EXHIBIT 10.16
SALES AGREEMENT
Ethylene
THIS AGREEMENT, dated as of May 15, 1998 ("Effective Date") is entered into by
and between Equistar Chemicals, LP, hereinafter referred to as "Seller," and
Occidental Chemical Corporation, hereinafter referred to as "Buyer". Each of
Seller and Buyer is sometimes hereinafter referred to as a "party" and
collectively as the "parties".
WHEREAS, as of this same date, the parties have entered into the Asset
Contribution Agreement, in accordance with which Ethylene production assets are
transferred from Buyer to Seller;
WHEREAS, Buyer desires to purchase quantities of Ethylene from Seller, and
WHEREAS, Seller desires to sell quantities of Ethylene to Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
"Affiliate(s)" means any person that directy or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with the party specified. For purposes of this definition, the term "control"
shall have the meaning as set forth in 17 C.F.R. 230-405 as in effect on the
date hereof.
"Agreement" means this Ethylene Supply Agreement.
"Annual Maximum" has the meaning set forth in Paragraph 2(a) of this
Agreement and the meaning ascribed in Paragraph 2(f) for the Phase Down
period.
"Annual Minimum" has the meaning set forth in Paragraph 2(a) of this
Agreement and the meaning ascribed in Paragraph 2(f) for the Phase Down
period.
"Asset Contribution Agreement" means the Agreement and Plan of Merger and
Asset Contribution, among Occidental Petrochem Partner 1, Inc., Occidental
Petrochem Partner 2, Inc., Oxy Petrochemicals Inc., PDG Chemical Inc. and
Equistar Chemicals, LP, executed on the same date as this Agreement.
"Bank Rate" means, with respect to any period for which interest is to be
calculated under this Agreement, the rate of interest publicly announced from
time to time by the Chase Manhattan Bank, NA (or its successor) at its
principal office as its prime commercial lending rate. Each change in this
rate resulting from a change in the prime rate shall take effect on the day
on which the announced rate changes.
"Buyer's U.S. Plants" means the manufacturing plants owned or operated by the
Buyer and set forth on Schedule 1, attached hereto. Schedule 1 also includes,
for each of Buyer's U.S. Plants, the current practical production capacity,
approximate ethylene use when operating at current practical production
capacities and actual 1997 ethylene utilization.
"Delivery Point(s)" means the exit flange on the metering station measuring
Ethylene deliveries to each of the Buyer's U.S. Plants.
"Ethylene" means ethylene having the specifications set forth in Exhibit A to
this Agreement, or in the event of ethylene delivered to Buyer hereunder and
not conforming to such specifications, such ethylene as to which
specifications have been waived by Buyer in order to accept delivery.
"Monomers Market Report" means the monthly publication of the same title
published by Chemical Marketing Associates, Inc.
"Monthly Petrochemicals and Plastics Analysis" means the monthly publication
of the same title published by Chemical Data, Inc.
"OxyMar" means that certain Texas general partnership between subsidiaries of
Occidental Petroleum Corporation, a Delaware corporation, and Marubeni
Corporation, a Japanese corporation.
"OxyMar Plant" means that certain vinyl chloride monomer manufacturing
facility, owned by OxyMar and located at ▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ and
which is operated by OxyChem for the benefit of OxyMar.
"Phase Down" has the meaning set forth in Paragraph 2(f) of this Agreement.
"Phase Down Annual Maximum" has the meaning set forth in Paragraph 2(f) of
this Agreement.
"Phase Down Annual Minimum" has the meaning set forth in Paragraph 2(f) of
this Agreement.
"Phase Down Basis Quantity" has the meaning set forth in Paragraph 2(f) of
this Agreement.
"Phase Down Notice" has the meaning set forth in Paragraph 2(f) of this
Agreement.
"Reduction Event" means, as to each of Buyer's U.S. Plants, (i) a shut down
of such plant, (ii) a reduction in practical production capacity of such
plant, or (iii) the taking out of service (other than for maintenance or
repair) of all or any portion of the practical production capacity of such
plant.
"Superfund" means the assessment on the production and sale of Ethylene
imposed pursuant to the Comprehensive Environment Response, Compensation and
Liability Act, as the same may be from time to time amended or reauthorized
and in effect.
"Term" has the meaning set forth in Section 3 of this Agreement.
2. QUANTITY
(a) Requirements. Buyer shall buy from Seller and Seller shall sell to Buyer an
"Annual Minimum" quantity of Ethylene equal to 100% of the ethylene
feedstock requirements of Buyer's U.S. Plants, less any quantities up to
250 MM lbs. tolled in accordance with the provisions of Paragraph 2(e),
exclusively for internal use in production at Buyer's U.S. Plants (estimated
to be approximately 2,000 MM lbs./yr. currently) provided that, in any
calendar year, Seller has no obligation to supply more than 2,550 MM lbs. of
Ethylene ("Annual Maximum"). The Annual Maximum will be prorated for the
remaining days of the first calendar year after the start of performance
hereunder. Buyer shall not purchase Ethylene for resale from Seller or any
third party except for resales by Buyer to OxyMar for use in production at
the OxyMar Plant.
(b) Annual Maximum Adjustment. If a Reduction Event occurs, then the Annual
Maximum will be reduced by an amount equal to the reduction in ethylene use
attributable to the reduction in practical production capacity resulting
from such Reduction Event. If all or any portion of such practical
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production capacity is placed back into service, then the Annual Maximum
will be increased by the amount of the increased ethylene feedstock
requirements due to such capacity having been restored to service, subject
to the inclusions and exclusions of Paragraph 2(c) below. Any such changes
will be prorated for the remainder of any year in which such Reducton Event
occurs.
(c) Growth of Requirements. Any increase in the ethylene feedstock requirements
of the Buyer's U.S. Plants resulting from the installation of substantial
new production facilities (i.e. new plants or new trains) shall be excluded
from the calculation of the ethylene feedstock requirements of the Buyer's
U.S. Plants under this Agreement; provided that increased ethylene
feedstock requirements due to startup, debottlenecking, modernization or
other modifications of existing equipment will be included in ethylene
feedstock requirements which Buyer will be obligated to purchase hereunder.
(d) Forecasts. Buyer shall provide to Seller an annual forecast of quantities of
Ethylene expected to be purchased from Seller and shipment dates 90 days
prior to the start of each calendar year, supplemented by quarterly updates
30 days prior to the start of each calendar quarter. Such forecasts are for
planning purposes only and will not affect the obligations of either party.
(e) Tolls. In any year Buyer may receive up to 250 MM lbs. of Ethylene tolled
through Seller's pipeline system, provided Buyer nominates the next calendar
year quantity by notifying Seller of the quantity and parameters for
scheduling of such tolls by September 30 of the preceding calendar year. If
timely notice with respect to any calendar year is not received by Seller,
Buyer shall purchase from Seller 100% of Buyer's U.S. Plants' requirements,
without any toll quantity subtracted for that calendar year.
