Document:

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                                                                    EXHIBIT 10.2

                        STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

            SECOND AMENDED AND RESTATED KEY EMPLOYEE PROTECTION PLAN

                             PRELIMINARY STATEMENTS

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

B.   The Holdings Board and the Chemicals Board (as such terms are defined
     below) have previously duly adopted that certain Amended and Restated Key
     Employee Protection Plan dated effective as of January 1, 2000 (the
     "Existing Plan").

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

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

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

                                    ARTICLE I

                         Definitions and Interpretations

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

     "Annual Compensation" shall mean, when used as of any date with reference
to any Participant, the sum of (i) the highest annual base salary of such
Participant in effect at any time during the three-year period ending
immediately prior to the date on which the applicable Change of Control occurs
or is deemed to have occurred plus (ii) the Targeted Bonus, if any, of such
Participant in effect immediately prior to the earlier of (A) the date on which
an event occurs that results in such Participant terminating his or her
employment for Good Reason and (B) the actual date of such Participant's
termination by the Company for any reason other than Misconduct or Disability.

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     "Applicable Multiplier" shall mean, when used with reference to any
Participant, the multiplier specified in the Instrument of Designation executed
and delivered by Holdings and such Participant in accordance with Section
2.01(b); provided, however, that in no event shall the Applicable Multiplier of
any Participant be less than 0.50 (except as provided in Section 2.03) or
greater than 2.99.

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

     "CEO" shall mean the Chief Executive Officer of Holdings.

     "Chairman" shall mean the Chairman of the Board of Holdings.

     "Change of Control" shall mean the occurrence of any of the following
events: (i) Holdings shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned Subsidiary), (ii) Holdings sells,
leases or exchanges all or a substantial part of its assets (other than in the
ordinary course of business) to any other person or entity (other than a
wholly-owned Subsidiary), (iii) Holdings is to be dissolved and liquidated, (iv)
Chemicals sells, leases or exchanges all or a substantial part of its assets
(other than in the ordinary course of business) to any other person or entity
(other than Holdings or another wholly-owned Subsidiary), (v) Chemicals ceases
to be a wholly-owned Subsidiary for any reason other than a merger,
consolidation or other reorganization in which Holdings or a wholly-owned
Subsidiary is the surviving entity, (vi) Chemicals sells, leases or exchanges
all or substantially all of its assets to any other person or entity (other than
Holdings or another wholly-owned Subsidiary), (vii) any person or entity,
including a "group" as contemplated by section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, acquires or gains ownership or control
(including the power to vote) of more than 50% of the outstanding shares of
Holdings' voting stock (based upon voting power), (viii) as a result of or in
connection with any tender or exchange offer, merger or other business
combination, sale of assets or contested election of directors (by proxy or
otherwise), the persons who were directors of Holdings immediately prior to such
offer, merger or other business combination, sale of assets or election shall
cease to constitute a majority of the Holdings Board (or a majority of the board
of directors of any successor to Holdings) or a majority of the elected officers
of Holdings immediately prior to such offer, merger or other business
combination, sale of assets or election shall cease to serve as elected officers
of Holdings (or any successor to Holdings), or (ix) the Company sells, leases or
exchanges all or substantially all of the assets or capital securities of any of
its strategic business units (each, an "SBU") to any other person or entity
(other than Holdings or another wholly-owned Subsidiary); provided, however,
that any such sale, lease or exchange shall not

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constitute a "Change of Control" for purposes of this clause (ix) with respect
to any Participant who was not assigned to work on a full-time basis in the
relevant SBU at the time of such sale, lease or exchange and, provided further,
that the sale, lease or exchange of all or substantially all of the assets or
capital securities of Sterling Fibers, Inc. or Sterling Chemicals Acquisitions,
Inc. (or any of its direct or indirect subsidiaries) shall not constitute a
"Change of Control" with respect to any Participant.

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

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

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

     "Company" shall mean Holdings and the Subsidiaries, including Chemicals.

     "Compensation Committee" shall mean the Compensation Committee of the
Holdings Board.

