after a transfer to a Subsidiary of the Parent organized
in the United States pursuant to Section 11.16 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
STERLING PULP CHEMICALS, LTD.
By: /s/ Stewart H. Yonts
---------------------
Name: Stewart H. Yonts
-----------------
Title: Treasurer
----------
Address for Notices:
2 Gibbs Road
Toronto, Ontario, Canada M9B 1R1
Attention: Mr. Mark A. Davis
Telecopy No.: (416) 239-8091
55
<PAGE>
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent and as a Lender
By: /s/ Gregory R. Ford
---------------------
Gregory R. Ford,
Vice President
Address for Notices:
Loan Commitment: 712 Main Street
Houston, Texas 77002
$6,500,000 Attention: Mr. Gregory R. Ford
Telecopy No.: (713) 216-6387
56
<PAGE>
[STERLING PULP CHEMICALS, LTD. LETTERHEAD]
REQUEST FOR EXTENSION OF CREDIT
-------------------------------
________________, 199____
Texas Commerce Bank National Association, as Agent
712 Main Street
Houston, Texas 77002
Attention: Manager, Refining and Petrochemicals Group
Gentlemen:
The undersigned hereby certifies that the undersigned is the
_________________________________ of STERLING PULP CHEMICALS, LTD., a
corporation organized under the laws of the Province of Ontario, Canada (the
"Borrower"), and that as such the undersigned is authorized to execute this
Request for Extension of Credit (the "Request") on behalf of the Borrower
pursuant to the Credit Agreement (as it may be amended, supplemented or restated
from time to time, the "Credit Agreement") dated as of September 28, 1995, by
and among the Borrower, Texas Commerce Bank National Association, as Agent, and
the Lenders a party thereto. The Loan being requested hereby is to be in the
amount set forth in (b) below and is requested to be made on __________________,
199____, which is a Business Day. The undersigned further certifies, represents
and warrants that to the undersigned's knowledge, after due inquiry (each
capitalized term used herein having the same meaning given to it in the Credit
Agreement unless otherwise specified herein):
(a) As of the date hereof, the unused aggregate
amount of the Loan Commitments is: $__________
(b) The Borrower hereby requests under this Request a Loan in the amount
of $__________.
(c) Except to the extent that such representations and warranties
expressly relate to an earlier specified date, the representations and
warranties made in each Loan Document are true and correct in all
material respects on and as of the time of delivery hereof, with the
same force and effect as if made on and as of the time of delivery
hereof.
EXHIBIT A
to Credit Agreement
Page 1
<PAGE>
(d) No event which has had (or could reasonably be expected to have) a
Material Adverse Effect has occurred and is continuing.
(e) No Default or Event of Default has occurred and is continuing or will
occur as a result of the making of the Loan requested hereby.
Thank you for your attention to this matter.
Very truly yours,
STERLING PULP CHEMICALS, LTD.
By: _______________________________
Name:______________________________
Title:_____________________________
EXHIBIT A
to Credit Agreement
Page 2
<PAGE>
SUBSIDIARIES
------------
1. Sterling Chemicals International, Inc., a Delaware corporation (100% owned
by Borrower)
2. Sterling Chemicals Energy, Inc., a Delaware corporation (100% owned by
Borrower)
3. Sterling Canada, Inc., a Delaware corporation (100% owned by Borrower)
4. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100%
owned by Borrower)
5. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling Canada,
Inc.)
6. Sterling Pulp Chemicals US, Inc., a Delaware corporation (100% owned by
Sterling Canada, Inc.)
7. Sterling Pulp Chemicals, Ltd., an Ontario corporation (100% owned by
Sterling Canada, Inc.)
EXHIBIT B
<PAGE>
NOTE
Houston, Texas
$__________________ _____________, 199___
FOR VALUE RECEIVED, STERLING PULP CHEMICALS, LTD. ("Maker"), a
-----
corporation organized under the laws of the Province of Ontario, Canada,
promises to pay to the order of _______________________________________________
("Payee"), a _________________, at the principal office of Texas Commerce
Bank National Association, a national banking association, 712 Main Street,
Houston, Harris County, Texas 77002, in immediately available funds and in
lawful money of the United States of America, the principal sum of
________________________________________________________ Dollars
($__________________) (or the unpaid balance of all principal advanced against
this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding at the rate or
rates provided in that certain Interest Rate Agreement (as amended,
supplemented, restated or replaced from time to time, the "Interest Rate
Agreement") attached as Schedule 1 to the Credit Agreement (hereinafter
defined); provided, that for the full term of this note the interest rate
produced by the aggregate of all sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the debt evidenced hereby
(including, but not limited to, all interest on this note at the Stated Rate
plus the Additional Interest) shall not exceed the Ceiling Rate. Any term
defined in the Interest Rate Agreement or in that certain Credit Agreement (as
amended, supplemented, restated or replaced from time to time, the "Credit
Agreement") dated as of September 28, 1995 among Maker, certain signatory
financial institutions named therein, and Texas Commerce Bank National
Association, as Agent, which is used in this note and which is not otherwise
defined in this note shall have the meaning ascribed to it in the Credit
Agreement or the Interest Rate Agreement, as the case may be.
1. Credit Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Credit Agreement, and is one of the Notes referred
to in the Credit Agreement. Advances against this note by Payee or other holder
hereof shall be governed by the terms and provisions of the Credit Agreement.
Reference is hereby made to the Credit Agreement for all purposes. Payee is
entitled to the benefits of and security provided for in the Credit Agreement.
The unpaid principal balance of this note at any time shall be the total of all
amounts lent or advanced against this note less the amount of all payments or
permitted prepayments made on this note and by or for the account of Maker. All
loans and advances and all payments and permitted prepayments made hereon may be
endorsed by the holder of this note on a schedule which may be attached hereto
(and thereby made a part hereof for all purposes) or otherwise recorded in the
holder's records; provided, that any failure to make notation (or any error in
such notation) of (a) any advance shall not cancel, limit or otherwise affect
Maker's obligations or any holder's rights with respect to that advance, or (b)
any payment or permitted prepayment
EXHIBIT C
to Credit Agreement
Page 1
<PAGE>
of principal shall not cancel, limit or otherwise affect Maker's entitlement to
credit for that payment as of the date received by the holder.
2. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on the Interest Payment Dates in accordance with
the terms of the Credit Agreement and the Interest Rate Agreement.
(b) The principal of this note shall be due and payable in quarterly
installments due on each Quarterly Date, beginning on October 1, 1997, equal to
___________% times the amount provided under Section 3.2(d) of the Credit
Agreement (subject to adjustment as provided in the Credit Agreement). On the
Maturity Date, the entire unpaid principal balance of this note and all accrued
and unpaid interest on the unpaid principal balance of this note shall be
finally due and payable.
(c) The Credit Agreement provides for required prepayments of the
indebtedness evidenced hereby upon terms and conditions specified therein.
3. No Usury Intended; Spreading. Notwithstanding any provision to the
contrary contained in this note or any of the other Loan Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Loan Documents, which under applicable laws are or
may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable federal and Texas usury
laws (and the usury laws of any other jurisdiction whose usury laws are deemed
to apply to this note or any of the other Loan Documents despite the intention
and desire of the parties to apply the usury laws of the State of Texas). In
furtherance thereof, none of the terms of this note or any of the other Loan
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized,
EXHIBIT C
to Credit Agreement
Page 2
<PAGE>
prorated, allocated and spread in equal parts throughout the full term of this
note, so that the interest rate is uniform throughout the full term of this
note. The provisions of this Paragraph shall control all agreements, whether now
or hereafter existing and whether written or oral, between Maker and Payee.
4. Default. The Credit Agreement provides for the acceleration of the
maturity of this note and other rights and remedies upon the occurrence of
certain events specified therein.
5. Waivers by Maker and Others. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Loan
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability
on or with respect to this note shall not be affected by any release of or
change in any guaranty or security at any time existing or by any failure to
perfect or to maintain perfection of any lien against or security interest in
any such security or the partial or complete unenforceability of any guaranty or
other surety obligation, in each case in whole or in part, with or without
notice and before or after maturity.
6. Paragraph Headings. Paragraph headings appearing in this note are
for convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
7. Choice of Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
8. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
9. Records of Payments. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
10. Severability. If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it.
EXHIBIT C
to Credit Agreement
Page 3
<PAGE>
11. Business Loans. Maker warrants and represents to Payee and all
other holders of this note that all loans evidenced by this note are and will be
for business, commercial, investment or other similar purpose and not primarily
for personal, family, household or agricultural use, as such terms are used in
Chapter One.
STERLING PULP CHEMICALS, LTD.
By: __________________________
Name:_________________________
Title:________________________
EXHIBIT C
to Credit Agreement
Page 4
<PAGE>
ASSIGNMENT AND ACCEPTANCE
-------------------------
Dated: ___________________, 199___
Reference is made to the Credit Agreement dated as of September 28, 1995
(as restated, amended, modified, supplemented and in effect from time to time,
the "Credit Agreement"), among Sterling Pulp Chemicals, Ltd., a corporation
organized under the laws of the Province of Ontario, Canada (the "Borrower"),
the Lenders a party thereto, and Texas Commerce Bank National Association, as
Agent (the "Agent"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to such terms in the Credit Agreement. This
Assignment and Acceptance, between the Assignor (as defined and set forth on
Schedule I hereto and made a part hereof) and the Assignee (as defined and set
forth on Schedule I hereto and made a part hereof) is dated as of the Effective
Date (as set forth on Schedule I hereto and made a part hereof).
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date, an undivided ________% interest (the "Assigned Interest") in and
to all the Assignor's rights and obligations under the Credit Agreement as set
forth on Schedule I (the "Assigned Facility").
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement, any other Loan Document or any other instrument
or document furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower, the Parent or the Parent's Subsidiaries or the performance or
observance by the Borrower, the Parent or the Parent's Subsidiaries of any of
its respective obligations under the Credit Agreement, any other Loan Document
or any other instrument or document furnished pursuant thereto; and (iii)
attaches the Note held by it evidencing the Assigned Facility, as the case may
be, and requests that the Agent exchange such Note for a new Note payable to the
Assignor (if the Assignor has retained any interest in the Assigned Facility)
and a new Note payable to the Assignee in the respective amounts which reflect
the assignment being made hereby (and after giving effect to any other
assignments which have become effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance and, upon the effectiveness of this
Assignment and Acceptance,
EXHIBIT D
to Credit Agreement
Page 1
<PAGE>
that it will be in compliance with Section 11.6 of the Credit Agreement; (ii)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements referred to in Section 6.2 thereof, or if
later, the most recent financial statements delivered pursuant to Section 7.2
thereof, and such other documents and information as it has deemed appropriate
to make its own credit analysis; (iii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iv) appoints and authorizes the Agent to take such action
as agent on its behalf and to exercise such powers under the Credit Agreement as
are delegated to the Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; (v) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its terms
all the obligations which by the terms of the Credit Agreement are required to
be performed by it as a Lender; (vi) if the Assignee is organized under the laws
of a jurisdiction outside the United States, attaches the forms prescribed by
the Internal Revenue Service of the United States certifying as to the
Assignee's exemption from United States withholding taxes with respect to all
payments to be made to the Assignee under the Credit Agreement or such other
documents as are necessary to indicate that all such payments are subject to
such tax at a rate reduced by an applicable tax treaty, and (vii) has supplied
the information requested on the administrative questionnaire submitted by the
Agent.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance by it and the Borrower and recording by
the Agent pursuant to Section 11.6 of the Credit Agreement, effective as of the
Effective Date (which Effective Date shall, unless otherwise agreed to by the
Agent, be at least five Business Days after the execution of this Assignment and
Acceptance).
5. Upon such acceptance and recording, from and after the Effective Date,
the Agent shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts) to the Assignee,
whether such amounts have accrued prior to the Effective Date or accrue
subsequent to the Effective Date. The Assignor and Assignee shall make all
appropriate adjustments in payments for periods prior to the Effective Date by
the Agent or with respect to the making of this assignment directly between
themselves.
6. From and after the Effective Date, (i) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder, and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
EXHIBIT D
to Credit Agreement
Page 2
<PAGE>
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective duly authorized officers on
Schedule I hereto.
EXHIBIT D
to Credit Agreement
Page 3
<PAGE>
SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE
Legal Name of Assignor: ______________________________________________
Legal Name of Assignee: ______________________________________________
Effective Date of Assignment: __________________, 199___
Assigned Principal
Facility Amount Assigned
-------- ---------------
Loans: $______________
Accepted:
TEXAS COMMERCE BANK NATIONAL __________________________________
ASSOCIATION, as Agent as Assignor
By: _____________________________ By: _____________________________
Name: ___________________________ Name: ___________________________
Title: __________________________ Title: __________________________
_________________________________
as Assignee
By: _____________________________
Name: ___________________________
Title: __________________________
EXHIBIT D
to Credit Agreement
Page 1
<PAGE>
Acknowledged and Agreed:
STERLING PULP CHEMICALS, LTD.
By: _____________________________
Name: ___________________________
Title: __________________________
EXHIBIT D
to Credit Agreement
Page 2
<PAGE>
COMPLIANCE CERTIFICATE
----------------------
The undersigned hereby certifies that the undersigned is the
______________________________ of STERLING PULP CHEMICALS, LTD., a corporation
organized under the laws of the Province of Ontario, Canada (the "Borrower"),
and that as such the undersigned is authorized to execute this certificate on
behalf of the Borrower pursuant to the Credit Agreement (as it may be amended,
supplemented or restated from time to time, the "Credit Agreement") dated as of
September 28, 1995, by and among the Borrower, TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association, as Agent, and the financial
institutions a party thereto; and that a review of the Borrower, the Parent and
the Parent's Subsidiaries has been made under the supervision of the undersigned
with a view to determining whether the Borrower, the Parent and the Parent's
Subsidiaries have fulfilled all of their respective obligations under the Credit
Agreement, the Notes and the other Loan Documents; and on behalf of the Borrower
further certifies, represents and warrants that to the undersigned's knowledge,
after due inquiry (each capitalized term used herein having the same meaning
given to it in the Credit Agreement unless otherwise specified):
(a) The financial statements delivered to the Agent concurrently with this
Compliance Certificate have been prepared in accordance with GAAP
consistently followed throughout the period indicated and fairly present the
financial condition and results of operations of the applicable Persons as
at the end of, and for, the period indicated (subject, in the case of
Quarterly Financial Statements and monthly statements of income and cash
flow, to normal changes resulting from year-end adjustments).
(b) No Default or Event of Default has occurred and is continuing. In this
regard, the compliance with the provisions of Sections 7.3 of the Credit
Agreement is as follows:
(i) SECTION 7.3(A) -- DEBT TO EBITDA RATIO
Actual Required
------ --------
______ to 1.00 4.00 to 1.00
(ii) SECTION 7.3(B) -- FIXED CHARGE COVERAGE RATIO
Actual Required
------ --------
______ to 1.00 1.25 to 1.00
EXHIBIT E
to Credit Agreement
Page 1
<PAGE>
(iii) SECTION 7.3(C) -- ADJUSTED FIXED CHARGE RATIO (only required in the case
of dividends)
Actual Required
------ --------
______ to 1.00 1.10 to 1.00
(iv) SECTION 7.3(D) -- NET WORTH
Actual Required
------ --------
$_____________ $_______________
(v) SECTION 7.3(E) -- CURRENT RATIO
Actual Required
------ --------
______ to 1.00 1.10 to 1.00
DATED as of ____________________, 199___.
___________________________________
[SIGNATURE OF AUTHORIZED OFFICER]
EXHIBIT E
to Credit Agreement
Page 2
<PAGE>
EXHIBIT F
PLANT LAND
Tract I (Easement Tract: All that tract or parcel of land situate, lying and
being in Land Lots 153 and 170 of the 11th Land District of Lowndes County,
Georgia and being all of that certain 6.80 acres of land depicted as Tract IV
upon that certain plat or map of survey made by Robin Nelson Harris, Georgia
Registered Land Surveyor No. 2101 dated 8/14/95 entitled "Survey for
Valdosta-Lowndes County Industrial Authority", a copy of which is of record in
Plat Record Book 38, page 200, Lowndes County Deed Records and which is more
particularly described, by metes and bounds, as follows: Commence at a point on
the easterly margin of the right of way of Perimeter Road (200 foot right of
way) which is located north 00 degrees 53 minutes 06 seconds east a distance of
1968.90 feet from the northeast corner of the intersection of the right of way
of Perimeter Road and the right of way of Georgia Southern and Florida Railroad
(100 foot right of way); thence north 89 degrees 15 minutes 00 seconds east
930.87 feet; thence south 01 degrees 05 minutes 36 seconds west 191.85 feet;
thence south 83 degrees 47 minutes 00 seconds east 517.81 feet; thence south 00
degrees 56 minutes 08 seconds west 118.78 feet; thence north 87 degrees 26
minutes 55 seconds west 185.43 feet; thence north 56 degrees 35 minutes 51
seconds west 65.94 feet; thence south 82 degrees 59 minutes 57 seconds west 380
feet; thence north 72 degrees 43 minutes 37 seconds west 862.95 feet to the
easterly margin of the right of way of Perimeter Road; and thence run north 00
degrees 53 minutes 06 seconds east 100 feet to the point of beginning.
Tract 2: All that tract or parcel of land situate, lying and being in Land Lot
170 of the 11th Land District of Lowndes County, Georgia and being all of that
certain 28.00 acres of land depicted as Tract I upon that certain plat or map of
survey made by Robin Nelson Harris, Georgia Registered Land Surveyor No. 2101
dated 8-14-95 entitled "Survey for Valdosta-Lowndes County Industrial
Authority", a copy of which is of record in Plat Record Book 38, page 200,
Lowndes County Deed Records and which is more particularly described by metes
and bounds as follows: Commence at a point located on the northerly margin of
the right of way of Georgia Southern and Florida Railroad (100 foot right of
way) which is located south 87 degrees 07 minutes 21 seconds east of the
northeast corner of the intersection of Georgia Southern and Florida Railroad
right of way with Perimeter Road right of way a distance of 1487.32 feet; thence
north 07 degrees 00 minutes 03 seconds west 1657.59 feet; thence south 87
degrees 26 minutes 55 seconds east 185.43 feet; thence south 87 degrees 26
minutes 55 seconds east 451.86 feet; thence south 87 degrees 26 minutes 55
seconds east 113.89 feet; thence south 07 degrees 00 minutes 03 seconds east
1635.44 feet to a point on the northerly margin of Georgia Southern and Florida
Railroad right of way; and thence run north 89 degrees 07 minutes 21 seconds
west 747.82 feet to the point of beginning.
Page 1 of 2
<PAGE>
EXHIBIT F
Survey map for Valdosta - Lowndes County
Tract 1 (Easement Tract)
and Tract 2
[MAP APPEARS HERE]
<PAGE>
SCHEDULE 1
INTEREST RATE AGREEMENT
THIS INTEREST RATE AGREEMENT (this "Agreement") is attached as
SCHEDULE 1 to the Credit Agreement (as amended, supplemented, restated or
replaced from time to time, the "Credit Agreement"), of even date herewith, by
and among STERLING PULP CHEMICALS, LTD. ("Borrower"), a corporation organized
under the laws of the Province of Ontario, Canada, certain financial
institutions from time to time a party thereto, and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION (in such capacity "Agent"), a national banking association acting as
agent for such financial institutions.
RECITALS
1. Any capitalized term defined in the Credit Agreement which is used
in this Agreement shall, unless otherwise defined herein, have the meaning
ascribed to it in the Credit Agreement.
2. For convenience, Borrower and Agent desire to gather the
provisions of the Loan Documents relating solely to interest, including the
selection of interest rate options, into a separate agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the execution and delivery of the
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
Capitalized words and phrases used in this Agreement have the meanings
provided below. Unless otherwise stated, references to sections are to sections
in this Agreement.
Additional Interest means the aggregate of all amounts accrued or paid
pursuant to the Notes or any of the other Loan Documents (other than interest on
the Notes at the Stated Rate) which, under applicable laws, are or may be deemed
to constitute interest on the indebtedness evidenced by the Notes.
Base Rate means for any day a rate per annum equal to the lesser of
(a) the greater of (1) the Prime Rate for that day and (2) the Federal Funds
Rate for that day plus 1/2 of 1% or (b) the Ceiling Rate. If for any reason
Agent shall have determined (which determination shall be conclusive and
binding, absent manifest error) that it is unable to ascertain the Federal Funds
Rate for any reason, including, without limitation, the inability or failure of
Agent to obtain
SCHEDULE 1
to Credit Agreement
<PAGE>
sufficient quotations in accordance with the terms hereof, the
Base Rate shall, until the circumstances giving rise to such inability no longer
exist, be the lesser of (a) the Prime Rate or (b) the Ceiling Rate.
Base Rate Borrowing means that portion of the principal balance of the
Loans at any time bearing interest at the Base Rate.
Ceiling Rate means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas laws
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be
the "indicated rate ceiling" (as defined in Chapter One) for that day. Agent may
from time to time, as to current and future balances, implement any other
ceiling under Chapter One by notice to Borrower, if and to the extent permitted
by Chapter One. Without notice to Borrower or any other person or entity, the
Ceiling Rate shall automatically fluctuate upward and downward as and in the
amount by which such maximum nonusurious rate of interest permitted by
applicable law fluctuates.
Chapter One means Chapter One of Title 79, Texas Revised Civil
Statutes, 1925, as amended.
Eurodollar Business Day means a Business Day on which transactions in
United States dollar deposits between banks may be carried on in whatever
Eurodollar interbank market may be selected by Agent in accordance herewith.
Eurodollar Interbank Rate means, for each Interest Period, the rate of
interest per annum, rounded, if necessary, to the next highest whole multiple of
one-sixteenth percent (1/16%), quoted by Agent at or before 10:00 a.m., Houston,
Texas time (or as soon thereafter as practicable), on the date two Eurodollar
Business Days before the first day of such Interest Period, to be the arithmetic
average of the prevailing rates per annum at the time of determination and in
accordance with the then existing practice in the applicable market, for the
offering to Agent by one or more prime banks selected by Agent in its sole
discretion, in whatever Eurodollar interbank market may be selected by Agent in
its sole discretion, of deposits in Dollars for delivery on the first day of
such Interest Period and having a maturity equal to the length of such Interest
Period and in an amount equal (or as nearly equal as may be) to the Eurodollar
Rate Borrowing to which such Interest Period relates. Each determination by
Agent of the Eurodollar Interbank Rate shall be conclusive and binding, absent
manifest error, and may be computed using any reasonable averaging and
attribution method.
Eurodollar Rate means for any day a rate per annum equal to the lesser
of (a) the sum of (1) the Eurodollar Interbank Rate in effect on the first day
of the Interest Period for the applicable Eurodollar Rate Borrowing plus (2) the
applicable Margin Percentage in effect on the first day of the Interest Period
for the applicable Eurodollar Rate Borrowing and (b) the Ceiling
2
<PAGE>
Rate. Each Eurodollar Rate is subject to adjustments for reserves and other
matters as provided for in Section 2.3 hereof.
Eurodollar Rate Borrowing means each portion of the principal balance
of the Loans at any time bearing interest at a Eurodollar Rate.
Eurodollar Reserve Requirement means, on any day, for any Loans of any
Lender bearing interest at the Eurodollar Rate and any Interest Period, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained by such Lender during such
Interest Period under Regulation D against "Eurocurrency liabilities" (as such
term is used in Regulation D). Each determination of the Eurodollar Reserve
Requirement by a Lender shall be conclusive and binding, absent manifest error,
and may be computed using any reasonable averaging and attribution method.
Federal Funds Rate means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent in its sole and absolute discretion.
Funding Loss means, with respect to (a) Borrower's payment of
principal of a Eurodollar Rate Borrowing on a day before the last day of the
applicable Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate
Borrowing on the date specified by Borrower; (c) Borrower's failure to make any
prepayment of the Loans (other than Base Rate Borrowings) on the date specified
by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or
any part thereof pursuant to Section 2.3, in each case whether voluntary or
involuntary, any loss, expense, penalty, premium or liability incurred by any
Lender (including but not limited to any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund or maintain a Loan).
Interest Options means the Base Rate and each Eurodollar Rate, and
"Interest Option" means either of them.
Interest Payment Dates means (a) for Base Rate Borrowings, January
1, 1996 and the first day of each October, January, April and July thereafter
prior to the Maturity Date and the Maturity Date; and (b) for Eurodollar Rate
Borrowings, the end of the applicable Interest Period (and if such Interest
Period exceeds three months' duration, quarterly, commencing on the first
quarterly anniversary of the first day of such Interest Period) and the Maturity
Date.
3
<PAGE>
Interest Period means, for each Eurodollar Rate Borrowing, a period
commencing on the date such Eurodollar Rate Borrowing began and ending on the
numerically corresponding day which is, subject to availability, not less than 1
nor more than 12 months thereafter, as Borrower shall elect in accordance
herewith; provided, (v) any Interest Period with respect to a Eurodollar Rate
Borrowing which would otherwise end on a day which is not a Eurodollar Business
Day shall be extended to the next succeeding Eurodollar Business Day, unless
such Eurodollar Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar Business Day; (w) any
Interest Period with respect to a Eurodollar Rate Borrowing which begins on the
last Eurodollar Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Eurodollar Business Day of the
appropriate calendar month; (x) no Interest Period shall ever extend beyond the
Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a
manner that the Interest Period with respect to any portion of the Loans which
shall become due shall not extend beyond such due date.
Margin Percentage means:
(a) On any day prior to the first adjustment after the date hereof
pursuant to clause (b) of this definition, 0.65;
(b) the Margin Percentage for any day shall be the applicable per annum
percentage set forth at the appropriate intersection in the table
shown below, based on the Debt to EBITDA Ratio for the Parent (on a
consolidated basis) as of the last day of each March, June, September
and December (beginning with the fiscal quarter ending on September
30, 1995) (such increase or decrease to be effective on the date that
Borrower delivers the Quarterly Financial Statements for the fiscal
quarter ending on such date to the Agent pursuant to the terms of the
Credit Agreement):
<TABLE>
<CAPTION>
Eurodollar Rate
Debt to Borrowings Margin
EBITDA Ratio Percentage
- ------------------------------- -----------------
<S> <C>
Greater than or equal to 3.50 1.25
Greater than or equal to
2.50 but less than 3.50 1.00
Greater than or equal to
1.50 but less than 2.50 0.75
Less than 1.50 0.65
</TABLE>
4
<PAGE>
Prime Rate means, on any day, the prime rate for that day as announced
from time to time by TCB and thereafter entered in the minutes of its Loan and
Discount Committee. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate or a favored rate, and TCB, Agent and each
Lender disclaims any statement, representation or warranty to the contrary.
TCB, Agent or any Lender may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.
Rate Designation Date means that Business Day which is (a) in the case
of Base Rate Borrowings, 11:00 a.m., Houston, Texas time, on the date of such
borrowing and (b) in the case of Eurodollar Rate Borrowings, 11:00 a.m.,
Houston, Texas time, on the date three Eurodollar Business Days preceding the
first day of any proposed Interest Period.
Rate Designation Notice means a written notice substantially in the
form of Exhibit A.
Regulation D means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and includes any successor or
other regulation relating to reserve requirements applicable to member banks of
the Federal Reserve System.
Stated Rate means the effective weighted per annum rate of interest
applicable to the Loans. Without notice to Borrower or any other person or
entity, the Stated Rate shall automatically fluctuate upward and downward in
accordance with the provisions of this definition.
Taxes means any tax, levy, impost, duty, charge or fee.
2. INTEREST OPTIONS FOR LOANS
2.1 Options Available. The outstanding principal balance of the Notes
shall bear interest at the Base Rate; provided, that (1) all amounts, both
principal and accrued interest, remaining past due beyond the grace period (if
any) provided in the Credit Agreement shall bear interest at the Past Due Rate,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balances of the Notes from time to
time outstanding bear interest at a Eurodollar Rate. The records of Agent with
respect to Interest Options, Interest Periods and the amounts of Loans to which
they are applicable shall be binding and conclusive, absent manifest error.
Interest on the Loans shall be calculated at the Base Rate except where it is
expressly provided pursuant to this Agreement that a Eurodollar Rate or the Past
Due Rate is to apply. Interest on the amount of each advance against the Notes
shall be computed on the amount of that advance and from the date it is made.
Notwithstanding anything in this Agreement to the contrary, for the full term of
the Notes the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holders of the Notes for the use, forbearance or detention of
the debt evidenced thereby (including all interest on the Notes at the Stated
Rate plus the Additional Interest) shall not exceed the Ceiling Rate.
5
<PAGE>
2.2 Designation and Conversion. Borrower shall have the right to
designate or convert its Interest Options in accordance with the provisions
hereof. Subject to the last sentence of Section 2.1 and the provisions of
Section 2.3, Borrower may elect to have a Eurodollar Rate apply or continue to
apply to all or any portion of the principal balance of the Notes. Each change
in Interest Options shall be a conversion of the rate of interest applicable to
the specified portion of the Loans, but such conversion shall not change the
respective outstanding principal balances of the Notes. The Interest Options
shall be designated or converted in the manner provided below:
(a) Borrower shall give Agent telephonic notice, promptly confirmed by a
Rate Designation Notice. Each such telephonic and written notice
shall specify the amount of the Loan which is the subject of the
designation, if any; the amount of borrowings into which such
borrowings are to be converted or for which an Interest Option is
designated; the proposed date for the designation or conversion and
the Interest Period or Periods, if any, selected by Borrower. Such
telephonic notice shall be irrevocable and shall be given to Agent no
later than the applicable Rate Designation Date.
(b) No more than three (3) Eurodollar Rate Borrowings shall be in effect at
any time.
(c) Each designation or conversion of a Eurodollar Rate Borrowing shall
occur on a Eurodollar Business Day.
(d) Unless the Borrower makes the payment required by Section 2.3(d) hereof,
no Eurodollar Rate Borrowing shall be converted to a Base Rate
Borrowing on any day other than the last day of the applicable
Interest Period.
(e) Each Eurodollar Rate Borrowing shall be in the amount of at least
$1,000,000.
(f) Each designation of an Interest Option with respect to the Notes shall
apply to all of the Notes, respectively, ratably in accordance with
their respective outstanding principal balances. If any Lender
assigns an interest in any of its Notes when any Eurodollar Rate
Borrowing is outstanding with respect thereto, then such assignee
shall have its ratable interest in such Eurodollar Rate Borrowing.
2.3 Special Provisions Applicable to Eurodollar Rate Borrowings.
(a) Options Unlawful. If the adoption of any applicable Legal
Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by Agent or any Lender with any request or directive (whether or not
having the force of law) of any central bank or other Governmental Authority
shall at any time make it unlawful or impossible for Agent or any Lender to
permit the establishment of or to maintain any Eurodollar Rate Borrowing, the
commitment to establish
6
<PAGE>
or maintain such Eurodollar Rate Borrowing shall forthwith be suspended and
Borrower shall forthwith, upon demand by Agent to Borrower, (1) if required to
avoid a violation of any Legal Requirement, convert the Eurodollar Rate
Borrowing with respect to which such demand was made to a Base Rate Borrowing;
(2) pay all accrued and unpaid interest to date on the amount so converted; and
(3) pay any amounts required to compensate each Lender for any additional cost
or expense which each Lender may incur as a result of such adoption of or change
in such Legal Requirement or in the interpretation or administration thereof and
any Funding Loss which each Lender may incur as a result of such conversion. If,
when Agent so notifies Borrower, Borrower has given a Rate Designation Notice
specifying a Eurodollar Rate Borrowing but the selected Interest Period has not
yet begun, such Rate Designation Notice shall be deemed to be of no force and
effect, as if never made, and the balance of the Loans specified in such Rate
Designation Notice shall bear interest at the Base Rate until a different
available Interest Option shall be designated in accordance herewith.
(b) Increased Cost of Borrowings. If the adoption of any applicable
Legal Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by any Lender with any request or directive (whether or not having
the force of law) of any central bank or Governmental Authority shall at any
time, as a result of any portion of the principal balances of the Notes being
maintained on the basis of a Eurodollar Rate:
(1) subject any Lender (or make it apparent that any
Lender is subject) to any Taxes, or any deduction or withholding
for any Taxes, on or from any payment due under any Eurodollar
Rate Borrowing or other amount due hereunder, other than income
and franchise taxes of the United States and its political
subdivisions; or
(2) change the basis of taxation of payments due from
Borrower to any Lender under any Eurodollar Rate Borrowing
(otherwise than by a change in the rate of taxation of the
overall net income of such Lender); or
(3) impose, modify, increase or deem applicable any
reserve requirement, special deposit requirement or similar
requirement (including, but not limited to, state law
requirements and Regulation D) imposed, modified, increased or
deemed applicable by any Governmental Authority against assets
held by any Lender, or against deposits or accounts in or for the
account of any Lender, or against loans made by any Lender, or
against any other funds, obligations or other property owned or
held by any Lender; or
(4) impose on any Lender any other condition regarding
any Eurodollar Rate Borrowing;
7
<PAGE>
and the result of any of the foregoing is to increase the cost to any Lender of
agreeing to make or of making, renewing or maintaining such Eurodollar Rate
Borrowing, or reduce the amount of principal or interest received by any Lender,
then, upon demand by Agent, Borrower shall pay to Agent, from time to time as
specified by Agent, additional amounts which shall compensate each Lender for
such increased cost or reduced amount. The determination by any Lender of the
amount of any such increased cost, increased reserve requirement or reduced
amount shall be conclusive and binding, absent manifest error. Each Lender will
notify the Borrower through the Agent of any event occurring after the date of
this Agreement which will entitle such Lender to compensation pursuant to this
Section as promptly as practicable after it obtains knowledge thereof and
determines to request such compensation, and (if so requested by the Borrower
through the Agent) will designate a different lending office of such Lender for
the applicable Eurodollar Rate Borrowing or will take such other action as the
Borrower may reasonable request if such designation or action is consistent with
the internal policy of such Lender and legal and regulatory restrictions, will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Lender, be disadvantageous to such Lender (provided
that such Lender shall have no obligation so to designate a different lending
office which is located in the United States of America).
(c) Inadequacy of Pricing and Rate Determination. If for any reason
with respect to any Interest Period, the Agent (or, in the case of clause 3
below, the applicable Lender) shall have determined (which determination shall
be conclusive and binding upon Borrower) that:
(1) Agent is unable through its customary general
practices to determine any applicable Eurodollar Rate, or
(2) by reason of circumstances affecting the applicable
market, generally, Agent is not being offered deposits in United
States dollars in such market, for the applicable Interest Period
and in an amount equal to the amount of any applicable Eurodollar
Rate Borrowing requested by Borrower, or
(3) any applicable Eurodollar Rate will not adequately
and fairly reflect the cost to any Lender of making and
maintaining such Eurodollar Rate Borrowing hereunder for any
proposed Interest Period,
then Agent shall give Borrower notice thereof and thereupon, (A) any Rate
Designation Notice previously given by Borrower designating the applicable
Eurodollar Rate Borrowing which has not commenced as of the date of such notice
from Agent shall be deemed for all purposes hereof to be of no force and effect,
as if never given, and (B) until Agent shall notify Borrower that the
circumstances giving rise to such notice from Agent no longer exist, each Rate
Designation Notice requesting the applicable Eurodollar Rate shall be deemed a
request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing
then outstanding shall be converted,
8
<PAGE>
without any notice to or from Borrower, upon the termination of the Interest
Period then in effect with respect to it, to a Base Rate Borrowing.
(d) Funding Losses. Borrower shall indemnify each Lender against and
hold each Lender harmless from any Funding Loss. This agreement shall survive
the payment of the Notes. A certificate as to any additional amounts payable
pursuant to this paragraph submitted to Borrower shall be conclusive and binding
upon Borrower, absent manifest error.
3. MISCELLANEOUS
3.1 Funding Offices; Adjustments Automatic; Calculation Year. Any
Lender may, if it so elects, fulfill its obligation as to any Eurodollar Rate
Borrowing by causing a branch or affiliate of such Lender to make such Loan and
may transfer and carry such Loan at, to or for the account of any branch office
or affiliate of such Lender; provided, that in such event for the purposes of
this Agreement such Loan shall be deemed to have been made by such Lender and
the obligation of Borrower to repay such Loan shall nevertheless be to such
Lender and shall be deemed held by it for the account of such branch or
affiliate. Without notice to Borrower or any other person or entity, each rate
required to be calculated or determined under this Agreement shall automatically
fluctuate upward and downward in accordance with the provisions of this
Agreement. Interest at the Prime Rate shall be computed on the basis of the
actual number of days elapsed in a year consisting of 365 or 366 days, as the
case may be. All other interest required to be calculated or determined under
this Agreement shall be computed on the basis of the actual number of days
elapsed in a year consisting of 360 days, unless the Ceiling Rate would thereby
be exceeded, in which event, to the extent necessary to avoid exceeding the
Ceiling Rate, the applicable interest shall be computed on the basis of the
actual number of days elapsed in the applicable calendar year in which accrued.
3.2 Funding Sources. Notwithstanding any provision of this Agreement
to the contrary and each Lender shall be entitled to fund and maintain its
funding of all or any part of the Loans in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations
hereunder shall be made as if each Lender had actually funded and maintained
each Eurodollar Rate Borrowing during each Interest Period through the purchase
of deposits having a maturity corresponding to such Interest Period and bearing
an interest rate equal to the Eurodollar Rate for such Interest Period.
3.3 Affected Lenders. In the event a Lender ("Affected Lender") shall
have
(i) delivered a notice pursuant to this Agreement
claiming that such Affected Lender is unable to extend Eurodollar
Rate Loans to Borrower for reasons not generally applicable to
the other Lenders, or
9
<PAGE>
(ii) shall have requested compensation from Borrower
under any of the provisions hereof to recover increased costs
incurred by such Affected Lender which are not being incurred
generally by the other Lenders,
then, in any such case, Borrower or Agent may make written demand on such
Affected Lender (with a copy to Borrower in the case of a demand by Agent and
with a copy to Agent in the case of a demand by Borrower) for the Affected
Lender to assign, and such Affected Lender shall assign pursuant to one or more
duly executed Assignment and Acceptances within five (5) Business Days after the
date of such demand, to one or more assignees permitted under Section 11.6 of
the Credit Agreement (each, an "Eligible Assignee") which Borrower or Agent, as
the case may be, shall have engaged for such purpose, all of such Affected
Lender's rights and obligations under the Credit Agreement (including, without
limitation, its Loan Commitment, its Note and all Loans owing to it) in
accordance with Section 11.6 of the Credit Agreement.
EXECUTED as of the 28th day of September, 1995.
STERLING PULP CHEMICALS, LTD.
By: /s/ Stewart H. Yonts
---------------------
Name: Stewart H. Yonts
-----------------
Title: Treasurer
----------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Agent
By: /s/ Gregory R. Ford
--------------------
Gregory R. Ford,
Vice President
10
<PAGE>
RATE DESIGNATION NOTICE
Sterling Pulp Chemicals, Ltd., Texas Commerce Bank National Association, as
Agent, and certain financial institutions executed and delivered that certain
Credit Agreement (as amended, supplemented or restated from time to time, the
"Credit Agreement") dated as of September 28, 1995. Schedule 1 to the Credit
Agreement is entitled the "Interest Rate Agreement". Any term used herein and
not otherwise defined herein shall have the meaning herein ascribed to it in the
Interest Rate Agreement. In accordance with the Interest Rate Agreement,
Borrower hereby notifies Agent of the exercise of an Interest Option.
A. Current borrowings
1. Interest Options now in effect: _______________________
2. Amounts: $_____________________
3. Expiration of current Interest Periods, if applicable:
B. Proposed election
1. Total Amount: $______________________
2. Date Interest Option is to be effective: __________________________
3. Interest Option to be applicable (check one): [ ] Base Rate [ ]
Eurodollar Rate
4. Interest Period: ______ months (if available and if applicable)
Borrower represents and warrants that the Interest Option and Interest
Period selected above comply with all provisions of the Interest Rate Agreement.
Date:_________________ STERLING PULP CHEMICALS, LTD.
By: _______________________________
Name: _____________________________
Title: ____________________________
EXHIBIT A
<PAGE>
SCHEDULE 6.10
ERISA MATTERS
NONE
<PAGE>
SCHEDULE 8.1
BORROWED MONEY INDEBTEDNESS
NONE
<PAGE>
SCHEDULE 8.2
LIENS
Liens existing under the Security Agreement dated as of August 1, 1988 between
BP Chemicals Inc., formerly known as BP Chemicals America Inc., as secured
party, and Sterling Chemicals, Inc. as debtor, securing obligations under the
Production Agreement dated as of April 15, 1988 between those parties covering
production related to the Production Agreement, proceeds of such production and
equipment and fixtures related to the production, all as described in such
Security Agreement.
<PAGE>
SCHEDULE 8.3
CONTINGENT LIABILITIES
NONE
<PAGE>
SCHEDULE 8.8
INVESTMENTS
DESCRIPTION
-----------
PRIMEX, LTD.-COMMON STOCK (2,500 SHARES)
PRIMEX, LTD. -SERIES "A " PREFERRED (7,957 SHARES)
50% OF S & L CO-GENERATION (A PARTNERSHIP)
<PAGE>
Exhibit 10.4
CREDIT AGREEMENT
CDN$20,000,000 REVOLVING LOAN FACILITY
DATED AS OF APRIL 28, 1995
BETWEEN
STERLING PULP CHEMICALS, LTD.,
AS BORROWER
AND
THE BANK OF NOVA SCOTIA,
AS LENDER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions .................................................... 1
1.1 Certain Defined Terms...................................... 1
1.2 Miscellaneous.............................................. 16
2. Commitments and Loans........................................... 16
2.1 ........................................................... 16
2.2 Prime Rate Borrowing....................................... 17
2.3 Bankers' Acceptances....................................... 17
2.4 Letters of Credit.......................................... 19
2.5 Terminations or Reductions of Revolving Loan Commitments... 20
2.6 Fees....................................................... 20
2.7 Evidence of Indebtedness and Manner of Payments............ 21
2.8 Use of Proceeds............................................ 22
2.9 Interest Act............................................... 22
2.10 Calculation of Interest and Fees........................... 22
2.11 Designated Amount.......................................... 22
3. Borrowings, Payments and Prepayments............................ 22
3.1 Borrowings................................................. 22
3.2 Payments; Prepayments...................................... 23
4. Payments; Computations, Etc..................................... 23
4.1 Payments................................................... 23
4.2 Certain Actions, Notices, Etc.............................. 24
5. Conditions Precedent............................................ 25
5.1 Initial Revolving Loans.................................... 25
5.2 All Revolving Loans........................................ 26
5.3 Additional Condition Precedent to the Issuance
of the First Letter of Credit............................. 26
6. Representations and Warranties.................................. 26
6.1 Organization............................................... 26
6.2 Financial Statements....................................... 26
6.3 Enforceable Obligations; Authorization..................... 27
6.4 Other Borrowed Money Indebtedness.......................... 27
6.5 Litigation................................................. 27
6.6 Taxes...................................................... 27
6.7 Subsidiaries............................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.8 No Untrue or Misleading Statements........................ 28
6.9 Solvency.................................................. 28
6.10 Compliance................................................ 28
6.11 Environmental Matters..................................... 28
6.12 Certain Business Matters.................................. 28
6.13 Additional Representations and Warranties
Respecting Sterling in U.S. Facility..................... 29
6.14 Survival of Representations and Warranties................ 29
7. Affirmative Covenants.......................................... 29
7.1 Taxes, Existence, Regulations, Property, Etc.............. 29
7.2. Financial Statements and Information...................... 29
7.3 Financial Tests........................................... 30
7.4 Inspection................................................ 31
7.5 Further Assurances........................................ 31
7.6 Books and Records......................................... 31
7.7 Insurance................................................. 31
7.8 Notice of Certain Matters................................. 31
7.9 Increased Costs........................................... 32
7.10 Capital Adequacy.......................................... 33
8. Negative Covenants............................................. 34
8.1 Indebtedness.............................................. 34
8.2 Liens..................................................... 35
8.3 Contingent Liabilities.................................... 36
8.4 Mergers, Consolidations and Dispositions and Acquisitions
of Assets................................................ 36
8.5 Redemption, Dividends and Distributions................... 36
8.6 Nature of Business........................................ 37
8.7 Transactions with Affiliates.............................. 37
8.8 Loans and Investments..................................... 37
8.9 No Subsidiaries........................................... 37
8.10 Fiscal Year............................................... 37
9. Defaults....................................................... 38
9.1 Events of Default......................................... 38
9.2 Right of Setoff........................................... 40
9.3 Collateral Account........................................ 41
9.4 Preservation of Security for Unmatured Reimbursement
Obligations.............................................. 41
9.5 Remedies Cumulative....................................... 42
10. Payment of Certain Amounts................................ 42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
11. Miscellaneous............................................ 42
11.1 Waiver................................................... 42
11.2 Notices.................................................. 42
11.3 Expenses, Etc............................................ 43
11.4 Indemnification.......................................... 43
11.5 Amendments, Etc.......................................... 44
11.6 Successors and Assigns................................... 44
11.7 Limitation of Interest................................... 44
11.8 Survival................................................. 45
11.9 Captions................................................. 45
11.10 Counterparts............................................. 45
11.11 Governing Law............................................ 45
11.12 Severability............................................. 45
11.13 Judgment Currency........................................ 45
11.14 Confidentiality.......................................... 46
</TABLE>
iii
<PAGE>
EXHIBITS
A -- Request for Extension of Credit
B -- Borrowing Base Certificate
C -- Subsidiaries/Affiliates
D-1 -- Compliance Certificate (Borrower)
D-2 -- Compliance Certificate (Sterling)
SCHEDULES
8.1 -- Borrowed Money Indebtedness
8.2 -- Liens
8.3 -- Contingent Liabilities
8.8 -- Existing Investments
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of April 28, 1995 (the
"Effective Date"), by and between STERLING PULP CHEMICALS, LTD., an Ontario
corporation (the "Borrower"), and THE BANK OF NOVA SCOTIA, as lender (the
"Lender").
The parties hereto agree as follows:
1. Definitions.
1.1 Certain Defined Terms.
Unless a particular term, word or phrase is otherwise defined or the
context otherwise requires, capitalized terms, words and phrases used herein or
in the Loan Documents (as hereinafter defined) have the following meanings (all
definitions that are defined in this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
Accounts, Equipment, Intangibles and Inventory shall have the respective
meanings assigned to them in the Personal Property Security Act (Ontario) in
force on the Effective Date.
Adjusted Fixed Charge Coverage Ratio shall mean, as of any day, the ratio
of (a) EBITDA for the Rolling Four Quarters as of such day less cash income
taxes paid during such Rolling Four Quarters plus cash income tax refunds
received during such Rolling Four Quarters to (b) the Adjusted Fixed Charges for
such Rolling Four Quarters.
Adjusted Fixed Charges shall mean (without duplication), for any period and
with respect to any Person, (a) Fixed Charges for such period plus (b) any
dividends on any equity interests in such Person of any class (except dividends
payable solely in shares of common stock) paid during such period.
Affiliate shall mean any Person controlling, controlled by or under common
control with any other Person. For purposes of this definition, "control"
(including "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or otherwise. Notwithstanding the foregoing, no
individual shall be deemed to be an Affiliate of a corporation solely by reason
of his or her being an officer or director of such corporation. For the
purposes of this Agreement, Affiliates of the Borrower shall include Sterling,
which owns all of the stock of Sterling Canada, Inc., and Sterling Canada,
Inc., which owns all of the stock of the Borrower.
Agent shall mean the Agent, as defined in the U.S. Facility.
Agreement shall mean this Credit Agreement, as it may from time to time be
amended, modified, restated or supplemented.
<PAGE>
Annual Financial Statements shall mean the annual consolidated financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of such fiscal year and an income
statement and a statement of cash flows for such fiscal year, all setting forth
in comparative form the corresponding figures from the previous fiscal year, all
prepared in conformity with GAAP, and, in the case of Sterling, accompanied by a
report and opinion of Coopers & Lybrand or other independent certified chartered
or public accountants reasonably satisfactory to the Agent, which shall state
that such financial statements, in the opinion of such accountants, present
fairly the financial position of such Person as of the date thereof and the
results of its operations for the period covered thereby in conformity with
GAAP. In the case of Sterling's financial statements, such statements shall be
accompanied by a certificate of such accountants that in making the appropriate
examination in connection with such report and opinion, such accountants did not
become aware of any Default relating to the financial tests set forth in Section
7.3 hereof or, if in the opinion of such accountant any such Default exists, a
description of the nature and status thereof.
Bankers' Acceptance shall mean a draft or bill of exchange in Dollars drawn
by the Borrower and accepted by the Lender pursuant to this Agreement.
Bankers' Acceptance Fee shall mean the acceptance fee payable on the face
amount of each Bankers' Acceptance, which fee shall be calculated and payable in
the manner provided for in Section 2.3.
Bankruptcy and Insolvency Act shall mean the Bankruptcy and Insolvency Act,
(Canada), as amended, and any successor statute.
Borrowed Money Indebtedness shall have the meaning ascribed to it in
Section 8.1 hereof.
Borrowing shall mean any and all utilizations of the Revolving Loan
Commitment by the Borrower (including a conversion or rollover) consisting of a
Prime Rate Borrowing, the acceptance by the Lender of one or more drafts or
bills of exchange presented by the Borrower as Bankers' Acceptances, the
issuance of a Letter of Credit or any combination thereof.
Borrowing Base shall mean, as at any date, the amount of the Borrowing Base
shown on the Borrowing Base Certificate then most recently delivered pursuant to
Section 7.2 hereof, determined by calculating the amount equal to:
(i) 85% of the aggregate amount of the Eligible Accounts at said date,
plus
(ii) the lesser of (I) 65% of the sum of (x) the aggregate amount of
Eligible Inventory at said date and (y) seventy-five percent (75%) of
the value (determined in accordance with GAAP) at said date of
materials and supplies which are not Inventory under GAAP (provided
that the amount
2
<PAGE>
determined under this clause (y) shall not exceed $5,000,000) or (II)
the amount determined in clause (i) above.
In the absence of a Borrowing Base Certificate delivered as required by Section
7.2, the Lender shall determine the Borrowing Base from time to time in its
reasonable discretion, taking into account all information reasonably available
to it, and the Borrowing Base from time to time so determined shall be the
Borrowing Base for all purposes of this Agreement until such a Borrowing Base
Certificate, in Proper Form, is furnished to and accepted by the Agent.
Borrowing Base Certificate shall mean a certificate, duly executed by the
chief executive officer, chief financial officer, treasurer or controller of the
Borrower, appropriately completed and in substantially the form of Exhibit B
hereto.
Branch of Account shall mean the branch of the Lender at the address set
out after the Lender's name on the signature pages hereof or such other branch
or office of the Lender in Metropolitan Toronto as the Lender may advise the
Borrower in writing.
Business Day shall mean any day other than a day on which commercial banks
are authorized or required to close in Toronto, Canada.
Capital Expenditures shall mean expenditures in respect of fixed or capital
assets by a Person, to the extent capitalized in accordance with GAAP, but
excluding (a) expenditures for the restoration, repair or replacement of any
fixed or capital asset which was destroyed or damaged, in whole or in part, to
the extent financed by the proceeds of an insurance policy maintained by such
Person, (b) increases in the consolidated fixed or capital assets of such Person
resulting solely from Permitted Acquisitions (other than expenditures made after
the date of such Permitted Acquisition), and (c) increases in the capital assets
of such Person resulting from expenditures in respect of fixed or capital assets
made by another so long as such Person has no obligation to reimburse the other
for such expenditures. Expenditures in respect of replacements and maintenance
consistent with the business practices of such Person in respect of plant
facilities, machinery, fixtures and other like capital assets utilized in the
ordinary course of business are not Capital Expenditures to the extent such
expenditures are not capitalized in preparing a balance sheet of such Person in
accordance with GAAP.
Capital Lease Obligations shall mean, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP and, for purposes of this Agreement, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP. Capital Lease Obligations shall not include the interest
component of any applicable rental payment.
3
<PAGE>
Change of Control shall mean a change resulting when any Unrelated Person
or any Unrelated Persons acting together which would constitute a Group together
with any Affiliates or Related Persons thereof (in each case also constituting
Unrelated Persons) shall at any time either (i) Beneficially Own more than 50%
of the aggregate voting power of all classes of Voting Stock of Sterling or (ii)
succeed in having sufficient of its or their nominees elected to the Board of
Directors of Sterling such that such nominees, when added to any existing
director remaining on the Board of Directors of Sterling after such election who
is an Affiliate or Related Person of such Person or Group, shall constitute a
majority of the Board of Directors of Sterling. As used herein (a)
"Beneficially Own" means "beneficially own" as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, or any successor provision thereto;
provided, however, that, for purposes of this definition, a Person shall not be
deemed to Beneficially Own securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's Affiliates
until such tendered securities are accepted for purchase or exchange; (b)
"Group" means a "group" for purposes of Section 13(d) of the Securities Exchange
Act of 1934, as amended; (c) "Unrelated Person" means at any time any Person
other than Sterling or any of its Subsidiaries and other than any trust for any
employee benefit plan of Sterling or any of its Subsidiaries; (d) "Related
Person" of any Person shall mean any other Person owning (1) 5% or more of the
outstanding common stock of such Person or (2) 5% or more of the Voting Stock of
such Person; and (e) "Voting Stock" of any Person shall mean capital stock of
such Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason of
any contingency.
Collateral shall mean all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Security Agreements.
Commitment Fee Percentage shall mean:
(a) on any day prior to the first adjustment after the date hereof
pursuant to clause (b) of this definition, 0.25%;
(b) the Commitment Fee Percentage for any day shall be the applicable per
annum percentage set forth at the appropriate intersection in the
table shown below, based on the Debt to EBITDA Ratio for Sterling as
of the last day of each March, June, September and December (beginning
with the fiscal quarter ending on June 30, 1995) (such increase or
decrease to be effective on the date that Borrower delivers the
Quarterly Financial Statements for Sterling to the Lender pursuant to
the terms of this Agreement):
4
<PAGE>
Sterling
Debt to Commitment Fee
EBITDA Ratio Percentage
- ------------ --------------
Greater than or equal to 3.50 0.375
Greater than or equal to
2.50 but less than 3.50 0.30
Greater than or equal to
1.50 but less than 2.50 0.25
Less than 1.50 0.20; and
(c) if the Borrower fails to provide to the Lender the calculation of
Sterling's Debt to EBITDA Ratio as required hereunder, 0.375%.
Compliance Certificate shall have the meaning given to it in Section 7.2
hereof.
Corporate Bankers' Acceptance Fee shall mean the standard fee rate per
annum quoted from time to time by the Lender as its Corporate Bankers'
Acceptance Fee.
Corporation shall mean a corporation, limited liability company,
partnership, joint venture, joint stock association, business trust and other
business entity.
Cover for outstanding Bankers' Acceptances and Letters of Credit shall mean
the payment to the Lender of immediately available funds, to be held by the
Lender in a collateral account maintained by the Lender at its Branch of Account
and collaterally assigned as security by the Borrower for the Reimbursement
Obligations using documentation reasonably satisfactory to the Lender, in the
amount required by any applicable provision hereof. Such amount shall be
retained by the Lender in such collateral account until such time as in the case
of the Cover being provided pursuant to Section 2.1 hereof, the applicable
Bankers' Acceptance or Letters of Credit shall have matured and the
Reimbursement Obligations, if any, with respect thereto shall have been fully
satisfied or, in the case of Section 9.3 hereof, at such time as no Default or
Event of Default is continuing.
Current Assets shall mean all assets of a Person which under GAAP would be
classified as current assets.
Current Liabilities shall mean all liabilities of a Person which under GAAP
would be classified as current liabilities, other than current maturities of
long term debt and, as may apply to Sterling, the obligation of either Sterling
or the Borrower to repay the Revolving Loan Obligations and any Borrowed Money
Indebtedness hereunder.
5
<PAGE>
Current Ratio means, as of any day, the ratio of Current Assets to Current
Liabilities.
Debt to EBITDA Ratio shall mean, as of the last day of any fiscal quarter,
the ratio of (a) the outstanding balance of Borrowed Money Indebtedness on such
date to (b) EBITDA for the Rolling Four Quarters ending on such date.
Default shall mean an Event of Default or an event which with notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
Designated Amount shall have the meaning ascribed to such term in Section
2.11 hereof.
Dollars and $ shall, unless otherwise indicated, mean lawful money of
Canada.
EBITDA shall mean, without duplication, for any period the sum of (a) Net
Income less non-cash income and (b) the sum of (i) Interest Expense for such
period, (ii) Federal, Provincial, State and local income taxes deducted in
determining such Net Income, (iii) amortization of goodwill and other non-cash
expenses and intangibles (including, without limitation, patents, deferred
financing costs and debt discount) deducted in determining such Net Income, (iv)
depreciation, depletion and obsolescence of Property, in each case, determined
in accordance with GAAP and (v) prepaid royalty income to the extent actually
paid in cash.
Eligible Accounts shall mean, as at any date of determination thereof, each
Account or Intangible for the payment of money, in each case valued in
accordance with GAAP, which is at said date payable to the Borrower or any of
its Subsidiaries and which complies with the following requirements: (a) in
the case of the sale of goods, the subject goods have been sold to an account
debtor on an absolute sale basis on open account and not on consignment, on
approval or on a "sale or return" basis or subject to any other repurchase or
return agreement and no material part of the subject goods has been returned,
rejected, lost or damaged, the Account or Intangible is not evidenced by
chattel paper or an instrument of any kind and said account debtor is not
insolvent or the subject of any bankruptcy or insolvency proceedings of any
kind; (b) the account debtor must be located in the United States or in Canada,
except for (x) Accounts or Intangibles as to which the Borrower and the Lender
have mutually and reasonably agreed shall be included and (y) Accounts or
Intangibles as to which the Borrower or its Subsidiaries has received a letter
of credit in an amount equal to or greater than such Account or Intangibles
issued by a financial institution reasonably acceptable to the Lender and
otherwise in form and substance reasonably satisfactory to the Lender; (c) to
the extent included as an Eligible Account, such Account or Intangible is a
valid obligation of the account debtor thereunder and is not subject to any
offset or other defense on the part of such account debtor or to any claim on
the part of such account debtor denying liability thereunder; (d) such Account
or Intangible is subject to no Lien whatsoever, except for the Liens created or
permitted pursuant to the Security Agreements; (e) such Account or Intangible is
evidenced by an invoice submitted to the account debtor and such Account or
Intangible has not remained unpaid beyond 90 days after the due date stated on
the invoice therefor (or such Account or Intangible is not invoiced in the
ordinary course of business but by the terms of the agreements creating such
Account or
6
<PAGE>
Intangible, such Account or Intangible has not remained unpaid beyond ninety
(90) days after the due date therefor); (f) such Account or Intangible does not
arise out of transactions with any Affiliate of the Borrower or an employee,
officer, agent or director of the Borrower or any Affiliate of the Borrower; (g)
not more than 20% of the other Accounts or Intangibles of the applicable account
debtor or any of its Affiliates owed to the Borrower fail to satisfy all of the
requirements of an "Eligible Account"; (h) except as Lender may otherwise agree,
inclusion of the applicable Account or Intangible does not cause the total
Eligible Accounts with respect to the applicable account debtor and its
Affiliates, in the aggregate, to exceed 15% of the total Eligible Accounts; (i)
each of the representations and warranties set forth in the Security Agreements
with respect thereto is true and correct in all material respects on such date,
and (j) the Lender shall have a first-priority perfected Lien covering such
Account or Intangible to the extent required by and in accordance with the
applicable Security Agreement.
Eligible Inventory shall mean, as at any date of determination thereof,
Inventory of the Borrower and its Subsidiaries which complies with the following
requirements: (a) such Inventory shall be valued in accordance with GAAP and
consist of (i) eligible raw materials and (ii) finished goods, provided that
except as provided below with respect to Inventory in transit and except for the
$1,500,000 basket provided in clause (c)(x) of this definition, all such
Inventory shall be within Canada; (b) it is in good condition, meets all
standards imposed by any Governmental Authority having regulatory authority over
it, its use and/or sale and is either currently usable or currently saleable in
the normal course of business of the Borrower and its Subsidiaries; (c) except
for (x) Inventory having a value up to but no more than $1,500,000 and (y)
Inventory which is in transit in the ordinary course of business but in respect
of which title remains in Borrower or the applicable Subsidiary of Borrower and
which is fully insured, it is not in the possession or control of any
warehouseman, bailee, or any agent or processor for or customer of the Borrower
or its Subsidiaries or, if it is, the Borrower or its Subsidiaries shall have
notified, in a manner that effectively under applicable law creates a valid and
first priority Lien in favour of the Lender in such Inventory, such
warehouseman, bailee, agent, processor or customer of the Lender's Lien and such
warehouseman, bailee, agent, processor or customer has subordinated any Lien it
may claim therein and agreed to hold all such Inventory for the Lender's account
subject to the Lender's instructions; (d) each of the representations and
warranties set forth in the Security Agreements with respect thereto is true and
correct in all material respects on such date, and (e) the Lender shall have a
first-priority perfected Lien covering such Inventory to the extent required by
and in accordance with the applicable Security Agreement.
Environmental Claim shall mean any third party (including Governmental
Authorities) action, lawsuit, claim or proceeding (including claims or
proceedings at common law) which seeks to impose liability for (i) noise; (ii)
pollution or contamination of the air, surface water, ground water or land or
the clean up of such pollution or contamination; (iii) solid, gaseous or liquid
waste generation, handling, treatment, storage, disposal or transportation; (iv)
exposure to Hazardous Substances; or (v) the manufacture, processing,
distribution in commerce or use of Hazardous Substances. An "Environmental
Claim" includes, but is not limited to, a common law action, as well as a
proceeding to issue, modify or terminate an Environmental Permit.
7
<PAGE>
Environmental Liabilities includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, re-issuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
Environmental Permit means any permit, license, approval or other
authorization under any applicable Requirements of Environmental Law.
Equivalent Amount in one currency (the "First Currency") of an amount in
another currency (the "Other Currency") means the amount of the First Currency
which is required to purchase such amount of the Other Currency at the Lender's
spot buying rate for the purchase of the Other Currency with the First Currency
as of approximately 12:00 noon , Toronto time, on the date of determination.
Event of Default shall, for the Borrower, have the meaning assigned to it
in Section 9 hereof and, for Sterling, have the meaning ascribed thereto in the
U.S. Facility Credit Agreement.
Financing Statements shall mean all such Personal Property Security Act
(Ontario) or equivalent financing statements as the Lender shall require, in
Proper Form, duly executed by the Borrower or others to give notice of and to
perfect or continue perfection of the Lender's Liens in all Collateral, as any
of the foregoing may from time to time be amended, modified, supplemented or
restated.
Fixed Charge Coverage Ratio shall mean, as of the last day of any fiscal
quarter, the ratio of (a) EBITDA for the Rolling Four Quarters ending on such
day less cash income taxes paid during such Rolling Four Quarters plus cash
income tax refunds received during such Rolling Four Quarters to (b) the Fixed
Charges for such Rolling Four Quarters.
Fixed Charges shall mean (without duplication), for any period, (a) the
amounts of scheduled principal payments made or to be made during such period
with respect to Borrowed Money Indebtedness (other than Capital Lease
Obligations) of the applicable Person (it is agreed that such scheduled
principal payments do not include any principal payments made to reduce any
Revolving Loan Obligations or other revolving Indebtedness), plus (b) payments
made or required to be made during such period with respect to the principal
component of the Capital Lease Obligations of the applicable Person with
unrelated third parties, plus (c) the amount of Interest Expense of such Person
for such period, plus (d) Capital Expenditures made during such period by such
Person.
8
<PAGE>
GAAP shall mean, for the Borrower and for Sterling, U.S. generally accepted
accounting principles as in effect from time to time, applied on a basis
consistent (except for changes concurred in by Sterling's independent chartered
or public accountants, as the case may be) with the September 30, 1994 audited
financial statements of Sterling, or the September 30, 1994 unaudited financial
statements of the Borrower , as the case may be, delivered to the Lender
together with the notes thereto, if any.
Governmental Authority shall mean any foreign governmental authority,
Canada, any Province of Canada and any political subdivision of any of the
foregoing, and any central bank, agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over the Lender, the Borrower,
Sterling or its Property.
Guaranties shall mean that certain Guarantee dated concurrently herewith
executed by Sterling Chemicals, Inc. with respect to the Obligations of the
Borrower, together with any other guaranties hereafter executed with respect to
the Obligations, as any of the same may from time to time be amended, modified,
restated or supplemented.
Hazardous Substance shall mean petroleum products, and any hazardous or
toxic waste or substance defined or regulated as such from time to time by any
law, rule, regulation or order described in the definition of "Requirements of
Environmental Law".
Indebtedness shall mean and include (a) all items which in accordance with
GAAP would be included on the liability side of a balance sheet on the date as
of which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, letter of credit
contingent reimbursement obligations, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Indebtedness of others, and (c) all Indebtedness secured by any Lien existing on
any interest of the Person with respect to which Indebtedness is being
determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed; provided, that the term
"Indebtedness" shall not mean or include any Indebtedness of the type described
in clause (a) of this definition in respect of which monies sufficient to pay
and discharge the same in full (either on the expressed date of maturity thereof
or on such earlier date as such Indebtedness may be duly called for redemption
and payment) shall be deposited with a depository, agency or trustee acceptable
to the Lender, in the case of the Borrower, and the Agent, in the case of
Sterling, in trust for the payment thereof.
Interest Expense shall mean, for any period, the sum of the cash interest
payments by an obligor made or accrued in accordance with GAAP during such
period in connection with all of its Borrowed Money Indebtedness, including the
interest component of any Capital Lease Obligations.
Interest Payment Date means July 1 and each Quarterly Date thereafter prior
to the Maturity Date and the Maturity Date, or if any such date is not a
Business Day, the Business Day next following.
9
<PAGE>
Investment shall mean the purchase or other acquisition of any securities
or Indebtedness of, or the making of any loan, advance, or other extension of
credit or capital contribution to (by means of transfers of property or assets
or otherwise) any Person.
Legal Requirement shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, or regulation (or interpretation of any of
the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future.
Letter of Credit means a letter of credit or letter of guarantee, as the
case may be, issued as provided in Section 2.4 by the Lender in favour of any
Person with respect to the liability of the Borrower to pay Dollars or U.S.
Dollars.
Lien shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien of any kind, whether based on
common law, constitutional provision, statute or contract to secure payment of
debt or performance of an obligation.
Loan Documents, when in respect of the Borrower, shall mean, collectively,
this Agreement, the Guaranties, the Security Agreements, all instruments,
certificates and agreements now or hereafter executed or delivered to the Lender
pursuant to any of the foregoing or in connection with the Obligations or any
commitment regarding the Obligations, and all amendments, modifications,
renewals, extensions, increases and rearrangements of, and substitutions for,
any of the foregoing; and when in respect of Sterling, shall mean as defined in
the U.S. Facility.
Margin Percentage shall mean:
(a) On any day prior to the first adjustment after the date
hereof pursuant to clause (b) of this definition, 0.125% for Bankers
Acceptances and 0.75% for Letters of Credit;
(b) the Margin Percentage for any day shall be the applicable per annum
percentage set forth at the appropriate intersection in the table
shown below, based on the Debt to EBITDA Ratio for Sterling as of the
last day of each March, June, September and December (beginning with
the fiscal quarter ending on June 30, 1995) (such increase or decrease
to be effective on the date that Borrower delivers the Quarterly
Financial Statements for Sterling for the fiscal quarter ending on
such date to the Lender pursuant to the terms of this Agreement):
10
<PAGE>
<TABLE>
<CAPTION>
Letter
of Credit
Sterling Bankers' Acceptance Borrowings
Debt to Borrowings Margin Margin
EBITDA Ratio Percentage Percentage
- ------------ ------------------- ----------
<S> <C> <C>
Greater than or equal to 3.50 0.625 1.25
Greater than or equal to
2.50 but less than 3.50 0.375 1.00
Greater than or equal to
1.50 but less than 2.50 0.125 0.75
Less than 1.50 0.025; and 0.65; and
</TABLE>
(c) if the Borrower fails to provide to the Lender the calculation of
Sterling's Debt to EBITDA Ratio as required hereunder, 0.625% for
Bankers' Acceptances and 1.25% for Letters of Credit.
Material Adverse Effect shall mean a material adverse effect on the
business, financial condition, operations or Properties of the Borrower or of
Sterling, as the case may be, or on the ability of either of them to perform
their respective material obligations under any Loan Document to which any of
them is a party.
Maturity Date shall mean April 13, 2002, as the same may hereafter be
accelerated pursuant to the provisions of any of the Loan Documents.
Maximum Letter of Credit Amount shall mean, at any date, the
amount of $10,000,000 or the Equivalent Amount in U.S. Dollars.
Maximum Revolving Loan Available Amount shall mean, at any date, an amount
equal to the lesser of (i) the Revolving Loan Commitment or (ii) the Borrowing
Base.
Net Income shall mean, for any Person and any period, the consolidated net
income of such Person for such period after taxes but before extraordinary
items, determined in accordance with GAAP.
Net Worth shall mean net worth determined in accordance with GAAP.
Obligations shall mean, as at any date of determination thereof, the sum
(without duplication) of the following: (i) the aggregate principal amount of
Revolving Loans outstanding hereunder (including the aggregate face amount of
all outstanding Bankers' Acceptances and Letters of Credit hereunder), plus (ii)
all other liabilities, obligations and indebtedness of any Party under any Loan
Document.
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<PAGE>
Organizational Documents shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof.
Parties shall mean the Borrower and each of its Subsidiaries executing a
Loan Document.
Past Due Rate shall mean, on any day, a rate per annum equal to the Prime
Lending Rate plus two percent (2%).
Permitted Acquisitions shall mean non-hostile acquisitions of all or
substantially all of the assets, or 50% or more of the voting securities, of
any Person (or any division or product line of such Person), but only so long as
no Default or Event of Default shall have occurred and be continuing (or would
result from such acquisition).
Permitted Dividends shall mean an amount not to exceed 50% of Net Income of
Sterling for the immediately preceding Rolling Four Quarters which may, so long
as no Default or Event of Default shall have occurred and be continuing (or
would result from such distribution) and so long as the Adjusted Fixed Charge
Coverage Ratio for Sterling , determined on a consolidated basis, is not (and
would not be, after giving effect to such distribution) less than 1.10 to 1.00,
be distributed by Sterling so long as Sterling has delivered to the Lender a
Compliance Certificate calculated after giving effect to the proposed
distribution which indicates that such distribution complies with the terms of
this Agreement.
Permitted Investments shall mean: (a) certificates of deposit maturing
within 90 days of the acquisition thereof and issued by a bank or trust company
organized under the laws of Canada, the United States of America, or a
Province, State thereof, respectively, having combined capital and surplus of at
least U.S.$250,000,000 and which has (or which is a Subsidiary of a bank holding
company which has) publicly traded debt securities rated A or higher by Standard
and Poor's Corporation and A-2 or higher by Moody's Investors Service, Inc.; (b)
obligations issued or guaranteed by the United States of America or Canada; (c)
commercial paper with a published rating of not less than A-2 and P-2 (or the
equivalent rating); (d) repurchase obligations for underlying securities of the
type described in clauses (a) , (b) or (c) above entered into on a fully
collateralized basis with any Lender (as defined in the U.S. Facility Credit
Agreement); (e) Dollar or U.S. Dollar denominated time deposits with, including
certificates of deposit issued by, any non-United States branch or office of any
Lender (as defined in the U.S. Facility Credit Agreement); (f) Permitted
Acquisitions; (g) securities (other than those securities described in clauses
(a) through (e) of this definition) of money market mutual funds with net assets
in excess of U.S.$100,000,000, provided that the investment amounts in
securities described in this clause (g) may not exceed 5% of the issued and
outstanding securities of any Person (or such lesser percentage as would
constitute a controlling interest), irrespective of whether such securities
having voting power or may be convertible to securities with voting power of any
Person; (h) loan participations with a rating of not less than
12
<PAGE>
A-2 and P-2 (or the equivalent rating) by Moody's Investors Services, Inc. and
Standard and Poor's Corporation, respectively; (i) money market preferred stock
with a rating of not less than AAA (or the equivalent rating) ; (j) other
investments approved by the Agent in writing not exceeding, in the aggregate,
$20,000,000, and (k) other investments approved by the Majority Lenders (as that
term is defined in the U.S. Facility Credit Agreement) in writing.
Person shall mean any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
Prime Lending Rate shall mean the variable rate of interest per annum,
calculated on the basis of a calendar year and for the actual number of days
elapsed, equal to the rate of interest determined by the Lender from time to
time as its prime rate for Canadian dollar commercial loans in Canada from time
to time, being a variable per annum reference rate of interest adjusted
automatically upon change by the Lender.
Prime Rate Borrowing shall mean any or all advances of money, as the
context requires, in Dollars as a Revolving Loan bearing interest as provided
for in Section 2.2 or at the Past Due Rate, as the case may be, and includes a
deemed Prime Rate Borrowing as provided for in Section 2.3(e).
Proper Form shall mean in form and substance reasonably satisfactory to the
Lender.
Property shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
Quarterly Dates shall mean the first day of each April, July, October and
January, provided that if any such date is not a Business Day, then the relevant
Quarterly Date shall be the next succeeding Business Day.
Quarterly Financial Statements shall mean the quarterly financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of a fiscal quarter and an income
statement and a statement of changes in financial position for such fiscal
quarter and for the fiscal year to date, subject to normal year-end adjustments,
all setting forth in comparative form the corresponding figures for the
corresponding calendar quarter of the preceding year, prepared in accordance
with GAAP and certified as true and correct to the best of his knowledge by the
chief financial officer or other authorized officer of such Person.
Regulatory Change shall mean with respect to the Lender, any change after
the date of this Agreement in any Legal Requirement or the adoption or making on
or after such date of any interpretation, directive or request applying to a
class of financial institutions including such Lender under any Legal
Requirements (whether or not having the force of law) by any Governmental
Authority.
13
<PAGE>
Reimbursement Obligations shall mean, as at any date, the obligations of
the Borrower then outstanding, or which may thereafter arise, in respect of
Bankers' Acceptances and Letters of Credit under this Agreement, to reimburse
the Lender for the amount paid by the Lender to any holder of a Bankers'
Acceptance or Letter of Credit upon maturity thereof.
Request for Extension of Credit shall mean a request for extension of
credit duly executed by the chief executive officer, chief financial officer or
treasurer of the Borrower (or other Person designated in writing by any of the
foregoing to whom authority has been properly delegated), appropriately
completed and substantially in the form of Exhibit A attached hereto.
Requirements of Environmental Law shall mean all requirements imposed by
any law (including for example and without limitation the respective
Environmental Protection Act or equivalent statute of each Province in which the
Borrower has facilities), rule, regulation, or order of any Federal, Provincial,
State or local executive, legislative, judicial, regulatory or administrative
agency, board or authority at the applicable time which relate to (i) noise;
(ii) pollution, protection or clean up of the air, surface water, ground water
or land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; or (v)
regulation of the manufacture, processing, distribution in commerce, use,
discharge or storage of Hazardous Substances.
Revolving Loan shall mean a loan or loans made pursuant to Section 2.1
hereof and, for greater certainty, includes loans by way of Bankers' Acceptance
and issuance of Letters of Credit.
Revolving Loan Availability Period shall mean, for the Revolving Loan
Lender, the period from and including the Effective Date to (but not including)
the Termination Date.
Revolving Loan Lender shall mean the Lender with (i) prior to the
Termination Date, its Revolving Loan Commitment and (ii) on and after the
Termination Date, any outstanding Revolving Loan Obligation.
Revolving Loan Commitment shall mean the obligation, if any, of the Lender
to make Revolving Loans in an aggregate principal amount at any one time
outstanding up to (but not exceeding) the amount of $20,000,000 (as the same may
be reduced from time to time pursuant to the terms hereof), including Letters of
Credit in U.S. Dollars at the Equivalent Amount.
