EXHIBIT 10.8
OPERATING AGREEMENT
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AGREEMENT (for convenience called "Operating Agreement") made as of
the 28th day of December, 1981, by and among ICI Americas Inc. ("ICI-AM"), a
Delaware corporation having its principal office at One Rollins Plaza,
Wilmington, Delaware 19897; UNIROYAL, Inc. ("Uniroyal"), a New Jersey
corporation having its principal office at Benson Road, Middlebury, Connecticut
06749; Rubicon Chemicals Inc. ("RCI"), a Louisiana corporation having its
principal office at Geismar, Louisiana 70734 and Rubicon Inc. ("Rubicon"), a
Louisiana corporation having its principal office at Geismar, Louisiana 70734.
WHEREAS:
(1) ICI-AM, Uniroyal and RCI are the parties to an agreement, dated as
of April 1, 1977 (the "Original Operating Agreement"); and
(2) in view of certain transactions, arrangements and agreements
between RCI and Rubicon and between Uniroyal and ICI American Holdings Inc., the
parent company of ICI-AM, the parties to the Original Operating Agreement and
Rubicon desire to amend and restate the Original Operating Agreement, as
hereinafter provided, and to add Rubicon as a party hereto;
NOW, THEREFORE, in consideration of the covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree that the
Original Operating Agreement be, and it hereby is, amended and restated as of
December 28, 1981 to provide as follows.
1. Exhibits; Definitions
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1.1 The following Exhibits are annexed hereto and form a part hereof:
Exhibit A - Principles of Capital Responsibility and Cost Allocation
Exhibit B - Form of Lease
Exhibit C - Form of Financing Agreement
Exhibit D - Form of Utilities Services Agreement between Rubicon and
Uniroyal
Exhibit E - Benzene Specifications
Exhibit F - Ammonia Specifications
Exhibit G - Aniline Specifications
References to any of said Exhibits in this Operating Agreement shall be deemed
to mean such Exhibit as last revised or amended.
1.2 All terms which are defined elsewhere in this Operating Agreement
or in any of the Exhibits attached hereto are used in this Agreement as so
defined.
1.3 The following terms shall have exclusively the following
meanings.
(a) Nitric Acid Plant. The term "nitric acid plant" means the
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facilities included in Rubicon's two battery limits plants for reacting
ammonia and air to form nitric acid.
(b) Sulfuric Acid Plant. The term "sulfuric acid plant" means the
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facilities included in Rubicon's separate battery limits plant for
converting weak sulfuric acid into concentrated sulfuric acid.
(c) Nitrobenzene Plant. The term "nitrobenzene plant" means the
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facilities included in Rubicon's separate battery limits plant for reacting
benzene and nitric acid, in the presence of concentrated sulfuric acid, to
form nitrobenzene (but excluding the TDA/DNT assets located therein).
(d) Aniline Plant. The term "aniline plant" means the facilities
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included in Rubicon's separate battery limits plant for reacting
nitrobenzene and hydrogen to form aniline (but excluding the TDA/DNT assets
located therein).
(e) Integrated Aniline Plant. The term "integrated aniline plant"
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means the facilities included in Rubicon's integrated battery limits plant
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consisting of integrated process units for producing nitrobenzene and
aniline and concentrating sulfuric acid.
(f) DPA Plant. The term "DPA plant" means the facilities included in
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Rubicon's battery limits plant or plants for converting aniline into DPA
(but excluding the TDA/DNT assets located therein).
(g) TDI Plant. The term "TDI plant" means the battery limits plant
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owned by RCI at Geismar, Louisiana for the phosgenation of toluene diamine
to form toluene diisocyanate ("TDI").
(h) MDI Plant. The term "MDI plant" means the battery limits plant
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owned by RCI at Geismar, Louisiana for reacting aniline with formaldehyde
to form diamine diphenylmethane ("DADPM") and the phosgenation of DADPM to
form diphenylmethane diisocyanate ("MDI") and to make pure MDI and variants
thereof.
(i) TDA/DNT Plant. The term "TDA/DNT plant" means those identifiable,
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distinct and separate assets located in the aniline plant, the DPA plant
and the nitrobenzene plant, respectively, which are used solely as part of
the process for producing toluene diamine ("TDA") and dinitrotoluene
("DNT"), respectively, as distinguished from those other assets located in
such plants which are used to produce products or intermediates as well as,
or other than, TDA or DNT.
(j) RCI Plants. The term "RCI plants" means the TDI plant, the MDI
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plant, the TDA/DNT plant and any other RCI External Assets.
(k) Waste Disposal Plant. The term "waste disposal plant" means the
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facilities included in Rubicon's deep wells and ancillary equipment for the
accumulation, neutralization, sand filtration and subsequent injection of
certain concentrated liquid waste.
(l) Off-sites. The term "Off-sites" means all of Rubicon's
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facilities not included in any of the plants defined in subparagraphs (a)
through (k) above (or any other newly defined plant).
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(m) Aniline Facilities. The term "Aniline Facilities" means
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Rubicon's facilities consisting of the nitric acid plant, the sulfuric acid
plant, the nitrobenzene plant, the aniline plant and the integrated aniline
plant.
(n) External Assets. The term "External Assets" means personal
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property owned by either RCI or Rubicon which is located on the real
property owned by the other and may or may not be interconnected or
operated in conjunction with the other's facilities. As used herein,
External Assets may be included in other defined terms, i.e., one or more
of Rubicon's battery limits plants may include External Assets of RCI and
one or more of RCI's battery limits plants may include External Assets of
Rubicon.
(o) Whenever the term "Rubicon's facilities" is used herein, it means
those facilities owned by Rubicon referred to whether or not subject to the
Lease and including Rubicon's External Assets (but in no event means or
includes the RCI plants or any other facilities owned by RCI including
RCI's External Assets).
(p) Whenever the term "battery limits plant" is used herein with
respect to one of Rubicon's or RCI's plants, it includes all facilities
associated therewith, including finished goods storage facilities related
thereto and, with respect to the Aniline Facilities, benzene unloading and
storage facilities, wherever located on Rubicon's property or RCI's
property (but in all events excluding any facilities included in any Off-
site or the waste disposal plant).
(q) Products. The term "products" means the following substances:
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(1) nitric acid from the nitric acid plant,
(2) concentrated sulfuric acid from the sulfuric acid plant,
(3) nitrobenzene from the nitrobenzene plant and from the
nitrobenzene unit of the integrated aniline plant,
(4) aniline from the aniline plant and from the aniline unit of
the integrated aniline plant,
(5) DPA from the DPA plant,
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(6) DNT from the TDA/DNT plant,
(7) TDA from the TDA/DNT plant,
(8) TDI from the TDI plant,
(9) MDI from the MDI plant, and
(10) DADPM from the MDI plant,
and the term "product" means any of the foregoing.
(r) RCI Products. The term "RCI products" means collectively DNT,
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TDA, TDI, MDI and DADPM.
(s) Percentage Entitlement. The term "percentage entitlement" with
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respect to each plant within the Aniline Facilities means, for ICI-AM,
73.2% and, for Uniroyal, 26.8%, and with respect to the DPA plant means
100% for Uniroyal. The respective percentage entitlements with respect to
each plant within the Aniline Facilities may be amended from time to time
in accordance with this Operating Agreement, and the latest percentage
entitlements as so established shall be the percentage entitlements with
respect to such plants for the purposes of this Operating Agreement.
(t) Design Capacity. The term "Design Capacity" with respect to the
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capacity of all or part of a plant means the annual capacity to produce
product which the parties agree it is designed or is to be designed to
produce, when operated 24 hours per day for 330 days per year.
(u) Rated Capacity. The term "Rated Capacity" with respect to each
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plant within the Aniline Facilities means the annual capacity of such plant
to produce product, determined in accordance with the procedures contained
in subparagraph 5.6(e) of this Operating Agreement, and the latest capacity
so determined shall be the Rated Capacity for the purposes of this
Operating Agreement.
(v) Expansion Percentage. The term "Expansion Percentage", for a
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User with respect to an expansion of capacity to produce aniline referred
to in Section 11, means the percent derived by dividing that User's Design
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Expansion Capacity by the aggregate Design Expansion Capacities of such
expansion for both Users.
(w) Design Expansion Capacity. The term "Design Expansion Capacity",
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with respect to an expansion of capacity to produce aniline referred to in
Section 11, means either the additional annual aniline production capacity
specified by one User or the combined capacities specified by both Users,
as appropriate, as provided in Section 11.
(x) Expansion Rated Capacity. The term "Expansion Rated Capacity",
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with respect to an expansion of capacity to produce aniline referred to in
Section 11, means the additional annual capacity of a plant within the
Aniline Facilities to produce product resulting from such expansion,
determined in accordance with the procedures referred to in paragraph 11.4.
(y) Pre-Expansion Rated Capacity. The term "Pre-Expansion Rated
----------------------------
Capacity" means the annual capacity of a plant within the Aniline
Facilities to produce product, determined in accordance with the procedures
referred to in paragraph 11.4 before an expansion of capacity to produce
aniline referred to in Section 11.
(z) Post-Expansion Rated Capacity. The term "Post-Expansion Rated
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Capacity" means the annual capacity of a plant within the Aniline
Facilities to produce product, determined in accordance with the procedures
referred to in paragraph 11.4 after an expansion of capacity to produce
aniline referred to in Section 11.
(aa) Completion. The term "Completion", with respect to an expansion
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pursuant to this Operating Agreement, means the date upon which the
equipment or property installed or constructed to accomplish such expansion
is placed in a state of readiness for a specifically assigned purpose and
with respect to which the period of depreciation begins.
(bb) Operating Agreement. The term "Operating Agreement" means,
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unless otherwise indicated, the Original Operating Agreement as amended and
restated by this Operating Agreement as of December 28, 1981 only, and as
it may hereafter be further amended, as distinguished from the
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Original Operating Agreement prior to such amendment and restatement, and
includes all Exhibits thereto.
(cc) Users and User. The terms "Users" and "User", respectively, mean
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ICI-AM and Uniroyal collectively and either individually.
(dd) Lease. The term "Lease" means the indenture of lease for certain
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of Rubicon's assets, the form of which is attached hereto as Exhibit B.
(ee) Financing Agreement. The term "Financing Agreement" means the
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agreement for providing financing to Rubicon, the form of which is attached
hereto as Exhibit C.
(ff) Utilities Services Agreement. The term "Utilities Services
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Agreement" means the agreement for Uniroyal to provide Rubicon with certain
services, the form of which is attached hereto as Exhibit D.
(gg) WD Percentage Entitlement. The term "WD percentage entitlement"
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with respect to the waste disposal plant means, for ICI-AM, 80% and, for
Uniroyal, 20%.
2. Operation for Users and RCI
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2.1 Rubicon shall:
(i) operate the Aniline Facilities and the DPA plant to perform
conversion services for ICI-AM and Uniroyal, respectively, and operate
the waste disposal plant and the Off-sites, all as hereafter provided
in this Operating Agreement, and
(ii) lease to ICI-AM and Uniroyal certain machinery and equipment
included in the Aniline Facilities, the DPA plant, the waste disposal
plant and the Off-sites in accordance with the Lease.
2.2 Rubicon shall operate the RCI plants for RCI, as hereafter
provided in this Operating Agreement.
