Document:

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                                                                  Exhibit 10.7

                          JLK DIRECT DISTRIBUTION INC.

                         DIRECTORS STOCK INCENTIVE PLAN

                                    ARTICLE I
                               GENERAL PROVISIONS

         SECTION 1.1. ESTABLISHMENT AND PURPOSE. There is hereby established the
JLK Direct Distribution Inc. Directors Stock Incentive Plan (the "Plan")
pursuant to which each director of JLK Direct Distribution Inc. (the "Company")
who is not an employee of the Company or any of its subsidiaries (a
"Non-Employee Director") shall be eligible, through an election to defer receipt
of any compensation to be earned by such Non-Employee Director made under the
JLK Direct Distribution Inc. Deferred Fee Plan for Outside Directors (the
"Deferred Compensation Plan"), to have Stock Credits (as hereinafter defined)
credited to an account established for such Non-Employee Director by the
Company. The purpose of the Plan is to assist the Company in attracting,
retaining and motivating highly qualified Non-Employee Directors and to promote
identification of, and align Non-Employee Directors' interests more closely
with, the interests of the stockholders of the Company.

         SECTION 1.2. DEFINITIONS. In addition to the terms previously or
hereafter defined herein, the following terms when used herein shall have the
meanings set forth below:

         "Board" shall mean the Board of Directors of the Company.

         "Committee" shall mean the committee of the Board appointed by the
Board to administer the Plan. Unless otherwise determined by the Board, the
Committee shall be the Committee on Executive Compensation of the Board.

         "Common Stock" shall mean the Company's Common Stock, par value $.01
per share.

         "Company Stock Credit" shall mean a credit that is equivalent to one
share of Common Stock.

         "Compensation" shall mean all remuneration paid to a Non-Employee
Director for service as such that is not deferred pursuant to the Deferred
Compensation Plan.

         "Deferred Compensation" shall mean all remuneration paid to a
Non-Employee Director for service as such that is deferred pursuant to the
Deferred Compensation Plan.

         "Fair Market Value" shall mean: (a) with respect to Common Stock, as of
any date, the mean of the highest and lowest sales prices for the Common Stock
as reported in the New York Stock Exchange--Composite Transactions reporting
system for the date in question or, if no sales were effected on such date, on
the next preceding date on which sales were effected; and (b)

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with respect to Capital Stock of Kennametal Inc. ("Kennametal"), as of any date,
the mean of the highest and lowest sales prices for the Capital Stock of
Kennametal as reported in the New York Stock Exchange--Composite Transactions
reporting system for the date in question or, if no sales were effected on such
date, on the next preceding date on which sales were effected.

         "Kennametal Stock Credit" shall mean a credit that is equivalent to one
share of Class A Common Stock of JLK.

         "Plan Year" shall mean the twelve-month period beginning January 1 and
ending December 31 in any particular year.

         "Stock Credit" shall mean either a Company Stock Credit or a Kennametal
Stock Credit, as the case may be.

         SECTION 1.3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall serve at the pleasure of the Board of Directors.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members of the Committee present at any meeting at which a
quorum is present, or acts approved in writing by a majority of the members of
the Committee, shall be deemed the acts of the Committee. The Committee is
authorized to interpret and construe the Plan, to make all determinations and
take all other actions necessary or advisable for the administration of the
Plan, and to delegate to employees of the Company or any subsidiary the
authority to perform administrative functions under the Plan; provided, however,
that the Committee shall have no authority to determine the persons entitled to
receive Common Stock or Stock Credits under the Plan nor the timing, amount or
price of Common Stock or Stock Credits issued under the Plan.

         SECTION 1.4. ELIGIBILITY. An individual who is a Non-Employee Director
shall be eligible to participate in the Plan.

                                   ARTICLE II
                           ELECTIONS AND DISTRIBUTIONS

         SECTION 2.1. ELECTIONS TO RECEIVE COMPANY STOCK CREDITS FROM DEFERRED
COMPENSATION. Any Non-Employee Director may elect to receive Company Stock
Credits under this Plan in any Plan Year with respect to all or a portion of the
Deferred Compensation credited to the Non-Employee Director in that Plan Year (a
"Company Stock Credit Election"). If a Non-Employee Director makes a Company
Stock Credit Election, an account established for the Non-Employee Director and
maintained by the Company shall be credited with that number of Company Stock
Credits equal to the number of shares of Common Stock (including fractions of a
share to four decimal places) that could have been purchased with the amount of
Deferred Compensation subject to a Company Stock Credit Election based on the
Fair Market Value of the Common Stock on the day that the Deferred Compensation
is credited under the Deferred Compensation Plan. A Company Stock Credit
Election shall be valid in any period only if the Non-Employee Director has
elected to participate in the Deferred Compensation Plan for such period.