Revolving Loan Obligation shall mean, as at any date of determination
thereof, with respect to the Borrower, the aggregate principal amount of
Revolving Loan outstanding hereunder; and with respect to Sterling, as defined
in the U.S. Facility Credit Agreement.
Rolling Four Quarters shall mean, as of any day, the then most recently
ended four (4) fiscal quarter period of the Person.
14
<PAGE>
Secretary's Certificate shall mean a certificate, in Proper Form, of the
Secretary or an Assistant Secretary of a corporation as to (a) the resolutions
of the Board of Directors of such corporation authorizing the execution,
delivery and performance of the documents to be executed by such corporation;
(b) the incumbency and signatures of the officers of such corporation executing
such documents on behalf of such corporation, and (c) the Organizational
Documents of such corporation.
Security Agreements, when in respect of the Borrower, shall mean,
collectively, (i) the Security Agreements dated as of the Effective Date
executed between the Borrower and the Lender covering the Borrower's Accounts
and Inventory, (ii) the Guaranties, and (iii) any and all security instruments
hereafter executed by any Party in favour of the Lender, as any of them may from
time to time be amended, modified, restated or supplemented; and when in respect
of Sterling, shall mean as defined in the U.S. Facility Credit Agreement.
Sterling shall mean Sterling Chemicals, Inc. and, where the meaning
requires, its Subsidiaries on a consolidated basis.
Subordinated Debt shall mean, as of the date of determination thereof,
unsecured Indebtedness with any lender for which the Borrower or Sterling is
directly and primarily liable, in respect of which none of its respective
Subsidiaries is contingently or otherwise obligated, and which is subordinated
to the obligations of the Borrower or Sterling to pay principal of and interest
(before and after bankruptcy) on the Revolving Loans and the Reimbursement
Obligations (in the case of the Borrower, as such terms are defined herein, and
in the case of Sterling, as such terms are defined in the U.S. Facility Credit
Agreement), on terms, and which contains other terms (including interest,
amortization and financial covenants), in form and substance satisfactory to, in
the case of Subordinated Debt of the Borrower, the Lender, and in the case of
Subordinated Debt of Sterling, the Majority Lenders (as defined in the U.S.
Facility Credit Agreement) and the Agent.
Subsidiary shall mean, as to a particular parent Corporation, any
Corporation of which more than 50% of the indicia of equity rights (whether
outstanding capital stock or otherwise) is at the time directly or indirectly
owned by, such parent Corporation.
Termination Date shall mean the earlier of (a) the Maturity Date or (b) the
date specified by the Lender in accordance with Section 9.1 hereof.
U.S. Dollars and U.S.$ shall mean lawful money of the United States of
America.
U.S. Facility shall mean the loan facility available to Sterling pursuant
to the U.S. Facility Credit Agreement.
U.S. Facility Credit Agreement shall mean the credit agreement dated as of
April 13, 1995 among Sterling, Texas Commerce Bank National Association, as
Agent, and the Co-Agents and Lenders as defined therein.
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1.2 Miscellaneous. The words "hereof," "herein," and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement.
2. Commitments and Loans.
2.1 The Lender agrees, subject to all of the terms and conditions of this
Agreement (including, without limitation, Sections 5.1, 5.2 and 5.3 hereof), to
make Revolving Loans as follows:
(a) Revolving Loans. From time to time on or after the Effective Date and
during the Revolving Loan Availability Period, the Revolving Loan Lender shall
make loans under this Section 2.1 to the Borrower in an aggregate principal
amount at any one time outstanding up to but not exceeding the Maximum Revolving
Loan Available Amount. Upon the terms and conditions of this Agreement,
Revolving Loans may be requested by the Borrower either (i) by requesting a
Prime Rate Borrowing, (ii) by presenting drafts for acceptance as Bankers'
Acceptances, (iii) by requesting the Lender to issue a Letter of Credit on
behalf of the Borrower, or (iv) any combination thereof. Subject to the
conditions in this Agreement, any such Revolving Loan repaid prior to the
Termination Date may be reborrowed pursuant to the terms of this Agreement;
provided, that any and all such Revolving Loans shall be due and payable in full
on the Termination Date. Should the amount of the Revolving Loans, for any
reason, exceed, at any time, the Maximum Revolving Loan Available Amount
available hereunder as reduced from time to time, the Borrower agrees to
immediately, in the case of Prime Rate Borrowings, repay the amount in excess of
the Maximum Revolving Loan Available Amount, and in the case of Bankers'
Acceptances and Letters of Credit, deposit with the Lender an amount equal to
the amount in excess of the Maximum Revolving Loan Available Amount available
hereunder, which amount the Borrower agrees that the Lender can use to repay any
Bankers' Acceptance upon its maturity or any Letter of Credit if drawn upon by
the beneficiary. All Revolving Loans to be made by the Lender in connection
with a particular borrowing shall be equal to $100,000 or a multiple thereof.
(b) Conversions: Subject to the terms and conditions of this Agreement,
the Borrower may from time to time convert a Borrowing to another type of
Borrowing by converting (i) all or any part of the outstanding principal amount
of any Prime Rate Borrowings into Bankers' Acceptances or Letters of Credit or
any combination thereof, (ii) on the date of maturity of any Bankers'
Acceptances, all or any part of the outstanding principal amount at maturity of
such Bankers' Acceptances into Prime Rate Borrowings or Letters of Credit or any
combination thereof, and (iii) on the date of maturity of any Letter of Credit,
all or any part of the outstanding principal amount at maturity of such Letter
of Credit into Prime Rate Borrowings or Bankers' Acceptances or any combination
thereof; subject however in each case, to the following:
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a. the principal amount of each type of Borrowing being converted
shall not be less than the amounts necessary to fulfil the
requirements of this Agreement with respect to the minimum
principal amounts for Borrowings (with such rounding or
adjustments as the Lender may deem appropriate);
b. in the case of a conversion into Bankers' Acceptances or Letters
of Credit, the portion of the principal amount of each type of
the Borrowing being so converted, together with all other amounts
owing under this Agreement with respect thereto, shall be paid to
the Lender;
c. no conversion shall be made into Dollar or U.S. Dollar Letters of
Credit if the result thereof would be to exceed either the
Maximum Letter of Credit Amount or the Maximum Revolving Loan
Available Amount; and
d. no Default will occur upon such conversion or shall have occurred
and be continuing.
Amounts which are converted shall not reduce the amount of the Revolving
Loan Commitment.
2.2 Prime Rate Borrowing. Subject to Section 3.2(e) hereof, the Borrower
shall pay interest to the Lender in Canadian Dollars at the Lender's Branch of
Account on any amounts outstanding from time to time hereunder as a Prime Rate
Borrowing made to the Borrower. Such interest shall accrue from day to day,
shall be calculated monthly for the actual number of days elapsed, and shall be
payable in arrears on each Interest Payment Date at a variable rate of interest
per annum equal to the Prime Lending Rate. The rate of interest per annum with
respect to any Prime Rate Borrowing is calculated on the basis of a calendar
year.
2.3 Bankers' Acceptances.
(a) Form of Bankers' Acceptances: All drafts presented by the Borrower to
the Lender for acceptance as Bankers' Acceptances pursuant to this Agreement
shall be properly executed and drawn by the Borrower. The Borrower may, at its
option, execute any draft so presented by the facsimile signatures of any two
designated signing officers of the Borrower and the Lender is hereby authorized
to accept any draft of the Borrower which purports to bear such facsimile
signatures notwithstanding that any such individual has ceased to be a
designated signing officer of the Borrower and any such draft or Bankers'
Acceptance shall be as valid as if he were a designated signing officer of the
Borrower at the date of issue of such Bankers' Acceptance. Any such draft or
Bankers' Acceptance may be dealt with by the Lender to all intents and purposes
and shall bind the Borrower as if duly signed in the signing officer's own
handwriting and issued by the Borrower and the Borrower will and hereby does
undertake to hold the Lender harmless and indemnified against all loss, costs,
damages and expenses arising out of the payment or negotiation of any such draft
or Bankers' Acceptance on which a facsimile signature has been wrongly affixed.
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(b) Proceeds from Bankers' Acceptance and Payment of Bankers' Acceptance
Rate: Upon presentation by the Borrower to the Lender of any draft for
acceptance by the Lender as a Bankers' Acceptance, the Lender shall pay or
arrange for the payment to the Borrower of the proceeds from the issuance
thereof. At the same time, the Borrower shall pay to the Lender at its Branch of
Account the Bankers' Acceptance Fee applicable upon the principal amount of each
such Bankers' Acceptance for the duration of its term on the basis of the actual
number of days from the date of acceptance by the Lender up to and including the
maturity date of the Bankers' Acceptance, calculated on the basis of a calendar
year at a rate equal to the sum of the Corporate Bankers' Acceptance Fee plus
the applicable Margin Percentage per annum in effect at the time of acceptance.
Payment of such Bankers' Acceptance Fee may be received from the proceeds of the
issuance of such Bankers' Acceptance.
(c) Maturity of Bankers' Acceptances: Each Bankers' Acceptance shall
mature on a Business Day which shall neither be less than 30 days nor more than
180 days after the date of acceptance of the draft by the Lender; provided that
no Bankers' Acceptance issued as a Revolving Loan may mature on a date later
than the Maturity Date. The principal amount at maturity of a Bankers'
Acceptance which matures and is satisfied by the Borrower on its date of
maturity may be renewed as a Bankers' Acceptance or converted into a Prime Rate
Borrowing on its date of maturity. A Bankers' Acceptance may not be prepaid
prior to its maturity date without the consent of the Lender (it being
understood that if any such prepayment is permitted, the Borrower shall be
required to pay all breakage costs associated therewith.
(d) Payment of Bankers' Acceptances: Subject to Section 2.3(e) hereof, the
Borrower shall provide for the payment to the Lender of the full principal
amount of each Bankers' Acceptance issued by the Lender on its date of maturity.
(e) Deemed Prime Rate Borrowing: If the Borrower does not provide for
payment in full of a Bankers' Acceptance on maturity, the unpaid principal
amount of the Bankers' Acceptance shall on the date of maturity thereof be
automatically converted to a Prime Rate Borrowing and, in respect of such deemed
Prime Rate Borrowing, the Lender shall be entitled to all of the covenants and
conditions and representations and warranties in favour of the Lender contained
in this Agreement.
(f) Waiver: The Borrower shall not claim from the Lender any days of grace
for the payment at maturity of any Bankers' Acceptances presented to and
accepted by the Lender pursuant to this Agreement. Further, the Borrower waives
any defence to payment which might otherwise arise as a result of a Bankers'
Acceptance being held by the Lender in its own right at the maturity thereof.
(g) Degree of Care: Any executed drafts to be used as Bankers' Acceptances
which are delivered by the Borrower to the Lender need only be held in
safekeeping with the same degree of care as if they were the Lender's property.
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(h) Indemnity: The Borrower agrees to indemnify and hold the Lender
harmless from any and all suits, debts, demands and claims whatsoever and
howsoever arising by reason of the acceptance by the Lender of any Bankers'
Acceptance dealt with by the Lender in accordance with this Agreement.
(i) Obligations Absolute: The obligations of the Borrower with respect to
Bankers' Acceptances under this Section 2.3 shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement notwithstanding the existence of any circumstances, including, without
limitation, the following circumstances:
a. any lack of validity or enforceability of any draft accepted by
the Lender as a Bankers' Acceptance; or
b. the existence of any claim, set-off, defence or other right which
the Borrower may have at any time against the holder of a
Bankers' Acceptance or the Lender or any other Person, whether in
connection with this Agreement or otherwise.
2.4 Letters of Credit. Each Letter of Credit to be issued by the Lender
must be satisfactory in form and substance to the Lender, but without limiting
the generality of the foregoing, each of the term, beneficiary, amount and
conditions of each Letter of Credit must be satisfactory. Each Letter of Credit
shall not be for a term longer than one year and can be denominated in either
Dollars or U.S. Dollars; provided that no Letter of Credit issued as a Revolving
Loan may mature on a date later than the Maturity Date. Each Letter of Credit
will be specifically subject to the terms of the agreement referred to in
Section 5.3 hereof. The amount of the Borrowing constituted by a Letter of
Credit shall be deemed to be the maximum amount payable to the beneficiary under
such Letter of Credit for which the Lender is or may become at any time
contingently liable. Aggregate Borrowings constituted by Letters of Credit
cannot exceed at any time the Maximum Letter of Credit Amount. The Lender shall
forthwith give notice to the Borrower of any payment made by the Lender pursuant
to any Letter of Credit, and the amount of such payment shall be deemed to be a
Prime Rate Borrowing, with payments made by the Lender in U.S. Dollars converted
to the Equivalent Amount of Dollars on the date of payment.
If any Letter of Credit is outstanding at any time that payment of any
amounts owing by the Borrower hereunder is demanded or accelerated or on the
Maturity Date, the Borrower shall forthwith upon such demand or on the Maturity
Date pay to the Lender funds in the currency of and in an amount equal to the
maximum aggregate liability (contingent or actual) of the Lender pursuant
thereto. Such funds (together with interest thereon) shall be held by the
Lender for set-off against the liability of the Borrower to the Lender in
respect of such Letter of Credit, when it comes due. If the Letter of Credit
for which funds are deposited is not drawn upon-by the beneficiary, whether by
reason of maturity or cancellation, and if the Borrower is not otherwise
indebted to the Lender, the Lender shall return such funds to the
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Borrower together with interest thereon calculated at the rate for like deposits
and for a like term.
The Borrower shall pay to the Lender in respect of each Letter of
Credit requested to be issued by the Lender pursuant to this Section 2.4, a fee
in Dollars or U.S. Dollars (depending on the currency of the primary
indebtedness to which such Letter of Credit relates) equal to the greater of:
(i) 500 Dollars or U.S. Dollars, as the case may be, and (ii) an amount,
calculated on the basis of the actual number of days elapsed in a year (based on
a year of 360 days in the case of U.S. Dollar Letters of Credit) and on the
basis of the face amount of such Letter of Credit available for drawings under
such Letter of Credit from time to time in each case for the period from and
including the date of issuance of such Letter of Credit to and including the
date of expiration or termination thereof at the Margin Percentage (on a per
annum basis) from time to time in effect. The Borrower will pay such fee in
Dollars or U.S. Dollars (depending on the currency of the primary indebtedness
for which such Letter of Credit relates) in arrears on (i) each Interest Payment
Date which occurs after the date of issuance and prior to the expiration or
termination of such Letter of Credit and (ii) the date of expiration or
termination of such Letter of Credit.
The issue by the Lender on behalf of the Borrower of a Letter of Credit
shall constitute a Borrowing under the Credit in the amount represented by such
Letter of Credit.
2.5 Terminations or Reductions of Revolving Loan Commitments.
(a) Mandatory. On the Termination Date, the Revolving Loan Commitment
shall be terminated in its entirety.
(b) Optional. The Borrower shall have the right to terminate or reduce the
unused portion of the Revolving Loan Commitment at any time or from time to time
without penalty, bonus or other fee, provided that (i) the Borrower shall give
notice of each such termination or reduction to the Lender as provided in
Section 4.2 hereof and (ii) each such partial reduction shall be in an aggregate
amount of at least $100,000. The Borrower shall not make a voluntary repayment
with respect to a Bankers' Acceptance or Letter of Credit other than on the
maturity date of the draft accepted as that Bankers' Acceptance or on the
maturity of the Letter of Credit, as the case may be.
(c) No Reinstatement. Any termination or reduction of the Revolving Loan
Commitment may not be reinstated without the written approval of the Lender.
2.6 Fees.
(a) The Borrower shall pay to the Lender a revolving loan commitment fee
with respect to the unused Designated Amount for the period from the Effective
Date to and including the Termination Date at a rate per annum equal to the
Commitment Fee Percentage from time to time in effect. Such revolving loan
commitment fee shall be computed (on the basis of the
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actual number of days elapsed in a year composed of 360 days) on each day and
shall be based on the excess of (x) the Designated Amount for such day over (y)
the aggregate unpaid principal balance of the Revolving Loan for such day.
Accrued revolving loan commitment fees payable under this provision shall be
payable in arrears on the Quarterly Dates prior to the Termination Date and on
the Termination Date.
(b) The Borrower shall pay to the Lender a revolving loan commitment fee
with respect to the Revolving Loan Commitment in excess of the Designated Amount
for the period from the Effective Date to and including the Termination Date at
a rate equal to one half (1/2) of the Commitment Fee Percentage from time to
time in effect. Such revolving loan commitment fee shall be computed (on the
basis of the actual number of days elapsed in a year composed of 360 days) on
each day and shall be based on the excess of (x) the Revolving Loan Commitment
for such day (without regard to any limitation based on the Borrowing Rate or
the Designated Amount) over (y) the Designated Amount for such day. Accrued
revolving loan commitment fees payable under this provision shall be payable on
the Quarterly Dates prior to the Termination Date and on the Termination Date.
(c) An additional revolving loan commitment fee shall be due and payable
effective upon any designation of an increase in the Designated Amount. Such
additional commitment fee shall be calculated at a rate equal to one-half (1/2)
of the Commitment Fee Percentage from time to time in effect and shall be
computed on the amount of such increase for the period commencing on the most
recently occurring Quarterly Date through the date of such increase.
(d) In consideration of the time and effort expended by the Lender in
connection with the Loan Documents, the Borrower shall also pay to the Lender on
the Effective Date the sum of $50,000 as an upfront fee.
(e) All past due fees payable under this Section shall bear interest at the
Past Due Rate.
2.7 Evidence of Indebtedness and Manner of Payments: The indebtedness of
the Borrower to the Lender shall be evidenced by the loan accounts which shall
be opened and maintained by the Lender at its Branch of Account. The loan
accounts kept by the Lender shall constitute, in the absence of manifest error,
prima facie evidence of the indebtedness of the Borrower to the Lender
hereunder, the date borrowings were made or deemed to have been made to the
Borrower, the amount of such indebtedness repaid by the Borrower and the dates
of such repayments, provided that the failure of the Lender to record any such
amount or date shall not affect the obligation of the Borrower to pay amounts
due hereunder in accordance with this Agreement. The Lender shall upon the
request of the Borrower provide any information contained in its accounts to the
Borrower and the Lender and the Borrower shall cooperate in providing all
information reasonably required to keep all accounts accurate and up-to-date.
All payments to be made by the Borrower pursuant to this Agreement are to be
made without set-off, compensation or counterclaim and without deduction of any
kind and for same day value.
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2.8 Use of Proceeds. The proceeds of the Revolving Loans shall be used by
the Borrower to pay certain fees and expenses related to the closing of this
facility and to fund ongoing working capital and other general corporate
requirements of the Borrower. No proceeds of the Revolving Loans will be used
for any purpose which would violate any applicable Legal Requirement.
2.9 Interest Act. Where any rate of interest, or fee expressed as a rate
of interest, herein is calculated on the basis of a year of 360 days, in this
Agreement such rate expressed as an annual rate of interest for purposes of the
Interest Act (Canada), shall be such rate multiplied by 365, or 366 where the
period for which interest is being calculated includes February 29, and divided
by 360.
2.10 Calculation of Interest and Fees. For greater certainty, whenever any
amount is payable under this Agreement by the Borrower either as interest,
commission or as a fee which requires the calculation of an amount using a
percentage per annum, each Party to this Agreement acknowledges and agrees that
such amount shall be calculated as of the date payment is due using the "nominal
rate method", without application of the so-called "deemed reinvestment
principle" or the "effective yield method". As an example of the "nominal rate
method", when interest is calculated and payable monthly, the rate of interest
payable per month equals the principal amount outstanding on a daily basis
multiplied by the stated rate of interest per annum, multiplied by the number of
days in the month and divided by the number of days in the applicable year.
2.11 Designated Amount. The Borrower may from time to time designate a
maximum aggregate principal amount of Revolving Loan permitted to be outstanding
hereunder for a specified period (such amount being herein called the
"Designated Amount"). The Designated Amount shall never be less than
$13,000,000. In the absence of a specific designation of another Designated
Amount hereunder, the Designated Amount shall equal the Maximum Revolving Loan
Available Amount. The Designated Amount may be increased at any time but no
decreases of a Designated Amount shall become effective on a date other than a
Quarterly Date and no designation of a Designated Amount may terminate on a date
which is not a day immediately preceding a Quarterly Date. Written notice of
the designation of a Designated Amount must be given to the Lender by the
Borrower no later than two (2) Business Days prior to the effective date
thereof.
3. Borrowings, Payments and Prepayments.
3.1 Borrowings. The Borrower shall give the Lender notice of each
Borrowing to be made hereunder as provided in Section 4.2 hereof. Not later
than 12:00 noon Toronto time on the date specified for each such Borrowing
he under, the Lender shall make available the amount of the Revolving Loan, if
any, to be made by it on such date for the account of the Borrower in the Branch
of Account.
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3.2 Payments; Prepayments.
(a) Optional Prepayments. The Borrower shall have the right to prepay, on
any Business Day, in whole or in part, without the payment of any penalty or
fee, Revolving Loans at any time or from time to time, provided that the
Borrower shall give the Lender notice of each such prepayment as provided in
Section 4.2 hereof. Each optional prepayment on a Revolving Loan shall be in an
amount at least equal to the lesser of $100,000 or the unpaid principal balance
of the Revolving Loan. The Borrower shall not make a voluntary prepayment with
respect to a Bankers' Acceptance or Letter of Credit other than on the maturity
date of the draft accepted as that Bankers' Acceptance or on the maturity of the
Letter of Credit, as the case may be.
(b) Maximum Revolving Loan Available Amount. The Borrower shall from time
to time, within ten (10) days after demand by the Lender, prepay the Revolving
Loan (or provide Cover for outstanding Bankers' Acceptances and Letters of
Credit) in such amounts as shall be necessary so that at all times the aggregate
outstanding amount of the Revolving Loan Obligation shall be less than or equal
to the Maximum Revolving Loan Available Amount.
(c) Interest Payments. Accrued and unpaid interest on the unpaid principal
balance of Prime Rate Borrowings shall be due and payable on the Interest
Payment Dates.
(d) Payments. The Borrower shall pay all amounts required to be paid
hereunder and under the other Loan Documents as and when due.
(e) Post-Maturity Interest and Payments and Interest on Reimbursement
Obligations. The Borrower will pay to the Lender the amount of each
Reimbursement Obligation promptly upon its incurrence. The amount of any
Reimbursement Obligation may, if the applicable conditions precedent specified
in Section 5.2 hereof have been satisfied or waived, be paid with the proceeds
of Revolving Loans in accordance with Sections 2.3 and 2.4 hereof . Subject to
Section 11.7 hereof, the Borrower will pay to the Lender interest at the
applicable Past Due Rate on any Reimbursement Obligation and on any other amount
payable by the Borrower hereunder to or for the account of the Lender (but, if
such amount is interest, only to the extent legally allowed), which shall not be
paid in full when due (whether at stated maturity, by acceleration or
otherwise), for the period commencing on the due date thereof until the same is
paid in full.
4. Payments; Computations, Etc.
4.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be paid by
the Borrower hereunder and under the other Loan Documents shall be made in
Dollars (or U.S. Dollars in the case of U.S. Dollar denominated Letters of
Credit), in immediately available funds, to the Lender at the Branch of
Account, not later than 12:00 noon Toronto time on the date on which such
payment shall
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become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
(b) The Borrower shall, at the time of making each payment hereunder or
under any other Loan Document, specify to the Lender the Revolving Loans or
other amounts payable by the Borrower hereunder or thereunder to which such
payment is to be applied.
(c) If the due date of any payment hereunder falls on a day which is not a
Business Day, the due date for such payments shall be extended to the next
succeeding Business Day and interest shall be payable for any principal so
extended for the period of such extension.
4.2 Certain Actions, Notices, Etc. Notices to the Lender of any
termination or reduction of the Revolving Loan Commitment and of Borrowings,
conversions and prepayments of Revolving Loans and requests for issuances of
Bankers' Acceptances and Letters of Credit shall be irrevocable and shall be
effective only if received by the Lender at the Branch of Account not later than
12:00 noon Toronto time on the number of Business Days prior to the date of the
relevant termination, reduction, Borrowing, conversion and/or prepayment
specified below:
Number of
Notice Business Days Prior
------ -------------------
Termination or
Reduction of Revolving
Loan Commitment 5
Borrowing or conversion at the
Prime Lending Rate same day
Borrowing or conversion by way of Bankers'
Acceptance or Letter of Credit 2
Revolving Loan repayment same day
Each such notice of termination or reduction shall specify the amount of the
applicable Revolving Loan Commitment to be terminated or reduced. Each such
notice of Borrowing, conversion or prepayment shall specify the amount of the
Revolving Loans to be borrowed or prepaid and the date of Borrowing, conversion
or prepayment (which shall be a Business Day).
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5. Conditions Precedent.
5.1 Initial Revolving Loans. The obligation of the Lender to make its
initial Revolving Loan hereunder is subject to the following conditions
precedent, each of which shall have been fulfilled or waived to the satisfaction
of the Lender:
(1) Corporate Action and Status. The Lender shall have received a
Secretary's Certificate from the Borrower and each of its Affiliates signing a
Loan Document, which shall be accompanied by copies of the Organizational
Documents of the Borrower and each of its Affiliates, copies of the by-laws of
the Borrower and each of its Affiliates and such certificates as may be
appropriate to demonstrate the qualification and good standing of and payment of
taxes by the Borrower and each of its Affiliates in each Province or State where
the failure in which to qualify would have a Material Adverse Effect. The
Lender may conclusively rely on such certificates until it receives notice in
writing from the Borrower or the appropriate Party to the contrary.
(2) Loan Documents. The Borrower and each other Party shall have duly
executed and delivered the Loan Documents to which it is a party (in such number
of copies as the Lender shall have requested) and each such Loan Document shall
be in form satisfactory to Lender.
(3) Security Matters. All such action as the Lender shall have requested
to perfect the Liens created pursuant to the Security Agreements shall have been
taken, including, without limitation, the delivery of appropriately completed
and duly executed and registered Personal Property Security Act (Ontario)
financing statements or equivalents with appropriate Governmental Authorities.
The Lender shall also have received evidence satisfactory to it that the Liens
created by the Security Agreements constitute first priority Liens, except for
the exceptions expressly provided for herein, including, without limitation,
Personal Property Security Act (Ontario) or equivalent search reports, and
executed releases of any prior Liens (except as permitted by Section 8.2).
Notwithstanding the foregoing, the Borrower shall have up to sixty (60) days
after the Effective Date in which to obtain releases of the Liens securing
Borrowed Money Indebtedness which is to be paid concurrently with the closing
hereof or the U.S. Facility covering Property located in Canada.
(4) Fees and Expenses. The Borrower shall have paid to the Lender the fee
specified in Section 2.6(d) hereof.
(5) Insurance. The Borrower shall have delivered to the Lender
certificates of insurance satisfactory to the Lender evidencing the existence of
all insurance required to be maintained by the Borrower by this Agreement and
the Security Agreements.
(6) Opinion of Counsel. The Lender shall have received an opinion of
Borden & Elliot, counsel to the Borrower and its Affiliates, in form and
substance reasonably satisfactory to the Lender.
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(7) Consents. The Lender shall have received evidence reasonably
satisfactory to it that all material consents of each Governmental Authority and
of each other Person, if any, reasonably required in connection with (a) the
Revolving Loans and (b) the execution, delivery and performance of this
Agreement and the other Loan Documents have been satisfactorily obtained.
(8) Other Documents. The Lender shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as the Lender may reasonably request.
5.2 All Revolving Loans. The obligation of the Lender to make any
Revolving Loan to be made by it hereunder is subject to (a) the accuracy, in all
material respects, on the date of such Revolving Loan of all representations and
warranties of the Borrower and any other Party contained in this Agreement and
the other Loan Documents; (b) receipt by the Lender of the following, all of
which shall be duly executed and in Proper Form: (1) a Request for Extension of
Credit as to the Revolving Loan no later than 12:00 noon Toronto time on the
Business Day on which such Request for Extension of Credit must be given under
Section 4.2 hereof, (2) in the case of a Bankers' Acceptance, a draft duly
executed and in Proper Form, and (3) such other documents as the Lender may
reasonably require; (c) prior to the making of such Revolving Loan, there shall
have occurred no event which has had or could reasonably be expected to have a
Material Adverse Effect; (d) no Default or Event of Default shall have occurred
and be continuing and shall not occur as a result of the Borrowing, and (e) the
making of such Revolving Loan shall not be illegal or prohibited by any Legal
Requirement.
5.3 Additional Condition Precedent to the Issuance of the First Letter of
Credit. The obligation of the Lender to issue the first Letter of Credit
hereunder is subject to the creation and delivery by the Borrower to the Lender
of a Letter of Credit reimbursement agreement in form and substance satisfactory
to the Lender.
6. Representations and Warranties.
The Borrower represents and warrants to the Lender as follows:
6.1 Organization. The Borrower and each of its Subsidiaries (a) is duly
organized, validly existing and in good standing under the laws of the State or
Province of its organization; (b) has all necessary corporate power and
authority to conduct its business as presently conducted, and (c) is duly
qualified to do business and in good standing in the State or Province of its
organization and in all jurisdictions in which the failure to so qualify would
have a Material Adverse Effect.
6.2 Financial Statements. The Borrower has furnished to the Lender the
audited Annual Financial Statements of Sterling and the unaudited Annual
Financial Statements of the Borrower as at September 30, 1994 which fairly
present the financial condition and the results of operations of Sterling and
the Borrower as at such date. No events, conditions or
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circumstances have occurred from the date that the financial statements were
delivered to the Lender through the date hereof which would cause said financial
statements to be misleading in any material respect. There are no material
instruments or liabilities which should be reflected in such financial
statements provided to the Lender which are not so reflected. Since September
30, 1994, no event has occurred which has had (or would reasonably be expected
to have) a Material Adverse Effect.
6.3 Enforceable Obligations; Authorization. The Loan Documents are legal,
valid and binding obligations of the Parties, enforceable in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency and
other similar laws and judicial decisions affecting creditors' rights generally
and by general equitable principles. The execution, delivery and performance of
the Loan Documents (a) have all been duly authorized by all necessary corporate
action; (b) are within the corporate power and authority of the Parties; (c) do
not and will not contravene or violate any Legal Requirement applicable to the
Parties or the Organizational Documents of the Parties, the contravention or
violation of which could have a Material Adverse Effect on the business,
condition (financial or otherwise), operations or Properties of the Borrower or
any other Party; (d) do not and will not result in the breach of, or constitute
a default under, any agreement or instrument by which the Parties or any of
their respective Property may be bound or affected which breach or default could
reasonably be expected to cause a Material Adverse Effect, and (e) do not and
will not result in the creation of any Lien upon any Property of any of the
Parties, except in favour of the Lender or as expressly contemplated therein.
All necessary permits, registrations and consents for such making and
performance have been obtained. Except as otherwise expressly stated in the
Security Agreements, the Liens created under the Security Agreements constitute
valid and perfected first and prior Liens on the Property described therein,
subject to no other Liens whatsoever.
6.4 Other Borrowed Money Indebtedness. Neither the Borrower nor any of
its Subsidiaries is in default in the payment of any other Borrowed Money
Indebtedness or under any agreement, mortgage, deed of trust, security agreement
or lease to which it is a party and which default could reasonably be expected
to cause a Material Adverse Effect.
6.5 Litigation. There is no litigation or administrative proceeding
pending or, to the knowledge of the Borrower, threatened against, nor any
outstanding judgment, order or decree affecting, the Borrower or any of its
Subsidiaries before or by any Governmental Authority which could reasonably be
expected to cause a Material Adverse Effect except for a claim threatened by
Miramichi Pulp & Paper Inc.. Neither the Borrower nor any of its Subsidiaries
is in default with respect to any judgment, order or decree of any Governmental
Authority where such default would have a Material Adverse Effect.
6.6 Taxes. The Borrower and its Subsidiaries each has filed all tax
returns required to have been filed and paid all taxes shown thereon to be due,
except those for which extensions have been obtained and those which are being
contested in good faith as provided in Section 7.1(a) hereof.
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6.7 Subsidiaries. The Borrower has no Subsidiaries or Affiliates except
as set forth on Exhibit C attached hereto or those formed in compliance with
Section 8.9 hereof.
6.8 No Untrue or Misleading Statements. No document, instrument or other
writing furnished to the Lender by or on behalf of the Borrower or any other
Party in connection with the transactions contemplated in any Loan Document,
taken as a whole, contains any untrue material statement of fact or will omit to
state any such fact (of which the Borrower or any other Party has knowledge)
necessary to make the representations, warranties and other statements contained
herein or in such other document, instrument or writing not misleading.
6.9 Solvency. Neither the Borrower nor any Subsidiary nor any Affiliate
has made any assignment for the benefit of creditors, made a proposal for the
benefit of its creditors or has had any receiving order made against it under
the provisions of the Bankruptcy and Insolvency Act (Canada), or has had any
petition for such an order served upon it.
6.10 Compliance. The Borrower and its Subsidiaries are each in compliance
with all Legal Requirements applicable to it, except to the extent that the
failure to comply therewith could not reasonably be expected to cause a Material
Adverse Effect.
6.11 Environmental Matters. The Borrower and its Subsidiaries have
obtained and maintained in effect all Environmental Permits (or the applicable
Person has initiated the necessary steps to transfer the Environmental Permits
into its name or obtain such permits), the failure to obtain which could
reasonably be expected to have a Material Adverse Effect. The Borrower and its
Subsidiaries and their Properties, business and operations have been and are in
compliance with all applicable Requirements of Environmental Law and
Environmental Permits failure to comply with which could reasonably be expected
to have a Material Adverse Effect. The Borrower and its Subsidiaries and their
Properties, business and operations are not subject to any (A) Environmental
Claims or (B) Environmental Liabilities, in either case direct or contingent,
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof which could reasonably be
expected to have a Material Adverse Effect. None of the Borrower or any of its
Subsidiaries has received any notice of any violation or alleged violation of
any Requirements of Environmental Law or Environmental Permit or any
Environmental Claim in connection with its Properties, liabilities, condition
(financial or otherwise), business or operations which could reasonably be
expected to have a Material Adverse Effect. The Borrower does not know of any
event or condition with respect to currently (as of the date this representation
is provided) enacted Requirements of Environmental Laws presently scheduled to
become effective in the future with respect to any of its Properties or the
Properties of any of its Subsidiaries which could reasonably be expected to have
a Material Adverse Effect, for which the Borrower or the applicable Subsidiary
of the Borrower has not made good faith provisions in its business plan and
projections of financial performance.
6.12 Certain Business Matters. The Borrower has all licenses and permits
necessary to carry on its business except those
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not having a Material Adverse Effect. Except for those not having a Material
Adverse Effect, there are no employee claims against the Borrower and the
Borrower is not in violation or default of any major agreements to which it is a
party.
6.13 Additional Representations and Warranties Respecting Sterling in U.S.
Facility. All of the representations and warranties made by Sterling in the U.S.
Facility are true and correct.
6.14 Survival of Representations and Warranties. The representations and
warranties made by the Borrower herein shall survive the execution of this
Agreement and all other agreements provided for or contemplated herein and each
Borrowing hereunder including without limitation any conversion of a Borrowing.
7. Affirmative Covenants.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement it will do, and cause each of its Subsidiaries and
Sterling to do (with respect to their own affairs), and if necessary cause to be
done, each and all of the following (for greater certainty, where any covenant
is expressed to apply to one entity only, the Borrower shall be required to
cause only that entity to comply with such covenant):
7.1 Taxes, Existence, Regulations, Property, Etc. At all times (a) pay,
prior to the date when penalties attach with respect thereto, all taxes and
governmental charges of every kind upon it or against its income, profits or
Property, unless and only to the extent that the same shall be contested
diligently in good faith and reserves deemed adequate by the independent
chartered accounting firm used to prepare Sterling's audited Annual Financial
Statements and the Borrower's unaudited Annual Financial Statements have been
established therefor; (b) do all things necessary to preserve its corporate
existence, qualifications, rights and franchises in all Provinces and States
where such failure to qualify would have a Material Adverse Effect; (c) comply
with all applicable Legal Requirements (including without limitation
Requirements of Environmental Law) in respect of the conduct of its business and
the ownership of its Property, the noncompliance with which could reasonably be
expected to cause a Material Adverse Effect; and (d) cause its Property to be
protected, maintained and kept in good repair and make all replacements and
additions to its Property as may be reasonably necessary to conduct its business
properly and efficiently.
7.2 Financial Statements and Information. Furnish to the Lender one copy
of each of the following: (a) as soon as available and in any event within 90
days after the end of each of its fiscal years, beginning with the fiscal year
1995, its Annual Financial Statements (audited for Sterling and unaudited for
the Borrower); (b) as soon as available and in any event within 45 days after
the end of each calendar quarter of each of its fiscal years, Quarterly
Financial Statements; (c) concurrently with the financial statements provided
for in Subsections 7.2(a) and (b) hereof, such schedules, computations and other
information, in reasonable detail, as may be required by the Lender to
demonstrate compliance with the covenants set forth herein or reflecting any
non-compliance therewith as of the applicable date, all certified and signed by
the
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president or chief financial officer of the Borrower or Sterling, as the case
may be (or other authorized officer approved by the Lender) as true, correct and
complete and, commencing with the quarterly financial statement prepared as of
June 30, 1995, a compliance certificate ("Compliance Certificate") in the form
of Exhibit D-1 for the Borrower and Exhibit D-2 for Sterling, each attached
hereto, duly executed by such authorized officer; (d) (1) as of the Effective
Date and (2) within 30 days after the end of each calendar month, a Borrowing
Base Certificate as at March 31, 1995 for the Borrowing Base Certificate
delivered as at the Effective Date and thereafter the last day of such calendar
month or the date of such receipt, as the case may be, together with such
supporting information as the Lender may reasonably request; (e) within 30 days
after the end of each calendar month of each fiscal year, a management report
prepared for use by management of Sterling with respect to sales and operating
revenues and costs of manufacturing and related information for both Sterling
and the Borrower in such detail as such management report is prepared for the
use of the management of Sterling; (f) from time to time, at any time upon the
request of the Lender, but at the cost of the Borrower, a report of an
independent collateral field examiner approved by the Lender in writing and
reasonably acceptable to the Borrower (which may be, or be affiliated with, the
Lender) with respect to the Accounts and Inventory components included in the
Borrowing Base (provided, however, that so long as no Event of Default has
occurred and is continuing, the Lender shall not require such a report more than
once per calendar year); (g) by September 30 of each year, the financial
projections of income and cash flow of Sterling for each of the next 12 calendar
months, and (h) such other information relating to the condition (financial or
otherwise), operations, prospects or business of any of the Borrower and its
Subsidiaries and Sterling as from time to time may be reasonably requested by
the Lender.
7.3 Financial Tests. The Borrower, on a consolidated basis, will have Net
Worth of not less than U.S.$13,000,000 at all times, ignoring any accumulated
currency translation adjustments made after March 31, 1995, which are caused
solely by a change in the currency exchange ratio between the Dollar and the
U.S. Dollar and including any change to the amount of the accumulated currency
translation adjustment resulting solely from the accounting treatment of any
amalgamation of the Borrower and Sterling NRO, Ltd. Sterling on a consolidated
basis, will have:
(a) Debt to EBITDA Ratio - as of the last day of each fiscal quarter, a
Debt to EBITDA Ratio of not greater than 4.00 to 1.00.
(b) Fixed Charge Coverage Ratio - as of the last day of each fiscal
quarter, a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00.
(c) Adjusted Fixed Charge Coverage Ratio - as of the date of any proposed
dividend which is subject to the Adjusted Fixed Charge Coverage Ratio (and after
giving effect to such dividend), an Adjusted Fixed Charge Coverage Ratio of not
less than 1.10 to 1.00.
(d) Net Worth - Net Worth of not less than (1) at all times during the
period commencing on the Effective Date through and including June 30, 1995,
U.S. $106,000,000 plus 50% of the Net Income of Sterling (if positive) for the
fiscal quarter beginning on January 1, 1995 and ending on March 31, 1995, and
(2) at all times during each fiscal quarter
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after June 30, 1995, the minimum Net Worth required during the immediately
preceding fiscal quarter plus 50% of the Net Income of Sterling (if positive)
for the immediately preceding fiscal quarter plus all of the net proceeds of any
issuance of equity in Sterling during such fiscal quarter.
(e) Current Ratio - a Current Ratio of not less than 1.10 to 1.00 at all
times.
7.4 Inspection. As to the Borrower only, permit the Lender upon 3 days'
prior notice to inspect its Property, to examine its files, books and records
except privileged communication with legal counsel and classified governmental
material, and make and take away copies thereof, and to discuss its affairs with
its officers and accountants, all during normal business hours and at such
intervals and to such extent as the Lender may reasonably desire.
7.5 Further Assurances. Promptly execute and deliver, at the Borrower's
expense, any and all other and further instruments which may be reasonably
requested by the Lender to cure any defect in the execution and delivery of any
Loan Document in order to effectuate the transactions contemplated by the Loan
Documents, and in order to grant, preserve, protect and perfect the validity and
priority of the security interests created by the Security Agreements.
7.6 Books and Records. Maintain books of record and account in accordance
with GAAP.
7.7 Insurance. Maintain insurance with such insurers, on such of its
Property, with responsible companies in such amounts, with such deductibles and
against such risks as are usually carried by owners of similar businesses and
properties in the same general areas in which it operates (including without
limitation business interruption insurance), and furnish the Lender satisfactory
evidence thereof promptly upon request. The Borrower shall provide the Lender
with copies of the relevant sections of policies of insurance and a certificate
of the insurer for itself and Sterling that the insurance required by this
Section may not be cancelled, reduced or affected in any material manner without
thirty (30) days' prior written notice to the Lender.
7.8 Notice of Certain Matters. Give the Lender prompt written notice of
the following:
(a) the issuance by any Governmental Authority of any injunction, order or
other restraint prohibiting, or having the effect of prohibiting, the
performance of this Agreement by the Borrower or the performance of the U.S.
Facility Credit Agreement by Sterling, as the case may be, any other Loan
Document, or the making of the Revolving Loans or the initiation of any
litigation, or any claim or controversy which might result in the initiation of
any litigation, seeking any such injunction, order or other restraint that could
reasonably be expected to cause a Material Adverse Effect;
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(b) the filing or commencement of any action, suit or proceeding, whether
at law or in equity or by or before any court or any Federal, Provincial, State,
municipal or other Governmental Authority which could reasonably be expected to
cause a Material Adverse Effect;
(c) any Event of Default or Default as defined herein or in the U.S.
Facility Credit Agreement known to Borrower or Sterling, specifying the nature
and extent thereof and the action (if any) which is proposed to be taken with
respect thereto; and
(d) any development in the business or affairs of the Borrower or any of
its Subsidiaries or Sterling which has had or which could reasonably be expected
to have, in the reasonable judgment of the Borrower or Sterling a Material
Adverse Effect.
The Borrower will also notify the Lender in writing at least 30 days prior to
the date that any Party changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its books and
records.
7.9 Increased Costs. If after the date hereof, any Legal Requirement or
the adoption of any Legal Requirement, or any change therein or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by the Lender (or its Branch of Account)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency:
(a) shall subject the Lender (or its Branch of Account) to any tax, duty or
other charge, or shall cause the withdrawal or termination of any previously
available exemption from any tax, duty or other charge, with respect to the
unutilized portion of its Revolving Loan Commitment, its obligation to make
Revolving Loans or its Revolving Loans or with respect to its obligation to
accept Bankers' Acceptances or issue Letters of Credit or shall change the basis
of taxation of payments to the Lender (or its Branch of Account) including the
principal of or interest on its Borrowings or any fees payable hereunder or any
other amounts due under this Agreement (except for changes in the rate of taxes
measured by or imposed on the overall net income of the Lender or its Branch of
Account imposed by the jurisdiction of incorporation of the Lender, the
jurisdiction in which such Lender's principal executive office or Branch of
Account is located or a jurisdiction in which the Lender is subject to taxation
without regard to this Agreement and the documentation entered into pursuant
thereto and except for changes in any such jurisdiction in the method of
calculation of net income for income tax purposes where any such change is
applicable to corporations generally regardless of whether they are lenders); or
(b) shall impose, modify or deem applicable any reserve, deemed reserve,
special deposit, capital adequacy or similar requirement against assets of,
deposits with or for the account of, or credit extended or committed to be
extended by the Lender or its Branch of Account or shall impose on the Lender
(or its Branch of Account) any other condition affecting its obligation to
permit borrowings or affecting outstanding borrowings including, without
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limitation, the amount of capital required or expected to be maintained by the
Lender as a result of entering into this Agreement or its Revolving Loan
Commitment or in respect of its outstanding Borrowings; and the net result of
any of the foregoing is to increase the cost or reduce the applicable rate of
return to the Lender (or its Branch of Account) of maintaining its Revolving
Loan Commitment, making or maintaining any Borrowing or accepting any draft as a
Bankers' Acceptance or issuing any Letter of Credit, or to reduce the amount of
any sum received or receivable by the Lender (or its Branch of Account) under
this Agreement or with respect hereto, by an amount deemed by the Lender to be
material, then within fifteen (15) days after each demand by the Lender claiming
compensation, setting forth the additional amount or amounts to be paid to it
hereunder and the basis thereof, the Borrower agrees to pay promptly to the
Lender such additional amount or amounts incurred prior to such demand as will
compensate the Lender for such increased costs or deductions. The Lender will
promptly notify the Borrower of any event of which it has knowledge, occurring
after the date hereof, which will entitle the Lender to compensation pursuant to
this Section 7.9 and will designate a different Branch of Account, as the case
may be, if such designation will avoid the need for or reduce the amount of,
such compensation and will not, in the sole judgment of the Lender, be otherwise
disadvantageous to the Lender acting reasonably.
A certificate of the Lender claiming compensation under this Section 7.9
setting forth the additional amount or amounts (which additional amounts may be
calculated by the Lender on the basis of reasonable estimates or averaging
methods) to be paid to it hereunder and the basis therefor shall be conclusive
in the absence of manifest error. If the Lender demands compensation under this
Section 7.9, the Borrower may at any time, upon at least four Business Day,
prior notice to the Lender, which notice shall be irrevocable, prepay in full,
without penalty, the then outstanding Borrowing of the Lender together with
accrued interest thereon to the date of repayment and all such compensation to
the date of repayment.
7.10 Capital Adequacy. Agrees that if the Lender shall have determined
that the adoption after the Effective Date or effectiveness after the Effective
Date (whether or not previously announced) of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein after the
Effective Date, or any change in the interpretation or administration thereof
after the Effective Date by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Lender with any request or directive after the Effective Date
regarding capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency has or would have the
effect of reducing the rate of return on the Lender's capital as a consequence
of its obligations hereunder, under the Bankers' Acceptances or Letters of
Credit or other Obligations held by it to a level below that which the Lender
could have achieved but for such adoption, change or compliance (taking into
consideration the Lender's policies with respect to capital adequacy) by an
amount deemed by the Lender to be material, then from time to time, upon
satisfaction of the conditions precedent set forth in this Section 7.10, upon
demand by the Lender, the Borrower (subject to Section 11.7 hereof) shall pay to
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the Lender such additional amount or amounts as will compensate the Lender for
such reduction. The certificate of the Lender setting forth such amount or
amounts as shall be necessary to compensate it and the basis thereof shall be
delivered as soon as practicable to the Borrower and shall be conclusive and
binding, absent manifest error. The Borrower shall pay the amount shown as due
on any such certificate within fifteen (15) days after the delivery of such
certificate; provided that the Borrower shall not be obligated to compensate the
Lender for any such amounts which relate to a period more than seventy-five (75)
days prior to such request for payment. In preparing such certificate, the
Lender may employ such assumptions and allocations of costs and expenses as it
shall in good faith deem reasonable and may use any reasonable averaging and
attribution method.
8. Negative Covenants.
The Borrower covenants and agrees with the Lender that prior to the
termination of this Agreement it will not, and will not suffer or permit any of
its Subsidiaries or Sterling (with respect to their own affairs) to, do any of
the following (for greater certainty, where any covenant is expressed to apply
to one entity only, the Borrower shall be required to cause only that entity to
comply with such covenant):
8.1 Indebtedness. Other than the Borrowings hereunder and borrowings
under the U.S. Facility, create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Borrowed Money Indebtedness (as defined below), whether direct, indirect,
absolute, contingent or otherwise, except the following: (a) the Obligations, as
to the Borrower, and the Obligations and Interest Rate Risk Indebtedness (as
those terms are defined in the U.S. Facility Credit Agreement), as to Sterling;
(b) the liabilities existing on the date of this Agreement and disclosed on
Schedule 8.1 hereto for each of Sterling and the Borrower and all renewals,
extensions and replacements (but not increases) of any of the foregoing; (c)
purchase money Indebtedness to acquire Equipment not exceeding, in the
aggregate, for Sterling and the Borrower collectively, U.S.$10,000,000
outstanding at any one time; (d) in addition to Indebtedness permitted under the
preceding clause (c) non-recourse, purchase money Indebtedness in an aggregate
amount not to exceed U.S.$60,000,000 at any one time outstanding incurred by
Subsidiaries of Sterling, including the Borrower, which is payable solely by
recourse to Properties which are not included in the Borrowing Base and which
are acquired or constructed by such Subsidiary after the date hereof; (e)
Subordinated Debt of Sterling so long as the Term Loans or U.S. Revolving Loan
Commitments (as defined in the U.S. Facility Credit Agreement) are permanently
reduced by an amount equal to the net proceeds of such Subordinated Debt; (f)
insurance premiums financed with the applicable insurance carrier, and (g) other
Borrowed Money Indebtedness of either Sterling or the Borrower which
collectively does not exceed U.S.$30,000,000 in the aggregate outstanding at any
time on terms no more restrictive than the terms provided herein. For purposes
of this Agreement, "Borrowed Money Indebtedness" shall mean, with respect to any
Person, without duplication, (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person under conditional
sale or other title retention agreements relating to Property purchased by such
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Person, (d) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable
incurred in the ordinary course of such Person's business), (e) all Capital
Lease Obligations, (f) all obligations of others of the types specified in
clauses (a) through (e) above secured by any lien on property or assets owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (g) all outstanding letters of credit issued for the account of
such Person and (h) all guarantees of such Person of obligations of the type
referred to in the foregoing clauses (a) through (g) and, for Sterling only,
Interest Rate Risk Indebtedness as defined in the U.S. Facility Credit
Agreement.
8.2 Liens. Other than the Liens securing the Borrowings hereunder, create
or suffer to exist any Lien upon any of its Property now owned or hereafter
acquired, or acquire any Property upon any conditional sale or other title
retention device or arrangement or any purchase money security agreement; or in
any manner directly or indirectly sell, assign, pledge or otherwise transfer any
of its Accounts; provided, however, that it may create or suffer to exist: (a)
Liens in favour of the Agent (with respect to Sterling) and the Lender (with
respect to the Borrower) under the Loan Documents in respect of Sterling and the
Borrower, as the case may be; (b) Liens in effect on the Effective Date and
disclosed on Schedule 8.2 hereto for each of Sterling and the Borrower, provided
that neither the Indebtedness secured thereby nor the Property covered thereby
shall increase after the Effective Date; (c) Liens securing purchase money
Indebtedness permitted under Section 8.1(c) hereof and covering only the
Property so purchased and the proceeds therefrom and Liens permitted under
Section 8.1(d) hereof covering Properties acquired or constructed after the date
hereof and the proceeds therefrom; (d) normal encumbrances and restrictions on
title which do not secure Borrowed Money Indebtedness and which do not have a
material adverse effect on the value or utility of the applicable Property; (e)
Liens incurred or deposits made in the ordinary course of business (i) in
connection with workmen's compensation, unemployment insurance, social security
and other like laws, (ii) to secure insurance in the ordinary course of
business, the performance of bids, tenders, contracts, leases, licenses,
statutory obligations, surety, appeal and performance bonds and other similar
obligations incurred in the ordinary course of business, not, in any of the
cases specified in this clause (ii), incurred in connection with the borrowing
of money, the obtaining of advances or the payment of the deferred purchase
price of Property, or (iii) on deposits made in financial institutions in the
ordinary course of business as a result of common law and statutory rights of
setoff and depository agreements and other contractual arrangements (other than
Borrowed Money Indebtedness) arising in the ordinary course of business; (f)
attachments, judgments and other similar Liens arising in connection with the
court proceedings, provided that the execution and enforcement of such Liens are
effectively stayed and the claims secured thereby are being actively contested
in good faith with adequate reserves made therefor in accordance with GAAP; (g)
Liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, incurred in good faith in the ordinary course
of business and securing obligations which are not yet due or which are being
contested in good faith by appropriate proceedings if adequate reserves with
respect thereto are maintained in accordance with GAAP; (h) Liens for taxes
which are not yet due or are being contested in good faith by appropriate
proceedings if adequate reserves with respect thereto are maintained in
accordance with GAAP; (i) Liens or
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rights under insurance policies securing Indebtedness permitted under Section
8.1(f); and (j) extensions, renewals and replacements of Liens referred to in
clauses (a) through (i) of this Section; provided that any such extension,
renewal or replacement Lien shall be limited to the Property or assets covered
by the Lien extended, renewed or replaced and that the Indebtedness secured by
any such extension, renewal or replacement Lien shall be in an amount not
greater than the amount of the Indebtedness secured by the Lien extended,
renewed or replaced.
8.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume or
contingently agree to become or be secondarily liable in respect of, any
obligation or liability of any other Person except for (a) the endorsement of
checks or other negotiable instruments in the ordinary course of business; (b)
obligations disclosed on Schedule 8.3 hereto for each of Sterling and the
Borrower (but not increases of such obligations after the Effective Date), (c)
those liabilities permitted under Section 8.1 hereof and (d) guaranties
by Sterling of any of its Subsidiaries obligations (except where recourse is
expressly required to be limited by the U.S. Facility Credit Agreement).
8.4 Mergers, Consolidations and Dispositions and Acquisitions of Assets.
In any single transaction or series of transactions, directly or indirectly: (a)
liquidate or dissolve; (b) be a party to any amalgamation, merger or
consolidation unless and so long as (i) no Default or Event of Default has
occurred that is then continuing, (ii) immediately thereafter and giving effect
thereto, no event will occur and be continuing which constitutes a Default,
(iii) the Borrower, or Sterling, as the case may be, or their respective
Subsidiary is the surviving Person, and (iv) the surviving or continuing Person
ratifies and assumes each Loan Document to which any party to such amalgamation
or merger was a party; (c) sell, convey or lease all or any substantial part of
its assets, except for sale of Inventory in the ordinary course of business and
except for sales of Property (other than Inventory) in the ordinary course of
the Borrower's or Sterling's, as the case may be, business; (d) pledge, transfer
or otherwise dispose of any shares of capital stock of any Subsidiary of the
Borrower, or Sterling, as the case may be, or any Borrowed Money Indebtedness of
any Subsidiary of the Borrower, or Sterling, as the case may be, or permit any
such Subsidiary to issue any additional shares of capital stock other than to
the Borrower, or Sterling, as the case may be, and other than pledges of shares
contemplated under the U.S. Facility Credit Agreement, or to acquire any shares
of capital stock of any Subsidiary of the Borrower, or Sterling, as the case may
be, or (e) acquire all or substantially all of the assets of any Person or
(except as expressly permitted by Section 8.8 hereof) any shares of stock of or
similar interest in any other Person except for Permitted Acquisitions.
8.5 Redemption, Dividends and Distributions. As to Sterling only, at any
time: (a) redeem, retire or otherwise acquire, directly or indirectly, any
shares of its capital stock except to the extent that no Default or Event of
Default has occurred which is continuing (or would result from the same); (b)
pay any dividend other than payments of the Permitted Dividends by Sterling or
dividends by a Subsidiary of Sterling to Sterling or any Subsidiary of Sterling
or (c) make any other distribution of any Property or cash to stockholders as
such. As to the Borrower only, at any time pay any dividend if a Default or
Event of Default has occurred which is continuing (or would result from same).
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8.6 Nature of Business. Change the nature of its business or enter into
any business which is substantially different from the business in which it is
presently engaged.
8.7 Transactions with Affiliates. Enter into any transaction or agreement
with any of its Affiliates or any of its Subsidiaries (or any Affiliate of any
such Person) unless the same is upon terms substantially comparable to those
obtainable from wholly unrelated sources or in an arms length transaction.
8.8 Loans and Investments. Make any loan, advance, extension of credit or
capital contribution to, or make or have any Investment in, any Person, or make
any commitment to make any such extension of credit or Investment, except (a)
Permitted Investments, (b) normal and reasonable advances in the ordinary course
of business, (c) trade and customer accounts receivable in accordance with the
ordinary course of business, (d) Investments in Subsidiaries who are Guarantors
(as defined in the U.S. Facility Credit Agreement) and who have granted to the
Agent a first-priority lien covering all of its Accounts and Inventory, (e)
Investments in 50% or less owned joint ventures and other corporations not to
exceed U.S.$20,000,000 in unreturned capital Investment at any one time
outstanding provided that such joint ventures and other Corporations are in
substantially the same lines of business as Sterling and its Subsidiaries, (f)
Investments in Subsidiaries formed, created or acquired for the purposes of
developing and constructing a sodium chlorate plant in Hong Ya, Sichuan
Province, China, provided such Investments do not exceed in aggregate
U.S.$10,000,000, and (g) other investments existing as of the date hereof which
are described in the attached Schedule 8.8.
8.9 No Subsidiaries. As to the Borrower only, form, create or acquire a
Subsidiary unless there shall have been executed and delivered to the Lender (a)
a guaranty, substantially in the form of the Guaranties executed and delivered
concurrently herewith, whereby the applicable Subsidiary guaranties the payment
of all of the Obligations, (b) collateral documentation, in Proper Form,
reasonably required by Lender to create and perfect a first-priority Lien
covering all of the Accounts and Inventory of the applicable Subsidiary,
securing the Obligations and (c) appropriate resolutions and authorizations
regarding all such documents and such other documents, instruments,
certificates, opinions and other collateral matters as the Lender may reasonably
require. Notwithstanding the foregoing, the Borrower may, without the consent
of the Lender, form, create or acquire one or more Subsidiaries for the purposes
of developing and constructing a sodium chlorate plant in Hong Ya, Sichuan
Province, China and such resulting Subsidiaries shall not be required to execute
or otherwise provide any such guaranty or collateral documentation.
8.10 Fiscal Year. The Borrower will not (and, except in the case of
Sterling NRO, Ltd. will not permit any of its Subsidiaries to) change its fiscal
year, unless the Lender shall have consented thereto in writing or unless
required to make such change because of a change in or amendment to the Income
Tax Act (Canada) as amended. In the event that the Borrower is required to
change in its fiscal year, the parties hereto agree to negotiate in good faith
any changes in this Agreement made necessary by the required change in fiscal
year. Sterling NRO, Ltd. may change its fiscal year in connection with any
merger of Sterling NRO,
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Ltd. into Sterling Pulp Chemicals, Ltd. which is permitted under the terms of
this Agreement.
9. Defaults.
9.1 Events of Default. If any one or more of the following events (herein
called "Events of Default") shall occur, then the Lender may do any or all of
the following: (1) upon notice to the Borrower, declare the Revolving Loan
Commitments terminated (whereupon the Revolving Loan Commitments shall be
terminated) and/or accelerate the Termination Date to a date as early as the
date of termination of the Revolving Loan Commitments; (2) declare the principal
amount then outstanding of and the unpaid accrued interest on the Revolving
Loans and Reimbursement Obligations and all fees and all other amounts payable
hereunder and under the other Loan Documents to be forthwith due and payable,
whereupon such amounts shall be and become immediately due and payable, without
notice (including, without limitation any notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the case of the
occurrence of an Event of Default with respect to the Borrower referred to in
clause (f), (g) or (h) of this Section 9.1, the Revolving Loan Commitments shall
be automatically terminated and the principal amount then outstanding of and
unpaid accrued interest on the Loans and the Reimbursement Obligations and all
fees and all other amounts payable hereunder and under the other Loan Documents
shall be and become automatically and immediately due and payable, without
notice (including, without limitation, notice of acceleration and notice of
intent to accelerate), presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Borrower, and (3) exercise
any or other rights and remedies available to the Lender under the Loan
Documents, at law or in equity:
(a) Payments - (i) the Borrower or any other Party shall fail to make any
payment or required prepayment of principal on the Revolving Loans or any
Reimbursement Obligation payable under this Agreement or the other Loan
Documents when due or (ii) the Borrower or any other Party fails to make any
payment or required prepayment of interest with respect to the Revolving Loans,
any Reimbursement Obligation or any other fee or amount under this Agreement or
the other Loan Documents when due and (except in the case of acceleration of
maturity) such failure to pay continues unremedied for a period of five days;
or
(b) Other Obligations - the Borrower or any of its Subsidiaries shall
default in the payment when due of any principal of or interest on any Borrowed
Money Indebtedness having an outstanding principal amount of at least $5,000,000
(other than the Revolving Loans and Reimbursement Obligations) and such default
shall continue beyond any applicable period of grace; or any event or condition
shall occur which results in the acceleration of the maturity of any such
Borrowed Money Indebtedness or enables (or, with the giving of notice or lapse
of time or both, would enable) the holder of any such Borrowed Money
Indebtedness or any Person acting on such holder's behalf to accelerate the
maturity thereof and such event or condition shall not be cured within any
applicable period of grace; or
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(c) Representations and Warranties - any representation or warranty made or
deemed made by or on behalf of the Borrower or any other Party in this Agreement
or any other Loan Document or in any certificate furnished or made by the
Borrower or any other Party to the Lender in connection herewith or therewith
shall prove to have been incorrect, false or misleading in any material respect
as of the date thereof or as of the date as of which the facts therein set forth
were stated or certified; or
(d) Affirmative Covenants - (i) default shall be made in the due observance
or performance of any of the covenants or agreements contained in Section 7.3
hereof, (ii) the Borrower shall permit any of the insurance provided for in
Section 7.7 hereof to lapse, (iii) default shall be made in the due observance
or performance of any of the covenants or agreements contained in Section 7.7
hereof (other than lapse of required insurance, which is provided for above) and
such default continues unremedied for a period of 10 days after (x) notice
thereof is given by the Lender to the Borrower or (y) such default otherwise
becomes known to the Borrower, whichever is earlier or (iv) default is made in
the due observance or performance of any of the other covenants and agreements
contained in Section 7 hereof or any other affirmative covenant of the Borrower
or any other Party contained in this Agreement or any other Loan Document and
such default continues unremedied for a period of 30 days after (x) notice
thereof is given by the Agent to the Borrower or (y) such default otherwise
becomes known to the Borrower, whichever is earlier; or
(e) Negative Covenants - default is made in the due observance or
performance by the Borrower of any of the other covenants or agreements
contained in Section 8 of this Agreement or of any other negative covenant of
the Borrower or any other Party contained in this Agreement or any other Loan
Document; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Borrower or any of its Subsidiaries or
of any of its property is appointed by the order or decree of any court or
agency or supervisory authority having jurisdiction, and such decree or order
remains in effect for more than 30 days; or the Borrower or any of its
Subsidiaries is adjudicated bankrupt or insolvent; or any of such Person's
property is sequestered by court order and such order remains in effect for more
than 30 days; or a petition is filed against the Borrower or any of its
Subsidiaries under any federal bankruptcy, reorganization, arrangement,
insolvency, readjustment or debt, dissolution, liquidation or receivership law
or any jurisdiction, whether now or hereafter in effect, and is not dismissed
within 30 days after such filing; or
(g) Voluntary Petitions or Consents - the Borrower or any of its
Subsidiaries commences a voluntary case or other proceeding or order seeking
liquidation, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or other relief with respect to itself or its debt or
other liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or consents to any such relief or to the appointment of or taking
possession by any such official in an involuntary
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case or other proceeding commenced against it, or fails generally to, or cannot,
pay its debts generally as they become due or takes any corporate action to
authorize or effect any of the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency - the
Borrower or any of its Subsidiaries makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts generally as they
become due, or consents to the appointment of a receiver, trustee, or liquidator
of the Borrower or such Subsidiary or of all or any substantial part of its
Property; or
(i) Undischarged Judgments - a final judgment or judgments for the payment
of money exceeding, in the aggregate, $5,000,000 is rendered by any court or
other governmental body against the Borrower or any of its Subsidiaries and the
Borrower or such Subsidiary does not discharge the same or provide for its
discharge in accordance with its terms, or procure a stay of execution thereof
within 30 days from the date of entry thereof; or
(j) Security Agreements - any Security Agreement for any reason ceases to
create a valid and perfected first-priority Lien on any material portion of the
Collateral purported to be covered thereby, or the Borrower or any of its
Subsidiaries (or any other Person who may have granted or purported to grant
such Lien) will so state in writing; or
(k) Attachment - the Borrower or any of its Subsidiaries shall suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its Property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
(l) Default under U.S. Facility An Event of Default (as defined therein)
occurs and is continuing under the U.S. Facility and is not cured within the
time period specified therein ; or
(m) Change of Control - there shall occur any Change of Control in Sterling
or the Borrower shall cease to be a wholly-owned direct or indirect Subsidiary
of Sterling.
9.2 Right of Setoff. Upon the occurrence and during the continuance of
any Event of Default, the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower or any of its Subsidiaries (any such
notice being expressly waived by the Borrower and its Subsidiaries), to setoff
and apply any and all deposits (general or special, time or demand, provisional
or final (but excluding the funds held in accounts clearly designated as escrow
or trust accounts held by the Borrower or such Subsidiary for the benefit of
Persons which are not Affiliates of the Borrower or any of its Subsidiaries)),
whether or not such setoff results in any loss of interest or other penalty, and
including without limitation all certificates of deposit at any time held, and
any other funds or property at any time held, and other Indebtedness at any time
owing by the Lender to or for the credit or the account of the Borrower or any
such Subsidiary against any and all of the Obligations irrespective of whether
or not the
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Lender will have made any demand under this Agreement or any other Loan
Document. The Borrower also hereby grants to the Lender a security interest in
and hereby transfers, assigns, sets over, and conveys to the Lender, as security
for payment of all Revolving Loans and Reimbursement Obligations, all such
deposits, funds or property of the Borrower or any such Subsidiary, or
Indebtedness of the Lender to the Borrower or any such Subsidiary. Should the
right of the Lender to realize funds in any manner set forth hereinabove be
challenged and any application of such funds be reversed, whether by court order
or otherwise, the Lender shall make restitution or refund same to the Borrower.
The Lender agrees to promptly notify the Borrower after any such setoff and
application, provided that the failure to give such notice will not affect the
validity of such setoff and application. The rights of the Lender under this
Section are in addition to other rights and remedies (including without
limitation other rights of setoff) which the Lender may have. This Section is
subject to the terms and provisions of Section 11.7 hereof.
9.3 Collateral Account. The Borrower hereby agrees, in addition to the
provisions of Section 9.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the Lender, and
automatically and without any request or demand upon the occurrence of an Event
of Default of the type described in Sections 9.1(f), (g) or (h) hereof, pay to
the Lender at its Branch of Account an amount in immediately available funds
equal to the then aggregate principal amount at maturity of all Bankers'
Acceptances and Letters of Credit then outstanding, including any which may be
held by the Lender in its own right, which funds shall be held by the Lender as
Cover.
9.4 Preservation of Security for Unmatured Reimbursement Obligations. In
the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to the Lender under the Loan Documents, and
(ii) payment in full of the principal amount then outstanding of and the accrued
interest on the Revolving Loans and Reimbursement Obligations and fees and all
other amounts payable hereunder and all other amounts secured by the Security
Agreements, any Bankers' Acceptances or Letters of Credit shall remain
outstanding, the Lender shall be entitled to hold (and the Borrower hereby
grants and conveys to the Lender a security interest in and to) all cash or
other property ("Proceeds of Remedies") realized or arising out of the exercise
by the Lender of any rights available to it under the Loan Documents, at law or
in equity, including, without limitation, the proceeds of any foreclosure, as
collateral for the payment of any amounts due or to become due under or in
respect of such Bankers' Acceptances or Letters of Credit. Such Proceeds of
Remedies shall constitute "Collateral" for all purposes under the terms and
provisions of the Security Agreements, and the rights, titles, benefits,
privileges, duties and obligations of Lender with respect thereto shall be
governed by the terms and provisions of this Agreement and, to the extent not
inconsistent with this Agreement, the Security Agreements. The Lender may, but
shall have no obligation to, invest any such Proceeds of Remedies in such manner
as the Lender, in the exercise of its sole discretion, deems appropriate. Such
Proceeds of Remedies shall be applied to Reimbursement Obligations arising in
respect of any such Bankers' Acceptances or Letters of Credit and/or the payment
of the Lender's obligations under any such Bankers' Acceptances or Letters of
Credit when such Bankers' Acceptance or Letter of Credit is presented for
payment. The Borrower hereby agrees
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to execute and deliver to the Lender such security agreements, pledges or other
documents as the Lender may, from time to time, require to perfect the pledge,
Lien and security interest in and to any such Proceeds of Remedies provided for
in this Section. Nothing in this Section shall cause or permit an increase in
the maximum amount of the Revolving Loan Obligations permitted to be outstanding
from time to time under this Agreement.
9.5 Remedies Cumulative. No remedy, right or power conferred upon the
Lender is intended to be exclusive of any other remedy, right or power given
hereunder or now or hereafter existing at law, in equity, or otherwise, and all
such remedies, rights and powers shall be cumulative.
10. Payment of Certain Amounts: If the Borrower fails to pay to the Lender
when due any amounts owing under this Agreement for fees, interest or any other
sum (other than principal) from time to time due to the Lender, the Lender,
without prejudice to any remedy the Lender may have pursuant to this Agreement
and without notice to, or authorization by, the Borrower and without regard to
minimum amounts or whole multiples or any other restriction contained in this
Agreement, may elect, at any time and from time to time, to draw down from the
unused amount of the Revolving Loans, and to pay to itself a corresponding
amount which shall be deemed to be a Prime Rate Borrowing to the Borrower under
this Agreement and shall be payable on demand and the Lender, as the case may
be, shall be entitled to all of the covenants and conditions and representations
and warranties in favour of the Lender contained in this Agreement.
11. Miscellaneous.
11.1 Waiver. No waiver of any Default or Event of Default shall be a waiver
of any other Default or Event of Default. No failure on the part of the Lender
to exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under any Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege thereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided in the
Loan Documents are cumulative and not exclusive of any remedies provided by law
or in equity.
11.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telecopy (confirmed by
mail) or other writing and telexed, telecopied, mailed or delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof; or, as to any party, at such other address as shall be
designated by such party in a notice to the other party given in accordance with
this Section 11.2. Except as otherwise provided in this Agreement, all such
notices or communications shall be deemed to have been duly given when (i)
transmitted by telex or telecopier, (ii) personally delivered (iii) one Business
Day after deposit with an overnight mail or delivery service, postage prepaid or
(iv) three Business Days' after deposit in a receptacle maintained by the Canada
Post,
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postage prepaid, registered or certified mail, return receipt requested, in each
case given or addressed as aforesaid.
11.3 Expenses, Etc. Whether or not any Revolving Loan is ever made or any
Bankers' Acceptance ever stamped and issued or any Letter of Credit is issued,
the Borrower shall pay or reimburse on demand (a) the Lender for paying the
reasonable fees and expenses of one legal counsel to the Lender, in connection
with the preparation, negotiation, execution and delivery of this Agreement
(including the exhibits and schedules hereto), the Security Agreements and the
other Loan Documents and the making of the Revolving Loans hereunder, and any
modification, supplement or waiver of any of the terms of this Agreement or any
other Loan Document; (b) the Lender for any lien search fees; (c) the Lender for
paying all transfer, stamp, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement, any Bankers' Acceptance, any Letter of Credit or any other Loan
Document or any other document referred to herein or therein; (d) the Lender for
paying all costs, expenses, taxes, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement, any Security Agreement or any
document referred to herein or therein, not otherwise incurred by Borrower or
its legal counsel, and (e) the Lender for paying all amounts reasonably
expended, advanced or incurred by the Lender to satisfy any obligation of the
Borrower under this Agreement or any other Loan Document, to protect the
Collateral, to collect the Obligations or to enforce, protect, preserve or
defend the rights of the Lender under this Agreement or any other Loan Document,
including, without limitation, fees and expenses incurred in connection with the
Lender's participation as a member of a creditor's committee in a case commenced
under the Bankruptcy and Insolvency Act or other similar law and all other
customary out-of-pocket expenses incurred by the Lender in connection with such
matters, together with interest thereon at the Past Due Rate on each such amount
from the date which is fifteen days after demand is made on the Borrower until
the date of reimbursement to the Lender.
11.4 Indemnification. The Borrower shall indemnify the Lender and each
affiliate thereof and their respective directors, officers, employees and agents
from, and hold each of them harmless against, any and all losses, liabilities,
claims or damages to which any of them may become subject, REGARDLESS OF WHETHER
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY INDEMNIFIED PARTIES, insofar
as such losses, liabilities, claims or damages arise out of or result from any
(i) actual or proposed use by the Borrower of the proceeds of any extension of
credit by the Lender hereunder; (ii) breach by the Borrower of this Agreement or
any other Loan Document or the breach by any Party of any Loan Document; (iii)
violation by the Borrower or any other Party of any Legal Requirement; (iv)
investigation, litigation or other proceeding relating to any of the foregoing,
and the Borrower shall reimburse the Lender, and each Affiliate thereof and
their respective directors, officers, employees and agents, upon demand for any
reasonable expenses (including reasonable legal fees) incurred in connection
with any such investigation or proceeding, or (v) taxes (excluding income taxes
and franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Obligations or any Loan Document; provided, however, that the
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Borrower shall not have any obligations pursuant to this Section with respect to
any losses, liabilities, claims, damages or expenses incurred by the Person
seeking indemnification by reason of the gross negligence or wilful misconduct
of that Person. Nothing in this Section is intended to limit the obligations of
the Borrower under any other provision of this Agreement.
11.5 Amendments, Etc. No amendment or modification of this Agreement or
any other Loan Document shall in any event be effective against the Borrower
unless the same shall be agreed or consented to in writing by the Borrower. No
amendment, modification or waiver of any provision of this Agreement or any
other Loan Document, nor any consent to any departure by the Borrower therefrom,
shall in any event be effective against the Lender unless the same shall be
agreed or consented to in writing by the Lender, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
11.6 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lender and their respective successors and assigns; provided,
however, that the Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Lender, and any
such assignment or transfer without such consent shall be null and void. The
Lender may assign with the Borrower's prior written consent, not to be
unreasonably withheld, any or all of its rights and obligations under this
Agreement and all agreements entered into or delivered in connection herewith.
Upon completion of any such assignment, the obligations of the assignor and the
assignee under this Agreement shall be several and not joint and several and
neither the assignor nor the assignee shall be responsible in any way for the
obligations of the other. The Borrower acknowledges that in the regular course
of the Lender's commercial banking business the Lender may from time to time
sell participating interests in the Revolving Loans and the Bankers' Acceptances
and Letters of Credit to other financial institutions ("Participants"). Upon the
completion of any such participation, the Lender shall remain responsible for
the fulfilment of its obligation hereunder and the Lender shall act on behalf of
its Participant in all dealings with the Borrower. The Borrower agrees that each
Participant shall be entitled to the benefits of Sections 7.9 and 7.10 of this
Agreement with respect to its participation in the Borrowings and Bankers'
Acceptances and Letters of Credit outstanding from time to time, in each case
with effect from the time at which such financial institution becomes a
Participant; provided that the overall liability of the Borrower shall not be
increased by the sale of such participating interests.
11.7 Limitation of Interest. With the intent that the rate of interest
herein shall at all times be lawful, if the receipt of any funds owing hereunder
or under any other agreement related hereto by the Lender would cause the Lender
to charge the Borrower a criminal rate of interest (as contemplated under the
Criminal Code (Canada)), the Lender agrees it will not require the payment or
receipt thereof or a portion thereof which would cause a criminal rate of
interest to be charged and if received will return such funds or equity to the
Borrower so that the rate of interest paid by the Borrower shall not exceed the
rate of 58% per annum from the date this Agreement was entered into.