     "Disability" shall mean, when used with reference to any Participant, a
physical or mental condition of such Participant that, in the opinion of a
licensed physician reasonably acceptable to Holdings and such Participant or his
or her legal representative, (a) prevents such Participant from being able to
perform the services required of him or her as an employee of the Company, (b)
has continued for at least 180 days during any period of twelve consecutive
months and (c) is reasonably expected to continue.

     "Effective Date" has the meaning specified in the Preliminary Statements.

     "Existing Plan" has the meaning specified in the Preliminary Statements.

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

     (i)   if (but only if) such Participant is Grade S23 or higher, a material
           change in such Participant's reporting responsibilities, titles or
           elected or appointed offices as in effect immediately prior to the
           effective date of such change, including any change caused by the
           removal of such Participant from, or the failure to re-elect such
           Participant to, any material corporate office of the Company held by
           such Participant immediately prior to such effective date but
           excluding any such

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           change that occurs in connection with such Participant's death,
           disability or retirement;

     (ii)   if (but only if) such Participant is Grade S23 or higher, the
            assignment to such Participant of duties and/or responsibilities
            that are materially inconsistent with such Participant's status,
            positions, duties, responsibilities and functions with the Company
            immediately prior to the effective date of such assignment;

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

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

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

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

     (vii)  any purported termination of such Participant's employment for
            Misconduct or Disability not in accordance with the provisions of
            Section 3.02; or

     (viii) any purported termination of such Participant's participation in
            this Plan not in accordance with the provisions of Section 2.01(c).

For purposes of this definition, none of the actions described in clauses (i)
through (iii) above shall constitute a Good Reason with respect to any
Participant if it was an isolated and inadvertent action not taken in bad faith
by the Company and if it is remedied by the Company promptly after receipt of
notice thereof given by such Participant. For purposes of this definition, any
action or failure to act described in clauses (i) through (viii) above shall
cease to be a Good Reason with respect to any Participant on the date which is
60 days after such Participant acquires actual knowledge of such action or
failure to act unless, prior to such date, such Participant gives a Termination
Notice pursuant to Section 3.01. In the event of any dispute between the
Company, on the one hand, and any Participant, on the other hand, with respect
to the amount of total compensation of such Participant for purposes of clause
(c) above or the aggregate value or level of any of such Participant's

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benefits for purposes of clause (d) or (e) above, the Company and such
Participant shall use their best efforts to resolve such dispute themselves. If
they are unable to resolve the dispute within 15 business days, Deloitte &
Touche L.L.P., or such other nationally recognized accounting firm or employee
benefits firm acceptable to the Company and such Participant, shall be engaged
by the Company to make its own determination with respect to the dispute and the
determination by such firm shall be final and binding on the Company (including
the Compensation Committee) and such Participant. If any firm is engaged with
respect to any dispute as aforesaid, (i) such firm shall be instructed to make
its determination as soon as practicable and to use such materiality standard as
such firm may determine to be reasonable under the circumstances and (ii) the
disputants shall provide such firm with all books, records and other information
relevant to such dispute as such firm may reasonably request. No firm engaged as
aforesaid shall be liable or responsible to the Company (including the
Compensation Committee) or any Participant for any determination made by such
firm in good faith.

     "Grade" shall mean when used with reference to any Participant for purposes
of any action described in clauses (i) and (ii) of the definition of Good
Reason, his or her salary classification by the Company immediately prior to
such action.

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

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

     "Misconduct" shall mean, when used with reference to any Participant:

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

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

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

     (d)  the willful failure of such Participant to observe and comply with all
          lawful and ethical directions and instructions of the Holdings Board,
          the Chairman and/or the CEO;

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     (e)  the failure of such Participant to perform, in any material respect,
          his or her duties with the Company, but only if such failure was not
          caused by disability or incapacity and shall have continued unremedied
          for more than 30 days after written notice thereof is given to such
          Participant by Holdings and/or Chemicals;

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

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

For purposes of clauses (d) and (g) above, no act or failure to act on the part
of any Participant shall be considered "willful" if such act or failure to act
was done or omitted to be done by such Participant in good faith and with the
reasonable belief that such Participant's action or omission was in the best
interest of the Company. If any Participant is a party to a written employment
agreement with the Company, then clause (d) above shall not apply to any
directions or instructions that are contrary to or inconsistent with any of the
positions, functions, duties or reporting responsibilities of such Participant
as set forth in such written employment agreement or that violate any of such
Participant's rights, privileges or immunities under such employment agreement.
In case of any dispute regarding whether or not any conduct by a Participant
meets any of the standards set forth in clauses (a) through (g) above, the
burden of proof shall rest with the Company.

