Exhibit 10.3

Execution Version

 

 

SHAREHOLDER AGREEMENT

of

 

LOGO [g498443g20h36.jpg]

also known as

KRATON FORMOSA POLYMERS CORPORATION

by and between

KP INVESTMENT BV, as Shareholder

and

FORMOSA PETROCHEMICAL CORPORATION, as Shareholder

Dated February 27, 2013

 

 

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TABLE OF CONTENTS

 

     Page  

ARTICLE I ORGANIZATION MATTERS

     1   

Section 1.1 Pre-Establishment Matters

     1   

Section 1.2 Formation of Project Company

     2   

Section 1.3 Registered Office

     2   

Section 1.4 Purpose and Business

     2   

Section 1.5 Language

     3   

Section 1.6 Term

     3   

ARTICLE II CAPITAL CONTRIBUTIONS

     3   

Section 2.1 Capitalization of Project Company

     3   

Section 2.2 Registered Capital

     3   

Section 2.3 Foreign Investment Approvals

     4   

Section 2.4 Failure to Pay for Registered Capital

     4   

Section 2.5 Other Shareholder Loans

     5   

Section 2.6 Third Party Financing

     5   

Section 2.7 Uncertificated Interests

     5   

Section 2.8 Formation Expenses

     5   

ARTICLE III DISTRIBUTIONS

     6   

Section 3.1 Distributions and Payments

     6   

ARTICLE IV ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS

     6   

Section 4.1 Fiscal Year

     6   

Section 4.2 Auditor

     6   

Section 4.3 Method of Accounting for Financial Reporting Purposes

     7   

Section 4.4 Books and Records; Right of Shareholders to Audit

     8   

Section 4.5 Reports and Financial Statements

     8   

Section 4.6 Taxation

     9   

ARTICLE V DIRECTORS; BOARD; SHAREHOLDERS MEETINGS

     9   

Section 5.1 Directors

     9   

Section 5.2 Board of Directors Representatives

     9   

Section 5.3 Chairman of the Board

     9   

Section 5.4 Appointment; Removal

     10   

Section 5.5 No Compensation

     10   

Section 5.6 Matters Required To Be Approved by the Board

     10   

Section 5.7 Limitation of Duties and Liabilities

     13   

Section 5.8 Proxies and Voting Agreements

     14   

ARTICLE VI MEETINGS OF THE BOARD

     14   

Section 6.1 Board Meetings

     14   

Section 6.2 Quorum

     15   

Section 6.3 Adjournments

     15   

 

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Section 6.4 Voting

     15   

Section 6.5 Appointment of Directors Representative Alternate

     15   

Section 6.6 Lack of Authority of Persons Other than the Board and Managers

     16   

Section 6.7 Control of Related Party Transactions

     16   

ARTICLE VII MANAGERS AND EMPLOYEES

     17   

Section 7.1 Delegation

     17   

Section 7.2 Managers

     17   

Section 7.3 Term of Managers

     18   

Section 7.4 Removal of Managers and Employees

     18   

Section 7.5 Duties

     18   

Section 7.6 President

     19   

Section 7.7 Finance and Administration Manager

     19   

Section 7.8 Vice Presidents

     20   

Section 7.9 Assistant Managers

     20   

Section 7.10 Other Managers

     20   

Section 7.11 Salaries

     20   

Section 7.12 Delegation

     20   

Section 7.13 Seconded Employees

     21   

Section 7.14 General Authority

     21   

ARTICLE VIII BUSINESS PLANS, ANNUAL BUDGETS AND LOANS

     21   

Section 8.1 Business Plan

     21   

Section 8.2 Annual Budget

     22   

Section 8.3 Additional Reports

     23   

Section 8.4 Implementation of Business Plan and Discretionary Expenditures by
President

     23   

Section 8.5 Transaction Documents

     23   

ARTICLE IX ADDITIONAL SHAREHOLDER COVENANTS

     24   

Section 9.1 Non-Compete

     24   

Section 9.2 Phase II Plant Expansion

     24   

Section 9.3 USBC Business

     24   

Section 9.4 Plant Shut-Down

     25   

ARTICLE X TRANSFERS AND PLEDGES

     25   

Section 10.1 Restrictions on Transfer and Prohibition on Pledge

     25   

Section 10.2 Transfer of Transaction Documents and Shareholder Loans

     26   

Section 10.3 Minimum Requirements of a Transferee

     26   

Section 10.4 Remedies for Breaches of this Article X

     27   

Section 10.5 Withdrawal by a Shareholder

     28   

ARTICLE XI DEADLOCK, DEFAULT AND REMEDY

     28   

Section 11.1 Failure to Approve Business Plan or Annual Budget

     28   

Section 11.2 Environmental and Safety

     29   

Section 11.3 Board Deadlock

     29   

Section 11.4 Mediation

     30   

 

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Section 11.5 Events of Default

     30   

Section 11.6 Consequences of an Event of Default

     31   

Section 11.7 Material Economic Change

     31   

ARTICLE XII DISSOLUTION, TERMINATION AND LIQUIDATION

     32   

Section 12.1 Dissolution Events

     32   

Section 12.2 Dissolution Procedures

     33   

Section 12.3 Termination

     34   

Section 12.4 Notice of Retention

     34   

ARTICLE XIII INDEMNIFICATION

     34   

Section 13.1 Indemnification

     34   

Section 13.2 Indemnification Procedures

     34   

ARTICLE XIV GENERAL PROVISIONS

     34   

Section 14.1 Miscellaneous Provisions

     34   

Section 14.2 Governing Law

     34   

Section 14.3 Dispute Resolution

     35   

Section 14.4 Ethical Business Practices

     35   

Section 14.5 Conflicting Provisions

     35   

Section 14.6 Language

     35   

 

APPENDICES    Appendix A    Definitions Appendix B    General Provisions
Appendix C    Dispute Resolution Procedures Appendix D    Ethical Business
Practices SCHEDULES    Schedule 1    Notice Addresses Schedule 2    Board
Composition Schedule 3    Managers Schedule 4    Insurance EXHIBITS    Exhibit A
   Financial Statements and Reports Exhibit B    Initial Five-Year Business Plan
Exhibit C    Initial Annual Budget Exhibit D    Form of Monthly Business Report
Exhibit E-1    Code of Ethics and Business Conduct Policy Exhibit E-2    HSE
Policy Exhibit F    U.S. Tax Matters Exhibit G    Capitalization Plan

 

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SHAREHOLDER AGREEMENT

This SHAREHOLDER AGREEMENT (this “Agreement”) of the shareholders of LOGO
[g498443g81u42.jpg] , also known as Kraton Formosa Polymers Corporation, a
limited liability company incorporated in the Republic of China (“Project
Company”) is dated February 27, 2013 (the “Execution Date”), and is entered into
by and between KP Investment BV, a company organized under the laws of the
Netherlands (“Kraton Shareholder”), and Formosa Petrochemical Corporation, a
company limited by shares and incorporated in the Republic of China (“FPCC
Shareholder”; and together with Kraton Shareholder, the “Shareholders”).

Capitalized terms used in this Agreement shall have the meanings ascribed
thereto in Appendix A.

RECITALS

A. On July 13, 2011, Kraton Performance Polymers, Inc., a Delaware corporation
(“Kraton”), and FPCC Shareholder, entered into the Framework Agreement whereby
Kraton and FPCC Shareholder agreed to form and jointly own Project Company.

B. Kraton Shareholder is a wholly owned indirect subsidiary of Kraton.

C. Project Company will design, develop, construct and operate a facility in the
Republic of China (Taiwan) for the production of hydrogenated styrenic block
copolymers and related products utilizing proprietary technology owned by an
Affiliate of Kraton.

D. To implement the transactions contemplated by the Framework Agreement, the
above named parties are entering into this Agreement and each of the other
Transaction Documents, either directly or through one or more of their
respective Affiliates.

E. The parties will exercise their rights in relation to Project Company
pursuant to the terms and conditions of this Agreement and the Articles of
Incorporation of Project Company.

NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which the parties hereby acknowledge, the parties
agree as follows:

ARTICLE I

ORGANIZATION MATTERS

Section 1.1 Pre-Establishment Matters.

(a) The Shareholders will form a Preparatory Office for Project Company (the
“Preparatory Office”) by opening a bank account in the name of the Preparatory
Office (“Preparatory Office Bank Account”) with a bank mutually agreed by the
parties. Kraton Shareholder and FPCC Shareholder shall be entitled to each
appoint one account signatory. Operation of the Preparatory Office Bank Account
will require (i) application of the seal of the Preparatory Office, and (ii) the
signatures of both account signatories.

 

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(b) At 10:00 am, Taipei time, on a date to be specified by the Shareholders at
the office of Lee, Tsai & Partners or at such other time or place as is agreed
in writing by the Shareholders, (i) each Shareholder shall remit an amount equal
to its respective share of the initial Registered Capital as set out in
Section 2.2 into the Preparatory Office Bank Account, (ii) the Preparatory
Office shall execute each Transaction Document to which Project Company is a
party, (iii) each Shareholder shall execute each Transaction Document to which
it is a party, and (iv) each Affiliate of a Shareholder shall execute each such
Transaction Document to which it is a party.

(c) The parties understand that the Preparatory Office is the pre-formation step
of Project Company and all the agreements executed by the Preparatory Office
under this Section 1.1 will bind Project Company upon its due incorporation. The
date of Project Company’s due incorporation is referred to herein as the
“Formation Date.” The Shareholders will take any and all necessary actions to
cause the Board of Project Company to pass a board resolution or to obtain the
written consent from the Directors Representatives to ratify the agreements
executed under this Section 1.1, including each Transaction Document to which
Project Company is a party.

(d) The Shareholders will cooperate and provide necessary assistance in
progressing the incorporation of Project Company and completing the
incorporation process as quickly as possible but in any event no later than 30
days after execution hereof or such other later date agreed to by the
Shareholders.

Section 1.2 Formation of Project Company. On the Execution Date, the
Shareholders formed Project Company, a limited liability company incorporated in
the Republic of China, by filing the Articles of Incorporation of Project
Company with the appropriate Governmental Authorities. The Chinese name of
Project Company shall be LOGO [g498443g13p30.jpg] , and the English language
name of Project Company shall be “Kraton Formosa Polymers Corporation”.

Section 1.3 Registered Office. The registered office of Project Company shall be
11F.-1, No. 32, Song Ren Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.), or
such other place as the Board may from time to time determine.

Section 1.4 Purpose and Business. The purpose and business of Project Company
shall be to, directly or indirectly, (i) design, construct, own and operate an
HSBC facility in Taiwan utilizing proprietary technology owned by an Affiliate
of Kraton Shareholder, (ii) sell HSBC produced at the Plant to, and meeting the
specifications provided by, Kraton Shareholder or its Affiliate pursuant to the
Offtake Agreement, (iii) acquire and dispose of properties and assets used or
useful in connection with the foregoing, and (iv) do all things necessary,
appropriate, convenient or incidental in connection with the ownership,
operation or financing of such business and activities, or otherwise in
connection with the foregoing, as are permitted under Applicable Law
(collectively, the “Business”).

 

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Section 1.5 Language. All Business to be conducted by Project Company shall be
conducted in English unless otherwise agreed by the parties in writing, except
that the operating manual and related operations documentation for the Plant
shall be prepared in both Chinese and English.

Section 1.6 Term. The term for which Project Company is to exist is from the
date Project Company’s Organizational Documents were filed with the appropriate
Governmental Authorities in the Republic of China until dissolution and
liquidation of Project Company in accordance with the provisions of Article XII.

ARTICLE II

CAPITAL CONTRIBUTIONS

Section 2.1 Capitalization of Project Company. The initial capitalization plan
of the parties is attached as Exhibit G and provides that the capital
requirements of Project Company between the Execution Date and acceptance of the
Plant from the Construction Contractor shall be funded from a combination of the
following:

 

  (i) Registered Capital,

 

  (ii) Third Party debt financing (the “Third Party Loans”), and

 

  (iii) Shareholder loans.

The amount of Registered Capital shall represent approximately 30% of the
estimated operating and capital needs of Project Company during this period,
except as otherwise decided by the Shareholders.

Section 2.2 Registered Capital.

(a) The initial Registered Capital shall be NT$900,000,000 (approximately US$30
million) unless otherwise agreed by the Shareholders.

(b) The Shareholders shall work together in good faith to approve increases in
Registered Capital from time to time as needed in order to fund the operating
and capital needs of Project Company.

 

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(c) Each Shareholder will fund 50% of the Registered Capital as promptly as
practicable following Kraton Shareholder’s receipt of the applicable FIA
approval, and upon funding will own beneficially and of record 50% of the
Registered Capital.

(d) All references to Registered Capital in this Agreement includes Shareholder
Registered Capital Loans made pursuant to Section 2.5.

Section 2.3 Foreign Investment Approvals. Kraton Shareholder shall apply for
foreign investment approval with the Statute for Investment by Foreign Nationals
of the Republic of Taiwan (“FIA”) for (i) its contribution of the initial
Registered Capital, (ii) each additional Registered Capital contribution and
(iii) if required by Applicable Law, each Shareholder loan made by Kraton
Shareholder.

Section 2.4 Failure to Pay for Registered Capital.

(a) In the event that a Shareholder (the “Non-Funding Shareholder”) fails to pay
its 50% portion of Registered Capital as and when required, then the other
Shareholder (the “Funding Shareholder”):

(i) shall have the right (but not the obligation) to cause Project Company to
obtain a Third Party Loan in an amount equal to (x) the funds that would have
been paid by the Non-Funding Shareholder but for the default or (y) the total
amount of such increase in Registered Capital, and

(ii) shall have the right (but not the obligation) to advance funds to Project
Company as a Shareholder loan in an amount equal to the total amount of such
increase in Registered Capital (each a “Shareholder Funding Default Loan”).

If the Funding Shareholder elects, in its sole discretion, to advance funds to
Project Company in the form of a Shareholder Funding Default Loan, then
(i) repayment of such Shareholder Funding Default Loan shall be made on a
priority basis before repayment of any other debt for borrowed money, (ii) the
interest rate for such Shareholder Default Loan shall be LIBOR plus 300 basis
points, and (iii) the Non-Funding Shareholder shall be solely responsible for
payment of all interest on any such Shareholder Funding Default Loan, which
shall be either (x) paid to the Funding Shareholder directly by the Non-Funding
Shareholder, (y) paid in its entirety to the Funding Shareholder out of
distributions or payments that would otherwise have been payable by Project
Company to the Non-Funding Shareholder, or (z) if Project Company pays or
distributes amounts in repayment of any such interest to the Funding
Shareholder, reimbursed 50% to Project Company and 50% to the Funding
Shareholder.

 

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Section 2.5 Other Shareholder Loans.

(a) If permitted by Applicable Law, the Shareholders will fund a portion of the
Registered Capital through one or more Shareholder loans from each Shareholder
to Project Company (each such loan, a “Shareholder Registered Capital Loan”)
upon agreement of the Shareholders not to be unreasonably withheld, conditioned
or delayed in light of tax laws rules and regulations applicable to Kraton
Shareholder and its Affiliates and FPCC Shareholder. Shareholder Registered
Capital Loans shall (i) be made in an equal amount by Kraton Shareholder and
FPCC Shareholder on a pari passu basis, and (ii) have such terms as may be
specified by Kraton Shareholder in light of applicable tax laws, rules and
regulations.

(b) The Shareholders may also agree to fund a portion of the capital needs of
Project Company that are not covered by Registered Capital by making Shareholder
loans to Project Company (each such loan, a “Shareholder Financing Loan”) in
lieu of Third Party Loans. Shareholder Financing Loans shall (i) be made in an
equal amount by Kraton Shareholder and FPCC Shareholder on a pari passu basis,
(ii) be for a five-year term and (iii) bear interest at a rate equal to LIBOR
plus 300 basis points.

(c) Any Shareholder loan may be made by a Shareholder or on behalf of such
Shareholder by an Affiliate or Third Party lender.

Section 2.6 Third Party Financing. Project Company shall seek Third Party Loans
for all capital needs of Project Company that are not covered by Registered
Capital or Shareholder Financing Loans in an amount agreed by the Shareholders.
Any such financing shall be obtained on the best terms with the lowest interest
rate possible and shall be coordinated by FPCC Shareholder. Each Shareholder
will provide credit support for any such Third Party Loans if doing so would be
in the best interest of Project Company, in proportion to its Registered Capital
and on identical terms.

Section 2.7 Uncertificated Interests. Registered Capital shall not be
represented by certificates. Ownership of Registered Capital shall be reflected
in the share registry of Project Company and the Articles of Incorporation of
Project Company.

Section 2.8 Formation Expenses. To the extent legally permissible, the
Shareholders shall cause the Preparatory Office to incur any and all Formation
Expenses directly. From time to time after the Execution Date, each Shareholder
may submit an invoice to Project Company with respect to Formation Expenses that
have not been incurred or assumed directly by the Preparatory Office and have
been approved in advance by the Shareholders. Upon approval by each Shareholder
of such Formation Expenses, Project Company shall pay the amount of each such
invoice by wire transfer of immediately available funds to an account designated
by the invoicing Shareholder. As used herein, “Formation Expenses” means any
amounts (i) payable to a Third Party by a Shareholder or its Affiliate that are
related to (x) the formation of Project Company pursuant to a Transaction
Document and (y) amounts payable by Project Company to Kraton Shareholder
pursuant to the Basic Design Engineering Package Agreement, and (ii) payable to
a Third Party pursuant to the Engineering Letter Agreements or any other
agreement for engineering services related to the Plant, in each case from and
after the Effective Date.

 

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ARTICLE III

DISTRIBUTIONS

Section 3.1 Distributions and Payments. Cash shall be available for distribution
to the Shareholders only after the principal and accrued interest on any
Shareholder Funding Default Loan has been paid in full. Cash available for
distribution to the Shareholders shall be distributed or paid annually or more
often as agreed by the Shareholders and permitted by Applicable Law, in each
case as follows:

(a) First, to the Shareholders that have made Shareholder Financing Loans, to
the extent of and in proportion to any accrued and unpaid interest on such
Shareholder Financing Loans then due and payable;

(b) Second, to the Shareholders that have made Shareholder Financing Loans, to
the extent of and in proportion to any outstanding principal balances on such
Shareholder Financing Loans to the extent due and payable; and

(c) Thereafter, on a pari passu basis, to (i) payment of all or a portion of
remaining accrued interest on any Shareholder Registered Capital Loan,
(ii) repayment of all or a portion of remaining principal on any Shareholder
Registered Capital Loan or (iii) distribution to the Shareholders, in each case
in accordance with their respective Registered Capital, as agreed by the
Shareholders in light of tax laws, rules and regulations applicable to Kraton
Shareholder and its Affiliates and FPCC Shareholder, such agreement not to be
unreasonably withheld, conditioned or delayed.

ARTICLE IV

ACCOUNTING, FINANCIAL REPORTING AND TAX MATTERS

Section 4.1 Fiscal Year. The Fiscal Year of Project Company shall be the
calendar year January 1 through December 31.

Section 4.2 Auditor. The independent accounting firm of Project Company (the
“Independent Auditor”) shall be KPMG LLP.

 

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Section 4.3 Method of Accounting for Financial Reporting Purposes.

(a) Year-End Financial Statements.