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11.8 Survival. The obligations of the Borrower under Sections 2.3(h),
2.3(i), 7.9, 7.10, 11.3 and 11.4 hereof and all other obligations of the
Borrower in any other Loan Document (to the extent stated therein), and the
obligations of the Lender under Section 11.7 hereof, shall survive the repayment
of the Revolving Loans and Reimbursement Obligations and the termination of the
Revolving Loan Commitments and maturity of the Bankers' Acceptances and Letters
of Credit.
11.9 Captions. Captions and section headings appearing herein are included
solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.10 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.11 Governing Law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED)
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE PROVINCE OF
ONTARIO AND CANADA FROM TIME TO TIME IN EFFECT.
11.12 Severability. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
11.13 Judgment Currency. If for the purpose of obtaining judgment in
any court, it is necessary to convert an amount due hereunder or under any
instrument delivered hereunder from the currency in which it is due (the
"Original Currency") into another currency (the "Second Currency") the parties
hereto agree, to the fullest extent permitted by law, that the rate of exchange
used shall be that at which, in accordance with normal banking procedures, the
Lender could purchase the Original Currency with the Second Currency on the date
two Business Days preceding that on which judgment is given. The obligation of
the Borrower in respect of any Original Currency due from it to the Lender
hereunder or any instrument delivered hereunder shall, notwithstanding any
judgment in the Second Currency, be discharged by a payment made to the Lender
on account thereof in the Second Currency only to the extent that, on the
Business Day following receipt of such payment in the Second Currency, the
Lender may, in accordance with normal banking procedures, purchase the Original
Currency with the amount of the Second Currency so paid; and if the amount of
the Original Currency which may be so purchased is less than the amount
originally due in the Original Currency, the Borrower agrees as a separate and
independent obligation and notwithstanding any such payment or judgment to
indemnify the Lender against such deficiency.
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11.14 Confidentiality. The Lender agrees to comply with its customary
procedures to keep any information delivered or made available by the Borrower
to it confidential from anyone other than Persons employed or retained by such
Lender who are or are expected to become engaged in evaluating, approving,
structuring or administering commitments, the Revolving Loans, or Bankers'
Acceptances or Letters of Credit or participations therein or the collateral
thereon or the Loan Documents, provided that nothing herein shall prevent the
Lender from disclosing such information (a) to any Person if reasonably
incidental to the administration of the Revolving Loans, (b) upon the order of
any court or administrative agency, (c) upon the request or demand of any
regulatory agency or authority having jurisdiction over the Lender, (d) which
has been publicly disclosed, (e) in connection with any litigation to which the
Lender or its respective Affiliates may be a party, (f) to the extent reasonably
required or desirable in connection with the exercise of any remedy hereunder or
under any Loan Document, (g) to the Lender's legal counsel and independent
auditors, and (h) to any actual or proposed participant or assignee of all or
part of its Revolving Loans, Revolving Loan Commitments or participations
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
STERLING PULP CHEMICALS, LTD.
By: /s/ Jim P. Wise
Name: Jim P. Wise
Title: Vice President - Finance & Treasury
Address for Notices:
2 Gibbs Road
Toronto, Ontario, Canada M9B 1R1
Attention: Mr. Mark Davis
Telecopy No.: (416) 239-8091
THE BANK OF NOVA SCOTIA
By: /s/ Michael G. Locke
Name: Michael G. Locke
Title: V.P.
46
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Address for Notices:
Branch of Account
195 The West Mall
Etobicoke, Ontario, Canada M9C 5K1
Attention: Mr. Bill Carius
with a copy to:
1100 Louisiana, Suite 3000
Houston, Texas 77002
Attention: Messrs. Joseph P. Lattanzi
and Michael W. Nepveux
Telecopy No.: (713) 752-2425
and with a copy to:
Corporate Credit - West
44 King Street West
Toronto, Ontario, Canada M5H 1H1
Attention: Mr. David Torrey
Telecopy No.: (416) 866-3750
47
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EXHIBIT "A"
STERLING PULP CHEMICALS, LTD.
REQUEST FOR EXTENSION OF CREDIT
DATE
The undersigned hereby certifies that the undersigned is the
_________________________-of STERLING PULP CHEMICALS, LTD., an Ontario
corporation (the "Company"), and that as such the undersigned is authorized to
execute this Request for Extension of Credit (the "Request") on behalf of the
Company pursuant to the Credit Agreement (as it may be amended, supplemented or
restated from time to time, the "Credit Agreement") dated as of April 28, 1995,
by and between the Company and The Bank of Nova Scotia. The Borrowing being
requested hereby is to be in the amount indicated and is requested to be made on
____________________________ , which is a Business Day.
Amount
------
Borrowing (Specify Cdn. orU.S. dollar for L/C)
- --------- ------------------------------------
Prime Rate Borrowing $__________________
Bankers' Acceptance $__________________
Letter of Credit $__________________
The undersigned further certifies, represents and warrants that to the
undersigned's knowledge, after due inquiry (each capitalized term used herein
having the same meaning given to it in the Credit Agreement unless otherwise
specified herein) :
(a) As of the date hereof, the Maximum Revolving Loan Available Amount is:
$________________________________
(b) If acceptance of a Bankers' Acceptance is requested hereby, a duly
executed draft is attached and should have an expiration date of _______________
(which date is not less than 30 days nor more than 180 days after date of
acceptance).
48
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EXHIBIT "A"
STERLING PULP CHEMICALS, LTD.
REQUEST FOR EXTENSION OF CREDIT
DATE
The undersigned hereby certifies that the undersigned is the
____________________________________________________-of STERLING PULP CHEMICALS,
LTD., an Ontario corporation (the "Company"), and that as such the undersigned
is authorized to
(c) If a Letter of Credit is requested hereby, it should be issued for the
benefit of _______________________________ and should have an expiration date of
_____________________ (which date is no later than one year from the proposed
date of issuance) and any special language to be incorporated into such Letter
of Credit is attached hereto.
(d) The representations and warranties made in each Loan Document are true
and correct in all material respects on and as of the time of delivery hereof,
with the same force and effect as if made on and as of the time of delivery
hereof.
(e) No event which has had (or could reasonably be expected to have) a
Material Adverse Effect has occurred.
(f) No Default or Event of Default has occurred and is continuing or will
occur as a result of the making of the Borrowing.
STERLING PULP CHEMICALS, LTD.
BY: _____________________________
NAME: ___________________________
TITLE: ____________________________
49
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EXHIBIT "B"
STERLING PULP CHEMICALS, LTD.
BORROWING BASE CERTIFICATE
DATE
The undersigned hereby certifies that the undersigned is the
_________________________________________________________________ of STERLING
PULP CHEMICALS, LTD., an Ontario corporation (the " Company"), and that as
such the undersigned is authorized to execute this Borrowing Base Certificate on
behalf of the Company pursuant to the Credit Agreement (as it may be amended,
supplemented or restated from time to time, the "Credit Agreement") dated as of
April 28, 1995, by and between the Company and The Bank of Nova Scotia. The
undersigned further certifies, represents and warrants that to the undersigned's
knowledge, after due inquiry (each capitalized term used herein having the same
meaning given to it in the Credit Agreement unless otherwise specified herein):
(a) The Borrowing Base as of the date hereof is calculated as follows:
(i) Eligible Accounts as of the date hereof
$___________________
(ii) 85% times Line (a) (I)
$___________________
(iii) Eligible Inventory as of the date hereof
$___________________
(iv) 65% times Line (a) (iii)
$___________________
(v) Value (determined in accordance with GAAP) as of the date hereof
of materials and supplies which are not Eligible Inventory
$___________________
(vi) 75% times Line (a) (vi)
54
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(not to exceed $5,000,000)
$___________________
(vii) 65% times Line (a) (vi)
$___________________
55
<PAGE>
(viii) Borrowing Base as of the date hereof: Line (a) (ii) plus (y)
the lesser of (I) Line (a) (ii) or (II) the sum of Line (a) (iv) plus
Line (a) (vii)
$___________________
(b) Calculations of Eligible Accounts and Eligible Inventory are set forth
on Schedule 1 attached hereto and such calculations are true and correct in all
respects and conform to the definitions of "Eligible Accounts" and "Eligible
Inventory" set forth in the Credit Agreement.
(c) No Default or Event of Default has occurred and is continuing.
STERLING PULP CHEMICALS, LTD.
BY: _____________________________
NAME: ___________________________
TITLE: ____________________________
56
<PAGE>
EXHIBIT " C "
SUBSIDIARIES AND AFFILIATES OF THE BORROWER
1. Sterling Chemicals, Inc. a Delaware corporation
2. Sterling Canada, Inc. a Delaware corporation (100% owned by Sterling
Chemicals, Inc.)
3. Sterling Chemicals International Inc., a Delaware corporation (100%) owned
by Sterling Chemicals Inc.)
4. Sterling Energy, Inc., a Delaware corporation (100% owned by Sterling
Chemicals Inc.)
5. Sterling Chemicals Marketing, Inc., a U.S. Virgin Islands corporation (100%
owned by Sterling Chemicals Inc.
6. Sterling NRO, Ltd., an Ontario corporation (100% owned by Sterling
Canada ,Inc.)
7. Sterling Pulp Chemicals US, Inc. a Delaware corporation (100% owned by
Sterling Canada Inc.)
57
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EXHIBIT " D -1 "
STERLING PULP CHEMICALS, LTD.
COMPLIANCE CERTIFICATE
DATE
The undersigned hereby certifies that the undersigned is the
_________________________________________________________________
_____________of STERLING PULP CHEMICALS, LTD., an Ontario corporation (the
"Borrower") , and that as such the undersigned is authorized to execute this
certificate on behalf of the borrower pursuant to the Credit Agreement (as it
may be amended, supplemented or restated from time to time, the "Credit
Agreement") dated as of April 28, 1995, by and between the Borrower and The Bank
of Nova Scotia; and that a review of the Borrower and its Subsidiaries has been
made under the supervision of the undersigned with view to determining their
respective obligations under the Credit Agreement and the other Loan Documents;
and on behalf of the Borrower further certifies, after due inquiry (each
capitalized term used herein having the same meaning given to it in the Credit
Agreement unless otherwise specified):
(a) The financial statements delivered to the Lender concurrently with this
Compliance Certificate have been prepared in accordance with GAAP consistently
followed throughout the period indicated and fairly present the financial
condition and results of operations of the applicable Persons as at the end of,
and for, the period indicated (subject, in the case of Quarterly Financial
Statements and monthly statements of income and cash flow, to normal changes
resulting from year-end adjustments).
(b) No Default or Event of Default has occurred and is continuing. In this
regard, the compliance with the provisions of section 7.3 of the Credit
Agreement is as follows:
58
<PAGE>
Net Worth
- ---------
Actual Required
- ------ --------
$______________________________ U.S. $ 13,000,000, ignoring accumulated
currency translation adjustments made after
march 31, 1995 which are caused solely by a
change in the currency exchange ratio
between the Dollar and U.S. Dollar and
including any change to the amount of the
accumulated currency translation adjustment
resulting solely from the accounting
treatment of any amalgamation of the
Borrower and Sterling NRO, Ltd.
STERLING PULP CHEMICALS, LTD.
BY:______________________________
NAME:___________________________
TITLE:____________________________
59
<PAGE>
EXHIBIT "D-2"
STERLING CHEMICALS, INC.
COMPLIANCE CERTIFICATE
DATE
The undersigned hereby certifies that the undersigned is
the______________________________________________________________ _______of
STERLING CHEMICALS, INC. (" Sterling") , a Delaware corporation, which
indirectly is wholly-owning parent of Sterling Pulp Chemicals, Ltd. ("the
Borrower") and that as such the undersigned is authorized to execute this
certificate on behalf of Sterling pursuant to the Credit Agreement ( as it may
be amended, supplemented or restated from time to time, the "Credit Agreement")
dated as of April 28, 1995, by and between the Borrower and The Bank of Nova
Scotia; and that a review of Sterling and its Subsidiaries have fulfilled all
of their respective obligations under the Credit Agreement made on their behalf
by the Borrower; and on behalf of Sterling and the Borrower further certifies,
represents and warrants that to the undersigned's knowledge, after due inquiry
(each capitalized term used herein having the same meaning to it in the Credit
Agreement unless otherwise specified):
(a) The financial statements delivered to the Lender concurrently with this
Compliance Certificate have been prepared in accordance with GAAP consistently
followed throughout the period indicated and fairly present the financial
condition and results of operations of the applicable Persons as at the end of
Quarterly Financial Statements and monthly statements of income and cash flow,
to normal changes resulting from year-end adjustments).
(b) No Default or Event of Default has occurred and is continuing. In
this regard, the compliance with the provisions of Section 7.3 of the Credit
Agreement is as follows:
60
<PAGE>
(i) SECTION 7.3 (A) -- DEBT TO EBITDA RATIO
Actual Required
_____ to 1.00 4.00 to 1.00
(ii) SECTION 7.3 (B) -- FIXED CHARGE COVERAGE RATIO
Actual Required
_____ to 1.00 1.25 to 1.00
(iii) SECTION 7.3 (C) -- ADJUSTED FIXED CHARGED RATIO
Actual Required
_____ to 1.00 1.10 to 1.00
(iv) SECTION 7.3 (D) -- NET WORTH
Actual Required
$_________ $_________
(v) SECTION 7.3 (E) -- CURRENT RATIO
Actual Required
_____ to 1.00 1.10 to 1.00
STERLING CHEMICALS, INC.
BY: ________________________________
NAME:______________________________
TITLE_______________________________
61
<PAGE>
SCHEDULE 8.1
BORROWED MONEY INDEBTEDNESS
STERLING CHEMICALS, INC.
None
STERLING PULP CHEMICALS LTD.
None
62
<PAGE>
SCHEDULE 8.2
LIENS
STERLING PULP CHEMICALS, LTD.
Personal Property Security Act (Ontario)
(a) Secured Party: Xerox Canada Ltd./Ltee
Collateral Classification: Equipment, Other
Registration No.: 931103 1531 0088 4495
File No.: 070734231
Date of Registration: November 3, 1993
General Collateral Description Xerox equipment
(b) Secured Party Xerox Canada Ltd./Ltee
Collateral Classification: Equipment, Other
Registration No: 931025 1535 0088 5733
File No.: 070739055
Date of Registration November 3, 1993
General Collateral Description: Xerox equipment
(c) Secured Party: Pacific National Leasing Corporation
Collateral Classification: Equipment, Other
Registration No.: 930128 1351 0043 0182
File No.: 053832618
Date of Registration January 28, 1993
Other Information: With regards to lease #3159-004, photocopier
(d) Secured Party: Manufacturer Finance Programs Ltd.
Collateral Classification: Equipment, Other
Registration No.: 930114 1110 0004 6691
File No.: 429291189
Date of Registration: January 14, 1993
General Collateral Description: All equipment pursuant to schedule of
terms no. 503 dated December 16, 1992,
and all equipment leased and amounts owing thereunder
63
<PAGE>
(e) Secured Party: Manufacturer Finance Programs Ltd.
Collateral Classification: Equipment, Other
Registration No.: 930114 1103 0004 6676
File No.: 429291198
Date of Registration: January 14, 1993
General Collateral Description Computer equipment pursuant to lease
agreement no. 503-1 dated January 7, 1993
under schedule of terms no. 503 dated
December 16, 1992 and all amounts owing
thereunder
The General Collateral Description was amended on March 23, 1993 by Financing
Change Statement no. 930323 2013 1531 0067 to " computer equipment pursuant to
lease agreement no. 503.1 dated March 19, 1993 under schedule of terms no. 503
dated March 19, 1993 and all amounts owing thereunder."
This registration was assigned on May 21, 1993 to Scotia Leasing Limited by
Financing Change Statement no. 930521 2040 1529 9087.
This registration was amended on May 27, 1993 by Financing Charge Statement no.
930527 2134 1531 9471, to delete Scotia Leasing Limited as secured party and to
add Manufacturer Finance Programs Ltd. and The Bank of Nova Scotia as secured
parties.
This registration was amended on September 21, 1993 by Financing Change
Statement no. 930921 2123 1531 4091 to change the address of the secured party.
This registration also provides new information for the general collateral
description and a new secured party. The general description now provides"
computer equipment pursuant to lease agreement no. 503-1 dated 19/3/93 and
amendment dated 27/8/93 under Master Lease no. 503 dated 19/3/93 and all amounts
owing thereunder. The secured party referred to is " MFP Technology Services
Ltd."
This registration was amended on October 18, 1993 by Financing Change Statement
no. 931018 2030 1529 2339 to amend the general collateral description to
"computer equipment pursuant to lease agreement no. 503-1 dated March 19, 1993
and amendment dated September 23, 1993 and all amendments thereto under schedule
of terms no. 503 dated March 19, 1993 and all amount owing thereunder."
64
<PAGE>
This registration was renewed on December 15, 1994 for a period of two years by
Financing Change Statement no. 941212 2148 1513 0136.
This registration was renewed on March 7, 1995 for a period of two years by
Financing Change Statement no. 950307 1725 1513 6148.
65
<PAGE>
(f) Secured Party: NEL National Equipment Leasing Ltd.
Collateral Classification: [none listed]
Registration No.: 920922 0905 0088 8976
File No.: 419463342
Date of Registration: September 22, 1992
General Collateral Description: 1-Konica 3035 copier
s/n 542209269 C/WRADF S/N
48117857, ADD/PFU
S/N 73212189, 20 bin sorter S/N 74103940,
1-Konia 86 ol fax S/N 7530201108
(g) Secured Party: The Hamilton Group Limited
Debtor: Albright & Wilson Americas
Collateral Classification: Equipment, Other
Registration No.: 920519 0849 0088 1992
File No.: 433897884
Date of Registration: May 19, 1992
General Collateral Description: All property leased by secured party to
debtor
This registration was amended on January 13, 1993 by Financing Change Statement
no. 930113 1123 0043 1234 to change the name of the debtor to Sterling Pulp
Chemicals, Ltd.
Personal Property Security Act (Alberta)
(a) Secured Party: Pacific National Corporation
Registration No.: 4476059
Date of Registration: February 16, 1993
General Collateral Description: With regards to lease #2-21633-0,
Telephone System
(b) Secured Party: Benndorf-Verster Ltd.
Registration No.: 5174427
Date of Registration: April 20, 1994
General Collateral Description: Canon office equipment
(c) Secured Party: General Electric Capital Canada Leasing Inc.
Registration No.: 5651278
Date of Registration: February 17, 1995
66
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General Collateral Description: Railway Rolling Stock
67
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STERLING CHEMICALS, INC.
Liens existing under the Security Agreement dated as of August 1, 1988,
between BP Chemicals Inc., formerly known as BP Chemicals America Inc., as
secured party, and Sterling Chemicals, Inc. as debtor, securing obligations
under the Production Agreement, dated as of April 15, 1988, between those
parties covering certain proceeds of such production, and certain equipment and
fixtures related to the production, all as describe in the Security Agreement
68
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SCHEDULE 8.3
CONTINGENT LIABILITIES
STERLING CHEMICALS, LTD.
None
STERLING PULP CHEMICALS, LTD.
None
69
<PAGE>
SCHEDULE 8.8
EXISTING INVESTMENTS
STERLING CHEMICALS, INC.
Primex, Ltd.- Common Stock (2,500 shares)
Primex, Ltd.- Series " A " Preferred (7,957 shares)
50% of S & L Co-generation ( a Partnership )
STERLING PULP CHEMICALS, LTD.
None
70
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Exhibit 10.13
***OMITTED INFORMATION DENOTED BY ASTERISKS (***)
HAS BEEN FILED SEPARATELY WITH THE COMMISSION
AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST***
STYRENE MONOMER CONVERSION CONTRACT
THIS CONTRACT, made as of November 3, 1995 by and between Sterling
Chemicals, Inc., a Delaware corporation ("Sterling') having a plant at Texas
City, Texas (the "Plant"), and Monsanto Company, a Delaware corporation
("Monsanto").
WITNESSETH:
WHEREAS, Sterling desires to exchange styrene monomer with Monsanto
and Monsanto desires to exchange benzene with Sterling, on the terms and
conditions hereinafter specified, including terms and conditions set forth in
Attachment 1 hereto, which is incorporated herein by reference;
NOW, THEREFORE, in consideration of the following mutual covenants,
Sterling and Monsanto agree:
1. GOODS. Sterling shall deliver styrene monomer meeting the
specifications set forth in Exhibit A hereto, which are incorporated herein by
reference (as used with reference to Sterling's delivery obligation, herein
called the "Goods") to Monsanto in exchange for benzene meeting the
specifications set forth in Exhibit B hereto, which are incorporated herein by
reference (as used with reference to Monsanto's delivery obligation, herein
called the "Goods") to be delivered by Monsanto to Sterling, together with the
differential to be paid by Monsanto to Sterling as hereafter provided in
Section 4.
2. CONTRACT PERIOD. The period of this Contract shall be from
January 1, 1996 through December 31, 2000, and evergreen thereafter, cancelable
by either party upon written notice to the other party no less than 24 months
prior to December 31, 2000, or any subsequent December 31.
3. QUANTITY. Subject to all the terms and conditions hereof, the
Goods to be delivered hereunder by Sterling (and corresponding quantities of
Goods to be delivered by Monsanto pursuant to the ratio provided) shall be as
scheduled by Monsanto (***) per calendar
<PAGE>
year on a ratable basis without Sterling's prior consent. A maximum of (***). of
this annual volume may be designated by Monsanto for Monsanto's consumption in
one of its consuming locations outside of the U.S. without Sterling's agreement.
(***) Promptly after the close of each calendar quarter, but not later than
thirty (30) days thereafter, Sterling shall compute the actual ratio of usage
for such quarter, and Monsanto will be appropriately and equitably debited or
credited for deliveries of benzene to correct for any over or under deliveries
which may have occurred during such quarter. Monsanto will adjust deliveries of
benzene during the first month of the quarter to compensate for deviations from
actual utilization ratios of the previous quarter.
4. DIFFERENTIAL. Subject to all the terms and conditions hereof, in
addition to the Goods to be exchanged by Monsanto for each one (1) pound of
Goods delivered by Sterling in any calendar quarter in conformance with the
terms hereof, Monsanto shall pay Sterling (***)
(***)
Where:
(***)
For any calendar month Sterling shall tentatively invoice Monsanto for
the differential due pursuant to the foregoing formula based on Sterling's best
good faith estimate of the various values which make up the various factors in
the formula. Promptly after the close of each calendar quarter, but not more
than thirty (30) days thereafter, Sterling shall re-compute the composite
differentials based on the actual values for such factors and Monsanto shall be
approximately and equitably debited or credited to conform the initial tentative
invoice to the actual differential due from Monsanto for Goods delivered during
such calendar quarter.
Notwithstanding the foregoing provisions, should Sterling develop a
different more favorable conversion formula with a third party to determine a
fee to Sterling for converting benzene into styrene monomer for consumption
within the U.S., such formula shall be substituted herein and used to determine
the differential to be paid by Monsanto to Sterling hereunder. The foregoing
provision shall not apply to Goods designated for consumption outside of the
United States, nor for any conversion or sale of Goods by Sterling for which the
Buyer has provided significant capital contribution, nor for Goods which do not
involve contract quantities and a contract term similar to the quantities and
term of this Contract.
2
<PAGE>
5. SPECIFICATIONS. The specifications attached hereto shall not be
changed without the mutual agreement of both parties. It is understood,
however, that if at any time during the Contract Period environmental
regulations change so that Monsanto can no longer make products acceptable to
its customers from Goods meeting the attached specifications, Monsanto shall
notify Sterling promptly and if the parties are unable, after attempting to do
so in good faith, to reach agreement on revised specifications for the Goods,
Monsanto may, by and effective upon notice to Sterling, suspend its obligation
to obtain from Sterling hereunder so much of the Goods as to which such
conditions prevail, without liability, until such time as Monsanto and Sterling
either reach agreement on revised specification for the Goods, or Sterling
otherwise modifies the Goods so that Monsanto is able to make products therefrom
acceptable under then current general market conditions, and during any such
suspension period, Monsanto may obtain its requirements for so much of the Goods
as require revised specifications from others who can meet such revised
specifications. Any such suspension period shall not operate to extend the
Contract Period.
6. DELIVERIES. The F.O.B. point where title and risk of loss shall
pass to Sterling from Monsanto on the Goods to be delivered by Monsanto shall be
when the carrier tenders delivery of the barge/ship/or pipeline to Sterling at
the Plant or other Sterling terminal. The F.O.B. point where risk of loss shall
pass to Monsanto from Sterling on the Goods to be delivered by Sterling shall be
when the Goods have been loaded aboard the delivering tankcar, barge or ship and
possession of the conveyance is in the carrier. The F.O.B. point where title
shall pass to Monsanto from Sterling on the Goods to be delivered by Sterling
shall be when the carrier tenders delivery of the ship or barge to Monsanto at
the Port Plastics Muscatine Facility or other designated location in the
continental United States. For any shipment of Goods to points of destination
outside the continental United States, the F.O.B. point where tile and risk of
loss shall pass to Monsanto from Sterling on the Goods to be delivered by
Sterling shall be when the Goods have been loaded aboard the delivering tankcar,
barge or ship and possession of the conveyance is in the carrier. The method of
delivery shall be by pipeline or barge for Benzene; and by barges, tankcars or
ships for Styrene furnished or arranged for by Monsanto.
7. SPECIAL TERMINATION/ASSIGNMENT RIGHTS. Monsanto may terminate its
quantity obligation as identified herein in Paragraph 3 if Monsanto elects to
sell to any third party its business which consumes Goods, by giving Sterling at
least twelve (12) months prior notice. In the event Monsanto does not sell the
entire business which consumes directly or indirectly the type of Goods
purchased hereunder, any termination of Monsanto's quantity obligation must be
on a pro rata basis with other suppliers of Goods to Monsanto subject to the
consent of Sterling.
3
<PAGE>
In the event of the sale of any Goods consuming business, and notwithstanding
the prohibition against assignment contained in Section 12 of the "General Terms
and Conditions", Monsanto will exercise all reasonable, good faith efforts to
assign this Contract with the consent of Sterling (which consent will not be
unreasonably withheld) to any one or more third parties which purchase a
business of Monsanto which consumes, directly or indirectly, a quantity of the
Goods covered hereby to the extent of the quantity so consumed, provided at
least ninety (90) days prior notice is given in writing to Sterling of any such
assignment. If Monsanto is for any reason unable to assign this Contract to the
third parties or Sterling does not consent to the assignment. Monsanto may
nevertheless terminate its obligations with respect to any such quantity in
accordance with the twelve (12) month notice provision set forth above. Sterling
shall be deemed to have approved any such assignment unless it has raised
objections to such assignment within thirty (30) days of receipt of such written
notice.
8. WATERBORNE DELIVERY & MEASUREMENT. (a) Monsanto shall give
reasonable prior notice of barge/ship arrival and permitted laytime applicable
to the barge/ship. After Sterling accepts a barge/ship nominated by Monsanto,
Sterling shall provide a safe berth at all times for any such barge placed for
loading/unloading by Monsanto. (b) Barges/ships shall be handled with all
reasonable expediency and any delay beyond permitted laytime of which Sterling
has been advised by Monsanto for the type of equipment used shall be paid for by
Sterling. This permitted laytime will be 1500 barrels per hour plus three free
hours of time for every ship or each barge loaded during one trip of the unit
tow. (c) Sterling shall inspect all barges/ships for cleanliness so as not to
affect purity of the Goods to be loaded. Inspection of the quantity and quality
of Goods being loaded upon or unloaded from barge(s)/ship(s) at the loading or
unloading point shall be performed by a licensed inspector of petroleum mutually
agreed upon by the parties, and the cost for such service shall be shared
equally by Monsanto and Sterling. The determination of the quantity of Goods
delivered hereunder shall be determined by taking the opening and closing
inventory of Sterling's properly calibrated still shore tank before and after
each shipment, unless such quantity determination is proven to be in error. For
invoicing purposes volume shall be corrected to 60 degrees Fahrenheit in
accordance with applicable ASTM tables. Inspection of quality of the Goods shall
be made on representative samples of the Goods taken from loading flange of
Monsanto's barge at loading point by a licensed inspector of petroleum products.
In the event that a disagreement should arise as to quantity or quality, an
inspection will be made by such mutually agreed upon licensed inspector of
petroleum products and the results of such inspection shall govern, the cost to
be borne by the party proven to be in error.
4
<PAGE>
9. BOOKS & RECORDS. If Monsanto or Sterling so requests, either
party shall make available to an independent certified public accounting firm,
mutually acceptable to Monsanto and Sterling and paid for by the requesting
party such of Sterling's or Monsanto's books and records as shall be necessary
to permit such accountants to verify the propriety and correctness of any matter
relevant to the performance of this Contract or one or more of the provisions
hereof, provided, however, that such accountant shall report to the requesting
party only his conclusion concerning the correctness and accuracy of the
calculations and whether there has been a correct application of the Contract
provisions or, if not, what such firm considers to be the correct calculations
and/or application of the Contract. Such firm shall agree to keep confidential
the information of Sterling and Monsanto to which it has access pursuant to such
agreement as Sterling or Monsanto may reasonably require, and shall not
otherwise divulge any of the data of Sterling or Monsanto which it has inspected
or reviewed without the consent of said party.
10. TANKCAR DELIVERY AND MEASUREMENT. (a) Sterling agrees to use
reasonable efforts within the current tankcar capabilities to provide necessary
tankcars to Monsanto upon reasonable notice of Monsanto's requirements;
provided, however that Sterling shall incur no liability hereunder in the event
such railcars cannot be made available through reasonable efforts by Sterling.
(b) Sterling shall be responsible for inspection of all tankcars for
cleanliness so as not to affect purity of the Goods to be loaded. (c)
Quantities of Goods shipped hereunder by tankcars shall be determined by
weighing of the cars on certified scales before and after loading by shipping
party. The receiving party will gauge or weigh cars upon arrival and if the
amount gauged or weighed is different than shipping party's weight by more than
one percent (l%), the receiving party shall notify the shipping party of such
discrepancy and, upon agreement, shipping party shall issue an appropriate debit
or credit to adjust the shipped quantity to the quantity received.
IN WITNESS WHEREOF, the parties have executed this Contract to be
effective as of the day and year first above written.
MONSANTO COMPANY STERLING CHEMICALS, INC.
By: /s/ W. B. Gray By: /s/ Robert W. Roten
(W. B. Gray) (Robert W. Roten)
Title: Director of Purchasing Title: Executive VP and Chief Operating Officer
5
<PAGE>
ATTACHMENT I
Monsanto Company
and
Sterling Chemicals, Inc.
GENERAL TERMS AND CONDITIONS
If, and to the extent that, the transaction governed by the following
Terms and Conditions is a sale and purchase transaction, the phrase "shipping
party" shall mean "Seller", and the phrase "receiving party" shall mean "Buyer",
unless the context requires otherwise. In the event of a conflict between these
"General Terms and Conditions" and the specific terms and conditions in the
Contract to which they are attached, such specific terms and conditions shall
govern.
1. EXCUSE OF PERFORMANCE. (a) Shipments and deliveries may be
suspended by either party in the event of: Act of God, declared or undeclared
war, acts of the public enemy, riot, fire, explosion, accident, flood, sabotage,
blockades, embargoes, insurrections, epidemics, landslides, lightning,
earthquakes, storms, hurricanes, washouts, civil disturbances, arrests; lack of
adequate fuel, power, raw materials, labor, containers or transportation
facilities; compliance with federal, state, local, municipal, civil and military
governmental and governmental agency requests, laws, regulations, orders,
actions, requisitions, restraints or directives; breakage, failures,
disruptions, and necessary maintenance of machinery or apparatus; national
defense requirements or any other event, whether or not of the class or kind
enumerated herein, beyond the reasonable control of such party; or in the event
of labor trouble, strike, slowdowns, lockout or injunction (provided that
neither party shall be required to settle a labor dispute against its own best
judgment); which event hinders, limits or makes impracticable the performance of
this Contract or the manufacture, consumption, sale, exchange, shipment,
receipt, use or obtaining of the Goods or any raw material, or any product
manufactured or processed therefrom or therewith.
(b) If either party determines that its ability to obtain or supply
the total demand for the Goods which it is supplying pursuant to this Contract,
or obtain any or a sufficient quantity of material used directly or indirectly
in the manufacture of the Goods, is hindered, limited or made impracticable by
any event referred to in Section 1(a) hereof, such party shall allocate its
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<PAGE>
available supply of the Goods or such material (without obligation to acquire
other supplies of any such Goods or material) among itself and its other
Contract customers and the other party to this Contract on a fair and equitable
basis without liability for any failure of performance which may result
therefrom, except, if the transaction covered hereby is an exchange, for any
liability for imbalances stated in this Contract.
(c) Shipments suspended or not made by reason of this section shall be
canceled without liability, except, if the transaction covered hereby is an
exchange, for any liability for imbalances arising out of such cancellation, but
this Contract shall otherwise remain unaffected.
((d) The affected party shall invoke this Section 1 by promptly
notifying the other party in writing of the nature of this event on which it
relies and the estimated extent and duration of the suspension. During the
continuance of any such event, the affected party shall not be obligated to
purchase Goods from another source to fulfill its obligations hereunder. If the
event relied upon is one which prevents the affected party from obtaining raw
materials, the affected party agrees to give the other party the option for the
duration of the inability of the affected party to obtain such raw materials, to
convert the Contract into an exchange agreement under which the other party
shall be entitled to obtain from the affected party a quantity of the Goods up
to the quantity to which such other party is otherwise entitled (not to exceed
the maximum quantity) and which can be produced on a stoichiometric basis from
the quantities of the raw materials in short supply which such other party can
arrange to be delivered to the affected party, and the affected party shall
supply any other required raw materials. If the other party exercises such
option, such other party shall, in addition to the raw material to be delivered
by such other party pay the affected party per unit of the Goods delivered under
the exchange a differential equal to the sales price per unit of the Goods
otherwise then applicable under the Contract less the then prevailing market
value of the stoichiometric amount of the raw material delivered by the other
party and contained in the unit of Goods delivered by the affected party under
the exchange. During any such exchange period, the provisions hereunder
applicable to exchanges shall apply. In such event, the affected party will, in
addition to deliveries otherwise due the other party, deliver to the other party
an amount of Goods equivalent to the quantity which may be made from the raw
materials supplied by the other party, but the aggregate amount of Goods from
either source shall not exceed the total amount of Goods to which such other
party was otherwise entitled before such option was exercised.
2. SHIPMENTS. Receiving party shall provide shipping party with
reasonable advance notice of its desired schedule for shipment of Goods. If the
transaction covered hereby is an exchange, orders for shipments of Goods shall
be at a monthly rate as uniform as reasonably practicable, unless otherwise
provided in this Contract. If the transaction covered
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<PAGE>
hereby is a sale, the Seller shall not make any shipments under this Contract
until released in accordance with separate purchase orders or releases issued by
Buyer's using locations and Seller shall not be required to ship more than
thirty percent (30%) of Seller's maximum annual quantity obligation in any
quarter without Seller's prior consent.
3. LOADING AND UNLOADING. Shipping party agrees to load, and
receiving party agrees to unload, carriers or transports furnished by the other
party within, as applicable, any free time specified by tariffs on file with the
applicable regulatory bodies or as otherwise specified by the carrier and to pay
any charges resulting from its failure in this regard, provided either such
party, as applicable, has been advised, prior to commencement of unloading, or
loading, as the case may be, of carrier's permitted free time. A party shall
not be excused from its obligations to pay such charges by the provisions of
Section 1 hereof if the event relied upon occurs after the carriers or
transports have been accepted for loading or unloading, as the case may be.
4. IMBALANCES. Both parties shall endeavor, insofar as practicable,
to keep the exchange in balance in accordance with the provisions of this
Contract. Unless otherwise provided in this Contract, an over-delivering party
shall not be required to make any further shipments hereunder if the Goods
shipped pursuant to this Contract are not in balance until such imbalance is
eliminated or reduced, by the shipment of Goods to the over-delivering party, to
a level acceptable to the over-delivering party, even if the imbalance results
from an event described in Section 1 hereof. If such imbalance does result from
an event described in Section 1, the over-delivering party may, in lieu of
awaiting for the imbalance to be brought into balance, require that any over-
deliveries be returned or that the over-deliveries be paid for by the under-
delivering party at such price as may be agreed upon. Such action by the over-
delivering party shall not limit any rights or remedies of the over-delivering
party. A party shall not be entitled to refuse to make shipments due to such an
imbalance if such imbalance has resulted from its failure to accept and receive
Goods in accordance with the provisions of this Contract. Any such reduction or
elimination of such an imbalance shall occur within thirty (30) days following a
request from the over-delivering party that such imbalance be reduced or
eliminated. Upon the termination or expiration of this Contract, the over-
delivering party shall be entitled to receive, within sixty (60) days following
the date of such expiration or termination, the quantity of Goods required to
bring the exchange in balance and payment of any differential due to it. An
imbalance may be eliminated by a cash payment to the over-delivering party,
rather than by the shipment of Goods, if (I) any imbalance is less than one full
load in accordance with the method of shipment provided for in this Contract or
(ii) the obligation of the party making such payment
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<PAGE>
to ship the Goods required to eliminate an imbalance has been suspended pursuant
to Section 1 hereof. Such cash payment which shall be in addition to any payment
due for any differential, shall be based upon the market price for the Goods, as
determined by the over-delivering party, at the time such payment is made, or at
the time such payment becomes due, whichever amount is greater. All provisions
of this Contract shall be deemed applicable to deliveries made subsequent to the
expiration or termination of this Contract for the purpose of eliminating an
imbalance.
5. LIMITED WARRANTY AND CHANGES IN SPECIFICATION. Subject to Section
6 hereof and unless otherwise expressly provided herein, the shipping party
warrants (I) title to the Goods shipped and (ii) that the Goods shipped, shall
conform to the attached specifications. Subject to the preceding sentence and
except as otherwise expressly provided herein, SHIPPING PARTY MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, AS TO
MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, OR ANY OTHER MATTER WITH
RESPECT TO THE GOODS, whether used alone or in combination with any other
material. Shipping party shall not make any change in raw materials or methods
of manufacturing employed in producing the Goods without the prior approval of
receiving party, unless any such change will have no affect on the continued
suitability of the Goods to receiving party even though such Goods would
continue to meet specifications.
6. LIMITATION OF LIABILITY. (a) Within fifteen (15) days after
actual receipt by the receiving party at its consuming location of each shipment
of the Goods, the receiving party shall examine such Goods for any damage,
defect or shortage. All claims for any cause whatsoever (whether such cause be
based in contract, negligence, strict liability, other tort or otherwise) shall
be deemed waived unless made in writing and received by the shipping party
within thirty (30) days after such actual receipt of the Goods by the receiving
party in respect to which such claim is made, provided that as to any such cause
not reasonably discoverable within such thirty (30) day period (including that
discoverable only in processing, further manufacture, other use or resale), any
claim shall be made in writing and received by the shipping party within ninety
(90) days after such actual receipt by the receiving party of the Goods in
respect to which such claim is made, of within thirty (30) days after the
receiving party learns of the facts giving rise to such claim, whichever shall
first occur. Any claim for non-delivery of such Goods shall be deemed waived
unless made in writing and received by the party alleged to have failed to
deliver such Goods within ninety (90) days following the expiration or
termination of this Contract. Failure of a party to receive written notice of
any claim within the
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applicable time period shall be deemed an absolute and unconditional waiver by
the other party of such claim irrespective of whether the facts giving rise to
such claim shall have then been discovered or whether processing, further
manufacture, other use or resale of the goods shall have then taken place.
(b) THE RECEIVING PARTY'S EXCLUSIVE REMEDY SHALL BE FOR DAMAGES, AND
THE SHIPPING PARTY'S TOTAL LIABILITY FOR ANY AND ALL LOSSES AND DAMAGES ARISING
OUT OF ANY CAUSE WHATSOEVER (WHETHER SUCH CAUSE BE BASED IN CONTRACT,
NEGLIGENCE, STRICT LIABILITY, OTHER TORT OR OTHERWISE) SHALL IN NO EVENT EXCEED
THE THEN PREVAILING CONTRACT MARKET PRICE, IF THE TRANSACTION IS AN EXCHANGE, OR
THE THEN PREVAILING CONTRACT, PRICE IF THE TRANSACTION IS A SALE, FOR THE
QUANTITY OF GOODS IN RESPECT TO WHICH SUCH CAUSE ARISES, OR AT SHIPPING PARTY'S
OPTION, THE REPAIR OR REPLACEMENT OF SUCH GOODS, AND IN NO EVENT SHALL THE
SHIPPING PARTY BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL, INDIRECT OR
PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE. The shipping party shall not be
liable for, and the receiving party assumes liability for, all personal injury
and property damage connected with the transportation, possession, processing,
further manufacture, other use or resale of the Goods by or on behalf of the
receiving party or its customers, whether the Goods are used alone or in
combination with any other material or are resold by receiving party provided
Goods meet specifications and the shipping party is not otherwise negligent.
Transportation charges for the return of the Goods shall not be paid unless
authorized in advance by the party initially shipping the Goods.
(c) If the shipping party furnishes technical or other advice to the
receiving party, whether or not at the request of the receiving party, with
respect to processing, further manufacture, other use or resale of the Goods,
the shipping party shall not be liable for, and the receiving party assumes all
risk of, such advice and the results thereof.
7. TITLE AND RISK OF LOSS. Unless otherwise provided in this
Contract, title to and risk of loss of Goods shall pass to the receiving party
and delivery by the shipping party shall take place (a) in the case of delivery
into tankcars, upon delivery of the loaded tankcars by the shipping party to the
carrier outside shipping party's property (b) in the case of delivery into
tanktrucks or other trucks, immediately after such trucks leave the shipping
party's property, and (c) in the case of delivery into barges or ship tankers
immediately after the Goods pass the last flange in the shipping party's loading
line.
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8. PATENTS. Subject to Section 6 hereof and unless otherwise
expressly provided herein, the shipping party warrants the Goods supplied
pursuant to this Contract, except for those made for the receiving party
according to the receiving party's specifications, do not infringe on any
patents; provided, however, Monsanto (as Buyer or receiving party) shall not
assert against Sterling (as Seller or shipping party) any claim for infringement
based on Sterling's use of the Technical Information as defined in and licensed
to Sterling under the License Agreement, (Exhibit 2.1(a) to the Asset Purchase
Agreement between Monsanto and Sterling) dated August 1, 1986, in the operation
of Sterling's plant to produce the Goods in accordance with procedures employed
in such plant by Monsanto as of the date of the License Agreement. This
warranty is given upon condition that the receiving party promptly notify the
shipping party of any claim or suit involving the receiving party in which such
infringement is alleged and that, if the shipping party is affected, the
receiving party permit the shipping party to control completely the defense or
compromise of any such allegation of infringement. The shipping party does not
warrant that the use of the Goods or any material made therefrom, whether the
Goods are used alone or in combination with any other material, will not
infringe a patent. The shipping party reserves the right to terminate the
shipping party's warranty under this Section 8 at any time with respect to any
undelivered Goods. In the event of such termination, the receiving party may
thereafter refuse acceptance of such undelivered Goods and the receiving party
may, within forty-five (45) days following such termination, terminate this
Contract upon not less than thirty (30) days' written notice to the other party.
9. FREIGHT AND TAXES. Any new tax or any increase in an existing tax
or governmental charge, paid by the shipping party, hereafter becoming effective
imposed upon the sale, exchange or delivery of the Goods, such as sales tax, use
tax, retailer's occupational tax, but excluding taxes based on production or
income such as value added, gross receipts or franchise taxes, may, if the
transaction covered hereby is a sale, be added to and included as a part of the
price herein specified, provided that shipping party invoices such new charges
within 90 days following the effective date of their imposition; and, if the
transaction covered hereby is an exchange, and, if the effect of such new or
increased tax or charge is to increase the cost to the shipping party of
exchanging or delivering the Goods or procuring materials used therein, shipping
party may notify the receiving party thereof in writing, requesting an
adjustment to the differential as a result of such factors. If the parties are
unable to agree upon a satisfactory revision to such differential within forty-
five (45) days following receipt of such notice, the shipping party may
terminate this Contract upon thirty (30) days, written notice to the other
party. Shipping party shall be entitled initially to assert that any Superfund
tax (or tax of similar purpose or effect) or any increase in any such tax,
should become a part of the differential to be paid if
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<PAGE>
the transaction covered hereby is an exchange, or should be added to the price
for the Goods, if the transaction covered hereby is a sale, and to include the
amount thereof in its invoices for the relevant Goods; provided however, that
the shipping party shall not be entitled to continue to collect any such tax, or
increase therein, unless such tax, or increase therein, is generally then being
taken into account and being included in the differential, or added to the
price, as the case may be, by other sellers or exchangers of the Goods covered
hereby, and if such other sellers or exchangers are not generally collecting
such tax, or increase therein, shipping party shall no longer attempt to collect
any such tax, or increase therein, hereunder and there shall be a prompt refund
of any amounts theretofore collected therefor from the receiving party. Except
as otherwise expressly provided in the special terms and conditions which are
applicable to this Contract, freight from the point of passage of title provided
for in Section 7 hereof for the Goods shall be for the account of receiving
party.
10. WEIGHTS. Unless otherwise specifically provided for herein, the
shipping party's weights or measurements shall govern unless proven in error.
11. COMPLIANCE WITH CERTAIN LAWS. Seller has and will comply with
all governmental laws, regulations and orders covering the production, sale,
packaging and delivery of the Goods from which, because of noncompliance by the
Seller, liability may accrue to Buyer under this Contract. Seller warrants that
all Goods covered by this Contract have been produced in compliance with the
requirements of the Fair Standards Act of 1938, as amended, and Executive Order
11246 and of the rules, regulations and relevant orders of the Secretary of
Labor, if applicable. Section 202 of Executive Order 11246 is incorporated
herein by specific reference. Seller warrants that each and every chemical
substance sold or otherwise transferred by Seller to Buyer as of the time of
such sale or transfer, is on the list of chemical substances compiled and
published by the Administrator of the EPA pursuant to the Toxic Substances
Control Act, (PL94-469).
12. ASSIGNMENT. Subject to Section 7 (Special Termination/Assignment
Rights) in the main body of this Contract and except as provided in the Asset
Purchase Agreement between the parties dated August 1, 1986, neither party
shall (by operation of law or otherwise) assign its rights or delegate its
performance hereunder without the prior written consent of the other party, and
any attempted assignment or delegation without such consent shall be void. To
the extent assignment is permitted hereunder, this Contract shall be binding on
any permitted assignee.
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13. MONTHLY REPORTS. If the transaction covered hereby is an
exchange, each party shall, within thirty (30) days following the end of each
month, provide the other party with a report stating the quantities delivered
and received during the month and the calendar year pursuant to this Contract,
as well as the exchange balances for such periods. The parties shall promptly
attempt to reconcile any discrepancies apparent from such reports.
14. MEET COMPETITION. (a) If the transaction covered hereby is a
sale and if from time to time Monsanto can purchase Goods of functionally
equivalent quality at a lower delivered cost than the delivered cost of the
Goods then in effect hereunder and in an amount equal to at least Monsanto's
annual minimum purchase obligation, and Monsanto gives Sterling written notice
thereof, Monsanto may purchase such Goods, unless within fifteen (15) days of
receipt by Sterling of said notice Sterling shall meet such lower delivered cost
for an equal quantity of goods thereafter sold hereunder.
(b) If the transaction covered hereby is an exchange and if Monsanto
can obtain, by exchange or conversion, Goods of functionally equivalent quality
at a lower delivered cost than the delivered cost of the Goods then in effect
hereunder, and in an amount equal to at least Monsanto's minimum annual exchange
obligation hereunder, and Monsanto gives Sterling written notice thereof,
Monsanto may obtain such Goods by exchange or conversion, unless within fifteen
(15) days of receipt by Sterling of said notice, Sterling shall meet such lower
delivered cost for an equal quantity of Goods thereafter exchanged hereunder.
(c) In either event, any quantity so obtained by Monsanto from another
source shall be deducted from Monsanto's annual obligation hereunder, but the
Contract otherwise shall remain unaffected.
15. MISCELLANEOUS. (a) Governing Law. The validity, interpretation
and performance of this Contract and any dispute connected herewith shall be
governed and construed in accordance with the laws of the State of Texas.
Seller (Sterling) has consented to service of process in the State of Missouri.
(b) Notices. Any notice required or permitted to be given under this
Contract shall be deemed sufficient if (I) in writing and (ii) served either by
(a) depositing the same in the United States mail, properly addressed as
provided below, postage prepaid, registered or certified mail, and with return
receipt requested, (b) delivering the same in person, or (c) sending a prepaid
telegram of the same, confirmed by notice deposited in the mail in the manner
provided in this Section 14(b). Unless otherwise provided in this Contract, any
notice deposited in the mail in the manner provided in this Section 14(b) shall
be effective upon the expiration of three days
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after the date on which it is so deposited, and any notice given in any other
manner shall be effective only if and when it is received by the addressee. For
the purposes of notice hereunder, the addresses of the parties hereto shall be
as follows:
Buyer: Monsanto Company
800 N. Lindbergh
St. Louis, MO 63137
Attn.: Director, Purchasing Monsanto Corporation
Seller: Sterling Chemicals, Inc.
1200 Smith, Suite 1900
Houston, TX 77002
Attn.: Vice President - Commercial
Any party hereto may change its address for the purpose of notice hereunder by
giving written notice of such change of address to the other party as specified
in this Section 14(b).
(c) Entire and Only Agreement. This Contract and all other related
documents and instruments executed and delivered pursuant hereto constitute the
entire and only understanding and agreement among the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
understandings and agreements among such parties relating to the same subject
matter.
(d) Amendments. No alterations, modifications, amendments or changes
of this Contract or any other related document or instrument executed and
delivered pursuant hereto shall be effective or binding on any party hereto,
unless the same shall be in writing and executed by all of the parties hereto.
(e) Severability. If a court of competent jurisdiction declares that
any provision of this Contract or any other related document or instrument
executed and delivered pursuant hereto is illegal, invalid or unenforceable,
then such provision shall be modified automatically to the extent necessary to
make such provision fully enforceable. If such court does not modify any such
provision as contemplated herein, but instead declares it to be wholly illegal,
invalid or unenforceable, then such provision shall be severed from this
Contract or such other document or instrument, and such declaration shall in no
way affect the legality, validity and enforceability of the other provisions of
this Contract or such other document or instrument to which such declaration
does not relate. In such event, this Contract or such other document or
instrument shall be construed as if it did not contain the particular provision
held to be illegal, invalid or unenforceable, the rights and obligations of the
parties hereto shall be construed and enforced accordingly, and this Contract
otherwise shall remain in full force and effect.
(f) Captions. The captions contained in this Contract are for the
purpose of reference only and shall not affect in any way the meaning,
interpretation or scope of this Contract.
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<PAGE>
(g) Waivers. Any failure of any party hereto to comply with any of
its obligations, agreements or conditions as set forth herein may be expressly
waived in writing by the other party. No such waiver shall operate as a waiver
of an other obligation, agreement or condition and the failure to enforce any
provision hereof shall not operate as a waiver of such provision or of any other
provisions hereof.
(h) Multiple Counterparts. This Contract may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed to be an
original for all purposes, and all of which together shall constitute one and
the same instrument.
(i) Invoices. Shipping party shall invoice receiving party for any
differential due with respect to deliveries hereunder, or, if the transaction is
a sale, for the purchase price due with respect to deliveries hereunder, and
such invoices shall be paid net thirty (30) days from date of shipment provided
invoices are promptly rendered.
15
<PAGE>
Exhibit "A-1"
STYRENE MONOMER SPECIFICATION
<TABLE>
<CAPTION>
TARGET ASTM
PROPERTY UNIT SPEC. LEVEL METHOD
- -------- ---- ----- ------ ------
<S> <C> <C> <C> <C>
Appearance
a. Color APHA max. 15 12 Hunter
(pt-Co) ASTM 1209
b. Clarity Clear & Free Visual
of sediment &
suspended matter
Purity Wt. % 99.8 99.9 602.088
Inhibitor Wt. ppm 10-15 12.5 602.089A
(TBC)
Acetaldehyde Wt. ppm Max 100 602.093
Peroxides as Wt. ppm max. 50 602.097
Hydrogen Peroxide
Chlorides (as Cl) Wt. ppm max. 50 602.113
Ethylbenzene Wt. ppm max. 100 602.116
Total Sulfur Wt. ppm max. 20 602.003
Polymer Wt. ppm max. 10 602.092A
Cumene Wt. ppm max. 400 602.116
Phenylacetylene Wt. ppm max. 200
AMS Wt. ppm max. Below 350
</TABLE>
16
<PAGE>
EXHIBIT B
BENZENE SPECIFICATIONS
<TABLE>
<CAPTION>
PROPERTY SPECIFICATIONS METHOD NO.
- -------- -------------- ----------
<S> <C> <C>
Benzene, Wt. % 99.6, Min. 210
Toluene, Wt. % 0.05, Max. 210
Non-Aromatics, Wt. % 0.15 210
Appearance Clear and Free of G - 1
Suspended Matter @
25 degrees C
Color, Pt-Co 25, Max. G - 43
(ASTM D-1209)
Sp. Gr. at 60/60 degrees F 0.882 - 0.886
</TABLE>
17
<PAGE>
18
<PAGE>
Exhibit 10.51
***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY
WITH THE COMMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.***
CONTRACT FOR SALE AND PURCHASE OF ETHYLENE
THIS CONTRACT, entered into this first day of January 1995, by and between
STERLING CHEMICALS, INC., a Delaware corporation having an office in Houston,
Texas, hereinafter called "BUYER", and PHILLIPS CHEMICAL COMPANY, a division of
Phillips Petroleum Company, a Delaware corporation with an operating office in
Bartlesville, Oklahoma, hereinafter called "SELLER";
WITNESSETH:
In consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
ARTICLE I: SALE AND PURCHASE
SELLER hereby sells and agrees to deliver and BUYER hereby purchases and
agrees to receive and pay for during the period, on the terms and conditions,
and at the price hereinafter stated, (***) per contract year of ethylene (plus
or minus (***), at BUYER's option) beginning January 1, 1995, and continuing
thereafter for the term provided for in Article II below. Deliveries shall be
made in approximately equal monthly installments, and in no event shall SELLER
be required to deliver or BUYER be required to receive in any month more than
(***).
ARTICLE II: CONTRACT TERM
This contract shall be effective January 1, 1995. It shall remain in full
force and effect for a primary term of (***) beginning on the effective date,
and continuing thereafter, unless and until terminated by either party by the
giving of written notice of termination to the other party of at least (***)
months in advance of the date of termination specified in such termination
notice, which date of termination so specified shall be the last day of the
primary term or the last day of any contract year thereafter. As used herein,
the term "contract year" refers to the period of (***) commencing January 1,
1995, and to each succeeding twelve-month period.
ARTICLE III: PRICE
(***)
ARTICLE IV: SPECIFICATIONS
<PAGE>
All of the ethylene sold and purchased hereunder shall meet the
specifications set forth in Exhibit "A" attached hereto and by this reference
made a part hereof as fully as though herein set forth at length.
ARTICLE V: DELIVERY AND TITLE TRANSFER
Deliveries of ethylene hereunder shall be made to BUYER at the point of
delivery, which shall be the inlet of the first flange of BUYER's pipeline from
SELLER's meter, or meter designated by SELLER, in BUYER's Texas City, Texas
facility,or other mutually 6 agreed locations. Title and risk of loss shall pass
from SELLER to BUYER at said point of delivery.
BUYER shall have no responsibility or liability on account of anything
which may be done, happen or arise with respect to ethylene before delivery, and
SELLER shall have no responsibility or liability on account of anything which
may be done, happen or arise with respect to ethylene after delivery. SELLER
shall bear all costs of transporting the ethylene to said point of delivery, and
BUYER shall bear all costs of transporting the ethylene from said point of
delivery. Delivery shall be made at the pressure agreed to by BUYER and SELLER,
and in a manner typical of industry practices.
ARTICLE VI: MEASUREMENT
SELLER or its designee shall install, maintain, and operate facilities
whereby the volume of ethylene delivered by SELLER to BUYER is measured and the
temperature and pressure recorded, and BUYER shall grant to or arrange for
SELLER or its designee all necessary rights and easements for the installation,
maintenance, operation, and removal of said meter and facilities. BUYER shall
provide all utilities necessary for the operation of the meter station. BUYER,
if it so elects and gives notice of such election to SELLER, shall have the
right to observe the periodic recalibration of such meter and facilities, to be
made at SELLER's expense as often as necessary but no less frequently than once
each month. BUYER may, at its option and at its sole cost and expense, install a
check meter at said point of delivery; and in the event it does so, SELLER will
furnish BUYER with information to permit BUYER to duplicate SELLER's meter.
The volume of ethylene delivered by SELLER hereunder each day shall be
determined by reference to daily readings of SELLER's meter. For this purpose, a
day shall be construed to extend from 7:00 a.m. on one day to 7:00 a.m. on the
next succeeding day, and correction factors and calculations from such
<PAGE>
meter readings for the purpose of determining the daily quantities of ethylene
delivered hereunder shall conform with procedures mutually agreed upon by the
parties. Such daily quantities shall be converted to pounds of ethylene in
accordance with the method set forth in Exhibit "B" attached hereto and by this
reference made a part hereof as fully as though herein set forth at length.
In the event representatives of the parties hereto are unable to agree (1)
on whether any ethylene delivered hereunder meets the specifications set forth
in Article IV hereof, or (2) on the measurement of any ethylene delivered
hereunder for which provision is made in this Article Vl, or (3) on the
determination of pounds of ethylene delivered hereunder in accordance with the
methods prescribed in Exhibit "B", any and all such disputes shall be resolved
either by Chas. Martin Inspectors of Petroleum, Inc., or E. W. Saybolt and
Company, at the election of the party raising the question, or if neither shall
accept the assignment to resolve the dispute, then by such other recognized
referee as may be agreed upon by the parties. The decision of such referee with
respect to such matters shall be final, conclusive, and binding on each of the
parties hereto and the charges of such referee shall be borne equally by the
parties.
ARTICLE VII: INVOICING AND PAYMENT
SELLER shall invoice BUYER for ethylene sold and purchased hereunder no
more often than once during each calendar month for the preceding months' sales.
Such invoices shall be dispatched promptly by SELLER, telegraphically or
otherwise, so as to be received by BUYER within three (3) days of the date of
invoice. Payment shall be made by BUYER to SELLER on or before the 15th day
following the date of each invoice by telegraphic transfer or other means
satisfactory to SELLER, of immediately available funds to SELLER's account at
such bank or depository as is designated in the invoice. Late payments for
purchases shall be assessed a delinquency charge on a daily basis at the rate
equivalent to the Chase Manhattan Bank prime rate plus one (1) percent on the
unpaid balance (excluding late payments due to SELLER's invoicing errors). In no
event shall the delinquency charge exceed the legal maximum.
It is agreed that SELLER may decline to make deliveries of ethylene under
this contract except for cash payable upon delivery whenever SELLER shall have
reasonable doubt as to BUYER's financial responsibility and shall so advise
BUYER, whereupon BUYER shall have the privilege of satisfying SELLER as to
BUYER's financial responsibility. If SELLER is so satisfied, deliveries may be
resumed hereunder on the terms provided in the first paragraph of this Article
Vll. SELLER may exercise its
<PAGE>
rights under this Article Vll at any time and from time to time during the
continuance of this contract.
ARTICLE VIII: TAXES
In addition to the price of ethylene hereunder, BUYER shall assume
liability for and pay all taxes associated with the sale, use or delivery of
ethylene under this contract, including all new or increased taxes, excise taxes
including Superfund taxes, fees, or other charges (but excluding taxes based
upon net income, altemative minimum taxable income, excess profits, corporate
franchise taxes and property taxes), imposed by any governmental authority upon
the sale, use or delivery of the ethylene sold hereunder, including but not
limited to, any and all taxes associated with the manufacture of ethylene. If
BUYER is exempt from the payment of such taxes, fees or other charges, BUYER
shall furnish to SELLER proper exemption certificates to cover the ethylene
purchased hereunder. All other taxes, fees or governmental charges shall be
for SELLER's account.
ARTICLE IX: RECORDS
To the extent that records of either party are to be used in the
administration of this contract, the party whose records are to be used agrees
to keep true and correct records pertaining to this contract and all
transactions related thereto and to maintain such records for a period of at
least two (2) years after termination of this contract. On written request by
either party and at such party's expense, such party may have a firm of
independent certified public accountants audit any and all such records of the
other party at any time or from time to time for the purpose of confirming the
accuracy of such records and the manner in which such records have been used in
the administration of this contract; provided, however, that such accountants
shall not disclose to the party requesting the audit any information obtained
during such audit and shall only report to such party the results of the audit
and whether same shows compliance with the terms of this contract, or as the
case may be, the respects in detail in which the terms of this contract have not
been complied with. The right to audit such records shall expire two (2) years
after termination of this contract.
ARTICLE X: NOTICES
All notices provided for herein shall be considered as properly given if in
writing and delivered personally or sent by overnight courier, telex, telefax,
or registered or certified mail return receipt requested and postage prepaid,
duly directed to the post office addresses of the parties hereto:
<PAGE>
BUYER: Sterling Chemical, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 770024312
Attn: Director-Commercial
Telefax: (713)-654-9551
SELLER: Phillips Chemical Company,
a division of Phillips
Petroleum Company
8 Adams Building
Bartlesville, Oklahoma 74004
Attn: Ethylene Director
Telefax: (918)-662-1016
or at such other address as either party shall from time to time designate for
the purpose by registered or certified letter, properly addressed, with
sufficient postage prepaid and return receipt requested, addressed to the other
party. The date of service of a notice served by mail shall be the date on which
such notice is received as shown by a green receipt card from the United States
Post Office or other messenger service. The date of service of a notice
transmitted by any other means shall be the date received.
ARTICLE XI: CLAIMS
No claim of any kind, whether as to ethylene delivered (whether or not
conforming to specifications) or for nondelivery of ethylene and whether or not
based on negligence, shall be greater in amount than the purchase price of the
ethylene in respect of which such claim is made. IN NO EVENT SHALL A PARTY BE
LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE
DAMAGES, WHETHER OR NOT CAUSED BY OR RESULTING FROM THE NEGLIGENCE OF THE PARTY
IN THE PERFORMANCE OF DUTIES UNDER THIS CONTRACT. BUYER shall notify SELLER
within forty (40) days of date of delivery of any claim, and failure of BUYER to
make such claim within forty (40) days shall operate as a waiver of any claim.
ARTICLE XII: FORCE MAJEURE
No liability (except payment by BUYER for ethylene sold hereunder) shall
result to either party from delay in performance or nonperformance arising from
any cause or causes reasonably beyond the control of the party affected,
including but not limited to the following, which shall be deemed to be beyond
the reasonable control of such party: acts of God; fire, flood, war, accident;
labor trouble (from whatever cause); shortage of or inability to obtain any
goods deliverable hereunder or raw materials therefor from such party's existing
or intended sources
<PAGE>
of supply; shortage of or inability to obtain equipment or transportation; or
compliance with any law, regulation, order, direction or request made by
governmental authority or person purporting to act therefor.
When such cause or causes result in a reduction in the amount of ethylene
available from SELLER's production facilities, SELLER shall allocate its
available supply of ethylene among its contract customers, and among its own
operations (including its subsidiaries and affiliated companies), on a pro-rata
basis using average annual volume commitments, where ranges exist, as a
reference point. Deliveries pursuant to such allocation shall be in complete
discharge of SELLER's obligation hereunder for so long as such cause or causes
continue.
When such cause or causes result in a reduction in the amount of ethylene
that is consumed at BUYER's facilities, BUYER shall allocate its available
ethylene consumption capacity among its contract suppliers, including affiliates
of BUYER, on a pro-rata basis using average annual volume commitments, where
ranges exist, as a reference point. Purchases pursuant to such allocation shall
be in complete discharge of BUYER's obligation hereunder for so long as such
cause or causes continue. Deficiencies in deliveries of ethylene hereunder by
reason of any such cause or causes shall be canceled from the contract with no
liability to either party therefor.
If a Force Majeure declaration by SELLER meets the following uiteria, then
BUYER shall have an alternate supply option. The Force Majeure declaration must
be in effect for more than (***), and the allocation level must be considered to
be a significant reduction in the supply to BUYER (an allocation of (***) or
less of the contract commitment provided in Article I without regard to (***) to
activate the alternate supply option. With written notification of thirty (30)
days prior to the end of the (***) period, BUYER may request an alternate supply
or release from the volume commitment for the remaining term of the contract for
the amount affected by Force Majeure. SELLER then has (***) from receipt of
BUYER's notification to respond to BUYER with the following options:
(a) SELLER may satisfy BUYER's minimum remaining monthly contractual
quantity (excluding volume under Force Majeure for the ninety (90) day
period set forth above) through means outside SELLER's normal supply
channels, such as outside ethylene purchases, loans, or exchanges, at a cost
to BUYER equivalent to the price under this contract, or SELLER may supply
ethylbenzene containing an equivalent quantity of ethylene at an agreed
upon price.
(b) If SELLER and BUYER cannot agree to a mutually acceptable supply option
under subparagraph (a), then BUYER is released
<PAGE>
from the volume obligation for the amount covered by the Force Majeure
declaration for the remaining period of the contract. The contract volume in
effect at the end of the (***) period shall then become the volume
commitment set out in Article I above (***).
A party affected by force majeure shall promptly notify the other party
(and shall confirm such notification in writing) explaining the date such event
commenced and the nature, details and expected duration thereof. The affected
party shall advise the other from time to time as to progress in remedying the
force majeure situation and as to the time when the affected party expects to
resume the performance of its obligations and shall notify the other as to the
expiration of any such event as soon as the affected party knows thQ date
thereof.
ARTICLE XIII: WAIVERS
The right of either party to require strict performance by the other party
of any or all obligations imposed upon such other party by this contract shall
not in any way be affected by previous waiver forbearance or course of dealing.
ARTICLE XIV: WARRANTIES
SELLER warrants that all ethylene delivered hereunder will comply with
the specifications set forth in Exhibit "A", that said ethylene will have been
produced in compliance with the requirements of the Fair Labor Standards Act of
1938, as amended, and that SELLER will convey good title thereto.
THE FOREGOING WARRANTIES ARE EXCLUSIVE, AND ARE IN LIEU OF ALL OTHER
WARRANTIES (WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED), INCLUDING, WITHOUT
LIMITATION, WARRANTY OF MERCHANTABILITY AND WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE XV: ASSIGNABILITY
All of the terms, conditions, and provisions hereof shall extend to and be
binding upon the respective parties hereto, their successors and assigns;
provided, however, that neither party shall assign this contract or any interest
herein without the prior written consent of the other party; except that either
party may, without the consent of the other, assign this contract or any
interest herein to any company of which it is a subsidiary or to any fifty
percent (50%) or more owned subsidiary or affiliated company (but in such event,
the party assigning shall not be relieved of its primary liability hereunder to
the other party hereto), or to a corporation with which such party merges or to
which such party's assets used in the performance
<PAGE>
hereunder shall be sold and conveyed during the term hereof. However, BUYER has
the right to assign this Contract to any party acquiring all or substantially
all of BUYER's assets or styrene facility (located in Texas City, Texas).
ARTICLE XVI: ENTIRETY OF AGREEMENT
This instrument contains the entire agreement between the parties hereto
regarding the sale, purchase and delivery of ethylene during the period provided
herein; and all prior promises, agreements or warranties, written or verbal,
shall be cancelled and superseded hereby and shall be of no further force or
effect unless embodied herein. No modifications of this contract shall be valid
unless in writing and signed by both parties, and no modifications shall be
effected by the acknowledgment or acceptance of any purchase orders or printed
forms containing different conditions.
ARTICLE XVII: APPLICABLE LAW
The validity, interpretation and performance of this contract shall be
governed by the laws of the State of Texas. IN WITNESS WHEREOF, this contract is
executed in duplicate for each party by and through its respective officers duly
authorized, as of the date first above written.
PHILLIPS CHEMICAL COMPANY,
A DIVISION OF
PHILLIPS PETROLEUM COMPANY
By: /s/ Guy Sutherland
(Guy Sutherland)
Title: Sr. V.P.
KGK mpH/sterconU April 3,1995
STERLING CHEMICAL. INC.
BY: /s/ Robert W. Roten
(Robert W. Roten)
Title: Executive V.P. and Chief Operating Officer
<PAGE>
EXHIBIT A
PHILLIPS CHEMICAL COMPANY
ETHYLENE PRODUCT SPECIFICATION
<TABLE>
<CAPTION>
PROPERTY UNITS MINIMUM MAXIMUM TEST METHOD
<S> <C> <C> <C> <C>
Ethylene Purity mol% 99.85% GC
Ethane ppm mol 1500 PPC 6605-AG-1
Methane ppm mol 1000 PPC 6605-AG-1
Acetylene ppm mol 5 PPC 8705-AG
Alcohols as Methanol ppm wt 20 PPC 6605-AG
Carbon Dioxide ppm mol 10 PPC 6605-AG-1
Carbon Monoxide ppm mol 5 PPC 6605-AG-1
Hydrogen ppm mol 5 PPC 6605-AG-1
Other Olefins ppm mol 100 PPC 6605-AG-1
Oxygen ppm mol 5 PPC 6605-AG-1
Total Sulfur ppm wt 2 ASTM D-3246
Water ppm wt 5 PPC 6316 EK
</TABLE>
<PAGE>
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>
Exhibit 10.52
***OMITTED INFORMATION DENOTED BY ASTERICS (***) HAS BEEN FILED SEPARATELY WITH
THE COMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.***
CHEMICAL PRODUCTS
SALES AGREEMENT - ETHYLENE
THIS AGREEMENT between LYONDELL PETROCHEMICAL COMPANY, with an office at 1221
McKinney, Houston, Tx 77010, hereinafter referred to as "SELLER," and STERLING
CHEMICALS, INC., with an office at 1200 Smith Street, Suite 1900, Houston, Tx
77002, hereinafter referred to as "BUYER";
W I T N E S S E T H:
SELLER agrees to sell and BUYER agrees to purchase and pay for Product in
accordance with the provisions below:
1. PRODUCT AND SPECIFICATIONS: Ethylene meeting specifications set forth in
Exhibit A, attached hereto ("Product").
2. QUANTITY: BUYER is obligated to buy a minimum quantity of (***) of BUYER's
Texas City, Texas facility's ethylene requirements (the "Annual Minimum")
estimated to be (***) of Product annually ("Estimated Annual Minimum") and (***)
of Product monthly ("Estimated Monthly Minimum".) SELLER is obligated to sell up
to a maximum quantity of (***) of Product annually (the "Annual Maximum") and
(***) lbs. of Product monthly ("Monthly Maximum".)
In the event BUYER's Product purchase orders from SELLER fall below the
Estimated Annual Minimum, BUYER shall ensure that BUYER's Product purchases from
SELLER are no less than the Annual Minimum. In the event BUYER gives timely
shipment orders for Product and SELLER, without excuse, does not deliver Product
ordered up to the Monthly Maximum(as may be limited by the Annual Maximum),
SELLER shall not sell ethylene to other customers, except proportionately
equivalent shares of the maximum quantity obligations under term sales contracts
with such customers.
In the event that BUYER's annual Product purchases fall below the Estimated
Annual Minimum in any year, SELLER may elect to reduce the Estimated Annual
Minimum and Annual Maximum for all subsequent years by up to the difference
between Estimated
1
<PAGE>
Annual Minimum and the actual quantity purchased in said year, upon written
notice to BUYER no later than the (***) following the year of such purchase
shortfall. In the event of such reduction, the Annual Minimum, Estimated Monthly
Minimum and Monthly Maximum shall be reduced by the same percentage as the
Annual Minimum is reduced. SELLER's rights under this paragraph shall supplement
all other rights available to SELLER under this Agreement. Exercise by SELLER of
the rights under this paragraph shall not constitute a waiver of any other
rights SELLER may have.
3. (***)
4. (***)
5. COMPETITIVE OFFERS: If BUYER receives a bona fide offer to sell to it,
Product of similar Annual Maximum and quality for shipment to the same delivery
points covered by this proposal, for a term not less than the remaining term of
the agreement, from a responsible domestic manufacturer not affiliated with
BUYER, at a price lower than that provided under this Agreement, then BUYER
shall give SELLER written notice thereof and SELLER will, at its option (if
satisfied as to the facts surrounding said lower price) give BUYER written
notice within 10 days thereafter of its intent to either (1) meet such lower
price, or (2) "Release" BUYER from its obligation to purchase from SELLER such
quantities during the offer period provided that BUYER accepts the offer and
buys the quantity offered at the lower price. In the event that SELLER meets a
competitive offer under the terms of this Article, BUYER shall not, during the
offer period, use a competitive offer from the same supplier or an affiliate of
the same supplier, as the basis for seeking or requesting another "meet
competition" price or other form of price concession from SELLER. Such
subsequent competitive offers are not bona fide for the purpose of this
agreement.
Dissimilar product exchanges, barters, processing agreements, transactions tied
to or contingent upon other agreements, and any other arrangements other than a
direct purchase of Product, are not deemed offers to sell or to buy for the
purpose of this Article.
Any quantity of Product sold, or to be sold, hereunder by SELLER, at a "meet
competition" price, due to SELLER's having given a price concession in response
to a qualified competitive offer, shall be purchased by BUYER from SELLER at the
original "meet competition" price for the duration of the offer period, i.e.,
such Product is not eligible for rebate or for additional discounting during
such period.
If SELLER Releases BUYER, SELLER may, at its sole discretion, elect to reduce
the Estimated Annual Minimum and Annual Maximum for the remainder of the
Agreement
2
<PAGE>
term subsequent to the period of Release; such annual quantity reduction to be
equal to the quantity Released. In such event, the Annual Minimum, Monthly
Minimum and Monthly Maximum shall be reduced by the same percentage as the
Estimated Annual Minimum is reduced. Such option shall be exercised by written
notice by SELLER to BUYER not later than 20 days prior to the date in which the
competitive offer Release period ceases to be effective.
6. TRANSPORTATION TERMS: Product delivered via pipeline to BUYER's
Texas City, Texas plant or other mutually agreed upon locations ("Delivery
Point").
7. TITLE AND RISK OF LOSS: Title and risk of loss to Product will pass
from SELLER to BUYER at the Delivery Point, when Product passes the connecting
flange of the delivering pipeline to the receiving pipeline.
8. SHIPMENT ORDERS: Buyer shall give SELLER shipping instructions at
least five days prior to the date on which shipments are requested to be
scheduled.
9. DETERMINATION OF QUANTITY: SELLER will operate or cause to be
operated a meter whereby quantities of Product delivered will be measured and
its temperature and pressure recorded. The volume of Product delivered,
pursuant to the Agreement, for each day will be determined by reference to daily
readings of SELLER's meter. A day will be deemed the period from 7:00 a.m. on
one day to 7:00 a.m. on the next succeeding day. Correction factors and
calculations from such meter readings for the purpose of determining the daily
quantities of Product delivered will conform with procedures set forth below.
If the parties are unable to agree, procedures and quantities will be determined
by E. W. Saybolt and Company or such other mutually agreed upon inspector, whose
determination will be binding upon the parties who will equally bear the cost of
such independent inspector.
SELLER agrees to calibrate flow meters, pressure recorders, and temperature
recorders at least once a month and at other times as may be agreed upon by the
parties. If a third party is used to make the delivery to BUYER, the frequency
of calibrations will be consistent with the third party's normal operating
practices. BUYER will have the right to witness the calibrations.