2.3 Notwithstanding any apparent or implicit contradiction with the
other provisions of this Operating Agreement, the parties hereto understand and
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intend that the express provisions for the operation by Rubicon of the Aniline
Facilities and the DPA plant to perform conversion services only for ICI-AM and
Uniroyal, respectively, include performing such conversion services on behalf of
ICI-AM and Uniroyal, respectively, to produce aniline from benzene furnished by
tolling customers of either of them and to produce DPA from aniline furnished by
tolling customers of Uniroyal. The performance of such conversion services by
Rubicon on behalf of either ICI-AM or Uniroyal shall, for all purposes of this
Operating Agreement, be deemed to be performance of such conversion services for
the respective User, the benzene furnished by such a customer of either User
shall be deemed furnished by such User, the aniline produced therefrom shall be
deemed produced for such User and the operating costs incurred with respect to
such production shall be allocated to and paid by such User, and the aniline
furnished by such customer of Uniroyal shall be deemed furnished by Uniroyal,
the DPA produced therefrom shall be deemed produced for Uniroyal and the
operating costs incurred with respect to such production shall be allocated to
and paid by Uniroyal; provided, however, title to benzene or aniline furnished
by such customers and material-in-process and products (but not by-products) of
the Aniline Facilities and the DPA plant in the possession of Rubicon at any
time shall be vested in such customers in the respective proportions in which
each such customer's interest therein shall appear at such time. By-products
from any such production shall be deemed by-products from production for the
respective User as provided in this Operating Agreement.
3. General Obligations of Rubicon With Respect to Its Facilities
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3.1 Except as otherwise provided in Section 5, Rubicon shall, in
accordance with this Operating Agreement, as an independent contractor, but,
with respect to the use of Leased Property subject to the Lease, as agent for
the Users, operate the Aniline Facilities and the DPA plant, respectively, only
to perform conversion services to produce aniline exclusively for the Users and
DPA exclusively for Uniroyal and operate the waste disposal plant and Off-sites
as hereinafter provided. Except for benzene to be furnished by the Users to
produce aniline and aniline to be furnished by Uniroyal to produce DPA, all
utilities, labor, materials and services required to operate Rubicon's
facilities to produce aniline and DPA shall be furnished by Rubicon. Rubicon
shall
(i) allocate to, and deliver to or on behalf of, the Users the
products and by-products, if any, resulting from the operation of the
Aniline Facilities and deliver to or on behalf of Uniroyal the
products
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and by-products, if any, resulting from the operation of the DPA
plant, and
(ii) allocate to, and collect from, the Users and RCI the costs
incurred for the operation of the Aniline Facilities, the DPA plant,
the waste disposal plant and the Off-sites
in accordance with the procedures contained in Sections 5, 6 and 9 hereof,
respectively.
3.2 In determining its variable costs for all purposes of this
Operating Agreement, Rubicon shall use an average year-to-date cost for each
element, including, but not limited to, purchased utilities, labor, materials
and services.
3.3 Rubicon shall at all times maintain its facilities in a good
state of repair and shall operate such facilities utilizing sound operating
practices.
3.4 Rubicon shall make additions to, modifications of or improvements
in its facilities as may be specified by the Users in accordance with this
Operating Agreement and make such other normal maintenance and improvement
expenditures as shall be approved by Rubicon's Board of Directors.
3.5 At the request of either User or RCI made at any time, Rubicon
shall acquire such other facilities as may be required to deliver to Rubicon's
property line products resulting from the operation of its facilities or RCI's
plants for such User or RCI. Each User (and ICI-AM for RCI) shall be
responsible for the fixed capital required for the facilities requested by it or
RCI pursuant to this paragraph.
3.6 Rubicon shall maintain complete and accurate books and records
which shall reflect the procedures concerning the operation of Rubicon's
facilities in accordance with this Operating Agreement, including, without
limitation, the procedures for determining and allocating quantities of products
and for defining, calculating and allocating to each User and to RCI the costs
(including Rubicon's pre-operational and start-up costs) and capital
requirements of, and cash flows from, operating its facilities for the Users and
RCI, in accordance with Exhibit A.
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3.7 Rubicon shall maintain in force policies of insurance covering
damage to or destruction of the facilities operated for the Users and RCI,
including inventory thereat or elsewhere under the control of Rubicon. Said
insurance shall include the interests of Rubicon, the Users and RCI, and shall
cover such perils and be in such amounts as directed by the Users. The amount
and terms of such insurance shall be reviewed annually by Rubicon with the
Users.
3.8 The Users and Rubicon shall prepare a suitable accounting manual
consistent with the principles stated herein and the Exhibits hereto.
3.9 So long as Rubicon has the right to use Avenue E from 40th Street
to River Road, it will be solely responsible for the maintenance thereof and all
costs incurred for such maintenance.
4. General Obligations of Users and RCI
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4.1 Neither User nor RCI shall order or cause Rubicon to operate
Rubicon's facilities or the RCI plants, or to produce or deliver products, other
than in accordance with this Operating Agreement.
4.2 Except to the extent paid by a User to Rubicon as rent under the
Lease, each User and RCI shall pay to Rubicon that portion of Rubicon's pre-
operational and start-up costs and that portion of Rubicon's variable, constant
and capital based costs, as defined, calculated and allocated to such User and
RCI in accordance with this Operating Agreement.
4.3 Periodically as required, Rubicon shall prepare a forecast of its
working capital requirements with respect to the operation of its facilities for
the Users and RCI and the RCI plants for RCI for the ensuing period. Such
forecast shall be prepared, and such working capital requirements allocated to
each User (including working capital requirements allocated to RCI in ICI-AM's
share), in accordance with Exhibit A. Each User shall, in accordance with the
Financing Agreement, lend to Rubicon such User's share (including working
capital requirements allocated to RCI in ICI-AM's share) of Rubicon's forecast
working capital requirements so allocated to it.
4.4 Periodically as required, Rubicon shall prepare a forecast of its
fixed capital requirements with respect to its facilities for the ensuing period
and, after making fixed capital expenditures, an analysis of the expenditures
made. Such
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forecast and analysis shall be prepared, and such fixed capital expenditures
allocated to each User (including fixed capital requirements allocated to RCI in
ICI-AM's share), in accordance with Exhibit A. Each User shall, in accordance
with the Financing Agreement, lend to Rubicon such User's share (including fixed
capital requirements allocated to RCI in ICI-AM's share) of Rubicon's forecast
and actual fixed capital requirements as allocated to it.
4.5 For Rubicon's performing all of its obligations under this
Operating Agreement, in addition to paying the costs referred to in paragraph
4.2, ICI-AM and RCI will pay to Rubicon fees in the aggregate amount of $153,600
per year (divided between them from time to time as directed by ICI-AM and RCI)
and Uniroyal will pay to Rubicon a fee of $226,400 per year. Such fees shall be
paid in twelve equal monthly installments.
4.6 The obligations of ICI-AM and RCI, on the one hand, and Uniroyal,
on the other hand, under this Operating Agreement shall be several and not in
solido, but the obligations of ICI-AM and RCI shall be in solido and not
several.
5. General Operating Principles for the Aniline Facilities
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The general operating principles concerning the entitlement of the
Users with respect to products resulting from Rubicon's operation of the Aniline
Facilities (and in this Section 5 the term "products" shall mean only those
resulting from the operation of the Aniline Facilities), the requirements with
respect to furnishing benzene, the allocation and payment of Rubicon's operating
costs with respect to the Aniline Facilities (and in this Section 5 the term
"operating costs" shall mean only those incurred with respect to the Aniline
Facilities), and the consequences of a User's failure to order products or to
furnish benzene, shall be as stated below.
The other provisions of this Section 5 and elsewhere in this Operating
Agreement to the contrary notwithstanding, the parties recognize that the
production of TDA and DNT requires the use of certain facilities in the aniline
plant and the nitrobenzene plant and, as hereinafter set forth, the sulfuric
acid plant, in addition to the TDA/ DNT plant. During those periods in which
the operation of the sulfuric acid plant is not required relative to the
production of aniline for the Users it will be operated solely for the
production of DNT and all the costs, including variable, constant and capital
based costs, incurred by Rubicon for the operation of the sulfuric acid plant
during such periods shall be allocated to and paid by RCI. During
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any period in which part or all of the sulfuric acid plant's operation is
required for the production of aniline as well as DNT and at all times with
respect to the operation of the aniline plant to produce aniline and the
nitrobenzene plant to produce nitrobenzene, as well as in part for the
production of DNT, all operations for the production of DNT shall be deemed to
be production of aniline or nitrobenzene, as appropriate, for ICI-AM for
purposes of determining the respective entitlements of the Users to products
resulting from the operation of the Aniline Facilities, and for purposes of
allocating to the Users the variable, constant and capital based costs incurred
by Rubicon for the operation of the Aniline Facilities in accordance with this
Section 5. ICI-AM shall determine and instruct Rubicon to what extent production
capacity available for it shall be used for aniline, nitrobenzene or DNT and to
what extent any costs allocated to it shall be paid by RCI.
5.1. Entitlement to Products
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(a) Before the end of each month, Rubicon shall advise the Users as
to its estimate of the maximum quantity of each product which can result
from Rubicon's operations in each day of the following month.
(b) On a specified day in each month, each User shall be entitled to
order produced for it during each day in the following month a quantity of
each product up to
(i) such User's ("the first User") percentage entitlement to
such estimated maximum quantity of each product, plus
(ii) that portion, if any, of such estimated maximum quantity
not ordered by the other User (the "second User") which,
together with the quantity determined under (i), will not
result in the first User's receiving a quantity of product
for the year-to-date period in excess of the first User's
percentage entitlement to the Rated Capacity for such
product for such year-to-date period, plus
(iii) any remaining portion of the second User's unused
percentage entitlement to such maximum estimated quantity
which the second User agrees to make available to the first
User for such day.
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(c) Thereafter, either User may increase or decrease its order for
each product for any day on reasonable notice to Rubicon and such User's
order as last so revised shall become the existing order of such User, but
any increase shall be taken into account only to the extent that a capacity
to produce such product in excess of that last ordered by both Users for
that day shall become available for such day and shall be within the
quantity of such product which the User seeking an increase would be
entitled to order under subparagraph (b) above.
(d) Rubicon shall promptly advise both Users of the aggregate
existing orders for products.
(e) The available quantity of each product shall be allocated between
the Users each day in accordance with the following:
(i) when the quantity available is equal to or greater than the
aggregate quantity ordered by both Users, the quantity
available shall be allocated between the Users in proportion
to their respective existing orders, but
(ii) when the quantity available is less than the aggregate
quantity of both Users' existing orders, the quantity
available shall be allocated between the Users as follows:
first, there shall be allocated to each User the
quantity of its existing order, or such User's percentage
entitlement of the quantity available, whichever is less,
and
then, the remaining quantity available, if any, shall
be allocated to the User to which there was allocated in the
first step above less than the quantity of such User's
existing order.
(f) If either User fails to furnish Rubicon enough benzene, or to
leave available enough intermediate product necessary for production of
another product, and thus limits the quantity of a given product which
Rubicon can produce on a given day for such User to less than the quantity
to which such User otherwise would have been entitled, then the available
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quantity of that product produced shall be allocated between the Users for
that day in proportion to the limiting benzene or intermediate product
furnished, or left available, by each User for that day.
(g) Each User shall have the right to specify how much, if any, of
the available quantity of each product allocated to such User for each day
is to be delivered to or on behalf of such User outside the Aniline
Facilities, and how much, if any, is to be used for production of another
product.