(i) For financial reporting purposes, Project Company will furnish to each
Shareholder as soon as practicable after the end of each Fiscal Year of Project
Company, and in any event within 50 days thereafter, a balance sheet of Project
Company as of the end of such Fiscal Year, and related statements of income,
equity and cash flow of Project Company for such Fiscal Year, and the notes
thereto, in both English and Chinese, each as prepared in accordance with IFRS
consistently applied during such Fiscal Year and Applicable Law, setting forth
in each case in comparative form the figures for such Fiscal Year and the prior
Fiscal Year, all in reasonable detail and certified by the Independent Auditor.

(ii) In addition, Project Company will furnish to each Shareholder, as soon as
practicable after the end of each Fiscal Year of Project Company, and in any
event within 50 days thereafter, a balance sheet of Project Company as of the
end of such Fiscal Year, and related statements of income, equity and cash flow
of Project Company for such Fiscal Year, and the notes thereto, in English as
prepared in accordance with U.S. GAAP consistently applied during such Fiscal
Year and Applicable Law (including Applicable Law of the U.S. governing
Kraton-invested enterprises) and audited in accordance with U.S. GAAP by the
Independent Auditor, and setting forth in each case in comparative form the
figures for such Fiscal Year and the prior Fiscal Year, all in reasonable detail
and certified by the Independent Auditor.

(b) Quarterly Financial Statements.

(i) Project Company will furnish to each Shareholder as soon as practicable
after the end of each quarterly period which is not the Fiscal Year-end of
Project Company, and in any event within 20 days thereafter, a balance sheet of
Project Company as of the end of such quarterly period, and related statements
of income, equity and cash flow of Project Company for such quarterly period,
and the notes thereto, in both English and Chinese, each as prepared in
accordance with IFRS consistently applied during such quarterly period and
Applicable Law, and setting forth in each case in comparative form the figures
for such quarterly period and the prior year’s corresponding quarterly period,
all in reasonable detail.

(ii) In addition, Project Company will furnish to each Shareholder as soon as
practicable after the end of each quarterly period which is not the Fiscal
Year-end of Project Company, and in any event within 20 days thereafter, a
balance sheet of Project Company as of the end of such quarterly period, and
related statements of income, equity and cash flow of Project Company for such
quarterly period, and the notes thereto, all in reasonable detail, in English,
each as prepared in accordance with U.S. GAAP consistently applied during such
quarterly period and Applicable Law (including Applicable Law of the U.S.
governing Kraton-invested enterprises), and setting forth in each case in
comparative form the figures for such quarterly period and the prior year’s
corresponding quarterly period, all in reasonable detail.

(c) Monthly Financial Statements. Project Company will furnish to each
Shareholder as soon as practicable after the end of each month, and in any event
within five Business Days thereafter, statements of income and cash flow for
such month and a balance sheet as of the end of such month, prepared in both
English and Chinese.

 

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(d) SEC Requirement to be Satisfied. Project Company’s financial statements
shall comply with requirements of the United States Securities and Exchange
Commission to the extent applicable to Project Company and any Shareholder or
any controlling Person of such Shareholder, to the extent such information is
necessary, in conjunction with the financial reporting obligations of such
Person under applicable United States Securities and Exchange Commission
requirements.

(e) SAP. All reports, accounts, statements, balance sheets and notes thereto
prepared by Project Company under this Section 4.3 will be managed through SAP
under a license between an Affiliate of Kraton Shareholder and SAP. The fees and
expenses related to Project Company’s use of such license shall be borne by
Project Company.

Section 4.4 Books and Records; Right of Shareholders to Audit.

(a) Proper and complete records and books of account of Project Company’s
Business, including all such transactions and other matters as are usually
entered into records and books of account maintained by businesses of like
character or as are required by Applicable Law, shall be kept by Project Company
at Project Company’s principal place of business, with either party having the
right to receive a duplicate copy of all such records at such party’s expense,
subject, however, to the rights of each party under Section 4.5.

(b) Each Shareholder and its internal and independent auditors, at the expense
of such Shareholder, shall have reasonable access to the internal and
independent auditors of Project Company and shall have the right to inspect such
books and records and the physical properties of Project Company during normal
business hours and, at its own expense, to cause an independent audit thereof.
Project Company shall make all books and records of Project Company available to
such Shareholder and its internal and independent auditors in connection with
such audit and shall cooperate with such Shareholder and auditors to provide any
assistance reasonably necessary in connection with such audit.

Section 4.5 Reports and Financial Statements. Project Company shall supply each
Shareholder with the financial information necessary to keep such Shareholder
informed about how effectively the Business of Project Company is performing. In
particular, Project Company shall supply each Shareholder, at Project Company’s
expense, with:

(a) a copy of each Fiscal Year’s Business Plan and Annual Budget, as described
in Section 8.1 and Section 8.2;

(b) Project Company’s financial statements and reports described on Exhibit A as
soon as reasonably practicable and in any event on or prior to the due date
indicated on Exhibit A; and

 

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(c) any other information and reports (including financial, operational and tax
related information and reports) reasonably requested by a Shareholder.

Section 4.6 Taxation.

(a) Other than as set forth in Exhibit F, the Board shall cause to be timely and
properly prepared and filed all tax returns of Project Company. Each of the
Shareholders shall furnish to Project Company all pertinent information in its
possession (or in the possession of its Affiliates) relating to Project
Company’s operations that is reasonably necessary to enable Project Company’s
tax returns to be timely and properly prepared and filed. The Board shall cause
Project Company to deliver to each of the Shareholders, as promptly as
practicable after filing, copies of all tax returns of Project Company. Such
returns shall be prepared in accordance with applicable tax laws, rules and
regulations, and shall accurately reflect the results of operations of Project
Company for such Fiscal Year. Within 90 days after the end of each Fiscal Year,
the Board shall cause Project Company to provide to each Person that was a
Shareholder at any time during such year that tax information concerning Project
Company which is reasonably requested by the Shareholder for purposes of
preparing any tax returns of the Shareholder or any of its Affiliates.

(b) The provisions set forth in Exhibit F shall apply to this Agreement.

ARTICLE V

DIRECTORS; BOARD; SHAREHOLDERS MEETINGS

Section 5.1 Directors. Kraton Shareholder and FPCC Shareholder agree that each
of them shall, in the capacity of a judicial person, be elected and registered
as the “Directors” of Project Company, and shall jointly represent Project
Company externally. Each Director shall appoint three individuals as its
representatives (the “Directors Representatives”) to jointly act for such
Director in exercising its powers and fulfilling its obligations.

Section 5.2 Board of Directors Representatives. The Directors Representatives
shall form a Board of Directors Representatives (the “Board”), which has
responsibility for the supervision of Project Company and its Business. There
shall be a total of six Directors Representatives on the Board made up at all
times of an equal number of Kraton Directors Representatives and FPCC Directors
Representatives. The composition of the initial Board is set forth on Schedule
2.

Section 5.3 Chairman of the Board. FPCC Shareholder shall appoint one of the
FPCC Directors Representatives to serve as Chairman of the Board (the
“Chairman”). While the Chairman as a Directors Representative is entitled to one
vote, the Chairman shall not be deemed to have a deciding vote. If the Chairman
is unable to attend any meeting of the Board, FPCC Shareholder shall be entitled
to appoint any other FPCC Directors Representative to act as Chairman at a Board
meeting.

 

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Section 5.4 Appointment; Removal. A Director in its sole discretion may appoint
a Directors Representative, and remove a Directors Representative whom it
appointed, with or without cause, by giving written notice to Project Company
and the other Shareholder. The appointment or removal takes effect on the date
on which the written notice is received by Project Company or, if a later date
is given in such notice, on such later date. A Directors Representative may be
an officer, manager or employee of a Shareholder or such Shareholder’s
Affiliate. Each Directors Representative will serve on the Board until his
successor is appointed or until his earlier death, resignation or removal.

Section 5.5 No Compensation. No Directors Representative (or Alternate) shall
receive from Project Company any compensation for his or her service as a
Directors Representative, including attendance at Board meetings. Reimbursement
of expenses for attendance at meetings of the Board shall be the sole
responsibility of the appointing Director.

Section 5.6 Matters Required To Be Approved by the Board. Except as otherwise
expressly provided herein, the following matters require the advance consent of
the Board in accordance with Article VI:

Corporate Matters

(i) Amend the Organizational Documents of Project Company for any purpose;

(ii) Amend the Code of Ethics and Business Conduct Policy attached as Exhibit
E-1, the HSE Policy attached as               Exhibit E-2 (provided that FPCC
Shareholder acknowledges that the HSE Policy will be updated from time to time
hereafter to conform with any changes made to the comparable policy of Kraton)
and approve and amend any other Policies of Project Company (including the
MOBA);

(iii) Approve the initial organizational chart of Project Company;

(iv) Subject to Section 6.7, terminate, replace, modify or amend any Transaction
Document, including this Agreement;

(v) Approve and following approval, terminate, replace, modify or amend the
Construction Agreement or the Engineering Agreement;

(vi) Change the formal name or English name of Project Company;

 

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(vii) Change the authorized or outstanding Registered Capital of Project
Company;

(viii) Form a Subsidiary of Project Company;

(ix) Approve and following approval, enter into, terminate, replace, modify or
amend, material compensation and benefit plans and policies, material employee
policies and material collective bargaining agreements for Project Company’s
employees;

(x) Modify the insurance coverage of Project Company and the Business described
in Schedule 4;

(xi) Appoint any Manager (other than the President or the Finance and
Administration Manager or a Secondee), or discharge or remove any Manager (other
than the President or the Finance and Administration Manager or a Secondee);

(xii) Confirm the appointment of the President and the Finance and
Administration Manager or a Secondee, such appointment not to be unreasonably
withheld, conditioned or delayed;

(xiii) Authorize the granting or revocation of any power of attorney other than
in the ordinary course of business;

(xiv) Except as otherwise provided herein, authorize the dissolution,
liquidation, winding-up, merger, consolidation or split, of Project Company;

(xv) File a petition in bankruptcy or seek any reorganization, liquidation or
similar relief on behalf of Project Company; consent to the filing of a petition
in bankruptcy against Project Company; or consent to the appointment of a
receiver, custodian, liquidator or trustee of Project Company or for all or a
substantial portion of its property;

Business Plan and Annual Budget

(xvi) Approve any Business Plan or Annual Budget, as well as any amendments,
updates or modifications thereto (including the annual updates provided for in
Section 8.1);

(xvii) Authorize expenditures that are in excess of the amounts set forth in an
approved Annual Budget other than in accordance with the Policies;

Financing

(xviii) Modify the Capitalization Plan;

(xix) Authorize the incurrence of debt for borrowed money (other than
Shareholder loans) and enter into, terminate, replace, modify or amend any loan
agreement, credit facility or other instrument evidencing Project Company
indebtedness (other than Shareholder loans);

 

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(xx) Enter into, terminate, replace, modify or amend any mortgage, charge, lien
or encumbrance in or over any of Project Company’s assets or properties, in each
case other than in the ordinary course of business;

(xxi) Enter into, terminate, replace, modify or amend interest rate protection
or other hedging agreements (other than hedging agreements in the ordinary
course of business);

(xxii) Enter into, terminate, replace, modify or amend any capitalized lease or
similar off-balance sheet financing arrangements;

Accounting

(xxiii) Subject to the initial appointment of the Independent Auditor in
Section 4.2, remove the Independent Auditor and appoint a replacement
Independent Auditor who is not also the independent accounting firm of Kraton;

(xxiv) Change Project Company’s method of accounting as adopted pursuant to
Section 4.3;

Scope of Business; Acquisitions and Dispositions

(xxv) Cause Project Company, directly or indirectly, to engage, participate or
invest in any business, directly or indirectly, outside the scope of its
Business as described in Section 1.4;

(xxvi) Authorize the sale, lease, Transfer or other disposition in a single
transaction or series of related transactions of all or a substantial portion of
the Business or assets of Project Company;

(xxvii) Authorize the sale, lease, Transfer or other disposition of assets that
individually or in the aggregate are material to the Business;

(xxviii) Authorize the acquisition, directly or indirectly, of all or any
portion of a Person;

(xxix) Authorize the acquisition, directly or indirectly, in a single
transaction or series of related transactions, of assets having a substantial
impact to Project Company’s operations;

(xxx) Relinquish Intellectual Property and disclose Intellectual Property to any
Person other than in accordance with the terms and conditions of the Technology
License and the Confidential Disclosure Agreement, dated as of the date hereof,
by and among Project Company, Kraton Shareholder and FPCC Shareholder;

 

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Commercial Matters

(xxxi) Enter into, amend, modify or terminate (other than pursuant to the terms
thereof) any contract or other agreement (i) that is not contemplated by an
approved Business Plan and Annual Budget and (ii) the approval of which is not
within the discretion of the President under the Policies;

(xxxii) Enter into, amend, modify or terminate (other than pursuant to the terms
thereof) any contract or other agreement (i) that is contemplated by an approved
Business Plan and Annual Budget and (ii) the approval of which is not within the
discretion of the President under the Policies;

Litigation

(xxxiii) Initiate or settle any litigation or governmental proceedings if the
effect thereof would be material to the financial condition or operations of
Project Company; and

Related Party Agreements

(xxxiv) Subject to Section 6.7 and Article II, enter into, terminate, replace,
modify or amend any transaction or agreement with a Shareholder, an Affiliate of
a Shareholder, a Directors Representative or other “related Person”.

The Directors/Shareholders hereby acknowledge and confirm that any authorization
or approval by the Board pursuant to this Section 5.6 of the execution, delivery
and performance of any agreement or contract entered into by Project Company
shall be (i) deemed to have been approved and consented to by each Director and
by Project Company and (ii) sufficient to authorize and approve any future
performance required by the terms of such agreement or contract (but not
amendment to or modification of such agreement or contract), with no further
action being required under this Article V or Article VI at the time of any such
performance.

Section 5.7 Limitation of Duties and Liabilities. Each Shareholder acknowledges
its express intent, and agrees with each other Shareholder, for the benefit of
the Directors Representatives of each other Shareholder, that:

(a) the only fiduciary or other duties or obligations, if any, that any
Directors Representative will owe in his capacity as Directors Representative
will be to the Director/Shareholder that appointed such Directors Representative
to serve in that capacity, and the nature and extent of those duties and
obligations and the liabilities resulting from any breach thereof constitute an
internal governance affair of that Director/Shareholder; and

(b) no Directors Representative of any Director/Shareholder will, under this
Agreement, the Company Act of the Republic of China, or otherwise, owe in his
capacity as Directors Representative, or be personally liable for, monetary
damages for any breach of, any fiduciary or other duties or obligations to
Project Company, any other Shareholder or any of its Affiliates or any other
Directors Representative.

 

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Any repeal or modification of this Section 5.7 will be prospective only and
shall not adversely affect any limitation of the duties, obligations or
liabilities which exists for the benefit of any individual immediately before
the effectiveness of that repeal or modification.

Section 5.8 Proxies and Voting Agreements. No Shareholder shall, directly or
indirectly, grant any proxies or powers of attorney, deposit or enter into a
voting agreement (other than this Agreement) with respect to, any Registered
Capital of Project Company.

ARTICLE VI

MEETINGS OF THE BOARD

Section 6.1 Board Meetings.

(a) Regular meetings of the Board shall be held at least twice per year at such
dates and times and at such places as shall from time to time be determined in
advance by the Board. The Finance and Administration Manager shall deliver an
agenda for each regular meeting and a copy of any documents to be discussed to
the Directors Representatives at least four Business Days in advance of such
meeting. To the extent practical, each agenda for a regular meeting shall
specify, to a reasonable degree, the business to be transacted at such meeting.
Subject to Section 6.2, at any regular meeting of the Board at which a quorum is
present, any and all business of Project Company may be transacted. All such
action shall be formalized in a written consent executed by each Directors
Representative, as described in Section 6.4.

(b) Each Director shall have the right to call one special meeting of the Board
per year by any Directors Representative appointed by such Director delivering
four weeks advance written notice of a special meeting to each of the other
Directors Representatives together with a copy of any documents to be discussed
prior to such meeting. Additional special meetings of the Board may be called if
at least one Kraton Directors Representative and one FPCC Directors
Representative agree in writing. To the extent practicable, each notice of a
special meeting shall specify, to a reasonable degree, the business to be
transacted at, or the purpose of, such meeting. Notice of any special meeting
may be waived before or after the meeting by a written waiver of notice signed
by the Directors Representative entitled to notice. A Directors Representative’s
attendance at a special meeting shall constitute a waiver of notice unless the
Directors Representative states at the beginning of the meeting his objection to
the transaction of business because the meeting was not lawfully called or
convened. Special meetings of the Board shall be held at a mutually agreeable
location at such date and time as may be stated in the notice of such meeting.
Subject to Section 6.2, at any special meeting of the Board at which a quorum is
present, any and all business of Project Company may be transacted.

(c) Following each meeting of the Board, the Finance and Administration Manager
shall promptly draft and distribute minutes of such meeting to the Directors
Representatives for approval at the next meeting, and after such approval shall
retain the minutes in Project Company’s minute books.

 

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(d) Directors Representatives, at their discretion, may participate in or hold
regular or special meetings of the Board by means of a video conference,
telephone conference or any comparable device or technology by which all
individuals participating in the meeting may hear each other, and participation
in such a meeting shall constitute presence in person at such meeting.

(e) Matters not on the agenda or described in the notice of the meeting, or
business conducted in relation to those matters, may not be raised at a Board
meeting unless all Directors Representatives present agree in writing.

(f) Any action required or permitted to be taken at a meeting of the Board may
be taken without a meeting by the consent in writing, setting forth the action
to be taken, signed by all Directors Representatives. A counterpart of each such
consent to action shall be delivered promptly to each of the Directors
Representatives and to the Finance and Administration Manager for placement in
the minute books of Project Company, but the failure to deliver a counterpart of
any such consent to action to the Finance and Administration Manager shall not
affect the validity or effectiveness of such consent to action.

Section 6.2 Quorum. The quorum at any meeting of the Board (including adjourned
meetings) is at least two Kraton Directors Representatives and two FPCC
Directors Representatives or their respective Alternates present at the meeting.
No business shall be conducted at any Board meeting unless a quorum is present
at the beginning of the meeting and at the time when there is to be voting on
any business.

Section 6.3 Adjournments. A Board meeting shall be adjourned to another time or
date at the request of all the Directors Representatives present at the meeting.

Section 6.4 Voting. Subject to Section 6.1(f), the Board shall make decisions by
passing resolutions. A resolution is passed if it is signed and approved by each
Directors Representative or such Directors Representative’s Alternate in
accordance with the Articles of Incorporation and this Article VI.

Section 6.5 Appointment of Directors Representative Alternate. A Kraton
Directors Representative or a FPCC Directors Representative who is absent from a
Board meeting may appoint any individual (except an existing Directors
Representative representing the other Shareholder) to act as his alternate at
the meeting (each an “Alternate”) by delivering written notice of such
appointment to Project Company and each other Directors Representative (which
notice may be delivered at the beginning of any Board meeting at which such
Alternate will serve). For the purposes of the Board meeting, the Alternate
shall be entitled to act and vote for the appointing Directors Representative.

 

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Section 6.6 Lack of Authority of Persons Other than the Board and Managers.

Except as expressly set forth in this Agreement, no Person or Persons other than
(i) the Board, acting in conformity with this Agreement and any applicable Board
action, and (ii) the Managers of Project Company appointed in accordance with
this Agreement and acting as agents or employees, as applicable, of Project
Company in conformity with this Agreement and any applicable Board action, shall
be authorized (a) to exercise the powers of Project Company, (b) to manage the
Business, property and affairs of Project Company, or (c) to contract for, or
incur on behalf of, Project Company, any debts, liabilities or other
obligations.

