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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 16, 1999
LYONDELL CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-10145 95-4160558
(Commission File Number) (I.R.S. Employer Identification No.)
1221 MCKINNEY STREET, SUITE 1600, HOUSTON, TEXAS 77010
(Address of principal executive offices) (Zip Code)
(713) 652-7200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
In a press release dated November 16, 1999, Lyondell Chemical Company (the
"Company") announced it reached agreement with Bayer AG and Bayer Corporation to
sell the Company's worldwide polyols business, along with an equity position in
the Company's U.S. propylene oxide operations, for approximately $2.45 billion.
The text of this press release is filed as an exhibit to this Current Report on
Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
10.1 -- Master Transaction Agreement dated November 16, 1999 among
Lyondell Chemical Company, Bayer AG and Bayer Corporation.
99.1 -- Press Release of Lyondell Chemical Company dated
November 16, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LYONDELL CHEMICAL COMPANY
By: /s/ Jeffrey R. Pendergraft
------------------------------
Jeffrey R. Pendergraft
Executive Vice President and
Chief Administrative Officer
Date: November 16, 1999
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EXHIBIT 10.1
===============================================================================
MASTER TRANSACTION AGREEMENT
Among
BAYER AG, BAYER CORPORATION
and
LYONDELL CHEMICAL COMPANY
Dated as of November 16, 1999
===============================================================================
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MASTER TRANSACTION AGREEMENT (this
"Agreement") dated as of November 16,
1999, by and among BAYER AG, a German
corporation ("Bayer"), BAYER CORPORATION,
an Indiana corporation ("Bayer Corp.")
(with respect to Article VIII, Article IX
and the Documentary Conventions set forth
in Appendix A only) and LYONDELL CHEMICAL
COMPANY, a Delaware corporation
("Lyondell").
Recitals
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Lyondell, Bayer and Bayer Corp. have agreed as follows:
A. Lyondell and the Lyondell Selling Subsidiaries will sell their
Polyols Business to Bayer under the terms of the Master Asset and Stock Purchase
Agreement substantially in the form of Exhibit A hereto by and among Lyondell,
Bayer, Bayer Corp. and each of the Lyondell Selling Subsidiaries (the "Asset
Purchase Agreement") and Bayer will purchase the Polyols Business from Lyondell
and pay to Lyondell the Polyols Business Purchase Price therefor, as it may be
adjusted, as provided in the Asset Purchase Agreement;
B. Bayer and Lyondell will form, through the use of wholly owned
subsidiaries, a new Delaware limited partnership (the "PO Joint Venture"), for
the purpose of owning certain of Lyondell's PO Assets in Texas, producing and
distributing in-kind PO to Bayer, and producing and distributing in-kind PO and
Co-Product to Lyondell under the terms of the Amended and Restated Limited
Partnership Agreement substantially in the form of Exhibit B hereto among such
wholly owned subsidiaries signatory thereto (the "PO Partnership Agreement");
C. Lyondell, indirectly, will contribute the PO Assets to the PO
Joint Venture in exchange for the Lyondell PO Partnership Interests, as more
specifically set forth in the PO Partnership Agreement;
D. Bayer will pay the Bayer PO Partnership Payment Amount to Lyondell
in exchange for the Bayer PO Partnership Interest, as more specifically set
forth in the Partnership Interests Purchase and Sale Agreement substantially in
the Form of Exhibit C hereto ("PIPA");
E. Bayer and Lyondell will form, through the use of wholly owned
subsidiaries, the Technology Joint Venture for the purpose of owning the PO
Technology Assets under the terms of the partnership agreement substantially in
the form of Exhibit D hereto among such wholly owned subsidiaries signatory
thereto (the "Technology Partnership Agreement");
F. Lyondell, indirectly, will contribute the PO Technology Assets to
the Technology Joint Venture in exchange for the Lyondell Technology Partnership
Interests, as more specifically set forth in the Technology Partnership
Agreement;
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G. Bayer will pay the Bayer PO Technology Partnership Payment Amount
to Lyondell in exchange for the Bayer Technology Partnership Units, as more
specifically set forth in the PIPA;
H. The Technology Joint Venture will license the use of the PO
Technology for the production of Identified Polyols to each of Bayer and
Lyondell (or their wholly owned subsidiaries that are partners in the PO Joint
Venture) on the terms set forth in the License Agreements substantially in the
form of Exhibits E and F hereto between the Technology Joint Venture and Bayer's
subsidiary, and between the Technology Joint Venture and Lyondell's subsidiary,
respectively;
I. Lyondell will operate the PO Assets for the PO Joint Venture under
the terms of a PO Operating Agreement substantially in the form of Exhibit G
hereto between the PO Joint Venture and Lyondell (the "PO Operating Agreement");
J. Lyondell will operate certain polyols assets for Bayer under the
terms of two separate Polyols Operating Agreements substantially in the form of
Exhibit H hereto between Lyondell, Bayer or their respective Affiliates
signatory thereto (collectively, the "Polyols Operating Agreement");
K. Lyondell, Bayer and certain of their respective Affiliates will
enter into certain other agreements as more particularly set forth in, or as
contemplated by, this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
Definitions and Usage
Unless the context shall otherwise require, terms used and not defined
herein shall have the meanings assigned thereto in Appendix A hereto, which also
contains rules as to usage and Documentary Conventions which shall govern this
Agreement. Inclusion of, or reference to, any matter in any Schedule to this
Agreement does not constitute an admission of the materiality of any such
matter.
ARTICLE II
Transactions and Closing
Upon the terms and subject to the conditions set forth herein, on the
Closing Date (unless otherwise specified) the parties will consummate each of
the following transactions effective as of the Closing Date (unless otherwise
specified).
SECTION 2.01. Purchase and Sale of Polyols Business. In
consideration of the payment by Bayer or one or more of its designated
Affiliates to Lyondell or one or more of its designated Affiliates of an amount
equal to the Polyols Business Purchase Price, in the manner provided under the
Asset Purchase Agreement, and Lyondell and the
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Lyondell Selling Subsidiaries will sell the Polyols Business to Bayer or one or
more of the Bayer Designees (the "Polyols Acquisition"). The specific terms of
the Polyols Acquisition are set forth in the Asset Purchase Agreement. Although
certain terms of the Polyols Acquisition shall be governed by this Agreement and
other Transaction Documents in addition to the Asset Purchase Agreement, the
Asset Purchase Agreement shall govern in the event of any inconsistencies
between the Asset Purchase Agreement and any other Transaction Document.
SECTION 2.02. Contribution of Contributed Assets; Payments for
Partnership Interests. (a) Lyondell or one or more of its designated
Affiliates shall contribute the PO Assets to the PO Joint Venture in exchange
for the Lyondell PO Partnership Interests (collectively, the "Lyondell PO
Partnership Contributions"). The specific terms of the Lyondell PO Partnership
Contributions are set forth in the PO Partnership Agreement. Although certain
terms of the Lyondell PO Partnership Contributions shall be governed by this
Agreement and other Transaction Documents in addition to the PO Partnership
Agreement, the PO Partnership Agreement shall govern in the event of any
inconsistencies between the terms of the PO Partnership Agreement and any other
Transaction Documents.
(b) Lyondell or one or more of its designated Affiliates shall
contribute the PO Technology to the Technology Joint Venture in exchange for the
Lyondell Technology Partnership Interests (collectively, the "Lyondell
Technology Partnership Contributions"). The specific terms of the Lyondell
Technology Partnership Contributions are set forth in the Technology Partnership
Agreement. Although certain terms of the Lyondell Technology Partnership
Contributions shall be governed by this Agreement and other Transaction
Documents in addition to the Technology Partnership Agreement, the terms of the
Technology Partnership Agreement shall govern in the event of any
inconsistencies between the Technology Partnership Agreement and any other
Transaction Document.
(c) Bayer or one or more of its designated Affiliates shall pay
Lyondell or one or more of its designated Affiliates an aggregate amount equal
to the Bayer PO Partnership Payment Amount in exchange for the Bayer PO
Partnership Interest (the "Bayer Partnership Payment"). The specific terms on
which the Bayer PO Partnership Payment is to be made are set forth in the PIPA.
Although the terms of the Bayer PO Partnership Payment shall be governed by
certain terms of this Agreement and the terms of other Transaction Documents in
addition to the PIPA, the terms of the PIPA shall govern in the event of any
inconsistencies between the PIPA and any other Transaction Document.
(d) Bayer or one or more of its designated Affiliates shall pay
Lyondell or its designated affiliates an amount equal to the Bayer PO Technology
Partnership Payment Amount in exchange for the Bayer Technology Partnership
Interest (the "Bayer Technology Partnership Payment"). The specific terms of
the Bayer Technology Partnership Payment are set forth in the PIPA. Although
certain terms of the Bayer Technology Payments shall be governed by the terms of
this Agreement and other Transaction Documents in addition to the PIPA, the
terms of the PIPA shall govern in the event of any inconsistencies between the
PIPA and any other Transaction Document.
SECTION 2.03. Bayer 300 Million Pound PO Option. Bayer's designated
Affiliate shall pay Lyondell's designated Affiliate the Bayer 300 Million Pound
PO
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Option Payment Amount in exchange for Lyondell's designated Affiliate's
execution of the Bayer 300 Million Pound PO Option Agreement.
SECTION 2.04. Purchase Price Allocations. (a) The consideration
for the Transactions (the "Purchase Price") is the sum of the Polyols Business
Purchase Price and the PO Purchase Price. The Purchase Price is $2,450,000,000.
The allocation of the Purchase Price among the payments required by Sections
2.01 through 2.03 is set forth on Appendix B, subject to Sections 2.04(b), (c),
(d) and (e).
(b) Lyondell and Bayer have agreed to an initial allocation of the
Purchase Price set forth in Appendix B between the Polyols Business Purchase
Price and the sum of (1) the Bayer PO Partnership Payment Amount; (2) the Bayer
PO Technology Partnership Payment Amount; and (3) the Bayer 300 Million Pound PO
Option Payment Amount (such sum being the "PO Purchase Price"). At any time on
or after the Closing Date, but no later than ninety (90) days after the Closing
Date, either Lyondell or Bayer may request an adjustment to such initial
allocation based upon further appraisal information sharing among the Parties,
including an adjustment to reflect Closing Working Capital. To the extent that
Lyondell and Bayer are unable to agree to any requested adjustment, Lyondell and
Bayer shall select an independent appraisal firm that, in consultation with the
Parent Parties and their respective consultants, shall make a final
determination of the allocation of Purchase Price between the Polyols Business
Purchase Price and the PO Purchase Price consistent with Applicable Law.
(c) Lyondell and Bayer have further agreed to an initial allocation
of the PO Purchase Price among the PO component payment amounts on Appendix B.
At any time on or after the Closing Date, but no later than ninety (90) days
after the Closing Date, either Lyondell or Bayer may request adjustments to the
allocation among such components, including but not limited to adjustments
necessitated by reason of adjustments under Section 2.04(b) above. If Lyondell
and Bayer are unable to agree to any requested adjustment under this Section
2.04(c), Lyondell and Bayer shall select an independent appraisal firm that, in
consultation with the Parent Parties and their respective consultants, shall
make a final determination of the allocation of PO Purchase Price, as adjusted
pursuant to Section 2.04(b), among the PO component payment amounts consistent
with Applicable Law.
(d) The independent appraisal firm shall be selected by agreement of
Lyondell and Bayer from a list of nationally recognized, independent appraisers
nominated by each Parent Party. In the event that either Parent Party fails to
nominate a nationally recognized, independent appraiser then the other Party's
separate appraiser shall be selected. Any determinations of such independent or
separate appraisal firm, as the case may be, made under Section 2.04(b) and (c)
shall be conclusive and binding as to Lyondell and Bayer and their respective
Affiliates. Lyondell and Bayer and their respective Affiliates shall file all
their Tax Returns consistent with any agreements and determinations made under
this Section 2.04.
(e) Lyondell and Bayer shall pay, on a 50/50 basis, all fees and
expenses of any independent appraisal firm selected under Sections 2.04(b) or
(c), if any. Lyondell and Bayer shall solely bear all costs of their respective
consultants.
SECTION 2.05. Closing Documents. (a) This Agreement and each
closing document attached as an Exhibit to this Agreement shall be a "Tier 1
Transaction
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5
Document." The "Tier 2 Transaction Documents" are identified on Schedule 2.05
(collectively and together with the Tier 1 Transaction Documents, the
"Transaction Documents"). Each of this Agreement and the Asset Purchase
Agreement will be referred to herein as an "Initial Transaction Document."
(b) On the Closing Date, each of Bayer and its applicable Affiliates
and Lyondell and its applicable Affiliates shall execute and deliver each of the
Transaction Documents that have not been previously executed.
SECTION 2.06. Closing Date. The closing of the Transactions (the
"Closing") shall take place at the offices of Cravath, Swaine & Moore, 825
Eighth Avenue, New York, New York 10019, at 10:00 a.m. on the first Business Day
which is (i) the last Business Day of a calendar month and (ii) at least ten
Business Days after the satisfaction (or, to the extent permitted, waiver by the
parties entitled to the benefits thereof) of the conditions set forth in Article
V (but in any case not earlier than January 31, 2000), or at such other place,
time and date as the parties hereto shall otherwise agree in writing (the
"Closing Date").
ARTICLE III
Representations and Warranties
Each Parent Party, with respect to itself and, as applicable, with
respect to its Affiliates, represents and warrants to the other Parent Party as
follows:
SECTION 3.01. Organization, Standing and Power. (a) Each of such
Parent Party and its Affiliates which is or will be a signatory to any Initial
Transaction Document (i) is duly organized or formed, validly existing and in
good standing under the laws of the jurisdiction in which it is so organized or
formed, (ii) subject to the board approvals described in Section 3.02, has full
corporate, partnership or limited liability company power and authority
necessary to enable it to perform its obligations under any Initial Transaction
Document to which it is or will be a party and (iii) is duly qualified to do
business as a foreign corporation, partnership or limited liability company and
is in good standing in each jurisdiction where such qualification is necessary,
except where the failure to be so qualified could not reasonably be expected to
have a Material Adverse Effect.
(b) Each of such Parent Party and its Affiliates which will be a
signatory to any Transaction Document to be executed and delivered on the
Closing Date (a "Closing Date Transaction Document"), in each case as of the
Closing Date (i) will be duly organized or formed, validly existing and in good
standing under the laws of the jurisdiction in which it is so organized or
formed, (ii) will have full corporate, partnership or limited liability company
power and authority necessary to enable it to perform its obligations under this
Agreement and each other Transaction Document to which it will be a party and
(iii) will be duly qualified to do business as a foreign corporation, limited
partnership or limited liability company and will be in good standing in each
jurisdiction where such qualification is necessary, except where the failure to
be so qualified could not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.02. Authority; Execution and Delivery; Enforceability.
(a) Subject to the board approvals described in this Section 3.02, each of such
Parent
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Party and its Affiliates has full corporate, partnership or limited liability
company power and authority to execute and deliver the Initial Transaction
Documents to which it is or will be a party and to consummate the Transactions
to be consummated by it thereunder. The execution and delivery by each of such
Parent Party and its Affiliates of the Initial Transaction Documents to which it
is or will be a party and the consummation of the Transactions to be consummated
by it thereunder will have been duly authorized by all necessary corporate,
partnership or limited liability company action upon the approval of the
Transactions by the Supervisory Board, the Board of Directors of Bayer Corp. or
the Lyondell Board of Directors, as applicable. When executed and delivered by
it (assuming the approval of each of the Supervisory Board, the Board of
Directors of Bayer Corp. and the Lyondell Board of Directors), each of such
Parent Party and its Affiliates will have duly executed and delivered each
Initial Transaction Document to which it is a party, and each such Initial
Transaction Document (assuming the due authorization, execution and delivery by
each other party thereto) will constitute its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except (x) as
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (y) the availability of equitable
remedies may be limited by equitable principles of general applicability (which
principles may include implied duties of good faith and fair dealing).
(b) Each of such Parent Party and its Affiliates will have as of the
Closing Date full corporate, partnership or limited liability company power and
authority to execute each of the Closing Date Transaction Documents to which it
is a party and to consummate the Transactions to be consummated by it
thereunder. The execution and delivery by each of such Parent Party and its
Affiliates of each of the Closing Date Transaction Documents to which it will be
a party and the consummation of the Transactions to be consummated by it
thereunder will have been duly authorized by all necessary corporate,
partnership or limited liability company action. Each of such Parent Party and
its Affiliates as of the Closing Date will have duly executed and delivered each
Closing Date Transaction Document to which it is a party, and each Closing Date
Transaction Document (assuming the due authorization, execution and delivery by
each other party thereto) will constitute its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except (x) as
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (y) the availability of equitable
remedies may be limited by equitable principles of general applicability (which
principles may include implied duties of good faith and fair dealing).
SECTION 3.03. No Conflicts; Consents. (a) The execution and delivery
by each of such Parent Party and its Affiliates of the Initial Transaction
Documents to which it is or will be a party does not and will not, and the
consummation of the Transactions and compliance with the terms of the
Transaction Documents will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancelation or acceleration of any obligation or to
loss of a material benefit under, or to increased, additional or accelerated
rights or entitlements of any Person under, or result in the creation of any
Lien upon any of the properties or assets of such Parent Party or any of its
Affiliates under, any provision of (i) its Organizational Documents, (ii) except
as set forth in Schedule 3.03(a) and Schedule 3.03 and 3.05 of the Asset
Purchase Agreement, any Contract to which it is a party or by which any its
properties or its assets is bound or (iii) any Judgment or any Applicable Law
applicable to its properties or its assets, other than, in the case of clauses
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(ii) and (iii) above, any such items that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.03(b), no Consent or Filing with
any Governmental Entity is or will be (i) required to be obtained or made by or
with respect to such Parent Party or any of its Affiliates for the execution and
delivery of the Transaction Documents to which it is or will be a party or (ii)
necessary for the consummation by such Parent Party and its Affiliates of the
Transactions other than (A) where the failure to obtain such a Consent or make
such a Filing, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect and (B) compliance with and
filings under the HSR Act and the Non-U.S. Competition Laws.
