STERLING CHEMICALS HOLDINGS INC /TX/
AMENDED AND RESTATED SEVERANCE PAY PLAN
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>24
<FILENAME>h89586ex10-3.txt
<DESCRIPTION>AMENDED AND RESTATED SEVERANCE PAY PLAN
<TEXT>
<PAGE>   1
                                                                    EXHIBIT 10.3

                        STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                     AMENDED AND RESTATED SEVERANCE PAY PLAN


                             PRELIMINARY STATEMENTS

A.   Sterling Chemicals Holdings, Inc. and Sterling Chemicals, Inc. are Delaware
     corporations.

B.   On March 8, 2001, the Holdings Board and the Chemicals Board (as such terms
     are defined below) approved a severance pay plan (the "Existing Plan").

C.   On July 13, 2001, the Holdings Board and the Chemicals Board approved
     certain amendments to the Existing Plan.

D.   The Holdings Board and the Chemicals Board desire to document such
     amendments to the Existing Plan by amending and restating the Existing Plan
     in its entirety, effective as of July 13, 2001 (the "Effective Date").

     NOW, THEREFORE, the Existing Plan is hereby amended and restated to read in
its entirety as follows:

                                    ARTICLE I

                         Definitions and Interpretations

     Section 1.01. Definitions. Capitalized terms used in this Plan shall have
the following respective meanings, except as otherwise provided or as the
context shall otherwise require:

     "Applicable Multiplier" has the meaning specified in Section 2.02(a).

     "Base Salary" has the meaning specified in Section 2.02(a).

     "Benefit Plan" means any employee benefit plan (including any employee
benefit plan within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974), program, arrangement or practice maintained,
sponsored or provided by Holdings or any Subsidiary, including those relating to
bonuses, incentive compensation, retirement benefits, stock options, stock
ownership or stock awards, healthcare and medical benefits, disability benefits,
death benefits, disability, life, accident and travel insurance, sick leave,
vacation pay or termination pay, as amended, or any successor to any of such
plans.

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     "Change of Control" means the occurrence of any of the following events:
(i) Holdings shall not be the surviving entity in any merger, consolidation or
other reorganization (or survives only as a subsidiary of an entity other than a
previously wholly-owned Subsidiary); (ii) Holdings or Chemicals is dissolved and
liquidated; (iii) Chemicals sells, leases or exchanges all of its assets or a
Substantial Part of its Assets (other than in the ordinary course of business)
to any other person or entity (other than Holdings or another wholly-owned
Subsidiary); (iv) Chemicals ceases to be a wholly-owned Subsidiary of Holdings
for any reason other than a merger, consolidation or other reorganization in
which Holdings or a wholly-owned Subsidiary is the surviving entity; (v) any
"person" (as that term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) other than one or more of the Excluded
Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, as amended, except that a person will
be deemed to have "beneficial ownership" of all shares that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 50% of the then
outstanding shares of Holdings' that are normally entitled to vote in the
election of directors (based upon voting power); (vi) individuals who as of
March 8, 2001 constituted the Holdings Board (together with any new directors
whose election by the Holdings Board or whose nomination for election by the
stockholders of Holdings was approved by a majority of the directors of Holdings
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Holdings Board then in office; or
(vii) the Company sells, leases or exchanges all or substantially all of the
assets or capital securities of any of its strategic business units (each, an
"SBU") to any other person or entity (other than Holdings or another
wholly-owned Subsidiary); provided, however, that any such sale, lease or
exchange shall not constitute a "Change of Control" for purposes of this clause
(vii) with respect to any Participant who was not assigned to work on a
full-time basis in the relevant SBU at the time of such sale, lease or exchange
and, provided further, that the sale, lease or exchange of all or substantially
all of the assets or capital securities of Sterling Fibers, Inc. or Sterling
Chemicals Acquisitions, Inc. (or any of its direct or indirect subsidiaries)
shall not constitute a "Change of Control" with respect to any Participant.