     "Participants" shall mean, except as otherwise provided in Section 2.01(c),
those employees of Holdings or any Subsidiary who are from time to time
designated by the Compensation Committee as Participants in accordance with
Section 2.01(b).

     "Pension Plan" shall mean the Sterling Chemicals, Inc. Amended and Restated
Salaried Employees' Pension Plan (effective as of May 1, 1996) or any successor
plan.

     "Plan" shall mean this Second Amended and Restated Key Employee Protection
Plan, as amended, supplemented or modified from time to time in accordance with
its terms.

     "Qualified Plan" shall mean a "qualified plan" within the meaning of
section 401(a) of the Code.

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

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

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     "Targeted Bonus" shall mean, when used with reference to any Participant at
any time, the amount determined by multiplying (i) the annual base salary of
such Participant in effect immediately prior to the earlier of (A) the date on
which an event occurs that results in such Participant terminating his or her
employment for Good Reason and (B) the actual date of such Participant's
termination by the Company for any reason other than Misconduct or Disability
times (ii) such Participant's Target Bonus Percentage, if any, in effect on such
earlier date under the Company's bonus plan for salaried employees.

     "Termination Date" shall mean, with respect to any Participant, the
termination date specified in the Termination Notice delivered by such
Participant to the Company in accordance with Section 3.01 or the actual date of
termination of such Participant's employment by the Company for any reason other
than Misconduct or Disability, as applicable.

     "Termination Notice" shall mean, as appropriate, (a) a notice from a
Participant to Holdings purporting to terminate such Participant's employment
for Good Reason in accordance with Section 3.01 or (b) a notice from Holdings
and/or Chemicals to any Participant purporting to terminate such Participant's
employment for Misconduct or Disability in accordance with Section 3.02.

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

                                   ARTICLE II

                            Eligibility and Benefits

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

     (b) The Compensation Committee shall be authorized from time to time to
designate one or more members of a select group of management or highly
compensated employees of the Company as Participants. Each such designation
shall be evidenced by an Instrument of Designation signed by Holdings and the
Participant substantially in the form of Exhibit A hereto. Each such Instrument
of Designation, and the designation evidenced thereby, shall be binding on the
Company.

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     (c) In the event that the Holdings Board determines in good faith that any
Participant is no longer a key employee of the Company and thus should not
continue to participate in this Plan, the Holdings Board shall be permitted,
subject to the limitations set forth below, to terminate such Participant's
participation in this Plan on such date as shall be specified by written notice
delivered to such Participant not less than 60 days prior to the date so
specified, which notice shall state that it is a termination notice given
pursuant to this Section 2.01(c). Upon the effective date of such termination,
such Participant shall cease to be a Participant and, accordingly, such
Participant shall no longer be entitled to receive any rights or benefits
hereunder; provided, however, that such termination shall not affect the rights
or benefits of such Participant or the obligations of the Company accrued under
this Plan as of the effective date of such termination or the rights or benefits
of such Participant or the obligations of the Company accruing under this Plan
after the effective date of such termination on account of any Change of Control
that occurred on or before such effective date or that occurs within 180 days
after such effective date. Notwithstanding the foregoing, the Compensation
Committee shall not be permitted to terminate any Participant's participation in
this Plan unless the sole reason therefor is that, in the good faith opinion of
the Compensation Committee, such Participant has ceased to be a key employee of
the Company and thus should not continue to participate in this Plan. Without
limitation of the foregoing, the Compensation Committee may not terminate any
Participant's participation in this Plan if such termination is directly or
indirectly related to, connected with, in anticipation of, in furtherance of,
pursuant to the terms of or during the pendency of any Change of Control or is
for the purpose of directly or indirectly encouraging or facilitating a Change
of Control. In case of any dispute regarding whether or not any purported
termination of any Participant's participation in this Plan is permitted by, or
satisfies any of the requirements of, this paragraph (c), the burden of proof
shall rest with the Company.