SECTION 3.04. Subsidiaries. Each Joint Venture Party Affiliate of
such Parent Party is or at the Closing will be a direct or indirect wholly owned
subsidiary of such Parent Party. Each Purchaser Designee under the Asset
Purchase Agreement will at the Closing be a direct or indirect majority owned
Affiliate of Bayer.
SECTION 3.05. Proceedings. Except as disclosed in Schedule 3.05,
as of the date of this Agreement, there are not any (a) outstanding Judgments
against or affecting such Parent Party, its Affiliates or its Contributed
Assets, or (b) Proceedings pending or, to the Knowledge of such Parent Party,
threatened against or affecting such Parent Party, its Affiliates or its
Contributed Assets, by or against any Governmental Entity or any other Person,
that, in the case of (a) or (b), in any manner challenge or seek to prevent,
enjoin, materially alter or materially delay any of the Asset Purchase
Transactions or the Joint Venture Transactions.
SECTION 3.06. Brokers or Finders. No agent, broker, investment
banker or other Person is or will be entitled to any broker's or finder's fee or
any other commission or similar fee in connection with any of the Transactions,
except (i) as to Bayer and its Affiliates, CS First Boston Corporation, whose
fees and expenses will be paid by Bayer and (ii) as to Lyondell and its
Affiliates, Salomon Smith Barney, whose fees and expenses will be paid by
Lyondell.
ARTICLE IV
Agreements and Covenants
SECTION 4.01. Confidentiality. (a) Bayer, Bayer Corp. and Lyondell
have previously entered into a Confidentiality Agreement dated as of August 5,
1998 (the "Confidentiality Agreement"). Nothing in this Agreement shall be
construed as impairing or otherwise limiting the obligations assumed pursuant to
the Confidentiality Agreement by the parties thereto, except that (i) the
Confidentiality Agreement shall remain in full force and effect in accordance
with its terms until the earlier of the Closing or the expiration dates set
forth therein and (ii) the choice of law and consent to jurisdiction provisions
in the Confidentiality Agreement shall be deemed to be superseded for all
purposes by the choice of law provisions set forth in the Documentary
Conventions.
(b) In addition to the obligations of each Parent Party set forth in
Section 4.01(a) above, each Parent Party, from and after the Closing, with
respect to itself and to its Affiliates, agrees and covenants with the other
Parent Party that it will keep
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confidential, and cause their and their Affiliates' respective officers,
directors, employees and advisors to keep confidential, all information relating
to (i) in the case of Lyondell, the Polyols Business, and (ii) in the case of
Bayer, the businesses of Lyondell (except information exclusively relating to
the operations of the Polyols Business prior to Closing; provided, however, that
Bayer shall be entitled to disclose such information only if Bayer consults in
good faith with Lyondell before publicly disclosing such information and only if
such information is not specific competitive customer information), except, in
each case, as required by Applicable Law or administrative process (to the
extent so required) (in which case the legally obligated party shall promptly
notify the other party and give the other party an opportunity to oppose such
disclosure) and except for information that is available to the public on the
Closing Date, or thereafter becomes available to the public other than as a
result of a breach of this Section 4.01. The covenants set forth in this Section
4.01(b) shall be effective as of Closing Date and shall terminate ten years
after the Closing Date.
(c) Each Parent Party shall and shall cause its Affiliates to be
bound by (i) the terms and conditions of Section 13.1 of each of the Joint
Venture Agreements as if such Parent Party or Affiliate were a "Partner" as
defined in such documents, and (ii) the confidentiality provisions set forth in
each of the other Transaction Documents.
SECTION 4.02. Antitrust. Each Parent Party shall, as promptly as
practicable following the execution and delivery of this Agreement (i) file with
the FTC and the DOJ the notification and report form pursuant to the HSR Act,
required for the transactions contemplated hereby and (ii) make (A) all filings
under the Non-U.S. Competition Laws of any country or the European Union under
which any clearance, consent, authorization, registration, declaration or other
action with respect to the transactions contemplated hereby is required and (B)
a filing using Form AB with the European Commission. Each Parent Party shall as
promptly as practicable (i) substantially comply with any request for additional
information and documents pursuant to the HSR Act and (ii) provide any
supplemental information requested pursuant to any Non-U.S. Competition Law.
Each Parent Party shall furnish to the other such information and assistance as
the other may reasonably request in connection with its preparation of any
filing, submission or other act that is necessary or advisable under the HSR Act
and the relevant Non-U.S. Competition Laws. Each Parent Party shall keep the
other Parent Party timely apprised of the status of any communications with, and
any inquiries or requests for additional information from, the FTC, the DOJ and
the relevant non-U.S. antitrust or competition authorities, and shall comply
promptly with any such inquiry or request. Each Parent Party shall use its
reasonable efforts to obtain any clearance under the HSR Act and the relevant
Non-U.S. Competition Laws required for the consummation of the Transactions or
otherwise contemplated by the filings referred to in this Section 4.02.
SECTION 4.03. Reasonable Best Efforts. (a) On the terms and
subject to the conditions of this Agreement, each Parent Party agrees to
cooperate and to cause its Affiliates to cooperate and to use its best efforts
consistent with reasonable commercial practice and without payment or incurrence
of unreasonable expense or the requirement to engage in litigation ("Reasonable
Best Efforts") to take, and cause its Affiliates to take, all action, and to do,
and cause its Affiliates to do, all things necessary, appropriate or advisable
under Applicable Law to cause the Closing to occur as promptly as practicable,
including taking all reasonable actions necessary to comply promptly with all
legal
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9
requirements that may be imposed on it or any of its Affiliates with respect to
the Closing.
(b) Such Parent Party (at its own expense) shall use its Reasonable
Best Efforts to obtain, and shall cause its Affiliates to use their Reasonable
Best Efforts to obtain, all consents from third parties identified as necessary
or appropriate to permit the consummation by such Parent Party and its
Affiliates of the Transactions (without payment of any assignment, consent or
similar fee requested by any Person).
(c) This Section 4.03 does not relate to antitrust matters, which are
the subject of Section 4.02.
(d) Each Parent Party (i) shall use its Reasonable Best Efforts to
cause the Closing to occur on or prior to March 31, 2000 (subject to extension
as may be required to obtain the Consents under Section 4.02) and (ii) shall not
take, and shall cause or direct its Affiliates and representatives not to take,
any action that would, or that could reasonably be expected to, result in any of
the conditions to the Transactions set forth in Article V not being satisfied;
provided, however, that the Reasonable Best Efforts obligation set forth in
clause (i) above shall not require either Parent Party to waive any right or
condition in this Agreement or any of the other Transaction Documents.
SECTION 4.04. Taxes. (a) General. Except as provided in subsection
(b) of this Section, any liability, obligation or commitment for Taxes incurred
by a Parent Party or any of its Affiliates as a result of any transaction
carried out in connection with this Agreement (including the carrying out of all
agreements among the Parent Parties and their Affiliates contemplated by this
Agreement) shall be borne by such Parent Party or its appropriate Affiliate.
(b) Transfer Taxes. Except as provided below, the Parent Parties
shall bear equally (50-50) all Transfer Taxes incurred as a result of the
Transactions:
(i) Lyondell shall bear 100% of any French Capital Tax (including any
related penalties and interest) resulting from any sale, contribution or
other transfer on or before the Closing Date of (A) any portion of the
Polyols Business located in France, or (B) any entity holding any portion
of the Polyols Business located in France in connection with this Agreement
or the Asset Purchase Agreement.
(ii) notwithstanding anything in this subsection, a Parent Party
shall be 100% responsible for any penalty or interest resulting from
nonpayment of a Transfer Tax or improper filing of a Transfer Tax Return by
such Parent Party or its Affiliate.
(iii) the Parties shall reasonably cooperate to minimize the
imposition of any Transfer Tax on either party by taking advantage of any
reasonably available exemptions, exceptions, or exclusions.
SECTION 4.05. Supplemental Disclosure. Each Parent Party, with
respect to itself and to its Affiliates, agrees and covenants with the other
Parent Party with respect to the period from the date of this Agreement through
the Effective Time that such party shall have the obligation to (i) supplement
or amend the Schedules to each of
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the Initial Transaction Documents (collectively, the "Initial Transaction
Document Schedules") with respect to any matter hereafter arising or discovered
that, if existing or known at the date of this Agreement, would have been
required to be set forth or described in such Initial Transaction Document
Schedules and (ii) with respect to matters for which no Initial Transaction
Document Schedule exists, to notify the other Parent Party if any representation
or warranty in any Initial Transaction Document ceases to be true and correct in
any material respect by providing an additional Initial Transaction Document
Schedule with respect to such representation or warranty, in each case of
clauses (i) and (ii) both (A) on the tenth Business Day of the first calendar
month after such Parent Party acquired Knowledge of an event or item required to
be so disclosed; and (B) on a date no earlier than fifteen Business Days and no
later than ten Business Days prior to the Closing Date. No disclosure contained
in such supplemented, amended or additional Initial Transaction Document
Schedules shall limit any right of the other Parent Party or any of its
Affiliates to decline to consummate the Closing if such supplemented, amended or
additional Initial Transaction Document Schedules disclose that any of the
representations or warranties of such Parent Party and its Affiliates contained
in any Initial Transaction Document (by reference to the Initial Transaction
Document Schedules on the date hereof) are not true and correct in all material
respects at and as of the Closing Date to the extent contemplated by Article V.
SECTION 4.06. Publicity. No public release or announcement
concerning the Transactions shall be issued by either Parent Party or any of its
Affiliates without the prior consent of the other Parent Party, except as such
release or announcement may be required by Applicable Law or the rules or
regulations of any United States or foreign securities exchange or commission
(in which case the party required to make the release or announcement shall
allow the other party reasonable time to comment on such release or announcement
in advance of such issuance and shall give reasonable consideration to all such
comments made by the other party).
SECTION 4.07. Notices of Certain Events. From the date of this
Agreement to the Closing Date, each Parent Party shall promptly notify the other
Parent Party of:
(a) any written notice or other written communication from any Person
alleging that the Consent of such person is or may be required in
connection with the transactions contemplated by this Agreement (other than
notice in respect of a Consent disclosed in any Initial Transaction
Document Schedule);
(b) any written notice or other written communication from any
Governmental Entity in connection with the transactions contemplated by
this Agreement; and
(c) any Proceedings commenced or, to the knowledge of such Parent
Party, threatened against, relating to or involving or otherwise affecting
either Parent Party or its Affiliates that are of the type described in
Section 5.05.
SECTION 4.08. Covenants of Lyondell and its Affiliates Relating to
Conduct of Businesses. (a) Except for matters set forth in Schedule 4.08 or
otherwise expressly permitted by the terms of this Agreement, from the date of
this Agreement to the Closing, Lyondell and its Affiliates, taking into account
the announcement of the Transactions, shall (i) conduct the Businesses in the
usual, regular and ordinary course in
<PAGE>
11
substantially the same manner as previously conducted, (ii) use their Reasonable
Best Efforts to preserve the Businesses in substantially the same condition as
the Businesses exist on the date of this Agreement, (iii) use their Reasonable
Best Efforts to keep available the services of the current employees of the
Businesses and (iv) use their Reasonable Best Efforts to preserve the
relationships of the Businesses with customers, suppliers, licensors, licensees,
distributors and others with whom the Businesses deal. In addition (and without
limiting the generality of the foregoing), except as set forth in Schedule 4.08,
or as otherwise expressly permitted or required by the terms of this Agreement,
Lyondell and its Affiliates shall not do any of the following in connection with
the Businesses without the prior written consent of Bayer:
(A) with respect to the Polyols Business only, adopt or amend in any
material respect any Lyondell Benefit Plan (or any plan that would be a
Lyondell Benefit Plan if adopted) or enter into, adopt, extend (beyond the
Closing Date), renew or amend any collective bargaining agreement or other
Contract with any labor organization, union or association, except in each
case as required by Applicable Law or pursuant to the terms thereof;
(B) with respect to the Polyols Business only, grant to any executive
officer or employee any increase in compensation or benefits, except in the
ordinary course of business and consistent with past practice or as may be
required under existing agreements and except for any increases for which
Lyondell shall be solely obligated;
(C) with respect to the Asian Entities only, incur or assume any
indebtedness for borrowed money or guarantee any such indebtedness except
short term borrowings in the ordinary course consistent with past practice;
(D) permit, allow or suffer, following written notice to Lyondell and
failure to cure following the lapse of fifteen calendar days from receipt
of such notice, any Acquired Asset or any PO Asset to become subjected to
any Lien of any nature whatsoever that would have been required to be set
forth in Schedule 3.02 or 3.03 of the Asset Purchase Agreement if existing
on the date of this Agreement;
(E) cancel any material indebtedness (individually or in the
aggregate) owing to Lyondell that constitutes an Acquired Asset or waive
any claims or rights of substantial value that constitute an Acquired
Asset;
(F) with respect to the Polyols Business only, except for transactions
contemplated by the Transaction Documents, sell, transfer or lease any of
its assets to Lyondell or any of its Affiliates;
(G) make any change in any method of accounting or accounting practice
or policy from those used in developing the Financial Statements other than
as mutually agreed by Lyondell and Bayer under the procedures set forth in
Exhibit C to the PO Operating Agreement.
(H) with respect to the Polyols Business only, except for transactions
required to effect the transactions contemplated by the Transaction
Documents, acquire by merging or consolidating with, or by purchasing a
substantial portion
<PAGE>
12
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets (other than inventory) that are material,
individually or in the aggregate, to the Polyols Business;
(I) with respect to the Polyols Business only, make or incur any
capital expenditure that is not either (x) set forth in Schedule 4.08(a)(I)
or (y) the result of a casualty, if such expenditure, individually, is in
excess of $1,000,000, or make or incur any such expenditures which, in the
aggregate, are in excess of $5,000,000;
(J) sell, lease, license or otherwise dispose of any of its assets
that are material, individually or in the aggregate, to the Businesses,
except (x) (1) inventory or (2) pieces of equipment with a value of less
than $100,000, individually, or $1,000,000, in the aggregate, in each case
sold or disposed of in the ordinary course of business and consistent with
past practice and (y) any Excluded Asset;
(K) with respect to the Polyols Business only, enter into any lease of
real property that is material to the Polyols Business, except any renewals
of existing leases in accordance with the terms thereof in the ordinary
course of business and consistent with past practice;
(L) materially modify, amend, terminate or permit the lapse of any
material lease of, or material reciprocal easement agreement, material
operating agreement or other material agreement relating to, real property
(except modifications or amendments associated with renewals of existing
leases in the ordinary course of business and consistent with past
practice);
(M) with respect to the Polyols Business only, enter into any
agreement involving either (X)(1) a term of greater than one year and (2)
an amount greater than $500,000 or (Y) an amount greater than $3,000,000 (a
"Proposed Agreement"); provided, however, that the provisions of this
Section 4.08(a)(M) shall not apply to any Proposed Agreement for the sale,
purchase or exchange of Polyether Polyols; provided, further, however, that
the provisions of this Section 4.08(a)(M) shall not be applicable to any
Proposed Agreement affecting both the Polyols Business and one or more
other businesses of Lyondell if both (A) the costs and benefits of such
Proposed Agreement are allocated equitably between the Polyols Business and
the other affected businesses and (B) as a result of Lyondell's inability
to enter into the Proposed Agreement Lyondell's other affected business or
businesses would incur an adverse economic effect; or
(N) authorize any of, or commit or agree to take, whether in writing
or otherwise, any of, the foregoing actions.
(b) Advise of Changes. In addition to Lyondell's obligations under
Section 4.05, Lyondell shall promptly advise Bayer in writing of the occurrence
of any matter or event that could reasonably be expected to result in breaches
by Lyondell of any its representations, warranties, covenants or agreements in
any of the Transaction Documents that would result in Losses that in the
aggregate equal or exceed $100,000,000, excluding Losses that are attributable
to (i) changes in market or economic
<PAGE>
13
conditions which affect the world or any regional economy generally, (ii) the
general market price of PO raw materials or polyols raw materials, supplies or
utilities (including propylene), (iii) the rate of inflation, (iv) valuation
levels in the United States, German or world equity or capital markets, (v)
specific customer or other actions resulting directly from the announcement of
the Transactions or (vi) actions by Bayer or its Affiliates that directly or
indirectly affect the Businesses.
(c) Affirmative Covenants. Until the Closing, Lyondell shall, and
shall cause its Affiliates to:
(i) maintain the Acquired Assets and the PO Assets in the ordinary
course of business in good operating order and condition, reasonable wear
and tear, obsolescence and damage from fire or other casualty or
condemnation excepted;
(ii) upon any damage, destruction or loss to any material Acquired
Asset or any material PO Asset, apply any and all insurance proceeds
received with respect thereto to the prompt repair, replacement and
restoration thereof to the condition of such Acquired Asset or PO Asset
before such event or, if required, to such other (better) condition as may
be required by Applicable Law; and
(iii) maintain the level and quality of Inventory and supplies, raw
materials and spare parts of the Businesses in the ordinary course of
business in a manner consistent with its practices in place as of the date
of the 1998 Balance Sheet except for changes that are commercially
reasonable in light of market conditions.