Section 6.7 Control of Related Party Transactions.

(a) Each Directors Representative, based on his knowledge and reasonable
judgment at such time, shall disclose to the Board any actual, apparent, or
potential financial interest, business interest, competitive interest or other
conflict of interest (“Conflict”) such Directors Representative has in any
matter or transaction presented for information, consideration or approval of
the Board immediately upon becoming aware of such Conflict, unless the nature
and extent of such Conflict are known or readily apparent to the Board. No
Directors Representative shall be liable to Project Company or the Shareholders
if such Conflict has been fully and accurately disclosed to the Board and such
Directors Representative has complied with any agreement between the Directors
Representative and the Board as to resolution or avoidance of such Conflict.

(b) Any proposed or contemplated transaction involving Project Company as a
party, on the one hand, and a Shareholder or its Directors Representative or
Affiliate or “sister company” as a party, on the other hand, shall be a
“Conflict” for purposes of this Section 6.7 and shall be fully disclosed to the
Shareholder not involved and whose Directors Representatives and Affiliates are
not involved, in such transaction (the “Non-Conflicted Shareholder”), and be
negotiated and approved by such Non-Conflicted Shareholder (such approval to be
by the unanimous approval of the Non-Conflicted Shareholder’s Directors
Representatives) on behalf of Project Company.

(c) Notwithstanding anything to the contrary contained in this Agreement, with
respect to any Conflict, the Non-Conflicted Shareholder (through its Directors
Representatives) shall have the sole and exclusive power and right for and on
behalf, and at the sole expense, of Project Company (i) to control all
decisions, elections, notifications, actions, exercises or non-exercises and
waivers of all rights, privileges and remedies provided to, or possessed by,
Project Company with respect to a Conflict and (ii) in the event of any
potential, threatened or asserted claim, dispute or action with respect to a
Conflict, to retain and direct legal counsel and to control, assert, enforce,
defend, litigate, mediate, arbitrate, settle, compromise or waive any and all
such claims, disputes and actions on behalf of Project Company. Each Shareholder
shall, and shall cause its Affiliates to, take all such actions, execute all
such documents and enter into all such agreements as may be necessary or
appropriate to facilitate or further assure the accomplishment of this
Section 6.7.

 

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(d) The Non-Conflicted Shareholder, in exercising its control, power and rights
pursuant to this Section 6.7, shall act in good faith and in a manner it
believes to be in the best interests of Project Company; provided that it shall
never be deemed to be in the best interests of Project Company not to pay,
perform and observe all of the obligations to be paid, performed or observed by
or on the part of Project Company under the terms of any Transaction Document.
The Non-Conflicted Shareholder shall act through its Directors Representatives,
and the approval of all of the Directors Representatives of the Non-Conflicted
Shareholder will be sufficient for the Non-Conflicted Shareholder (and therefore
the Board on behalf of Project Company) to take any action in respect of the
relevant Conflict. The conflicted Shareholder (or its Affiliates) shall have the
right to deal with Project Company and with the Non-Conflicted Shareholder on an
arm’s-length basis and in a manner it believes to be in its own best interests,
but in any event must deal with them in good faith.

(e) Upon receipt of any required approval by the Board, all contracts and
transactions between Project Company, on the one hand, and a Shareholder or its
Directors Representatives or Affiliates, on the other hand, shall be deemed to
be entered into on an arm’s-length basis and to be subject to ordinary contract
and commercial law, without any other duties or rights being implied by reason
of a Shareholder being a Shareholder or by reason of any provision of this
Agreement or the existence of Project Company.

ARTICLE VII

MANAGERS AND EMPLOYEES

Section 7.1 Delegation. The Shareholders acknowledge that the Board is permitted
to delegate responsibility for day-to-day operations of Project Company to
Managers and employees of Project Company.

Section 7.2 Managers.

(a) The Board may select natural persons who are (or upon becoming an Manager
will be) full-time employees of or Secondees to Project Company to be designated
as Managers of Project Company, with such titles and duties as the Board shall
determine or as may be provided in this Agreement.

(b) The Managers of Project Company shall consist of a President, a Finance and
Administration Manager and others as determined from time to time by the Board
(collectively, the “Managers”).

(c) The President shall be nominated by the Kraton Directors Representatives,
and confirmed by the Board, such confirmation not to be unreasonably withheld,
conditioned or delayed.

 

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(d) The Finance and Administration Manager shall be nominated by the FPCC
Directors Representatives, and confirmed by the Board, such confirmation not to
be unreasonably withheld, conditioned or delayed.

(e) The initial Managers of Project Company are listed on Schedule 3.

Section 7.3 Term of Managers. Each Manager shall hold office until his death,
resignation or removal. Managers shall be full-time employees of, or seconded
employees to, Project Company.

Section 7.4 Removal of Managers and Employees.

(a) The President may be removed at any time only by the unanimous action of the
Kraton Directors Representatives or, if the President is a Secondee, by the
seconding Person.

(b) The Finance and Administration Manager may be removed at any time only by
the unanimous action of the FPCC Directors Representatives or, if the Finance
and Administration Manager is a Secondee, by the seconding Person.

(c) Except as provided in Section 7.4(a) or (b), any Manager that is not a
Secondee to Project Company may be removed, at any time and for any reason by
the Board (acting on the recommendation of the President or a Shareholder).

(d) Except as provided in Section 7.4(a) or (b), any Manager that is a Secondee
to Project Company may be removed, (i) by the seconding Person, or (ii) by the
Board (acting on the recommendation of the President) for cause.

(e) Employees of Project Company may be removed by the President.

Section 7.5 Duties.

(a) Each Manager or employee of Project Company shall owe to Project Company,
but not to any Shareholder, all such duties (fiduciary or otherwise) as are
imposed upon such Manager or employee of a Republic of China limited liability
company. Without limitation of the foregoing, each Manager and employee in any
dealings with a Shareholder shall have a duty to act in good faith and to deal
fairly; provided that no Manager shall be liable to Project Company or to any
Shareholder for his good faith reliance on the provisions of this Agreement.

 

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(b) The policies and procedures of Project Company (including the Policies)
adopted by the Board may set forth the powers and duties of the Managers of
Project Company to the extent not set forth in or inconsistent with this
Agreement. The Managers of Project Company shall have such powers and duties,
except as modified by the Board, as generally pertain to their respective
offices in the case of a Republic of China limited liability company, as well as
such other powers and duties as from time to time may be conferred by the Board
and by this Agreement. The Managers and employees of Project Company shall
develop and implement management and other policies and procedures consistent
with this Agreement, the Policies and the other general policies and procedures
established by the Board.

(c) Notwithstanding any other provision of this Agreement, no Shareholder,
Directors Representative, Manager, Secondee or employee of Project Company shall
have the power or authority, without specific authorization from the Board, to
undertake any of the following:

(i) to do any act which contravenes (or otherwise is inconsistent with) this
Agreement or which would make it impracticable or impossible to carry on Project
Company’s Business;

(ii) to confess a judgment or admit material liability against Project Company;

(iii) to possess Project Company property other than in the ordinary course of
business; or

(iv) to take, or cause to be taken, any of the actions described in Section 5.6.

Section 7.6 President. The President shall have general authority and discretion
to direct and control the Business and affairs of Project Company, including its
day-to-day operations in a manner consistent with the Annual Budget and the most
recently approved Business Plan. The President shall take steps to implement all
orders and resolutions of the Board. The President shall be authorized to
execute and deliver, in the name and on behalf of Project Company, (i) contracts
or other instruments authorized by Board action or the Shareholders, and
(ii) contracts or instruments in the ordinary course of business (not otherwise
requiring Board action or the consent of the Shareholders), except in cases when
the execution and delivery thereof shall be expressly delegated by the Board to
some other Manager of Project Company, and, in general, shall perform all duties
incident to the office of President as well as such other duties as from time to
time may be assigned to him by the Board or as are prescribed by this Agreement.
In all instances, the President’s powers under this Section 7.6 shall be subject
to the other terms and provisions of this Agreement.

Section 7.7 Finance and Administration Manager. The Finance and Administration
Manager shall be responsible for managing the finance affairs of Project
Company, including financial planning, analysis and control, accounting, tax,
cash administration and control, information systems and human resource matters,
in order to safeguard organization assets, maximize profitability and attend to
legal obligations as well as business needs for information, analysis and
support, and will also perform such other duties as

 

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may, from time to time, be assigned to him or her by the Board or by the
President. The Finance and Administration Manager shall also (i) keep the
minutes of all meetings (and copies of written records of action taken without a
meeting) of the Board in minute books provided for such purpose and shall see
that all notices are duly given in accordance with the provisions of this
Agreement, (ii) be the custodian of the records and of the seal of Project
Company, if any, (iii) have general charge of books and papers of Project
Company as the Board may direct, and (iv) in general, shall perform all duties
and exercise all powers incident to the foregoing. In all instances, the Finance
and Administration Manager’s powers under this Section 7.7 shall be subject to
the other terms and provisions of this Agreement.

Section 7.8 Vice Presidents. Vice Presidents, if any, shall perform such duties
as may, from time to time, be assigned to them by the Board or by the President.
In addition, at the request of the President, or in the absence or disability of
the President, any Vice President, in any order determined by the Board,
temporarily shall perform all (or if limited through the scope of the
delegation, some of) the duties of the President, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the President.
In all instances, the Vice President’s powers under this Section 7.8 shall be
subject to the other terms and conditions of this Agreement.

Section 7.9 Assistant Managers. Any assistant manager appointed by the Board
shall have power to perform, and shall perform, all duties incumbent upon the
Manager he or she is assisting, subject to the general direction of such
Manager, and shall perform such duties as this Agreement may require or the
Board may prescribe.

Section 7.10 Other Managers. The Board may appoint such other Managers and
delegate to them such duties as it sees fit.

Section 7.11 Salaries. Salaries or other compensation of the Managers and
employees of Project Company shall be established by the Board consistent with
plans approved by the Shareholders. Subject to Section 7.13 and except as
approved by the Board, all fees and compensation of the Managers and employees
(including Secondees) of Project Company with respect to their services as such
Managers and employees shall be payable solely by Project Company and no
Shareholder nor its Affiliates shall pay (or offer to pay) any such fees or
compensation to any Manager or employee. Notwithstanding the foregoing, fees and
compensation payable to seconded employees shall be shared by Project Company
and the Shareholder seconding such seconded employee as set forth in the
Secondment Agreement.

Section 7.12 Delegation. The Board may delegate temporarily the powers and
duties of any Manager of Project Company (other than the President or Finance
and Administration Manager), in case of absence or for any other reason, to any
other Manager of Project Company, and may authorize the delegation by any
Manager of Project Company of any of such Manager’s powers and duties to any
other Manager or employee of Project Company, subject to the general supervision
of such delegating Manager.

 

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Section 7.13 Seconded Employees. If there is a vacancy in a job position in
Project Company, either Shareholder shall be entitled to nominate one of its (or
its Affiliate’s) own employees to fill such vacancy pursuant to the Secondment
Agreement, subject to renewal or extension by the President with the consent of
each Shareholder. Kraton Shareholder shall be the only party entitled to
nominate an employee of it or its Affiliate to fill the position of President,
and FPCC Shareholder shall be the only party entitled to nominate an employee of
it or its Affiliate to fill the position of Finance and Administration Manager.

Section 7.14 General Authority. Persons dealing with Project Company are
entitled to rely conclusively on the power and authority of each of the Managers
as set forth in this Agreement. In no event shall any Person dealing with any
Manager with respect to any business or property of Project Company be obligated
to ascertain that the terms of this Agreement have been complied with, or be
obligated to inquire into the necessity or expedience of any act or action of
the Manager; and every contract, agreement, deed, mortgage, security agreement,
promissory note or other instrument or document executed by the Manager with
respect to any business or property of Project Company shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution or delivery thereof, this Agreement was in
full force and effect, (ii) the instrument or document was duly executed in
accordance with the terms and provisions of this Agreement and is binding upon
Project Company and (iii) the Manager was duly authorized and empowered to
execute and deliver any and every such instrument or document for and on behalf
of Project Company.

ARTICLE VIII

BUSINESS PLANS, ANNUAL BUDGETS AND LOANS

Section 8.1 Business Plan.

(a) Project Company shall be managed in accordance with a five-year business
plan (the “Business Plan”), which shall be updated annually on a rolling basis
under the direction of the President and presented for approval by the Board
pursuant to Section 5.6 as soon as practicable prior to the start of the first
Fiscal Year covered by the updated Business Plan, but at least 45 days prior to
the start of the first Fiscal Year covered by the updated Business Plan. The
Business Plan shall encompass the business, financial and operating plans of
Project Company for a five-year period and will anticipate, among other things,
target resources required, both material and manpower, a schedule for deployment
of such resources, business objectives, internal and external financing, a
nominal production schedule, projected income statements, balance sheets and
cash flow statements, including the expected timing and amounts of capital
contributions and cash distributions, and the planning information required
under the other Transaction Documents.

 

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(b) The initial Business Plan agreed to by the Shareholders, which applies to
the period from and after the Execution Date and until December 31, 2016, is
attached hereto as Exhibit B. The format and level of detail of each Business
Plan shall be consistent with that of the initial Business Plan or the Business
Plan most recently approved pursuant to Section 5.6.

Section 8.2 Annual Budget.

(a) The President shall prepare an Annual Budget (each, an “Annual Budget”) for
each Fiscal Year, including an Operating Budget and Capital Expenditure Budget
and present such Annual Budget for approval by the Board pursuant to Section 5.6
as soon as practicable prior to the start of the Fiscal Year covered by such
Annual Budget, but at least 45 days prior to the start of the Fiscal Year
covered by such Annual Budget. Each Annual Budget shall be consistent with the
information for such Fiscal Year included in the Business Plan most recently
approved pursuant to Section 8.1. Each Annual Budget shall incorporate (i) a
projected income statement, balance sheet and cash flow statement, (ii) the
amount of any corresponding cash deficiency or surplus, (iii) the estimated
amount, if any, and expected timing for all required capital expenditures,
(iv) the amount of any anticipated cash deficiency or surplus for distributions
to the Shareholders, (v) the estimated amount, if any, of the Shareholder
Registered Capital Amount required to be funded and (vi) the estimated amount,
if any, of any required Third Party Loans and Shareholder Financing Loans. Each
proposed Annual Budget shall be prepared on a basis consistent with Project
Company’s financial statements.

(b) The initial Annual Budget agreed to by the parties, which applies to the
period from and after the Execution Date and until December 31, 2013, is
attached hereto as Exhibit C and is incorporated into the initial Business Plan.
The format, line items and level of detail of each Annual Budget shall be
consistent with that of the initial Annual Budget or the Annual Budget most
recently approved pursuant to Section 5.6.

(c) Each “Operating Budget” shall constitute an estimate for each applicable
period of all operating income, which shall include expenses required to
maintain, repair and restore to good and usable condition Project Company’s
assets.

(d) Each “Capital Expenditure Budget” shall constitute an estimate for the
applicable period of the capital expenditures required to (i) accomplish capital
enhancement projects included in the most recently approved Business Plan,
(ii) maintain and preserve Project Company’s assets in good operating condition
and repair and (iii) achieve or maintain compliance with any Environmental Law.

 

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Section 8.3 Additional Reports.

(a) No later than the 10th Business Day of each month after the Formation Date,
Project Company, under the direction of the President, shall issue a monthly
report (each a “Monthly Business Report”) to each Shareholder that contains,
among other things, (i) if prepared before acceptance of the Plant from the
Construction Contractor, information regarding engineering, construction,
permitting and commissioning of the Plant as well as an assessment of how
construction, commissioning and start-up activities are progressing relative to
the then-current Business Plan, Annual Budget and project schedule established
under the Construction Agreement for the Plant, and (ii) if prepared following
acceptance of the Plant from the Construction Contractor, information regarding
production, quality, Fixed and Variable Costs (both such terms as defined in the
Offtake Agreement) as well as an assessment of how the Business is performing
relative to the then-current Business Plan and Annual Budget. Each Monthly
Business Report shall be substantially in the form attached as Exhibit D, and
shall also include such additional information as is reasonably requested by a
Shareholder in order to keep each Shareholder fully apprised of the performance
of the Business.

(b) Project Company shall also provide such other reports and information
required by the other Transaction Documents.

Section 8.4 Implementation of Business Plan and Discretionary Expenditures by
President.

(a) After a Business Plan and Annual Budget has been approved by the Board (or
developed in accordance with Section 11.1), the President shall be authorized,
without further action by the Board, to cause Project Company to make
expenditures consistent with such Business Plan and Annual Budget; provided,
however, that all internal control policies and procedures, including those
regarding the required authority for certain expenditures, shall have been
followed.

(b) In any emergency, the President or the President’s designee shall be
authorized to take such actions and to make such expenditures as may be
reasonably necessary to react to the emergency, regardless of whether such
expenditures have been included in an approved Business Plan or Annual Budget.
Promptly after learning of an emergency, the President or such designee shall
notify the Board of the nature of the emergency and the response that has been
made, or is committed or proposed to be made, with respect to the emergency.

Section 8.5 Transaction Documents. The Shareholders acknowledge and agree that
performance of Project Company under each Transaction Document to which it is a
party is a fundamental consideration to entry into this Agreement. Accordingly,
the Shareholders and Board shall work in good faith and in a commercially
reasonable manner to cause Project Company to implement the terms and conditions
of this Agreement and each other Transaction Document to which Project Company
is a party.

 

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ARTICLE IX

ADDITIONAL SHAREHOLDER COVENANTS

Section 9.1 Non-Compete. Before the date that is three years after the earlier
of (x) dissolution of Project Company in accordance with Article XII, or (y) the
date on which FPCC Shareholder or its Affiliate is no longer a Shareholder, FPCC
Shareholder on its behalf and on behalf of its Affiliates and, under a written
authorization between FPCC Shareholder and Formosa Synthetic Rubber Company,
Formosa Synthetic Rubber Company and its Subsidiaries, (collectively, the “FPCC
Non-Compete Entities”) hereby agrees that it and they shall not:

(a) carry on or be engaged, concerned or interested, directly or indirectly,
whether as a shareholder, partner, member, director, employee, contractor, agent
or otherwise, anywhere in the world, in any business similar to or competing
with the Business (including the design, construction, operation or ownership,
directly or indirectly, of an HSBC production facility, and production,
marketing or sale of HSBC), or

(b) assist any other Person in carrying on or being engaged, concerned or
interested in, directly or indirectly, any business similar to or competing with
the Business.

This Section 9.1 is for the benefit and protection of Kraton and each of its
Affiliates, including Kraton Shareholder. FPCC Shareholder acknowledges and
agrees that (i) its agreement to this Section 9.1 and willingness to make on
behalf of, and bear responsibility for violations of, this Section 9.1 by any of
the FPCC Non-Compete Entities is a fundamental consideration for Kraton
Shareholder and its Affiliates to enter into this Agreement and the other
Transaction Documents to which any of them is party and to consummate the
transactions contemplated hereby and thereby, and (ii) Kraton and each of its
Affiliates would suffer irreparable injury and may seek monetary damages for
such injury under this Agreement if any of the FPCC Non-Compete Entities were to
violate the provisions of this Section 9.1.