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         SECTION 2.2. ELECTIONS TO RECEIVE KENNAMETAL STOCK CREDITS FROM
DEFERRED COMPENSATION. Any Non-Employee Director may elect to receive Kennametal
Stock Credits under this Plan in any Plan Year with respect to all or a portion
of the Deferred Compensation credited to the Non-Employee Director in that Plan
Year (a "Kennametal Stock Credit Election"). If a Non-Employee Director makes a
Kennametal Stock Credit Election, an account established for the Non-Employee
Director and maintained by the Company shall be credited with that number of
Kennametal Stock Credits equal to the number of shares of Capital Stock of
Kennametal (including fractions of a share to four decimal places) that could
have been purchased with the amount of Deferred Compensation subject to a
Kennametal Stock Credit Election based on the Fair Market Value of the Capital
Stock of Kennametal on the day that the Deferred Compensation is credited under
the Deferred Compensation Plan. A Kennametal Stock Credit Election shall be
valid in any period only if the Non-Employee Director has elected to participate
in the Deferred Compensation Plan for such period.

         SECTION 2.3. TERMS AND CONDITIONS OF ELECTIONS. A Company Stock Credit
Election or Kennametal Stock Credit Election (an "Election") shall be subject to
the following terms and conditions:

         (a) An Election shall be in writing and shall be irrevocable; and

         (b) An Election shall be effective for any Plan Year only if made on or
         prior to the June 30 immediately preceding the commencement of such
         Plan Year.

         (c) An Election shall remain in effect for all future Plan Years unless
         terminated or changed pursuant to an Election made on or prior to June
         30 to take effect for the next Plan Year.

         SECTION 2.4. ADJUSTMENT OF STOCK CREDIT ACCOUNTS.

                  (a) Cash Dividends--As of the date that any cash dividend is
         paid to stockholders of the Company or Kennametal, the applicable Stock
         Credit account of the Non-Employee Director shall be credited with
         additional Stock Credits equal to the number of shares of stock
         underlying such Stock Credit (including fractions of a share to four
         decimal places) that could have been purchased on that date with the
         dividends paid on the underlying shares based on the Fair Market Value
         of the Common Stock or Kennametal Capital Stock, as the case may be, on
         that date.

                  (b) Stock Dividends--In the event that a stock dividend shall
         be paid upon the stock underlying the Stock Credit Account, the number
         of Stock Credits in the Non-Employee Director's applicable Stock Credit
         account shall be adjusted by adding thereto additional Stock Credits
         equal to the number of shares of the underlying stock which would have
         been distributable on such stock represented by Stock Credits if such
         shares had been outstanding on the date fixed for determining the
         stockholders entitled to receive such stock dividend.

                  (c) Other Adjustments--In the event that the outstanding
         shares of Common Stock or Capital Stock of Kennametal, as the case may
         be, shall be changed into or

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         exchanged for a different number or kind of shares of stock or
         other securities whether through reorganization, recapitalization,
         stock split-up, combination of shares, merger or consolidation, then
         there shall be substituted, for the shares of stock underlying the
         Stock Credits, the number and kind of shares of stock or other
         securities which would have been substituted therefor if the underlying
         shares had been outstanding on the date fixed for determining the
         stockholders entitled to receive such changed or substituted stock or
         other securities.

                   In the event there shall be any change, other than specified
in this Section 2.4, in the number or kind of outstanding shares of stock
underlying the Stock Credits or of any stock or other securities into which such
underlying Common Stock shall be changed or for which it shall have been
exchanged, then, if the Board of Directors shall determine, in its discretion,
that such change equitably requires an adjustment in the number of Stock
Credits, such adjustment shall be made by the Board of Directors and shall be
effective and binding for all purposes of the Plan and on each outstanding Stock
Credit account.

         SECTION 2.5. CHANGE IN CONTROL. In the event of any threatened or
actual change in control of the Company (as defined by the Committee), the value
of the Stock Credits in each Non-Employee Director's Stock Credit account shall
be paid to such Non-Employee Director in cash.