(h) If, through any circumstance, a quantity of a given product which
should have been allocated to or delivered to or on behalf of one User
("the first User") for a given day is in fact allocated to or delivered to
or on behalf of the other User ("the second User") for such day, Rubicon
shall promptly notify the first User and shall adjust subsequent
allocations or deliveries of such product between the Users so as to
correct the variance in allocation or delivery at the earliest opportunity,
but if Rubicon fails to correct such variance during the month in which it
is discovered, the variance shall be corrected at the earliest opportunity
thereafter only if and to the extent that the first User shall request it,
in which event the quantity of such product returned to the first User
shall be taken from the quantity of such product allocable to the second
User pursuant to subparagraphs (e) and (f) above.
(i) If one User ("the first User") has availed itself of product
storage space in any portion of the other User's ("the second User")
entitlement to product storage space and if, solely as a consequence of
lack of product storage space for the second User, Rubicon is unable to
produce all of the second User's ordered product, then
(i) there shall be deemed to have been produced for the second
User and transferred from the stored product of the first
User a quantity equal to the second User's order for product
which could not, for this reason, be produced; and
(ii) if the product so transferred is nitrobenzene or aniline, it
shall be deemed to have been produced from benzene belonging
to the second User.
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(j) Any by-product, except high pressure steam resulting from the
operation of the nitric acid plant and low pressure steam (approximately 30
psig) resulting from the operation of the integrated aniline plant,
resulting from the operation of the Aniline Facilities shall, at no
additional charge to the Users, be delivered to or on behalf of the Users
in the same ratios as the product to which the by-product relates.
5.2. Furnishing Benzene to Rubicon
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(a) Each User shall furnish to Rubicon the quantity of benzene
meeting the specifications set forth in Exhibit E required by Rubicon in
the operation of the Aniline Facilities for such User. The provisions of
any agreement by Rubicon to defend and indemnify the Users with respect to
benzene shall not be deemed or construed as a release or waiver by Rubicon
of its rights hereunder.
(b) The furnishing of benzene shall be determined in accordance with
the following rules.
(1) A User's benzene shall be deemed to be furnished to Rubicon
within the meaning of paragraph (a) immediately above and subparagraph
(2) immediately below when such benzene has been delivered to the
vicinity of Rubicon's property and is within its control, even though
such benzene has not yet been transferred into Rubicon's benzene
storage facility.
(2) If one User ("the first User") has availed itself of benzene
unloading facilities or benzene storage space in any portion of the
other User's ("the second User") entitlement to unloading facilities
or benzene storage space when the second User has furnished benzene to
Rubicon as provided in (1) above, then
(i) any demurrage charges incurred by the second User (with
respect to any vessel, tank car or tank truck holding benzene) as
a result of the first User's use of such portion of benzene
unloading facilities or benzene storage space shall be paid for
by the first User; and
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(ii) the benzene of the first User which occupies such
portion of the benzene unloading facilities or benzene storage
space shall be deemed exchanged for an equal amount of benzene of
the second User but only if and to the extent that Rubicon
requires such amount of benzene to fill the second User's ordered
quantity of product.
5.3 Uniroyal's Option to Furnish Ammonia to Rubicon
-----------------------------------------------
(a) Uniroyal may, at any time and from time to time, furnish to
Rubicon for use in the nitric acid plant, and Rubicon shall accept for such
use, any ammonia which results from the operation of the DPA plant for
Uniroyal and which meets the ammonia specifications set forth in Exhibit F,
provided that such purchase by Rubicon shall not violate any existing
Rubicon contract for the purchase of ammonia or require the payment by
Rubicon of any liquidated damages under any such contract.
(b) Rubicon shall pay, or credit, Uniroyal for such ammonia the lowest
most recent net price to Rubicon (f.o.b. supplier) of ammonia otherwise
purchased by Rubicon.
(c) At Uniroyal's request, Rubicon shall, in accordance with paragraph
3.4 of this Operating Agreement, acquire and operate such additional
facilities as Uniroyal may specify so that ammonia from the DPA plant will
meet the applicable specifications for ammonia, and such facilities shall
be included in the definition of the DPA plant for all purposes under this
Agreement.
5.4 Use and Delivery of Low Pressure Steam
--------------------------------------
Rubicon shall, as and to the extent requested by Uniroyal, deliver to
Uniroyal, at the property line between Rubicon and Uniroyal, at the property
line between Rubicon and Uniroyal, up to that quantity of the low pressure steam
(approximately 30 psig) generated by the Aniline Facilities as exceeds the
aggregate quantity of such low pressure steam (i) which is utilized by Rubicon
in the Aniline Facilities plus (ii) which is delivered to RCI or the other
Rubicon facilities as provided in the following two sentences. Rubicon shall,
as and to the extent requested by RCI, deliver up to 15,000 lbs. per hour for
use in the MDI plant and up to 10,000 lbs. per hour for use in the TDI plant of
such low pressure steam. As and to the extent authorized in specific
appropriation requests approved by its Board of
16
Directors, Rubicon shall make additional quantities of such low pressure steam
available for delivery to and use in Rubicon facilities, other than the Aniline
Facilities, and in the RCI plants. Uniroyal and RCI shall, until December 25,
1983, pay to Rubicon, and, until such date, Rubicon shall charge to any of its
facilities, including the Aniline Facilities, utilizing such low pressure steam,
for each pound of such steam so delivered and utilized in each month, a price
equal to 0.80 of the average total constant (excluding any constant cost
resulting from the basic charge referred to in subparagraph 5.2(b) of the
Utilities Services Agreement) and variable costs incurred by Rubicon in
accordance with Exhibit A for each pound of 600 psig steam purchased by Rubicon
from Uniroyal in such month, and after such date a price equal to 0.70 of such
costs. Rubicon shall apply such payments from Uniroyal and RCI and such charges
to its facilities in reduction of Rubicon's variable costs incurred with respect
to the production of aniline.
5.5 Use of High Pressure Steam from Nitric Acid Plant
-------------------------------------------------
Rubicon shall utilize high pressure steam generated by the nitric acid
plant in its other operations and reduce purchases of steam from Uniroyal or
other sources accordingly. Rubicon shall charge to the variable cost of the
operations utilizing such steam, for each pound of steam so utilized in each
month, an amount equal to the average total constant and variable costs incurred
by Rubicon in accordance with Exhibit A for each pound of 600 psig steam
purchased by Rubicon from Uniroyal in such month, and shall apply the amount of
such charges in reduction of Rubicon's variable cost incurred with respect to
the operation of the nitric acid plant.
5.6 Allocation and Payment of the Operating Costs of the
Aniline Facilities
----------------------------------------------------
(a) The operating costs of the Aniline Facilities consist of Rubicon's
pre-operational and start-up, variable, constant and capital based costs
allocated to the Aniline Facilities in accordance with Exhibit A.
(b) The variable costs incurred by Rubicon with respect to each plant
within the Aniline Facilities shall be allocated to and paid by the Users
on an equal per-unit-of delivered product basis, calculated on an average
year-to-date basis.
(c) Except as otherwise provided in subparagraph (d) below and in the
second paragraph of the preamble to this Section 5, the pre-operational
17
and start-up costs, the constant costs and the capital based costs incurred
by Rubicon with respect to each plant within the Aniline Facilities shall
be allocated between and paid by the Users in proportion to their
respective percentage entitlements to product from such plant.
(d) To the extent that there is allocated to a User ("the first User")
for any year-to-date period a quantity of product in excess of the greater
of:
(i) the quantity derived by multiplying Rubicon's Rated Capacity
for such product, pro-rated to such year-to-date period, by the first
User's percentage entitlement to such product, or
(ii) the quantity derived by multiplying the aggregate quantity
of such product allocated to both Users for such year-to-date period
by the first User's percentage entitlement to such product,
the first User must pay to Rubicon, in addition to the costs allocated to
the first User pursuant to subparagraph (c) above, the year-to-date
constant and capital based costs attributable to such excess quantity of
such product during such year-to-date period, and the constant and capital
based costs allocated to the other User shall be reduced accordingly, which
shall be final only if and to the extent any such excess quantity of such
product is allocated to the first User as of the end of a year.
(e) The Rated Capacity of each plant within the Aniline Facilities
shall be expressed in pounds of product per year extrapolated from a
performance test to be conducted by Rubicon.
(1) The performance test shall be conducted
(i) as soon as practicable following the debugging of the
integrated aniline plant, and
(ii) annually thereafter at a time mutually agreed upon by
the Users.
(2) Unless otherwise agreed by the Users from time to time, the
performance test shall consist of operating each plant within the
Aniline Facilities at full possible production rates for 24 hours per
day for a period of 7 consecutive days (the "test period") and noting
18
the production results and operating conditions for each plant within
the Aniline Facilities during the test period. If during any portion
of any day within the test period a plant should not operate at its
full possible production rate (such portion of such day hereinafter
called "down time"), the production results obtained for such plant
during the down time shall be eliminated, and the down time shall be
eliminated from the test period for such plant. The adjusted
production results (expressed in pounds of production) when divided by
the adjusted test period (expressed in days) for each plant and
multiplied by 330 days shall be the Rated Capacity of such plant.
(3) Rubicon shall submit to the Users Rubicon's detailed plan for
conducting each performance test, and Rubicon shall not conduct such
test until the plan has been approved by the Users. Any adjustments
resulting from eliminations for down time made by Rubicon in
accordance with subparagraph (2) immediately above shall be subject to
the approval of the Users. Each User shall have the right to have its
representatives observe the performance test and receive the results
obtained therefrom.
5.7 Consequences of Failure of the Users to Order
Products or to Furnish Benzene
---------------------------------------------
The only consequences of a User's failure to order products from
Rubicon or to furnish to Rubicon the quantity and quality of benzene required by
Rubicon in the operation of the Aniline Facilities shall be that
(i) the quantities of products and by-products, if any,
allocated to such User shall be correspondingly reduced; and
(ii) such User shall nevertheless pay to Rubicon that portion of
Rubicon's operating costs for the Aniline Facilities allocated to such
User.
19
6. General Operating Principles for the DPA Plant
----------------------------------------------
6.1 Operation of the DPA Plant
--------------------------
(a) Rubicon shall operate the DPA plant solely for Uniroyal, and shall
deliver to or on behalf of Uniroyal all DPA, ammonia and any other
by-product resulting from the operation of the DPA plant.
(b) Before the end of each month, Rubicon shall advise Uniroyal as to
Rubicon's estimate of the maximum quantity of DPA which can result from
Rubicon's operation in each day of the following month.
(c) On a specified day in each month, Uniroyal shall be entitled to
order DPA produced for it in each day in the following month up to such
maximum quantity, and thereafter may increase or decrease its order for DPA
for any day on reasonable notice to Rubicon, but any such increase shall be
taken into account only to the extent that a quantity of DPA in excess of
that previously ordered by Uniroyal for that day can result from Rubicon's
operation in such day.
6.2 Furnishing Aniline to Rubicon
-----------------------------
Uniroyal shall furnish to Rubicon the aniline required by Rubicon to
operate the DPA plant out of Uniroyal's allocation of aniline produced by
Rubicon or from any other source.
6.3 Allocation and Payment of the Operating Costs of
the DPA Plant
------------------------------------------------
The operating costs of the DPA plant consist of Rubicon's
pre-operational and start-up, variable, constant and capital based costs
allocable to the DPA plant in accordance with Exhibit A. The operating costs of
the DPA plant shall be allocated to and paid by Uniroyal.
