<PAGE>
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): MARCH 31, 2000
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) (IRS Employer Identification No.)
1221 MCKINNEY STREET, SUITE 700, 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)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 2000 Lyondell Chemical Company ("Lyondell") completed the sale
of its worldwide polyols business, along with an ownership interest in its U.S.
propylene oxide ("PO") manufacturing operations, to Bayer AG and Bayer
Corporation for approximately $2.45 billion in cash. Lyondell will use the net
proceeds of the transaction to repay a portion of its long-term debt associated
with the acquisition of ARCO Chemical Company in 1998. The text of Lyondell's
press release announcing the completion of the transaction is filed as an
exhibit to this Current Report on Form 8-K.
In addition to the polyols assets, Bayer will receive (i) an ownership
interest in Lyondell's Channelview and Bayport, Texas PO manufacturing plants
through formation of a 50-year joint venture to manufacture PO and (ii) a non-
exclusive and non-transferable license to use PO technology in the manufacturing
joint venture via a separate, co-terminous technology joint venture between the
parties. Lyondell and Bayer have also entered into a logistics arrangement that
permits Bayer to utilize Lyondell's global logistics system for PO on an at-cost
basis, thereby reducing PO logistics costs for both parties. The parties have
entered into other ancillary agreements, including long-term requirements
contracts whereby Bayer will purchase, from Lyondell, Bayer's incremental PO
requirements in excess of PO received from the manufacturing joint venture.
As a part of the transaction, Lyondell and Bayer agreed to pursue the
construction of PO-11, a previously announced PO/SM plant in Europe.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
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<S> <C> <C>
(b) Unaudited pro forma financial information
Page No.
---------
Unaudited Pro Forma Financial Data 2
Income Statement for the Year Ended December 31, 1999 3
Balance Sheet as of December 31, 1999 4
Notes to Unaudited Pro Forma Financial Data 5
</TABLE>
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<CAPTION>
(c) Exhibits.
<S> <C> <C>
2.1 -- Master Transaction Agreement dated November 16, 1999 among Lyondell Chemical Company, Bayer AG and Bayer
Corporation (filed as an exhibit to the Company's Current Report on Form 8-K dated November 16, 1999 and
incorporated herein by reference).
2.2 -- Amended and Restated Master Transaction Agreement dated as of March 31, 2000 among Lyondell Chemical Company,
Bayer AG and Bayer Corporation.
2.3 -- Amended and Restated Master Asset and Stock Purchase Agreement dated as of March 31, 2000 among Lyondell
Chemical Company, the entities set forth on Schedule 1 thereto, Bayer AG and Bayer Corporation.
2.4 -- Amended and Restated Limited Partnership Agreement of PO JV, LP dated as of March 31, 2000.
2.5 -- Limited Partnership Interest Purchase and Sale Agreement dated as of March 31, 2000 among Lyondell SAT, Inc.,
Lyondell POTechLP, Inc., BAYPO I LLC, BAYPO II LLC and BIPPO Corporation.
99.1 -- Press Release of Lyondell Chemical Company dated April 3, 2000.
</TABLE>
1
<PAGE>
LYONDELL CHEMICAL COMPANY
UNAUDITED PRO FORMA FINANCIAL DATA
On March 31, 2000, Lyondell Chemical Company ("Lyondell") completed the sale of
its worldwide polyols business, along with an ownership interest in its U.S.
propylene oxide ("PO") operations, to Bayer AG and Bayer Corporation
(collectively "Bayer") for approximately $2.45 billion in cash.
The following condensed income statement and balance sheet present the unaudited
pro forma consolidated operating results for the year ended December 31, 1999
and the pro forma consolidated financial position of Lyondell as of December 31,
1999 as if the Bayer transaction had occurred as of January 1, 1999 for income
statement purposes and on December 31, 1999 for balance sheet purposes. The
pro forma financial statements assume that net proceeds of $2.05 billion were
used to retire debt in accordance with the provisions of Lyondell's credit
facility and indentures.
The unaudited pro forma data presented below are not necessarily indicative of
the results of operations of Lyondell that would have occurred had such
transactions actually been consummated as of the indicated dates nor are they
necessarily indicative of future results. The pro forma financial statements are
based on data as of December 31, 1999. The final transaction and proceeds will
be based on March 31, 2000 data and could yield results that differ from the
financial information presented below. However, such changes are not expected
to be material.
The unaudited pro forma financial data should be read in conjunction with the
historical financial statements and notes thereto of Lyondell which are included
in its annual report on Form 10-K for the year ended December 31, 1999.
2
<PAGE>
LYONDELL CHEMICAL COMPANY
UNAUDITED PRO FORMA INCOME STATEMENT
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
(Millions of dollars, except per share amounts) PRO FORMA ADJUSTMENTS
-------------------------
LYONDELL ASSET DEBT
HISTORICAL SALE REDUCTION PRO FORMA
-------------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales and other operating revenues $ 3,693 $ (829) (a) $ -- $ 2,864
Operating costs and expenses:
Cost of sales 2,891 (615) (a) -- 2,276
Selling, general and administrative expenses 240 (65) (a) -- 175
Research and development expense 58 (38) (a) -- 20
Amortization of goodwill and other intangible items 100 (15) (a) -- 85
------------- -------- --------- ---------
Operating income 404 (96) -- 308
Interest expense (616) -- 195 (c) (421)
Interest income 27 -- -- 27
Other income, net 5 -- -- 5
------------- -------- --------- ----------
Loss before equity investments and income taxes (180) (96) 195 (81)
Income from equity investments 76 -- -- 76
------------- -------- --------- -----------
Loss before income taxes (104) (96) 195 (5)
Provision for (benefit from) income taxes (24) (26) (b) 53 (b) 3
------------- -------- --------- -----------
Net loss from continuing operations $ (80) $ (70) $142 $ (8)
============= ======== ========== ===========
Basic and diluted loss per share
from continuing operations $(0.77) $ (0.08)
------------- -----------
Average shares outstanding (in thousands) 103,115 103,115
------------- -----------
</TABLE>
See notes to unaudited pro forma financial data.
3
<PAGE>
LYONDELL CHEMICAL COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
As of December 31, 1999
<TABLE>
<CAPTION>
(Millions of dollars) PRO FORMA ADJUSTMENTS
--------------------------------
ASSET DEBT
LYONDELL SALE REDUCTION PRO FORMA
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 307 $ 2,462 (d)
(10) (e) $(2,050) (m) $ 709
Accounts receivable, net 566 (154) (e) -- 412
Inventories 519 (136) (e) -- 383
Prepaid expenses and other current assets 114 -- -- 114
Deferred tax assets 380 (272) (f) -- 108
----------- ---------- ------------- -------------
Total current assets 1,886 1,890 (2,050) 1,726
Property, plant and equipment, net 4,291 (1,268) (g)
(516) (e) -- 2,507
Investments and long-term receivables 1,015 (9) (e)
1,268 (g)
(528) (h) -- 1,746
Goodwill, net 1,545 (350) (e) -- 1,195
Deferred charges and other assets 761 (121) (e) -- 640
----------- ---------- ------------- -------------
Total assets $9,498 $ 366 $(2,050) $7,814
=========== ========== ============= =============
Accounts payable $ 350 $ (19) (e) $ -- $ 331
Current maturities of long-term debt 225 -- (14) (m) 211
Other accrued liabilities 446 (28) (e)
385 (i) -- 803
----------- ---------- ------------- -------------
Total current liabilities 1,021 338 (14) 1,345
Long-term debt, less current maturities 6,046 -- (2,036) (m) 4,010
Other liabilities and deferred credits 331 62 (j) -- 393
Deferred income taxes 891 (12) (e)
(306) (k) -- 573
Minority interest 202 (11) (e) -- 191
Total stockholders' equity 1,007 295 (l) -- 1,302
----------- ----------- ------------- -------------
Total liabilities and stockholders' equity $9,498 $ 366 $(2,050) $7,814
=========== =========== ============= =============
</TABLE>
See notes to unaudited pro forma financial data.
4
<PAGE>
LYONDELL CHEMICAL COMPANY
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(a) To eliminate the operating results of the polyols business sold to Bayer.
(b) To tax effect the pro forma adjustments using Lyondell's overall effective
tax rate of 27% for 1999.
(c) To reflect the reduction in interest expense resulting from the repayment
of debt using proceeds of the sale. See note (m).
(d) To reflect the cash proceeds received from Bayer.
(e) To eliminate the assets and related liabilities of the polyols business
sold to Bayer.
(f) To reflect the utilization of deferred tax assets associated with domestic
net operating loss carryforwards as an offset to the taxable income from
the transaction.
(g) To reflect the transfer of U.S. PO production assets into the newly formed
PO joint venture ("PO Joint Venture").
(h) To reflect the sale of an ownership interest in the PO Joint Venture to
Bayer.
(i) To reflect the liabilities for costs related to the sale, including
employee severance, relocation and other employee benefits, transfer taxes
and investment banker fees.
(j) To reflect the deferred revenue related to Bayer's option to purchase
additional annual quantities of PO.
(k) To reflect the reversal of the deferred tax liability related to the lower
tax bases of the polyols and PO assets sold.
(l) To record the estimated after-tax gain on the transaction.
(m) To reflect the application of $2.05 billion of proceeds from the sale to
payment of current and long-term portions of Term Loan A - $1,095 million
and Term Loan B - $955 million. As a result of the early extinguishment of
Term Loan A and Term Loan B, Lyondell will recognize an extraordinary loss,
net of income taxes, of approximately $29 million during 2000. The loss
results from the write-off of unamortized debt issue costs and amendment
fees as well as certain prepayment costs.
5
<PAGE>
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/ Gerald A. O'Brien
-------------------------------------
Name: Gerald A. O'Brien
Title: Vice President, Deputy General
Counsel and Secretary
Date: April 14, 2000
6
<PAGE>
EXHIBIT 2.2
-----------
================================================================================
AMENDED AND RESTATED
MASTER TRANSACTION AGREEMENT
Among
BAYER AG, BAYER CORPORATION
and
LYONDELL CHEMICAL COMPANY
Dated as of March 31, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
ARTICLE I
Definitions and Usage............................................................................. 2
ARTICLE II
Transactions and Closing
------------------------
SECTION 2.01. Purchase and Sale of Polyols Business.............................................. 2
SECTION 2.02. Contribution of Contributed Assets; Payments for Partnership Interests............. 3
SECTION 2.03. Bayer 300 Million Pound PO Option.................................................. 3
SECTION 2.04. Purchase Price Allocations......................................................... 4
SECTION 2.05. Closing Documents.................................................................. 4
SECTION 2.06. Closing Date....................................................................... 5
SECTION 2.07. References to Original Master Transaction Agreement................................ 5
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization, Standing and Power................................................... 5
SECTION 3.02. Authority; Execution and Delivery; Enforceability.................................. 6
SECTION 3.03. No Conflicts; Consents............................................................. 6
SECTION 3.04. Subsidiaries....................................................................... 7
SECTION 3.05. Proceedings........................................................................ 7
SECTION 3.06. Brokers or Finders................................................................. 7
ARTICLE IV
Agreements and Covenants
------------------------
SECTION 4.01. Confidentiality.................................................................... 8
SECTION 4.02. Antitrust.......................................................................... 8
SECTION 4.03. Reasonable Best Efforts............................................................ 9
SECTION 4.04. Taxes.............................................................................. 9
SECTION 4.05. Supplemental Disclosure............................................................ 10
SECTION 4.06. Publicity.......................................................................... 11
SECTION 4.07. Notices of Certain Events.......................................................... 11
SECTION 4.08. Covenants of Lyondell and its Affiliates Relating to Conduct of Businesses......... 11
SECTION 4.09. No Solicitation.................................................................... 14
</TABLE>
-i-
<PAGE>
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Page
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SECTION 4.10. Notification of Works Councils..................................................... 14
SECTION 4.11. Agreement Not To Compete........................................................... 15
SECTION 4.12. Maintenance of Insurance........................................................... 16
ARTICLE V
Conditions Precedent
--------------------
SECTION 5.01. Governmental Approvals and Consents................................................ 16
SECTION 5.02. No Injunctions or Restraints....................................................... 17
SECTION 5.03. Representations and Warranties..................................................... 17
SECTION 5.04. Performance of Obligations......................................................... 17
SECTION 5.05. Absence of Proceedings............................................................. 17
SECTION 5.06. Other Documents.................................................................... 17
SECTION 5.07. Transaction Documents.............................................................. 17
SECTION 5.08. Release of Liens................................................................... 18
SECTION 5.09. No Material Impairment............................................................. 18
SECTION 5.10. Opinions of Counsel................................................................ 18
SECTION 5.11. Limitations of Certain Conditions.................................................. 18
SECTION 5.12. Approval by Bayer Supervisory Board and Lyondell Board of Directors................ 19
ARTICLE VI
Termination
-----------
SECTION 6.01. Termination, Amendment and Waiver.................................................. 19
SECTION 6.02. Effect of Termination.............................................................. 20
SECTION 6.03. Amendments and Waivers............................................................. 20
ARTICLE VII
Indemnification
---------------
SECTION 7.01. Indemnification by Lyondell........................................................ 20
SECTION 7.02. Indemnification by Bayer........................................................... 22
SECTION 7.03. Calculation of Losses; Mitigation; Limitation on Consequential, Punitive
and Exemplary Damages............................................................. 23
SECTION 7.04. Termination of Indemnification..................................................... 23
SECTION 7.05. Procedures......................................................................... 23
SECTION 7.06. Survival........................................................................... 25
SECTION 7.07. Asset Purchase Agreement Effectiveness............................................. 25
</TABLE>
-ii-
<PAGE>
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Page
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ARTICLE VIII
Guarantee of Obligations
------------------------
SECTION 8.01. Lyondell Guarantee................................................................. 26
SECTION 8.02. Bayer Guarantee.................................................................... 26
SECTION 8.03. No Demand or Notice................................................................ 26
SECTION 8.04. Waiver of Resort to Security....................................................... 27
SECTION 8.05. No Discharge....................................................................... 27
SECTION 8.06. Waivers by the Parent.............................................................. 27
SECTION 8.07. No Effect.......................................................................... 27
SECTION 8.08. No Reduction....................................................................... 28
SECTION 8.09. Enforcement........................................................................ 28
SECTION 8.10. Continued Effectiveness............................................................ 28
SECTION 8.11. Certain Defenses................................................................... 28
SECTION 8.12. Parties in Interest................................................................ 28
ARTICLE IX
Ownership and Business of Joint Venture Subs
--------------------------------------------
SECTION 9.01. Restrictions on Transfer and Pledge of Joint Venture Sub Stock..................... 29
SECTION 9.02. Prohibition on Affiliated Obligor Bankruptcy, Etc.................................. 31
SECTION 9.03. Special Purpose Subsidiaries....................................................... 31
ARTICLE X
Standstill Agreement
--------------------
SECTION 10.01. Standstill........................................................................ 31
ARTICLE XI
SECTION 11.01. System-wide PO Curtailment........................................................ 33
SECTION 11.02. Identified Polyol Demand Events................................................... 37
SECTION 11.03. Resale or Use of PO not Taken by Bayer PO LP...................................... 38
SECTION 11.04. Bayer Equity Option............................................................... 38
SECTION 11.05. PO-11 Facility.................................................................... 42
SECTION 11.06. Right to Participate in New PO Plants............................................. 42
SECTION 11.07. Joint Development of PO Technology; Option on New PO Technology................... 43
SECTION 11.08. 300 Million Pound Option.......................................................... 44
SECTION 11.09. Capital Spending Equilibration.................................................... 44
SECTION 11.10. Lyondell Excess Production Option................................................. 46
SECTION 11.11. Right to Participate in a New PO Opportunity...................................... 46
</TABLE>
-iii-
<PAGE>
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Page
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SECTION 11.12. PO Logistics...................................................................... 47
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
</TABLE>
-iv-
<PAGE>
AMENDMENT and RESTATEMENT dated as of March 31,
2000 of the 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;
<PAGE>
2
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
<PAGE>
3
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
<PAGE>
4
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
------------------
<PAGE>
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) 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").
------------
SECTION 2.07. References to Original Master Transaction Agreement.
---------------------------------------------------
References contained in any other agreement or instrument to the original
November 16, 1999 Master Transaction Agreement shall be deemed to refer to this
Agreement. The amending and restating of the original November 16, 1999 Master
Transaction Agreement shall not affect the effectiveness or enforceability of
any other agreement or instrument. Any agreement or instrument that is
conditioned on closing of the Transactions or any portion thereof in accordance
with the terms of the original November 16, 1999 Master Transaction Agreement
shall be deemed to refer to closing of the Transactions or applicable portion(s)
thereof in accordance with the terms of this Agreement.
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
<PAGE>
6
"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 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
<PAGE>
7
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 (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 November 16, 1999, there were 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 challenged or sought 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.
<PAGE>
8
ARTICLE IV
Agreements and Covenants
------------------------
From and after November 16, 1999:
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 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 November 16, 1999 (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
<PAGE>
9
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 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
<PAGE>
10
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. (a) 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 November 16, 1999 through the
Effective Time that such party shall have the obligation to (i) supplement or
amend the Schedules to each of 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 November 16, 1999,
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 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 November 16, 1999) are not true and correct in all material respects at and
as of the Closing Date to the extent contemplated by Article V.
(b) The Initial Transaction Document Schedules in the form
attached to the Initial Transaction Documents on November 16, 1999, as
amended and restated under this Agreement and the other Initial
Transaction Documents, shall be referred to herein as the "Revised
-------
Signing Date Schedules". On the Closing Date, Lyondell will deliver a
----------------------
set of (i) the Revised Signing Date Schedules and (ii) a set of the
Revised Signing Date Schedules which have been updated and amended to
reflect occurrences between November 16, 1999 and the Closing Date as
required under the terms of Section 4.05(a) of this Agreement (the
"Closing Date Schedules"). Lyondell's liability with respect to
----------------------
breaches of representations, warranties and covenants in the Initial
Transaction Documents shall be determined by reference to the Revised
Signing Date Schedules, except that Lyondell's compliance with the
requirements of Section 4.05(a) shall be determined by comparing the
Revised Signing Date Schedules with the Closing Date Schedules.
<PAGE>
11
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 November 16,
-------------------------
1999 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
November 16, 1999 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 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
November 16, 1999, (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
<PAGE>
12
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 November 16, 1999;
(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 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
<PAGE>
13
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 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
<PAGE>
14
(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 November 16, 1999 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), (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.
<PAGE>
15
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 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.
<PAGE>
16
(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 November 16, 1999 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 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).
<PAGE>
17
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 November 16, 1999 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 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 November 16, 1999 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
<PAGE>
18
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 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 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 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
<PAGE>
19
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.
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
<PAGE>
20
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 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:
<PAGE>
21
(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 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.
<PAGE>
22
(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, 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
<PAGE>
23
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 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
<PAGE>
24
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 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
<PAGE>
25
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 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
<PAGE>
26
representations, warranties and covenants in the Asset Purchase Agreement shall
be determined by reference to the Revised Signing Date Schedules.
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 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
<PAGE>
27
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.
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
<PAGE>
28
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 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
<PAGE>
29
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.
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 CORPORATION 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.
<PAGE>
30
(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.
(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
--------
<PAGE>
31
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 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
----------
from and after November 16, 1999 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
<PAGE>
32
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 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
<PAGE>
33
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
The provisions of this Article XI shall commence as of the
Closing Date and shall continue until December 31, 2050, except as otherwise
provided in this 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:
(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
<PAGE>
34
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 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
<PAGE>
35
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 (x) the Bayer PO Annual Offtake Amount divided by 365 and (y)
for the duration of the Bayer 300 Million Pound PO Option, the pounds
of PO scheduled to be delivered to 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 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.
<PAGE>
36
(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 Term Sheet unless the receiving Party
accepts off-spec product.
(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.
<PAGE>
37
(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 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.
<PAGE>
38
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 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,
--------
<PAGE>
39
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 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
--------
<PAGE>
40
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 November
16, 1999.
(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 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
<PAGE>
41
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
November 16, 1999. 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 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
<PAGE>
42
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
following the Closing Date 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 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
<PAGE>
43
the Building Party, Bayer shall not be required to make any additional payment
for technology implemented in the Existing Plants as of November 16, 1999.
(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 as soon as possible following 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 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
<PAGE>
44
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 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
<PAGE>
45
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.
(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
<PAGE>
46
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 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
<PAGE>
47
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.
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.
<PAGE>
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/ Hans-Joachim Kaiser
--------------------------------
Name: Hans-Joachim Kaiser
Title: Head of Business Group,
Polyurethanes
BAYER CORPORATION
By: /s/ H. J. Kogelnik
--------------------------------
Name: H. J. Kogelnik
Title: President of the
Polyurethanes Division
LYONDELL CHEMICAL COMPANY
By: /s/ Kevin DeNicola
--------------------------------
Name: Kevin DeNicola
Title: Vice President,
Corporate Development
<PAGE>
EXHIBIT 2.3
-----------
AMENDED AND RESTATED MASTER ASSET AND STOCK PURCHASE
AGREEMENT, dated as of March 31, 2000, among LYONDELL CHEMICAL
COMPANY, a Delaware corporation ("Lyondell"), the entities set
--------
forth on Schedule I (the "Lyondell Selling Subsidiaries"), BAYER
-----------------------------
AG, a German corporation ("BAYER AG") and BAYER CORPORATION, an
--------
Indiana corporation ("Bayer Corp." and, together with BAYER AG,
-----------
"Purchaser").
---------
Lyondell and the Lyondell Selling Subsidiaries desire to sell to
Purchaser and the Purchaser Designees, and Purchaser and the Purchaser Designees
desire to purchase from Lyondell and the Lyondell Selling Subsidiaries, certain
assets and liabilities of the Polyols Business of Lyondell upon the terms and
subject to the conditions of this Amended and Restated Master Asset and Stock
Purchase Agreement, as amended and supplemented from time to time in accordance
with the terms hereof (this "Agreement").
---------
Accordingly, the parties hereby agree as follows:
ARTICLE I
Purchase and Sale of Acquired Assets and Acquired Shares
--------------------------------------------------------
SECTION 1.01. Purchase and Sale. On the terms and subject to the
-----------------
conditions of this Agreement, at the Closing, Lyondell and the Lyondell Selling
Subsidiaries shall sell, assign, transfer, convey and deliver free and clear of
any Liens (other than Permitted Liens) to Purchaser or such direct or indirect
Affiliates of Purchaser as Purchaser designates (any such designated Affiliates,
a "Purchaser Designee"), and Purchaser and the Purchaser Designees shall
------------------
purchase from Lyondell and the Lyondell Selling Subsidiaries all the right,
title and interest as of the Closing of Lyondell and the Lyondell Selling
Subsidiaries in, to and under the Acquired Assets and the Acquired Shares, for
(i) an aggregate purchase price of $____________ (the "Polyols Business Purchase
-------------------------
Price"), payable as set forth in Section 2.02 and subject to adjustment as set
- -----
forth in Section 1.05 resulting in an Estimated Polyols Business Purchase Price
of $___________ and (ii) the assumption of the Assumed Liabilities. The purchase
and sale of the Acquired Assets and the Acquired Shares and the assumption of
the Assumed Liabilities is referred to in this Agreement as the "Polyols
-------
Acquisition".
- -----------
<PAGE>
2
SECTION 1.02. Acquired Assets and Excluded Assets. (a) The term
------------------------------------
"Acquired Assets" means all the business, properties, assets, goodwill and
---------------
rights of Lyondell and the Lyondell Selling Subsidiaries of whatever kind and
nature, real or personal, tangible or intangible, that are owned, leased or
licensed by Lyondell or the Lyondell Selling Subsidiaries on the Closing Date
and used or held for use primarily in the operation or conduct of the Polyols
Business, other than the Excluded Assets (as defined in Section 1.02(b)),
including:
(i) all real property, leaseholds and other interests in real
property of Lyondell or the Lyondell Selling Subsidiaries listed in
Schedule 1.02(a)(i), in each case together with Lyondell's and the Lyondell
Selling Subsidiaries's right, title and interest in all buildings,
improvements and fixtures thereon and all appurtenances thereto;
(ii) all PO and other raw materials, work-in-process, finished goods,
supplies, parts, spare parts (with respect to spare parts located in common
stores, those spare parts dedicated by number or otherwise marked or
identified for the Polyols Business) and other inventories, in each case,
of Lyondell or the Lyondell Selling Subsidiaries (including such items in
transit, on consignment or in the possession of any third party) on the
Closing Date that are used or held for use primarily in the operation or
conduct of the Polyols Business; provided, that with respect to PO, only in
--------
a quantity equivalent to the amount purchasable with the dollar amount
included on the 1998 Working Capital Statement under "PO and other RM
inventory" (which represents approximately 30 days' worth of PO); provided,
--------
further, that common stores materials, supplies and spare parts will be
-------
included, but only to the extent reflected in the Closing Working Capital
Statement (collectively, all such items, the "Inventory");
---------
(iii) all other tangible personal property and interests therein,
including all machinery, equipment, furniture, furnishings and vehicles
(including railroad cars and other transportation-related equipment and
facilities and Polyols storage tanks), of Lyondell or the Lyondell Selling
Subsidiaries that are used or held for use primarily in the operation or
conduct of the Polyols Business, including the items set forth in Schedule
1.02(a)(iii) (the "Personal Property");
-----------------
<PAGE>
3
(iv) all accounts receivable of Lyondell or the Lyondell Selling
Subsidiaries on the Closing Date that are included in "Account receivables-
direct" under the Closing Working Capital Statement (the "Included
--------
Receivables"), but not including those account receivables that are
-----------
included in "Account receivables-indirect" under the Closing Working
Capital Statement (the "Excluded Receivables");
--------------------
(v) all patents (including all reissues, divisions, continuations
and extensions thereof), patent applications, patent rights, trademarks,
trademark registrations, trademark applications, servicemarks, trade names,
business names, brand names, copyrights, copyright registrations, designs,
design registrations, and all rights to any of the foregoing ("Intellectual
------------
Property"), of Lyondell or the Lyondell Selling Subsidiaries that are used
--------
or held for use primarily in the operation or conduct of the Polyols
Business, including the items set forth in Schedule 1.02(a)(v) (such
Intellectual Property being the "Assigned Intellectual Property");
------------------------------
(vi) all trade secrets, confidential information, inventions, know-
how, formulae, processes, procedures, research records, records of
inventions, test information, market surveys and marketing know-how of
Lyondell or the Lyondell Selling Subsidiaries that are used or held for use
primarily in the operation or conduct of the Polyols Business, including
those relating to the Impact Technology (the "Technology");
----------
(vii) all Permits of Lyondell or the Lyondell Selling Subsidiaries
that are used or held for use primarily in the operation or conduct of the
Polyols Business (the "Assigned Permits"), except for such Permits that
----------------
Lyondell and Purchaser agree are to be retained by Lyondell or the Lyondell
Selling Subsidiaries (the "Retained Permits") and those Permits listed on
----------------
Part III of Schedule 1.02(a)(vii) (a list of material Permits is set forth
in Part I of Schedule 1.02(a)(vii) and a list of proposed material Retained
Permits is set forth in Part II of Schedule 1.02(a)(vii));
(viii) all contracts, leases, subleases, licenses, indentures,
agreements, commitments and all other legally binding arrangements, whether
oral or written ("Contracts") to which Lyondell or the Lyondell Selling
---------
Subsidiaries is a party or by which Lyondell or the Lyondell Selling
Subsidiaries is bound, including those that are used or held for use solely
in, or that arise
<PAGE>
4
solely out of, the operation or conduct of the Polyols Business and those
related primarily (but not solely) to the Polyols Business and in part
related to other businesses of Lyondell but only to the extent such
Contracts are related to the Polyols Business (the "Assigned Contracts");
------------------
(ix) the Acquired Shares and all partnership interests or any other
equity interests in any partnership, corporation, company, limited
liability company, joint venture, trust or other business association
listed in Schedule 1.02(a)(ix) ("Investments");
-----------
(x) all credits, prepaid expenses, deferred charges, advance
payments, security deposits and prepaid items that are used or held for use
primarily in, or that arise primarily out of, the operation or conduct of
the Polyols Business;
(xi) all rights, claims and credits to the extent relating to any
Acquired Asset or any Assumed Liability, including any such items arising
under insurance policies, guarantees, warranties, indemnities and similar
rights in favor of Lyondell or the Lyondell Selling Subsidiaries, but
excluding any claims for Losses incurred prior to the Closing Date by
Lyondell or a Lyondell Selling Subsidiary arising in respect of an Acquired
Asset and any reimbursements under insurance policies for Losses incurred
by Lyondell or a Lyondell Selling Subsidiary prior to the Closing, in each
case, other than Included Receivables;
(xii) all originals or, to the extent Lyondell is required to keep
originals pursuant to Applicable Law, copies of all books of account,
ledgers, general, financial, accounting and personnel records, files,
invoices, customers' and suppliers' lists, other distribution lists,
billing records, sales and promotional literature, manuals, engineering and
design documents, schematic, architectural and other drawings and surveys,
customer and supplier correspondence (in all cases, in any form or medium,
including electronic files) of Lyondell or the Lyondell Selling
Subsidiaries that are used or held for use primarily in the conduct or
operation of the Polyols Business, including P-I Diagrams, equipment files,
inspection reports, equipment design sheets, maintenance record files,
repair reports, job plans, process control documentation, operating
procedures, production recipes, production planning software and models,
logistic files and records, training records, safety records, process
models,
<PAGE>
5
material and energy balances, engineering software and software interfaces,
thermodynamic data, material property data and engineering and process
technology files for planned and future projects, including debottlenecking
and expansion projects (the "Records");
-------
(xiii) the Polyols storage tanks at the Institute facility in West
Virginia numbered 1504, 1505, 1523, 1527, 1528 and 1531 through 34 and all
associated piping, pumps, exchangers and insulation; the idle steam boiler
at the Taiwan facility; and, except as described in Section 1.02(b), all
Obsolete Assets, Abandoned Assets and Idle Assets located on the Polyols
Business Property;
(xiv) cash and cash equivalents held in the accounts of the Asian
Companies;
(xv) to the extent required by Applicable Law or as provided in
Section 4.08(f), assets of the Foreign Plans;
(xvi) all goodwill generated by or associated with the Polyols
Business; and
(xvii) all insurance policies (x) held directly by any Asian Company
or (y) transferred to Purchaser pursuant to Section 4.08(f) (the "Acquired
--------
Insurance Policies").
------------------
(b) The term "Excluded Assets" means:
---------------
(i) (A) for the avoidance of doubt, the MTBE Conversion Assets, (B)
the PO storage tanks at the facility in South Charleston numbered 9016,
9017, 9018, and the related infrastructure, including the real property
thereunder, as more particularly described in the Union Carbide Corporation
consent to partially assign the South Charleston Ground Lease and (C) all
assets identified on Schedule 1.02(b);
(ii) all cash and cash equivalents of Lyondell or the Lyondell
Selling Subsidiaries, other than the cash and cash equivalents held in the
accounts of the Asian Companies;
(iii) all rights, claims and credits of Lyondell or the Lyondell
Selling Subsidiaries to the extent relating to any Excluded Asset or any
Excluded Liability (including any such items arising under
<PAGE>
6
insurance policies, guarantees, warranties, indemnities and similar rights
in favor of Lyondell or the Lyondell Selling Subsidiaries in respect of any
Excluded Asset or any Excluded Liability) and the claims in respect of
Acquired Assets and insurance reimbursements excluded from Acquired Assets
pursuant to Section 1.02(a)(xi);
(iv) all rights of Lyondell or the Lyondell Selling Subsidiaries
under this Agreement and the other Transaction Documents;
(v) the Retained Permits and the Permits set forth in Part III of
Schedule 1.02(a)(vii), which are not transferable as a matter of Applicable
Law;
(vi) (A) all Records, the transfer of which are not permitted by
Applicable Law (provided Lyondell shall use Reasonable Best Efforts to
remove any restriction on transfer imposed by Applicable Law, if Purchaser
reasonably requests), (B) all financial and Tax Records relating to the
Polyols Business that form part of Lyondell's general ledger and (C)
originals (to the extent required by Applicable Law) or copies of all other
Records reasonably required to enable Lyondell to prepare and file Tax
Returns and to support or defend such Tax Returns;
(vii) the Excluded Receivables;
(viii) "Allowance for doubtful accounts" identified in the Closing
Working Capital Statement;
(ix) all assets of the Lyondell Pension Plans, except as otherwise
required by Applicable Law or as provided for in Section 4.08(f) in respect
of the assets of the Foreign Plans;
(x) all insurance policies, other than the Acquired Insurance
Policies, held by Lyondell or a Lyondell Selling Subsidiary (for the
avoidance of doubt, this provision applies to such insurance policies
themselves and not to rights, claims and credits that are Acquired Assets
identified in Section 1.02(a)(xi));
(xi) any Contract entered into in violation of the Master
Transaction Agreement, unless Purchaser waives such violation in writing
and agrees to assume such Contract;
<PAGE>
7
(xii) all reimbursements under insurance policies for losses incurred
by Lyondell or a Lyondell Selling Subsidiary prior to the Closing;
(xiii) all Contracts with Affiliates other than the Assigned Contracts
listed on Schedule 1.02(b)(xiii);
(xiv) all assets arising under any currency exchange, interest rate
exchange, commodity exchange or similar Contract; and
(xv) all Records prepared in connection with the sale or evaluation
of strategic alternatives with respect to the disposition, transfer or
other restructuring of the Polyols Business.
SECTION 1.03. Assumption of Certain Liabilities. (a) Upon the terms
----------------------------------
and subject to the conditions of this Agreement, Purchaser or a Purchaser
Designee shall assume, effective as of the Closing, and from and after the
Closing Purchaser or a Purchaser Designee shall pay, perform and discharge when
due, all the following Liabilities of Lyondell and the Lyondell Selling
Subsidiaries (the "Assumed Liabilities"), other than any Excluded Liabilities:
-------------------
(i) all Liabilities of Lyondell or the Lyondell Selling
Subsidiaries under the Assigned Contracts to the extent such Liabilities
relate to or arise in the period from and after the Closing;
(ii) all accounts payable and other accrued liabilities of Lyondell
or the Lyondell Selling Subsidiaries arising primarily out of the operation
or conduct or ownership of the Polyols Business prior to the Closing, but
only to the extent they are included in the Closing Working Capital
Statement;
(iii) all other Liabilities arising from the operation or conduct or
ownership of the Polyols Business by Purchaser or any Purchaser Affiliate
from and after the Closing;
(iv) any Liability arising under or relating to Environmental Laws,
which Liability arises from the operation or conduct or ownership of the
Polyols Business by Purchaser or any Purchaser Affiliate after the Closing;
and
(v) any of the following Liabilities to the extent unpaid and then
only to the extent such Liabilities arise on or after the Closing Date and
arise out of the
<PAGE>
8
operation or conduct or ownership of the Polyols Business on or after the
Closing Date:
(i) rent, tenant utility payments, common area maintenance and
sundry charges (including any HVAC charges); and
(ii) utility company charges, including electricity, gas, fuel,
water and sewer charges;
(vi) any Liabilities for price, volume or other product rebate
accruals, but only to the extent they are included in the Closing Working
Capital Statement;
(vii) the Liabilities imposed on Purchaser or any Purchaser Affiliate
under Applicable Law and the Liabilities assumed by Purchaser or any
Affiliate of Purchaser as provided in Section 4.08(f) in respect of Foreign
Plans;
(viii) all Liabilities specifically assumed by Purchaser or any
Purchaser Designee pursuant to the provisions of this Agreement or any
Polyols Transfer Document; and
(ix) the Liabilities identified on Schedule 1.03(a)(ix).
(b) Notwithstanding Section 1.03(a), Purchaser shall not assume any
Excluded Liability, each of which shall be retained and paid, performed and
discharged when due by Lyondell and the Lyondell Selling Subsidiaries, unless
and to the extent being contested in good faith. For the avoidance of doubt,
except as provided, this Section 1.03(b) is not intended to limit Purchaser's
other obligations under this Agreement or any other Transaction Document (for
example, pursuant to Section 6.02 of this Agreement or Section 4.04 of the
Master Transaction Agreement). The term "Excluded Liability" means:
------------------
(i) any Liability of Lyondell or any Affiliate of Lyondell arising
from or relating to the operation or conduct or ownership of the Polyols
Business by Lyondell or any of its Affiliates in the period prior to the
Closing;
(ii) any Liability of Lyondell or any Affiliate of Lyondell arising
out of the operation or conduct or ownership by Lyondell or any of its
Affiliates of any business other than the Polyols Business;
<PAGE>
9
(iii) any Liability of Lyondell or the Lyondell Selling Subsidiaries
(A) arising out of any actual or alleged breach by Lyondell or the Lyondell
Selling Subsidiaries of, or nonperformance by Lyondell or the Lyondell
Selling Subsidiaries under, any Contract (including any Assigned Contract)
prior to the Closing, (B) to the extent it is not included in the Closing
Working Capital Statement, accruing under any Contract (including any
Assigned Contract) with respect to any period prior to the Closing, (C)
arising under any Contract entered into in violation of this Agreement,
unless Purchaser waives such violation in writing and agrees to assume such
Contract or (D) arising under any currency exchange, interest rate
exchange, commodity exchange or similar Contract;
(iv) any Liability of Lyondell or any Affiliate of Lyondell arising
out of (A) any Proceeding pending or, to the Knowledge of Lyondell,
threatened as of the Closing Date or (B) any actual or alleged violation by
Lyondell or any Affiliate of Lyondell of any Applicable Law prior to the
Closing;
(v) any account payable of Lyondell or the Lyondell Selling
Subsidiaries to the extent it is not included in the Closing Working
Capital Statement;
(vi) any Liability of Lyondell or any Affiliate of Lyondell to the
extent that it relates to any Excluded Asset;
(vii) other than with respect to Transfer Taxes as provided in Section
4.04 of the Master Transaction Agreement and other than as provided on
Schedule 1.03(a)(ix) with respect to Singapore income taxes for Lyondell
Singapore Pte, Ltd. , any Liability for Taxes (as defined in Section 3.11),
whether or not accrued, assessed or currently due and payable, (A) of
Lyondell or the Lyondell Selling Subsidiaries or (B) relating to the
operation or ownership of the Polyols Business for any Tax Period (or
portion thereof) ending on or prior to the Closing Date (for purposes of
this clause (vii), all real property Taxes, personal property Taxes and
similar ad valorem obligations levied with respect to the Acquired Assets
for a Tax Period that includes (but does not end on) the Closing Date shall
be apportioned between Lyondell and Purchaser based upon the number of days
of such period included in the pre-Closing Tax period and the number of
days of such Tax Period after the Closing Date (which period shall include
the Closing Date));
<PAGE>
10
(viii) any Liability of Lyondell or the Lyondell Selling Subsidiaries
arising under any Lyondell Benefit Plan, except for Liabilities imposed on
Purchaser or any Affiliate of Purchaser by Applicable Law or as assumed by
Purchaser or any Purchaser Designee in Section 4.08(f) in respect of the
Foreign Plans;
(ix) any Liability of Lyondell or the Lyondell Selling Subsidiaries
that relates to, or that arises out of, products (x) shipped by Lyondell
(but not manufactured or sold by Purchaser or any Purchaser Affiliate) or
(y) manufactured or sold (but, with respect to products manufactured by
Lyondell or its Affiliates or sold by Lyondell or its Affiliates (but not
manufactured by Purchaser or its Affiliates) and not shipped by Lyondell or
any of its Affiliates, only to the extent such Liabilities do not arise
from the contamination of, or damage to, such products after the Closing
Date by or on behalf of Purchaser or any Person that is not an Affiliate of
Lyondell), in each case, by or on behalf of Lyondell or the Lyondell
Selling Subsidiaries prior to the Closing Date (including claims of
negligence, personal injury, property or natural resources damages, product
damage, product liability, product warranties, promotional obligations,
strict liability, product recall or any other claims (including workers'
compensation, employer's liability or otherwise)), whether such Liability
relates to or arises out of accidents, injuries or losses occurring on or
prior to or after the Closing Date, except to the extent and only to the
extent of price, volume or other product rebate accruals that are included
in the Closing Working Capital Statement;
(x) other than as set forth in Section 4.08, any Liability of
Lyondell or the Lyondell Selling Subsidiaries that relates to, or that
arises out of, the employment or the termination of the employment with
Lyondell or the Lyondell Selling Subsidiaries of any employee or former
employee of the Polyols Business (including as a result of the Transactions
contemplated by this Agreement);
(xi) other than those Liabilities set forth on Schedule 1.03(b)(xi)
in respect of Assigned Contracts, any Liability of Lyondell or the Lyondell
Selling Subsidiaries to any Affiliates of Lyondell;
(xii) Liabilities arising under or relating to Environmental Law
(including any claims, proceedings or
<PAGE>
11
investigations relating to personal injury, toxic tort, property or natural
resources damages, the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. ss.9601 et seq., or similar federal or state
-------
laws) to the extent such Liabilities relate to, or arise out of: (A) the
ownership, operation or conduct of any business of Lyondell or the Lyondell
Selling Subsidiaries other than the Polyols Business; or (B) the ownership,
operation or conduct of the Polyols Business on or prior to the Closing
Date, including (1) any Environmental Condition existing on or prior to the
Closing Date and (2) any noncompliance, on or prior to the Closing Date,
with any Environmental Law (collectively, the matters set forth in this
Section 1.03(b)(xii) shall be referred to as the "Excluded Environmental
----------------------
Liabilities"); and
-----------
(xiii) any of the following Liabilities to the extent unpaid prior to
the Closing and not included in the Closing Working Capital Statement and
to the extent such Liabilities arise and relate to the conduct of the
Polyols Business prior to the Closing Date:
(A) rent, tenant utility payments, common area maintenance and
sundry charges (including any HVAC charges); and
(B) utility company charges, including electricity, gas, fuel,
water and sewer charges;
(xiv) any Liabilities of Lyondell or any Affiliate of Lyondell
arising from or relating to any guarantees (other than guarantees with
respect to obligations of Purchaser or any Purchaser Affiliate); and
(xv) any Liabilities identified on Schedule 1.03(b)(xv).
(c) Purchaser shall acquire the Acquired Assets free and clear of
all Liens, other than Permitted Liens.
SECTION 1.04. Consents of Third Parties; Shared Contracts; Shared
---------------------------------------------------
Assets. (a) Notwithstanding anything in this Agreement to the contrary, this
- -------
Agreement shall not constitute an agreement to assign any asset or any claim or
right or any benefit arising under or resulting from such asset if an attempted
assignment thereof, without the consent of a third party, would constitute a
breach or other contravention of the rights of such third party, would be
ineffective with respect to any party to an agreement concerning such asset,
would violate or otherwise is not
<PAGE>
12
permitted by Applicable Law or would in any way adversely affect the rights of
Lyondell or the Lyondell Selling Subsidiaries or, upon transfer, Purchaser under
or in respect of such asset. If any transfer or assignment by Lyondell or the
Lyondell Selling Subsidiaries to, or any assumption by Purchaser of, any
interest in, or Liability under, any asset requires the consent or approval of a
third party (including any Governmental Entity), then no such assignment or
assumption shall be made without such consent or approval being obtained. To the
extent any Contract may not be assigned to Purchaser by reason of the absence of
any such consent or approval, such Contract shall not be an Acquired Asset and
Purchaser shall not be required to assume the related Liabilities arising under
such Contract.
(b) If any such consent or approval is not obtained prior to the
Closing Date after Lyondell has complied with Section 4.03(b) of the Master
Transaction Agreement, Lyondell and the Lyondell Selling Subsidiaries shall to
the extent not prohibited by the terms of any applicable contract or Applicable
Law, hold the asset subject to such consent or approval, together with any
proceeds therefrom, in trust for Purchaser or any Purchaser Designee and
Lyondell, the Lyondell Selling Subsidiaries and Purchaser shall cooperate (at
their own expense) in any lawful and reasonable arrangement reasonably proposed
by Purchaser under which Purchaser or a Purchaser Designee shall obtain to the
extent practicable the economic claims, rights and benefits under the asset,
claim or right with respect to which the consent or approval has not been
obtained in accordance with this Agreement. Such reasonable arrangement may
include (i) the subcontracting, sublicensing or subleasing to Purchaser or a
Purchaser Designee of any and all rights of Lyondell and the Lyondell Selling
Subsidiaries against the other party to such third-party agreement arising out
of a breach or cancelation thereof by the other party and (ii) Reasonable Best
Efforts by Lyondell or the Lyondell Selling Subsidiaries to enforce such rights.
If Purchaser or a Purchaser Designee is able to receive the economic claims,
rights and benefits under such asset, such economic claims, rights and benefits
shall constitute an Acquired Asset and the Liabilities, if any, related to such
economic claims, rights and benefits under such asset shall constitute Assumed
Liabilities to the extent contemplated by Sections 1.02 and 1.03.
(c) Any Assigned Contract that relates primarily to the Polyols
Business but also relates to any businesses of Lyondell or its Affiliates will,
at Lyondell's request and if permitted under the terms of such Assigned Contract
and Applicable Law, be made available to Lyondell or such Affiliates by
Purchaser pursuant to arrangements by which Lyondell or such
<PAGE>
13
Affiliates will enjoy the benefits to the extent practicable of such Assigned
Contracts as they relate to their businesses (other than the Polyols Business)
on the same terms and conditions as they exist on the Closing Date or such
amended terms and conditions as Lyondell or such Affiliates shall approve;
provided, that Purchaser shall not be obligated to extend the stated term of any
- --------
Assigned Contract, including pursuant to any available renewal option.
Similarly, any contract to which Lyondell or any Lyondell Selling Subsidiary is
a party that does not relate primarily to the Polyols Business but does relate
to the Polyols Business in some respects, will, at Purchaser's request and if
permitted under the terms of such contract and Applicable Law, be made available
to Purchaser pursuant to arrangements by which Purchaser will enjoy the benefits
to the extent practicable of such contract as it relates to the Polyols Business
on the same terms and conditions as they exist on the Closing Date or such
amended terms and conditions as Purchaser shall approve; provided that Lyondell
--------
shall not be obligated to extend the stated term of any such contract, including
pursuant to any available renewal option.
(d) Purchaser shall provide access or otherwise make available to
Lyondell and its Affiliates, to the extent permitted under the terms of any
applicable contracts and Applicable Law, any Acquired Assets located at the
Channelview facility or Fos-Sur-Mer facility that are also used or necessary to
any businesses of Lyondell or its Affiliates at a cost equal to its own cost,
allocated on a reasonable basis pursuant to operating agreements, joint service
agreements, joint access agreements or other arrangements pursuant to which
Lyondell and its Affiliates will enjoy in all material respects the benefits of
those assets on the same or substantially equivalent basis as they do on and
prior to the Closing Date. Similarly, Lyondell shall provide access or otherwise
make available to Purchaser, to the extent permitted under the terms of any
applicable contracts and Applicable Law, any Excluded Assets or other assets
used in the businesses of Lyondell or any of the Lyondell Selling Subsidiaries
that are also used or necessary to the Polyols Business at a cost equal to its
own cost, allocated on a reasonable basis pursuant to the Polyols Operating
Agreement or other operating agreement, joint service agreements, joint access
agreements or other arrangements pursuant to which the Polyols Business will
enjoy in all material respects the benefits of those assets on the same or
substantially equivalent basis as it does on and prior to the Closing Date.
<PAGE>
14
SECTION 1.05. Polyols Business Purchase Price Adjustment. (a) At
-------------------------------------------
least 5 Business Days prior to the Closing Date, Lyondell shall deliver an
estimate prepared by Lyondell (and reasonably satisfactory to Purchaser) of any
adjustment to the Polyols Business Purchase Price determined in accordance with
Section 1.05(d) and (e) (the Polyols Business Purchase Price, plus or minus such
estimate of any adjustment, being hereinafter called the "Estimated Polyols
-----------------
Business Purchase Price").
- -----------------------
(b) Within 60 days after the Closing Date, Lyondell shall prepare and
deliver to Purchaser a statement (the "Closing Working Capital Statement"),
---------------------------------
certified by an officer of Lyondell, setting forth Working Capital as of the
close of business on the Closing Date ("Closing Working Capital"). A physical
-----------------------
inventory shall be conducted by Lyondell consistent with past practice on or
immediately before the Closing Date for the purpose of preparing the Closing
Working Capital Statement, and each of Lyondell and Purchaser and their
respective independent auditors shall have the right to observe the taking of
such physical inventory.
(c) During the 60-day period following Purchaser's receipt of the
Closing Working Capital Statement, to the extent reasonable, Purchaser and its
independent auditors shall be permitted to review the working papers and
Purchaser's independent auditors shall be permitted to review the accounting
records relating to the Closing Working Capital Statement. The Closing Working
Capital Statement shall become final and binding on Purchaser and Lyondell on
the 60th day following delivery thereof, unless Purchaser gives written notice
of its disagreement with the Closing Working Capital Statement (a "Notice of
---------
Disagreement") to Lyondell prior to such date. Any Notice of Disagreement shall
- ------------
specify in reasonable detail (i) the nature of any disagreement so asserted and
(ii) (A) the portion of the Closing Working Capital set forth in the Closing
Working Capital Statement agreed by Purchaser, if any (the "Undisputed WC
-------------
Amount") and (B) the portion of the Closing Working Capital set forth in the
- ------
Closing Working Capital Statement with which Purchaser disagrees, if any (the
"Disputed WC Amount"). If a Notice of Disagreement is received by Lyondell in a
------------------
timely manner, then the Closing Working Capital Statement (as revised in
accordance with this sentence) shall become final and binding upon Lyondell and
Purchaser on the earlier of (A) the date Lyondell and Purchaser resolve in
writing any differences they have with respect to the matters specified in the
Notice of Disagreement or (B) the date any disputed matters are finally resolved
in writing by the Accounting
<PAGE>
15
Firm (as defined below). Purchaser and Lyondell may agree upon terms for payment
of the Undisputed WC Amount at any time after the delivery of the Closing
Working Capital Statement without prejudice to their respective rights under
this Section 1.05. During the 30-day period following the delivery of a Notice
of Disagreement, Lyondell and Purchaser shall seek in good faith to resolve in
writing any differences that they may have with respect to the matters specified
in the Notice of Disagreement. At the end of such 30-day period, Lyondell and
Purchaser shall submit to an independent accounting firm (the "Accounting Firm")
---------------
for arbitration any and all matters that remain in dispute and which were
properly included in the Notice of Disagreement. The Accounting Firm shall be
KPMG or, if such firm is unable or unwilling to act, such other nationally
recognized independent public accounting firm as shall be agreed upon by the
parties hereto in writing. Lyondell and Purchaser agree to use reasonable
efforts to cause the Accounting Firm to render a decision resolving the matters
submitted to the Accounting Firm within 30 days following submission. Judgment
may be entered upon the determination of the Accounting Firm in any court having
jurisdiction over the party against which such determination is to be enforced.
The cost of any arbitration (including the fees and expenses of the Accounting
Firm and reasonable attorney fees and expenses of the parties) pursuant to this
Section 1.05 shall be paid 50% by Lyondell and 50% by Purchaser.
(d) The Polyols Business Purchase Price shall be increased by the
amount by which Closing Working Capital exceeds $240.9 million, and the Polyols
Business Purchase Price shall be decreased by the amount by which Closing
Working Capital is less than $240.9 million (the Polyols Business Purchase
Price, as so increased or decreased, shall hereinafter be referred to as the
"Adjusted Polyols Business Purchase Price"). If the Estimated Polyols Business
----------------------------------------
Purchase Price is less than the Adjusted Purchase Price, Purchaser shall, within
10 Business Days after the Closing Working Capital Statement becomes final and
binding on the parties, make payment by wire transfer in immediately available
funds of the amount of such difference, together with interest thereon at LIBOR
in effect on the Closing Date calculated on the basis of the actual number of
days elapsed divided by 365, from the Closing Date to the date of payment (net
of any amounts and interest thereon previously paid in respect of any Undisputed
WC Amount pursuant to Section 1.05(c)). If the Estimated Polyols Business
Purchase Price is more than the Adjusted Polyols Business Purchase Price,
Lyondell shall, within 10 Business Days after the Closing Working Capital
Statement becomes final and binding on the parties, make payment by wire
transfer in
<PAGE>
16
immediately available funds of the amount of such difference, together with
interest thereon at LIBOR in effect on the Closing Date calculated on the basis
of the actual number of days elapsed divided by 365, from the Closing Date to
the date of payment (net of any amounts and interest thereon previously paid in
respect of any Undisputed WC Amount pursuant to Section 1.05(c)).
(e) "Working Capital" means the specific current asset items and
---------------
specific current liability items of the Polyols Business as reflected on the
1998 Working Capital Statement.
SECTION 1.06. Polyols Transfer Documents; Subsequent Closing. (a) If
----------------------------------------------
a Polyols Transfer Document is to be executed in any country where notification
of or consultation with a works council or similar entity is required, then such
Polyols Transfer Document shall not be executed by the parties until such time
as such notification or consultation is completed. In addition to their
respective obligations set forth in Sections 2.02 and 4.04, Lyondell and
Purchaser shall cooperate with each other to effect any such non-United States
transfers, including, if appropriate, incorporating or extending the
applicability of any provisions of this Agreement or any other Polyol Transfer
Document to such transfer.