     "Chemicals" means Sterling Chemicals, Inc. and any successor to all or
substantially all of the business, operations or assets thereof.

     "Chemicals Board" means the Board of Directors of Chemicals.

     "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended. Reference in this Plan to COBRA shall be deemed to include any
amendments or successor provisions to COBRA and any regulations thereunder.

     "Code" means the Internal Revenue Code of 1986, as amended. Reference in
this Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.

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<PAGE>   3

     "Company" means Holdings and the Subsidiaries, including Chemicals.

     "Compensation Committee" means the Compensation Committee of Holdings.

     "Disability" means, with respect to any Participant, a physical or mental
condition of such Participant that results in such Participant becoming eligible
for long term disability benefits under the Company's long term disability
Benefit Plan.

     "Excluded Holders" means the parties, as of March 8, 2001, to that certain
Sterling Chemicals Holdings, Inc. Stockholders Agreement dated effective as of
August 21, 1996, as amended.

     "Good Reason" means, with respect to any Participant, any of the following
actions or failures to act, but in each case only if it occurs (a) on or after
the date that is 180 days prior to the date on which a Change of Control occurs
and (b) while such Participant is employed by Holdings or any Subsidiary, and
then only if it is not consented to by such Participant in writing:

     (i)  a material reduction by the Company in such Participant's total
          compensation in effect immediately prior to the effective date of such
          reduction;

     (ii) the failure of the Company to continue such Participant's eligibility
          for participation in employee benefit plans, programs, arrangements
          and practices providing benefits that, in the aggregate, are at least
          as favorable to such Participant as those provided under the Benefit
          Plans in which he or she was a participant immediately prior to the
          effective date of such failure;

     (iii)the failure of the Company to maintain employee benefit plans,
          programs, arrangements and practices entitling such Participant to
          benefits that, in the aggregate, are at least as favorable to such
          Participant as those available to such Participant under the Benefit
          Plans in which he or she was a participant immediately prior to the
          effective date of such failure; or

     (iv) any change of more than 75 miles (or, in the case of any Participant
          for whom the Compensation Committee has approved a shorter distance,
          such shorter distance) in the location of the principal place of
          employment of such Participant immediately prior to the effective date
          of such change.

For purposes of this definition, any action or failure to act described in
clauses (i) through (iv) above shall cease to be a Good Reason with respect to
any Participant on the date which is 30 days after such Participant acquires
actual knowledge of such action or failure to act unless, prior to such date,
such Participant gives a Termination Notice pursuant to Section 2.05. In the
event of any dispute between the Company, on the one hand, and any Participant,
on the other hand, with respect to the amount of total compensation of such

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<PAGE>   4

Participant for purposes of clause (i) above or the aggregate value or level of
any of such Participant's benefits for purposes of clause (ii) or (iii) above,
the Company and such Participant shall use their best efforts to resolve such
dispute themselves. If they are unable to resolve the dispute within 15 business
days, Deloitte & Touche L.L.P., or such other nationally recognized accounting
firm or employee benefits firm acceptable to the Company and such Participant,
shall be engaged by the Company to make its own determination with respect to
the dispute and the determination by such firm shall be final and binding on the
Company (including the Compensation Committee) and such Participant. In case of
any dispute regarding the amount of total compensation of a Participant or the
value or level of a Participant's benefits, the burden of proof shall rest with
the Participant. If any firm is engaged with respect to any dispute as
aforesaid, (A) such firm shall be instructed to make its determination as soon
as practicable and to use such materiality standard as such firm may determine
to be reasonable under the circumstances and (B) the disputants shall provide
such firm with all books, records and other information relevant to such dispute
as such firm may reasonably request. No firm engaged as aforesaid shall be
liable or responsible to the Company (including the Compensation Committee) or
any Participant for any determination made by such firm in good faith. In case
of any claim that such firm did not act in good faith, the burden of proof shall
rest with the person or entity claiming the absence of good faith.