20
6.4 Consequences of Failure of Uniroyal to Order DPA
or Furnish Aniline
------------------------------------------------
The only consequences of Uniroyal's failure to order DPA from Rubicon
or to furnish to Rubicon the quantity of aniline required by Rubicon in the
operation of the DPA plant shall be that
(i) the quantity of DPA produced for Uniroyal shall be
correspondingly reduced; and
(ii) Uniroyal shall nevertheless pay to Rubicon all of Rubicon's
operating costs for the DPA plant.
7. Rubicon's Operation of the Off-sites
------------------------------------
7.1 Rubicon shall operate the Off-sites as required to provide the
necessary and appropriate services for all its facilities and for the RCI
plants.
7.2 (a) The operating costs of the Off-sites consist of Rubicon's
pre-operational and start-up, constant and capital based costs allocated to
the Off-sites in accordance with Exhibit A.
(b) The operating costs incurred by Rubicon with respect to each
of the Off-sites shall be allocated first to the plants or to other Off-
sites and then to the plants, and then shall be allocated among and paid by
the Users and RCI, as provided in Exhibit A.
8. Rubicon's Operation of the Waste Disposal Plant
-----------------------------------------------
8.1 Rubicon shall operate the waste disposal plant to treat and
dispose of only acceptable liquid waste generated by the operation of its
facilities for the Users and the RCI plants for RCI, all as provided in this
Operating Agreement.
8.2 The total present capability of the deep well portion of the
waste disposal plant to dispose of liquid waste is estimated, as of the date of
this Operating Agreement, to be 455 gallons per minute. The parties have agreed
that ICI-AM shall be entitled to 80% and Uniroyal shall be entitled to 20% of
the flow capacity of the waste disposal plant (the respective WD percentage
entitlements). The usage of the flow capacity of the waste disposal plant for
the RCI plants shall be deemed to be usage thereof by, and shall be charged to
the WD percentage entitle-
21
ment of, ICI-AM, and ICI-AM shall determine the usage of its WD percentage
entitlement as between the RCI plants and the Aniline Facilities as operated for
it. If, for any reason, the present deep wells are incapable of fulfilling the
waste disposal requirements of the Users and RCI, the provisions of Section 15
shall apply to any increase of waste disposal capability which may be proposed.
8.3 Except as provided in paragraph 8.4, the respective
responsibilities of the Users for the fixed capital of the waste disposal plant
shall be in their respective WD percentage entitlements. As a result of the
agreement to establish the respective WD percentage entitlements at 80% and 20%,
ICI-AM will increase its F.C.F. Commitment and Term Loan to Rubicon, plus pay to
Uniroyal, an aggregate amount of $120,000, divided as appropriate between such
increases and such payment, and Uniroyal's F.C.F. Commitment and Term Loan to
Rubicon shall be reduced by an amount corresponding to the ICI-AM increases in
its Commitment and Loan.
8.4 (a) In the event the capacity to produce any product is expanded
or a production process is changed by Rubicon or RCI and such expansion or
change results in an increased flow of liquid waste to be disposed of by
the waste disposal plant but is within the disposal capacity of the deep
well and is within the WD percentage entitlement of the User or Users
causing such expansion or change (including the waste from the RCI plants
in ICI-AM's WD percentage entitlement) but will require an addition or
expansion of any or all of the ancillary facilities for accumulation,
pretreatment and injection, then, Rubicon shall proceed with the design and
construction of such ancillary facility addition or expansion using such
design and such contractor or contractors as shall be determined by
Rubicon's Board of Directors.
(b) The allocation of the fixed capital responsibility for each
such ancillary facility addition or expansion shall be determined at the
time it is authorized by Rubicon's Board of Directors. The appropriation
request which is approved by Rubicon's Board of Directors covering each
such addition or expansion shall identify the purpose for its installation,
including which plant or plants have, directly or indirectly, the need for
such addition or expansion at that time and, if two or more plants have
such need, the best engineering estimates at that time of the relative
proportions of such needs between or among such plants. For purposes of
making the allocations of responsibility for the fixed capital for each
such addition or expansion, the
22
need or needs as so determined shall be the expected use (projected in good
faith as and to the extent reasonably able to be anticipated at that time
and acceptable to Rubicon's Board of Directors), directly or indirectly, of
such addition or expansion. Fixed capital responsibility allocated to one
or more of the RCI plants shall be allocated to ICI-AM. Each User shall
furnish the financing for the fixed capital for which it is so allocated
responsibility in the manner and on the terms set forth in the Financing
Agreement.
8.5 The operating costs of the waste disposal plant consist of
Rubicon's pre-operational and start-up, constant and capital based costs
allocated to the waste disposal plant in accordance with Exhibit A. The
operating costs incurred by Rubicon with respect to the waste disposal plant
shall be allocated between and paid by the Users as provided in Exhibit A;
provided, however, that ICI-AM may direct that some portion of its allocation be
reallocated to and paid by RCI.
9. General Obligations of Rubicon with Respect to the RCI Plants
-------------------------------------------------------------
9.1 Operation of the RCI Plants
---------------------------
(a) Rubicon shall, in accordance with this Operating Agreement, as an
independent contractor, operate the RCI plants, solely for the benefit of
RCI and as directed by RCI consistent with this Operating Agreement, to
produce RCI products. Except for aniline to be furnished by RCI, all
utilities, labor, materials and services required to operate the RCI plants
to produce RCI products shall be furnished by Rubicon. Rubicon shall
(i) deliver to or on behalf of RCI the products and by-products,
if any, resulting from the operation of the RCI plants, and
(ii) allocate to, and collect from, RCI the costs incurred by
Rubicon in its facilities and for utilities, labor, materials and
services provided by Rubicon for the operation of the RCI plants and
allocated to RCI in accordance with the procedures contained in this
Operating Agreement.
(b) Rubicon shall supervise and cause to be made such additions to,
modifications of or improvements in the RCI plants as may be specified by
RCI and make or cause to be made such other normal maintenance and
23
improvement expenditures as shall be approved or directed by RCI. RCI
shall directly pay for all expenditures incurred for these purposes.
9.2 Allocation and Payment of Rubicon's Operating Costs
with Respect to the RCI Plants
---------------------------------------------------
Rubicon's operating costs with respect to the RCI plants consist of
those of Rubicon's pre-operational and start-up, variable, constant and capital
based costs allocated to the RCI plants in accordance with Exhibit A, it being
understood that, in view of the fact that RCI owns and has financed and shall
finance directly all fixed capital investment in the RCI plants, Rubicon shall
have no capital based costs with respect to the RCI plants themselves.
Rubicon's operating costs for the RCI plants shall be allocated to and paid by
RCI.
9.3 Termination of Rubicon's Operation of the RCI Plants
----------------------------------------------------
(a) On reasonable notice to Rubicon, RCI may terminate Rubicon's
operation of the RCI plants and any other facilities then owned by RCI and
operated by Rubicon in accordance with this Operating Agreement. Following
the effective date of such termination, Rubicon will cease operating the
RCI plants and such other facilities, and will cease furnishing management,
staff, labor and materials to operate the RCI plants to produce RCI
products. Thereupon the provisions of paragraph 9.1 (except for
subparagraph 9.1(a)(ii)) shall no longer be applicable.
(b) Notwithstanding the provisions of subparagraph 9.3(a), unless the
parties hereto shall otherwise agree,
(i) Rubicon shall continue to furnish to RCI for the operation
of the RCI plants those substances, utilities and services
from certain of the Off-sites, the waste disposal plant and
purchased from others then being furnished by Rubicon,
(ii) Rubicon shall continue to allocate the operating costs
thereof to RCI in accordance with this Operating Agreement
(which allocations to RCI, as to constant costs, shall be
(1) of Rubicon's remaining constant costs, i.e. after
reductions thereof, if any, resulting from such termination,
following the same principles as set forth in paragraph
17.2 with respect to constant costs allocations in
24
the event of a plant shutdown, (2), on the same bases as
such constant costs would have been allocated to the RCI
plants and then to RCI as though such termination had not
occurred, e.g., allocations based on direct labor will
reflect RCI's employees as though they were employees of
Rubicon), and
(iii) RCI shall pay such costs.
9.4 Consequences of Failure of RCI to have Rubicon
Operate the RCI Plants
----------------------------------------------
While Rubicon is operating the RCI plants or after the termination of
such operation, the only consequences under this Operating Agreement of RCI
failing to have the RCI plants operated shall be that RCI shall nevertheless pay
to Rubicon that part of Rubicon's operating costs for the RCI plants allocated
to RCI.
10. External Assets
---------------
10.1 RCI and Rubicon, respectively, shall provide the financing for,
and pay the operating costs of, their respective External Assets.
10.2 RCI and Rubicon hereby grant, each to the other, for as long as
may be necessary, an easement on their respective real properties at Geismar,
Louisiana for the installation, operation, repair and maintenance of their
respective External Assets. If at any time, and from time to time, for any
significant reason it becomes necessary or desirable to do so, each party will
execute and deliver to the other, in recordable form acceptable to counsel for
the receiving party, documentary evidence covering one or more easements with
respect to one or more External Assets.
10.3 The ownership of External Assets will be determined by the
respective books and records of RCI and Rubicon, which, in the absence of error
or negligence, shall be the final determination of ownership and valuation.
External Assets will remain the property of the owning party notwithstanding the
fact that they are permanently affixed to, or interconnected with, the real or
personal property of the party on whose property they are located.
10.4 In the event RCI exercises its right to terminate Rubicon's
operation of the RCI plants as provided in paragraph 9.3, RCI and Rubicon,
respec-
25
tively, will nevertheless continue to operate the other's External Assets as and
to the extent requested by the other.
11. Expansion of Capacity to Produce Aniline
----------------------------------------
11.1 If at any time and from time to time either User desires that
Rubicon expand its then existing capacity to produce aniline, then in each such
instance the provisions of this Section 11 shall apply. The User proposing such
expansion (the "first User") shall so notify the other User (the "second User")
in writing, which notification shall state in detail the Design Expansion
Capacity desired by the first User, the cost and timing of the proposed
expansion, and, if other than by Rubicon's then current process, the proposed
process (disclosure of which process to the second User may require execution by
the second User of appropriate agreements for confidentiality) , as well as any
other information the second User may reasonably request. The Users shall then
consult together to consider this proposal. Within 90 days following its
receipt of such notification and all such information, the second User shall
elect in writing whether it desires to participate in such proposed expansion,
specifying, if it wishes to participate, the Design Expansion Capacity of
aniline it desires. Failure by the second User to make any election within said
period shall be deemed an election by it not to participate in such expansion.
If both Users desire to participate in such expansion, the Design Expansion
Capacity of such expansion shall be the combination of the Design Expansion
Capacities desired by both Users.
11.2 Upon completion of said notification, information, consultation
and election procedures, and provided that the User or Users participating in
such expansion furnish all of the financing for the fixed capital for such
expansion in the manner and on the terms set forth in the Financing Agreement,
Rubicon shall proceed with the design and construction of such expansion, using
such process as is then available, or is made available by the User or Users
participating in such expansion, to Rubicon, and such contractor or contractors
as shall be designated by the participating User or Users, which process and
contractor or contractors must be reasonably acceptable to Rubicon's Board of
Directors. The Users' respective responsibilities for the fixed capital for
such expansion and for the financing thereof shall be in their respective
Expansion Percentages.
11.3 If both Users participate in such expansion and their respective
Expansion Percentages are the same as their respective pre-expansion percent-
26
age entitlements, then the provisions of the following paragraphs of this
Section 11 shall not apply.
11.4 If only one User participates in such expansion or if both Users
participate but their respective Expansion Percentages are different from their
respective pre-expansion percentage entitlements, and, in either such event, for
all expansions of capacity to produce aniline thereafter, then the provisions of
this paragraph 11.4 and the following paragraphs of this Section 11 shall apply.