(b) Each of Purchaser and Lyondell shall use Reasonable Best Efforts
to cause the transfers contemplated by any Polyols Transfer Document relating to
the transfers of the Acquired Shares or any Polyols Business assets located
outside of the United States (a "Foreign Polyols Transfer Document") to occur on
---------------------------------
the Closing Date and, if any such transfer does not occur on the Closing Date,
as soon thereafter as possible. For the avoidance of doubt, Lyondell and
Purchaser acknowledge that Sections 1.04(a), (b) and (c) shall apply to the
assets and liabilities that are the subject of any such transaction that does
not occur on the Closing Date; provided, that Sections 1.04(a), (b) and (c)
--------
shall not apply with respect to any Polyols Business Unit in the event the
acquisition of such Polyols Business Unit is not effected on the Closing Date
(whether or not such acquisition is subject to any Foreign Polyols Transfer
Document). Notwithstanding anything to the contrary herein, unless Purchaser and
Lyondell otherwise mutually agree, Lyondell shall retain the benefits and
liabilities with respect to any such Polyols Business Unit until the closing of
the acquisition thereof by Purchaser. Lyondell shall continue to conduct the
business of such Polyols Business Unit in accordance with the standard described
in Section 4.08 of the Master Transaction
<PAGE>
17
Agreement. Notwithstanding anything to the contrary herein, if there is a
delayed Closing with respect to any Polyols Business Unit, (i) the specific
amount of the Polyols Business Purchase Price allocated in Schedule 2.04 to such
Polyols Business Unit shall be deducted from the Polyols Business Purchase Price
otherwise payable on the Closing Date, (ii) the $240.9 million stated in Section
1.05(d) will be reduced for Working Capital adjustment purposes by the amount of
Working Capital for that Polyols Business Unit included in the 1998 Working
Capital Statement for such Polyols Business Unit, (iii) the Polyols Business
Purchase Price allocated to that Polyols Business Unit (as adjusted for Working
Capital as appropriate to achieve the results intended by Section 1.05(d) if
such Polyols Business Unit had been transferred on the Closing Date) shall be
paid on the date that such Polyols Business Unit is transferred to Purchaser or
a Purchaser Designee. For the avoidance of doubt, Purchaser acknowledges that
the consummation of the acquisition of any non-U.S. and non-European Business
Unit is not a condition precedent to the Closing so long as Lyondell meets its
obligations under this Section 1.06.
(c) Subject to Section 4.04 of the Master Transaction Agreement, if
the transfer of any assets requires payment by Purchaser to Lyondell in addition
to the Polyols Business Purchase Price, Lyondell shall transfer to Purchaser on
the date such payment is due an amount equal to such additional payment in U.S.
dollars. To the extent such additional payment by Purchaser is in a currency
other than U.S. dollars, Lyondell shall make such payment to Purchaser in U.S.
dollars based on the mid-range exchange rate as of such date as published in the
Wall Street Journal, Northeastern Edition.
- ------------------------------------------
ARTICLE II
The Closing
-----------
SECTION 2.01. Closing Date. The Closing of the transactions
------------
contemplated herein shall take place following the satisfaction (or, to the
extent permitted, the waiver by the parties entitled to the benefit thereof) of
the conditions set forth in Article V of the Master Transaction Agreement at the
place, time and date set forth in the Master Transaction Agreement.
<PAGE>
18
SECTION 2.02. Transactions To Be Effected at the Closing. At the
-------------------------------------------
Closing:
<PAGE>
19
(a) Lyondell and the Lyondell Selling Subsidiaries shall
deliver to Purchaser and the Purchaser Designees (i) such appropriately
executed deeds (in recordable form), bills of sale, assignments, local
asset transfer agreements and other instruments of transfer relating to
the Acquired Assets in form and substance reasonably satisfactory to
Purchaser and its counsel, (ii) Lyondell shall deliver or cause to be
delivered to Purchaser certificates representing the Acquired Shares,
duly endorsed in blank or accompanied by stock powers duly endorsed in
blank in proper form for transfer, with appropriate transfer stamps, if
any, affixed and (iii) such other documents as Purchaser or its counsel
may reasonably request to demonstrate satisfaction of the conditions
and compliance with the covenants set forth in this Agreement including
(x) fully executed originals, or to the extent such originals cannot be
found after reasonable efforts, certified copies of the Real Property
Leases and agreements listed in Schedule 1.02(a)(i) and (y) all
necessary consents to the transfer of the Real Property Leases as may
be required from any third parties, including the landlords of Leased
Properties pursuant to the Real Property Leases. Purchaser may obtain
title insurance for its own account and Lyondell will cooperate with
respect thereto so long as such cooperation will not result in any
increased liability or material cost to Lyondell.
(b) Purchaser and the Purchaser Designees shall deliver to
Lyondell and the Lyondell Selling Subsidiaries (i) payment, by wire
transfer to a bank account designated in writing by Lyondell (such
designation to be made at least five Business Days prior to the Closing
Date), immediately available funds in an amount equal to the Estimated
Polyols Business Purchase Price, (ii) such appropriately executed local
asset transfer agreements, assumption agreements and other instruments
of assumption providing for the assumption of the Assumed Liabilities
in form and substance reasonably satisfactory to Lyondell and its
counsel and (iii) such other documents as Lyondell or its counsel may
reasonably request to demonstrate satisfaction of the conditions and
compliance with the covenants set forth in this Agreement.
(c) To the extent any transaction to be effected at the
Closing or thereafter with respect to any Polyols Business Unit
involves a payment of part of the Polyols Business Purchase Price in a
currency other than U.S. dollars, the amount of such foreign currency
<PAGE>
20
paid with respect to such transaction shall be determined by reference
to the applicable U.S. dollar amount for such Polyols Business Unit set
forth in Schedule 2.04 multiplied by the mid-range exchange rate as of
the date of such transaction as published in the Wall Street Journal,
Northeastern Edition.
SECTION 2.03. Risk of Loss. Until the Closing, any loss of
-------------
or damage to the Acquired Assets from fire, casualty or any other occurrence
shall be the sole responsibility of Lyondell or the Lyondell Selling
Subsidiaries, as applicable.
SECTION 2.04. Polyols Business Purchase Price Allocation.
-------------------------------------------
(a) Lyondell and Purchaser have agreed to an estimated
by-country allocation of the Polyols Business Purchase Price to the assets of
the Polyols Business located therein (each, a "Polyols Business Unit"), as set
---------------------
forth in Schedule 2.04. No later than ninety (90) days after the Closing Date,
either Parent Party may request an adjustment to such initial allocation,
including, but not limited to, a request to make an adjustment to reflect the
Closing Working Capital. Lyondell and Purchaser shall endeavor in good faith to
agree to any and all requested adjustments. To the extent that Lyondell and
Purchaser are unable to agree to any requested adjustment, Lyondell and
Purchaser shall select an independent appraisal firm that, in consultation with
the Parent Parties and their respective consultants, shall make a final
determination with respect to each unagreed adjustment.
(b) No later than 90 days after the Closing Date, Lyondell and
Purchaser shall also endeavor in good faith (i) to agree on a final by-country
allocation of the total consideration paid for the Polyols Business Units,
including Assumed Liabilities that constitute consideration for purposes of
Taxes and (ii) to allocate that by-country consideration to the specific assets
of the Polyols Business Units in accordance with Section 1060 of the Code and
the Applicable Laws of non-U.S. jurisdictions. If Lyondell and Purchaser are
unable to agree to a final allocation of such total consideration, Lyondell and
Purchaser shall select an independent appraisal firm that, in consultation with
the Parent Parties and their respective consultants, shall make a final
determination with respect to the allocation of the total consideration
consistent with Applicable Law.
(c) The independent appraisal firm shall be selected by
agreement of Lyondell and Purchaser from a list
<PAGE>
21
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(a) or (b) shall be conclusive and
binding as to Lyondell and Purchaser and their respective Affiliates. Each of
Lyondell and Purchaser and their respective Affiliates shall file all of its Tax
Returns consistent with any agreements and determinations made under Sections
2.04(a) and (b).
(d) Lyondell and Purchaser shall share 50/50 the fees and
expenses of any independent appraisal firm retained under either Section 2.04(a)
or (b). Each of Lyondell and Purchaser shall solely bear the costs of its
consultants.
ARTICLE III
Representations and Warranties
------------------------------
of Lyondell and the Lyondell Selling Subsidiaries
-------------------------------------------------
Lyondell and the Lyondell Selling Subsidiaries hereby jointly
and severally represent and warrant to Purchaser and the Purchaser Designees, as
of November 16, 1999 and as of the Closing Date, as follows:
SECTION 3.01. Financial Statements. (a) Attached as
---------------------
Schedule 3.01(a) are the following financial statements (collectively, the
"Financial Statements")
--------------------
(i) As of and for the year ended December 31, 1998:
(A) Statement of Combined Revenues and Expenses
Attributable to the Polyols Business of Lyondell (the "1998
----
Income Statement");
----------------
(B) Statement of Combined Assets and Liabilities
Attributable to the Polyols Business of Lyondell (the "1998
----
Balance Sheet");
-------------
(C) Statement of Combined Working Capital Attributable
to the Polyols Business of Lyondell (the "1998 Working Capital
--------------------
Statement");
---------
<PAGE>
22
(D) Statement of Selected Combined Cash Flow
Information Attributable to the Polyols Business of Lyondell
(the "1998 Cash Flows Statement");
-------------------------
(ii) as of and for the six months ended June 30, 1999:
(A) Statement of Combined Revenues and Expenses
Attributable to the Polyols Business of Lyondell (the "1999
----
Income Statement");
----------------
(B) Statement of Combined Assets and Liabilities
Attributable to the Polyols Business of Lyondell (the "1999
----
Balance Sheet");
-------------
(C) Statement of Combined Working Capital Attributable
to the Polyols Business of Lyondell (the "1999 Working Capital
--------------------
Statement");
---------
(D) Statement of Selected Combined Cash Flow
Information Attributable to the Polyols Business of Lyondell
(the "1999 Cash Flows Statement"); and
-------------------------
(iii) footnotes describing the procedures and methodologies
used by Lyondell in the preparation of the derived financial statements
set forth in (i) and (ii) above of the Polyols Business.
(b) Attached hereto as Schedule 3.01(b) is supplemental
financial information, including details of sales, costs of sales, SG&A and R&D
of the Polyols Business (the "Supplemental Financial Schedules"), which has been
--------------------------------
derived from the Financial Statements and, to Lyondell's Knowledge, fairly
presents the information discussed therein.
(c) The Financial Statements of the Polyols Business have
been derived from the Consolidated Financial Statements and books and records of
Lyondell, which have been prepared in accordance with GAAP, except that accounts
receivable include certain amounts sold to Lyondell Funding LLC, which is not
consolidated with Lyondell for financial reporting purposes. The unaudited
Financial Statements of the Polyols Business are a fair and reasonable
presentation of the results of operations and financial condition of Lyondell's
Polyols Business as of and for the periods ended December 31, 1998 and June 30,
1999 under GAAP (except as described in the notes thereto).
"Consolidated Financial Statements" means the consolidated
financial statements of Lyondell (i) filed on
<PAGE>
23
Form 10-K with the SEC with respect to Lyondell's fiscal year ended December 31,
1998 and (ii) filed on Form 10-Q with the SEC with respect to Lyondell's
respective fiscal quarters ended March 31, 1999 and June 30, 1999.
(d) The Polyols Business does not have any Liabilities, except
(i) as disclosed, reflected or reserved against on the 1998 Balance Sheet and
the notes thereto, (ii) for items set forth in any other Schedule hereto, (iii)
for Liabilities incurred in the ordinary course of the Polyols Business
consistent with past practice since the date of the 1998 Balance Sheet or not in
violation of the Master Transaction Agreement, (iv) for Excluded Liabilities and
(v) for Taxes.
(e) The Financial Statements do not include any assets,
liabilities, expenses or revenues with respect to the Performance Chemicals
Business.
SECTION 3.02. Assets Other than Real Property Interests. (a)
-----------------------------------------
Lyondell or a Lyondell Selling Subsidiary has good and valid title to or the
right to use all the Acquired Assets, in each case free and clear of all Liens,
except (i) such as are set forth in Schedule 3.02(a)(i) (all of which shall be
discharged on or prior to the Closing), (ii) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the ordinary
course of business and Liens for Taxes that are not due and payable or that may
thereafter be paid without penalty or are being contested in good faith, (iii)
Liens pursuant to licenses entered into in the ordinary course of business of
and for patents and other intellectual property and technology and (iv) other
imperfections of title or encumbrances, if any, that individually or in the
aggregate, do not materially impair, and could not reasonably be expected to
materially impair, the continued use and operation of the material assets to
which they relate in the conduct of the Polyols Business as conducted as of
November 16, 1999 (the Liens described in clauses (ii) through (iv) above,
together with the Liens referred to in clauses (ii) through (vi) of Section
3.03, are referred to collectively as "Permitted Liens").
---------------
(b) This Section 3.02 does not relate to real property or
interests in real property, such items being the subject of Section 3.03, or to
Intellectual Property, such items being the subject of Section 3.04.
<PAGE>
24
SECTION 3.03. Real Property. (a) Schedule 1.02(a)(i) sets
-------------
forth a complete list of all real property owned by Lyondell or the Lyondell
Selling Subsidiaries and used or held for use primarily in the operation or
conduct of the Polyols Business, other than any such property or interest
constituting an Excluded Asset (individually, an "Owned Property"). Schedule
--------------
1.02(a)(i) also sets forth a complete list of all material real property leased
by Lyondell or the Lyondell Selling Subsidiaries and used or held for use
primarily in the operation or conduct of the Polyols Business, other than any
such property or interest constituting an Excluded Asset (individually, a
"Leased Property"). Lyondell or a Lyondell Selling Subsidiary has, with respect
---------------
to those properties located in the United States, good and insurable fee title
and, with respect to those properties located outside the United States, fee
title or the substantial equivalent thereto, if any, in such jurisdiction, to
all Owned Property and good and valid title to the leasehold estates
constituting the Leased Property pursuant to the leases (the "Real Property
-------------
Leases") which are identified in Schedule 1.02(a)(i) (an Owned Property or
- ------
Leased Property being sometimes referred to herein, individually, as a "Polyols
-------
Business Property" and collectively as the "Premises"), in each case free and
- ----------------- --------
clear of all Liens, except (i) Liens described in clause (i) (which will be
released at the Closing), (ii) or (iii) of Section 3.02(a), (ii) such as are set
forth in Schedule 3.03(a)(ii), (iii) leases, subleases and similar agreements
set forth in Schedule 3.05, (iv) easements, covenants, rights-of-way and other
similar restrictions of record, including those set forth on Schedule
3.03(a)(iv)-(vi), (v) any conditions that may be shown by a current, accurate
survey or physical inspection of any Polyols Business Property, including those
set forth on Schedule 3.03(a)(iv)-(vi) and (vi) (A) zoning, building and other
similar restrictions, (B) Liens that have been placed by any developer, landlord
or other third party on property over which Lyondell or the Lyondell Selling
Subsidiaries has easement rights or on any Leased Property and subordination or
similar agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way and other similar restrictions, including those set forth on
Schedule 3.03(a)(iv)-(vi). None of the items set forth in clauses (iv), (v) and
(vi) above, individually or in the aggregate, materially impairs, or could
reasonably be expected materially to impair, the continued use and operation of
the Polyols Business Property to which they relate in the conduct of the Polyols
Business as conducted as of November 16, 1999. True, correct and complete copies
of the Real Property Leases and agreements identified in Schedule 1.02(a)(i)
have been, or within 60 days after the
<PAGE>
25
date of the Master Transaction Agreement will be, delivered to Purchaser,
together with a supplement to Schedule 1.02(a)(i) that confirms, with respect to
each of the Real Property Leases and agreements identified in Schedule
1.02(a)(i), the date, parties, date of any amendments or supplements thereto,
date of expiration of the term thereof and whether any unexercised renewal
options exist. Each of the Real Property Leases, and each such other agreement
identified on Schedule 1.02(a)(i), is in full force and effect, and neither
Lyondell nor any of the Lyondell Selling Subsidiaries which is party to any such
Real Property Lease, or party to or beneficiary of any such agreement has
received or given any notice of default thereunder which is extant (i.e., same
----
was not cured within the applicable grace period or waived), and, to Lyondell's
Knowledge, no event has occurred which, with the giving of notice or the passage
of time, or both, would constitute a material default under any Real Property
Lease or under any such agreement.
(b) Together with Purchaser's rights under the Polyols
Operating Agreement and the Polyols Ground Leases (or, with respect to
Fos-Sur-Mer, the Polyols Transfer Document with respect thereto) there is
adequate access between each Polyols Business Property and public roads, and
there are no pending or, to the Knowledge of Lyondell, threatened Proceedings
that could have the effect of impairing or restricting such access. Other than
Abandoned Assets, the improvements located on the Polyols Business Property are
in good working order, are free from defects, except for normal wear and tear,
and have been maintained in all respects in accordance with the past practice of
the Polyols Business (other than Idle Assets which have been maintained to the
extent necessary to preserve the ability to resume using such Idle Asset at a
reasonable cost), and no repairs, replacements or regularly scheduled
maintenance relating to any such improvement has been deferred (other than with
respect to Idle Assets where any repairs, replacements or regularly scheduled
maintenance is being done to the extent necessary to preserve the ability to
resume using such Idle Asset at a reasonable cost), except for such defects,
failures to maintain and deferrals that, individually or in the aggregate, could
not reasonably be expected to have a Polyols Business Material Adverse Effect.
SECTION 3.04. Intellectual Property and Technology. (a)
------------------------------------
Schedule 1.02(a)(v) contains a materially complete list of all Intellectual
Property of Lyondell and its Affiliates that is used or held for use primarily
in the operation or conduct of the Polyols Business, including all such
Intellectual Property which has been registered in,
<PAGE>
26
filed in or issued by the PTO, any state trademark offices and the patent,
trademark, copyright and other corresponding offices of foreign jurisdictions.
(b) Lyondell or a Lyondell Selling Subsidiary will transfer to
Purchaser the Assigned Intellectual Property and Technology within the time
periods set out on Schedule 3.04(b). Subject to Section 3.04(c), Lyondell
represents and warrants in respect to the Assigned Intellectual Property and
Technology that it is the sole and exclusive owner of and has the legal power to
transfer the rights in the Assigned Intellectual Property and Technology to
Purchaser.
(c) Except as set forth on Schedule 3.04(c), there are no
licenses or other agreements from or with third parties under which Lyondell or
any of its Affiliates uses or exercises any rights with respect to any of the
Assigned Intellectual Property or Technology.
(d) Except as set forth on Schedule 3.04(d), Lyondell has no
Knowledge of any facts concerning a challenge to Lyondell's or any of its
Affiliate's right, and has not received any oral or written notice from any
other Person challenging the right of Lyondell (or any of its Affiliates or any
other Person) to use any of the Assigned Intellectual Property or Technology,
and there is no interference, opposition, cancelation, reexamination or other
contest proceeding, administrative or judicial, pending or threatened with
respect to any Assigned Intellectual Property or Technology.
(e) Except as set forth on Schedule 3.04(e), no licenses have
been granted and neither Lyondell nor any Lyondell Affiliate has any obligation
to grant licenses with respect to any Assigned Intellectual Property or
Technology. To Lyondell's Knowledge, no claims have been made by Lyondell or any
of its subsidiaries of any violation or infringement by others of rights with
respect to any Assigned Intellectual Property or Technology. To Lyondell's
Knowledge, no claims have been made against Lyondell or any of its Affiliates by
others of any violation or infringement of rights with respect to any Assigned
Intellectual Property or Technology, and there is no basis for the making of any
such claim. To Lyondell's Knowledge, the use by Lyondell and its Affiliates of
the Assigned Intellectual Property or Technology (past and present) has not
violated or infringed any rights of other Persons, or constituted a breach of
any Contract (or other agreement or commitment).
<PAGE>
27
(f) The Assigned Intellectual Property and Technology will not
be adversely affected by the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(g) To Lyondell's Knowledge, all statements and
representations made by or on behalf of Lyondell or any of its Affiliates in any
pending patent and trademark applications with respect to the Assigned
Intellectual Property were true in all material respects as of the time they
were made.
(h) The Acquired Assets include all material written
documentation of the Assigned Intellectual Property and Technology.
(i) Except for such matters that, individually or in the
aggregate, could not reasonably be expected to have a Polyols Business Material
Adverse Effect, to Lyondell's Knowledge:
(i) all material Technology has been maintained in
confidence in accordance with protection procedures believed
by Lyondell to be customarily used in the chemical industry to
protect similar technology;
(ii) all former and current employees of the Polyols
Business, who have contributed to or participated in the
conception and development of material Technology
(collectively, "Personnel"), have executed and delivered to
Lyondell or one of its Affiliates employee's agreements
restricting the use and disclosure of company confidential
information, except as authorized by Lyondell or its
Affiliates in the performance or their employment duties, and
giving Lyondell or the Lyondell Selling Subsidiaries ownership
of all property rights therein;
(iii) no Personnel have any claim against Lyondell or
the Lyondell Selling Subsidiaries in connection with the
conception and development of any material Technology and no
such claim has been asserted or threatened; and
(iv) none of the current officers and employees of
Lyondell or the Lyondell Selling Subsidiaries has any patents
issued, patent applications pending or inventions now used or
needed by Lyondell or the Lyondell Selling
<PAGE>
28
Subsidiaries in the furtherance of the Polyols Business, which
patent or applications have not been assigned to Lyondell or
the Lyondell Selling Subsidiaries.
SECTION 3.05. Assigned Contracts. (a) Except (w) for those
------------------
Contracts terminating prior to Closing with no remaining obligations to Lyondell
or a Lyondell Selling Subsidiary, (x) as set forth in Schedule 3.05, (y) for
Assigned Contracts entered into after November 16, 1999 and not in violation of
the Master Transaction Agreement and (z) for Contracts relating solely to
Excluded Assets, neither Lyondell nor any Lyondell Selling Subsidiary is a party
to or bound by any Contract that is used or held for use primarily in, or that
arises primarily out of, the operation or conduct of the Polyols Business and
that is:
(i) an employment agreement or employment contract with any
expatriate or any such agreement with any other individual that has a
potential liability of more than $100,000 (excluding any liability for
ordinary course salary or other compensation);
(ii) a collective bargaining agreement or other Contract
with any labor organization, union or association;
(iii) a covenant not to compete or other covenant of Lyondell
or the Lyondell Selling Subsidiaries restricting the development,
manufacture, marketing or distribution of the products and services of
Lyondell or the Lyondell Selling Subsidiaries other than customary
provisions contained in product sales agreements, requirements
contracts, exclusive distributor or sales representative or other
representative-type agreements entered into in the ordinary course of
business;
(iv) a Contract with (A) any shareholder of Lyondell or (B)
any current or former officer, director or employee of Lyondell or any
Affiliate of Lyondell that has a potential liability of more than
$100,000 (other than employment agreements or employment contracts
covered by clause (i) above);
(v) a Contract with any Affiliate of Lyondell that has a
potential liability of more than $100,000;
(vi) a lease, sublease or similar Contract with any person
under which Lyondell or any Lyondell Selling Subsidiary is a lessor or
sublessor of, or makes avail-
<PAGE>
29
able for use to any person, any Polyols Business Property, except for
those leases, subleases or similar Contracts that could not reasonably
be expected to interfere with the operation or conduct of the Polyols
Business;
(vii) a lease, sublease or similar Contract with any person
under which (A) Lyondell or any Lyondell Selling Subsidiary is lessee
of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by any person or (B) Lyondell or any
Lyondell Selling Subsidiary is a lessor or sublessor of, or makes
available for use by any person, any tangible personal property owned
or leased by Lyondell or any Lyondell Selling Subsidiary, in any such
case has an aggregate liability or receivable of or to Lyondell or any
Lyondell Selling Subsidiary, as the case may be, in excess of
$5,000,000 over the remaining term of such Contract and is not
terminable by Lyondell or any Lyondell Selling Subsidiary by notice of
not more than 90 days for a cost of less than $500,000;
(viii) (A) a continuing Contract for the future purchase of
materials, supplies or equipment, (B) a management, service, consulting
or other similar Contract or (C) an advertising agreement or
arrangement, in any such case that has an aggregate liability of
Lyondell or any Lyondell Selling Subsidiary in excess of $5,000,000
over the remaining term of such Contract and is not terminable by
Lyondell or any Lyondell Selling Subsidiaries by notice of not more
than 90 days for a cost of less than $500,000;
(ix) (A) a Contract under which Lyondell or any Lyondell
Selling Subsidiary has borrowed any money from, or issued any note,
bond, debenture or other evidence of indebtedness to, any person or (B)
any other note, bond, debenture or other evidence of indebtedness
issued to any person;
(x) a Contract (including any so-called take-or-pay or keep
well agreement) that has a potential liability of more than $100,000
under which (A) any person has directly guaranteed indebtedness,
liabilities or obligations of Lyondell or any Lyondell Selling
Subsidiary or (B) Lyondell or any Lyondell Selling Subsidiary has
directly or indirectly guaranteed indebtedness, liabilities or
obligations of any other person (in each case other than endorsements
for the purpose of collection in the ordinary course of business);
<PAGE>
30
(xi) a Contract under which Lyondell or any Lyondell Selling
Subsidiary or Asian Company has, directly or indirectly, made any
advance, loan, extension of credit or capital contribution to, or other
investment in, any person (other than Lyondell or the Lyondell Selling
Subsidiaries or the Asian Companies);
(xii) a Contract granting a Lien (other than Permitted Liens
and Contracts in respect of Liens to be released at Closing) upon any
Polyols Business Property or any other Acquired Asset;
(xiii) a Contract providing for indemnification of any person
with respect to liabilities relating to any current or former business
of Lyondell or the Lyondell Selling Subsidiaries or any predecessor
person;
(xiv) a power of attorney (other than a power of attorney given
in the ordinary course of the Polyols Business with respect to routine
Tax matters);
(xv) a Contract not made in the ordinary course of the Polyols
Business involving potential liabilities of more than $100,000;
(xvi) a confidentiality agreement;
(xvii) a Contract (including a purchase order), involving
payment by Lyondell or any Lyondell Selling Subsidiary of more than
$5,000,000 after November 16, 1999 or involving payment by Lyondell or
any Lyondell Selling Subsidiary of more than $1,000,000, after November
16, 1999 and extending for a term more than one year from November 16,
1999 (unless terminable without payment or penalty upon no more than 90
days' notice);
(xviii) a Contract (including a sales order) involving the
obligation of Lyondell or any Lyondell Selling Subsidiary to deliver
products or services for payment of more than $5,000,000 after November
16, 1999 or involving payment of more than $1,000,000 after November
16, 1999 and extending for a term more than one year from November 16,
1999 (unless terminable without payment or penalty upon no more than 90
days' notice);
(xix) a Contract for the sale of any Acquired Asset after
November 16, 1999 (other than (x) equipment sales that individually are
for an amount less than $100,000,
<PAGE>
31
or, in the aggregate, are for an amount less than $1,000,000 or (y)
inventory, in each case, in the ordinary course of business) or the
grant of any preferential rights to purchase any Acquired Asset or
requiring the consent of any party to the transfer thereof;
(xx) except for matters set forth in Schedule 3.14(b), a
Contract with any Governmental Entity involving obligations of Lyondell
or any Lyondell Selling Subsidiary in an amount greater than
$1,000,000;
(xxi) a Contract for any joint venture, partnership or similar
arrangement;
(xxii) a Contract providing for the services of any dealer,
distributor, sales representative, franchisee or similar representative
involving the payment or receipt in any year of such Contract in excess
of $1,000,000 by Lyondell or any Lyondell Selling Subsidiary or
extending for a term more than one year from November 16, 1999 (unless
terminable without payment upon no more than 90 days' notice); and
(xxiii) any other Contract to which Lyondell or any Lyondell
Selling Subsidiary is a party or bound that has an aggregate liability
after November 16, 1999 to any person (other than Lyondell or the
Lyondell Selling Subsidiaries) in excess of $5,000,000 and is not
terminable by Lyondell or the Lyondell Selling Subsidiaries by notice
of not more than 90 days for a cost of less than $500,000.
(b) Except as set forth in Schedule 3.05(b), all Contracts
listed in the Schedules are valid, binding and in full force and effect and are
enforceable by Lyondell or the Lyondell Selling Subsidiaries, as applicable, in
accordance with their terms, subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity, including any implied covenants of good faith and fair
dealing, and except for such failures to be valid, binding, in full force and
effect or enforceable that, individually or in the aggregate, could not
reasonably be expected to have a Polyols Business Material Adverse Effect.
Except as set forth in Schedule 3.05(b), to Lyondell's Knowledge, Lyondell and
the Lyondell Selling Subsidiaries are not (with or without the lapse of time or
the giving of notice, or both) in breach or default in any respect under any
Assigned
<PAGE>
32
Contract and, to Lyondell's Knowledge, no other party to any Assigned Contract
is (with or without the lapse of time or the giving of notice, or both) in
breach or default in any respect thereunder, except for such noncompliance,
breaches and defaults that, individually or in the aggregate, have not had and
could not reasonably be expected to have a Polyols Business Material Adverse
Effect. To Lyondell's Knowledge, neither Lyondell nor any Lyondell Selling
Subsidiary has, except as disclosed in the applicable Schedule, received any
notice of the intention of any party to terminate any Assigned Contract prior to
the stated term thereof. Subject to (i) text redacted in connection with
antitrust considerations, (ii) text redacted pursuant to confidentiality
provisions in Contracts for which consent to disclosure have not yet been
obtained and (iii) confidential agreements for which consents to disclosure have
not yet been obtained, complete and correct copies of all Contracts listed or
referred to in Schedule 3.05, together with all modifications and amendments
thereto, have been made, or within 90 days after the date of the Master
Transaction Agreement will be made, available to Purchaser. Any such Contract
(or redacted language) not provided within the time period set forth in the
prior sentence because of pending antitrust matters or confidentiality
requirements, shall be provided as soon thereafter as practicable to the extent
permitted by the antitrust authorities or the counterparties to such agreements,
as applicable.
(c) Schedule 3.05(a) sets forth for each Assigned Contract
identified thereon whether the consent of the other party or parties thereto
must be obtained pursuant to the provisions thereof by virtue of the execution
and delivery of this Agreement or the consummation of the Polyols Business
Acquisition to avoid the invalidity of the transfer of such Contract, the
termination thereof, a breach, violation or default thereunder or any other
change or modification to the terms thereof. To the extent that a Contract is
identified on Schedule 3.05(a) in any of clauses (i) through (xxiii) of Section
3.05(a), that Contract shall also be deemed disclosed for purposes of each of
the other of such clauses of Section 3.05(a) to the extent any such other clause
is also applicable to such Contract, notwithstanding the fact that no specific
reference to such other clause is made. For the avoidance of doubt, Contracts
may have been included on Schedule 3.05(a) irrespective of whether the
descriptive threshold or terms set forth in the various clauses of Section
3.05(a) are applicable thereto.
SECTION 3.06. Inventory. The Inventory (a) is free of any
----------
material defect or deficiency and (b) is in
<PAGE>
33
good, usable and currently marketable condition in the ordinary course of the
Polyols Business (subject, in the case of raw materials and work-in-process, to
the completion of the production process).
SECTION 3.07. Personal Property. Except for Abandoned Assets,
-----------------
each item of Personal Property is in good working order, is free from any defect
except for normal wear and tear and has been maintained in all respects in
accordance with the past practice of the Polyols Business (other than Idle
Assets which have been maintained to the extent necessary to preserve the
ability to resume using such Idle Asset at a reasonable cost), and no repairs,
replacements or regularly scheduled maintenance relating to any such item has
been deferred (other than with respect to Idle Assets where any repairs,
replacements or regularly scheduled maintenance is being done to the extent
necessary to preserve the ability to resume using such Idle Asset at a
reasonable cost), except for defects, failures to maintain and deferrals that,
individually or in the aggregate, could not reasonably be expected to have a
Polyols Business Material Adverse Effect. All leased Personal Property of the
Polyols Business is in the condition required of such property by the terms of
the lease applicable thereto, except for such instances that, individually or in
the aggregate, could not reasonably be expected to have a Polyols Business
Material Adverse Effect.
SECTION 3.08. Receivables. All the Receivables (a)
------------
represent actual indebtedness incurred by the applicable account debtors and (b)
have arisen from bona fide transactions in the ordinary course of the Polyols
Business.
SECTION 3.09. Permits. (a) Schedule 1.02(a) (vii) sets forth
-------
all Permits issued or granted to Lyondell or the Lyondell Selling Subsidiaries
that are necessary to operate or conduct the Polyols Business, except for those
Permits the absence of which could not, individually or in the aggregate,
reasonably be expected to have a Polyols Business Material Adverse Effect.
Except as set forth in Schedule 1.02(a)(vii), (i) all such Permits are validly
held by Lyondell or the Lyondell Selling Subsidiaries, and Lyondell or the
Lyondell Selling Subsidiaries has complied, and is in compliance, with all terms
and conditions thereof, except where the failure to be so or to do so,
individually or in the aggregate, could not reasonably be expected to have a
Polyols Business Material Adverse Effect, (ii) no Proceedings are pending or, to
Lyondell's Knowledge, threatened relating to the revocation or modification of
any such Permits the loss of which, individually or in the aggregate, could
reasonably be expected to have a Polyols
<PAGE>
34
Business Material Adverse Effect and (iii) to Lyondell's Knowledge, except as
set forth in Part III to Schedule 1.02(a)(vii), which sets forth Permits that
cannot be transferable pursuant to Applicable Law (Bayer and Lyondell agree that
Lyondell shall have 90 days after November 16, 1999 to identify Permits listed
on such Schedule 1.02(a)(vii) that should be included in Part III), none of such
Permits will be subject to suspension, modification, revocation or nonrenewal as
a result of the execution and delivery of this Agreement or the consummation of
the Polyols Business Acquisition and the other Transactions, except for such
suspensions, modifications, revocations or nonrenewals which, individually or in
the aggregate, could not reasonably be expected to have a Polyols Business
Material Adverse Effect.
(b) Lyondell or the Lyondell Selling Subsidiaries possess all
Permits to own or hold under lease and operate the Acquired Assets and to
conduct the Polyols Business as conducted as of November 16, 1999, except where
the failure to do so, individually or in the aggregate, could not reasonably be
expected to have a Polyols Business Material Adverse Effect.
SECTION 3.10. Sufficiency of Acquired Assets. (a) The Acquired
------------------------------
Assets, together with the Excluded Assets, the Infrastructure Assets (as defined
in the Polyols Operating Agreement), the Permits referred to in Section 3.09 and
Lyondell's insurance policies comprise all the material assets employed by
Lyondell or the Lyondell Selling Subsidiaries in the Polyols Business and such
assets are sufficient for the conduct of the Polyols Business immediately
following the Closing in substantially the same manner as conducted as of
November 16, 1999, assuming all required consents and approvals are obtained and
assuming that Idle Assets and Abandoned Assets are not available for use in the
operation or conduct of the Polyols Business.
(b) Based on the 1998/1999 actual or engineered (i.e.,
modelled) data contained in Part II of Schedule 3.10(b), Part I of Schedule
3.10(b) sets forth for each facility identified thereon 1999 production capacity
for that facility, subject to the limitations and qualifications set forth in
Part II. The quantitative data set forth in Part II of Schedule 3.10(b) is
accurate in all material respects, subject to the qualifications and limitations
set forth therein.
SECTION 3.11. Taxes. (a) For purposes of this Agreement:
------
<PAGE>
35
"Tax" means (i) any tax, governmental fee or other like
---
assessment or charge of any kind whatsoever (including any tax imposed under
Subtitle A of the Code and any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding tax on amounts paid, payroll,
employment, excise, severance, stamp, capital stock, occupation, property,
environmental or windfall profit tax, premium, custom, duty or other tax),
together with any interest, penalty, addition to tax or additional amount due,
imposed by any Governmental Entity (domestic or foreign) responsible for the
imposition of any such tax (a "Taxing Authority"), (ii) any liability for the
----------------
payment of any amount of the type described in clause (i) above as a result of a
party to this Agreement being a member of an affiliated, consolidated or
combined group with any other corporation at any time on or prior to the Closing
Date and (iii) any liability of any person with respect to the payment of any
amounts of the type described in clause (i) or (ii) above as a result of any
express or implied obligation of such person to indemnify any other person.
(b) Except as set forth in Schedule 3.11(b), (i) Lyondell and
the Lyondell Selling Subsidiaries, and any affiliated group, within the meaning
of Section 1504 of the Code, of which Lyondell or the Lyondell Selling
Subsidiaries is or has been a member, has filed or caused to be filed in a
timely manner (within any applicable extension periods) all Tax Returns required
to be filed by the Code or by applicable state, local or foreign Tax laws, with
respect to the activities of the Polyols Business, (ii) all Taxes shown to be
due on such returns, reports and forms have been timely paid in full or will be
timely paid in full by the due date thereof, (iii) no material Tax Liens have
been filed and no material claims are being asserted in writing with respect to
any Taxes, (iv) no claim has ever been made by an authority in a jurisdiction
where Lyondell or the Lyondell Selling Subsidiaries do not file Tax Returns that
one or more of them might be subject to taxation on the Polyols Business'
activities by that jurisdiction and (v) Lyondell and the Lyondell Selling
Subsidiaries have withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party, in connection with the
Polyols Business' activities.
(c) Except as set forth in Schedule 3.11(c), (i) neither
Lyondell nor any of its affiliates has made with respect to Lyondell or the
Lyondell Selling Subsidiaries, or any assets of the Polyols Business, any
consent under
<PAGE>
36
Section 341(f) of the Code, (ii) none of the Acquired Assets is "tax exempt use
property" within the meaning of Section 168(h) of the Code and (iii) none of the
Acquired Assets is a lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954.
(d) Except as set forth in Schedule 3.11(d), neither Lyondell
nor the Lyondell Selling Subsidiaries is a "foreign person" within the meaning
of Section 1445 of the Code.
SECTION 3.12. Proceedings. Other than in connection with
-----------
antitrust filings made with regard to the transactions contemplated by the
Master Transaction Agreement, Schedule 3.12 sets forth as of November 16, 1999 a
list of each pending or, to the Knowledge of Lyondell, threatened Proceeding or
claim with respect to which Lyondell or the Lyondell Selling Subsidiaries has
been contacted in writing by counsel for the plaintiff or claimant, arising out
of the conduct of the Polyols Business or against or affecting any Acquired
Asset and that (a) relates to or involves more than $1,000,000, (b) seeks any
injunctive relief that, individually or in the aggregate, could reasonably be
expected to have a Polyols Business Material Adverse Effect or (c) relates to
the transactions contemplated by this Agreement. Other than in connection with
antitrust filings made with regard to the transactions contemplated by the
Master Transaction Agreement, none of the Proceedings or claims listed in
Schedule 3.13 as to which there is at least a reasonable possibility of adverse
determination would have, if so determined, individually or in the aggregate, a
Polyols Business Material Adverse Effect. In addition, to the Knowledge of
Lyondell, there are no unasserted claims of the type that would be required to
be disclosed in Schedule 3.12 if counsel for the claimant had contacted Lyondell
that are considered probable of assertion and that if asserted would have at
least a reasonable possibility of an adverse determination and, if so
determined, that, individually or in the aggregate, could reasonably be expected
to have a Polyols Business Material Adverse Effect. To the knowledge of
Lyondell, neither Lyondell nor the Lyondell Selling Subsidiaries is a party or
subject to or in default under any Judgment applicable to the conduct of the
Polyols Business or any Acquired Asset or Assumed Liability. Other than in
connection with antitrust filings made with regard to the transactions
contemplated by the Master Transaction Agreement, to the Knowledge of Lyondell,
there is no pending or threatened investigation of or affecting the conduct of
the Polyols Business or any Acquired Asset or Assumed Liability that,
individually or in the aggregate,
<PAGE>
37
could reasonably be expected to have a Polyols Business Material Adverse Effect.
SECTION 3.13. Absence of Changes or Events. Since the date of
----------------------------
the 1998 Balance Sheet, there has not been any material adverse change in the
business, financial condition or results of operations of the Polyols Business,
excluding changes resulting from (i) economic or market conditions which affect
the world or any regional economy generally, (ii) the general market price of PO
raw materials or Polyol 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, specific customer or other
actions resulting directly from the announcement of the Transactions or (v)
actions by Purchaser or its Affiliates that directly or indirectly affect the
Polyols Business. Except as set forth in Schedule 3.13, from the date of the
1998 Balance Sheet to November 16, 1999, Lyondell has caused the Polyols
Business to be conducted in the ordinary course and in substantially the same
manner as previously conducted and has made all reasonable efforts consistent
with past practices to preserve the relationships of the Polyols Business with
customers, suppliers and others with whom the Polyols Business deals.
SECTION 3.14. Compliance with Applicable Laws. (a) Except as
-------------------------------
set forth in Schedule 3.14, the Polyols Business is in compliance with all
Applicable Laws, except where the failure to be so, individually or in the
aggregate, could not reasonably be expected to have a Polyols Business Material
Adverse Effect. This Section 3.14(a) does not relate to matters with respect to
Taxes, which are the subject of Section 3.11, or to environmental matters, which
are the subject of Section 3.14(b).
(b) Except for the matters set forth on Schedule 3.14(b) and
except for any other matters that, individually or in the aggregate, could not
reasonably be expected to have a Polyols Business Material Adverse Effect:
(1) the Polyols Business is in compliance with all
Environmental Laws;
(2) there are no pending or, to the Knowledge of Lyondell,
threatened, claims, proceedings or investigations arising under
Environmental Laws in connection with the Polyols Business;
(3) neither Lyondell nor any Lyondell Selling Subsidiaries has
received any written or oral
<PAGE>
38
communication from any Governmental Entity or any third party that
alleges that the Polyols Business may not be in compliance in any
respect with, or may be subject to liability under, any Environmental
Laws, except for any such noncompliance or liability that has not been
resolved in accordance with Applicable Law prior to the Closing Date;
and
(4) there has been no Release of Hazardous Substances in, on,
at, under, or from any property owned or operated in connection with
the Polyols Business since July 28, 1998.
(c) Schedule 3.14(c), which Schedule Lyondell shall provide to
Purchaser no later than 90 days after the signing of the Master Transaction
Agreement, shall set forth any obligations that Environmental Law or
Environmental Permits impose as a result of the transactions contemplated in
this Agreement or any Polyols Transfer Document to: (i) modify or transfer any
Environmental Permit, (ii) file any notice or other submission with any
Governmental Entity, (iii) place any notice, acknowledgment or covenant in any
land records or (iv) modify or provide notice under any agreement, order or
consent decree.
As used in this Agreement, the term "Environmental Law" means
-----------------
any and all treaties, laws, rules, regulations, enforceable requirements,
binding determinations or agreements, orders, decrees, judgments, injunctions or
Permits issued, promulgated or entered into by any Governmental Entity relating
to the environment, preservation or reclamation of natural resources, human
health and safety, or the use, management, disposal, Release or threatened
Release of, or exposure to, Hazardous Substances or noxious odor.
As used in this Agreement, the term "Hazardous Substances"
--------------------
means all explosive or regulated radioactive materials or substances, hazardous
or toxic materials, wastes or chemicals, petroleum and petroleum products
(including crude oil or any fraction thereof), asbestos or asbestos-containing
materials, polychlorinated biphenyls, and all other materials or substances
regulated pursuant to any Environmental Law.
As used in this Agreement, the term "Release" means any
-------
spilling, leaking, pumping, purging, discharging, emitting, leaching, injecting
or migrating into or through the Environment.
(d) The occupancies and uses of the Premises, as well as the
management, maintenance, servicing and operation
<PAGE>
39
of the Premises, comply with all Applicable Laws, except where the failure to
comply, individually or in the aggregate, could not reasonably be expected to
have a Polyols Business Material Adverse Effect. All material approvals,
consents, utility installations and connections required for the maintenance,
operation and servicing of the Premises have been granted, effected, or
performed and completed (as the case may be) as required, and all fees and
charges therefor that have become due have been fully paid, except for those
being contested in good faith. Neither Lyondell nor the Lyondell Selling
Subsidiaries has received notice of, and Lyondell does not otherwise have
Knowledge of, any violations relating to zoning, building use and occupancy,
traffic, fire, or other laws or regulations, against, or with respect to, the
Premises which, individually or in the aggregate, could reasonably be expected
to have a Polyols Business Material Adverse Effect.
SECTION 3.15. Benefit Plans. (a) Schedule 3.15(a) contains a
-------------
list of all "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974 ("ERISA")), maintained or
-----
contributed to by Lyondell or the Lyondell Selling Subsidiaries for the benefit
of any officers or employees of the Polyols Business ("Lyondell Pension Plans")
----------------------
and all "employee welfare benefit plans" (as defined in Section 3(1) of ERISA),
bonus, stock option, stock purchase, deferred compensation plans or arrangements
and other employee fringe benefit plans maintained, or contributed to, by
Lyondell or any of its Affiliates for the benefit of any officers or employees
of the Polyols Business, including each plan and arrangement maintained or
sponsored by Lyondell or any ERISA Affiliate for the benefit of employees who
perform services outside of the United States (a "Foreign Plan") (all the
------------
foregoing, including Lyondell Pension Plans, being herein called "Lyondell
--------
Benefit Plans"). Copies of all of the material written plans and agreements, and
- -------------
correct and complete summaries of all material oral plans and agreements
described in Schedule 3.15(a), are or have been made available to Purchaser.
(b) With respect to any Lyondell Benefit Plan other than a
Foreign Plan: (i) neither such Lyondell Benefit Plan nor, to the Knowledge of
Lyondell, any plan fiduciary has engaged in a prohibited transaction as defined
in Section 406 of ERISA (for which no individual or class exemption exists under
Section 408 of ERISA) or any prohibited transaction as defined in Section 4975
of the Code (for which no individual or class exemption exists under Section
4975 of the Code) involving such Lyondell
<PAGE>
40
Benefit Plan that resulted in any material liability to Lyondell which has not
been satisfied; (ii) all filings and reports as to such Lyondell Benefit Plan
required to have been made to the IRS, to the DOL or, if applicable, to the PBGC
have been made, except where any such failure could not reasonably be expected
to result, individually or in the aggregate, in a Polyols Business Material
Adverse Effect; (iii) there is no litigation, disputed claim (other than routine
claim for benefits), governmental proceeding or investigation commenced or
pending or, to Lyondell's Knowledge, threatened with respect to any such
Lyondell Benefit Plan or its related trust which could reasonably be expected to
result, individually or in the aggregate, in a Polyols Business Material Adverse
Effect; (iv) except where any such failure could not be reasonably expected to
result, individually or in the aggregate, in a Polyols Business Material Adverse
Effect, such Lyondell Benefit Plan has been established, maintained, funded and
administered in all material respects in accordance with (A) its governing
documents and (B) any applicable provisions of ERISA, the Code and final
regulations promulgated thereunder; and (v) no such Lyondell Benefit Plan is,
and neither Lyondell nor any ERISA Affiliate has, during the preceding five (5)
year period, contributed to or maintained a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA.
(c) With respect to any Lyondell Benefit Plan that covers
employees of Lyondell and which is intended to be qualified under Section 401(a)
or Section 501(c)(9) of the Code, except as set forth in Schedule 3.15(c),
favorable determination or approval letters as to qualification of such Lyondell
Benefit Plan under Section 401(a) or Section 501(c)(9) of the Code have been
issued by the IRS, and to Lyondell's Knowledge, no event has occurred or
condition exists which would adversely affect such qualification.
(d) There has not been any termination or partial termination
of any Lyondell Pension Plan maintained by Lyondell or any ERISA Affiliate,
during the period of such common control, at a time when Title IV of ERISA
applied to such Plan, that resulted in a material liability to Lyondell that has
not been satisfied. Each of Lyondell's and/or any ERISA Affiliate's Lyondell
Benefit Plans that is covered by COBRA is in material compliance with COBRA.
(e) With respect to any Foreign Plan, (i) there is no
litigation, disputed claim (other than routine claims for benefits),
governmental proceeding or investigation commenced or pending or, to Lyondell's
Knowledge, threatened
<PAGE>
41
with respect to such Foreign Plan or its related trust which, if determined
adversely, would have a Polyols Business Material Adverse Effect, (ii) such
Foreign Plan has been created and maintained in accordance with Applicable Laws
and administered in all material respects in accordance with its governing
documents and (iii) except where such termination is not permitted by Applicable
Law, such Foreign Plan may be terminated without having a Polyols Business
Material Adverse Effect.
(f) Except as otherwise contemplated by Section 4.08 or as
required by Applicable Law, no Active Employee or Inactive Employee will become
entitled to any bonus, severance or any enhanced benefit solely as a result of
the transactions contemplated hereby with respect to which Purchaser could have
any liability or obligation.
SECTION 3.16. Employee and Labor Matters. (a) Except as set
--------------------------
forth in Schedule 3.16(a), as of November 16, 1999: (i) there is not any, and
during the past two years there has not been any, labor strike, material
dispute, work stoppage or lockout pending, or, to the Knowledge of Lyondell,
threatened, against or affecting the Polyols Business; (ii) to the Knowledge of
Lyondell, no union organizational campaign is in progress with respect to the
employees of the Polyols Business and no question concerning representation of
such employees exists; (iii) to the Knowledge of Lyondell, neither Lyondell nor
the Lyondell Selling Subsidiaries is engaged in any unfair labor practice in
connection with the conduct of the Polyols Business; (iv) there are not any
unfair labor practice charges or complaints against Lyondell or the Lyondell
Selling Subsidiaries pending, or, to the Knowledge of Lyondell, threatened,
before the National Labor Relations Board or any similar institution in any
country outside the United States in connection with the conduct of the Polyols
Business; (v) there are not any pending, or, to the Knowledge of Lyondell,
threatened, union or works council grievances against Lyondell or the Lyondell
Selling Subsidiaries in connection with the conduct of the Polyols Business as
to which there is a reasonable possibility of an adverse determination and that,
if so determined, individually or in the aggregate, could reasonably be expected
to have a Polyols Business Material Adverse Effect; (vi) there are not any
pending, or, to the Knowledge of Lyondell, threatened, charges in connection
with the conduct of the Polyols Business against Lyondell or the Lyondell
Selling Subsidiaries or any current or former employee of the Polyols Business
before the Equal Employment Opportunity Commission or any state or local agency
(domestic or foreign) responsible for the prevention of unlawful employ-
<PAGE>
42
ment practices, except for those matters that if adversely determined could not
reasonably be expected to result, individually or in the aggregate, in a Polyols
Business Material Adverse Effect; and (vii) neither Lyondell nor any of the
Lyondell Selling Subsidiaries has received notice of the intent of any
Governmental Entity responsible for the enforcement of labor or employment laws
to conduct an investigation of the Polyols Business and, to the Knowledge of
Lyondell, no such investigation is in progress.
(b) Except for those employees at the Fos-Sur-Mer facility or
the Channelview facility who are necessary to provide operating services to
Purchaser or the Purchaser Designees under the Polyols Operating Agreement with
respect to such facility, Schedules 3.16(b)(i) and (ii) set forth respectively,
(i) the name and work location of each employee wholly or primarily dedicated to
the Polyols Business and (ii) the name and work location of each employee
partially (but not primarily) dedicated to the Polyols Business. Notwithstanding
the foregoing, Schedules 3.16(b)(i) and (ii) shall in no event include the
employees set forth in Schedule 3.16(b)(iii). Schedules 3.16(b)(i), 3.16(b)(ii)
and 3.16(b)(iii) may be supplemented and modified as Purchaser and Lyondell may
mutually agree after November 16, 1999. Except as set forth in Schedule
3.16(b)(i), since August 1, 1999, no employee who is wholly or primarily
dedicated to the Polyols Business and serving in a managerial, supervisory,
professional or technical position has transferred employment between the
Polyols Business and another business of Lyondell or its Affiliates. Except as
set forth in Schedules 3.16(b)(i) and 3.16(b)(ii), since November 16, 1999, no
employee who is a production operator or administrative support employee has
transferred employment between the Polyols Business and another business of
Lyondell or its Affiliates, other than any such transfers conducted in the
ordinary course and under substantially the same circumstances or conditions as
previous transfers were conducted.
(c) No employee of the Polyols Business is, to the Knowledge
of Lyondell, a party to or bound by any Contract (except with respect to a
confidentiality agreement or provision with respect to which consent to disclose
has been obtained), or subject to any Judgment that may interfere with the use
of such person's best efforts to promote the interests of the Polyols Business,
may conflict with the Polyols Business or the transactions contemplated hereby
or that could reasonably be expected to have a Polyols Business Material Adverse
Effect. To the Knowledge of Lyondell, no activity of any employee of the Polyols
Business as or while an employee of the Polyols Business has
<PAGE>
43
caused a violation of any employment contract, confidentiality agreement or
other Contract to which such employee was a party. To the Knowledge of Lyondell,
neither the execution and delivery of this Agreement or any of the other
Transaction Documents, nor the conduct of the Polyols Business by the employees
of the Polyols Business (assuming the Polyols Business employees honor their
respective obligations, if any, to maintain the secrecy of confidential
information in their possession), will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
Contract, under which any such employee is now obligated. This Section 3.16(c)
does not relate to agreements concerning Assigned Intellectual Property, these
agreements being the subject of Section 3.04.