     "Holdings" means Sterling Chemicals Holdings, Inc. and any successor to all
or substantially all of the business, operations or assets thereof.

     "Holdings Board" means the Board of Directors of Holdings.

     "Misconduct" means, with respect to any Participant:

     (i)   the commission by such Participant of acts that are both dishonest
           and demonstrably injurious to the Company (monetarily or otherwise)
           in any material respect;

     (ii)  the failure of such Participant to observe and comply with the
           Company's published policies relating to alcohol and drugs,
           harassment or compliance with applicable laws;

     (iii) the failure of such Participant to observe and comply with any other
           lawful published policy of the Company, but, in the case of any such
           failure that is capable of being remedied, only if such failure shall
           have continued unremedied for more than 30 days after written notice
           thereof is given to such Participant by Holdings or Chemicals;

     (iv)  the willful failure of such Participant to observe and comply with
           all lawful and ethical directions and instructions of the Holdings
           Board, any person to whom such Participant reports or any person who
           has greater authority than such Participant with respect to the
           relevant directions or instructions;

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<PAGE>   5
     (v)   the failure of such Participant to perform, in any material respect,
           his or her duties with the Company, but only if such failure was not
           caused by disability or incapacity and shall have continued
           unremedied for more than 30 days;

     (vi)  the conviction of such Participant for a felony offense; or

     (vii) any willful conduct on the part of such Participant that prejudices,
           in any material respect, the reputation of the Company in the fields
           of business in which it is engaged or with the investment community
           or the public at large, but only if such Participant knew, or should
           have known, that such conduct could have such result.

If any Participant is a party to a written employment agreement with the
Company, then clause (iv) above shall not apply to any directions or
instructions that are contrary to or inconsistent with any of the positions,
functions, duties or reporting responsibilities of such Participant as set forth
in such written employment agreement or that violate any of such Participant's
rights, privileges or immunities under such employment agreement. In case of any
dispute regarding whether or not any conduct by a Participant meets any of the
standards set forth in clauses (i) through (vii) above, the burden of proof
shall rest with the Company.

     "Participants" means all non-union employees of the Company (salaried and
hourly) who are based in the United States; provided, however, that no employee
of the Company that was given notice of his or her termination or layoff, or
proposed termination or layoff, prior to April 1, 2001 shall be a Participant
hereunder and, provided further, that, except as the Compensation Committee may
otherwise provide in writing, any individual who is not paid through the
Company's payroll system, or who is classified by the Company for purposes of
this Plan as an independent contractor (or some other non-common law employee
category), shall not be a "Participant" under this Plan, notwithstanding such
individual's subsequent or retroactive (i) payment through the Company's payroll
system or (ii) classification or reclassification for tax or other purposes.

     "Pension Plans" means the Sterling Chemicals, Inc. Amended and Restated
Salaried Employees' Pension Plan (effective as of May 1, 1996), as amended, and
the Sterling Chemicals, Inc. Hourly Paid Employees' Pension Plan (effective as
of May 1, 1996), as amended, or any successor to either of such plans.

     "Plan" means this Severance Pay Plan, as amended, supplemented or modified
from time to time in accordance with its terms.

     "Severance Amount" has the meaning specified in Section 2.02(a)(i).

                                      -5-

<PAGE>   6

     "Subsidiary" means any corporation, limited partnership, general
partnership, limited liability company or other form of entity a majority of any
class of voting stock or other voting rights of which is owned, directly or
indirectly, by Holdings.

     "Substantial Part of its Assets" means (i) all or substantially all of the
assets of the Company comprising its Texas City, Texas facility or (ii) all or
substantially all of the assets of the Company comprising its pulp chemicals
business.

     "Termination Date" means, with respect to any Participant, the termination
date specified in the Termination Notice delivered by such Participant to the
Company in accordance with Section 2.05 or the actual date of termination of
such Participant's employment by the Company for any reason other than
Misconduct or Disability.