(f) Phase Down. Both parties have the right to elect to reduce the parties'
Ethylene quantity obligations so long as any such reduction is accomplished
in accordance with and subject to the following ("Phase Down"):
i. Either party may exercise its right of Phase Down by providing at
least 3 full calendar years irrevocable written notice (the "Phase Down
Notice") to the other party for each calendar year affected by such
Phase Down Notice, but in no event will Phase Down affect any calendar
year prior to the calendar year beginning January 1, 2009. The party
providing a Phase Down Notice shall state therein the Phase Down
quantity such party elects for any Phase Down year specified in such
Phase Down Notice. The timely delivery of the Phase Down Notice
specifying the Phase Down quantity is an essential term of this
Agreement.
ii. In order to effect the parties' intention that Phase Down of the
entire quantity hereunder could be completed in no less than 5 years
and that the Phase Down quantity in any year may never exceed the
quantity reduction that would occur in a 5 year uniform quantity Phase
Down, the parties agree that a Phase Down Basis Quantity will be the
basis for calculating the maximum Phase Down quantity in any year, as
set forth in Subparagraphs iii. and iv., below.
iii. As used herein, the "Phase Down Basis Quantity" will be the annual
average of the purchased Ethylene quantity hereunder (plus any quantity
Buyer may have been obligated to purchase but did not) for the 3
calendar years immediately preceding the first Phase Down year.
iv. As used herein, the "Phase Down Annual Minimum" will equal Buyer's
purchase obligation in the Phase Down period. In the first Phase Down
year the Phase Down Annual Minimum shall not be less than 83.33% of the
Phase Down Basis Quantity, and in any subsequent year, the reduction of
the Phase Down Annual Minimum for that year as compared to the previous
year may not exceed 16.67% of the Phase Down Basis Quantity. Subject to
Subparagraph 2(f) vii, the party exercising its right to reduce the
Ethylene quantity obligations under Paragraph 2(f) of this Agreement
may elect to reduce the Phase Down Annual Minimum by said 16.67% or any
lesser quantity. If a Reduction Event occurs during the Phase Down, the
Phase Down Annual Minimum for the year in which the Reduction Event
occurs and is continuing will be reduced by an amount equal to the
product of (A) the reduction in ethylene use attributable to the
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reduction in practical production capacity resulting from such Reduction
Event multiplied by (B) a fraction, the numerator of which is the Phase
Down Annual Minimum for such year without giving effect to reduction for
any Reduction Event and the denominator of which is the Phase Down Basis
Quantity. If all or any portion of the practical production capacity is
placed back in service, then, subject to Paragraph 2(c), the Phase Down
Annual Minimum will be increased by the same amount as it previously had
been reduced as a result of the reduction of such practical production
capacity. Any such changes will be prorated for the remainder of any year
in which such Reduction Event occurs.
v. As used herein, the "Phase Down Annual Maximum" will be, in each year,
115% of the Phase Down Annual Minimum for that year.
vi. Beginning with the first Phase Down year, the quantity obligations of the
parties will cease to be on a requirements basis for Buyer and on a 2,550
MM lbs. Annual Maximum basis (as may be reduced by a Reduction Event) for
Seller. Beginning with the first Phase Down year the quantity obligations
will apply in accordance with this Paragraph 2(f) in that the Annual
Minimum for any year will be the applicable Phase Down Annual Minimum and
the Annual Maximum for such year will be the applicable Phase Down Annual
Maximum.
vii. If one party has furnished the Phase Down Notice to the other, the other
party may elect to reduce the quantity in the affected year by a greater
amount, but not exceeding, in total reduction quantity, the upper limit
specified in Subparagraph 2(f) iv., provided that the election is made by
written notice at least 3 full calendar years prior to the affected Phase
Down year, or within 10 days after receipt of the Phase Down Notice,
whichever is later.
viii. There will be no automatic reduction of quantity unless the Phase Down
Notice for a given Phase Down year is provided at least 3 full calendar
years prior to such Phase Down year. Phase Down may be effected over any
number of years and this Agreement shall not be terminated in accordance
with Section 3 until the quantity is reduced to zero under the provisions
of this Paragraph 2(f).
An example of a Phase Down of the entire quantity in 5 consecutive years would
occur as follows:
Assuming a Phase Down Basis Quantity of 2,200 MM lbs.,
Phase Down Year Annual Minimum Annual Maximum
--------------- -------------- --------------
(MM lbs.) (MM lbs.)
1 1,833 2,108
2 1,467 1,687
3 1,100 1,265
4 733 844
5 367 422
6 0 0
(g) Audit of Books. Seller will have the right to have a third party
recognized national accounting firm audit Buyer's books and records for
any months hereunder for up to 2 years after such month, upon reasonable
prior nofice and during normal business hours, provided that the
designated auditor may not disclose to Seller the information examined in
the audit other than to corroborate compliance with the quantity
obligations hereunder according to the quantities of Ethylene ordered
hereunder as compared with requirements, growth of requirements and toll
quantities, in each case, for Buyer's U.S. Plants, and report the quantity
discrepancy and circumstances of any alternative supply or ethylene
feedstock consuming capacity or production changes for the relevant
period.
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3. TERM
The term of this Agreement (the "Term") will begin on the Effective Date and
will continue in effect until, and terminate on, such date as the Phase Down
Annual Minimum calculated as set forth in Paragraph 2(f) equals zero; it being
understood and agreed that in no event shall such Phase Down Annual Minimum
decline to zero prior to December 31, 2013.
4. PRICE
(a) Price Computation for Purchases Not Deemed Export Support. All purchases
will be priced in accordance with this Paragraph 4(a), unless expressly
excluded under Paragraph 4(b), below. Each month Seller shall invoice Buyer
and Buyer shall pay a preliminary price equal to the prior quarter's
Seller's Weighted Average Sales Price (deemed to be 18.75c/lb. for the first
quarter of 1998) adjusted by an amount equal to the change from the prior
quarter's average Publication Price vs. the invoice month's Publication
Price. Seller's Weighted Average Sales Price and the average Publication
Price for the second quarter of 1998 shall include only two months, May and
June. In the month following each calendar quarter, Seller shall adjust the
preliminary prices for that quarter to equal Seller's Weighted Average Sales
Price for that quarter. Seller shall furnish to Buyer an adjustment invoice
showing the total dollar charge or credit to Buyer for the entire quarter
resulting from the adjustments to arrive at a final price. An example of the
above pricing calculation is included as Exhibit B.
"Weighted Average Sales Price" means Seller's quantity weighted average net
ethylene final transaction price for sales to third parties for a calendar
quarter. Sales included in the averages include all contract and spot
transactions of Seller (including prices designated "export support" and
prices net of special concessions such as absorption by Seller of Superfund
or other governmental assessments on ethylene production where it is
contrary to industry practice for Seller to absorb such costs), whether
based on monthly negotiations, formula or publication reference pricing, or
whether based on the price equivalent of tolls to produce ethylene.
"Publication Price" means a derived price consisting of the sum of (i) 80%
of "large-buyer clearing price, pipeline delivered" for ethylene in the U.S.