         SECTION 2.6. DISTRIBUTION OF COMPANY STOCK CREDITS. Unless a
Non-Employee Director has selected a different payment option as set forth
below, as soon as practicable following the date that such Non-Employee Director
ceases (other than by reason of such Non-Employee Director's death) to be a
Non-Employee Director (hereinafter, "retirement"), the Company shall pay the
Non-Employee director a cash amount equal to the value of the Company Stock
Credits in such Director's account. A Non-Employee Director may elect to receive
the cash payment for the Company Stock Credits in such Non-Employee Director's
Company Stock Credit account in monthly or annual installments beginning after
retirement from the Board by written notification to the Company of such elected
payment option and may modify any such election by a subsequent written
notification to the Company; provided, however, that the Company shall be
required to effect any such written notification only if submitted to the
Company no fewer than twelve months prior to such Non-Employee Director's
retirement from the Board.

         SECTION 2.7. DISTRIBUTION OF KENNAMETAL STOCK CREDITS. Unless a
Non-Employee Director has selected a different payment option as set forth
below, as soon as practicable following the retirement of such Non-Employee
Director, the Company shall deliver to such Non-Employee Director or cause
Kennametal to issue pursuant to the Kennametal Directors Stock Incentive Plan
that number of shares of Capital Stock of Kennametal equal to the Fair Market
Value of shares of Capital Stock of Kennametal underlying the Kennametal Stock
Credits in such Non-Employee Director's Kennametal Stock Credit account as of
the date of retirement with any fractional shares being paid in cash. A
Non-Employee Director may elect to receive the Common Stock represented by the
Kennametal Stock Credits in such Non-Employee Director's Kennametal Stock Credit
account in monthly or

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annual installments beginning after retirement from the Board by written
notification to the Company of such elected payment option and may modify any
such election by a subsequent written notification to the Company; provided,
however, that the Company shall be required to effect any such written
notification only if submitted to the Company no fewer than twelve months prior
to such Non-Employee Director's retirement from the Board. Notwithstanding the
foregoing, the Committee, in its sole discretion, shall have the right to pay a
Non-Employee Director a cash amount equal to the value of Kennametal Stock
Credits, in lieu of delivering Kennametal Capital Stock.

         SECTION 2.8. DISTRIBUTIONS ON DEATH. In the event of the death of a
Non-Employee Director, whether before or after cessation of service as a
Non-Employee Director, the Stock Credit account to which he or she was entitled
shall be converted to cash and distributed in a lump sum to such person or
persons or the survivors thereof, including corporations, unincorporated
associates or trusts, as the Non-Employee Director may have designated. All such
designations shall be made in writing, signed by the Non-Employee Director and
delivered to the Company. A Non-Employee Director may from time to time revoke
or change any such designation by written notice to the Company. If there is no
unrevoked designation on file with the Company at the time of the Non-Employee
Director's death, or if the person or persons designated therein shall have all
predeceased the Non-Employee Director or otherwise ceased to exist, such
distributions shall be made to the Non-Employee Director's estate. Any
distribution under this Section 2.8 shall be made as soon as practicable
following notification to the Company of the Non-Employee Director's death. In
any case in which the Non-Employee Director's Stock Credit account is to be
converted to cash pursuant to this Section 2.8, such cash amount shall be
determined by multiplying the number of whole and fractional shares of Common
Stock or Kennametal Capital Stock, as the case may be, to which the Non-Employee
Director's Stock Credit account is equivalent by the Fair Market Value of the
shares underlying such account on the date of death.

         SECTION 2.9. CONVERSION OF DEFERRED COMPENSATION TO STOCK CREDITS. The
Committee may, in its discretion, permit a Non-Employee Director to convert
Deferred Compensation already credited to such Non-Employee Director's cash
account to Stock Credits (a "Conversion Election"). Any such election and the
related conversion shall occur only during specified periods designated by the
Committee and shall become effective on the date such election is delivered to
the Company. If a Non-Employee Director makes a Conversion Election, such
Non-Employee Director's Stock Credit account will be credited with that number
of Stock Credits equal to the number of shares of Common Stock or Kennametal
Capital Stock, as the case may be, underlying the Stock Credit Account
(including fractions of a share to four decimal places) that could have been
purchased with the amount of Deferred Compensation subject to the Conversion
Election based on the Fair Market Value of the underlying stock on the day that
the Conversion Election is made.