(d) Consultation. In connection with the continuing operation of the
Businesses between the date of this Agreement and the Closing, Lyondell and its
Affiliates shall use reasonable efforts to consult in good faith on a regular
and frequent basis with the representatives for Bayer to report material
operational developments and the general status of ongoing operations; provided,
however, that Lyondell may restrict access to the extent it reasonably believes
necessary to (w) comply with existing confidentiality agreements with third
parties, (x) ensure compliance with antitrust and anticompetition laws, (y)
preserve the secrecy of confidential information to the extent not related to
the Businesses and (z) preserve legal privilege. Lyondell and its Affiliates
acknowledge that any such consultation shall not constitute a waiver by Bayer of
any rights it may have under this Agreement or any other Transaction Document,
and that Bayer shall not have any liability or responsibility for any actions of
Lyondell and its Affiliates or any of their respective officers or directors
with respect to matters that are the subject of such consultations unless Bayer
expressly consents to such action in writing.
(e) No Restriction on Competition. This Section 4.08 is not intended
to limit or reduce, prior to the Closing, Lyondell or its Affiliates' ability to
operate the Businesses as an independent and viable competitor of Bayer,
including with respect to decisions regarding research and development, raw
materials, manufacturing, pricing, marketing and distribution of products.
SECTION 4.09. No Solicitation. Neither Lyondell nor any of its
Affiliates shall, nor shall any of them authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant or other
representative retained by them to, (i) solicit, initiate or encourage any
"other bid" (as defined below),
<PAGE>
14
(ii) enter into any agreement with respect to any other bid or (iii) participate
in any discussions or negotiations regarding, or furnish to any Person any
information with respect to, any other bid. Without limiting the foregoing, it
is understood that any authorized violation of the restrictions set forth in the
preceding sentence by any such officer, director, employee, investment banker,
attorney, accountant or other representative, whether or not such person is
purporting to act on behalf of Lyondell or any of its Affiliates or otherwise,
shall be deemed to be a breach of this Section 4.09 by Lyondell. As used in this
Section 4.09, "other bid" shall mean any proposal to acquire in any manner all
or any portion of the Acquired Assets or the PO Assets, other than (A) the
Transactions contemplated by this Agreement, (B) the acquisition of Inventory in
the ordinary course of business and (C) assets permitted to be sold pursuant to
Section 4.08 without Bayer's consent or for which Bayer's consent has been
obtained pursuant thereto and (D) any proposal that may result in a Change of
Control (as defined in Section 10.01(b)) of Lyondell as a whole (provided that
in the case of (D), Lyondell's obligations under this Agreement and the other
Transaction Documents shall not be altered or affected).
SECTION 4.10. Notification of Works Councils. Lyondell shall take
all necessary actions to notify (and, as appropriate, consult with) works
councils regarding the Transactions.
SECTION 4.11. Agreement Not To Compete . Lyondell and each of its
Affiliates understands that Bayer shall be entitled to protect and preserve the
going concern value of the Polyols Business to the extent permitted by law and
that Bayer would not have entered into the Transactions absent the provisions of
this Section 4.11 and, therefore, Lyondell agrees to the following provisions:
(a) Subject to subsections 4.11(b), (c) and (d), for a period of five
years from the Closing Date (the "Restricted Period"), Lyondell shall not, and
shall cause each of its Affiliates not to, develop, use, make or sell Polyether
Polyols (a "Competing Business"). For purposes of this Agreement, Lyondell and
its Affiliates shall be deemed to be engaged in a Competing Business if any of
them engage in any of the following:
(i)(A) sales of goods or services of the type sold by the Polyols
Business, (B) solicitation of any customer or prospective customer of the
Polyols Business to purchase any goods or services sold by the Polyols
Business, from anyone other than Bayer and its Affiliates, and (iii)
assisting any person in any way to do, or attempt to do, anything
prohibited by clause (A) or (B) above;
(ii) (A) soliciting, recruiting or hiring any employees of the Polyols
Business or persons who have worked for the Polyols Business immediately
prior to the Closing Date and are employed by Bayer after the Closing Date
or (B) soliciting or encouraging any employee of the Polyols Business to
leave the employment of the Polyols Business; provided, however, that the
restrictions contained in this Section 4.11(a)(ii) shall only be effective
for a period of two years from the Closing Date; and
(iii) selling PO to any polyurethane foam manufacturer other than
sales for the U.S. production of Polyether Polyols to any such manufacturer
that has been supplied by Lyondell with PO for such use prior to January 1,
1999. If the assets and business of such polyurethane foam manufacturer
are acquired by a third
<PAGE>
15
party, the exception set forth in this Section 4.11(a)(iii) shall still be
deemed to include the acquired assets and business in the hands of the
acquiror.
(b) Notwithstanding anything in this Section 4.11 to the contrary,
during the Restricted Period, Lyondell and its Affiliates shall have the right,
without being in violation of this Section 4.11, to undertake any of the
activities described as the "Performance Chemicals Business" in the Performance
Chemicals Agreement.
(c) Notwithstanding anything in this Section 4.11 to the contrary,
during the Restricted Period, Lyondell or its Affiliates may acquire all or part
of an equity interest in or substantially all the assets of any corporation,
partnership or other business entity which engages in a Competing Business,
without being in violation of this Section 4.11 if (i) the aggregate revenues of
the Competing Business do not exceed 15% of the total revenue of such acquired
business (measured by reference to the last full fiscal year preceding the date
of the agreement for the acquisition) and (ii) after completion of the
acquisition or investment thereof, Lyondell or the acquiring Affiliate engages
in its Reasonable Best Efforts to divest such Competing Business within 12
months after its acquisition, in a private auction procedure or other selling
procedure which shall include Bayer as a potential acquiror.
(d) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to Article
VII of this Agreement and other remedies at law would be inadequate in the case
of any breach of the covenants contained in Section 4.11. Bayer shall be
entitled to equitable relief, including the remedy of specific performance, with
respect to any breach or attempted breach of this Section 4.11.
SECTION 4.12 Maintenance of Insurance. (a) Lyondell agrees to
maintain its insurance policies covering the Businesses under substantially the
same or more favorable terms and conditions (including deductibles, policy
limits and scope of coverage) as such policies exist on the date of this
Agreement until the Closing Date.
(b) Lyondell and Bayer's insurance experts and attorneys will meet
prior to Closing to agree on the most cost-effective insurance and related
arrangements to control and manage any third party claim or claim for insurance
recovery.
ARTICLE V
Conditions Precedent
The obligation of each Parent Party and its Affiliates to consummate
the Transactions is subject to the satisfaction on the Closing Date of the
conditions set forth in Sections 5.01 through 5.10 and 5.12, any one or more of
which conditions of each party may be waived by such party to the extent
permitted by law:
SECTION 5.01. Governmental Approvals and Consents. (a) (i) All
Consents of, Filings with, or expirations of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the Transactions under the
HSR Act and the European Non-US Competition Laws shall have been obtained or
filed or shall have occurred and (ii) all other Consents of and Filings with, or
expiration of
<PAGE>
16
waiting periods imposed by, any Governmental Entity shall have been obtained or
filed (including filings under non-European, Non-US Competition Laws) if, with
respect to clause (ii) only, the failure to obtain such Consent or make such
Filing, or await the expiration of such period, is reasonably likely to have a
Material Adverse Effect after giving effect to Section 1.06 of the Asset
Purchase Agreement.
(b) Other Consents. In addition to the Consents referred to in
Section 5.01(a), there shall have been obtained (i) all Consents listed on
Schedule 5.01(b) and (ii) any other Consent from any third party with respect to
items listed on Schedules 3.03(a) or 3.03(b) or that would be required to be
listed on either such Schedule in order to make the representations in Section
3.03 correct.
(c) In the event that Lyondell is unable to obtain a particular
required Consent, but is able to demonstrate prior to Closing to Bayer's
reasonable satisfaction that it will be able to provide Bayer under an
alternative arrangement pursuant to Section 1.04(b) of the Asset Purchase
Agreement with the equivalent economic claims, rights and benefits that would
have accrued to Bayer if such Consent had been obtained, then such Consent shall
be deemed to have been obtained for purposes of Section 5.01(b).
SECTION 5.02. No Injunctions or Restraints. No Applicable Law or
Judgment enacted, entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition preventing the consummation of
any of the Transactions shall be in effect.
SECTION 5.03. Representations and Warranties. The representations
and warranties of the other Parent Party and its Affiliates made in the Initial
Transaction Documents qualified as to materiality shall be true and correct, and
those not so qualified shall be true and correct in all material respects, as of
the date hereof and as of the Closing Date as though made as of such date, and
such Parent Party shall have received a certificate signed by an authorized
officer of the other Parent Party to such effect.
SECTION 5.04. Performance of Obligations. The other Parent Party and
its Affiliates shall have performed or complied in all material respects with
all obligations and covenants required by the Initial Transaction Documents to
be performed or complied with by such other Parent Party and its Affiliates by
the Closing Date, and such Parent Party shall have received a certificate signed
by an authorized officer of such other Parent Party to such effect.
SECTION 5.05. Absence of Proceedings. There shall not be pending or,
to the Knowledge of such Parent Party, threatened by any Governmental Entity or
any other Person any Proceeding (in each case, that has a reasonable likelihood
of success) (i) challenging or seeking to restrain in any material respect
adverse to such party, or seeking to prohibit, any of the Transactions or any
term or provision of any Transaction Document that inures to the material
benefit of such Party, (ii) seeking to prohibit or limit, in any material
respect, the ownership or the operation by Bayer of the Polyol Assets, (iii)
seeking to impose, in any material respect, limitations on the PO Joint Venture
adverse to such party or to prohibit the PO Joint Venture from owning or
operating the PO Assets or the PO Technology Assets or (iv) seeking to compel
either Parent Party, or any of its Affiliates, to dispose of or hold separate
any material portion of its business or assets, in each case as a result of the
consummation of any of the Transactions. In addition, no Parent Party shall
have received any written communication
<PAGE>
17
by any Governmental Entity that such Governmental Entity has serious legal
concerns regarding the Transactions or any part thereof that would likely result
in a Proceeding (that would have a reasonable likelihood of success and the
consequences of which, if successful, would be adverse to such Parent Party)
described in clauses (i) - (iv) of the preceding sentence if the Transactions
are pursued.
SECTION 5.06. Other Documents. The other Parent Party and its
Affiliates shall have furnished such other documents relating to the corporate
existence and the authority to consummate the Transactions of such other Parent
Party and such other Parent Party's Affiliates (including true and complete
copies of applicable board of director resolutions, certification of incumbency
of those persons executing the Transaction Documents and applicable
Organizational Documents, in each case as amended and in full force and effect
on the date of this Agreement and, if subsequently amended, on the Closing
Date), and such other matters as it or its counsel may reasonably request.
SECTION 5.07. Transaction Documents. All Transaction Documents other
than as contemplated by Section 1.04 and Section 1.06 of the Asset Purchase
Agreement shall have been executed and delivered by each of the parties thereto
and shall be fully effective in all respects.
SECTION 5.08. Release of Liens. Lyondell shall have taken, or
caused to be taken, all steps necessary to effect a release of the Liens on the
Acquired Assets and the PO Assets under the Lyondell Credit Agreement and
Lyondell Senior Secured Notes, including delivery of lien releases in form and
substance reasonably satisfactory to Bayer's counsel, including Forms UCC-3.
SECTION 5.09. No Material Impairment. No Governmental Entity shall
have entered, enacted, issued, enforced or promulgated any Applicable Law or
Judgment such that payment or compliance with such Applicable Law or Judgment
would constitute a material impairment or diminution of the economic value of
the Polyols Business or the PO Assets.
SECTION 5.10. Opinions of Counsel. (a) Bayer shall have received
opinions each dated the Closing Date of Baker & Botts, L.L.P., and Lyondell's
General Counsel which shall together incorporate customary "due authorization,
execution and delivery", "due organization" and enforceability opinions with
respect to Lyondell and the Transaction Documents.
(b) Lyondell shall have received opinions each dated the Closing Date
of Cravath, Swaine & Moore, and Bayer's General Counsel which shall together
incorporate customary "due authorization, execution and delivery", "due
organization" and enforceability opinions with respect to Bayer, Bayer Corp. and
the Transaction Documents.
SECTION 5.11. Limitations of Certain Conditions. (a)
Notwithstanding the terms of Sections 5.01(b)(ii), 5.03 and 5.04, neither Parent
Party shall be entitled to exercise any rights under any such Section not to
consummate the Transactions unless the aggregate effect of all failures to
obtain Consents under Section 5.01(b)(ii) and breaches by the other Parent
Party under Section 5.03 and 5.04 (other than breaches of Section 3.13 of the
Asset Purchase Agreement) results in Realized Losses that in the aggregate equal
<PAGE>
18
or exceed $100,000,000, excluding Realized Losses that are attributable to (i)
changes in market or economic conditions which affect the world or any regional
economy generally, (ii) the general market price of PO or polyols raw materials,
supplies or utilities (including propylene), (iii) the rate of inflation, (iv)
valuation levels in the United States, German or world equity or capital
markets, (v) specific customer or other actions resulting directly from the
announcement of the Transactions or (vi) actions by Bayer or its Affiliates that
directly or indirectly affect the Businesses (the "Closing Condition
Threshold"); provided, however, that the Closing Condition Threshold shall have
no effect on the obligations of any party to the Transaction Documents to
provide indemnification for breaches of representations, warranties, covenants
or agreements by such party or its Affiliates. For purposes of this Section
5.11(a) only, the term "Realized Losses" shall mean any out-of-pocket damages,
costs or expenses incurred or paid by a Parent Party, excluding any
consequential, punitive, or exemplary damages except such damages paid to third
parties, after mitigation of such Realized Losses in accordance with Section
7.03(b).
(b) Notwithstanding the terms of Sections 5.03, 5.04 and 5.09,
neither Parent Party shall be entitled to exercise any rights under any such
Section not to consummate the Transactions by virtue of a breach or breaches of
Section 3.13 of the Asset Purchase Agreement or the failure of Section 5.09 to
be satisfied unless such breach or breaches (along with impairments and
diminutions of value within the scope of Section 5.09) have resulted in the
aggregate in a decrease in the value of the Polyols Business of greater than
$250,000,000 since December 31, 1998 (the "MAC Threshold"); provided, however,
that the MAC Threshold shall have no effect on the obligations of the parties to
provide indemnification for breaches of representations, warranties, covenants
and agreements by such party and its Affiliates except as specifically set forth
in Section 6.01(b)(v) of the Asset Purchase Agreement.
(c) Neither Parent Party may rely on the failure of any condition set
forth in this Article V to be satisfied if such failure was caused by such
party's action or inaction, or failure to cause the Closing to occur to the
extent required by Sections 4.02 and 4.03.
SECTION 5.12. Approval by Bayer Supervisory Board and Lyondell Board
of Directors. (a) On or prior to December 31, 1999, the Supervisory Board shall
have approved the terms of the Transactions, which approval shall be evidenced
by a written resolution of the Supervisory Board.
(b) On or prior to December 31, 1999, the Lyondell Board of Directors
shall have approved the terms of the Transactions, which approval shall be
evidenced by a written resolution of the Lyondell Board of Directors.
<PAGE>
19
ARTICLE VI
Termination
SECTION 6.01. Termination, Amendment and Waiver. (a) Notwithstanding
anything to the contrary in this Agreement, this Agreement may be terminated and
the Transactions abandoned at any time prior to the Effective Time:
(i) by mutual written consent of the parties hereto;
(ii) by either Parent Party, if the other Parent Party fails to
execute the Asset Purchase Agreement within 60 days of the execution of
this Agreement;
(iii) by either Parent Party in writing if any of the conditions set
forth in Article V (that inure to the benefit of such Parent Party) shall
have become incapable of fulfillment, and shall not have been waived by
such Parent Party following notice to such Parent Party and failure to cure
by the earlier of (A) 30 days after receipt of notice or (B) September 30,
2000;
(iv) by either Parent Party, if the Closing does not occur on or prior
to September 30, 2000; or
(v) by either Parent Party, in the event that either (A) the Lyondell
Board of Directors or (B) the Supervisory Board has not approved of the
Transactions by the close of business on December 31, 1999; provided,
however, that the right of termination set forth in this Section 6.01(a)(v)
shall be deemed to be waived by Lyondell or Bayer, as applicable, in the
event that the Transactions are approved by the Supervisory Board or the
Lyondell Board of Directors, as applicable, prior to termination by the
other Parent Party even if such approval occurs after December 31, 1999;
provided, however, that the party seeking termination pursuant to clause (iii)
or (iv) is not in breach of any of its representations, warranties, covenants or
agreements contained in this Agreement or the Asset Purchase Agreement in any
material respect.
(b) In the event of termination by a party pursuant to this Section
6.01, written notice thereof shall forthwith be given to the other parties, and
the Transactions shall be terminated without further action by any party. If
this Agreement is terminated as provided herein, each party shall return or, at
its option, destroy all documents and other material received from the other
party relating to the Transactions, whether obtained before or after the
execution hereof.