Following such calibrations, any equipment found to be inaccurate to any degree
will be adjusted immediately to measure accurately. If following a calibration,
any metering equipment is found to be inaccurate by one-half percent (0.5%) or
more, then the quantity of Product previously delivered will be retroactively
adjusted at the rate of such inaccuracy for any period of inaccuracy which is
definitely known or agreed upon, but in case the
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<PAGE>
period is not definitely known or agreed upon, then for a period deemed to be
one-half (1/2) of the number of days from the last previous calibration until
the correction not exceeding, however, fifteen days.
If for any reason the custody transfer meters are out of service so that the
quantity of material delivered through such meters cannot be ascertained, the
quantity of material delivered during the period the meters are out of service
will be estimated and agreed upon by the parties upon the basis of the best
available data, using in order of preference the following methods:
(a) By using the registration of any check measuring equipment of BUYER,
if installed and properly operating.
(b) By using any measurement equipment which SELLER may have in the
flowing stream if agreed upon by BUYER.
(c) By a third party mutually agreed upon by the parties.
All quantities of Product will be corrected for temperature to sixty degrees
Fahrenheit (60.F) in accordance with current methods which are set forth in
American Petroleum Institute Routine Catalog Number 852-25650 (Chapter 11.3.2.1)
or other method mutually agreed to by both parties.
10. QUALITY AND TESTING: Samples or on-line analysis at the mutually
agreed input sampling point will be the basis for determining compliance with
quality specifications. SELLER's or SELLER's exchange partner's laboratory
analysis or on-line analyzer will determine whether product specifications have
been met. SELLER or SELLER's exchange partner shall continually monitor the
quality of Product introduced into the pipeline for compliance with said
specifications. However, if abnormalities develop in BUYER's plant operation,
BUYER may request that SELLER arrange, and if so requested by BUYER, SELLER will
arrange, for three representative samples to be taken daily. Two samples will
be delivered to BUYER, and one will be retained by SELLER for analysis by
analytical test methods set forth in Exhibit A (or by SELLER approved test
methods if not set forth therein.) SELLER shall advise BUYER of the analysis of
its sample. If a difference in analysis is reported by BUYER and cannot be
reconciled within one week of BUYER's notice thereof, one of the samples will be
submitted to a competent outside laboratory, agreed upon by BUYER and SELLER,
for referee analysis (which analysis will be made by following the analytical
test methods set forth in Exhibit A hereof). The cost of such independent
analysis will be borne equally by BUYER and SELLER, and the results of such
analysis will be binding.
4
<PAGE>
11. PAYMENT AND CREDIT: BUYER shall pay SELLER for product by
electronic funds transfer ("EFT") into SELLER's account per SELLER's
instructions, net 22 days from last day of the month. If payment due date
occurs on a bank holiday (except Monday) or a Saturday, BUYER shall EFT not
later than the prior business day and if due date occurs on a Sunday or a Monday
bank holiday, EFT not later than the next business day. If BUYER shall fail to
pay SELLER in accordance with said terms, SELLER shall notify BUYER in writing
of such payment default and if BUYER does not cure said default within 10 days,
or if BUYER has 3 payment defaults in a calendar year, at its option SELLER may
either (1) suspend deliveries until all indebtedness is paid in full, or (2)
place BUYER on a cash-in-advance status until arrangements are made for security
satisfactory to SELLER or, at SELLER's option, until all indebtedness to SELLER
is paid in full. All timely payments under this Agreement shall be made without
early payment discount. BUYER shall pay SELLER the maximum lawful rate of
interest on past due payment obligations. Any preexisting obligation of BUYER
to make payment for Product delivered hereunder shall survive termination of
this Agreement for any reason.
Prior to the commencement of deliveries of Product hereunder, and at any time
and from time to time thereafter upon demand from SELLER, BUYER shall provide
SELLER such credit information as may reasonably be required by SELLER to
determine BUYER's creditworthiness. If at any time, in the reasonable opinion
of SELLER, the financial responsibility of BUYER may be impaired or
unsatisfactory such that SELLER reasonably believes that BUYER may no longer
fulfill SELLER's reasonable requirements for unsecured credit on sums owed on
outstanding invoices plus for future Product orders SELLER shall have the right
to require BUYER to provide SELLER with the most recent audited or unaudited
cash flow data and other financial information relevant to BUYER's ability to
pay. Upon such request and until analysis of such information is completed, not
to exceed two business days after such information is provided (during which
time SELLER shall not disclose the suspension to any third party), or if such
information fails to reasonably substantiate BUYER's ability to pay, SELLER
shall have the right to restrict or suspend Product deliveries unless BUYER pays
on a cash-in-advance of delivery basis or, at BUYER's option, BUYER posts a
suitable letter of credit covering up to two months of receivables, from a
reliable financial institution. Alternatively, at SELLER's option, BUYER and
SELLER may make other arrangements to secure future transactions hereunder. If
deliveries are suspended, or if deliveries are secured as provided herein, and
BUYER subsequently furnishes SELLER with sufficient evidence of financial
responsibility, then SELLER shall immediately resume Product deliveries or
rescind the security requirements, as applicable. If SELLER's suspension of
shipments or demand for security under this paragraph of Section 11 is
determined to be arbitrary and capricious, SELLER shall be liable to BUYER for
direct costs and compensatory damages arising therefrom.
12. TAXES: Any tax (other than income, ad valorem or franchise
tax) , excise, fee, or other charge or any increase therein, now or hereafter
imposed directly or indirectly by law upon Product, components of Product, or
raw material from which Product is derived,
5
<PAGE>
or on the production, manufacture, storage, sale, transportation or delivery
thereof, which SELLER is required to pay or collect, including, without
limitation, Superfund excise taxes and taxes on gasoline blend stocks and
additives, shall, at SELLER's option, be paid by BUYER in addition to the price.
It is the intent of the parties that any such tax may be passed on via explicit
surcharge to BUYER, whether included in the current invoice, or added
retroactively to price. Retroactive surcharges may include such interest for
which SELLER is liable, in case that, subsequent to the original invoice, a law,
regulation, ruling or determination of a taxing authority is deemed to cause
SELLER to be liable for the tax.
13. GOVERNMENTAL ACTION AFFECTING CONTRACT TERMS: If any governmental
action substantially affects the right to maintain or change the price or other
terms of this Agreement, then at any time such governmental action is in effect,
either party shall have the right, at its option, to (1) terminate this
Agreement upon 30 days notice to the other party, or (2) postpone, by written
notice to the other party, the effective date of any price change or change of
other terms to the extent so affected until such date or dates as it is not so
affected. By its election to postpone rather than terminate, the party does not
waive its right to terminate thereafter.
14. OFFSETS: In the event of BUYER's default in payments or in its
quantity purchase obligations hereunder, SELLER may offset damages arising
therefrom, including, without limitation, withholding payment, delivery or
acceptance of product, material or services, relating to any agreement or
transaction with BUYER, its subsidiaries or affiliates.
15. CLAIMS: All claims of BUYER with respect to the measurement and
evaluation of quality or quantity of Product sold and delivered pursuant to this
Agreement, shall be deemed waived and forever barred, unless BUYER notifies
SELLER of the nature and details of the claim in writing within (***) after
receipt of the shipment by BUYER. Any such claim which is not asserted as a
claim, counterclaim, defense or set-off in a judicial proceeding instituted
within 2 years after the cause of action arises shall be forever waived, barred
and released.
BUYER assumes all risk and responsibility for handling the Product, for the
results obtained by the use of the Product in manufacturing processes or
otherwise, and for the results obtained by the use of said Product in
combination with other substances. If any description, advice or suggestion is
given, it is given and accepted at BUYER's risk, and SELLER shall not be
responsible or liable therefor or for the results thereof.
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<PAGE>
16. PRODUCT HAZARDS: BUYER acknowledges that it has been adequately
warned and understands the warnings by SELLER of the risks associated with
handling, shipping, storing, using and disposing of the Product, including,
without limitation, those set forth in SELLER's Material Safety Data Sheet for
Product ("MSDS"). BUYER further acknowledges it is familiar with the Product
and has independent knowledge of such risks, which are known in BUYER's
industry. BUYER shall maintain compliance with all safety and health related
governmental requirements concerning Product and shall take all reasonable and
practicable steps to inform, warn and familiarize its employees, agents,
contractors and customers with all hazards associated with the Product,
including handling, shipment, storage, use and disposal. BUYER shall not
deliver or consign commercial or sample quantities of Product to any Party whom
BUYER reasonably believes will handle, ship, store, use or dispose of said
Product in a dangerous manner or contrary to law or the advice of SELLER.
17. INDEMNIFICATION: SELLER shall indemnify BUYER Group for Liability
and Costs relating to Product Incidents which occur while, SELLER its employees,
contractors, subcontractors or agents have custody of Product where such
Liability and Costs arise from or relate to any such Product Incident's harm to
SELLER or its employees, customers, contractors, subcontractors or agents
because of exposure to Product or explosion or combustion of Product.
BUYER shall indemnify SELLER Group for Liability and Costs relating to Product
Incidents which occur while BUYER, its employees, contractors, subcontractors or
agents have custody of Product where such Liability and Costs arise from or
relate to any such Product Incident's harm to BUYER or its employees,
contractors, subcontractors or agents because of exposure to specification
conforming Product or explosion or combustion of specification conforming
Product.
"SELLER Group" means SELLER and/or any of its agents, officers, directors,
employees, contractors, representatives, and insurers.
"BUYER Group" means BUYER and/or any of its agents, officers, directors,
employees, contractors, representatives, and insurers.
To "indemnify" means to defend and fully hold harmless from and against all
liability, damages, losses, costs and expenses (including reasonable attorneys'
fees, court costs and other costs of suit), for claims, demands, suits or
judgments (hereinbefore "Liability and Costs") based on any Product related
incident causing property damage, personal injury or death (hereinbefore
"Product Incidents"), whether or not claimants allege indemnitee's negligence as
a cause.
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<PAGE>
18. WARRANTIES: SELLER warrants Product shall meet the specifications
established in this Agreement.
SELLER warrants free and clear title on all Product produced by SELLER and that
such Product is produced in compliance with the requirements of the Fair Labor
Standards Act of 1938, as amended. There are no rightful patent infringement
claims as to the Product itself available to any third party.
SELLER makes no other express or implied warranty, statutory or otherwise,
concerning the Product, including without limitation, no warranty of fitness for
a particular purpose, warranties of merchantability, or warranties as to quality
or correspondence with description or sample. SELLER does not warrant against
United States patent infringement by way of the use of the Product in
combination with other materials or in the operation of any process.
19. LIMITATION OF DAMAGES: BUYER'S exclusive remedy for any and all delivery
shortfalls or contamination of Product sold under this Agreement, including, but
not limited to, any allegations of breach of warranty, breach of contract,
negligence or strict liability, shall be limited, at SELLER's option, to either
the payment for then current market value cover costs incurred to replace such
Product, or the replacement of the Product for which a valid claim is made. In
the event of any such delivery shortfalls or contamination, SELLER shall not
be liable to BUYER for any lost or prospective profits or any other special,
consequential, incidental or indirect losses or damages from the sale of Product
under this agreement or for any failure of performance related hereto. This
limitation does not affect either party's rights respecting claims for personal
injury (including death) or physical property damage.
20. FORCE MAJEURE AND ALLOCATION: Neither Party shall be responsible
for any loss and or damage resulting from any delay in performing or failure to
perform any provisions of this Agreement (other than BUYER's obligation to make
payments for Product delivered under this Agreement), so long as any such
failure or delay arises from fires, floods, storms, earthquakes, tidal waves,
wars, military operations, national emergencies, civil commotions, strikes or
other differences with workers or unions, or from any delay or failure in
delivery when the supplies of either Party or the facilities of production,
manufacture, transportation or distribution which otherwise would be available
to either Party are impaired by mechanical breakdowns, or by the order,
requisition, request or recommendation of any governmental agency or acting
governmental authority, or either Party's compliance therewith or by
governmental proration, regulation or priority, or the inability of SELLER to
obtain on terms deemed by SELLER to be practicable, feedstock or other raw
material (including energy sources), or from any other delay or failure due to
any causes beyond either party's control similar or dissimilar to any such
causes. When such cause or causes exist, the Party so affected shall have the
right
8
<PAGE>
in its sole discretion to restrict or cease deliveries or receipt of Product
hereunder. SELLER's obligation to sell Product is subject to modification and
reduction in accordance with any present or future allocation program of SELLER
based upon laws, rules or regulations, orders, demand or requests of any
governmental authority.
During the continuance of any of the herein referenced contingencies, the
obligations of SELLER and BUYER shall be suspended and proportionately abated
except for BUYER's obligation to pay SELLER for Product delivered. If, due to
any such contingency, either Party has not delivered or accepted delivery of the
contracted quantity of Product for a period of at least (***), the other Party
may terminate this Agreement by giving not less than (***) prior written notice
of termination.
Upon the occurrence of any of the Force Majeure events described in the section
hereof, the Party claiming Force Majeure shall notify the other Party promptly
in writing of such event and, to the extent possible, inform the other Party of
the expected duration of the Force Majeure event and the volumes of Product to
be affected by the termination, suspension or curtailment of performance under
the Agreement.
In the event that, at any time, the quantity of Product available from the plant
ordinarily producing Product for sale hereunder ("Plant"), should be
insufficient to fulfill SELLER's future sales volume commitments because of
Plant production shortages due to any other event reasonably related to such
shortages, SELLER, at its option, may (1) allocate its available supply of
Product equitably among all term contract customers of SELLER during the period
of such production shortage contingency, and/or (2) deliver Product to such
customers, including BUYER, obtained from third Party sources.
21. GENERAL:
A. Assignment: This Agreement shall be binding upon and inure to the
benefit of the successors of BUYER and SELLER, but shall not be assigned by
either Party and if assignment is attempted it shall be null and void without
the prior written consent of the other Party, which consent shall not
unreasonably be withheld, except that assignment to a parent corporation,
subsidiary of a parent corporation, or a successor to substantially all of the
chemical business of SELLER or the styrene monomer business of BUYER shall not
require the other Party's consent to become effective.
B. Governing Law: THIS AGREEMENT IS TO BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICT OF LAWS. IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, THEY SHALL
USE THEIR BEST EFFORTS TO MUTUALLY AGREE UPON AN ALTERNATIVE FORM OF DISPUTE
RESOLUTION ("ADR") BEFORE AN ADR PANEL OR ADR INDIVIDUAL IN HOUSTON, TEXAS; ANY
9
<PAGE>
JUDGMENT ENTERED THEREUPON SHALL BE FILED ONLY IN THE STATE OR FEDERAL COURTS OF
TEXAS. IN THE EVENT OF (a) FAILURE TO AGREE ON ADR METHOD, (b) FAILURE TO
CONSENT TO A NON-BINDING ADR DECISION, OR (c) APPEAL OF, OR CHALLENGE TO, AN ADR
DECISION, THEN ANY LEGAL ACTIONS FILED MAY BE BROUGHT ONLY IN THE STATE OR
FEDERAL COURTS AT HOUSTON, TEXAS.
C. Duty Drawback: BUYER shall obtain and complete U.S. Customs Bureau
forms and any other documentation required for duty drawback credits for BUYER's
exports of eligible goods derived from or containing Product. SELLER will first
claim any available drawback on any and all Products eligible for drawback which
are exported by SELLER or its agent. SELLER shall then transmit to BUYER the
Certificates of Delivery/Manufacture for remaining drawback Product available to
SELLER as are necessary to file said drawback claim. Such drawback Product
shall be allocated by SELLER among SELLER's customers if the remaining
quantities of drawback Product which may be covered by the Certificates are
insufficient to cover export quantities eligible for drawback. BUYER shall file
a duty drawback entry for the maximum quantity of eligible Product covered by
the Certificates furnished to BUYER and transmit (***) of all proceeds obtained
to SELLER.
D. No Waiver: Failure of either Party to require performance of any
provision of this Agreement shall not affect either Party's right to require
full performance thereof at any time thereafter, and the waiver by either Party
of a breach of any provisions hereof shall not constitute a waiver of a similar
breach in the future or of any other breach or nullify the effectiveness of such
provision.
E. Entire Agreement: This Agreement and any attachments or addenda
hereinafter set forth contain the entire agreement between the parties hereto
and there are no oral representations, stipulations, warranties, agreements or
understandings with respect to the subject matter of this Agreement which are
not fully expressed herein. Neither this Agreement nor its execution has been
induced by any representation, stipulation, warranty, agreement or understanding
of any kind other than those herein expressed.
F. No Modification: No amendment, addition to, alteration,
modification or waiver of all or any part of this Agreement shall be of any
force or effect, whether by course of conduct or otherwise, unless in writing
and signed by SELLER and BUYER. If the provisions of this Agreement and the
provisions of any purchase order or order acknowledgment written in connection
with this Agreement conflict, then the provisions of this Agreement shall
prevail.
10
<PAGE>
G. Notices: Any notices given under this Agreement shall be in writing
and addressed to the other Party at the address specified in the first paragraph
of this Agreement. Notice may be given by U.S. mail (first class or certified),
any personal delivery service, fax, or telex. Any notice required or permitted
hereunder shall be deemed given upon the earlier of (1) the day of actual
receipt by the Party to whom notice is being given or the following business day
if actual receipt is during a non-business day of the receiving Party or is
after regular business hours on a business day of the receiving Party, or (2)
the fourth day after being deposited postage prepaid in the U.S. Mail as first
class mail. Notice by fax or telex shall be deemed to be in actual receipt upon
the completion of transmission to the receiving Party. For purposes hereof, all
notices to SELLER shall be directed to the attention of the Commercial Manager,
Light Olefins; and if faxed, transmitted to the Commercial Manager, Light
Olefins at (713) 652-7383; and all notices to BUYER shall be transmitted to
Elizabeth A. Trent, Raw Material Coordination Manager or successor; and if
faxed; transmitted to Elizabeth A. Trent, Raw Material Coordination Manager or
successor at (713) 654-9551.
If, prior to the execution of this document by both parties, SELLER delivers
Product to BUYER and BUYER receives Product from SELLER at any time within the
Term stated herein, any such transactions will be governed by the terms and
conditions hereof, except for any such terms or conditions expressly rejected in
writing by BUYER prior to Product delivery, the parties by their conduct
agreeing to be so bound. The parties recognize and agree that neither shall be
obligated by their course of conduct to perform any future transactions
hereunder unless and until this document is fully executed.
IN WITNESS WHEREOF, SELLER and BUYER have executed this Agreement effective as
of the date first above written.
LYONDELL PETROCHEMICAL COMPANY STERLING CHEMICALS, INC.
(SELLER) (BUYER)
By: /s/ Bob G. Gower By: /s/ James S. Williams
Print Name: Bob G. Gower Print Name: James S. Williams
Title: Chairman and CEO Title: Director - Commercial
Date: 12/20/94 Date: December 7, 1994
11
<PAGE>
EXHIBIT A
ETHYLENE PRODUCT SPECIFICATIONS
<TABLE>
<CAPTION>
COMPONENT CONTRACT TEST METHODS
SPECIFICATION
<S> <C> <C>
Ethylene; mol % 99.85 min. ASTM D 2505
Methane; mol % 0.1 max. ASTM D 2505
Ethane; mol % 0.15 max. ASTM D 2505
Propylene and Heavier; mol ppm 100 max. ASTM D 2505
Carbon Monoxide; wt. ppm 5 max. ASTM D 2504
Carbon Dioxide; wt. ppm 10 max ASTM D 2505
Sulfur; wt. ppm 5 max. ASTM D 3246
Water; wt. ppm 10 max. LYON 5981
Acetylene; wt. ppm 5 max. ASTM D 2505
Oxygen; wt. ppm 5 max. ASTM D 2504
Hydrogen; wt. ppm 5 max ASTM D 2504
Ammonia, wt. ppm 1 max LYON 5234
Methanol; wt. ppm 10 max LYON 5881
</TABLE>
12
<PAGE>
EXHIBIT B
Method of Conversion of Volumes of Ethylene to Pounds of Ethylene
The pounds of ehtylene delivered daily shall be determined in accordance
with the method outlined in the booklet entitled "Phillips Chemical Company
Ethylene Flow Measurement Manual" as revised January 1, 1985. The methods of
gas flow measurement and the methods of gas volume computation outlined in the
manual referred to above will be controlling; provided, however, that revisions
in the aforesaid manual may be made at any time during the life of this contract
upon agreement by both parties.
13
<PAGE>
Exhibit 10.53
COLLECTIVE AGREEMENT
BY AND BETWEEN
PRODUITS CHIMIQUES STERLING
Buckingham, Quebec
AND
CANADIAN COMMUNICATIONS, ENERGY,
AND PAPIER UNION, CTC. (S.C.E.P.)
Local 169 (FTQ)
3 year agreement expiring
November 30, 1997.
<PAGE>
INDEX
<TABLE>
<CAPTION>
ARTICLE NAME PAGE
<C> <S> <C>
01 Parties................................... 3
02 Recognition............................... 3
03 Management Functions...................... 3
04 Discrimination............................ 5
05 Union Representation...................... 6
06 Union Security............................ 9
07 Correspondence............................ 10
08 Seniority................................. 10
09 Probationers.............................. 16
10 Loss of Seniority......................... 16
11 Wages..................................... 18
12 Shift Differential........................ 20
13 Transfers................................. 21
14 Payment................................... 22
15 Hours of Work............................. 22
16 Overtime.................................. 24
17 Sunday Work............................... 29
18 Call-in................................... 29
19 Shift Schedule............................ 30
20 Reporting Pay............................. 32
21 Holidays.................................. 33
22 Vacations................................. 35
23 Bereavement Leave......................... 37
24 Jury Service.............................. 38
25 Rest Periods.............................. 38
26 Wash-Up................................... 39
27 Personal Protective Clothing & Equipment.. 39
28 Bulletin Boards........................... 39
29 Safety and Health......................... 40
30 Discharge................................. 41
31 Discipline................................ 41
32 Employee working outside the
bargaining unit........................... 42
33 Grievance Procedure....................... 42
34 Arbitration............................... 43
35 Strikes and Lockouts...................... 45
36 General................................... 46
37 Duration.................................. 51
APPENDIX "A" Categories and Rates......... 54
APPENDIX "B" Payroll Deduction Auth....... 59
APPENDIX "C" Job Descriptions............. 60
APPENDIX "D".............................. 61
APPENDIX "E" Twelve Hour Schedule......... 62
APPENDIX "F" Letter of Agreement.......... 69
APPENDIX "G" Letter of Agreement.......... 74
APPENDIX "H" Letter of Agreement.......... 76
APPENDIX "I" Vacation Selection Proc...... 77
APPENDIX "J" Letter of Agreement.......... 79
APPENDIX "K" Letter of Agreement.......... 80
APPENDIX "L" Letter of Agreement.......... 81
</TABLE>
<PAGE>
3
ARTICLE 1
Parties
This agreement, by and between Produits Chimiques Sterling, Buckingham, Quebec,
hereinafter designated as the "Company" and the Canadian Communications, Energy,
and Paper Union, CTC. (S.C.E.P.), Local 169 (FTQ), hereinafter designated as the
"Union" witnessed.
ARTICLE 2
Recognition
The Company recognizes the Union as the bargaining agent for all the employees
of the Company as described in the certificate of accreditation issued by the
Ministry of Labour of the Province of Quebec.
ARTICLE 3
Management Functions
03.01 It is the function of the Company:
a) To manage the enterprise in which it is engaged, determine the products
to be manufactured, methods, systems, processes and means of manufacturing,
schedules of production, kinds and locations of machines, equipment and
tools to be used, the control of materials, parts, the extensions,
limitation, curtailment, or cessation of operations, location, number of
size of plants, maintain order and efficiency and all matters concerning
the operation, management, supervision and control of the Company and its
business, works, plants and operations.
<PAGE>
4
b) Without restricting the generality of the foregoing and subject only to
the express provisions of this agreement, to maintain discipline, make and
alter rules and regulations, direct the working forces, assign work, hire,
classify, transfer, promote, lay off, discharge, suspend and otherwise
discipline employees for just cause. A claim that an employee has been
disciplined, demoted, suspended or discharged without just cause may be
the subject of a grievance, and arbitration procedures hereinafter
described.
03.02 It is the intent of the Company to not adversely affect employees in the
bargaining unit by continuing contracting out practices.
When outside assistance is considered, the Company shall submit in writing
to the Union a description of the work for discussion before the decision
is made to request outside assistance.
Accordingly, the Company shall use employees in their negotiating unit for
any work normally carried out by them, provided the employees have the
necessary skills to carry out the work as efficiently within the time
available.
To facilitate the foregoing, the Company and the Union shall form a joint
committee to consider the alternatives to outside assistance. This
committee shall meet as required to advance discussions.
a) Advance discussions on the work for which the Company is considering the
use of outside assistance;
b) jointly, consider the Union's proposals and alternatives objectively;
c) ensure that the Union is aware of the reasons for the Company's decision;
<PAGE>
5
d) early each year, the Company undertakes to discuss the work that has
required outside assistance during the preceding year.
e) When the employer uses the services of a contractor, the employer shall
ensure that the contractor and the occupation of his employees are
identified as such.
When work is contracted out, the Company will request that, if possible,
the contractor employ qualified men who are on lay-off from the
bargaining unit.
03.03 The exercise of these functions shall not be inconsistent with the
provisions of this Agreement.
03.04 Management functions shall not be limited in any way except as provided
for specifically by the terms of this Agreement.
ARTICLE 4
Discrimination
04.01 There shall be no discrimination, coercion or intimidation by the
Company, the Union or their respective representatives or members,
against any employee(s) because of union activities or lack of union
activities, union membership, or reasons of race, colour or religion,
sex, marital status, political convictions, language, ethnic or national
origin or for reasons foreseen by the Quebec Charter of Human Rights and
liberties.
Although a distinction, exclusion or preference based on the aptitudes
and qualifications needed by a job is not discriminatory.
04.02 There shall be no solicitation or union promotional activity on company
time. Meetings of the Union or its members shall not be held on the
premises of the Company at any time without prior approval of the Plant
Manager.
<PAGE>
6
ARTICLE 5
Union Representation
05.01 For the purpose of this agreement the following are recognized officers
and committees of the Union.
a) Officers
Employees duly elected to the office of President, Vice-President,
Recording-Secretary, Secretary-Treasurer and two (2) Shop Stewards.
b) Committees
1. A Negotiation Committee and a Union Committee of four (4) employees
made up of the officers specified in 5.01 a).
2. A Grievance Committee of three (3) employees as follows: President,
Vice-President and Shop Steward of the area concerned.
The Recording-Secretary may replace any absent member of the Grievance
Committee.
c) There shall be a Shop Steward for each of the following departments:
Production and Maintenance.
05.02 The National Representative of the Union shall have the right to assist
the Bargaining Committee during negotiations, the Grievance Committee in
the processing of grievances at Step No. 2 of the Grievance Procedure or
to attend meetings between Management and the Union at the request of
either party.
05.03 A monthly meeting between Management and a Union Committee, not to exceed
eight (8) in number, may be held if requested by either party in order to
discuss matters of interest to employees. These meetings will be normally
scheduled from 8:00 a.m. to 4 p.m.
The members of the Union Committee will be paid for attending the monthly
meetings as follows:
a) When the meeting is held during the employee's working hours, the
employee will be releaved from his work for the duration of the meeting.
b) When the meeting is held during the employee's day off: employees with a
regular schedule will have one of his 12 hour shifts moved without any
loss of premium in order to be released for the duration of the meeting.
When this is not possible, the employee will be paid in overtime to
attend the meeting on his day off.
<PAGE>
7
c) Employees that do not have a regular schedule, such as relief operators,
can be scheduled an 8 hour shift to attend these meetings.
d) In all cases, the employees will work, in addition to the hours spent to
attend the meeting, the number of hours scheduled on that day. Particular
arrangements based on mutual agreement can be taken to work the hours
exceeding the duration of the meeting.
05.04 The members of the negotiating committee will be paid for the time spent
in attending negotiating meetings.
The Company will take the appropriate measures to ensure that the
employees receive, during a week when one or more negotiating meetings
are held, the same pay (salary and premiums) that would have been
received according to his regular schedule, had there been no meetings.
The Company will accomplish this by modifying the schedules to have the
working days correspond to the meeting days and will ensure that the
employee works the same number of hours that he would normally have
worked that week.
05.05 a) The Company will pay for reasonable time spent by stewards in
servicing grievances during working hours.
b) Members of the Grievance Committee will be paid for time spent during
normal working hours to discuss grievances in accordance with the
provision of Article 33.
c) It is understood that stewards and members of the grievance committee
have their regular work to perform on behalf of the Company and that
if it is necessary to service grievances during working hours they
will not leave their work without first obtaining permission from
their immediate supervisor.
This permission will not be unreasonably withheld. Upon resuming
their regular work they will report to their immediate supervisor and
if absent beyond the period agreed to, will give a reasonable
explanation of their absence.
d) The President and the Vice-President will be paid according to
Article 05.03 for the time spent in meetings for the second level
grievance procedure. These meetings normally follow the monthly
meetings.
<PAGE>
8
e) The Shop Steward will be paid to attend the second level grievance
meetings that involve the area he represents. In this case, the
Company will not normally modify his schedule to facilitate his
attendance.
f) During arbitration and mediation hearings, the President of the Union
or his replacement will be paid for the time passed in hearings. In
addition, the grievor will be paid for the time passed in hearings
that coincides with his hours of work if he completely wins his case.
05.06 Whenever possible, the Human Resources Dept. will give prior notice to
foremen concerned to permit the release of Union Committee members for
meetings with Company representatives.
05.07 Any employee elected to a full-time Union position will be given a leave
of absence up to twelve (12) months upon written request of the Union to
the Human Resources Administrator. This period may be extended by
agreement of the parties.
Group insurance and Pension benefits would continue to apply provided the
employee and employer shares of the premiums are paid by the employee and
the Union.
05.08 Employees will have the right to examine their personal files.
05.09 The Company may grant time off without pay to not more than six (6)
employees at any one time to act as union delegates to attend union
business and conventions. Time off for conventions may be allowed up to
two (2) weeks with written request two (2) weeks in advance. Time off for
union business may be up to three (3) days.
<PAGE>
9
ARTICLE 6
Union Security
06.01
a) As a condition of continued employment all present employees covered by
this agreement shall become members of the Union within thirty (30) days
of signing of this agreement and all new employees covered by this
agreement shall become members of the Union and shall remain members of
the Union in good standing during the term of this agreement.
For the purpose of this agreement, a members of the Union in good
standing shall mean an employee who has paid an amount equivalent to the
regular weekly union dues.
b) As a condition of continued employment all employees covered by this
agreement shall be subject to a payroll deduction of the regular weekly
Union dues. Each employee shall execute and deliver to the Company a
written authorization to make such deductions. This authorization shall
be signed by the employee before a witness, on the form attached hereto
and forming part hereof as Appendix "B".
c) The Secretary-Treasurer of the Union will advise the Company in writing
of the amount of the regular weekly Union dues.
06.02
a) Subject to the foregoing, the Company will deduct the weekly dues from
the pay of all employees covered by this Agreement.
b) The Company will directly deposit in the Union's bank account the
deductions within seven (7) days of the collection date.
06.03 Not later than the 15th of each month the Company will transmit to the
Union a list of hirings and separations for the previous month.
06.04 Within fifteen (15) days after the signing of this Agreement, the Company
will transmit to the Union a seniority list of all employees covered by
this Agreement.
06.05 The Company will collect the initiation fee for the Union. The initiation
fee will be deducted from the employee's wages when he joins the Union.
The Secretary-Treasurer shall advise the Company in writing of the names
of the employees from whom such deduction will be made. The employee will
authorize the Company to make the deduction on the form attached hereto
as Appendix "B".
<PAGE>
10
ARTICLE 7
Correspondence
07.01 Except where otherwise provided, official communications in the form of
correspondence between the Company and the Union shall be hand delivered
or sent by mail as follows:
To the Company:
Plant Manager
Produits Chimiques Sterling
101, chemin Donaldson
Buckingham (Quebec)
J8L 3X3
To the Union:
Recording-Secretary
S.T.E.C. (FTQ)
Local 169
Buckingham (Quebec)
ARTICLE 8
Seniority
08.01 Seniority means the length of service in the employ of the Company at its
plant in Buckingham, Quebec.
08.02 Seniority shall be established after nine hundred and sixty (960) hours
worked in units of normal shifts within a twelve (12) consecutive month
period and shall be calculated from a period equivalent to nine hundred
and sixty (960) hours worked prior to the establishment of such
seniority.
08.03 Seniority shall be plant wide.
08.04
a) In case of promotions, seniority shall govern provided the employees have
approximately equal qualifications required to do the work as defined in
the agreed upon job descriptions.
b) In case of lay-offs, recalls, demotions and transfers, seniority shall
govern provided the employees possess the necessary qualifications to
perform the required work.
In the application of this paragraph, an employee will be considered to
possess the necessary qualifications if he is able to perform the
required work after a familiarisation period.
c) An employee acquires bumping rights when he is permanently displaced from
his regular occupation. An employee acquiring such bumping rights may
displace another employee with less seniority, except in the occupations
described below, provided he possesses the capabilities of doing the work
with minimal training.
<PAGE>
11
Occupations excluded from the application of these rights, except where a
man possesses the necessary skills to make him immediately qualified are:
Instrument Mechanic, Machinist, Bricklayer, Carpenter, Electrician,
Garage Mechanic, Millwright, Pipefitter, Steelworker, Tinsmith, Welder,
Blacksmith, Rigger, Stationary Engineman.
Administration of Article 8.04 c)
.01 The employee's choice to transfer, expressed as "may transfer" means that
the employee is entitled to transfer in accordance with the provisions of
Section 8.04 c) or to refrain from transferring and therefore to be
dismissed as follows:
A) If the employee chooses to move; the employee shall exercise his or her
right to transfer in accordance with the following options:
1 - to the following positions
1. Services Team - Chlorate
2. Warehouses Services - Chlorite
3. Chlorite Dryer Operator
2. To any previously occupied posted position in accordance with the
term regular occupation Section .02.
3. To any position the employee can fill with minimum training because
of previously acquired experience in this position.
4. To any assigned position, provided this position does not
necessitate any transfer by the employees.
B) If the employee chooses not to exercise his or her right to transfer, the
employee shall receive the termination compensation provided for in
Section 10.06. However, in this case, compensation is pegged at a maximum
of fifty (50) weeks of salary.
Despite the foregoing, an employee is not entitled to choose dismissal
and therefore compensation if he or she is filling a posted position
involving experimental, research or development work or any other
temporary activity. In these cases, a management/union committee shall be
set up to determine as exact a timetable as possible for these temporary
positions. This timetable shall be posted with the positions.
<PAGE>
12
C) If an employee chooses not to exercise his or her right to transfer and
to not receive at this time the severance pay of Article 10.06, which is
set in this case to a maximum of fifty (50) weeks of salary, the employee
will be laid off, will maintain seniority and will be placed on the
recall list.
During the time the employee is on the recall list, he may at any time
demand his severance pay as indicated in item B and would consequently
loose his seniority.
The employee will receive his severance pay if his seniority ends under
the conditions of 10.01.
.02 "Regular occupation" means a position obtained after the employee completes
the training required for the position.
.03 In a situation of transfer expressed as "may transfer", the employee will
displace in a position the person with the less seniority in that position
regardless of his schedule.
08.05 Temporary lay-offs due to emergencies may be effected without regard to
seniority. Employees shall not be subjected to temporary lay-offs for
more than an aggregate of ten (10) eight hour or seven (7) twelve hour
working days in any three (3) month period. If there are remaining jobs,
the employees with the most seniority shall be retained if they are
capable of doing the work.
08.06 Emergencies referred to in 8.05 above are defined as storms, floods,
fires, explosions, serious mechanical breakdowns, power and steam
failures.
08.07
a) Notice of lay-off shall be given to the Union and the employees concerned
seventy-two (72) hours prior to the effective date of the lay-off. The
Company will discuss with the committee any case or instance of hardship
or alleged injustice to an employee arising out of such lay-off. This
shall not apply in case of temporary lay-offs referred to in Article
8.05. In a lay-off of probationers only, the seventy-two (72) hours
notice shall not apply.
<PAGE>
13
b) Thirty days notice of dismissal shall be given to the Union and employees
concerned for any cancellation of a posted position caused by permanent
closure of one or more operations or by permanent cessation of production
of one or more products.
c) A notice of lay-off must be forwarded to the Government of Quebec, as
stipulated under the terms of the Act respecting Manpower Vocational
Training and Qualification, and a copy of this notice shall be sent to
the Union.
08.08
a) The Union's Executive Committee shall consider the notice of lay-off as
confidential, and will not discuss this with any employees, except after
they have been notified by the Company, such notification to take place
not later than the beginning of this last day at work.
b) In case of recalls, a list of the employees recalled will be given to the
Union immediately.
08.09
a) All job vacancies which exceed five (5) weeks duration will be posted for
a period of seven (7) days. All applicants will be required to complete
an application form, one copy of which will be retained by the Company,
one copy to be submitted to the Union and one copy will be made available
to the employee. Applications must be returned to the Personnel
Department within fourteen (14) days of the date of the posting.
Transfers described in 13.04 will bot be posted.
Experience acquired during temporary transfers will not be considered
when selecting employees to fill posted vacancies.
All job vacancies which are posted between June 1st and September 30th
will remain on the main posting board during this period. Employees who
are absent on vacation when these vacancies are posted may apply within
seven (7) days of their return to work.
b) Employees who are off work due to illness or injury during the entire
period of a job posting will be sent a copy of the posting by registered
mail. If they wish to apply for the posted vacancy they must complete an
application form and return it to the Personnel Department within one
week of the receipt of the posting.
In the event that the employee is hospitalized he must return the
application within one week of his discharge from hospital.
<PAGE>
14
c) When a job vacancy has been filled, the name of the employee chosen for
the job shall be posted on the main posting board for a period of three
(3) weeks. The selection of the successful candidate will be made within
thirty (30) days of the posting.
d) An employee may submit a grievance claiming a position for which he has
made an unsuccessful application within ten (10) days subsequent to his
return to work after vacation, illness or accident.
e) An employee who does not apply within the allowable time forfeits his
right to grieve.
f) An employee may refuse to accept a position for which he has made an
application during the one hundred and twenty (120) hours of work
following the commencement of his training. This does not apply when the
employee is applying for a position immediately above his current
position, and within his line of advancement.
g) Selected candidates from job postings will receive the rate of the job on
completion of the training period or 520 hours worked after selection,
whichever occurs first.
h) When a position with a regular schedule is needed, the position will be
first offered to the employee who has the same posting with the relief
schedule, if it exists. When a position with a relief schedule is needed,
the position will first be offered, in order of seniority, to the
employees who have the same posting with a regular schedule. Following
the above selection, a job posting will be posted for the required
schedule.
i) In applying 8:09 h), the offer will be made in writing to each person and
an answer must be given after one week. The choice of schedule will be
final once an answer is given.
j) In the choice of candidates for positions in the Chlorate Plant:
Chlorate Lead Hand - Operator Level 1 - Operator Level 2 - Operator Level
3, and for the positions in the Chlorite Plant: Chlorite Lead Hand,
preference will be granted to candidates occupying the job classification
immediately below the classification for the posted job.
<PAGE>
15
k) The Company shall supply to the Union a copy of any statement signed by
an employee refusing a promotion or transfer.
08.10 The name of an employee who has been or is promoted from a job
classification covered by this agreement to an excepted position with the
Company at its plant in Buckingham, Quebec, will be carried on a staff
seniority list.
The names of the employees who have been entered on this seniority list
prior to September 8th, 1966 will continue to maintain and accumulate
their seniority for a maximum of nine (9) months. Such a person, when
released from excepted employment may, within thirty (30) calendar days
of such release, exercise his seniority to return to a job classification
in the bargaining unit; and failing to do so, will forfeit his seniority
and his name will be removed from the staff seniority list.
The Company will maintain an up-to-date list of staff employees which it
will supply to the Union.
08.11 The Company will maintain a plant wide seniority list and bring it up to
date monthly and keep it posted in an appropriate place.
08.12 Students hired for a vacation period will not acquire seniority.
If a student wishes to change his status to regular employment he must
submit a formal request to the Human Resources Department. If accepted he
must complete the normal probation period and his seniority will be
established according to Article 9 in addition to the time employed as a
student.
<PAGE>
16
ARTICLE 9
Probationers
09.01 An employee undergoing a probationary period is a person whose total
accumulated service in the employ of the Company at its Buckingham
(Quebec) plant is less than nine hundred and sixty (960) hours worked in
normal shifts during the course of twelve (12) consecutive months.
Seniority shall begin at a date equivalent to nine hundred and sixty
(960) hours from the date on which such seniority is established.
However, the right of recall shall apply after the first four hundred and
eighty (480) hours worked in normal shifts.
09.02 A probationary employee has no seniority rights, and his name shall not
appear on any seniority list. It will be the exclusive privilege of the
Company to retain, to lay off or to dismiss a probationary employee.
09.03 A probationary employee who is not entitled to seniority may submit a
grievance for reasons other than those mentioned in 9.02 above.
09.04 Probationary employees will receive the beginner's rate for the first two
hundred and forty (240) hours worked in normal shifts. After which, they
will receive the pay rate for the work performed.
ARTICLE 10
Loss of Seniority
10.01 Seniority shall be broken if the employee:
a) voluntarily leaves the employ of the Company;
b) is justifiably discharged;
c) following a lay-off, fails to report for work within seven (7) calendar
days of sending a telegram to his last address on record in the Personnel
Department of the Company. Notice of the telegram will be given
simultaneously to the Union. If the employee, within the seven (7) days
mentioned above, notifies the Company of his
<PAGE>
17
intention to return to work but claims that he is unable to report on the
date and at the time specified due to circumstances beyond his control,
his name will be left on the seniority list provided he actually
commences work within the next two (2) calendar weeks.
Such laid off employee so notified, in writing, declines to accept the
job offered if it is not in a wage category equal to or higher than his
last job classification. In such cases, the employee permitted to decline
to return to work for the above reasons, shall not lose his relative
position on the recall list;
d) cannot be located after reasonable effort. A registered letter mailed to
the last address on record with the Personnel Department of the Company
and a copy of the letter sent to the Union shall constitute a reasonable
effort on the part of the Company;
e) is laid off and is not recalled within 18 months of his last date of lay-
off;
f) is absent from work for more than three (3) consecutive working days and
is unable to give the Personnel Department of the Company satisfactory
reasons on his return;
g) is absent beyond the time limit of coverage provided under the terms of
the health insurance plan, an industrial accident insurance plan or if
permission for absence is granted by the Company.
h) decides to be laid-off according to option B of the administration of
Article 8.04 c), 01.
10.02 It shall be the duty of all employees to notify the Personnel Department
of the Company promptly of any change in their address. If an employee
fails to do this, the Company will not be responsible for failure to
contact the employee.
<PAGE>
18
10.03
a) The Company may grant leave of absence to any employee for legitimate
personal reasons. Any person who is absent with written permission shall
not be considered to be laid off, and his seniority shall continue to
accumulate during his absence. In no case will an employee be granted a
leave of absence for a period longer than three (3) months except as
provided in Article 5.07.
b) Prolonged periods of time may be considered under circumstances directly
related to professional training.
10.04 Employees will normally be laid off at the end of a calendar week except
in cases where the provisions of Article 8.05 may apply.
10.05 The average hourly rate will be communicated to the Union every three (3)
months.
10.06 Severance Pay
Employees shall be paid severance pay when they are laid off due to lack
of work. However, severance pay will not apply to lay-offs caused by
emergencies as defined in article 8.06 of the collective agreement.
The severance benefit will be two (2) weeks pay (40 hours per week) at
the employee's regular straight time rate for each complete year of
seniority. Employees who are re-hired will begin to accumulate a new
service credit based on time actually worked from their last date of
hire. Students hired for a vacation period will not qualify for severance
pay.
ARTICLE 11
Wages
11.01 The Company agrees to pay and the Union agrees to accept, for the term of
this Agreement, the schedule of wage rates as shown in Appendix "A"
attached hereto and forming part of this Agreement.
<PAGE>
19
11.02 Job Classification Arbitration
a) Classification and hourly rate for existing jobs or for new jobs cannot
be changed, except by mutual agreement between the parties. In the event
that the Union and the Company cannot come to an agreement, wether
regarding the classification and/or the rates payable for a modified
task, or regarding classification and/or the rates for a new job, the
Union will formally notify the Company of its disagreement regarding the
classification under dispute.
b) In such instances, the Company's proposed classification shall be
maintained unless the Union elects to proceed to arbitration within
thirty (30) days of the above advice in accordance with the provisions as
defined herewith and the arbitrator upholds the Union position.
c) If any classification is changed as a result of the Arbitrator's
decision, the resulting classification shall be effective retroactive to
the date the Company formally advised the Union of its classification of
the job. Such disputes will be submitted to an arbitrator with experience
in job classification systems. The decision reached by the arbitrator
will be final and binding on both parties and the cost of the arbitrator
will be shared equally by the Company and the Union. The arbitrator will
be expected to render a decision within thirty (30) days following the
completion of his hearing.
11.03 The Company shall submit to the Union the job descriptions for any new
positions or any changes made in the job descriptions before a new
position is created, or before a position is modified. The job
descriptions regarding which an agreement has been reached between the
parties shall form a part of the collective agreement.
<PAGE>
20
11.04 The Company may as required need an employee to act as sub-foreman.
The selection of a sub-foreman will follow the process of 8.04 a) and
will put special attention on the qualifications of the employee.
The role of a sub-foreman, in addition to his regular work, is to assist
the supervisor or the department head in the distribution and
coordination of work. In addition, he may be assigned various
administration tasks such as preparing schedules, purchasing equipment,
etc.
All new tasks assigned to a sub-foreman must first be discussed by the
Labor/Management committee.
At no time can a sub-foreman discipline or recommend disciplinary
measures.
A sub-foreman will receive in addition to his regular rate, a premium of
$2.00 per hour for the period he works as a foreman.
ARTICLE 12
Shift Differential
12.01
a) The following shift differentials shall be paid to employees working on
the afternoon and night shifts as follows:
Shift differential
<TABLE>
<CAPTION>
94.12.01 95.12.01 96.12.01
--------- --------- ---------
<S> <C> <C> <C>
4.00p.m.-12.00a.m. $ 0.87 $ 0.89 $0.92
12.00a.m.- 8.00a.m. $ 1.53 $ 1.56 $1.61
12 hours $ 1.60 $ 1.63 $1.69
(Night shift)
</TABLE>
b) Basis of calculation: shift differentials will be 4% and 7% of the
highest hourly rate paid to a shift worker in
Appendix "A" excluding all premiums.
<PAGE>
21
12.02 The shift differential shall not enter into the calculation of holiday
pay nor vacation pay.
12.03 The shift differential is not payable on call-ins and overtime unless a
complete shift is worked as per article 15.04 a) and b).
For employees working 7.30 a.m. to 4.00 p.m., the shift premium shall not
apply to emergency calls or overtime unless an additional period of eight
(8) consecutive working hours has been completed.
12.04 The shift differential will be added after any overtime calculations have
been made.
ARTICLE 13
Transfers
13.01
a) An employee temporarily transferred to a job which pays a higher rate
shall receive the higher rate for the duration of the transfer.
b) When an employee is directed by his supervisor to perform work at a
higher rate during the course of a shift, he shall receive the higher
rate for each complete hour worked.
c) A transferred employee shall work the normal hours of the group to which
he is transferred. However, an employee who is transferred to another
sector or another department after his shift commences shall continue on
the same shift.
13.02 An employee temporarily transferred to a job which pays a lower rate,
shall continue to receive his previous rate until he is transferred back
to his former job or is transferred to another job.
13.03 A permanent transfer is a transfer of more than five (5) weeks duration
except when the provisions of 13.04 will apply.
<PAGE>
22
13.04 Relief work because of vacations, sickness, accident or authorized leave
of absence will not constitute a permanent transfer.
Transfers resulting from the shutdown or reduction of operations for
periods of less than four (4) months shall not constitute permanent
transfers however, transfers for the above reasons which exceed four (4)
months will be posted according to the provisions of article 8.09.
ARTICLE 14
Payment
14.01 The Company shall deposit employees' pay cheques in the financial
institution of their choice.
Payday shall normally be every Thursday, unless Thursday is a holiday, in
which case payday shall be the day preceding the holiday(s), or if the
payroll is unavoidably delayed.
14.02 Upon the submission of evidence to substantiate a weekly indemnity
benefit claim from Quebec Workmen's Compensation Commission, Group
Insurance or Unemployment Insurance Commission, an employee may request
an advance to provide income assistance during the period pending the
commencement of regular indemnity payments.
The advances will be made according to the employee's eligibility
however, they cannot exceed the level of the group insurance weekly
indemnity amount.
All amounts advanced to an employee must be reimbursed to the Company
when regular indemnity payments commence.
ARTICLE 15
Hours of Work
15.01
a) The regular schedule of hours of work shall be eight (8) hours per day
and forty (40 hours per week.
<PAGE>
23
b) 12 hour shifts only:
"The regular schedule of hours of work shall be twelve (12) hours per day
in accordance with the attached schedule".
"Relief operators however will work a schedule which will include twelve
(12) hour shifts and eight (8) hour shifts".
15.02
a) The day shall commence at midnight and shall consist of twenty four (24)
consecutive hours.
b) 12 hour shifts only:
"The day shall commence at 07.30 hours and shall consist of twenty four
(24) consecutive hours"
15.03
a) The week shall commence at midnight on Saturday and shall consist of
seven (7) consecutive days.
b) 12 hour shifts only:
"The week shall commence at 07.30 hours on Sunday and shall consist of
seven (7) consecutive days".
15.04
a) Normally the shifts shall be as follows:
1. 11.30 p.m. to 7.30 a.m. (night)
2. 7.30 a.m. to 3.30 p.m.(day)
3. 3.30 p.m. to 11.30 p.m. (afternoon)
4. 7.30 a.m. to 12.00 (noon)
and 12.30 p.m. to 4.00 p.m.(day)
The above mentioned shifts can only be changed by mutual agreement of the
parties.
b) 12 hour shifts only:
Day shift 7.30 a.m. to 7.30 p.m.
Night shift 7.30 p.m. to 7.30 a.m.
15.05 This article is for the purpose of providing a basis for calculating
overtime and shall not be construed as a guarantee of hours of work per
day or per week or weeks per month.
<PAGE>
24
ARTICLE 16
Overtime
16.01
a) Overtime shall be either all authorized time worked in excess of eight
(8) hours in any one day or in excess of forty (40) hours in any week, or
for all unscheduled hours, or in excess of thirty-two (32) hours in any
week in which a holiday occurs, or in excess of twenty-four (24) hours in
any week in which two (2) holidays occur.
Hours worked on an employee's scheduled days off will not be included.
The thirty-two (32) hours and twenty-four (24) hours referred to above
are exclusive of any time worked on the statutory holiday itself.
16.02 Unless otherwise stipulated, all authorized overtime worked shall be paid
for at one and one-half time the employee's regular hourly rate. Also,
this shall apply to all authorized hours worked in excess of eight (8)
consecutive hours or twelve (12) consecutive hours for employees working
the twelve (12) hours shift schedule.
16.03 Employees will be paid at twice their regular hourly rate for all
authorized overtime worked between 11.30 p.m. and 7.30 a.m.
16.04 Employees shall be paid at one and one-half times their regular hourly
rate for all hours worked on scheduled days off.
However, the first two (2) hours will be paid at twice their regular
hourly rate if they have not been advised of the overtime to be worked
within the time limits defined in clause 19.01.
16.05 Employees who work overtime for less than a normal shift, as defined in
clause 15.04 will be paid a minimum of two (2) hours at twice their
regular hourly rate. However, no minimum shall apply when the overtime
work forms a continuous period with the employee's regularly scheduled
working hours except as provided for in clause 18.02.
<PAGE>
25
16.06
a) Employees shall not be paid for both daily and weekly overtime for the
same hours worked. There shall be no pyramiding nor compounding of
overtime and/or other premium payments.
b) In any case where both the time and one-half, double time and triple
rates would apply, the higher rate will be paid.
c) Only one minimum payment will apply to any one period of continuous work.
16.07 When overtime is required it shall be distributed as equitably as
circumstances permit amongst qualified employees in the following
appropriate sector or maintenance occupational groups.
Production Department
First choice -
Employees scheduled on the job requiring overtime who are on their days
off.
Second choice -
Employees scheduled on the job requiring overtime with preference according
to the lowest accumulated overtime hours paid.
Third choice -
Employees scheduled in the sector and those of the sector scheduled in
maintenance capable of performing the work satisfactorily with preference
according to the lowest accumulated overtime hours paid.
Fourth choice -
All other employees capable of performing the work satisfactorily.
Fifth choice -
Qualified students.
Maintenance Department
First choice -
Employees with the base trade in the job requiring overtime who are on
their days off.
<PAGE>
26
Second choice -
Employees with the base trade in the job requiring overtime with preference
according to the lowest accumulated overtime hours paid.
Third choice -
Employees with the second trade capable of performing the work
satisfactorily with preference according to the lowest accumulated overtime
hours paid.
Fourth choice -
All other employees capable of performing the work satisfactorily.
Fifth choice -
Qualified students.
Administration of Article 16.07
.01 Definition and application of "schedule".
In applying article 16.07 first and second choice, "schedule " means the
following:
1) A work schedule is established for a period of one week beginning Sunday
at 12.01 a.m. and ending Saturday at midnight for eight (8) hours shifts,
and beginning Sunday at 7.30 a.m. and ending Sunday at 7.29 a.m. for
twelve (12) hour shifts.
2) Employees are entitled to overtime in the position to which they are
assigned for the entire period covered by the schedule except;
3) In the event an employee is assigned to more than one position during the
period covered by the schedule, said employee shall be entitled to
overtime in his or her first assigned position from when the schedule
begins until the second assignment begins and so on until the schedule
expires.
.02 TWELVE-HOUR SHIFT
Notwithstanding the provisions of Article 16.07, an employee shall not be
asked to work overtime during the four (4) hours immediately following his
or her departure from the plant after a twelve (12) hour night shift.
<PAGE>
27
.03 Compilation of Time
Overtime is compiled as paid hours, which are totalled at the end of each
work week. Total overtime in the previous week will be used as a basis for
equitable distribution of overtime on the current week. Compiled overtime
excludes regular time paid at overtime rates on a statutory holiday.
.04 In applying 16.07, the term "sector" identifies: chlorate, chlorite and
warehouse, or janitorial areas.
.05 Acid Washes -
For an acid wash of the cells, all employees of the chlorate and chlorite
sectors will be considered in the third choice.
.06 An employee who has started a maintenance task may in preference be asked
to continue this task in overtime.
.07 Scheduled Downtime
When additional manpower is needed to assist the maintenance department on
scheduled shutdowns, call-ins will be made. If the call-in list has been
completely done and that not all the manpower needs have been met, the
call-in list will be repeated up to 24 hours prior to the shutdown. If the
shutdown is scheduled on Monday morning, the period will be 72 hours.
.08 When an employee loses an opportunity to work on overtime because of an
error in overtime distribution according to 16.07, the employee will be
offered the opportunity to work an equivalent number of hours and at the
same rate of pay that the missed opportunity provided, and according to the
following:
1) The Company will offer the employee a single block of scheduled work.
2) At least two choices of schedules will be offered for the work.
3) The employee will indicate his choice and do the work within three
weeks following the loss of the overtime opportunity.
4) A minimum of two hours must be worked.
5) The work offered will not replace foreseen overtime and will be limited
to direct or indirect training, and to tasks relating to organizing the
work environment.
<PAGE>
28
16.08 The Company shall undertake to reduce the amount or overtime. The Company
shall ask employees whether they wish to work overtime. However,
employees shall not refuse to work overtime without valid reason. An
overtime list shall be posted in each Division and updated on a weekly
basis.
16.09 Employees will receive a meal allowance when they work overtime and were
not given four (4) hours' notice prior to the start of their work.
a) After two (2) hours of overtime worked which follows a regular or
overtime shift and after each succeeding four (4) hours of overtime work.
b) After two (2) hours of overtime worked which immediately precedes his
regular shift.
c) After two (2) hours of call-in work if the time worked overlaps a normal
meal hour and after each succeeding four (4) hours of continuous call-in
work.
For the purposes of this clause the normal meal hours are:
8.00-8.30 a.m. / 12.00-12.30 p.m. / 5.00-5.30 p.m.
d) After four (4) hours of continuous call-in work.
e) A paid period of thirty (30) minutes at the applicable rate will be
allowed to consume each meal.
f) The meal allowance will be $7.25.
The present practice which permits 30 minutes to employees of the
Maintenance and Yard Departments to leave the plant premises when working
overtime for purposes of consuming a meal will not be changed. Meal
allowances are not paid in these cases.
16.10 An employee will have the option of taking time off without pay at a time
mutually agreeable to the employee and the Company.
16.11 Employees will advise the Company as soon as possible if they are unable
to report to work as scheduled.
If required, employees will remain on the job for an additional two (2)
hours to permit their relief to be arranged.
<PAGE>
29
ARTICLE 17
Sunday Work
17.01 Employees shall be paid at one and one-half times their regular hourly
rate for all scheduled hours worked on Sundays except when one of the
statutory holidays defined in clause 21.01 is observed on Sunday in which
case the provisions of clause 21.05 a) will apply.
17.02 Employees shall be paid at twice their regular hourly rate for all
unscheduled hours worked on Sundays. and statutory holidays.
ARTICLE 18
Call-in
18.01 An employee shall be considered to have been called in when he is
contacted off the job and is directed or requested to report to overtime
work.
18.02 Minimum call-in pay is two (2) hours' pay at twice the employee's regular
straight time hourly rate.
If the work which required the call exceeds two (2) hours, the employee
will be paid at the applicable rate of pay for the additional time
worked. In the event that the two (2) hour period specified herein
overlaps the start of the employees regularly scheduled shift, such
overlap period shall be paid at double time as specified herein and the
balance of hours worked on his regularly scheduled shift shall be paid at
straight time.
18.03
a) All hours worked between 4.00 p.m. and 11.30 p.m. when an employee is
called in will be paid for at time and one half the employee's regular
hourly rate.
b) Call-ins which occur between 11.30 p.m. and 7.30 a.m. will be paid a
minimum of two (2) hours at triple the employee>s regular straight time
rate.
c) For a call-in on Sunday or a statutory holiday, an employee shall receive
a minimum of two (2) hours pay at triple the normal hourly rate.
<PAGE>
30
ARTICLE 19
Shift Schedules
19.01 Weekly shift schedules for all employees covered by this agreement will
be posted before Wednesday midnight and will be effective as of the
following Friday at 3.00 p.m. If any change is made before the time limit
of 3.00 p.m. Friday, such change will be communicated by the foreman or
his delegate to the employee(s) concerned and witnessed by the Shop
Steward or a member of the Executive Committee. In the event of an
employee returning to work after an absence due to illness or injury, the
time limit for changes shall be 10.00 p.m. Friday.
Employee should advise the Plant Nurse as soon as they receive clearance
to return to work after an absence due to illness or injury.
19.02 MAINTENANCE MEN
Shift schedules shall not include more than two (2) shift changes per
week. Time worked shall be paid for at one and one-half times the
employee's regular hourly rate for the first shift worked on a third or
subsequent shift change per week or for the first shift worked following
a change in the shift schedule after 3.00 p.m. Friday; if time is worked
on the night shift employees will be paid at twice their regular hourly
rate.
19.03 OTHER EMPLOYEES
Time worked shall be paid for at one and one-half times the employee's
regular hourly rate for the first shift worked following a change in the
shift schedule after 3.00 p.m. and 7.30 a.m., employees will be paid at
twice their regular hourly rate.
19.04
a) When an employee's shift schedule is changed after being posted, and he
has not had an opportunity to become aware of the change, he shall not be
penalized for reporting as originally scheduled and will be given an
opportunity of working forty (40) hours in that week.
b) Before leaving for vacation, the employee must be aware of his first
shift scheduled to work upon his return from vacation. Unless notified
otherwise during the period of his vacation, the employee shall be
considered to be scheduled to recommence work on the shift and date
indicated prior to his departure.
<PAGE>
31
If an employee is advised to report on another shift, he will be paid at
the rate of time and one-half, or double time rate if between 11.30 p.m.
and 7.30 a.m. for all hours worked on the first shift.
If a section of the plant is shutdown for vacations, the Company will
make every reasonable effort to ensure that shift rotation is not
interrupted.
19.05 The rate of double time and time and one-half shall not apply in 19.02
and 19.03 above if the shift change is made for any of the following
reasons:
a) emergencies as defined in Article 08.06;
b) changes made at the request of the employees concerned;
c) a change from 7.30 a.m.-3.30 p.m. to 7.30 a.m.-4.00 p.m. or vice-versa
shall not constitute a change of shift, provided the notice of such
change is given on the previous day.
19.06
a) All employees who are working the day shift or 7.30 a.m. to 12 noon and
12.30 p.m. to 4.00 p.m. and are required to return to work for the
following night shift, will be sent home at 3.30 p.m. with no loss in
pay. They will still be allowed one half-hour at noon for lunch.
b) If an employee works the half-hour from 3.30 p.m. to 4.00 p.m. when he
should have been finished at 3.30 p.m., he will be paid for one half-hour
at one and one-half times his regular rate in addition to his eight (8)
hours pay.
c) Whenever possible the employee will be given eleven (11) hours notice of
the change.
19.07 All Company employees are considered as potential shift workers.
Normally, plant employees are regular shift workers and maintenance and
yard employees are day workers.
However, these conditions may be reversed at times to give the Company
flexibility of operation. In the case of planned repairs, the Company
will make every effort to notify the employees concerned at least twenty-
four (24) hours in advance.
19.08 All days off will be scheduled consecutively unless one of the days off
is Sunday.
When this cannot be done, the employees will receive four (4) hours pay
at their regular straight time hourly rate in addition to all hours
worked in the week.
<PAGE>
32
ARTICLE 20
Reporting Pay
20.01 An employee who is scheduled for work at his regularly scheduled time and
has not been notified by the Company not to report, shall receive not
less than four (4) hours work at one and one-half times his regular
straight time hourly rate or in lieu thereof at the discretion of the
Company, he may be given four (4) hours pay at his straight time hourly
rate provided that failure to provide work is due to circumstances within
the control of the Company.
20.02 When an employee reports to work as scheduled, he is not to be turned
back at the gate without being allowed to record his presence.
20.03 If an employee is notified not to come to work less than four (4) hours
before the time he was supposed to report, he will receive four (4)
hours' pay except for the reasons outlined in paragraph 8.06.
20.04 A phone call made to the telephone operator or the Personnel Department
and recorded will be considered as proof of notification. An employee who
has not left a phone number in the Personnel Department of the Company by
which he can be contacted forfeits the right to the four (4) hours' pay
mentioned in paragraph 20.03.
<PAGE>
33
ARTICLE 21
Holidays
21.01 The following twelve (12) holidays will be observed with compensation
New Year's Day
Day after New Year's
Good Friday
Queen's Birthday
St. Jean Baptiste
Canada Day
Civic Holiday
Labour Day
Thanksgiving
Remembrance Day
Christmas Day
Boxing Day
21.02 Compensation for holiday will be on the basis of the employee's regular
hourly rate multiplied by eight (8) hours.
21.03 To be eligible for holiday pay, an employee must have been at work the
first regular work day after the holiday and the last regular work day
before the holiday except when on:
1) paid vacation;
2) illness attested to by sufficient medical evidence to substantiate an
illness, or an injury, submitted within one week after the holiday.
However, an employee who is absent due to illness or injury for more
than twelve (12) months beyond the end of his forty one (41) week
period of weekly indemnity payments will not be eligible for holiday
pay.
3) leave of absence signed by the Plant Manager or his designated
representative;
4) scheduled days off;
5) lay off which occurs on the last regular work day before the holiday
or recall to work on the first regular work day after the holiday.
21.04 An employee who works on a holiday will not be scheduled to work less
than five (5) days in a week in which there is one (1) holiday or four
(4) days in a week in which there are two (2) holidays.
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34
21.05
a) Employees scheduled to work on any of the holidays mentioned in paragraph
21.01 above will be paid for the hours actually worked at one and one-
half times their regular straight time hourly rate in addition to any
holiday pay to which they may be entitled under the provisions of this
agreement except when the hours are worked between 11.30 p.m. and 7.30
a.m. when they will be paid at twice their regular straight time hourly
rate. However, when a holiday is observed on a Sunday, employees will be
paid for the hours actually worked at twice their regular straight time
hourly rate. Employees may elect to accumulate those holidays according
to the provisions of paragraph 21.06.
b) Employees who work on Christmas Day or new Year's Day will be granted
equivalent time off with pay. Employees may elect to accumulate this time
according to the provisions of paragraph 21.06.
When a holiday occurs during an employee's vacation, he must take an
additional day off with pay. Employees may elect to accumulate these
holidays according to the provisions of paragraph 21.06.
21.06 Accumulation of Holidays
a) It is intended that holidays may be accumulated to permit employees to
take time off in units of one (1) week. However, employees may take time
off in units of one (1) day.
b) Employees on twelve (12) hour rotating shift schedules, may take time off
in units of one ad one-half days (12 hours).
c) Employees cannot take pay in lieu of additional days off or accumulated
holidays.
d) Days off will be taken at a time mutually agreeable to the employees and
the Company.
e) The total of accumulated holidays and deferred vacations cannot exceed
twelve (12) weeks.
21.07 Statutory holidays which fall on Saturday shall be observed the preceding
Friday, and statutory holidays which fall on Sunday shall be observed the
following Monday, unless the parties agree otherwise. However, employees
working seven (7) day shifts shall observe the holiday on the day it
falls.
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35
ARTICLE 22
Vacations
22.01 Employees who have completed less than one (1) year of seniority on May
1st of the current year shall receive one (1) day of vacation for each
working month of continuous service not to exceed a maximum of two (2)
regular weeks.
22.02 Employees who have completed one (1) or more years of seniority but less
than three (3) years of seniority on or before May 1st of the current
year shall receive two (2) weeks' vacation.
22.03 Employees who have completed three (3) or more years of seniority but
less than ten (10) years of seniority on or before May 1st of the current
year shall receive three (3) weeks' vacation.
22.04 Employees who have completed ten (10) or more years of seniority but less
than eighteen (18) years of seniority on or before May 1st of the current
year shall receive four (4) weeks' vacation.
22.05 Employees who have completed eighteen (18) or more years of seniority on
or before May 1st of the current year shall receive five (5) weeks'
vacation.
22.06 Employees who have completed twenty-five (25) or more years of seniority
on or before May 1st of the current year will receive six (6) weeks'
vacation.
22.07 Employees who, after May 1st and prior to the end of the calendar year,
reach the age or service required to entitle them to one (1) additional
week of vacation, in accordance with the vacation scale, will become
eligible for such additional week of vacation on completion of the
required years of age or service. If circumstances permit such week may
be granted earlier in the year.
22.08 Vacation pay will be the greater of either.
a) the employee's regular straight time hourly rate multiplied by forty (40)
hours for each complete week of vacation to which the employee is
entitled.
OR
b) two percent (2%) of the employee's annual gross earnings (as per T4 form
of previous year) for each complete week of vacation to which he is
entitled.
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36
22.09 An employee shall not be called back to work during his vacation. When at
the request of the Company, an employee agrees to return to work during
his vacation, he will be paid at twice his regular hourly rate for all
hours worked. If he works eight (8) hours or more, he will be given
equivalent time off, without pay, at a later date of his choice.
22.10
a) An employee recalled to work within six (6) months of his date of lay-off
will maintain his right to vacation time off.
b) Employees with five (5) or more years of seniority, who may be laid off,
will continue to accumulate vacation credits while on lay-off for a
period up to ninety (90) calendar days.
22.11 Every effort will be made to give the employee at least a portion of his
vacation at the date which he has chosen, under the condition that this
does not harm the efficient operations of the plant. The Company will
have the right to close certain divisions for the purpose of granting
vacations for a maximum period of three (3) consecutive weeks, between
July 1st an August 30th. However, the Company will do everything within
its power to give notice, as soon as possible, of vacation periods.
The Company and the Union will each name a person to represent the
respective parties in order to resolve problems arising out of vacation
scheduling.
22.12 Employees will be able to indicate their choices for vacations at the
latest May 1st. The Company will post vacation schedules each year on or
before June 1st. Employees who indicate their choices before May 1st will
be able to take their vacations as the vacation schedule permits.
22.13
a) When an employee leaves the employ of the Company for any reason, he
shall receive the vacation payment to which he is entitled for the
portion of the current year during which he was employed since May 1st
and the vacation pay to which he became entitled on May 1st, if he has
not received this vacation pay.
b) When calculating the vacation pay of retiring employees, a four-month (4)
service credit will be added to the retirement date.
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37
22.14 Vacations will be taken during the twelve (12) month period between May
1st and April 30th. Advance vacations may be taken during the current
calendar year after January 1st.
22.15 Employees are not permitted to take annual vacations while receiving
weekly indemnity benefits under the group insurance plan.
22.16 Deferred Vacations
Annual vacations may be deferred in order to be taken at a later date, in
accordance with the following stipulations:
a) Only earned vacations in excess of two (2) weeks may be deferred beyond
the current vacation year.
b) The total annual vacations thus deferred and/or accumulated statutory
holidays may not be in excess of twelve (12) weeks.
c) Deferred annual vacations are payable at retirement or termination of
employment for any reason.
22.17 Employees of the Maintenance Department, the warehouse and the janitor,
may elect to take one week of vacation per year in single days. The days
will be taken at a time mutually agreeable to the employees and the
Company.
22.18 An employee who is absent due to sickness or accident, for more than
twelve (12) months beyond the end of his forty one (41) week period of
weekly indemnity payments will not be eligible for vacation pay.
However, employees may choose to receive remuneration for their
accumulated vacations between the 41st and 93rd weeks.
ARTICLE 23
Bereavement Leave
23.01
a) Bereavement leave of five (5) days will be granted to an employee in the
event of death in the immediate family (parents, spouse or children).
Maximum bereavement pay will be forty (40) hours.
This leave of five (5) days may be taken between the day of the death and
the fourth day following the funeral.
b) Bereavement leave of three (3) days will be granted to an employee in
the event of the death of his brother, sister, mother-in-law or
father-in-law.
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38
c) Bereavement leave of one (1) day will be granted to an employee in the
event of the death of his grand-mother, grand-father, brother-in-law or
sister-in-law.
d) The bereavement leave mentioned in b) and c) may be taken between the day
of the death and the second (2nd) day following the funeral.
23.02
a) Bereavement pay shall be calculated on the basis of the employee's
regular straight time hourly rate times eight (8) hours for each day.
b) Twelve (12) hour shifts only:
Employees will be granted leave of five (5), three (3) or one (1) day as
defined above however, compensation will not exceed forty (40), thirty-
six (36) or twelve (12) hours respectively.
23.03 This payment shall be made only where the time off falls on the
employee's working days.
ARTICLE 24
Jury Service
24.01 An employee who is called for Jury Duty or as a subpoenaed witness and
who by virtue of such call loses time from work shall receive for each
day of such Jury or Witness Duty the difference between eight (8) hours
at the base rate of the employee's regular job and any jury fee or
witness fee received for that day.
The Company may require the employee to furnish a certificate of service
signed by the Clerk of the Court before making any payment under this
clause.
ARTICLE 25
Rest Periods
25.01
a) All employees will have the right to two twenty (20) minute rest periods
during their regular working hours each day. This specifically means
twenty (20) minutes from the time work is interrupted until it resumes.
b) Twelve (12) hours shifts only.
All employees will have the right to three (3) twenty (20) minute rest
periods during their regular working hours each day. This specifically
means twenty (20) minutes from the time work is interrupted until it
resumes.
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39
ARTICLE 26
Wash-Up
26.01 All employees shall have the right of washing and cleaning up before
their regular quitting time. On the other hand, the Company may insist on
these conditions being observed.
ARTICLE 27
Personal Protective Clothing & Equipment
27.01 The Company will reimburse employees the cost of fitting safety
prescription glasses provided under the eye protection programme.
27.02 The Company will pay in each twelve (12) month period towards the cost of
safety footwear purchased by employees in accordance with present
regulations.
Safety boots - $75.00
27.03 The present practice on safety prescription glasses and personal
protective clothing will not be changed prior to agreement with the
Union.
27.04 All employees will observe the plant safety regulations regarding the use
of personal protective clothing and equipment.
ARTICLE 28
Bulletin Boards
28.01 Bulletin boards shall be provided by the Company for the use of the
Union. They shall be located as designated by the Company. All notices
shall be signed by the President of the Union or some other authorized
signing officer of the Union.
28.02 Use of bulletin boards shall be restricted to notices of union
recreational and social affairs, union elections, results of union
elections, union appointments, time and place of union meetings.
<PAGE>
40
ARTICLE 29
Safety and Health
29.01 The Company will provide all adequate and necessary safeguards for the
health and safety of its employees.
29.02 Both the Company and the Union recognize their mutual obligations to
assist in the prevention, correction and elimination of all unhealthy and
unsafe working conditions and practices. The employees and the Union will
provide support in all reasonable and necessary ways to ensure that those
safeguards provided are effective. No employee shall be required to
perform work that endangers his or any other employee's health or
physical safety or under conditions which are in violation of safety rues
and/or existing legislation.
29.03 A safety and health committee shall be established following the C.S.S.T.
model and composed by a minimum of two (2) Union employees or by a
committee of equal labour/management representation of six (6) members.
The Union will provide a thirty (30) day notice to the Company if the
Union wishes to change the composition of the committee. The duties of
the Committee consist of making recommendations for the improvement of
safety, working conditions and the investigations of all accidents. The
Committee will work toward the elimination of safety hazards. The
Committee shall meet regularly and discuss safety programmes and accident
reports. It shall make periodic inspections of work sites to check all
health and safety conditions, and make recommendations to Management.
Members of the Health & Safety Committee will be paid for the hours spent
in the plant Health and Safety meetings according to Article 5.03.
29.04 Either party may, on its own or in cooperation with the other party,
arrange for an inspection of facilities by appropriate inspectors of
government or the National Union, provided, however, that no request
shall be made without fully informing the other party to this agreement,
and provided, further, that such inspections, shall be made in the
company of the prevention representative and of Management and that all
reports, advice, recommendations, opinions, findings, and anything else
of pertinence, whether verbal or documentary, shall be confined to the
Union and the Company.
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41
29.05 In addition to the provisions of this agreement the parties undertake to
respect Bill 17, an act respecting Occupational Health and Safety.
29.06
a) In implementing article 239 of the industrial accidents and occupational
diseases act, the worker contemplated by this article would have to right
to bump another employee with less seniority provided that he has the
competence to accomplish the work with minimal training.
b) If an employee cannot assume a position in Article 29.06 a), he or she
may replace another employee with less seniority in a position determined
by the Company and appropriate to his or her condition.
ARTICLE 30
Discharge
30.01 In the event that an employee, other than a probationer, has been
discharged and it is alleged that he has been unjustly dealt with, the
Grievance and Arbitration procedure may be used.
30.02 In the case of lay-offs or recalls, a member of the grievance committee
shall have the right to sign a grievance on behalf of the employee(s)
concerned and submit it to the Personnel Manager within five (5) days.
ARTICLE 31
Discipline
31.01 An employee who has been disciplined or suspended without just cause may
make use of the Grievance and Arbitration procedure as herein provided.
31.02
a) No disciplinary notice shall be entered in the employee's file unless the
matter has been discussed by the Company and the Union.
b) Such notice shall be removed from the employee's file after a period of
twelve (12) months provided there has been no repetition of the
infraction.
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42
ARTICLE 32
Employee working outside the bargaining unit.
32.01 The senior staff, the office staff and the Laboratory staff cannot
perform any work normally performed under their supervision, except:
a) in emergencies;
b) for the purpose of instructing or training;
c) for work of an experimental, development or investigating nature;
d) for commissioning equipment.
ARTICLE 33
Grievance Procedure
33.01 A grievance is any difference of opinion or dispute with respect to the
interpretation, application or alleged violation of any provision of this
agreement.