Section 9.2 Phase II Plant Expansion. Until the second anniversary of the date
of final acceptance of the Plant from the Construction Contractor, Kraton
Shareholder may cause Project Company to pursue the Phase II expansion of the
Plant. If Kraton Shareholder elects to cause Project Company to pursue the Phase
II expansion, FPCC Shareholder agrees to cooperate and join in such expansion;
provided, however, that any such expansion will be subject, in all respects, to
substantially the same terms and conditions applicable to Project Company’s
ownership and operation of the Plant. As used herein, “Phase II expansion” means
an increase in the production capacity of the Plant by up to an additional 30 kt
per Year (based on 287 operating days) of HSBC.

Section 9.3 USBC Business. FPCC Shareholder on its behalf and on behalf of each
FPCC Non-Compete Entity hereby agrees, on the one hand, and Kraton Shareholder
on its behalf and on behalf of Kraton and each Subsidiary of Kraton hereby
agrees, on the other hand, that if any of them desires to produce USBC in Taiwan
(a “USBC Proposing Party”), then at the election of the other party, the USBC

 

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Proposing Party shall enter into good faith negotiations with the other party
regarding the possible joint investment in USBC capacity in Taiwan. Any such
joint investment may be structured as (but is not limited to) (i) an expansion
of Project Company’s Business to include production, sale and marketing of USBC
through an expansion of the Plant, (ii) direct or indirect investment in or
acquisition of another Person in Taiwan, or (iii) the license of USBC technology
from the applicable Kraton entity to the applicable FPCC Non-Compete Entity on
commercially reasonable terms. If the applicable FPCC Non-Compete Entity and the
applicable Kraton entity elect to enter into the USBC business, the parties
thereto shall work together and negotiate in good faith the terms of the
definitive written documentation implementing such joint investment as promptly
as practicable. Notwithstanding the provisions of this Section 9.3, no FPCC
Non-Compete Entity or Kraton entity is obligated to participate in any such
joint investment project. This provision shall remain in effect until the date
that is five years after the date of final acceptance of the Plant from the
Construction Contractor.

Section 9.4 Plant Shut-Down. If at any time after the Execution Date, (i) a
Governmental Authority requires that construction of the Plant or Plant Site be
delayed or halted, or that operations on the Plant Site or within the Mailiao
Industrial Park be shut-down for inspection or otherwise, or the Plant is
shut-down (other than for planned maintenance and turnarounds or Force Majeure),
in each case for a period of three months or more, and (ii) in the reasonable
good faith opinion of a Shareholder, such delay, halt or shut-down causes
material financial or material operational hardship to such Shareholder
(provided, however, that the failure to receive distributions from Project
Company, or of Project Company to pay operating expenses or purchase feedstock,
shall not be considered a material financial or material operational hardship),
then in addition to all other remedies available to Project Company or a
Shareholder at equity and under law, the Shareholder suffering such material
financial or operational hardship may, in its discretion, initiate the
Dissolution Procedures and liquidation provisions set forth in Article XII by
delivering written notice to the other Shareholder (a “Dissolution Notice”),
which liquidation procedures will be initiated immediately. Nothing in this
Section 9.4 shall be construed to limit the remedies available to Project
Company and a Shareholder at equity and under law for the failure of the Plant
to operate (other than for planned maintenance and turnarounds or Force
Majeure).

ARTICLE X

TRANSFERS AND PLEDGES

Section 10.1 Restrictions on Transfer and Prohibition on Pledge.

(a) A Shareholder shall not, in any transaction or series of transactions,
directly Transfer all or any part of its Registered Capital without the prior
written consent of the other Shareholder, which consent may be withheld,
conditioned or delayed in such Shareholder’s sole discretion. The election of a
Shareholder not to exercise any right of first refusal (or other purchase right)
under the laws of the Republic of China applicable to Transfers of Registered
Capital shall not be deemed a consent to such Transfer for purposes of this
Agreement. If a Shareholder elects to exercise its right of first refusal (or
other purchase

 

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right) under the laws of the Republic of China applicable to Transfers of
Registered Capital, such Shareholder may, at its option and at its sole
election, pay the consideration for such purchase in three equal interest-free
installments payable on each of the closing date of such purchase and on the
first and second anniversaries of such purchase. The foregoing restrictions on
Transfer of a Shareholder’s Registered Capital shall not restrict a Shareholder
from Pledging all or a portion of its Registered Capital or its interest in
Project Company to a lender.

(b) Notwithstanding the foregoing, any Shareholder may Transfer all of its
Registered Capital to any Wholly Owned Affiliate of such Shareholder with the
prior written consent of the other Shareholder, which consent shall not be
unreasonably withheld, conditioned or delayed, and subject to receipt of FIA
approval, if applicable. Each Shareholder hereby waives and agrees not to
exercise any right of first refusal (or other purchase right) under the laws of
the Republic of China applicable to Transfers of Registered Capital to a Wholly
Owned Affiliate in accordance with this Section 10.1(b). Any transferee under
this Section 10.1(b) shall execute an instrument reasonably satisfactory to all
Shareholders accepting the terms and provisions of this Agreement. Upon
consummation of a Transfer in accordance with this Section 10.1(b), the
transferee shall immediately, and without any further action of any Person,
become a Shareholder.

(c) Except as provided in Section 10.2, a Shareholder shall not, in any
transaction or series of transactions, Transfer all or any part of a Shareholder
loan other than to an Affiliate of such Shareholder or Third Party lender with
the prior written consent of the other Shareholder, which consent shall not be
unreasonably withheld, conditioned or delayed, and subject to receipt of FIA
approval, if applicable.

Section 10.2 Transfer of Transaction Documents and Shareholder Loans.

(a) Notwithstanding any Transfer made in accordance with Section 10.1, neither
Shareholder nor its Affiliates may Transfer its rights or obligations under any
Transaction Document to the transferee of its Registered Capital or otherwise
without the prior written consent of the non-Transferring Shareholder (or its
Affiliate who is counterparty to such Transaction Document), which consent may
be withheld, conditioned or delayed in the non-Transferring Shareholder’s (or,
as applicable, its Affiliate’s) sole discretion.

(b) Any Transfer of all or a portion of a Shareholder’s Registered Capital to a
Third Party or an Affiliate of such Shareholder shall include the Transfer of a
proportionate share of all outstanding Shareholder loans issued to or on behalf
of such Shareholder.

Section 10.3 Minimum Requirements of a Transferee. Notwithstanding the
provisions of this Article X, or a Shareholder’s election not to exercise any
right of first refusal or other purchase right under the laws of the Republic of
China applicable to Transfers of Registered Capital, a Shareholder may Transfer
its Registered Capital to a Third Party only if all of the following occur in
addition to obtaining prior written consent to the Transfer in accordance with
Section 10.1(a):

 

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(i) The Transfer is accomplished in a non-public offering in compliance with,
and exempt from, the registration and qualification requirements of all
applicable securities laws and regulations;

(ii) The Transfer does not cause a default under any material contract to which
Project Company is a party or by which Project Company or any of its properties
is bound;

(iii) The proposed transferee executes an appropriate agreement accepting the
terms and provisions of this Agreement;

(iv) The transferor or proposed transferee bears all reasonable costs incurred
by Project Company in connection with the Transfer;

(v) Performance of all obligations (including payment obligations) under this
Agreement and each other agreement that is Transferred by the proposed
transferee is guaranteed by the ultimate parent company of such proposed
transferee;

(vi) Neither the Transferring Shareholder nor the proposed transferee is in
default in the timely performance of any of its material obligations to Project
Company or under any Transaction Document;

(vii) The proposed transferee is not in the HSBC business, including by directly
or indirectly through its Affiliates or investments, being an operator of an
HSBC facility or otherwise producing or marketing HSBC; and

(viii) The proposed transferee does not, in the reasonable opinion of the
non-transferring Shareholder, have a history of violations of laws regarding
anticompetitive activities, anticorruption and antibribery, such as the U.S.
Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act,
Republic of China anti-bribery laws, Netherlands anti-bribery laws or any other
applicable anti-bribery laws, including laws implementing the OECD Convention on
Combating Bribery of Foreign Public Officials in International Business
Transactions.

Section 10.4 Remedies for Breaches of this Article X. If a Shareholder Transfers
all or a portion of its Registered Capital or a Shareholder loan other than in
strict compliance with the terms and conditions of this Article X, then, in
addition to (and not in lieu of) all other remedies available at equity and
under law (including damages) and dissolution right set forth in
Section 12.1(d), and without giving effect to the waiver of damages set forth in
Section 6 of Appendix B, the Transferring Shareholder shall immediately pay to
the non-Transferring Shareholder US$100,000,000 as additional liquidated damages
and not as a penalty, plus interest at a rate equal to the lesser of LIBOR plus
1,000 basis points and the maximum rate allowed under Applicable Law, calculated
from the effective date of such Transfer up to and including the date of
payment, compounded daily, by wire transfer of immediately available funds to an
account designated by the non-Transferring Shareholder. If payment of the
US$100,000,000 in additional liquidated damages is declared to be unenforceable
or invalid, in whole or in part, for any reason, then, without limiting any
other remedies (including damages) available to the non-Transferring Shareholder
at equity and under law, the additional liquidated damages payable by the
Transferring Shareholder under this Section 10.4 shall equal the maximum amount
of liquidated damages available under Applicable Law.

 

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Section 10.5 Withdrawal by a Shareholder. No Shareholder shall be entitled to
withdraw from this Agreement or from Project Company without the prior written
consent of the other Shareholder, which consent may be withheld in the
consenting Shareholder’s sole discretion.

ARTICLE XI

DEADLOCK, DEFAULT AND REMEDY

Section 11.1 Failure to Approve Business Plan or Annual Budget. Notwithstanding
the provisions of Section 5.6 and Article VIII, if the Board has not agreed upon
and approved an updated Business Plan by the first day of the first Fiscal Year
that would have been covered by such Business Plan, then:

(a) For such Fiscal Year and each subsequent Fiscal Year prior to approval of an
updated Business Plan, the President shall prepare (and promptly furnish to the
Board) an updated Annual Budget consistent with the projections and other
information for that Fiscal Year included in the Business Plan most recently
approved pursuant to Section 8.1; provided, however, that the President, acting
in good faith, shall be entitled to modify any such Annual Budget in order to
satisfy current contractual and compliance obligations and to account for other
changes in circumstances resulting from the passage of time or the occurrence of
events beyond the control of Project Company; and provided further that Project
Company shall be entitled to incur and pay, and the Shareholders shall be
obligated to fund or authorize Third Party Loans to cover Mandatory Expenses.

(b) If the Board is unable to agree on a Business Plan within 30 days after the
first day of the Fiscal Year that would have been covered by such Business Plan,
then at least one Senior Representative of each Shareholder shall meet together
within five Business Days following the expiration of such 30-day period (which
meeting may be held by video conference or telephone conference) and negotiate
in good faith to agree upon a Business Plan.

(i) If the Senior Representatives agree in writing upon a Business Plan for
Project Company, then such Business Plan shall be deemed to be the approved
Business Plan for such Fiscal Year for all purposes hereunder, without the
necessity of further action by the Board or the Shareholders, and the
then-current Annual Budget shall be modified to reflect the approved Business
Plan, if necessary.

(ii) If the Senior Representatives are unable to agree upon a Business Plan for
Project Company for each of two consecutive Fiscal Years, then either
Shareholder may initiate the Dissolution Procedures and liquidation provisions
set forth in Article XII by delivering a Dissolution Notice to the other
Shareholder.

 

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Section 11.2 Environmental and Safety. In the event that (i) a circumstance
arises or event occurs that constitutes a material violation of the HSE Policy
attached hereto as Exhibit E, or (ii) either Shareholder notifies the Board of a
material safety or Environmental concern with respect to the continued operation
of the Plant (any matter described in clause (i) or (ii), an “Environmental or
Safety Matter”), then either Shareholder may implement the resolution procedures
set forth in this Section 11.2 upon written notice to the other Shareholder:

(a) At least one Senior Representative of each Shareholder shall meet together
(which meeting may be held by video conference or telephone conference) within
five Business Days following receipt of any such written notice and negotiate in
good faith to agree to a course of action to address such Environmental or
Safety Matter.

(i) If the Senior Representatives agree in writing upon a course of action, they
shall jointly issue a statement setting out the terms of such agreement and each
Shareholder shall exercise the voting rights and other powers of control
available to it in relation to Project Company to ensure that the terms of such
agreement are implemented, and Project Company shall do all things within its
power to implement such terms.

(ii) If the Senior Representatives are unable to agree upon a course of action
within three Business Days following the first meeting of the Senior
Representatives pursuant to Section 11.2(a)(i), then (1) the President shall in
any event be authorized to take such action as is reasonably required to ensure
Project Company becomes or remains in compliance with Environmental Law and HSE
Policy (including by causing Project Company to make related capital
expenditures), and (2) either Shareholder may initiate the Dissolution
Procedures and liquidation provisions set forth in Article XII by delivering a
Dissolution Notice to the other Shareholder (in which event the Liquidation
Commencement Date may, at the option of the Shareholder delivering the
Dissolution Notice, occur before the first anniversary of the date of such
Dissolution Notice).

Section 11.3 Board Deadlock. In the event that the Board (i) fails to reach
agreement and resolve to take action on any matter requiring Board approval
under Section 5.6 (other than those matters described in Section 11.1 and
Section 11.2), and (ii) the failure to reach agreement and take action both
materially impairs the operation of the Plant or the ability of Project Company
to satisfy its obligations under the Transaction Documents and persists for more
than six months, then either Shareholder may implement the resolution procedures
set forth in this Section 11.3 upon written notice to the other Shareholder:

(a) Within 10 Business Days after receipt of such notice, each Shareholder shall
cause its Directors Representatives to prepare and circulate to the other
party’s Directors Representatives no later than 30 days after the date of such
notice a memorandum setting out such Shareholders’ position on the matter or
matters in dispute and its reasons for adopting such position.

 

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(b) At least one Senior Representative of each Shareholder shall meet together
(which meeting may be by video conference or telephone conference ) within 10
Business Days following receipt of the memorandum and negotiate in good faith to
agree to a course of action to resolve the Deadlock.

(i) If the Senior Representatives agree in writing upon a course of action, they
shall jointly issue a statement setting out the terms of such agreement and each
Shareholder shall exercise the voting rights and other powers of control
available to it in relation to Project Company to ensure that the terms of such
agreement are implemented and Project Company shall do all things within its
power to implement such terms.

(ii) If the Senior Representatives are unable to agree upon a course of action
within 40 Business Days following the first meeting of the Senior
Representatives pursuant to Section 11.3(b), then either Shareholder may
initiate the Dissolution Procedures and liquidation provisions set forth in
Article XII by delivering a Dissolution Notice to the other Shareholder.

Section 11.4 Mediation. In the event any matter described in Section 11.1,
Section 11.2 or Section 11.3 is referred to the Senior Representatives of the
Shareholders for resolution, and notwithstanding the dispute resolution
procedures set forth in Section 14.3, either Shareholder shall have the right,
upon notice to the other Shareholder, to cause Project Company to appoint an
expert pursuant to the International Chamber of Commerce Rules for Expertise to
mediate the discussions between the Senior Representatives and facilitate (but
shall have no authority to require) negotiation of a resolution. Any mediation
hereunder shall be administered by the International Chamber of Commerce in
accordance with its “Rules for Expertise” and shall be conducted in accordance
with such “Rules for Expertise” except as they may be inconsistent with the
provisions of this Section 11.4. The cost of any such expert and fees and
expenses of the International Chamber of Commerce shall be borne by Project
Company.

Section 11.5 Events of Default.

(a) It shall be an event of default of a Shareholder under this Agreement if:

(i) such Shareholder does not make available to Project Company funding in
accordance with the terms of any obligation to pay to Project Company amounts
due and such default is not remedied within 10 Business Days following receipt
of a written notification of failure to fund, served by Project Company on such
Shareholder detailing such default; or

(ii) such Shareholder or its Affiliate commits a breach of Section 11.1,
Section 11.2 or Section 11.3 by its failure to comply with the procedures set
forth in these Sections, or

 

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(iii) such Shareholder or its Affiliate is in material default under a
Transaction Document (other than this Agreement) under the terms of such
Transaction Document, and, if such material breach is capable of remedy, either
(x) fails to remedy the same within 30 days after notice to do so is given by
the other Shareholder, or (y) if such breach cannot be cured within said 30 day
period, fails within said 30 days to establish plans and commence action to
remedy the breach in a manner reasonably satisfactory to the other Shareholder,
and thereafter continues to diligently carry out such plans and remedy.

(b) In addition to the events of default described in subsection (a) above, it
shall be an event of default of FPCC Shareholder under this Agreement if any of
the FPCC Non-Compete Entities engages in any action that does or is reasonably
expected to violate the non-compete provisions set forth in Section 9.1. The
events of default described in this Section 11.5 are referred to collectively
herein as “Events of Default” and each individually as an “Event of Default”.

Section 11.6 Consequences of an Event of Default.

(a) If a Shareholder becomes aware that an Event of Default has occurred or is
reasonably expected to occur in relation to the other Shareholder or its
Affiliate (if applicable) (the “Defaulting Shareholder”) then, without prejudice
to the Defaulting Shareholder’s obligations under this Agreement and to any
other rights or remedies available to the non-defaulting Shareholder or Project
Company with respect to the Defaulting Shareholder, the parties shall use
reasonable best efforts to negotiate a resolution of such Event of Default.

(b) If the Event of Default is not cured within six months after notice thereof
(or, with respect to a breach of Section 9.1, within 30 days after notice
thereof), or if the Defaulting Shareholder fails to use its reasonable best
efforts during such six-month period to cure such Event of Default (or, with
respect to a breach of Section 9.1, any FPCC Non-Compete Entity, as applicable,
does not cure such Event of Default during the one-month cure period), the
non-Defaulting Shareholder may initiate the Dissolution and liquidation
provisions set forth in Article XII by delivering a Dissolution Notice to the
Defaulting Shareholder.

(c) Notwithstanding any Event of Default, Project Company shall continue to
comply with all of its contractual obligations, including those under each
Transaction Document, and the Shareholders shall use reasonable best efforts to
continue to work together and operate the Plant.

Section 11.7 Material Economic Change. If any Shareholder (the “Affected
Shareholder”) believes in good faith that it or its Affiliate’s economic
benefits are adversely affected in a material manner after the Execution Date by
a material change in the business condition or environment related to Project
Company or the Business or any other Transaction Document, including with
respect to Kraton Shareholder as a result of a breach of Section 9.1 where such
Event of Default is not timely cured by the breaching entity and Kraton
Shareholder has not elected to dissolve Project Company pursuant to
Section 11.6(b), the following provisions of this Section 11.7 shall apply:

 

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(a) An Affected Shareholder shall have the right to request an economic
adjustment to the terms and conditions of this Agreement and each other affected
Transaction Document;

(b) The requesting Affected Shareholder shall bear the burden of reasonably
establishing, to the extent reasonably possible through quantitative means and
independent advisor opinions, the adverse and material impact alleged by such
Affected Shareholder;

(c) The Shareholders shall promptly consult with each other and use their
reasonable best efforts to implement any adjustments to this Agreement and the
other Transaction Documents so as to maintain to the fullest extent possible the
Affected Shareholder’s economic benefits derived from this Agreement or the
other Transaction Documents. Such efforts shall include appointment of an expert
pursuant to Section 11.4 to explore possible solutions on terms to be agreed by
the Shareholders; provided, however, that any such expert may facilitate, but
shall not require, that the parties agree to adjustments to the Transaction
Documents;

(d) Any such adjustments shall restore to the Affected Party and its Wholly
Owned Affiliates the economic benefits substantially similar (after giving
effect to the then-current economic environment and market for HSBC products) to
the economic benefits it would have derived if such material change in the
business condition or environment related to Project Company or the Business or
any other Transaction Document had not arisen; and

(e) If the parties are unable to negotiate an adjustment to the Transaction
Documents under this Section 11.7 after using their reasonable best efforts to
do so, then either Shareholder may initiate the Dissolution and liquidation
provisions set forth in Article XII by delivering a Dissolution Notice to the
other Shareholder.