Gulf Coast published in that month's Monthly Petrochemical and Plastics
Analysis, plus (ii) 20% of the "low spot price", published in the last issue
of the month of Monomers Market Report for ethylene in the U.S.
(b) Export Support Purchases. Fifteen percent of the purchased quantity of
Ethylene within each month, up to 25 MM lbs., will be priced at the lower of
a reference publication spot price, the "low spot price" (U.S.) in the
Monomers Market Report for the month of deliveries, or the above Paragraph
4(a) price. Buyer shall annually certify export quantifies by furnishing
reasonable supporting data to Seller.
(c) Audit of Books. Buyer will have the right to have a third party recognized
national accounting firm audit Seller's books and records for any months
hereunder for up to 2 years after any such month, upon reasonable prior
notice and during normal business hours, provided that the designated
auditor may not disclose to Buyer the information examined in the audit
other than to corroborate accuracy according to the price terms hereunder
and report the dollar sum of the discrepancy for any month in which any
discrepancy was found. If either of the published prices referenced in
Paragraph 4(a) cease being published or is no longer representative of U.S.
Gulf Coast contract or spot ethylene prices, as applicable, then the parties
shall designate an alternate reference price method to apply after the
redesignation.
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5. DELIVERY
(a) Method of Delivery. Seller shall deliver Ethylene or cause Ethylene to be
delivered to the Delivery Points. Except as expressly provided in this
Agreement, Ethylene will be delivered free and clear of pipeline
transportation or other delivery charges, which are for Seller's account.
(b) Seller's Access to Pipelines and Equipment. Buyer shall provide such
easements of access onto the premises of Buyer's U.S. Plants as shall enable
the Seller to operate and maintain its pipelines and metering equipment for
the delivery and measurement of Ethylene provided to the Buyer, in
accordance with Seller's normal pipeline operating and maintenance
procedures.
(c) Monthly Delivery Instructions. Five days prior to the first day of each
month, Buyer shall furnish to Seller in writing a good faith estimate of the
quantities of Ethylene to be delivered to each of Buyer's U.S. Plants during
each of the next three months and such instructions and estimates for the
month immediately following such notice shall be final and binding, subject
to commercially reasonable variations due to fluctuations in the ordinary
course of operation of Buyer's U.S. Plants. The parties shall cooperate
reasonably to distribute deliveries of Ethylene in approximately equal daily
quantities during each year taking into consideration, however, fluctuations
in daily demand due to maintenance, turnarounds, or otherwise occurring in
the ordinary course of business.
(d) Title and Risk of Loss. Title to and risk of loss of Ethylene delivered
hereunder shall pass to Buyer at the Delivery Point(s).
(e) Capital Improvement Cost. Seller and Buyer shall cooperate reasonably to
continue effective utilization of delivery logistics systems affected by
this Agreement, including, without limitation, the pipeline systems operated
by Seller to deliver Ethylene to Buyer. The obligation of reasonable
cooperation pursuant to this Paragraph includes reasonable capital
improvement costs allocated between Buyer and Seller in accordance with then
current industry practice.
(f) Toll Ethylene. Buyer shall deliver, or cause to have delivered, toll
ethylene into Seller's pipeline system of like quality to Ethylene supplied
hereunder, at the pressure required by Seller and without Seller incurring
any fees or charges to third parties.
6. QUANTITY MEASUREMENT AND QUALITY TESTING
(a) Determination of Quantity. Seller, Seller's agent or Seller's carrier, as
applicable, shall own, operate and maintain metering equipment at the
Delivery Point where quantities of Ethylene delivered to Buyer shall be
measured and its temperature and pressure recorded. The primary device for
each meter installation shall be a metering tube constructed in accordance
with the specifications recommended by ANSI/API Report 2530 and AGA3/API
14.3, as amended or supplemented from time to time. Sharp-edged orifice
plates shall be retained with a standard orifice fitting (senior type)
equipped with flange type pressure taps. The diameter of the orifice in the
plate shall be in standard one-eighth inch increments. The density of the
Ethylene shall be determined by calculation performed continuously using API
Report 2565 "Density of Ethylene". The flowing temperature and pressure
determined from Seller's meters will be used for the calculation of density.
The volume of Ethylene delivered at the Delivery Point for each day shall be
determined by reference to an on-site ▇▇▇▇▇▇▇ electronic micro-processor
which shall receive the electronic signals from the primary metering device
and calculate pounds of Ethylene through the orifice meter using the latest
version of AGA3/API 14.3, as amended or supplemented from time to time. A
day shall be deemed the period from 7:00 a.m. on one day to 7:00 a.m. on the
next succeeding day. Correction factors and calibrations from such meter
readings for the purpose of determining daily quantities of Product
delivered will conform with procedures set forth below. If the parties are
unable to agree upon the quantity delivered, quantities will be determined
by a mutually agreed upon inspector. The parties will be bound by the
inspector's determination and will equally bear inspection costs. Buyer
shall provide, at its
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sole cost, quantities of steam, electricity, nitrogen, and instrument air
required for the operation of the metering equipment.
(b) Temperature Corrections. All quantities of Ethylene will be corrected for
temperature to sixty degrees Fahrenheit (60(degrees)F) in accordance with
current methods which are set forth in American Petroleum Institute Routine
Catalog Number 852-25650 (Chapter 11.3.2.1) or other method mutually agreed
to by both parties.
(c) Calibration of Measuring Equipment. ▇▇▇▇▇▇ shall calibrate flow meters,
pressure recorders and temperature recorders at least once each month and at
such other times as the parties may mutually agree. Seller shall provide
reasonable notice to Buyer of the time of calibrations and Buyer shall have
the right to witness the calibrations. If following a calibration, any
metering equipment is found to be inaccurate by one half percent or more,
then the quantity of Ethylene previously delivered shall be retroactively
adjusted at the rate of such inaccuracy for any period of inaccuracy which
is definitely known, provided, however, that if such period is not
definitely known and if the parties cannot otherwise mutually agree upon a
period of time for such retroactive adjustment, then such adjustment shall
be for a period of one-half the number of days from the last previous
calibration.
(d) Measuring Equipment Out of Service. If for any reason the metering equipment
is out of service so that the quantity of Ethylene delivered to the Delivery
Point through such equipment cannot be ascertained, Seller shall notify
Buyer and the quantity of Ethylene delivered through such equipment during
such period shall be estimated and agreed upon by the parties upon the basis
of the best available data, using, in order of preference, the following
methods:
(i) The registration of any check measuring equipment of Buyer, if
installed and properly operating; or
(ii) Any measurement equipment which Seller may have in the flowing stream
of Ethylene, if agreed upon by Buyer.