Any employee who believes he has a justifiable grievance will discuss and
attempt to settle it with his supervisor or, in his absence, the
Department Head, with or without a Steward being present, as the employee
may elect. The supervisor or Department Head will be expected to give a
reply to such employee within three (3) days.
Except for the delay specified in Article 30, a grievance shall be
presented in writing within five (5) days of its occurrence in the
following manner and sequence:
33.02 Step No. 1
One or more employees may submit a grievance in writing, accompanied by
his Shop Steward or in his absence a member of the Executive Committee,
to his supervisor who shall render the written decision of his department
to the employee(s) concerned within five (5) days.
33.03 Step No. 2
If the employee(s) does not accept the decision of the Personnel Manager
or if a decision is rendered within five (5) days, the Grievance
Committee may, within ten (10) working administrative days, submit the
written grievance to the Plant Manager who shall render his decision
within seven (7) days.
33.04 The employee(s) who submits the grievance may attend the meetings of the
Grievance Committee and the Company at the 2nd and 3rd steps of the
grievance procedure if he so desires.
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43
33.05 When an agreement has been reached at any stage of the grievance
procedure it shall be put in writing and it shall be final and binding on
all parties.
33.06 Saturdays, Sundays, holidays (as defined in Article 21), and scheduled
days off shall not be counted in determining the time within which action
has to be taken or completed under the grievance procedure.
33.07 Any adjustment arising out of the settlement of a grievance shall not be
made retroactive to a date which is more than five (5) or fifteen (15)
days prior to the date on which the grievance was presented as provided
for in articles 33 and 30 respectively.
33.08 The parties will respect the delays defined in articles 33 et 34. These
delays can only be extended by mutual agreement in writing or due to
extenuating circumstances.
33.09 The Company and the Union may make use of the foregoing grievance
procedure.
33.10 A grievance pertaining to policies, suspensions or a discharge will be
submitted to the second level within fifteen (15) working administrative
days from the incident which caused the need for the grievance.
ARTICLE 34
Arbitration
34.01 A grievance involving any difference of opinion or dispute with respect
to the interpretation of alleged violation of any provision of this
agreement which has not been settled after being carried through the
steps of the Grievance Procedure in accordance with Article 33, may be
referred to Arbitration in accordance with the following procedure.
34.02 The Arbitration Board shall have jurisdiction to interpret the provisions
of this agreement in so far as shall be necessary to the determination of
the grievance, but shall not have jurisdiction or authority to alter in
any way, add to, subtract from, or modify any of the terms hereof, or
make any decision inconsistent with the provisions of this agreement.
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44
34.03 When either of the parties decides to request arbitration, they will, at
the same time, advise the other party.
34.04 Notice of reference to Arbitration shall be given in writing to the other
party within thirty (30) full working days after the rendering of the
decision by the Plant Manager or within thirty (30) full working days of
the expiry of the delay provided for in Step No. 2 of the Grievance
Procedure.
All grievances referred to arbitration will be heard by a single
arbitrator selected by the parties. If the parties cannot agree on the
choice of an arbitrator during the thirty (30) working days following the
notice of reference to Arbitration as defined above, an arbitrator will
be appointed by the Minister of Labour. The letter to the Minister of
Labour requesting the appointment of an arbitrator must be sent within
sixty days following the notice of reference to Arbitration.
If the notice of reference to Arbitration is not given within the
specified delay or if the letter to the Minister of Labour is not sent
within the specified delay, the grievance shall be deemed to have been
abandoned and shall not be entitled to consideration thereafter.
34.05 If either party desires the grievance to be heard by a three-man board,
the parties will each appoint a representative. The role of the
representatives will be to advise the Arbitrator who shall decide upon
the grievance, and to deliberate with him. The representatives may
register their agreement or disagreement with the decision of the
Arbitrator and may render written opinions; however, these opinions must
not delay the decision of the Arbitrator.
34.06 The decision of the Arbitrator is final and binding on the parties.
34.07 The decision of the Arbitrator shall be rendered in writing to both
parties within thirty (30) days after the completion of the hearings.
34.08 Each party shall bear the expense of its representative as well as half
of the fees and expenses of the Arbitrator.
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45
34.09 In cases of suspension or discharge judged unjust, by the Arbitrator, he
will have the authority to order the rehiring of the employee and the
reimbursement of salary and benefit loses incurred, however, he will take
into account any salary earned by the employee during the interval.
34.10 The award of the Arbitration Board shall not be made retroactive to a
date which is more than five (5) days or fifteen (15) days prior to the
date on which the grievance was presented as provided for in articles 33
and 30 respectively.
ARTICLE 35
Strikes and Lockouts
35.01 The Company agrees that it will not cause or direct any lockout of its
employees and the Union agrees that there will be no strike or other
collective action which will stop, curtail or interfere with work during
the life of this agreement.
35.02 It is understood that any employee or employees taking any action
contrary to the provisions of paragraph 35.01 may be subject to
discharge.
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46
ARTICLE 36
General
Pension Plan
36.01
a) The parties agree that the revised pension plan will remain in effect for
the duration of this agreement.
b) Employees absent from work due to illness or injury may maintain full
credited pension service by repaying missed pension premiums on the basis
of the following formulas: employees must repay 60% of the missed
premiums.
Although employees will have no premiums to reimburse when on weekly
indemnity.
c) The basic provisions of the pension plan are as follows:
Membership: Compulsory after twelve (12) months of service.
Normal Pension: Normal annual pension is 1.25% of the average of the
employee's best three (3) year's earnings multiplied by
the number of years of credited service.
Full earned pension at age 60 provided employees have 25
or more years' seniority.
As of December 1st, 1996, this will be reduced to 20
years or more of seniority.
As of December 1st, 1996, a bridging of $200 per month
from age 60 to 65 will be given to employees on full
pension.
Health Insurance: Company will pay the full cost of health insurance
(Major Medical) for retirees to age 65.
Group Insurance
36.02
a) It is understood that the administrative changes which the employer could
make to said system should not have the effect of diminishing the group
insurance benefits, as described in the master policy.
b) The Company shall furnish to the Union at least once annually a copy of
any financial or other report of the operation of the plan made to it by
the underwriter. Dividends or other rebates made by the underwriter to
the Company shall be shared equally by the employees or shall be applied
against the increased costs, if any, of improved benefits.
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47
c) Group insurance benefits mutually agrees upon and effective on the date
of signature of the collective labour agreement are as follows:
Life Insurance
$45,000
Accidental Death and Dismemberment (additional)
$45,000
Weekly Indemnity Benefit
a) The weekly indemnity will be seventy percent (70%) of the employee's
weekly salary, determined by multiplying by 40 the hourly rate of his
posting on the first day of his absence.
b) Minimum of $560. per week.
c) Reduced of all other benefits provided by the various governmental
legislations up to a total of 90% of the employee's salary.
d) The weekly indemnity will end at age 65, on the retirement date that the
employee would have indicated when the choice of pension payments has
been signed off, or when deceased.
Weekly Indemnity Payments
For a period of 41 weeks and the payments will commence on the 1st day in
cases of accidents and hospitalization. In other cases of illness, payments
will commence on the 3rd day.
Waiting Period
If an employee is absent on insurance for one week or more the two-day
waiting period will be paid.
Long Term Disability Benefit
An employee who has exhausted his weekly indemnity will be eligible to
receive, with satisfactory medical evidence, the long term disability
benefit.
a) The long term disability benefit will be sixty percent (60%) of the
employee's monthly salary, determined by multiplying by 2080 and dividing
by twelve the hourly rate of the employee's posting during his first day
of absence, and up to a maximum of $2000 per month.
b) The amount of the benefit will be reduced by all other benefits provided
by various government legislations including unemployment insurance.
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c) The benefit will be paid in two equal instalments per month.
d) The long term disability benefit will be for two years if the employee is
incapacitated only with respect to his posting, or will be extended up to
age 65 if the employee is totally disabled according to an insurer.
e) Although after two years of incapacity in his posting, an employee who
has acquired 15 years of service and a total of years of service and age
equal to 65, and who is unable to work in a position at Sterling
according to the standards of the November 25th 1988 agreement, will
continue to receive the long term disability benefit up to the age when
the employee can take his retirement without actuarial reductions.
f) The benefit will end when the employee is no longer disabled or when
deceased.
Hospital Benefit
Semi-private unlimited
Injections not paid by Quebec Health insurance
Major Medical Benefit
Deductible - 25.00$/family
Basis of payment - 100%
Includes Paramedical benefits.
Maximum $15,000 per year per person of medical coverage.
Membership
Compulsory after three (3) months continuous service.
In the event of the lay-off of employees with seniority all group insurance
benefits, except the weekly indemnity benefit, will remain in effect until
the end of the next complete calendar month following the effective date of
the lay-off.
Retired Employees Death Benefit
On retirement an employee will receive a paid-up Group Death Certificate
payable to his named beneficiary based upon a formula of $100.00 for each
completed year of service with a minimum benefit of $500.00.
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49
36.03
a) Dental Programme
- Basic preventative care, 100% reimbursement.
- Endodontic and periodontic treatments (root canals and gum treatments),
100% reimbursement.
- Major restoration care (crowns, bridges, dentures), 50% reimbursement up
to a maximum of $1,500 per calendar year per person.
- All reimbursements are according to the applicable Provincial Dental
Association's current rates.
b) Eye Care
Fifty percent (50%) of costs associated with glasses, replacement lenses,
contact lenses, and eye examinations up to a maximum of 150.00$ per two
calendar years and for each member of the family.
36.04 Should any employee require medical advice during the hours that the
doctor is in attendance, he shall ask the Foreman or in his absence the
Foreman's assistant for permission to be absent for the necessary time.
During the normal working hours, the Company will pay for time lost to
receive medical treatment or examination due to industrial illness or
accident at work if Quebec Workmen's Compensation benefits do not apply.
The Company will pay up to one (1) hour at the employee's regular
straight time rate for time lost to receive medical treatment for a
chronic illness.
Exceptional cases will be considered on the basis of merit and
circumstances
36.05 The official test is as provided by law.
36.06 When a new contract is being negotiated the conditions of the old
contract will remain in force.
36.07 Rules and Regulations
In order to maintain discipline and in the interests of safety and
economy of operations and for the protection of persons and property,
reasonable general rules covering plant discipline and regulations will
be posted as a guide to individual conduct at the plant and a copy will
be made available to each employee.
In order to effectively inform Union representatives of the intent and
application of such regulations the Company agrees to periodically review
existing rules with the Union Executive and to communicate new rules and
their purpose prior to their implementation.
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50
The Company will objectively consider any recommendations made by the
Union concerning such rules and their application.
It is understood that any rule which allegedly violates or abuses the
rights of an employee under this agreement, shall be the subject of a
grievance and dealt with under the Grievance Procedure.
36.08 Handicapped Employees
If an employee incurs a disability which in the opinion of the Company
Doctor and the employee's doctor, if he so desires, prevents him from
performing his regular work but which does not render him incapable of
carrying out other duties in the bargaining unit, the Company will review
any jobs which it deems suitable to the employee's disability and will
make reasonable effort to arrange the establishment of such employee in a
satisfactory position. The Company will consider the recommendations of
the Company Doctor and the employee's doctor, is he so desires, in making
any reassignment of such employee.
36.09 The disability benefit programme shall be considered an integral part of
the current collective agreement.
36.10 The memorandums of agreement signed by the parties shall be considered an
integral part of this agreement.
36.11 The Company and the Union mutually agree to deal in a cooperative,
constructive, and confidential manner with the problem of alcoholism and
drug abuse of employees.
The Company and the Union recognize that alcoholism and drug abuse are a
sickness that can and must be treated with the services covered by the
collective and governmental insurances.
The Company will strive to assist as much as possible the work of
individuals facilitating the employee assistance program.
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51
ARTICLE 37
Duration
37.01 This agreement shall remain in force for a three (3) year period up to
and including the 30th of November 1997.
Either party will give notice in writing to the other party within ninety
(90) days preceding the expiration of this agreement of its intention to
terminate the agreement or to seek amendments thereto.
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52
In witness whereof the parties to this Agreement have signed at Buckingham
(Quebec), this 29th day of June 1993.
For PRODUITS CHIMIQUES STERLING
Carl Yank /s/ Carl Yank
----------------------------------
Plant Manager
Alain Lahaie /s/ Alain Lahaie
----------------------------------
Production Manager
Dominic Laska /s/ Dominic Laska
----------------------------------
Maintenance Manager
<PAGE>
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For CANADIAN COMMUNICATIONS, ENERGY AND PAPER UNION
Denis Periard /s/ Denis Periard
----------------------------------
President
Scott Quaile /s/ Scott Quaile
--------------------------------
Vice-President
Marc Beauchamp /s/ Marc Beauchamp
------------------------------------
Recording-Secretary
Remi Matte /s/ Remi Matte
------------------------------
Secretary-Treasurer
Alfred Theobald /s/ Alfred Theobald
------------------------------------
National Representative
<PAGE>
54
APPENDICE "A" - APPENDIX "A"
CATEGORIES ET TAUX - CATEGORIES AND RATES
<TABLE>
<CAPTION>
CATEGORIES EN VIGUEUR - EFFECTIVE
INGENIERIE / ENGINEERING 1er dec.94 1er dec.95 1er dec.96
---------------------- ---------- ----------
<S> <C> <C> <C>
Technicien en instrumentation / Instrumentation Technician 21.83 22.31 22.98
*-Mecanicien de machines fixes / Stationary Engineman 21.54 22.01 22.67
*-Briqueteur "A" / Bricklayer "A" 20.97 21.43 22.07
Electricien "A" / Electrician "A"
* Machiniste "A" / Machinist "A"
Mecanicien d'instrumentation "A" / Instrument Mechanic "A"
Tuyauteur "A" / Pipefitter "A"
Mecanicien monteur "A" / Millwright "A"
*-Menuisier "A" / Carpenter "A"
Soudeur "A" / Welder "A"
*-Peintre / Painter 20.25 20.70 21.32
*-Operateur Centrale electrique / Power House Operator 20.09 20.53 21.15
Intermediate B-1 20.13 20.57 21.19
*-Briqueteur "B" / Bricklayer "B" 19.65 20.08 20.68
Electricien "B" / Electrician "B"
</TABLE>
* Machiniste "B" / Machinist "B"
Mecanicien d'instrumentation "B" / Instrument Mechanic "B"
Tuyauteur "B" / Pipefitter "B"
Mecanicien monteur "B" / Millwright "B"
*-Menuisier "B" / Carpenter "B"
Soudeur "B" / Welder "B"
*-Classification inactive / Inactive classification.
<PAGE>
55
APPENDICE "A" - APPENDIX "A"
CATEGORIES ET TAUX - CATEGORIES AND RATES
<TABLE>
<CAPTION>
CATEGORIES EN VIGUEUR - EFFECTIVE
INGENIERIE / ENGINEERING 1er dec.94 1er dec.95 1er dec.96
---------------------- ---------- ----------
<S> <C> <C> <C>
Intermediate C-1 19.36 19.79 20.38
*-Briqueteur "C" / Bricklayer "C" 19.03 19.45 20.03
Electricien "C" / Electrician "C"
* Machiniste "C" / Machinist "C"
Mecanicien d'instrumentation "C" / Instrument Mechanic "C"
Tuyauteur "C" / Pipefitter "C"
Mecanicien monteur "C" / Millwright "C"
*-Menuisier "C" / Carpenter "C"
Soudeur "C" / Welder "C"
*-Aide entretien / Maintenance Helper 18.57 18.98 19.55
Journalier / Labourer 18.44 18.85 19.42
Journalier / Labourer 17.44 17.82 18.35
(premier 6 mois d'emploi total / first 6 months of total employment)
</TABLE>
*-Classification inactive / Inactive classification.
<PAGE>
56
SALAIRES MULTI-METIERS / MULTI-TRADE SALARIES
<TABLE>
<CAPTION>
1ER DEC. 1994 1ER DEC. 1995 1ER DEC. 1996
------------- ------------- -------------
<S> <C> <C> <C>
A-C2 21.21 21.67 22.32
A-C1 21.43 21.90 22.56
A-B2 21.68 22.16 22.83
A-B1 21.90 22.39 23.07
A-A 22.37 22.86 23.55
A-A Tech. en instrumentation 23.24 23.75 24.47
</TABLE>
<PAGE>
57
PRODUCTION
<TABLE>
<CAPTION>
1ER DEC/ 1994 1ER DEC. 1995 1ER DEC. 1996
------------- ------------- -------------
<S> <C> <C> <C>
Chef d'equipe Chlorate / Chlorate Lead Hand 21.83 22.31 22.98
Operateur - Niveau 1 Chlorate / Operator - Level 1 Chlorate 20.97 21.43 22.07
Chef d'equipe Chlorite / Chlorite Lead Hand 20.42 20.87 21.50
Operateur - Niveau 2 Chlorate / Operator - Level 2 Chlorate 20.32 20.77 21.39
Operateur - Niveau 3 Chlorate / Operator - Level 3 Chlorate 19.79 20.23 20.84
Prepose aux entrepots / Warehouse Services 19.25 19.67 20.26
Equipe de service - Chlorate / Chlorate Services Team
Operateur sechoir Chlorite / Chlorite Dryer Operator
Emballeur Chlorite / Chlorite Packer 18.44 18.85 19.42
Chef d'equipe concierge / Janitor Lead Hand 18.44 18.85 19.42
Concierge / Janitor 17.87 18.26 18.81
</TABLE>
<PAGE>
58
<TABLE>
<CAPTION>
COUR / YARD
1ER DEC. 1994 1ER DEC. 1995 1ER DEC. 1996
------------- ------------- -------------
<S> <C> <C> <C>
*-Mecanicien du garage / Garage Mechanic 20.97 21.43 22.07
*-Chef d'equipe - Cour / Yard Lead Head 20.09 20.53 21.15
*-Chauffeur de camion remorque / Tractor Trailer Driver 19.89 20.33 20.94
*-Expediteur / Shipper
*-Operateur de chargeur mecanique / Payloader Operator 19.25 19.67 20.26
*-Chauffeur de camion / Truck Driver 18.95 19.37 19.95
*-Operateur de chariot elevateur / Forklift Operator 18.57 18.98 19.55
*-Fabricant de palettes / Pallet Maker 18.44 18.85 19.42
</TABLE>
*-Classification inactive / Inactive Classification.
<PAGE>
59
APPENDIX "B"
Payroll Deduction Authorization
Date 19_______
I, the undersigned, hereby authorize and request Produits Chimiques Sterling in
accordance with the Agreement between the Company and the Union to deduct Union
dues and initiation fees levied against all Union members in amounts as notified
to the Company by the Secretary-Treasurer in writing, from my wages and to pay
such amount to the Secretary-Treasurer of Local 169 (FTQ) of the Canadian
Communications, Energy, and Paper Union, CTC (S.C.E.P.)
I understand that refusal to pay this amount makes me liable to dismissal from
the Company's employ.
Signature of this card cancels any previously signed deduction card.
Employee #________
Witness_____________________________________________________
<PAGE>
60
APPENDICE "C"
The job descriptions which have been agreed to by the parties will form an
integral part of the collective agreement.
Each job description will be initialled by the parties when agreement has been
reached.
<TABLE>
<CAPTION>
DATE DATE
-------- ------------
Descrip. des taches de la class. convenue d'amendement
List of job descriptions Agreed Amended
- -------------------------------- -------- ------------
<S> <C> <C>
*-Briqueteur "A" / Bricklayer "A" Mar./72 Aout/Aug./83
*-Menuisier "A"/ Carpenter "A" Mar./72 Aout/Aug./83
Electricien "A"/ Electrician "A" Mar./72 6 Nov./77
Mec. d'inst."A"/Inst. Mec."A" Mar./72
* Machiniste "A"/ Machinist "A" Mar./72 Aout/Aug./83
Mec. monteur "A"/ Millwright "A" Mar./72
Mec.de tuyauterie "A"/Pipefitter"A" Mar./72 6 Nov./77
*-Mec.de machines fixes/Stat. Engineman Mar./72
*-Travailleur d'acier"A"/Steel Wker"A" Mar./72
*-Ferblantier "A"/ Tinsmith "A" Mar./72 Aout/Aug./83
Soudeur "A"/ Welder "A" Mar./72
*-Peintre / Painter Mar./72 6 Nov./77
*-Monteur / Rigger Mar./72
*-Oper.central elect. / Power House Op. Mar./72
*-Menuisier "B" / Carpenter "B" Aout/76 Aout/Aug./83
Electricien "B" / Electrician"B" Aout/76
* Machiniste "B" / Machinist "B" Aout/76 Aout/Aug./83
Mecanicien monteur "B" /Millwright"B" Aout/76
Mec. de Tuyauterie"B"/Pipefitter"B" Aout/76
Soudeur "B" / Welder "B" Aout/76
*-Menuisier "C" / Carpenter "C" Aout/76 Aout/Aug./83
Electricien "C" / Electrician "C" Aout/76
* Machiniste "C" / Machinist "C" Aout/76 Aout/Aug./83
Mec. monteur "C"/Millwright"C" Aout/76
Mec. de Tuyauterie "C"/Pipefitter"C" Aout/76
Soudeur "C" / Welder "C Aout/76
*-Aide entretien / Maintenance Helper Aout/76
* Journalier-entretien/Maint. Labourer Aout/76
</TABLE>
*-Classification inactive.
<PAGE>
61
<TABLE>
<CAPTION>
DATE DATE
Desc. des taches de la classification convenue d'amendement
List of job descriptions Agreed Amended
- ------------------------ ------ -------
<S> <C> <C>
*-Emballeur - Chl. / Chl. Packer Mar./72
*-Mec. du garage / Garage Mechanic Mar./72 Aout/Aug./83
*-Chef d'equipe-Cour / Yard Lead Hand Aout/76 Aout/Aug./83
*-Chauf.-camion remor./Trac.Trail.Driv. Mar./72
*-Expediteur / Shipper
*-Oper.de chargeur mec./Payloader Oper. Mar./72
*-Chauffeur de camion / Truck Driver Mar./72
*-Oper. de chariot elev./Forklift Oper. Mar./72
*-Fabricant de palettes / Pallet Maker Mar./72
Chef d'equipe concierge/Janitor L.H. Mar./72
Journalier de la cour / Yard Labour Aout/76
Concierge / Janitor Mar./72
Chef d'equipe - Chlorate Avr.29/91 Mai/93
Chef d'equipe - Chlorite Avr.29/91 Mai/93
Operateur - Niveau 1 Chlorate Avr.29/91 Mai/93
Operateur - Niveau 2 Chlorate Avr.29/91 Mai/93
Operateur - Niveau 3 Chlorate Avr.29/91 Mai/93
Operateur sechoir Chlorite Avr.29/91 Mai/93
Emballeur Chlorite Avr.29/91 Mai/93
Equipe de service Avr.29/91 Mai/93
Prepose a l'entrepot Avr.29/91 Mai/93
</TABLE>
APPENDIX "D"
The details of the trades training programme and system of progression form an
integral part of the collective agreement.
<PAGE>
62
APPENDIX "E"
TWELVE (12) HOUR SCHEDULES
1. GENERAL
1.1 Some sections of this collective agreement contain specific references to
provisions that apply only to employees on twelve (12) hour shifts.
1.2 If the only change is from one regular work schedule to another, no bonus
shall be paid to the employee during the first week.
1.3 Each employee's pay shall be calculated on the basis of hours worked per
week.
1.4 Only schedules accepted by the Union Committee and the Company may be used
in the various sectors.
1.5 Employees working twelve (12) hour shifts shall have the opportunity to
work an average of forty (40) hours during their rotation.
1.6 Employees who do not work an average of forty (40) hours per week during
their rotation shall have the choice of working catch-up shifts, which
shall be remunerated at regular rates.
1.7 Overtime shall consist of any authorized time in excess of twelve (12)
daily hours any day or hour in addition to the regular weekly schedule.
<PAGE>
63
2. 12-HOUR/7-DAY SCHEDULE
- -----------------------------------------------------------
1 5 9 2 6 10 3 7 11 4 8 12
- -----------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S S M T W T F S
- -----------------------------------------------------------
- ------------------------------------------------------------
"Day"
- ------------------------------------------------------------
[S]
C A A B B D D D C C A A B B B D D C C A A A B B D D C C
- ------------------------------------------------------------
"Night"
- ------------------------------------------------------------
B D D C C A A A B B D D C C C A A B B D D D C C A A B B
- ------------------------------------------------------------
"Shift off"
- ------------------------------------------------------------
D C C A A B B B D D C C A A A B B D D C C C A A B B D D
- ------------------------------------------------------------
"Shift off"
- ------------------------------------------------------------
A B B D D C C C A A B B D D D C C A A B B B D D C C A A
- ------------------------------------------------------------
2.1 The Twelve (12) hour shift schedule for employees not on rotating shifts
shall be established for a twelve (12) week cycle. Once every twelve (12)
weeks, employees shall have an additional two (2) shifts off, to result in
an average of forty (40) hours a week.
2.2 Employees on this schedule shall have two (2) extra shifts off every twelve
(12) weeks, on Monday and Tuesday for the day shift.
Operators will have these two (2) shifts off in the weeks # 1-4-7-10.
2.3 In a week with a single statutory holiday, employees who work all regular
hours on days other than the holiday shall be paid for four (4) additional
hours at their regular hourly rate.
2.4 In a week with two (2) statutory holidays, employees who work all regular
hours on days other than the two (2) holidays shall be paid for eight (8)
additional hours at their regular rate.
However, employees whose regular schedule requires that they work one (1)
of the two (2) statutory holidays shall be paid for four (4) additional
hours at their regular hourly rate, provided they work all the hours in the
week.
<PAGE>
64
Employees may choose to accumulate the above mentioned hourly rates
according to the provisions of paragraph 21.06.
3. 12-HOUR RELIEF SCHEDULE
3.1 The following provisions apply only to "relief workers" and other employees
who do not work constantly on rotating twelve (12) hour shifts.
3.2 The shift schedule for relief employees included in this appendix reflects
typical schedules for normal operating conditions, but changing conditions
may require other schedules.
3.3 The work cycle shall be six (6) consecutive weeks.
3.4 Employees on the six (6) week cycle may be required to work twelve (12) and
eight (8) hour shifts.
3.5 Relief workers shall not be scheduled to work more than two (2) consecutive
thirty-six (36) hour weeks.
3.6 If an employee is scheduled to work four (4) regular twelve (12) hour
shifts in three (3) consecutive weeks, the fourth shift worked in the third
week shall be remunerated at overtime rate.
3.7 Relief workers may be scheduled to work only thirty-two (32) hours in a
week if this is required to balance their regular working hours at an
average of forty (40) hours a week.
If necessary relief employees may be scheduled to work thirty-two (32)
hours in a week in order to balance their regular hours of work to an
average of forty (40) hours per week.
<PAGE>
65
3.8 Relief Operator Schedule
- -----------------------------------------------------------
1 5 9 2 6 10 3 7 11 4 8 12
- -----------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S S M T W T F S
- -----------------------------------------------------------
- ------------------------------------------------------------
"Day"
- ------------------------------------------------------------
C A A B B D D D C C A A B B B D D C C A A A B B D D C C
- ------------------------------------------------------------
"Night"
- ------------------------------------------------------------
B D D C C A A A B B D D C C C A A B B D D D C C A A B B
- ------------------------------------------------------------
"Shift off"
- ------------------------------------------------------------
D C C A A B B B D D C C A A A B B D D C C C A A B B D D
- ------------------------------------------------------------
"Shift off"
- ------------------------------------------------------------
A B B D D C C C A A B B D D D C C A A B B B D D C C A A
- ------------------------------------------------------------
NOTE:
In a week when they replace the regular operator on 12 week leave: the reliefs
will work the typical two (2) twelve (12) hour shifts and two (2) eight (8) hour
shifts, unless they are needed to replace employees taking floaters on days
other than those when the 12 week leave is taken.
When the employee does not work as a relief, the employee will work a typical 40
hour week (five (5) days of eight (8) hours), or will be replacing other
employees off due to sickness, vacations, or accumulated statutory holidays.
A. Relief employees working on eight (8) hour shifts will execute various tasks.
B. There are no guarantees that the relief employees will have all week-ends
off, nevertheless these employees will not be scheduled for work during a
week-end for more than two (2) consecutive week-ends, nor for four (4)
consecutive nights. These restrictions apply only to relief operators. With
respect to section B only, a week-end starts at 4 p.m. on Friday and ends at
6:30 a.m. on Monday (or 7:30 a.m. depending on the schedule).
C. When the relief operator works a regular schedule to replace employees on
vacation or sick leave, the employee can maintain this schedule even during a
week when there is a 12 week leave. If the employee wishes to change his
schedule to replace this leave, the employee can make a request for this.
<PAGE>
66
4. 12-HOURS SCHEDULES - 5 DAYS
---------------------------
- -----------------------------------------------------------
S M T W T F S
- -----------------------------------------------------------
- -----------------------------------------------------------
"A"
------
O NIGHT NIGHT NIGHT O O O
- -----------------------------------------------------------
"B"
-------
O 0 0 DAY DAY DAY O
- -----------------------------------------------------------
"C"
--------
O DAY DAY 0 NIGHT NIGHT O
- -----------------------------------------------------------
Working conditions for employees assigned to 12-hour schedules, 5 days a
week, are the following:
4.1 The work cycle shall be three (3) consecutive weeks.
4.2 If a statutory holiday is not observed, employees shall be remunerated as
follows:
a) All employees shall receive "eight 8 hours" of pay for the statutory
holiday.
b) Employees may choose to accumulate these statutory holidays in accordance
with the terms of Article 21.06.
c) Employees working the "day" shift on the holiday shall be paid twelve
(12) hours at time and a half, i.e. eighteen (18) hours.
d) Employees working the NIGHT shift on the holiday shall be paid:
4 hours at time and a half: 6 hours
8 hours at double time: 16 hours
22 hours
4.3 If a statutory holiday is observed, employees shall be remunerated as
follows:
a) All employees shall receive "eight 8 hours" of pay for the holiday.
b) In a week containing a statutory holiday, employees who work all regular
hours on days other than the holiday may choose to accumulate the
holiday.
<PAGE>
67
5. 12-HOURS SCHEDULES - 3 DAYS
- -----------------------------------------------------------
S M T W T F S
- -----------------------------------------------------------
- -----------------------------------------------------------
"A"
------
O DAY DAY DAY DAY (8) O O
- -----------------------------------------------------------
"B"
-------
O NIGHT NIGHT NIGHT 0 0 O
- -----------------------------------------------------------
Working conditions for employees assigned to 12-hour schedules, 3 days a
week, are the following:
5.1 The work cycle shall be two (2) consecutive weeks.
5.2 This schedule can be started on a Monday or a Tuesday according to the
discretion and needs of the Company.
5.3 If a statutory holiday is not observed, employees shall be remunerated as
follows:
a) All employees shall receive "eight 8 hours" of pay for the statutory
holiday.
b) Employees may choose to accumulate these statutory holidays in accordance
with the terms of Article 21.06.
c) Employees working the "day" shift on the holiday shall be paid twelve
(12) hours at time and a half, i.e. eighteen (18) hours.
d) Employees working the NIGHT shift on the holiday shall be paid:
4 hours at time and a half: 6 hours
8 hours at double time: 16 hours
22 hours
5.4 If a statutory holiday is observed, employees shall be remunerated as
follows:
a) All employees shall receive "eight 8 hours" of pay for the holiday.
b) In a week containing a statutory holiday, employees who work all regular
hours on days other than the holiday may choose to accumulate the
holiday.
<PAGE>
68
6. Equilibration Method
6.1 At the end of each equilibration period, hours worked (excluding overtime)
beyond four hundred and eighty (480) hours for regular employees (12 hours
/ 7 days) and two hundred and forty (240) hours (12 hours / 5 days or 12
hours/3 days) and for other employees shall be considered overtime and
adjusted accordingly. Solely for the purposes of this clause, half of the
overtime shall be paid at time and a half the regular hourly rate and the
other half at double the regular rate.
6.2 In the vent of absences caused by vacations, illness or other reasons, the
hours the employee would have normally worked shall be used for
equilibration purposes.
6.3 Hours worked for equilibration purposes in the previous cycle shall not be
counted in the next cycle.
<PAGE>
69
APPENDIX "F"
December 15, 1994
M. Denis Periard
President
S.C.E.P. (FTQ), Local 169
Buckingham (Quebec)
LETTER OF AGREEMENT
This letter confirms an agreement reached between the Company and Union during
negotiations of the collective agreement.
The parties agree to maintain the maintenance multi-trades concept in accordance
with the following basic principles that were introduced in 1985:
Eligibility
Class "A" tradesmen presently working in the Maintenance Department.
Participation
Voluntary
Choice of Trade
According to needs and logical combinations.
Selection
By Job Posting.
Training
Under the direction of the Adult Education section of the Papineau Regional
School Board and the Department of Education.
<PAGE>
70
Progression
Training and examinations according to the existing structure.
Training Wages
Payment at straight time rate for formal training hours including examinations.
Job Security
In case of lay-off, seniority in the base trade will apply.
Basic Trade
The Company undertakes to maintain a representation of the following basic
trades:
Instrumentation Electrician Pipefitter
Millwright Welder
Definition: Basic Trade
The first trade an employee has when hired if not the first trade acquired
during employment with the Company.
Multi-Trade Concept
The Company will use employees in a base trade on a preferential basis. the 2nd
trade will be used:
a) when there is not sufficient work in the 1st trade;
b) when the work requires the skills of a 2nd trade;
c) for training purposes and/or to maintain the competence of the 2nd trade.
Administration
By a Company-Union Committee.
Wages:
As described in Appendix A.
This letter forms part of the collective agreement signed on December 15, 1994.
Carl Yank
Plant Manager
<PAGE>
71
Diagram of Rates Schedule, December 1994
<PAGE>
72
Diagram of Rates Schedule, December 1995
<PAGE>
73
Diagram of Rates Schedule, December 1996
<PAGE>
74
APPENDIX "G"
Letter of Agreement
November 29, 1994
M. Denis Periard
President
S.C.E.P. (FTQ), Local 169
Buckingham (Quebec)
Letter of Agreement
The parties agree that it is in their mutual interest to have a policy of on-
going dialogue by means of a Labour/Management Committee.
This dialogue will enable each party to function better by exchanging
information on the activities at the plant. In addition, this will permit
employees, as well as the local and national Union, to express their opinion on
the content and implementation of significant programs for employees.
The dialogue may focus on but not be limited to the following areas: job
security, employment programs, progressing technology, contracting out, plant
competitiveness and efficiency, communications, union effectiveness, hours of
work, training requirements, projections regarding future opportunities and
studies i.e. impact and social consequences of new technology.
More specifically, the parties agree to discuss during the life of this
agreement: the employee assistance program, the implementation of ISO9002, and
the preventive maintenance program.
It is agreed that matters which fall under the general provisions of the
grievance and arbitration procedures will be resolved in accordance with these
procedures.
<PAGE>
75
It is further agreed that this Letter of Agreement shall be in force for the
duration of the collective agreement expiring November 30, 1997 and shall
continue only upon the mutual agreement of the parties.
Carl Yank
Plant Manager
<PAGE>
76
APPENDIX H
Letter of Intent
September 22, 1993
M. Denis Periard
President
S.C.E.P. (FTQ)
Local 169
Buckingham (Quebec)
This letter confirms the agreement taken on September 17, 1993 between the
Company and the Union.
It was agreed that when employees are hired on the same date, the Company will
evaluate each employee at the end of their probation period in order to assign
an order to their seniority. This order will apply on all articles of the
collective agreement until the employee loses his seniority.
For employees hired before September 17, 1993, this agreement will be applied
only if all employees of a group, in a distinct and unanimous way, so desire.
If a unanimous agreement is not reached in a group, this agreement will not be
valid for this group and the employees will maintain equal seniority.
Carl Yank
Plant Manager
<PAGE>
77
APPENDIX "I"
Vacation Selection Procedure
- - Vacation schedules will be posted in all departments by February 1st.
- - Vacations will be selected in units of 2 weeks with priority based on plant
seniority.
Coloured pencils will be used to indicate the sequence of selection.
e.g. 1st selection of 2 weeks RED
2nd selection of 2 weeks GREEN
3rd selection of 2 weeks BLACK
- - There will be a limit of 3 weeks for each selection sequence.
- - Vacations must be taken in units of 1 calendar week.
- - In departments with continuous operations, vacations may be taken in a block
of two (2) weeks during the Christmas and New Year's period if the employee
expresses this period in his first choice of vacation.
In order to enable a fair distribution of this benefit, the opportunity of
taking the block of two weeks can be limited to once per five year period.
Problems arising from the application of this clause will be revised by the
committee identified in 22.11.
- - The deadline for vacation scheduling is May 1st.
Employees who do not schedule all their vacations by May 1st cannot use their
seniority to "bump" another employee after that date.
ACCUMULATED DAYS OFF AND PERMISSION
- - After May 1st employees may schedule accumulated days off or time off with
permission by contacting their foreman.
Priority will be on a "first come, first served" basis and approved time off
will be recorded on the vacation schedule. Seniority will only apply where
more than one employee simultaneously request the same week off.
The supervisor is responsible for recording approved time off on the vacation
schedule.
<PAGE>
78
ADVANCE VACATION PAY
IT IS THE RESPONSIBILITY OF THE EMPLOYEE TO SUBMIT HIS REQUEST FOR ADVANCE
VACATION PAY TO THE PERSONNEL DEPARTMENT.
REQUESTS MUST BE SUBMITTED AT LEAST 2 WEEKS BEFORE THE COMMENCEMENT OF THE
VACATION.
<PAGE>
79
APPENDIX "J"
Letter of Agreement
November 29, 1994
M. Denis Periard
President
S.C.E.P. (FTQ)
Local 169
Buckingham, Quebec
In order to finalize the introduction of the new chlorate organizaton, it is
agreed that the following employees will have transitional salaries: D.
Lanthier, L. Lawlis, D.Periard, R. Murphy and R. Theoret.
This transition will enable their existing salary, fixed at the Operator Level I
on November 29, 1992, to gradually reach the salary of their present respective
positions of Operator Level 2 or Lead Hand chlorite.
The transition will be accomplished by applying yearly salary increases
equivalent to the agreed increases less 1%.
It is understood that the employee will be freed of this agreement if he obtains
by posting another position.
Carl Yank
Plant Manager
<PAGE>
80
APPENDIX "K"
Letter of Agreement
November 29, 1994
M. Denis Periard
President
S.C.E.P. (FTQ)
Local 169
Buckingham, Quebec
It is agreed that employees who complete their 8,000 hours of apprenticeship in
their second trade and subsequently pass the requirements for their class "AA"
certification, will have the right to a retroactivity.
This retroactivity will be the difference in salary between the class "AA" and
class "AB1" wages for a maximum period of nine months between the end of his
8,000 hours and receiving the certification of a class "AA".
Professional and personal situations can be taken into consideration to extend
the retroactivity.
This period enables the employee to make three (3) attempts at passing the
certification testing.
Carl Yank
Plant Manager
<PAGE>
81
APPENDIX L
Letter of Agreement
December 15, 1994
M. Denis Periard
President
S.C.E.P. (FTQ)
Local 169
Buckingham (Quebec)
This letter confirms the agreement taken between the Company and the Union on
the removal of the machinist position from the basic trades in Appendix F of the
collective agreement.
M. Rene Caya will be given the choice of pipefitter or millwright as first
trade.
The employee will maintain his "AA" classification in both trades.
The employee can decide to be discharged and obtain his severance if he so
desires.
Carl Yank Denis Periard
Plant Manager President Local 169
<PAGE>
EXHIBIT 10.54
COLLECTIVE LABOUR AGREEMENT
BY AND BETWEEN
PRODUITS CHIMIQUES STERLING
BUCKINGHAM, QUEBEC
AND
OFFICE AND PROFESSIONAL EMPLOYEES
INTERNATIONAL UNION
LOCAL 480 - C.L.C.
BUCKINGHAM (QUEBEC)
JUNE 25, 1995 TO NOVEMBER 14, 1997
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INDEX
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ARTICLES PAGES
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GENERAL PURPOSE 3
1 RECOGNITION 3
2 UNION SECURITY 4
3 MANAGEMENT RIGHTS 5
4 VACATIONS 5
5 HOLIDAYS 8
6 LEAVE OF ABSENCE 10
7 SENIORITY 11
8 DISCHARGE AND DISCIPLINE 14
9 INSURANCE AND PENSION 15
10 BULLETIN BOARDS 18
11 HOURS OF WORK 18
12 OVERTIME & PREMIUM PAYMENTS 19
13 WORK SCHEDULES & RATES OF PAY 22
14 REST PERIODS 23
15 GRIEVANCE PROCEDURE 24
16 ARBITRATION 25
17 SICK LEAVE 26
18 BEREAVEMENT LEAVE 26
19 SEPARABILITY 27
20 SAFETY AND HEALTH 27
21 GENERAL 27
22 EFFECTIVE DATE OF DURATION OF AGREEMENT 29
APPENDIX "A" 31
APPENDIX "B" 31
APPENDIX "C" (Schedule of weekly rates) 32
APPENDIX "D" (12 hour schedule) 34
LETTER OF AGREEMENT 39
LETTER OF AGREEMENT 42
LETTER OF AGREEMENT 43
LETTER OF AGREEMENT 44
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3
COLLECTIVE LABOUR AGREEMENT
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by and between
Produits Chimiques Sterling
and
Office and Professional Employees
International Union
Local 480 - C.L.C.
GENERAL PURPOSE
- ---------------
The purpose of and consideration for this agreement is to provide orderly
collective bargaining relations between the Company and the Union on matters
covered by this agreement, to secure prompt disposition of grievances, to
establish wages, hours and working conditions for the employees covered by this
agreement.
ARTICLE 1 - RECOGNITION
- -----------------------
1.01 The employer agrees to recognize the Union as the sole collective
bargaining agent for salaried employees as certified by the attached
request dated August 23rd, 1995 in accordance with Article 39 of the
Labour Relations Board of the Province of Quebec.
1.02 The words employee and employees when used in this agreement shall mean
persons in the employ of the Company within the bargaining unit,
described in Article 1 - Recognition and covered by this agreement.
1.03 Employees of the Company not included in the Bargaining Unit will not work
on any job covered by this agreement, except:-
(a) For the purpose of instructions or training;
(b) In the case of emergencies as defined in 13.03 (c);
(c) For work of an experimental, development or auditing nature;
(d) For start-up of new equipment;
(e) When regularly assigned employees are not available to report to
work.
1.04 The Company will discuss with the Union any newly created position which
the Union considers should be included in this bargaining unit.
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4
ARTICLE 2 - UNION SECURITY
- --------------------------
2.01 The Union agrees that:
(a) There will be no Union activity during Company time;
(b) There shall be no strikes or other action which would stop or
interfere with production and that if any such action should be
taken, it will instruct its members to carry out the provisions of
this agreement by returning to work and by performing their duties.
2.02 The Company agrees that:
(a) The Company will collect the initiation fees and dues for the Union
and will remit such deductions to the Secretary-Treasurer. The
initiation fee will be deducted from the employee's wages when he
joins the Union. The Secretary-Treasurer will advise the Company in
writing, of the names of the employees from whom such deductions
will be made. The employees will authorize the Company to make the
deductions on the forms attached hereto as Appendix "A" and "B";
(b) It will not cause or direct any lock-out of any employee so long as
this agreement is in effect.
2.03 As a condition of continued employment, all present employees covered by
this agreement shall become members of the Union within thirty (30) days
of signing of this agreement and all new employees covered by this
agreement shall become members of the Union on their hiring date and
shall remain members of the Union in good standing during the terms of
this agreement.
2.04 For the purpose of this article, a member of the Union in good standing
shall mean an employee who has paid or tendered his regular monthly
Union dues.
2.05 The Union shall indemnify the Company and save it harmless from any claim
which may be made against it by an employee or employees for amounts
deducted from wages as provided by this Article.
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5
ARTICLE 3 - MANAGEMENT RIGHTS
- -----------------------------
3.01 It is recognized by the Union that Managements rights, responsibilities
and authority shall be modified only as specifically stated in this
agreement, otherwise management of the business and all of its aspects
are vested exclusively in the Company.
3.02 Without restricting the generality of the foregoing the exercise of such
rights by the Company shall include and not be limited to the right to
hire, to direct the working forces, assign and reassign duties, schedule
and classify the work, promote, demote, transfer, make lay-offs due to
lack of business, make and enforce rules, regulations and systems, and
suspend and discharge for just cause or otherwise discipline employees.
This agreement constitutes a complete understanding between the parties.
3.03 The Company agrees that its exclusive functions shall not be exercised in
a manner inconsistent with all provisions of this agreement.
ARTICLE 4 - VACATIONS
- ---------------------
4.01 Notwithstanding the provisions of 7.04 and solely for the purpose of
vacation entitlement, seniority in this article shall mean the combined
length of service with Produits Chimiques Sterling plus that with AWA
(ERCO) which was recognized with the August 21, 1992 sale of company.
This applies only to employees with seniority in this bargaining unit at
November 15th 1974.
4.02 Employees who have completed less than one (1) year of seniority on May
1st of the current year shall receive one (1) day of vacation for each
working month of continuous service not to exceed a maximum of two (2)
regular weeks. However, an employee may, during his first year of
employment, take one (1) week of his vacation eligibility, as defined
above, after having completed six months of service.
4.03 Employees who have completed one (1) or more years of seniority but less
than three (3) years of seniority on or before May 1st of the current
year shall receive two (2) weeks' vacation.
4.04 Employees who have completed three (3) or more years of seniority but less
than ten (10) years of seniority on or before May 1st of the current
year shall receive three (3) weeks' vacation.
4.05 Employees who have completed ten (10) or more years of seniority but less
than eighteen (18) years of seniority on or before May 1st of the
current year shall receive four (4) weeks' vacation.
4.06 Employees who have completed eighteen (18) or more years of seniority but
less than twenty-five (25) years of seniority on or before May 1st of
the current year shall receive five (5) weeks' vacation.
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6
4.07 Employees who have completed thirty (30) or more years of seniority on or
before May 1st of the current year, shall receive six (6) weeks'
vacation.
4.08 The amount of vacation pay for each week of vacation shall be one (1)
week's regular straight time pay at the employee's current regular
salary rate or 2% of previous year's gross earnings per week of
vacation, the greater of both to be applied.
4.09 Vacations must be taken during the twelve (12) month period between May
1st and April 30th.
4.10 Vacations will be taken during the twelve (12) month period between May
1st and April 30th. Advance vacations may be taken during the current
calendar year after January 1st.
4.11 In the event a holiday named in this contract falls during an employee's
vacation period, the employee shall have the option of being paid for
the day owing, or having an additional day of vacation, the day to be
agreed upon by the Department Head.
4.12 A vacation schedule shall be completed by the employer and posted by May
1st of each year.
4.13 Senior employees, as defined in clause 7.04, will be given preference in
the selection of vacation periods.
4.14 When at the request of the Company, an employee agrees to return to work
during his vacation, he will be paid at twice his regular rate for all
hours worked, in addition to his vacation pay.
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7
4.15 When an employee leaves the employ of the Company for any reason, he shall
receive the vacation payment to which he is entitled for the portion of
the current year during which he was employed since May 1st and the
vacation pay to which he became entitled on May 1st, if he has not
already received this vacation pay. If an employee is hired again he
will be paid vacation pay only for the length of time he has been back
on the payroll.
4.16 Every effort will be made to give the employee all of his vacation at the
time requested by him. The ultimate determination of vacation time,
however, will be vested in the Company to ensure efficient operation of
the Plant. The Company shall have the right to divisional shutdowns for
the purpose of granting vacations. The Company will endeavour to give
as much advance notice as possible of vacation periods.
4.17 Vacations may be deferred to be taken later according to the following
provisions:
a) Only vacations in excess of two (2) weeks per year can be deferred.
b) The total of deferred vacations cannot exceed twelve (12) weeks.
c) Deferred vacations may be taken at any time provided they do not
conflict with the regular vacations of other employees.
d) Deferred vacations are payable at retirement or upon termination of
employment for any reason.
4.18 The Vacation eligibility of temporary employees will be calculated in the
same manner as that of regular employees with the exception that
eligibility will be based on time actually worked. Each fifty-two (52)
weeks actually worked will be equivalent to one (1) year of service.
4.19 An employee who is absent due to illness or injury for more than twelve
(12) months beyond the end of his forty-one (41) week period of weekly
indemnity payments will not be eligible for vacation pay.
4.20 Employees may elect to take one (1) week of vacation per year in single
days. The days will be taken at a time mutually agreeable to the
employees and the Company.
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8
ARTICLE 5 - HOLIDAYS
- --------------------
5.01 Each employee covered by this agreement will receive his straight time
rate with the number of straight time hours the employee would otherwise
have worked on the following statutory holidays:
New Year Day
Day after New Year's
Good Friday
Queen's Birthday
St-Jean Baptiste
Canada Day
Civic Holiday
Labour Day
Thanksgiving
Armistice
Christmas
Day after Christmas
This will apply only:-
a) When a specified holiday falls or is directed by statute to fall on
a normal work day.
b) When an employee has been at work on his last regular working day
before the holiday and on his first regular working day after the
holiday unless absent due to vacations, verified illness,
bereavement leave, jury duty or approved leave of absence.
5.02 Holidays which fall on Saturday will be observed on the preceding Friday
and holidays which fall on Sunday will be observed on the following
Monday unless the parties agree otherwise.
5.03 Employees who are required to work on Christmas Day or New Year's Day will
be granted equivalent time off with pay. The time off will be taken at
a time mutually agreeable to the employees and the Company. The extra
time off given for anyone working these holidays will be given to the
person or persons working the actual rather than the observed holiday.
This would apply only when Christmas or New Year's fall on Saturday or
Sunday.
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Employees scheduled to work on any of the holidays mentioned in
paragraph 5.01 above will be paid for the hours actually worked at one
and one-half times their regular straight time hourly rate in addition
to any holiday pay to which they may be entitled under the provisions of
this agreement except when the hours are worked between 11.30 p.m. and
7.30 a.m. when they will be paid at twice their regular straight time
hourly rate. However, when a holiday is observed on a Sunday, employees
will be paid for the hours actually worked at twice their regular
straight time hourly rate. Employees may elect to accumulate those
holidays according to the provisions of paragraph 5.04.
5.04 When an employee works on any of the observed holidays, he shall have the
option of being paid for these holidays or taking them as time off. The
days owing for these holidays can be accumulated and taken consecutively
or separately.
a) It is intended that holidays may be accumulated to permit employees
to take time off in units of one (1) week. However, employees may
take time off in units of one (1) day.
b) Employees on twelve (12) hour rotating shift schedules, may take
time off in units of one and one-half days (12 hours).
c) Employees can take pay in lieu of additional days off or
accumulated holidays.
d) Days off will be taken at a time mutually agreeable to the
employees and the Company.
e) The total of accumulated holidays and deferred vacation cannot
exceed twelve (12) weeks.
5.05 An employee who works on a holiday will not be scheduled to work less than
five (5) days in a week in which there is one (1) holiday or four (4)
days in a week in which there are two (2) holidays.
5.06 An employee who is absent due to illness or injury for more than twelve
(12) months beyond the end of his forty one (41) week period of weekly
indemnity payments will not be eligible for holiday pay.
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ARTICLE 6 - LEAVE OF ABSENCE
- ----------------------------
6.01 The employer may grant a leave of absence without pay to an employee
selected to perform work for the Union provided that such leave of
absence shall not exceed five (5) calendar days for any such employee.
Such leave of absence will include union conventions and conferences.
Employees granted such leave of absence will retain and accumulate
seniority. The Company reserves the right to restrict the number of
employees absent at any one time.
6.02 An employee may be allowed a leave of absence without pay up to three (3)
months for personal reasons consistent with Company policy, providing he
requests it from the Company in writing, and the Company believes the
leave is for good reason and does not interfere with efficient
operations. Seniority shall continue to accumulate during his absence.
6.03 On written request of the Union to the Personnel Department, the Company
may, wherever practical, grant leave of absence to not more than one
employee selected by the Union to work in an official capacity on a
full- time basis. Such leave of absence shall be limited to twelve (12)
months. It is understood that the Company's need for properly trained
personnel will have a bearing on its willingness to grant such leave.
Seniority will be retained on a cumulative basis for the maximum period
of twelve (12) months.
Group insurance and pension benefits would continue to apply provided
the employee and employer shares of the premiums are paid by the
employee and/or the Union.
6.04 An employee returning from approved leave of absence shall assume his
former position at his former rate of pay in addition to any negotiated
wage increases which were applied to his job classification during the
period of lay-off. In the event that the position has ceased to exist
during his absence, the employee may exercise his seniority rights to
assume a position for which he is qualified.
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11
ARTICLE 7 - SENIORITY
- ---------------------
7.01 The seniority of each employee covered by this Agreement shall be
established after three hundred and sixty (360) hours worked within a
six (6) consecutive month period.
7.02 a) After a period of three hundred and sixty (360) hours worked within a
six (6) consecutive month period, an employee shall have his name
placed on a seniority list unless the parties agree otherwise. The
seniority date shall be calculated from a period equivalent to
three hundred and sixty (360) working hours prior to the
establishment of such seniority.
b) Temporary employees hired as replacements for vacations, illnesses,
leaves of absence and peak work periods will not acquire seniority.
c) A peak work period will not exceed thirteen (13) consecutive weeks
in the same position unless by special agreement between the
parties. If no special agreement exists, the provisions of 7.02 a)
will apply after thirteen (13) weeks.
Any abuse of the thirteen (13) week consecutive period will be
subject to the grievance procedure.
d) Experience acquired by temporary employees will not count for
future promotions on regular permanent positions.
7.03 The retention, lay-off and discharge of an employee who has not acquired
seniority are entirely within the discretion of the Company. In no case
shall these matters only be the subject of a grievance. However,
probationary and temporary employees shall retain all other rights
defined in this agreement.
7.04 a) Seniority shall mean the length of continuous service in the
employ of the Company at its Buckingham Plant in a position within
the bargaining unit. The sole exception to the above is defined in
clause 4.01.
b) An employee promoted or transferred to a position outside the
bargaining unit and in the employ of the Company will maintain, but
not accumulate seniority for a period of twenty-four (24) months.
An employee returning to the bargaining unit within twenty-four
(24) months shall assume his former position. In the event that
the position has ceased to exist, the employee may exercise his
seniority rights to assume a position for which he is qualified.
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12
7.05 Seniority of an employee shall cease for any one of the following reasons:
a) If the employee quits his employment;
b) If the employee is discharged for cause and such discharge is not
reversed through the grievance procedure;
c) If the employee fails to return to work within five (5) consecutive
working days after notification to do so to his address, which
shall be the last one he has given the Company;
d) If the employee is laid-off for a period of more than twenty-four
(24) consecutive months. However should the employee be re-hired
within this period of twenty-four (24) months the seniority which
he had at the date of lay-off shall be restored.
7.06 Seniority shall be computed on a departmental basis.
The departments for the purposes of this agreement are as follows:
1. Laboratory
2. General Offices
7.07 a) In cases of promotions, demotions, transfers, lay-offs and recalls,
seniority shall govern, provided the employees have relatively
equal qualifications required to do the work.
b) An employee acquires bumping rights when he is permanently
displaced from his regular occupation. An employee acquiring such
bumping rights may displace an employee with less seniority, within
the same seniority group as described in 7.06, if one of the
following conditions are met:
1. the employee previously occupied the position by posting, and
completed the training required.
2. the employee possesses the qualifications to perform the
required work and is able to perform the required work after a
familiarization period of approximately three weeks.
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13
7.08 Newly created jobs and vacancies shall be posted on the bulletin boards
for five (5) working days. Such posting shall state the classification,
requirements for the vacancy, and salary grade. A copy of the posting
will be sent to the Union at the same time. Any employee wishing to
apply shall sign the posting, and under the circumstances that an
employee is absent, the Union could sign the posting in his absence.
Within five (5) working days of receipt of the signed posting by the
Human Resources Department, an application form will be sent to all
applicants. The completed application form must be returned to the
Human Resources Department within five (5) working days. The Company
will post on the bulletin boards the name of the successful applicant
within thirty (30) days from the first day of posting and send a copy to
the Union. It is understood, however, that the Company may make a
temporary appointment for such period as is necessary to complete the
posting, and fill such vacancy. Should no qualified candidate apply,
the vacancy may be filled from outside the bargaining unit. Temporary
vacancies of less than six (6) weeks duration will not be posted.
Employees transferred in accordance with this clause may return to their
former position within four (4) weeks of their transfer provided that
there is valid justification.
7.09 Notice of lay-offs shall be given two (2) weeks before such lay-offs
except when the employee has over five (5) years seniority where such
notice shall be four (4) weeks. In cases of emergency as defined in
13.03 c) the length of time shall be reduced to three (3) days.
7.10 An employee recalled and reinstated to his former position held shall
receive his former rate of pay in addition to any negotiated wage
increases which were applied to his job classification during the period
of lay-off.
7.11 Any notice of re-employment to an employee who has been laid off shall be
made by registered mail to the last known address of such laid-off
employee. It is the responsibility of the employee to keep the Company
informed of his current address.
The employer agrees to recall employees on the recall list before hiring
from the open market subject to the provisions of Article 7.07.
7.12 The Company agrees to submit a seniority list the Union on each
anniversary date of the contract.
7.13 The Company undertakes to advise the Union Executive Committee at least
sixty (60) calendar days prior to any change which will result in a lay-
off following the elimination of a permanent position.
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14
7.14 SEVERANCE PAY
-------------
Employees shall be paid severance pay when they are laid-off due to lack
of work. However, severance pay will not apply to lay-offs caused by
emergencies as defined in article 13.03 of the collective agreement.
The severance benefit will be two (2) weeks pay (37.5 or 40 hours per
week) at the employee's regular straight time rate for each complete
year of seniority.
Employees who are re-hired will begin to accumulate a new service credit
based on time actually worked from their last date of hire.
Students hired for a vacation period and temporary employees will not
qualify for severance pay.
ARTICLE 8 - DISCHARGE AND DISCIPLINE
- ------------------------------------
8.01 It is hereby agreed that the employer has the right to discharge for just
and reasonable cause. The Company agrees to notify the Union in writing
of any such discharge.
8.02 In the event that an employee, whose name appears on the seniority list,
has been discharged, disciplined or suspended, and it is alleged that he
has been unjustly dealt with, the grievance procedure may be used. The
grievance must be submitted in writing to the Personnel Department
within fifteen (15) days of the discharge and in such cases, step one
(1) of the grievance procedure shall be omitted. In such cases,
reinstatements in the employ of the Company and compensation for loss of
earnings shall be within the jurisdiction of the Arbitration Board.
8.03 Written notices of disciplinary action shall be withdrawn from an
employee's file and shall not be used against the employee after the
expiration of a 12 month period following the last disciplinary notice
entered in his file.
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ARTICLE 9 - INSURANCE AND PENSION
- ---------------------------------
9.01 a) The Company agrees to continue the present contributory pension plan
for the duration of this agreement. No changes shall be made to
the plan except by mutual consent of the parties.
b) The basic provisions of the pension plan are as follows:
- Membership: Compulsory after twelve (12) months of service.
- Normal Pension: Normal annual pension is 1.25% of the average
of the employee's best three (3) year's earnings
multiplied by the number of years of credited
service.
Full earned pension at age 60 provided employees have 25 or more years
of seniority.
As of November 15, 1996, this will be reduced to 20 years or more years
seniority.
As of November 15, 1996, a bridging of $200.00 per month from age 60 to
65 will be given to employees on full pension.
Health Insurance
- ----------------
Company will pay the full cost of health insurance (Major Medical) for
retirees to age 65.
- Interest rate on employee contributions will be the annual average
of bank interest on a non-checking savings account.
- Employees absent from work due to illness or injury may elect to
repay missed pension contributions on the basis of the following
formula:- employees will repay 49% of the premium, however will
have no premiums to reimburse when he is receiving 70% of his
salary while on W.I.
9.02 The Company shall furnish to the Union at least once annually a copy of
any financial or other report of the operation of the plan made to it by
the underwriter.
9.03 The Union agrees that any grievances concerning the plan will not be
subject to the arbitration procedure.
Group Insurance Benefits
- ------------------------
It is understood that the Company contributions shall apply against the cost of
all present insurance benefits during the life of this agreement. It is further
understood that the stipulated Company contributions shall only be increased in
the event of premium increases for the coverage which has been mutually agreed
upon. In such cases, of increased premiums, the additional cost shall be borne
equally by the Company and the employee.
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Mutually agreed upon insurance coverage
- ---------------------------------------
Grade I Grade II or
-----------------------
Higher
-----------
(a) Life insurance $55,000 $60,000
Accidental Death Dismemberment $55,000 $60,000
(b) Major Medical Benefits:
- Deductible - 25$/family maximum
- Basis of Payment - 100%
- Injections not paid by Quebec Health Insurance.
- Includes Paramedical benefits
- Maximum $15,000 per person per year of medical coverage.
(c) Weekly Indemnity: (41 weeks maximum)
1st five (5) weeks:
100% of the employee's weekly salary which is the weekly rate
of his job posting on the 1st day of his absence.
Following thirty-six (36) weeks:
70% of the employee's weekly salary which is the weekly rate of
his job posting on the 1st day of his absence.
For the laboratory technicians:
The weekly salary will be determined by multiplying his hourly
job posting rate by 40 hours.
Applies normally to absences of two (2) days or more in duration
but also applies to absences of two (2) days or less, if the sick
bank has already been exhausted.
Reduced of all other benefits provided by the various government
legislations up to a total of 100% of the employee's salary for the
first five (5) weeks followed by a total of 90% of the employee's
salary for the remaining 36 weeks.
The W.I. will end at age 65, on the retirement date that the
employee would have indicated when the choice of his pension
payments have been signed off or when deceased.
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17
(d) Hospital Benefit - Semi-private room - unlimited
(e) Waiting period - 3 months continuous service.
(f) In case of lay-off of employees with seniority, all benefits except
weekly indemnity remain in effect to end of next calendar month
following date of lay- off.
Dental Plan - The dental programme agreed to by the parties
----------- shall be considered an integral part of this
agreement.
- Periodontics - 100%
- Major restoration - 50% (crowns, bridges,
dentures) with $1,500. maximum per year per
each member of the family.
Eye Care
---------
Fifty percent (50%) of costs associated with glasses, replacement
lenses, contact lenses, and eye examination up to a maximum of
150.00$ per two calendar years and for each member of the family.
(g) Long Term Disability Benefit
----------------------------
An employee who has exhausted his weekly indemnity will be eligible
to receive, with satisfactory medical evidence, the long term
disability benefit.
The long term disability benefit will be sixty percent (60%) of the
employee's monthly salary, determined by multiplying by 52 and then
dividing by twelve (12) the weekly rate of the employee's job
posting during his first day of absence, and up to a maximum of
$2000.00 per month.
The amount of the benefit will be reduced by all other benefits
provided by various goverment legislations including unemployment
insurance.
The long term disability benefit will be for two (2) years if the
employee is incapacitated only with respect to his posting or will
be extended up to age 65 if the employee is totally disabled
according to the insurer.
Although after two (2) years of incapacity in his posting, an
employee who has acquired fifteen (15) years of service and a total
of years of service and age equal to 65, and who is unable to work
in his posting at Sterling, will continue to receive the long term
disability benefit up to the age when the employee can take his
retirement without actuarial reductions.
This benefit will end when the employee is no longer disabled or
when deceased.
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(h) The Company shall furnish to the Union at least once annually a
copy of any financial or other report of the operation of the plan
made to it by the underwriter. Dividends or other rebates made by
the underwriter to the Company shall be shared equally by the
Company and the employees or shall, by mutual agreement, be applied
against the increased costs, if any, or improved benefits.
(i) Retired Employee Death Benefit
------------------------------
On retirement an employee will receive a paid-up Group Death
Certificate payable to his named beneficiary based upon a formula
of $100.00 for each completed year of service with a minimum of
$500.00.
ARTICLE 10 - BULLETIN BOARDS
- ----------------------------
10.01 Bulletin boards shall be provided by the Company for the use of the
Union. They shall be located as designated by the Company. All notices
shall be signed by the President of the Union or some other authorized
signing officer of the Union and before posting, shall be submitted for
approval to the Plant Manager or someone designated by him. The answer
to requests for posting will be given within one (1) day.
10.02 Use of bulletin boards shall be restricted to notices of Union
recreational and social affairs, Union elections, results of Union
elections, Union appointments, time and place of Union meetings.
ARTICLE 11 - HOURS OF WORK
- --------------------------
11.01 The normal working hours shall be as follows:
<TABLE>
<CAPTION>
Technical Department Commercial, Production &
- --------------------------- ------------------------
Engineering Departments
------------------------
<S> <C>
23h30 to 07h30 08h00 to 16h00
07h30 to 15h30 or
15h30 to 23h30 07h30 to 15h30
12 hour shifts only
- ---------------------------
Day shift 07h30 to 19h30
Night shift 19h30 to 07h30
</TABLE>
No changes shall be made in the above working hours except by mutual
consent between the Union and the Employer. However, in the Commercial
and Engineering departments, employees and their supervisors may agree
to modify the working hours subject to the guidelines established by the
parties.
<PAGE>
19
11.02 a) The normal work day for employees not assigned to shift work for the
purpose of this Article, shall be eight (8) consecutive hours with
an unpaid lunch period of one-half (1/2) hour.
b) The normal day for employees assigned to shift work for the purpose
of this Article, shall be eight (8) consecutive hours with a paid
lunch period of one-half (1/2) hour.
c) An employee who works or is scheduled to work a week the afternoon
or night shift shall be considered a shift worker for the following
week.
11.03 a) The day shall commence at 12.00 midnight (Commercial) and 11.30 p.m.
(Laboratory) and shall consist of twenty-four (24) consecutive
hours.
b) The week shall commence at midnight on Saturday and shall consist
of seven (7) consecutive days.
11.04 In the event that an employee cannot report to work, he must notify his
supervisor, or his representative, as soon as possible before the start
of his shift.
11.05 12 hour shifts only
The day shall commence at 7.30 a.m. and shall consist of twenty-four
(24) consecutive hours.
ARTICLE 12 - OVERTIME & PREMIUM PAYMENTS
- ----------------------------------------
12.01 a) All authorized overtime worked shall be paid at the rate of one and
one- half times the employee's regular rate of pay unless otherwise
specified.
b) In the case of scheduled overtime, the employee will be paid a
minimum of two (2) hours at the applicable rate when the scheduled
time is less than two (2) hours except where the provisions of
12.08 apply.
12.02 a) Employees who work beyond the normal office hours at the request of
the Department Head, will be compensated at the applicable overtime
rate.
b) Employees who work shifts will be paid at straight time for the
first eight (8) hours worked per day. Additional authorized hours
will be paid for at the applicable overtime rate.
c) In a week in which a holiday occurs, overtime shall be paid for all
hours worked in excess of thirty (30) hours by day-workers or
thirty two (32) hours by shift-workers. This is exclusive of any
time worked on an employee's scheduled days off or on the statutory
holiday itself.
<PAGE>
20
d) In a week in which two (2) holidays occur, overtime shall be paid
for all hours worked in excess of twenty-two and one half (22 1/2)
hours by day-workers or twenty-four (24) hours by shift-workers.
This is exclusive of any time worked on an employee's scheduled
days off or on the statutory holidays themselves.
12.03 Employees will be paid at one and one-half (1 1/2) times their regular
rate for normal hours worked on Saturdays, Sundays and holidays provided
they are scheduled according to the provisions of Article 13 or if the
employee has been advised in writing before 15h00 on the previous
Friday.
12.04 a) Employees will be paid at the applicable overtime rate for work on
scheduled days off where the employee has worked his regular
schedule in that week.
b) However, the first two (2) hours will be paid at twice their
regular hourly rate if they have not been advised of the overtime
to be worked within the time limits defined in clause 13.01.
12.05 Employees shall be paid at twice their regular rate for all overtime
hours worked on Sundays and statutory holidays.
12.06 All employees shall be paid at twice their regular hourly rate for all
overtime hours worked between 11.30 p.m. and 7.30 a.m. provided such
work does not result from changes made at the request of the employees
concerned.
12.07 a) Employees who are called-in to work outside their normal working
hours will receive a minimum of four (4) hours pay at their regular
rate of pay. After two (2) hours of work, the minimum will be
considered satisfied and the employee will be paid at the
applicable overtime rate for additional time worked.
Call-ins which occur between 11.30 p.m. and 7.30 a.m. will be paid
a minimum of two (2) hours at triple the employees regular straight
time rate.
b) For a call-in on Sunday or a statutory holiday, an employee shall
receive a minimum of two (2) hours pay at triple the normal hourly
rate.
12.08 Part shifts worked immediately prior to or immediately after an
employee's regularly scheduled shift shall be considered as overtime
hours and not as call-in hours.
<PAGE>
21
12.09 For the purpose of avoiding pyramiding of overtime, hours compensated for
at time and one-half or double time rates, shall not be counted further
for any purpose in determining overtime liability under the same or any
other provisions.
12.10 No overtime will be paid because of personal arrangements between
employees. All such arrangements, must be made with the permission of
the employee's Supervisor or his representative.
12.11 a) A shift differential shall be paid for each complete shift except
for the day shift which will be the shift normally commencing between
7.00 a.m. and 9.00 a.m. For the duration of this agreement the
differentials will be:
16h00 to 24h00 - $0.85/hour
24h00 to 08h00 - $1.50/hour
12 hours - $1.57/hour
b) The shift differential shall not enter into the calculation of
holiday pay nor vacation pay.
c) The shift differential is not payable on call-ins and overtime
unless a complete shift is worked.
d) The shift differential will be added after any overtime calculation
is made.
12.12 An employee who has worked forty (40) or more hours of overtime in the
year will have the option of taking up to two (2) weeks off without pay
during the current year at a time mutually agreeable to the employee and
the Company according to the following formula:
40 hours of overtime work - maximum one (1) week off.
80 or more hours of overtime work - maximum two (2) weeks off.
12.13 Employees will receive a meal allowance when they are required to work
overtime without adequate prior notice.
Meal allowances will be paid as follows:
a) after two (2) hours of overtime work and every four (4) hours
thereafter.
b) the meal allowance will be:
June 25, 1995 Nov. 15, 1995 Nov. 15, 1996
------------- --------------------------------
$7.50 $7.75 $8.00
<PAGE>
22
ARTICLE 13 - WORK SCHEDULES & RATES OF PAY
- ------------------------------------------
13.01 Weekly work schedules for all employees will be posted before Wednesday
midnight of the preceding week and will be subject to change until 3.00
p.m. of the following Friday. All days off will be scheduled
consecutively unless one of the days off is Sunday. When this cannot be
done, the employees will receive four (4) hours pay at their regular
straight time hourly rate in addition to all hours worked in the week.
13.02 Employees will be compensated at the rate of time and one-half for the
fist shift worked following a change in the work schedule after 3.00
p.m. Friday. However, if the shift is worked between 11.30 p.m. and
7.30 a.m., compensation will be at double time rate.
13.03 The rate of time of one and one-half shall not apply in 13.02 if the
change is made for any of the following reasons:
a) Changes brought about by the absence of an employee due to illness
or compassionate reasons. If the absentee is not receiving sick
leave pay, the employee who replaces him will receive 1 1/2 times
his regular rate, provided other conditions to warrant such payment
are fulfilled.
b) Changes made as a result of an employee's request.
c) Emergencies such as floods, fires, explosions, serious mechanical
breakdowns, power failures, steam failures, customers' strikes or
suppliers' strikes.
13.04 a) All employees who are working the day shift and are required to
return to work for the following 11.30 p.m. to 7.30 a.m. shift,
will be sent home at 3.30 p.m. with no loss in pay. They will
still be allowed their normal lunch period.
b) If such employees work beyond 3.30 p.m., they will be paid at one
and one-half (1 1/2) times their regular hourly rate.
13.05 The Company may, at their discretion, make salary adjustments on an
individual merit basis at any time during or beyond the Salary
Progression Plan.
13.06 The weekly pay of employees will be deposited with the financial
institution of their choice.
<PAGE>
23
13.07 Salary Progression Plan
-----------------------
a) All jobs have been classified into four (4) grades in the Quality
Control Department and into three (3) grades in the Commercial and
Engineering Departments. The minimum and standard for each rate
range are noted in the schedule of rates.
b) Progression from the minimum to the standard rate shall be
automatic on an annual basis. Incremental increases shall be
effective on the anniversary date of the employee.
Automatic progression shall also apply to temporary employees on
the basis of each fifty-two (52) weeks actually worked.
c) Each employee's performance and salary shall be reviewed annually
and, in addition, the performance of a new employee shall be
reviewed at the end of three (3) months.
d) If an employee is promoted or transferred into a new job grade, for
half a day or more, he will receive an increase of $20.00 per week
or the minimum for that grade, whichever is greater. However, the
employee will not receive a lower salary in his new job grade than
he would have received in his former job grade.
e) Employees replacing monthly salaried positions will be paid an
adjustment of $50.00 per week after having worked one half day
(1/2) or more in this position.
f) Whenever a temporary employee is employed in a Grade II position
the most senior employee with seniority in Grade I will be paid the
greater of either the minimum of Grade II or a differential of
$10.00 per week. This will not apply when the employee in Grade I
declines the Grade II position.
ARTICLE 14 - REST PERIODS
- -------------------------
14.01 Break period for Technical Department will be 9.30 a.m. to 9.50 a.m. and
2.00 p.m. to 2.20 p.m.
Break period for Commercial, Production and Engineering Departments will
be 10.15 a.m. to 10.35 a.m. and 2.30 p.m. to 2.50 p.m. This
specifically means twenty (20) minutes from the time work is interrupted
until it resumes.
12 Hour shifts only
-------------------
All employees will have the right to three (3) twenty (20) minute rest
periods during their regular working hours each day. This specifically
means twenty (20) minutes from the time work is interrupted until it
resumes.
<PAGE>
24
ARTICLE 15 - GRIEVANCE PROCEDURE
- --------------------------------
15.01 A grievance is any disagreement respecting the interpretation or
application of this collective agreement.
15.02 An employee may, and is encouraged, to discuss any possible grievances
with his immediate supervisor for the purpose of seeking a solution.
15.03 A grievance shall be presented in writing within fifteen (15) days of its
occurrence in the following manner and sequence:
15.04 Step No. 1
----------
The griever will submit the grievance to his immediate supervisor or in
his absence to the Department Head. The decision of the department
shall be rendered within five (5) days.
15.05 Step No. 2
----------
If the griever does not accept the decision rendered at Step No. 1 or if
the decision is not rendered within five (5) days, the griever may,
within five (5) days, submit the grievance to the Plant Manager who
shall render his decision within seven (7) days.
15.06 At Step No. l, the griever may be accompanied by his Shop Steward if he
so elects. At Step No. 2 the Grievance Committee has the right to be
present at all meetings relating to the grievance.
15.07 When an agreement has been reached at any stage of the grievance
procedure, it shall be put in writing and it shall be final and biding
on all parties.
15.08 Saturdays, Sundays, holidays (as defined in Article 5) and scheduled days
off, shall not be counted in determining the time within which action
has to be taken or completed under the grievance procedure.
15.09 Any adjustment arising out of the settlement of a grievance shall not be
made retroactive to a date which is more than fifteen (15) days prior to
the date on which the grievance was presented as provided for in the
grievance procedure.
15.10 The Company and the Union may make use of the foregoing grievance
procedure.
15.11 If a grievance is not taken to the next higher step within the prescribed
delay, it shall be deemed to have been settled. A grievance which is
not presented in accordance with the provisions of this Article, shall
be deemed to be abandoned and shall not be entitled to consideration
thereafter.
15.12 The Company and the Union will honour requests for reasonable delays in
processing grievances.