     Section 2.02. Description of Benefits Triggered by Termination following a
Change of Control. (a) Each Participant shall be entitled to receive the
benefits described below if a Change of Control occurs after the Effective Date
and if, during the period commencing 180 days prior to the date on which such
Change of Control occurs and ending two years after the date on which such
Change of Control occurs, either such Participant terminates or has terminated
his or her employment for Good Reason in accordance with Section 3.01 or the
Company terminates or has terminated such Participant's employment for any
reason other than a termination for Misconduct or Disability in accordance with
Section 3.02:

          (i) the Company shall pay to such Participant, within 30 days after
     such Participant's Termination Date or, in the event that such
     Participant's Termination Date occurred within the 180-day period
     immediately preceding the occurrence of a Change of Control, within 30 days
     after such Change of Control, a lump sum cash payment equal to the sum of
     (A) the amount (the "Severance Amount") determined (subject to Section
     2.04(b)) by multiplying the Annual Compensation of such Participant times
     the Applicable Multiplier, plus (B) all unused vacation time accrued by
     such Participant as of the Termination Date under the Company's vacation
     policy, plus (C) all accrued but unpaid compensation earned by such
     Participant as of the Termination Date, plus (D) all unpaid vested benefits
     earned or accrued by such Participant as of the Termination Date under any
     Benefit Plan (other than a Qualified Plan) in effect immediately prior to
     the date on which

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     the Change of Control occurs; provided, however, that any amounts payable
     to any Participant pursuant to this clause (i) shall be reduced by an
     amount equal to the aggregate amount previously paid to such Participant by
     the Company pursuant to Section 2.03 by reference to this clause (i); and

          (ii) for a period of 24 months (including 18 months of COBRA coverage)
     following the Termination Date (including any period during which such
     Participant was covered by such plans and programs pursuant to Section
     2.03), such Participant shall continue to be covered by all life, health
     care, medical and dental insurance plans and programs (excluding
     disability) of the Company by which he or she was covered on the
     Termination Date notwithstanding any subsequent termination or amendment of
     any such plan or programs and notwithstanding any eligibility provisions
     thereof to the contrary, provided that (A) such Participant makes a timely
     COBRA election following the Termination Date and (B) such Participant pays
     the regular employee premium required by such plans and programs or by
     COBRA, as the case may be.

     (b) No Participant shall be entitled to receive any of the benefits
described in this Section 2.02 on account of any Change of Control unless such
Change of Control occurred (i) while such Participant was employed by the
Company or (ii) within 180 days after such Participant's Termination Date.

     Section 2.03. Description of Benefits Triggered by Termination Without a
Change of Control. If, under circumstances where Section 2.02 is inapplicable,
any Participant terminates his or her employment for Good Reason in accordance
with Section 3.01 or the Company terminates such Participant's employment for
any reason other than a termination for Misconduct or Disability in accordance
with Section 3.02, then such Participant shall be entitled to receive, and the
Company shall be obligated to pay and provide, all the benefits described in
Section 2.02 the same as if a Change of Control had occurred on the date which
is 60 days prior to the relevant Termination Date; provided, however, that, for
purposes of calculating the Severance Amount payable to such Participant under
this Section 2.03, the Applicable Multiplier of such Participant shall be
reduced by 50%. In the case of each termination of employment covered by this
Section 2.03, a Change of Control shall be deemed to have occurred on the date
which is 60 days prior to the relevant Termination Date and, accordingly, all
other provisions of this Plan shall be construed as if a Change of Control had
actually occurred on such date.

     Section 2.04. Additional Provisions Relating to Benefits under Sections
2.02 and 2.03. (a) Anything in this Plan to the contrary notwithstanding, (i)
the Company shall not be obligated to pay a Severance Amount to any Participant
below Grade S23 or continue the non-COBRA benefits described in Section
2.02(a)(ii) for such Participant if the Termination Date is after such
Participant's normal Retirement Date (as defined in the Pension Plan) and (ii)
the Company's obligation to continue the benefits described in Section
2.02(a)(ii) for any Participant shall cease if and when such Participant becomes
employed, on a full-time basis, by a third party which provides such Participant
with substantially similar benefits.