SECTION 6.02. Effect of Termination. If this Agreement is terminated
and the Transactions are abandoned as described in Section 6.01, this Agreement
shall become null and void and of no further force and effect, except for the
provisions of (i) Section 4.01 relating to the obligation of the parties to keep
confidential certain information and data obtained by it from the other parties,
(ii) Section 4.04 relating to Taxes, (iii) Section 4.06 relating to publicity,
(iv) this Section 6.02, (v) Article VII and (vi) paragraph (l) of the
Documentary Conventions relating to expenses and attorney fees. Nothing in this
Section 6.02 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement.
SECTION 6.03. Amendments and Waivers. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. By signing an instrument in writing, Lyondell, on the one hand,
or Bayer, on the other
<PAGE>
20
hand, may waive compliance by the other party with any term or provision of this
Agreement that such other party was or is obligated to comply with or perform.
Except as otherwise expressly provided in this Agreement, no failure or delay by
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. Except as otherwise expressly provided herein, the rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by Applicable Law or equity.
ARTICLE VII
Indemnification
SECTION 7.01. Indemnification by Lyondell. (a) From and after the
Closing, Lyondell shall indemnify Bayer and its Affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives against, and hold them harmless from, any loss, liability,
damage or expense (including reasonable legal fees and expenses) ("Losses"), as
incurred (payable promptly upon written request), arising from, in connection
with or otherwise with respect to:
(i) any breach of any representation or warranty of Lyondell or any of
its Affiliates that survives the Closing and is contained in this Agreement
(it being agreed and acknowledged by the parties that for purposes of
Bayer's right to indemnification pursuant to this Section 7.01 the
representations and warranties of Lyondell and its Affiliates shall be
deemed not qualified by any references herein or therein to materiality
generally or to whether or not any breach results or may result in a
Material Adverse Effect; provided, however, that such references to
materiality or Material Adverse Effect shall apply for purposes of
determining whether there has been a breach of a representation to the
extent such references are contained in such representation);
(ii)(A) any breach of any covenant of Lyondell or any of its
Affiliates contained in Article IV of this Agreement or (B) subject to the
limitations in Section 7.01(b)(iv), any impairments of value within the
scope of Section 5.09;
(iii) any fees, expenses or other payments incurred or owed by
Lyondell or any of its Affiliates to any brokers, financial advisors or
comparable other persons retained or employed by it in connection with the
transactions contemplated by this Agreement.
(b) Lyondell shall not have any liability with respect to breaches of
representations and warranties in this Agreement:
(i) under clause (i) of Section 7.01(a) in excess of $300,000,000 (the
"Lyondell MTA Cap") (except that this clause 7.01(b)(i) shall not apply to
any wilful breach of any representation or warranty by Lyondell);
(ii) under clause (i) of Section 7.01(a), unless the aggregate of all
Losses for which Lyondell would, but for this clause (ii), be liable
exceeds on a cumulative basis an amount equal to $40,000,000 (the "Lyondell
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21
MTA Threshold Amount") but after such Lyondell MTA Threshold Amount is
reached, Lyondell shall be responsible for the full amount of such Losses
after the first $30,000,000;
(iii) under Section 7.01(a) to the extent the liability or obligation
arises as a result of any action taken or omitted to be taken by Bayer or
any of its Affiliates except to the extent such action taken or omitted to
be taken is required under the terms of any of the Transaction Documents;
(iv) under Section 7.01(a)(ii)(B) for impairments of value within the
scope of Section 5.09 for either (A) any Losses in any amount less than
$30,000,000 or (B) more than 50% of the amount of such impairments of value
above $30,000,000 and less than $250,000,000; and
(v) under clause (i) of Section 7.01(a) for any individual item where
the Loss relating thereto is less than $35,000.
(c) The following provisions shall also apply to Lyondell's
indemnification obligations under this Article VII:
(i) Payments made by Lyondell under Article VI of the Asset Purchase
Agreement (other than with respect to breaches of Sections 3.11 and
3.14(b), under Section 6.01(a)(iii) and breaches of covenants) shall be
taken into account for purposes of establishing whether or not the Lyondell
MTA Cap has been reached.
(ii) Losses that are included under Section 6.01(b)(i) of the Asset
Purchase Agreement for purposes of calculating whether the APA Threshold
Amount has been reached shall be taken into account for purposes of
establishing whether the Lyondell MTA Threshold Amount has been reached.
For the avoidance of doubt, the purpose of Sections 7.01(c)(i) and
(ii) and Sections 6.01(d)(i) and (ii) of the Asset Purchase Agreement is to
insure that (A) the MTA Cap and APA Cap are considered together as one combined
cap and (B) the MTA Threshold and the APA Threshold are considered together as
one combined threshold.
SECTION 7.02. Indemnification by Bayer. (a) From and after the
Closing, Bayer and its Affiliates shall indemnify Lyondell and its Affiliates
and each of their respective officers, directors, employees, stockholders,
agents and representatives against, and agrees to hold them harmless from, any
Loss, as incurred (payable promptly upon written request), for or on account of
or arising from or in connection with or otherwise with respect to (i) any
breach of any representation or warranty of Bayer contained in this Agreement
(it being agreed and acknowledged by the parties that for purposes of Lyondell's
right to indemnification pursuant to this Section 7.02 the representations and
warranties of Bayer and its Affiliates shall be deemed not qualified by any
references herein or therein to materiality generally or to whether or not any
breach results or may result in a Material Adverse Effect; provided, however,
that such references to materiality or Material Adverse Effect shall apply for
purposes of determining whether there has been a breach of a representation to
the extent such references are contained in such representation), (ii) any
breach of any covenant of Bayer or any of its Affiliates contained in Article IV
of this Agreement or (iii) any fees,
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22
expenses or other payments incurred or owed by Bayer or any of its Affiliates to
any brokers, financial advisors or other comparable persons retained or employed
by it in connection with the transactions contemplated by this Agreement.
(b) Bayer shall not have any liability with respect to breaches of
representations and warranties in this Agreement:
(i) under clause (i) of Section 7.02(a) in excess of $300,000,000 (the
"Bayer MTA Cap") (except that this clause 7.02(b)(i) shall not apply to any
wilful breach of any representation or warranty by Bayer);
(ii) under clause (i) of Section 7.02(a) for any individual item where
the Loss relating thereto is less than $35,000; and
(iii) under Section 7.02(a) to the extent the liability or obligation
arises as a result of any action taken or omitted to be taken by Lyondell
or any of its Affiliates except to the extent such action taken or omitted
to be taken is required under the terms of any of the Transaction
Documents.
(c) Payments made by Bayer under Article VI of the Asset Purchase
Agreement (other than with respect to breaches of covenants) shall be taken into
account for purposes of establishing whether or not the Bayer MTA Cap has been
reached.
SECTION 7.03. Calculation of Losses; Mitigation; Limitation on
Consequential, Punitive and Exemplary Damages. (a) The amount of any Loss for
which indemnification is provided under this Article VII shall be (i) increased
to take account of any net Tax cost incurred by the indemnified party arising
from the receipt of indemnity payments hereunder (grossed up for such increase)
and (ii) reduced to take account of any net Tax benefit realized by the
indemnified party arising from the incurrence or payment of any such Loss. In
computing the amount of any such Tax cost or Tax benefit, the indemnified party
shall be deemed to recognize all other items of income, gain, loss deduction or
credit before recognizing any item arising from the receipt of any indemnity
payment hereunder or the incurrence or payment of any indemnified Loss.
(b) Each of Bayer and Lyondell shall attempt to mitigate and shall
cause each of its Affiliates to attempt to mitigate any Losses that such Parent
Party or its Affiliates may suffer as a consequence of any matter giving rise to
a right to indemnification against the other Parent Party or its Affiliates
under this Article VII by taking all actions which a reasonable person would
undertake to minimize or alleviate the amount of such Losses and the
consequences thereof, as if such person would be required to suffer the entire
amount of such Losses and the consequences thereof by itself, without recourse
to any remedy against another person, including pursuant to any right of
indemnification hereunder, provided that nothing in this Section 7.03(b) shall
oblige either of Bayer and Lyondell or any of their respective Affiliates to
seek recourse from its insurers.
(c) Neither Parent Party nor their respective Affiliates shall be
liable to the other Parent Party or its Affiliates under this Article VII for
indemnification of any punitive, consequential or exemplary damages with respect
to claims between such Parent Parties and their Affiliates; provided, however,
that this Section 7.03(c) shall not be construed to limit any indemnified
party's rights to indemnification under this Article VII
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23
for punitive, consequential or exemplary damages paid by such Parent Party to a
Third Party in respect of a Third Party Claim.
SECTION 7.04. Termination of Indemnification. The obligations to
indemnify and hold harmless any party, (i) pursuant to Section 7.01(a)(i) or
7.02(a)(i), shall terminate when the applicable representation or warranty
terminates pursuant to the terms of this Agreement, (ii) pursuant to Section
7.01(a)(ii) or 7.02(a)(ii), shall terminate two years after the termination of
the applicable covenant and (iii) the other clauses of Sections 7.01 and 7.02
shall not terminate; provided, however, that such obligations to indemnify and
hold harmless shall not terminate with respect to any item as to which the
person to be indemnified shall have, before the expiration of the applicable
period, previously made a claim by delivering a notice of such claim pursuant to
Section 7.05 to the party to be providing the indemnification.
SECTION 7.05. Procedures. (a) In order for a party (the
"indemnified party"), to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim made by any
person other than a Parent Party or its Affiliate against the indemnified party
(a "Third Party Claim"), such indemnified party must notify the indemnifying
party in writing (including copies of all papers served or delivered with
respect to such claim) of the Third Party Claim promptly following receipt by
such indemnified party of written notice of the Third Party Claim, which notice
shall describe in reasonable detail the nature of the Third Party Claim, an
estimate of the amount of damages attributable to the Third Party Claim to the
extent feasible and the basis of the indemnified party's request for
indemnification hereunder; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party shall not be liable
for any expenses incurred during the period in which the indemnified party
failed to give such notice). Thereafter, the indemnified party shall deliver to
the indemnifying party, promptly following the indemnified party's receipt
thereof, copies of all notices and documents (including court papers) received
by the indemnified party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party; provided, however, that such counsel is not reasonably
objected to by the indemnified party. Should the indemnifying party so elect to
assume the defense of a Third Party Claim, the indemnifying party shall not be
liable to the indemnified party for any legal expenses subsequently incurred by
the indemnified party in connection with the defense thereof. If the
indemnifying party assumes such defense, the indemnified party shall have the
right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the indemnifying party has
not assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the Third Party Claim as
provided above). If the indemnifying party chooses to defend or prosecute a
Third Party Claim, all the indemnified parties shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
indemnifying party's request) the provision to the indemnifying party of records
and
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24
information that are reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying party assumes the defense of a Third Party Claim, the
indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the indemnifying party's
prior written consent (which consent shall not be unreasonably withheld). If the
indemnifying party assumes the defense of a Third Party Claim, the indemnified
party shall agree to any settlement, compromise or discharge of a Third Party
Claim that the indemnifying party may recommend and that by its terms obligates
the indemnifying party to pay the full amount of the liability in connection
with such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim and that would not otherwise adversely
affect the indemnified party. Notwithstanding the foregoing, the indemnifying
party shall not be entitled to assume the defense of any Third Party Claim (and
shall be liable for the reasonable fees and expenses of counsel incurred by the
indemnified party in defending such Third Party Claim) if the predominant remedy
sought in the Third Party Claim is for an order, injunction or other equitable
relief or relief for other than money damages against the indemnified party that
the indemnified party reasonably determines, after conferring with its outside
counsel, cannot be separated from any related claim for money damages. If such
equitable relief or other relief portion of the Third Party Claim can be so
separated from that for money damages, the indemnifying party shall be entitled
to assume the defense of the portion relating to money damages.
(c) In the event a Third Party Claim is brought in which the
liability as between the parties to this Agreement is alleged by the Person
bringing such claim to be joint, the parties shall cooperate in the joint
defense of such Third Party Claim and shall offer to each other such assistance
as may reasonably be requested in order to encourage the proper and adequate
defense of any such matter. Such joint defense shall be under the general
management and supervision of the party which would reasonably be expected to
bear the greater share of the liability, unless otherwise agreed; provided,
however, that no party to this Agreement shall settle or compromise any such
joint defense without the consent of the other party, which consent shall not be
unreasonably withheld or delayed. Any uninsured costs of such joint defense
shall be borne as the parties may agree, provided, however, that in the absence
of such agreement, the defense costs shall be borne by the party incurring such
costs; provided, further, however, that, if it is later determined that one
party was entitled to indemnification for such liability under this Article VII,
the other party shall reimburse the party entitled to indemnification for all of
its costs incurred in connection with such defense.
(d) Other Claims. In the event any indemnified party should have a
claim against any indemnifying party under Section 7.01 or 7.02 that does not
involve a Third Party Claim being asserted against or sought to be collected
from such indemnified party, the indemnified party shall deliver written notice
of such claim with reasonable promptness to the indemnifying party which notice
shall describe in reasonable detail the nature of the claim, an estimate of the
amount of damages attributable to such claim to the extent feasible and the
basis of the indemnified party's request for indemnification hereunder. The
failure by any indemnified party to so notify the indemnifying party shall not
relieve the indemnifying party from any liability that it may have to such
indemnified party under Section 7.01 or 7.02, except to the extent that the
indemnifying party demonstrates that it has been actually prejudiced by such
failure (except that the indemnifying party shall not be liable for any expenses
incurred during the period in which the
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25
indemnified party failed to give such notice). If the indemnifying party
disputes its liability with respect to such claim, the indemnifying party and
the indemnified party shall proceed in good faith to negotiate a resolution of
such dispute and, if not resolved through negotiations, such dispute shall be
resolved in accordance with the Dispute Resolution Procedures.
SECTION 7.06. Survival. The covenants contained in Sections 4.01,
4.04 and 4.11 and the terms of Articles VIII, IX, X and XI shall survive the
Closing and shall not terminate except to the extent set forth in each such
Section. Except as provided in the preceding sentence, the representations,
warranties, covenants and agreements contained in this Agreement or in any
certificates delivered pursuant to Section 5.03 shall survive the Closing solely
for purposes of Article VII and shall terminate on the two year anniversary of
the Closing Date.
SECTION 7.07. Asset Purchase Agreement Effectiveness. For the
avoidance of doubt, it is understood that Lyondell's liability with respect to
breaches of representations, warranties and covenants in the Asset Purchase
Agreement shall be determined by reference to the Schedules to the Asset
Purchase Agreement in the form in which such Schedules are attached to Exhibit A
to this Agreement on the date of this Agreement.
ARTICLE VIII
Guarantee of Obligations
SECTION 8.01. Lyondell Guarantee. Lyondell hereby unconditionally,
absolutely and irrevocably, as primary obligor and not merely as surety,
guarantees, undertakes and promises to cause, as herein provided, the due and
punctual payment and the full and prompt performance by the Lyondell Affiliated
Obligors of all of the amounts to be paid and all of the terms and provisions to
be performed or observed by or on the part of the Lyondell Affiliated Obligors
under the Transaction Documents in accordance with the terms thereof (all such
payment obligations and terms and provisions as now or hereafter exist being
collectively called the "Lyondell Obligations") as follows: if any Lyondell
Affiliated Obligor shall fail in any manner whatsoever to pay, perform or
observe any of the Lyondell Obligations, when and as the same shall be required
to be paid, performed or observed under the terms of the Transaction Documents
Lyondell will itself duly and punctually pay, or fully and promptly perform or
observe, as the case may be, such Lyondell Obligations, or cause the same to be
duly and punctually paid, or fully and promptly performed or observed, in each
case as if Lyondell were itself the obligor with respect to such Lyondell
Obligations under the Transaction Documents.
SECTION 8.02. Bayer Guarantee. Bayer Corp. hereby unconditionally,
absolutely and irrevocably, as primary obligor and not merely as surety,
guarantees, undertakes and promises to cause, as herein provided, the due and
punctual payment and the full and prompt performance by the Bayer Affiliated
Obligors of all of the amounts to be paid and all of the terms and provisions to
be performed or observed by or on the part of the Bayer Affiliated Obligors
under the Transaction Documents in accordance with the terms thereof (all such
payment obligations and terms and provisions as now or hereafter exist being
collectively called the "Bayer Obligations" and together with the Lyondell
Obligations, the "Obligations") as follows: if any Bayer Affiliated Obligor
shall fail in
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26
any manner whatsoever to pay, perform or observe any of its Bayer Obligations,
when and as the same shall be required to be paid, performed or observed under
the terms of the Transaction Agreements, Bayer Corp. will itself duly and
punctually pay, or fully and promptly perform or observe, as the case may be,
such Bayer Obligations, or cause the same to be duly and punctually paid, or
fully and promptly performed or observed, in each case as if Bayer Corp. were
itself the obligor with respect to such Bayer Obligations under the Transaction
Agreements.
SECTION 8.03. No Demand or Notice. It shall not be a condition to
the guarantees and agreements of Lyondell and Bayer Corp. (in such case, each a
"Guarantor") set forth in Section 8.01 and Section 8.02 above (the "Guarantees")
that a Beneficiary shall have first made any request of or demand upon, or given
any notice of the occurrence of a default under the Transaction Documents or any
other notice whatsoever to, any Parent or its Affiliated Obligors or any other
Person, or shall have instituted any action or proceeding against any Affiliated
Obligor or any other Person in respect thereof, or shall have joined any
Affiliated Obligor or a Joint Venture in any such action or proceeding or made
any attempt to enforce performance of or compliance with the Obligations. A
Beneficiary in asserting the benefit of a Guarantee, shall give prompt notice to
a Guarantor of any failure by any Affiliated Obligor of such Guarantor or a
Joint Venture to pay, perform or observe any of its Lyondell Obligations or
Bayer Obligations, as the case may be; provided, however, that any failure,
delay or defect in the giving of such notice shall not alter or affect the
Guarantees under this Agreement.