Prior to the commencement of construction of each such expansion, Rubicon shall,
utilizing the procedures set forth in subparagraph 5.6(e) of this Operating
Agreement, conduct a performance test of each plant within its then existing
Aniline Facilities to determine the Pre-Expansion Rated Capacity thereof. Upon
Completion of each such expansion, Rubicon shall, utilizing said procedures,
conduct a performance test of each plant within its then expanded Aniline
Facilities to determine the Post-Expansion Rated Capacity thereof. The
difference between the Pre-Expansion and Post-Expansion Rated Capacities of each
plant within the Aniline Facilities as so determined shall be the Expansion
Rated Capacity of such plant resulting from such expansion.
11.5 After completion of each post-expansion performance test referred
to in paragraph 11.4, the definition of the respective percentage entitlements
of the Users in this Operating Agreement shall be amended by replacing the
percents then specified therein with percents for each User for each plant
within the Aniline Facilities derived as follows:
(i) multiply the Pre-Expansion Rated Capacity of each plant within the
Aniline Facilities by each User's percentage entitlement prior to
such expansion, then
(ii) multiply the Expansion Rated Capacity of each plant within the
Aniline Facilities by each User's Expansion Percentage, then
(iii) as to each plant within the Aniline Facilities, add the results of
(i) and (ii) for each User, then
(iv) as to each User for each plant within the Aniline Facilities, divide
the result of (iii) for each User by the Post-Expansion Rated
Capacity of such plant.
27
The resulting percent for each User for each plant within the Aniline Facilities
shall be the amended percent for each User with respect to each such plant in
the definition of percentage entitlement in this Operating Agreement.
11.6 If only one User ("the first User") participates in such an
expansion, the first User shall, if requested by the other User ("the second
User"), during any period production of a product by a plant within the Aniline
Facilities is reduced or eliminated by reason of making such expansion prior to
Completion of such expansion, furnish to the second User, out of the first
User's entitlement to such product available from Rubicon or otherwise, a
quantity of such product equal to the difference between
(i) the second User's percentage entitlement to the Pre-
Expansion Rated Capacity of such plant and
(ii) the quantity of such product actually available to the
second User from Rubicon while such reduction or elimination
continues.
Such quantity of such product shall be so furnished at no cost to the second
User beyond its cost for such product from Rubicon in accordance with this
Operating Agreement. If any of such quantity of such product is furnished to
the second User from the first User's entitlement thereto from Rubicon, it shall
be treated by Rubicon as having been ordered by and allocated to the second User
for all purposes under this Operating Agreement, except that such quantity of
such product shall be deemed to have been allocated to the first User for the
purposes of subparagraph 5.6(d) of this Operating Agreement. If any of such
quantity of such product is furnished to the second User by the first User from
outside Rubicon, the second User shall pay the first User therefor only an
amount equal to the variable cost for an equal quantity of such product charged
by Rubicon in accordance with this Operating Agreement immediately prior to the
reduction of production caused by such expansion, plus, if benzene is included
in such product, an amount equal to the second User's then current cost of
benzene for the amount of benzene included in such product.
11.7 Upon Completion of the first such expansion, subparagraph 5.6(c)
of this Operating Agreement shall be amended in its entirety to read as follows:
28
"(c) Following Completion of the first expansion referred to in
paragraph 11.4 of this Operating Agreement, and each expansion
thereafter, except as otherwise provided in subparagraph (d) below and
in the second paragraph of the preamble to this Section 5, the
pre-operational costs, the start-up costs, the constant costs and the
capital based costs incurred by Rubicon with respect to each plant
within the Aniline Facilities shall be allocated between and paid by
the Users as set forth below.
(1) The capital based costs incurred by Rubicon with respect
to the fixed capital for each pre-expanded plant, or, in the
event of any expansions subsequent to the first such expansion,
with respect to the fixed capital for each previous expansion
thereof, within the Aniline Facilities shall be allocated between
and paid by the Users in the same proportions as before each such
expansion.
(2) The capital based costs incurred by Rubicon with respect
to the fixed capital for each such expansion of each plant within
the Aniline Facilities and the pre-operational costs incurred by
Rubicon with respect to each such expansion shall be allocated
between and paid by the Users in proportion to their respective
Expansion Percentages with respect to each such expansion of each
such plant.
(3) The start-up costs incurred by Rubicon with respect to
each such expansion of each plant within the Aniline Facilities
shall be allocated between and paid by the Users in proportion to
their respective post-expansion percentage entitlements to
product from such plant.
(4) The capital based costs incurred by Rubicon with respect
to fixed capital for assets acquired by Rubicon to maintain and
operate each plant within the Aniline Facilities after Completion
of each such expansion, but prior to any subsequent expansion,
shall be allocated between and paid by the Users in proportion to
their respective post-expansion percentage entitlements to
product from such plant.
29
(5) The constant costs incurred by Rubicon with respect to
each plant within the Aniline Facilities after Completion of each
such expansion shall be allocated between and paid by the Users
in proportion to their respective post-expansion percentage
entitlements to product from such plant."
11.8 Upon Completion of the first such expansion, subparagraph 5.6(d)
of this Operating Agreement shall be amended by adding the following sentence.
"Following the first expansion referred to in paragraph 11.4 of this
Operating Agreement, and each expansion thereafter, the additional
capital based costs referred to in the first sentence of this
subparagraph 5.6(d) to be paid by the first User shall be based upon
the other User's ("the second User's") average year-to-date capital
based costs with respect to the production of such product, which, for
this purpose, shall be determined by dividing the aggregate year-to-
date capital based costs allocated to the second User with respect to
such product by the number of pounds of its year-to-date entitlement
to such product, such year-to-date entitlement to such product to be
determined by multiplying the second User's percentage entitlement to
such product times the Rated Capacity for such product pro-rated for
the year-to-date period."
12. Expansion of Capacity to Produce DPA
------------------------------------
12.1 If at any time and from time to time Uniroyal desires that
Rubicon expand its then existing capacity to produce DPA, it shall so notify
Rubicon, and, provided that Uniroyal furnishes all of the financing for the
fixed capital for such expansion in the manner and on the terms set forth in the
Financing Agreement, Rubicon shall proceed with the design and construction of
such expansion, using such process as is then available, or is made available by
Uniroyal, to Rubicon and such contractor or contractors as shall be designated
by Uniroyal, which process and contractor or contractors must be reasonably
acceptable to Rubicon's Board of Directors, acceptability of a process being
unrelated in this instance to considerations of cost but related to such
considerations as environmental requirements and plant safety.
30
13. Expansion of or Addition to Off-sites
-------------------------------------
13.1 In the event the capacity to produce any product or dispose of
waste is expanded by Rubicon or RCI and such expansion requires the addition or
expansion of one or more Off-sites, or if Rubicon's Board of Directors decides
to add or expand an Off-site for any other reason, Rubicon shall proceed with
the design and construction of such Off-site addition or expansion using such
design and such contractor or contractors as shall be determined by Rubicon's
Board of Directors.
13.2 The allocation of the fixed capital responsibility for each such
Off-site addition or expansion shall be determined at the time it is authorized
by Rubicon's Board of Directors on the bases provided in this Operating
Agreement. The appropriation request covering each Off-site addition or
expansion which is approved by Rubicon's Board of Directors shall identify the
purpose for its installation, including which plant or plants have, directly or
indirectly, the need for such addition or expansion at that time and, if two or
more plants have such need, the best engineering estimates at that time of the
relative proportions of such needs between or among such plants. For purposes of
making the allocations of responsibility for the fixed capital for each such
addition or expansion in accordance with Exhibit A, the need or needs as so
determined shall be the expected use (projected in good faith as and to the
extent reasonably able to be anticipated at that time and acceptable to
Rubicon's Board of Directors), directly or indirectly, of such addition or
expansion. Each User shall furnish the financing for the fixed capital for which
it is so allocated responsibility in the manner and on the terms set forth in
the Financing Agreement.
14. Certain Additional Off-sites
----------------------------
14.1 If Uniroyal or another supplier shall cease to be obligated to
furnish a substance, utility or service and other arrangements for the supply of
such substance, utility or service satisfactory to both Users are not made, and
such substance, utility or service is one which could be produced or provided by
Rubicon, Rubicon shall proceed with the design and construction of the
capability to produce or provide such substance, utility or service using such
design and such contractor or contractors as shall be determined by Rubicon's
Board of Directors. The facilities to produce each such substance, utility or
service shall be considered for all purposes of this Operating Agreement to be
an additional Off-site and, unless paragraph 14.2 applies, the provisions of
Section 13 shall apply thereto.
31
14.2 If for any reason either User (the "first User") is,
notwithstanding the provisions of paragraph 14.1, unwilling or unable to
participate in the actions contemplated therein with respect to such an
additional Off-site, the other User (the "second User") may nevertheless cause
Rubicon to proceed with the design and construction of such an Off-site,
furnishing all of the financing for the fixed capital therefor in the manner and
on the terms set forth in the Financing Agreement. In such event Rubicon shall
allocate all of the responsibility for the fixed capital and all of the
operating costs of such Off-site to the second User and Rubicon shall not use
any substance, utility or service derived from such Off-site with respect to any
conversion services for the first User, or, if the second User is Uniroyal,
services for RCI.
15. Expansion of Waste Disposal Plant or Different Method for the
Disposition or treatment of Waste
-------------------------------------------------------------
15.1 If at any time either User proposes that Rubicon install an
expansion of the waste disposal plant, other than expansion of ancillary
facilities as contemplated in paragraph 8.4, or that Rubicon install a method or
process for disposing or treating of waste different from that of any part of
the method used in the waste disposal plant (i.e., deep well injection after
accumulation, neutralization and sand filtration), such a proposal shall
constitute a proposal for the construction of a new plant. The User proposing
such installation (the "first User") shall so notify the other User (the "second
User") in writing, which notification shall state in detail the method or
process to be used, the cost and timing of the installation and the intended
capacity for waste disposal, as well as any other information the second User
may reasonably request. The Users shall then consult together to consider this
proposal. Within 90 days following its receipt of such notification and all
such information, the second User shall elect in writing whether it desires to
participate in such proposed plant, specifying, if it wishes to participate, the
capacity it desires. Failure by the second User to make any election within said
period shall be deemed an election by it not to participate in such plant. If
both Users desire to participate in such plant, the Design Capacity of such
plant shall be the combination of the capacities desired by both Users.
15.2 Upon completion of said notification, information, consultation
and election procedures, and provided that the User or Users participating in
such plant furnish all of the financing for the fixed capital for such plant in
the manner and on the terms set forth in the Financing Agreement, Rubicon shall
proceed with the design and construction of such plant, using such process as is
32
specified by the User or Users participating in such plant and such contractor
or contractors as shall be designated by the participating User or Users, which
process and contractor or contractors must be reasonably acceptable to Rubicon's
Board of Directors. The Users' respective responsibilities for the fixed
capital for such plant and for the financing thereof shall be in the respective
percentages of their entitlement to the use of such plant.
15.3 Prior to the Completion of such plant this Operating Agreement
shall be amended by the addition of (i) appropriate new definitions of such
plant and percentage entitlement to the use thereof and (ii) appropriate new or
amended Sections covering the operation and the allocation and payment of the
operating costs of such plant corresponding to those Sections hereof applicable
to the waste disposal plant. Exhibit A hereto shall also be amended by the
addition of appropriate provisions corresponding to those provisions applicable
to the waste disposal plant.