     "Termination Notice" means, with respect to any Participant, a notice from
such Participant to Holdings purporting to terminate such Participant's
employment for Good Reason in accordance with Section 2.05.

     "Years of Service" means, with respect to any Participant, the number of
years of service as of such Participant's Termination Date which is recognized
by the Company for such Participant for vesting purposes under the Pension Plan
in which such Participant participates as of such Participant's Termination
Date; provided, however, that any fractional Year of Service shall be rounded up
to the next full Year of Service.

     Section 1.02. Interpretation. In this Plan, unless a clear contrary
intention appears, (a) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Plan as a whole and not to any particular
Article, Section or other subdivision, (b) reference to any Article or Section,
means such Article or Section hereof and (c) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.

                                   ARTICLE II

                            Eligibility and Benefits

     Section 2.01. Eligible Employees. This Plan is only for the benefit of
Participants, and no other employees or personnel shall be eligible to
participate in this Plan or to receive any rights or benefits hereunder.

     Section 2.02. Description of Benefits. (a) Each Participant shall be
entitled to receive the benefits described below if (i) a Change of Control
occurs after April 1, 2001 and (ii) during the period commencing 180 days prior
to the date on which such Change of Control occurs and ending 180 days after the
date on which such Change of Control occurs, either such Participant terminates
or has terminated his or her employment for Good Reason in accordance

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<PAGE>   7

with Section 2.05 or the Company terminates or has terminated such Participant's
employment for any reason other than a termination for Misconduct or Disability:

          (i) subject to any reduction pursuant to Section 2.03(b), the Company
     shall pay to such Participant, within 30 days after such Participant's
     Termination Date or, in the event that such Participant's Termination Date
     occurred within the 180-day period immediately preceding the occurrence of
     a Change of Control, within 30 days after such Change of Control, a lump
     sum cash payment equal to such Participant's Base Salary times such
     Participant's Applicable Multiplier (the "Severance Amount"); and

          (ii) for a period of six months following such Participant's
     Termination Date, the COBRA premium required to be paid by such Participant
     for coverage under the Company's medical and dental insurance plans shall
     not exceed the regular premiums required to be paid by active employees for
     similar coverage under such plans; provided, however, that the benefits
     provided under this clause (ii) shall only be available to such Participant
     if such Participant (or his or her qualified beneficiaries) makes a timely
     COBRA election on or after such Participant's Termination Date to continue
     coverage under such medical and dental insurance plans and pays the regular
     employee premium required by such plans and, provided further, that during
     such six-month period, the Company shall not amend any such medical or
     dental insurance plan to decrease or restrict eligibility for the benefits
     available thereunder or terminate any such medical or dental insurance plan
     without establishing a successor plan providing benefits that are at least
     equal to the benefits provided under the terminated plan.

For purposes of this Plan, "Base Salary" means, with respect to any Participant,
such Participant's annual base salary immediately prior to the earlier of (A)
the date on which an event occurs that results in such Participant terminating
his or her employment for Good Reason and (B) the actual date of such
Participant's termination by the Company for any reason other than Misconduct or
Disability, and "Applicable Multiplier" means, with respect to any Participant,
the greater of (x) 0.5 and (y) such Participant's Years of Service as of the
earlier of (1) the date on which an event occurs that results in such
Participant terminating his or her employment for Good Reason and (2) the actual
date of such Participant's termination by the Company for any reason other than
Misconduct or Disability times a fraction having a numerator of two and a
denominator of 52; provided, however, that no Participant's Applicable
Multiplier shall exceed 1.0.

     (b) No Participant shall be entitled to receive any of the benefits
described in this Section 2.02 on account of any Change of Control unless such
Change of Control occurred (i) while such Participant was employed by the
Company or (ii) within 180 days after such Participant's Termination Date unless
the Company terminates such Participant's employment prior to such Change of
Control and such termination was directly or indirectly related to, connected
with, in anticipation of, in furtherance of, pursuant to the terms of or during
the pendency of such Change of Control or is for the purpose of directly or
indirectly encouraging or facilitating such Change of Control.