SECTION 8.04. Waiver of Resort to Security. Each Guarantor further
agrees that this Agreement, insofar as it constitutes a guarantee of monetary
obligations, constitutes a guarantee of payment when due and not of collection,
and each Guarantor waives any right to require as a condition to its Guarantee
that any resort be had by a Beneficiary to any security held for the payment of
any Lyondell Obligation or Bayer Obligation, as applicable.
SECTION 8.05. No Discharge. The obligation of each Guarantor in
respect of its Guarantee is and shall remain absolute and unconditional
irrespective of any circumstance that might otherwise constitute a legal or
equitable discharge of a surety or guarantor, as the case may be, with respect
to its Guarantee.
SECTION 8.06. Waivers by the Parent. Each Guarantor hereby
unconditionally waives to the fullest extent permitted by law, with respect to
its Guarantee but without prejudice to the rights of the parties to the
Transaction Documents, (i) any notice of acceptance of this Agreement, grace,
presentment, demand, protest, notice of the occurrence of a default under the
Transaction Documents and any other notice of any kind whatsoever and promptness
in making any claim or demand hereunder, (ii) any right to the enforcement,
assertion or exercise by any Beneficiary of any right, power, privilege or
remedy conferred herein or in any other Transaction Documents, (iii) any
requirement of promptness or diligence on the part of any Beneficiary hereunder,
(iv) any requirement on the part of any Beneficiary to mitigate the damages
resulting from any default hereunder or under any Transaction Documents, (v) all
principles and provisions of law, statutory or otherwise, which may be in
conflict with the terms of this Guarantee, (vi) any other circumstance which
might otherwise constitute a legal or equitable discharge, release or defense of
a guarantor or surety, or which might otherwise limit recourse against Lyondell
or Bayer Corp., as applicable.
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27
SECTION 8.07. No Effect. No Guarantee shall be affected by (i) the
failure of a Beneficiary to assert any claim or demand or to enforce any right
or remedy under the provisions of any of the Transaction Documents or any
agreement related thereto or otherwise, (ii) any extension or renewal of any of
the Transaction Documents or any agreement related thereto, (iii) any
rescission, release, consent, extension, indulgence, waiver, amendment or
modification of or any other action or inaction with respect to any of the terms
or provisions of any of the Transaction Documents or of any agreement related
thereto, including, without limitation, any increase in the amount of any
payment obligation or any change in the time, manner or place of payment or
performance of any of the obligations under the Transaction Documents, (iv) any
exercise or nonexercise by any Beneficiary of any right, power, privilege or
remedy under or in respect of any Transaction Documents, or any waiver of any
such right, power, privilege or remedy or of any default in respect of any
Transaction Documents, (v) any limitation of the liability or obligations of the
applicable Guarantor or its Affiliated Obligors under the terms of any
Transaction Documents which may now or hereafter be imposed by any statute,
regulation or rule of law, or any invalidity or unenforceability, in whole or in
part, of such Transaction Documents or any term thereof, (vi) any merger or
consolidation of the applicable Guarantor into or with any other Person, or any
sale, lease or transfer of any or all of the assets of the applicable Guarantor,
to any other Person or any other change in the corporate structure of the
applicable Guarantor, (vii) any indebtedness of the applicable Guarantor to any
Person, (viii) any other circumstances which might otherwise constitute a legal
or equitable discharge, release or defense of a guarantor or surety, or which
might otherwise limit recourse against the applicable Guarantor, or (ix) the
release of any security held for payment of any Lyondell Obligation or Bayer
Obligation, as applicable.
SECTION 8.08. No Reduction. No Guarantee shall be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or set-off, counterclaim,
recoupment or termination whatsoever, except as provided in Section 8.11.
SECTION 8.09. Enforcement. Notwithstanding anything herein to the
contrary, a Beneficiary may proceed to enforce a Guarantee against a Guarantor
without first pursuing or exhausting any right or remedy that it or any of its
successors or assigns may have against any Affiliated Obligor or any other
Person and any requirement that it do so, but for this Section 8.09 is hereby
waived.
SECTION 8.10. Continued Effectiveness. Each Guarantee shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Lyondell Obligation or Bayer Obligation, as
the case may be, of an Affiliated Obligor is rescinded or must otherwise be
restored or returned by the Person receiving such payment upon the insolvency,
bankruptcy or reorganization of an Affiliated Obligor, all as though such
payment or part thereof had not been made.
SECTION 8.11. Certain Defenses. Nothing herein is intended to deny
to any Parent Party, and it is expressly agreed that each Guarantor shall have
and may assert, any and all the defenses, setoffs, counterclaims and other
rights (other than those relating to insolvency, bankruptcy or reorganization as
described in Section 8.10) with regard to the Lyondell Obligations or Bayer
Obligations, as the case may be, that its Affiliated Obligors may possess except
any defense its Affiliated Obligors may possess relating to
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28
lack of validity or enforceability of the Transaction Documents or any other
agreement or instrument relating thereto as against its Affiliated Obligors
arising from (i) the defective incorporation or other defective organization of
any of its Affiliated Obligors, (ii) any of its Affiliated Obligors' lack of
qualification to do business in any applicable jurisdiction or (iii) any of its
Affiliated Obligors' defective corporate or other organizational authority to
enter into, deliver or perform the Transaction Documents.
SECTION 8.12. Parties in Interest. Article VIII of this Agreement
shall inure solely to the benefit of the respective Beneficiaries and nothing in
this Article VIII, express or implied, is intended to or shall confer upon any
other Person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Article VIII. As used in this Agreement, "Beneficiaries"
shall mean (i) as to any obligations of Lyondell, except for its obligations
pursuant to Section 8.01 with respect to either the PO Partnership Agreement or
the Technology Partnership Agreement, the Joint Ventures, Bayer and the Bayer
Affiliated Obligors, (ii) as to any obligations of Bayer Corp., except for its
obligations pursuant to Section 8.02 with respect to either the PO Partnership
Agreement or the Technology Partnership Agreement, the Joint Ventures, Lyondell
and the Lyondell Affiliated Obligors, and (iii) as to any obligations of either
Guarantor pursuant to Section 8.01 or Section 8.02 with respect to the either
the PO Partnership Agreement or the Technology Partnership Agreement, the other
Guarantor. As used in this Article VIII, the term Guarantor includes any
successor or transferee of a Guarantor, and the term Affiliated Obligors
includes any successor to or transferee of the Affiliated Obligors' interest in
Joint Venture permitted pursuant to a either the PO Partnership Agreement or the
Technology Partnership Agreement.
ARTICLE IX
Ownership and Business of Joint Venture Subs
For purposes of this Article IX only, Bayer Corp. shall be deemed to
be included in the term "Parent Party".
SECTION 9.01. Restrictions on Transfer and Pledge of Joint Venture
Sub Stock. (a) Each Parent Party agrees that except as otherwise provided
below in this Section 9.01 or Section 9.02 or with the written consent of the
other party, which consent may be granted or withheld in such Parent Party's
sole discretion, it will not, and it will ensure that any of its Affiliates do
not, in any transaction or series of transactions, directly or indirectly, (i)
sell, assign or otherwise in any manner other than a Pledge dispose of, whether
by act, deed, merger, consolidation, conversion or otherwise ("Transfer") or
(ii) mortgage, pledge, hypothecate, charge, encumber or create or suffer to
exist any pledge, lien or encumbrance upon or security interest in ("Pledge"),
all or any part of the capital stock (including any securities convertible into
or exchangeable for or carrying any rights to purchase, subscribe for or
otherwise acquire any such Capital Stock) of its Joint Venture Subs
(collectively, the "Joint Venture Sub Stock"). (Each of the defined terms
"Transfer" and "Pledge" is used herein both as a noun and as a verb.) Any
attempt by a Parent Party to Transfer or Pledge all or a portion of its Joint
Venture Sub Stock in violation of this Agreement shall be void ab initio and
shall not be effective to Transfer such Joint Venture Sub Stock or any portion
thereof.
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29
The Joint Venture Agreements contain provisions relating to the
Transfer and Pledge of the Partner direct interests in the Joint Ventures.
(b) Each Parent Party agrees that all certificates representing
shares of any Joint Venture Sub Stock, whether currently owned or hereafter
acquired, shall carry the following legend, which legend each Parent Party
agrees to cause to be placed thereon and to cause to remain thereon as long as
such capital stock is subject to the restrictions of this Agreement:
THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OR HYPOTHECATION OF THE
CAPITAL STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS PURSUANT TO AND MAY NOT BE EFFECTED EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF THE MASTER TRANSACTION AGREEMENT BETWEEN LYONDELL, BAYER
AND BAYER CORP. DATED AS OF NOVEMBER 16, 1999 (THE "AGREEMENT") BINDING
UPON THE OWNER OF THE STOCK REPRESENTED HEREBY. THE OWNER OR ISSUER WILL
FURNISH A COPY OF SUCH AGREEMENT TO ANY PROPOSED TRANSFEREE OR PLEDGEE
WITHOUT CHARGE UPON REQUEST.
(c) Without the need for the consent of any Person, any Parent Party
may Transfer its Joint Venture Sub Stock to any wholly owned Affiliate of such
Parent Party; provided, however, that upon any such Transfer the transferring
Parent Party shall be required to execute and deliver to the other Parent Party
a written acknowledgment stating that the wholly owned Affiliate to which such
Transfer is being made is a Lyondell Affiliated Obligor or a Bayer Affiliated
Obligor, as applicable, for purposes of this Agreement.
(d) Without the need for the consent of any Person, each Parent Party
may Transfer all (but not less than all) its Joint Venture Sub Stock, if such
Transfer is in connection with (i) a merger, consolidation, conversion or share
exchange of such Parent Party, (ii) a sale or other disposition of the Joint
Venture Sub Stock together with other assets representing at least fifty-percent
(50%) of the book value of such Parent Party's assets, excluding the Joint
Venture Sub Stock, as reflected on its most recent audited consolidated (or
combined) financial statements of such Parent Party and its Subsidiaries or
(iii) a sale or other disposition of assets or businesses (other than the Joint
Venture Sub Stock), to the extent the Transfer of such assets or businesses is
not prohibited by any of the Transaction Documents; provided, however, that the
Successor Parent (as defined in Section 9.01(f)), if any, (A) shall succeed to
and be substituted for such Parent Party, with the same effect as if it had been
named herein and (B) shall execute an instrument wherein such Successor Parent
shall agree to be bound by the obligations of such Parent Party under this
Agreement, with the same effect as if it had been named herein, whereupon,
unless such Parent Party shall become a direct or indirect subsidiary of such
Successor Parent, such Parent Party shall thereupon be released from all
obligations under Articles VIII, IX and X of this Agreement; provided further
that (1) in the event of a Transfer in the form of a transaction described in
clause (i) of this Section 9.01(d), the Successor Parent, if any, shall execute
an instrument to the effect described in clause (B) of the first proviso to this
Section 9.01(d) and (2) following the consummation of any such Transfer, all the
Joint Venture Sub Stock directly or indirectly owned by such Parent Party prior
to such transaction shall be held by the same transferee or one or more
transferees that are wholly owned Affiliates of each other or of a common parent
entity.
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(e) Nothing in this Agreement shall prevent or restrict the Transfer
or Pledge of the capital stock, equity ownership interests or other securities
of a Parent Party and no such Transfer or Pledge of securities issued by a
Parent Party shall be deemed to constitute a Transfer or Pledge of Joint Venture
Sub Stock hereunder.
(f) For purposes of this Section 9.01, the term "Successor Parent"
shall mean the ultimate parent entity of the acquiring, succeeding or surviving
entity in any transaction contemplated by Section 9.01(d) that directly or
indirectly owns the applicable Joint Venture Sub Stock following such
transaction, if other than a Parent Party.
(g) In connection with any Transfer permitted under Section 9.01(d)
or Section 9.01(e), the transferring Parent Party contemporaneously agrees to
assign, or to cause its Affiliate to assign, to the transferee all of its rights
and obligations under the Transaction Documents and such transferee shall
execute all appropriate documents of assignment and assumption or otherwise to
evidence its assumption of the transferring Parent Party's Obligations
thereunder.
(h) Each Parent may Pledge all (but not less than all) of its Joint
Venture Sub Stock to or for the benefit of any one or more Approved Lenders. An
"Approved Lender" shall be any bank, insurance company, investment bank or other
financial institution or investment fund that is regularly engaged in the
business of making loans or participating in syndicatable loan transactions or
acquiring debt securities and any person or Governmental Entity benefiting
derivatively from any such Pledge.
SECTION 9.02. Prohibition on Affiliated Obligor Bankruptcy, Etc.
Each Parent Party hereby agrees that it will not, without the written consent of
the other Parent Party, permit any of its Affiliated Obligors (or their
successors or assigns) (i) to commence a voluntary action under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or State bankruptcy, insolvency or other similar law of the United
States or any foreign jurisdiction, (ii) to institute a proceeding to be
adjudicated a voluntary bankrupt, (iii) to consent to the filing of a bankruptcy
proceeding initiated against it, (iv) to fail to contest a bankruptcy proceeding
against it, (v) to consent to the appointment of a receiver, custodian,
liquidator or trustee for it or for all or any substantial portion of its
assets, (vi) in the case of its Joint Venture Subs, to issue or sell other than
to such Parent any of its own Joint Venture Sub Stock or (vii) to effect,
recognize or permit any Transfer or Pledge of any of its own Joint Venture Sub
Stock other than in accordance with the provisions of Article IX of this
Agreement.
SECTION 9.03. Special Purpose Subsidiaries. Each Parent Party
agrees that (i) the business of its Joint Venture Subs shall be restricted in
their respective Organizational Documents solely to the holding of the
respective interests in the Joint Ventures and the doing of things necessary or
incidental in connection therewith, (ii) it will cause its Joint Venture Subs
not to own any assets, incur any indebtedness or similar liabilities or engage,
participate or invest in any business outside the scope of the businesses
described in clause (i), (iii) each of its Joint Venture Subs shall be
restricted in its Organizational Documents from engaging in any merger,
consolidation, sale of substantially all of its assets or reorganization except
in compliance with the terms of this Agreement, (iv) each of its Joint Venture
Subs shall be required in its Organizational Documents to have on its board of
directors at least one independent director to be nominated by the other Parent
Party whose vote is required for voluntary bankruptcy
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filings by such Joint Venture Sub and (v) each of its Joint Venture Subs shall
be required in its Organizational Documents to abide by the Separateness
Covenants.
ARTICLE X
Standstill Agreement
SECTION 10.01. Standstill. (a) Each Parent Party agrees that until
the expiration of 24 months from the date on which such Parent Party and its
Affiliates no longer hold any interest in the PO Joint Venture, neither it nor
any of its Affiliates shall, without prior written invitation or request of the
other Parent Party: (i) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly, any securities, assets or property
of such other Parent Party (other than the stock of the Joint Venture Subs
directly or indirectly owned by such Parent Party or the interests in the Joint
Ventures held by such Joint Venture Subs); (ii) make any unsolicited proposal to
enter into, directly or indirectly, any merger or other business combination
involving such other Parent Party; (iii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
used in the proxy rules of the Securities and Exchange Commission) to vote, or
seek to advise or influence any person with respect to the voting of, any voting
securities of such other Parent Party; (iv) form, join or in any way participate
in a "group" (within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934) with respect to any voting securities of such other Parent Party;
(v) otherwise act, alone or in concert with others, to seek to control the
management, board of directors or policies of such other Parent Party; (vi)
disclose any intention, plan or arrangement consistent with the foregoing; or
(vii) advise, encourage, provide assistance (including financial assistance) to
or hold discussions with any other persons in connection with any of the
foregoing. Each Parent Party also agrees during such period not to request that
such other Parent Party (or its respective directors, officers, employees or
agents), directly or indirectly, amend or waive any provision of this Section
10.01 (including this sentence). Notwithstanding the foregoing, the terms of
the first sentence of this Section 10.01 shall not be applicable to the purchase
and sale of any securities of a Parent Party by independent third-party managers
of any pension or other related employee benefit plans who are acting as passive
investors in such Parent Party.