ARTICLE XII

DISSOLUTION, TERMINATION AND LIQUIDATION

Section 12.1 Dissolution Events. Project Company may be dissolved and liquidated
in accordance with this Article XII:

(a) upon mutual agreement of the parties;

(b) as provided in Article XI;

(c) if the Board and Shareholders elect not to rebuild the Plant following a
material condemnation or casualty event at the Plant or Plant Site that makes
continued production of HSBC impossible without expending significant money,
time and other resources (in which event the Liquidation Commencement Date shall
be immediately following such election); or

 

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(d) if a Shareholder Transfers its Registered Capital without the prior written
consent of the other Shareholder, by the non-Transferring Shareholder by
delivery of a Dissolution Notice to the Transferring Shareholder.

Section 12.2 Dissolution Procedures. If a Shareholder delivers a Dissolution
Notice, then the Board shall cause Project Company to be dissolved and its
assets sold and distributed in accordance with the following procedures (the
“Dissolution Procedures”):

(a) Except as otherwise agreed by the Shareholders in writing, the liquidation
of Project Company shall not commence before the earlier of the date on which
each Shareholder confirms that such Shareholder has made reasonably comparable
alternative commercial arrangements to replace the sale of its or its
Affiliate’s product to, or offtake of HSBC from, Project Company, as applicable;
provided, however, that except as otherwise provided herein, in no event will
the liquidation commence before the first anniversary of the date of the
Dissolution Notice or after the third anniversary of the date of the Dissolution
Notice (the “Liquidation Commencement Date”). Notwithstanding the foregoing,
Kraton Shareholder shall have the right to determine the Liquidation
Commencement Date, which may be earlier than the first anniversary of the date
of the applicable Dissolution Notice, in any liquidation of Project Company that
is initiated by Kraton Shareholder following a breach of Section 9.1;

(b) Prior to the Liquidation Commencement Date, Project Company shall continue
to own, operate and maintain the Plant in compliance with HSE Policy, all other
Policies, and good industry practice, and shall comply with its contractual
obligations under each of the Transaction Documents, including the production of
HSBC for sale to Kraton Shareholder or its Affiliate under the Offtake
Agreement;

(c) Project Company shall take reasonable steps to cause all Third Party
agreements to which Project Company is a party to terminate effective as of a
date that is on or before the Liquidation Commencement Date;

(d) Upon the Liquidation Commencement Date, each other Transaction Document
shall be terminated; and

(e) As soon as reasonably practicable following the Liquidation Commencement
Date, (i) the Plant shall be dismantled and the Equipment and other personalty
comprising the Plant shall be marketed and sold to Third Parties for its Fair
Market Value, (ii) an Affiliate of Kraton Shareholder will purchase any
remaining HSBC in Project Company’s inventory for the Fair Market Value of such
inventory and (iii) the net proceeds from the sale of the HSBC inventory,
Equipment and other personalty comprising the Plant, as well as any other
remaining assets of Project Company, shall be distributed in accordance with
Section 3.1.

 

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Section 12.3 Termination. This Agreement shall terminate upon completion of the
liquidation of Project Company pursuant to Section 12.2(e); provided, however,
that the following provisions of this Agreement shall remain in full force after
termination hereof: Section 5.7, Section 9.1, Article XIII, Article XIV and
Sections 1 (Agreement Interpretation), 4 (Notices), 6 (No Consequential or
Special Damages) and 9 (Public Announcements), in each case of Appendix B, as
well as any definitions in Appendix A necessary to understand the surviving
provisions. Termination of this Agreement shall not alter the then-existing
claims, if any, of a Shareholder for breaches of this Agreement occurring prior
to the termination date and the obligations of the Shareholders with respect
thereto shall survive termination.

Section 12.4 Notice of Retention. Where any Shareholder is required by any
Applicable Law, regulation or Governmental Authority to retain any proprietary
information (or copies of such information) of the other Shareholder or Project
Company, it shall notify the other Shareholder in writing of such retention
giving details of the information that it has been required to retain.

ARTICLE XIII

INDEMNIFICATION

Section 13.1 Indemnification. A Defaulting Shareholder shall indemnify Project
Company and any non-defaulting Shareholder against any Losses suffered or
incurred:

(a) as a direct result of any default by the Defaulting Shareholder in the
performance of any of the obligations expressed to be performed by it under this
Agreement or as the result of an occurrence of an Event of Default which has
occurred in relation to such Defaulting Shareholder; or

(b) in connection with the enforcement, preservation or protection of any rights
against the Defaulting Shareholder under this Agreement.

Section 13.2 Indemnification Procedures. All claims for indemnification under
this Article XIII shall be asserted and resolved as set forth in Section 7 of
Appendix B.

ARTICLE XIV

GENERAL PROVISIONS

Section 14.1 Miscellaneous Provisions. The provisions set forth in Appendix B
shall apply to this Agreement.

Section 14.2 Governing Law. This Agreement and the rights and duties of the
parties arising out of this Agreement shall be governed by, and construed in
accordance with, the substantive laws of the Republic of China, without
reference to the conflict of laws rules thereof that would direct the
application of the laws of another jurisdiction.

 

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Section 14.3 Dispute Resolution. The parties shall use their reasonable best
efforts to resolve all disputes relating to this Agreement by good faith
negotiations. If a party gives notice to the other party that a dispute has
arisen, and the parties are unable within 20 Business Days of such notice to
resolve the dispute, then it shall be referred to an officer or manager of each
of Kraton Shareholder and FPCC Shareholder, in each case that is not on the
Board and who has no decision-making authority with respect to Project Company.
If such officers/managers are unable within 20 Business Days to resolve the
dispute, then it shall be referred to an executive officer of each party or its
Affiliate with decision-making authority who has not previously been involved in
the dispute. If such individuals are unable within 20 Business Days to resolve
the dispute, then either party may submit the dispute to mediation in accordance
with the provisions of Appendix C. Any dispute not resolved through mediation in
accordance with the provisions of Appendix C shall be finally resolved by
arbitration in accordance with the provisions of Appendix C.

Section 14.4 Ethical Business Practices. The Shareholders shall comply, and
shall cause Project Company to comply, with the provisions of Appendix D.

Section 14.5 Conflicting Provisions. The several parts of, and attachments to,
this Agreement are intended to be interpreted as mutually explanatory of one
another. In the case of any conflict or inconsistency between or among the body
of this Agreement or Appendix A, on the one hand, and any other Appendix or
Exhibit, on the other hand, the provisions of the body of this Agreement and
Appendix A shall govern. In the case of any other conflict or inconsistency
between or among the provisions of the body of this Agreement or any Appendix,
the provision addressing the matter in more detail shall govern.

Section 14.6 Language. This Agreement shall be written in both the Chinese and
the English languages. Both languages shall have equal authenticity; provided,
however, in the event of conflict between the different versions, the English
language version shall control.

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.

 

KRATON SHAREHOLDER: KP INVESTMENT BV By:  

/s/ Kevin M. Fogarty

  Kevin M. Fogarty   Authorized Representative FPCC SHAREHOLDER: FORMOSA
PETROCHEMICAL CORPORATION By:  

/s/ Tsao Mihn

  Tsao Mihn   President PROJECT COMPANY: For and on behalf of LOGO
[g498443g30v96.jpg] (KRATON FORMOSA POLYMERS CORPORATION)

The Preparatory Office for

LOGO [g498443g97g69.jpg] , also known as Kraton Formosa Polymers Corporation

By:  

/s/ Michael S. Wong

  Michael S. Wong   Authorized Representative By:  

/s/ His-Tse Li

  Hsi-Tse Li   Authorized Representative

[Signature Page to the Shareholder Agreement]

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I hereby confirm that this Agreement has been ratified at a duly convened
meeting or pursuant to a written consent of the Board of LOGO
[g498443g10z03.jpg] , also known as Kraton Formosa Polymers Corporation, as of
April 1, 2013. LOGO [g498443g85x84.jpg] (KRATON FORMOSA POLYMERS CORPORATION)
By:  

/s/ Michael S. Wong

  Michael S. Wong   President

[Signature Page to the Shareholder Agreement]

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APPENDIX A

Definitions

“Adjusted Capital Account Deficit” has the meaning set forth in Section 1 of
Exhibit F.

“Adjustment” has the meaning set forth in Section 5(b) of Exhibit F.

“Affected Shareholder” has the meaning set forth in Section 11.7.

“Affiliate” of any Person means any other Person directly or indirectly
controlling, directly or indirectly controlled by or under direct or indirect
common control with such Person. As used in this definition, the term “control,”
“controlling” or “controlled by” means the possession, directly or indirectly,
of the power either to (a) vote 50% or more of the securities or interests
having ordinary voting power for the election of directors (or other comparable
controlling body) of such Person or (b) direct or cause the direction of the
actions, management or policies of such Person, whether through the ownership of
voting securities or interests, by contract or otherwise, excluding in each
case, any lender of such Person or any Affiliate of such lender. Notwithstanding
the foregoing, in no event shall Project Company be deemed to be an Affiliate of
Kraton or any of its Affiliates or FPCC Shareholder or any of its Affiliates.

“Agreement” has the meaning set forth in the Preamble.

“Alternate” has the meaning set forth in Section 6.5.

“Allocation Year” has the meaning set forth in Section 1 of Exhibit F.

“Annual Budget” has the meaning set forth in Section 8.2(a).

“Applicable Law” means any constitution, law, statute, ordinance, order,
injunction, rule, regulation or Authorization of any Governmental Authority
(excluding any such legislative, judicial or administrative body or
instrumentality acting in any capacity as a lender, guarantor or mortgagee)
applicable to a party or its Affiliate or the subject matter of this Agreement.

“Arbitral Tribunal” has the meaning set forth in Section 4.1 of Appendix C.

“Authorizations” means licenses, certificates, permits, orders, approvals,
determinations, variances, franchises and authorizations from Governmental
Authorities.

“Basic Design Engineering Package Agreement” means the Basic Design Engineering
Package Agreement, dated as of the date hereof, by and between Kraton
Shareholder and Project Company, as the same may be amended, supplemented,
modified, renewed or extended from time to time by agreement of the parties
thereto.

“Board” has the meaning set forth in Section 5.2.

“Book Value” has the meaning set forth in Section 1 of Exhibit F.

 

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“Business” has the meaning set forth in Section 1.4.

“Business Day” means a day of the year that is not a Saturday, Sunday or other
day on which the banks are generally closed in the Republic of China.

“Business Plan” has the meaning set forth in Section 8.1(a).

“Capital Account” has the meaning set forth in Section 1 of Exhibit F.

“Capital Expenditure Budget” has the meaning set forth in Section 8.2(d).

“Capitalization Plan” means the initial capitalization plan of the parties as
set forth in Exhibit G to this Agreement.

“Chairman” has the meaning set forth in Section 5.3.

“Claim Notice” has the meaning set forth in Section 7(b) of Appendix B.

“Code” means the U.S. Internal Revenue Code of 1986.

“Conflict” has the meaning set forth in Section 6.7(a).

“Construction Agreement” means the Construction Agreement for construction of
the Plant to be entered into between Project Company and the Construction
Contractor, as the same may be amended, supplemented, modified, renewed or
revoked from time to time by agreement of the parties thereto.

“Construction Contractor” means the Third Party construction contractor retained
by Project Company to construct the Plant.

“Country of Jurisdiction” has the meaning set forth in Section 4.14 of Appendix
C.

“CTCI” means CTCI Corporation, a company based in Taipei, Taiwan.

“Deadlock” means any situation which has persisted for not less than six months
in which (a) by virtue of a substantial disagreement amongst the Shareholders,
whether at Board or Shareholder level or both, and which is manifested by an
equality of votes at any meeting of the Board or (b) by virtue of an inability
to form a quorum at any meeting or adjourned Board meeting, a matter which is
material to Project Company or the Business cannot be resolved. The Deadlock
shall be deemed to have arisen on the expiry of the six month period referred to
above.

“Default Rate” means a per-annum rate of interest equal to the lesser of
(a) LIBOR plus 1,000 or (b) the maximum rate of interest permitted to be charged
by Applicable Law.

“Defaulting Shareholder” has the meaning set forth in Section 11.6(a).

“Depreciation” has the meaning set forth in Section 1 of Exhibit F.

“Directors” has the meaning set forth in Section 5.1.

 

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“Directors Representatives” has the meaning set forth in Section 5.1.

“Dispute” has the meaning set forth in Section 2.1 of Appendix C.

“Dissolution Notice” has the meaning set forth in Section 9.4.

“Dissolution Procedures” has the meaning set forth in Section 12.2.

“Engineering Agreement” means the Engineering Agreement to be executed by
Project Company and CTCI and, for the limited purpose set forth therein, Kraton
Shareholder, with respect to the definitive engineering design of the Plant.

“Environmental Laws” means any and all federal, state and local statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or other restrictions of
any Governmental Authority of the Republic of China relating to the environment,
or to handling, storage, emissions, discharges, releases or threatened
emissions, discharges or releases of Hazardous Materials into the environment,
including ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment or
disposal of any Hazardous Materials.

“Environmental or Safety Matter” has the meaning set forth in Section 11.2.

“Engineering Letter Agreements” means (i) the Letter Agreement Regarding
Engineering Services dated as of June 12, 2012, as amended, by and between
Kraton Shareholder and CTCI, and for the limited purpose set forth therein, FPCC
Shareholder, as amended, supplemented, modified, renewed or extended from time
to time by agreement of the parties thereto, and (ii) the Preliminary Letter of
Agreement Relating to Preliminary Engineering, dated as of September 23, 2011,
by and between FPCC Shareholder and CTCI, and, for the limited purpose set forth
therein, Kraton Shareholder, as amended, supplemented, modified, renewed or
extended from time to time by agreement of the parties thereto.

“Equipment” means all of the equipment, machinery, motors, turbines, fabricated
items and facilities required to operate the Plant.

“Event of Default” has the meaning set forth in Section 11.5.

“Execution Date” has the meaning set forth in the Preamble.

“Expert” has the meaning set forth in Section 5.1 of Appendix C.

“Expert Matters” has the meaning set forth in Section 5.2 of Appendix C.

“Fair Market Value” of any property, means, as of any date, the fair market
value of such property, as determined in good faith by the Board, or if the
Board is unable to agree on the fair market value of such property, as reflected
in an appraisal conducted by an internationally recognized independent valuation
consultant or appraiser of international standing reasonably satisfactory to the
parties.

 

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“FIA” has the meaning set forth in Section 2.3.

“First Party” has the meaning set forth in Section 4.11(b) of Appendix C.

“Fiscal Year” means, except for the limited purpose set forth in Section 1 of
Exhibit F, the calendar year January 1 through December 31.

“Force Majeure” means any occurrence, whether of the kind herein enumerated or
otherwise, that is not within the reasonable control of the Person claiming the
right to delay performance on account of such occurrence including, to the
extent that the foregoing standard is met, acts of God, acts of the public
enemy, acts of a Governmental Authority, insurrections, wars or war-like action
(whether actual and pending or expected), arrests or other restraints of
government (civil or military), blockades, embargoes, strikes, lock-outs, labor
unrest or disputes, unavailability of labor or materials, epidemics, landslides,
lightning, earthquakes, fires, hurricanes, storms, floods, wash-outs,
explosions, civil disturbance or disobedience, riot, sabotage, terrorism,
threats of sabotage or terrorism.

“Formation Date” has the meaning set forth in Section 1.1(c).

“Formation Expenses” has the meaning set forth in Section 2.8.

“FPCC Directors Representative” means any representative appointed to the Board
by FPCC Shareholder in its capacity as a Director of Project Company.

“FPCC Non-Compete Entities” has the meaning set forth in Section 9.1.

“FPCC Shareholder” has the meaning set forth in the Preamble.

“Framework Agreement” means the Framework Agreement, dated July 13, 2011, by and
between Kraton and FPCC Shareholder, whereby Kraton and FPCC Shareholder agreed
to form and jointly own Project Company, as amended.

“Funding Shareholder” has the meaning set forth in Section 2.4(a).

“Governmental Authority” means any foreign, federal, state or local governmental
entity, authority or agency, court, tribunal, regulatory commission or other
body, whether legislative, judicial or executive (or a combination or
permutation thereof) having jurisdiction as to the matter in question.

“Government Official” means and includes (i) any officer or employee of a
federal, regional or municipal government or any department, agency or
instrumentality thereof; (ii) any officer or employee of a state-owned entity;
(iii) any Person acting in an official capacity for or on behalf of a
government, any department, agency of instrumentality thereof, or any
state-owned entity; (iv) any officer or employee of a public international
organization; (v) any candidate for a political office; or (vi) any political
party or official thereof.

 

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“Ground Lease” means the Ground Lease dated as of the date hereof, by and
between FPCC Shareholder and Project Company, as amended, supplemented,
modified, renewed or extended from time to time by agreement of the parties
thereto.

“Hazardous Materials” means (a) any substance, emission or material, including
asbestos, now or hereafter defined as, listed as or specified in the laws of the
Republic of China as a “regulated substance,” “hazardous substance,” “toxic
substance,” “pesticide,” “hazardous waste,” “hazardous material” or any similar
or like classification or categorization under any Environmental Law including
by reason of ignitability, corrosivity, reactivity, carcinogenicity or
reproductive or other toxicity of any kind, (b) any products or substances
containing petroleum, asbestos or polychlorinated biphenyls or (c) any
substance, emission or material determined to be hazardous or harmful; provided
that Hazardous Materials shall exclude the feedstocks used to produce HSBC,
including butadiene and hydrogen, as well as HSBC or any other product produced
by the Plant.

“HSBC” means hydrogenated styrenic block copolymers and related products of the
type SEBS and SEPS.

“HSE Policy” means the health, safety and environmental policy of Project
Company included in Exhibit E to this Agreement.

“ICC” has the meaning set forth in Section 3.5 of Appendix C.

“ICC Centre” has the meaning set forth in Section 5.3(e) of Appendix C.

“ICC Rules” has the meaning set forth in Section 3.5 of Appendix C.

“IFRS” means the International Financial Reporting Standards of the
International Accounting Standards Board as adopted by the Republic of China as
in effect from time to time and applied by Project Company.

“Indemnified Party” has the meaning set forth in Section 7 of Appendix B.

“Indemnifying Party” has the meaning set forth in Section 7 of Appendix B.

“Independent Auditor” has the meaning set forth in Section 4.2.

“Intellectual Property” means all (a) patents, patent applications and statutory
invention registrations, (b) copyrights, including registrations and
applications for registration, (c) trade secrets, know-how and confidential or
proprietary information and (d) all other similar intellectual property rights
of any kind throughout the world.

“International Anti-Bribery Convention” has the meaning set forth in Section 2.1
of Appendix D.

“IRS” means United States Internal Revenue Service.

“Kraton” has the meaning set forth in Recital A.

 

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“Kraton Directors Representative” means any representative appointed to the
Board of Project Company by KP Investment in its capacity as a Director of
Project Company.