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<PAGE>   8

     (c) Notwithstanding anything to the contrary contained in this Plan, the
benefits made available under this Plan to Participants expressly exclude
outplacement services and financial counseling.

     (d) Participation in this Plan is voluntary. The Company may require that
each eligible employee execute a participation agreement as a condition to
becoming a Participant hereunder. By agreeing to participate in this Plan, or by
accepting any benefits under this Plan, a Participant unconditionally agrees for
all purposes under this Plan to be bound by all of the terms and conditions of
this Plan, including the provisions of Article III hereof.

     Section 2.03. Additional Provisions Relating to Benefits under Sections
2.02. (a) Notwithstanding anything to the contrary contained in this Plan, the
Company's obligation to continue the benefits described in Section 2.02(a)(ii)
for any Participant shall cease if and when such Participant ceases to be
eligible to continue group health plan coverage under COBRA.

     (b) Notwithstanding anything to the contrary contained in this Plan, the
amount of the Severance Amount payable to any Participant under this Plan shall
be reduced, dollar for dollar, by the aggregate amount of all separation,
severance or termination payments paid or payable to such Participant under (i)
any Benefit Plan (other than this Plan and the Pension Plans), including the
Company's Amended and Restated Key Employee Protection Plan, (ii) any agreement
between such Participant and the Company or (iii) any applicable law, statute,
rule, regulation, order or decree (or other pronouncement having the effect of
law) of any nation or governmental authority, including the Worker Adjustment
and Retraining Notification Act.

     Section 2.04. Cost of Plan; Plan Unfunded; Participant's Rights Unsecured.
The entire cost of this Plan shall be borne by the Company, and no contributions
shall be required of the Participants. The Company shall not be required to
establish any special or separate fund or make any other segregation of funds or
assets to assure the payment of any benefit hereunder. The right of any
Participant to receive the benefits provided for herein shall be an unsecured
claim against the general assets of the Company.

     Section 2.05. Termination Notices from Participants. For purposes of this
Plan, in order for any Participant to terminate his or her employment for Good
Reason, such Participant must give a written notice of termination to Holdings
or Chemicals, which notice shall be in writing and signed by such Participant,
shall be dated the date it is given to Holdings or Chemicals, shall specify the
termination date, shall state that the termination is for a Good Reason and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such Good Reason.

                                   ARTICLE III

                     Claims Procedure and Dispute Resolution

     Section 3.01. Claims for Benefits. Any claim relating to benefits under
this Plan shall be submitted in writing to the Compensation Committee in such
manner as it may direct. If

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<PAGE>   9
the Compensation Committee determines that any claimant is not entitled to
receive all or part of the benefits claimed, it will mail or deliver written
notice to such claimant of (a) its determination and the reasons therefor, with
appropriate references to pertinent Plan provisions, and (b) the procedure for
review of its determination. Such notice shall, if appropriate, also explain how
a claimant may perfect the claim and why submission of additional information is
necessary to do so. Such notice shall be provided within 90 days after
submission of the claim. If the claimant does not receive notice of a decision
within such 90-day period, the claimant's claim shall be deemed denied.

     Section 3.02. Administrative Appeal. An applicant for benefits whose claim
has been denied in whole or in part, or the duly authorized representative of
such claimant, may, within 60 days after receipt of written notice of such
denial (or after the claim is deemed denied), request a review thereof and
submit to the Compensation Committee in writing such additional information as
the claimant desires. A claimant who submits a claim for review shall have a
reasonable opportunity to submit issues and comments in writing and to review
pertinent documents. The Compensation Committee will then render its final
decision with the specific reasons therefore (including references to pertinent
Plan provisions) and notify the claimant in writing of such decision within 60
days after the submission of such request for review. If the claimant does not
receive notice of such decision within such 60-day period, the claim for review
shall be deemed denied.