(e) Determination of Quality. Samples taken on mutually agreed occasions and at
mutually agreed input sampling points shall be the basis for determining
compliance with specifications for the quality of Ethylene delivered
hereunder. Subject to the remaining provisions of this section, Seller's
laboratory analysis, conducted in accordance with the provisions of Exhibit
A, shall conclusively determine whether Ethylene specifications have been
met. Seller shall retain analytical data for at least 90 days. Seller shall
monitor the quality of Ethylene introduced into the delivery pipelines to
each of the Delivery Points. If abnormalities occur in the operation of
Buyer's U.S. Plants supplied hereunder or in plant operations downstream of
any other mutually agreed upon Delivery Points, Buyer may provide notice
requiring Seller, for a reasonable period of time, to take three
representative samples of Ethylene from the relevant sampling point each
day. Two of such samples shall be delivered to Buyer and one shall be
retained by Seller for analysis in accordance with the provisions of Exhibit
A. Buyer shall arrange for analysis of one of the samples in its custody in
accordance with the provisions of Exhibit A. Seller and Buyer shall promptly
advise each other of the results of their respective analyses. If Buyer
deems there to be a material difference in the parties' analysis of their
respective samples and if such difference cannot be reconciled within one
week of Buyer's notice thereof, the remaining sample shall be submitted to a
nationally recognized independent testing laboratory, agreeable to both
Buyer and Seller, for analysis in accordance with the provisions of Exhibit
A. The parties will be bound by the independent laboratory's determination
and will equally bear the cost of such independent analysis.
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7. PAYMENT AND CREDIT
Terms and Payment Default. Buyer shall pay Seller for Ethylene by wire transfer
into Seller's account, per Seller's instructions, net 20 days from last day of
the shipment month for purchases. Seller shall invoice promptly after the last
day of the month. Adjustment credits or debits shall be shown on the invoice
issued at the end of the month in which the adjustment was made net 10 days from
date of adjustment invoice. If Buyer fails to pay Seller in accordance with said
terms, Seller may either (i) suspend deliveries until all indebtedness is paid
in full, or (ii) place Buyer on a cash-in-advance status until arrangements are
made for security satisfactory to Seller or, at Seller's option, until all
indebtedness to Seller is paid in full. If Buyer, within 30 days of notice of
payment default, fails to make payment in full for all sums due and payable
which are not reasonably in dispute, Seller may terminate the Agreement
forthwith upon reasonable notice. All timely payments under this Agreement shall
be made without early payment discount. Any overdue balance owed shall accrue
daily interest charges at a rate equal to the greater of (i) 100% of the Bank
Rate (as in effect from time to time) calculated on the basis of a 360 day year
or (ii) the cost of borrowing of the non-defaulting party. If the invoice is
received after noon on one day, such invoice will be deemed received on the next
day. If the payment due date falls on a Saturday or a bank or federal holiday,
other than Monday, the payment shall be due on the past preceding business day.
If the payment due date falls on a Sunday or Monday bank or federal holiday, the
payment shall be due on the following business day. Any preexisting obligation
of Buyer to make payment for Product delivered hereunder shall survive
termination of this Agreement.
8. TAXES
(a) Pass Through. Any taxes, excises, fees, duties or other charges, or any
increase therein, now or hereafter imposed directly or indirectly by law
upon Ethylene, components of Ethylene, or raw material from which Ethylene
is derived, sold or delivered to Buyer under this Agreement, or on the
production, manufacture, storage, sale, transportation or delivery thereof,
which Seller is required to pay or collect, (including, without limitation,
Superfund, gasoline blendstocks and additives excise taxes) and any
retroactive impositions thereof or adjustments thereto ("Tax or Taxes"),
shall be passed on to Buyer as an explicit surcharge and shall be paid by
Buyer to Seller in addition to the price (including any interest thereon for
which Seller is liable) whether included in the applicable invoice, or added
retroactively to the price, provided, that the pass-through of any such Tax
is in accordance with then prevailing industry practice. If Buyer furnishes
Seller with a timely and valid resale or other exemption certificate or
proof of export acceptable to Seller, sufficient to support an exemption
from any Tax, then such Tax will not be added to the price of Ethylene,
provided, however, if Seller is ever liable for such Tax on the sale of
Ethylene hereunder, Buyer will promptly reimburse Seller from such Tax,
including any interest, penalties and attorneys' fees related thereto
provided, that the pass-through of any such Tax is in accordance with then
prevailing industry practice. Tax collection will be applied and
administered in the same manner as for the other Ethylene customers of
Seller.
(b) Duty Drawback. Seller reserves its rights to claim U.S. Customs duty
drawback and Buyer acknowledges and consents to such reservation. The
parties shall cooperate so as to facilitate Seller's ability to promptly
claim and/or so that Buyer may promptly claim and collect, duty drawbacks.
If Buyer uses Ethylene sold hereunder in a U.S. manufacturing process,
Seller may provide Buyer Certificates of Manufacture and Delivery for such
Ethylene. Buyer shall file a duty drawback entry for the maximum quantity of
eligible Ethylene covered by the Certificates furnished to Buyer and
promptly remit to Seller 50% of all duty drawback proceeds net of any filing
fees, obtained by Buyer with respect to such Ethylene and its derivatives.
9. WARRANTIES
(a) Seller's Warranty. SELLER'S SOLE AND EXCLUSIVE WARRANTY IS THAT THE ETHYLENE
COMPLIES WITH THE PHYSICAL AND CHEMICAL SPECIFICATIONS SET FORTH IN EXHIBIT
A TO THIS
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AGREEMENT AND THAT SELLER SHALL CONVEY TITLE THERETO FREE OF ANY LIENS OR
ENCUMBRANCES. SELLER MAKES NO OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED,
WHETHER WITH RESPECT TO ITS RECOMMENDATIONS, INSTRUCTIONS, OR OTHERWISE AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES, WHETHER OF MERCHANTABILITY,
SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE.
(b) Patents. Seller's recommendations or instructions are not intended to
suggest operations which would infringe any patents and Seller assumes no
liability to Buyer of any kind or responsibility for any such infringement.
(c) Uses and Safe Handling. Buyer hereby acknowledges receipt of Seller's
material safety data sheet with respect to Ethylene. Buyer shall maintain
prudent safe handling and use procedures. Buyer will apprise its employees,
contractors and customers of the hazards, proper use and handling
requirements of Ethylene and shall comply with all applicable statutes,
rules and regulations pertaining thereto.
10. CLAIMS
Buyer shall be deemed to have waived all claims with respect to any Ethylene
sold hereunder for which Buyer's notice of insufficient quality has not been
given to Seller in writing within 90 days of Buyer's receipt of such
Ethylene. Any such claim which is not asserted as a claim, counterclaim,
defense or set-off in a judicial proceeding instituted within 2 years after
the cause of action arises shall be forever waived, barred and released.
11. LIMITATION ON DAMAGES
(a) Limitation on Certain Buyer Remedies. Buyer's exclusive remedy and the sole
liability of Seller or any Affiliate of Seller for any shortfall in delivery
of Ethylene or failure of any Ethylene to meet the specifications in Exhibit
A, including but not limited to claims for breach of warranty, breach of
contract, negligence or strict liability, shall be limited at Seller's sole
option, to (i) payment to Buyer of the cover cost to replace such Ethylene,
or (ii) Seller's replacement of the Ethylene in respect of which a valid
claim is made.