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     (b) Anything in this Plan to the contrary notwithstanding, the amount of
the Severance Amount payable to any Participant under this Plan shall be reduced
by the aggregate amount of all separation, severance or termination payments due
to such Participant under (i) any Benefit Plan (other than this Plan), (ii) any
agreement between such Participant and the Company or (ii) any applicable law,
statute, rule, regulation, order or decree (or other pronouncement having the
effect of law) of any nation or governmental authority.

     Section 2.05. Certain Additional Payments by the Company. Anything in this
Plan to the contrary notwithstanding, in the event it shall be determined that
any payment or distribution to or for the benefit of any Participant under this
Plan (the "Triggering Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, being
collectively referred to below as the "Excise Tax"), then such Participant shall
be entitled to receive from the Company an additional payment (the "Gross-Up
Payment") in an amount such that after payment by such Participant of all taxes
(including any interest or penalties imposed with respect to such taxes)
including any Excise Tax imposed on the Gross-Up Payment, such Participant
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Triggering Payment. Notwithstanding the foregoing, in no event shall any
Participant be entitled to receive a Gross-Up Payment greater than 25% of such
Participant's Annual Compensation. All determinations required to be made under
this Section 2.05 with respect to a particular Participant shall be made by the
independent accounting firm then retained by Holdings in the ordinary course of
business (which firm shall provide detailed supporting calculations to the
Company and such Participant) and such determinations shall be final and binding
on the Company (including the Compensation Committee) and all Participants.

     Section 2.06. Cost of Plan; Plan Unfunded; Participant's Rights Unsecured.
The entire cost of this Plan shall be borne by the Company, and no contributions
shall be required of the Participants. The Company shall not be required to
establish any special or separate fund or make any other segregation of funds or
assets to assure the payment of any benefit hereunder. The right of any
Participant to receive the benefits provided for herein shall be an unsecured
claim against the general assets of the Company.

                                   ARTICLE III

                               Termination Notices

     Section 3.01. Termination Notices from Participants. For purposes of this
Plan, in order for any Participant to terminate his or her employment for Good
Reason, such Participant must give a written notice of termination to Holdings
and/or Chemicals, which notice shall be in writing and signed by such
Participant, shall be dated the date it is given to Holdings and/or Chemicals,
shall specify the termination date and shall state that the termination is for a
Good Reason and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such Good Reason. Any Termination Notice given by
a Participant that is not in compliance, in all material respects, with the
foregoing requirements shall be invalid and ineffective for purposes of this
Plan. If Holdings or Chemicals receives from any Participant a

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Termination Notice that it believes is invalid and ineffective as aforesaid, it
shall promptly notify such Participant of such belief and the reasons therefor.

     Section 3.02.Termination Notices from Company. For purposes of this Plan,
in order for the Company to terminate any Participant's employment for
Misconduct, Holdings and/or Chemicals must give a written notice of termination
to such Participant, which notice shall be dated the date it is given to such
Participant, shall specify the termination date and shall state that the
termination is for Misconduct and shall set forth in reasonable detail the
particulars thereof. For purposes of this Plan, in order for the Company to
terminate any Participant's employment for Disability, Holdings and/or Chemicals
must give a written notice of termination to such Participant, which notice
shall be dated the date it is given to such Participant, shall specify the
termination date and shall state that the termination is for Disability and
shall set forth in reasonable detail the particulars thereof. Any Termination
Notice given by Holdings and/or Chemicals that is not in compliance, in all
material respects, with the foregoing requirements shall be invalid and
ineffective for purposes of this Plan. Any Termination Notice purported to be
given by Holdings and/or Chemicals to any Participant after the death or
retirement of such Participant shall be invalid and ineffective.