     Section 3.03. Negotiation. Subject to Section 3.05, in case a dispute or
controversy shall arise between any Participant (or any person claiming by,
through or under any Participant) and the Company (including the Compensation
Committee) relating to or arising out of this Plan or a benefit claim for which
a final administrative appeal has been denied (or deemed denied) pursuant to
Section 3.02, either disputant may give written notice to the other disputant
("Dispute Notice") that it wishes to resolve such dispute or controversy by
negotiations, in which event the disputants shall attempt in good faith to
negotiate a resolution of such dispute or controversy. If the dispute or
controversy is not so resolved within 30 days after the effective date of the
Dispute Notice, subject to Section 3.05, either disputant may initiate
arbitration of the matter as provided in Section 3.04. All negotiations pursuant
to this Section 3.03 shall be held at the Company's principal offices in
Houston, Texas (or such other place as the disputants shall mutually agree) and
shall be treated as compromise and settlement negotiations for the purposes of
the federal and state rules of evidence and procedure.

     Section 3.04. Arbitration. Subject to Section 3.05, any dispute or
controversy (a) which arises out of or relates to this Plan or a benefit claim
for which a final administrative appeal has been denied (or deemed denied)
pursuant to Section 3.02 and (b) which has not been resolved by negotiations in
accordance with Section 3.03 within 30 days of the effective date of the Dispute
Notice shall, upon the request of either disputant, be finally settled by
arbitration conducted expeditiously in accordance with the labor arbitration
rules of the American Arbitration Association. The arbitrator shall be not
empowered to award damages in excess of compensatory damages and each disputant
shall be deemed to have irrevocably waived any damages in excess of compensatory
damages. The arbitrator's decision shall be final and legally binding on the
disputants and their successors and assigns. The fees and expenses of the

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<PAGE>   10

arbitrator shall be borne solely by the prevailing disputant or, in the event
there is no clear prevailing disputant, as the arbitrator deems appropriate. All
arbitration conferences and hearings shall be held in Houston, Texas.

     Section 3.05. Exclusivity, etc. The dispute resolution procedures set forth
in Sections 3.03 and 3.04 shall not apply to any matter which, by the express
provisions of this Plan, is to be finally determined by the Compensation
Committee or by an accounting firm or employee benefits firm unless and until
the Compensation Committee, accounting firm or employee benefits firm issues its
decision (in the case of the Compensation Committee, in accordance with Sections
3.01 and 3.02). Any such determination by the Compensation Committee or an
accounting firm or employee benefits firm shall be final and may not be
overturned unless such determination is found to be arbitrary and capricious or
an abuse of discretion. No legal action may be brought with respect to this Plan
except for the purpose of specifically enforcing the provisions of this Article
III or for the purpose of enforcing any arbitration award made pursuant to
Section 3.04.

                                   ARTICLE IV

                            Miscellaneous Provisions

     Section 4.01. Cumulative Benefits. Except as provided in Section 2.03(b),
the rights and benefits provided to any Participant under this Plan are
cumulative of, and are in addition to, all of the other rights and benefits
provided to such Participant under any Benefit Plan or any agreement between
such Participant and the Company.

     Section 4.02. No Mitigation or Offset. No Participant shall be required to
mitigate the amount of any payment provided for in this Plan by seeking or
accepting other employment following a termination of his or her employment with
the Company or otherwise. Except as otherwise provided in Section 2.03(a), the
amount of any payment provided for in this Plan shall not be reduced by any
compensation or benefit earned by a Participant as the result of employment by
another employer or by retirement benefits.

     Section 4.03. Amendment and Termination. (a) The Holdings Board and the
Chemicals Board shall be entitled to amend or terminate this Plan at any time
and for any reason; provided, however, that no amendment or termination of this
Plan shall affect the rights or benefits of any Participant or the obligations
of the Company accrued under this Plan as of the effective date of such
termination or amendment or any of the rights or benefits of such Participant or
the obligations of the Company accruing under this Plan after the effective date
of such termination or amendment on account of any Change of Control that
occurred prior to such effective date.