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                                   ARTICLE III
                            MISCELLANEOUS PROVISIONS

         SECTION 3.1. AMENDMENT AND DISCONTINUANCE. The Board of Directors may
alter, amend, suspend or discontinue the Plan, provided that no such action
shall deprive any person without such person's consent of any rights theretofore
granted pursuant hereto. The Board of Directors may, in its discretion, submit
any proposed amendment to the Plan to the stockholders of the Company for
approval and shall submit proposed amendments to the Plan to the stockholders of
the Company for approval if such approval is required in order for the Plan to
comply with Rule 16b-3 of the Exchange Act (or any successor rule).

         SECTION 3.2. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant to
the Plan, the Company shall not be required to issue any shares hereunder prior
to registration of the shares subject to the Plan under the Securities Act of
1933 or the Exchange Act, if such registration shall be necessary, or before
compliance by the Company or any participant with any other provisions of either
of those acts or of regulations or rulings of the Securities and Exchange
Commission thereunder, or before compliance with other federal and state laws
and regulations and rulings thereunder, including the rules of the New York
Stock Exchange, Inc. The Company shall use its best efforts to effect such
registrations and to comply with such laws, regulations and rulings forthwith
upon advice by its counsel that any such registration or compliance is
necessary.

         SECTION 3.3. COMPLIANCE WITH SECTION 16. With respect to persons
subject to Section 16 of the Exchange Act in relation to the Company,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 (or its successor rule). To the extent that any
provision of the Plan or any action by the Board of Directors or the Committee
fails to so comply, it shall be deemed null and void to the extent permitted by
law and to the extent deemed advisable by the Committee.

         SECTION 3.4. NON-ALIENATION OF BENEFITS. No right or interest of a
Non-Employee Director in a Stock Credit account under the Plan may be sold,
assigned, transferred, pledged, encumbered or otherwise disposed of except as
expressly provided in the Plan; and no interest or benefit of any Non-Employee
Director under the Plan shall be subject to the claims of creditors of the
Non-Employee Director.

         SECTION 3.5. WITHHOLDING TAXES. To the extent required by applicable
law or regulation, each Non-Employee Director must arrange with the Company for
the payment of any federal, state or local income or other tax applicable to the
receipt of stock or Stock Credits under the Plan before the Company shall be
required to deliver payment to the Non-Employee Director.

         SECTION 3.6. FUNDING. Except as provided in Section 2.5 hereof, no
obligation of the Company under the Plan shall be secured by any specific assets
of the Company, nor shall any assets of the Company be designated as
attributable or allocated to the satisfaction of any such obligation. To the
extent that any person acquires a right to receive payments from the Company

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under the Plan, such right shall be no greater than the right of any unsecured
creditor of the Company.

         SECTION 3.7. GOVERNING LAW. The Plan shall be governed by and construed
and interpreted in accordance with the internal laws of the Commonwealth of
Pennsylvania.

         SECTION 3.8. EFFECTIVE DATE OF PLAN. The Plan became effective upon
approval and adoption of the Plan by the Board of Directors of the Company as of
July 1, 1997.

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                                                                    EXHIBIT 10.1

                        STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                          KEY EMPLOYEE PROTECTION PLAN

                             PRELIMINARY STATEMENTS

         Sterling Chemicals Holdings, Inc. ("Holdings") and Sterling Chemicals,
Inc. ("Chemicals") are Delaware corporations. The Board of Directors of Holdings
(the "Holdings Board") and the Board of Directors of Chemicals (the "Chemicals
Board") have duly adopted this Plan, effective as of January 1, 2000 (the
"Effective Date").

                                    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
plus (ii) the Targeted Bonus, if any, of such Participant in effect immediately
prior to the date on which the applicable Change of Control occurs.

         "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.

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         "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) or (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).

         "Chemicals" has the meaning specified in the Preliminary Statements.

         "Chemicals Board" has the meaning specified in the Preliminary
Statements.

         "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.

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         "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.