<PAGE>
25
ARTICLE 16 - ARBITRATION
- ------------------------
16.01 A grievance which has not been settled after being carried through the
steps of the Grievance Procedure in accordance with Article 15, may be
referred to arbitration in accordance with the following procedure:
16.02 Notice of reference to arbitration shall be given in writing to the other
party within thirty (30) working days after the rendering of the
decision by the Plant Manager or within thirty (30) working days of the
expiry of the delay provided for in Step No. 2 of the Grievance
Procedure.
16.03 The grievance will be heard by a single arbitrator selected by the
parties. If there is no agreement on the selection for an arbitrator
during the twenty (20) days following the notice of reference to
arbitration, the Union or Company representative may request the
Minister of Labour to name one.
16.04 If either party desires the grievance to be heard by a three-man board,
the parties will each appoint a representative.
If there is no agreement on the selection of a chairman of the
arbitration board during the twenty (20) days following the notice of
reference to arbitration, the Union or Company representative may
request the Minister of Labour to name one.
16.05 If the notice of reference to arbitration is not sent within the
specified delay, the grievance shall be deemed to have been abandoned
and shall not be entitled to consideration thereafter.
16.06 Saturdays, Sundays, holidays (as defined in Article 5) and scheduled days
off, shall not be counted in determining the time within which action
has to be taken or completed under the grievance procedure.
16.07 The arbitrator or arbitration board shall have jurisdiction to interpret
the provisions of this agreement in so far as shall be necessary to the
determination of the grievance, but shall not have jurisdiction or
authority to alter in any way, add to or make any decision inconsistent
with the provisions of this agreement.
16.08 The decision of the arbitrator or arbitration board shall be final and
binding upon the parties hereto and the employee or employees concerned.
16.09 The decision of the arbitrator or arbitration board shall be rendered
within thirty (30) days after completion of the hearings.
16.10 The award of the arbitrator or arbitration board shall not be made
retroactive to a date which is more than fifteen (15) days prior to the
date on which the grievance was presented as provided for in the
grievance procedure.
16.11 Each of the parties shall bear its own costs and the expenses of its
representatives. The parties shall bear jointly the fees and expenses
of the arbitrator.
<PAGE>
26
ARTICLE 17 - SICK LEAVE
- -----------------------
17.01 Sick leave may be granted to an employee who presents satisfactory
medical evidence of illness.
17.02 A total of 48 hours of sick leave (either 6 days of 8 hours or 4 days of
12 hours) non-accumulative will be granted on an annual basis for
absences of 2 days or less of sickness.
17.03 The sick leave granted will be renumerated at 100% of the regular job
posting salary at the time the illness commences.
17.04 An employee who submits false evidence of illness, shall be subject to a
penalty and shall not be eligible for sick leave pay.
ARTICLE 18 - BEREAVEMENT LEAVE
- ------------------------------
18.01 a) Bereavement leave of five (5) days will be granted to an employee in
the event of death in the immediate family (parents, spouse or
children). Maximum bereavement pay will be thirty seven and one
half (37 1/2) hours.
This leave of five (5) days may be taken between the day of the
death and the fourth day following the funeral.
b) Bereavement leave of three (3) days will be granted to an employee
in the event of the death of his brother, sister, mother-in-law or
father-in-law.
c) Bereavement leave of one (1) day will be granted to an employee in
the event of the death of his grandmother, grandfather, brother-in-
law, sister-in-law or grandchild.
d) The bereavement leave mentioned in b) and c) may be taken between
the day of the death and the second day following the funeral.
e) Bereavement pay shall be calculated on the basis of the employee's
regular straight time rate. This payment shall be made only where
the time off falls on the employee's working days.
f) 12 Hour shifts only
-------------------
Employees will be granted leave of five (5), three (3) or one (1)
day as defined above however, compensation will not exceed forty
eight (48), twenty four (24) or twelve (12) hours respectively.
A spouse is defined as a man or woman who are legally married and
cohabit.
Common-law spouse means a man or woman cohabiting for a period of
at least three (3) years or after one (1) year if a child is born
of their union.
<PAGE>
27
ARTICLE 19 - SEPARABILITY
- -------------------------
19.01 In the event that any provision of this agreement shall at any time be
declared invalid by any court of competent jurisdiction or through
Government regulations or decree, such decision shall not invalidate the
entire agreement, it being the express intention of the parties hereto
that all other provisions not declared invalid shall remain in full
force and effect.
ARTICLE 20 - SAFETY AND HEALTH
- ------------------------------
20.01 The Company will make all reasonable provisions for the health and safety
of the employees during their working hours and will furnish adequate
facilities and equipment which, in the opinion of the Company, are
necessary to protect the employees from injury. The Company, the Union
and the employee, acknowledge their responsibility to cooperate in the
maintenance of healthful and safe working conditions and the observance
of rules in that regard.
ARTICLE 21 - GENERAL
- --------------------
21.01 The Company will supply the employees with a french and english copy of
the collective agreement.
21.02 In addition to the standard plant safety footwear, the Company will pay
up to eighty dollars (80.00$) in each calendar year towards the cost of
safety footwear for the position of Stores Clerk and his replacement.
Other positions requiring such coverage will be agreed on by both
parties.
21.03 The Company will grant the necessary permission to any employee called
upon to serve as a juror or as a subpoenaed witness. For each working
day that the employee is required to be in court, the Company will pay
the difference between his straight hourly time equivalent salary, for
the number of hours which he would normally work on his regular job and
his jury pay or witness pay. The employee will present proof of service
and the amount of pay received prior to payment under this clause.
21.04 In the event of employees sustaining injuries at work or becoming
affected by occupational disease during the course of their employment
and becoming physically handicapped as a result thereof, the Company
will endeavour to give the handicapped employee such suitable employment
as is available. Special consideration regarding service may be
considered by the parties in the application of this Article.
<PAGE>
28
21.05 a) A pregnant employee may take leave without pay from the seventh (7th)
month of her pregnancy, or at an earlier date as determined by her
doctor, by submitting a medical certificate which is acceptable to
the Company's adviser.
b) Normally the employee must resume work during the four month period
following the confinement unless her doctor certifies that she is
unable to return during this period for medical reasons and
establishes another date of return. This certification, must be
acceptable to the Company's medical adviser. The maximum leave is
seventeen (17) weeks unless the employee takes advantage of the
provisions of clause 21.05 c) or the leave is extended for valid
medical reasons.
Any employee who does not meet the requirements of this clause will
be considered to have voluntarily terminated her service.
c) Notwithstanding the above, an employee will be granted a leave of
absence without Company pay up to a maximum of fifty two (52) weeks
however, during this period, the employee may receive the full
U.I.C. maternity income benefits. The employee must return to work
and satisfy the provisions of article 21.05 d) to receive the lump
sum payment as defined.
d) An employee who return to work in accordance with the provisions of
this article will receive a lump sum payment equivalent to 25% of
her weekly salary multiplied by the number of weeks of maternity
leave with a maximum of nine (9) weeks including the week of
confinement.
This lump sum must be repaid to the employer by the employee if she
voluntarily quits her employment within six (6) months of the date
of her return to work.
e) The employee covered by this article will return to the same
position she occupied prior to her maternity leave. If the
position has been abolished she may exercise her seniority rights
to obtain an equivalent or lower position.
f) The employer may replace such employee by a temporary employee for
the duration of the absence foreseen above.
<PAGE>
29
g) A pregnant employee normally operating a CRT screen may request an
assignment to another position. The Company undertakes to try to
accommodate such a request taking into consideration the
qualifications of the employees involved and the provisions of the
collective agreement.
If a transfer is not possible, the employee will be eligible for a
leave of absence as defined in article 21.05 c) above.
The Company will respect the parental leave legislation.
21.06 Employees will have the right to examine his personal file.
ARTICLE 22 - EFFECTIVE DATE AND DURATION OF AGREEMENT
- -----------------------------------------------------
22.01 This agreement shall become effective on June 25, 1995 and shall expire
on November 14, 1997. Within ninety (90) days preceding the date of
expiration of this agreement, either party may advise the other by
written notice of its desire to negotiate a new one.
22.02 The conditions of employment outlined in this agreement will remain in
effect after its expiration until a new agreement is signed or the right
of strike or lockout is exercised.
<PAGE>
30
APPENDIX "A"
------------
To: Produits Chimiques Sterling
Date:__________________________
You are hereby authorized and requested to deduct from my weekly wages, an
amount as determined by the Local Constitution and by-laws.
The amount deducted shall be remitted monthly to the Financial Secretary of
Local 480 of the Office and Professional Employees International Union.
This authorization shall become effective the seventh (7th) day following
the date of its receipt by the Company and shall be automatically renewed from
year to year unless a notice cancelling the authorization is furnished in
writing to the Company by me and the Union within seven (7) days immediately
prior to the termination of this Agreement.
---------------------------------------------
(signature of employee)
<PAGE>
31
APPENDIX "B"
------------
Date:________________________
I, the undersigned, hereby authorize and request Produits Chimiques Sterling
in accordance with the Agreement between the Company and the Union, to deduct an
initiation fee, an amount as notified to the Company by the Secretary- Treasurer
in writing, from my wages and to pay such amount to the Secretary- Treasurer of
Local 480, O.P.E.I.U.
I understand that refusal to pay this amount, makes me liable to dismissal
from the Company's employ.
--------------------------------------------
(signature of employee)
--------------------------------------------
(Witness)
<PAGE>
32
ANNEXE "C"
----------
CEDULE DES TAUX HEBDOMADAIRE
----------------------------
SCHEDULE OF WEEKLY RATES
------------------------
GRADE OCCUPATION MINIMUM STANDARD
- ------------------------------------------------------------------------
COMMERCIAL - PRODUCTION - ENTRETIEN/ENGINEERING
- ------------------------------------------------------------------
I -Standardiste/receptioniste/Switchboard/receptionist
-Commis/dactylo/Clerk/typist
25 juin 1995 573.34 584.00 594.34 604.91 622.77 638.59
15 nov. 1995 584.81 595.68 606.23 617.01 635.23 651.36
15 nov. 1996 601.18 612.36 623.20 634.29 653.02 669.60
II -Commis-archives/Records Clerk
-Commis-comptes payables/Accounts Payable Clerk
-Commis-achats/Purchasing Clerk
-Commis-magasin/Stores Clerk
-Commis-entretien/Engineering Clerk
-Commis-paye/Payroll Clerk
-Commis-general/General Clerk
-Commis-personnel/Personnel Clerk
-Commis-transport/Traffic Clerk
-Commis-transport et materiels/Materials & Traffic Clerk
-Commis-securite-transport/Security Shipping Clerk
-Standardiste-receptioniste-commis achats/Switchboard-Receptionist-
Purchasing Clerk
25 juin 1995 612.27 622.77 632.37 643.78 654.29 684.91
15 nov. 1995 624.52 635.23 645.02 656.66 667.38 698.61
15 nov. 1996 642.01 653.02 663.08 675.05 686.07 718.17
III -Commis aux couts/Cost Clerk
-Dessinateur/Draftsman
-Commis senior-achats/Senior Purchasing Clerk
-Commis senior-personnel/Senior Personnel Clerk
-Commis senior-transport/Senior Traffic Clerk
-Commis senior-pesee/Senior Scales Clerk
-Commis senior-paye-comptes payables/Senior Payroll & Accounts Payable Clerk
-Commis senior-transport & materiels/Senior Materials & Traffic Clerk
-Commis senior-magasin/Senior Stores Clerk
-Commis de la paye & comptes payables/Payroll & Accounts Payable Clerk
-Secretaire senior/Senior Secretary
25 juin 1995 654.59 668.76 682.76 696.84 711.05 751.20
15 nov. 1995 667.68 682.14 696.32 710.78 725.27 766.22
15 nov. 1996 686.38 701.24 715.82 730.68 745.58 787.67
<PAGE>
33
CEDULE DES TAUX HEBDOMADAIRE
----------------------------
SCHEDULE OF WEEKLY RATES
------------------------
GRADE OCCUPATION MINIMUM STANDARD
- ------------------------------------------------------------------------
CONTROLE DE LA QUALITE/QUALITY CONTROL
- -------------------------------------------
I -Technicien de laboratoire/Laboratory Technician
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
25 juin 1995 590.96 601.48 612.13 622.65 640.39
15 nov. 1995 602.78 613.51 624.37 635.10 653.20
15 nov. 1996 619.66 630.69 641.85 652.88 671.49
II -Technicien senior de laboratoire/Senior Laboratory Technician
25 juin 1995 622.77 633.15 643.78 654.29 684.89
15 nov. 1995 635.23 645.81 656.66 667.38 698.59
15 nov. 1996 653.02 663.89 675.05 686.07 718.15
</TABLE>
III -Analyste/Analyst
-Technicien-recherche de procede/Process investigation technician
-Tech. senior-environnement/Senior Environmental Control Tech.
25 juin 95 643.93 654.40 665.10 675.45 686.10 700.52 746.63
15 nov. 95 656.81 667.49 678.40 688.96 699.82 714.53 761.56
15 nov. 96 675.20 686.18 697.40 708.25 719.41 734.54 782.88
IV -Analyste senior/Senior Analyst
-Chef de groupe-laboratoire/Laboratory Group Leader
25 juin 95 675.57 686.19 696.74 700.03 717.72 754.85 787.06
15 nov. 95 689.08 699.91 710.67 714.03 732.07 769.95 802.80
15 nov. 96 708.37 719.51 730.57 734.02 752.57 791.51 825.28
V -Technicien de procedes/Process Technician
25 juin 1995 19.86/h. 20.42/h. 20.93/h.
15 nov. 1995 20.26/h. 20.83/h. 21.35/h.
15 nov. 1996 20.83/h. 21.41/h. 21.95/h.
<PAGE>
34
APPENDIX "D"
------------
TWELVE (12) HOUR SCHEDULES
1. General
1.1 Some Sections of this collective agreement contain specific references to
provisions that apply only to employees on twelve (12) hour shifts at the
Chlorate Metal Plant.
1.2 If the only change is from one regular work schedule to another, no bonus
shall be paid to the employee during the first week.
1.3 Each employee's pay shall be calculated on the basis of hours worked per
week.
1.4 Only schedules accepted by the Union committee and Company may be used in
the various sectors.
1.5 Employees working twelve (12) hour shifts shall have the opportunity to work
an average of forty (40) hours during their rotation.
1.6 Employees who do not work an average of forty (40) hours per week during
their rotation shall have the choice of working catch-up shifts, which shall
be remunerated at regular rates.
1.7 Overtime shall consist of any authorized time in excess of twelve (12) daily
hours any day or hours in addition to the regular weekly schedule.
<PAGE>
35
2. Twelve-hour/7 day schedule
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1 5 9 2 6 10 3 7 11 4 8 12
- --------------------------------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S S M T W T F S
- --------------------------------------------------------------------------------
Day C A A B B D D D C C A A B B B D D C C A A A B B D D C C
- --------------------------------------------------------------------------------
Night B D D C C A A A B B D D C C C A A B B D D D C C A A B B
- --------------------------------------------------------------------------------
Shift off D C C A A B B B D D C C A A A B B D D C C C A A B B D D
- --------------------------------------------------------------------------------
Shift off A B B D D C C C A A B B D D D C C A A B B B D D C C A A
- --------------------------------------------------------------------------------
</TABLE>
2.1 The twelve (12) hour shift schedule for employees not on rotating shifts
shall be established for a twelve (12) week cycle. Once every twelve (12)
weeks, employees shall have an additional two (2) shifts off, to result in
an average of forty (40) hours a week. Employees on this schedule shall
have two (2) extra shifts off every twelve (12) weeks, on Monday and Tuesday
of the day shift.
2.2 In a week with a single statutory holiday, employees who work all regular
hours on days other than the holidays shall be paid for four(4) additional
hours at their regular hourly rate.
2.3 In a week with two (2) statutory holidays, employees who work all regular
hours on days other than the two (2) holiday shall be paid for eight (8)
additional hours at their regular rate.
However, employees whose regular schedule requires that they work one (1) of
the two (2) statutory holidays shall be paid for four (4) additional hours
at their regular hourly rate, provided they work all the hours in the week.
Employees may choose to accumulate the above-mentioned hourly rates
according to the provisions of paragraph 5.04.
<PAGE>
36
3. Twelve hour Relief Schedule
3.1 The following provisions apply only to "relief workers" and other employees
who do not work constantly on rotating twelve (12) hour shifts.
3.2 The shift schedule for relief employees included in this appendix reflects
typical schedules for normal operating conditions, but changing conditions
may require other schedules.
3.3 The work cycle shall be six (6) consecutive weeks.
3.4 Employees on the six (6) week cycle may be required to work twelve (12) and
eight (8) hour shifts.
3.5 Relief workers shall not be scheduled to work more than two (2) consecutive
thirty-six (36) hour weeks.
3.6 If an employee is scheduled to work four (4) regular twelve (12) hour shifts
in three (3) consecutive weeks, the fourth shift worked in the third week
shall be remunerated at overtime rate.
3.7 Relief workers will not be scheduled to work less than thirty-two (32) hours
per week.
Relief workers may be scheduled to work only thirty-two (32) hours in a week
if this is required to balance their regular working hours at an average of
forty (40) hours a week.
<PAGE>
37
3.8
Laboratory Technician Relief Schedule
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1 5 9 2 6 10 3 7 11 4 8 12
------------------------------------------------------------------------
S M T W T F S S M T W T F S S M T W T F S S M T W T F S
- ----------------------------------------------------------------------------
Day C A A B B D D D C C A A B B B D D C C A A A B B D D C C
- ----------------------------------------------------------------------------
Night B D D C C A A A B B D D C C C A A B B D D D C C A A B B
- ----------------------------------------------------------------------------
Shift off D C C A A B B B D D C C A A A B B D D C C C A A B B D D
- ----------------------------------------------------------------------------
Shift off A B B D D C C C A A B B D D D C C A A B B B D D C C A A
- ----------------------------------------------------------------------------
</TABLE>
NOTE:
In a week when they replace the regular laboratory technician on 12 week leave:
the reliefs will work the typical two (2) twelve (12) hour shifts and two (2)
eight (8) hour shifts, unless they are needed to replace employees taking
floaters on days other than those when the twelve (12) week leave is taken.
When the employee does not work as a relief, the employee will work a typical
forty (40) hour week (five (5) days of eight (8) hours), or will be replacing
other employees off due to sickness, vacations, or accumulated statutory
holidays.
A. Relief employees working on eight (8) hour shifts will execute various
tasks.
B. There are no guarantees that the relief employees will have all week-ends
off, nevertheless these employees will not be scheduled for work during a
week-end for more than two (2) consecutive week-ends, nor for four (4)
consecutive nights. These restrictions apply only to relief laboratory
technicians. With respect to section B only, a week-end starts at 4 p.m. on
Friday and ends at 6:30 a.m. on Monday (or 7:30 a.m. depending on the
schedule).
C. When the relief laboratory technician works a regular schedule to replace
employees on vacation or sick leave, the employee can maintain this schedule
even during a week when there is a 12 week leave. If the employee wishes to
change his schedule to replace this leave, the employee can make a request
for this.
<PAGE>
38
4. Twelve Hour Shift (day)/7 days
------------------------------
D L M M J V S D L M M J V S D L M M J V S
- --------------------------------------------------------------------------------
Reg C A A C C A A A B B A A B B B C C B B C C
- -------------------------------------------------------------------------
Releve - B B B B - - - C C C C - - - A A A A - -
- -------------------------------------------------------------------------
Conge AB C C A A B BC BC A A B B AC AC AC B B C C AB AB
- ---------------------------------------------------------------------------
Note: The week of relief will be that of a thirty-six (36) hour week. Normally
the schedule would be as follows: twelve (12) hours on Monday followed
by three (3) consecutive days of eight (8) hours (Tuesday, Wednesday and
Thursday).
However, if necessary, the schedule for this week could be as follows:
twelve (12) hours of Tuesday followed by three (3) consecutive days of
eight (8) hours (Wednesday, Thursday and Friday).
5. Equilibration method
5.1 At the end of each equilibration period, hours worked (excluding
overtime) beyond four hundred and eighty (480) hours for regular
employees (12 hours/7 days) and two hundred and forty (240) hours (12
hours/5 days) for other employees shall be considered overtime and
adjusted accordingly. Solely for the purposes of this clause, half of
the overtime shall be paid at time and a half the regular hourly rate
and the other half at double the regular rate.
5.2 In the event of absences caused by vacations, illness or other reasons,
the hours the employee would have normally worked shall be used for
equilibration purposes.
5.3 Hours worked for equilibration purposes in the previous cycle shall not
be counted in the next cycle.
<PAGE>
39
LETTER OF AGREEMENT
EFFECTIVE JUNE 25, 1995
-----------------------
Mr. Paul Giroux &
Mr. Pierre Boivin
Vice-Presidents
O.P.E.I.U.
Local 480
Buckingham (Quebec)
POLICY REGARDING TIME OFF BY MEMBERS OF BUCKINGHAM
STAFF UNION -LOCAL 480 FOR MEDICAL OR DENTAL REASONS
----------------------------------------------------
Regulation
----------
Absences of short duration for medical and dental appointments could be
granted by the Company. However these absences will be paid by working
the time taken for these appointments upon approval by the supervisors.
Time off for other personal reasons will be considered as time off with
permission and will not be paid.
Buckingham, August 23rd, 1995.
/s/ Sharron C. McDonnell /s/ Paul Giroux
------------------------ ---------------
Sharron C. McDonnell Paul Giroux
Produits Chimiques Sterling Office and Professional Employees
Division of International Union
Sterling Pulp Chemicals, Ltd. Local 480
/s/ Pierre Boivin
-----------------
Pierre Boivin
Office and Professional Employees
International Union
Local 480
<PAGE>
40
CANADA BUREAU DU COMMISSAIRE GENERAL DU TRAVAIL
Dossier No: AM 94085
PRODUITS CHIMIQUES STERLING, DIVISION DE
STERLING PULP CHEMICALS, LTD.
101, chemin Donaldson
Buckingham (Quebec)
J8L 3X3
ci-apres l'"Employeur"
c.
UNION INTERNATIONALE DES EMPLOYES
PROFESSIONNELS ET DE BUREAU,
SECTON LOCALE 480
1265, rue Berri
Bureau 630
Montreal (Quebec)
H2L 4C6
ci-apres l'"Union"
---------------------------------------------
REQUETE CONJOINTE EN VERTU
DE L'ARTICLE 39 C.T.
1. Union accreditation to represent:
"All the office employees and laboratory workers excluding
employees classifed as engineer, chemist, professional accountant,
managers, supervisor and all other hourly workers already covered
by accreditation of the Buckingham plant, as those automatically
excluded by the Quebec Labour Code."
2. The Employer and the Union agree that the wording of the
Accreditation Certification be amended so as to read as follows:
"All the office employees and laboratory workers excluding
employees classifed as engineer, chemist, professional accountant,
SENIOR PLANT MANAGER'S SECRETARY, managers, supervisor and all
other hourly workers already covered by accreditation of the
Buckingham plant, as those automatically excluded by the Quebec
Labour Code."
(the bold type characters are ours)
<PAGE>
- 2 -
3. The present request is a joint request.
FOR THESE GROUNDS, SUITS THE LABOUR COMMISSIONER:
RECEIVE the present request;
AMEND the Union's accreditation certification so that it reads the
following:
"All the office employees and laboratory workers excluding
employees classifed as engineer, chemist, professional accountant,
senior plant manager's secretary, managers, supervisor and all
other hourly workers already covered by accreditation of the
Buckingham plant, as those automatically excluded by the Quebec
Labour Code."
Directed at the Industry: 101 Donaldson Road
Buckingham, Quebec
J8L 3X3
ALL respectively submitted.
Buckingham, August 23rd, 1995.
/s/ Helene Guay /s/ Carl Yank
--------------- -------------
Helene Guay Carl Yank
Office and Professional Employees Produits Chimiques Sterling
International Union Division de
Local 480 - C.L.C. Sterling Pulp Chemicals, Ltd.
<PAGE>
42
LETTER OF AGREEMENT
EFFECTIVE JUNE 25, 1995
-----------------------
Mr. Paul Giroux &
Mr. Pierre Boivin
Vice-Presidents
O.P.E.I.U.
Local 480
Buckingham (Quebec)
The parties acknowledge that the Company can demand that the laboratory
technicians complete the shipping documents for the Traffic Department
after normal working hours.
The present intent does not have prejudice on claim of the parties that
the Company has or does not have the right to have the shipping documents
completed by the laboratory technicians prior to the signing of the
present agreement.
Buckingham, August 23rd, 1995.
/s/ Sharron C. McDonnell /s/ Paul Giroux
------------------------ ---------------
Sharron C. McDonnell Paul Giroux
Produits Chimiques Sterling Office and Professional Employees
Division of International Union
Sterling Pulp Chemicals, Ltd. Local 480
/s/ Pierre Boivin
-----------------
Pierre Boivin
Office and Professional Employees
International Union
Local 480
<PAGE>
43
LETTER OF AGREEMENT
EFFECTIVE JUNE 25, 1995
-----------------------
Mr. Paul Giroux &
Mr. Pierre Boivin
Vice-Presidents
O.P.E.I.U.
Local 480
Buckingham (Quebec)
The parties agree that the waiting period for the pension calculation
purposes regarding Paul Giroux, Edmond Maheu and Richard Baulne will be
only one year.
Buckingham, August 23rd, 1995.
/s/ Sharron C. McDonnell /s/ Paul Giroux
------------------------ ---------------
Sharron C. McDonnell Paul Giroux
Produits Chimiques Sterling Office and Professional Employees
Division of International Union
Sterling Pulp Chemicals, Ltd. Local 480
/s/ Pierre Boivin
-----------------
Pierre Boivin
Office and Professional Employees
International Union
Local 480
<PAGE>
44
LETTER OF AGREEMENT
EFFECTIVE JUNE 25, 1995
-----------------------
Mr. Paul Giroux &
Mr. Pierre Boivin
Vice-Presidents
O.P.E.I.U.
Local 480
Buckingham (Quebec)
The parties agree on the following method in order to permit a transition
period for the new weekly indemnity program.
a) The employees keep their bank of sick days as of November 14, 1994 for
the transition period of the new weekly Indemnity Program.
b) For the period of 36 weeks at 70% of the salary, employees may use
their bank to increase the benefit up to $560.00 per week.
c) This agreement will cease when the employee has exhausted his bank or
when 70% of his salary is greater than $560.00 per week.
Buckingham, August 23rd, 1995.
/s/ Sharron C. McDonnell /s/ Paul Giroux
------------------------ ---------------
Sharron C. McDonnell Paul Giroux
Produits Chimiques Sterling Office and Professional Employees
Division of International Union
Sterling Pulp Chemicals, Ltd. Local 480
/s/ Pierre Boivin
-----------------
Pierre Boivin
Office and Professional Employees
International Union
Local 480
<PAGE>
Exhibit 10.55
***OMITTED INFORMATION DENOTED BY ASTERISKS (***) HAS BEEN FILED SEPARATELY WITH
THE COMISSION AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST.***
BUSINESS
CONFIDENTIAL
PRODUCT SUPPLY AGREEMENT
BETWEEN
PRAXAIR HYDROGEN SUPPLY, INC. AND
STERLING CHEMICALS, INC.
May 15, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 2
DEFINITIONS 2
Section 1.1 "Adjustable Facility Fee" 2
Section 1.2 "Affiliate" 2
Section 1.3 "Agreement" 2
Section 1.4 "Blend Gas" 2
Section 1.5 "Blend Gas Contract Volume" 2
Section 1.6 "Blend Gas Delivery Point" 3
Section 1.7 "Blend Gas Totalizer" 3
Section 1.8 "Buyer's Annual Grace Period" 3
Section 1.9 "Buyer's Blend Gas Requirements" 3
Section 1.10 "Buyer's Carbon Monoxide Requirements" 3
Section 1.11 "Buyer's Hydrogen Requirements" 3
Section 1.12 "Buyer's Pipelines" 4
Section 1.13 "Buyer's Plant" 4
Section 1.14 "Buyer's Required Rates" 4
Section 1.15 "Carbon Monoxide" 4
Section 1.16 "Carbon Monoxide Contract Volume" 4
Section 1.17 "Carbon Monoxide Delivery Point" 4
Section 1.18 "Carbon Monoxide Totalizer" 5
Section 1.19 "Confidential Information" 5
Section 1.20 "Contract Volume of Products" 5
Section 1.21 "Contract Year" 5
Section 1.22 "Cubic Foot" 5
Section 1.23 "Event of Default" 5
Section 1.24 "Excess Shutdown Period" 5
Section 1.25 "Facility Site" 5
Section 1.26 "Feed/Fuel Fee" 6
Section 1.27 "First Additional Term" 6
Section 1.28 "Fixed Facility Fee" 6
Section 1.29 "Force Majeure Event" 6
Section 1.30 "Ground Lease" 6
Section 1.31 "Guarantor" 6
Section 1.32 "Guaranty" 6
Section 1.33 "Hydrogen" 6
Section 1.34 "Hydrogen Contract Volume" 6
Section 1.35 "Hydrogen Delivery Point" 7
Section 1.36 "Hydrogen Totalizer" 7
Section 1.37 "Initial Term" 7
Section 1.38 "Maximum Shutdown Period" 7
Section 1.39 "Metering Equipment" 7
Section 1.40 "Month" 7
Section 1.41 "MSCF" 7
Section 1.42 "Natural Gas" 7
Section 1.43 "New NG Index" 7
Section 1.44 "New PPI Index" 7
Section 1.45 "NG Base" 7
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 1.46 "PPI Base" 7
Section 1.47 "Products" 8
Section 1.48 "Proprietary Rights" 8
Section 1.49 "Second Additional Term" 8
Section 1.50 "Seller's Facility" 8
Section 1.51 "Startup" 8
Section 1.52 "Steam" 8
Section 1.53 "Steam Contract Volume" 8
Section 1.54 "Steam Delivery Point" 8
Section 1.55 "Steam Fee" 8
Section 1.56 "Steam Totalizer" 9
Section 1.57 "Supplemental Hydrogen" 9
Section 1.58 "Term" 9
Section 1.59 "Texaco Information" 9
Section 1.60 "Utilities Agreement" 9
ARTICLE 2 9
STARTUP 9
Section 2.1 Startup 9
Section 2.2 Seller's Penalty for Late Startup 10
Section 2.3 Exceptions to Seller's Penalty for Delay 10
Section 2.4 Buyer's Penalty for Late Startup 10
Section 2.5 Exceptions to Buyer's Penalty
for Late Startup 11
Section 2.6 Obligation to Deliver after Startup 11
Section 2.7 Covenant Regarding Delay 11
ARTICLE 3 11
DELIVERY OF CARBON MONOXIDE 11
Section 3.1 Obligation to Deliver Carbon Monoxide 11
Section 3.2 Carbon Monoxide Pressure 11
Section 3.3 Title to and Risk of Loss
of Carbon Monoxide 12
Section 3.4 Carbon Monoxide Volume 12
ARTICLE 4 13
DELIVERY OF BLEND GAS 13
Section 4.1 Obligation to Deliver Blend Gas 13
Section 4.2 Blend Gas Pressure 13
Section 4.3 Title to and Risk of Loss of Blend Gas 13
Section 4.4 Blend Gas Volume 13
ARTICLE 5 14
DELIVERY OF HYDROGEN AND SUPPLEMENTAL HYDROGEN 14
Section 5.1 Obligation to Deliver Hydrogen 14
Section 5.2 Delivery of Supplemental Hydrogen 14
Section 5.3 Hydrogen Pressure 14
Section 5.4 Title to and Risk of Loss 14
Section 5.5 Hydrogen Volume 14
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 6 15
DELIVERY OF STEAM 15
Section 6.1 Steam Delivery Obligation 15
Section 6.2 Title to and Risk of Loss of Steam 16
ARTICLE 7 16
SHUTDOWNS, FAILURES TO DELIVER AND FAILURES TO TAKE 16
Section 7.1 Seller's Maximum Shutdown Period 16
Section 7.2 Seller's Failure to Deliver;
No Force Majeure 16
Section 7.3 Buyer's Failure to Take;
No Force Majeure 18
Section 7.4 Seller's Failure to Deliver;
Seller's Force Majeure 20
Section 7.5 Buyer's Failure to Take;
Buyer's Force Majeure 22
Section 7.6 Mandatory Shut Down 23
ARTICLE 8 23
PRICING AND PAYMENT 23
Section 8.1 Purchase Price for Products 23
Section 8.2 Fixed Facility Fee 24
Section 8.3 Adjustable Facility Fee;
Feed/Fuel and Steam Fees 24
Section 8.4 Supplemental Hydrogen 25
Section 8.5 Payment for Supplemental Hydrogen 26
Section 8.6 Terms of Payment 26
ARTICLE 9 27
TAXES 27
ARTICLE 10 28
FORCE MAJEURE 28
Section 10.1 Force Majeure Events 28
Section 10.2 Settlement of Strikes 29
Section 10.3 Notice of Force Majeure 30
ARTICLE 11 30
LIMITATION OF LIABILITY 30
Section 11.1 Acknowledgement of Hazards 30
Section 11.2 No Consequential Damages 31
ARTICLE 12 31
SELLER'S PRODUCT WARRANTIES; DISCLAIMERS 31
ARTICLE 13 34
REPRESENTATIONS AND WARRANTIES OF BUYER 34
Section 13.1 Organization, Good Standing and
Corporate Power 34
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 13.2 Authority Relative to Agreement 34
Section 13.3 No Conflict with Other Instruments or
Proceedings 34
Section 13.4 No Litigation or Proceedings. 35
ARTICLE 14 35
REPRESENTATIONS AND WARRANTIES OF SELLER 35
Section 14.1 Organization, Good Standing
and Corporate Power 35
Section 14.2 Authority Relative to Agreement 36
Section 14.3 No Conflict with Other Instruments or
Proceedings 36
Section 14.4 No Litigation or Proceedings 36
Section 14.5 Compliance with Laws 37
Section 14.6 Proprietary Rights 37
ARTICLE 15 37
METERING EQUIPMENT 37
Section 15.1 Meter Testing 37
Section 15.2 Data Transmission 38
ARTICLE 16 39
ALTERNATIVE FEEDSTOCKS 39
ARTICLE 17 39
EXCESS PRODUCTION 39
ARTICLE 18 40
EVENTS OF DEFAULT; DISPUTE RESOLUTION 40
Section 18.1 Events of Default 40
Section 18.2 Dispute Resolution Meeting 41
Section 18.3 Failure to Resolve Dispute; Arbitration 42
Section 18.4 Right to Terminate Agreement 43
ARTICLE 19 43
ACCESS TO INFORMATION 43
Section 19.1 Access to Information 43
Section 19.2 Access to Seller's Facility 44
Section 19.3 Access to Seller's Personnel 44
Section 19.4 Limitations on Disclosure 44
ARTICLE 20 45
CAPACITY OF SELLER'S FACILITY 45
Section 20.1 Initial Capacity 45
Section 20.2 Capacity Expansion 45
ARTICLE 21 46
INITIAL AND ADDITIONAL TERMS 46
Section 21.1 Initial Term 46
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 21.2 Additional Terms 46
ARTICLE 22 47
MISCELLANEOUS 47
Section 22.1 Assignment 47
Section 22.2 Confidentiality 48
Section 22.3 Applicable Law 51
Section 22.4 Notice 51
Section 22.5 Waiver 52
Section 22.6 Headings 52
Section 22.7 Entire Agreement 52
Section 22.8 Relationship between Parties 53
Section 22.9 Severability 53
Section 22.10 Amendment 54
Section 22.11 Pronouns and Plurals 54
Section 22.12 Section Numbers 54
EXHIBIT A: FEE CALCULATIONS A-1
EXHIBIT B: DESCRIPTION OF SELLER'S FACILITY B-1
EXHIBIT C: PRODUCT SPECIFICATIONS C-1
EXHIBIT D: NATURAL GAS SPECIFICATIONS D-1
</TABLE>
<PAGE>
PRODUCT SUPPLY AGREEMENT
THIS PRODUCT SUPPLY AGREEMENT made and entered into as of May 15, 1995, by
and between PRAXAIR HYDROGEN SUPPLY, INC., a Delaware corporation ("Seller"),
and STERLING CHEMICALS, INC., a Delaware corporation ("Buyer");
W I T N E S S E T H:
WHEREAS, Buyer requires substantial quantities of Carbon Monoxide,
Blend Gas, Hydrogen and Steam for use at Buyer's Plant, and has requested
Seller to supply such quantities of Carbon Monoxide, Blend Gas, Hydrogen and
Steam; and
WHEREAS, Seller has represented to Buyer that it is willing and able
to design, construct and operate, at Seller's expense and in accordance with
the terms of the Ground Lease, a facility for the production of Carbon
Monoxide, Blend Gas, Hydrogen and Steam on the Facility Site from which
Seller will be able to supply Carbon Monoxide, Blend Gas, Hydrogen and Steam
to Buyer on a reliable basis, achieving an average on-stream operating time of
(***) or better; and
WHEREAS, in reliance on such representation by Seller, Buyer is
willing to shut down its existing syngas plant, which currently
produces Buyer's requirements for Carbon Monoxide, Hydrogen and Blend Gas
for its acetic acid and oxoalcohol units, and rely exclusively on Seller's
Facility for its requirements of these Products;
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained and
the mutual benefits to be derived therefrom, Buyer and Seller agree as follows:
ARTICLE 1 - DEFINITIONS
Unless otherwise stated in this Agreement, the following terms
shall have the meanings ascribed to them below, and the following definitions
shall be equally applicable to both the singular and plural forms of any of the
terms herein defined:
Section 1.1 "Adjustable Facility Fee" means the variable fee
payable by Buyer to Seller as provided in Section 8.3.
Section 1.2 "Affiliate" of a party shall mean a corporation, at
least 50% of the voting securities of which is owned directly or indirectly by
such party; a corporation which owns directly or indirectly at least 50% of the
voting stock of such party; or a corporation, at least 50% of the voting
securities of which is owned directly by a corporation which owns directly or
indirectly at least 50% of the voting stock of such party.
Section 1.3 "Agreement" means this Product Supply Agreement, as
the same may be amended from time to time in accordance with its terms.
<PAGE>
Section 1.4 "Blend Gas" means a gas mixture conforming to the
specifications set forth in Exhibit C, attached hereto and made a part hereof.
Section 1.5 "Blend Gas Contract Volume" means, during any
Month, Blend Gas containing an average of (***) of Hydrogen and Carbon
Monoxide produced by Seller's Facility, calculated by dividing the total
number of pounds delivered in any Month by the hours in such Month.
Section 1.6 "Blend Gas Delivery Point" means the flange where
Buyer's Pipelines will be connected to Seller's Facility at the Blend Gas
custody transfer point depicted in Exhibit B attached hereto and made a part
hereof.
Section 1.7 "Blend Gas Totalizer" means Seller's metering
equipment to be installed and maintained by Seller at Seller's Facility to
measure the quantities of Blend Gas delivered to Buyer hereunder.
Section 1.8 "Buyer's Annual Grace Period" shall have the
meaning ascribed to it in Section 7.3(b).
Section 1.9 "Buyer's Blend Gas Requirements" means Buyer's
total present and future requirements, in gaseous form, of Blend Gas, other
than that supplied in cylinders, for use at the oxoalcohol unit located
at Buyer's Plant up to the Blend Gas Contract Volume.
Section 1.10 "Buyer's Carbon Monoxide Requirements" means Buyer's
total present and future requirements, in gaseous form, of Carbon Monoxide,
other than Carbon Monoxide supplied in cylinders, for use at the acetic acid and
oxoalcohol units located at Buyer's Plant up to the Carbon Monoxide Contract
Volume.
Section 1.11 "Buyer's Hydrogen Requirements" means Buyer's total
present and future requirements, in gaseous form, of Hydrogen, other than that
supplied in cylinders, for use at the oxoalcohol unit located at Buyer's Plant
up to the Hydrogen Contract Volume.
Section 1.12 "Buyer's Pipelines" means the system of trunk and service
pipelines to be installed, owned and operated by Buyer for the transmission of
(i) feedstocks and utilities to Seller's Facility, and (ii) Carbon Monoxide,
Blend Gas, Hydrogen (and Supplemental Hydrogen) and Steam produced by Seller's
Facility from the respective points of connection of Buyer's Pipelines with
Seller's Facility. The points at which Buyer's Pipelines will connect with
Seller's Facility are depicted in Exhibit B.
Section 1.13 "Buyer's Plant" means Buyer's chemical plant in Texas
City, Texas and any additions or modifications thereto and replacements thereof.
Section 1.14 "Buyer's Required Rates" means the volume of any or all
of the Products required by Buyer, during any given Month, not to exceed the
Contract Volume of Products.
Section 1.15 "Carbon Monoxide" means carbon monoxide conforming to the
specifications set forth in Exhibit C.
<PAGE>
Section 1.16 "Carbon Monoxide Contract Volume" means during any Month
an average of (***) of Carbon Monoxide produced by Seller's Facility, calculated
by dividing the total number of pounds delivered in any Month by the hours in
such Month.
Section 1.17 "Carbon Monoxide Delivery Point" means the flange where
Buyer's Pipelines will be connected to Seller's Facility at the Carbon Monoxide
custody transfer point depicted in Exhibit B.
Section 1.18 "Carbon Monoxide Totalizer" means Seller's metering
equipment to be installed and maintained by Seller at Seller's Facility to
measure the quantities of Carbon Monoxide delivered to Buyer hereunder.
Section 1.19 "Confidential Information" has the meaning ascribed to it
in Section 22.2.
Section 1.20 "Contract Volume of Products" means, collectively or
individually, as the context requires, 100% each of the Blend Gas Contract
Volume, the Carbon Monoxide Contract Volume and the Hydrogen Contract Volume.
Section 1.21 "Contract Year" means a period of one (1) year commencing
on the August 1 next following the date of Startup and on each subsequent
anniversary of such date during the Term; provided, however, that the period of
time commencing on the date of Startup and ending on the July 31 next following
the date of Startup shall also be a Contract Year, with appropriate prorations
to the extent such period is less than twelve months.
Section 1.22 "Cubic Foot" means the quantity of Carbon Monoxide, Blend
Gas or Hydrogen that would occupy a volume of one cubic foot at a temperature of
60 degrees Fahrenheit and 14.696 pounds per square inch absolute pressure.
Section 1.23 "Event of Default" shall have the meaning ascribed to it
in Section 18.1.
Section 1.24 "Excess Shutdown Period" shall have the meaning ascribed
to it in Section 7.2.
Section 1.25 "Facility Site" means the parcel of land that will be
leased by Buyer to Seller pursuant to the Ground Lease, as depicted on
Exhibit B.
Section 1.26 "Feed/Fuel Fee" means the fee payable by Buyer to Seller
for Natural Gas as provided in Section 8.3 or for any alternative feedstock as
provided in Article 16.
Section 1.27 "First Additional Term" has the meaning ascribed to it in
Section 21.2.
Section 1.28 "Fixed Facility Fee" means the fixed fee payable by Buyer
to Seller as provided in Section 8.2.
Section 1.29 "Force Majeure Event" has the meaning ascribed to it in
Section 10.1.
Section 1.30 "Ground Lease" means that certain Ground Lease Agreement
of even date herewith between Buyer as lessor and Seller as lessee, as same may
be amended from time to time in accordance with the provisions thereof.
Section 1.31 "Guarantor" means Praxair, Inc., a Delaware corporation,
and its successors and permitted assigns.
<PAGE>
Section 1.32 "Guaranty" means that certain Guaranty Agreement of even
date herewith pursuant to which Guarantor, for the benefit of Buyer, has
unconditionally guaranteed the obligations of Seller hereunder and under the
Utilities Agreement and the Ground Lease.
Section 1.33 "Hydrogen" means hydrogen conforming to the
specifications set forth in Exhibit C.
Section 1.34 "Hydrogen Contract Volume" means during any Month an
average of (***) of Hydrogen produced by Seller's Facility, calculated by
dividing the total number of pounds delivered in any Month by the hours in such
Month.
Section 1.35 "Hydrogen Delivery Point" means the flange where Buyer's
Pipelines will be connected to Seller's Facility at the Hydrogen custody
transfer point depicted in Exhibit B.
Section 1.36 "Hydrogen Totalizer" means Seller's metering equipment to
be installed and maintained by Seller at Seller's Facility to measure the
quantities of Hydrogen (and Supplemental Hydrogen) delivered to Buyer hereunder
from Seller's Facility.
Section 1.37 "Initial Term" has the meaning ascribed to it in Section
21.1.
Section 1.38 "Maximum Shutdown Period" shall have the meaning ascribed
to it in Section 7.1.
Section 1.39 "Metering Equipment" shall have the meaning ascribed to
it in Section 15.1.
Section 1.40 "Month" means that period of time beginning at 12:01
a.m., Houston, Texas time on the first day of any calendar month and extending
to 12:01 a.m. Houston, Texas time on the first day of the following calendar
month.
Section 1.41 "MSCF" means one thousand (1,000) standard Cubic Feet.
Section 1.42 "Natural Gas" means natural gas delivered by Buyer to
Seller's Facility conforming to the specifications set forth in Exhibit D
attached hereto and made a part hereof.
Section 1.43 "New NG Index" shall have the meaning ascribed to it in
Section 8.4.
Section 1.44 "New PPI Index" shall have the meaning ascribed to it in
Section 8.4.
Section 1.45 "NG Base" shall have the meaning ascribed to it in
Section 8.4.
Section 1.46 "PPI Base" shall have the meaning ascribed to it in
Section 8.4.
Section 1.47 "Products" means Carbon Monoxide, Blend Gas,Hydrogen and
Steam, individually and collectively.
Section 1.48 "Proprietary Rights" shall have the meaning ascribed to
it in Section 14.6.
Section 1.49 "Second Additional Term" has the meaning ascribed to it
in Section 21.2.
Section 1.50 "Seller's Facility" means the facilities to be
constructed, owned and operated by Seller for the production and delivery of
Products for sale and delivery to Buyer pursuant to this
<PAGE>
Agreement and for the sale of Hydrogen to third parties. The location of
Seller's Facility is depicted on Exhibit B.
Section 1.51 "Startup" means the date by which Seller initially has
produced Carbon Monoxide, Blend Gas, Hydrogen and Steam at Buyer's Required
Rates up to the Contract Volume of Products for a continuous period of 48 hours.
Section 1.52 "Steam" means steam produced by Seller's Facility
conforming to the specifications set forth in Exhibit C.
Section 1.53 "Steam Contract Volume" means the volume of steam
produced by Seller's Facility.
Section 1.54 "Steam Delivery Point" means the flange where Buyer's
Pipelines will be connected to Seller's Facility at the Steam custody transfer
point depicted in Exhibit B.
Section 1.55 "Steam Fee" means the fee payable by Buyer to Seller for
Steam sold hereunder as provided in Section 8.3.
Section 1.56 "Steam Totalizer" means Seller's metering equipment to be
installed and maintained by Seller at Seller's Facility to measure the
quantities of Steam delivered to Buyer hereunder.
Section 1.57 "Supplemental Hydrogen" means (i) all Hydrogen delivered
to Buyer hereunder at the Hydrogen Delivery Point from a source other than
Seller's Facility when Seller's Facility is not producing Hydrogen, and (ii)
when Seller's Facility is producing Hydrogen and Buyer's Hydrogen Requirements
exceed the Hydrogen Contract Volume, the volume of Hydrogen delivered to Buyer
at the Hydrogen Delivery Point in excess of the Hydrogen Contract Volume.
Section 1.58 "Term" has the meaning ascribed to it in Section 21.2.
Section 1.59 "Texaco Information" has the meaning ascribed to it in
Section 19.4.
Section 1.60 "Utilities Agreement" means that certain Utilities
Agreement of even date herewith between Seller and Buyer pursuant to which Buyer
will provide certain utilities to Seller for use at Seller's Facility, as same
may be amended from time to time in accordance with the provisions thereof.
ARTICLE 2 - STARTUP
Section 2.1 Startup. Seller shall use its best efforts to achieve
Startup by February 1, 1996. Seller shall give Buyer not less than two days'
notice prior to each attempt to achieve Startup and Buyer shall be entitled to
have its representatives present at Seller's Facility to observe each such
attempt and to verify that Startup has occurred. Subject to the limitations
contained in Section 19.4, Seller shall provide all data reasonably requested by
Buyer to help Buyer verify Startup.
Section 2.2 Seller's Penalty for Late Startup. Subject to Section 2.3,
Seller will pay to Buyer penalty payments in lump sums of (***) each if Startup
is not achieved by the following penalty dates: June 1, 1996, July 1, 1996,
August 1, 1996,
<PAGE>
September 1, 1996 and October 1, 1996. If Startup is not achieved by October 1,
1996, Buyer may elect to initiate the dispute resolution procedures contained in
Article 18 hereof.
Section 2.3 Exceptions to Seller's Penalty for Delay. To the extent
that delay in Startup is caused by Buyer or by a Force Majeure Event, each
penalty date specified in Section 2.2 will be extended by the period of such
delay. Seller shall notify Buyer as soon as possible after the occurrence of any
act or omission by Buyer, or the occurrence of any Force Majeure Event, that
will cause a delay in Startup and the expected length of such delay.
Section 2.4 Buyer's Penalty for Late Startup. Subject to Section 2.5,
Buyer will pay to Seller penalty payments in lump sums of (***) each if Startup
is not achieved by the following penalty dates because Buyer has requested
Seller to delay Startup after Seller's Facility is mechanically complete and
technically capable of achieving Startup: June 1, 1996, July 1, 1996, August 1,
1996, September 1, 1996 and October 1, 1996. If Seller's Facility is
mechanically complete and technically capable of achieving Startup, and Startup
is not achieved by November 1, 1996 because Buyer has requested Seller to delay
Startup, Buyer shall pay the Fixed Facility Fee and (***) of the Adjustable
Facility Fee until Startup occurs.
Section 2.5 Exceptions to Buyer's Penalty for Late Startup. To the
extent that Buyer's request that Seller delay Startup is caused by Seller or by
a Force Majeure Event, each penalty date specified in Section 2.4 will be
extended by the period of such delay. Buyer shall notify Seller as soon as
possible after the occurrence of any act or omission by Seller, or the
occurrence of any Force Majeure Event, that will cause Buyer to request a delay
in Startup and the expected length of such delay.
Section 2.6 Obligation to Deliver after Startup. Except as otherwise
provided in this Agreement, after Startup Seller agrees to deliver the Products
to Buyer at Buyer's Required Rates during the Term, and Buyer agrees to pay for
Products delivered in accordance with the terms of this Agreement.
Section 2.7 Covenant Regarding Delay. Seller covenants that it will
not delay Startup for any reason (including, without limitation, the absence of
contracts with third parties for the sale of hydrogen produced at Seller's
Facility) once Seller's Facility is mechanically complete and it is technically
feasible to achieve Startup.
ARTICLE 3 - DELIVERY OF CARBON MONOXIDE
Section 3.1 Obligation to Deliver Carbon Monoxide. After Startup
Seller shall sell and deliver to Buyer and Buyer shall purchase and receive from
Seller, on the terms and conditions set forth herein, Buyer's Carbon Monoxide
Requirements.
Section 3.2 Carbon Monoxide Pressure. Carbon Monoxide will be
delivered to the Carbon Monoxide Delivery Point at a pressure of
<PAGE>
not less than (***), or greater than (***), per square inch gauge pressure.
Buyer shall be responsible for installing and maintaining appropriate relief
devices on Buyer's Pipelines with respect to Buyer's receipt of Carbon Monoxide.
Section 3.3 Title to and Risk of Loss of Carbon Monoxide. Title to and
risk of loss of Carbon Monoxide shall pass to Buyer at the Carbon Monoxide
Delivery Point.
Section 3.4 Carbon Monoxide Volume. Seller will deliver Carbon
Monoxide to the Carbon Monoxide Delivery Point under as uniform conditions and
rates as possible and in a manner commensurate with good operating practices.
However, Seller will vary the volume of Carbon Monoxide delivered hereunder as
may be necessary to accommodate savings that may occur in the production of
acetic acid by Buyer's Plant of approximately (***). Seller represents and
warrants to Buyer that Seller's Facility has been designed to operate, and
following Startup can and will be operated, to deliver the Carbon Monoxide
Contract Volume in accordance with the terms of this Agreement.
ARTICLE 4 - DELIVERY OF BLEND GAS
Section 4.1 Obligation to Deliver Blend Gas. After Startup Seller
shall sell and deliver to Buyer and Buyer shall purchase and receive from
Seller, on the terms and conditions set forth herein, Buyer's Blend Gas
Requirements.
Section 4.2 Blend Gas Pressure. Blend Gas will be delivered to the
Blend Gas Delivery Point at a pressure of not less than (***), or greater than
(***), per square inch gauge pressure. Buyer shall be responsible for installing
and maintaining appropriate relief devices on Buyer's Pipelines with respect to
Buyer's receipt of Blend Gas.
Section 4.3 Title to and Risk of Loss of Blend Gas. Title to and risk
of loss of Blend Gas shall pass to Buyer at the Blend Gas Delivery Point.
Section 4.4 Blend Gas Volume. Seller will deliver Blend Gas to the
Blend Gas Delivery Point under as uniform conditions and rates as possible and
in a manner commensurate with good operating practices. However, Seller will
vary the volume of Blend Gas delivered hereunder from (***) of the Blend Gas
Contract Volume, as may be necessary to accommodate the operation of Buyer's
Plant. In addition, in order to accommodate the operation of Buyer's Plant,
Seller will vary the volume of Blend Gas delivered hereunder by as much as (***)
above or below the volume produced at Seller's Facility during steady state
operation in the ordinary course of the operation of Seller's Facility. Seller
represents and warrants to Buyer that Seller's Facility has been designed to
operate, and after Startup can and will be operated, to deliver the Blend Gas
Contract Volume in accordance with the terms of this Agreement.
<PAGE>
ARTICLE 5 - DELIVERY OF HYDROGEN AND SUPPLEMENTAL HYDROGEN
Section 5.1 Obligation to Deliver Hydrogen. After Startup Seller shall
sell and deliver to Buyer and Buyer shall purchase and receive from Seller, on
the terms and conditions set forth herein, Buyer's Hydrogen Requirements.
Section 5.2 Delivery of Supplemental Hydrogen. After Startup Seller
will, from time to time at the request of Buyer, sell and deliver Supplemental
Hydrogen to Buyer, subject to Seller's prior commitments for the sale of
hydrogen to third parties. Buyer will purchase any Supplemental Hydrogen
received from Seller on the terms and conditions set forth herein.
Section 5.3 Hydrogen Pressure. Hydrogen and Supplemental Hydrogen will
be delivered to the Hydrogen Delivery Point at a pressure of not less than
(***), or greater than (***), per square inch gauge pressure. Buyer shall be
responsible for installing and maintaining appropriate relief devices on Buyer's
Pipelines with respect to Buyer's receipt of Hydrogen produced by Seller's
Facility and Supplemental Hydrogen.
Section 5.4 Title to and Risk of Loss. Title to and risk of loss of
Hydrogen (and Supplemental Hydrogen) shall pass to Buyer at the Hydrogen
Delivery Point.
Section 5.5 Hydrogen Volume. Seller will deliver Hydrogen (and, if any
Supplemental Hydrogen is sold and purchased hereunder, such Supplemental
Hydrogen) to the Hydrogen Delivery Point under as uniform conditions and rates
as possible and in a manner commensurate with good operating practices. However,
Seller agrees that it will vary the volume of Hydrogen delivered hereunder from
(***) of the Hydrogen Contract Volume, as may be necessary to accommodate the
operation of Buyer's Plant. In addition, in order to accommodate the operation
of Buyer's Plant, Seller will vary the volume of Hydrogen delivered hereunder by
as much as (***) above or below the steady state operation of Seller's Facility
during steady state operation in the ordinary course of the operation of
Seller's Facility. Seller represents and warrants to Buyer that Seller's
Facility has been designed to operate, and after Startup can and will be
operated, to deliver the Hydrogen Contract Volume in accordance with the terms
of this Agreement.
ARTICLE 6 - DELIVERY OF STEAM
Section 6.1 Steam Delivery Obligation. After Startup, Seller shall
deliver and Buyer shall accept the Steam Contract Volume at the Steam Delivery
Point at a pressure of not less than (***) pounds per square inch gauge
pressure, and at a temperature of (***) degrees Fahrenheit, and meeting the
specifications set forth in Exhibit C; provided, however, that the boiler
feedwater supplied by Buyer to Seller pursuant to the Utilities Agreement meets
the expected specifications set forth therein. The expected quantity of Steam
(in pounds per hour) that Seller's
<PAGE>
Facility will produce at various operating rates (expressed as a percentage of
the Carbon Monoxide Contract Volume) is set forth on Attachment 1 to Exhibit C;
provided, however, Buyer shall be obligated to take all Steam produced by
Seller's Facility in quantities up to (***) of the quantities shown on
Attachment 1 to Exhibit C, but shall not be obligated to pay for Steam delivered
in quantities in excess of (***) of the quantities shown on Attachment 1 to
Exhibit C. Buyer shall be responsible for installing and maintaining appropriate
relief devices on Buyer's Pipelines with respect to Buyer's receipt of Steam.
Section 6.2 Title to and Risk of Loss of Steam. Title to and risk of
loss of Steam shall pass to Buyer at the Steam Delivery Point.
ARTICLE 7 - SHUTDOWNS, FAILURES TO DELIVER AND FAILURES TO TAKE
Section 7.1 Seller's Maximum Shutdown Period. After Startup, Seller
will have the right from time to time, upon 14 days (or such shorter period as
circumstances reasonably dictate) prior notice to Buyer, to shut down Seller's
Facility for up to a maximum of (***) hours during any Contract Year (the
"Maximum Shutdown Period") for the purpose of making ordinary repairs for
maintenance and/or thawing necessary and consistent with proper operation. For
purposes of calculating the Maximum Shutdown Period, any hour during which
Seller does not deliver the Products (or any one of them) at (***) of Buyer's
Required Rates shall be treated as an hour during which Seller has shut down
Seller's Facility even if no prior notice thereof was given by Seller to Buyer.
However, a shutdown of Seller's Facility (i) as a result of a Force Majeure
Event, or (ii) at a time when each of Buyer's Blend Gas Requirements, Hydrogen
Requirements and Carbon Monoxide Requirements is zero, shall not be included in
calculating the Maximum Shutdown Period.
Section 7.2 Seller's Failure to Deliver; No Force Majeure.
(a) If subsequent to Startup Seller delivers Products, but such
deliveries are at rates below Buyer's Required Rates for a period of time in
excess of the Maximum Shutdown Period for any reason other than a Force Majeure
Event (the "Excess Shutdown Period"), for the Excess Shutdown Period Buyer shall
pay a prorated Fixed Facility Fee and a prorated Adjustable Facility Fee based
upon the portion that the amount of Products actually delivered bears to Buyer's
Required Rates therefor. If Seller shall fail to deliver any Product during any
Contract Year for any Excess Shutdown Period, Buyer shall have no obligation to
pay any part of the Fixed Facility Fee or the Adjustable Facility Fee for the
Excess Shutdown Period.
(b) In the event that Buyer's Required Rates for any Product equal
the Contract Volume of Products and Seller shall be unable to supply the
Contract Volume of Products thereof after the expiration of the Maximum Shutdown
Period for any Contract Year for
<PAGE>
any reason other than a Force Majeure Event, Seller shall give Buyer prompt
notice of Seller's inability to deliver the full Contract Volume of Products. In
such event, the authorized representatives of each of the parties shall be
obligated to meet within 24 hours after receipt by Buyer of such notice from
Seller. Seller shall be obligated to present, at such meeting, a plan to remedy
its failure to deliver. Additionally, Seller shall be obligated to restore
delivery of such Product to Buyer's Required Rates therefor within a reasonable
period of time, taking into account the scope of the technical requirements and
the correction period associated with the modifications required to so restore
delivery. Seller shall be obligated to use all reasonable commercial efforts to
achieve such result. In the event that delivery of Products is not restored to
Buyer's Required Rates within a reasonable period of time, Seller shall use its
best efforts to provide Products from a facility other than Seller's Facility to
satisfy Buyer's Required Rates up to the Contract Volume of Products, and Seller
shall provide such Products at the same cost to Buyer as it would have provided
Products from Seller's Facility; provided, however, that to the extent that the
cost of providing Products from another facility exceeds two times the amount
that Buyer would have paid for Products from Seller's Facility, Seller shall not
be obligated to pay (or bear the cost of) the amount of such excess. If,
however, Buyer shall agree to pay (or bear the cost of) the amount in excess of
two times the cost of providing Products from another facility, Seller shall be
obligated to continue to provide Products from such other location.
(c) In the event that Seller is unable to supply a Product at Buyer's
Required Rates therefor for any reason other than a Force Majeure Event, Buyer
may elect to purchase such Product from another supplier to the extent Seller is
unable to supply such Product up to Buyer's Required Rates therefor. In such
event, Seller will pay Buyer for the difference between the amount that Buyer
would have paid for Products delivered from Seller's Facility and the amount
actually paid for such Products by Buyer, up to two times the amount that Buyer
would have paid for Products delivered from Seller's Facility.
(d) Notwithstanding the other provisions of this Agreement, in the
event that Seller is unable to supply Products at Buyer's Required Rates on a
sustained basis for any reason other than a Force Majeure Event, and such
inability continues for a period of (***) consecutive days, Buyer may elect to
initiate the dispute resolution procedures contained in Article 18 hereof.
Section 7.3 Buyer's Failure to Take; No Force Majeure.
(a) Seller's Facility will be operated and maintained to accommodate
planned shutdowns of the acetic acid unit at Buyer's Plant. To the extent
practicable, Buyer and Seller will cooperate in scheduling planned shutdowns of
their respective plants.
<PAGE>
(b) Following Startup, Buyer shall be entitled to a grace period of
eight days (plus such number of additional days during which Buyer and Seller
have jointly scheduled planned shutdowns) during any Contract Year ("Buyer's
Annual Grace Period") for planned shutdowns of its acetic acid unit. During
Buyer's Annual Grace Period, Buyer shall not be obligated to take Products from
Seller and Buyer shall be obligated to pay Seller only the Fixed Facility Fee.
(c) If after Buyer's Annual Grace Period during any Contract Year,
Buyer is unable to take at least (***) of the Carbon Monoxide Contract Volume
for any reason other than a Force Majeure Event of Buyer at a time when Seller
is able to provide at least (***) of the Carbon Monoxide Contract Volume, Buyer
shall pay the full amount of the Fixed Facility Fee and (***) of the Adjustable
Facility Fee. In such event, Buyer shall receive a credit equal to the
difference between the Adjustable Facility Fee paid and the cost of the Carbon
Monoxide actually taken; provided, however, that such credit will only be
applied to Carbon Monoxide taken in excess of the Carbon Monoxide Contract
Volume during the twelve-month period immediately following the period of
reduced purchase of Carbon Monoxide by Buyer.
(d) If Buyer's acetic acid unit is shut down but other operations at
Buyer's Plant require Blend Gas and Hydrogen, Seller will use reasonable efforts
to operate Seller's Facility as efficiently as possible at reduced production
rates to enable Seller's Facility to meet such requirements. Buyer acknowledges
that operating Seller's Facility in order to deliver Products at Buyer's
Required Rates that are less than (***) of the Carbon Monoxide Contract Volume
will be inefficient and Buyer agrees that if Seller so operates Seller's
Facility at Buyer's request, Seller and Buyer shall agree on an appropriate
adjustment to the Feed/Fuel Fee payable by Buyer hereunder for any Month in
which Seller's Facility is so operated to compensate Seller for such
inefficiency; provided, that Seller shall not be required to operate Seller's
Facility at rates below (***) of the Carbon Monoxide Contract Volume if
operating at such rates will result in a violation by Seller of its air
emissions permit with respect to Seller's Facility.
Section 7.4 Seller's Failure to Deliver; Seller's Force Majeure. (a)
If at any time after Startup Seller experiences a Force Majeure Event which
causes a total shutdown of Seller's Facility for a period of time in excess of
the Maximum Shutdown Period, Buyer shall pay (***) of the Fixed Facility Fee and
(***) of the Adjustable Facility Fee for such period, but not to exceed a total
of (***) days during the Initial Term, or a total of (***) days during each of
the First Additional Term and the Second Additional Term. To the extent that
prior to such Seller's Force Majeure Event, Buyer has purchased Carbon Monoxide
in excess of (***) of the Carbon Monoxide Contract Volume during the preceding
twelve months, Buyer may apply all amounts it paid in excess of (***) as a
credit against the Adjustable Facility Fee, thus reducing the payments required
from Buyer during Seller's Force Majeure Event. Buyer may
<PAGE>
also apply such credit to payments for Carbon Monoxide after the termination of
a Seller's Force Majeure Event until such credit has been fully utilized.
(b) In the event of partial deliveries by Seller during a period in
which Seller's Force Majeure Event has occurred and is continuing, the period of
the Force Majeure Event shall be prorated in calculating the number of days of
Seller's Force Majeure Event and the amount of credit that Buyer may apply in
the manner set forth in Section 7.4(a) shall also be prorated.
(c) If the time Seller's Facility is shut down for Seller's Force
Majeure Events exceeds (***) days during the Initial Term ((***) days in the
case of each of the First Additional Term and the Second Additional Term), but
is less than (***) days ((***) days in the case of each of the First Additional
Term and the Second Additional Term), Buyer shall pay (***) of the Fixed
Facility Fee and (***) of the Adjustable Facility Fee for such period; provided,
however, that Buyer's obligation to pay (***) each of the Fixed Facility Fee and
the Adjustable Facility Fee shall be reduced by purchases of Carbon Monoxide in
excess of (***) of the Carbon Monoxide Contract Volume during the twelve months
preceding each Seller's Force Majeure Event and at any time during the remainder
of the Term, in order to reduce the amount that Buyer will have paid during a
Seller's Force Majeure Event to zero.
(d) If a Seller's Force Majeure Event causes a total shutdown of
Seller's Facility for a period in excess of (***) consecutive days, Seller will
use its best efforts to supply Products (other than Steam) to Buyer from a
source other than Seller's Facility; provided, however, that if the cost to
Seller of supplying such Products is greater than the price Buyer would have
paid for such Products had they been produced in Seller's Facility, Seller shall
only be required to pay the difference between the cost to Buyer of Products
supplied from Seller's Facility and Products supplied from elsewhere up to a
limit of (***) times the purchase price Buyer would have paid for the Products
as specified in Section 8.1.
If a Seller's Force Majeure Event causes a total shutdown of Seller's
Facility for a period in excess of (***) consecutive days, it is acknowledged
that Buyer may purchase Products (other than Steam) from third parties in order
to operate the oxoalcohol, acetic acid and other units at Buyer's Plant. If
Buyer so purchases any of such Products from a third party, Seller will
reimburse Buyer for the amount paid by Buyer in excess of the price that would
have been charged to Buyer for such Products supplied from Seller's Facility not
to exceed (***) the purchase price Buyer would have paid for such Products
hereof as specified in Section 8.1. Nothing herein shall be construed to
prohibit or restrict Buyer, in the event that Seller is unable to supply
Products at any time for any reason, from obtaining Products from
<PAGE>
third parties to replace Products that Seller has failed or is unable to deliver
hereunder.
Section 7.5 Buyer's Failure to Take; Buyer's Force Majeure. If after
the expiration of Buyer's Annual Grace Period during any Contract Year as
specified in Section 7.3(b), Buyer does not purchase at least (***) of the
Carbon Monoxide Contract Volume as a result of a Force Majeure Event, Buyer
shall be obligated to pay the Fixed Facility Fee and (***) of the Adjustable
Facility Fee until such time as Buyer resumes purchasing at least (***) of the
Carbon Monoxide Contract Volume; provided, however, that such amounts shall be
credited to the account of Buyer and Buyer may apply such credit as payment for
purchases of Carbon Monoxide from Seller after July 31, 2016. In order to
utilize such credit against purchases of Products after July 31, 2016, Buyer
shall have the right to extend this Agreement on its then existing terms and
conditions for the amount of time necessary to fully utilize its credit, not to
exceed (***). If Buyer has credit remaining after the end of such twelve-month
extension, Seller must elect to either agree with Buyer to further extend the
Agreement to allow Buyer to fully utilize its credit, or to purchase the
remaining credit from Buyer. In the event Buyer discontinues its supply of any
utility to Seller as provided in Section 12.6 of the Utilities Agreement, the
Adjustable Facility Fee and the Feed/Fuel Fee shall be increased to offset any
costs Seller may incur as a result of such discontinuance, and in the event such
discontinuance causes any interruption in the operation of Seller's Facility,
such interruption shall be deemed to be a Force Majeure Event of Buyer.
Section 7.6 Mandatory Shut Down. In addition to the other provisions
on shutdowns contained in this Agreement, Seller agrees to shut down Seller's
Facility at any time that Buyer shuts down its acetic acid unit; provided,
however, that if Seller's Facility does not require any maintenance at the time
of such shutdown, Buyer will pay the Fixed Facility Fee and (***) of the
Adjustable Facility Fee during such shutdown, unless and to the extent that the
period of such shutdown is included in Buyer's Annual Grace Period.
ARTICLE 8 - PRICING AND PAYMENT
Section 8.1 Purchase Price for Products. The purchase price for all
Products purchased hereunder shall be the sum of the following:
(a) the Fixed Facility Fee;
(b) the Adjustable Facility Fee;
(c) the Feed/Fuel Fee;
(d) the Steam Fee;
(e) any charges for Supplemental Hydrogen as provided in
Section 8.4; and
(f) the amount of any applicable sales, use or other taxes.
<PAGE>
Section 8.2 Fixed Facility Fee. In accordance with the procedures
established in Section 8.6, Buyer shall pay to Seller for each Month during the
Term, beginning with the Month in which the Startup occurs, a Fixed Facility Fee
in the amount of (***). The Fixed Facility Fee for the Month in which Startup
occurs shall be prorated in the event Startup occurs on a date other than the
first day of such Month. Except as otherwise provided in Article 7, Buyer shall
be obligated to pay the Fixed Facility Fee to Seller even if Buyer has no
requirements for Carbon Monoxide, Blend Gas or Hydrogen.
Section 8.3 Adjustable Facility Fee; Feed/Fuel and Steam Fees. As
promptly as possible after the end of each Month, Seller will read the Carbon
Monoxide Totalizer, the Blend Gas Totalizer, the Hydrogen Totalizer and the
Steam Totalizer to determine the volumes of Carbon Monoxide, Blend Gas, Hydrogen
and Steam delivered to Buyer from Seller's Facility during such Month. Based
upon such readings, Seller will invoice Buyer for and Buyer will pay to Seller
in accordance with the procedure established in Section 8.6 the following fees:
(i) the Adjustable Facility Fee, the Feed/Fuel Fee and the Steam Fee, calculated
in the manner prescribed in Exhibit A attached hereto and made a part hereof, in
each case as adjusted as provided in Exhibit A, and (ii) the amount of any
applicable sales, use or other excise taxes. In the event that the readings for
any Month show that the volume of Carbon Monoxide delivered to Buyer from
Seller's Facility during such Month is less than or is in excess of the Carbon
Monoxide Contract Volume, the Adjustable Facility Fee and the Feed/Fuel Fee
shall be adjusted as provided in Exhibit A.
Section 8.4 Supplemental Hydrogen. In the event Seller delivers
volumes of Supplemental Hydrogen to Buyer, Buyer shall pay Seller for such
volumes of Supplemental Hydrogen in accordance with the following formula:
(***)
where:
(***).
Section 8.5 Payment for Supplemental Hydrogen. As promptly as
possible after the end of each Month Seller will read the Hydrogen Totalizer to
determine the volume of Supplemental Hydrogen delivered to Buyer during such
Month. Based upon such readings, Seller will invoice Buyer and Buyer will pay
Seller for such volume a charge as provided in Section 8.6.
Section 8.6 Terms of Payment. (a) Terms of payment will be (***)
following Buyer's receipt of invoice. In the event Buyer is late in the making
of any payment hereunder, Buyer shall pay to Seller a late payment charge
against the unpaid portion of the invoiced amount equal to the lesser of (i) a
rate of (***) per annum or (ii) the maximum rate permitted by law of the unpaid
balance for each Month or partial Month that said invoice remains unpaid after
the
<PAGE>
above-mentioned due date. Such interest shall be in addition to any other
rights of Seller arising as a result of Buyer's failure to make such payment or
part thereof within the time specified. Any and all payments to Seller hereunder
shall be made by Buyer to a location and/or account designated in writing by
Seller sufficiently in advance of the payment date to permit such payment, and
Buyer shall acknowledge such notice in writing.
(b) If Buyer has reason to dispute the accuracy of any invoice
submitted to it by Seller, Buyer will pay the part of the invoice that is not
disputed in accordance with the provisions of this Article 8 and, after such
dispute has been resolved, Buyer will pay the balance due to Seller, or Seller
will refund any amount due to Buyer, within (***) of the receipt of a
replacement invoice.
(c) Seller shall maintain business and accounting records and
production data in accordance with usual and customary practices and standards
in the chemical industry in respect of all matters referred to in this
Agreement. Subject to the limitations contained in Section 19.4, Seller shall
provide Buyer access to such records and data pursuant to the provisions of
Section 19.1 and 22.2 hereof.
(d) In the event that any invoice submitted by Seller to Buyer shall
contain terms and conditions that are inconsistent with this Agreement, the
terms of this Agreement shall control.
ARTICLE 9 - TAXES
If at any time during the Term, any governmental authority imposes a
tax (excluding federal income tax and state franchise tax) which increases
Seller's costs incurred in the production, sale or delivery of any Product to
Buyer hereunder, or if, due to a rate change, or other action of a governmental
authority, there is at any time during the term of this Agreement an increase in
any such tax presently existing, then Buyer and Seller will agree on an
appropriate adjustment to the Adjustable Facility Fee to keep Seller whole.
ARTICLE 10 - FORCE MAJEURE
Section 10.1 Force Majeure Events. (a) In the event either party is
rendered unable, wholly or in part, by a Force Majeure Event to perform its
obligations under this Agreement (other than an obligation to pay monies when
due), it is agreed that on such party promptly giving notice and reasonably full
particulars of such Force Majeure Event in writing in accordance with Section
10.3 to the other party, then the obligations of the party giving such notice,
so far as they are affected by such Force Majeure Event, shall be suspended
during the continuance of any inability so caused, but for no longer period, and
such cause shall so far as possible be remedied with all reasonable dispatch.
(b) The term "Force Majeure Event," as used in this Agreement, shall
mean any act of God, strikes, lockouts or other
<PAGE>
industrial disturbances, acts of the public enemy, wars, blockades, embargoes,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, high water, washouts, arrests and restraints of government and
people, civil disturbances, explosions, breakage or accident to machinery,
equipment, lines of pipe or property, freezing of wells, machines, equipment,
lines of pipe, or property, partial or entire extraordinary failure of any
machine, equipment, lines of pipe or other property, the occurrence of any
emission, discharge, release or threatened release of Hazardous Substances (as
that term is defined in the Ground Lease), the inability of Seller's Facility to
deliver Products (or any one of them) at 100% of Buyer's Required Rates because
of any remediation required to be done in, on, about or under the Facility Site
as provided in Section 5.8 of the Ground Lease (which inability shall be deemed
to be a Force Majeure Event of Buyer), and any other causes, whether of the kind
herein enumerated or otherwise, not reasonably within the control of the party
claiming suspension.
(c) Notwithstanding the provisions of this Section 10.1 the failure
by either party to perform any of its obligations under this Agreement shall be
deemed not to have been caused by circumstances reasonably outside its control
if such failure results from breakage or accident to machinery, equipment, lines
of pipe or other property or the partial or entire extraordinary failure thereof
or the necessity to make repairs or alterations thereto which result from (i)
normal wear and tear which would be reasonably anticipated by a reasonably
prudent operator or in circumstances where a reasonably prudent operator would
have standby equipment or spare parts or (ii) the lack of the proper operation,
maintenance, quality control, design,engineering and/or procurement of such
machinery, equipment, lines of pipe or other property.