     (b) Notwithstanding the foregoing, no termination of this Plan, and no
amendment to this Plan that decreases or restricts benefits or eligibility
hereunder, shall be effective with respect to, binding upon or reduce any
benefits payable hereunder to, any person who at the time is a Participant if
such termination or amendment is (i) directly or indirectly related to,
connected


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<PAGE>   11
with, in anticipation of, in furtherance of, pursuant to the terms of or during
the pendency of any Change of Control or is for the purpose of directly or
indirectly encouraging or facilitating a Change of Control, or (ii) made during
the period commencing 180 days prior the date on which any Change of Control
occurs and ending 180 days after the date on which such Change of Control
occurs.

     Section 4.04. Administration. (a) The Compensation Committee is, as
respects the rights and obligations of all parties with an interest in this
Plan, given the powers, rights and duties specifically stated elsewhere in this
Plan and, in addition, is given full power and final discretionary authority to:

          (i) make determinations with respect to the administration of this
     Plan, construe and interpret its provisions, take all other actions deemed
     necessary or advisable for the proper administration of this Plan and
     determine all questions arising under this Plan, including the power to
     determine the rights or eligibility of Participants and any other persons,
     and the amounts of their benefits under this Plan, and to remedy
     ambiguities, inconsistencies or omissions;

          (ii) adopt such rules of procedure and regulations as in its opinion
     may be necessary for the proper and efficient administration of this Plan;

          (iii) enforce this Plan in accordance with its terms and in accordance
     with any rules of procedure and regulations adopted by the Compensation
     Committee pursuant to clause (ii) above; and

          (iv) employ agents, attorneys, accountants or other persons (who also
     may be employed by the Company), and allocate, delegate or reallocate to
     them such powers, rights and duties as the Compensation Committee may
     consider necessary or advisable to properly carry out the administration of
     this Plan; provided, however, that such allocation or delegation and the
     acceptance thereof by such agents, attorneys, accountants or other persons
     are in writing.

     (b) Subject to applicable law, any determination, construction or
interpretation of the provisions of this Plan, and any decision on any matter
within the discretion of the Compensation Committee, that is made by the
Compensation Committee in good faith shall be binding on all persons. In case of
any claim that the Compensation Committee (or any member thereof) did not act in
good faith, the burden of proof shall rest with the person or entity claiming
the absence of good faith.

     (c) The members of the Compensation Committee shall receive no additional
compensation for their services relating to this Plan. Any expenses properly
incurred by the Compensation Committee incident to this Plan, including the cost
of any bond required by applicable law, shall be paid by the Company.

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<PAGE>   12


     (d) The Company shall indemnify and hold harmless each member of the
Compensation Committee against and all expenses and liabilities arising out of
his or her administrative functions or fiduciary responsibilities, including any
expenses and liabilities that are caused by or result from an act or omission
constituting the negligence of such member in the performance of such functions
or responsibilities, but excluding expenses and liabilities that are caused by
or result from such member's own gross negligence or willful misconduct.
Expenses against which such member shall be indemnified hereunder shall include,
without limitation, the amounts of any settlement or judgment, costs, counsel
fees and related charges reasonably incurred in connection with a claim asserted
or a proceeding brought or settlement thereof.