                                   ARTICLE IV

                               Dispute Resolution

     Section 4.01. Negotiation. Subject to Section 4.03, in case a dispute or
controversy shall arise between any Participant (or any person claiming by,
through or under any Participant) and the Company (including the Compensation
Committee) relating to or arising out of this Plan, either disputant may give
written notice to the other disputant ("Dispute Notice") that it wishes to
resolve such dispute or controversy by negotiations, in which event the
disputants shall attempt in good faith to negotiate a resolution of such dispute
or controversy. If the dispute or controversy is not so resolved within 30 days
after the effective date of the Dispute Notice, subject to Section 4.03, either
disputant may initiate arbitration of the matter as provided in Section 4.02.
All negotiations pursuant to this Section 4.01 shall be held at the Company's
principal offices in Houston, Texas (or such other place as the disputants shall
mutually agree) and shall be treated as compromise and settlement negotiations
for the purposes of the federal and state rules of evidence and procedure.

     Section 4.02. Arbitration. Subject to Section 4.03, any dispute or
controversy arising out of or relating to this Plan which has not been resolved
by negotiations in accordance with Section 4.01 within 30 days of the effective
date of the Dispute Notice shall, upon the written request of either disputant,
be finally settled by arbitration conducted expeditiously in accordance with the
labor arbitration rules of the American Arbitration Association. The arbitrator
shall be not empowered to award damages in excess of compensatory damages and
each disputant shall be deemed to have irrevocably waived any damages in excess
of compensatory damages. The arbitrator's decision shall be final and legally
binding on the disputants and their successors and assigns. The fees and
expenses of the arbitrator shall be borne solely by the prevailing disputant

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

     Section 4.03. Exclusivity, etc. The dispute resolution procedures set forth
in Sections 4.01 and 4.02 shall not apply to any matter which, by the express
provisions of this Plan, is to be finally determined by the Compensation
Committee or by an accounting firm or employee benefits firm. No legal action
may be brought with respect to this Plan except for the purpose of specifically
enforcing the provisions of this Article IV or for the purpose of enforcing any
arbitration award made pursuant to Section 4.02.

                                    ARTICLE V

                            Miscellaneous Provisions

     Section 5.01. Cumulative Benefits. Except as provided in Section 2.04(b),
the rights and benefits provided to any Participant under this Plan are
cumulative of, and are in addition to, all of the other rights and benefits
provided to such Participant under any Benefit Plan or any agreement between
such Participant and the Company.

     Section 5.02. No Mitigation. No Participant shall be required to mitigate
the amount of any payment provided for in this Plan by seeking or accepting
other employment following a termination of his or her employment with the
Company or otherwise, nor shall the amount of any payment provided for in this
Plan be reduced by any compensation or benefit earned by a Participant as the
result of employment by another employer or by retirement benefits. The
Company's obligations to make payments to any Participant required under this
Plan shall not be affected by any set off, counterclaim, recoupment, defense or
other claim, right or action that the Company may have against such Participant.

     Section 5.03. Amendment and Termination. (a) The Holdings Board and the
Chemicals Board shall be entitled to terminate this Plan at any time and for any
reason; provided, however, that in no event shall such termination become
effective with respect to any Participant prior to 90 days after notice of such
termination is given to such Participant.

     (b) The Holdings Board and the Chemicals Board shall be entitled to amend
this Plan at any time and for any reason; provided, however, that no amendment
that would effectively reduce, alter, suspend or otherwise impair or prejudice
the rights and benefits (whether accrued or unaccrued) of any Participant in any
material respect (a "Material Amendment") shall become effective with respect to
any Participant prior to 90 days after notice of such amendment is given to such
Participant. For purposes of this paragraph (b), the termination of a
Participant's participation in this Plan in accordance with Section 2.01(c)
shall not be deemed to be an amendment of this Plan.

     (c) Notwithstanding the foregoing, no termination of this Plan and no
Material Amendment shall be effective with respect to, binding upon or reduce
any benefits payable hereunder to, any person who at the time is a Participant
if such termination or Material

                                      -12-

<PAGE>   13

Amendment is (i) directly or indirectly related to, connected with, in
anticipation of, in furtherance of, pursuant to the terms of or during the
pendency of any Change of Control or is for the purpose of directly or
indirectly encouraging or facilitating a Change of Control or (ii) made within
180 days prior to the date of any Change of Control.