SECTION 3.17. Disclosure. The representations and warranties
----------
of Lyondell and the Lyondell Selling Subsidiaries contained in this Agreement
and the other Transaction Documents, together with the statements contained in
the certificates and Schedules furnished or to be furnished by or on behalf of
Lyondell or the Lyondell Selling Subsidiaries to Purchaser pursuant to this
Agreement or any other Transaction Document, taken as a whole, do not and will
not contain any untrue statement of a material fact, or omit to state any
material fact, necessary in order to make such statements, taken as a whole, not
materially misleading in light of the circumstances under which they are or will
be made. Lyondell and the Lyondell Selling Subsidiaries specifically acknowledge
that all disclosures pursuant to this Agreement and relating to "year 2000
processing" or consisting of or including "year 2000 statements" are
specifically incorporated into this Section 3.17 for the purposes of the Federal
Year 2000 Information and Readiness Disclosure Act (as such terms are defined in
such Act).
SECTION 3.18. Suppliers. No later than 5 Business Days
----------
prior to the Closing, Lyondell shall provide a list of the suppliers that
individually sell goods or services for which the aggregate purchase price
exceeds 5% of the total amount of goods and services purchased by the Polyols
Business during its most recent full fiscal year.
SECTION 3.19. Customers. Neither Lyondell nor any Lyondell
---------
Selling Subsidiary has received any customer complaint concerning the products
and services of the Polyols Business, other than complaints and returns made in
the ordinary course of business that, individually or in the aggregate, have not
had and could not reasonably be expected to have a Polyols Business Material
Adverse Effect. No
<PAGE>
44
later than 5 Business Days prior to the Closing Date, Lyondell shall provide a
list of customers who individually accounted for more than 5% of the Polyols
Business's sales in the most recent fiscal year.
SECTION 3.20. Year 2000 Compliance. (a) All computer and other
--------------------
systems, software programs, products, equipment, components and facilities used
in the Polyols Business, whether owned or produced by Lyondell or any of its
Affiliates or, to Lyondell's Knowledge, supplied thereto by any third party as
of November 16, 1999 and prior to and following the Closing Date shall be Year
2000 Compliant (as defined below), except where the failure to be so could not
reasonably be expected, individually or in the aggregate, to have a Polyols
Business Material Adverse Effect.
(b) The term "Year 2000 Compliant", with respect to a computer
-------------------
or other system, software program, product, equipment, component or facility
means that such computer or other system, program, product, equipment, component
or facility: (i) is capable of recognizing, processing, managing, representing,
interpreting and manipulating correctly date-related data for dates earlier and
later than January 1, 2000; (ii) has the ability to provide date recognition for
any data element without limitation; (iii) has the ability to function
automatically into and beyond the year 2000 without human intervention and
without any change in operations associated with the advent of the year 2000;
(iv) has the ability to interpret data, dates and time correctly into and beyond
the year 2000; (v) will not produce noncompliance in existing data, nor
otherwise corrupt such data, into and beyond the year 2000; (vi) has the ability
to process correctly after January 1, 2000, data containing dates before that
date; and (vii) has the ability to recognize all "leap year" dates, including
February 29, 2000.
SECTION 3.21. The Acquired Shares. Except as set forth on
-------------------
Schedule 3.21, Lyondell, directly or through one or more of the Lyondell Selling
Subsidiaries, has good and valid title to the Acquired Shares, free and clear of
any Liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind. Assuming Purchaser or the applicable Purchaser
Designee has the requisite power and authority to be the lawful owner of the
Acquired Shares, upon delivery to Purchaser or the applicable Purchaser Designee
at the Closing of certificates representing the Acquired Shares, duly endorsed
by Lyondell for transfer to Purchaser or the applicable Purchaser Designee, and
upon Lyondell's receipt of the Polyols Business Purchase Price, good and valid
title to the Acquired Shares will pass to
<PAGE>
45
Purchaser or the applicable Purchaser Designee, free and clear of any Liens,
claims, encumbrances, security interests, options, charges and restrictions of
any kind, other than those arising from acts of Purchaser or its Affiliates.
Other than this Agreement and as set forth on Schedule 3.21, the Acquired Shares
are not subject to any voting trust agreement or other contract, agreement,
arrangement, commitment or understanding, including any such agreement,
arrangement, commitment or understanding restricting or otherwise relating to
the voting, dividend rights or disposition of the Acquired Shares. Except as set
forth on Schedule 3.21, no stock transfer taxes are due as a result of the
purchase and sale of the Acquired Shares.
SECTION 3.22. Capital Stock of the Asian Companies. Schedule
------------------------------------
3.22 sets forth, as of December 31, 1998 and currently, for each Asian Company
the amount of its authorized capital stock, the amount of its outstanding
capital stock and Lyondell's record and beneficial ownership interest in such
outstanding capital stock. All the outstanding shares of capital stock of each
Asian Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in Schedule 3.22, there are no shares of
capital stock or other equity securities of any Asian Company outstanding.
Except as set forth on Schedule 3.22, the Acquired Shares have not been issued
in violation of, and none of the Acquired Shares are subject to, any purchase
option, call, right of first refusal, preemptive, subscription or similar rights
under any provision of Applicable Law, the Organizational Documents of the
applicable Asian Company, any contract, agreement or instrument to which the
applicable Asian Company is subject, bound or a party or otherwise. Except as
set forth on Schedule 3.22, there are no outstanding warrants, options, rights,
"phantom" stock rights, agreements, convertible or exchangeable securities or
other commitments (other than this Agreement) (i) pursuant to which Lyondell or
any Asian Company is or may become obligated to issue, sell, purchase, return or
redeem any shares of capital stock or other securities of the Asian Companies or
(ii) that give any person (other than the Asian Venture Partners) the right to
receive any benefits or rights similar to any rights enjoyed by or accruing to
the holders of shares of capital stock of the Asian Companies. Except as set
forth in Schedule 3.22, there are no equity securities of the Asian Companies
reserved for issuance for any purpose. Except as set forth in Schedule 3.22,
there are no outstanding bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders of any of the Asian
Companies may vote.
<PAGE>
46
SECTION 3.23. Equity Interests. The Asian Companies do not directly or
----------------
indirectly own any capital stock of or other equity interests in any
corporation, partnership or other Person and none of the Asian Companies is a
member of or participant in any partnership, joint venture or similar Person.
SECTION 3.24. Change of Control. Lyondell Singapore Pte, Ltd. is not
-----------------
bound by any contract which contains a change of control provision or which
could otherwise be adversely affected by the assignment of the Acquired Shares,
other than such contracts that, individually or in the aggregate, have not had
and could not reasonably be expected to have a Polyols Business Material Adverse
Effect.
ARTICLE IV
Covenants
---------
SECTION 4.01. Collection of Receivables. (a) From and after the
-------------------------
Closing, Purchaser shall have the right and authority to collect for its own
account all Included Receivables and to endorse with the name of Lyondell or the
Lyondell Selling Subsidiaries, as applicable, any checks or drafts received with
respect to any Included Receivables. Lyondell and the Lyondell Selling
Subsidiaries shall promptly deliver to Purchaser any cash or other property
received directly or indirectly by it with respect to the Included Receivables.
Unless otherwise specified by the payor, Purchaser shall first apply collections
with respect to the Included Receivables to the oldest Included Receivables owed
by such payee. Credits for price, volume or returned products adjustments that
are authorized by Purchaser shall be treated as collections in an amount equal
to the value of such adjustments. Promptly after the Closing, Purchaser shall
notify Lyondell of any Included Receivable that has not been collected within 60
days after its due date. If any Included Receivables have not been collected by
Purchaser within 60 days after its due date, Lyondell shall at the request of
Purchaser promptly purchase such Included Receivables from Purchaser; provided,
--------
that Lyondell shall not be required to repurchase any Included Receivable which
Purchaser has not requested Lyondell to repurchase within 90 days after such
Included Receivable's due date. Notwithstanding the immediately prior sentence,
Purchaser shall have the right to require Lyondell to purchase any Included
Receivable that has become due prior to the Closing Date within (x) 30 days
after the Closing Date with respect to any such Included Receivable
<PAGE>
47
that is owed in connection with U.S. operations or (y) 60 days after the Closing
Date with respect to any such Included Receivable that is owed in connection
with non-U.S. operations.
(b) Purchaser shall reasonably cooperate with Lyondell to collect from
the applicable payee any Included Receivables repurchased by Lyondell pursuant
to Section 4.01(a). Purchaser shall promptly deliver to Lyondell any cash or
other property received by it from the applicable payee with respect to any
Included Receivables repurchased by Lyondell pursuant to Section 4.01(a).
(c) Purchaser shall not restrict or otherwise interfere with Lyondell
in Lyondell's attempts to collect from the applicable payees any Included
Receivables repurchased by Lyondell pursuant to Section 4.01(a); provided, that,
--------
if requested at any time by Purchaser, Lyondell shall inform Purchaser of its
collection activities and plans with respect to those Included Receivables in an
original amount greater than $25,000.
(d) Lyondell shall provide immediately prior to the Closing, and
Purchaser shall provide monthly thereafter, an aging analysis of Included
Receivables.
(e) All intercompany receivables attributable to the Acquired Assets
and the Acquired Shares shall be paid in full and discharged by Lyondell prior
to the Closing.
SECTION 4.02. Bulk Transfer Laws. Purchaser hereby waives compliance
------------------
by Lyondell and the Lyondell Selling Subsidiaries with the provisions of any so-
called "bulk transfer law" of any jurisdiction in connection with the sale of
the Acquired Assets to Purchaser. Lyondell hereby waives compliance by Purchaser
and the Purchaser Designees with the provisions of any so-called "bulk transfer
law" of any jurisdiction in connection with the sale of the Acquired Assets to
Purchaser.
SECTION 4.03. Joint Access to Records. (a) Purchaser and Lyondell
-----------------------
shall cooperate with each other to determine whether certain Records (such as
invoices) transferred to Purchaser pursuant to Section 1.02(a)(xiii) shall be
located at Lyondell's facilities for the convenience of both parties. If the
parties agree to do so with respect to any such Records, then Lyondell shall
give Purchaser and its authorized representatives access to such Records during
normal business hours and will instruct its employees and representatives to
cooperate with Purchaser to enable Purchaser and its authorized representatives
to
<PAGE>
48
review or obtain such Records. Purchaser shall be solely responsible for its own
costs in connection with review of such Records and any reasonable costs
incurred by Lyondell directly related to Purchaser reviewing such Records
(including copying costs and retrieval costs, but excluding costs for warehouse
space or utilities). Lyondell covenants that it will not destroy any such
Records without giving Purchaser reasonable notice of its intentions and the
reasonable opportunity to remove such Records from Lyondell's facilities if
Purchaser elects to do so.
(b) Purchaser shall give Lyondell and its authorized representatives
access to those Records that Lyondell may reasonably request to review and copy
in connection with any pending or threatened Proceeding involving Lyondell or
any of its Affiliates. Purchaser shall provide access to such Records during
normal business hours and will instruct its employees and representatives to
cooperate with Lyondell to permit it to review and copy such Records. Lyondell
shall be solely responsible for its own costs in connection with the review of
such Records and any reasonable costs incurred by Purchaser directly related to
Lyondell reviewing such Records (including copying costs and retrieval costs,
but excluding cost for warehouse space or utilities). Purchaser covenants that
it will not destroy any such Records except in accordance with its normal
retention policies. Notwithstanding the immediately preceding sentence,
Purchaser will not destroy any such Records that Lyondell reasonably requests
not be destroyed because of any pending or threatened Proceeding involving
Lyondell or any of its Affiliates; provided, that Purchaser may destroy such
--------
Records after resolution of such pending Proceeding (or with respect to a
threatened Proceeding, after such Proceeding is no longer threatened or
otherwise resolved) unless Lyondell reasonably objects.
SECTION 4.04. Further Assurances. From time to time, as and when
------------------
requested by any party, each party shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement, including, in the case of Lyondell and the
Lyondell Selling Subsidiaries, executing and delivering to Purchaser such deeds,
bills of sale, patent and patent application assignments, trademarks and
trademark application assignments and other instruments as Purchaser or its
counsel may reasonably request as necessary or desirable for such purpose.
<PAGE>
49
SECTION 4.05. Names Following Closing. Subject to receiving any
-----------------------
applicable consents, Purchaser shall promptly amend the constitutive documents
of the Asian Companies to change their names to names not including or similar
to the name Lyondell.
SECTION 4.06. Carpenter Contract. Lyondell shall reimburse Purchaser
------------------
for each payment made by Purchaser in respect of the "Reactor Cost" (as defined
in Section 2 of the Carpenter Processing Agreement) pursuant to Sections 2 and
12 of the Carpenter Processing Agreement if and to the extent Purchaser makes
such payment (each monthly payment being approximately $202,700 as of November
16, 1999, excluding any adjustments to such amount pursuant to Sections 6(c) and
12 of the Carpenter Processing Agreement). Until the Reactor Cost is paid in
full, Purchaser will submit an invoice to Lyondell monthly in the amount of the
"Reactor Cost Monthly Payment" then payable under Sections 2 and 12 of the
Carpenter Processing Agreement for the immediately preceding month. Such invoice
shall also set forth the due date for such payment, which date will be the date
on which the Reactor Cost Monthly Payment is due and payable pursuant to Section
12 of the Carpenter Processing Agreement. Section 2 of the Carpenter Processing
Agreement contemplates that the Reactor Cost may be prepaid without penalty. At
Lyondell's request, Purchaser will cooperate with Lyondell to enable Lyondell to
effect any such prepayment if Lyondell elects to do so, so long as such
cooperation will not result in any cost to Purchaser. Section 12 of the
Carpenter Processing Agreement also contemplates that all invoices under the
Carpenter Processing Agreement will be reconciled at the end of each "Quarter"
to reflect any reimbursement of the Reactor Cost Monthly Payment pursuant to
Section 6(c) of the Carpenter Processing Agreement. To the extent there are any
such adjustments pursuant to Sections 6(c) and 12 of the Carpenter Processing
Agreement that are paid in cash instead of an adjustment to the next monthly
invoice (for example, if there are no further monthly invoices on which to make
such adjustment), Purchaser shall promptly pay over such amount to Lyondell. In
no event shall the failure by Purchaser to timely submit an invoice to Lyondell
relieve Lyondell of its obligation under this Section.
"Carpenter Processing Agreement" means the Processing Agreement dated
------------------------------
as of April 20, 1998 by and between ARCO Chemical Company, a Delaware
corporation, and Carpenter Co., a Virginia corporation, providing for the toll
manufacturing of certain Polyols products.
<PAGE>
50
SECTION 4.07. Post-Closing Cooperation. (a) Lyondell and Purchaser
------------------------
shall cooperate with each other, and shall cause their officers, employees,
agents, auditors and representatives to cooperate with each other, after the
Closing to ensure the orderly transition of the Polyols Business from Lyondell
to Purchaser and to minimize any disruption to the Polyols Business and the
other respective businesses of Lyondell and Purchaser that might result from the
transactions contemplated hereby. After the Closing, upon reasonable written
notice, Purchaser and Lyondell shall furnish or cause to be furnished to each
other and their employees, counsel, auditors and representatives access, during
normal business hours, such information and assistance relating to the Polyols
Business (to the extent within the control of such party) as is reasonably
necessary for Purchaser's financial reporting and accounting matters. Nothing in
this Section 4.07 provides to Purchaser any audit rights not provided herein or
in any other Transaction Documents nor does it expand on any such audit rights.
(b) After the Closing, upon reasonable written notice, Lyondell and
Purchaser shall furnish or cause to be furnished to each other, as promptly as
practicable, such information and assistance (to the extent within the control
of such party) relating to the Acquired Assets (including, access to books and
records) as is reasonably necessary for the filing of all Tax Returns, and
making of any election related to Taxes, the preparation for any audit by any
Taxing Authority, and the prosecution or defense of any claim, suit or
proceeding related to any Tax Return. Lyondell and Purchaser shall cooperate
with each other in the conduct of any audit or other proceeding relating to
Taxes involving the Polyols Business.
SECTION 4.08. Employee and Benefit Plan Matters. (a) With respect to
---------------------------------
the Active Employees and Inactive Employees listed on Schedules 3.16(b)(i) and
3.16(b)(ii) and any other employee of the Polyols Business mutually agreed upon
by Lyondell and Purchaser, except as restricted by Applicable Law, within 135
days after November 16, 1999 Purchaser will give notice to Lyondell of the names
of those Active Employees and Inactive Employees to whom Purchaser intends to
offer employment. Purchaser shall offer employment to those Active Employees and
Inactive Employees it has identified prior to the Closing within 30 days after
the notice to Lyondell provided for above. An Inactive Employee's employment
offer shall be conditioned on his or her return to active service on terms and
conditions determined by Purchaser that are consistent with Purchaser's normal
return to work practices. Each Active Employee and Inactive Employee to whom
Purchaser extends an employment
<PAGE>
51
offer and who accepts Purchaser's offer and each EU Employee and each Asia
Employee shall be referred to as an "Offered Employee". Except as otherwise
----------------
provided herein, employment of Offered Employees shall be effective as of the
Closing Date on terms and conditions determined by Purchaser to the extent not
inconsistent with Applicable Law. Employment of Offered Employees providing
transition services to Purchaser pursuant to transition services agreements to
be entered into between Lyondell and Purchaser (or their respective Affiliates)
shall be effective at the time such transition services are completed pursuant
to the terms of such transition services agreements and all applicable
provisions of this Section 4.08 shall become effective at such date with respect
to such Offered Employees (and not on the Closing Date). Those Active Employees
and Inactive Employees who do not accept Purchaser's employment offer or who are
not offered employment by Purchaser shall remain employees of Lyondell.
Purchaser and Lyondell shall cooperate to enable Purchaser to begin its
interviewing and evaluation process of Active Employees in order for Purchaser
to determine the offer of employment to be made to such individuals. Lyondell
will use its Reasonable Best Efforts to cause all such employees who are offered
employment by Purchaser to accept such offers. Except as otherwise mutually
agreed between Purchaser and Lyondell, Lyondell shall neither discourage any
such employee from accepting such offer of employment nor solicit (or attempt to
solicit) any such employee to remain an employee of Lyondell or its Affiliates.
"Active Employees" means all employees on Schedule 3.16(b)(i) or 3.16(b)(ii),
----------------
other than EU Employees and Asia Employees, who are in active employment with
Lyondell or a Lyondell Selling Subsidiary as of the Closing Date. "Inactive
--------
Employees" means all employees (other than former employees) on Schedule
- ---------
3.16(b)(i) or 3.16(b)(ii), other than EU Employees and Asia Employees, who are
not in active employment with Lyondell or a Lyondell Selling Subsidiary as of
the Closing Date but who are on an authorized leave of absence determined in a
manner consistent with Lyondell's leave of absence policies then in effect. "EU
--
Employees" means the employees listed on Schedule 3.16(b)(i) to whom the
- ---------
European Union Directive is applicable. "Asia Employees" means the employees
--------------
listed on Schedule 3.16(b)(i) and 3.16(b)(ii) who are employed at one of the
Asian Companies.
(b) (i) Purchaser acknowledges and agrees that pursuant to the
European Union Acquired Rights Directive (the "European Union Directive"), the
------------------------
employment contracts between Lyondell or its Affiliates, as the case may be, and
its EU Employees and any CBAs relating to those employees will remain in effect
on and after the Closing Date as if
<PAGE>
52
originally made between Purchaser or its Affiliates, as the case may be, and the
EU Employees or between Purchaser or its Affiliates, as the case may be, and the
relevant trade union or works council, as the case may be.
(ii) Lyondell and its Affiliates shall discharge all obligations and
liabilities of the employer with respect to the EU Employees up to the
Closing Date.
(iii) Purchaser and its Affiliates shall discharge all obligations and
liabilities of the employer with respect to the EU Employees on and after
the Closing Date.
(iv) Lyondell, Purchaser and their respective Affiliates shall
observe their respective obligations to inform and consult with the EU
Employees and their representatives pursuant to the European Union
Directive with respect to the transactions contemplated by this Agreement.
Lyondell and Purchaser shall provide information to each other as may
reasonably be required to enable each other to meet their respective
obligations to consult with the EU Employees and their representatives
pursuant to the European Union Directive.
(c) Subject to Section 4.08(b), Purchaser will provide coverage for
Offered Employees under its employee benefit plans and programs and its
incentive compensation plans and programs on the same basis in the aggregate as
that provided to similarly situated employees of Purchaser, except that an
Offered Employee who has received a payment under Lyondell's Change of Control
Plan shall not (except as otherwise required by Applicable Law) be eligible to
participate in any Purchaser severance plan or programs until the Offered
Employee has completed 12 months of actual Purchaser employment. Each Offered
Employee shall be given credit, without duplication, for all service with
Lyondell or any Affiliate of Lyondell (or service credited by Lyondell or any
Affiliate of Lyondell) under (i) all employee benefit plans, programs and
policies, and fringe benefits of Purchaser in which that employee becomes a
participant for purposes of eligibility (including eligibility for post-
retirement medical insurance coverage under Purchaser's applicable post-
retirement medical plans and arrangements as provided in Section 4.08(h)) and
vesting, but, except as provided in Section 4.08(e) or Section 4.08(f), not for
purposes of calculating benefit accruals under Purchaser's defined benefit
pension plan and (ii) Purchaser's vacation, service award and severance plans
<PAGE>
53
for purposes of calculating the amount of such Offered Employee's benefits under
such plans.
(d) Purchaser shall waive any preexisting condition limitations for
such conditions covered under Lyondell's medical, health or dental plans and
shall honor any deductible and out-of-pocket expenses incurred by Offered
Employees and their dependents under Lyondell's medical, dental or health plans
during the portion of the calendar year preceding the Closing Date. Offered
Employees shall be eligible for benefits up to the maximum benefit payment
limitation contained in Purchaser's medical, health or dental plans, without
offset for any prior benefit payment under Lyondell's medical, health or dental
plans. Purchaser shall waive any medical certification under its group term life
insurance plan or disability plans for each Offered Employee up to the amount of
coverage such Offered Employee had under Lyondell's life insurance plan or
disability plans (but subject to any limits on the maximum amount of coverage
under Purchaser's life insurance plan or disability plans).
(e) Effective as of the Closing Date, each Offered Employee who is
based in the United States will be eligible to participate in the Bayer Corp.
Pension Plan (the "Bayer Corp. Pension Plan") in accordance with the terms of
------------------------
such plan. An Offered Employee's benefits under the Bayer Corp. Pension Plan
will be determined under whichever of the two formulas results in a greater
benefit: (i) the benefit determined under the Bayer Corp. Pension Plan based on
all benefit service credited by Lyondell under the Lyondell Pension Plan plus
all future benefit service with Purchaser reduced by the accrued benefit under
the Lyondell Pension Plan as of the Closing Date; or (ii) future services only
under the Bayer Corp. Pension Plan.
(f) (i) With regard to Offered Employees based in countries other than
the United States, Purchaser, or a Purchaser Designee, will assume all existing
retirement and life insurance benefit liabilities and obligations in respect of
such Offered Employees, consistent with Lyondell's Foreign Plans and the
Applicable Law of the countries which govern those plans. As soon as practicable
after the Closing Date, (A) Lyondell will deliver to Purchaser in respect of
Foreign Plans that are defined benefit plans, a valuation for each such plan of
the accrued pension and retirement obligations owed by Lyondell to or in respect
of the Offered Employees thereunder as of the Closing Date and (B) the plan
assets of those Foreign Plans (as determined pursuant to Section 4.08(f)(ii) and
(iii)) will be transferred to the relevant pension and investment
<PAGE>
54
vehicles as directed by Purchaser or, where applicable, by the Offered
Employees.
In respect of Foreign Plans that are defined contribution plans, the
plan assets (i.e., the account balances thereof) will be transferred by Lyondell
to the relevant funds as directed by Purchaser or, where applicable, by the
applicable Offered Employees.
(ii) The plan assets of Lyondell's Foreign Plans that are defined
benefit plans and that will be transferred to Purchaser, or a Purchaser
Designee, pursuant to this Section 4.08(f) shall be determined, in
accordance with the Applicable Laws of the respective countries governing
those plans. The following specific funding requirements are agreed:
. United Kingdom-- minimum funding requirement ;
. Netherlands-- minimum reserve required to be held; and
Except as provided in this Section 4.08(f), Lyondell will have no other
obligation to transfer any plan assets to Purchaser or its Affiliates with
respect to the Foreign Plans.
(iii) Purchaser, or a Purchaser Designee, will assume all the
responsibilities and obligations as the sponsoring employer of the Lyondell
Products Europe Inc. Pension Plan and the PT Lyondell DANA Pension Plan
effective as of the Closing Date. Lyondell and Purchaser agree to sign the
necessary documentation to give effect to the change of sponsoring employer
and Lyondell agrees to transfer the plan assets held by these plans to
Purchaser, or a Purchaser Designee, in each case, as soon as practicable
after the Closing Date. To the extent that Lyondell has prepaid the annual
premium for any of these plans, Purchaser, or a Purchaser Designee, shall
promptly reimburse Lyondell in the amount of annual premium equal to the
proportional annual premium for the balance of the applicable policy year
after the Closing Date.
(iv) For the avoidance of doubt, the plan assets referred to in the
preceding subsections of this Section 4.08(f) shall include the insurance
policies or portions of insurance policies associated with such Foreign
Plans.
(v) If Purchaser's designated actuary ("Purchaser's Actuary")
-------------------
notifies Lyondell's designated
<PAGE>
55
actuary ("Lyondell's Actuary") that he does not agree with Lyondell's
------------------
Actuary's assumptions in respect of the valuations required under this
Section 4.08(f), Lyondell and Purchaser will use their Reasonable Best
Efforts to ensure that their respective Actuaries negotiate with each other
in good faith with a view to agreeing on the assumptions to be used in
respect of such required valuation. If, however, Purchaser's Actuary and
Lyondell's Actuary fail to agree within 2 months after the later of the
date of receipt of Lyondell's proposed valuation and the date of receipt of
all information which Purchaser's Actuary reasonably requires, the dispute
may, at the option of either Lyondell or Purchaser, be referred to an
independent Actuary selected and agreed to by Purchaser's Actuary and
Lyondell's Actuary (the "Independent Actuary"). In such event, the
-------------------
Independent Actuary will certify the assumptions to be used in respect of
the required valuation. Lyondell and Purchaser will be responsible for the
costs of their respective Actuaries and shall share 50/50 the cost of the
Independent Actuary.
(vi) With respect to Lyondell's pension liabilities regarding non-US
Offered Employees as of the Closing Date and to the extent such liabilities
are assumed by Purchaser in accordance with Applicable Law, it is intended
that related assets be transferred to Purchaser or the appropriate funding
vehicles as required under Applicable Law. To the extent that there is a
difference between the minimum funding requirement in any country and the
related accumulated benefit obligation for the underlying liabilities at
the Closing Date, Purchaser and Lyondell will, based on the provision for
actuarial valuations in Section 4.08(f)(v), work together to calculate the
difference between the two valuations and will share any differences on a
50/50 basis.
(g) This Agreement shall not prevent Lyondell from implementing any
normally scheduled pay increase prior to the Closing. Lyondell shall pay all
compensation to Offered Employees earned as of the Closing Date. Lyondell shall
pay to each Offered Employee who does not receive a payment under Lyondell's
Change of Control Plan an amount equal to the pro-rated portion of any annual
cash bonus that would have been payable to such Offered Employee under the terms
and conditions of Lyondell's employee bonus plans had such Offered Employee
remained eligible to participate in the plan and remained in Lyondell's
employment through the end of the period required under Lyondell's employee
bonus plans. Such payment shall be paid to such Offered Employee
<PAGE>
56
at the time any bonus payments are made to Lyondell's employees under the
Lyondell employee bonus plans. For purposes of this Section 4.08(g), "pro-rated
portion" shall be calculated based on the percentage of the bonus period that
such Offered Employee was employed by Lyondell during that calendar year.
(h) Notwithstanding Section 4.08(c), Lyondell will retain liability
for and will pay post-retirement medical and life insurance benefits under terms
and conditions applicable to Lyondell retirees generally to those Offered
Employees who are based in the United States immediately prior to the Closing
Date and who will have attained 55 years of age and ten years of service with
Lyondell or its Affiliates as of the Closing Date or who, within 12 months
following the Closing Date, will have attained 55 years of age and ten years of
service (counting service with Purchaser from and after the Closing as if it
were rendered to Lyondell). Purchaser shall provide Offered Employees who are
not otherwise eligible under Lyondell Benefit Plans and who meet the eligibility
requirements for post-retirement medical and life insurance benefits under
Purchaser Corp.'s applicable plans with post-retirement medical insurance
coverage under Purchaser Corp.'s plans, giving credit to Offered Employees for
their service prior to the Closing with Lyondell or any Lyondell Affiliate.
(i) Effective as of the Closing Date, Lyondell shall vest each Offered
Employee in his or her accrued benefit and account balance, if any, under
Lyondell's applicable U.S. tax-qualified defined benefit and defined
contribution plans.
(j) Lyondell shall retain all liabilities and obligations it may have
to make payments to the eligible Offered Employees under Lyondell's Change of
Control Plan which become payable solely as a result of the change of control of
the Polyols Business contemplated by this Agreement.
(i) Lyondell shall retain all liabilities and obligations to make
severance payments under Lyondell Benefit Plans (including Lyondell's
Change of Control Plan), Applicable Law or controlling legal precedent
(e.g., court decisions, social laws or works council requirements), to any
Active Employee or Inactive Employee (A) who is not offered employment with
Purchaser or (B) who does not accept an offer of employment with Purchaser,
or to any employee whose employment terminates as a result of bumping or a
similar process which directly results from an Active
<PAGE>
57
Employee's or Inactive Employee's failure to receive, or rejection of a
Purchaser offer.
(ii) Purchaser shall promptly reimburse Lyondell for the amount of
the severance paid pursuant to Section 4.08(j)(i) if the termination of
employment takes place within 180 days after the later of (A) the Closing
Date or (B) the end of transition services, if applicable (the amount of
such reimbursement in respect of any EU Employee providing transition
services shall include payments made in lieu of notice, if any). The amount
of reimbursement shall be the amount of severance payable under Lyondell
Benefit Plans (other than the Change of Control Plan), Applicable Law or
controlling legal precedent (e.g., court decisions, social laws or works
council requirements) and, if the severance is paid as a result of bumping
or similar process, the amount of reimbursement shall not exceed the
severance which would have been payable to the employee originally
identified for termination.
(iii) Lyondell will reimburse Purchaser in an amount equal to 50% of
each severance payment made by Purchaser to an Offered Employee who is
terminated by Purchaser within the twelve month period following the
Closing Date, if the employee did not receive payment under Lyondell's
Change of Control Plan. The amount of reimbursement shall be 50% of the
amount of severance payable under Purchaser's benefit plans, Applicable Law
or controlling legal precedent (e.g., court decisions, social laws or work
council requirements).
(k) During the calendar year 2000, each Offered Employee's vacation
entitlement with Purchaser shall be equal to any unused vacation days remaining
for that employee under Lyondell's vacation policy for calendar year 2000. To
the extent permitted by Applicable Law, Offered Employees shall be eligible for
vacation under Purchaser's vacation policy beginning in the calendar year 2001.
(l) Lyondell shall consult with Purchaser and keep Purchaser timely
apprised of all negotiations by Lyondell or its Affiliates with respect to each
newly negotiated or existing collective CBA covering employees of the Polyols
Business. With respect to the Lyondell employees of the Polyols Business located
at Rieme and Newtown Square, any new CBA or extension or substantive
modification of an existing CBA covering those employees shall be subject to
Purchaser's final approval according to Applicable Law.
<PAGE>
58
(m) Lyondell shall retain all liabilities and obligations with respect
to any deferred compensation under Lyondell's deferral plans or otherwise or
liabilities or obligations related to Lyondell's supplemental retirement plans
which is credited as of the Closing Date to Offered Employees and shall make
payments thereof to the individuals entitled thereto in accordance with the
terms of the applicable Lyondell Benefit Plans. If, by Applicable Law or
otherwise, Purchaser has to make such payments, Lyondell shall promptly
reimburse Purchaser for such payments actually made.
(n) During the period from November 16, 1999 through the Closing Date,
Lyondell shall not transfer (or cause to be transferred) the employment of any
individual listed on Schedule 3.16(b)(i) or (ii) to another business of Lyondell
or any of its Affiliates without the prior written consent of Purchaser.
(o) Lyondell's obligation to make payments to any employee under the
Change of Control Plan shall be determined solely by the terms of the Change of
Control Plan.
SECTION 4.09. Use of Trademarks and Trade Names on Existing Inventory.
-------------------------------------------------------
(a) After the Closing, Purchaser and Purchaser Designees shall have the right to
sell existing inventory and to use existing packaging, labeling, containers,
supplies, advertising materials, technical data sheets and any similar materials
bearing the trade name Lyondell Chemical Company, Lyondell Petrochemical
Company, the trademarks Lyondell and Lyondell Cube Design, and/or other trade
names and trademarks of Lyondell, until the earlier of (i) eighteen months after
the Closing Date and (ii) the date existing stocks are exhausted. Purchaser and
Purchaser Designees shall take reasonable measures to inform purchasers that
Purchaser or Purchaser Designees is the new source of the goods. During the
period of use by Purchaser and Purchaser Designees of said trade names and
trademarks, Purchaser and Purchaser Designees shall retain and conform to
Lyondell's established quality standards and formulations for each of the goods.
(b) Purchaser and/or Purchaser Designees shall not, by reason of their
use of materials pursuant to this Section 4.09, derive any right, title or
interest in or to Lyondell's said trade names and trademarks, nor shall
Purchaser and Purchaser Designees challenge the validity or ownership by
Lyondell of said trade names and trademarks. Neither Purchaser nor Purchaser
Designees shall attempt to register Lyondell's above-designated trademarks in
any
<PAGE>
59
country. Purchaser and Purchaser Designees shall cooperate with Lyondell to
execute such documents which Lyondell determines are necessary for filing in any
country to protect Lyondell's rights in Lyondell's said trade names and
trademarks.
(c) Neither Purchaser nor Purchaser Designees shall be obligated to
change the said trade names and trademarks on goods in the hands of dealers,
distributors and customers at the time of the expiration of the time period set
forth in subsection (a) above.
(d) Purchaser and Purchaser Designees agree to use reasonable efforts
to cease using Lyondell's said trade names and trademarks on buildings, cars,
trucks and other fixed assets as soon as practicable, but in no event shall such
use continue for more than nine months after the Closing Date.
(e) The prohibitions set forth in this Section 4.09 may be amended or
extended only with the written consent of Lyondell; provided, that such consent
--------
will not be unreasonably withheld if Purchaser and Purchaser Designees cannot
exhaust existing inventory.
SECTION 4.10. Financial Information. Except as provided below, for
---------------------
each fiscal quarter of Lyondell ending after November 16, 1999 and prior to the
Closing Date, Lyondell shall furnish to Purchaser, within the earlier of (i) 50
days after the end of each such quarter or (y) 5 days after the date on which
Lyondell files with the SEC its consolidated financial information with respect
to such quarter, unaudited financial statements for the Polyols Business as at
and for the fiscal quarter then ended in the form of the Financial Statements
(the "Interim Financial Statements"), together with supplemental financial
----------------------------
information in the form of the Supplemental Financial Schedules (the "Interim
-------
Supplemental Financial Schedules"); provided, however, if the Closing Date is
- -------------------------------- --------
less than 45 days after the end of any such fiscal quarter, Lyondell shall, in
respect of that quarter, furnish to Purchaser on or before 5 days prior to the
Closing only the Interim Financial Statements (no Interim Supplemental Financial
Schedules being required hereunder); provided further, that the Interim
-------- -------
Financial Statements (but not the Interim Supplemental Financial Schedules) for
the fiscal quarter ending December 31, 1999 shall be audited and provided to
Purchaser on or before 90 days after the end of such quarter. The Interim
Financial Statements shall be derived from Lyondell's consolidated financial
statements filed or to be filed on Form 10-K or 10-Q, as the case may be, with
<PAGE>
60
the SEC in respect of the applicable fiscal periods and Lyondell's books and
records, which will be prepared in accordance with GAAP, except that accounts
receivable may include certain amounts sold to Lyondell Funding LLC, which is
not consolidated with Lyondell for financial reporting purposes. Each set of
Interim Financial Statements will present fairly and reasonably the results of
operations and financial condition of the Polyols Business as of and for the
fiscal period then ended under GAAP (except as described in the notes thereto).
SECTION 4.11. Proceedings; Employee and Labor Matters. Lyondell
---------------------------------------
covenants that it will promptly disclose in writing to Purchaser any pending or
threatened Proceeding, claim or other matter that would have been disclosed on
Schedule 3.12 or Schedule 3.16(a) or as an exception to Section 3.15(b)(iii) if
such representations were made as of the date Lyondell learns of such pending or
threatened Proceeding, claim or other matters. Lyondell acknowledges that on the
Closing Date it shall be deemed to make the representations set forth in Section
3.12, Section 3.16(a) and Section 3.15(b)(iii) as of the Closing Date, qualified
by Schedule 3.12 or Schedule 3.16(a), as applicable, and any pending or
threatened Proceeding, claims or other matters subsequently disclosed by
Lyondell to Purchaser pursuant to this provision after November 16, 1999 and
prior to the Closing.
SECTION 4.12. Holz Impoundment. At the Closing, Lyondell shall provide
----------------
Purchaser with a copy of the records documenting the quantities or volumes of
ash, sludge, lime, fly-ash, bottom-ash or other materials or wastes deposited at
the Holz Impoundment or earmarked by Lyondell prior to the Closing to be
deposited at the Holz Impoundment.
SECTION 4.13. No Indebtedness of Lyondell Singapore Pte, Ltd. Lyondell
----------------------------------------------
and Lyondell Singapore Pte, Ltd. agree that on or before the Closing Date,
Lyondell Singapore Pte Ltd. will have discharged all its indebtedness.
ARTICLE V
[INTENTIONALLY DELETED]
<PAGE>
61
ARTICLE VI
Indemnification
---------------
SECTION 6.01. Indemnification by Lyondell. (a) From and after the
---------------------------
Closing, Lyondell and the Lyondell Selling Subsidiaries, jointly and severally,
shall indemnify Purchaser and its Affiliates and each of their respective
officers, directors, employees, stockholders, agents and representatives
against, and hold them harmless from, any 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 the
Lyondell Selling Shareholders that is contained in this Agreement or any
Polyols Transfer Document (it being agreed and acknowledged by the parties
that for purposes of Purchaser's right to indemnification pursuant to this
Section 6.01 the representations and warranties of Lyondell and the
Lyondell Selling Subsidiaries 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 Polyols Business Material Adverse
Effect; provided, that such references to materiality or Polyols Business
--------
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 representations);
(ii) any breach of any covenant of Lyondell and the Lyondell Selling
Subsidiaries contained in this Agreement or in any Polyols Transfer
Document; and
(iii) any Excluded Liability.
(b) Lyondell and the Lyondell Selling Subsidiaries shall not have
any liability with respect to breaches of representations and warranties in this
Agreement or any Polyols Transfer Document:
(i) under clause (i) of Section 6.01(a) unless the aggregate of all
Losses for which Lyondell and the Lyondell Selling Subsidiaries would, but
for this clause (i), be liable exceeds on a cumulative basis an amount
equal to $40,000,000 (the "APA Threshold Amount"); but after such APA
--------------------
Threshold Amount is reached Lyondell shall be responsible for the full
amount of such Losses after the first $30,000,000. For purposes of this
Section 6.01(b)(i) Losses under
<PAGE>
62
Section 3.13, to the extent they are not subject to 50:50 sharing under
Section 6.01 (b)(v) and Purchaser has not waived the Closing condition in
Section 5.11(b) of the Master Transaction Agreement, shall be included to
determine whether the APA Threshold Amount has been reached; provided
--------
however, for determining the amount payable to Purchaser, such included
-------
Losses related to Section 3.13 shall be reduced by $10,000,000 or such
lesser amount of such included Losses related to Section 3.13. For purposes
of clarification, Schedule II sets forth numerical examples with respect to
the preceding sentence. The APA Threshold Amount shall not apply to the
representations and warranties set forth in Sections 3.11, or 3.14(b). For
the avoidance of doubt, (A) any payments received by Purchaser or Losses
for which Purchaser is not responsible in respect of such Sections 3.11,
3.14(b) or any Excluded Liability, and (B) Losses under Section 3.13 which
are shared 50:50, shall not be included for purposes of calculating whether
the APA Threshold has been met.
(ii) under clause (i) of Section 6.01(a) for any individual items
where the Loss relating thereto is less than $35,000;
(iii) under clause (i) of Section 6.01(a) in excess of $300,000,000
(the "APA Cap"); provided, however, that this limitation shall not apply to
------- -----------------
the representations and warranties set forth in Sections 3.11 or 3.14(b);
(iv) under Section 6.01(a) to the extent the liability or obligation
arises as a result of any action taken or omitted to be taken by Purchaser
or any Purchaser Affiliates, except to the extent such action taken or
omitted to be taken is required under the terms of any Transaction
Document; and
(v) under clause (i) of Section 6.01(a) for breaches of Section 3.13
for either (A) any Losses in any amount less than $30,000,000 or (B) more
than 50% of the amount of Losses above $30,000,000 incurred by Purchaser
due to Lyondell's breaches of Section 3.13. In the event that Section 3.13
is breached to an extent that would give rise to a condition to Closing for
Purchaser under Section 5.11(b) of the Master Transaction Agreement, but
Purchaser chooses to waive such Closing condition and proceed with the
consummation of the Transactions despite such breach, Lyondell shall have
no obligation under this Article VI
<PAGE>
63
to indemnify Purchaser for such breaches of Section 3.13.
(c) Lyondell's indemnification obligations with respect to Losses
arising out of or relating to (x) the Excluded Environmental Liabilities set
forth in Section 1.03(b)(xii) or (y) breaches of the representations or
warranties contained in Section 3.14(b) shall be, in each case, subject to the
following additional provisions:
(i) Lyondell shall be required to indemnify Purchaser for any
and all Losses that Purchaser proves arise out of or relate to the Excluded
Environmental Liabilities or to breaches of the representation or
warranties contained in Section 3.14(b);
(ii) Notwithstanding anything to the contrary contained in this
Agreement, Lyondell shall not be required to indemnify Purchaser for Losses
to the extent that such Losses were exacerbated by an action taken or
omitted to be taken by Purchaser or any Purchaser Affiliates or any of
their respective employees, agents or assignees, unless such action taken
or omitted to be taken is required by the terms of any of the Transaction
Documents. For the avoidance of doubt, exacerbation shall not include the
mere acceleration of the time at which a Loss arises, or the identification
of an Excluded Environmental Liability that gives rise to such Loss;
(iii) Notwithstanding anything to the contrary contained in this
Agreement, Lyondell shall not be required to indemnify Purchaser for Losses
to the extent that such Losses arise from or relate to an Environmental
Condition which first came into existence after the Closing Date, or a
noncompliance with Environmental Law, which noncompliance first occurred
after the Closing Date, unless and to the extent such Losses are (A)
otherwise Excluded Liabilities pursuant to this Agreement, (B) otherwise
relate to breaches of the representation or warranties contained in Section
3.14(b) or (C) otherwise required to be indemnified by Lyondell pursuant to
Section 6.01(c)(v);
(iv) If Purchaser makes an Environmental Claim in accordance with
the procedures set forth in Section 6.05, and Lyondell and Purchaser, after
good faith negotiations, dispute the extent to which such Loss is
indemnifiable under this Agreement, then either Purchaser or Lyondell may
elect to resolve the portion of such Loss that is in dispute (the "Disputed
--------
<PAGE>
64
Environmental Loss") pursuant to the Dispute Resolution Procedures. If the
------------------
determination made pursuant to the Dispute Resolution Procedures is that
Purchaser has not proved that such Disputed Environmental Loss is
indemnifiable pursuant to this Agreement and Lyondell has not proved that
Lyondell is not responsible for such Disputed Environmental Loss pursuant
to this Agreement, the parties shall apportion such Disputed Environmental
Loss in accordance with Section 6.01(c)(iv)(A) - (D) below; provided,
--------
however, that any Disputed Environmental Loss relating to Section
-------
1.03(b)(xii)(A) shall not be apportioned in accordance with Section
6.01(c)(iv)(A) - (D).
(A) If Purchaser makes a claim on or prior to the fifth
anniversary of the Closing Date, Lyondell shall be responsible for one
hundred percent (100%) of any such Disputed Environmental Loss;
(B) If Purchaser makes a claim after the fifth anniversary
and on or prior to the tenth anniversary of the Closing Date, Lyondell
and Purchaser shall each be responsible for fifty percent (50%) of any
such Disputed Environmental Loss;
(C) If Purchaser makes a claim after the tenth anniversary
and on or prior to the fifteenth anniversary of the Closing Date,
Lyondell shall be responsible for twenty-five percent (25%) and
Purchaser shall be responsible for seventy-five percent (75%) of any
such Disputed Environmental Loss; and
(D) If Purchaser makes a claim on or after fifteenth
anniversary of the Closing Date, Purchaser shall be responsible for
one hundred percent (100%) of any such Disputed Environmental Loss.
(v) Lyondell shall bear the risk of, and be responsible for,
costs relating to Remediation Activities resulting from changes in
Environmental Laws that may occur after the Closing Date to the extent that
such Remediation Activities relate to Environmental Conditions existing on
or prior to the Closing Date and relating to soil or groundwater.
(vi) With respect to Losses in connection with the West Virginia
plants that arise out of or
<PAGE>
65
relate to any Excluded Environmental Liabilities or a breach of Section
3.14(b):
(A) Purchaser may seek indemnification either (1) directly from
Lyondell pursuant to this Agreement or (2) at Lyondell's expense and
pursuant to this Section (c)(vi), from certain prior owners or
operators of the West Virginia Plant pursuant to the agreements
between Lyondell and such prior owners and operators that are
identified in Exhibit A (the "West Virginia Environmental
---------------------------
Indemnification Agreements").
--------------------------
(B) If Purchaser elects to seek indemnification directly from
Lyondell, Purchaser shall reassign its rights to seek indemnification
pursuant to the West Virginia Environmental Indemnification Agreements
and Lyondell shall pursue such indemnification to the extent it deems
appropriate. Purchaser shall cooperate with Lyondell in the pursuit of
such indemnification as set forth in Section 6.05(b), with Lyondell
being deemed the "indemnifying party" and Purchaser being deemed the
"indemnified party" for purposes thereof.
(C) If Purchaser elects to seek indemnification pursuant to the
West Virginia Environmental Indemnification Agreements, Purchaser
shall vigorously pursue such indemnification, and Lyondell shall
cooperate with Purchaser in such pursuit as set forth in Section
6.05(b), with Purchaser being the "indemnifying party" and Lyondell
being the "indemnified party" for purposes thereof. Purchaser shall
not agree to any settlement, compromise or discharge of such claims
pursuant to the West Virginia Environmental Indemnification Agreements
without the consent of Lyondell unless Purchaser, in writing (i)
waives any claim it may have against Lyondell and (ii) releases
Lyondell from any liability or responsibility with respect thereto,
which waiver or release must be in writing to be deemed effective. If
Purchaser does not so waive claims and release Lyondell, Purchaser
shall allow Lyondell to participate in the pursuit of such claims to
the extent Lyondell deems appropriate.
(D) To the extent Losses claimed by Purchaser pursuant to the
terms of this Section 6.01(c)(vi) are not fully indemnified in
<PAGE>
66
accordance with Section 6.01(c)(vi)(C) (unless Purchaser waives its
claims and releases Lyondell as set forth in Section 6.01(c)(vi)(C),
in which case, Lyondell shall have no further liability with respect
thereto), Lyondell shall indemnify Purchaser for such Losses in
accordance with the terms of this Agreement. For the avoidance of
doubt, in the event that Lyondell acknowledges, acting in good faith,
or it is determined in accordance with the Dispute Resolution
Procedures, that Purchaser proved an Environmental Claim with respect
to the West Virginia plants, Lyondell shall be required to indemnify
Purchaser as provided herein and in accordance with the procedures of
Section 6.05, and shall not delay such indemnification pending the
prosecution or resolution of any claim for indemnification which
Lyondell may decide to pursue under the West Virginia Environmental
Indemnification Agreements.
(vii) Unless otherwise agreed by Lyondell and Purchaser in
accordance with Section 6.05(b), Lyondell's indemnification obligations for
Environmental Claims with respect to the correction of instances of
noncompliance with Environmental Law or Remediation Activities relating to
Environmental Conditions shall be limited to the most economical manner of
such correction of noncompliance or Remediation Activities, in accordance
with good engineering practices, but in no event less than is necessary to
comply with Environmental Law and, if required under Environmental Law,
obtain the approval of the Governmental Entity with jurisdiction over the
matter.
(viii) The standard of proof that will apply to any proof or
showing that must be made under Article VI, including the Dispute
Resolution Procedures, shall be a preponderance of the evidence.
(d) The following provisions shall also apply to Lyondell's
indemnification obligations under this Article VI:
(i) payments made by Lyondell under Article VII of the Master
Transaction Agreement shall be taken into account for purposes of
establishing whether or not the APA Cap has been reached; and
(ii) Losses that are included in Section 7.01(b)(ii) of the Master
Transaction Agreement for purposes of
<PAGE>
67
calculating whether the Lyondell MTA Threshold Amount has been reached
shall be taken into account for purposes of establishing whether the APA
Threshold Amount has been reached.
(iii) For the avoidance of doubt, the purpose of Sections 6.01(d)(i)
and (ii) and Sections 7.01(c)(i) and (ii) of the Master Transaction
Agreement is to insure that (A) the APA Cap and the Lyondell MTA Cap are
considered together as one combined cap and (B) the APA Threshold Amount
and the Lyondell MTA Threshold Amount are considered together as one
combined threshold.
SECTION 6.02. Indemnification by Purchaser. From and after the
----------------------------
Closing, Purchaser 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 covenant of Purchaser or any Purchaser Designee
contained in this Agreement or in any Polyols Transfer Document and (ii) any
Assumed Liability. Purchaser shall indemnify and defend Lyondell from any and
all Losses relating to or arising out of the use by Purchaser of the name
"Lyondell" in violation of Section 4.05 or of the Lyondell tradenames and
trademarks pursuant to Section 4.09.
SECTION 6.03. 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 VI 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 Purchaser and Lyondell shall attempt to mitigate and
shall cause each of its Affiliates to attempt to mitigate any Losses that such
Parent Party may suffer as a consequence of any matter giving rise to a right to
indemnification against the other Parent Party under this
<PAGE>
68
Article VI 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 6.03(b) shall oblige either of Purchaser
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 under this Article VI 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
-------- -------
6.03(c) shall not be construed to limit either Parent Party's rights to
indemnification under this Article VI for punitive, consequential or exemplary
damages paid by such Parent Party in respect of a Third Party Claim.
SECTION 6.04. Termination of Indemnification. The obligations to
------------------------------
indemnify and hold harmless any party, (i) pursuant to Section 6.01(a)(i) shall
terminate when the applicable representation or warranty terminates pursuant to
Section 5.02, (ii) pursuant to Section 6.01(a)(ii) and Section 6.02, shall
terminate two years after the termination of the applicable covenant and (iii)
pursuant to the other clauses of Sections 6.01 and 6.02 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 6.05 to the
Person to be providing the indemnification.
SECTION 6.05. 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
<PAGE>
69
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 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
<PAGE>
70
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 neither
-------- -------
Purchaser nor any of its Affiliates or Lyondell nor any of its Affiliates shall
settle or compromise any such joint defense without the consent of Lyondell or
Purchaser, as the case may be, 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 VI, 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
<PAGE>
71
under Section 6.01 or 6.02 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 so to notify the indemnifying party shall not relieve the
indemnifying party from any liability that it may have to such indemnified party
under Section 6.01 or 6.02, 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 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 6.06. Survival. The covenants contained in Sections 4.03,
--------
4.04, 4.06 and 4.07(b) shall survive the Closing and shall not terminate. Except
as provided in the preceding sentence, the representations, warranties,
covenants and agreements contained in this Agreement or in any certificates
delivered pursuant to this Agreement shall survive the Closing solely for
purposes of Article VI and shall terminate on the two year anniversary of the
Closing Date, except for (i) the representations and warranties in Section 3.02,
3.03(a) and 3.14(b), which shall not terminate, (ii) the representations and
warranties in Section 3.11, which shall terminate upon the termination of the
applicable statute of limitations and (iii) the representations and warranties
contained in Section 3.03(b) and 3.07, which shall terminate on the one year
anniversary of the Closing Date.
ARTICLE VII
SECTION 7.01. This Agreement is the Asset Purchase Agreement referred
to in the Master Transaction Agreement. Unless the context shall otherwise
require, terms used and not defined herein shall have the meanings assigned
thereto in the Defined Terms Index attached as
<PAGE>
72
Appendix A hereto, which also contains Documentary Conventions which shall
govern this Agreement.
<PAGE>
73
IN WITNESS WHEREOF, Lyondell, the Lyondell Selling Subsidiaries and
Purchaser have duly executed this Agreement as of the date first written above.