Section 10.2 Settlement of Strikes. It is understood and agreed that
the settlement of strikes or lockouts shall be entirely within the discretion of
the party having the difficulty, and that the above requirement that any Force
Majeure Event shall be remedied with all reasonable dispatch shall not require
the settlement of strikes or lockouts by acceding to the demands of the opposing
party when such course is inadvisable in the discretion of the party having the
difficulty.
Section 10.3 Notice of Force Majeure. As soon as practicable after
occurrence of any Force Majeure Event, the party claiming force majeure shall
notify the other party in writing of the occurrence and nature of such Force
Majeure Event describing it in reasonable detail and, to the extent possible,
inform the other party of the suspected cause and the expected duration of the
Force Majeure Event and the performance to be affected by the suspension or
curtailment under this Agreement. After the termination of any Force Majeure
Event, as soon as practicable, the party claiming force majeure shall notify the
other party in writing
<PAGE>
of the termination of such Force Majeure Event and its actual cause and
duration.
ARTICLE 11 - LIMITATION OF LIABILITY
Section 11.1 Acknowledgement of Hazards. Each party acknowledges that
there are hazards associated with the storage, use and handling of Carbon
Monoxide, Blend Gas, Hydrogen and Steam and each party agrees that its personnel
concerned therewith are aware of such hazards. Each party shall be responsible
for complying with all relevant reporting obligations under all laws applicable
thereto as the result of the presence at Buyer's Plant or at Seller's Facility,
as the case may be, of Carbon Monoxide, Blend Gas, Hydrogen and Steam supplied
under this Agreement, including but not limited to the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001-11049 ("EPCRA,"
also commonly known as Title III of the Superfund Amendments and Reauthorization
Act of 1986, SARA Title III), as same may be amended. Each party to this
Agreement shall be responsible for warning and protecting its respective
employees, independent contractors and others exposed to the hazards posed by
such party's storage, use and handling of Carbon Monoxide, Blend Gas, Hydrogen
and Steam. As between Buyer and Seller, Buyer assumes all responsibility for the
suitability and the results of using Carbon Monoxide, Blend Gas, Hydrogen and
Steam delivered to Buyer hereunder alone or in combination with other articles
or substances and in any manufacturing or other process or procedures.
Section 11.2 No Consequential Damages. Neither party to this
Agreement shall be liable to the other party to this Agreement for any
incidental, consequential, indirect, or special damages. Seller will provide to
Buyer copies of Seller's documents containing Seller's safety and health
information pertaining to Carbon Monoxide, Blend Gas, Hydrogen and Steam
delivered hereunder including, without limitation, Seller's Material Safety Data
Sheet(s), and Buyer will incorporate such information into Buyer's safety
program.
ARTICLE 12 - SELLER'S PRODUCT WARRANTIES; DISCLAIMERS
Seller represents and warrants to, and covenants and agrees with,
Buyer that the Carbon Monoxide, Blend Gas, Hydrogen and Steam delivered
hereunder shall conform to the specifications set forth in Exhibit C. Any Carbon
Monoxide, Blend Gas, Hydrogen or Steam which does not conform to the foregoing
specifications may be rejected by Buyer by providing verbal notice to Seller's
Facility within two (2) hours and subsequent written confirmation within five
(5) days thereafter, no charge will be made for any Carbon Monoxide, Blend Gas,
Hydrogen or Steam so rejected and Buyer shall have no obligation to return any
Product which does not conform to specifications. Seller shall have the right to
confirm Buyer's data supporting such rejection. Since Seller will furnish Buyer
with
<PAGE>
an analytical/isolation system that will be installed on Buyer's Pipelines,
and will have the capability of testing whether Carbon Monoxide, Blend Gas or
Hydrogen delivered hereunder meets the specifications set forth in Exhibit C,
and which will be maintained, operated and monitored by Buyer, and Buyer may
obtain other devices that have the capability of testing whether Carbon
Monoxide, Blend Gas or Hydrogen delivered hereunder meets the specifications set
forth on Exhibit C, no claim of any kind with respect to the conformance of
Carbon Monoxide, Blend Gas, Hydrogen or Steam to such specifications, whether or
not based on contract, warranty, negligence, indemnity, strict liability or
otherwise, shall be greater than the price of the quantity of the nonconforming
Product; provided, however, in the event (i) of Seller's negligence or willful
misconduct or (ii) the analytical/isolation systems at Seller's Facility related
to the delivery of Blend Gas, Carbon Monoxide or Hydrogen are damaged or
disabled by any intentional act of Seller, and such negligence, willful
misconduct or intentional act results in the delivery hereunder of Blend Gas,
Carbon Monoxide or Hydrogen that fails to meet such specifications and damages
any catalyst within Buyer's Plant, Seller shall be responsible to Buyer for any
direct damages caused to any catalyst within Buyer's Plant, including any costs
and expenses incurred by Buyer to repair or replace the damaged catalyst, to the
extent such negligence, willful misconduct or intentional act of Seller causes
such damages up to a maximum of (***) for each such claim; and provided further,
that said (***) limitation shall be adjusted semi-annually during the Term
effective as of January 1 and July 1 of each year to reflect changes in the
average Monthly Producer Price Index - Industrial Commodities (where the base is
1982=100) published by the United States Department of Labor, Bureau of Labor
Statistics, in accordance with the following formula:
(***)
Where:
(***)
If the Producer Price Index-Industrial Commodities index is revised and
published on some base other than 1982=100, the value thereof used in the
formula in this Article 12 will be adjusted to the new base in accordance with
such conversion schedule or factor as may be supplied by the publisher of the
index. Should the Producer Price Index-Industrial Commodities index cease to
exist, Seller and Buyer shall jointly select a new index which is based on
similar information. The foregoing shall constitute Buyer's exclusive remedy,
and Seller's sole obligation, hereunder with respect to each such claim. THERE
ARE NO EXPRESS WARRANTIES BY SELLER REGARDING THE CONFORMITY OF THE PRODUCTS TO
THE SPECIFICATIONS
<PAGE>
OTHER THAN THOSE SPECIFIED IN THIS ARTICLE 12. NO WARRANTIES BY SELLER (OTHER
THAN WARRANTIES OF TITLE AND AGAINST INFRINGEMENT AS PROVIDED IN THE UNIFORM
COMMERCIAL CODE) SHALL BE IMPLIED OR OTHERWISE CREATED UNDER THE UNIFORM
COMMERCIAL CODE WITH RESPECT TO SUCH PRODUCTS, INCLUDING BUT NOT LIMITED TO THE
WARRANTY OF MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE 13 - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
Section 13.1 Organization, Good Standing and Corporate Power. Buyer
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, is duly qualified as a foreign corporation in the
State of Texas, and has all requisite corporate power and authority to carry on
its business as presently conducted, to enter into this Agreement and perform
its obligations hereunder.
Section 13.2 Authority Relative to Agreement. The execution, delivery
and performance by Buyer of this Agreement have been duly and effectively
authorized by all necessary corporate action.
This Agreement has been duly executed and delivered by Buyer and is a
legal, valid and binding obligation of Buyer enforceable in accordance with its
terms, except insofar as enforcement may be limited by (i) bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally, and (ii) general principles of
equity.
Section 13.3 No Conflict with Other Instruments or Proceedings.
Neither the execution and delivery of this Agreement, nor the performance or
compliance with the terms and conditions hereof conflict with, or will result in
a breach by Buyer of, or constitute a default under, or result in the creation
of any lien, charge or encumbrance upon, any asset of Buyer pursuant to any of
the terms, conditions or provisions of (i) the Certificate of Incorporation or
Bylaws of Buyer, (ii) any material mortgage, deed of trust, lease, contract,
agreement or other instrument to which Buyer is a party or by which Buyer may be
bound or affected, or (iii) any writ, order, judgment, decree, statute,
ordinance, regulation or any other restriction of any kind or character, to
which Buyer is subject, or by which Buyer may be bound or affected.
Section 13.4 No Litigation or Proceedings. As of the date hereof,
there are no actions, suits, investigations or proceedings pending or, to
Buyer's knowledge, threatened against Buyer at law or in equity or before or by
any federal, state, municipal or other governmental or non-governmental
department, commission, board, bureau, agency or instrumentality seeking to
enjoin, restrain or otherwise prevent the execution and delivery of this
Agreement by Buyer.
<PAGE>
ARTICLE 14 - REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
Section 14.1 Organization, Good Standing and Corporate Power. Seller
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, is duly qualified as a foreign corporation in the
State of Texas, and has all requisite corporate power and authority to carry on
its business as presently conducted, to enter into this Agreement and perform
its obligations hereunder.
Section 14.2 Authority Relative to Agreement. The execution, delivery
and performance by Seller of this Agreement have been duly and effectively
authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by Seller and is a legal, valid and binding obligation of
Seller enforceable in accordance with its terms, except insofar as enforcement
may be limited by (i) bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally, and
(ii) general principles of equity.
Section 14.3 No Conflict with Other Instruments or Proceedings.
Neither the execution and delivery of this Agreement, nor the performance or
compliance with the terms and conditions hereof conflict with, or will result in
a breach by Seller of, or constitute a default under, or result in the creation
of any lien, charge or encumbrance upon, any asset of Seller pursuant to any of
the terms conditions or provisions of (i) the Certificate of Incorporation or
Bylaws of Seller, (ii) any material mortgage, deed of trust, lease, contract,
agreement or other instrument to which Seller is a party or by which Seller may
be bound or affected, or (iii) any writ, order, judgment, decree, statute,
ordinance, regulation or any other restriction of any kind or character, to
which Buyer is subject, or by which Seller may be bound or affected.
Section 14.4 No Litigation or Proceedings. As of the date hereof,
there are no actions, suits, investigations or proceedings pending or, to
Seller's knowledge, threatened against Seller at law or in equity or before or
by any federal, state, municipal or other governmental or non-governmental
department, commission, board, bureau, agency or instrumentality seeking to
enjoin, restrain or otherwise prevent the execution and delivery of this
Agreement by Buyer.
Section 14.5 Compliance with Laws. Seller represents that Seller's
Facility will be operated in compliance with all applicable laws, and that the
Carbon Monoxide, Blend Gas, Hydrogen and Steam produced by Seller's Facility
will be produced in compliance with all applicable laws, including without
limitation the Fair Labor Standards Act of 1938, as amended.
Section 14.6 Proprietary Rights. Seller has, and after Startup and
throughout the Term will continue to have, full and sufficient rights to use and
practice all technology, proprietary information, know-how and patented ideas,
designs and inventions
<PAGE>
required for the design, construction and operation of Seller's Facility (the
"Proprietary Rights"). None of the ownership, license, access to, use or
practice of the Proprietary Rights by Seller at Seller's Facility do or will
infringe on the rights of any third party and all Proprietary Rights are valid
and enforceable.
ARTICLE 15 - METERING EQUIPMENT
Section 15.1 Meter Testing. Seller, at its expense, will test and
calibrate the Blend Gas Totalizer, the Carbon Monoxide Totalizer, the Hydrogen
Totalizer and the Steam Totalizer (hereinafter collectively called the "Metering
Equipment") annually, and will perform a verification of pressure and transducer
calibration semi-annually. The Metering Equipment shall be calibrated to
Compressed Gas Association Standards. Seller will provide Buyer with written
notice so that Buyer may have its representatives present during such
calibrations and tests. Readings will be corrected to standard cubic feet
measured at 60 degrees Fahrenheit and 14.696 pounds per square inch absolute
pressure. At any time requested by Buyer, Seller will test the Metering
Equipment in the presence of Buyer's representatives and, if the Metering
Equipment is found on such test to be accurate, Buyer will pay Seller the cost
and expense of such test, but, if found on such test to be inaccurate, then the
cost and expense of such test and of correcting the inaccuracy in the Metering
Equipment will be borne by Seller. If, on any test or calibration the Metering
Equipment is found to be inaccurate, a correcting invoice will be tendered to
cover the actual amount of Carbon Monoxide, Blend Gas, Hydrogen, Supplemental
Hydrogen and Steam delivered to Buyer through the Metering Equipment for the
thirty (30) day period prior to the date on which such calibration or test was
made, or the period from the date such Metering Equipment was last tested and
considered accurate, whichever period is shorter. If, on any test of the
Metering Equipment, its accuracy is not in excess of two percent (2%) either
fast or slow, the Metering Equipment will be considered accurate.
ARTICLE 15 - Data Transmission. Seller will provide equipment, hardware and a
connection to the battery limits of Seller's Facility and Buyer will provide
equipment, hardware and a connection so as to permit the continuous transmission
of digital data relating to Product and utility metering by Seller, and the
reception thereof by Buyer. Buyer will only have access to Product and utility
metering information through the connection. Such access will be limited to
"read only" capability and Buyer will have no ability to control the operation
of Seller's Facility.
ARTICLE 16 - (***)
<PAGE>
ARTICLE 17 - EXCESS PRODUCTION
In the event that excess Carbon Monoxide or Hydrogen is produced or
otherwise becomes available as the result of the production requirements of
Buyer's Plant or Seller's Facility, Buyer will, if it is economically feasible,
use its reasonable efforts to burn the excess Carbon Monoxide or Hydrogen, as
the case may be, in the off-gas fuel system of Buyer's Plant. To the extent, if
any, that Buyer is successful in so burning such excess Carbon Monoxide or
Hydrogen, Buyer will credit Seller for Buyer's avoided cost, if any, of fuel
that Buyer would have otherwise purchased. Buyer's determination of its avoided
cost shall be final and binding on Seller. During the Term Seller will not,
without the prior written consent of Buyer, sell or deliver any Carbon Monoxide
from Seller's Facility to any other person or entity.
ARTICLE 18 - EVENTS OF DEFAULT; DISPUTE RESOLUTION
Section 18.1 Events of Default. Each of the following shall be deemed
an "Event of Default" by the party to whom such event is applicable under this
Agreement:
(a) if either party shall fail to perform or observe any of the
terms, covenants, conditions, agreements or obligations of this Agreement
required to be observed and performed in this Agreement by such party, and such
failure shall continue for a period of thirty (30) days after notice thereof has
been delivered to such party; or
(b) if either party or the Guarantor shall make a general assignment
for the benefit of its creditors, or shall file a voluntary petition in
bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall file any
petition or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution or similar relief
under any present or future statute, law or regulation, or shall file an answer
admitting or failing to deny the material allegations of a petition against it
for any such relief, or shall admit in writing its inability to pay its debts as
they mature; or
(c) if any proceeding against either party or the Guarantor seeking
any of the relief mentioned in clause (b) of this Article 18 shall have been
commenced and shall not have been stayed or dismissed within ninety (90) days
after commencement; or
(d) if a trustee, receiver or liquidator of either party or the
Guarantor or of any substantial part of the properties or assets of such party
or the Guarantor shall be appointed with the consent or acquiescence of such
party or the Guarantor, or if any such appointment, if not so consented to or
acquiesced in, shall remain unvacated or unstayed for a period of ninety (90)
days; or
(e) if either party or the Guarantor shall be liquidated or
dissolved, or shall begin proceedings toward such liquidation or dissolution; or
(f) if any of the material representations or
<PAGE>
warranties made by either party in this Agreement proves to be untrue in any
material respect; or
(g) A default or Event of Default by either party occurs under the
Utilities Agreement or the Ground Lease Agreement, which default or Event of
Default is not cured within any applicable cure period.
Section 18.2 Dispute Resolution Meeting. In the event that a party to
this Agreement has reasonable grounds to believe that an Event of Default has
occurred and is continuing, or that its expectation of receiving due performance
under this Agreement may be impaired, such party will promptly notify the other
party in writing of the substance of its belief and, as appropriate, declare
that an Event of Default has occurred or demand adequate assurance of due
performance. The party receiving such notice and/or demand must respond in
writing within twenty (20) days of receipt of such notice and provide (i)
evidence of cure of and/or its ongoing best efforts to cure the condition
specified, (ii) an explanation of why it believes that its performance is in
accordance with the terms and conditions of this Agreement, and/or (iii)
adequate assurance of due performance, as required by the claiming party's
notice. Failure to respond within said twenty (20) day period shall be deemed an
admission that an Event of Default has occurred or that due performance is
impaired. The responding party shall also include in its written response three
(3) dates, all of which must be within thirty (30) days following the date of
such response, for a meeting to resolve the dispute and/or evaluate the adequacy
of the assurance of due performance. The party declaring an Event of Default or
seeking adequate assurance of performance will then select one (1) of the three
(3) dates, and a dispute resolution meeting will be held on such date. Either
party shall have the right to demand that individuals representing each of the
companies who have the authority to execute this Agreement, or amendments
hereto, or waivers hereof, and to authorize or agree to curative action, be in
attendance at such dispute resolution meeting.
Section 18.3 Failure to Resolve Dispute; Arbitration. (a) If the
parties cannot, in good faith discussions, resolve their dispute during the
dispute resolution required by Section 18.2, then either party may given notice
of a request for arbitration and subject to the provisions of Section 18.4 such
controversy shall be referred to and resolved by arbitration under the most
current version of the Commercial Arbitration Rules of the American Arbitration
Association. The board of arbitrators shall be composed of three arbitrators.
Each party shall choose an arbitrator and the third shall be chosen by the two
so chosen. If either party to the controversy fails to choose an arbitrator
within thirty (30) days after notice of commencement of arbitration, or if the
two arbitrators fail to choose a third arbitrator within thirty (30) days after
their appointment, the American Arbitration Association shall, upon the request
of either party, appoint the arbitrator or arbitrators to constitute or complete
the board. The place of
<PAGE>
arbitration shall be Houston, Texas and the arbitration shall be held within
thirty (30) days after the appointment of the arbitration board. The arbitration
award shall be final and binding upon the parties to such arbitration and
judgment thereon may be entered in any court having jurisdiction.
(b) In connection with any such arbitration proceeding, the board of
arbitrators shall have the right to grant all remedies that such board deems
appropriate including, without limitation, monetary damages and/or the
termination of this Agreement, the Ground Lease and the Utilities Agreement. The
board of arbitrators shall also have the right to require the losing party to
reimburse the prevailing party for all reasonable attorneys' fees and costs
incurred in connection with all such proceedings.
Section 18.4 Right to Terminate Agreement. Notwithstanding the
provisions of Section 18.1 and 18.2, either party may decline to pursue
arbitration and elect to terminate this Agreement if any of Events of Default
specified in Section 8.1(b)-(e) shall have occurred.
ARTICLE 19 - ACCESS TO INFORMATION
Section 19.1 Access to Information. Upon written request by Buyer
from time to time, but subject to Section 19.4, Seller shall provide to Buyer,
its attorneys, accountants and other representatives, at reasonable times during
normal business hours, access to Seller's books, records and accounts in
connection with the operation of Seller's Facility as it relates to the
performance of Seller's obligations under this Agreement. Subject to the
provisions of Section 19.4, Buyer shall thereupon have the right to make copies
of and abstracts from such books, records and accounts, at Buyer's expense,
which copies may be removed from Seller's premises and retained by Buyer. All
information disclosed to Buyer pursuant to this Agreement shall be subject to
the confidentiality provisions of Section 22.2 hereof.
Section 19.2 Access to Seller's Facility. Subject to Section 19.4,
Seller agrees to permit representatives of Buyer, at Buyer's expense, to have
access to Seller's Facility at reasonable times and on reasonable notice to
obtain information relating to the present or proposed operations of Seller's
Facility so long as such access does not materially disrupt the operation of
Seller's Facility. Buyer will pay all costs incurred by Buyer relating to
Buyer's exercise of its rights under this Section 19.2.
Section 19.3 Access to Seller's Personnel. Subject to Section 19.4,
Seller shall make its employees and other representatives available to Buyer at
reasonable times on reasonable notice to discuss the present or proposed
operations of Seller's Facility so long as such availability does not materially
disrupt the operation of Seller's Facility.
Section 19.4 Limitations on Disclosure. Seller has represented to
Buyer that certain of the Proprietary Rights relating to Seller's
<PAGE>
Facility have been provided to Seller by Texaco, Inc. pursuant to the terms of a
license agreement that prohibits Seller from disclosing the information provided
by Texaco, Inc. (the "Texaco Information") to Buyer. Nothing in this Agreement
shall be construed as requiring Seller to provide any of the Texaco Information
to Buyer.
ARTICLE 20 - CAPACITY OF SELLER'S FACILITY
Section 20.1 Initial Capacity. Seller represents and warrants to
Buyer that, at the time of Startup, the maximum instantaneous capacity of
Seller's Facility to produce Products shall be at least (***) greater than the
Contract Volume of Products. Buyer acknowledges that Seller has initially
configured Seller's Facility to operate efficiently at the Contract Volume of
Products and has been designed to produce up to (***) of the Contract Volume of
Products under certain ambient temperatures and operating conditions.
Section 20.2 Capacity Expansion. Seller represents and warrants to
Buyer that, at the time of Startup, the maximum instantaneous capacity of
Seller's Facility to produce Products may be increased to an ultimate
instantaneous capacity of at least (***) of the Contract Volume of Products.
Seller agrees that, upon not less than (***) advance written notice from Buyer,
Seller will at its sole cost and expense take the actions necessary to expand
the maximum instantaneous capacity of Seller's Facility to at least (***) of the
Contract Volume of Products (or such greater capacity as may be mutually
agreed). In exchange for such increase in the maximum instantaneous capacity of
Seller's Facility, Buyer agrees to increase the Fixed Fee to (***) (or such
lesser amount as may be mutually agreed). The parties acknowledge that such
capacity expansion will result in reductions in the usage of Natural Gas,
electricity and cooling water supplied by Buyer to Seller pursuant to the
Utilities Agreement at production rates above the Contract Volume of Products,
and may result in increases in the usage of Natural Gas, electricity and cooling
water supplied by Buyer to Seller pursuant to the Utilities Agreement at
production rates below the Contract Volume of Products.
ARTICLE 21 - INITIAL AND ADDITIONAL TERMS
Section 21.1 Initial Term. The term of this Agreement shall be for a
period commencing on the date of the execution of this Agreement and ending at
midnight on (***), unless earlier terminated as provided herein ("Initial
Term"); provided, that if either or both Buyer or Seller exercises its option to
extend this Agreement as provided in Section 7.5, the Initial Term shall include
the period of any such extensions.
Section 21.2 Additional Terms. Subject to the terms of this Section
21.2, Buyer shall have the option to extend this Agreement beyond the Initial
Term for up to two (2) additional
<PAGE>
terms of five (5) years each. If this Agreement has not been terminated prior to
the end of the Initial Term, the option to extend this Agreement beyond the
Initial Term for an additional five (5) years shall be deemed to have been
exercised by Buyer, and the Initial Term shall be automatically extended for a
period of five (5) years after the end of the Initial Term (the "First
Additional Term"), unless Buyer shall have given Seller notice no later than one
(1) year prior to the expiration of the Initial Term that Buyer has elected not
to extend the Initial Term. If this Agreement has not been terminated prior to
the end of the First Additional Term, the option to extend this Agreement beyond
the First Additional Term for an additional five (5) year period shall be deemed
to have been exercised by Buyer, and the First Additional Term shall be
automatically extended for a period of five (5) years after the end of the First
Additional Term (the "Second Additional Term"), unless Buyer shall have given
Seller notice no later than one (1) year prior to the expiration of the First
Additional Term that Buyer has elected not to extend the First Additional Term.
The Initial Term, the First Additional Term (if any) and the Second Additional
Term (if any) are referred to in this Agreement as the "Term."
ARTICLE 22 - MISCELLANEOUS
Section 22.1 Assignment. (a) This Agreement shall inure to the
benefit of and bind the respective successors and permitted assigns of the
parties hereto. Except as expressly permitted hereby, neither party may assign
this Agreement or its rights under this Agreement, including its rights to
receive payments hereunder, to any other party without the consent of the other.
(b) Either party may assign this Agreement and all of its rights and
obligations hereunder to any subsidiary, Affiliate, partnership or venture, in
which such party (or its parent company) holds an interest of 50% or more.
(c) It is agreed that (i) the sale, transfer or conveyance by Buyer
or Seller of all or substantially all of its assets, or (ii) the merger,
consolidation, reorganization or recapitalization of Buyer or Seller with any
third party, or (iii) the change of control of Buyer or Seller, whether effected
by stock purchase, statutory share exchange, or otherwise, shall not constitute
an assignment of this Agreement by Buyer or Seller, but Buyer or Seller (as the
case may be) shall, as a condition precedent to the closing of any sale,
transfer or conveyance referred to in clause (i) above, require the purchaser or
transferee to assume all rights and obligations of Buyer or Seller (as the case
may be) under this Agreement, the Ground Lease and the Utilities Agreement. In
the event that Buyer sells or otherwise transfers or conveys all or
substantially all of the assets constituting Buyer's Plant, such sale, transfer
or conveyance shall not constitute an assignment of this Agreement by Buyer, but
Buyer shall, as a condition precedent to the closing
<PAGE>
of such sale, transfer or conveyance, require the purchaser or transferee to
assume all rights and obligations of Buyer under this Agreement, the Ground
Lease and Utilities Agreement. In the event that Seller sells or otherwise
transfers or conveys all or substantially all of the assets constituting
Seller's Facility, such sale, transfer or conveyance shall not constitute an
assignment of this Agreement by Seller, but Seller shall, as a condition to the
closing of such sale, transfer or conveyance, require the purchaser or
transferee to assume all rights and obligations of Seller under this Agreement,
the Ground Lease and Utilities Agreement.
(d) No assignment, transfer or conveyance of this Agreement by either
party shall relieve the assigning party (or Guarantor) of any of its
obligations, liabilities or duties hereunder (or under the Guaranty), unless the
other party hereto shall agree otherwise.
(e) Any assignment of this Agreement by either party shall be
accompanied by the contemporaneous (i) assumption by the assignee of all rights
and obligations of assignor hereunder, and (ii) assignment of the Ground Lease
and the Utilities Agreement.
Section 22.2 Confidentiality. (a) In connection with this Agreement,
the parties hereto have exchanged and will continue to exchange certain
nonpublic, proprietary or confidential information of a technical, business or
financial nature (the "Confidential Information"). In order to facilitate
discussion between Buyer and Seller relating to the design, construction,
operation and maintenance of Seller's Facility and the purchase and sale of
Products pursuant to this Agreement, Buyer and Seller desire to provide each
other with assurances that Confidential Information will not be divulged.
(b) For purposes of this Agreement, Confidential Information shall
consist of this Agreement and all nonpublic, proprietary or confidential
information whether obtained from observation or from materials, information or
data submitted by the other party or from oral or written disclosures, and shall
include, without intent to limit, all plans (including marketing plans,
marketing information, sales information (including sales history and sales
projections), designs, specifications, prices, processes, compositions and the
like related to this Agreement, the Products, the operation of Seller's Facility
or Buyer's Plant, and believed by the disclosing party to be unpublished and the
disclosing party's private information at the time of its disclosure, and all
memoranda, notes or other documents prepared by the receiving party which embody
in whole or in part any of such information. However, the restrictions of this
Section 22.2 shall apply only to written information, drawings and other
tangible information and the like, as described above which are clearly marked
"Confidential" or designated confidential in writing given to the receiving
party orally, designated as confidential orally when revealed and confirmed in
writing within thirty (30) days of disclosure as "Confidential" referencing the
data and type of information
<PAGE>
disclosed. All other information whether disclosed in writing, orally or
observed shall be considered as having been disclosed on a nonconfidential
basis.
(c) Each party agrees that it will treat the Confidential Information
of the other party as confidential and will use the same care and caution that
it affords its own proprietary information to protect such Confidential
Information received under this Agreement from disclosure to any third party.
Each party agrees to use the Confidential Information solely and exclusively for
purposes of this Agreement and agrees to disclose the Confidential Information
only to those individuals within its own organization who have a need to receive
the information and who will be bound by nondisclosure agreements with the
receiving party.
(d) The restrictions of this Agreement shall not apply to any
Confidential Information which (i) is now or hereafter becomes available to the
public without a breach by the receiving party of the terms stated in this
Agreement; (ii) is known to or in the possession of the receiving party as
evidenced by documentary material in its possession before disclosure hereunder
and the receiving party is not already obligated to the disclosing party to
maintain it in confidence; (iii) is disclosed to the receiving party by a third
party not under any obligation of secrecy or confidentiality to the disclosing
party at the time of such disclosure; (iv) can be shown by substantial evidence
was independently developed by employees of the receiving party who have not had
access to the Confidential Information of the disclosing party; or (v) the
receiving party is, in the opinion of its counsel, compelled by law to disclose;
provided that in such cases the disclosure will be limited to the minimum to the
extent possible without involving violation of applicable laws and the
disclosing party will be given at least forty-eight (48) hours prior notice of
the disclosure which is to be made.
(e) Unless otherwise agreed to by the parties, each party agrees that
it shall keep all Confidential Information confidential for a period which shall
expire five (5) years after the termination date of this Agreement.
Section 22.3 Applicable Law. This Agreement will be governed by the
laws of the State of Texas.
Section 22.4 Notice. Except as otherwise specifically provided in
this Agreement, all notices, requests, demands, invoices, directions, and other
communications under this Agreement shall be in writing signed by an authorized
representative of the party issuing same and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given or if delivered by facsimile transmission, or on the second day
after mailing if mailed to the party to whom notice is to be given by certified
or registered mail, postage prepaid, return receipt requested, and properly
addressed as follows:
In the case of Seller:
Praxair Hydrogen Supply, Inc.
<PAGE>
222 Pennbright Dr., Suite 300
Houston, Texas 77090-5999
Attention: Executive Director
Telecopier Number: (713) 872-2111
With a Copy to:
Praxair Hydrogen Supply, Inc.
703 Sixth Street South
Texas City, Texas 77590
Attention: Facility Manager
Telecopier Number: (409) 943-9228
In the case of Buyer:
Sterling Chemicals, Inc.
1200 Smith St., Suite 1900
Houston, Texas 77002
Attention: Business Director
Telecopier Number: (713) 654-9551
With a Copy to:
Sterling Chemicals, Inc.
1200 Smith St., Suite 1900
Houston, Texas 77002
Attention: General Counsel
Telecopier Number: (713) 654-9551
Either party may change its address for purposes of this Section by giving the
other party notice of its new address in the manner set forth above.
Section 22.5 Waiver. No consent or waiver, express or implied, by a
party, to or of any breach or default by the other party in the performance of
its obligations hereunder, shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance by such other
party of the same or any other obligation of such party hereunder. Failure on
the part of any party to complain of any act or failure to act of the other
party or to declare the other party in breach or default irrespective of how
long such failure, breach or default continues, shall not constitute a waiver by
such party of its right hereunder.
Section 22.6 Headings. The headings and titles contained in this
Agreement are for convenience of reference only, and shall not affect the
meaning or interpretation of any provision hereof.
Section 22.7 Entire Agreement. This Agreement, the Ground Lease and
the Utilities Agreement constitute the entire agreement between the parties
hereto regarding the subject matter
<PAGE>
thereof and supersede any and all prior agreements regarding the same subject
matter except as expressly provided herein or therein. This Agreement, the
Ground Lease and the Utilities Agreement are part of a single, integrated
transaction, and the provisions thereof shall be construed together in a
consistent manner and any termination of the Ground Lease or the Utilities
Agreement shall effect a termination of this Agreement. Other than the
provisions of the Ground Lease, the Utilities Agreement and the Guaranty, there
are no other promises, representations or warranties affecting this Agreement,
and any other or different terms and conditions appearing in any purchase orders
issued or accepted hereunder shall be deemed null and void.
Section 22.8 Relationship between Parties. The relationship between
Buyer and Seller created pursuant to this Agreement is an independent contractor
relationship and, subject to the terms and conditions of this Agreement, Seller
shall exercise the sole and exclusive right to control the ways, means and
manner of providing the Products to Buyer under this Agreement. Seller shall be
solely responsible for the selection, training, supervision and compensation of
the personnel used by Seller to provide Products to Buyer. This Agreement shall
not be construed as creating a partnership, joint venture, association or other
entity or business organization, or as creating a principal-agent or other
fiduciary relationship between Seller and Buyer.
Section 22.9 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provision, to other persons or circumstances shall not be affected
thereby and shall be enforceable to the greatest extent permitted by law.
Section 22.10 Amendment. This Agreement may be amended only by
written amendment executed by both parties.
Section 22.11 Pronouns and Plurals. Whenever the context may require
any pronoun used in this Agreement shall include the corresponding masculine,
feminine, or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 22.12 Section Numbers. Unless otherwise indicated, references
to section numbers are to sections of this Agreement. IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed as of the date first above
written.
PRAXAIR HYDROGEN SUPPLY, INC.
By: /s/ J. E. Gonzalez
Name: J. E. Gonzalez
Title: President
<PAGE>
STERLING CHEMICALS, INC.
By: /s/ Robert W. Roten
Name: Robert W. Roten
Title: Chief Operating Officer
<PAGE>
EXHIBIT A
FEE CALCULATIONS
(***)
<PAGE>
EXHIBIT B
TEXAS CITY SYNGAS PLANT
STERLING CHEMICALS SITE (***)
<PAGE>
EXHIBIT C
SPECIFICATIONS FOR CARBON MONOXIDE,
BLEND GAS, HYDROGEN AND STEAM
(***)
<PAGE>
EXHIBIT D
NATURAL GAS
DESIGN PROPERTIES
(***)
<PAGE>
Sterling Chemicals
1995 Annual Report
<PAGE>
Cover:
Top: The skyline of the Texas City facility
is changing with new construction in
Sterling's aggressive capital program.
Center: Sterling's Thunder Bay sodium
chlorate plant is one of four in Canada.
Bottom: A major investment in sound
environmental management has been
made at the Texas City facility.
CORPORATE PROFILE
Sterling Chemicals, Inc. is a major producer of
seven petrochemical products at its facility in
Texas City, Texas, with styrene monomer,
acrylonitrile and acetic acid the most significant
products. An additional product will be added in
1996 with the start-up of a world-scale methanol
plant. Sterling Pulp Chemicals, Ltd., a wholly-
owned subsidiary, produces sodium chlorate at four
locations in Canada. Sterling Pulp Chemicals is
also the world's leading supplier of large-scale
chlorine dioxide generators for the pulp and paper
industry. The Company is currently constructing a
sodium chlorate plant in Georgia as a part of the
largest capital program in its history.
Headquarters are in Houston, Texas. Sterling's
stock is listed on the New York Stock Exchange and
trades under the symbol STX.
<PAGE>
FINANCIAL
AND OPERATING
HIGHLIGHTS
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1995(1) 1994 1993 1992(2) 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,030,198 $700,840 $518,821 $430,529 $542,664
- --------------------------------------------------------------------------------------------
Gross Profit $ 271,618 $ 93,924 $ 40,919 $ 27,882 $ 70,257
- --------------------------------------------------------------------------------------------
Net Income (Loss) $ 150,049 $ 19,132 $ (5,420) $ (5,890) $ 36,797
- --------------------------------------------------------------------------------------------
Net Income (Loss) Per Share $ 2.70 $ .34 $ (.10) $ (.11) $ .67
- --------------------------------------------------------------------------------------------
Earnings before Interest, Taxes,
Depreciation and Amortization $ 284,247 $ 89,471 $ 52,477 $ 40,967 $ 78,522
- --------------------------------------------------------------------------------------------
Capital Expenditures $ 53,962 $ 12,343 $ 12,175 $ 15,953 $ 34,374
- --------------------------------------------------------------------------------------------
Long-Term Debt, Net
of Current Maturities $ 103,581 $192,621 $263,894 $300,220 $ 72,630
- --------------------------------------------------------------------------------------------
Sales Volumes: (in million pounds)
Styrene 1,433 1,460 1,191 1,213 1,495
- --------------------------------------------------------------------------------------------
Acrylonitrile 739 668 528 573 663
- --------------------------------------------------------------------------------------------
Sodium Chlorate 672 588 498 -- --
- --------------------------------------------------------------------------------------------
Generator Royalties $ 19,058 $ 16,566 $ 14,659 -- --
- --------------------------------------------------------------------------------------------
Generator Contracts Received 9 10 10 -- --
- --------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Net income for fiscal 1995 included an extraordinary charge of $3,104
related to early extinguishment of debt.
/(2)/ For fiscal 1992, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", which reduced the
Company's net income $10,428 for the fiscal year. Also, the pulp chemical
business was acquired August 21, 1992.
[CHARTS APPEAR HERE]
1
<PAGE>
TO OUR SHAREHOLDERS:
Sterling Chemicals had an outstanding 1995 fiscal year. We are pleased to report
that we not only experienced our best financial year since becoming a public
company in 1988, but also enjoyed success in all areas of our operations. The
petrochemical business had very good results through the first three quarters,
led by the performance of both styrene monomer and acrylonitrile, our two
largest volume products. However, the performance of these products decreased
significantly in the fourth quarter because of weakening market conditions and
a shutdown that occurred in each unit. The pulp chemical business also had a
very good year, with the best revenues and earnings since being acquired in
1992. Highlights of our consolidated financial performance included the highest
per share earnings since becoming a public company, the achievement of more than
$1 billion in revenues for the first time in our history and a significant
reduction of debt.
These results allowed us to strengthen our financial position and begin
upgrading existing facilities and building new facilities to enhance shareholder
value. In addition, we received recognition for our safety programs,
environmental management and quality processes.
PETROCHEMICALS
Higher sales prices and margins for our major petrochemical products during most
of fiscal 1995 led the way to our strong financial performance. Strong worldwide
demand and market growth from global economic expansion positively affected the
performance of styrene and acrylonitrile.
Global economic growth should continue to increase long-term demand for
styrene and its derivative products. As one of the largest producers of styrene
in the world and a major supplier to the merchant market, Sterling is positioned
to take advantage of this growth in demand.
During a major scheduled shutdown in our styrene unit late in the fiscal
year, we installed an improved catalyst and added state-of-the-art distributive
control systems, resulting in lower operating costs. These improvements have
created a strong foundation from which to take advantage of future growth.
The fundamental demand for acrylonitrile also remained strong during most of
fiscal 1995. We experienced a major improvement in acrylonitrile margins during
fiscal 1995 as export sales prices climbed to extremely attractive levels
through the third quarter. Strong demand for derivatives, particularly acrylic
fiber, resulted in improved market conditions over fiscal 1994.
PULP CHEMICALS
The North American demand for chlorine dioxide, derived from sodium chlorate,
has continued to increase each year because of increased chlorine dioxide
utilization in pulp bleaching and growing demand for paper products that are
elemental chlorine-free. These favorable conditions led to record production and
sales volumes and higher prices and margins.
[PHOTO OF GORDON A. CAIN]
Above left
Gordon A. Cain
Chairman of the Board
[PHOTO OF J. VIRGIL WAGGONER]
Above right
J. Virgil Waggoner
President and Chief Executive Officer
2
<PAGE>
Royalty revenues from installed generator technology also increased as a
result of higher customer operating rates and additional installed capacity.
Generator sales increased during the fourth quarter, an indication that the pulp
and paper industry believes that environmental regulations in North America will
support chlorine dioxide as the preferred bleaching agent into the next century.
BUILDING FOR THE FUTURE
Our excellent results have allowed us to initiate an approximately $200 million
capital program which will continue through 1997. This program, the largest in
our history, is designed to enhance long-term value for our shareholders through
both construction of new units and modernization and expansion of existing
facilities.
Three related projects at our Texas City facility demonstrate Sterling's
long-standing ability to take advantage of underutilized assets and to build or
buy at significantly below replacement cost. These projects are expansion of the
acetic acid unit by approximately 30% to nearly 800 million pounds per year,
construction of a 150 million gallon per year, world-scale methanol plant and
construction of a partial oxidation unit by Praxair, Inc. About half of the
methanol will be used by Sterling as a raw material for acetic acid production.
The new Praxair unit makes our existing synthesis gas reformer available for
methanol production, which allows Sterling to reduce the capital investment
required for the methanol plant to less than half the cost of a grass roots
facility.
The capital program also includes our first sodium chlorate plant in the
United States. Under construction in Valdosta, Georgia, the 110,000-ton plant
will increase the Company's total capacity by more than 30% and should increase
our North American market share to about 26%.
Since being formed in 1986, we have taken advantage of opportunities to both
enhance assets at Texas City and acquire the pulp chemical business at
substantially below replacement cost. This strategy helped our financial
performance through the last down cycle of our business and increased our
profitability during fiscal 1995. Our current capital program should benefit our
long-term financial performance.
FINANCIAL PERFORMANCE
Revenues increased by 47% to $1.03 billion in fiscal 1995; cash flow from
operations was $192 million. Net income increased to $150 million from $19
million in fiscal 1994, and earnings per share were $2.70 compared to $.34 in
fiscal 1994. In both the second and third quarters of fiscal 1995, earnings
exceeded $1.00 per share, our best quarterly results since becoming a public
company.
Our capital structure was strengthened by reducing debt $105 million during
the year to $121 million at the end of fiscal 1995. All of the Company's debt at
year end related to the 1992 acquisition of the pulp chemical business. We also
entered into a new $275 million credit facility that significantly reduces our
interest costs and provides us with financial resources for the future. In
September 1995, we entered into a separate $60 million credit facility to
finance the construction of the Georgia sodium chlorate plant.
[CHART APPEARS ON THIS PAGE]
3
<PAGE>
Our $200 million capital program included expenditures of $54 million in
1995. The majority of the capital program will be invested in 1996. The program
is currently being funded from operating cash flow, except for the Georgia
sodium chlorate plant which we elected to finance under favorable terms. To
promote growth while diversifying risk, significant investments will also be
made by other companies in projects at the Texas City facility, reflecting our
successful use of joint venture and third-party participation since Sterling was
formed.
ENVIRONMENTAL PROGRESS
Sterling has been committed to a sound environmental management program since
its inception, with a corporate goal of zero environmental impact on our
employees and our neighbors. Our achievements brought special recognition in
1995 for Sterling's successful environmental practices.
Sterling was a 1995 winner of the EPA's Environmental Excellence Award for
underground injection control in recognition of Sterling's success in the safe
operation and maintenance of its underground injection facilities in Texas City.
In addition, Sterling has been notified that it will be recognized as a 33/50
Environmental Champion by the EPA for surpassing the emission reduction goals of
the 33/50 program at Texas City faster than the EPA's timetable. We were one of
only 21 recipients nationwide selected for outstanding achievement in the 33/50
program, a voluntary program initiated by the EPA in 1991 to reduce air
emissions.
SAFETY
Emphasis on safe practices has produced outstanding results. We recently
exceeded 2.6 million manhours worked without a days-away injury at Texas City, a
Sterling plant record. This achievement places Sterling's rate for days-away
injuries among the top industry performers in the nation.
Sterling Pulp Chemicals has demonstrated major improvement in its safety
program. Since 1992, recordable injuries have been reduced by 50%, and days-away
injuries have been reduced by 70%.
In addition, the Texas City facility has been recommended for the STAR
designation by the U.S. Occupational Safety and Health Administration (OSHA).
The STAR is the highest designation conferred by OSHA, and Sterling was the
first company in Texas City to be recommended for the award.
STERLING PEOPLE
Our workforce continues to demonstrate commitment and dedication in keeping
Sterling a low-cost manufacturer. Our employees and directors have a major stake
in the success of the Company since they own about 30% of the stock. Through
employee-directed programs, we have increased productivity, enhanced customer
service and improved product quality. Employee participation is a key factor in
our efforts to redefine and streamline our entire organization and to further
improve customer service. Our employees are essential to the
4
<PAGE>
[CHART APPEARS ON THIS PAGE]
success of our outstanding quality process, and they have demonstrated their
ability to make significant changes through Business Process Improvement to
benefit our productivity and our competitiveness. We thank them for their
continuing efforts and commitment.
We are pleased to recognize the important roles of two members of management
in the successful operation of our business. F. Maxwell Evans has been named
Vice President, General Counsel and Secretary and Robert O. McAlister has been
named Vice President of Human Resources and Administration for Sterling.
OUTLOOK
During fiscal 1995, cash flow was used to repay debt and to initiate our
extensive capital investment program. We remain committed to the long-term
growth and profitability of your Company, and to support that goal,
we will continue building value through our capital program.
We are in a commodities business that is not only cyclical, but also
volatile, as evidenced by the events that occurred toward the end of fiscal
1995. During the third quarter, we believe that demand for styrene and
acrylonitrile began to weaken as a result of a general slowdown in the worldwide
economic growth rate, prompting customers to begin utilizing their available
inventories and decreasing purchases. The weakening market conditions for
styrene and acrylonitrile were accelerated during the fourth quarter by China's
enforcement of economic and tax policies and monetary constraints which reduced
its imports. China accounts for a significant portion of global demand for
styrene, styrene derivatives, acrylonitrile and acrylic fiber. As a result, a
major decrease in styrene prices and margins, particularly in the export market,
and a decline in export acrylonitrile prices and margins occurred in the fourth
quarter.
While the industry cannot predict when China's chemical imports will return
to previous levels, the Company believes that demand in the Far East is
beginning to improve. We believe this region has tremendous economic potential
and anticipate that its fundamental demand for styrene, acrylonitrile and their
derivatives will continue to grow. The Far East should remain a significant,
influential market for the foreseeable future.
We are optimistic about the future, including the prospects for 1996. We will
continue to review the various options for use of cash flow, including capital
investment, acquisitions, debt repayment, stock repurchases and dividends, to
further enhance shareholder value. We are positioning the Company for the future
and will continue to take advantage of ways to add value to your investment in
Sterling.
[SIGNATURE OF GORDON A. CAIN] [SIGNATURE OF J. VIRGIL WAGGONER]
Gordon A. Cain J. Virgil Waggoner
Chairman of the Board President and Chief Executive Officer
November 15, 1995
5
<PAGE>
OPERATING REVIEW
ABOUT STERLING CHEMICALS
Sterling Chemicals was established in 1986 to acquire a major petrochemical
facility in Texas City, Texas. Since that time, Sterling has grown by
internally-generated expansions and the 1992 acquisition of the pulp chemical
business. Today, Sterling is involved in the largest capital investment program
in its history.
PETROCHEMICAL FACILITIES
Sterling's petrochemical facility is located on about 290 acres in Texas City,
Texas on a site easily accessible to raw materials and worldwide distribution
facilities. Seven petrochemical products are manufactured at the Texas City
site.
Sterling Chemicals is engaged in a process of upgrading, modernizing and
adding to both its petrochemical and pulp chemical businesses through an
extensive three-year capital program to add value through construction of new
plants and units and upgrading of existing facilities. This program should
result in additional process and quality improvements, lower operating costs and
increased worker productivity, as well as increased production capacity and two
new operating units.
An integrated three-part program in progress at fiscal year end includes an
expansion of the acetic acid unit, construction of a methanol plant and the
addition of a partial oxidation unit by Praxair, Inc. The acetic acid expansion
and the methanol unit are being constructed in conjunction with BP Chemicals
Inc. Praxair will construct, own and operate the partial oxidation unit to
supply Sterling with several raw materials.
The acetic acid expansion will increase capacity of the unit by more than 30%
to nearly 800 million pounds per year. The expansion is scheduled to come on
stream early in fiscal 1996. BP Chemicals will continue to market all of the
production.
[PHOTO APPEARS ON THIS PAGE]
The methanol refining column weighs more than one million pounds.
A special tower jacking system was installed to lift the column into place.
6
<PAGE>
In conjunction with the acetic acid expansion, Sterling is constructing a
unit for the production of methanol at the Texas City facility. The methanol
plant will be a world-scale, 150 million gallon per year facility, with
completion expected in June 1996. Capital investment and production quantity
will be shared by Sterling and BP Chemicals. About 50% of the methanol
production will be used as a raw material in the Company's acetic acid unit,
replacing methanol currently being purchased, while the remainder will be
available for BP's worldwide acetic acid business and for sale in the merchant
market.
The Praxair partial oxidation unit will make Sterling's existing synthesis
gas reformer available for use in the methanol plant. Refurbishing that
reformer, rather than building a new one, will enable Sterling to construct the
methanol plant at significantly less than the normal capital cost of a new
plant. The unit will use highly efficient state-of-the-art ICI catalyst
technology. The lower capital investment, coupled with modern operating
technology, should result in a methanol plant with significant competitive
advantages.
The methanol plant and the acetic acid unit will be operated from the same
control facility, providing additional economies and cost efficiencies.
In addition to freeing the synthesis gas reformer for methanol production,
Praxair's new plant will convert natural gas into carbon monoxide and hydrogen
for use in the Company's production of acetic acid and plasticizers. This plant
is scheduled to begin production in the second fiscal quarter of 1996.
The acetic acid expansion and the methanol plant reflect Sterling's major
strength of expanding or adding new facilities at significantly below
replacement cost.
[PHOTO APPEARS ON THIS PAGE]
The acetic acid expansion is part of an integrated
three-part program at the Texas City facility.
7
<PAGE>
PULP CHEMICAL FACILITIES
The pulp chemical business includes four sodium chlorate plants in Canada
strategically located in Buckingham, Quebec; Thunder Bay, Ontario; Grande
Prairie, Alberta; and Vancouver, British Columbia. The plants are near customer
facilities and have attractive, dependable sources of electricity, the largest
cost component of sodium chlorate production. Debottlenecking is adding
incremental capacity at each of the plants. The Buckingham plant also includes a
small sodium chlorite facility. The headquarters for Sterling Pulp Chemicals is
in Toronto, Ontario.
The Company is constructing a 110,000 ton per year sodium chlorate plant in
Valdosta, Georgia. The new facility will increase total annual capacity by 30%
to nearly 460,000 tons or about 920 million pounds. This is expected to increase
the Company's total capacity from approximately 20% to about 26% of the North
American market. The site was selected because of its proximity to existing
customers, now being supplied from the Company's Canadian plants, and to
available, competitively priced electricity. Capital expenditures for the plant
are expected to be approximately $50 million. It is scheduled to begin
production in December 1996.
PETROCHEMICAL PRODUCTS
The Texas City facility produces styrene monomer, acrylonitrile, acetic acid,
plasticizers, lactic acid, tertiary butylamine and sodium cyanide.
Sterling has a significant market share for each of the products it
manufactures. The styrene unit is one of the world's largest, with a capacity of
more than 1.5 billion pounds annually, accounting for more than one-third of
Sterling's total chemical production capacity. The Company's styrene capacity is
approximately 11% of total domestic capacity.
[PHOTO APPEARS ON THIS PAGE]
Construction has started on a new sodium chlorate plant in Georgia
to serve customers in the southeastern United States.
8
<PAGE>
Sterling is the second largest domestic producer of acrylonitrile, with about
21% of domestic capacity. The Company's total annual production capacity is in
excess of 700 million pounds.
Acetic acid capacity will expand by 30% to nearly 800 million pounds
annually. Currently, Sterling has about 13% of domestic capacity for acetic
acid.
Plasticizer capacity is about 280 million pounds annually. An incremental
expansion of the phthalic anhydride unit that provides a raw material for
plasticizer production will add about 10% to existing phthalic anhydride
capacity for open market sales.
Annual capacity for lactic acid is 19 million pounds, and Sterling is the
only domestic producer of synthetic lactic acid. Tertiary butylamine capacity is
21 million pounds annually, and Sterling is the only U.S. producer and one of
three worldwide. Annual sodium cyanide capacity is 100 million pounds.
PETROCHEMICAL MARKETS
Styrene, acrylonitrile and lactic acid are sold to customers under various
multi-year contractual arrangements and spot transactions, while the total
capacity of the other petrochemical products manufactured by Sterling is sold by
others under long-term arrangements. BP Chemicals markets Sterling's acetic acid
production, while BASF markets the plasticizer production and Flexsys, a joint
venture of Monsanto Company and Akzo Nobel N.V., purchases and resells the
tertiary butylamine. The sodium cyanide unit is owned by E.I. du Pont de Nemours
and Company. Sterling provides hydrogen cyanide as a raw material to produce
sodium cyanide and operates the unit, while Dupont markets the product.
Sterling experienced increased demand for its petrochemical products in 1995,
primarily because of improved economic conditions worldwide. In the first three
quarters of the fiscal year, favorable market conditions for both styrene and
acrylonitrile resulted in higher sales prices and margins for most of the year.
The markets for styrene and acrylonitrile are not only volatile but are also
cyclical, driven by changes in the worldwide supply/demand balance. The global
demand for styrene has grown each year during the past decade, but capacity
tends to be added in very large increments, creating periods of overcapacity
that must be absorbed by additional market growth. Demand for acrylonitrile is
affected both by favorable economic conditions and by fashion trends, since
acrylic fiber is the largest derivative of acrylonitrile. No major capacity
additions for styrene are scheduled until 1997, and no significant additions in
acrylonitrile capacity are anticipated until 1997 or later.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PETROCHEMICAL HIGHLIGHTS/(1)/
(Dollars In Thousands)
Petrochemical
Business
<S> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
Sales and Other Revenues............................... $886,247
Interest Expense....................................... $ 1,432
Net Income ............................................ $140,382
Earnings before Interest, Taxes,
Depreciation and Amortization........................ $239,538
Depreciation and Amortization.......................... $ 28,386
Capital Expenditures................................... $ 45,759
AT SEPTEMBER 30, 1995
Current Assets......................................... $178,192
Property, Plant and Equipment (Net).................... $204,638
Current Liabilities.................................... $123,541
Employees/(2)/......................................... 897
/(1)/ Amounts do not include eliminating entries.
/(2)/ Employee counts exclude contract and temporary personnel.
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
In the third quarter of fiscal 1995, the chemical markets began experiencing
a weakening in demand for both styrene and acrylonitrile because of a general
slowdown in the worldwide economic growth rate. As a result, customers began
utilizing existing inventories and decreasing purchases. In addition, chemical
imports by China were significantly lower in Sterling's fourth quarter because
of changes in China's enforcement of economic and tax policies and monetary
constraints. Since China accounts for about 10% of the market for styrene and
styrene derivatives and a significant portion of the market for acrylonitrile
and its derivatives, the import situation negatively affected demand and
resulted in significantly lower styrene prices and somewhat lower acrylonitrile
prices in the fourth quarter. While the industry is unable to predict when
China's chemical imports will return to previous levels, the Company believes
that demand in the Far East is beginning to improve. Sterling believes that
favorable conditions for growth remain in place for the Far East region.
Sterling also had a major scheduled shutdown of its styrene plant for about
three weeks in the fourth quarter for catalyst change, required maintenance and
process control changes. In addition, the acrylonitrile unit had an unscheduled
shutdown of almost two weeks to correct a mechanical problem. These shutdowns
also negatively affected fiscal fourth quarter results.
PULP CHEMICAL PRODUCTS
Sterling Pulp Chemicals, Ltd. is the second largest supplier of sodium chlorate
to the North American pulp and paper industry, with about 20% of the market. The
four Canadian facilities have a combined capacity of approximately 350,000 tons.
The Georgia facility currently under construction will increase the Company's
capacity by more than 30%. The Buckingham facility also produces sodium chlorite
in small quantities. The capacity represents about 23% of the North American
sodium chlorite market.
Debottlenecking projects at
Sterling Pulp Chemicals' existing plants
are expanding capacity to serve the
growing market for bleached pulp.
[PHOTO APPEARS ON THIS PAGE]
10
<PAGE>
Sterling Pulp Chemicals also markets chlorine dioxide generator technology
under the ERCO trademark and has supplied about two-thirds of the chlorine
dioxide generators used worldwide. ERCO developed the first generator technology
in 1954. This technology converts sodium chlorate to chlorine dioxide at the
pulp mill site. The Company designs and manages construction of the generators
and provides technical assistance to customers. Royalties are received from the
licensing of technology based on generator operating rates, usually for a ten-
year period, providing a relatively steady cash flow.
PULP CHEMICAL MARKETS
The market for sodium chlorate has continued to grow, with sales and production
records set by Sterling Pulp Chemicals in fiscal 1995. Chlorine dioxide, derived
from sodium chlorate, is used to produce bleached pulp, the raw material from
which most white paper products are manufactured. The demand for sodium chlorate
is strong, fueled by the increasing substitution of chlorine dioxide for
elemental chlorine in the bleaching process and by growing demand for paper
products that are elemental chlorine-free.
While two-thirds of the North American sodium chlorate usage is in the United
States, primarily in the southeastern U.S., two-thirds of the production is in
Canada. The Company has been serving its southeastern U.S. customers from its
Canadian facilities. The new facility in Georgia will serve this growing market
and increase profitability through improved distribution logistics. Growth in
demand by existing customers is expected to fully utilize the capacity of the
Georgia plant.
Sales of generator technology were approximately the same in 1995 as the
previous year. However, generator sales increased during the fourth quarter as
pulp and paper mills began moving ahead on increased substitution of chlorine
dioxide for elemental chlorine in anticipation of regulatory support in North
America for the technology.
In general, regulatory authorities in both the U.S. and Canada increasingly
support chlorine dioxide bleaching over other technologies, and Sterling
believes that chlorine dioxide will be the pulp and paper industry's bleaching
chemical of choice into the 21st century. In addition, substituting chlorine
dioxide for elemental chlorine produces stronger, brighter pulp at a lower cost
than other bleaching methods.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PULP CHEMICAL HIGHLIGHTS/(1)/
(Dollars In Thousands)
Pulp Chemical
Business
<S> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
Sales and Other Revenues................................ $143,951
Interest Expense........................................ $ 13,172
Net Income.............................................. $ 9,667
Earnings before Interest, Taxes,
Depreciation and Amortization......................... $ 44,709
Depreciation and Amortization........................... $ 14,647
Capital Expenditures.................................... $ 8,203
AT SEPTEMBER 30, 1995
Current Assets.......................................... $ 45,326
Property, Plant and Equipment (Net)..................... $104,446
Current Liabilities..................................... $ 46,557
Employees/(2)/.......................................... 300
/(1)/ Amounts do not include eliminating entries.
/(2)/ Employee counts exclude contract and temporary personnel.
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
As part of its leadership in developing new technology for the pulp and paper
industry, Sterling Pulp Chemicals and Champion International Corporation have
developed technologies that will allow for the manufacture of high quality
bleached pulp with minimal bleach plant effluent using chlorine dioxide
bleaching. The process is being used in a demonstration project at Champion's
pulp and paper mill in Canton, North Carolina. Both Sterling and Champion have
granted Wheelabrator Technologies, Inc. exclusive worldwide licensing rights to
these proprietary technologies. Sterling Pulp Chemicals also continues its
leadership role in the Alliance for Environmental Technology, an organization
with a mission to research and promote practical, proven technologies that
advance modern papermaking and to achieve sound governmental policies and
regulations.
ENVIRONMENTAL EXCELLENCE
Since 1987, Sterling has achieved a 45% reduction in air emissions and a 93%
reduction in offsite transfers. Overall, the Company's total release inventory
figures for the calendar 1994 reporting year have decreased by approximately 70%
from 1987 levels. At the same time, Sterling has increased production capacity
at Texas City by about 25% over its 1987 levels.
Sterling also was a 1995 Region 6 winner of the EPA's Environmental
Excellence Award for underground injection control. This prestigious award
recognizes Sterling's success in the safe operation and maintenance of its
underground injection operations at Texas City. Region 6 includes Texas,
Arkansas, Louisiana, Oklahoma and New Mexico. Sterling received Certificates of
Environmental Excellence as a finalist after previous evaluations in 1993 and
1994.
The primary component of the Company's injection well stream is ammonium
sulfate, a compound that is used as a commercial fertilizer. In June 1995, the
EPA delisted ammonium sulfate from the Toxic Release Inventory because of its
non-toxic characteristics. With the delisting of ammonium sulfate, Sterling has
reduced injection well reporting numbers by 90%.
[PHOTO APPEARS ON THIS PAGE]
At the Texas City facility, a new state-of-the-art
distributive control system in the styrene unit is part
of the modernization of existing facilities.
12
<PAGE>
Sterling has been notified that it will be recognized as a 33/50
Environmental Champion by the EPA for its performance at Texas City, one of only
21 recipients nationwide that will receive this designation. Companies were
selected in the chemical industry for outstanding achievement in the voluntary
emissions reduction program initiated by the EPA in 1991. Sterling was a charter
member of the program in 1991.
The 33/50 program targeted 17 high priority chemicals included in the EPA's
Toxic Release Inventory. The goal was a 33% reduction in emissions of these
chemicals by 1992 compared to 1987 levels and a 50% reduction by 1995. Six of
the 17 chemicals are present at Texas City. The Company committed to a goal
higher than the one set by the EPA, a 65% reduction by 1995, and achieved that
goal two years ahead of schedule. For the calendar 1994 reporting year, Sterling
had a 74% reduction in emissions of the targeted chemicals.
Sound environmental management has been an essential part of Sterling's on-
going commitment to its employees and its neighbors. New technology, waste
minimization, source reduction and environmental improvements on projects where
feasible have all been employed to achieve Sterling's environmental successes.
Sterling's capital investment in environmental projects since 1987 has been
approximately $55 million, and the new capital program includes environmental
components that will result in more progress toward the Company's ultimate goal
of zero environmental impact on Sterling's employees and neighbors.
Sterling is an active participant in Responsible Care(R), a major chemical
industry initiative sponsored by the Chemical Manufacturers Association in the
United States and by the Canadian Chemical Producers Association in Canada.
Sterling upholds the Responsible Care principles and codes of management
practice, including community awareness and emergency response programs.
Sterling also participates in the National Petroleum Refiners Association's
"BEST Program," which allows Sterling to benchmark its environmental performance
and learn techniques used by others in the industry for continuous improvement.
Sterling continues its voluntary participation in the Clean Texas 2000
program as a charter member of the Clean Industry Steering Committee.
Sterling began an environmental community outreach program involving the
Texas City intermediate schools to monitor the bay waters around the area. This
Texas Watch program, a voluntary program with the Texas Natural Resource
Conservation Commission, exemplifies Sterling's commitment to the communities in
which it operates.
[PHOTOS APPEAR ON THIS PAGE]
Some Sterling employees and contract workers took
advantage of the opportunity to sign the methanol
column prior to raising it.
The column was bolted into place after being raised.
13
<PAGE>
In Canada, for the second consecutive year, Sterling Pulp Chemicals was
presented the "Safe Handling Award" by Canadian National North America for its
Grande Prairie facility. The Safe Handling Awards Program is designed to promote
the safe handling and shipping of regulated goods by shippers, and the award is
a mark of commitment to excellence in regulated materials handling. Sterling
Pulp Chemicals is one of only 12 Canadian companies to receive this award more
than once and was one of 37 companies to receive the award in 1995.
SAFETY
Sterling people are especially proud of the safety record set during the year.
At Texas City, Sterling people achieved more than 2.6 million manhours without
an injury involving days away from work. This is the equivalent of 444 days
without a days-away injury. Sterling's previous record was 1.996 million
manhours worked without a days-away injury. From 1993 to 1995, a combined 4.5
million manhours were worked with only one days-away injury.
Sterling's recordable injury rate in Texas City also has shown significant
improvement. Prior to 1995, the Texas City facility maintained an excellent
record, and the further accomplishments in 1995 are outstanding. The chemical
industry is among the safest in the U.S., and the Texas City facility's
performance in 1995 is significantly better than the average rates of the U.S.
chemical industry and U.S. manufacturing as a whole.
In recognition of these achievements, Sterling received an award from the
National Petroleum Refiners Association for safety achievement and also was
recognized by the Texas Chemical Council for its safety program.
[PHOTO APPEARS ON THIS PAGE]
The methanol refining column is 17 feet
in diameter and 216 feet tall. The specially
designed lift took several hours to complete.
14
<PAGE>
The Texas City facility has been recommended for the STAR designation by the
U.S. Occupational Safety and Health Administration (OSHA) for its safe
practices. The STAR designation is the highest given by OSHA, and Sterling was
the first company in Texas City to be recommended for the STAR award. In 1994,
the Texas City facility earned membership in the Merit Program, a part of OSHA's
Voluntary Protection Program, a partnership among labor, management and
government working together toward workplace safety and health. The Merit award
is the second highest conferred by OSHA. Sterling employees used a teamwork
approach to act on recommendations for improvement, resulting in recommendation
for the STAR designation.
At Sterling Pulp Chemicals, major achievements have also been accomplished in
safety. Recordable injuries have been reduced by 50% since 1992, and days-away
injuries have been reduced by 70%. The improvement was accomplished through
commitment and leadership with plant site teams. These teams provided the tools,
guidelines, resources and leadership that set the foundation for the common goal
of continuous improvement.
QUALITY
Sterling utilizes a Deming-based approach to quality, focusing on continuous
improvement of products and services. Through Business Process Improvement,
Sterling is changing and streamlining many processes and systems to improve
productivity, customer service and competitiveness in the marketplace. Employee
teams are involved in redefining and revising work practices, with many becoming
self-directed work groups.
During 1995, Sterling received an "Outstanding Customer Service and Quality
Product" designation from Exxon Chemical. Sterling has an ISO 9002 registration
for its sodium cyanide manufacturing, and plant quality systems are in place to
support registration of additional product lines.
[PHOTO APPEARS ON THIS PAGE]
At its Texas City facility, Sterling has compiled
outstanding safety and environmental records.
15
<PAGE>
Sterling Chemicals produces seven chemical products in its petrochemical
business and two chemicals in its pulp chemical business. These chemicals are
used in a variety of processes.
Styrene monomer is produced with ethylene and benzene as raw materials.
Styrene derivatives are used in the production of foam products such as ice
chests, residential sheathing, cups, egg cartons, insulation and protective
packaging; for other applications such as housings for computers, telephones,
videocassettes, small home appliances and automotive parts; and for tableware,
luggage, packing, toys, textile products and synthetic rubber products.
Acrylonitrile is produced using ammonia, air and propylene as raw materials.
Acrylonitrile is used in synthetic fibers for apparel, rugs and blankets; in
polymer products for casings for ice chests, hard luggage, calculators,
telephone handsets and computers; in automotive parts and for synthetic rubber
products.
Acetic Acid is produced using methanol and carbon monoxide as raw materials.
Acetic acid's largest use is in the production of vinyl acetate. It is also
used in pharmaceuticals, pain relief medicine, latex products for adhesive and
surface coatings, certain synthetic fabric finishes and synthetic fibers
(polyesters).
Plasticizers are produced from olefins, carbon monoxide and hydrogen,
(oxoalcohols) combined with orthoxylene and air (phthalic anhydride).
Plasticizers are used in producing flexible vinyl plastics for consumer products
and building materials.
Tertiary Butylamine (TBA) is manufactured using by-product hydrogen cyanide
from the acrylonitrile process and isobutylene as raw materials. TBA is used for
silicone caulk, and in tires and hoses and as a chemical intermediate.
Lactic Acid is produced using by-product hydrogen cyanide and acetaldehyde as
its raw materials. It is used as a preservative for food products, for the
manufacture of acrylic enamel, for silk finishing and in intravenous solutions.
Sodium Cyanide utilizes by-product hydrogen cyanide and sodium hydroxide as
its raw materials. It is used for electroplating and to enhance precious metals
recovery.
Sodium Chlorate is produced from water and salt (sodium chloride) in reaction
with electrical current. Sodium chlorate is used at pulp mills to produce
chlorine dioxide, which is used to bleach pulp for production of high quality
white papers, envelopes, commercial printing papers, coated papers and tissue
paper products.
Sodium Chlorite is produced using sodium chlorate and hydrochloric acid as
raw materials. Sodium chlorite is used as an antimicrobial agent for water
treatment, as a disinfectant for fresh produce, for treatment of industrial
wastewater and for oilfield microbe control.
[PHOTO APPEARS ON THIS PAGE]
Many consumer products are manufactured
using products from Sterling as raw materials.
16
<PAGE>
STERLING CHEMICALS, INC.
FINANCIAL INFORMATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Revenues in fiscal 1995 were the highest in Sterling's history and earnings
were the best since becoming a public company in fiscal 1989. Revenues were
$1.03 billion in fiscal 1995 compared to $701 million the previous year. The
Company reported net earnings of $150 million or $2.70 per share in fiscal 1995
compared to $19 million or $.34 per share in fiscal 1994. Higher average sales
prices and margins for styrene and acrylonitrile, the Company's largest volume
petrochemical products, were the primary reasons for increased revenues and
earnings. Improvement in the global commodity chemical markets that began in
1994 and strengthened through most of 1995 also resulted in continued high sales
volumes for styrene and acrylonitrile in fiscal 1995. Also, the Company's pulp
chemical business recorded the highest revenues and earnings in its three-year
history. Net income for fiscal 1995 included an extraordinary charge of $3.1
million or $0.06 per share, related to early extinguishment of debt, while
fiscal 1994 did not include any extraordinary items.
The cash flow from the Company's improved operations was utilized to reduce
debt by $105 million and for capital expenditures of $54 million which were part
of the Company's three-year capital program of approximately $200 million, its
largest ever, initiated in fiscal 1995.
RESULTS OF OPERATIONS
Comparison of Fiscal 1995 to Fiscal 1994
Petrochemicals
The financial performance of the Company's petrochemical business was
significantly better during fiscal 1995 than in fiscal 1994. Petrochemical
revenues increased 53% to $886 million from fiscal 1994 and petrochemical net
income increased to $140 million or $2.52 per share from $18 million or $.32 per
share during fiscal 1994, primarily as a result of increased average styrene and
acrylonitrile sales prices and margins and higher acrylonitrile sales volumes.
STYRENE: Styrene revenues increased 62% to $467 million in fiscal 1995
compared to fiscal 1994 primarily because of a 64% increase in average sales
prices. Styrene's gross profit accounted for approximately 52% of the Company's
total gross profit in fiscal 1995 compared to 36% in 1994. The styrene unit
operated at approximately 96% of its 1.5 billion pound capacity in fiscal 1995,
slightly higher than in fiscal 1994, in spite of two planned shutdowns for
maintenance and catalyst replacement during fiscal 1995 compared to none the
prior year. The second planned shutdown, which occurred in the fourth quarter,
also included modernization of the styrene unit's control instrumentation with
state-of-the-art distributive control systems.
Global economic growth for styrene and its derivatives, particularly in the
Far East, was the driving force that resulted in the improved performance for
fiscal 1995. Most styrene producers were operating their plants at or near full
capacity during the last half of fiscal 1994 and for most of fiscal 1995. A
series of significant price increases kept margins increasing into the third
quarter of fiscal 1995. During the fourth quarter of the year, however, average
styrene prices decreased 45% and average margins decreased approximately 75%
from the third quarter. The Company believes that demand began to weaken in the
third quarter as a result of a general slowdown in the worldwide economic growth
rate, prompting customers to begin utilizing their available inventories and
decreasing purchases of additional product. The weakening market conditions were
accelerated in the fourth quarter by significantly decreased purchases of
styrene and styrene derivatives by China primarily as a result of changes in
China's enforcement of economic and tax policies and monetary constraints that
negatively affected its imports. While the industry cannot predict when China's
chemical imports will return to previous levels, the Company believes that
demand in the Far East is beginning to improve. The Company anticipates that
styrene demand worldwide will improve in fiscal 1996 relative to the fourth
quarter of fiscal 1995, although the Company does not anticipate prices and
margins returning to 1995 levels.
There were no major additions to capacity in the styrene market in fiscal
1995. Several new plants have been announced by competitors and are planned for
1997 and later years. The Company anticipates that only incremental capacity
additions will occur until 1997 when the next major styrene capacity additions
will become operational.
During fiscal 1995, approximately 46% of the Company's styrene production,
representing approximately 61% of styrene revenues, was sold in the export
market. As was the situation in 1995, the export market is typically more
volatile than the domestic market. The average prices for styrene's primary raw
materials, benzene and ethylene, increased 5% and 40%, respectively, in fiscal
1995 compared to fiscal 1994. However, the Company was able to increase styrene
selling prices and thereby margins until the dramatic fall in prices and margins
in the fourth quarter of fiscal 1995.
ACRYLONITRILE: Acrylonitrile revenues for fiscal 1995 totaled $251 million,
an increase of 82% from fiscal 1994. The increased revenues primarily resulted
from an increase of 70% in average sales prices, peaking at unprecedented levels
in the third quarter of fiscal 1995, and a 11% increase in sales volumes.
Acrylonitrile profitability began increasing in the fourth quarter of fiscal
1994 and continued into the third quarter of fiscal 1995 as sales prices
increased ahead of escalating raw material prices. The improvement in market
conditions for acrylonitrile was primarily due to improved demand for acrylic
fiber and acrylonitrile butadiene styrene ("ABS") resins, the largest
derivatives of acrylonitrile. Demand for all synthetic fibers, including acrylic
fiber, was greater in fiscal 1995 than in fiscal 1994 because of generally more
favorable economic conditions worldwide and poor cotton crops in various parts
of the world. In fiscal 1995, acrylonitrile's gross profit was significantly
higher than in fiscal 1994 and accounted for approximately 26% of the Company's
total gross profit compared to approximately 8% during fiscal 1994.
Acrylonitrile revenues from export sales constituted 93% and 92% of the
Company's total acrylonitrile revenues, which represented approximately 81% and
83% of the Company's acrylonitrile production for 1995 and 1994, respectively.
Almost all of the Company's domestic acrylonitrile revenues are from conversion
agreements for which revenue recognized is substantially lower than from export
sales. Average export acrylonitrile prices and margins were
18
<PAGE>
significantly higher in fiscal 1995 than in fiscal 1994 as a result of the
strong demand during most of the year.
As a result of the Company's very high percentage of export acrylonitrile
sales, demand for the Company's acrylonitrile is most significantly influenced
by export customers, particularly those that supply acrylic fiber to China. In
recent years, the acrylic fiber market has been subject to volatility because of
the relatively unstable nature of the Chinese market. During most of fiscal
1995, strong demand for acrylic fiber and ABS, particularly in China, increased
demand for acrylonitrile. However, the Company believes that acrylonitrile
demand began to weaken in the third quarter for the same reasons that caused the
significant negative changes in the styrene market. Demand for acrylonitrile
from export customers decreased significantly in the fourth quarter of fiscal
1995 as a result of these changes, although export prices and margins did not
decrease significantly until the first quarter of fiscal 1996. While the
industry cannot predict when China's chemical imports will return to previous
levels, the Company believes that demand in the Far East is beginning to
improve, although export acrylonitrile prices remain under pressure. The Company
anticipates that acrylonitrile demand worldwide will improve in fiscal 1996
relative to the fourth quarter of fiscal 1995, although the Company does not
anticipate prices and margins returning to 1995 levels.
The Company's acrylonitrile unit operated at approximately 96% of capacity
during fiscal 1995, slightly higher than the prior year, in spite of a planned
shutdown for maintenance in the first quarter and an approximately two-week
unscheduled shutdown in the fourth quarter of fiscal 1995 to correct a
mechanical problem. During fiscal 1995, most acrylonitrile producers, including
the Company, were operating their plants at or near full capacity in response to
strong demand.
The average prices of acrylonitrile's primary raw materials, propylene and
ammonia, increased substantially in fiscal 1995 compared to fiscal 1994. Average
propylene prices were approximately 70% higher and average ammonia prices
increased by approximately 35%. However, the Company was able to substantially
improve margins for acrylonitrile during most of the year due to increases in
acrylonitrile sales prices, until the situation in the fourth quarter that
affected sales prices and margins.
OTHER PETROCHEMICAL PRODUCTS: While revenues in fiscal 1995 from acetic acid,
plasticizers, lactic acid, tertiary butylamine and sodium cyanide were
approximately $168 million, an increase of approximately 10% compared to fiscal
1994, earnings from these products remained approximately the same primarily
because of corresponding increases in raw material costs. Gross profit from
these petrochemical products represented approximately 5% of the Company's total
gross profit in fiscal 1995.
Pulp Chemicals
Revenues from the Company's pulp chemical business increased by approximately
17% to $144 million in fiscal 1995. The increase in revenues resulted primarily
from a 14% increase in sodium chlorate sales volumes as well as an 11% increase
in average selling prices. Sodium chlorate sales volumes and average sales
prices increased because of increased substitution of chlorine dioxide, derived
from sodium chlorate, for elemental chlorine in the pulp bleaching process,
increased demand for elemental chlorine-free paper and improved market
conditions in the pulp and paper industry generally. Royalty revenues from
installed generator technology increased by 15% to $19 million in fiscal 1995 as
a result of higher customer operating rates and additional installed capacity.