16. Sales of Nitric Acid and Tolling of Ammonia to Nitric Acid
----------------------------------------------------------
16.1 To the extent either or both Users may, at any time and from time
to time, designate a portion of their respective entitlements to nitric acid as
available for sale, Rubicon shall, to the extent it is not already committed to
another supplier, purchase such nitric acid for its requirements to produce DNT
for RCI, and Rubicon shall use its best efforts to sell such nitric acid not so
purchased,
(i) from the aggregate quantity of nitric acid so designated by
the Users in proportion to each User's percentage entitlement to
nitric acid until a User's designated quantity of nitric acid has been
depleted, and then
(ii) from the remaining designated quantity of nitric acid of the
other User, if any.
To the extent that the Users do not make nitric acid available for Rubicon's
requirements for RCI, Rubicon shall purchase such requirements elsewhere.
16.2 All sales of a User's nitric acid (other than sales to Rubicon
for its requirements for RCI), if any, shall be made by Rubicon as undisclosed
agent for such User and Rubicon shall pay, or credit, the proceeds from sales of
such User's nitric acid to such User, but Rubicon shall invoice and receive
payment in its own
33
name. Rubicon shall be reimbursed by each User for Rubicon's selling expenses
incurred on behalf of such User. Rubicon shall pay or credit to each User from
which it purchases nitric acid the then current market price of nitric acid,
f.o.b. supplier.
16.3 To the extent either or both Users may, at any time and from time
to time, designate a portion of their respective percentage entitlements to the
productive capacity of the nitric acid plant as available for tolling nitric
acid for outside customers (i.e. producing nitric acid for such customers from
ammonia supplied by the customers and charging such customers a tolling fee),
Rubicon shall use its best efforts to arrange tolling for such customers, and
Rubicon shall perform such tolling
(i) by utilizing the aggregate productive capacity so designated
by the Users in proportion to each User's percentage entitlement to
the productive capacity of the nitric acid plant, until the designated
portion of a User's percentage entitlement to productive capacity has
been fully utilized, and then
(ii) by utilizing the remaining designated portion of the other
User's percentage entitlement to productive capacity, if any.
16.4 All tolling of nitric acid utilizing a User's percentage
entitlement to the productive capacity of the nitric acid plant, if any, shall
be carried out by Rubicon as undisclosed agent for such User and Rubicon shall
pay, or credit, the proceeds to such User, but Rubicon shall invoice and receive
payment of the tolling fee in its own name. Rubicon shall be reimbursed by each
User for Rubicon's expenses incurred on behalf of such User to sell and provide
this service.
17. Capital and Operating Cost Responsibility and Allocation
--------------------------------------------------------
17.1 The capitalized expenditures made by Rubicon to acquire land, to
design and construct buildings, to acquire and install machinery and equipment
and to acquire furniture, fixtures and transportation, office and other
equipment are called fixed capital and certain costs related thereto are called
capital based costs, all as defined in this Operating Agreement. The
responsibility for fixed and working capital and the responsibility for capital
based and other costs, respectively, shall be allocated within Rubicon and then,
for fixed and working capital responsibility, to the Users (including RCI's
allocation in ICI-AM's share) and, for capital based and
34
other costs, to the Users and RCI, in accordance with the terms and conditions
of this Operating Agreement. The purpose of such allocations is to determine the
respective obligations (i) of the Users to finance Rubicon's fixed and working
capital and (ii) of the Users and RCI to reimburse Rubicon for its costs with
respect to conversion services for the production of aniline for the Users and
DPA for Uniroyal and to operate the RCI plants and to provide substances,
utilities and services for RCI. The responsibility for the portions of the fixed
and working capital for the waste disposal plant and the Off-sites which are
allocated to the RCI plants shall be allocated to ICI-AM. The portions of the
capital based costs incurred by Rubicon with respect to the waste disposal plant
and the Off-sites which are allocated to the RCI plants shall be allocated to
RCI. Except with respect to RCI as aforesaid and as provided in Section 5 of
this Operating Agreement, capital based costs shall be allocated correspondingly
with fixed capital responsibility. Other operating costs shall be allocated as
provided in this Operating Agreement.
17.2 (a) The responsibility for the fixed capital for each of
Rubicon's assets and the corresponding responsibility for the capital based
costs associated with each of Rubicon's assets are determined and allocated
to the Users at the time of acquisition as provided in this Operating
Agreement. Such responsibilities shall not be reallocated unless by
agreement between the affected parties.
(b) In the event either User or RCI or, in the case of the
Aniline Facilities, either User or both Users (hereinafter in this
paragraph 17.2 individually or collectively called "the Reducing Party")
proposes a substantial reduction in operations for it for at least one year
or a permanent shutdown of a plant operated by Rubicon for it, or, in the
case of RCI, it exercises the right provided in paragraph 9.3, the parties
shall promptly determine if and to what extent Rubicon may adjust its
operations so as to reduce its constant costs without adversely affecting
Rubicon's safety or efficiency. Except as to those constant costs referred
to in (c) below, the remaining constant costs shall thereafter be allocated
to the remaining plants and Off-sites as provided in this Operating
Agreement.
(c) All net additional or continuing costs which are incurred as
a result of, or continue notwithstanding, such reduction or shutdown, e.g.
take or pay penalties under supply contracts, utility demand charges,
pension and other benefit costs, and severance pay for employees terminated
by reason of such permanent reduction or shutdown, but excluding foregone
35
volume or quantity discounts, shall be allocated to the permanently reduced
or shutdown plant and paid by the Reducing Party (and in the case of both
Users permanently reducing or shutting down the Aniline Facilities,
allocated between and paid by them in their respective percentage
entitlements at the time of such permanent reduction or shutdown). "Net
additional or continuing costs" are the aggregate balance of such costs
over those costs not otherwise absorbed by the expansion or addition of
other operations at the time of or subsequent to such reduction or
shutdown.
17.3 Unless otherwise agreed between ICI-AM and Uniroyal, all property
which will qualify for investment tax credit under Section 38 of the Internal
Revenue Code which Rubicon acquires for inclusion in the Aniline Facilities, the
DPA plant, the waste disposal plant, the Off-sites and any additional plants
shall become subject to the Lease as provided therein.
18. Term of this Operating Agreement
--------------------------------
18.1 This Operating Agreement shall remain in effect until terminated
as herein provided. Termination of this Operating Agreement may be effected
only by all parties agreeing thereto in writing, which agreement to terminate
may not be rescinded by any party without the written consent of the other
parties.
19. Allocations by Rubicon Under Certain Circumstances
--------------------------------------------------
19.1 In the event Rubicon, for any reason, is unable to provide
sufficient utility services, waste disposal plant use, or Off-site use to
operate all of its and RCI's plants at each of such plants' scheduled production
level, Rubicon shall allocate its available utility services, waste disposal
capability and Off-site use on a fair and reasonable basis among all those
plants then requiring such utility services, waste disposal or Off-sites, having
regard first to (i) the obligations undertaken by the respective parties to
Rubicon and by Rubicon to the respective parties with respect to those plants
and (ii) the technical necessities and feasibilities of operating each of such
plants at reduced levels or during alternating periods, and, secondarily, to the
current business needs of the respective parties entitled to the products of
such plants. The purpose of this Section 19 is to record the understanding of
the parties to this Operating Agreement that, under circumstances of
uncontrollable reductions of one or more of those services and uses referred to
in this Section 19, Rubicon, while attempting to accommodate the desires and
needs of all parties as fairly as possible,
36
will not follow any purely mechanical procedure or priority schedule in
determining how to allocate available services and uses.
20. General Provisions
------------------
20.1 Rubicon shall operate the Aniline Facilities as provided in
Section 5, the DPA plant as provided in Section 6 and the RCI plants as provided
in Section 9. All of the products and by-products resulting from Rubicon's
operation of the Aniline Facilities and the DPA plant which are not utilized by
Rubicon in the operation of such facilities or which are not discharged by
Rubicon as waste shall be furnished by Rubicon to or on behalf of the Users in
accordance with this Operating Agreement; and, except to the extent paid as rent
under the Lease, all of the pre-operational, start-up, capital based, constant
and variable costs incurred by Rubicon with respect to its facilities shall be
allocated to, and paid by, the Users and RCI in accordance with this Operating
Agreement. So long as Rubicon is operating the RCI plants, it shall operate
them, in accordance with this Operating Agreement, exclusively for, and as
directed by, RCI; and RCI shall pay all of the costs incurred by Rubicon with
respect to such operation.
20.2 Each of the Users and RCI, acting for itself, shall make such
disposition as it deems appropriate of the products and by-products resulting
from the conversion services performed by Rubicon for such User and from the
operation of the RCI plants by Rubicon for RCI.
20.3 Except as provided in paragraph 2.3 and Section 16, title to
benzene furnished by the Users and material-in-process, products and by-products
of the Aniline Facilities and the DPA plant in the possession of Rubicon at any
time shall be vested in the Users in the respective proportions in which each
User's interest therein shall appear at such time. Title to aniline furnished
by RCI and material-in-process, products and by-products of the RCI plants under
Rubicon's control at any time shall be vested in RCI.
20.4 If Rubicon under this Operating Agreement or under the Lease
charges an amount to one User ("the first User") or RCI, and if the first User
or RCI fails, upon written demand by Rubicon, either (i) to pay said amount to
Rubicon or (ii) to advance said amount to Rubicon under protest and without
prejudice to any claim by the first User or RCI that such amount was improperly
charged to the first User or RCI, then,
37
(a) the right which the first User or RCI would otherwise have to
order and receive products, services, utilities and use of facilities from
Rubicon shall be suspended so long as said failure by the first User or RCI
continues, and
(b) the other User ("the second User") shall have, in the event of
such failure by the first User only, in addition to all of the second
User's other rights, the right, if the second User so elects, to pay all or
any part of said amount to Rubicon and forthwith to recover the same from
the first User or from Rubicon or in part from the first User and in part
from Rubicon, it being understood that Rubicon and the first User shall be
liable in solido to the second User, or, in the alternative, the second
User may waive such recovery and may, while making said payments, and to
the extent thereof, order Rubicon to perform conversion services hereunder
for the second User.
20.5 Each User and RCI hereby agrees with each of the others that it
will comply with its obligations to Rubicon under this Operating Agreement and
each of the other agreements entered into by it with Rubicon as contemplated by
this Operating Agreement.
20.6 The Users shall have the right from time to time to examine
jointly, or cause to be examined jointly, the books and records of Rubicon. If
either User does not wish to participate in such examination, the other User
shall have the right to conduct such examination alone. The Users shall also
have the right to require an annual audit of Rubicon's books and records by
independent certified public accountants. To the extent that the Users shall
agree upon the scope of such audit, the cost thereof shall be borne by the Users
equally; but, to the extent that one User shall require an audit greater in
scope than that agreed to by the other User, the User requiring the greater
scope of audit shall bear the extra cost. thereof.
20.7 This Operating Agreement shall be binding upon and shall enure to
the benefit of the parties, their successors and permitted assigns. This
Operating Agreement may not be assigned by Rubicon or RCI. It shall be assigned
by a User in and only in conjunction with a transfer of all of the shares of
Rubicon held by ICI American Holdings Inc. and Uniroyal, respectively, in
accordance with the Shareholders Agreement, dated January 11, 1982, among
Imperial Chemical Industries PLC, ICI American Holdings Inc. and Uniroyal, or
upon the written approval of the other User.