LYONDELL CHEMICAL COMPANY,
by
/s/ Ed Dineen
--------------------------------
Name: Ed Dineen
Title: Senior Vice President,
Urethanes and
Performance Chemical
LYONDELL CHIMIE FRANCE SNC,
by
/s/ Morris Gelb
--------------------------------
Name: Morris Gelb
Title: President
LYONDELL TAIWAN, INC.,
by
/s/ Charles C. Yang
--------------------------------
Name: Charles C. Yang
Title: President
LYONDELL INDONESIA, INC.,
by
/s/ Charles C. Yang
--------------------------------
Name: Charles C. Yang
Title: President
LYONDELL SINGAPORE PTE LTD.,
by
/s/ Charles C. Yang
--------------------------------
Name: Charles C. Yang
Title: President
<PAGE>
74
ARCO CHEMICAL TECHNOLOGY, L.P.,
by
/s/ Francis P. McGrail
-------------------------------------
Name: Francis P. McGrail
Title: President
LYONDELL CHEMICAL WORLDWIDE, INC.,
by
/s/
-------------------------------------
Name:
Title:
LYONDELL CHEMICAL CANADA INC.,
by
/s/ Morris Gelb
-------------------------------------
Name: Morris Gelb
Title: President
LYONDELL GREATER CHINA, LTD.,
by
/s/ Charles C. Yang
-------------------------------------
Name: Charles C. Yang
Title: President
LYONDELL QUIMICA DO BRASIL, LTDA,
by
/s/ Francis P. McGrail
-------------------------------------
Name: Francis P. McGrail
Title: President
LYONDELL ASIA PACIFIC, LTD.,
by
/s/ Charles C. Yang
-------------------------------------
Name: Charles C. Yang
Title: President
<PAGE>
75
LYONDELL THAILAND, LTD.,
by
/s/ Charles C. Yang
-------------------------------------------
Name: Charles C. Yang
Title: President
LYONDELL CHEMICAL NEDERLAND, LTD.,
by
/s/ Morris Gelb
-------------------------------------------
Name: Morris Gelb
Title: President
LYONDELL CHEMICAL PRODUCTS EUROPE, INC.,
by
/s/ Morris Gelb
-------------------------------------------
Name: Morris Gelb
Title: President
ARCO CHEMICAL PROPERTIES, L.P.
by
/s/ Francis P. McGrail
-------------------------------------------
Name: Francis P. McGrail
Title: President
<PAGE>
76
BAYER AG,
by
/s/ Hans-Joachim Kaiser
-----------------------------
Name: Hans-Joachim Kaiser
Title: Head of Business Group,
Polyurethanes
BAYER CORPORATION,
by
/s/ H. J. Kogelnik
-----------------------------
Name: H. J. Kogelnik
Title: President of Polyurethanes
Division
<PAGE>
EXHIBIT 2.4
-----------
AMENDED AND RESTATED
LIMITED PARTNERSHIP
AGREEMENT
OF
PO JV, LP
________________________________________________________________________________
ORGANIZED UNDER THE DELAWARE
REVISED UNIFORM LIMITED PARTNERSHIP ACT
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I ORGANIZATION MATTERS.............................................................................. 2
Section 1.1 Formation of Partnership; Amended and Restated Agreement.................................. 2
Section 1.2 Name...................................................................................... 2
Section 1.3 Business Offices.......................................................................... 2
Section 1.4 Purpose and Business...................................................................... 2
Section 1.5 Filings................................................................................... 2
Section 1.6 Power of Attorney......................................................................... 3
Section 1.7 Term...................................................................................... 4
ARTICLE II CAPITAL CONTRIBUTIONS............................................................................ 4
Section 2.1 Holdings of Units......................................................................... 4
Section 2.2 Closing Date Property Contributions and Capital Account Balances.......................... 4
Section 2.3 Monthly Production Cost Contributions for Operating Costs................................. 5
Section 2.4 Mandatory Capital Projects; Discretionary Capital Projects................................ 7
Section 2.5 Allocation of Costs and Revenues Between PO Product and Co-Product........................ 8
Section 2.6 No Other Contributions.................................................................... 8
Section 2.7 Payment Disputes.......................................................................... 8
Section 2.8 Capital Accounts.......................................................................... 8
Section 2.9 No Return of or on Property............................................................... 10
Section 2.10 Issuance of Additional Units for Discretionary Capital Projects That Increase Capacity.... 10
ARTICLE III DISTRIBUTIONS................................................................................... 11
Section 3.1 Operating Distributions In-Kind........................................................... 11
Section 3.2 Cash Distributions........................................................................ 11
Section 3.3 Characterization of Proceeds.............................................................. 11
Section 3.4 Liquidating Distributions................................................................. 12
Section 3.5 Withholding............................................................................... 12
ARTICLE IV BOOK AND TAX ALLOCATIONS......................................................................... 12
Section 4.1 General Book Allocations.................................................................. 12
Section 4.2 Federal Tax Allocations................................................................... 14
ARTICLE V ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS................................................... 15
Section 5.1 Fiscal Year............................................................................... 15
Section 5.2 Method of Accounting for Financial Reporting Purposes..................................... 15
Section 5.3 Books and Records; Right of Partners to Audit............................................. 15
Section 5.4 Reports and Financial Statements.......................................................... 15
Section 5.5 Method of Accounting for Book and Tax Purposes............................................ 16
Section 5.6 Taxation.................................................................................. 16
Section 5.7 Delegation................................................................................ 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER................................................ 18
Section 6.1 Name and Address......................................................................... 18
Section 6.2 Duties of the General Partner............................................................ 18
Section 6.3 Powers................................................................................... 19
Section 6.4 Reimbursement............................................................................ 19
Section 6.5 Action by the General Partner............................................................ 19
Section 6.6 Delegation to Operator................................................................... 19
Section 6.7 Segregation of Funds..................................................................... 20
Section 6.8 Limitation on Liens...................................................................... 20
Section 6.9 Restoration Following Casualty Loss...................................................... 20
ARTICLE VII RIGHTS, POWERS AND DUTIES OF THE LIMITED PARTNERS.............................................. 21
Section 7.1 Name and Address......................................................................... 21
Section 7.2 Limited Partners Shall Not Act; Limitation of Responsibility............................. 21
Section 7.3 Limited Partner Consents................................................................. 22
Section 7.4 Failure of General Partner to Enforce Certain Obligations of Affiliates.................. 22
Section 7.5 Additional Operator Services............................................................. 23
ARTICLE VIII FORECASTS; ANNUAL PLAN AND BUDGET; CAPITAL PROJECTS........................................... 23
Section 8.1 Three Year Demand Forecast; Annual Forecast, Annual Plan and Annual Budget............... 23
Section 8.2 Rolling Product Forecast................................................................. 24
Section 8.3 Mandatory Capital Projects............................................................... 24
Section 8.4 Discretionary Capital Projects........................................................... 25
Section 8.5 Mutual Provision of Information.......................................................... 28
ARTICLE IX RIGHTS OF THE PARTNERS.......................................................................... 28
Section 9.1 Delegation............................................................................... 28
Section 9.2 General Authority........................................................................ 28
Section 9.3 Limitation on Fiduciary Duty; Competition................................................ 29
Section 9.4 Partner Covenants........................................................................ 29
Section 9.5 Special Purpose Entities................................................................. 30
Section 9.6 Use of Technology........................................................................ 30
ARTICLE X TRANSFERS AND PLEDGES GENERALLY.................................................................. 31
Section 10.1 Restrictions on Transfer and Prohibition on Pledge....................................... 31
Section 10.2 Transfer of Units by the Limited Partners................................................ 31
Section 10.3 Transfer of Units by the General Partner................................................. 31
Section 10.4 Transfer Prerequisites................................................................... 32
Section 10.5 Rights of Transferee; Closing Date of Transfer........................................... 32
Section 10.6 Transfer to Wholly Owned Affiliate....................................................... 32
Section 10.7 Right to Admit New Partners for Capacity Expanding Discretionary Capital Project......... 33
Section 10.8 Right of General Partner to Classify Series B Units...................................... 33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XI WITHDRAWAL; REMOVAL OF THE GENERAL PARTNER; REMEDIES AND PURCHASE OPTION FOR UNCURED OFFTAKE
AND PAYMENT DEFAULT; REMEDIES FOR GENERAL PARTNER BREACH OF OBLIGATIONS TO DELIVER
PRODUCT.................................................................................... 33
Section 11.1 Withdrawal of Limited Partners.............................................................. 33
Section 11.2 Non-Supply Failure Step-in.................................................................. 33
Section 11.3 Supply Failure Step-in...................................................................... 35
Section 11.4 Remedies and Purchase Option for Uncured Partner Offtake or Payment Default................. 38
Section 11.5 Appraisal Procedures........................................................................ 40
Section 11.6 Remedies of Limited Partners for Failure of General Partner to Deliver Product.............. 40
Section 11.7 Mitigation.................................................................................. 40
ARTICLE XII DISSOLUTION, LIQUIDATION AND TERMINATION.......................................................... 41
Section 12.1 Dissolution and Termination................................................................. 41
Section 12.2 Procedures Upon Dissolution................................................................. 41
Section 12.3 Termination of Partnership.................................................................. 42
Section 12.4 Asset and Liability Statement............................................................... 42
ARTICLE XIII CONFIDENTIALITY.................................................................................. 43
Section 13.1 Confidentiality and Use of Information...................................................... 43
Section 13.2 Survival.................................................................................... 44
Section 13.3 Relationship with Other Agreements.......................................................... 44
ARTICLE XIV INDEMNITY; WAIVER OF CLAIMS....................................................................... 44
Section 14.1 Partner Indemnity........................................................................... 44
Section 14.2 Waiver of Claims............................................................................ 44
Section 14.3 Indemnification Procedures.................................................................. 45
Section 14.4 Joint Defense............................................................................... 47
Section 14.5 Extent of Indemnification, Release and Limitation on Reimbursement Liability................ 47
Section 14.6 Permitted Contribution...................................................................... 48
ARTICLE XV Miscellaneous...................................................................................... 48
Section 15.1 Construction................................................................................ 48
Section 15.2 Notices..................................................................................... 48
Section 15.3 Severability................................................................................ 49
Section 15.4 Counterparts................................................................................ 49
Section 15.5 Governing Law............................................................................... 49
Section 15.6 Jurisdiction; Consent to Service of Process; Waiver......................................... 49
Section 15.7 Specific Performance........................................................................ 50
Section 15.8 Amendment................................................................................... 50
Section 15.9 Performance Extended to Next Business Day................................................... 50
Section 15.10 Waiver...................................................................................... 50
Section 15.11 Dispute Resolution.......................................................................... 50
Section 15.12 Successors and Assigns...................................................................... 50
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 15.13 Further Assurances.......................................................................... 51
Section 15.14 Benefits of Agreement Restricted to the Parties............................................. 51
Section 15.15 Waiver of Right to Partition................................................................ 51
Section 15.16 Payment Terms and Interest Calculation...................................................... 51
Section 15.17 Mutual Provision of Information............................................................. 51
Section 15.18 Adversely Impacted Partner Recourse......................................................... 51
</TABLE>
EXHIBITS
EXHIBIT A: Defined Terms
EXHIBIT B: Dispute Resolution Procedures
EXHIBIT C: Initial Three Year Demand Forecast
EXHIBIT D: Initial Annual Plan
EXHIBIT E: [Intentionally Deleted]
EXHIBIT F: Delivery Point
SCHEDULES
Schedule 2.1: Ownership of Units; Names and Addresses of Partners; Capital
Account Balances as of the Closing Date
Schedule 2.3: G&A Lyondell Personnel Cost Basket
Schedule 6.3: Lyondell Insurance Program Requirements
Schedule 9.6: Accommodation Fee Procedures
iv
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
PO JV, LP
This Amended and Restated Limited Partnership Agreement (this
"Agreement") of PO JV, LP (the "Partnership") is dated as of the Closing Date
--------- -----------
and is entered into by and among PO Offtake LP, a Delaware limited partnership
("Lyondell GP", in its capacity as general partner of the Partnership, and
-----------
"Lyondell LP", in its capacity as a limited partner of the Partnership), and
-----------
BAYPO Limited Partnership, a Delaware limited partnership ("Bayer LP").
--------
The definitions of capitalized terms used in this Agreement, including
Exhibits, Schedules and Appendices hereto, are set forth in Exhibit A hereto.
---------
RECITALS
(A) Lyondell GP, Lyondell LP and Lyondell SAT, Inc. (together, the "Initial
-------
Partners") entered into the Limited Partnership Agreement of the
--------
Partnership, dated as of March 17, 2000 (the "Initial Agreement").
-----------------
(B) As contemplated by the Master Transaction Agreement, Lyondell GP,
Lyondell LP and Bayer LP desire to establish a joint venture in the
form of a limited partnership to engage in the production of PO and
related co-products in the United States.
(C) In accordance with the Master Transaction Agreement, (i) the Initial
Partners have contributed to the Partnership the Plant Facilities and
an undivided interest with correlative capacity reservation in certain
of the Infrastructure Assets and (ii) the Transaction Documents have
been entered into.
(D) Simultaneously with the execution and delivery of this Agreement and
pursuant to the Master Transaction Agreement and the PIPA, (i) Bayer LP
has made a payment of the Bayer PO Partnership Payment Amount to
Lyondell LP to purchase Series A Units comprising a limited partnership
interest in the Partnership and (ii) in consideration of such payment,
Lyondell GP and Lyondell LP have agreed to admit Bayer LP to the
Partnership as a limited partner and to amend and restate the Initial
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants of the parties hereto, it is hereby agreed as follows:
1
<PAGE>
ARTICLE I
ORGANIZATION MATTERS
Section 1.1 Formation of Partnership; Amended and Restated Agreement.
--------------------------------------------------------
The Certificate of Limited Partnership was filed with the Secretary of State of
the State of Delaware on March 17, 2000. The Initial Agreement was entered into
on March 17, 2000. The Partners desire to enter into this Agreement, which
amends and restates the Initial Agreement and constitutes the limited
partnership agreement of the Partnership as of the date hereof. Except as
expressly provided herein to the contrary, the rights and obligations of the
Partners and the administration and termination of the Partnership shall be
governed by the Act. Without the need for consent of any Person, upon execution
of the PIPA, and Lyondell LP's receipt of the Bayer PO Partnership Payment
Amount for Bayer LP's limited partnership interest in the Series A Units, Bayer
LP is hereby admitted to the Partnership as a limited partner of the Partnership
holding Series A Units. Subject to the restrictions set forth in this Agreement,
the Partnership shall have the power to exercise all the powers and privileges
granted by this Agreement and by the Act, together with any powers incidental
thereto, so far as such powers and privileges are necessary, appropriate,
convenient or incidental for the conduct, promotion or attainment of the
purposes of the Partnership.
Section 1.2 Name. The name of the Partnership is PO JV, LP. The
----
Partnership's business may be conducted under such name or any other name or
names deemed advisable by the General Partner; provided, however, that the
Partnership shall not conduct business under any name that includes the word
"Bayer" or any trademark registered by Bayer or any Affiliate of Bayer without
Bayer LP's previous written consent. The General Partner will comply or cause
the Partnership to comply with all Applicable Law and other requirements
relating to fictitious or assumed names.
Section 1.3 Business Offices. The principal place of business of the
----------------
Partnership shall be 2 Greenville Crossing, 4001 Kennett Pike, Suite 238,
Greenville, Delaware 19807, or such other place as the General Partner may from
time to time determine. The registered agent of the Partnership in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
Section 1.4 Purpose and Business. The business of the Partnership shall
--------------------
be to, directly or indirectly, (i) own, operate and produce PO Product and Co-
Product manufacturing facilities at the Complexes and distribute PO Product and
Co-Product, as applicable, to the Partners, (ii) own an undivided interest in
certain of the Infrastructure Assets at each Complex pursuant to the
Infrastructure Assets Capacity Reservation Instruments, (iii) acquire and
dispose of properties and other assets used or useful in connection with the
foregoing and (iv) do all things necessary, appropriate, convenient or
incidental in connection with the ownership or financing of such business and
activities, or otherwise in connection with the foregoing, as are permitted
under the Act.
Section 1.5 Filings. The General Partner shall, or shall cause the
-------
Partnership to, execute, swear to, acknowledge, deliver, file or record in
public offices and publish all such certificates, notices, statements or other
instruments, and take all such other actions, as may be required by Applicable
Law (i) for the formation, reformation, qualification, registration,
2
<PAGE>
operation or continuation of the Partnership in any jurisdiction, (ii) to
maintain the limited liability of the Limited Partners, (iii) to preserve the
Partnership's status as a partnership for tax purposes or (iv) otherwise to
comply with Applicable Law. Upon request of the General Partner, the Limited
Partners shall execute all such certificates and other documents as may be
necessary, in the sole judgment of the General Partner, in order for the General
Partner to accomplish all such executions, swearings, acknowledgments,
deliveries, filings, recordings in public offices, publishings and other acts,
except that no Limited Partner shall be required to execute any such certificate
or document which, in the reasonable judgment of such Limited Partner, would
result in either (i) a violation of Applicable Law or (ii) a breach of such
Limited Partner's obligations under any of the Transaction Documents or any
other material agreement to which such Limited Partner is a Party and that is in
existence as of the Closing Date and that is not in conflict with the terms of
this Agreement. The General Partner hereby agrees and covenants that it will
execute any appropriate amendment to the Certificate of Limited Partnership of
the Partnership pursuant to Section 17-204 of the Act to reflect any admission
of a Substitute General Partner in accordance with this Agreement.
Section 1.6 Power of Attorney.
-----------------
(a) Each Limited Partner hereby makes, constitutes and appoints the
General Partner and any successor thereto permitted as provided herein,
with full power of substitution and resubstitution, as the true and lawful
agent and attorney-in-fact of such Limited Partner, with full power and
authority in the name, place and stead of such Limited Partner to execute,
swear to, acknowledge, deliver, file or record in public offices and
publish (i) all certificates and other instruments (including counterparts
thereof) which are appropriate to reflect any amendment, change or
modification of or supplement to this Agreement in accordance with the
terms of this Agreement, (ii) all certificates and other instruments and
all amendments thereto which are appropriate or necessary to form, qualify
or continue the Partnership in any jurisdiction, to maintain the limited
liability of such Limited Partner, to preserve the Partnership's status as
a partnership for tax purposes or otherwise to comply with Applicable Law
the failure to comply with which would result in a material adverse effect
and (iii) all conveyances and other instruments or documents which are
appropriate or necessary to reflect the transfers or assignments of
interests in, to or under this Agreement, the dissolution, liquidation and
termination of the Partnership and the distribution of the Partnership
Property in connection therewith, pursuant to the terms of this Agreement.
The power of attorney granted under this Section 1.6 is irrevocable until
-----------
the earlier to occur of (i) the termination of this Agreement or (ii) the
withdrawal or removal of the General Partner in accordance with the terms
of Section 11.2.
------------
(b) Each Limited Partner hereby agrees to execute and deliver to the
General Partner within five Business Days after receipt of a written
request therefor such other further statements of interest and holdings,
designations, powers of attorney and other instruments as are necessary to
give effect to the terms of this Section 1.6. The power of attorney granted
-----------
herein shall survive the bankruptcy, dissolution or termination of such
Limited Partner and shall extend to and be binding upon such Limited
Partner's successors and permitted assigns. Each Limited Partner hereby (i)
agrees to be bound by any representations made by the agent and
attorney-in-fact acting in good faith pursuant to such power of attorney
and (ii) waives any and all defenses which may be available
3
<PAGE>
to contest, negate or disaffirm any action of the agent and attorney-in-
fact taken in accordance with such power of attorney. For the avoidance of
doubt, no power of attorney granted by a Limited Partner under this
Section 1.6 shall be construed to grant any right to the General Partner to
-----------
take any action for which a consent of such Limited Partner is required
under Section 7.3 unless such consent is separately obtained in writing
-----------
from such Limited Partner.
Section 1.7 Term. The term for which the Partnership is to exist as a
----
limited partnership is from the date the first filing of the Partnership's
Certificate of Limited Partnership was filed with the office of the Secretary of
State of the State of Delaware through the dissolution and winding-up of the
Partnership in accordance with the provisions of Article XII.
-----------
ARTICLE II
CAPITAL CONTRIBUTIONS
Section 2.1 Holdings of Units. The Partnership will have two series of
-----------------
Units, the Series A Units and the Series B Units, each with its own rights and
responsibilities. As of the date hereof, the Units shall be owned as set forth
in Schedule 2.1. The Units shall entitle the holder to the distributions set
------------
forth in Article III and to the allocation of Profits, Losses and other items
-----------
set forth in Article IV.
----------
Section 2.2 Closing Date Property Contributions and Capital Account
-------------------------------------------------------
Balances.
- --------
(a) As of the Closing Date, Lyondell will have contributed, or will
have caused to be contributed to the Partnership on behalf of Lyondell GP
and Lyondell LP, the Partnership Property existing as of the Closing Date,
subject to the Assumed Liabilities as scheduled in the PIPA, in exchange
for the issuance of Series A Units and Series B Units to Lyondell LP and
Lyondell GP.
(b) Following the sale of the limited partnership interest to Bayer
LP as described in Section 1.1, the Capital Account balances of the
-----------
Partners shall be set forth in Schedule 2.1.
------------
(c) No later than 90 days after the Closing Date, the Lyondell
Partners and Bayer LP shall endeavor in good faith to agree to an
allocation of the Bayer PO Partnership Payment Amount, and any liability
assumption that constitutes consideration for Tax purposes, among the
assets of the Partnership Property in accordance with Section 1060 of the
Code. If the Lyondell Partners and Bayer LP are unable to agree to a final
allocation of such total consideration, the Lyondell Partners and Bayer LP
shall select an independent appraisal firm that, in consultation with the
Partners and their respective consultants, shall make a final allocation of
the total consideration consistent with Applicable Law.
(d) The independent appraisal firm shall be selected by agreement of
the Lyondell Partners and Bayer LP from a list of nationally-recognized,
independent appraisers nominated by each Partner. In the event that either
Partner fails to nominate a nationally-
4
<PAGE>
recognized, independent appraiser then the other Partner's separate
appraiser shall be selected. Any determinations of such independent or
separate appraisal firm, as the case may be, shall be conclusive and
binding on the Partnership and the Partners. The Partnership and each
Partner shall file all its Tax Returns consistent with any agreements and
determinations made under Section 2.2(c) and (d).
-------------- ---
(e) The Lyondell Partners and Bayer LP shall share 50/50 the fees and
expenses of any independent appraisal firm retained under Section 2.2(d).
--------------
Each Partner shall solely bear the costs of its consultants.
Section 2.3 Monthly Production Cost Contributions for Operating Costs
---------------------------------------------------------
(a) On or before the first day of each month, the General Partner, on
behalf of the Partnership, will separately invoice each Partner (the
"Operating Cost Partner Invoice") for additional cash contribution to the
------------------------------
Partnership by such Partner for the Operating Cost component of Operating
Services Costs. For each Partner, the Operating Cost Partner Invoice will
set forth the forecasted Operating Cost component of Operating Services
Costs for the billed month payable by such Partner, determined in
accordance with the following provisions of this Section 2.3 and the
-----------
remainder of this Article II, plus or minus the difference between
----------
forecasted Operating Services Costs and the actual Operating Cost component
of Operating Services Cost for the second preceding month. Each Operating
Cost Partner Invoice shall be broken down by category of Operating Services
Costs (as set forth in Section 2.3(d) and Section 2.3(g)), and shall
-------------- --------------
contain information sufficient to enable each Partner to evaluate actual
compared to budgeted Operating Services Costs payable by such Partner. Each
Operating Cost Partner Invoice shall be accompanied by reasonable
supporting documentation for items of Operating Services Costs included in
the Operating Cost Partner Invoice and not otherwise included in the Annual
Budget.
(b) Absent manifest error in calculations contained in the Operating
Cost Partner Invoice (if there is manifest error, the Partner will correct
such error and show such recalculation), each Partner shall pay the amounts
invoiced to it by wire transfer within 30 days after receipt of the
Operating Cost Partner Invoice. Interest will accrue on any unpaid invoiced
amounts at the Default Rate from the date due, compounded quarterly, until
such amounts, together with all accrued and unpaid interest thereon, are
paid in full.
(c) The General Partner shall make an annual reconciliation of the
Fixed Costs components of Operating Services Costs payable by each Partner
for each year and provide the reconciliation applicable to each Partner
within 90 days of the end of each calendar year. A retroactive year-end
adjustment shall be made in the next Operating Cost Partner Invoice.
(d) Subject to any adjustments required to implement Section 8.4(g),
--------------
the cash contributions payable by each Series A Unit Partner each month are
the sum of the following, subject to reconciliation in accordance with the
foregoing provisions of this Section 2.3 and, as to the PO Share of
-----------
Operating Services Costs, Exhibit C to the Operating Agreement:
---------
5
<PAGE>
(i) Bayer LP shall pay a portion of the PO Share of the
budgeted Fixed Costs for the Existing Plant Complexes in accordance
with Exhibit C to the Operating Agreement.
---------
(ii) [This section intentionally left blank.]
(iii) [This section intentionally left blank.]
(iv) The Series A Partners other than Bayer LP shall pay the
Partnership PO Share of the Fixed Costs for the Existing Plant
Complexes remaining after Bayer LP's payments under Section 2.3(d)(i).
-----------------
(v) Each Series A Unit Partner shall pay the PO Variable Unit
Costs times the pounds of PO Product scheduled to be delivered to the
Partner during the billed month pursuant to the Monthly Production
Statement (subject to subsequent reconciliation for the pounds of PO
Product actually tendered to the Partner for the month). Additionally,
if the Partner's nomination of PO Product for any month is less than
90% of the aggregate nominated offtake included in the Annual Plan for
the month and as a result the Operator incurs Variable Costs that it
is not able to avoid through Reasonable Best Efforts, then, regardless
of any lower nominations included in the Rolling Product Forecast, the
Partner shall be responsible for the Variable Costs that the Operator
is not able to avoid through Reasonable Best Efforts.
(vi) Each Series A Unit Partner shall pay the forecasted
Propylene Cost for the billed month times the pounds of PO Product
scheduled to be delivered to the Partner during the billed month
pursuant to the Monthly Production Statement (subject to subsequent
reconciliation for the pounds of PO Product actually tendered to the
Partner for the month).
(vii) Bayer LP shall pay the Bayer Monthly Stipulated G&A
Allocation.
(viii) In the event that the Bayer partner in the Technology
Partnership does not pay in full its annual Bayer Monthly Technology
Budget Payments (without regard to the Bayer Budget Cap), then the
General Partner in conjunction with the Existing Plant Operators shall
make appropriate economic arrangements and apportionment of the cost
savings benefits resulting from process development research so that
Bayer LP does not participate in the portion of any cost saving,
reliability improvement or other performance enhancement corresponding
to the portion of the annual Bayer Monthly Technology Budget Payments
to which Bayer LP did not contribute its full share.
(ix) Each Series A Partner shall pay the forecasted PO
Additional Monthly Costs for the billed month determined in accordance
with Section 2.3(e), times the Partner's Series A Percentage Interest.
--------------
(x) Each Series A Partner shall pay any incremental costs
incurred by the Operator or the General Partner to accommodate the
special needs of a Partner
6
<PAGE>
and agreed by such Partner, including resulting from any agreed
deviations from the Monthly Production Statement for any month.
(e) The "PO Additional Monthly Costs" are (to the extent that
---------------------------
such costs are not included in the budget for Fixed Costs at the Existing
Plants and without duplication of other components of Operating Services
Costs or other PO Additional Monthly Costs) the Partnership Existing Plant
PO Share of:
(i) Casualty Restoration Costs, subject to Section 7.3(j);
--------------
(ii) costs or Damages incurred by any Existing Plant
Operator in connection with any Third Party Claim to the extent
that such Third Party Claim is of the type covered by Lyondell's
insurance policies with respect to the applicable Existing Plant
Complex and is below the self-insurance and/or deductible limits
under such policies; and
(iii) costs incurred by any Existing Plant Operator as a
result of Force Majeure, excluding any Operator Retained
Obligation.
(f) The Operating Cost components of the Operating Services Costs
payable by the Series A Unit Owners shall be calculated on a System-wide Pooled
Cost Basis in accordance with Exhibit C to the Operating Agreement.
---------
(g) The cash contributions payable by each Series B Unit Partner
each month are the sum of the following, subject to reconciliation in accordance
with the foregoing provisions of this Section 2.3:
-----------
(i) the Partner's Series B Percentage Interests times all
forecasted Operating Services Costs for the billed month
remaining after the allocation of Operating Services Costs to the
Series A Unit Partners under the foregoing provisions of this
Section 2.3, excluding incremental Operating Services Costs
-----------
incurred by the Operator or the General Partner to accommodate
special needs of any Partner, including any agreed deviations
from the Monthly Production Statement for any month;
(ii) incremental Operating Services Costs incurred by the
Operator or the General Partner to accommodate special needs of
such Series B Unit Partner, including any agreed deviations from
the Monthly Production Statement for any month; and
(iii) all costs charged to and liabilities of the
Partnership not otherwise allocated to the Series A Partners
under the terms of this Agreement.
Section 2.4 Mandatory Capital Projects; Discretionary Capital Projects.
----------------------------------------------------------
Each Partner shall be separately invoiced (a "Partner Capital Cost Invoice") for
----------------------------
and shall timely pay its invoiced share of the Capital Costs for Maintenance
Capital Projects, EHS Capital Projects and Discretionary Capital Projects with
respect to the Plant Facilities and Infrastructure Assets of each Complex as to
which the Partner is participating in the Capital Costs. The Partner Capital
Cost Invoice shall separately itemize for each Plant Facility each Above
Threshold Capital
7
<PAGE>
Project and shall show the project funding for each itemized Above Threshold
Capital Project. Each quarter the Partner Capital Cost Invoice shall separately
itemize and show for each Plant Facility the project funding for each Below
Threshold Capital Project. Each Partner shall pay the amount invoiced within 30
days of invoice. The Partner Capital Cost Invoice shall show for each Plant
Facility each Capital Project not previously invoiced the allocation of the
Capital Costs for such Capital Project between PO Product and Co-Product in
accordance with Exhibit D to the Operating Agreement. The invoiced amounts with
---------
respect to such Capital Projects shall be based on the forecasted expenditures
for the month invoiced for such Capital Projects, plus or minus the difference
between the forecasted Capital Costs and the actual Capital Costs for the second
preceding month for the Capital Project. The invoiced amounts to all Partners
shall be sufficient so that there is no out-of-pocket funding by the General
Partner or the Operator of Capital Costs.
Section 2.5 Allocation of Costs and Revenues Between PO Product and Co-
-----------------------------------------------------------
Product.
- -------
(a) The PO Share for any Operating Cost item shall be determined
based on the PO Cost Allocation Methodology. In the case of revenues (e.g.,
from asset dispositions), the allocation shall be made based on the extent
to which the revenue item is attributable to the production of PO Product
compared to Co-Product.
(b) For any Maintenance Capital Project, EHS Capital Project and to
the extent applicable, Discretionary Capital Project, the PO Share shall be
determined in accordance with Exhibit D to the Operating Agreement.
---------
Section 2.6 No Other Contributions. Except as expressly set forth in
----------------------
this Agreement, no Partner shall be permitted or required to make any additional
cash contribution to the Partnership.
Section 2.7 Payment Disputes.
----------------
(a) Any Partner may object to invoiced amounts at any time before, at
the time of or after payment is made, provided such objection is made in
writing before or in the next periodic audit of Operating Services Costs
pursuant to Exhibit C to the Operating Agreement. Payment of any Partner
---------
Invoice shall not constitute approval thereof. The General Partner and the
disputing Partner shall meet as expeditiously as possible to resolve any
dispute. The disputing Partner must timely pay the disputed items in full
pending resolution of the dispute. Any dispute that is not resolved in
connection with an audit under Exhibit C to the Operating Agreement shall
---------
be resolved in accordance with Exhibit B.
---------
(b) Interest will accrue on any unpaid invoiced amount from the date
due until paid in full at the Default Rate.
Section 2.8 Capital Accounts. The procedures regarding Capital Accounts
----------------
are as follows:
(a) A separate Capital Account shall be established and maintained in
respect of each Partner.
8
<PAGE>
(b) Each Partner's Capital Account shall be credited with (i) the
amount of cash and the fair market value of other property (net of
liabilities that the Partnership is considered to assume or take subject to
under Section 752 of the Code) contributed by such Partner to the capital
of the Partnership and (ii) allocations to it pursuant to Article IV of
----------
income (or items thereof) including tax-exempt income and gain. A Partner's
Capital Account shall be debited with (i) the cash and fair market value of
property distributed to such Partner (net of liabilities that such Partner
is considered to assume or take subject to under Section 752 of the Code),
(ii) allocations to it of expenditures of the Partnership described in
Section 705(a)(2)(b) of the Code and (iii) allocations to it pursuant to
Article IV and of deduction or loss (or items thereof). If any property
----------
other than cash is distributed to a Partner, the Capital Accounts of the
Partners shall be adjusted as if the property had instead been sold by the
Partnership for a price equal to its fair market value, with the resulting
gain or loss allocated among the Partners pursuant to Article IV and the
----------
proceeds thereof distributed.
(c) In the event that any Partnership Interest or portion thereof is
transferred in accordance with the terms of this Agreement, the transferee
shall succeed to the Capital Account of the transferor Partner to the
extent such Capital Account relates to the transferred Partnership Interest
or portion thereof.
(d) For purposes of adjusting the Partners' Capital Accounts upon the
distribution of PO Product and Co-Product pursuant to Section 2.8(b), the
--------------
fair market value of PO Product and Co-Product shall be based upon each
Partner's realizations from the sale or other disposition of the PO Product
and Co-Product distributed to such Partner. Each Partner shall report the
appropriate fair market value amounts to the Partnership on a quarterly
basis for PO Product and Co-Product distributed to such Partner. The
Partnership shall use such fair market value amounts for purposes of
maintaining Capital Accounts.
(e) The provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Section 1.7041(b)
and shall be interpreted and applied in a manner consistent with such
Regulations. In the event that the General Partner shall determine, after
consultation with the other Partners, that it is prudent to modify the
manner in which the Capital Accounts are computed in order to comply with
changes in such Regulations or for other reasons, the General Partner may
in its sole discretion make such modification; provided, however, that
should another Partner reasonably deem that any such modification may be
detrimental to such other Partner, the General Partner shall refrain from
making such modification without first obtaining the consent of such other
Partner, which consent shall not unreasonably be withheld.
9
<PAGE>
Section 2.9 No Return of or on Property. Except as provided in Articles
--------------------------- --------
III and IV, no Partner shall receive any interest or other return on its capital
- --- --
contributions or on the balance in its Capital Account. Except as provided in
Articles III and IV, no Partner shall receive a return of its capital
contributions.
Section 2.10 Issuance of Additional Units for Discretionary Capital
------------------------------------------------------
Projects That Increase Capacity
- -------------------------------
(a) For any Discretionary Capital Project to either Plant Facility
that increases production of PO Product at such Plant Facility, each Series
A Unit Partner participating in such Discretionary Capital Project shall be
issued additional Series A Units in an amount equal to (i) the incremental
capacity in annual pounds of PO Product demonstrated from such
Discretionary Capital Project times (ii) the percentage participation of
such Series A Unit Partner in the cost of such Discretionary Capital
Project compared to that of all participating Series A Unit Partners
divided by (iii) the total annual PO Product capacity of the Plant
Facilities before taking into account the demonstrated incremental capacity
from the Discretionary Capital Project times (iv) the total number of
Series A Units then outstanding.
(b) For any Discretionary Capital Project to either Plant Facility
that increases production of Co-Product at such Plant Facility, each Series
B Unit Partner participating in such Discretionary Capital Project shall be
issued additional Series B Units in an amount equal to (i) the incremental
capacity in annual Pounds of Co-Product demonstrated from such
Discretionary Capital Project times (ii) the percentage participation of
such Series B Unit Partner in the cost of such Discretionary Capital
Project compared to that of all participating Series B Unit Partners,
divided by (iii) the total annual Co-Product capacity of the Plant
Facilities before taking into account the demonstrated incremental capacity
from the Discretionary Capital Project times (iv) the total number of
Series B Units then outstanding.
(c) For purposes of allocating Capital Costs for the period from the
first invoicing of a capacity expansion Capital Project until the increased
PO Product and Co-Product capacity is actually demonstrated, the Partners'
Pro Rata Share shall be calculated taking into account the expected
additional Series A and Series B Units, as applicable, to be issued under
this Section 2.10 for such capacity increase. Once the actual number of
------------
Units is issued based on the actual demonstrated capacity increase, the
Partners shall make retroactive adjustments, with interest at the Interest
Rate, for differences between the invoiced amounts under Section 2.4 paid
-----------
by the Partners for Capital Costs and PO Additional Monthly Amounts and
what such payments would have been based on the number of Series A and
Series B Units actually issued.
10
<PAGE>
ARTICLE III
DISTRIBUTIONS
Section 3.1 Operating Distributions In-Kind
-------------------------------
(a) Subject to Section 17-607 of the Act, the Partnership will
distribute and each Partner will accept:
(i) to each holder of Series A Units, its Series A Percentage
Interest of PO Product that is produced from the Plant Facilities, as
and when produced, subject to the limitation that (x) Bayer LP shall
not be entitled to aggregate distributions in any year in excess of
the Bayer Annual PO Offtake Amount, and (y) Lyondell LP shall be
entitled to distributions of any such excess amount; and
(ii) to each holder of Series B Units, its Series B Percentage
Interest of Co-Product that is produced from the Plant Facilities, as
and when produced.
(b) Each Partner shall offtake all on-spec PO Product and Co-Product
that is distributed to it by the Partnership pursuant to Section 3.1(a) and
--------------
make cash contributions to the Partnership with respect to such offtake in
accordance with Section 2.3; provided, however, Bayer LP shall have no
-----------
obligation to offtake more than 110% of the pounds of PO Product set forth
in the Monthly Production Statement, and any such excess above 110% of the
pounds at PO Product set forth in the Monthly Production Statement shall
not be credited against the Bayer PO Annual Offtake Amount unless and to
the extent that Bayer accepts delivery thereof. A Partner may in its sole
discretion choose to accept off-spec PO Product or Co-Product and thereby
shall pay for such product in accordance with Section 2.3 and accept
-----------
responsibility for such product on the same basis as if the product were
on-spec product.
(c) The General Partner shall use Reasonable Best Efforts to cause the
Operator to deliver to each Partner PO Product and/or Co-Product meeting
specifications each month in accordance with the Monthly Production
Statement for such month. Actual deliveries of PO Product and Co-Product
shall be subject to Disruption Events.
Section 3.2 Cash Distributions. Except as may otherwise be agreed by
------------------
each of the Partners, the Partnership will not make any distributions of cash or
property except as otherwise provided in this Article III.
-----------
Section 3.3 Characterization of Proceeds. The General Partner shall
----------------------------
classify all proceeds received by the Partnership from the sale, exchange,
involuntary conversion or other disposition of Partnership assets as "PO
--
Proceeds" or "Co-Product Proceeds." The characterization of proceeds will be
- -------- -------------------
made in accordance with the characterization of the assets to which such
proceeds relate, which characterization shall be made in accordance with Section
-------
2.5. Except as otherwise provided, the PO Proceeds will be distributed Pro Rata
- ---
to the holders of the Series A Units and the Co-Product Proceeds will be
distributed Pro Rata to the holders of the Series B Units, subject to
adjustments for the Partners' relative contributions to Capital Projects.
11
<PAGE>
Section 3.4 Liquidating Distributions. Distributions to the Partners of
-------------------------
cash or property arising from a liquidation of the Partnership shall be made in
accordance with the Capital Account balances of the Partners as provided in
Section 12.2(d).
- ---------------
Section 3.5 Withholding. The Partnership is authorized to withhold from
-----------
distributions to a Partner and pay over to a foreign, federal, state or local
government, any amounts required to be withheld pursuant to the Code or any
provisions of any other foreign, federal, state or local law. Any amounts
required to be withheld by the Partnership with respect to distribution of PO
Product or Co-Product shall be funded by capital contributions from the Partner
receiving such distribution. Any amounts so withheld shall be treated as
distributed to such Partner pursuant to this Article III for all purposes of
-----------
this Agreement and shall be offset against any amounts otherwise distributable
to such Partner.
ARTICLE IV
BOOK AND TAX ALLOCATIONS
Section 4.1 General Book Allocations. This Section 4.1 controls
------------------------ -----------
Partnership allocations for book purposes. As used herein, "book" means the
----
allocations used to determine debits and credits to the Capital Accounts of the
Partners and to determine the amounts distributable to the Partners pursuant to
Article III and Section 12.2(d). It does not refer to the method in which books
- ----------- ---------------
are maintained for financial reporting purposes pursuant to Section 5.2. The
-----------
book allocations for the Partnership are as follows:
(a) Distributions. For purposes of maintaining Capital Accounts in
-------------
accordance with Section 2.8 (and applying the constructive sale provision
-----------
contained in the last sentence of Section 2.8(b)), the Profit and Loss
--------------
calculated for book purposes in connection with the distribution of product
to the Partners shall be allocated to each Partner in accordance with the
distributions of PO Product and Co-Product made to that Partner.
(b) Depreciation.
------------
(i) Except as otherwise provided, depreciation deductions
with respect to PO Assets shall be allocated among holders of Series A
Units in accordance with their Series A Percentage Interests.
Depreciation deductions with respect to Co-Product Assets shall be
allocated among holders of Series B Units in accordance with their
Series B Percentage Interests.
(ii) If Capital Costs with respect to the Plant Facilities are
funded by the Partners other than in proportion to their then current
Series A Percentage Interests or Series B Percentage Interests,
respectively, depreciation deductions with respect to such
expenditures shall be allocated among the Partners in accordance with
the manner in which the Capital Costs were funded.
(c) Product Costs. Deductions attributable to Operating Services
-------------
Costs invoiced to the Partnership by the Operator shall be allocated among
the Partners in accordance with the manner in which those costs are funded
pursuant to Section 2.3.
-----------
12
<PAGE>
(d) Gain or Loss from the Sale; Involuntary Conversion or Other
-----------------------------------------------------------
Disposition of Partnership Property. The General Partner shall allocate any
-----------------------------------
gains or losses from the sale, exchange, involuntary conversion or other
disposition of all or any part of the Plant Facilities among PO Assets, Co-
Product Assets and Discretionary Capital Projects. Within each category,
such gain or loss shall be allocated as follows:
(i) any gain or loss with respect to PO Assets shall be
allocated among the holders of Series A Units in accordance with their
Series A Percentage Interests, any gain or loss with respect to Co-
Product Assets shall be allocated among the holders of Series B Units
in accordance with their Series B Percentage Interests, and any gain
or loss on Discretionary Capital Projects shall be allocated to the
Partner(s) who funded the cost of those assets in relation to such
funding; and
(ii) in the event that any loss allocated in accordance with the
provisions of this Section 4.1(d) would cause a Limited Partner's
--------------
Capital Account to have a negative balance, such loss shall be
allocated instead to the General Partner and, notwithstanding the
otherwise applicable provisions of this Article IV, any gain
----------
subsequently recognized by the Partnership shall first be allocated to
the General Partner to the extent of the cumulative, unrecouped loss
previously allocated to the General Partner under this Section
-------
4.1(d)(ii).
----------
(e) Tax Audit Costs. Costs incurred by the Partnership pursuant to its
---------------
obligations in Section 5.6(c)-(f) shall be allocated 50% to Lyondell GP's
------------------
interest and 50% to Bayer LP's interest, except that any costs incurred by
the Partnership pursuant to its obligations in Section 5.6(e)-(f) may be
------------------
allocated among the Partners as determined by the General Partner, which
determination shall be reasonably based on the proportionate effect of any
proposed adjustments or possible proposed adjustment to the Partners.
(f) Reimbursements. Any Profit or Loss resulting from a reimbursement
--------------
made by or to the Partnership (such as insurance proceeds or judgment
amounts), which reimbursement is allocable to an item specifically
allocated in the above subsections of this Section 4.1, shall be allocated
-----------
in a manner consistent with the above allocation of such item.
(g) Miscellaneous. Any other item of Profit or Loss not otherwise
-------------
allocated pursuant to this Article IV shall be allocated between the
----------
holders of Series A Units and the holders of Series B Units (and among such
holders) to reflect the manner in which such Profit or Loss is economically
received or borne by each Partner.
(h) Nonrecourse Debt Rules. In the event that the Partnership incurs
----------------------
nonrecourse debt within the meaning of Regulations (S)1.704-2, the General
Partner shall make such allocations to the Capital Accounts as are
appropriate pursuant to the rules for nonrecourse deductions, partner
nonrecourse deductions, partnership minimum gain chargebacks and partner
minimum gain chargebacks as set forth in such Regulations.
(i) Change in Partner's Interest. If, during a year, Units are
----------------------------
transferred or distributed, allocations among the Partners shall be made in
accordance with their
13
<PAGE>
interests in the Partnership from time to time during such year in
accordance with Section 706 of the Code, using the closing-of-the-books
method, except that depreciation and other amortization with respect to
each Partnership asset shall be deemed to accrue ratably on a daily basis
over the entire period during such year that the asset is owned and in
service by the Partnership.
(j) Deficit Account Chargeback and Qualified Income. If any Partner
-----------------------------------------------
has an Adjusted Capital Account Deficit at the end of any year, including
an Adjusted Capital Account Deficit for such Partner caused or increased by
an adjustment, allocation or distribution described in Regulation
(S)(S)1.704-1(b)(2)(ii)(d)(4), (5) or (6), such Partner shall be allocated
items of income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain) in an amount and in a
manner sufficient to eliminate such Adjusted Capital Account Deficit as
quickly as possible. This Section 4.1(j) is intended to constitute a
--------------
"qualified income offset" pursuant to Regulation (S)1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
(k) Curative Allocations. The special allocations in Section 4.1(h)
-------------------- --------------
and (j) (the "Regulatory Allocations") are intended to comply with certain
--- ----------------------
requirements of the Regulations. It is the intent of the Partners that, to
the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Partnership income, gain, loss or deduction pursuant to this Article IV.
----------
Therefore, notwithstanding any other provision of this Article IV (other
----------
than the Regulatory Allocations), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss or
deduction in whatever manner appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the
extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of the Agreement and
all Partnership items were allocated pursuant to Section 4.1(a)-(g).
------------------
Section 4.2 Federal Tax Allocations. The federal tax allocation
-----------------------
procedures for the Partnership are as follows:
(a) General Rule. Except as otherwise provided in the following
------------
subsections of this Section 4.2, allocations for federal income tax
-----------
purposes of items of income, gain, loss and deduction, and credits and
basis therefor, shall be made in the same manner as book allocations are
made in this Article IV.
----------
(b) Elimination of Book/Tax Disparities.
-----------------------------------
(i) General. If as a result of contributions of property by a
-------
Partner to the Partnership (or revaluations pursuant to the
regulations under Section 704(b)), Section 704(c) of the Code requires
allocations of income, gain, loss or deduction of the Partnership in a
manner different from that set forth in Section 4.2(a), then the
--------------
General Partner may adopt any reasonable methodology for allocating
items of Partnership income, gain, loss and deduction so as to comply
with the principles of Section 704(c) of the Code and the Regulations
thereunder as agreed by the holders of a majority of the Series A
Units and the holders of a majority of the Series B Units, to the
extent affected by such methodology.
14
<PAGE>
(ii) Built-In Gain or Loss. The PO Asset Built-In Gain or Loss
---------------------
shall be allocated among the holders of Series A Units in accordance
with their Series A Percentage Interests and the Co-Product Asset
Built-In Gain or Loss shall be allocated among the holders of the
Series B Units in accordance with their Series B percentage interests.
(c) Section 754 Election Allocations. Income and deductions of the
--------------------------------
Partnership that are attributable to the Section 754 election shall be
allocated to the Partners entitled thereto.
(d) Transaction and Other Costs. If the Partnership is entitled to
---------------------------
deductions with respect to any costs borne by a Partner without reimbursement
pursuant to this Agreement, the Master Transaction Agreement or the Transaction
Documents, the incurrence of such costs shall not increase the Capital Account
of such Partner, and such Partner shall be entitled to any deductions
attributable to such costs on its separate return.
ARTICLE V
ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS
Section 5.1 Fiscal Year. The fiscal year of the Partnership shall be the
-----------
calendar year.
Section 5.2 Method of Accounting for Financial Reporting Purposes. For
-----------------------------------------------------
financial reporting purposes, the Partnership shall adopt a standard set of GAAP
accounting policies and shall maintain separate books of account. The
Partnership's financial reports shall comply with requirements of the SEC to the
extent applicable to the Partnership and any Partner or any controlling Person
of such Partner, to the extent such information is necessary, in conjunction
with the financial reporting obligations of such Person under applicable SEC
requirements.
Section 5.3 Books and Records; Right of Partners to Audit.
---------------------------------------------
(a) Proper and complete records and books of account of the
Partnership's business, including all such transactions and other matters
as are usually entered into records and books of account maintained by
businesses of like character or as are required by Applicable Law, shall be
kept by the Partnership at the Partnership's principal place of business
for at least five years after the year to which they relate or such longer
period as may be required under Applicable Law. None of the Partnership's
funds shall be commingled with the funds of any Partner.
(b) Each Partner, through independent auditors whose compensation is
not in whole or in part dependent on the results of the audit, shall have
the right to periodically audit Operating Services Costs once every two
years in accordance with the provisions of Exhibit C to the Operating
---------
Agreement.
Section 5.4 Reports and Financial Statements. The General Partner shall
--------------------------------
inform the other Partners of the adjustments necessary to reflect the net Profit
and Loss in accordance with GAAP.
15
<PAGE>
Section 5.5 Method of Accounting for Book and Tax Purposes. For purposes
----------------------------------------------
of making allocations and distributions hereunder (including distributions in
liquidation of the Partnership in accordance with Capital Account balances as
required by Section 12.2), Capital Accounts and Profits, Losses and other items
------------
described in Section 4.1 shall be determined in accordance with federal income
-----------
tax accounting principles utilizing the accrual method of accounting, with the
adjustments required by Regulation (S)1.704-1(b) to properly maintain Capital
Accounts.
Section 5.6 Taxation.
--------
(a) Status of the Partnership. The Partners acknowledge that the
-------------------------
Partnership is a partnership for federal and state income tax purposes, and
hereby agree not to elect to be treated other than as a partnership for
federal and state income tax purposes.
(b) Consistency. The Partners intend that (i) the contribution of
-----------
assets subject to liabilities heretofore made by Lyondell GP and Lyondell
LP to the Partnership pursuant to Section 2.2(a) have qualified and
--------------
will qualify as a tax-free contribution under Section 721 of the Code in
which no Partner has recognized or will recognize gain or loss and (ii) the
subsequent sale of Series A Units to Bayer LP qualifies and will qualify as
the purchase of a partnership interest resulting in the adjustment of the
tax basis of Partnership Property with respect to Bayer LP only, pursuant
to Code Section 743. The Partners agree that the Partnership will so file
its tax return, and each Partner agrees to file its tax return on the same
basis and to maintain and defend such position consistently thereafter.
(c) Tax Elections and Reporting. The Partnership has made or shall
---------------------------
make the following elections under the Code and the Regulations and any
similar state statutes:
(i) adopt the calendar year as the annual accounting period;
(ii) adopt the accrual method of accounting;
(iii) elect to deduct organization costs ratably over a 60-month
period as provided in Section 709 of the Code;
(iv) elect not to be excluded from the TEFRA audit procedures
set forth in Subchapter C of Chapter 63 of the Code;
(v) make the elections provided by Code Section 754; and
(vi) make any other elections available under the Code that the
General Partner determines are appropriate, with the determination of
whether an election is appropriate to be made pursuant to the
principle that each Partner shall be treated equally (i.e., no Partner
will receive preferential tax treatment to the disadvantage of another
Partner).
(d) Tax Returns. The Tax Matters Partner, on behalf of the
-----------
Partnership, shall prepare and file all necessary and appropriate Tax Returns.
Each Partner shall timely provide such information, if any, as may be needed by
the Partnership for purposes of
16
<PAGE>
preparing such Tax Returns. The General Partner shall provide to each Partner a
substantially complete draft of the federal income tax return for the
Partnership not less than 30 days prior to the date such return is required to
be filed (including extensions). In connection with the preparation and filing
of the Partnership's Tax Returns for its first taxable year, the Tax Matters
Partner shall consult with the other Partners regarding the methodologies and
conventions to be adopted by the Partnership in such returns and the Tax Matters
Partner shall not unreasonably disregard any objections raised by such other
Partners. Thereafter, the Tax Matters Partner shall provide reasonable advance
notice of its intention to make any significant changes in the methodologies and
conventions adopted in the Tax Returns for the Partnership's first taxable year.
A Partner shall not report its share of any Partnership Tax item in a manner
inconsistent with the Partnership's reporting of such item, unless the
Partnership's reporting of such item results in a material disadvantage to such
Partner. In such event, and provided the Partner has a reasonable basis for its
position and provided the Partner has given 10 days' written notice to the Tax
Matters Partner of its intent to file inconsistently, such Partner may file in
an inconsistent manner. In connection with any Code Section 754 election, in the
case of a transfer of an interest in the Partnership, the transferee Partner
shall establish and maintain its resulting Code Section 743 special basis
adjustments, including filing any statement required by Regulation Section
1.743-1(b)(3). The General Partner and the Partnership shall provide information
as reasonably requested by a transferee Partner for purposes of establishing and
maintaining such Code Section 743 basis adjustments.
(e) Tax Audits.