(b) No Special Damages. In no event shall Seller or Buyer or any Affiliate of
either be liable for indirect, consequential, special, incidental,
contingent or punitive damages, costs of litigation or for loss of business
or business opportunities.
12. LIABILITY AND RESPONSIBILITY
(a) Buyer's Obligation. Subject to the further provisions of this Paragraph,
Buyer assumes full responsibility for any liability arising out of the
receipt, unloading, discharge, storage, handling, use and disposal of any
Ethylene purchased hereunder, including the use of such Ethylene alone or in
combination with other substances and compliance or non-compliance with any
law or regulations relating thereto. Buyer agrees to indemnify, protect,
defend and hold Seller and/or any of its Affiliates, agents, officers,
directors, employees and representatives (the "Seller Group") harmless from
and against any and all claims, actions, liability, loss, cost and expense
(including reasonable attorney's fees) for damages to any private or public
property or resources, personal injury or death, fines or penalties
("Loss"), made against or incurred by Seller Group relating to Ethylene sold
or the performance of either party hereunder, or by the agents, servants,
employees or contractors of either party, where such Loss was caused by acts
or omissions that occurred at the time of or subsequent to the delivery of
Ethylene to the Buyer hereunder, or arose in any way out of violations of
any federal, state or local statute or governmental rule or regulation by
Buyer or its agents, servants, employees or contractors. IT IS THE EXPRESS
INTENTION OF THE PARTIES THAT THE
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INDEMNITY PROVIDED FOR IN THIS PARAGRAPH SHALL REQUIRE BUYER TO DEFEND, HOLD
HARMLESS AND INDEMNIFY THE SELLER GROUP AS PROVIDED ABOVE EXCEPT TO THE
PROPORTIONATE EXTENT THAT THE ACTIONABLE NEGLIGENCE OF THE SELLER GROUP IS
THE SOLE OR A CONCURRING CAUSE OF THE LOSS ALLEGED. FOR APPLICATION OF THE
PROVISIONS OF THIS PARAGRAPH, THE EXTENT OF ANY SUCH NEGLIGENCE OF SELLER
GROUP SHALL BE DETERMINED EXCLUSIVELY IN A SEPARATE ARBITRATION PROCEEDING
REQUESTED BY BUYER AND IN ACCORDANCE WITH MUTUALLY AGREED ARBITRATOR(S),
RULES AND VENUE IN ACCORDANCE WITH THE PROVISIONS OF EXHIBIT C, HEREOF. SUCH
ARBITRATION AND THE RESULTING ALLOCATION OF NEGLIGENCE TO SELLER GROUP WILL
TAKE PLACE AFTER BUYER HAS DEFENDED SELLER GROUP AGAINST AND FINALLY
RESOLVED SUCH THIRD PARTY CLAIMS BY JUDGMENT OR SETTLEMENT.
(b) Seller's Obligation. Seller agrees to indemnify, protect, defend and hold
Buyer and/or any of its Affiliates, agents, officers, directors, employees
and representatives (the "Buyer Group") harmless from and against any and
all Loss made against or incurred by Buyer Group relating to Ethylene sold
or the performance of either party hereunder, or by the agents, servants,
employees or contractors of either party, where such Loss was caused by acts
or omissions that occurred prior to the delivery of Ethylene to the Buyer
hereunder, or arose in any way out of violations of any federal, state or
local statute or governmental rule or regulation by Seller or its agents,
servants, employees or contractors. IT IS THE EXPRESS INTENTION OF THE
PARTIES THAT THE INDEMNITY PROVIDED FOR IN THIS PARAGRAPH SHALL REQUIRE
SELLER TO INDEMNIFY THE BUYER GROUP EXCEPT TO THE PROPORTIONATE EXTENT THAT
THE ACTIONABLE NEGLIGENCE OF THE BUYER GROUP IS THE SOLE OR A CONCURRING
CAUSE OF THE LOSS ALLEGED. FOR APPLICATION OF THE PROVISIONS OF THIS
PARAGRAPH THE EXTENT OF SUCH NEGLIGENCE SHALL BE DETERMINED EXCLUSIVELY IN A
SEPARATE ARBITRATION PROCEEDING REQUESTED BY SELLER AND IN ACCORDANCE WITH
MUTUALLY AGREED ARBITRATOR(S), RULES AND VENUE IN ACCORDANCE WITH THE
PROVISIONS OF EXHIBIT C, HEREOF. ANY SUCH ARBITRATION AND THE RESULTING
ALLOCATION OF NEGLIGENCE WILL TAKE PLACE AFTER SELLER HAS DEFENDED BUYER
GROUP AGAINST AND FINALLY RESOLVED SUCH THIRD PARTY CLAIMS BY JUDGMENT OR
SETTLEMENT.
13. EXCUSE OF PERFORMANCE
(a) Performance Excused. Continued performance of any obligation (except payment
of money due), may be suspended immediately to the extent made impossible by
any event or condition beyond the reasonable control of the party suspending
such performance (except its inability to discharge obligations of a
financial nature), including without limitation (to the extent beyond such
control) acts of God, fire, labor or trade disturbance, war, civil
commotion, compliance in good faith with any applicable legal requirements
(whether or not it later proves to be invalid), unavailability of materials,
or other event or condition whether similar or dissimilar to the foregoing
(a "Force Majeure Event").
(b) Notice and Cure. The party claiming suspension due to a Force Majeure Event
will give prompt notice to the other of the occurrence of the Force Majeure
Event giving rise to the suspension and of its nature and anticipated
duration, and said party will use its best efforts to promptly cure the
cause of the suspension, it being understood, however, that labor disputes
shall be a continuing cause of suspension, and settlement of the same shall
be entirely within the discretion of the party experiencing such difficulty.
The parties shall cooperate with each other to find alternative means and
methods for the provision of the suspended Ethylene shipments or receipts,
as applicable.
(c) Recommencement of Performance. Upon termination of the Force Majeure Event,
performance will recommence.
(d) No Extension of Term. The term of this Agreement shall not be extended by
the duration of any Force Majeure Event.
(e) Right to Terminate. If the Force Majeure Event continues for a period in
excess of three years, the party not claiming suspension due to the Force
Majeure Event may elect to terminate this Agreement
10
with respect to the Ethylene so suspended upon written notice to the party
claiming suspension, which termination will be effective ten days after
receipt of such notice unless the Force Majeure Event has ceased and the
Ethylene shipments and receipts have recommenced within such ten day period.
(f) Allocation. If caused by any of the above stated causes, or if caused by any
other unanticipated shortage not due to Seller's negligence or mismanagement
of its ethylene business, the quantity of Ethylene available at Seller's (or
Seller's supplier's) plant ordinarily producing Ethylene and deliverable to
the agreed upon delivery location for sale hereunder should be insufficient
to fulfill Seller's Ethylene volume commitments, Seller has the right and
obligation to allocate its available supply of Ethylene equitably among all
term contract customers of Seller and Seller's (and Seller's affiliates')
own requirements during the period of such shortage. In order to achieve an
equitable allocation result, Seller shall consider its customers' supply
alternatives and if the allocation is expected to cause greater hardship to
Buyer due to its dependence on Seller as a sole supplier, then Seller's
allocation arrangements will reflect Buyer's and other sole sourced
customers' greater need for Seller's Ethylene. During any such period of
allocation in which Buyer is unable to satisfy its requirements, Buyer may
purchase ethylene from another supplier to the extent necessary to satisfy
such requirements. If a Force Majeure Event that reduces Buyer's capability
to accept ethylene occurs during the Phase Down, Buyer shall allocate its
purchases of ethylene among all of its suppliers equitably.