(b) Notwithstanding the provisions of Section 10.01(a) either Parent
Party may, by notice to the other Parent, terminate the provisions of Section
10.01(a) at any time within 30 days after the occurrence of any of the following
events with respect to the other Parent Party: (i) a Change of Control (as
defined below) of the other Parent Party shall have occurred, (ii) the other
Parent Party shall have entered into a definitive agreement providing for, or
publicly announced its intention to effect, any transaction involving a Change
of Control of such other Parent Party or (iii) either (A) a bona fide private or
public offer is made to such Parent Party or representatives of such Parent
Party by a third party which is presented to such Parent Party's Board of
Directors for consideration with a favorable recommendation or a recommendation
to explore such offer or (B) a tender offer or exchange offer shall have been
commenced or publicly announced, in each case which, if consummated, could
reasonably be expected to result in a Change of Control; provided, that, if any
offer described in clause (iii)(A) of this sentence is rejected by such Parent
Party's Board of Directors, or if any offer described in clause (iii)(B) of this
sentence expires or is abandoned without resulting in a Change of Control, then
the provisions of Section 10.01(a) shall thereupon be automatically
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reinstated. If a Parent Party initiates a solicitation of proposals or similar
process for the sale of such Parent Party either by itself or through its
representatives, in each case which, if consummated, could reasonably be
expected to result in a Change of Control, the other Parent Party may
participate in such process and make a proposal to purchase the other Parent
Party notwithstanding Section 10.01(a) above; provided, however, that the other
Parent Party must, prior thereto, sign any confidentiality and standstill
agreement applicable to other participants responding to such solicitation. A
"Change of Control" of a Parent Party shall mean the occurrence of any of the
following events: (a) there shall be consummated any consolidation, merger or
share exchange of such Parent Party (i) in which such Parent Party is not the
continuing or surviving Person (other than a consolidation, merger or share
exchange with a wholly owned subsidiary of such Parent Party in which all shares
of common stock of such Parent Party outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same number of
shares of common stock of such subsidiary) or (ii) pursuant to which the common
stock of such Parent Party is converted into cash, securities or other property,
other than, in each case, a consolidation, merger or share exchange of such
Parent Party in which the holders of the common stock immediately prior to the
consolidation, merger or share exchange hold, directly or indirectly, at least a
majority of the voting power and common equity of the continuing or surviving
Person immediately after such consolidation, merger or share exchange; (b) such
Parent Party's properties or assets are sold or otherwise disposed of
substantially as an entirety on a consolidated basis to any Person or group of
Persons in any one transaction or a series of related transactions, other than
as contemplated by the Master Transaction Agreement; or (c) any Person or
Persons acting together which would constitute a "group" (as defined in Section
10.01(a)) (other than such Parent Party, any subsidiary of such Parent Party,
any employee stock purchase plan, stock option plan or other stock incentive
plan or program, retirement plan or automatic dividend reinvestment plan or any
substantially similar plan of such Parent Party or any subsidiary of such Parent
Party or any Person holding securities of such Parent Party for or pursuant to
the terms of any such employee benefit plan), together with any Affiliates
thereof, shall acquire beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of 50% or more of the voting stock of such
Parent Party.
(c) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to Article
VII of this Agreement and other remedies at law would be inadequate in the case
of any breach of the agreements contained in Section 10.01. Each Parent Party
shall be entitled to equitable relief, including the remedy of specific
performance, with respect to any breach or attempted breach by the other Parent
Party of this Section 10.01.
ARTICLE XI
Section 11.01. System-wide PO Curtailment.
(a) System-wide PO Curtailment. Bayer and Lyondell have agreed to
certain buy/sell arrangements for Disruption Events, and for Qualified Non-ST
Planned Outages as set forth in this Section 11.01. "System-wide PO
Curtailment" means the curtailment following a Disruption Event or Qualified
Non-ST Planned Outage affecting any of the Existing Plants to Bayer and Lyondell
(and its customers) of PO as provided in this Section 11.01(a). Lyondell (and
its customers) and Bayer PO LP will be curtailed for each day of PO production
disruption in accordance with the following priority:
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(i) For all Qualified Non-ST Planned Outages and Disruption Events,
Lyondell and Bayer PO LP will first absorb the PO production loss resulting
from the Qualified Non-ST Planned Outage or Disruption Event in the ratio
of their respective Excess Daily PO Nominations (if any), up to the full
amount of their respective Excess Daily PO Nominations.
(ii) For Disruption Events not caused by Force Majeure, and to the
extent that there is PO production loss remaining after the allocation of
the loss under clause (i), Lyondell will absorb the loss up to the amount
of the Lyondell Non-Force Majeure Cushion.
(iii) For Qualified Non-ST Planned Outages, and for Disruption Events
caused by Force Majeure, any remaining PO production loss following the
allocation of the loss under clause (i) shall be shared between Lyondell
and Bayer PO LP in the ratio of their respective Capped Daily PO
Nominations. For Disruption Events not caused by Force Majeure, any
remaining PO production loss following the allocation of the loss under
clause (i) and under clause (ii) will be shared between Lyondell and Bayer
PO LP in the ratio of their respective Capped Daily PO Nominations.
(iv) Lyondell's PO deliveries that are curtailed pursuant to the
foregoing provisions of this Section 11.01(a) will be allocated
proportionately in accordance with Lyondell's volume allocations among the
Existing Plants remaining after Bayer PO LP's volume allocations under the
then applicable Sourcing Plan in effect during the Disruption Event or
Qualified Non-ST Planned Outage. Bayer PO LP's PO deliveries that are
curtailed pursuant to the foregoing provisions of this Section 11.01(a)
will be allocated among the Existing Plants in accordance with the
applicable Sourcing Plan in effect during the Disruption Event or Qualified
Non-ST Planned Outage.
(v) Bayer PO LP (directly or indirectly through product "swap" or
similar arrangement under the PO Logistics Agreement) shall be entitled to
nominate and receive in any year, within and subject to the nomination
procedures of the PO Partnership Agreement, PO in an amount equal to the
Bayer PO Annual Offtake Amount, subject to curtailment under this Section
11.01 for Disruption Events and Qualified Non-ST Planned Outages. Bayer PO
LP shall not be subject to curtailment under this Section 11.01 for
Scheduled Turnarounds. If there is a Casualty to an Existing Plant and the
Existing Plant Operator elects not to restore the Existing Plant (which
election shall be made within 120 days of the Casualty), then upon such
election, the plant shall cease to be an Existing Plant and Bayer PO LP
shall not be subject to curtailment for any event with respect to such
plant. In such event, the formulas for Baseline Daily PO Nominations,
Excess Daily PO Nominations and Lyondell Non-Force Majeure Cushion shall be
changed appropriately to reflect the loss of PO capacity of the unrestored
Existing Plant.
(b) Definitions. For purposes of Section 11.01, the following
capitalized terms are defined as follows:
(i) "Daily PO Nominations" means, as to Bayer, (x) the sum of (1) the
scheduled pounds of PO to be delivered to Bayer PO LP pursuant to the
Monthly
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Production Statement in effect for the PO Joint Venture plus (2) for the
duration of the Bayer 300 Million Pound PO Option, the scheduled pounds of
PO to be delivered to Bayer, in both cases for the month in which the
Disruption Event or the Qualified Non-ST Planned Outage commences, divided
by (2) the number of days in the month. Such term means, as to Lyondell,
the scheduled PO deliveries for both Lyondell's internal consumption and
customer sales as agreed between the business units and the plant
production teams for the Existing Plants that are in effect for the month
in which the Disruption Event or the Qualified Non-ST Planned Outage
commences, divided by the number of days in the month. Lyondell shall
maintain regular written records each month of the scheduled deliveries for
both Lyondell's internal consumption and customer sales as provided in the
prior sentence, which written records shall be subject to audit by Bayer in
the event of a curtailment of Bayer under this Section 11.01. For purposes
of this Section 11.01(b)(i), the daily prorated volumes of PO to be
delivered to Bayer and its Affiliates under the Market Based Supply
Agreement for the month in which the Disruption Event occurs will be
included in Lyondell's Daily PO Nominations and the PO to be delivered to
Bayer and its Affiliates under the Market Based Supply Agreement will be
ratably curtailed with PO volumes for Lyondell's internal consumption and
other customer sales.
(ii) "Capped Daily PO Nominations" means as to both Bayer and
Lyondell, their respective Daily PO Nominations capped at their respective
Baseline Daily PO Nominations.
(iii) "Baseline Daily PO Nominations" means, as to Bayer, the sum of
(w) the Bayer PO Annual Offtake Amount divided by 365 and (x) for the
duration of the Bayer 300 Million Pound PO Option, the lesser of (x)
273,973 pounds of PO or (y) the pounds of PO included in the purchase order
of Bayer for the month in which the Disruption Event or the Qualified Non-
ST Planned Outage commences under the 300 Million Pound PO Option
Agreement, divided by the number of days in the month. Such term means, as
to Lyondell, (y) 9,534,247 pounds of PO (being 3.480 billion pounds of PO
divided by 365) minus (z) the Baseline Daily PO Nominations for Bayer.
(iv) "Excess Daily PO Nominations" means for Lyondell and Bayer,
their respective Daily PO Nominations in excess of their respective
Baseline Daily PO Nominations. Notwithstanding the foregoing, if the sum
of the Daily PO Nominations of Lyondell and Bayer is less than 9,260,000
pounds per day, each of Lyondell's and Bayer's Excess Daily PO Nominations
shall each be deemed to be zero.
(v) "Lyondell Non-Force Majeure Cushion" means the lesser of (x) (1)
274,000 pounds or (y) the Daily PO Nominations of Lyondell and Bayer PO LP
together that exceed 9,260,000 pounds.
(vi) "Qualified Non-ST Planned Outage" means a Capital Project
Planned Outage or Governmental Planned Outage that (i) does not replace or
overlap with any Scheduled Turnaround or (ii) if such Planned Outage does
replace or overlap with a Scheduled Turnaround, the incremental loss, if
any, of PO or Co-Product production beyond that caused by the Scheduled
Turnaround. With respect to a Maintenance Capital Project that overlaps
with a Scheduled Turnaround, the
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incremental days of downtime must exceed 10% of the downtime of the
Scheduled Turnaround in order to constitute a Qualified Non-ST Planned
Outage. With respect to a Below Threshold Discretionary Capital Project,
Bayer PO LP must approve such Below Threshold Discretionary Capital Project
to constitute a Qualified Non-ST Planned Outage.
(vii) "Planned Outage" means any Scheduled Turnaround, Capital
Project Planned Outage or Governmental Planned Outage at any Existing
Plant.
(viii) "Capital Project Planned Outage" means, with respect to Bayer
PO LP, a shutdown or other outage to implement a Capital Project in which
Bayer PO LP is required or elects to participate in the costs and benefits
thereof pursuant to the terms of the PO Partnership Agreement.
(ix) "Governmental Planned Outage" means any shutdown or other outage
required to comply with EHS Law or other Applicable Law.
(x) "Scheduled Turnaround" means any scheduled turnaround for
periodic maintenance to any of the Existing Plants.
(xi) "Below Threshold Discretionary Capital Project" has the meaning
specified in Section 7.4 of the PO Operating Agreement.
(c) Buy/Sell Mechanics. A System-wide PO Curtailment shall be
implemented in the case of a Disruption Event or a Qualified Non-ST Planned
Outage affecting a Partnership Plant by Lyondell selling to Bayer PO LP
additional pounds of PO at locations in accordance with the Sourcing Plan that
is in effect during the Disruption Event or the Qualified Non-ST Planned Outage
so that Bayer PO LP receives in total the pounds of PO to which it is entitled
under the System-wide PO Curtailment formula. A System-wide PO Curtailment
shall be implemented in the case of a Disruption Event or a Qualified Non-ST
Planned Outage affecting Non-Partnership Plants by Bayer causing Bayer PO LP to
sell to Lyondell pounds of PO at locations in accordance with the Sourcing Plan
that is in effect during the Disruption Event or the Qualified Non-ST Planned
Outage so that Bayer PO LP receives in total the pounds of PO to which it is
entitled under the System-wide Curtailment formula.
(d) Pricing. All PO that is purchased and sold under this Section
11.01 shall be for a purchase price equal to the then-current Propylene Cost
plus PO Variable Unit Costs (determined on a System-wide Pooled Cost Basis). No
curtailment hereunder shall relieve Bayer PO LP or Lyondell of their respective
obligations to pay Fixed Costs. Each party shall wire transfer the required
purchase funds to the other party to its account in the United States in
accordance with the receiving Party's wiring instructions within five days after
receipt of PO purchased by such Party pursuant to the purchase and sale
provisions of this Section 11.01. Payments that are not timely received shall
bear interest from the date due until paid at the Default Rate.
(e) Specifications. All PO that is delivered by Lyondell or Bayer
under this Section 11.01 shall meet the specifications set forth in Schedule 2
to the PO Logistics Agreement unless the receiving Party accepts off-spec
product.
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(f) Curtailment Protocol Under PO Partnership Agreements. The
provisions of this Section 11.01 constitute a "curtailment protocol" for
purposes of Section 11.03 and Section 11.06 of the PO Partnership Agreement.
(g) Roll Over.
(i) If Bayer PO LP is curtailed under this Section 11.01 for
Disruption Events not resulting from Force Majeure such that Bayer PO LP
does not receive in any year its Bayer PO Annual Offtake Amount by reason
of such curtailment (Bayer PO LP's PO that is so curtailed is called herein
"Bayer Non-FM Curtailed Equity PO"), then Bayer PO LP shall be entitled to
add an amount equal to the Bayer Non-FM Curtailed Equity PO, up to 100
million pounds, to its nominations for the next year under Section 8.1(a)
of the PO Partnership Agreement and such added amount shall be deemed to be
part of the Bayer PO Annual Offtake Amount for the following year.
(ii) If Bayer PO LP does not receive in such year the full amount of
the Bayer Non-FM Curtailed Equity PO of the prior year by reason of
Disruption Events not caused by Forced Majeure, then Bayer PO LP shall be
entitled to add the shortfall, up to 100 million pounds, to its nominations
for the next year under Section 8.1(a) of the PO Partnership Agreement, as
provided in Section 11.01(g)(i) above. In no event shall Bayer PO LP be
entitled to carry forward in its nominations under this Section 11.01(g)
any Bayer Non-FM Curtailed Equity PO for more than two years. In making
such calculations, the Bayer Non-FM Curtailed Equity PO that is carried
forward from the first or second preceding year shall be deemed curtailed
first before any curtailment of the Bayer PO Annual Offtake Amount for the
then current year, and if there is Non-FM Curtailed Equity PO that is
carried forward for both the first and second preceding year, then the
Bayer Non-FM Curtailed Equity PO for the second preceding year shall be
deemed curtailed first and the Bayer Non-FM Curtailed Equity PO for the
preceding year shall be curtailed next before any curtailment of the Bayer
PO Annual Offtake Amount for the then current year.
(iii) Because the final Bayer Non-FM Curtailed Equity PO for a year
will not be known at the time of Bayer PO LP's nominations under Section
8.1(a) of the PO Partnership Agreement, the Annual Plan under the PO
Partnership Agreement will be adjusted to include Bayer PO LP's nominations
for the actual Bayer Non-FM Curtailed Equity PO of the prior year at the
time the final figure is determined, subject to the provisions and
limitations of this Section 11.01(g).
SECTION 11.02. Identified Polyol Demand Events. In the event that
at any time after 2005, either
(i) Identified Polyols are banned by government regulation in the
United States or in the European Union or
(ii) global annual demand for Identified Polyols declines to a level
that is less than 50% of 1998 demand levels for an 18 month period then:
Bayer PO LP shall have the right to sell either (A) 100%, in the event
of clause (i) above, or (B) a percentage equivalent to the demand decline, in
the event of
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clause (ii) above, (in either case, the "Eligible Percentage") of its Series A
Interests in the PO Joint Venture and its other equity PO capacity (together
"Bayer Equity PO Capacity"). Bayer PO LP must first offer the Eligible
Percentage to Lyondell. Lyondell shall have the right to acquire, at its option,
either 0%, 50% or 100% of such Eligible Percentage at the then Fair Market Value
(determined without giving effect to the field of use restriction set forth in
Section 2.01(a) of the Bayer License Agreement). Lyondell shall have 90 days to
decide whether or not to exercise its Fair Market Value option. If Lyondell
elects not to purchase such Eligible Percentage (or elects to purchase less than
100% thereof), Bayer PO LP shall have the right either (1) to sell PO volumes
distributed to Bayer PO LP pursuant to its ownership of the portion of the
Eligible Percentage not purchased by Lyondell (the "Unrestricted Portion") to
third parties or to convert the PO attributable to the Unrestricted Portion into
products other than Identified Polyols for sale to third parties, in either case
without paying the Accommodation Fee to Lyondell; or (2) to sell all or part of
the Unrestricted Portion to Creditworthy third parties. If the Eligible
Percentage is 100% of the Bayer Equity PO Capacity, Bayer PO LP's offer to
Lyondell must include Bayer PO LP's interest in the Technology Joint Venture.
SECTION 11.03. Resale or Use of PO not Taken by Bayer PO LP.
(a)(i) Upon the written request of Bayer PO LP (provided the conditions set
forth in this Section 11.03(a)(ii) have been satisfied) (a "Resale Request")
Lyondell shall use its Reasonable Best Efforts to either (A) captively use the
amount of PO set forth in such Resale Request or (B) market and sell such amount
of PO to third parties (the actions described in either (A) or (B) above, a
"Lyondell Resale").
(ii) Lyondell shall not be required to participate in a Lyondell
Resale unless and to the extent that (A) Lyondell shall at the time Bayer
delivers the Resale Request already be utilizing (through its own captive
use or sales to third parties) 100% of its own PO production capacity and
(B) participation in such a Lyondell Resale is not detrimental to the
business of Lyondell and its Affiliates. Lyondell shall promptly notify
Bayer PO LP in writing following receipt of a Resale Request if the
foregoing conditions are not satisfied.
(iii) Bayer PO LP shall receive the net proceeds after freight and
other out-of-pocket costs of any Lyondell Resale to a third party, less a
marketing fee retained by Lyondell of 2% of the net sales. For PO which
Lyondell is able to captively use, Lyondell and Bayer PO LP shall negotiate
a price at the time of the Resale Request that will yield a two percent
(2%) of net sales profit on the sale of the PO derivative product in which
the PO is consumed, taking into account all costs incurred by Lyondell in
captively using the PO.