38
20.8 Any delay or failure by any party hereto in performance
hereunder shall be excused if and to the extent that such delay or failure shall
be related to occurrences beyond such party's control, including, but not
limited to, decrees or restraints of government, acts of God, strikes or other
labor disturbances, war, sabotage, or any other cause or causes, whether similar
or dissimilar to those already specified, which cannot be controlled by such
party. Such performance shall be so excused during the continuance of the
inability of the party to perform so caused, but for no longer period, and the
cause thereof shall be remedied as far as possible with all reasonable dispatch.
20.9 Failure of any party to insist, in any one or more instances,
upon a strict performance of any of the terms of this Operating Agreement or the
waiver by any party of any term of right or any default of any other party
hereunder will not be deemed or construed as a waiver or a relinquishment for
the future of any such term, right or default.
20.10 All questions relating to the validity, interpretation or
performance of this Operating Agreement shall be determined in accordance with
the law of the State of Louisiana.
20.11 This Operating Agreement may be amended from time to time only
by written instrument executed on behalf of Rubicon by its President when
specifically authorized by its Board of Directors and duly executed by each of
the other parties.
39
IN WITNESS WHEREOF, the parties have executed this Operating Agreement
in triplicate as of the date first above written.
ICI Americas Inc.
By /s/ K. Watteau
UNIROYAL, Inc.
By /s/ V. Calarco
Rubicon Chemicals Inc.
By /s/ T. Perrin
Rubicon Inc.
By /s/ J. Hummer
40
EXHIBIT A TO THE OPERATING AGREEMENT
------------------------------------
PRINCIPLES OF CAPITAL RESPONSIBILITY AND COST ALLOCATION
--------------------------------------------------------
I. OBJECTIVE
---------
The objective of this Exhibit is to set forth the principles of capital
responsibility and cost allocation required by the Operating Agreement.
II. DEFINITIONS
-----------
All terms which are defined in the Operating Agreement or any other Exhibit
thereto are used in this Exhibit as so defined, including, or in addition
to, the following definitions.
A. Fixed Capital
-------------
Fixed capital consists of capitalized expenditures to acquire land, to
design and construct buildings, to acquire and install machinery and
equipment, and to acquire furniture, fixtures, transportation, office
and other equipment, and construction in process. Net fixed capital
shall be computed by deducting accumulated depreciation from fixed
capital.
B. Working Capital
---------------
Working capital consists of funds required for expenditures other than
for fixed capital, including, but not limited to, spare parts,
purchased materials, supplies, taxes and prepaid and accrued items.
C. Capital Based Costs
-------------------
Capital based costs consist of book depreciation as agreed to by the
parties from time to time to zero net book value and interest on
indebtedness for fixed capital. Gains and losses from the disposition
of assets financed by fixed capital shall be credited or charged to
the plants correspondingly with the responsibility for the fixed
capital of each such asset.
D. Constant Costs
--------------
Constant costs consist of costs other than capital based costs and
variable costs, including, but not limited to, interest on working
capital loans; salaries; payroll overheads (such as pension costs,
F.I.C.A., medical benefits, vacations, holidays, etc.); all charges
for utilities (except variable charges for steam); costs of operating
supplies; costs of outside services and contractors; travel and
entertaining; taxes (other than income taxes); and insurance.
E. Fixed Costs
-----------
Fixed costs consist of capital based costs plus constant costs.
F. Variable Costs
--------------
Variable costs consist of those costs which vary directly with the
amount of production, including, but not limited to, costs of
purchased raw materials and catalysts; variable charges for steam;
costs of drums; and technical assistance fees and royalties based on
production.
G. Pre-Operational Costs
---------------------
Pre-operational costs consist of those costs incurred after the
decision has been made to make an expenditure for fixed capital but
prior to the initial operation of facilities resulting from such
expenditure, including, but not limited to, costs incurred to plan
resource requirements, secure sources of supply, develop operating
procedures, and recruit and train production personnel.
H. Start-Up Costs
--------------
Start-up costs consist of initial production costs, including, but not
limited to, costs deemed to be excessive prior to achieving an
economic or planned level of production.
III. ALLOCATION OF RESPONSIBILITY FOR FIXED AND WORKING CAPITAL
----------------------------------------------------------
A. Fixed Capital
-------------
1. Allocation to Users
-------------------
2
(a Responsibility for the fixed capital for each of Rubicon's
battery limits plants and the waste disposal plant and for
that part of the fixed capital for each Off-site which is
allocated to each such plant and to each of the RCI plants
shall be allocated to the Users on the basis of percentage
entitlement or Expansion Percent age, as appropriate, for
the Aniline Facilities, to Uniroyal for the DPA Plant,
(except as provided in paragraph 8.4 of the Operating
Agreement and in (b) below) to the Users on the basis of WD
percentage entitlement for the waste disposal plant, and to
ICI-AM for the RCI plants.
(b Responsibility for the fixed capital for each addition or
expansion of the ancillary facilities in the waste disposal
plant shall be allocated to each User as provided in sub-
paragraph 8.4(b) of the Operating Agreement, i.e., not on
the basis of WD percentage entitlement. Responsibility for
the fixed capital for each capitalized expenditure made from
time to time to sustain or modify the ancillary facilities
in the waste disposal plant, after an addition or expansion,
shall be allocated to one or more of Rubicon's plants and
the RCI plants (and then to each User as provided in this
Exhibit A and said sub-paragraph 8.4(b)) at the time each
such expenditure is made on the basis of the best
engineering estimates at that time as to the expected use of
the ancillary facilities by such plant or plants, i.e., not
on the basis of the aggregate overall allocation of the
responsibility for fixed capital for the ancillary
facilities at that time or the WD percentage entitlement.
2. Allocation of off-sites to Plants
---------------------------------
(a Responsibility for the fixed capital for each Off-site shall
be allocated to one or more of Rubicon's plants and the RCI
plants at the time of the original installation of such
Off-site on the basis of the best engineer
3
ing estimates at that time as to the expected use, directly
or indirectly, of such Off-site by such plant or plants.
(b Responsibility for the fixed capital for each expansion of
an Off-site shall be allocated to one or more of Rubicon's
plants and the RCI plants at the time of the original
installation of such expansion on the basis of the best
engineering estimates at that time as to the expected use,
directly or indirectly, of such expansion by such plant or
plants, i.e. not on the basis of the original allocation of
the responsibility for fixed capital for such Off-site.
(c Responsibility for the fixed capital for each capitalized
expenditure made from time to time to sustain or modify an
Off-site, whether or not expanded, shall be allocated to
one or more of Rubicon's plants and the RCI plants at the
time each such expenditure is made on the basis of the best
engineering estimates at that time as to the expected use,
directly or indirectly, of such off-site by such plant or
plants, i.e., not on the basis of the aggregate overall
allocation of the responsibility for fixed capital for such
Off-site at that time.
B. Allocation of Responsibility for Working Capital to Users and RCI
-----------------------------------------------------------------
Responsibility for the working capital for each of Rubicon's plants
and for that part of the working capital for each Off-site which is
allocated to each such plant and the RCI plants shall be allocated to
the Users, and to ICI-AM for the RCI plants, on the basis of current
levels of activity of all such plants and the RCI plants.
IV. ALLOCATION OF COSTS (OTHER THAN VARIABLE)
-----------------------------------------
A. Capital based costs shall (except as provided in Section 5 of the
Operating Agreement) be allocated to the Users correspondingly with
their respective responsibilities for fixed capital; provided, however
that, if and to the extent directed by ICI-AM, a portion of the
capital
4
based costs allocated to it with respect to Off-sites and the waste
disposal plant shall be reallocated to RCI.
B. Constant costs shall first be allocated to Rubicon's plants and the
RCI plants as provided in Section V. The constant costs allocated to
each of Rubicon's plants and each of the RCI plants, including that
part of the constant costs for each Off-site which is allocated to
each of Rubicon's plants and the RCI plants, shall (except as provided
in Section 5 of the Operating Agreement) then be allocated to the
Users on the basis of percentage entitlement or Expansion Percentage,
as appropriate, for the Aniline Facilities, to Uniroyal for the DPA
plant, to the Users on the basis of WD percentage entitlement for the
waste disposal plant and to RCI for the RCI plants.
C. The pre-operational costs and start-up costs which are not deferred
and capitalized shall be allocated to the Users correspondingly with
their respective responsibilities for the fixed capital with respect
to which such costs were incurred. Unless the Users otherwise agree,
all pre-operational and start-up costs shall not be deferred and
capitalized and shall be charged immediately to the Users.
V. BASES FOR ALLOCATING CONSTANT COSTS TO PLANTS
---------------------------------------------
A. Estimated Services Rendered
---------------------------
Production Departments
Administration Department
Technical and Engineering Department
Purchasing Department
Traffic Department
Order Processing and Billing Department
Chemical Warehouse and Materials Handling Department
To make the allocations under this basis, the duties of each employee
in the above Departments shall be analyzed to determine the expected
proportion of each employee's time to be devoted to servicing each
plant at the current annual budgeted level of activity. The
proportion as so determined shall be weighted by the individual's
annual salary and a composite weighted average for each Department
shall be
5
calculated. This composite weighted average shall be used to allocate
the Department's constant costs to the plants.
B. Actual Services Rendered
------------------------
Maintenance
The constant costs incurred to maintain and repair buildings,
machinery and equipment shall be recorded and charged by project work
order.
C. Current Annual Budgeted Level of Activity
-----------------------------------------
Electrical power
Steam (other than variable costs)
Natural Gas
Water
Nitrogen
Taxes (other than income taxes)
D. Percentage of Gross Capital
---------------------------
Fire protection
Property Insurance (other than on inventories)
Auxiliary facilities, including roads and parking lots, rail sidings,
grounds and fences, administration building, maintenance building and
vehicles.
The constant costs incurred for these matters shall be allocated to
each of Rubicon's plants and each of the RCI plants in the same
proportion as the gross fixed capital allocated to each such plant
bears to the total gross fixed capital of Rubicon and the RCI plants.
E. Direct Labor
------------
Accounting Department
Management Information Services Department
Personnel Department
Guards Department
6
Medical Department
Safety Department
Janitorial Department
Factory Management Department
Liability Insurance
The constant costs of the above Departments and Liability Insurance
shall be allocated to each plant in the same proportion as the direct
labor salaries expected to be charged to each plant at the current
annual budgeted level of activity is to the total direct labor
salaries expected to be charged to all plants at the current annual
budgeted level of activity.
F. In the event there is a material change in the annual level of
activity from the current annual budgeted level of activity used as
the basis for allocating costs in this Section V., then this basis
will be revised to reflect such change in such allocation for the
remaining part of that year.
VI. ALLOCATION OF VARIABLE COSTS TO USERS AND RCI
---------------------------------------------
The variable costs will be charged to the Users and RCI using:
A. Standard Cost per unit times actual units produced.
-------------
B. Variations from standard cost per unit of production
-----------------------------
(1 Price Variance
--------------
Price variance is the difference between monthly average actual
cost per unit and standard cost per unit multiplied by the actual
units consumed in each plant calculated and distributed to
products on the basis of output of each product.
(2 Usage Variance
--------------
Usage variance is the difference between actual usage on a year-
to-date weighted average basis and the standard allowance
multiplied by the standard cost calculated and distributed to
products on the basis of output of each product.
7
VII. ALLOCATION OF TRANSPORTATION COSTS TO USERS AND RCI
---------------------------------------------------
The costs of transportation incurred for deliveries of a product as
directed by a User or RCI shall be allocated to such User or RCI.