The Company was awarded nine new generator contracts in fiscal 1995 and seven
new Company generators commenced operation in fiscal 1995. Sales of generator
technology were approximately the same in 1995 as the previous year. Although
generator sales were slower during most of fiscal 1995, sales increased during
the fourth quarter as pulp and paper mills began moving ahead on increased
substitution of chlorine dioxide for elemental chlorine in anticipation of
regulatory support in North America for the technology.
The increased sodium chlorate sales volumes in fiscal 1995 resulted in
increased capacity utilization, which contributed to lower per unit cost and
increased margins. The Company's sodium chlorate facilities operated at
approximately 97% of capacity in fiscal 1995, compared to 86% during fiscal
1994.
Gross profit for the pulp chemical business increased by 30% in fiscal 1995
from 1994. The pulp chemical business accounted for 17% of the Company's total
gross profit in fiscal 1995, down from 38% in fiscal 1994, as a result of the
increase in profitability of the Company's petrochemical business.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses ("SG&A") in fiscal
1995 were $29 million compared to $46 million in fiscal 1994. A $25 million
decrease in the expense related to the stock appreciation rights ("SARs")
program (see Note 5 of "Notes to Consolidated Financial Statements"), resulting
from a 50% decrease in the number of SARs outstanding and a decrease in the
Company's stock price at the end of fiscal 1995 compared to the end of fiscal
1994, was partially offset by a $4 million increase in employee profit sharing,
which was directly related to the Company's improved earnings in fiscal 1995.
Interest and Debt Related Expenses
Interest expense decreased $7.5 million in fiscal 1995 primarily because the
Company repaid $105 million of debt during the year. The Company's average
interest rates decreased to 7% per annum on September 30, 1995 from 8% per annum
on September 30, 1994 primarily due to the refinancing in April 1995.
Accounting Changes
Beginning in fiscal 1995, the Company adopted Financial Accounting Standards
Board Interpretation No. 39, "Offsetting of Amounts Related to Certain
Contracts" ("FIN 39"). That standard requires, among other things, that insured
liabilities of the Company be recorded separately as a liability and a claim
receivable. The Company previously recorded these items on a net basis. The
adoption of FIN 39 did not have a material effect on the Company's financial
position, results of operations or liquidity.
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", which the Company is required to adopt by fiscal 1997. The
Company does not anticipate that the adoption of this Statement will have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
19
<PAGE>
Comparison of Fiscal 1994 to Fiscal 1993
Revenues for fiscal 1994 totaled $701 million, an increase of $182 million
from fiscal 1993. The higher revenues resulted primarily from an increase in
styrene sales volumes and average sales prices. Acrylonitrile also generated
higher revenues in fiscal 1994 primarily due to increases in sales volumes. The
pulp chemical business contributed $123 million to the Company's revenues in
fiscal 1994, an increase of $4 million over fiscal 1993.
Fiscal 1994 net income increased by $25 million or $0.44 per share over
fiscal 1993. The increase primarily resulted from the improvement in styrene
margins and higher sales volumes for styrene. This improvement was partially
offset by a substantial increase in selling, general and administrative expenses
discussed below.
Petrochemicals
STYRENE: Styrene revenues increased 99% to $287 million in fiscal 1994 compared
to fiscal 1993 because of a 63% increase in average sales prices, a 22% increase
in sales volumes and a shift to more direct sales from conversion sales.
Approximately one-third of the Company's styrene was previously marketed under
one of its conversion agreements that expired late in 1993. In fiscal 1994, this
volume was successfully marketed under various sales agreements and spot sales.
As a result, the Company had more direct styrene sales than conversion sales
during fiscal 1994 than in fiscal 1993. Under a conversion arrangement, the
customer furnishes raw materials which the Company processes. In a direct sales
arrangement, the Company supplies the raw materials and sells the finished
product at a price which includes the value of the raw materials. Because of
this difference, the revenue recognized from a direct sale is significantly
greater than the revenue recognized from an equivalent conversion sale, although
the gross profit might be the same. In the tight market for styrene existing at
the time, the sales arrangements were more profitable than the expired
conversion arrangement and the shift from that long-term conversion arrangement
to more spot sales allowed the Company at that time to take advantage of the
greater price volatility in the spot market.
Styrene's gross profit accounted for 36% of the Company's total gross profit
in fiscal 1994 compared to a loss in fiscal 1993. The styrene unit operated at
approximately 98% of its 1.5 billion pound capacity in fiscal 1994 compared to
about 75% of capacity in fiscal 1993. In addition to increased demand, two
planned shutdowns for maintenance and installation of new and improved catalyst
during fiscal 1993, compared to none in 1994, contributed to the increase in
operating rates.
Styrene's improved performance primarily resulted from continuing market
growth for styrene and its derivatives based on global economic growth. The U.S.
economy and the economies of most Asian countries expanded during fiscal 1994
while Europe's economy began to recover. The strength of the U.S. automotive,
housing and packaging markets also contributed to the increased demand for
styrene. By the spring of 1994, increased demand for styrene had absorbed much
of the excess capacity. In addition, some competitors' styrene plants
experienced operating difficulties and scheduled shutdowns during the year which
further tightened the market. Most styrene plants were operating near full
capacity during the last half of fiscal 1994.
During fiscal 1994, approximately 55% of the Company's styrene production,
representing approximately 62% of styrene revenues, was sold in the export
market, which is typically more volatile than the domestic market. While the
prices for styrene's raw materials, benzene and ethylene, increased
significantly during the second half of the fiscal year, their average prices
for the year increased only slightly.
ACRYLONITRILE: Acrylonitrile revenues for fiscal 1994 totaled $138 million,
an increase of 11% from fiscal 1993. A 26% increase in sales volumes was
partially offset by a 12% decrease in average sales prices in fiscal 1994
compared to fiscal 1993. Although average sales prices were lower in fiscal 1994
than in 1993, acrylonitrile prices and margins increased significantly during
the last half of fiscal 1994. Acrylonitrile's profitability did not
significantly improve until the fourth fiscal quarter, however, because of
increasing raw material costs.
Demand for acrylonitrile strengthened during fiscal 1994 for several
reasons. Favorable economic conditions worldwide helped increase acrylonitrile
demand. In addition, poor cotton crops in parts of the world contributed to
increased demand for all synthetic fibers, including acrylic fiber. During 1994,
strong demand for acrylic fiber in China and in most other Asian countries
increased demand for acrylonitrile. By the end of fiscal 1994, most
acrylonitrile producers were operating at or near full capacity. The Company's
acrylonitrile unit operated at approximately 96% of capacity during fiscal 1994
compared to approximately two-thirds of capacity in fiscal 1993.
In fiscal 1994, acrylonitrile's gross profit was significantly lower than
in fiscal 1993 and accounted for approximately 8% of the Company's gross
profit compared to approximately 36% during fiscal 1993. Average export
acrylonitrile prices and margins were lower in fiscal 1994 than fiscal 1993, and
the average price of acrylonitrile's primary raw material, propylene, was
slightly higher. Acrylonitrile's performance benefited from lower per unit fixed
costs because of higher operating rates in fiscal 1994 compared to the prior
year. The improved profitability of styrene also contributed to acrylonitrile's
lower percentage contribution to the Company's total gross profit. Export sales
of acrylonitrile increased in 1994 and constituted the great majority of
revenues in fiscal years 1994 and 1993.
OTHER PETROCHEMICAL PRODUCTS: Acetic acid revenues increased by 20% in fiscal
1994 over fiscal 1993. During each year, the Company's acetic acid unit operated
approximately at its capacity of about 600 million pounds. The Company's other
products performed well during fiscal 1994, with plasticizers showing
significant improvement.
Pulp Chemicals
Revenues from the Company's pulp chemical business increased 3% to $123 million,
primarily because of increased sales volumes of sodium chlorate and higher
royalty revenues. The sodium chlorate market improved and sales volumes
increased because of increased substitution of chlorine dioxide, derived from
sodium chlorate, for elemental chlorine in the bleaching process, increased
demand for elemental chlorine-free paper and the recovery in the pulp and paper
industry. As a result, during the fourth quarter of fiscal 1994, the Company
realized its first sodium chlorate price increase since acquiring the business
in 1992. During fiscal 1993, the sluggish North American pulp and paper market
resulted in lower demand for sodium chlorate. Royalty revenues also increased
20
<PAGE>
during fiscal 1994 because of higher generator operating rates and new start-
ups. In total, eight new Company generators commenced operation in fiscal 1994,
including the first such generator ever in China. The Company also was awarded
ten new generator contracts in fiscal 1994.
Revenues from sodium chlorate increased 5% from fiscal 1993 as higher sales
volumes were partially offset by lower average sales prices. The increased sales
volumes resulted in increased capacity utilization, which contributed to lower
per unit cost and increased margins. A 3% decrease in the average cost of
electricity, the predominant cost in the manufacturing of sodium chlorate, also
contributed to lower costs. The Company's sodium chlorate facilities operated at
approximately 86% of capacity in fiscal 1994, compared to 75% during fiscal
1993.
Gross profit for the pulp chemical business increased by 6% in fiscal 1994
from 1993. Pulp chemicals accounted for 38% of the Company's total gross profit
in fiscal 1994, significantly lower than in fiscal 1993 due to the increase in
profitability of the Company's petrochemical business.
Selling, General and Administrative Expenses
The Company's SG&A expenses increased solely because of expenses related to the
SARs program. The Company recognized expense of $21.8 million or $0.26 per share
related to the SARs in fiscal 1994 because of the increase in the Company's
stock price (see Note 5 of "Notes to Consolidated Financial Statements"). Prior
to this accrual, SG&A was $1.1 million lower in fiscal 1994 compared to 1993,
despite employee profit sharing expense of $1.7 million in fiscal 1994 compared
to none in fiscal 1993. There were no expenses associated with the SARs in
fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Management regularly assesses the liquidity and funding requirements of the
Company's operations. Some of the factors important in the Company's liquidity
are cash flow from operations (including working capital management), capital
spending, adequacy of bank lines of credit and availability of long-term capital
on satisfactory terms. Management believes that funds generated from operations
and borrowing availability under its existing bank lines will be sufficient to
permit the Company to meet its liquidity needs at least through fiscal 1996.
Although the Company has no plans to do so currently, if necessary or
appropriate, the Company may seek additional funds or refinance existing
indebtedness through public offerings, private placements of securities or bank
credit facilities.
Working Capital
Working capital at September 30, 1995 was $75 million, an increase of $54
million from September 30, 1994. This change resulted primarily from reductions
in accrued liabilities of $24 million, accounts receivable of $16 million and
the current portion of long-term debt of $16 million and an increase in cash and
cash equivalents of $29 million. The increase in cash and cash equivalents
reflects the increased cash from operations that was not used for debt reduction
or capital expenditures. Accrued liabilities decreased due to the SAR payments
in October 1994 and September 1995, a reduction in accrued repairs due to the
styrene and acrylonitrile shutdowns in the fourth quarter of fiscal 1995 and
reductions in income taxes payable and estimated contract adjustments. The
reduction in accounts receivable reflects the lower sales prices and volumes for
styrene and acrylonitrile near the end of fiscal 1995 compared to the end of
fiscal 1994. The reduction in the current portion of long-term debt is a result
of the refinancing in April 1995 described below under "Financing".
Cash Flow
Net cash provided by operations was $192 million for fiscal 1995, an increase of
$117 million or 156% compared to fiscal 1994. This increase resulted primarily
from increased earnings during fiscal 1995, partially offset by the change in
working capital. The Company utilized the increased cash from operations to
reduce long-term debt by $105 million during the year (see Note 3 of "Notes to
Consolidated Financial Statements"), and for capital expenditures of
approximately $54 million for various projects as a part of its three-year
capital program.
The Company paid cash dividends on its common stock of approximately
$3 million or $.06 per share during fiscal 1993. On July 1, 1993, the Company's
Board of Directors suspended the quarterly dividend and, consequently, no
dividends were paid in fiscal 1994 or fiscal 1995.
Financing
On April 13, 1995, the Company entered into a seven-year credit agreement (the
"Credit Agreement") with a group of 14 commercial banks to refinance the
Company's existing debt except for the revolving debt associated with Sterling
Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides for a
revolving credit facility of $150 million (the "Revolver") and a term loan of
$125 million (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a
separate agreement for a Cdn. $20 million revolving credit facility (the
"Canadian Revolver"). The Canadian Revolver was utilized to refinance the
revolving debt associated with Sterling Pulp.
The Revolver and the Term Loan bear interest at the Base Rate or, at the
Company's option, the Eurodollar rate. The Base Rate is equal to the greater of
the Prime Rate as announced from time to time by the agent bank, or the Federal
Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar Interbank
Rate plus the Margin Percentage, which is adjustable quarterly and can range
from 0.65% to 1.25%. Subsequent to the closing of the Credit Agreement, the
Company entered into an interest rate swap, equivalent in amount and term to the
Term Loan. The swap effectively replaces the variable rate on the Term Loan with
a fixed interest rate of approximately 7% per annum for the remaining term.
In connection with arranging the Credit Agreement, the Company incurred fees
of approximately $3 million which will be amortized over the term of the loans.
Unamortized debt issue costs related to the retired loans were expensed in April
1995 and are recorded as an extraordinary loss from early extinguishment of debt
of approximately $3.1 million, net of tax of $1.6 million, or $.06 per share.
21
<PAGE>
At September 30, 1995, the Company had indebtedness of $120 million under the
Term Loan and $1 million under the Canadian Revolver. Additionally, the Company
had $2 million in letters of credit under the Revolver and $1 million in letters
of credit under the Canadian Revolver which reduced the amounts available under
these respective facilities. In addition, availability under the Revolver for
loans and letters of credit is subject to a monthly borrowing base. At September
30, 1995, the borrowing base limited availability under the Revolver to
approximately $129 million.
The Term Loan requires equal quarterly installments of $4.5 million over its
seven-year term. This payment schedule has resulted in a decrease in current
maturities of long-term debt from $33.8 million on September 30, 1994 to $17.9
million on September 30, 1995. The Revolver and the Canadian Revolver will
mature at the end of their seven-year terms, and no principal payments are
required prior to that time.
The Revolver and the Term Loan are collateralized by substantially all of the
inventory and accounts receivable of the Company and certain of its domestic
subsidiaries, all of the Company's equity interests in Sterling Canada, Inc. (a
wholly-owned subsidiary of the Company), 65% of the equity of Sterling Pulp and
Sterling NRO, Ltd., and certain contract rights of the Company. Additionally,
certain of the Company's domestic subsidiaries have guaranteed the Revolver and
Term Loan.
The Credit Agreement contains a number of financial and other covenants that
management believes are customary in lending transactions of this type. The
Credit Agreement allows the Company to redeem, retire or acquire shares of its
capital stock and to make dividend payments, within certain conditions and
limitations, as long as no Default or Event of Default (as defined in the Credit
Agreement) has occurred or is continuing.
On September 28, 1995, Sterling Pulp entered into a seven-year credit
agreement to finance the construction of the Georgia sodium chlorate plant (the
"Chlorate Plant Credit Agreement") with the same bank group that is a party to
the Credit Agreement. Sterling Pulp can borrow up to $60 million under the
Chlorate Plant Credit Agreement to purchase taxable bonds from the local county
development authority that will use the bond proceeds to finance the
construction of the plant. The first quarterly scheduled principal payment on
the debt is due October 1, 1997 while the final scheduled payment is due July 1,
2002. The Chlorate Plant Credit Agreement contains an annual excess cash flow
test that could result in mandatory prepayments of some of the scheduled
principal payments. Most of the debt is scheduled to be repaid during the last
two years of the seven-year term. As a result of a guaranty provided by the
Company, the overall borrowing rate under the Chlorate Plant Credit Agreement
will be the same as under the Credit Agreement, excluding the effect of any
interest rate hedging arrangements. The debt will be collateralized by the
taxable bonds and the Company's interest in the plant. No debt was outstanding
under the Chlorate Plant Credit Agreement at September 30, 1995.
Capital Expenditures
In fiscal 1995, the Company initiated a three-year capital spending program
of approximately $200 million. The program includes modernization of the
Company's Texas City facility, the new methanol plant at Texas City, the
acetic acid expansion, the new sodium chlorate plant at Valdosta, Georgia,
debottlenecking projects at its existing sodium chlorate facilities and various
other projects.
The plant modernization effort at Texas City includes a significant capital
commitment for replacing the older control technology in the styrene,
acrylonitrile and acetic acid units with state-of-the-art distributive control
systems, which should result in increased efficiencies and stronger operating
fundamentals.
The Company is constructing a world-scale, 150 million gallon per year
methanol plant at Texas City as part of its three-year capital plan. The plant
is expected to be operational by June 1996. Capital investment and production
capacity will be shared by the Company and BP Chemicals Inc. ("BPC").
Approximately 50% of the methanol production will be used as a raw material in
the Company's acetic acid plant, replacing methanol that is currently being
purchased, while the remainder will be available for the merchant market and for
BPC's worldwide acetic acid business. The plant will be constructed at
significantly less than normal replacement cost because available equipment
already at the Company's Texas City facility will be refurbished and used in the
plant. The plant will use highly efficient state-of-the-art ICI catalyst
technology. The lower capital investment coupled with modern operating
technology should result in a methanol plant with significant competitive
advantages.
The Company and BPC are expanding acetic acid capacity by nearly 30% or 200
million pounds, to nearly 800 million pounds annually. This expansion is
scheduled to be completed in the first quarter of fiscal 1996. BPC will continue
to market all of the production.
The Company also is constructing a 110,000 ton per year sodium chlorate plant
in Valdosta, Georgia. The new facility, expected to cost approximately $50
million, will increase the Company's total annual capacity by more than 30% to
nearly 460,000 tons. Valdosta, Georgia was selected because of its proximity to
customers, now being supplied from the Company's Canadian plants, and to
available, competitively priced electricity, the most important variable in
sodium chlorate production. The new facility is intended to meet the growing
market demand from the pulp and paper industry in the southeastern U.S. In
addition to building this new facility to meet growing demand, the Company is
debottlenecking its existing sodium chlorate facilities.
Capital expenditures for fiscal 1995 were $54 million compared to $12 million
in fiscal 1994. The fiscal 1995 capital expenditures were primarily for plant
instrumentation modernization and process improvements, the acetic acid
expansion, the new methanol plant and the new sodium chlorate plant. The Company
funded its fiscal 1995 capital expenditures from operating cash flow.
Capital expenditures for fiscal 1996 are expected to be approximately $125
million, with about $65 million dedicated to the petrochemical business
primarily for the completion of the acetic acid expansion, construction of the
methanol plant and modernization of the plant instrumentation. The remainder
will be invested in the pulp chemical business primarily for construction of the
Georgia sodium chlorate plant.
In addition to the capital spending program described above, the Company
anticipates capital expenditures of approximately $25 million over the next five
years for environmentally-related prevention, containment, process improvements
and remediation at its Texas City facility. Specific classifications of
22
<PAGE>
these expenditures are difficult to project, since an expenditure may be made
for more than one purpose. The Company's capital expenditures for
environmentally-related prevention, containment and process improvements were $3
million and $2 million for fiscal years 1995 and 1994, respectively. During both
fiscal years, the Company did not incur any material expenditures to remediate
previously contaminated sites. The Company also did not incur any other
infrequent or non-recurring material environmental expenditures which were
required under existing environmental regulations in fiscal years 1995 or 1994.
Foreign Exchange
The Company enters into forward foreign exchange contracts to hedge Canadian
dollar currency transactions on a continuing basis for periods consistent with
its committed exposures. The forward foreign exchange contracts have varying
maturities with none exceeding 18 months. The Company makes net settlements of
U.S. dollars for Canadian dollars at rates agreed to at inception of the
contracts.
The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The Company had a notional amount of
approximately $26 million and $20 million of forward foreign exchange contracts
outstanding to buy Canadian dollars at September 30, 1995 and 1994,
respectively. The deferred gain on these forward foreign exchange contracts at
September 30, 1995 and 1994 was immaterial.
CERTAIN KNOWN EVENTS, TRENDS AND UNCERTAINTIES
Petrochemical Raw Material Prices and Availability
For each of the Company's petrochemical products, the cost of raw materials and
utilities is far greater than all other costs of production combined. Therefore,
an adequate supply of raw materials at reasonable prices is critical to the
success of the Company's business. The Company does not produce any of its major
raw materials (benzene, ethylene, propylene, ammonia and methanol), although a
methanol plant is under construction as described above.
These materials are all commodity petrochemicals and the price for each can
fluctuate widely for a variety of reasons, including changes in the availability
of these products because of major capacity additions or significant plant
operating problems.
The Company has several long-term arrangements with ethylene suppliers that
provide for the majority of its anticipated requirements for purchased ethylene.
Although no assurances can be given, management believes that the Company will
continue to secure adequate supplies of all its raw materials at acceptable
prices.
Environmental and Safety Matters
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
which are required for the Company's operations are subject to periodic renewal
and may be revoked or modified for cause.
New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result in
claims or liabilities. Expenditures could be required to upgrade wastewater
collection, pretreatment, disposal systems or other matters.
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses include
items such as depreciation on its waste treatment facilities, outside waste
management, fuel, electricity and salaries. The amounts of these operating
expenses were approximately $45 million and $44 million for fiscal years 1995
and 1994, respectively. The Company does not anticipate a material increase in
these types of expenses during fiscal 1996. The Company considers these types of
environmental expenditures normal operating expenses and includes them in cost
of goods sold.
At its Texas City facility, the Company has reduced emissions of targeted
chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These
reductions included a 96% reduction in hydrogen cyanide emissions and an 87%
reduction in benzene emissions. Additionally, the Company will initiate
appropriate actions or preventive projects necessary to insure that the facility
continues to operate in a safe and environmentally responsible manner. No
assurances can be given that the Company will not incur material environmental
expenditures associated with its facilities, operations or products.
The Company's sodium chlorate market is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine
in the pulp bleaching process. Certain environmental groups are encouraging
passage of regulations which restrict the amount of Absorbable Organic Halides
(AOX) or chlorine derivatives in bleach plant effluent. Increased substitution
of chlorine dioxide for elemental chlorine in the pulp bleaching process
significantly reduces the amount of AOX and chlorine derivatives in bleach plant
effluent. As long as there is not an outright ban on chlorine-containing
compounds, regulation restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any
significant ban on all chlorine-containing compounds could have a material
adverse effect on the Company's financial condition and results of operations.
British Columbia has a regulation in place that would effectively eliminate
the use of chlorine dioxide in the bleaching process by the year 2002. The pulp
and paper industry is working to change this regulation and believes that the
ban of chlorine dioxide in the bleaching process will yield no measurable
environmental or public health benefit. The Company is not aware of any other
laws or regulations currently in place which would restrict the use of the
product.
Legal Proceedings
The information under "Legal Proceedings" in Note 6 of the "Notes to
Consolidated Financial Statements" herein is incorporated by reference.
23
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... $1,030,198 $700,840 $518,821
Cost of goods sold.......................................... 758,580 606,916 477,902
---------- -------- --------
Gross profit.............................................. 271,618 93,924 40,919
Selling, general and administrative expenses (Note 7)....... 28,856 46,150 25,495
Interest and debt related expenses, net of interest income.. 14,604 22,126 22,392
Gain on sale of assets...................................... -- (2,606) --
---------- -------- --------
Income (loss) before taxes and extraordinary item........... 228,158 28,254 (6,968)
Provision (benefit) for income taxes........................ 75,005 9,122 (1,548)
---------- -------- --------
Income (loss) before extraordinary item..................... 153,153 19,132 (5,420)
Extraordinary item, loss on early extinguishment of debt,
net of tax (Note 3)....................................... 3,104 -- --
---------- -------- --------
Net income (loss)........................................... $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Per share data:
Income (loss) before extraordinary item..................... $ 2.76 $ 0.34 $ (0.10)
Extraordinary item.......................................... .06 -- --
---------- -------- --------
Net income (loss) per share................................. $ 2.70 $ 0.34 $ (0.10)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 30,882 $ 2,013
Accounts receivable........................................................................... 112,102 127,705
Inventories................................................................................... 67,867 69,758
Prepaid expenses.............................................................................. 3,878 2,700
Deferred income tax benefit................................................................... 5,622 9,332
-------- --------
Total current assets.......................................................................... 220,351 211,508
Property, plant and equipment, net............................................................. 309,084 291,126
Other assets................................................................................... 80,504 78,291
-------- --------
Total assets.................................................................................. $609,939 $580,925
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................................. $ 72,016 $ 76,857
Accrued liabilities........................................................................... 55,858 80,071
Current portion of long-term debt............................................................. 17,857 33,771
-------- --------
Total current liabilities 145,731 190,699
Long-term debt................................................................................. 103,581 192,621
Deferred income tax liability.................................................................. 40,297 38,837
Deferred credits and other liabilities......................................................... 81,012 69,034
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, $.01 par value, 150,000 shares authorized, 60,327 shares issued,
55,674 and 55,660 shares outstanding at September 30, 1995 and 1994, respectively............ 603 603
Additional paid-in capital..................................................................... 33,269 33,232
Retained earnings............................................................................. 275,052 125,003
Pension adjustment............................................................................ (1,556) (950)
Accumulated translation adjustment............................................................ (17,307) (17,322)
Deferred compensation......................................................................... (129) (68)
-------- --------
289,932 140,498
Treasury stock, at cost, 4,653 and 4,667 shares at September 30, 1995 and 1994, respectively.. (50,614) (50,764)
-------- --------
Total stockholders' equity.................................................................... 239,318 89,734
-------- --------
Total liabilities and stockholders' equity.................................................... $609,939 $580,925
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
-------------- 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, 1992............. 60,150 $602 $35,478 $114,603 $(1,009) $ (6,610) $(234) $(55,487)
Net loss................................ - - - (5,420) - - - -
Translation adjustment.................. - - - - - (9,574) - -
Dividends paid on common stock $.06
per share.............................. - - - (3,312) - - - -
Common stock issued..................... 175 1 700 - - - - -
Treasury stock transactions............. - - (1,470) - - - (135) 2,286
Amortization of deferred
compensation........................... - - - - - - 205 -
Pension adjustment...................... - - - - (288) - - -
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30, 1993............. 60,325 603 34,708 105,871 (1,297) (16,184) (164) (53,201)
Net income.............................. - - - 19,132 - - - -
Translation adjustment.................. - - - - - (1,138) - -
Common stock issued..................... 2 - 6 - - - - -
Treasury stock transactions............. - - (1,482) - - - - 2,437
Amortization of deferred
compensation........................... - - - - - - 96 -
Pension adjustment...................... - - - - 347 - - -
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30, 1994............. 60,327 603 33,232 125,003 (950) (17,322) (68) (50,764)
Net income.............................. - - - 150,049 - - - -
Translation adjustment.................. - - - - - 15 - -
Treasury stock transactions............. - - 37 - - - - 150
Amortization of deferred
compensation........................... - - - - - - (61) -
Pension adjustment...................... - - - - (606) - - -
------ ---- ------- -------- ------- -------- ----- --------
Balance, September 30, 1995............. 60,327 $603 $33,269 $275,052 $(1,556) $(17,307) $(129) $(50,614)
====== ==== ======= ======== ======= ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
STERLING CHEMICALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers........................................................... $1,159,192 $ 709,026 $ 558,088
Miscellaneous cash receipts............................................................ 14,007 10,618 10,945
Cash paid to suppliers and employees................................................... (893,324) (614,856) (497,920)
Interest paid.......................................................................... (14,811) (20,443) (21,622)
Interest received...................................................................... 2,540 60 86
Income taxes paid...................................................................... (75,766) (9,156) (1,463)
---------- --------- ---------
Net cash provided by operating activities................................................. 191,838 75,249 48,114
Cash flows from investing activities:
Capital expenditures................................................................... (53,962) (12,343) (12,175)
Proceeds from sale of assets........................................................... - 2,606 -
---------- --------- ---------
Net cash used in investing activities..................................................... (53,962) (9,737) (12,175)
Cash flows from financing activities:
Proceeds from long-term debt........................................................... 217,000 - -
Repayment of long-term debt............................................................ (322,282) (65,517) (33,649)
Dividends paid......................................................................... - - (3,312)
Other.................................................................................. (3,735) 643 (96)
---------- --------- ---------
Net cash used in financing activities..................................................... (109,017) (64,874) (37,057)
Effect of U.S./Canadian exchange rate on cash............................................. 10 23 (155)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents...................................... 28,869 661 (1,273)
Cash and cash equivalents - beginning of year............................................. 2,013 1,352 2,625
---------- --------- ---------
Cash and cash equivalents - end of year................................................... $ 30,882 $ 2,013 $ 1,352
========== ========= =========
Reconciliation of Net Income (Loss) to
Cash Provided by Operating Activities
Net income (loss)......................................................................... $ 150,049 $ 19,132 $ (5,420)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization.......................................................... 43,033 40,953 38,679
Extraordinary item..................................................................... 3,104 - -
Deferred tax expense (benefit)......................................................... 4,280 (4,817) 1,239
Accrued compensation including SARs.................................................... (2,638) 21,941 205
Other.................................................................................. 1,058 (1,180) 1,494
Change in assets/liabilities:
Accounts receivable.................................................................... 22,540 (52,304) (17,705)
Inventories............................................................................ 1,921 (9,493) 17,708
Prepaid expenses....................................................................... (1,183) 2,649 2,430
Other assets........................................................................... (4,075) (1,437) (4,411)
Accounts payable....................................................................... (4,117) 34,083 8,123
Accrued liabilities.................................................................... (21,447) 17,604 6,332
Other liabilities...................................................................... (687) 8,118 (560)
---------- --------- ---------
Net cash provided by operating activities................................................. $ 191,838 $ 75,249 $ 48,114
========== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Sterling Chemicals, Inc. (the "Company") operates petrochemical facilities in
Texas City, Texas and pulp chemical facilities throughout Canada. The
significant accounting policies of the Company are described below.
Principles of Consolidation
The consolidated financial statements include all majority-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated. The
Company's investment in a cogeneration joint venture is accounted for under the
equity method with earnings from the joint venture recorded as a reduction of
cost of goods sold.
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market; cost is determined on the
first-in, first-out ("FIFO") basis except for stores and supplies, which are
valued at average cost.
The Company enters into agreements with other companies to exchange chemical
inventories in order to minimize working capital requirements and to facilitate
distribution logistics. Balances related to quantities due to or payable by the
Company are included in inventory.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major renewals and
improvements which extend the useful lives of the equipment are capitalized.
Major planned maintenance expenses are accrued for during the periods prior to
the maintenance, while routine repair and maintenance expenses are charged to
operations as incurred. Disposals are removed at carrying cost less accumulated
depreciation with any resulting gain or loss reflected in operations.
Depreciation is provided using the straight-line method over estimated useful
lives ranging from 5 to 25 years with the predominant life of the plant and
equipment being 15 years. The Company capitalizes interest costs which are
incurred as part of the cost of constructing major facilities and equipment. The
amount of interest capitalized for the fiscal years 1995, 1994 and 1993 was
$1,024, $145 and $291, respectively.
Patents and Royalties
The cost of patents is amortized on a straight-line basis over their estimated
useful lives which approximates ten years. The Company capitalized the value of
the chlorine dioxide generator technology acquired in 1992 based on the net
present value of all estimated remaining royalty payments associated with the
technology. The resulting intangible amount is included in other assets and is
amortized over an average life for these royalty payments of ten years.
Debt Issue Costs
Debt issue costs relating to long-term debt are amortized using the interest
method and are included in other assets.
Income Taxes
Deferred income taxes are recorded to reflect the tax consequences in future
years of differences between the tax basis of assets and liabilities and the
financial reporting amounts at each year-end.
Revenue Recognition
The Company generates revenues through sales in the open market, raw material
conversion agreements and long-term supply contracts. In addition, the Company
has entered into shared profit arrangements with respect to certain
petrochemical products. The Company recognizes revenue from sales in the open
market, raw material conversion agreements and long-term supply contracts as the
products are shipped. Revenues from shared profit arrangements are estimated and
accrued monthly. The Company also generates revenues from the construction and
sale of chlorine dioxide generators which are recognized using the percentage of
completion method. Deferred credits are amortized over the life of the contract
which gave rise to them. The Company also receives prepaid royalties which are
recognized over a period which is typically ten years.
Foreign Exchange
Assets and liabilities denominated in Canadian dollars are translated into U.S.
dollars at year-end exchange rates and revenues and expenses are translated at
the average monthly exchange rates. Translation adjustments are reported as a
separate component of stockholders' equity while transaction gains and losses
are included in operations when incurred. The Company's Canadian subsidiaries
enter into forward foreign exchange contracts to minimize the short-term impact
of Canadian dollar fluctuations on certain of its Canadian dollar denominated
commitments. Gains or losses on these contracts are deferred and are included in
operations in the same period in which the related transactions are settled.
Income (Loss) Per Share
Income (loss) per share for fiscal years 1995, 1994 and 1993 has been computed
using a weighted average shares outstanding of 55,674,000, 55,606,000 and
55,252,000, respectively.
28
<PAGE>
(Dollars In Thousands Except Per Share Data)
Environmental Costs
Environmental costs are expensed unless the expenditures extend the economic
useful life of the assets. Costs that extend the economic life of the assets are
capitalized and depreciated over the remaining life of such assets.
Reclassification
Certain amounts reported in the financial statements for the prior periods have
been reclassified to conform with the current financial statement presentation
with no effect on net income (loss) or stockholders' equity.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
September 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Inventories:
Finished products ...................... $ 16,506 $ 49,189
Raw materials .......................... 44,802 21,761
--------- ---------
Inventories at FIFO cost ................. 61,308 70,950
Inventories under exchange agreements .. (4,783) (12,350)
Stores and supplies .................... 11,342 11,158
--------- ---------
$ 67,867 $ 69,758
========= =========
Property, plant and equipment:
Land ................................... $ 11,775 $ 11,771
Buildings .............................. 26,955 24,944
Plant and equipment .................... 422,479 406,860
Construction in progress ............... 49,782 14,132
Less accumulated depreciation .......... (201,907) (166,581)
--------- ---------
$ 309,084 $ 291,126
========= =========
Other assets:
Patents and technology, net ............ $ 40,971 $ 46,918
Estimated insurance recoveries ......... 10,315 --
Intangible pension asset ............... 3,733 4,139
Deferred catalyst ...................... 4,357 4,126
Debt issue costs ....................... 3,370 5,835
Other .................................. 17,758 17,273
--------- ---------
$ 80,504 $ 78,291
========= =========
Accrued liabilities:
Repairs ................................ $ 9,021 $ 13,468
Income taxes ........................... 2,250 13,257
Interest ............................... 574 576
Estimated contract adjustments ......... 1,536 9,684
Property taxes ......................... 6,179 5,796
Litigation contingency ................. 6,000 --
Accrued compensation ................... 10,019 21,719
Other .................................. 20,279 15,571
--------- ---------
$ 55,858 $ 80,071
========= =========
Deferred credits and other liabilities:
Deferred revenue ....................... $ 21,969 $ 27,513
Accrued postretirement benefits ........ 24,722 22,746
Additional minimum pension liability ... 6,127 5,601
Accrued compensation ................... 2,922 9,030
Litigation contingency ................. 10,315 --
Other .................................. 14,957 4,144
--------- ---------
$ 81,012 $ 69,034
========= =========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Revolving credit facilities .............. $ 902 $ 32,940
Term loan ................................ 120,536 20,000
Project loan ............................. 16,134
Subsidiary term loan ..................... -- 113,050
Subordinated note ........................ -- 44,268
--------- ---------
Total debt outstanding ................. 121,438 226,392
========= =========
Less:
Current maturities ..................... (17,857) (33,771)
--------- ---------
Total long-term debt ..................... $ 103,581 $ 192,621
========= =========
</TABLE>
On April 13, 1995, the Company entered into a seven-year agreement (the
"Credit Agreement") with a group of 14 commercial banks to refinance
the Company's existing debt except for the revolving debt associated with
Sterling Pulp Chemicals, Ltd. ("Sterling Pulp"). The Credit Agreement provides
for a revolving credit facility of $150,000 (the "Revolver") and a term loan of
$125,000 (the "Term Loan"). On April 28, 1995, Sterling Pulp entered into a
separate agreement for a Cdn. $20,000 revolving credit facility (the "Canadian
Revolver"). The Canadian Revolver was utilized to refinance the revolving debt
associated with Sterling Pulp.
The Revolver and the Term Loan bear interest at the Base Rate or, at the
Company's option, the Eurodollar rate. The Base Rate is equal to the greater of
the Prime Rate as announced from time to time by the agent bank, or the Federal
Funds Rate plus 1/2%. The Eurodollar Rate is equal to the Eurodollar Interbank
Rate plus the Margin Percentage, which is adjustable quarterly and can range
from 0.65% to 1.25%. Subsequent to the closing of the Credit Agreement, the
Company entered into an interest rate swap, equivalent in amount and term to the
Term Loan. The swap effectively replaces the variable rate on the Term Loan with
a fixed interest rate of approximately 7% per annum for the remaining term.
29
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
In connection with arranging the Credit Agreement, the Company incurred fees
of approximately $3,000 which will be amortized over the term of the loans.
Unamortized debt issue costs related to the retired loans were expensed in April
1995 and are recorded as an extraordinary loss from early extinguishment of debt
of approximately $3,104, net of tax of $1,571, or $.06 per share.
At September 30, 1995, the Company had indebtedness of $120,536 under the
Term Loan and $902 under the Canadian Revolver. Additionally, the Company had
$2,172 in letters of credit under the Revolver and $1,070 in letters of credit
under the Canadian Revolver, both of which reduced the amount available under
these respective facilities. In addition, availability under the Revolver for
loans and letters of credit is subject to a monthly borrowing base. At September
30, 1995, the borrowing base limited availability under the Revolver to
$129,398.
The Term Loan requires equal quarterly installments of $4,464 over the seven-
year term. This payment schedule has resulted in a significant decrease in
current maturities of long-term debt from $33,771 on September 30, 1994 to
$17,857 on September 30, 1995. The Revolver and the Canadian Revolver mature at
the end of their seven-year terms, and no principal payments are required prior
to that time.
The Revolver and the Term Loan are collateralized by substantially all of the
inventory and accounts receivable of the Company and certain of its domestic
subsidiaries, all of the Company's equity interests in Sterling Canada, Inc. (a
wholly-owned subsidiary of the Company), 65% of the equity of Sterling Pulp and
Sterling NRO, Ltd., and certain contract rights of the Company. Additionally,
certain of the Company's domestic subsidiaries have guaranteed the Revolver and
Term Loan.
The Credit Agreement contains a number of financial and other covenants that
management believes are customary in lending transactions of this type. The
Credit Agreement allows the Company to redeem, retire or acquire shares of its
capital stock and to make dividend payments, within certain conditions and
limitations, as long as no Default or Event of Default (as defined in
the Credit Agreement) has occurred or is continuing.
On September 28, 1995, Sterling Pulp entered into a seven-year credit
agreement to finance the construction of the Georgia sodium chlorate plant (the
"Chlorate Plant Credit Agreement") with the same bank group that is a party to
the Credit Agreement. Sterling Pulp can borrow up to $60 million under the
Chlorate Plant Credit Agreement to purchase taxable bonds from the local county
development authority that will use the bond proceeds to finance the
construction of the plant. The first quarterly scheduled principal payment on
the debt is due October 1, 1997 while the final scheduled payment is due July 1,
2002. There is an annual excess cash flow test required by the Chlorate Plant
Credit Agreement that could result in mandatory prepayments of some of the
scheduled principal payments. Most of the debt is scheduled to be paid during
the last two years of the seven-year term. As a result of a guaranty provided by
the Company, the overall borrowing rate under the Chlorate Plant Credit
Agreement will be the same as under the Credit Agreement, excluding the effect
of any interest rate hedging arrangements. The debt will be collateralized by
the taxable bonds and the Company's interest in the plant. No debt was
outstanding under the Chlorate Plant Credit Agreement at September 30, 1995.
Debt Maturities
The estimated remaining principal payments on the outstanding debt are as
follows:
<TABLE>
<CAPTION>
Year ending Principal
September 30, Payments
<S> <C>
1996........................... $ 17,857
1997........................... 17,857
1998........................... 17,857
1999........................... 17,857
2000........................... 17,857
2001........................... 17,857
2002........................... 14,296
--------
Total outstanding debt......... $121,438
========
</TABLE>
4. INCOME TAXES:
A reconciliation of federal statutory income taxes to the Company's effective
tax provision (benefit) before extraordinary item follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Provision (benefit) for federal income
tax at the statutory rate.............. $79,855 $9,772 $(2,994)
Foreign sales corporation............... (7,991) -- --
State and foreign income taxes.......... 2,862 90 877
Estimated income tax
settlement and other................... 279 (740) 569
------- ------ -------
Effective tax provision (benefit)....... $75,005 $9,122 $(1,548)
======= ====== =======
</TABLE>
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
From operations:
Current federal............... $67,393 $18,618 $(2,849)
Deferred federal.............. 1,075 (7,809) 148
Deferred foreign.............. 3,489 (1,687) 1,153
Current state................. 2,947 -- --
Deferred state................ 101 -- --
------- ------- -------
Total tax provision (benefit)... $75,005 $ 9,122 $(1,548)
======= ======= =======
</TABLE>
30
<PAGE>
(Dollars In Thousands Except Per Share Data)
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes("SFAS 109"), effective October 1,
1993. Under SFAS 109, deferred income taxes are provided for temporary
differences between the tax basis of assets and liabilities and amounts for
financial reporting purposes. The adoption of this statement did not have an
effect on the Company's results of operations. Upon adoption of SFAS 109, the
Company's current deferred tax asset and deferred tax liability each increased
by approximately $1,600.
The components of the deferred income taxes for 1993 (a disclosure no longer
required for years subsequent to adoption of SFAS 109) are summarized below:
<TABLE>
<CAPTION>
Year Ended
September 30,
1993
-------------
<S> <C>
Depreciation and amortization......... $1,709
Alternate minimum tax................. (959)
Accrued expenses for book purposes.... 484
Pension expense....................... (729)
Postretirement expense................ (667)
Effect of tax rate change............. 500
Other................................. 963
------
Total deferred tax expense............ $1,301
======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
are summarized below:
<TABLE>
<CAPTION>
September 30,
----------------
1995 1994
------ ------
<S> <C> <C>
Assets:
Accrued liabilities............................. $10,475 $13,099
Accrued postretirement cost..................... 8,719 7,405
Tax loss and credit carryforward................ 7,470 11,389
Other........................................... -- 523
------- -------
Total deferred tax assets....................... 26,664 32,416
Less current deferred income tax benefit........ 5,622 9,332
------- -------
Noncurrent deferred tax assets.................. $21,042 $23,084
======= =======
Liabilities:
Property, plant and equipment................... $57,466 $60,756
Accrued pension cost............................ 2,471 1,165
Other........................................... 1,402 --
------- -------
Total deferred tax liabilities.................. $61,339 $61,921
======= =======
</TABLE>
The Company has approximately Cdn. $25,000 in Canadian tax loss carryforwards
which will expire from 1998 through 2001.
5. EMPLOYEE BENEFITS:
The Company has established the following benefit plans:
Retirement Benefit Plans
The Company has non-contributory pension plans in the United States and employer
and employee contributory plans in Canada which cover all salaried and wage
employees. The benefits under these plans are based primarily on years of
service and employees' pay near retirement. For those Company employees who were
employed by the Company as of September 30, 1986 and were previously employed by
Monsanto, the Company recognizes their Monsanto pension years of service for
purposes of determining benefits under the Company's plans. For those Company
employees who were employed by the Company on August 21, 1992 and were
previously employed by Tenneco Inc., the Company recognizes their Tenneco Inc.
pension years of service for purposes of determining benefits under the
Company's plans. The Company's funding policy is consistent with the funding
requirements of federal law and regulations. Plan assets consist principally of
common stocks and government and corporate securities.
The Company has recorded its additional minimum liability in accordance with
Statement of Financial Accounting Standards No. 87 "Employers' Accounting for
Pensions." In recognizing the additional pension liability at September 30, 1995
and 1994, the Company recorded a liability of $6,127 and $5,601, an intangible
asset of $3,733 and $4,139, which is included with other assets, and a reduction
of stockholders' equity of $1,556 and $950, net of deferred tax of $838 and
$512, respectively.
The components of pension expense for the years ended September 30, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost (for benefits earned
during the period)................ $ 3,288 $ 3,386 $ 3,195
Interest cost on projected
benefit obligation................ 4,471 3,891 3,499
Actual return on plan assets
and contributions................. (5,825) 617 (2,940)
Deferral of asset gain (loss)...... 1,909 (3,997) 59
Net amortization of
unrecognized amounts.............. 871 848 863
------- ------- -------
Pension expense.................... $ 4,714 $ 4,745 $ 4,676
======= ======= =======
</TABLE>
Assumptions used in determining the projected benefit obligation and pension
cost for the periods were as follows:
<TABLE>
<CAPTION>
Fiscal Year
--------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rates................ 7.5% 8.0% 7.5%
Rates of increase in salary
compensation level........... 5.5% 5.5% 5.5%
Expected long-term rate of
return on assets............. 9.0% 9.0% 9.0%
</TABLE>
31
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
The funded status of the Company's pension plans for which assets exceed
accumulated benefits and plans for which accumulated benefits exceed assets as
of the actuarial valuation dates of August 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
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.................................................... $ 26,222 $21,743 $19,392 $17,776
Non-vested benefit obligation................................................ 1,029 1,293 2,040 1,309
-------- ------- ------- -------
Accumulated benefit obligation............................................... 27,251 23,036 21,432 19,085
Plan assets at fair value.................................................... 33,540 21,134 26,835 16,795
-------- ------- ------- -------
Plan assets in excess of (less than) accumulated benefit obligation.......... 6,289 (1,902) 5,403 (2,290)
Additional amounts related to projected salary increases..................... 16,431 658 14,806 812
-------- ------- ------- -------
Plan assets less than total projected benefit obligation..................... (10,142) (2,560) (9,403) (3,102)
Unrecognized net loss resulting from plan experience and changes in
actuarial assumptions....................................................... 5,995 2,579 4,935 1,871
Unrecognized prior service cost.............................................. 2 3,689 (49) 3,949
Unrecognized transition obligation........................................... 2,716 156 3,067 182
-------- ------- ------- -------
Prepaid (accrued) pension cost before additional minimum liability........... (1,429) 3,864 (1,450) 2,900
Additional minimum liability................................................. -- (6,127) -- (5,601)
-------- ------- ------- -------
Total accrued pension obligation............................................. $ (1,429) $(2,263) $(1,450) $(2,701)
======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Postretirement Benefits Other Than Pensions
The Company provides certain health care benefits and life insurance benefits
for retired employees. Substantially all of the Company's employees become
eligible for these benefits at normal retirement age. The Company accrues the
cost of these benefits during the period in which the employee renders the
necessary service.
Health care benefits are provided to employees who retire from the Company
with ten or more years of service except for Canadian employees subject to
collective bargaining agreements. All of the Company's employees are eligible
for postretirement life insurance. Postretirement health care benefits for most
U.S. employees are provided for under a contributory, comprehensive plan while
all other plans are non-contributory. Benefit provisions for most hourly and
some salaried employees are subject to collective bargaining. In general, the
plan stipulates that retiree health care benefits are paid as covered expenses
are incurred. For U.S. employees, postretirement medical plan deductibles are
assumed to increase at the rate of the long-term consumer price index.
Approximately two hundred seventy-four retirees and dependents are covered under
these plans. The components of postretirement benefits cost other than pensions
for the years ended September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Service cost (for benefits earned
during the period)............................ $1,084 $1,064
Interest cost on projected benefit obligation 1,835 1,688
Amortization of plan amendments 29 29
------ ------
$2,948 $2,781
====== ======
</TABLE>
Actuarial assumptions used to determine fiscal year 1995 and 1994 costs and
benefit obligations for postretirement benefit plans other than pensions include
an average discount rate of 7.5% and an average rate of future increases in
benefit compensation of 5.5%. The assumed composite rate of future increases in
per capita cost of health care benefits ( health care cost trend rate ) was 7.8%
for fiscal year 1995, exclusive of demographic changes, decreasing gradually to
5.5% by the year 2028.
These trend rates reflect current cost performance and management's
expectation that future rates will decline. Increasing the health care cost
trend rate by one percentage point would increase the accumulated postretirement
benefit obligation by $1,391 and would increase annual aggregate service and
interest costs by $173.
The following sets forth the plan's funded status reconciled with amounts
reported in the Company's consolidated balance sheet at
September 30, 1995 and 1994.
Accumulated postretirement benefit obligation (APBO):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees.................................. $ 7,315 $ 5,956
Fully eligible active plan participants 7,690 7,234
Other active plan participants............ 11,956 11,752
------- -------
Total APBO............................... 26,961 24,942
Plan assets at fair value................. -- --
Unrecognized loss......................... (1,987) (1,915)
Unrecognized prior service cost........... (252) (281)
------- -------
Accrued postretirement benefit liability.. $24,722 $22,746
======= =======
</TABLE>
32
<PAGE>
(Dollars In Thousands Except Per Share Data)
Postemployment Benefits
During the first quarter of fiscal 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). SFAS 112 requires accrual
accounting for benefits provided to former or inactive employees after
employment but before retirement. The Company implemented the provisions of SFAS
112 in fiscal 1995 and the effect of adoption on the Company's financial
position and results of operations was not material.
Employee Stock Ownership Trust
The Employee Stock Ownership Trust ("ESOT") was formed to invest primarily in
the Company's common stock and includes only participants contributing to the
Company's Savings and Investment Plan ("SIP"). The Company's contribution to the
ESOT is 60% of the participant's SIP contributions to the extent that such
participant's contributions do not exceed 7.5% of the employee's eligible
earnings. The Company's contributions are subject to a 20% per year vesting
schedule commencing after one year of service. The Company's contributions to
the ESOT for the years ended September 30, 1995, 1994 and 1993 were $1,684,
$1,688 and $1649, respectively.
Profit Sharing Plans
The Company provides profit sharing plans for the benefit of salaried and hourly
employees meeting certain eligibility requirements. These plans were amended and
restated in fiscal 1993. The Company distributes quarterly, to eligible
employees, a specified percentage of its earnings before interest, taxes,
depreciation and amortization above a specified level. The amount of each
eligible employee's quarterly cash distribution is related to a specified
percentage of such employee's base salary or wages, with the percentage
determined by the employee's position in the Company. Profit sharing expense for
the years ended September 30, 1995 and 1994 was $13,038 and $3,815,
respectively. There was no profit sharing expense during fiscal 1993.
Omnibus Stock and Incentive Plan
The Company has an Omnibus Stock and Incentive Plan, under which the Company may
grant to key employees incentive and nonincentive stock options, stock
appreciation rights, restricted stock, performance units and performance shares.
The terms and amounts of the awards are determined by the Compensation Committee
of the Board of Directors. Upon a change of control of the Company, all awards
granted under the plan become fully vested and all performance based awards will
be paid at the higher of performance goals or actual performance to date.
3,000,000 shares of the Company's stock were reserved under the plan when it was
established. As of September 30, 1995, 263,000 shares have been issued.
In fiscal year 1993, the Company granted stock appreciation rights ("SARs")
to certain key employees and directors. Total expense benefit is determined
based on 3,632,000 SARs granted, the vesting period (five years beginning
September 1992) and the appreciation of the Company's stock price above $4 per
share, which was the fair market value of the Company's common stock on the date
of grant of the SARs. In October 1994, the Company amended the SAR program by
modifying the vesting periods and limiting the amount of appreciation for each
SAR during each vesting period, thereby limiting the Company's aggregate future
expenses. The Company recorded expense (benefit) for the years ended September
30, 1995 and 1994 of ($2,767) and $21,800, respectively, and paid $8,297 in
October 1994 and $5,820 in September 1995 pursuant to the SARs, as amended.
There was no expense associated with the SARs for fiscal year 1993 as the market
price of the Company's stock at September 30, 1993 was less than the price at
the date of grant. The expense (benefit) for the SARs is included in selling,
general and administrative expenses in the Company's income statement.
In fiscal 1995, the Company granted 82,500 stock options to certain officers
of the Company with an exercise price of $13.50 per share. The options are
exercisable from the third through the tenth anniversary of the date of the
grant.
6. COMMITMENTS AND CONTINGENCIES:
Product Contracts
The Company has certain long-term agreements which provide for the dedication of
100% of the Company's production of acetic acid, plasticizers, TBA and sodium
cyanide, each to one customer. The Company also has various sales and conversion
agreements which dedicate significant portions of the Company's production of
styrene monomer and acrylonitrile to various customers. These agreements
generally provide for cost recovery plus an agreed margin or element of profit
based upon market price.
Lease Commitments
The Company has entered into various long-term noncancellable operating leases.
Future minimum lease commitments at September 30, 1995 are as follows: fiscal
1996 -- $2,135; fiscal 1997 -- $1,971; fiscal 1998 -- $1,878; fiscal 1999 --
$1,661; fiscal 2000 -- $1,553; and $5,701 thereafter. Rent expense for fiscal
years 1995, 1994 and 1993 was not material.
Environmental and Safety Matters
The Company's operations involve the handling, production, transportation
and disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits
which are required for the Company's operations are subject to periodic renewal
and may be revoked or modified for cause.
New laws or permit requirements and conditions may affect the Company's
operations, products or waste disposal. Past or future operations may result in
claims or liabilities. Expenditures could be required to upgrade wastewater
collection, pretreatment, disposal systems or other matters.
33
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
The Company routinely incurs expenses associated with managing hazardous
substances and pollution in ongoing operations. These operating expenses include
items such as depreciation on its waste treatment facilities, outside waste
management, fuel, electricity and salaries. The amounts of these operating
expenses were approximately $45,000 and $44,000 for fiscal years 1995 and 1994,
respectively. The Company does not anticipate a material increase in these types
of expenses during fiscal 1996. The Company considers these types of
environmental expenditures normal operating expenses and includes them in cost
of goods sold.
At its Texas City facility, the Company has reduced emissions of targeted
chemicals 74% from 1987 levels under the EPA's voluntary 33/50 program. These
reductions included a 96% reduction in hydrogen cyanide emissions and an 87%
reduction in benzene emissions. Additionally, the Company will initiate
appropriate actions or preventive projects necessary to insure that the facility
continues to operate in a safe and environmentally responsible manner. No
assurances can be given that the Company will not incur material environmental
expenditures associated with its facilities, operations or products.
The Company's sodium chlorate market is sensitive to potential environmental
regulation. In general, environmental regulations support substitution of
chlorine dioxide, which is produced from sodium chlorate, for elemental chlorine
in the pulp bleaching process. Certain environmental groups are encouraging
passage of regulations which restrict the amount of Absorbable Organic Halides
(AOX) or chlorine derivatives in bleach plant effluent. Increased substitution
of chlorine dioxide for elemental chlorine in the pulp bleaching process
significantly reduces the amount of AOX and chlorine derivatives in bleach plant
effluent. As long as there is not an outright ban on chlorine-containing
compounds, regulation restricting AOX or chlorine derivatives in bleach plant
effluent should favor the use of chlorine dioxide, thus sodium chlorate. Any
significant ban on all chlorine-containing compounds could have a material
adverse effect on the Company's financial condition and results of operations.
British Columbia has a regulation in place that would effectively
eliminate the use of chlorine dioxide in the bleaching process by the year
2002. The pulp and paper industry is working to change this regulation and
believes that the ban of chlorine dioxide in the bleaching process will yield no
measurable environmental or public health benefit. The Company is not aware of
any other laws or regulations currently in place which would restrict the use
of the product.
Legal Proceedings
Petrochemicals
HUNTSMAN LAWSUIT: On January 30, 1995, the Company filed a lawsuit against
Huntsman Chemical Corporation and certain affiliates seeking a declaratory
judgment in connection with an alleged agreement arising from discussions,
previously suspended by the Company, relating to possible future capacity rights
for a significant portion of the Company's styrene monomer unit at its Texas
City facility. In the lawsuit, the Company is requesting a judicial
determination that, among other things, there was no enforceable agreement
between the Company and any of the defendants. In response, the defendants filed
a counterclaim demanding a jury trial and asserting that a contractual agreement
existed, that the Company breached the alleged agreement, and that as a result
the defendants incurred an unspecified amount of "massive damages".
Subsequently, the Company filed a motion for summary judgment.
On November 30, 1995, summary judgment was granted in the Company's favor.
The summary judgment, which is subject to appeal, confirms that as a matter of
law, no enforceable contract or agreement ever existed between the Company and
the defendants. The Court's order also moots the defendants' counterclaim
against the Company for damages resulting from breach of the alleged contract.
The Company believes a loss with respect to this matter is not probable and
is unable to quantify a reasonably possible loss estimate (as defined in
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies") at this time.
ALLEMAND LAWSUIT: On June 19, 1995, a lawsuit was filed against the Company
and several other corporate defendants asserting personal injury and mental
anguish resulting from an incident occurring on June 16, 1995 in which a hose
being used to unload a barge of sulfuric acid at the Company's Texas City
facility ruptured, spraying sulfuric acid on an employee of Marine Fueling
Service, Inc. The plaintiffs seek an unspecified amount of damages. The incident
is under investigation and discovery is ongoing.
AMMONIA RELEASE: On May 8, 1994, an ammonia release occurred at the Company's
Texas City facility while a reactor in the acrylonitrile unit was being
restarted after a shutdown for routine maintenance. The Company estimated that
approximately three thousand pounds of ammonia were emitted into the atmosphere.
Approximately nine thousand individuals have filed claims directly with the
Company alleging personal injury and/or property damage as a result of exposure
to the ammonia. The Company and its insurance carriers are in the process of
evaluating these claims. Approximately two thousand of these claims have been
settled and three thousand have been denied. Settlements, costs and expenses to
date have totaled less than $2,000. All amounts above the Company's $1,000
deductible (which has been charged against earnings) have been paid by its
insurance carriers.
Sixteen lawsuits involving approximately four thousand plaintiffs have been
filed against the Company seeking unspecified damages for personal injuries and
property damage as a result of the release. Additional claims and litigation
against the Company asserting similar claims may ensue.
34
<PAGE>
(Dollars In Thousands Except Per Share Data)
SMITH LAWSUIT: On April 27, 1994, approximately one thousand two hundred
plaintiffs sued the Company and eighteen other corporate defendants in the Texas
City, Texas area. The plaintiffs seek an unspecified amount of damages for
personal injury and property damages arising from alleged chemical releases.
Discovery is proceeding and the Company is vigorously defending this lawsuit.
ALLEN LAWSUIT: On May 9, 1991, a lawsuit was filed against the Company and
several other petrochemical companies operating in the Texas City, Texas area.
The plaintiffs in the lawsuit assert personal injury and property damage claims
arising from alleged chemical releases. The plaintiffs seek an unspecified
amount of damages. Although the court dismissed a number of the plaintiffs for
failure to comply with discovery, over three hundred plaintiffs remain. The
Company is vigorously defending this lawsuit.
The Company is subject to various other claims and legal actions that arise
in the ordinary course of its business.
Pulp Chemicals
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel and
its affiliates. The Company and Akzo Nobel are involved in numerous patent
disputes throughout the world in which the Company and Akzo Nobel are
challenging certain patents of the other and attempting to restrict the other's
operating range. If either party is successful in these disputes, the other
party may be required to make adjustments and modifications to its commercial
operations or obtain a license from the prevailing party. The Company believes
that it is entitled to certain indemnities from Tenneco Canada with respect to
the acquired technology. The Company and Akzo Nobel have initiated discussions
to resolve these disputes.
Litigation Contingency
In accordance with Statement of Financial Accounting Standards No. 5,
"Accounting for Contingencies" and Financial Accounting Standards Board
Interpretation No. 39 "Offsetting of Amounts Related to Certain Contracts", the
Company has made estimates of the reasonably possible range of liability with
regard to its outstanding litigation for which it may incur liability. These
estimates are based on management's judgments using currently available
information as well as consultation with the Company's insurance carriers and
outside legal counsel. A number of the claims in these litigation matters are
covered by the Company's insurance policies or by third-party indemnification of
the Company. The Company therefore has also made estimates of its probable
recoveries under insurance policies or from third-party indemnitors based on its
understanding of its insurance policies and indemnifications, discussions with
its insurers and indemnitors and consultation with outside legal counsel, in
addition to management's judgments. Based on the foregoing as of September 30,
1995, the Company has accrued approximately $17,000 as its estimate of aggregate
contingent liability for these matters, and has also recorded aggregate
receivables from its insurers and third party indemnitors of approximately
$16,000. In addition, management estimates that at present, the reasonably
possible range of loss, in addition to the amount accrued, is from $0 to
$37,000. The Company believes that it is insured or indemnified for this
additional reasonably possible loss, except for a portion which is not material.
While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation is in its early stages and it is impossible to predict with certainty
the ultimate outcome. The Company will adjust its estimates as necessary as
additional information is developed and evaluated. However, the Company believes
that the final resolution of these contingencies will not have a material
adverse impact on the financial position, results of operations or cash flows of
the Company.
The timing of probable insurance and indemnity recoveries, and payment of
liabilities, if any, is not expected to have a material effect on the financial
position, results of operations or cash flows of the Company.
7. SEGMENT AND GEOGRAPHIC INFORMATION:
Sales to individual customers constituting 10% or more of total revenues (in any
of the last three fiscal years) and sales by geographic region were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
1995 1994 1993
--------------------------
<S> <C> <C> <C>
Major Customers:
British Petroleum plc and subsidiaries ... $169,944 $103,637 $ 54,497
Mitsubishi International Corporation ..... $129,812 $ 69,920 $ 60,186
Export Sales:
Export revenues .......................... $534,067 $324,930 $158,804
Percentage of total revenues ............. 52% 46% 31%
Export revenues (as a percent of total
exports) by geographical area:
Asia ..................................... 64% 80% 61%
Europe ................................... 36% 16% 39%
Other .................................... - 4% -
</TABLE>
35
<PAGE>
STERLING CHEMICALS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Geographic Segment Information:
Revenues:
United States.................... $ 886,247 $578,295 $399,486
Canada........................... 143,951 122,545 119,335
---------- -------- --------
Total............................. $1,030,198 $700,840 $518,821
========== ======== ========
Income before taxes and
extraordinary item:
United States.................... $ 210,320 $ 27,106 $(12,877)
Canada........................... 17,838 1,148 5,909
---------- -------- --------
Total............................. $ 228,158 $ 28,254 $ (6,968)
========== ======== ========
Net Income:
United States.................... $ 140,382 $ 17,979 $ (8,991)
Canada........................... 9,667 1,153 3,571
---------- -------- --------
Total............................. $ 150,049 $ 19,132 $ (5,420)
========== ======== ========
Assets:
United States.................... $ 403,999 $376,594 $331,149
Canada........................... 204,615 204,331 215,605
---------- -------- --------
Total............................. $ 608,614 $580,925 $546,754
========== ======== ========
Selling, general and
administrative expenses:
United States.................... $ 14,535 $ 10,232 $ 10,422
Canada........................... 17,088 14,075 15,073
SARs............................. (2,767) 21,843 -
---------- -------- --------
Total............................. $ 28,856 $ 46,150 $ 25,495
========== ======== ========
</TABLE>
8. FINANCIAL INSTRUMENTS:
Foreign Exchange
The Company enters into forward foreign exchange contracts to hedge Canadian
dollar currency transactions on a continuing basis for periods consistent with
its committed exposures. The forward foreign exchange contracts have varying
maturities with none exceeding 18 months. The Company makes net settlements of
U.S. dollars for Canadian dollars at rates agreed to at inception of the
contracts.
The Company does not engage in currency speculation. However, the Company
enters into forward foreign exchange contracts to reduce risk due to Canadian
dollar exchange rate movements. The Company had a notional amount of
approximately $26,000 and $20,000 of forward foreign exchange contracts
outstanding to buy Canadian dollars at September 30, 1995 and 1994,
respectively. The deferred gain on these forward foreign exchange contracts at
September 30, 1995 and 1994 was immaterial.
Concentration of Credit Risk
The Company sells its products primarily to companies involved in the
petrochemical and pulp and paper manufacturing industries. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral for accounts receivable. However, letters of credit are
required by the Company on many of its export sales. The Company's credit losses
have been minimal.
The Company maintains cash deposits with major banks which from time to time
may exceed federally insured limits. Management periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.
Investments
It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as certificates of deposit, repurchase agreements or Eurodollar deposits with
domestic or foreign banks or other financial institutions. Other permitted
investments include commercial paper of major U.S. corporations with ratings of
A1 by Standard & Poor's or P1 by Moody's, loan participations of major U.S.
corporations with a short term credit rating of A1/P1 and direct obligations of
the U.S. Government or its agencies. In addition, not more than $5,000 will be
invested with any single bank, financial institution or U.S. corporation.
9. RELATED PARTY TRANSACTIONS:
The Company, through a wholly-owned subsidiary, is a partner in a joint venture
which constructed and operates a cogeneration plant at the Texas City facility.
During fiscal years 1995, 1994 and 1993, the Company purchased $16,622, $16,546
and $16,646 of steam and electricity from the joint venture, respectively, and
recorded earnings of $3,391, $2,788 and $2,598, respectively. The Company's
investment in the joint venture is not material.
36
<PAGE>
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and Stockholders of Sterling Chemicals, Inc.
We have audited the consolidated balance sheet of Sterling Chemicals, Inc. as of
September 30, 1995 and 1994 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sterling
Chemicals, Inc. as of September 30, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles.
[SIGNATURE OF COOPERS & LYBRAND L.L.P.]
COOPERS & LYBRAND L.L.P.
October 25, 1995
Houston, Texas
REPORT OF MANAGEMENT
Management is responsible for the preparation and content of the financial
statements and other information included in this annual report. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of events and transactions that should be included. The
financial statements reflect Management's judgments and estimates as to the
effects of events and transactions that are accounted for or disclosed.
Management maintains accounting systems which are supported by internal
accounting controls that provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with Management's
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles.
The concept of reasonable assurance is based on the recognition that the cost of
a system of internal accounting controls should not exceed the benefits.
Internal audits have been conducted to test compliance with internal controls.
Results of audit efforts and actions are communicated to appropriate Management
and to the Audit Committee of the Board of Directors.
Coopers & Lybrand L.L.P. performed a separate independent audit of the
Company's financial statements for the purpose of determining that the
statements are presented fairly and in accordance with generally accepted
accounting principles. Coopers & Lybrand L.L.P. was appointed by the Board of
Directors and meet regularly with the Audit Committee of the Board. The Audit
Committee of the Board of Directors is composed solely of outside directors. The
Committee meets periodically with the Company's senior officers, the Company's
Manager of Internal Audit and independent accountants to review the adequacy and
reliability of the Company's accounting, financial reporting and internal
controls.
[SIGNATURE OF VIRGIL WAGGONER]
J. Virgil Waggoner
President and Chief Executive Officer
[SIGNATURE JIM P. WISE]
Jim P. Wise
Vice President and Chief Financial Officer
October 25, 1995
37
<PAGE>
STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Quarterly Financial Data (unaudited)
Fiscal First Second Third Fourth(1)
Year Quarter Quarter Quarter Quarter
---- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues........................ 1995 $240,622 $303,954 $298,491 $187,131
1994 $130,560 $154,754 $204,668 $210,858
Gross profit.................... 1995 $ 48,354 $ 93,530 $103,504 $ 26,230
1994 $ 2,971 $ 14,806 $ 27,861 $ 48,286
Income before
extraordinary item............. 1995 $ 22,259 $ 56,077 $ 59,767 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Net income (loss)............... 1995 $ 22,259 $ 56,077 $ 56,663 $ 15,050
1994 $ (3,489) $ 1,829 $ 5,544 $ 15,248
Per Share Data:
Income (loss) before
extraordinary item............. 1995 $ .40 $ 1.01 $ 1.08 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
Net income (loss)............... 1995 $ .40 $ 1.01 $ 1.02 $ .27
1994 $ (.06) $ .03 $ .10 $ .27
Cash dividends per common
share.......................... 1995 $ - $ - $ - $ -
1994 $ - $ - $ - $ -
Price range of common
stock (NYSE)................... 1995 High $ 13 7/8 $ 14 $ 13 $ 12 7/8
Low $ 9 3/4 $ 10 7/8 $ 10 1/4 $ 8 1/4
1994 High $ 4 1/2 $ 6 3/4 $ 10 $ 13 3/4
Low $ 3 3/8 $ 4 $ 5 1/2 $ 9
</TABLE>
The common stock of the Company is traded on the New York Stock Exchange
("NYSE") under the ticker symbol "STX". There were approximately 20,000
shareholders of record and other beneficial owners as of September 30, 1995. For
more information concerning the Company's ability and intention to pay future
dividends see "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(1) The decline in revenues, gross profit and net income in the fourth quarter
of fiscal 1995 relative to previous quarters resulted from the decrease in
prices and margins for styrene and acrylonitrile as well as the negative
impact from the shutdowns in styrene and acrylonitrile during the quarter.
See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations".
Fourth quarter net income in fiscal 1994 included a charge of $12,159, or
$.14 per share, for expenses related to the SARs described in Note 5 of
the "Notes to Consolidated Financial Statements". In the fourth quarter of
fiscal 1995, the charge was $(4,325), or $(.05) per share. The Company's
stock price decreased from $13.50 on September 30, 1994 to $8.25 on
September 30, 1995, resulting in the reversal of the previously accrued
expenses.
38
<PAGE>
STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(Dollars In Thousands Except Per Share Data)
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------------------------------
Operating Data: 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $1,030,198 $700,840 $518,821 $430,529 $542,664 $506,046 $580,797 $ 698,964 $413,192
Gross profit...................... 271,618 93,924 40,919 27,882 70,257 106,403 172,608 334,990 118,956
Net income (loss)................. 150,049 19,132 (5,420) (5,890) 36,797 59,083 103,898 213,079 47,381
Net cash provided by (used in)
operating activities............. 191,838 75,249 48,114 (3,752) 65,605 85,384 136,433 253,082 79,726
Net cash used in
investing activities............. (53,962) (9,737) (12,175) (20,424) (36,051) (22,185) (60,820) (19,168) (13,916)
Net cash provided by (used in)
financing activities............. (109,017) (64,874) (37,057) 23,752 (26,721) (63,452) (75,627) (236,461) (70,454)
Capital expenditures.............. 53,962 12,343 12,175 15,953 34,374 19,915 57,592 16,993 13,174
EBITDA(1)......................... 284,247 89,471 52,477 40,967 78,522 115,241 178,562 337,336 125,450
Per Share Data:
Income (loss)..................... 2.70 0.34 (0.10) (0.11) 0.67 1.07 1.77 3.55 .79
Cash dividends.................... - - 0.06 0.245 0.65 1.00 .75 3.17 -
Weighted average number
of common shares
outstanding...................... 55,674 55,606 55,252 55,063 55,055 55,219 58,701 60,000 60,000
Balance Sheet Data:
Working capital................... $ 74,620 $ 20,809 $ 30,952 $ 56,787 $ 28,623 $ 35,315 $ 35,566 $ 39,448 $ 28,585
Total assets...................... 609,939 580,925 546,754 608,470 362,498 353,728 331,030 296,512 288,435
Long-term debt.................... 103,581 192,621 263,894 300,220 72,630 65,443 68,489 88,554 121,107
Stockholders' equity.............. 239,318 89,734 70,336 87,343 112,192 108,240 110,372 90,562 52,360
</TABLE>
/(1)/EBITDA (Earnings before interest, taxes, depreciation and amortization) is
presented to further enhance understanding of the Company's results of
operations and cash flows. It is not intended as an alternative measure of
performance to net income. EBITDA is used in certain calculations in the
financial covenants of the Company's credit agreements. In addition, with
certain adjustments, EBITDA is the basis for payments to employees under the
Company's profit sharing plans.
39
<PAGE>
CORPORATE INFORMATION
FORM 10-K
Copies of the Company's 1995 Form 10-K are
available without charge upon written request to:
Jim P. Wise
Vice President - Finance and
Chief Financial Officer
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002-4312
ANNUAL MEETING
Date: January 24, 1996
Time: 9:00 a.m.
Place: Texas Commerce Center
Auditorium
601 Travis
Houston, Texas 77002
LEGAL COUNSEL
Bracewell & Patterson, L.L.P.
2900 South Tower Pennzoil Place
Houston, Texas 77002
713/223-2900
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
1100 Louisiana, Suite 4100
Houston, Texas 77002
713/757-5200
STOCK LISTING
New York Stock Exchange
Ticker Symbol STX
STOCK TRANSFER AGENT
AND REGISTRAR
Society National Bank
c/o KeyCorp Shareholder
Services, Inc.
700 Louisiana, Suite 2620
Houston, Texas 77002-2729
CORPORATE HEADQUARTERS
Sterling Chemicals, Inc.
1200 Smith Street, Suite 1900
Houston, Texas 77002-4312
713/650-3700
DESIGN: BAXTER & KORGE, INC./HOUSTON PRINTED IN U.S.A.
PAPER STOCK: THE COVER AND NARRATIVE SECTIONS OF THIS ANNUAL REPORT
PRINTED ON PAPER WHOSE PULP WAS BLEACHED WITH CHLORINE DIOXIDE.
40
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Gordon A. Cain(2)
Chairman of the Board
J. Virgil Waggoner
President and Chief Executive Officer
James J. Kerley(1)
Retired Vice Chairman, Emerson Electric Co.
Raymond R. Knowland(1)(2)
Industrial Consultant
William A. McMinn(2)
Chairman, Arcadian Corporation
Frank J. Pizzitola(1)(2)
Limited Managing Director
Lazard Freres & Co., LLC
Gilbert M. A. Portal(1)(2)
President, GMH International
Oil and Gas Consulting
(1)Audit Committee
(2)Compensation Committee
EXECUTIVE OFFICERS
J. Virgil Waggoner
President and Chief Executive Officer
Robert W. Roten
Executive Vice President and
Chief Operating Officer
Jim P. Wise
Vice President - Finance and
Chief Financial Officer
Richard K. Crump
Vice President - Commercial
Robert N. Bannon
Vice President - Operations
F. Maxwell Evans
Vice President, General Counsel
and Secretary
Robert O. McAlister
Vice President - Human Resources
and Administration
Stewart H. Yonts
Treasurer
[PHOTO OF BOARD OF DIRECTORS]
Board of Directors
Seated, from left: J. Virgil Waggoner, Gordon A. Cain, Gilbert M. A. Portal.
Standing, from left: F. Maxwell Evans, Secretary to the Board, Raymond R.
Knowland, James J. Kerley, Frank J. Pizzitola, William A. McMinn.
[PHOTO OF OFFICERS]
Officers
Seated, from left: Jim P. Wise, J. Virgil Waggoner, Robert W. Roten.
Standing, from left: F. Maxwell Evans, Stewart H. Yonts, Robert O. McAlister,
Robert N. Bannon, Richard K. Crump.
<PAGE>
[LOGO APPEARS HERE]
Sterling Chemicals
1200 Smith Street
Houston, Texas 77002
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 30,882
<SECURITIES> 0
<RECEIVABLES> 112,102
<ALLOWANCES> 0
<INVENTORY> 67,867
<CURRENT-ASSETS> 220,351
<PP&E> 510,991
<DEPRECIATION> (201,907)
<TOTAL-ASSETS> 609,939
<CURRENT-LIABILITIES> 145,731
<BONDS> 0
<COMMON> 603
0
0
<OTHER-SE> 238,715
<TOTAL-LIABILITY-AND-EQUITY> 609,939
<SALES> 1,030,198
<TOTAL-REVENUES> 1,030,198
<CGS> 758,580
<TOTAL-COSTS> 758,580
<OTHER-EXPENSES> 28,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,604
<INCOME-PRETAX> 228,158
<INCOME-TAX> 75,005
<INCOME-CONTINUING> 153,153
<DISCONTINUED> 0
<EXTRAORDINARY> 3,104
<CHANGES> 0
<NET-INCOME> 150,049
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.70
</TABLE>