     (d) No termination or amendment of this Plan shall affect the rights or
benefits of any Participant or the obligations of the Company accrued under this
Plan as of the effective date of such termination or amendment or any of the
rights or benefits of such Participant or the obligations of the Company
accruing under this Plan after the effective date of such termination or
amendment on account of any Change of Control that occurred prior to such
effective date or within 180 days after such effective date. If any Participant
shall become entitled to benefits under this Plan during the term of this Plan,
then, notwithstanding the termination or amendment of this Plan, the benefits
payable hereunder to such Participant shall be paid in full.

     (e) In case of any dispute regarding whether or not any purported
termination or amendment of this Plan is permitted by, or satisfies any of the
requirements of, this Section 5.03, the burden of proof shall rest with the
Company.

     Section 5.04. Enforceability. The provisions of this Plan (i) are for the
benefit of, and may be enforced directly by, each Participant the same as if the
provisions of this Plan were set forth in their entirety in a written instrument
executed and delivered by the Company and such Participant and (ii) constitute a
continuing offer to all present and future Participants. Holdings and Chemicals,
by their adoption of this Plan, (a) acknowledge and agree that each present and
future Participant has relied upon and will continue to rely upon the provisions
of this Plan in becoming, and serving as, an employee of the Company, (b) waive
reliance upon, and all notices of acceptance of, this Plan by the Participants
and (c) acknowledge and agree that no present or future Participant shall be
prejudiced in his or her right to enforce directly the provisions of this Plan
in accordance with the terms by any act or failure to act on the part of the
Company.

     Section 5.05. Administration. (a) The Compensation Committee shall have
full and final authority to make determinations with respect to the
administration of this Plan, to construe and interpret its provisions and to
take all other actions deemed necessary or advisable for the proper
administration of this Plan, but such authority shall be subject to the
provisions of this Plan. Subject to Section 2.02(c), the Compensation Committee
shall have no authority to change or modify the level of benefits provided for
Participants under this Plan. No discretionary action by the Compensation
Committee shall amend or supersede the express provisions of this Plan. In
making determinations and taking other actions with respect to this Plan, the
members of the Compensation Committee will be deemed to be fiduciaries with the
same duties imposed upon plan fiduciaries by the Employee Retirement Income
Security Act of 1974.

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

                                      -13-

<PAGE>   14

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

     Section 5.06. Release of Claims. As a condition to receipt of the benefits
under this Plan, a Participant will be required to sign an agreement, to be
prepared by Holdings, in which he or she releases the Company and its
successors, assigns, divisions, subsidiaries, representatives, agents, officers,
directors, stockholders, and employees from any claims, demands and/or causes of
action relating to or arising out of the termination of his or her employment
with the Company, including, but not limited to any statutory claims under the
Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act of 1990, the Civil Rights Acts of 1964 and 1991, and/or the Texas Commission
on Human Rights Act.

     Section 5.07. Assignability. The Company shall have the right to assign
this Plan and to delegate its duties and obligations hereunder, but not
otherwise; provided, however, that no such assignment shall relieve or discharge
the Company of or from any of its obligations under this Plan. Unless otherwise
approved by the Compensation Committee, no Participant shall transfer or assign
any of his or her rights under this Plan except by will or the laws of descent
and distribution.

     Section 5.08. Consolidations, Mergers, Etc. Each of Holdings and Chemicals
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of its business,
operations or assets to expressly assume and agree to perform this Plan in
writing, in the same manner and to the same extent that Holdings or Chemicals,
as the case may be, would be required to perform hereunder if no such succession
had taken place.

     Section 5.09. Successors and Assigns. This Plan shall be binding upon and
inure to the benefit of the Company and its successors and assigns. This Plan
and all rights of each Participant shall inure to the benefit of and be
enforceable by such Participant and his or her personal or legal
representatives, executors, administrators, heirs and permitted assigns. If any
Participant should die while any amounts are due and payable to such Participant
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Plan to such Participant's devisees, legatees
or other designees or, if there be no such devisees, legatees or other
designees, to such Participant's estate.