14. ASSIGNMENT
(a) Assignment and Consent. This Agreement shall bind the respective successors
and assigns of the parties hereto, provided however, that neither party may
assign or otherwise transfer or delegate its rights or obligations hereunder
to a third party without the prior written consent of the other party
hereto; provided further, that no such consent shall be required for
assignment to an Affiliate or for assignment to a successor to the business
in the case of transfer of all of Buyer's U.S. Plants or all of Seller's
ethylene production facilities in a single transaction, so long as such
assignee executes a written assumption of such party's obligations hereunder
with respect to the rights or obligations assigned in a form reasonably
satisfactory to the other party and delivers such written assumption to the
other party within a reasonable period of time after the effective date of
such assignment. Buyer represents that it shall assign all of its rights and
obligations under this Agreement only to a transferee of all of Buyer's U.S.
Plants in a single transaction. Any permitted assignment shall not relieve
the assignor of its obligations hereunder. Any attempted assignment without
such consent as may be required by this provision shall be void.
(b) Transfer of Buyer's Plants. The parties acknowledge and agree that this
Agreement is integral to the operation of Buyer's U.S. Plants and therefore
in the event that Buyer shall sell, transfer, pledge, hypothecate or assign
("Transfer") any of Buyer's U.S. Plants to be supplied Ethylene in
accordance with this Agreement to any person ("Assignee") Buyer shall give
written notice to Seller of such Transfer and the identity of the proposed
Assignee as soon as the intended Transfer becomes known to Buyer, however in
no event less than 30 days prior to the date such Transfer becomes
effective. In connection with such Transfer, Buyer shall (i) assign the
rights and obligations of Buyer pursuant to this Agreement with respect to
such transferred Buyer's U.S. Plant(s) to the Assignee, and (ii) cause
Assignee to accept such assignment as if such Assignee was a party to this
Agreement as of the Effective Date, unless Seller shall provide Buyer
(within 10 business days after receiving notice pursuant to the previous
sentence) with written notice that it will not consent to such assignment,
in which event (i) Buyer may elect to proceed with the Transfer but without
assigning the rights and obligations of the Buyer pursuant to this Agreement
with respect to such of Buyer's U.S. Plants as are the subject of the
Transfer and (ii) if Buyer shall elect to proceed with such Transfer the
ethylene feedstock requirements of such of Buyer's U.S. Plants as are the
subject of the Transfer shall be removed from this Agreement.
11
(c) Liquidated Damages. If Buyer fails to fulfill its obligations stated in
Paragraphs 14(a) or 14(b) to assign this Agreement (or a portion thereof)
to the transferee or successor to any or all of Buyer's U.S. Plants and to
cause such transferee or successor to accept such assignment and assume such
transferee's or successor's obligations under this Agreement, Buyer shall
pay Seller, as liquidated damages, and not as a penalty, for such failure,
4c/lb. multiplied by three multiplied by the three year average of the
quantity of Ethylene purchases, during the 36 month period preceding
Transfer, at Buyer's U.S. Plant(s) which were transferred. The parties agree
that the damages incurred by Seller from Buyer's failure to assign this
Agreement (or a portion thereof) are substantial but difficult to measure
and have therefore agreed upon this amount as a fair statement of damages
continuing for three years.
(d) Financial Responsibility for Transferee. With respect to the Ethylene
deliveries to be made to any of Buyer's U.S. Plants that are not owned by an
Affiliate of a partner in Seller, if, at any time, in the sole opinion of
Seller, the financial responsibility of the owner of such plant is impaired
or unsatisfactory, Seller shall have the right to restrict or suspend
Ethylene deliveries to such plant unless (i) such owner pays on a cash-in-
advance of delivery basis, (ii) such owner delivers to Seller a letter of
credit, in form and substance acceptable to Seller and from a financial
institution acceptable to Seller, or (iii) such owner and Seller agree upon
other arrangements to secure future deliveries of Ethylene to such plant.
15. MISCELLANEOUS
(a) Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be sufficiently given when duly
mailed, postage prepaid, and addressed as follows (or to such other address
or facsimile number as either party shall have specified by notice in
writing to the other party) or personally delivered or transmitted
electronically.
If to Buyer: Occidental Chemical Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Director, Purchasing
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Seller: Equistar Chemicals, LP
One Houston Center
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Vice President,
Olefins Business Management
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) Jurisdiction; Dispute Resolution. THE PARTIES HERETO AGREE THAT ALL OF THE
PROVISIONS OF THIS AGREEMENT AND ANY QUESTIONS CONCERNING ITS
INTERPRETATION AND ENFORCEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF TEXAS AND THE EXECUTION AND DELIVERY OF THIS AGREEMENT SHALL BE
DEEMED TO BE THE TRANSACTION OF BUSINESS WITHIN THE STATE OF TEXAS FOR
PURPOSES OF CONFERRING JURISDICTION UPON COURTS LOCATED WITHIN THE STATE.
THE PARTIES AGREE THAT ANY LITIGATION ARISING OUT OF THIS AGREEMENT SHALL BE
BROUGHT ONLY IN THE FEDERAL OR STATE COURTS IN THE STATE OF TEXAS AND BOTH
PARTIES CONSENT TO THE JURISDICTION OF SAID COURTS. ALL DISPUTES UNDER THIS
AGREEMENT SHALL BE RESOLVED IN ACCORDANCE WITH THE "DISPUTE RESOLUTION
PROCEDURES" SET FORTH IN EXHIBIT C OF THIS AGREEMENT.
12
(c) Confidentiality. Each of the parties hereto shall, and shall cause their
respective employees, agents and other representatives to, hold in strict
confidence and not utilize for any commercial or other purpose or disclose
to any other person, except with the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld, any of the
terms and provisions of Section 2 - Quantity, Section 3 - Term, or Section
4 - Price, of this Agreement; provided, however, that the foregoing
obligation of confidentiality shall not apply to (i) any such information
that is or shall become generally available to the public other than as a
result of a disclosure by or on behalf of such party, (ii) any such
information that was available to a party on a non-confidential basis prior
to the Effective Date of this Agreement, (iii) any such information that
comes into a party's possession after the Effective Date of this Agreement
from a third party not under any obligation of confidentiality with respect
to such information, (iv) any such information disclosed to a third party
who has undertaken a written obligation of confidentiality with respect to
such information that is substantially the same as the obligation of
confidentiality contained in this section, or (v) any information that shall
be required to be disclosed by or on behalf of a party as a result of any
applicable law, rule or regulation of any governmental authority having
competent jurisdiction, provided that such party shall give the other party
30 day's prior written notice before making any such disclosure in
accordance with the provisions of this clause.