----------
(i) Federal Tax Matters. The Partnership is authorized to
-------------------
make such filings with the IRS as may be required to designate
Lyondell GP as the "Tax Matters Partner." The Tax Matters Partner, as
-------------------
an authorized representative of the Partnership, shall direct the
defense of any claims made by the IRS to the extent that such claims
relate to the adjustment of Partnership items at the Partnership
level. The Tax Matters Partner shall promptly deliver to each Partner
a copy of all notices, communications, reports or writings of any kind
(including, without limitation, any notice of beginning of
administrative proceedings or any report explaining the reasons for a
proposed adjustment) received from the IRS relating to or potentially
resulting in an adjustment of Partnership items, as well as any other
information requested by a Partner that is commercially reasonable to
request. The Tax Matters Partner shall, diligently and in good faith,
contest any proposed adjustment of a Partnership item which
principally affects the Series A Unit holders at the administrative
and judicial levels, including, if appropriate, appealing any adverse
judicial decision. The Tax Matters Partner shall keep each Partner
advised of all material developments with respect to any proposed
adjustment which comes to its attention and shall advise each Partner
in advance, to the extent practicable, of all material meetings and
discussions with the IRS. All costs incurred by the Tax Matters
Partner in performing under this Section 5.6(e) shall be paid by the
--------------
Partnership and allocated among the Partners in accordance with
Section 4.1(e). Any amount so allocated to a Partner shall be funded
--------------
as an additional contribution pursuant to Article II.
----------
17
<PAGE>
(ii) State and Local Tax Matters. The Partnership shall
---------------------------
promptly deliver to each Partner a copy of all notices,
communications, reports or writings of any kind with respect to Taxes
received from any state, local or foreign taxing authority relating to
the Partnership which might, in the judgment of the Tax Matters
Partner, materially and adversely affect any Partner, and shall keep
each Partner advised of all material developments with respect to any
proposed adjustment of Partnership items which come to its attention.
(iii) Consultation. The Tax Matters Partner shall (a) keep
------------
Bayer LP apprised of all significant developments and shall consult
with Bayer LP in the contest of any audit, and (b) settle any issue
materially affecting Bayer LP only with the consent of Bayer LP, which
consent shall not be unreasonably withheld. If any depreciation,
amortization or other deduction or credit with respect to Bayer LP's
special basis adjustment or any other issue that affects Bayer LP but
does not materially and adversely impact Lyondell is raised in any
audit, or other communication from any taxing authority, the Tax
Matters Partner shall (x) permit Bayer LP to direct the contest of the
issue and (y) settle any such issue in accordance with Bayer LP's
direction.
(iv) Continuation of Rights. Each Partner shall continue to have
----------------------
the rights described in this Section 5.6(e) with respect to Tax
matters relating to any period during which it was a Partner, whether
or not it is a Partner at the time of the Tax audit or contest.
(f) Tax Rulings. No Person shall request an administrative ruling (or
-----------
similar administrative procedures) from any taxing authority with respect
to any Partnership tax item the treatment of which could materially and
adversely affect the taxation of another Partner unless such Person shall
have received written authorization from such other Partner to make such
request, which authorization shall not be unreasonably withheld.
Section 5.7 Delegation. The Partners agree that all the tasks to be
----------
performed under this Article V (other than serving as Tax Matters Partner) may
---------
be delegated to consultants of the Partnership.
ARTICLE VI
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
Section 6.1 Name and Address. Lyondell GP shall be the general partner of
----------------
the Partnership. The place of business of the General Partner is One Houston
Center, 2 Greenville Cross, 4001 Kennett Pike, Suite 238, Greenville, Delaware
19807.
Section 6.2 Duties of the General Partner.
-----------------------------
(a) The General Partner shall devote to the affairs of the
Partnership such time and attention as shall be reasonably required for the
conduct of the Partnership's business. The General Partner shall not engage
in any other activities or assume any involvement or acquire any interest
in any entity other than the Partnership.
18
<PAGE>
(b) The General Partner shall enforce the obligations of the Operator
to perform or provide the Operating Services in accordance with the terms,
conditions and standards of the Operating Agreement. If the Operating
Agreement is terminated for any reason, the General Partner (including any
Substitute General Partner) shall provide, or engage a Qualified
Replacement Operator to provide, the Operating Services in accordance with
the terms, conditions and standards of the Operating Agreement, as if the
Operating Agreement remained in full force and effect.
Section 6.3 Powers. Except to the extent otherwise provided herein or in
------
the Act, the General Partner shall have full power and authority to take all
action in connection with the Partnership's affairs, to exercise exclusive
management, supervision and control of the Partnership's properties and business
and to do all things necessary, appropriate, convenient or incident thereto.
Without limiting the foregoing, the General Partner shall have the following
powers and, to the extent that the Partnership provides necessary funds, duties:
(a) to control and manage the Partnership Property and to arrange for
collections, disbursements and other matters necessary or desirable in
connection with the management, operation, maintenance and preservation of
the Partnership Property;
(b) to pay and discharge all Taxes and assessments levied and
assessed against the Partnership Property or any part thereof for the
account of the Partnership;
(c) to carry and/or cause the Partnership to carry or participate in
the insurance coverages that are set forth on Schedule 6.3, as revised from
------------
time to time;
(d) to determine the number of employees, if any, the selection of
such employees, the hours of labor and compensation for the service of such
employees; and
(e) to direct the Operator, on behalf of the Partnership, to take any
action or perform any duty pursuant to the Operating Agreement; provided,
however, that the General Partner shall so direct the Operator only after
obtaining the advise and consent of each Limited Partner, such consent not
to be unreasonably withheld.
Section 6.4 Reimbursement. The General Partner shall not be reimbursed by
-------------
the Partnership for any expenses incurred in connection with the discharge of
its duties hereunder as General Partner other than as expressly provided in this
Agreement.
Section 6.5 Action by the General Partner. Except as may be expressly
-----------------------------
limited by the provisions of this Agreement, the General Partner is specifically
authorized, as appropriate, to execute, sign, seal and deliver in the name and
on behalf of the Partnership any and all agreements, certificates, instruments
or other documents requisite to carrying out the intentions and purposes of this
Agreement and of the Partnership.
Section 6.6 Delegation to Operator. The General Partner is specifically
----------------------
authorized to delegate to the Operator any of the General Partner's obligations
under this Agreement except to the extent such obligations include enforcing a
right of the Partnership against the Operator. No such delegation shall relieve
the General Partner from its obligations under this Agreement.
19
<PAGE>
Section 6.7 Segregation of Funds. Partnership funds shall be kept
--------------------
exclusively in one or more bank accounts in the Partnership's name, which
accounts shall designate the Partnership as the sole beneficiary thereof. No
funds of the General Partner or any of its Affiliates shall be kept in such
accounts. No funds of the Limited Partners or any of their Affiliates shall be
kept in such accounts. Funds shall be withdrawn from the Partnership's accounts
exclusively for Partnership purposes.
Section 6.8 Limitation on Liens.
-------------------
(a) The General Partner shall not permit to exist liens against the
Partnership Property, unless such liens are incurred in good faith in the
ordinary course of business and secure obligations that are not overdue for
a period of more than 60 days or which are being contested in good faith by
appropriate proceedings.
(b) No Limited Partner shall be entitled to enforce the obligations
of the General Partner under Section 6.8(a) if and for so long as an
--------------
Uncured Partner Offtake or Payment Default exists with respect to such
Limited Partner and the lien in violation of Section 6.8 above directly
-----------
relates to such Uncured Partner Offtake or Payment Default.
Section 6.9 Restoration Following Casualty Loss.
-----------------------------------
(a) In accordance with the procedures set forth in Section 7.3, the
-----------
written approval of the holders of a majority of the Series A Percentage
Interests and the Series B Percentage Interests shall be required to elect
to restore or not to restore either of the Plant Facilities upon any
Casualty to the Plant Facilities as to which the restoration will take more
than two years to complete or there will be insufficient proceeds, after
and assuming payment of applicable deductibles and self insurance retention
limits, to restore the Plant Facilities after taking into account other
property damage at the Complex and business interruption claims, treating
all of such claims on an equal footing with those of the Partnership.
Unless the Partners agree to extend the decision period, if the Partners do
not vote to restore the Plant Facilities within 120 days after the
Casualty, then the Partners shall be deemed to have voted not to restore
the Plant Facilities. For any Casualty below the foregoing threshold or
above the foregoing threshold as to which the Partners timely vote to
restore the Plant Facilities, the restoration shall be treated in the same
manner as a Maintenance Capital Project for purposes of this Agreement and
the General Partner shall diligently prosecute the restoration to
completion, provided the Partners timely fund their share of Casualty
Restoration Costs. The Partners shall mutually agree on required changes to
the PO Cost Allocation Methodology and to Exhibit D of the Operating
---------
Agreement to reflect changes made to the Plant Facilities, including as to
technology. If the Partners vote not to restore, the available insurance
proceeds attributable to the Plant Facilities shall be allocated between
the PO Product business and Co-Product business in accordance with Section
-------
2.5 hereof and Exhibit D to the Operating Agreement, gain or loss shall be
--- ---------
determined and allocated to the Partners pursuant to Section 4.1(d) and the
--------------
PO Share of such proceeds shall be distributed in accordance with the
relative Capital Account balances of the Series A Unit holders and the
balance of the proceeds shall be distributed in accordance with the Capital
Account balances of the Series B Unit holders. If the unrestored Plant
Facilities are the remaining material assets of the Partnership, then the
Partnership shall be wound up and liquidated
20
<PAGE>
in accordance with Article XII. If the Partnership continues to own the other
-----------
Plant Facilities, then the Partnership shall not be wound up or liquidated and
the Bayer PO Annual Offtake Amount shall be reduced by the pounds of PO Product
attributable to Bayer LP for the unrestored Plant Facilities, as provided in the
Baseline Sourcing Plan in existence prior to the Casualty, and the PO Logistics
Agreement and the corresponding Baseline Sourcing Plan shall be appropriately
changed by agreement of the Parties.
(b) If Bayer LP desires to restore a damaged or destroyed Plant
Facilities and Lyondell does not, then, at Bayer LP's election, Bayer LP
may rebuild the damaged or destroyed Plant Facilities (using its share of
insurance proceeds and its own funds) in their original location for the
same (or reduced) PO Product and Co-Product capacity. The Partnership shall
sell to Bayer LP the Partnership Property at the Complex for fair market
value and the Partnership shall assign its estate and interest under the
applicable Ground Lease to Bayer LP. The Technology Partnership shall
provide a limited, personal (subject to rights of Transfer permitted under
Section 10.2(c)), site specific, non-sublicensable royalty-free license of
----------------
the PO Product and Co-Product technology as practiced at the Plant
Facilities to enable Bayer LP to restore and operate the Plant Facilities
at the Complex for the production of PO Product and Co-Product for the
remainder of the term of the applicable Ground Lease. The Parties shall
mutually determine whether, and on what terms, Lyondell would continue to
operate the restored Plant Facilities, taking into account Lyondell's other
businesses at the Complex, know-how and work force efficiencies. Lyondell
shall have the right, exercisable within one year of completion of
restoration, to acquire interests in the restored Plant Facilities up to
the PO Product and Co-Product capacity that it owned in the Plant
Facilities prior to the Casualty, provided that Bayer LP's PO Product
capacity in the Plant Facilities shall not be reduced below that existing
prior to the Casualty. Lyondell shall pay to Bayer LP for the acquisition
of such interest its proportionate share, based on its PO Product and Co-
Product capacity, of the cost of restoration, with interest at the Interest
Rate from the date incurred by Bayer LP until paid by Lyondell.
ARTICLE VII
RIGHTS, POWERS AND DUTIES OF THE LIMITED PARTNERS
Section 7.1 Name and Address. The names and addresses of the Limited
----------------
Partners of the Partnership are set forth on Schedule 2.1, which may be amended
------------
from time to time by the General Partner to reflect the admission of any
Substitute Limited Partner or Additional Limited Partner or the change of any
such address.
Section 7.2 Limited Partners Shall Not Act; Limitation of Responsibility.
------------------------------------------------------------
Except as may otherwise be provided herein, the Limited Partners shall have no
control over the management of the Partnership and shall have no power to
transact any Partnership business. No Limited Partner shall be personally liable
for all or any part of the debts or other obligations of the Partnership. No
Limited Partner shall have the right or power to withdraw from the Partnership
(except as set forth in Article X) or to cause the liquidation of the
---------
Partnership or the partition of its properties.
21
<PAGE>
Section 7.3 Limited Partner Consents. Notwithstanding anything herein
------------------------
contained to the contrary, the written approval of the holders of a majority of
the Series A Percentage Interests and the holders of a majority of the Series B
Percentage Interests shall be required for each of the decision matters listed
below in this Section 7.3; each Limited Partner shall respond in writing within
-----------
15 days of any written request for approval by the General Partner to any such
decision. If any Limited Partner fails to timely respond, the General Partner
may send a written notice to the Limited Partner informing such Limited Partner
of its failure and if such Limited Partner fails to respond within 10 days of
such written notice, it shall be deemed not to have approved the matter in
question:
(a) the amendment of this Agreement (other than ministerial changes
to Schedule 2.1) or the Certificate of Limited Partnership or the Operating
------------
Agreement;
(b) the dissolution and winding-up of the Partnership pursuant to
Section 12.1(a) or the extension of the term of the Partnership or the
---------------
merger or consolidation of the Partnership or the Transfer of all or any
portion of the Partnership Property necessary for its operations, unless
replaced by property of equal or greater utility;
(c) the issuance or acquisition by the Partnership of any Partnership
Units except as otherwise specifically provided in this Agreement;
(d) any borrowing of funds by the Partnership;
(e) any decision to initiate, or to approve initiation of, the
commencement of a case by or against the Partnership under any bankruptcy,
insolvency or reorganization statute;
(f) the admission of new or additional partners to the Partnership,
except as permitted by Article X;
---------
(g) the Transfer of any Partnership Units, except as permitted by
Article X or Article XI;
--------- ----------
(h) any decision to reduce insurance coverages in a manner
inconsistent with the rights to do so as provided in Schedule 6.3;
------------
(i) the approval of the Operator's engaging in any activity
prohibited under Section 2.5 of the Operating Agreement;
-----------
(j) the decision to restore or not to restore either of the Plant
Facilities upon any Casualty to the Plant Facilities in accordance with
Section 6.9; and
-----------
(k) any other action which, pursuant to this Agreement or the Act,
requires the approval of the Limited Partners.
Section 7.4 Failure of General Partner to Enforce Certain Obligations of
------------------------------------------------------------
Affiliates. If for any reason the General Partner fails or refuses to enforce
- ----------
either (i) the obligations of the Operator under the Operating Agreement or (ii)
the rights of the Partnership against a Limited Partner that is an Affiliate of
the General Partner to the detriment of any Limited Partner that is
22
<PAGE>
not affiliated with the General Partner, then, upon written notice to the
General Partner, any Limited Partner that is not Affiliated with the General
Partner shall have the right to enforce such obligations on behalf of the
Partnership. The holders of a majority of the Series A Units and the holders of
a majority of the Series B Units shall each have the right to initiate and
reasonably approve an audit pursuant to the provisions of Exhibit C to the
---------
Operating Agreement with respect to Operating Services Costs payable by the
holders of the Series A Units or Series B Units, as the case may be.
Section 7.5 Additional Operator Services. Each Limited Partner shall have
----------------------------
the right to require the General Partner on behalf of the Partnership to request
that the Operator perform Additional Services pursuant to the terms of the
Operating Agreement, and the requesting Partners shall pay the Operator directly
for the Additional Services Charges established by the Operator for any
Additional Services which the Operator has agreed to provide to the requesting
Partner. No Limited Partner shall be responsible for Additional Services Charges
for Additional Services which it did not request or approve.
ARTICLE VIII
FORECASTS; ANNUAL PLAN AND BUDGET; CAPITAL PROJECTS
Section 8.1 Three Year Demand Forecast; Annual Forecast, Annual Plan and
------------------------------------------------------------
Annual Budget.
- -------------
(a) On or before September 1 of each year, each Limited Partner shall
furnish to the General Partner for delivery to the Operator such Limited
Partner's good faith estimate of its total volume requirements of PO
Product and Co-Product to which it is entitled under this Agreement for the
next succeeding three years (the "Three Year Demand Forecast"), broken down
--------------------------
by month for the first year and by quarter for the following two years. The
initial Three Year Demand Forecast is set forth on Exhibit C. In addition,
---------
the Limited Partners shall provide to the General Partner for delivery to
the Operator such other information as the General Partner and the Operator
may reasonably request to enable the Operator to prepare the Annual
Forecast.
(b) Bayer LP will nominate for offtake each year the Bayer PO Annual
Offtake Amount. However, Bayer LP may nominate less than the Bayer PO
Annual Offtake Amount for any year in the Three Year Demand Forecast. Bayer
LP's failure to nominate its full share of PO Product shall not relieve it
from its obligations to pay its full share of Fixed Costs. Additionally,
Bayer LP shall be responsible for PO Variable Unit Costs attributable to
the production of PO Product that Bayer LP elects not to nominate which
cannot be avoided by the Operator through Reasonable Best Efforts.
(c) The General Partner shall cause the Operator, in accordance with
Section 7.2 of the Operating Agreement, to prepare and deliver not later
-----------
than October 1 of each year for review:
23
<PAGE>
(i) to each Limited Partner that is a Series A Unit holder, the
portions of the Annual Forecast for the upcoming year that relate to
scheduled PO Product deliveries to each Series A Unit holder, budgeted
Operating Services Costs to be paid by each Series A Unit holder,
Capital Projects in which such Limited Partner is or will be required
to participate and those in which such Limited Partner will be invited
to participate and other production and operational information
relevant to such Limited Partner's business; and
(ii) to each Limited Partner that is a Series B Unit holder, the
portions of the Annual Forecast for the upcoming year that relate to
scheduled Co-Product deliveries to each Series B Unit holder, budgeted
Operating Services Costs to be paid by each Series B Unit holder,
Capital Projects in which such Limited Partner is or will be required
to participate and those in which such Limited Partner will be invited
to participate and other production and operational information
relevant to such Partner's business.
Each Limited Partner shall inform the General Partner within 30 days
after such Limited Partner's receipt of the proposed Annual Forecast of any
concerns or issues that the Limited Partner may have with respect to the
components of the Annual Forecast relevant to such Limited Partner and the
General Partner shall forward such concerns and issues to the Operator;
provided, however, the Operator shall have final decision making authority as to
the Annual Plan. The Annual Plan for the remainder of the year containing the
Closing Date is attached hereto as Exhibit D. The Annual Forecast shall become
---------
the Annual Plan upon finalization of the Annual Forecast by the Operator,
subject to Section 7.2(b) of the Operating Agreement. No finalization of the
--------------
Annual Plan by the Operator shall limit the audit rights of the Limited Partners
under Exhibit C to the Operating Agreement.
---------
Section 8.2 Rolling Product Forecast.
------------------------
(a) At least 10 Business Days prior to the beginning of each month,
each Partner shall deliver to the General Partner for delivery to the
Operator such Partner's forecast of its monthly volume requirements of PO
Product or Co-Product, subject to the monthly volume deviation limitations
imposed under in Section 7.2(b) of the Operating Agreement, for each of the
--------------
succeeding three months and the following five quarters (the "Rolling
-------
Product Forecast"). Each Partner shall provide good faith estimates of its
----------------
weekly offtake information for the first month included in the Rolling
Product Forecast. Each Partner's estimate shall be binding on each such
Partner and the Operator for the first month, binding on each such Partner
and the Operator within plus or minus 10% for the second month, and a good
faith estimate for the third month and the five quarters thereafter.
(b) Within five Business Days of receiving the Rolling Product
Forecast, the General Partner shall cause the Operator to prepare and
deliver to each Partner the Monthly Production Statement provided for in
Section 7.3(b) of the Operating Agreement.
--------------
Section 8.3 Mandatory Capital Projects. As provided in Section 7.4 of the
-------------------------- -----------
Operating Agreement, the Annual Forecast shall include for each Plant Facility
all proposed Maintenance
24
<PAGE>
Capital Projects and EHS Capital Projects for the next succeeding year known at
the time of the Operator's preparation of the Annual Forecast, including such
Capital Projects as are commenced or approved in prior years that have not been
completed, and shall separately itemize all Above Threshold Non-Discretionary
Capital Projects. A copy of the Capital Project forecast for each Plant Facility
for the following four years that is prepared by the Operator and included in
the Annual Forecast shall be provided to each Partner. The Annual Forecast shall
describe for each proposed Above Threshold Non-Discretionary Capital Project the
scope, nature, expected costs and benefits and justifications for each Capital
Project and the short-term and long-term impact on production that the Capital
Project is anticipated to have. For each such itemized Maintenance Capital
Project and EHS Capital Project, the capital budget shall identify the PO Share
of the budgeted Capital Costs for such Capital Project and the methodology used
to determine the PO Share in accordance with Exhibit D of the Operating
---------
Agreement. The capital budget shall describe in reasonable detail the
anticipated expenditure profile for the Capital Project over the life of the
project. At any time during the year, as provided in Section 7.4 of the
-----------
Operating Agreement, the Operator may initiate Maintenance Capital Projects and
EHS Capital Projects that are recommended by the Operator, even if not included
in the Annual Plan. The General Partner shall procure from the Operator and
deliver to the Limited Partners the information provided for above with respect
to Above Threshold Non-Discretionary Capital Projects initiated during the year
that were not included in the Annual Plan; to the extent practical, such
information shall be provided not less than 30 days prior to commencing work for
the Capital Project. Subject to Section 2.10(c), each Partner shall be invoiced
---------------
under Section 2.4 for its Pro Rata share of the Capital Costs.
Section 8.4 Discretionary Capital Projects.
------------------------------
(a) Annual Forecast. As provided in Section 7.4 of the Operating
--------------- -----------
Agreement, all Discretionary Capital Projects proposed by the Operator for
the upcoming year shall be included in the Annual Forecast to the extent
practical. A copy of the Capital Project forecast for each Plant Facility
for the following four years that is prepared by the Operator and included
in the Annual Forecast shall be provided to each Partner. As provided in
Section 7.4 of the Operating Agreement, the Operator may propose
-----------
Discretionary Capital Projects the budgeted Project Cost of which are below
$2.5 million (which threshold shall be mutually adjusted as of the January
1 following each fifth anniversary of the Closing Date taking into account
inflation and other factors) during the year that were not included in the
Annual Plan, provided that the Discretionary Capital Project budget for the
year is not increased.
(b) Cost-Savings Discretionary Capital Projects to the Plant
--------------------------------------------------------
Facilities Proposed by the Operator. For each Above Threshold Discretionary
-----------------------------------
Capital Project to the Plant Facilities proposed by the Operator the
primary purpose of which is to reduce Operating Services Costs, the General
Partner shall cause the Operator to include a description of the scope,
nature and quantitative assessment of the reduction in Operating Services
Charges estimated to result from the Above Threshold Discretionary Capital
Project and the short-term impact on production that the installation of
the Capital Project is anticipated to have. For each cost savings Above
Threshold Discretionary Capital Project, the capital budget shall specify
the PO Share of the budgeted Capital Costs for such Capital Project and the
methodology used to determine the PO Share in accordance with Exhibit D to
---------
the Operating Agreement. The capital budget shall describe in
25
<PAGE>
reasonable detail the estimated expenditure profile for each Above
Threshold Discretionary Capital Project over the life of the project. Each
Partner shall have the right to participate or not participate in any Above
Threshold Discretionary Capital Project the primary purpose of which is to
reduce Operating Services Costs by agreeing to fund its pro rata share of
the Capital Costs for the Capital Project, subject to Section 2.10(c), and
---------------
the participating Partners shall receive its pro rata share of the actual
realized Operating Services Costs savings. The pro rata share of each of
the Series A Unit Partners electing to participate shall be the PO Share
times the Series A Percentage Interest of each such Partner divided by the
sum of the Series A Percentage Interests of the participating Series A Unit
Partners and the pro rata share of each of the Series B Unit Partners
electing to participate shall be [one minus the PO Share] times the Series
B Percentage Interest of each such Partner divided by the sum of the Series
B Percentage Interests of the participating Series B Unit Partners, unless
no Series A Unit holders elect to participate, in which case the PO Share
shall be deemed to be zero for purposes of the foregoing calculation. The
Operator may proceed with Below Threshold Discretionary Capital Projects to
the Plant Facilities that are intended to reduce Operating Services Costs,
provided that for Below Threshold Discretionary Capital Projects that are
not included in the Annual Plan the overall discretionary capital budget
for the year is not increased, and each Partner (i) shall be required to
participate by funding its pro rata share of the Capital Costs as provided
in this Section 8.4(b) and (ii) shall receive its pro rata share of the
--------------
actual realized Operating Services Costs savings.
(c) Cost Savings Discretionary Capital Projects to the Plant
--------------------------------------------------------
Facilities Proposed by a Limited Partner. Each Limited Partner shall have
----------------------------------------
the right to propose to the General Partner and the Operator for
consideration for inclusion in the Annual Forecast Discretionary Capital
Projects to the Plant Facilities. Such proposal must be made in reasonable
detail on or before October 1 of each year to be considered in the Annual
Forecast for the following year. The Operator or the General Partner may
determine, acting in their good faith but otherwise sole discretion, not to
include such proposed Discretionary Capital Project in the Annual Forecast.
(d) Cost Savings Discretionary Capital Projects that Increase
---------------------------------------------------------
Production Capacity. If any Discretionary Capital Project is expected to
-------------------
increase production capacity and reduce Operating Services Costs, then the
General Partner shall make a reasonable and supported allocation of the
Capital Costs of the Discretionary Capital Project between cost savings and
capacity increase by calculating the net present value of the projected
cost savings compared to the net present value of the projected additional
PO Product capacity valued as if sold at fair market value. The net present
value calculations shall be performed using consistent discount rates and
time periods. Any expected lost PO Product and Co-Product production due to
downtime in implementing the Discretionary Capital Project shall be
allocated between cost savings and capacity increase in the same manner as
the Capital Costs are allocated. The provisions of Section 8.4(b) shall
--------------
govern the Limited Partners' rights to participate as to cost savings and
Section 8.4(e) shall govern as to any rights of the Limited Partners to
--------------
participate as to capacity increases.
(e) Increased Production Capacity Discretionary Capital Projects. For
------------------------------------------------------------
each Discretionary Capital Project to the Plant Facilities proposed by the
Operator which is
26
<PAGE>
expected to increase production capacity of PO Product and/or Co-Product,
the Annual Forecast shall include a description of the scope, nature and
quantitative assessment of the expected production capacity increase from
the Discretionary Capital Project and the short-term impact on production
that the installation of the Capital Project is anticipated to have. For
each such Discretionary Capital Project, the capital budget shall specify
the PO Share of the budgeted Capital Costs for such Capital Project and the
methodology used to determine the PO Share in accordance with Exhibit D of
---------
the Operating Agreement. The capital budget shall describe in reasonable
detail the anticipated expenditure profile for the Capital Project over the
life of the project on which the Discretionary Capital Project Funding
Notices will be based. Partners other than Bayer LP shall have the right to
participate or not participate in any Discretionary Capital Project with
respect to production capacity increases by agreeing to fund its pro rata
share of the Capital Costs for the Capital Project and receive their
respective pro rata share of the actual realized PO Product or Co-Product
production capacity increase.
(f) Discretionary Capital Projects - Infrastructure Assets. For
------------------------------------------------------
each Discretionary Capital Project to Infrastructure Assets for a Complex
as to which the Partnership does not have approval rights under Section
-------
7.4(c)(iv) of the Operating Agreement, the General Partner shall cause the
----------
Operator to describe in a writing delivered to each Partner the scope,
nature, benefits and justifications for such Capital Project and the short-
term impact on production that installation of the Capital Project is
anticipated to have. For each such Infrastructure Asset Discretionary
Capital Project as to which the Partnership does not have approval rights
under Section 7.4(d) of the Operating Agreement, the capital budget shall
--------------
specify the PO Share of the budgeted Capital Costs for such Capital Project
and the methodology used to determine the PO Share in accordance with
Exhibit D of the Operating Agreement. The PO Share of the Capital Costs
---------
shall be allocated to the Series A Unit Partners Pro Rata and the remaining
portion of the Capital Costs shall be allocated to the Series B Unit
Partners Pro Rata. Each Discretionary Capital Project to the Infrastructure
Assets proposed by the Operator as to which the Partnership has approval
rights under Section 7.4(c)(iv) of the Operating Agreement or which are
------------------
proposed by Limited Partner shall be proposed and addressed in accordance
with the applicable provisions of Sections 8.4(b), (c) or (d).
--------------- --- ---
(g) Failure to Participate. Any Partner must elect to participate in
----------------------
an Above Threshold Discretionary Capital Projects within (i) 30 days after
the Operator's submission of a proposal for such Discretionary Capital
Project if the budgeted Capital Costs for the Capital Project are $500,000
or less; (ii) 60 days after the Operator's submission of a proposal for
such Discretionary Capital Project if the budgeted Capital Costs for the
Capital Project are more than $500,000 and not more than $1.1 million;
(iii) 90 days after the Operator's submission of a proposal for such
Discretionary Capital Project if the budgeted Capital Costs for the Capital
Project are more than $1.1 million and not more than $2.5 million; and (iv)
120 days after the Operator's submission of a proposal for such
Discretionary Capital Projects (which shall be included in the Annual
Forecast) if the budgeted Capital Costs for the Capital Project are more
than $2.5 million, unless each of the Partners otherwise agree. Failure to
timely respond shall be deemed an election to participate for all Capital
Projects except for Discretionary Capital Projects in excess of $2.5
million, as to which failure to respond shall be deemed an election not to
participate. For Discretionary Capital Projects to Infrastructure Assets
proposed by the
27
<PAGE>
Operator in excess of the threshold set forth in Section 7.4(d)(iv) of the
------------------
Operating Agreement, a Partner must make its election to participate in
such Capital Project within (i) 90 days after the Operator's submission of
a proposal if the expected Capital Costs to such Partner are more than $1.5
million, and (ii) 120 days after the Operator's submission of a proposal
for such Capital Project if the expected Capital Costs to such Partner are
more than $2.5 million, unless each of the Partners otherwise agree. For
purpose of the preceding sentence, failure to timely respond shall be
deemed an election not to participate in such Discretionary Capital Project
to Infrastructure Assets. The thresholds contained in this Section 8.4(g)
--------------
shall be mutually adjusted as of the January 1 following each fifth
anniversary of the Closing Date taking into account inflation and other
factors. Any Partner failing or refusing to participate in the costs of any
Discretionary Capital Projects shall not participate in the cost savings,
capacity increase, reliability improvement or other performance enhancement
resulting from such Discretionary Capital Project, and the General Partner
shall make appropriate economic arrangements among the Partners under
Section 2.3 to achieve this result. Partners who are not entitled to, or
-----------
who elect not to, participate in a Discretionary Capital Project shall not
bear any of the PO Product or Co-Product production loss from downtime in
implementing such Discretionary Capital Project. Such product loss shall be
borne entirely by the participating Partners.
(h) No Benefit if Failure to Contribute to R&D. Notwithstanding the
------------------------------------------
foregoing provisions of this Section 8.4, in the event that the Bayer
-----------
partner in the Technology Partnership does not pay in full its annual Bayer
Monthly Technology Budget Payments (without regard to the Bayer Budget
Cap), then the General Partner in conjunction with the Existing Plant
Operators shall make appropriate economic arrangements and apportionment of
the cost savings benefits resulting from any Discretionary Capital Project
implementing the process development research so that Bayer LP does not
participate in the portion of any cost saving, reliability improvement or
other performance enhancement resulting from such Capital Project
corresponding to the portion of the annual Bayer Monthly Technology Budget
Payments to which Bayer LP did not contribute its full share.
Section 8.5 Mutual Provision of Information. The Partners will keep each
-------------------------------
other timely informed about planned turnarounds, shutdowns, major technical
projects, Capital Projects and any other major events which in each case are
relevant to this Agreement or the Operating Agreement.
ARTICLE IX
RIGHTS OF THE PARTNERS
Section 9.1 Delegation. The Partners acknowledge that the General Partner
----------
is permitted to delegate responsibility for day-to-day operations of the
Partnership to the Operator and/or to officers and employees of the General
Partner's Affiliates.
Section 9.2 General Authority. Persons dealing with the Partnership are
-----------------
entitled to rely conclusively on the power and authority of the General Partner
as set forth in this Agreement. In no event shall any Person dealing with the
General Partner or the General
28
<PAGE>
Partner's representatives with respect to any business or asset of the
Partnership be obligated to ascertain that the terms of this Agreement have been
complied with, or be obligated to inquire into the necessity or expedience of
any act or action of the General Partner or the General Partner's
representatives. Every contract, agreement, deed, mortgage, security agreement,
promissory note or other instrument or document executed by the General Partner
or the General Partner's representatives with respect to any business or asset
of the Partnership shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery thereof, this Agreement was in full force and effect, (ii) the
instrument or document was duly executed in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership and (iii) the
General Partner or the General Partner's representative was duly authorized and
empowered to execute and deliver any and every such instrument or document for
and on behalf of the Partnership. Nothing in this Section 9.2 shall be deemed to
-----------
be a waiver or release of any obligation of the General Partner to the other
Partners as set forth elsewhere in this Agreement.
Section 9.3 Limitation on Fiduciary Duty; Competition.
-----------------------------------------
(a) Each Partner (directly or through its Affiliates) is a
sophisticated party, possessing extensive knowledge of and experience
relating to, and is actively engaged in, significant businesses in addition
to the Partnership, has been represented by legal counsel, is capable of
evaluating and has thoroughly considered the merits, risks and consequences
of the provisions of this Section 9.3 and agrees to such provisions
-----------
knowingly and advisedly. The liability of the General Partner (including
any liability of its Affiliates or its or their respective officers,
directors, agents and employees) or of any Limited Partner (including any
liability of its Affiliates or its or their respective officers, agents,
directors and employees), either to the Partnership or to any other
Partner, for any act or omission by such Partner in its capacity as a
partner of the Partnership that is imposed by such Partner's status as a
"general partner" or "limited partner" (as such terms are used in the Act)
of a limited partnership is hereby eliminated, waived and limited to the
fullest extent permitted by Applicable Law. Nothing in this subsection
shall relieve any Partner from any liability for any breach of this
Agreement. Nothing in this subsection alters the indemnification provisions
of Article XIV.
-----------
(b) Except as may be set forth in a Related Agreement, each Partner's
Affiliates shall be free to engage in or possess an interest in any other
business of any type, including any business in direct competition with the
Partnership, and to avail itself of any business opportunity available to
it without having to offer the Partnership or any Partner the opportunity
to participate in such business. It is expressly agreed that the legal
doctrine of "corporate or business opportunities" sometimes applied to a
Person deemed to be subject to fiduciary or other similar duties so as to
prevent such Persons from engaging in or enjoying the benefits of
additional business opportunities shall not be applied in the case of any
investment, acquisition, business, activity or operation of any Partner's
Affiliates.
Section 9.4 Partner Covenants. Each Partner covenants and agrees with the
-----------------
Partnership and with the other Partners that it shall not (i) exercise, or
purport or attempt to exercise, any authority it has to withdraw, retire, resign
or assert that it has been expelled from the Partnership, (ii) do any act that
would make it impossible or impracticable to carry on the
29
<PAGE>
Partnership's business and (iii) act or purport or attempt to act in a manner
contrary to the agreements of the Partners set forth in this Agreement; provided
that nothing in this Section 9.4 shall be deemed to waive any Partner's rights
-----------
under Article X, XI or XII.
--------- -- ---
Section 9.5 Special Purpose Entities. Each Partner covenants and agrees
------------------------
that (i) its business shall be restricted in its organizational documents solely
to holding of its Partnership Interests and the doing of things necessary or
incidental in connection therewith, (ii) it will not own any assets, incur any
indebtedness or similar liabilities or engage, participate or invest in any
business outside the scope of the business described in clause (i), (iii) it
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) it shall be required in its
organizational documents to have on its board of directors at least one
independent director to be nominated by the ultimate parent entity of the other
Party whose vote is required for voluntary bankruptcy filings by such Partner
pursuant to the Master Transaction Agreement and (v) its organizational
documents shall require it to abide by the Separateness Covenants (as such term
is defined in the Master Transaction Agreement).
Section 9.6 Use of Technology. The Partnership shall produce PO Product and
-----------------
Co-Product pursuant to technology licenses from the Technology Partnership held
by Lyondell LP and Bayer LP. To the extent that Bayer LP receives a
distribution-in-kind of PO Product pursuant to Section 3.1 that it uses outside
-----------
of the field of use specified in the License Agreement, Lyondell LP will
accommodate Bayer LP and allow Bayer LP to use Lyondell LP's unrestricted field
of use technology license for such purpose; provided, however, that Bayer LP
pays to Lyondell LP on or before the fifteenth day of the month in which Bayer
LP makes such use of the PO Product, accompanied by a report to the Lyondell
Partners showing a computation in sufficient detail of all fees so accruing, an
accommodation fee (the "Accommodation Fee") for each such pound of PO Product
-----------------
equal to the difference between (i) Lyondell's U.S. volume weighted average
sales price for Third Party sales of the PO Product and (ii) the average "all
in" Operating Services Costs per pound of product payable by Bayer LP for the
month in which Bayer LP receives a distribution of the PO Product in question,
including a per pound of PO Product imputed depreciation charge equal to Bayer
LP's annual book depreciation for the immediately preceding year for Capital
Projects under Section 8.3 and Section 8.4 as reflected in Bayer LP's books for
----------- -----------
parent reporting purposes, divided by the Bayer PO Annual Offtake Amount. The
foregoing Accommodation Fee shall not apply with respect to any pounds of PO
Product sold to Lyondell, or marketed by Lyondell pursuant to Sections 11.01(c),
-----------------
11.03(a) and 11.10 of the Master Transaction Agreement under the term of the
- -------- -----
Master Transaction Agreement. For pounds of PO Product permitted to be sold by
Bayer LP pursuant to Section 11.03(b) of the Master Transaction Agreement, Bayer
----------------
LP shall
be free to sell such PO Product outside the field of use specified in the
Buckeye License Agreement; provided, however, that Bayer LP shall pay the
Accommodation Fee for such PO Product sold until the tenth anniversary of the
Closing Date. In accordance with Schedule 9.6, on or before April 1 of each
------------
year, an executive officer of Bayer shall make a certification to Lyondell as to
the implementation of, and the determination of the Accommodation Fee, if any,
payable as provided in, this Section 9.6.
-----------
30
<PAGE>
ARTICLE X
TRANSFERS AND PLEDGES GENERALLY
Section 10.1 Restrictions on Transfer and Prohibition on Pledge.
--------------------------------------------------
Except pursuant to Section 11.2 or in accordance with this Article X, a
------------ ---------
Partner shall not, in any transaction or series of transactions, directly or
indirectly Transfer all or any part of its Units. A Partner shall not, in any
transaction or series of transactions, directly or indirectly Pledge all or any
part of its Units or its interest in the Partnership. Neither the term
"Transfer" nor the term "Pledge," however, shall include an assignment by a
- --------- -------
Partner of such Partner's right to receive distributions from the Partnership so
long as such assignment does not purport to assign any right of such Partner to
participate in or manage the affairs of the Partnership, to receive any
information or accounting of the affairs of the Partnership, or to inspect the
books or records of the Partnership or any other right of a Partner pursuant to
this Agreement or the Act. Any attempt by a Partner to Transfer or Pledge all
or a portion of its Units in violation of this Agreement shall be void and shall
not be effective to Transfer or Pledge such Units or any portion thereof.
Subject to any applicable restrictions imposed by the Master Transaction
Agreement, nothing in this Agreement shall prevent the Transfer or Pledge by the
owner thereof of any capital stock, equity ownership interests or other security
of a Partner or any Affiliate of a Partner.
Section 10.2 Transfer of Units by the Limited Partners.
-----------------------------------------
(a) Without the need for the consent of any Person, a holder of
Series B Units may Transfer all or part of its Series B Units; provided
that any transferee is Creditworthy at the time of Transfer.
(b) Without the need for the consent of any Person, Lyondell LP
may Transfer all (but not less than all) of its Series A Units if (and only
if) such Transfer is in connection with the sale or other disposition of
all of the Lyondell GP Units pursuant to Section 10.3 in a transaction
------------
meeting the requirements of Section 10.4.
------------
(c) Without the need for the consent of any Person, Bayer LP may
Transfer all (but not less than all) of its Series A Units, if (and only
if) such Transfer is in connection with the sale or other disposition of
(i) all of the Series A Partnership Interests owned by Bayer LP, (ii) other
assets representing at least 90% of the book value of all of the polyols
production assets worldwide of Bayer and its Affiliates other than the
Series A Units and (iii) all of the interests of Bayer in the Technology
Partnership.
Section 10.3 Transfer of Units by the General Partner. Without the need
----------------------------------------
for the consent of any Person, Lyondell GP may Transfer all (but not less than
all) of its Units, if (and only if) (a) such Transfer is in connection with the
sale or other disposition of (i) all of the Units owned by Lyondell GP, (ii) all
of the Series A Units owned by Lyondell LP, (iii) other assets representing at
least 90% of the book value of all of the PO Product production assets worldwide
of Lyondell and its Affiliates other than the Lyondell GP Units and (iv) all of
the interests of Lyondell in the Technology Partnership and (b) the Existing
Plants will be operated by a Lyondell Affiliate or the transferee or its
Affiliate following the Transfer. Any permitted transferee to the Units of
Lyondell GP under this Section 10.3 is called herein a "Permitted PO Successor."
------------ ----------------------
31
<PAGE>
Section 10.4 Transfer Prerequisites.
----------------------
Notwithstanding the foregoing provisions of Section 10.2 or Section 10.3, a
------------ ------------
Partner may Transfer its Units only if all the following occur:
(a) the Transfer is accomplished in a non-public offering in
compliance with, and exempt from, the registration and qualification
requirements of all federal and state securities laws and regulations;
(b) the Transfer does not cause a default under any material contract
to which the Partnership is a party or by which the Partnership or any of
its properties is bound;
(c) the transferee executes an appropriate agreement to be bound by
this Agreement and assumes all obligations of the transferor from and after
the date of the transfer, including the obligation to offtake and pay for
PO Product or Co-Product, as applicable;
(d) the transferor and/or transferee bears all reasonable costs
incurred by the Partnership in connection with the Transfer;
(e) the transferee is a single purpose entity fulfilling the
requirements of Section 9.5; and
-----------
(f) the proposed transferor is not in material default in the timely
performance of any of its obligations to the Partnership at the time of
transfer.
Section 10.5 Rights of Transferee; Closing Date of Transfer.
----------------------------------------------
(a) Upon consummation of a Transfer in accordance with Sections 10.2
-------------
or 10.3, the transferee shall immediately, and without any further action
----
of any Person, become (i) a Substitute Limited Partner if and to the extent
Limited Partner Units are transferred and (ii) a Substitute General
Partner, if General Partner Units are transferred.
(b) Each Transfer shall become effective as of the first day of the
calendar month following the calendar month during which the remaining
Partner or Partners receives a copy of the instrument of assignment and, to
the extent required, all such certificates and documents of the character
described in Section 10.4, which it or they may reasonably request.
------------
Section 10.6 Transfer to Wholly Owned Affiliate. Without the need for the
consent of any Person, but without releasing the transferring Partner from any
of its obligations under this Agreement accruing both before and after the date
of transfer, the General Partner may Transfer all but not part and any Limited
Partner may Transfer all or any part of its Units to any Wholly Owned Affiliate
of such Partner (other than another Partner), provided the transferee executes
an instrument reasonably satisfactory to all of the other Partners accepting the
terms and provisions of this Agreement and the transferee satisfies the
requirements of Section 9.5. Upon consummation of a Transfer in accordance with
-----------
this Section 10.6, the transferee shall immediately, and without any further
------------
action of any Person, become (i) a Substitute Limited Partner, if and to the
extent Limited Partner Units are transferred, and (ii) a Substitute General
Partner, if General Partner Units are transferred.
32
<PAGE>
Section 10.7 Right to Admit New Partners for Capacity Expanding
--------------------------------------------------
Discretionary Capital Project. For avoidance of doubt, and without limiting
- -----------------------------
Section 10.2, the General Partner shall have the right to cause the Partnership
- ------------
to admit new Series A Unit Partners or Series B Unit Partners who are Wholly
Owned Affiliates of then existing Partners meeting the requirements of
Section 9.5 in connection with the issuance of new Units in connection with a
- -----------
capacity expanding Discretionary Capital Project.
Section 10.8 Right of General Partner to Classify Series B Units.
---------------------------------------------------
At any time following the Closing Date, the General Partner may at its sole
discretion divide the Series B Units into two classes of Series B Units, with
one class of Series B Units representing an interest in the SM Co-Product and
one class of Series B Units representing an interest in the TBA Co-Product, and
designate the rights and privileges of holders of such classes and alter other
terms and provisions of this Agreement as appropriate; provided, however, that
the classification of Series B Units pursuant to this Section 10.8 may not
------------
change or impact the rights or obligations of any of the existing Series A Unit
Partners under this Agreement; and provided, further, that the Partners shall
consent to the amendment of this Agreement to give effect to the classification
of Series B Units pursuant to this Section 10.8.
------------
ARTICLE XI
WITHDRAWAL; REMOVAL OF THE GENERAL PARTNER; REMEDIES AND PURCHASE OPTION FOR
UNCURED OFFTAKE AND PAYMENT DEFAULT; REMEDIES FOR GENERAL PARTNER BREACH OF
OBLIGATIONS TO DELIVER PRODUCT
Section 11.1 Withdrawal of Limited Partners. A Limited Partner shall not
------------------------------
withdraw from the Partnership without the prior written consent of the other
Partners, which consent a Partner may withhold in its sole and absolute
discretion.
Section 11.2 Non-Supply Failure Step-in. The procedures for withdrawal or
--------------------------
the forced sale of the Units of the General Partner to Bayer LP are as follows
and as provided in Section 11.3:
------------
(a) The General Partner shall not withdraw or resign from the
Partnership without the prior written consent of holders of the majority of
the Series A Percentage Interests and the holders of a majority of the
Series B Percentage Interests.
(b) A "Non-Supply Failure Step-in Triggering Event" is either one of
-------------------------------------------
the following: the occurrence of (i) the Bankruptcy of Lyondell or (ii) an
Uncured Partner Offtake or Payment Default with respect to any Series B
Unit holder that is an Affiliate of Lyondell and as to which Bayer LP has
elected to purchase the Series B Units pursuant to Section 11.4.
------------
(c) Upon the occurrence of a Non-Supply Failure Step-in Triggering
Event, Bayer LP or its permitted successor hereunder shall have the right
to exercise the following remedies by notice to Lyondell GP within 60 days
of the occurrence of the Step-in Triggering Event:
33
<PAGE>
(i) Acquire all (but not part) of Lyondell GP's Units and
Lyondell LP's Series A Units on a date specified in Bayer LP's
election notice that is not later than 90 days from the date of the
election notice for a cash purchase price equal to the fair market
value of such Units (which purchase price shall be deemed to be not
less than zero), determined in accordance with the appraisal
procedures of Section 11.5.
------------
(ii) If Bayer LP contemporaneously exercises the right afforded
to it under Section 11.2(c)(i) in connection with a Bankruptcy of
------------------
Lyondell (but without derogation of Bayer LP's rights under Section
-------
11.4), Bayer may also acquire all (but not part) of the Series B Units
----
then held by Lyondell Affiliates on the date on which the Units are to
be acquired under Section 11.2(c)(i) for a cash purchase price equal
------------------
to the fair market value of such Units (which purchase price shall be
deemed to be not less than zero), determined in accordance with the
appraisal procedures of Section 11.5; provided, however, that Bayer LP
------------
shall not have the right to acquire the Series B Units then held by
Lyondell Affiliates if (x) no Uncured Partner Offtake or Payment
Default then exists with respect to such Series B Units and (y) Bayer
LP is provided reasonable assurances within 10 days of the filing of
the Bankruptcy that the Lyondell Affiliate which holds such Series B
Units will meet its offtake and payment obligations. The Lyondell
Partners shall not have the right to challenge Bayer LP's
determination of whether it has received such reasonable assurances,
including under the arbitration procedures set forth in Exhibit B or
---------
by seeking injunctive relief through the courts. If the conditions set
forth in clauses (x) and (y) of the preceding sentence are not
satisfied and Bayer LP in connection with a Lyondell Bankruptcy
acquires the Series B Units held by Lyondell Affiliates, Lyondell
Affiliates shall have the right to reacquire such Series B Units for
the purchase price paid by Bayer LP at any time within three years
after the purchase by Bayer LP (A) that the Lyondell Affiliates are
able to provide reasonable assurances to Bayer LP that they will be
able to meet their offtake and payment obligations or (B) within 180
days following the dismissal or completion of a Chapter 11 Bankruptcy
case with respect to Lyondell. Except in connection with a Bankruptcy
of Lyondell as provided in this Section 11.2(c)(ii), a Non-Supply
-------------------
Failure Step-in Triggering Event or a Supply Failure Step-in
Triggering Event shall not entitle Bayer LP to acquire the Series B
Units of Lyondell Affiliates and no Non-Supply Failure Step-in
Triggering Event or Supply Failure Step-in Triggering Event shall
entitle Bayer LP to acquire the Series B Units not held by Lyondell
Affiliates.
(d) If Bayer LP or its permitted successor hereunder exercises its
rights under Section 11.2(c), then Bayer LP shall, directly or through a
---------------
Qualified Replacement Operator, operate the Partnership Property for the
benefit of all Partners for the production of PO Product and Co-Product in
accordance with the terms, conditions and standards of this Agreement and
the Operating Agreement, as if the Operating Agreement remained in full
force and effect.
34
<PAGE>
Section 11.3 Supply Failure Step-in.
----------------------
(a) Two Month 80% Failure. If (i) Bayer LP (together with its
---------------------
Affiliates pursuant to any product "swap" or similar arrangement then in
existence between Lyondell and Bayer) did not receive at least 80% for the
immediately prior month of the lesser of (x) Bayer LP's binding nominations
for pounds of PO Product or (y) 1/12th of the Bayer PO Annual Offtake
Amount for the year, and (ii) Lyondell GP anticipates in good faith that
Bayer LP (together with its Affiliates pursuant to any product "swap" or
similar arrangement then in existence between Lyondell and Bayer) will not
receive at least 80% for the current month of the lesser of (x) Bayer LP's
binding nominations for pounds of PO Product or (y) 1/12th of the Bayer PO
Annual Offtake Amount for the year, then on or before the 15th day of the
month, Lyondell GP shall provide Bayer with a full written technical
assessment of the condition causing the curtailment (the "Operating
---------
Problem") and Lyondell's efforts and plans to remediate the Operating
-------
Problem. If the Operating Problem is not the result of Force Majeure, the
60 day period under this Section 11.3(a) will be applied to the five month
---------------
threshold under Section 11.3(b).
---------------
(b) Threshold for Initiating Curative Action Plan. If Bayer LP
---------------------------------------------
(together with its Affiliates pursuant to any product "swap" or similar
arrangement then in existence between Lyondell and Bayer) has not received
pounds of PO Product equal to at least (i) for any consecutive five month
period, 80% of the lesser of (x) the aggregate binding nominations for
pounds of PO Product of Bayer LP during such period or (y) 5/12th of the
Bayer PO Annual Offtake Amount for such year or (ii) for any consecutive 12
month period, 85% of the lesser of (x) the aggregate binding nominations
for pounds of PO Product of Bayer LP during such period or (y) the Bayer PO
Annual Offtake Amount during such period, and as to either clause (i) or
(ii), such failure is not the result of Force Majeure (a "Major Unexcused
---------------
PO Delivery Failure"), then upon written notice from Bayer LP, which notice
-------------------
may be given at any time for so long as the Major Unexcused PO Delivery
Failure continues, Lyondell GP shall cause the Existing Plant Operator for
the Existing Plant at which the problem exists to meet with Bayer LP or its
Affiliate to develop a "Curative Action Plan" on a cooperative, mutually
--------------------
consensual basis to address the problem on the terms set forth in
Section 11.3(c) below.
---------------
(c) Attempt to Reach Mutual Agreement on a Mutual Curative Action
-------------------------------------------------------------
Plan. Lyondell GP shall arrange a technical review, a review of the
----
relevant Existing Plant and other necessary arrangements with Bayer
(subject to making appropriate confidentiality arrangements). The Parties
shall negotiate in good faith to develop and finalize a mutually acceptable
Curative Action Plan within 30 days of the date of Bayer LP's notice
pursuant to Section 11.3(b) above or such longer period as the Parties may
---------------
agree. Costs incurred by both Lyondell and Bayer in developing the Curative
Action Plan shall be included in Operating Services Costs to be shared
between them on a System-wide Pooled Cost Basis. The Curative Action Plan
will contain specific steps to be taken by the Existing Plant Operator at
the Existing Plant at which the problem exists and a time period for
completing the Curative Action Plan.
(d) If the Parties Reach Agreement. If the Parties reach agreement
------------------------------
on a Curative Action Plan within such 30 day period (as such period may be
extended by mutual agreement), then the Existing Plant Operator shall
implement the agreed Curative Action
35
<PAGE>
Plan and shall use Reasonable Best Efforts to complete such Curative Action
Plan within the time period specified in the Curative Action Plan. If the
Curative Action Plan is successful, then the Parties shall be restored to
their positions prior to the existence of the Major Unexcused PO Delivery
Failure (subject to any curtailment protocol then in effect). If the
Curative Action Plan is not successful, then the Parties shall review the
continuing Operating Problem under Section 11.3(c) and mutually determine
---------------
to either proceed (i) with another mutually developed Curative Action Plan,
(ii) to derate the Existing Plant by mutual agreement or (iii) to proceed
under Section 11.3(e) and the following provisions of this Section 11.3.