         "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 at the time of or after a Change of Control and while such Participant is
employed by Holdings or any Subsidiary and then only if it is not consented to
by such Participant in writing:

                  (a) 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 date on which the Change of Control occurs, 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 the date on which
         the Change of Control occurs but excluding any such change that occurs
         in connection with such Participant's death, disability or retirement;

                  (b) 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 date on which the Change of Control occurs;

                  (c) a material reduction by the Company in such Participant's
         total compensation in effect immediately prior to the date on which the
         Change of Control occurs or as such compensation may thereafter be
         increased from time to time;

                  (d) the failure of the Company to continue such Participant's
         eligibility for participation in Benefit Plans 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 date on which the Change of
         Control occurs;

                  (e) the failure of the Company to maintain Benefit Plans
         entitling such Participant to benefits that, in the aggregate, are at
         least as favorable to such Participant as those available to such
         Participant immediately prior to the date on which the Change of
         Control occurs;

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                  (f) 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 date on
         which the Change of Control occurs;

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

                  (h) 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 (a)
through (c) 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 (a) through (h) 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 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 (i) when used with reference to any Participant for
purposes of Section 2.02, his or her salary classification by the Company
immediately prior to the date on which a Change of Control occurs and (ii) when
used with reference to any Participant for purposes of Section 2.03, his or her
salary classification by the Company on the relevant Termination Date.

         "Holdings" has the meaning specified in the Preliminary Statements.

         "Holdings Board" has the meaning specified in the Preliminary
Statements.

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         "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;

                  (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.

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         "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
Restate Salaried Employees' Pension Plan (effective as of May 1, 1996) or any
successor plan.

         "Plan" shall mean this 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.

         "Targeted Bonus" shall mean, when used with reference to any
Participant at any time, the amount determined by multiplying the annual base
salary of such Participant in effect immediately prior to the applicable Change
of Control times such Participant's Target Bonus Percentage, if any, in effect
immediately prior to the date on which such Change of Control occurs under the
Company's bonus plan for salaried employees.

         "Termination Date" shall mean the termination date specified in a
Termination Notice delivered in accordance with Article III.

         "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.

                                      -6-
<PAGE>   7

                                   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 (acting upon the recommendation of the
Chairman and the CEO) 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.

         (c) In the event the Compensation Committee 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 Compensation Committee 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. 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.

                                      -7-
<PAGE>   8

         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, within two years after the date on which such Change in Control
occurs, either such 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:

                  (i) the Company shall pay to such Participant, within 30 days
         after the Termination Date, 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 the Change of Control
         occurs; and

                  (ii) for a period of 24 months (including 18 months of COBRA
         coverage) following the Termination Date, 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 while such Participant was employed by the Company.

         Section 2.03. Description of Benefits Triggered by Termination Without
a Change of Control. (a) The Compensation Committee shall be authorized, in its
discretion, to confer the benefits described in paragraph (b) below upon one or
more Participants who are Grade S23 or higher. As used in paragraph (b) below,
"Senior Executive Participants" means those Participants, if any, who are Grade
23 or higher and upon whom the Compensation Committee shall have conferred the
benefits provided by paragraph (b) below; provided, however, that each Senior
Executive Participant who ceases to be a Participant in accordance with Section
2.01(c) shall thereupon also cease to be a Senior Executive Participant.

                                      -8-
<PAGE>   9

         (b) If, under circumstances where Section 2.02 is inapplicable, any
Senior Executive Participant terminates his or her employment for Good Reason in
accordance with Section 3.01 or the Company terminates such Senior Executive
Participant's employment for any reason other than a termination for Misconduct
or Disability in accordance with Section 3.02, then such Senior Executive
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 Senior Executive Participant under this
Section 2.03, the Applicable Multiplier of such Senior Executive 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.

         (b) Anything in this Plan to the contrary notwithstanding, in the event
any Participant becomes entitled to receive a Severance Amount and if such
Participant shall also be entitled to receive any lump-sum separation or
severance pay under any Benefit Plan (other than this Plan) or any agreement
between such Participant and the Company, then such Severance Amount shall be
reduced by the amount of such lump-sum separation or severance pay.

         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

                                      -9-
<PAGE>   10

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 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.

                                      -10-
<PAGE>   11

                                   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 60 days of the effective
date of the Dispute Notice shall 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 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.

                                      -11-
<PAGE>   12

         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, or binding upon, any
person who at the time is a Participant if such termination or such Material
Amendment 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.

         (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. 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.

                                      -12-
<PAGE>   13

         (f) As used in this Section 5.03, "Holdings Board" shall include the
board of directors of any successor to Holdings and "Chemicals Board" shall
include the board of directors of any successor to Chemicals.

         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.

         (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.

                                      -13-
<PAGE>   14

         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. 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 5.09. 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 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 5.10. 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 5.11. 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.

                                      -14-
<PAGE>   15

         Section 5.12. 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:
             ------------------------

                                      -16-

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