“Kraton Shareholder” has the meaning set forth in the Preamble.

“Liabilities” means any and all liabilities, obligations and commitments of any
nature whatsoever, whether based on common law or statute or arising under
written contract or otherwise, known or unknown, fixed or contingent, real or
potential, tangible or intangible, now existing or hereinafter arising.

“LIBOR” means the London Inter-Bank Offering Rate for a month as indicated in
the Telerate page 3750 at 11:00 a.m. (London time) on the first day of the
applicable period or, if commercial banks are not open for international
operations in London on such day, the rate on the next day on which banks in
London are open for international operations; provided that LIBOR shall be
adjusted on the 31st day of each applicable period to the then-current rate as
provided above.

“Lien” means any mortgage, lien, pledge, charge or security interest, any lien
for taxes or assessments, builder, mechanic, warehouseman, materialman,
contractor, workman, repairman or carrier lien or other similar liens.

“Liquidation Commencement Date” has the meaning set forth in Section 12.2(a).

“Losses” means all suits, actions, Liabilities, legal proceedings, claims,
demands, losses, costs and expenses of whatsoever kind or character, including
reasonable attorneys’ fees and expenses.

“Mailiao Industrial Park” means the Formosa Plastics Group Industrial Zone
located in Mailiao, Yun Lin County, Republic of China.

“Maintenance Agreement” means the Maintenance Agreement, dated as of the date
hereof, by and between Project Company and FPCC Shareholder, as the same may be
amended, supplemented, modified, renewed or extended from time to time by
agreement of the parties.

“Managers” has the meaning set forth in Section 7.2(b).

“Mandatory Expenses” means the following costs and expenses of Project Company:
(a) Taxes, insurance and utilities; (b) costs and expenses incurred in order to
comply with Applicable Laws, ordinances, rules and regulations of Governmental
and quasi-Governmental Authorities having jurisdiction over the Plant or Project
Company; (c) costs and expenses incurred to satisfy obligations under existing
contracts (including obligations under the Transaction Documents and with
respect to any debt financing); and (d) costs and expenses to address
emergencies involving an immediate danger to persons or property or required to
avoid suspension of necessary services to Project Company.

“MOBA” means the Manual of Business Authorities of Project Company.

“Monthly Business Report” has the meaning set forth in Section 8.3(a).

 

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“Multi-Party Arbitration” has the meaning set forth in Section 7.1 of Appendix
C.

“Net Income” has the meaning set forth in Section 1 of Exhibit F.

“Net Loss” has the meaning set forth in Section 1 of Exhibit F.

“Non-Conflicted Shareholder” has the meaning set forth in Section 6.7(b).

“Non-Funding Shareholder” has the meaning set forth in Section 2.4(a).

“Notice” has the meaning set forth in Section 4 of Appendix B.

“Notice of Dispute” has the meaning set forth in Section 2.2 of Appendix C.

“OFAC” has the meaning set forth in Section 3.5 of Appendix D.

“Offtake Agreement” means the Offtake Agreement, dated as of the date hereof, by
and between Project Company and Kraton Shareholder on behalf of it and its
Affiliates, as the same may be amended, supplemented, modified, renewed or
extended from time to time by agreement of the parties thereto.

“Operating Budget” has the meaning set forth in Section 8.2(c).

“Organizational Documents” means, with respect to any Person at any time, such
Person’s certificate or articles of incorporation, by-laws, memorandum and
articles of association, certificate of formation of limited liability company,
limited liability company agreement and other similar organizational or
constituent documents, as applicable, in effect at such time.

“Other Dispute” has the meaning set forth in Section 7.1 of Appendix C.

“Partner” has the meaning set forth in Section 1 of Exhibit F.

“Partner Nonrecourse Debt Minimum Gain” has the meaning set forth in Section 1
of Exhibit F.

“Partnership Interest” has the meaning set forth in Section 1 of Exhibit F.

“Partnership Minimum Gain” has the meaning set forth in Section 1 of Exhibit F.

“party” and “parties” means the signatories to this Agreement.

“Person” means any individual, firm, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, Governmental Authority or any other form of entity
or organization.

“Phase II expansion” has the meaning set forth in Section 9.2.

 

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“Plant” means the facility owned by Project Company that will be situated on the
Plant Site for the production of HSBC and related products.

“Plant Site” means the portion of the Mailiao Industrial Park, described in the
Ground Lease and on which the Plant will be located.

“Pledge” means to mortgage, pledge, encumber or create or suffer to exist any
Lien.

“Policies” means the Code of Ethics and Business Conduct Policy attached as
Exhibit E-1, the HSE Policy attached as Exhibit E-2, the MOBA attached as
Exhibit E-3 and each other policy adopted by the Board from time to time for
Project Company.

“Pre-Arbitral Referee Procedure” has the meaning set forth in Section 4.3 of
Appendix C.

“Pre-establishment Period” has the meaning set forth in Section 11 of Exhibit F.

“Preparatory Office” has the meaning set forth in Section 1.1(a).

“Preparatory Office Bank Account” has the meaning set forth in Section 1.1(a).

“Prohibited Person” has the meaning set forth in Section 3.5 of Appendix D.

“Project Company” has the meaning set forth in the Preamble.

“Project Company Indemnified Persons” shall mean Project Company, the
shareholders of Project Company, its respective successors, assigns, employees,
agents, shareholders, members, partners, other owners thereof, officers,
directors and Affiliates, and anyone else acting on behalf of Project Company.

“reasonable best efforts” means best efforts consistent with reasonable
commercial practice and without payment or incurrence of unreasonable expense or
the requirement to engage in litigation.

“Reevaluation Event” has the meaning set forth in Section 1 of Exhibit F.

“Registered Capital” means the registered capital of Project Company, as it may
be increased from time to time.

“Regulatory Allocations” has the meaning set forth in Section 5(a) of Exhibit F.

“Second Party” has the meaning set forth in Section 4.11(b) of Appendix C.

“Secondee” means any Person seconded to Project Company by Kraton Shareholder or
FPCC Shareholder in accordance with the Secondment Agreement.

“Secondment Agreement” means the Secondment Agreement, dated as of the date
hereof, 2012, by and between Project Company, FPCC Shareholder and Kraton
Shareholder, as amended, supplemented, modified, renewed or extended from time
to time by agreement of the parties.

 

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“Senior Representative” shall mean, with respect to FPCC Shareholder, a manager
of FPCC Shareholder and, with respect to Kraton Shareholder, an officer of a
parent entity of Kraton Shareholder, in each case who is not a Directors
Representative or who has decision-making authority with respect to Project
Company.

“Shareholder Financing Loan” has the meaning set forth in Section 2.5(b).

“Shareholder Funding Default Loan” has the meaning set forth in Section 2.4(a).

“Shareholder Registered Capital Loan” has the meaning set forth in
Section 2.5(a).

“Shareholders” has the meaning set forth in the Preamble.

“Subsidiary” of any Person means an Affiliate of such Person, all of the equity
interests of which are owned, directly or indirectly, by such Person.

“Tax Matters Partner” has the meaning set forth in Section 9 of Exhibit F.

“Tax Partnership” has the meaning set forth in Section 11 of Exhibit F.

“Taxes” means all taxes or similar charges, fees, levies or other assessments
imposed by any Governmental Authority, including income, gross receipts, excise,
property, sales, use, transfer, payroll, license, ad valorem, value added,
withholding, social security, national insurance (or other similar contributions
or payments), franchise, severance and stamp taxes (including any interest,
fines, penalties or additions attributable to, or imposed on or with respect to,
any such taxes, charges, fees, levies or other assessments).

“Technology License” means the Technology License Agreement, dated as of the
date hereof, by and between Kraton Shareholder and Project Company, as the same
may be amended, supplemented, modified, renewed or extended from time to time by
agreement of the parties thereto.

“Third Party” means any Person other than Kraton Shareholder, Project Company or
FPCC Shareholder or an Affiliate of any of them.

“Third Party Claim” has the meaning set forth in Section 7(b) of Appendix B.

“Third Party Loans” has the meaning set forth in Section 2.1.

“Transaction Documents” means each agreement executed and delivered in
connection with the transactions contemplated by this Agreement, including the
agreements listed in Appendix A-1 to this Agreement.

“Transfer” means to sell, assign or otherwise in any manner dispose of, whether
by act, deed, merger, consolidation, amalgamation, conversion or otherwise.

 

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“Treasury Regulations” has the meaning set forth in Section 1 of Exhibit F.

“United States” or “U.S.” means the United States of America.

“USBC” means unsaturated styrenic block copolymers and related products of the
type SBS, SIBS and SIS, but excluding those USBCs with styrene content above 60%
in weight.

“USBC Proposing Party” has the meaning set forth in Section 9.3.

“U.S. Anti-Bribery Laws” has the meaning set forth in Section 2.1 of Appendix D.

“U.S. GAAP” means United States generally accepted accounting principles, as in
effect from time to time and applied by Kraton or Project Company, as the
context so requires.

“U.S. Tax Advances” has the meaning set forth in Section 7 of Exhibit F.

“Wholly Owned Affiliate” means, as to any Person, an Affiliate of such Person,
all of the equity interests of which are owned, directly or indirectly, by
another Wholly Owned Affiliate of such Person or by the ultimate parent entity
thereof.

 

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APPENDIX A-1

Transaction Documents

 

1. Confidential Disclosure Agreement, dated as of the date hereof, by and among
Project Company, Kraton Shareholder and FPCC Shareholder

 

2. Shareholder Agreement, dated as of the date hereof, by and between Kraton
Shareholder and FPCC Shareholder

 

3. Project Support Services Agreement, dated as of the date hereof, by and among
Project Company, FPCC Shareholder and Kraton Shareholder

 

4. Maintenance Agreement, dated as of the date hereof, by and between FPCC
Shareholder and Project Company

 

5. FPCC Services Agreement, dated as of the date hereof, by and between FPCC
Shareholder and Project Company

 

6. Process and Product Technology License Agreement, dated as of the date
hereof, by and between Kraton Shareholder and Project Company

 

7. Basic Design Engineering Package Agreement, dated as of the date hereof, by
and between Kraton Shareholder and Project Company

 

8. Private Label Trademark License Agreement, dated as of the date hereof, by
and between Kraton Shareholder and Project Company

 

9. Technical Services Agreement, dated as of the date hereof, by and between
Kraton Shareholder and Project Company

 

10. Offtake Agreement, dated as of the date hereof, by and between Kraton
Shareholder and Project Company

 

11. Butadiene Feedstock Supply Agreement, dated as of the date hereof, by and
between FPCC Shareholder and Project Company

 

12. Hydrogen Supply Agreement, dated as of the date hereof, by and between FPCC
Shareholder and Project Company

 

13. Isoprene Supply Agreement, dated as of the date hereof, by and between FPCC
Shareholder and Project Company

 

14. Ground Lease, dated as of the date hereof, by and between FPCC Shareholder
and Project Company

 

15. Sublease of the Office Lease, dated as of the date hereof, between Kraton
Shareholder and Project Company

 

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16. Secondment Agreement, dated as of the date hereof, by and among Kraton
Shareholder, FPCC Shareholder and Project Company

 

17. Performance Guaranty Agreement, dated as of the date hereof, by and between
Kraton Shareholder and Project Company

 

18. Guaranty Agreement, dated as of the date hereof, by and among Kraton
Polymers LLC, Project Company and FPCC Shareholder

 

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APPENDIX B

General Provisions

Section 1. Agreement Interpretation. In construing this Agreement: (a) no
consideration shall be given to the captions of the articles, sections,
subsections or clauses, which are inserted for convenience in locating the
provisions of this Agreement and not as an aid to construction and shall not be
interpreted to limit or otherwise affect the provisions of this Agreement or the
rights and other legal relations of the parties hereto; (b) no consideration
shall be given to the fact or presumption that either party had a greater or
lesser hand in drafting this Agreement; (c) examples shall not be construed to
limit, expressly or by implication, the matter they illustrate; (d) the word
“includes” and its syntactic variants mean, unless otherwise specified,
“includes, but is not limited to” and corresponding syntactic variant
expressions; (e) words such as “herein,” “hereby,” “hereafter,” “hereof,”
“hereto” and “hereunder” refer to this Agreement as a whole and not to any
particular article, section or provision of this Agreement; (f) whenever the
context requires, the plural shall be deemed to include the singular, and vice
versa; (g) each gender shall be deemed to include the other gender, when such
construction is appropriate; (h) all of the Appendices, Exhibits and Schedules
referred to in this Agreement are part of this Agreement and each Appendix,
Exhibit and Schedule is hereby incorporated into the body of the Agreement as if
set forth in full therein; (i) references to a Person are also to its permitted
successors and permitted assigns; (j) all references in this Agreement to
Appendices, Exhibits, Schedules, Articles and Sections refer to the
corresponding Appendices, Exhibits, Schedules, Articles and Sections of this
Agreement unless expressly provided otherwise; (k) unless expressly stated
otherwise, the word “or” is not exclusive; (l) all references to “US$” or
“Dollars” means United States Dollars, and all references to “NT$” means New
Taiwan Dollars; and (m) unless otherwise expressly provided herein, any
agreement, instrument or Applicable Law defined or referred to herein means such
agreement, instrument or Applicable Law as from time to time amended, modified
or supplemented, including (in the case of agreements or instruments) by waiver
or consent and (in the case of Applicable Laws) by succession of comparable
successor Applicable Laws and reference to all attachments thereto and
instruments incorporated therein.

Section 2. Negotiation and Preparation Costs. Each party shall bear the costs
and expenses incurred by it in connection with the negotiation, preparation and
execution of this Agreement and other documents referred to herein.

Section 3. Representations and Warranties. Each party hereby represents and
warrants that each of the following statements is true, accurate and not
misleading as of the date of execution and the date of ratification of this
Agreement:

(a) Organization and Authority. It has been duly organized and is validly
existing and in good standing under the laws of its jurisdiction of
organization, with all necessary power and authority to enter into, deliver and
perform all its obligations under this Agreement.

(b) Due Authorization; Enforceability. This Agreement has been duly authorized
and constitutes the legal, valid, and binding obligations of it, enforceable
against it in accordance with its terms. It has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement and
to perform its obligations under this Agreement.

 

Appendix B-1

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(c) No Conflict. Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated by this
Agreement will, directly or indirectly (with or without notice or lapse of time)
(1) contravene, conflict with, or result in a violation of (i) any provision of
its Organizational Documents or (ii) any resolutions adopted by its board of
directors or its stockholders or (2) contravene, conflict with, or result in a
violation of, or give any Governmental Authority or other Person the right to
challenge any of the transactions contemplated by this Agreement or to exercise
any remedy or obtain any relief under any Applicable Law or any order to which
it or its Affiliates may be subject.

(d) Consents and Notices. It is not required to give any notice to or obtain any
approval, consent, ratification, waiver or other authorization of any Person
(including any Authorization) in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the transactions
contemplated by this Agreement.

Section 4. Notices. Wherever provision is made for the giving or issuance of any
notice, instruction, consent, approval, certificate or determination by any
Person (each, a “Notice”), unless otherwise specified, such communication shall
be in writing and shall not be unreasonably withheld or delayed. All Notices
shall be given to a party at the physical address or facsimile number specified
on Schedule 1 to this Agreement or as such party shall at any time otherwise
specify by like notice to each other party to this Agreement. Each such Notice
shall be effective (a) if given by facsimile, at the time such appropriate
confirmation of receipt is received by the sender (or, if such time is not
during regular business hours of a Business Day, at the beginning of the next
such Business Day), and (b) if given by mail or courier, upon receipt or refusal
of service at the address specified for each party on Schedule 1 to this
Agreement.

Section 5. Specific Performance. The parties acknowledge and agree that in the
event of an actual or threatened breach of the covenants and agreements of the
parties set forth in this Agreement, or due to the length of time required to
resolve a dispute pursuant to the dispute resolution procedures applicable to
this Agreement, monetary damages may be inadequate to fully remedy the actual or
threatened injury. Therefore, without limiting any other remedy available under
equity, at law, under this Agreement or pursuant to the dispute resolution
procedures applicable to this Agreement, all parties expressly agree that an
injunction, restraining order, specific performance and other forms of equitable
relief shall be available to the non-breaching party, and the breaching party
shall not claim as a defense thereto that there is an adequate remedy at law or
through the dispute resolution process. The party seeking an injunction,
retraining order, specific performance or other equitable relief shall not be
required to post a bond unless required by Applicable Law.

Section 6. No Consequential or Special Damages. Except as otherwise expressly
provided in this Agreement, no party nor any of its Affiliates shall be liable
under this Agreement or under any other document entered into or otherwise for
lost profits or exemplary, special, punitive, indirect, remote, speculative or
consequential damages (including lost profits, opportunity costs or damages
based upon multiples of earnings or other financial or operational measures),
whether in tort (including negligence or gross negligence), strict liability, by
contract or statute, and whether foreseeable or unforeseeable.

 

Appendix B-2

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Section 7. Indemnification Procedures. All claims for indemnification under this
Agreement shall be asserted and resolved as follows:

(a) For purposes of this Section 7, the term “Indemnifying Party” when used in
connection with particular Losses shall mean the party or parties having an
obligation to indemnify another party or parties with respect to such Losses
pursuant to this Section 7, and the term “Indemnified Party” when used in
connection with particular Losses shall mean the party or parties having the
right to be indemnified with respect to such Losses by another party or parties
pursuant to this Agreement.

(b) To make a claim for indemnification hereunder, an Indemnified Party shall
notify the Indemnifying Party of its claim, including the specific details of
and specific basis under this Agreement for its claim (the “Claim Notice”). In
the event that the claim for indemnification is based upon a claim by a Third
Party against the Indemnified Party (a “Third Party Claim”), the Indemnified
Party shall provide its Claim Notice promptly after the Indemnified Party has
actual knowledge of the Third Party Claim and shall include reasonable details
regarding the Third Party Claim; provided that the failure of any Indemnified
Party to give notice of a Third Party Claim as provided in this Section 7
(b) shall not relieve the Indemnifying Party of its obligations hereunder except
to the extent such failure results in insufficient time being available to
permit the Indemnifying Party to effectively defend against the Third Party
Claim or otherwise prejudices the Indemnifying Party’s ability to defend against
the Third Party Claim.

(c) In the case of a claim for indemnification based upon a Third Party Claim,
the Indemnifying Party shall have 30 days from its receipt of the Claim Notice
to notify the Indemnified Party whether it admits or denies its liability to
defend the Indemnified Party against such Third Party Claim at the sole cost and
expense of the Indemnifying Party. The Indemnified Party is authorized, prior to
and during such 30-day period, to file any motion, answer or other pleading that
is reasonably necessary to protect its interests or those of the Indemnifying
Party and that is not prejudicial to the Indemnifying Party; provided that if an
Indemnified Party takes any such action that is materially prejudicial and
causes a final adjudication that is adverse to the Indemnifying Party, the
Indemnifying Party shall be relieved of its obligations hereunder with respect
to such Third Party Claim to the extent the Indemnifying Party was so prejudiced
and harmed.

(d) If the Indemnifying Party admits its liability, it shall have the right and
obligation to diligently defend, at its sole cost and expense, the Third Party
Claim. The Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof subject to the
remainder of this Section 7 (d). If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate in contesting any Third Party Claim which
the Indemnifying Party elects to contest. The Indemnified Party may participate
in, but not control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this Section 7 (d), and shall
bear its own costs with respect thereto. Notwithstanding the foregoing, without
the express written consent of the Indemnified Party, the Indemnifying Party may
not agree to any compromise or settlement which would require any action other
than the payment of money that shall be fully paid by the Indemnifying Party.