(d) Amendment. Neither party shall be bound by any change in, addition to or
waiver of any of the provisions hereof unless approved in writing by its
authorized representative.
(e) Waiver. Any waiver of any particular breach or default of this Agreement
shall be in writing and shall not constitute a continuing waiver or a waiver
of any other breach or default. The failure of either party to require
performance of any provision of this Agreement shall not affect either
party's right to full performance thereof at any time thereafter.
(f) Headings. Section headings or titles are included for ease of reference and
do not constitute any part of the text or affect its meaning or
interpretation.
(g) Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which shall be
deemed to be one and the same instrument.
(h) Provisions of this Agreement to Control. With regard to Ethylene sales and
exchanges, the provisions of this Agreement shall supersede any inconsistent
provisions of the Asset Contribution Agreement and any other agreements
between the parties entered into to undertake the transaction to be
consummated thereunder.
13
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement, as of the
date first written above.
EQUISTAR CHEMICALS, LP OCCIDENTAL CHEMICAL CORPORATION
(SELLER) (BUYER)
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ By: /s/ ▇ ▇ ▇▇▇▇▇
-------------------------- --------------------------
Print Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Print Name: ▇ ▇ ▇▇▇▇▇
------------------ ------------------
Title: President and Chief Title: Executive Vice President
Operating Officer ------------------------
-----------------------
(Signature Page of Sales Agreement - Ethylene]
14
Schedule 1
Buyer's U.S. Plants
Current Practical Approximate Ethylene
Production Requirements at Current
Capacity Practical Production Actual Ethylene
[for plant product] Capacity Utilization in 1997
Location of Facility (mm lbs/yr) (mm lbs/yr) (mm lbs)
--------------------- ------------------- ---------------------- -------------------
Ingleside, TX (OxyMar) 2,100.0 972.0 ▇▇▇.▇
▇▇▇▇ ▇▇▇▇, ▇▇ 1,200.0 552.0 576.6
Convent, LA* 1,500.0 421.0 310.4
Ingleside, TX 1,500.0 427.0 203.6
NGO**, Baytown, TX 7.0 3.5 3.3
Tolls which are treated as Buyer's ethylene requirements, not within the Paragraph 2(e) toll exception:
Dow (EDC) 28.7
UCC (VAM) 12.0
DP (AO) 0.9
Ashtabula 0.7
*Includes UCC and Westlake tolls, quantity at 47.0 MM lbs. and 79.1 MM lbs.
respectively. Tolls of this nature where ethylene is supplied by a third party
and product is received by the same party are considered tolls as defined in
Paragraph 2(e).
**Natural Gas Odorizing, Inc.
15
EXHIBIT A
Ethylene Specifications (1) (2) (3)
Equistar/Occidental Sales Contract
Property Specification Test Method
-------- ------------- ------------
Ethylene (vol. %) 99.90 min. ASTM D2505
Methane + ethane (mole ppm) 1000 max ASTM D2505
Propylene and heavier (ppm by vol.) 100 ▇▇▇ ▇▇▇▇ 5605
(typically 10 ppm max)
Carbon monoxide (mole ppm) 5 max ASTM D 2504
Carbon dioxide (mole ppm) 5 max ASTM D 2505
Sulfur (ppm by weight) 2 max ASTM D 3246
Water (mole ppm) 5 ▇▇▇ ▇▇▇▇ 5422
Acetylene (mole ppm) 4 max ASTM D 2505
Oxygen (mole ppm) 5 max ASTM D 2504
Hydrogen (mole ppm) 5 max ASTM D 2504
Methanol (ppm by weight) 1 ▇▇▇ ▇▇▇▇ 5881
Ammonia (mole ppm) 2 max NMS 103 5234
(typically 1 ppm max)
--------------------------------------------------------------------------------------
1. Seller shall use commercially reasonable efforts to ensure that throughout
the Term its own manufactured ethylene delivered to the Delivery Points and
ethylene manufactured by third parties and delivered to the Delivery Points is
typically at least as good in all parameters affecting EDC and VCM processing at
the Buyer's U.S. Plants as such ethylene which has been delivered to Buyer's
U.S. Plants in 1998, prior to the Effective Date hereof including, without
limitation, a specification of not less than 2 PPM CO\2\ on the South Texas
Ethylene Pipeline System.
2. Buyer shall use commercially reasonable efforts to ensure that throughout the
Term toll supplied ethylene delivered into the Seller's ethylene pipeline system
is typically at least as good in all parameters as ethylene manufactured by
Buyer as of the Effective Date of this Agreement.
3. Buyer and Seller shall cooperate in good faith with respect to the
identification and implementation of activities to improve the quality of
Ethylene delivered to the Delivery Points, provided that any costs associated
with improving ethylene quality shall be borne by the Buyer, unless and to the
extent that such improvements are demonstrably for the benefit of Seller.
16
Exhibit B
Example Price Calculations for Ethylene Invoicing
and Quarterly Price Adjustment
Hypothetical Starting Price: Seller's Average Ethylene Transaction Price for 4Q
at 23.00 cents/lb.
Hypothetical Industry Price Estimates
Preliminary Price Adjustment Factor = monthly Publication Price less the prior
quarter's Average Publication Price
80/20 Price Preliminary Price
CDI Large Buyer Price CMAI Spot Low (Publication Price) Adjustment Factor
--------------------- ------------- ------------------- -----------------
Oct 25.00 21.00 24.20
Nov 24.00 20.00 23.20
Dec 23.00 19.00 22.20
Fourth Quarter Average Publication Price = 23.20
Jan 22.00 17.00 21.00 (2.20)
Feb 21.00 16.00 20.00 (3.20)
Mar 21.00 17.00 20.20 (3.00)
Calculation of Hypothetical Monthly Invoice Prices (Preliminary Prices)
= Previous Quarter Seller Average Transaction Price + Preliminary Price Adjustment Factor
▇▇▇ ▇▇▇▇▇ = 23.0 - 2.2 = 20.80 cents/lb.
Feb Price = 23.0 - 3.2 = 19.80 cents/lb.
Mar Price = 23.0 - 3.0 = 20.00 cents/lb.
At the end of each calendar quarter, the above Preliminary Prices will be
adjusted to Seller's Weighted Average Sales Price* for that quarter (which is
20.10 c/lb. for the 1st Quarter in this example), resulting in an adjusted
invoice amount, as shown below:
Calculation of Hypothetical First Quarter Final Price Adjustment
Purchase Seller's Weighted Adjustment
Quantity MM lbs. Invoice Price Average Sales Price cents/lb. $
--------------- ------------- ------------------- --------- -
Jan 200.00 20.80 20.10 (0.70) $(1,400,000.00)
Feb 180.00 19.80 20.10 0.30 S 540,000.00
Mar 190.00 20.00 20.10 0.10 $ 190,000.00
Total Adjustment $ (670,000.00)
*Note that Seller's monthly prices and sales quantities used to calculate the
Weighted Average Sales Price will not be disclosed to Buyer.