(b) If at any time after the Closing Date, Bayer has excess PO above
its Identified Polyol requirements, Bayer PO LP has made Resale Requests to
Lyondell under this Section 11.03(b) that Lyondell has failed to fulfill due to
the limitations defined in Section 11.03(a)(ii), and the aggregate amount of PO
for which Resale Requests have been made and not fulfilled has reached 200
million pounds over any consecutive 12 month period (the "Accumulated Excess
Capacity"), then before Bayer elects to make other use of such Accumulated
Excess Capacity, Bayer LP shall request that Lyondell buy back such Excess
Capacity in minimum increments of 200 million pounds per year at Fair Market
Value (determined without giving effect to the specified field of use set forth
in Section 2.01(a) of the Bayer License Agreement). After Fair Market Value has
been determined, Lyondell shall have 30 days from the date of such
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determination to elect to purchase or decline to purchase such Accumulated
Excess Capacity at Fair Market Value.
Section 11.04. Bayer Equity Option. If Bayer and its Affiliates
purchase under the Market Based PO Supply Agreement in excess of 400 million
pounds of PO from Lyondell and its Affiliates during any consecutive 12 month
period ending after January 1, 2005, Bayer shall be granted an option (the "PO
Equity Option") to require that Lyondell, at Lyondell's sole election, either
(i) invest in new PO capacity by building a new PO production plant under the
terms set forth in this Section 11.04(b) below (the "New Plant Option") or (ii)
provide Bayer with an equity interest in Lyondell's existing PO production
capacity (which may include the capacity existing in the PO Joint Venture not
already owned by Bayer) under the terms set forth in Section 11.04(c) below (the
"Existing Capacity Option"). Bayer shall also receive an additional PO Equity
Option with respect to each 400 million pound increment of PO ordered and
purchased under the Market-Based PO Supply Agreement within a 12 month period
beyond the first such 400 million pound amount ordered by Bayer in such 12 month
period; provided, however, that Bayer may not exercise its rights under this
Section 11.04 within 36 months after any previous exercise of (i) such rights or
(ii) its rights under Section 11.06.
(a) Bayer may provide Lyondell with notice (an "Equity Option
Notice") of its desire to exercise its PO Equity Option by delivering to
Lyondell a written statement to that effect within 90 days after Bayer's
purchase of at least 400 million pounds of PO within a 12 month period pursuant
to the Market-Based PO Supply Agreement; provided, however, that Bayer has not
exercised its rights under this Section 11.04 or Section 11.06 in the prior 36
months. Lyondell shall deliver written notice of its choice between the New
Plant Option and the Existing Capacity Option to Bayer within 180 days of its
receipt of the Equity Option Notice.
(b)(i) In the event that Lyondell chooses the New Plant Option,
Lyondell shall within 30 days of delivering its response to Bayer's Equity
Option Notice deliver to Bayer a draft written agreement (the "New Capacity
Equity Agreement") setting forth the principal terms of Lyondell's plan to build
a new PO production plant (the "New Plant"). Lyondell and Bayer agree to use
their Reasonable Best Efforts to negotiate and execute a definitive New Capacity
Equity Agreement within 60 days of Lyondell's delivery of the initial draft.
Reasonable Best Efforts of Bayer and Lyondell for purposes of this Section
11.04(b) shall include Bayer and Lyondell's commitment of appropriate resources,
including senior level management, to the planning and execution of the
construction of the New Plant. Lyondell shall provide Bayer with all
information and projections internally generated by Lyondell and reasonably
requested by Bayer during the planning and construction of the New Plant in
order to facilitate Bayer's internal planning for the utilization of such New
Plant. Lyondell will consult with Bayer, but Lyondell shall have ultimate
decision making authority as to the capacity of the New Plant above 640 million
pounds of PO. Any New Plant will have a capacity of at least 640 million pounds
of PO unless otherwise agreed by Bayer and Lyondell. Bayer and Lyondell shall
mutually determine the location and legal structure for the parties' interests
in the New Plant and other relevant decisions.
(ii) Any New Plant shall not be a plant which produces TBA as a Co-
Product unless Bayer has previously agreed in writing to the construction
of such a plant. Prior to the beginning of construction of any New Plant,
Lyondell and Bayer shall agree upon the amount of PO to be produced by the
New Plant in
<PAGE>
39
which Bayer shall receive a 50% equity interest (which amount shall not be
more than 400 million pounds per year unless otherwise agreed by Bayer and
Lyondell)(the "New Capacity Equity Amount"). Bayer shall pay a share of
Lyondell's actual documented costs of research and development (except to
the extent Bayer has contributed to such research and development costs
under an on-going technology development and funding arrangement),
planning, design and construction of the New Plant (A) on a timetable which
matches Lyondell's capital outlays for such New Plant and (B) based upon
the ratio of (1) the New Capacity Equity Amount to (2) the total number of
pounds of rated PO capacity which is projected by Lyondell to be produced
by the New Plant; provided, however, that payments shall be made for
Lyondell's contribution of technology only to the extent that such
technology had not already been commercialized or installed in the Existing
Plants as of the Effective Date.
(iii) Bayer will own an equity interest in the New Capacity Equity
Amount and the associated Co-Product capacity in the New Plant (the "New
Capacity Equity Interest"). The New Capacity Equity Interest will result
in Bayer sharing producer risk and will provide that Bayer shall have (A)
the right and obligation to take the New Capacity Equity Amount of the PO
and a proportionate amount of the Co-Product produced by the New Plant and
(B) the obligation to bear the proportionate share of PO and Co-Product
production costs of the New Plant. The New Capacity Equity Amount shall be
delivered to Bayer on a monthly basis on a proportional schedule throughout
the course of the year (taking into account Scheduled Turnarounds and other
production disruptions) and Bayer's taking of Co-Product during each month
shall be proportionately matched to the amount of PO being delivered to
Bayer during such month and Bayer's payment of variable production cash
costs shall be proportionately matched to the amount of PO and Co-Product
being delivered to Bayer during such month. Bayer and Lyondell shall pay
their respective shares of fixed costs of the New Plant based on their
respective share of the PO capacity of the New Plant each month,
irrespective of production levels.
(iv) Lyondell and Bayer shall negotiate in good faith to determine the
terms of any license of any technology associated with such New Capacity
Equity Interest, including provisions for the protection and preservation
of the going concern value of Lyondell's PO and PO derivative businesses;
provided, however, that Bayer shall not be required to make any additional
payment for technology implemented in the Existing Plants as of the date of
this Agreement.
(c) (i) In the event that Lyondell chooses the Existing Capacity
Option, Lyondell shall within 30 days of delivering its response to Bayer's
Equity Option Notice deliver to Bayer a draft written agreement (the "Existing
Capacity Equity Agreement") setting forth the principal terms of Lyondell's plan
to provide Bayer with an equity interest in Lyondell's then existing capacity in
one or more plants equal to 400 million pounds of PO unless otherwise agreed by
Bayer and Lyondell and, at Lyondell's election, (subject to the conditions in
11.04(c)(iv) below) associated Co-product capacity (the "Existing Capacity
Amount").
(ii) Lyondell and Bayer agree to use their Reasonable Best Efforts to
negotiate and execute a definitive Existing Capacity Equity Agreement
within 60 days of Lyondell's delivery of the initial draft. Under the
Existing Capacity
<PAGE>
40
Equity Agreement, (A) Lyondell shall sell Bayer the right (the "Existing
Capacity Equity Interest") to take the Existing Capacity Amount for an
initial capital cost equivalent to the research and development (except (1)
to the extent that Bayer has contributed to such research and development
costs under an on-going technology development and funding arrangement and
(2) payments shall be made for Lyondell's contribution of technology only
to the extent that such technology had not already been commercialized or
installed in the Existing Plants as of the Closing Date), planning, design
and construction cost associated with Lyondell's then most recent
commercially proven technology, (B) delivery of the Existing Capacity
Amount, which shall include associated Co-product capacity unless Lyondell
determines that Bayer will not participate in Co-Product, shall take effect
on a timetable consistent with the timetable that would have existed if a
New Plant was built under the terms of Section 11.04(b) above unless
earlier delivery is mutually agreed by the parties and (C) Bayer shall
receive long-term rights in the Existing Capacity Amount produced at the
plant(s) in which Bayer is given capacity rights subject to ratable
curtailment. Bayer will pay fixed costs monthly irrespective of production
based on its share of PO production capacity at such plant(s) (unless
Lyondell has determined that Bayer will not participate in Co-Product, in
which case an allocation of costs between PO and Co-Product will be made in
accordance with the allocation used in Lyondell's then most recently
completed plant employing Lyondell's then most recent commercially proven
technology). Bayer will pay variable cash costs based on PO and Co-Product
delivered to it. Bayer's production costs will be based on and derived from
the production costs of Lyondell's then most recently completed plant
employing Lyondell's then most recent commercially proven technology.
(iii) Lyondell and Bayer shall negotiate in good faith to determine
the terms of any license of any technology associated with such Existing
Capacity Equity Interest, including provision for the protection and
preservation of the going concern value of Lyondell's PO and PO derivative
businesses; provided, however, that Bayer shall not be required to make any
additional payment for technology implemented in the Existing Plants as of
the date of this Agreement. The Parties shall also negotiate the
allocation of ownership and operational risks between the parties.
(iv) Unless Lyondell in its sole discretion elects not to provide
Bayer with Co-Product capacity, then Lyondell agrees to use Reasonable Best
Efforts to maximize the Existing Capacity Amount that is in Existing Plants
with SM as the Co-Product. "Reasonable Best Efforts" shall not be
construed to require Lyondell to change or impair its then existing SM
equity arrangements and relationships or to impair its SM business
remaining after such equity sale. Bayer shall have the right to accept the
PO capacity associated with SM Co-Product capacity and not accept the PO
capacity associated with TBA Co-Product capacity. Bayer shall also have
the right, if it believes the PO capacity associated with SM Co-Product
capacity is insufficient, to pursue its options under Section 11.04(d).
(d) (i) If Bayer determines that PO capacity is insufficient pursuant
to Section 11.04(c)(iv) or if Lyondell and Bayer do not reach agreement on the
terms for Bayer's equity participation pursuant to Section 11.04(b)(iv) or
11.04(c)(iii), then Bayer shall continue to be bound by Bayer's exclusive
purchase obligations and Lyondell shall continue to be bound by its supply
obligations under the Market Based PO Supply
<PAGE>
41
Agreement, except as hereinafter provided, and Bayer shall be free to construct
or acquire alternative equity arrangements on its own or with a third party in
accordance with Section 11.04(d)(ii). The provisions of Sections 11.06 and 11.11
shall not apply to alternative equity arrangements made by Bayer under this
Section 11.04(d).
(ii) If Bayer reaches a definitive agreement for the construction or
acquisition of an alternative equity arrangement on its own or with a third
party within 18 months from the date Bayer and Lyondell terminate
negotiations under this Section 11.04, then Bayer shall continue to be
bound by Bayer's exclusive purchase obligations (subject to Section 11.11)
and Lyondell shall continue to be bound by its supply obligations under the
Market-Based Supply Agreement until such time as Bayer receives PO under
such alternative equity arrangement, at which time Bayer's exclusivity
obligation under the Market-Based Supply Agreement shall not apply to the
PO received under such alternative equity arrangement, up to the amount of
PO that Bayer would have received had it concluded the transaction under
discussion between the Parties under this Section 11.04 at the time of
termination of negotiations. If Bayer fails to reach a definitive
agreement for the construction or acquisition of an alternative equity
arrangement within such 18 month period, then Bayer may at any time
thereafter deliver a new Equity Option Notice under this Section 11.04 to
recommence negotiations for a possible New Plant Option or Existing
Capacity Option under this Section 11.04.
(iii) If Lyondell and Bayer do reach agreement on the terms for
Bayer's equity participation under this Section 11.04, then Bayer shall
continue to be bound by Bayer's exclusive purchase obligations (subject to
Section 11.11) and Lyondell shall continue to be bound by its supply
obligations under the Market-Based Supply Agreement, but Bayer's
exclusivity obligation under the Market-Based Supply Agreement shall not
apply to the PO received under Bayer's equity participation under this
Section 11.04, up to the amount of PO that Bayer would have received had it
concluded the transaction under discussion between the parties under this
Section 11.04 at the time of termination of negotiations.
SECTION 11.05. PO-11 Facility. Lyondell and Bayer intend to
jointly pursue construction of a worldscale PO/SM facility (the "PO-11
Facility") in accordance with the terms of the Term Sheet set forth in Exhibit
L. Bayer and Lyondell agree to immediately begin to negotiate in good faith
toward execution of definitive documentation for the PO-11 Facility. For the
avoidance of doubt, the execution of definitive documentation with respect to
the PO-11 Facility shall not be a condition to Closing of the Transactions under
Article V.
SECTION 11.06. Right to Participate in New PO Plants. (a) Subject
to Section 11.06(e), Bayer and Lyondell shall have the right to participate
equally with the other in new PO plants built by the other after the Closing
Date during the term of the PO Joint Venture (each, a "New PO Plant").
(b) At such time as Lyondell or Bayer (in either case, the "Building
Party") decides to build any New PO Plant, it shall notify the other party and
provide the other party (the "Non-Building Party") with a written description of
the project, its projected costs and other relevant information. The Non-
Building Party shall then within 90 business days notify the Building Party of
its intent to participate or not participate in
<PAGE>
42
such New PO Plant. If the Non-Building Party elects to participate, both parties
shall then proceed to negotiate in good faith the terms of their participation
in such New PO Plant.
(c) If the Non-Building Party elects to participate in such New PO
Plant and the parties reach agreement on the material terms for the New PO Plant
and their respective participation, then (i) each party shall be obligated to
off-take (or provide for the off-take of) any Co-Product produced in such New PO
Plant in an amount proportional to its PO capacity in such New PO Plant, (ii)
each party shall pay a proportionate amount of the costs of research and
development (except to the extent each party has contributed to such research
and development costs under an on-going technology development and funding
arrangement), as well as the costs of planning, design and construction of such
New PO Plant, and (iii) the parties shall negotiate in good faith to determine
the technology utilized and the terms of the license of any technology
contributed to such New PO Plant by either party, provided, however, that if
Lyondell is the Building Party, Bayer shall not be required to make any
additional payment for technology implemented in the Existing Plants as of the
date of this Agreement.
(d) In the event that after negotiation in good faith Lyondell and
Bayer are unable to reach agreement on the terms of their joint participation in
a New PO Plant within 60 days after commencement of negotiations (as such period
may be extended by mutual agreement), then the Building Party may continue with
the New PO Plant project without the Non-Building Party's participation. In
such circumstances and if Lyondell is the Building Party, then Bayer shall be
permitted to construct or acquire new PO capacity of its own up to the amount of
PO capacity that it would have received in the New PO Plant on a 50/50
participation basis. Bayer shall continue to be bound by Bayer's exclusive
purchase obligations and Lyondell shall continue to be bound by its supply
obligations under the Market-Based Supply Agreement until such time as Bayer
receives PO under such alternative equity arrangement, at which time Bayer's
exclusivity obligation under the Market-Based Supply Agreement shall not apply
to the extent of the amount of PO that Bayer would have received in the New PO
Plant on a 50/50 participation basis.
(e) Subject to Bayer negotiating in good faith under the terms of
Section 11.07(a), Lyondell's right to participate in any Bayer New PO Plant is
conditioned on the execution by the one year anniversary of the Closing Date and
the continued effectiveness of the Joint PO Technology Development Agreement.
SECTION 11.07. Joint Development of PO Technology; Option on New PO
Technology. (a) Bayer and Lyondell agree to use their Reasonable Best Efforts
to execute by the Closing Date an agreement (the "Joint PO Technology
Development Agreement") substantially on the terms set forth in the Joint PO
Technology Development Term Sheet attached to this Agreement as Exhibit N. For
the avoidance of doubt, the execution of definitive documentation with respect
to a Joint PO Technology Development Agreement shall not be a condition to
Closing of the Transactions under Article V.
(b) To the extent that Lyondell or any of its Affiliates develops
technology relating to the production of PO (other than technology developed
under the terms of the Joint PO Technology Development Agreement) or implements
currently existing technology owned by Lyondell in any of the PO-producing
plants owned by Lyondell
<PAGE>
43
or any of its Affiliates other than the Partnership Plants, Lyondell shall offer
(a "New Technology Offer") the Partners in the PO Joint Venture the right to
implement such technology in each of the Partnership Plants. In the event that
the Partners accept a New Technology Offer, the implementation of the New
Technology Offer will be treated as a Discretionary Capital Project under the
terms of Section 8.04 of the PO Partnership Agreement. Lyondell shall be allowed
to include in the cost of the Capital Project a share of all of the research and
development costs incurred in connection with the technology to which the New
Technology Offer relates. Bayer PO LP's share shall be equal to Bayer PO LP's
Series A Percentage Interest times the PO capacity of the Partnership Plant or
Partnership Plants in which the technology to which the New Technology Offer
relates is incorporated divided by the total PO capacity of the Existing Plants
in which the technology to which the New Technology Offer relates is
incorporated. In the event that Bayer accepts any New Technology Offer, Lyondell
agrees that the intellectual property assets underlying such new technology
shall be transferred to the Technology Joint Venture (to the extent such assets
are not already owned by the Technology Joint Venture) and that the use of such
assets shall be governed by an appropriate license agreement between the
Partners of the PO Joint Venture and the Technology Joint Venture, which license
shall reflect the economic terms set forth in this Section 11.07(b). The terms
of this Section 11.07(b) supplement and do not limit Bayer's obligations to
contribute to process technology improvements directed at cost savings under
Section 2.2 of the Technology Partnership Agreement. This Section 11.07(b) shall
not result in Lyondell receiving double recovery for the same development costs.