 

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(e) If the Indemnifying Party does not admit its liability or admits its
liability but fails to diligently prosecute or settle the Third Party Claim,
then the Indemnified Party shall have the right to diligently defend against the
Third Party Claim at the sole cost and expense of the Indemnifying Party (if the
Indemnifying Party is entitled to indemnification hereunder), with counsel of
the Indemnified Party’s choosing; provided that the Indemnified Party shall not
settle a Third Party Claim without the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Section 7
and if such dispute is resolved (by agreement or through the dispute resolution
procedures in this Agreement) in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party’s defense pursuant to this Section 7 (e) or of the
Indemnifying Party’s participation therein at the Indemnified Party’s request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for all
costs and expenses of such litigation.

(f) In the case of a claim for indemnification not based upon a Third Party
Claim, the Indemnifying Party shall have 60 days from its receipt of the Claim
Notice to (i) cure the Losses that are the subject of such Claim Notice to the
reasonable satisfaction of the Indemnified Party, (ii) admit its liability for
such Loss or (iii) dispute the claim for such Losses.

(g) The amount of any Losses for which an Indemnified Party is entitled to
indemnification under this Agreement shall be reduced by any corresponding net
tax benefit or insurance proceeds realized by such Indemnified Party or its
Affiliates from Third Party insurers with respect to such Losses (net of any
collection costs, and excluding the proceeds of any insurance policy
underwritten by the Indemnified Party or its Affiliates). Each Indemnified Party
agrees that it shall pursue in good faith all claims under any applicable
insurance policies and against other Persons (including its Affiliates) that may
be responsible for any Losses. The Indemnified Party shall take all reasonable
steps to mitigate damages in respect of any claim for which it is seeking
indemnification and shall use commercially reasonable efforts to avoid any costs
or expenses associated with such claim and, if such costs and expenses cannot be
avoided, to use commercially reasonable efforts to minimize the amount thereof.

Section 8. Complete Agreement; Disclaimer. This Agreement together with each
other Transaction Document to which the parties are signatory, taken together,
constitute the entire agreement of the parties relating to the subject matter of
this Agreement and supersede all prior contracts, agreements or understandings
with respect to the subject matter hereof and thereof, both oral or written.
EACH PARTY AGREES THAT (A) THE OTHER PARTY (AND THEIR AGENTS AND
REPRESENTATIVES) HAS NOT MADE ANY REPRESENTATION, WARRANTY, COVENANT OR
AGREEMENT TO OR WITH SUCH PARTY RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF OTHER THAN AS REDUCED IN WRITING IN THIS AGREEMENT OR IN ANOTHER
EXECUTED AND DELIVERED TRANSACTION DOCUMENT, AND (B) SUCH PARTY

 

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HAS NOT RELIED UPON ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT TO OR
WITH THE OTHER PARTY RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF, OTHER
THAN THOSE REDUCED IN WRITING IN THIS AGREEMENT OR IN ANOTHER EXECUTED AND
DELIVERED TRANSACTION DOCUMENT.

Section 9. Public Announcements. No party shall, except as required by
Applicable Law or the rules of any recognized national stock exchange, cause any
public announcement to be made regarding this Agreement. In the event that a
party shall be required to cause such a public announcement to be made pursuant
to any Applicable Law or the rules of any recognized national stock exchange, it
shall use commercially reasonable efforts to provide the other party at least
two Business Day’s prior written notice of such announcement.

Section 10. Time is of the Essence; Performance Extended to Next Business Day.
Time is of the essence in each and every provision of this Agreement.
Notwithstanding any deadline for payment, performance, notice or election under
this Agreement, if such deadline falls on a date that is not a Business Day,
then the deadline for such payment, performance, notice or election will be
extended to the next succeeding Business Day.

Section 11. Assignment. This Agreement shall bind and enure to the benefit of
the parties, their respective successors and permitted assigns. Except as
expressly otherwise provided in this Agreement, no party may assign or transfer
its interest and/or obligations herein without the prior written consent of the
other party, which may be withheld in such party’s sole discretion.

Section 12. Amendment. This Agreement may not be amended, modified or altered
except by an instrument in writing signed on behalf of each party.

Section 13. Severability. In the event that any provision of this Agreement is
held to be unenforceable or invalid by any court of competent jurisdiction, the
parties shall negotiate an equitable adjustment to the provisions of this
Agreement with a view to effecting, to the extent possible, the original purpose
and intent of this Agreement, and the validity and enforceability of the
remaining provisions shall not be affected thereby.

Section 14. Waiver; Cumulative Rights and Remedies. Any of the terms, covenants,
representations, warranties or conditions hereof may be waived only by a written
instrument executed by or on behalf of the party waiving compliance. The failure
of a party at any time to strictly enforce any provision of this Agreement shall
in no way affect its right thereafter to require performance thereof, nor shall
the waiver of any breach of any provision of this Agreement be taken or held to
be a waiver of any succeeding breach of any such provision or as a waiver of the
provision itself. Unless otherwise specified herein, the rights and remedies
provided in this Agreement are cumulative and the exercise of any one right or
remedy by any party shall not preclude or waive its right to exercise any or all
other rights or remedies.

Section 15. Interest Calculation. Except as otherwise expressly provided in this
Agreement, interest shall accrue on any unpaid and outstanding amount from the
time such amount is due and payable through the date upon which such amount,
together with accrued interest thereon, is paid in full. Interest shall accrue
at a per annum rate equal to the Default Rate, compounded quarterly.

 

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Section 16. Further Assurances. From time to time, each party agrees to promptly
execute and deliver such additional documents, and will provide such additional
information and assistance, as any party may reasonably require to effect the
terms of this Agreement and to accomplish the Project.

Section 17. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement to which no party shall be bound
until all parties have executed a counterpart. Signatures transmitted by
facsimile or as emailed PDF copies shall be binding as originals so long as the
Agreement is transmitted in its entirety, and each party hereby waives any
defenses to the enforcement of the terms of this Agreement sent by facsimile or
emailed PDF based upon the manner of transmission or form of signature
(electronic, facsimile or “ink original”).

 

Appendix B-6

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APPENDIX C

Dispute Resolution Procedures

Section 1. [Reserved]

Section 2. Generally; Notice of Dispute and Response.

2.1 The parties shall resolve all disputes, controversies and claims arising out
of, relating to or in connection with this Agreement or the operations carried
out under this Agreement, including the construction, existence, validity,
enforceability, enforcement, breach and termination of this Agreement (a
“Dispute”), exclusively in accordance with this Appendix C.

2.2 Either party may notify the other party in writing of any Dispute (a “Notice
of Dispute”). Such Notice of Dispute shall (a) specify the nature of such
Dispute, (b) include a statement of such party’s position with regard to such
Dispute and (c) identify whether such Dispute is an Expert Matter.

Section 3. Settlement of Disputes by Negotiation.

3.1 Within five Business Days after the receipt by a party of a Notice of
Dispute, the parties shall schedule a meeting to be held at a place as the
parties may mutually agree. Such meeting shall be held within 10 Business Days
after the receipt by a party of a Notice of Dispute, and may be held by video
conference or telephone conference. The meeting shall be attended by senior
management level personnel of each of the parties who have not previously been
directly engaged in asserting or responding to such Dispute. Such persons shall
attempt in good faith and a commercially reasonable manner to negotiate a
resolution of such Dispute, which negotiations may entail the involvement of,
and meetings attended by, additional senior management level personnel senior to
such persons.

3.2 If such senior management level personnel shall not have negotiated a
resolution to such Dispute within 60 days after such Notice of Dispute was
delivered, then the Chief Executive Officer, or a senior executive officer
designated by the Chief Executive Officer (or equivalent) with full
decision-making authority with respect to such Dispute and the dispute
resolution process, of each ultimate parent company of each of the parties shall
meet at a mutually agreed location, and such Persons shall attempt in good faith
and a commercially reasonable manner to negotiate a resolution of such Dispute
before these procedures may be deemed to have been exhausted.

3.3 If such Dispute is resolved pursuant to Section 3.1 or 3.2 of this Appendix
C, one or more parties shall be directed (in as comprehensive detail as
reasonably practicable) to take the actions necessary to carry out such
resolution. Each party shall have a commercially reasonable time in which to
take such actions.

3.4 All negotiations pursuant to Sections 3.1 through 3.3 of this Appendix C,
including any Notice of Dispute, shall be confidential and shall be treated as
compromise and settlement negotiations, and no oral or documentary
representations made by either party during such negotiations shall be
admissible for any purpose in any subsequent proceedings.

 

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3.5 If any Dispute is not resolved following negotiation pursuant to Sections
3.1 through 3.3 of this Appendix C, the parties shall submit the matter to
settlement proceedings under the ADR Rules of the International Chamber of
Commerce (the “ICC”) in force as from 1 July 2001 (the “ICC Rules”) or, if such
ICC Rules are no longer in force, such rules of the ICC that replaced the ICC
Rules, or if no such rules exist, as agreed by the parties.

Section 4. Resolution of Disputes by Arbitration.

4.1 ICC Rules Apply. Except in the case of an Expert Matter or as provided in
Section 4.2 of this Appendix C, if any Dispute has not been settled pursuant to
Section 3 of this Appendix C within 60 days following the filing by a party of a
Request for ADR under the ICC Rules (or within such other period as the parties
may agree in writing), such Dispute shall be finally settled under the ICC Rules
by three arbitrators appointed in accordance with the ICC Rules (an “Arbitral
Tribunal”), which arbitration shall be administered by the ICC. Each arbitrator
shall be fluent in the English language. To the extent that the ICC Rules are in
conflict with any provision of this Section 4, the provisions of this Section 4
shall prevail.

4.2 Disputes Before Sole Arbitrator. A Dispute shall be referred to a sole
arbitrator if (a) the amount in dispute (representing the aggregate of the
claim, counterclaim and any set-off defense) does not exceed US$5,000,000,
(b) the parties so agree or (c) it is a case of exceptional urgency. In such
case, the award shall be made within six months after the date on which the sole
arbitrator is appointed; provided that such time limit may be extended if
(i) the parties agree or (ii) the sole arbitrator or the International Court of
Arbitration of the ICC determine that the interest of justice so requires. The
sole arbitrator shall use his best efforts to issue the award within such time
period. Failure to adhere to such time limit shall not be a basis for
challenging the award.

4.3 Pre-Arbitral Referee Procedure. Each party shall have the right to have
recourse to, and shall be bound by, the pre-arbitral referee procedure of the
ICC in accordance with its 1990 Rules for a Pre-Arbitral Referee Procedure (the
“Pre-Arbitral Referee Procedure”).

4.4 Place of Arbitration. The place of arbitration shall be Singapore or at such
other place as the parties shall mutually agree in writing.

4.5 Language. The arbitration proceedings shall be conducted in the English
language (provided that any person participating in the arbitration may speak
through a translator) and all written submissions, awards and the reasons
supporting them shall be in English. Any materials submitted in a language other
than English shall be accompanied by a certified English translation.

4.6 Performance Not Suspended. Subject to any provision of this Agreement to the
contrary and any provisional order to the contrary, each party shall continue to
perform its obligations under this Agreement during the continuation of the
resolution of any Dispute pursuant to this Section 4.

 

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4.7 Costs of Arbitration. Each party shall, in the first instance, bear its own
costs and fees of, and occasioned by, the arbitration (including attorneys’
fees) and shall share the advance on costs and fees in such proportion as shall
be provisionally determined by the ICC. Thereafter, the parties’ costs and the
costs of the arbitration (including attorneys’ fees and other arbitration costs
of a party) shall be borne in the manner determined by the relevant Arbitral
Tribunal. In the absence of any such determination by such Arbitral Tribunal,
the situation as in the first instance shall continue.

4.8 Waiver. Resolution of a Dispute by arbitration is final, and each party
hereby waives any right of appeal to any court or tribunal of competent
jurisdiction to the fullest extent permitted by the Applicable Law; provided
that all parties retain whatever rights they may have to challenge the
enforcement of any decision or award under the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (1958), the applicable
articles of the ROC Code of Civil Procedure and arbitration law of the Republic
of China.

4.9 Authority of Arbitral Tribunals. Each Arbitral Tribunal shall have full
authority to award any remedy or relief proposed by any party, including
damages, set-offs and equitable relief, such as a declaratory judgment, specific
performance of any obligation created under this Agreement, the issuance of an
injunction, requiring the furnishing of security or guarantees and requiring the
preservation of any thing or right under the control of a party, and awarding
damages for the failure of any party to respect an Arbitral Tribunal’s orders to
that effect; provided that each Arbitral Tribunal is prohibited from awarding
punitive or exemplary damages.

4.10 The Award. The award shall be in writing and shall state the reasons
supporting the award. The arbitrators shall make the award and any other
decisions or rulings strictly according to the Applicable Law and not ex aequo
et bono or as amiable compositeur, and shall not decide such Dispute by
reference to any other doctrine or practice that would permit them to avoid this
Agreement or the Applicable Law of this Appendix C.

4.11 Monetary Awards.

(a) Any monetary award shall be made in Dollars and shall be payable free of any
Tax, withholding, deduction or offset. If a party is required to withhold or
otherwise account for any such Tax, withholding, deduction or offset, such party
shall:

(i) pay and bear such Tax, withholding, deduction or offset; and

(ii) ensure that the other party receives an amount equal to the amount of such
award without deduction for any such Tax, withholding, deduction or offset.

(b) If a party (the “First Party”) makes a Tax deduction in respect of a
monetary award payment to the other party (the “Second Party”) and a
corresponding Tax payment to any taxing authority or Governmental Authority and
the Second Party has obtained a refund of such Tax payment, or used such Tax
payment as a credit against its Tax liabilities, then the Second Party shall
reimburse the First Party the amount of such Tax payment as will leave the
Second Party (after such reimbursement) in no better or worse position than it
would have been in had no Tax payment been required.

 

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(c) An Arbitral Tribunal shall include pre-award and post-award interest
(including compound interest) at commercial rates from the date of any breach
until the date such award is paid in full, including interest due. Any costs,
expenses and fees incident to enforcing any award (including attorney’s fees)
shall, to the maximum extent permitted by the Applicable Law, be charged against
the party against whom such enforcement is sought.

4.12 Privileges. Legal professional privilege, including privileges protecting
attorney-client communications and attorney work product of each party from
compelled disclosure or use in evidence, as recognized by the law governing each
party’s relationship with its counsel, shall apply to and be binding in any
arbitration proceeding conducted under this Section 4.

4.13 Confidentiality. Each party shall ensure that it and its shareholders and
Affiliates and their respective Affiliates, officers, directors, employees,
counsel, consultants and expert witnesses of any thereof and the Arbitral
Tribunal, shall maintain as confidential the fact of any proceedings described
in this Appendix C, including arbitration proceedings, the arbitral award, the
Pre-Arbitral Referee Procedure, any settlement agreement or order, filings or
submissions exchanged or produced during any such proceedings and briefs or
other documents prepared in connection with such proceedings, except:

(i) to the extent necessary to enforce this Section 4 or any arbitral award;

(ii) to enforce other rights of the parties hereunder;

(iii) pursuant to an order of or a subpoena issued by a court of competent
jurisdiction;

(iv) as required by Applicable Law;

(v) as required by the rules of any stock exchange on which the shares of any
party or any shareholder or Affiliate thereof (or any Affiliate of any of the
foregoing) are listed or are in the process of being listed; or

(vi) pursuant to an order in connection with the Pre-Arbitral Referee Procedures
with proper notice to the parties and other relevant Persons and tribunals.

4.14 Submission to Jurisdiction; Interim and Other Relief. Each party hereby
submits to the exclusive jurisdiction of the English (the “Country of
Jurisdiction”) courts in any action, suit or proceeding with respect to the
enforcement of the agreement to arbitrate in this Section 4 and the
non-exclusive jurisdiction of such courts with respect to the enforcement of any
award thereunder. On or prior to the execution and delivery of this Appendix C,
each party shall have (a) appointed an agent to accept, on its behalf, service
of process in the Country of Jurisdiction and (b) received evidence of such
agent’s acceptance of such appointment for the term of this Agreement. Each
party agrees not to plead or claim in any Country of Jurisdiction

 

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court that any such action or proceeding has been brought in an inconvenient
forum. Each party agrees that the Country of Jurisdiction courts shall have the
power to provide any necessary interim relief prior to the formation of an
Arbitral Tribunal. In addition, any party to the arbitration may apply to any
court of competent jurisdiction for:

(i) a provisional or conservatory order, including a preliminary injunction, in
aid of the arbitration proceeding before the appointment of the arbitrators is
completed; and

(ii) an order of enforcement of provisional remedies granted by an Arbitral
Tribunal,

and an application for such an order shall not be deemed a violation or waiver
of this Agreement. The parties waive, to the fullest extent permitted by
Applicable Laws, any other right to apply to any court of competent jurisdiction
for provisional remedies, whether under Article 23 of the ICC Rules (or any
successor rule) or otherwise.

Section 5. Resolution of Disputes by an Expert.

5.1 Use of an Expert. Whenever a Dispute arises that involves an Expert Matter,
such Dispute shall be exclusively resolved by an expert appointed as described
in this Section 5 (an “Expert”) in accordance with the procedures set forth in
this Section 5.

5.2 Expert Matters. The following matters (“Expert Matters”) shall be determined
by an Expert:

(a) the failure of the parties to agree on a replacement index or similar
reference;

(b) the interpretation of test data and the results thereof;

(c) the causation of Equipment failure; and

(d) such other matters as the parties may agree;

provided that Expert Matters shall not include a determination of the
consequences of any of the foregoing under the terms of this Agreement.

5.3 Appointment of an Expert.

 

  (a) An Expert:

(i) may be a Person;

(ii) shall be generally recognized as an expert in a field of expertise relevant
to such Dispute that is the subject of the determination;

(iii) shall not be a current or former employee or agent of either party or any
of its shareholders or Affiliates or any of their respective Affiliates; and

 

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(iv) shall not have any conflict of interest.

(b) If a Notice of Dispute indicates that such Dispute involves an Expert
Matter, the party receiving such Notice of Dispute shall, within 30 days after
receipt of such Notice of Dispute, agree or deny that such Dispute is an Expert
Matter. If a Notice of Dispute does not indicate that it involves an Expert
Matter, but the party receiving such Notice of Dispute believes that such
Dispute involves an Expert Matter and wants to have it resolved by an Expert
pursuant to this Section 5, such party shall, within 30 days after receipt of
the Notice of Dispute, send a notice to the other party stating that it believes
that such Dispute involves an Expert Matter and wants to have it resolved by an
Expert. Within 14 days after receipt by the other party of such notice, such
other party shall agree or deny in writing that such Dispute is an Expert
Matter.

(c) If the parties cannot agree that a Dispute is an Expert Matter, an Arbitral
Tribunal shall determine whether such Dispute is an Expert Matter in accordance
with the procedures set forth in Section 4 of this Appendix C. If such Arbitral
Tribunal determines that such Dispute:

(i) is an Expert Matter, such Dispute shall be resolved pursuant to this
Section 5; or

(ii) is not an Expert Matter, such Dispute shall be resolved pursuant to
arbitration in accordance with Section 4 of this Appendix C.

(d) The party that does not prevail in this determination of whether such
Dispute is an Expert Matter shall bear all of the costs of such arbitration, the
arbitrators’ fees and the parties’ attorneys’ fees through the date of that
determination by such Arbitral Tribunal.