Hypothetical Result:
1. Buyer would receive $670,000 credit in April for Ethylene Purchases in the
first quarter (January through March)
2. The starting point for the second quarter Preliminary Prices would be
Seller's Weighted Average Sales Price for the first quarter, in this case
20.1 cents/lb. This would be adjusted for April, May and June based on the
change in the Publication Price versus the first quarter's average
Publication Price, in this case 20.40 cents/lb. If April's Publication Price
were 20.00 cents/lb. Then April's Invoice price would therefore be 19.70
cents/lb.
17
Exhibit C
Dispute Resolution Procedures
(1) Binding and Exclusive Means. The dispute resolution provisions set forth
in this Exhibit C shall be the binding and exclusive means to resolve all
disputes arising under this Agreement (each a "Dispute").
(2) Standards and Criteria. In resolving any Dispute, the standards and
criteria for resolving such Dispute shall, unless the parties in their
discretion jointly stipulate otherwise, be as set forth in Exhibit 1 to this
Appendix C.
(3) ADR and Binding Arbitration Procedures. If a Dispute arises, the
following procedures shall be implemented:
(a) Any party may at any time invoke the dispute resolution procedures set
forth in this Exhibit C as to any Dispute by providing written notice of such
action to the other party, who within five Business Days after such notice shall
schedule a meeting to be held in Houston, Texas between the parties. The meeting
shall occur within 10 Business Days after notice of the meeting is delivered to
the other party. The meeting shall be attended by representatives of each party
having decision-making authority regarding the Dispute as well as the dispute
resolution process and who shall attempt in a commercially reasonable manner to
negotiate a resolution of the Dispute.
(b) The representatives of the parties shall cooperate in a commercially
reasonable manner and shall explore whether techniques such as mediation,
minitrials, mock trials or other techniques of alternative dispute resolution
might be useful. In the event that a technique of alternative dispute resolution
is so agreed upon, a specific timetable and completion date for its
implementation shall also be agreed, upon. The representatives will continue to
meet and discuss settlement until the date (the "Interim Decision Date") that is
the earliest to occur of the following events: (i) an agreement shall be reached
by the parties resolving the Dispute; (ii) one of the parties shall determine
and notify the other party in writing that no agreement resolving the Dispute is
likely to be reached; (iii) if a technique of alternative dispute resolution is
agreed upon, the completion date therefor shall occur without the parties having
resolved the Dispute; or (iv) if another technique of alternative dispute
resolution is not agreed upon, two full meeting days (or such other time period
as may be agreed upon) shall expire without the parties having resolved the
Dispute.
(c) If, as of the Interim Decision Date, the parties have not succeeded in
negotiating a resolution of the dispute pursuant to subsection (b), the parties
shall proceed under subsections (d), (e) and (f).
(d) After satisfying the requirements above, such Dispute shall be submitted
to mandatory and binding arbitration at the election of any party involved in
the Dispute (the "Disputing Party"). The arbitration shall be subject to the
Federal Arbitration Act as supplemented by the conditions set forth in this
Appendix. The arbitration shall be conducted in accordance with 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 Arbitrator (as defined below) will allow reasonable
discovery in the forms permitted by the Federal Rules of Civil Procedure, to the
extent consistent with the purpose of the arbitration. During the pendency of
the Dispute, each party shall make available to the Arbitrator and the other
party all books, records and other information within its control requested by
the other party or the Arbitrator subject to the confidentiality provisions
contained herein, and provided that no such access shall waive or preclude any
objection to such production based on any privilege recognized by law.
Recognizing the express desire of the parties for an expeditious means of
dispute resolution, the Arbitrator may limit the scope of discovery between the
parties as may be reasonable under the circumstances. In deciding the substance
of the parties' claims, the laws of the State of Texas shall govern the
construction, interpretation and effect of this Agreement (including this
Appendix) without giving effect to any conflict of law principles. The
arbitration hearing shall be commenced promptly and conducted expeditiously,
with each party involved in the Dispute being allocated an equal amount of time
for the presentation of its case. Unless otherwise agreed to by the parties, the
arbitration hearing shall be
18
conducted on consecutive days. Time is of the essence in the arbitration
proceeding, and the Arbitrator shall have the right and authority to issue
monetary sanctions against any of the parties if, upon a showing of good cause,
that party is unreasonably delaying the proceeding. To the fullest extent
permitted by law, the arbitration proceedings and award shall be maintained in
confidence by the Arbitrator and the parties.
(e) The Disputing Party shall notify the American Arbitration Association
("AAA") and the other party involved in the Dispute in writing describing in
reasonable detail the nature of the Dispute (the "Dispute Notice"). The
arbitrator (the "Arbitrator") shall be selected within 15 days of the date of
the Dispute Notice by all of the parties from the members of a panel of
arbitrators of the AAA or, if the AAA fails or refuses to provide a list of
potential arbitrators, of the Center for Public Resources and shall be
experienced in commercial arbitration. In the event that the parties are unable
to agree on the selection of the Arbitrator, the AAA shall select the
Arbitrator, using the criteria set forth in this Appendix, within 30 days of the
date of the Dispute Notice. In the event that the Arbitrator is unable to serve,
his or her replacement will be selected in the same manner as the Arbitrator to
be replaced. The Arbitrator shall be neutral. The Arbitrator shall have the
authority to assess the costs and expenses of the arbitration proceeding
(including the arbitrators', and attorneys' fees and expenses) against any or
all parties.
(f) The Arbitrator shall decide all Disputes and all substantive and
procedural issues related thereto, and shall enforce this Agreement in
accordance with its terms. Without limiting the generality of the previous
sentence, the Arbitrator shall have the authority to issue injunctive relief;
however, the Arbitrator shall not have any power or authority to (i) award
consequential, incidental, indirect or punitive damages or (ii) amend this
Agreement. The Arbitrator shall render the arbitration award, in writing, within
20 days followiing the completion of the arbitration hearing, and shall set
forth the reasons for the award. In the event that the Arbitrator awards
monetary damages in favor of any party, the Arbitrator must certify in the award
that no indirect, consequential, incidental, indirect or punitive damages are
included in such award. If the Arbitrator's decision results in a monetary
award, the interest to be granted on such award, if any, and the rate of such
interest shall be determined by the Arbitrator in his or her discretion. The
arbitration award shall be final and binding on the 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.
(4) Continuation of Business. Notwithstanding the existence of any Dispute
or the pendency of any procedures pursuant to this Exhibit C, 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.
19
APPENDIX 1 TO EXHIBIT C
(a) First priority shall be given to maximizing the consistency of the
resolution of the Dispute with the satisfaction of all express obligations of
the parties and their Affiliates as set forth in the Agreement.
(b) Second priority shall be given to resolution of the Dispute in a manner
which best achieves the objectives of the business activities and arrangements
under the Agreement and permits the parties to realize the benefits intended to
be afforded thereby.
(c) Third priority shall be given to such other matters, if any, as the
parties or the Arbitrator shall determine to be appropriate under the
circumstances.
20