Nothing in this Section 11.07(b) entitles Bayer to participate in, or to pay for
the research and development costs of, debottleneck projects for the Existing
Plants. Nothing contained in this Section 11.07(b) limits Bayer PO LP's rights
under the PO Partnership Agreement to be offered an opportunity to participate
in cost savings Discretionary Capital Projects.
SECTION 11.08. 300 Million Pound Option. Bayer's designated Belgian
Affiliate will have the right to purchase a total of 300 million pounds of PO
from Lyondell's designated Affiliate doing business in the Netherlands under the
terms and conditions set forth in a 300 Million Pound Option Agreement between
Lyondell's designated Affiliate and Bayer's designated Affiliate, substantially
on the terms of the Term Sheet set forth in Exhibit M attached hereto.
SECTION 11.09. Capital Spending Equilibration.
(a) Capital Project Participation Limited to Partnership Plant
Complex. Under the PO Partnership Agreement, Bayer PO LP is obligated to pay
its pro rata share with the other Series A Unit holders of the PO Share of
Maintenance Capital Projects, EHS Capital Projects and Discretionary Capital
Projects in which Bayer PO LP elects or is required to participate that are
undertaken at the Partnership Plant Complexes.
(b) System-wide Pooling for Operating Costs. The Operating Costs
included in the Operating Services Costs payable by Bayer PO LP at each
Partnership Plant Complex are determined on a System-wide Pooled Cost Basis.
(c) Intent to Compare and Approximate Capital Spending and Permit the
Bayer PO LPs to Receive Associated Cost Savings for System-wide Discretionary
Capital Projects. For consistency with this pooled treatment of Operating
Costs, and to facilitate accounting administration by minimizing the need to
separately track Operating Cost savings resulting from Discretionary Capital
Project projects at each Existing Plant
<PAGE>
44
Complex and excluding such cost savings from the Operating Costs that are pooled
for purposes of the System-wide Pooled Cost Basis calculations, Lyondell and
Bayer have agreed to (i) compare and approximate Bayer PO LP's Capital Cost
spending under the PO Partnership Agreement with what it would have paid had it
paid the Bayer Capacity Share (defined below) of all Capital Costs for all
Capital Projects included in the Capital Costs Comparative Pool (defined below)
and (ii) allow Bayer to participate in the Operating Cost savings resulting from
Discretionary Capital Projects at Non-Partnership Plants by agreeing to include
such Discretionary Capital Projects in the Capital Costs Comparative Pool.
(d) Mandatory Capital Projects. Lyondell will record its annual
spending on Maintenance Capital Projects and EHS Capital Projects at the Non-
Partnership Plants. The Capital Costs of such Capital Projects will be included
in the Capital Costs Comparative Pool. Lyondell will provide Bayer with
information concerning such Capital Projects consistent with the information
provided with respect to Maintenance Capital Projects and EHS Capital Projects
and the cost thereof under Section 8.3 of the PO Partnership Agreement.
Additionally, Discretionary Capital Projects to Infrastructure Assets at the
Non-Partnership Plant Complexes that fall below the dollar threshold specified
in Section 7.3(c)(iv) of the PO Operating Agreement (with such threshold to be
mutually adjusted every five years taking into account inflation and other
relevant factors) will be included in the Capital Costs Comparative Pool without
a right of approval by Bayer PO LP, in the same manner as Maintenance Capital
Projects and EHS Capital Projects.
(e) Cost Savings Discretionary Capital Projects. Lyondell will bring
proposals for Discretionary Capital Projects to the Non-Partnership Plant
Complexes that are expected to result in reductions in Operating Costs to Bayer
generally in accordance with the provisions of Section 8.4 of the PO Partnership
Agreement. For Capital Projects to the Non-Partnership Plants that both
increase capacity and reduce Operating Costs, an allocation of the benefits and
associated Capital Costs shall be made in accordance with the principles of
Section 8.4(d) of the PO Partnership Agreement. In accordance with the
provisions of Section 8.4 of the PO Partnership Agreement, Bayer shall review
such proposals and elect (i) to receive the benefit of the Operating Cost
savings resulting from each such Capital Project by including the Capital Costs
of such Discretionary Capital Project in the Capital Costs Comparative Pool or
(ii) not to receive the benefit of the Operating Cost savings resulting from
such Capital Project and not include the Capital Costs of such Discretionary
Capital Project in the Capital Cost Comparative Pool.
(f) Capital Costs Comparative Pool. Within 90 days following each two
year period, Lyondell shall provide Bayer with a comparison showing all Capital
Costs paid by Bayer PO LP under the PO Partnership Agreement for such two year
period (mandatory and discretionary) compared to the Bayer Capacity Share of all
Capital Costs for all Capital Projects to both the Partnership Plant Complexes
and Non-Partnership Plant Complexes in which Bayer PO LP is obligated or elects
to participate in accordance with the provisions of Sections 8.3 and 8.4 of the
Partnership Agreement and this Section 11.09 (the "Capital Costs Comparative
Pool"). The "Bayer Capacity Share" means the Bayer PO Annual Offtake Amount
divided by the Existing Plant Total PO Capacity in effect during each of the
prior two years. Bayer shall have the right to audit the Capital Costs included
in the Capital Costs Comparative Pool under the same terms and conditions as the
audit of Fixed Costs described in Exhibit C to the PO Operating Agreement.
<PAGE>
45
(g) Adjustment. If the positive or negative difference between (i)
the Capital Costs paid by Bayer PO LP under the Partnership Agreement for the
prior two years and (ii) the Bayer Capacity Share of the Capital Costs of all
Capital Projects included in the Capital Costs Comparative Pool for such two
year period exceeds 10% of the amount under clause (i), then Bayer and Lyondell
will make an equitable adjustment between them to equilibrate Bayer PO LP
capital spending under (i) compared to what it would have been under (ii) for
the two year period. Additionally, if in connection with comparative review of
Capital Costs pursuant to Section 11.01(f) it is determined that the cumulative
net positive or negative difference between (i) the Capital Costs paid by Bayer
PO LP under the PO Partnership Agreement and (ii) the Bayer Capacity Share of
the Capital Costs of all Capital Projects included in the Capital Costs
Comparative Pool measured from the Effective Date through the last year of the
Capital Costs review, exceeds $5,000,000 (which threshold shall be mutually
adjusted every five years taking into account inflation and other relevant
factors) then Lyondell and Bayer will make an equitable adjustment between them
to equilibrate Bayer PO LP's capital spending under clause (i) compared to what
it would have been under clause (ii). Lyondell and Bayer shall agree on the
method of equitable adjustment (examples of adjustment mechanisms might include
prefunding of Capital Projects in the PO Joint Venture, distributions of capital
invested in the PO Joint Venture, loans to or from the PO Joint Venture,
disproportionate funding in the PO-11 Facility or other means). The parties
shall seek to make such adjustment in a tax efficient manner for both Parent
Parties, but both Parent Parties recognize and agree that there is no assurance
of tax efficiency to either Parent Party with adjustment.
SECTION 11.10. Lyondell Excess Production Option. (a) At any time
following the end of each month, if PO Product deliveries to Bayer PO LP
(including PO volumes that are swapped under logistical exchange arrangements)
exceed the monthly volumes set forth in the Monthly Production Statements, then
Lyondell shall have the option to purchase from Bayer the amount of such excess
out of the next PO deliveries to Bayer PO LP at the then Propylene Cost plus PO
Variable Unit Cost (determined on a System-wide Pooled Cost Basis) for each
pound of PO so purchased. Unless the parties agree otherwise, the purchases
shall be made Ex Works at either the Channelview Plant Facility or Bayport Plant
Facility, as Lyondell may designate. Any purchase made by Lyondell under this
Section 11.10 (a) is called herein an "Excess PO Production Purchase." At each
monthly opportunity, Lyondell shall be deemed to have elected to make an Excess
PO Production Purchase unless, as to any specified purchase opportunity,
Lyondell waives such purchase right in writing.
(b) Lyondell shall wire transfer the required purchase funds to Bayer
to its account in the United States in accordance with Bayer's wiring
instructions within five days after receipt by Lyondell of PO Product purchased
pursuant to the purchase options of this Section 11.10. Payments that are not
timely received shall bear interest from the date due until paid at the Default
Rate.
SECTION 11.11. Right to Participate in a New PO Opportunity. (a) For
the first five years after the Closing Date, no Parent Party or its Affiliates
shall (i) commence construction or participate in the development or design of
any new PO production plant anywhere in the world with a third party; (ii)
acquire from any third party any ownership interest or capacity rights or
equivalent in any existing PO production plant of any third party or (iii)
acquire a controlling equity interest in any entity 20% of the gross revenues of
which (measured by reference to the last full fiscal
<PAGE>
46
year preceding the date of the agreement for the acquisition) are attributable
to PO (a "PO Company Acquisition") unless such Parent Party complies with the
terms of Section 11.11(b). Any of the foregoing potential investments is called
herein a "New PO Opportunity").
(b) Prior to pursuing a New PO Opportunity within the scope of Section
11.11(a)(i) or (ii), such Parent Party (an "Offering Parent") shall send a
written offer (a "Participation Offer") to the other Parent (the "Offeree
Parent") to participate on a 51/49 basis with the Offering Parent in the costs,
risks and benefits arising out of the New PO Opportunity, both as to PO and any
associated Co-Product. The Participation Offer shall contain sufficient detail
to enable the Offeree Parent to evaluate the investment and a reasonable time
period to make the decision. Within 60 days after a Parent Party or its
Affiliate completes an acquisition within the scope of Section 11.11(a)(iii),
such Parent Party shall send a written offer to the other Parent Party to
participate on a 51/49 basis with such Offering Parent in costs, risks and
benefits arising out of the PO business included in the PO Company Acquisition
(including reimbursement of 49% of the acquisition costs incurred by such
Offering Parent proportionately allocable to such PO business). If PO is not
the entire business of the company subject to the PO Company Acquisition, then
the Offeree Parent shall pay a purchase price determined on an equitable
allocation to the PO business of the total price paid for the entire PO Company
Acquisition.
(c) The participation by the Offeree Parent in the New PO Opportunity
shall be structured to maximize the voting and decision making rights of the
Offering Parent and Offeree Parent together in relation to other interest
holders, such as forming an entity to hold the combined interests of the
Offering Parent and Offeree Parent; provided, however, that the participation
shall always be structured so that the Offering Parent shall hold at least a 51%
interest in such combined entity. The parties shall structure their 51/49
ownership (as between themselves) in all circumstances under this Section 11.11
so that the minority interest holder will have protections of its minority
interest customary for 51/49 ownership transactions of that type.
(d) The parties will negotiate in good faith regarding participation
by the Offeree Parent within the terms specified in this Section 11.11. If the
parties fail to reach agreement within the time period necessary to enable the
Offering Party to proceed with the New PO Opportunity on its own, then the
Offering Parent may proceed with the New PO Opportunity without the
participation of the Offeree Parent and (if Bayer is the Offering Parent) shall
be released from its exclusive purchase obligations under the Market Based PO
Supply Agreement up to the amount of PO acquired in connection with such New PO
Opportunity.
(e) Subject to Bayer negotiating in good faith under the terms of
Section 11.07(a), Lyondell's rights to participate in New PO Opportunities
pursuant to Section 11.11(b) is conditioned on the execution by the one year
anniversary of the Closing Date and the continued effectiveness of the Joint PO
Technology Development Agreement.
(f) Following the fifth anniversary of the Closing Date for the
remainder of the term of the PO Joint Venture, each Parent Party shall consider
in good faith offering the other Parent the opportunity to participate in New PO
Opportunities that become available to it.
<PAGE>
47
SECTION 11.12. PO Logistics. PO Product Sourcing and Logistics will
be implemented by a PO Logistics Agreement reflecting the terms set forth in the
Term Sheet attached as Exhibit J.
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48
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the day and year first above written.
BAYER AG
By: /s/ Werner Spinner
------------------------------------
Name: Werner Spinner
Title: Member of the Board of Directors
BAYER AG
By: /s/ Dr. Hans-Joachim Kaiser
------------------------------------
Name: Dr. Hans-Joachim Kaiser
Title: Head of Business Group
Polyurethanes
BAYER CORPORATION
(with respect to Article VIII,
Article IX and the Documentary
Conventions set forth in
Appendix A only)
By: /s/ Hans J. Kogelnik
------------------------------------
Name: Hans J. Kogelnik
Title: Executive Vice President
Bayer Corporation and
President Polyurethanes Division
LYONDELL CHEMICAL COMPANY
By: /s/ Dan F. Smith
------------------------------------
Name: Dan F. Smith
Title: President and Chief
Executive Officer
<PAGE>
TABLE OF CONTENTS
Page
----
Appendix A Definitions
Appendix B Purchase Price Allocation
Appendix C Dispute Resolution Procedures
Exhibit A Form of Master Asset and Stock Purchase Agreement
Exhibit B Form of Amended and Restated Limited Partnership Agreement
Exhibit C Form of Partnership Interest Purchase and Sale Agreement
Exhibit D Form of Amended and Restated Technology Limited Partnership
Agreement
Exhibit E Form of Bayer License Agreement
Exhibit F Form of Lyondell License Agreement
Exhibit G Form of PO Operating Agreement
Exhibit H Form of Polyols Operating Agreement
Exhibit I Form of Performance Chemicals Agreement
Exhibit J Logistics Agreement Term Sheet
Exhibit K Market Based PO Supply Agreement Term Sheet
Exhibit L PO-11 Agreement Term Sheet
Exhibit M 300 MM Pound Option Agreement Term Sheet
Exhibit N Joint Technology Cooperation Agreement Term Sheet
Exhibit O Transition Services Agreement Term Sheet
Exhibit P Form of Propylene Supply Agreement
Exhibit Q Form of Ethylene Oxide Supply Agreement
Exhibit R Capacity Reservation Principles Term Sheet
Exhibit S Form of PO Ground Lease
Exhibit T Form of Polyols Ground Lease
Exhibit U Styrene Supply Term Sheet
Schedule 2.05 Transaction Documents
Schedule 3.03(a) Conflicts and Consents
Schedule 3.03(b) Conflicts and Consents
Schedule 3.05 Proceedings
Schedule 4.08 Exceptions to Ordinary Course
Schedule 5.01(b) Required Consents
<PAGE>
NEWS RELEASE
[LYONDELL LOGO APPEARS HERE]
LYONDELL CHEMICAL COMPANY ANNOUNCES
SALE OF WORLDWIDE POLYOLS BUSINESS TO BAYER
HOUSTON, Texas, November 16, 1999 -- Lyondell Chemical Company (NYSE:LYO)
today announced that it has reached agreement with Bayer to sell its worldwide
polyols business, along with an equity interest in Lyondell's U.S. propylene
oxide operations. The sale price will be approximately $2.45 billion.
"We expect to accelerate the growth of our PO business through this unique
agreement," said Dan F. Smith, President and Chief Executive Officer of Lyondell
Chemical Company. "This transaction enables us to accelerate cash flows from
the polyols business while at the same time maintaining the strategic linkage to
the derivatives markets through the world's premier urethanes producer. The
transaction will be immediately accretive to Lyondell's earnings and cash flow
and will enable Lyondell to improve its balance sheet by paying off a
significant portion of the debt associated with the 1998 ARCO Chemical
acquisition."
Lyondell will continue to be an important merchant supplier of PO and will
focus on expanding its other PO derivatives businesses, including propylene
glycol, butanediol (where the Company has proprietary technology) and propylene
glycol ethers.
As part of the transaction, Lyondell and Bayer have agreed to pursue a
joint venture for the construction of PO 11, a previously announced worldscale
propylene oxide/styrene monomer plant in Europe.
<PAGE>
Included in the proposed sale to Bayer are Lyondell polyols manufacturing
facilities located at South Charleston and Institute, West Virginia;
Channelview, Texas; Rieme, Belgium; Fos sur Mer, France; Anyer, Indonesia; and
Kaohsiung, Taiwan. Also included in the transaction are Lyondell polyols
technology operations in Singapore; Villers St. Paul, France; South Charleston,
West Virginia, and Newtown Square, Pennsylvania. Not included is Lyondell's
global TDI business. Lyondell will continue to operate all of the existing
Lyondell PO facilities and will serve as operator of the polyols facilities at
Channelview, Texas, and Fos sur Mer, France.
The agreement is subject to final approval by both companies at Board
meetings in December. Closing of the transaction is subject to U.S. and European
antitrust clearance and other conditions that are typical for transactions of
this type. Closing is anticipated to occur in the first half of 2000.
LYONDELL CHEMICAL COMPANY, with headquarters in Houston, Texas, is the world's
largest producer of propylene oxide (PO); the world's number two supplier of
polyols and TDI (toluene diisocyanate); a leading producer of propylene glycol;
a leading producer of other PO derivatives such as BDO (butanediol) and PGE
(propylene glycol ether); and a producer of styrene monomer and MTBE as co-
products of PO production.
Through its 41% interest in Equistar Chemicals, LP, Lyondell also is the
largest producer of ethylene, propylene and polyethylene in North America and a
leading producer of polypropylene,,ethylene oxide,ethylene glycol, high value-
added specialty polymers and polymeric powder.
Through its 58.75% interest in LYONDELL-CITGO Refining LP, Lyondell is one of
the largest and most profitable refiners in the United States, processing very
heavy Venezuelan crude oil to produce gasoline, low sulfur diesel and jet fuel.
Lyondell is the third largest methanol producer in the U.S., through its 75%
interest in Lyondell Methanol Company, L.P.
The statements in this release relating to matters that are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, future global economic conditions, production capacity,
competitive products and prices and other risks and uncertainties detailed in
the Securities and Exchange Commission filings of Lyondell.