(e) For purposes of selecting an Expert, each party shall create a list of up to
three proposed Experts, including the credentials of each nominee, and provide a
copy thereof to the other party within 30 days after either (i) the parties’
agreement that such Dispute is an Expert Matter or (ii) the determination of an
Arbitral Tribunal that such Dispute is an Expert Matter. If the parties are
unable to select a mutually agreeable Expert from among the proposed Experts
within 10 Business Days after the exchange of lists, either party may request
the ICC International Centre for Expertise (the “ICC Centre”) to make the
selection of the Expert in accordance with the provisions for appointment of
experts under the ICC’s Rules for Expertise. The ICC Centre shall make the
selection as promptly as possible and may take such independent advice as it
deems fit.

5.4 Acceptance of the Appointment. Upon a Person being agreed or selected as
aforesaid to function as an Expert, the parties shall forthwith notify such
Person in writing of such selection and the determination being sought, and
shall request, inter alia, a covenant that such Expert will not during the term
of the appointment accept any duty or acquire or agree to acquire any interest
that materially conflicts with or might materially conflict with such Expert’s
function under such appointment. The parties shall request the selected Person
to confirm, within 10 Business Days, acceptance of the appointment as Expert on
the terms proposed and to disclose any existing interest or duty that conflicts
or may conflict with such Person’s function as Expert under such appointment.

 

Appendix C-6

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5.5 Appointment in Default. If the selected Person shall either be unwilling or
unable to accept such appointment as Expert on the terms proposed or shall not
have confirmed acceptance of such appointment within the 10-Business Day period
specified in Section 5.4 of this Appendix C, then, unless the parties are able
to agree within 15 Business Days after receiving notification thereof upon
(a) different terms with such Person from those previously proposed or (b) the
selection of a different Expert, then the matter shall be referred to the ICC
Centre in accordance with Section 5.3(e) of this Appendix C, which shall be
requested to make an appointment or (as the case may be) a further appointment
and the process shall be repeated until a person is found who accepts the
appointment as Expert.

5.6 Confidentiality. It shall be a requirement of each Expert’s appointment that
such Expert shall enter into a confidentiality undertaking with the parties
governing the matter in dispute.

5.7 Procedure.

(a) After consulting with the parties, an Expert shall establish the procedures
to be applied, including the timing and number of written submissions, the
timing and nature of any oral hearings, and the circumstances governing any
presentation of evidence or witnesses; provided that there shall be no ex parte
communications or proceedings.

(b) In making any determination, an Expert shall consider the information
provided by the parties and shall conduct any further reasonable investigations
as are necessary and appropriate in light of the surrounding facts and
circumstances. If an Expert conducts any such investigation, it shall notify
each party thereof and each party shall have a reasonable opportunity to address
such investigation. An Expert may, at any time prior to making a determination,
request clarification or further information from the parties.

(c) An Expert shall be entitled to obtain such independent professional,
secretarial and/or technical advice and assistance as may be reasonably
required.

(d) The Expert determination process, both written and oral, shall be conducted
in the English language.

5.8 Time for Rendering an Expert Determination.

(a) An Expert shall render a determination within 180 days following its
acceptance of appointment pursuant to Section 5.4 or 5.5 of this Appendix C.
Such period of 180 days may be extended by agreement of the parties, which
agreement shall not be unreasonably withheld.

 

Appendix C-7

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(b) If an Expert does not render a determination within the relevant time period
specified in Section 5.8(a) of this Appendix C, then:

(i) the parties may agree to extend such deadline; or

(ii) if the parties cannot agree on an extension, another Expert shall be
appointed pursuant to the procedure described in this Section 5 and, on
acceptance of such appointment by the new Expert, the appointment of the
original Expert shall cease; provided that if the previous Expert shall have
rendered a decision prior to the new Expert’s entering into a contract of
appointment, then (A) such decision of such previous Expert shall (subject
always to Section 5.9 of this Appendix C) be binding upon the parties and
(B) the parties shall withdraw instructions (if any) previously extended to the
new Expert.

5.9 Final and Binding Determination. An Expert’s determination shall be in
writing and shall be final and binding on the parties and shall not be subject
to challenge except in the event of:

(i) fraud;

(ii) failure by such Expert to disclose any relevant conflicting interest or
duty;

(iii) breach by such Expert of the covenant specified in Section 5.4 of this
Appendix C;

(iv) the challenging party being denied due process;

(v) the selection of such Expert or the procedure followed by such Expert was
not in accordance with this Section 5; or

(vi) the recognition or enforcement of such determination would be contrary to
the public policy of the Country of Jurisdiction.

5.10 Costs of an Expert Determination. Each party shall bear its own costs and
expenses with respect to any Expert determination. The costs and expenses of an
Expert, including an Expert’s secretarial and administrative costs and expenses,
any independent advisors to such Expert retained by such Expert in connection
with a determination and any costs of such Expert’s appointment if such Expert
is appointed by the ICC Centre, shall be borne equally by each party.

5.11 General. An Expert shall not be deemed to be an arbitrator or mediator but
shall render its determination as an expert.

5.12 Failure to Comply with an Expert Determination. Each party shall comply
with an Expert’s determination. If a party fails to comply with such
determination, the other party may initiate arbitral proceedings pursuant to
Section 4 of this Appendix C; provided that the arbitral proceedings shall be
limited to reviewing the Expert’s determination for the considerations set forth
in Section 5.9 of this Appendix C. The determination of the Arbitral Tribunal
shall be an arbitral award for all purposes, including enforcement.

 

Appendix C-8

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Section 6. Consolidation of Disputes Under this Agreement.

6.1 If, with regard to two or more Disputes arising out of or in connection with
this Agreement, (a) the subject matters of such Disputes involve common
questions of law or fact or (b) the independent resolution of each such Dispute
could result in conflicting awards or obligations, such Disputes may be
consolidated in a single proceeding in accordance with the ICC Rules. If such
arbitrations are consolidated and more than one Arbitral Tribunal has already
been established, the first Arbitral Tribunal so established shall serve as the
Arbitral Tribunal for the consolidated arbitration.

6.2 Within 30 days following any final decision by such Arbitral Tribunal that
such proceedings should be consolidated, each party shall withdraw or move to
dismiss any proceeding to which it is a party that will be resolved in such
consolidated arbitration.

6.3 Notwithstanding anything in this Section 6 to the contrary, no arbitration
proceeding may be consolidated (or dismissed on the basis of this Section 6)
after evidentiary hearings in such proceeding have commenced.

Section 7. Multi-Party Arbitration.

7.1 Subject to Section 7.3 of this Appendix C, Project Company may bring in a
single consolidated arbitration, or request the consolidation of any pending
arbitration proceedings, in accordance with the ICC Rules, to resolve any
dispute, claim or controversy between Project Company and any party under any
other Transaction Document (each such dispute, an “Other Dispute”) with any
Dispute referred, or to be referred, to arbitration under Section 4 of this
Appendix C (each consolidated arbitration, a “Multi-Party Arbitration”), if
(a) the subject matter of such Dispute and Other Dispute involve common
questions of law and fact or (b) the independent resolution of such Dispute and
Other Dispute could result in conflicting awards or obligations. If such
arbitrations are consolidated and more than one (1) arbitral tribunal has been
established:

(i) the first arbitral tribunal so established shall serve as the arbitral
tribunal for the Multi-Party Arbitration; and

(ii) the other arbitral tribunal shall be divested of its authority in respect
of such disputes.

7.2 Any Multi-Party Arbitration conducted pursuant to the terms of this Appendix
C shall be conducted pursuant to the terms and conditions of Section 4 of this
Appendix C mutatis mutandis to each dispute to be resolved in such Multi-Party
Arbitration.

7.3 Within 30 days following any final decision by such Arbitral Tribunal that
such proceedings should be consolidated, each party shall withdraw or move to
dismiss any proceeding to which it is a party that will be resolved in the
Multi-Party Arbitration; provided that Owner shall not be required to withdraw
or dismiss any proceeding or submit any Dispute for resolution unless all
parties to such Multi-Party Arbitration agree that Section 7.1 of this Appendix
C shall apply thereto.

 

Appendix C-9

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7.4 Notwithstanding anything in this Section 7 to the contrary, no arbitration
proceeding may be consolidated (or dismissed on the basis of this Section 7)
after evidentiary hearings in such proceeding have commenced.

Section 8. Survival. This Appendix C shall survive the expiration or termination
of this Agreement.

 

Appendix C-10

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APPENDIX D

Ethical Business Practices

Section 1. [Reserved]

Section 2. Overview.

2.1 Each party believes and expects that it will maintain a pattern of ethical
conduct and avoid any activity that might result in a violation of any
Applicable Law, including any thereof related to anticompetitive activities,
anticorruption and antibribery, such as the U.S. Foreign Corrupt Practices Act
of 1977, as amended, Mail Fraud Act, Wire Fraud Act and Travel Act and various
U.S. State laws that may be applicable to a party or its contracting activities
(such U.S. Federal and State laws, collectively, “U.S. Anti-Bribery Laws”), the
U.K. Bribery Act, Republic of China anti-bribery laws, the Netherlands
anti-bribery laws or any other applicable anti-bribery laws, including laws
implementing the OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions (the “International
Anti-Bribery Convention”), that prohibit the same or similar activities that are
prohibited under the U.S. Foreign Corrupt Practices Act and the U.K. Bribery
Act.

2.2 Each party represents and warrants that in performing the activities
contemplated under this Agreement, it and its officers, directors, employees,
agents and other representatives acting on its behalf will comply with the
standards of business practice and conduct set forth in the Code of Conduct of
Kraton Performance Polymers, Inc. and Kraton Polymers LLC currently in effect, a
copy of which has been made available to all parties. Each party represents and
warrants that it will promptly review and comply with updates of such Code
provided to FPCC by Kraton Performance Polymers, Inc.

2.3 Each party represents and warrants that no funds or other assets that it
will contribute to, or use in furtherance of the performance of this Agreement,
are or will be the proceeds of any unlawful activity in any applicable
jurisdiction.

Section 3. Proscribed Payments.

3.1 No officer, director, employee, shareholder, agent or any other
representative acting on behalf of either party or of any Affiliate or
subcontractor of a party shall give to or receive from any Person any
commission, fee, rebate, gift or entertainment in connection with the
performance by it or its Affiliates under this Agreement, or enter into any
business arrangement with any Person other than as provided in this Agreement or
another Transaction Document, without prior written notification thereof to the
other party.

3.2 Each party affirms that neither it nor any of its officers, directors,
employees, shareholders, agents or other representatives acting on its behalf
has, directly or indirectly, made, offered, promised or authorized, and agrees
that neither it nor any of its officers, directors, employees, shareholders,
agents or other representatives acting on its behalf shall, make, offer, promise
or authorize, in connection with the performance by it or its Affiliates under
this Agreement or in connection with any other business transactions involving a
party, any payment,

 

Appendix D-1

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gift, promise or anything of value, whether directly or through any other
Person, to or for the use or benefit of any Government Official for the purpose
of (a) influencing any act or decision of any such Government Official,
including a decision to fail to perform his official functions, (b) inducing any
such official to do or omit to do any act in violation of the lawful duty of
such official or (c) inducing any such Government Official to use his influence
with any government, department, agency or instrumentality in order to assist
any of the parties in obtaining or retaining business with, or directing
business to any Person or otherwise securing for any Person an improper
advantage. Upon violation of this Section 3.2, the other party may, at its sole
option, terminate this Agreement at any time and, notwithstanding any other
provision of this Agreement, pay no compensation or reimbursement to any other
party to this Agreement whatsoever for any work or services performed under this
Agreement from and after the date of termination.

3.3 It is the intent of the parties that no payment or transfer of anything of
value shall be made with the purpose or effect of public or commercial bribery,
acceptance of or acquiescence in extortion, kickbacks or other unlawful or
improper means of obtaining or maintaining business or any improper advantage
for a party or any Affiliate or subcontractor of a party in connection with the
performance by it or its Affiliates under this Agreement.

3.4 Each party agrees to notify the other party immediately upon receipt of any
solicitation, demand or other request for anything of value, by or on behalf of
any Government Official relating to this Agreement.

3.5 Neither party nor any of its officers, directors, employee, agents or other
representatives acting on its behalf in connection with this Agreement shall,
directly or indirectly, engage in any transaction or dealing in property or
interests in property of, receive from or make any contribution of funds, goods
or services to or for the benefit of, provide any payments or material
assistance to, or otherwise engage in or facilitate any transactions with a
Prohibited Person. As used herein, “Prohibited Person” means (a) any individual
or entity that has been determined by competent authority to be the subject of a
prohibition in any law, regulation, rule or executive order administered by the
U.S. Office of Foreign Assets Control (“OFAC”), (b) the government, including
any political subdivision, agency or instrumentality thereof, of any country
against which the United States maintains economic sanctions or embargoes,
(c) any individual or entity that acts on behalf of, is organized under the laws
of, or is owned or controlled by a national or the government of a country
against which the United States maintains a comprehensive economic sanction or
embargo, (d) any individual or entity that has been identified on the OFAC
Specially Designated Nationals and Blocked Persons List (Appendix A to 31 C.F.R.
Ch. V), including any individual or entity identified by the U.S. Government as
a Specially Designated Terrorist, a Specially Designated Global Terrorist or a
Foreign Terrorist Organization, (e) any individual or entity that has been
designated under the Annex to Executive Order 13224 or (f) any individual or
entity that has been designated on any similar list or order published by the
U.S. Government.

Section 4. No Ownership Interest. Each party affirms that (a) no Government
Official, or immediate family member of such an official, has any ownership
interest, direct or indirect, in such party or its Affiliate or in the
contractual relationship established by this Agreement and (b) no such Person is
an officer, director, employee, shareholder, agent or representative acting on

 

Appendix D-2

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behalf of such party. If, during the term of this Agreement, there is
acquisition of an interest in a party or in this Agreement by a Government
Official, or an immediate family member of such an official, or if such Person
becomes an officer, director, employee, shareholder agent or representative
acting on behalf of such party, such party agrees that it shall make immediate
disclosure to the other party.

Section 5. Subcontractors.

5.1 Each party shall require, and shall require each subcontractor, in all
agreements in connection with the performance by it or its Affiliates under this
Agreement, to agree to the provisions of this Appendix D, including:

1. that such subcontractor and its officers, directors, employees, shareholders
agents or representatives acting on its behalf shall comply with the provisions
of Sections 2, 3 and 4 of this Appendix D in relation to themselves;

2. an express obligation to notify a party immediately of any such violation or
of such subcontractor having reasonable grounds for suspecting that such
violation has occurred; and

3. if such violation has occurred, an express right in favor of the contracting
party to terminate the relevant subcontract with immediate effect and pay no
compensation or reimbursement to subcontractor whatsoever for any service
performed after the date of termination.

Each party shall notify the other party immediately on receipt of notification
or otherwise becoming aware of any such violation.

5.2 If any subcontractor or any of such subcontractor’s officers, directors,
shareholders, employees, agents or representatives acting on behalf of
subcontractor violates any provision of Section 2, 3 or 4 of this Appendix D, as
it applies to such subcontractor and its officers, directors, shareholders,
employees, agents or representatives acting on behalf of subcontractor pursuant
to Section 5.1 of this Appendix D, either party shall, if so required by the
other party, terminate the relevant subcontract with immediate effect and pay no
compensation or reimbursement to subcontractor whatsoever for any service
performed after the date of termination.

Section 6. Annual Certification. Within 30 days prior to each anniversary of the
date of this Agreement, each party shall submit to the other party a
certification that neither it nor any of its officers, directors, employees,
agents or other representatives acting on its behalf in connection with this
Agreement have engaged in any transaction or activity in violation of this
Appendix D.

 

Appendix D-3

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SCHEDULE 1

Notice Addresses

KP Investment BV

John M. Keynesplein 10

1066 EP Amsterdam

The Netherlands

Attention: Senior Counsel – European Region

Telephone: +31 (0) 20-201-7600

Facsimile: +31 (0) 20-201-7690

E-Mail: Susanne.Albert@Kraton.com

with a copy, which shall not constitute notice, to:

Kraton Polymers LLC

15710 John F. Kennedy Blvd., Suite 300

Houston, Texas 77032

Attention: General Counsel

Telephone: 281-504-4700

Facsimile: 281-504-4753

E-Mail: Stephen.Duffy@Kraton.com

Formosa Petrochemical Corporation

Rm. 432, 4F, 201 Tung Hwa N. Rd., Taipei, Taiwan

Attention: President’s Office

Tel: 886-2-2712-2211 #6282

Fax: 886-2-2718-6886

Email: jmchang@fpcc.com.tw

with a copy, which shall not constitute notice, to:

Rm. 377, 4F, 201 Tung Hwa N. Rd., Taipei, Taiwan

Attention: President’s Office

Tel: 886-2-2712-2211 #6276

Fax: 886-2-8712-8050

Email: cttsai@fpcc.com.tw

 

Schedule 1-1

--------------------------------------------------------------------------------

 

LOGO [g498443g00h64.jpg]

(Kraton Formosa Polymers Corporation)

11F.-1, No. 32, Song Ren Rd.

Xinyi Dist., Taipei City 110

Taiwan R.O.C.

Attention: President

Tel: 886-2-2722-5412 (x301)

Fax: 886-2-2722-5415

with a copy, which shall not constitute notice, to:

Kraton Polymers LLC

15710 John F. Kennedy Blvd., Suite 300

Houston, Texas 77032

Attention: General Counsel

Telephone: 281-504-4700

Facsimile: 281-504-4753

E-Mail: Stephen.Duffy@Kraton.com

 

Schedule 1-2

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SCHEDULE 2

Board Composition

Kraton Directors Representatives

Mr. G. Scott Lee

Mr. Damian Burke

Mr. Steve Tremblay

FPCC Directors Representatives

Mr. Tsao Mihn

Mr. Han-Ting Chen

Mr. Jui-Hsih Chen

 

 

Schedule 2-1

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SCHEDULE 3

Managers

 

Name

  

Title

  

Employer

Michael S. Wong

   President    Kraton Shareholder (Seconded to Project Company)

Hsi-Tse Li

   Vice President    FPCC Shareholder (Seconded to Project Company)

Sam Chen

   Finance and Administration Manager    FPCC Shareholder (Seconded to Project
Company)

 

Schedule 3-1

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SCHEDULE 4

Insurance

 

1. Environmental Exposure Insurance: Project Company will have insurance to
cover sudden and accidental environmental exposure.

 

2. General Liability Insurance: Project Company will carry general liability
insurance.

 

3. Property Insurance: Project Company will have insurance to cover losses
associated with property loss events.

 

4. Business Interruption and Contingent Business Interruption Insurance: Project
Company will have insurance to cover business interruption and contingent
business interruption, with deductibles for time and value (45 days).

 

5. Insurance for exposures related to Construction and Operational Completion of
the Plant.

 

6. Insurance for Other Exposures that might be dictated by local law and custom,
based on the experience and advice of FPCC on coverage such as workers
compensation, medical & disability, and auto liability.

 

7. Insurance for Directors (Representatives) and Managers: Project Company will
carry Director’s & Officer’s liability coverage, which will be procured by
Kraton Shareholder at Project Company’s expense.

 

8. Product Liability: Project Company will be added as an additional insured
under Kraton Shareholder’s existing product liability policy on or before the
date on which Product produced by the Plant is sold by Kraton Shareholder or its
Affiliate to a Third Party.

 

Schedule 4-1