--------------- ------------
For purposes of this Section 11.3, "successful" means "solving" the
------------
Operating Problem to the extent required so that Bayer LP is not being
curtailed from that point forward as a result of the Operating Problem. For
purposes of this Section 11.3, "derate" means reducing the rated PO
------------
capacity of the Existing Plant in question to account for an expected long-
term reduction in the PO production capacity of the Existing Plant, which
shall in turn reduce the Existing Plant Total PO Capacity. Any curtailment
protocol then in effect between the Parties shall be appropriately changed
to reflect the derating of the affected Existed Plant under this
Section 11.3.
------------
(e) If the Parties Do Not Reach Agreement. If the Parties fail to
-------------------------------------
finalize a mutually acceptable Curative Action Plan within such 30 day
period (as such period may be extended by mutual agreement), then the
Existing Plant Operator may implement its chosen Curative Action Plan.
Lyondell GP shall provide a written description of such Curative Action
Plan to Bayer LP within 30 days of the end of the period for reaching
mutual agreement on a Curative Action Plan.
(f) Implementation of Lyondell Curative Action Plan. The Existing
-----------------------------------------------
Plant Operator's Curative Action Plan shall provide for completion of the
Curative Action Plan within seven months from the Parties' failure to reach
agreement with respect to a mutually approved plan under Section 11.3(c),
---------------
subject to fabrication and/or delivery items and regulatory approvals that
will result in the Curative Action Plan taking more than seven months to
complete, which shall be identified in the Curative Action Plan. If Bayer
LP disputes the time periods specified by the Existing Plant Operator for
such fabrication and/or delivery items and/or regulatory approvals, then
Bayer LP may have the reasonableness of such time periods reviewed by a
three member panel consisting of technical experts appointed pursuant to
Exhibit B. The three member panel will reach its decision within 15 days
---------
after appointment of the third member of the panel. Lyondell GP shall cause
the Existing Plant Operator to proceed with implementation of its Curative
Action Plan pending the arbitration panel's decision. If the Existing Plant
Operator's Curative Action Plan is successful, then the Parties shall be
restored to their positions prior to the existence of the Major Unexcused
PO Delivery Failure (subject to any curtailment protocol then in effect) .
(g) If Lyondell Plan is Not Successful. If the Existing Plant
----------------------------------
Operator's Curative Action Plan is not successful, or if the Existing Plant
Operator did not have a Curative Action Plan, then either the provisions of
Section 11.3(h)-(j) or Section 11.3(k)-(l) shall apply, depending on
------------------- -------------------
whether or not the Existing Plant as to which the Operating Problem relates
is one of the Plant Facilities.
36
<PAGE>
(h) If the Plant is one of the Plant Facilities. If the Existing
-------------------------------------------
Plant affected by the Operating Problem is one of the Plant Facilities, and
either (i) the Existing Plant Operator's Curative Action Plan is
unsuccessful or (ii) the Existing Plant Operator did not have a Curative
Action Plan, then Bayer LP shall have the right to present in good faith a
Curative Action Plan to Lyondell GP for consideration. If Bayer LP does not
present a Curative Action Plan, then either (i) Lyondell GP shall cause the
Operator to continue to use Reasonable Best Efforts to remediate the
Operating Problem or (ii) if the Operator does not believe in good faith
that the Operating Problem can be remediated on a commercially reasonable
basis, then the Operator shall derate the Plant Facilities. If Bayer LP
presents a Curative Action Plan, Lyondell GP shall review the Curative
Action Plan for compliance with the Existing Plant EHS Policies. If Bayer
LP's Curative Action Plan does not comply with the Existing Plant EHS
Policies, then Bayer LP shall make such alterations to the Curative Action
Plan as may be required to comply with the Existing Plant EHS Policies.
Within 10 Business Days following Lyondell GP's receipt of the Curative
Action Plan (revised, if and as provided in the previous sentence),
Lyondell GP must elect (i) to agree to guarantee Bayer LP's Pro Rata share
of the rated PO capacity of the affected Plant Facilities, subject only to
Force Majeure, which guarantee shall continue until Lyondell GP can
demonstrate to Bayer LP that the Operating Problem is solved or (ii) permit
Bayer LP to proceed with its rights under Section 11.3(i).
---------------
(i) Step-in for Plant Facilities. If Lyondell GP does not timely
----------------------------
elect to provide the volume guarantee to Bayer LP described under the last
sentence of Section 11.3(h), then Bayer LP shall have the right, through an
---------------
Affiliate, to assume the operation of the Plant Facilities affected by the
Operating Problem under the terms and conditions of the Operating
Agreement, and with the same liabilities and responsibilities of the
Operator under the Operating Agreement, for the remaining term of the
Operating Agreement. Bayer LP shall cause its Affiliate operator to
implement the Curative Action Plan presented to Lyondell GP under
Section 11.3(h). Bayer LP shall not have the right to purchase Lyondell
---------------
GP's Units, Lyondell LP's Series A Units or any Series B Units or to
operate the Plant Facilities at the other Complex.
(j) Bayer Obligations. The Bayer LP Affiliate operator shall
-----------------
guarantee the Lyondell Partners' monthly deliveries of PO Product and the
Series B Unit Partners' deliveries of Co-Product from the Plant Facilities
at the monthly average of the Lyondell Partners' share of PO Product and
the Co-Product produced from the Plant Facilities during the six months
immediately prior to the assumption of operations by Bayer LP's Affiliate,
subject only to Force Majeure and loss of production resulting from any
shutdown of the Plant Facility (such period not to exceed 30 days) as may
be required to implement Bayer LP's Curative Action Plan pursuant to
Section 11.3(i). Such guarantee shall continue until the Bayer LP
---------------
Affiliated operator demonstrates to the Partners other than Bayer LP that
the Operating Problem is solved.
(k) If the Plant is Not a Plant Facilities. If the affected Existing
--------------------------------------
Plant is not a Plant Facilities, then Bayer LP may by delivering written
notice to Lyondell GP at any time prior to the time that the Operating
Problem is solved (i) require Lyondell GP to exercise on behalf of its
Affiliates the option under Section 11.3(l); (ii) proceed again under
---------------
Section 11.3(c); or (iii) require Lyondell GP to cause the Existing Plant
----------------
Operator
37
<PAGE>
either (x) to continue to use Reasonable Best Efforts to remediate the
Operating Problem or (y) if the Existing Plant Operator does not believe in
good faith that the Operating Problem can be remediated on a commercially
reasonable basis, then the Existing Plant Operator shall derate the Plant
Facilities.
(l) Lyondell Options. Within 30 days after Bayer LP's notice under
----------------
Section 11.3(k)(i), Lyondell GP shall elect on behalf of its relevant
------------------
Affiliate to either (i) agree to not curtail Bayer due to the Disruption
Events from the Existing Plant affected by the Operating Problem, subject
only to Force Majeure, which agreement shall continue until Lyondell GP can
demonstrate to Bayer LP that the Operating Problem is solved or (ii) allow
Bayer LP, directly or through its Affiliate, to purchase at fair market
value (to be determined in accordance with Section 11.5) equivalent PO
-------------
capacity in any of the Existing Plants as may be designated by Lyondell to
the annual pounds of which Bayer LP would receive absent the Disruption
Event that are curtailed by reason of the Operating Problem. Lyondell GP
shall provide to Bayer LP at the time Lyondell GP delivers its election
notice under this Section 11.3(l)(ii) a description of the most recent
-------------------
Curative Action Plan that the relevant Existing Plant Operator may have to
address the Operating Problem. If Bayer LP so desires, it may rescind its
election pursuant to Section 11.3(k) in order to permit the Existing Plant
---------------
Operator to implement such Curative Action Plan. If the Existing Plant
Operator subsequently solves the Operating Problem, the restored PO
production in the affected Existing Plant shall be treated as debottleneck
capacity for purposes of this Agreement.
(m) Dispute Resolution. Except with respect to rights triggered by a
------------------
Bankruptcy of Lyondell, Bayer LP may not exercise its rights under Section
-------
11.2(c) or Section 11.3 during the pendency of a dispute resolution
------- ------------
procedure in accordance with the provisions of Exhibit B as to whether a
---------
Non-Supply Failure Step-in Triggering Event or a Supply Failure Step-in
Triggering Event has occurred. If Lyondell GP is not the prevailing Party
in any such dispute, submission of such dispute to resolution in accordance
with Exhibit B shall not extend or shorten the total period within which
---------
Lyondell GP may cure the event giving rise to a Non-Supply Failure Step-in
Triggering Event or a Supply Failure Step-in Triggering Event, except as
may be agreed by the Parties or awarded by the arbitrator pursuant to
Exhibit B.
---------
Section 11.4 Remedies and Purchase Option for Uncured Partner Offtake
--------------------------------------------------------
or Payment Default.
------------------
(a) If a Partner fails to offtake its full Pro Rata Share of PO
Product or Co-Product produced from the Plant Facilities under the terms
set forth in Article III and/or to timely pay in full any Partner Invoice
when due, then the General Partner shall within 30 days thereafter deliver
a written notice to the defaulting Partner of such default, informing the
defaulting Partner that (i) the Partnership will declare an Uncured Partner
Offtake or Payment Default and (ii) if the default is a payment default, at
the General Partner's election, the Partnership may withhold distributions
of PO Product (if the default relates to Series A Units) or Co-Product (if
the default relates to Series B Units held by a Person other than a
Lyondell Affiliate) if the default is not cured within 30 days of the date
of such notice. If the default (including as to a payment default, payment
of interest at the Default Rate on the unpaid invoiced amount from the date
due until paid in
38
<PAGE>
full), is not cured on or before the expiration of such 30 day period, then
an "Uncured Partner Offtake or Payment Default" shall have occurred. For
------------------------------------------
any payment default, the General Partner may withhold distributions of PO
Product or Co-Product, as the case may be, to such defaulting Partner (a
"Defaulting Limited Partner") until the Defaulting Limited Partner pays the
--------------------------
invoiced amount and interest thereon in full. Any Defaulting Limited
Partner shall be obligated to compensate the other Partners (the "Non-
----
Defaulting Partners") for any lost production sustained by the other
-------------------
Partners resulting from the Operator's ceasing production by reason of such
default by paying the product of (i) the positive difference between the
Non-Defaulting Partners' cost per pound of purchasing substitute PO Product
or Co-Product of comparable specifications and the per pound cost of such
product to such Partner under Section 2.3 (or if no product is then
-----------
available in the market, the then prevailing "spot" price and (ii) the
number of pounds of such lost pounds). Any Non-Defaulting Partner seeking
compensation under this Section 11.4(a) shall mitigate such claim by taking
---------------
all actions which a reasonable Person would undertake to minimize or
alleviate the amount of such claim, including availing itself of available
business interruption insurance coverage under the Lyondell insurance
program and purchasing replacement product from the lowest cost alternative
source meeting the Non-Defaulting Partner's delivery timing and location
needs. Additionally, if a payment default relates to a Discretionary
Capital Project, then in addition to the foregoing, the General Partner may
withhold any benefits of the Discretionary Capital Project from that
Partner in accordance with Section 8.4(g).
--------------
(b) Following the occurrence of an Uncured Partner Offtake or Payment
Default, the Non-Defaulting Partners shall have the right to pay the unpaid
amounts (without interest, which shall remain the obligation of the
defaulting Partner) and receive in-kind distributions of PO Product or Co-
Product (whichever the payment default relates to) equal to the payment
default divided by the then applicable PO Production Costs or per pound
Fixed Costs and Variable Costs of producing Co-Product, as applicable. Upon
such payment, the Defaulting Limited Partner shall be deemed to have
received such product and the Defaulting Limited Partner shall be deemed to
have paid the amount paid by the Non-Defaulting Partners to the extent of
the payment made.
(c) If and for so long as an Uncured Partner Offtake or Payment
Default with respect to a Defaulting Limited Partner exists, then the
General Partner and each of the other Non-Defaulting Partners, acting
individually or collectively shall have the right but not the obligation to
notify the Defaulting Limited Partner in writing that, unless the
Defaulting Partner shall offtake all PO Product or Co-Product that the
Defaulting Limited Partner has failed or refused to offtake and/or to pay
the full amount owing to the Partnership, including accrued and unpaid
interest, within 15 days from the date of the notice, the Non-Defaulting
Partners will elect to purchase all of the Defaulting Limited Partner's
Series A Units and/or Series B Units as to which the default has occurred
for a cash purchase price equal to the fair market value (which purchase
price shall be deemed to be not less than zero) of the Series A Units
and/or Series B Units as to which the default has occurred. If the default
is not cured on or before the expiration of the 15 day period, then the
Non-Defaulting Partners may notify the Defaulting Limited Partner that they
are electing to proceed with the purchase on a date specified in the
election notice not later than 90 days from the date of the election
notice, and the Defaulting Limited Partner shall have no further curative
rights. If more than one Non-Defaulting Partner
39
<PAGE>
elects to so acquire the Defaulting Limited Partner's Units, the Non-
Defaulting Partners shall purchase the Units in equal shares unless they
unanimously agree to a different allocation. The fair market value of the
Defaulting Limited Partner's Units shall be determined in accordance with
the appraisal procedures of Section 11.5. The Non-Defaulting Partners
------------
purchasing Units under this Section 11.4(c) shall not be liable to the
---------------
Partnership for the unpaid amounts owed to the Partnership, which
obligation shall remain that of the Defaulting Limited Partner.
Section 11.5 Appraisal Procedures. The fair market value for the General
--------------------
Partner's Units being sold under Section 11.2(c), a Defaulting Limited Partner's
---------------
Units being sold under Section 11.4 or the fair market value of the capacity
------------
purchased by Bayer LP or its Affiliates under Section 11.3(l) will be decided by
---------------
a three-member panel of independent valuation experts. Each buying and selling
Partner(s) will choose an investment bank of national standing within 15 days
after the purchase election notice of the purchasing Partner(s) and the two
sides will mutually agree within 15 days after the later of such appointments on
a third independent investment bank of national standing to value such Units.
The appraisers will be instructed to finalize their appraisal within 15 days
after the appointment of the third appraiser. The appraisers will determine fair
market value without any control premium. Each of the two investment banks
chosen by the buying and selling Partners shall provide their appraisals to the
mutually chosen investment bank, and the mutually chosen investment bank shall
then choose the value that most closely equals the value determined by such
investment bank set forth in one of the appraisals as the purchase price for the
sale, which purchase price shall be binding upon the buying and selling
Partners.
Section 11.6 Remedies of Limited Partners for Failure of General Partner
-----------------------------------------------------------
to Deliver Product. Without derogation of any Partner's rights under
- ------------------
Section 11.2(b), if the General Partner fails or refuses to deliver PO Product
- ---------------
or Co-Product to any Limited Partner in the amount to which such Limited Partner
is entitled (subject to any curtailment protocol in effect between the Partners
or their Affiliates with respect to Disruption Events and Planned Outages), then
at such Limited Partner's option and as their sole and exclusive remedy
exercised by written notice to the General Partner (other than as provided in
Section 11.2) (a) the General Partner shall pay the positive difference in the
- -------------
Limited Partner's cost of purchasing substitute PO Product or Co-Product of
comparable specifications or (b) the Limited Partner shall be entitled to first
priority distributions of PO Product or Co-Product, as applicable, sufficient to
make up the pounds of product to which the Limited Partner was entitled that
were not delivered by the General Partner on a schedule specified by such
Limited Partner in the Sourcing Plan. If (a) such Limited Partner is unable to
purchase the full amount of the PO Product or Co-Product, as applicable, to
which the Limited Partner was entitled (subject to any curtailment protocol then
in effect) and (b) the General Partner willfully refused in bad faith to deliver
PO Product or Co-Product to such Limited Partner (including, for example, in
order to favor other businesses of the General Partner's Affiliates), then such
Limited Partner will be entitled to recover from the General Partner its
demonstrated lost profits proximately caused by the failure to receive the PO
Product or Co-Product, as applicable.
Section 11.7 Mitigation. If any Limited Partner asserts any claim against
----------
the General Partner under clause (a) of Section 11.6, the Limited Partner shall
------------
mitigate such claim by taking all actions which a reasonable Person would
undertake to minimize or alleviate the amount of such claim, including availing
itself of available business interruption insurance coverage under
40
<PAGE>
the Lyondell insurance program and purchasing replacement product from the
lowest cost alternative source meeting the Limited Partner's delivery timing and
location needs.
ARTICLE XII
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 12.1 Dissolution and Termination. The Partnership shall be
---------------------------
dissolved and wound up upon the happening of any one of the following events:
(a) the written determination of all Partners to dissolve the
Partnership;
(b) the entry of a judicial decree of dissolution;
(c) the expiration of the term of the Ground Leases; or
(d) the sale, distribution or other Transfer of all or
substantially all of the Partnership Property.
Section 12.2 Procedures Upon Dissolution. The procedures upon dissolution
---------------------------
of the Partnership are as follows:
(a) General. If the Partnership dissolves, it shall commence
-------
winding up pursuant to the appropriate provisions of the Act and the
procedures set forth in this Article XII. Notwithstanding the dissolution
-----------
of the Partnership, prior to the termination of the Partnership, the
business of the Partnership and the affairs of the Partners, as such, shall
continue to be governed by this Agreement.
(b) Control of Winding Up. The winding up of the Partnership shall
---------------------
be conducted under the direction of the General Partner; provided, however,
that if the dissolution is caused by entry of a decree of judicial
dissolution, the winding up shall be carried out in accordance with such
decree.
(c) Manner of Winding Up. The Partnership shall offer all of its
--------------------
assets for sale and shall consider all appropriate bids, including bids
from Partners, in an effort to obtain the best price for such assets. Upon
sale, the Partnership shall apply the proceeds therefrom in accordance with
this Section 12.2(c) and Section 12.2(d). In the event that a Partner is
--------------- ---------------
the winning bidder, the assets shall not be sold, but will be distributed
to such Partner. In the event the distribution in this paragraph causes the
distributee Partner to have a deficit balance in its Capital Account, that
Partner shall restore such deficit to zero through cash contributions. Upon
dissolution of the Partnership, the General Partner shall determine the
time, manner and terms of any sale or distribution of Partnership property
pursuant to such winding up, consistent with its duties and having due
regard to the activity and condition of the relevant market and general
financial and economic conditions. Except as otherwise agreed by the
Partners or as provided in this Section 12.2(c), no distributions will be
---------------
made in kind to any Partner without the consent of each Partner.
41
<PAGE>
(d) Application of Partnership Property. In the case of a dissolution
-----------------------------------
and winding up of the Partnership, the Partnership Property shall be
applied as follows:
(i) First, to satisfaction of the liabilities of the
Partnership owing to creditors (including Partners and Affiliates of
Partners who are creditors), whether by payment or reasonable
provision for payment. Any reserves created to make any such provision
for payment may be paid over by the Partnership to an independent
escrow holder or trustee, to be held in escrow or trust for the
purpose of paying any such contingent, conditional or unmatured
liabilities or obligations, and, at the expiration of such period as
the General Partner may deem advisable, such reserves shall be
distributed to the Partners or their assigns in the manner set forth
in subsection (d)(ii) below.
------------------
(ii) Second, to Lyondell LP in an amount equal to the
initial working capital contributed by Lyondell LP to the Partnership,
and, notwithstanding the provisions of Section 4.1, the Partnership
-----------
shall make allocations of Profit and Loss for the last year of
Partnership operations as are necessary to assure that the
distribution in this Section 12.2(d)(ii) does not cause Lyondell LP to
-------------------
have a deficit Capital Account balance after the distribution
described in Section 12.2(d)(ii).
-------------------
(iii) Third, after all allocations of Profits or Losses and
other items pursuant to Article IV, to the Partners in accordance with
----------
the balances in their Capital Accounts, any General Partner that then
has a deficit in its Capital Account shall contribute cash in the
amount necessary to eliminate such deficit. Such contributions shall
be made within 90 days after the date on which all undistributed
assets of the Partnership have been converted to cash.
(iv) Notwithstanding the foregoing, if any Partner shall
be indebted to the Partnership, then until payment in full of the
principal of and accrued but unpaid interest on such indebtedness,
regardless of the stated maturity or maturities thereof, the
Partnership shall retain such Partner's distributive share of the
Partnership Property and apply such sums to the liquidation of such
indebtedness and the cost of operation of such Partnership assets
during the period of such liquidation.
Section 12.3 Termination of Partnership. Upon the completion of the
--------------------------
liquidation of the Partnership and the distribution of all Partnership Property,
the Partnership's affairs shall terminate and the General Partner shall cause to
be executed and filed a Certificate of Cancellation of the Partnership's
Certificate of Limited Partnership pursuant to the Act, as well as any and all
other documents required to effectuate the termination of the Partnership.
Section 12.4 Asset and Liability Statement. Within a reasonable time
-----------------------------
following the completion of the winding up and liquidation of the Partnership's
business, the General Partner shall supply to each of the Partners a statement
(which may be unaudited) which shall set forth the assets and the liabilities of
the Partnership as of the date of complete liquidation, and each Partner's pro
rata portion of distributions pursuant to Section 12.2.
------------
42
<PAGE>
ARTICLE XIII
CONFIDENTIALITY
Section 13.1 Confidentiality and Use of Information. The Partners'
--------------------------------------
obligations concerning confidentiality are as follows:
(a) Each Partner shall maintain in strictest confidence and not
disclose any Confidential Information of the Partnership, any other Partner
or any Affiliate of any other Partner, except to (i) the Partnership and
its Related Persons, (ii) the Operator and its Related Persons, (iii) such
Partner's Related Persons and other Partners and their respective Related
Persons and (iv) any permitted lender to the Partnership, in each case, on
a "need to know" basis in connection with the conduct or furtherance of the
business or affairs of the Partnership; provided, that, the disclosure of
financial statements of, or other information relating to the Partnership,
shall not be deemed to be the disclosure of Confidential Information (x) to
the extent that any Partner (or its ultimate parent entity) deems it
necessary, pursuant to law, regulation or stock exchange rule (in the
reasonable good faith judgment of such parent entity) to disclose such
information in or in connection with filings with the SEC or other
Governmental Entity, presentations to lenders or presentations to ratings
agencies or (y) to the extent that in order to sustain a position taken for
tax purposes, any Partner (or its parent) deems it necessary and
appropriate to disclose such financial statements or other information. All
disclosed Confidential Information shall remain the assets of the Person
whose assets it was prior to such disclosure, except that Confidential
Information transferred to the Partnership by Lyondell and its Affiliates
on or about the Closing Date shall be an asset of the Partnership.
(b) No Confidential Information regarding the plans or operations of
any Partner or any Affiliate thereof received or acquired by or disclosed
to any unaffiliated Partner or Affiliate thereof in the course of the
conduct of Partnership business, or otherwise as a result of the existence
of the Partnership, may be used by such unaffiliated Partner or Affiliate
thereof for any purpose other than for the benefit of the Partnership in
conducting the Partnership's business. The Partnership and each Partner
shall have the affirmative obligation to take all necessary steps to
prevent the disclosure to any Partner or Affiliate thereof of information
regarding the plans or operations of such Partner and its Affiliates in
markets and areas unrelated to the business of the Partnership in which any
other Partner and their respective Affiliates compete.
(c) In the event that any Partner is required by Applicable Law or
administrative process to disclose any Confidential Information, it is
agreed that such Partner prior to disclosure will provide the General
Partner (and, if such Confidential Information concerns another Partner or
any of its Affiliates, such other Partner) with prompt notice of such
request(s) so that the General Partner (or such other Partner) may seek an
appropriate protective order or other appropriate remedy and/or waive the
Partner's compliance with the provisions of this Section 13.1. In the event
------------
that such protective order or other remedy is not obtained, or that the
General Partner (and, if such Confidential Information concerns another
Partner or any of its Affiliates, such Partner) grants a waiver hereunder,
the Partner required to furnish Confidential Information may
43
<PAGE>
furnish that portion (and only that portion) of the Confidential
Information which, in the opinion of such Partner's counsel, such Partner
is legally compelled to disclose, and such Partner will exercise its
Reasonable Best Efforts to obtain reliable assurance that confidential
treatment will be accorded any Confidential Information so furnished.
(d) Any Partner may disclose Confidential Information to a Third
Party who requires such Confidential Information for the purpose of
evaluating a possible purchase of such Partner's Units in accordance with
Article X; provided, however, that (i) such Third Party shall be informed
---------
by such Partner of the confidential nature of the information and the
existence of this Section 13.1, (ii) the disclosing Partner shall redact
------------
all price, volume and other information of a competitive or sensitive
nature prior to such disclosure and (iii) prior to any disclosure, such
Third Party shall execute a written confidentiality agreement with such
Partner substantially identical in scope to this Section 13.1 and provided
------------
further, however, that such confidentiality agreement is also made for the
benefit of the Partnership and each of the other Partners and its
Affiliates.
(e) The Partners and their Affiliates shall consult with each other
on an ongoing basis with respect to disclosures regarding the Partnership
and its business and affairs permitted under Section 13.1(a).
---------------
Section 13.2 Survival. The provisions of this Article XIII shall survive
-------- ------------
the dissolution and liquidation of the Partnership.
Section 13.3 Relationship with Other Agreements. The provisions of this
----------------------------------
Article XIII are subject to the confidentiality provisions of the Bayer License
- ------------
Agreement, which shall control in the event of a conflict with this Article
XIII.
ARTICLE XIV
INDEMNITY; WAIVER OF CLAIMS
Section 14.1 Partner Indemnity. Each Partner shall be responsible for, and
-----------------
shall indemnify, defend and hold harmless the Partnership, each other Partner,
each other Partners' Eligible Indemnitees, the Operator and the Operator's
Eligible Indemnitees from, any Third Party Claim and resulting Damages arising
out of (a) products or services sold or made available or distributed by the
indemnifying Partner and/or the storage, transportation, processing or sale of
PO Product or Co-Product after receipt by such Partner at the Delivery Point,
and (b) except for Third Party Claims and resulting Damages covered by the
indemnification of another Partner under Section 14.1(a) or the indemnification
---------------
of the Operator under Section 10.2 of the Operating Agreement, the acts or
------------
omissions of the Partner, its Affiliates and their respective employees and
agents.
Section 14.2 Waiver of Claims.
----------------
(a) Each Partner waives all Claims against the Partnership, the other
Partners (including the General Partner), the Operator and their respective
Affiliates, employees and agents, and the Partnership waives all Claims
against the Partners, the Operator and
44
<PAGE>
their respective Affiliates, employees and agents, for personal injury to
or death of employees or agents or damage to or destruction or loss of
tangible property that is located within a Complex and is owned or leased
by the Partner or such Partner's Affiliates or the Partnership or in which
the Partner or such Partner's Affiliates or the Partnership owns an
interest, legal or beneficial, regardless of the acts, omissions,
negligence or Fault of any Person. Notwithstanding the foregoing, no
Partner waives any right to be reimbursed by the Operator under Section
-------
10.5 of the Operating Agreement with respect to any Casualty to the Plant
----
Facilities to the extent that such Casualty is an Uninsured Plant
Facilities Casualty.
(b) Without limiting any indemnification obligations of any Partner
with respect to Third Party Claims under Section 14.1 or of the Operator
------------
under Section 10.2 of the Operating Agreement, and without limiting any
------------
Partner's rights to be reimbursed by the Operator under Section 10.5 of the
------------
Operating Agreement, and except as provided in Sections 11.4 and 11.6, no
------------- ----
Partner, the Operator nor any of their respective Affiliates shall be
liable to any other Partner, the Operator or their respective Affiliates
for, and each Partner waives on its behalf and on behalf of its Affiliates
all Claims against the other Partners, the Operator and/or their respective
Affiliates for, its own Damages, including actual, consequential, special,
incidental, punitive or exemplary damages under any theory, arising out of
activities or obligations under or related to this Agreement or the
Operating Agreement, regardless of the acts, omissions, negligence or Fault
of any Person.
(c) The provisions of Sections 10.1 and Sections 10.8 and 10.10 of
------------- ------------- -----
the Operating Agreement are hereby incorporated by reference and shall bind
the Partners.
(d) Each Partner shall secure waivers of subrogation from its
insurers so that each insurer is bound by the waiver of Claims under this
Section 14.2. The General Partner shall obtain such waivers on behalf of
------------
the Partnership.
Section 14.3 Indemnification Procedures.
--------------------------
(a) In order for a Party (the "Indemnified Person"), to be entitled
------------------
to any indemnification provided for under this Agreement in respect of,
arising out of or involving a Third Party Claim, such Indemnified Person
must notify the Indemnifying Person 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 Person 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 Person'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 Person shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Person shall not be liable for any
expenses incurred during the period in which the Indemnified Person failed
to give such notice). Thereafter, the Indemnified Person shall deliver to
the Indemnifying Person, promptly following the Indemnified Person's
receipt thereof, copies of all notices and
45
<PAGE>
documents (including court papers) received by the Indemnified Person
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Person, the
Indemnifying Person 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 Person; provided, however, that such counsel is not
reasonably objected to by the Indemnified Person. Should the Indemnified
Person so elect to assume the defense of a Third Party Claim, the
Indemnifying Person shall not be liable to the Indemnified Person for any
legal expenses subsequently incurred by the Indemnified Person in
connection with the defense thereof. If the Indemnifying Person assumes
such defense, the Indemnified Person 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 Person, it being understood
that the Indemnifying Person shall control such defense. The Indemnifying
Person shall be liable for the fees and expenses of counsel employed by the
Indemnified Person for any period during which the Indemnifying Person has
not assumed the defense thereof (other than during any period in which the
Indemnified Person shall have failed to give notice of the Third Party
Claim as provided above). If the Indemnifying Person chooses to defend or
prosecute a Third Party Claim, the Indemnified Person shall cooperate in
the defense or prosecution thereof. Such cooperation shall include the
retention and (upon the Indemnifying Person's request) the provision to the
Indemnifying Person of records and 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. Provided the Indemnifying Person elects to
defend the Third Party Claim and is diligently prosecuting the defense
and/or settlement of any such Claim, the Indemnified Person shall not
assert in any such proceedings or otherwise any Claim, counterclaim or
cross-claim against the Indemnifying Person or its Affiliates (including
the Operator, if an Affiliate of Operator is the Indemnifying Person) for
indemnification or otherwise until the Third Party Claim is resolved by
final judgment or settlement and any related claims of the Indemnifying
Person and its Affiliates against its insurers or Third Parties for payment
or reimbursement of all or part of the costs of the Third Party Claim and
resulting Damages are finally resolved by judgment or settlement. Whether
or not the Indemnifying Person assumes the defense of a Third Party Claim,
the Indemnified Person shall not admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
Indemnifying Person's prior written consent (which consent shall not be
unreasonably withheld). If the Indemnifying Person assumes the defense of a
Third Party Claim, the Indemnified Person shall agree to any settlement,
compromise or discharge of a Third Party Claim that the Indemnifying Person
may recommend and that by its terms obligates the Indemnifying Person (or
its insurer) to pay the full amount of the liability in connection with
such Third Party Claim, which releases the Indemnified Person completely in
connection with such Third Party Claim. Notwithstanding the foregoing, the
Indemnifying Person 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 Person in defending such Third Party
Claim) if the Third Party Claim seeks and has a reasonable prospect of
obtaining an order, injunction or other equitable relief against the
Indemnified Person that the Indemnified Person reasonably determines, after
conferring with its outside counsel,
46
<PAGE>
cannot be separated from any related claim for money damages. If such
equitable relief portion of the Third Party Claim can be so separated from
that for money damages, the Indemnifying Person shall be entitled to assume
the defense of the portion relating to money damages.
(c) After it has been determined, by acknowledgment, agreement or
arbitration ruling pursuant to Exhibit B, that an Indemnifying Person is
---------
liable to the Indemnified Person(s) under Section 14.1, the Indemnifying
------------
Person shall pay or cause to be paid to the Indemnified Person the amount
of the Damage within 10 Business Days of receipt by the Indemnifying Person
of a notice reasonably itemizing the amount of the Damage but only to the
extent actually paid or suffered by the Indemnified Person(s).
(d) The indemnities contained in Section 14.1 shall survive the
-------------
termination and liquidation of the Indemnifying Person.
(e) In the event of any payment by or on behalf of an Indemnifying
Person to an Indemnified Person in connection with any Damage, the
Indemnifying Person (or any guarantor who made such payment) shall be
subrogated to and shall stand in the place of the Indemnified Person as to
any events or circumstances in respect of which the Indemnified Person may
have any right or claim against any third party (not including the
Indemnifying Person or the Operator) relating to such event or
indemnification. The Indemnified Person shall cooperate with the
Indemnifying Person (or such guarantor) in any reasonable manner in
prosecuting any subrogated claim.
Section 14.4 Joint Defense.
-------------
(a) Upon notification or receipt of any Third Party Claim, the
Partnership or any Partner, as applicable, shall notify the Partnership and
the other Partners, the Operator and, as appropriate, any Third Party
(including, as relevant, any insurance providers) of the pendency of the
Third Party Claim. In order to respond to any such Claim, the Partnership,
the Partners and the Operator during the course of one or more meetings
shall define in accordance with the provisions of Section 14.3 the scope
------------
and nature of the arrangement for defending against the Claim. The
Partnership and the Partners agree that to the extent practicable they will
utilize joint defense arrangements to defend against all Third Party
Claims. For any Third Party Claim for which the Operator assumes the
defense under Section 10.2 of the Operating Agreement (but without
------------
admitting liability for the Claim or waiving rights to indemnification or
contribution from the Partners), the Operator shall control the defense of
the Claim and the joint defense arrangements provided for herein shall be
mandatory.
Section 14.5 Extent of Indemnification, Release and Limitation on
----------------------------------------------------
Reimbursement Liability.
- -----------------------
(a) WITHOUT LIMITING OR ENLARGING THE SCOPE OF THE INDEMNIFICATION OR
RELEASE PROVISIONS SET FORTH HEREIN, THE PARTNERSHIP, EACH PARTNER AND THE
OPERATOR SHALL BE ENTITLED TO INDEMNIFICATION OR RELEASE HEREUNDER IN
ACCORDANCE WITH THE TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS GIVING
RISE TO
47
<PAGE>
ANY SUCH INDEMNIFICATION OBLIGATION OR COVERED BY SUCH RELEASE IS THE
RESULT OF THE SOLE, GROSS, ACTIVE, PASSIVE, CONCURRENT OR COMPARATIVE
NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR VIOLATION OF ANY LAW OF OR
BY THE PARTNERSHIP, EACH PARTNER OR THE OPERATOR.
(b) THE PARTIES AGREE THAT THE STATEMENTS SET FORTH IN THIS SECTION
-------
14.5 CONSTITUTE A CONSPICUOUS LEGEND.
----
Section 14.6 Permitted Contribution. Any payment made by any Partner to the
----------------------
Partnership as an indemnification of the Partnership shall be accounted for as
an additional permitted contribution to the Partnership pursuant to Article II.
----------
ARTICLE XV
MISCELLANEOUS
Section 15.1 Construction. In construing this Agreement: (i) no
------------
consideration shall be given to the captions of the Articles, Sections,
subsections or clauses, which are inserted for convenience in locating the
provisions of this Agreement and not as an aid to construction and shall not be
interpreted to limit or otherwise affect the provisions of this Agreement, (ii)
no consideration shall be given to the fact or presumption that any party had a
greater or lesser hand in drafting this Agreement, (iii) examples shall not be
construed to limit, expressly or by implication, the matter they illustrate,
(iv) the word "includes" and its syntactic variants means "includes, but is not
limited to" and corresponding syntactic variant expressions, words such as
"herein," "hereafter," "hereof," "hereto" and "hereunder" refer to this
Agreement as a whole and the word "and" shall be deemed to mean "and/or" where
the context so requires, (v) the plural shall be deemed to include the singular,
and vice versa, (vi) each gender shall be deemed to include the other gender,
(vii) each Exhibit, Attachment and Schedule to this Agreement is part of this
Agreement, (viii) references to a Person are also to its permitted successors
and permitted assigns and (ix) unless otherwise expressly provided herein, any
agreement, instrument or statute defined or referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, included (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and reference to all attachments thereto and instruments incorporated
therein.
Section 15.2 Notices. All notices, requests, demands and other
-------
communications that are required or may be given to any Party under this
Agreement, unless otherwise provided herein, shall be in writing (including a
facsimile or similar writing) and shall be given to a party thereto at the
address or facsimile number specified below or as such Party shall at any time
otherwise specify by like notice to each of the other Parties to this Agreement.
Each such notice, request, demand or other communication shall be effective (i)
if given by facsimile, at the time such facsimile is transmitted and the
appropriate confirmation is received (or, if such time is not during regular
business hours of a Business Day, at the beginning of the next such Business
Day), (ii) if given by mail, five Business Days (or, if to an address outside
the United States, ten calendar days) after such communication is deposited in
the United States mail with first-class postage prepaid, addressed as aforesaid,
or (iii) if given by any other means, upon receipt or refusal of service at the
address specified below.
48
<PAGE>
If to PO Offtake, LP:
One Houston Center
1221 McKinney, Suite 700
Houston, Texas 77010
Attention: General Counsel
Telecopy Number: 713-309-2143
If to BAYPO Limited Partnership:
Bayer Corporation
100 Bayer Road
Pittsburgh, PA 15205
Attention: President Polyurethanes Division
Telecopy Number: (412) 777-4642
Phone: (412) 777-2601
With copies to:
Bayer Corporation
100 Bayer Road
Pittsburgh, PA 15205
Attention: V.P. Assistant General Counsel for the
Polyurethanes Division
Telecopy Number: (412) 777-3802
Phone: (412) 777-2186
Section 15.3 Severability. In the event that any provision of this
------------
Agreement shall be finally determined to be unenforceable, such provision shall,
so long as the economic and legal substance of the transactions contemplated
hereby is not affected in any materially adverse manner as to any Party, be
deemed severed from this Agreement and every other provision of this Agreement
shall remain in full force and effect.
Section 15.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original, and all of which when
taken together shall constitute one and the same original document. All
signatures need not be on the same counterpart.
Section 15.5 Governing Law. This Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of the State of Delaware,
without giving effect to any conflicts of law principles.
Section 15.6 Jurisdiction; Consent to Service of Process; Waiver. Each of
---------------------------------------------------
the Parties to this Agreement agrees, subject to Section 15.11 in the case of an
-------------
arbitration, that it shall bring any action or proceeding in respect of any
claim arising out of or related to this Agreement or the transactions contained
in or contemplated this Agreement, whether in tort or contract or at law or in
equity, exclusively in any Federal or state court in the State of Delaware and
solely in connection with claims arising under such agreement or instrument or
the transactions contained
49
<PAGE>
in or contemplated by such agreement or instrument, (i) irrevocably submits to
the exclusive jurisdiction of such courts, (ii) waives any objection to laying
venue in any such action or proceeding in such courts, (iii) waives any
objection that such courts are an inconvenient forum or do not have jurisdiction
over it and (iv) agrees that service of process upon it may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to it at its address specified in
Section 15.2. The foregoing consents to jurisdiction and service of process
- ------------
shall not constitute general consents to service of process in the State of
Delaware for any purpose except as provided herein and shall not be deemed to
confer rights on any Person other than the Parties to this Agreement. Each Party
hereby knowingly and intentionally, irrevocably and unconditionally waives trial
by jury in any legal action or proceeding relating to this Agreement and for any
counterclaim therein.
Section 15.7 Specific Performance. Each of the Parties to this Agreement
--------------------
agrees with the other Parties thereto that such other Parties would be
irreparably damaged if any of the provisions of this Agreement are not performed
in accordance with its specific terms and that monetary damages would not
provide an adequate remedy in such event. Accordingly, unless as otherwise
specifically provided herein, in addition to any other remedy to which the
nonbreaching Parties may be entitled, at law or in equity, the nonbreaching
Parties may be entitled to injunctive relief to prevent breaches of this
Agreement and to specifically enforce the terms and provisions hereof.
Section 15.8 Amendment. This Agreement may not be amended, modified or
---------
altered except by an instrument in writing signed on behalf of each Party. By an
instrument in writing any Party may waive compliance by any other Party with any
term or provision of this Agreement that such other Party was or is obligated to
comply with or perform or any breach hereof.
Section 15.9 Performance Extended to Next Business Day. Notwithstanding
-----------------------------------------
any deadline for payment, performance, notice or election under this Agreement,
if such deadline falls on a date that is not a Business Day, then the deadline
for such payment, performance, notice or election will be extended to the next
succeeding Business Day.
Section 15.10 Waiver. The failure of a Party at any time to strictly
------
enforce any provision of this Agreement shall in no way affect its right
thereafter to require performance thereof, nor shall the waiver of any breach of
any provision of this Agreement be taken or held to be a waiver of any
succeeding breach of any such provision or as a waiver of the provision itself.
Unless otherwise specified herein, the rights and remedies provided in this
Agreement are cumulative and the exercise of any one right or remedy by any
Party shall not preclude or waive its right to exercise any or all other rights
or remedies.
Section 15.11 Dispute Resolution. All controversies or disputes arising
-------------------
out of and related to this Agreement shall be resolved pursuant to the
provisions set forth on Exhibit B.
---------
Section 15.12 Successors and Assigns. Except as may be expressly provided
----------------------
herein, this Agreement shall be binding upon, and inure to the benefit of, the
permitted successors and assigns.
50
<PAGE>
Section 15.13 Further Assurances. From time to time, each Partner agrees
------------------
to execute and deliver such additional documents, and will provide such
additional information and assistance, as the Partnership or any Partner may
reasonably require to effect the terms of this Agreement and to accomplish the
Partnership's business.
Section 15.14 Benefits of Agreement Restricted to the Parties. This
-----------------------------------------------
Agreement is made solely for the benefit of the Partnership and the Partners,
and no other Person, including any officer or employee of the Partnership or any
Partner, shall have any right, claim or cause of action under or by virtue of
this Agreement.
Section 15.15 Waiver of Right to Partition. Each Person who now or
----------------------------
hereafter is a party hereto or who may have any right herein or hereunder
irrevocably waives during the term of the Partnership any right to maintain any
action for partition with respect to Partnership Property.
Section 15.16 Payment Terms and Interest Calculation. Payment terms and
--------------------------------------
interest calculations shall be as follows:
(a) If the payment due date for any payment hereunder (including
capital contributions and Damages) falls on a Saturday or a bank or federal
holiday, other than a Monday, the payment shall be due on the immediately
preceding Business Day. If the payment due date falls on a Sunday or Monday
bank or federal holiday, the payment shall be due on the following Business
Day.
(b) Interest shall accrue on any unpaid and outstanding amount from
the time such amount is due and payable through the date upon which such
amount, together with accrued interest thereon, is paid in full. Interest
shall accrue at a per annum rate equal to the Default Rate.
(c) A wire transfer or delivery of a check shall not operate to
discharge any payment under this Agreement and shall be accepted subject to
collection.
Section 15.17 Mutual Provision of Information. The Partners will keep each
-------------------------------
other timely informed about planned turnarounds, shutdowns, major technical
projects, Capital Projects and any other major events which in each case are
relevant to the Partnership Agreement or the Operating Agreement.
Section 15.18 Adversely Impacted Partner Recourse. To the extent that
-----------------------------------
future developments, through no fault of any Partner, result in a material
adverse impact on one or more Partners (each such Partner, an "Adversely
---------
Impacted Partner"), the Adversely Impacted Partner may request to negotiate a
- ----------------
resetting of the arrangements of this Agreement, the Operating Agreement and the
Transaction Documents to improve such Partner's position. The unaffected
Partner(s) (each such Partner, an "Unaffected Partner") shall make a good faith
------------------
assessment of the situation and, at its sole discretion, shall determine whether
such negotiated arrangements for the situation are warranted. If the Unaffected
Partner determines that such negotiated arrangements are unwarranted, then the
terms of the existing arrangements between the Parties shall remain. Future
developments that may be considered to warrant a reset under this Section 15.18
-------------
shall not include Co-Product market economics, Operator liability, EHS liability
(except for retroactive changes in EHS Law) and other related issues.
51
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on behalf of each
of the parties hereto, by their respective officers thereunto duly authorized,
effective as of the date first written above.
GENERAL PARTNER
PO OFFTAKE, LP
By: Lyondell POJVGP, LLC, its general partner
By: /s/ Francis. P. McGrail
----------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
LIMITED PARTNERS
PO OFFTAKE, LP
By: Lyondell POJVGP, LLC, its general partner
By: /s/ Francis. P. McGrail
----------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
BAYPO LIMITED PARTNERSHIP
By: BAYPO I LLC, its general partner
By: /s/ Paul R. Berry
----------------------------------
Name: Paul R. Berry
--------------------------------
[Signature Page to PO Limited Partnership Agreement]
52
<PAGE>
EXHIBIT A
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
DEFINED TERMS
-------------
The following defined terms are used in the Partnership Agreement,
Operating Agreement and Ground Leases.
"AAA" has the meaning specified in Exhibit B of the Partnership
---
Agreement and the Operating Agreement.
"Above Threshold Capital Projects" has the meaning specified in Section
--------------------------------
7.4 of the Operating Agreement.
"Above Threshold Discretionary Capital Projects" has the meaning
----------------------------------------------
specified in Section 7.4 of the Operating Agreement.
"Above Threshold Non-Discretionary Capital Projects" has the meaning
--------------------------------------------------
specified in Section 7.4 of the Operating Agreement.
"Accommodation Fee" has the meaning specified in Section 9.6 of the
-----------------
Partnership Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
---
amended and in effect from time to time.
"Additional Limited Partner" means any Series A Unit or Series B Unit
--------------------------
limited partner that is admitted to the Partnership following the Closing Date
in accordance with the terms of the Partnership Agreement.
"Additional Services" has the meaning specified in Section 2.4 of the
-------------------
Operating Agreement.
"Additional Services Fee" has the meaning specified in Section 2.4 of
-----------------------
the Operating Agreement.
"Additional Services Charges" means all costs and fees associated with
---------------------------
Additional Services.
Exhibit A-1
<PAGE>
"Adjusted Capital Account Deficit" means, with respect to any Partner,
--------------------------------
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal year, after giving effect to the following adjustments:
(i) such Capital Account shall be deemed to be increased by
any amounts that such Partner is obligated to restore to the
Partnership (pursuant to the Partnership Agreement or otherwise) or is
deemed to be obligated to restore pursuant to the second to last
sentence of Regulation (S)(S) 1.704-2(g)(1) and 1.704-2(i)(5)
(relating to allocations attributable to nonrecourse debt); and
(ii) such Capital Account shall be deemed to be decreased by
the items described in Regulation (S)(S) 1.704-1(b)(2)(ii)(d)(4), (5)
and (6).
The foregoing definition of Adjusted Capital Deficit is intended to
comply with the provisions of Regulation (S) 1.704-1(b)(2)(ii)(d) and shall be
interpreted and applied consistently therewith.
"Adversely Impacted Partner" has the meaning specified in Section
-------------------------- -------
15.18 of the Partnership Agreement.
- -----
"Affiliate" means, with respect to any Person, any other Person who
---------
directly or indirectly, through one or more intermediaries or otherwise,
controls, is controlled by or is under common control with, the specified
Person. As used in this definition, "control" means the power to direct or cause
the direction of the management or policies of a Person, directly or indirectly,
whether through ownership of voting securities by contract or otherwise); the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, in no event shall the Operator and the
Partnership be deemed to be Affiliates of one another.
"Affiliated General Partner" means Lyondell GP, in the case of
--------------------------
Lyondell LP.
"Affiliated Limited Partner" means Lyondell LP, in the case of
--------------------------
Lyondell GP.
"Agreement" has the meaning, with respect to any agreement, given that
---------
term in such agreement.
"Annual Budget" has the meaning specified in Section 7.2 of the
------------- -----------
Operating Agreement.
"Annual Forecast" has the meaning specified in Section 7.2 of the
--------------- -----------
Operating Agreement.
"Annual Plan" has the meaning specified in Section 7.2 of the
----------- -----------
Operating Agreement.
"Applicable Law" means any Judgement or any applicable statute, law,
--------------
ordinance, rule or regulation of a Governmental Entity that is applicable to the
Existing Plants or the ownership or operation thereof, the Partners or the
Partnership, as the context may require.
"Arbitrator" has the meaning specified in Exhibit B of the Partnership
---------- ---------
Agreement and the Operating Agreement.
Exhibit A-2
<PAGE>
"Assets" means the PO Assets and the Co-Product Assets.
------
"Assumed Liabilities" means the liabilities assumed by the Partnership
-------------------
in connection with the contribution of the Assets to the Partnership.
"Bankruptcy" means, with respect to any Person, the voluntary or
----------
involuntary filing of a Chapter 11 or Chapter 7 case under the Bankruptcy Code
that, with respect to any involuntary filing, is not vacated or stayed within 90
days of filing.
"Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S.C.
---------------
Sec. 101, as amended from time to time.
"Baseline Sourcing Plan" has the meaning given such term in the PO
----------------------
Logistics Agreement.
"Bayer" means Bayer AG, a German Corporation.
-----
"Bayer Budget Cap" has the meaning given such term in the Technology
----------------
Partnership Agreement.
"Bayer LP" means BAYPO Limited Partnership, a Delaware limited
--------
partnership, and its permitted successors and assigns under the Partnership
Agreement.
"Bayer Monthly Stipulated G&A Allocation" means 1/12/th/ of $11.2MM in
---------------------------------------
2000 (prorated from the Closing Date), $12.3MM in 2001, $12.8MM in 2002, $12.9MM
in 2003 and $13.3MM in 2004 and thereafter, subject to annual adjustment for
changes in the G&A Escalator.
"Bayer Monthly Technology Budget Payment" has the meaning specified in
---------------------------------------
the Technology Partnership Agreement.
"Bayer License Agreement" means the license, dated as of the Closing
-----------------------
Date, by the Technology Partnership to Bayer LP of Lyondell's PO Technology for
the production of Identified Polyols, as the same may be amended from time to
time.
"Bayer PO Annual Offtake Amount" means 1.34 billion pounds for 2000
------------------------------
(the figure shall be prorated for the period following the Closing Date), 1.47
billion pounds for 2001, 1.53 billion pounds for 2002, 1.55 billion pounds for
2003 and 1.6 billion pounds for 2004 and each year thereafter through the term
of the Partnership Agreement. The foregoing amounts are calculated for PO
Product meeting specifications and off-spec PO Product accepted by Bayer and its
Affiliates. The foregoing Bayer PO Annual Offtake Amount is based on Lyondell's
specifications for PO Product in existence as of the Effective Date and will be
equitably adjusted if such specifications change for any reason.
"Bayer PO Partnership Payment Amount" has the meaning specified in the
-----------------------------------
Master Transaction Agreement.
"Bayer PO Technology Partnership Payment Amount" has the meaning
----------------------------------------------
specified in the Master Transaction Agreement.
Exhibit A-3
<PAGE>
"Bayer 300 Million Pound PO Option Agreement" means the agreement so
-------------------------------------------
styled dated as of the Closing Date between Lyondell Chemical Nederland, Ltd.
and Bayer Antwerp N.A./S.V., as the same may be amended or replaced from time to
time.
"Bayport Plant Facility" means the plant, fixtures, equipment and
----------------------
other personal property for the manufacture, storage and piping and loading of
PO Product and Co-Product located at Bayport, Texas, as contributed to the
Partnership as of the Closing Date and as the same may be changed thereafter by
the Partnership.
"Below Threshold Capital Projects" has the meaning specified in
--------------------------------
Section 7.4 of the Operating Agreement.
- -----------
"Below Threshold Discretionary Capital Projects" has the meaning
----------------------------------------------
specified in Section 7.4 of the Operating Agreement.
"Below Threshold Non-Discretionary Capital Projects" has the meaning
--------------------------------------------------
specified in Section 7.4 of the Operating Agreement.
"Book Value" means with respect to any asset of the Partnership, the
----------
adjusted basis of the asset as of the relevant date for federal income tax
purposes, except as follows:
(i) the initial Book Value of the assets of the Partnership
shall be set forth on Exhibit E to the Partnership Agreement;
---------
(ii) the initial Book Value of any asset contributed by a
Partner to the Partnership after the Closing Date shall be the gross
fair market value of such asset, which shall be equal to the amount
credited to such Partner's Capital Account for such contribution
(increased by the amount of any liabilities which the Partnership
assumes or takes subject to);
(iii) the Book Values of all Partnership assets (including
intangible assets such as goodwill) shall be adjusted (at the election
of the General Partner) to equal their respective gross fair market
values upon the occurrence of any of the events described in
Regulation (S) 1.704-1(b)(2)(iv)(f)(5);
(iv) the Book Value of any asset distributed by the Partnership
to a Partner shall be equal to the gross fair market value of such
asset on the date of the distribution;
(v) the Book Value of any Partnership asset with respect to
which an adjustment to tax basis has occurred by reason of the
application of Section 734(b) or 754(b) of the Code shall be adjusted
to the extent such adjustment to tax basis is taken into account
pursuant to Regulation (S) 1.704-1(b)(2)(iv)(m); and
(vi) if the Book Value of an asset is not equal to its adjusted
tax basis for federal income tax purposes, such Book Value shall be
adjusted by the Depreciation taken into account with respect to such
asset for purposes of computing Profits and Losses and other items
allocated pursuant to Section 4.1 of the Partnership Agreement.