     Section 5.10. Notices. All notices and other communications provided for in
this Plan shall be in writing and shall be sent, delivered or mailed, addressed
as follows: (i) if to

                                      -14-

<PAGE>   15
Holdings, Chemicals or any other Subsidiary, at Holdings' principal office
address or such other address as Holdings may have designated by written notice
to all Participants for purposes hereof, directed to the attention of the
Treasurer, and (ii) if to any Participant, at his or her residence address on
the records of Holdings or to such other address as he or she may have
designated to Holdings in writing for purposes hereof. Each such notice or other
communication shall be deemed to have been duly given or mailed by United States
registered mail, return receipt requested, postage prepaid, except that any
change of notice address shall be effective only upon receipt.

     Section 5.11. Tax Withholdings. The Company shall have the right to deduct
from any payment hereunder all taxes (federal, state or other) which it is
required to be withhold therefrom.

     Section 5.12. No Employment Rights Conferred. Nothing contained in this
Plan shall (i) confer upon any Participant any right with respect to
continuation of employment with the Company or (ii) subject to the rights and
benefits of any Participant hereunder, interfere in any way with the right of
the Company to terminate such Participant's employment at any time.

     Section 5.13. Governing Law. This Plan shall be governed in accordance with
the laws of the State of Texas and applicable federal law.

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

                                      STERLING CHEMICALS HOLDINGS, INC.

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

                                      STERLING CHEMICALS, INC.

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

                                      -15-

<PAGE>   16

                                    EXHIBIT A

                        STERLING CHEMICALS HOLDINGS, INC.

                            Instrument of Designation

     THIS INSTRUMENT OF DESIGNATION (this "Instrument") is intended to evidence
the designation by the Compensation Committee of the Board of Directors of
Sterling Chemicals Holdings, Inc., a Delaware corporation (the "Corporation"),
of the undersigned employee as a "Participant," within the meaning of that
certain Key Employee Protection Plan of the Corporation and Sterling Chemicals
Holdings, Inc., a Delaware corporation, with an Applicable Multiplier (as
defined therein) of _____________.

     IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer
to execute this Instrument effective as of the date set forth below.

Dated:                                   STERLING CHEMICALS HOLDINGS, INC.
       -------------------

                                         By:
                                             -----------------------------------
                                         Printed Name:
                                                       -------------------------
                                         Title:
                                                --------------------------------

EMPLOYEE:

---------------------------------------
Printed Name:
              -------------------------

                                      A-i<PAGE>   1
                                                                    EXHIBIT 10.3

                        STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                     AMENDED AND RESTATED SEVERANCE PAY PLAN

                             PRELIMINARY STATEMENTS

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

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

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

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

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

                                    ARTICLE I

                         Definitions and Interpretations

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

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

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

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

<PAGE>   2

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

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

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

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

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

                                      -2-

<PAGE>   3

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

     "Compensation Committee" means the Compensation Committee of Holdings.

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

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

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

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

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

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

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

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

                                      -3-

<PAGE>   4

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

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

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

     "Misconduct" means, with respect to any Participant:

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

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

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

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

                                      -4-

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

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

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

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

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

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

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

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

                                      -5-

<PAGE>   6

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

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

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

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

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

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

                                   ARTICLE II

                            Eligibility and Benefits

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

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

                                      -6-

<PAGE>   7

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

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

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

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

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

                                      -7-

<PAGE>   8

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

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

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

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

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

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

                                   ARTICLE III

                     Claims Procedure and Dispute Resolution

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

                                      -8-

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

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

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

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

                                      -9-

<PAGE>   10

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

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

                                   ARTICLE IV

                            Miscellaneous Provisions

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

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

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

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

                                      -10-

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

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

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

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

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

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

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

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

                                      -11-

<PAGE>   12

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

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

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

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

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

                                      -12-

<PAGE>   13

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

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

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

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

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

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

                                     STERLING CHEMICALS HOLDINGS, INC.

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

                                      -13-

<PAGE>   14

                                     STERLING CHEMICALS, INC.

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

                                      -14-

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