VIII. ALLOCATION OF INCOME TAXES TO USERS
-----------------------------------
The cost of Rubicon's income taxes will be allocated equally to the Users.
IX. BILLING AND PAYMENT
-------------------
Bills for all costs incurred in each month shall be submitted to each User
and RCI not later than the 15th working day of the following month and
shall be payable within 10 days from the billing date.
X. PERIODIC REPORTING
------------------
A. Monthly
-------
Rubicon shall make monthly reports to each User and RCI, respectively,
as appropriate, covering monthly billing detail, aniline
production/inventory, DPA production/inventory, benzene
inventory/consumption, reconciliation of cash advances, reconciliation
of construction bank account, and an analysis of the variable,
constant and capital based costs incurred with respect to each of
Rubicon's plants and each of the RCI plants, including those for
Off-sites and the allocation thereof.
8
EXHIBIT B TO THE OPERATING AGREEMENT
------------------------------------
FORM OF LEASE
-------------
EXHIBIT C TO THE OPERATING AGREEMENT
------------------------------------
FORM OF FINANCING AGREEMENT
---------------------------
FINANCING AGREEMENT
AGREEMENT (for convenience called "Financing Agreement") entered into
as of the 28th day of December 1981, by and among Rubicon Inc. ("Rubicon"), a
Louisiana corporation having its principal office at Geismar, Louisiana,
Rubicon Chemicals Inc. ("RCI"), a Louisiana corporation having its principal
office at Geismar, Louisiana, ICI Americas Inc. ("ICI-AM"), a Delaware
corporation having its principal office at One Rollins Plaza, Wilmington,
Delaware 19897, ICI American Holdings Inc. ("ICI-AH"), a Delaware corporation
having its principal office at One Rollins Plaza, Wilmington, Delaware 19897,
and UNIROYAL, Inc. ("Uniroyal"), a New Jersey corporation having its principal
office at Benson Road, Middlebury, Connecticut 06749;
WHEREAS:
(1) RCI, ICI-AM and Uniroyal are the parties to a so-called Financing
Agreement ("Original Financing Agreement"), dated as of April 1, 1977; and
(2) RCI and Rubicon are the parties to a so-called Exchange Agreement
("Exchange Agreement") of even date herewith pursuant to which RCI transferred
certain assets to Rubicon and Rubicon assumed certain liabilities of RCI; and
(3) in furtherance of the Exchange Agreement, RCI wishes to assign its
rights and obligations under the Original Financing Agreement to Rubicon and
Rubicon wishes to accept and assume such right and obligations; and
(4) ICI-AM and Uniroyal wish to consent to such assignment of the
Original Financing Agreement; and
(5) coincident with the aforementioned assignment, the parties to the
Original Financing Agreement and this Financing Agreement wish to amend and
restate the Original Financing Agreement as set forth in this Financing
Agreement; and
(6) ICI-AH and Uniroyal are the owners, in equal parts, of all of the
shares of Rubicon; and
(7) Rubicon operates its facilities solely for the benefit of ICI-AM
and RCI, both of which are wholly-owned subsidiaries of ICI-AH, and Uniroyal in
accordance with an agreement (the "Operating Agreement") of even date herewith
among ICI-AM, Uniroyal, RCI and Rubicon; and
(8) ICI-AH, ICI-AM and Uniroyal wish to provide certain of the
financing required by Rubicon for its fixed and working capital as hereinafter
set forth;
NOW, THEREFORE, in consideration of the covenants herein contained,
the parties hereto, intending to be legally bound hereby, agree as follows.
2. Assignment of Original Financing Agreement
and Its Amendment and Restatement
------------------------------------------
1.1 As of the date of this Financing Agreement, RCI hereby assigns
all of its rights and obligations under the Original Financing Agreement to
Rubicon, and Rubicon hereby accepts, assumes and agrees to perform all such
rights and obligations, ICI-AM and Uniroyal hereby consent to such assignment,
acceptance and assumption and hereby release RCI from any obligations to them
under the Original Financing Agreement.
1.2 As of the date of this Financing Agreement, the Original
Financing Agreement is hereby amended and restated in its entirety to read as
set forth in this Financing Agreement.
2. Definitions
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2.1 All terms which are defined elsewhere in this Agreement or in the
Operating Agreement, including the Exhibits thereto, are used in this Agreement
as so defined.
3. Financing Commitments
---------------------
3.1 ICI-AH and ICI-AM (in solido but acting individually from time to
time as determined between them and hereinafter collectively called "ICI") on
the one hand, and Uniroyal, on the other hand, hereby each establishes in favor
of Rubicon a Fixed Capital Financing Commitment ("F.C.F. Commitment") in such
amount which, in the aggregate from time to time, is equal to that part of
Rubicon's
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fixed capital for which it is responsible as determined in accordance with the
Operating Agreement (deeming ICI's responsibility to be the responsibilities for
fixed capital allocated to ICI-AM and RCI), minus, for each, one half of the
sum, from time to time, of Rubicon's equity, capital surplus and retained
earnings. ICI and Uniroyal, respectively, shall lend funds to Rubicon pursuant
to their respective F.C.F. Commitments upon call by Rubicon as hereinafter
provided.
3.2 ICI and Uniroyal hereby each establishes in favor of Rubicon a
Working Capital Financing Commitment ("W.C.F. Commitment") in such amount which,
in the aggregate from time to time, is equal to that part of Rubicon's working
capital for which it is responsible in accordance with the Operating Agreement
(deeming ICI's responsibility to be the responsibilities for working capital
allocated to ICI-AM and RCI). ICI and Uniroyal, respectively, shall lend funds
to Rubicon pursuant to their respective W.C.F. Commitments upon call by Rubicon
as hereinafter provided.
3.3 The respective F.C.F. Commitments and W.C.F. Commitments
(hereinafter collectively referred to, for ICI or Uniroyal, as the "Commitment"
and, for both, as the "Commitments") are, as between ICI and Uniroyal, several
and not in solido, and neither ICI nor Uniroyal shall have any responsibility in
respect of the Commitment of the other.
4. Calls on the Commitments
------------------------
4.1 Rubicon shall, from time to time as required by it, call upon ICI
and Uniroyal, respectively, to lend to it funds pursuant to their respective
Commitments and, for this purpose, shall use its best efforts to estimate the
proper allocation of each such call and all such calls cumulatively between them
in the anticipated proportions of their respective cumulative Commitments. If
at any time and from time to time such calls, in the aggregate, have not been in
the proper proportions, Rubicon, ICI and Uniroyal shall adjust the Loans
referred to below accordingly.
5. Loans
-----
5.1 Upon the calls from Rubicon referred to in Section 4, ICI and
Uniroyal shall each make a loan ("Loan") to Rubicon in a principal amount equal
to its Commitment, adjusted from time to time as provided in paragraph 4.1.
Follow ing the making of the first Loans, all Loans made by ICI and Uniroyal,
pursuant to calls
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on their respective Commitments, shall be added to the outstanding principal
amount of their respective Loans.
5.2 The principal of each Loan shall be payable by Rubicon on the
15th workday of each month in an amount equal to the capital based costs, except
interest, incurred by Rubicon and allocated to ICI-AM and RCI, on the one hand,
and Uniroyal, on the other hand, respectively, in accordance with the Operating
Agreement, in the preceding month with respect to the fixed capital financed by
such Loan, plus any amount by which the respective then current W.C.F. Commit
ments are less than the principal amount of working capital included in the
Loans.
5.3 Each Loan shall bear interest on the unpaid principal amount
thereof outstanding, payable monthly in arrears on the 15th of each month,
commencing with the first such date after making said Loans, at the rate of 9%
per annum calculated on the basis of a year of 365 (or 366) days for the actual
number of days elapsed.
5.4 Payments of principal and interest on each Loan may be made by
Rubicon crediting the amounts thereof to the respective obligations of ICI-AM
and Uniroyal for capital based costs under the Operating Agreement or rent under
the Lease, or a combination thereof, as the case may be.
6. Revision of Commitments and Loans
---------------------------------
6.1 If, in accordance with the Operating Agreement, there are changes
in the respective fixed or working capital responsibilities of ICI (deeming
ICI's responsibility to be the responsibilities of ICI-AM and RCI) and Uniroyal,
their respective F.C.F. Commitments and W.C.F. Commitments shall be changed
accordingly as of the date of such change. If as a result of such changes the
outstanding principal of the respective Loans is lower or higher than the
respective Commitments, ICI and Uniroyal, respectively, shall forthwith lend to
Rubicon the amount, if any, by which its Loan is too low, and Rubicon shall
forthwith pay to ICI and Uniroyal, respectively, the amount, if any, by which
its Loan is too high.
7. Miscellaneous
-------------
7.1 The amount of each F.C.F. and W.C.F. Commitment and Loan shall be
subject to audit and verification by Rubicon's independent certified public
accountants from time to time and, if and to the extent found to be incorrect,
shall be appropriately adjusted as provided herein to reflect the correct
amounts. Subject to
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such audit and verification and appropriate adjustment, if any, the principal
amount of each F.C.F. and W.C.F. Commitment and Loan shall be as determined from
Rubicon's books and records.
7.2 Failure by any party to insist, in any one or more instances,
upon a strict performance of any of the terms of this Agreement or the waiver by
any party of any term or right or any default of any other party hereunder will
not be deemed or construed as a waiver or a relinquishment for the future of any
such term, right or default.
7.3 This Agreement may be amended by written instrument executed on
behalf of each party hereto (except RCI which is a party hereto only for the
purpose of the assignment in paragraph 1.1) by an authorized officer thereof.
7.4 All questions relating to the validity, interpretation or
performance of this Agreement will be determined in accordance with the law of
the State of Louisiana.
7.5 Any notice required or permitted to be given hereunder shall be
in writing and shall be deemed to have been properly given by one party to
another if the same shall have been mailed in a sealed envelope, postage
prepaid, certified or registered mail, addressed to Rubicon as follows:
One Rollins Plaza
Wilmington, Delaware 19897
Attention: Vice President
addressed to ICI-AH and ICI-AM as follows:
Wilmington, Delaware 19897
Attention: Secretary
addressed to Uniroyal as follows:
Benson Road
Middlebury, Connecticut 06749
Attention: Secretary
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or otherwise addressed with respect to any party as such party may designate by
written notice to the other parties.
7.6 This Agreement shall be binding upon and shall enure to the
benefit of the parties, their successors and permitted assigns. This Agreement
may not be assigned by RCI or Rubicon. It shall be assigned by ICI-AH and ICI-
AM, on the one hand, or by Uniroyal, on the other hand, in and only in
conjunction with an assignment of the Operating Agreement, as provided therein.
7.7 This Agreement shall continue in effect for as long as the
Operating Agreement continues in effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
quintuplicate as of the date first above written.
Rubicon Inc.
By______________________________________
Rubicon Chemicals Inc.
By______________________________________
ICI Americas Inc.
By______________________________________
ICI American Holdings Inc.
By______________________________________
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UNIROYAL, Inc.
By______________________________________
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EXHIBIT D TO THE OPERATING AGREEMENT
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FORM OF UTILITIES SERVICES AGREEMENT
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EXHIBIT E TO THE OPERATING AGREEMENT
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BENZENE SPECIFICATIONS
----------------------
EXHIBIT F TO THE OPERATING AGREEMENT
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ANHYDROUS AMMONIA SPECIFICATIONS
--------------------------------
EXHIBIT G TO THE OPERATING AGREEMENT
------------------------------------
ANILINE SPECIFICATIONS
----------------------