-----------
Exhibit A-4
<PAGE>
The foregoing definition of Book Value is intended to comply with the
provisions of Regulation (S) 1.704-1(b)(2)(iv) and shall be interpreted and
applied consistently therewith. Any determinations of "gross fair market value"
in this definition of Book Value shall be made by the General Partner.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which banks are closed in Houston, Texas; provided, however, that for
purposes of the definition of "LIBOR," "Business Day" shall mean a day on which
banks are not required or authorized to close in Houston, Texas and on which
commercial banks are open for international business (including dealings for
dollar deposits) in the London interbank market.
"Capital Account" means the separate capital account established and
---------------
maintained by the Partnership for each Partner, as contemplated by Section 2.8
-----------
of the Partnership Agreement.
"Capital Cost Invoice" has the meaning specified in Section 5.1 of the
-------------------- -----------
Operating Agreement.
"Capital Costs" means all Operating Services Costs that are
-------------
capitalized by the Operator in accordance with GAAP and that Lyondell
capitalizes in accordance with its accounting capitalization procedures, as the
same may be modified from time to time.
"Capital Project" means any project with respect to the Plant
---------------
Facilities or the Infrastructure Assets of a Complex that is permitted to be
treated as a capital project under GAAP and that is the type of project which
Lyondell treats as a capital project in accordance with its accounting
capitalization procedures.
"Capital Project Planned Outage" means, with respect to any Partner, a
------------------------------
shutdown or other outage to implement a Capital Project in which such Partner is
required or elects to participate in the costs and benefits thereof.
"Casualty" means any damage or destruction to the Plant Facilities or
--------
the Infrastructure Assets of a Complex by explosion, fire or other cause.
"Casualty Restoration Costs" means in the event of a Casualty to the
--------------------------
Plant Facilities of a Complex, the sum of (i) the portion of the cost of
restoration of such Plant Facilities that is not paid under any property and/or
boiler and machinery insurance policies maintained by the Operator, plus (ii)
any surcharge that is payable under such policies thereafter in respect of the
insured claim. In the event of a Casualty to Infrastructure Assets of a Complex,
the Casualty Restoration Costs are (x) the forecasted use of the Operating
Services provided to the Plant Facilities from such Infrastructure Assets
divided by (y) the forecasted use of Operating Services by all Users thereof,
times the sum of (i) the portion of the cost of restoration of the Plant
Facilities that is not paid under any property and/or boiler and machinery
insurance policies maintained by the Operator plus (ii) any surcharge that is
payable under such policies thereafter in respect of the insured claim.
"Channelview Plant Facility" means the plant, fixtures, equipment and
--------------------------
other personal property for the manufacture, storage and piping and loading of
PO Product and Co-Product located at Channelview, Texas, as contributed to the
Partnership as of the Closing Date and as the same may be changed thereafter by
the Partnership.
Exhibit A-5
<PAGE>
"Chemical Substance" means any (i) petroleum or any fraction thereof,
------------------
(ii) chemical substance, pollutant, contaminant, constituent, chemical, mixture,
raw material, intermediate, product or byproduct that is regulated (including
any requirement for the reporting of any Release thereof) under any EHS Law, as
now or hereafter in effect, or defined or listed as an industrial, toxic,
deleterious, harmful, radioactive, infectious, disease-causing or hazardous
substance, material or waste under any EHS Law, as now or hereafter in effect
and (iii) asbestos or asbestos-containing material or polychlorinated biphenyls.
"Claim" means any claim, demand or Litigation made or pending for
-----
Damages.
"Closing Date" means March 31, 2000.
------------
"Code" means the Internal Revenue Code of 1986, as amended and in
----
effect from time to time, and any successor thereto.
"Complexes" means the chemicals manufacturing complexes operated by
---------
Lyondell and/or its Affiliates located at Channelview, Texas and Bayport, Texas,
including all additions thereto and excluding all deletions therefrom, effective
as of the date of any such addition or deletion.
"Confidential Information" means with respect to any Person, all
------------------------
nonpublic or proprietary information of any nature (including trade secrets,
technological know-how, research and development data, product formulations,
processes and application technology and all other non public or proprietary
concepts, methods of doing business, ideas, materials or information of or
prepared or performed for, by or on behalf of that Person), and all information
derived from any nonpublic or proprietary information of that Person.
"Contained Propylene" is the total quantity of propylene on a 100%
-------------------
basis contained in a propylene stream that is used in production of PO Product
at the Existing Plants.
"Co-Product" means, with respect to an Existing Plant, SM or TBA, or
----------
any other product other than PO Product produced at the Existing Plant. SM is
the primary Co-Product produced at the Channelview Plant Facility and TBA is the
primary Co-Product produced at the Bayport Plant Facility.
"Co-Product Asset" means an asset of the Partnership used exclusively
----------------
in connection with production of Co-Product or other aspects of the Co-Product
business, or an allocable share for the Co-Product business of an asset of the
Partnership used in both the production of Co-Product and PO Product or in other
aspects of both the Co-Product and PO Product businesses. Allocation
methodologies for shared assets will be in accordance with Exhibit D to the
---------
Operating Agreement.
"Co-Product Asset Built-In Gain or Loss" means the difference between
--------------------------------------
the agreed value of each Co-Product Asset contributed to the Partnership on the
Effective Date as set forth in Exhibit E to the Partnership Agreement and the
adjusted tax basis of such asset on such date, as subsequently adjusted pursuant
to the regulations under Section 704(c) of the Code.
"Co-Product Credits" has the meaning specified in Exhibit C to the
------------------ ---------
Operating Agreement.
Exhibit A - 6
<PAGE>
"Co-Product Proceeds" has the meaning specified in Section 3.3 of the
------------------- -----------
Partnership Agreement.
"Creditworthy" means any Person (i) whose current unsecured
------------
indebtedness is rated BBB- or higher by Standard & Poor Company or Baa3 or
higher by Moody's Investment Services or an equivalent rating by any other
rating agent of international repute and (ii) any Person without current
unsecured rated indebtedness that would be able to secure such a rating.
"Curative Action Plan" has the meaning specified in Section 11.3 of the
--------------------
Partnership Agreement.
"Cure Period" has the meaning specified in Exhibit B of the Partnership
----------- ---------
Agreement and the Operating Agreement.
"Damage" means, with respect to any Person, any cost, damage or expense
------
(including attorneys' fees and disbursements), any fine of or penalty on or any
liability of any nature of that Person.
"Defaulting Limited Partner" has the meaning specified in Section 11.4
-------------------------- ------------
of the Partnership Agreement.
"Default Rate" means LIBOR plus 2.5%.
------------
"Delivery Point" means, with respect to PO Product produced from an
--------------
Existing Plant, delivery of PO Product to (i) the paymeter for same in the
transportation pipe leaving an Existing Plant or (ii) if there is no paymeter,
the flange between the Plant Facilities piping and (a) an on-site polyols
facility, (b) an on-site PO storage facility utilized by Bayer or its
Affiliates, (c) the outside battery limits piping of the Plant Facilities
leading to an off-site PO storage facility utilized by Bayer or its Affiliates
or (d) the loading flange of any transport vessel, and, with respect to
Co-Product produced from an Existing Plant, means delivery of Co-Product to (i)
the paymeter for same in the transportation pipe leaving an Existing Plant or
(ii) if there is no paymeter, the flange between the Plant Facilities piping and
(a) a Co-Product derivatives plant, (b) the outside battery limits piping of the
Plant Facilities leading to an off-site Co-Product storage facility, or (c) the
loading flange of any transport vessel. The Delivery Points for the Existing
Plants existing as of the Closing Date are set forth on Exhibit H to the
---------
Operating Agreement and Exhibit F to the Partnership Agreement. Changes to such
---------
Delivery Points are subject to Bayer LP's consent, not to be unreasonably
withheld.
"Depreciation" means, for each fiscal year or part thereof, an amount
------------
equal to the depreciation, amortization or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such year
or other period, except that if the Book Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year,
Depreciation shall be (i) an amount which bears the same ratio to such Book
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year bears to such adjusted tax basis or (ii) if the
federal income tax depreciation, amortization or other cost recovery deduction
for such year is equal to zero, an amount determined with reference to such Book
Value using a reasonable method selected by the Tax Matters Partner.
Exhibit A - 7
<PAGE>
"Discretionary Capital Project" means a Capital Project that is not an
-----------------------------
EHS Capital Project or a Maintenance Capital Project and that enhances the
operating efficiency, production capability, reliability or other performance
characteristics of the Plant Facilities or an Infrastructure Asset.
"Dispute" has the meaning specified in Exhibit B of the Partnership
------- ---------
Agreement and the Operating Agreement.
"Dispute Notice" has the meaning specified in Exhibit B of the
-------------- ---------
Partnership Agreement and the Operating Agreement.
"Disputing Party" has the meaning specified in Exhibit B of the
--------------- ---------
Partnership Agreement and the Operating Agreement.
"Disruption Event" means any event not resulting from the Fault of the
----------------
Existing Plant Operators resulting in a disruption or impairment of PO and/or
Co-Product production below capacity levels from any cause whatsoever, including
(i) any event of Force Majeure; (ii) any shortage in supplies, impairment in the
facilities of production, manufacture, or transportation; (iii) that is
attributable to mechanical or other breakdown or failure or preventative
maintenance that is performed to avoid such breakdown or failure, (iv) any
Unscheduled Turnaround or continuation of a Planned Outage beyond its
anticipated duration; or (v) the inability to obtain any Feedstock or other raw
material (including energy) on reasonable terms. In the case of an Unscheduled
Turnaround that shifts the timing of a Scheduled Turnaround, only the
incremental loss of production shall constitute a Disruption Event.
"EHS" means the environment, health and safety or environmental,
---
health and safety, as the context requires.
"EHS Capital Project" means a Capital Project with respect to Plant
-------------------
Facilities or an Infrastructure Asset of a Complex that in the Operator's good
faith judgement is necessary to achieve or maintain compliance with any EHS Law
or the Existing Plant EHS Policies. Remediation under EHS Law with respect to a
Release that is an Operator Reimbursable Expense shall not be an EHS Capital
Project.
"EHS Law" means any Applicable Law relating to (i) any ambient air,
-------
surface water, drinking water, groundwater, land surface, subsurface strata,
river sediment, natural resources or real property and the physical buildings,
structures and fixtures thereon, including sewer, septic and waste treatment,
storage or disposal systems (the "Environment"), including pollution,
-----------
contamination, cleanup, preservation, protection and reclamation of the
Environment, (ii) health or safety of employees and other individuals, including
the exposure of employees and other individuals to any Chemical Substance, (iii)
a Release or threatened Release, including investigation, study, assessment,
testing, monitoring, containment, removal, remediation, response, cleanup and
abatement of such Release or threatened Release and (iv) the management of any
Chemical Substance, including the manufacture, generation, formulation,
processing, labeling, use, treatment, handling, storage, disposal,
transportation, distribution, re-use, recycling or reclamation of any Chemical
Substance.
"Eligible Indemnitees" means, with respect to any Person, its
--------------------
Affiliates and their respective employees, officers and directors (or the
equivalent thereof).
Exhibit A - 8
<PAGE>
"Environment" has the meaning given such term in the definition of EHS
-----------
Law.
"Environmental Condition" means any presence of Chemical Substances in,
-----------------------
on, at, under or from any Existing Plant.
"Equistar" has the meaning given such term in Exhibit C-1 of the
-------- -----------
Operating Agreement.
"Equistar Propylene Agreement" has the meaning given such term in
----------------------------
Exhibit C-1 to the Operating Agreement.
- -----------
"Event of Default" has the meaning specified in Section 15.1 of each
---------------- ------------
Ground Lease with respect to an Event of Default by Lessee and has the meaning
specified in Section 15.2 with respect to an Event of Default by Lessor.
"Existing Plant Complexes" means the Complexes and the other chemical
------------------------
manufacturing complexes operated by Lyondell or its Affiliates within which the
other Existing Plants are located, including all additions thereto and excluding
all deletions therefrom, effective as of the date of any such addition or
deletion.
"Existing Plant Operator" means the Operator or the operator of any of
-----------------------
the other Existing Plants, as context requires.
"Existing Plant EHS Policies" has the meaning specified in Section 13.1
---------------------------
of the Operating Agreement.
"Existing Plant Total PO Capacity" means 3.48 billion pounds of PO as
--------------------------------
of the Closing Date. The Existing Plant Total PO Capacity shall be (i) increased
to account for changes in the PO capacity of the Existing Plants by reason of
"capacity creep" through improved operations or "debottleneck" Capital Projects
and (ii) decreased to account for any sale or other transfer to a Third Party of
any of the Existing Plants or permanent closing or long-term "mothballing" of
any of the Existing Plants or non-restoration following a Casualty to any of the
Existing Plants, as of the date Lyondell informs Bayer LP of such decision not
to restore (which decision shall be made within 120 days of the Casualty).
Lyondell GP shall demonstrate to Bayer LP any increase or decrease to the
Existing Plant Total PO Capacity. As to any capacity increase, Lyondell GP shall
demonstrate that the stated capacity increase takes into account turnarounds
that are expected to take place in the ordinary course of business and
reliability factors.
"Existing Plants" means the Plant Facilities, the PO/SM II plant, the
---------------
Fos Sur Mer PO/TBA plant and the Botlek PO/TBA plant, for so long as such plants
are owned by the Partnership or Lyondell Affiliates. If any of the Existing
Plants is permanently closed, "mothballed" or not restored following a Casualty,
it shall cease to be an Existing Plant as of the date Lyondell notifies Bayer of
such closure, "mothballing" or decision not to restore (which decision shall be
made within 120 days of such Casualty).
"Ex-Works" has the meaning given to such term in Incoterms 2000.
--------
"Fault" is defined as any act or omission by Managerial Personnel of a
-----
Person that viewed objectively from the standpoint of the Person at the time the
events occurred (and without viewing the matter in hindsight) (i) involved an
extreme degree of risk, considering the
Exhibit A - 9
<PAGE>
probability and magnitude of the potential harm to others and (ii) Managerial
Personnel of the Person must have actual, subjective awareness of the risk
involved, but nevertheless proceed in conscious indifference to the rights,
safety or welfare of others. The Parties agree that with respect to the Existing
Plant Operators, the material disregard by a member of the Senior Plant
Management Team at an Existing Plant of the policies and procedures manual for
the Existing Plant proximately causing a Third Party Claim shall be deemed to be
Fault.
"Feedstock" means propylene and any other feedstock that may now or in
---------
the future be used for the production of PO Product or Co-Product.
"Fixed Costs" means costs associated with the production of PO Product
-----------
or Co-Product, as the case may be, that do not vary directly to a significant
extent with changes in production levels.
"Force Majeure" means acts of God, floods, storms or unusually bad
-------------
weather; war or other military action, national emergency, governmental
rationing, prioritization, taking or requisition, civil commotion or riot; any
strike or other difference with workers or unions, without regard to the
reasonableness of acceding to the demands of such workers or unions; explosions,
fires, mechanical breakdown, electrical shortage or blackouts or other
production shutdown; inability to obtain sufficient Feedstocks, catalysts or
other raw materials or supplies; or other event beyond the reasonable control of
Managerial Personnel of a Party, provided that restrictions imposed by any
Governmental Authority pertaining solely to the sale or use of MTBE or TBA as a
gasoline additive shall not constitute an event of Force Majeure.
"G&A Escalator" means 75% of the percentage positive or negative change
-------------
from the January 1 of the prior year in the G&A Lyondell Personnel Cost Basket.
"G&A Support Pool" has the meaning given such term in Schedule 2.3 to
---------------- ------------
the Partnership Agreement.
"G&A Lyondell Personnel Cost Basket" is as described in Schedule 2.3 to
---------------------------------- ------------
the Partnership Agreement.
"GAAP" means United States generally accepted accounting principles as
----
in effect from time to time.
"General Partner" means Lyondell GP, for so long as it remains a
---------------
General Partner of the Partnership and each Person that becomes a Substitute
General Partner, if any, of the Partnership as provided in the Partnership
Agreement, in such Person's capacity as a general partner of the Partnership.
"Governmental Entity" means any federal, state, regional or local
-------------------
governmental body or authority exercising executive, legislative, judicial,
regulatory, administrative or other governmental function with jurisdiction over
a Party or any of the Existing Plants or their ownership or operation.
"Governmental Planned Outage" means any shutdown or other outage
---------------------------
required to comply with any EHS Law or other Applicable Law.
Exhibit A - 10
<PAGE>
"Ground Leases" means the ground leases between Lyondell Chemical
-------------
Company and the Partnership dated as of the Closing Date whereby the Partnership
leases the land covered thereby that constitutes part of the Partnership
Property located at the Bayport Plant Facility and the Channelview Plant
Facility, each as amended from time to time.
"Identified Polyols" means: (i) materials containing one hydroxyl
------------------
group, one or more propylene oxide units, and having a number average molecular
weight of more than 500, (ii) materials having an average hydroxyl functionality
of greater than one, containing one or more propylene oxide units and having a
number average molecular weight of more than 250, or (iii) materials that are
exceptions to (i) and (ii) because they fall below the minimum average molecular
weight recited, are prepared by reacting PO with a starter compound which is not
a glycol, and are used in polyurethane applications
"Indemnified Person" has the meaning specified in Section 10.2 of the
------------------ ------------
Operating Agreement and in Section 14.3 of the Partnership Agreement.
------------
"Indemnifying Person" has the meaning specified in Section 14.3 of the
------------------- ------------
Partnership Agreement.
"Indemnitee" has the meaning specified in Section 13.1 of each Ground
---------- ------------
Lease.
"Indemnitor" has the meaning specified in Section13.1 of each Ground
---------- -----------
Lease.
"Infrastructure Asset" means an asset within an Existing Plant Complex
--------------------
that is used in the provision of utility or other services to an Existing Plant.
"Infrastructure Assets Capacity Reservation Instruments" means those
------------------------------------------------------
conveyance instruments dated as of the Closing Date pursuant to which the
Partnership has been granted an undivided interest and correlative capacity
reservation in certain of the Infrastructure Assets located at the Complexes.
"Initial Agreement" has the meaning specified in the Recitals of the
-----------------
Partnership Agreement.
"Initial Partners" has the meaning specified in the Recitals of the
----------------
Partnership Agreement.
"Insured Third Party Claim" means a Third Party Claim, or any portion
-------------------------
of a Third Party Claim, that is not an Uninsured Third Party Claim.
"Interest Rate" means LIBOR.
-------------
"Interim Decision Date" has the meaning specified in Exhibit B of the
--------------------- ---------
Partnership Agreement and the Operating Agreement.
"IRS" means the Internal Revenue Service.
---
"Invoice" means an Operating Cost Invoice or a Capital Cost Invoice, as
-------
the context requires.
Exhibit A - 11
<PAGE>
"Joint Employees" has the meaning specified in Section 10.2 of the
---------------
Operating Agreement.
"Judgment" means any judgment, order, decree or injunction.
--------
"Lessee" means the entity specified in the opening paragraph of each
------
Ground Lease, together with its permitted successors and assigns.
"Lessor" means the entity specified in the opening paragraph of each
------
Ground Lease, together with its permitted successors and assigns.
"Lessor's Retained Property" has the meaning specified in Section 19.1
--------------------------
of each Ground Lease.
"LIBOR" means, for the day, the one-month LIBOR as published on that
-----
day in the Money Rates section of the Wall Street Journal, Northeastern Edition;
------------------- --------------------
provided that if that day is not a Business Day, the one-month LIBOR as so
published on the immediately preceding Business Day.
"Limited Partner" means Lyondell LP and Bayer LP, unless and until
---------------
Lyondell LP or Bayer LP ceases to be a Limited Partner under the Partnership
Agreement or sells, transfers, forfeits or otherwise disposes of its respective
Units and is replaced by a Substitute Limited Partner in accordance with the
Partnership Agreement and the Act, and each Person that becomes an Additional
Limited Partner or a Substitute Limited Partner of the Partnership as provided
in the Partnership Agreement.
"Litigation" means any action, case, suit or other proceeding pending
----------
before any Governmental Authority or any arbitration proceeding.
"Losses" has the meaning specified in the definition of "Profits and
------
Losses."
"Lyondell" means Lyondell Chemical Company, a Delaware corporation.
--------
"Lyondell GP" means PO Offtake, LP, a Delaware limited partnership, in
-----------
its capacity as general partner of the Partnership, and its successors and
assigns permitted under the Partnership Agreement.
"Lyondell LP" means Lyondell PO Offtake, LP, a Delaware limited
-----------
partnership, in its capacity as a limited partner in the Partnership, and its
successors and assigns permitted under the Partnership Agreement.
"Lyondell Partners" means Lyondell GP and Lyondell LP.
-----------------
"Major Unexcused PO Delivery Failure" has the meaning specified in
-----------------------------------
Section 11.3 of the Partnership Agreement.
- ------------
"Maintenance Capital Project" means a Capital Project with respect to
---------------------------
the Plant Facilities or an Infrastructure Asset as to which the primary purpose
is, in the Operator's reasonable judgment, to maintain the Plant Facilities or
an Infrastructure Asset within either Complex in
Exhibit A - 12
<PAGE>
their respective condition and performance levels existing as of the Closing
Date. The restoration of the Plant Facilities or an Infrastructure Asset
following a Casualty shall be considered a Maintenance Capital Project. The
Parties acknowledge that Maintenance Capital Projects may also result in
enhanced efficiency or other performance characteristics.
"Managerial Personnel" means (i) with respect to a Partner, any
--------------------
employee of that Person or its Affiliate who holds a senior managerial or higher
position with such Person and who has direct responsibility for the
administration and oversight of the Partner's investment in the Partnership and
(ii) with respect to any of the Existing Plant Operators (including the
Operator), any employee of the Existing Plant Operator or its Affiliate who
holds a position with the Existing Plant Operator or its Affiliate of "Plant
Manager" of the Existing Plant Complex or higher and who has direct
responsibility for the operation of the Existing Plant.
"Master Transaction Agreement" means the Master Transaction Agreement
----------------------------
between Lyondell and Bayer dated as of the Closing Date, as amended from time to
time.
"month" means a calendar month.
-----
"Monthly Production Reports" has the meaning specified in Section 2.3
-------------------------- -----------
of the Operating Agreement.
"Monthly Production Statement" has the meaning specified in Section 7.3
---------------------------- -----------
of the Operating Agreement.
"MTBE" means methyl tertiary butyl ether.
----
"Non-Defaulting Partners" has the meaning specified in Section 11.4 of
----------------------- ------------
the Partnership Agreement.
"Non-Supply Failure Step-in Event" has the meaning specified in Section
-------------------------------- -------
11.2 of the Partnership Agreement.
- ----
"Operating Agreement" means the PO Operating and Services Agreement
-------------------
between the Partnership and the Operator dated as of the Closing Date, as
amended from time to time.
"Operating Cost Invoice" has the meaning specified in Section 5.1 of
---------------------- -----------
the Operating Agreement.
"Operating Costs" means Operating Services Costs that the Operator does
---------------
not capitalize and which are not required to be capitalized in accordance with
GAAP and Lyondell's accounting capitalization procedures, as the same may be
modified from time to time.
"Operating Principles" has the meaning specified in Article III of the
-------------------- -----------
Operating Agreement.
"Operating Problem" has the meaning specified in Section 11.3 of the
----------------- ------------
Partnership Agreement.
Exhibit A - 13
<PAGE>
"Operating Services" means all services, utilities, materials,
------------------
facilities and access easements required to be supplied for the operation of the
Existing Plants and production of PO Product and Co-Product at the Existing
Plants. The Operating Services for the Plant Facilities are described in more
detail in Article II of the Operating Agreement.
----------
"Operating Services Costs" means all costs charged by the Existing
------------------------
Plant Operators to the Partnership (or incurred by the General Partner or a
Qualified Replacement Operator if the Operating Agreement is terminated) in
connection with the provision of Operating Services. Certain methodologies and
other provisions with respect to the calculation of Operating Services Costs are
set forth on Exhibit C to the Operating Agreement. The payments made by Bayer LP
---------
pursuant to Section 2.3(d)(vii) of the Partnership Agreement shall be treated
------------------
and paid as Operating Services Costs.
"Operator" means the Operator named under the Operating Agreement and
--------
its permitted successors and assigns thereunder.
"Operator Cost Partner Invoice" has the meaning specified in Section
----------------------------- -------
2.3 of the Partnership Agreement.
- ---
"Operator Property" means the plants, buildings and other improvements,
-----------------
land and other real property interests, fixtures, equipment, inventory, finished
product, vehicles and other tangible personal property interests owned or leased
by the Operator that are now or in the future located within the Complexes.
"Operator Reimbursable Expense" has the meaning given to such term in
-----------------------------
Section 10.5 of the Operating Agreement.
- ------------
"Operator Retained Obligation" has the meaning specified in Section
---------------------------- -------
10.5 of the Operating Agreement.
- ----
"Original Lessee" has the meaning specified in Section 8.1 of each
--------------- -----------
Ground Lease.
"Partner" means any General Partner or Limited Partner of the
-------
Partnership.
"Partner Capital Cost Invoice" has the meaning specified in Section 2.4
---------------------------- -----------
of the Partnership Agreement.
"Partner Invoice" means a Partner Capital Cost Invoice or a Partner
---------------
Operating Cost Invoice, as the context requires.
"Partner Operating Cost Invoice" has the meaning specified in Section
------------------------------ -------
2.3 of the Partnership Agreement.
- ---
"Partners" means the General Partner and the Limited Partners
--------
collectively.
"Partnership" means PO JV, LP, a Delaware limited partnership formed
-----------
and continuing under the Act and the Partnership Agreement and, with respect to
the Operating Agreement, such term also includes the Partnership's permitted
successors and assigns under the Operating Agreement.
Exhibit A - 14
<PAGE>
"Partnership Agreement" means the Amended and Restated Limited
---------------------
Partnership Agreement of the Partnership dated as of the Closing Date between
Lyondell GP, as general partner, and Bayer LP and Lyondell LP, as limited
partners, as amended from time to time.
"Partnership Existing Plant PO Share" means with respect to a component
-----------------------------------
of Operating Services Costs determined on a System-wide Pooled Cost Basis, (i)
for Fixed Costs, (a) the PO production capacity of the Plant Facilities times
(b) the PO Share of the Operating Services Cost in question times (c) the
Operating Services Cost divided by (d) the total PO production capacity of the
Existing Plants and (ii) for Variable Costs, (w) the monthly PO production of
the Plant Facilities times (x) the PO Share of the Operating Services Cost in
question times (y) the Operating Services Cost divided by (z) the total PO
production of the Existing Plants for the month.
"Partnership Interest" means, as the context requires, all of a
--------------------
Partner's Series A Units or Series B Units.
"Partnership Property" means the land leased by the Partnership under
--------------------
the Ground Leases, the Plant Facilities, the Partnership's interests in certain
of the Infrastructure Assets at the Complexes created under the Infrastructure
Assets Capacity Reservation Instruments and other tangible and intangible
property owned by the Partnership from time to time.
"Partnership PO Share" means the fraction equal to the Partnership's
--------------------
capacity allocated to production and related activities for PO Product divided
by the Existing Plant Total PO Capacity.
"Party" or "Parties" means (i) as used in the Partnership Agreement,
----- -------
Lyondell GP, Lyondell LP and Bayer LP and (ii) as used in the Operating
Agreement, the Operator and the Partnership.
"Permitted PO Successor" has the meaning specified in Section 10.3 of
---------------------- ------------
the Partnership Agreement.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, joint, venture, governmental authority, association or
other entity or organization.
"PIPA" means the Limited Partnership Interest Purchase and Sale
----
Agreement by and among Lyondell and Bayer Affiliates dated as of the Closing
Date with respect to (i) a Bayer Affiliate's acquisition of Series A Units in
the Partnership and (ii) the acquisition by a Bayer Affiliate of limited
partnership interests in the Technology Partnership.
"Planned Outage" means any Scheduled Turnaround, Capital Project
--------------
Planned Outage (as applicable to each Partner) or Governmental Planned Outage at
an Existing Plant.
"Plant Facilities" means either or both of the Bayport Plant Facility
----------------
and the Channelview Plant Facility, as the case may be.
"Pledge" means to mortgage, pledge, hypothecate, charge, encumber or
------
create or suffer to exist any pledge lien or encumbrance upon or security
interest in the assets. Such defined term is used as both a noun and a verb.
Exhibit A - 15
<PAGE>
"PO" means propylene oxide.
--
"PO Additional Monthly Costs" has the meaning specified in Section 2.3
--------------------------- -----------
of the Partnership Agreement.
"PO Asset" means an asset of the Partnership used exclusively in
--------
connection with production of PO Product or other aspects of the PO Product
business, and the allocable share attributable to the PO Product business of an
asset of the Partnership used in both the production of Co-Product and PO
Product or in other aspects of both the PO Product and Co-Product businesses.
Allocation methodologies for shared assets will be in accordance with the
principles of Exhibit D to the Operating Agreement.
---------
"PO Asset Built-In Gain or Loss" means the difference between the
------------------------------
agreed value of each PO Asset contributed to the Partnership on the date hereof
as set forth in Exhibit E to the Partnership Agreement and the adjusted tax
---------
basis of such asset on such date, as subsequently adjusted pursuant to Section
704(c) of the Code.
"PO Cost Allocation Methodology" has the meaning defined in Exhibit C
------------------------------ ---------
to the Operating Agreement.
"PO Logistics Agreement" means the PO Logistics and Exchange Agreement
----------------------
dated as of the Closing Date between Lyondell and Bayer, and their respective
Affiliates, as the same may be amended or replaced from time to time.
"PO Proceeds" has the meaning specified in Section 3.3 of the
----------- -----------
Partnership Agreement.
"PO Product" means PO produced from the Existing Plants.
----------
"PO Product Cash Fixed Production Costs" has the meaning specified in
--------------------------------------
Exhibit C to the Operating Agreement.
- ---------
"PO Production Costs" means the total per pound of PO Fixed Costs and
-------------------
Variable Costs for the production of PO at the Existing Plants, determined on a
System-wide Pooled Cost Basis.
"PO Share" means the percentage share allocated to production and
--------
related activities for PO Product of any item of Operating Costs or Capital
Costs or any Partnership revenue, determined in accordance with Section 2.5 of
-----------
the Partnership Agreement.
"PO Technology" means all technical information relating to PO/SM and
-------------
PO/TBA processes, including process descriptions, production and production
results, tests and test results, data, plans, designs, specifications, reports,
know-how, inventions, software operating experience and other information in the
Technology Partnership's possession or control, or acquired by or assigned to
the Technology Partnership during the term of the Bayer PO License.
"PO Variable Unit Costs" means the actual Variable Costs attributable
----------------------
to the production of PO Product per Pound of PO Product, as calculated in
accordance with the Stipulated Cost Allocation Methodology and adjusted in
accordance with Exhibit C to the Operating Agreement.
---------
"Premises" has the meaning specified in the Recitals of each Ground
--------
Lease.
Exhibit A - 16
<PAGE>
"Property" means the Premises, together with the Plant Facilities and
--------
all future improvements, fixtures, equipment and other tangible property of the
Lessee located thereon.
"Profits and Losses" means for each applicable period, the
------- ------
Partnership's taxable income or loss for such period determined in accordance
with Section 703(a) of the Code (for this purpose, all items of income, gain,
loss or deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss) with the following
adjustments:
(i) any income of the Partnership that is exempt from
federal income tax and not otherwise taken in account in computing
Profits or Losses pursuant to this definition shall be added to such
taxable income or loss;
(ii) any Capital Project of the Partnership described in
Section 705(a)(2)(B) of the Code or treated as such pursuant to
Regulation ss.1.704-1(b)(2)(iv)(i) and not otherwise taken in account
in computing Profits or Losses pursuant to this definition shall be
subtracted from such taxable income or loss;
(iii) depreciation for such period shall be taken into account
in lieu of the depreciation, amortization and other cost-recovery
deductions taken into account in computing such taxable income or loss;
(iv) gain or loss resulting from any disposition of
Partnership Property with respect to which gain or loss is recognized
for federal income tax purposes shall be computed with reference to the
Book Value of the property disposed of, rather than the adjusted tax
basis of such property;
(v) if any property is distributed in kind to any Partner,
the difference between its fair market value and its Book Value at the
time of distribution shall be treated as Profit or Loss, as the case
may be, recognized by the Partnership; and
(vi) the amount of any adjustment to the Book Value of any
Partnership asset pursuant to clause (iii) of the definition of Book
Value herein shall be taken into account as Profit or Loss from the
disposition of such asset.
"Propylene Cost" means for any month, the Propylene Purchase Cost
--------------
multiplied by the Propylene Yield.
"Propylene Purchase Cost" means for any month, the total cost for
-----------------------
Lyondell to acquire and deliver propylene for use in production of PO Product at
the Existing Plants divided by the Contained Propylene delivered to Lyondell and
its Affiliates under then existing supply contracts.
"Propylene Yield" means the monthly total quantity of pounds of
---------------
Contained Propylene consumed in production of PO Product at the Existing Plants
equal to: the sum of (x) purchased propylene and (y) propylene delivered by toll
processing customers and other sources, divided by (z) the total pounds of PO
Product produced during such month at the Existing Plants.
Exhibit A - 17
<PAGE>
"Pro Rata" means (i) in respect of holders of Series A Units, the ratio
--------
of Series A Units owned by a Partner to the total number of applicable Series A
Units and (ii) in respect of holders of Series B Units, the ratio of Series B
Units owned by a Partner to the total number of applicable Series B Units.
"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 Product 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 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, a
Partner must approve such Below Threshold Discretionary Capital Project to
constitute a Qualified Non-ST Planned Outage with respect to such Partner.
"Qualified Replacement Operator" means a Person that has substantial,
------------------------------
current experience in operating manufacturing plants for the production of PO
Product and the Co-Product produced at the Plant Facilities.
"Reasonable Best Efforts" means a Party's best efforts consistent with
-----------------------
reasonable commercial practice and without payment of any assignment, consent or
similar fee requested by any Person or the incurrence of unreasonable expense or
the requirement to engage in litigation.
"Regulations" means the income tax regulations promulgated by the U.S.
-----------
Department of the Treasury and in effect from time to time.
"Regulatory Allocations" has the meaning set forth in Section 4.1 of
---------------------- -----------
the Partnership Agreement.
"Related Persons" has the meaning specified on Section 12.1 of the
--------------- ------------
Operating Agreement.
"Release" means any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, dumping, discharge, dispersal, leaching, escaping,
emanation or migration of any Chemical Substance in, into or onto the
Environment of any kind whatsoever, including the movement of any Chemical
Substance through or in the Environment, exposure of any type in any workplace,
any release as defined under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any other EHS Law and any
noxious noise or odor emission.
"Remediation" means, for purposes of Section 10.5 of the Operating
----------- ------------
Agreement, (i) cleanup, containment, excavation, removal, treatment or
restoration work, including institutional and engineering controls; (ii)
obtaining any EHS permits necessary to conduct any such activity; (iii)
preparing and implementing any plans or studies for any such activity; and (iv)
obtaining a written notice from the Governmental Authority with jurisdiction
over the matter under applicable EHS Law that no material additional work is
required by such Governmental Authority.
Exhibit A - 18
<PAGE>
"Rolling Product Forecast" has the meaning specified in Section 8.2 of
------------------------ -----------
the Partnership Agreement.
"Scheduled Turnaround" means any scheduled turnaround for periodic
--------------------
maintenance to any of the Existing Plants.
"SEC" means the United States Securities and Exchange Commission.
---
"Senior Plant Management Team" means the Plant Manager at an Existing
----------------------------
Plant Complex and the Technical Manager, Operations Manager, Maintenance Manager
and EHS Manager at such Existing Plant Complex.
"Series A Percentage Interest" means for each Series A Unit Partner,
----------------------------
the number of Series A Units owned by such Partner divided by the total number
of issued and outstanding Series A Units.
"Series A Unit" means a Series A Unit representing a partnership
-------------
interest in the Partnership.
"Series B Percentage Interest" means for each Series B Partner, the
----------------------------
number of Series B Units owned by such Partner divided by the total number of
issued and outstanding Series B Units.
"Series B Unit" means a Series B Unit representing a partnership
-------------
interest in the Partnership.
"SM" means styrene monomer.
--
"Sourcing Plan" has the meaning specified in the PO Logistics
-------------
Agreement.
"Substitute General Partner" means a Person who is admitted as a
--------------------------
General Partner to the Partnership in place of and with all the rights of the
General Partner being replaced.
"Substitute Limited Partner" means a Person who is admitted as a
--------------------------
Limited Partner to the Partnership in place of and with all the rights of the
Limited Partner being replaced.
"Supply Failure Step-in Triggering Event" has the meaning specified in
---------------------------------------
Section 11.2 of the Partnership Agreement.
- ------------
"System-wide Pooled Cost Basis" has the meaning specified in Exhibit C
----------------------------- ---------
to the Operating Agreement.
"Taking" means a permanent or temporary condemnation or taking of all
------
or any portion of the Premises in any manner for public or quasi-public use,
including a conveyance or assignment in lieu of a condemnation or taking.
"Taxes" means all taxes, charges, fees, levies or other assessments
-----
imposed by any taxing authority, including, but not limited to, income, gross
receipts, excise, property, sales, use, transfer, payroll, license, ad valorem,
value added, withholding, social security, national
Exhibit A - 19
<PAGE>
insurance (or other similar contributions or payments), franchise, severance and
stamp taxes (including any interest, fines, penalties or additions attributable
to, or imposed on or with respect to, any such taxes, charges, fees, levies or
other assessments).
"Tax Matters Partner" means Lyondell GP acting in the capacity provided
-------------------
for in Section 5.6(e) of the Partnership Agreement.
"Tax Return" means any return, declaration, report, claim for refund,
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TBA" means tertiary butyl alcohol.
---
"Technology Partnership" means Technology JV, LP, a Delaware limited
----------------------
partnership, and its successors and assigns.
"Technology Partnership Agreement" means the Amended and Restated
--------------------------------
Agreement of Limited Partnership of Technology Partnership.
"Term" has the meaning specified in Section 1.1 of each Ground Lease.
----
"Third Party" means any Person other than a Partner, the Existing Plant
-----------
Operators or the Partnership or their respective Affiliates.
"Third Party Claim" means any Claim by a Third Party. For avoidance of
-----------------
doubt, any obligation to remediate under EHS Law or Applicable Law shall be
considered a Third Party Claim.
"Transaction Documents" has the meaning given to such term in the
---------------------
Master Transaction Agreement.
"Three Year Demand Forecast" has the meaning specified in Section 8.1
-------------------------- -----------
of the Partnership Agreement.
"Transfer" means to sell, assign or otherwise in any manner other than
--------
a Pledge dispose of, whether by act, deed, merger, consolidation, conversion or
otherwise. Such defined term is used as both a noun and a verb.
"Unaffected Partner" has the meaning specified in Section 15.18 of the
------------------ -------------
Partnership Agreement.
"Uncured Partner Offtake or Payment Default" has the meaning specified
------------------------------------------
in Section 11.4 of the Partnership Agreement.
------------
"Uninsured Plant Facilities Casualty" means a Casualty to the Plant
-----------------------------------
Facilities that is not covered by the insurance program maintained by or on
behalf of the Operator. A Casualty that would be insured but for deductibles
and/or self insurance retention limits under the insurance program maintained by
or on behalf of the Operator shall not be considered an Uninsured Plant
Facilities Casualty. The portion of the costs to restore the Plant Facilities to
their condition
Exhibit A - 20
<PAGE>
immediately prior to the Casualty that exceeds coverage limits or that would
have been covered but for a lapse in coverage due to non-payment of premium or
otherwise shall be treated as an Uninsured Plant Facilities Casualty.
"Uninsured Third Party Claim" means a Third Party Claim with respect to
---------------------------
the operations of an Existing Plant Complex that is not covered by the insurance
program maintained by or on behalf of the Existing Plant Operator. A Third Party
Claim that would be insured but for deductibles and/or self-insurance retention
limits under the insurance program maintained by or on behalf of the Existing
Plant Operator shall not be considered an Uninsured Third Party Claim. The
portion of a Third Party Claim that exceeds coverage limits or that would have
been covered but for a lapse in coverage due to non-payment of premium or
otherwise shall be treated as an Uninsured Third Party Claim.
"Unit" means a Series A Unit or a Series B Unit.
----
"Unscheduled Turnarounds" has the meaning specified in Section 2.8 of
----------------------- -----------
the Operating Agreement.
"User" means any entity, division or business unit (including divisions
----
and business units of the Existing Plant Operators and their Affiliates) to
which services from Infrastructure Assets are provided.
"Variable Costs" means the portion of cash costs associated with the
--------------
production of PO Product or Co-Product, as the case may be, that vary directly
with changes in production levels.
"Wholly Owned Affiliate" means as to any Person, an Affiliate of such
----------------------
Person all the equity interests of which are owned, directly or indirectly, by a
Partner, by another Wholly Owned Affiliate of such Person or by the ultimate
parent entity thereof.
"year" means a calendar year.
----
Exhibit A - 21
<PAGE>
EXHIBIT B
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
DISPUTE RESOLUTION PROCEDURES
-----------------------------
1. Binding and Exclusive Means. The dispute resolution provisions set
---------------------------
forth in this Exhibit B shall be the binding and exclusive means to resolve all
---------
disputes arising under the Agreement (each a "Dispute"); provided, however, that
this Exhibit B shall not limit either Party's recourse to courts of competent
---------
jurisdiction for injunctive or equitable relief that may be necessary to protect
the rights and property of such Party or maintain the status quo before, during
or after the pendency of the process set forth in this Exhibit B (except as
---------
specifically set forth in Section 11.2(c)(ii) of the Partnership Agreement). If
------------------
any such Dispute also involves the Operator, then all claims among the Partners,
the Partnership and the Operator shall be combined in a single proceeding
pursuant to this Exhibit B and the corresponding Exhibit B to the Operating
---------
Agreement.
2. Standards and Criteria. In resolving any Dispute, the standards and
----------------------
criteria for resolving such Dispute shall, unless the Parties involved in the
Dispute in their discretion jointly stipulate otherwise, be as set forth in
Attachment 1 to this Exhibit B.
- ------------ ---------
3. ADR and Binding Arbitration Procedures. If a Dispute arises, the
---------------------------------------
following procedures shall be implemented (with references to "Parties" meaning
the Partners involved in the Dispute and the Operator, if joined in the
proceeding in accordance with Section 1):
---------
(a) Any Party may at any time invoke the dispute resolution
procedures set forth in this Exhibit B as to any Dispute by providing written
notice of such action to the other Parties. The disputing Parties within five
Business Days after such notice shall schedule a meeting between the Parties to
be held in Houston, Texas. The meeting shall occur within 10 Business Days after
notice of the meeting is delivered to the Parties. The meeting shall be attended
by representatives of each Party having decision-making authority regarding the
Dispute as well as the dispute resolution process. The meeting shall also be
attended by upper management level personnel of each of the Parties, which
persons have not previously been directly engaged in asserting or responding to
the dispute. Such persons shall attempt in a commercially reasonable manner to
negotiate a resolution of the dispute, which negotiations may entail the
involvement of and meetings attended by additional upper management level
personnel senior to such persons. If such upper management level personnel shall
not have negotiated a resolution to the dispute within 45 days of the initial
notice of such dispute, then a meeting attended by the Chief Executive Officer
or a member of the Management Board of Directors with full decision-making
authority of each ultimate parent company of the disputing Parties shall occur
in New York, New York and such persons shall attempt in a commercially
reasonable manner to negotiate a resolution of the dispute before these
procedures may be deemed to have been exhausted. If such persons succeed in
negotiating a resolution of the dispute, one or more of the disputing Parties
shall be directed (in as comprehensive detail as reasonably practicable) to take
the actions necessary to carry out such resolution. Each Party shall have a
commercially reasonable time in which to take such actions, and such period
shall
Exhibit B - 1
<PAGE>
automatically be extended if such party has in good faith and diligently
commenced and continued with its actions (a "Cure Period").
-----------
(b) If a dispute is not resolved pursuant to subsection (a), or, if
--------------
following the Cure Period, a Party believes in good faith that a dispute still
exists, the representatives of the Parties shall cooperate in a commercially
reasonable manner and shall explore whether techniques such as mediation,
minitrials, mock trials or other techniques of alternative dispute resolution
might be useful. In the event that a technique of alternative dispute
resolution is so agreed upon, a specific timetable and completion date for its
implementation shall also be agreed upon. The representatives will continue to
meet and discuss settlement until the date (the "Interim Decision Date") that is
---------------------
the earliest to occur of the following events: (i) an agreement shall be
reached by the Parties resolving the Dispute; (ii) one of the Parties shall
determine and notify the other Parties in writing that no agreement resolving
the Dispute is likely to be reached; (iii) if a technique of alternative dispute
resolution is agreed upon, the completion date therefor shall occur without the
Parties having resolved the Dispute; or (iv) if another technique of alternative
dispute resolution is not agreed upon, two full meeting days (or such other time
period as may be agreed upon) shall expire without the Parties having resolved
the Dispute.
(c) If, as of the Interim Decision Date, the Parties have not
succeeded in negotiating a resolution of the Dispute pursuant to subsection (b),
--------------
the Parties shall proceed under subsections (d), (e) and (f).
--------------- --- ---
(d) After satisfying the requirements above, such Dispute shall be
submitted to mandatory and binding arbitration at the election of any Party
involved in the Dispute (the "Disputing Party"). The arbitration shall be
---------------
subject to the Federal Arbitration Act as supplemented by the conditions set
forth in this Exhibit B. The arbitration shall be conducted in accordance with
---------
the Commercial Arbitration Rules of the American Arbitration Association in
effect on the date the notice of arbitration is served, other than as
specifically modified herein. In the absence of an agreement to the contrary,
the arbitration shall be held in Houston, Texas. The Arbitrators (as defined
below) will allow reasonable discovery in the forms permitted by the Federal
Rules of Civil Procedure, to the extent consistent with the purpose of the
arbitration. During the pendency of the Dispute, each Party shall make
available to the Arbitrator and the other Parties all books, records and other
information within its control requested by the other Parties or the Arbitrators
subject to the confidentiality provisions contained herein, and provided that no
such access shall waive or preclude any objection to such production based on
any privilege recognized by law. Recognizing the express desire of the Parties
for an expeditious means of dispute resolution, the Arbitrators may limit the
scope of discovery between the Parties as may be reasonable under the
circumstances. In deciding the substance of the Parties' claims, the laws of
the State of Delaware shall govern the construction, interpretation and effect
of this Agreement (including this Exhibit B) without giving effect to any
---------
conflict of law principles. The arbitration hearing shall be commenced promptly
and conducted expeditiously, with each Party involved in the Dispute being
allocated an equal amount of time for the presentation of its case. Unless
otherwise agreed to by the Parties, the arbitration hearing shall be conducted
on consecutive days. Time is of the essence in the arbitration proceeding, and
the Arbitrators shall have the right and authority to issue monetary sanctions
against any of the Parties if, upon a showing of good cause, that Party is
unreasonably delaying the proceeding. To the fullest extent permitted by law,
the arbitration proceedings and award shall be maintained in confidence by the
Arbitrators and the Parties.
Exhibit B - 2
<PAGE>
(e) The Disputing Party shall notify the American Arbitration
Association ("AAA") and the other Parties in writing describing in reasonable
---
detail the nature of the Dispute (the "Dispute Notice"). Each Party to the
--------------
dispute shall select one arbitrator (the "Selected Arbitrators") within 15 days
--------------------
of the date of the Dispute Notice by all of the Parties from the members of a
panel of arbitrators of the AAA. The Selected Arbitrators shall then jointly
select a third arbitrator (together with the Selected Arbitrators, the
"Arbitrators") from the members of a panel of arbitrators of the AAA or, if the
-----------
AAA fails or refuses to provide a list of potential arbitrators, of the Center
for Public Resources, and such Arbitrator shall be experienced in commercial
arbitration. With respect to any dispute under Section 11.3 of the Partnership
------------
Agreement, the Selected Arbitrators shall meet the criteria set forth in Section
-------
11.3(f) of the Partnership Agreement. In the event that the Selected
- -------
Arbitrators are unable to agree on the selection of the third Arbitrator, the
AAA shall select the third Arbitrator, using the criteria set forth in this
Exhibit B, within 30 days of the date of the Dispute Notice. In the event that
- ---------
any Arbitrator is unable to serve, his or her replacement will be selected in
the same manner as the Arbitrator to be replaced. The vote of two of the three
Arbitrators shall be required for any decision under this Exhibit B. The
---------
Arbitrators shall have the authority to assess the costs and expenses of the
arbitration proceeding (including the arbitrators', and attorneys' fees and
expenses) against any or all Parties.
(f) The Arbitrators shall decide all Disputes and all substantive and
procedural issues related thereto, and shall enforce this Agreement in
accordance with its terms. Without limiting the generality of the previous
sentence, the Arbitrators shall have the authority to issue injunctive relief;
however, the Arbitrators shall not have any power or authority to (i) award
consequential (except as specifically set forth under the terms of the
Transaction Documents) incidental, indirect or punitive damages or (ii) amend
this Agreement. The Arbitrators shall render the arbitration award, in writing,
within 20 days following the completion of the arbitration hearing, and shall
set forth the reasons for the award. In the event that the Arbitrators award
monetary damages in favor of either Party, the Arbitrators must certify in the
award that no indirect, consequential (except as specifically set forth under
the terms of the Transaction Documents), incidental, indirect or punitive
damages are included in such award. If the Arbitrators' decision results in a
monetary award, the interest to be granted on such award, if any, and the rate
of such interest shall be determined by the Arbitrators in their discretion.
The arbitration award shall be final and binding on the Parties, and judgment
thereon may be entered in any court of competent jurisdiction, and may not be
appealed except to the extent permitted by the Federal Arbitration Act.
(g) If the issue of whether a breach of this Agreement or whether one
of the Parties was entitled to exercise remedial rights is in Dispute, the non-
prevailing Party shall have a commercially reasonable period of time to cure the
default or circumstance before the prevailing Party shall be entitled to
exercise such remedial rights. The Arbitrator shall include the time in which
the non-prevailing Party must complete such cure in its award.
4. Continuation of Business. Notwithstanding the existence of any Dispute
------------------------
or the pendency of any procedures pursuant to this Exhibit B, the Parties agree
---------
and undertake that all payments not in dispute shall continue to be made and all
obligations not in dispute shall continue to be performed.
Exhibit B - 3
<PAGE>
ATTACHMENT 1 TO EXHIBIT B
(a) First priority shall be given to maximizing the consistency of the
resolution of the Dispute with the satisfaction of all express obligations of
the Parties and their Affiliates as set forth in the Partnership Agreement and
the Operating Agreement.
(b) Second priority shall be given to resolution of the Dispute in a manner
which best achieves the objectives of the business activities and arrangements
under the Partnership Agreement, the Operating Agreement and the Transaction
Documents and permits the Parties to realize the benefits intended to be
afforded thereby.
(c) Third priority shall be given to such other matters, if any, as the
Parties or the Arbitrators shall determine to be appropriate under the
circumstances.
Exhibit B - 4
<PAGE>
EXHIBIT C
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
INITIAL THREE YEAR DEMAND FORECAST
----------------------------------
[to be attached at Closing]
Exhibit C - 2
<PAGE>
EXHIBIT D
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
INITIAL ANNUAL PLAN
-------------------
[to be attached at Closing]
---------------------------
Exhibit D - 1
<PAGE>
EXHIBIT E
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
[Intentionally Deleted]
Exhibit E - 1
<PAGE>
EXHIBIT F
---------
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
DELIVERY POINT
--------------
Exhibit F - 1
<PAGE>
SCHEDULE 2.1
------------
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
OWNERSHIP OF UNITS; NAMES AND ADDRESSES OF PARTNERS; CAPITAL ACCOUNT BALANCES AS
- --------------------------------------------------------------------------------
OF THE CLOSING DATE
-------------------
<TABLE>
<CAPTION>
Series A Units Series B Units
-------------- --------------
<S> <C> <C>
Lyondell LP 1,085 9,900
- -----------
PO Offtake, LP
2 Greenville Crossing
4001 Kennett Pike, Suite 238
Greenville, DE 19807
Lyondell GP 100 100
- -----------
PO Offtake, LP
2 Greenville Crossing
4001 Kennett Pike, Suite 238
Greenville, DE 19807
BAYPO Limited Partnership 8,815 0
- ------------------------- ====== ======
103 Foulk Road, Suite 288
Wilmington, DE 19803
Total: 10,000 10,000
</TABLE>
[Capital account balances will be provided following completion of the appraisal
process.]
<PAGE>
SCHEDULE 2.3
------------
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
G&A LYONDELL PERSONNEL COST BASKET
----------------------------------
1. The Operator shall prepare a list of job titles to represent a typical G&A
support pool ("G&A Support Pool") for the propylene oxide business and the
----------------
administration of this Agreement.
- On an annual basis the change in the market reference rate versus the
prior years market reference will be calculated for this pool of positions
consistent with the annual market reference process. This escalation
factor will be calculated at the end of the first quarter and will be
multiplied by the prior years fee in order to determine the fee for the
current year.
- The basket of positions will be defined as:
- 35% accountants
- 10% accounting manager
- 10% tax accountant
- 10% humans relations
- 10% lawyers
- 10% logistics
- 15% information systems
- For purpose of this calculation market reference is defined to include
both base salary and bonus for these positions.
- The specific job titles and market reference rates for 1998 and 2000 are
attached.
Every five years, the Parties shall review the composition of the G&A
Support Pool and will make such adjustments by mutual agreement as may be
appropriate to better reflect the actual composition of the personnel
providing general overhead and administrative services to the PO business.