     Section 4.05. Release of Claims. As a condition to receipt of the benefits
under this Plan, a Participant will be required to sign an agreement, to be
prepared by Holdings, in which he or she unconditionally and irrevocably
releases the Company and its successors, assigns, divisions, subsidiaries,
representatives, agents, officers, directors, stockholders and employees from
any claims, demands and causes of action relating to or arising out of the
termination of his or her employment with the Company, including any statutory
claims under the Age Discrimination in Employment Act of 1967, the Americans
with Disabilities Act of 1990, the Civil Rights Acts of 1964 and 1991 and the
Texas Commission on Human Rights Act, but excluding, however, any claims,
demands and causes of action pertaining to (a) any benefits that are to be
provided after the date of such agreement pursuant to the terms of this Plan,
(b) such Participant's rights, if any, under the Company's Amended and Restated
Key Employee Protection Plan (as the same may hereafter be amended or modified
in accordance with its terms) or (c) such Participant's rights, if any, under
any employment agreement between such Participant and the Company.

     Section 4.06. Assignability. The Company shall have the right to assign
this Plan and to delegate its duties and obligations hereunder, but not
otherwise; provided, however, that no such assignment shall relieve or discharge
the Company of or from any of its obligations under this Plan. Unless otherwise
approved by the Compensation Committee, no Participant shall transfer or assign
any of his or her rights under this Plan except by will or the laws of descent
and distribution. Except as otherwise provided by law, no benefit, right or
interest of any Participant under this Plan shall be subject to pledge,
encumbrance or charge, seizure, attachment or legal, equitable or other process,
or be liable for, or subject to, debts, liabilities or other obligations.

     Section 4.07. Consolidations, Mergers, Etc. Each of Holdings and Chemicals
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of its business,
operations or assets to expressly assume and agree to perform this Plan in
writing, in the same manner and to the same extent that Holdings or Chemicals,
as the case may be, would be required to perform hereunder if no such succession
had taken place.

     Section 4.08. Benefit and Burden. This Plan shall be binding upon and inure
to the benefit of the Company and its successors and assigns. This Plan and all
rights of each Participant shall inure to the benefit of and be enforceable by
such Participant and his or her


                                      -12-

<PAGE>   13

personal or legal representatives, executors, administrators, heirs and
permitted assigns. If any Participant should die while any amounts are due and
payable to such Participant hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Plan to such
Participant's devisees, legatees or other designees or, if there be no such
devisees, legatees or other designees, to such Participant's estate.

     Section 4.09. Notices. All notices and other communications provided for in
this Plan shall be in writing and shall be sent, delivered or mailed, addressed
(a) if to Holdings, Chemicals or any other Subsidiary, at Holdings' principal
office address or such other address as Holdings may have designated by written
notice to all Participants for purposes hereof, directed to the attention of the
Treasurer, and (b) if to any Participant, at his or her residence address on the
records of Holdings or to such other address as he or she may have designated to
Holdings in writing for purposes hereof. Each such notice or other communication
shall be deemed to have been duly given or mailed by United States registered
mail, return receipt requested, postage prepaid, except that any change of
notice address shall be effective only upon receipt.

     Section 4.10. Withholdings. The Company shall have the right to deduct from
any payment hereunder all taxes (federal, state or other) and other payments
which it is required to withhold therefrom.

     Section 4.11. No Employment Rights Conferred. Nothing contained in this
Plan shall (i) confer upon any Participant any right with respect to
continuation of employment with the Company or (ii) subject to the rights and
benefits of any Participant hereunder, interfere in any way with the right of
the Company to terminate such Participant's employment at any time.

     Section 4.12. Governing Law. This Plan shall be governed in accordance with
the laws of the State of Texas (without giving effect to conflicts of laws
principles thereof) and applicable federal law.

     IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Plan
by the Holdings Board and the Chemicals Board, Holdings and Chemicals have each
caused this Plan to be duly executed in its name and behalf by its proper
officer thereunto duly authorized as of March 8, 2001.



                                     STERLING CHEMICALS HOLDINGS, INC.



                                     By:
                                         ---------------------------------------
                                         Frank P. Diassi, Chairman of the Board


                                      -13-

<PAGE>   14

                                     STERLING CHEMICALS, INC.



                                     By:
                                         ---------------------------------------
                                         Frank P. Diassi, Chairman of the Board


                                      -14-


</TEXT>
</DOCUMENT>