2. As of January 1 of every year, the total personnel costs (all wages and
salaries, benefits, insurance and bonuses) for Lyondell for the G&A support
personnel weighted-averaged basket described above shall be compared to
January 1 of the prior year. The Bayer Monthly Stipulated G&A Allocation in
effect during the prior year shall be multiplied by (1 + .75 X the
percentage change in such personnel costs) to arrive at the new Buckeye
Stipulated G&A Allocation. If the personnel costs have decreased, the
formula shall be changed to (1 -.75 X the percentage change in such
personnel costs).
<PAGE>
Determination of Salary-based Escalators for Bayer PO G&A Charges
-------------------------------------------------------------------------------
Baseline
<TABLE>
<CAPTION>
1998 Market Reference Basket of Administrative Positions
Position 1998 MR Target Bonus % Target Bonus $ Total Target Comp % in Basket
<S> <C> <C> <C> <C> <C>
Accountant, II $ 61,568.00 3% $ 1,848.00 $ 63,416.00 35%
Manager, Accounting $109,044.00 25% $27,261.00 $136,305.00 10%
Accountant, Tax, II $ 72,176.00 3% $ 2,166.00 $ 74,342.00 10%
Analyst, Workstation $ 61,620.00 3% $ 1,849.00 $ 63,469.00 10%
Manager, HR $ 98,852.00 20% $19,771.00 $118,623.00 10%
Attorney $ 96,356.00 20% $ 9,272.00 $115,628.00 10%
Specialist, Product $ 55,588.00 3% $ 1,668.00 $ 57,256.00 15%
----------- ---------- -----------
Weighted Totals $ 73,691.80 $ 7,928.90 $ 81,620.70
</TABLE>
Current Year
<TABLE>
<CAPTION>
2000 Market Reference Basket of Administrative Positions
Position 1998 MR Target Bonus % Target Bonus $ Total Target Comp % in Basket
<S> <C> <C> <C> <C> <C>
Accountant, II $ 63,024.00 5% $ 3,152.00 $ 66,176.00 35%
Manager, Accounting $113,412.00 25% $28,353.00 $141,765.00 10%
Accountant, Tax, II $ 79,976.00 5% $ 3,999.00 $ 83,975.00 10%
Analyst, Workstation $ 68,484.00 5% $ 3,425.00 $ 71,909.00 10%
Manager, HR $102,856.00 25% $25,714.00 $128,570.00 10%
Attorney $ 98,176.00 20% $19,636.00 $117,812.00 10%
Specialist, Product $ 58,708.00 5% $ 2,936.00 $ 61,644.00 15%
----------- ---------- -----------
Weighted Totals $ 77,155.00 $ 9,656.30 $ 86,811.30
Escalation Factor for 2000 (75% of increase versus baseline): =(86811.30/81620.70-1)*0.75 = 4.7696%
Year 2000 costs = $0.933 MM/month X 104.7696% = $0.978 MM/month
</TABLE>
<PAGE>
SCHEDULE 6.3
-------------
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
LYONDELL INSURANCE PROGRAM REQUIREMENTS
---------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Insurance Policy Coverage Limit Deductible
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Property Damage and Business $1,225MM current worldwide . $10MM deductible for Property
Interruption Insurance aggregate maximum limit Damage and Scheduled Business
Interruption
- --------------------------------------------------------------------------------------------------
. Other Business Interruption
- $30MM or 30 days, which is
less (Channelview and
Bayport plants only)
- $20MM or 30 days, whichever
is less (all other
locations)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Commercial General $2MM non-US aggregate No deductible for non-US
Liability Insurance limit operations and locations
Excess Liability Insurance $800MM $10MM
Commercial Criminal $40MM $500,000
Insurance
Fiduciary Liability $40MM $500,000
Insurance
Marine Liability Insurance $9MM $1MM
Automobile Liability $9MM US limit $1MM
Insurance $1MM non-US limit
Workers' Compensation various statutory coverage $1MM
Insurance as required by limits
state or federal law
Employers' Liability $2MM US limit $1MM
Insurance $1MM non-US limit
- --------------------------------------------------------------------------------------------------
</TABLE>
The Operator has the right to increase or decrease the coverage limits,
deductibles and self-insurance retention limits, scope of coverages and insurers
and reinsurers in accordance with Lyondell's general risk management policies
applied to manufacturing operations of similar scope and risk to the Plant
Facilities and their operation. Lyondell GP will cause the Operator to consult
with Bayer LP before increasing deductibles or self-insurance retention limits,
reducing coverage limits or eliminating types of coverage. If Bayer LP does not
agree to such increase, reduction or elimination, then, to the extent available
on commercially reasonable terms, the Operator shall retain the original limits
and coverage for the Plant Facilities. The incremental
<PAGE>
costs to maintain the original limits and coverage levels shall be a Partnership
expense to be allocated in accordance with Section 2.5 of the Partnership
-----------
Agreement. Nothing herein affects the rights of the Existing Plants in
accordance with the foregoing provisions of this Schedule 6.3.
------------
2
<PAGE>
SCHEDULE 9.6
------------
TO AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
-----------------------------------------------------
ACCOMMODATION FEE PROCEDURES
----------------------------
On or before April 1 of each year, an executive officer of Bayer shall certify
to Lyondell as to one of the following alternatives:
(A) that the world-wide sales volumes of Identified Polyols for Bayer and
its Affiliates for the prior year multiplied by the actual PO to
Identified Polyols yields for such volumes for the year, exceeds the
sum of (x) the Bayer PO Annual Offtake Amount plus (y) for the
duration of the Bayer 300 Million Pound PO Option Agreement,
deliveries under the Bayer 300 Million Pound PO Option Agreement, in
each case for the prior year; or
(B) if the world-wide sales volumes of Identified Polyols for Bayer and
its Affiliates for the prior year multiplied by the actual PO to
Identified Polyols yields for such volumes for the year, is less than
the sum of (x) the Bayer PO Annual Offtake Amount plus (y) for the
duration of the Bayer 300 Million Pound PO Option Agreement,
deliveries under the Bayer 300 Million Pound PO Option Agreement, in
each case for the prior year, then Bayer shall certify the amount of
such difference.
The certification shall include a calculation of the Accommodation Fee, if any,
that is payable under Section 9.6.
-----------
Bayer will keep appropriate records to support its certification and/or
calculation under the preceding paragraph. If Lyondell, in good faith, believes
that Bayer has not complied with Bayer's obligation under Section 9.6, then, at
-----------
Lyondell's request, Bayer shall provide a certification from Bayer's outside
independent auditor within 90 days after such request, which confirms that Bayer
is in compliance.
3
<PAGE>
EXHIBIT 2.5
-----------
LIMITED PARTNERSHIP INTEREST
PURCHASE AND SALE AGREEMENT
LIMITED PARTNERSHIP INTEREST PURCHASE AND SALE AGREEMENT (this
"Agreement") dated as of March 31, 2000, among Lyondell SAT, Inc. ("Lyondell PO
--------- -----------
LP"), a Delaware corporation, Lyondell POTechLP, Inc. ("Lyondell Tech LP"), a
- -- ----------------
Delaware corporation, BAYPO I LLC ("BAYPO I"), a Delaware limited liability
-------
company, BAYPO II LLC ("BAYPO II"), a Delaware limited liability company and
BIPPO Corporation ("Bayer Tech LP"), a Delaware corporation.
-------------
BAYPO I and BAYPO II desire to purchase from Lyondell PO LP, and
Lyondell PO LP desires to sell to BAYPO I and BAYPO II, an aggregate of 8,815
Series A Limited Partnership Units (the "Bayer Series A Units") of PO JV, LP, a
--------------------
Delaware Limited Partnership (the "PO Joint Venture"). Bayer Tech LP desires to
----------------
purchase from Lyondell Tech LP, and Lyondell Tech LP desires to sell to Bayer
Tech LP, 100 Limited Partnership Units (the "Bayer Technology Units") in
----------------------
Technology JV, LP, a Delaware Limited Partnership (the "Technology Joint
----------------
Venture").
- -------
Accordingly, the parties hereby agree as follows:
ARTICLE I
Purchase and Sale; Closing
--------------------------
SECTION 1.01. Purchase and Sale.
-----------------
(a) On the terms and subject to the conditions of this Agreement, at
the Closing, (i) Lyondell PO LP shall sell, transfer and deliver to BAYPO I and
BAYPO II, and BAYPO I and BAYPO II shall purchase from Lyondell PO LP, the Bayer
Series A Units for an aggregate purchase price of $1,359,500,000 (the "Bayer PO
--------
Partnership Payment Amount"); and (ii) Lyondell Tech LP shall sell, transfer and
- --------------------------
deliver to Bayer Tech LP, and Bayer Tech LP shall purchase from Lyondell Tech
LP, the Bayer Technology Units for an aggregate purchase price of $125,000,000
(the "Bayer PO Technology Partnership Payment Amount" and together with the
----------------------------------------------
Bayer PO Partnership Payment Amount, the "Bayer PO Payment Amount") payable in
-----------------------
each case, as set forth below in Section 1.03. Notwithstanding anything in this
Agreement to the contrary, BAYPO I and BAYPO II shall be entitled to withhold
from the Bayer PO Payment Amount otherwise payable pursuant to this Agreement to
Lyondell PO LP such Taxes, if any, as are required to be withheld with respect
to the making of such payment under Applicable Law.
(b) The Bayer PO Payment Amount has been initially allocated between
the Bayer PO Partnership Payment Amount, the Bayer PO Technology Partnership
Payment Amount and the Bayer 300 MM Pound PO Option Payment Amount as set forth
in Appendix B to the Master Transaction Agreement. No later than ninety (90)
days after the Closing Date, either Parent Party may request an adjustment to
such initial allocation. Lyondell and Bayer shall endeavor in good faith to
agree to any and all requested adjustments. To the extent that Lyondell and
Bayer are unable to agree to any requested adjustments, Lyondell and Bayer shall
select an
<PAGE>
independent appraisal firm that, in consultation with the Parent Parties and
their respective consultants, shall make a final determination with respect to
each unagreed adjustment consistent with Applicable Law.
(c) 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 Parent
Party's separate appraiser shall be selected. Any determination of such
independent appraisal firm, as the case may be, made under this Section 1.01
shall be conclusive and binding as to Lyondell and Bayer and their respective
Affiliates. Each of Lyondell and Bayer shall file all its Tax Returns consistent
with any agreements and determinations made under this Section 1.01.
(d) Lyondell and Bayer shall share 50/50 the fees and expenses of any
independent appraisal firm retained under this Section 1.01. Each of Lyondell
and Bayer shall solely bear the costs of its consultants.
SECTION 1.02. Closing Date.
------------
(a) The closing of the transactions described in Section 1.01 shall
take place following the satisfaction (or, to the extent permitted, the waiver
by the parties entitled to the benefit thereof) of the conditions set forth in
Article V of the Master Transaction Agreement, simultaneously with the Closing
of the other Transactions under the Master Transaction Agreement.
SECTION 1.03. Transactions To Be Effected at the Closing. At the
------------------------------------------
Closing:
(a) Lyondell PO LP shall deliver to BAYPO I and BAYPO II, and
Lyondell Tech LP shall deliver to Bayer Tech LP, (i) an assignment of limited
partnership interests in the form attached as Exhibit A ("PO Partnership
--------------
Assignment") and Exhibit B ("Technology Partnership Assignment") respectively
- ---------- ---------------------------------
hereto and (ii) such other documents as BAYPO I, BAYPO II, Bayer PO LP, Bayer
Tech LP or their counsel may reasonably request to demonstrate satisfaction of
the conditions and compliance with the covenants set forth in this Agreement;
(b) BAYPO I and BAYPO II shall deliver to Lyondell PO LP (i) payment,
by wire transfer to a bank account designated in writing by Lyondell PO LP (such
designation to be made at least five Business Days prior to the Closing Date),
immediately available funds in an amount equal to the Bayer PO Partnership
Payment Amount and (ii) such other documents as Lyondell PO LP or its counsel
may reasonably request to demonstrate satisfaction of the conditions and
compliance with the covenants set forth in this Agreement; and
2
<PAGE>
(c) Bayer Tech LP shall deliver to Lyondell Tech LP (i) payment, by
wire transfer to a bank account designated in writing by Lyondell Tech LP (such
designation to be made at least five Business Days prior to the Closing Date),
immediately available funds in an amount equal to the Bayer PO Technology
Partnership Payment Amount and (ii) such other documents as Lyondell PO LP or
its counsel may reasonably request to demonstrate satisfaction of the conditions
and compliance with the covenants set forth in this Agreement.
SECTION 1.04. PO Assets. The term "PO Assets" shall mean all of the
---------
assets owned by the PO Joint Venture.
SECTION 1.05. PO Technology Assets. The term "PO Technology Assets"
--------------------
shall mean the PO Technology and Patent Rights as such terms are defined in the
Bayer License Agreement.
ARTICLE II
Representations and Warranties of Lyondell PO LP
------------------------------------------------
Lyondell PO LP hereby represents and warrants to each of BAYPO I and BAYPO
II as follows:
SECTION 2.01. Bayer Series A Units. Lyondell PO LP has good and valid
--------------------
title to the Bayer Series A Units, free and clear of all Liens (other than
Permitted Liens). Assuming BAYPO I and BAYPO II each have the requisite power
and authority to be the lawful owner of the Bayer Series A Units, upon delivery
of the PO Partnership Assignment and upon Lyondell PO LP's receipt of the Bayer
PO Partnership Payment Amount, good and valid title to the Bayer Series A Units
will pass to BAYPO I and BAYPO II, free and clear of any Liens (other than
Permitted Liens), other than those arising from acts of BAYPO I and BAYPO II or
their Affiliates. Other than as contemplated in the Transaction Documents, the
Bayer Series A Units are not subject to any voting trust agreement or other
Contract, including any Contract restricting or otherwise relating to the
voting, dividend rights or disposition of the Bayer Series A Units.
SECTION 2.02. Certificates and Records. Lyondell PO LP has delivered
------------------------
to BAYPO I and BAYPO II true and complete copies of the certificate of limited
partnership, as amended to date, of the PO Joint Venture. The PO Joint Venture's
books (which have been made available for inspection by BAYPO I and BAYPO II
prior to the date hereof) are true and complete.
SECTION 2.03. Interests in the PO Joint Venture.
---------------------------------
(a) The PO Joint Venture has 10,000 Series A Units and 10,000 Series
B Units issued and outstanding, of which (i) 8,815 Series A Units and 0 Series B
Units are owned by Lyondell PO LP and (ii) 1,085 Series A Units and 100 Series B
Units are owned by PO Offtake, LP, a Delaware limited partnership. Except for
such units, there are no other partnership interests of the PO Joint Venture
issued, reserved for issuance or outstanding. The Bayer Series A Units are duly
authorized and validly issued and, except as provided in the PO Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act (the "Act"),
fully paid
3
<PAGE>
and nonassessable. Except as provided in the Transaction Documents, the Bayer
Series A Units are not subject to or issued in violation of any purchase option,
call option, right of first refusal, preemptive right, subscription right or any
similar right under any provision of the Act, the certificate of limited
partnership of the PO Joint Venture or any Contract to which the PO Joint
Venture or Lyondell PO LP is a party or otherwise bound. There are not any
bonds, debentures, notes or other indebtedness of any of the PO Joint Venture
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which holders of Bayer Series A
Units may vote ("Voting Limited Partnership Debt"). Except as contemplated or
permitted by the Transaction Documents, as of the date of this Agreement, there
are not any options, warrants, rights, convertible or exchangeable securities,
"phantom" stock rights, stock appreciation rights, stock-based performance
units, commitments, Contracts, arrangements or undertakings of any kind to which
the PO Joint Venture or Lyondell PO LP (with respect to any partnerships units
or interests of the PO Joint Venture) is a party or by which any of them is
bound (i) obligating the PO Joint Venture to issue, deliver or sell, or cause to
be issued, delivered or sold, additional partnership interests or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any partnership interests of or other equity interest in, the PO Joint
Venture or any Voting Limited Partnership Debt, (ii) obligating the PO Joint
Venture to issue, grant, extend or enter into any such option, warrant, call,
right, security, commitment, Contract, arrangement or undertaking or (iii) that
give any person the right to receive any economic benefit or right similar to or
derived from the economic benefits and rights accruing to holders of the Bayer
Series A Units. Except as contemplated or permitted by the Transaction
Documents, as of the date of this Agreement, there are not any outstanding
contractual obligations of the PO Joint Venture or Lyondell PO LP with respect
to the PO Joint Venture to repurchase, redeem or otherwise acquire any
partnership interests of any of the PO Joint Venture.
(b) The PO Joint Venture does not own, directly or indirectly, any
capital stock, membership interest, partnership interest, joint venture interest
or other equity interest in any person.
SECTION 2.04. 1998 Cost Allocation Methodology.
--------------------------------
(a) The PO manufacturing costs for 1998 as set forth on Appendix A
(the "PO Manufacturing Schedule") were derived from the Consolidated Financial
Statements of Lyondell using the 1998 Cost Allocation Methodology attached as
Appendix B. The PO Manufacturing Schedule sets forth a fair and reasonable
presentation of the cash costs of manufacturing PO and associated Co-Products at
the Plant Facilities for the one-year period ended on December 31, 1998.
(b) Except as set forth on Schedule 2.04(b), the PO Joint Venture has
no Liabilities as of the date of this Agreement. Any item set forth on Schedule
2.04(b) shall not include any Liability not included in the 1998 Cost Allocation
Methodology.
SECTION 2.05. PO Assets.
---------
(a) Schedule 2.05 contains a list of all material PO Assets. The PO
Joint Venture has good and valid title to or the right to use all the PO Assets,
in each case free and clear of all
4
<PAGE>
Liens other than Permitted Liens. The PO Joint Venture has leased the land on
which the PO Assets are situated (the "Leased Land") pursuant to the PO Ground
Leases. The PO Ground Leases are in full force and effect.
(b) Except for Abandoned Assets, the PO Assets, as a whole, are in
good working order, free from any defect except for normal wear and tear and
have been maintained in all respects in accordance with the past practice of
Lyondell (other than Idle Assets which have been maintained to the extent
necessary to preserve the ability to resume using such Idle Asset at a
reasonable cost), and no repairs, replacements or regularly scheduled
maintenance relating to the PO Assets has been deferred (other than with respect
to Idle Assets where any repairs, replacements or regularly scheduled
maintenance is being done to the extent necessary to preserve the ability to
resume using such Idle Asset at a reasonable cost), except for defects, failures
to maintain and deferrals that, individually or in the aggregate, could not
reasonably be expected to have a PO Asset Material Adverse Effect. All leased PO
Assets are in the condition required of such property by the terms of the lease
applicable thereto, except for such instances that, individually or in the
aggregate, could not reasonably be expected to have a PO Asset Material Adverse
Effect.
SECTION 2.06. Contracts. Except for (i) the Transaction Documents,
---------
and (ii) the contracts set forth in Schedule 2.06, the PO Joint Venture is not a
party to any contracts.
SECTION 2.07. Permits. Schedule 2.07, which is not required to be
-------
provided until the Closing Date, will set forth all Permits issued or granted to
Lyondell and its Affiliates by Governmental Entities that are necessary to
operate the PO Assets as currently operated except for those Permits the absence
of which could not reasonably be expected to have a PO Asset Material Adverse
Effect. Lyondell possesses all Permits to own or hold under lease and operate
the PO Assets as currently operated, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to have a PO
Asset Material Adverse Effect. Except as set forth in Schedule 2.07, (i) all
such Permits are validly held by Lyondell and Lyondell has complied, and is in
compliance, with all terms and conditions thereof, except where the failure to
be so or to do so, individually or in the aggregate, could not reasonably be
expected to have a PO Asset Material Adverse Effect, (ii) no Proceedings are
pending or, to Lyondell PO LP's Knowledge, threatened relating to the revocation
or modification of any such Permits the loss of which, individually or in the
aggregate, could reasonably be expected to have a PO Asset Material Adverse
Effect and (iii) to Lyondell PO LP's Knowledge, none of such Permits will be
subject to suspension, modification, revocation or nonrenewal as a result of the
execution and delivery of this Agreement or the consummation of the
Transactions, except for such suspensions, modifications, revocations or
nonrenewals which, individually or in the aggregate, could not reason-ably be
expected to have a PO Asset Material Adverse Effect.
SECTION 2.08. Sufficiency of Acquired Assets. The PO Assets, together
------------------------------
with the Infrastructure Assets (as defined in the PO Operating Agreement), the
Permits referred to in Section 2.07, the PO Technology Assets and the PO Joint
Venture's insurance policies comprise all the material assets employed by
Lyondell in the manufacture of PO at the Plant Facilities and such assets are
sufficient for the conduct of such manufacturing activities immediately
following the Closing in substantially the same manner as currently conducted,
assuming all required
5
<PAGE>
consents and approvals are obtained and assuming that Idle Assets and Abandoned
Assets are not available for use in the operation or conduct of such
manufacturing activities.
The annual capacity (taking into account normal turnarounds) of the
Plant Facilities is sufficient to provide at least 1.6 billion pounds of PO
Product annually if such capacity is multiplied by the ratio of the Bayer Series
A Units to all Series A Units of the PO Joint Venture.
SECTION 2.09. Taxes.
-----
(a) Except as set forth in Schedule 2.09, (i) Lyondell PO LP and any
affiliated group, within the meaning of Section 1504 of the Code, of which
Lyondell or the Lyondell Selling Subsidiaries is or has been a member, has filed
or caused to be filed in a timely manner (within any applicable extension
periods) all Tax Returns required to be filed by the Code or by applicable
state, local or foreign Tax laws, with respect to the operations of the PO
Assets, (ii) all Taxes shown to be due on such returns, reports and forms have
been timely paid in full or will be timely paid in full by the due date thereof,
(iii) no material Tax Liens have been filed and no material claims are being
asserted in writing with respect to any Taxes; (iv) no claim has ever been made
by an authority in a jurisdiction where Lyondell PO LP or any Affiliate does not
file Tax Returns that one or more of them might be subject to taxation on the
operations of the PO Assets by that jurisdiction, and (v) Lyondell PO LP or its
Affiliates have withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party, in connection with the
operations of the PO Assets.
(b) Except as set forth in Schedule 2.09, (i) neither Lyondell PO LP
nor any of its Affiliates has made with respect to or any of the PO Assets, any
consent under Section 341(f) of the Code, (ii) none of the PO Assets is "tax
exempt use property" within the meaning of Section 168(h) of the Code, and (iii)
none of the PO Assets is a lease made pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954.
(c) Lyondell PO LP is not a "foreign person" within the meaning of
Section 1445 of the Code.
SECTION 2.010. Proceedings. Schedule 2.10 sets forth as of the date
-----------
hereof a list of each pending or, to the Knowledge of Lyondell PO LP, threatened
Proceeding or claim with respect to which Lyondell or Lyondell PO LP has been
contacted in writing by counsel for the plaintiff or claimant, against or
affecting any PO Asset and that (a) relates to or involves more than $1,000,000,
(b) seeks any injunctive relief that, individually or in the aggregate, could
reason-ably be expected to have a PO Asset Material Adverse Effect or (c)
relates to the transactions contemplated by this Agreement. None of the
Proceedings or claims listed in Schedule 2.10 as to which there is at least a
reasonable possibility of adverse determination would have, if so determined,
individually or in the aggregate, a PO Asset Material Adverse Effect. In
addition, to the Knowledge of Lyondell PO LP, there are no unasserted claims of
the type that would be required to be disclosed in Schedule 2.10 if counsel for
the claimant had contacted Lyondell PO LP that are considered probable of
assertion and that if asserted would have at least a reasonable possibility of
an adverse determination and, if so determined, that,
6
<PAGE>
individually or in the aggregate, could reasonably be expected to have a PO
Asset Material Adverse Effect. To the Knowledge of Lyondell PO LP, neither
Lyondell nor any Lyondell Subsidiary is a party or subject to or in default
under any Judgment that would be binding on any PO Asset. To the Knowledge of
Lyondell PO LP, there is no pending or threatened investigation affecting any PO
Asset that, individually or in the aggregate, could reasonably be expected to
have a PO Asset Material Adverse Effect.
SECTION 2.011. Benefit Plans. The PO Joint Venture has no employee
-------------
benefit plans.
SECTION 2.012. Compliance with Applicable Laws.
-------------------------------
(a) Except as set forth in Schedule 2.12, the PO Assets are in
compliance with all Applicable Laws, except where the failure to be so,
individually or in the aggregate, could not reasonably be expected to have a PO
Asset Material Adverse Effect. This Section 2.12(a) does not relate to matters
with respect to Taxes, which are the subject of Section 2.09 as to PO Assets, or
to environmental matters, which are the subject of Section 2.12(b).
(b) Except as could not reasonably be expected to have a PO Asset
Material Adverse Effect:
(i) the PO Joint Venture, the PO Assets and the Leased Land, are in
compliance with all Environmental Laws;
(ii) there are no pending or, to the Knowledge of Lyondell PO LP,
threatened, claims, Proceedings or investigations arising under
Environmental Laws against or affecting the PO Assets or the Leased Land;
(iii) there has been no Release of Hazardous Substances in, on, at,
under or from the PO Assets or Leased Land since July 28, 1998;
(iv) neither Lyondell nor Lyondell PO LP has received any written or
oral communication from any Governmental Entity or any third party that
alleges that the PO Assets or the Leased Land may not be in compliance in
any respect with, or may be subject to liability under, any Environmental
Laws, except for any such noncompliance or liability that has not been
resolved in accordance with Applicable Law prior to the Closing Date.
SECTION 2.013. Employee and Labor Matters. The PO Joint Venture has
--------------------------
no employees.
SECTION 2.014. Engaging in Business. The PO Joint Venture has not
--------------------
engaged in any business prior to the date hereof.
7
<PAGE>
ARTICLE III
Representations and Warranties of Lyondell Tech LP
--------------------------------------------------
Lyondell Tech LP hereby represents and warrants to Bayer Tech LP as
follows:
SECTION 3.01. Bayer Technology Units. Lyondell Tech LP has good and
----------------------
valid title to the Bayer Technology Units, free and clear of all Liens (other
than Permitted Liens). Assuming Bayer Tech LP has the requisite power and
authority to be the lawful owner of the Bayer Technology Units, upon delivery of
the Technology Partnership Assignment and upon Lyondell PO LP's receipt of the
Bayer PO Technology Partnership Payment Amount, good and valid title to the
Bayer Technology Units will pass to Bayer Tech LP, free and clear of any Liens
(other than Permitted Liens), other than those arising from acts of Bayer Tech
LP or its Affiliates. Other than as contemplated in the Transaction Documents,
the Bayer Technology Units are not subject to any voting trust agreement or
other Contract, including any Contract restricting or otherwise relating to the
voting, dividend rights or disposition of the Bayer Technology Units.
SECTION 3.02. Certificates and Records. Lyondell Tech LP has
------------------------
delivered to Bayer Tech LP true and complete copies of the certificate of
limited partnership, as amended to date, of the Technology Joint Venture. The
Technology Joint Venture's books (which have been made available for inspection
by Bayer Tech LP prior to the date hereof) are true and complete.
SECTION 3.03. Interests in the Technology Joint Venture.
-----------------------------------------
(a) The Technology Joint Venture has 100 Series A Units and 1000
Series B Units issued and outstanding, of which all of the Series A Units and
900 Series B Units are owned by Lyondell Tech LP and (ii) and 100 Series B Units
are owned by Lyondell Tech GP. Except for these units, there are no other
partnership interests of the Technology Joint Venture issued, reserved for
issuance or outstanding. The Bayer Technology Units are duly authorized and
validly issued, and except as provided in the Technology Joint Venture Agreement
and the Act, fully paid and nonassessable. Except as provided in the Transaction
Documents, the Bayer Technology Units are not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Act, the
certificate of limited partnership of the Technology Joint Venture or any
Contract to which the Technology Joint Venture or Lyondell Tech LP is a party or
otherwise bound. There are not any bonds, debentures, notes or other
indebtedness of any of the Technology Joint Venture having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which holders of Bayer Technology Units may vote ("Voting Limited
Partnership Debt"). Except as contemplated or permitted by the Transaction
Documents, as of the date of this Agreement, there are not any options,
warrants, rights, convertible or exchangeable securities, "phantom" stock
rights, stock appreciation rights, stock-based performance units, commitments,
Contracts, arrangements or undertakings of any kind to which the Technology
Joint Venture or Lyondell Tech LP (with respect to any partnership units or
interests of the Technology Joint Venture) is a party or by which any of them is
bound (i) obligating the Technology Joint Venture to issue, deliver or sell, or
cause to be issued, delivered or sold, additional partnership interests or other
equity interests in, or any security convertible or
8
<PAGE>
exercisable for or exchangeable into any partnership interests of or other
equity interest in, the Technology Joint Venture or any Voting Limited
Partnership Debt, (ii) obligating the Technology Joint Venture to issue, grant,
extend or enter into any such option, warrant, call, right, security,
commitment, Contract, arrangement or undertaking or (iii) that give any person
the right to receive any economic benefit or right similar to or derived from
the economic benefits and rights occurring to holders of the Bayer Technology
Units. Except as contemplated or permitted by the Transaction Documents, as of
the date of this Agreement, there are not any outstanding contractual
obligations of the Technology Joint Venture or Lyondell Tech LP with respect to
the Technology Joint Venture to repurchase, redeem or otherwise acquire any
partnership interests of any of the Technology Joint Venture.
(b) The Technology Joint Venture does not own, directly or
indirectly, any capital stock, membership interest, partnership interest, joint
venture interest or other equity interest in any person.
SECTION 3.04. PO Technology.
-------------
(a) The Technology Joint Venture has good and valid title to or the
right to use the PO Technology Assets, in each case free and clear of all Liens
other than Permitted Liens, sufficient for it to meet all its obligations under
the Bayer License Agreement.
(b) Except for such matters that, individually or in the aggregate,
could not reasonably be expected to have a PO Technology Material Adverse
Effect, to Lyondell Tech LP's Knowledge:
(i) all material PO Technology Assets have been maintained in
confidence in accordance with protection procedures believed by Lyondell
Tech LP to be customarily used in the chemical industry to protect similar
technology; and
(ii) all former and current employees of Lyondell who have contributed
to or participated in the conception and development of material PO
Technology Assets (collectively, "PO Personnel"), have executed and
------------
delivered to Lyondell or one of its Affiliates employee's agreements
restricting the use and disclosure of company confidential information,
except as authorized by Lyondell or its Affiliates in the performance of
their employment duties, and giving Lyondell or a Lyondell Subsidiary
ownership of all property rights therein.
SECTION 3.05. Contracts. Except for (i) the Transaction Documents,
---------
and (ii) the contracts set forth in Schedule 3.05, the Technology Joint Venture
is not a party to any contracts.
SECTION 3.06. Taxes.
------
(a) Except as set forth in Schedule 3.06, (i) Lyondell Tech LP and
any affiliated group, within the meaning of Section 1504 of the Code, of which
Lyondell or the Lyondell Selling Subsidiaries is or has been a member, has filed
or caused to be filed in a timely manner (within any applicable extension
periods) all Tax Returns required to be filed by the Code or by
9
<PAGE>
applicable state, local or foreign Tax laws, with respect to the operations of
the PO Technology Assets, (ii) all Taxes shown to be due on such returns,
reports and forms have been timely paid in full or will be timely paid in full
by the due date thereof, (iii) no material Tax Liens have been filed and no
material claims are being asserted in writing with respect to any Taxes; (iv) no
claim has ever been made by an authority in a jurisdiction where Lyondell Tech
LP or any Affiliate does not file Tax Returns that one or more of them might be
subject to taxation on the operations of the PO Technology Assets by that
jurisdiction, and (v) Lyondell Tech LP or its Affiliates have withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party, in connection with the operations of the PO Technology
Assets.
(b) Except as set forth in Schedule 3.06, (i) neither Lyondell Tech
LP nor any of its Affiliates has made with respect to the PO Technology Assets,
any consent under Section 341(f) of the Code, (ii) the PO Technology Assets are
not "tax exempt use property" within the meaning of Section 168(h) of the Code,
and (iii) none of the PO Technology is a lease made pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954.
(c) Lyondell Tech LP is not a "foreign person" within the meaning of
Section 1445 of the Code.
SECTION 3.07. Proceedings. Schedule 3.07 sets forth as of the date
-----------
hereof a list of each pending or, to the Knowledge of Lyondell Tech LP,
threatened Proceeding or claim with respect to which Lyondell or Lyondell Tech
LP has been contacted in writing by counsel for the plaintiff or claimant,
against or affecting any PO Technology Assets and that (a) relates to or
involves more than $1,000,000, (b) seeks any injunctive relief that,
individually or in the aggregate, could reasonably be expected to have a PO
Technology Material Adverse Effect or (c) relates to the transactions
contemplated by this Agreement. None of the Proceedings or claims listed in
Schedule 3.07 as to which there is at least a reasonable possibility of adverse
determination would have, if so determined, individually or in the aggregate, a
PO Technology Material Adverse Effect. In addition, to the Knowledge of Lyondell
Tech LP, there are no unasserted claims of the type that would be required to be
disclosed in Schedule 3.07 if counsel for the claimant had contacted Lyondell
Tech LP that are considered probable of assertion and that if asserted would
have at least a reasonable possibility of an adverse determination and, if so
determined, that, individually or in the aggregate, could reasonably be expected
to have a PO Technology Material Adverse Effect. To the Knowledge of Lyondell
Technology LP, neither Lyondell nor any Lyondell Subsidiary is a party or
subject to or in default under any Judgment that would be binding on any PO
Technology Assets. To the Knowledge of Lyondell Tech LP, there is no pending or
threatened investigation affecting any PO Technology Assets that, individually
or in the aggregate, could reasonably be expected to have a PO Technology
Material Adverse Effect.
SECTION 3.08. Benefit Plans. The Technology Joint Venture has no
-------------
employee benefit plans.
SECTION 3.09. Compliance with Applicable Laws. Except as set forth in
-------------------------------
Schedule 3.09, the PO Technology Assets are in compliance with all Applicable
Laws, except
10
<PAGE>
where the failure to be so, individually or in the aggregate, could not
reasonably be expected to have a PO Technology Material Adverse Effect. This
Section 3.09 does not relate to matters with respect to Taxes, which are the
subject of Section 3.06 as to PO Technology Assets.
SECTION 3.010. Employee and Labor Matters. The Technology Joint
--------------------------
Venture has no employees.
SECTION 3.011. Engaging in Business. The Technology Joint Venture
--------------------
has not engaged in any business prior to the date hereof.
ARTICLE IV
Covenants
---------
SECTION 4.01. Expenses; Transfer Taxes.
------------------------
(a) Whether or not the Closing takes place, and except as set forth
in Article VI, all costs and expenses incurred in connection with this Agreement
and the other Transaction Documents and the transactions contemplated hereby and
thereby shall be paid by the party incurring such expense.
(b) All Transfer Taxes applicable to the transfer of the Bayer Series
A Units shall be borne 50% by Lyondell PO LP and 50% by BAYPO I and BAYPO II
together. All Transfer Taxes applicable to the transfer of the Bayer Technology
Units shall be borne 50% by Lyondell Tech LP and 50% by Bayer Tech LP. Each
party shall use Reasonable Best Efforts to avail itself of any available
exemptions from any such Taxes or fees, and to cooperate with the other parties
in providing any information and documentation that may be necessary to obtain
such exemptions.
ARTICLE V
Amendment and Waiver
--------------------
[INTENTIONALLY OMITTED]
ARTICLE VI
Indemnification
---------------
SECTION 6.01. Tax Indemnification.
-------------------
(a) Other than with respect to Transfer Taxes as provided for in
Section 4.01(b), Lyondell PO LP shall be liable for, and shall indemnify BAYPO I
and BAYPO II, its Affiliates and each of their respective officers, directors,
employees, stockholders, agents and representatives against and hold them
harmless from all Liability for Taxes, whether or not accrued, assessed or
currently due and payable:
11
<PAGE>
(i) of the PO Joint Venture for any Tax Period or portion thereof
ending on or prior to the Closing Date;
(ii) of Lyondell PO LP or any other corporation which is or has been
affiliated with Lyondell PO LP, other than the PO Joint Venture, by reason
of the application of Treasury Regulation section 1.1502-6(a); and
(iii) of Lyondell, Lyondell PO LP and any Lyondell Affiliate with
respect to the ownership or operation of the PO Assets for any Tax Period
or portion thereof upon or prior to the contribution of the PO Assets to
the PO Joint Venture.
(b) Other than with respect to Transfer Taxes as provided for in
Section 4.01(b), Lyondell Tech LP shall be liable for, and shall indemnify Bayer
Tech LP, its Affiliates and each of their respective officers, directors,
employees, stockholders, agents and representatives against and hold them
harmless from all Liability for Taxes, whether or not accrued, assessed or
currently due and payable:
(i) of the Technology Joint Venture for any Tax Period or portion
thereof ending on or prior to the Closing Date;
(ii) of Lyondell Tech LP or any other corporation which is or has
been affiliated with Lyondell Tech LP, other than the Technology Joint
Venture, by reason of the application of Treasury Regulation section
1.1502-6(a); and
(iii) of Lyondell, Lyondell Tech LP and any Lyondell Affiliate with
respect to the ownership or operation of the PO Technology Assets for any
Tax Period or portion thereof upon or prior to the contribution of the PO
Technology Assets to the Technology Joint Venture.
(c) Any indemnity payment to be made under Sections 6.01(a) or
6.01(b) shall be paid within ten days after the indemnified person makes written
demand upon the Lyondell PO LP or Lyondell Tech LP, as appropriate, but in no
case earlier than five Business Days prior to the date on which the relevant
Taxes are required to be paid to the relevant Taxing Authority (including as
estimated Tax payments).
SECTION 6.02. Other Indemnification by Lyondell PO LP and Lyondell
----------------------------------------------------
Tech LP.
- -------
(a) From and after the Closing, Lyondell PO LP shall indemnify Bayer
PO LP, its Affiliates and each of their respective officers, directors,
employees, stockholders, agents and representatives against and hold them
harmless from, any Losses as incurred (other than any Loss relating to Taxes,
for which indemnification provisions are set forth in Section 6.01) arising
from, in connection with, or otherwise in respect of:
(i) any breach of any representation or warranty of Lyondell PO LP
which survives the Closing contained in this Agreement, or in any
certificate delivered pursuant hereto (it being agreed and acknowledged by
the parties that for purposes of the right to
12
<PAGE>
indemnification pursuant to this clause (i) the representations and
warranties of Lyondell PO LP contained herein shall not be deemed qualified
by any references herein to materiality generally or to whether or not any
such breach results or may result in a PO Asset Material Adverse Effect;
provided, however, that such references to materiality or PO Asset 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 Lyondell PO LP contained in this
Agreement; and
(iii) any fees, expenses or other payments incurred or owed by
Lyondell PO LP to any brokers, financial advisors or comparable other
persons retained or employed by it in connection with the transactions
contemplated by this Agreement.
(b) From and after the Closing, Lyondell Tech LP shall indemnify
Bayer Tech LP, its Affiliates and each of their respective officers, directors,
employees, stockholders, agents and representatives against and hold them
harmless from, any Losses as incurred (other than any Loss relating to Taxes,
for which indemnification provisions are set forth in Section 6.01) arising
from, in connection with otherwise in respect of:
(i) any breach of any representation or warranty of Lyondell Tech LP
which survives the Closing contained in this Agreement, or in any
certificate delivered pursuant hereto (it being agreed and acknowledged by
the parties that for purposes of the right to indemnification pursuant to
this clause (i) the representations and warranties of Lyondell Tech LP
contained herein shall not be deemed qualified by any references herein to
materiality generally or to whether or not any such breach results or may
result in a PO Technology Material Adverse Effect; provided, however, that
such references to materiality or PO Technology 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 Lyondell Tech LP contained in this
Agreement; and
(iii) any fees, expenses or other payments incurred or owed by
Lyondell Tech LP to any brokers, financial advisors or comparable other
persons retained or employed by it in connection with the transactions
contemplated by this Agreement.
(c) From and after the Closing, Lyondell PO LP shall be liable for,
and shall indemnify the Bayer PO LP Indemnitees against and hold them harmless
from any and all Losses or Proceedings (including costs of Remediation (as
defined in the PO Operating Agreement), personal injury damages, property or
natural resources damages), arising under, relating to, or otherwise in respect
of Environmental Laws, arising from, relating to or otherwise in respect of: (i)
any noncompliance with Environmental Law existing as of the Closing Date,
arising out of conditions existing on or prior to the Closing Date in connection
with the PO Assets; or (ii) any
13
<PAGE>
presence, Release or threatened Release of, Hazardous Substances in, on, at,
under or migrating from or onto or generated at or from the Plant Facilities or
the Leased Land on or prior to the Closing Date.
SECTION 6.03. Indemnification by BAYPO I, BAYPO II and Bayer Tech
---------------------------------------------------
LP. From and after the Closing, BAYPO I, BAYPO II and Bayer Tech LP shall
- ---
indemnify Lyondell PO LP and Lyondell Tech LP, respectively, their Affiliates,
and each of their respective officers, directors, employees, stockholders,
agents and representatives (the "Lyondell LP Indemnitees") against and hold it
-----------------------
harmless from any Loss suffered or incurred by such Lyondell LP Indemnitee to
the extent arising from, relating to or otherwise in respect of:
(i) any breach of any representation or warranty of BAYPO I, BAYPO
II or Bayer Tech LP which survives the Closing contained in this Agreement
(it being agreed and acknowledged by the parties that for purposes of BAYPO
I's, BAYPO II's or Bayer Tech LP's right to indemnification pursuant to
this Section 6.03 the representations and warranties of BAYPO I, BAYPO II,
Bayer Tech LP and their 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 PO Asset Material Adverse Effect or
PO Technology Material Adverse Effect; provided, however, that such
references to materiality or PO Asset Material Adverse Effect or PO
Technology 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 BAYPO I, BAYPO II or Bayer Tech LP
contained in this Agreement; and
(iii) any fees, expenses or other payments incurred or owed by BAYPO
I, BAYPO II or Bayer Tech LP to any brokers, financial advisors or other
comparable persons retained or employed by it in connection with the
transactions contemplated by this Agreement.
SECTION 6.04. 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 VI 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 BAYPO I, BAYPO II, Bayer Tech LP, Lyondell PO LP, and
Lyondell Tech LP shall attempt to mitigate and shall cause each of its
Affiliates to attempt to mitigate any Losses that such party may suffer as a
consequence of any matter giving rise to a right to indemnification against the
other party under this Article VI by taking all actions which a
14
<PAGE>
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
7.04(b) shall oblige any of BAYPO I, BAYPO II, Bayer Tech LP, Lyondell PO LP or
Lyondell Tech LP or any of their respective Affiliates to seek recourse from its
insurers.
(c) Neither BAYPO I, BAYPO II, Bayer Tech LP, Lyondell PO LP nor
Lyondell Tech LP nor their respective Affiliates shall be liable to any other
party under this Article VI for indemnification of any punitive, consequential
or exemplary damages with respect to claims between themselves and their
Affiliates; provided, however, that this Section 6.04(c) shall not be construed
-------- -------
to limit any party's rights to indemnification under this Article VI for
punitive, consequential or exemplary damages paid by such party to a third party
in respect of a Third Party Claim.
SECTION 6.05. Termination of Indemnification. The obligations to
------------------------------
indemnify and hold harmless any party, (i) pursuant to Section 6.02(a)(i),
Section 6.02(b)(i) or 6.03(a)(i), shall terminate when the applicable
representation or warranty terminates pursuant to the terms of this Agreement,
(ii) pursuant to Section 6.02(a)(ii), Section 6.02(b)(ii) or 6.03(a)(ii), shall
terminate two years after the termination of the applicable covenant and (iii)
the other clauses of Sections 6.02 and 6.03 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 6.06 to the party
to be providing the indemnification.
SECTION 6.06. 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
15
<PAGE>
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 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
16
<PAGE>
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 VI, 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 6.02 or 6.03 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 so to notify the indemnifying party shall not
relieve the indemnifying party from any liability that it may have to such
indemnified party under Section 6.02 or 6.03, 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 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 6.07. Survival. The covenants contained in Section 4.01
--------
shall survive the Closing and shall not terminate except to the extent set forth
in such Section. Except as provided in the preceding sentence, the
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing solely for purposes of Article VI and shall
terminate as set forth in Section 6.09.
SECTION 6.08. PIPA Schedule Effectiveness. For the avoidance of
---------------------------
doubt, it is understood that Lyondell PO LP's and Lyondell Tech LP's liability
with respect to breaches of representations, warranties and covenants in this
Agreement shall be determined by reference to the Schedules to this Agreement in
the form in which such Schedules are attached to the form of this Agreement
attached as Exhibit C to the Master Transaction Agreement on the date of the
Master Transaction Agreement.
SECTION 6.09. Survival of Representations. The representations and
---------------------------
warranties set forth in Sections 2.04(b), Section 2.09 and 2.12(b) shall survive
the Closing solely for the purposes of Article VI and shall expire upon the
expiration of the applicable statute of limitations. Except as set forth in the
preceding sentence, the representations, warranties, covenants and agreements
contained in this Agreement and in any document delivered in connection herewith
shall survive the Closing solely for purposes of Article VI and shall terminate
at the close of business two years after the Closing Date.
SECTION 6.010. Conformance with PO Documents. Nothing in this
-----------------------------
Agreement expands or limits the obligations of the Operator under Section 10.5
of the PO Operating Agreement or the obligations of the PO Joint Venture or its
Partners to pay Operating Services
17
<PAGE>
Costs incurred under the terms and conditions of the PO Operating Agreement and
the PO Partnership Agreement beginning on the Closing Date.
18
<PAGE>
IN WITNESS WHEREOF, Lyondell PO LP, Lyondell Tech LP, BAYPO I, BAYPO
II and Bayer Tech LP have duly executed this Agreement as of the date first
written above.
Lyondell SAT, Inc.,
By: /s/ Francis. P. McGail
--------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
Lyondell POTechLP, Inc.
By: /s/ Francis. P. McGail
--------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
BAYPO I LLC
By: /s/ Paul R. Berry
--------------------------------
Name: Paul R. Berry
Title: Director and Attoney-in-Fact
BAYPO II LLC
By: /s/ Paul R. Berry
--------------------------------
Name: Paul R. Berry
Title: Director and Attoney-in-Fact
BIPPO Corporation
By: /s/ Paul R. Berry
--------------------------------
Name: Paul R. Berry
Title: Director and Attoney-in-Fact
19
<PAGE>
EXHIBIT A
ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST
(PO JV, LP)
THIS ASSIGNMENT (the "Assignment"), is made as of March 31, 2000, to
----------
BAYPO I LLC, a Delaware limited liability company, and BAYPO II LLC, a Delaware
limited liability company (together, the "Assignees"), by Lyondell SAT, Inc., a
---------
Delaware corporation ("Assignor"), as follows:
--------
RECITALS
A. Assignor is a limited partner in POJV, LP, a Delaware limited
partnership (the "Partnership").
-----------
B. Pursuant to the Limited Partnership Purchase and Sale Agreement
(the "PIPA") of even date herewith by and among Lyondell SAT, Inc., Lyondell
----
POTechLP, Inc., BAYPO I LLC, BAYPO II LLC and BIPPO Corporation, Assignor has
agreed to assign, and the Assignees have agreed to be assigned, an aggregate of
8,815 Series A Units representing a limited partnership interests in the
Partnership (the "Assigned Partnership Interests"), of which Assigned
------------------------------
Partnership Interests BAYPO I LLC shall hereby be assigned 8,726.85 Series A
Units and BAYPO II LLC shall hereby be assigned 88.15 Series A Units.
NOW, THEREFORE, the parties hereto hereby agree as follows:
In consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Assignor, and in further
consideration of the Assignees' promises, undertakings and agreements
hereinafter set out, Assignor does hereby grant, sell, assign, transfer and
convey to the Assignees the Assigned Partnership Interests.
TO HAVE AND TO HOLD the Assigned Partnership Interest unto Assignees,
their respective successors and assigns, and Assignor does hereby bind itself,
its successors and assigns, to forever warrant and defend title to the Assigned
Partnership Interest unto Assignees, their respective successors and assigns,
against the lawful claims of any and all persons whomsoever. Assignees hereby
assume and agree to perform and discharge any and all of the obligations
accruing after the effective date hereof with respect to the Assigned
Partnership Interests under the Certificate of Limited Partnership of the
Partnership and the Amended and Restated Limited Partnership Agreement of the
Partnership, as each may be amended from time to time. Nothing in this
Assignment expands the representations and warranties of, or the obligations of,
Assignor set forth in the PIPA.
Assignor and the Assignees hereby agree to execute any documents
required to further evidence or to confirm the assignment of the Assigned
Partnership Interest pursuant hereto and the substitution of Assignees for
Assignor as a limited partner in the Partnership with respect to the Assigned
Partnership Interests.
A-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first above written.
LYONDELL SAT, INC., as Assignor
By: /s/ Francis P. McGrail
-----------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
BAYPO I LLC, as Assignee
By: /s/ BAYPO I LLC
-----------------------------------
Name:_________________________________
Title:________________________________
BAYPO II LLC, as Assignee
By: /s/ BAYPO II LLC
-----------------------------------
Name:_________________________________
Title:________________________________
A-2
<PAGE>
EXHIBIT B
ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST
(TECHNOLOGY JV, LP)
THIS ASSIGNMENT (the "Assignment"), is made as of March 31, 2000, to
----------
BIPPO Corporation, a Delaware corporation ("Assignee"), by Lyondell POTechLP,
--------
Inc., a Delaware corporation ("Assignor"), as follows:
--------
RECITALS
--------
A. Assignor is a limited partner in Technology JV, LP, a Delaware
limited partnership (the "Partnership").
-----------
B. Pursuant to the Limited Partnership Purchase and Sale Agreement
(the "PIPA") of even date herewith by and among Lyondell SAT, Inc., Lyondell
----
POTechLP, Inc., BAYPO I LLC, BAYPO II LLC and BIPPO Corporation, Assignor has
agreed to assign, and Assignee has agreed to be assigned, 100 Series A Units
representing a limited partnership interest in the Partnership (the "Assigned
--------
Partnership Interest").
- --------------------
NOW, THEREFORE, the parties hereto hereby agree as follows:
In consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Assignor, and in further
consideration of Assignee's promises, undertakings and agreements hereinafter
set out, Assignor does hereby grant, sell, assign, transfer and convey to
Assignee the Assigned Partnership Interest.
TO HAVE AND TO HOLD the Assigned Partnership Interest unto Assignee,
its successors and assigns, and Assignor does hereby bind itself, its successors
and assigns, to forever warrant and defend title to the Assigned Partnership
Interest unto Assignee, its successors and assigns, against the lawful claims of
any and all persons whomsoever. Assignee hereby assumes and agrees to perform
and discharge any and all of the obligations accruing after the effective date
hereof with respect to the Assigned Partnership Interest under the Certificate
of Limited Partnership of the Partnership and the Amended and Restated Limited
Partnership Agreement of the Partnership, as each may be amended from time to
time. Nothing in this Assignment expands the representations and warranties of,
or the obligations of, Assignor set forth in the PIPA.
Assignor and Assignee hereby agree to execute any documents required
to further evidence or to confirm the assignment of the Assigned Partnership
Interest pursuant hereto and the substitution of Assignee for Assignor as a
limited partner in the Partnership with respect to the Assigned Partnership
Interest.
B-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first above written.
LYONDELL POTECHLP, INC., as Assignor
By: /s/ Francis P. McGrail
-----------------------------------
Name: Francis P. McGrail
Title: President and Treasurer
BIPPO CORPORATION, as Assignee
By: /s/ BIPPO Corporation
-----------------------------------
Name:_________________________________
Title:________________________________
B-2
<PAGE>
Exhibit 99.1
------------
PRESS RELEASE
Lyondell Chemical Company Completes Sale of Worldwide Polyols Business To Bayer;
Net Proceeds Used for Debt Repayment
Lyondell Chemical Company (NYSE: LYO) reports that the sale of its worldwide
polyols business to Bayer, along with an equity interest in Lyondell's U.S.
propylene oxide operations, was completed on March 31, 2000, for $2.45 billion.
Lyondell will use the net proceeds of $2.05 billion to repay debt associated
with the acquisition of ARCO Chemical Company in 1998.
``This is a unique agreement which builds on the strengths of both Lyondell and
Bayer,'' said Dan F. Smith, President and Chief Executive Officer of Lyondell
Chemical Company. ``For Lyondell, it accelerates cash flows from the polyols
business while at the same time maintaining the strategic linkage to the
derivatives markets for future PO growth through the world's premier urethanes
producer. The transaction will be accretive to Lyondell's earnings and cash flow
in the first year and has enabled us to improve our balance sheet through
significant debt reduction.''
``Our relationship with Bayer will open up additional growth opportunities for
Lyondell on a global basis,'' Smith said. ``Already we are moving forward with
the formation of a joint venture for the construction of a worldscale PO plant
in Europe and we expect to discuss other potential joint ventures with Bayer.''
Lyondell continues to be an important merchant supplier of PO worldwide. The
company will continue to focus on growth by expanding its other PO derivatives
businesses, including propylene glycol, butanediol (where the Company has
proprietary technology) and propylene glycol ethers as well as potential
opportunities to expand its Equistar joint venture in the US and globally.
7
